<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GCR HOLDINGS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
THE CAYMAN ISLANDS 6719 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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SOFIA HOUSE
48 CHURCH STREET
HAMILTON HM 12, BERMUDA
(441) 292-9415
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 246-5070
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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copies to:
<TABLE>
<S> <C>
DAVID B. HARMS, ESQ. LOIS HERZECA, ESQ.
Sullivan & Cromwell Fried, Frank, Harris, Shriver & Jacobson
125 Broad Street One New York Plaza
New York, New York 10004 New York, New York 10004
(212) 558-4000 (212) 859-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE(3)
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Ordinary Shares, par value $0.10 per share(3)........................ $85,000,000 $29,311
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</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely
for the purposes of calculating the registration fee.
(2) Includes approximately (i) $73,913,000 aggregate offering price of Ordinary
Shares to be initially offered for sale in the offering described herein and
(ii) $11,087,000 aggregate offering price of Ordinary Shares that the
Underwriters have the option to purchase to cover over-allotments, if any,
in connection with the offering. An indeterminate amount of Ordinary Shares
is being registered for resale by a dealer in connection with market-making
transactions. See "Explanatory Note."
(3) Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
contained in this Registration Statement may also be used in connection with
offers and sales of an indeterminate amount of Ordinary Shares that were
previously registered for resales by a dealer in connection with
market-making transactions, pursuant to a separate registration statement
(No. 33-97736) that became effective on December 18, 1995. Because a
registration fee of $49,916 covering such shares was paid previously, no
additional registration fee is being paid herewith in respect of such
shares. See "Explanatory Note."
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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 THIS 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> 2
GCR HOLDINGS LIMITED
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER PROSPECTUS SECTION
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<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front and Outside Back Cover Pages;
Prospectus Summary
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed
Charges............................ Outside Front Cover Page; Prospectus Summary;
Risk Factors; Business
4. Use of Proceeds...................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price...... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution............................. *
7. Selling Security Holders............. Outside Front Cover Page; Principal and Selling
Shareholders; Shares Eligible for Future Sale
8. Plan of Distribution................. Underwriting
9. Description of Securities to Be
Registered......................... Outside Front Cover Page; Prospectus Summary;
Description of Capital Shares
10. Interests of Named Experts and
Counsel............................ *
11. Information with Respect to the
Registrant......................... Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Price Range of
Ordinary Shares; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business;
Management; Principal and Selling
Shareholders; Certain Relationships and
Related Party Transactions; Description of
Capital Shares; Shares Eligible for Future
Sale; Certain Tax Considerations; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ *
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* Not applicable.
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement covers the registration of $85,000,000
aggregate offering price of Ordinary Shares of GCR Holdings Limited (the
"Company") for sale in a public offering (the "Offering"). This Registration
Statement also covers the registration of an indeterminate number of Ordinary
Shares for resale by Goldman, Sachs & Co. in connection with market-making
transactions. The complete prospectus relating to the Offering (the
"Prospectus") follows immediately after this Explanatory Note. Following the
Prospectus are certain pages of the prospectus relating solely to such
market-making transactions (together with the remainder of the Prospectus as
modified as indicated below, the "Market-Making Prospectus"), including
alternate front and back cover pages, a section entitled "Principal
Shareholders" and a section entitled "Plan of Distribution." The Market-Making
Prospectus will not include the stabilization legend, which will be deleted from
the inside front cover page, or the sections entitled "Principal and Selling
Shareholders" and "Underwriting." All other sections of the Prospectus are to be
used in the Market-Making Prospectus.
The Cross Reference Sheet refers to items in the Prospectus. The
Market-Making Prospectus incorporates the Prospectus in its entirety, except for
the following items of Form S-1, which are replaced in their entirety in the
Market-Making Prospectus:
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<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING CAPTION IN MARKET-MAKING PROSPECTUS
---------------------------------------- ---------------------------------------------
<C> <S> <C>
4. Use of Proceeds......................... "Wrap-around" cover page of Market-Making
Prospectus
7. Selling Security Holders................ Not applicable
8. Plan of Distribution.................... "Wrap-around" cover page of Market-Making
Prospectus; Plan of Distribution
</TABLE>
Pursuant to Rule 429 under the Securities Act of 1933, the Market-Making
Prospectus may also be used in connection with offers and sales of an
indeterminate number of Ordinary Shares that were previously registered for
resale by Goldman, Sachs & Co. in connection with market-making transactions.
Such shares were registered under a separate registration statement (No.
33-97736), which became effective on December 18, 1995 in connection with the
Company's initial public offering.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 21, 1996
SHARES
LOGO GCR HOLDINGS LIMITED
ORDINARY SHARES
(par value $0.10 per share)
------------------------
All the Ordinary Shares offered are being sold by the Selling Shareholders.
See "Principal and Selling Shareholders." The Company will not receive any of
the proceeds from the sale of the Ordinary Shares. One million of the Ordinary
Shares offered will be repurchased in the Offering by the Company's operating
subsidiary, at the initial public offering price net of the underwriting
discount. See "Prospectus Summary -- The Offering and the GCR Repurchase."
SEE "RISK FACTORS" ON PAGES 13 THROUGH 23 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE ORDINARY SHARES.
The last reported sale price of the Ordinary Shares, which are quoted under
the symbol "GCREF," on the Nasdaq National Market on May 20, 1996 was $26.00 per
share. See "Price Range of Ordinary Shares."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL
PUBLIC
OFFERING UNDERWRITING PROCEEDS TO SELLING
PRICE DISCOUNT(1) SHAREHOLDERS(2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)(4)................................ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933.
(2) The Company will pay certain expenses related to the offering estimated at
approximately $ million.
(3) Certain Selling Shareholders have granted the Underwriters an option for 30
days to purchase up to an additional Ordinary Shares at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. If such option is exercised in full, the
total initial public offering price, underwriting discount and proceeds to
Selling Shareholders will be $ , $ and $ ,
respectively. See "Underwriting."
(4) The information set forth in this table does not include the 1,000,000
Ordinary Shares to be repurchased by the Company's operating subsidiary
from the Underwriters, at the initial public offering price net of the
underwriting discount. The proceeds to Selling Shareholders from these
shares will be $ . See "Prospectus Summary -- The Offering and the
GCR Repurchase."
------------------------
The Ordinary Shares offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that certificates for the shares will be ready for delivery in New York, New
York, on or about , 1996, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN & CO.
SMITH BARNEY INC.
------------------------
The date of this Prospectus is , 1996.
<PAGE> 5
ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES LAWS
The Company is a Cayman Islands corporation, and certain of its officers
and directors are residents of various jurisdictions outside the United States.
All or a substantial portion of the assets of the Company and of such officers
and directors, at any one time, are or may be located in jurisdictions outside
the United States. (In particular, Global Capital Reinsurance Limited, the
Company's sole subsidiary, through which the Company conducts all its
operations, is a Bermuda corporation.) Therefore, it ordinarily could be
difficult for investors to effect service of process within the United States on
the Company or any of these officers and directors who reside outside the United
States or to recover against the Company or any such individuals on judgments of
courts in the United States, including judgments predicated upon civil liability
under the U.S. federal securities laws. Notwithstanding the foregoing, the
Company has irrevocably agreed that it may be served with process with respect
to actions based on offers and sales of shares made hereby in the United States
by serving CT Corporation System, 1633 Broadway, New York, New York 10019, its
United States agent appointed for that purpose. The Company has been advised by
Maples and Calder, its Cayman Islands counsel, that (i) in practice the courts
of the Cayman Islands are unlikely to enforce judgments of courts in the United
States obtained in actions against the Company or such individuals, including
judgments predicated upon civil liability under the U.S. federal securities
laws, and (ii) there is doubt as to whether the courts of the Cayman Islands
would enforce original actions brought in the Cayman Islands against the Company
or such individuals predicated solely upon laws of U.S. jurisdictions, including
those predicated upon the U.S. federal securities laws. Similarly, the Company
has been advised by Appleby, Spurling & Kempe, its Bermuda counsel, that
enforcement of any such judgments in Bermuda would require the commencement of a
separate action in the Bermuda courts. There is no treaty in effect between the
United States and the Cayman Islands (or Bermuda) providing for such
enforcement, and there are grounds upon which Cayman Islands courts (and Bermuda
courts) may not enforce judgments of courts in the United States. Certain
remedies available under the laws of U.S. jurisdictions, including certain
remedies available under the U.S. federal securities laws, would not be allowed
in Cayman Islands courts (or Bermuda courts) as contrary to that nation's public
policy.
------------------------
FOR NORTH CAROLINA PURCHASERS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA, NOR
HAS THE COMMISSIONER RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
BUYERS IN NORTH CAROLINA SHOULD UNDERSTAND THAT NEITHER THE COMPANY NOR ITS
SUBSIDIARY IS 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.
------------------------
Except as expressly provided in the Underwriting Agreement, no shares may
be offered or sold in the Cayman Islands or Bermuda (although offers may be made
to persons in Bermuda from outside Bermuda) and offers may be accepted from
persons resident in Bermuda, for Bermuda exchange control purposes, only where
such offers have been delivered outside of Bermuda. Persons resident in Bermuda,
for Bermuda exchange control purposes, may require the prior approval of the
Bermuda Monetary Authority in order to acquire any Ordinary Shares.
------------------------
In this Prospectus, monetary amounts are expressed in United States dollars
and the financial statements contained herein have been prepared in accordance
with United States generally accepted accounting principles. The Ordinary
Shares, par value $0.10 per share, of the Company are also sometimes referred to
herein as "shares."
References herein to the "Securities Act" mean the U.S. Securities Act of
1933 and to the "Exchange Act" mean the U.S. Securities Exchange Act of 1934.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE ORDINARY SHARES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN
PASSIVE MARKET-MAKING TRANSACTIONS IN THE ORDINARY SHARES ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE ACT. SEE
"UNDERWRITING."
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<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
included elsewhere in this Prospectus. Unless the context otherwise requires,
references herein to the "Company" mean GCR Holdings Limited, a Cayman Islands
company, and references herein to "GCR" mean the Company together with its
wholly owned subsidiary, Global Capital Reinsurance Limited, a Bermuda
corporation ("Global Capital Re") through which the Company conducts all its
operations. References herein to any fiscal year are to the Company's fiscal
year ending on September 30 of the year specified. All monetary amounts herein
are stated in United States dollars unless otherwise specified. See "Glossary of
Selected Insurance Terms" for definitions of certain terms used in this
Prospectus; such terms are printed in boldface the first time they appear in the
text below. An investment in the Ordinary Shares offered hereby involves
significant risks. See "Risk Factors."
In December 1995, the Company effected a five-for-one split of the Ordinary
Shares in the form of a share dividend (the "Share Split"). Unless the context
otherwise requires, all information in this Prospectus gives effect to the Share
Split. See note (1) to the financial statements. Unless the context otherwise
requires, this Prospectus also assumes that the Underwriters' over-allotment
option is not exercised.
The Company has invited certain of its shareholders to participate in the
Offering as Selling Shareholders. Because participations have not yet been
determined, the information in this Prospectus regarding the Selling
Shareholders and share ownership before and after the Offering and the GCR
Repurchase (as defined below) is subject to change prior to the pricing of the
Offering. See "Principal and Selling Shareholders."
THE COMPANY
The Company, through Global Capital Re, its Bermuda-domiciled subsidiary,
provides property catastrophe and other short-TAIL property REINSURANCE on a
worldwide basis. In the first six months of fiscal year 1996, approximately 66%
of this reinsurance covered property catastrophe risks, of which 96% was written
on an EXCESS-OF-LOSS basis. Substantially all reinsurance written by Global
Capital Re was written for primary insurers rather than reinsurers. Global
Capital Re had 233 clients on March 31, 1996, including many of the leading
insurance companies around the world. At that date, approximately 55% of Global
Capital Re's clients were based in the United States and approximately 55% of
its PREMIUMS WRITTEN on policies in force related to U.S. risks. The balance of
Global Capital Re's clients and covered risks were located in the largest
international insurance markets, principally in Europe, Japan and Australia/New
Zealand.
GCR was established in 1993 through the sponsorship of Goldman, Sachs &
Co., a leading international investment banking firm, and Johnson & Higgins, a
leading global provider of insurance and reinsurance brokerage services. These
firms, together with their affiliates, own approximately 17.2% and 6.4%,
respectively, of the Ordinary Shares and, upon completion of the Offering and
the GCR Repurchase, will own approximately % and %, respectively, of
the Ordinary Shares (in each case calculated on the basis set forth in the notes
to "Principal and Selling Shareholders"). See "Certain Relationships and Related
Party Transactions." GCR was formed in response to a severe imbalance between
the global supply of and demand for property catastrophe reinsurance that
developed in 1993. This imbalance resulted from relatively high levels of
worldwide property catastrophe losses in prior years, particularly 1992 when
Hurricane Andrew occurred, causing some reinsurers to withdraw from the market
or curtail their participation and leading to a very substantial increase in
premium rates and RETENTION levels throughout this market in 1993. Based on
industry trade publications and information obtained from clients and brokers,
management believes that over $4.0 billion of capital has entered the
Bermuda-based property catastrophe
3
<PAGE> 7
reinsurance market since November 1992 in response to these developments. See
"-- Industry Trends." GCR began operations in October of 1993.
GCR's principal operating objective is to UNDERWRITE property catastrophe
risks in a manner that maximizes shareholder return on equity. Its underwriting
strategy is based on two main principles. First, in selecting its reinsurance
programs, GCR targets clients with reputations for quality underwriting and
risks that GCR's analysis indicates have superior risk/return profiles. Also, by
limiting itself largely to writing reinsurance directly for its insurance
company clients and limiting the amount of coverage it is willing to write on a
RETROCESSIONAL basis, GCR is able to access more information regarding
underlying risks and therefore evaluate the quality of the primary underwriting
more effectively. As a result of this selective approach, during fiscal year
1995 and the first six months of fiscal year 1996, respectively, GCR offered
capacity for only 15% and 13% of the new reinsurance programs submitted for its
review (i.e., excluding renewals of existing programs). During these periods,
GCR underwrote 105 and 37 programs, respectively, for new clients. The number of
new programs written in fiscal year 1995 reflects the start-up nature of GCR's
business during that period. In addition, the number of new programs written
during the first half of the current fiscal year reflects the fact that contract
renewals are concentrated in the first calendar quarter of each year, so that
the number of new programs as well as premiums written in the first half are
likely to exceed those written in the second half of the current fiscal year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Second, in managing its portfolio of reinsurance contracts, GCR seeks to
limit its aggregate loss exposure in any one geographic zone to a specified
level rather than measuring and managing risk in relation to premium volume. As
a result, GCR intends to pursue new business opportunities in markets where
geographic concentration of risk is relatively low, and not necessarily where
premium volume growth would be fastest. GCR believes that this approach should
lead to an improved balance of risk worldwide, which should moderate the effects
of catastrophic events as compared to a book of business accumulated without
regard to geographic zone limits. Some of GCR's competitors may follow a similar
strategy. GCR believes that this approach not only enhances risk management but,
as evidenced by its success in establishing relationships with targeted clients,
is highly attractive to "blue chip" insurance companies, which tend to regard
capital strength and underwriting reputation as primary factors in selecting a
reinsurer, and thus greatly enhances GCR's ability to establish and develop
long-term relationships with preferred clients.
Given the industry practice of generally offering renewal opportunities to
existing reinsurers, (i.e., the tendency of client companies to prefer a
long-term relationship with well capitalized reinsurers to achieve security and
continuity of coverage in and subsequent to periods of significant loss
experience), GCR believes that its existing reinsurance portfolio is a valuable
asset and a competitive advantage in retaining existing business as it comes up
for renewal. This practice was a significant factor in GCR's ability to retain,
in fiscal year 1995 and the first six months of fiscal year 1996, respectively,
99% and 98% of the programs written in the prior fiscal year or period on which
it offered capacity. Approximately 66% and 83% of the reinsurance programs
underwritten by GCR during these periods, respectively, represented renewals of
programs underwritten in the prior fiscal year.
To implement its underwriting strategy, GCR, in addition to using
geographic zone limits, imposes aggregate loss-per-event limits on almost all
its reinsurance contracts. GCR also writes most of its coverage on an
excess-of-loss basis, with ATTACHMENT POINTS designed to minimize claims from
relatively high frequency, low severity events, and a relatively small portion
of coverages are written on a PROPORTIONAL basis, whereby the reinsurer assumes
a specified percentage of the primary insurer's entire loss exposure to a
covered risk. In addition, for each reinsurance program it writes, GCR combines
proprietary and other computer modelling systems with the analysis and judgment
of its experienced underwriting team to assess the adequacy of the pricing terms
in the
4
<PAGE> 8
light of the associated risk and, ultimately, the potential effect of the
program on GCR's overall rate of return on capital and its aggregate loss
exposure.
In light of its principal operating objective, the Company adopted a policy
in December 1995 with regard to capital management and payment of dividends.
Under this policy, the Company intends to target an average return on
shareholders' equity of approximately 20% to 25% over time and a dividend payout
that would total, in each fiscal year, approximately 60% to 80% of the Company's
net operating earnings (which exclude any realized investment gains and losses),
if any, in the prior fiscal year. As an important first step toward these goals,
the Company distributed approximately $201 million of its capital to
shareholders in August 1995 (the "1995 Distribution"). During the current fiscal
year to date and consistent with its dividend policy, the Company has declared
two quarterly dividends of $0.62 per share each, totalling $31.8 million. On an
annualized basis, these dividends represent a dividend payout of approximately
70% of the Company's net operating earnings for fiscal year 1995. As part of the
Company's continuing efforts to achieve its capital targets, Global Capital Re
will repurchase 1,000,000 of the Ordinary Shares being offered hereby, at the
initial public offering price net of the underwriting discount (the "GCR
Repurchase"). Assuming a net offering price of $25 per share, the GCR Repurchase
would reduce GCR's capital by $25 million, thereby further enhancing its ability
to pursue a return on equity within its current target range. GCR achieved a
return on average shareholders' equity of 25.0% during fiscal year 1995 on a pro
forma basis (after giving effect to the 1995 Distribution, the GCR Repurchase
and certain related events) and 25.0% during the first six months of fiscal year
1996 on a pro forma, annualized basis (after giving effect to the GCR Repurchase
and certain other events). See "-- Selected Pro Forma Financial Data." The
Company's ability to meet these capital and dividend targets in the future will
depend on various factors, some of which are beyond its control, and these
targets are subject to change at the discretion of the Board of Directors. See
"Risk Factors" and "Dividend Policy."
GCR markets its reinsurance products worldwide through non-exclusive
relationships with more than 40 reinsurance BROKERS. GCR deals with most of the
leading brokers active in the U.S. and non-U.S. markets for property catastrophe
reinsurance, including Guy Carpenter, which accounted for approximately 29% of
GCR's premiums written under contracts in force on March 31, 1996, and Willcox
Incorporated Reinsurance Intermediaries ("Willcox"), an affiliate of Johnson &
Higgins, which accounted for approximately 11% of such premiums. GCR focuses its
marketing efforts primarily on developing long-term relationships with existing
clients and intends to pursue new business opportunities mainly in the principal
reinsurance markets outside the United States. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Marketing."
As indicated above, GCR's business is focused principally on the property
catastrophe reinsurance market. However, GCR continues to explore opportunities
to build or acquire new lines of business throughout the world. Management's
objective is to identify new lines that are compatible with GCR's property
catastrophe lines, that do not increase the concentration of GCR's exposure to
catastrophe events and that will contribute to shareholder value. To date, these
efforts have focused on expanding GCR's portfolio of marine reinsurance
business, which represents a growing portion of GCR's premiums written. The
Company is also exploring possible opportunities in marine insurance. There can
be no assurance that new opportunities will be identified or as to the effect
that any new lines might have on GCR. See "Business -- Reinsurance Products."
INDUSTRY TRENDS
Based on industry trade publications, underwriting submissions and meetings
with clients and brokers, management believes that the relatively high level of
worldwide property catastrophe losses from 1987 to 1993 had a significant effect
on the results of property insurers and property
5
<PAGE> 9
catastrophe reinsurers and on the property catastrophe reinsurance market,
causing some reinsurers to withdraw from the market or reduce their underwriting
commitment while also causing a substantial increase in market demand. In
particular, Hurricane Andrew in 1992 caused unprecedented insured claims, in
excess of $16 billion industry-wide as estimated by the American Insurance
Services Group, and caused many insurers and property catastrophe reinsurers to
reassess their assumptions concerning their maximum potential catastrophe
exposure and their need for reinsurance. The demand for property catastrophe
reinsurance also increased due to greater scrutiny by rating agencies of
insurers and reinsurers with respect to their catastrophe exposure.
Based on these sources, management believes that these developments created
a severe imbalance between the supply of and demand for property catastrophe
reinsurance, which in turn caused premium rates to more than double and
retentions (i.e., the portions of risk exposure retained by ceding insurers) to
rise very substantially in 1993. In response to this imbalance, management
believes, over $4.0 billion of capital entered the Bermuda-based property
catastrophe reinsurance market since November 1992, making Bermuda a leading
global source of this reinsurance. Industry analysts estimate that the Bermuda
market currently writes about 25% of worldwide property catastrophe reinsurance
premiums. This capital flow has helped to balance supply and demand in recent
years, and this improved balance led to a stabilization in worldwide premium
rates and retentions in 1994 compared to 1993.
Based on these sources, management believes that premium rates in the
global property catastrophe reinsurance market decreased by an average of 10% to
15% in 1995 compared to 1994 and in the first quarter of 1996 compared to the
same period last year, as a result of favorable loss experience. If and while
this favorable loss experience continues, management expects further downward
pressure on rates during the remainder of 1996 and into 1997. In the U.S.
market, where the level of property catastrophe losses has generally been higher
than in international markets in recent years, rates have decreased but still
remain at a higher level than those which prevailed in 1992. Moreover, the
levels of catastrophe risk exposure that U.S. ceding insurers are generally
prepared to retain continue to be substantially higher than in 1992. Higher
retentions tend to reduce GCR's exposure to losses from catastrophic events of
relatively higher frequency and lower severity.
For a discussion of the impact that these trends have had on GCR's recent
results of operations, see "-- Recent Developments."
RECENT DEVELOPMENTS
The recent decline in worldwide premium rates in the property catastrophe
reinsurance market, which resulted from favorable loss experience, adversely
affected the level of premiums written by GCR in the January 1996 renewal
season. In furtherance of its underwriting principle of targeting reinsurance
programs with superior risk/return profiles, GCR declined to offer coverage on a
substantial number of new programs, as well as on a number of renewal programs,
submitted for its review with proposed pricing terms that management considered
inadequate. Due primarily to these underwriting decisions, and secondarily to
the generally lower rates applicable to programs that were written, the level of
premiums written by GCR in the first six months of fiscal year 1996 was 6.6%
lower than in the same period last year. Management expects this trend to
continue during the second half of fiscal year 1996, with the level of premiums
written decreasing during the second half compared to the same period last year.
The amount of the decrease from the prior year period may be greater in the
second half than in the first six months of the current fiscal year because, due
to industry renewal practice, a larger portion of the reinsurance programs
written by GCR in the second half will involve international risks, for which
premium rates generally have declined further than those for domestic risks in
recent periods. In addition, premiums written in the second half of
6
<PAGE> 10
the current fiscal year are expected to be affected by a shift in renewal dates
for certain existing programs from the third to the fourth fiscal quarter. See
"-- Industry Trends."
Despite the decline in premiums written, GCR earned net income of $49.2
million during the first six months of fiscal year 1996, an increase of 14.7%
over the same period last year. These results are primarily attributable to
favorable loss experience during the period. GCR recorded losses and loss
expenses of $13.4 million during the first six months of fiscal year 1996,
compared to $17.2 million in the same period last year. GCR is subject to
infrequent but severe effects of natural and man-made catastrophes, which can
lead to volatile losses and financial results. See "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company believes that its current dividend and capital management
policies promote its strategic objectives, particularly in periods of declining
pricing. The Company also believes that its focus on returning capital to
shareholders through a high dividend payout allows the Company to maintain its
selective underwriting strategy and to forego writing programs with less
desirable risk/return profiles while still pursuing returns on equity in its
target range of 20% to 25%. See "Dividend Policy."
In December 1995, the Company completed an initial public offering of
7,618,750 Ordinary Shares (the "1995 IPO"). All of these shares were sold by
certain of the Company's original shareholders, and the Company did not receive
any of the sale proceeds.
In connection with the 1995 IPO, Goldman, Sachs & Co., Johnson & Higgins
and certain of their respective affiliates exercised warrants (the "Sponsors'
Warrants") to purchase 3,303,655 Ordinary Shares at an exercise price of $11.00
per share, or $36.3 million in total. The Sponsors' Warrants were granted in
connection with the formation of GCR in 1993. The exercise of the Sponsors'
Warrants has had a dilutive effect on the Ordinary Shares. See "-- Selected
Consolidated Financial Data."
In August 1995, the Company paid an extraordinary cash distribution
totaling $201 million, or $9.00 per Ordinary Share, to its shareholders. The
Company also entered into a three-year, $150 million revolving credit facility
with several commercial banks (as amended, the "Credit Agreement"), which it
used to fund most of this 1995 Distribution. All borrowings under this facility
have been repaid and the facility remains available to the Company for further
borrowing, subject to minimum net worth and other requirements thereunder. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- The Credit Agreement."
THE OFFERING AND THE GCR REPURCHASE
<TABLE>
<S> <C>
Ordinary Shares offered by the
Selling Shareholders............. Ordinary Shares
Ordinary Shares to be repurchased
by Global Capital Re............. 1,000,000 Ordinary Shares
Ordinary Shares offered to the
public........................... Ordinary Shares
Ordinary Shares to be outstanding
immediately after the
Offering*..................... 24,668,255 Ordinary Shares
</TABLE>
- ---------------
* Based upon Ordinary Shares outstanding at March 31, 1996, exclusive of up to
631,925 Ordinary Shares issuable upon the exercise of outstanding options held
by employees and directors. See "Management -- Provisions Governing the Board
of Directors -- Compensation of Directors" and "-- Executive Compensation --
Management Options." Does not include 1,000,000 Ordinary Shares which will be
held by Global Capital Re immediately after the Offering and the GCR
Repurchase and, for purposes of the Company's consolidated financial
statements, will be treated as if they have been retired. See below.
7
<PAGE> 11
<TABLE>
<S> <C>
GCR Repurchase..................... One million of the Ordinary Shares being offered will be
repurchased by Global Capital Re in the Offering, at the
initial public offering price net of the underwriting
discount shown on the cover page of this Prospectus.
Assuming a net purchase price of $25 per share, the
aggregate purchase price to be paid by Global Capital Re
in the GCR Repurchase would be $25 million, which would
be funded by the sale of a portion of Global Capital
Re's investment portfolio. The actual purchase price
will depend on the initial public offering price and
underwriting discount for the Offering and thus will not
be known until the Offering is priced. The closing for
the GCR Repurchase will occur simultaneously with the
closing for the Offering. All Ordinary Shares purchased
by Global Capital Re will carry the voting, dividend and
other rights associated with the Ordinary Shares, until
such time as the shares are transferred to the Company
and retired. However, for purposes of the Company's
consolidated financial statements after the Offering and
the GCR Repurchase, any shares held by Global Capital Re
would be treated as if they had been retired by the
Company. There is no assurance as to whether or when
shares held by Global Capital Re will be transferred to
the Company and retired.
Nasdaq National Market symbol...... GCREF
Use of proceeds.................... The Company will not receive any of the proceeds from
the sale of Ordinary Shares sold in the Offering. The
Company will pay certain fees and expenses related to
the Offering, including certain of those incurred by the
Selling Shareholders. See "Use of Proceeds" and
"Principal and Selling Shareholders."
Dividend policy.................... In December 1995, the Company adopted a policy with
regard to managing its return on equity and the payment
of dividends. Under this policy, the Company intends to
target an average return on shareholders' equity of
approximately 20% to 25% over time and, in light of that
target, to distribute a substantial portion of its
earnings each year. Currently, the Company's Board of
Directors has targeted a dividend payout that would
total, in each fiscal year, approximately 60% to 80% of
the Company's net operating earnings (which exclude any
realized investment gains and losses), if any, in the
prior fiscal year. Dividends would be paid on a
quarterly basis, in February, May, August and November
of each year. Based on its operating results for fiscal
year 1995, the Company paid an initial quarterly
dividend of $0.62 per share on February 27, 1996 and a
second quarterly dividend of $0.62 per share on May 15,
1996. These two quarterly dividends represent, on an
annualized basis, a dividend payout of approximately 70%
of GCR's net operating earnings for fiscal year 1995.
The actual timing and amount of future dividends (if
any), as well as the general targets referred to above,
will depend on various
</TABLE>
8
<PAGE> 12
<TABLE>
<S> <C>
factors as described in the following paragraph and are
subject to change at the discretion of the Board from
time to time.
In light of the Company's capital management policy, the
Board of Directors has approved the GCR Repurchase and
may also consider repurchasing outstanding Ordinary
Shares in the open market from time to time after the
Offering, either in lieu of or in addition to the
payment of dividends. Any such open market repurchases
would depend on market conditions, GCR's liquidity and
capital needs and other factors. At present, the Board
has not taken action to approve any such open market
repurchases and there is no assurance that any such
repurchases will be made.
Notwithstanding this policy, dividends will be paid only
when, as and if determined by the Company's Board of
Directors out of funds legally available therefor. The
actual amount and timing of dividends (if any) will
depend on GCR's results of operations and capital needs,
which in turn will depend on the level of losses
incurred, opportunities to expand the business, GCR's
competitive position and any other factors that the
Board may deem relevant. In particular, it is possible
that losses incurred in any period may require GCR to
retain its earnings and replenish its capital base over
an extended period of time, including in subsequent
periods when loss experience may be favorable. Dividend
payments also are subject to regulatory requirements and
restrictions under the Credit Agreement. See "Risk
Factors" and "Dividend Policy."
</TABLE>
RISK FACTORS
Prospective purchasers of the Ordinary Shares should consider carefully the
specific investment considerations set forth under "Risk Factors," as well as
the other information set forth in this Prospectus.
9
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of GCR
as of September 30, 1994 and 1995 and March 31, 1996, and for the fiscal years
ended September 30, 1994 and 1995 and the six months ended March 31, 1995 and
1996. GCR began operations in October 1993 and thus has no operating history
prior thereto. The historical consolidated financial data were derived from the
Company's audited consolidated financial statements for the fiscal years ended
September 30, 1994 and 1995 and from the Company's unaudited consolidated
interim financial statements for the six months ended March 31, 1995 and 1996.
In the opinion of management, the consolidated interim financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of results. The results of operations for any interim period
are not necessarily indicative of results for the full fiscal year.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER SIX MONTHS ENDED
30, MARCH 31,
---------------------- --------------------
1994 1995 1995 1996
STATEMENT OF INCOME DATA: --------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Premiums written................................ $ 102,065 $ 136,884 $ 79,290 $ 74,024
CHANGE IN UNEARNED PREMIUMS..................... (45,360) (16,328) (23,458) (10,520)
------ ------- -------
Premiums earned................................. 56,705 120,556 55,832 63,504
Investment income, net.......................... 20,095 32,651 15,222 15,944
Realized gains (losses) on investments, net..... (10,216) 391 (1,472) 1,140
Exchange gains (losses) net..................... 529 (20) 406 17
------ ------- -------
Total revenues.................................. 67,113 153,578 69,988 80,605
------ ------- -------
Losses and loss expenses........................ 25,278 35,293 17,193 13,394
Acquisition expenses............................ 6,743 17,063 6,743 9,380
Interest expense................................ -- 1,964 -- 3,563
General and administrative expenses............. 5,277 8,602 3,179 5,109
------ ------- -------
Total expenses.................................. 37,298 62,922 27,115 31,446
------ ------- -------
Net income...................................... $ 29,815 $ 90,656 $ 42,873 $ 49,159
====== ======= =======
Net income per Ordinary Share(1)(2)............. $ 1.32 $ 3.94 $ 1.88 $ 2.01
OTHER DATA:
Loss ratio(3)................................... 44.6% 29.3% 30.8% 21.1%
Expense ratio(4)................................ 18.6 18.6 16.5 20.3
------ ------- -------
COMBINED RATIO(5)............................... 63.2% 47.9% 47.3% 41.4%
====== ======= =======
Return on average shareholders' equity
(annualized for interim periods)(2)(6)........ 6.7% 19.2% 17.6% 24.6%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1994 1995 MARCH 31, 1996
BALANCE SHEET DATA: --------- --------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Total investments available for sale at fair
value, including cash and cash
equivalents(2)............................... $ 482,309 $ 526,812 $448,769
Total assets(2)................................ 534,014 597,641 534,488
Reserve for losses and LOSS EXPENSES........... 19,705 33,390 34,331
Reserve for unearned premiums.................. 45,360 61,688 72,208
Long-term debt (including current portion)..... -- 142,000 --
Total shareholders' equity(2).................. 468,067 356,397 426,238
Book value per Ordinary Share(2)(7)............ $ 20.76 $ 15.94 $ 16.61
</TABLE>
- ---------------
(1) Net income per Ordinary Share is based upon the weighted average number of
Ordinary Shares outstanding during the relevant period. For each period
presented, such number of shares assumes that all employee and director
options and Sponsors' Warrants outstanding during the period (or any portion
thereof) were exercised and that the proceeds of such exercise were used to
purchase outstanding shares pursuant to the treasury stock method,
calculated in each case using the average market value (book value prior to
December 19, 1995) per share for the period (or portion thereof). The
employee and director options are or may become exercisable over various
periods. See "Management." The Sponsors' Warrants were exercised in full on
December 22, 1995.
10
<PAGE> 14
(2) No effect is given to the GCR Repurchase, which, for purposes of GCR's
consolidated financial statements, will reduce the number of outstanding
shares by 1,000,000 and reduce total investments, total assets and
shareholders' equity by $25 million. In addition, in April 1996, the Board
of Directors declared a dividend on the Ordinary Shares totalling $15.9
million, or $0.62 per share, which was paid on May 15, 1996, and no effect
is given to this dividend.
(3) Determined by dividing losses and loss expenses incurred (including
estimates thereof for claims INCURRED BUT NOT REPORTED) by premiums earned
during the relevant period.
(4) Determined by dividing acquisition and certain administrative expenses
related to underwriting by premiums earned during the relevant period.
(5) Equals the sum of the loss ratio and the expense ratio for the relevant
period.
(6) Equals annualized net income divided by the average of shareholders' equity
on the first day and at the end of each quarter in the relevant period. For
each interim period, net income has been doubled in order to provide an
annualized rate of return. Consequently, the rate presented for any interim
period is not necessarily indicative of the actual rate for the full fiscal
year.
(7) Book value per Ordinary Share is based on the number of Ordinary Shares
outstanding on the relevant date.
11
<PAGE> 15
SELECTED PRO FORMA FINANCIAL DATA
The following table sets forth selected pro forma financial data of GCR as
of and for the fiscal year ended September 30, 1995 and as of and for the six
months ended March 31, 1995 and 1996. Such data have been calculated in the
manner described in "-- Selected Consolidated Financial Data" above, except that
effect is given to (i) the 1995 Distribution and borrowings under the Credit
Agreement (at an annual rate of 6.7%) to fund the 1995 Distribution, (ii) the
issuance of Ordinary Shares upon exercise of the Sponsors' Warrants and the use
of proceeds of such exercise to repay a portion of the borrowings under the
Credit Agreement and (iii) the repurchase of one million Ordinary Shares by GCR
at an aggregate purchase price of $25 million (which assumes a net purchase
price of $25 per share and will depend on the pricing terms of the Offering)
funded by a sale of investments, in each case as of the start of the relevant
period or at the relevant date, as the case may be. No effect is given to the
May 1996 dividend.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
YEAR ENDED ---------------------
SEPTEMBER 30, 1995 1995 1996
------------------ ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME AND OTHER DATA:
Pro forma net income............................ $ 79,576 $36,054 $48,292
Pro forma net income per Ordinary Share(1)...... 3.21 1.45 1.94
Pro forma return on average shareholders' equity
(annualized for interim periods).............. 25.0% 24.4% 25.0%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
SEPTEMBER 30, 1995 1995 1996
------------------ -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Pro forma total shareholders' equity.......... $356,657 $315,513 $400,371
Pro forma book value per Ordinary Share....... 14.46 12.74 16.23
</TABLE>
- ---------------
(1) Net income per Ordinary Share for the six months ended March 31, 1996 would
have been $2.01 if calculated in the manner described in "-- Selected
Consolidated Financial Data" and $2.07 if so calculated and after giving pro
forma effect only to the GCR Repurchase.
12
<PAGE> 16
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the Ordinary Shares offered hereby.
VOLATILITY OF FINANCIAL RESULTS AND DIVIDENDS; SEVERITY OF POSSIBLE LOSSES;
EFFECT OF DIVIDEND POLICY
Because GCR underwrites property catastrophe reinsurance and has large
aggregate exposures to natural and man-made disasters, management expects that
GCR's loss experience generally will involve infrequent events of great
severity. Consequently, the occurrence of losses from catastrophic events is
likely to result in substantial volatility in GCR's financial results, and
therefore in the timing and amount of dividends paid, if any, in any fiscal
quarter or year. In addition, because catastrophes are an inherent risk of GCR's
business, a major event or a series of events can be expected to occur from time
to time and to have a material adverse effect on GCR's financial condition,
results of operations or ability to pay dividends. Increases in the values and
concentrations of insured property and the effects of inflation have resulted in
increased severity of industry losses in recent years and GCR expects that those
factors will increase the severity of catastrophe losses per year in the future.
GCR also expects that its dividend policy could exacerbate the adverse effects
of unfavorable loss experience as GCR will have less capital available to
sustain losses than would be the case in the absence of such a policy. See
"Business -- Reinsurance Products."
GCR's property catastrophe reinsurance contracts cover unpredictable events
such as hurricanes, windstorms, hailstorms, earthquakes, fires, industrial
explosions, freezes, riots, floods and other natural or man-made disasters. GCR
endeavors to manage its loss exposure to catastrophic events by, among other
things, establishing underwriting guidelines designed to limit such exposure by
defined geographic zones, by ceding insurer and by event per policy. See
"Business -- Underwriting." Nonetheless, at times, catastrophic events can be
expected to result in claims substantially in excess of management's
expectations. Such claims could impair GCR's ability to write new business or
retain existing clients or to pay dividends, and could result in a default under
the Credit Agreement, which requires that the Company maintain a consolidated
net worth of at least $250 million (such net worth being approximately $426
million as of March 31, 1996, or approximately $385 million after payment of the
May 1996 dividend and the GCR Repurchase, assuming a net purchase price of $25
per share). Such a default would preclude the Company from borrowing under the
facility and, if the default occurred when any loans were outstanding under the
facility, would entitle the lenders to foreclose upon the shares of Global
Capital Re, which have been pledged to them as collateral.
The adverse effects of losses incurred on GCR's capital base and business
will be exacerbated by the Company's dividend policy of returning most of its
available earnings (if any) to shareholders each year and by the GCR Repurchase.
In addition, once its available earnings (if any) for any year have been
distributed, such earnings will not be available to finance operations, new
business or acquisitions.
Management believes that the experience of its underwriting staff is one of
GCR's principal strengths, and that effective underwriting is critical to the
success of the Company. However, underwriting is by nature a matter of judgment,
involving important assumptions about matters that are inherently unpredictable
and beyond GCR's control, and for which historical experience and probability
analyses may not provide sufficient guidance. In addition, there can be no
assurance that various provisions of GCR's policy forms, such as limitations on
or exclusions from coverage, will be enforceable in the manner intended by GCR.
Disputes relating to coverage and choice of legal forum can be expected to
arise. Accordingly, GCR may incur losses beyond those which it contemplates
should be incurred pursuant to its policies.
13
<PAGE> 17
LIMITED OPERATING HISTORY
GCR commenced operations in October 1993 and thus has a limited operating
history. Although the members of GCR's senior management team have extensive
industry experience, they have only a limited history of operating together as a
team. Moreover, given the start-up nature of its operations to date, GCR has not
fully established its reinsurance portfolio, accepting loss exposure on a more
limited basis than it is likely to do in the future, and has only a limited
claims history. Consequently, neither GCR's financial results nor its loss
experience as described in this Prospectus is necessarily indicative of the
results or experience in the future, nor is it necessarily indicative of the
effectiveness of GCR's strategy.
CYCLICALITY OF REINSURANCE BUSINESS
Historically, property catastrophe reinsurers have experienced significant
fluctuations in operating results due to competition, frequency of occurrence or
severity of catastrophic events, levels of capacity, general economic conditions
and other factors. Demand for reinsurance is influenced significantly by
underwriting results of primary property insurers and prevailing general
economic conditions. The supply of reinsurance is related directly to prevailing
prices and levels of surplus capacity which, in turn, may fluctuate in response
to changes in rates of return on investments being earned in the reinsurance
industry. As a result, the property catastrophe reinsurance business
historically has been a cyclical industry characterized by periods of intense
price competition due to excessive UNDERWRITING CAPACITY as well as periods when
shortages of capacity permitted favorable premium levels. Increases in the
frequency and severity of losses suffered by insurers can significantly affect
these cycles. Conversely, the absence of severe or frequent catastrophe events
could result in declining premium rates in the global market, such as appears to
be occurring at present. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." GCR can be expected to experience the
effects of such cyclicality.
Management believes that the numerous and severe catastrophic events
experienced worldwide from 1987 to 1992 resulted in large losses for reinsurers,
which led to the departure of companies from the reinsurance market and
therefore to a reduction in the supply of property catastrophe reinsurance
available to primary insurers and reinsurers in the United States and other
significant markets. See "Business -- Industry Trends." Management believes that
the imbalance between the supply of and demand for property catastrophe
reinsurance caused a significant increase in premium rates in 1993. Based on
industry trade publications and information obtained from clients and brokers,
management believes that over $4.0 billion of capital entered the Bermuda-based
property catastrophe reinsurance market since November 1992 in response to this
imbalance. Based on such sources, management believes this added capital helped
to balance supply and demand and that, as a result, worldwide premium rates in
the property catastrophe market stabilized in 1994. Management further believes
that, as a result of favorable loss experience in recent periods, these rates
declined by an average of 10% to 15% in 1995 compared to 1994 and by an average
of 10% to 15% in the first quarter of calendar year 1996 compared to the same
quarter last year. If and while this favorable loss experience continues,
management expects further downward pressure on rates during the remainder of
1996 and into 1997. These declines have adversely affected the level of premiums
written by GCR. There can be no assurance that the terms and conditions of trade
in this market will not deteriorate further or at other times in the future as a
result of additional capital provided by recent or future market entrants, loss
experience or other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Industry
Trends."
COMPETITION; REINSURANCE RATINGS; NON-ADMITTED STATUS
The property catastrophe reinsurance industry is highly competitive. GCR
competes, and will continue to compete, with major U.S. and non-U.S. reinsurers,
some of which have greater financial, marketing and management resources than
GCR has. Also, GCR competes with several Bermuda-
14
<PAGE> 18
based property catastrophe reinsurers that target the same market as GCR and
utilize similar business strategies, and most of these companies have more
capital than GCR. In addition, there may be established companies or new
companies of which GCR is not aware that may be planning to enter the property
catastrophe reinsurance market or existing property catastrophe reinsurers that
may be planning to raise additional capital. The full effect of this additional
capital on the reinsurance market may not be known for some time. Ultimately,
this competition could affect GCR's ability to attract or retain business.
A.M. Best is generally considered to be an important rating agency with
respect to the evaluation of insurance and reinsurance companies. In April 1996,
GCR received an initial rating of its claims-paying ability of A- ("Excellent")
from A.M. Best; prior to that time, GCR was not rated by any rating agency due
to its limited operating history. The rating received by GCR represents the
fourth highest in the RATING SCALE used by A.M. Best. While management believes
that its new rating will not be a major competitive advantage or disadvantage,
some of GCR's principal competitors have higher ratings than GCR. Insurance
ratings are used by insurers and reinsurance brokers as an important means of
assessing the financial strength and quality of reinsurers. In addition, a
CEDING COMPANY'S own rating may be adversely affected by the rating of its
reinsurer. Therefore, a ceding company could elect to reinsure with a competitor
of GCR that has a higher insurance rating. Similarly, the lowering or loss of a
rating in the future could adversely affect GCR's ability to compete. See
"Business -- Competition."
Global Capital Re is a registered Bermuda insurance company and is not
licensed or admitted as an insurer in any jurisdiction in the United States.
Because jurisdictions in the United States do not permit insurance companies to
take credit for reinsurance obtained from unlicensed or non-admitted insurers on
their statutory financial statements unless security is posted, Global Capital
Re's reinsurance contracts generally require it to post a letter of credit or
provide other security to cover outstanding claims and/or unearned premiums. In
order to post these letters of credit, Global Capital Re is generally required
to provide the issuing banks with collateral equal to the amount of claims
and/or unearned premiums posted. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Competition."
LOSS RESERVES
GCR recorded losses and loss expenses of $25.3 million for fiscal year 1994
and had outstanding reserves for losses and loss expenses of $19.7 million as of
September 30, 1994. The majority of the fiscal year 1994 losses related to the
Northridge, California earthquake, which the American Insurance Services Group
estimated resulted in the second-largest insured catastrophe loss in U.S.
history. For fiscal year 1995, GCR recorded losses and loss expenses of $35.3
million. The outstanding reserve for losses and loss expenses was $33.4 million
as of September 30, 1995. For the six months ended March 31, 1996, GCR recorded
loss and loss expenses of $13.4 million, and at March 31, 1996 the outstanding
reserves for losses and loss expenses was $34.3 million. Because of the start-up
nature of its operations at the time, the coverage written by GCR for the risks
affected by the Northridge event was more limited than that which GCR has
subsequently written and intends to write in the future for similar risks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Under GAAP, GCR is not permitted to establish loss reserves with respect to
its property catastrophe reinsurance until the occurrence of an event which may
give rise to a claim. Claims arising from future catastrophic events can be
expected to require the establishment of substantial reserves from time to time.
The establishment of appropriate reserves for catastrophes is an inherently
uncertain process. LOSS RESERVES represent GCR's estimates, at a given point in
time, of the ultimate settlement and administration costs of losses incurred
(including incurred but not reported losses) and these estimates are regularly
reviewed and updated, using the most current information available to
management. Consequently, the ultimate liability for a catastrophic loss is
likely to differ from the original estimate. (For example, GCR's incurred losses
and loss expense relating to the Northridge
15
<PAGE> 19
earthquake were $17.6 million at September 30, 1994, increased thereafter to
$23.4 million at September 30, 1995 and stands at $22.9 million as of March 31,
1996.) Whenever GCR determines that any existing loss reserves are inadequate,
GCR is required to increase its loss reserves with a corresponding reduction,
which could be material, in GCR's operating results in the period in which the
deficiency is identified. The establishment of new reserves, or the adjustment
of reserves for reported claims, could have a material adverse effect on GCR's
financial condition or results of operations in any particular period and will
reduce the amount of earnings (if any) available for dividends.
Reserve estimates by relatively new property catastrophe reinsurers, such
as GCR, may be less reliable than the reserve estimates of a reinsurer with a
stable volume of business and an established claim history. In addition, unlike
those of U.S. insurers, GCR's loss reserves are not regularly examined by
insurance regulators. See "Business -- Reserves."
HOLDING COMPANY STRUCTURE
The Company is a holding company that conducts no operations of its own and
whose assets essentially consist of its equity interest in Global Capital Re.
The Company will rely on cash dividends and other permitted payments from Global
Capital Re, and may also rely on borrowings under the Credit Agreement, to pay
creditors and to pay cash dividends, if any, to the Company's shareholders. The
payment of dividends by Global Capital Re to the Company is limited under The
Insurance Act 1978 of Bermuda, amendments thereto and related regulations (the
"Insurance Act"), which require Global Capital Re to maintain a minimum solvency
margin and a minimum liquidity ratio and prohibit dividends that would result in
a breach of these requirements. Similarly, the Credit Agreement requires, among
other things, that Global Capital Re, in addition to the Company, maintain a
minimum net worth of $250 million. In addition, the Company has pledged all the
shares of Global Capital Re to the agent for the lenders to secure the Company's
obligations under the Credit Agreement. In the event of a default under the
Credit Agreement, the Company would be precluded from borrowing under the
facility and, if the default occurred when any loans were outstanding
thereunder, the agent for the lenders would be entitled to foreclose on the
shares of Global Capital Re and sell them or retain the right to receive any
distributions thereon, in satisfaction of the Company's obligations. See
"Dividend Policy," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources,"
"Business -- Regulation" and note 12 to the consolidated financial statements.
REGULATION
Global Capital Re is a registered Bermuda insurance company and is subject
to regulation and supervision in Bermuda. The applicable Bermudian statutes and
regulations generally are designed to protect insureds and ceding insurance
companies rather than shareholders. Among other things, such statutes and
regulations require Global Capital Re to maintain minimum levels of capital and
surplus; impose restrictions on the amount and type of investments it may hold;
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 Global Capital Re and its financial condition. These regulations
may, in effect, restrict the ability of Global Capital Re to write new business
or distribute funds to the Company, to repay indebtedness or pay dividends on
the Ordinary Shares, which, as a holding company, will depend on such
distributions as its principal source of funds. These regulations also may
impede the Company's ability to effect a business combination involving a
substantial change in the ownership or control of Global Capital Re or the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Neither the Company nor Global Capital Re is registered or licensed as an
insurance company in any jurisdiction in the United States; a majority of GCR's
premiums, however, come from, and are expected to continue to come from, ceding
insurers in the United States. The insurance laws of each state in the United
States regulate the sale of insurance and reinsurance within their jurisdiction
by
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foreign insurers, such as GCR. GCR conducts its business through its offices in
Bermuda and does not maintain an office, and its personnel do not solicit,
advertise, settle claims or conduct other insurance activities in the United
States. Accordingly, GCR does not believe it is in violation of insurance laws
of any jurisdiction in the United States. There can be no assurance, however,
that inquiries or challenges to GCR's insurance activities will not be raised in
the future. See "Business -- Regulation." GCR believes that its manner of
conducting business through its offices in Bermuda has not materially adversely
affected its operations to date. There can be no assurance, however, that GCR's
location, regulatory status or restrictions on its activities resulting
therefrom will not adversely affect its ability to conduct its business in the
future. Although it conducts its operations from Bermuda, Global Capital Re is
not authorized to underwrite local risks in Bermuda.
Recently, the insurance and reinsurance regulatory framework has been
subject to increased scrutiny in many jurisdictions including the United States,
various states within the United States, the United Kingdom and elsewhere. It is
not possible to predict the future impact of changing law or regulation on the
operations of GCR; such changes could have a material adverse effect on GCR or
the insurance industry in general.
In some respects, the Bermudian statutes and regulations applicable to GCR
are less restrictive than those that would be applicable to GCR were it subject
to the insurance laws of any state in the United States. No assurances can be
given that if GCR were to become subject to any such laws of the United States
or any state thereof at any time in the future, it would be in compliance with
such laws. See "Business -- Regulation."
REINSURANCE BROKERS
GCR markets its reinsurance products exclusively through reinsurance
brokers. Guy Carpenter and Willcox accounted for approximately 29% and 11%,
respectively, and GCR's five main brokers (including Guy Carpenter and Willcox)
together accounted for approximately 62% of GCR's business based on premiums
written under contracts in force on March 31, 1996. See "Business -- Marketing."
Loss of all or a substantial portion of the business provided by such
intermediaries could have a material adverse effect on the Company.
In accordance with industry practice, GCR pays amounts owing in respect of
claims under its policies to reinsurance brokers, for payment over to the ceding
insurers. In the event that a broker failed to make such a payment, GCR would
remain liable to the client for the deficiency. Conversely, when premiums for
such policies are paid to reinsurance brokers for payment over to GCR, such
premiums will be deemed to have been paid and the ceding insurer will no longer
be liable to GCR for those amounts whether or not actually received by GCR.
Consequently, GCR assumes a degree of credit risk associated with brokers around
the world.
UNITED STATES FEDERAL INCOME TAX RISKS
TAXATION OF THE COMPANY AND GLOBAL CAPITAL RE
The Company is a Cayman Islands company and Global Capital Re is a Bermuda
corporation; neither files United States tax returns. Global Capital Re believes
that it operates in such a manner that it will not be subject to U.S. tax (other
than U.S. excise tax on reinsurance premiums and withholding tax on certain
investment income from U.S. sources) because it does not engage in business in
the United States. There can be no assurance, however, that Global Capital Re
will not be subject to U.S. tax because U.S. law does not provide definitive
guidance as to the circumstances in which Global Capital Re would be considered
to be doing business in the United States. If Global Capital Re were engaged in
business in the United States (and, if Global Capital Re were to qualify for
benefits under the income tax treaty between the United States and Bermuda, such
business were attributable to a "permanent establishment" in the United States),
Global Capital Re would be subject to U.S. tax at regular corporate rates on its
income that is effectively connected
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with its U.S. business plus an additional 30% "branch profits" tax on income
remaining after the regular tax. See "Certain Tax Considerations."
CONTROLLED FOREIGN CORPORATION RULES
Each "United States shareholder" of a "controlled foreign company" ("CFC")
who owns shares in the CFC on the last day of the CFC's 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," even if the subpart F income is
not distributed. For these purposes, any U.S. person who owns, directly or
indirectly through foreign persons, or is considered to own under applicable
constructive ownership rules, 10% or more of the total combined voting power of
all classes of stock of the foreign corporation will be considered to be a
"United States shareholder." In general, a foreign insurance company such as
Global Capital Re is treated as a CFC only if such "United States shareholders"
collectively own or are considered to own more than 25% of the total combined
voting power or total value of the Company's stock for an uninterrupted period
of 30 days or more during any tax year. Goldman, Sachs & Co., together with
their affiliates, own approximately 17.2% of the Ordinary Shares and will own
approximately % of the Ordinary Shares upon completion of the Offering and
the GCR Repurchase (in each case calculated on the basis set forth in the notes
to "Principal and Selling Shareholders"), although, pursuant to the Company's
Amended and Restated Articles of Association (the "Articles"), the combined
voting power of these shares is limited to less than 10% of the combined voting
power of all shares. The Company believes that, because of the dispersion of the
Company's share ownership among holders other than Goldman, Sachs & Co. and
their affiliates and because of the restrictions on transfer of the Ordinary
Shares, shareholders who acquire Ordinary Shares in the Offering will not be
subject to treatment as United States shareholders of a CFC. In addition,
because under the Articles the voting power associated with shares held by any
U.S. person, directly or by attribution (including shares so held by Goldman,
Sachs & Co. and their affiliates), is limited to less than 10% of the total
combined voting power of the Company, shareholders of the Company should not be
viewed as shareholders of a CFC for purposes of these rules. There can be no
assurance, however, that these rules will not apply to shareholders of the
Company. Accordingly, U.S. persons who might, directly or through attribution,
acquire 10% or more of the Ordinary Shares of the Company should consider the
possible application of the CFC rules. See "Certain Tax Considerations."
RELATED PERSON INSURANCE INCOME RISKS
If Global Capital Re's related person insurance income ("RPII") were to
equal or exceed 20% of Global Capital Re's gross insurance income in any fiscal
year, a U.S. person who owns Ordinary Shares in the Company on the last day of
the fiscal year would be required to include in its income for U.S. Federal
income tax purposes the shareholder's pro rata share of Global Capital Re's RPII
for the fiscal year, regardless of whether such income is distributed. The
amount of RPII earned by Global Capital Re (generally, premium and related
investment income from the direct or indirect insurance or reinsurance of any
direct or indirect U.S. shareholder of Global Capital Re or any related person,
including the Company) will depend on a number of factors, including the
geographic distribution of Global Capital Re's business and the identity of
persons directly or indirectly insured or reinsured by Global Capital Re.
Although Global Capital Re does not believe that it had any RPII in fiscal year
1994 or 1995 or in the first six months of fiscal year 1996, some of these
factors which determine the extent of RPII in any period may be beyond the
control of Global Capital Re. Consequently, there can be no assurance that
Global Capital Re's RPII will not equal or exceed 20% of its gross insurance
income in any fiscal year. See "Certain Tax Considerations."
The RPII rules provide that if a shareholder who is a U.S. person disposes
of shares in a foreign insurance corporation that has RPII (even if the amount
of RPII is less than 20% of the corporation's gross insurance income) and in
which U.S. persons own 25% or more of the shares, any gain from the disposition
will generally be treated as ordinary income to the extent of the shareholder's
share
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of the corporation's undistributed earnings and profits that were accumulated
during the period that the shareholder owned the shares (whether or not such
earnings and profits are attributable to RPII). In addition, such a shareholder
will be required to comply with certain reporting requirements, regardless of
the amount of shares owned by the shareholder. These rules should not apply to
dispositions of Ordinary Shares because the Company is not itself directly
engaged in the insurance business and because proposed U.S. Treasury regulations
should be interpreted as applying to shares of corporations that are directly
engaged in the insurance business. There can be no assurance, however, that the
Internal Revenue Service will interpret the proposed regulations in this manner
or that the proposed regulations will not be promulgated in final form in a
manner that would cause these rules to apply to dispositions of Ordinary Shares.
See "Certain Tax Considerations."
PROPOSED LEGISLATION
The Treasury Department has announced proposals that would affect the
taxation of a foreign insurance company if 50% or more of the company's net
premiums are attributable to the insurance or reinsurance of risks of related
persons. While Global Capital Re intends to operate in a manner so that less
than 50% of its premium income would be attributable to the insurance or
reinsurance of risks of related persons, there can be no assurance that it will
in fact do so or that any proposals enacted would not adversely affect the
Company, Global Capital Re or holders of Ordinary Shares.
DEPENDENCE ON KEY EMPLOYEES
The ability of GCR to execute its business strategy is dependent on the
effectiveness of its underwriting and thus on its ability to retain a staff of
qualified underwriters. GCR currently relies primarily on four members of
management for executing its underwriting activities. Although GCR has
employment agreements with its key executives, there can be no assurance that
GCR will be successful in retaining or attracting qualified employees. GCR does
not currently maintain key man life insurance policies with respect to any of
its employees. See "Management."
Under Bermuda law, non-Bermudians may not engage in any gainful occupation
in Bermuda without the specific permission of the appropriate governmental
authority. Such permission 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. Only one
of GCR's executive officers is a Bermudian, and all others are working in
Bermuda under work permits, which expire in 1998. In addition, two other
employees of GCR are also working in Bermuda under work permits, one of which
expires in 1996 and the other in 1997. While GCR is not currently aware of any
reasons why the work permits for these officers and employees might not be
reissued, there can be no assurance that these work permits will be extended.
FOREIGN CURRENCY AND INTEREST RATE FLUCTUATIONS
GCR's functional currency is the U.S. dollar. However, the premiums
receivable and losses payable in respect of a substantial portion of GCR's
business are denominated in currencies other than U.S. dollars. Consequently,
GCR may, from time to time, experience significant exchange gains and losses
that could affect its financial position and results of operations. The Company
currently does not -- and as a practical matter cannot -- hedge its foreign
currency exposure with respect to potential claims until a loss payable in a
foreign currency occurs (after which it may, although to date has not done so,
purchase a currency hedge in some cases). Such exposure could be substantial.
GCR also has not hedged its foreign currency exposure with respect to any
premiums receivable, which generally are collected over the relevant contract
term. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "-- Currency."
Because of the unpredictable nature of losses that may arise under property
catastrophe policies, GCR's liquidity needs can be substantial, and market
liquidity is a principal investment objective for GCR. GCR maintains most of its
investment portfolio in the form of short-term, fixed-
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income securities, the value of which is subject to fluctuation depending on
changes in prevailing interest rates. GCR generally does not hedge its
investment portfolio against interest rate risk. Accordingly, increases in
interest rates may result in losses, both realized and unrealized, on GCR's
investments.
FOREIGN CORPORATION; SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
The Company is a Cayman Islands company and certain of its officers and
directors are residents of various jurisdictions outside the United States. All
or a substantial portion of the assets of the Company and of such officers and
directors, at any one time, are or may be located in jurisdictions outside the
United States. In particular, Global Capital Re, the Company's sole subsidiary
through which it conducts all its operations, is a Bermuda corporation.
Consequently, although the Company has appointed CT Corporation System as its
agent for service of process within the United States, it may be difficult for
shareholders to effect such service upon the Company should such appointment be
terminated or held invalid for any reason. Moreover, it may be difficult to
effect such service upon Global Capital Re or such officers and directors, none
of whom has made such an appointment, and, notwithstanding such appointment, it
may be difficult to enforce against the Company, Global Capital Re or any such
other person, or against any of their respective assets, any judgment of courts
of the United States predicated upon U.S. laws, including the U.S. federal
securities laws. For execution or enforcement of any such judgment, or for
prosecutions of any claims, against the Company, Global Capital Re or such
officers and directors, it likely will be necessary to institute legal
proceedings outside the United States, and no assurance can be given that any
such proceedings will be feasible. See "Enforceability of Civil Liabilities
Under United States Laws."
PRINCIPAL SHAREHOLDERS; POSSIBLE CONFLICTS OF INTEREST
Goldman, Sachs & Co. and Johnson & Higgins, which sponsored the
establishment of GCR in 1993, together with their respective affiliates own
approximately 17.2% and 6.4%, respectively, of GCR's outstanding Ordinary Shares
(calculated on the basis set forth in the notes to "Principal and Selling
Shareholders"). After completion of the Offering and the GCR Repurchase,
ownership levels will be approximately %, in the case of Goldman, Sachs &
Co., and approximately %, in the case of Johnson & Higgins. (Pursuant to
the Articles, the voting power of shares exercised by Goldman, Sachs & Co. and
their affiliates is limited to less than 10% of the combined voting power of all
shares. See "United States Federal Income Tax Risks -- Controlled Foreign
Corporation Risks.") In addition, of the eleven current members of the Company's
Board of Directors, one is a limited partner and another is a general partner of
Goldman, Sachs & Co. Also, two directors of the Company are officers of Johnson
& Higgins. As a result, these parties may be able to assert significant
influence over the affairs of GCR.
As described in "Certain Relationships and Related Party Transactions,"
Goldman, Sachs & Co. and Johnson & Higgins (directly or through affiliates) are
engaged in certain commercial activities and transactions with GCR which may
give rise to conflicts of interest between any of them and GCR. In particular,
an affiliate of Goldman, Sachs & Co. serves as discretionary investment manager
for GCR's entire investment portfolio (an unaffiliated entity as investment
custodian holds all the investments and substantially all the cash of GCR).
Goldman, Sachs & Co. are acting as lead manager of the Offering and they acted
as lead manager of the 1995 IPO. Because Goldman, Sachs & Co. and certain of
their affiliates own in excess of 10% of the Ordinary Shares of the Company, the
underwriting arrangements for the Offering must comply with the requirements of
Schedule E to the By-laws of the National Association of Securities Dealers,
Inc. (the "NASD"). Those requirements provide that, when a NASD member firm
participates in distributing an affiliate's equity securities, the price of the
securities must be no higher than the price determined by a "qualified
independent underwriter." Accordingly, Donaldson, Lufkin & Jenrette Securities
Corporation is acting as a qualified independent underwriter for purposes of
determining the price of the Ordinary Shares offered hereby. See "Underwriting."
Willcox, an affiliate of Johnson & Higgins, provides brokerage
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services for a substantial number of primary insurance clients seeking to place
reinsurance with GCR. Willcox also provides brokerage services to GCR directly.
In addition, from time to time, Goldman, Sachs & Co. and Johnson & Higgins
provide professional services to, and may assist in the formation of, other
entities engaged in the insurance and reinsurance businesses, including entities
that may compete directly with GCR. Steven Newman, the non-executive Chairman of
the Board of Directors of the Company, is also Chairman of the Board of
Underwriters Re Corporation, a reinsurance company that, among other lines,
writes property catastrophe reinsurance. See "Certain Relationships and Related
Party Transactions."
LIMITATIONS ON OWNERSHIP, TRANSFERS AND VOTING RIGHTS
Under the Articles and the Company's Amended and Restated Memorandum of
Association (the "Memorandum"), the Company's directors (or their designee) must
decline to register any transfer of Ordinary Shares if they have reason to
believe that such transfer would result in a U.S. person (or any group of which
a U.S. person is a member), other than Goldman, Sachs & Co. and their
affiliates, beneficially owning, directly or indirectly, 10% or more of the
Ordinary Shares, or in Goldman, Sachs & Co. and their affiliates beneficially
owning, directly or indirectly, 25% or more of such shares. Similar restrictions
apply to the Company's ability to issue or repurchase shares. These transfer,
issuance and repurchase restrictions will remain in effect as long as Goldman,
Sachs & Co. and their affiliates beneficially own 10% or more of the Ordinary
Shares, and provide an additional, limited exception for Goldman, Sachs & Co. to
exceed the 25% ownership threshold as a result of market making transactions for
limited periods. The directors (or their designee) also have absolute discretion
to decline to register a transfer of Ordinary Shares if they have reason to
believe that such transfer would have adverse tax or regulatory consequences for
the Company or any of its shareholders or clients. The Company is authorized to
request information from any holder or prospective acquiror of shares as
necessary to give effect to the transfer, issuance and repurchase restrictions
referred to above, and may decline to effect any such transaction if complete
and accurate information is not received as requested. See "Description of
Capital Shares -- Ordinary Shares -- Transfer of Shares."
The transfer restrictions described above would apply to a purported
transfer of shares even if the purported transfer has been executed on the
Nasdaq National Market. In circumstances where these transfer restrictions apply
and the directors decline to register a transfer, the purported transferee would
not become the registered holder of the shares and would not be deemed to be the
owner of the shares for dividend or voting purposes. Consequently, the purported
transferor would be unable to complete the transfer and, if it had assumed a
contractual obligation to the purported transferee to do so, could be in breach
of its obligation. In all cases, the registered holder of Ordinary Shares will
be deemed to own such shares for dividend and voting purposes until the shares
have been registered on the share transfer records of the Company in the name of
a transferee.
In addition, the Articles generally provide that any U.S. person (or any
group of which a U.S. person is a member) holding, directly or by attribution,
or otherwise beneficially owning Ordinary Shares carrying 10% or more of the
total voting rights attached to all of the Company's outstanding capital shares,
will have the voting rights attached to its issued shares reduced so that it may
not exercise more than approximately 9.9% of the total voting rights associated
with all of the Company's outstanding capital shares. Because of the attribution
provisions of the United States Internal Revenue 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
10% or more of the Company's Ordinary Shares. As a result of the provisions
described above, the grant by a shareholder of a revocable proxy to vote his
shares could result in a reduction of the voting power associated with such
shares, including in the context of a proxy contest for the election of the
Company's directors or other matters requiring a shareholder vote (although such
a reduction will not apply with respect to proxies solicited by the Company in
connection with its annual meetings or
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other matters). Further, the directors (or their designee) have the authority to
request from any shareholder certain information for the purpose of determining
whether such shareholder's voting rights are to be reduced. Failure to respond
to such a notice gives the directors (or their designee) discretion to disregard
all votes attached to such shareholder's Ordinary Shares. For a description of
the 10% voting limitation and certain exceptions thereto, see "Description of
Capital Shares -- Limitation on Voting Rights."
NEGATIVE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
After consummation of the Offering (assuming no exercise of the
over-allotment option by the Underwriters) and the GCR Repurchase, the Company's
original shareholders will continue to hold an aggregate of Ordinary
Shares acquired by them in the Company's initial private placement in 1993 (the
"Original Shares"). The Original Shares have not been registered under the
Securities Act and currently are not traded in the public market. Pursuant to a
lock-up relating to the 1995 IPO, the holders of Original Shares are not
permitted to sell such shares into the public market until June 16, 1996. The
Company believes that, subject to the 1995 IPO lock-up and to the lock-up
relating to this Offering described below, all the Original Shares are currently
eligible for sale into the public market pursuant to Rule 144 under the
Securities Act, subject to the volume and other limitations of that Rule, and
that in October 1996 at least % of the Original Shares will become freely
saleable under that Rule without regard to such limitations. In addition to the
Original Shares, 631,925 Ordinary Shares are issuable upon exercise of
outstanding options held by employees and directors of the Company.
The holders of all the Original Shares (and all the options referred to
above) have agreed not to sell such shares (or any shares issuable on exercise
of such options) during the period of 90 days beginning on the date of this
Prospectus (which is expected to be the date this Offering is priced), except in
the Offering or with the prior consent of the representatives of the
Underwriters, who may, in their sole discretion and at any time without notice,
release all or any portion of the shares subject to these agreements. The
Company has agreed to a similar restriction. This restriction will not apply to
sales by Goldman, Sachs & Co. in connection with stabilization, brokerage,
ordinary course of business and market-making transactions.
The Company has provided the holders of approximately % of the Original
Shares with registration rights for those shares. Upon completion of the 90-day
period referred to above, such holders would be entitled to demand registration
of their shares in connection with a public offering or other public
distribution of such shares. In addition, the Company intends to provide for
registration of shares to be acquired by employees and directors from time to
time on exercise of options granted and to be granted pursuant to existing
compensation arrangements (including most of the options referred to above),
thereby permitting such shares to be sold into the public market from time to
time without regard to any holding period requirement.
Sales of substantial amounts of the Ordinary Shares into the public market
following the Offering, or the perception that such sales could occur, could
adversely affect the market price of the Ordinary Shares and may make it more
difficult for the Company to sell its equity securities in the future at a time
and price which it deems appropriate. See "Shares Eligible for Future Sale." The
share information set forth above is subject to change prior to the pricing for
the Offering, depending on final confirmation of Selling Shareholder
participations.
LIMITED PRIOR PUBLIC MARKET
The Ordinary Shares have been quoted in the Nasdaq National Market only
since December 19, 1995, when the Company's initial public offering occurred.
The shares offered hereby have also been approved for quotation in such market,
subject to official notice of issuance. The Company has been advised by Goldman,
Sachs & Co. that, subject to applicable laws and regulations, Goldman, Sachs &
Co. currently intend to continue making a market in the Ordinary Shares
following
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completion of the Offering. However, they are not obligated to do so and any
market-making may be discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. There can be no assurance that an active trading
market will develop or be sustained following the completion of the Offering.
EFFECT OF CERTAIN ANTITAKEOVER PROVISIONS IN THE ARTICLES AND CAYMAN ISLANDS LAW
The Articles contain certain provisions that may have the effect of making
more difficult the acquisition of control of the Company by means of a tender
offer, open market share purchases, a proxy fight or otherwise. Such provisions
include the restrictions on voting and ownership of the Company's shares
(discussed above), the authority of the Board of Directors to issue other
classes of shares with such voting and other rights as they determine and the
inability of shareholders to require that a shareholders' meeting be called or
to act by written consent other than at the Board's request. While these
provisions may have the effect of encouraging persons seeking to acquire control
of the Company to negotiate with the Board of Directors, they could also have
the effect of discouraging a prospective acquiror from making a tender offer or
otherwise attempting to gain control of the Company. Under Cayman Islands law
the sanction of the Cayman Islands court, following a vote in favor by the
holders of 75% of the Ordinary Shares present and voting at a duly convened
shareholders' meeting, is required to give effect to a scheme of arrangement,
including a merger, amalgamation, reorganization or reconstruction. See
"Description of Capital Shares -- Ordinary Shares" and "-- Differences in
Corporate Law."
USE OF PROCEEDS
All the Ordinary Shares to be sold in the Offering are being sold by the
Selling Shareholders. Consequently, the Company will not receive any of the
proceeds from the Offering. The Company will pay certain expenses related to the
Offering, including certain expenses incurred by the Selling Shareholders,
estimated to be $ .
DIVIDEND POLICY
In December 1995, the Company adopted a policy with regard to managing its
return on equity and the payment of dividends. Under this policy, the Company
currently intends to target an average return on shareholders' equity of
approximately 20% to 25% over time and, in light of that target, to distribute a
substantial portion of its earnings each year. Currently, the Company's Board of
Directors has targeted a dividend payout that would total, in each fiscal year,
approximately 60% to 80% of the Company's net operating earnings (which exclude
any realized investment gains and losses), if any, in the prior fiscal year.
Dividends would be paid on a quarterly basis, in February, May, August and
November of each year. Based on its operating results for fiscal year 1995, the
Company paid an initial quarterly dividend of $0.62 per share on February 27,
1996 and a second quarterly dividend of $0.62 per share on May 15, 1996. The
February and May dividends represent, on an annualized basis, a dividend payout
of approximately 70% of GCR's net operating earnings for fiscal year 1995. The
actual timing and amount of future dividends (if any), as well as the general
targets referred to above, will depend on various factors as described in the
following paragraph and are subject to change at the discretion of the Board
from time to time.
In light of the Company's capital management policy, the Board of Directors
has approved the GCR Repurchase and may also consider repurchasing outstanding
Ordinary Shares in the open market from time to time after the Offering, either
in lieu of or in addition to the payment of dividends. Any such open market
repurchases would depend on market conditions, GCR's liquidity and capital needs
and other factors. At present, the Board has not taken action to approve any
such open market repurchases and there is no assurance that any such repurchases
will be made.
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Notwithstanding this policy, dividends will be paid only when, as and if
determined by the Company's Board of Directors out of funds legally available
therefor. The actual amount and timing of dividends (if any) will depend on
GCR's financial condition, results of operations, business prospects and such
other matters as the Board may deem relevant, and in particular on the level of
losses incurred by Global Capital Re, which can be expected to substantially
reduce or eliminate earnings available for dividends in some periods. Even if
earnings are available for dividends, the Board could determine that such
earnings should be retained for an extended period of time after any period in
which loss experience is unfavorable in order to replenish GCR's capital base,
as well as to expand GCR's business, to enhance its competitive position or for
any other proper purpose. In addition, in order to pay cash dividends, the
Company, as a holding company, will depend on distributions from Global Capital
Re, which will be subject to regulatory capital restrictions under the Insurance
Law, and dividend payments would be subject to net worth maintenance
requirements and dividend limitation restrictions under the Credit Agreement.
Consequently, there can be no assurance as to the amount or timing of dividend
payments, and the Company's dividend policy is subject to change. See "Risk
Factors -- Volatility of Financial Results and Dividends; Severity of Possible
Losses; Effect of Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Other than the 1995 Distribution and the February and May dividends
referred to above, the Company has not paid or declared any dividends or other
distributions to its shareholders.
PRICE RANGE OF ORDINARY SHARES
The Company priced its initial public offering of the Ordinary Shares on
December 18, 1995. Since that date, the Ordinary Shares have been traded in the
over-the-counter market and prices have been quoted in the Nasdaq National
Market under the symbol "GCREF." The following table sets forth, for the periods
indicated, the high and low bid quotations for the Ordinary Shares as reported
by the Nasdaq National Market. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Quarter Ended December 31, 1995 (from December 19, 1995)..... $ 23.000 $ 19.875
Quarter Ended March 31, 1996................................. 25.750 21.500
Quarter Ending June 30, 1996 (through May 20, 1996).......... 27.125 24.250
</TABLE>
On May 20, 1996, the last reported sale price of the Ordinary Shares as reported
by the Nasdaq National Market was $26.00 per share. On May 1, 1996, there were
482 holders of record of the Ordinary Shares (including 451 holders of Original
Shares, that currently are not publicly traded). Substantially all of the
Ordinary Shares that are publicly traded are currently held of record by Cede &
Co., a nominee of The Depository Trust Company.
24
<PAGE> 28
CAPITALIZATION
The following table sets forth the consolidated capitalization of GCR as of
March 31, 1996, on a historical basis and as adjusted to reflect the GCR
Repurchase at an assumed aggregate purchase price of $25 million (which assumes
a net purchase price of $25 per share and will depend upon the pricing terms of
the Offering). In either case, no effect is given to the dividend of $15.9
million which was paid on May 15, 1996 or to expenses related to the Offering,
currently estimated at $ . This table should be read in conjunction
with the consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
AS ADJUSTED
FOR THE
ACTUAL GCR REPURCHASE
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion)...................... -- --
Shareholders' equity:
Ordinary Shares, $0.10 par value -- 50,000,000 authorized
and 25,668,255 issued(24,668,255 as adjusted)(1)......... $ 2,567 $ 2,467
Undenominated shares, $0.10 par value -- 25,000,000
authorized and none outstanding.......................... -- --
Additional paid-in capital................................. 375,591 350,691
Notes receivable for shares issued......................... (1,359) (1,359)
Unrealized gains (losses) on investments................... (933) (933)
Retained earnings.......................................... 50,372 50,372
-------- --------------
Total shareholders' equity............................ 426,238 401,238
-------- --------------
Total capitalization.................................. $426,238 $401,238
========= =============
</TABLE>
- ---------------
(1) Excludes 631,925 Ordinary Shares reserved for issuance pursuant to
outstanding options held
by employees and directors, which are or may become exercisable over
various periods at prices ranging from $10.38 to $15.24 per share. See
"Management -- Provisions Governing the Board of Directors -- Compensation
of Directors" and "-- Executive Compensation." Immediately after the
Offering and the GCR Repurchase, 1,000,000 of the outstanding Ordinary
Shares will be held by Global Capital Re. See "Prospectus Summary -- The
Offering and the GCR Repurchase."
25
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of GCR
as of September 30, 1994 and 1995 and March 31, 1996, and for the fiscal years
ended September 30, 1994 and 1995 and the six months ended March 31, 1995 and
1996. GCR began operations in October 1993 and thus has no operating history
prior thereto. The historical consolidated financial data were derived from the
Company's audited consolidated financial statements for the fiscal years ended
September 30, 1994 and 1995 and from the Company's unaudited consolidated
interim financial statements for the six months ended March 31, 1995 and 1996.
In the opinion of management, the consolidated interim financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of results. The results of operations for any interim period
are not necessarily indicative of results for the full fiscal year.
For additional information see the consolidated financial statements of the
Company and the accompanying notes thereto included elsewhere in this
Prospectus. The following table should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER SIX MONTHS ENDED
30, MARCH 31,
---------------------- --------------------
1994 1995 1995 1996
STATEMENT OF INCOME DATA: --------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Premiums written................................ $ 102,065 $ 136,884 $ 79,290 $ 74,024
CHANGE IN UNEARNED PREMIUMS..................... (45,360) (16,328) (23,458) (10,520)
------ ------- -------
Premiums earned................................. 56,705 120,556 55,832 63,504
Investment income, net.......................... 20,095 32,651 15,222 15,944
Realized gains (losses) on investments, net..... (10,216) 391 (1,472) 1,140
Exchange gains (losses) net..................... 529 (20) 406 17
------ ------- -------
Total revenues.................................. 67,113 153,578 69,988 80,605
------ ------- -------
Losses and loss expenses........................ 25,278 35,293 17,193 13,394
Acquisition expenses............................ 6,743 17,063 6,743 9,380
Interest expense................................ -- 1,964 -- 3,563
General and administrative expenses............. 5,277 8,602 3,179 5,109
------ ------- -------
Total expenses.................................. 37,298 62,922 27,115 31,446
------ ------- -------
Net income...................................... $ 29,815 $ 90,656 $ 42,873 $ 49,159
====== ======= =======
Net income per Ordinary Share(1)(2)............. $ 1.32 $ 3.94 $ 1.88 $ 2.01
OTHER DATA:
Loss ratio(3)................................... 44.6% 29.3% 30.8% 21.1%
Expense ratio(4)................................ 18.6 18.6 16.5 20.3
------ ------- -------
COMBINED RATIO(5)............................... 63.2% 47.9% 47.3% 41.4%
====== ======= =======
Return on average shareholders' equity
(annualized for interim periods)(2)(6)........ 6.7% 19.2% 17.6% 24.6%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1994 1995 MARCH 31, 1996
BALANCE SHEET DATA: --------- --------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Total investments available for sale at fair
value, including cash and cash
equivalents(2)............................... $ 482,309 $ 526,812 $448,769
Total assets(2)................................ 534,014 597,641 534,488
Reserve for losses and LOSS EXPENSES........... 19,705 33,390 34,331
Reserve for unearned premiums.................. 45,360 61,688 72,208
Long-term debt (including current portion)..... -- 142,000 --
Total shareholders' equity(2).................. 468,067 356,397 426,238
Book value per Ordinary Share(2)(7)............ $ 20.76 $ 15.94 $ 16.61
</TABLE>
- ---------------
(1) Net income per Ordinary Share is based upon the weighted average number of
Ordinary Shares outstanding during the relevant period. For each period
presented, such number of shares assumes that all employee and director
options and Sponsors' Warrants outstanding during the period (or any portion
thereof) were exercised and that the proceeds of such exercise were used to
purchase outstanding shares pursuant to the treasury stock method,
calculated in each case using the average market value (book value prior to
December 19,
26
<PAGE> 30
1995) per share for the period (or portion thereof). The employee and
director options are or may become exercisable over various periods. See
"Management." The Sponsors' Warrants were exercised in full on December 22,
1995.
