<PAGE>
REGISTRATION NOS. 33-93358 AND 33-93358-01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 TO FORMS F-1 AND S-1/*/
REGISTRATION STATEMENT
ON
FORM S-3*
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
TERRA NOVA INSURANCE (UK) HOLDINGS PLC TERRA NOVA (BERMUDA) HOLDINGS LTD.
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF GUARANTOR AS SPECIFIED IN ITS CHARTER)
<S> <C> <C> <C> <C> <C>
ENGLAND AND WALES 6331 NOT APPLICABLE BERMUDA 6331 NOT APPLICABLE
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION JURISDICTION OF INDUSTRIAL IDENTIFICATION
INCORPORATION OR CLASSIFICATION CODE NUMBER) INCORPORATION OR CLASSIFICATION NUMBER)
ORGANIZATION) NUMBER) ORGANIZATION) CODE NUMBER)
- - ------------------------------------------------------------------------------------------------------------------------------------
TERRA NOVA HOUSE RICHMOND HOUSE
41-43 MINCING LANE 12 PAR-LA-VILLE ROAD
LONDON EC3R 7SP, GREAT BRITAIN HAMILTON HM 08, BERMUDA
(171) 283-3000 (441) 292-7731
- - ------------------------------------------------------------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
CODE, OF ISSUER'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF GUARANTOR'S PRINCIPAL EXECUTIVE
OFFICES)
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 664-1666
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JEAN M. WAGGETT
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
TERRA NOVA (BERMUDA) HOLDING LTD.
RICHMOND HOUSE
12 PAR-LA-VILLE ROAD
HAMILTON HM 08, BERMUDA
(441) 292-7731
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time as determined by market conditions, 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. [ ]
THE ISSUER AND THE GUARANTOR HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE ISSUER
AND THE GUARANTOR SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
* This Registration Statement constituted a filing on Form F-1 for the Senior
Notes and on Form S-1 for the Guarantee; this Post-Effective Amendment
constitutes a filing on Form S-3 for the Senior Notes and on Form S-3 for the
Guaranty.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment to the Registration Statement contains a
Prospectus relating to certain market-making transactions in the $100,000,000
10 3/4% Senior Notes due 2005 of Terra Nova Insurance (U.K.) Holdings plc,
fully and unconditionally guaranteed by Terra Nova (Bermuda) Holdings Ltd. In
order to register under Rule 415 of the Securities Act of 1933 those Senior
Notes that will be offered and sold in market-making transactions, the
appropriate box on the cover page of the Registration Statement has been
checked and the undertakings required by Item 512(a) of Regulation S-K have
been included in Item 17 of Part II.
<PAGE>
$100,000,000
Terra Nova Insurance (UK) Holdings plc
10 3/4% Senior Notes due 2005
fully and unconditionally guaranteed on a senior basis by
Terra Nova (Bermuda) Holdings Ltd.
The 10 3/4% Senior Notes due 2005 offered hereby (the "Senior Notes") were
originally issued under a Prospectus dated June 27, 1995 by Terra Nova Insurance
(UK) Holdings plc (the "Issuer" or "UK Holdings") and are fully and
unconditionally guaranteed on a senior basis by Terra Nova (Bermuda) Holdings
Ltd. ("Bermuda Holdings" or the "Company"). See "Description of Senior Notes --
General" and "-- Guarantee." The Senior Notes will mature on July 1, 2005.
Interest on the Senior Notes accrued at the rate of 10 3/4% per annum and is
payable semi-annually on each January 1 and July 1, commencing January 1, 1996.
The Senior Notes are redeemable at the option of the Issuer, in whole or in
part, at any time on or after July 1, 2000, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption. In
addition, at any time prior to July 1, 1998, in the event that the Issuer or
Bermuda Holdings consummates one or more offerings of its equity securities, all
or a portion of the proceeds of such offerings may be used to redeem up to 35%
of the Senior Notes at 109.75% of the principal amount thereof, plus accrued and
unpaid interest to the date of redemption. The Senior Notes also may be
redeemed under the circumstances described under "Description of Senior Notes --
Tax Redemption" at 100% of the principal amount thereof, plus accrued and unpaid
interest to the date of redemption. Upon the occurrence of a Change of Control
(as defined herein), the Issuer or Bermuda Holdings will be required to make an
offer to each holder of Senior Notes to purchase all or any part of such
holder's Senior Notes at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. See "Description of Senior Notes -- Purchase at the Option of Holders
upon a Change of Control" and "-- Certain Definitions." Neither the Issuer nor
Bermuda Holdings expects to have sufficient funds available to purchase all of
the outstanding Senior Notes were they to be tendered in response to an offer
made as a result of a Change of Control. See "Risk Factors -- Change of
Control." The Senior Notes are not subject to any mandatory sinking fund
payment.
The Senior Notes and the guarantee (the "Guarantee") of the Senior Notes by
Bermuda Holdings constitute unsecured senior obligations of the Issuer and
Bermuda Holdings, respectively. The Senior Notes and the Guarantee rank pari
passu in right of payment with all other senior indebtedness of the Issuer and
Bermuda Holdings, respectively. See "Description of Senior Notes -- General"
and "-- Guarantee." The Senior Notes and the Guarantee constitute substantially
all of the outstanding indebtedness of the Issuer and Bermuda Holdings,
respectively. As of the date hereof, there is no outstanding indebtedness of
either the Issuer or Bermuda Holdings which is subordinate to the Senior Notes.
Because the Issuer and Bermuda Holdings are holding companies, in order for them
to make interest and principal payments on the Senior Notes, they will be
dependent on the payment of dividends by their respective insurance company
subsidiaries, and the Senior Notes and the Guarantee will be effectively
subordinated to all existing and future liabilities of such insurance company
subsidiaries, which at December 31, 1996 consisted principally of insurance
liabilities and aggregated $1.5 billion.
There is currently no active public market for the Senior Notes. The Company
has been advised by Donaldson, Lufkin and Jenrette Securities Corporation
("DLJSC") that it intends to make a market for the Senior Notes; however, DLJSC
is not obligated to do so. Any market making may be discontinued at any time
and there is no assurance that an active public market for the Senior Notes will
develop or that, if such a market develops, it will continue. This Prospectus
has been prepared for use by DLJSC in connection with offers and sales of an
indeterminate amount of Senior Notes which may be made by it from time to time
in market-making transactions at negotiated prices relating to prevailing market
prices at the time of sale. DLJSC may act as principal or agent in such
transactions. See "Plan of Distribution." DLJSC will deliver a Prospectus in
connection with the sale of the Senior Notes in market-making transactions so
long as such prospectus delivery is required under applicable law.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 HEREIN FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
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.
AVAILABLE INFORMATION
<PAGE>
The Issuer and Bermuda Holdings have filed with the Securities and Exchange
Commission (the "Commission") a combined registration statement (collectively,
the "Registration Statement," which term shall include any amendment thereto)
on Forms F-1 and S-1, and a post-effective amendment on Form S-3,
respectively, under the Securities Act of 1933, as amended (the "Securities
Act"), for the registration of the Senior Notes and the Guarantee offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Issuer, Bermuda Holdings, the Senior Notes and the Guarantee, reference
is hereby made to the Registration Statement, including the exhibits and
schedules thereto. Statements made in this Prospectus concerning the contents
of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed with the Commission as an exhibit to the Registration
Statement, reference is hereby 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.
Bermuda Holdings is subject to the periodic reporting and other information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Issuer is exempt from such requirements, but summary financial
information of the Issuer will be provided in the reports filed by Bermuda
Holdings, as permitted by the rules and regulations of the Commission. Under
current law, for as along as the Senior Notes or Bermuda Holdings' Class A
Ordinary Shares, par value $5.80 per share, are listed on the New York Stock
Exchange, Inc. (the "NYSE"), Bermuda Holdings will be required to file with
the Commission annual, quarterly and current financial information on Forms
10-K, 10-Q and 8-K. However, whether or not required by the Exchange Act or
the rules and regulations of the Commission thereunder, so long as any Senior
Notes are outstanding, Bermuda Holdings has agreed to furnish to the holders
of Senior Notes all financial information that would be required to be
contained in a filing with the Commission on Form 10-K, 10-Q or 8-K if Bermuda
Holdings were required to file such Form, including a "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and, with
respect to the annual financial statements only, a report thereon by Bermuda
Holdings' independent public accountants. In addition, whether or not
required by the Exchange Act or the rules and regulations of the Commission
thereunder, Bermuda Holdings will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to
investors who request it in writing.
The Registration Statement (with exhibits), as well as the reports and
other information filed by Bermuda Holdings pursuant to the Exchange Act, may
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the Commission's regional offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 7th Floor, New York, New York 10048 or on the Internet at
http:\\www.sec.gov. Copies of such material may also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, reports and other material concerning Bermuda Holdings can be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1996 is incorporated herein by reference.
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Any documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Senior Notes and the Guarantee offered
hereby shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the foregoing documents). Any such request
should be directed to Jean M. Waggett, Esq., Terra Nova (Bermuda) Holdings
Ltd., Richmond House, 2nd Floor, 12 Par-La-Ville Road, Hamilton HM 08, Bermuda
(telephone 441-292-7731)).
ENFORCEABILITY OF CIVIL LIABILITIES
The Issuer is a public limited company incorporated under the laws of
England and Wales, and Bermuda Holdings is a company incorporated under the
laws of Bermuda. All of the directors and executive officers of the Issuer,
all of the executive officers of Bermuda Holdings, five of the twelve
directors of Bermuda Holdings, and the experts named herein are non-residents
of the United States, and all or a substantial portion of the assets of the
Issuer, Bermuda Holdings and such persons are located outside the United
States. It may not be possible for investors to effect service of process
within the United States upon such persons or to enforce against any of them,
the Issuer or Bermuda Holdings judgments of courts of the United States
predicated upon the civil liability provisions of the federal or state
securities laws of the United States. The Issuer and Bermuda Holdings have
been advised by their respective counsel, Clifford Chance and Conyers, Dill &
Pearman, that there is doubt as to the enforceability in the United Kingdom
and in Bermuda, in original actions or in actions for enforcement of judgments
of United States courts, of civil liabilities predicated solely upon such
securities laws.
The Company has been informed by Conyers, Dill & Pearman that the United
States and Bermuda do not have a treaty providing for reciprocal recognition
and enforcement of judgments of U.S. courts in civil and commercial matters
and that a final judgment for the payment of money rendered by any federal or
state court in the United States based on civil liability, whether or not
predicated solely upon the U.S. federal securities laws, would, therefore, not
be automatically enforceable in Bermuda. The Company has also been advised by
Conyers, Dill & Pearman that a final and conclusive judgment obtained in
federal or state courts in the United States under which a sum of money is
payable as compensatory damages (i.e., not being a sum claimed by a revenue
authority for taxes or other charges of a similar nature by a governmental
authority, or in respect of a fine or penalty or multiple or punitive damages)
may be the subject of an action on a debt in the Supreme Court of Bermuda
under the common law doctrine of obligation. Such an action should be
successful upon proof that the sum of money is due and payable, without having
to prove the facts supporting the underlying judgment, as long as: (i) the
court that gave the judgment was competent to hear the action in accordance
with private international law principles as applied by the courts in Bermuda;
and (ii) the judgment was not contrary to public policy in Bermuda, was not
obtained by fraud or in proceedings contrary to the
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<PAGE>
natural justice of Bermuda, and was not based on an error in Bermuda law. A
Bermuda court may impose civil liability on the Company or its directors or
officers in a suit brought in the Supreme Court of Bermuda against the Company
or such persons with respect to a violation of U.S. federal securities laws,
provided that the facts surrounding such violation constitute or give rise to
a cause of action under Bermuda law.
Bermuda Holdings and the Issuer have each appointed CT Corporation System,
New York, New York, as its agent to receive service of process in actions
brought against it, arising out of or in connection with U.S. federal or state
securities laws or out of violations of such laws, in any federal or state
court in the U.S. relating to the transactions covered by this Prospectus.
CURRENCY
In this Prospectus, references to "U.S. dollars," "$" or "cents" are to
U.S. currency, and references to "pounds," "sterling," "(Pounds)", "pence" or
"p" are to U.K. currency. Bermuda Holdings publishes its consolidated
financial statements in U.S. dollars, which is its functional currency.
SENIOR NOTES MAY NOT BE OFFERED OR SOLD TO PERSONS IN THE UNITED KINGDOM
EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING,
HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE
PURPOSES OF THEIR BUSINESSES, OR OTHERWISE IN CIRCUMSTANCES WHICH DO NOT
CONSTITUTE AN OFFER TO THE PUBLIC IN THE UNITED KINGDOM THE MEANING OF THE
PUBLIC OFFERS OF SECURITIES REGULATIONS 1995. ALL APPLICABLE PROVISIONS OF
THE FINANCIAL SERVICES ACT 1986 OF THE UNITED KINGDOM MUST BE COMPLIED WITH IN
RELATION TO ANYTHING DONE IN RELATION TO THE SENIOR NOTES IN, FROM OR
OTHERWISE INVOLVING THE UNITED KINGDOM.
NO DOCUMENT, INCLUDING THIS PROSPECTUS, MAY BE ISSUED OR PASSED ON TO ANY
PERSON IN THE UNITED KINGDOM IN CONNECTION WITH THE ISSUE OF THE SENIOR NOTES
EXCEPT TO A PERSON WHO IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE
FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER
1995 OR IS A PERSON TO WHOM THE DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR
PASSED ON.
THE COMPANY
The Company is a specialty property, casualty and marine insurance and
reinsurance company operating on a worldwide basis through subsidiaries in the
London company market and Lloyd's of London (together the "London Market"), in
the Bermuda Market, and through branch offices in Toronto, Canada and
Brussels, Belgium. Terra Nova, the Company's predecessor and principal
subsidiary, was established in 1969 and is believed by management to be one of
the largest London Market companies (as defined below).
The London Market is one of the world's largest insurance and reinsurance
marketplaces and attracts business from clients throughout the world who seek
flexible and innovative protection for a wide variety of risks. The London
Market is composed of Lloyd's and companies with underwriting offices in
proximity to Lloyd's ("London Market companies").
4
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The Bermuda Market, comprised of both captive and independent companies, in
recent years has become one of the world's largest insurance and reinsurance
markets in which international business is written.
The Company's principal executive offices are located at Richmond House, 12
Par-la-Ville Road, Hamilton HM 08, Bermuda, and its telephone number is 441-
292-7731.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratios of earnings to fixed
charges for the years and periods indicated:
<TABLE>
<CAPTION>
TERRA NOVA COMPANY
---------------- ----------
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994 1995 1996
----------------------------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges..................... NM NM NM 6.72 7.64
</TABLE>
In determining the ratio of earnings to fixed charges, earnings are
defined as earnings from continuing operations before income taxes and fixed
charges. Fixed charges consist of the total of interest on all indebtedness,
amortization of deferred debt insurance costs and one-third of operating lease
rental expense deemed representative of the interest factor. The ratio of
earnings to fixed charges has not been adjusted to reflect minority interests
because the shares of capital stock which comprise such minority interests are
not entitled to dividends until debt service payments on the Senior Notes have
been made. Terra Nova had no indebtedness through December 21, 1994, the date
of its acquisition by the Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Senior Notes
in any market-making transactions in connection with which this Prospectus may
be delivered.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following should be considered carefully in evaluating an investment in the
Senior Notes offered hereby.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
The Issuer is a holding company whose primary assets are the capital stock
of Terra Nova, and Bermuda Holdings is a holding company whose primary assets
are the capital stock of the Issuer and Terra Nova (Bermuda). Accordingly,
substantially all of the Issuer's cash flow is derived from dividends from
Terra Nova, and substantially all of the Bermuda Holdings' cash flow is
derived from dividends from the Issuer and Terra Nova (Bermuda). The payment
of dividends and other payments by Terra Nova and Terra Nova (Bermuda) is
subject to restrictions under U.K. law and Bermuda law, respectively.
Under U.K. company law, Terra Nova may not declare or pay a dividend except
from its distributable profits, which is its accumulated realized profits (so
far as not previously used by distribution or capitalization) less its
accumulated realized losses (so far as not previously written off in a
reduction or reorganization of
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capital). U.K. insurance company law and regulation require an insurance
company, such as Terra Nova, to maintain a minimum level of solvency and
provide that such a company may only pay a dividend to the extent that the
dividend would not reduce such company's net assets below its minimum level of
solvency. In addition, before Terra Nova may declare or pay any dividend, it
is required to give 14 days' advance notice to the U.K. Secretary of State for
Trade and Industry acting through the U.K. Department of Trade and Industry
(the "DTI"), which may direct that no such declaration or payment be made.
Under Bermuda insurance law, Terra Nova (Bermuda) is prohibited from
declaring or paying any dividends during any financial year if it is in breach
of its "minimum solvency margin" or "minimum liquidity ratio" or if the
declaration or payment of such dividends would cause it to fail to meet such
margin or ratio. Furthermore, if Terra Nova (Bermuda) fails to meet its
minimum solvency margin or minimum liquidity ratio on the last day of any
financial year, it will be prohibited, without the approval of the Minister of
Finance of Bermuda (the "Minister"), from declaring or paying any dividends
during the next financial year. In addition, under The Companies Act 1981, a
company may not pay a dividend or make a distribution out of contributed
surplus if there are reasonable grounds for believing that (a) the company is,
or would be, after the payment unable to pay its liabilities as they become
due, or (b) the realizable value of the company's assets would thereby be less
than the aggregate of its liabilities and its issued share capital and share
premium accounts.
There can be no assurance as to the exact amount of dividend payments, if
any, which the DTI will permit Terra Nova to make in the future or as to what
the standards for dividend payments by Terra Nova or Terra Nova (Bermuda) will
be in the future. Moreover, the surplus of each of Terra Nova and Terra Nova
(Bermuda) will be affected by the value of its respective investment
portfolio, which is sensitive to interest rate changes.
Because the Issuer and Bermuda Holdings are holding companies, the Senior
Notes and the Guarantee are effectively subordinated to all existing and
future liabilities of their respective insurance company subsidiaries which at
December 31, 1996 consisted principally of insurance liabilities and
aggregated $1.5 billion calculated in accordance with GAAP.
ABILITY TO SERVICE INTEREST AND PRINCIPAL PAYMENTS ON THE SENIOR NOTES
The Issuer expects to satisfy its interest payment obligations with respect
to the Senior Notes from dividend payments made by Terra Nova as well as
capital subscriptions and other payments from Bermuda Holdings. Similarly,
Bermuda Holdings' ability to fulfill the Guarantee or to make capital
subscriptions and other payments to the Issuer is based on dividend payments
by the Issuer or Terra Nova (Bermuda). Neither the Issuer nor Bermuda
Holdings intends to establish a sinking fund with respect to the Senior Notes.
To the extent dividends or other monies received by the Issuer or Bermuda
Holdings are insufficient to make, directly or through the Guarantee, interest
payments on the Senior Notes and principal payments on the Senior Notes at
maturity or upon the occurrence of an Event of Default (as defined herein) or
a Change of Control, the Company anticipates that it may have to borrow
additional funds or sell some of its assets. See "Description of Senior
Notes-- Purchase at the Option of Holders upon a Change of Control." There can
be no assurance that such actions could be effected on satisfactory terms, in
a timely manner or at all, that they would enable the Issuer or Bermuda
Holdings to make any of the foregoing payments on the Senior Notes or that any
such actions would be permitted under the Indenture.
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LEVERAGE
As of December 31, 1996 the Company had outstanding indebtedness of
approximately $100 million and shareholders' equity of approximately $398.7
million.
The Indenture permits the Company to incur additional indebtedness, subject
to certain limitations. Management believes that cash flow from operations,
together with other available sources of liquidity, will be adequate to permit
the Issuer to make required payments of principal and interest on its
indebtedness and to fund the working capital requirements of its operating
subsidiaries, although there can be no assurance that this will be the case.
To the extent that cash flow from operations is insufficient to satisfy the
Companies cash requirements, the Company may seek to obtain funds form
additional borrowings, sell a portion of the Company's business, investment
securities or other assets, engage in other transactions, raise additional
equity capital or acquire other businesses that would provide cash flow (in
all such cases to the extent permitted by the Indenture). There can be no
assurance that such actions could be effected on satisfactory terms, in a
timely manner or at all, that they would enable the Issuer or Bermuda Holdings
to make any of the payments due on the Senior Notes or that any such actions
would be permitted under the Indenture.
The Company's leverage could make the Company vulnerable to changes in
general economic conditions and impair the Company's ability to obtain
additional financing for working capital, acquisitions or general corporate
purposes. In addition, as noted above, Bermuda Holdings and the Issuer are
dependent on dividend payments from subsidiaries to meet their obligations,
including its obligations under the Senior Notes.
CYCLICALITY OF INSURANCE AND REINSURANCE INDUSTRY; INDUSTRY DEVELOPMENTS
The property, casualty and marine insurance and reinsurance industry has a
history of being highly cyclical. Demand for reinsurance is influenced
significantly by underwriting results of primary property, casualty and marine
insurers and prevailing general economic and market conditions, all of which
affect liability retention decisions of primary insurers and reinsurance
premium rates. The supply of insurance and reinsurance is related directly to
prevailing prices and levels of surplus capacity which, in turn, fluctuate in
response to changes in rates of return on investments being realized in the
property, casualty and marine insurance and reinsurance industry.
As a results of the catastrophe losses suffered over the past several years
and the contraction in reinsurance capacity caused by the withdrawal of a
number of the Company's competitors, property catastrophe reinsurance rates
hardened significantly and retentions increased sharply during the period 1991
through 1993. In 1994, 1995 and 1996, property catastrophe reinsurance rates
fell from the strong levels of 1993. Management believes, in light of its
experience with the Company's renewals for 1997 business, that premium rates
can be expected to decline in 1997 in the absence of a major catastrophe
event, but that rates and retention levels in the near future are likely to
remain substantially higher than those experienced in 1992.
Premium rates for U.S. casualty insurance and reinsurance have generally
declined since 1990, primarily because of more predictable forms of coverage,
such as claims made, and the effects of lower inflationary expectations. This
has resulted in more competitive conditions which have continued in 1997.
Since the substantial rate and deductible increases for marine insurance in
the 1992 and 1993 underwriting years, prices generally stabilized in 1994 and
1995 and fell in 1996. In 1997 management believes that increased competition
will lead generally to a further decline in rates. Increased deductible play
an important role in reducing the number of very small claims. In the past,
this business was characterized by large
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volumes of very small claims, arising from very low levels of deductibles
which had remained unchanged for a number of years, during which repair costs
rose due to inflation and currency fluctuations.
There can be no assurance that rates and/or underwriting terms and
conditions will not deteriorate further or at other times in the future as a
result of additional capital provided by recent or future market entrants or
for other reasons. Consolidations within the insurance industry may also
reduce the demand for reinsurance, which may adversely affect rates and/or
underwriting terms and conditions.
COMPETITION
The property and casualty insurance and reinsurance industry is highly
competitive. The Company competes for its business in the United States and
internationally with other Lloyd's syndicates, other London Market companies,
other domestic Bermuda reinsurers, domestic United States insurers and
reinsurers and other international insurers and reinsurers, many of whom are
larger and have greater financial resources than the Company. Additionally,
other well-capitalized insurers and reinsurers could start writing, or
increase their writing of, the classes of business in which the Company is
primarily engaged.
Competition in the classes of business which the Company writes is based on
many factors, including the perceived overall financial strength of the
insurer or reinsurer, claims paying ability rating, premiums charged and other
terms and conditions, services provided, reputation and perceived technical
ability and experience of staff. Management of the Company believes that its
principal competitive strengths are its management and operational
flexibility, its expertise in risk assessment and underwriting skills and its
relationships with Lloyd's brokers, other leading brokers and reinsurance
intermediaries.
Ratings have become an increasingly important factor in establishing the
competitive position of insurance
and reinsurance companies. The Company carries A-, A- and A claims paying
ability rating by S&P, A.M. Best and Duff & Phelps, respectively, which is
lower than those held by some of its principal competitors. S&P and Duff &
Phelps ratings range from a high "AAA" to a low "CCC", while A.M. Best ratings
range from a high "A++" to a low "C-".
Claims paying ability ratings are based upon a review of publicly available
information and communications between rating agency analysts and the
insurance company's management. Such ratings are the opinion of the rating
agency giving the rating and are not directed toward the protection of
investors.
ADEQUACY OF LOSS RESERVES
The Company establishes loss reserves for the ultimate payment of all
losses and loss adjustment expenses (LAE) incurred with respect to its
business. The loss and LAE liabilities consist of two components: case
reserves and incurred but not reported (IBNR) reserves. Case reserves are
estimates of future loss payments with respect to insured events which have
been reported to the insurer. These reports may be made formally by the
cedent or informally by other means, such as evaluation of claims by
attorneys. The Company determines case reserves on a contract by contract
basis. The amount reserved is the amount expected to be ultimately paid and
is not discounted or otherwise adjusted for the time value of money. IBNR
reserves are actuarilly determined and relfect (i) the estimated ultimate loss
amount which will be paid by the insurer and (ii) an estimate of possible
changes in the value of those claims which have already been reported to the
insurer. The particular method of setting IBNR reserves depends upon the
class of business invovled. The specific techniques involve the use of
projections and models based on the Company's or the relevant market's
experience and exposure. IBNR reserves reflect a margin for the uncertainty
involved as determined by
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sensitivity tests. While management believes that the Company's reserves for
losses and LAE are adequate, there can be no assurances that the Company's
ultimate losses and LAE will not deviate, perhaps substantially, from the
estimates reflected in its financial statements. If the Company's reserves
should prove to be inadequate, the Company will be required to increase
reserves, which could have a material adverse effect on the Company's
financial condition.
LLOYD'S AND LONDON MARKET COMPANIES
[An unprecedented series of natural and man-made disasters, substantial
increases in asbestos-related and environmental pollution claims (many arising
under policies written in the 1940s, 1950s and 1960s), and losses incurred as
a result of the LMX Spiral (claims arising under certain reinsurance arbitrage
programs that were common among Lloyd's syndicates and London Market companies
during the 1980s and early 1990s and that involved writing excess of loss
coverage for other London Market excess of loss participants), when combined
with the cyclical downturn experienced by the property and casualty insurance
industry in general, adversely affected certain Lloyd's syndicates and London
Market companies in the late 1980s and early 1990s. Lloyd's syndicates
reported losses of (Pounds)2.1 billion in the 1989 year of account,
(Pounds)2.3 billion in the 1990 year of account, (Pounds)2.1 billion in the
1991 year of account and (Pounds)l.2 billion in the 1992 year of account.
