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0000912057-02-039446.txt : 20021023
0000912057-02-039446.hdr.sgml : 20021023
20021023081130
ACCESSION NUMBER: 0000912057-02-039446
CONFORMED SUBMISSION TYPE: S-1/A
PUBLIC DOCUMENT COUNT: 13
FILED AS OF DATE: 20021023
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PLATINUM UNDERWRITERS FINANCE INC
CENTRAL INDEX KEY: 0001183236
IRS NUMBER: 810566888
STATE OF INCORPORATION: DE
FILING VALUES:
FORM TYPE: S-1/A
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-99019-01
FILM NUMBER: 02795526
BUSINESS ADDRESS:
STREET 1: 195 BROADWAY, 25TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10007
BUSINESS PHONE: 2122389288
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PLATINUM UNDERWRITERS HOLDINGS LTD
CENTRAL INDEX KEY: 0001171500
STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311]
IRS NUMBER: 000000000
STATE OF INCORPORATION: D0
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: S-1/A
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-99019
FILM NUMBER: 02795525
BUSINESS ADDRESS:
STREET 1: 2 CHURCH STREET
CITY: BERMUDA
STATE: D0
ZIP: HM 11
BUSINESS PHONE: 4412951422
MAIL ADDRESS:
STREET 1: 2 CHURCH STREET
CITY: BERMUDA
STATE: D0
ZIP: HM 11
S-1/A
1
a2089403zs-1a.htm
FORM S-1/A
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As filed with the Securities and Exchange Commission on October 23, 2002
Registration Nos. 333-99019
333-99019-01
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PLATINUM UNDERWRITERS HOLDINGS, LTD. |
|
PLATINUM UNDERWRITERS FINANCE, INC. |
(Exact name of registrants as specified in their charters) |
Bermuda
(State or other jurisdiction of
incorporation or organization) |
|
Delaware
(State or other jurisdiction
of incorporation or organization) |
6719
(Primary standard industrial classification code number) |
|
6719
(Primary standard industrial classification code number) |
Not Applicable
(I.R.S. employer identification number) |
|
81-0566888
(I.R.S. employer identification number) |
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
(441) 295-5950 |
|
195 Broadway
28th Floor
New York, New York 10007
(212) 238-9200 |
(Addresses, including zip code, and telephone numbers, including area code, of registrants' principal executive offices)
CT Corporation System
1633 Broadway, 30th Floor
New York, New York 10019
(800) 624-0909
(Name, address, including zip code, and telephone number, including area code, of registrants' agent for service)
Copies to:
Donald R. Crawshaw, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000 |
|
Lois Herzeca, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8000 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, check the following box. / /
The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the
registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Subject to Completion. Dated October 23, 2002.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
5,000,000 Units
Platinum Underwriters Holdings, Ltd.
Equity Security Units
This is an offering of equity security units of Platinum Underwriters Holdings, Ltd. Each equity security unit has a stated amount of $25 and will
initially consist of (a) a contract pursuant to which you agree to purchase, for $25, Common Shares of Platinum Holdings on ,
2005 and (b) a 1/40, or 2.5%, ownership
interest in a senior note of its subsidiary, Platinum Underwriters Finance, Inc., with a principal amount of $1,000. The ownership interest in the senior note will initially be held as a
component of your unit and be pledged to secure your obligation to purchase Common Shares of Platinum Holdings under the related purchase contract. The senior notes will be guaranteed by Platinum
Holdings on a senior, unsecured basis.
Platinum
Holdings will make quarterly contract adjustment payments to you under the purchase contract at the annual rate of % of the stated amount of $25 per purchase
contract. In addition, Platinum Finance will make quarterly interest payments on the senior notes at the initial annual rate of %. Platinum Holdings has the right to defer the contract
adjustment
payments on the purchase contracts, but Platinum Finance does not have the right to defer the interest payments on the senior notes. The interest rate on the senior notes will be reset, and the senior
notes remarketed. The senior notes are unsecured and rank equally with all of Platinum Finance's other unsecured senior indebtedness. The units will be sold initially by the underwriters in a minimum
number of 40 units.
Prior
to this offering and the concurrent initial public offering of Common Shares of Platinum Holdings, there has been no public market for the units or Platinum Holdings' Common
Shares.
In
addition to offering these units, Platinum Holdings is concurrently offering 30,040,000 of its Common Shares, plus up to an additional 4,506,000 Common Shares if the underwriters for
that offering exercise their option to purchase additional Common Shares. The completion of this offering of equity security units is subject to the completion of the initial public offering of Common
Shares of Platinum Holdings.
The
normal units and the Common Shares that will be issued in the concurrent initial public offering have been approved for listing on the New York Stock Exchange, subject to notice of
issuance, under the symbols "PTP Pr M" and "PTP", respectively.
Immediately
after this offering, public shareholders, The St. Paul Companies, Inc. and RenaissanceRe Holdings Ltd. will own 75.1%, 15.0% and 9.9% of the outstanding Common Shares,
respectively, assuming no exercise by the underwriters, St. Paul or RenaissanceRe of their options to purchase additional Common Shares in connection with the concurrent initial public
offering.
See "Risk Factors" beginning on page 31 to read about certain factors you should consider before buying units.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
|
|
Per Unit
|
|
Total
|
Initial public offering price |
|
$ |
|
|
$ |
|
Underwriting discount |
|
$ |
|
|
$ |
|
Proceeds, before expenses, to Platinum Finance |
|
$ |
|
|
$ |
|
The
initial public offering price set forth above does not include accumulated contract adjustment payments and accrued interest, if any. Contract adjustment payments on the purchase
contracts and interest on the senior notes will accrue from the date of original issuance of the units, expected to
be , 2002.
To
the extent that the underwriters sell more than 5,000,000 units, the underwriters have the option to purchase, not later than 13 days after the initial issuance of the units,
up to an additional 750,000 units from Platinum Holdings at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the units against payment in New York, New York
on , 2002.
Goldman, Sachs & Co. |
|
Merrill Lynch & Co. |
|
Salomon Smith Barney |
Banc of America Securities LLC |
|
|
|
|
|
|
|
Credit Suisse First Boston |
|
|
|
|
|
|
|
|
|
JPMorgan |
Prospectus dated , 2002.
PROSPECTUS SUMMARY
Platinum Underwriters Holdings, Ltd. is a newly formed company that will conduct its business through three operating subsidiaries,
Platinum Underwriters Reinsurance, Inc. ("Platinum US"), Platinum Re (UK) Limited ("Platinum UK") and Platinum Underwriters Bermuda, Ltd. ("Platinum Bermuda"). Platinum UK and Platinum
Bermuda are newly formed companies, while Platinum US has been in existence since 1995 and is an inactive, wholly owned subsidiary of The St. Paul Companies, Inc. Platinum UK is, and upon
completion of this offering, Platinum US will be, owned through Platinum Regency Holdings ("Platinum Ireland"), a newly formed and wholly owned intermediate Irish holding subsidiary of Platinum
Underwriters Holdings, Ltd. Platinum US will be owned directly by Platinum Underwriters Finance, Inc. ("Platinum Finance"), a newly formed Delaware corporation, which, upon completion of this
offering, will be a wholly owned subsidiary of Platinum Ireland.
The "Company", "Platinum", "we", "us" and "our" refer to Platinum Underwriters Holdings, Ltd.'s consolidated operations, including Platinum US, unless the
context otherwise indicates. "Platinum Holdings" refers solely to Platinum Underwriters Holdings, Ltd. Concurrent with the completion of this offering, St. Paul will contribute to Platinum
between $121 million and $126 million in cash, which we refer to as the "Cash Contribution." The St. Paul Companies and its subsidiaries will also contribute to Platinum substantially
all of their continuing reinsurance business and related assets, including all of the outstanding capital stock of Platinum US, referred to herein as the "Transferred Business," having a net tangible
book value of approximately $11 million as of June 30, 2002 (after reflecting a dividend of $15 million to be paid, prior to the completion of the Equity Public Offering, to
United States Fidelity and Guaranty Company, the current parent of Platinum US). Reinsurance is an arrangement in which a reinsurance company indemnifies an insurer or other reinsurer, which is
referred to as a "ceding company" or "cedent", against all or a portion of the insurance or reinsurance risks underwritten by the ceding company under one or more policies. "St. Paul" refers to The
St. Paul Companies, Inc., which is sponsoring our formation, and, unless the context otherwise requires, its subsidiaries. "St. Paul Re" refers to the reinsurance segment of St. Paul prior to
this offering, which includes the continuing business and related assets being transferred to Platinum upon completion of this offering as well as the reinsurance business that will remain with St.
Paul after this offering and not be renewed and will thereafter expire when claims are ultimately resolved, which is referred to as the "run-off."
We intend to commence our property and casualty reinsurance business operations, whereby we indemnify insurers and other reinsurers against all or a portion of
their insurance or reinsurance risks for property loss and related damage and negligence resulting in bodily injury or property damage, upon completion of this offering of equity security units, which
we refer to as the "ESU Offering."
Concurrently with this offering, we will offer 30,040,000 Common Shares by means of a separate prospectus, plus up to an additional 4,506,000 Common Shares if the underwriters' option to purchase
additional Common Shares is exercised in full. We refer to this offering as the "Equity Public Offering." The closing of each offering is conditioned on the concurrent closing of the other offering.
Concurrently with the completion of the Equity Public Offering, St. Paul will make the Cash Contribution and contribute the Transferred
Business to us in exchange for our issuance to St. Paul, on a private placement basis, of 6,000,000 Common Shares and a ten-year option, referred to as the "St. Paul Option", which will entitle
St. Paul to buy from us up to 6,000,000 additional Common Shares at a price per share equal to 120% of the initial public offering price. St. Paul will own 15.0% of Platinum Holdings' outstanding
Common Shares following the Equity Public Offering, the St. Paul Investment and the RenaissanceRe Investment (each as defined below), which Common Shares will be limited to 9.9% of the voting power of
the outstanding Common Shares. If the underwriters exercise their option to purchase additional Common Shares in the Equity Public Offering, St. Paul
1
has the option to purchase, at a price per share equal to the initial public offering price, less the underwriting discount, as many additional Common Shares as are required in order for it to retain
its 15.0% interest (a maximum of 900,000 additional Common Shares). In this prospectus, we refer to our issuance to St. Paul of the 15.0% interest in our Common Shares and the St. Paul Option
in exchange for the Cash Contribution and the Transferred Business as the "St. Paul Investment."
Also, concurrently with the completion of the Equity Public Offering, RenaissanceRe Holdings Ltd. (including its subsidiaries, unless the
context otherwise requires "RenaissanceRe"), a Bermuda company that provides reinsurance and insurance coverage, will purchase from us in a private placement, at a price per share equal to the initial
public offering price, less the underwriting discount, 3,960,000 Common Shares, or 9.9% of the Common Shares outstanding upon completion of the Equity Public Offering, the St. Paul Investment and the
RenaissanceRe Investment (as defined below). If the underwriters exercise their option to purchase additional Common Shares in the Equity Public Offering, RenaissanceRe has the option to purchase, at
a price per share equal to the initial public offering price, less the underwriting discount, as many additional Common Shares as are required in order for it to retain its 9.9% interest (a maximum of
594,000 Common Shares). As additional consideration, RenaissanceRe will receive a ten-year option, referred to as the "RenaissanceRe Option", to purchase up to an additional 2,500,000 Common Shares at
a price per share equal to 120% of the initial public offering price. In this prospectus, we refer to this private placement as the "RenaissanceRe Investment." The closing of this private placement to
RenaissanceRe is conditioned on the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment.
We will have a total capitalization of between approximately $955 million (assuming an initial public offering price of $22.00 per Common Share, a Cash
Contribution of $121 million and no exercise of the underwriters', St. Paul's or RenaissanceRe's options to purchase additional Common Shares or the underwriters' option to purchase additional
equity security units) and approximately $1,142 million (assuming an initial public offering price of $23.00 per Common Share, a Cash Contribution of $126 million and full exercise of
the underwriters', St. Paul's and RenaissanceRe's options to purchase additional Common Shares in connection with the Equity Public Offering and the
underwriters' option to purchase additional equity security units), upon completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment. The
determination of the amount of the Cash Contribution will be made when the terms of the Equity Public Offering are finally determined. The pro forma net tangible book value per Common Share following
the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment will be $21.24 per share based on an assumed initial public offering price of $22.50 per Common
Share (the mid-point of the range at which Platinum Holdings proposes to offer the Common Shares) and a Cash Contribution of $123 million (the mid-point of the $121 million to
$126 million range of the Cash Contribution), assuming no exercise of the underwriters' options to purchase additional Common Shares or the underwriters' option to purchase additional equity
security units and without giving effect to the settlement of the purchase contracts included in the equity security units.
In this prospectus, amounts are expressed in U.S. dollars and the financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP"), except as otherwise indicated.
2
The Company
General
Our objective is to provide property and casualty reinsurance coverages to a diverse clientele of insurers and select reinsurers on a worldwide basis. We will
operate principally by using reinsurance brokers to market our products and principally as a lead reinsurer on treaty reinsurance business. In treaty reinsurance, a reinsurer accepts a specified
portion of a category of risks insured by a ceding insurer or reinsurer. A substantial majority of our business will be written as excess-of-loss reinsurance, which indemnifies the reinsured against
all or a specified portion of loss above a specified amount. We intend to organize our worldwide reinsurance business around three operating segments:
-
- Global Property and Marine. The Global Property and Marine operating segment will include principally
property reinsurance coverages and marine reinsurance coverages. Marine reinsurance coverages include all types of marine vessels and related warehouses and liabilities. We intend to focus our
underwriting activities primarily on catastrophe excess-of-loss and per risk excess-of-loss contracts. Catastrophes are events such as hurricanes and earthquakes that produce
pre-tax losses before reinsurance which, in our definition, are in excess of $10 million to us or $1 billion to the
insurance industry, and per risk excess-of-loss contracts cover losses in excess of a specified level on a single risk, rather than aggregate losses for all covered risks. We intend to write other
types of property reinsurance as well, including selected property proportional reinsurance, where we will share a proportional part of the original premiums and losses of the reinsured. This segment
generated $315 million, or 22.8%, of Platinum's 2001 pro forma net premiums written, which are gross written premiums less premiums ceded to reinsurers.
-
- Global Casualty. The Global Casualty operating segment will include principally general and automobile
liability, professional liability, workers' compensation, accident and health coverages and casualty clash (casualty clash covers losses arising from a single set of circumstances covered by more than
one cedent's insurance policy or multiple claimants on one policy). We intend to focus our underwriting activities primarily on excess-of-loss reinsurance coverages. This segment generated
$592 million, or 42.8%, of Platinum's 2001 pro forma net premiums written.
-
- Finite Risk. The Finite Risk operating segment, which writes policies under which our aggregate risk and
return are generally capped at a finite amount, will include principally non-traditional reinsurance treaties, including multi-year excess-of-loss (in which the cedent funds the agreed
level of loss activity over a multi-year period, and the reinsurer charges an additional amount to provide a profit margin and to cover its costs and the risk that losses are worse than the agreed
level), aggregate stop loss (which provides protection from losses arising from a wide range of circumstances in excess of an aggregate specified level), finite quota share (in which the reinsurer's
losses and profit potential are capped at specified amounts), loss portfolio transfer (which typically transfers to the reinsurer all liabilities for incurred losses, subject to an aggregate loss
limit specified in the contract), and adverse loss development contracts (which typically provide reinsurance coverage for losses in excess of the carried loss reserves of the ceding company at the
transaction date). We intend to provide clients, either directly or through brokers, with customized solutions for their risk management and other financial management needs. We intend to focus our
finite risk underwriting activities primarily on multi-year excess-of-loss and aggregate stop loss reinsurance treaties. Coverage classes within these products will primarily include property,
casualty and marine exposures. This segment generated $475 million, or 34.4%, of Platinum's 2001 pro forma net premiums written.
3
In
addition, we may write other property and casualty reinsurance on an opportunistic basis. For a discussion of the basis on which pro forma net premiums written were determined, see
"Selected Pro Forma Financial Information and Operating Data" below.
Background and the Transferred Business
St. Paul and its subsidiaries constitute one of the oldest insurance organizations in the United States, dating back to 1853. Through its division St. Paul Re,
St. Paul has been engaged in the
reinsurance business since 1983. In December of 2001, in an effort to enhance the profitability of its reinsurance business, St. Paul decided to narrow the product focus of its reinsurance operations
and to exit certain lines of that business. As part of this effort, St. Paul Re reduced its anticipated 2002 exposure and expenses by exiting unprofitable lines of business and reducing the number of
reinsurance branch offices outside the United States. The narrowing of reinsurance product lines included exiting aviation, bond and credit reinsurance coverages, as well as certain financial risk and
capital markets lines. International branch office closings included Munich, Brussels, Hong Kong, Sydney and Singapore. In addition to curtailing various reinsurance operations, St. Paul's management
decided that its reinsurance business and its primary insurance business should ideally operate as separate entities because of their different risk profiles and business characteristics.
Accordingly,
St. Paul determined to sponsor the formation of Platinum Holdings and its subsidiaries. Contingent upon the completion of the Equity Public Offering, St. Paul will
contribute to us the Cash Contribution and the Transferred Business through the arrangements described below:
-
- Cash Contribution. At the completion of the Equity Public Offering, St. Paul
will make the Cash Contribution in the amount of between $121 million and $126 million. The determination of the amount of the Cash Contribution will be made when the terms of the Equity
Public Offering are finally determined. An assumed Cash Contribution of $123 million will result in a pro forma net tangible book value per Common Share of $21.24 following the Equity Public
Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment based on an assumed initial public offering price of $22.50 per Common Share (the midpoint of the range at
which Platinum Holdings proposes to offer the Common Shares) and assuming no exercise of the underwriters', St. Paul's or RenaissanceRe's options to purchase additional Common Shares in connection
with the Equity Public Offering or the underwriters' option to purchase additional equity security units. Cash Contributions of $121 million and $126 million will result in net tangible
book values of $20.76 and $21.71 per Common Share, respectively, assuming an initial public offering price of $22.00 and $23.00, respectively, and no exercise of the underwriters' options to purchase
additional Common Shares or additional equity security units and without giving effect to the settlement of the purchase contracts included in the equity security units.
-
- Renewal Opportunities and Commitments. We will be acquiring from St. Paul Re its existing customer lists and
the right to seek to renew substantially all of St. Paul Re's continuing reinsurance contracts. We also will assume commitments, if any, of St. Paul Re to offer reinsurance coverages in the
future.
-
- Assumed Reinsurance Contracts. Through 100% quota share retrocession agreements (the
"Quota Share Retrocession Agreements"), we will reinsure substantially all of the reinsurance contracts entered into by St. Paul Re on or after January 1, 2002, which we refer to as the
"Assumed Reinsurance Contracts". St. Paul Re will retain all of its reinsurance exposure not being transferred to us and will administer the associated run-off. Consequently, we will not
assume any underwriting exposure with respect to reinsurance contracts entered into by
4
St. Paul prior to January 1, 2002, except as noted below with respect to finite reinsurance. St. Paul will also retain all liabilities relating to the flooding in Europe in
August 2002 and an intermediate layer of liability for named storms (which are any tropical cyclones assigned a name by the National Hurricane Center) in existence at the time of completion of the
Equity Public Offering which cause insured damage within ten days of such time, as described herein. We will receive as consideration cash and other assets in an amount equal to the aggregate of all
applicable loss reserves (excluding reserves relating to liabilities retained by St. Paul), allocated loss adjustment expense reserves (which are reserves relating to the expense incurred in
settling claims), other reserves related to non-traditional reinsurance treaties, ceding commission reserves (which are reserves relating to commissions payable to ceding insurers) and unearned
premium reserves (which are reserves equal to the difference between premiums written and premiums earned) subject to agreed upon adjustments, net of ceding commissions under the Quota Share
Retrocession Agreements as of the transfer date (which is 12:01 a.m. on the day immediately following the date of the completion of the Equity Public Offering). Underwriting gain or loss with
respect to the Assumed Reinsurance Contracts for the period from January 1, 2002 to the transfer date will be retained by St. Paul.
-
- The
terms of the Quota Share Retrocession Agreements provide, with limited exceptions, that retrocessional reinsurance, which is reinsurance obtained by a
reinsurer to insure against all or a portion of its reinsurance written, purchased by St. Paul Re shall be for our expense and shall inure to our benefit in respect of the Assumed Reinsurance
Contracts, providing us with remaining retrocessional reinsurance coverage for such contracts through 2002 or the earlier termination or expiration of the various retrocession agreements. We will bear
all the risk associated with non-payment by third-party retrocessionaires under such retrocessional reinsurance. All the Quota Share Retrocession Agreements will take effect as of 12:01 a.m. on
the day immediately following the date of the completion of the Equity Public Offering. Accordingly, while St. Paul will be contractually committed to effect the transfer, the effective time of
the transfer of the Assumed Reinsurance Contracts will occur after the sale to investors of Common Shares in the Equity Public Offering.
-
- In
the case of business written in the United States and the United Kingdom, we will have the right to underwrite specified reinsurance business on behalf of
St. Paul for a period of one year following the completion of the Equity Public Offering in cases where we are unable to underwrite that business ourselves because, despite using our reasonable best
efforts, we have not obtained the necessary regulatory license or approval to do so or we have not yet been approved as a reinsurer by the cedent, and we will reinsure such business pursuant to the
Quota Share Retrocession Agreements or, following receipt by Platinum UK of a license from the Financial Services Authority (the "FSA"), may reinsure all or a part of such business pursuant to a quota
share retrocession agreement to be entered into between Platinum UK and St. Paul Re UK. This will allow us to participate in reinsurance business which is bound after the completion of the Equity
Public Offering without any delay occasioned by the start-up of our operations, including the lack of required licenses, and facilitate the transition of St. Paul Re's business to us.
-
- For
a period of three years following the completion of the Equity Public Offering, we will underwrite on behalf of St. Paul, with the consent of St. Paul,
renewals of in-force contracts of finite reinsurance. St. Paul will retrocede to us 100% of the unpaid and future losses under currently in-force contracts, and we will have the option to reinsure
losses under certain renewed contracts and will be required to offer to reinsure losses
5
under
other renewed contracts, for a fair market retrocession premium pursuant to the Quota Share Retrocession Agreements. Under the Quota Share Retrocession Agreements, a portion of future premiums
will be applied to settle balances related to prior year experience for the benefit of St. Paul. St. Paul will have an option to renew this arrangement with us for a subsequent period of two
years. In the United Kingdom, this arrangement will be limited to finite treaties which St. Paul Re has entered into with a small number of identified cedents and any further finite
treaties which may be entered into on behalf of St. Paul Re UK prior to the first anniversary of the completion of the Equity Public Offering.
-
- Related Assets. We will be acquiring from St. Paul tangible and intangible assets
relating to the continuing businesses being transferred to us, including furniture and equipment, systems and software, assignments of leases, licenses and other assets, as well as all of the
outstanding capital stock of Platinum US.
-
- Employees. Upon or following the completion of the Equity Public Offering, we expect
to employ approximately 150 employees previously employed by St. Paul Re.
St.
Paul has agreed with us that, subject to certain exceptions, for a period of two years following the completion of the Equity Public Offering, it will not offer reinsurance of the
type covered by the Assumed Reinsurance Contracts and for which we have acquired renewal rights or hire certain of our employees.
For
a discussion of the share ownership interests St. Paul will obtain for its contribution of the Transferred Business, see "St. Paul's Share Ownership"
below.
Our Organization
The following chart summarizes our corporate structure upon completion of the transactions contemplated by this prospectus. Our operating business will be
conducted by Platinum US, Platinum UK and Platinum Bermuda. Platinum Bermuda expects to reinsure up to approximately 70% of Platinum US's reinsurance business, excluding business subject to the Quota
Share Retrocession Agreements, written after the completion of the Equity Public Offering, and we are seeking consent from the FSA for Platinum Bermuda to reinsure up to approximately 55% of Platinum
UK's reinsurance business, excluding business subject to the Quota Share Retrocession Agreements, written after the Equity Public Offering; however, such consent may not be granted. St. Paul
will continue to write reinsurance in the United Kingdom and reinsure it 100% to us for up to one year following the completion of the Equity Public Offering. For a discussion of potential future
limits on the portion of the reinsurance written by Platinum UK after the completion of the Equity
Public Offering which can be reinsured to Platinum Bermuda, see "BusinessOur BusinessRegulationU.K. RegulationProposed Limits on Concentration of
Reinsurance Exposures."
6
Management and Directors
We have assembled a senior management team of experienced insurance industry professionals, whose backgrounds include underwriting and marketing property and
casualty reinsurance worldwide. Steven H. Newman, who is the Chairman of Platinum Holdings' Board of Directors, Jerome T. Fadden, who is Platinum Holdings' President and Chief Executive Officer,
William A. Robbie, who is Chief Financial Officer of Platinum Holdings, Michael E. Lombardozzi, who is General Counsel of Platinum Holdings, Michael D. Price, who will be President and Chief
Underwriting Officer of Platinum US, and Neal J. Schmidt, who will be Chief Actuary of Platinum US, in each case upon completion of the Equity Public Offering, have extensive experience in the global
property and casualty reinsurance industry. The new senior management team intends to initiate a number of actions to improve the underwriting performance and profitability of the Company. These
actions are described more fully under "Platinum's Strategy" below.
Our
Board of Directors consists of seven members: Mr. Newman; Mr. Fadden; Jay S. Fishman, Chairman of the Board of Directors and Chief Executive Officer of The St. Paul
Companies, Inc.; H. Furlong Baldwin, Chairman of Mercantile Bankshares Corporation; Jonathan F. Bank, Senior Vice President of Tawa Associates Ltd.; Dan R. Carmichael, President and
Chief Executive Officer of Ohio Casualty Corporation; and Peter T. Pruitt, retired Chairman of Willis Re Inc.
Our Competitive Strengths
We believe that with our experienced management team, unencumbered capital base and the long-term potential of the business and assets of St. Paul Re
obtained from St. Paul, we will have the benefits of being both an established business and a new market entrant. As a well-capitalized, focused reinsurer, we believe we will be able to
expand our relationships with clients of St. Paul Re as well as new clients to a greater extent than if our operations were part of a multi-line insurer such as St. Paul.
7
We
intend to focus our initial marketing efforts on those brokers and their clients with which St. Paul Re has established business relationships. We feel that the existing
portfolio of business generated by St. Paul Re represents a valuable asset given the renewal nature of the reinsurance industry and the importance of continuity of relationships. We believe that the
market perceptions and reputation established by St. Paul Re with respect to service and responsiveness will benefit us in light of the transfer of personnel and underwriting activities from St. Paul
Re to us.
Platinum's Strategy
Our goal is to achieve superior long-term returns for our shareholders, while establishing Platinum as a conservative risk manager and market leader
in certain classes of property and casualty reinsurance.
-
- Build our future on a strong foundation. We will commence operations with the benefit
of the Transferred Business:
-
- Renewal Rights and Assumed Reinsurance Contracts. Our initial portfolio will contain a diversity of business
that would normally take many years to develop. We will be acquiring St. Paul Re's existing customer lists and the right to seek to renew its continuing in-force reinsurance contracts, which produced
2001 pro forma net premiums written of approximately $1.4 billion.
-
- Fully operational infrastructure. We will select experienced employees from the skilled St. Paul Re employee
base. These employees have broker and ceding company relationships and underwriting pricing and claims experience that will allow us to be fully staffed and operational in key underwriting and support
functions.
-
- Add new executive leadership to existing talent. In order to take full advantage of
the historical strengths of St. Paul Re, we have significantly strengthened our senior management team with the addition of Mr. Newman and Mr. Fadden. Mr. Newman and
Mr. Fadden have extensive experience in leading publicly traded reinsurance companies and intend to implement a number of initiatives to create a more focused and more profitable reinsurance
business.
-
- Focus on profitability, not market share. Our new management team intends to pursue a
strategy that emphasizes underwriting discipline and profitability over market share. Key elements of this strategy will be prudent risk selection, appropriate pricing through strict underwriting
discipline and increasing our writings of lines of business, which we believe will contribute to our long-term profitability.
-
- Exercise disciplined underwriting and risk management. We intend to exercise risk
management discipline by (i) maintaining a diverse spread of risk in our book of business across products and geographic zones, (ii) focusing on excess-of-loss contracts as opposed to
proportional contracts and (iii) reducing our aggregate catastrophe exposure.
-
- Operate a lean and expense-focused underwriting business. We believe a lean underwriting culture will support
our focus on profitability and allow us to be more responsive to changing market conditions. We intend to keep our headcount low and maintain a limited number of offices. In addition, we expect to
originate most of our business from brokers, rather than directly from ceding companies or cedents, which are insurance companies seeking reinsurance coverages, which we believe will keep our expenses
low.
-
- Grow our business by leveraging our global platform. We intend to operate in all
three of the world's leading reinsurance markets with offices in New York, London and Bermuda.
8
Recent Industry Trends
After an extended period of increased competition and eroding premiums, the reinsurance markets began experiencing improvements in rates, terms and conditions in
the first quarter of 2000. These improvements continued in 2001 and were accelerated by the terrorist attack of September 11, 2001, which resulted in a range of estimated property and casualty
insurance losses to the insurance industry of between $30 billion and $35 billion, the largest estimated catastrophe losses ever experienced by the industry. We believe property and
other reinsurance premiums have often risen in the aftermath of significant catastrophe losses. As claims are reserved, industry surplus is depleted and the industry's capacity to write new business
diminishes. At the same time, there appears to be heightened awareness that commercial properties are exposed to a variety of risks. We believe that market trends similar to those that have occurred
in past cycles are developing in the current environment. With respect to January, April and July 2002 renewals, St. Paul Re experienced substantial rate increases, generally ranging from 20%
to 50% depending on the line of business. We believe that the current imbalance between the increased demand for property-related insurance and reinsurance and the reduced supply of this type of
coverage will continue at least for the immediate future.
St. Paul's Share Ownership
St. Paul has determined that the efficiency, profitability and competitive position of its reinsurance operations can be maximized by separating them from St.
Paul's primary insurance operations. Despite the separation of the two businesses, St. Paul will continue to participate in future financial results of the reinsurance business through its ownership
of Common Shares as a result of the St. Paul Investment.
In
return for the Cash Contribution and the Transferred Business, we will issue 6,000,000 Common Shares to St. Paul (so that St. Paul will own 15.0% of our outstanding Common
Shares following the Equity Public Offering, the St. Paul Investment and the RenaissanceRe Investment) and the St. Paul Option. St. Paul's Common Shares will be limited to 9.9% of the voting power of
the outstanding Common Shares. If the underwriters exercise their option to purchase additional
9
Common Shares in the Equity Public Offering, St. Paul will have the option to purchase additional Common Shares at a price per share equal to the initial public offering price less the
underwriting discount in order for it to retain its 15.0% interest. In addition, we will grant St. Paul the St. Paul Option, which is a ten-year option to purchase up to 6,000,000 Common Shares
at 120% of the initial public offering price for the Equity Public Offering. Exercise of such option by St. Paul in full immediately after completion of the Equity Public Offering, the St. Paul
Investment and the RenaissanceRe Investment would increase its percentage interest in our Common Shares to approximately 26.1%, assuming no exercise of the underwriters', St. Paul's or
RenaissanceRe's options to purchase additional Common Shares in connection with the Equity Public Offering or of the RenaissanceRe Option. However, St. Paul has agreed with us that, prior to any
exercise of the St. Paul Option, it will, if necessary, dispose of a sufficient number of Common Shares so that, immediately after exercise of the St. Paul Option, St. Paul would not be a "United
States 25%
Shareholder" as defined under "Description of Platinum Holdings' Common SharesRestrictions on Transfers." St. Paul has informed us that it currently intends to continue its share
ownership in Platinum Holdings for the foreseeable future.
RenaissanceRe's Share Ownership and Business Arrangements
In connection with the RenaissanceRe Investment, we will issue to RenaissanceRe 3,960,000 Common Shares (so that RenaissanceRe will own 9.9% of our outstanding
Common Shares following the Equity Public Offering, the St. Paul Investment and the RenaissanceRe Investment) and the RenaissanceRe Option. If the underwriters exercise their option to purchase
additional Common Shares in the Equity Public Offering, RenaissanceRe will have the option to purchase additional Common Shares at a price per share equal to the initial public offering price less the
underwriting discount, in order for it to retain its 9.9% interest. In addition, we will grant RenaissanceRe the RenaissanceRe Option, which is a ten-year option to purchase up to 2,500,000 Common
Shares at 120% of the initial public offering price of the Equity Public Offering. Exercise of such option by RenaissanceRe in full immediately after completion of the Equity Public Offering, the St.
Paul Investment and the RenaissanceRe Investment would increase its percentage interest in Platinum Holdings' Common Shares to approximately 15.2%, assuming no exercise of the underwriters', St.
Paul's or RenaissanceRe's options to purchase additional Common Shares in connection with the Equity Public Offering or of the St. Paul Option. RenaissanceRe has agreed with us that, prior to any
exercise of the RenaissanceRe Option, it will, if necessary, dispose of a sufficient number of Common Shares so that, immediately after exercise of the RenaissanceRe Option, RenaissanceRe would not
beneficially own more than 19.9% of our outstanding voting securities (or up to 24.9% with our approval). See "Description of Platinum Holdings' Common SharesRestrictions on Transfers."
RenaissanceRe has informed us that it currently intends to continue its share ownership in Platinum Holdings for the foreseeable future.
We
have entered into an investment agreement with St. Paul and RenaissanceRe, which provides RenaissanceRe with, among other things, the right to nominate one director to our Board of
Directors and, in addition, to designate a non-voting representative to attend our Board of Directors meetings, subject to certain conditions.
We
also will enter into an agreement, which we refer to as the "Services and Capacity Reservation Agreement" in this prospectus, with RenaissanceRe, pursuant to which in exchange for
certain payments by us to RenaissanceRe, RenaissanceRe will provide services to us in connection with the reviewing and repositioning of our property catastrophe book of business for a period of five
years. These services will include assisting us in measuring risk and managing our aggregate catastrophe exposures. In addition, we expect that we and RenaissanceRe may refer business to each other,
to be accepted in the discretion of the party receiving the referral, and that compensation will be paid for referral business at negotiated rates.
RenaissanceRe
is a Bermuda company principally engaged, through its operating subsidiaries, in providing reinsurance and insurance coverage that is subject to the risk of natural and
man-made
catastrophes. For a further discussion of our relationship with RenaissanceRe, see "Certain Relationships and Related TransactionsThe RenaissanceRe Investment."
Principal Executive Offices
Platinum Holdings was organized on April 19, 2002 as a company limited by shares under Bermuda law. Platinum Holdings' principal executive offices are
located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. Its telephone number is (441) 295-5950.
10
The ESU Offering
What are the equity security units?
Each equity security unit, which we refer to as a "unit", will initially consist of and represent:
-
- you
will agree to purchase, and Platinum Holdings will agree to sell, for $25, Common Shares on ,
2005 (the "share purchase date"), the number
of which will be determined based on the average trading price of the Common Shares for a period preceding that date, calculated in the manner described below; and
-
- Platinum
Holdings will pay you contract adjustment payments on a quarterly basis at the annual rate of % of the stated amount of $25, subject
to its right to defer such payments, as specified below; and
(2)
a 1/40, or 2.5%, ownership interest in a senior note due , 2007 of Platinum Finance, an indirect, wholly owned subsidiary of Platinum Holdings, with a principal amount
of $1,000, on which Platinum Finance will pay interest at the initial annual rate of % until a successful remarketing of the senior notes and at the reset rate (as described below)
thereafter. Interest will be payable quarterly in arrears through and including the share purchase date and, thereafter, semi-annually in arrears. The senior notes will be guaranteed by
Platinum Holdings on a senior, unsecured basis.
The
ownership interests in the senior notes that are a component of your units will be owned by you, but will initially be pledged to the collateral agent for the benefit of Platinum
Holdings to secure your obligations under the related purchase contracts. We refer in this prospectus to the
purchase contracts, together with the pledged ownership interest in the senior notes (or, after a successful remarketing, a tax event redemption or prepayment in full of the senior notes described
below, the specified pledged treasury securities), as "normal units."
Each
holder of normal units may elect at any time on or before the second business day prior to the share purchase date (subject to certain exceptions) to withdraw from the pledge the
pledged ownership interest in the senior notes (or, after a successful remarketing or tax event redemption described below, the pledged treasury securities) underlying the normal units, thereby
creating "stripped units." To create stripped units, the holder must substitute, as pledged securities, specifically identified treasury securities that will pay $25 (the amount due under the purchase
contract) per unit on the share purchase date, and the pledged ownership interest in the senior notes or treasury securities will be released from the pledge and delivered to the holder. Holders of
stripped units may recreate normal units by re-substituting the senior notes (or, after a successful remarketing or a tax event redemption, the applicable treasury securities) for the
treasury securities underlying the stripped units.
If
the senior notes are successfully remarketed or a tax event redemption occurs, in each case as described in this prospectus, the applicable ownership interest in the treasury
securities will replace the ownership interest in a senior note as a component of each unit and will be pledged to the collateral agent for the benefit of Platinum Holdings to secure your obligations
under the purchase contract.
What are the purchase contracts?
The purchase contract underlying a unit obligates you to purchase, and Platinum Holdings to sell, for $25, on the share purchase date, a number of newly issued
Common Shares equal to the settlement rate described below. The settlement rate will be based on the average trading price of the Common Shares for a period preceding that date, calculated in the
manner described below.
11
What payments will be made to holders of the units and the senior notes?
If you hold normal units, Platinum Holdings will pay you quarterly contract adjustment payments on the underlying purchase contracts at the annual rate of
% of the $25 stated amount through and including the share purchase date and Platinum Finance will pay you quarterly interest payments on the ownership interests in senior notes that
are pledged in respect of your normal units at the initial annual rate of % through and including , 2005, the last quarterly payment date before the share
purchase date.
On the share purchase date, you will also receive a cash payment in respect of each of your normal units, equal to 1/40, or 2.5%, of the quarterly interest payment payable on
the $1,000 principal amount of a senior note at the initial annual rate of % unless the senior notes shall have been prepaid in full prior to a successful remarketing.