(2) No effect is given to the GCR Repurchase, which, for purposes of GCR's
consolidated financial statements, will reduce the number of outstanding
shares by 1,000,000 and reduce total investments, total assets and
shareholders' equity by $25 million. In addition, in April 1996, the Board
of Directors declared a dividend on the Ordinary Shares totalling $15.9
million, or $0.62 per share, which was paid on May 15, 1996, and no effect
is given to this dividend.
(3) Determined by dividing losses and loss expenses incurred (including
estimates thereof for claims INCURRED BUT NOT REPORTED) by premiums earned
during the relevant period.
(4) Determined by dividing acquisition and certain administrative expenses
related to underwriting by premiums earned during the relevant period.
(5) Equals the sum of the loss ratio and the expense ratio for the relevant
period.
(6) Equals annualized net income divided by the average of shareholders' equity
on the first day and at the end of each quarter in the relevant period. For
each interim period, net income has been doubled in order to provide an
annualized rate of return. Consequently, the rate presented for any interim
period is not necessarily indicative of the actual rate for the full fiscal
year.
(7) Book value per Ordinary Share is based on the number of Ordinary Shares
outstanding on the relevant date.
27
<PAGE> 31
SELECTED PRO FORMA FINANCIAL DATA
The following table sets forth selected pro forma financial data of GCR as
of and for the fiscal year ended September 30, 1995 and as of and for the six
months ended March 31, 1995 and 1996. Such data have been calculated in the
manner described in "Selected Consolidated Financial Data" above, except that
effect is given to (i) the 1995 Distribution and borrowings under the Credit
Agreement (at an annual rate of 6.7%) to fund the 1995 Distribution, (ii) the
issuance of Ordinary Shares upon exercise of the Sponsors' Warrants and the use
of proceeds of such exercise to repay a portion of the borrowings under the
Credit Agreement and (iii) the repurchase of one million Ordinary Shares by GCR
at an aggregate purchase price of $25 million (which assumes a net purchase
price of $25 per share and will depend on the pricing terms of the Offering)
funded by a sale of investments, in each case as of the start of the relevant
period or at the relevant date, as the case may be. No effect is given to the
May 1996 dividend.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
YEAR ENDED ---------------------
SEPTEMBER 30, 1995 1995 1996
------------------ ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME AND OTHER DATA:
Pro forma net income............................ $ 79,576 $36,054 $48,292
Pro forma net income per Ordinary Share(1)...... 3.21 1.45 1.94
Pro forma return on average shareholders' equity
(annualized for interim periods).............. 25.0% 24.4% 25.0%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
SEPTEMBER 30, 1995 1995 1996
------------------ -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Pro forma total shareholders' equity.......... $356,657 $315,513 $400,371
Pro forma book value per Ordinary Share....... 14.46 12.74 16.23
</TABLE>
- ---------------
(1) Net income per Ordinary Share for the six months ended March 31, 1996 would
have been $2.01 if calculated in the manner described in "Selected
Consolidated Financial Data" and $2.07 if so calculated and after giving pro
forma effect only to the GCR Repurchase.
28
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
GCR commenced operations in October 1993. The financial data included in
the following discussion are as of September 30, 1994 and 1995 and March 31,
1996, and for the years ended September 30, 1994 and 1995 and the six months
ended March 31, 1995 and 1996. Because GCR has a limited operating and loss
history, the financial data included herein are not necessarily indicative of
the financial condition or results of operations of GCR in the future. See
"Business." Also, any such data relating to an interim period are not
necessarily indicative of those for the full fiscal year.
Renewal dates for property catastrophe reinsurance policies are generally
concentrated in the first quarter of each calendar year -- i.e., in the second
quarter of the Company's fiscal year. Approximately half of GCR's reinsurance
programs and more than half of its premiums written are related to contracts
with renewal dates (primarily January 1) in the second quarter of the Company's
fiscal year -- i.e., the quarter ending March 31. Moreover, because premium
rates for U.S. risks have remained more stable than those for international
risks as global prices have declined in recent periods, and because renewals of
programs covering U.S. risks are concentrated in the Company's second fiscal
quarter, premiums written by GCR during the first six months of fiscal year 1996
are likely to represent an even larger portion of its total premiums written for
the current fiscal year than in the past. Nevertheless, because premiums
generally are earned over the term in which the related reinsurance coverage is
provided, GCR's premiums earned are not concentrated in any interim period.
Earned premiums in the year ended September 30, 1994 and, to a lesser extent, in
the year ended September 30, 1995 reflect the start-up nature of the Company's
operations during these fiscal years. Because of this limited operating history,
comparisons of results for any period during these fiscal years with results for
any other period generally are not meaningful.
RESULTS OF OPERATIONS, YEARS ENDED SEPTEMBER 30, 1995 AND 1994
In the year ended September 30, 1995, GCR produced written premiums of
$136.9 million, reflecting a growth in new business from new and existing
clients, offset in part by modest rate reductions. At September 30, 1995, GCR
had one or more contracts in force with 246 clients worldwide compared to 185
clients at September 30, 1994. GCR established itself in the worldwide property
catastrophe reinsurance market in its first year of operations, which ended
September 30, 1994, and produced written premiums of $102.1 million in that
year. Except for capped proportional business, substantially all of GCR's
business during these years was written on an excess-of-loss basis. Premiums are
earned ratably over the contract period, generally twelve months, from the
inception of individual contracts. Premiums earned for the years ended September
30, 1995 and 1994 were $120.6 million and $56.7 million, respectively, with the
increase principally reflecting GCR's continuing efforts to establish new
reinsurance clients and, to a lesser extent, growth in business from existing
clients. For the year ended September 30, 1995, existing clients accounted for
approximately 74% and new clients accounted for approximately 26% of premiums
written.
The period-to-period increase in earned premiums is attributable primarily
to GCR's steady penetration of its targeted markets during the start-up phase of
its operations. Management believes that this development reflects the growing
acceptance by the global market of GCR as an established provider of property
catastrophe reinsurance. During the year ended September 30, 1995, the Company
was able to write reinsurance coverage for substantially all of the insurers in
the U.S. market that it initially targeted as major prospective clients.
Consequently, management expects that increases in market penetration in the
United States in the near term will be at significantly slower rates than in
1995, and that earned premium growth will have to be achieved primarily through
the development of existing client relationships worldwide and of new business
in non-U.S. markets. See "Business -- Reinsurance Products -- Geographic
Diversification."
29
<PAGE> 33
Investment income was $32.7 million and $20.1 million for the years ended
September 30, 1995 and 1994, respectively, net of investment expenses consisting
primarily of investment advisory and custodial fees. The 1994 fiscal year
results reflect interest rates that were low by historical standards. Rates
began to rise in the latter half of that fiscal year and continued to increase
during the first part of the 1995 fiscal year, then softened somewhat. The
average yield on GCR's investment portfolio for the years ended September 30,
1995 and 1994 was 6.6% and 4.6%, respectively. The investment portfolio consists
of short duration, high quality fixed income investments. See
"Business -- Investments." Realized gains (losses) on investments were $0.4
million for the year ended September 30, 1995 and $(10.2) million in the year
ended September 30, 1994. The change in unrealized gains (losses) on investments
was $3.2 million and $(2.7) million, respectively, for those periods. The latter
are recorded as a component of shareholders' equity. Approximately $6 million of
the realized losses in the 1994 fiscal year reflect a decision to shorten the
average maturity of the portfolio in November 1993, which in large measure, but
not completely, insulated the Company from the most serious effects of rising
interest rates later in that fiscal year.
Losses and loss expenses for the years ended September 30, 1995 and 1994
were $35.3 million and $25.3 million, respectively. Of the 1994 amount, $17.6
million was the result of catastrophe losses sustained in the earthquake in
Northridge, California on January 17, 1994. The 1995 losses include $5.8 million
of loss development reported in 1995 related to the Northridge earthquake, plus
$5.3 million resulting from a fire at an industrial plant. The balance of 1995
and 1994 losses was due to reported losses of $14.9 million and $4.7 million,
respectively, plus reserves for losses incurred but not reported. Losses
incurred in the fourth quarter of the 1995 fiscal year were $15.0 million,
including provisions for losses from Hurricanes Luis and Marilyn and a hailstorm
in Germany. GCR is subject to infrequent but severe effects of natural and
man-made catastrophes, which can lead to volatile losses and financial results.
GCR had paid approximately $17.0 million of the $22.9 million of total
incurred losses relating to the Northridge earthquake as of March 31, 1996.
Because earthquake losses involve structural damage that is more difficult to
evaluate and, therefore, require a longer settlement cycle than most property
losses, the amount of GCR's loss from this event may rise modestly. The effect
of the Northridge earthquake on GCR's loss was limited by the fact that, due to
the start-up nature of its operations at the time, GCR had been unwilling to
provide coverage for the risks affected by this event to the extent that it
currently provides (or in the future is likely to provide) coverage for similar
risks.
The Company's loss ratio -- i.e., the ratio of losses and loss expenses to
earned premium -- was 29.3% and 44.6% for the years ended September 30, 1995 and
1994, respectively. The combined ratio, which represents the sum of the loss
ratio and the expense ratio -- i.e., the ratio of acquisition, general and
administrative expenses related to the underwriting of business to earned
premiums -- was 47.9% and 63.2% for those periods, respectively. The decline in
both the loss ratio and the combined ratio during fiscal year 1995 was primarily
due to the absence of a significant loss event during that period compared to
the prior period, in which the 1994 Northridge earthquake occurred.
Acquisition expenses, primarily commission and brokerage related to the
production of written premiums, were $17.1 million and $6.7 million for the
years ended September 30, 1995 and 1994, respectively. The increase in
acquisition expenses for the 1995 fiscal year is directly related to the growth
in earned premiums during that period. Acquisition expenses are amortized over
the underlying contract coverage period. General and administrative expenses
were $8.6 million and $5.3 million in the years ended September 30, 1995 and
1994, respectively. The growth in these expenses in fiscal year 1995 reflects
growth in staff size, travel expenses and the opening of GCR's office in
Belgium, as well as expenses associated with the line of credit established in
August 1995 and with the 1995 IPO, a substantial portion of which were accrued
during fiscal year 1995. See "-- Liquidity and Capital Resources" and
"Business -- Marketing."
30
<PAGE> 34
Net income for the year ended September 30, 1995 was $90.7 million, or
$3.94 per Ordinary Share. Net income for the 1994 fiscal year was $29.8 million,
or $1.32 per Ordinary Share. The increase in net income is principally
attributable to the start-up nature of GCR's business during these periods, as
well as to the occurrence of the Northridge earthquake in fiscal year 1994 and
the absence of any catastrophic event of comparable severity during the
subsequent fiscal year.
RESULTS OF OPERATIONS, SIX MONTHS ENDED MARCH 31, 1996 AND 1995
Written premiums for the six months ended March 31, 1996 were $74.0
million, a decrease of 6.6% compared to written premiums for the same period of
the prior fiscal year. This decrease was the result of several factors which
became apparent in the most recent quarter: increasing price competition in
GCR's property catastrophe line of business, a reduction in reinstatement
premium associated with favorable loss experience and negative adjustments of
premium associated with proportional business. Price competition has caused GCR
to reduce, and in some cases cancel, its participation in business it does not
consider to be adequately priced. Premium rates in the global property
catastrophe market have decreased in recent periods due to favorable loss
experience in the industry.
If and while this favorable loss experience continues, management expects
further downward pressure on rates during the remainder of 1996 and into 1997,
which would continue to adversely affect the level of premiums written by GCR.
Management expects the level of premiums written to continue decreasing during
the second half of the current fiscal year compared to the same period last
year. The amount of the decrease from the prior year period may be greater in
the second half than it was in the first six months of the current fiscal year
because, due to industry renewal practice, a larger portion of the reinsurance
programs written by GCR in the second half will involve international risks, for
which premium rates generally have declined further than those for domestic
risks in recent periods. In addition, premiums written in the second half of the
current fiscal year are expected to be affected by a shift in renewal dates for
certain existing programs from the third to the fourth fiscal quarter. See
"Business -- Industry Trends."
For the first six months of the current fiscal year, premiums earned were
$63.5 million, an increase of 13.7% compared to the first six months of the
prior fiscal year. This increase reflects the practice of earning premiums
ratably over the reinsurance contract period (generally one year) and,
therefore, the earning of premiums written largely in fiscal year 1995, when GCR
achieved significant growth in new business from new and existing clients.
For the six months ended March 31, 1996 losses and loss expenses were $13.4
million compared to $17.2 million for the same period in the prior fiscal year
(which included a loss of $5.3 million from an industrial plant fire), a decline
of 22.1%. GCR was affected by only one significant catastrophic event in the
most recent period (Hurricane Opal, which struck the Florida Panhandle in early
October 1995 and for which the Company incurred losses and loss expenses of $3.5
million) and saw modest favorable loss development regarding events recorded in
previous periods. GCR's loss ratio was 21.1% for the six months ended March 31,
1996, compared to 30.8% for the same period of the prior fiscal year. While loss
experience for the period was favorable, GCR is subject, as noted above, to
infrequent but severe effects of natural and man-made catastrophes, which can
lead to volatile losses and financial results.
Investment income was $15.9 million for the six months ended March 31,
1996. The 4.7% increase from $15.2 million in the six months ended March 31,
1995 is the result of positive cash flow from operations added to the investment
portfolio, which more than offset the effects of declining interest rates and
the use of cash generated from the sale of investment assets to repay
borrowings, under the Credit Agreement in February 1996.
Acquisition expenses were $9.4 million for the first six months of fiscal
year 1996, compared to $6.7 million for the first six months of fiscal year
1995. The increase in acquisition expenses is
31
<PAGE> 35
related to growth of international property catastrophe business and higher
commission rates on proportional business.
General and administrative expenses increased over 60% to $5.1 million for
the first six months compared to the corresponding prior year period. This
increase reflects an increase in GCR's staff, compensation expense of $1.2
million related to an adjustment in the exercise price of certain outstanding
options and certain expenses associated with the 1995 IPO. See "-- Liquidity and
Capital Resources." GCR's expense ratio was 20.3% for the six months ended March
31, 1996, compared to 16.5% for the six months ended March 31, 1995.
Interest expense of $1.9 million for fiscal year 1995 and $3.6 million for
the six months ended March 31, 1996 reflects the borrowing under the Credit
Agreement in August 1995 of $142 million at 6.7% per annum. The borrowing was
repaid by February 1996. See "-- Liquidity and Capital Resources."
For the first six months of fiscal year 1996 and 1995, respectively, net
income was $49.2 million and $42.9 million, or $2.01 and $1.88 per Ordinary
Share. This increase in net income is attributable primarily to the favorable
loss experience during the current fiscal year to date and the start-up nature
of GCR's business during the first half of fiscal year 1995.
For a discussion of developments involving GCR's lines of business, see
"Business -- Strategy -- Opportunities in New Lines" and "-- Reinsurance
Products."
LIQUIDITY AND CAPITAL RESOURCES
The Company raised approximately $441 million in cash, net of placement
costs, through an initial placement of Ordinary Shares in October 1993. Of this
amount, approximately $440 million was contributed to Global Capital Re.
The Company is a holding company that conducts no operations of its own and
whose assets essentially consist of its equity interest in Global Capital Re.
Consequently, the Company's cash flows are limited to distributions from Global
Capital Re and borrowings under the Credit Agreement, which are the only sources
of cash to pay creditors and to pay any dividends to holders of Ordinary Shares.
See "-- The Credit Agreement." Distributions by Global Capital Re to the Company
are limited pursuant to the statutory capital and surplus requirements described
below. As a result of the application of those requirements to the financial
position of Global Capital Re as of September 30, 1995, Global Capital Re would
be required to notify Bermuda authorities before making any distribution to the
Company in excess of approximately $121.5 million during the 1996 fiscal year.
This amount is determined based on Global Capital Re's financial position as of
September 30 of each year and is subject to annual adjustment, upward or
downward, depending on Global Capital Re's operating results, particularly the
frequency and severity of claims made under the reinsurance coverage it
provides. In addition, the full $150 million is currently available to the
Company for borrowing under the revolving credit facility, as described below,
assuming the Company is able to continue meeting the minimum net worth and other
requirements thereunder.
GCR generated cash flow from operations of $104.9 million and $55.0 million
during the years ended September 30, 1995 and 1994, respectively. Cash flow from
operations was $42.2 million for the first six months of fiscal year 1996
compared to $49.1 million for the same period of fiscal year 1995. These amounts
represent the excess of premiums collected and net investment income over
losses, loss expenses and underwriting and other expenses paid. Net cash flows
from operating activities are added to funds available for investment by Global
Capital Re. GCR is unable to predict its cash flow from operating activities, as
it may be required to make large catastrophe claims payments to its clients. In
years in which GCR experiences a relatively low level of catastrophe losses
(such as the past two fiscal years and the current fiscal year to date), cash
flow from operations should be substantial. However, GCR can be expected to
incur significant catastrophe losses from time to time and, as a result,
generate substantially reduced or even negative cash flow
32
<PAGE> 36
from operating activity. As a consequence, cash flow from operating activities
may fluctuate substantially between individual quarters and years.
Substantially all of GCR's funds have been invested in a portfolio of short
duration, high quality fixed income investments maintained by Global Capital Re.
At March 31,1996, the fair value of GCR's investment portfolio was $423.4
million, all of which was invested in securities rated investment grade by
Standard & Poor's Corporation ("S&P"). GCR's investment portfolio is structured
to provide liquidity to meet requirements for large loss payments to clients in
the event of significant catastrophes. All of GCR's investments are currently
classified as securities available for sale and are carried at fair value in the
financial statements.
Cash flow used in investing activity (i.e., the net purchase of investments
for GCR's portfolio), amounted to $121.4 million in fiscal 1995 and $374.5
million in fiscal year 1994. Cash flow provided by investing activities (i.e.,
the net liquidation of investments in GCR's portfolio) was $61.6 million in the
latest six-month period, compared to $146.2 million of cash flow used in
investing activities in the corresponding period in the prior fiscal year. In
the most recent six-month period, investments were liquidated to provide funds
to repay borrowings under the Credit Agreement in February 1996.
In fiscal year 1994, cash flow from financing activity related primarily to
the initial funding of the Company and amounted to $441 million in cash. In
fiscal year 1995, significant financing activity consisted of borrowing under
the Credit Agreement, substantially all of which was used to pay a portion of
the 1995 Distribution to shareholders, resulting in a net use of funds of $63.5
million.
Under the terms of most of its reinsurance contracts covering U.S. risks
and some covering non-U.S. risks, GCR is required to provide letters of credit
to reinsureds (at the end of their fiscal years) in amounts sufficient to cover
any outstanding claims and/or unearned premiums. GCR currently obtains these
letters of credit from one commercial bank and secures them by depositing
securities with the bank. The maximum amount deposited in respect of all such
letters of credit at any one time through March 31, 1996, and the amount
deposited on such date, was $30.4 million.
In August 1995, the Company entered into the Credit Agreement (amended as
of October 27, 1995 and February 28, 1996) with various commercial banks, for
which The First National Bank of Chicago is acting as agent, and borrowed
approximately $142 million under the facility. The Company used substantially
all of these borrowed funds, together with available cash generated from the
sale of the Company's investment portfolio, to pay the 1995 Distribution, which
totalled approximately $201 million and was paid on August 18, 1995. Of these
borrowings, $34 million was repaid out of the proceeds of the exercise of the
Sponsors' Warrants on December 22, 1995 and the remaining $108 million was
repaid out of the proceeds of the liquidation of investments on February 22,
1996. The full $150 million line of credit is currently available for borrowing.
See "-- The Credit Agreement" below.
The Company paid dividends in respect of its Ordinary Shares each totalling
$15.9 million, or $0.62 per share, on February 27, 1996 and on May 15, 1996. In
addition, simultaneously with the closing of the Offering, Global Capital Re
will repurchase from the Underwriters 1,000,000 of the Ordinary Shares being
offered hereby, at the initial public offering price net of the underwriting
discount shown on the front cover of this Prospectus. The closing of the GCR
Repurchase will occur simultaneously with the closing of the Offering. Based on
an assumed net purchase price of $25 per share, the GCR Repurchase would reduce
GCR's shareholders' equity by approximately $25 million. The purchase price will
be funded by a sale of a portion of Global Capital Re's investment portfolio.
Because the actual purchase price paid by Global Capital Re will not be known
until the pricing of the Offering and will depend on market conditions and other
factors, the actual effects of the GCR Repurchase on GCR's consolidated
financial position cannot be precisely quantified at this time. The shares
purchased by Global Capital Re, while held by it, will continue to carry the
dividend, voting and other rights associated with outstanding Ordinary Shares
but, for purposes of GCR's consolidated financial statements after the Offering,
such shares will be treated as if they have been retired. There is no assurance
as to whether or when such shares will be transferred to the Company and
retired.
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In the 1995 IPO, which closed on December 22, 1995, 7,618,750 Ordinary
Shares were sold on behalf of the Company's original shareholders at an initial
public offering price of $18.50 per share (or $17.30 per share net of
underwriting discount). All offering proceeds were received by the selling
shareholders. The Company incurred expenses related to the 1995 IPO of
approximately $2.0 million, a substantial portion of which was accrued in the
1995 fiscal year. In connection with the 1995 IPO, the Company's shareholders
approved an increase in the Company's authorized capital and the Share Split,
which was effected in the form of a share dividend on December 22, 1995. In
addition, the Company's sponsors exercised the Sponsors' Warrants to acquire
3,303,655 Ordinary Shares at an aggregate exercise price of $36.3 million
($11.00 per share), substantially all of which was used to repay a portion of
the outstanding borrowings under the Credit Agreement.
GCR has no material commitments for capital expenditures. Based on its
current operating plans and financial position, GCR believes that its liquidity
will be adequate in the foreseeable future. However, as a property catastrophe
reinsurer, GCR's liquidity is subject to sudden and substantial losses that
could materially impair its financial position or results of operations.
BERMUDA REGULATORY CAPITAL REQUIREMENTS
The Company's ability to pay dividends to shareholders is limited by the
Insurance Act, which requires Global Capital Re to maintain a minimum solvency
margin and a minimum liquidity ratio. In March 1995, the Insurance Act was
amended to establish four classes of insurers in the area of general business.
Global Capital Re applied to and obtained from the Bermuda Registrar of
Companies approval as a class 4 insurer, having met the requirement of a minimum
of $100 million of total statutory capital and surplus. The requirements of a
class 4 insurer -- the highest available class -- are intended to assure the
world insurance market of the license-holder's long-term stability and sound
financial condition. This classification requires that Global Capital Re file an
affidavit as to solvency, declaring that it will remain in compliance with the
solvency margin and minimum capital and surplus requirements in the event a
proposed dividend is in excess of 25% of its statutory capital and surplus. In
addition, dividends are prohibited where payment would cause Global Capital Re
to be in breach of these regulations. The solvency margin requirement is the
greater of $100 million, 50% of net premiums written (with maximum credit of 25%
for reinsurance ceded) or 15% of loss reserves. If Global Capital Re were to
reduce its capital by more than 15% of that contained in its statutory financial
statements for the prior fiscal year, it would be required to apply to the
Minister of Finance (the "Minister") for approval and file certain required
information, including an affidavit declaring that it would remain in compliance
with the required solvency margin and continue to have $100 million of statutory
capital and surplus. The Company does not expect these requirements to impose
any significant limitations on the Company's liquidity, based on Global Capital
Re's current capital structure and operating results. See note 13 to the
consolidated financial statements.
THE CREDIT AGREEMENT
The Company currently has no outstanding borrowings under the Credit
Agreement. The Company would be required to comply with the Credit Agreement,
the principal provisions of which are summarized briefly below, at any time when
borrowings are outstanding under the facility. In addition, the facility will
not be available to the Company for further borrowings unless the requirements
of the agreement have been satisfied.
The Credit Agreement provides that the Company may not pay dividends or
make other distributions in any fiscal year in amounts that, in the aggregate,
would exceed GCR's consolidated net income for the prior fiscal year or if any
material or incipient default exists under the facility. Pursuant to the Credit
Agreement, the Company has also agreed, among other things, that (i) it will use
the funds borrowed under the facility only to meet its general needs and those
of Global Capital Re; (ii) other than pursuant to the Credit Agreement, it will
not incur indebtedness in excess of $5 million, or grant any lien, subject to
certain limited exceptions; (iii) it will not effect any merger,
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asset sale or other significant business combination; (iv) it will not dispose
of more than 10% of its assets on a consolidated basis; (v) it will limit its
investments to certain specified categories; and (vi) it will maintain a
consolidated net worth, and cause Global Capital Re to maintain a net worth, of
at least $250 million (as of March 31, 1996, such consolidated net worth of the
Company was approximately $426 million or approximately $385 million after
payment of the May 1996 dividend and the GCR Repurchase, assuming a net purchase
price of $25 per share) and will cause Global Capital Re to maintain a ratio of
premiums written to net worth, determined as of the end of each fiscal quarter
for the four fiscal quarters ending on such date, of not more than 0.75 to 1.0
(as of March 31, 1996, such ratio was less than 0.31 to 1). In addition, the
Credit Agreement provides that the Company may not pay dividends, repurchase
shares or make other distributions to its shareholders during any fiscal year in
an aggregate dollar amount that exceeds its consolidated net income for the
previous fiscal year. As security for its obligations under the Credit
Agreement, the Company has pledged to the agent for the lenders all of the
capital shares of Global Capital Re. The revolving credit facility terminates on
August 17, 1998.
The Credit Agreement provides for advances in the form of Eurodollar loans
bearing interest at the London Interbank Offered Rate ("LIBOR") plus 60 or 70
basis points, depending upon the amount of outstanding borrowings, or in the
form of U.S. floating rate loans bearing interest at an annual rate equal to the
higher of the federal funds rate plus 50 basis points per annum or the corporate
base rate of The First National Bank of Chicago, as announced from time to time.
U.S. floating rate loans continue until the Company elects to continue a
borrowing as a Eurodollar loan; Eurodollar loans require a selection by the
Company of another Eurodollar loan or a U.S. floating rate loan. If no selection
is made by the Company at the end of a Eurodollar interest period, the loan is
automatically converted into a U.S. floating rate loan. Interest is payable
quarterly for U.S. floating rate loans or on the last day of the applicable
interest period for Eurodollar loans. U.S. floating rate loans may be prepaid
without penalty on any scheduled interest payment date. Eurodollar loans may be
prepaid in exchange for indemnification of the lenders against losses or costs
incurred by them resulting from such prepayment. All loans mature on August 17,
1998 if not prepaid.
The Company has agreed to pay to the lenders under the Credit Agreement a
commitment fee of between 0.175% and 0.20% of the daily unborrowed portion of
the facility. The Company can permanently reduce the total commitment of the
lenders (and therefore its commitment fee) by giving three days' notice to the
agent for the lenders.
A default under the Credit Agreement will occur when, among other
occurrences, the Company (i) fails to repay any principal or interest, (ii)
fails to comply with the covenants referred to above, (iii) fails, or Global
Capital Re fails, to pay any material amount due under indebtedness to any other
person, (iv) files, or Global Capital Re files, for bankruptcy or otherwise
becomes unable to pay its debts generally as they become due, (v) there occurs a
change of control (defined generally as the acquisition by any person or group
(other than Goldman, Sachs & Co. and their affiliates) of beneficial ownership
of 20% or more of the Ordinary Shares (the Offering is not expected to result in
such an acquisition) or the turnover within a 25-month period of a majority of
the Company's Board of Directors) or (vi) Global Capital Re has any regulatory
proceedings instituted against it. Upon a default (other than a default under
(iv) above with respect to which acceleration would be automatic), the lenders
holding at least 66 2/3% of the outstanding loans under the facility may
accelerate the maturity of all borrowings thereunder and the agent for the
lenders may foreclose upon, and hold or dispose of, the capital shares of Global
Capital Re in satisfaction of any amounts owed thereunder.
CURRENCY
GCR's functional currency is the U.S. dollar. However, while substantially
all of GCR's investments are in U.S. dollar-denominated instruments, the
premiums receivable and losses payable in respect of a substantial portion of
GCR's business are denominated in currencies other than U.S. dollars. Under U.S.
generally accepted accounting principles, GCR records premiums
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written and receivable in foreign currencies at exchange rates prevailing on the
date the contract attaches and loss reserves for losses payable in foreign
currencies at rates prevailing on the date such reserves are first recorded.
Changes in exchange rates are reflected in GCR's balance sheet by a revaluation
of the relevant assets and liabilities, and the net revaluation is recorded in
GCR's consolidated statement of income as exchange gain or loss. GCR may, from
time to time, experience significant exchange gains and losses, which would in
turn affect GCR's financial position and results of operations. See
"-- Liquidity and Capital Resources."
GCR has not hedged its currency exposure with respect to premiums
receivable or losses payable. With respect to losses payable, GCR does not hedge
its currency exposure prior to the occurrence of an event that may give rise to
a claim, although it may purchase a currency hedge after a major event occurs.
After a catastrophe occurs, GCR's loss settlement cost may increase if the
related claims are denominated in a foreign currency that appreciates against
the U.S. dollar during the claim settlement period. To date, GCR has not
incurred any significant claims that are payable in currencies other than U.S.
dollars. See note 15 to the consolidated financial statements.
GCR's investment portfolio does not currently include options, warrants,
swaps, hedges, collars or similar derivative instruments. GCR has no plans to
change its investment strategy to provide for the purchase of such instruments
other than in the limited circumstances described above.
EFFECTS OF INFLATION
GCR estimates the effects of inflation on its business and reflects these
estimates in the pricing of its reinsurance contracts. Because of the relatively
short claims settlement cycle associated with its reinsurance portfolio, GCR
generally does not take into account the effects of inflation when estimating
reserves. The actual effects of inflation on the results of GCR cannot be
accurately known until claims are ultimately settled.
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BUSINESS
GENERAL
The Company, through Global Capital Re, its Bermuda-domiciled subsidiary,
provides property catastrophe and, to a limited extent, other short-tail
property reinsurance on a worldwide basis. In the first six months of fiscal
year 1996, approximately 66% of this reinsurance covered property catastrophe
risks, of which 96% was written on an excess-of-loss basis. Substantially all
reinsurance written by Global Capital Re was written for primary insurers rather
than reinsurers. Global Capital Re had 233 clients on March 31, 1996, including
many of the leading insurance companies around the world. At that date,
approximately 55% of Global Capital Re's clients were based in the United States
and approximately 55% of its premiums written on policies in force related to
U.S. risks. The balance of Global Capital Re's clients and covered risks were
located in the largest international insurance markets, principally in Europe,
Japan and Australia/New Zealand.
GCR was established in 1993 through the sponsorship of Goldman, Sachs &
Co., a leading international investment banking firm, and Johnson & Higgins, a
leading global provider of insurance and reinsurance brokerage services. These
firms, together with their affiliates, own approximately 17.2% and 6.4%,
respectively, of the Ordinary Shares and, upon completion of the Offering and
the GCR Repurchase, will own approximately % and %, respectively, of the
Ordinary Shares (in each case calculated on the basis set forth in the notes to
"Principal and Selling Shareholders"). See "Certain Relationships and Related
Party Transactions." GCR was formed in response to a severe imbalance between
the global supply of and demand for property catastrophe reinsurance that
developed in 1993. This imbalance resulted from relatively high levels of
worldwide property catastrophe losses in prior years, particularly 1992 when
Hurricane Andrew occurred, causing some reinsurers to withdraw from the market
or curtail their participation and leading to a very substantial increase in
premium rates and retention levels throughout this market in 1993. Based on
industry trade publications and information obtained from clients and brokers,
management believes that, in response to these developments, over $4.0 billion
of capital has entered the Bermuda-based property catastrophe reinsurance market
since November 1992, making Bermuda a leading global source of this reinsurance.
See "-- Industry Trends." GCR began operations in October of 1993.
GCR's principal operating objective is to underwrite property catastrophe
risks in a manner that maximizes shareholders' return on equity. Accordingly,
its underwriting strategy is based on two main principles. First, in selecting
its reinsurance programs, GCR targets clients with reputations for quality
underwriting and risks that its analysis indicates have superior risk/return
profiles. Second, in managing its portfolio of reinsurance contracts, GCR seeks
to limit its aggregate loss exposure in any one geographic zone to a specified
level rather than measuring and managing risk primarily in relation to premium
volume.
STRATEGY
The principal components of GCR's business strategy may be summarized as
follows:
- Focus on Property Catastrophe Reinsurance Business. GCR's primary
focus is property catastrophe reinsurance, which, for fiscal year 1995
and the first six months of fiscal year 1996, accounted for
approximately 72% and 66%, respectively, of GCR's premiums written.
Management intends to maintain this focus for the foreseeable future,
although, in order to promote diversification of risk, GCR may seek to
take advantage of perceived opportunities in other short-tail
reinsurance or insurance markets if it believes that the associated
rates of return are attractive. See "-- Opportunities in New Lines"
below.
- Focus on Geographic Diversity and the Global Market. GCR seeks to
provide property catastrophe reinsurance on a worldwide basis, both to
achieve geographic diversification of its reinsurance portfolio (and
thereby to improve the spread of risk) and to expand its client base.
While U.S. insurers currently account for the largest portion of GCR's
premiums written, about half of GCR's clients are non-U.S. insurers.
Management is
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seeking to expand the portion of the reinsurance portfolio attributable
to non-U.S. clients, particularly those in Europe, and to that end
opened an office in Brussels, Belgium in late 1994 from which to
conduct its European marketing effort. As a result of these efforts,
premiums written under contracts with non-U.S. clients rose from
approximately 36% in fiscal year 1994 to approximately 43% in fiscal
year 1995 and to approximately 44% in the first six months of fiscal
1996. Management expects to continue its efforts in this regard and, as
a result, that international clients will represent an increasing
proportion of new business for GCR for the foreseeable future. See
"Business -- Reinsurance Products -- Geographic Diversification."
- Target Returns on Equity. The Company seeks to employ its capital in
a manner that maximizes its rate of return on equity. Consequently, the
Company targets an average return on shareholders' equity of
approximately 20% to 25% over time and a dividend payout that would
total, in each fiscal year, approximately 60% to 80% of the Company's
net operating earnings (which exclude any realized investment gains and
losses), if any, in the prior fiscal year. As an important first step
toward these goals, the Company distributed approximately $201 million
of its capital to shareholders in the 1995 Distribution. During the
current fiscal year to date and consistent with its dividend policy,
the Company has declared two quarterly dividends totalling $31.8
million. On an annualized basis, these dividends represent a dividend
payout of approximately 70% of the Company's net operating earnings for
fiscal year 1995. As part of the Company's continuing efforts to
achieve its capital targets, Global Capital Re will repurchase
1,000,000 of the Ordinary Shares being offered hereby, at the initial
public offering price net of the underwriting discount. Assuming a net
offering price of $25 per share, the GCR Repurchase would reduce GCR's
capital by $25 million, thereby further enhancing its ability to pursue
a return on equity within its current target range. GCR achieved a
return on average shareholders' equity of 25.0% during fiscal year 1995
on a pro forma basis (after giving effect to the 1995 Distribution, the
GCR Repurchase and certain related events) and 25.0% during the first
six months of fiscal year 1996 on a pro forma, annualized basis (after
giving effect to the GCR Repurchase and certain other events). See
"Selected Pro Forma Financial Data." The Company's ability to meet its
capital management and dividend targets in the future will depend on
various factors, some of which are beyond its control, and these
targets are subject to change at the discretion of the Board of
Directors. See "Risk Factors" and "Dividend Policy."
- Underwriting Goals: Target Programs with a Superior Risk/Return
Profile and Manage Aggregate Loss Exposure. In furtherance of its goal
of enhancing shareholder returns, GCR's underwriting strategy is based
on two main principles.
-- First, GCR intends to write reinsurance only on terms that its
analysis indicates will yield a superior underwriting profit.
Consequently, GCR targets clients with a reputation for quality
underwriting and reinsurance programs with superior risk/return
profiles. In deciding which programs to underwrite, GCR assesses the
adequacy of the proposed pricing terms in the light of the
associated risk and the ultimate effect of the program on GCR's
overall rate of return on capital, relying on proprietary and other
computer modelling systems and on the analysis and judgment of its
experienced underwriting team. Substantially all of GCR's
reinsurance is written for primary insurance companies; GCR
generally does not write reinsurance on a retrocessional basis.
Consequently, GCR is generally able to obtain underwriting data
about its risks that is more comprehensive and reliable and is able
to monitor the primary underwriting process more effectively than
would otherwise be the case. As a result of its selective
underwriting strategy, GCR offered capacity for only 15% of the new
reinsurance programs submitted for its review (i.e., excluding
renewals of existing
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business) in fiscal year 1995 and 13% in the first six months of
fiscal year 1996. During these periods, GCR underwrote 105 and 37
programs, respectively, for new clients. Recently, as premium rates
in the global property catastrophe reinsurance market have
decreased, GCR has sought to maintain underwriting discipline by
declining to offer coverage on a substantial number of programs
submitted for its review with proposed pricing terms that management
considered inadequate. These underwriting decisions have contributed
to a reduction in GCR's written premiums in the current fiscal year.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
-- Second, in managing its portfolio of reinsurance contracts, GCR
seeks to limit its aggregate loss exposure in any particular
geographic zone to a specified level rather than measuring and
managing risk primarily in relation to premium volume. GCR has
divided its markets into 33 geographic zones and limits the coverage
it is willing to provide for any risk located in a particular zone
so as to maintain its aggregate loss exposure from all risks
believed to be located in that zone below a predetermined level.
This means that GCR intends to pursue new business opportunities in
markets where its per zone exposure is generally below the
applicable limit, and not necessarily in markets where premium
growth is fastest. GCR believes that this approach should lead to an
improved balance of risk worldwide, which should moderate the
effects of catastrophic events compared to a book of business
accumulated without regard to geographic zone limits. Some of GCR's
competitors may follow a similar strategy. GCR also manages its
portfolio loss exposure by imposing loss-per-event limits on almost
all its reinsurance contracts, by writing most of its contracts on
an excess-of-loss basis so as to limit claims resulting from
relatively high frequency, low severity events and by limiting the
amount of coverage it provides to any one insurer.
- Use of Proprietary Computer Modelling Systems. In assessing pricing
adequacy and managing loss exposure, GCR uses two computer-based
systems designed to estimate the losses that could occur under a
particular program or in all programs in a particular zone as a result
of various potential catastrophic events. For U.S. risks, GCR uses
NEMESIS(C), a proprietary system developed by management, and
CATMAP(TM), a commercially available software program developed by
Applied Insurance Research, Inc. ("AIR") and licensed to GCR. Similar
techniques are used for non-U.S. risks, although loss data is generally
more limited in those markets. Management believes that NEMESIS(C)
provides GCR with an important alternative means of evaluating
potential loss exposure. See "-- Underwriting -- Computer Modelling."
- Capitalize on the Experience and Skill of Management. The members of
GCR's senior underwriting team have, on average, over 25 years of
experience in the insurance and reinsurance industries, including, on
average, over 17 years of experience in the property reinsurance
industry, and are familiar with each of the reinsurance markets in
which GCR competes. See "Management." By pursuing a business strategy
that emphasizes quality underwriting as indicated above, GCR is able to
capitalize on the underwriting and actuarial expertise of this team.
GCR considers this expertise to be a competitive advantage.
- Build Long-Term, Preferred Client Relationships. By targeting clients
with a reputation for quality underwriting and managing its reinsurance
portfolio on the basis of aggregate loss exposure, GCR believes it has
developed mutually beneficial, and therefore potentially long-term,
relationships with its clients. In particular, as evidenced by its
success in establishing relationships with targeted clients, GCR
believes that its policy of adhering to limits on geographic zone loss
exposures is highly attractive to "blue chip" insurance companies,
which tend to place great emphasis on capital strength in selecting a
reinsurer, and thus greatly enhances GCR's ability to attract and
develop long-term
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relationships with preferred clients. Given the industry practice of
offering renewal opportunities to existing reinsurers (i.e., the
tendency of client companies to prefer a long-term relationship with
well capitalized reinsurers to achieve security and continuity of
coverage in and subsequent to periods of significant loss experience),
new business opportunities are relatively limited, making strong client
relationships particularly important. For the same reason, GCR believes
that its existing reinsurance portfolio is a valuable asset and a
competitive advantage in retaining existing business as it comes up for
renewal. This industry practice was a significant factor in GCR's
ability to retain, in fiscal year 1995, 99% of the programs written in
the prior fiscal year on which it offered capacity and, in the first
six months of fiscal year 1996, 98% of the programs written in the same
period in the prior fiscal year on which it offered capacity.
Approximately 66% and 83% of the programs underwritten by GCR during
these periods, respectively, were renewals of programs underwritten in
the prior fiscal year. See "-- Marketing."
- Maintain a Low Cost Structure. Management believes that, because of
its ability to maintain a small staff and by basing operations in the
favorable regulatory and tax environment of Bermuda, GCR is able to
maintain low operating costs relative to its capital base and premiums
earned. As of March 31, 1996, GCR had 15 employees and, for the first
six months of fiscal year 1996, its general and administrative expenses
related to underwriting (excluding acquisition expense and expenses
related to the 1995 IPO) accounted for approximately 4.7% of its
premiums written.
- Opportunities in New Lines. Although GCR remains focused principally
on the property catastrophe reinsurance market, it continues to explore
opportunities to build or acquire new lines of business throughout the
world. Management's objective is to identify new lines that are
compatible with GCR's property catastrophe lines, that do not increase
the concentration of GCR's exposure to catastrophic events and that
will contribute to shareholder value. To date, these efforts have
focused on expanding GCR's portfolio of marine reinsurance business,
which represents a growing portion of GCR's premiums written. The
Company is also exploring possible opportunities in marine insurance.
There can be no assurance that new opportunities will be identified or
as to the effect that any new lines might have on GCR.
INDUSTRY TRENDS
Based on data presented in industry trade publications, reports prepared by
reinsurance industry analysts, underwriting submissions and meetings with
clients and brokers, management believes that the relatively high level of
worldwide property catastrophe losses from 1987 to 1993 has had a significant
effect on the results of property insurers and property catastrophe reinsurers
and on the property catastrophe reinsurance market. Management believes that,
since 1993, several leading reinsurers have withdrawn from, or substantially
reduced their commitments to, the global property catastrophe reinsurance
market, particularly in the United States, and the number of syndicates at
Lloyd's of London, which has long been a leading global source of such
reinsurance, has declined by approximately 25%. At the same time, management
believes these catastrophic losses resulted in a substantial increase in
worldwide demand for property catastrophe reinsurance.
In particular, Hurricane Andrew in 1992 caused unprecedented insured claims
in excess of $16 billion industry-wide, as estimated by the American Insurance
Services Group, and caused many insurers and property catastrophe reinsurers to
reassess their assumptions concerning their maximum potential catastrophe
exposure and their need for reinsurance. The largest insured earthquake loss in
U.S. history occurred in Northridge, California in January 1994, causing insured
claims in excess of $12 billion industry-wide, as estimated by the American
Insurance Services Group. The demand for property catastrophe reinsurance also
increased due to greater scrutiny by rating agencies of insurers and reinsurers
with respect to catastrophe exposure. For example, A.M. Best now requires
reinsurers rated by it to complete a catastrophe loss analysis questionnaire
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dealing with expected claims resulting from future catastrophic events. Also, as
a result of these losses, property catastrophe reinsurers became generally
unwilling to provide proportional coverage without an aggregate risk exposure
limit per occurrence. These factors have contributed to increased demand for
CATASTROPHE EXCESS-OF-LOSS REINSURANCE of the type written by GCR.
Based on these sources, management believes that these developments
contributed to a severe imbalance between the supply of and the demand for
property catastrophe reinsurance worldwide in 1993, which led to a substantial
overall increase in premium rates (which more than doubled) and retentions in
the global market during that year. Also, based on these sources, management
believes that in response to these developments, over $4.0 billion of capital
entered the Bermuda-based property catastrophe reinsurance market beginning in
November 1992, making Bermuda one of the world's leading sources of this
reinsurance. Industry analysts estimate that the Bermuda market currently writes
about 25% of worldwide property catastrophe reinsurance premiums. As a result of
these capital flows, management believes that worldwide premium rates and
retentions stabilized in 1994 relative to 1993.
Based on these sources, management believes that premium rates in the
global property catastrophe reinsurance market decreased by an average of 10% to
15% in 1995 compared to 1994 and in the first quarter of calendar year 1996
compared to the same period last year, as a result of favorable loss experience.
If and while this favorable loss experience continues, management expects
further downward pressure on rates during the remainder of 1996 and into 1997.
In the U.S. market, where the level of property catastrophe losses has generally
been higher than in international markets in recent years, rates have decreased
but still remain at a higher level than those which prevailed in 1992. Moreover,
the levels of catastrophe risk exposure that U.S. ceding insurers are generally
prepared to retain continue to be substantially higher than in 1992. Higher
retentions tend to reduce GCR's exposure to losses from catastrophic events of
higher frequency and lower severity.
As the foregoing suggests, the absence of severe or frequent catastrophic
events can result in declining premium rates in the global property catastrophe
reinsurance market. For a discussion of the impact that pricing trends have had
on GCR's recent results of operations, see "Management's Discussion of Analysis
of Financial Condition and Results of Operations."
The Company believes that its current dividend and capital management
policies promote its strategic objectives, particularly in periods of declining
pricing. The Company also believes that its focus on returning capital to
shareholders through a high dividend payout allows the Company to maintain its
selective underwriting strategy and to forego writing programs with less
desirable risk/return profiles while still pursuing returns on equity in its
target range of 20% to 25%. See "Dividend Policy."
In recent years, the global reinsurance market has been characterized by a
general trend toward consolidation, as heightened concern about the need for
property catastrophe reinsurance has placed a premium on capital strength of
reinsurers. The Company believes that this trend provides an opportunity for
well capitalized reinsurers like GCR, particularly in certain European markets
where smaller companies have traditionally played a bigger role than in the U.S.
markets.
Overall, management believes that demand for property catastrophe
reinsurance worldwide has increased substantially in recent years and that,
while more recently the supply of such reinsurance has also increased
substantially, this development will continue to create opportunities for well
managed property catastrophe reinsurers. However, GCR intends generally to limit
the new contracts that it writes to those having the most attractive risk/return
profiles and meeting its selective underwriting guidelines. Consequently, in
August 1995, management determined that GCR's initial level of capitalization
was not required for GCR to pursue these market opportunities and, therefore,
returned a substantial portion of the Company's capital to its shareholders in
the 1995 Distribution. Similarly, the Company has determined to return an
additional portion of its capital through the GCR Repurchase. Management
believes that GCR is now well
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positioned to pursue opportunities for new business in the global market for
property catastrophe reinsurance with improved capital efficiency.
For a discussion of certain legislative and industry changes that could
affect global demand for property catastrophe reinsurance, see "--
Regulation -- United States and Other."
REINSURANCE PRODUCTS
GCR principally provides treaty reinsurance to insurers of commercial and
personal property worldwide, typically under treaties having a duration of one
year. As described below, GCR writes this reinsurance principally on an
excess-of-loss basis, with attachment points designed to minimize claims from
relatively high frequency, low severity events, although it also provides select
clients with limited coverage on a proportional basis, whereby it assumes a
specified percentage of the primary insurer's entire loss exposure to a covered
risk. GCR's property catastrophe reinsurance contracts, which include some
written on a proportional basis as well as those written on an excess-of-loss
basis, accounted for 72% of GCR's premiums written during fiscal year 1995 and
66% of those written in the first six months of fiscal year 1996. Coverage
provided under these contracts is generally "all risk" in nature. The balance of
these premiums written was derived from other property reinsurance, including
other proportional property, single risk excess-of-loss and marine reinsurance.
GCR's predominant exposure under these other coverages is to property damage
from earthquakes, hurricanes, windstorms and hailstorms, although GCR is also
exposed to losses from sources as diverse as freezes, riots, floods, industrial
explosions, fires and other man-made or natural disasters. In accordance with
market practice, GCR's property reinsurance contracts generally exclude certain
risks such as terrorism, war, pollution, nuclear contamination and radiation.
Because GCR underwrites property catastrophe reinsurance and has large
aggregate exposures to natural and man-made disasters, management expects that
GCR's claim experience generally will involve infrequent events of great
severity. The occurrence of claims under GCR's reinsurance portfolio, therefore,
will be highly unpredictable and is likely to result in substantial volatility
in GCR's financial results for any fiscal quarter or year. This phenomenon can
be expected to have a material adverse effect on GCR's financial condition or
results of operations or on its ability to write new business, pay dividends or
meet its obligations to creditors from time to time. GCR expects that increases
in the values and concentrations of insured property and the effects of
inflation will continue to increase the severity of catastrophe losses per year
in the future, and, furthermore, that its dividend policy could exacerbate the
adverse effects of unfavorable loss experience by utilizing capital which might
otherwise be available to it to sustain losses. See "Risk Factors -- Volatility
of Financial Results and Dividends; Severity of Possible Losses; Effect of
Dividend Policy."
GCR seeks to diversify its reinsurance portfolio to moderate the volatility
described in the preceding paragraph. The principal means of diversification are
by type of reinsurance and geographic coverage and by varying attachment points
and imposing coverage limits per program. See "-- Underwriting."
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<PAGE> 46
TYPE OF REINSURANCE
The following table sets forth GCR's premiums written and number of
programs written by type of reinsurance.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 MARCH 31, 1995 MARCH 31, 1996
------------------------ ------------------------ ------------------------ ------------------------
PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF
TYPE OF REINSURANCE WRITTEN PROGRAMS WRITTEN PROGRAMS WRITTEN PROGRAMS WRITTEN PROGRAMS
- --------------------------- -------------- --------- -------------- --------- -------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Catastrophe excess of
loss..................... $ 78,095 185 $ 91,037 207 $ 50,154 140 $ 46,901 134
Proportional property
reinsurance (1).......... 13,130 18 28,055 28 16,859 16 15,019 16
Risk excess of loss........ 6,849 22 5,641 29 4,854 25 4,017 25
Marine reinsurance......... 716 5 6,016 25 3,006 18 3,672 28
Retrocessional
reinsurance.............. 2,626 9 5,390 15 4,016 8 3,343 8
Other...................... 649 6 745 8 401 4 1,072 5
-------------- --- -------------- --- -------------- --- -------------- ---
Total.............. $102,065 245 $136,884 312 $ 79,290 211 $ 74,024 216
============= ========= ============= ========= ============= ========= ============= =========
</TABLE>
- ---------------
(1) Includes $7.9 million and $2.1 million of premiums on proportional
reinsurance involving catastrophe risks in the year ended September 30, 1995
and the six months ended March 31, 1996, respectively.
CATASTROPHE EXCESS-OF-LOSS REINSURANCE. Catastrophe excess of loss
reinsurance provides coverage to a primary insurer when aggregate claims and
claim expenses from a single occurrence of a peril covered under a portfolio of
primary insurance contracts written by the insurer exceed the attachment point
specified in the reinsurance contract with the insurer. Most of GCR's property
catastrophe excess of loss contracts limit coverage to one occurrence in a
contract year, although these contracts generally provide for coverage of a
second occurrence after the payment of a REINSTATEMENT PREMIUM.
PROPORTIONAL PROPERTY REINSURANCE. GCR writes proportional property
reinsurance treaties when it believes that premium rates and volume are
attractive. The substantial majority of these contracts provide coverage for
property loss due to non-catastrophe events, such as fires. Under these
contracts, GCR assumes a specified percentage of the risk exposure under a
portfolio of primary property insurance contracts written by the ceding insurer
and receives an equal percentage of the premium received by the ceding insurer.
The ceding insurer receives a commission, based upon the premiums ceded to the
reinsurer, and may also be entitled to receive a profit commission based on the
ratio of losses, loss adjustment expense and the reinsurer's expenses to
premiums ceded. Because there are no attachment points, a proportional property
reinsurer is dependent upon the ceding insurer's underwriting, pricing and
claims administration to yield an underwriting profit. GCR generally obtains
detailed underwriting information concerning the exposures underlying portfolios
of primary insurance contracts. In addition, almost all of GCR's proportional
property reinsurance contracts have aggregate risk exposure limits per event.
RISK EXCESS-OF-LOSS REINSURANCE. GCR also writes RISK EXCESS-OF-LOSS
PROPERTY REINSURANCE. This reinsurance responds to a loss of the reinsured in
excess of its retention level on a single "risk," rather than to aggregate
losses for all covered risks, as does catastrophe reinsurance. A "risk" in this
context might mean the insurance coverage on one building or a group of
buildings or the insurance coverage under a single policy which the reinsured
treats as a single risk. Risk excess contracts are generally all risk in nature,
similar to property catastrophe reinsurance, but tend to cover "risks" that are
substantially larger and thus more concentrated. Property risk excess contracts
have traditionally provided for unlimited reinstatement, sometimes with payment
of an additional premium. Most of the risk excess treaties in which GCR
participates contain a relatively low loss-per-event limit on GCR's liability.
MARINE REINSURANCE. GCR also writes short-tail MARINE REINSURANCE for
selected international insurers. Although they primarily involve property
damage, certain marine risks may involve casualty coverage arising from the same
event causing the property damage. Coverage is generally written in excess of a
substantial attachment point, so events likely to cause a claim will occur
infrequently but
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<PAGE> 47
be relatively severe. Such events might include the destruction of a drilling
platform or the loss of a sizable vessel and its contents. GCR is continuing to
expand its marine reinsurance portfolio.
RETROCESSIONAL REINSURANCE. Because a provider of retrocessional
reinsurance has limited access to underwriting information about the risk
exposures under the primary contracts, GCR's policy is not to write
retrocessional coverage except in a limited number of special cases, and then
only to a highly select number of clients that can demonstrate a focus on
quality underwriting. Pursuant to those few retrocessional treaties, GCR
provides property catastrophe coverage, on either an excess-of-loss or a
proportional basis, to other reinsurers or retrocedents that in turn provide
such coverage generally on an excess-of-loss basis. GCR provides retrocessional
coverage in cases where premium rates are believed to be exceptionally
attractive or the client relationship involves substantial new business
opportunities.
GEOGRAPHIC DIVERSIFICATION
GCR seeks to diversify its exposure across key geographic zones around the
world in order to obtain the optimum spread of risk. At present GCR writes a
higher percentage of its business (based both on the source of premiums and risk
exposure) within the United States, where catastrophe excess of loss rates are
higher than in other markets. Management believes that these higher rates are
due to stronger demand for reinsurance by ceding insurers and reinsurers due to
a higher frequency and severity of catastrophic losses in recent years.
Management believes that, compared to the U.S. market, the incidence of
catastrophic risk events is lower in the European and other non-U.S. markets
and, therefore, intends to increase the portion of its reinsurance portfolio
related to non-U.S. markets. As part of this effort, in October 1994 the Company
opened an office in Brussels, Belgium from which it conducts its marketing
efforts in the European market. The portion of GCR's premiums written under
contracts with non-U.S. insurers rose from approximately 36% in fiscal year 1994
to approximately 43% in fiscal year 1995 and 44% in the first six months of
fiscal year 1996.
The principal property catastrophe reinsurance markets outside the United
States (i.e., those in developed countries with an existing insurance industry
infrastructure) are attractive to GCR primarily because they allow GCR to
diversify the geographic loss exposures in its book of business. The Company
believes that this diversification is an important means of enhancing the
long-term viability of GCR and, therefore, the security it can offer to its
clients.
GCR believes, however, that existing relationships between clients and
reinsurers tend to be, as a general matter, more established in these non-U.S.
markets, particularly in Europe, making the development of new client
relationships in these markets somewhat more difficult to achieve. To more
adequately address the European market, the Company opened an office in
Brussels, Belgium in October 1994 which GCR believes will enable it to penetrate
this market more effectively. In addition, particularly in Europe but also to a
lesser extent elsewhere in these non-U.S. markets, catastrophe losses have not
been as severe in recent years as they have been in the United States, resulting
in lower premium rates for non-U.S. business. This rate disparity is reflected
in the respective percentages of GCR's written premiums attributable to
contracts with U.S. insurers (57%) and to those with non-U.S. insurers (43%) in
fiscal year 1995, despite the fact that the respective numbers of such contracts
are roughly equal.
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<PAGE> 48
The following table sets forth the percentage of GCR's premiums written
allocated to the territory of coverage exposure.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 MARCH 31, 1995 MARCH 31, 1996
------------------------- ------------------------- ------------------------- -------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF OF
GEOGRAPHIC AREA PREMIUMS PREMIUMS PREMIUMS PREMIUMS PREMIUMS PREMIUMS PREMIUMS PREMIUMS
(1) WRITTEN WRITTEN WRITTEN WRITTEN WRITTEN WRITTEN WRITTEN WRITTEN
- ------------------ -------------- ---------- -------------- ---------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
United States..... $ 65,424 64.1% $ 78,069 57.0% $ 46,023 58.0% $ 41,297 55.8%
Japan(2).......... 9,798 9.6 11,279 8.2 0 0 0 0
Europe (including
the U.K.)........ 6,328 6.2 9,898 7.2 9,681 12.2 10,213 13.8
Australia and New
Zealand.......... 5,103 5.0 7,348 5.4 570 0.7 823 1.1
Caribbean......... 919 0.9 5,129 3.8 5,195 6.6 2,875 3.9
Worldwide(3)...... 8,573 8.4 20,133 14.7 12,351 15.6 15,183 20.5
Worldwide,
excluding
U.S.(4).......... 2,245 2.2 2,433 1.8 3,653 4.6 2,333 3.1
Other............. 3,675 3.6 2,595 1.9 1,817 2.3 1,300 1.8
-------------- ---------- -------------- ---------- -------------- ---------- -------------- ----------
Total...... $102,065 100.0% $136,884 100.0% $ 79,290 100.0% $ 74,024 100.0%
==================== =============== ==================== =============== ==================== =================
</TABLE>
-------------------
(1) Except as otherwise noted, each of these categories includes contracts that
cover risks located primarily in the designated geographic area.
(2) The percentages and dollar amounts do not reflect the results of renewals
subsequent to the stated dates, which for Japan, occur primarily in April.
(3) Includes contracts that cover risks located anywhere in the world, including
the United States.
(4) Includes contracts that cover risks located anywhere in the world, excluding
the United States.
One of the most important ways that GCR seeks to manage its portfolio risk
exposure is to limit contract coverage by specific geographic zones. Within the
United States, GCR's zones of highest exposure to loss (though not necessarily
the highest risk of loss) are in the midwest, southeast and mid-Atlantic
regions. See "-- Underwriting -- Managing Loss Exposure." Outside the United
States, GCR's zones of highest exposure to loss are in the northern regions of
Europe (including the United Kingdom) and Japan.
PROGRAM LIMITS
GCR's underwriting guidelines limit catastrophe excess-of-loss exposure
under any single contract, or under all contracts with a single client, to $25
million for any one catastrophic event. As indicated in the table below, the
Company currently has only ten clients that have single event limits between $15
million and $25 million.
The following table sets forth the number and percentage of the Company's
clients with catastrophe excess of loss programs in force at March 31, 1996 by
single event liability limits.
<TABLE>
<CAPTION>
SINGLE EVENT LIABILITY LIMIT NUMBER OF CLIENTS % OF TOTAL
--------------------------------------------------------- ----------------- ----------
<S> <C> <C>
$20-25 million........................................... 2 1.0%
$15-20 million........................................... 8 4.1
$10-15 million........................................... 11 5.6
$ 5-10 million........................................... 28 14.3
Less than $5 million..................................... 147 75.0
----- ----------
Total............................................... 196 100.0%
============== ========
</TABLE>
45
<PAGE> 49
UNDERWRITING
GCR's principal operating objective is to underwrite property catastrophe
risks in a manner that maximizes capital efficiency for shareholders.
Accordingly, its underwriting strategy is based on two main principles,
selecting programs with superior risk/return profiles and managing its aggregate
loss exposure by means of geographic zone limits. These principles are described
in more detail below.
GCR requires that each proposed reinsurance program submitted for its
review include detailed information about the nature and locations of the
various risks to be covered, the ceding insurer's loss history for the risks and
the underwriting data reviewed, and the underwriting criteria applied, by the
ceding insurer with respect to these risks. GCR first evaluates the loss
exposure associated with the proposed program, in relation to its zonal limits,
program limits and per-insured limit. If the program meets those requirements,
GCR then evaluates the program in terms of its risk/return profile to assess the
adequacy of the proposed pricing and its potential effect on GCR's overall rate
of return on capital. If the program meets GCR's selective pricing criteria, the
program may then be accepted.
At both stages of the evaluation process, GCR uses the computer-based
modelling techniques described under "-- Computer Modelling" below to assess
potential loss exposure. In addition, the senior underwriter responsible for the
U.S. market or the senior underwriter responsible for the non-U.S. market, as
applicable, makes a detailed review of the data and pricing proposals submitted
and, based on his own analysis and judgment and taking into account the
computer-based evaluations and underwriting guidelines, makes a recommendation
to accept or decline the proposal.
Generally, the proposed terms of coverage, including the premium rate and
retention level for excess-of-loss contracts, are negotiated by one or more lead
underwriters with the client and its broker. If not a lead, GCR, as is
customary, generally does not attempt to vary the proposed terms and either
accepts or declines to participate on the proposed terms. If GCR elects to
participate, it will specify its percentage participation in each LAYER of
coverage to be provided, and will execute a contract directly with the ceding
insurer, generally for a term of one year. GCR's reinsurance contracts do not
provide benefits to any third party other than the ceding insurer.
GCR's policy is that no reinsurance program may be accepted without the
recommendation of the senior underwriter for the relevant market and the
approval of both the chief actuary and the chief executive officer. In addition,
if the relevant senior underwriter proposes to accept a program that exposes the
Company to a risk of loss in excess of $10 million or that does not meet GCR's
underwriting guidelines, Global Capital Re's operating committee, composed of
the senior underwriters for both the U.S. and non-U.S. markets, the chief
actuary and the chief executive officer, must meet and approve the exception as
a group. GCR's underwriting guidelines were established and initially reviewed
by a committee designated by the Company's Board of Directors, which included
the members of the Global Capital Re operating committee plus the Chairman of
the Board of the Company. In December 1995, the Company's Board of Directors
established an Executive Committee which has assumed responsibility for
reviewing the underwriting guidelines from time to time. See
"Management -- Provisions Governing the Board of Directors -- Supervisory and
Consulting Arrangements."
Generally, about 50% of premiums written by GCR each year are for contracts
which have effective dates in January, about 20% in April, about 15% in July and
the remainder at other times throughout the year. Premiums are generally due in
installments over the contract term, with each installment generally received
within 60 days after the due date.
As part of the underwriting process, GCR typically assesses a variety of
factors, including the reputation of the proposed CEDENT and the likelihood of
establishing a long-term relationship with the cedent; the geographic area in
which the cedent does business and its market share; historical
46
<PAGE> 50
loss data for the cedent and, where available, for the industry as a whole in
the relevant regions, in order to compare the cedent's historical catastrophe
loss experience to industry averages; the cedent's pricing strategies; and the
perceived financial strength of the cedent. GCR's underwriting personnel have
substantial experience in the markets in which GCR currently operates.
GCR attempts to analyze underwriting information about the primary insurers
and the nature and extent of their risk exposure where possible, but the data is
not always available. Moreover, because GCR obtains such data from the primary
insurer rather than the primary insured, management generally is unable to
determine the scope of the data obtained or to verify its accuracy and in this
regard must rely on the varying underwriting practices and reputations of the
primary insurers.
TARGETING SUPERIOR RISK/RETURN PROFILES
GCR targets clients with a reputation for quality underwriting and
reinsurance programs with superior risk/return profiles. In deciding which
programs to underwrite, GCR assesses the adequacy of the proposed pricing terms
in the light of the associated risk and the ultimate effect that the program
will have on GCR's overall rate of return on capital, relying on the computer
modelling systems described below and on the analysis and judgment of its
experienced underwriting team. As a result of its selective underwriting
practices, in fiscal year 1995 and the first six months of fiscal year 1996,
respectively, GCR offered capacity for only 15% and 13% of the new reinsurance
programs submitted for its review (i.e., excluding renewals of existing
programs).
Because GCR writes substantially all its reinsurance for primary insurers,
rather than for reinsurers on a retrocessional basis, management believes that
it is able to obtain more comprehensive and reliable underwriting data about the
underlying risk and is better able to assess the quality of the primary
insurer's underwriting decision to accept the risk than would otherwise be the
case. Avoiding retrocessional business also enables GCR to determine the
geographic location of the underlying risk more accurately, which enhances its
ability to monitor compliance with its geographic limits on aggregate loss
exposure. See "-- Reinsurance Products -- Types of Reinsurance -- Geographic
Diversification." Moreover, because GCR writes reinsurance through independent
brokers, management believes it is able to reduce the risk of adverse selection
that may exist when a reinsurer deals through a broker affiliated with the
client.
MANAGING LOSS EXPOSURE
ZONE LIMITS. In managing its portfolio of reinsurance contracts, GCR seeks
to limit its aggregate loss exposure in any particular geographic zone to a
specified level rather than measuring and managing risk primarily in relation to
premium volume. GCR has divided its markets into geographic zones and limits the
coverage it is willing to provide for any risk located in a particular zone so
as to maintain its aggregate loss exposure from all contracts covering risks
believed to be located in that zone to a predetermined level.
In determining the maximum aggregate loss exposure it is willing to accept
for a particular U.S. zone, GCR uses the proprietary and other computer-based
systems described below to estimate the aggregate losses that could occur under
all its contracts covering risks believed to be located in that zone as a result
of a range of potential catastrophic events. By evaluating the effects of
various potential events ranging from those of relatively high frequency and low
severity to those of relatively low frequency and high severity, management
determines whether the aggregate loss exposure in the zone is acceptable. If a
proposed reinsurance program would cause that level to be exceeded, the program
would be declined (unless an exception to the underwriting guidelines is
approved by Global Capital Re's underwriting committee). As GCR approaches its
limit in any zone, it will narrow its focus, targeting the highest quality
business with the highest risk/return profiles in the zone, as determined by its
computer models.
47
<PAGE> 51
GCR also seeks to evaluate the geographic distribution of risks within a
particular zone, in order to evaluate the adequacy of a given premium based on
the variance in risks within a given zone and to evaluate the comparative level
of risks to which GCR is exposed among all zones. In order to apply the zone
limits, management has divided the United States into eight geographic zones and
its European, Japanese and other markets into a total of 25 zones. These zones
tend to vary in size with the level of population density and commercial
development in a particular area. The zones with the greatest exposure to loss
(though not necessarily the greatest risk of loss) are, in the United States,
the midwest I, southeast and mid-Atlantic regions and, elsewhere, in northern
Europe and Japan. The parameters of these geographic zones are subject to
periodic review and change.
GCR designates as zones geographic areas which it believes, based on
historic catastrophe loss experience reflecting actual catastrophe events and
property development patterns, are most likely to absorb a large percentage of
losses from one catastrophe event. These zones are determined using computer
modelling techniques and underwriting assessments. GCR recognizes that certain
events may affect more than one zone. Management monitors the potential impact
of an event on more than one zone on a periodic basis in order to evaluate
whether potential loss is within acceptable limits.
The zones in the United States with the greatest exposure to loss (though
not necessarily the greatest risk of loss) currently are the midwest I zone
(Arkansas to Michigan to Minnesota), the southeast zone (Florida to North
Carolina to Louisiana) and the mid-Atlantic zone (Virginia to New Jersey to
Pennsylvania). GCR's aggregate liability limit under its property catastrophe
contracts in each of these zones represented approximately 14.1%, 14.0% and
13.9%, respectively, of GCR's aggregate liability limit with respect to all its
property catastrophe contracts in force in the United States at March 31, 1996.
The southeast and mid-Atlantic zones cover areas that historically have
experienced the most severe catastrophic losses in the United States, primarily
from hurricanes and other storms. Thus, these percentages, which reflect policy
contract limits, are not necessarily indicative of the frequency or severity of
losses that may be incurred by GCR in these zones or of GCR's loss experience in
these zones relative to other zones. For example, earthquake loss in the west
coast zone can be severe.
The effectiveness of geographic zone limits in managing risk exposure
depends on the degree to which an actual event is confined to the zone in
question, on the ability of management to determine the actual location of the
risks believed to be covered under a particular reinsurance program and on the
degree to which the historical or simulated event experience coincides with
actual experience during the contract term. For example, as noted above, a
catastrophic event could affect multiple geographic zones, resulting in
aggregate losses higher than the limit intended for any single zone. Similarly,
because underwriting data about the covered risks may not be accurate, a
contract may cover risks that management does not know are located in certain
zones, thereby increasing the risk exposure in those zones beyond anticipated
levels.
OTHER EXPOSURE LIMITS. GCR also seeks to manage its portfolio loss
exposure by imposing loss-per-event limits on almost all its reinsurance
contracts. For property catastrophe contracts, these limits fall within a range
that does not exceed $25 million per event, and substantially lower limits
generally apply to proportional, risk excess of loss and marine contracts. See
"-- Reinsurance Products -- Program Limits." In addition, GCR writes most of its
contracts (including property catastrophe, risk and marine contracts) on an
excess-of-loss basis so as to impose an attachment point that is high enough to
produce a low frequency of claims. GCR also attempts to distribute its exposure
across a range of attachment points. Attachment points vary and are based upon
an assessment of the ceding insurers' market share of property perils in any
given geographic zone to which the contract relates, as well as the capital
needs of the ceding insurer.
With regard to contracts written on a proportional basis, GCR seeks to
manage its loss exposure by limiting these contracts to situations involving
quality underwriting, attractive pricing and acceptable program limits.
48
<PAGE> 52
GCR's emphasis on writing excess-of-loss contracts helps it to control its
underwriting results by increasing its flexibility to determine premiums for
reinsurance at specific retention levels independent of the premiums charged by
primary insurers and based upon GCR's own underwriting assumptions. In addition,
because primary insurers typically retain a larger risk exposure under excess of
loss contracts, they have a greater incentive to underwrite risks and adjust
losses in a prudent manner.
GCR currently does not, to any significant extent, seek to limit its loss
exposure by reinsuring portions of its contracts with independent reinsurers.
Management believes that in most cases current program rates for retrocessional
coverage are too high and available coverage limits are too low to render such
coverage feasible.
COMPUTER MODELLING
GCR uses computer-based modelling systems to estimate loss exposure under
its reinsurance programs, in order to evaluate the adequacy of pricing terms and
their effect on GCR's projected rate of return on capital and to monitor
compliance with its geographic zone limits. For U.S. risks, GCR uses NEMESIS(C),
a proprietary system developed by management, and CATMAP(TM), a commercially
available system developed and licensed by AIR, a Boston-based consulting firm.
These systems generate estimates of losses that could occur under one or more
reinsurance programs as a result of a potential catastrophic event. The
characteristics of these potential events are based, in the case of NEMESIS(C),
on specific historical events and, in the case of CATMAP(TM), on simulated
experience. By analyzing the effects of a range of potential events, varying by
frequency and severity, management is able to test the potential effects of
different coverage terms on loss exposure and determine the appropriate level of
GCR's participation accordingly. Management believes that many of its
Bermuda-based competitors also use computer modelling systems (including
CATMAP(TM)) to estimate loss exposure.
For non-U.S. risks, GCR uses similar though less developed techniques.
Because of the relatively lower historical severity of catastrophic events in
GCR's markets outside the United States and the relatively less developed
information base relating to the impact of these events, loss information for
these markets is more limited. GCR currently is testing EUROCAT(TM), a new
system similar to CATMAP(TM) that has been developed by AIR for use in European
markets.
Management believes that NEMESIS(C) provides Global Capital Re's
underwriters with an important alternative method of evaluating potential loss
exposure. NEMESIS(C) estimates the losses that could result under a particular
reinsurance program if a specific historical catastrophe were to reoccur in the
zone covered by the program. These estimates are based on the relation between
premium rates in effect in the zone when the event originally occurred and the
level of losses actually caused in the zone by the event, and the relation
between such historical rates and the rates applicable to the program. In
effect, this methodology uses changes in premium rates over time as an indicator
of changes in property values of covered risks in a particular zone, in order to
analyze the effect that such changes could have on historical loss levels for
the zone.
CATMAP(TM) uses computer simulation to generate estimates of the frequency
and severity of potential catastrophic events, based on historical experience
over a period of many years utilizing statistical probabilities. This system
produces estimates of losses that might occur under a reinsurance program if
actual experience during the contract period coincided with the computer-
simulated experience.
From time to time, GCR may consider using additional computer modelling
programs in an effort to supplement its analytic underwriting techniques.
Management recently consulted with Risk Management Solutions, Inc. (RMS) to
assess the rate adequacy of catastrophe treaties in Japan and Australia/New
Zealand.
In essence, these modelling systems enable management to estimate losses
that could occur under one or more proposed contracts if historical or simulated
catastrophic events were to occur during the contract term. However, because
actual catastrophic event activity during a particular
49
<PAGE> 53
contract period may bear little or no relation to historical experience during a
different period or to statistical probabilities, these computer-generated
estimates provide no assurance as to the adequacy of written premiums to cover
future claims. Consequently, while these systems play an important role in GCR's
underwriting process, GCR also relies to a great extent on the experience and
skill of its senior management making underwriting decisions. For a description
of the underwriting practices used by management, see "-- Underwriting."
MARKETING
GCR markets its reinsurance products worldwide through non-exclusive
relationships with more than 40 of the leading reinsurance brokers active in the
U.S. and non-U.S. markets for property catastrophe reinsurance. Based on
premiums written under contracts in force on March 31, 1996, the five brokers
from which GCR derives the largest portions of its business are Guy Carpenter
(29%), Willcox (11%), Holborn (8%), Aon Re (7%) and Sedgwick (7%). Willcox is an
affiliate of Johnson & Higgins, a shareholder and founding sponsor of the
Company. GCR does not market reinsurance directly to insurers; its products are
marketed exclusively through brokers. Of the total premiums attributable to the
five largest producing brokers referred to above, less than one percent are
attributable to brokers affiliated with the reinsurers seeking coverage. See
"Certain Relationships and Related Party Transactions."
GCR focuses its marketing efforts on quality underwriting companies
throughout the world. Management believes its existing portfolio of business is
a valuable asset given the industry practice of generally offering renewals of
reinsurance programs to existing participants and, therefore, GCR attempts to
continually strengthen relationships with its existing brokers and clients. GCR
also targets prospects which its analysis indicates will enhance the risk/return
composition of its portfolio, are capable of supplying detailed and accurate
underwriting data and will diversify GCR's book of business. During fiscal years
1994 and 1995 and the first six months of fiscal year 1996, no single ceding
insurer accounted for more than 5.4% of GCR's premiums written.
Management believes that primary insurers' and brokers' willingness to use
a particular reinsurer is based not solely on pricing terms, but on perceptions
of the quality of a reinsurer's service, willingness to design customized
programs, long-term stability and commitment to provide reinsurance capacity.
Management believes that stability and commitment are perhaps the most important
marketing factors with respect to the type of clients GCR targets, namely, well
capitalized, established, quality underwriting companies. For these companies,
management believes GCR's underwriting strategy of managing its portfolio by
geographic zone loss exposure is highly attractive because it enhances client
security and enables GCR to develop long-term, mutually beneficial relationships
with a preferred clientele.
GCR's brokers perform data collection, contract preparation and other
administrative tasks, enabling GCR to market its reinsurance products cost
effectively by maintaining a smaller staff. GCR believes that by maintaining
close relationships with brokers, it is able to obtain access to a broad range
of potential reinsureds. Global Capital Re meets frequently in Bermuda with
brokers and senior representatives of clients and prospective clients. These
meetings provide Global Capital Re with the opportunity to distinguish its
capabilities from those of the market in general. Additionally, the meetings
provide Global Capital Re with an opportunity to discuss in detail the interests
and needs of its clients. All contract submissions are approved in Global
Capital Re's executive offices in Bermuda, and GCR does not believe that
conducting its operations in Bermuda has adversely affected its marketing
activities in light of the client base it has attracted and retained.
By relying exclusively on reinsurance brokers to market its products, GCR
is able to avoid the expense and regulatory complications of worldwide offices
and marketing thereby virtually eliminating any fixed costs associated with
marketing activities. GCR maintains only one branch office, in Brussels,
Belgium, which it opened in October 1994 and from which it conducts its European
marketing efforts.
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<PAGE> 54
RESERVES
Under GAAP, GCR is not permitted to establish loss reserves with respect to
its property catastrophe business until the occurrence of an event which may
give rise to a loss. Once such an event occurs, GCR establishes reserves based
upon estimates of total losses incurred by the primary insurers as a result of
the event and GCR's estimate of the portion of such loss it has reinsured. Such
reserves will be adjusted as GCR receives notices of claims and proofs of loss
from reinsureds and as estimates of severity of damages and GCR's share of the
total loss are revised.
GCR also establishes reserves for losses incurred as a result of a known
event but not reported to GCR. These "IBNR" reserves are established for both
catastrophe and other losses, although non-catastrophe losses, having a
relatively higher incidence rate, generally account for most of the reserves at
any given time. To estimate the portion of loss and loss expenses relating to
these claims for the year, GCR classifies the business written into segments
that could reasonably be expected to have similar loss characteristics.
Reporting patterns and initial expected loss ratios are developed based upon
available industry data, actual experience, knowledge of the business written by
GCR and general market trends in the reinsurance industry. GCR employs its own
actuary, who develops the reserves for losses, including losses incurred but not
reported.
Generally, reserves are established without regard to whether the loss may
subsequently be contested by GCR. GCR's policy is to establish reserves for
reported losses based upon reports received from ceding companies, supplemented
by GCR's reserve estimates.
Loss reserves represent GCR's estimates, at a given point in time, of the
ultimate settlement and administration costs of claims incurred, and it is
possible that the ultimate liability may exceed or be less than such estimates.
Such estimates are not precise in that, among other things, they are based on
predictions of future developments and estimates of future trends in claim
severity and frequency and other variable factors such as inflation and currency
exchange rates. During the claim settlement period, it often becomes necessary
to refine and adjust the estimates of liability on a claim either upward or
downward, and any such adjustment would affect GCR's results of operations in
the period when the adjustment is determined. (For example, GCR's incurred
losses and loss expense relating to the Northridge, California earthquake in
January 1994 was $17.6 million at September 30, 1994 and thereafter increased to
$22.9 million as of March 31, 1996.) Even after such adjustments, ultimate
liability may exceed or be less than the revised estimates. Moreover, reserve
estimates by relatively new property catastrophe reinsurers, such as GCR, may be
inherently less reliable than the reserve estimates of a reinsurer with a stable
volume of business and an established claim history. In contrast to casualty
losses, which frequently can be determined only through lengthy, unpredictable
litigation, non-casualty property losses tend to be reported promptly and
usually are settled within a shorter period of time. Unlike those of U.S.
insurers, GCR's loss reserves are not regularly examined by insurance
regulators. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
INVESTMENTS
GCR's strategy is to maximize its underwriting profitability and fully
deploy its capital through its underwriting activities; consequently, GCR has
established an investment policy which management considers to be conservative.