With respect to the London Market companies, management believes that, of the
companies that participated in the London Market in 1988, more than 30 have
since substantially ceased underwriting new business, although several new
companies have entered the market in recent years. With respect to Lloyd's
syndicates, management believes that only 164 syndicates are operating for the
1997 year of account, down from 401 in 1990.
In response to these events, beginning in April 1993, Lloyd's adopted
measures designed to reorganize Lloyd's and its business practices in
substantial and fundamental ways (the "Business Plan"). As part of the
Business Plan, Lloyd's permitted in 1994 for the first time underwriting
capacity from limited liability corporate members. In 1996, over 30%, or
(Pounds)3.0 billion, of Lloyd's aggregate premium income capacity of
(Pounds)10.0 billion has been provided by corporate members. In May 1995,
Lloyd's proposed a plan (the "Plan of Reconstruction") intended to address a
number of problems, including (a) the continuing losses in 1992 and earlier
years of account from the previously described disasters, asbestos-related and
environmental pollution claims and LMX Spiral, (b) the inability or
unwillingness of certain individual members of Lloyd's ("Names") to meet their
obligations, (c) the strain on Lloyds' Central Fund and (d) litigation by
certain Names against their agents and managing agents and, in a number of
cases, Lloyd's itself. During 1996, the Plan of Reconstruction was adopted,
resulting in (i) the establishment of a separate reinsurance company
("Equitas") into which all outstanding liabilities for all risks written in
1992 or prior years of account were reinsured, with effect from September 4,
1996, (ii) the offer to Names of a settlement totalling (Pounds)32 billion
substantially in the form of debt credits in order to enable Names to meet
their obligations by reinsuring their outstanding liabilities into Equitas,
(iii) assistance to Names by the release in 1996 profits from the 1994 and
1995 years of account, and (iv) the creation of a new Central Fund to provide
security to insureds in respect of business underwritten after 1992. Various
London Market companies also have made substantial changes in their
operations.
The Company's current business strategy depends to a significant degree
upon the effective functioning of the London Market, which the Company
believes is substantially affected by the ability of Lloyd's and the London
Market companies to provide capacity and by the market's perception of Lloyd's
and the London Market companies generally. In addition, the Company has
substantial relationships with Lloyd's, both in connection with the
underwriting of insurance and reinsurance and with the purchase of
reinsurance. The Company also owns Octavian, a Lloyd's managing agent, and,
through Terra Nova Capital, provides capacity
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to the Octavian Syndicates. The Company also participates in contracts of
insurance and reinsurance on a subscription basis with other companies and
other Lloyd's syndicates. Because Lloyd's syndicates represent approximately
half of the capacity for international insurance and reinsurance in the London
Market, there is a dependence within the London Market upon the capacity of
Lloyd's in order to maintain the London Market's global capacity and,
therefore, its ability to provide a major source of capacity for such
business. If future problems at Lloyd's were to result in significant
contraction of its capacity, although London Market companies, including the
Company, would be presented with opportunities to increase participations on
desirable risks, less insurance business could be offered in the London Market
and, therefore, less may be available to Terra Nova. The Company has
purchased and continues to purchase a portion of its reinsurance protection
from Lloyd's and to that extent has a dependence on Lloyd's. At December 31,
1996, approximately 10% of the Company's present reinsurance program (measured
by premiums ceded for the 1996 underwriting year) is placed at Lloyd's. The
Company has never experienced a failure by Lloyd's to pay reinsurance balances
ultimately determined to be due.
Should the Plan of Reconstruction fail, the consequences with respect to
London Market companies generally could adversely affect the Company by making
the London Market less attractive to insureds, by damaging the Company's
ability to obtain or recover on reinsurance or by reducing opportunities
available to the Company and the Octavian Syndicates to write new business in
the London Market.
REINSURANCE AND RETROCESSIONS
The Company purchases reinsurance primarily to manage exposures in its
insurance and reinsurance businesses. The ability of the Company to maintain
its reinsurance programs in the future on acceptable terms is an important
factor for the Company's prospects for profitability and growth. Changes in
the London Market and U.S. and international reinsurance markets affecting
reinsurance and retrocessional capacity may have an adverse effect on the
Company's reinsurance programs and therefore on its own programs and
prospects.
The Company has endeavored, and will in the future endeavor, to obtain
reinsurance only from financially sound reinsurers. Similar to other
companies in the insurance industry, the Company has had and is experiencing
difficulties in obtaining full recovery from some of its reinsurers. The
Company maintains a reserve for doubtful debts (totaling $34.4 million at
December 31, 1996, including aviation business in run-off) in respect of those
reinsurers in liquidation and/or under schemes of arrangement, or with which
the Company is in dispute over the amount of recovery due or with respect to
which the Company has concerns over the reinsurers' ability or willingness to
pay future recoveries in full. At December 31, 1996, estimated total
reinsurance recoverables on paid losses and unpaid losses and LAE (including
IBNR), were $400.5 million, including aviation business in run-off. There can
be no assurance that the Company will not experience further difficulties in
the future in recovering under its reinsurance and retrocession facilities
should one or more of its reinsurers suffer financial deterioration. The
Company is subject to credit risks with respect to its reinsurers, as the
ceding of risk to reinsurers does not relieve the ceding company of its
primary liability to its insureds and reinsureds. There can be no assurance
that the reinsurance and retrocession protection purchased by the Company will
be sufficient to protect the Company from a severe deterioration in the
frequency or severity of losses or against unusual or catastrophic
circumstances. The Company has in the past obtained a significant portion of
its reinsurance from Lloyd's syndicates. At December 31, 1996, the Company
had $133.3 million, including aviation business in run-off, of reinsurance
recoverables on unpaid losses and LAE (including IBNR) from Lloyd's
syndicates, which represented 38.6% of the Company's total reinsurance
recoverables on unpaid losses and LAE (including IBNR) at such date. Overdue
balances from
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Lloyd's syndicates in respect of reinsurance recoverables are insignificant
and no specific provision for doubtful debts has been considered necessary by
the Company in respect of Lloyd's syndicates to date.
There can be no assurance that Lloyd's syndicates or reinsurance companies
will continue to provide reinsurance coverage in the future for the Company at
acceptable rates or that the types of reinsurance purchased by the Company
will continue to be available from Lloyd's syndicates. In either of these
events, the Company would be required to: (i) find replacement coverage which
could be more expensive than its current coverage; (ii) reduce its level of
reinsurance coverage (and accordingly retain a greater percentage of the risk
underwritten); and/or (iii) reduce the amount of business it writes in one or
more lines.
REGULATION
Terra Nova is a U.K. insurance company authorized by the DTI to carry on
insurance business (including reinsurance) in the U.K. and is subject to
regulation and supervision in the U.K. by the DTI. The Insurance Companies
Act 1982, as amended, imposes on U.K. insurance companies numerous
requirements, including capital, solvency, liquidity and management standards
and auditing and reporting requirements, and further grants to the DTI powers
to supervise, investigate and intervene in the affairs of U.K. insurance
companies. As is often the practice of the DTI in connection with a
substantial change of control of a U.K. insurance company, Terra Nova is
currently subject to a Notice of Requirements issued by the DTI on May 22,
1995 (as modified by notices dated April 3 and 4, 1996) in connection with the
Terra Nova Acquisition, which, among other things, (i) requires 14 days'
advance notice of the declaration or payment of dividends, which declaration
or payment may be limited or prohibited by the DTI, (ii) requires Terra Nova
to give notice and, in some instances, obtain DTI consent, prior to entering
into certain transactions with connected persons and (iii) limits the annual
amount of gross premiums that may be written by Terra Nova. Each of Terra
Nova Capital and Octavian are subject to regulation and supervision by
Lloyd's, including the imposition of capital, solvency and management
standards.
Terra Nova (Bermuda) is a registered Bermuda insurance company and is
subject to regulation and supervision in Bermuda. The Insurance Act 1978, as
amended, imposes on Bermuda insurance companies capital, solvency and
liquidity standards and auditing and reporting requirements.
Neither Terra Nova nor Terra Nova (Bermuda) is registered or licensed as an
insurance company in any jurisdiction in the United States. Nevertheless,
each state of the United States regulates to an extent the sale of insurance
by foreign insurers such as Terra Nova and Terra Nova (Bermuda). The
administration of insurance laws and regulations in the United States is
vested in state agencies that have broad powers and are concerned primarily
with the protection of policyholders. The status of foreign insurance
companies within the insurance regulatory framework in the Untied States has
been subject to increased scrutiny by the National Association of Insurance
Commissioners (the "NAIC"), state legislatures and insurance regulators, as
well as the U.S. Congress.
While it is not possible to predict the future impact of changing law or
regulation on the Company's operations, such changes could have a material
adverse effect on the Company and the insurance industry in general.
TAX MATTERS
The Company believes that neither Terra Nova nor Terra Nova (Bermuda) will
be subject to U.S. tax, other than U.S. excise tax on premiums of Terra Nova
(Bermuda) with respect to risks located in the United
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States and withholding tax on certain U.S. source income, because neither
engages in a trade or business in the United States. However, since
definitive identification of activities that constitute being engaged in a
U.S. trade or business is not provided by the Internal Revenue Code (the
"Code") or Treasury Regulations or court decisions, there can be no assurance
that the Internal Revenue Service (the "Service") will not contend that Terra
Nova (Bermuda) or Terra Nova is engaged in a U.S. trade or business.
If Terra Nova (Bermuda) were considered to be engaged in a U.S. trade or
business, it would be subject to U.S. federal income tax at regular corporate
rates on income attributable to its U.S. trade or business, except to the
extent provided by the income tax treaty between the U.S. and Bermuda (the
"Bermuda Treaty"), and might also be subject to a 30% "branch profits" tax.
There can be no assurance that Terra Nova (Bermuda) is entitled, or in the
future will be entitled, to benefits under the Bermuda Treaty. However, if
Terra Nova (Bermuda) were so entitled and were considered to be engaged in a
U.S. trade or business, it would not be subject to U.S. federal income tax at
regular corporate rates except on income attributable to a U.S. permanent
establishment. Terra Nova (Bermuda) might, however, be subject to the U.S.
branch profits tax if it were engaged in a U.S. trade or business, even if it
did not have a permanent establishment in the United States. Although the
Company believes that Terra Nova (Bermuda) does not have a U.S. permanent
establishment, there can be no assurance that the Service will not contend
otherwise.
If any subsidiary of UK Holdings were considered to be engaged in a U.S.
trade or business, that entity would be subject to U.S. federal income tax at
regular corporate rates on income attributable to its U.S. trade or business
and might also be subject to branch profits tax, except to the extent provided
by the income tax treaty between the U.S. and U.K. (the "U.K. Treaty"). The
Company believes that the subsidiaries of UK Holdings will be qualified
residents of the U.K. entitled to benefits under the U.K. Treaty and that,
accordingly, even if any of those entities were considered to be engaged in a
U.S. trade or business, it would be subject to U.S. federal income tax at
regular corporate rates only on income attributable to a U.S. permanent
establishment and would not be subject to the branch profits tax. Although
the Company believes that none of the subsidiaries of UK Holdings has a U.S.
permanent establishment, there can be no assurance that the Service will not
contend otherwise.
If the Company or any of its subsidiaries were considered to be subject to
U.S. federal income tax in any of the ways described above, the Company's
results of operations could be materially adversely affected.
POSSIBLE CONFLICTS OF INTEREST
The DLJ Entities (including Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJSC"), one of the Underwriters) beneficially own an aggregate
of 11.7% of the outstanding voting shares of the Company. As a result of
their ownership of shares, the DLJ Entities will be able to exercise
significant influence over the Company through their ability to influence the
election of directors and other corporate actions requiring shareholder
approval.
The DLJ Entities have made, and in the future may seek to make, investments
in other insurance concerns, and have acquired or invested in, and may in the
future seek to acquire or invest in, companies that compete with the Company
in its reinsurance and insurance businesses. Additionally, certain
shareholders of the Company have ownership interests in other London Market or
Bermuda Market companies. Also, certain directors of the Company are
employees of certain shareholders of the Company. As a result, possible
conflicts of interest could arise between the Company and the foregoing
parties in the future. Management anticipates that any future transactions to
which the Company is a party and which involve the potential for significant
conflicts of interest will be submitted to the independent directors for their
approval. Management
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does not believe that there have been any material transactions involving
parties with a conflict of interest which have been on terms less favorable
than those which could have been obtained from an independent party.
NO ACTIVE PUBLIC MARKET FOR THE SENIOR NOTES
The Senior Notes are listed on the NYSE; however, there can be no assurance
that an active public market will develop for the Senior Notes. The
underwriters in the offering of the Senior Notes have advised the Company that
they currently intend to make a market in the Senior Notes; however, they are
not obliged to do so and any market making may be discontinued at any time.
Accordingly, no assurance can be given as to the prices or liquidity of the
Senior Notes. The Senior Notes may trade at prices that may be higher or
lower than the initial offering price depending upon many factors, including
general economic conditions, the Issuer's and Bermuda Holdings' financial
results, government legislation or regulation, and the markets for similar
securities.
ENFORCEMENT OF JUDGMENTS
All of the directors and executive officers of the Issuer, all of the
executive officers of Bermuda Holdings, six of the eleven directors of Bermuda
Holdings, and the experts named herein are non-residents of the United States,
and all or a substantial portion of the assets of the Issuer, Bermuda Holdings
and such persons are located outside the United States. It may not be
possible for investors to effect service of process within the United States
upon such persons or to enforce against any of them, the Issuer or Bermuda
Holdings judgments of courts of the United States predicated upon the civil
liability provisions of the federal or state securities laws of the United
States. The Issuer and Bermuda Holdings have been advised by their respective
counsel, Clifford Chance and Conyers, Dill & Pearman, that there is doubt as
to the enforceability in the United Kingdom and in Bermuda, in original
actions or in actions for enforcement of judgments of United States courts, of
civil liabilities predicated solely upon such securities laws.
INVESTMENT PERFORMANCE
The Company's investment portfolio consists primarily of investment grade
securities with fixed maturities. The market value of the Company's
investments varies depending on economic and market conditions. Absent other
factors, the market values of fixed maturity securities are likely to decline
as interest rates rise. The Company may, from time to time, for business or
regulatory reasons, be required to sell certain of its investments at a time
when their market value is less than the cost of such investments.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Issuer or Bermuda Holdings
will be required, subject to certain conditions, to offer to purchase all
outstanding Senior Notes at a price equal to 101% of the principal amount
thereof, plus accrued interest to the date of purchase. In certain
circumstances, a highly leveraged transaction, reorganization, restructuring,
merger, or similar transaction by certain of the current beneficial owners of
the voting capital stock of Bermuda Holdings would not constitute a Change of
Control. Neither the Issuer nor Bermuda Holdings expect to have sufficient
funds available to purchase all of the outstanding Senior Notes were they to
be tendered in response to an offer made as a result oaf a Change of Control.
There can be no assurance that the Issuer or Bermuda Holdings would be able to
obtain such funds through dividends from their respective subsidiaries or a
refinancing of the Senior Notes to be repurchased or otherwise. In addition,
although neither the Issuer nor Bermuda Holdings currently has any senior
indebtedness outstanding,
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provisions in future senior indebtedness of the Issuer or Bermuda Holdings may
restrict such a purchase and have the effect of delaying or prohibiting the
Issuer or Bermuda Holdings from commencing an offer to purchase the Senior
Notes. Also, the requirement that the Issuer or Bermuda Holdings offer to
repurchase the Senior Notes in the event of a Change of Control may have the
effect of deterring a third party from effecting a transaction that would
constitute a Change of Control. In addition, a holder of Senior Notes may not
be able to readily determine if the sale or transfer of substantially all of
the assets of Bermuda Holdings to certain persons constitutes a Change of
Control under the Indenture because the term "substantially all" is not
defined in the Indenture and its meaning under New York law is uncertain. See
"Description of Senior Notes -- Purchase at the Option of Holders upon a
Change of Control" and "--Certain Definitions."
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized share capital consists of 75,000,000 Class A
Ordinary Shares, par value $5.80 per share, 10,000,000 Class B Ordinary
Shares, par value $5.80 per share, and 25,000,000 preferred shares, par value
$1.00 per share (the "Preference Shares"). As at March 1, 1997, 23,804,626
Class A Ordinary Shares and 2,048,140 Class B Ordinary Shares were issued and
outstanding. No Preference Shares were issued or outstanding. All
outstanding Ordinary Shares are validly issued, fully paid and nonassessable.
The following description of the capital stock of the Company does not purport
to be complete and is subject to, and is qualified in its entirety by, all the
provisions of the Bye-Laws and the Certificate of Designation of the
Preference Shares (the "Certificate of Designation"), including the
definitions therein of certain terms. Copies of the Bye-Laws and the
Certificate of Designation have been filed as exhibits to the Registration
Statement of which this Prospectus constitutes a part.
The Bye-Laws provide for the corporate governance of the Company, including
the establishment of share rights, modification of such rights, issuance of
share certificates, the transfer of shares, alterations to capital, the
calling and conduct of general meetings, proxies, the appointment and removal
of directors, conduct and powers of directors, the payment of dividends, the
appointment of an auditor and the winding-up of the Company.
ORDINARY SHARES
The Ordinary Shares rank, as to assets, dividends and in all other respects
on parity with each other, except that, subject to the limitations on voting
described below, Class A Ordinary Shares have one vote per share and Class B
Ordinary Shares have no voting rights. Matters presented to shareholders for
approval are approved by a simple majority vote.
The Ordinary Shares have no preemptive rights or other rights to subscribe
for additional Ordinary Shares and have no rights of redemption or conversion
or exchange rights, except that, subject to certain terms and conditions
contained in the Bye-Laws, the Class B Ordinary Shares are convertible at the
option of the holder into Class A Ordinary Shares.
In the event of a liquidation, dissolution or winding-up of the Company,
the holders of Ordinary Shares are entitled to share equally and ratably in
the assets of the Company, if any, remaining after the payment of all debts
and liabilities of the Company and the liquidation preference of any
outstanding Preference Shares. Authorized but unissued shares may, subject to
any rights attaching to existing preference and other shares,
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be issued at any time and at the discretion of the Board without the approval
of the shareholders of the Company with such rights, preferences and
limitations as the Board may determine.
LIMITATION ON VOTING RIGHTS
The Bye-Laws contain certain provisions that limit the voting rights that
may be exercised by certain holders of Class A Ordinary Shares. These
provisions are intended to prevent shareholders from certain adverse
consequences under the "controlled foreign corporation" rules under the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), although no assurance
can be given that such provisions will in fact effectively prevent such
consequences. Under these provisions, if, and so long as, any U.S. Owner (as
defined below) directly, indirectly or constructively owns, within the meaning
of Section 958 of the Code, shares having more than 9.9% of the total number
of votes exercisable in respect of all shares of voting stock of the Company,
the voting rights attributable to such shares will be limited, in the
aggregate, to 9.9% of the total number of votes. "U.S. Owner" means any U.S.
Person that directly or indirectly owns, within the meaning of Section 958(a)
of the Code, any shares of capital stock of the Company, and "U.S. Person" has
the same meaning as set out in Section 7701(a)(30) of the Code and includes
(i) a citizen or resident of the United States, (ii) a domestic partnership,
(iii) a domestic corporation, and (iv) any estate or trust (other than a
foreign estate or foreign trust).
The Company is authorized to request information from any holder of Class A
Ordinary Shares as necessary to give effect to the limitation on voting rights
described above, and may disregard the votes attached to the Class A Ordinary
Shares of any holder from whom information is requested until such time as a
satisfactory response has been received.
RESTRICTIONS ON TRANSFER; ABILITY TO REPURCHASE
The Bye-Laws contain several provisions restricting the transferability of
Class A Ordinary Shares. The directors are required to decline to register a
transfer of shares of capital stock of the Company if they have reason to
believe that as a result of such transfer any U.S. Owner would directly,
indirectly or constructively own, within the meaning of Section 958 of the
Code, shares having more than 9.9% of the votes of the Company (without giving
effect to the limitation on voting rights described above) exercisable in
respect of all shares of voting stock of the Company. Similar restrictions
apply to the Company's ability to issue shares of capital stock of the
Company.
The directors also may, in their absolute discretion, decline to register
the transfer of any shares of capital stock of the Company if they have reason
to believe (i) that such transfer may expose the Company, any subsidiary
thereof or any shareholder to adverse tax, legal or regulatory treatment, or
would be in breach of any applicable legal or regulatory requirements, in each
case in any jurisdiction, including the Lloyd's Act and Bye-Laws and other
laws and regulations governing Lloyd's and members of Lloyd's, or (ii) that
registration of such transfer under the Securities Act or 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 Board of Directors may
exercise such right in connection with, among other things, an acquisition by
any person of shares of capital stock of the Company which would cause such
person to be a "controller" of the Company under Lloyd's Corporate Members
Bye-Laws (presently a 30% shareholder) or to be a "controller" of the Company
under Lloyd's Underwriting Agents Bye-Laws (presently a 25% shareholder) or
which cause any Lloyds broker or person "associated" with a Lloyd's broker to
be "associated" with the Company under the Lloyd's Act (presently a more than
5% shareholder).
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The Company is authorized to request information from any holder or
prospective acquiror of Class A Ordinary Shares as necessary to give effect to
the transfer and issuance restrictions described above, and may decline to
effect any such transaction if complete and accurate information is not
received as requested.
Conyers, Dill and Pearman, Bermuda counsel to the Company, have advised the
Company that while the precise form of the restrictions on transfer contained
in the Bye-Laws is untested, as a matter of general principle, restrictions on
transfers are enforceable under Bermuda law and are not uncommon. The
transferor of such Class A Ordinary Shares will be deemed to own such Class A
Ordinary Shares for dividend, voting and reporting purposes until a transfer
of such Class A Ordinary Shares has been registered on the Register of Members
of the Company.
If the directors refuse to register a transfer for any reason, they must
notify the proposed transferor and transferee within thirty days of such
refusal. The Bye-Laws also provide that the Board may suspend the
registration of transfers 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 Chairman of the Board to exercise
their authority to decline to register transfer or to limit voting rights as
described above, or to take any other action, for as long as such officer is
also a director.
Notwithstanding the foregoing, the Bye-Laws provide that the transfer
restrictions described above shall not preclude the settlement of any
transaction entered into through the facilities of the NYSE. In the event
that a person becomes or attempts to become, through a transfer over the NYSE
or otherwise, the owner of shares of capital stock of the Company, the
transfer of which would violate the restrictions described above (such shares
being referred to as the "Restricted Shares"), such person (the "purported
owner") shall not obtain any rights in the Restricted Shares, the transfer
agent shall not recognize the transfer of such shares to the purported owner,
and such shares shall be deemed as of the date of the purported transfer to
have been transferred to one or more charitable organizations selected by the
directors. The charitable organizations shall be entitled to exercise all
rights incident to ownership of such shares, including without limitation, the
right to vote such shares and to receive dividends or distributions in respect
thereof. A trustee appointed to act as agent for the charitable organizations
shall be required under the Bye-Laws to take all lawful actions to cause the
purported owner of the Restricted Shares to deliver such shares to the
trustee, which shall, upon obtaining possession of the Restricted Shares, sell
such shares to a person permitted to acquire such shares in accordance with
the Bye-Laws. The net proceeds from any such sale of Restricted Shares shall
first be paid to the purported owner of such shares, in an amount up to the
amount paid by such purported owner for such shares, and the remaining
proceeds, if any, shall be paid to the charitable organizations selected by
directors.
The Bye-Laws also provide that if the Board in its absolute discretion
determines that share ownership by any shareholder may result in adverse tax,
regulatory or legal consequences to the Company, any of its subsidiaries or
any other shareholder, then the Company will have the option, but not the
obligation, to repurchase all or part of the shares of capital stock of the
Company held by such shareholder to the extent the Board determines it is
necessary to avoid such adverse consequences. The price to be paid for such
shares will be the fair market value of such shares.
PREFERENCE SHARES
Pursuant to the Bye-Laws and Bermuda law, the Board by resolution may
establish one or more series of Preference Shares having such number of shares
(not exceeding 25,000,000), designation, relative voting
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rights, dividend rates, liquidation and other rights, preferences and
limitations as may be fixed by the Board without any further shareholder
approval. Such rights, preferences, powers and limitations as may be
established could also have the effect of discouraging an attempt to obtain
control of the Company.
DIVIDENDS
Subject to the preferences applicable to the Preference Shares, the holders
of Ordinary Shares will be entitled to receive such dividends, if any, as may
be declared thereon by the Board at any time and from time to time out of any
funds of the Company legally available for such purposes.
BOARD OF DIRECTORS
The Bye-Laws provide that the Board shall be elected annually and shall not
be staggered. Shareholders may only remove a director for cause prior to the
expiration of such director's term at a special meeting of shareholders at
which a majority of the holders of shares entitled to vote thereon vote in
favor of such action.
TRANSFER AGENT
The Company's registrar and transfer agent for the Class A Ordinary Shares
is Chemical Mellon Shareholder Services.
THE ISSUER
GENERAL
The Issuer's authorized share capital consists of 8,400,000,000 A ordinary
shares, par value U.S. $0.01 per share (the "Issuer A Ordinary Shares"),
1,500,000,000 B ordinary shares, par value U.S. $0.01 per share (the "Issuer B
Ordinary Shares" and, together with the Issuer A Ordinary Shares, the "Issuer
Ordinary Shares"), 100,000,000 convertible preference shares, par value U.S.
$0.01 per share (the "Issuer Preference Shares"), and 50,000 deferred shares,
par value (Pounds)l.00 per share (the "Issuer Sterling Deferred Shares"). As
of December 31, 1996, 808,037,920 Issuer A Ordinary Shares and 50,000 Issuer
Sterling Deferred Shares were issued and outstanding. No Issuer B Ordinary
Shares or Issuer Preference Shares have been issued. All outstanding Issuer A
Ordinary Shares and Issuer Sterling Deferred Shares are validly issued, fully
paid and nonassessable. The following description of the capital stock of the
Issuer does not purport to be complete and is subject to, and is qualified in
its entirety by, all of the provisions of the Memorandum of Association (the
"Memorandum") and the Articles of Association (the "Articles") of the Issuer,
including the definitions therein of certain terms. Copies of the Memorandum
and the Articles are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.
ORDINARY SHARES
The Issuer Ordinary Shares rank, as to assets, dividends and in all other
respects, on parity with each other, except with respect to voting rights.
The Issuer A Ordinary Shares entitle each holder thereof to one vote per share
held, and Issuer B Ordinary Shares entitle the holder thereof to one vote for
every ten Issuer B Ordinary Shares held. The Issuer Ordinary Shares have no
rights of redemption or conversion or exchange rights.