If
you hold stripped units and do not separately hold senior notes, you will receive only the quarterly contract adjustment payments payable by Platinum Holdings at the annual rate of
% of the $25 stated amount.
The
contract adjustment payments on normal and stripped units are subject to Platinum Holdings' deferral right as described below. Platinum Finance is not entitled to defer interest
payments on any senior notes, whether held as part of, or separately from, the units.
If
you hold senior notes separately from the units and do not separately hold stripped units, you will receive only the interest payable on the senior notes. The senior notes, whether
held separately from or as part of the units, will pay interest at the initial annual rate of % until the settlement date of a successful remarketing, as described below. If the
senior
notes are successfully remarketed, the rate of interest payable from the settlement date of the successful remarketing until their maturity on , 2007 will be the reset rate, which
will
be a rate established by the remarketing agent that meets the requirements described in this prospectus. If the remarketing agent cannot establish a reset rate on a remarketing date, the remarketing
agent will not reset the interest rate on the senior notes and the interest rate will continue to be the initial annual rate of %, until the remarketing agent, on a later remarketing
date prior to the share purchase date, can establish a reset rate meeting the requirements described in this prospectus.
Both
Platinum Finance and Platinum Holdings are holding companies with no operations of their own. Although Platinum Finance will retain a portion of the net proceeds of the offering
sufficient to fund the interest payments due on the senior notes payable on or prior to the share purchase date, the ability of Platinum Finance and Platinum Holdings to pay their respective
obligations under the senior notes and the guarantee otherwise depends on their ability to obtain cash dividends or other cash payments or obtain loans from their subsidiaries, which are separate and
distinct legal entities that will have no obligations to pay any dividends or to lend or advance them funds and which may be restricted from doing so by other financing arrangements, charter
provisions or regulatory requirements. Platinum Finance's and Platinum Holdings' obligations under the senior notes and the guarantee will be effectively subordinated to the debt and other obligations
of their respective subsidiaries. As of June 30, 2002, on a pro forma basis, Platinum Finance's subsidiaries had no liabilities or obligations that would have effectively ranked senior to the
senior notes and Platinum Holdings' subsidiaries had approximately $270 million in liabilities and obligations that would have effectively ranked senior to the guarantees.
What are the payment dates?
Subject to Platinum Holdings' deferral right in respect of the contract adjustment payments described below, contract adjustment payments will be made quarterly
in arrears on each ,
,
and
,
commencing on 2003 and ending on the share purchase date. Interest payments on the senior notes initially will be made
quarterly in arrears on each ,
,
and
, commencing
12
on 2003, and, following the share purchase date, semi-annually in arrears on
each and
until maturity on , 2007.
When can Platinum Holdings and Platinum Finance defer payments?
Platinum Holdings can defer payment of all or part of the contract adjustment payments on the purchase contracts until no later than the share purchase date.
Platinum Holdings will accrue additional contract adjustment payments on any deferred installments of contract adjustment payments at a rate of % per year until paid, compounded
quarterly, to but excluding the share purchase date, unless your purchase contract has been earlier settled or terminated.
Platinum
Finance is not entitled to defer interest payments on the senior notes.
What is the reset rate?
In order to facilitate the remarketing of the senior notes at the remarketing price described below, the remarketing agent will reset the rate of interest on the
senior notes, effective from the settlement date of a successful remarketing until their maturity on , 2007. The reset rate will be the rate sufficient to cause the then current
market
value of each outstanding senior note to be equal to at least 100.25% of the remarketing value described below. Resetting the interest rate on the senior notes at this rate is designed to enable the
remarketing agent to remarket the senior notes in the remarketing and purchase the necessary treasury securities, the proceeds of which will be applied in settlement of the purchase contracts and to
provide funds for the cash payment on the normal units due on the share purchase date.
The
reset rate will be determined by the remarketing agent on the third business day (as defined below) prior to , 2005, the last quarterly payment date before the share
purchase date. If the remarketing agent cannot establish a reset rate meeting these requirements on the remarketing date and, as a result, the senior notes cannot be remarketed as described below, the
interest rate will not be reset and will continue to be the initial rate of the senior notes. However, the remarketing agent may thereafter attempt to establish a reset rate meeting these
requirements, and the remarketing agent may attempt to remarket the senior notes, on the subsequent dates described below. If a reset rate cannot be established on a given date, the remarketing will
not occur on that date. If the remarketing agent fails to remarket the senior notes that form part of normal units by the end of the third business day immediately preceding the share purchase date,
Platinum Holdings will exercise its rights as a secured party with respect to such senior notes and, subject to applicable law, may retain the pledged senior notes or sell them in one or more public
or private
sales to satisfy in full such holder's obligation to purchase Common Shares under the related purchase contracts.
The
reset of the interest rate on the senior notes in connection with a successful remarketing will not change the amount of the cash payment due to holders of normal units on the share
purchase date, which, as described above, will be an amount per normal unit equal to 1/40, or 2.5%, of the quarterly interest payment payable on $1,000 principal amount of a senior note at the initial
annual rate of %.
"Business
day" means any day that is not a Saturday, Sunday or day on which banking institutions and trust companies in the State of New York or in the city where the principal corporate
trust office of the collateral agent is located or at a place of payment are authorized or required by law, regulation or executive order to close. Platinum Holdings has initially appointed State
Street Bank and Trust Company, whose principal corporate trust office is located in Boston, Massachusetts, to act as collateral agent.
The
reset rate may not exceed the maximum rate, if any, permitted by applicable law.
13
What is remarketing?
The remarketing agent will attempt to remarket the senior notes of holders of normal units and will use the proceeds to purchase treasury securities, which the
participating holders of normal units will pledge to secure their obligations under the related purchase contracts. Holders of normal units may elect not to participate in any remarketing by following
the procedures described below. The cash paid upon maturity of the pledged treasury securities underlying the normal units of such holders will be used to satisfy such holders' obligations to purchase
Common Shares on the share purchase date, as well as to provide funds to make the cash payment to holders of normal units due on the share purchase date. This will be one way for holders of normal
units to satisfy their obligations to purchase Common Shares under the related purchase contracts. The remarketing agent will attempt to remarket the senior notes that are included in normal units on
one or more occasions starting on the remarketing date, which will be the third business day prior to , 2005 or, if the remarketing agent fails to remarket the senior notes on
that
date, a later date as described below. As described below, a holder of a senior note in which interests are not held as part of normal units may elect to have the separately held senior note
remarketed along with the senior notes in which interests are held as part of the normal units.
Platinum
Holdings and Platinum Finance will enter into a remarketing agreement with a nationally recognized investment banking firm that will act as remarketing agent. It is currently
anticipated that
Goldman, Sachs & Co. will be the remarketing agent. The remarketing agent will agree to use commercially reasonable best efforts to remarket the senior notes that are included in normal units
(or separately held senior notes) that are participating in the remarketing, at a price per senior note equal to at least 100.25% of the remarketing value. The "remarketing value" of a senior note
will be equal to the sum of:
(1)
the value at the remarketing date (or any subsequent remarketing date) of such amount of treasury securities that will pay, on or prior to the share purchase date, an amount of cash
equal to the interest payment scheduled to be payable on the senior note on that date, assuming for this purpose, even if not true, that the interest rate on the senior notes remains at the initial
rate; and
(2)
the value at the remarketing date (or any subsequent remarketing date) of such amount of treasury securities that will pay, on or prior to the share purchase date, an amount of cash
equal to the principal amount of the senior note.
The
remarketing agent will use the proceeds from a successful remarketing of the senior notes included in normal units to purchase, in its discretion, the amount and the types of
treasury securities described in (1) and (2) above in respect of each such senior note that has been remarketed. The remarketing agent will purchase such treasury securities in open
market transactions or at treasury auction and deliver them through the purchase contract agent to the collateral agent to secure the obligations under the related purchase contracts of the holders of
the normal units whose senior notes participated in the remarketing. The remarketing agent will deduct out of the proceeds in excess of the remarketing value as a remarketing fee an amount not
exceeding 25 basis points (0.25%) of the total proceeds from such remarketing. The remarketing agent will remit the remaining portion of the proceeds, if any, for payment to the holders of the normal
units participating in the remarketing.
A
holder of normal units may elect not to participate in any remarketing and, instead, retain the ownership interests in senior notes underlying those normal units by delivering, in
respect of each senior note to be retained, the treasury securities having the value described in (1) and (2) above, in the amount and the types specified by the remarketing agent, to
the purchase contract agent on the fourth business day prior to the first day of a remarketing period (as defined below) to satisfy its obligations under the related purchase contracts. Whether or not
a holder of normal units
14
participates in the remarketing, the interest rate on the senior notes in which interests are included in those units will nevertheless be reset if the remarketing is successful.
Prior
to any remarketing, Platinum Finance and Platinum Holdings plan to file and obtain effectiveness of a registration statement if so required under the U.S. federal securities law at
the time.
What happens if the remarketing agent does not successfully remarket the senior notes on the remarketing date?
If the remarketing agent cannot establish a reset rate meeting the requirements described above on the remarketing date and therefore cannot remarket the senior
notes participating in the remarketing on the remarketing date at a price per senior note equal to at least 100.25% of the remarketing value, the remarketing agent will attempt to establish a reset
rate meeting these requirements on each of the two business days immediately following the initial proposed remarketing date. If the remarketing agent cannot establish a reset rate meeting these
requirements on either of those days, it will attempt to establish such a reset rate on each of the three business days immediately preceding , 2005. If the remarketing agent
cannot
establish such a reset rate during that period, it will further attempt to establish such a reset rate on the third business day immediately preceding the share purchase date. We refer to each of
these periods as a "remarketing period." Any subsequent remarketing will be at a price per senior note equal to at least 100.25% of the remarketing value on the subsequent remarketing date. If the
remarketing agent fails to remarket the senior notes underlying the normal units at that price by the end of the third business day immediately preceding the share purchase date, any holder of normal
units that has not otherwise settled its purchase contracts in cash on the business day immediately preceding the share purchase date (but without regard to the notice requirements otherwise
applicable to cash settlement) will be deemed to have directed Platinum Holdings to retain the securities pledged as collateral in satisfaction of the holder's obligations under the related purchase
contracts and Platinum Holdings will exercise its rights as a secured party and may, subject to applicable law, retain or dispose of such securities to satisfy in full such holder's obligation to
purchase Platinum Holdings' Common Shares under the related purchase contracts on the share purchase date. In no event will a holder of a purchase contract be liable for any deficiency between such
proceeds and the purchase price for the Common Shares under the purchase contract.
If I am not a party to a purchase contract, may I still participate in a remarketing of my senior notes?
Holders of senior notes in which interests are not included as part of normal units may elect to have their senior notes included in the remarketing in the manner
described in "Description of the Equity Security UnitsOptional Remarketing." The remarketing agent will use commercially reasonable best efforts to remarket the separately held senior
notes included in the remarketing at a price per senior note equal to at least 100.25% of the remarketing value, determined on the same basis as for the other senior notes being remarketed. After
deducting as a remarketing fee an amount not exceeding 25 basis points (0.25%) of the total proceeds from such remarketing, the remaining portion of the proceeds, if any, will be remitted for payment
to the holders whose separate senior notes were remarketed in the remarketing. If a holder of senior notes elects to have its senior notes remarketed during any remarketing period but the remarketing
agent fails to remarket the senior notes during such remarketing period, the senior notes will be promptly returned to the custodial agent for release to the holder at the end of that period.
15
What is the settlement rate?
The settlement rate is the number of newly issued Common Shares that Platinum Holdings is obligated to sell and you are obligated to purchase upon settlement of a
purchase contract on the share purchase date.
The
settlement rate for each purchase contract, subject to adjustment under specified circumstances, will be as follows:
-
- if
the applicable market value, determined as described below, of the Common Shares is equal to or greater than
$ , the
settlement rate will be Common Shares per purchase contract;
-
- if
the applicable market value of the Common Shares is less than
$ but greater than
$ , the
settlement rate will be equal to $25 divided by the applicable market value of the Common Shares per purchase contract; or
-
- if
the applicable market value of the Common Shares is less than or equal to
$ , the settlement rate will
be
Common Shares per purchase contract.
"Applicable
market value" means the average of the closing price per Common Share on each of the 20 consecutive trading days ending on the third trading day immediately preceding the
share purchase date.
At
the option of each holder, a purchase contract may be settled early by the early delivery of cash to the purchase contract agent, as described below, in which case the settlement rate
will be Common Shares per purchase contract.
Besides participating in a remarketing, how else can my obligations under the purchase contract be satisfied?
Besides participating in the remarketing, your obligations under the purchase contract may also be satisfied:
-
- if
you have created stripped units or elected not to participate in the remarketing, by delivering and pledging specified treasury securities in substitution
for your senior notes and applying the cash payments received upon maturity of those pledged treasury securities;
-
- through
the early delivery of cash to the purchase contract agent on or prior to the seventh business day prior to the share purchase date in the manner
described in "Description of the Equity Security UnitsEarly Settlement";
-
- by
delivering cash on the business day prior to the share purchase date for settlement of the purchase contracts in the manner described in "Description of
the Equity Security UnitsNotice to Settle with Cash"; or
-
- if
Platinum Holdings is involved in a merger, acquisition or consolidation prior to the share purchase date in which at least 30% of the consideration for
the Common Shares consists of cash or cash equivalents, through an early settlement of the purchase contract as described in "Description of the Equity Security UnitsEarly Settlement Upon
Cash Merger."
If
a holder of a unit elects not to participate in a remarketing and does not give notice to the purchase contract agent that the holder intends to settle the purchase contract with cash
on the share purchase date, Platinum Holdings will exercise its rights as a secured party in respect of the pledged securities to satisfy the holder's obligation to purchase Common Shares.
In
addition, the purchase contracts, Platinum Holdings' related rights and obligations and those of the holders of the units, including their rights to receive accumulated contract
adjustment payments or deferred contract adjustment payments and obligations to purchase Common Shares,
16
will automatically terminate upon the occurrence of Platinum Holdings' bankruptcy, insolvency or reorganization. Upon such a termination of the purchase contracts, the pledged senior notes or
treasury securities will be released and distributed to you. If Platinum Holdings becomes the subject of a case under the federal bankruptcy code, a delay may occur as a result of the imposition of an
automatic stay under the bankruptcy code and continue until the automatic stay has been lifted. The automatic stay will not be lifted until such time as the bankruptcy judge agrees to lift it and
allows your collateral to be returned to you. Similarly, if Platinum Holdings becomes the subject of winding up proceedings under the Bermuda Companies Act 1981, a delay may result from the automatic
stay of proceedings against Platinum Holdings and may continue until the court decides to lift the stay.
If
the purchase contract is settled early or is terminated as the result of Platinum Holdings' bankruptcy, insolvency or reorganization as described above, a holder will have no further
right to receive any accrued contract adjustment payments or deferred contract adjustment payments.
Under what circumstances may Platinum Finance redeem the senior notes before they mature?
If the tax laws change or are interpreted by the tax authorities or the courts in a way that adversely affects our tax consequences with respect to the senior
notes, then Platinum Finance may elect to redeem the senior notes. If the senior notes are redeemed before a successful remarketing, the money received from the redemption will be used by the
collateral agent to purchase a portfolio of zero-coupon U.S. treasury securities that mature on or prior to each payment date of the senior notes through the share purchase date, in an
aggregate amount equal to the principal on the senior notes included in normal units and the interest that would have been due on such payment date on the senior notes included in normal units. For a
holder of normal units, these treasury securities will replace the senior notes as the collateral securing such holder's obligations to purchase Common Shares under the purchase contracts. If your
senior notes are not components of normal units, you, rather than the collateral agent, will receive the related redemption payment. If the senior notes are redeemed, then each unit will consist of a
purchase contract for Common Shares and an ownership interest in the portfolio of treasury securities.
What is the maturity of the senior notes?
The senior notes will mature on , 2007.
What is the extent of Platinum Holdings' guarantee?
Platinum Holdings will irrevocably guarantee the payment in full of the following:
-
- interest
payments that are required to be paid on the senior notes; and
-
- the
principal amount of the senior notes.
The
guarantee will be unsecured and rank equally in right of payment to all other senior unsecured debt of Platinum Holdings. Under "What payments will be made to holders of the units
and the
senior notes?" we explain the extent to which Platinum Holdings' obligations under the guarantee will be effectively junior to the debt and other obligations of its subsidiaries.
The
senior notes and the guarantee do not limit Platinum Holdings' or Platinum Finance's ability or the ability of their respective subsidiaries to incur indebtedness. This would include
indebtedness that ranks equally with the senior notes and the guarantee.
What are the U.S. federal income tax consequences related to the units and senior notes?
If you purchase units in the ESU Offering, you will be treated for U.S. federal income tax purposes as having acquired purchase contracts and ownership interests
in the senior notes
17
constituting those units, and by purchasing the units you agree to treat the purchase contracts and ownership interests in the senior notes in that manner for all tax purposes. In addition, you agree
to treat the senior notes as indebtedness of Platinum Finance for all tax purposes. You must allocate the purchase price of the units between purchase contracts and ownership interests in the senior
notes in proportion to their respective fair market values, which will establish your initial tax basis in each component of the units. Platinum Holdings and Platinum Finance expect to report the fair
market value of each purchase contract as $0.00 and the fair market value of each senior note as $1,000 (or $25 for each 2.5% ownership interest in a senior note included in a normal unit).
For
U.S. federal income tax purposes, we intend to treat the senior notes as contingent payment debt instruments subject to the "noncontingent bond method" of accruing original issue
discount. As discussed more fully under "U.S. Federal Income Tax ConsequencesSenior NotesOriginal Issue Discount", the effects of this method will be (1) to require
you, regardless of your usual method of tax accounting, to use an accrual method with respect to interest on the senior notes, (2) to require you, for all accrual periods through
, 2005, and possibly thereafter, to accrue interest income in excess of distributions actually received by you, and (3) generally to result in ordinary rather than capital
treatment of any gain or loss on the sale, exchange or disposition of an ownership interest in the senior notes or the units to the extent attributable to the senior notes.
Because
there is no statutory, judicial or administrative authority directly addressing the tax treatment of units or instruments similar to units, you are urged to consult your own tax
advisor concerning the tax consequences of an investment in units. For additional information, see "U.S. Federal Income Tax Consequences."
What are the ERISA considerations?
Plans subject to Title I of the U.S. Employee Retirement Income Security Act of 1974 ("ERISA") or Section 4975 of the Internal Revenue Code of 1986, as
amended, may invest in the equity units subject to the considerations set forth in "ERISA Considerations."
Will the units be listed on a stock exchange?
The normal units have been approved for listing, subject to notice of issuance, on the New York Stock Exchange under the symbol "PTP Pr M". We have no obligation
and do not currently intend to apply for any separate listing of either the stripped units or the senior notes on any stock exchange.
What are the expected uses of proceeds from the offerings?
We estimate that Platinum Finance will receive net proceeds from the ESU Offering of approximately $120 million, or $138 million if the
underwriters' option to purchase additional units is exercised in full. We anticipate that Platinum Finance will retain $20 million of the net proceeds, or $23 million if the
underwriters exercise their option to purchase additional equity security units in full, and contribute the rest to Platinum US, its wholly owned subsidiary. Platinum Finance intends to use the
retained portion of the net proceeds of the offering to fund the interest payments on the senior notes payable on or prior to the share purchase date.
Assuming
the Common Shares are offered at an initial public offering price of $22.50 per Common Share (the midpoint of the range at which Platinum Holdings proposes to offer the Common
Shares), the net proceeds from the Equity Public Offering are estimated to be between approximately $640 million (assuming no exercise of the underwriters' option to purchase additional Common
Shares) and $736 million (assuming full exercise of the underwriters' option to purchase additional Common Shares). A portion of the net proceeds of the Equity Public Offering, the
RenaissanceRe Investment and the Cash Contribution, currently estimated at approximately $10 million, will be retained by Platinum Holdings and the balance will be contributed to the capital of
Platinum US (in an amount not less than $250 million, including the contribution of net proceeds of the ESU Offering described above), Platinum UK (in an amount not less than
$150 million, upon its being licensed in the United Kingdom), Platinum Ireland (in an amount not less than $100 million, substantially all of which will be used to purchase a surplus
note issued by Platinum US) and Platinum Bermuda (in an amount not less than $375 million).
18
The ESU OfferingExplanatory Diagrams
The following diagrams demonstrate some of the key features of the purchase contracts, normal units, stripped units and senior notes, and the transformation of
normal units into stripped units and senior notes. The following diagrams assume that the senior notes are successfully remarketed, the interest rate on the senior notes is reset, there is no early
settlement and the payment of contract adjustment payments is not deferred.
Purchase Contracts
-
- Normal
units and stripped units both include a purchase contract under which you agree to purchase Common Shares on the share purchase date.
-
- The
number of Common Shares to be purchased under each purchase contract will depend on the "applicable market value." The "applicable market value" means
the average of the closing price per Common Share on each of the 20 consecutive trading days ending on the third trading day immediately preceding the share purchase date.
- (1)
- The
"reference price" is $ , which is the initial public offering price of the Common Shares.
- (2)
- The
"threshold appreciation price" is $ , which
is % of the reference price.
- (3)
- For
each of the percentage categories shown, the percentage of the Common Shares to be delivered on the share purchase date to a holder of normal units or stripped units is determined
by dividing
-
- the
related number of Common Shares to be delivered, as indicated in the footnote for each such category, by
-
- an
amount equal to $25, the stated amount of the unit, divided by the reference price.
- (4)
- If
the applicable market value of the Common Shares is less than or equal to the reference price, the number of Common Shares to be delivered will be calculated by dividing the stated
amount of $25 by the reference price.
- (5)
- If
the applicable market value of the Common Shares is between the reference price and the threshold appreciation price, the number of Common Shares to be delivered will be calculated
by dividing the stated amount of $25 by the applicable market value.
19
- (6)
- If
the applicable market value of the Common Shares is greater than or equal to the threshold appreciation price, the number of Common Shares to be delivered will be calculated by
dividing the stated amount of $25 by the threshold appreciation price.
Normal Units
-
- A
normal unit will consist of two components as illustrated below:
-
- After
a successful remarketing or tax event redemption, the normal units will include specified treasury securities in lieu of the senior notes.
-
- If
you hold a normal unit, you will hold an ownership interest in a senior note and, after a successful remarketing or tax event redemption, an ownership
interest in specified treasury securities, but will pledge that interest to the collateral agent for the benefit of Platinum Holdings to secure your obligations under the purchase contract.
-
- If
you hold a normal unit, you may also substitute a specified amount of treasury securities for the ownership interest in a senior note if you decide not to
participate in the remarketing.
20
Stripped Units
-
- A
stripped unit consists of two components as illustrated below:
-
- If
you hold a stripped unit, you own a 1/40, or 2.5%, interest in the treasury security but will pledge it to the collateral agent for the benefit of
Platinum Holdings to secure your obligations under the purchase contract. The treasury security is a zero-coupon U.S. treasury security (CUSIP No. ) that matures on
, 2005.
21
Senior Notes
-
- Senior
notes will have the terms illustrated below:
-
- If
you hold an ownership interest in a senior note that is a component of a normal unit, you have the option to either:
-
- allow
the ownership interest in the senior note to be included in the remarketing process, the proceeds of which will be used to purchase treasury
securities, if the remarketing is successful, which will be applied to settle the purchase contract; or
-
- elect
not to participate in the remarketing by delivering treasury securities in substitution for the ownership interest in the senior note, the proceeds of
which will be applied to settle the related purchase contract.
-
- If
you hold a senior note that is not a component of a normal unit, you have the option to either:
-
- continue
to hold the senior note the rate of which will be reset, effective from the settlement date of a successful remarketing of the senior notes; or
-
- deliver
the senior note to the remarketing agent to be included in the remarketing.
22
Transforming Normal Units into Stripped Units and Senior Notes
-
- To
create stripped units, you must substitute for the pledged ownership interest in the senior note (or, after a successful remarketing or tax event
redemption, the pledged treasury securities) the specified zero-coupon U.S. treasury security that matures on , 2005.
-
- The
pledged senior note or the pledged treasury securities will be released from the pledge and delivered to you.
-
- The
zero-coupon U.S. treasury security together with the purchase contract would then constitute a stripped unit. The senior note (or, after a
successful remarketing, treasury securities), which was previously a component of normal units, is tradable as a separate security.
-
- The
transformation of normal units into stripped units and senior notes and the transformation of stripped units and senior notes into normal units may
generally be effected only in integral multiples of 40 units, as more fully described in this prospectus. If, however, the senior notes constituting a part of the normal units have been replaced with
treasury securities due to a successful remarketing or tax event redemption, the transformation of normal units into stripped units and the recreation of normal units from stripped units may be
effected only in integral multiples of units such that both the treasury securities to be deposited and the treasury securities to be released are in integral multiples of $1,000, as more fully
described in this prospectus.
23
The following illustration depicts the transformation of 40 normal units into 40 stripped units and one $1,000 principal amount senior note.
-
- After
remarketing, the normal units will include ownership interests in specified U.S. treasury securities in lieu of an ownership interest in senior notes.
-
- You
can also transform stripped units and senior notes (or, after a successful remarketing or tax event redemption, treasury securities) into normal units.
Following that transformation, the specified zero-coupon U.S. treasury security, which was previously a component of the stripped units, is tradable as a separate security.
24
Selected Pro Forma Financial Information and Operating Data
Financial information in this prospectus is presented in U.S. dollars and on the basis of U.S. GAAP unless otherwise
indicated.
In
this prospectus, we are presenting unaudited pro forma financial information of Platinum Holdings with respect to the Transferred Business, contingent upon the completion of the
Equity Public Offering. This pro forma financial information is based on the terms of the agreements between Platinum and St. Paul effecting the transfer of the Transferred Business, the
material terms of which are described under "Certain Relationships and Related Transactions", which we refer to herein as the "Inception Agreements."
We
caution that the Platinum pro forma consolidated balance sheet and pro forma combined underwriting results presented herein are not indicative of the actual results that we expect to
achieve once we commence operations. Many factors may cause our actual results to differ materially from the pro forma consolidated balance sheet and underwriting results including, but not limited
to, the following:
-
- Platinum's
pro forma combined statement of underwriting results includes premium and loss development on business entered into prior to January 1,
2002. Under the Quota Share Retrocession Agreements, we are assuming no premium or loss development on business entered into prior to January 1, 2002. Therefore, our reported premiums written
and earned and reported losses and loss adjustment expenses, which are the expenses of settling claims, in our initial years of operation could be substantially lower than as presented in Platinum's
pro forma combined statement of underwriting results. As such, our reported results in our initial years of operation will not be subject to prior year development for periods prior to
January 1, 2002.
-
- Following
the Equity Public Offering, we will report underwriting results under the Quota Share Retrocession Agreements for the period through the date of
completion of the Equity Public Offering based on the application of retroactive reinsurance accounting, resulting in the premiums earned and losses incurred by St. Paul during such period being
excluded from our statement of underwriting results. Due to this exclusion, following the Equity Public Offering, our reported 2002 premiums written and earned and our net underwriting results in 2002
could be substantially different than as presented in Platinum's pro forma combined statement of underwriting results.
-
- Platinum's
pro forma consolidated balance sheet reflects the inception of the Quota Share Retrocession Agreements assuming transferred balances as of
June 30, 2002. Platinum's actual consolidated balance sheet will report transferred amounts determined as of 12:01 a.m. on the day immediately following the date of completion of the
Equity Public Offering. Accordingly, underwriting gain or loss with respect to the Assumed Reinsurance Contracts for the period from January 1, 2002 through such date will be retained by St.
Paul.
-
- Although
we expect to continue to be afforded the benefits of most of St. Paul Re's retrocessional reinsurance program through their expiration during 2002,
we may enter into retrocessional reinsurance contracts with significantly different terms and conditions from those that have been made available to us from St. Paul Re and which form the basis of our
initial operations.
-
- The
additional and reinstatement premiums, which are premiums charged for the restoration of the limit of a catastrophe contract to its full amount after
payment of losses, recorded in 2001 by St. Paul Re's Finite Risk operating segment were primarily caused by losses relating to the September 11, 2001 terrorist attack. These additional and
reinstatement premiums
25
Pro Forma Consolidated Balance Sheet Data
We have prepared our unaudited pro forma consolidated balance sheet as of June 30, 2002 to reflect our initial capitalization in the amount of $120,000 and
adjusted to reflect, among other things,
-
- amounts
reflecting (a) the receipt of approximately $725 million, representing the estimated net proceeds from the Equity Public Offering and
the RenaissanceRe Investment based on an assumed initial public offering price of $22.50 per Common Share (the midpoint of the range at which Platinum Holdings proposes to offer the Common Shares),
without giving effect to any exercise of the underwiters', St. Paul's or RenaissanceRe's options to purchase additional Common Shares in connection with the Equity Public Offering, (b) the
redemption of the Common Shares that were issued at inception and capital contributed prior to the Equity Public Offering, (c) the payment of
certain formation and organization expenses, as discussed in Note 2 and Note 12 on pages F-5 and F-13 of this prospectus, which total $5.1 million, of which $2.1 million
has been expensed as of June 30, 2002, and (d) our entering into, and accruing for, the Services and Capacity Reservation Agreement as of June 30, 2002. Additional formation and
organization expenses will be incurred prior to closing. It is further assumed that the net proceeds from the Equity Public Offering will be invested in long-term, taxable fixed income securities;
-
- amounts
representing the receipt of St. Paul's Cash Contribution of $123 million (the midpoint of the $121 million to $126 million range
for the Cash Contribution) and the contribution of the Transferred Business at historical cost in exchange for the issuance of Common Shares and the St. Paul Option. Amounts related to net
tangible assets contributed to Platinum by St. Paul are recorded at St. Paul's book value as of June 30, 2002. Assets as of June 30, 2002 include approximately $5 million of net
assets of Platinum US consisting of cash and cash equivalents (which reflect a dividend of $15 million to be paid, prior to completion of the Equity Public Offering, to United States Fidelity
and Guaranty Company, the current parent of Platinum US) as well as approximately $7 million of tangible assets and other intangible assets such as broker and customer lists and contract
renewal rights and licenses;
-
- amounts
reflecting the receipt of approximately $120 million, representing the estimated net proceeds from this offering and recognition of the
present value of future contract adjustment payments payable on the purchase contracts contained within the equity security units, without giving effect to any exercise of the underwriters' option to
purchase additional equity security units. It is further assumed that the net proceeds from this offering will be invested in long-term, taxable fixed income securities; and
-
- amounts
reflecting Platinum entering into the Quota Share Retrocession Agreements with St. Paul Re reinsuring the Assumed Reinsurance Contracts as of
June 30, 2002.
26
|
|
At June 30, 2002
|
|
|
($ in millions, except per share amount)
|
Cash and invested assets |
|
$ |
1,168 |
Deferred acquisition costs |
|
|
25 |
Funds held by reinsured |
|
|
40 |
Other assets(1) |
|
|
19 |
|
|
|
Total assets |
|
$ |
1,252 |
|
|
|
Unpaid losses and loss adjustment expense reserves |
|
$ |
109 |
Unearned premium reserves |
|
|
140 |
Debt obligations(2) |
|
|
125 |
Financial reinsurance liabilities |
|
|
17 |
Other liabilities(1)(3) |
|
|
12 |
Total shareholders' equity(3) |
|
|
849 |
|
|
|
Total liabilities and shareholders' equity(3) |
|
$ |
1,252 |
|
|
|
Book value per Common Share(1)(3)(4) |
|
$ |
21.24 |
- (1)
- Reflects
Platinum entering into, and accruing for, the Services and Capacity Reservation Agreement as of June 30, 2002.
- (2)
- Reflects
senior notes issued in connection with the ESU Offering.
- (3)
- Reflects
the present value of the contract adjustment payments in connection with the ESU Offering.
- (4)
- Reflects
the issuance of 40,000,000 Common Shares in the Equity Public Offering, the St. Paul Investment and the RenaissanceRe Investment.
27
Pro Forma Combined Underwriting Results
We have prepared our unaudited pro forma combined statements of underwriting results to represent our reinsurance business as if we had commenced our operations
and the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment had been completed as of January 1, 2001. Our presentation of our pro forma
underwriting results assumes that all of the Inception Agreements were entered into as of January 1, 2001. We have based our presentation on St. Paul Re's actual underwriting results for the
periods presented. We have then adjusted these historical results to remove any of St. Paul Re's reinsurance businesses that will not be part of Platinum following the completion of the Equity Public
Offering, including:
-
- amounts
related to St. Paul Re's reinsurance business representing lines of business that will not be transferred to Platinum, including aviation and
bond and credit reinsurance, certain financial risk and capital markets reinsurance products, and certain North American business previously underwritten in London. Platinum will not obtain the
renewal rights to these lines of business and will not assume liabilities related to these lines of business, and Platinum's management does not intend to write these lines of business in the future;
and
-
- amounts
related to St. Paul Re's allocations from the St. Paul corporate aggregate excess-of-loss reinsurance programs that will not
be available to Platinum.
Except
as noted above, the pro forma combined underwriting results assume that all other retrocessional reinsurance with respect to the Assumed Reinsurance Contracts entered into in 2002
and prior years will remain available to Platinum.
Also,
as noted above, we have based our pro forma underwriting results on the assumption that all of the Inception Agreements were entered into on January 1, 2001, including the
Services and Capacity Reservation Agreement.
Our
future results will depend in part on the amount of our investment income, which cannot be predicted and which will fluctuate depending upon the types of investments we select, our
underwriting results and market factors. Actual tax expense in future periods will be based on
underwriting results plus investment income and other income and expense items not reflected in the pro forma combined underwriting results. Our effective tax rate will reflect the proportion of
income recognized by our operating subsidiaries, with Platinum US taxed at the U.S. corporate income tax rate (35%), Platinum UK taxed at the U.K. corporate tax rate (generally 30%), Platinum Ireland
taxed at the Irish corporate tax rate (25% on non-trading income and 16% on trading income, the latter rate to be reduced to 12.5% as of January 1, 2003), and Platinum Bermuda taxed at a zero
corporate tax rate. In 2002, we expect to have a greater portion of our income subject to U.S. taxation and U.K. taxation than we expect to have in the future because our Bermuda operations are
entirely new but can be expected to grow as a proportion of our business. As a result of changes in the geographic distribution of taxable income as well as changes in the amount of our
non-taxable income and expense, the relationship between our reported income before tax and our income tax expense may change significantly from one period to the next.
28
|
|
Six Months
Ended
June 30,
|
|
|
|
|
|
Year Ended
December 31,
2001
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
602 |
|
$ |
576 |
|
$ |
1,382 |
|
|
Change in unearned premiums, net |
|
|
(29 |
) |
|
(88 |
) |
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
573 |
|
|
488 |
|
|
1,302 |
|
Losses and Underwriting Expenses |
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
350 |
|
|
344 |
|
|
1,440 |
|
|
Policy acquisition expenses |
|
|
144 |
|
|
149 |
|
|
237 |
|
|
Other underwriting expenses |
|
|
34 |
|
|
37 |
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
Total underwriting losses and expenses |
|
$ |
528 |
|
$ |
530 |
|
$ |
1,746 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
45 |
|
$ |
(42 |
) |
$ |
(444 |
) |
|
|
|
|
|
|
|
|
Selected Ratios - U.S. GAAP |
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
61.2 |
% |
|
70.6 |
% |
|
110.6 |
% |
|
Underwriting expense ratio |
|
|
31.1 |
% |
|
38.1 |
% |
|
23.5 |
% |
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
92.3 |
% |
|
108.7 |
% |
|
134.1 |
% |
|
|
|
|
|
|
|
|
Selected Ratios - Statutory |
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
61.2 |
% |
|
70.6 |
% |
|
110.6 |
% |
|
Underwriting expense ratio |
|
|
29.6 |
% |
|
32.3 |
% |
|
22.1 |
% |
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
90.8 |
% |
|
102.9 |
% |
|
132.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Impact of catastrophes on combined ratio (1) |
|
|
(3.0) |
% |
|
3.7 |
% |
|
40.9 |
% |
|
|
|
|
|
|
|
|
- (1)
- Excludes
ceded losses under St. Paul Re's aggregate excess-of-loss treaties, because such treaties extend to non-catastrophic as well as catastrophic losses as described below. The 3%
benefit from catastrophes on the June 30, 2002 combined ratio is driven by a lack of catastrophes in
the first six months of 2002 and favorable loss development in 2002 on catastrophe losses incurred in prior years.
Included
in the 2001 pro forma combined underwriting results are pre-tax losses related to the September 11, 2001 terrorist attack totaling $468 million. This
amount includes gross losses and loss adjustment expenses of $819 million, $123 million of ceded reinsurance, $137 million of additional and reinstatement premiums and
$91 million of reduced contingent commission expenses. The determination of the impact of catastrophes on the combined ratio (which is a combination of the expense ratio and the loss ratio)
excludes the ceded losses under St. Paul Re's aggregate excess-of-loss treaties; these treaties provide coverage for excess losses arising from catastrophic and non-catastrophic events. The benefits
of St. Paul Re's aggregate excess-of-loss treaty for 2002 will remain available to Platinum for the balance of 2002 unless earlier terminated pursuant to its terms.
29
Pro Forma Underwriting Results by Operating Segment
The following provides a summary of the pro forma underwriting results for our three operating segments. To provide a more meaningful indication of the underlying
performance of our business segments, the results exclude the impact of St. Paul Re's aggregate excess-of-loss treaties and the impact of the September 11, 2001 terrorist attack.