GCR's investment guidelines stress preservation of capital, diversification of
risk and market liquidity, although investments are subject to market-wide risks
and fluctuations, as well as to risks inherent in particular securities. The
primary objective of the portfolio, as set forth in GCR's guidelines, is to
maximize investment returns consistent with these policies. At present, GCR's
investment portfolio consists exclusively of fixed-income securities,
predominantly of U.S. government and corporate issuers, and having a target
duration of one year and a maximum maturity of three years. GCR's current
investment guidelines are subject to change at the discretion of the Board of
Directors of the Company from time to time.
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<PAGE> 55
The following table summarizes the fair value of the investments and cash
and cash equivalents of GCR as of September 30, 1994 and 1995 and March 31,
1996.
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH
----------------------- 31,
TYPE OF INVESTMENT 1994 1995 1996
- -------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
<CAPTION>
Fixed Maturities Available for Sale:
<S> <C> <C> <C>
U.S. government and government agency bonds.. $105,004 $206,115 $231,200
U.S. corporate debt securities............... 188,599 223,432 126,374
U.S. asset-backed securities................. 67,210 55,775 65,858
-------- -------- --------
Subtotal................................ 360,813 485,322 423,432
Cash and cash equivalents......................... 121,496 41,490 25,337
-------- -------- --------
Total Investments, and cash and cash
equivalents........................... $482,309 $526,812 $448,769
========= ========= =========
</TABLE>
The following table summarizes the fair value by maturities of GCR's
investment portfolio as of September 30, 1994 and 1995 and March 31, 1996. For
this purpose, maturities reflect contractual rights to put or call the
securities; actual maturities may be longer.
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH
----------------------- 31,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
<CAPTION>
Due in less than one year......................... $ 96,088 $229,739 $134,541
<S> <C> <C> <C>
Due in one year through three years............... 264,725 255,583 288,891
Due after more than three years................... -- -- --
-------- -------- --------
$360,813 $485,322 $423,432
========= ========= =========
</TABLE>
MATURITY AND DURATION OF PORTFOLIO
Currently, GCR maintains a target duration of one year and a maximum
maturity of three years, reflecting management's belief that it is important to
maintain a liquid, short duration portfolio to assure GCR's ability to pay
claims on a timely basis. GCR expects to reevaluate the target duration in the
light of estimates of the duration of its liabilities and market conditions,
including the level of interest rates, from time to time.
QUALITY OF DEBT SECURITIES IN PORTFOLIO
GCR's investment guidelines stipulate that the minimum credit rating for
securities purchased for the investment portfolio is BBB and that at least 80%
of the portfolio, including cash and cash equivalents, be rated A- or higher.
Rating categories used for this purpose are those of S&P. At September 30, 1995,
approximately 92.2% of the issues in GCR's investment portfolio had been rated
by S&P; the remaining issues had been assigned estimated ratings by GCR's
investment advisor. As of March 31, 1996 there were no securities in the
investment portfolio that were not rated by S&P.
The following table summarizes the composition of the fair value of the
fixed maturity portfolio by rating, as assigned by S&P, as of September 30, 1994
and 1995 and March 31, 1996.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- MARCH 31,
1994 1995 1996
----- ----- ---------
<S> <C> <C> <C>
Cash and cash equivalents................................ 25.2% 8.0% 5.6%
U.S. government and government agency bonds.............. 21.8 39.1 51.5
AAA...................................................... 14.0 10.5 14.7
A........................................................ 20.1 26.3 22.1
BBB...................................................... 18.9 16.1 6.1
----- ----- ---------
100.0% 100.0% 100%
===== ===== ========
</TABLE>
52
<PAGE> 56
EQUITY SECURITIES/REAL ESTATE
GCR's portfolio does not contain any direct investments in real estate,
mortgage loans or equity securities.
FOREIGN CURRENCY EXPOSURES
All of GCR's fixed maturities are currently invested in securities
denominated in U.S. dollars. GCR's fixed maturity portfolio is generally not
invested so as to hedge exposures to various currencies arising from premiums
receivable or losses payable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
INVESTMENT ADVISERS
In 1993, GCR entered into an investment advisory agreement (the "Investment
Advisory Agreement") with Goldman Sachs Asset Management International
("GSAMI"), an affiliate of Goldman, Sachs & Co. GSAMI manages GCR's entire
investment portfolio, subject to GCR's investment guidelines. Under the terms of
the Investment Advisory Agreement, which is automatically renewed each year
subject to year-end termination by either party on 30 days' notice, GCR pays
GSAMI a fee based on the value of Global Capital Re's investment portfolio, and
such fee totalled $559,000 for fiscal year 1995 and $282,000 for the first six
months of fiscal year 1996. The performance of, and the fees paid to, GSAMI
under the Investment Advisory Agreement are reviewed periodically by the Board
of Directors of the Company. See "Certain Relationships and Related Party
Transactions -- Certain Business Relationships."
INVESTMENT CUSTODIAN
Mellon Bank, N.A., London Branch, provides custodial services to the
Company pursuant to a Custodian Agreement, on terms and conditions believed to
be customary for an arm's length transaction. In its capacity as investment
custodian, Mellon Bank, N.A., London Branch holds all the investments and
substantially all of the cash of GCR. The Custodian Agreement provides for a
renewable one-year term, a maximum annual fee of 0.01% of the value of the
portfolio that is held in U.S. dollar assets, and may be terminated by either
party upon 30 days' notice.
COMPETITION
The property catastrophe reinsurance industry is highly competitive. GCR
competes, and will continue to compete, with insurers and property catastrophe
reinsurers worldwide, some of which have greater financial, marketing and
management resources than GCR has. In particular, GCR competes with the
Bermuda-based property catastrophe reinsurers, including Mid Ocean Reinsurance
Company, Renaissance Reinsurance Company and Partner Re. In addition, there may
be established companies or new companies of which GCR is not aware that may be
planning to enter the property catastrophe reinsurance market or existing
reinsurers that may be planning to raise additional capital. In addition,
Lloyd's determined in 1993 to allow its syndicates to accept capital from
corporate investors. Competition in the types of reinsurance business that GCR
underwrites is based on many factors, including premium charges and other terms
and conditions offered, services provided, ratings assigned by independent
rating agencies, speed of claims payment, perceived financial strength and
experience and reputation of the reinsurer in the line of reinsurance to be
written. Many of the reinsurers who have entered the Bermuda and London-based
reinsurance markets have or could have more capital than GCR. The full effect of
this additional capital on the reinsurance market may not be known for some
time. No assurance can be given as to what impact this additional capital will
ultimately have on terms or conditions for the reinsurance contracts of the
types written by the Company.
GCR received an initial rating as to its claims-paying ability of A-
("Excellent") from A.M. Best in April 1996; prior to that time, GCR was not
rated by any rating agency due to its limited operating history. The rating
received by GCR represents the fourth highest in the rating scale used by A.M.
Best. While management believes that its new rating will not be a major
competitive advantage or disadvantage, some of GCR's principal competitors have
higher ratings than GCR. Insurance
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<PAGE> 57
ratings are used by insurers and reinsurance brokers as an important means of
assessing the financial strength and quality of reinsurers. In addition, a
ceding company's own rating may be adversely affected by the rating of its
reinsurer. Therefore, a ceding company could elect to reinsure with a competitor
of GCR that has a higher insurance rating. The loss or lowering of a rating in
the future also could adversely affect GCR's competitive position.
Global Capital Re is not licensed or admitted as an insurer in any
jurisdiction in the United States and, as a consequence, must generally post
letters of credit or other security to cover outstanding claims of, or unearned
premiums with respect to, ceding insurers in the United States to enable such
insurers to obtain favorable regulatory capital treatment of their reinsurance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
EMPLOYEES
As of March 31, 1996, GCR employed 15 people. GCR believes that its
employee relations are good. None of GCR's employees are subject to collective
bargaining agreements, and GCR knows of no current efforts to implement such
agreements at GCR.
Many of GCR's employees, including most of its senior management, are
employed pursuant to work permits granted by the Bermuda authorities. These
permits expire at various times over the next several years, see "Risk
Factors -- Dependence on Key Employees." GCR has no reason to believe that these
permits would not be extended upon request at their respective expirations.
PROPERTIES AND PRINCIPAL EXECUTIVE OFFICES
GCR leases office space in Bermuda at which its executive offices are
located. GCR's principal executive offices are located at Sofia House, 48 Church
Street, Hamilton HM 12, Bermuda and its telephone number is (441) 292-9415.
LEGAL PROCEEDINGS
GCR will be subject to litigation and arbitration in the ordinary course of
its business. GCR currently is not involved in any pending litigation or
arbitration proceedings.
REGULATION
BERMUDA
THE INSURANCE ACT 1978, AS AMENDED, AND RELATED REGULATIONS. The Insurance
Act, which regulates the business of Global Capital 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. The Minister, in deciding
whether to grant registration, has broad discretion to act as he thinks fit in
the public interest. The Minister is required by the 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. In connection with the applicant's registration, the
Minister may impose conditions relating to the writing of certain types of
insurance.
An Insurance Advisory Committee appointed by the Minister advises him on
matters connected with the discharge of his functions and sub-committees thereof
supervise and review the law and practice of insurance in Bermuda, including
reviews of accounting and administrative procedures.
The 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. Significant aspects of the Bermuda insurance regulatory
framework are set forth below.
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
54
<PAGE> 58
the Insurance Advisory Committee, the insurer has not been carrying on business
in accordance with sound insurance principles.
INDEPENDENT APPROVED AUDITOR. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, which
are required to be filed annually with the Registrar of Companies in Bermuda
(the "Registrar"), who is the chief administrative officer under the Insurance
Act. The auditor must be approved by the Minister as the independent auditor of
the insurer. The approved auditor may be the same person or firm which audits
the insurer's financial statements and reports for presentation to its
shareholders.
LOSS RESERVE SPECIALIST. Global Capital Re, as a Registered Class 4
insurer, is required to submit an annual loss reserve opinion when filing the
Annual Statutory Financial Return. This opinion must be issued by a Loss Reserve
Specialist, who, in GCR's case, is a member of the senior underwriting team. The
Loss Reserve Specialist, who will normally be a qualified casualty actuary, must
be approved by the Minister.
STATUTORY FINANCIAL STATEMENTS. An insurer must prepare annual Statutory
Financial Statements. The Insurance Act prescribes rules for the preparation and
substance of such Statutory Financial Statements (which include, in statutory
form, a balance sheet, income statement, and 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 U.S. generally accepted
accounting principles and are distinct from the financial statements prepared
for presentation to the insurer's shareholders under the Companies Act 1981 of
Bermuda, which financial statements may be prepared in accordance with U.S.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. See note 13 to the consolidated
financial statements for information with respect to GCR's statutory financial
statements. The insurer is required to submit the Annual Statutory Financial
Statements as part of the Annual Statutory Financial Return.
MINIMUM SOLVENCY MARGIN. The Insurance Act provides that the statutory
assets of an insurer must exceed its statutory liabilities by an amount greater
than the prescribed minimum solvency margin which varies with the type of
business of the insurer and the insurer's premiums written and loss reserve
level.
MINIMUM LIQUIDITY RATIO. The Insurance Act provides a minimum liquidity
ratio for general business. An insurer engaged in general business is required
to maintain the value of its relevant assets at not less than 75% of the amount
of its relevant liabilities. Relevant assets include cash and time deposits,
quoted investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable and
reinsurance balances receivable. There are certain categories of assets which,
unless specifically permitted by the Minister, do not automatically qualify as
relevant assets, such as unquoted equity securities, investments in and advances
to affiliates, real estate and collateral loans. The relevant liabilities are
total general business insurance reserves and total other liabilities less
deferred income tax and sundry liabilities (by interpretation, those not
specifically defined).
ANNUAL STATUTORY FINANCIAL RETURN. An insurer is required to file with the
Registrar a Statutory Financial Return no later than four months after the
insurer's financial year end (unless specifically extended). The Statutory
Financial Return includes, among other matters, a report of the approved
independent auditor on the Statutory Financial Statements of the insurer; a
declaration of the statutory ratios; a solvency certificate; the Statutory
Financial Statements themselves; the opinion of the approved Loss Reserve
Specialist and certain details concerning ceded reinsurance. The solvency
certificate and the declaration of the statutory ratios must be signed by the
principal representative and at least two directors of the insurer who are
required to state whether the Minimum Solvency Margin and, in the case of the
solvency certificate, the Minimum Liquidity Ratio, have been met, and the
independent approved auditor is required to state whether in its opinion it
55
<PAGE> 59
was reasonable for them to so state and whether the declaration of the statutory
ratios complies with the requirements of the Insurance Act. The Statutory
Financial Return must include the opinion of the Loss Reserve Specialist in
respect of the loss and loss expense provisions of Global Capital Re. 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.
LIMITATIONS ON DIVIDENDS. Global Capital Re may not declare a dividend (or
make a distribution of contributed surplus) if there are reasonable grounds for
believing that after payment it would be unable to pay its liabilities as they
become due, or that the realizable value of Global Capital Re's assets would
thereby be less than the aggregate of its liabilities and its issued share
capital and share premium accounts. In addition, under the Insurance Act, Global
Capital Re may not declare a dividend (or make a distribution of contributed
surplus) in circumstances which would cause it to cease to comply with its
required solvency margin and liquidity ratio, nor declare dividends in any
financial year which would exceed 25% of its total statutory capital and surplus
as shown on its statutory balance sheet in relation to the previous financial
year, unless at least seven days before payment of these dividends, it files
with the Bermuda Registrar of Companies an affidavit which states that the
declaration of those dividends has not caused Global Capital Re to fail to meet
its required margins.
SUPERVISION, INVESTIGATION AND INTERVENTION. The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if the
Minister believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to him, the Minister may
direct an insurer 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, the Minister may direct the insurer not to take on any new insurance
business; not to vary any insurance contract if the effect would be to increase
the insurer's liabilities; not to make certain investments; to realize certain
investments; to maintain in Bermuda, or transfer to the custody of a Bermuda
bank, certain assets; and to limit its premium income.
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 Global Capital Re is at Global
Capital Re's offices at Hamilton, Bermuda and the Company's Chief Financial
Officer is the principal representative of Global Capital Re. Without a reason
acceptable to the Minister, an insurer may not terminate the appointment of its
principal representative, and the principal representative may not cease to act
as such, unless 30 days' notice in writing to the Minister is given of the
intention to do so. It is the duty of the principal representative, within 30
days of his reaching the view that there is a likelihood of the insurer for
which he acts becoming insolvent or its coming to his knowledge, or his having
reason to believe, that an "event" has occurred, to make a report in writing to
the Minister setting out all the particulars of the case that are available to
him. Examples of such an "event" include failure by the reinsurer to comply
substantially with a condition imposed upon the reinsurer by the Minister
relating to a solvency margin or a liquidity or other ratio.
Although Global Capital Re is incorporated in Bermuda, it is classified as
non-resident of Bermuda for exchange control purposes by the Bermuda Monetary
Authority. Pursuant to its non-resident status, Global Capital Re may hold any
currency other than Bermuda Dollars and convert that currency into any other
currency (other than Bermuda Dollars) without restriction.
THE COMPANIES ACT 1981. The Company has obtained a permit pursuant to Part
XI of the Companies Act 1981 (the "Companies Act") enabling it to engage in
business in or from within Bermuda. As a consequence, sections of the Companies
Act dealing with prospectuses and public offers, registration of charges,
overseas companies and liquidations (with the exception of sections dealing
exclusively with member's voluntary liquidations) apply to the Company. Prior to
the
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<PAGE> 60
conclusion of the Offering, this Prospectus will be filed with the Registrar of
Companies in Bermuda in accordance with the Companies Act provisions applicable
to the Company.
EXCHANGE CONTROL. The Company and Global Capital Re have each been
designated as non-resident of Bermuda for exchange control purposes by the
Bermuda Monetary Authority, Controller of Foreign Exchange, whose permission for
the offering of shares in the Company pursuant this Prospectus has been
obtained. The transfer of shares in the Company between persons regarded as
non-resident of Bermuda for exchange control purposes after the completion of
the Offering may be effected without further consent under the Exchange Control
Act of 1972 and regulations thereunder for so long as the shares are listed on
an "appointed stock exchange" within the meaning of section 2(9) of the
Companies Act. Issues and transfers of shares to any person regarded as resident
of Bermuda for exchange control purposes require specific approval under the
Exchange Control Act of 1972. In granting such permission and upon accepting
this Prospectus for filing, the Bermuda Monetary Authority and the Registrar of
Companies in Bermuda will accept no responsibility for the financial soundness
of the Company or the transactions described herein or for the correctness of
any of the statements made or opinions expressed in this Prospectus.
UNITED STATES AND OTHER
Global Capital Re is not admitted to do business in any jurisdiction except
Bermuda. Although GCR conducts its operations from Bermuda, it is not permitted
to underwrite local risks. The insurance laws of each state of the United States
and of many other countries regulate the sale of insurance and reinsurance
within their jurisdictions by alien insurers and reinsurers such as Global
Capital Re, which are not admitted to do business within such jurisdictions.
With some exceptions, such sale of insurance or reinsurance within a
jurisdiction where the insurer is not admitted to do business is prohibited.
Global Capital Re does not intend to maintain an office or to solicit,
advertise, settle claims or conduct other insurance activities in any
jurisdiction other than Bermuda where the conduct of such activities would
require that Global Capital Re be so admitted.
In addition to the regulatory requirements imposed by the jurisdiction in
which they are licensed, reinsurers' business operations are affected by
regulatory requirements in various states of the United States governing "credit
for reinsurance" which are imposed on their ceding companies. In general, a
ceding company which obtains reinsurance from a reinsurer that is licensed,
accredited or approved by the jurisdiction or state in which the reinsurer 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. Global Capital Re is not licensed, accredited or approved in any
state in the United States. The great majority of states, however, permit a
credit to statutory surplus resulting from reinsurance obtained from a
non-licensed or non-accredited reinsurer to be offset to the extent that the
reinsurer provides a letter of credit or other acceptable security arrangement.
A few states do not allow credit for reinsurance ceded to non-licensed
reinsurers except in certain limited circumstances and others impose additional
requirements that make it difficult to become accredited.
Management is aware of a number of new, proposed or potential legislative
or industry changes that may affect the worldwide demand for property
catastrophe reinsurance. In the United States, Florida and Hawaii have
implemented arrangements whereby the state provides catastrophe type property
insurance through state-sponsored entities. Part of the reinsurance is placed
outside of the traditional reinsurance market in the capital markets (i.e.,
utilizing capital or derivative market instruments) or in the finite reinsurance
market. California is currently proposing the formation of the California
Earthquake Authority to provide limited earthquake insurance for California
residents; similarly, it has proposed that part of the reinsurance protection
may be placed outside of the traditional market. Currently before the U.S.
Congress is a draft bill, the Natural Disaster Protection Partnership Act of
1995, which would provide catastrophe insurance nationwide and could affect the
demand for, and availability of, traditional reinsurance. In the United Kingdom,
the government has enacted a bill to allow insurers to build claim equalization
reserves which might reduce the amount
57
<PAGE> 61
of reinsurance bought. Management is also aware of many potential initiatives by
capital market participants to produce alternative products that may compete
with the existing catastrophe reinsurance markets. Management is unable to
predict the extent to which the foregoing new, proposed or potential initiatives
may affect the demand for GCR's products or the risks which may be available for
GCR to consider underwriting.
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<PAGE> 62
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of the Company, and their
respective ages and positions as of March 31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Lawrence S. Doyle(1)...................... 52 President, Chief Executive Officer and
Director
Robert L. Nason........................... 45 Senior Vice President -- North American
Underwriting
Stephen S. Outerbridge.................... 45 Senior Vice President -- International
Underwriting
John K. Witherspoon, Jr. ................. 57 Director of Marine Underwriting
Frederick W. Deichmann.................... 54 Chief Financial Officer
William G. Fanning........................ 38 Vice President and Chief Actuary
Steven H. Newman(1)(2).................... 52 Chairman of the Board of Directors
J. Markham Green(2)(3).................... 52 Director
Alfred Lerner(1).......................... 62 Director
John P. McNulty(1)........................ 42 Director
David A. Olsen(3)......................... 58 Director
Jerry S. Rosenbloom(2)(3)................. 56 Director
Joseph D. Roxe(1)(2)...................... 60 Director
Michael E. Satz(3)........................ 46 Director
Richard D. Spurling....................... 49 Director
Donald J. Zuk(2)(3)....................... 59 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
OFFICERS AND DIRECTORS
LAWRENCE S. DOYLE has been President, Chief Executive Officer and a
Director of the Company since 1993. He was President and CEO of the New England
Reinsurance Corporation, First State Insurance Company and the New England
Insurance Company from 1986 to 1993. Mr. Doyle was also Senior Vice President of
ITT Hartford Group and President of ITT Hartford's International Division from
1981 to April 1993. Prior to assuming responsibility for the International
Division, Mr. Doyle held various insurance management and claims positions with
ITT Hartford Group in Europe and the U.S., including Staff Assistant to the CEO.
ROBERT L. NASON has been Senior Vice President -- North American
Underwriting since 1993. He was Senior Vice President and Director from 1988 to
1993 and Vice President from 1983 to 1987 of Trenwick America Reinsurance
Company. Mr. Nason served as Assistant Vice President of an affiliate of
Commercial Union Insurance Company and Property Facultative Manager of an
affiliate of Commercial Union Reinsurance Company from 1981 to 1983. He also
served as Facultative Property Manager of Transatlantic Reinsurance Company from
1977 to 1981 and Commercial Property Underwriting Supervisor from 1973 to 1977
of Kemper Insurance Group.
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STEPHEN S. OUTERBRIDGE has been Senior Vice President -- International
Underwriting since 1993. He was Chief Underwriting Officer -- International from
1992 to 1993, Director -- International Reinsurance Underwriting and Head
Underwriter from 1988 to 1992 and Manager -- International Property and Casualty
from 1984 to 1988 of Hartford Fire International Reinsurance. Mr. Outerbridge
served in Asia as the Resident Director of Continental Reinsurance Ltd., Hong
Kong from 1979 to 1984 and as Underwriter and Assistant Underwriter of London
Security Reinsurance Ltd., London from 1976 to 1979.
JOHN K. WITHERSPOON, JR. has been Director of Marine Underwriting of the
Company since 1994. He was Vice President of BEP International from 1992 to 1994
and President of Bell Nicholson Henderson (USA) Inc. from 1986 to 1991. From
1966 to 1986 he held various underwriting and executive positions with INA,
American Re-Insurance Co. and St. Paul Reinsurance Management Corp.,
respectively. He is a past President of the American Marine Insurance Forum and
is a Chartered Property Casualty Underwriter.
FREDERICK W. DEICHMANN has been Chief Financial Officer and Secretary of
the Company since 1993. He was Vice President from 1988 to 1993 of General Re
Corporation and Vice President of Aetna Life & Casualty from 1985 to 1988. Prior
to 1985, Mr. Deichmann held various management positions with Aetna Life &
Casualty beginning in 1970. He is a member of the American Institute of
Certified Public Accountants and has served on its Insurance Companies
Committee.
WILLIAM G. FANNING has been Chief Actuary of the Company since 1994. He was
Commercial Pricing Director and Actuary from 1992 to 1993 and
Actuary-Reinsurance Pricing from 1987 to 1991 at Allstate Insurance Company.
From 1980 to 1987 he was employed as an actuary by Aetna Life & Casualty,
developing personal and commercial pricing and reserves. Mr. Fanning is a Fellow
of The Casualty Actuarial Society and a member of the American Academy of
Actuaries.
STEVEN H. NEWMAN has been a Director of the Company since 1993. He has been
CEO and Chairman of the Board of Directors of Underwriters Re since February
1987 and was President from 1987 until 1994. Prior to joining Underwriters
Reinsurance Company, Mr. Newman served as Executive Vice President and then as
President of the Home Insurance Company during the period 1982 to 1986 and Vice
President and Casualty Actuary at American International Group, Inc. from 1969
to 1982, where he was also Group Senior Reinsurance Officer. Mr. Newman is a
Fellow and past President of the Casualty Actuarial Society, a member of the
International Actuarial Association and is Chairman of the Board of Directors of
the Reinsurance Association of America. Mr. Newman is also a director of Capital
Re Corporation, of which another director, Michael Satz, is the Chairman,
President and Chief Executive Officer.
J. MARKHAM GREEN has been a Director of the Company since 1993. He was a
General Partner of Goldman, Sachs & Co. from 1984 to 1992 and has been a Limited
Partner since 1992. During his tenure as a General Partner, Mr. Green was
Co-Head of the Financial Services Industry Group in the Investment Banking
Division. Prior to joining Goldman, Sachs & Co. in 1973, Mr. Green was Vice
President and Regional Manager for Investment Banking at Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
ALFRED LERNER has been a Director of the Company since 1993. He has been
Chairman and Chief Executive Officer of MBNA Corporation since its inception in
January 1991 and has been a director of MBNA America Bank, N.A. since December
1991. He served as Chairman of the Board and Chief Executive Officer of MNC
Financial, Inc. from September 1990 to July 1991 and as Chairman of the Board
from July 1991 to October 1993. Mr. Lerner served as Chairman of the Board of
Equitable Bancorporation from July 1983 until it merged with MNC Financial in
January 1990. He has been Chairman and Chief Executive Officer of The Town and
Country Trust since August 1993. He was Chairman of the Board of The Progressive
Corporation, an insurance holding company, from 1988 to April 1993. He is a
member of the Boards of Trustees of Columbia University, of the Cleveland Clinic
Foundation and of Case Western Reserve University. He also serves on the
Advisory Committee to the Director of The National Institutes of Health.
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JOHN P. MCNULTY has been a Director of the Company since 1993. He has been
a General Partner of Goldman, Sachs & Co., a member of the Goldman, Sachs & Co.
Operating Committee and co-head of Goldman Sachs Asset Management since November
25, 1995. He was a Limited Partner of Goldman, Sachs & Co. during 1995 prior to
that date. Mr. McNulty was a General Partner of Goldman, Sachs & Co. from 1989
to 1994 and manager of its Miami office from 1986 to 1989. He joined Goldman,
Sachs & Co. in 1980.
DAVID A. OLSEN has been a Director of the Company since 1993. He has been
Chairman and Chief Executive Officer of Johnson & Higgins since 1991 and 1990,
respectively. Since 1966, Mr. Olsen has held various positions with Johnson &
Higgins. He was appointed to the Board of Directors of Johnson & Higgins in
1980, and was named Executive Vice President in 1985 and President and Chief
Operating Officer in 1987. Mr. Olsen is a Trustee of The College of Insurance
and of the American Institute for Chartered Property Casualty Underwriters and
the Insurance Institute of America.
JERRY S. ROSENBLOOM has been a Director of the Company since 1993. He has
been Frederick H. Ecker Professor of Insurance and Risk Management and Academic
Director, Certified Employee Benefit Specialist Program at the Wharton School of
the University of Pennsylvania since 1990 and 1974, respectively. Mr. Rosenbloom
is currently a member of the Boards of Directors of Mutual Risk Management, Ltd.
and the Harleyville Insurance Companies. Mr. Rosenbloom has also served as
President of the American Risk and Insurance Association and as a member of the
Boards of Directors of Primerica Corp. and American Capital Management Research,
Inc.
JOSEPH D. ROXE has been a Director of the Company since November 1995. He
has been Senior Vice President and Chief Financial Officer of Johnson & Higgins
since 1987 and a Director of Johnson & Higgins since 1988. From 1964 to 1987 he
held a variety of financial and operating positions with Mobil Oil Corporation
in London, England, and New York.
MICHAEL E. SATZ has been a Director of the Company since 1993. He has been
Chairman, President and Chief Executive Officer of Capital Re Corporation since
its founding in 1988. Capital Re Corporation provides reinsurance through its
operating subsidiaries to the financial guaranty insurance industry, the
mortgage guaranty insurance industry and related special risk markets. From 1985
to 1988, he served as Chief Operating Officer of AMBAC Indemnity Corporation and
as a member of its Board of Directors. Mr. Satz founded and was the first
president of the Association of Financial Guaranty Insurers.
RICHARD D. SPURLING has been a Director of the Company since 1993. He has
been a partner in the Bermuda law firm of Appleby, Spurling & Kempe since 1978.
DONALD J. ZUK has been a Director of the Company since 1993. He has been
President and Chief Executive Officer of the Southern California Physicians
Insurance Exchange since 1989. Mr. Zuk was employed by Johnson & Higgins from
1967 to 1989, concluding his employment with them as a Senior Vice President.
PROVISIONS GOVERNING THE BOARD OF DIRECTORS
NUMBER AND TERMS OF DIRECTORS
The Board of Directors of the Company (the "Board") currently consists of
eleven members, each of whose current term of office will expire at the
Company's annual shareholders' meeting in 1996. Under the Articles, directors
will be elected or reelected at the 1996 and each subsequent annual general
meeting of shareholders, in each case by an ordinary resolution of the
shareholders. Candidates for election will be nominated by the Board and,
subject to certain notice and other requirements, may be nominated by
shareholders.
The Articles provide for a minimum of three and a maximum of 20 directors
(subject to modification by ordinary resolution of the shareholders) and empower
the Board to fix the exact number of directors within these limits and to
appoint persons to fill any vacancies on the Board. Vacancies on the Board are
filled by action of a majority of the Board remaining in office, with each
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such appointed director holding office until the next following annual
shareholders' meeting, at which he or his successor will be elected.
Shareholders are not entitled to fill vacancies except upon annual election.
Directors may not be removed during their annual term of office except for
willful neglect or default.
Directors may take action by a majority of their number present at a duly
called and held meeting at which a quorum is present. The majority of directors
in office at any time, or such other number (being a majority of those in
office) as the Board may from time to time determine, will be a quorum for all
purposes.
The foregoing summarizes certain provisions of the Articles, which are
subject to Cayman Islands law. See "Description of Capital Shares."
A director who expects to be unable to attend any meeting of the Board or
any committee thereof for any reason may appoint any person as an alternate
director to attend and act in his place. A director also may be represented at
any meeting of the Board or any committee by a proxy appointed by him.
COMMITTEES OF BOARD OF DIRECTORS
The Board established Audit and Compensation Committees in October 1993 and
an Executive Committee in November 1995. Each such committee reports to the
Board.
EXECUTIVE COMMITTEE. The Board appoints an Executive Committee to exercise
all of the authority of the Board between meetings of the full Board. The
Executive Committee does not, however, have authority to (i) declare dividends,
(ii) issue shares of the Company, (iii) recommend to the shareholders any action
which requires shareholder approval, (iv) alter, amend or repeal any resolution
of the Board relating to the Executive Committee or (v) take any other action
which legally may be taken only by the full Board. In addition, the Executive
Committee may review any aspects of the Company's business and report or make
recommendations to the Board thereon. The Executive Committee consists of five
directors of the Company (presently Messrs. Newman (Chairman), Doyle, Lerner,
McNulty and Roxe).
AUDIT COMMITTEE. The Board appoints an Audit Committee to nominate the
independent accountants to be the auditors of the Company and, in consultation
with the auditors, review the scope of their audit and review the accounting
policies and procedures of the Company. The Audit Committee consists of five
directors of the Company (presently Messrs. Zuk (Chairman), Green, Newman,
Rosenbloom and Roxe), none of whom is an officer or employee of the Company or
Global Capital Re.
COMPENSATION COMMITTEE. The Board appoints a Compensation Committee to
review the performance of corporate officers and the Company's compensation
policies and procedures and to make recommendations to the Board with respect to
such policies and procedures. The Compensation Committee also administers any
share option plans and incentive compensation plans of the Company. The
Compensation Committee consists of five directors of the Company (presently
Messrs. Rosenbloom (Chairman), Green, Olsen, Satz and Zuk), none of whom is an
officer or employee of the Company or Global Capital Re.
OTHER SUPERVISORY AND CONSULTING ARRANGEMENTS
The Board of Directors of Global Capital Re appoints an Investment
Committee to review the guidelines governing the investment of Global Capital
Re's funds and to make recommendations to the Global Capital Re Board with
respect to such guidelines. The Investment Committee also reviews the
performance of Global Capital Re's investment manager, GSAMI. See "Certain
Relationships and Related Party Transactions." The Investment Committee
presently consists of Messrs. Satz (Chairman), Doyle, Lerner, Newman and Roxe.
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During fiscal years 1994 and 1995, the Board appointed an Underwriting
Committee, composed of the chief executive officer, the senior underwriters and
the chief actuary of Global Capital Re and the Chairman of the Company, to
review Global Capital Re's underwriting guidelines and make recommendations
regarding these guidelines to the Board. In anticipation of the 1995 IPO, the
Board established an Executive Committee which assumed responsibility for
reviewing the underwriting guidelines from time to time.
COMPENSATION OF DIRECTORS
Directors, other than directors who are employees or officers of the
Company or Global Capital Re, are entitled to remuneration for their services as
determined by the Board from time to time. Such remuneration is currently fixed
at $25,000 per annum plus a $1,000 fee for each Board meeting attended
(including meetings of committees of the Board). In addition, directors are
reimbursed for travel and out-of-pocket expenses incurred to attend meetings of
the Board and its committees, subject to certain limitations.
Under the Company's Nonemployee Directors Stock Option Plan, which was
adopted effective November 16, 1995 and amended and restated effective April 18,
1996 (such plan as so amended and restated, the "Plan"), directors, other than
the Chairman and directors who are employees or officers of the Company or
Global Capital Re, each will receive a grant of options on 1,500 Ordinary Shares
on the first business day after each annual shareholders' meeting. The directors
(other than the Chairman and such officers and employees) also each received a
grant of options on 3,000 Ordinary Shares on the effective date of the Plan. The
Plan is administered by the Board and provides for options (and restricted
Ordinary Shares as described below) to be granted on up to 100,000 Ordinary
Shares in the aggregate (all options granted pursuant to such Plan, "Nonemployee
Directors Options"). To date, options on 27,000 shares and no restricted shares
have been granted under the Plan, and 3,000 of such options have been exercised.
The exercise price per share of each Nonemployee Directors Option is equal
to the fair market value of an Ordinary Share on the date of grant as determined
by the Board in accordance with the Plan. The exercise price of the options
granted on the original effective date of the Plan is equal to $15.24.
Nonemployee Directors Options are fully vested on grant, are generally
transferable, are exercisable for a period of 10 years from grant and continue
to be exercisable following the termination of service of a director on the
Board; provided, however, that no Nonemployee Directors Option may be exercised
more than 12 months after the death of the grantee.
The number of Ordinary Shares issuable pursuant to Nonemployee Directors
Options and the exercise price per share are subject to adjustment by their
terms in certain events having a dilutive or antidilutive effect on the Ordinary
Shares. In addition, in the event of any cash dividend in respect of Ordinary
Shares, the grantee of each Nonemployee Directors Option will also be granted
restricted Ordinary Shares with respect to an amount (the "Applicable Dividend
Amount") equal to 30% of the total dividend that would be paid in respect of all
Ordinary Shares subject to the Nonemployee Directors Option (plus all unvested,
previously granted restricted Ordinary Shares) held by the grantee, were such
shares then outstanding (or vested, as the case may be). The amount of such
restricted Ordinary Shares to be granted will be determined by dividing the
Applicable Dividend Amount by the fair market value of an Ordinary Share as
determined by the Board. Such restricted Ordinary Shares vest at the rate of 25%
on each of the first four anniversaries of their grant until fully vested for as
long as the director remains in service on the Board. The restricted Ordinary
Shares will also vest immediately in the event of a Change of Control. A "Change
of Control" is deemed to occur, in general, if (i) any person, or group of
persons (subject to certain limited exceptions), is or becomes the direct or
indirect beneficial owner of 50% or more of the Company's then outstanding
voting securities, (ii) during any two year period the directors as of the
beginning of such period (including certain replacements, if any, approved by
two-thirds of such directors) cease to constitute a majority of the Board, (iii)
the shareholders of the Company approve a merger, consolidation or
reorganization or a court of competent jurisdiction approves a scheme of
arrangement of the Company, other than such a transaction or arrangement
pursuant to
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which the shareholders of the Company retain at least 50% of the combined voting
power of the voting securities of the Company or the surviving entity, or (iv)
the shareholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition of all or substantially all of the Company's
assets. Once vested, restricted Ordinary Shares may be held or transferred by
the grantee without restriction (other than under the Shareholders' Agreement
and the Articles relating, among other things, to securities that have not been
registered under the Securities Act). See "Shares Eligible for Future Sale." The
Company will incur compensation expense equal to the fair market value of the
restricted shares at the date of grant (i.e., 30% of all dividends for which the
adjustment is made) as the shares vest.
Mr. Newman and the Company are party to a Chairman's Incentive Agreement,
dated as of June 16, 1993. Under this agreement, Mr. Newman received options to
purchase 70,480 Ordinary Shares at an exercise price of $11.00 per share (after
giving effect to the Share Split and the August Distribution). These options
constitute "Initial Options" as defined under "-- Executive
Compensation -- Management Options" and are subject to adjustment as described
thereunder. Mr. Newman's Initial Options become immediately exercisable in the
event of a Change of Control. Pursuant to this agreement, Mr. Newman also
invested $950,000 in Ordinary Shares at a purchase price of $20.00 per share.
This investment was financed by a loan from the Company, which is secured by the
Ordinary Shares purchased. The loan is evidenced by a non-recourse note in the
original principal amount of $950,000 maturing on October 8, 2000 and bearing
interest at the rate of 7% per annum, which is payable at maturity. As of March
31, 1996, the amount outstanding on the note was $619,400. This note can be
forgiven in an amount not to exceed 30% of the initial principal amount plus
interest each year. The actual amount to be forgiven in any year is determined
by the Compensation Committee in accordance with a sliding scale based on the
Company's short-term and long-term return on equity. In the event of default in
the payment of principal or interest on the note, which default remains uncured
for 14 days, the Company will have the right to sell a sufficient number of the
pledged shares to satisfy the amount due under the note, together with
reasonable fees and expenses incurred in enforcing the note. The note becomes
payable in full 60 days after Mr. Newman ceases to be a member of the Board.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth in summary form all compensation for all
services rendered in all capacities to the Company and its subsidiaries for the
years ended September 30, 1994 and 1995 to the Chief Executive Officer of the
Company and the other four most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000 (collectively with
the Chief Executive Officer, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION OTHER
------------------------------------------ INITIAL OPTIONS
OTHER ANNUAL OPTIONS ON ON ALL OTHER
FISCAL SALARY BONUS COMPENSATION SHARES SHARES COMPENSATION
NAME & PRINCIPAL POSITION YEAR $ $(1) $(2) (#) (#) $(3)
- --------------------------------------- ------ -------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence S. Doyle, President and Chief 1995 401,775 292,000 167,548 0 121,000 43,089
Executive Officer.................... 1994 370,500 93,000 217,808 58,730 12,335 38,371
Robert L. Nason, Senior Vice
President -- North American 1995 228,750 175,000 139,165 0 69,000 24,344
Underwriting......................... 1994 205,833 64,000 132,541 23,495 7,050 21,291
Stephen S. Outerbridge, Senior Vice
President -- International 1995 199,375 145,000 140,766 0 69,000 21,403
Underwriting......................... 1994 184,375 43,500 128,153 23,495 7,050 19,323
Frederick W. Deichmann, Chief Financial 1995 182,500 135,000 109,083 0 43,000 20,868
Officer.............................. 1994 162,500 43,500 137,338 15,740 4,405 16,648
1995 160,625 122,000 102,312 0 43,000 17,499
William G. Fanning, Chief Actuary...... 1994 123,295 30,000 120,228 15,740 4,405 12,654
</TABLE>
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- ---------------
(1) Amounts are granted pursuant to the Company's incentive compensation plan
(as amended and restated, the "Incentive Compensation Plan"). This plan is
designed to promote the interests of the Company and Global Capital Re by
providing key employees of the Company and Global Capital Re with annual
incentive compensation based on a combination of individual and Company
performance, with the latter being based one-half on the annual return on
consolidated shareholders' equity ("ROE") of the Company and one-half on ROE
compared to the ROE of a peer group of catastrophe reinsurance companies.
This plan is administered by the Compensation Committee of the Board, which
determines those employees eligible for participation, individual
performance of participants, the relative weight given to individual and
Company performance, the peer group of catastrophe reinsurers to which the
Company's performance will be compared and the total amount, up to 75% of
the participant's base salary, of an annual award under the plan. Plan
awards can be taken, at the option of the employee, (a) in cash, (b) on a
deferred basis or (c) for certain participants, including the Named
Executives, in the form of partial forgiveness of loans obtained from the
Company to purchase Ordinary Shares pursuant to their employment agreements,
or in any combination of these methods. However, the maximum amount of such
award that may be taken as described in clause (c) in any year is 50% of the
award for that year. For each dollar a participant elects to receive in the
form described in clause (c), such participant's loan will be forgiven in
the amount of two dollars, subject to a further limit in any one year of 20%
of the original amount of the loan plus accrued interest. See "-- Employment
Contracts, Termination of Employment and Change-in-Control Arrangements."
(2) Includes amounts in respect of reimbursement for certain travel expenses,
automobile expenses, club dues and relocation expenses and also includes
housing expenses of $132,000 and $144,000, $110,000 and $120,000, $120,000
and $120,000, $96,000 and $96,000 and $72,000 and $96,000 for Messrs. Doyle,
Nason, Outerbridge, Deichmann and Fanning, respectively, for fiscal years
1994 and 1995, respectively.
(3) Includes payments made in connection with life insurance premiums and
retirement plan contributions. Includes life insurance premiums of $1,321
and $2,911, $708 and $1,469, $885 and $1,465, $398 and $2,618 and $324 and
$1,436 and retirement plan contributions of $37,050 and $40,178, $20,583 and
$22,875, $18,438 and $19,938, $16,250 and $18,250 and $12,330 and $16,063
for Messrs. Doyle, Nason, Outerbridge, Deichmann and Fanning, respectively,
for fiscal years 1994 and 1995, respectively.
MANAGEMENT OPTIONS
Two types of options have been granted to employees of the Company since
its inception in 1993: Initial Options, which were granted to the Named
Executives in connection with the commencement of their employment in 1993 (1994
in the case of Mr. Fanning), and Other Options, which have been and may be
granted to key employees of the Company and Global Capital Re, including the
Named Executives, from time to time. These options are exercisable, subject to
the vesting schedules described below.
INITIAL OPTIONS. Initial Options were granted to each Named Executive as
of October 8, 1993 (January 15, 1994 as to Mr. Fanning) pursuant to his
employment agreement with the Company and have a five-year vesting schedule,
with 20% of such options being immediately exercisable and an additional 20%
becoming exercisable on each of the second through fifth anniversaries of the
date of grant for as long as the Named Executive remains employed by the
Company. No Initial Option will become exercisable after the termination of the
Named Executive's employment. No Initial Option that is otherwise exercisable
may be exercised more than ninety days after the termination of the Named
Executive's employment for any reason other than death or disability or more
than six months after termination for death or disability, and in no event may
any Initial Option be exercised after October 8, 2003 (January 15, 2004 as to
Mr. Fanning). To date, no Initial Options have been exercised.
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OTHER OPTIONS. Other Options have been granted to each Named Executive
pursuant to the Company's initial Share Option Plan and the Company's 1995 Share
Option Plan.
The Board adopted the initial Share Option Plan in October 1993 to provide
key employees of the Company and Global Capital Re with an additional incentive
to contribute to the success of GCR by giving them an opportunity to acquire a
proprietary interest in the Company. On November 16, 1995 the Board amended the
initial Share Option Plan, effective October 1, 1995, as described below to
address certain option adjustments and to provide that no further grants of
options be made under the plan. The Company's initial Share Option Plan (as
amended and restated, the "Initial Share Option Plan") is administered by the
Compensation Committee and permits options to be granted with respect to not
more than 35,245 Ordinary Shares (as of September 30, 1995, options covering
35,245 shares had been issued under this plan and no options had been
exercised). All grants of Other Options made under the Initial Share Option Plan
were made at the discretion of the Compensation Committee, subject to an overall
yearly maximum number of Other Options to be granted based on a formula which
took into account the short-term and long-term ROE of the Company. Other Options
granted under the Initial Share Option Plan are subject to adjustment and
vesting as described below with respect to Other Options granted under the 1995
Share Option Plan. No grants of unvested restricted Ordinary Shares have been or
can be made under the Initial Share Option Plan or its predecessor.
On November 16, 1995, the Board adopted the Company's 1995 Share Option
Plan, effective September 30, 1995, and amended and restated the plan effective
April 18, 1996 (as so amended and restated, the "1995 Share Option Plan"). The
1995 Share Option Plan is administered by the Compensation Committee and permits
options (and restricted Ordinary Shares as described below under "Option
Adjustments") to be granted with respect to not more than 1,500,000 Ordinary
Shares (as of March 31, 1996, options covering 360,000 shares had been issued
under this plan, no options had been exercised and no restricted shares had been
issued). Options may be either incentive stock options within the meaning of
Section 422 of the United States Internal Revenue Code or non-statutory options.
The maximum number of Ordinary Shares which may be subject to options granted
under the plan in any one year is based on a formula that takes into account the
short-term and long-term ROE of the Company. In no event may options in respect
of more than 450,000 Ordinary Shares be granted in any one year. The
Compensation Committee has discretion to determine which employees are eligible
to receive options in any year, whether options are to be incentive stock
options or non-statutory options, the time or times at which options are to be
granted, the number of options granted to each eligible participant, the
duration of each option and the time or times within which all or a portion of
each of the options may be exercised.
The exercise price of each Other Option is equal to the fair market value
(book value prior to the 1995 IPO and market value thereafter) of the Ordinary
Shares on the date of grant of such options as determined by the Compensation
Committee. Unless determined otherwise by the Compensation Committee, 25% of
each option grant vests on each of the first four anniversaries of the grant
date until fully vested for as long as the Named Executive remains employed by
the Company. No Other Option will become exercisable after the termination of
the Named Executive's employment. No Other Option that is otherwise exercisable
may be exercised more than ninety days after the termination of the Named
Executive's employment for any reason other than death or disability or more
than six months after termination for death or disability, and in no event shall
any Other Option be exercisable after the tenth anniversary of the date of
grant.
On November 16, 1995, Other Options were granted under the 1995 Share
Option Plan in respect of 121,000, 69,000, 69,000, 43,000 and 43,000 Ordinary
Shares to Messrs. Doyle, Nason, Outerbridge, Deichmann and Fanning,
respectively. These options have an exercise price of $15.24 per share.
For United States federal income tax purposes, no taxable income is
realized by a grantee at the time of grant of an option under the Initial Share
Option Plan or a non-statutory option under the 1995 Share Option Plan. Upon
exercising an option, a grantee will realize ordinary income in an amount equal
to the excess of the fair market value on the exercise date of the shares
subject to the
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option over the exercise price of the option. The grantee will have a basis, for
purposes of computing capital gain or loss on a future sale or exchange, in the
shares received as a result of the exercise equal to the fair market value of
those shares on the exercise date. If the Company were subject to United States
federal income tax, it would not be entitled to a deduction at the time of grant
of an option under the Initial Share Option Plan or a non-statutory option under
the 1995 Share Option Plan, but would be entitled to a deduction when a grantee
exercises an option in an amount equal to the ordinary income realized by a
grantee.
For United States federal income tax purposes, a grantee does not realize
taxable income at the time an incentive stock option is granted under the 1995
Share Option Plan or when the option is exercised. If the grantee of an
incentive stock option holds the shares acquired under the option for at least
two years from the date of grant of the option and for at least one year from
the date the option is exercised, any gain realized by the grantee when the
shares are sold will be taxable to the grantee as capital gain. If the grantee
does not hold the shares for the one-year and the two-year periods, the grantee
will realize ordinary income in the year of disposition of the shares in an
amount equal to the excess of the fair market value of the shares on the date of
exercise (or the proceeds of the disposition, if lower) over the exercise price.
The difference between the exercise price of an incentive stock option and the
fair market value of the shares subject to the option at the time of exercise is
an item of tax preference which may result in the grantee being subject to the
alternative minimum tax. Whether a grantee is subject to the alternative minimum
tax in lieu of regular income tax will depend on individual facts and
circumstances. If the Company were subject to United States federal income tax,
it would not be entitled to a deduction at the time of grant or exercise of an
incentive stock option, but would be entitled to a deduction in the year of
disposition of the shares if the grantee does not hold the shares for the
one-year and two-year periods, in an amount equal to the ordinary income
realized by the grantee.
OPTION ADJUSTMENTS. The number of Ordinary Shares issuable pursuant to any
Initial Option or Other Option and the exercise price per share are subject to
adjustment by their terms in certain events having a dilutive or antidilutive
effect on the Ordinary Shares. For each Initial Option and each Other Option
granted under the Initial Share Option Plan (or its predecessor), the exercise
price per share is also subject to adjustment in the event of certain dividends.
For each Initial Option and Other Option, the number of shares issuable
thereunder and the exercise price per share, as set forth herein, have been
adjusted to reflect the Share Split, the 1995 Distribution and the dividend paid
in February 1996, in each case to the extent such adjustments apply. No
adjustment is reflected in respect of the dividend payable in May 1996.
In the event of any cash dividend on the Ordinary Shares, the exercise
price per share of all Initial Options and all Other Options granted under the
Initial Share Option Plan (or its predecessor) will be reduced by an amount
equal to such dividend per Ordinary Share. All Other Options granted under the
1995 Share Option Plan will not have such an exercise price reduction for cash
dividends on Ordinary Shares. Rather, in the event of any cash dividend in
respect of Ordinary Shares, the grantee of each Other Option granted under the
1995 Share Option Plan will be granted by the Company restricted Ordinary Shares
with respect to an amount (the "Applicable Dividend Amount") equal to 30% of the
total dividend that would have been paid in respect of all Ordinary Shares
subject to such Other Options had they been held by the Named Executive at such
time, plus all unvested, previously granted restricted Ordinary Shares had they
been vested at such time. The number of such restricted Ordinary Shares to be
received will be determined by dividing the Applicable Dividend Amount by the
fair market value of an Ordinary Share as determined by the Compensation
Committee. Such restricted Ordinary Shares vest at the rate of 25% on each of
the first four anniversaries of their grant until fully vested for as long as
the Named Executive remains employed by the Company. Once vested, restricted
Ordinary Shares may be held or transferred by the grantee without restriction
(other than under the Shareholders' Agreement and the Articles relating to,
among other things, securities that have not been registered under the
Securities Act). See "Shares Eligible for Future Sale." Upon any adjustment of
the exercise price of an Initial Option, or Other Option granted under the
Initial Share Option Plan, the Company will incur compensation
67
<PAGE> 71
expense equal to the amount of the difference between the then current market
value of the underlying shares and the aggregate adjusted exercise price less
previously recognized compensation expense for prior periods. Upon any grant of
restricted Ordinary Shares in respect of Other Options granted under the 1995
Share Option Plan, the Company will incur, as shares vest, compensation expense
equal to the fair market value of the restricted Ordinary Shares as of the date
of grant (i.e., the Applicable Dividend Amount). (The issuance of restricted
Ordinary Shares in respect of any dividends paid prior to the next annual
meeting of the Company's shareholders (including the February and May 1996
dividends) is subject to shareholder approval of the 1995 Share Option Plan at
such meeting. For the purposes of this Prospectus, therefore, none of such
restricted Ordinary Shares is considered to be outstanding.)
Each Initial Option, Other Option and restricted Ordinary Share will vest
immediately upon a Change of Control. See "-- Employment Contracts, Termination
of Employment and Change-in-Control Arrangements."
OPTION GRANTS FOR FISCAL YEARS 1994 AND 1995
The following table contains information concerning the share options
granted to or earned by each of the Named Executives for fiscal years 1994 and
1995. The Company has not authorized the grant of any share appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
PERCENT OF
TOTAL
OPTIONS POTENTIAL REALIZABLE
GRANTED TO EXERCISE VALUE AT ASSUMED
NUMBER OF NAMED OR ANNUAL RATES OF SHARE
SECURITIES EXECUTIVES BASE PRICE APPRECIATION FOR
UNDERLYING IN EACH PRICE MARKET PRICE OPTION TERM(4)
FISCAL OPTIONS FISCAL PER ON DATE OF EXPIRATION -----------------------
NAME YEAR GRANTED YEAR(1) SHARE(2) GRANT(3) DATE 5% 10%
- ---------------------------- ------ ---------- ---------- -------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence S. Doyle........... 58,730 $10.38 $11.00 10/8/03 $ 443,412 $1,063,600
12,335 11.14 11.76 11/15/04 99,035 238,292
---------- ---------- ----------
1994 71,065 41.21% 542,447 1,301,892
========= ========== ==========
1995 121,000 35.07 15.24 15.24 11/16/05 1,161,745 2,932,024
Robert L. Nason............. 23,495 10.38 11.00 10/8/03 177,387 425,494
7,050 11.14 11.76 11/15/04 56,603 136,195
---------- ---------- ----------
1994 30,545 17.71 233,990 561,689
========= ========== ==========
1995 69,000 20.00 15.24 15.24 11/16/05 662,483 1,671,980
Stephen S. Outerbridge...... 23,495 10.38 11.00 10/8/03 177,387 425,494
7,050 11.14 11.76 11/15/04 56,603 136,195
---------- ---------- ----------
1994 30,545 17.71 233,990 561,689
========= ========== ==========
1995 69,000 20.00 15.24 15.24 11/16/05 662,483 1,671,980
Frederick W. Deichmann...... 15,740 10.38 11.00 10/8/03 118,837 285,051
4,405 11.14 11.76 11/15/04 35,367 85,098
---------- ---------- ----------
1994 20,145 11.68 154,204 370,149
========= ========== ==========
1995 43,000 12.46 15.24 15.24 11/16/05 412,852 1,041,959
William G. Fanning.......... 15,740 10.38 11.00 1/15/04 118,837 285,051
4,405 11.14 11.76 11/15/04 35,367 85,098
---------- ---------- ----------
1994 20,145 11.68 154,204 370,149
========= ========== ==========
1995 43,000 12.46 15.24 15.24 11/16/05 412,852 1,041,959
</TABLE>
- ---------------
(1) Does not reflect options on 5,000 shares and 15,000 shares granted to other
employees with respect to fiscal years 1994 and 1995, respectively.
(2) After giving effect to the exercise price adjustments for the 1995
Distribution and the dividend paid in February 1996, as applicable. No
effect is given to the May 1996 dividend or any subsequent dividend that may
be paid. All options were granted at fair market value (then current book
value), as determined by the Compensation Committee of the Board, on the
date of grant. The Initial Options have a five-year vesting schedule. Twenty
percent of the Initial Options became exercisable on the grant date and an
additional 20% will become exercisable on each of the second through fifth
anniversaries of the grant date for as long as the Named Executive remains
employed by the Company. Other Options, which were granted subsequent
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<PAGE> 72
to the Initial Options, vest and become exercisable at a rate of 25% on each
of the first through fourth anniversaries of the grant date for as long as
the Named Executive remains employed by the Company.
(3) The market price per share on the date of grant in each case was determined
before there was a public market for the Ordinary Shares and therefore was
based on the then current book value per share and has been adjusted for the
1995 Distribution.
(4) The 5% and 10% assumed annual rates of compounded share price appreciation
are mandated by rules of the Commission and have been calculated based upon
the market price on the date of grant as described in note (3) above. There
can be no assurance that the actual share price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Ordinary Shares appreciates
over the option term, no value will be realized from the option grants made
to the Named Executives.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND 1995 FISCAL YEAR-END
OPTION VALUES
The following table contains information for each Named Executive with
regard to the number of Ordinary Shares underlying unexercised options and the
value of such options, in each case at March 31, 1996. No options have been
exercised by Named Executives.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT MARCH 31,
OPTIONS AT MARCH 31, 1996(#) 1996($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------ ---------------------------- ----------------------------
<S> <C> <C>
Lawrence S. Doyle......................... 26,576/165,489 $386,194/$1,824,362
Robert L. Nason........................... 11,161/ 88,384 161,827/ 952,823
Stephen S. Outerbridge.................... 11,161/ 88,384 161,827/ 952,823
Frederick W. Deichmann.................... 7,397/ 55,748 107,311/ 603,541
William G. Fanning........................ 7,397/ 55,748 107,311/ 603,541
</TABLE>
- ---------------
(1) After giving effect to the Share Split and to the exercise price adjustment
for the 1995 Distribution and the February 1996 dividend. No effect is given
to the May 1996 dividend or any subsequent dividend that may be paid. All
options were granted at fair market value, as determined by the Compensation
Committee of the Board, on the date of grant. Value calculated on the basis
of market value of the underlying securities as at March 31, 1996.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with each of the Named
Executives. The agreements are substantially identical; unless otherwise
indicated, the following discussion pertains to Mr. Doyle's agreement and
addresses material differences applicable to the other agreements.
Mr. Doyle received, in connection with entering into his original
employment agreement, a bonus of $50,000 (the other Named Executives received no
such signing bonus). Each Named Executive (other than Mr. Fanning) was entitled
to compensation from the Company during the period from the date of his original
employment agreement through October 8, 1993 at rates varying from $13,333 per
month for Mr. Deichmann to $25,000 per month for Mr. Doyle. Each Named Executive
also received as of October 8, 1993 (January 15, 1994 as to Mr. Fanning) Initial
Options at an exercise price per Ordinary Share currently equal to $10.38. See
"-- Option Grants for Fiscal Years 1994 and 1995."
Each employment agreement provides for a term of five years, commencing on
October 8, 1993 (except in the case of Mr. Fanning's employment, which commenced
on January 15, 1994). During the period of each agreement, the relevant Named
Executive will receive a base salary as set forth in the agreement, subject to
review and increase annually by the Board (the amount of cash compensation paid
in the year ended September 30, 1995 under each such agreement is set forth in
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<PAGE> 73
the Summary Compensation Table above, under the heading "Salary"). Pursuant to
these agreements, each Named Executive also participates in the Company's
Incentive Compensation Plan and is eligible for a bonus of up to 75% of his
annual salary based on corporate and individual performance determined in
accordance with the terms of such plan. Each Named Executive also receives
certain additional benefits, such as a right to participate in all employee
benefit plans of the Company, reimbursement for relocation expenses incurred by
reason of employment with the Company, certain limited personal travel expenses,
a monthly housing allowance, the use of an automobile and the costs of
membership in a club of the Named Executive's choice (the approximate cash
equivalent amount of such additional compensation paid in the year ended
September 30, 1995 is set forth in the Summary Compensation Table above, under
the headings "Other Annual Compensation" and "All Other Compensation"). See
"-- Summary of Cash and Certain Other Compensation." Each Named Executive
participates in the Company's Share Option Plans. See "-- Other Options."
Pursuant to the employment agreements, each Named Executive invested
$400,000 (Mr. Doyle invested $800,000 and Mr. Fanning invested $190,000) in
Ordinary Shares at a price of $20.00 per share (after giving effect to the Share
Split). One half of each of these investments ($150,000 for Mr. Fanning) was
financed by a loan (each an "Employee Loan") from the Company which is secured
by a portion of the Ordinary Shares purchased by such Named Executive (such
portion being comparable to the portion of the original loan that remains
outstanding). Each of the loans is evidenced by a non-recourse note in the
amount thereof maturing on October 8, 2000 (January 15, 2001 for Mr. Fanning)
and bearing interest at the rate of 7% per annum, which is payable at maturity.
At the Named Executive's option, up to one-half of such executive's award under
the Company's Incentive Compensation Plan can be applied to forgiveness of each
note, in which event 200% of the amount elected will be so applied, provided
that no more than 20% of the original amount of the loan plus accrued interest
may be forgiven in any one year. See the description of the Incentive
Compensation Plan and loan forgiveness in Note 1 to the Summary Compensation
Table under "-- Summary of Cash and Certain Other Compensation." As amounts
outstanding under the Employee Loans decline, the number of Ordinary Shares
securing such loans also declines, proportionately. In the event of default in
the payment of principal or interest on any note, which default remains uncured
for 14 days, the Company will have the right to sell a sufficient number of the
shares pledged thereunder to satisfy the amount due thereunder, together with
all reasonable fees and expenses incurred in enforcing the note. Each note
becomes payable three months after the relevant Named Executive's employment is
terminated.
Each of the employment agreements contains provisions relating to
exclusivity of services, non-competition and confidentiality. The Company may
terminate the employment of any of the Named Executives for "Serious Cause."
After such a termination, the relevant Named Executive cannot compete with the
Company for a period of 18 months (two years in the case of Mr. Doyle). The
Company will then be liable to the executive only for accrued but unpaid salary,
earned but unpaid bonus from a prior fiscal year and certain other limited
benefits as described in the relevant agreement. "Serious Cause" means (i) the
wilful and continued failure of the Named Executive to perform substantially his
duties under his employment agreement, other than by reasons of health, after
demand for substantial performance is delivered by the Company that specifically
identifies the manner in which the Company believes the Named Executive has not
substantially performed his duties; (ii) the Named Executive shall have been
convicted by any federal, state or local authority in any jurisdiction for, or
shall have pleaded guilty or nolo contendere to, an act constituting a felony;
(iii) the Named Executive shall have habitually abused any substance such as
narcotics or alcohol; (iv) the Named Executive shall have engaged in acts of
fraud, material dishonesty or gross misconduct in connection with the business
of the Company; or (v) the Named Executive shall have materially breached his
respective employment agreement.
Each of the Named Executives has the right to terminate his employment
agreement with "Good Reason." After such a termination by Mr. Doyle, he may not
compete with the Company for a
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<PAGE> 74
period of one year (the other Named Executives have no such non-compete
provision). "Good Reason" means (i) a substantial reduction in the Named
Executive's salary; (ii) the demotion of the Named Executive; (iii) a material
demotion of the Named Executive's duties; or (iv) a material breach of the
respective employment agreement by the Company.
After a termination of the employment agreement by the Named Executive for
Good Reason or by the Company for other than Serious Cause, or in the event the
Company liquidates or elects to discontinue permanently operating the Company,
the Named Executive is entitled to receive from the Company his salary for a
period of one year from termination and benefits as provided in his agreement.
In the event of the occurrence of a Change of Control following which the Named
Executive is retained by the Company or its successor for a period of 60 days or
more, the Named Executive is entitled to receive from the Company (i) an amount
equivalent to one year's salary (at such Named Executive's rate of pay
immediately prior to the Change of Control transaction) paid in a lump sum 60
days after the consummation of the Change of Control transaction, (ii) immediate
vesting of all previously granted options and restricted Ordinary Shares and
(iii) after one year of employment with the Company or its successor following
such transaction, the forgiveness of the amount of the Employee Loan outstanding
immediately prior to the consummation of the Change of Control transaction. In
the event of a termination of the employment agreement by the Named Executive
for Good Reason or by the Company other than for serious cause within one year
following a Change of Control, the Named Executive is also entitled to receive
from the Company (in lieu of the benefits described under the first sentence of
this paragraph) (i) his salary for a period of two years from termination (at
the rate of pay immediately prior to the Change of Control transaction) paid in
a lump sum upon termination, (ii) automobile and housing allowances for a period
of one year from such date, (iii) forgiveness of the Employee Loan outstanding
at such date, (iv) immediate vesting of all previously granted options and
restricted Ordinary Shares and (v) any accrued but unpaid salary and earned but
unpaid bonus from a prior fiscal year.
Each of the Named Executives may terminate his employment other than for
Good Reason. After such a termination, under the terms of his agreement the
Named Executive may not compete with the Company for a period of 18 months (two
years in the case of Mr. Doyle). In the event of such a termination, the Company
will be liable to the executive only for accrued but unpaid salary, earned but
unpaid bonus from a prior fiscal year and certain other limited benefits as
provided in his agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during the fiscal year 1995 consisted of Messrs.
Rosenbloom (Chairman), Green, Olsen, Satz and Zuk, none of whom is or was an
officer or employee of the Company or Global Capital Re.
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<PAGE> 75
PRINCIPAL AND SELLING SHAREHOLDERS
The table below sets forth the beneficial ownership of the Company's
Ordinary Shares by the principal and Selling Shareholders and the directors and
officers of the Company at March 31, 1996 and following the sale of the Ordinary
Shares offered hereby and the GCR Repurchase.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE AFTER THE OFFERING AND
OFFERING(1) SHARES THE GCR REPURCHASE(1)
--------------------- BEING -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED(1) NUMBER PERCENT
- ----------------------------------------- --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
5% BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS:
The Goldman Sachs Group, L.P............. 4,420,489(2) 17.2 (3) (3) (3)
85 Broad Street
New York, NY 10004
Johnson & Higgins........................ 1,644,418(4) 6.4
125 Broad Street
New York, NY 10004
Alfred Lerner............................ 503,000(5) 2.0
Steven H. Newman......................... 75,692(6) * -- 75,692 *
Lawrence S. Doyle........................ 66,576(7) * -- 66,576 *
Robert L. Nason.......................... 31,160(8) * -- 31,160 *
Stephen S. Outerbridge................... 31,160(8) * -- 31,160 *
William G. Fanning....................... 17,862(9) * -- 17,862 *
Frederick W. Deichmann................... 27,595(10) * -- 27,595 *
J. Markham Green......................... 3,000 * *
John P. McNulty.......................... 3,000(11) * *
David A. Olsen........................... 12,668(5) * *
Jerry S. Rosenbloom...................... 3,000(5) * *
Joseph D. Roxe........................... 13,068(5) * *
Michael E. Satz.......................... 3,000(5) * *
Richard D. Spurling...................... 3,000(5) * *
Donald J. Zuk............................ 4,000(12) * *
OTHER SELLING SHAREHOLDERS:
[Selling Shareholders exceeding the
threshold specified below to be named.]
Up to additional Selling
Shareholders, each of whom (i) is
selling less than 90,000 of the
Ordinary Shares being sold in the
Offering and (ii) prior to the Offering
beneficially owns less than 1% of the
Ordinary Shares........................ (13) (13) (13)
All Directors and Executive Officers as a
group (16 persons, of whom are
Selling Shareholders).................. 804,781 3.1
</TABLE>
- ---------------
* Less than 1% of the outstanding shares.
(1) In accordance with Commission rules, each beneficial owner's holdings have
been calculated assuming full exercise of outstanding options exercisable
by such owner within 60 days after the date of this Prospectus, but no
exercise of outstanding options held by any other person. The table set
forth above assumes that the over-allotment option is not exercised by the
Underwriters and treats all shares repurchased by Global Capital Re in the
GCR Repurchase as ceasing to be outstanding upon their repurchase (although
such shares will continue to carry voting, dividend and other rights while
held by Global Capital Re). Information about shares being offered,
beneficial ownership after the Offering and the GCR Repurchase and other
Selling Shareholders is subject to change pending final confirmation of
Selling Shareholder participation in the Offering, prior to the pricing of
the Offering. For further information about the calculation of beneficial
ownership, see the footnotes below.
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<PAGE> 76
(2) Includes 3,820,568 Ordinary Shares beneficially owned by certain investment
limited partnerships, including GS Capital Partners, L.P., of which
affiliates of The Goldman Sachs Group, L.P. ("GS Group") are the general
partner or managing general partner. GS Group disclaims beneficial
ownership of shares held by such investment partnerships to the extent
partnership interests in such partnerships are held by persons other than
GS Group and its affiliates. Also includes 599,921 Ordinary Shares
beneficially owned by Goldman, Sachs & Co., also an affiliate of GS Group.
Does not include certain shares held in customer accounts managed by
affiliates of GS Group, which affiliates do not intend to exercise voting
rights over such shares. Also does not include shares which may be held by
Goldman, Sachs & Co. and certain of its affiliates as a result of
market-making activities.
(3) If the Underwriters' over-allotment option is exercised in full, GS Group
will sell an additional Ordinary Shares and may be deemed
beneficially to own , or %, of the outstanding Ordinary
Shares after the Offering.
(4) Consists of Ordinary Shares beneficially owned by Johnson & Higgins
(Bermuda) Limited, a subsidiary of Johnson & Higgins. Does not include
shares beneficially owned by Messrs. Olsen and Roxe, officers of Johnson &
Higgins and directors of the Company.
(5) Includes 3,000 Ordinary Shares issuable upon the exercise of options.
(6) Includes 28,192 Ordinary Shares issuable upon the exercise of options; does
not include 376,746 shares held by Underwriters Reinsurance Company, a
subsidiary of Alleghany Corporation.
(7) Includes 26,576 Ordinary Shares issuable upon the exercise of options.
(8) Includes 11,161 Ordinary Shares issuable upon the exercise of options.
(9) Includes 7,397 Ordinary Shares issuable upon the exercise of options.
(10) Includes 7,595 Ordinary Shares issuable upon the exercise of options. Also
includes 200 Ordinary Shares held by Mr. Deichmann for the benefit of his
children and as to which he disclaims beneficial ownership.
(11) Includes 3,000 Ordinary Shares issuable upon the exercise of options. Does
not include 4,417,489 shares which may be deemed to be beneficially owned
by GS Group. See note (2) above. The general partners of Goldman, Sachs &
Co. may be deemed to share beneficial ownership of the shares shown as
beneficially owned by certain affiliates of GS Group. Mr. McNulty, who is a
general partner of Goldman, Sachs & Co., disclaims beneficial ownership of
the shares owned by GS Group and certain of its affiliates.
(12) Includes 3,000 Ordinary Shares issuable upon the exercise of options. Does
not include 188,373 shares held by Southern California Physicians Insurance
Exchange.
(13) If the Underwriters' over-allotment option is exercised in full, of
these additional Selling Shareholders, taken together, will sell an
additional Ordinary Shares (with each such additional Selling
Shareholder selling less than 27,000 Ordinary Shares) and all the
additional Selling Shareholders, taken together, may be deemed beneficially
to own , or %, of the outstanding Ordinary Shares after the
Offering.
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<PAGE> 77
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Upon assuming their current positions with the Company, each of the Named
Executives and Mr. Newman has given a non-recourse note to the Company, in
amounts ranging from $150,000 to $950,000, to finance purchases of Ordinary
Shares. See "Management -- Provisions Governing the Board of
Directors -- Compensation of Directors" and " -- Executive
Compensation -- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements."
CERTAIN BUSINESS RELATIONSHIPS
Goldman, Sachs & Co. was a founding sponsor of the Company. Together with
GS Capital Partners, L.P., of which an affiliate of Goldman, Sachs & Co. is the
sole general partner, and certain other affiliated investment partnerships,
Goldman, Sachs & Co. own 4,420,489 Ordinary Shares (calculated on the basis set
forth in the notes to "Principal and Selling Shareholders"), 3,550,000 of which
were purchased in the Company's initial share placement in 1993 at the initial
offering price of $20.00 per share. One of the Company's directors is a limited
partner of Goldman, Sachs & Co. and another is a general partner of Goldman,
Sachs & Co. See "Management."
Goldman, Sachs & Co. acted as financial adviser and placement agent for the
Company in connection with the Company's organization and initial share
placement in 1993, for which they received fees totalling approximately $6.9
million and reimbursement of certain expenses. In addition, as partial
consideration for those services, the Company granted to Goldman, Sachs & Co.
warrants to purchase 792,875 Ordinary Shares and granted to GS Capital Partners,
L.P. and certain other affiliated investment partnerships warrants to purchase
1,524,765 Ordinary Shares, all of which had an exercise price of $11.00 per
share, or $25.5 million in the aggregate. These entities exercised their
warrants in full immediately prior to the closing for the 1995 IPO and sold a
total of 1,450,151 Ordinary Shares in that offering. Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corportion, J.P. Morgan Securities Inc.
and Smith Barney Inc. acted as representatives of the underwriters in the 1995
IPO, in which the underwriters received aggregate underwriting discounts and
commissions of approximately $9,142,500 from the selling shareholders in such
offering. The Company has agreed to indemnify Goldman, Sachs & Co. and their
affiliates against certain liabilities, including liabilities under the
Securities Act and in connection with the organization of the Company.
GSAMI, an affiliate of Goldman, Sachs & Co., performs asset management
services for Global Capital Re pursuant to the Investment Advisory Agreement.
This agreement provides for an annual fee based on the value of Global Capital
Re's investment portfolio and may be terminated by either party upon 30 days'
notice. In addition, this agreement provides that GSAMI may effect portfolio
transactions for Global Capital Re with or through GSAMI or any of its
affiliates, acting as agent or as principal, and in each such case GSAMI or such
affiliate may earn commissions in addition to the advisory fees under the
agreement. GSAMI may also invest a portion of the portfolio in funds managed by
affiliates of Goldman, Sachs & Co. Pursuant to this agreement, the Company paid
advisory fees and brokerage commissions to GSAMI and its affiliates totalling
$497,000 and $559,000 during the years ended September 30, 1994 and 1995,
respectively, and $282,000 during the six months ended March 31, 1996.
Goldman, Sachs & Co. have entered into an undertaking and indemnification
agreement with the Company pursuant to which they have agreed, in general, that
if any Goldman Sachs Person becomes a United States 25% Shareholder (in
compliance with certain provisions of the Articles), no Goldman Sachs Person
would be a United States 25% Shareholder for a period of 29 consecutive days or
more at any time or for a period of 29 days or more during any single calendar
quarter and no Goldman Sachs Person would exceed a 29% ownership threshold at
any time.
Johnson & Higgins was a founding sponsor of the Company. Together with its
affiliates, Johnson & Higgins beneficially owns 1,644,418 Ordinary Shares,
1,000,000 of which were pur-
74
<PAGE> 78
chased in the Company's initial share placement at the initial offering price of
$20.00 per share. Two of the Company's directors are officers of Johnson &
Higgins. See "Management."
Johnson & Higgins provided reinsurance advice in connection with the
organization of the Company in 1993 and, in consideration therefore, the Company
granted to Johnson & Higgins (Bermuda) Limited and another Johnson & Higgins
affiliate warrants to purchase 986,015 Ordinary Shares at an exercise price of
$11.00 per share, or $10.8 million in the aggregate. These affiliates exercised
these warrants in full immediately prior to the 1995 IPO and sold a total of
327,659 Ordinary Shares in that Offering. The Company also reimbursed Johnson &
Higgins for certain expenses relating to the organization of the Company.
Willcox, an affiliate of Johnson & Higgins and one of the world's largest
reinsurance intermediaries, provides reinsurance brokerage services to clients
of the Company on a regular basis and accounted for approximately 11% of GCR's
premiums written under contracts in force on March 31, 1996. Willcox also
provides certain insurance brokerage services to GCR directly. For the first six
months of fiscal year 1996, GCR purchased insurance coverage through Willcox,
for which Willcox earned brokerage commissions of $52,000.
Underwriters Reinsurance Company holds 500,000 Ordinary Shares, which it
purchased in the Company's initial share placement at the initial offering price
of $20.00 per share (after giving effect to the Share Split). The Chairman of
Underwriters Reinsurance Company, a subsidiary of Alleghany Corporation, Steven
H. Newman, is the non-executive Chairman of the Board of Directors of the
Company and holds 47,500 Ordinary Shares and options to purchase 70,480
additional Ordinary Shares. Underwriters Reinsurance Company is engaged in the
reinsurance business, including the writing of property catastrophe reinsurance.
See "Management."
Donald J. Zuk, a member of the Board, is also President and Chief Executive
Officer of the Southern California Physicians Insurance Exchange, which holds
188,373 Ordinary Shares.
REGISTRATION RIGHTS
Pursuant to an agreement dated as of December 18, 1995, the Company has
agreed to provide Goldman, Sachs & Co. and Johnson & Higgins (each, a
"Rightholder") with registration rights for Ordinary Shares held by them and
certain of their affiliates (collectively, a "Holder Group"). Under this
agreement, each Rightholder has the right to require the Company, on one
occasion, to register Ordinary Shares under the Securities Act for sale in the
public market, in an underwritten offering, block trades from time to time or
otherwise, and the other Holder Group not making the demand will have the right
to participate in such registration on a second-priority basis. The Company
generally may include other Ordinary Shares in any such demand registration, on
a third-priority basis subject to a customary underwriter's reduction. The total
amount of shares registered pursuant to any such demand must equal or exceed $10
million. In addition, if the Company proposes to file a registration statement
covering Ordinary Shares at any time, each Rightholder will have the right to
include Ordinary Shares held by its Holder Group in the registration, in each
case on a first-priority basis with any other shareholders and on a
second-priority basis with the Company, pro rata according to the relevant
respective holdings and subject to a customary underwriter's reduction. The
Company has agreed to indemnify each Rightholder and certain of its affiliates
in respect of certain liabilities, including civil liabilities under the
Securities Act, and to pay certain expenses, relating to such registrations. See
"-- Certain Business Relationships." Each Rightholder's rights under the
agreement terminates when its Holder Group ceases to hold at least 50% (in the
case of the demand rights) or 25% (in the case of joining rights) of the
Ordinary Shares held by it immediately after the 1995 IPO (subject to adjustment
for any future share split, dividend, combination or similar event and except in
some cases for shares that, in whole or in part, are excluded from a
registration due to an underwriter's reduction or were acquired on exercise of
the Sponsors' Warrants). The Company has also agreed to maintain a registration
statement covering sales that may be effected by Goldman, Sachs & Co. from time
to time in connection with market-making transactions. See "Underwriting."
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DESCRIPTION OF CAPITAL SHARES
The following summary of the Company's capital shares does not purport to
be complete and is subject in all respects to applicable law of the Cayman
Islands and to the provisions of the Company's Memorandum and Articles, copies
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
GENERAL
The authorized share capital of the Company consists of two classes of
shares: (i) 50,000,000 Ordinary Shares, par value $0.10 per share, of which
25,668,255 Ordinary Shares were outstanding at March 31, 1996 and (ii)
25,000,000 other shares, par value $0.10 per share, none of which were
outstanding at March 31, 1996. As of May 1, 1996, there were 482 holders of
record of the Company's Ordinary Shares. Substantially all of the Ordinary
Shares that are publicly traded are currently held of record by Cede & Co., a
nominee of The Depository Trust Company. Immediately after the Offering and the
GCR Repurchase, 1,000,000 of the outstanding Ordinary Shares will be held by
Global Capital Re. See "Prospectus Summary -- The Offering and the GCR
Repurchase."
ORDINARY SHARES
All outstanding Ordinary Shares are validly issued, fully paid and
nonassessable. The Ordinary Shares have no conversion, preemptive or sinking
fund rights. Holders of the Ordinary Shares are entitled to receive dividends
ratably when, as and if declared by the Board, and to share ratably in the
assets of the Company upon dissolution and liquidation thereof.
Outstanding Ordinary Shares are currently not subject to redemption by the
Company. The Company's Memorandum and Articles designate all Ordinary Shares as
redeemable ordinary shares; this permits the Company to create in the future
Ordinary Shares that would be redeemable at the option of the Company, but only
with the approval of the holders of the outstanding Ordinary Shares, by special
resolution.
Each holder of an Ordinary Share present at a meeting is entitled to one
vote if the action is to be taken by a show of hands, and one vote per Ordinary
Share held by such holder in the case of action by poll, subject to reduction as
described under "-- Limitation on Voting Rights." Voting rights of Ordinary
Shares are not cumulative, which means that holders of a majority of the
outstanding Ordinary Shares entitled to vote at a general meeting will be able
to elect all of the directors of the Company to be elected at such meeting.
For a description of the Board arrangements to be in effect upon the
closing of the Offering, see "Management -- Executive Officers and Directors"
and "-- Provisions Governing the Board of Directors -- Number and Terms."