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PREFERENCE SHARES
The Issuer Preference Shares rank senior as to all other capital stock of
the Issuer with respect to dividend payments and liquidation. Subject to
certain terms and conditions contained in the Articles, the Issuer Preference
Shares are convertible at any time at the option of the holders thereof into,
at the discretion of the board of directors of the Issuer, either Issuer B
Ordinary Shares or Issuer B Ordinary Shares and deferred shares, par value
U.S. $0.01 per share (the "Issuer U.S. $ Deferred Shares"). Holders of Issuer
U.S. $ Deferred Shares will have liquidation rights; however, they will not
have dividend or voting rights.
STERLING DEFERRED SHARES
The Issuer Sterling Deferred Shares have no dividend or voting rights or
any other rights, except certain limited rights upon liquidation.
DIVIDENDS
Subject to the special rights attaching to the Issuer Preference Shares,
the holders of Issuer Ordinary Shares will be entitled to receive such
dividends, if any, as may be declared thereon by the board of directors of the
Issuer out of the profits of the Issuer available for distribution. Dividends
on the Issuer Preference Shares are cumulative. Dividends on the Issuer
Preference Shares are payable on the Liquidation Value (as defined in the
Articles) as at the immediately preceding due date for payment of the dividend
at the rate of 5% semi-annually. Dividends on the Issuer Preference Shares
accrue from day to day and are payable on June 30 and December 31 of each
year.
DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes constitute senior unsecured obligations of the Issuer
issued pursuant to the Indenture (the "Indenture") among the Issuer, Bermuda
Holdings and The Chase Manhattan Bank, N.A., as trustee (the "Trustee"). The
terms of the Senior Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Senior Notes are subject to all such
terms, and holders of Senior Notes are refer-red to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified
in its entirety by reference to the Indenture, including the definitions
therein of certain terms used below. A copy of the form of Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The following description of the terms of the Senior Notes and the
guarantee thereof by Bermuda Holdings pursuant to the Indenture or pursuant to
guarantees endorsed on the Senior Notes (both forms of guarantee are
hereinafter referred to collectively as the "Guarantee") sets forth certain
terms and provisions of the Senior Notes and the Guarantee. The definitions
of certain general terms used in the following summary are set forth below
under "--Certain Definitions."
The Senior Notes rank senior in right of payment to all subordinated
indebtedness of the Issuer and pari passu in right of payment with all
indebtedness of the Issuer not expressly subordinated or secured. The Senior
Notes are fully and unconditionally guaranteed on a senior basis by Bermuda
Holdings, and the obligations of Bermuda Holdings under the Guarantee rank
senior in right of payment to all subordinated indebtedness of
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Bermuda Holdings and pari passu in right of payment with all indebtedness of
Bermuda Holdings not expressly subordinated or secured.
The Senior Notes were initially be issued as the Global Note, which was
deposited with the Custodian, as custodian thereof for the Depositary,
pursuant to the Deposit and Custody Agreement (the "Depositary Agreement")
among the Issuer, Bermuda Holdings, the Custodian and the Depositary. For a
description of the Depositary Agreement, see "Description of Depositary
Agreement." The Depositary issued the Global Receipt, which was delivered to
and registered in the name of DTC or its nominee. Unless and until all of the
beneficial interests in the Global Note ("Book-Entry Interests") are exchanged
for Definitive Senior Notes (as defined herein), the depositary interest held
by DTC may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of DTC or a nominee of such successor.
The Senior Notes are listed on the NYSE.
GUARANTEE
Bermuda Holdings has fully and unconditionally guaranteed on a senior basis
to each holder of a Senior Note the due and punctual payment of the principal
of and any premium and interest on such Senior Note (and any Additional
Amounts (as defined herein) payable by the Issuer or Bermuda Holdings in
respect thereof) when and as the same shall become due and payable, whether at
stated maturity, by declaration of acceleration, call for redemption or
otherwise, in accordance with the terms of the Senior Notes and the Indenture.
Bermuda Holdings' obligations under the Guarantee are as if it were a
principal debtor and not merely a surety, and are absolute and unconditional,
irrespective of, and will be unaffected by, any invalidity, irregularity or
unenforceability of any Senior Note or the Indenture, any failure to enforce
the provisions of any Senior Note or the Indenture, any waiver, modification
or indulgence granted to the Issuer with respect thereto, by the holder of any
Senior Note or the Trustee, or any other circumstances which may otherwise
constitute a legal or equitable discharge of a surety or guarantor, provided,
however, that, notwithstanding the foregoing, no such waiver, modification or
indulgence shall, without the consent of Bermuda Holdings, increase the
principal amount of a Senior Note or the interest rate thereon or increase any
premium payable upon redemption thereof.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in an aggregate principal amount to $100.0
million. The Senior Notes will mature on July 1, 2005. Interest on the
Senior Notes accrues at the rate of 10 3/4% per annum and is payable semi
annually in arrears in cash on each January 1 and July 1, commencing January
1, 1996 (each, an "Interest Payment Date"), to holders of record on the
immediately preceding December 15 and June 15, respectively. Interest on the
Senior Notes accrues from the most recent date to which interest has been paid
or, if no interest has been paid, from the original date of issuance.
Interest is computed on the basis of a 360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
Except as provided in the next two paragraphs, the Senior Notes will not be
redeemable at the Issuer's option prior to July 1, 2000. Thereafter, the
Senior Notes will be redeemable, at the option of the Issuer, in whole at any
time or in part from time to time, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, together with accrued and
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unpaid interest thereon to the applicable redemption date, if redeemed during
the 12-month period beginning on July 1, of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000.................... 104.031%
2001.................... 102.688%
2002.................... 101.344%
2003 and thereafter..... 100.000%
</TABLE>
At any time prior to July 1, 1998, the Issuer may redeem up to 35%
of the aggregate principal amount of the Senior Notes originally issued with
the net proceeds of one or more offerings of Capital Stock (other than
Redeemable Capital Stock) of Bermuda Holdings or the Issuer, in each case at a
redemption price equal to 109.75% of the principal amount thereof, plus
accrued and unpaid interest to the redemption date; provided that (i) at least
$65.0 million in aggregate principal amount of the Senior Notes originally
issued remains outstanding immediately after the occurrence of any such
redemption, (ii) any such redemption occurs within 90 days of the date of the
closing of any such offering; and (iii) the Issuer may conduct no more than
one redemption per offering of such Capital Stock.
TAX REDEMPTION
The Senior Notes may be redeemed at the option of the Issuer, in whole but
not in part, upon not less than 30 nor more than 60 days' notice given as
provided in the Indenture, at any time at a redemption price equal to the
principal amount thereof plus accrued and unpaid interest to the date fixed
for redemption if (a) the Issuer is required to issue Definitive Senior Notes
(other than upon the request of a holder of Book-Entry Interests following an
Event of Default) after using all reasonable efforts to avoid having to issue
such Definitive Senior Notes and the Issuer is or would be so required in the
absence of any applicable tax treaty on the next succeeding Interest Payment
Date to pay Additional Amounts with respect to any of the Senior Notes as
described under "--Payment of Additional Amounts" or (b) the Issuer or Bermuda
Holdings is or would be so required in the absence of any applicable tax
treaty on the next succeeding Interest Payment Date to pay Additional Amounts
with respect to the Senior Notes as described under "--Payment of Additional
Amounts," and, in either case, the payment of such Additional Amounts cannot
be avoided by the use of any reasonable measures available to the Issuer.
The Issuer or Bermuda Holdings will also pay, or make available for
payment, to holders of Senior Notes on the redemption date any Additional
Amounts (as described, but subject to the exceptions referred to, under "--
Payment of Additional Amounts") resulting from the payment of such redemption
price.
SELECTION AND NOTICE
For information with respect to the redemption of Book-Entry Interests, see
"Description of Depositary Agreement--Redemption or Repurchase." With respect
to any outstanding Definitive Senior Notes, if less than all of the definitive
registered Senior Notes (the "Definitive Senior Notes") are to be redeemed at
any time, selection of Definitive Senior Notes for redemption will be made by
the Trustee on a pro rata basis, by lot or by such other method as the Trustee
deems fair and appropriate and in compliance with the requirements of the NYSE
or other principal national securities exchange, if any, on which the Senior
Notes are listed or,
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if the Senior Notes are not so listed, on a pro rata basis, by lot or by such
other method as the Trustee deems fair and appropriate; provided that no
Definitive Senior Notes with a principal amount of $1,000 or less shall be
redeemed in part. With respect to any Definitive Senior Notes, notice of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each holder of Definitive Senior Notes
to be redeemed at its registered address. If any Definitive Senior Note is to
be redeemed in part only, the notice of redemption that relates to such
Definitive Senior Note shall state the portion of the principal amount thereof
to be redeemed. A new Definitive Senior Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Definitive Senior Note. On and after the
redemption date, interest will cease to accrue on all Senior Notes or portions
thereof called for redemption. The Issuer or Bermuda Holdings will comply
with the Exchange Act and the rules and regulations of the Commission
thereunder to the extent applicable to any such redemption.
PURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Issuer or Bermuda Holdings
will be required to make an offer (a "Change of Control Offer") to each holder
of Senior Notes to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's Senior Notes at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (a "Change of Control Payment").
Within 15 days following the date on which a Change of Control occurs, the
Issuer or Bermuda Holdings shall mail a notice to each holder of Senior Notes
stating: (a) that a Change of Control Offer is being made pursuant to the
covenant entitled "Purchase at the Option of Holders upon a Change of Control"
and that all Senior Notes properly tendered will be accepted for payment; (b)
the purchase price and the purchase date, which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed (the "Change
of Control Payment Date"); (c) that any Senior Notes not properly tendered
will continue to accrue interest in accordance with the terms of the
Indenture; (d) that, unless the Issuer or Bermuda Holdings defaults in the
payment of a Change of Control Payment, all Senior Notes accepted for payment
pursuant to a Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date; (e) that holders of Senior Notes electing to
have any Senior Notes purchased pursuant to a Change of Control Offer will be
required to surrender the Senior Notes (to the extent held as Definitive
Senior Notes), with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Senior Notes completed, or transfer by book-entry, to the
paying agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment
Date; (f) that holders of Senior Notes will be entitled to withdraw their
election if the paying agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
the holder, the principal amount of Senior Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Senior
Notes purchased; and (g) that holders of Senior Notes whose Senior Notes are
being purchased only in part will be issued new Senior Notes equal in
principal amount to the unpurchased portion of the Senior Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof. The Issuer or Bermuda Holdings will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes in connection
with a Change of Control.
On the Change of Control Payment Date, the Issuer or Bermuda Holdings will,
to the extent lawful, (a) accept for payment all Senior Notes or portions
thereof properly tendered pursuant to a Change of Control Offer, (b) deposit
with the paying agent an amount equal to a Change of Control Payment in
respect of all Senior Notes or portions thereof so tendered and (c) deliver or
cause to be delivered to the Trustee the Senior Notes so accepted together
with an officers' certificate stating the aggregate principal amount of Senior
Notes
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or portions thereof being purchased by the Issuer or Bermuda Holdings;
provided that neither the Issuer nor Bermuda Holdings will be obligated to
purchase Senior Notes following a Change of Control if holders of less than
25% in aggregate principal amount of Senior Notes then outstanding have
tendered such Senior Notes in a Change of Control Offer. The paying agent
will promptly mail to each holder of Senior Notes so tendered a Change of
Control Payment for such Senior Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each
holder a new Senior Note equal in principal amount to any unpurchased portion
of the Senior Notes surrendered, if any; provided that each such new Senior
Note will be in a principal amount of $1,000 or an integral multiple thereof.
The Issuer or Bermuda Holdings will publicly announce the results of a Change
of Control Offer on or as soon as practicable after a Change of Control
Payment Date.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that:
(1) After the Issue Date Bermuda Holdings will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare
or pay any dividend on or make any distribution in respect of any
Capital Stock of Bermuda Holdings or any Subsidiary of Bermuda Holdings
that is payable to any person other than to Bermuda Holdings or a
Wholly-Owned Restricted Subsidiary of Bermuda Holdings (except for
dividends payable in shares of Bermuda Holdings' Capital Stock other
than Redeemable Capital Stock); (ii) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of Bermuda Holdings or
any Restricted Subsidiary of Bermuda Holdings; (iii) make payment of or
on account of any principal of or premium on any Subordinated
Indebtedness or Redeemable Capital Stock of Bermuda Holdings or any
Restricted Subsidiary of Bermuda Holdings or repurchase, redeem,
defease or otherwise acquire or retire for value any Subordinated
Indebtedness or Redeemable Capital Stock of Bermuda Holdings or any
Restricted Subsidiary of Bermuda Holdings (except for any required
payments or final payment at maturity pursuant to the provisions
thereof and except for any payment consisting solely of Capital Stock
of Bermuda Holdings or any Restricted Subsidiary of Bermuda Holdings
(other than Redeemable Capital Stock), and except for any such payment
on any Subordinated Indebtedness owned by Bermuda Holdings or any
Restricted Subsidiary); or (iv) make any Investment other than a
Permitted Investment (each of (i), (ii) (iii) and (iv) above, other
than Permitted Payments (as described below), being collectively
referred to as "Restricted Payments")), unless, at the time of such
Restricted Payment and after giving effect thereto:
(A) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and
(B) Bermuda Holdings, after giving pro forma effect to such Restricted
Payment, would be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
Consolidated Fixed Charge Coverage Ratio test set forth in the
covenant described under "-- Limitation on Indebtedness" below; and
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments declared or made by Bermuda Holdings and its
Restricted Subsidiaries after the Issue Date (including
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Restricted Payments permitted by paragraph (2) below other than
Permitted Payments (as defined below)), shall not exceed the sum
of:
(a) 50% of the aggregate Consolidated Adjusted Net Income of Bermuda
Holdings accrued on a cumulative basis during the period (taken
as a single period) commencing with the fiscal quarter prior to
the fiscal quarter in which the Issue Date occurs (or, if such
aggregate cumulative Consolidated Adjusted Net Income shall be a
loss, minus 100% of such loss); plus
(b) 100% of the net cash proceeds received after the Issue Date by
Bermuda Holdings (other than from any of its Subsidiaries) or
the Issuer (other than from any of its Subsidiaries) as capital
contributions to Bermuda Holdings or the Issuer, as applicable,
or from the sale or issuance of Capital Stock (other than
Redeemable Capital Stock) of Bermuda Holdings; plus
(c) 100% of the net cash proceeds received by Bermuda Holdings after
the Issue Date (other than from any of its Subsidiaries) from the
exercise of options or warrants to purchase Capital Stock of
Bermuda Holdings; plus
(d) 100% of the net cash proceeds received by Bermuda Holdings after
the Issue Date (other than from any of its Subsidiaries) from
the issuance and sale of convertible indebtedness or convertible
preferred stock issued after the Issue Date but only to the
extent such indebtedness or preferred stock has been converted
into Capital Stock (other than Redeemable Capital Stock); plus
(e) $5.0 million.
Notwithstanding the foregoing, Bermuda Holdings will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly,
declare or pay any dividend on or make any distribution in respect of any
Capital Stock of Bermuda Holdings or any Subsidiary of Bermuda Holdings
that is payable to any person other than to Bermuda Holdings or a Wholly-
Owned Restricted Subsidiary of Bermuda Holdings, unless and until Bermuda
Holdings or the Issuer shall have successfully completed a registered
public offering of its Capital Stock (other than Redeemable Capital Stock
or Preferred Stock);
(2) Notwithstanding the foregoing, Bermuda Holdings and its Restricted
Subsidiaries may take the following actions (clauses (ii), (iii), (iv),
(v), (vii) and (viii) below being referred to as "Permitted Payments")
so long as, in the case of clauses (iii), (iv), (vi), (vii) and (viii),
no Default or Event of Default has occurred and is continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration
complied with the provisions of paragraph (1) above (in which
event such dividend shall be deemed to have been paid on such date
of declaration thereof for purposes of paragraph (1) above);
(ii) the consummation of the transactions contemplated by the Put
Agreements (other than any payment in cash pursuant thereto);
(iii) the repurchase, redemption, defeasance or other acquisition or
retirement for value of any shares of Capital Stock of Bermuda
Holdings or any Subordinated Indebtedness (A) in exchange for or
out of the net cash proceeds of a substantially concurrent issue
and sale (other
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<PAGE>
than to Bermuda Holdings or a Subsidiary of Bermuda Holdings) of
shares of Capital Stock (other than Redeemable Capital Stock) of
Bermuda Holdings or (B) out of the net cash proceeds of a
substantially concurrent additional capital contribution to
Bermuda Holdings; provided that, in the case of both clauses (A)
and (B), the net proceeds of any such issuance, sale or capital
contribution are excluded from clauses (b), (c) and (d) of
paragraph (1)(C) above;
(iv) the repurchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness of Bermuda
Holdings in exchange for or out of the net cash proceeds of a
substantially concurrent issue and sale (other than to Bermuda
Holdings or a Subsidiary of Bermuda Holdings) of new Indebtedness
of Bermuda Holdings; provided that any such new Indebtedness (A)
shall be in a principal amount (plus the amount of fees and
expenses incurred in connection with such refinancing) that does
not exceed the principal so refinanced; provided, further, that
for purposes of this clause (A), the principal amount of any
Indebtedness shall be deemed to mean the principal amount thereof
or, if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration
of acceleration thereof, such lesser amount as of the date of
determination; (B) shall not have an Average Life or final Stated
Maturity of principal less than the Indebtedness so refinanced;
and (C) shall be subordinate to the Senior Notes at least to the
extent and in the manner that the Indebtedness to be refinanced is
subordinate to the Senior Notes;
(v) payment of the Deferred Payment Right;
(vi) the repurchase, redemption or other acquisition or retirement for
value of an aggregate of up to $3.0 million of securities of
Bermuda Holdings from members of management of Bermuda Holdings or
its Restricted Subsidiaries;
(vii) declaration and payment of dividends in respect of Bermuda
Holdings' convertible redeemable preferred shares outstanding on
the Issue Date; and
(viii) repayment of any portion of the interim notes or the seller notes
of the Issuer or any action relating to the surrender or
cancellation of the preference shares of Bermuda Holdings, Terra
Nova or Terra Nova (Bermuda), in each case pursuant to the
provisions of Section 7.2 of the share purchase agreement dated
December 21, 1994, between the Issuer and the sellers named
therein.
All of the actions (i) described in this paragraph (2) other than Permitted
Payments shall be Restricted Payments which shall be permitted to be made in
accordance with this paragraph but shall reduce the amount that would
otherwise be available for Restricted Payments under the test described in
paragraph (1) and (ii) described as Permitted Payments in this paragraph shall
be permitted to be made in accordance with this paragraph and shall not reduce
the amount that would otherwise be available for Restricted Payments under the
test described in paragraph (1).
Not later than the date of making any Restricted Payment, the Issuer shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations may be based upon Bermuda Holdings' latest available financial
statements.
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LIMITATION ON INDEBTEDNESS
The Indenture provides that neither Bermuda Holdings nor the Issuer will,
directly or indirectly, create, incur, assume, guarantee or otherwise become
directly or indirectly liable for the payment of (collectively, "incur") any
Indebtedness (including any Acquired Indebtedness) other than Permitted
Indebtedness unless Bermuda Holdings' Consolidated Fixed Charge Coverage Ratio
for Bermuda Holdings' most recently ended four full fiscal quarters for which
financial statements are available immediately preceding the incurrence of
such Indebtedness, taken as one period, would have been at least equal to 2.75
to 1.0, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom) as if the additional Indebtedness had been
incurred at the beginning of such four-quarter period. For purposes of
calculating this ratio: (i) interest on any Indebtedness under a revolving
credit facility will be computed on a pro forma basis based upon the average
daily balance of such indebtedness during the applicable period; and (ii) in
the event that Bermuda Holdings or any of its Restricted Subsidiaries incurs
or redeems any Indebtedness, issues or redeems any preferred stock or makes
any material acquisition or disposition subsequent to the commencement of the
period for which such ratio is being calculated but prior to the event in
respect of which such ratio is being calculated, the ratio shall be calculated
after giving pro forma effect to such incurrence or redemption of
indebtedness, such issuance or redemption of preferred stock and such material
acquisition or disposition, as if the same had occurred at the beginning of
such period.
The Indenture also provides that Bermuda Holdings will not permit any of
its Restricted Subsidiaries (other than the Issuer) to incur any Indebtedness
(including Acquired Indebtedness), other than Permitted Subsidiary
Indebtedness.
LIMITATION ON USE OF PROCEEDS FROM ASSET DISPOSITIONS
The Indenture provides that Bermuda Holdings will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate any
Asset Disposition (other than as permitted pursuant to those provisions
described in "--Merger, Consolidation or Sale of Assets" below, which
constitutes an Asset Disposition of all or substantially all of Bermuda
Holdings' assets) unless: (i) the consideration received from such Asset
Disposition is at least equal to the fair market value of the property sold
(which, in the case of any Asset Disposition involving assets having a fair
market value in excess of $5.0 million (including the value of non-cash
consideration) must be determined by the Board of Directors of Bermuda
Holdings); (ii) 75% of the consideration from the Asset Disposition is
received in cash, Cash Equivalents, other securities listed on a U.S. or
European national securities exchange or The NASDAQ Stock Market, or the
assumption of liabilities (other than Subordinated Indebtedness); and (iii)
Bermuda Holdings applies (or causes a Restricted Subsidiary to apply) the Net
Available Cash within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash as follows: (A) first,
to the extent Bermuda Holdings elects, to acquire any Insurance Business or to
invest in its Insurance Business, (B) second, to the extent Bermuda Holdings
elects, to prepay, repay or purchase any Indebtedness of a Principal Insurance
Subsidiary (other than Indebtedness owed to Bermuda Holdings or an Affiliate
of Bermuda Holdings), (C) third, to the extent Net Available Cash exceeds the
amount applied in accordance with clauses (A) and (B) ("Excess Proceeds"), to
make an offer to apply the Excess Proceeds, once such Excess Proceeds
accumulate to a sum greater than $5.0 million, to repurchase the Senior Notes,
in accordance with the procedures set forth in the Indenture at a purchase
price equal to 100% of the principal amount of such Senior Notes, plus accrued
and unpaid interest to the date of purchase and (D) fourth, to the extent
Excess Proceeds exist after application thereof in accordance with clauses
(A), (B) and (C), to prepay, repay or purchase any Indebtedness of Bermuda
Holdings or any Restricted Subsidiary.
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LIENS
The Indenture provides that Bermuda Holdings will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien securing Indebtedness (other than Permitted
Liens) on any property or asset now owned or hereafter acquired, or on any
income or profits therefrom or assign or convey any right to receive income
therefrom, unless all payments due under the Indenture and the Senior Notes
are secured on an equal and ratable basis with (or prior to) the obligations
so secured until such time as such obligations are no longer secured by a
Lien.
LIMITATION ON BUSINESS ACTIVITIES
The Indenture provides that Bermuda Holdings will not, and will not permit
any of its Restricted Subsidiaries to, engage in any business other than: (i)
the Insurance Business and such business activities incidental or related
thereto, including, without limitation, the administration of the insurance
business and the management of investments (including for unaffiliated third
parties); (ii) such other businesses related to the Insurance Business as
Bermuda Holdings or its Restricted Subsidiaries are engaged in on the Issue
Date but the operation of such businesses shall be limited to the extent of
business activity conducted on the Issue Date or to the extent appropriate to
permit the run-off of business existing on the Issue Date or to the extent
appropriate to manage businesses held for sale until the date of sale, and
(iii) acting as a holding company for companies engaged in the businesses
specified in (i) and (ii) above.