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
Year Ended
December 31,
2001
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
|
|
|
|
|
|
|
|
|
Global Property and Marine |
|
$ |
215 |
|
$ |
196 |
|
$ |
356 |
|
Global Casualty |
|
|
248 |
|
|
288 |
|
|
611 |
|
Finite Risk |
|
|
146 |
|
|
129 |
|
|
365 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
609 |
|
$ |
613 |
|
$ |
1,332 |
|
Underwriting gain (loss) |
|
|
|
|
|
|
|
|
|
|
Global Property and Marine |
|
$ |
64 |
|
$ |
11 |
|
$ |
62 |
|
Global Casualty |
|
|
(29 |
) |
|
(89 |
) |
|
(119 |
) |
Finite Risk |
|
|
30 |
|
|
(6 |
) |
|
(26 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
65 |
|
$ |
(84 |
) |
$ |
(83 |
) |
Combined ratio |
|
|
|
|
|
|
|
|
|
|
Global Property and Marine |
|
|
65.8 |
% |
|
93.1 |
% |
|
82.4 |
% |
Global Casualty |
|
|
112.3 |
% |
|
138.1 |
% |
|
122.1 |
% |
Finite Risk |
|
|
78.9 |
% |
|
104.8 |
% |
|
107.1 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
88.7 |
% |
|
116.0 |
% |
|
106.6 |
% |
|
|
|
|
|
|
|
|
Recent Developments
See "Recent Developments" and "The Predecessor BusinessRecent Developments" in this prospectus.
30
RISK FACTORS
Before investing in the units, you must carefully consider the following risk factors. These risks could materially affect our business,
results of operations or financial condition and cause the trading price of the units to decline. You could lose part or all of your investment.
Risks Related to Our Business
If we are unable to implement our business strategy or operate our business as we currently expect, our results may be adversely affected.
Platinum Holdings, Platinum UK, Platinum Bermuda, Platinum Ireland and Platinum Finance were recently formed. Platinum US, a wholly owned subsidiary of
St. Paul, has been in existence since 1995 as an inactive insurance company. None of these companies has any operating history. Businesses, such as ours, which are starting up or in their
initial stages of development, present substantial business and financial risks and may suffer significant losses. We must develop business relations, establish operating procedures, hire staff,
obtain facilities, implement new systems, obtain licenses and complete other tasks appropriate for the conduct of our intended business activities. If we are unable to implement these actions to
operate our business as we currently expect, our results may be adversely affected. As a result of industry factors or factors specific to Platinum, we may have to alter our anticipated methods of
conducting our business, such as the nature, amount and types of risks we assume.
We may not be able to successfully continue the business being contributed by
St. Paul Re because we do not have St. Paul's established name recognition and capital base.
Although we anticipate commencing our operations with an existing reinsurance business, including renewal opportunities, broker and cedent relationships, a
workforce and other tangible and intangible assets that are being contributed by St. Paul Re, we may not be able to successfully
continue this business. We will not have any of the benefits which may have flowed to the business from being affiliated with St. Paul, including its name recognition, its reputation in the industry
and its strong capital base. In addition, we will not have certain offices that produced 2002 business but that were closed in late 2001 and early 2002. It is possible that clients of St. Paul Re will
choose not to renew expiring contracts with us and will choose to reinsure with our competitors. It is possible that cedents will choose to not do business with us because we will have a smaller
capital base or lower ratings than St. Paul has or because the cedents' credit approval committees will not approve doing business with us. It is possible that clients that do renew expiring
contracts with us may demand policy terms that are less favorable to us or may renew only with reduced coverage limits. In addition, certain of the Assumed Reinsurance Contracts afford the reinsured
party a right to cancel coverage upon transfer of the Transferred Business to us. While we expect that few, if any, cancellations will occur, substantial cancellations would adversely affect our
future results of operations, particularly in the near term. We may not be able to maintain the broker relationships established by St. Paul Re, or retain those employees of St. Paul Re who are
expected to join us upon completion of the Equity Public Offering. We may not be able to build upon this base of business or operate our business as successfully as St. Paul Re. It is also possible
that the restructuring of St. Paul Re that St. Paul initiated in December 2001 and the Equity Public Offering and this offering may adversely affect our ability to maintain the St. Paul Re business
that is being transferred to us.
Neither our pro forma financial information nor the historical combined financial information of St. Paul Re in this prospectus is an indicator of our future actual results.
As a newly formed company, we have no actual results of operations. We are, therefore, presenting in this prospectus our pro forma financial information with
respect to the reinsurance business which St. Paul will be transferring to us, as if the Equity Public Offering, this offering, the
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St. Paul Investment and the RenaissanceRe Investment had been completed and we had commenced our operations as of January 1, 2001. We are also presenting historical combined
financial information of St. Paul Re to illustrate the underwriting results of our actual historical reinsurance business.
We
caution that our pro forma financial information and the historical combined financial information of St. Paul Re presented in this prospectus are not necessarily comparable
with or indicative of the actual results that we expect to achieve once we commence operations for the reasons set forth below:
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- Platinum's
pro forma combined statement of underwriting results includes premium and loss development on business entered into prior to January 1,
2002. Under the Quota Share Retrocession Agreements, we are assuming no premium or loss development on business entered into prior to January 1, 2002. Therefore, our reported premiums written
and earned and reported losses and loss adjustment expenses in our initial years of operation could be substantially lower than as presented in Platinum's pro forma combined statement of underwriting
results. As such, our
reported results in our initial years of operation will not be subject to prior year development for periods prior to January 1, 2002.
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- Following
the Equity Public Offering, we will report underwriting results under the Quota Share Retrocession Agreements for the period through the date of
completion of the Equity Public Offering based on the application of retroactive reinsurance accounting, resulting in the premiums earned and losses incurred by St. Paul during such period being
excluded from our statement of underwriting results. Due to this exclusion, following the Equity Public Offering, our reported 2002 premiums written and earned and our net underwriting results in 2002
could be substantially different than as presented in Platinum's pro forma combined statement of underwriting results.
-
- Platinum's
pro forma consolidated balance sheet reflects the inception of the Quota Share Retrocession Agreements assuming transferred balances as of
June 30, 2002. Platinum's actual consolidated balance sheet will report transferred amounts determined as of 12:01 a.m. on the day immediately following the date of completion of the Equity
Public Offering. Accordingly, underwriting gain or loss with respect to the Assumed Reinsurance Contracts for the period from January 1, 2002 through such date will be retained by St. Paul.
-
- Although
we expect to continue to be afforded the benefits of most of St. Paul Re's retrocessional reinsurance program through their expiration during 2002,
we may enter into retrocessional reinsurance contracts with significantly different terms and conditions from those that have been made available to us from St. Paul Re and which form the basis of our
initial operations.
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- The
additional and reinstatement premiums recorded in 2001 by St. Paul Re's Finite Risk operating segment were primarily caused by losses relating to
the September 11, 2001 terrorist attack. These additional and reinstatement premiums were unusually high and not necessarily indicative of the recurring premium volume we expect to write in
that business segment.
-
- Platinum's
pro forma financial statements continue to reflect the discounting of the liability for certain Assumed Reinsurance Contracts based on our current
intention to make arrangements to permit such discounting. If we do not put such arrangements in place, reinsurance contracts of a similar type entered into in the future would be reported on an
un-discounted basis.
Our
future consolidated financial results will also depend on the amount of our investment income, which cannot be predicted and which will fluctuate depending upon the types of
32
investments we select, our underwriting results and market factors, such as the level of interest rates, as well as our consolidated effective tax rate.
The property and casualty reinsurance industry is highly competitive and, except for regulatory considerations, there are relatively few barriers to entry. We
will compete with major U.S. and non-U.S. reinsurers, including several Bermuda-based reinsurers that write property and casualty reinsurance and that target the same market as we do and
utilize similar business strategies.
In
addition to reinsurance company competitors, other financial institutions are now able to offer services similar to those that we expect to offer. Financial institutions have also
created alternative capital market products that compete with reinsurance products, such as reinsurance securitization. Such alternative products may be perceived to be more beneficial for ceding
companies than reinsurance offered by reinsurance companies and may result in lower demand for certain of our products.
Since
we have no operating history, many of our competitors have greater name and brand recognition than we currently do. Many of them also have more (in some cases substantially more)
capital and greater marketing and management resources than we expect to have, and may offer a broader range of products and more competitive pricing than we expect to or will be able to offer.
Our
competitive position will be based on many factors, including our perceived overall financial strength, ratings assigned by independent rating agencies, geographic scope of business,
client relationships, premiums charged, contract terms and conditions, products and services offered (including the ability to design customized programs), speed of claims payment, reputation,
experience and qualifications of employees and local presence. Since we have not yet commenced operations, we may not be able to compete successfully on any of these bases. If competition limits our
ability to write new business at adequate rates, our return on capital may be adversely affected.
The September 11, 2001 terrorist attack has generated substantial new capital inflows into the reinsurance industry, increasing competition which could adversely affect
our profitability.
Following the terrorist attack of September 11, 2001, a number of new reinsurers and other entities have been formed and a number of existing market
participants have raised new capital in an effort to participate in an improving marketplace. These new and better financed companies are expected to increase the level of competition in the industry,
which may affect our competitive position. While we believe that we and our competitors will be able to raise premium rates in the near and intermediate term, the additional competition following the
September 11, 2001 terrorist attack may limit such increases or result in decreases in premium rates.
Competition in the types of reinsurance business that we intend to underwrite is based on many factors, including the perceived financial strength of the
reinsurer and ratings assigned by independent rating agencies. A.M. Best Company, Inc. ("Best's") is generally considered to be a significant rating agency with respect to the
evaluation of insurance and reinsurance companies. Best's ratings are based on a quantitative evaluation of performance with respect to profitability, leverage and liquidity and a qualitative
evaluation of spread of risk, reinsurance program, investments, reserves and management. Insurance ratings are used by insurers and reinsurance intermediaries as an important means of assessing the
financial strength and quality of reinsurers. In addition, a ceding company's own rating may be adversely affected by the lack of a rating of its reinsurer. Therefore, the lack of a rating may
dissuade a ceding company from reinsuring with us
33
and may influence a ceding company to reinsure with a competitor of ours that has an insurance rating.
Our
management has met with Best's, which has advised us that it expects to assign an initial financial strength rating of "A" (Excellent) to our operating subsidiaries upon the
completion of the Equity Public Offering and the receipt of the offering proceeds in line with certain representations we made to Best's. In addition, the rating assignment is contingent upon the
funding of our operating subsidiaries to the levels indicated by our management as well as the execution of all pertinent transactions as detailed by this prospectus. The rating assignment further
contemplates the initiation of certain capital support agreements between Platinum Holdings and its operating subsidiaries.
However,
we may not obtain the "A" rating if we do not receive a sufficient amount of proceeds from the Equity Public Offering in order to capitalize our operating subsidiaries at the
levels we indicated to Best's, execute the transactions described in this prospectus or otherwise satisfy the conditions set by Best's for the assignment to us of such a rating.
Consolidation in the insurance industry could lead to lower margins for us and less demand for our reinsurance products and services.
The insurance industry is undergoing a process of consolidation as industry participants seek to enhance their product and geographic reach, client base,
operating efficiency and general market power through merger and acquisition activities. These larger entities may seek to use the benefits of consolidation to, among other things, implement price
reductions for their products and services. If competitive pressures compel us to reduce our prices, our operating margins would decrease.
As
the insurance industry consolidates, competition for customers may become more intense and the importance of acquiring and properly servicing each customer will become greater. We
could incur greater expenses relating to customer acquisition and retention, which could reduce our operating margins. In addition, insurance companies that merge may be able to enhance their
negotiating position when buying reinsurance and may be able to spread their risks across a consolidated, larger capital base so that they require less reinsurance.
Our success will depend in substantial part upon the continued service of Steven H. Newman as our Chairman of the Board of Directors and Jerome T.
Fadden as our President and Chief Executive Officer. Mr. Fadden's employment contract will expire on March 4, 2007 unless extended. Mr. Newman will serve as a consultant to
Platinum US through March 1, 2005 unless his consulting contract is extended. Our success will also depend on our ability to attract and retain additional executives and underwriting personnel.
We believe that there are only a limited number of available, qualified executives in the reinsurance industry, and our inability to hire additional senior executives or the loss of the services of
any of our senior executives could delay or prevent us from fully implementing our business strategy and could significantly and negatively affect our business.
Under
Bermuda law, non-Bermudians (other than spouses of Bermudians) may not engage in any gainful occupation in Bermuda without a work permit. None of our executive officers
is a Bermudian, and all such officers will be working in Bermuda under work permits. Mr. Fadden has obtained a temporary work permit, and we are seeking longer-term work permits from the
Bermuda authorities for him as well as for Michael E. Lombardozzi, William A. Robbie and any other persons who will be employees of Platinum Holdings or Platinum Bermuda who are not Bermudian
citizens. The Bermuda government recently announced a new policy that places a six-year term limit on individuals with work permits, subject to certain exemptions for key employees. It is possible
that we could lose the services of one or more of these people if we are unable to obtain or renew their work permits, which could significantly and adversely affect our business.
34
The occurrence of severe catastrophic events may have a material adverse effect on our financial results and financial condition.
Because we intend to underwrite property and casualty reinsurance and will have large aggregate exposures to natural and man-made disasters, we expect
that our loss experience generally will include infrequent events of great severity. The frequency and severity of catastrophe losses are inherently unpredictable. Consequently, the occurrence of
losses from catastrophic events is likely to cause a material adverse effect on our results of operations and financial condition. For example, St. Paul Re recorded pre-tax catastrophe losses
of $135 million in 2000 and $143 million in 1999,
materially impacting its results of operations during those years. In addition, catastrophes are an inherent risk of our business and a catastrophe or series of catastrophes can be expected to have a
material adverse effect on our ability to write new business, and our financial condition and results of operations, possibly to the extent of eliminating our shareholders' equity and statutory
surplus (which is the amount remaining after all liabilities, including loss reserves, are subtracted from all admitted assets, as determined under statutory accounting principles, which are the
principles prescribed or permitted by U.S. insurance regulatory authorities). Increases in the values and geographic concentrations of insured property and the effects of inflation have historically
resulted in increased severity of industry losses in recent years and we expect that those factors will increase the severity of catastrophe losses in the future.
Under the Quota Share Retrocession Agreements, St. Paul retains recorded underwriting gain or loss with respect to the Assumed Reinsurance Contracts for the period from January 1,
2002 to the transfer date, which is 12:01 a.m. on the day immediately following the date of completion of the Equity Public Offering. In addition, St. Paul will retain all liabilities relating
to the flooding in Europe in August 2002, which included $30 million in losses for the nine months ended September 30, 2002. With respect to "named storms" (which are Tropical
Prediction Center-designated named storms) in existence at the time of the completion of the Equity Public Offering which cause insured damage within ten days subsequent to such time, we will
bear losses of up to $25 million in the aggregate, net of recoveries from the retrocessional reinsurance purchased by St. Paul that inures to our benefit. St. Paul will bear losses in respect
of such storms that are, in the aggregate, and net of recoveries, subject to specified exceptions, from such retrocessional reinsurance, in excess of $25 million up to $50 million. We
also will bear all losses, in the aggregate and net of recoveries from such retrocessional reinsurance, in excess of $50 million in respect of such storms. We have purchased third-party
retrocessional coverage in an amount up to $100 million for losses in excess of $50 million, in the aggregate, net of inuring retrocessions, with respect to damage that occurs during the
15-day period beginning at 12:01 a.m. the day of pricing of the Equity Public Offering, as a result of named storms in existence at that time but not yet in existence as of October 10,
2002. We will bear $2.5 million of the cost of this coverage, with St. Paul bearing the remainder of its cost.
Accordingly, St. Paul retains underwriting losses, if any, with respect to catastrophes arising before the transfer date to the extent reserves are established therefor as of such date
(as determined 90 days after such date). Platinum bears all underwriting loss from catastrophes occurring on or after the transfer date (other than the intermediate $25 million layer of
coverage borne by St. Paul with respect to specified named storms, on the terms described above), and any underwriting loss or gain resulting from reestimation of catastrophe losses established
by St. Paul as of the transfer date (other than with respect to the August 2002 European floods and the intermediate $25 million layer of coverage borne by St. Paul with respect
to specified named storms, on the terms described above). Under the Quota Share Retrocession Agreements, premiums attributable to policy periods prior to the transfer date and future premiums with
respect to flooding in Europe in August 2002 are retained by St. Paul, and premiums attributable to periods on or following the transfer date are for Platinum's benefit. Consistent with St. Paul's
accounting practices, St. Paul and Platinum intend to allocate 2002 premiums attributable to catastrophe
35
coverage before and after the transfer date between themselves on a pro rata basis over the applicable policy period, without adjustment for seasonality that exists for certain catastrophe losses.
Certain catastrophic events, such as hurricane and windstorm exposure in North America, tend to occur more frequently in the latter half of the calendar year. Accordingly, Platinum's
premium income attributable to certain catastrophe coverages and earned in the period following the time of effectiveness of the Quota Share Retrocession Agreements may not, due to seasonality among
other factors, sufficiently match Platinum's exposure to losses from certain catastrophic events which may occur in the remaining part of 2002. As of the day prior to the date of this preliminary
prospectus, there was one "named storm", which could cause us to be liable for substantial catastrophic losses immediately following the completion of the Equity Public Offering despite the sharing
arrangement with St. Paul, and such number of "named storms" could increase or decrease prior to the date of the final prospectus for the Equity Public Offering or the completion of the Equity Public
Offering itself.
The September 11, 2001 terrorist attack may result in government intervention impacting the insurance and reinsurance markets.
In response to the tightening of supply in certain insurance markets resulting from, among other things, the terrorist attack of September 11, 2001, the
U.S. government and other governments may intervene in the insurance and reinsurance markets. Following the September 11, 2001 terrorist attack, various proposed legislation that is designed to
ensure the availability of insurance coverage for terrorist acts has been introduced in the U.S. Congress. Legislation has been adopted in the U.S. House of Representatives designed, among other
things, to provide federal government loans over a short-term period to commercial insurers and reinsurers for funding losses arising from terrorist acts against U.S. properties, which
loans would be repaid through industry assessments and, if losses exceed a threshold, policyholder assessments. Similar, alternative legislation has been adopted in the U.S. Senate; the Senate
legislation provides for direct government assistance to commercial insurers and reinsurers for covered losses that exceed a per-company "deductible." We cannot predict whether any such legislation
will be enacted or what form it may take. You should note that governmental intervention could significantly and adversely affect us by, among other things:
-
- providing
competing insurance and reinsurance capacity in the markets and to the customers we expect to target;
-
- regulating
the terms of insurance and reinsurance capacity and reinsurance policies in a manner that could significantly and adversely affect us, directly or
indirectly, by requiring coverage for terrorist acts to be offered by insurers and reinsurers, benefiting our competitors, reducing the demand for our products or benefiting insurers as compared to
reinsurers such as ourselves;
-
- providing
sources of liquidity to U.S. companies that may not be available to our non-U.S. subsidiaries; or
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- otherwise
disproportionally benefiting U.S. or other foreign countries' companies over Bermuda-based companies such as Platinum Holdings and its Bermuda
subsidiary.
The September 11, 2001 terrorist attack has caused uncertainty as to future insurance and reinsurance coverage for terrorist acts, and we may in the future have
substantial exposure to such acts.
Following the terrorist attack of September 11, 2001, there is uncertainty in the insurance and reinsurance markets about the extent to which future
coverages will extend to terrorist acts. There is also uncertainty about the definition of terrorist acts. We believe that coverage of claims that are the result of terrorist acts (as they are
ultimately defined by industry and government standards) will generally be excluded from property catastrophe reinsurance contracts covering large commercial
36
risks above specified property values, but generally will not be excluded for smaller commercial coverages, personal lines written for individuals or families or other coverages. Accordingly, we
presently continue to incur exposure to terrorist acts. The extent to which coverage for terrorist acts will be offered by the insurance and reinsurance markets in the future is uncertain. Coverage
for losses resulting from terrorist acts may be offered separately in the reinsurance market, and we may or may not offer such coverage in the future. If our and the insurance industry's attempts to
exclude terrorist acts from contracts covering large commercial risks that exceed specified values were to fail, we could incur large unexpected losses if further terrorist attacks occur.
The failure to be effective of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or our results of operations.
Our property and casualty reinsurance contracts cover unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires,
industrial explosions, freezes, riots, floods and other natural or man-made disasters. We intend to seek to limit our loss exposure by writing the majority of our products on an
excess-of-loss basis. We also intend to limit the aggregate amount of all treaties for each client and to execute prudent underwriting of each program written. In the case of
treaties where we reinsure a proportionate part of premiums and losses, which are referred to as pro rata or proportional treaties, we intend to seek per occurrence limitations or caps on the ratio of
losses to premiums, which are referred to as loss cap ratios, to limit the impact of losses from any one event. A limited number of the Assumed Reinsurance Contracts do not contain these limits, which
means that there is no contractual limit to the losses that we may be required to pay pursuant to such Assumed Reinsurance Contracts. In addition, we intend to seek to limit our loss exposure by
geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the specification of the areas constituting the zones and the inclusion of a particular
policy within a particular zone's limits. Various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, may not be enforceable in the manner we intend, due
to, among other things, disputes relating to coverage and choice of legal forum. Underwriting is a matter of judgment, involving important assumptions about matters that are inherently unpredictable
and beyond our control, and for which historical experience and probability analysis may not provide sufficient guidance. One or more catastrophic or other events could result in claims that
substantially exceed our expectations, which could have a material adverse effect on our financial condition or our results of operations, possibly to the extent of eliminating our shareholders'
equity and statutory surplus. St. Paul Re recorded net pretax losses of $556 million as
a result of the September 11, 2001 terrorist attack, the most significant catastrophe to date for the property-casualty insurance industry. Contributing to the significance of these losses were
certain contracts having occurrence limits that excluded natural perils but not man-made disasters. Had these occurrence limits excluded man-made disasters, St. Paul Re's losses would have been
approximately $25 million lower.
We intend to purchase retrocessional reinsurance, which will subject us to credit risk and may become unavailable on acceptable terms.
In order to limit the effect on our financial condition of large and multiple losses, we intend to buy retrocessional reinsurance, which is reinsurance for our
own account. From time to time, market conditions have limited, and in some cases have prevented, insurers and reinsurers from obtaining the types and amounts of reinsurance which they consider
adequate for their business needs. As a result of the September 11, 2001 terrorist attack, both pricing and terms have become more severe in the retrocessional reinsurance market, which may
limit our ability to obtain desired amounts of retrocessional reinsurance at acceptable pricing. If we are unable to obtain retrocessional reinsurance, our financial position and results of operations
may be materially adversely affected. Moreover, the September 11, 2001 terrorist attack, threats of further terrorist attacks and the military initiatives and political unrest in Afghanistan,
the Middle East and the surrounding regions have adversely affected general economic, market and political conditions,
37
increasing many of the risks of our business. Over time, the rating agencies could re-examine the ratings affecting our industry. We may not be able to obtain our desired amounts of
retrocessional reinsurance on acceptable terms. St. Paul Re had retrocessional arrangements through St. Paul, and we may not be able to obtain replacement agreements. Even if we are able to obtain
such retrocessional reinsurance, we may not be able to negotiate terms as favorable to us as the terms that St. Paul Re was able to obtain through St. Paul in prior years. Loss of all or
portions of our retrocessional coverage could subject us to increased exposure, which could be material.
A
retrocessionaire's insolvency or its inability or unwillingness to make payments under the terms of its reinsurance treaty with us could have a material adverse effect on us.
Therefore, our retrocessions subject us to credit risk because the ceding of risk to retrocessionaires does not relieve a reinsurer of its liability to the ceding companies.
If we are required to increase our loss reserves, our operating results will be adversely affected.
At any time, our loss reserves may prove to be inadequate to cover our actual losses and benefits experience. To the extent loss reserves may be insufficient to
cover actual losses or loss adjustment expenses, we will have to add to these loss reserves and incur a charge to our earnings, which could have a material adverse effect on our financial condition,
results of underwriting and cash flows. St. Paul Re has experienced such instances where a re-estimation of loss reserves has proved
to be material and, in 2001, recorded a net additional provision of $95 million related to losses incurred in prior years. This provision reflected worse than expected loss emergence in
St. Paul Re's North American Property segment, largely driven by certain property business underwritten through its London office, and in the surplus lines business. We could experience adverse
development on our loss reserves, including those initially established by St. Paul Re and transferred to us pursuant to the Quota Share Retrocession Agreements.
Our
loss reserves will not represent an exact calculation of liability, but rather will be estimates of the expected cost of the ultimate settlement of losses. We expect that all of our
loss reserve estimates will be based on actuarial and statistical projections at a given time, of facts and circumstances known at that time and estimates of trends in loss severity and other variable
factors, including new concepts of liability and general economic conditions. Changes in these trends or other variable factors could result in claims in excess of our loss reserves.
Unforeseen
losses, the type or magnitude of which we cannot predict, may emerge in the future. These additional losses could arise from changes in the legal environment, catastrophic
events, extraordinary events affecting our clients such as reorganizations and liquidations or changes in general economic conditions.
In
addition, because we, like other reinsurers, will not separately evaluate each of the individual risks assumed under reinsurance treaties, we will be largely dependent on the original
underwriting decisions made by ceding companies. We will be subject to the risk that our ceding companies may not have adequately evaluated the risks to be reinsured and that the premiums ceded to us
may not adequately compensate us for the risks we assume.
Under
U.S. GAAP, Platinum US, Platinum UK and Platinum Bermuda will not be permitted to establish loss reserves until an event occurs which may give rise to a loss. Once such an event
occurs, reserves will be established based upon estimates of the total losses incurred by the ceding insurers and an estimate of the portion of such loss our three operating subsidiaries have
reinsured. As a result, only loss reserves applicable to losses incurred up to the reporting date may be set aside, with no allowance for the provision of a contingency reserve to account for expected
future losses. Losses arising from future events will be estimated and recognized at the time the loss is incurred and could be substantial.
38
The property and casualty reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable pricing.
Historically, property and casualty reinsurers have experienced significant fluctuations in operating results. Demand for reinsurance is influenced significantly
by underwriting results of primary insurers and prevailing general economic and market conditions, all of which affect cedents' decisions as to the amount or portion of risk that they retain for their
own accounts and consequently reinsurance premium rates. The supply of reinsurance is related to prevailing prices, the levels of insured losses and levels of industry surplus which, in turn, may
fluctuate in response to changes in rates of return on investments being earned in the reinsurance industry. As a result, the property and casualty reinsurance business historically has been a
cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels. We can
expect to experience the effects of such cyclicality.
The
cyclical trends in the industry and the industry's profitability can also be affected significantly by volatile and unpredictable developments, including what management believes to
be a trend of courts to grant increasingly larger awards for certain damages, natural disasters (such as catastrophic hurricanes, windstorms, tornadoes, earthquakes and floods), fluctuations in
interest rates, changes in the investment environment that affect market prices of and income and returns on investments and inflationary pressures that may tend to affect the size of losses
experienced by primary insurance companies. Although market conditions have improved recently with respect to some lines of property and casualty reinsurance, we cannot predict whether market
conditions will continue to improve, remain constant or deteriorate. A return to negative market conditions may affect our ability to write reinsurance at rates that we consider appropriate relative
to the risk assumed. If we cannot write property and casualty reinsurance at appropriate rates, our ability to transact reinsurance business would be significantly and adversely affected.
Our investment portfolio will consist initially of fixed income securities and, in the future, may include marketable equity securities. The fair market value of
these assets and the investment income from these assets will fluctuate depending on general economic and market conditions. Fixed income and equity markets have become increasingly volatile in the
last year and particularly since the events of September 11, 2001. Because substantially all of our invested assets will be classified as available for sale, changes in the market value of our
securities will be reflected in our consolidated balance sheet. In addition, market fluctuations and market volatility will affect the value of our investment portfolio and could adversely affect our
liquidity.
Increases in interest rates or fluctuations in currency exchange rates may cause us to experience losses.
Because of the unpredictable nature of losses that may arise under reinsurance policies, our liquidity needs can be expected to be substantial and to arise at any
time. The market value of our fixed income investments will be subject to fluctuation depending on changes in various factors, including prevailing interest rates. We expect to hedge our investment
portfolio against interest rate
risk. Nevertheless, increases in interest rates during periods when we sell fixed income securities to satisfy liquidity needs may result in losses.
Our
functional currency will be the U.S. dollar. Our operating currency generally will also be the U.S. dollar. However, the premiums receivable and losses payable in respect of a
portion of our business will be denominated in currencies of other countries, principally the industrialized countries. Consequently, we may, from time to time, experience exchange gains and losses
that could affect our financial position and results of operations. We do not expect to and as a practical matter will not be able to hedge our foreign currency exposure
with respect to potential losses until a loss payable in a foreign currency occurs (after which we may match such liability
39
with assets denominated in the same currency or enter into forward purchase contracts for specific currencies). This type of exposure could be substantial. We also do not intend to hedge our non-
U.S. dollar currency exposure with respect to premiums receivable, which will be generally collected over the relevant contract term. We expect to exchange non-U.S. dollar denominated premiums upon
receipt. We may make foreign currency denominated investments, generally for the purpose of improving overall portfolio yield.
Platinum UK will not be licensed in the United Kingdom at the time of completion of the Equity Public Offering, and any license, if obtained, may be subject to limitations on
Platinum UK's operations.
Platinum UK has applied to the FSA to write the business conducted by St. Paul Re in the United Kingdom. Platinum UK will not be licensed by the FSA at the time
of the completion of the Equity Public Offering. The issuance of the license is at the discretion of the FSA and we may not be able to obtain such a license. St. Paul Re has agreed that it will
continue to write reinsurance in the United Kingdom, at the direction of Platinum UK, in cases where we are unable to underwrite that business ourselves because, despite using our reasonable best
efforts, we have not obtained the necessary regulatory license or approval to do so or we have not yet been approved as a reinsurer by the cedent. We will reinsure all such business, together with
certain other business written by St. Paul Re UK since January 1, 2002. If Platinum UK does not obtain a license by the first anniversary of the completion of the Equity Public Offering, or if
the license it obtains contains material limitations or if we determine to terminate or significantly reduce our operations in the United Kingdom, our results of operations could be materially
adversely affected, and we may not be able to conduct our UK operations in the manner described in this prospectus.
We may not be able to satisfy the conditions to borrowing under our committed credit facility, and failure to do so would limit our liquidity.
We have entered into a 364 day committed credit facility with a group of banks that will permit us to make borrowings of up to $100 million in the
aggregate from time to time. The credit facility contains various covenants and agreements, including a requirement that we satisfy specified tangible net
worth and leverage ratios. It is a condition to our ability to borrow under the credit facility that we have received not less than $825 million of aggregate proceeds (net of the underwriters'
discount) from the sale of Platinum Holdings' Common Shares in the Equity Public Offering, the RenaissanceRe Investment and the Cash Contribution. Assuming an initial public offering price of $22.00
per Common Share (the low end of the range at which Platinum Holdings proposes to offer the Common Shares in the Equity Public Offering), a Cash Contribution of $121 million and proceeds of
$83 million from the RenaissanceRe Investment, and assuming no exercise of the underwriters', St. Paul's or RenaissanceRe's options to purchase additional Common Shares in connection
with the Equity Public Offering, we expect to receive aggregate net proceeds of approximately $829 million from the Equity Public Offering, the Cash Contribution and the RenaissanceRe
Investment. We may not raise net proceeds in such amount, and, if we fail to do so, we will be unable to borrow under the facility. In addition, we may not be able to extend or replace this credit
facility on satisfactory terms when it terminates on June 20, 2003. Failure to satisfy the conditions to borrowing under our credit facility, or to extend or replace it when it expires, would
limit Platinum Holdings' liquidity to the net proceeds of the Equity Public Offering, the RenaissanceRe Investment and the Cash Contribution retained by it and dividends, if any, received from
Platinum US, Platinum UK and Platinum Bermuda unless we arrange for other sources of liquidity.
40
We do not yet have in place a letter of credit facility, and failure to arrange for such a facility could affect our ability to compete for certain
business.
We
do not yet have in place a letter of credit facility. Many U.S. jurisdictions do not permit insurance companies to take credit for reinsurance obtained from unlicensed or non-admitted
insurers on their U.S. statutory financial statements without appropriate security, which can include a letter of credit. Platinum UK and Platinum Bermuda will not be licensed in any U.S.
jurisdiction, and Platinum US will not be licensed in certain U.S. jurisdictions. If we fail to obtain a letter of credit, and are unable to otherwise provide the necessary security, insurance
companies may be less willing to purchase our reinsurance products than if we had a letter of credit. If this is the case, there may be a material adverse effect on our results of operations. If and
when we seek to obtain a letter of credit, we may not be able to obtain one upon terms acceptable to us.
Platinum Holdings is a holding company and, consequently, it is dependent on the payment of cash dividends or the extension of loans by Platinum US, Platinum UK and Platinum
Bermuda.
Platinum
Holdings is a holding company that will conduct no reinsurance operations of its own. All operations will be conducted by its wholly owned operating subsidiaries, Platinum US,
Platinum UK and Platinum Bermuda. As a holding company, Platinum Holdings' cash flow will consist primarily of dividends, interest and other permissible payments from its subsidiaries. Platinum
Holdings will depend on such payments to receive funds for general corporate purposes and to meet its obligations, including the payment of any dividends to its shareholders. Additionally, under the
Bermuda Companies Act 1981, Platinum Holdings may declare or pay a dividend only if, among other things, it has reasonable grounds for believing that it is, or would after the payment be, able to pay
its liabilities as they become due. For a discussion of the legal limitations on our subsidiaries' ability to pay dividends to Platinum Holdings, see "Management's Discussion and Analysis of Pro Forma
Financial Condition and Underwriting ResultsLiquidity and Capital ResourcesRestrictions on Dividend Payments from Our Operating Subsidiaries" and
"BusinessRegulation."
The regulatory system under which we operate, and potential changes thereto, could significantly and adversely affect our business.
Platinum Holdings. As the indirect parent of Platinum US, Platinum Holdings will be subject to the insurance holding company
laws of Maryland, where Platinum US is organized and domiciled. This law generally requires the insurance holding company and each insurance company directly or indirectly owned by the holding company
to register with the Maryland Insurance Commissioner and to furnish annually financial and other information. Generally, all transactions affecting the insurers in the holding company system must be
fair and, if material, require prior notice and approval or non-disapproval by the Maryland Insurance Commissioner.
Platinum US. Platinum US is organized and domiciled in Maryland and licensed, authorized or accredited to write reinsurance
in 24 states of the United States and is seeking licenses in eight additional states. State insurance laws regulate many aspects of its reinsurance business and state insurance departments in the
licensure states will supervise its reinsurance operations. Its principal insurance regulatory authority will be the Maryland Insurance Commissioner. The purpose of the state insurance regulatory
statutes is to protect insureds and ceding insurance companies, not our shareholders. Among other things, Maryland regulation requires Platinum US to maintain minimum levels of capital, surplus and
liquidity, and imposes restrictions on payment of dividends and distributions. These statutes and regulations may, in effect, restrict the ability of Platinum US to write new business or, as indicated
above, distribute funds to Platinum Holdings. In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislators have considered or enacted
laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. Moreover, the National Association of Insurance Commissioners (NAIC), which is an
association of the senior insurance regulatory officials of all 50 states and the District of Columbia, and state insurance regulators regularly reexamine
41
existing laws and regulations, interpretations of existing laws and the development of new laws, which may be more restrictive or may result in higher costs to us than current statutory requirements.
Platinum UK. As described above, upon completion of the Equity Public Offering, Platinum UK will not be authorized by the FSA to conduct insurance business in the
United Kingdom. However, if and when Platinum UK becomes an authorized person, its insurance business will be subject to close supervision by the FSA.
We
expect the FSA will take a rigorous and proactive approach to its supervisory duties. Among other things, the FSA is seeking to strengthen its requirements for senior management
arrangements, systems and controls by requiring insurance companies to maintain risk management teams, to determine and document policies for dealing with risks and to demonstrate how combinations of
risks have been aggregated and mitigated. In addition, as part of an initiative to integrate regulation throughout the financial services sector, the FSA intends to place an increased emphasis on risk
identification and management in relation to the prudential regulation of insurance businesses in the United Kingdom.
Further, in July 2002, the FSA issued proposals aimed at ensuring adequate diversification of an insurer's or reinsurer's exposures to reinsurers (whether intra- or extra-group). The
proposals are currently in draft form. If adopted in their current form, the proposals would limit the extent to which Platinum UK could reinsure business to Platinum Bermuda, and this could adversely
affect our earnings. Final rules and guidance based on these proposals are expected to be implemented in 2004. However, substantial compliance with CP143 in its draft form is likely to be an effective
condition for receiving FSA authorization. We are seeking consent from the FSA for Platinum Bermuda to reinsure up to approximately 55% of Platinum UK's reinsurance business, excluding business
subject to the Quota Share Retrocession Agreements, written after the Equity Public Offering; however, such consent may not be granted. See "BusinessOur
BusinessRegulationU.K. RegulationProposed Limits on Concentration of Reinsurance Exposures."
In
addition, given that the framework for supervision of insurance companies in the United Kingdom is largely formed by European Union ("EU") directives (which are implemented by member
states through national legislation), changes at the EU level may affect the regulatory scheme under which Platinum UK operates. A general review of EU insurance directives is currently in progress
and may lead to changes such as increased minimum capital requirements.
Platinum Bermuda. Platinum Bermuda is a registered Bermuda insurance company and is subject to regulation and supervision in
Bermuda. The applicable Bermuda statutes and regulations generally are designed to protect insureds and ceding insurance companies, not our shareholders. Platinum Bermuda is not registered or licensed
as an insurance company in any jurisdiction outside Bermuda. Platinum Bermuda will conduct its business through its offices in Bermuda and will not maintain an office, and its personnel will not
conduct any insurance activities in the United States or elsewhere. Although Platinum Bermuda does not believe it will be in violation of insurance laws of any jurisdiction outside Bermuda, inquiries
or challenges to Platinum Bermuda's insurance activities may still be raised in the future.
Platinum
Bermuda may be at a competitive disadvantage in jurisdictions where it is not licensed, authorized or accredited or does not enjoy an exemption from licensing. Platinum Bermuda
may not be able to obtain any additional licenses, authorizations or accreditations or may be able to do so only at great cost. Many U.S. jurisdictions do not permit insurance companies to take credit
for reinsurance obtained from unlicensed or non-admitted insurers on their U.S. statutory financial statements without appropriate security. We expect that Platinum Bermuda's reinsurance
clients will typically require it to post a letter of credit or enter into other security arrangements, which will increase its costs of operations relative to reinsurers not required to do so. If
Platinum Bermuda is unable to obtain a letter of credit facility on commercially acceptable terms or is unable to arrange for other types of security, its ability to operate its business may be
severely limited.