SHAREHOLDER MEETINGS AND RELATED MATTERS
The Articles provide that the quorum required for a general meeting of the
shareholders is at least 50% of the combined voting power of all outstanding
shares of the Company. Any amendment to the Memorandum or Articles (including
changes to the corporate name or objects and increases in, or consolidation,
division or subdivision of, share capital), any reduction in share capital, any
capital redemption reserve fund or any share premium account and any voluntary
liquidation, dissolution or winding-up of the affairs of the Company will
require approval by a special resolution of the shareholders of the Company. In
addition, any action to vary the rights of any class of shares shall require a
special resolution of the shareholders of that class. A special resolution may
be adopted by the vote of the shareholders holding at least 66 2/3% of the
combined voting power of all shares present and entitled to vote at a duly
called and held general meeting. All other matters, including the election of
directors, voted upon at any duly held general meeting of shareholders shall be
carried by the vote of a majority of the combined voting power of all shares
held by shareholders
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represented, in person or by proxy, and entitled to vote at the meeting. The
directors may at any time convene a general meeting of the Company, of which the
Company must provide at least 10 business days' notice. Shareholders are not
entitled to call a meeting or, unless the directors so request, to act by
written consent. The percentages described above are to be calculated after
giving effect to the limitation on voting rights described below.
Shareholders have the right to nominate directors to the Board and to
submit proposals for consideration by the Board at annual or extraordinary
general meetings. In order to exercise this right, shareholders must deliver
written notice to the Secretary of the Company not later than 60 days prior to
an annual general meeting and not later than 10 days following the date notices
are first sent to shareholders of extraordinary general meetings. In each case,
the written notice must contain certain information such as the name and address
of the person submitting the proposal, an indication of the number of shares
held by such person, information required by the U.S. federal securities laws
and, with respect to nominated directors, the consent of the directors so
nominated.
Reference in this section to "shares" means all capital shares of the
Company, which at present are only the Ordinary Shares. The directors, and only
the directors, are entitled under the Articles to call a general meeting or a
vote of shareholders of a particular class of shares, in which case the
provisions described in this section would apply with respect to the
shareholders of such class, acting as a separate class.
LIMITATION ON VOTING RIGHTS
Each Ordinary Share has one vote on a poll of the shareholders, except
that, if and for as long as the number of issued Controlled Shares (as defined
below) of any U.S. person would constitute 10% or more of the issued 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 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 voting
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 U.S. person refers to all voting
shares owned by such person, whether directly or by application of the
constructive ownership rules of Sections 958(a) and 958(b) of the Code,
together with all shares that such person is deemed to own beneficially,
directly or indirectly, within the meaning of Section 13(d)(3) of the
Exchange Act and the rules and regulations thereunder (including shares
as to which beneficial ownership is disclaimed or would not otherwise
exist by reason of certain statutory exceptions). With respect to any
broker, dealer or investment adviser registered as such under the U.S.
federal securities laws (and its affiliates), "Controlled Shares" do not
include shares that are Controlled Shares solely because such broker,
dealer or adviser has discretionary authority to vote or dispose of such
shares on behalf of a client, if the voting rights carried by such
shares are not being exercised by such broker, dealer or adviser (and
the Company has received satisfactory assurances of the same).
The Formula will be applied successively as many times as may be necessary to
ensure that no person will be a United States 10% Shareholder (as defined below)
at any time (the "sequencing provision"). For the purposes of determining the
votes exercisable by shareholders as of any date, the Formula will be applied to
the shares of each shareholder in declining order based on the respective
numbers of total Controlled Shares attributable to all shareholders. Thus, the
Formula will
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be applied first to the votes of shares held by the shareholder to whom the
largest number of total Controlled Shares is attributable and thereafter
sequentially with respect to the shareholder with the next largest number of
total Controlled Shares. In each case, calculations are made on the basis of the
aggregate number of votes conferred by the issued voting shares as of such date,
as reduced by the application of the Formula to any issued shares of any
shareholder with a larger number of total Controlled Shares as of such date.
"United States 10% Shareholder" means a U.S. person who owns, directly or by
application of the constructive ownership rules of Sections 958(a) and 958(b) of
the Code, issued shares of the Company carrying 10% or more of the total
combined voting rights attaching to all issued shares.
As a result of the provisions described above, the grant by a shareholder
of a revocable proxy to vote his shares (whether in the context of a proxy
contest for the election of the Company's directors or any other matter
requiring a shareholder vote) could result in a reduction of the voting power
associated with such shares. This could occur because, as a result of the proxy
grant, the grantee (and certain related persons) could be deemed to have
acquired beneficial ownership of the proxy shares and, if the grantee (or any
such related person) were a U.S. person, the proxy shares would become
Controlled Shares of the grantee (or such related persons). If the grantee (and
such related persons) already held a sufficiently large number of Controlled
Shares so that, after the grant, his (or their) Controlled Shares exceeded the
10% threshold described above, then all his (or their) Controlled Shares,
including the proxy shares, would be subject to a reduction in voting power
pursuant to the provisions described above, even though the proxy shares were
held by the grantor and in the absence of the proxy grant would not have been
subject to such a reduction. This would not apply with respect to proxies
solicited by the Company in connection with its annual meetings or other
matters.
The directors are empowered to require any shareholder to provide
information as to that shareholder's beneficial share ownership, the names of
persons having beneficial ownership of the shareholder's shares, relationships
with other members or any other facts the directors may deem relevant to a
determination of the number of Controlled Shares attributable to any person. The
directors may disregard the votes attached to shares of any holder failing to
respond to such a request or submitting incomplete or untrue information.
The directors retain limited 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 United States 10% Shareholder at any time.
RESTRICTIONS ON TRANSFER
The Articles contain several provisions restricting the transferability of
Ordinary Shares. The directors are required to decline to register a transfer of
shares if they have reasons to believe that the result of such transfer would be
(i) to increase the number of total Controlled Shares of any U.S. person other
than a Goldman Sachs Person to 10% or more of the shares of the Company, (ii) to
increase the number of total Controlled Shares of any Goldman Sachs Person to
10% or more of the shares of the Company without the prior written consent of
Goldman, Sachs & Co. or (iii) that a Goldman Sachs Person would become or
continue to be a United States 25% Shareholder, in each case without giving
effect to the limitation on voting rights described above. "Goldman Sachs
Person" means any of Goldman, Sachs & Co. and their affiliates and "United
States 25% Shareholder" means a U.S. person who owns, directly or by application
of the constructive ownership rules of Sections 958(a) and 958(b) of the Code,
more than 25% of either (i) the total combined voting rights attaching to the
issued Ordinary Shares and the issued shares of any other class of the Company
or (ii) the total combined value of the issued Ordinary Shares and any other
issued shares of the Company, determined pursuant to Section 957 of the Code.
Similar restrictions apply to the Company's ability to issue or repurchase
shares. These transfer, issuance and repurchase restrictions would terminate
when no Goldman Sachs Person holds total Controlled Shares representing 10% or
more of the Company's shares.
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These restrictions provide an exception for Goldman, Sachs & Co. to exceed
the 25% threshold solely in connection with market-making transactions, as long
as they do not exceed the 25% threshold for more than 29 consecutive days at any
time or for more than 29 days during any single calendar quarter, and as long as
they do not exceed a 29% ownership threshold at any time. In addition, these
restrictions would permit share transfers or issuances to any person acting as
an underwriter pursuant to an agreement with the Company.
The directors also may, in their absolute discretion, decline to register
the transfer of any shares if they have reason to believe (i) that such transfer
may expose the Company, any subsidiary thereof, any shareholder or any person
ceding insurance to the Company or any such subsidiary to adverse tax or
regulatory treatment in any jurisdiction (including treatment of shareholders as
United States shareholders of a CFC after the restriction described above is no
longer in effect) or (ii) that registration of such transfer under the
Securities Act or under any U.S. state securities laws or under the laws of any
other jurisdiction is required and such registration has not been duly effected.
The Company is authorized to request information from any holder or
prospective acquiror of shares as necessary to give effect to the transfer,
issuance and repurchase restrictions described above, and may decline to effect
any such transaction if complete and accurate information is not received as
requested.
Maples and Calder, Cayman Islands counsel to the Company, have advised the
Company that while the precise form of the restrictions on transfer contained in
the Articles is untested, as a matter of general principle, restrictions on
transfers are enforceable under Cayman Islands law and are not uncommon. A
purported transferee will be permitted to dispose of any Ordinary Shares
purchased in violation of the restrictions and as to the transfer of which
registration is refused. The purported transferor of such Ordinary Shares will
be deemed to own such Ordinary Shares for dividend, voting and reporting
purposes until a transfer of such Ordinary Shares has been registered on the
stock transfer records of the Company.
If the directors refuse to register a transfer for any reason, they must
notify the proposed transferor and transferee within thirty days of such
refusal. The Articles also provide that the Board may suspend the registration
of transfers for any reason and for such periods as the Board may determine,
provided that they may not suspend the registration of transfers for more than
45 days in any period of 365 consecutive days.
The directors may designate the Company's Chief Executive Officer to
exercise their authority to decline to register transfers or to limit voting
rights as described above, or to take any other action, for as long as such
officer is also a director.
OTHER CLASSES OR SERIES OF SHARES
The Articles authorize the directors to create and issue one or more
classes or series of shares and determine the rights and preferences of each
such class or series, to the extent permitted by the Articles and applicable
law. Among other rights, the directors may determine: (i) the number of shares
of that class or series and the distinctive designation thereof; (ii) the voting
powers, full or limited, if any, of the shares of that class or series; (iii)
the rights in respect of dividends on the shares of that class or series,
whether dividends shall be cumulative and, if so, from which date or dates and
the relative rights or priority, if any, of payment of dividends on shares of
that class or series and any limitations, restrictions or conditions on the
payment of dividends; (iv) the relative amounts, and the relative rights or
priority, if any, of payment in respect of shares of that class or series, which
the holders of the shares of that class or series shall be entitled to receive
upon any liquidation, dissolution or winding up of the Company; (v) the terms
and conditions (including the price or prices, which may vary under different
conditions and at different redemption dates), if any, upon which all or any
part of the shares of that class or series may be redeemed, and any limitations,
restrictions or conditions on such redemption; (vi) the terms, if any, of any
purchase, retirement or sinking fund to be provided for the shares of that class
or series; (vii) the terms, if any,
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upon which the shares of that class or series shall be convertible into or
exchangeable for shares of any other class, classes or series, of securities,
whether or not issued by the Company; (viii) the restrictions, limitations and
conditions, if any, upon issuance of indebtedness of the Company so long as any
shares of that class or series are outstanding; and (ix) any other preferences
and relative, participating, optional or other rights and limitations not
inconsistent with applicable law or the Articles.
In the event that the directors establish a separate class of shares of the
Company, the directors (and only the directors) are authorized to call a meeting
of that particular class of shares and to call for a vote of the holders of that
class, acting separately as a single class. In addition, once a separate class
of shares is issued, the rights attaching to that class of shares can be varied
only with the written consent of the holders of at least 75% of the shares of
that class or the approval of a special resolution passed by the holders of that
class of shares.
The restrictions on voting and ownership of the Company's shares, the
authority of the Board to issue other classes of shares with such voting and
other rights as they determine, the inability of shareholders to require that a
shareholders' meeting be called and certain other provisions of the Articles, as
well as certain requirements of Cayman Islands law (see "-- Differences in
Corporate Law"), could have the effect of discouraging an attempt to obtain
control of the Company through certain actions.
SHAREHOLDERS' AGREEMENT
The Company has entered into an Amended and Restated Shareholders'
Agreement (the "Shareholders' Agreement") with all holders of Ordinary Shares
acquired by them in the Company's initial private placement in 1993 (such
holders, the "Original Holders" and such shares, other than those sold in the
1995 IPO or to be sold in the Offering, the "Original Shares"). Pursuant to the
Shareholders' Agreement, (i) the Original Holders acknowledge and agree that the
Original Shares have not been registered under the Securities Act and,
accordingly, may not be transferred unless they are first so registered or are
transferred pursuant to an available exemption from the registration
requirements of the Securities Act, such as Rule 144 thereunder, and that
certificates evidencing Original Shares will bear a restrictive legend to that
effect (in each case subject to the Company's right to waive these requirements
in compliance with applicable law), and (ii) the Company agrees to use its best
efforts to satisfy certain information reporting requirements necessary to
permit Original Holders to sell Original Shares into the open market in reliance
on the exemption provided by Rule 144 (see "Shares Eligible for Future Sale"),
and to cause any Original Shares that become freely tradeable in accordance with
the requirements of the Securities Act to be approved for quotation in the
Nasdaq National Market. Transferees of Original Shares that have not been
registered under the Securities Act or sold in transactions pursuant to Rule 144
will be required to become parties to the Shareholders' Agreement with respect
to such shares. The Shareholders' Agreement will prohibit Original Shareholders
from selling any Original Shares for a period of 90 days beginning on the date
of the final prospectus for the Offering without the consent of the
Underwriters.
TRANSFER AGENT
The Company's registrar and transfer agent for all Ordinary Shares is
Chemical Mellon Shareholder Services, L.L.C.
DIFFERENCES IN CORPORATE LAW
The Companies Law of the Cayman Islands is modeled after English
legislation, and differs in certain aspects from the corporate laws generally
applicable to United States corporations and their shareholders. Set forth below
is a summary of the more significant provisions of the Companies Law (including
any modifications adopted pursuant to the Articles) applicable to the Company
which differ from provisions generally applicable to United States corporations
and their shareholders. These statements are a brief summary of certain
significant provisions of Cayman Islands
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Companies Law and, as such, do not deal with all aspects of every law that may
be relevant to corporations and their shareholders.
INTERESTED DIRECTORS
Subject to disclosure of the interest to the other directors and to the
Company, the Articles 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.
DIVIDENDS
Under the Articles the Company may pay dividends, other than share
dividends, only out of accumulated or current year's profits and contributed or
share premium (broadly equivalent to paid-in-surplus) and not out of share
capital other than share premium.
MERGERS AND SIMILAR ARRANGEMENTS
The Company may acquire the business of another company and carry on such
business when it is within the objects of its Memorandum. Under the Companies
Law of the Cayman Islands, the Company may merge or amalgamate with another
company and may reorganize or reconstruct itself pursuant to a plan that is
approved by the holders of not less than 75% of the Ordinary Shares present and
voting on the matter (after giving effect to the voting limitation described
above) and thereafter sanctioned by the Cayman Islands courts. While a
dissenting shareholder may have the right to express to a Cayman Islands court
his view that the transaction sought to be approved would not provide the
shareholders with the fair value of their shares, (i) the court ordinarily would
not disapprove the transaction on that ground absent other evidence of fraud or
bad faith, and (ii) if the transaction were approved and consummated, the
dissenting shareholder would have no rights comparable to the appraisal rights
(i.e., rights to receive payments in cash for the judicially determined value of
their shares) ordinarily available to dissenting shareholders of U.S.
corporations.
TAKEOVERS
Cayman Islands law also provides that where an offer is made by a company
for shares of another company and, within four months of the offer, the holders
of not less than 90% of the shares which are the subject of the offer accept,
the offeror may by notice require the dissenting shareholders to transfer their
shares on the terms of the offer. A dissenting shareholder may apply to the
court within one month of the notice objecting to the transfer. The burden is on
the dissenting shareholders to show that the court should exercise its
discretion to prevent the requirement of such transfer, which it will be
unlikely to do unless there is evidence of fraud or bad faith or collusion as
between the offeror and the holders of the shares who have accepted the offer as
a means of unfairly forcing out minority shareholders.
SHAREHOLDERS' SUITS
There has until recently been no official law reporting in the Cayman
Islands, and actions subject to the Confidential Relationships (Preservation)
Law 1976, as amended, are held in closed court. However, recently a derivative
action was successfully brought by a shareholder in the Cayman Islands and, in
this regard, the Cayman Islands courts ordinarily would be expected to follow
English precedent, which would permit a minority shareholder to commence an
action against or a derivative action in the name of the corporation only (i)
where the act complained of is alleged to be beyond the corporate power of the
corporation or illegal, (ii) where the act complained of is alleged to
constitute a fraud against the minority perpetrated by those in control of the
corporation, (iii) where the act requires approval by a greater percentage of
the corporation's shareholders than actually approved it or (iv) where there is
an absolute necessity to waive the general rule that a shareholder may not bring
such an action in order that there not be a denial of justice or a violation of
the corporation's memorandum of association.
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INDEMNIFICATION
Cayman Islands law does not specifically limit the extent to which a
company's articles of association may provide for the indemnification of
officers and directors, except to the extent that such provision may be held by
the Cayman Islands courts to be contrary to public policy (e.g., for purporting
to provide indemnification against the consequences of committing a crime). In
addition, an officer or director may not be able to enforce indemnification for
his own dishonesty or wilful neglect or default.
The Articles contain provisions providing for the indemnity by the Company
of an officer, director, or trustee of the Company for all actions, proceedings,
claims, costs, charges, losses, damages and expenses which they incur or sustain
by reason of any act done or omitted in or about the execution of their duty in
their respective offices or trusts, except such (if any) as they shall incur or
sustain by or through their own wilful neglect or default, respectively.
INSPECTION OF BOOKS AND RECORDS
Shareholders of a company have no general rights to inspect or obtain
copies of the list of shareholders or corporate records of a company.
SHARES ELIGIBLE FOR FUTURE SALE
After consummation of the Offering (assuming no exercise of the
overallotment option by the Underwriters) and the GCR Repurchase, the Original
Holders will continue to hold Original Shares, which will total approximately
shares. The Original Shares have not been registered under the
Securities Act and are not currently traded in the public market. Pursuant to a
lock-up relating to the 1995 IPO, the Original Holders will not be permitted to
sell Original Shares into the public market until June 16, 1996. The Company
believes that, subject to the 1995 IPO lock-up and to the lock-up relating to
the Offering described below, all the Original Shares are currently eligible for
sale into the public market pursuant to Rule 144 under the Securities Act,
subject to the volume and other limitations of that Rule described below, and
that in October 1996 at least ___ % of the Original Shares will become freely
tradeable under that Rule without regard to such limitations. In addition to the
Original Shares, 631,925 Ordinary Shares are issuable upon the exercise of
outstanding options held by employees and directors of the Company.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years, including an "affiliate" of the issuer, is entitled to sell,
within any three-month period, that number of such shares that does not exceed
the greater of one percent of the then-outstanding shares of the same class (all
Ordinary Shares in the case of the Company) or of the average weekly trading
volume of the then-outstanding shares of such class during the four calendar
weeks preceding the date on which notice of each such sale is filed with the
Commission. Sales pursuant to Rule 144 are subject to certain requirements as to
manner of sale, notice and availability of current information about the issuer
for at least 90 days. Under Rule 144(k), a person who is not deemed to be (and
during the three months preceding the sale was not) an "affiliate" of the
issuer, and whose shares were not acquired by it or any prior holder from the
issuer or any "affiliate" thereof during the three years preceding the proposed
sale, is entitled to sell such shares under Rule 144 without regard to the
resale volume and other limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly, through the
use of one or more intermediaries, controls, is controlled by or is under the
common control with such issuer.
The holders of all the Original Shares (and all the options referred to
above) have agreed not to sell such shares (or any shares issued on exercise of
such options) during a period of 90 days beginning on the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. The representatives may, in their sole discretion and at any time
without notice, release all or any portion of the shares subject to these
agreements. The Company has agreed to a
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similar restriction. These agreements will not apply to sales in the Offering or
to the issuance, by the Company, of options pursuant to employee plans existing
on the date of this Prospectus or to the issuance of shares upon the exercise of
employee or director options, nor will these restrictions apply to
stabilization, brokerage and ordinary course of business transactions by
Goldman, Sachs & Co. and their affiliates or sales by Goldman, Sachs & Co. in
connection with market-making transactions. See "Underwriting." In addition,
after the Offering and the GCR Repurchase, Goldman, Sachs & Co. and Johnson &
Higgins will hold registration rights relating to approximately % of the
Original Shares, which rights may be exercised following the 90-day period
described above. See "Certain Relationships and Related Party
Transactions -- Registration Rights."
The Company expects to provide for Securities Act registration of Ordinary
Shares to be acquired by employees and directors from time to time pursuant to
options and other compensation arrangements provided by the Company (including
most of the shares issued on exercise of the 631,925 options specified above),
so that such shares may be sold into the public market from time to time without
regard to any holding period requirement. No such sales would be permitted
during the 90-day lock-up period relating to this Offering, although the
registration could be effected during this period.
Trading of the Ordinary Shares commenced on the Nasdaq National Market on
December 19, 1995. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sale, will have
on the market price prevailing from time to time. Sales of substantial amounts
of Ordinary Shares, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Ordinary Shares.
CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of the Company and Global Capital Re
and the taxation of shareholders of the Company is based upon current law and is
for general information only. Legislative, judicial or administrative changes
may be forthcoming that could affect this summary. The statements of United
States federal income tax law set forth below represent the opinion of Sullivan
& Cromwell, United States counsel to the Company. The statements of Bermuda and
Cayman Islands tax law set forth below represent the opinions of Appleby,
Spurling & Kempe, Bermuda counsel to the Company, and Maples and Calder, Cayman
Islands counsel to the Company, respectively.
TAXATION OF THE COMPANY AND GLOBAL CAPITAL RE
BERMUDA
Global Capital Re and the Company have each been granted an undertaking by
the Minister of Finance of the Government of Bermuda under the Exempted
Undertakings Tax Protection Act, 1966, which exempts each of Global Capital Re,
the Company and their respective shareholders, until March 28, 2016, from any
Bermudian taxes computed on profits or income or on any capital gains or
appreciation or any tax in the nature of estate duty or inheritance tax (apart
from the application of any such tax or duty on such persons as are ordinarily
resident in Bermuda and apart from taxes on land in Bermuda owned by or leased
to Global Capital Re or the Company).
CAYMAN ISLANDS
On the basis of the current legislation of the Cayman Islands, there are no
income, profit, capital transfer, capital gains, inheritance or other similar
taxes that would be applicable to the profits or gains of the Company.
The Company has received an undertaking, dated June 1, 1993, from the
Governor-in-Counsel of the Cayman Islands to the effect that, for a period of 20
years from the date thereof, no law that is enacted in the Cayman Islands after
such date imposing a tax to be levied on profits or income or
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gains or appreciation shall apply to the Company or its operations and no such
tax nor any tax in the nature of estate duty or inheritance tax shall be payable
on the shares, debentures or other obligations of the Company.
UNITED STATES
The Company believes that the Company and Global Capital Re do not conduct
business within the United States. Accordingly, the Company and Global Capital
Re do not file United States income tax returns. However, because definitive
identification of activities which constitute being engaged in a trade or
business in the United States is not provided by the Internal Revenue Code (the
"Code") or regulations or court decisions, there can be no assurance that the
Internal Revenue Service ("IRS") will not contend that Global Capital Re is
engaged in a trade or business in the United States. A foreign corporation
deemed to be so engaged would be subject to U.S. income tax, as well as branch
profits tax, on its income which is treated as effectively connected with the
conduct of that trade or business unless the corporation is entitled to relief
under the permanent establishment provision of a tax treaty, as discussed below.
Such income tax, if imposed, would be based on effectively connected income
computed in a manner generally analogous to that applied to the income of a
domestic corporation, except that a foreign corporation can anticipate an
allowance of deductions and credits only if it files a United States income tax
return. Under regulations, the foreign corporation would be entitled to
deductions and credits for the taxable year only if the return for that year is
timely filed under rules set forth therein. Penalties may be assessed for
failure to file tax returns. The federal tax rates currently are a maximum of
35% for a corporation's effectively connected income and 30% for branch profits
tax. The branch profits tax is imposed on net income after subtracting the
regular corporate tax and making certain other adjustments.
Under the income tax treaty between Bermuda and the United States (the
"Treaty"), Global Capital Re is subject to U.S. income tax on any income found
to be effectively connected with a U.S. trade or business only if that trade or
business is conducted through a permanent establishment in the United States. No
regulations interpreting the Treaty have been issued. While there can be no
assurance, the Company does not believe that Global Capital Re has a permanent
establishment in the United States. Global Capital Re would not be entitled to
the benefits of the Treaty if (i) less than 50% of Global Capital Re's stock
were beneficially owned, directly or indirectly, by Bermuda residents or U.S.
citizens or residents, or (ii) Global Capital Re's income were used in
substantial part to make disproportionate distributions to, or to meet certain
liabilities to, persons who are not Bermuda residents or U.S. citizens or
residents. While there can be no assurance, the Company believes that no
exception to Treaty benefits will apply after the sale of Ordinary Shares
offered hereby.
Foreign corporations not engaged in a trade or business in the United
States are nonetheless subject to U.S. income tax on certain "fixed or
determinable annual or periodical gains, profits and income" derived from
sources within the United States as enumerated in section 881(a) of the Code
(such as dividends and certain interest on investments). To date the Company and
Global Capital Re have paid no such taxes.
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 Global
Capital Re are 4% for directly-written casualty insurance premiums and 1% for
reinsurance premiums.
PROPOSED LEGISLATION. The Treasury Department has announced proposals that
would affect the taxation of a foreign insurance company if 50% or more of the
company's net premiums are attributable to the insurance or reinsurance of risks
of related persons. While Global Capital Re intends to operate in a manner so
that less than 50% of its premium income would be attributable to the insurance
or reinsurance of risks of related persons, there can be no assurance that it
will in fact do so or that any proposals enacted would not adversely affect the
Company, Global Capital Re or holders of Ordinary Shares.
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TAXATION OF SHAREHOLDERS
CAYMAN ISLANDS TAXATION
Shareholders will not be subject to income, capital gains, withholding,
stamp, or other taxes in the Cayman Islands on dividends paid by the Company or
on gains from the sale, exchange or other disposition of Ordinary Shares.
Shareholders will not be subject to Cayman Islands estate duty or inheritance
taxes.
BERMUDA TAXATION
Dividends paid by the Company are not subject to Bermuda withholding tax.
UNITED STATES TAXATION OF U.S. AND NON-U.S. SHAREHOLDERS
UNITED STATES SHAREHOLDERS
GENERAL. The following discussion summarizes certain U.S. federal income
tax consequences relating to the acquisition, ownership and disposition of
Ordinary Shares by a beneficial owner of Ordinary Shares that is (i) a citizen
or resident of the United States, (ii) a United States domestic corporation or
(iii) otherwise subject to U.S. federal income taxation on a net income basis in
respect of Ordinary Shares. This summary deals only with Ordinary Shares
acquired by purchasers in the Offering and held as capital assets and does not
deal with the tax consequences applicable to all categories of investors, some
of which (such as broker-dealers, investors who hold Ordinary Shares as part of
hedging or conversion transactions and investors whose functional currency is
not the U.S. dollar) may be subject to special rules. Prospective purchasers of
Ordinary Shares are advised to consult their own tax advisers with respect to
their particular circumstances and with respect to the effects of U.S. federal,
state, local or other laws to which they may be subject.
DIVIDENDS. Distributions with respect to the Ordinary Shares will be
treated as ordinary dividend income to the extent of the Company's current or
accumulated earnings and profits as determined for U.S. federal income tax
purposes, subject to the discussion below relating to the potential application
of the "controlled foreign corporation" or "passive foreign investment company"
rules. Such dividends will not be eligible for the dividends-received deduction
allowed to United States corporations under the Code. The amount of any
distribution in excess of the Company's current and accumulated earnings and
profits will first be applied to reduce the holder's tax basis in the Ordinary
Shares, and any amount in excess of tax basis will be treated as gain from the
sale or exchange of the Ordinary Shares.
CLASSIFICATION OF GCR AS A CONTROLLED FOREIGN CORPORATION. Under section
951(a) of the Code, each "United States shareholder" of a "controlled foreign
corporation" ("CFC") who owns shares in the CFC directly or indirectly on the
last day of the CFC's 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," even if the subpart F income is not distributed. The Company
anticipates that substantially all of the income of the Company and Global
Capital Re will be subpart F income. Under Code section 951(b), any U.S.
corporation, citizen, resident or other U.S. person who owns, directly or
indirectly through foreign persons, or is considered to own (by application of
the rules of constructive ownership set forth in Code section 958(b), generally
applying to family members, partnerships, estates, trusts or controlled
corporations or holders of certain options), 10% or more of the total combined
voting power of all classes of stock of the foreign corporation will be
considered to be a "United States shareholder." In general, a foreign insurance
company such as Global Capital Re is treated as a CFC only if such "United
States shareholders" collectively own more than 25% of the total combined voting
power or total value of the corporation's stock for an uninterrupted period of
30 days or more during any tax year. The Company believes that, because of the
dispersion of the Company's share ownership among holders other than Goldman,
Sachs & Co. and their affiliates and the restrictions on transfer of Ordinary
Shares, shareholders who acquire Ordinary Shares in the Offering will not be
subject to treatment as United States shareholders of a
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CFC. In addition, because the Company's Articles provide that no single
shareholder (including Goldman, Sachs & Co. and its affiliates) is permitted to
hold as much as 10% of the total combined voting power of the Company,
shareholders of the Company should not be viewed as United States shareholders
of a CFC for purposes of these rules. However, there can be no assurance that
these rules will not apply to shareholders of the Company. Accordingly, U.S.
persons who might directly or though attribution acquire 10% or more of the
stock of the Company should consider the possible application of the CFC rules.
RPII COMPANIES. Different definitions of "United States shareholder" and
"controlled foreign corporation" are applicable in the case of a foreign
corporation which earns "related person insurance income" ("RPII"). RPII is
defined in Code section 953(c)(2) as any "insurance income" attributable to
policies of insurance or reinsurance with respect to which the person (directly
or indirectly) insured is a "United States shareholder" or a "related person" to
such a shareholder. In general, "insurance income" is income (including premium
and investment income) attributable to the issuing of any insurance in
connection with risks located in a country other than the country under the laws
of which the controlled foreign corporation is created or organized and which
would be taxed under the portions of the Code relating to insurance companies if
the income were the income of a domestic insurance company.
Generally, the term "related person" for this purpose means someone who
controls or is controlled by the U.S. shareholder or someone who is controlled
by the same person or persons which control the U.S. 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. A corporation's pension plan is ordinarily not a "related
person" with respect to the corporation unless the pension plan owns, directly
or indirectly through the application of constructive ownership rules similar to
those contained in section 958, more than 50%, measured by vote or value, of the
stock of the corporation. For purposes of inclusion of Global Capital Re's RPII
in the income of United States shareholders, unless an exception applies, the
term "United States shareholder" includes all U.S. persons who beneficially own
any amount (rather than 10% or more) of Global Capital Re's stock. Global
Capital Re will be treated as a controlled foreign corporation for RPII purposes
if such persons collectively own, directly or indirectly, 25% or more of the
stock of Global Capital Re by vote or value for an uninterrupted period of at
least 30 days during any taxable year.
In determining the "United States shareholders" of Global Capital Re, stock
of Global Capital Re held indirectly by U.S. persons through the Company or any
non-U.S. entity is treated as held by United States shareholders, but the
constructive ownership rules of section 958(b) of the Code do not apply.
Accordingly, U.S. persons holding options to subscribe for unissued shares of
the Company are not treated as "United States shareholders" of Global Capital
Re.
RPII EXCEPTIONS. The special RPII rules do not apply if (A) direct and
indirect insureds and persons related to such insureds, whether or not U.S.
persons, are treated as owning less than 20% of the voting power and less than
20% of the value of the stock of Global Capital Re, (B) RPII, determined on a
gross basis, is less than 20% of Global Capital Re's gross insurance income for
the taxable year, (C) Global Capital Re elects to be taxed on its RPII as if the
RPII were effectively connected with the conduct of a United States trade or
business and to waive all treaty benefits with respect to RPII, or (D) Global
Capital Re elects to be treated as a United States corporation. Global Capital
Re does not intend to make either of the described elections. Where none of
these exceptions applies, each United States person owning or treated as owning
stock in the Company (and therefore, indirectly, in Global Capital Re) at the
end of any 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 United States shareholders at that date, but limited to Global
Capital Re's current-year earnings and profits and reduced by the shareholder's
pro rata share, if any, of certain prior-year deficits in earnings and profits.
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COMPUTATION OF RPII. In order to determine how much RPII Global Capital Re
has earned in each fiscal year, the Company intends to obtain and rely upon
information from its insureds to determine whether any of the insureds or
persons related to such insureds own shares of the Company and are U.S. persons.
Global Capital Re intends to include in its insurance application and renewal
forms, or related documents, a provision requesting information as to whether
the policyholders (or a related person) are or have been, and a notice if they
should become, a U.S. shareholder of the Company. In addition, Global Capital Re
will send a letter after each fiscal year to each person who was a policyholder
during the year asking the policyholder to represent whether it was a U.S.
shareholder of the Company or related to a U.S. shareholder during the year. For
any taxable year in which Global Capital Re's gross RPII is 20% or more of its
gross insurance income for the year, the Company may also seek information from
its shareholders as to whether beneficial owners of its shares at the end of the
year are United States persons so that the RPII may be determined and
apportioned among such persons. To the extent the Company is unable to determine
whether a beneficial owner of shares is a U.S. person, the Company may assume
that such owner is not a U.S. person, thereby increasing the per share RPII
amount for all U.S. shareholders. Although Global Capital Re intends to operate
in a manner that would minimize the RPII portion of Global Capital Re's gross
insurance income and the proportion of its direct and indirect insureds that own
shares of the Company, there can be no assurances that investors will not be
required to include amounts in income in respect of RPII in any taxable year.
APPORTIONMENT OF RPII TO U.S. SHAREHOLDERS. If Global Capital Re's RPII
for any future fiscal year exceeds 20% of its gross insurance income, every U.S.
person who owns, directly or indirectly, Ordinary Shares on the last day of that
year will be required to include in gross income its share of Global Capital
Re's RPII for such year, whether or not distributed. A U.S. person who owns
Ordinary Shares during the Company's fiscal year but not on the last day of the
fiscal year for which Global Capital Re is a controlled foreign corporation
within the meaning of the RPII provisions of the Code, which would normally be
September 30, is not required to include in gross income any part of Global
Capital Re's RPII. Correspondingly, a U.S. person who owns Ordinary Shares on
the last day of the fiscal year in which Global Capital Re is a controlled
foreign corporation for purposes of those provisions is required to include in
its income its share of the RPII for the entire year, even though it does not
own the Ordinary Shares for the entire year.
INFORMATION REPORTING. Each U.S. person who is a direct or indirect
shareholder of the Company on the last day of the Company's fiscal year must
attach to the income tax or information return it would normally file for the
period which includes that date a Form 5471 if Global Capital Re is a CFC for
RPII purposes for any continuous thirty-day period during its fiscal year,
whether or not any net RPII income is required to be reported. Global Capital Re
will not be considered to be a CFC for this purpose and, therefore, Form 5471
will not be required, for any fiscal year in which Global Capital Re's gross
RPII constitutes less than 20% of its gross insurance income. For any year in
which Global Capital Re's gross RPII constitutes 20% or more of its gross
insurance income, the Company intends to provide Form 5471 to its U.S.
shareholders for attachment to the returns of shareholders. The amounts of the
RPII inclusions may be subject to adjustment based upon subsequent IRS
examination. A tax-exempt organization will be required to attach Form 5471 to
its information return in the circumstances described above. Failure to file
Form 5471 may result in penalties. In addition, U.S. persons who at any time own
5% or more of the shares of the Company may have an independent obligation to
file certain information returns.
TAX-EXEMPT SHAREHOLDERS. Based upon the analysis contained in published
private letter rulings issued by the IRS, U.S. tax-exempt organizations to which
RPII is allocated will not be required to treat such RPII as unrelated business
taxable income within the meaning of Code section 512. However, such private
letter rulings are only binding on the IRS with respect to the transaction for
which they were requested. While the analysis contained in such private letter
rulings should be applicable to tax-exempt organizations that are shareholders
of the Company, there can be no assurance as to what position the IRS or a court
might take in the future. Moreover, legislation has been proposed which, if
enacted into law, would require tax-exempt entities to treat subpart F
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income, including RPII, that is includible in income by the tax-exempt entity as
unrelated business taxable income. There can be no assurance as to whether, or
in what form, such legislation might be enacted into law.
DIVIDENDS; BASIS; EXCLUSION OF DIVIDENDS FROM GROSS INCOME. A U.S.
shareholder's tax basis in its Ordinary Shares will be increased by the amount
of any RPII that the shareholder includes in income. The shareholder may exclude
from income the amount of any distributions by the Company to the extent of the
RPII included in income for the year in which the distribution was paid or for
any prior year. The U.S. shareholder's tax basis in its Ordinary Shares will be
reduced by the amount of such distributions that are excluded from income.
While, in certain circumstances, a U.S. shareholder may be able to exclude from
income distributions with respect to RPII that a prior shareholder included in
income, that exclusion will not generally be available to holders who purchase
Ordinary Shares in the Offering or in the public trading markets and are
therefore unable to identify the previous shareholder and demonstrate that such
shareholder had previously included the RPII in income.
DISPOSITIONS OF ORDINARY SHARES. Subject to the discussion below relating
to the potential application of Code section 1248 or the passive foreign
investment company rules, a U.S. shareholder will, upon the sale or exchange of
any Ordinary Shares, recognize a gain or loss for United States income tax
purposes equal to the difference between the amount realized upon such sale or
exchange and the shareholder's basis in the Ordinary Shares. If the
shareholder's holding period for such Ordinary Shares is more than one year, any
gain will be subject to tax at a current maximum marginal tax rate of 28% for
individuals.
Code section 1248 provides that if a U.S. person disposes of stock in a
foreign corporation and such person owned, directly, indirectly or
constructively, 10% or more of the voting shares of the corporation at any time
during the five-year period ending on the date of disposition when the
corporation was a CFC, any gain from the sale or exchange of the shares may be
treated as ordinary income to the extent of the CFC's earnings and profits
during the period that the shareholder held the shares (with certain
adjustments). A 10% U.S. shareholder may in certain circumstances be required to
report a disposition of shares of a CFC by attaching IRS Form 5471 to the U.S.
income tax or information return that it would normally file for the taxable
year in which the disposition occurs. Code section 953(c)(7) generally provides
that section 1248 also will apply to the sale or exchange of shares in a foreign
corporation that earns RPII if the foreign corporation would be taxed as an
insurance company if it were a domestic corporation, regardless of whether the
shareholder is a 10% shareholder or whether RPII constitutes 20% or more of the
corporation's gross insurance income. Existing Treasury regulations do not
address whether Code section 1248 and the requirement to file Form 5471 would
apply if the foreign corporation is not a CFC but the foreign corporation has a
subsidiary that is a CFC or that would be taxed as an insurance company if it
were a domestic corporation (although, as discussed above, shareholders of 5% or
more of the shares of the Company may have an independent obligation to file
Form 5471). Code section 1248 and the requirement to file Form 5471 should not
apply to dispositions of Ordinary Shares because the Company is not directly
engaged in the insurance business and, under proposed regulations, these
provisions should be applicable only in the case of shares of corporations that
are directly engaged in the insurance business. There can be no assurance,
however, that the IRS will interpret the proposed regulations in this manner or
that the proposed regulations will not be amended or promulgated in final form
so as to provide that Code section 1248 and the requirement to file Form 5471
will apply to dispositions of Ordinary Shares. In that event, the Company would
notify shareholders that Code section 1248 and the requirement to file Form 5471
will apply to dispositions of Ordinary Shares. Thereafter, the Company will send
a notice after the end of each calendar year to all persons who were
shareholders during the year notifying them that Code section 1248 and the
requirement to file Form 5471 apply to dispositions of Ordinary Shares. The
Company will attach to this notice a copy of Form 5471 completed with all
Company information and instructions for completing the shareholder information.
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FOREIGN TAX CREDIT. Because it is anticipated that U.S. persons will own a
majority of the Company's shares, only a portion of the current income included
under the CFC, RPII and passive foreign investment company rules, if any, and of
dividends paid by the Company (including any gain from the sale of Ordinary
Shares that is treated as a dividend under Section 1248 of the Code) will be
treated as foreign source income for purposes of computing a shareholder's U.S.
foreign tax credit limitation. The Company will consider providing shareholders
with information regarding the portion of such amounts constituting foreign
source income to the extent such information is reasonably available. It is
likely that substantially all of the amounts that are foreign source income will
constitute either "passive" or "financial services" income for foreign tax
credit limitation purposes. Thus, it may not be possible for most U.S.
shareholders to utilize excess foreign tax credits to reduce U.S. tax on such
income.
UNCERTAINTY AS TO APPLICATION OF RPII. Regulations interpreting the RPII
provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes might
ultimately be made thereto or whether any such changes, as well as any
interpretation or application of the RPII rules by the IRS, the courts or
otherwise, might have retroactive effect. The description of RPII herein is
therefore qualified. Accordingly, the meaning of the RPII provisions and the
application thereof to the Company and its subsidiaries is uncertain. These
provisions include the grant of authority to the U.S. Treasury to prescribe
"such regulations as may be necessary to carry out the purpose of this
subsection including ... regulations preventing the avoidance of this subsection
through cross insurance arrangements or otherwise." In addition, there can be no
assurance that the IRS will not challenge any determinations by the Company or
Global Capital Re as to the amount, if any, of RPII that should be includible in
the income of a holder of Ordinary Shares or that the amounts of the RPII
inclusions will not be subject to adjustment based upon subsequent IRS
examination. Each U.S. person who is considering an investment in Ordinary
Shares should consult his tax advisor as to the effects of these uncertainties.
PASSIVE FOREIGN INVESTMENT COMPANIES. Sections 1291 through 1297 of the
Code contain special rules applicable to foreign corporations that are "passive
foreign investment companies" ("PFICs"). In general, a foreign corporation will
be a PFIC if 75% or more of its income constitutes "passive income" or 50% or
more of its assets produce passive income. If the Company were to be
characterized as a PFIC, its United States shareholders would be subject to a
penalty tax at the time of their sale of, or receipt of an "excess distribution"
with respect to, its shares unless such shareholders elected to be taxed on
their pro rata share of the Company's earnings whether or not such earnings were
distributed. In general, a shareholder receives an "excess distribution" if the
amount of the distribution is more than 125% of the average distribution with
respect to the stock during the three preceding taxable years (or shorter period
during which the taxpayer held the stock). In general, the penalty tax is
equivalent to an interest charge on taxes that are deemed due during the period
the United States shareholder owned the shares, computed by assuming that the
excess distribution or gain (in the case of a sale) with respect to the shares
was taxed in equal portions at the highest applicable tax rate throughout the
holder's period of ownership. The interest charge is equal to the applicable
rate imposed on underpayments of U.S. federal income tax for such period.
For the above purposes, passive income is defined to include income of the
kind which would be foreign personal holding company income under Code section
954(c), and generally includes interest, dividends, annuities and other
investment income. However, the PFIC statutory provisions contain an express
exception for income "derived in the active conduct of an insurance business by
a corporation which is predominantly engaged in an insurance business ...." This
exception is intended to ensure that income derived by a bona fide insurance
company is not treated as passive income, except to the extent such income is
attributable to financial reserves in excess of the reasonable needs of the
insurance business. In the Company's view, the Company and Global Capital Re are
predominantly engaged in an insurance business and do not have financial
reserves in excess of the reasonable needs of their insurance business. The PFIC
statutory provisions
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(unlike the RPII provisions of the Code) contain a look-through rule that states
that, for purposes of determining whether a foreign corporation is a PFIC, such
foreign corporation shall be treated as if it received "directly its
proportionate share of the income ..." and as if it "held its proportionate
share of the assets ..." of any other corporation in which it owns at least 25%
by value of the stock. While no explicit guidance is provided by the statutory
language, under the look-through rule the Company should be deemed to own the
assets and to have received the income of its insurance subsidiary directly for
purposes of determining whether the Company qualifies for the aforementioned
insurance exception. This interpretation of the look-through rule is consistent
with the legislative intention generally to exclude bona fide insurance
companies from the application of PFIC provisions; there can, of course, be no
assurance as to what positions the IRS or a court might take in the future. Each
U.S. person who is considering an investment in Ordinary Shares should consult
his tax advisor as to the effects of the PFIC rules.
OTHER. Except as discussed below with respect to backup withholding,
dividends paid by the Company will not be subject to a U.S. withholding tax.
NON-U.S. SHAREHOLDERS
Subject to certain exceptions, persons that are not U.S. persons will be
subject to United States federal income tax on dividend distributions with
respect to, and gain realized from the sale or exchange of, Ordinary Shares only
if such dividends or gains are effectively connected with the conduct of a trade
or business within the United States. Nonresident alien individuals will not be
subject to U.S. estate tax with respect to Ordinary Shares of the Company.
ALL SHAREHOLDERS
Information reporting to the IRS by paying agents and custodians located in
the U.S. will be required with respect to payments of dividends on the Ordinary
Shares to U.S. persons. Thus, a holder of Ordinary 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. Backup withholding is not an additional tax and may be
credited against a holder's regular federal income tax liability.
The foregoing discussion is based upon current law and is for general
information only. The tax treatment of a holder of Ordinary Shares, or of a
person treated as a holder of Ordinary 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 Ordinary Shares. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND NON-U.S.
TAX CONSEQUENCES OF OWNERSHIP AND DISPOSITION OF THE ORDINARY SHARES.
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VALIDITY OF ORDINARY SHARES
The validity of the Ordinary Shares will be passed upon for the Company by
Maples and Calder, George Town, Grand Cayman, Cayman Islands, British West
Indies and for the Underwriters by W. S. Walker & Company, George Town, Grand
Cayman, Cayman Islands, British West Indies. Sullivan & Cromwell, who serve as
U.S. counsel to the Company, also served as U.S. counsel to Goldman, Sachs & Co.
and Johnson & Higgins, the founding sponsors of GCR, in connection with the
establishment of GCR in 1993 and continue to represent such firms from time to
time. Certain legal matters will be passed upon for the Underwriters by Fried,
Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York.
EXPERTS
The Consolidated Financial Statements of the Company as of September 30,
1994 and 1995 and for the years then ended included in this Prospectus and in
the Registration Statement have been audited by Arthur Andersen & Co.,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance on the authority of said firm as
experts in accounting and auditing in giving such report.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference room of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the public reference facilities at the Commission's regional
offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago Illinois 60661.
Copies of such material may be obtained at prescribed rates by writing to the
Commission, Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, material filed by the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed a registration statement (the "Registration
Statement") on Form S-1 with respect to the Ordinary Shares offered hereby with
the Commission under the Securities Act. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement, certain items of which are contained in
schedules and exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Company currently will be treated as a domestic corporation for
purposes of certain requirements of the Exchange Act including the proxy rules,
because the Company currently does not fit the definition of a "foreign private
issuer" within the meaning of Rule 3b-4 under the Exchange Act. Pursuant to
current Rule 3b-4, a "foreign private issuer" is a non-U.S. issuer other than an
issuer that meets the following conditions: (1) more than 50% of the outstanding
voting securities 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
are United States citizens or residents, (ii) more than 50% of the assets are
located in the United States, or (iii) the business is administered principally
in the United States. By virtue of (1) and (2)(i), the Company currently is not
and does not expect that it will become a "foreign private issuer," although
there is no assurance of such. If the Company were to become a "foreign private
issuer," it would be exempted from the proxy and short-swing profit rules under
Sections 14 and 16 of the Exchange Act and, for reporting purposes under the
Exchange Act, would be subjected to rules applicable to "foreign private
issuers."
91
<PAGE> 95
GLOSSARY OF SELECTED INSURANCE TERMS
Attachment point........... The amount of loss (per occurrence or in the
aggregate, as the case may be) above which excess
of loss reinsurance becomes operative.
Broker..................... One who negotiates contracts of insurance or
reinsurance, receiving a commission for placement
and other services rendered, between (1) a policy
holder and a primary insurer, on behalf of the
insured party, (2) a primary insurer and reinsurer,
on behalf of the primary insurer, or (3) a
reinsurer and a RETROCESSIONAIRE, on behalf of the
reinsurer.
Catastrophe excess-of-loss
reinsurance.............. A form of excess of loss reinsurance that, subject
to a specified limit, indemnifies the ceding
company for the amount of loss in excess of a
specified retention with respect to an accumulation
of losses resulting from a catastrophic event. The
actual reinsurance document is called a
"catastrophe cover."
Change in Unearned
Premiums................. The change in the sum of the portions of premiums
written that are applicable to the unexpired terms
of policies in force between the beginning and the
end of an accounting period.
Cede; Cedent; Ceding
company.................. When a party reinsures all or part of its liability
with another, it "cedes" business and is referred
to as the "cedent" or "ceding company."
Clash reinsurance.......... A reinsurance policy covering losses arising from a
single set of circumstances (occurrence) covered by
more than one insurance policy. For example, if an
insurer covers the owner of a hotel, the manager of
the hotel, and the entity(ies) which provided
furnishings to the hotel, and there was a hotel
fire, clash reinsurance would protect the insurer
from suffering a loss in the full amount of these
multiple policies. Clash reinsurance would pay to
the insurer a portion of the loss in excess of a
specified per-occurrence retention up to the
reinsurance limit amount.
Combined ratio............. A combination of the underwriting expense ratio and
the loss/loss expense ratio. The underwriting
expense ratio measures the ratio of UNDERWRITING
EXPENSES to written premiums. The loss/loss expense
ratio measures the ratio of losses and loss
expenses to earned premiums. A combined ratio below
100% generally indicates profitable underwriting
prior to the consideration of investment income. A
combined ratio over 100% generally indicates
unprofitable underwriting prior to the
consideration of investment income.
Excess-of-loss property
reinsurance.............. A generic term describing property reinsurance that
indemnifies the reinsured against all or a
specified portion of losses on underlying insurance
policies in excess of a specified amount, which is
called a "level" or "retention." Also known as non-
proportional reinsurance. Excess of loss
reinsurance is written in layers. A reinsurer or
group of reinsurers accepts a band of coverage up
to a specified amount. The total coverage purchased
92
<PAGE> 96
by the cedent is referred to as a "program" and
will typically be placed with predetermined
reinsurers in prenegotiated layers. Any liability
exceeding the outer limit of the program reverts to
the ceding company, which also bears the credit
risk of a reinsurer's insolvency.
Incurred but not
reported................... Reserves for estimated losses that have been
incurred by insureds and reinsureds but not yet
reported to the insurer or reinsurer including
estimated future developments on losses which are
known to the insurer or reinsurer.
Layer...................... The interval between the retention or attachment
point and the maximum limit of indemnity for which
a reinsurer is responsible.
Loss expenses.............. The expenses of settling losses, including legal
and other fees, and the portion of general expenses
allocated to loss settlement costs.
Loss reserves.............. Liabilities established by insurers and reinsurers
to reflect the estimated cost of loss payments and
the related expenses that the insurer or reinsurer
will ultimately be required to pay in respect of
insurance or reinsurance it has written. Reserves
are established for losses and for loss adjustment
expenses.
Marine reinsurance......... Reinsurance of insurers that underwrite marine
risks, which include, but are not limited to,
ships, cargo, oil and gas exploration property,
yachts, marine liabilities and war.
Premiums written........... Premiums written for a given period.
Proportional reinsurance... A generic term describing all forms of reinsurance
in which the reinsurer shares a proportional part
of the original premiums and losses of the
reinsured. (Also known as pro-rata reinsurance,
quota share reinsurance or participating
reinsurance.) In proportional reinsurance the
reinsurer generally pays the ceding company a
ceding commission. The ceding commission generally
is based on the ceding company's cost of acquiring
the business being reinsured (including
commissions, premium taxes, assessments and
miscellaneous administrative expense) and also may
include a profit factor.
Rating scale............... A scale of classifications assigned by the A.M.
Best Company to certain insurance and reinsurance
companies as a measure of their financial strength
and ability to meet their claims-paying
obligations, both currently and in the near future,
as follows:
<TABLE>
<CAPTION>
RATING
SCALE DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
A++ SUPERIOR: Assigned to companies which have achieved superior overall performance
A+ when compared to the standards established by the A.M. Best Company. A++ and A+
(Superior) companies have a very strong ability to meet their obligations to
policyholders over a long period of time.
A EXCELLENT: Assigned to companies which have achieved excellent overall
A- performance when compared to the standards established by the A.M. Best Company.
A and A- (Excellent) companies have a strong ability to meet their obligations
to policyholders over a long period of time.
</TABLE>
93
<PAGE> 97
<TABLE>
<CAPTION>
RATING
SCALE DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
B++ VERY GOOD: Assigned to companies which have achieved very good overall
B+ performance when compared to the standards established by the A.M. Best Company.
B++ and B+ (Very Good) companies generally have a strong ability to meet their
obligations to policyholders, but their financial strength may be susceptible to
unfavorable changes in underwriting or economic conditions.
B GOOD: Assigned to companies which have achieved good overall performance when
B- compared to the standards established by the A.M. Best Company. B and B- (Good)
companies generally have an adequate ability to meet their obligations to
policyholders, but their financial strangth is susceptible to unfavorable
changes in underwriting or economic conditions.
C++ FAIR: Assigned to companies which have achieved fair overall performance when
C+ compared to the standards established by the A.M. Best Company. C++ and C+
(Fair) companies generally have a reasonable ability to meet their obligations
to policyholders, but their financial strength is vulnerable to unfavorable
changes in underwriting or economic conditions.
C MARGINAL: Assigned to companies which have achieved marginal overall performance
C- when compared to the standards established by the A.M. Best Company. C and C-
(Marginal) companies have a current ability to meet their obligations to
policyholders, but their financial strength is very vulnerable to unfavorable
changes in underwriting or economic conditions.
D BELOW MINIMUM STANDARDS: Assigned to companies which meet minimum size and
experience requirements, but do not meet the minimum standards established by
the A.M. Best Company for a rating of "C-."
E UNDER STATE SUPERVISION: Assigned to companies which are placed by a state
insurance regulatory authority under any form of supervision, control or
restraint, such as conservatorship or rehabilitation, but does not include
liquidation. May be assigned to a company under a cease and desist order issued
by a regulator from a state other than its state of domicile.
F IN LIQUIDATION: Assigned to companies which have been placed under an order of
liquidation or have voluntarily agreed to liquidate.
</TABLE>
An A.M. Best's rating is based upon both a quantitative and qualitative
evaluation of the factors affecting the overall performance of an insurance
company. Such rating is the opinion of A.M. Best and is not directed toward the
protection of investors.
Reinstatement premium...... The premium charged for the restoration of the
reinsurance limit of a catastrophe contract to its
full amount after payment by the reinsurer of
losses as a result of an occurrence.
Reinsurance................ An arrangement in which an insurance company, the
reinsurer, agrees to indemnify another insurance or
reinsurance company, the ceding company, against
all or a portion of the insurance or reinsurance
risks underwritten by the ceding company under one
or more policies. Reinsurance can provide a ceding
company with several benefits, including a
reduction in net liability on individual risks and
catastrophe protection from large or multiple
losses. Reinsurance also provides a ceding company
with additional underwriting capacity by permitting
it to accept larger risks and write more business
than would be possible without a concomitant
increase in capital and surplus, and facilitates
the maintenance of acceptable financial ratios by
the ceding company.
94
<PAGE> 98
Reinsurance does not legally discharge the primary
insurer from its liability with respect to its
obligations to the insured.
Retention.................. The amount or portion of risk that an insurer
retains for its own
account. Losses in excess of the retention level
are paid by the reinsurer. In proportional
treaties, the retention may be a percentage of the
original policy's limit. In excess of loss
business, the retention is a dollar amount of loss,
a loss ratio or a percentage.
Retrocessional Reinsurance;
Retrocessionaire......... A transaction whereby a reinsurer cedes to another
reinsurer, the retrocessionaire, all or part of the
reinsurance that the first reinsurer has assumed.
Retrocessional reinsurance does not legally
discharge the ceding reinsurer from its liability
with respect to its obligations to the reinsured.
Reinsurance companies cede risks to
retrocessionaires for reasons similar to those that
cause primary insurers to purchase reinsurance: to
reduce net liability on individual risks, to
protect against catastrophic losses, to stabilize
financial ratios and to obtain additional
underwriting capacity.
Risk excess-of-loss
property reinsurance....... A form of excess-of-loss property reinsurance that
covers a loss of the reinsured on a single "risk"
in excess of its retention level of the type
reinsured, rather than to aggregate losses for all
covered risks, as does catastrophe excess of loss
reinsurance. A "risk" in this context might mean
the insurance coverage on one building or a group
of buildings or the insurance coverage under a
single policy, which the reinsured treats as a
single risk.
Tail....................... The period of time that elapses between the writing
of the applicable insurance policy or the loss
event (or the insurer's knowledge of the loss
event) and the payment in respect thereof.
Underwriting............... The insurer's or reinsurer's process of reviewing
applications submitted for insurance coverage,
deciding whether to accept all or part of the
coverage requested and determining the applicable
premiums.
Underwriting capacity...... The maximum amount that an insurance company can
underwrite. The limit is generally determined by
the company's retained earnings and investment
capital. Reinsurance serves to increase a company's
underwriting capacity by reducing its exposure from
particular risks.
Underwriting expenses...... The aggregate of policy acquisition costs,
including commissions, and the portion of
administrative, general and other expenses
attributable to underwriting operations.
U.S. generally accepted
accounting principles
("GAAP")................. United States accounting principles as set forth in
opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants
and/or statements of the Financial Accounting
Standards Board and/or their respective successors
and which are applicable in the circumstances as of
the date in question.
95
<PAGE> 99
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 100
GCR HOLDINGS LIMITED AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of March 31, 1996 and September 30, 1995 and 1994...... F-3
Consolidated Statements of Income for the Six Months Ended March 31, 1996 and 1995 and
the Years Ended September 30, 1995 and 1994......................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended
March 31, 1996 and the Years Ended September 30, 1995 and 1994...................... F-5
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 1996 and 1995
and the Years Ended September 30, 1995 and 1994..................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 101
GCR HOLDINGS LIMITED AND SUBSIDIARY
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO GCR HOLDINGS LIMITED:
We have audited the accompanying consolidated balance sheets of GCR
Holdings Limited (a Cayman Islands company) and subsidiary as of September 30,
1995 and 1994 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
GCR Holdings Limited and subsidiary as of September 30, 1995 and 1994 and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States.
/s/ ARTHUR ANDERSEN & CO.
Hamilton, Bermuda
November 3, 1995
(except with respect to the matters
discussed in Note 1, as to which the
date is December 22, 1995)
F-2
<PAGE> 102
GCR HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND SEPTEMBER 30, 1995 AND 1994
(Expressed in thousands of United States Dollars, except for per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
MARCH 31, -------- --------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Fixed maturity investments, at fair value (amortized cost:
$424,365, $484,858 and $363,570)......................... $ 423,432 $485,322 $360,813
Cash and cash equivalents.................................. 25,337 41,490 121,496
Premiums receivable........................................ 63,421 49,716 37,859
Accrued investment income.................................. 10,414 10,073 7,295
Deferred acquisition costs................................. 10,840 10,257 5,975
Other assets............................................... 1,044 783 576
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS............................................... $ 534,488 $597,641 $534,014
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
LIABILITIES
Reserve for losses and loss expenses....................... $ 34,331 $ 33,390 $ 19,705
Unearned premium reserve................................... 72,208 61,688 45,360
Loan payable............................................... -- 142,000 --
Loan interest payable...................................... -- 1,017 --
Accrued expenses and accounts payable...................... 1,711 3,149 882
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.......................................... 108,250 241,244 65,947
- ------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Ordinary shares, 25,668,255, 22,361,600 and 22,562,050
shares outstanding, par value US$0.10.................... 2,567 2,236 2,256
Additional paid-in capital................................. 375,591 338,353 440,817
Notes receivable for shares issued......................... (1,359) (1,783) (2,100)
Unrealized gains (losses) on investments, net.............. (933) 464 (2,721)
Retained earnings.......................................... 50,372 17,127 29,815
- ------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY....................................... 426,238 356,397 468,067
- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY....................... $ 534,488 $597,641 $534,014
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these Balance Sheets.
F-3
<PAGE> 103
GCR HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 AND THE
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
(Expressed in thousands of United States Dollars, except for per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
31, YEAR ENDED SEPTEMBER 30,
------------------------- ---------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Premiums written..................... $ 74,024 $ 79,290 $ 136,884 $ 102,065
Change in unearned premiums.......... (10,520) (23,458) (16,328) (45,360)
- ----------------------------------------------------------------------------------------------
Premiums earned...................... 63,504 55,832 120,556 56,705
Investment income, net............... 15,944 15,222 32,651 20,095
Realized gains (losses) on
investments, net................... 1,140 (1,472) 391 (10,216)
Exchange (losses) gains, net......... 17 406 (20) 529
- ----------------------------------------------------------------------------------------------
Total revenues.................. 80,605 69,988 153,578 67,113
- ----------------------------------------------------------------------------------------------
EXPENSES
Losses and loss expenses............. 13,394 17,193 35,293 25,278
Acquisition expenses................. 9,380 6,743 17,063 6,743
General and administrative expenses.. 5,109 3,179 8,602 5,277
Interest expense..................... 3,563 -- 1,964 --
- ----------------------------------------------------------------------------------------------
Total expenses.................. 31,446 27,115 62,922 37,298
- ----------------------------------------------------------------------------------------------
NET INCOME........................... $ 49,159 $ 42,873 $ 90,656 $ 29,815
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Net income per share................. $ 2.01 $ 1.88 $ 3.94 $ 1.32
Weighted average number of shares.... 24,167,778 22,531,230 22,469,645 22,556,530
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these Statements.
F-4
<PAGE> 104
GCR HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995
AND THE SIX MONTHS ENDED MARCH 31, 1996
(Expressed in thousands of United States Dollars, except for share amounts)
<TABLE>
<CAPTION>
SHARE CAPITAL
----------------------------------------------- INVESTMENT
SHARES PAR PAID-IN NOTES APPRECIATION RETAINED
OUTSTANDING VALUE CAPITAL RECEIVABLE (DEPRECIATION) EARNINGS
----------- ------ -------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1993............ -- $ -- $ -- $ -- $ -- $ --
Issuance of shares.................. 22,562,050 2,256 440,817 (2,100)
Unrealized appreciation
(depreciation) of investments..... (2,721)
Net income.......................... 29,815
- ------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1994......... 22,361,600 2,256 440,817 (2,100) (2,721) 29,815
Issuance of shares.................. 965 -- 20
Repurchase of shares................ (201,415 ) (20) (4,573)
Repayments on notes receivable...... 317
Unrealized appreciation
(depreciation) of investments..... 3,185
Net income.......................... 90,656
Dividends to shareholders........... (97,911) (103,344)
- ------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995......... 22,562,050 2,236 338,353 (1,783) 464 17,127
Unaudited:
Issuance of shares................ 3,306,655 331 37,238
Repayments on notes receivable.... 424
Unrealized appreciation
(depreciation) of investments... (1,397)
Net income........................ 49,159
Dividends to shareholders......... (15,914)
- ------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996
(unaudited)....................... 25,668,255 $2,567 $375,591 $ (1,359) $ (933) $ 50,372
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these Statements.
F-5
<PAGE> 105
GCR HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 AND THE
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
--------------------- ------------------------
1996 1995 1995 1994
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................. $ 49,159 $ 42,873 $ 90,656 $ 29,815
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization............ 189 191 314 216
Realized (gains) losses on sale of
investments........................... (1,140) 1,472 (391) 10,216
Add (deduct) changes in assets and liabilities:
Premiums receivable................... (13,705) (20,699) (11,857) (37,859)
Accrued investment income............. (341) (1,277) (2,778) (7,295)
Deferred acquisition costs............ (583) (4,056) (4,282) (5,975)
Other assets.......................... (384) (455) (102) (52)
Reserve for losses and loss
expenses............................ 941 7,718 13,685 19,705
Unearned premium reserve.............. 10,520 23,458 16,328 45,360
Loan interest payable................. (1,017) -- 1,017 --
Accrued expenses and accounts
payable............................. (1,438) (147) 2,267 882
- ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... 42,201 49,078 104,857 55,013
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of
investments.............................. 590,270 335,108 677,375 1,355,700
Purchase of investments.................... (528,637) (480,955) (798,308) (1,729,451)
Purchases of fixed assets.................. (66) (305) (419) (739)
- ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES............................... 61,567 (146,152) (121,352) (374,490)
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares.............. 37,569 20 20 451,241
Less: Placement costs...................... -- -- -- (8,168)
Issued for notes receivable.......... -- -- -- (2,100)
Retirement of shares....................... -- (2,280) (4,593) --
Repayment of notes receivable.............. 424 317 317 --
(Repayment) proceeds of borrowing.......... (142,000) -- 142,000 --
Dividends to shareholders.................. (15,914) -- (201,255) --
- ----------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES............................... (119,921) (1,943) (63,511) 440,973
- ----------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.............................. (16,153) (99,017) (80,006) 121,496
Cash and cash equivalents at beginning of
period................................... 41,490 121,496 121,496 --
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period................................... $ 25,337 $ 22,479 $ 41,490 $ 121,496
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these Statements.
F-6
<PAGE> 106
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE SIX MONTH PERIODS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
1. GENERAL
GCR Holdings Limited (the "Company") was incorporated on May 14, 1993,
under the laws of the Cayman Islands. The Company raised $450,950,000 through a
private placement in October 1993. After placement costs of $8,168,000, net
proceeds of the offering were $442,782,000. The Company conducts business
through its wholly owned subsidiary, Global Capital Reinsurance Limited ("Global
Capital Re"), which was incorporated in Bermuda on June 11, 1993, and is
licensed to write insurance business. The Company contributed capital of
$440,000,000 to Global Capital Re from the proceeds of the private placement.
Global Capital Re, which specializes in worldwide property catastrophe
reinsurance written on an excess of loss basis, began writing business as of
October 1, 1993.
Global Capital Re underwrites property catastrophe reinsurance and has
large aggregate exposures to natural and man-made disasters. Management expects
that Global Capital Re's loss experience generally will involve infrequent
events of great severity. Consequently, the occurrence of losses from
catastrophic events is likely to result in substantial volatility in GCR's
financial results.
An initial public offering of 7.6 million shares of the Company held by
existing shareholders was completed on December 22, 1995. In connection with the
initial public offering, the shareholders approved an increase in the Company's
authorized capital and the Board of Directors approved a share split in the form
of a share dividend effected at a ratio of 5:1. In addition, the Company's
sponsors exercised warrants to acquire 3.3 million shares at an aggregate
exercise price of $36.3 million ($11.00 per share). Of that amount, $34 million
was used to reduce outstanding borrowings. Net income per share is set forth in
the consolidated statements of income for all periods after giving effect to the
share split.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared using accounting
principles generally accepted in the United States. These statements include the
accounts of GCR Holdings Limited and its wholly owned subsidiary, Global Capital
Re (together, "GCR"). All significant intercompany transactions have been
eliminated. Certain reclassifications have been made to the 1994 balances to
conform to the 1995 presentation. The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
PREMIUMS. Written premiums are recognized on policies which have effective
dates within the period of the consolidated income statement. Written premiums
are recorded based on information provided by clients. Any subsequent premium
adjustments are recognized in the period in which they are determined. Premiums
are earned on a pro rata basis over the policy coverage period. Unearned
premiums represent the portion of premiums written in respect of coverage
applicable to the unexpired terms of policies in force.
DEFERRED ACQUISITION COSTS. Acquisition costs, consisting of commissions
and brokerage expenses incurred at policy issuance, are deferred and amortized
on the same basis as the underlying policy premiums. Deferred acquisition costs
are limited to estimated realizable value based on related unearned premium, and
take into account anticipated claims and expenses, based on experience, and
anticipated investment income.
LOSSES AND LOSS EXPENSES. The reserve for losses and loss expenses
includes reserves for unpaid losses and loss expenses and for losses incurred
but not reported (IBNR). The reserve for losses and loss expenses is established
by management based on information received from clients
F-7
<PAGE> 107
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
modified, as necessary, using management's industry experience and judgment. The
methods used to estimate the reserves are periodically reviewed to ensure that
the assumptions made continue to be appropriate and that any adjustments
resulting therefrom are reflected in income in the period in which the
adjustments are made. For certain catastrophic events there is considerable
uncertainty underlying the assumptions and associated estimated reserves for
losses and loss adjustment expenses.
Management believes that the reserve for losses and loss expenses is
adequate to cover the ultimate net cost of losses and loss expenses incurred.
However, the reserve is necessarily an estimate and the amount ultimately paid
may be more or less than the estimate.
INVESTMENTS. Investments are considered available for sale in response to
changes in market interest rates, changes in liquidity needs or other factors,
and are carried at fair value based on quoted market prices. Investments are
recorded on a trade date basis with balances pending settlement accrued in the
balance sheet. Realized gains and losses on sales of investments are determined
on the basis of specific identification of the cost of securities sold. The net
unrealized gain or loss on investments available for sale is included as a
separate component of shareholders' equity. Investment income is recognized when
earned and includes the amortization of bond premium and accretion of bond
discount.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes amounts due
from banks and short-term investments having maturities within three months of
date of purchase. The carrying value approximates fair value due to the short
maturity of these instruments.
PREMIUMS RECEIVABLE. Reinsurance premiums receivable are stated net of an
allowance for doubtful accounts. The allowance for doubtful accounts is nil at
March 31, 1996, September 30, 1995 and 1994.
FOREIGN EXCHANGE. The consolidated financial statements are expressed in
United States Dollars. Transactions denominated in other currencies have been
translated into United States Dollars using the rate of exchange in effect at
the date of the transaction. The components of the consolidated balance sheets
have been translated at the rates in effect at the balance sheet date, except
for the unearned premium reserve and deferred acquisition costs, which are
translated at historical rates of exchange.
STOCK INCENTIVE COMPENSATION PLANS. The Company accounts for stock option
grants in accordance with APB opinion No. 25, Accounting for Stock Issued to
Employees, and, accordingly, recognizes compensation expense for stock option
grants to the extent that the fair value of the stock exceeds the exercise price
of the option at the measurement date. For certain of the stock options
outstanding, the declaration of dividends results in a change in the option
price and a new measurement date.
START-UP EXPENSES AND OFFERING COSTS. The expenses of $8,168,000 related
to the private placement have been deducted from additional paid-in capital.
Expenses incurred in the incorporation of GCR and the public offerings have been
charged to the consolidated statement of income.
INCOME PER SHARE. Income per share is based upon the weighted average
number of shares and share equivalents outstanding during the period. Stock
options and warrants were considered share equivalents and were included in the
number of weighted average shares outstanding using the treasury stock method.
There is no material difference between primary and fully diluted net income per
ordinary share.
F-8
<PAGE> 108
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS AVAILABLE FOR SALE
Amortized cost, fair value and related unrealized gains or losses on
investments available for sale were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
US Government and Government Agency bonds........ $ 231,499 $ 173 $ 472 $ 231,200
US Corporate bonds............................... 126,755 645 1,026 126,374
US Asset-backed securities....................... 66,111 14 267 65,858
- -------------------------------------------------------------------------------------------------------
$ 424,365 $ 832 $1,765 $ 423,432
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
US Government and Government Agency bonds........ $ 205,517 $ 598 $ -- $ 206,115
US Corporate bonds............................... 223,497 711 776 223,432
US Asset-backed securities....................... 55,844 15 84 55,775
- -------------------------------------------------------------------------------------------------------
$ 484,858 $1,324 $ 860 $ 485,322
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
US Government and Government Agency bonds........ $ 105,371 $ -- $ 367 $ 105,004
US Corporate bonds............................... 190,782 -- 2,183 188,599
US Asset-backed securities....................... 67,417 -- 207 67,210
- -------------------------------------------------------------------------------------------------------
$ 363,570 $ -- $2,757 $ 360,813
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
The contractual maturity of investments available for sale is shown below.
The actual maturity of investments may differ because borrowers may have the
right to call or prepay certain obligations.
<TABLE>
<CAPTION>
MARCH 31, 1996 SEPTEMBER 30, 1995
----------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ---------- --------- ----------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Due in less than one year....................... $ 134,983 $ 134,541 $ 230,086 $ 229,739
Due after one year through three years.......... 289,382 288,891 254,772 255,583
Due after more than three years................. -- -- -- --
- -----------------------------------------------------------------------------------------------------
$ 424,365 $ 423,432 $ 484,858 $ 485,322
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE> 109
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS AVAILABLE FOR SALE (CONTINUED)
The following table summarizes the composition of the portfolio by rating
as assigned by Standard & Poor's Corporation or, with respect to non-rated
issues, as estimated by GCR's investment advisor.
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, -------------------
1996 1995 1994
--------- ----- -----
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents................................ 5.6% 8.0% 25.2%
US Government and Government Agency...................... 51.5 39.1 21.8
AAA...................................................... 14.7 10.5 14.0
A........................................................ 22.1 26.3 20.1
BBB...................................................... 6.1 16.1 18.9
- -------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
Realized gains and losses included in income were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SEPTEMBER
MARCH 31, 30,
-------------------- ---------------------
1996 1995 1995 1994
------- ------- ------- --------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Realized gains................................ $ 1,832 $ 135 $ 2,007 $ 4,732
Realized losses............................... (692) (1,607) (1,616) (14,948)
- ------------------------------------------------------------------------------------------------
Net realized gains/losses..................... $ 1,140 $(1,472) $ 391 $(10,216)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
Unrealized gains and losses included in shareholders' equity were as follows:
<TABLE>
<CAPTION>
MARCH SEPTEMBER 30,
31, ---------------------
1996 1995 1994
-------- ------- --------
(IN THOUSANDS OF UNITED STATES
DOLLARS)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Unrealized gains......................................... $ 832 $ 1,324 $ 36
Unrealized losses........................................ (1,765) (860) (2,757)
- -----------------------------------------------------------------------------------------------
Unrealized gains/losses, net............................. $ (933) $ 464 $ (2,721)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
Net Investment income was as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SEPTEMBER
MARCH 31, 30,
---------------------- ---------------------
1996 1995 1995 1994
-------- -------- ------- --------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Interest income.............................. $ 16,257 $ 15,590 $33,334 $ 20,942
Investment expenses.......................... (313) (368) (683) (847)
- -------------------------------------------------------------------------------------------------
Net investment income........................ $ 15,944 $ 15,222 $32,651 $ 20,095
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
A portion of Global Capital Re's cash and cash equivalents is pledged to secure
letters of credit. Cash and cash equivalents pledged to secure letters of credit
was $30,432,258, $15,674,885 and $2,649,000 at March 31, 1996, September 30,
1995 and 1994, respectively.
F-10
<PAGE> 110
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RESERVE FOR LOSSES AND LOSS EXPENSES
Activity in the reserve for losses and loss expenses is summarized as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
---------------------- ---------------------
1996 1995 1995 1994
-------- -------- -------- ---------
(IN THOUSANDS OF UNITED STATES
DOLLARS)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Balance at beginning of period................ $ 33,390 $ 19,705 $19,705 $--
Incurred related to:
Current period.............................. 13,650 13,581 29,880 25,278
Prior periods............................... (256) 3,612 5,413 --
- -------------------------------------------------------------------------------------------------
Total incurred........................... 13,394 17,193 35,293 25,278
- -------------------------------------------------------------------------------------------------
Paid related to:
Current period.............................. 5,349 1,960 6,128 5,573
Prior periods............................... 7,104 7,515 15,480 --
- -------------------------------------------------------------------------------------------------
Total paid............................... 12,453 9,475 21,608 5,573
- -------------------------------------------------------------------------------------------------
Balance at end of period...................... $ 34,331 $ 27,423 $33,390 $19,705
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
Losses incurred in the year ended September 30, 1995 and the six months
ended March 31, 1995 included approximately $5,800,000 (offset in part by
favorable developments in other lines of business) and $2,100,000, respectively,
of loss development related to the Northridge earthquake which occurred on
January 17, 1994.
5. SHARE CAPITAL
The authorized share capital of the Company is $7.5 million consisting of
50,000,000 ordinary shares of $0.10 par value and 25,000,000 other shares of
$0.10 par value. Other shares, of which none are outstanding, may be issued with
such rights and preferences as the board of directors may authorize, subject to
the Company's articles of association and applicable law. The following number
of ordinary shares were issued and outstanding:
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, ----------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Ordinary shares outstanding..................... 25,668,255 22,361,600 22,562,050
Share capital................................... $ 2,566,826 $2,236,160 $2,256,205
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
In 1993, the Company loaned $2,100,000 to officers to purchase an aggregate
of 105,000 ordinary shares. The notes receivable are secured by a portion of the
shares and bear interest at 7% per annum and mature at various dates in 2000 and
2001.
F-11
<PAGE> 111
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SHARE OPTIONS AND WARRANTS
The Company has issued share options to officers and directors to purchase
ordinary shares, $0.10 par value, as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE
---------- ----------------
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994
Granted................................................ 212,680 $10.38
Exercised.............................................. --
Cancelled.............................................. --
Outstanding, end of year............................... 212,680 $10.38
Exercisable, end of year............................... 42,536 $10.38
YEAR ENDED SEPTEMBER 30, 1995
Granted................................................ 35,245 $11.14
Exercised.............................................. --
Cancelled.............................................. --
Outstanding, end of year............................... 247,925 $10.38 - $11.14
Exercisable, end of year............................... 42,536 $10.38
SIX MONTHS ENDED MARCH 31, 1996
Granted................................................ 387,000 $15.24
Exercised.............................................. 3,000 $15.24
Cancelled.............................................. --
Outstanding, end of period............................. 631,925 $10.38 - $15.24
Exercisable, end of period............................. 116,883 $10.38 - $15.24
</TABLE>
Options issued to officers and directors on October 8, 1993 are exercisable
at the rate of 20% annually and lapse after ten years. Options issued on
November 15, 1994 and November 16, 1995 are exercisable at the rate of 25%
annually. Compensation expense has been recognized of $1,232,000 and $0 for the
six months ended March 31, 1996 and 1995 and $404,000 and $0 for the years ended
September 30, 1995 and 1994, respectively.
Under the Company's share option plan, 1,104,755 shares are available for
grant to key employees based on achievement of performance goals. Any such
options will be granted at book value or, if the Company's shares are publicly
traded, at the public market value. Options vest at the rate of 25% annually and
lapse on the tenth anniversary of issue.
Coincident with the private placement in 1993, the Company granted to
sponsors warrants to purchase 3,303,655 ordinary shares at an exercise price of
$11.00 per share between October 8, 1993 and October 8, 2003. These warrants
were exercised in December 1995 (see Note 1).
F-12
<PAGE> 112
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PREMIUMS WRITTEN BY GEOGRAPHIC AREA
Premiums written by geographic area of operations were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
MARCH 31, 1996 MARCH 31, 1995 -----------------------------------------
1995 1994
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF UNITED STATES DOLLARS)
- ------------------------------------------------------------------------------------------------------------------
United States*........................... $ 41,297 55.8% $ 46,023 58.0% $ 78,069 57.0% $ 65,424 64.1%
Japan.................................... 0 0 0 0 11,279 8.2 9,798 9.6
Europe (including the U.K.).............. 10,213 13.8 9,681 12.2 9,898 7.2 6,328 6.2
Australia/New Zealand.................... 823 1.1 570 0.7 7,348 5.4 5,103 5.0
Caribbean................................ 2,875 3.9 5,195 6.6 5,129 3.8 919 0.9
Worldwide**.............................. 15,183 20.5 12,351 15.6 20,133 14.7 8,573 8.4
Worldwide, excluding U.S.***............. 2,333 3.1 3,653 4.6 2,433 1.8 2,245 2.2
Other.................................... 1,300 1.8 1,817 2.3 2,595 1.9 3,675 3.6
- ------------------------------------------------------------------------------------------------------------------
Total............................ $ 74,024 100.0% $ 79,290 100.0% $ 136,884 100.0% $ 102,065 100.0%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Policies covering risk events only in the United States.
** Policies covering risk events anywhere in the world including the United
States.
*** Policies covering risk events anywhere in the world other than the United
States.