LIMITATION ON SALE OF CAPITAL STOCK OF PRINCIPAL INSURANCE SUBSIDIARIES
Except for a transaction subject to the provisions of the Indenture
described below under "--Merger, Consolidation or Sale of Assets," Bermuda
Holdings will not, and will not permit any Subsidiary to, directly or
indirectly, sell, transfer, convey or otherwise dispose of (other than to
Bermuda Holdings or a Wholly-Owned Restricted Subsidiary of Bermuda Holdings)
any Capital Stock of a Principal Insurance Subsidiary or any securities
convertible into or warrants, rights or options to subscribe for Capital Stock
of any Principal Insurance Subsidiary, and Bermuda Holdings will not permit
any Principal Insurance Subsidiary to issue or sell (other than to Bermuda
Holdings or a Wholly-Owned Restricted Subsidiary of Bermuda Holdings) any of
its Capital Stock or securities convertible into or rights, warrants or
options to subscribe for its Capital Stock. The foregoing restriction shall
not prohibit consummation of the transactions contemplated by the Put
Agreements or the issuance or sale by Terra Nova or Terra Nova (Bermuda) of
its Capital Stock (other than Redeemable Capital Stock) or securities
convertable into or rights, warrants or options to subscribe for such Capital
Stock (other than Redeemable Capital Stock) to certain initial investors in
the Company for cash.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that Bermuda Holdings will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Restricted Subsidiary to: (i)
pay dividends or make any other distributions to Bermuda Holdings or any of
its Restricted Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits; (ii) pay any
Indebtedness owed to Bermuda Holdings or any of its Restricted Subsidiaries;
(iii) make loans or advances to Bermuda Holdings or any of its Restricted
Subsidiaries; or (iv) transfer any of its properties or assets to Bermuda
Holdings or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of:
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(a) existing Indebtedness as in effect on the date of the Indenture;
(b) the Indenture, the Senior Notes and the Guarantee;
(c) any law or any governmental regulation or order or pursuant to any
agreement or understanding with any regulatory body or agency; provided
that Bermuda Holdings has used its reasonable efforts to have any such
order diminished or removed by any regulator authorized to do so and to
obtain any exemptive orders from the relevant regulator with respect to
such encumbrance or restriction to the extent such exemptive orders are
reasonably suitable under applicable laws and regulations;
(d) any instrument existing on the Issue Date that governs the Preferred
Stock of any Restricted Subsidiary outstanding on the Issue Date;
(e) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Bermuda Holdings or any of its Restricted Subsidiaries as
in effect at the time of acquisition (except to the extent such
Indebtedness was incurred in connection with, or in contemplation of,
such acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired;
(f) customary non-assignment provisions in leases and in agreements
relating to intellectual property entered into in the ordinary course
of business and consistent with past practices;
(g) any agreement with respect to Permitted Subsidiary Indebtedness;
provided that such encumbrances and restrictions shall not, in the
reasonable opinion of management of Bermuda Holdings as of the date of
any such agreement, materially impair the ability of the Issuer to pay
the principal of and premium and interest on the Senior Notes (and any
Additional Amounts payable in respect thereof) or the ability of
Bermuda Holdings to pay under the Guarantee; or
(h) any agreement that extends, refinances, renews or replaces any
agreement containing any of the restrictions described in the foregoing
clauses (a) through (g); provided that the terms and conditions of any
such encumbrances or restrictions are not materially less favorable to
the holders of the Senior Notes than those under or pursuant to the
agreement extended, refinanced, renewed or replaced.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that Bermuda Holdings will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, conduct any
business or enter into or suffer to exist any transaction (including, without
limitation, the purchase, sale, transfer, lease or exchange of any assets or
property or the rendering of any service) with, or for the benefit of, any
Affiliate of Bermuda Holdings or any of its Subsidiaries other than a Wholly-
Owned Restricted Subsidiary (each of the foregoing, an "Affiliate
Transaction"), unless such Affiliate Transaction is on terms that are no less
favorable to Bermuda Holdings or the relevant Subsidiary, as the case may be,
than those that could have been obtained in a comparable transaction by
Bermuda Holdings or such Subsidiary, as the case may be, on an arm's length
basis from an unrelated person; provided that a transaction with any Affiliate
of Bermuda Holdings or any of its Subsidiaries that involves services or
consideration having a value of more than $1.0 million shall only be deemed to
be on terms no less favorable to Bermuda Holdings or the relevant Subsidiary,
as the case may be, than those obtainable at the time of the transaction on an
arm's length basis from an unrelated person if a majority of the
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directors of Bermuda Holdings and, if any of the directors are disinterested,
a majority of the disinterested directors of Bermuda Holdings approves the
Affiliate Transaction, except that the foregoing proviso shall not apply to
transactions between Bermuda Holdings or its Restricted Subsidiaries, on the
one hand, and any Affiliates of Bermuda Holdings or its Restricted
Subsidiaries, on the other hand, in the ordinary course of business involving
the insurance or reinsurance of risks or the brokering of insurance or
reinsurance. The foregoing restriction shall not apply to: (i) the payment
of reasonable and customary regular fees to directors of Bermuda Holdings and
its Restricted Subsidiaries who are not employees of Bermuda Holdings or its
Subsidiaries; (ii) loans to officers, directors and employees of Bermuda
Holdings and its Restricted Subsidiaries for business purposes and other loans
and advances to such officers, directors and employees for travel,
entertainment, moving and other relocation expenses made in the ordinary
course of business of Bermuda Holdings and its Restricted Subsidiaries; (iii)
any Permitted Payments and any Restricted Payments not prohibited by the
"Restricted Payments" covenant; (iv) transactions between or among any of
Bermuda Holdings and its Restricted Subsidiaries; (v) transactions between
Bermuda Holdings or its Restricted Subsidiaries on the one hand, and any of
the Underwriters and its Affiliates on the other hand, involving the provision
of financial, consulting or underwriting services by such Underwriter or its
Affiliates; provided that the fees payable to such Underwriter or its
Affiliates do not exceed the usual and customary fees of such Underwriter or
its Affiliates for similar services; (vi) allocation of corporate overhead by
Bermuda Holdings to its Restricted Subsidiaries; or (vii) transactions
effected in accordance with the Tax Sharing Agreement and any amendment to
such agreement.
RESTRICTIONS ON ISSUANCE OF PREFERRED STOCK OF SUBSIDIARIES
The Indenture provides that Bermuda Holdings will not permit any of its
Restricted Subsidiaries to issue any Preferred Stock, or permit any Person to
own or hold an interest in any Preferred Stock of any Restricted Subsidiary
except for: (i) Preferred Stock outstanding on the Issue Date; (ii) Preferred
Stock issued upon the exercise of a put right pursuant to any of the Put
Agreements; and (iii) Preferred Stock issued to Bermuda Holdings or a Wholly-
Owned Restricted Subsidiary of Bermuda Holdings.
LIMITATIONS ON ISSUANCE OF GUARANTEES
The Indenture provides that Bermuda Holdings will not permit any Restricted
Subsidiary, directly or indirectly, to guarantee or secure any Pari Passu
Indebtedness or any Subordinated Indebtedness unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to
the Trustee providing for the guarantee of the payment of the Senior Notes by
such Restricted Subsidiary; provided that, in the case of any Subordinated
Indebtedness, the guarantee of the Senior Notes is senior to any guarantee of
such Subordinated Indebtedness. Notwithstanding the foregoing, any such
guarantee by a Restricted Subsidiary of the Senior Notes shall provide by its
terms that it shall be automatically and unconditionally released and
discharged upon either (i) the release or discharge of such guarantee of
payment of Pari Passu Indebtedness or any Subordinated Indebtedness, as
applicable, or (ii) any sale, exchange or transfer, to any Person not an
Affiliate of Bermuda Holdings, of all of Bermuda Holdings' stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of
the Indenture. The foregoing restriction shall not apply to guarantees given
by a Restricted Subsidiary in the ordinary course of its insurance business.
INVESTMENTS
The Indenture provides that Bermuda Holdings will not, and will not permit
any of its Restricted Subsidiaries to, make any Investments other than
Permitted Investments.
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REPORTS
Whether or not required by the Exchange Act, so long as any Senior Notes
are outstanding, Bermuda Holdings will furnish to the holders of Senior Notes
all financial information that would be required to be contained in a filing
with the Commission on Form 10-K, 10-Q or 8-K if Bermuda Holdings were
required to file such Form, including a "Management's Discussion and Analysis
of Results of Operations and Financial Condition," and, with respect to the
annual financial statements only, a report thereon by Bermuda Holdings'
independent public accountants. In addition, whether or not required by the
Exchange Act, Bermuda Holdings will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to
investors who request it in writing. See "Available Information."
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that after the Issue Date Bermuda Holdings will not,
in any transaction, consolidate with or merge with or into any other Person
or, directly or indirectly, sell, or otherwise dispose of all or substantially
all of its assets in one or more related transactions to any Person or group
of affiliated Persons unless, at the time and after giving effect thereto:
(i) (A) Bermuda Holdings shall be the continuing corporation, or (B) the
Person (if other than Bermuda Holdings) formed by such consolidation, or
into which Bermuda Holdings is merged, or the Person that acquires by sale
or other disposition the assets of Bermuda Holdings, substantially as an
entirety (the "Surviving Entity"), is a corporation duly organized and
validly existing under the laws of the United States, the United Kingdom,
Bermuda, the Republic of Ireland, Barbados, the Channel Islands, the Cayman
Islands or any other jurisdiction that is not materially adverse to the
holders of the Senior Notes and shall, in the case of clause (B), expressly
assume, by supplemental indenture, executed and delivered to the Trustee,
in form reasonably satisfactory to the Trustee, all the obligations of
Bermuda Holdings under the Guarantee and the Indenture;
(ii) immediately before and after such transaction, giving effect to such
transaction on a pro forma basis, no Default or Event of Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth (after giving pro forma effect to such
transaction but not including the effect of any purchase accounting
adjustments or the accrual of deferred tax liabilities resulting from the
transaction) of Bermuda Holdings (or the Surviving Entity if Bermuda
Holdings is not the continuing obligor with respect to the Guarantee under
the Indenture) is at least equal to the Consolidated Net Worth of Bermuda
Holdings immediately before such transaction;
(iv) except in the case where the Surviving Entity is a Wholly-Owned
Restricted Subsidiary of Bermuda Holdings acquiring or succeeding to all or
substantially all of Bermuda Holdings' assets, immediately after giving
effect to such transaction as if such transaction had occurred at the
beginning of the applicable four-quarter period, Bermuda Holdings (or the
Surviving Entity if Bermuda Holdings is not the continuing obligor with
respect to the Guarantee under the Indenture) would be permitted to incur
at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the Consolidated Fixed Charge Coverage Ratio test
set forth in the covenant described under "--Certain Covenants--Limitation
on Indebtedness";
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(v) if any of the property or assets of Bermuda Holdings would thereupon
become subject to any Lien, the outstanding Senior Notes shall be secured
equally and ratably with (or prior to) the obligation or liability secured
by such Lien, unless Bermuda Holdings could create such Lien without
equally and ratably securing the Senior Notes; and
(vi) Bermuda Holdings (or the Surviving Entity if Bermuda Holdings is not
the continuing obligor with respect to the Guarantee under the Indenture)
shall be entitled to all the benefits of the Tax Sharing Agreement.
In connection with any consolidation, merger, transfer or lease
contemplated hereby, Bermuda Holdings shall deliver to the Trustee an
officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, transfer or lease and the supplemental indenture in
respect thereto comply with the provisions described herein and that all
conditions precedent provided for in the Indenture relating to such
transaction have been complied with.
Upon any consolidation or merger or any sale, assignment, transfer, lease
or conveyance or other disposition of all or substantially all of the assets
of Bermuda Holdings in accordance with the provisions described in the second
preceding paragraph, the successor Person formed by such consolidation or into
which Bermuda Holdings is merged or to which such sale, assignment,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of Bermuda Holdings
under the Indenture with the same effect as if such successor Person had been
named as Bermuda Holdings therein. When a successor assumes all the
obligations of its predecessor under the Indenture and the Senior Notes, the
predecessor will be released from those obligations; provided that, in the
case of a transfer by lease, the predecessor corporation shall not be released
from the payment of principal and interest on the Senior Notes.
PAYMENT OF ADDITIONAL AMOUNTS
All payments on the Senior Notes, and all payments pursuant to any
Guarantee, will be made without deduction or withholding, for or on account
of, any and all present and future taxes, duties, assessments, or governmental
charges of whatever nature unless the deduction or withholding of such taxes,
duties, assessments or governmental charges is then required by law. If any
deduction or withholding for or on account of any present or future taxes,
assessments or other governmental charges of the U.K., Bermuda or any relevant
jurisdiction or any political subdivision or taxing authority thereof or
therein (the "Relevant Jurisdiction") shall at any time be required in respect
of any amounts to be paid under the Senior Notes or under the Guarantee, the
Issuer or Bermuda Holdings, as applicable, will pay or cause to be paid such
additional amounts ("Additional Amounts") as may be necessary in order that
the net amounts received by a holder of a Senior Note after such deduction or
withholding shall be not less than the amounts specified in such Senior Note
to which such holder is entitled; provided, however, that the Issuer or
Bermuda Holdings, as applicable, shall not be required to make any payment of
Additional Amounts for or on account of:
(a) any tax, assessment or other governmental charge which would not
have been imposed but for (i) the existence of any present or former
connection between such holder (or between a fiduciary, settlor, beneficiary,
member or shareholder of, or possessor of a power over, such holder, if such
holder is an estate, nominee, trust, partnership or corporation), otherwise
than merely by the holding of a Senior Note or the receipt of amounts payable
in respect of such Senior Notes, and any Relevant Jurisdiction or such holder
being subject to the jurisdiction of any Relevant Jurisdiction, including,
without limitation, such holder (or such fiduciary, settlor, beneficiary,
member, shareholder or possessor) being or having been
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a citizen or resident thereof or being or having been present or engaged in
trade or business therein or having or having had a permanent establishment
therein or (ii) the presentation of the Senior Note (where presentation is
required) for payment on a date more than 30 days after the date on which
such payment became due and payable or the date on which payment thereof is
duly provided for, whichever occurs later, except to the extent that the
holder would have been entitled to Additional Amounts had the Senior Notes
been presented on the last day of such period of 30 days;
(b) any tax, assessment, or other governmental charge that is imposed or
withheld by reason of the failure to comply by the holder of the Global
Note or, if different, the beneficial owner of the interest payable on the
Global Note, with a timely request of the Issuer addressed to such holder
or beneficial owner to provide information, documents or other evidence
concerning the nationality, residence, identity or connection with the
taxing jurisdiction of such holder or beneficial owner which is required or
imposed by a statute, treaty, regulation or administrative practice of the
taxing jurisdiction as a precondition to exemption from all or part of such
tax, assessment or governmental charge;
(c) payments in respect of Definitive Senior Notes issued at the request
of the holder (including on or after the occurrence of an Event of
Default); or
(d) any combination of items (a), (b) and (c) above;
nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on, any Senior Note to any holder who is a
fiduciary or partnership or other than the sole beneficial owner of such
payment to the extent that a beneficiary or settlor with respect to such
fiduciary or member of such partnership or beneficial owner would not have
been entitled to any Additional Amounts had such beneficiary, settlor, member
or beneficial owner been the holder of such Senior Note.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default (whatever the reason for such Event of Default and whether or not it
shall be voluntary or involuntary or be effected by the operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation or any administrative or governmental body):
(i) default in the payment of interest on any Senior Note when the same
becomes due and payable and the continuance of such default for a period of
30 days; or
(ii) default in the payment of the principal of (or premium, if any, on)
any Senior Note at its Maturity;
(iii) default in the performance, or breach, of any covenant or
agreement of the Issuer or Bermuda Holdings under the Indenture (other than
the obligations specified in (i), (ii) and (viii)), and continuance of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Issuer by the Trustee or to the Issuer
and the Trustee by the holders of at least 25% in principal amount of the
outstanding Senior Notes a written notice specifying such default or breach
and stating that such notice is a "Notice of Default"; or
(iv) (A) an event of default shall have occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing any issue of
Indebtedness of Bermuda Holdings or any
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Restricted Subsidiary for money borrowed (or the payment of which is
guaranteed by Bermuda Holdings or any of its Restricted Subsidiaries),
which issue has an aggregate outstanding principal amount of not less than
$10.0 million, and such default shall have resulted in such Indebtedness
becoming, whether by declaration or otherwise, due and payable prior to the
date on which it would otherwise become due and payable, or (B) a default
in any payment when due at final Stated Maturity of any such Indebtedness
outstanding in an aggregate principal amount of not less than $10.0 million
and, in each case, ten Business Days shall have elapsed after such event
during which period such event shall not have been cured or rescinded or
such Indebtedness shall not have been satisfied; or
(v) final judgments or orders are rendered against Bermuda Holdings, the
Issuer or any Restricted Subsidiary by a court or regulatory agency of
competent jurisdiction which require the payment in money, either
individually or in an aggregate amount, that is more than $10.0 million
(other than any judgment as to which a reputable non-affiliated insurance
company has accepted full liability) and such judgment or order shall not
be discharged and either (A) any creditor shall have commenced an
enforcement proceeding upon such judgment or order, which enforcement
proceeding shall have remained unstayed for a period of ten days, or (B) a
period of sixty days during which a stay of enforcement shall not be in
effect shall have elapsed following the date on which any period for appeal
has expired; or
(vi) a decree or order is entered (A) for relief in respect of the
Issuer, Bermuda Holdings or any Principal Insurance Subsidiary in an
involuntary case or other bankruptcy proceeding under applicable law, or
(B) adjudging the Issuer, Bermuda Holdings or any Principal Insurance
Subsidiary a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment or composition of or in respect of the Issuer, Bermuda Holdings
or any Principal Insurance Subsidiary under applicable law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Issuer, Bermuda Holdings or any Principal
Insurance Subsidiary or of any substantial part of any of their properties,
or ordering the winding up or liquidation of any of their affairs, and any
such decree or order remains unstayed and in effect for a period of sixty
consecutive days; or
(vii) the Issuer, Bermuda Holdings or any Principal Insurance
Subsidiary institutes a voluntary case or proceeding under applicable
bankruptcy, insolvency, reorganization or similar law, or any other case or
proceedings to be adjudicated a bankrupt or insolvent, or the Issuer,
Bermuda Holdings or any Principal Insurance Subsidiary files a petition or
answer or consent seeking reorganization or relief under applicable
bankruptcy, insolvency, reorganization or similar law, or consents to the
filing of any such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of any of the Issuer, Bermuda Holdings or any
Principal Insurance Subsidiary or of any substantial part of its property,
or makes an assignment for the benefit of creditors, or admits in writing
its inability to pay its debts generally as they become due or takes
corporate action in furtherance of any such action; or
(viii) default in the performance, or breach, of the provisions
described under "--Merger, Consolidation or Sale of Assets."
If any Event of Default (other than an Event of Default described in (vi)
or (vii) above) occurs and is continuing, the Trustee or the holders of at
least 25% in principal amount of the outstanding Senior Notes, by written
notice to the Issuer (and to the Trustee, if such notice is given by the
holders), may, and the Trustee at the request of such holders shall, declare
all unpaid principal of, premium, if any, and accrued interest on all the
Senior Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default described in (vi) or (vii)
above, all outstanding Senior Notes will become due and payable
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without further action or notice. Holders of the Senior Notes may not enforce
the Indenture or the Senior Notes except as provided in the Indenture.
Subject to certain limitations, holders of a majority in principal amount of
the then outstanding Senior Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from holders of the Senior Notes
notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers (as defined in the Indenture) of the Trustee
determine in good faith that withholding such notice is in the interest of the
holders.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of at
least a majority in aggregate principal amount of the outstanding Senior
Notes, by written notice to the Issuer and the Trustee, may annul such
declaration if: (i) the Issuer or Bermuda Holdings has paid or deposited with
the Trustee a sum sufficient to pay (A) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, (B) all
overdue interest on all Senior Notes, (C) the principal of and premium, if
any, on any Senior Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Senior Notes and (D) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Senior Notes; and (ii)
all Events of Default, other than the non-payment of principal of the Senior
Notes which have become due solely by such declaration or acceleration, have
been waived as provided in the Indenture or cured. No such rescission shall
affect any subsequent default or impair any right consequent thereon.
The holders of a majority in aggregate principal amount of the outstanding
Senior Notes by notice to the Trustee may on the behalf of the holders of all
of the Senior Notes waive any existing or past Default or Event of Default and
its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, or premium, if
any, on the Senior Notes or in respect of covenants or provisions in the
Indenture which cannot be modified or amended without the consent of the
holders of a greater percentage of the principal amount of, or all of, the
outstanding Senior Notes.
The Issuer and Bermuda Holdings are required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Issuer
is required, upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of
Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of the Issuer, Bermuda
Holdings or any Subsidiary of Bermuda Holdings, as such, shall have any
liability for any obligations of the Issuer or Bermuda Holdings under the
Senior Notes, the Guarantee or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder
of the Senior Notes by accepting a Senior Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Senior Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that
such a waiver is against public policy.
DEFEASANCE OR COVENANT DEFEASANCE
Under certain conditions, each of the Issuer or Bermuda Holdings may, at
its option and at any time, elect to have the obligations of the Issuer and
Bermuda Holdings discharged with respect to the outstanding Senior Notes and
the Guarantee ("defeasance"). Such defeasance means that the Issuer and
Bermuda Holdings shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Senior Notes
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and the Guarantee, except for: (i) the rights of holders of outstanding
Senior Notes to receive payments in respect of the principal of, premium, if
any, and interest on such Senior Notes when such payments are due, or on the
redemption date, as the case may be; (ii) the Issuer's obligations with
respect to the Senior Notes concerning issuing temporary Senior Notes,
registration of Senior Notes, mutilated, destroyed, lost or stolen Senior
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust; (iii) the rights, powers, trust, duties and
immunities of the Trustee, and the Issuer's and Bermuda Holdings' obligations
in connection therewith; (iv) the defeasance provisions of the Indenture; and
(v) the obligations of the Issuer and Bermuda Holdings to pay any Additional
Amounts under the Indenture. In addition, under certain conditions, the
Issuer may, at its option and at any time, elect to have the obligations of
Bermuda Holdings and its Subsidiaries released with respect to certain
covenants that are described in the Indenture ("covenant defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Senior Notes. In the event
covenant defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "--Events of Default and Remedies" will no longer constitute an Event of
Default with respect to the Senior Notes.
In order to exercise either defeasance or covenant defeasance: (i) the
Issuer or Bermuda Holdings must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of the Senior Notes, cash in U.S.
dollars, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding Senior Notes; (ii) in the case of defeasance,
the Issuer shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that: (a) the
Issuer has received from, or there has been published by, the Internal Revenue
Service a ruling; or (b) since the date of the Indenture, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the
holders of the outstanding Senior Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred; (iii) in the case of covenant defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such defeasance or
covenant defeasance shall not result in a breach or violation of, or
constitute a default under the Indenture, or any other material agreement or
instrument to which Bermuda Holdings is a party or by which Bermuda Holdings
is bound, (vi) the Issuer shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Issuer shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Issuer or Bermuda
Holdings with the intent of preferring the holders of Senior Notes over the
other creditors of the Issuer or Bermuda Holdings with the intent of
defeating, hindering, delaying or defrauding creditors of the Issuer or
Bermuda Holdings or others; and (viii) the Issuer shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
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TRANSFER AND EXCHANGE
For information with respect to the transfer of Book-Entry Interests, see
"Description of Depositary Agreement--Transfers." A holder of Definitive
Senior Notes may transfer or exchange the Senior Notes in accordance with the
procedures set forth in the Indenture. The registrar may require a holder of
Definitive Senior Notes, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The registrar is not required to transfer
or exchange any Definitive Senior Note selected for redemption. Also, the
registrar is not required to transfer or exchange any Definitive Senior Note
for a period of 15 days before a selection of the Definitive Senior Notes to
be redeemed.
The registered holder of a Definitive Senior Note will be treated as the
owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
The Indenture provides that the consent of holders of a majority in
outstanding aggregate principal amount of Senior Notes will be required with
respect to amendments which do not affect the payment terms of the Senior
Notes or the amount of Senior Notes whose holders must consent to any
amendment or the relative ranking of the Senior Notes. The latter amendments
may only be made with the consent of each such Senior Note holder, except that
any amendment to the provisions of the Indenture relating to "Purchase at the
Option of Holders upon a Change of Control" may be made with the consent of
not less than 51% of the holders of the outstanding aggregate principal amount
of the Senior Notes.
With the consent of the holders of not less than a majority in principal
amount of the outstanding Senior Notes (including consents obtained in
connection with a tender offer or exchange offer for the Senior Notes), the
Issuer and Bermuda Holdings, each when authorized by a board resolution, and
the Trustee may enter into one or more supplemental indentures for the purpose
of adding any provisions to or changing in any manner the rights of the
holders under the Indenture or of waiving or modifying in any manner the
rights of the holders under the Indenture; provided, however, that no such
supplemental indenture, amendment or waiver shall without the consent of the
holder of each outstanding Senior Note affected thereby: (a) change the
Stated Maturity or the principal of, or any installment of interest on, or
change the obligation of the Issuer or Bermuda Holdings to pay any Additional
Amount with respect to, any Senior Note or reduce the principal amount thereof
or the rate of interest thereon or any provisions relating to the redemption
price of the Senior Notes or the periods during which redemption may be
effected (except provisions relating to "Purchase at the Option of Holders
upon a Change of Control"), or change the coin or currency in which the
principal of any Senior Note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of redemption, on
or after the Redemption Date); or (b) reduce the percentage in principal
amount of the outstanding Senior Notes, the consent of whose holders is
required for any such supplemental indenture or the consent of whose holders
is required for any waiver (of compliance with certain provisions of the
Indenture or certain defaults and their consequences) provided for in the
Indenture; or (c) modify any of the provisions of the Indenture relating to
amendments or waivers of payment or covenant defaults, except to increase any
such percentage or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the holder of each Senior
Note affected thereby.
Notwithstanding the foregoing, without the consent of any holder of Senior
Notes, the Issuer, Bermuda Holdings and the Trustee may amend or supplement
the Indenture or the Senior Notes: (i) to cure any ambiguity or to correct
any provision in the Indenture which may be defective or inconsistent with any
other
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provision therein; or (ii) to provide for Definitive Senior Notes in addition
to or in place of Book-Entry Interests; or (iii) to provide for the assumption
of Bermuda Holdings' obligations to holders of the Senior Notes in the case of
a merger or consolidation; or (iv) to secure the Senior Notes pursuant to the
requirements of the provisions described under "--Merger, Consolidation or
Sale of Assets" or "--Certain Covenants--Liens," or otherwise; or (v) to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act, as
contemplated by the Indenture or otherwise; or (vi) to evidence and provide
the acceptance of the appointment of a successor Trustee thereunder; or (vii)
to make any other change that would provide any additional rights or benefits
to the holders or that does not adversely affect the legal rights of any
holder under the Indenture or the Senior Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuer or Bermuda Holdings, to obtain
payment of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee is
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The holders of a majority in principal amount of the outstanding Senior
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Senior Notes, unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Issuer at its address provided above under
"The Company--Overview."
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"AAA Investment" means any Investment in: (i) U.S. Government Obligations
or securities that would be U.S. Governmental Obligations if such securities
were not callable or redeemable at the option of the issuer thereof; (ii) debt
securities or debt instruments with a rating of AAA or higher by S&P, Aaa or
higher by Moody's or the equivalent of such rating by S&P and Moody's or, if
neither S&P nor Moody's shall then exist, the equivalent of such rating by any
other nationally recognized securities rating agency; or (iii) debt securities
or debt instruments with a rating of Class 1 or higher by the NAIC and issued
or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Governmental National Mortgage Association,
the Student Loan Marketing Association or the Federal Home Loan Bank.
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"Acquired Indebtedness" means Indebtedness of a Person: (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from another Person, other than Indebtedness incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary or
such acquisition, as the case may be.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person (except in cases where
substantially all of the control that would ordinarily be exercisable by
virtue of ownership of stock, other than the election of directors, has been
eliminated by applicable regulatory authorities); or (ii) for the purposes of
the provisions of the Indenture restricting transactions with Affiliates only,
any other Person that owns, directly or indirectly, 10% or more of such
Person's Capital Stock or any officer or director of any Person or other
Person or with respect to any natural Person, any person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of
Voting Stock, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) of any assets
or any property of Bermuda Holdings or any Subsidiary of Bermuda Holdings
(each referred to for the purposes of this definition as a "disposition") by
Bermuda Holdings or any of its Subsidiaries, including any disposition by
means of a merger, consolidation or similar transaction (other than a merger
or consolidation involving Bermuda Holdings), other than: (i) a disposition by
a Subsidiary to Bermuda Holdings or by Bermuda Holdings or a Subsidiary to a
Wholly-Owned Restricted Subsidiary; (ii) a disposition of property or assets
in the ordinary course of business, including, without limitation, a sale by a
Principal Insurance Subsidiary of any of its Investments constituting a
portion of its investment portfolio in the ordinary course of business and
consistent with the past practice of such Principal Insurance Subsidiary;
(iii) a disposition of obsolete assets in the ordinary course of business;
(iv) a disposition of assets or property pursuant to any reinsurance
arrangements other than bulk reinsurance agreements; or (v) a pledge of all or
any part of the Capital Stock of any Subsidiary or a Lien on any other
property or asset of a Subsidiary permitted by the Indenture.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing: (i) the sum of the products
of (A) the number of years (or portion thereof) from the date of determination
to the dates of each successive scheduled principal payment of such
Indebtedness multiplied by (B) the amount of such principal payment by (ii)
the sum of all such principal payments.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York or
London are authorized or obligated by law, regulation or executive order to
close.