42
The
offshore insurance and reinsurance regulatory framework recently has become subject to increased scrutiny in many jurisdictions, including in the United States and in various states
within the United States. In the past, there have been congressional and other proposals in the United
States regarding increased supervision and regulation of the insurance industry, including proposals to supervise and regulate reinsurers domiciled outside the United States. If Platinum Bermuda were
to become subject to any insurance laws and regulations of the United States or any U.S. state, which are generally more restrictive than those applicable to it in Bermuda, at any time in the future,
it might be required to post deposits or maintain minimum surplus levels and might be prohibited from engaging in lines of business or from writing specified types of policies or contracts. Complying
with those laws could have a material adverse effect on our ability to conduct business or our results of operations.
We will be dependent on the business provided to us by reinsurance brokers and we may be exposed to liability for brokers' failure to make payments to clients for their
claims.
We
intend to market most of our reinsurance products through reinsurance brokers. The reinsurance brokerage industry generally, and our sources of business specifically, are
concentrated. On a pro forma basis, based on net premiums written during the six months ended June 30, 2002, the five brokers from which St. Paul Re derived the largest portions of its business
(with the approximate percentage of our business derived from such brokers and their affiliates) are Aon Corporation (25.5%), Marsh & McLennan Companies (20.9%), Benfield Blanch Inc.
(19.6%), Willis Group Holdings (9.4%) and Towers Perrin (3.0%). Loss of all or a substantial portion of the business provided by such intermediaries could have a material adverse effect on us. In
addition, at least two of these brokers have announced their intention to form new Bermuda reinsurance companies that may compete with us, and these brokers may favor their own reinsurers over other
companies, including us.
In
accordance with industry practice, we expect to frequently pay amounts owing in respect of claims under our policies to reinsurance brokers, for payment over to the ceding insurers.
In the event that a broker fails to make such a payment, depending on the jurisdiction, we may remain liable to the ceding insurer for the deficiency. Conversely, in certain jurisdictions, when
premiums for such policies are paid to reinsurance brokers for payment over to us, such premiums will be deemed to have been paid and the ceding insurer will no longer be liable to us for those
amounts whether or not actually received by us. Consequently, we will assume a degree of credit risk associated with our brokers during the payment process.
Because we are dependent on certain contractual relationships with St. Paul, our principal shareholder, we may experience conflicts of interest with St. Paul that may be
detrimental to our business.
Concurrently
with the Equity Public Offering, in return for the Cash Contribution and the contribution of the Transferred Business, we have agreed to issue 6,000,000 Common Shares to St.
Paul and to grant to St. Paul the St. Paul Option, as described in more detail under "St. Paul Investment, RenaissanceRe Investment and Principal Shareholders." Following the Equity
Public Offering and the St. Paul Investment, St. Paul will own 15.0% of our Common Shares (which shares will be limited to 9.9% of the voting power of the outstanding Common Shares), and will be able,
through exercise in full of the St. Paul Option, to increase its ownership to approximately 26.1% of our Common Shares, assuming no exercise of the underwriters', St. Paul's or RenaissanceRe's options
to purchase additional Common Shares or of the RenaissanceRe Option. St. Paul has agreed with
us that, prior to any exercise of the St. Paul Option, it will, if necessary, dispose of a sufficient number of Common Shares so that, immediately after exercise of the St. Paul Option,
St. Paul will not be a "United States 25% Shareholder" as defined under "Description of Platinum Holdings' Common SharesRestrictions on Transfer." St. Paul's interest in owning
Common Shares may be different from that of other shareholders.
In
connection with our formation, we have agreed with St. Paul and certain of its affiliates to enter into, among other things, a Formation and Separation Agreement, Master Services
43
Agreements, Quota Share Retrocession Agreements, Run-off Services Agreements and Underwriting Management Agreements. These agreements, which we refer to as the "Inception Agreements",
will become effective upon the completion of the Equity Public Offering (except the Quota Share Retrocession Agreements which will take effect at 12:01 a.m. on the day immediately following the date
of completion of the Equity Public Offering and will govern our relationship with St. Paul with respect to various intercompany services, which we and St. Paul will provide one another following the
completion of the Equity Public Offering. The terms of the Inception Agreements have been negotiated between Platinum and St. Paul but do not necessarily reflect terms that Platinum or St. Paul would
agree to with an independent third party. Notwithstanding these contractual relationships, St. Paul (other than as restricted by the non-competition provisions of the Formation and
Separation Agreement and of the UK Business Transfer Agreement), and its subsidiaries and affiliates, may from time to time compete with us, including by assisting or investing in the formation of
other entities engaged in the insurance and reinsurance businesses. Conflicts of interest could also arise with respect to business opportunities that could be advantageous to St. Paul and any of its
subsidiaries or affiliates, on the one hand, and us, on the other hand. Other than as specified in the Inception Agreements, St. Paul is under no obligation to deal with us on any basis other than
arm's length or to treat us as a "preferred provider" or grant us any other preferential treatment. St. Paul or its subsidiaries or affiliates have entered, and may enter, into agreements and maintain
relationships with numerous companies that may directly compete with us.
Risk Factors Relating to the Units
The market value of the Common Shares you will purchase on the share purchase date may be materially lower than the price per share that the purchase contract
requires you to pay. If the average of the closing price per Common Share over the 20 trading-day period ending on the third trading day immediately preceding the share purchase date is less than
$ per share, you will, on the share purchase date, be required to purchase Common Shares at a price per share of
$ . Accordingly, a holder of units assumes the
entire risk that the market value of the Common Shares may decline and that the decline could be substantial.
The aggregate market value of the Common Shares you will receive upon settlement of a purchase contract generally will exceed the stated amount of $25 only if the
average of the closing price per Common Share over the 20 trading-day period ending on the third trading day immediately preceding the share purchase date equals or exceeds $ ,
which is
referred to as the "threshold appreciation price." The threshold appreciation price represents an appreciation of % over
$ . If the applicable average closing price
exceeds $ , which is referred to as the "reference price", but falls below the threshold appreciation price, you will realize no equity appreciation on the Common Shares for the
period
during which you own a unit. Furthermore, if the applicable average closing price exceeds the threshold appreciation price, the value of the Common Shares you will receive under the purchase contract
will be approximately % of the value of the Common Shares you could have purchased with $25 at the time of the ESU Offering. During the period prior to settlement, an investment in the
units affords less opportunity for equity appreciation than a direct investment in the Common Shares.
The trading price of the Common Shares and the general level of interest rates and our credit quality will directly affect the trading price for the units.
It is impossible to predict whether the price of the Common Shares or interest rates will rise or fall. Our operating results and prospects and economic,
financial and other factors will affect trading prices of the Common Shares and the units. In addition, market conditions can affect the capital markets generally, thereby affecting the price of the
Common Shares. These conditions may include the level of, and fluctuations in, the trading prices of stocks generally and sales of substantial amounts of Common Shares in the market after the Equity
Public Offering or the perception that
44
those sales could occur. Fluctuations in interest rates may give rise to arbitrage opportunities based upon changes in the relative value of the Common Shares underlying the purchase contracts and of
the other components of the units. The arbitrage could, in turn, affect the trading prices of the units.
The number of Common Shares issuable upon settlement of your purchase contract is subject to adjustment only for stock splits and combinations, stock dividends
and specified other transactions that significantly modify the capital structure of Platinum Holdings. The number of Common Shares issuable upon settlement of each purchase contract is not subject to
adjustment for other events, including employee stock option grants, ordinary dividends, offerings of Common Shares for cash, or in connection with acquisitions or other transactions which may
adversely affect the price of the
Common Shares. The terms of the units do not restrict the ability of Platinum Holdings to offer Common Shares in the future or to engage in other transactions that could dilute the Common Shares.
Platinum Holdings has no obligation to consider the interests of the holders of the units in engaging in any such offering or transaction. If Platinum Holdings issues additional Common Shares, that
issuance may materially and adversely affect the price of the Common Shares and, because of the relationship of the number of Common Shares holders are to receive on the share purchase date to the
price of the Common Shares, such other events may adversely affect the trading price of the units.
You will have no rights as common shareholders but will be subject to all changes with respect to the Common Shares.
Until you acquire Common Shares upon settlement of your purchase contract, you will have no rights with respect to the Common Shares, including voting rights,
rights to respond to tender offers and rights to receive any dividends or other distributions on the Common Shares. Platinum Holdings intends to declare and pay quarterly cash dividends beginning in
the fourth quarter of 2002. Only holders of Common Shares, not holders of units, will receive such dividends. Upon settlement of your purchase contract, you will be entitled to exercise the rights of
a holder of Common Shares only as to actions for which the record date occurs after the settlement date.
Although holders of units will hold beneficial ownership interests in the underlying pledged senior notes or treasury securities, the holders will pledge those
securities with the collateral agent to secure their obligations under the related purchase contracts. Therefore, for so long as the purchase contracts remain in effect, holders will not be allowed to
withdraw their ownership interest in the pledged senior notes or treasury securities from this pledge arrangement, except upon substitution of other securities as described in this prospectus.
We are unable to predict how the units will trade in the secondary market or whether that market will be liquid or illiquid. There is currently no secondary
market for the units. Although the normal units have been approved for listing on the New York Stock Exchange, subject to notice of issuance, we have no obligation or current intention to apply for
any separate listing of the stripped units or the senior notes on any stock exchange. We can give you no assurance as to the liquidity of any market that may develop for the normal units, the stripped
units or the senior notes, your ability to sell such securities or whether a trading market, if it develops, will continue. In addition, in the event that sufficient numbers of normal units are
converted to stripped units, the liquidity of normal units could be adversely affected. It is possible that the normal units, and the stripped units or senior notes if they are ever listed, could be
delisted from the New York Stock Exchange or that
trading in the normal units, stripped units or senior notes could be suspended as a result of elections to create stripped units or recreate normal units through the substitution of collateral that
45
causes the number of these securities to fall below the applicable requirements for listing securities on the New York Stock Exchange.
Delivery of the securities under the pledge agreement is subject to potential delay if Platinum Holdings becomes subject to a bankruptcy proceeding.
Notwithstanding the automatic termination of the purchase contracts, if Platinum Holdings becomes the subject of a case under the federal bankruptcy code, the
imposition of an automatic stay under Section 362 of the federal bankruptcy code may delay the delivery to you of your securities being held as collateral under the pledge arrangement and such
delay may continue until the automatic stay has been lifted. The automatic stay will not be lifted until such time as the bankruptcy judge agrees to lift it and allows your collateral to be returned
to you. Similarly, if Platinum Holdings becomes the subject of winding up proceedings under the Bermuda Companies Act 1981, a delay may result from the automatic stay of proceedings against Platinum
Holdings and may continue until the court decides to lift the stay.
Platinum Finance has the option to redeem the senior notes, on not less than 30 days' nor more than 60 days' prior written notice, in whole but not
in part, at any time if a tax event occurs and continues under the circumstances described in this prospectus. See "Description of the Senior NotesTax Event Redemption." If Platinum
Finance exercises this option, the senior notes will be redeemed at the redemption price (described later in this prospectus) plus accrued and unpaid interest, if any, to the date of redemption. If
the senior notes are redeemed, Platinum Finance will pay the redemption price, plus accrued and unpaid interest, if any, to the date of redemption, in cash to the holders of ownership interests in the
senior notes. If the tax event redemption occurs prior to the earlier of the share purchase date or a successful remarketing of the senior notes, the redemption price payable to you as a holder of the
normal units will be distributed to the collateral agent, who in turn will apply an amount equal to the redemption price to purchase a portfolio of zero-coupon U.S. treasury securities on
your behalf, and will remit the remainder of the redemption price, if any, to you, and these treasury securities will be substituted for the senior notes as collateral to secure your obligations under
the purchase contracts related to the normal units. If your senior notes are not components of normal units, you, rather than the collateral agent, will receive the related redemption payments. We can
give you no assurance as to the effect on the market prices for the normal units if we substitute the treasury securities as collateral in place of any senior notes so redeemed. A tax event redemption
will be a taxable event to the holders of the senior notes.
Because Platinum Holdings and Platinum Finance are each holding companies with no operations of their own, Platinum Finance's obligations under the senior notes and Platinum Holdings' obligations
under the guarantee and the purchase contracts are effectively subordinated to the debt and other obligations of their respective subsidiaries.
Both Platinum Holdings and Platinum Finance are holding companies with no operations of their own. Platinum Holdings' ability to pay its obligations under the
purchase contracts and the guarantee is dependent upon its ability to obtain cash dividends or other cash payments or loans from its subsidiaries. Similarly, Platinum Finance's ability to pay its
obligations under the senior notes is dependent upon its ability to obtain cash dividends or loans from its subsidiaries. Platinum Holdings' and Platinum Finance's operating subsidiaries are separate
and distinct legal entities and will have no obligation, contingent or otherwise, to pay any dividends or make any other distributions (except for payments required pursuant to the terms of
intercompany indebtedness) to Platinum Holdings or Platinum Finance. Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the abilities of
Platinum Holdings' and Platinum Finance's subsidiaries to transfer funds to Platinum Holdings and Platinum Finance in the form of cash dividends, loans or advances. See "Risks Related to Our
BusinessPlatinum Holdings
46
is a holding company and, consequently, it is dependent on the payment of cash dividends or the extension of loans by Platinum US, Platinum UK and Platinum Bermuda."
In
addition, because Platinum Holdings and Platinum Finance are holding companies, except to the extent that Platinum Holdings or Platinum Finance has priority or equal claims against
its subsidiaries as a creditor, Platinum Finance's obligations under the senior notes and Platinum Holdings' obligations under the guarantee and the purchase contracts will be effectively subordinated
to the debt and other obligations of their respective subsidiaries because, as the shareholders of their subsidiaries, they will be subject to the prior claims of creditors of their subsidiaries. As
of June 30, 2002, on a pro forma basis, Platinum Finance's subsidiaries had no liabilities or obligations that would have effectively ranked senior to the senior notes and Platinum Holdings'
subsidiaries had approximately $270 million in liabilities and obligations that would have effectively ranked senior to the guarantees.
Platinum Holdings has the option to defer the payment of all or part of the contract adjustment payments on the purchase contracts forming a part of the units
until no later than the share purchase date. However, deferred contract adjustment payments will accrue additional contract adjustment payments at the rate of % per year
(compounded
quarterly) until paid. If the purchase contracts are terminated due to Platinum Holdings' bankruptcy, insolvency or reorganization, the right to receive contract adjustment payments and deferred
contract adjustment payments, if any, will also terminate.
The U.S. federal income tax consequences of the purchase, ownership and disposition of the units are unclear.
No statutory, judicial or administrative authority directly addresses the treatment of the units or instruments similar to the units for U.S. federal income tax
purposes. As a result, the U.S. federal income tax consequences of the purchase, ownership and disposition of the units are not entirely clear. In addition, if the senior notes are (as we believe they
should be) treated as contingent payment debt instruments, any gain on the disposition of a senior note prior to the date on which the interest rate on the senior note is reset generally should be
treated as ordinary interest income; thus, the ability to offset such interest income with a loss, if any, on a purchase contract may be limited.
Assuming the senior notes are classified as contingent payment debt instruments, you will have to include interest in your taxable income in excess of current cash flows, and gain recognized on your
disposition of a senior note will generally be treated as ordinary interest income.
Because of the manner in which the interest rate on the senior notes is reset, we believe the senior notes should be classified as contingent payment debt
instruments subject to the "noncontingent bond method" for accruing original issue discount for United States income tax purposes. Assuming the senior notes are so treated, original issue discount
will accrue from the issue date of the senior notes and will be included in your gross income for United States income tax purposes on a constant yield-to-maturity basis,
regardless of your usual method of tax accounting, and adjustments will be made to reflect actual payments on the senior notes. For all accrual periods ending on or prior to ,
2005, and
possibly thereafter, the original issue discount that accrues on the senior notes will exceed the stated interest payments on the senior notes. In addition, any gain on the disposition of a senior
note before the share purchase date will generally be treated as ordinary interest income, and the ability to offset this interest income with a loss, if any, on a purchase contract may be limited.
47
The trading price of the senior notes may not fully reflect the value of their accrued but unpaid interest.
The senior notes may trade at a price that does not fully reflect the value of their accrued but unpaid interest. If you dispose of your senior notes between
record dates for interest payments, you will be required to include in gross income the daily portions of original issue discount through the date of disposition as ordinary income, and to add this
amount to your adjusted tax basis in the senior notes disposed of. To the extent the selling price is less than your adjusted tax basis, you
will recognize a loss. Some or all of this loss may be capital loss. The deductibility of capital losses for U.S. federal income tax purposes is subject to certain limitations.
Risks Related to Our Common Shares
Prior to the Equity Public Offering, there has been no public trading market for the Common Shares. If an active trading market does not develop and continue upon
completion of the Equity Public Offering, your investment may become less liquid and the market price of the Common Shares may decline, even below the initial public offering price. The initial public
offering price per Common Share in the Equity Public Offering will be determined by agreement among the Company, St. Paul and the representatives of the underwriters and may not be indicative of the
market price of the Common Shares after the Equity Public Offering. The Common Shares have been approved for listing on the New York Stock Exchange under the symbol "PTP", subject to notice of
issuance.
It may be difficult to enforce service of process and enforcement of judgments against us and our officers and directors.
We
are a Bermuda company and certain of our officers and directors will be residents of various jurisdictions outside the United States. A substantial portion of our assets and our
officers and directors, at any one time, are or may be located in jurisdictions outside the United States. Although we have irrevocably appointed CT Corporation System as an agent in New York, New
York to receive service of process with respect to actions against us arising out of violations of the U.S. federal securities laws in any federal or state court in the United States relating to the
transactions covered by this prospectus, it may be difficult for investors to effect service of process within the United States on our directors and officers who reside outside the United States or
to enforce against us or our directors and officers judgments of U.S. courts predicated upon civil liability provisions of the U.S. federal securities laws.
Sales of substantial amounts of the Common Shares in the public market following the Equity Public Offering, the St. Paul Investment and the RenaissanceRe
Investment, or the perception that such sales could occur, could adversely affect the market price of the Common Shares and may make it more difficult for us to sell our equity securities in the
future, or for shareholders to sell their
Common Shares, at a time and price which they deem appropriate. Upon completion of the Equity Public Offering, the St. Paul Investment and the RenaissanceRe Investment, there will be 40,000,000 Common
Shares outstanding. In the event the underwriters' option to purchase an additional 4,506,000 Common Shares is exercised, St. Paul has the option to purchase (at a price per share equal to the initial
public offering price less the underwriting discount) up to an additional 900,000 Common Shares in order to maintain the proportionate initial share ownership in the Company it obtained prior to the
underwriters exercising their option to purchase additional Common Shares, and RenaissanceRe has the option to purchase (at a price per share equal to the initial public offering price less the
underwriting discount) up to an additional 594,000 Common Shares in order to maintain the proportionate initial share ownership in the Company it obtained prior to the underwriters exercising their
option to purchase additional Common Shares. As a result, if the underwriters' option to purchase additional Common Shares is exercised in full and these additional shares are purchased by St. Paul
and RenaissanceRe, there would be 46,000,000 Common Shares
48
outstanding upon completion of the Equity Public Offering, the St. Paul Investment and the RenaissanceRe Investment. Furthermore, upon the settlement of the purchase contracts forming part of the
equity security units on 2005, an additional number of Common Shares, to be determined based upon a settlement rate, will be sold to the holders of the equity security units. In that
event, St. Paul and RenaissanceRe may exercise their pre-emptive rights to purchase a corresponding number of Common Shares to maintain their respective proportionate ownership interests in
Platinum Holdings.
The Common Shares sold in the Equity Public Offering and issuable to the holders of equity security units on , 2005 will be freely tradeable
without restriction or future
registration under the Securities Act of 1933, as amended (the "1933 Act"), by persons other than "affiliates" of the Company. The Common Shares issued in the St. Paul Investment and the RenaissanceRe
Investment, the Common Shares issuable pursuant to the St. Paul Option and the RenaissanceRe Option, and the Common Shares St. Paul and RenaissanceRe may purchase pursuant to their pre-emptive
rights upon the settlement of the purchase contracts forming part of the equity security units will be "restricted securities" within the meaning of the 1933 Act and may not be sold in the absence of
registration under the 1933 Act or an exemption therefrom. St. Paul and RenaissanceRe have been granted rights to require Platinum Holdings to register Common Shares they own. Platinum Holdings, its
officers and directors, Platinum Finance, St. Paul and RenaissanceRe have agreed with the underwriters not to offer, sell, contract to sell, pledge, grant any option to purchase, hedge, make
any short sale or otherwise dispose of any Common Shares or equity security units (including the related purchase contracts and senior notes), or any securities of the Company that are substantially
similar to Common Shares or equity security units (including the related purchase contracts or senior notes), or any securities of Platinum Finance that are substantially similar to the senior notes,
or any options or warrants to purchase any of Common Shares or equity security units (including the related purchase contracts and senior notes), or any securities convertible into, exchangeable for
or that represent the right to receive Common Shares or equity security units (including the related purchase contracts and senior notes) (and, with respect to the Company, other than the initial
issuance of Common Shares to be offered and sold concurrently with this offering and the securities to be offered and sold in the St. Paul Investment and the RenaissanceRe Investment) during
the period from the date of this prospectus continuing to and including the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc. and subject to other specified exceptions. See "Shares Eligible for Future Sale" for a discussion of certain transfer
restrictions. RenaissanceRe has agreed with us that for a period of one year from the closing date of the Equity Public Offering it will not sell, offer to sell, contract to sell or otherwise dispose
of any Common Shares or any other securities convertible into or exercisable or exchangeable for any Common Shares or grant options to purchase any Common Shares, subject
to certain limited exceptions. For a description of the St. Paul Investment and the RenaissanceRe Investment, see "St. Paul Investment, RenaissanceRe Investment and Principal Shareholders." For a
description of St. Paul's pre-emptive rights, see "Certain Relationships and Related TransactionsThe St. Paul InvestmentFormation and Separation
AgreementPre-Emptive Rights." For a description of RenaissanceRe's pre-emptive rights, see "Certain Relationships and Related TransactionsThe RenaissanceRe
InvestmentTransfer Restrictions, Registration Rights and Standstill AgreementPre-Emptive Rights."
There are limitations on the ownership, transfer and voting rights of our Common Shares.
Under our bye-laws, our directors are required to decline to register any transfer of Common Shares that would result in a person (or any group of
which such person is a member) beneficially owning, directly or indirectly, 10% or more of the voting shares, or in the case of St. Paul and its subsidiaries, or RenaissanceRe and its subsidiaries,
beneficially owning, directly or indirectly, 25% or more of such shares or of the total combined value of our issued shares. Similar restrictions apply to our ability to issue or repurchase shares.
These restrictions on the transfer, issuance or repurchase of shares do not apply to any issuance of shares to a person (other than St. Paul and
49
its subsidiaries and RenaissanceRe and its subsidiaries) pursuant to a contract to purchase Common Shares from Platinum Holdings included in the equity security units. The directors also may, in
their discretion, decline to register the transfer of any shares if they have reason to believe (1) that the transfer may lead to adverse tax or regulatory consequences in any jurisdiction or
(2) that the transfer would violate the registration requirements of the U.S. federal securities laws or of any other jurisdiction. These restrictions would apply to a transfer of shares even
if the transfer has been executed on the New York Stock Exchange. A transferor of Common Shares will be deemed to own those shares for dividend, voting and reporting purposes until a transfer of those
Common Shares has been registered on our register of shareholders. We are authorized to request information from any holder or prospective acquiror of Common Shares as necessary to give effect to the
transfer, issuance and repurchase restrictions referred to above, and may decline to effect any transaction if complete and accurate information is not received as requested.
In
addition, our bye-laws generally provide that any person (or any group of which such person is a member) beneficially owning, directly or indirectly, shares carrying 10%
or more of the total voting rights attached to all of our outstanding voting shares will have the voting rights attached to its issued shares reduced so that it may not exercise 10% or more of such
total voting rights. Because of the attribution provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and the rules of the Securities and Exchange Commission (the "SEC")
regarding determination of beneficial ownership, this requirement may have the effect of reducing the voting rights of a shareholder whether or not such shareholder directly holds 10% or more of our
Common Shares. Further, the directors have the authority to require from any shareholder certain information for the purpose of determining whether that shareholder's voting rights are to be reduced.
Failure to respond to such a notice, or submitting incomplete or inaccurate information, gives the directors (or their designee) discretion to disregard all votes attached to that shareholder's Common
Shares. See "Description of Platinum Holdings' Common Shares."
The
insurance law of Maryland prevents any person from acquiring control of us or of Platinum US unless that person has filed a notification with specified information with the Maryland
Insurance Commissioner and has obtained his prior approval. Under the Maryland statute, acquiring 10% or more of the voting stock of an insurance company or its parent company is presumptively
considered a change in control, although such presumption may be rebutted. Accordingly, any person who acquires, directly or indirectly, 10% or more of the voting securities of Platinum Holdings
without the prior approval of the Maryland Insurance Commissioner will be in violation of this law and may be subject to injunctive action requiring the disposition or seizure of those securities by
the Maryland Insurance Commissioner or prohibiting the voting of those securities and to other actions determined by the Maryland Insurance Commissioner. In addition, many U.S. state insurance laws
require prior notification of state insurance departments of a change in control of a non-domiciliary insurance company doing business in that state. While these pre-notification statutes
do not authorize the state insurance departments to disapprove the change in control, they authorize regulatory action in the affected state if particular conditions exist such as undue market
concentration. Any future transactions that would constitute a change in control of Platinum Holdings may require prior notification in those states that have adopted preacquisition notification laws.
Common
Shares may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act 1998 of Bermuda. In addition, sales of Common Shares to persons
resident in Bermuda for Bermuda exchange control purposes may require the prior approval of the Bermuda Monetary Authority. Consent under the Exchange Act of 1972 (and regulations thereunder) has been
obtained from the Bermuda Monetary Authority for the issue and transfer of the Common Shares being offered pursuant to this offering and between non-residents of Bermuda for exchange
control purposes, provided our Common Shares remain listed on an appointed stock exchange, which includes the New York Stock Exchange. This prospectus will be filed with the Registrar of Companies in
Bermuda in accordance with Bermuda law. In giving such consent, and in accepting this prospectus for filing, neither the Bermuda Monetary Authority nor the Registrar of
50
Companies accepts any responsibility for the financial soundness of any proposal or for the correctness of any of the statements made or opinions expressed herein.
The
Financial Services and Markets Act 2000 ("FSMA") regulates the acquisition of "control" of any U.K. insurance company authorized under FSMA. Any company or individual that (together
with its or his associates) directly or indirectly acquires 10% or more of the shares in the parent company of a U.K. authorized insurance company, or is entitled to exercise or control the exercise
of 10% or more of the voting power in such a parent company, would be considered to have acquired "control" for the purposes of the relevant legislation, as would a person who had significant
influence over the management of such parent company by virtue of his shareholding in it. A purchaser of more than 10% of the Common Shares would therefore be considered to have acquired "control" of
Platinum UK.
Under
FSMA, any person proposing to acquire "control" over a U.K. authorized insurance company must give prior notification to the FSA of his intention to do so. The FSA would then have
three months to consider that person's application to acquire "control." In considering whether to approve such application, the FSA must be satisfied both that the acquirer is a fit and proper person
to have such "control" and that the interests of consumers would not be threatened by
such acquisition of "control." Failure to make the relevant prior application would constitute a criminal offense.
The
foregoing provisions of our bye-laws and legal restrictions will have the effect of rendering more difficult or discouraging unsolicited takeover bids from third parties or the
removal of incumbent management.
Your investment could be materially adversely affected if we are deemed to be engaged in business in the United States.
Platinum
Holdings and Platinum Bermuda are Bermuda companies, Platinum UK is a U.K. company, and Platinum Ireland is an Irish company. We believe that Platinum Holdings, Platinum UK,
Platinum Bermuda and Platinum Ireland will each operate in such a manner that none of these companies will be subject to U.S. tax (other than U.S. excise tax on reinsurance premiums and withholding
tax on certain investment income from U.S. sources) because they will not be engaged in a trade or business in the United States. Nevertheless, because definitive identification of activities which
constitute being engaged in a trade or business in the United States is not provided by the Code or regulations or court decisions, the U.S. Internal Revenue Service (the "IRS") might contend that any
of Platinum Holdings, Platinum UK, Platinum Bermuda or Platinum Ireland are/is engaged in a trade or business in the United States. If Platinum Holdings, Platinum UK, Platinum Bermuda or Platinum
Ireland were engaged in a trade or business in the United States, and if Platinum UK, Platinum Bermuda or Platinum Ireland were to qualify for benefits under the applicable income tax treaty with the
United States, but such trade or business were attributable to a "permanent establishment" in the United States (or, in the case of Platinum Bermuda, with respect to investment income, arguably even
if such income were not attributable to a "permanent establishment"), Platinum Holdings, Platinum UK, Platinum Bermuda and/or Platinum Ireland would be subject to U.S. tax at regular corporate rates
on the income that is effectively connected with the U.S. trade or business, plus an additional 30% "branch profits" tax on such income remaining after the regular tax in certain circumstances, in
which case our earnings and your investment could be materially adversely affected.
If you acquire 10% or more of the Common Shares, CFC rules may apply to you.
Under
the Code, each "United States shareholder" of a foreign corporation that is a "controlled foreign corporation" ("CFC") for an uninterrupted period of 30 days or more during a taxable year, and
who owns shares in the CFC on the last day of the CFC's taxable year, must include in its gross income for U.S. federal income tax purposes its pro rata share of the CFC's "subpart F income", even if
the subpart F income is not distributed. For these purposes, any U.S. person who owns, directly or indirectly through a foreign entity or through the constructive ownership rules of the Code, 10% or
more of the total combined voting power of all classes of stock of a foreign corporation will
51
be considered to be a "United States shareholder." In general, a foreign insurance company such as Platinum UK or Platinum Bermuda is treated as a CFC only if such "United States shareholders"
collectively own more than 25% of the total combined voting power or total value of our stock. St. Paul will actually own approximately 15% (and will, after applying the constructive ownership rules
of the Code, own no more than 24.9%) of the Common Shares upon completion of the Equity Public Offering, assuming no exercise of the underwriters' option to purchase additional Common Shares,
although, pursuant to our bye-laws, the combined voting power of these shares is limited to approximately 9.9% of the combined voting power of all Common Shares. We expect that, because of
the limitations on concentration of voting power of our Common Shares, the dispersion of our share ownership among holders other than St. Paul, the provisions for directed voting on matters requiring
action by the shareholders of Platinum Bermuda, Platinum Ireland and Platinum UK (including the election of the members of their boards of directors) and the restrictions on transfer, issuance or
repurchase of the Common Shares, you will not be subject to treatment as a "United States shareholder" of a CFC. In addition, because under our bye-laws no single shareholder (including
St. Paul) is permitted to exercise, after taking into account Common Shares constructively owned or held indirectly through a foreign entity, as much as 10% of the total combined voting power of the
Company, you should not be viewed as a "United States shareholder" of a CFC for purposes of these rules. However, these rules could apply to you. Accordingly, U.S. persons who might, directly, or
indirectly through a foreign entity or through the constructive ownership rules of the Code, acquire or be deemed to acquire 10% or more of our Common Shares should consider the possible application
of the CFC rules.
Under certain circumstances, you may be required to pay taxes on your pro rata share of Platinum Bermuda's and Platinum UK's related person insurance
income.
If
Platinum UK's or Platinum Bermuda's related person insurance income ("RPII") were to equal or exceed 20% of Platinum UK's or Platinum Bermuda's gross insurance income in any taxable
year and direct or indirect insureds (and persons related to such insureds) own (or are treated as owning directly or indirectly) 20% or more of the voting power or value of the shares of Platinum UK
or Platinum Bermuda, a U.S. person who owns the Common Shares of Platinum Holdings directly or indirectly on the last day of the taxable year would be required to include in its income for U.S.
federal income tax purposes the shareholder's pro rata share of Platinum UK's or Platinum Bermuda's RPII for the entire taxable year, determined as if such RPII were distributed proportionately to
such United States shareholders at that date regardless of whether such income is distributed. In addition, U.S. tax-exempt organizations would be required to treat RPII as unrelated
business taxable income if Platinum UK's or Platinum Bermuda's RPII equaled or exceeded 20% of Platinum UK's or Platinum Bermuda's gross insurance income in any taxable year. The amount of RPII earned
by Platinum UK or Platinum Bermuda (generally, premium and related investment income from the direct or indirect insurance or reinsurance of any direct or indirect U.S. shareholder of Platinum UK or
Platinum Bermuda or any person related to such shareholder, including St. Paul) will depend on a number of factors, including the geographic distribution of Platinum UK's or Platinum Bermuda's
business and the identity of persons directly or indirectly insured or reinsured by Platinum UK or Platinum Bermuda. Some of the factors which determine the extent of RPII in any period may be beyond
Platinum UK's or Platinum Bermuda's control. Consequently, Platinum UK's or Platinum Bermuda's RPII could equal or exceed 20% of its gross insurance income in any taxable year and ownership of its
shares by direct or indirect insureds and related persons could equal or exceed the 20% threshold described above.
The
RPII rules provide that if a shareholder who is a U.S. person disposes of shares in a foreign insurance corporation that has RPII (even if the amount of RPII is less than 20% of the
corporation's
gross insurance income) and in which U.S. persons own 25% or more of the shares, any gain from the disposition will generally be treated as ordinary income to the extent of the shareholder's share of
the corporation's undistributed earnings and profits that were accumulated during the period that the shareholder owned the shares (whether or not such earnings and profits are attributable to RPII).
In addition, such a shareholder will be required to comply with certain
52
reporting requirements, regardless of the amount of shares owned by the shareholder. These rules should not apply to dispositions of Common Shares because Platinum Holdings will not itself be
directly engaged in the insurance business and because proposed U.S. Treasury regulations appear to apply only in the case of shares of corporations that are directly engaged in the insurance
business. However, the IRS might interpret the proposed regulations in a different manner and the applicable proposed regulations may be promulgated in final form in a manner that would cause these
rules to apply to dispositions of our Common Shares.
Recently
proposed U.S. legislation targeting so-called "inversion transactions" would under certain circumstances treat a foreign corporation as a U.S. corporation for U.S. federal
income tax purposes and under other circumstances would require obtaining IRS approval of the terms of related-party transactions. In addition, interest deductions on debt borrowed from or guaranteed
by a related non-U.S. party would be more severely limited than under existing so-called "earnings stripping" provisions.
The
Company and its subsidiaries would appear generally not to be subject to the proposed legislation directed at inversion transactions as currently drafted. However, the proposed
changes to the earnings stripping provisions could impose significant restrictions on the amount of interest deductible by the Company's U.S. subsidiaries on certain debt owed to or guaranteed by
related non-U.S. parties (including the surplus note to be issued by Platinum US to Platinum Ireland and the senior notes to be issued by Platinum Finance and guaranteed by the Company). We cannot
predict whether the proposed legislation (or any similar legislation) will be enacted or, if enacted, what the specific provisions or the effective date of any such legislation would be, or whether it
would have any effect on the Company or its subsidiaries.
If
the inversion legislation were enacted and made applicable to the Company and its subsidiaries, we could be treated as a U.S. corporation. If we were treated as a U.S. corporation, we
would be subject to taxation in the United States at regular corporate rates, in which case our earnings and shareholders' investments would be materially adversely affected. In addition, the U.S. tax
consequences to our shareholders would be significantly different from those described below in "U.S. Federal Income Tax ConsequencesCommon Shares." If the inversion legislation were to
so apply, however, the earnings stripping provisions would, if also enacted, be inapplicable to the extent the non-U.S. related-party lender or guarantor was treated as a U.S. corporation under the
inversion legislation. Prospective investors should consult their own tax advisors regarding the U.S. tax consequences to them, in their particular circumstances, if we were treated as a U.S.
corporation.
In
addition, a bill has been introduced in the House of Representatives that would effectively denyby deferring for an extended perioda U.S.-based insurer or
reinsurer that reinsures or retrocedes a portion of its risk with or to a related foreign-based reinsurer or retrocedent in a low tax rate jurisdiction (such as Bermuda) a deduction for the portion of
the insurance or reinsurance premium ceded to the related foreign-based party, thereby effectively subjecting all of the premium income to U.S. tax. Moreover, a senior official of the U.S. Treasury
Department has also identified related party reinsurance arrangements as an area that requires study because it may result in an inappropriate shift of income from a U.S. corporate group to its
foreign affiliates, implying that, were that to be the conclusion of such a study, legislation, possibly in the form of legislation imposing a premium-based tax, might be needed. Enactment of
legislation of either type could materially adversely affect our earnings and shareholders' investments.
We have received a standard assurance from the Bermuda Minister of Finance, under Bermuda's Exempted Undertakings Tax Protection Act 1966, that if any legislation
is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the
imposition of
53
any such tax will not be applicable to us or to any of our operations or our shares, debentures or other obligations until March 28, 2016. Consequently, if our Bermuda tax exemption is not
extended past March 28, 2016, we may be subject to any Bermuda tax after that date. For more information on Bermuda taxation of Platinum Holdings and Platinum Bermuda, see "U.S. Federal Income
Tax Consequences."
Bermuda could be subject to sanctions by a number of multinational organizations which could adversely affect Bermuda companies.
A number of multinational organizations, including the EU, the Organization for Economic Cooperation and Development ("OECD"), including its Financial Action Task
Force, and the Financial Stability Forum have all recently identified certain countries as blocking information exchange, engaging in harmful tax competition or not maintaining adequate controls to
prevent corruption, such as money laundering activities. Recommendations to limit such harmful practices are under consideration by these organizations, and a recent report published on
November 27, 2001 by the OECD contains an extensive discussion of specific recommendations. The OECD has threatened non-member jurisdictions that do not agree to cooperate with the
OECD with punitive sanctions by OECD member countries. It is unclear what these sanctions will be and if they will be imposed. Bermuda has committed to a course of action to enable compliance with the
requirements of these multinational organizations. However, the action taken by Bermuda may not be sufficient to preclude all effects of the measures or sanctions described above, which if ultimately
adopted could adversely affect Bermuda companies such as Platinum Holdings and Platinum Bermuda.