8. RELATED PARTY TRANSACTIONS
Goldman Sachs Asset Management International provides investment advisory
services to GCR and, in that capacity, exercises discretionary authority with
respect to GCR's entire investment portfolio. Goldman Sachs Asset Management
International is an affiliate of Goldman, Sachs & Co., a sponsor of and (through
affiliates) an investor in the Company. Fees for these services were $282,000
and $280,000 for the six months ended March 31, 1996 and 1995, respectively, and
$559,000 and $497,000 for the years ended September 30, 1995, 1994,
respectively. In addition, Goldman, Sachs & Co. acted as one of the
representatives of the underwriters in the Company's initial public offering, in
which the underwriters received aggregate underwriting discounts and commissions
of approximately $9,142,500 from the selling shareholders in such offering. One
director of the Company is a limited partner of Goldman, Sachs & Co. and another
director of the Company is a general partner of Goldman, Sachs & Co.
Approximately $6.9 million of the $8.2 million placement costs paid in 1993
were paid to Goldman, Sachs & Co., a sponsor of and investor in the Company.
Willcox Incorporated, a reinsurance broker and an affiliate of Johnson &
Higgins, a principal sponsor of and (through affiliates) an investor in the
Company, provides reinsurance brokerage services to clients of GCR on a regular
basis and accounted for approximately 11% of GCR's business based on premiums
written under contracts in force on March 31, 1996. Johnson & Higgins, through
Willcox, also provides insurance brokerage services to GCR directly. For the
year beginning on December 1, 1995, GCR purchased insurance coverage through
Willcox, for which Willcox earned brokerage commissions. Two directors of the
Company are also directors and executive officers of Johnson & Higgins.
9. CONCENTRATION OF CREDIT RISK
Other than investments in instruments issued by the US Government or US
Government agencies, GCR does not have any investment in a single issuer which
exceeds 10% of consolidated shareholders' equity.
F-13
<PAGE> 113
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASE
The Company leases its office under a three year non-cancelable lease, with
an option to renew for an additional three years at then current market rates.
Annual occupancy costs are estimated to be $230,000, including services and
taxes for the period remaining under the initial lease term.
11. TAXATION
At the present time, no income or capital taxes are levied in the Cayman
Islands, and no income, profit, capital or capital gains taxes are levied in
Bermuda. In the event such taxes are levied, the Company has received an
undertaking exempting it from such Cayman Islands taxes until 2013.
Global Capital Re has received an undertaking from the Bermuda Government
exempting it from such Bermuda taxes until 2016.
The Company is not engaged in trade or business in the United States and,
accordingly, does not expect to be subject to United States income taxation.
12. CREDIT AGREEMENT
On August 17, 1995, the Company entered into a three-year revolving credit
agreement (as amended, the "Credit Agreement") with a group of commercial banks.
Under that agreement, the Company can borrow up to $150 million in the form of,
at the Company's option, Eurodollar loans at an annual interest rate of LIBOR
plus 60 or 70 basis points depending on the amount outstanding, or US floating
rate loans at an annual interest rate equal to the lead bank's corporate base
rate or the US Federal Funds rate plus 1/2%, whichever is higher. The capital
stock of Global Capital Re is pledged as security for borrowings under the
Credit Agreement. Prepayments of amounts borrowed may be made without penalty.
On August 17, 1995 the Company borrowed $142 million under the Credit
Agreement for an initial period of six months at an interest rate of 6.7%. The
proceeds were used to fund, in part, the distribution made in August 1995 (see
Note 13). The Company has agreed to pay to the lenders under the Credit
Agreement a commitment fee of between 0.175% and 0.20% of the daily unborrowed
portion of the facility. Borrowings under the line of credit have been repaid;
$34 million in December 1995 and the balance in February 1996.
The Credit Agreement contains various financial and non-financial
covenants, including the requirement to maintain consolidated net worth of the
Company and net worth of Global Capital Re of at least $250 million in each
case. The Company was in compliance with all covenants under the Credit
Agreement as of March 31, 1996.
13. DIVIDENDS
On August 17, 1995, the Board of Directors declared a distribution of $9.00
per ordinary share payable on August 18, 1995 to shareholders of record on the
date of declaration. The total amount of the distribution was $201 million and
was funded in part by borrowings under the Credit Agreement. The balance of the
distribution was funded by the liquidation of certain investments. The
distribution was accounted for as a distribution of all retained earnings as of
June 30, 1995, and the balance as a distribution from additional paid-in
capital.
The Company paid a dividend of $0.62 per share ($15.9 million) in February
1996 and the Board of Directors has declared a dividend of $0.62 per share
($15.9 million) payable in May 1996.
F-14
<PAGE> 114
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. DIVIDENDS (CONTINUED)
The Company's ability to pay dividends is subject to certain regulatory
restrictions on the payment of dividends by Global Capital Re. Global Capital Re
is registered under the Bermuda Insurance Act 1978 and Related Regulations (the
"Act") and is obliged to comply with various provisions of the Act regarding
solvency and liquidity. The provisions have been met. The Registrar of Companies
in Bermuda, in which Global Capital Re is domiciled, recognizes as net income
and surplus (shareholders' equity) those amounts determined in conformity with
statutory accounting practices prescribed or permitted in Bermuda, which differ
in certain respects from generally accepted accounting principles. Under Bermuda
regulations, the required minimum statutory capital and surplus at September 30,
1995 was $100 million. Global Capital Re's actual statutory capital and surplus
at that date was $485.9 million. Statutory net income of Global Capital Re was
$53.6 million and $38.6 million for the six months ended March 31, 1996 and
1995, respectively, and $88.3 million and $25.2 million for the years ended
September 30, 1995 and 1994, respectively.
In addition, regulations in Bermuda limit the maximum amount of annual
dividends or other distributions available to shareholders without notification
to the Registrar of such payment (and in certain cases the prior approval of the
Registrar). The maximum amount of dividends which could be paid by Global
Capital Re to the Company during fiscal 1996 without such notification is
approximately $121.5 million.
The Company's ability to pay dividends is also subject to the requirements
of the Credit Agreement that consolidated net worth, and net worth of Global
Capital Re, of $250 million be maintained and that dividends paid in any fiscal
year not exceed consolidated net income in the prior fiscal year.
14. PENSION PLANS
Effective October 8, 1993, Global Capital Re adopted combined savings and
defined contribution pension plans for its officers and employees. Under these
plans, Global Capital Re contributes 10% of participants' base salaries. Pension
costs are fully funded and amounted to $94,028 and $81,428 for the six months
ended March 31, 1996 and 1995, respectively, and $171,024 and $119,500 for the
years ended September 30, 1995 and 1994, respectively.
15. FOREIGN EXCHANGE GAINS AND LOSSES
The exchange gains (losses) comprise the net effect of realized and
unrealized exchange gains and losses, excluding exchange gains and losses earned
on the investment portfolio which are included in investment income. The
unrealized component arises from the revaluation of certain foreign currency
assets and liabilities at the balance sheet dates. The realized component arises
from the difference between amounts previously recorded for foreign currency
assets and liabilities and actual amounts received or paid during the year.
F-15
<PAGE> 115
GCR HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)
-----------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1995 1995 1995 1995 1996
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Premiums written............... $ 7,229 $72,061 $ 40,455 $ 17,139 $ 7,555 $66,469
Premiums earned................ 25,181 30,651 31,848 32,876 32,894 30,610
Investment income, net......... 7,179 8,043 8,675 8,754 8,294 7,650
Realized gains (losses) on
investments, net............. (1,041) (431) 146 1,717 763 377
Losses and loss expenses....... 6,177 11,016 3,085 15,015 10,210 3,184
Net income..................... $ 20,259 $22,614 $ 30,656 $ 17,127 $ 22,716 $26,443
Net income per share........... $ 0.89 $ 0.99 $ 1.33 $ 0.73 $ 0.99 $ 1.02
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1993 1994 1994 1994
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Premiums written.................................... $ 4,621 $51,288 $ 30,347 $ 15,809
Premiums earned..................................... 628 14,128 18,786 23,163
Investment income, net.............................. 4,817 4,161 4,919 6,198
Realized gains (losses) on investments, net......... (6,034) (1,101) (2,454) (627)
Losses and loss expenses............................ -- 14,127 6,686 4,465
Net income (loss)................................... $ (2,100) $ 303 $ 11,525 $ 20,087
Net income (loss) per share......................... $ (0.09) $ 0.01 $ 0.51 $ 0.89
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
17. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT
PUBLIC OFFERING. In May 1996, the Board of Directors approved a plan to
register shares for sale to the public as a follow on to the initial public
offering. All of the shares to be sold are being sold by existing shareholders.
Consequently, the Company will not receive any of the proceeds of the offering.
The Company will pay certain expenses related to the offering, including certain
expenses incurred on behalf of the selling shareholders.
SHARE REPURCHASE. In May 1996, the Board of Directors approved the
repurchase of up to 1 million shares concurrent with the public offering and at
the public offering price, net of underwriters' discount.
F-16
<PAGE> 116
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Shareholders have agreed to sell to each of the Underwriters named
below, and each of such Underwriters, for whom Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, J.P. Morgan Securities Inc. and Smith
Barney Inc. are acting as representatives, has severally agreed to purchase from
the Selling Shareholders, the respective number of Ordinary Shares set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
ORDINARY
UNDERWRITERS SHARES
---------------------------------------------------------------- ----------
<S> <C>
Goldman, Sachs & Co.............................................
Donaldson, Lufkin & Jenrette
Securities Corporation........................................
J.P. Morgan Securities Inc. ....................................
Smith Barney Inc. ..............................................
----------
Total......................................................
==========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Ordinary Shares
offered hereby, if any are taken.
The Underwriters propose to offer the Ordinary Shares in part directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus, and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain brokers and
dealers. After the Ordinary Shares are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
representatives.
At the request of the Company, the Underwriters have reserved 1,000,000 of
the Ordinary Shares offered hereby for sale to Global Capital Re in the GCR
Repurchase, at the initial public offering price net of the underwriting
discount set forth on the cover page of this Prospectus. The closing for the GCR
Repurchase will occur simultaneously with the closing of the sale of the shares
to the Underwriters.
Certain of the Selling Shareholders have granted the Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of additional Ordinary Shares solely to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of
Ordinary Shares to be purchased by each of them, as shown in the foregoing
table, bears to the Ordinary Shares offered hereby.
U-1
<PAGE> 117
The Company has agreed, during the period of 90 days beginning on the date
of this Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any Ordinary Shares or any other securities of the Company that are
substantially similar to the Ordinary Shares, including but not limited to any
securities of the Company that are convertible into or exchangeable for, or that
represent the right to receive, Ordinary Shares or any substantially similar
securities, without the prior written consent of the representatives, except
pursuant to employee and director compensation arrangements existing on the date
of this Prospectus. The Selling Shareholders and all other persons holding
Original Shares (or any options outstanding prior to the Offering) have also
agreed to a similar restriction on sales of Original Shares (or shares issued on
exercise of such options) during such 90-day period, except for sales in the
Offering and the GCR Repurchase or with the prior written consent of the
representatives of the Underwriters. Goldman, Sachs & Co. and Johnson & Higgins
will have registration rights relating to the Ordinary Shares, but such rights
will not be exercisable until after such 90-day period. For a discussion of
these matters, see "Certain Relationships and Related Party
Transactions -- Registration Rights" and "Shares Eligible for Future Sale."
Goldman, Sachs & Co. and certain of their affiliates own 4,420,489 Ordinary
Shares representing 17.2% of the Ordinary Shares of the Company and, upon
completion of the Offering and the GCR Repurchase, will own approximately % of
the Ordinary Shares (in each case calculated on the basis set forth in the notes
to "Principal and Selling Shareholders"). See "Principal and Selling
Shareholders." Goldman, Sachs & Co. and such affiliates are subject to the
90-day lock-up that applies to other shareholders as described above.
Notwithstanding such restriction, however, Goldman, Sachs & Co. and their
affiliates will be permitted to engage in stabilization, brokerage and ordinary
course of business transactions and will be permitted, pursuant to a
registration statement under the Securities Act maintained by the Company, to
sell Ordinary Shares and related securities in connection with market-making
transactions from time to time, both during and after the 90-day period. See
"Shares Eligible for Future Sale."
Goldman, Sachs & Co. and certain of their affiliates maintain certain
contractual relationships with the Company. See "Certain Relationships and
Related Party Transactions." In addition, one director of the Company, J.
Markham Green, is a limited partner and another director of the Company, John P.
NcNulty, is a general partner of Goldman, Sachs & Co. Goldman, Sachs & Co. and
their affiliates do not have any right to designate directors of the Company.
See "Management."
Because Goldman, Sachs & Co. and certain of their affiliates own in excess
of 10% of the Ordinary Shares of the Company, the underwriting arrangements for
the Offering must comply with the requirements of Schedule E to the By-laws
("Schedule E") of the NASD. Those requirements provide that, when a NASD member
firm participates in distributing an affiliate's equity securities, the price of
the securities must be determined by a "qualified independent underwriter."
Accordingly, Donaldson, Lufkin & Jenrette Securities Corporation (the
"Independent Underwriter") is acting as a qualified independent underwriter for
purposes of determining the price of the Ordinary Shares offered hereby and has
conducted due diligence in connection with its responsibilities as a qualified
independent underwriter. The Independent Underwriter will receive compensation
from the Company in the amount of $5,000 for serving in such role. The price at
which the Ordinary Shares are being sold to the public will be no higher than
the price recommended by the Independent Underwriter. In addition, in light of
Schedule E, Goldman, Sachs & Co. have informed the Company that they do not
intend to confirm sales to any accounts over which they exercise discretionary
authority without the prior specific written approval of such transactions by
the customer.
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
J.P. Morgan Securities Inc. and Smith Barney Inc. acted as the representatives
of the underwriters in the 1995 IPO and received underwriting discounts and
commissions from the selling shareholders in such offering. Goldman, Sachs & Co.
and certain of their affiliates have provided, and currently provide, investment
banking services to GCR. For a description of these services and the
consideration received in respect thereof, see "Certain Relationships and
Related Party Transactions."
U-2
<PAGE> 118
The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently intend to
continue to make a market in the Ordinary Shares. However, they are not
obligated to do so and any market-making may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act.
The Company and the Underwriters have entered into an agreement with
respect to such market-making activities. Because of the affiliation of Goldman,
Sachs & Co. with the Company, Goldman, Sachs & Co. will be required to deliver a
current prospectus to any purchaser in connection with any such market-making
transactions. The Company has agreed to make from time to time certain
amendments or supplements to the Prospectus and to pay certain expenses relating
to such amendments or supplements.
In connection with the Offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualifying registered
market makers on Nasdaq may engage in passive market-making transactions in the
Ordinary Shares on the Nasdaq National Market in accordance with Rule 10b-6A
under the Exchange Act, during the two business day period before commencement
of sales in the Offering. The passive market-making transactions must comply
with applicable price and volume limits and be identified as such. In general, a
passive market-maker may display its bid at a price not in excess of the highest
independent bid for the security. If all independent bids are lowered below the
passive market-maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded. Net purchases by a passive market-maker on each
day are generally limited to a specified percentage of the passive
market-maker's average daily trading volume in the Ordinary Shares during a
price period and must be discontinued when such limit is reached. Passive
market-making may stabilize the market price of the Ordinary Shares at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters and the Independent Underwriter against certain
liabilities, including liabilities under the Securities Act.
U-3
<PAGE> 119
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Enforceability of Civil Liabilities
Under United States Laws........... 2
Prospectus Summary................... 3
Risk Factors......................... 13
Use of Proceeds...................... 23
Dividend Policy...................... 23
Price Range of Ordinary Shares....... 24
Capitalization....................... 25
Selected Consolidated Financial
Data............................... 26
Selected Pro Forma Financial Data.... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 29
Business............................. 37
Management........................... 59
Principal and Selling Shareholders... 72
Certain Relationships and Related
Party Transactions................. 74
Description of Capital Shares........ 76
Shares Eligible for Future Sale...... 82
Certain Tax Considerations........... 83
Validity of Ordinary Shares.......... 91
Experts.............................. 91
Additional Information............... 91
Glossary of Selected Insurance
Terms.............................. 92
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
GCR HOLDINGS LIMITED
ORDINARY SHARES
(PAR VALUE $0.10 PER SHARE)
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN & CO.
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 120
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED , 1996
LOGO GCR HOLDINGS LIMITED
ORDINARY SHARES
(par value $0.10 per share)
------------------------
SEE "RISK FACTORS" ON PAGES 13 THROUGH 23 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE ORDINARY SHARES.
The Ordinary Shares are quoted in the Nasdaq National Market under the
symbol "GCREF."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus has been prepared for and is to be used by Goldman, Sachs &
Co. in connection with offers and sales of the Ordinary Shares related to
market-making transactions, at prevailing market prices, related prices or
negotiated prices. The Company will not receive any of the proceeds of such
sales. Goldman, Sachs & Co. may act as a principal or agent in such
transactions. The closing of the Offering referred to herein is expected to
occur on , 1996. See "Plan of Distribution."
GOLDMAN, SACHS & CO.
------------------------
The date of this Prospectus is , 1996.
<PAGE> 121
[ALTERNATE PAGE]
PRINCIPAL SHAREHOLDERS
The table below sets forth the beneficial ownership of the Company's
Ordinary Shares by the principal shareholders and the directors and officers of
the Company following the sale of the Ordinary Shares in the Offering and the
GCR Repurchase.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------------------------- ----------- -------
<S> <C> <C>
5% BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS:
The Goldman Sachs Group, L.P....................................... (2)
85 Broad Street
New York, NY 10004
Johnson & Higgins.................................................. (3)
125 Broad Street
New York, NY 10004
Alfred Lerner...................................................... (4) 2.0
Steven H. Newman................................................... 75,692(5) *
Lawrence S. Doyle.................................................. 66,576(6) *
Robert L. Nason.................................................... 31,160(7) *
Stephen S. Outerbridge............................................. 31,160(7) *
William G. Fanning................................................. 17,862(8) *
Frederick W. Deichmann............................................. 27,595(9) *
J. Markham Green................................................... *
John P. McNulty.................................................... (10) *
David A. Olsen..................................................... (4) *
Jerry S. Rosenbloom................................................ (4) *
Joseph D. Roxe..................................................... (4) *
Michael E. Satz.................................................... (4) *
Richard D. Spurling................................................ (4) *
Donald J. Zuk...................................................... (11) *
All Directors and Executive Officers as a group (16 persons).......
</TABLE>
- ---------------
* Less than 1% of the outstanding shares.
(1) In accordance with Commission rules, each beneficial owner's holdings have
been calculated assuming full exercise of outstanding options exercisable
by such owner within 60 days after , 1996, but no exercise of
outstanding options held by any other person. For the purposes of these
calculations, all shares purchased by Global Capital Re in the GCR
Repurchase are treated as if they have ceased to be outstanding (although
such shares will continue to carry voting, dividend and other rights while
they are held by Global Capital Re). For further information about the
calculation of beneficial ownership, see the footnotes below.
(2) Includes Ordinary Shares beneficially owned by certain investment
limited partnerships, including GS Capital Partners, L.P., of which
affiliates of The Goldman Sachs Group, L.P. ("GS Group") are the general
partner or managing general partner. GS Group disclaims beneficial
ownership of shares held by such investment partnerships to the extent
partnership interests in such partnerships are held by persons other than
GS Group and its affiliates. Also includes Ordinary Shares
beneficially owned by Goldman, Sachs & Co., also an affiliate of GS Group.
Does not include certain shares held in customer accounts managed by
affiliates of GS Group, which affiliates do not intend to exercise voting
rights over such shares. Also does not include shares which may be held by
Goldman, Sachs & Co. and certain of its affiliates as a result of
market-making activities. If the Underwriters' over-allotment option is
exercised in full, GS Group will sell an additional Ordinary Shares
and may be deemed beneficially to own or % of the
outstanding Ordinary Shares after the Offering.
<PAGE> 122
(3) Consists of Ordinary Shares beneficially owned by Johnson & Higgins
(Bermuda) Limited, a subsidiary of Johnson & Higgins. Does not include
shares beneficially owned by Messrs. Olsen and Roxe, officers of Johnson &
Higgins and directors of the Company.
(4) Includes 3,000 Ordinary Shares issuable upon the exercise of options.
(5) Includes 28,192 Ordinary Shares issuable upon the exercise of options; does
not include 376,746 shares held by Underwriters Reinsurance Company, a
subsidiary of Allegheny Corporation.
(6) Includes 26,576 Ordinary Shares issuable upon the exercise of options.
(7) Includes 11,161 Ordinary Shares issuable upon the exercise of options.
(8) Includes 7,397 Ordinary Shares issuable upon the exercise of options.
(9) Includes 7,595 Ordinary Shares issuable upon the exercise of options. Also
includes 200 Ordinary Shares held by Mr. Deichmann for the benefit of his
children and as to which he disclaims beneficial ownership.
(10) Includes 3,000 Ordinary Shares issuable upon the exercise of options. Does
not include 4,417,489 shares which may be deemed to be beneficially owned
by GS Group. See note (2) above. If the Underwriters' over-allotment option
is exercised in full, GS Group will sell an additional Ordinary
Shares and may be deemed beneficially to own or % of the
outstanding Ordinary Shares after the Offering. The general partners of
Goldman, Sachs & Co. may be deemed to share beneficial ownership of the
shares shown as beneficially owned by certain affiliates of GS Group. Mr.
McNulty, who is a general partner of Goldman, Sachs & Co., disclaims
beneficial ownership of the shares owned by GS Group and certain of its
affiliates.
(11) Includes 3,000 Ordinary Shares issuable upon the exercise of options. Does
not include 188,373 shares held by Southern California Physicians Insurance
Exchange.
<PAGE> 123
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
This Prospectus may be used by Goldman, Sachs & Co. in connection with
offers and sales related to market-making transactions in the Ordinary Shares
effected from time to time after the commencement of the Offering. Goldman,
Sachs & Co. may act as principal or agent in such transactions, including as
agent for the counterparty when acting as principal or as agent for both
counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
For a description of certain relationships and transactions between
Goldman, Sachs & Co. and their affiliates and the Company, see "Management,"
"Certain Relationships and Related Party Transactions" and "Principal
Shareholders."
The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently make a market in
the Ordinary Shares. However, they are not obligated to do so and any
market-making may be discontinued at any time without notice. In addition, such
market-making activity is subject to the limits imposed by the Securities Act
and the Exchange Act. There can be no assurance that an active trading market
will be sustained. See "Risk Factors -- Limited Prior Public Market."
The Company has agreed to indemnify Goldman, Sachs & Co. with respect to
certain liabilities in connection with this Prospectus, including liabilities
under the Securities Act.
<PAGE> 124
[ALTERNATE PAGE]
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Enforceability of Civil Liabilities Under
United States Laws..................... 2
Prospectus Summary....................... 3
Risk Factors............................. 13
Dividend Policy.......................... 23
Price Range of Ordinary Shares........... 24
Capitalization........................... 25
Selected Consolidated Financial Data..... 26
Selected Pro Forma Financial Data........ 28
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................. 29
Business................................. 37
Management............................... 59
Principal Shareholders................... 73
Certain Relationships and Related Party
Transactions........................... 75
Description of Capital Shares............ 77
Shares Eligible for Future Sale.......... 83
Certain Tax Considerations............... 84
Plan of Distribution..................... 92
Validity of Ordinary Shares.............. 92
Experts.................................. 92
Additional Information................... 92
Glossary of Selected Insurance Terms..... 93
Index to Financial Statements............ F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
GCR HOLDINGS LIMITED
ORDINARY SHARES
(PAR VALUE $0.10 PER SHARE)
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses of the issuance and distribution
of the securities being registered, all of which will be paid by the Registrant.
<TABLE>
<S> <C>
SEC registration fee................................................... $
NASD filing fee........................................................
Nasdaq Listing Fee.....................................................
Blue sky fees and expenses.............................................
Printing and engraving expenses........................................
Legal fees and expenses................................................
Accounting fees and expenses...........................................
Miscellaneous..........................................................
-----------
Total........................................................ $
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Cayman Islands law does not specifically limit the extent to which a
company's articles of association may provide for the indemnification of
officers and directors, except to the extent that such provision may be held by
the Cayman Islands courts to be contrary to public policy (e.g., for purporting
to provide indemnification against the consequences of committing a crime). In
addition, an officer or director may not be able to enforce indemnification for
his own dishonesty or wilful neglect or default.
Article 123 of the Articles, filed as Exhibit 3.2A to this Registration
Statement, and Article 107 of the proposed Articles of Association of the
Company, filed as Exhibit 3.2B to this Registration Statement, contains
provisions providing for the indemnification by the Company of an officer,
director or trustee of the Company for all actions, proceedings, claims, costs,
charges, losses, damages and expenses which they incur or sustain by reason of
any act done or omitted in or about the execution of their duty in their
respective offices or trusts, except such (if any) as they shall incur or
sustain by or through their own respective wilful neglect or default.
Section 7 of the Underwriting Agreement and Section 1 of the Indemnity
Agreement, filed as Exhibits 1.1A and 1.1B to the Registration Statement,
provide for indemnification of the Company, its officers and its directors by
the Underwriters and the Selling Shareholders with respect to certain portions
of the Registration Statement. The Company has agreed to provide indemnification
to two of its officers, with respect to their serving as attorneys-in-fact for
the Selling Shareholders, in connection with the Offering. See Exhibit 1.1C.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished as to securities of the Company sold
within the past three years which were not registered under the Securities Act.
Exemption from registration under the Securities Act is claimed for those
transactions which are subject to the Securities Act under Section 4(2) of the
Securities Act for transactions by an issuer not involving any public offering.
No underwriting discounts or commissions were paid in connection with such
sales. All share and per share information below gives effect to the Share
Split.
On October 8, 1993, the Company issued 22,547,550 Ordinary Shares to
investors in its initial share placement. The placement was made on a private
basis, pursuant to Section 4(2) of the Securities Act and Regulation D
thereunder, to persons who certified to the Company that they qualified as
"accredited investors" within the meaning of Regulation D. Concurrently with
such issuance, the Company issued options to purchase an aggregate of 3,495,595
Ordinary Shares to 5 of its directors and officers in connection with their
employment by Global Capital Re, and to its two sponsors, Goldman, Sachs & Co.
and Johnson & Higgins, and certain of their affiliates, in
II-1
<PAGE> 126
connection with their efforts in the formation of the Company and Global Capital
Re. On December 22, 1995 Goldman, Sachs & Co., Johnson & Higgins and their
respective affiliates exercised warrants for 3,303,655 Ordinary Shares,
constituting all warrants held by such entities, at an exercise price of $11.00
per Ordinary Share. This sale was exempt from registration under Section 4(2) of
the Securities Act.
The Company issued the following securities to the named individual on the
dates and for the amounts indicated pursuant to Section 4(2) of the Securities
Act or a related exemption thereunder:
<TABLE>
<S> <C> <C> <C>
NAME DATE SECURITY PRICE
Mr. Fanning January 15, 1994 7,500 Ordinary Shares $20 per share
June 28, 1994 2,000 Ordinary Shares $20 per share
November 15, 1994 965 Ordinary Shares $20.76 per share
Mr. Witherspoon May 16, 1994 5,000 Ordinary Shares $20 per share
Mr. Green February 6, 1996 3,000 Ordinary Shares $15.24 per share
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement between the Company, the Selling Shareholders
and the Underwriters
1.2 Form of Indemnity Agreement between the Company and the Selling Shareholders
1.3 Form of Indemnity Agreement between the Company, Lawrence S. Doyle and
Frederick W. Deichmann
3.1 Amended and Restated Memorandum of Association of the Company
3.2 Amended and Restated Articles of Association of the Company
3.3 Amended and Restated Shareholders Agreement, dated as of December 18, 1995,
among the Shareholders (as defined therein) and the Company
3.4 Registration Rights Agreement, dated December 18, 1995, between the Company
and The Goldman Sachs Group, L.P. and Johnson & Higgins
4 Form of Share Certificate (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))
5 Opinion of Maples and Calder regarding the validity of the securities
registered
8 Opinion of Sullivan & Cromwell with respect to tax matters
10.1 Employment Agreement, dated as of June 16, 1993, between the Company and
Lawrence S. Doyle (the "Doyle Employment Agreement") (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No.
33-97736))
10.1A Amendment to the Doyle Employment Agreement, dated as of December 12, 1995
10.2 Employment Agreement, dated as of August 16, 1993, between the Company and
Frederick W. Deichmann (the "Deichmann Employment Agreement") (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No.
33-97736))
10.2A Amendment to the Deichmann Employment Agreement, dated as of December 12, 1995
10.3 Employment Agreement, dated as of January 15, 1994, between the Company and
William G. Fanning (the "Fanning Employment Agreement") (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No.
33-97736))
10.3A Amendment to the Fanning Employment Agreement, dated as of December 12, 1995
10.4 Employment Agreement, dated as of June 16, 1993, between the Company and
Robert L. Nason (the "Nason Employment Agreement") (incorporated by reference
to the Company's Registration Statement on Form S-1 (File No. 33-97736))
10.4A Amendment to the Nason Employment Agreement, dated as of December 12, 1995
10.5 Employment Agreement, dated as of June 16, 1993, between the Company and
Stephen S. Outerbridge (the "Outerbridge Employment Agreement") (incorporated
by reference to the Company's Registration Statement on Form S-1 (File No.
33-97736))
</TABLE>
II-2
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------
<C> <S>
10.5A Amendment to the Outerbridge Employment Agreement, dated as of December 12,
1995
10.6 Non-Recourse Note, dated as of October 8, 1993, between the Company and Steven
H. Newman (the "Newman Note") (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))
10.6A Amendment to the Newman Note dated as of April 30, 1996
10.7 Non-Recourse Note, dated as of October 8, 1993, between the Company and
Lawrence S. Doyle (the "Doyle Note") (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))
10.7A Amendment to the Doyle Note dated as of April 30, 1996
10.8 Non-Recourse Note, dated as of October 8, 1993, between the Company and
Frederick W. Deichmann (the "Deichmann Note") (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 33-97736))
10.8A Amendment to the Deichmann Note dated as of April 30, 1996
10.9 Non-Recourse Note, dated as of January 15, 1994, between the Company and
William G. Fanning (the "Fanning Note") (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))
10.9A Amendment to the Fanning Note dated as of April 30, 1996
10.10 Non-Recourse Note, dated as of October 8, 1993, between the Company and Robert
L. Nason (the "Nason Note") (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))
10.10A Amendment to the Nason Note dated as of April 30, 1996
10.11 Non-Recourse Note, dated as of October 8, 1993, between the Company and
Stephen S. Outerbridge (the "Outerbridge Note") (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 33-97736))
10.11A Amendment to the Outerbridge Note dated as of April 30, 1996
10.16 Chairman's Incentive Agreement, dated as of June 16, 1993, between the Company
and Steven H. Newman (incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-97736))
10.16A Amended and Restated Chairman's Incentive Agreement, dated as of November 16,
1995, between the Company and Steven H. Newman (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 33-97736))
10.17 The Company's Share Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))
10.17A The Company's Amended and Restated Share Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No.
33-97736))
10.18 The Company's Incentive Compensation Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))
10.18A The Company's Amended and Restated Incentive Compensation Plan (incorporated
by reference to the Company's Registration Statement on Form S-1 (File No.
33-97736))
10.19 Custodian Agreement, dated December 16, 1994, between Global Capital Re and
Mellon Bank, N.A., London Branch (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))
10.20 Discretionary Investment Advisory Agreement, dated October 8, 1993, between
Global Capital Re and Goldman Sachs Asset Management International, as amended
by letter dated February 28, 1994 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))
10.21 Credit Agreement, dated as of August 17, 1995, among the Company, the Lenders
named therein and The First National Bank of Chicago, as Agent (the "Credit
Agreement") (incorporated by reference to the Company's Registration Statement
on Form S-1 (File No. 33-97736))
</TABLE>
II-3
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------
<C> <S>
10.22 Amendment No. 1 to the Credit Agreement, dated as of October 27, 1995
(incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 33-97736))
10.23 Share Pledge Agreement, dated as of September 29, 1995, between the Company
and The First National Bank of Chicago, as Agent (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 33-97736))
10.24 Software License Agreement, dated October 8, 1993, between Applied Insurance
Research, Inc. and Global Capital Re (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))
10.25 The Company's Amended and Restated Nonemployee Directors Share Option Plan,
dated as of April 18, 1996
10.26 The Company's Amended and Restated 1995 Share Option Plan, dated as of April
18, 1996
10.27 Amendment No. 2 to the Credit Agreement, dated as of February 28, 1996
10.28 Form of Share Option Agreement between the Company and employees of the
Company who received grants of options pursuant to the Company's 1995 Share
Option Plan
10.29 Form of Restricted Share Agreement between the Company and employees of the
Company who received grants of Restricted Shares of the Company pursuant to
the Company's 1995 Share Option Plan
10.30 Form of Share Option Agreement between the Company and the directors of the
Company who received grants of options pursuant to the Company's Nonemployee
Directors Share Option Plan
11. Statement regarding computation of per share earnings for the fiscal year
ended September 30, 1995 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))
21. Subsidiary of the Company (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))
23.1 Consent of Maples and Calder (included in their opinion filed as Exhibit 5)
23.2 Consent of Arthur Andersen & Co.
23.3 Consent of Appleby, Spurling & Kempe
23.4 Consent of Sullivan & Cromwell (included in their opinion filed as Exhibit 8)
24 Powers of Attorney
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
The following schedules contain summary financial information extracted
from the consolidated financial statements of the Company and are qualified in
their entirety by reference to such financial statements.
<TABLE>
<CAPTION>
SCHEDULE
- ------------
<S> <C>
Schedule I Summary of Investments Other Than Investments in Related Parties at September
30, 1995
Schedule II Condensed Financial Information of Registrant
Schedule III Supplementary Insurance Information as of and for the years ended September
30, 1995 and 1994
Schedule IV Reinsurance for the years ended September 30, 1995 and 1994
Schedule VI Supplementary Information Concerning Property -- Casualty Insurance
Operations for the years ended September 30, 1995 and 1994
</TABLE>
II-4
<PAGE> 129
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (i)(A)(i) and (i)(A)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 (as amended, the "Exchange
Act") that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(5) That 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 provisions described in Item 14
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 any such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether or not such
indemnification is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
(6) That 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 a form of prospectus filed by the registrant pursuant to
II-5
<PAGE> 130
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.
(7) That for the purpose of determining any liability under the
Securities Act, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Hamilton, Bermuda, on the 21st day of
May, 1996.
GCR HOLDINGS LIMITED
By: /s/ FREDERICK W. DEICHMANN
-----------------------------------
Frederick W. Deichmann
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 21st day of May, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- --------------
<C> <S> <C>
* President, Chief Executive Officer May 21, 1996
- ------------------------------------------ and Director (Principal Executive
Lawrence S. Doyle Officer)
* Chief Financial Officer and May 21, 1996
- ------------------------------------------ Secretary (Principal Financial and
Frederick W. Deichmann Accounting Officer)
* Chairman of the Board of Directors May 21, 1996
- ------------------------------------------
Steven H. Newman
* Director May 21, 1996
- ------------------------------------------
J. Markham Green
* Director May 21, 1996
- ------------------------------------------
Alfred Lerner
* Director May 21, 1996
- ------------------------------------------
John P. McNulty
* Director May 21, 1996
- ------------------------------------------
David A. Olsen
* Director May 21, 1996
- ------------------------------------------
Joseph D. Roxe
* Director May 21, 1996
- ------------------------------------------
Jerry S. Rosenbloom
</TABLE>
II-7
<PAGE> 132
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- --------------
<C> <S> <C>
* Director May 21, 1996
- ------------------------------------------
Michael E. Satz
* Director May 21, 1996
- ------------------------------------------
Richard D. Spurling
* Director May 21, 1996
- ------------------------------------------
Donald J. Zuk
*By: /s/ FREDERICK W. DEICHMANN
- ------------------------------------------
Frederick W. Deichmann
ATTORNEY-IN-FACT
</TABLE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the United States Securities Act of 1933,
this Registration Statement has been signed below in Newark, Delaware on May 21,
1996, by the undersigned as the duly authorized representative of the Registrant
in the United States.
/s/ DONALD PUGLISI
--------------------------------------
Puglisi & Associates
By: Donald Puglisi
Title: Managing Director
II-8
<PAGE> 133
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE PAGES
-----
<S> <C> <C>
Report of Independent Public Accountants on Schedules.................. S-2
I Summary of Investments Other Than Investments in Related Parties at
September 30, 1995................................................... S-3
II Condensed Financial Information of Registrant.......................... S-4
III Supplementary Insurance Information as of and for the years ended
September 30, 1995 and 1994.......................................... S-7
IV Reinsurance for the years ended September 30, 1995 and 1994............ S-8
VI Supplementary Information Concerning Property -- Casualty Insurance
Operations for the years ended September 30, 1995 and 1994........... S-9
</TABLE>
Schedules other than those listed above are omitted for the reason that
they are not applicable.
S-1
<PAGE> 134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
TO GCR HOLDINGS LIMITED
We have audited, in accordance with generally accepted auditing procedures, the
consolidated financial statements of GCR Holdings Limited and Subsidiary as of
September 30, 1995 and 1994 and for the years then ended and have issued our
report thereon dated November 3, 1995 (included elsewhere in the Registration
Statement). Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The financial statement schedules
listed on page S-1 of the Registration Statement are the responsibility of
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not a part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN & CO.
HAMILTON, BERMUDA
NOVEMBER 3, 1995
(EXCEPT WITH RESPECT TO THE
MATTERS DISCUSSED IN NOTE 1
TO THE CONSOLIDATED FINANCIAL
STATEMENTS AS TO WHICH THE
DATE IS DECEMBER 22, 1995)
S-2
<PAGE> 135
SCHEDULE I
GCR HOLDINGS LIMITED AND SUBSIDIARY
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
-----------------------------------------------
AMOUNT AT
WHICH
SHOWN IN THE
AMORTIZED COST MARKET VALUE BALANCE SHEET
-------------- ------------ -------------
<S> <C> <C> <C>
TYPE OF INVESTMENT:
Fixed Maturities Available for Sale:
U.S. government and government
agency bonds................................ $205,517 $206,115 $ 206,115
U.S. corporate bonds.......................... 223,497 223,432 223,432
U.S. asset-backed securities.................. 55,844 55,775 55,775
-------------- ------------ -------------
Subtotal................................. 484,858 485,322 485,322
Cash and Cash Equivalents.......................... 41,490 41,490 41,490
-------------- ------------ -------------
Total Investments and Cash and Cash
Equivalents............................ $526,348 $526,812 $ 526,812
============ ========== ===========
</TABLE>
S-3
<PAGE> 136
SCHEDULE II
GCR HOLDINGS LIMITED AND SUBSIDIARY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GCR HOLDINGS LIMITED
BALANCE SHEET
(PARENT COMPANY)
SEPTEMBER 30, 1995 AND 1994
(Expressed in thousands of United States Dollars, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 5,428 $ 32
Investment in Wholly Owned Subsidiary................................ 496,209 468,408
Due from Subsidiary.................................................. -- --
Other Assets......................................................... 365 145
-------- --------
Total assets.................................................... $502,002 $468,585
========= =========
LIABILITIES
Loan payable......................................................... $142,000 $ --
Loan interest payable................................................ 1,017 --
Due to Subsidiary.................................................... 958 518
Other liabilities.................................................... 1,630 --
-------- --------
Total liabilities............................................... 145,605 518
-------- --------
SHAREHOLDERS' EQUITY
Common Shares, $0.10 par value -- authorized 50,000,000 shares issued
and outstanding at September 30, 1995 -- 22,361,600 shares and, at
September 30, 1994 -- 22,562,500 shares............................ 2,236 2,256
Additional paid-in capital........................................... 338,353 440,817
Loans to officers and employees...................................... (1,783) (2,100)
Unrealized loss on investment........................................ 464 (2,721)
Retained earnings.................................................... 17,127 29,815
-------- --------
Total shareholders' equity...................................... 356,397 468,067
-------- --------
Total liabilities and shareholders' equity................. $502,002 $468,585
========= =========
</TABLE>
S-4
<PAGE> 137
SCHEDULE II
GCR HOLDINGS LIMITED AND SUBSIDIARY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
GCR HOLDINGS LIMITED
STATEMENT OF INCOME
(PARENT COMPANY)
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------
1995 1994
-------- ---------
<S> <C> <C>
Revenues:
Investment income................................................. $ 2,962 $ 154
Realized gains, net............................................... 296 --
-------- ---------
Total revenues............................................ 3,258 154
-------- ---------
Expenses:
Organizational expenses........................................... -- 152
Interest expense.................................................. 1,964 --
Operating costs and expenses...................................... 3,254 1,316
-------- ---------
Total expenses............................................ 5,218 1,468
-------- ---------
Loss before equity in net income of wholly owned subsidiary......... (1,960) (1,314)
Equity in net income of wholly owned subsidiary..................... 92,616 31,129
-------- ---------
Net income.......................................................... 90,656 29,815
-------- ---------
Retained earnings, beginning of period............................ 29,815 0
Distribution...................................................... (103,344) --
-------- ---------
Retained earnings, end of period.................................. $ 17,127 $ 29,815
======== =========
</TABLE>
S-5
<PAGE> 138
SCHEDULE II
GCR HOLDINGS LIMITED AND SUBSIDIARY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
GCR HOLDINGS LIMITED
STATEMENT OF CASH FLOWS
(PARENT COMPANY)
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $ 90,656 $ 29,815
Less equity in net income of subsidiaries (net of distribution of
$68,000 in 1995)................................................. (24,616) (31,129)
--------- ---------
66,040 (1,314)
Adjustments to reconcile net income to cash provided by operating
activities:
Realized gains, net.............................................. (296) --
Add (deduct) changes in assets and liabilities:
Other assets.................................................. (220) (145)
Loan interest payable......................................... 1,017 --
Due to subsidiary............................................. 440 518
Other liabilities............................................. 1,630 --
--------- ---------
Net cash provided by operating activities..................... 68,611 (941)
--------- ---------
CASH FLOWS APPLIED TO INVESTING ACTIVITIES:
Contributions to subsidiary................................... -- (440,000)
Proceeds from sale of investments............................. 71,554 --
Purchases of investments...................................... (71,258) --
--------- ---------
Net cash applied to investing activities...................... 296 (440,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issue of ordinary shares........................ 20 451,241
Less: Placement costs......................................... -- (8,168)
Issued for notes receivable............................ -- (2,100)
Retirement of ordinary shares................................. (4,593) --
Repayment of notes receivable................................. 317 --
Proceeds of borrowing......................................... 142,000 --
Distribution to shareholders.................................. (201,255) --
--------- ---------
Net cash provided by financing activities..................... (63,511) 440,973
--------- ---------
Net increase in cash............................................... 5,396 32
Cash and cash equivalents, beginning of period..................... 32 --
--------- ---------
Cash and cash equivalents, end of period........................... $ 5,428 $ 32
========== ==========
</TABLE>
S-6
<PAGE> 139
SCHEDULE III
GCR HOLDINGS LIMITED AND SUBSIDIARY
SUPPLEMENTARY INSURANCE INFORMATION
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------------------------- YEAR ENDED SEPTEMBER 30, 1995
FUTURE -----------------------------------------------------------------------------------
POLICY AMORTIZATION
DEFERRED BENEFITS, BENEFITS, CLAIMS, OF DEFERRED
POLICY LOSSES, CLAIMS PREMIUM LOSSES AND POLICY OTHER
ACQUISITION AND CLAIMS UNEARNED REVENUE NET INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
COSTS EXPENSES PREMIUMS EARNED INCOME EXPENSES COSTS EXPENSES WRITTEN
----------- -------------- -------- -------- -------------- ----------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property... $10,257 $ 33,390 $61,688 $120,556 $ 32,651 $35,293 $ 17,063 $ 8,602 $136,884
=========== ============== ========== ========= ============== ================ ============ ========= ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
--------------------------------------- YEAR ENDED SEPTEMBER 30, 1994
FUTURE ----------------------------------------------------------------------------------
POLICY AMORTIZATION
DEFERRED BENEFITS, BENEFITS, CLAIMS, OF DEFERRED
POLICY LOSSES, CLAIMS PREMIUM LOSSES AND POLICY OTHER
ACQUISITION AND CLAIMS UNEARNED REVENUE NET INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
COSTS EXPENSES PREMIUMS EARNED INCOME EXPENSES COSTS EXPENSES WRITTEN
----------- -------------- -------- ------- -------------- ----------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property... $ 5,975 $ 19,705 $45,360 $56,705 $ 20,095 $25,278 $6,743 $ 5,277 $102,065
=========== ============== ========== ======== ============== ================ ============ ========= ==========
</TABLE>
S-7
<PAGE> 140
SCHEDULE IV
GCR HOLDINGS LIMITED AND SUBSIDIARY
REINSURANCE
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Property Premiums Written...... $ 102,065 $-- $ 102,065 $102,065 100%
========= ========= ========= ========= =========
Year ended September 30, 1995
Property Premiums Written...... $ 136,884 $-- $ 136,884 $136,884 100%
========= ========= ========= ========= =========
</TABLE>
S-8
<PAGE> 141
SCHEDULE VI
GCR HOLDINGS LIMITED AND SUBSIDIARY
SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
RESERVE
FOR CLAIMS AND CLAIMS EXPENSES
DEFERRED UNPAID INSURED RELATED TO
POLICY CLAIMS AND DISCOUNT, NET --------------------------
AFFILIATION WITH ACQUISITION CLAIMS IF ANY UNEARNED EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COSTS EXPENSES DEDUCTED PREMIUMS PREMIUMS INCOME YEAR YEARS
- ------------------------- ----------- ----------- ----------- -------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Subsidiary
Year ended September
30, 1995........... $10,257 $33,390 $-- $61,688 $120,556 $ 29,690 $ 29,880 $ 5,413
=========== =========== ========== ========== ========== =========== ============ ===========
Year ended September
30, 1994........... $ 5,975 $19,705 $-- $45,360 $56,705 $ 19,941 $ 25,278 $ --
=========== =========== ========== ========== ========== =========== ============ ===========
<CAPTION>
AMORTIZATION
OF DEFERRED
POLICY PAID CLAIMS
AFFILIATION WITH ACQUISITION AND CLAIMS PREMIUMS
REGISTRANT COSTS EXPENSES WRITTEN
- ------------------------- ----------- ----------- --------
<S> <<C> <C> <C>
Consolidated Subsidiary
Year ended September
30, 1995........... $17,063 $21,608 $136,884
=========== ============ ==========
Year ended September
30, 1994........... $ 6,743 $ 5,573 $102,065
=========== ============ ==========
</TABLE>
S-9
<PAGE> 142
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------
<C> <S> <C>
* 1.1 Form of Underwriting Agreement between the Company, the Selling
Shareholders and the Underwriters..........................................
1.2 Form of Indemnity Agreement between the Company and the Selling
Shareholders...............................................................
1.3 Form of Indemnity Agreement between the Company, Lawrence S. Doyle and
Frederick W. Deichmann.....................................................
3.1 Amended and Restated Memorandum of Association of the Company..............
3.2 Amended and Restated Articles of Association of the Company................
3.3 Amended and Restated Shareholders Agreement, dated as of December 18, 1995,
among the Shareholders (as defined therein) and the Company................
3.4 Registration Rights Agreement, dated December 18, 1995, between the Company
and The Goldman Sachs Group, L.P. and Johnson & Higgins....................
4 Form of Share Certificate (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))....................
5 Opinion of Maples and Calder regarding the validity of the securities
registered.................................................................
8 Opinion of Sullivan & Cromwell with respect to tax matters.................
10.1 Employment Agreement, dated as of June 16, 1993, between the Company and
Lawrence S. Doyle (the "Doyle Employment Agreement") (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No. 33-
97736))....................................................................
10.1A Amendment to the Doyle Employment Agreement, dated as of December 12,
1995.......................................................................
10.2 Employment Agreement, dated as of August 16, 1993, between the Company and
Frederick W. Deichmann (the "Deichmann Employment Agreement") (incorporated
by reference to the Company's Registration Statement on Form S-1 (File No.
33-97736)).................................................................
10.2A Amendment to the Deichmann Employment Agreement, dated as of December 12,
1995.......................................................................
10.3 Employment Agreement, dated as of January 15, 1994, between the Company and
William G. Fanning (the "Fanning Employment Agreement") (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No. 33-
97736))....................................................................
10.3A Amendment to the Fanning Employment Agreement, dated as of December 12,
1995.......................................................................
10.4 Employment Agreement, dated as of June 16, 1993, between the Company and
Robert L. Nason (the "Nason Employment Agreement") (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No. 33-
97736))....................................................................
10.4A Amendment to the Nason Employment Agreement, dated as of December 12,
1995.......................................................................
10.5 Employment Agreement, dated as of June 16, 1993, between the Company and
Stephen S. Outerbridge (the "Outerbridge Employment Agreement")
(incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-97736))...................................................
10.5A Amendment to the Outerbridge Employment Agreement, dated as of December 12,
1995.......................................................................
10.6 Non-Recourse Note, dated as of October 8, 1993, between the Company and
Steven H. Newman (the "Newman Note") (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))..........
10.6A Amendment to the Newman Note dated as of April 30, 1996
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------
<C> <S> <C>
10.7 Non-Recourse Note, dated as of October 8, 1993, between the Company and
Lawrence S. Doyle (the "Doyle Note") (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))..........
10.7A Amendment to the Doyle Note dated as of April 30, 1996
10.8 Non-Recourse Note, dated as of October 8, 1993, between the Company and
Frederick W. Deichmann (the "Deichmann Note") (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 33-97736))......
10.8A Amendment to the Deichmann Note dated as of April 30, 1996
10.9 Non-Recourse Note, dated as of January 15, 1994, between the Company and
William G. Fanning (the "Fanning Note") (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))..........
10.9A Amendment to the Fanning Note dated as of April 30, 1996
10.10 Non-Recourse Note, dated as of October 8, 1993, between the Company and
Robert L. Nason (the "Nason Note") (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))..........
10.10A Amendment to the Nason Note dated as of April 30, 1996
10.11 Non-Recourse Note, dated as of October 8, 1993, between the Company and
Stephen S. Outerbridge (the "Outerbridge Note") (incorporated by reference
to the Company's Registration Statement on Form S-1 (File No. 33-97736))...
10.11A Amendment to the Outerbridge Note dated as of April 30, 1996
10.16 Chairman's Incentive Agreement, dated as of June 16, 1993, between the
Company and Steven H. Newman (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))....................
10.16A Amended and Restated Chairman's Incentive Agreement, dated as of November
16, 1995, between the Company and Steven H. Newman (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No. 33-
97736))....................................................................
10.17 The Company's Share Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))....................
10.17A The Company's Amended and Restated Share Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-1 (File No. 33-
97736))....................................................................
10.18 The Company's Incentive Compensation Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))..........
10.18A The Company's Amended and Restated Incentive Compensation Plan
(incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-97736))...................................................
10.19 Custodian Agreement, dated December 16, 1994, between Global Capital Re and
Mellon Bank, N.A., London Branch (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))..........
10.20 Discretionary Investment Advisory Agreement, dated October 8, 1993, between
Global Capital Re and Goldman Sachs Asset Management International, as
amended by letter dated February 28, 1994 (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 33-97736))..........
10.21 Credit Agreement, dated as of August 17, 1995, among the Company, the
Lenders named therein and The First National Bank of Chicago, as Agent (the
"Credit Agreement") (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))....................
10.22 Amendment No. 1 to the Credit Agreement, dated as of October 27, 1995
(incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-97736))...................................................
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------
<C> <S> <C>
10.23 Share Pledge Agreement, dated as of September 29, 1995, between the Company
and The First National Bank of Chicago, as Agent (incorporated by reference
to the Company's Registration Statement on Form S-1 (File No. 33-97736))...
10.24 Software License Agreement, dated October 8, 1993, between Applied
Insurance Research, Inc. and Global Capital Re (incorporated by reference
to the Company's Registration Statement on Form S-1 (File No. 33-97736))...
10.25 The Company's Amended and Restated Nonemployee Directors Share Option Plan,
dated as of April 18, 1996.................................................
10.26 The Company's Amended and Restated 1995 Share Option Plan, dated as of
April 18, 1996.............................................................
10.27 Amendment No. 2 to the Credit Agreement, dated as of February 28, 1996.....
10.28 Form of Share Option Agreement between the Company and employees of the
Company who received grants of options pursuant to the Company's 1995 Share
Option Plan
10.29 Form of Restricted Share Agreement between the Company and employees of the
Company who received grants of Restricted Shares of the Company pursuant to
the Company's 1995 Share Option Plan
10.30 Form of Share Option Agreement between the Company and the directors of the
Company who received grants of options pursuant to the Company's
Nonemployee Directors Share Option Plan
11. Statement regarding computation of per share earnings for the fiscal year
ended September 30, 1995 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))....................
21. Subsidiary of the Company (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97736))....................
23.1 Consent of Maples and Calder (included in their opinion filed as Exhibit
5).........................................................................
23.2 Consent of Arthur Andersen & Co............................................
23.3 Consent of Appleby, Spurling & Kempe.......................................
23.4 Consent of Sullivan & Cromwell (included in their opinion filed as Exhibit
8).........................................................................
24 Powers of Attorney.........................................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 1.2
[Draft]
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of , 1996, is
made by and among GCR Holdings Limited, a Cayman Islands exempted limited
liability company (the "Company"), and each of the undersigned Selling
Shareholders (each a "Selling Shareholder" and together the "Selling
Shareholders").
W I T N E S S E T H:
WHEREAS, the Company and the Selling Shareholders concurrently
herewith are entering into [an underwriting agreement] [a U.S. underwriting
agreement and an international underwriting agreement], dated the date hereof
([together,] the "Underwriting Agreement[s]"), among the Company, the
representatives of the several [underwriters] [U.S. underwriters and the several
international underwriters named] in Schedule I [thereto] [to the respective
Underwriting Agreements] and the Selling Shareholders named in Schedule II
[thereto] [to the respective Underwriting Agreements] in connection with the
proposed public offering of the Shares (as defined therein); and
WHEREAS, as a condition to entering into the Underwriting
Agreement[s], each of the Company and the Selling Shareholders requires that
each of them execute an indemnity agreement in the terms set forth herein;
NOW THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Underwriting
Agreement[s]. [All references herein to any Preliminary Prospectus, Prospectus
or any amendment or supplement thereto shall be deemed to include a reference to
both the U.S. and international versions of such documents.]
2. Indemnities. (a) The Company will indemnify and hold
harmless each Selling Shareholder against any losses, claims, damages or
liabilities (or actions in respect thereof), joint or several, to which such
Selling Shareholder may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or
<PAGE> 2
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Selling Shareholder for any legal or other expenses reasonably incurred by such
Selling Shareholder in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability (or action in respect thereof) arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Selling
Shareholder expressly for use therein (it being hereby expressly acknowledged
that delivery of the Power of Attorney and the statements contained therein
(together with the information set forth in the Selling Shareholder's
Questionnaire signed and delivered to the custodian by such Selling Shareholder)
constitute (and in the absence of any such notice as is referred to in subclause
(iii) of Section 2(f) of such Power of Attorney constitute on a continuing
basis) written information furnished to the Company expressly for use in the
Registration Statement and any such Preliminary Prospectus, Prospectus or
amendment or supplement thereto).
(b) Each of the Selling Shareholders will indemnify and hold
harmless the Company and each other Selling Shareholder against any losses,
claims, damages or liabilities (or actions in respect thereof), joint or
several, to which such indemnified party may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus or the Prospectus, or
any amendment or supplement thereto,
-2-
<PAGE> 3
delivered in connection with an offer or sale during the Public Offering Period,
or in the Registration Statement or any amendment thereto at the time of any
such delivery, and in reliance upon and in conformity with written information
furnished to the Company by such indemnifying party expressly for use therein
(it being hereby expressly acknowledged that delivery of the Power of Attorney
and the statements contained therein (together with the information set forth in
the Selling Shareholder's Questionnaire signed and delivered to the custodian by
such Selling Shareholder) constitute (and in the absence of any such notice as
is referred to in subclause (iii) of Section 2(f) of such Power of Attorney
constitute on a continuing basis) written information furnished to the Company
expressly for use in the Registration Statement and any such Preliminary
Prospectus, Prospectus, amendment or supplement thereto); and will reimburse the
indemnified party for any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim as such expenses are incurred; provided, however, that the liability of
each of the Selling Shareholders pursuant to this subsection (b) shall not
exceed the product of the number of Shares (including any Optional Shares) sold
by such Selling Shareholder and the initial public offering price of the Shares
as set forth in the Public Offering Prospectus.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify such indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify an
indemnifying party of the commencement thereof, such indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party, provided that the indemnifying parties shall not be responsible for more
than one counsel for all indemnified parties (excluding any necessary local
counsel) in connection with any actions or claims arising from similar facts),
and, after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying
-3-
<PAGE> 4
party shall not be liable to such indemnified party under such subsection for
any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
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) If the indemnification provided for in this Section 2 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other hand in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party on the one hand or the indemnified party on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), no Selling
Shareholder shall be required to contribute any amount in excess of an amount
equal to the product of the number of Shares (including any Optional Shares)
sold by such Selling
-4-
<PAGE> 5
Shareholder and the initial public offering price of the shares as set forth in
the Public Offering Prospectus. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of each indemnifying party under this
Section 2 shall be in addition to any liability which such indemnifying party
may otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any indemnified party within the meaning of the
Act, to each officer and director of the Company and to each officer, director
and general partner of any Selling Shareholder or of any person who so controls
any indemnified party.
3. Survival. The respective indemnities and agreements of
the Company and the Selling Shareholders, as set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement, shall remain
in full force and effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of the Company, or any of the
Selling Shareholders, or any officer or director or controlling person of the
Company, or any controlling person of any Selling Shareholder, and shall survive
delivery of and payment for the Shares.
4. Notices. All statements, requests, notices and
agreements hereunder shall be in writing, and if to any Selling Shareholder
shall be delivered or sent by mail, telex or facsimile transmission to such
Selling Shareholder at its address set forth in Schedule II to the Underwriting
Agreement; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
5. Benefit of Agreement. This Agreement shall be binding
upon, and inure solely to the benefit of, the Company and the Selling
Shareholders and, to the extent provided in Sections 2 and 3 hereof, each person
who controls the Company or any Selling Shareholder, the officers and directors
of the Company and the officers, directors and general partners of any Selling
Shareholder or of any such person who controls the Company or any Selling
Shareholder, and their respective heirs, executors, administrators, successors
and assigns, and no other person
-5-
<PAGE> 6
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of the Shares from any Selling Shareholder shall be deemed a successor
or assign by reason merely of such purchase.
6. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS).
7. Submission to Jurisdiction. The Company irrevocably
submits to the non-exclusive jurisdiction of any New York State or Federal court
sitting in the Borough of Manhattan, The City of New York over any suit, action
or proceeding arising out of or relating to this Agreement. To the fullest
extent it may effectively do so under applicable law, the Company irrevocably
waives and agrees not to assert, by way of motion, as a defense or otherwise,
any claim that it is not subject to the jurisdiction of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
The Company agrees, to the fullest extent it may effectively do so under
applicable law, that a judgment in any suit, action or proceeding of the nature
referred to in this Section 7 brought in any such court shall be conclusive and
binding upon the Company subject to rights of appeal, as the case may be, and
may be enforced in the courts of the United States of America or the State of
New York (or any other court to the jurisdiction of which the Company is or may
be subject) by a suit upon such judgment. The Company irrevocably designates and
appoints CT Corporation System, New York, New York as its authorized agent upon
whom process may be served in any suit, action or proceeding of the nature
referred to in this Section 7 by mailing a copy thereof by registered or
certified mail, postage prepaid, return receipt requested, to the agent at its
address set forth in the Registration Statement. The Company agrees that such
service (i) shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company. Notices hereunder shall be conclusively
presumed received if evidenced by a delivery receipt furnished by the United
States Postal Service or any established commercial delivery service. Nothing in
this Section 7 shall affect the right of the Company or any Selling Shareholder
to serve process in any manner permitted by law, or limit any right to bring
proceedings against the Company or Selling Shareholder in the courts of any
jurisdiction or to enforce in any lawful
-6-
<PAGE> 7
manner a judgment obtained in one jurisdiction in any other jurisdiction.
8. Currency Indemnity. In respect of any judgment or order
given or made for any amount due hereunder by the Company or any Selling
Shareholder that is expressed and paid in currency (the "judgment currency")
other than United States dollars, the Company or such Selling Shareholder, as
the case may be, will indemnify the other party against any loss incurred by
such other party as a result of any variations between (i) the rate of exchange
at which the United States dollar amount is converted into the judgment currency
for the purpose of such judgment or order and (ii) the rate of exchange at which
such other party is able to purchase United States dollars with the amount of
the judgment currency actually received by such other party. The foregoing
indemnity shall constitute a separate and independent obligation of the Company
and the Selling Shareholders and shall continue in full force and effect
notwithstanding any such judgment or order as aforesaid. The term "rate of
exchange" shall include any reasonable premiums and costs of exchange payable in
connection with the purchase of or conversion into United States dollars.
9. Severability. The provisions of this Agreement are
severable and if any clause or provision hereof shall be held invalid or
unenforceable in whole or in part, then such invalidity or unenforceability
shall attach only to such clause or provision, or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this Agreement or any jurisdiction.
10. Headings. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purposes.
11. Counterparts. This Agreement may be executed by any
one or more of the parties hereto in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the undersigned have executed this
Indemnity Agreement as of the date first above written.
GCR HOLDINGS LIMITED
By:___________________________
Name: Lawrence S. Doyle
Title: President
THE SELLING SHAREHOLDERS
NAMED IN SCHEDULE II TO THE
UNDERWRITING AGREEMENT
By:___________________________
Name: Frederick W. Deichmann
As Attorney-in-Fact acting on
behalf of each of the Selling
Shareholders named in Schedule II
to the Underwriting Agreement
-8-
<PAGE> 1
EXHIBIT 1.3
[Draft]
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of ___________, 1996, is
made by and among GCR Holdings Limited, a Cayman Islands exempted limited
liability company (the "Company"), and Lawrence S. Doyle and Frederick W.
Deichmann (Messrs. Doyle and Deichmann are the Chief Executive Officer and Chief
Financial Officer, respectively, of the Company and are referred to herein
individually as an "Officer" and collectively as "Officers").
W I T N E S S E T H :
WHEREAS, the Company and the Selling Shareholders named
therein concurrently herewith are entering into an underwriting agreement, dated
the date hereof (the "Underwriting Agreement"), among the Company, the
representatives of the several underwriters named in Schedule I thereto and the
selling shareholders named in Schedule II thereto (the "Selling Shareholders")
in connection with the proposed public offering of the Shares (as defined
therein);
WHEREAS, a condition precedent to the execution of the
Underwriting Agreement is that each Selling Shareholder execute a Power of
Attorney and such Powers of Attorney appoint each Officer as an attorney-in-fact
for each of the Selling Shareholders (an "Attorney-in-fact"); and
WHEREAS, the Company has asked the Officers to act as
Attorneys-in-Fact and they have indicated their willingness to do so on the
condition that the Company fully indemnify them as provided herein.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to such terms in the Underwriting Agreement.
References to the Agreement shall be deemed to include the foregoing "Whereas"
clauses.
2. Indemnity. The Company will indemnify and hold harmless
each Officer against any and all losses, claims, damages and liabilities, joint
or several, to which such Officer may become subject in connection with any
<PAGE> 2
action, or any omission to act, by him in his capacity as Attorney-in-Fact. In
the event that any Officer becomes involved in any capacity in any action,
proceeding or investigation brought by or against any person (including
shareholders of the Company) in connection with any such action or omission, the
Company will periodically reimburse such Officer for his legal and other
expenses (including the cost of any investigation or preparation) incurred in
connection therewith.
If for any reason the foregoing indemnification is unavailable
to or insufficient to hold harmless an Officer then the Company shall contribute
to the amount paid or payable by such as a result of such losses, claims,
damages and liabilities (and expenses) in such proportion as is appropriate to
reflect the relative economic interests of the Company and its shareholders on
the one hand and such Officer in his capacity as Attorney-in-Fact on the other
hand in the matters referred to in this Agreement, as well as any other relevant
equitable considerations.
The obligation of the Company under this Agreement shall be in
addition to any liability or obligation which it may otherwise have, shall be
binding upon any successors, assigns or administrators of the Company and shall
inure to the benefit of the respective heirs, executors, administrators,
successors and assigns of the Officers. The Company also agrees that no Officer
shall have any liability to the Company or its shareholders for any act or
omission by him in his capacity as Attorney-in-Fact, except to the extent that
any losses, claims, damages, liabilities or expenses incurred by the Company
result from the gross negligence or bad faith of such Officer in such capacity
as Attorney-in-Fact.
3. Survival. This Agreement shall survive any termination,
completion or abandonment of the service of any Officer as Attorney-in-Fact or
as an Officer of the Company or of any transaction referred to in this
Agreement.
4. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
5. Submission to Jurisdiction. The Company irrevocably submits
to the non-exclusive jurisdiction of any New York State or Federal court sitting
in the Borough of Manhattan, The City of New York over any suit, action or
proceeding arising out of or relating to this Agreement. To the fullest extent
it may effectively do so under applicable law, the Company irrevocably waives
and agrees not to
-2-
<PAGE> 3
assert, by way of motion, as a defense or otherwise, any claim that it is not
subject to the jurisdiction of any such court in any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
The Company agrees, to the fullest extent it may effectively do so under
applicable law, that a judgment in any suit, action or proceeding of the nature
referred to in this Section 5 brought in any such court shall be conclusive and
binding upon the Company subject to rights of appeal, as the case may be, and
may be enforced in the courts of the United States of America or the State of
New York (or any other court to the jurisdiction of which the Company is or may
be subject) by a suit upon such judgment. The Company irrevocably designates and
appoints CT Corporation System, New York, New York as its authorized agent upon
whom process may be served in any suit, action or proceeding of the nature
referred to in this Section 5 by mailing a copy thereof by registered or
certified mail, postage prepaid, return receipt requested, to the agent at its
address set forth in the Registration Statement. The Company agrees that such
service (i) shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company. Notices hereunder shall be conclusively
presumed received if evidenced by a delivery receipt furnished by the United
States Postal Service or any established commercial delivery service. Nothing in
this Section 5 shall affect the right of the Company or either Officer to serve
process in any manner permitted by law, or limit any right to bring proceedings
against the Company or others in the courts of any jurisdiction or to enforce in
any lawful manner a judgment obtained in one jurisdiction in any other
jurisdiction.
6. Currency Indemnity. In respect of any judgment or order
given or made for any amount due hereunder by the Company that is expressed and
paid in currency (the "judgment currency") other than United States dollars, the
Company will indemnify the Officers against any loss incurred by such Officers
as a result of any variations between (i) the rate of exchange at which the
United States dollar amount is converted into the judgment currency for the
purpose of such judgement or order and (ii) the rate of exchange at which such
Officers are able to purchase United States dollars with the amount of the
judgment currency actually received by such Officers. The foregoing indemnity
shall constitute a separate and independent obligation of the Company and shall
continue in full force and effect
-3-
<PAGE> 4
notwithstanding any such judgment or order as aforesaid. The term "rate of
exchange" shall include any reasonable premiums and costs of exchange payable in
connection with the purchase of or conversion into United States dollars.
7. Severability. The provisions of this Agreement are
severable and if any clause or provision hereof shall be held invalid or
unenforceable in whole or in part, then such invalidity or unenforceability
shall attach only to such clause or provision, or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this Agreement or any jurisdiction.
8. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purposes.
9. Counterparts. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
IN WITNESS, WHEREOF, the undersigned have executed this
Indemnity Agreement as of the date first above written.
GCR HOLDINGS LIMITED
By:
--------------------------------
Name:
Title:
-----------------------------------
Lawrence S. Doyle
-----------------------------------
Frederick W. Deichmann
-4-
<PAGE> 1
EXHIBIT 3.1
THE COMPANIES LAW
COMPANY LIMITED BY SHARES
RESTATED MEMORANDUM OF ASSOCIATION
OF
GCR HOLDINGS LIMITED
(As Amended and Restated by Special Resolution adopted on October 30, 1995 and
effective on December 22, 1995)
1. The name of the Company is GCR HOLDINGS LIMITED.
2. The Registered Office of the Company shall be at the offices of Maples
and Calder, P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies or
at such other place as the Directors may from time to time decide.
3. The objects for which the Company is established are unrestricted and
shall include, but without limitation, the following:
(i) (a) To carry on the business of a holding company and to act as
promoters and entrepreneurs and to carry on business as financiers, capitalists,
concessionaires, merchants, brokers, traders, dealers, agents, importers and
exporters and to undertake and carry on and execute all kinds of investment,
financial, commercial, mercantile, trading and other operations.
<PAGE> 2
(b) To carry on whether as principals, agents or otherwise
howsoever the business of realtors, developers, consultants, estate agents or
managers, builders, contractors, engineers, manufacturers, dealers in or vendors
of all types of property including services.
(ii) To exercise and enforce all rights and powers conferred by or
incidental to the ownership of any shares, stock, obligations or other
securities including without prejudice to the generality of the foregoing all
such powers of veto or control as may be conferred by virtue of the holding by
the Company of some special proportion of the issued or nominal amount thereof,
to provide managerial and other executive, supervisory and consultant services
for or in relation to any company in which the Company is interested upon such
terms as may be thought fit.
(iii) To purchase or otherwise acquire, to sell, exchange, surrender, lease,
mortgage, charge, convert, turn to account, dispose of and deal with real and
personal property and rights of all kinds and, in particular, mortgages,
debentures, produce, concessions, options, contracts, patents, annuities,
licenses, stocks, shares, bonds, policies, book debts, business concerns,
undertakings, claims, privileges and choses in action of all kinds.
(iv) To subscribe for, conditionally or unconditionally, to underwrite,
issue on commission or otherwise, take, hold, deal in and convert stocks, shares
and securities of all kinds and to enter into partnership or into any
arrangement for sharing profits, reciprocal concessions or cooperation with any
person or company and to promote and aid in promoting to constitute, form or
organize any company, syndicate or partnership of any kind, for the purpose of
acquiring and undertaking any property and liabilities of the Company or of
advancing, directly or indirectly, the objects of the Company or for any other
purpose which the Company may think expedient.
<PAGE> 3
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(v) To stand surety for or to guarantee, support or secure the performance
of all or any of the obligations of any person, firm or company whether or not
related or affiliated to the Company in any manner and whether by personal
covenant or by mortgage, charge or lien upon the whole or any part of the
undertaking, property and assets of the Company, both present and future,
including its uncalled capital or by any such method and whether or not the
Company shall receive valuable consideration therefor.
(vi) To engage in or carry on any other lawful trade, business or enterprise
which may at any time appear to the Directors of the Company capable of being
conveniently carried on in conjunction with any of the aforementioned businesses
or activities or which may appear to the Directors of the Company likely to be
profitable or useful to the Company. In the interpretation of this Memorandum of
Association in general and of this Clause 3 in particular no object, business or
power specified or mentioned shall be limited or restricted by reference to or
inference from any other object, business or power, or the name of the Company,
or by the juxtaposition of two or more objects, businesses or powers and that,
in the event of any ambiguity in this clause or elsewhere in this Memorandum of
Association, the same shall be resolved by such interpretation and construction
as will widen and enlarge and not restrict the objects, businesses and powers of
and exercisable by the Company.
4. Except as prohibited or limited by the Companies Law (Revised), the
Company shall have full power and authority to carry out any object and shall
have and be capable of from time to time and at all times exercising any and all
of the powers at any time or from time to time exercisable by a natural person
or body corporate in doing in any part of
<PAGE> 4
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the world whether as principal, agent, contractor or otherwise whatever may be
considered by it necessary for the attainment of its objects and whatever else
may be considered by it as incidental or conducive thereto or consequential
thereon, including, but without in any way restricting the generality of the
foregoing, the power to make any alterations or amendments to this Memorandum of
Association and the Articles of Association of the Company considered necessary
or convenient in the manner set out in the Articles of Association of the
Company, and the power to do any of the following acts or things, viz:
to pay all expenses of and incidental to the promotion, formation and
incorporation of the Company; to register the Company to do business in any
other jurisdiction; to sell, lease or dispose of any property of the Company; to
draw, make, accept, endorse, discount, execute and issue promissory notes,
debentures, bills of exchange, bills of lading, warrants and other negotiable or
transferable instruments; to lend money or other assets and to act as
guarantors; to borrow or raise money on the security of the undertaking or on
all or any of the assets of the Company including uncalled capital or without
security; to invest monies of the Company in such manner as the Directors
determine; to promote other companies; to sell the undertaking of the Company
for cash or any other consideration; to distribute assets in specie to Members
of the Company; to make charitable or benevolent donations; to pay pensions or
gratuities or provide other benefits in cash or kind to Directors, officers,
employees, past or present and their families; to carry on any trade or business
and generally to do all acts and things which, in the opinion of the Company or
the Directors, may be conveniently or profitably or usefully acquired and dealt
with, carried on, executed or done by the Company in connection with the
business
<PAGE> 5
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aforesaid; PROVIDED that the Company shall only carry on the businesses for
which a license is required under the laws of the Cayman Islands when so
licensed under the terms of such laws.
5. The liability of each Member is limited to the amount from time to time
unpaid on such Member's shares.
6. The share capital of the Company is US$7,500,000 divided into
50,000,000 ordinary redeemable shares of a nominal or par value of US$0.10 each
with the rights attaching thereto as provided in the Articles of Association of
the Company and 25,000,000 other shares of a nominal or par value of US$0.10
each, which may be issued in any number of different classes or series and to
which such rights as may be designated in accordance with the Articles of
Association shall attach, with power for the Company insofar as is permitted by
law, to redeem or purchase any of its shares and to increase or reduce the said
capital subject to the provisions of the Companies Law (Revised) and the
Articles of Association and to issue any part of its capital, whether original,
redeemed or increased with or without any preference, priority or special
privilege or subject to any postponement of rights or to any conditions or
restrictions and so that unless the conditions of issue shall otherwise
expressly declare every issue of shares whether declared to be preference or
otherwise shall be subject to the powers hereinbefore contained.
7. If the Company is registered as exempted, its operations will be
carried on subject to the provisions of Section 192 of the Companies Law
(Revised) and, subject to the provisions of the Companies Law (Revised) and the
Articles of Association, it shall have the power to
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register by way of continuation as a body corporate limited by shares under the
laws of any jurisdiction outside the Cayman Islands and to be deregistered in
the Cayman Islands.
References herein to the Articles of Association of the
Company shall be deemed to refer to such articles as the same may be altered
from time to time. References herein to the Companies Law (Revised), or any
provision thereof, shall be deemed to refer to such law or provision, as the
case may be, as the same may be amended, or to such statutory modification or
re-enactment thereof as the same may be in force, from time to time.
<PAGE> 1
EXHIBIT 3.2
THE COMPANIES LAW
COMPANY LIMITED BY SHARES
RESTATED ARTICLES OF ASSOCIATION
OF
GCR HOLDINGS LIMITED
(As Amended and Restated by Special Resolution adopted on October 30, 1995 and
effective on December 22, 1995)
1. In these Articles Table A in the Schedule to the Statute does not apply
and, unless there be something in the subject or context inconsistent therewith,
"Affiliate" has the meaning ascribed thereto in Rule 144 promulgated
under the Securities Act.
"Articles" means these Articles of Association as originally framed or
as from time to time altered by Special Resolution and "Article" means
any particular Article hereof.
"the Auditors" means the Persons from time to time performing the
duties of auditors of the Company.
"Book Price" of any share, as of any particular date, means the book
value of such share as reflected on the balance sheet of the Company as
of the last day of the last full fiscal quarter preceding such date,
either before or after giving effect to the exercise, conversion or
exchange of all outstanding warrants, options or other rights to
acquire Ordinary Shares, as the Directors may determine.
"Business Day" means any day, other than a Saturday, a Sunday or any
day on which banks in Hamilton, Bermuda or the City of New York are
authorized or obligated by law or executive order to close.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, or any federal statute from time to time in
effect that has replaced such statute. Any reference in these Articles
to a provision of the Code or a rule or regulation promulgated
thereunder means such provision, rule or regulation as amended from
time to time or any provision of a federal law, or any
<PAGE> 2
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federal rule or regulation, from time to time in effect that has
replaced such provision, rule or regulation.
"Commencement" shall mean October 8, 1993.
"the Company" means the above named Company.
"Controlled Shares" in reference to any U.S. Person means (without
duplication):
(i) all voting shares directly or by application of the
constructive ownership rules of Sections 958(a) and
958(b) of the Code constructively owned by such U.S.
Person, and
(ii) all voting shares beneficially owned by such U.S.
Person.
For the purpose of these Articles, a Person is deemed to have
"beneficial ownership" of all shares that are owned, directly or
indirectly, by such Person, or by any group of which such Person is a
member, within the meaning of Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder, including any such shares
that would otherwise be excluded by the provisions of Section 13(d)(6)
of such statute or Rule 13d-4 promulgated thereunder. For purposes of
clauses (i) and (ii) and the last sentence of the first paragraph of
each of Articles 4(f), 6(b) and 7(c), in calculating the percentage of
the shares of the Company that a U.S. Person's total Controlled Shares
represent, such percentage shall be the higher of the percentage
determined pursuant to the constructive ownership rules stated above
and the percentage determined pursuant to Rule 13d-3 promulgated under
the Exchange Act.
"debenture" means debenture stock, mortgages, bonds and any other such
debt securities of the Company whether constituting a charge on the
assets of the Company or not.
"the Directors" means the directors for the time being of the Company.
"dividend" includes a bonus or capitalization issue of shares.
"Exchange Act" means the United States Securities Exchange Act of 1934
as amended from time to time or any federal statute from time to time
in effect that has replaced such statute. Any reference in these
Articles to a provision of the Exchange Act or a rule or regulation
promulgated thereunder means such provision, rule or regulation as
amended from time to time or any provision of
<PAGE> 3
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a federal law, or any federal rule or regulation, from time to time in
effect that has replaced such provision, rule or regulation.
"Excluded Controlled Shares" in reference to any U.S. Person (and in
reference to any other U.S. Person, if Controlled Shares of the first
U.S. Person are constructively owned by such other U.S. Person pursuant
to clause (i) of the definition of "Controlled Shares") means
Controlled Shares of such first U.S. Person that would not be
Controlled Shares of such first U.S. Person but for clause (ii) of the
definition of such term, provided that (i) such first U.S. Person is
registered under the United States federal securities laws as a broker,
dealer or investment adviser, (ii) such first U.S. Person is the
beneficial owner of such shares solely because it has discretionary
authority to vote or dispose of such shares in a fiduciary capacity on
behalf of its client who is also a beneficial owner of such shares and
(iii) the voting rights carried by such shares are not being exercised
(and the client is informed that they are not being exercised) by such
broker, dealer or adviser and are being exercised (if they are
exercised at all) by such client, and provided, further, that the
Company shall have received such assurances as it may request
confirming that such shares are Excluded Controlled Shares and may
assume that the Controlled Shares of each Member who is a U.S. Person
do not include any Excluded Controlled Shares unless such Member
otherwise notifies the Company and provides such assurances.
"Formula" has the meaning ascribed thereto in Article 40(a).
"Goldman Sachs" means Goldman, Sachs & Co. and its Affiliates and
"Goldman Sachs Person" shall mean any one of such Persons.
"Goldman, Sachs & Co." means Goldman, Sachs & Co., a limited
partnership registered in the state of New York, and its successors.