"Capital Lease Obligation" of any Person means any obligations of such
Person and its Subsidiaries on a consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as
a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participation, or other equivalent (however designated) of such Person's
capital stock and any rights (other than debt securities convertible into or
exchangeable for capital stock), warrants or options to purchase the foregoing
whether now outstanding or issued after the date hereof.
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"Cash Equivalents" means: (i) U.S. Government Obligations or securities
that would be U.S. Government Obligations if such securities were not callable
or redeemable at the option of the issuer thereof, in each case maturing not
more than 270 days after the date of acquisition; and (ii) any certificate of
deposit, maturing not more than 90 days after the date of acquisition, issued
by, or time deposit of, a commercial banking institution that has combined
capital and surplus of not less than $100.0 million or its equivalent in
foreign currency, whose debt is rated at the time as of which any investment
therein is made, "A" (or higher) according to S&P or "Aa" (or higher)
according to Moody's, or if neither S&P nor Moody's shall then exist, the
equivalent of such rating by any other nationally recognized securities rating
agency.
"Change of Control" means such time as: (i) (A) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) has
become the beneficial owner, by way of merger, consolidation or otherwise, of
25% or more of the voting power of all classes of Voting Stock of Bermuda
Holdings and (B) such person or group has become the beneficial owner of a
greater percentage of the voting power of all classes of Voting Stock of
Bermuda Holdings than that beneficially owned by the Initial Investors; or
(ii) the sale or transfer of all or substantially all of the assets of Bermuda
Holdings in one or more related transactions to any Person or group of
Affiliated Persons (other than the Initial Investors or their Related Parties
or an entity beneficially owned by the Initial Investors or their Related
Parties); or (iii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted the Board of
Directors of Bermuda Holdings (together with any new directors whose election
was approved by a vote of a majority of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the directors of Bermuda Holdings then in office.
"Consolidated Adjusted Net Income (Loss)" of any Person means, for any
period, the consolidated net income (loss) of such Person and its consolidated
Restricted Subsidiaries for such period, taken as a single accounting period,
determined in accordance with GAAP and prior to the payment of any dividends
on outstanding shares of such Person's preferred stock, adjusted to exclude
(only to the extent included in computing such net income without
duplication): (i) net extraordinary gains and extraordinary losses together
with any related provisions for taxes on any such gain or loss (less all fees
and expenses relating thereto); (ii) net gains or losses together with any
related provisions for taxes on any such gain or loss (less all fees and
expenses relating thereto) attributable to asset dispositions (including sales
of securities); (iii) the net income (or loss) of any Person (other than
Bermuda Holdings or a Restricted Subsidiary) in which Bermuda Holdings or any
of its Restricted Subsidiaries has an ownership interest, except to the extent
of the amount of dividends or other distributions actually paid to Bermuda
Holdings or its Restricted Subsidiaries in cash by such other Person during
such period; (iv) net income (or net loss) of any Person combined with Bermuda
Holdings or any of its Restricted Subsidiaries in a "pooling of interests"
transaction attributable to any period prior to the date of such combination;
(v) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends and similar distributions by that
Restricted Subsidiary of that net income is not at the date of determination
prohibited, directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders; provided that any requirement to obtain the approval (or lack of
objection) of the DTI with respect to the declaration of dividends as required
by the Notice of Requirements (or approval or lack of objection with respect
to any similar instrument) shall not be deemed to be a prohibition under this
clause (v); and (vi) non-cash charges of Bermuda Holdings and its Restricted
Subsidiaries resulting from the application of SFAS 106 or 112 to the extent
such charges exceed the cash payments for benefits covered by SFAS 106 or 112
for the relevant period.
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"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (i) the sum of Consolidated Adjusted Net Income (Loss),
Consolidated Interest Expense (to the extent deducted in computing
Consolidated Adjusted Net Income (Loss)), Consolidated Tax Expense and
Consolidated Non-Cash Charges (to the extent deducted in computing
Consolidated Adjusted Net Income (Loss)), in each case, for such period,
determined on a consolidated basis for such Person and its Restricted
Subsidiaries on a consolidated basis, all determined in accordance with GAAP
to (ii) the sum of such Consolidated Interest Expense of such Person and its
Restricted Subsidiaries on a consolidated basis for such period; provided
that: (A) in making such computation, the Consolidated Interest Expense of
such Person or any applicable Subsidiary attributable to interest on any
Indebtedness, computed on a pro forma basis and bearing a floating interest
rate, shall be computed as if the rate in effect on the date of computation
had been the applicable rate for the entire period; (B) in making such
computation, the Consolidated Interest Expense of such Person or any
applicable Subsidiary attributable to interest on any Indebtedness under a
revolving credit facility, computed on a pro forma basis, shall be computed
based upon the average daily balance of such Indebtedness during the
applicable period; (C) in making any such computation (a) the amount of
Consolidated Tax Expense of such Person that is attributable to the net income
of any Subsidiary whose net income, or any portion thereof, is excluded in
computing Consolidated Adjusted Net Income (Loss) pursuant to clause (v) of
the definition of such term shall be excluded in the same proportion as the
net income of such Subsidiary and (b) with respect to any Subsidiary whose net
income, or any portion thereof, is excluded in computing Consolidated Adjusted
Net Income (Loss) pursuant to clause (v) of the definition of such term (x)
all Consolidated Interest Expense on Indebtedness of such Subsidiary and (y)
all Consolidated Non-Cash Charges of such Subsidiary shall also be excluded in
the same proportion as the net income of such Subsidiary; and (D) in the event
that Bermuda Holdings or any of its Restricted Subsidiaries incurs or redeems
any Indebtedness or issues or redeems any Preferred Stock or consummates a
material acquisition or disposition transaction subsequent to the commencement
of the period for which the Consolidated Fixed Charge Coverage Ratio is being
calculated but prior to the event for which the calculation of the
Consolidated Fixed Charge Coverage Ratio is being made, then the Consolidated
Fixed Charge Coverage Ratio shall be calculated after giving pro forma effect
to such incurrence or redemption of Indebtedness, or such issuance or
redemption of Preferred Stock, or such material acquisition or disposition
transaction, as if the same had occurred at the beginning of the applicable
period.
"Consolidated Interest Expense" of any Person means, for any period, the
consolidated interest expense in respect of Indebtedness of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued
(including amortization of original issue discount, non-cash interest payments
and the interest component of Capital Lease Obligations), plus the product of
(i) the aggregate amount for such period of dividends on any Redeemable
Capital Stock of Bermuda Holdings and its Restricted Subsidiaries and (ii) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate,
expressed as a decimal. Consolidated Interest Expense shall include accruals
in respect of interest rate contracts (but shall exclude any such accruals in
the nature of amortization of financing fees or other similar payments).
"Consolidated Tax Expense" of any Person means, for any period, as applied
to any Person, the provision for federal, state, local and foreign income
taxes of such Person and its consolidated Subsidiaries for such period as
determined in accordance with GAAP.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its Restricted Subsidiaries as determined in
accordance with GAAP, consistently applied.
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"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its consolidated Restricted Subsidiaries for such period, as determined in
accordance with GAAP (excluding any such non-cash charges which require an
accrual of or reserve for cash charges for any future period and excluding any
such non-cash charge that is included in Consolidated Interest Expense or
Consolidated Tax Expense).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect such
Person or any of its Restricted Subsidiaries against fluctuations in currency
values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Deferred Payment Right" means the right of former shareholders of UCM to
receive a deferred payment from Bermuda Holdings pursuant to an agreement
dated as of December 21, 1994 between Bermuda Holdings
and UCM.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, as
in effect from time to time.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement: (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness; (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling such other Person to make
payment of such Indebtedness or to assure the holder of such Indebtedness
against loss; (iii) to supply funds to, or in any other manner invest in, such
other Person (including any agreement to pay for property or services to be
acquired by such other Person irrespective of whether such property is
received or such services are rendered); (iv) to maintain working capital or
equity capital of such other Person, or otherwise to maintain the net worth,
solvency or other financial condition of the debtor, or (v) otherwise to
assure a creditor of such other Person against loss; provided that the term
"guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business, or any obligation or liability
of such other Person in respect of leasehold interests assigned by such other
Person to any other Person.
"Indebtedness" means, with respect to any Person, without duplication: (i)
all obligations of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business, if, and to
the extent, any of the foregoing would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP; (ii) all obligations of
such Person evidenced by bonds, notes, debentures or other similar
instruments, if, and to the extent, any of the foregoing would appear as a
liability upon a balance sheet of such Person prepared in accordance with
GAAP; (iii) all obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person (even if the rights and remedies of
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the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade accounts
payable arising in the ordinary course of business; (iv) all Capital Lease
Obligations of such Person; (v) all obligations referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which
the holder of such obligations has an existing right, contingent or otherwise,
to be secured by) any Lien, upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
obligations; (vi) all Guaranteed Debt of such Person; (vii) all Redeemable
Capital Stock issued by such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends;
(viii) all obligations under Currency Agreements or Interest Swap Obligations
of such Person; (ix) all obligations for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing insurance
obligations entered into in the ordinary course of business of such Person to
the extent that such letters of credit are not drawn upon, or if and to the
extent drawn upon, such drawing is reimbursed not later than the 30th Business
Day following a demand for reimbursement following payment on the letter of
credit); and (x) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses
(i) through (ix) above. Indebtedness shall not include obligations under
insurance, reinsurance or retrocession contracts entered into in the ordinary
course of business. For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the Fair Market Value of such
Redeemable Capital Stock, such Fair Market Value shall be determined in good
faith by the board of directors of the issuer of such Redeemable Capital
Stock.
"Initial Investors" means each Person which, as of the Issue Date, is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of 5% or
more of the total voting power of the Capital Stock of Bermuda Holdings.
"Insurance Business" means any business consisting principally of the
ownership or issuance of or entry into insurance policies or reinsurance or
retrocession contracts that have not expired or the ownership or operation of
any other similar assets of an insurer or reinsurer, or any interest therein,
which is related to the general business of Bermuda Holdings and its
Subsidiaries, and would be reflected on the balance sheet of Bermuda Holdings
prepared in accordance with GAAP. Without limiting the foregoing, the term
"Insurance Business" shall include a direct or indirect ownership interest in
a Person which issues insurance policies, reinsurance or retrocession
contracts or similar products or performs investment management,
administrative or similar services related or adaptable to the business of
Bermuda Holdings or one or more of its Subsidiaries, so long as such ownership
interest would be reflected on the balance sheet of Bermuda Holdings prepared
in accordance with GAAP.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such Person or any of its
subsidiaries against fluctuations in interest rates.
"Invested Assets" means: (i) with respect to any Person which is an
insurance company that files statutory financial statements with a
governmental agency or authority, the amount shown as the line item "Cash and
Invested Assets" (or any equivalent line item(s) setting forth the type of
assets which would be reflected in the line item "Cash and Invested Assets" on
the Issue Date) in such insurance company's balance
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sheet included in its most recent statutory financial statements filed with
such governmental agency or authority; and (ii) with respect to any other
Person, the amount on a consolidated basis of its Investments as reflected on
such Person's most recent balance sheet,
"Investment Grade Securities" means: (i) U.S. Government Obligations; (ii)
any certificate of deposit, maturing not more than 270 days after the date of
acquisition, issued by, or time deposit of, a commercial banking institution
that has combined capital and surplus of not less than $100.0 million or its
equivalent in foreign currency, whose debt is rated at the time as of which
any investment therein is made, "A" (or higher) according to S&P or Moody's,
or if neither S&P nor Moody's shall then exist, the equivalent of such rating
by any other nationally recognized securities rating agency; (iii) commercial
paper, maturing not more than 270 days after the date of acquisition, issued
by a corporation (other than an Affiliate or Subsidiary of Bermuda Holdings)
with a rating, at the time as of which any investment therein is made, of "A-
1" (or higher) according to S&P or "P-1" (or higher) according to Moody's, or
if neither S&P nor Moody's shall then exist, the equivalent of such rating by
any other nationally recognized securities rating agency; (iv) any bankers
acceptances or any money market deposit accounts, in each case, issued or
offered by any commercial bank having capital and surplus in excess of $100
million or its equivalent in foreign currency, whose debt is rated at the time
as of which any investment therein is made, "A" (or higher) according to S&P
or Moody's, or if neither S&P nor Moody's shall then exist, the equivalent of
such rating by any other nationally recognized securities rating agency; (v)
any other debt securities or debt instruments with a rating of "BBB- " or
higher by S&P, "Baa-3" or higher by Moody's, Class "2" or higher by the NAIC
or the equivalent of such rating by S&P, Moody's or the NAIC, or if none of
S&P, Moody's and the NAIC shall then exist, the equivalent of such rating by
any other nationally recognized securities rating agency; (vi) loans to
policyholders; and (vii) any fund investing exclusively in investments of the
types described in clauses (i) through (vi) above.
"Investments" of any Person means any direct or indirect: (i) loan,
advance or other extension of credit or capital contribution by such Person to
any other Person (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use by others);
(ii) purchase or acquisition by such a Person of any stock, bonds, notes,
debentures or other securities issued or owned by any other Person; (iii)
guarantee or assumption of the Indebtedness of any other Person; and (iv)
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP, including, without limitation, real estate
investments and investments in real estate mortgage loans. Investments shall
exclude insurance and reinsurance premiums and other receivables in the
ordinary course of collection and reinsurance recoverables and other
receivables in the ordinary course of business of such Person.
"Issue Date" means the date on which Senior Notes are originally issued
under the Indenture.
"Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind.
"Maturity" when used with respect to any Senior Note means the date on
which the principal of (and premium, if any) and interest on such Senior Note
becomes due and payable as therein provided, whether at Stated Maturity,
Change of Control Purchase Date or redemption date and whether by declaration
of acceleration, Change of Control, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"NAIC" means the National Association of Insurance Commissioners and its
successors.
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"Net Available Cash" means cash and Cash Equivalent payments received by
Bermuda Holdings or any Subsidiary from any sale, lease, transfer or other
disposition of previously issued and outstanding equity securities of a
Principal Insurance Subsidiary or property or other assets of Bermuda Holdings
or any Principal Insurance Subsidiary (including any cash payments received by
way of fees, expense reimbursements, refunds, rebates, and deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when such deferred payment is received), in each case net of: (i) all
accounting, appraisal, legal, title and recording tax expenses; (ii) the
amount of any Indebtedness secured by the property or assets being sold and/or
required to be repaid by Bermuda Holdings or any Subsidiary on the occasion of
such sale; (iii) the amount of accrued employee benefits required to be paid
on the occasion of such sale; (iv) commissions and other reasonable fees and
expenses incurred and any taxes payable and reasonably estimated income taxes
payable as a consequence of such sale, lease, transfer or other disposition or
as a consequence of such sale, lease, transfer or other disposition or as a
consequence of any repatriation payments; and (v) all distribution and other
payments made to holders of minority interests in Subsidiaries as a result of
such sale, lease, transfer or other disposition.
"Non-Investment Grade Investments" means any Investments (including,
without limitation, debt securities, equity securities, real estate
investments and real estate loans) other than Investment Grade Securities.
"Non-Recourse Indebtedness" means Indebtedness: (i) as to which neither
Bermuda Holdings nor any of its Subsidiaries (other than the Person incurring
such Non-Recourse Indebtedness) (a) provides credit support (including any
undertaking, agreement or instrument that would constitute Indebtedness), (b)
is directly or indirectly liable or (c) constitutes the lender; and (ii) no
default with respect to which (including any rights that the holders thereof
may have to take enforcement action against such Person incurring such Non-
Recourse Indebtedness) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of Bermuda Holdings or any of its
Subsidiaries (other than the Person incurring such Non-Recourse Indebtedness)
to declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its Stated Maturity.
"Pari Passu Indebtedness" means any Indebtedness of Bermuda Holdings that
is pari passu in right of payment to the Senior Notes. Pari passu means equal
to and without preference, each to the other.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Issuer under the Senior Notes,
(ii) Indebtedness of Bermuda Holdings under the Guarantee;
(iii) Indebtedness of Bermuda Holdings outstanding on the Issue Date;
(iv) Indebtedness of Bermuda Holdings or the Issuer to any Wholly-Owned
Restricted Subsidiary;
(v) Any renewals, extensions, substitutions, refinancings or replacements
by Bermuda Holdings or the Issuer of any Indebtedness of Bermuda Holdings
or the Issuer, including any successive renewals, extensions,
substitutions, refinancings or replacements by Bermuda Holdings or the
Issuer, as the case may be, so long as (A) any such new Indebtedness shall
be in a principal amount that does not exceed the principal amount so
refinanced, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium
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reasonably determined by Bermuda Holdings or the Issuer, as the case may
be, as necessary to accomplish such refinancing by means of a tender offer
or privately negotiated repurchase, plus the amount of expenses incurred in
connection with such refinancing; provided, however, that for purposes of
this clause (v) (A), principal amount of Indebtedness shall be deemed to
mean the principal amount therefor or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination and (B) any such new Indebtedness shall not have an Average
Life or final Stated Maturity shorter than or be ranked senior to the
Indebtedness being substituted, refinanced or replaced;
(vi) Indebtedness of Bermuda Holdings or the Issuer incurred under any
revolving credit facility up to $30 million outstanding at any one time;
(vii) Indebtedness of the Issuer represented by the interim notes or the
seller notes, in each case pursuant to the provisions of Section 7.2 of the
share purchase agreement dated December 21, 1994 between the Issuer and the
Sellers named therein; and
(viii) Indebtedness in addition to that permitted to be incurred
pursuant to clauses (i) through (vii) above, which, together with any other
outstanding Indebtedness incurred pursuant to this clause (viii), has an
aggregate principal amount not in excess of $10.0 million outstanding at
any one time; provided that for purposes of this clause (viii), the
principal amount of any Indebtedness shall be deemed to mean the principal
amount thereof or, if such Indebtedness provides for an amount less than
the principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination.
"Permitted Investment" means any of the following: (i) any Investment in
Bermuda Holdings or any of its Restricted Subsidiaries; (ii) any Investment in
any Person that becomes a Restricted Subsidiary as a result of such Investment
provided that Bermuda Holdings, after giving pro forma effect to such
Investment, would be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the provisions entitled
"--Certain Covenants--Limitation on Indebtedness" described above; (iii)
Investments by any Restricted Subsidiary in existence, or made pursuant to
legally binding written commitments in existence, on the Issue Date; (iv)
Investments in Investment Grade Securities; (v) Investments by Bermuda
Holdings or any of its Restricted Subsidiaries in Non-Investment Grade
Investments; provided that, at the date such Investment is made and after
giving effect thereto: (A) such Investment, (x) if an equity Investment,
together with all other equity Investments by Bermuda Holdings and its
Restricted Subsidiaries (including equity Investments permitted by clause
(ii)), does not exceed in aggregate fair market value an amount equal to the
aggregate capital and surplus of the Restricted Subsidiaries of Bermuda
Holdings or, (y) if a debt Investment which is not an Investment Grade
Security, together with all other debt Investments by Bermuda Holdings and its
Restricted Subsidiaries that do not constitute Investment Grade Securities
(including debt Investments permitted by clause (ii)), does not exceed in the
aggregate 15% of the total Invested Assets of Bermuda Holdings and its
Restricted Subsidiaries determined as of the end of the preceding calendar
quarter; (B) in the case of any Investment in Non-Investment Grade Investments
of any Affiliate of Bermuda Holdings or its Restricted Subsidiaries (which
Investment shall also be included in the calculation under clause (A) above),
such Investment, together with all other Investments by Bermuda Holdings and
its Restricted Subsidiaries in NonInvestment Grade Investments of any
Affiliate of Bermuda Holdings or its Restricted Subsidiaries, does not exceed
in the aggregate 5% of the total Invested Assets of Bermuda Holdings and its
Restricted Subsidiaries determined as of the end of the preceding calendar
quarter; and (C) in the case of any Investment in NonInvestment Grade
Investments consisting of real estate mortgage loans (which Investment shall
also be included in the calculation under clause (A) above), such Investment,
together with all other Investments by
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Bermuda Holdings and its Restricted Subsidiaries in Non-Investment Grade
Investments consisting of real estate mortgage loans, does not exceed in the
aggregate 5% of the total Invested Assets of Bermuda Holdings and its
Restricted Subsidiaries determined as at the end of the preceding calendar
quarter; provided further that any such Investment in either Investment Grade
Securities or Non-Investment Grade Investments (excluding any AAA Investment)
in any single issuer, together with all other Investments (excluding all AAA
Investments) by Bermuda Holdings and its Restricted Subsidiaries in the same
issuer, as determined at the date such Investment is made and after giving
effect thereto, shall not exceed in the aggregate those percentages of the
total Invested Assets of Bermuda Holdings and its Restricted Subsidiaries
permitted by state law or regulations (as they may be amended from time to
time) determined as of the end of the preceding calendar quarter; and provided
further that in no event shall the aggregate Investments of Bermuda Holdings
and its Restricted Subsidiaries in owned real estate exceed 2% of the total
Invested Assets of Bermuda Holdings and its Restricted Subsidiaries at the end
of the preceding calendar quarter; (vi) loans or advances to employees made in
the ordinary course of business; (vii) receivables owing to any Restricted
Subsidiary in the ordinary course of business; (viii) repurchase agreements
and reverse repurchase agreements entered into by a Restricted Subsidiary with
any lender or any primary dealer of United States government securities
relating to Investment Grade Securities maturing within one year from the date
of acquisition thereof; provided, that the terms of any such agreement comply
with the guidelines set forth in the Federal Financial Institutions
Examination Council Supervisory Policy-Repurchase Agreements of Depository
Institutions with Securities Dealers and Others, as adopted by the Comptroller
of the Currency on October 31, 1985 and, in the case of a repurchase agreement
with a primary dealer, a Restricted Subsidiary of Bermuda Holdings or its duly
authorized custodian shall take possession of the obligations subject to such
agreement; (ix) Investments in Currency Agreements and Interest Swap
Obligations and other similar agreements or arrangements designed to protect
Bermuda Holdings or any of its Restricted Subsidiaries against fluctuations in
the value of Investments of Bermuda Holdings and its Restricted Subsidiaries,
in each case to the extent permitted under the Indenture; and (x) Investments
in an aggregate amount not to exceed $10.0 million at any one time
outstanding.
"Permitted Liens" means (a) Liens securing Indebtedness pursuant to any
credit agreement or credit facility that is permitted by the terms of the
Indenture to be outstanding; (b) Liens in favor of Bermuda Holdings or any
Restricted Subsidiary; (c) Liens on property of a Person existing at the time
such Person is merged into or consolidated with Bermuda Holdings or any
Restricted Subsidiary of Bermuda Holdings; provided that such Liens were not
incurred in connection with, or in contemplation of, such merger or
consolidation and such Liens do not extend to any assets of Bermuda Holdings
or any of its Restricted Subsidiaries other than the assets of the Person so
merged into or consolidated with Bermuda Holdings or such Restricted
Subsidiary; (d) Liens on property existing at the time of acquisition thereof
by Bermuda Holdings or any Restricted Subsidiary of Bermuda Holdings; provided
that such Liens were not incurred in connection with, or in contemplation of,
such acquisition and do not extend to any assets of Bermuda Holdings or any of
its Restricted Subsidiaries other than the property so acquired; (e) Liens to
secure the performance of statutory obligations, surety or appeal bonds or
performance bonds, or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's or other like Liens, in any case incurred in the
ordinary course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate process of law, if a reserve or
other appropriate provision, if any, as is required by GAAP shall have been
made therefor; (f) Liens existing on the date of the Indenture; (g) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (h) Liens with respect to obligations
under Currency Agreements or Interest Swap Obligations and other similar
agreements or arrangements designed to protect Bermuda Holdings or any of its
Restricted Subsidiaries against fluctuations in the value of Investments of
Bermuda Holdings and its Restricted Subsidiaries, in each case to the extent
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permitted under the Indenture; (i) Liens incurred in the ordinary course of
business of Bermuda Holdings or any Subsidiary of Bermuda Holdings with
respect to obligations permitted under the Indenture that do not exceed $10.0
million in principal amount in the aggregate at any one time outstanding; and
(j) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Indebtedness (to the extent permitted under the Indenture) of Unrestricted
Subsidiaries.
"Permitted Subsidiary Indebtedness" means: (i) Indebtedness of any
Restricted Subsidiary (other than the Issuer) issued to or held by Bermuda
Holdings or a Wholly-Owned Restricted Subsidiary of Bermuda Holdings; (ii)
Indebtedness of any Restricted Subsidiary outstanding on the Issue Date and
any renewals, extensions, substitutions, refinancings or replacements of any
such Indebtedness, including any successive renewals, extensions,
substitutions, refinancings or replacements thereof so long as any such new
Indebtedness (A) shall be in a principal amount that does not exceed the
principal amount so refinanced, plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined by
Bermuda Holdings as necessary to accomplish such refinancing by means of a
tender offer or privately negotiated repurchase, plus the amount of expenses
incurred in connection with such refinancing and (B) (x) in the case of
Indebtedness being refinanced which has an Average Life shorter than the
Senior Notes, such renewal, extension, substitution, refinancing or
replacement does not reduce the Average Life or the final Stated Maturity of
the principal of such Indebtedness and (y) in all other cases, any such new
Indebtedness has an Average Life and final Stated Maturity that exceeds the
Average Life and final Stated Maturity of the Senior Notes; provided that for
purposes of this clause (ii), principal amount of any Indebtedness shall be
deemed to mean the principal amount thereof or, if such Indebtedness provides
for an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser amount as of the date
of determination; (iii) (A) Interest Swap Obligations of any Restricted
Subsidiary, which obligations do not exceed the aggregate nominal amount of
such Indebtedness and (B) obligations pursuant to Currency Agreements entered
into by any Restricted Subsidiary in respect of its (x) assets or (y)
obligations, as the case may be, that are denominated in a currency other than
U.S. dollars; and (iv) an aggregate principal amount of Indebtedness incurred
in the ordinary course of business and at any time of determination of up to
$20.0 million outstanding.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, joint venture, association, joint stock company,
trust, fund, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock," as applied to the capital stock of any corporation,
means stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets on any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of any other class of such corporation.
"Principal Insurance Subsidiary" means: (i) the Subsidiaries of Bermuda
Holdings in existence on the Issue Date; (ii) any other insurance company
Subsidiary of Bermuda Holdings that becomes a "significant subsidiary" as
defined in Regulation S-X, as promulgated by the Commission; and (iii) any
other Subsidiary of Bermuda Holdings that may succeed, by merger,
consolidation or otherwise, to all or substantially all of the business of one
or more of such Persons as specified in (i) and (ii) above.