Some of the statements contained in this prospectus, including those using words such as "believes", "expects", "intends", "estimates", "projects", "predicts",
"assumes", "anticipates", "plans" and "seeks", and variations thereof, are forward-looking statements. Forward-looking statements are statements other than of historical fact. Since Platinum has no
history of operations, most of the statements relating to Platinum and its business, including statements relating to its competitive strengths and business strategies, are forward-looking statements.
These forward-looking statements are subject to risks and uncertainties and are not a guarantee of future performance. In light of these risks and uncertainties, actual results may differ materially
from those suggested by the forward-looking statements for various reasons, including those discussed in this section. We may not be able to conduct our business successfully, execute our strategies
effectively or achieve our financial and other objectives.
As with any equity-related investment, the price of the equity security units may fluctuate widely depending on many factors, including:
-
- the perceived prospects of our business in particular and the insurance, asset management, securities and financial services
industries generally;
-
- differences between our actual financial and operating results and those expected by investors and analysts;
-
- changes in analysts' recommendations or projections;
-
- changes in general economic, market and political conditions;
and
-
- broad market and interest rate fluctuations.
54
USE OF PROCEEDS
Assuming no exercise of the underwriters', St. Paul's or RenaissanceRe's options to purchase additional Common Shares in connection with the Equity Public
Offering or the underwriters' option to purchase additional equity security units, we expect to receive net proceeds (after the
underwriters' discount and before expenses) from the Equity Public Offering, the Cash Contribution, the RenaissanceRe Investment and the ESU Offering as set forth in the following table:
|
|
IPO Price of $22.00 per Share
|
|
IPO Price of $22.50 per Share
|
|
IPO Price of $23.00 per Share
|
|
|
($ in millions)
|
Equity Public Offering |
|
$ |
626 |
|
$ |
640 |
|
$ |
655 |
St. Paul Cash Contribution |
|
|
121 |
|
|
123 |
|
|
126 |
RenaissanceRe Investment |
|
|
83 |
|
|
84 |
|
|
86 |
ESU Offering |
|
|
120 |
|
|
120 |
|
|
120 |
Total Net Proceeds(1) |
|
$ |
949 |
|
$ |
968 |
|
$ |
987 |
- (1)
- Components
may not add to totals due to rounding.
Assuming
full exercise (which is in their sole discretion) by the underwriters, St. Paul and RenaissanceRe of their options to purchase additional Common Shares in
connection with the Equity Public Offering and the underwriters' option to purchase additional equity security units, we expect to receive net proceeds (after the underwriters' discount and before
expenses) from the Equity Public Offering, the Cash Contribution, the RenaissanceRe Investment and the ESU Offering as set forth in the following table:
|
|
IPO Price of $22.00 per Share
|
|
IPO Price of $22.50 per Share
|
|
IPO Price of $23.00 per Share
|
|
|
($ in millions)
|
Equity Public Offering |
|
$ |
720 |
|
$ |
736 |
|
$ |
753 |
St. Paul Cash Contribution |
|
|
139 |
|
|
143 |
|
|
146 |
RenaissanceRe Investment |
|
|
95 |
|
|
97 |
|
|
99 |
ESU Offering |
|
|
138 |
|
|
138 |
|
|
138 |
Total Net Proceeds |
|
$ |
1,092 |
|
$ |
1,114 |
|
$ |
1,136 |
A
portion of the net proceeds of the Equity Public Offering, the Cash Contribution and the RenaissanceRe Investment, currently estimated at approximately
$10 million, will be retained by Platinum Holdings and the balance will be contributed to the capital of Platinum US (in an amount not less than $250 million, which includes net proceeds
from the ESU Offering as discussed below), Platinum UK (in an amount not less than $150 million, upon its being licensed in the United Kingdom), Platinum Ireland (in an amount not less than
$100 million, substantially all of which will be used to purchase a surplus note issued by Platinum US) and Platinum Bermuda (in an amount not less than $375 million). To the extent we
receive net proceeds from the Equity Public Offering, the Cash Contribution and the RenaissanceRe Investment in excess of the minimum amounts stated above, we expect to contribute substantially all
such proceeds to the capital of Platinum Bermuda. All but approximately $20 million of the net proceeds from the ESU Offering (or approximately $23 million if the underwriters exercise
in full their option to purchase additional equity security units) will be contributed to Platinum US. The remaining net proceeds from the ESU Offering will be retained by Platinum Finance.
The allocation of net proceeds among our three operating subsidiaries (Platinum US, Platinum UK and Platinum Bermuda) and Platinum Ireland has been determined based on: our assessment of
the level of capital that is prudent to support their expected levels of reinsurance business; applicable regulatory requirements; discussions with insurance regulatory authorities and rating
55
agencies; and capital efficiency considerations. The amount of net proceeds to be retained by Platinum Finance will be sufficient for it to pay three years of interest on the senior notes that it
will issue in the ESU Offering while the net proceeds to be retained by Platinum Holdings is the amount that management believes to be appropriate given its expected initial cash needs.
The
following table shows the application of the minimum and maximum aggregate estimated net proceeds of the Equity Public Offering, the Cash Contribution, the RenaissanceRe Investment
and the ESU Offering. The minimum net proceeds assume an initial public offering price of $22.00 per Common Share and no exercise of the underwriters', St. Paul's or RenaissanceRe's options to
purchase additional Common Shares in connection with the Equity Public Offering or the underwriters' option to purchase additional equity security units (i.e., aggregate net proceeds of
$949 million) and the maximum net proceeds assume an initial public offering price of $23.00 per share and full exercise of the underwriters', St. Paul's and RenaissanceRe's options to purchase
additional Common Shares in connection with the Equity Public Offering and the underwriters' option to purchase additional equity security units (i.e., aggregate net proceeds of
$1,136 million):
|
|
Minimum Net Proceeds
|
|
Maximum Net Proceeds
|
|
|
($ in millions)
|
Platinum Holdings |
|
$ |
10 |
|
$ |
10 |
Platinum Ireland |
|
|
100 |
|
|
100 |
Platinum Finance |
|
|
20 |
|
|
23 |
Platinum US |
|
|
250 |
|
|
265 |
Platinum UK |
|
|
150 |
|
|
150 |
Platinum Bermuda |
|
|
419 |
|
|
588 |
Total |
|
$ |
949 |
|
$ |
1,136 |
56
DILUTION
If you purchase units in this offering and hold them on the share purchase date, you will acquire Common Shares on that date and may experience dilution of your
investment in Platinum Holdings. Net tangible book value per Common Share represents the amount of tangible assets less total liabilities, divided by the number of Common Shares outstanding. Dilution
in net tangible book value per Common Share represents the difference between the amount per Common Share that you will pay on the share purchase date, if you purchase units in this offering and hold
them on that date, for Common Shares of Platinum Holdings and the net tangible book value per Common Share, immediately after the Equity Public Offering but giving effect to our sale of the Common
Shares pursuant to the purchase contracts included in the units. Since we cannot predict the net tangible book value the Common Shares will have when you purchase them on the share purchase date, we
present here pro forma calculations of the dilution that would occur if the net tangible book value of the Common Shares on that date were the same as it would have been on June 30, 2002 had
all the transactions referred to below occurred on that date. In addition, since the number and price of Common Shares to be purchased pursuant to the purchase contract included in each unit, or
settlement rate, depends on the market value of the Common Shares prior to the share purchase date, we present these pro forma calculations for the minimum and maximum prices per Common Share to be
purchased pursuant to the purchase contracts.
As
described under "Description of the Equity Security UnitsDescription of the Purchase Contracts", the settlement rate will be $25, which is the stated amount per equity
security unit, divided by (a) the reference price if the applicable market value is less than or equal to the reference price, (b) the applicable market value if the applicable market
value is less than the threshold appreciation price but greater than the reference price, or (c) the threshold appreciation price if the applicable market value is equal to or greater than the
threshold appreciation price. The applicable market value means the average of the closing price per Common Share on each of the 20 consecutive trading days ending on the third trading day immediately
prior to the share purchase date. For purposes of this presentation, we assume that the reference price will equal the price per Common Share in the Equity Public Offering and that the threshold
appreciation price will equal % of the reference price.
Because
St. Paul will make the Cash Contribution and contribute the Transferred Business, having a net tangible book value of approximately $11 million as of June 30, 2002,
to Platinum Holdings in return for its Common Shares and the St. Paul Option, and because Platinum Holdings will record the assets so contributed at their net book value, and because RenaissanceRe
will pay a purchase price per share equal to the initial public offering price less the underwriting discount in the RenaissanceRe Investment, the initial public offering price per Common Share in the
Equity Public
Offering, as well as the price per Common Share which holders of the units will pay on the share purchase date, are higher than Platinum Holdings' pro forma net tangible book value per share as of
June 30, 2002.
St.
Paul's Cash Contribution ranging from $121 million to $126 million and its contribution of the Transferred Business in return for 6,000,000 Common Shares and the St.
Paul Option, Platinum Holdings' sale of 30,040,000 Common Shares in the Equity Public Offering at an initial public offering price of between $22.00 and $23.00 per Common Share, the RenaissanceRe
Investment ranging from $83 million to $86 million and Platinum Holdings' sale of $125 million stated amount of equity security units in this offering, after deduction of
underwriting discounts and commissions and estimated formation, organization and offering expenses payable by us, will result in net proceeds to us of approximately $949 million to
$987 million. Assuming an initial public offering price of $22.50 per Common Share (the midpoint of the range at which Platinum Holdings proposes to offer these shares) and giving immediate
effect to Platinum Holdings' sale of the Common Shares pursuant to the share purchase contracts included in the units, Platinum Holdings'
57
pro forma net tangible book value as of June 30, 2002 would have been approximately $ million, or, depending on the settlement rate of the units, between $
and $ per Common Share. Depending on the settlement rate of the units and based on the assumptions outlined above, this represents an immediate dilution in pro forma net tangible book
value of approximately $ to
$ per equity security unit to purchasers in this offering.
|
|
Applicable Market Value
|
|
|
Less than or equal to $22.50 per Share
|
|
Equal to or greater than $ per Share
|
Assumed price per Common Share pursuant to the purchase contracts included in the units on share purchase date |
|
$ |
22.50 |
|
$ |
|
Net tangible book value per Common Share after this offering, giving immediate effect to the sale of Common Shares pursuant to the share purchase contracts |
|
|
21.57 |
|
|
|
|
|
|
|
|
Pro forma net tangible book value dilution per Common Share to investors in this offering |
|
$ |
0.93 |
|
$ |
|
|
|
|
|
|
As
Platinum Holdings is newly formed, its net tangible book value before the Equity Public Offering, this offering, the St. Paul Investment and the RenaissanceRe Investment was $120,000 as of
June 30, 2002.
The
following tables set forth, on a pro forma basis as of June 30, 2002, and assuming an initial public offering price of $22.50 per Common Share (the mid-point of the range at
which Platinum Holdings proposes to offer the Common Shares), for St. Paul, RenaissanceRe and the investors in the Equity Public Offering and the ESU Offering and that the applicable market value is
as indicated:
-
- the
number of Common Shares purchased from us;
-
- the
total consideration paid (including cash, and in the case of St. Paul, the outstanding capital stock of Platinum US, which includes net assets of
approximately $5 million in cash and cash equivalents after reflecting a dividend of $15 million to be paid, prior to the completion of the Equity Public Offering, to United States
Fidelity and Guaranty Company, the current parent of Platinum US);
-
- the
average price per Common Share paid by St. Paul and RenaissanceRe, which represents an amount approximately equal to the initial public offering price of
the Common Shares less the underwriters' discount; and
-
- the
average price per Common Share paid by investors in the Equity Public Offering and the ESU Offering before deducting underwriting discounts and
commissions and estimated offering expenses.
58
Applicable Market Value less than or equal to $22.50 per Share
|
|
Common Shares
Purchased
|
|
Pro Forma Total
Consideration
|
|
|
|
|
Average
Price Per
Common
Share
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
St. Paul |
|
6,000,000 |
|
13.2 |
% |
$ |
127,912,500 |
|
12.6 |
% |
$ |
21.32 |
RenaissanceRe |
|
3,960,000 |
|
8.7 |
% |
|
84,422,250 |
|
8.3 |
% |
$ |
21.32 |
Equity Public Offering Investors |
|
30,040,000 |
|
65.9 |
% |
|
675,900,000 |
|
66.7 |
% |
$ |
22.50 |
ESU Offering Investors |
|
5,555,556 |
|
12.2 |
% |
|
125,000,000 |
|
12.3 |
% |
$ |
22.50 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
45,555,556 |
|
100.0 |
% |
$ |
1,013,234,750 |
|
100.0 |
% |
$ |
22.24 |
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Market Value equal to or greater than $ per Share
|
|
Common Shares
Purchased
|
|
Pro Forma Total
Consideration
|
|
|
|
|
Average
Price Per
Common
Share
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
St. Paul |
|
6,000,000 |
|
|
% |
$ |
127,912,500 |
|
12.6 |
% |
$ |
21.32 |
RenaissanceRe |
|
3,960,000 |
|
|
% |
|
84,422,250 |
|
8.3 |
% |
$ |
21.32 |
Equity Public Offering Investors |
|
30,040,000 |
|
|
% |
|
675,900,000 |
|
66.7 |
% |
$ |
22.50 |
ESU Offering Investors |
|
|
|
|
% |
|
125,000,000 |
|
12.3 |
% |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
100.0 |
% |
$ |
1,013,234,750 |
|
100.0 |
% |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
The above tables do not include St. Paul's contribution to Platinum of tangible assets and certain intangible assets having a net book value of approximately
$7 million as of June 30, 2002. The above tables also do not include Common Shares issuable upon (1) exercise of the underwriters' option to purchase additional Common Shares in
the Equity Public Offering and the concurrent optional purchase by St. Paul or RenaissanceRe of additional Common Shares to maintain their respective proportionate share ownership immediately
following the Equity Public Offering, (2) exercise of the St. Paul Option, (3) exercise of the RenaissanceRe Option, (4) exercise of options to be issued to our management and
other employees pursuant to our employee compensation plans or (5) settlement of the purchase contracts contained in the equity security units, if any, issued upon exercise of the underwriters'
option to purchase additional equity security units in this offering. Assuming an initial public offering price of from $22.00 to $23.00, respectively, St. Paul's contribution would be for an
average price of from $21.98 to $22.93 per share, and RenaissanceRe's contribution would be for an average price of from $20.85 to $21.79 per share.
Assuming that the threshhold appreciation price of the equity security units is not greater than 120% of the reference price, any exercise of the St. Paul Option or the
RenaissanceRe Option would not be dilutive to investors in this offering because the exercise price for each of the options is 120% of the initial public offering price of the Common Shares, which
will be equal to the reference price. We have estimated the fair value of the St. Paul Option (to St. Paul) to be between approximately $42 million and $66 million, and the
fair value of the RenaissanceRe Option (to RenaissanceRe) to be between approximately $18 million and $28 million, or between approximately $7.00 and $11.00 per underlying Common Share
for each of St. Paul and RenaissanceRe as of the date of this preliminary prospectus, assuming the initial public offering price is $22.50 per Common Share. Such estimates were determined using
the Black-Scholes model for valuing options, and incorporated the following assumptions: ten-year holding period; stock volatility of between 30% and 45%; ten-year discount and loan rate of
approximately 4.4%; and a dividend rate of $0.32 per year.
59
DIVIDEND POLICY
We intend to recommend that our Board of Directors authorize the payment of a dividend of $0.32 for 2003. It is intended that dividends will be recommended to the
Board for approval and payment on a quarterly basis. The declaration and payment of dividends will be at the discretion of the Board of Directors of Platinum Holdings but will be prohibited if certain
contract adjustment payments in respect of the equity security units are deferred, and will depend upon our results of operations and cash flows, the financial position and capital requirements of
Platinum US, Platinum UK and Platinum Bermuda, general business conditions, legal, tax and regulatory restrictions on the payment of dividends and other factors the Board of Directors of Platinum
Holdings deems relevant. While the Company is not itself subject to any significant legal prohibitions on the payment of dividends, Platinum US will be subject to regulatory constraints imposed by
Maryland insurance law, Platinum UK will be subject to regulatory constraints imposed by U.K. insurance law, Platinum Ireland will be subject to constraints imposed by Irish law, and Platinum Bermuda
will be subject to regulatory constraints imposed by Bermuda insurance law, which affect their ability to pay dividends to the Company. See "BusinessOur BusinessRegulation."
Accordingly, there is no requirement or assurance that dividends will be declared or paid in the future. In addition, we do not expect that our rate of dividend increase, if any, will be more than 10%
per year, and we have agreed to adjust the exercise price in the St. Paul Option and the RenaissanceRe Option to the extent dividend increases exceed such rate. See "Certain Relationships and
Related TransactionsThe St. Paul InvestmentSt. Paul Option Agreement" and "The RenaissanceRe InvestmentRenaissanceRe Option
Agreement."
60
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June 30, 2002 and as adjusted to give effect to the Equity Public Offering and the
RenaissanceRe Investment based on an assumed initial public offering price in the Equity Public Offering of $22.50 per Common Share (the midpoint of the range at which Platinum Holdings proposes to
offer the Common Shares) and a Cash Contribution of $123 million (the midpoint of the $121 million to $126 million range for the Cash Contribution), as well as the ESU Offering.
This table assumes no exercise by the underwriters, St. Paul or RenaissanceRe of their options to purchase up to, in aggregate, 6,000,000 additional Common Shares in connection with the Equity Public
Offering or the underwriters' option to purchase up to $18.75 million of additional equity security units in the ESU Offering.
|
|
Actual
|
|
Adjustment for
Equity Public Offering,
Cash Contribution and RenaissanceRe Investment
|
|
Adjustment for
ESU Offering
|
|
Adjustment for
Equity Public Offering,
Cash Contribution, RenaissanceRe Investment
and ESU Offering
|
|
Debt obligations |
|
$ |
|
|
$ |
|
|
$ |
125,000,000 |
|
$ |
125,000,000 |
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares, par value $0.01 per share (25,000,000 shares authorized, as adjusted; none outstanding) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares, par value $0.01 per share (135,000,000 shares authorized; 200,000,000 shares authorized, as adjusted; 1,200,000 shares outstanding; 40,000,000 shares outstanding, as adjusted) |
|
|
12,000 |
|
|
388,000 |
|
|
|
|
|
400,000 |
|
|
Additional paid-in capital |
|
|
108,000 |
|
|
859,041,000 |
|
|
(8,000,000 |
)(1) |
|
851,149,000 |
|
|
Retained earnings |
|
|
|
|
|
(2,138,000 |
)(2) |
|
|
|
|
(2,138,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
|
120,000 |
|
|
857,291,000 |
|
|
(8,000,000 |
) |
|
849,411,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
120,000 |
|
$ |
857,291,000 |
|
$ |
117,000,000 |
|
$ |
974,411,000 |
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Reflects
an adjustment representing the present value of the contract adjustment payments payable in connection with the purchase contracts contained in the equity security units.
- (2)
- Reflects
certain formation and organization expenses as discussed in Notes 2 and 12 to our consolidated balance sheet on pages F-5 and F-13 of this prospectus.
61
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Platinum Holdings' ratio of earnings to fixed charges for the years and the period indicated:
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended
June 30, 2002
|
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
|
1997
|
Ratio of earnings to fixed charges(1) |
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- For
the period from April 24, 2002 (date of inception of Platinum Holdings) through June 30, 2002, Platinum Holdings did not generate earnings or fixed charges, and
therefore a ratio of earnings to fixed charges is not meaningful. For the years 1997 to 2001, St. Paul Re was the predecessor to Platinum Holdings. Since a complete income statement does not
exist for St. Paul Re for those years, a ratio of earnings to fixed charges is not meaningful.
Earnings
consist of income from continuing operations before income taxes plus fixed charges, net of capitalized interest. Fixed charges consist of interest expense before reduction for
capitalized interest and one-third of rental expense, which is considered to be representative of an interest factor.
62
PRO FORMA FINANCIAL INFORMATION
We
caution that the Platinum pro forma consolidated balance sheet and pro forma combined underwriting results presented herein are not indicative of the actual results that we expect to
achieve once we commence operations. Many factors may cause our actual results to differ materially from the pro forma consolidated balance sheet and underwriting results including, but not limited
to, the following:
-
- Platinum's
pro forma combined statement of underwriting results includes premium and loss development on business entered into prior to January 1,
2002. Under the Quota Share Retrocession Agreements, we are assuming no premium or loss development on business entered into prior to January 1, 2002. Therefore, our reported premiums written
and earned and reported losses and loss adjustment expenses in our initial years of operation could be substantially lower than as presented in Platinum's pro forma combined statement of underwriting
results. As such, our reported results in our initial years of operation will not be subject to prior year development for periods prior to January 1, 2002.
-
- Following
the Equity Public Offering, we will report underwriting results under the Quota Share Retrocession Agreements for the period through the date of
completion of the Equity Public Offering based on the application of retroactive reinsurance accounting, resulting in the premiums earned and losses incurred by St. Paul during such period being
excluded from our statement of underwriting results. Due to this exclusion, following the Equity Public Offering, our reported 2002 premiums written and earned and our net underwriting results in 2002
could be substantially different than as presented in Platinum's pro forma combined statement of underwriting results.
-
- Platinum's
pro forma consolidated balance sheet reflects the inception of the Quota Share Retrocession Agreements assuming transferred balances as of
June 30, 2002. Platinum's actual consolidated balance sheet will report transferred amounts determined as of 12:01 a.m. on the day immediately following the date of completion of the
Equity Public Offering. Accordingly, underwriting gain or loss with respect to the Assumed Reinsurance Contracts for the period from January 1, 2002 through such date will be retained by St.
Paul.
-
- Although
we expect to continue to be afforded the benefits of most of St. Paul Re's retrocessional reinsurance program through their expiration during 2002,
we may enter into retrocessional reinsurance contracts with significantly different terms and conditions from those that have been made available to us from St. Paul Re and which form the basis of our
initial operations.
-
- The
additional and reinstatement premiums recorded in 2001 by St. Paul Re's Finite Risk operating segment were primarily caused by losses relating to the
September 11, 2001 terrorist attack. These additional and reinstatement premiums were unusually high and not necessarily indicative of the recurring premium volume we expect to write in that
business segment.
-
- Platinum's
pro forma financial statements continue to reflect the discounting of the liability for certain Assumed Reinsurance Contracts based on our current
intention to make arrangements to permit such discounting. If we do not put such arrangements in place, reinsurance contracts of a similar type entered into in the future would be reported on an
undiscounted basis.
63
Pro Forma Consolidated Balance Sheet
We have prepared our unaudited pro forma consolidated balance sheet as of June 30, 2002 to reflect our initial capitalization in the amount of $120,000 and
adjusted to reflect, among other things:
-
- amounts
reflecting (a) the receipt of approximately $725 million, representing the estimated net proceeds from the Equity Public Offering and
the RenaissanceRe Investment based on an assumed initial public offering price of $22.50 per Common Share (the midpoint of the range at which Platinum Holdings proposes to offer the Common Shares),
without giving effect to any exercise of the underwriters', St. Paul's or RenaissanceRe's options to purchase additional Common Shares, (b) the redemption of the Common Shares that were issued
at inception and capital contributed prior to the Equity Public Offering, (c) the payment of certain formation and organization expenses, as discussed in Note 2 and Note 12 to our
consolidated balance sheet on pages F-5 and F-13 of this prospectus, which total $5.1 million, of which $2.1 million has been expensed as of June 30, 2002, and
(d) our entering into, and accruing for, the Services and Capacity Reservation Agreement as of June 30, 2002. Additional formation and organization expenses will be incurred prior to
closing. It is further assumed that the net proceeds from the Equity Public Offering will be invested in long-term, taxable fixed income securities;
-
- amounts
representing the receipt of St. Paul's Cash Contribution of $123 million (the mid-point of the $121 million to $126 million range for
the Cash Contribution) and the contribution of the Transferred Business at historical cost in exchange for the issuance of Common Shares and the St. Paul Option. Amounts related to net tangible assets
contributed to Platinum by St. Paul are recorded at St. Paul's book value as of June 30, 2002. Assets as of June 30, 2002 include approximately $5 million of net
assets of Platinum US consisting of cash and cash equivalents (which reflect a dividend of $15 million to be paid, prior to the completion of the Equity Public Offering, to United States
Fidelity
and Guaranty Company, the current parent of Platinum US) as well as approximately $7 million of tangible assets and other intangible assets such as broker and customer lists and contract
renewal rights and licenses;
-
- amounts
reflecting the receipt of approximately $120 million, representing the estimated net proceeds from the ESU Offering and recognition of the
present value of future contract adjustment payments payable on the purchase contracts contained within the equity security units, without giving effect to any exercise of the underwriters' option to
purchase additional equity security units. It is further assumed that the net proceeds from the ESU Offering will be invested in long-term, taxable fixed income securities; and
-
- amounts
reflecting Platinum entering into the Quota Share Retrocession Agreements with St. Paul Re reinsuring the Assumed Reinsurance Contracts as of
June 30, 2002.
64
|
|
|
|
June 30, 2002
Adjustments
|
|
|
|
|
|
|
|
Pro Forma
Platinum
|
|
|
|
Historical
|
|
(1)
|
|
(2)
|
|
(3)
|
|
(4)
|
|
|
|
($ in thousands)
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
|
|
$ |
724,837 |
|
$ |
123,375 |
|
$ |
120,000 |
|
$ |
|
|
$ |
968,212 |
|
|
Cash |
|
|
130 |
|
|
(5,230 |
) |
|
4,538 |
|
|
|
|
|
200,186 |
|
|
199,624 |
|
|
Deferred acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,839 |
|
|
24,839 |
|
|
Funds held by reinsured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,739 |
|
|
40,739 |
|
|
Other assets |
|
|
|
|
|
6,962 |
|
|
6,799 |
|
|
5,000 |
|
|
|
|
|
18,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
130 |
|
$ |
726,569 |
|
$ |
134,712 |
|
$ |
125,000 |
|
$ |
265,764 |
|
$ |
1,252,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid losses and loss adjustment expense reserves |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
108,957 |
|
$ |
108,957 |
|
|
Unearned premium reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,155 |
|
|
140,155 |
|
|
Debt obligations |
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
|
|
125,000 |
|
|
Financial reinsurance liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,652 |
|
|
16,652 |
|
|
Other liabilities |
|
|
10 |
|
|
3,990 |
|
|
|
|
|
8,000 |
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
10 |
|
$ |
3,990 |
|
$ |
|
|
$ |
133,000 |
|
$ |
265,764 |
|
$ |
402,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares |
|
$ |
12 |
|
$ |
328 |
|
$ |
60 |
|
$ |
|
|
$ |
|
|
$ |
400 |
|
|
Additional paid-in capital |
|
|
108 |
|
|
724,389 |
|
|
134,652 |
|
|
(8,000 |
) |
|
|
|
|
851,149 |
|
|
Retained earnings |
|
|
|
|
|
(2,138 |
) |
|
|
|
|
|
|
|
|
|
|
(2,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
$ |
120 |
|
$ |
722,579 |
|
$ |
134,712 |
|
$ |
(8,000 |
) |
$ |
|
|
$ |
849,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
130 |
|
$ |
726,569 |
|
$ |
134,712 |
|
$ |
125,000 |
|
$ |
265,764 |
|
$ |
1,252,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Pro Forma Consolidated Balance Sheet
The
following describe amounts included in the "Adjustments" columns above:
- 1.
- Amounts
reflecting (a) the receipt of approximately $725 million, representing the estimated net proceeds from the Equity Public Offering and the RenaissanceRe Investment
based on an assumed initial public offering price of $22.50 per Common Share (the midpoint of the range at which Platinum Holdings proposes to offer the Common Shares), without giving effect to any
exercise of the underwriters', St. Paul's or RenaissanceRe's options to purchase additional Common Shares, (b) the redemption of the Common Shares that were issued at inception and capital
contributed prior to the Equity Public Offering, (c) the payment of certain formation and organization expenses as discussed in Note 2 and Note 12 on pages F-5 and F-13 of this
prospectus, which total $5.1 million, of which $2.1 million has been expensed as of June 30, 2002, and (d) our entering into, and accruing for, the Services and Capacity
Reservation Agreement as of June 30, 2002. Additional formation and organization expenses will be incurred prior to closing. It is further assumed that the net proceeds from the Equity Public
Offering will be invested in long-term, taxable fixed income securities.
- 2.
- Amounts
representing the receipt of St. Paul's Cash Contribution of $123 million (the mid-point of the $121 million to $126 million range for the Cash
Contribution) and the contribution of the Transferred Business at historical cost in exchange for the issuance of Common Shares and the St. Paul Option. Amounts related to net tangible assets
contributed to Platinum by St. Paul are recorded at St. Paul's book value as of June 30, 2002. Assets as of June 30, 2002 include approximately $5 million of net
assets of Platinum US consisting of cash and cash equivalents (which reflect a dividend of $15 million to be paid, prior to the completion of the Equity Public Offering, to United States
Fidelity and Guaranty Company, the current parent of Platinum US) as well as approximately $7 million of tangible assets and other intangible assets such as broker and customer lists and
contract renewal rights and licenses.
- 3.
- Amounts
reflecting the receipt of approximately $120 million, representing the estimated net proceeds from the ESU Offering and recognition of the present value of future
contract adjustment payments payable on the purchase contracts contained within the equity security units, without giving effect to any exercise of the underwriters' option to purchase additional
65
equity
security units. It is further assumed that the net proceeds from the ESU Offering will be invested in long-term, taxable fixed income securities.
- 4.
- Amounts
reflecting Platinum entering into the Quota Share Retrocession Agreements with St. Paul Re reinsuring the Assumed Reinsurance Contracts as of June 30, 2002.
Pro Forma Combined Statements of Underwriting Results for the Six Months Ended June 30, 2002 and 2001, and the Year Ended December 31, 2001
We have prepared our unaudited pro forma combined statements of underwriting results to represent our reinsurance business, as if we had commenced our operations
and the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment had been completed as of January 1, 2001. Our presentation of our pro forma
underwriting results assumes that all of the Inception Agreements were entered into as of January 1, 2001. We have based our presentation on St. Paul Re's actual underwriting results for the
periods presented. We have then adjusted these historical results to remove any of St. Paul Re's reinsurance businesses that will not be part of Platinum following the completion of the Equity Public
Offering, including:
-
- amounts
related to St. Paul Re's reinsurance business representing lines of business that will not be transferred to Platinum, including aviation and
bond and credit reinsurance, certain financial risk and capital markets reinsurance products, and certain North American business previously underwritten in London. Platinum will not obtain the
renewal rights to these lines of business and will not assume liabilities related to these lines of business, and Platinum's management does not intend to write these lines of business in the future;
and
-
- amounts
related to St. Paul Re's allocations from the St. Paul corporate aggregate excess-of-loss reinsurance program that will not
be available to Platinum.
Except
as noted above, the pro forma combined underwriting results assume that all other retrocessional reinsurance with respect to the Assumed Reinsurance Contracts entered into in 2002 will remain
available to Platinum.
Also,
as noted above, we have based our pro forma underwriting results on the assumption that all of the Inception Agreements were entered into on January 1, 2001, including the
Services and Capacity Reservation Agreement.
Our
future results will depend in part on the amount of our investment income, which cannot be predicted and which will fluctuate depending upon the types of investments we select, our
underwriting results and market factors. Actual tax expense in future periods will be based on underwriting results plus investment income and other income and expense items not reflected in the pro
forma combined statements of underwriting results. Our effective tax rate will reflect the proportion of income recognized by our operating subsidiaries, with Platinum US taxed at the U.S. corporate
income tax rate (35%), Platinum UK taxed at the U.K. corporate tax rate (generally 30%),
Platinum Ireland taxed at a 25% corporate tax rate on non-trading income and a 16% corporate tax rate on trading income (the latter rate to be reduced to 12.5% as of January 1, 2003), and
Platinum Bermuda taxed at a zero corporate tax rate. In 2002, we expect to have a greater portion of our income subject to U.S. taxation and U.K. taxation than we expect to have in the future because
our Bermuda operations are entirely new but can be expected to grow as a proportion of our business. As a result of changes in our geographic distribution of taxable income as well as changes in the
66
amount of our non-taxable income and expense, the relationship between our reported income before tax and our income tax expense may change significantly from one period to the next.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
Six Months Ended
June 30, 2002
|
|
Six Months Ended
June 30, 2001
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
St. Paul Re
|
|
Pro Forma
Platinum
|
|
Historical
St. Paul Re
|
|
|
|
|
|
|
|
Pro Forma
Platinum
|
|
|
|
(1)
|
|
(2)
|
|
(3)
|
|
(1)
|
|
(2)
|
|
(3)
|
|
|
|
($ in millions)
|
|
($ in millions)
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
663 |
|
$ |
(61 |
) |
$ |
|
|
$ |
|
|
$ |
602 |
|
$ |
701 |
|
$ |
(127 |
) |
$ |
2 |
|
$ |
|
|
$ |
576 |
|
Change in unearned premiums, net |
|
|
19 |
|
|
(48 |
) |
|
|
|
|
|
|
|
(29 |
) |
|
(101 |
) |
|
14 |
|
|
(1 |
) |
|
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
682 |
|
|
(109 |
) |
|
|
|
|
|
|
|
573 |
|
|
600 |
|
|
(113 |
) |
|
1 |
|
|
|
|
|
488 |
|
Losses and underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
460 |
|
|
(110 |
) |
|
|
|
|
|
|
|
350 |
|
|
426 |
|
|
(82 |
) |
|
|
|
|
|
|
|
344 |
|
Policy acquisition expenses |
|
|
178 |
|
|
(34 |
) |
|
|
|
|
|
|
|
144 |
|
|
188 |
|
|
(39 |
) |
|
|
|
|
|
|
|
149 |
|
Other underwriting expenses |
|
|
35 |
|
|
(5 |
) |
|
|
|
|
4 |
|
|
34 |
|
|
42 |
|
|
(9 |
) |
|
|
|
|
4 |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses and underwriting expenses |
|
|
673 |
|
|
(149 |
) |
$ |
|
|
$ |
4 |
|
|
528 |
|
$ |
656 |
|
$ |
(130 |
) |
$ |
|
|
$ |
4 |
|
$ |
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
9 |
|
$ |
40 |
|
$ |
|
|
$ |
(4 |
) |
$ |
45 |
|
$ |
(56 |
) |
$ |
17 |
|
$ |
1 |
|
$ |
(4 |
) |
$ |
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2001
|
|
|
|
Adjustments
|
|
|
|
|
|
Historical
St. Paul Re
|
|
Pro Forma
Platinum
|
|
|
|
(1)
|
|
(2)
|
|
(3)
|
|
|
|
($ in millions)
|
|
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
1,677 |
|
$ |
(228 |
) |
$ |
(67 |
) |
$ |
|
|
$ |
1,382 |
|
Change in unearned premiums, net |
|
|
(84 |
) |
|
4 |
|
|
|
|
|
|
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
1,593 |
|
|
(224 |
) |
|
(67 |
) |
|
|
|
|
1,302 |
|
Losses and underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
1,922 |
|
|
(356 |
) |
|
(126 |
) |
|
|
|
|
1,440 |
|
Policy acquisition expenses |
|
|
315 |
|
|
(78 |
) |
|
|
|
|
|
|
|
237 |
|
Other underwriting expenses |
|
|
82 |
|
|
(19 |
) |
|
|
|
|
6 |
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses and underwriting expenses |
|
$ |
2,319 |
|
$ |
(453 |
) |
$ |
(126 |
) |
$ |
6 |
|
$ |
1,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
(726 |
) |
$ |
229 |
|
$ |
59 |
|
$ |
(6 |
) |
$ |
(444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Pro Forma Combined Statements of Underwriting Results
The
following describe amounts deducted in the "Adjustments" columns above:
- 1.
- Amounts
related to St. Paul Re's reinsurance business representing lines of business that will not be transferred to Platinum, including aviation and bond and credit
reinsurance, certain financial risk and capital markets reinsurance products, and certain North American business previously underwritten in London. Platinum will not obtain the renewal rights to
these lines of business and will not assume liabilities related to these lines of business, and Platinum's management does not intend to write these lines of business in the future;
- 2.
- Amounts
related to St. Paul Re's allocations from St. Paul's corporate aggregate excess-of-loss reinsurance program; and
- 3.
- Amounts
related to the Services and Capacity Reservation Agreement.
Included
in the 2001 pro forma combined underwriting results are pre-tax losses related to the September 11, 2001 terrorist attack totaling $468 million. This
amount includes gross losses and loss adjustment expenses of $819 million, $123 million of ceded reinsurance, $137 million of
67
additional and reinstatement premiums and $91 million of reduced contingent commission expenses.
The
St. Paul Option will be granted as part of the aggregate consideration for St. Paul's Cash Contribution and its contribution of the Transferred Business and its
sponsorship of the Company, and is not being granted in compensation for services. Similarly, the RenaissanceRe Option will be granted to RenaissanceRe in its role as a strategic investor through the
RenaissanceRe Investment, and is not being granted in compensation for services. Accordingly, no compensation expense related to these options is recognized in Platinum's pro forma combined statements
of underwriting results, nor will compensation expense related to these options be recognized in Platinum's consolidated financial statements following the completion of the Equity Public Offering.
Following the completion of the Equity Public Offering, Platinum will report earnings per share on a basic and diluted basis. The diluted earnings per share will reflect the dilutive effect of all
dilutive instruments, including all outstanding options to purchase Common Shares of Platinum Holdings.
The
following presents a reconciliation of the amounts in Adjustment column 1 to amounts in the Notes to Combined Statements of The St. Paul Companies, Inc. Reinsurance Segment
(Predecessor) (on page F-36 for the six months ended June 30, 2002 and 2001, and on page F-26 for the year ended December 31, 2001).