"Market Price" of any share of a class of shares listed on a United
States securities exchange or quoted in a United States securities
quotation system, as of any particular date, means the average of the
last reported sale prices of such class on such securities exchange or
in such quotation system for any ten (10) consecutive trading days
selected by the Directors during a period of thirty (30) days preceding
such date. In the event that, on any of such ten (10) consecutive
trading days, (A) there is no such last reported sale price, then, in
lieu thereof, the last reported bid price for such class on such
exchange or in such quotation system on such trading day shall be used
or (B) there is no such last reported sale price or last reported bid
price, then, in lieu thereof, the last reported sale price
<PAGE> 4
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or, if none, the last reported bid price on such securities exchange or
in such quotation system on the latest trading day (whether or not
during such thirty (30)-day period) preceding the trading day in
question for which there is such a sale or bid price shall be used;
PROVIDED that, if the number of consecutive trading days during such
thirty (30)-day period for which there are last reported sale prices is
equal to or greater than five (5) but less than ten (10), then, in lieu
of the Market Price determined as aforesaid, the Market Price may be,
if the Directors in their discretion so determine, the average of such
last sale prices for any five (5) consecutive trading days during such
thirty (30)-day period.
"Member" shall bear the meaning ascribed to it in the Statute.
"Memorandum" shall mean the Memorandum of Association of the Company as
amended from time to time.
"month" means calendar month.
"Operating Company" means Global Capital Reinsurance Limited, a company
incorporated under the laws of Bermuda.
"paid-up" means paid-up and/or credited as paid-up.
"Person" means any individual, company, corporation, firm, partnership,
trust or any other business, entity or person, whether or not
recognized as constituting a separate legal entity.
"the registered office" means the registered office for the time being
of the Company.
"Seal" means the common seal of the Company and includes every
duplicate seal.
"Secretary" includes an Assistant Secretary and any Person appointed to
perform the duties of Secretary of the Company.
"Securities Act" means the United States Securities Act of 1933 as
amended from time to time or any federal statute from time to time in
effect which has replaced such statute. Any reference in these Articles
to a provision of the Securities Act or a rule or regulation
promulgated thereunder means such provision, rule or regulation as
amended from time to time or any provision of a federal law, or any
federal rule or regulation, from time to time in effect that has
replaced such provision, rule or regulation.
<PAGE> 5
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"Share" means an ordinary redeemable share of US$0.10 in the capital of
the Company and includes a fraction of a Share.
"share" means a share of any class of shares in the capital of the
Company (including, where the context so admits, Shares) and includes a
fraction of a share.
"Special Resolution" has the meaning ascribed thereto in the Statute
and, where the context so admits, shall include such a resolution so
passed or approved by the holders of a particular class of share.
"Statute" means the Companies Law (Revised) of the Cayman Islands as
amended and every statutory modification or re-enactment thereof for
the time being in force.
"subsidiary", with respect to any Person, means a corporation more than
fifty percent (50%) (or, in the case of a wholly owned subsidiary, one
hundred percent (100%)) of the outstanding Voting Shares of which is
owned, directly or indirectly, by the Person or by one or more other
subsidiaries, or by the Person and one or more other subsidiaries.
"Unadjusted Basis", when used with respect to the aggregate voting
rights held by any Member, refers to the determination of such rights
without reference to the provisions relating to the adjustment of
voting rights contained in Article 40.
"United States 29% Shareholder" means a U.S. Person who owns, directly
or by application of the constructive ownership rules of Sections
958(a) and 958(b) of the Code, either (i) issued shares representing
more than twenty-nine percent (29%) of the total combined voting rights
attaching to the issued Shares and any issued shares of any other class
or classes of shares of the Company or (ii) more than twenty-nine
percent (29%) of the total combined value of the Shares and any other
shares of the Company, in each case determined pursuant to Section 957
of the Code.
"United States 25% Shareholder" means a U.S. Person who owns, directly
or by application of the constructive ownership rules of Sections
958(a) and 958(b) of the Code, either (i) issued shares representing
more than twenty-five percent (25%) of the total combined voting rights
attaching to the issued Shares and any issued shares of any other class
or classes of shares of the Company or (ii) more than twenty-five
percent (25%) of the total combined value of the Shares and any
<PAGE> 6
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other shares of the Company, in each case determined pursuant to
Section 957 of the Code.
"United States 10% Shareholder" means a U.S. Person who owns, directly
or by application of the constructive ownership rules of Sections
958(a) and 958(b) of the Code, issued shares representing ten percent
(10%) or more of the total combined voting rights attaching to the
issued Shares and any issued shares of any other class or classes of
shares of the Company.
"U.S. Person" means (i) an individual who is a citizen or resident of
the United States, (ii) a corporation or partnership that is, as to the
United States, a domestic corporation or partnership and (iii) an
estate or trust that is subject to U.S. Federal income tax on its
income regardless of its source.
"Voting Share" of any Person means any share in such Person conferring
voting rights on the holder thereof (other than such voting rights as
would exist solely in relation to a proposal to alter or vary the
rights attaching to such shares solely upon the future occurrence of a
contingency).
"written" and "in writing" include all modes of representing or
reproducing words in visible form.
Words importing the singular number include the plural number and
vice-versa.
Words importing the masculine gender include the feminine gender.
Words importing living persons include corporations and other Persons.
CERTIFICATES FOR SHARES
2. Shares of the Company shall be evidenced by certificates unless, in the
case of shares of any class or any particular shares, otherwise determined by
the Directors. Certificates representing shares of the Company, if any, shall be
in such form and may bear such legends (reflecting the terms of issue of the
shares thereby represented, any restrictions on transfer of such shares and any
other matters not inconsistent with these Articles) as shall be determined by
the Directors. Such certificates shall be under the Seal. All certificates for
shares of any class shall be consecutively numbered or otherwise identified and
shall specify the shares and class thereof to which they relate. The name and
address of the Person to whom shares are issued, with the number of such shares
and date of issue and whether such shares are subject to any restrictions on
transfer not applicable to all shares, whether pursuant to these Articles or as
<PAGE> 7
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otherwise determined by the Directors, shall be entered or noted in the register
of Members of the Company. All certificates surrendered to the Company for
transfer shall be cancelled and (except in circumstances described in the last
sentence of Article 13 if a certificate representing such shares has previously
been issued) no new certificate shall be issued until the former certificate for
a like number of shares shall have been surrendered and cancelled. The Directors
may authorize certificates to be issued with the Seal and authorized signatures
affixed by some method or system of mechanical process.
3. Notwithstanding Article 2, if a share certificate be defaced, lost,
destroyed or otherwise is not surrendered to the Company or any reason, it may
be renewed on payment of such sum and on such terms (if any) as to evidence and
indemnity, and the payment of the expenses incurred by the Company in
investigating evidence, as the Directors may prescribe.
ISSUE OF SHARES
4. (a) Save with the sanction of a Special Resolution or the written
consent of the holders of the Shares of each class given in accordance with
Article 9(a), Shares shall only be issued with the rights and restrictions as
provided in these Articles.
(b) Subject to the provisions, if any, in that behalf in the Memorandum
and these Articles, and to any direction that may be given by Special Resolution
and without prejudice to any special rights previously conferred on the holders
of existing shares, the Directors are authorized, without obtaining any vote or
consent of the holders of any shares of the Company unless expressly provided by
the terms of issue of such shares, subject to any limitations prescribed by law,
to provide from time to time for the issuance of other classes or series of
shares, and in accordance with applicable procedures of the Statute, to
establish the characteristics of each class or series including, without
limitation, the following:
(i) the number of shares of that class or series, which may
subsequently be increased or decreased (but not below the
number of shares of that class or series then outstanding) by
resolution of the Directors, and the distinctive designation
thereof;
(ii) the voting powers, full or limited, if any, of the series of
that class or series;
<PAGE> 8
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(iii) the rights in respect of dividends on the shares of that class
or series, whether dividends shall be cumulative and, if so,
from which date or dates and the relative rights or priority,
if any, of payment of dividends on shares of that class or
series and any limitations, restrictions or conditions on the
payment of dividends;
(iv) the relative amounts, and the relative rights or priority, if
any, of payment in respect of shares of that class or series,
which the holders of the shares of that class or shares shall
be entitled to receive upon any liquidation, dissolution or
winding up of the Company;
(v) the terms and conditions (including the price or prices, which
may vary under different conditions and at different
redemption dates), if any, upon which all or any part of the
shares of that class or series may be redeemed, and any
limitations, restrictions or conditions on such redemption;
(vi) the terms, if any, of any purchase, retirement or sinking fund
to be provided for the shares of that class or series;
(vii) the terms, if any, upon which the shares of that class or
series shall be convertible into or exchangeable for shares of
any other class, classes or series, or other securities,
whether or not issued by the Company;
(viii) the restrictions, limitations and conditions, if any, upon
issuance of indebtedness of the Company so long as any shares
of that class or series are outstanding; and
(ix) any other preferences and relative, participating, optional or
other rights and limitations not inconsistent with applicable
law or the provisions of this Article 4.
(c) Subject as aforesaid, the Directors may allot, issue, grant options
over or otherwise dispose of any shares of the Company at such terms and on such
terms as they think proper.
(d) Unless otherwise specified by the Directors, any shares which have
been called, redeemed or otherwise repurchased by the Company shall, upon their
cancellation, unless otherwise specified by the Directors, have the status of
authorized but unissued shares and may be subsequently issued for valid
consideration.
(e) Subject to the provisions, if any, in that behalf in the Memorandum
and these Articles, the Directors shall have the fullest powers permitted by the
Statute to pay all or any redemption or purchase monies in respect of any shares
out of any of the Company's funds including any amounts represented by its share
capital or share premium accounts.
<PAGE> 9
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(f) Notwithstanding the foregoing provisions of this Article 4, if the
Company issues shares, it shall only do so in a manner that it believes would
not cause, by reason of such issuance, (i) the total Controlled Shares of a U.S.
Person other than a Goldman Sachs Person to equal or exceed ten percent (10%) of
the shares of the Company, (ii) the total Controlled Shares of a Goldman Sachs
Person to equal or exceed ten percent (10%) of the shares of the Company except
with the prior written consent of Goldman, Sachs & Co. or (iii) a Goldman Sachs
Person to become or continue to be a United States 25% Shareholder, in each case
(i), (ii) and (iii) on an Unadjusted Basis. If at any time no Goldman Sachs
Person holds total Controlled Shares equal to ten percent (10%) or any higher
percentage of the shares of the Company, then the provisions of this Article
4(f) shall automatically, with no further action by any Person, terminate and
have no further effect, regardless of any subsequent change in the percentage of
shares owned by a Goldman Sachs Person.
Notwithstanding the foregoing provisions of this Article 4(f), the
Company may issue shares that would result in a Goldman Sachs Person becoming or
continuing to be a United States 25% Shareholder PROVIDED that (i) no Goldman
Sachs Person would be a United States 25% Shareholder after giving effect to
such issuance but for market-making activities engaged in by a Goldman Sachs
Person in the ordinary course of its business, (ii) after giving effect to such
issuance, no Goldman Sachs Person would be a United States 29% Shareholder and
(iii) Goldman, Sachs & Co. provides in writing to the Company such assurances as
the Company may require that no Goldman Sachs Person will be a United States 25%
Shareholder (A) for a period of 29 consecutive days or more at any time or (B)
for a period of 29 days or more during any single calendar quarter and no
Goldman Sachs Person will be a United States 29% Shareholder. In addition, the
foregoing provisions of this Article 4(f) shall not apply to any issuance of
shares to a person acting as an underwriter in the ordinary course of its
business, purchasing such shares pursuant to a purchase agreement to which the
Company is a party, for resale.
5. The Company shall maintain a register of its Members, and, subject to the
provisions of Articles 2 and 3, every Person whose name is entered as a Member
in the register of Members shall, if the Directors shall have determined to
issue certificates for shares pursuant to Article 2, be entitled without payment
to receive within two months after allotment or lodgement of transfer (or within
such other period as the conditions of issue may provide) one certificate for
all his shares or several certificates each for one or more of his shares;
PROVIDED that in respect of a share or shares held jointly by several Persons
the Company shall not be bound to issue more than one certificate and delivery
of a certificate for a share to one of the several joint holders shall be
sufficient delivery to all such holders.
<PAGE> 10
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TRANSFER OF SHARES
6. (a) The instrument of transfer of any share shall be in writing and
shall be executed by or on behalf of the transferor and the transferor shall be
deemed to remain the holder of a share until the name of the transferee is
entered in the register in respect thereof
(b) The Directors shall decline to register a transfer of shares if the
Directors have reason to believe that the effect of such transfer would be (i)
to increase the number of total Controlled Shares of any U.S. Person other than
a Goldman Sachs Person to ten percent (10%) or any higher percentage of the
shares of the Company, (ii) to increase the number of total Controlled Shares of
any Goldman Sachs Person to ten percent (10%) or any higher percentage of the
shares of the Company without the prior written consent of Goldman, Sachs & Co.
or (iii) that a Goldman Sachs Person would become or continue to be a United
States 25% Shareholder, in each case (i), (ii) and (iii) on an Unadjusted Basis.
If at any time no Goldman Sachs Person holds total Controlled Shares equal to
ten percent (10%) or any higher percentage of the shares of the Company, then
the provisions of this Article 6(b) shall automatically, with no further
action by any Person, terminate and have no further effect, regardless of any
subsequent change in the percentage of shares owned by a Goldman Sachs Person.
Notwithstanding the foregoing provisions of this Article 6(b), the
Directors shall not decline to register a transfer of shares that would result
in a Goldman Sachs Person becoming or continuing to be a United States 25%
Shareholder if (i) no Goldman Sachs Person would be a United States 25%
Shareholder after giving effect to such transfer but for market-making
activities engaged in by a Goldman Sachs Person in the ordinary course of its
business, (ii) after giving effect to such transfer no Goldman Sachs Person
would be a United States 29% Shareholder and (iii) Goldman, Sachs & Co. provides
in writing to the Company such assurances as the Company may require that no
Goldman Sachs Person will be a United States 25% Shareholder (A) for a period of
29 consecutive days or more at any time or (B) for a period of 29 days or more
during any single calendar quarter and no Goldman Sachs Person will be a United
States 29% Shareholder. In addition, the foregoing provisions of this Article
6(b) shall not apply to any transfer of shares to a person acting as an
underwriter in the ordinary course of its business, purchasing such shares
pursuant to a purchase agreement to which the Company is a party, for resale.
(c) The Directors may, in their absolute discretion, decline to
register the transfer of any shares if the Directors have reason to believe (i)
that such transfer may expose the Company, any subsidiary thereof, any Member or
any Person ceding insurance to the Company or any such subsidiary to adverse tax
or regulatory treatment in any jurisdiction or (ii) that registration of such
transfer under the Securities Act or under any blue sky or other state
securities laws or under the laws of any other jurisdiction is required and such
registration has not been duly effected (PROVIDED, however, that in this case
(ii) the Directors shall be entitled
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to request and rely on an opinion of counsel to the transferor or the
transferee, in form and substance satisfactory to the Directors, that no such
approval or consent is required and no such violation would occur, and the
Directors shall not be obligated to register any transfer absent the receipt of
such an opinion).
(d) Subject to Articles 6(b), 6(c) and 6(f) and except, in the case
of any shares other than the Shares, as may otherwise be provided by the terms
of issuance thereof, any Member may sell, assign, transfer or otherwise
dispose of shares at the time owned by it and, upon receipt of a duly executed
form of transfer in writing, the Directors shall procure the timely
registration of the same. If the Directors refuse to register a transfer for
any reason they shall notify the proposed transferor and transferee within
thirty days of such refusal.
(e) The registration of transfers may be suspended at such time and for
such periods as the Directors may from time to time determine; PROVIDED that
such registration shall not be suspended for more than forty-five days in any
period of three hundred sixty-five (365) consecutive days.
(f) The Directors may require any Member, or any Person proposing to
acquire shares of the Company, to certify or otherwise provide information in
writing as to such matters as the Directors may request for the purpose of
giving effect to Articles 4(f), 6(b) and (c) and 7(c), including as to such
Person's status as a U.S. Person, its Controlled Shares and other matters of the
kind contemplated by Article 40(b). Such request shall be made by written notice
and the certification or other information requested shall be provided to such
place and within such period (not less than ten (10) Business Days after such
notice is given unless the Directors and such Member or proposed acquiror
otherwise agree) as the Directors may designate in such request. If any Member
or proposed acquiror does not respond to any such request by the Directors as
requested, or if the Directors have reason to believe that any certification or
other information provided pursuant to any such request is inaccurate or
incomplete, the Directors may decline to register any transfer or to effect any
issuance or purchase of shares to which such request relates.
REDEMPTION AND PURCHASE OF SHARES
7. (a) Subject to the provisions of the Statute and the Memorandum, shares
may be issued on the terms that they are, or at the option of the Company or the
holder are, to be redeemed on such terms and in such manner as the Company,
before the issue of the shares, may by Special Resolution determine, and
thereafter such shares may be redeemed pursuant to their terms.
<PAGE> 12
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(b) Subject to the provisions of the Statute and the Memorandum, the
Company may purchase its own shares, including any redeemable shares, and may
make payment therefor in any manner authorized by the Statute, including out of
capital, on the following conditions and in the following manners:
(i) if such shares are of a class listed on a United States
securities exchange or approved for quotation in a United States securities
quotation system, (A) pursuant to open market transactions conducted in
accordance with the requirements of Rule 10b-18 under the Exchange Act; (B)
pursuant to a tender offer conducted in accordance with the requirements of Rule
13e-4 under the Exchange Act and at a price which is (x) no less than 90% of the
lower of the Market Price or the Book Price of such shares as of the date that
such tender offer is first publicly announced, and (y) no more than 120% of the
greater of the Market Price or the Book Price of such shares as of the date that
such tender offer is first publicly announced; or (C) pursuant to a privately
negotiated purchase transaction with one or more shareholders of the Company and
at a price which is no less than 90% of the lower of the Market Price or the
Book Price of such shares as of the date of purchase (or, if the Board so
determines, any earlier date on which the transaction is first publicly
announced) and no more than 120% of the greater of the Market Price or the Book
Price of such shares as of such date, PROVIDED that, before the Company may
accept any offer to sell or make any offer to purchase its shares pursuant to
this clause (C), the purchase price or a formula by which the price can be
determined must be approved by the Directors, a properly constituted committee
thereof or the Chief Executive Officer of the Company acting under the authority
of the Directors or a properly constituted committee thereof, and any such offer
to sell must be accepted by the Company, and any such offer to purchase must be
made by the Company, if at all, not more than ninety (90) days following such
approval and, if such offer to sell or such offer to purchase is accepted, the
transaction must be settled not more than ninety (90) days after such
acceptance; or
(ii) in satisfaction or in lieu of any dividend or
distribution payable by the Company with respect to any shares in accordance
with these Articles, PROVIDED that (A) such purchases are made at a price which
is (x) no less than 95% of the lower of the Market Price or the Book Price of
such shares as of the date of such purchase (or, if the Board so determines, any
earlier date on which the transaction is first publicly announced) and (y) no
higher than 105% of the greater of the Market Price or Book Price of such shares
as of such date, (B) such purchases are made from Members pro rata to their
holdings of such shares (or if the relevant dividend or distribution
contemplates such purchases as an alternative or option to a cash payment, pro
rata to the holdings of such shares of the Members from whom such shares are
being purchased), (C) at least ten (10) days' written notice of the shares to be
purchased and the applicable price thereof (or a formula by which such price is
to be determined) is provided to each relevant Member and (D) the payment of the
proceeds of any such purchase of shares is settled on the date and otherwise in
the manner that the relevant distribution or dividend would have been paid.
<PAGE> 13
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(iii) as regards any shares held by any Director, officer or
employee of the Company or any subsidiary thereof, on any such terms and
conditions as may be provided for or contemplated by any employment agreement
between the Company or any subsidiary thereof and such shareholder; or
(iv) on any other terms and conditions; PROVIDED that the same
shall have been authorized by ordinary resolution.
A purchase of shares in any manner provided for in this Article 7(b) shall not
preclude a purchase of shares in any other manner provided for in this Article
7(b), whether concurrently, in connection therewith or otherwise.
(c) If the Company redeems or purchases shares pursuant to this Article
7, it shall do so only in a manner it believes would not result, upon
consummation of such redemption or purchase, in (i) the number of total
Controlled Shares of any U.S. Person other than a Goldman Sachs Person, as a
percentage of the shares of the Company, increasing to ten percent (10%) or any
higher percentage, (ii) the number of total Controlled Shares of any Goldman
Sachs Person, as a percentage of the shares of the Company, increasing to ten
percent (10%) or any higher percentage without the prior written consent of
Goldman, Sachs & Co. or (iii) a Goldman Sachs Person becoming or continuing to
be a United States 25% Shareholder, in each case (i), (ii) and (iii) on an
Unadjusted Basis. If at any time no Goldman Sachs Person holds total Controlled
Shares equal to ten percent (10%) or any higher percentage of the shares of the
Company, then the provisions of this Article 7(c) shall automatically, with no
further action by any Person, terminate and have no further effect, regardless
of any subsequent change in the percentage of shares owned by a Goldman Sachs
Person.
Notwithstanding the foregoing provisions of this Article 7(c), the
Company may effect a redemption or purchase of shares that would result in a
Goldman Sachs Person becoming or continuing to be a United States 25%
Shareholder PROVIDED that (i) no Goldman Sachs Person would be a United States
25% Shareholder after giving effect to such redemption or purchase but for
market-making activities engaged in by a Goldman Sachs Person in the ordinary
course of its business, (ii) after giving effect to such redemption or purchase
no Goldman Sachs Person would be a United States 29% Shareholder and (iii)
Goldman, Sachs & Co. provides in writing to the Company such assurances as the
Company may require that no Goldman Sachs Person will be a United States 25%
Shareholder (A) for a period of 29 consecutive days or more at any time or (B)
for a period of 29 days or more during any single calendar quarter and no
Goldman Sachs Person will be a United States 29% Shareholder.
VARIATION OF RIGHTS OF SHARES
<PAGE> 14
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8. (a) If at any time the share capital of the Company 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) shall only, whether
or not the Company is being wound-up, be varied with the consent in writing of
the holders of three-fourths of the shares of the issued shares of that class,
or with the sanction of a Special Resolution passed at a general meeting of the
holders of the shares of that class.
(b) The provisions of these Articles relating to general meetings shall
apply to every general meeting of the holders of a particular class of shares
called by the Directors to meet as a separate class, and the necessary quorum
for such class meeting shall be two (2) or more Members present in person or by
proxy being the registered holders of an aggregate of at least fifty percent
(50%) of the shares of such class carrying the right to receive notice of,
attend and vote at such class meeting; PROVIDED that (i) if there is only one
(1) Member of record holding shares of such class, one (1) Member present in
person or by proxy shall constitute a quorum, and (ii) any holder of shares of
such class present in person or by proxy may demand a poll.
(c) Class meetings and class votes may be called only at the direction
of the Directors. Nothing in these Articles shall give any Member or group of
Members the right to call a class meeting or class vote.
9. The rights conferred upon the holders of the shares of any class 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 in any respect prior thereto or pari passu therewith or having rights to
act at any general meeting as a separate class.
COMMISSION ON SALE OF SHARES
10. The Company may insofar as the Statute permits pay a commission to any
Person in consideration of his subscribing or agreeing to subscribe whether
absolutely or conditionally for any shares of the Company. Such commissions may
be satisfied by the payment of cash or the allotment of fully or partly paid-up
shares or partly in one way and partly in the other. The Company may also on any
issue of shares pay such brokerage as may be lawful.
<PAGE> 15
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NON-RECOGNITION OF TRUSTS
11. No Person shall be recognized by the Company as holding any share upon
any trust and the Company shall not be bound by or be compelled in any way to
recognize (even when having notice thereof) any equitable, contingent, future or
partial interest in any share, or any interest in any fractional part of a
share, or (except only as is otherwise provided by these Articles or the
Statute) any other rights in respect of any share except an absolute right to
the entirety thereof in the registered holder.
LIEN ON SHARES
12. The Company shall have a first and paramount lien and charge on all
shares (whether fully paid-up or not) registered in the name of a Member
(whether solely or jointly with others) for all debts, liabilities or
engagements to or with the Company (whether presently payable or not) by such
Member or his estate, either alone or jointly with any other Person, whether a
Member or not, but the Directors may at any time declare any share to be wholly
or in part exempt from the provisions of this Article. The registration of a
transfer of any such share shall operate as a waiver of the Company's lien (if
any) thereon. The Company's lien (if any) on a share shall extend to all
dividends or other monies payable in respect thereof.
13. The Company may sell, in such manner as the Directors think fit, any
shares on which the Company has a lien, but no sale shall be made unless a sum
in respect of which the lien exists is then presently payable, nor until the
expiration of fourteen days after a notice in writing stating and demanding
payment of such part of the amount in respect of which the lien exists as is
presently payable, has been given to the registered holder or holders for the
time being of the share, or the Person, of which the Company has notice,
entitled thereto by reason of his death or bankruptcy. Effective upon such sale,
any certificate representing such shares prior to such sale shall become null
and void, whether or not it was actually delivered to the Company.
14. To give effect to any such sale the Directors may authorize some Person
to transfer the shares sold to the purchaser thereof. The purchaser shall be
registered as the holder of the shares comprised in any such transfer, and he
shall not be bound to see to the application of the purchase money, nor shall
his title to the shares be affected by any irregularity or invalidity in the
proceedings in reference to the sale.
<PAGE> 16
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15. The proceeds of such sale shall be received by the Company and applied
in payment of such part of the amount in respect of which the lien exists as is
presently payable and the residue, if any, shall (subject to a like lien for
sums not presently payable as existed upon the shares before the sale) be paid
to the Person entitled to the shares at the date of the sale.
TRANSMISSION OF SHARES
16. In case of the death of a Member, the survivor or survivors where the
deceased was a joint holder, and the legal personal representatives of the
deceased where he was a sole holder, shall be the only Persons recognized by the
Company as having any title to his interest in the shares, but nothing herein
contained shall release the estate of any such deceased holder from any
liability in respect of any shares which had been held by him solely or jointly
with other Persons.
17. (a) Any Person becoming entitled to a share in consequence of the death
or bankruptcy or liquidation or dissolution of a Member (or in any other way
than by transfer) may, upon such evidence being produced as may from time to
time be required by the Directors and subject as hereinafter provided, elect
either to be registered himself as holder of the share or to make such transfer
of the shares to such other Person nominated by him as the deceased or bankrupt
Person could have made and to have such Person registered as the transferee
thereof, but the Directors shall, in either case, have the same right to decline
or suspend registration as they would have had in the case of a transfer of the
share by that Member before his death or bankruptcy, as the case may be.
(b) If the Person so becoming entitled shall elect to be registered
himself as holder he shall deliver or send to the Company a notice in writing
signed by him stating that he so elects.
18. A Person becoming entitled to a share by reason of the death or
bankruptcy, liquidation or dissolution of the holder (or in any other case than
by transfer) shall be entitled to the same dividends and other advantages to
which he would be entitled if he were the registered holder of the share, except
that he shall not, before being registered as a Member in respect of the share,
be entitled in respect of it to exercise any right conferred by membership in
relation to meetings of the Company; PROVIDED, however, that the Directors may
at any time give notice requiring any such Person to elect either to be
registered himself or to transfer the share and if the notice is not complied
with within ninety days the Directors may thereafter withhold payment of all
dividends, bonuses or other monies payable in respect of the share until the
requirements of the notice have been complied with.
<PAGE> 17
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AMENDMENT OF MEMORANDUM, CHANGE OF
LOCATION OF REGISTERED OFFICE & ALTERATION OF CAPITAL
19. (a) Subject to and insofar as permitted by the provisions of the
Statute, the Company may from time to time by Special Resolution alter or amend
its Memorandum and may, without restricting the generality of the foregoing:
(i) increase the share capital by such sum to be divided into
shares of such amount of, or without, nominal or par value and
with such rights, priorities and privileges annexed thereto as
the resolution shall prescribe.
(ii) consolidate and divide all or any of its share capital into
shares of larger amount than its existing shares;
(iii) by subdivision of its existing shares or any of them divide
the whole or any part of its share capital into shares of
smaller amount than is fixed by the Memorandum of Association
or into shares without nominal or par value;
(iv) cancel any shares which at the date of the passing of the
resolution have not been taken or agreed to be taken by any
Person;
(v) change its name or alter its objects.
(b) All new shares created hereunder shall be subject to the same
provisions with reference to liens, transfer, transmission and otherwise as the
shares in the original share capital.
(c) Without prejudice to Article 7 and subject to the provisions of the
Statute the Company may by Special Resolution reduce its share capital, any
capital redemption reserve fund or any share premium account.
(d) Subject to the provisions of the Statute the Company may by
resolution of the Directors change the location of its registered office.
<PAGE> 18
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CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE
20. For the purpose of determining Members entitled to notice of or to vote
at any meeting of Members or any adjournment thereof, or Members entitled to
receive payment of any dividend, or in order to make a determination of Members
for any other proper purpose, the Directors of the Company may provide that the
register of Members shall be closed for transfers for a stated period but not to
exceed in any case forty-five (45) days. If the register of Members shall be so
closed for the purpose of determining Members entitled to notice of or to vote
at a meeting of Members such register shall be so closed for at least ten (10)
days immediately preceding such meeting and the record date for such
determination shall be the date of the closure of the register of Members.
21. In lieu of or apart from closing the register of Members, the Directors
may fix in advance a date as the record date for any such determination of
Members entitled to notice of or to vote at a meeting of the Members, and, for
the purpose of determining the Members entitled to receive payment of any
dividend the Directors may, at or within 90 days prior to the date of
declaration of such dividend, fix any date (other than a prior date) as the
record date for such determination.
22. If the register of Members is not so closed and no record date is fixed
for the determination of Members entitled to notice of or to vote at a meeting
of Members or Members entitled to receive payment of a dividend, the date on
which notice of the meeting is mailed or the date on which the resolution of the
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of Members. When a determination of Members
entitled to vote at any meeting of Members has been made as provided in this
section, such determination shall apply to any adjournment thereof.
GENERAL MEETING
23. (a) The Company shall in each year of its existence (beginning in 1996)
hold an annual general meeting and may at any time hold an extraordinary general
meeting, and in each case shall specify the meeting as such in the notices
calling it. Each annual or extraordinary general meeting shall be held at such
time and place as the Directors shall appoint.
(b) At these annual general meetings the report of the Directors (if
any) shall be presented, and the Directors to be elected at that meeting shall
be elected.
24. Members shall not be entitled to call an annual or extraordinary
general meeting of the Company or to call any vote of Members. Members may not
act by written consent unless the Directors request them to do so.
<PAGE> 19
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NOTICE OF GENERAL MEETINGS
25. At least ten Business Days' notice shall be given of an annual general
meeting or any other general meeting. Every notice shall be exclusive of the day
on which it is given or deemed to be given and of the day for which it is given
and shall specify the place, the day and the hour of the meeting and the general
nature of the business and shall be given in manner hereinafter mentioned or in
such other manner, if any, as may be prescribed by the Company; PROVIDED that a
general meeting of the Company shall, whether or not the notice specified in
this regulation has been given, be deemed to have been duly convened if it is so
agreed:
(a) in the case of a general meeting called as an annual general
meeting by all the Members entitled to attend and vote thereat
or their proxies; and
(b) in the case of any other general meeting by a majority in
number of the Members having a right to attend and vote at the
meeting, being a majority together holding not less than a
majority of the combined voting power of the shares carrying
such a right, or their proxies.
26. The accidental omission to give notice of a general meeting to, or the
non-receipt of notice of a meeting by any Person entitled to receive notice
shall not, per se, invalidate the proceedings of that meeting.
PROCEEDINGS AT GENERAL MEETINGS
27. No business shall be transacted at any general meeting unless a quorum
of Members is present at the time when the meeting proceeds to business. Two (2)
or more Members present in person or by proxy, being the registered holders of
an aggregate of at least fifty percent (50%) of the combined voting power of the
shares carrying the right to receive notice of, attend and vote at such meeting,
shall be a quorum; PROVIDED, that if there is only one (1) Member of record, one
(1) Member present in person or by proxy shall constitute a quorum.
28. Adoption of an ordinary resolution shall require the affirmative vote
of a majority of the combined voting power of such shares as, carrying the right
to do so, are voted in person or by proxy at any general meeting at which the
required quorum is present in person or by proxy, voting together as a single
class.
29. A Member may nominate persons for election as Directors only at a
general meeting of Members duly called by the Directors for the election of
Directors. In any such case,
<PAGE> 20
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written notice of such Member's intent to make such a nomination must be given
and received by the Secretary of the Company at the principal executive offices
of the Company in Bermuda or at such other place as the Directors may from time
to time designate as the principal executive offices of the Company not later
than (i) with respect to such an annual general meeting, sixty (60) days prior
to the anniversary date of the immediately preceding annual general meeting, and
(ii) with respect to such an extraordinary general meeting, the close of
business on the tenth (10th) day following the date on which notice of such
meeting is first sent or given to Members. Each such notice by a Member shall
describe the nomination in sufficient detail for a nomination to be summarized
on the agenda for the meeting and shall set forth (i) the name and address, as
it appears on the books of the Company, of the Member who intends to make the
nomination; (ii) a representation that the Member is a holder of record of
shares of the Company entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to present such nomination; and (iii) the
class and number of shares of the Company which are beneficially owned by the
Member. In addition, the notice shall set forth: (i) the name and address of any
person to be nominated; (ii) a description of all arrangements or understandings
between the Member and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the Member; (iii) such other information regarding such nominee proposed
by such Member as would be required to be included in a proxy statement filed
pursuant to Regulation 14A under the Exchange Act, whether or not the Company is
then subject to such regulation; and (iv) the consent of each nominee to serve
as a Director of the Company, if so elected. The Chairman of the annual or
extraordinary general meeting shall, if the facts warrant, refuse to acknowledge
a nomination not made in compliance with the foregoing procedure, and any such
nomination not properly brought before the meeting shall not be considered.
30. If within one hour after the time appointed for the meeting a quorum is
not present, the meeting shall stand adjourned to the same day in the next week
at the same time and place or, if the Directors determine that such day, time or
place for a meeting is impractical, to such other day and time (not more than
three weeks after the appointed date for the meeting) or such other place as the
Directors may determine and if at the adjourned meeting a quorum is not present
within one hour from the time appointed for the meeting the Members present
shall be a quorum.
31. The Chairman, if any, of the Board of Directors shall preside as
Chairman at every general meeting of the Company, or if there is no such
Chairman, or if he shall not be present within thirty (30) minutes after the
time appointed for the holding of the meeting, or is unwilling to act, the
Directors present shall elect one of their number to be Chairman of the meeting.
<PAGE> 21
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32. If at any general meeting no Director is willing to act as Chairman or
if no Director is present within thirty (30) minutes after the time appointed
for holding the meeting, the Members present shall choose one of their number to
be Chairman of the meeting.
33. The Chairman may, with the consent of any general meeting duly
constituted hereunder, and shall if so directed by the meeting, adjourn the
meeting from time to time and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left unfinished at
the meeting from which the adjournment took place. When a general meeting is
adjourned for thirty (30) days or more, notice of the adjourned meeting shall be
given as in the case of an original meeting; save as aforesaid it shall not be
necessary to give any notice of an adjournment or of the business to be
transacted at an adjourned general meeting.
34. At any general meeting a resolution put to the vote of the meeting
shall be decided on a show of hands unless a poll is, before or on the
declaration of the result of the show of hands, demanded by the Chairman or any
other Member present in person or by proxy.
35. Unless a poll be so demanded a declaration by the Chairman that a
resolution 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 the Company's
minute book containing the minutes of the proceedings of the meeting shall be
conclusive evidence of that fact without proof of the number or proportion of
the votes recorded in favor of or against such resolution.
36. The demand for a poll may be withdrawn.
37. Except as provided in Article 39, if a poll is duly demanded it shall
be taken in such manner as the Chairman directs and the result of the poll shall
be deemed to be the resolution of the general meeting at which the poll was
demanded.
38. In the case of an equality of votes, whether on a show of hands or on a
poll, the Chairman of the general meeting at which the show of hands takes place
or at which the poll is demanded, shall be entitled to a second or casting vote.
39. A poll demanded on the election of a Chairman or on a question of
adjournment shall be taken forthwith. A poll demanded on any other question
shall be taken at such time as the Chairman of the general meeting directs and
any business other than that upon which a poll has been demanded or is
contingent thereon may be proceeded with pending the taking of the poll.
<PAGE> 22
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VOTES OF MEMBERS
40. (a) Subject to any rights or restrictions for the time being attached
to any class or classes of shares, on a show of hands every Member of record
present in person or by proxy at a general meeting shall have one vote and on a
poll every Member of record present in person or by proxy shall have one vote
for each voting share registered in his name in the register; PROVIDED that,
subject to the following provisions of this Article 40, if and for so long as
the number of issued Controlled Shares (other than any Excluded Controlled
Shares) of any U.S. Person would constitute ten percent (10%) or more of the
total combined voting rights attaching to the issued shares of the Company
(calculated after giving effect to any prior reduction in voting rights
attaching to shares of other U.S. Persons as provided in this Article 40), each
such issued Controlled Share (other than any such Excluded Controlled Share),
regardless of the identity of the registered holder thereof, shall confer only a
fraction of a vote as determined by the following formula (the "Formula"):
(T - C) / (9.1 x C)
Where: "T" is the aggregate number of votes conferred by all the
issued voting shares immediately prior to that application of
the Formula with respect to such issued Controlled Shares,
adjusted to take into account each reduction in such aggregate
number of votes that results from a prior reduction in the
exercisable votes conferred by any issued Controlled Shares
pursuant to Article 40(d) as at the same date;
"C" is the number of issued Controlled Shares (other than any
Excluded Controlled Shares) attributable to such U.S. Person.
(b) The Directors may, by notice in writing, require any Member to
provide within not less than ten Business Days, complete and accurate
information to the registered office or such other place as the Directors may
designate in respect of any or all of the following matters:
(i) the number of voting shares in which such Member is legally or
beneficially interested;
(ii) the Persons who are beneficially interested in voting shares
in respect of which such Member is the registered holder;
(iii) the relationship, association or affiliation with such Member
with any other Member or Person whether by means of common
control or ownership or otherwise; or
<PAGE> 23
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(iv) any other facts or matters which the Directors may consider
relevant to the determination of the number of Controlled
Shares attributable to any Person.
(c) If any Member does not respond to any notice given pursuant to
Article 40(b) above within the time specified therein or the Directors shall
have reason to believe that any information provided in relation thereto is
incomplete or inaccurate, the Directors may determine that the votes attaching
to any voting shares registered in the name of such Member shall be disregarded
for all purposes until such time as a response (or additional response) to such
notice reasonably satisfactory to the Directors has been received as specified
therein.
(d) The Formula shall be applied successively as many times as may be
necessary to ensure that no Person shall be a United States 10% Shareholder at
any time. For the purposes of determining the votes exercisable by Members as at
any date, the Formula shall be applied first to the votes of issued Controlled
Shares (other than any Excluded Controlled Shares) attributable to the U.S.
Person to whom the greatest number of total Controlled Shares (other than any
Excluded Controlled Shares) are attributed and successively to the issued
Controlled Shares (other than any Excluded Controlled Shares) of other U.S.
Persons in declining order of the number of total Controlled Shares (other than
any Excluded Controlled Shares) attributable to them, in each case calculations
being made on the basis of the aggregate number of votes conferred by the issued
voting shares (PROVIDED that the order in which the Formula is applied
successively with respect to different Members shall be determined on the basis
of total Controlled Shares (other than any Excluded Controlled Shares) as
aforesaid) as at such date as reduced by the prior application of the Formula to
any larger number of issued Controlled Shares (other than any Excluded
Controlled Shares) as at such date.
(e) Notwithstanding the provisions of Articles 40(a) and 40(b) above,
having applied the provisions thereof as best as they consider reasonably
practicable, the Directors may make such final adjustments to the aggregate
number of votes attaching to the voting shares of any Member that they consider
fair and reasonable in all the circumstances to ensure that no Person shall be a
United States 10% Shareholder at any time.
41. In the case of joint holders of record 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.
42. A Member of unsound mind, or in respect of whom an order has been made
by any court, having jurisdiction in lunacy, may vote, whether on a show of
hands or on a poll, by his committee, receiver, curator bonis, or other Person
in the nature of a committee, receiver or curator bonis appointed by that court,
and any such committee, receiver, curator bonis or other Persons may vote by
proxy.
<PAGE> 24
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43. No Member shall be entitled to vote at any general meeting unless he is
registered as a shareholder of the Company on the record date for such meeting
nor unless all calls or other sums presently payable by him in respect of shares
in the Company have been paid.
44. No objection shall be raised to the qualification of any voter except
at the general meeting or adjourned general meeting at which the vote objected
to is given or tendered and every vote not disallowed at such general meeting
shall be valid for all purposes. Any such objection made in due time shall be
referred to the Chairman of the general meeting whose decision shall be final
and conclusive.
45. On a poll or on a show of hands votes may be given either personally or
by proxy.
PROXIES
46. The instrument appointing a proxy shall be in writing and shall be
executed under the hand of the appointor or of his attorney duly authorized in
writing, or, if the appointor is a corporation under the hand of an officer or
attorney duly authorized in that behalf. A proxy need not be a Member of the
Company.
47. The instrument appointing a proxy shall be deposited at the registered
office of the Company or at such other place as is specified for that purpose in
the notice convening the meeting no later than the time for holding the meeting,
or adjourned meeting; provided that the Chairman of the Meeting may at his
discretion direct that an instrument of proxy shall be deemed to have been duly
deposited upon receipt of telex, cable or facsimile confirmation from the
appointer that the instrument of proxy duly signed is in the course of
transmission to the Company.
48. The instrument appointing a proxy may be in any usual or common form
and may be expressed to be for a particular meeting or any adjournment thereof,
generally until revoked or irrevocable. An instrument appointing a proxy shall
be deemed to include the power to demand or join or concur in demanding a poll.
49. A vote given in accordance with the terms of an instrument of proxy
shall be valid notwithstanding the previous death or insanity of the principal
or revocation of the proxy or of the authority under which the proxy was
executed, or the transfer of the share in respect of which the proxy is given;
PROVIDED that no intimation in writing of such death, insanity, revocation or
transfer as aforesaid shall have been received by the Company at the registered
office before the commencement of the general meeting, or adjourned meeting at
which it is sought to use the proxy.
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50. Any corporation which is a Member of record of the Company may in
accordance with its articles of association or other analogous governing
instruments or in the absence of such provision by resolution of its Directors
or other governing body authorize such Person as it thinks fit to act as its
representative at any meeting of the Company or of any class of Members of the
Company, and the Person so authorized shall be entitled to exercise the same
powers on behalf of the corporation which he represents as the corporation could
exercise if it were an individual Member of record of the Company.
51. Shares in its own capital belonging to the Company or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting
and shall not be counted in determining the total number of outstanding shares
at any given time.
DIRECTORS
52. (a) There shall be a Board of Directors consisting of not less than
three (3) or more than twenty (20) persons; PROVIDED, however, that the Company
may from time to time by ordinary resolution increase or decrease the limits in
the number of Directors. The Directors shall have the exclusive power and right
to set the exact number of Directors within such limits from time to time by
resolution adopted by the vote of a majority of the Directors present at a
meeting at which a quorum is present, or by unanimous written consent of the
Directors. The Directors shall be subject to election at each annual general
meeting of the shareholders, and the term of each Director shall be one year
(subject to the first sentence of Article 52(b)). Successors to Directors shall
be elected for one-year terms. If the number of Directors is decreased by
resolution of the Directors pursuant to this Article 52, in no case shall that
decrease shorten the term of any incumbent Director.
(b) A Director shall hold office until the conclusion of the annual
general meeting for the year in which his or her term expires and until his or
her successor shall be elected or appointed and shall qualify, subject, however,
to prior death, resignation, retirement or removal from office. Any newly
created directorship resulting from an increase in the number of Directors and
any other vacancy on the Board of Directors, however caused, may be filled by a
majority of the Directors then in office, although less than a quorum, or by a
sole remaining Director (unless the vacancy is filled by the Members pursuant to
Article 52(c)). Any Director elected by one or more Directors to fill a newly
created directorship or other vacancy shall hold office until the next
succeeding annual general meeting of Members and until his or her successor
shall have been elected or appointed and qualified.
(c) One or more or all of the Directors of the Company may be removed
only by ordinary resolution of the Members, but only for wilful neglect or
default. The Members shall have the power to appoint another person in place of
such a removed Director, and in default
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of such appointment the vacancy arising upon the removal of a Director from
office may be filled as a casual vacancy. In the case of any other vacant
directorship, the Members may elect a Director to fill such vacancy, but only if
the Directors first convene a general meeting for such purpose.
(d) Advance notice of nominations for the election of Directors, other
than nominations by the Directors or a committee thereof, shall be given to the
Company in the manner provided in Article 29.
(e) Notwithstanding the foregoing, whenever the holders of any one or
more classes of shares of the Company shall have the right, voting separately by
class, to elect Directors at any annual or extraordinary general meeting of
Members, the election, term of office, filling of vacancies and other features
of such directorships shall be governed by the provisions of these Articles,
including and subject to any applicable resolutions of the Directors adopted
pursuant to Article 4 hereof.
(f) A resolution for the appointment of two or more persons as
Directors by a single resolution shall not be moved at any general meeting
unless a resolution that it shall be so moved has first been agreed to by the
meeting without any vote being given against it; and any resolution moved in
contravention of this provision shall be void.
53. The remuneration to be paid to the Directors shall be such remuneration
as the Directors shall determine. Such remuneration shall be deemed to accrue
from day to day. The Directors shall also be entitled to be paid their
travelling, hotel and other expenses properly incurred by them in going to,
attending and returning from meetings of the Directors, or any committee of the
Directors, or general meetings of the Company, or otherwise in connection with
the business of the Company, or to receive a fixed allowance in respect thereof
as may be determined by the Directors from time to time, or a combination partly
of one such method and partly the other.
54. The Directors may by resolution award special remuneration to any
Director of the Company undertaking any special work or services for, or
undertaking any special mission on behalf of, the Company other than his
ordinary routine work as a Director. Any fees paid to a Director who is also
counsel or solicitor to the Company, or otherwise serves it in a professional
capacity shall be in addition to his remuneration as a Director.
55. A Director or alternate Director may hold any other office or place of
profit under the Company (other than the office of Auditor) in conjunction with
his office of Director for such period and on such terms as to remuneration and
otherwise as the Directors may determine.
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56. A Director or alternate Director may act by himself or his firm in a
professional capacity for the Company and he or his firm shall be entitled to
remuneration for professional services as if he were not a Director or alternate
Director.
57. A shareholding qualification for Directors may be fixed by the Company
in general meeting, but unless and until so fixed no qualification shall be
required.
58. A Director or alternate Director of the Company may be or become a
Director or other Officer of or otherwise interested in any company promoted by
the Company or in which the Company may be interested as shareholder or
otherwise and no such Director or alternate Director shall be accountable to the
Company for any remuneration or other benefits received by him as a Director or
Officer of, or from his interest in, such other company.
59. No Person shall be disqualified from the office of Director or
alternate Director or prevented by such office from contracting with the
Company, either as vendor, purchaser or otherwise, nor shall any such contract
or any contract or transaction entered into by or on behalf of the Company in
which any Director or alternate Director shall be in any way interested be or be
liable to be avoided, nor shall any Director or alternate Director so
contracting or being so interested be liable to account to the Company for any
profit reprised by any such contract or transaction by reason of such Director
holding office or of the fiduciary relation thereby established. A Director (or
his alternate Director in his absence) shall be at liberty to vote in respect of
any contract or transaction in which he is so interested as aforesaid; PROVIDED,
however, that the nature of the interest of any Director or alternate Director
in any such contract or transaction shall be disclosed by him or the alternate
Director appointed by him at or prior to its consideration and any vote thereon.
60. A general notice that a Director or alternate Director is a shareholder
of any specified firm or company and is to be regarded as interested in any
transaction with such firm or company shall be sufficient disclosure under
Article 59 and after such general notice it shall not be necessary to give
special notice relating to any particular transaction.
ALTERNATE DIRECTORS
61. Subject to the exception contained in Article 69, a Director who
expects to be unable to attend Directors' meetings because of absence, illness
or otherwise may appoint any Person to be an alternate Director to act in his
stead and such appointee whilst he holds office as an alternate Director shall,
in the event of absence therefrom of his appointor, be entitled to attend
meetings of the Directors and to vote thereat and to do, in the place and stead
of his appointor, any other act or thing which his appointor is permitted or
required to do by virtue of his being a Director as if the alternate Director
were the appointor, other than appointment
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of an alternate to himself, and he shall ipso facto vacate office if and when
his appointor ceases to be a Director or removes the appointee from office. Any
appointment or removal under this Article shall be effected by notice in writing
under the hand of the Director making the same. An alternate Director shall be
considered a Director for purposes of Article 107 hereof, and any rights an
alternate Director may have under Article 107 in respect of any act or omission
occurring during his appointment shall survive any termination of his
appointment.
POWERS AND DUTIES OF DIRECTORS
62. The business of the Company shall be managed by the Directors who may
pay all expenses incurred in promoting, registering and setting up the Company,
and may exercise all such powers of the Company as are not, from time to time by
the Statute, or by these Articles, or such regulations, being not inconsistent
with the aforesaid, as may be prescribed by the Company in general meeting,
required to be exercised by the Company in general meeting; PROVIDED, however,
that no regulations made by the Company in general meeting shall invalidate any
prior act of the Directors which would have been valid if that regulation had
not been made.
63. The Directors may from time to time and at any time by powers of
attorney appoint any company, firm, Person or body of Persons, whether nominated
directly or indirectly by the Directors, to be the attorney or attorneys of the
Company for such purpose and with such powers, authorities and discretions (not
exceeding those vested in or exercisable by the Directors under these Articles)
and for such period and subject to such conditions as they may think fit, and
any such powers of attorney may contain such provisions for the protection and
convenience of Persons dealing with any such attorneys as the Directors may
think fit and may also authorize any such attorney to delegate all or any of the
powers, authorities and discretions vested in him.
64. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for monies paid to the Company shall be
signed, drawn, accepted, endorsed or otherwise executed as the case may be in
such manner as the Directors shall from time to time by resolution determine.
65. The Directors shall cause minutes to be made in books provided for the
purpose:
(a) of all appointments of officers made by the Directors;
(b) of the names of the Directors (including those represented
thereat by an alternate or by proxy) present at each meeting
of the Directors and of any committee of the Directors; and
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(c) of all resolutions and proceedings at all meetings of the
Company and of the Directors and of committees of Directors.
66. The Directors on behalf of the Company may pay a gratuity or pension or
allowance on retirement to any Director who has held any other salaried office
or place of profit with the Company or to his widow or dependents and may make
contributions to any fund and pay premiums for the purchase or provision of any
such gratuity, pension or allowance.
67. The Directors 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 to issue debentures, debenture stock and other
securities whether outright or as security for any debt, liability or obligation
of the Company or of any third party.
MANAGEMENT
68. (a) The Directors may from time to time provide for the management of
the affairs of the Company in such manner as they shall think fit and the
provisions contained in the three next following paragraphs shall be without
prejudice to the general powers conferred by this paragraph.
(b) The Directors from time to time and at any time may establish any
committees, local boards or agencies for managing any of the affairs of the
Company and may appoint any Persons to be members of such committees or local
boards or any managers or agents and may fix their remuneration.
(c) The Directors from time to time and at any time may delegate to any
such committee, local board, manager or agent any of the powers, authorities and
discretions for the time being vested in the Directors and may authorize the
members for the time being of any such local board, or any of them to fill up
any vacancies therein and to act notwithstanding vacancies and any such
appointment or delegation may be made on such terms and subject to such
conditions as the Directors may think fit and the Directors may at any time
remove any Person so appointed and may annul or vary any such delegation, but no
Person dealing in good faith and without notice of any such annulment or
variation shall be affected thereby.
(d) Any such delegates as aforesaid may be authorized by the Directors
to subdelegate all or any of the powers, authorities, and discretions for the
time being vested in them.
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CHIEF EXECUTIVE OFFICER
69. The Directors may, from time to time, appoint a Chief Executive Officer
for such term and at such remuneration (whether by way of salary, or commission,
or participation in profits, or partly in one way and partly in another) as they
may think fit. The Directors may entrust to and confer upon any Chief Executive
Officer who is also a Director (other than an alternate Director) any of the
powers exercisable by them upon such terms and conditions and with such
restrictions as they may think fit, either collaterally with or to the exclusion
of their own powers, and may from time to time revoke, withdraw, alter or vary
all or any of such powers; provided that any such power of the Directors so
entrusted and conferred shall automatically terminate, with no further action by
any Person, when such officer ceases to be a Director.
PROCEEDINGS OF DIRECTORS
70. Except as otherwise provided by these Articles, the Directors shall
meet together for the despatch of business, convening, adjourning and otherwise
regulating their meetings as they think fit. Questions arising at any meeting
shall be decided by a majority of votes of the Directors and alternate Directors
present at a meeting at which there is a quorum, the vote of an alternate
Director not being counted if his appointor be present at such meeting. In case
of an equality of votes, the Chairman shall have a second or casting vote.
71. A Director or alternate Director may, and the Secretary on the
requisition of a Director or alternate Director shall, at any time summon a
meeting of the Directors by at least two days' notice in writing to every
Director and alternate Director which notice shall set forth the general nature
of the business to be considered unless notice is waived by all the Directors
(or their alternates) either at, before or after the meeting is held; PROVIDED
that if notice is given in person, by cable, telex or telecopy the same shall be
deemed to have been given on the day it is delivered to the Directors or
transmitting organization as the case may be. The provisions of Article 26 shall
apply mutatis mutandis with respect to notices of meetings of Directors.
72. The quorum necessary for the transaction of the business of the
Directors shall be a majority of the Directors then in office, present in person
or represented by proxy, but not less than two.
73. The continuing Directors may act notwithstanding any vacancy in their
body, but if and so long as their number is reduced below the number fixed by or
pursuant to these Articles as the necessary quorum of Directors the continuing
Directors or Director may act for the purpose of increasing the number of
Directors to that number to the extent that they are
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empowered so to do, or of summoning a general meeting of the Company, but for no
other purpose.
74. The Directors may elect a Chairman of their Board and determine the
period for which he is to hold office; but if no such Chairman is elected, or if
at any meeting the Chairman is not present within five minutes after the time
appointed for holding the same, the Directors present may choose one of their
number to be Chairman of the meeting.
75. The Directors may delegate any of their powers to committees consisting
of such member or members of the Board of Directors (including alternate
Directors in the absence of their appointors) as they think fit; any committee
so formed shall in the exercise of the powers so delegated conform to any
regulations that may be imposed on it by the Directors.
76. A committee may meet and adjourn as it thinks proper. Questions arising
at any meeting shall be determined by a majority of votes of the members
present, and in the case of an equality of votes the Chairman shall have a
second or casting vote.
77. All acts done by any meeting of the Directors or of a committee of
Directors (including any Person acting as an alternate Director) shall,
notwithstanding that it be afterwards discovered that there was some defect in
the appointment of any Director or alternate Director, or that they or any of
them were disqualified, be as valid as if every such Person had been duly
appointed and qualified to be a Director or alternate Director as the case may
be.
78. Members of the Board of Directors or of any committee thereof may
participate in a meeting of the Board or of such committee by means of
conference telephone or similar communications equipment by means of which all
Persons participating in the meeting can hear each other and participation in a
meeting pursuant to this provision shall constitute presence in Person at such
meeting. A resolution in writing (in one or more counterparts), signed by all
the Directors for the time being or all the members of a committee of Directors
(an alternate Director being entitled to sign such resolution on behalf of his
appointor), shall be as valid and effectual as if it had been passed at a
meeting of the Directors or committee as the case may be duly convened and held.
79. (a) A Director may be represented at any meetings of the Board of
Directors by a proxy appointed by him in which event the presence or vote of the
proxy shall for all purposes be deemed to be that of the Director.
(b) The provisions of Articles 46-49 shall mutatis mutandis apply to
the appointment of proxies by Directors.
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VACATION OF OFFICE OF DIRECTOR
80. The office of a Director shall be vacated:
(a) if he gives notice in writing to the Company that he resigns
the office of Director;
(b) if he absents himself (without being represented by proxy or
an alternate Director appointed by him) from three consecutive
meetings of the Board of Directors without special leave of
absence from the Directors, and they pass a resolution that he
has by reason of such absence vacated office;
(c) if he dies, becomes bankrupt or makes any arrangement or
composition with his creditors generally;
(d) if he is found a lunatic or becomes of unsound mind;
(e) if he is removed or retires in accordance with the provisions
of Article 52.
PRESUMPTION OF ASSENT
81. A Director of the Company who is present at a meeting of the Board of
Directors at which action on any Company matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
Minutes of the meeting or unless he shall file his written dissent from such
action with the Person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to such
Person immediately after the adjournment of the meeting. Such right to dissent
shall not apply to a Director who voted in favor of such action.
SEAL
82. The Seal shall only be used by the authority of the Directors or of a
committee of the Directors authorized by the Directors in that behalf and every
instrument to which the Seal has been affixed shall be signed by one Person who
shall be either a Director or the Secretary or Secretary-Treasurer or some
Person appointed by the Directors for the purpose; PROVIDED that the Company may
have for use in any place or places outside the Cayman Islands, a duplicate seal
or seals each of which shall be a facsimile of the Common Seal of the Company
and, if the Directors so determine, with the addition on its face of the name of
every place where it is to be used; and PROVIDED further that a Director,
Secretary or other officer or representative or attorney may without further
authority of the Directors affix the Seal of the
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Company over his signature alone to any document of the Company required to be
authenticated by him under Seal or to be filed with the Registrar of Companies
in the Cayman Islands or elsewhere wheresoever.
OFFICERS
83. The Company may have a President and shall have a Secretary or
Secretary-Treasurer, appointed by the Directors who may also from time to time
appoint such other officers as they consider necessary, all for such terms, at
such remuneration and to perform such duties, and subject to such provisions as
to disqualification and removal, as the Directors from time to time prescribe.
DIVIDENDS, DISTRIBUTION AND RESERVE
84. Subject to the Statute, the Directors may from time to time declare
dividends (including interim dividends) and distributions on shares of the
Company outstanding and authorize payment of the same out of the funds of the
Company lawfully available therefor.
85. The Directors may, before declaring any dividends or distributions, set
aside such sums as they think proper as a reserve or reserves which shall at the
discretion of the Directors, be applicable for any purpose of the Company and
pending such application may, at the like discretion, be employed in the
business of the Company.
86. No dividend or distribution shall be payable except out of the profits
of the Company, realized or unrealized or out of the share premium account or as
otherwise permitted by the Statute.
87. Subject to the rights of Persons, if any, entitled to shares with
special rights as to dividends or distributions, if dividends or distributions
are to be declared on a class of shares they shall be declared and paid
according to the amounts paid or credited as paid on the shares of such class
outstanding on the record date for such dividend or distribution as determined
in accordance with these Articles but no amount paid or credited as paid on a
share in advance of calls shall be treated for the purpose of this Article as
paid on the share.
88. The Directors may deduct from any dividend or distribution payable to
any Member all sums of money (if any) presently payable by him to the Company on
account of calls or otherwise.
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89. The Directors may declare that any dividend or distribution be paid
wholly or partly by the distribution of specific assets and in particular of
paid up shares, debentures, or debenture stock of any other company or in any
one or more of such ways and where any difficulty arises in regard to such
distribution, the Directors may settle the same as they think expedient and in
particular may issue fractional certificates and fix the value for distribution
of such specific assets or any part thereof and may determine that cash payments
shall be made to any Members upon the footing of the value so fixed in order to
adjust the rights of all Members and may vest any such specific assets in
trustees as may seem expedient to the Directors.
90. Any dividend, interest or other monies payable in cash in respect of
shares may be paid by cheque or warrant sent through the post directed to the
registered address of the holder or, in the case of joint holders, to the holder
who is first named on the register of Members or to such Person and to such
address as such holder or joint holders may in writing direct. Every such cheque
or warrant shall be made payable to the order of the Person to whom it is sent.
At the discretion of the Directors, dividends may also be paid by wire transfer
or by any other means requested by a Member. Any one of two or more joint
holders may give effectual receipts for any dividends, bonuses, or other monies
payable in respect of the share held by them as joint holders.
91. No dividend shall bear interest against the Company.
CAPITALIZATION
92. The Company may upon the recommendation of the Directors by ordinary
resolution authorize the Directors to capitalize any sum standing to the credit
of any of the Company's reserve accounts (including share premium account and
capital redemption reserve fund) or any sum standing to the credit of profit and
loss account or otherwise available for distribution and to appropriate such sum
to Members in the proportions in which such sum would have been divisible
amongst them had the same been a distribution of profits by way of dividend and
to apply such sum on their behalf in paying up in full unissued shares (not
being redeemable shares) for allotment and distribution credited as fully paid
up to and amongst them in the proportion aforesaid. In such event the Directors
shall do all acts and things required to give effect to such capitalization,
with full power to the Directors to make such provisions as they think fit for
the case of shares becoming distributable in fractions (including provisions
whereby the benefit of fractional entitlements accrue to the Company rather than
to the Members concerned). The Directors may authorize any Person to enter on
behalf of all of the Members interested into an agreement with the Company
providing for such capitalization and matters incidental thereto and any
agreement made under such authority shall be effective and binding on all
concerned.
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BOOKS OF ACCOUNT
93. The Directors shall cause proper books of account to be kept with
respect to:
(a) all sums of money received and expended by the Company and the
matters in respect of which the receipt or expenditure takes
place;
(b) all sales and purchases of goods by the Company;
(c) the assets and liabilities of the Company.
Proper books shall not be deemed to be kept if there are not kept such books of
account as are necessary to give a true and fair view of the state of the
Company's affairs and to explain its transactions.
94. The Directors shall from time to time determine whether and to what
extent and at what times and places and under what conditions or regulations the
accounts and books of the Company or any of them shall be open to the inspection
of Members not being Directors and no Member (not being a Director) shall have
any right of inspecting any account or book or document of the Company except as
conferred by Statute or authorized by the Directors or by the Company in general
meeting.
95. The Directors may from time to time cause to be prepared and to be laid
before the Company in general meeting profit and loss accounts, balance sheets,
group accounts (if any) and such other reports and accounts as may be required
by law.
AUDIT
96. The Company may at any annual general meeting appoint an Auditor or
Auditors of the Company who shall hold office until the next annual general
meeting and may fix his or their remuneration.
97. The Directors may fill any casual vacancy in the office of Auditor but
while any such vacancy continues the surviving or continuing Auditor or
Auditors, if any, may act. The remuneration of any Auditor appointed by the
Directors under this Article may be fixed by the Directors.
98. Every Auditor of the Company shall have a right of access at all times
to the books and accounts and vouchers of the Company and shall be entitled to
require from the
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Directors and Officers of the Company such information and explanation as may be
necessary for the performance of the duties of the auditors.
99. Auditors shall at the next annual general meeting following their
appointment and at any other time during their term of office, upon request of
the Directors or any general meeting of the Members, make a report on the
accounts of the Company in general meeting during their tenure of office.
NOTICES
100. Notices shall be in writing and may be given (a) if by the Company to
any Member either personally or by sending it by post, cable, telex, telecopy or
by established commercial courier service to him or to his address as shown in
the register of Members, such notice, if mailed, to be forwarded airmail if the
address be outside the Cayman Islands and (b) if to the Company at the
registered office or such other address as the Company may have furnished to the
Members in writing.
101. (a) Where a notice is sent by post or established commercial courier
service, service of the notice shall be deemed to be effected by properly
addressing, pre-paying and posting or delivering to such service a letter
containing the notice, and to have been effected at the expiration of sixty
hours after the letter containing the same is posted or delivered to such
service as aforesaid.
(b) Where a notice is sent by cable, telex, or telecopy, service of the
notice shall be deemed to be effected by properly addressing, and sending such
notice through a transmitting organization and to have been effected on the day
the same is sent as aforesaid.
102. A notice may be given by the Company to the joint holders of record of
a share by giving the notice to the joint holder first named on the register of
Members in respect of the share.
103. A notice may be given by the Company to the Person or Persons which the
Company has been advised are entitled to a share or shares in consequence of the
death or bankruptcy of a Member by sending it through the post as aforesaid in a
pre-paid letter addressed to them by name, or by the title of representatives of
the deceased, or trustee of the bankrupt, or by any like description at the
address supplied for that purpose by the Persons claiming to be so entitled, or
at the option of the Company by giving the notice in any manner in which the
same might have been given if the death or bankruptcy had not occurred.
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104. Notice of every general meeting shall be given in any manner
hereinbefore authorized to:
(a) every Person shown as a Member in the register of Members as
of the record date for such meeting except that in the case of
joint holders the notice shall be sufficient if given to the
joint holder first named in the register of Members.
(b) every Person upon whom the ownership of a share devolves by
reason of his being a legal personal representative or a
trustee in bankruptcy of a Member of record where the Member
of record but for his death or bankruptcy would be entitled to
receive notice of the meeting; and
No other Person shall be entitled to receive notices of general meetings.
WINDING UP
105. If the Company shall be wound up the liquidator may, with the sanction
of a Special Resolution of the Company and any other sanction required by the
Statute, divide amongst the Members in specie or 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 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 contributories as the
liquidator, with the like sanction, shall think fit, but so that no Member shall
be compelled to accept any shares or other securities whereon there is any
liability.
106. If the Company shall be wound up, and the assets available for
distribution amongst the Members as such shall be insufficient to repay the
whole of the paid-up capital, such assets shall be distributed so that, as
nearly as may be, the losses shall be borne by the Members in proportion to the
nominal capital paid up, or which ought to have been paid up, at the
commencement of the winding up on the shares held by them respectively. And if
in a winding up the assets available for distribution amongst the Members shall
be more than sufficient to repay the whole of the nominal capital paid up at the
commencement of the winding up, the excess shall be distributed amongst the
Members in proportion to the nominal capital paid up at the commencement of the
winding up on the shares held by them respectively. This Article is to be
without prejudice to the rights of the holders of shares issued upon special
terms and conditions.
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INDEMNITY
107. The Directors and officers for the time being of the Company and any
trustee for the time being acting in relation to any of the affairs of the
Company and their heirs, executors, administrators and personal representatives
respectively shall be indemnified out of the assets of the Company from and
against all actions, proceedings, claims, costs, charges, losses, damages and
expenses which they or any of them shall or may incur or sustain by reason of
any act done or omitted in or about the execution of their duty in their
respective offices or trusts, except such (if any) as they shall incur or
sustain by or through their own wilful neglect or default respectively and no
such Director, officer or trustee shall be answerable for the acts, receipts,
neglects or defaults of any other Director, officer or trustee or for joining in
any receipt for the sake of conformity or for the solvency or honesty of any
banker or other Persons with whom any monies or effects belonging to the Company
may be lodged or deposited for safe custody or for any insufficiency of any
security upon which any monies of the Company may be invested or for any other
loss or damage due to any such cause as aforesaid or which may happen in or
about the execution his office or trust unless the same shall happen through the
wilful neglect or default of such Director, officer or trustee.
FINANCIAL YEAR
108. Unless the Directors otherwise prescribe, the financial year of the
Company shall end on 30th September in each year.
AMENDMENTS OF ARTICLES
109. Subject to the Statute, the Company may at any time and from time to
time by Special Resolution alter or amend these Articles in whole or in part.
TRANSFER BY WAY OF CONTINUATION
110. If the Company is exempted as defined in the Statute, it shall, subject
to the provisions of the Statute and with the approval of a Special Resolution,
have the power to register by way of continuation as a body corporate under the
laws of any jurisdiction outside the Cayman Islands and to be deregistered in
the Cayman Islands.
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (this "Agreement"), dated
as of December 18, 1995, among the Shareholders (as such term and certain other
capitalized terms not otherwise defined herein are defined in Article II) and
GCR HOLDINGS LIMITED, a company incorporated under the laws of The Cayman
Islands ("Holdings").
W I T N E S S E T H
WHEREAS, each of the Shareholders on the date hereof was a party to the
Shareholders' Agreement, dated as of October 8, 1993 (the "Original
Shareholders' Agreement"), among Holdings and its shareholders specified
therein, relating to the ordinary shares, par value $0.10 per share, of
Holdings (such shares as are now outstanding, and may be outstanding in the
future, the "Ordinary Shares");
WHEREAS, Holdings proposes to effect an Initial Public Offering;
WHEREAS, it is desirable to amend the Original Shareholders' Agreement
to make such modifications thereto as are appropriate for a shareholders'
agreement among shareholders of a publicly traded company, all as set forth
herein; and
WHEREAS, such amendment, substantially as set forth herein, has been
duly approved by the Board of Directors of Holdings and, on behalf of all
shareholders of Holdings that are party to the Original Shareholders' Agreement
(the "Original Shareholders"), by Original Shareholders holding at least fifty
percent (50%) of all Ordinary Shares then outstanding, all in accordance with
Section 10.1 of the Original Shareholders' Agreement;
NOW, THEREFORE, the Original Shareholders' Agreement is hereby amended
and restated to read in its entirety as set forth herein and, accordingly, the
Shareholders and Holdings hereby agree as follows:
ARTICLE I
Transfers and Related Matters
1.1. RESTRICTIONS ON TRANSFER. (a) Each Shareholder acknowledges that
the Registrable Shares have not been registered under the Securities Act and,
accordingly, agrees not to offer, sell, assign, pledge or otherwise transfer
any Registrable Shares except pursuant to an effective registration statement
under the Securities Act covering such Registrable Shares or pursuant to an
available exemption from the registration requirements of the Securities Act.
Each Shareholder further acknowledges and agrees that Holdings is entitled to
decline to register any transfer of Registrable Shares, and any transfer of
Registrable Shares shall be void, unless (i) such transfer is made pursuant to
and in accordance with Rule 144 (and provided that the transferor holder first
provides Holdings (or its designated agent for such purpose) with a duly
completed and signed certificate substantially in the form of Annex A attached
hereto), (ii) such transfer is made pursuant to another available exemption
from the registration requirements of the Securities Act (and provided that the
transferee holder first provides Holdings (or such agent) with a duly completed
and signed certificate substantially in the form of Annex B attached hereto and
provided, further, that, if Holdings requests, the transferor holder first
provides Holdings (or
<PAGE> 2
such agent) with an opinion of counsel satisfactory to Holdings to the effect
that such transfer is made pursuant to another available exemption from the
registration requirements of the Securities Act) or (iii) such transfer is made
pursuant to an effective registration statement under the Securities Act
covering the Registrable Shares being transferred. Holdings may, in any
particular case, waive the foregoing certification and transfer requirements,
in whole or in part, to the extent that it determines, on advice of counsel,
that such requirements are not necessary to ensure compliance with the
Securities Act. Alternatively, Holdings shall be entitled to modify the
foregoing certification and transfer requirements, generally or in any
particular case, to the extent that it determines, on advice of counsel, that
such modification is necessary to ensure compliance with the Securities Act.
(b) Each Shareholder further acknowledges and agrees that, except as
provided below, no Registrable Share shall be held in book-entry form, and each
certificate representing a Registrable Share shall be evidenced by a
certificate bearing a restrictive legend (the "Legend") substantially in the
form set forth below:
THE ORDINARY SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. SUCH SHARES MAY NOT BE HELD IN BOOK-ENTRY FORM.
SUCH SHARES ARE ALSO SUBJECT TO RESTRICTIONS ON TRANSFER IN THE AMENDED
AND RESTATED SHAREHOLDERS' AGREEMENT, DATED AS OF DECEMBER 18, 1995,
AMONG THE SHAREHOLDERS REFERRED TO THEREIN AND GCR HOLDINGS LIMITED
("HOLDINGS"), WHICH MAY REQUIRE, AMONG OTHER THINGS, THE PRIOR RECEIPT
BY HOLDINGS FROM THE TRANSFEROR OR THE TRANSFEREE OF CERTAIN
CERTIFICATES, OPINIONS OF COUNSEL AND UNDERTAKINGS TO BE BOUND BY SUCH
AGREEMENT.
SUCH SHARES ARE ALSO SUBJECT TO RESTRICTIONS IN THE ARTICLES OF
ASSOCIATION OF HOLDINGS, INCLUDING RESTRICTIONS ON TRANSFER AND VOTING
GENERALLY INTENDED TO INSURE THAT NO PERSON BECOMES A `UNITED STATES 10%
SHAREHOLDER' OF HOLDINGS (AS DEFINED IN SUCH ARTICLES).
In connection with or following any transfer of Registrable Shares in
accordance with clause (i) or (iii) of this Section 1.1(a), and upon the
surrender of any certificate or certificates representing such Registrable
Shares to Holdings (or such agent), Holdings shall cause to be issued in
exchange therefor a new certificate or certificates that represent the same
Ordinary Shares and do not bear the Legend (or shall permit such shares to be
held in book-entry form).
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<PAGE> 3
(c) Each Shareholder agrees that, from and including the date of the
final prospectus for the Initial Public Offering through and including the
180th day after such date, it will not offer, sell, contract to sell or
otherwise dispose of any Capital Securities without the prior written consent
of the representatives of the underwriters for the Initial Public Offering.
Each Shareholder further agrees that, for a period of 180 days beginning on and
including the date of the final prospectus for any other Registered Public
Offering, it will not offer, sell, contract to sell or otherwise dispose of any
Capital Securities without the prior written consent of the managing
underwriter or agent of such Registered Public Offering or, in the absence of
any such managing underwriter or agent, Holdings. This Section 1.1(c) shall not
be limited by any other provision of this Agreement. Notwithstanding the
foregoing, nothing contained in this Section 1.1(c) shall at any time prohibit
or prevent Goldman, Sachs & Co. from offering, selling, contracting to sell or
otherwise disposing of any Capital Securities in connection with its
market-making activities conducted with respect to Ordinary Shares.
1.2. AVAILABILITY OF RULE 144. Holdings shall use its best efforts to
ensure that the information requirement set forth in paragraph (c) of Rule 144
is satisfied so that the safe harbor provided by Rule 144 is available to the
Shareholders for all transfers of Registrable Shares made after the 90th day
after Holdings becomes subject to the reporting requirements of Section 13 of
the Exchange Act. Upon request made by any Shareholder at any time during such
period, Holdings will provide such Shareholder with a written statement
confirming that Holdings has been subject to and has complied with the
reporting requirements as provided in said paragraph (c), unless Holdings shall
have included such a statement in its then-latest annual or quarterly report
filed with the SEC.
1.3. DEPOSITARY RECEIPTS. If any Registrable Share is transferred as
contemplated by clause (i) or (iii) of Section 1.1(a) and, upon such transfer
any Ordinary Shares are represented by depositary receipts issued pursuant to a
deposit agreement with Holdings, then Holdings shall take such action as is
necessary to ensure that, upon such transfer, the Registrable Shares so
transferred may be deposited into and held in, and represented by depositary
receipts issued pursuant to, such deposit facility, on the same terms and
subject to the same conditions as all other Ordinary Shares then held in such
deposit facility, and to ensure that such Registrable Shares, when so
transferred and deposited, will be represented by depositary receipts that are
fungible with those representing all other Ordinary Shares held in such deposit
facility. Each Shareholder acknowledges and agrees that any such deposit
facility may provide that no Registrable Share may be deposited into such
facility unless such Registrable Share has been transferred as contemplated by
clause (i) or (iii) of Section 1.1(a).
1.4. LISTING. Holdings shall use its best efforts to cause each
Registrable Share transferred as contemplated by clause (i) or (iii) of Section
1.1(a) to be duly listed on each securities exchange, and to be accepted for
quotation in such interdealer quotation system, on or in which any Ordinary
Shares are listed or quoted at the time of such transfer (provided that the
approval for such listing or quotation has been obtained by Holdings), in each
case so that the Registrable Share so transferred will be freely transferable
on each such exchange and in each such system to the same extent as the
Ordinary Shares then listed thereon or quoted therein. If, at the time of such
transfer, depositary receipts representing Ordinary Shares are listed on any
securities exchange or quoted in any interdealer quotation system (and if the
approval for such listing or quotation was obtained by Holdings), then Holdings
shall use its best efforts to cause each depositary receipt representing the
Registrable Shares so transferred, upon such transfer, to be duly listed on
each such exchange and accepted for quotation in each such system to the same
extent as the depositary receipts then listed thereon or quoted therein.
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<PAGE> 4
1.5. EFFECT OF TRANSFER. (a) As contemplated by Section 1.1(a), any
Registrable Share transferred other than as contemplated by clause (i) or (iii)
thereof may be transferred only to a holder that is or becomes a Shareholder. A
holder that is not already a Shareholder shall become a Shareholder upon
execution and delivery to Holdings (or its agent) of a certificate
substantially in the form of Annex B attached hereto. Each Registrable Share
transferred as contemplated by said clause (i) or (iii) shall upon registration
of such transfer in the books of the Company cease to be a Registrable Share
for all purposes hereof and each Registrable Share transferred as contemplated
by clause (ii) of Section 1.1(a) shall upon such transfer cease to be a
Registrable Share of the transferor holder and become a Registrable Share of
the transferee holder for all purposes hereof, in each case automatically upon
registration of such transfer and with no further action by any person. It is
understood and agreed by all parties hereto that (i) unless Holdings and such
Shareholder agree otherwise, all Ordinary Shares acquired from Holdings by a
person that is a Shareholder (whether pursuant to any option, warrant or
otherwise) shall, automatically upon registration of such transfer and with no
further action by any person, become Registrable Shares of such Shareholder for
all purposes hereof, (ii) if Holdings so determines in its discretion, any
person that holds Ordinary Shares but is not a Shareholder may become a
Shareholder by executing and delivering a counterpart hereof (or another
appropriate instrument) to Holdings, whereupon all or any portion of such
Ordinary Shares as determined by Holdings shall become Registrable Shares of
such Shareholder for all purposes hereof, and (iii) if Holdings so elects, it
may designate any other class of Capital Securities as "Ordinary Shares" for
all purposes hereof.
(b) It is understood and agreed by all parties hereto that each
Shareholder makes the representations, warranties and agreements set forth
herein, and is entitled to the benefits hereof, solely with respect to
Registrable Shares held by it, and that a Shareholder shall cease to be a
Shareholder and a party hereto for all purposes hereof when such person ceases
to hold any Registrable Shares, provided that this sentence shall not relieve
any person from any liability it may have as a result of any breach occurring
under this Agreement with respect to any Ordinary Shares while they are
Registrable Shares, nor shall this sentence preclude any person from
subsequently becoming a Shareholder pursuant to Section 1.5(a).
1.6. SHARE AND SHAREHOLDER STATUS. For all purposes of this
Agreement, holdings of Ordinary Shares shall be determined by reference to, and
no transfer of Ordinary Shares shall be effective unless registered on, the
share registry maintained by Holdings (or its agent) in accordance with
applicable law and the Articles. Holdings shall keep (or cause its agent to
keep) proper and current records of all persons that are Shareholders and all
Ordinary Shares that are Registrable Shares and, subject to the foregoing and
absent manifest error, whether or not any person is a Shareholder and any
Ordinary Share is a Registrable Share shall be determined by reference to such
records.
1.7. INVESTMENT REPRESENTATIONS. Each Shareholder hereby agrees with
Holdings that it will not hereafter acquire Registrable Shares unless, at the
time of such acquisition, it is an "accredited investor" within the meaning
of Rule 501 under the Securities Act, is acquiring such Registrable Shares
solely for investment for its own account and not with a view to, or for resale
in connection with, the distribution of such Registrable Shares and the
purchase price of such Registrable Shares is at least $100,000, unless the
Shareholder and Holdings agree otherwise. Upon each acquisition of Registrable
Shares by a Shareholder (which acquisition is subject to the preceding
sentence), such Shareholder shall be deemed to have made a representation and
warranty to Holdings that, as of the time of such acquisition, such Shareholder
is an "accredited investor" and has acquired such Registrable Shares as
provided in the preceding sentence (including for the minimum purchase price
stated therein). Any person that hereafter acquires Registrable Shares before
it becomes a Shareholder shall be deemed, upon
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<PAGE> 5
becoming such, to have made a representation and warranty to Holdings that, at
the time of such acquisition, such Shareholder was an "accredited investor,"
acquired such Registrable Shares solely for investment for its own account and
not with a view to, or for resale in connection with, the distribution of such
Registrable Shares and the purchase price of such Registrable Shares is at
least $100,000, unless the Shareholder and Holdings agree otherwise. The
provisions of this Section 1.7 shall not apply to acquisitions of Registrable
Shares by Goldman, Sachs & Co. made in their capacity as underwriters of an
offering of Registrable Shares sold pursuant to and in accordance with Section
1.1(a)(i) or Section 1.1(a)(iii).