"Put Agreements" mean the agreements, each dated as of December 21, 1994,
as amended from time to time, one among the Issuer, Bermuda Holdings and the
DLJ Entities, and the other among the Issuer, Bermuda Holdings and Borrowing,
providing the right to exchange certain classes of capital stock of Terra
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Nova and Terra Nova (Bermuda) for cash or, at the option of the Issuer or
Bermuda Holdings, certain classes of capital stock of the Issuer or Bermuda
Holdings, respectively.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be required to be redeemed on or prior to the final Stated Maturity
of the Senior Notes or is redeemable at the option of the holder thereof at
any time prior to such final Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to such final Stated
Maturity.
"Related Party" means, with respect to any Initial Investor, (i) any
controlling stockholder, 80% (or more) owned subsidiary, or spouse or
immediate family member (in the case of any individual) of such Initial
Investor or (ii) any corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or persons beneficially holding
an 80% or more controlling interest of which consist of such Initial Investor
and/or such other persons referred to in the immediately preceding clause (i).
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its successors.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of principal or of interest thereon, the date specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of principal or of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness expressly subordinated in
right of payment to the Senior Notes.
"Subsidiary" means any Person, a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by Bermuda
Holdings or by one or more other Subsidiaries, or by Bermuda Holdings and one
or more other Subsidiaries.
"Tax Sharing Agreement" means the tax sharing agreement dated December 21,
1994 among the Issuer, Terra Nova, Terra Nova Asset Management Limited, Terra
Nova Pension Trustee Limited, Terra Nova Insurance Agency Limited and
Intercontinental Reinsurance Agency Limited.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the timely payment of which
its full faith and credit is pledged or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option
of the issuer thereof, and shall also include a depository receipt issued by a
bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended), as custodian with respect to any such U.S. Government Obligation or
a specific payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian
is not authorized to make any deduction from the amount payable to the holder
of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
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"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) is designated an
Unrestricted Subsidiary prior to formation or creation; (b) has total assets
at the time of formation or creation with a fair market value not exceeding
$1,000; (c) has no Indebtedness other than Non-Recourse Indebtedness; (d) is
not party to any agreement, contract, arrangement or understanding with
Bermuda Holdings or any Restricted Subsidiary of Bermuda Holdings unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to Bermuda Holdings or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of
Bermuda Holdings; (e) is a Person with respect to which neither Bermuda
Holdings nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Capital Stock or (y) to maintain or
preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (f) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of Bermuda
Holdings or any of its Restricted Subsidiaries; and (g) immediately after
giving effect to such designation, Bermuda Holdings could incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to the
provisions of "--Limitations on Indebtedness" described above and Bermuda
Holdings could make an additional Restricted Payment of $1.00 pursuant to the
provisions of "--Restricted Payments" described above. Any such designation
by the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the covenant entitled "--Restricted Payments." If, at
any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
Bermuda Holdings as of such date (and, if such Indebtedness is not permitted
to be incurred as of such date under the covenant entitled "--Limitation on
Indebtedness," Bermuda Holdings shall be in default of such covenant). The
Board of Directors of Bermuda Holdings may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of Bermuda Holdings of any outstanding Indebtedness of
such Unrestricted Subsidiary and such designation shall only be permitted if
(i) such Indebtedness is permitted under the covenant entitled "--Limitation
on Indebtedness," and (ii) no Default or Event of Default would be in
existence following such designation.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
principal amount of such Indebtedness into (b) the total of the product
obtained by multiplying (i) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (ii) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment.
"Wholly-Owned Restricted Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by such Person or by one or more Wholly-Owned Subsidiaries of such Person;
provided that the Capital Stock of Terra Nova and Terra Nova (Bermuda) held by
the DLJ Entities and Bowring as of
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the Issue Date, and any bonus shares of Capital Stock issued with respect
thereto, shall not be deemed to be outstanding for purposes of this
definition.
DESCRIPTION OF DEPOSITARY AGREEMENT
GENERAL
All Senior Notes underlying Book-Entry Interests are represented by the
Global Note, which has been issued in a denomination equal to the aggregate
principal amount of outstanding Senior Notes to be represented thereby, and
has been deposited with the Custodian pursuant to the terms of the Depositary
Agreement. The Depositary has issued the Global Receipt (representing a 100%
interest in the underlying Global Note) which was delivered to and registered
in the name of DTC or its nominee. Unless and until all Book-Entry Interests
are exchanged for Definitive Senior Notes, the depositary interest held by DTC
may not be transferred except as a whole by DTC to a nominee of DTC or by a
nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee
to a successor of DTC or a nominee of such successor.
Ownership of Book-Entry Interests is limited to Persons that have accounts
with DTC ("participants") or Persons that may hold interests through
participants. Procedures with respect to the ownership of Book-Entry
Interests are set forth below.
So long as the Custodian, or its nominee, is the holder of the Global Note
underlying Book-Entry Interests, the Custodian or such nominee, as the case
may be, will be considered the sole holder of such Global Note for all
purposes under the Indenture. Except as set forth below under "--Issuance of
Definitive Senior Notes," participants or Persons that may hold Book-Entry
Interests through participants will not be entitled to have Senior Notes
registered in their names, will not receive or be entitled to receive physical
delivery of Senior Notes in definitive registered form ("Definitive Senior
Notes") and will not be considered the owners or holders thereof under the
Indenture. Accordingly, each Person holding a Book-Entry Interest must rely
on the procedures of the Custodian, the Depositary and DTC and, in addition,
if such Person is not a participant in DTC, on the procedures of the
participant through which such Person owns its interest, to exercise any
rights and obligations of a holder under the Indenture. See "--Action by
Holders of Book-Entry Interests."
PAYMENTS ON GLOBAL NOTE
Payment of any amounts in respect of the Global Note, as long as it is held
by the Custodian, will be made to or by the order of the Custodian, as the
bearer thereof. The Custodian will distribute all such payments received by
it to the Depositary. The Depositary will distribute all such payments
received by it to DTC, or its nominee, which will distribute such payments to
its participants. All such payments will be distributed without deduction or
withholding for any taxes, assessments or other governmental charges of
whatever nature except as may be required by law. If any such deduction or
withholding is required to be made under the provisions of any applicable law
or regulation, then, except as provided in "Description of Senior Notes--
Payment of Additional Amounts," such additional amounts will be paid to or by
the order of the Custodian as may be necessary in order that the net amounts
received by a holder of Book-Entry Interests after such deduction or
withholding shall be not less than the amounts which such holder would
otherwise have received in respect of such Book-Entry Interests absent such
withholding or deduction. DTC, upon receipt of any payment, will promptly
credit participants' accounts with payments in amounts proportionate to their
respective ownership of Book-Entry Interests, as shown on the records of DTC.
The Issuer expects that payments by participants to holders of Book-Entry
Interests held through such participants will be governed
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by standing customer instructions and customary practices, as is now the case
with the securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants. None of the Issuer, Bermuda Holdings, the Trustee or any other
agent of the Issuer, Bermuda Holdings or the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of a participant's Book-Entry Interests or for
maintaining, supervising or reviewing any records relating to a participant's
Book-Entry Interests.
DTC has advised the Issuer as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of its participants and to facilitate the clearance and settlement
of transactions among its participants in such securities through electronic
book-entry exchanges in accounts of the participants, thereby eliminating the
need for physical movement of securities certificates. DTC participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations, some
of whom (and/or their representatives) own DTC. Access to DTC book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Upon the issuance by the Depositary of the Global Receipt to DTC, DTC
credited, on its book-entry registration and transfer system, the
participants' accounts with the respective interest beneficially owned by such
participants. The accounts to be credited were designated by the underwriters
on the offering of the Senior Notes. Ownership of Book-Entry Interests will
be shown on, and the transfer of such interests will be effected only through,
records maintained by DTC (with respect to interests of participants) and on
the records of participants (with respect to interests of Persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge Book-Entry Interests.
The Issuer understands that under existing industry practices, if either
the Issuer or the Trustee requests any action of holders of Book-Entry
Interests or if a holder of a Book-Entry Interest desires to give or take any
action that a holder of Senior Notes is entitled to give or take under the
Indenture, DTC would authorize the participants holding the relevant Book-
Entry Interests to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
holding through them.
REDEMPTION OR REPURCHASE
In the event the Global Note (or portion thereof) is redeemed or
repurchased, the Custodian will deliver all amounts received by it in respect
of the redemption or repurchase to the Depositary. The Depositary will
deliver all amounts received by it in respect of the redemption or repurchase
of the Global Note to DTC. The redemption or repurchase price paid in
connection with the redemption or repurchase of Book-Entry Interests will be
equal to the amount received by the Depositary in connection with the
redemption or repurchase of the Global Note (or portion thereof). For any
redemptions of the Global Note in part, selection of Book-Entry Interests to
be redeemed will be made by DTC on a pro rata basis, by lot or by such other
method as DTC deems fair and appropriate, and in compliance with the
requirements of the principal national securities exchange, if any, on which
the Senior Notes are listed, or, if the Senior Notes are not so listed, on a
pro rata
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basis, by lot or by such method as DTC shall deem fair and appropriate;
provided that no beneficial interests of $1,000 principal amount at maturity
or less shall be redeemed in part.
TRANSFERS
All transfers of Book-Entry Interests will be recorded in accordance with
the book-entry system maintained by DTC, pursuant to customary procedures
established by DTC and its participants. See "--General."
ISSUANCE OF DEFINITIVE SENIOR NOTES
Holders of Book-Entry Interests will receive Definitive Senior Notes if (i)
DTC notifies the Issuer and the Depositary that it is unwilling or unable to
continue as holder of the Global Receipt or ceases to be a clearing agency
registered under the Exchange Act and, in either case, a successor to DTC
registered as a clearing agency under the Exchange Act is not appointed by the
Issuer within 90 days of such notification, (ii) either the Depositary or the
Custodian, as the case may be, notifies the Trustee and the Issuer that it is
unwilling or unable to continue as Depositary or Custodian, respectively, and
a successor Depositary or Custodian, as the case may be, is not appointed by
the Issuer within 90 days of such notification, or (iii) the Issuer determines
that Definitive Senior Notes shall be issued. Any Definitive Senior Notes
issued in exchange for Book-Entry Interests will be registered in such name or
names as the Custodian shall instruct the Trustee based on the instructions of
DTC. It is expected that such instructions will be based upon directions
received by DTC from participants with respect to ownership of Book-Entry
Interests.
In addition to the foregoing, holders of Book-Entry Interests will at any
time (including on or after the occurrence of an Event of Default) be entitled
to request and receive Definitive Senior Notes. Such Definitive Senior Notes
will be issued to and registered in the name of, or as directed by, such
holders only upon the request in writing by the Depositary (based upon the
instructions of DTC).
HOLDERS OF BOOK-ENTRY INTERESTS SHOULD BE AWARE THAT, UNDER CURRENT U.K.
TAX LAW, UPON THE ISSUANCE OF DEFINITIVE SENIOR NOTES TO A HOLDER, SUCH HOLDER
WILL BECOME SUBJECT TO U.K. INCOME TAX (CURRENTLY 25%) TO BE WITHHELD ON ANY
PAYMENTS OF INTEREST ON THE SENIOR NOTES AS SET FORTH UNDER "CERTAIN TAX
CONSIDERATIONS--TAXATION OF U.S. HOLDERS OF THE SENIOR NOTES--UNITED KINGDOM."
IF SUCH DEFINITIVE SENIOR NOTES ARE ISSUED PURSUANT TO THE REQUEST OF A HOLDER
OF BOOK-ENTRY INTERESTS (INCLUDING FOLLOWING AN EVENT OF DEFAULT), NEITHER THE
ISSUER NOR BERMUDA HOLDINGS WILL BE OBLIGATED TO PAY ANY ADDITIONAL AMOUNTS
WITH RESPECT TO SUCH SENIOR NOTES. However, U.S. holders of Definitive Senior
Notes may be entitled to receive a refund of withheld amounts from the U.K.
Inland Revenue in certain circumstances. See "Certain Tax Considerations--
Taxation of U.S. Holders of the Senior Notes--United Kingdom." In addition,
if a holder of Book-Entry Interests receives Definitive Senior Notes other
than pursuant to its request, such holder will be entitled to receive
Additional Amounts with respect to such Senior Notes. See "Description of
Senior Notes--Payment of Additional Amounts."
Exchanges of Book-Entry Interests for Definitive Senior Notes shall be made
free of any fees of the Depositary to the holders of Book-Entry Interests;
provided that the Issuer may require the payment of a sum sufficient to pay
any tax, assessment, or other governmental charge.
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ACTION BY HOLDERS OF BOOK-ENTRY INTERESTS
As soon as practicable after receipt by the Custodian of notice of any
solicitation of consents or request for a waiver or other action by the
holders of Book-Entry Interests, the Custodian shall direct the Depositary to
mail to DTC a notice containing (a) such information as is contained in such
notice, (b) a statement that at the close of business on a specified record
date DTC will be entitled to instruct the Depositary as to the consent, waiver
or other action, if any, pertaining to the Book-Entry Interests, and (c) a
statement as to the manner in which such instructions may be given. Upon the
written request of DTC, the Depositary shall endeavor insofar as practicable
to take such action regarding the requested consent, waiver or other action in
respect of the Book-Entry Interests in accordance with any instructions set
forth in such request. DTC is expected to follow the procedures described
under "--General" above with respect to soliciting instructions from its
participants. Neither the Depositary nor the Custodian will exercise any
discretion in the granting of consents or waivers or the taking of any other
action relating to the Depositary Agreement or the Indenture.
REPORTS
The Depositary will promptly send to DTC a copy of any notices, reports and
other communications received from the Issuer which are received by the
Custodian as holder of the Global Note.
ACTION BY DEPOSITARY AND CUSTODIAN
Upon the occurrence of a default with respect to the Global Note, or in
connection with any other right of the holder of the Global Note under the
Indenture or the Depositary Agreement, if requested in writing by DTC in
respect thereof, the Depositary and the Custodian will take any such action as
shall be requested in such notice; provided that the Depositary and the
Custodian have been offered reasonable security or indemnity against the
costs, expenses and liabilities that might be incurred by them in complying
with such request.
Neither the Depositary nor the Custodian will exercise any discretion in
the taking of any such action.
CHARGES OF DEPOSITARY AND CUSTODIAN
The Issuer and Bermuda Holdings have agreed to pay all charges of the
Depositary and the Custodian under the Depositary Agreement. The Issuer and
Bermuda Holdings have also agreed to indemnify the Depositary and the
Custodian against certain liabilities incurred by it under the Depositary
Agreement.
AMENDMENT AND TERMINATION
The Depositary Agreement may be amended by agreement among the Issuer,
Bermuda Holdings, the Custodian and the Depositary. The consent of DTC shall
not be required in connection with any amendment to the Depositary Agreement:
(i) to cure any defect, omission, inconsistency or ambiguity in the Depositary
Agreement; (ii) to add to the covenants and agreements of the Depositary or
the Custodian, the Issuer and Bermuda Holdings; (iii) to effectuate the
assignment of the Depositary's or the Custodian's rights and duties to a
qualified successor; (iv) to comply with the Securities Act, the Exchange Act
or the U.S. Investment Company Act of 1940, as amended; or (v) to modify,
alter, amend or supplement the Depositary Agreement in any other manner that,
in the opinion of counsel acceptable to the Issuer and the Depositary, is not
adverse to DTC or the owners of Book-Entry Interests. Except as set forth
above, no amendment that adversely affects DTC may be made to the Depositary
Agreement or the Book-Entry Interests without the consent of DTC.
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The Depositary shall at any time at the direction of the Issuer or Bermuda
Holdings terminate the Depositary Agreement by mailing a notice of such
termination to DTC and requesting, on behalf of the Custodian in accordance
with the Indenture, the issuance of Definitive Senior Notes to the persons and
in the amounts as specified by DTC. Upon the issuance of Definitive Senior
Notes in an aggregate principal amount equal to the aggregate principal amount
of Senior Notes outstanding, the Depositary Agreement shall terminate. The
Depositary Agreement may also be terminated upon the resignation of the
Depositary or the Custodian if no successor depositary or custodian, as the
case may be, has been appointed by the Issuer within 90 days of the
notification of such resignation as set forth under "--Resignation or Removal
of Depositary or Custodian" below.
RESIGNATION OR REMOVAL OF DEPOSITARY OR CUSTODIAN
The Depositary or Custodian may at any time resign as Depositary or
Custodian by written notice delivered to each of the Issuer and the Trustee,
such resignation to take effect upon the appointment by the Issuer of a
successor depositary or custodian (approved, in the case of a successor
depositary, by the Trustee and DTC and, in the case of a successor custodian,
by the Depositary, none of which shall unreasonably withhold such approval)
and such successor's acceptance of such appointment. If at the end of 90 days
after delivery of such notice, no successor depositary or custodian has been
appointed and approved, and has accepted such appointment, the resigning
Depositary or Custodian may terminate the Depositary Agreement.
OBLIGATIONS OF DEPOSITARY AND CUSTODIAN
Except with respect to the payment of any amount received by it in respect
of the Global Note, neither the Depositary nor the Custodian will assume any
obligation or be subject to any liability under the Depositary Agreement,
other than to use good faith and reasonable care in the performance of its
respective duties under the Depositary Agreement.
CERTAIN TAX CONSIDERATIONS
CERTAIN U.K., U.S. AND BERMUDA TAX CONSIDERATIONS
The following summary of certain U.S., U.K. and Bermuda tax consequences of
the acquisition, ownership and disposition of the Senior Notes by a "U.S.
Holder" (as defined below) is set forth with respect to U.S. federal income
tax matters based upon the opinion of Debevoise & Plimpton, U.S. tax counsel
to the Issuer, with respect to U.K. tax matters based upon the opinion of
Clifford Chance, U.K. tax counsel to the Issuer, and with respect to Bermuda
tax matters based upon the opinion of Conyers, Dill & Pearman Bermuda tax
counsel to the Issuer. Such firms express no opinion as to, and have not
independently confirmed, any factual or accounting matters, determinations or
conclusions described below. The summary describes certain U.S. federal
income, U.K. and Bermuda tax consequences of the acquisition, ownership and
disposition of the Senior Notes as of the date of this Prospectus. The
Summary is for general information purposes only and does not purport to be a
complete analysis of all tax considerations that may be applicable to U.S.
Holders of Senior Notes. Except where noted, it deals only with Senior Notes
beneficially owned as capital assets by a purchaser that is, for U.S. federal
income tax purposes, (1) a citizen or resident of the United States, (2) a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof or (3) an
estate or trust the income of which is subject to U.S. federal taxation
regardless of its source (a "U.S. Holder") and does not address the U.K. tax
consequences to a holder that is resident (or, in the case of an individual,
who is either resident or ordinarily resident or both) for U.K. tax purposes
in the U.K., that is domiciled under U.K. law in the U.K. or that carries on
business in the U.K.
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through a branch or agency. It does not deal with special situations, such as
those of securities dealers, banks, tax-exempt organizations, life insurance
companies, persons that hold the Senior Notes as part of a hedging transaction
or straddle or conversion transaction or persons whose functional currency is
not the U.S. dollar. It also does not deal with state or local taxes, or U.S.
federal taxes other than income taxes.
The statements regarding U.S. federal income tax consequences set forth
below are based upon the provisions of the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date of this Prospectus. The statements regarding U.K.
and Bermuda tax laws set forth below are based on those laws as in force on
the date of this Prospectus. Such authorities may be repealed, revoked or
modified, possibly with retroactive effect, in which case tax consequences
different from those discussed below could result. The statements regarding
U.S. federal income, U.K. and Bermuda tax consequences set forth below assume
that the Senior Notes were issued, and transfers thereof and payments thereon
have been and will continue to be made, in accordance with the Indenture and
the Depositary Agreement.
For purposes of the U.K. Treaty (as defined below) and the Code, U.S.
Holders of the Book-Entry Interests will be treated as owners of the Senior
Notes underlying such Book-Entry Interests and, except as noted below, the tax
consequences of owning the Book-Entry Interests will be the same as those
applicable to ownership of the Senior Notes.
PERSONS CONSIDERING THE ACQUISITION, OWNERSHIP OR DISPOSITION OF THE SENIOR
NOTES SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE U.S. FEDERAL
INCOME, U.K. AND BERMUDA TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL OR FOREIGN TAXING JURISDICTIONS.
TAXATION OF U.S. HOLDERS OF THE SENIOR NOTES
BERMUDA
Payments under the Guarantee. Under Bermuda law, no withholding or
deduction will be required to be made on account of payments made by Bermuda
Holdings under the Guarantee.
UNITED KINGDOM
Payments on the Senior Notes. The rules relating to UK withholding tax
have been amended by legislation enacted by Finance Act 1996 supported by
regulations laid thereunder. However, as some further regulations have still
to be drafted, the rules set out below may be subject to amendment.
(a) The Senior Notes will constitute "quoted Eurobonds" provided they
continue to carry a right to interest and provided that they are and continue
to be in bearer form and quoted on a recognized stock exchange (the NYSE is a
recognized stock exchange for this purpose).
(b) Payments of interest on Senior Notes which are and continue to be
quoted Eurobonds and are in global form and are held in a "recognized
clearing system" (DTC is so recognized) may be made without withholding or
deduction for or on account of UK income tax, provided that:
(i) payment is made direct to the recognized clearing system; or
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(ii) payment is made to, or at the direction of, a depositary for the
recognized clearing system and the paying agent has obtained a valid
declaration from the depositary; or
(iii) the paying agent has obtained a notice from the Inland Revenue
instructing the paying agent to pay the interest with no tax deducted.
(c) If the Senior Notes are issued in definitive form and are and continue
to be quoted Eurobonds, then payments of interest on the Senior Notes may be
made without such withholding or deduction where:
(i) the person by or through whom the payment is made is not in the UK;
or
(ii) the payment is made by or through a person who is in the UK and
(aa) the interest is paid on a Senior Note held in a recognized
clearing system as defined for the relevant purpose and one of the conditions
set out in paragraph (b)(i), (ii) and (iii) above is satisfied; or
(bb) a person who is not resident in the UK is beneficially entitled
to the interest and is the beneficial owner of the Senior Note on which the
interest is paid and either:
(1) the paying agent obtains a valid declaration PA1 from the said
person on the occasion of each payment; or
(2) the paying agent obtains on the occasion of each payment a
valid declaration PA2 from another person who holds the Senior Notes for the
non-resident person and who is entitled to arrange for the interest to be
paid with no UK tax deducted; or
(iii) the paying agent has obtained a notice from the Inland Revenue
instructing the paying agent to pay the interest with no tax deducted.
In other cases, and in particular if Definitive Senior Notes in registered
form are issued, interest and Additional Amounts, if any, will be paid after
deduction of U.K. income tax at the lower rate (currently 20%). A U.S. Holder
of a Senior Note will normally be eligible to recover in full any U.K. tax
withheld from payments of interest to which such U.S. Holder is beneficially
entitled by making a claim for refund under the U.S./U.K. Treaty on the
appropriate form filed in duplicate with the Internal Revenue Service Center
Director with which such U.S. Holder's last U.S. federal income tax return was
filed. Alternatively, a claim may be made by a U.S. Holder in advance of a
payment of interest. If the claim is accepted by the U.K. Inland Revenue,
they will authorize subsequent payments to that U.S. Holder to be made without
the withholding of U.K. tax. Claims for refund must be made within six years
of the end of the U.K. year of assessment (generally April 5th in each year)
to which the interest related and must be accompanied by the original
statement provided by the Company (or any nominee holding the Senior Notes on
the U.S. Holder's behalf) when the interest payment was made showing the
amount of income tax deducted and when the interest payment was made. Because
a claim for refund is not considered until the U.K. Inland Revenue receives
the appropriate form from the IRS, forms should be sent to the IRS well before
the end of the applicable limitation period,
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In the case of Senior Notes which are quoted Eurobonds, a person in the UK
who in the course of a trade or profession:
(i) by means of coupons, warrants or bills of exchange, collects or
secures payment of or receives interest on Senior Notes for a Noteholder; or
(ii) arranges to collect or secure payment of interest on Senior Notes
for a Noteholder; or
(iii) acts as a custodian of such Notes and receives interest on such
Senior Notes or directs that interest on such Senior Notes be paid to another
person or consents to such payment
will be required to withhold UK income tax at the lower rate, subject to
certain exceptions, including the following:
(a) the Senior Notes are held in a recognized clearing system and either:
(i) the collecting agent pays or accounts for the interest directly or
indirectly to the recognized clearing system and where such payment is made
or accounted for it, or at the direction of, a depositary for the recognized
clearing system, the collecting agent holds a valid declaration CA3 from the
depositary; or
(iii) the collecting agent is acting as depositary for the recognized
clearing system in respect of the Senior Notes; or
(b) the person beneficially entitled to the interest owns the Senior Notes
and is not resident in the UK and the collecting agent either
(i) holds a valid declaration CA1 from the said person; or
(ii) holds a valid declaration CA2 from a person (other than the
beneficial owner of the Notes) to whom the interest is payable or who is
entitled to arrange for the interest to be collected without deduction of UK
tax and who is not a collecting agent in the UK.
Holders of Senior Notes who request Definitive Senior Notes in registered
form will not be entitled to the payment of any Additional Amounts in respect
of the U.K. tax withheld. In certain other cases in which Senior Notes are
exchanged for Definitive Senior Notes, U.S. Holders of Definitive Senior Notes
will be entitled to the payment of Additional Amounts in respect of the U.K.
tax withheld. See "Description of Senior Notes--Payment of Additional
Amounts."
Under provisions of the U.K. Finance Act 1995, interest on the Senior Notes
received without deduction or withholding will not be subject to U.K. tax by
direct assessment in the hands of a holder of Senior Notes who is not resident
for tax purposes in the U.K. unless that holder carries on a trade, profession
or vocation within the U.K. through a U.K. branch or agency in connection with
which the interest is received or to which the Senior Notes are attributable
(in which case certain exemptions may be available).
Sale or Disposition (including Redemption). A U.S. Holder (not resident or
ordinarly resident in the U.K. and not engaging in business in the U.K.
through a branch or agency) will not be subject to U.K. tax (including
withholding tax) on the sale, redemption (other than redemption at a premium),
retirement or other disposition
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of a Senior Note. Similarly, such a U.S. Holder will not be subject to U.K.
tax where an interest in the Global Note is exchanged for a Definitive Senior
Note.