Reconciliation
of amounts for the six months ended June 30, 2002 and June 30, 2001:
|
|
June 30, 2002
|
|
June 30, 2001
|
|
|
|
Net Premiums
Earned
|
|
Underwriting
Result
|
|
Net Premiums
Earned
|
|
Underwriting
Result
|
|
|
|
($ in millions)
|
|
Activity related to lines of business identified by St. Paul to be exited including certain foreign offices, plus allocation of St. Paul corporate aggregate excess-of-loss reinsurance program (per page
F-36) |
|
$ |
167 |
|
$ |
(44 |
) |
$ |
177 |
|
$ |
(6 |
) |
Lines of business written in St. Paul's closed foreign offices which St. Paul has exited but which are being transferred to Platinum as continuing business |
|
|
(58 |
) |
|
4 |
|
|
(64 |
) |
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma adjustment related to lines of business written by St. Paul Re that will not be transferred to Platinum (per page 67) |
|
$ |
109 |
|
$ |
(40 |
) |
$ |
113 |
|
$ |
(17 |
) |
|
|
|
|
|
|
|
|
|
|
Reconciliation
of amounts for the year ended December 31, 2001:
|
|
Net Premiums
Earned
|
|
Underwriting
Result
|
|
|
|
($ in millions)
|
|
Activity related to lines of business identified by St. Paul to be exited including certain foreign offices, plus allocation of St. Paul corporate aggregate excess-of-loss reinsurance program (per
page F-26) |
|
$ |
362 |
|
$ |
(318 |
) |
Portion of St. Paul corporate aggregate excess-of-loss reinsurance program allocated to lines of business to be exited |
|
|
(24 |
) |
|
20 |
|
Lines of business written in St. Paul's closed foreign offices which St. Paul has exited but which are being transferred to Platinum as continuing business |
|
|
(114 |
) |
|
69 |
|
|
|
|
|
|
|
Pro forma adjustment related to lines of business written by St. Paul Re that will not be transferred to Platinum (per page 67) |
|
$ |
224 |
|
$ |
(229 |
) |
|
|
|
|
|
|
68
RECENT DEVELOPMENTS
The following table summarizes the Company's pro forma combined underwriting results for the nine months ended September 30, 2002 and 2001. These results
were prepared on the same basis as that set forth above under "Pro Forma Financial Information", to which reference is hereby made.
|
|
Nine Months Ended
September 30,
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
811 |
|
$ |
1,049 |
|
|
Change in unearned premiums, net |
|
|
16 |
|
|
(137 |
) |
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
827 |
|
|
912 |
|
|
|
|
|
|
|
Losses and underwriting expenses |
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
575 |
|
|
1,151 |
|
|
Policy acquisition expenses |
|
|
186 |
|
|
157 |
|
|
Other underwriting expenses |
|
|
52 |
|
|
57 |
|
|
|
|
|
|
|
|
Total losses and underwriting expenses |
|
|
813 |
|
|
1,365 |
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
14 |
|
$ |
(453 |
) |
|
|
|
|
|
|
Selected RatiosU.S. GAAP |
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
69.6 |
% |
|
126.2 |
% |
|
Underwriting expense ratio |
|
|
28.8 |
% |
|
23.5 |
% |
|
|
|
|
|
|
|
Combined ratio |
|
|
98.4 |
% |
|
149.7 |
% |
|
|
|
|
|
|
Selected RatiosStatutory |
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
69.6 |
% |
|
126.2 |
% |
|
Underwriting expense ratio |
|
|
27.5 |
% |
|
24.2 |
% |
|
|
|
|
|
|
|
Combined ratio |
|
|
97.1 |
% |
|
150.4 |
% |
|
|
|
|
|
|
|
|
|
Impact of catastrophes on combined ratio(1) |
|
|
4.9 |
% |
|
52.5 |
% |
|
|
|
|
|
|
- (1)
- Excludes
ceded losses under St. Paul Re's aggregate excess-of-loss treaties, because such treaties extend to non-catastrophic as well as catastrophic losses.
Included in the 2001 pro forma combined underwriting results are pre-tax losses related to the September 11, 2001 terrorist attack totaling $402 million. This
amount includes gross losses and loss adjustment expenses of $725 million, $144 million of ceded reinsurance, $89 million of additional and reinstatement premiums and
$90 million of reduced contingent commission expenses. The determination of the impact of catastrophes on the combined ratio (which is a combination of the expense ratio and the loss ratio)
excludes the ceded losses under St. Paul Re's aggregate excess-of-loss treaties; these treaties provide coverage for excess losses arising from catastrophic and non-catastrophic events. The
benefits of St. Paul Re's aggregate excess-of-loss treaty for 2002 will remain available to Platinum for the balance of 2002 unless earlier terminated pursuant to its terms.
The 22.7% decrease in net premiums written for the nine-month period ended September 30, 2002 compared to the nine-month period ended September 30, 2001 was primarily due to the
non-renewal of certain contracts that did not meet our underwriting standards and the rescission of a large quota share contract in the second quarter of 2002. These declines were partly offset by
69
significant rate increases achieved on the 2002 renewals. The decline in net premiums written led to a corresponding decline in net premiums earned. The premium for the nine-month period ended
September 30, 2001 also includes $89 million in additional and reinstatement premiums related to the September 11, 2001 terrorist attack.
The 50.0% decrease in losses and loss adjustment expenses incurred in the nine-month period ended September 30, 2002 compared to the nine-month period ended September 30,
2001 is attributable to a reduction in earned premium and a significant decline in catastrophe losses. Catastrophe losses totaled $37 million for the nine months ended September 30,
2002, including $30 million in losses from the flooding in Europe in August 2002, compared to $640 million for the nine months ended September 30, 2001, driven by
$581 million of losses resulting from the September 11, 2001 terrorist attack and $50 million in losses resulting from a chemical plant explosion in Toulouse, France.
The increase in policy acquisition expenses in the nine months ended September 30, 2002, compared to the nine months ended September 30, 2001, resulted primarily from a
reversal of
contingent commissions of $90 million in 2001 as a result of the losses caused by the September 11, 2001 terrorist attack. The decrease in other underwriting expenses for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001, is primarily due to a decrease in compensation expenses driven by a reduction in the number of employees
and closure of offices.
70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA FINANCIAL CONDITION
AND UNDERWRITING RESULTS
You should read the following pro forma discussion and analysis in conjunction with our audited consolidated balance sheet and the related
notes included on pages F-3 through F-13 of this prospectus, as well as our unaudited pro forma financial information and the related notes set forth under "Pro Forma Financial
Information." Our audited consolidated balance sheet and our unaudited pro forma financial information have been prepared in accordance with U.S. GAAP. The following pro forma discussion and analysis
contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results described or implied by the pro forma discussion and analysis and
these forward-looking statements. You should read the information under "Risk Factors" beginning on page 31 for information about material risks and uncertainties that affect our
business.
Overview
Our objective is to provide property and casualty reinsurance coverages to a diverse clientele of insurers and select reinsurers on a worldwide basis. We will
operate principally by using reinsurance brokers to market our products and principally as a lead reinsurer on treaty reinsurance business. A substantial majority of our business will be written as
excess-of-loss reinsurance. We intend to organize our worldwide reinsurance business around three operating segments:
-
- Global Property and Marine. The Global Property and Marine operating segment will include principally
property and marine reinsurance coverages. We intend to focus our underwriting activities primarily on catastrophe excess-of-loss and per risk excess-of-loss contracts. We
intend to write other types of property reinsurance as well, including selected property pro rata reinsurance. This segment generated $315 million, or 22.8%, of Platinum's 2001 pro forma net
premiums written. Following the completion of the Equity Public Offering, we expect the proportion of our net premiums written generated by the Global Property and Marine segment to increase relative
to 2001 levels.
-
- Global Casualty. The Global Casualty operating segment will include principally general and automobile
liability, professional liability, workers' compensation, accident and health coverages and casualty clash. We intend to focus our underwriting activities primarily on excess-of-loss reinsurance
coverages. This segment generated $592 million, or 42.8%, of Platinum's 2001 pro forma net premiums written. Following the completion of the Equity Public Offering, we expect the proportion of
our net premiums written generated by the Global Casualty segment to decrease relative to 2001 levels.
-
- Finite Risk. The Finite Risk operating segment will include principally non-traditional
reinsurance treaties, including multi-year excess-of-loss, aggregate stop loss, finite quota share, loss portfolio transfer, and adverse loss development contracts. We intend to provide clients,
either directly or through brokers, with customized solutions for their risk management and other financial management needs. We intend to focus our finite risk underwriting activities primarily on
multi-year excess-of-loss and aggregate stop loss reinsurance treaties. Coverage classes within these products will primarily include property, casualty and marine exposures. This segment generated
$475 million, or 34.4%, of Platinum's 2001 pro forma net premiums written.
In
addition, we may write other property and casualty reinsurance on an opportunistic basis. For a discussion of the basis on which pro forma net premiums written were determined, see
"Pro Forma Financial Information" above.
71
Background and the Transferred Business
St. Paul and its subsidiaries constitute one of the oldest insurance organizations in the United States, dating back to 1853. Through its division St. Paul Re,
St. Paul has been engaged in the reinsurance business since 1983. In December of 2001, in an effort to enhance the profitability of its reinsurance business, St. Paul decided to narrow the product
focus of its reinsurance operations and exit certain lines of that business. As part of this effort, St. Paul Re reduced its anticipated 2002 exposure and expenses by exiting unprofitable lines of
business and reducing the number of reinsurance branch offices outside the United States. The narrowing of reinsurance product lines included exiting aviation, bond and credit reinsurance coverages,
as well as certain financial risk and capital markets lines. International branch office closings included Munich, Brussels, Hong Kong, Sydney and Singapore. In addition to curtailing various
reinsurance operations, St. Paul's management decided that its reinsurance business and its primary insurance business should ideally operate as separate entities because of their different risk
profiles and business characteristics. As a result, contingent upon the completion of the Equity Public Offering, St. Paul will make the Cash Contribution and contribute the Transferred Business
through the arrangements described below:
-
- Cash Contribution. At the completion of the Equity Public Offering, St. Paul
will make the Cash Contribution in the amount of between $121 million and $126 million. The determination of the amount of the Cash Contribution will be made when the terms of the Equity
Public Offering are
finally determined. An assumed Cash Contribution of $123 million will result in a pro forma net tangible book value per Common Share of $21.24 following the Equity Public Offering, the ESU
Offering, the St. Paul Investment and the RenaissanceRe Investment based on an assumed initial public offering price of $22.50 per Common Share (the midpoint of the range at which Platinum
Holdings proposes to offer the Common Shares) and assuming no exercise of the underwriters', St. Paul's or RenaissanceRe's options to purchase additional Common Shares in connection with the Equity
Public Offering or the underwriters' option to purchase additional equity security units. Cash Contributions of $121 million and $126 million will result in net tangible book values of
$20.76 and $21.71 per Common Share, respectively, assuming initial public offering prices of $22.00 and $23.00, respectively, and assuming no exercise of the underwriters' options to purchase
additional Common Shares or the underwriters' option to purchase additional equity security units.
-
- Renewal Opportunities and Commitments. We will be acquiring from St. Paul Re its existing customer lists and
the right to seek to renew substantially all of St. Paul Re's continuing reinsurance contracts. We will also assume commitments, if any, of St. Paul Re to offer reinsurance coverages in the
future.
-
- Assumed Reinsurance Contracts. Through 100% quota share retrocession agreements (the
"Quota Share Retrocession Agreements"), we will reinsure substantially all of the reinsurance contracts St. Paul Re entered into on or after January 1, 2002, which we refer to as the "Assumed
Reinsurance Contracts." St. Paul Re will retain all of its reinsurance exposure not being transferred to us and will administer the associated run-off. Consequently, we will not assume any
underwriting exposure with respect to reinsurance contracts entered into by St. Paul prior to January 1, 2002, except as noted below with respect to finite reinsurance. St. Paul will
also retain all liabilities relating to the flooding in Europe in August 2002 and an intermediate layer of liability for "named storms" in existence at the time of completion of the Equity Public
Offering which cause insured damage within ten days of such time, as described herein. We will receive as consideration cash and other assets in an amount equal to the aggregate of all loss reserves
(excluding reserves relating to liabilities retained by St. Paul), other reserves related to non-traditional reinsurance treaties, allocated loss adjustment expense reserves, ceding commission
reserves and unearned premium reserves, subject to agreed upon adjustments, and net of ceding commissions under the Quota Share
72
The
Equity Public Offering and the transactions contemplated thereby were first announced to the public on April 25, 2002. Platinum believes St. Paul Re's withdrawal from certain
business may have adversely affected premiums written during 2002 prior to the public announcement of the
73
Equity Public Offering. Management is unable to predict how the Equity Public Offering's announcement will affect premiums written in the future. See "Risk Factors."
Our Drivers of Profitability
We expect to derive our revenues from two principal sources, premiums from our reinsurance business and income from our investment portfolio. Reinsurance premiums
are a function of the amount and type of contracts we write as well as prevailing market prices. There are many types of reinsurance contracts with unique pricing, terms and conditions and expected
profit margins. Therefore, changes in the amount of premiums we will write may not be an accurate indicator of our anticipated profitability.
We
expect our investment income to be a function of the average assets in our portfolio and the average yield that we earn on those assets. The investment yield will be a function of
market interest rates as well as the credit quality and maturity or our invested assets. In addition, we could realize capital gains or losses on our investment portfolio as a result of changing
market conditions, including, but not limited to, changes in market interest rates and changes in the market's perception of the credit quality of our invested assets. We intend to earn investment
income primarily on the assets invested in our portfolio, but we may also earn revenue from investment income on premium and loss deposits withheld by our clients.
We expect that our expenses will consist primarily of two types of expenses, loss and loss adjustment expenses, or "LAE", and operating and administrative costs.
Loss and loss adjustment expenses will be a function of the amount and type of reinsurance contracts we will write. We will initially record loss and loss adjustment expenses based on an actuarial
analysis of the estimated losses we expect to incur on each contract written. The ultimate loss and loss adjustment expenses will depend on the actual costs to settle these claims. We intend to
increase or decrease our initial loss estimates as actual losses occur. Our ability to estimate loss and loss adjustment expenses accurately at the time of pricing our contracts will be a critical
factor in determining our profitability.
Operating
and administrative costs are expected to consist primarily of acquisition expenses, which are commission and brokerage fees paid to intermediaries for the production of
premiums written, excise taxes and other underwriting expenses, overhead costs, interest expense and income taxes. We expect our acquisition expenses to consist principally of ceding commissions paid
to cedents
and brokerage commissions that represent a percentage of the premiums on reinsurance contracts written. We expect that acquisition expenses will be a function of the amount and types of contracts
written. Overhead costs are expected to consist primarily of salaries and related costs. These costs will be primarily fixed in nature and will not vary with the amount of premiums written. Interest
expense (including payments on the senior notes forming part of the equity security units) will be a function of outstanding borrowing or funding commitments (such as letter of credit agreements) and
the contractual interest rate related to these commitments. Income taxes will be a function of our profitability and the tax rate in the various jurisdictions in which we do business.
Critical Accounting Policies
Our significant accounting policies are described in the notes to Platinum Holdings' audited consolidated balance sheet. The following is a summary of the
critical accounting policies that will affect our future financial performance: premiums, reserves, reinsurance and investments.
74
Premiums will be recorded at the inception of each policy, based upon information received from ceding companies and their brokers. For
excess-of-loss contracts, the amount of premium is usually contractually documented at inception, and no management judgment is necessary in accounting for this. Premiums are
earned on a pro rata basis over the coverage period. For proportional treaties, the amount of premium is normally estimated at inception by the ceding company. We will account for such premium using
the initial estimates, and then adjust them once a sufficient period for actual premium reporting has elapsed. For the year ended December 31, 2001, the pro forma premiums written resulting
from estimate accruals were less than 25% of total premiums written. We will also accrue for reinstatement and additional premiums resulting from losses. Such accruals will be based upon actual
contractual terms, and the only element of management judgment involved is with respect to the amount of loss reserves, as described below.
Reinstatement
and additional premiums are written at the time a loss event occurs where coverage limits for the remaining life of the contract are reinstated under
pre-defined contract terms. Reinstatement premiums are the premiums charged for the restoration of the reinsurance limit of a catastrophe contract to its full amount after payment by the
reinsurer of losses as a result of an occurrence. These premiums relate to the future coverage obtained during the remainder of the initial policy term, and are earned over the remaining policy term.
Additional premiums are premiums charged after coverage has expired, related to experience during the policy term, which are earned immediately.
Under U.S. GAAP, we will not be permitted to establish loss reserves until the occurrence of an event which may give rise to a loss. Once such an event occurs, we
will establish reserves based upon estimates of total losses incurred by the ceding insurers as a result of the event and our estimate of the portion of such loss we have reinsured. As a result, only
loss reserves applicable to losses incurred up to the reporting date may be set aside, with no allowance for the provision of a contingency reserve to account for expected future losses. Losses
arising from future events will be estimated and recognized at the time the loss is incurred and could be substantial.
Setting appropriate reserves for loss and loss adjustment expenses is an inherently uncertain process. Loss reserves will represent our estimates, at a given point in time, of ultimate
settlement and adjustment costs of losses incurred (including incurred but not reported, or IBNR, losses, which are losses that have been sustained but not yet reported to the insurer). We will
regularly review and update these estimates, using the most current information available to us. Consequently, the ultimate liability for a loss is likely to differ from the original estimate.
Whenever we determine that any existing loss reserves are inadequate, we are required to record such change in estimate, increasing the loss reserves with a corresponding reduction, which could be
material, in our operating results in the period in which the deficiency is identified. Adjustments resulting from changes in our estimates will be reflected in current income. The establishment of
new reserves, or the adjustment of reserves for reported claims, could result in significant upward or downward changes to our financial condition or results of underwriting in any particular period.
The
reserve for losses and loss adjustment expenses will be based upon reports, individual case estimates received from ceding companies and management's estimates. Management's
estimates are used mostly to estimate IBNR loss amounts. For certain catastrophic events, there is considerable uncertainty underlying the assumptions and associated estimated reserves for losses and
loss adjustment expenses. Reserves will be reviewed regularly and, as experience develops and additional information becomes known, the reserves will be adjusted as necessary. Such changes in
estimate, if necessary, will be reflected in results of operations in the current period. We currently intend to make arrangements to permit us to discount the liability for certain assumed
75
reinsurance contracts using rates based on our return on invested assets or, in many cases, on yields contractually guaranteed to us on funds held by the ceding company.
Generally,
reserves are established without regard to whether we may subsequently contest the loss. We expect our policy to be to establish reserves for reported losses based upon
reports received from ceding companies, supplemented by our reserve estimates.
Written premiums (which are total premiums for a given period), earned premiums (which are the portion of written premiums which applies to the expired portion of
the policy period), incurred losses (which are total losses, whether paid or unpaid) and LAE reflect the net effects of assumed and ceded reinsurance transactions. Reinsurance accounting is followed
for assumed and ceded transactions when risk transfer requirements have been met. These requirements involve significant assumptions being made relating to the amount and timing of expected cash
flows, as well as the interpretation of underlying contract terms. Reinsurance contracts that do not transfer significant insurance risk are required to be accounted for as deposits. These deposits
are accounted for as financing transactions, with interest expense credited to the contract deposit. Premiums received on retroactive reinsurance contracts are not reflected in the statement of
operations, but rather are recorded in the consolidated balance sheet as an increase to loss and loss adjustment expense reserves for the liabilities assumed and as assets based on the consideration
received. A deferred charge or credit is recorded for any difference between liabilities assumed and consideration received.
Investments
In accordance with our investment guidelines, our investments will initially consist of high-grade marketable fixed income securities. We may, in the
future, elect to invest a portion of our funds in marketable equity securities. Investments will be carried at estimated fair value as determined by the most recently traded price of each security as
of the balance sheet date. Unrealized gains and losses on our investments will be included as a separate component of shareholders' equity. Realized gains and losses on sales of investments will be
determined on a specific identification basis. In addition, unrealized depreciation in the value of individual securities considered by management to be other than temporary will be charged to income
in the period it is determined. Investment income will be recorded when earned and will include the amortization of premiums and discounts on investments. For a more detailed discussion, see
"BusinessOur BusinessInvestments."
Formation of Platinum Holdings and Presentation of Pro Forma Financial Information
and Historical St. Paul Re Combined Financial Information
Formation of Platinum Holdings
In connection with our formation, we have agreed with St. Paul and certain of its affiliates to enter into the Inception Agreements. They will become effective
contingent upon the completion of the Equity Public Offering (except the Quota Share Retrocession Agreements which will take effect at
12:01 a.m. on the day immediately following the date of the completion of the Equity Public Offering) and will govern our relationship with St. Paul thereafter with respect to various intercompany
arrangements and services. The principal terms of these agreements are summarized under "Certain Relationships and Related Transactions" in this prospectus.
76
Presentation of Pro Forma Financial Information and St. Paul Re Combined Financial Information
As a newly formed company, we have no actual results of operations. In this prospectus, we are therefore presenting pro forma financial information of Platinum
Holdings with respect to the reinsurance business which St. Paul will be transferring to us under the terms of the Inception Agreements, contingent upon the completion of the Equity Public Offering.
This pro forma financial information is intended, under the various assumptions discussed in more detail under "Pro Forma Financial Information", to illustrate the performance of our business as if
the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment had been completed and we had commenced our operations as of January 1, 2001.
We
are also presenting the historical combined financial information of St. Paul Re. For a detailed discussion of the historical underwriting results of St. Paul Re, see
"The Predecessor Business."
Our
future results will depend in part on the amount of our investment income, which cannot be predicted and which will fluctuate depending upon the types of investments we select, our
underwriting results and market factors. Actual tax expense in future periods will be based on underwriting results plus investment income and other income and expense items not reflected in the pro
forma consolidated statements of underwriting results. For discussion of our effective tax rate, see "Income Tax" below.
We
caution that the Platinum pro forma consolidated balance sheet and pro forma combined underwriting results presented herein are not indicative of the actual results that we may
achieve once we commence operations. Many factors may cause our actual results to differ materially from these pro forma consolidated balance sheet and results including, but not limited to, the
following:
-
- Platinum's
pro forma combined statement of underwriting results includes premium and loss development on business entered into prior to January 1,
2002. Under the Quota Share Retrocession Agreements, we are assuming no premium or loss development on business entered into prior to January 1, 2002. Therefore, our reported premiums written
and earned and reported losses and loss adjustment expenses in our initial years of operation could be substantially lower than as presented in Platinum's pro forma combined statement of underwriting
results. As such, our
reported results in our initial years of operation will not be subject to prior year development for periods prior to January 1, 2002.
-
- Following
the Equity Public Offering, we will report underwriting results under the Quota Share Retrocession Agreements for the period through the date of
completion of the Equity Public Offering based on the application of retroactive reinsurance accounting, resulting in the premiums earned and losses incurred by St. Paul during such period being
excluded from our statement of underwriting results. Due to this exclusion, following the Equity Public Offering, our reported 2002 premiums written and earned and our net underwriting results in 2002
could be substantially different than as presented in Platinum's pro forma combined statement of underwriting results.
-
- Platinum's
pro forma consolidated balance sheet reflects the inception of the Quota Share Retrocession Agreements assuming transferred balances as of
June 30, 2002. Platinum's actual consolidated balance sheet will report transferred amounts determined as of 12:01 a.m. on the day immediately following the date of completion of the
Equity Public Offering. Accordingly, underwriting gain or loss with respect to the Assumed Reinsurance Contracts for the period from January 1, 2002 through such date will be retained by St.
Paul.
-
- Although
we expect to continue to be afforded the benefits of most of St. Paul Re's retrocessional reinsurance program through their expiration in 2002, we
may enter into retrocessional reinsurance contracts with significantly different terms and conditions from
77
Exposure to Catastrophes
As with other reinsurers, our operating results and financial condition can be adversely affected by volatile and unpredictable natural and man-made disasters,
such as hurricanes, windstorms, earthquakes, floods, fires, riots and explosions. Although we will attempt to limit our exposure to acceptable levels, it is possible that an actual catastrophic event
or multiple catastrophic events could have a material adverse effect on our financial condition, results of operations and cash flows. As noted above under "Critical Accounting Policies",
under U.S. GAAP, we are not permitted to establish loss reserves until the occurrence of an event which may give rise to a claim. Once such an event occurs, we will establish reserves based upon
estimates of total losses incurred by the ceding insurers as a result of the event and our estimate of the portion of such loss we have insured. As a result, only loss reserves applicable to losses
incurred up to the reporting date may be set aside, with no allowance for the provision of a contingency reserve to account for expected future losses. Losses arising from future events will be
estimated and recognized at the time the loss is incurred and could be substantial.
Income Tax
Except in Bermuda, we will be subject to local income tax requirements in the jurisdictions in which we operate. The income tax expense reflected in our pro forma financial statements therefore
reflects a number of different local tax rates, and as a result may change from one period to the next depending on both the amount and the geographic distribution of our taxable income. Actual tax
expense in future periods will be based on underwriting results plus investment income and other income and expense items not reflected in the Pro Forma Consolidated Statements of Underwriting
Results. Our effective tax rate will reflect the proportion of income recognized by our operating subsidiaries with Platinum US taxed at the U.S. corporate income rate (35%), Platinum UK taxed at the
U.K. corporate tax rate (generally 30%), Platinum Ireland taxed at the Irish corporate tax rate (25% on non-trading income and 16% on trading income, the latter rate to be reduced to 12.5% as of
January 1, 2003), and Platinum Bermuda taxed at a zero corporate tax rate. In 2002, we expect to have a greater portion of our income subject to U.S. taxation and U.K. taxation than we expect
to have in the future because our Bermuda operations are entirely new but can be expected to grow as a proportion of our business over time. As a result of changes in our geographic contribution of
taxable income as well as changes in the amount of our non-taxable income and expense, the relationship between our reported income before tax and our income tax expense may change
significantly from one period to the next.
Pro Forma Combined Underwriting Results of Platinum Holdings
The following table summarizes our pro forma combined underwriting results for the six months ended June 30, 2002 and 2001, and for the year ended
December 31, 2001, as if the Equity Public
78
Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment had been completed on January 1, 2001. For a discussion of the historical results of underwriting of St.
Paul Re, see "The Predecessor Business."
|
|
Six Months Ended June 30,
|
|
|
|
|
|
Year Ended
December 31,
2001
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
602 |
|
$ |
576 |
|
$ |
1,382 |
|
|
Change in unearned premiums, net |
|
|
(29 |
) |
|
(88 |
) |
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
573 |
|
|
488 |
|
|
1,302 |
|
|
|
|
|
|
|
|
|
Losses and Underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
350 |
|
|
344 |
|
|
1,440 |
|
|
Policy acquisition expenses |
|
|
144 |
|
|
149 |
|
|
237 |
|
|
Other underwriting expenses |
|
|
34 |
|
|
37 |
|
|
69 |
|
|
|
|
|
|
|
|
|
|
Total losses and underwriting expenses |
|
$ |
528 |
|
$ |
530 |
|
|
1,746 |
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
45 |
|
$ |
(42 |
) |
$ |
(444 |
) |
|
|
|
|
|
|
|
|
Selected Ratios - U.S. GAAP |
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
61.2 |
% |
|
70.6 |
% |
|
110.6 |
% |
|
Underwriting expense ratio |
|
|
31.1 |
% |
|
38.1 |
% |
|
23.5 |
% |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
92.3 |
% |
|
108.7 |
% |
|
134.1 |
% |
|
|
|
|
|
|
|
|
Selected Ratios - Statutory |
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
61.2 |
% |
|
70.6 |
% |
|
110.6 |
% |
|
Underwriting expense ratio |
|
|
29.6 |
% |
|
32.3 |
% |
|
22.1 |
% |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
90.8 |
% |
|
102.9 |
% |
|
132.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Impact of catastrophes on combined ratio (1) |
|
|
(3.0 |
)% |
|
3.7 |
% |
|
40.9 |
% |
|
|
|
|
|
|
|
|
- (1)
- Excludes
ceded losses under St. Paul Re's aggregate excess-of-loss treaties, because such treaties extend to non-catastrophic as well as catastrophic losses as described below. The 3%
benefit from catastrophes on the June 30, 2002 combined ratio is driven by a lack of catastrophes in the first six months of 2002 and favorable loss development in 2002 on catastrophe losses
incurred in prior years.
Included in the 2001 pro forma combined underwriting results are pre-tax losses related to the September 11, 2001 terrorist attack totaling $468 million.
This amount includes gross losses and loss adjustment expenses of $819 million, $123 million of ceded reinsurance, $137 million of additional and reinstatement premiums and
$91 million of reduced contingent commission expenses. The determination of the impact of catastrophes on the combined ratio excludes the ceded losses under St. Paul Re's aggregate
excess-of-loss treaties; these treaties provide coverage for excess losses arising from catastrophic and non-catastrophic events. The benefits of St. Paul Re's aggregate excess-of-loss treaty
for 2002 will remain available to Platinum for the balance of 2002 unless earlier terminated pursuant to its terms.
Retrocessional Reinsurance
Our pro forma combined underwriting results for the six months ended June 30, 2002 and 2001, and for the year ended December 31, 2001 reflect the
benefits of most of St. Paul Re's
retrocessional reinsurance program as it relates to Platinum. The pro forma results do not reflect the effects of the St. Paul corporate aggregate excess-of-loss reinsurance program, which will not be
available to Platinum in 2002 or thereafter. St. Paul Re has utilized retrocession agreements principally to increase aggregate premium capacity and to reduce the risk of loss on reinsurance
underwritten. In addition, through St. Paul Re's aggregate excess-of-loss treaties, St. Paul Re has maintained catastrophe reinsurance programs for the purpose of limiting its exposure with respect
79
to multiple claims arising from a single occurrence or event. St. Paul Re's retrocession agreements provide for recovery of a portion of claims and claims expense from retrocessionnaires. Under these
programs, on a pro forma basis, St. Paul Re ceded the following amounts to retrocessionaires:
|
|
Six Months Ended June 30,
|
|
|
|
|
Year Ended December 31,
2001
|
|
|
2002
|
|
2001
|
|
|
($ in millions)
|
Ceded premiums written |
|
$ |
42 |
|
$ |
70 |
|
$ |
167 |
Ceded premiums earned |
|
|
25 |
|
|
65 |
|
|
165 |
Ceded losses and loss adjustment expenses |
|
|
(27 |
) |
|
105 |
|
|
368 |
Ceded underwriting expenses |
|
|
4 |
|
|
3 |
|
|
8 |
|
|
|
|
|
|
|
|
Net underwriting benefit (detriment) |
|
$ |
(48 |
) |
$ |
43 |
|
$ |
211 |
|
|
|
|
|
|
|
The amounts in the pro forma underwriting results on pages 79 and 84 of this prospectus include the retrocession amounts reflected above.
The amounts included in the pro forma underwriting results on page 85 of this prospectus, as well as the individual segment discussions on pages 86 to 91 of this prospectus,
include the retrocession amounts reflected above, less the following impacts of St. Paul Re's aggregate excess-of-loss treaties as they relate to Platinum:
|
|
Six Months Ended June 30,
|
|
|
|
|
Year Ended December 31,
2001
|
|
|
2002
|
|
2001
|
|
|
($ in millions)
|
Ceded premiums written |
|
$ |
7 |
|
$ |
37 |
|
$ |
87 |
Ceded premiums earned |
|
|
(1 |
) |
|
36 |
|
|
87 |
Ceded losses and loss adjustment expenses |
|
|
(21 |
) |
|
78 |
|
|
194 |
|
|
|
|
|
|
|
|
Net underwriting benefit (detriment) |
|
$ |
(20 |
) |
$ |
42 |
|
$ |
107 |
|
|
|
|
|
|
|
Under
the terms of St. Paul Re's aggregate excess-of-loss treaties, St. Paul Re remits an initial margin premium in quarterly installments to its counterparty,
regardless of whether losses are ceded under the treaty. If losses are ceded under these treaties, St. Paul Re remits additional premiums ceded, plus accrued interest, to its counterparty when
the related losses and loss adjustment expenses are settled. For the six months ended June 30, 2002, no losses were ceded under the 2002 treaty. Net underwriting detriment in the 2002 six-month
period is driven by commutations in such period requested by one retrocessionnaire of its ten percent portion of the 1999 and 2001 St. Paul Re aggregate excess-of-loss treaties. In the six-month
period ending June 30, 2002, these commutations resulted in a reduction in ceded written and earned premiums of $11 million and a reduction in ceded losses and loss adjustment expenses
incurred of $25 million, resulting in a net underwriting detriment of $14 million. These commutations were done in conjunction with the commutation of a reinsurance treaty underwritten
by St. Paul Re for the same party which resulted in a net underwriting benefit of $10 million. The combined effect of these commutations resulted in a net underwriting detriment of
$4 million. The impact of these commutations is not expected to be material to future operations or financial position. The
additional net underwriting detriment is due to $6 million of ceded premium pursuant to the St. Paul Re aggregate excess of loss treaty with respect to the 2002 accident year.
80
Pro Forma Combined Underwriting Results
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Net premiums
Net premiums written for the six-month period ended June 30, 2002 increased 4.5% to $602 million from $576 million for the six-month period
ended June 30, 2001, including $242 million, or 40.2%, from the Global Casualty segment, $212 million, or 35.2%, from the Global Property and Marine segment and
$148 million, or 24.6%, from the Finite Risk segment. The increase in premium is due to rate increases averaging 29% across all lines of business partly offset by the non-renewal of certain
contracts that did not meet our underwriting standards. In addition, a large quota share contract was rescinded at a cost to us of $56 million, adversely affecting net written premiums. The
large quota share contract was a three year quota share reinsurance contract incepting in 1999. The coverage for 2001 was rescinded by mutual agreement with the ceding company.
Net
premiums earned for the six months ended June 30, 2002 increased 17.4% to $573 million from $488 million for the six months ended June 30, 2001,
reflecting the impact of price increases partly offset by the decrease in exposure.
Losses and loss adjustment expenses incurred were $350 million in the six months ended June 30, 2002 compared to $344 million in the six
months ended June 30, 2001. The small increase as
compared to the increase in earned premium is attributable to favorable development in prior underwriting years as well as increased rates impacting the current underwriting year. Favorable
catastrophe development resulted in a benefit of $17 million in the six months ended June 30, 2002 and catastrophe losses resulted in an expense of an $18 million detriment in the
six months ended June 30, 2001 due to the Midwest storms and Hurricane Allison. The loss and loss adjustment expense ratio, also referred to as loss ratio (which is the ratio of losses and loss
adjustment expenses incurred, including estimates for claims incurred but not reported, to premiums earned) was 61.2% and 70.6% for the six months ended June 30, 2002 and 2001, respectively.
Catastrophe loss development had a favorable impact on loss ratios for the six months ended June 30, 2002 of 3.0% and catastrophe losses had an unfavorable impact of 3.7% for the six months
ended June 30, 2001.
Acquisition expenses were $144 million for the six-month period ended June 30, 2002 compared to $149 million for the six-month period ended
June 30, 2001. The resulting acquisition expense ratio was 25.1% for the six months ended June 30, 2002 compared to 30.4% for the six months ended June 30, 2001. The reduction in
the expense ratio of 5.3% was attributable to lower commission and brokerage costs across the portfolio primarily due to an increase in writings in our Global Property segment, which carries lower
commission and brokerage costs.
Other underwriting expenses consisted of the cost of operations associated with underwriting activities. These expenses include compensation, rent and all other
general expenses associated with our underwriting activity and exclude any investment or claim related expense. Other underwriting expenses were $34 million for the six-month period ended
June 30, 2002 and $37 million for the six-month period ended June 30, 2001. The other underwriting expense ratio for the six months ended June 30, 2002 was 6.0% compared to
7.7% for the six-month period ended June 30, 2001. The decrease was attributable to the growth in premiums earned together with a decrease in underwriting expenses, principally compensation
related due to a reduction of employees.
81
Year Ended December 31, 2001
Net premiums
Net premiums written for the year ended December 31, 2001 totaled $1,382 million, including $592 million, or 42.8%, from the Global Casualty
segment, $315 million, or 22.8%, from the Global Property and Marine segment and $475 million, or 34.4%, from the Finite Risk segment. Included in net premiums written for the period
were $137 million in additional and reinstatement premiums, principally as a result of losses under finite reinsurance treaties, primarily related to the September 11, 2001 terrorist
attack. Net premiums earned for the full year 2001 were $1,302 million.
Losses and loss adjustment expenses incurred totaled $1,440 million for the year ended December 31, 2001, which included loss and loss adjustment
expense payments of $652 million and a net increase in reserves for unpaid losses and loss adjustment expenses of $788 million.
For the year ended December 31, 2001, pre-tax catastrophe losses net of reinsurance totaled $744 million, of which $696 million resulted from the
September 11, 2001 terrorist attack. The majority of the remaining $48 million of catastrophe losses in 2001 was the result of a variety of storms throughout the year in the U.S., and
the explosion of a chemical manufacturing plant in Toulouse, France.
The
reported loss ratio of 110.6% for the year ended December 31, 2001 included a 46.7 percentage point detriment from losses incurred in the terrorist attack (not including the
effects of
St. Paul Re's aggregate excess-of-loss treaties). The reported loss ratio for the year ended December 31, 2001 also included a benefit from St. Paul Re's aggregate excess-of-loss treaties.
St.
Paul Re's actual estimated losses for the September 11, 2001 terrorist attack were based on a variety of actuarial techniques, coverage interpretations and claims estimation
methods. They included an estimate of losses incurred but not reported, and an estimate of costs related to the settlement of claims. The estimate of St. Paul Re's losses is also based on its belief
that property-casualty insurance losses from the terrorist attack will total between $30 billion and $35 billion for the insurance industry. While the estimate of industry losses is
subject to significant uncertainties and may change over time as additional information becomes available, Platinum will not be subject to the impact of any loss development associated with the
terrorist attack in that reinsurance contracts which gave rise to the terrorist attack losses are not included in the Assumed Reinsurance Contracts and Platinum is not assuming any liability for prior
period losses.