1.8. INDEMNIFICATION AND CONTRIBUTION. In consideration of the
termination of the Original Shareholders' Agreement (including Section 4.4
thereof) as provided herein, Holdings and each Original Shareholder that sells
Ordinary Shares in the Initial Public Offering agrees, severally and not
jointly, to provide indemnification and contribution to each other with respect
to the Initial Public Offering on terms customary for offerings similar to the
Initial Public Offering.
ARTICLE II
DEFINITIONS
2.1 DEFINED TERMS. As used in this Agreement, the following capitalized
terms have the respective meanings set forth below:
"Articles" shall mean the Articles of Association of Holdings, as the
same be amended from time to time.
"Capital Securities" shall mean all shares of each class of capital
stock of Holdings or any substantially similar securities, and all securities
convertible into, exchangeable or exercisable for or which otherwise represent
the right to receive any such shares or any such substantially similar
securities.
"Closing" shall mean the closing of the Initial Public Offering, and
the day on which the Closing occurs shall be the day confirmed as such by a
director or officer of Holdings in the records maintained by Holdings.
"Effective Time" shall be the time immediately prior to the Closing.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934.
"holder" shall mean, with respect to any Registrable Shares or other
Ordinary Shares, the person in whose name such shares are registered on the
share registry maintained by Holdings in accordance with applicable law and the
Articles, and the terms "hold," "held" and "holding" shall have meanings
correlative to the foregoing.
"Initial Public Offering" means the initial public offering of Ordinary
Shares pursuant to an effective registration statement under the Securities Act.
"person" shall mean any individual, corporation, company, partnership,
joint venture, trust, association, government or governmental body or other
entity.
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<PAGE> 6
"Registered Public Offering" shall mean any offering of Capital
Securities pursuant to a registration statement under the Securities Act, other
than any such offering that Holdings determines shall not be treated as a
Registered Public Offering hereunder.
"Registrable Shares" shall mean, at any time, all Ordinary Shares then
outstanding, other than any Ordinary Share (a) that has been registered and
sold pursuant to an effective registration statement under the Securities Act,
(b) that has been sold pursuant to and in accordance with Rule 144 and Section
1.1(a) hereof or (c) as to which Holdings, on advice of counsel, determines
that designating such share as a Registrable Share is no longer necessary under
the Securities Act.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act.
"Securities Act" shall mean the U.S. Securities Act of 1933.
"SEC" shall mean the U.S. Securities and Exchange Commission or any
other U.S. federal agency at the time administering the Securities Act or the
Exchange Act.
"Shareholders" shall mean, at any time, the Original Shareholders and
all other persons that according to the records maintained by Holdings
previously have become Shareholders pursuant to Section 1.5, other than persons
that according to such records previously have ceased to be (and not
subsequently become) Shareholders pursuant to Section 1.5.
2.2 GENERAL. Unless the context otherwise requires, references in this
Agreement to any "section," "article" or "annex" shall mean a section or
article of or annex attached to this Agreement, as the case may be, and the
terms "hereof," "hereunder," "hereto" and words of similar meaning shall mean
this Agreement in its entirety and not any particular provisions of this
Agreement. The annexes attached hereto shall be a part of this Agreement for
all purposes hereof. Unless the context otherwise requires, the terms defined
herein include the singular as well as the plural.
Unless the context otherwise requires, each reference herein to the
Securities Act, the Exchange Act or Rule 144 (or any other rule or regulation
promulgated under either such statute) shall be deemed to mean, as of any time,
such statute, rule or regulation as then in effect, after all amendments
thereto, or, if not then in effect, any successor statute, rule or regulation
as then in effect, after all amendments thereto.
ARTICLE III
MISCELLANEOUS
3.1. AMENDMENTS AND TERMINATION. Neither this Agreement nor any
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing signed by Holdings and by each of the Shareholders, if
any, whose interests would, upon effectiveness of such instrument, be adversely
affected thereby; provided, however, that any and all provisions hereof also
may be amended, waived, discharged or terminated with both the approval of the
Board of Directors of Holdings and the approval of Shareholders holding more
than fifty (50) percent of all Registrable Shares outstanding and held by
Shareholders on the relevant date (such Shareholders acting by written consent
or at a meeting of Shareholders holding Registrable Shares convened and
conducted in accordance with the Articles;
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<PAGE> 7
provided that, for the purpose of any such meeting, the Registrable Shares
shall be deemed to be the only Ordinary Shares outstanding and the Board of
Directors of Holdings may make such procedural rules as they deem necessary or
appropriate to facilitate such a meeting; and provided, further, that the
relevant date for such Shareholder approval shall be the date any such written
consent is delivered to Holdings or the record date for any such meeting held
within sixty (60) days thereafter), whereupon such amendment, waiver, discharge
or termination shall be effective as to all Shareholders and Holdings shall
promptly give notice thereof to the remaining Shareholders; and provided,
further, that addition or deletion of any person as a Shareholder, as
contemplated by Section 1.5, shall not require any instrument or consent
contemplated by this Section 3.1.
3.2. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed, unless otherwise specified
herein, to have been duly given if delivered or mailed, first class postage
prepaid, delivered by established commercial carrier, delivery charges prepaid,
or transmitted by telex or facsimile, (a) if to any Shareholder, at its address
or telex or facsimile number appearing in the register of members of Holdings
and (b) if to Holdings, at Sofia House, P.O. Box HM 762, Hamilton HM CX Bermuda
or such other address as may be indicated as its principal executive office in
periodic reports filed with the SEC.
3.3. ENTIRE AGREEMENT. Except to the extent specifically provided in
Sections 3.9 and 3.10, this Agreement and the Articles constitute the entire
agreement between the parties hereto and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect to
the subject matter hereof. The provisions of this Agreement shall not be deemed
to supersede or limit the Articles in any manner and, in the event of any
conflict between the provisions hereof and the Articles, the Articles shall
prevail.
3.4. BINDING EFFECT; BENEFIT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to confer on any Person other than the parties hereto, and their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
3.5. ASSIGNABILITY. Except as contemplated by Section 1.5 hereof, this
Agreement shall not be assignable by any party hereto or other Person.
3.6. HEADINGS. The headings contained in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
3.7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument. Any appropriate
instrument executed and delivered by any person to Holdings whereby such person
becomes a Shareholder, as contemplated by Section 1.5, shall be deemed to be a
counterpart hereof for purposes of this Section 3.7.
3.8. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the law of the State of New York.
3.9. EFFECTIVENESS. This Agreement shall become effective, as to
Holdings and to all Original Shareholders, at (but only at) the Effective Time,
automatically and with no action on the part of any
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<PAGE> 8
person. This Agreement shall become effective as to each other Shareholder when
such person becomes a Shareholder pursuant to Section 1.5 hereof. If the
Closing shall not occur on or before June 30, 1996, this Agreement shall be of
no force or effect and the Original Shareholders' Agreement shall remain in
full force and effect.
3.10. EFFECT ON ORIGINAL SHAREHOLDERS' AGREEMENT. At the Effective
Time, the Original Shareholders' Agreement shall cease to have any further
force or effect; provided, however, that (i) Article 6 and Article 8 of the
Original Shareholders' Agreement shall survive solely with respect to
transactions occurring, and matters arising, prior to the Effective Time, (ii)
Article 7 of the Original Shareholders' Agreement shall survive solely with
respect to Information (as defined in the Original Shareholders' Agreement)
acquired prior to the Effective Time and (iii) if a registration of Registrable
Shares is effected pursuant to Section 4.1 or Section 4.3 of the Original
Shareholders' Agreement prior to the Effective Time, then all provisions of the
Original Shareholders' Agreement applicable to such registration shall survive
solely with respect to such registration; provided, further, that nothing
contained herein shall relieve any person from any liability resulting from a
breach of the Original Shareholders' Agreement prior to the Effective Time.
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<PAGE> 9
IN WITNESS WHEREOF, the parties named below have hereto set their hands
as of the day and year first above written.
GCR HOLDINGS LIMITED
By: /s/ Frederick W. Deichmann
------------------------------------
Original Shareholders:
Pursuant to Section 10.1 of the Original
Shareholders' Agreement, all persons
(other than Holdings) that are parties
to such agreement immediately prior to
the Effective Time are parties to this
Agreement as of the day and year first
above written.
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<PAGE> 10
ANNEX A
FORM OF TRANSFEROR'S CERTIFICATE --
RULE 144 TRANSFER
GCR Holdings Limited
Sofia House
P.O. Box HM 762
Hamilton HM CX, Bermuda
Re: GCR Holdings Limited Ordinary Shares
Dear Sirs:
Reference is hereby made to the Shareholders' Agreement, dated as of
__________, 1995 (the "Shareholders' Agreement"), between GCR Holdings Limited,
a Cayman Islands company ("Holdings"), and the shareholders party thereto.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Shareholders' Agreement.
This letter relates to ________ Ordinary Shares, par value $0.10 per
share, which are evidenced by share certificate number(s) ________. The
undersigned (the "Transferor") is the registered holder of such shares and
proposes to transfer [all] [________] of such shares (those to be transferred,
the "Shares") to a Person who will take delivery thereof in book-entry form or
in the form of a certificate that does not bear the Legend[, with the balance
of such Shares to be returned to the Transferor in the form of a certificate
bearing the Legend].
In connection with such transfer, the Transferor does hereby certify to
Holdings that such transfer has not yet been effected but, when effected, will
be effected pursuant to and in accordance with Rule 144 under the U.S.
Securities Act of 1933. Accordingly, the Transferor hereby further certifies
that EITHER I OR II BELOW OR BOTH APPLIES:
I. IF THIS CERTIFICATE IS DELIVERED ON ANY DATE:
(i) The Transferor either (A) purchased the shares pursuant to
a subscription agreement with Holdings on October 8, 1993 and has held
them continuously since then or (B) a minimum of two years have elapsed
since the Shares were last purchased by the Transferor or any prior
holder from Holdings or any "affiliate" thereof (or, if later, since the
purchase price for such last purchase was paid in full); and (ii) the
transfer will comply with the volume limit in paragraph (e) of Rule 144,
the Shares will be sold in "brokers' transactions" or in transactions
directly with a "market maker" as provided in paragraph (f) of Rule 144
and any notice required under paragraph (h) of Rule 144 to be filed with
the U.S. Securities and Exchange Commission ("SEC") regarding the
transfer has been or promptly will be so filed.
OR
II. IF THIS CERTIFICATE IS DELIVERED ON OR AFTER OCTOBER 9, 1996:
(i) The Transferor either (A) purchased the shares pursuant to
a subscription agreement with Holdings on October 8, 1993 and has held
them continuously since then or
<PAGE> 11
(B) a minimum of three years have elapsed since the Shares were
last purchased by the Transferor or any prior holder from Holdings or
any "affiliate" thereof (or, if later, since the purchase price for such
last purchase was paid in full); and (ii) either (A) the Transferor is
not, and has not during the preceding three months, been an "affiliate"
of Holdings or (B) the transfer will comply with the volume limit in
paragraph (e) of Rule 144, the Shares will be sold in "brokers'
transactions" or in transactions directly with a "market maker" as
provided in paragraph (f) of Rule 144 and any notice required under
paragraph (h) of Rule 144 to be filed with the SEC regarding the
transfer has been or promptly will be so filed.
For the purposes of this certificate, an "affiliate" of Holdings is a person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with Holdings.
The Transferor further acknowledges the requirements of Article 1.1 of
the Shareholders' Agreement and hereby undertakes to provide any other
documentation requested by Holdings pursuant to such agreement in connection
herewith and not yet received by Holdings.
This certificate and the statements contained herein are made for the
benefit of Holdings.
Dated: Print Name of Transferor:
By: ______________________________
Name:
Title:
(If the Transferor is a corporation, partnership
or fiduciary, the name and title of the Person
signing on behalf of the Transferor must be
printed.)
<PAGE> 12
ANNEX B
FORM OF TRANSFEREE'S CERTIFICATE --
TRANSFER PURSUANT TO OTHER AVAILABLE EXEMPTION
GCR Holdings Limited
Sofia House
P.O. Box HM 762
Hamilton HM CX, Bermuda
Re: GCR Holdings Limited Ordinary Shares
Dear Sirs:
Reference is hereby made to the Shareholders' Agreement, dated as of
______________, 1995 (the "Shareholders' Agreement"), between GCR Holdings
Limited, a Cayman Islands company (the "Holdings"), and the shareholders party
thereto. Capitalized terms used but not defined herein shall have the meanings
given to them in the Shareholders' Agreement.
This letter relates to ________ Ordinary Shares, par value $0.10 per
share (the "Shares"), which are evidenced by share certificate number(s)
_______________________. The current holder of such shares proposes to transfer
[all] [____________] of such shares (those to be so transferred, the "Shares")
to the undersigned (the "Transferee"), who upon such transfer will be the
registered holder thereof and agrees to take delivery thereof, and to hold the
same until such time as the Shareholders' Agreement may otherwise permit, in
the form of one or more certificates bearing the Legend and not in book-entry
form.
In connection with such transfer, the Transferee does hereby certify to
Holdings that the Transferee is an "accredited investor" within the meaning of
Rule 501 under the Securities Act of 1933 and is acquiring the Shares solely
for investment for its own account and not with a view to, or for resale in
connection with, the distribution of the Shares, and the purchase price of the
Shares is at least $100,000. The Transferee, if not already a party to the
Shareholders' Agreement, hereby becomes a Shareholder thereunder and agrees
with Holdings to be bound by all the provisions of the Shareholders' Agreement
with respect to the Shares and all other Registrable Shares held or hereafter
acquired by the Transferee. In particular, the Transferee acknowledges the
requirements of Article I of the Shareholders' Agreement and hereby undertakes
to provide any other documentation requested by Holdings pursuant to such
agreement in connection herewith and not yet received by Holdings.
<PAGE> 13
This certificate and the statements contained herein are made for the
benefit of the Company.
Dated: Print Name of Transferee:
By: ______________________________
Name:
Title:
(If the Transferee is a corporation, partnership
or fiduciary, the name and title of the Person
signing on behalf of the Transferee must be
printed.)
<PAGE> 1
EXHIBIT 3.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, (this "Agreement"), dated as of December
18, 1995, among the Rightholders (as such term and certain other capitalized
terms not otherwise defined herein are defined in Article II hereof) and GCR
HOLDINGS LIMITED, a company incorporated under the laws of The Cayman Islands
("Holdings").
W I T N E S S E T H
WHEREAS, affiliates of the Rightholders were parties to the
Shareholders' Agreement, dated as of October 8, 1993 (the "Original
Shareholders' Agreement"), among Holdings and its shareholders specified
therein, relating to the ordinary shares, par value $0.10 per share, of
Holdings ("Ordinary Shares");
WHEREAS, Holdings intends to effect an initial public offering of
certain Ordinary Shares;
WHEREAS, Holdings intends to amend the Original Shareholders' Agreement
to make such modifications thereto as are appropriate for a shareholders'
agreement among shareholders of a publicly traded company, including the
removal of certain registration rights provided for therein;
WHEREAS, Holdings has agreed to provide certain registration rights to
the Rightholders and Holdings and the Rightholders are entering into this
Agreement to set forth the terms and conditions applicable to the grant and
exercise of such registration rights;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged by the parties hereto, Holdings and the
Rightholders hereby agree as follows:
ARTICLE I
REGISTRATION RIGHTS
1.1. DEMAND RIGHTS. (a) At any time after the 180th day following the
Effective Date, each Rightholder shall have the right to require Holdings to
file a registration statement on Form S-1, S-2 or S-3 (or Form F-1, F-2 or F-3)
under the Securities Act for a public offering of all or any number of the
Registrable Shares held by its Rightholder Group, by delivering to Holdings
written notice stating that such right is being exercised, naming the members
of its Rightholder Group whose Registrable Shares are to be included in such
registration (collectively, the "Demanding Shareholders"), specifying the
number of each such Demanding Shareholder's Registrable Shares to be included
in such registration and describing the intended method of distribution thereof
(a "Demand Request"). Holdings shall give prompt written notice of a Demand
Request (a "Notice of Demand Request") to the Rightholder that is not making
the Demand Request. Such other Rightholder shall have the right to require that
all or any number of the Registrable Shares held by its Rightholder Group be
included in such registration, by delivering to Holdings a written notice
stating that such right is being exercised, naming the members of its
Rightholder Group whose Registrable Shares are to be included in such
registration (collectively, the "Joining Shareholders") and specifying the
number of each such Joining Shareholder's Registrable Shares to be included in
such Registration Statement (a "Joining Request"). To be effective, a Joining
Request must be given on or before the fifteenth (15th) day after the Notice of
Demand Request is given by
<PAGE> 2
Holdings. Upon receipt of a Demand Request, Holdings shall use its best efforts
to effect the registration under the Securities Act of the Registrable Shares
included in the Demand Request and the Registrable Shares included in any
Joining Request, all to the extent necessary to permit the Demanding
Shareholders and the Joining Shareholders (collectively, the "Sellers") to sell
or otherwise dispose of their respective Registrable Shares included in the
registration in accordance with the intended method of distribution. The rights
and obligations of the parties listed under this Section 1.1(a) are subject to
the other provisions of this Agreement.
(b) Holdings' obligations pursuant to Section 1.1(a) above are subject
to the following limitations and conditions:
(i) Holdings shall not be obligated to fulfill a Demand
Request unless the aggregate public offering price of all Registrable
Shares to be included in such registration pursuant to any Demand
Request and related Joining Request shall not be less than $10 million;
(ii) If the aggregate public offering of all Registrable
Shares to be included in such registration pursuant to any Demand
Request and related Joining Request shall be at least $30 million,
Holdings will, if requested, use reasonable efforts to participate in
and assist with a "road show" and other customary marketing efforts in
connection with the sale of Registrable Shares pursuant to such
registration, at such times and in such manner as Holdings and the
Rightholder mutually may determine (and as do not unreasonably interfere
with Holdings' operations);
(iii) Holdings shall not be obligated to fulfill a Demand
Request made by a Rightholder if such Rightholder has made a prior
Demand Request and either (A) Holdings has filed a Securities Act
registration covering Registrable Shares pursuant to such Demand
Request, such registration was declared or ordered effective, such
effectiveness was not suspended or stopped by any governmental or
judicial authority and such Demand Request was not withdrawn pursuant to
Section 1.1(d) below; or (B) such Demand Request was withdrawn other
than pursuant to Section 1.1(d);
(iv) the Ordinary Shares to be offered in a public offering
pursuant to any Demand Request and related Joining Request shall not
exceed the number which the managing underwriter for the offering (or,
if there is none, a nationally recognized investment banking firm acting
as financial advisor to Holdings) determines in good faith to be
appropriate based on market conditions and other relevant factors,
including pricing (the "Maximum Number"), and Ordinary Shares shall be
allocated to give effect to this clause (iii) as provided in Section
1.3.
(v) Holdings shall not be obligated to fulfill the
requirements herein with regard to any registration relating to a
Demand Request (A) during any period of time (not to exceed ninety (90)
days in the aggregate during any period of twelve (12) consecutive
months) after Holdings has determined to proceed with a Securities Act
registration of any of its securities and is diligently proceeding to
complete such registration or any offering of securities pursuant
thereto (whether for its own account or that of any shareholder but
excluding any registration on Form S-8 under the Securities Act and any
Market-Making Registration) if, in the judgment of a nationally
recognized investment banking firm (which may be acting as managing
underwriter for any such offering or as financial advisor to Holdings),
the fulfillment of such requirements or such filing would have an
adverse effect on the offering, (B) during any period of time (not to
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<PAGE> 3
exceed ninety (90) days during any period of twelve (12) consecutive
months) when Holdings is in possession of material, non-public
information that Holdings would not be required to disclose publicly in
the absence of any Securities Act registration of its securities, (C)
during any period of time (not to exceed ninety (90) days during any
period of twelve (12) consecutive months when Holdings is engaged in,
or has determined to engage in and is proceeding diligently with, any
program for the purchase of, or any tender offer or exchange offer for,
its Capital Securities, and determines, on advice of independent U.S.
counsel, that such program or offer and the requested registration may
not proceed concurrently without violating Rule 10b-6 under the
Exchange Act or (D) during the 180-day period following (1) the
effectiveness of any Securities Act registration covering Capital
Securities (but excluding any registration on Form S-8 under the
Securities Act and any Market-Making Registration) or (2) the
termination of Holdings' efforts to effect a Securities Act
registration pursuant to a prior Demand Request, if such termination
was not due to any fault of Holdings;
(vi) Holdings shall not be required to maintain the
effectiveness of a registration statement filed pursuant to Section
1.1(a) for a period in excess of nine (9) months and shall not be
required to maintain any registration statement that permits a delayed
or continuous offering to be made for more than 30 consecutive days
after such registration statement becomes effective; and
(vii) the managing underwriter of any public offering effected
pursuant to this Article I shall agree to use its best efforts to avoid
selling Registrable Shares to any one person or group of related persons
(other than another dealer acting as an underwriter or member of any
selling group in connection with such public offering) if, as a result
of such sale, any such person (other than a Goldman Sachs Person) would
become a United States 10% Shareholder or any such person would become a
United States 25% Shareholder, in each case without the prior written
consent of Goldman, Sachs & Co. at any time when a Goldman Sachs Person
is a United States 10% Shareholder.
(viii) the Rightholder making the Demand Request shall be
entitled to designate any one lawful method of distribution permitted
pursuant to the registration statement (including a firm commitment
underwriting) to be the method of distribution for the registration
pursuant to this Section 1.1, and all Sellers will sell their
Registrable Shares included in the registration in the designated method
(and, in the case of any underwriting, on the same terms and
conditions); the method of distribution shall be indicated in the Demand
Request or, with Holdings' consent, determined thereafter and prior to
filing the registration statement; the method of distribution and the
terms and conditions thereof shall be subject to Holdings' prior
approval, which will not be unreasonably withheld, and in any
distribution involving an underwriter, the Rightholder making the Demand
Request shall be entitled (after consulting with Holdings and with
Holdings' approval, which will not be unreasonable withheld) to select
any nationally recognized investment banking firm to act as underwriter.
(c) Subject to Section 1.3, Holdings may elect to include in any
registration statement filed pursuant to this Section 1.1 any Ordinary Shares
to be issued by it or held by any of its Subsidiaries or by any other
shareholders only to the extent such shares are offered and sold pursuant to,
and on the terms and subject to the conditions of, any underwriting agreement
or distribution arrangements entered into or effected by the Demanding
Shareholders.
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<PAGE> 4
(d) A Rightholder may withdraw a Demand Request if (i) Holdings is in
material breach of its obligation hereunder and has not cured such breach after
having received notice thereof and a reasonable opportunity to do so or (ii)
the withdrawal occurs during a period specified in Section 1.1(b)(v). A Demand
Request withdrawn pursuant to this Section 1.1(d) shall be deemed not to have
been made for purposes of Section 1.6 and, together with any related Joining
Request, shall be of no further effect.
1.2. "PIGGY-BACK" RIGHTS. If at any time Holdings proposes to
register, for its own account or for the account of any shareholder, any
Ordinary Shares on a registration statement on Form S-1, S-2 or S-3 (or Form
F-1, F-2 or F-3) under the Securities Act for purposes of a public offering of
such Ordinary Shares, other than pursuant to a Demand Request, then Holdings
shall give prompt written notice of such proposal, including the intended
method of distribution of such Ordinary Shares, to each Rightholder. Subject to
Section 1.3, upon the written request (a "Piggy-Back Request") of any
Rightholder, given within fifteen (15) calendar days after the transmittal of
any such written notice, Holdings will use its reasonable efforts to include in
such public offering any or all of the Registrable Shares then held by the
Rightholder Group of which such Rightholder is a member to the extent necessary
to permit the sale of such Registrable Shares pursuant to the intended method
of distribution; provided that any participation in such public offering by a
Rightholder shall be on substantially the same terms as Holdings' and each
other shareholders' participation therein; and provided further, that the total
number of Ordinary Shares to be included in any such public offering shall not
exceed the Maximum Number, and Ordinary Shares shall be allocated to give
effect to this proviso as provided in Section 1.3. Any Rightholder shall have
the right to withdraw a Piggy-Back Request by giving written notice to Holdings
of its election to withdraw such request at least five (5) days prior to the
proposed filing date of such registration statement. Each Piggy-Back Request by
a Rightholder shall specify the members of its Rightholder Group whose
Registrable Shares are to be included in the registration and the number of
such shares for each such member. Holdings shall be entitled to select any
underwriter in a registration pursuant to this Section 1.2.
1.3. ALLOCATION OF SECURITIES INCLUDED IN A PUBLIC OFFERING. If the
managing underwriter or placement agent for any public offering effected
pursuant to Section 1.1 or Section 1.2 (or, if there is none, a nationally
recognized investment banking firm acting as financial advisor to Holdings)
shall advise Holdings and the Sellers in writing that the number of Ordinary
Shares sought to be included in such public offering (including those sought to
be offered by Holdings and those sought to be offered by the Sellers) exceeds
the Maximum Number, Holdings shall allocate Ordinary Shares to be included in
such public offering up to the Maximum Number as follows:
(a) in the case of any registration pursuant to Section 1.1;
first to the Demanding Shareholders and, if the number of Ordinary
Shares allocated to them exceeds the number covered by their Demand
Request, such excess number will be allocated to the Joining
Shareholders; if the Maximum Number exceeds the total number of Ordinary
Shares allocated in the foregoing manner, any such excess number will be
allocated to Holdings; and
(b) in the case of any registration pursuant to Section 1.2,
first to Holdings for its own account and, if the number of Ordinary
Shares allocated to Holdings for its own account exceeds the number that
it wishes to include for its own account, such excess number shall be
allocated to each Rightholder making a Piggy-Back Request and each other
shareholder designated by Holdings, pro rata according to the number of
Registrable Shares held by the Rightholder Group of which such
Rightholder is a member or by such other shareholder, as the case may
be; if the number so allocated to the Rightholder or other shareholder
with the smallest number of
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<PAGE> 5
Registrable Shares covered by its request or (in the case of any such
other shareholder) designated by Holdings to be included for its account
exceeds the number so covered by its request or so designated for its
account, as the case may be, then such excess number shall be allocated
among the remaining Rightholders and other shareholders, if any, in the
manner provided in this clause (b), and such allocation shall be
repeated until all shares to be allocated are allocated.
Each Rightholder may allocate any allocation made to it pursuant to this
Section 1.3 among the members of its Rightholder Group as it wishes. Holdings
may allocate any allocation made to it pursuant to Section 1.3(a) among itself,
its subsidiaries and its shareholders as it wishes, and may allocate any
allocation made to it for its own account pursuant to Section 1.3(b) among
itself and its subsidiaries as it wishes.
1.4. INDEMNIFICATION. (a) In the event Holdings shall effect any
registration under the Securities Act of any Registrable Shares pursuant to
Section 1.1 or Section 1.2 of this Agreement, Holdings shall indemnify, to the
extent permitted by law, and hold harmless any Seller whose Registrable Shares
are included in such registration statement and any underwriter or placement
agent (each an "underwriter," provided that such term shall not be deemed to
include a seller acting in its capacity as a Seller hereunder) of such
Registrable Shares against any losses, claims, damages or liabilities, joint or
several, or actions in respect thereof ("Claims"), to which such indemnified
party may become subject, under the Securities Act or otherwise, insofar as
such Claims arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
in any prospectus or preliminary prospectus included in such registration
statement or in any amendment or supplement thereto filed with the SEC
(collectively, "Registration Documents") or insofar as such Claims arise out of
or are based upon the omission or alleged omission to state in any Registration
Document a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse any such indemnified
party for any legal or other expenses reasonably incurred by such indemnified
party in investigating or defending any such Claim as such expenses are
incurred; provided that Holdings shall not be liable in any such case to the
extent that any such Claim arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any
Registration Document in reliance upon and in conformity with written
information furnished to Holdings by or on behalf of such indemnified party
specifically for use in the preparation of such Registration Document; and
provided further, that Holdings shall not be liable to any underwriter for such
indemnification with respect to any preliminary prospectus to the extent that
any such Claim results from the fact that such underwriter sold securities to a
person as to whom it shall be established that there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the prospectus and
any amendment or supplement thereto in any case where such delivery is required
by the Securities Act if Holdings has previously furnished copies thereof in
sufficient quantity to such underwriter and the Claim to which such underwriter
is subject results from an untrue statement or omission of a material fact
contained in the preliminary prospectus that was identified in writing at such
time to such underwriter and corrected in such prospectus or such amendment or
supplement thereto.
(b) In connection with any registration in which any Seller is
participating, each Seller, severally and not jointly, shall indemnify, to the
extent permitted by law, and hold harmless Holdings and each other Seller and
each underwriter against any Claims to which each such indemnified party may
become subject under the Securities Act or otherwise, insofar as such Claims
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Document, or insofar as any
claims arise out of or are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements
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<PAGE> 6
made therein not misleading; provided, however, that such indemnification shall
be payable only if, and to the extent that, any such Claim arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Registration Document in reliance upon and in
conformity with written information furnished to Holdings by or on behalf of
such Seller specifically for use in the preparation thereof.
(c) Any person entitled to indemnification under Section 1.4(a) or (b)
above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party under this Section 1.4, but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Section 1.4(a) or (b). In case any action is brought against an indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it chooses, to assume the defense thereof with counsel satisfactory to the
indemnified party, who may be counsel for the indemnifying party unless the
indemnified party reasonably concludes such counsel would have a conflict of
interest in representing both indemnified and indemnifying parties (provided
that Holdings shall not be responsible for the fees and expenses of more than
one counsel for all indemnified parties with respect to any Claim or group of
Claims alleged to have arisen from similar facts); and, after notice from the
indemnifying party to the indemnified party that it so chooses, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
(d) If for any reason the foregoing indemnity is unavailable to, or is
insufficient to hold harmless, an indemnified party in respect of any Claim,
(i) if the indemnified party is an underwriter, then each indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of any Claim in such proportion as is appropriate to reflect the
relative benefits received by the Sellers and Holdings, on the one hand, and
the indemnified party, on the other, from the offering of securities to which
such Registration Documents relate, (ii) as between Holdings and each Seller,
the indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of any Claim in such proportion as is appropriate
to reflect the relative fault of the indemnifying party, on the one hand, and
the indemnified party, on the other, in connection with the statements or
omissions that resulted in such Claims, as well as any other relevant
equitable considerations. If, however, the allocation provided in clause (i) of
the immediately preceding sentence is not permitted by applicable law, or if
the indemnified party failed to give the notice required by clause (c) above,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the indemnifying party
and the indemnified party in connection with the statements or omissions that
resulted in such Claims as well as any other relevant equitable considerations.
The relative benefits received by the Sellers and Holdings, on the one hand,
and by the underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the securities
(before deducting expenses) received by the Sellers and Holdings, on the one
hand, bear to the total underwriting discounts and commissions received by the
underwriters on the other hand, in connection with such offering. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable in respect of any Claim
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or
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<PAGE> 7
defending any such Claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) As a condition to their obligations under this Section 1.4, each
of Holdings and the Sellers shall have received from each underwriter of
Registrable Shares included in a registration statement filed under the
Securities Act pursuant to Section 1.1 or 1.2 an undertaking to indemnify, to
the extent permitted by law, and hold harmless Holdings and the Sellers against
(or if such indemnity is unavailable or is insufficient to hold harmless an
indemnified party, to provide contribution, on substantially the same basis
provided to such underwriter in accordance with Section 1.4(d), in respect of)
any Claims to which each such indemnified party may become subject under the
Securities Act or otherwise, insofar as such Claims arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Document, or insofar as any claims arise out of
or are based upon the omission or alleged omission to state in any Registration
Document a material fact required to be stated therein or necessary to make the
statements made therein not misleading; provided, however, that such
indemnification (or contribution, as the case may be) shall be payable only if,
and to the extent that, any such Claim arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Registration Document in reliance upon and in conformity with written
information furnished to Holdings by or on behalf of such underwriter
specifically for use in the preparation thereof. Notwithstanding the foregoing,
no underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Shares underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which such underwriter otherwise has been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. The obligation of any underwriters to provide indemnification (or
contribution, as the case may be) pursuant to this paragraph (e) shall be
several in proportion to their respective underwriting commitments and not
joint.
(f) The obligations of Holdings pursuant to this Section 1.4 shall be
in addition to any liability which Holdings may otherwise have and shall
extend, upon the same terms and conditions, to each officer, director and
general partner of any underwriter or Seller and to each person, if any, who
controls any underwriter or Seller within the meaning of the Securities Act.
The obligations of each Seller pursuant to this Section 1.4 shall be in
addition to any liability which such Seller may otherwise have and shall
extend, upon the same terms and conditions, to each officer, director and
general partner of Holdings, any underwriter or any other Seller and to each
person, if any, who controls Holdings, any underwriter or any other Seller
within the meaning of the Securities Act. The obligations of any underwriter
pursuant to this Section 1.4 shall be in addition to any liability which such
underwriter may otherwise have and shall extend, upon the same terms and
conditions, to each officer, director and general partner of Holdings or any
Seller and to each person, if any, who controls Holdings or any Seller within
the meaning of the Securities Act.
1.5 REQUIREMENTS WITH RESPECT TO REGISTRATION. If and whenever
Holdings is required by the provisions hereof to use its reasonable efforts to
register any Registrable Shares under the Securities Act, Holdings shall, as
promptly as practicable:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Shares and use its reasonable efforts
to cause such registration statement to become and remain effective.
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<PAGE> 8
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement current and to comply with
the provisions of the Securities Act and any regulations promulgated thereunder
with respect to the sale or other disposition of such Registrable Shares, for
as long as a prospectus relating to any such Registrable Shares is required to
be delivered under the Securities Act, subject to the limitation in Section
1.1(b)(vi).
(c) Furnish to the Sellers participating in the offering copies (in
reasonable quantities) of summary, preliminary, final, amended or supplemented
prospectuses, in conformity with the requirements of the Securities Act and any
regulations promulgated thereunder, and other documents as reasonably may be
required in order to facilitate the disposition of such Registrable Shares, but
only while Holdings is required under the provisions hereof to keep the
registration statement current.
(d) Use its best efforts to register or qualify the Registrable Shares
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions in the United States as the managing underwriter or
placement agent (or, if none, the Rightholders participating in the offering)
shall reasonably request, and do any and all other acts and things which may be
reasonably necessary to enable each participating Seller or underwriter to
consummate the disposition of Registrable Shares in such jurisdictions;
provided, however, that in no event shall Holdings be required to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified; to execute or file any general consent to service of process under
the laws of any jurisdiction; to take any action that would subject it to
service of process in suits other than those arising out of the offer and sale
of the securities covered by the registration statement; or to subject itself
to taxation in any jurisdiction where it has not theretofore done so unless
Holdings shall have received a reasonably satisfactory indemnity in respect
thereto or to subject itself to any insurance regulation in any jurisdiction in
which it has not theretofore been so subject.
(e) Notify each Seller selling Registrable Shares, at any time when a
prospectus relating to any such Registrable Shares covered by such registration
statement is required to be delivered under the Securities Act, of Holdings'
becoming aware that the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and, subject to the limitation in Section 1.1(b)(vi); promptly
prepare and furnish to each such Seller selling Registrable Shares and each
underwriter a reasonable number of copies of a prospectus supplemented or
amended so that, as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(f) As soon as practicable after the effective date of such
registration statement, and in any event within eighteen (18) months
thereafter, make generally available to Sellers participating in the offering
an earnings statement (which need not be audited) covering a period of at least
twelve (12) consecutive months beginning after the effective date of the
registration statement, which earning statement shall satisfy the provisions of
Section 11(a) of the Securities Act, including at Holdings' option, Rule 158
thereunder.
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<PAGE> 9
(g) Deliver promptly to each Rightholder whose Affiliates are
Sellers participating in the offering, upon such Rightholder's written
request, copies of all correspondence between the SEC and Holdings, its
counsel or auditors and all memoranda relating to discussions with the
SEC or its staff with respect to the registration statement and permit
each such Rightholder to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary. Each such
Rightholder agrees that it will use its best efforts not to interfere
unreasonably with Holdings' business when conducting any such
investigation.
(h) Provide a transfer agent and registrar for all such
Registrable Shares covered by such registration statement not later than
the effective date of such registration statement, which transfer agent
and registrar may be Holdings, subject to any applicable law or
regulations.
(i) Obtain an opinion from Holdings' counsel and "cold comfort"
letters from Holdings' independent public accountants (including one
letter when such registration statement goes effective and one at the
closing) in customary form and covering such matters of the type
customarily covered by such opinions and "cold comfort" letters.
1.6 EXPENSES. Holdings shall be obligated to pay Registration Expenses
incurred in connection with any Demand Request, other than a Demand Request
that is withdrawn by the Rightholder other than pursuant to Section 1.1(d), in
which case such Registration Expenses shall be paid by the proposed Sellers on
a joint and several basis or pursuant to such other arrangements as Holdings
and the Sellers may agree.
1.7 CERTAIN SELLERS' OBLIGATIONS. Each Seller shall provide such
information to Holdings as Holdings may reasonably request in connection with
any registration hereunder of Registrable Shares for such Seller's account and
shall dispose of any such Registrable Shares pursuant to any registration
hereunder in the manner contemplated thereby. Each Rightholder shall cause the
members of its Rightholder Group to perform their respective obligations under
this Agreement.
ARTICLE II
DEFINITIONS
2.1 DEFINED TERMS. As used in this Agreement, the following capitalized
terms have the respective means set forth below:
"Affiliate" shall mean, with respect to any person, any other person
that directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with such person.
"Articles" shall mean the Articles of Association of Holdings, as the
same may be amended from time to time.
"Capital Securities" shall mean all shares of each class in the capital
stock of Holdings and all securities convertible into or exchangeable or
exercisable for any such shares.
-9-
<PAGE> 10
"Closing" shall mean the closing of the initial public offering of
Ordinary Shares pursuant to an effective registration statement under the
Securities Act, and the day on which the Closing occurs shall be the day
confirmed as such by a director or officer of Holdings in the records
maintained by Holdings.
"Effective Time" shall be the time immediately prior to the Closing,
and "Effective Date" shall be the date on which the Effective Time occurs.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934.
"Goldman Sachs Person" shall have the meaning set forth in the Articles.
"Goldman, Sachs & Co." shall mean Goldman, Sachs & Co., a limited
partnership registered in the state of New York.
"holder" shall mean, with respect to any Ordinary Shares, the person in
whose name such shares are registered on the share registry maintained by
Holdings in accordance with applicable law and the Articles, and the terms
"hold," "held" and "holding" shall have meanings correlative to the foregoing.
"Market-Making Registration" means a registration maintained by
Holdings pursuant to the underwriting agreement relating to the Closing, but
only to the extent that such registration covers offers and sales made in
connection with market-making transactions by Goldman, Sachs & Co.
"person" shall mean any individual, corporation, company, partnership,
joint venture, trust, association, government or governmental body or other
entity.
"Registrable Shares" shall mean, at any time, all Ordinary Shares then
outstanding, other than shares that have ceased to be Registrable Shares.
Ordinary Shares shall cease to be Registrable Shares (a) when a registration
statement with respect to the disposition of such shares shall have become
effective under the Securities Act and such shares shall have been disposed of
pursuant to such registration statement, or (b) when such shares shall have
been sold pursuant to Rule 144 under the Securities Act.
"Registrable Warrant Shares" shall mean Registrable Shares acquired on
exercise of the warrants granted to the Rightholder Groups by the Company in
October 1993.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with the demand rights set forth in Section 1.1
and piggy-back rights set forth in Section 1.2, including, without limitation,
(a) all SEC and stock exchange or National Association of Securities Dealers,
Inc. registration and filing fees, (b) all fees and expenses of complying with
state securities or blue sky laws (including reasonable fees and disbursements
of counsel for the underwriters in connection with blue sky qualifications of
the Registrable Shares), (c) the cost of printing or preparing any registration
statement, prospectus, offering circular, agreement among underwriters,
underwriting agreement, blue sky memorandum, share certificates and any other
documents in connection with the offering, purchase, sale and delivery of the
Registrable Shares, (d) the costs and charges of any transfer agent and
registrar and any custodian or attorney-in-fact appointed to act on behalf of
the Sellers, (e) all messenger and delivery expenses; (f) the fees and expenses
of any qualified independent underwriter and (g) the reasonable fees and
disbursements of counsel for Holdings and Holdings' independent public
accountants, including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance; provided
that each Seller shall pay the fees and
-10-
<PAGE> 11
disbursements of its own counsel, if any, and all underwriting discounts,
commissions and transfer taxes, if any, relating to the sale or disposition of
such Sellers' Registrable Shares.
"Rightholders" shall mean, (i) The Goldman Sachs Group, L.P., a
Delaware limited partnership, and (ii) Johnson & Higgins, a New Jersey
corporation.
"Rightholder Group" means, as to either Rightholder at any time, such
Rightholder and its Affiliates (other than Holdings) at such time (provided
that the Rightholder Group of Johnson & Higgins shall also include the partners
of the J&H/GCR Holdings Partnership on the date hereof).
"Securities Act" shall mean the U.S. Securities Act of 1933.
"SEC" shall mean the U.S. Securities and Exchange Commission or any
other U.S. federal agency at the time administering the Securities Act or the
Exchange Act.
"United States 10% Shareholder" shall have the meaning set forth in the
Articles.
"United States 25% Shareholder" shall have the meaning set forth in the
Articles.
2.2 GENERAL. Unless the context otherwise requires, references in this
Agreement to any "section" or "article" shall mean a section or article of or
this Agreement, as the case may be, and the terms "hereof," "hereunder,"
"hereto" and words of similar meaning shall mean this Agreement in its entirety
and not any particular provisions of this Agreement. Unless the context
otherwise requires, the terms defined herein include the singular as well as
the plural.
Unless the context otherwise requires, each reference herein to the
Securities Act, the Exchange Act or Rule 144 (or any other rule, regulation or
form promulgated under either such statute) shall be deemed to mean, as of any
time, such statute, rule, regulation or form as then in effect, after all
amendments thereto, or, if not then in effect, any successor statute, rule,
regulation or form as then in effect, after all amendments thereto.
ARTICLE III
MISCELLANEOUS
3.1 TERMINATION OF CERTAIN RIGHTS. The rights of any Rightholder to
make a Demand Request or a Joining Request pursuant to Section 1.1 or a
Piggy-Back Request pursuant to Section 1.2, and Holdings' obligation with
respect to any such request by such Rightholder, shall terminate (and shall
remain terminated regardless of any subsequent acquisition by such Rightholder
or its Rightholder Group of additional Registrable Shares) (i) in the case of a
Demand Request pursuant to Section 1.1, at the first time when the total number
of Registrable Shares held by the relevant Rightholder Group is less than fifty
percent (50%) of the total number of Registrable Shares held by such
Rightholder Group on the Effective Date and (ii) in the case of a Joining
Request pursuant to Section 1.1 or a Piggy-Back Request pursuant to Section
1.2, at the first time when the total number of Registrable Shares held by the
relevant Rightholder Group is less than twenty-five percent (25%) of the total
number of Registrable Shares held
-11-
<PAGE> 12
by such Rightholder Group on the Effective Date (in all such cases, with such
number of Registrable Shares on the Effective Date to be calculated without
including any shares delivered for sale at the Closing and to be adjusted to
reflect any subsequent change in the number of such shares due to a share
dividend, split, combination or similar event as necessary to effect the
purpose of this Section 3.1) (such number, as to adjusted from time to time,
the "Initial Number"); provided that, as to any Registrable Shares that are
registered under a registration statement declared effective before such first
time and are the subject of a public offering that has commenced, such
termination shall be delayed until such shares have been disposed of pursuant
to such registration statement or such offering has been completed or
abandoned; and provided, further, that if a Rightholder at any time properly
delivers a Demand Request, a Joining Request or a Piggy-Back Request covering
Registrable Shares then held by its Rightholder Group and, pursuant to the
allocation procedures set forth in Section 1.3, less than all shares covered by
the request are included in the registration to which the request relates and
the excluded shares, together with all other Registrable Shares then held by
such Rightholder Group, (x) represent less than 50% of the Initial Number for
such Rightholder Group, then termination pursuant to clause (i) of this Section
3.1 shall not apply with respect to any subsequent Demand Request by such
Rightholder that is otherwise available hereunder and that covers all
Registrable Shares then held by its Rightholder Group or (y) represent less
than 25% of the Initial Number for such Rightholder Group, then termination
pursuant to clause (ii) of this Section 3.1 shall not apply with respect to any
subsequent Joining Request or Piggy-Back Request by such Rightholder that is
otherwise available hereunder and that covers all Registrable Shares then held
by its Rightholder Group. Notwithstanding clause (ii) above, the right to make
a Joining Request or a Piggy-Back Request shall continue with respect to any
Registrable Warrant Shares as to which the two-year holding period of Rule
144(d) has not elapsed when such request is made.
3.2 AMENDMENT. This Agreement may not be amended except in a written
signed by Holdings and each Rightholder whose rights hereunder would be
adversely affected thereby.
3.3 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed, unless otherwise specified
herein, to have been duly given if delivered or mailed, first class postage
prepaid, or transmitted by telex or facsimile, (a) if to any Rightholder, at
its address or telex or facsimile number appearing in the register of members
of Holdings and (b) if to Holdings, at its principle executive office.
3.4 ENTIRE AGREEMENT. This Agreement and the Articles constitute the
entire agreement between the parties hereto and supersede all prior agreements
and understandings, oral and written, between the parties hereto with respect
to the subject matter hereof. The provisions of this Agreement shall not be
deemed to supersede or limit the Articles in any manner and, in the event of
any conflict between the provisions hereof and the Articles, the Articles shall
prevail.
3.5 BINDING EFFECT; BENEFIT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties hereto, and their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
3.6 ASSIGNABILITY. This Agreement shall not be assignable by any party
hereto.
3.7 HEADINGS. The headings contained in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
-12-
<PAGE> 13
3.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
3.9 APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York (without regard
to principles of conflict of laws).
3.10 EFFECTIVENESS. This Agreement shall become effective at (but
only at) the Effective Time, automatically and with no action on the part of
any person. If the Closing shall not occur prior to June 30, 1996, this
Agreement shall be of no force or effect and the Original Shareholders'
Agreement shall remain in full force and effect.
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<PAGE> 14
IN WITNESS WHEREOF, the parties named below have hereto set their hands
as of the day and year first above written.
GCR HOLDINGS LIMITED
By: /s/ Frederick W. Deichmann
-----------------------------------
Name: Frederick W. Deichmann
Title: Chief Financial Officer and Secretary
Rightholders:
THE GOLDMAN SACHS GROUP, L.P.
By: /s/ Richard A. Friedman
-----------------------------------
Name: Richard A. Friedman
Title: Partner
JOHNSON & HIGGINS
By: /s/ Gardner M. Mundy
-----------------------------------
Name: Gardner M. Mundy
Title: Director
-14-
<PAGE> 1
EXHIBIT 5
May 21, 1996
GCR Holdings Limited
Sofia House
48 Church Street
P.O. Box HM 762
Hamilton HM CX
Bermuda
Dear Sirs,
GCR HOLDINGS LIMITED (THE "COMPANY")
REGISTRATION OF FURTHER ORDINARY REDEEMABLE SHARES OF US$0.10 EACH (THE
"SECURITIES")
We act as Cayman Islands counsel for the Company, an exempted Company
incorporated under the laws of the Cayman Islands, in connection with the
registration of the Securities under the United States Securities Act of 1933
(the "Act").
For purposes of this opinion, we have reviewed the Companies Law (1995
Revision) of the Cayman Islands and have examined, and relied upon:
(1) a copy of the prospectus (the "Prospectus") which is included in the
Registration Statement on Form S-1 the ("Registration Statement")
relating to the offering of the Securities in its form to be filed on
May 21, 1996 with the Securities and Exchange Commission of the United
States of America (the "SEC");
(2) the form of revised Restated Articles as adopted on 30th October, 1995
and becoming effective on 22nd December, 1996 (the "Articles");
(3) the Certificate of Incorporation of the Company;
(4) copies of the Resolutions of the board of directors of the Company
adopted on 18th April and 15th May, 1996, respectively and the
Resolutions of the committee of the board of directors adopted on
15th May, 1996; and
(5) Such other documents and laws of the Cayman Islands as we have
considered necessary or appropriate for the purposes of rendering this
opinion.
In rendering this opinion we have assumed without independent
investigation:
(a) that we have been provided with originals or copies of all corporate
proceedings as minuted and that such originals or copies provided to
us are a true and complete record of such proceedings and that the
same were duly convened and held in accordance with Memorandum and
Articles;
(b) that the Securities when originally issued were duly paid for by the
subscribers therefor in accordance with the provisions of the Articles
of Association of the Company then in force and the Company's
Confidential Private Placement Memorandum dated August, 1993;
(c) the genuineness of all documents and signatures;
(d) the conformity of all faxed and copied documents to their originals;
and
<PAGE> 2
(e) that the public in the Cayman Islands has not been and will not be
invited to subscribe for the Securities.
Based upon, and subject to the foregoing and as hereinafter provided, in
our opinion:
(1) The Company has been duly incorporated and is validly existing under
the laws of the Cayman Islands;
(2) The offering of Securities as contemplated by the Registration
Statement, including the Prospectus, has been duly authorized by all
necessary action on the part of the Company; and
(3) Upon the sale of Securities by their existing holders as contemplated
by the Registration Statement, including the Prospectus, they will
continue to constitute validly issued, fully paid and non-assessable
shares in the capital of the Company.
The foregoing opinions are given only on the basis of the facts of which we
are aware on the date hereof and the laws of the Cayman Islands as presently in
force. We do not express or imply any opinion in relation to the laws of any
other jurisdiction.
Finally, we consent to the use of our opinions and to all references to
our firm included in or made a part of the Prospectus and Registration
Statement and in any registration statement that may be filed pursuant to Rule
462(b) promulgated under the Act and to this opinion being filed as an exhibit
to the Registration Statement. In giving this opinion we do not thereby admit
that we are in the category of persons whose consent is required under Section
7 of the Act.
Yours faithfully,
/s/ Maples and Calder
------------------------------------
Maples and Calder
<PAGE> 1
EXHIBIT 8
May 21, 1996
GCR Holdings Limited,
Sofia House,
48 Church Street,
Hamilton HM 12, Bermuda.
Ladies and Gentlemen:
We have acted as counsel to GCR Holdings Limited (the "Company") in
connection with the registration, under the Securities Act of 1933, as amended
(the "Securities Act"), of $85 million proposed maximum aggregate offering
price of Ordinary Shares of the Company on Form S-1 (the "Registration
Statement"). We hereby confirm to you that, in our opinion, insofar as they
purport to describe provisions of United States federal income tax law, the
statements set forth under the captions "Certain Tax Considerations -- Taxation
of the Company and Global Re -- United States" and "Certain Tax Considerations
- -- Taxation of Shareholders -- United States Taxation of U.S. and Non-U.S.
Shareholders" in the Prospectus included in the Registration Statement are
complete and accurate in all material respects.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to us under the heading "Certain Tax
Considerations" in the Prospectus made part of the Registration Statement and
all amendments thereto and in any registration statement that may be filed
pursuant to Rule 462(b) promulgated under the Securities Act. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE> 1
EXHIBIT 10.1A
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 12, 1995, is made by and between
GCR Holdings Limited, a Cayman Islands exempt limited liability company (the
"Company"), Global Capital Reinsurance Limited, a subsidiary of the Company
organized under the laws of Bermuda to engage in worldwide property catastrophe
reinsurance (the "Operating Company"), and LAWRENCE DOYLE, (hereinafter called
the "Employee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, the Operating Company and the Employee entered
into an Employment Agreement dated as of June 16, 1993 (the "Prior Agreement"),
setting forth the terms and conditions of the Employee's employment with the
Operating Company; and
WHEREAS, the Company, the Operating Company and the Employee desire to
amend the Prior Agreement in certain respects; and
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the parties hereto agree to amend the
Prior Agreement, effective as of October 1, 1995, as follows (unless the context
otherwise requires, section references are to sections of the Prior Agreement);
Section 6. Bonus.
Section 6 shall be revised to provide in its entirety as follows:
"During the Term of Employment, the Employee will participate in
the Company's Incentive Compensation Plan (as amended and restated as of
the date hereof), and will be eligible for an annual bonus of up to
seventy-five percent (75%) of base annual salary based on performance
targets as determined in accordance with the terms of the Plan."
<PAGE> 2
Section 7. Options.
The paragraph below shall be inserted following the first paragraph of
Section 7(a) and shall apply retroactively, as of the Startup Date, to all
Initial Options outstanding as of the date hereof. Without limiting the
foregoing, the adjustment provided for in the third sentence of the following
paragraph shall be made with respect to the cash distribution made by the
Company to the shareholders in August 1995.
"Notwithstanding the immediately preceding paragraph, the
number of Ordinary Shares subject to and the exercise price for each
outstanding Initial Option shall be adjusted as follows. If there is any change
in the number or nature of outstanding shares of the Company's capital stock by
reason of a share dividend, recapitalization, merger, consolidation, scheme of
arrangement, share split, combination or exchange, share repurchase or
otherwise, or if there is any non-cash distribution in respect of any such
shares, which in any such case has a dilutive or anti-dilutive effect on the
Ordinary Shares, the number of Ordinary Shares subject to each outstanding
Initial Option, the exercise price thereof and/or other terms thereof shall be
appropriately adjusted by the Board of Directors of the Company (or any
committee thereof), whose determination shall be conclusive, so as to restore
the Option holder to his rights thereunder. In addition (but without
duplication of any adjustment made pursuant to the preceding sentence), the
exercise price for each outstanding Initial Option shall be reduced by the
amount of all cash dividends that are declared by the Company and are paid or
payable to shareholders of record as of a time before the exercise of the
Initial Option that would have been paid or payable to the Employee had the
Ordinary Shares which are the subject of the Initial Option (as adjusted, if
applicable, in accordance with the preceding sentence) been held by the
Employee as of such time; provided, however, that in no event shall the
exercise price of the Initial Options be reduced below the nominal value of the
Ordinary Shares. Without limiting the foregoing, the adjustment provided for in
the preceding sentence shall apply with respect to the cash distribution made
by the Company to its shareholders in August 1995."
Section 7(b) shall be revised to read in its entirety as follows:
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<PAGE> 3
"Other Options. During the Term of Employment, the Employee
shall participate in the Company's current share option plan as amended
and restated as of the date hereof (the "Share Option Plan") and the
Company's 1995 share option plan adopted as of the date hereof (the
"1995 Share Option Plan") and shall be eligible to be granted options
(in addition to the Initial Options) to purchase Ordinary Shares at such
prices and subject to such terms as may be provided by such plans. In
addition, the Employee shall be entitled to receive any restricted
Ordinary Shares relating to such option grants as provided in such
plans.
A new Section 7(c) shall be added as follows:
"(c) Shareholders' Agreement. The Employee shall become a party
to the Company's Amended and Restated Shareholders' Agreement, which is
to become effective immediately prior to the closing for the Company's
proposed initial public offering, by executing and delivering to the
Company such documentation as the Company reasonably may request (which
may subject the Initial Options and other options obtained pursuant to
the Company's share option plans and securities acquired pursuant
thereto to the transfer restrictions set forth in such agreement)
promptly after such request is made.
Section 15. Termination.
Each of (i) the second paragraph of Section 15(c), (ii) the third
paragraph of Section 15(d) and (iii) the second paragraph of Section 15(e),
shall be deleted in its entirety.
The second sentence of the first paragraph of Section 15(f) shall be
deleted and replaced in its entirety with the following sentence.
"In addition, the Employee shall be entitled to receive one (1) year's
salary from the date on which the Employee's employment is terminated,
but only if the Employee performs such consulting services during such
one year period as the Company shall require (including but not limited
to winding up the affairs of the Company or helping to start other
similar enterprises)."
The second paragraph of Section 15(f) shall be deleted and replaced in
its entirety with the following paragraph:
-3-
<PAGE> 4
"In such event, the Employee will receive payment for such Ordinary
Shares at the same time, and on the same basis, as the other holders
of the Ordinary Shares."
Section 17. Confidential Information.
The term "Sponsors" in Section 17 shall be replaced with "Board of
Directors of the Company."
Section 23. Notices.
The address of the Employee, the Company and the Operating Company as
set forth in Section 23 shall be replaced with the following addresses:
To Employee: Lawrence Doyle
c/o Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Company: GCR Holdings Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Operating
Company: Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
Section 26. Change of Control.
The following provisions shall be inserted as Section 26:
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<PAGE> 5
"(a) If the Employee is employed by the Operating Company (or
successor thereto) sixty (60) days following the date on which a Change of
Control (as defined in Section 26(e)) occurs, then the Operating Company (or
successor thereto) shall make a lump sum cash payment to the Employee on such
date in an amount equal to the Employee's annual base salary as of the date on
which the Change of Control occurs.
(b) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's share
option plans that are not then exercisable shall become exercisable (and be
deemed to be vested) on the date on which the Change of Control occurs. In
addition, restricted Ordinary Shares granted under any of the Company's share
option plans shall immediately vest upon a Change of Control.
(c) If the Employee is employed by the Operating Company (or successor
thereto) on the first anniversary of the date on which a Change of Control
occurs, then the Employee shall not be obligated to repay any portion of any
loan made to the Employee pursuant to Section 8 hereof.
(d) If (i) the Employee is terminated by the Operating Company (or
successor thereto) without Serious Cause or (ii) the Employee terminates
employment with the Operating Company (or successor thereto) for Good Reason,
within the period commencing on the date that a Change of Control is proposed
and ending on the first anniversary of the date in which such Change of Control
occurs, then (A) the Employee shall not be obligated to repay any portion of
any loan made to the Employee pursuant to Section 8 hereof and (B) the Employee
shall be entitled to receive (in lieu of the benefits described in Section
15(e)): (1) any accrued but unpaid salary, (2) a lump sum payment equal to two
times such Employee's annual base salary as of the date of termination, (3) any
earned but unpaid bonus from a prior fiscal year, (4) unreimbursed expenses
incurred prior to the date of termination, (5) automobile and housing
allowances for one year following the date of termination and (6) relocation
expenses as described in Section 11(a) from Bermuda to the United States.
The Employee shall not be entitled to any benefits or other
entitlements under this Section 26 unless a Change of Control actually occurs.
-5-
<PAGE> 6
(e) A "Change of Control" of the Operating Company shall be deemed to
have occurred if (i) any "person" (as such term is defined in Section 3(a)(9)
and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act")), excluding the Company or any of its subsidiaries, a
trustee or any fidicuary holding securities under an employee benefit plan of
the Company or any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation owned,
directly or indirectly, by shareholders of the Company in substantially the
same proportion as their ownership of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities ("Voting
Securities"); (ii) during any period of not more than two years, individuals
who constitute the Board of Directors of the Company (the "Board") as of the
beginning of the period and any new director (other than a director designated
by a person who has entered into an agreement with the Company to effect a
transaction described in clause (i) or (iii) of this sentence) whose election
by the Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at such time or whose election or nomination
for election was previously so approved, cease for any reason to constitute a
majority thereof; (iii) the shareholders of the Company approve a merger,
consolidation or reorganization or a court of competent jurisdiction approves a
scheme of arrangement of the Company, other than a merger, consolidation,
reorganization or scheme of arrangement which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the combined voting power of
the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger, consolidation, reorganization or scheme of
arrangement; or (iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or any agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
----------------------------
Lawrence Doyle
GCR Holdings Limited
By: /s/ JERRY S. ROSENBLOOM
------------------------
Global Capital
Reinsurance Limited
By:
------------------------
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
/s/ LAWRENCE S. DOYLE
------------------------------
Lawrence Doyle
GCR Holdings Limited
By:
----------------------------
Global Capital
Reinsurance Limited
By:
----------------------------
-7-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
-------------------------------
Lawrence Doyle
GCR Holdings Limited
By: /s/ JERRY S. ROSENBLOOM
----------------------------
Global Capital
Reinsurance Limited
By: /s/ FREDERICK W. DEICHMANN
----------------------------
-7-
<PAGE> 1
EXHIBIT 10.2A
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 12, 1995, is made by and between
GCR Holdings Limited, a Cayman Islands exempt limited liability company (the
"Company"), Global Capital Reinsurance Limited, a subsidiary of the Company
organized under the laws of Bermuda to engage in worldwide property catastrophe
reinsurance (the "Operating Company"), and FREDERICK DEICHMANN, (hereinafter
called the "Employee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, the Operating Company and the Employee entered
into an Employment Agreement dated as of August 16, 1993 (the "Prior
Agreement"), setting forth the terms and conditions of the Employee's
employment with the Operating Company; and
WHEREAS, the Company, the Operating Company and the Employee desire to
amend the Prior Agreement in certain respects; and
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the parties hereto agree to
amend the Prior Agreement, effective as of October 1, 1995, as follows (unless
the context otherwise requires, section references are to sections of the Prior
Agreement):
Section 6. Bonus.
Section 6 shall be revised to provide in its entirety as follows:
"During the Term of Employment, the Employee will participate in
the Company's Incentive Compensation Plan (as amended and restated as of
the date hereof), and will be eligible for an annual bonus of up to
seventy-five percent (75%) of base annual salary based on performance
targets as determined in accordance with the terms of the Plan."
<PAGE> 2
Section 7. Options.
The paragraph below shall be inserted following the first paragraph of
Section 7(a) and shall apply retroactively, as of the Startup Date, to all
Initial Options outstanding as of the date hereof. Without limiting the
foregoing, the adjustment provided for in the third sentence of the following
paragraph shall be made with respect to the cash distribution made by the
Company to the shareholders in August 1995.
"Notwithstanding the immediately preceding paragraph, the number
of Ordinary Shares subject to and the exercise price for each
outstanding Initial Option shall be adjusted as follows. If there is any
change in the number or nature of outstanding shares of the Company's
capital stock by reason of a share dividend, recapitalization, merger,
consolidation, scheme of arrangement, share split, combination or
exchange, share repurchase or otherwise, or if there is any non-cash
distribution in respect of any such shares, which in any such case has a
dilutive or anti-dilutive effect on the Ordinary Shares, the number of
Ordinary Shares subject to each outstanding Initial Option, the exercise
price thereof and/or other terms thereof shall be appropriately adjusted
by the Board of Directors of the Company (or any committee thereof),
whose determination shall be conclusive, so as to restore the Option
holder to his rights thereunder. In addition (but without duplication of
any adjustment made pursuant to the preceding sentence), the exercise
price for each outstanding Initial Option shall be reduced by the amount
of all cash dividends that are declared by the Company and are paid or
payable to shareholders of record as of a time before the exercise of
the Initial Option that would have been paid or payable to the Employee
had the Ordinary Shares which are the subject of the Initial Option (as
adjusted, if applicable, in accordance with the preceding sentence) been
held by the Employee as of such time; provided, however, that in no
event shall the exercise price of the Initial Options be reduced below
the nominal value of the Ordinary Shares. Without limiting the
foregoing, the adjustment provided for in the preceding sentence shall
apply with respect to the cash distribution made by the Company to its
shareholders in August 1995."
Section 7(b) shall be revised to read in its entirety as follows:
-2-
<PAGE> 3
"Other Options. During the Term of Employment, the Employee
shall participate in the Company's current share option plan as amended
and restated as of the date hereof (the "Share Option Plan") and the
Company's 1995 share option plan adopted as of the date hereof (the
"1995 Share Option Plan") and shall be eligible to be granted options
(in addition to the Initial Options) to purchase Ordinary Shares at such
prices and subject to such terms as may be provided by such plans. In
addition, the Employee shall be entitled to receive any restricted
Ordinary Shares relating to such option grants as provided in such
plans.
A new Section 7(c) shall be added as follows:
"(c) Shareholders' Agreement. The Employee shall become a
party to the Company's Amended and Restated Shareholders' Agreement,
which is to become effective immediately prior to the closing for the
Company's proposed initial public offering, by executing and delivering
to the Company such documentation as the Company reasonably may request
(which may subject the Initial Options and other options obtained
pursuant to the Company's share option plans and securities acquired
pursuant thereto to the transfer restrictions set forth in such
agreement) promptly after such request is made.
Section 15. Termination.
Each of (i) the second paragraph of Section 15(c), (ii) the third
paragraph of Section 15(d) and (iii) the second paragraph of Section 15(e),
shall be deleted in its entirety.
The second sentence of the first paragraph of Section 15(f) shall be
deleted and replaced in its entirety with the following sentence.
"In addition, the Employee shall be entitled to receive one (1) year's
salary from the date on which the Employee's employment is terminated,
but only if the Employee performs such consulting services during such
one year period as the Company shall require (including but not limited
to winding up the affairs of the Company or helping to start other
similar enterprises)."
-3-
<PAGE> 4
The second paragraph of Section 15(f) shall be deleted and replaced in
its entirety with the following paragraph:
"In such event, the Employee will receive payment for such Ordinary
Shares at the same time, and on the same basis, as the other holders of
the Ordinary Shares."
Section 17. Confidential Information.
The term "Sponsors" in Section 17 shall be replaced with "Board of
Directors of the Company."
Section 23. Notices.
The address of the Employee, the Company and the Operating Company as
set forth in Section 23 shall be replaced with the following addresses:
To Employee: Frederick Deichmann
c/o Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Company: GCR Holdings Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Operating
Company: Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
Section 26. Change of Control.
-4-
<PAGE> 5
The following provisions shall be inserted as Section 26:
"(a) If the Employee is employed by the Operating Company (or
successor thereto) sixty (60) days following the date on which a Change
of Control (as defined in Section 26(e)) occurs, then the Operating
Company (or successor thereto) shall make a lump sum cash payment to the
Employee on such date in an amount equal to the Employee's annual base
salary as of the date on which the Change of Control occurs.
(b) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's
share option plans that are not then exercisable shall become
exercisable (and be deemed to be vested) on the date on which the Change
of Control occurs. In addition, restricted Ordinary Shares granted under
any of the Company's share option plans shall immediately vest upon a
Change of Control.
(c) If the Employee is employed by the Operating Company (or
successor thereto) on the first anniversary of the date on which a
Change of Control occurs, then the Employee shall not be obligated to
repay any portion of any loan made to the Employee pursuant to Section 8
hereof.
(d) If (i) the Employee is terminated by the Operating Company
(or successor thereto) without Serious Cause or (ii) the Employee
terminates employment with the Operating Company (or successor thereto)
for Good Reason, within the period commencing on the date that a Change
of Control is proposed and ending on the first anniversary of the date
in which such Change of Control occurs, then (A) the Employee shall not
be obligated to repay any portion of any loan made to the Employee
pursuant to Section 8 hereof and (B) the Employee shall be entitled to
receive (in lieu of the benefits described in Section 15(e)): (1) any
accrued but unpaid salary, (2) a lump sum payment equal to two times
such Employee's annual base salary as of the date of termination, (3)
any earned but unpaid bonus from a prior fiscal year, (4) unreimbursed
expenses incurred prior to the date of termination, (5) automobile and
housing allowances for one year following the date of termination and
(6) relocation expenses as described in Section 11(a) from Bermuda to
the United States.
-5-
<PAGE> 6
The Employee shall not be entitled to any benefits or other
entitlements under this Section 26 unless a Change of Control actually
occurs.
(e) A "Change of Control" of the Operating Company shall be
deemed to have occurred if (i) any "person" (as such term is defined in
Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), excluding the
Company or any of its subsidiaries, a trustee or any fiduciary holding
securities under an employee benefit plan of the Company or any of its
subsidiaries, an underwriter temporarily holding securities pursuant to
an offering of such securities or a corporation owned, directly or
indirectly, by shareholders of the Company in substantially the same
proportion as their ownership of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities ("Voting Securities"); (ii) during any period of not more
than two years, individuals who constitute the Board of Directors of the
Company (the "Board") as of the beginning of the period and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (i) or (iii) of this sentence) whose election by the Board or
nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at such time or whose election or nomination
for election was previously so approved, cease for any reason to
constitute a majority thereof; (iii) the shareholders of the Company
approve a merger, consolidation or reorganization or a court of
competent jurisdiction approves a scheme of arrangement of the Company,
other than a merger, consolidation, reorganization or scheme of
arrangement which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 50% of the combined voting power of the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger, consolidation, reorganization or scheme
of arrangement; or (iv) the shareholders of the Company approve a plan
of complete liquidation of the Company or any agreement
-6-
<PAGE> 7
for the sale or disposition by the Company of all or substantially all
of the Company's assets.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
/s/ FREDERICK W. DEICHMANN
------------------------------
Frederick Deichmann
GCR Holdings Limited
By:
---------------------------
Global Capital
Reinsurance Limited
By:
---------------------------
-7-
<PAGE> 8
for the sale or disposition by the Company of all or substantially all
of the Company's assets.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
------------------------------
Frederick Deichmann
GCR Holdings Limited
By: /s/ JERRY S. ROSENBLOOM
--------------------------
Global Capital
Reinsurance Limited
By:
---------------------------
-7-
<PAGE> 9
for the sale or disposition by the Company of all or substantially all
of the Company's assets.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
------------------------------
Frederick Deichmann
GCR Holdings Limited
By: /s/ JERRY S. ROSENBLOOM
--------------------------
Global Capital
Reinsurance Limited
By: /s/ WILLIAM H. FANNING
--------------------------
-7-
<PAGE> 1
EXHIBIT 10.3A
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 12, 1995, is made by and between
GCR Holdings Limited, a Cayman Islands exempt limited liability company (the
"Company"), Global Capital Reinsurance Limited, a subsidiary of the Company
organized under the laws of Bermuda to engage in worldwide property catastrophe
reinsurance (the "Operating Company"), and WILLIAM FANNING, (hereinafter called
the "Employee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, the Operating Company and the Employee entered
into an Employment Agreement dated as of January 15, 1994 (the "Prior
Agreement"), setting forth the terms and conditions of the Employee's
employment with the Operating Company; and
WHEREAS, the Company, the Operating Company and the Employee desire to
amend the Prior Agreement in certain respects; and
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the parties hereto agree to
amend the Prior Agreement, effective as of October 1, 1995, as follows (unless
the context otherwise requires, section references are to sections of the Prior
Agreement):
Section 5. Bonus.
Section 5 shall be revised to provide in its entirety as follows:
"During the Term of Employment, the Employee will participate in
the Company's Incentive Compensation Plan (as amended and restated as of
the date hereof), and will be eligible for an annual bonus of up to
seventy-five percent (75%) of base annual salary based on performance
targets as determined in accordance with the terms of the Plan."
<PAGE> 2
Section 6. Options.
The paragraph below shall be inserted following the first paragraph of
Section 6(a) and shall apply retroactively, as of the Startup Date, to all
Initial Options outstanding as of the date hereof. Without limiting the
foregoing, the adjustment provided for in the third sentence of the following
paragraph shall be made with respect to the cash distribution made by the
Company to the shareholders in August 1995.
"Notwithstanding the immediately preceding paragraph, the number
of Ordinary Shares subject to and the exercise price for each
outstanding Initial Option shall be adjusted as follows. If there is any
change in the number or nature of outstanding shares of the Company's
capital stock by reason of a share dividend, recapitalization, merger,
consolidation, scheme of arrangement, share split, combination or
exchange, share repurchase or otherwise, or if there is any non-cash
distribution in respect of any such shares, which in any such case has a
dilutive or anti-dilutive effect on the Ordinary Shares, the number of
Ordinary Shares subject to each outstanding Initial Option, the exercise
price thereof and/or other terms thereof shall be appropriately adjusted
by the Board of Directors of the Company (or any committee thereof),
whose determination shall be conclusive, so as to restore the Option
holder to his rights thereunder. In addition (but without duplication of
any adjustment made pursuant to the preceding sentence), the exercise
price for each outstanding Initial Option shall be reduced by the amount
of all cash dividends that are declared by the Company and are paid or
payable to shareholders of record as of a time before the exercise of
the Initial Option that would have been paid or payable to the Employee
had the Ordinary Shares which are the subject of the Initial Option (as
adjusted, if applicable, in accordance with the preceding sentence) been
held by the Employee as of such time; provided, however, that in no
event shall the exercise price of the Initial Options be reduced below
the nominal value of the Ordinary Shares. Without limiting the
foregoing, the adjustment provided for in the preceding sentence shall
apply with respect to the cash distribution made by the Company to its
shareholders in August 1995."
Section 6(b) shall be revised to read in its entirety as follows:
-2-
<PAGE> 3
"Other Options. During the Term of Employment, the Employee
shall participate in the Company's current share option plan as amended
and restated as of the date hereof (the "Share Option Plan") and the
Company's 1995 share option plan adopted as of the date hereof (the
"1995 Share Option Plan") and shall be eligible to be granted options
(in addition to the Initial Options) to purchase Ordinary Shares at such
prices and subject to such terms as may be provided by such plans. In
addition, the Employee shall be entitled to receive any restricted
Ordinary Shares relating to such option grants as provided in such
plans.
A new Section 6(c) shall be added as follows:
"(c) Shareholders' Agreement. The Employee shall become a party
to the Company's Amended and Restated Shareholders' Agreement, which is
to become effective immediately prior to the closing for the Company's
proposed initial public offering, by executing and delivering to the
Company such documentation as the Company reasonably may request (which
may subject the Initial Options and other options obtained pursuant to
the Company's share option plans and securities acquired pursuant
thereto to the transfer restrictions set forth in such agreement)
promptly after such request is made.
Section 14. Termination.
Each of (i) the second paragraph of Section 14(c), (ii) the third
paragraph of Section 14(d) and (iii) the second paragraph of Section 14(e),
shall be deleted in its entirety.
The second sentence of the first paragraph of Section 14(f) shall be
deleted and replaced in its entirety with the following sentence.
"In addition, the Employee shall be entitled to receive one (1) year's
salary from the date on which the Employee's employment is terminated,
but only if the Employee performs such consulting services during such
one year period as the Company shall require (including but not limited
to winding up the affairs of the Company or helping to start other
similar enterprises)."
The second paragraph of Section 14(f) shall be deleted and replaced in
its entirety with the following paragraph:
-3-
<PAGE> 4
"In such event, the Employee will receive payment for such Ordinary
Shares at the same time, and on the same basis, as the other holders of
the Ordinary Shares."
Section 16. Confidential Information.
The term "Sponsors" in Section 16 shall be replaced with "Board of
Directors of the Company."
Section 22. Notices.
The address of the Employee, the Company and the Operating Company as
set forth in Section 22 shall be replaced with the following addresses:
To Employee: William Fanning
c/o Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Company: GCR Holdings Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Operating
Company: Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
Section 25. Change of Control
The following provisions shall be inserted as Section 25:
-4-
<PAGE> 5
"(a) If the Employee is employed by the Operating Company (or
successor thereto) sixty (60) days following the date on which a Change of
Control (as defined in Section 25(e)) occurs, then the Operating Company (or
successor thereto) shall make a lump sum cash payment to the Employee on such
date in an amount equal to the Employee's annual base salary as of the date on
which the Change of Control occurs.
(b) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's share
option plans that are not then exercisable shall become exercisable (and be
deemed to be vested) on the date on which the Change of Control occurs. In
addition, restricted Ordinary Shares granted under any of the Company's share
option plans shall immediately vest upon a Change of Control.
(c) If the Employee is employed by the Operating Company (or successor
thereto) on the first anniversary of the date on which a Change of Control
occurs, then the Employee shall not be obligated to repay any portion of any
loan made to the Employee pursuant to Section 7 hereof.
(d) If (i) the Employee is terminated by the Operating Company (or
successor thereto) without Serious Cause or (ii) the Employee terminates
employment with the Operating Company (or successor thereto) for Good Reason,
within the period commencing on the date that a Change of Control is proposed
and ending on the first anniversary of the date in which such Change of Control
occurs, then (A) the Employee shall not be obligated to repay any portion of
any loan made to the Employee pursuant to Section 7 hereof and (B) the Employee
shall be entitled to receive (in lieu of the benefits described in Section
14(e)): (1) any accrued but unpaid salary, (2) a lump sum payment equal to two
times such Employee's annual base salary as of the date of termination, (3) any
earned but unpaid bonus from a prior fiscal year, (4) unreimbursed expenses
incurred prior to the date of termination, (5) automobile and housing
allowances for one year following the date of termination and (6) relocation
expenses as described in Section 10(a) from Bermuda to the United States.
The Employee shall not be entitled to any benefits or other
entitlements under this Section 25 unless a Change of Control actually occurs.
-5-
<PAGE> 6
(e) A "Change of Control" of the Operating Company shall be deemed to
have occurred if (i) any "person" (as such term is defined in Section 3(a)(9)
and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act")), excluding the Company or any of its subsidiaries, a
trustee or any fiduciary holding securities under an employee benefit plan of
the Company or any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation owned,
directly or indirectly, by shareholders of the Company in substantially the same
proportion as their ownership of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities ("Voting
Securities"); (ii) during any period of not more than two years, individuals who
constitute the Board of Directors of the Company (the "Board") as of the
beginning of the period and any new director (other than a director designated
by a person who has entered into an agreement with the Company to effect a
transaction described in clause (i) or (iii) of this sentence) whose election by
the Board or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at such time or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof; (iii) the shareholders of the Company approve a merger, consolidation
or reorganization or a court of competent jurisdiction approves a scheme of
arrangement of the Company, other than a merger, consolidation, reorganization
or scheme of arrangement which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger, consolidation, reorganization or scheme of arrangement; or (iv) the
shareholders of the Company approve a plan of complete liquidation of the
Company or any agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
-------------------------------
William Fanning
GCR Holdings Limited
By: /s/ JERRY S. ROSENBLOOM
----------------------------
Global Capital
Reinsurance Limited
By:
----------------------------
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
/s/ WILLIAM FANNING 15Dec95
--------------------------------
William Fanning
GCR Holdings Limited
By:
----------------------------
Global Capital
Reinsurance Limited
By:
----------------------------
-7-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
-------------------------------
William Fanning
GCR Holdings Limited
By: /s/ JERRY S. ROSENBLOOM
----------------------------
Global Capital
Reinsurance Limited
By: /s/ FREDERICK W. DEICHMANN
----------------------------
-7-
<PAGE> 1
EXHIBIT 10.4A
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 12, 1995, is made by and between
GCR Holdings Limited, a Cayman Islands exempt limited liability company (the
"Company"), Global Capital Reinsurance Limited, a subsidiary of the Company
organized under the laws of Bermuda to engage in worldwide property catastrophe
reinsurance (the "Operating Company"), and ROBERT NASON, (hereinafter called
the "Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, the Operating Company and the Employee entered
into an Employment Agreement dated as of June 16, 1993 (the "Prior Agreement"),
setting forth the terms and conditions of the Employee's employment with the
Operating Company; and
WHEREAS, the Company, the Operating Company and the Employee desire to
amend the Prior Agreement in certain respects; and
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the parties hereto agree to
amend the Prior Agreement, effective as of October 1, 1995, as follows (unless
the context otherwise requires, section references are to sections of the Prior
Agreement):
Section 6. Bonus.
Section 6 shall be revised to provide in its entirety as follows:
"During the Term of Employment, the Employee will participate
in the Company's Incentive Compensation Plan (as amended and restated
as of the date hereof), and will be eligible for an annual bonus of up
to seventy-five percent (75%) of base annual salary based on performance
targets as determined in accordance with the terms of the Plan."
<PAGE> 2
Section 7. Options.