For U.K. tax purposes, a disposal of a Senior Note by an individual holder
resident or ordinarily resident for U.K. tax purposes in the U.K. or who
carries on a trade, profession or vocation in the U.K. through a branch or
agency to which the Senior Note is attributable may give rise to a chargeable
gain or allowable loss for the purposes of taxation of capital gains. It
should be noted that, to calculate any gain on a disposal of Senior Notes,
sterling values are compared at acquisition and disposal. Accordingly, a
taxable gain can arise on maturity, for example, even where the amount of
foreign currency received is less than, or the same as, the amount paid for
the Senior Notes. A transfer of a Senior Note by an individual holder
resident or ordinarily resident for U.K. tax purposes in the U.K. or who
carries on a trade in the U.K. through a branch or agency to which the Senior
Note is attributable may give rise to a charge to tax on income in respect of
an amount representing interest on the Senior Note which has accrued since the
preceding interest payment date.
In relation to a holder which is a company that is subject to U.K.
corporation tax (other than a company established for charitable purposes
only, authorized unit trusts and approved investment trusts and certain other
categories of company which are not taxable on chargeable gains), the Senior
Notes will be treated on disposal as "qualifying corporate bonds" with the
result that on a disposal of the Senior Notes by such a company, neither
chargeable gains nor allowable losses will arise for the purposes of taxation
of chargeable gains. Holders of Senior Notes who are within the charge to
United Kingdom corporation tax will be charged to tax generally on all profits
and gains (including interest and other accruals or, as the case may be,
movements in value, gains made on disposals and profits attributable to
exchange rate fluctuations) arising from the Senior Notes broadly in
accordance with their statutory accounting treatment. Such profits and gains
will be charged to tax as income in respect of each accounting period to which
they are allocated for accounting purposes. Relief may be available for
related expenses and losses on a similar basis.
U.K. Stamp Duty and Stamp Duty Reserve Tax. No U.K. Stamp Duty or Stamp
Duty Reserve Tax is payable on the issue of the Global Note or on the issue or
transfer by delivery of a Senior Note or on its redemption except that stamp
duty reserve tax (currently at the rate of 0.5%) could be payable on the
transfer of any Senior Note issued after 25 November 1996 unless, inter alia,
----- ----
the Senior Note is listed on a recognized stock exchange, does not carry a
right of conversion into securities not so listed and the agreement to
transfer the Senior Note is not made in contemplation of, or as part of an
arrangement for, a takeover of the Company.
U.K. Inheritance Tax. Senior Notes represented by the Global Note that are
not treated as situated in the U.K. and are beneficially owned by an
individual domiciled outside the U.K. will not be subject to U.K. inheritance
tax. If a Senior Note is subject to U.K. inheritance tax and U.S. federal
estate tax, the U.S./U.K. convention for the avoidance of double taxation with
respect to estate and gift taxes may entitle a U.S. Holder to credit or relief
in respect of the U.K. tax.
UNITED STATES
Payments on the Senior Notes. For U.S. federal income tax purposes, a U.S.
Holder will include interest and Additional Amounts, if any, payable on the
Senior Notes in income when received or accrued in accordance with the U.S.
Holder's method of accounting. Such interest will constitute "foreign source
income" for foreign tax credit purposes.
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Subject to certain limitations, a U.S. Holder would generally be required
to include the full amount of the interest payment (without reduction for the
U.K. withholding tax, if any) and Additional Amounts, if any, and would be
entitled to a credit against its U.S. federal income tax liability, or a
deduction in computing its U.S. federal taxable income, for U.K. taxes
withheld from payments of interest to which such U.S. Holder is beneficially
entitled. In the case of a U.S. Holder entitled to claim a refund of any U.K.
tax withheld, no U.S. foreign tax credit or deduction may be claimed for the
amount of U.K. tax eligible for a refund, whether or not such refund is
sought, to the extent that it is reasonably certain that such U.K. tax will be
refunded. If a U.S. Holder receives a refund of U.K. tax for which a deduction
or foreign tax credit was previously claimed, the U.S. Holder generally must
(i) in the case of a deduction, include the refund in gross income or (ii), in
the case of a foreign tax credit, notify the Service of the receipt of the
refund, according to the requirements of Section 1.905-4T of the Treasury
Regulations or any successor provisions, and the Service will redetermine the
U.S. Holder's U.S. federal income tax liability for the taxable year in which
the credit was originally claimed.
Sale or Disposition (including Redemption). For U.S. federal income tax
purposes, taxable gain or loss generally will be recognized by a U.S. Holder
on the sale, redemption, retirement or other disposition of the Senior Notes
measured by the difference between (1) the sum of (a) any cash and (b) the
fair market value of any property received (except in the case of a cash basis
taxpayer, to the extent the cash or property received is attributable to
accrued interest, which will be taxable as such) and (2) the U.S. Holder's tax
basis in the Senior Notes. Subject to the market discount rules discussed
below, any gain or loss recognized generally will be capital gain or loss and
will be long-term capital gain or loss if at the time of such sale,
redemption, retirement or other disposition the Senior Notes have been held by
the U.S. Holder for more than one year. Any such gain generally will
constitute "U.S. source income" for foreign tax credit purposes.
Market Discount. A U.S. Holder (other than a U.S. Holder that makes the
election described below) that purchases a Senior Note at a market discount
that is not de minimis generally will be required to treat any gain realized
upon the disposition of such Senior Note as interest income to the extent of
the market discount accruing during the period such holder held such Senior
Note. A U.S. Holder may also be required to recognize as ordinary income any
principal payments with respect to a Senior Note to the extent such payments
do not exceed the accrued market discount on the Senior Note. For this
purpose, market discount generally equals the excess of the stated redemption
price of the Senior Note over the basis of the Senior Note in the hands of the
holder immediately after its acquisition. However, market discount is deemed
not to exist if the market discount is less than a statutorily defined de
minimis amount equal to 1/4 of 1 percent of the Senior Note's stated
redemption price multiplied by the number of complete years to the Senior
Note's maturity after the holder acquired the Senior Note.
The market discount rules also provide that a U.S. Holder of Senior Notes
that were acquired at a market discount may be required to defer the
deduction, until the Senior Notes are disposed of, of a portion of the
interest on any indebtedness incurred or maintained to acquire or carry the
Senior Notes.
A U.S. Holder of a Senior Note acquired a market discount may elect to
include market discount in income as the discount accrues. In such a case,
the foregoing rules with respect to the recognition of ordinary income on
dispositions and with respect to the deferral of interest deductions on
indebtedness related to such Senior Note would not apply. The current
inclusion election applies to all market discount obligations acquired on or
after the first day of the first taxable year to which the election applies,
and may not be revoked without the consent of the Service.
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Amortizable Bond Premium. Generally, if the tax basis of an obligation
held as a capital asset exceeds the amount payable at maturity of the
obligation, such excess may constitute amortizable bond premium that the
holder of such obligation may elect to amortize under the constant interest
rate method and deduct over the period from the holder's acquisition date to
the obligation's maturity date. The amortizable bond premium deduction is
treated as a reduction of interest on the bond instead of as a deduction,
except as Treasury Regulations may otherwise provide. A holder that elects to
amortize bond premium must reduce its tax basis in the related obligation by
the amount of the aggregate deductions allowable for the amortizable bond
premium. Any election to amortize bond premium will apply to all bonds (other
than bonds the interest on which is excludible from gross income) held by the
holder at the beginning of the first taxable year to which the election
applies or thereafter acquired by the holder. The election may not be revoked
without the consent of the Service.
In the case of an obligation, such as a Senior Note, that may be called at
a premium prior to maturity, an earlier call date is treated as its maturity
date, and the amount of bond premium is determined by treating the amount
payable on such call date as the amount payable at maturity if such a
calculation produces a smaller amortizable bond premium for the period ending
on such call date. If a U.S. Holder of a Senior Note is required to amortize
and deduct bond premium by reference to a call date, the Senior Note will be
treated for this purpose as maturing on such date for the amount payable, and,
if not redeemed on such date, as reissued on such date for the amount so
payable. If a Senior Note purchased at a premium is redeemed pursuant to a
call prior to such early call date or its maturity, a U.S. Holder that has
elected to deduct bond premium may deduct the excess of its adjusted basis in
the Senior Note over the amount received on redemption (or, if greater, the
amount payable on maturity) as an ordinary loss in the taxable year of
redemption.
United States Information Reporting and Backup Withholding. In general,
U.S. information reporting requirements will apply to payments of principal,
premium and interest on a Senior Note and on the proceeds of the sale of a
Senior Note before maturity to a non-corporate U.S. Holder, and U.S. "backup
withholding" at a rate of 31% will apply to such payments if the U.S. Holder
fails to provide an accurate taxpayer identification number or to report all
interest and dividends required to be shown on its federal income tax returns.
The amount of any backup withholding from a payment to a U.S. Holder will
be allowed as a credit against such U.S. Holder's U.S. federal income tax
liability and may entitle such U.S. Holder to a refund, provided that the
required information is furnished to the Service.
PLAN OF DISTRIBUTION
This Prospectus has been prepared for use by DLJSC in connection with
offers and sales of the Senior Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale.
DLJSC may act as principal or agent in such transactions. DLJSC has advised
the Company that it currently intends to make a market in the Senior Notes but
it is not obligated to do so and may discontinue any such market making at any
time without notice. Accordingly, no assurance can be given that an active
trading market will develop for or as to the liquidity of the Senior Notes.
DLJSC has provided financial or other advisory services to the Company in
the past and may do so in the future. In addition, DLJSC acquired equity
securities of the Company in connection with the Acquisition. See "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions--Transactions with the Underwriters."
59
<PAGE>
EXPERTS
The audited consolidated financial statements of the Company and of Terra
Nova, its predecessor, incorporated herein and in the Registration Statements
have been audited by Coopers & Lybrand (Hamilton, Bermuda), independent
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance herein upon the authority of such
firm as experts in accounting and auditing.
60
<PAGE>
<TABLE>
<S> <C>
No person has been authorized to give any information
or make any representations, other than those contained in
this Prospectus, in connection with the offering made $100,000,000
hereby, and, if given or made, such information or
representations must not be relied upon as having been TERRA NOVA INSURANCE (UK)
authorized by the Company, the Underwriters or any other HOLDINGS PLC
person. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than 10 3/4% Senior Notes due 2005
those to which it relates or an offer to or solicitation of any
person in any jurisdiction in which it is unlawful to make FULLY AND UNCONDITIONALLY GUARANTEED
such an offer or solicitation. Neither the delivery of this ON A SENIOR BASIS BY
Prospectus nor any offer or sale made hereunder shall,
under any circumstances, create any implication that the Terra Nova (Bermuda)
information set forth herein is correct as of any time Holdings Ltd.
subsequent to the date hereof.
----------------
TABLE OF CONTENTS ----------
Page PROSPECTUS
Available Information...................... 2 ----------
Incorporation by Reference................. 2
Enforceability of Civil Liabilities........ 3
Currency................................... 4
Ratio of Earnings to Fixed Charges......... 5
Use of Proceeds............................ 5
The Company................................ 4
Risk Factors............................... 5
Description of Capital Stock............... 14
Description of Senior Notes................ 18
Description of Depositary Agreement........ 49
Certain Tax Considerations................. 53
Plan of Distribution....................... 59
Experts.................................... 60
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions, all of which were paid by the Issuer, are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee......................................... $ 34,582.76
NASD filing fee.............................................. 10,500.00
Blue Sky fees and expenses................................... 30,000.00
Printing and engraving expenses.............................. 305,000.00
Legal fees and expenses...................................... 717,000.00
Rating agency fees........................................... 116,000.00
Accountant's fees and expenses............................... 775,000.00
Custodian's fees and expenses................................ 75,000.00
Trustee's fees and expenses.................................. 12,500.00
NYSE listing fees............................................ 5,000.00
Miscellaneous costs.......................................... 75,000.00
-------------
Total........................................................ $2,156,582.76
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article 28 of the Bermuda Holdings Bye-Laws provides:
"(a) The Directors, Secretary and other Officers for the time being of
the Company and the liquidator or trustees (if any) for the time being acting
in relation to any of the affairs of the Company and every one of them, and
their heirs, executors and administrators, shall be indemnified and secured
harmless out of the assets of the Company from and against all actions, costs,
charges, losses, damages and expenses which they or any of them, their heirs,
executors or administrators, shall or may incur or sustain by or by reason of
any act done, concurred in or omitted in or about the execution of their duty,
or supposed duty, or in their respective offices or trusts, and none of them
shall be answerable for the acts, receipts, neglects or defaults of the others
of them or for joining in any receipts for the sake of conformity, or for the
acts of or the solvency or honesty of any bankers or other persons with whom
any moneys or effects belonging to the Company shall or may be lodged or
deposited for safe custody, or for insufficiency or deficiency of any security
upon which any moneys of or belonging to the Company shall be placed out on or
invested, or for any other loss, misfortune or damage which may happen in the
execution of their respective offices or trusts, or in relation thereto,
PROVIDED THAT this indemnity shall not extend to any matter in respect of any
wilful negligence, wilful default, fraud or dishonesty which may attach to any
of said persons.
(b) Every Director and Officer of the Company shall be indemnified out of
the funds of the Company against all liabilities incurred by him as such
Director or Officer of the Company in defending any proceedings, whether civil
or criminal, in which judgment is given in his favour, or in which he is
acquitted, or in connection with any application under the Companies Acts in
which relief from liability is granted to him by the court. Such funds shall
be advanced to such Director or Officer on his incurring liability prior to
judgment provided that should he be found guilty of a criminal or other
offence for which he cannot by law be indemnified he shall reimburse the
Company the funds advanced."
Section 98 of the Companies Act 1981 of Bermuda provides:
(1) Subject to subsection (2), a company may in its bye-laws or in
contract or arrangement between the company and any officer, or any person
employed by the company as auditor, exempt such officer or person from, or
indemnify him in respect of, any loss arising or liability attaching to him by
virtue of any rule
II-1
<PAGE>
of law in respect of any negligence, default, breach of duty or breach of
trust of which the officer or person may be guilty in relation to the company
or any subsidiary thereof.
(2) Any provision, whether contained in the bye-laws of a company or in
any contract or arrangement between the company and any officer, or any person
employed by the company as auditor, exempting such officer or person from, or
indemnifying him against any liability which by virtue of any rule of law
would otherwise attach to him in respect of any wilful negligence, wilful
default, fraud or dishonesty of which he may be guilty in relation to the
company shall be void. Provided that-
(a) nothing in this section shall operate to deprive any person of any
exemption or right to be indemnified in respect of anything done or omitted to
be done by him while any such provision was in force; and
(b) notwithstanding anything in this section, a company may, in pursuance
of any such provision as aforesaid indemnify any such officer or auditor
against any liability incurred by him in defending any proceedings, whether
civil or in which judgment is given in his favour or in which he is acquitted
or when relief is granted to him by the Court under section 281.
Section 98A of the Companies Act 1981 of Bermuda provides that a company
may purchase and maintain insurance for the benefit of any officer of the
company against any liability incurred by him in his capacity as an officer of
the company with respect to a violation of his duty to exercise the care,
diligence and skill that a reasonably prudent person would exercise in
comparable circumstances or indemnifying such an officer in respect of any
loss arising or liability attaching to him by virtue of any rule of law in
respect of any negligence, default, breach of duty or breach of trust of which
the officer may be guilty in relation to the company or any subsidiary thereof
and nothing in this Act shall make void or voidable any such policy.
The Underwriting Agreement filed as Exhibit 1 hereto provides for
indemnification by the Underwriters, under certain circumstances, of Company
and its officers and directors.
As of December 31, 1996, the Company has purchased primary directors and
officers liability insurance from New Hampshire Insurance Company (Europe) in
the amount of (Pounds)12.5 million, with excess cover of (Pounds)7.5 million
provided by Executive Risk Insurance Company and further excess cover of
(Pounds)5 million provided by ACE Insurance Company.
THE ISSUER
Article 17 of the Issuer's Memorandum and Articles of Association
provides that subject to the Companies Act 1985 and every other statute,
statutory instrument, regulation or order thereunder:
"Every director, other officer or auditor of the Company shall be
indemnified out of the assets of the Company against any liability incurred by
him in the actual or purported execution or discharge of his duties or the
exercise or purported exercise of his powers or otherwise in relation to or in
connection with his duties, powers or office, but:
(a) this indemnity shall not apply to any liability to the extent that it
is recovered from any other person; and
(b) the indemnity is subject to such officer or auditor taking all
reasonable steps to effect such recovery, so that the indemnity shall not
apply to the extent that an alternative right of recovery is capable of
being enforced."
Section 310 of the Companies Act 1985 provides:
"(1) This section applies to any provision, whether contained in a
company's articles or in any contract with the company or otherwise, for
exempting any officer of the company or any person
II-2
<PAGE>
(whether an officer or not) employed by the company as auditor from, or
indemnifying him against, any liability which by virtue of any rule of law
would otherwise attach to him in respect of any negligence, default, breach
of duty or breach of trust of which he may be guilty in relation to the
company.
(2) Except as provided by the following subsection, any such provision is
void.
(3) This section does not prevent a company--
(a) from purchasing and maintaining for any such officer or auditor
insurance against any liability, or
(b) from indemnifying any such officer or auditor against any
liability incurred by him--
(i) in defending any proceedings (whether civil or criminal) in
which judgment is given in his favour or he is acquitted, or
(ii) in connection with any application under section 144(3) or (4)
(acquisition of shares by innocent nominee) or section 727 (general
power to grant relief in case of honest and reasonable conduct) in
which relief is granted to him by the court."
Section 727 of the Companies Act 1985 provides:
"(1) If in any proceedings for negligence, default, breach of duty or
breach of trust against an officer of a company or a person employed by a
company as auditor (whether he is or is not an officer of the company) it
appears to the court hearing the case that that officer or person is or may
be liable in respect of the negligence, default, breach of duty or breach
of trust, but that he has acted honestly and reasonably, and that having
regard to all the circumstances of the case (including those connected with
his appointment) he ought fairly to be excused for the negligence, default,
breach of duty or breach of trust, that court may relieve him, either
wholly or partly, from his liability on such terms as it thinks fit.
(2) If any such officer or person as abovementioned has reason to
apprehend that any claim will or might be made against him in respect of
any negligence, default, breach of duty or breach of trust, he may apply to
the court for relief, and the court on the application has the same power
to relieve him as under this section it would have had if it had been a
court before which proceedings against that person for negligence, default,
breach of duty or breach of trust had been brought.
(3) Where a case to which subsection (1) applies is being tried by a
judge with a jury, the judge, after hearing the evidence, may, if he is
satisfied that the defendant or defender ought in pursuance of that
subsection to be relieved either in whole or in part from the liability
sought to be enforced against him, withdraw the case in whole or in part
from the jury and forthwith direct judgment to be entered for the defendant
or defender on such terms as to costs or otherwise as the judge may think
proper."
The Underwriting Agreement filed as Exhibit 1 hereto provides for
indemnification by the Underwriters, under certain circumstances, of the
Issuer and its directors and officers.
As of December 31, 1996, the Issuer has purchased directors and officers
liability insurance from New Hampshire Insurance Company (Europe) in the
amount of (Pounds)12.5 million, with excess cover of (Pounds)7.5 million
provided by Executive Risk Insurance Conmpany and further excess cover of
(Pounds)5 million provided by ACE Insurance Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a) Exhibits
<C> <S>
EXHIBIT DESCRIPTION
NUMBER
*1.1 Form of Underwriting Agreement
*3.1 Memorandum and Articles of Association of the Issuer
*3.2 Certificate of Incorporation and Memorandum of Association of Bermuda
Holdings
*3.3 Amended and Restated Bye-Laws of Bermuda Holdings (incorporated by
reference to Exhibit 3.2 of Bermuda Holdings' Registration Statement on Form S-
1, Registration No. 333-1726)
*4.1 Form of Indenture relating to the Senior Notes, including the form of Global Note
and the form of Definitive Senior Note
*4.2 Form of Deposit and Custody Agreement among the Issuer, Bermuda Holdings,
Chase Manhattan Bank Luxembourg, S.A., as Custodian, and The Chase
Manhattan Bank, N.A., as Depositary, including the form of Global Receipt
*4.3 First Supplemental Indenture, dated October 12, 1995, among the Issuer,
Bermuda Holdings and The Chase Manhattan Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.3 of Bermuda Holdings' Registration
Statement on Form S-1, Registration No. 333-1726)
*5.1 Opinion of Allen & Overy as to legality of the Senior Notes
*5.2 Opinion of Conyers, Dill & Pearman as to legality of the Guarantee
*5.3 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. as to legality of the
Senior Notes and the Guarantee
*5.4 Opinion of Milbank, Tweed, Hadley & McCloy as to legality of the Global
Receipt
8.1 Opinion of Clifford Chance as to U.K. tax matters relative to the Senior Notes
8.2 Opinion of Conyers, Dill & Pearman as to Bermuda tax matters relative to the
Guarantee
8.3 Opinion of Debevoise & Plimpton as to U.S. tax matters relative to the Senior
Notes and the Guarantee
*10.1 Exchange Agreement, dated December 20, 1994, among Bermuda Holdings,
Aetna, CIGNA, Marsh & McLennan, Bowring and Nimrod Securities
* 10.2 Deferred Payment Agreement, dated December 21, 1994, between Bermuda
Holdings and UCM
*10.3 Deferred Share Purchase Agreement, dated December 19, 1994, among Terra
Nova, Aetna, CIGNA, Marsh & McLennan, Bowring and Nimrod Securities
*10.4 Share Purchase and Subscription Agreement, dated December 21, 1994, among
Bermuda Holdings and the investors named therein
*10.5 Subscription Agreement, dated December 21, 1994, between the Issuer and UCM
*10.6 Share Purchase Agreement, dated December 21, 1994, among the Issuer, Aetna,
CIGNA, Marsh & McLennan, Bowring and Nimrod Securities
*10.7 Subscription Agreement, dated December 21, 1994, among the DLJ Entities and
UCM
II-4
<PAGE>
*10.8 Subscription Agreement, dated December 21, 1994, among the DLJ Entities,
Byrne & Sons, Haverford (Bermuda) Ltd., JMI Investments 1992, Solar Group
S.A., MFA-MASTERS, ISF, Hugh Lowenstein and Bermuda Holdings
*10.9 Management Subscription Agreement, dated December 21, 1994, among William
O. Bailey, John Riddick, Anthony Aldridge, Christopher Burbidge, James Rossi,
Jeffrey Parker, Richard Edmunds, Ian Bowden and Bermuda Holdings
*10.10 Agreement for the Sale and Purchase of the Ordinary Shares of Terra Nova, dated
December 21, 1994, between Bermuda Holdings and the Issuer
*10.11 Put Agreement, dated December 21, 1994, as amended as of October 13, 1995,
among the DLJ Entities, the Issuer and Bermuda Holdings (incorporated by
reference to Exhibit 10.11 of Bermuda Holdings' Registration Statement on Form
S-1, Registration No. 333-1726)
*10.12 Put Agreement, dated December 21, 1994, among Bowring, the Issuer and
Bermuda Holdings
*10.13 Shareholders Agreement, dated December 21, 1994, among Bermuda Holdings
and certain shareholders of Bermuda Holdings
*10.14 Facility Agreement, dated December 21, 1994, among Bermuda Holdings, the
Issuer, The Chase Manhattan Bank, N.A., Chase Investment Bank Limited and
the other banks listed therein
*10.15 Service Agreement, dated October 18, 1993, between Terra Nova and John
Riddick
*10.16 Service Agreement, dated May 27, 1993, between Terra Nova and Christopher
H.S. Burbidge
*10.17 Service Agreement, dated June 14, 1993, between Terra Nova and Richard J.
Edmunds
*10.18 Service Agreement, dated May 28, 1993, between Terra Nova and Ian L. Bowden
*10.19 Letter Agreement, dated January 17, 1995, between Bermuda Holdings and John
J. Dwyer
*10.20 Letter Agreement, dated March 20, 1995, between Bermuda Holdings and John J.
Dwyer
*10.21 Approved Executive Share Option Plan (incorporated by reference to Exhibit
10.22 of Bermuda Holdings' Registration Statement on Form S-1, Registration
No. 333-1726)
*10.22 Portfolio Quota Share Agreement of Reinsurance between Terra Nova and Terra
Nova (Bermuda)
*10.23 DTI Notice of Requirements
*10.24 Exchange Agreement, dated June 1, 1995, among the DLJ Entities, the Issuer,
Bermuda Holdings and The Chase Manhattan Bank, N.A.
*10.25 Master Agreement of Reinsurance (including Addendum No. 1) between Terra
Nova and Terra Nova (Bermuda)
*10.26 Registration Rights Agreement dated as of March 25, 1996, among Bermuda
Holdings and certain shareholders of Bermuda Holdings (incorporated by
reference to Exhibit 10.13 of Bermuda Holdings' Registration Statement on Form
S-1, Registration No. 333-1726)
*10.27 Exclusivity Agreement, between Bermuda Holdings and DLJSC (incorporated by
reference to Exhibit 10.14 of Bermuda Holdings' Registration Statement on Form
S-1, Registration No. 333-1726)
II-5
<PAGE>
</TABLE>
<TABLE>
<S> <C>
*10.28 Service Agreement, dated January 5, 1996, between Saffronplace Limited and
Nigel Harold John Rogers (incorporated by reference to Exhibit 10.19 of Bermuda
Holdings' Registration Statement on Form S-1, Registration No. 333-1726)
*10.29 Octavian 1996 Stock Option Scheme, as supplemented (incorporated by reference
to Exhibit 10.23 of Bermuda Holdings' Registration Statement on Form S-1,
Registration No. 333-1726)
*10.30 The Octavian Group Pension Scheme (incorporated by reference to Exhibit 10.24
of Bermuda Holdings' Registration Statement on Form S-1, Registration No. 333-
1726)
*10.31 Terra Nova Insurance Company Limited Non-Approved Funded Pension Scheme
(incorporated by reference to Exhibit 10.28 of Bermuda Holdings' Registration
Statement on Form S-1, Registration No. 333-1726)
*10.32 Service Agreement, dated May 8, 1992, between Terra Nova and James Vincent
Rossi (incorporated by reference to Exhibit 10.29 of Bermuda Holdings'
Registration Statement on Form S-1, Registration No. 333-1726)
*11.1 Statement re computation of per share earnings (incorporated by reference to
Exhibit 11.1 of Bermuda Holdings' Registration Statement on Form S- 1,
Registration No. 333-1726)
12.1 Statement re computation of ratios
*21.1 Subsidiaries of Bermuda Holdings (incorporated by reference to Exhibit 21.1 of
Bermuda Holdings' Registration Statement on Form S-1, Registration No. 333-
1726)
*23.1 Consent of Allen & Overy (included in Exhibit 5.1)
23.2 Consent of Conyers, Dill & Pearman (included in Exhibit 8.2)
*23.3 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in Exhibit 5.3)
23.4 Consent of Coopers & Lybrand
*23.5 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5.4)
23.6 Consent of Clifford Chance (included in Exhibit 8.1)
23.7 Consent of Debevoise & Plimpton (included in Exhibit 8.3)
*24.1 Powers of Attorney (set forth on the signature pages to the Registration Statement)
24.2 Powers of Attorney
*25.1 Statement of Eligibility of Trustee under the Trust Indenture Act of 1939, as
amended (bound separately)
</TABLE>
- - ----------
* Previously filed.