The
estimated net pre-tax operating loss as a result of the terrorist attack totaled $468 million, consisting of the following components:
|
|
Year Ended
December 31, 2001
|
|
|
|
($ in millions)
|
|
Gross losses and loss adjustment expenses |
|
$ |
819 |
|
Reinsurance recoverables |
|
|
(123 |
) |
Additional and reinstatement premiums |
|
|
(137 |
) |
Reduction in reinsurance contingent commission expense |
|
|
(91 |
) |
|
|
|
|
|
Total estimated pre-tax operating loss |
|
$ |
468 |
|
|
|
|
|
82
The
estimated net pre-tax operating loss of $468 million related to the terrorist attack would have been distributed among Platinum's intended business segments as follows:
|
|
Year Ended
December 31, 2001
|
|
|
($ in millions)
|
Global Property & Marine |
|
$ |
307 |
Global Casualty |
|
|
32 |
Finite Risk |
|
|
129 |
|
|
|
|
Total |
|
$ |
468 |
|
|
|
Acquisition expenses were $237 million for the year ended December 31, 2001. The acquisition expenses were reduced by $91 million related to
contingent commissions that are no longer payable as a result of the losses caused by the terrorist attack of September 11, 2001. This resulted in a 10.0 percentage point benefit resulting from
the contingent commission adjustment described above. The resulting acquisition expense ratio, that is, acquisition expenses expressed as a percentage of earned premium, was 18.2% for the year ended
December 31, 2001.
Other underwriting expenses were $69 million for the year ended December 31, 2001. This resulted in an other underwriting expense ratio of 5.3% for
the year ended December 31, 2001.
Pro Forma Underwriting Results By Operating Segment
The following table summarizes pro forma underwriting results and combined ratios for each of our three operating segments for the six months ended
June 30, 2002 and 2001, and the year ended December 31, 2001.
83
|
|
Six Months Ended June 30,
|
|
|
|
|
|
Year Ended December 31,
2001
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Global Property & Marine |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
212 |
|
$ |
168 |
|
$ |
315 |
|
|
Net premiums earned |
|
|
187 |
|
|
132 |
|
|
311 |
|
|
Losses and loss adjustment expenses |
|
|
78 |
|
|
43 |
|
|
399 |
|
|
Underwriting expenses |
|
|
52 |
|
|
48 |
|
|
96 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
57 |
|
$ |
41 |
|
$ |
(184 |
) |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
69.5 |
% |
|
68.9 |
% |
|
159.2 |
% |
|
|
|
|
|
|
|
|
Global Casualty |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
242 |
|
$ |
284 |
|
$ |
592 |
|
|
Net premiums earned |
|
|
239 |
|
|
230 |
|
|
521 |
|
|
Losses and loss adjustment expenses |
|
|
198 |
|
|
226 |
|
|
460 |
|
|
Underwriting expenses |
|
|
75 |
|
|
84 |
|
|
191 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
(34 |
) |
$ |
(80 |
) |
$ |
(130 |
) |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
114.3 |
% |
|
134.6 |
% |
|
125.0 |
% |
|
|
|
|
|
|
|
|
Finite Risk |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
148 |
|
$ |
124 |
|
$ |
475 |
|
|
Net premiums earned |
|
|
147 |
|
|
126 |
|
|
470 |
|
|
Losses and loss adjustment expenses |
|
|
74 |
|
|
75 |
|
|
581 |
|
|
Underwriting expenses |
|
|
51 |
|
|
54 |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
22 |
|
$ |
(3 |
) |
$ |
(130 |
) |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
85.4 |
% |
|
102.2 |
% |
|
127.5 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
602 |
|
$ |
576 |
|
$ |
1,382 |
|
|
Net premiums earned |
|
|
573 |
|
|
488 |
|
|
1,302 |
|
|
Losses and loss adjustment expenses |
|
|
350 |
|
|
344 |
|
|
1,440 |
|
|
Underwriting expenses |
|
|
178 |
|
|
186 |
|
|
306 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
45 |
|
$ |
(42 |
) |
$ |
(444 |
) |
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
61.2 |
% |
|
70.6 |
% |
|
110.6 |
% |
|
Underwriting expense ratio |
|
|
31.1 |
% |
|
38.1 |
% |
|
23.5 |
% |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
92.3 |
% |
|
108.7 |
% |
|
134.1 |
% |
|
|
|
|
|
|
|
|
The
following table summarizes pro forma underwriting results and combined ratios, excluding the impact of St. Paul Re's aggregate excess-of-loss treaties and the impact of the
September 11,
84
2001 terrorist attack, for each of our three operating segments for the six months ended June 30, 2002 and 2001, and the year ended December 31, 2001:
|
|
Six Months Ended June 30,
|
|
|
|
|
|
Year Ended December 31,
2001
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Global Property & Marine |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
215 |
|
$ |
196 |
|
$ |
356 |
|
|
Net premiums earned |
|
|
187 |
|
|
159 |
|
|
352 |
|
|
Losses and loss adjustment expenses |
|
|
71 |
|
|
100 |
|
|
194 |
|
|
Underwriting expenses |
|
|
52 |
|
|
48 |
|
|
96 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
64 |
|
$ |
11 |
|
$ |
62 |
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
65.8 |
% |
|
93.1 |
% |
|
82.4 |
% |
|
|
|
|
|
|
|
|
Global Casualty |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
248 |
|
$ |
288 |
|
$ |
611 |
|
|
Net premiums earned |
|
|
241 |
|
|
234 |
|
|
540 |
|
|
Losses and loss adjustment expenses |
|
|
196 |
|
|
240 |
|
|
468 |
|
|
Underwriting expenses |
|
|
74 |
|
|
83 |
|
|
191 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
(29 |
) |
$ |
(89 |
) |
$ |
(119 |
) |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
112.3 |
% |
|
138.1 |
% |
|
122.1 |
% |
|
|
|
|
|
|
|
|
Finite Risk |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
146 |
|
$ |
129 |
|
$ |
365 |
|
|
Net premiums earned |
|
|
144 |
|
|
131 |
|
|
360 |
|
|
Losses and loss adjustment expenses |
|
|
62 |
|
|
83 |
|
|
276 |
|
|
Underwriting expenses |
|
|
52 |
|
|
54 |
|
|
110 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
30 |
|
$ |
(6 |
) |
$ |
(26 |
) |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
78.9 |
% |
|
104.8 |
% |
|
107.1 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
609 |
|
$ |
613 |
|
$ |
1,332 |
|
|
Net premiums earned |
|
|
572 |
|
|
524 |
|
|
1,252 |
|
|
Losses and loss adjustment expenses |
|
|
329 |
|
|
423 |
|
|
938 |
|
|
Underwriting expenses |
|
|
178 |
|
|
185 |
|
|
397 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
65 |
|
$ |
(84 |
) |
$ |
(83 |
) |
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
57.6 |
% |
|
80.7 |
% |
|
74.9 |
% |
|
Underwriting expense ratio |
|
|
31.1 |
% |
|
35.3 |
% |
|
31.7 |
% |
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
88.7 |
% |
|
116.0 |
% |
|
106.6 |
% |
|
|
|
|
|
|
|
|
The following provides a more detailed discussion of the pro forma underwriting results for our three operating segments. To provide a more meaningful analysis of the underlying
performance of our business segments, the discussion of segment results excludes the impact of St. Paul Re's aggregate excess-of-loss treaties and the impact of the September 11, 2001 terrorist
attack.
85
Global Property and Marine
The Global Property and Marine operating segment will include principally property and marine reinsurance coverages. We intend to focus our underwriting
activities primarily on catastrophe and excess-of-loss per risk contracts. We intend to write other types of property reinsurance as well, including selected property pro rata insurance. The following
table summarizes the pro forma underwriting results of Platinum's Global Property and Marine segment for the six months ended June 30, 2002 and 2001, and the year ended December 31,
2001. The underwriting results exclude the impact of St. Paul Re's aggregate excess-of-loss treaties and the impact of the September 11, 2001 terrorist attack.
|
|
Six Months Ended June 30,
|
|
|
|
|
|
Year Ended December 31,
2001
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
215 |
|
$ |
196 |
|
$ |
356 |
|
Net premiums earned |
|
|
187 |
|
|
159 |
|
|
352 |
|
Losses and loss adjustment expenses |
|
|
71 |
|
|
100 |
|
|
194 |
|
Underwriting expenses |
|
|
52 |
|
|
48 |
|
|
96 |
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
64 |
|
$ |
11 |
|
$ |
62 |
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
37.9 |
% |
|
62.7 |
% |
|
55.1 |
% |
Underwriting expense ratio |
|
|
27.9 |
% |
|
30.4 |
% |
|
27.3 |
% |
|
|
|
|
|
|
|
|
Combined ratio |
|
|
65.8 |
% |
|
93.1 |
% |
|
82.4 |
% |
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Net premiums
Net premiums written in the Global Property and Marine segment for the six-month period ended June 30, 2002 increased 9.7% to $215 million from
$196 million for the six-month period ended June 30, 2001. This increase was the result of significant price increases averaging 36%, offset by decreased exposures through
re-underwriting efforts across all lines of business.
Net
premiums written in the Global Property and Marine segment included $164 million in excess-of-loss reinsurance contracts and $51 million in
proportional contracts.
Net
premiums written in the Global Property and Marine segment grew 7.6% in the U.S. to $113 million for the six months ended June 30, 2002 compared to $105 million
in the U.S. for the six months ended June 30, 2001. Net premiums written in the Global Property and Marine segment increased 12.1% outside the U.S. to $102 million for the six months
ended June 30, 2002 compared to $91 million outside the U.S. in the six months ended June 30, 2001. These increases reflected the impact of price increases offset by the decrease
in exposure.
Net
premiums earned for the six months ended June 30, 2002 were impacted by the same factors as written premiums and increased by 17.6% to $187 million from
$159 million for the six-month period ended June 30, 2001.
Losses and loss adjustment expenses incurred by Global Property and Marine segment were $71 million in the six months ended June 30, 2002 compared
to $100 million in the six months ended June 30, 2001. The decrease in the six months ended June 30, 2002 was principally attributable to the absence of catastrophe losses and the
favorable development of prior year catastrophes. The Global Property and Marine segment's loss ratio was 37.9% and 62.7% for the six-month periods ending June 30, 2002 and 2001, respectively.
The absence of catastrophe losses in 2002, as well as favorable loss development from prior period catastrophes, resulted in a benefit of $14 million for the six months
86
ended June 30, 2002. For the six months ended June 30, 2001 catastrophe losses totaled $18 million mainly due to Hurricane Allison and the Midwest storms in 2001.
Acquisition costs associated with the Global Property and Marine segment were $37 million for the six-month period ended June 30, 2002 compared to
$31 million for the six-month period ended June 30, 2001. After deferring those costs related to the unearned portions of net premiums written, the resulting acquisition expense ratio
was 20.0% for the six months ended June 30, 2002 compared to 19.4% for the six months ended June 30, 2001. The increase in the expense ratio of 0.6% was attributable to higher commission
and brokerage costs reflecting an increase in proportional business, which carries a higher commission and brokerage ratio. Other underwriting expenses of the Global Property and Marine segment,
including direct and allocated underwriting expenses, were $15 million for the six-month period ended June 30, 2002 and $17 million for the six-month period ended June 30,
2001. The other underwriting expense ratio for the Global Property and Marine segment for the six months ended June 30, 2002 was 7.9% compared with 11.0% for the six-month period ended
June 30, 2001. The decrease in the other underwriting expense ratio was attributable to the increase in written premiums and a decrease in other underwriting expenses, mainly compensation
related due to a reduction of employees.
Year Ended December 31, 2001
Net premiums
Net premiums written in the Global Property and Marine segment for the year ended December 31, 2001 totaled $356 million. Net premium volume in 2001
reflected the benefit of strong rate increases throughout the segment. Price increases accelerated as the year progressed, particularly in the aftermath of the September 11, 2001 terrorist
attack.
Net
premiums written in the Global Property and Marine segment in the U.S. totaled $196 million in 2001. Net premiums written in the Global Property and Marine segment for ceding
companies outside the U.S. totaled $160 million in 2001.
Losses and loss adjustment expenses incurred for the Global Property and Marine segment totaled $194 million for the year ended December 31, 2001.
Losses and loss adjustment expenses incurred for the year ended December 31, 2001 included loss and loss adjustment expense payments of $190 million and a net increase in reserves for
unpaid losses and loss adjustment expenses of $4 million.
Acquisition costs for the Global Property and Marine segment were $66 million for the year ended December 31, 2001, after deferring those costs
related to the unearned portion of premiums written. The resulting acquisition expense ratio was 18.7% for the year ended December 31, 2001. Other underwriting expenses of the Global Property
and Marine segment, including direct and allocated underwriting expenses during 2001, totaled $30 million, resulting in an other underwriting expense ratio of 8.6%.
Global Casualty
The Global Casualty operating segment will include principally general and automobile liability, professional liability, workers' compensation, accident and
health coverages and casualty clash. We intend to focus our underwriting activities primarily on excess-of-loss reinsurance coverages. The following table summarizes the pro forma underwriting results
of Platinum's Global Casualty segment for the periods covered by this discussion. As with the discussion of the Global Property and Marine segment, the underwriting results below for the six months
ended June 30, 2002 and 2001, and for the
year ended December 31, 2001 exclude the impact of St. Paul Re's aggregate excess-of-loss treaties and the impact of the September 11, 2001 terrorist attack.
87
|
|
Six Months Ended June 30,
|
|
Year Ended
December 31,
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
248 |
|
$ |
288 |
|
$ |
611 |
|
Net premiums earned |
|
|
241 |
|
|
234 |
|
|
540 |
|
Losses and loss adjustment expenses |
|
|
196 |
|
|
240 |
|
|
468 |
|
Underwriting expenses |
|
|
74 |
|
|
83 |
|
|
191 |
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
(29 |
) |
$ |
(89 |
) |
$ |
(119 |
) |
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
81.4 |
% |
|
102.5 |
% |
|
86.7 |
% |
Underwriting expense ratio |
|
|
30.9 |
% |
|
35.6 |
% |
|
35.4 |
% |
|
|
|
|
|
|
|
|
Combined ratio |
|
|
112.3 |
% |
|
138.1 |
% |
|
122.1 |
% |
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Net premiums
Net premiums written in the Global Casualty segment for the six-month period ended June 30, 2002 decreased 13.9% to $248 million from
$288 million for the six-month period ended June 30, 2001. The decrease in net premiums written was primarily due to the re-underwriting of the portfolio including the rescission of a
large quota share contract and a decrease in proportional reinsurance. The large quota share contract was a three year quota share reinsurance contract incepting in 1999. As a result of the strategic
initiative to improve profitability and focus on core lines of business, the coverage for 2001 was rescinded by mutual agreement with the ceding company. These decreases to the portfolio were offset
by significant rate increases on renewal business averaging 30% across the portfolio.
Net
premiums written in the Global Casualty segment included $202 million in excess-of-loss reinsurance contracts and $46 million in proportional
contracts.
Net
premiums written in the Global Casualty segment declined 10.7% in the United States to $208 million for the six months ended June 30, 2002 compared to
$233 million in the United States in the six months ended June 30, 2001. Net premiums written in the Global Casualty segment declined 27.3% outside the United States to
$40 million for the six months ended June 30, 2002 compared to $55 million outside the United States in the six months ended June 30, 2001. The decreases reflect the
rescission of the large quota share contract offset by rate increases achieved on renewal business.
Net
premiums earned for the six months ended June 30, 2002 were impacted by the same factors as net premiums written and increased by 3.0% to $241 million from
$234 million for the six-month period ended June 30, 2001.
Losses and loss adjustment expenses incurred in the Global Casualty segment were $196 million in the six months ended June 30, 2002 compared to
$240 million in the six months ended June 30, 2001. The decrease is attributable to favorable development in prior underwriting years as well as increased rates impacting the current
underwriting year. The Global Casualty segment's loss ratio was 81.4% and 102.5% for the six-month periods ended June 30, 2002 and 2001, respectively.
88
Acquisition costs associated with the Global Casualty segment were $61 million for the six-month period ended June 30, 2002 compared to
$69 million for the six-month period ended June 30, 2001, after deferring those costs related to the unearned portion of premiums written. The resulting acquisition expense ratio was
25.5% for the six months ended June 30, 2002 compared to 29.8% for the six months ended June 30, 2001. The reduction in the acquisition expense ratio of 4.3% was attributable to better
terms and conditions negotiated with our ceding companies. Other underwriting expenses of the Global Casualty segment, including direct and allocated underwriting expenses, were $13 million for
the six-month period ended June 30, 2002 and $14 million for the six-month period ended June 30, 2001. The other underwriting expense ratio for the six months ended June 30, 2002
was 5.4% compared to 5.8% for the six-month period ended June 30, 2001. The decrease in the other underwriting expense ratio was attributable to a decrease in expenses, principally compensation
related due to a reduction of employees.
Year Ended December 31, 2001
Net premiums
Net premiums written in the Global Casualty segment for 2001 included $454 million in excess-of-loss reinsurance contracts and
$157 million in proportional contracts. Net premium volume reflected the benefit of significant price increases for substantially all coverages in the segment.
Net premiums written in the Global Casualty segment for ceding companies in the United States totaled $501 million in 2001. Net premiums written in the Global Casualty segment for
ceding companies outside the U.S. were $110 million in 2001.
Losses and loss adjustment expenses incurred for the Global Casualty segment totaled $468 million for the year ended December 31, 2001. Loss and
loss adjustment expenses incurred for the year ended December 31, 2001 included loss and loss expense payments of $310 million and a net increase in reserves for unpaid losses and loss
adjustment expenses of $158 million.
Acquisition costs for the Global Casualty segment were $163 million for the year ended December 31, 2001. After deferring those costs related to the
unearned portion of net premiums written, the resulting acquisition expense ratio was 30.2% for the year ended December 31, 2001. Other underwriting expenses of the Global Casualty segment,
including direct and allocated underwriting expenses during 2001, totaled $28 million, resulting in an other underwriting expense ratio of 5.2%.
Finite Risk
The Finite Risk operating segment will include principally non-traditional reinsurance treaties, including multi-year excess-of-loss, aggregate stop loss, finite
quota share, loss portfolio transfer, and adverse loss development contracts. We intend to provide clients, either directly or through brokers, with customized solutions for their risk management and
other financial management needs. We intend to focus our finite risk underwriting activities primarily on multi-year excess-of-loss and aggregate stop loss reinsurance treaties. Coverage classes
within these products will primarily include property, casualty, marine and/or whole account property and casualty exposures. The following table summarizes results for the Finite Risk segment for the
periods covered by this discussion. As with the discussion of our other operating segments, the pro forma underwriting results below for the six months ended June 30, 2002 and 2001, and for the
year ended
89
December 31, 2001 exclude the impact of St. Paul Re's aggregate excess-of-loss treaties and the impact of the September 11, 2001 terrorist attack.
|
|
Six Months Ended June 30,
|
|
Year Ended
December 31,
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
146 |
|
$ |
129 |
|
$ |
365 |
|
Net premiums earned |
|
|
144 |
|
|
131 |
|
|
360 |
|
Losses and loss adjustment expenses |
|
|
62 |
|
|
83 |
|
|
276 |
|
Underwriting expenses |
|
|
52 |
|
|
54 |
|
|
110 |
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
30 |
|
$ |
(6 |
) |
$ |
(26 |
) |
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio |
|
|
43.4 |
% |
|
63.5 |
% |
|
76.6 |
% |
Underwriting expense ratio |
|
|
35.5 |
% |
|
41.3 |
% |
|
30.5 |
% |
|
|
|
|
|
|
|
|
Combined ratio |
|
|
78.9 |
% |
|
104.8 |
% |
|
107.1 |
% |
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Net premiums
Net premiums written in the Finite Risk segment for the six-month period ended June 30, 2002 increased 13.2% to $146 million from
$129 million for the six-month period ended June 30, 2001. The increase in premiums written in the six months ended June 30, 2002 compared with the six months ended
June 30, 2001 was due to one large finite quota share contract written in the fourth quarter of 2001 that has significant premium in calendar year 2002.
Net
premiums written in the Finite Risk segment grew 27.5% in the United States to $88 million for the six months ended June 30, 2002 compared to $69 million in the
United States in the six months ended June 30, 2001. Net premiums written in the Finite Risk segment decreased 3.3% outside the United States to $58 million for the six months ended
June 30, 2002 compared to $60 million outside the United States for the six months ended June 30, 2001. The increase in U.S. business is due to the rate increases achieved on
renewal business after the September 11, 2001 terrorist attack on the United States.
Net
premiums earned for the six months ended June 30, 2002 were impacted by the same factors as net premiums written and increased by 9.9% to $144 million from
$131 million for the six month period ended June 30, 2001.
Losses and loss adjustment expenses incurred in the Finite Risk segment were $62 million for the six months ended June 30, 2002 compared to
$83 million in the six months ended June 30, 2001. The decrease from the six months ended June 30, 2001 was principally attributable to the commutation of an assumed aggregate
stop loss treaty and the absence of large losses. The commutation of this treaty resulted in a net gain of $10 million. In the six months ended June 30, 2001, the Petrobras oil platform
collapse impacted losses by $11 million. The Finite Risk segment's loss ratio was 43.4% and 63.5% for the six month periods ended June 30, 2002 and 2001, respectively.
Acquisition costs associated with the Finite Risk segment were $46 million for the six month period ended June 30, 2002 compared to
$48 million for the six month period ended June 30,
90
2001. After deferring those costs related to the unearned portion of net premiums written, the resulting acquisition expense ratio was 31.5% for the six months ended June 30, 2002 compared to
36.8% for the six months ended June 30, 2001. The reduction in the expense ratio of 5.3 percentage points was attributable to lower commission and brokerage costs across the portfolio.
Other underwriting expenses of the Finite Risk segment, including direct and allocated underwriting expenses, were $6 million for the six-month period ended June 30, 2002 and
$6 million for the six-month period ended June 30, 2001. The other underwriting expense ratio for the six-month period ended June 30, 2002 was 4.0% compared to 4.5% for the
six-month period ended June 30, 2001. The decrease in the other underwriting expense ratio was attributable to the increase in net premiums written.
Year Ended December 31, 2001
Net Premiums
Net premiums written in the Finite Risk segment for ceding companies in the United States totaled $204 million in 2001. Net premiums written in the Finite
Risk segment for ceding companies outside the U.S. totaled $161 million in 2001.
Losses and loss adjustment expenses incurred for the Finite Risk segment totaled $276 million for the year ended December 31, 2001. Loss and loss
adjustment expenses incurred for the year ended December 31, 2001 included loss and loss expense payments of $153 million and a net increase in reserves for unpaid losses and loss adjustment
expenses of $123 million.
Acquisition costs for the Finite Risk segment were $99 million for the year ended December 31, 2001. After deferring those costs related to the
unearned portion of net premiums written, the resulting acquisition expense ratio was 27.6% for the year ended December 31, 2001.
Other
underwriting expenses of the Finite Risk segment, including direct and allocated underwriting expenses during 2001, totaled $11 million, resulting in an other underwriting
expense ratio of 2.9%.
Liquidity and Capital Resources
Platinum Holdings is a holding company that will conduct no reinsurance operations of its own. All its reinsurance operations will be conducted through its wholly
owned operating subsidiaries Platinum US (which it will own through Platinum Ireland and Platinum Finance), Platinum UK (which it will own through Platinum Ireland) and Platinum Bermuda. As a holding
company, Platinum Holdings' cash flow will consist primarily of dividends, interest and other permissible payments from its subsidiaries. Platinum Holdings will depend on such payments to receive
funds for general corporate purposes and to meet its obligations, including the payment of any dividends to its shareholders.
Our principal consolidated cash requirements are expected to be the payment of dividends to Platinum Holdings' shareholders, the servicing of debt (including
interest payments on the senior notes and contract adjustment payments on the purchase contracts included in the equity security units issued in the ESU Offering), the acquisition of and investment in
businesses, capital expenditures, premiums retroceded and payment of losses and loss adjustment expenses, policy benefits, brokerage commissions, excise taxes and operating expenses.
91
We intend to recommend that our Board of Directors authorize the payment of a dividend of $0.32 for 2003. It is intended that dividends will be recommended to the Board for approval and
payment on a quarterly basis. Our dividends, if any, will be paid by us in U.S. dollars. Our dividend policy in future periods will depend on a number of factors including our results of operations,
our financial condition, our capital and cash requirements, general business conditions, legal, contractual and regulatory restrictions regarding the payment of dividends by us and other factors. See
"Dividend Policy."
We
will operate a treasury function responsible for managing our future banking relationships, capital raising activities including equity and debt issues, our overall cash, cash pooling
and liquidity positions and the payment of internal and external dividends. Our subsidiaries will be responsible for managing local cash and liquidity positions.
Our sources of funds are expected to consist of premiums written, losses recovered from retrocedents, investment income and proceeds from sales and redemptions of
investments.
In
addition, we have entered into a 364 day committed credit facility with a group of banks that will permit us to make borrowings of up to $100 million in the aggregate
from time to time. The credit facility contains various covenants and agreements, including a requirement that we satisfy specified tangible net worth and leverage ratios. It is a condition to our
ability to borrow under the credit facility that we have received not less than $825 million of aggregate proceeds (net of the underwriters' discount) from the sale of our Common Shares in the Equity
Public Offering, the RenaissanceRe Investment and the Cash Contribution. Assuming an initial public offering price of $22.00 per Common Share (the low end of the range at which Platinum Holdings
proposes to offer the Common Shares in the Equity Public Offering), a Cash Contribution of $121 million and proceeds of $83 million from the RenaissanceRe Investment, and assuming no
exercise of the underwriter's, St. Paul's or RenaissanceRe's options to purchase additional Common Shares in connection with the Equity Public Offering, we expect to receive aggregate net
proceeds of approximately $829 million from the Equity Public Offering, the Cash Contribution and the RenaissanceRe Investment. We may not raise net proceeds in such amount, and, if we fail to
do so, we will be unable to borrow under the facility. In addition, we may not be able to extend or replace this credit facility upon satisfactory terms when it terminates on June 20, 2003.
Failure to satisfy the conditions to borrowing under our credit facility, or to extend or replace it when it expires, would limit Platinum Holdings' liquidity to the net proceeds of
the Equity Public Offering, the RenaissanceRe Investment and the Cash Contribution retained by it and dividends, if any, received from Platinum US, Platinum UK and Platinum Bermuda unless we arrange
for other sources of liquidity.
Bermuda. Bermuda legislation imposes limitations on the dividends that Platinum Bermuda may pay. Under the Bermuda Insurance
Act, Platinum Bermuda will be required to maintain a specified solvency margin and a minimum liquidity ratio and will be prohibited from declaring or paying any dividends if doing so would cause
Platinum Bermuda to fail to meet its solvency margin and its minimum liquidity ratio. Under the Bermuda Insurance Act, Platinum Bermuda will be prohibited from paying dividends of more than 25% of its
total statutory capital and surplus at the end of the previous fiscal year unless it files an affidavit stating that the declaration of such dividends has not caused it to fail to meet its solvency
margin and minimum liquidity ratio. The Bermuda Insurance Act will also prohibit Platinum Bermuda from declaring or paying dividends without the approval of the Supervisor of Insurance of Bermuda if
Platinum Bermuda failed to meet its solvency margin and minimum liquidity ratio on the last day of the previous fiscal year. Additionally, under the Companies Act, Platinum Bermuda may declare or pay
a dividend only if it has no reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due, or that the realizable value of its assets
would thereby be less than
92
the aggregate of its liabilities and its issued share capital and share premium accounts. See "BusinessOur BusinessRegulationBermuda."
United States. Platinum US is subject to regulation by the State of Maryland. Under Maryland insurance law, Platinum US may
pay dividends out of surplus, provided it must give the Maryland Insurance Commissioner at least thirty days' prior notice before paying an "extraordinary dividend" or making an "extraordinary
distribution." Extraordinary dividends and extraordinary distributions are dividends or distributions which, together with any other dividends and distributions paid during the immediately preceding
twelve-month period, would exceed the lesser of
- (1)
- ten
percent of Platinum US's statutory policyholders' surplus (as determined under statutory accounting principles) as of December 31 of the prior year and
- (2)
- Platinum
US's net investment income excluding realized capital gains (as determined under statutory accounting principles) for the twelve-month period ending on December 31 of
the prior year, plus any amounts of net investment income (excluding realized capital gains) in the three preceding years which have not been distributed.
These
statutory limitations are subject to change. Platinum US may not pay extraordinary dividends or make extraordinary distributions until either the thirty-day notice period has expired
(without the Maryland Insurance Commissioner disapproving such payment) or the Maryland Insurance Commissioner has approved the payment within that period. Extraordinary dividends and extraordinary
distributions may only be paid out of earned surplus.
In
addition, Platinum US must give ten days' prior notice to the Maryland Insurance Commissioner of its intention to pay any dividend or make any distribution other than an extraordinary
dividend or extraordinary distribution. The Maryland Insurance Commissioner has the right to prevent payment of such a dividend or such a distribution if he determines, in his discretion, that after
the payment thereof Platinum US's policyholders' surplus would be inadequate or could cause Platinum US to be in a hazardous financial condition.
As
it is not engaged in the insurance business, Platinum Finance is not subject to the restrictions on dividend payments or distributions set forth above.
United Kingdom. U.K. law prohibits Platinum UK from declaring a dividend to its stockholders unless it has "profits available
for distribution". The determination of whether a company has profits available for distribution is based on its accumulated realized profits less its accumulated realized losses. While the United
Kingdom insurance regulatory laws impose no statutory restrictions on a general insurer's ability to declare a dividend, the insurance regulator in the United Kingdom strictly controls the maintenance
of each insurance company's solvency margin within its jurisdiction and may restrict Platinum UK from declaring a dividend at a level which the regulator determines would adversely affect Platinum
UK's solvency requirements. It is common practice in the United Kingdom to notify the regulator in advance of any significant dividend payment.
Ireland. Platinum Ireland is currently a holding company incorporated under the laws of Ireland. Irish law prohibits Platinum
Ireland from declaring a dividend to its stockholders unless it has "profits available for distribution" as determined under Irish law. As Platinum Ireland is not currently a regulated entity, there
are no insurance or other regulatory laws applicable to the payment of dividends by Platinum Ireland.
Under U.S. GAAP, we will not be permitted to establish loss reserves until the occurrence of an event which may give rise to a loss. Once such an event occurs, we
will establish reserves based upon estimates of total losses incurred by the ceding insurers as a result of the event and our estimate of the portion of such loss we have reinsured. As a result, only
loss reserves applicable to losses incurred up to the reporting date may be set aside, with no allowance for the provision of a
93
contingency reserve to account for expected future losses. Losses arising from future events will be estimated and recognized at the time the loss is incurred and could be substantial.
Setting
appropriate reserves for loss and loss adjustment expenses is an inherently uncertain process. Loss reserves will represent our estimates, at a given point in time, of ultimate
settlement and adjustment costs of losses incurred (including incurred but not reported, or IBNR, losses). We will regularly review and update these estimates, using the most current information
available to us. Consequently, the ultimate liability for a loss will likely differ from the original estimate. Whenever we determine that any existing loss reserves are inadequate, we are required to
increase the loss reserves with a corresponding reduction, which could be material, in our operating results in the period in which the deficiency is identified. The establishment of new reserves, or
the adjustment of reserves for reported claims, could result in significant upward or downward changes to our financial condition or results of operations in any particular period.
Our functional currency will be the U.S. dollar. Our operating currency will generally also be the U.S. dollar. However, premiums receivable and losses payable in
respect of a portion of our business will be denominated in currencies of other countries, principally the industrialized countries. Consequently, we may, from time to time, experience currency
exchange gains and losses that could affect our financial position and results of operations. We do not expect to and as a practical matter will not be able to hedge our non-U.S. dollar currency
exposure with respect to potential loss until a loss payable in a non-U.S. dollar currency occurs, after which we may match such liability with assets denominated in the same currency or
enter into forward purchase contracts for specific currencies. This type of exposure could be substantial. We also do not intend to hedge our non-U.S. dollar currency exposure with respect
to premiums receivable, which will be generally collected over the relevant contract term. We expect to exchange non-U.S. dollar denominated premiums upon receipt. We may make foreign
currency investments, generally for the purpose of improving overall portfolio yield.
With the exception of cash holdings, our funds will be primarily invested initially in fixed income securities, the market value of which is subject to
fluctuation depending on changes in prevailing interest rates. We may in the future elect to also invest a portion of our funds in marketable equity securities. We expect to hedge our investment
portfolio against interest rate risk. Nevertheless, an increase in interest rates may result in losses, both realized and unrealized, on our investments.
We
do not expect our investment portfolio to include options, warrants, swaps, collars or similar derivative instruments. Our investment policy guidelines will provide that financial
futures and options and foreign exchange contracts may not be used in a speculative manner, but may be used, subject to certain numerical limits, only as part of a defensive strategy to protect the
market value of the portfolio. Also, we do not expect our portfolio to contain any investments in real estate or mortgage loans.
Platinum UK and Platinum Bermuda are not licensed, approved or accredited as reinsurers anywhere in the United States and therefore, under the terms of most of
their contracts in the United States, they will have to provide security to reinsureds to cover unpaid liabilities in a form acceptable to state insurance commissioners. Typically, this type of
security will take the form of a letter of credit issued by an acceptable bank, the establishment of a trust, or a cash advance. Platinum UK and Platinum Bermuda are expected to obtain letters of
credit through commercial banks. In turn, Platinum UK and Platinum Bermuda will provide the banks security by giving the banks liens over certain of Platinum UK's and Platinum Bermuda's investments.
94
None of Platinum Holdings, Platinum US, Platinum UK and Platinum Bermuda will have any material commitments for capital expenditures upon the completion of the
Equity Public Offering.
Platinum
US, Platinum UK and Platinum Bermuda will estimate the effect of inflation on their business and reflect these estimates in the pricing of their reinsurance contracts when
estimating reserves. The actual effects of inflation on the results of the operating subsidiaries cannot be accurately known until claims are ultimately settled. Levels of inflation also affect
investment returns.
Exposures to Market Risk
Market risk can be described as the risk of change in fair value of a financial instrument due to changes in interest rates, equity prices, creditworthiness,
foreign exchange rates or other factors. We seek to mitigate that risk by a number of actions, as described below.
Our exposure to market risk for changes in interest rates will be concentrated in our investment portfolio once we commence operations. Changes in investment
values attributable to interest rate changes will be mitigated, however, by corresponding and partially offsetting changes in the economic value of our insurance reserves. This exposure will be
monitored through periodic reviews of our consolidated asset and liability positions. Estimates of cash flows, as well as the impact of interest rate fluctuations relating to the investment portfolio
and insurance reserves, will be modeled and reviewed periodically.
Our investment portfolio is expected to include initially fixed maturities and short-term investments, which will be subject to credit risk. This risk
is defined as the potential loss in market value resulting from adverse changes in the borrower's ability to repay the debt. Our investment objective will be to earn competitive relative returns by
investing in a diversified portfolio of securities. Credit risk will be actively managed through stringent review and analysis of the creditworthiness of all potential investments.
We
will also have other receivable amounts subject to credit risk. The most significant of these are reinsurance recoverables. To mitigate the risk of these counterparties' nonpayment of
amounts due, we will establish business and financial standards for reinsurer approval, incorporating ratings by major rating agencies and considering then-current market information.
Our investment portfolio may in the future include marketable equity securities, which will be carried on our consolidated balance sheet at market value. These
securities have exposure to price risk, which is defined as the potential loss in market value resulting from an adverse change in prices. If we invest in equity securities, our objective with respect
to such investments will be to earn competitive relative returns by investing in a diverse portfolio of high-quality, liquid securities. Portfolio characteristics are expected to be
analyzed regularly and market risk will be actively managed through a variety of modeling techniques. If we invest in equity securities, our holdings are expected to be diversified across industries,
and concentrations in any one company or industry will be limited by parameters established by senior management, as well as by statutory requirements.
Our exposure to market risk for changes in foreign exchange rates will be concentrated in our insurance reserves denominated in foreign currencies. In addition,
there may be foreign currency exposure in our investment portfolio related to those investments that are denominated in foreign currencies. Cash flows from foreign operations are expected to be the
primary source of funds for purchases of investments denominated in foreign currencies. Those investments will be purchased primarily to hedge insurance reserves and other liabilities denominated in
the same currency, effectively reducing foreign currency exchange rate exposure at the Platinum consolidated level.
95
BUSINESS
Industry Overview
General
Reinsurance is an arrangement in which an insurance company, referred to as the reinsurer, agrees to assume from another insurance company, referred to as the
ceding company, all or a portion of the insurance risks that the ceding company has underwritten under one or more insurance contracts. In return, the reinsurer receives a premium for the insured
risks that it assumes from the ceding company. Reinsurance, however, does not discharge the ceding company from its liabilities to policyholders. Reinsurance provides ceding insurers with three
principal benefits: a reduction in net liability on individual risks, catastrophe protection from large or multiple losses and assistance in maintaining acceptable financial ratios. Reinsurance also
provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business than would be possible without an accompanying increase in capital and
surplus.
During
the period between the time premiums are received by the reinsurer and the time that the reinsurer must pay losses and loss adjustment expenses, the reinsurer has an opportunity
to invest the funds received as premiums, less expenses. This investment activity can make a significant contribution to a reinsurer's profitability.
Types of Reinsurance
Reinsurance is typically classified into two categories, property and casualty, or non-life, reinsurance and life reinsurance. We intend to write property and
casualty reinsurance. We do not currently intend to write any life reinsurance.
Property
insurance protects an insured against financial loss arising out of the loss of property caused by an insured peril. Examples of property reinsurance are property catastrophe
and property per-risk coverages. Property catastrophe insurance protects an insured against losses arising out of multiple claims for a single event while property per-risk insurance protects an
insured against loss arising out of a single claim for a single event.
Casualty
insurance protects an insured against financial loss arising out of loss or damage to persons other than the insured or property belonging to a third party. Examples of casualty
insurance are general and automobile liability, professional liability, workers' compensation, and accident and health.
Although property reinsurance involves a high degree of volatility, property reinsurance claims are generally reported soon after the event giving rise to the claim and tend to be
assessed and paid relatively expeditiously. In comparison, there tends to be a greater time lag between the occurrence, reporting and payment of casualty reinsurance claims. Additionally, as compared
with property reinsurance, casualty reinsurance tends to involve greater diversity of exposures and variation in contract terms and pose greater challenges in capturing underwriting information, and
casualty reinsurance results are also more likely to be affected by the claims handling process.