The paragraph below shall be inserted following the first paragraph
of Section 7(a) and shall apply retroactively, as of the Startup Date, to all
Initial Options outstanding as of the date hereof. Without limiting the
foregoing, the adjustment provided for in the third sentence of the following
paragraph shall be made with respect to the cash distribution made by the
Company to the shareholders in August 1995.
"Notwithstanding the immediately preceding paragraph, the number
of Ordinary Shares subject to and the exercise price for each outstanding
Initial Option shall be adjusted as follows. If there is any change in
the number or nature of outstanding shares of the Company's capital stock
by reason of a share dividend, recapitalization, merger, consolidation,
scheme of arrangement, share split, combination or exchange, share
repurchase or otherwise, or if there is any non-cash distribution in
respect of any such shares, which in any case has a dilutive or anti-
dilutive effect on the Ordinary Shares, the number of Ordinary Shares
subject to each outstanding Initial Option, the exercise price thereof
and/or other terms thereof shall be appropriately adjusted by the Board
of Directors of the Company (or any committee thereof), whose determina-
tion shall be conclusive, so as to restore the Option holder to his
rights thereunder. In addition (but without duplication of any adjustment
made pursuant to the preceding sentence), the exercise price for each
outstanding Initial Option shall be reduced by the amount of all cash
dividends that are declared by the Company and are paid or payable to
shareholders of record as of a time before the exercise of the Initial
Option that would have been paid or payable to the Employee had the
Ordinary Shares which are the subject of the Initial Option (as adjusted,
if applicable, in accordance with the preceding sentence) been held by the
Employee as of such time; provided, however, that in no event shall the
exercise price of the Initial Options be reduced below the nominal value
of the Ordinary Shares. Without limiting the foregoing, the adjustment
provided for in the preceding sentence shall apply with respect to the cash
distribution made by the Company to its shareholders in August 1995."
Section 7(b) shall be revised to read in its entirety as follows:
-2-
<PAGE> 3
"Other Options. During the Term of Employment, the Employee shall
participate in the Company's current share option plan as amended and
restated as of the date hereof (the "Share Option Plan") and the
Company's 1995 share option plan adopted as of the date hereof (the
"1995 Share Option Plan") and shall be eligible to be granted options
(in addition to the Initial Options) to purchase Ordinary Shares at
such prices and subject to such terms as may be provided by such
plans. In addition, the Employee shall be entitled to receive any
restricted Ordinary Shares relating to such option grants as provided
in such plans.
A new Section 7(c) shall be added as follows:
"(c) Shareholders' Agreement. The Employee shall become a party
to the Company's Amended and Restated Shareholders' Agreement, which
is to become effective immediately prior to the closing for the
Company's proposed initial public offering, by executing and
delivering to the Company such documentation as the Company
reasonably may request (which may subject the Initial Options and
other options obtained pursuant to the Company's share option plans
and securities acquired pursuant thereto to the transfer restrictions
set forth in such agreement) promptly after such request is made.
Section 15. Termination.
Each of (i) the second paragraph of Section 15(c), (ii) the third
paragraph of Section 15(d) and (iii) the second paragraph of Section
15(e), shall be deleted in its entirety.
The second sentence of the first paragraph of Section 15(f) shall
be deleted and replaced in its entirety with the following sentence.
"In addition, the Employee shall be entitled to receive one (1) year's
salary from the date on which the Employee's employment is terminated,
but only if the Employee performs such consulting services during such
one year period as the Company shall require (including but not
limited to winding up the affairs of the Company or helping to
start other similar enterprises)."
The second paragraph of Section 15(f) shall be deleted and
replaced in its entirety with the following paragraph:
-3-
<PAGE> 4
"In such event, the Employee will receive payment for such Ordinary
Shares at the same time, and on the same basis, as the other holders
of the Ordinary Shares."
Section 17. Confidential Information.
The term "Sponsors" in Section 17 shall be replaced with "Board of
Directors of the Company."
Section 23. Notices.
The address of the Employee, the Company and the Operating Company as
set forth in Section 23 shall be replaced with the following addresses:
To Employee: Robert Nason
c/o Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Company: GCR Holdings Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Operating
Company: Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
Section 26. Change of Control.
The following provisions shall be inserted as Section 26:
-4-
<PAGE> 5
"(a) If the Employee is employed by the Operating Company (or
successor thereto) sixty (60) days following the date on which a Change
of Control (as defined in Section 26(e)) occurs, then the Operating
Company (or successor thereto) shall make a lump sum cash payment to the
Employee on such date in an amount equal to the Employee's annual base salary
as of the date on which the Change of Control occurs.
(b) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's
share option plans that are not then exercisable shall become exercisable
(and be deemed to be vested) on the date on which the Change of Control
occurs. In addition, restricted Ordinary Shares granted under any of the
Company's share option plans shall immediately vest upon a Change of Control.
(c) If the Employee is employed by the Operating Company (or successor
thereto) on the first anniversary of the date on which a Change of Control
occurs, then the Employee shall not be obligated to repay any portion of any
loan made to the Employee pursuant to Section 8 hereof.
(d) If (i) the Employee is terminated by the Operating Company (or
successor thereto) without Serious Cause or (ii) the Employee terminates
employment with the Operating Company (or successor thereto) for Good Reason,
within the period commencing on the date that a Change of Control is proposed
and ending on the first anniversary of the date in which such Change of Control
occurs, then (A) the Employee shall not be obligated to repay any portion of any
loan made to the Employee pursuant to Section 8 hereof and (B) the Employee
shall be entitled to receive (in lieu of the benefits described in
Section 15(e)): (1) any accrued but unpaid salary, (2) a lump sum payment equal
to two times such Employee's annual base salary as of the date of termination,
(3) any earned but unpaid bonus from a prior fiscal year, (4) unreimbursed
expenses incurred prior to the date of termination, (5) automobile and housing
allowances for one year following the date of termination and (6) relocation
expenses as described in Section 11(a) from Bermuda to the United States.
The Employee shall not be entitled to any benefits or other entitlements
under this Section 26 unless a Change of Control actually occurs.
-5-
<PAGE> 6
(e) A "Change of Control" of the Operating Company shall be deemed to
have occurred if (i) any "person" (as such term is defined in Section 3(a)(9)
and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act")), excluding the Company or any of its subsidiaries, a
trustee or any fiduciary holding securities under an employee benefit plan of
the Company or any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation owned,
directly or indirectly, by shareholders of the Company in substantially the
same proportion as their ownership of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities ("Voting
Securities"); (ii) during any period of not more than two years, individuals
who constitute the Board of Directors of the Company (the "Board") as of the
beginning of the period and any new director (other than a director designated
by a person who has entered into an agreement with the Company to effect a
transaction described in clause (i) or (iii) of this sentence) whose election
by the Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at such time or whose election or nomination
for election was previously so approved, cease for any reason to constitute a
majority thereof; (iii) the shareholders of the Company approve a merger,
consolidation or reorganization or a court of competent jurisdiction approves a
scheme of arrangement of the Company, other than a merger, consolidation,
reorganization or scheme of arrangement which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the combined voting power
of the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger, consolidation, reorganization or scheme of
arrangement; or (iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or any agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first written above.
___________________________________
Robert Nason
GCR Holdings Limited
/s/ Jerry S. Rosenbloom
By: _____________________________
Global Capital
Reinsurance Limited
By: _____________________________
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
/s/ Robert L. Nason
__________________________________
Robert L. Nason
GCR Holdings Limited
By: _____________________________
Global Capital
Reinsurance Limited
By: _____________________________
-7-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
__________________________________
Robert Nason
GCR Holdings Limited
By: /s/ Jerry S. Rosenbloom
_____________________________
Global Capital
Reinsurance Limited
By: /s/ Frederick W. Deichmann
_____________________________
-7-
<PAGE> 1
EXHIBIT 10.5A
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 12, 1995, is made by and between
GCR Holdings Limited, a Cayman Islands exempt limited liability company (the
"Company"), Global Capital Reinsurance Limited, a subsidiary of the Company
organized under the laws of Bermuda to engage in worldwide property catastrophe
reinsurance (the "Operating Company"), and STEPHEN OUTERBRIDGE, (hereinafter
called the "Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, the Operating Company and the Employee entered
into an Employment Agreement dated as of June 16, 1993 (the "Prior Agreement"),
setting forth the terms and conditions of the Employee's employment with the
Operating Company; and
WHEREAS, the Company, the Operating Company and the Employee desire to
amend the Prior Agreement in certain respects; and
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the parties hereto agree to
amend the Prior Agreement, effective as of October 1, 1995, as follows (unless
the context otherwise requires, section references are to sections of the Prior
Agreement):
Section 6. Bonus.
Section 6 shall be revised to provide in its entirety as follows:
"During the Term of Employment, the Employee will participate
in the Company's Incentive Compensation Plan (as amended and restated
as of the date hereof), and will be eligible for an annual bonus of up
to seventy-five percent (75%) of base annual salary based on performance
targets as determined in accordance with the terms of the Plan."
<PAGE> 2
Section 7. Options
The paragraph below shall be inserted following the first paragraph of
Section 7(a) and shall apply retroactively, as of the Startup Date, to all
Initial Options outstanding as of the date hereof. Without limiting the
foregoing, the adjustment provided for in the third sentence of the following
paragraph shall be made with respect to the cash distribution made by the
Company to the shareholders in August 1995.
"Notwithstanding the immediately preceding paragraph, the number
of Ordinary Shares subject to and the exercise price for each
outstanding Initial Option shall be adjusted as follows. If there is any
change in the number or nature of outstanding shares of the Company's
capital stock by reason of a share dividend, recapitalization, merger,
consolidation, scheme of arrangement, share split, combination or
exchange, share repurchase or otherwise, or if there is any non-cash
distribution in respect of any such shares, which in any such case has
a dilutive or anti-dilutive effect on the Ordinary Shares, the number
of Ordinary Shares subject to each outstanding Initial Option, the
exercise price thereof and/or other terms thereof shall be
appropriately adjusted by the Board of Directors of the Company (or any
committee thereof), whose determination shall be conclusive, so
as to restore the Option holder to his rights thereunder. In addition
(but without duplication of any adjustment made pursuant to the
preceding sentence), the exercise price for each outstanding Initial
Option shall be reduced by the amount of all cash dividends that are
declared by the Company and are paid or payable to shareholders of
record as of a time before the exercise of the Initial Option that would
have been paid or payable to the Employee had the Ordinary Shares which
are the subject of the Initial Option (as adjusted, if applicable, in
accordance with the preceding sentence) been held by the Employee as of
such time; provided, however, that in no event shall the exercise price
of the Initial Options be reduced below the nominal value of the
Ordinary Shares. Without limiting the foregoing, the adjustment provided
for in the preceding sentence shall apply with respect to the cash
distribution made by the Company to its shareholders in August 1995."
Section 7(b) shall be revised to read in its entirety as follows:
-2-
<PAGE> 3
"Other Options. During the Term of Employment, the Employee
shall participate in the Company's current share option plan as amended
and restated as of the date hereof (the "Share Option Plan") and the
Company's 1995 share option plan adopted as of the date hereof (the
"1995 Share Option Plan") and shall be eligible to be granted options
(in addition to the Initial Options) to purchase Ordinary Shares at such
prices and subject to such terms as may be provided by such plans. In
addition, the Employee shall be entitled to receive any restricted
Ordinary Shares relating to such option grants as provided in such
plans.
A new Section 7(c) shall be added as follows:
"(c) Shareholders' Agreement. The Employee shall become a
party to the Company's Amended and Restated Shareholders' Agreement,
which is to become effective immediately prior to the closing for the
Company's proposed initial public offering, by executing and delivering
to the Company such documentation as the Company reasonably may request
(which may subject the Initial Options and other options obtained
pursuant to the Company's share option plans and securities acquired
pursuant thereto to the transfer restrictions set forth in such
agreement) promptly after such request is made.
Section 15. Termination.
Each of the (i) second paragraph of the Section 15(c), (ii) the third
paragraph of Section 15(d) and (iii) the second paragraph of Section 15(e),
shall be deleted in its entirety.
The second sentence of the first paragraph of Section 15(f) shall be
deleted and replaced in its entirety with the following sentence.
"In addition, the Employee shall be entitled to receive one (1) year's
salary from the date on which the Employee's employment is terminated,
but only if the Employee performs such consulting services during such
one year period as the Company shall require (including but not limited
to winding up the affairs of the Company or helping to start other
similar enterprises)."
-3-
<PAGE> 4
The second paragraph of Section 15(f) shall be deleted and
replaced in its entirety with the following paragraph:
"In such event, the Employee will receive payment for such Ordinary
Shares at the same time, and on the same basis, as the other holders
of the Ordinary Shares."
Section 17. Confidential Information.
The term "Sponsors" in Section 17 shall be replaced with "Board of
Directors of the Company."
Section 23. Notices.
The address of the Employee, the Company and the Operating Company
as set forth in Section 23 shall be replaced with the following addresses:
To Employee: Stephen Outerbridge
c/o Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Company: GCR Holdings Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
To the
Operating
Company: Global Capital Reinsurance Limited
Sofia House
48 Church Street
Hamilton, HM12 Bermuda
fax: 809-292-4338
-4-
<PAGE> 5
Section 26. Change of Control.
The following provisions shall be inserted as Section 26:
"(a) If the Employee is employed by the Operating Company (or
successor thereto) sixty (60) days following the date on which a Change
of Control (as defined in Section 26(e)) occurs, then the Operating
Company (or successor thereto) shall make a lump sum cash payment to
the Employee on such date in an amount equal to the Employee's annual
base salary as of the date on which the Change of Control occurs.
(b) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's
share option plans that are not then exercisable shall become
exercisable (and be deemed to be vested) on the date on which the Change
of Control occurs. In addition, restricted Ordinary Shares granted under
any of the Company's share option plans shall immediately vest upon a
Change of Control.
(c) If the Employee is employed by the Operating Company (or
successor thereto) on the first anniversary of the date on which a
Change of Control occurs, then the Employee shall not be obligated to
repay any portion of any loan made to the Employee pursuant to Section 8
hereof.
(d) If (i) the Employee is terminated by the Operating Company
(or successor thereto) without Serious Cause or (ii) the Employee
terminates employment with the Operating Company (or successor thereto)
for Good Reason, within the period commencing on the date that a Change
of Control is proposed and ending on the first anniversary of the date
in which such Change of Control occurs, then (A) the Employee shall not
be obligated to repay any portion of any loan made to the Employee
pursuant to Section 8 hereof and (B) the Employee shall be entitled to
receive (in lieu of the benefits described in Section 15(e)): (1) any
accrued but unpaid salary, (2) a lump sum payment equal to two times
such Employee's annual base salary as of the date of termination, (3)
any earned but unpaid bonus from a prior fiscal year, (4) unreimbursed
expenses incurred prior to the date of termination, (5) automobile and
housing allowances for one year following the date of termination and
(6) relocation
-5-
<PAGE> 6
expenses as described in Section 11(a) from Bermuda to the United States.
The Employee shall not be entitled to any benefits or other entitlements
under this Section 26 unless a Change of Control actually occurs.
(e) A "Change of Control" of the Operating Company shall be deemed to
have occurred if (i) any "person" (as such term is defined in Section 3(a) (9)
and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act")), excluding the Company or any of its subsidiaries, a
trustee or any fiduciary holding securities under an employee benefit plan of
the Company or any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation owned,
directly or indirectly, by shareholders of the Company in substantially the
same proportion as their ownership of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities ("Voting
Securities"); (ii) during any period of not more than two years, individuals
who constitute the Board of Directors of the Company (the "Board") as of the
beginning of the period and any new director (other than a director designated
by a person who has entered into an agreement with the Company to effect a
transaction described in clause (i) or (iii) of this sentence) whose election
by the Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at such time or whose election or nomination
for election was previously so approved, cease for any reason to constitute a
majority thereof; (iii) the shareholders of the Company approve a merger,
consolidation or reorganization or a court of competent jurisdiction approves
a scheme of arrangement of the Company, other than a merger, consolidation,
reorganization or scheme of arrangement which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the combined voting power
of the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger, consolidation, reorganization or scheme of
arrangement;
-6-
<PAGE> 7
or (iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or any agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
/s/ Stephen Outerbridge
--------------------------------------
Stephen Outerbridge
GCR Holdings Limited
By:
----------------------------------
Global Capital
Reinsurance Limited
By:
----------------------------------
-7-
<PAGE> 8
or (iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or any agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
--------------------------------------
Stephen Outerbridge
GCR Holdings Limited
By: /s/ Jerry S. Rosenbloom
----------------------------------
Global Capital
Reinsurance Limited
By: /s/ Frederick W. Deichman
----------------------------------
-7-
<PAGE> 1
EXHIBIT 10.6A
[GCR HOLDINGS LIMITED LETTERHEAD]
April 30, 1996
Mr. Steven H. Newman
48 Church Street
Hamilton HM 12
Dear Steve;
Reference is made to your promissory note, a copy of which is attached
hereto. Notwithstanding Section 4 of your note, your note is hereby amended to
provide that (i) in light of prior reductions in the Outstanding Balance,
17,769 Shares are hereby released from the lien described in Section 4 and (ii)
upon reduction of the outstanding Balance on any future date, an additional
number of Shares shall be released from such lien so that the number of Shares
remaining subject to such lien immediately after such reduction (and after
rounding any fractional share upward to the nearest whole share) shall equal
(x) the Outstanding Balance immediately after such reduction multiplied by
120%, divided by (y) the closing sale price of an Ordinary Share as traded in
the NASDAQ National Market on the trading day prior to the date of reduction in
the Outstanding Balance.
Promptly upon any such release of shares from the lien, the Company
shall deliver to you a certificate(s) representing such released Shares, shall
cancel the existing certificate(s) representing your Shares in its possession,
shall issue a new certificate(s) representing your Shares that remain subject
to the lien and shall retain possession of such new certificates pursuant to
the terms of your note as amended hereby.
This amendment shall be governed by and construed in accordance with
the laws of the state of New York, without reference to rules relating to
conflicts of law. Capitalized terms used and not defined herein have the
meanings given them in your note. Subject to the foregoing, your note remains
in full force and effect.
Very truly yours,
GCR HOLDINGS LIMITED
By: /s/ Frederick W. Deichmann
-------------------------------------
Frederick W. Deichmann
Chief Financial Officer
Accepted as of the date hereof:
/s/ Steven H. Newman
- -------------------------------
Steven H. Newman
<PAGE> 1
EXHIBIT 10.7A
[GCR HOLDINGS LIMITED LETTERHEAD]
April 30, 1996
Lawrence S. Doyle
48 Church Street
Hamilton HM 12
Dear Larry;
Reference is made to your promissory note, a copy of which is attached
hereto. Notwithstanding Section 4 of your note, your note is hereby amended to
provide that (i) in light of prior reductions in the Outstanding Balance, 7,616
Shares are hereby released from the lien described in Section 4 and (ii) upon
reduction of the outstanding Balance on any future date, an additional number
of Shares shall be released from such lien so that the number of Shares
remaining subject to such lien immediately after such reduction (and after
rounding any fractional share upward to the nearest whole share) shall equal
(x) the Outstanding Balance immediately after such reduction multiplied by
120%, divided by (y) the closing sale price of an Ordinary Share as traded in
the NASDAQ National Market on the trading day prior to the date of reduction in
the Outstanding Balance.
Promptly upon any such release of shares from the lien, the Company
shall deliver to you a certificate(s) representing such released Shares, shall
cancel the existing certificate(s) representing your Shares in its possession,
shall issue a new certificate(s) representing your Shares that remain subject
to the lien and shall retain possession of such new certificates pursuant to
the terms of your note as amended hereby.
This amendment shall be governed by and construed in accordance with
the laws of the state of New York, without reference to rules relating to
conflicts of law. Capitalized terms used and not defined herein have the
meanings given them in your note. Subject to the foregoing, your note remains
in full force and effect.
Very truly yours,
GCR HOLDINGS LIMITED
By: /s/ Frederick W. Deichmann
--------------------------
Frederick W. Deichmann
Chief Financial Officer
Accepted as of the date hereof:
/s/ Lawrence S. Doyle
- --------------------------------
Lawrence S. Doyle
<PAGE> 1
EXHIBIT 10.8A
[GCR HOLDINGS LIMITED LETTERHEAD]
April 30, 1996
Mr. Frederick W. Deichmann
48 Church Street
Hamilton HM 12
Dear Fred;
Reference is made to your promissory note, a copy of which is attached
hereto. Notwithstanding Section 4 of your note, your note is hereby amended to
provide that (i) in light of prior reductions in the Outstanding Balance, 3,712
Shares are hereby released from the lien described in Section 4 and (ii) upon
reduction of the outstanding Balance on any future date, an additional number
of Shares shall be released from such lien so that the number of Shares
remaining subject to such lien immediately after such reduction (and after
rounding any fractional share upward to the nearest whole share) shall equal
(x) the Outstanding Balance immediately after such reduction multiplied by
120%, divided by (y) the closing sale price of an Ordinary Share as traded in
the NASDAQ National Market on the trading day prior to the date of reduction in
the Outstanding Balance.
Promptly upon any such release of shares from the lien, the Company
shall deliver to you a certificate(s) representing such released Shares, shall
cancel the existing certificate(s) representing your Shares in its possession,
shall issue a new certificate(s) representing your Shares that remain subject
to the lien and shall retain possession of such new certificates pursuant to
the terms of your note as amended hereby.
This amendment shall be governed by and construed in accordance with
the laws of the state of New York, without reference to rules relating to
conflicts of law. Capitalized terms used and not defined herein have the
meanings given them in your note. Subject to the foregoing, your note remains
in full force and effect.
Very truly yours,
GCR HOLDINGS LIMITED
By: /s/ Lawrence S. Doyle
--------------------------
Lawrence S. Doyle
Chief Executive Officer
Accepted as of the date hereof:
/s/ Frederick W. Deichmann
- --------------------------------
Frederick W. Deichmann
<PAGE> 1
EXHIBIT 10.9A
[GCR HOLDINGS LIMITED LETTERHEAD]
April 30, 1996
Mr. William G. Fanning
48 Church Street
Hamilton HM 12
Dear Bill;
Reference is made to your promissory note, a copy of which is attached
hereto. Notwithstanding Section 4 of your note, your note is hereby amended to
provide that (i) in light of prior reductions in the Outstanding Balance, 2,700
Shares are hereby released from the lien described in Section 4 and (ii) upon
reduction of the outstanding Balance on any future date, an additional number
of Shares shall be released from such lien so that the number of Shares
remaining subject to such lien immediately after such reduction (and after
rounding any fractional share upward to the nearest whole share) shall equal
(x) the Outstanding Balance immediately after such reduction multiplied by
120%, divided by (y) the closing sale price of an Ordinary Share as traded in
the NASDAQ National Market on the trading day prior to the date of reduction in
the Outstanding Balance.
Promptly upon any such release of shares from the lien, the Company
shall deliver to you a certificate(s) representing such released Shares, shall
cancel the existing certificate(s) representing your Shares in its possession,
shall issue a new certificate(s) representing your Shares that remain subject
to the lien and shall retain possession of such new certificates pursuant to
the terms of your note as amended hereby.
This amendment shall be governed by and construed in accordance with
the laws of the state of New York, without reference to rules relating to
conflicts of law. Capitalized terms used and not defined herein have the
meanings given them in your note. Subject to the foregoing, your note remains
in full force and effect.
Very truly yours,
GCR HOLDINGS LIMITED
By: /s/ Frederick W. Deichmann
--------------------------
Frederick W. Deichmann
Chief Financial Officer
Accepted as of the date hereof:
/s/ William G. Fanning 2 May 96
- --------------------------------
William G. Fanning
<PAGE> 1
EXHIBIT 10.10A
[GCR HOLDINGS LIMITED LETTERHEAD]
April 30, 1996
Mr. Robert L. Nason
48 Church Street
Hamilton HM 12
Dear Bob;
Reference is made to your promissory note, a copy of which is attached
hereto. Notwithstanding Section 4 of your note, your note is hereby amended to
provide that (i) in light of prior reductions in the Outstanding Balance, 4,240
Shares are hereby released from the lien described in Section 4 and (ii) upon
reduction of the outstanding Balance on any future date, an additional number
of Shares shall be released from such lien so that the number of Shares
remaining subject to such lien immediately after such reduction (and after
rounding any fractional share upward to the nearest whole share) shall equal
(x) the Outstanding Balance immediately after such reduction multiplied by
120%, divided by (y) the closing sale price of an Ordinary Share as traded in
the NASDAQ National Market on the trading day prior to the date of reduction in
the Outstanding Balance.
Promptly upon any such release of shares from the lien, the Company
shall deliver to you a certificate(s) representing such released Shares, shall
cancel the existing certificate(s) representing your Shares in its possession,
shall issue a new certificate(s) representing your Shares that remain subject
to the lien and shall retain possession of such new certificates pursuant to
the terms of your note as amended hereby.
This amendment shall be governed by and construed in accordance with
the laws of the state of New York, without reference to rules relating to
conflicts of law. Capitalized terms used and not defined herein have the
meanings given them in your note. Subject to the foregoing, your note remains
in full force and effect.
Very truly yours,
GCR HOLDINGS LIMITED
By: /s/ Frederick W. Deichmann
--------------------------------
Frederick W. Deichmann
Chief Financial Officer
Accepted as of the date hereof:
/s/ Robert L. Nason
- -------------------------------
Robert L. Nason
<PAGE> 1
EXHIBIT 10.11A
[GCR HOLDINGS LIMITED LETTERHEAD]
April 30, 1996
Mr. Stephen S Outerbridge
48 Church Street
Hamilton HM 12
Dear Stephen;
Reference is made to your promissory note, a copy of which is attached
hereto. Notwithstanding Section 4 of your note, your note is hereby amended to
provide that (i) in light of prior reductions in the Outstanding Balance, 3,712
Shares are hereby released from the lien described in Section 4 and (ii) upon
reduction of the outstanding Balance on any future date, an additional number
of Shares shall be released from such lien so that the number of Shares
remaining subject to such lien immediately after such reduction (and after
rounding any fractional share upward to the nearest whole share) shall equal
(x) the Outstanding Balance immediately after such reduction multiplied by
120%, divided by (y) the closing sale price of an Ordinary Share as traded in
the NASDAQ National Market on the trading day prior to the date of reduction in
the Outstanding Balance.
Promptly upon any such release of shares from the lien, the Company
shall deliver to you a certificate(s) representing such released Shares, shall
cancel the existing certificate(s) representing your Shares in its possession,
shall issue a new certificate(s) representing your Shares that remain subject
to the lien and shall retain possession of such new certificates pursuant to
the terms of your note as amended hereby.
This amendment shall be governed by and construed in accordance with
the laws of the state of New York, without reference to rules relating to
conflicts of law. Capitalized terms used and not defined herein have the
meanings given them in your note. Subject to the foregoing, your note remains
in full force and effect.
Very truly yours,
GCR HOLDINGS LIMITED
By: /s/ Frederick W. Deichmann
--------------------------------
Frederick W. Deichmann
Chief Financial Officer
Accepted as of the date hereof:
/s/ Stephen S. Outerbridge
- -------------------------------
Stephen S. Outerbridge
<PAGE> 1
EXHIBIT 10.25
GCR HOLDINGS LIMITED
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTORS SHARE OPTION PLAN
1. Establishment.
GCR Holdings Limited (the "Company") hereby adopts the GCR Holdings
Limited Non-Employee Directors Share Option Plan, the purposes of which are to
attract and retain individuals who are not employees of the Company as members
of the Company's Board of Directors, by encouraging them to acquire a
proprietary interest in the Company, and to provide them with an ownership
interest in the Company which is parallel to that of the shareholders of the
Company.
2. Definitions.
The following terms shall have the respective meanings assigned to them
as used herein:
(a) "Appraised Value" shall mean (1) the result of dividing (A) the
shareholders' equity attributable to the Company's Ordinary Shares on a fully
diluted basis, as determined by the latest audited consolidated financial
statement of the Company, by (B) the total number of the Company's Ordinary
Shares on a fully diluted basis, or (2) the public market value of one Ordinary
Share, if the Company's Ordinary Shares are publicly traded, which shall be
equal to (i) the average of the closing prices of an Ordinary Share on the
principal securities exchange on which the Ordinary
<PAGE> 2
Shares are listed or, if not so listed, as traded in the NASDAQ National
Market, if traded therein, on each of the ten consecutive trading days prior to
the date of determination, or (ii) if the Ordinary Shares are not so listed or
traded, the average of the bid and asked prices of an Ordinary Share as
otherwise quoted on the NASDAQ system or any successor system in use on the
most recent date prior to the date of determination on which such quoted prices
exist.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Non-Employee Director" shall mean a member of the Board who is
not an employee of the Company or its subsidiaries.
(d) "Option" shall mean an option to purchase Ordinary Shares
granted under the Plan.
(e) "Ordinary Shares" shall mean the Company's ordinary redeemable
shares of U.S. $0.10 per share.
(f) "Participant" shall mean a Non-Employee Director who has been
granted an Option.
(g) "Plan" shall mean this GCR Holdings Limited Non-Employee
Directors Share Option Plan.
3. Plan Administration.
3.1 Authority. The Plan shall be administered by the Board (unless
the Board appoints a committee thereof to administer the Plan, in which case
the Plan may be
-2-
<PAGE> 3
administered by such committee and references herein to the "Board" shall be
deemed to mean such Committee unless the context otherwise requires) which
shall have full power and authority to interpret the Plan, to establish, amend
and rescind rules and regulations relating to the Plan, to provide for
conditions and assurances deemed necessary or advisable to protect the
interests of the Company and to make all other determinations necessary or
advisable for the administration of the Plan.
3.2. Decisions are Final and Conclusive. The determination of the
Board (or the applicable committee thereof) as to any question arising under
the Plan, including questions of construction and interpretation, shall be
final, binding and conclusive upon all persons, including the Company, its
shareholders and persons having any interest in the Options.
4. Eligibility.
All Non-Employee Directors are eligible for the grant of Options, other
than the Chairman of the Board.
5. Shares Subject to the Plan.
5.1 Number. The aggregate number of Ordinary Shares, which shall be
authorized but unissued Ordinary Shares, that may be subject to Options
granted, and may be granted as restricted Ordinary Shares under this Plan shall
not exceed 20,000 (which shall be adjusted to 100,000 to give effect to the
five-for-one split of the Ordinary Shares to be
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<PAGE> 4
effected by way of a share dividend (the "Share Split") immediately prior to
and in connection with the Company's initial public offering; such adjustment
shall occur automatically, without further action, upon effectiveness of the
share split). The number of Ordinary Shares subject to each Option granted
hereunder prior to the effectiveness of the Share Split, and the exercise price
thereof, shall automatically, upon such effectiveness, without any further
action and in lieu of any adjustment that otherwise would be required under
Section 5.2 below, be adjusted by multiplying the number of shares by five and
dividing the exercise price by five.
5.2 Adjustment in Capitalization. If there is any change in the number
or nature of outstanding shares of the Company's capital stock by reason of a
share dividend, recapitalization, merger, consolidation, scheme of arrangement,
share split, combination or exchange, share repurchase or otherwise, or if there
is any non-cash distribution in respect of any such shares, which in any case
has a dilutive or anti-dilutive effect on the Ordinary Shares, the number of
Ordinary Shares subject to each outstanding Option, the exercise price thereof
and/or other terms thereof shall be appropriately adjusted by the Board, and
appropriate adjustment shall be made by the Board in respect of all unvested
restricted Ordinary Shares granted to the Option holder pursuant to Section 8
below and then held
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by him, so as to restore the Option holder to his rights thereunder and
hereunder.
6. Terms and Conditions of Options.
6.1 Grant of Options. Each eligible Non-Employee Director on the
effective date of the Plan is hereby granted as of such date an Option to
purchase 600 Ordinary Shares (which shall be adjusted to 3,000 Ordinary Shares
automatically as aforesaid upon effectiveness of the Share Split). Each person
who is an eligible Non-Employee Director on the first business day after each
annual general meeting of the Company's shareholders shall automatically be
granted as of such day an Option to purchase 300 Ordinary Shares (which shall
be adjusted to 1,500 Ordinary Shares automatically as aforesaid upon
effectiveness of the Share Split).
6.2 Exercise Price. The exercise price for each Option shall be
equal to the Appraised Value of an Ordinary Share on the date of grant.
6.3 Vesting. All Options granted under the Plan shall be fully
vested and exercisable on the date of grant.
6.4 Option Agreement. Each Option granted under the Plan shall be
evidenced by a written share option agreement setting forth the terms under
which the Option is granted.
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6.5 Term of Options. All rights to exercise an Option shall expire
ten years from the date on which such Option is granted.
6.6 Nontransferability. No Option, and no unvested restricted
Ordinary Share issued pursuant to the Plan, shall be assignable or
transferable, and no right or interest of any Participant shall be subject to
any lien, obligation or liability of the Participant, except by will or the laws
of descent and distribution. Each Participant shall become a party to the
Company's Amended and Restated Shareholder's Agreement, which is to become
effective immediately prior to the closing for the Company's proposed initial
public offering, by executing and delivering to the Company such documentation
as the Company may reasonably request (which may subject the Options and
securities acquired pursuant thereto to the transfer restrictions set forth in
such agreement) promptly after such agreement becomes effective.
6.7 Other Terms and Conditions. Options may contain such other
terms, conditions and restrictions, which shall not be inconsistent with the
provisions of the Plan, as the Board shall deem appropriate.
7. Exercise of Options.
7.1 Written Notice. A Participant who wishes to exercise an
Option, or a portion of an Option, shall give written notice thereof to the
Company. The date the Company
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<PAGE> 7
receives such notice shall be considered as the date such Option was exercised
as to the Ordinary Shares specified in such notice.
7.2 Payment. A Participant who exercises an Option shall pay to the
Company at the date of exercise and prior to the delivery of the Ordinary
Shares for which the Option is being exercised the aggregate exercise price of
all Ordinary Shares pursuant to such exercise of the Option. All payments shall
be made by check payable to the order of the Company.
7.3 No Privileges of Shareholder. A Participant shall not have any of
the rights or privileges of a shareholder of the Company with respect to the
Ordinary Shares subject to an Option (or any unvested restricted Ordinary
Shares) unless and until such Ordinary Shares have been issued and (if
applicable) vested and have been duly registered in the Participant's name.
7.4 Termination of Service. Upon the termination of the service of
the Participant as a member of the Board for any reason, the Participant shall
have the right to exercise any outstanding Options until the end of their terms
as provided in Section 6.5. Notwithstanding the foregoing, in the event of the
Participant's death, his legal representative shall have twelve months from the
date of the Participant's death to exercise any Options, but in no event
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<PAGE> 8
may any such Option be exercisable after the term thereof as provided in
Section 6.5.
8. Restricted Share Grants.
8.1. Grant of Restricted Ordinary Shares. A Participant who is granted
an Option under the Plan shall also (but without duplication of any adjustment
made pursuant to Section 5.2 above) be granted restricted Ordinary Shares with
respect to an amount (the "Applicable Dividend Amount") that is equal to 30% of
the sum of (A) all cash dividends that are declared by the Company and paid or
payable to shareholders of record as of a time before the exercise of the
Option that would have been paid or payable to the Participant in respect of
the Ordinary Shares which are subject to the Option had they been held by the
Participant at such time and (B) all cash dividends that are declared by the
Company and paid or payable to shareholders of record as of a time before any
restricted Ordinary Shares granted pursuant to clause (A) above become vested
and that would have been paid or payable to the Participant in respect to such
unvested restricted shares had they been vested at such time. The number of
restricted Ordinary Shares to be granted to a Participant each time a dividend
is paid shall be equal to the Applicable Dividend Amount for such Participant
divided by the Appraised Value of one Ordinary Share on the date the dividend
is paid. In addition, the Participant may be required to enter into a written
agreement with respect to
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<PAGE> 9
such restricted Ordinary Shares containing such terms as the Board deems
appropriate.
8.2. Vesting. Twenty-five percent (25%) of the restricted Ordinary
Shares granted under the Plan shall vest on each of the next four anniversaries
of the date of grant of the restricted Ordinary Shares if the Participant is
then a member of the Board. Such restricted Ordinary Shares shall be forfeited
to the extent not vested upon the termination of the Participant's service as a
member of the Board for any reason.
In addition, all restricted Ordinary Shares shall vest immediately in
the event of a "Change of Control", which shall be deemed to occur if (i) any
"person" (as such term is defined in Section 3(a)(9) and as used in
Sections 13(d) and 14(d) of the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act")), excluding the Company or any of its
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Company or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a
corporation owned, directly or indirectly, by shareholders of the Company in
substantially the same proportion as their ownership of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the
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<PAGE> 10
Company's then outstanding securities ("Voting Securities"); (ii) during any
period of not more than two years, individuals who constitute the Board as of
the beginning of the period and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i) or (iii) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at such time or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; (iii) the shareholders of the Company approve a
merger, consolidation or reorganization or a court of competent jurisdiction
approves a scheme of arrangement of the Company, other than a merger,
consolidation, reorganization or scheme of arrangement which would result in
the Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 50% of the combined
voting power of the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger, consolidation, reorganization or
scheme of arrangement; or (iv) the shareholders of the Company approve a plan
of complete liquidation of the Company or any agreement for the
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<PAGE> 11
sale or disposition by the Company of all or substantially all of the Company's
assets.
9. Duration.
This Plan shall remain in effect for a period of five years
after the effective date of the Plan, unless sooner terminated by the Board.
Options theretofore granted may extend beyond that date in accordance with the
provisions of the Plan.
10. Amendment.
The Board may amend the Plan from time to time, provided that
no amendment which increases the aggregate number of Ordinary Shares that may
be issued under the Plan may be made without the approval of the Company's
shareholders, and provided further that the provisions of Sections 4, 6.1, 6.2,
6.3 and 6.5 of this Plan may not be amended more than once every six months,
other than to comport with changes in the U.S. Internal Revenue Code or the
rules thereunder.
11. Government Regulations.
This Plan, the grant and exercise of Options hereunder, the
obligation of the Company to sell and deliver Ordinary Shares pursuant to such
Options and the grant of restricted Ordinary Shares shall be subject to all
applicable laws, rules and regulations, and to any required approvals by any
governmental agencies.
-11-
<PAGE> 12
12. Effective Date.
The Plan was originally effective as of November 16, 1995. This
amendment and restatement of the Plan is effective as of April 18, 1996.
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<PAGE> 1
EXHIBIT 10.26
GCR HOLDINGS LIMITED
AMENDED AND RESTATED 1995 SHARE OPTION PLAN
1. Establishment.
GCR Holdings Limited (the "Company") hereby adopts this GCR Holdings
Limited 1995 Share Option Plan, the purpose of which is to enable the Company
and its subsidiaries to provide certain key employees with an additional
incentive to contribute to the success of the Company by giving them an
opportunity to acquire a proprietary interest in the Company.
2. Definitions.
The following terms shall have the respective meanings assigned to them
as used herein:
(a) "Appraised Value" shall mean (1) the result of dividing (A) the
shareholders' equity attributable to the Company's Ordinary Shares on a fully
diluted basis, as determined by the latest audited consolidated financial
statement of the Company, by (B) the total number of the Company's Ordinary
Shares on a fully diluted basis, or (2) the public market value of one Ordinary
Share, if the Company's Ordinary Shares are publicly traded, which shall be
equal to (i) the closing price of an Ordinary Share on the principal securities
exchange on which the Ordinary Shares are listed or, if not so listed, as
traded in the NASDAQ National Market, if traded therein, on the date of
determination, or
<PAGE> 2
(ii) if the Ordinary Shares are not so listed or traded, the average of the bid
and asked prices of an Ordinary Share as otherwise quoted on the NASDAQ system
or any successor system in use on the most recent date prior to the date of
determination on which such quoted prices exist.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean the willful and continued failure of a
Participant to substantially perform his duties as an employee of the Company
or its subsidiaries; gross misconduct, material dishonesty or fraud by a
Participant in connection with the business of the Company and its
subsidiaries; the habitual abuse of any substance (such as narcotics or
alcohol) by a Participant; or the conviction for, or pleading guilty or nolo
contendere to, an act constituting a felony.
(d) "Committee" shall mean the Compensation Committee of the Board.
(e) "Disability" shall mean the inability of a Participant, for
reasons of health, to carry out the functions of his duties for the Company or
its subsidiaries for a total of six months during any twelve-month period.
(f) "Good Reason" shall mean a substantial reduction in a
Participant's salary, the demotion of a
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<PAGE> 3
Participant, or a material reduction in the Participant's duties.
(g) "Option" shall mean an option to purchase Ordinary Shares granted
under the Plan.
(h) "Ordinary Shares" shall mean the Company's ordinary redeemable
shares of U.S. $0.10 per share.
(i) "Participant" shall mean an employee of the Company or its
subsidiaries who has been granted an Option.
(j) "Plan" shall mean this GCR Holdings Limited 1995 Share Option Plan.
(k) "Retirement" shall mean retirement from employment with the
Company and its subsidiaries upon attaining age 65, or such earlier age agreed
to by the Committee.
(l) "Return on Equity" shall mean the result, expressed as a
percentage, or dividing (1) consolidated net income of the Company for a fiscal
year, as determined in accordance with U.S. generally accepted accounting
principles, after taxes, by (2) the average of shareholders' equity attributable
to the Company's Ordinary Shares on a fully diluted basis at year-end for each
of the two most recently ended fiscal years, as determined by reference to the
two most recent year-end audited consolidated financial statements of the
Company. The Committee, in its discretion, may adjust
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<PAGE> 4
Return on Equity for a fiscal year for purposes of the Plan to exclude
unusual or non-recurring items of income and expense.
3. Plan Administration.
3.1. Authority. The Plan shall be administered by the Committee,
which shall have full power and authority to interpret the Plan, to establish,
amend and rescind rules and regulations relating to the Plan, to determine the
terms of Options to be issued under the Plan, to provide for conditions and
assurances deemed necessary or advisable to protect the interests of the
Company and to make all other determinations necessary or advisable for the
administration of the Plan.
The Committee shall determine the time or times at which Options shall
be granted, the number of Options to be granted to each Participant, the
duration of each of the Options and the time or times within which (during the
term of such Options) all or a portion of each of the Options may be exercised.
3.2. Decisions are Final and Conclusive. The determination of the
Committee as to any question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon
all persons, including the Company, its shareholders and persons having any
interest in the Options.
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<PAGE> 5
4. Eligibility.
All key employees of the Company and its subsidiaries are eligible for
the grant of options by the Committee.
5. Shares Subject to the Plan.
5.1. Number. The aggregate number of Ordinary Shares, which shall be
authorized but unissued Ordinary Shares, that may be subject to Options and
that may be granted under the Plan as restricted Ordinary Shares shall not
exceed in the aggregate 300,000 (which shall be adjusted to 1,500,000 to give
effect to the five-for-one split of Ordinary Shares to be implemented by way of
a share dividend, to be effected immediately prior to and in connection with
the Company's initial public offering; such adjustment shall occur
automatically, without further action, upon effectiveness of such split).
5.2. Adjustment in Capitalization. If there is any change in the
number or nature of outstanding shares of the Company's capital stock by reason
of a share dividend, recapitalization, merger, consolidation, scheme of
arrangement, share split, combination or exchange, share repurchase or
otherwise, or if there is any non-cash distribution in respect of any such
shares, which in any such case has a dilutive or anti-dilutive effect on the
Ordinary Shares, the number of Ordinary Shares subject to each outstanding
Option, the exercise price thereof and/or other
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<PAGE> 6
terms thereof shall be appropriately adjusted by the Committee, and appropriate
adjustment shall be made by the Committee in respect of all unvested restricted
Ordinary Shares granted to the Option holder pursuant to the next paragraph and
then held by him, so as to restore the Option holder to his rights thereunder
and hereunder, provided that with respect to any such Option that was granted
pursuant to Section 6.1 as an incentive stock option, the Committee may in its
discretion not make the foregoing adjustments to the extent that the treatment
of such Option as an incentive stock option under Section 422 of the U.S.
Internal Revenue Code would be impaired thereby.
A Participant who is granted an Option under the Plan shall also (but
without duplication of any adjustment made pursuant to the preceding paragraph)
be granted restricted Ordinary Shares with respect to an amount (the "Applicable
Dividend Amount") that is equal to 30% of the sum of (A) all cash dividends
that are declared by the Company and paid or payable to shareholders of record
as of a time before the exercise of the Option that would have been paid or
payable to the Participant in respect of the Ordinary Shares which are the
subject of the Option had they been held by the Participant at such time and
(B) all cash dividends that are declared by the Company and paid or payable to
shareholders of record as of a time before any restricted Ordinary Shares
granted pursuant to clause (A) above become
- 6 -
<PAGE> 7
vested and that would have been paid or payable to the Participant in respect
of such unvested restricted Ordinary Shares had they been vested at such time.
The number of restricted Ordinary Shares to be granted to a Participant each
time a dividend is paid shall be equal to the Applicable Dividend Amount for
such Participant divided by the Appraised Value of one Ordinary Share on the
date the dividend is paid, as determined by the Committee. Such restricted
Ordinary Shares shall be subject to the same vesting rules under Section 6.3 as
the Option pursuant to which it is related (based on the date of issuance of
the restricted Ordinary Shares) and shall be forfeited to the extent not vested
upon the termination, for whatever reason, of the Participant's employment with
the Company and its subsidiaries. In addition, the Participant may be required
to enter into a written agreement with respect to such restricted Ordinary
Shares containing such terms as the Committee deems appropriate, including the
covenants referred to in Section 6.4.
6. Terms and Conditions of Options.
6.1. Grant of Options. The Committee shall determine from
time to time the key employees of the Company and its subsidiaries who shall be
granted Options (either incentive stock options, within the meaning of Section
422 of the United States Internal Revenue Code, or non-statutory options) and
the number of Ordinary Shares which shall be
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<PAGE> 8
subject to each Option. In no event will the total number of Ordinary Shares
which may be subject to Options granted under the Plan in any fiscal year of
the Company exceed a percentage (hereinafter referred to as the "Maximum Yearly
Percentage") of the aggregate number of Ordinary Shares specified in Section
5.1 determined by a combination of short-term and long-term Company
performance.
Short-term Company performance will determine one-third of the Maximum
Yearly Percentage and will be based on Return on Equity for the fiscal year for
which the Options are granted. Long-term Company performance will determine
two-thirds of the Maximum Yearly Percentage and will be based on the average
Return on Equity for such fiscal year and the two immediately preceding fiscal
years; provided, however, that for the fiscal year ended September 31, 1995
long-term performance will be based on the average Return on Equity for such
fiscal year and the preceding fiscal year.
Set forth below is the determination of the Maximum Yearly Percentage
based on short-term and long-term Company performance for the applicable Return
on Equity. The total Maximum Yearly Percentage is equal to the sum of the
applicable percentages as determined below.
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<PAGE> 9
<TABLE>
<CAPTION>
Maximum Yearly Percentage
Based on
Short-Term Long-Term
Return on Equity Performance Performance
- ---------------- ----------- -----------
<S> <C> <C>
Below 8% 0 0
9% - 12% 2.0 4.0
13% - 16% 4.0 8.0
17% - 20% 6.0 12.0
21% - 24% 8.0 16.0
25% and above 10.0 20.0
</TABLE>
6.2. Exercise Price. Except as provided in Section 5.2, the exercise
price for each Option shall be equal to the Appraised Value of an Ordinary
Share on the date of grant as determined by the Committee.
6.3. Vesting. Unless determined otherwise by the Committee,
twenty-five percent (25%) of the Options granted under the Plan shall vest and
become exercisable on each of the next four anniversaries of the date of grant
of the Options.
In addition, all Options shall vest immediately and become exercisable
in the event of a "Change of Control", which shall be deemed to occur if (i)
any "person" (as such term is defined in Section 3(a)(9) and as used in
Sections 13(d) and 14(d) of the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act")), excluding the Company or any of its
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Company or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a
corporation owned, directly or
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<PAGE> 10
indirectly, by shareholders of the Company in substantially the same proportion
as their ownership of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% of more of the combined voting power
of the Company's then outstanding securities ("Voting Securities"); (ii) during
any period of not more than two years, individuals who constitute the Board
as of the beginning of the period and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i) or (iii) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at such time or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; (iii) the shareholders of the Company approve a
merger, consolidation or reorganization or a court of competent jurisdiction
approves a scheme of arrangement of the Company, other than a merger,
consolidation, reorganization or scheme of arrangement which would result in
the Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at
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<PAGE> 11
least 50% of the combined voting power of the Voting Securities of the Company
or such surviving entity outstanding immediately after such merger,
consolidation, reorganization or scheme of arrangement; or (iv) the
shareholders of the Company approve a plan of complete liquidation of the
Company or any agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
6.4. Option Agreement. Each Option granted under the Plan shall be
evidenced by a written share option agreement setting forth the terms under
which the Option is granted.
6.5. Term of Options. All rights to exercise an Option shall expire not
later than ten years from the date on which such Option is granted.
6.6. Nontransferability. No Option, and no unvested restricted Ordinary
Share issued pursuant to the Plan, shall be assignable or transferable, and no
right or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant, except by will or the laws of descent and
distribution. Each Participant shall become a party to the Company's Amended
and Restated Shareholders' Agreement, which is to become effective immediately
prior to the closing of the Company's proposed initial public offering, by
executing and delivering to the Company such documentation as the Company
reasonably may
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<PAGE> 12
request (which may subject the Options and any securities acquired pursuant to
Options to the transfer restrictions set forth in such agreement), promptly
after such agreement becomes effective.
6.7. Other Terms and Conditions. Options may contain such other terms,
conditions and restrictions, which shall not be inconsistent with the
provisions of the Plan, as the Committee shall deem appropriate.
7. Exercise of Options.
7.1. Written Notice. A Participant who wishes to exercise an Option,
or a portion of an Option, shall give written notice thereof to the Company.
The date the Company receives such notice shall be considered as the date such
Option was exercised as to the Ordinary Shares specified in such notice.
7.2. Payment. A Participant who exercises an Option shall pay to the
Company at the date of exercise and prior to the delivery of the Ordinary
Shares for which the Option is being exercised (i) the aggregate exercise price
of all Ordinary Shares pursuant to such exercise of the Option and (ii) an
amount equal to the income and other taxes, if any, required to be withheld and
paid by the Company as a result of such exercise, unless such taxes are
withheld or otherwise collected from the Participant. All payments shall be
made by check payable to the order of the Company.
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<PAGE> 13
7.3. No Privileges of Shareholder. A Participant shall not have any of
the rights or privileges of a shareholder of the Company with respect to the
Ordinary Shares subject to an Option (or any unvested restricted Ordinary
Shares) unless and until such Ordinary Shares have been duly issued and (if
applicable) vested and have been registered in the Participant's name.
8. Termination of Employment.
8.1. Unvested Options. Each unvested Option shall terminate upon the
termination, for whatever reason, of the Participant's employment with the
Company and its subsidiaries.
8.2. Vested But Unexercised Options. Upon the termination of the
Participant's employment with the Company and its subsidiaries for any reason
other than the Participant's death or Disability, the Participant shall have 90
days in which to exercise any Options which were vested but unexercised as of
the date of such termination. In the event of the Participant's death or
Disability, the Participant or his estate or legal representative, as
applicable, shall have six months from the date of the Participant's death or
Disability in which to exercise any vested but unexercised Options.
9. Duration.
The Plan shall remain in effect for a period of five years after the
effective date of the Plan, unless
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<PAGE> 14
sooner terminated by the Board. Options theretofore granted may extend beyond
that date in accordance with the provisions of the Plan.
10. No Right to Employment.
Nothing contained in the Plan or in any option agreement shall give a
Participant any right to continue employment with the Company or its
subsidiaries.
11. Amendment.
The Board may amend the Plan from time to time, provided that no
amendment which increases the aggregate number of Ordinary Shares that may be
issued under the Plan may be made without the approval of the Company's
shareholders.
12. Government Regulations.
The Plan, the grant and exercise of Options hereunder, the obligation
of the Company to sell and deliver Ordinary Shares pursuant to such Options,
the grant of restricted Ordinary Shares and the Company's right or obligation
to purchase Ordinary Shares pursuant to Section 8.3 above shall be subject to
all applicable laws, rules and regulations, and to any required approvals by
any governmental agencies.
13. Effective Date.
The Plan was originally effective as of September 30, 1995. This
amendment and restatement of the Plan is effective as of April 18, 1996.
-14-
<PAGE> 1
EXHIBIT 10.27
AMENDMENT NO. 2 TO CREDIT AGREEMENT
This Amendment No. 2 to Credit Agreement (this "Amendment Agreement")
is entered into as of February 28, 1996 by and among GCR Holdings Limited (the
"Borrower"), the undersigned lenders (the "Lenders") and The First National
Bank of Chicago, as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent entered into that
certain Credit Agreement dated as of August 17, 1995 and amended as of October
27, 1995 (the "Credit Agreement"); and
WHEREAS, the Borrower, the Lenders and the Agent have agreed to further
amend the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to such terms in the Credit
Agreement, as amended hereby.
2. Amendments to Credit Agreement. Article VI of the Credit Agreement is
hereby amended as follows:
(a) Section 6.1 is hereby amended by (i) deleting paragraph (b)
thereof in its entirety and replacing it with the following:
(b) As soon as practicable and in any event within 45 days after
the close of the first three quarterly periods of each of its Fiscal
Years, for the Borrower and its Subsidiaries, consolidated unaudited
balance sheets as at the close of each such period and consolidated
statements of income, retained earnings and cash flows for the period
from the beginning of such Fiscal Year to the end of such Fiscal
Quarter, accompanied by a schedule of consolidation adjustments in
reasonable detail, all certified by its chief financial officer and
prepared in accordance with Agreement Accounting Principles.
and (ii) deleting paragraph (e) thereof in its entirety and replacing it with
the following:
(e) Not later than fifteen days after the regulatory filing
date, copies of the annual report and of any Annual Statements
required to be filed by each Insurance Subsidiary with a Governmental
Authority, if any audited and certified
<PAGE> 2
by independent certified public accountants of recognized standing, all
such statements to be prepared in accordance with SAP consistently
applied throughout the periods reflected therein.
(b) Section 6.20.1 is hereby amended by deleting the reference therein
to $300,000,000 and replacing it with a reference to $250,000,000.
(c) Section 6.20.2 is hereby amended by deleting the reference therein
to $300,000,000 and replacing it with a reference to $250,000,000.
3. Effectiveness. This Amendment Agreement shall become effective as of
the date first above written; provided, that the Agent has received counterparts
of this Amendment Agreement duly executed by the Borrower and the Required
Lenders.
4. Representations and Warranties of the Borrower.
4.1 The Borrower represents and warrants that the execution, delivery
and performance by the Borrower of this Amendment Agreement have been duly
authorized by all necessary corporate action and that this Amendment Agreement
is a legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (a) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (b) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law).
4.2 The Borrower hereby certifies that each of the representations and
warranties contained in the Credit Agreement is true and correct in all
material respects on and as of the date hereof as if made on the date hereof,
except to the extent that any such representation or warranty is stated to
relate solely to an earlier date, in which case such representation or
warranty shall be true and correct on and as of such earlier date.
5. Reference to and Effect on the Credit Agreement.
5.1 Upon the effectiveness of this Amendment Agreement, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or
words of like import and each reference to the Credit Agreement in each Loan
Document shall mean and be a reference to the Credit Agreement as amended
hereby.
5.2 Except as specifically amended above, all of the terms, conditions
and covenants of the Credit Agreement and the other Loan Documents shall remain
unaltered and in full force and effect and
-2-
<PAGE> 3
shall be binding upon the Borrower in all respects and are hereby ratified and
confirmed.
5.3 The execution, delivery and effectiveness of this Amendment
Agreement shall not operate as a waiver of (a) any right, power or remedy of
any Lender or the Agent under the Credit Agreement or any of the Loan
Documents, or (b) any Default or Unmatured Default under the Credit Agreement.
6. Costs and Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Agent in connection with the preparation, execution and delivery
of this Amendment Agreement, including the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect thereto.
7. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE
OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
8. Execution in Counterparts. This Amendment Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
9. Headings. Section headings in this Amendment Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Amendment Agreement for any other purposes.
[signature pages to follow]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Amendment Agreement as of the date first above written.
GCR HOLDINGS LIMITED
By: /s/ Frederick W. Deichmann
-----------------------------
Title: Chief Financial Officer
--------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
-----------------------------
Title:
---------------------------
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By:
------------------------------
Title:
---------------------------
MELLON BANK, N.A.
By:
----------------------------
Title:
------------------------
SHAWMUT BANK CONNECTICUT, N.A.
By:
----------------------------
Title:
------------------------
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Amendment Agreement as of the date first above written.
GCR HOLDINGS LIMITED
By:
--------------------------------------
Title:
-----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ S W Bridges
--------------------------------------
Title: V.P.
-----------------------------------
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By:
--------------------------------------
Title:
-----------------------------------
MELLON BANK, N.A.
By:
--------------------------------------
Title:
-----------------------------------
SHAWMUT BANK CONNECTICUT, N.A.
By:
--------------------------------------
Title:
-----------------------------------
-4-
<PAGE> 6
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Amendment Agreement as of the date first above written.
GCR HOLDINGS LIMITED
By:
--------------------------------------
Title:
-----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
--------------------------------------
Title:
-----------------------------------
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By: /s/ David E. Moyer /s/ Christopher de Chabert
--------------------------------------------------
Title: David E. Moyer Christopher de Chabert
-----------------------------------------------
Vice President Assistant Vice President
MELLON BANK, N.A.
By:
--------------------------------------
Title:
-----------------------------------
SHAWMUT BANK CONNECTICUT, N.A.
By:
--------------------------------------
Title:
-----------------------------------
-4-
<PAGE> 7
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Amendment Agreement as of the date first above written.
GCR HOLDINGS LIMITED
By:
-------------------------
Title:
----------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
--------------------------
Title:
-----------------------
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By:
--------------------------
Title:
-----------------------
MELLON BANK, N.A.
By: /s/ KAREN E. McCONOMY
-------------------------
Title: Banking Officer
----------------------
SHAWMUT BANK CONNECTICUT, N.A.
By:
--------------------------
Title:
-----------------------
-4-
<PAGE> 8
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Amendment Agreement as of the date first above written.
GCR HOLDINGS LIMITED
By:
--------------------------------------
Title:
-----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
--------------------------------------
Title:
-----------------------------------
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By:
--------------------------------------
Title:
-----------------------------------
MELLON BANK, N.A.
By:
--------------------------------------
Title:
-----------------------------------
FLEET NATIONAL BANK OF CONNECTICUT
By: /s/ Thomas E. McKinlay
--------------------------------------
Title: Vice President
-----------------------------------
-4-
<PAGE> 1
EXHIBIT 10.28
SHARE OPTION AGREEMENT
This Share Option Agreement ("Agreement") is made as of this 16th day of
November, 1995, by and between GCR Holdings Limited, a Cayman Islands exempt
limited liability company (the "Company"), Global Capital Reinsurance Limited,
a subsidiary of the Company organized under the laws of Bermuda to engage in
worldwide property catastrophe reinsurance (Global Capital Re), and ___________
(the "Optionee"), an employee of the Company and/or Global Capital Re.
R E C I T A L S
WHEREAS, the Company's 1995 Share Option Plan (the "Plan") was adopted
by the Company's Board of Directors on November 16, 1995 to enable the Company
and its subsidiaries to provide certain key employees with an additional
incentive to contribute to the success of the Company; and
WHEREAS, the Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"); and
WHEREAS, the Committee has determined that the Optionee shall be
granted the option hereinafter set forth upon the terms and conditions
hereinafter contained;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
parties hereby enter into this Agreement upon the following terms and
conditions;
1. Agreement Subject to Plan. This agreement is subject to the
provisions of the Plan and shall be interpreted in accordance therewith. In the
case of a conflict between the provisions of this Agreement and the Plan, the
provisions of the Plan shall govern. All capitalized terms not otherwise
defined herein shall have the meaning attributed to them in the Plan. The
Optionee hereby acknowledges receipt of a copy of the Plan.
2. Grant of Option. The Company hereby grants to the Optionee the
option (the "Option") to purchase all or part of an aggregate of _____________
shares (the "Shares") (after giving effect to the 5:1 Share Split) of the
Company's Ordinary Shares, at a purchase price of $15.24 per share, subject to
the terms and conditions of this Agreement and the Plan.
3. Term of Option. The Optionee may exercise the Option in accordance
with the provisions of section 7 of the Plan only during the period (the
"Option Period") commencing on and including November 16, 1996 and ending on
and including November 15, 2005. In addition, the Option shall be subject to
the provisions of Section 8 of the Plan.
4. Vesting. The Optionee's right to exercise the Option with respect
to twenty-five percent (25%) of the Shares shall vest and become exercisable on
each of the first four anniversaries of the date of this Agreement.
<PAGE> 2
In addition, all Options shall vest immediately and become exercisable
in the event of a "Change of Control", which shall be deemed to occur if (i)
any "Person" (as such term is defined in Section 3(a)(9) and as used in
Sections 13(d) and 14(d) of the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act")), excluding the Company or any of its
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Company or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a
corporation owned, directly or indirectly, by shareholders of the Company in
substantially the same proportion as their ownership of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities
("Voting Securities"); (ii) during any period of not more than two years,
individuals who constitute the Board as of the beginning of the period and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in clause (i)
or (iii) of this sentence) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at such time or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
(iii) the shareholders of the Company approve a merger, consolidation or
reorganization or a court of competent jurisdiction approves a scheme of
arrangement of the Company, other than a merger, consolidation, reorganization
or scheme of arrangement which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger, consolidation, reorganization or scheme of arrangement; or
(iv) the shareholders of the Company approve a plan of complete liquidation of
the Company or any agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
5. Adjustment in Capitalization. If there is any change in the total
number of outstanding Ordinary Shares by reason of a share dividend,
recapitalization, merger, consolidation, scheme of arrangement stock split,
combination or exchange, share repurchase or otherwise (except for any capital
raising activities), the aggregate number of Ordinary Shares available under
this Plan, the number of Ordinary Shares subject to each outstanding Option and
the exercise price thereof shall be appropriately adjusted by the Committee,
whose determination shall be conclusive. An Optionee who is granted an Option
under the Plan shall also (but without duplication of any adjustment made
pursuant to the preceding sentence) be granted restricted Ordinary Shares with
respect to an amount that is equal to 30% of the sum of (A) all cash dividends
that are declared by the Company and paid or payable to shareholders of record
as of a time before the exercise of the Option that would have been paid or
payable to the Participant in respect of the Ordinary Shares which are the
subject of the Option had they been held by the Participant at such time and
(B) all cash dividends that are declared by the Company and paid or payable to
shareholders of record as of a time before any restricted Ordinary Shares
granted pursuant to clause (A) above become vested and that would have been
paid or payable to the Participant in respect of such unvested restricted
Ordinary Shares had they been vested at such time.
<PAGE> 3
6. Delivery of Certificates. Upon the exercise of the Option in whole
or in part, the Company shall deliver one or more certificates representing the
number of Ordinary Shares purchased. The Company shall pay all original issue
or transfer taxes and all fees and expenses incident to such delivery, except
as otherwise provided in section 7.2 of the Plan. Ordinary Shares issued upon
exercise of the Option shall be subject to the provisions of the Restated
Articles of Association of the Company, as the same may be amended from time to
time, (the "Articles") including the restrictions on transferability set forth
therein.
7. Decisions of Committee. The Committee shall have full power and
authority to interpret the Plan and this Agreement, to establish, amend and
rescind rules and regulations relating to the Plan and this Agreement and to
make any and all determinations under them, and its decisions shall be final,
binding and conclusive upon all persons, including the Optionee and his legal
representatives, in respect of any questions arising under the Plan or this
Agreement.
8. Notice. Any notice to be given to the Company shall be addressed to
the Company (Attention: Frederick W. Deichmann) at its office at GCR Holdings
Limited, P.O. Box HM 762, Hamilton HM CX, Bermuda, and if given to the
Optionee, at his residence as it may appear on the records of the Company; or
to either of them, at such other address as either of them may hereafter
designate in writing to the other.
9. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and any successors to the business of the Company,
but this Agreement shall not be assignable by the Optionee.
10. Governing Law. This Agreement shall be governed in accordance with
the laws of the Cayman Islands, without reference to rules relating to
conflicts of law.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date and year first above written.
GCR HOLDINGS LIMITED
By:
----------------------------
Lawrence S. Doyle
President
----------------------------
Optionee
<PAGE> 1
Exhibit 10.29
RESTRICTED SHARE AGREEMENT
This Restricted Share Agreement ("Agreement") is made as of this _____ day of
February, 1996, by and among GCR Holdings Limited, a Cayman Islands exempt
limited liability company (the "Company"), Global Capital Reinsurance Limited,
a subsidiary of the Company organized under the laws of Bermuda to engage in
worldwide property catastrophe reinsurance ("Global Capital Re"), and
____________ (the "Recipient"), an employee of the Company and/or Global
Capital Re.
RECITALS
WHEREAS, the Company's 1995 Share Option Plan (as it may be amended
from time to time, the "Plan") was adopted by the Company's Board of Directors
on December 12, 1995, as of November 16, 1995, to enable the Company and its
subsidiaries to provide certain key employees with an additional incentive to
contribute to the success of the Company; and
WHEREAS, the Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee").
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
parties hereby enter into this Agreement upon the following terms and
conditions:
1. Issuance of Initial Restricted Shares. All restricted Ordinary
Shares granted to the Recipient pursuant to the Plan before the date of the
next annual general meeting of the Company's shareholders ("Initial Restricted
Shares") will be granted subject to, and each such grant shall be effective
only upon, approval of the Plan by such shareholders at such meeting. If such
shareholders approve the Plan at such meeting, the date of grant of all Initial
Restricted Shares, for all purposes including vesting of such shares pursuant
to the Plan, shall be the date of such meeting. This Section 1 shall not affect
any restricted Ordinary Shares granted pursuant to the Plan on or after the
date of such meeting.
2. The Amended and Restated Shareholders' Agreement. The Recipient
hereby becomes a party (if not already a party) to the Company's Amended and
Restated Shareholders' Agreement, dated as of December 18, 1995 (as it may be
amended from time to time, the "Shareholders' Agreement"), among the Company
and its shareholders. All Ordinary Shares of the Company acquired by the
Recipient from the Company
<PAGE> 2
(including all such Ordinary Shares acquired upon exercise of any option
previously or hereafter acquired from the Company and all restricted Ordinary
Shares acquired pursuant to the Plan or any other benefit plan of the Company)
shall be subject to the transfer restrictions and other provisions of the
Shareholders' Agreement to the extent that such shares constitute Registrable
Shares (as defined in the Shareholders' Agreement).
3. Vesting. Each restricted Ordinary Share granted pursuant to the
Plan or this Agreement shall be subject to the same vesting rules, as set forth
in Section 6.3 of the Plan as initially in effect, as the option pursuant to
which such restricted Ordinary Shares are granted (based on the date of
issuance of the restricted Ordinary Shares) and shall be forfeited to the
extent not vested upon the termination, for whatever reason, of the Recipient's
employment with the Company and its subsidiaries.
4. Adjustments in Capitalization. If any event contemplated in the
first paragraph of Section 5.2 of the Plan (as initially in effect) shall
occur, an appropriate adjustment shall be made by the Committee in respect of
all unvested restricted Ordinary Shares granted to the Recipient pursuant to
the Plan, so as to restore him to his rights hereunder.
5. Conflicts. In the case of a conflict between the provisions of
this Agreement and the Plan as initially in effect, the provisions of the Plan
shall govern. In the case of a conflict between the provisions of this
Agreement and the Plan as it may be amended (but not between the provisions of
this Agreement and the Plan as initially in effect) this Agreement shall
govern.
6. Decisions of Committee. Subject to Section 5 above, the Committee
shall have full power and authority to interpret the Plan, to establish, amend
and rescind rules and regulations relating to the Plan and to make any and all
determinations under them, and its decisions shall be final, binding and
conclusive upon all persons, including the Recipient and his legal
representatives, in respect of any questions arising under the Plan.
7. Notices. Any notice to be given to the Company shall be delivered
to the Company (Attention: Frederick W. Deichmann) at its offices at GCR
Holdings Limited, P.O. Box HM 762, Hamilton HM CX, Bermuda (telecopier number
809-295-4584), and if given to the Recipient, at his address (or telecopier
number) as it may appear on the records of the Company; or to either of them,
at such other address as
<PAGE> 3
either of them may hereafter designate in writing to the other. In each case,
notice shall be given in writing, may be given by hand, first class mail
(postage prepaid), prepaid courier or telecopier and shall be deemed given
when received.
8. Successors. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and any successor to the Company; but this
Agreement shall not be assignable by the Recipient (and shall not be binding
upon or inure to the benefit of any successor thereto) except by will or the
laws of descent and distribution.
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date and year first above written.
GCR Holdings Limited
By:
---------------------------------
Frederick W. Deichmann
Secretary
GLOBAL CAPITAL
REINSURANCE LIMITED
By:
---------------------------------
Lawrence S. Doyle
President
_______________________________________
[Name of Recipient]
<PAGE> 1
Exhibit 10.30
SHARE OPTION AGREEMENT
This Share Option Agreement ("Agreement") is made as of this 16th day of
November, 1995, by and between GCR Holdings Limited, a Cayman Islands exempt
limited liability company (the "Company"), and ____________ (the "Optionee"),
a non-employee Director of the Company.
RECITALS
WHEREAS, the Company's Non-Employee Directors Share Option Plan (as it
may be amended from time to time, the "Plan") was adopted by the Company's
Board of Directors on December 12, 1995, as of November 16, 1995, to enable the
Company and its subsidiaries to provide non-employee directors with an
ownership interest in the Company which is parallel to that of shareholders of
the Company; and
WHEREAS, the Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"); and
WHEREAS, the Committee has determined that the Optionee shall be
granted the option hereinafter set forth upon the terms and conditions
hereinafter contained;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
parties hereby enter into this Agreement upon the following terms and
conditions:
1. Agreement Subject to Plan. This agreement is subject to the
provisions of the Plan and shall be interpreted in accordance therewith. In the
case of a conflict between the provisions of this Agreement and the Plan as
initially in effect, the provisions of the Plan as initially in effect shall
govern. In the case of a conflict between the provisions of this Agreement and
the Plan as it may be amended (but not between the provisions of this Agreement
and the Plan as initially in effect), the provisions of this Agreement shall
govern. All capitalized terms not otherwise defined herein shall have the
meaning attributed to them in the Plan. The Optionee hereby acknowledges
receipt of a copy of the Plan.
2. Grant of Option. The Company hereby grants to the Optionee the
option (the "Option") to purchase all or part of an aggregate of 3,000 shares
(as adjusted pursuant to paragraph 5, the "Shares") (after giving effect to the
5:1 Share Split) of the Company's Ordinary Shares, at a purchase price of
$15.24 per share, subject to the terms and conditions of this Agreement and the
Plan.
3. Term of Option. The Optionee may exercise the Option in
accordance with the provisions of Section 7 of the Plan only during the period
(the "Option Period") commencing on and including the effective date of the
initial public offering of the Company's shares and ending on and including
November 15, 2005. In addition, the Option shall be subject to the provisions
of Section 7.4 of the Plan as initially in effect.
4. Vesting. The Optionee's right to exercise the Option with
respect to the Shares shall vest and become exercisable on the date of the
grant. Twenty-five percent (25%) of the restricted Ordinary Shares granted
under the Plan in respect of the Option shall vest on each of the next four
anniversaries of the date of grant of the restricted Ordinary Shares if the
Optionee is then a member of the Board. Such restricted Ordinary Shares shall be
forfeited to the extent not vested upon the termination of the Optionee's
service as a member of the Board for any reason.
<PAGE> 2
In addition, all restricted Ordinary Shares granted under the Plan in
respect of the Option shall vest immediately in the event of a "Change of
Control", which shall be deemed to occur if (i) any "person" (as such term is
defined in Section 3(a)(9) and as used in Sections 13(d) of the United States
Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding
the Company or any of its subsidiaries, a trustee or any fiduciary holding
securities under an employee benefit plan of the Company or any of its
subsidiaries, an underwriter temporarily holding securities pursuant to an
offering of such securities or a corporation owned, directly or indirectly, by
shareholders of the Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities ("Voting Securities"); (ii) during any
period of not more than two years, individuals who constitute the Board as of
the beginning of the period and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i) or (iii) or this sentence) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at such time or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; (iii) the shareholders of the Company approve a
merger, consolidation or reorganization or a court of competent jurisdiction
approves a scheme of arrangement of the Company, other than a merger,
consolidation, reorganization or scheme of arrangement which would result in
the Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 50% of the combined
voting power of the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger, consolidation, reorganization or
scheme of arrangement; or (iv) the shareholders of the Company approve a plan
of complete liquidation of the Company or any agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
5. Adjustment in Capitalization. If there is any change in the number
or nature of outstanding shares of the Company's Capital Stock by reason of a
share dividend, recapitalization, merger, consolidation, scheme of arrangement
stock split, combination or exchange, share repurchase or otherwise, or if
there is any non-cash distribution in respect of any such shares, which in any
case has a dilutive or antidilutive effect on the Ordinary Shares, the number
of Ordinary Shares subject to the Option, the exercise price thereof and/or
other terms thereof shall be appropriately adjusted by the Committee, and
appropriate adjustment shall be made by the Committee in respect of all
unvested restricted Ordinary Shares granted to the Optionee pursuant to the
Plan in respect of the Option and then held by him, so as to restore the
Optionee to his rights hereunder.
The Optionee shall also (but without duplication of any adjustment made
pursuant to the preceding paragraph) be granted restricted Ordinary Shares with
respect to an amount (the "Applicable Dividend Amount") that is equal to 30% of
the sum of (A) all cash dividends that are declared by the Company and paid or
payable to shareholders of record as of a time before the exercise of the
Option that would have been paid or payable to the Optionee in respect of the
Ordinary Shares which are the subject of the Option had they been held by the
Optionee at such time and (B) all cash dividends that are declared by the
Company and paid or payable to shareholders of record as of a time before any
restricted Ordinary Shares granted pursuant to clause (A) above become vested
and that would have been paid or payable to the Optionee in respect of such
unvested restricted Ordinary Shares had they been vested at such time. The
number of restricted Ordinary Shares to be granted to the Optionee each time a
dividend is paid shall be equal to the Applicable Dividend Amount for the
Optionee divided by the Appraised Value (as defined in the Plan as initially in
effect) of one Ordinary Share on the date the dividend is paid.
<PAGE> 3
In addition, all restricted Ordinary Shares shall vest immediately in the event
of a "Change of Control".
All restricted Ordinary Shares granted to the Optionee pursuant to the
Plan before the date of the next annual general meeting of the Company's
shareholders ("Initial Restricted Shares") will be granted subject to, and each
such grant shall be effective only upon, approval of the Plan by such
shareholders at such meeting. If such shareholders approve the Plan at such
meeting, the date of grant of all Initial Restricted Shares, for all purposes
including vesting of such shares, shall be the date of such meeting. The
provisions of this paragraph shall not affect any restricted Ordinary Shares
granted pursuant to the Plan on or after the date of such meeting.
6. DELIVERY OF CERTIFICATES. Upon the exercise of the Option in whole
or in part, the Company shall deliver one or more certificates representing the
number of Ordinary Shares purchased. The Company shall pay all original issue
or transfer taxes and all fees and expenses incident to such delivery, except
for any income or other taxes for which the Optionee may become liable as a
result of such exercise. Ordinary Shares issued upon exercise of the Option
shall be subject to the provisions of the Restated Articles of Association of
the Company, as the same may be amended from time to time (the "Articles"),
including the restrictions on transferability set forth therein.
7. THE AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT. The Optionee
hereby becomes a party (if not already a party) to the Company's Amended and
Restated Shareholders' Agreement, dated as of December 18, 1995 (as it may be
amended from time to time, the "Shareholders' Agreement"), among the Company
and its shareholders. All Ordinary Shares of the Company acquired by the
Optionee from the Company (including all such Ordinary Shares acquired upon
exercise of the Option or any other option previously or hereafter acquired
from the Company and all restricted Ordinary Shares acquired pursuant to the
Plan or any other benefit plan of the Company) shall be subject to the transfer
restrictions and other provisions of the Shareholders' Agreement to the extent
that such shares constitute Registrable Shares (as defined in the Shareholders'
Agreement).
8. DECISIONS OF COMMITTEE. Subject to Section 1 above, the Committee
shall have full power and authority to interpret the Plan, to establish, amend
and rescind rules and regulations relating to the Plan and to make any and all
determinations under them, and its decisions shall be final, binding and
conclusive upon all persons, including the Optionee and his legal
representatives, in respect of any questions arising under the Plan.
9. NOTICE. Any notice to be given to the Company shall be addressed
to the Company (Attention: Frederick W. Deichmann) at its office at GCR
Holdings Limited, P.O. Box HM 762, Hamilton HM CX, Bermuda (telecopier number
441-292-4338, and if given to the Optionee, at his address (telecopier number)
as it may appear on the records of the Company, or to either of them, at such
other address as either of them may hereafter designate in writing to the
other. In each case, notice shall be given in writing, may be given by hand,
first class mail (postage prepaid), prepaid courier or telecopier and shall be
deemed given when received.
10. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and any successors to the Company; but this
Agreement shall not be assignable by the Optionee (and shall not be binding
upon or inure to the benefit of any successor thereto) except by will or the
laws of descent and distribution.
11. GOVERNING LAW. This Agreement shall be governed in accordance
with the laws of the State of New York.
<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date and year first above written.
GCR HOLDINGS LIMITED
By:
------------------------------
Frederick W. Deichmann
Secretary
-------------------------------
Director
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN & CO.
HAMILTON, BERMUDA
MAY 21, 1996
<PAGE> 1
17TH MAY, 1996 EXHIBIT 23.3
CONSENT OF APPLEBY, SPURLING & KEMPE
We hereby consent to the use of our opinions and to all references to our
Firm included in or made a part of this Registration Statement and in any
registration statement that may be filed pursuant to Rule 462(b) promulgated
under the Securities Act of 1933 (the "Securities Act"). In giving such consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act.
Yours faithfully,
Appleby, Spurling & Kempe
/s/ APPLEBY, SPURLING & KEMPE
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lawrence S. Doyle and Frederick W. Deichmann, and
each of them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form S-1 of GCR Holdings
Limited and any or all amendments (including post-effective amendments) thereto
and any related Rule 462(b) registration under the Securities Act of 1933, and
any and all amendments thereto, and any and all documents in connection
therewith, and file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done as
fully as to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them may lawfully do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lawrence S. Doyle President, Chief Executive Officer and April 18, 1996
- ----------------------------- Director (Principal Executive Officer)
Lawrence S. Doyle
/s/ Frederick W. Deichmann Chief Financial Officer and Secretary April 18, 1996
- ----------------------------- (Principal Financial and Accounting Officer)
Frederick W. Deichmann
/s/ Steven H. Newman Chairman of the Board of Directors April 18, 1996
- -----------------------------
Steven H. Newman
/s/ J. Markham Green Director April 18, 1996
- -----------------------------
J. Markham Green
/s/ Alfred Lerner Director April 18, 1996
- -----------------------------
Alfred Lerner
/s/ John P. McNulty Director April 18, 1996
- ----------------------------
John P. McNulty
/s/ David A. Olsen Director April 18, 1996
- ----------------------------
David A. Olsen
/s/ Jerry S. Rosenbloom Director April 18, 1996
- ----------------------------
Jerry S. Rosenbloom
/s/ Joseph D. Roxe Director April 18, 1996
- ---------------------------
Joseph D. Roxe
/s/ Michael E. Satz Director April 18, 1996
- ---------------------------
Michael E. Satz
/s/ Richard D. Spurling Director April 18, 1996
- ---------------------------
Richard D. Spurling
/s/ Donald J. Zuk Director April 18, 1996
- --------------------------
Donald J. Zuk
</TABLE>