(b) Financial Statements Schedules and Related Report
The following Bermuda Holdings' financial statement schedules, not
included in the Prospectus, are included as part of this Registration
Statement immediately following the signature pages:
<TABLE>
<S> <C> <C>
Supplemental Schedule I - Summary of Investments--Other Than Investments in Related Parties
Supplemental Schedule II - Condensed Financial Information of Registrant (Parent Company)
Supplemental Schedule III - Supplemental Insurance Information
Supplemental Schedule IV - Reinsurance
Supplemental Schedule V - Valuation and Qualifying Accounts
Supplemental Schedule VI - Supplemental Information Concerning Property/Casualty Insurance
Operations
</TABLE>
II-6
<PAGE>
All other schedules are omitted because they are either not applicable or
not required, or because the information required therein is included in the
financial statements or the notes thereto.
II-7
<PAGE>
ITEM 17. UNDERTAKINGS
The Issuer and Bermuda Holdings hereby undertake:
(1) That for purposes of determining any liability under the Securities
Act of 1933, each filing of Bermuda Holdings' annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that shall be deemed to be the initial bona
fide offering thereof;
(2) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrants, pursuant to the provisions described in Item 14 or
otherwise, the registrants have 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 registrants of expenses incurred or paid by a
director, officer or controlling person of the registrants 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 registrants 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 as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) That for the 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 form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(4) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The Depositary hereby undertakes to furnish promptly the following
information to the Commission semiannually, beginning on or before six months
after the effective date of the registration statement:
(1) The following information in substantially the tabular form
indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Aggregate Principal Aggregate Principal Total Aggregate Total Number of Holders
Amount of Senior Notes Amount of Senior Notes Principal of Receipt at end of six-
Evidenced by Receipt Evidenced by Receipt Amount of Senior Notes month period
issued during period retired during period Evidenced by Receipt
covered by report covered by report remaining outstanding at
end of six-month period
</TABLE>
(2) The name of each dealer known to Depositary depositing Senior Notes
against issuance of Receipt during the period covered by the report.
The Depositary hereby undertakes to make available at the principal
office of the Depositary in the United States, for inspection by holders of
the Receipt, any reports and communications received from the issuer of the
deposited security which are both (1) received by the Depositary as the holder
of the deposited security, and (2) made generally available to the holders of
the underlying security by the issuer.
If the amounts of fees charged are not disclosed in the prospectus, the
Depositary undertakes to prepare a separate document stating the amount of any
fee charged and describing the service for which it is charged and to deliver
promptly a copy of such fee schedule without charge to anyone upon request.
The
II-8
<PAGE>
Depositary undertakes to notify each registered holder of a Receipt thirty
days before any change in the fee schedule.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Issuer
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Post-Effective
Amendment No. 2 to the registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of London, England, on
the 24th day of April, 1997.
TERRA NOVA INSURANCE
(UK) HOLDINGS PLC
By: /s/ JOHN RIDDICK
------------------
John Riddick
Managing Director
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on the 24th day of April, 1997.
<TABLE>
<S> <C>
/s/ JOHN RIDDICK Chairman and Managing Director
- - -------------------------------------- [principal executive officer]
John Riddick
/s/ WILLIAM J. WEDLAKE Director and Chief Financial Officer
- - -------------------------------------- [principal financial officer and accounting
William J. Wedlake officer]
*
- - -------------------------------------- Director
William O. Bailey
*
- - -------------------------------------- Director
John J. Dwyer
*
- - -------------------------------------- Director
Nigel H.J. Rogers
ANTHONY F. ALDRIDGE
- - -------------------------------------- Director
Anthony F. Aldridge
</TABLE>
II-10
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 2 to the registration statement on Form F-1
has been signed below by the undersigned as the duly authorized representative
of the Issuer in the United States.
By: /s/ JEAN M. WAGGETT
----------------------------
Jean M. Waggett
New York, New York
April 24, 1997
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Guarantor
has duly caused this Post-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hamilton, Bermuda, on the 24th day of April, 1997.
Terra Nova (Bermuda) Holdings Ltd.
By: *
-------------------------------------
William O. Bailey
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 1 to the registration statement has been signed by the
following persons in the capacities indicated on the 24th day of April, 1997.
<TABLE>
<S> <C>
* Chairman and Chief Executive Officer (principal
- - ----------------------------- executive officer and accounting officer)
William O. Bailey
/s/ WILLIAM J. WEDLAKE Chief Financial Officer (principal financial
- - ----------------------------- officer)
William J. Wedlake
/s/ John Riddick Deputy Chairman and Director
- - -----------------------------
John Riddick
* Deputy Chairman and Director
- - -----------------------------
John J. Dwyer
* Deputy Chairman and Director
- - -----------------------------
Nigel H.J. Rogers
* Director
- - -----------------------------
David L. Jaffee
* Director
- - -----------------------------
Philip F. Petronis
* Director
- - -----------------------------
Allan W. Fulkerson
* Director
- - -----------------------------
Hugh P. Lowenstein
* Director
- - -----------------------------
Robert S. Fleisher
* Director
- - -----------------------------
Mark J. Byrne
* Director
- - -----------------------------
Steven Gilbert
*By: /s/ Peter W. Norledge
-----------------------------
Peter W. Norledge, Attorney-in-Fact
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this Post-Effective Amendment to
the registration statement to be signed solely with respect to the disclosure
and undertakings made in response to the requirements of Parts I and II to
Form F-6 on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on April 28th, 1997.
Legal entity created by the agreement for the issuance of a
Global Receipt representing Senior Notes of Terra Nova
Insurance (UK) Holdings plc
By: The Chase Manhattan Bank (successor by
merger to The Chase Manhattan Bank, N.A.),
As Depositary
By: /s/ DAVID G. SAFER
----------------------------------
Name: David G. Safer
Title: Senior Trust Officer
II-13
<PAGE>
Supplemental Schedule I
TERRA NOVA (BERMUDA) HOLDING LTD. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
---------- ---------- -------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government agencies and
authorities $ 416,383 $ 421,660 $ 421,xxx
States, municipalities and political subdivisions 19,381 20,321 20,xxx
Foreign governments 393,079 407,433 407,xxx
Public utilities -- -- xxx
Convertibles and bonds with warrants attached -- -- xxx
All other corporate bonds 266,283 270,117 270,xxx
Certificates of deposit -- -- xxx
Redeemable preferred stocks -- -- xxx
---------- ---------- -------------
Total fixed maturities $1,095,126 $1,119,531 $1,119,xxx
========== ========== =============
Equity securities:
Common stocks
Public utilities -- -- xxx
Banks, trust and insurance companies 13,215 15,435 15,xxx
Industrial, miscellaneous and all other 79,662 104,976 104,xxx
Non redeemable preferred stocks -- -- xxx
---------- ---------- -------------
Total equity securities $ 92,877 $ 120,411 $ 120,xxx
========== ========== =============
Mortgage loans in real estate -- -- xxx
Real estate -- -- xxx
Policy loans -- -- xxx
Other long-term investment -- -- xxx
---------- ---------- -------------
Total investments $1,188,003 $1,239,942 $1,239,xxx
========== ========== =============
</TABLE>
II-14
<PAGE>
Supplemental Schedule II(a)
TERRA NOVA (BERMUDA) HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (PARENT COMPANY)(1)
CONDENSED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1996 1995
---------- -----------
<S> <C> <C>
ASSETS
Investment in subsidiaries $395,549 $219,973
Cash 2,742 13,422
-------- --------
Total investments and cash 398,291 233,395
Indebtedness of subsidiary - 406
Other assets 2,812 2,912
-------- --------
$401,103 $236,713
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 2,344 $ 6,329
-------- --------
Total liabilities 2,344 6,329
-------- --------
Convertible redeemable preferred shares - 33,376
Shareholders' equity:
Common shares 149,933 89,282
Additional capital 111,544 18,203
Unrealized appreciation in investments of
subsidiaries, net of minority interests
and income tax 36,271 49,972
Retained earnings 101,011 39,551
-------- --------
398,759 197,008
-------- --------
Total shareholders' equity
Total liabilities, convertible redeemable
preferred shares and shareholders' equity $401,103 $236,713
======== ========
- - -------------
(1) The parent company condensed financial information should be read in
conjunction with the consolidated financial statements and notes
thereto included elsewhere herein.
</TABLE>
II-15
<PAGE>
Supplemental Schedule II(b)
TERRA NOVA (BERMUDA) HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (PARENT COMPANY)(1)
CONDENSED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1996 1995
---------- -----------
<S> <C> <C>
Revenues:
Net investment income $ 2,205 $ 696
Realized losses on sale of investments (39)
-------- --------
Total revenues 2,166 696
-------- --------
Expenses:
Deferred debt expenses 664 664
Salaries 1,592 813
Legal and professional expense 463 290
Other expenses 1,677 807
-------- --------
Total expenses 4,396 2,574
-------- --------
Loss from continuing operations before equity
in net income of consolidated subsidiaries (2,230) (1,878)
Equity in net income of consolidated subsidiaries 66,136 45,129
======== ========
Net income 63,906 43,251
======== ========
- - -------------
(1) The parent company condensed financial information should be read in
conjunction with the consolidated financial statements and notes
thereto included elsewhere herein.
</TABLE>
II-16
<PAGE>
Supplemental Schedule II(c)
TERRA NOVA (BERMUDA) HOLDINGS LTD. AND SUBSIDIARIES
PARENT COMPANY FINANCIAL INFORMATION(1)
CONDENSED STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss $ (2,230) $ (1,878)
--------- --------
Adjustments to reconcile net income to net cash
provided by operating activities
Real estate capital (gains)/losses 39 --
Change in assets and liabilities, net (3,479) 827
--------- --------
Net cash used in operating activities (5,670) (1,051)
--------- --------
Cash flows from investing activities
Proceeds of fixed maturities sold 80,196 --
Purchase of fixed maturities (80,235) --
--------- --------
Net cash provided by (used in) investing
activities (39) --
--------- --------
Cash flows from investing activities:
Investment in subsidiary company (101,001) (32,616)
Net proceeds from initial public offering 113,953 --
Proceeds from shares issued 158 46,383
Preference dividends paid to stockholders (499) (3,700)
Ordinary dividends paid to stockholders (1,548) --
Redemption of preference shares (16,035) --
--------- --------
Net cash provided by financing activities (4,972) 10,067
--------- --------
Change in cash and cash equivalents (10,681) 9,016
Cash and cash equivalents at beginning of year 13,422 4,406
========= ========
Cash and cash equivalents at end of year $ 2,741 $ 13,422
========= ========
</TABLE>
- - ---------------------
(1) The parent company condensed financial information should be read in
conjunction with the consolidated financial statements are notes thereto
included elsewhere herein.
<PAGE>
Supplemental Schedule III
TERRA NOVA (BERMUDA) HOLDING LTD.,
TERRA NOVA INSURANCE COMPANY LIMITED, AND THEIR SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(dollars in thousands)
<TABLE>
<CAPTION>
LOSSES OTHER
DEFERRED AND LOSS POLICY CLAIMS NET
ACQUISITION ADJUSTMENT UNEARNED AND BENEFITS PREMIUM INVESTMENT
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME
------- ----------- ---------- -------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Non-marine $25,031 $638,974 $98,360 -- $182,543 $36,677
Marine 15,929 429,956 53,894 -- 83,921 15,471
Octavian 4,319 9,538 20,866 -- 12,292 37,732
Year ended December 31, 1995
Non-marine $18,584 $650,052 $78,112 -- $159,955 $37,966
Marine 18,366 518,600 61,881 -- 92,345 15,658
Octavian -- -- -- -- -- --
Year ended December 31, 1994
Non-marine 16,414 705,140 77,447 -- 140,167 23,246
Marine 15,107 518,702 70,363 -- 110,267 13,731
Octavian -- -- -- -- -- --
- - ----------------------------
</TABLE>
<TABLE>
Benefits, Amortization
claims, Losses of deferred Other
and settlement acquisition operating Premiums
Segment expenses costs expenses written
------- -------------- ------------ --------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Non-marine $123,615 $50,799 $5,464 $204,334
Marine 46,967 28,139 4,084 78,169
Octavian 7,692 3,456 627 28,663
Year ended December 31, 1995
Non-marine $120,105 $43,795 $6,301 $161,357
Marine 59,006 28,519 3,768 85,628
Octavian -- -- -- --
Year ended December 31, 1994
Non-marine 105,251 40,131 5,487 152,782
Marine 86,402 27,115 3,035 129,721
Octavian -- -- -- --
- - ----------------------------
</TABLE>
(a) Net investment income excludes investment income and realized gains of
$37,732,000, $30,238,000 and $28,496,000 for 1996, 1995, and 1994,
respectively, which is attributable to the Parent as disclosed in note 21
to the Consolidated Financial Statements.
II-18
<PAGE>
Supplemental Schedule IV
TERRA NOVA (BERMUDA) HOLDINGS LTD.,
TERRA NOVA INSURANCE COMPANY LIMITED, AND THEIR SUBSIDIARIES
REINSURANCE
AS OF DECEMBER 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
PREMIUMS WRITTEN AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
PROPERTY-CASUALTY
Year Ended December 31, 1996 $119,601 $49,844 $241,409 $311,166 77.60%
Year Ended December 31, 1995 86,296 55,673 216,362 246,985 87.60%
Year Ended December 31, 1994 103,439 76,859 255,923 282,503 90.60%
</TABLE>
II-19
<PAGE>
Supplemental Schedule V
TERRA NOVA (BERMUDA) HOLDINGS LTD.,
TERRA NOVA INSURANCE COMPANY LIMITED, AND THEIR SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
<TABLE>
<CAPTION>
CHARGED BALANCE
BALANCE AT TO TO OTHER CHARGED AT
BEGINING OF COSTS AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for Doubtful Accounts $30,165 $(1,142) $ - $ (126)(a) $29,149
Year Ended December 31, 1995
Allowance for Doubtful Accounts 29,076 3,000 - 1,911 30,165
Year Ended December 31, 1994
Allowance for Doubtful Accounts 25,679 3,890 - 493 (a) 29,076
</TABLE>
- - ------------------
(a) Amounts previously charged utilized against irrecoverable balances.
II-20
<PAGE>
Supplemental Schedule VI
<TABLE>
<CAPTION>
RESERVE FOR
LOSSES
DEFERRED AND LOSS DISCOUNT NET
ACQUISITION ADJUSTMENT IF ANY UNEARNED EARNED INVESTMENT
COSTS EXPENSES DEDUCTED PREMIUMS PREMIUMS INCOME
----------- ----------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Continuing operations 45,279 1,078,108 -- 173,120 278,756 52,148
Aviation business in run off -- 139,667 -- -- 1,624 --
Year Ended December 31, 1995
Continuing operations 36,950 1,168,652 -- 139,993 251,900 53,264
Aviation business in run off -- 164,898 -- -- 4,668 --
Year Ended December 31, 1994
Continuing operations 31,521 1,223,842 -- 147,810 250,434 65,473
Discontinued operations -- 318,692 -- -- (1,561) --
</TABLE>
<TABLE>
<CAPTION>
Losses and loss
adjustment expenses
incurred related to
------------------- Amortization Paid losses
(1) (2) of deferred and loss
Current Prior acquisition adjustment Premium
year years costs expenses written
------- ------ ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Continuing operations 180,874 (2,600) 82,394 173,741 311,166
Aviation business in run off -- 997 -- 32,000 1,624
Year Ended December 31, 1995
Continuing operations 175,852 3,259 72,314 213,606 246,985
Aviation business in run off -- 4,574 -- 15,025 4,668
Year Ended December 31, 1994
Continuing operations 164,718 26,935 67,246 196,353 282,503
Discontinued operations -- 8,353 20 (1,624) (1,561)
</TABLE>
II-21
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF CLIFFORD CHANCE]
28 April 1997
Terra Nova (Bermuda) Holdings, Ltd.
Dallas Building
7 Victoria Street
Hamilton HM 11
Bermuda
Dear Sirs
TERRA NOVA INSURANCE (UK) HOLDINGS PLC ("UK HOLDINGS OR THE COMPANY")
POST-EFFECTIVE AMENDMENT NO. 2 TO FORMS F-1 AND S-1 - REGISTRATION STATEMENT
You have requested our opinion as to certain United Kingdom taxation matters in
connection with the Registration Statement referred to above which is to be
filed by the Company with the Securities and Exchange Commission pursuant to the
Securities Act of 1933 of the United States of America, as amended, relating to
10 3/4% Senior Notes due 2005 issued by the Company.
Subject to the following assumptions and qualifications, we are of the opinion
that the description of the United Kingdom taxation treatment of US holders of
the Senior Notes as set out in said Prospectus under the heading "Certain Tax
Considerations - Taxation of US Holders of the Senior Notes - United Kingdom",
as that description is qualified in the statements under the heading "Certain
Tax Considerations - Certain UK, US and Bermuda Tax Considerations", are correct
summaries of the position under current UK taxation law and practice as at the
date of this Opinion.
In giving this Opinion, we have relied upon the representations and warranties
as to factual matters made in or pursuant to the Registration Statement. We
have not undertaken independent investigation of any factual matter made in or
pursuant to the Registration Statement or otherwise.
This Opinion is addressed to you solely for your benefit and may not be relied
upon by anyone but you without our prior written consent. We hereby consent to
the filing of this Opinion as an exhibit to the Registration Statement and to
the reference made to us under the caption "Enforceability of Civil
Liabilities", "Risk Factors - Enforcement of Judgments" and "Certain Tax
Considerations" in the Prospectus forming part of the Registration Statement.
This Opinion is strictly limited to the matters discussed herein and does not
extend to and is not to be read as extending by implication to any other matter.
For the avoidance of doubt, this Opinion is given in accordance with, and is
subject to, United Kingdom law.
Yours faithfully
/s/ Clifford Chance
Clifford Chance
<PAGE>
EXHIBIT 8.2
[Letterhead of Conyers Dill & Pearman]
GBRC/km/126819/d.340135
23 April 1997
Terra Nova (Bermuda) Holdings Ltd
Richmond House
12 Par-la-Ville Road
Hamilton
Bermuda
Dear Sirs
We have acted as special legal counsel to Terra Nova (Bermuda) Holdings Ltd, a
Bermuda corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission of a Post Effective Amendment
No. 2 on Form S-3 to the Registration Statement on Forms F-1 and S-1
(Registration Nos. 33-93358-01) under the Securities Act of 1933, as amended
(the "Registration Statement"), related to the sale of $100,000,000 10-3/4%
Senior Notes due 2005 of Terra Nova Insurance (UK) Holdings plc, fully and
unconditionally guaranteed by the Company.
As such counsel, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Memorandum of Association and Bye-Laws
of the Company as well as resolutions of the Company's Board of Directors. We
have also examined originals, or copies certified to our satisfaction, of such
corporate records of the Company and other instruments, certificates of
appropriate public officials and certificates of officers and representatives of
the Company and other documents as we have deemed necessary as a basis for the
opinions hereinafter expressed. In such examination, we have assumed the
authenticity of all documents
Cont.../
<PAGE>
Page 2
23 April 1997
Terra Nova (Bermuda) Holdings Ltd
submitted to us as originals, the conformity with the originals of all documents
submitted to us as copies, the genuineness of all signatures and the legal
capacity of natural persons.
On the basis of the foregoing, we are of the opinion that the discussions set
forth in the prospectus contained in the Registration Statement under the
heading "CERTAIN TAX CONSIDERATIONS-Taxation of U.S. Holders of the Senior Notes
- - - Bermuda" accurately reflect our opinion as to such matters.
We are members of the bar of Bermuda and we have made no investigation of and
express no opinion in relation to the laws of any jurisdiction other than
Bermuda. This opinion is to be governed by and construed in accordance with
the laws of Bermuda and is limited to and is given on the basis of the current
law and practice in Bermuda.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. We also consent to the reference made to us under the captions
"Enforceability of Civil Liabilities", "Risk Factors - Enforcement of
Judgments", "Description of Capital Stock" and "Certain Tax Considerations" in
the prospectus contained in the Registration Statement.
Yours faithfully
/s/ Conyers Dill & Pearman
CONYERS DILL & PEARMAN
<PAGE>
EXHIBIT 8.3
[Letterhead of Debevoise & Plimpton]
April 28, 1997
Terra Nova (Bermuda) Holdings, Ltd.
Richmond House
12 Par-la-Ville Road
Hamilton HM 08
Bermuda
Terra Nova Insurance (UK) Holdings plc
Terra Nova (Bermuda) Holdings Ltd.
Post-Effective Amendment No. 2 on Form S-3
to Forms F-1 and S-1 Registration Statement
(File Nos. 33-93358 and 33-93358-01)
-------------------------------------------
Ladies and Gentlemen:
We have acted as special United States tax counsel to Terra Nova
Insurance (UK) Holdings plc, a company formed under the laws of England and
Wales (the "Issuer"), and Terra Nova (Bermuda) Holdings Ltd., a company formed
under the laws of Bermuda ("Bermuda Holdings"), in connection with the
Post-Effective Amendment to the Registration Statement referenced above (the
"Post Effective Amendment") filed by the Company with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Act"), relating to $100,000,000 10-3/4% Senior Notes due 2005
of the Issuer, fully and unconditionally guaranteed by Bermuda Holdings.
Capitalized terms used herein without definition have the meanings set forth in
the Post Effective Amendment.
<PAGE>
Terra Nova (Bermuda) 2 April 28, 1997
Holdings, Ltd.
In so acting, we have examined and relied upon the representations and
warranties as to factual matters made in or pursuant to the Post-Effective
Amendment (including exhibits thereto) and originals, or copies certified or
otherwise identified to our satisfaction, of such records, documents,
certificates, representations and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below. We
have not, however, undertaken any independent investigation of any factual
matter set forth in any of the foregoing.
Subject to the foregoing and the qualifications and limitations set
forth herein, we are of the opinion that the principal United States federal
income tax consequences to U.S. Holders of the acquisition, ownership and
disposition of the Senior Notes are as set forth under the caption "Certain
Tax Considerations -- Taxation of U.S. Holders of Senior Notes -- United
States", subject to the qualifications and assumptions set forth in such
discussion or under "Certain Tax Considerations -- Certain U.K., U.S. and
Bermuda Tax Considerations", in the Prospectus forming part of the
Post-Effective Amendment.
This opinion is limited to the federal law of the United States and
administrative rulings of the Internal Revenue Service as in effect on the date
hereof. We have no obligation to advise you or any other person of changes in
law or in the administrative rulings of the Internal Revenue Service that occur
after the date hereof.
We are delivering this opinion to you, and, without our prior written
consent, no other persons are entitled to rely on this opinion. We hereby
consent to the filing of this opinion as an exhibit to the Post-Effective
Amendment and to the reference to our firm under the caption "Certain Tax
Considerations -- Certain U.K., U.S. and Bermuda Tax Considerations" in the
Prospectus forming a part thereof. In giving such consent, we do not thereby
concede that we are within the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
Debevoise & Plimpton
<PAGE>
Exhibit 12.1
TERRA NOVA (BERMUDA) HOLDINGS LTD.
STATEMENT OF C0MPUTATION OF EARNINGS TO FIXED CHARGE
AS OF DECEMBER 31, 1996
(dollars in thousands)
Income from operations before income taxes
and minority interests....................................... $82.668
Add:
Fixed Charges
Interest expenses...................................... $10.750
Interest portion of rental expense (1)................ 1.267
Amortization........................................... 4.38
------
12.455
-------
Earnings before fixed charges.................................. $95.123
=======
Ratio of earnings to fixed charges............................. 7.64
=======
(1) Represents one-third of rental expense which the Company's management
believes to be representative of the interest portion of rental expense.
<PAGE>
EXHIBIT 23.4
[Letterhead of Coopers & Lybrand]
April 25, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Terra Nova (Bermuda) Holdings Ltd.
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report, dated February 26, 1997
included in the Form 10-K for the year ended December 31, 1996 of Terra Nova
(Bermuda) Holdings Ltd., and all references to our Firm included in this
registration statement.
/s/ Coopers & Lybrand
CHARTERED ACCOUNTANTS
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
-----------------
Each of the officers and directors of Terra Nova (Bermuda) Holdings Ltd. whose
signature appears below hereby appoints Peter W. Norledge and John Riddick, and
each of them severally, as his attorney-in-fact to sign his name and on his
behalf, in any and all amendments, including pre-effective and post-effective
amendments to registration statement No. 33-93358, making such changes in this
registration statement as appropriate, and generally doing all such things on
their behalf in their capacities as officers and directors to enable Terra Nova
(Bermuda) Holdings Ltd. to comply with the provisions of the Securities Act of
1933, and all requirements of the Securities and Exchange Commission.
/s/ Mark J. Byrne
_____________________________ Director
Mark J. Byrne
/s/ Nigel H.J. Rogers
_____________________________ Director
Nigel H.J. Rogers
/s/ William J. Wedlake
_____________________________ Chief Financial Officer
William J. Wedlake (principal financial officer and
accounting officer)
London, 24th April 1997
<PAGE>
POWER OF ATTORNEY
-----------------
Each of the officers and directors of Terra Nova (Bermuda) Holdings Ltd. whose
signature appears below hereby appoints Peter W. Norledge and John Riddick, and
each of them severally, as his attorney-in-fact to sign his name and on his
behalf, in any and all amendments, including pre-effective and post-effective
amendments to registration statement No. 33-93358, making such changes in this
registration statement as appropriate, and generally doing all such things on
their behalf in their capacities as officers and directors to enable Terra Nova
(Bermuda) Holdings Ltd. to comply with the provisions of the Securities Act of
1933, and all requirements of the Securities and Exchange Commission.
/s/ John J. Dwyer
_____________________________ Director
John J. Dwyer
/s/ Nigel H.J. Rogers
_____________________________ Director
Nigel H.J. Rogers
/s/ William J. Wedlake
_____________________________ Director and Chief Financial Officer
William J. Wedlake (principal financial officer and
accounting officer)
London, 24th April 1997