Reinsurance can be written on either an excess-of-loss basis or a pro rata, or proportional, basis. We expect that a substantial majority
of the reinsurance we will underwrite will be excess-of-loss reinsurance.
In
the case of excess-of-loss reinsurance, the reinsurer, in return for a negotiated premium, assumes all or a specified portion of the ceding company's risks in
excess of a specified amount, which amount is referred to as the ceding company's retention or the reinsurer's attachment point,
96
subject to a negotiated reinsurance contract limit. For example, property catastrophe excess-of-loss reinsurance provides coverage to a primary insurer when aggregate losses
and loss adjustment expenses from a single occurrence of a peril covered under a portfolio of primary insurance contracts written by the primary insurer exceed the attachment point specified in the
reinsurance contract with the primary insurer. Property per-risk excess-of-loss-reinsurance provides coverage to a primary insurer in excess of its retention level
on a single risk. A risk in this context might mean the insurance coverage on a single property location. Because a reinsurer providing excess-of-loss reinsurance does not
assume a direct proportion of the ceding company's risk, the premiums that the ceding company pays to the reinsurer are not directly proportional to the premiums that the ceding company receives.
Instead, excess-of-loss reinsurance contracts provide a reinsurer flexibility in determining premiums at specific retention levels, independent of the premiums charged by
primary insurers, and based upon its own underwriting assumptions.
Excess-of-loss
property and casualty reinsurance is often written in layers. One or a group of reinsurers accepts the risk just above the ceding company's
retention up to a specified amount, at which point another reinsurer or a group of reinsurers accepts the excess liability up to an additional specified limit or the excess liability reverts to the
ceding company. The reinsurer taking on the risk just above the ceding company's retention is typically said to write lower layer excess reinsurance. Lower layers are also referred to as working
layers. A claim that reaches just beyond the ceding company's retention will create a claims payment for the lower layer reinsurer, but not for the reinsurers of any higher layers. In a limited number
of cases, reinsurance is also written on an aggregate stop-loss basis to protect the ceding company's total portfolio from extraordinary losses resulting from the aggregation of individual
risks.
In
the case of proportional reinsurance, the reinsurer assumes a predetermined portion of the ceding company's risks under the covered insurance contract or contracts. The frequency of
claims under a proportional reinsurance contract is usually greater than under an excess-of-loss contract. Premiums that the ceding company pays to a reinsurer for proportional
reinsurance are a predetermined portion of the premiums that the ceding company receives from its insured, consistent with the proportional sharing of risk. In addition, in proportional reinsurance,
the reinsurer generally pays the ceding company a ceding commission. The ceding commission is usually based on the ceding company's cost of generating the business being reinsured, which includes
commissions, premium taxes and assessments of the ceding company's own operating expenses. A profit commission or increased ceding commission may be included and paid to the ceding company if the loss
experience is profitable. The ceding commission may also be affected by competitive factors.
Reinsurance can be written either through treaty or facultative reinsurance arrangements. In treaty reinsurance, the ceding company cedes, and the reinsurer
assumes, a specified portion of a type or category of risks insured by the ceding company. In facultative reinsurance, the ceding company cedes, and the reinsurer assumes, all or part of a specific
risk or risks. We plan to underwrite
substantially all treaty reinsurance, and we do not expect to underwrite facultative reinsurance except in very limited and opportunistic circumstances.
Generally
in the industry, treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties and are largely dependent on the original risk
underwriting decisions made by the ceding company's underwriters. Accordingly, reinsurers will carefully evaluate the ceding company's risk management and underwriting practices, as well as claims
settlement practices and procedures, in deciding whether to provide treaty reinsurance and in appropriately pricing the treaty.
97
Generally,
reinsurers who provide facultative reinsurance do so separately from their treaty operations. Facultative reinsurance normally is purchased by ceding companies for risks not
covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and for unusual and complex risks. In addition, facultative risks often provide
coverages for relatively severe exposures which results in greater volatility. Reinsurers who provide facultative coverage solely, or through distinct operations, experience relatively high
underwriting expenses and, in particular, personnel costs, because each risk is individually underwritten and administered. The ability to evaluate separately each risk reinsured, however, increases
the probability that the reinsurance underwriter can price the contract to reflect more accurately the risks involved. Because of the transactional nature of the business and the greater risks
generally involved, margins on facultative business are usually higher than on treaty business.
Non-traditional/finite reinsurance involves structured reinsurance solutions tailored to meet an individual cedent's strategic and financial
objectives. Property and casualty risks can be reinsured on a non-traditional/finite basis. Often these reinsurance solutions provide reinsurance protection across a company's entire insurance
portfolio. For instance, a whole account aggregate stop loss, whether single year or multi-year in design, provides protection for a company from deterioration in its accident year results. Another
common solution is a loss portfolio transfer, which can take many forms, and which is frequently used to assist companies in efficiently and effectively exiting lines of business or facilitating
insurance entity sales transactions. With increasing frequency, non-traditional/finite reinsurance has been utilized in various ways to assist companies in managing property catastrophe
exposures and other loss exposures from single or multiple events which, in the aggregate, could be significant. Because of the constantly changing industry and regulatory framework, as well as the
changing market demands facing insurance companies, the approaches utilized in non-traditional/finite programs are constantly evolving and will continue to do so. We expect to be active participants
in the non-traditional/finite reinsurance business.
In
particular, non-traditional/finite reinsurance products are utilized by customers whose needs may not be met efficiently through traditional reinsurance products, specifically,
customers who seek to dampen volatility associated with the insurance or reinsurance pricing cycle, adjust their exposure to specific geographic areas or lines of business, increase their level of
retention over a period of time, minimize existing and potential liabilities in connection with extraordinary corporate events, such as a merger or acquisition, and manage their capital during periods
of rapid growth. These customers use non-traditional/finite products principally to mitigate volatility in earnings and capital as well as to transfer insurance risks. The structure of the product
will depend on whether the concern about volatility relates primarily to statutory capital and loss ratios, or to reported earnings under the customer's accounting basis for investors, e.g.,
International Accounting Standards, U.S. GAAP or other sovereign GAAP. Income tax treatment will also affect the products' structure. The more widely used finite products have similar features but
differing terms and limits, depending on the customer's requirements.
Reinsurance can be written through reinsurance brokers or directly with ceding companies. We believe that a ceding company's decision to select either the broker
market or the direct market is influenced by various factors including, among others, market capacity, market competition, the value of the broker's advocacy on the ceding company's behalf, the spread
of risk, flexibility in the terms and conditions, an ability to efficiently compare the analysis and quotes of several reinsurers, the speed of a reinsurance placement, the historical relationship
with the reinsurer and the efficiency of claims settlement with respect to a coverage. Through the use of reinsurance brokers, a reinsurer may be able to avoid the need to develop a large staff
dedicated to particular
98
reinsurance markets and to maintain the flexibility to move into other reinsurance markets when it perceives opportunities. We believe that the use of reinsurance brokers will allow us to avoid the
significant fixed cost of maintaining a sales force. We believe that brokers are particularly useful in assisting clients in arranging excess-of-loss reinsurance programs. We
expect to underwrite a substantial majority of our reinsurance through brokers and, to a much more limited extent, may also contract directly with ceding companies.
Reinsurers typically purchase reinsurance to cover their own risk exposure or to increase their capacity. Reinsurance of a reinsurer's business is called
retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause primary insurers to purchase
reinsurance. These reasons include reducing liability on individual risks, protecting against catastrophic losses, stabilizing financial ratios and obtaining additional underwriting capacity. We plan
to purchase and issue retrocessional policies.
Reinsurance Industry Conditions and Trends
The
reinsurance industry historically has been cyclical, characterized by periods of price competition due to excessive underwriting capacity as well as periods when shortages of
underwriting capacity have permitted favorable pricing.
Cyclical
trends in the industry and the industry's profitability can also be affected significantly by volatile and unpredictable developments, including natural and other disasters,
such as hurricanes, windstorms, earthquakes, floods, fires, explosions and other catastrophic events, including terrorist attacks, the frequency and severity of which are inherently unpredictable. We
believe that property and casualty reinsurance rates often rise in the aftermath of significant catastrophe losses. As claims are reserved, the industry's capacity to write new business diminishes.
The industry is also affected by changes in the propensity of courts to expand insurance coverage and grant large damage awards, as well as fluctuations in interest rates and other changes in the
economic environment that affect market prices of investments.
As
a result of favorable loss levels and strong investment returns beginning in 1995, the reinsurance industry entered a cycle of increased competition and industry capacity, which
pushed property and casualty premium rates down. However, in 1999, there were several significant worldwide catastrophic events, which resulted in insured losses of approximately $31 billion.
These losses, and the subsequent contraction of capacity in the market, fueled improvements in rates, terms and conditions beginning with January 2000 renewals. These improvements continued in
2001 with a number of catastrophic events in the first half of the year, and were accelerated by the terrorist attack of September 11, 2001. With insured losses estimated to be in the range of
$30 billion to $35 billion, the terrorist attack resulted in the largest insured losses ever experienced by the industry. By comparison, the largest insured catastrophic event prior to
the attack was Hurricane Andrew in 1992 with $20 billion in estimated losses.
We
believe that the insured losses of 2001 have reduced the industry's capacity to write new business. At the same time, it appears that the heightened awareness that commercial
properties are exposed to a variety of risks, and the perception that certain regions of the world may be underinsured, have increased the demand for property-related insurance and reinsurance. As a
result, with respect to January, April and July 2002 renewals, St. Paul Re experienced substantial rate increases, generally ranging from 20% to 50% depending on the line of business. We expect
that the current imbalance between the increased demand for property-related insurance and reinsurance and the reduced supply of this type of coverage will continue to fuel improved rates, terms and
conditions for at least the immediate future.
99
Following the terrorist attack of September 11, 2001, there is uncertainty in the insurance and reinsurance markets about the extent to which future coverages will extend to
terrorist acts. There is also uncertainty about the definition of terrorist acts. We believe that coverage of claims that are the result of terrorist acts (as they are ultimately defined by industry
and government standards) will generally be excluded from property catastrophe reinsurance contracts covering large commercial risks, above specified property values, but generally will not be
excluded for smaller commercial coverages, personal lines or other coverages. Accordingly, we expect that we will incur exposure to terrorist acts. The effect of potential U.S. and other governmental
intervention on the insurance and reinsurance markets we serve, including on the extent to which coverage for terrorist acts will be offered by the insurance and reinsurance markets in the future, is
uncertain. Coverage for losses resulting from terrorist acts may be offered separately in the reinsurance market, and we may or may not offer such coverage in the future. If our and the insurance
industry's attempts to exclude coverage for terrorist acts were to fail, we could incur large unexpected losses if further terrorist attacks occur.
Our Business
General
Platinum
Holdings is a newly formed Bermuda insurance holding company. Our objective is to provide on a worldwide basis, through our licensed operating subsidiaries Platinum US, Platinum
UK and Platinum Bermuda, property, casualty, marine, accident and health and finite reinsurance coverages to a diverse clientele of insurers and select reinsurers. Platinum UK and Platinum Bermuda are
newly formed companies and, as such, have no prior operating history or loss reserve run-off. Platinum US was formed in 1995 and is a licensed insurance company and wholly owned subsidiary of St. Paul
incorporated and domiciled in the state of Maryland. Platinum US has been an inactive company with no prior operating history and no exposure to adverse loss development. Upon completion of the Equity
Public Offering, we will own Platinum US and Platinum UK through Platinum Ireland, our newly formed and wholly owned intermediate Irish holding subsidiary. We expect that Platinum Ireland will conduct
no business operations of its own other than owning Platinum US (through Platinum Finance, which will conduct no business operations of its own other than to raise funds for Platinum US through the
issuance of senior notes constituting part of the
equity security units offered hereby) and Platinum UK. However, we intend to explore the possibility of using Platinum Ireland as a platform for the development of a reinsurance business concentrating
on continental Europe. The following chart summarizes our corporate structure upon completion of the transactions discussed in this prospectus.
100
We
intend to organize our worldwide reinsurance business around the following three operating segments: Global Property and Marine, Global Casualty and Finite Risk. In each of our
operating segments we intend to offer our reinsurance solutions to providers of commercial and personal lines of property insurance as well as casualty insurance. We expect to underwrite most of our
reinsurance through brokers but we may also contract directly with ceding companies, which will give us the flexibility to pursue business in accordance with our ceding companies' preferred
reinsurance purchasing channels. We intend to write substantially all of our reinsurance business through treaties rather than on a facultative basis, and a substantial majority on an
excess-of-loss basis rather than on a proportional basis.
We
expect to operate principally as a lead or quoting reinsurer on the treaties in which we participate. Generally, the lead or quoting reinsurer negotiates with the ceding company and
the broker to establish the proposed terms of coverage, including the premium rate and retention level for excess-of-loss contracts. When not acting as the leading or quoting
reinsurer on a particular treaty, we may seek to actively negotiate additional terms or conditions. We believe that, consistent with our underwriting strategy, operating as a lead or quoting reinsurer
will allow us to establish walk-away prices and focus on profitability rather than market share. In addition to the benefit of leading negotiations of contract terms and prices, we believe
that operating as a lead or quoting reinsurer will aid us in the development of close and continuing relationships with brokers and ceding companies. We also believe that operating as a lead or
quoting reinsurer will result in our receiving solicitations from brokers for a broader range of business and provide us with greater access to preferred risks.
Competitive Strengths
We believe that we will have the benefits of being both an established business and a new market entrant because of our management's reputation and St. Paul Re's
experience and contacts in the
reinsurance market, our unencumbered capital base and our expectation that the Assumed Reinsurance Contracts and our right to seek to renew St. Paul Re's other contracts will be a
long-term source of business to us. As a well-capitalized company with reinsurance as our single focus, we believe we will be able to expand our relationships with existing
clients and establish relationships with new clients.
We
expect our initial portfolio to contain a variety of businesses which we believe would normally take a significant time to develop. Upon completion of the Equity Public Offering, we
expect to be diversified across several types of coverage with approximately two-thirds of our premiums coming from traditional property and casualty reinsurance and one-third
from finite reinsurance. We believe that the existing portfolio of business generated by St. Paul Re represents a valuable asset given the renewal nature of the reinsurance industry and the importance
of continuity of relationships and information.
We
believe that the market perceptions and reputation established by St. Paul Re with respect to service and responsiveness will benefit us in light of the transfer of personnel and
underwriting activities from St. Paul Re to us. We also believe that we will enjoy a reputation with our brokers and clients for promptly responding to underwriting submissions and consistent
underwriting standards that emphasize long term profitability over premium growth or market share.
We
believe that the use of reinsurance brokers as our principal source of business provides us with an advantage over direct writers in adjusting treaty participations upward or downward
to reflect changing market conditions, as well as discontinuing any participation in treaties if rates and terms are no longer attractive. In addition, we believe that the use of reinsurance brokers
will allow us to avoid the significant fixed cost of maintaining a sales force. Furthermore, we believe that access to new opportunities on new treaties for existing clients or new clients are
facilitated by using the broker distribution channel, due to the syndicated placement of the business.
101
Platinum's Strategy
Our goal is to achieve superior long-term returns for our shareholders, while establishing Platinum as a conservative risk manager and market leader in certain
classes of property and casualty reinsurance.
-
- Build our future on a strong foundation. We will commence operations with the benefit of the Transferred
Business:
-
- Renewal Rights and Assumed Reinsurance Contracts. Our initial portfolio will contain a diversity of business
that would normally take many years to develop. We will be acquiring St. Paul Re's existing customer lists and the right to seek to renew its continuing in-force reinsurance contracts, which produced
2001 pro forma net premiums written of approximately $1.4 billion. Our business is expected to be diversified between property contracts, which tend to be short-tail in nature (where ultimate
losses are known relatively quickly), and casualty contracts, which tend to be long-tail in nature (where ultimate losses may not be known for many years). Property catastrophe reinsurance will be a
principal focus and will initially constitute a diversified global book of business in excess of $100 million in annual net premiums written.
-
- Fully operational
infrastructure. We will select experienced employees from the skilled St. Paul Re employee
base. These employees have broker and ceding company relationships and underwriting pricing and claims experience that will allow us to be fully staffed and operational in key underwriting and support
functions. We believe that this strong foundation will allow us to offer clients and brokers a full range of products, support and service immediately following the completion of the Equity Public
Offering.
-
- Add new executive leadership to existing talent. In order to take full advantage of the historical strengths
of St. Paul Re, we have significantly strengthened our senior management team with the addition of Mr. Newman and Mr. Fadden. Mr. Newman and Mr. Fadden have extensive
experience in leading publicly traded reinsurance companies and intend to implement a number of initiatives to capitalize on the strengths of St. Paul Re to create a more focused and more profitable
reinsurance business. We expect these initiatives to include implementing a new underwriting strategy, improving risk management and reducing operating expenses.
-
- Focus on profitability, not market share. Our new management team intends to pursue a strategy that
emphasizes underwriting discipline and profitability over market share. Key elements of this strategy will be prudent risk selection, appropriate pricing through strict underwriting discipline and
adjusting our business mix to respond to changing market conditions. We intend to increase our writing of lines of business, such as property catastrophe excess-of-loss and property risk excess-
of-loss, which we believe will contribute to our long-term profitability.
-
- Exercise disciplined underwriting and risk management. We intend to exercise
risk management discipline by
(i) maintaining a diverse spread of risk in our book of business across products and geographic zones, (ii) focusing on excess-of-loss contracts as opposed to proportional contracts, and
(iii) reducing our aggregate catastrophe exposure relative to historical levels through more sophisticated management of property catastrophe aggregate exposures.
-
- Operate a
lean and expense-focused underwriting business. We believe a lean underwriting culture will support
our focus on profitability and allow us to be more responsive to changing market conditions. We intend to keep our headcount low and maintain a limited number of offices. We expect to have
approximately 150 employees at the completion of the Equity Public Offering.
The number of underwriting offices was reduced by St. Paul Re from ten at January 1, 2001 to five as of June 30, 2002. In
102
addition,
we expect to originate most of our business from brokers, rather than directly from ceding companies, which we believe will keep our expenses low.
-
- Grow our business by leveraging our global platform. We intend to operate in all three of the world's leading
reinsurance markets with offices in New York, London and Bermuda. St. Paul Re has conducted authorized reinsurance activities in the U.S. and London for many years, and has been well established as a
lead underwriter in excess casualty, property catastrophe and certain other classes of reinsurance. Our new Bermuda subsidiary will provide us with both a new market in which to write reinsurance and
the flexibility to provide reinsurance products that are best facilitated by an offshore company.
-
- Operate from a position of financial strength. As a
newly formed company, our initial capital position is
unencumbered by any development of loss reserves for business written prior to January 1, 2002. We intend to operate the Company with a target capitalization consistent with our ratings
objectives. Upon completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment, we expect to have a total capitalization of between
approximately $955 million (assuming an initial public offering price of $22.00, a Cash Contribution of $121 million and no exercise of the underwriters', St. Paul's or
RenaissanceRe's options to purchase additional Common Shares or the underwriters' option to purchase additional equity security units) and approximately $1,142 million (assuming an initial
public offering price of $23.00, a Cash Contribution of $126 million and full exercise of the underwriters', St. Paul's and RenaissanceRe's options to purchase additional Common Shares
in connection with the Equity Public Offering and the underwriters' option to purchase additional equity security units). Our investment strategy will focus on security and stability in our investment
portfolio by maintaining a diversified portfolio that will consist primarily of investment grade fixed income securities. We believe these factors, combined with our strict underwriting discipline,
will allow us to maintain our strong financial position and to be opportunistic when market conditions are most attractive.
Our Lines of Business
We intend to organize our worldwide reinsurance business around the following three operating segments: Global Property and Marine, Global Casualty and Finite
Risk. On the pro forma basis described under "Pro Forma Financial Information", we had net premiums written of $1,382 million for the year ended December 31, 2001, $602 million
for the six months ended June 30, 2002, and $576 million for the six months ended June 30, 2001. We expect that our global reinsurance business will be comprised primarily of the
types of reinsurance set forth below, which we have grouped in accordance with our three operating segments. The following table sets forth, on a pro forma basis, the distribution by operating segment
and by type of reinsurance, of our net premiums written for the year ended December 31, 2001, and the six month periods ended June 30, 2002 and 2001. For a more detailed discussion of
the pro forma combined results of underwriting, see "Management's Discussion and Analysis of Pro Forma Financial Condition and Underwriting Results."
103
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
Year Ended
December 31, 2001
|
|
|
|
2002
|
|
2001
|
|
|
|
$
|
|
% Total
|
|
$
|
|
% Total
|
|
$
|
|
% Total
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
Global Property and Marine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess-of-loss |
|
$ |
162 |
|
27 |
% |
$ |
132 |
|
23 |
% |
$ |
249 |
|
18 |
% |
|
Proportional |
|
|
50 |
|
8 |
% |
|
36 |
|
6 |
% |
|
66 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Global Property and Marine |
|
|
212 |
|
35 |
% |
|
168 |
|
29 |
% |
|
315 |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Casualty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess-of-loss |
|
|
197 |
|
33 |
% |
|
208 |
|
36 |
% |
|
440 |
|
32 |
|
|
Proportional |
|
|
45 |
|
7 |
% |
|
76 |
|
13 |
% |
|
152 |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Global Casualty |
|
|
242 |
|
40 |
% |
|
284 |
|
49 |
% |
|
592 |
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite Risk |
|
|
148 |
|
25 |
% |
|
124 |
|
22 |
% |
|
475 |
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
602 |
|
100 |
% |
$ |
576 |
|
100 |
% |
$ |
1,382 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, on a pro forma basis, the distribution by operating segment and by location of the cedent of our net premiums
written for the year ended December 31, 2001, and the six months ended June 30, 2002 and 2001.
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
Year Ended
December 31, 2001
|
|
|
|
2002
|
|
2001
|
|
|
|
$
|
|
% Total
|
|
$
|
|
% Total
|
|
$
|
|
% Total
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
Global Property and Marine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
112 |
|
18 |
% |
$ |
91 |
|
16 |
% |
$ |
173 |
|
13 |
% |
|
International |
|
|
100 |
|
17 |
% |
|
77 |
|
13 |
% |
|
142 |
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Global Property and Marine |
|
|
212 |
|
35 |
% |
|
168 |
|
29 |
% |
|
315 |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Casualty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
203 |
|
34 |
% |
|
230 |
|
40 |
% |
|
485 |
|
35 |
|
|
International |
|
|
39 |
|
6 |
% |
|
54 |
|
9 |
% |
|
107 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Global Casualty |
|
|
242 |
|
40 |
% |
|
284 |
|
49 |
% |
|
592 |
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
89 |
|
15 |
% |
|
67 |
|
12 |
% |
|
266 |
|
19 |
|
|
International |
|
|
59 |
|
10 |
% |
|
57 |
|
10 |
% |
|
209 |
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Finite Risk |
|
|
148 |
|
25 |
% |
|
124 |
|
22 |
% |
|
475 |
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
602 |
|
100 |
% |
$ |
576 |
|
100 |
% |
$ |
1,382 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Global Property and Marine operating segment will include principally property and marine reinsurance coverages that will be written both in the United States
and international markets. We expect that the majority of the property business will consist of catastrophe excess-of-loss reinsurance treaties. We expect that this global
operating segment will also include property per risk excess-of-loss treaties and property pro rata treaties. We expect that marine reinsurance will include coverage for hull
and cargo as well as third party marine coverages for "protection and indemnity" and excess liabilities, primarily under excess-of-loss treaties. We may write a limited amount
of other types of reinsurance on an opportunistic basis. Following the completion of the Equity Public Offering we expect the proportion of our net premiums written generated by the Global Property
and Marine segment to increase relative to 2001 levels.
104
-
- Property. We expect that our property reinsurance activities will emphasize
catastrophe excess-of-loss reinsurance. Such contracts will provide a defined limit of liability, permitting us to quantify our aggregate maximum loss exposure. By contrast,
maximum liability under pro rata contracts is more difficult to quantify precisely within the occurrence limits that are normally part of the contracts. Quantification of loss exposure will be
fundamental to our ability to manage our loss exposure through geographical zone limits and program limits.
In
addition, when our pricing standards are met, we may, to a limited extent, write other property coverages, including per risk excess-of-loss or pro rata treaties. In writing
per risk excess-of-loss business we intend to avoid lower layers in favor of higher layers. These lines will diversify risk (although they involve some catastrophe exposure)
and thus reduce the volatility in results of operations caused by catastrophes. We will enter into a Services and Capacity Reservation Agreement with RenaissanceRe which provides for a periodic review
and assistance in measuring risk and managing aggregate catastrophe exposures. For a discussion of our Services and Capacity Reservation Agreement with RenaissanceRe, see "Certain Relationships and
Related TransactionsThe RenaissanceRe InvestmentBusiness ArrangementsServices and Capacity Reservation Agreement."
Excess-of-loss
contracts will also help us to control our underwriting results by increasing our flexibility to determine premiums for reinsurance at specific
retention levels, independent of the premiums charged by primary insurers, and based upon our own underwriting assumptions. Also, because primary insurers typically retain a larger loss exposure under
excess-of-loss contracts, we believe that they have a greater incentive to underwrite risks and adjust losses in a prudent manner.
-
- Marine. We intend to provide reinsurance coverage of marine and offshore energy
insurance programs. We expect that coverages reinsured will include hull damage, protection and indemnity, cargo damage and general marine liability. We expect that such reinsurance treaties will
include excess-of-loss as well as proportional treaties. We will emphasize excess-of-loss treaties that provide for an evaluation using experience and
exposure pricing models.
Global Casualty
The Global Casualty segment will include principally general and automobile liability, professional liability, workers' compensation, accident and health and
casualty clash coverages. We also expect to include accident and health reinsurance treaties in the form of self-insured aggregate medical stop loss coverages, which go into effect when a
self-insuring employer's total group health insurance claims attain a certain level, as well as other types of coverages as opportunities develop. We intend to generally write reinsurance coverage in
this segment through excess-of-loss treaties, including umbrella coverages, which protect against losses in excess of amounts covered by other policies, although we expect to
reinsure selected classes of casualty business on a pro rata basis, including accident and health business. Following the completion of the Equity Public Offering, we expect the proportion of our net
premiums written generated by the Global Casualty segment to decrease relative to 2001 levels.
-
- General and Automobile Liability. We intend to reinsure accident and casualty risks
and collision damage of motor vehicles. Automobile insurance can include coverage in three major areascasualty, accident benefits and physical damage. Casualty insurance provides coverage
payment for injuries and for property damage to third parties. Accident benefits insurance provides coverage for loss of income and medical and rehabilitation expenses for insured persons who are
injured in an automobile accident, regardless of fault. Physical damage insurance provides for payment of damages to an insured automobile arising from a collision with another object or from other
risks such as fire or theft.
105
In
addition, we expect to provide a broad range of coverage for reinsurance of industrial, manufacturer, operational, environmental, product and general third party liability. We expect that our
general and automobile liability reinsurance products will generally be written on an excess-of-loss basis. We may, however, consider selected accounts to be written on a
proportional or pro rata basis to the extent that such business satisfies our profitability standards.
-
- Professional Liability. We intend to write reinsurance treaties for professional
liability programs, including directors and officers liability insurance and errors and omissions liability insurance. We expect that, in most circumstances, the underlying insurance products will be
written on a claims-made form, which requires claims related to the liabilities insured under the policy to be
submitted to the insurer while the policy is in force. We intend to employ underwriters and pricing actuaries who specialize in professional liability and we expect to seek to reinsure professional
liability programs and lines of casualty business where and to the extent we believe past experience permits a reasonably accurate estimation of premium adequacy. We intend, however, to underwrite new
exposures after a comprehensive evaluation of the capability of the ceding company, a clear understanding of the type of product, and establishment of underwriting and operating procedures.
-
- Workers' Compensation. We intend that our workers' compensation coverages will
provide flexible solutions that can help our clients manage their global workers' compensation risks. We expect to reinsure workers' compensation on a per-claimant basis as well as on a catastrophe
occurrence basis. We expect that our workers' compensation reinsurance offerings will range from complete coverage of a full workers' compensation program to specific carve-out coverages
that address a client's targeted concerns.
-
- Accident and Health. We intend to provide accident and health reinsurance,
typically
in the form of self-insured aggregate medical stop-loss coverages, referred to as "employers stop loss covers." On a less frequent basis, we also expect to write medical providers
stop-loss, first dollar health insurance and other reinsurance of health providers. We expect to rely principally on managing general underwriters as intermediaries in connection with this line of
business.
-
- Casualty Clash. We expect that our casualty clash coverages will cover losses arising
from a single set of circumstances (an occurrence) covered by more than one cedent's insurance policy or multiple claimants on one policy. We expect to limit our exposure to a proportion of the
cedent's loss in excess of a specified per occurrence retention up to a specified limit.
Finite Risk
The Finite Risk operating segment will include principally finite reinsurance solutions to cedents whose needs may not be met efficiently through traditional
reinsurance products. We intend to focus on providing such clients with customized solutions for their risk management and other financial management needs. Whether working directly with the client or
through a broker, we will seek to develop client-specific solutions after spending time with the client to understand its business needs. We intend to take a uniform risk assessment approach
throughout our worldwide operations as the classes of risks underwritten through finite products will generally be consistent with the classes covered using traditional products. See
"Underwriting and Risk Management." The four main categories of finite products that we intend to sell are described below:
-
- Multi-year excess of loss. These reinsurance contracts often complement cedents' traditional
excess-of-loss reinsurance programs. They may involve any type of risk, but most often they cover property and marine. In general, these contracts are designed so that the cedent funds the normal
level of loss activity over a multi-year period. The reinsurer charges an additional margin to provide
a profit margin and to cover its costs and the risk that losses are worse than normal. This type of product will often carry an up-front premium plus
106
Marketing
We intend to market our reinsurance products worldwide through our underwriting offices and non-exclusive relationships with more than 50 of the
leading reinsurance brokers active in the U.S. and non-U.S. markets for property catastrophe reinsurance and other categories of reinsurance in which we will be active.
On a pro forma basis, based on net premiums written during the three months ended June 30, 2002, the five brokers from which St. Paul Re derived the largest portions of its
business (with the approximate percentage of St. Paul Re's business derived from such brokers and their affiliates) are Aon Corporation (25.5%), Marsh & McLennan Companies (20.9%), Benfield
Blanch Inc. (19.6%), Willis Group Holdings (9.4%) and Towers Perrin (3.0%). The loss of any of these top five brokers could have a material adverse effect on the amount of reinsurance business
that we obtain and
consequently the reinsurance premiums that we receive. On a pro forma basis, during the year ended December 31, 2001, St. Paul Re had in force reinsurance contracts with 146 ceding
companies that were not derived from a reinsurance broker; otherwise, products are marketed exclusively through brokers. All brokerage transactions are entered into on an arm's-length basis. During
2001, on a pro forma basis, one ceding insurer accounted for more than 6% of St. Paul Re's premiums written and no other single ceding insurer accounted for more than 3%. Based on the Company's
strategy, which includes our intention to employ key St. Paul Re personnel and to maintain our presence in our lines of business, management expects to maintain strong relationships with these
brokers.
We
expect that brokers will perform data collection, contract preparation and other administrative tasks, enabling us to market our reinsurance products cost effectively by maintaining a
small staff. We intend to rely largely on reinsurance brokers to market our products. We believe that by relying largely on reinsurance brokers, we will be able to avoid the expense and regulatory
complications of worldwide offices, thereby minimizing fixed costs associated with marketing activities. We believe that by maintaining close relationships with brokers, we will be able to obtain
access to a broad range of potential reinsureds.
107
The following table sets forth, on a pro forma basis, net premiums written and the percentage of St. Paul Re's premiums allocated to the geographic location of the ceding company
for St. Paul Re's aggregate operations. For a more detailed discussion of the pro forma results of underwriting, see "Management's Discussion and Analysis of Pro Forma Financial Condition and
Underwriting Results."
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
Year Ended
December 31, 2001
|
|
|
|
2002
|
|
2001
|
|
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
|
($ in millions)
|
|
North America (ex Caribbean) |
|
$ |
422 |
|
70 |
% |
$ |
397 |
|
69 |
% |
$ |
968 |
|
70 |
% |
Caribbean |
|
|
36 |
|
6 |
|
|
29 |
|
5 |
|
|
83 |
|
6 |
|
Latin America |
|
|
6 |
|
1 |
|
|
6 |
|
1 |
|
|
14 |
|
1 |
|
Far East |
|
|
18 |
|
3 |
|
|
29 |
|
5 |
|
|
55 |
|
4 |
|
Continental Europe |
|
|
36 |
|
6 |
|
|
52 |
|
9 |
|
|
110 |
|
8 |
|
United Kingdom |
|
|
78 |
|
13 |
|
|
57 |
|
10 |
|
|
138 |
|
10 |
|
Other |
|
|
6 |
|
1 |
% |
|
6 |
|
1 |
% |
|
14 |
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
602 |
|
100 |
% |
$ |
576 |
|
100 |
% |
$ |
1,382 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting and Risk Management
We intend to have a disciplined approach to underwriting and risk management that emphasizes a profit orientation rather than a premium volume or market-share
oriented approach. In addition to geographic zones, we intend to seek to limit our overall exposure to risk by limiting the amount of reinsurance we will supply in accordance with a particular program
or contract, so as to achieve diversification within and across geographic zones.
We
expect our risk management to use a variety of means, including the use of contract terms, diversification criteria and probability analysis and the analysis of comparable historical
loss experience. We will monitor concentrations of casualty risk by industry and classes of risk. We intend to estimate the impact of certain catastrophic events using catastrophe modeling software
and contract information to evaluate our exposure to losses from individual contracts and in the aggregate. For example, we expect that the majority of the natural catastrophe reinsurance we will
write will relate to exposures within the United States, Europe and Japan. Accordingly, we will monitor our exposure to natural catastrophic events that affect these regions, such as U.S. hurricane,
California earthquake, European windstorm and Japanese typhoon or earthquake events.
We
will seek to limit our potential loss, pre tax, but after reinstatement and other premiums received due to the loss, from a single one-in-250-year catastrophe
on a probable maximum loss basis, after giving effect to our retrocessional programs, to no more than 30% of our shareholders' equity. There can be no assurance that our underwriting risk management
procedures and our retrocessional programs will successfully limit actual losses to such amount and losses from a single catastrophe may materially exceed such amount. The intended limitation in
probable maximum loss exposure will rely significantly on our retrocessional programs and the availability of retrocessional coverage in the future. There have been, and in the future may be, periods
when retrocessional coverage is not available at all or at rates and levels which would be acceptable. Loss of all or portions of our retrocessional coverage could subject us to increased exposure,
which could be material. A limited number of the Assumed Reinsurance Contracts do not contain loss cap ratios, which means that there is no contractual limit to the losses that we may be required to
pay pursuant to such Assumed Reinsurance Contracts.
108
Substantially
all property reinsurance business with natural peril catastrophe exposure will have occurrence limits. Substantially all high layer property, casualty and marine
excess-of-loss business will also contain aggregate limits in the contracts, with limited reinstatements of an occurrence limit, which restore the original limit under the
contract after the limit has been depleted by losses incurred on that treaty. We intend to use our proprietary models to assess the pricing adequacy, underwriting profitability and investment returns
to be expected from our reinsurance underwriting. We expect that our actuarial and underwriting departments will work together to establish an accurate pricing model for these purposes.
In
addition, we will have available for our use the historical loss experience of St. Paul Re to assist us in pricing individual treaties and overall lines of business. We believe that
this information provides us with a significant benefit in the underwriting of future contracts and in the renewal thereof. We expect to maintain the normal maximum program limits described under
"Geographic Diversification" below. We will also attempt to distribute our exposure across a range of attachment points, or the amount of claims that have to be borne by the ceding
insurer before our reinsurance coverage applies. Attachment points will vary and will be based upon an assessment of the ceding insurer's market share of property perils in any given geographic zone
to which the contract relates, as well as the capital needs of the ceding insurer.
Before
we review any program proposal, we intend to consider the appropriateness of the cedent, including the quality of its management and its capital and risk management strategy. In
addition, we intend to require that each proposed reinsurance program include information on the nature of the perils to be included and detailed aggregate information as to the location or locations
of the risks covered under the catastrophe contract. We would also expect to request information on the
cedent's loss history for the perils being reinsured, together with relevant underwriting considerations, which would impact exposures to catastrophe reinsurers. We expect to first evaluate exposures
on new programs in light of the overall zone limits in any given catastrophe zone, together with program limits and contract limits, to ensure a balanced and disciplined underwriting approach. If the
program meets all these initial underwriting criteria, we expect to then evaluate the proposal in terms of its risk/reward profile to assess the adequacy of the proposed pricing and its potential
impact on our overall return on capital.
We
plan to extensively use sophisticated modeling and other technology in our underwriting process. We expect that each submission received will be registered on the reinsurance data
system that we will use for both underwriting and aggregate control purposes. This system will enable both management and underwriters to have on-line information regarding both individual
exposures and zonal aggregate concentrations. We expect that submissions will be recorded to determine and monitor their status as being pending, authorized, or bound.
In
addition to the reinsurance data system, we expect to use computer modeling to measure and estimate loss exposure under both simulated and actual loss scenarios and in comparing
exposure portfolios to both single and multiple events. We expect to contract with Applied Insurance Research for the use of Cattrader and EQE for the use of Equecat, and we also plan to use RMS
models as part of our modeling approach. We expect to take an active role in the evaluation of these commercial catastrophe pricing models, providing feedback to the modeling companies to improve the
efficiencies of these models. These computer-based loss modeling systems utilize Best's data and direct exposure information obtained from our clients to assess each client's catastrophe management
approach and adequacy of their program's protection. We believe that modeling is a very important part of the underwriting criteria for catastrophe exposure pricing. We expect to apply proprietary
analysis of the catastrophe exposure to supplement the model output in certain territories. The majority of our expected client base also use one or more of the various modeling consulting firms in
their exposure management analysis. In addition, we
109
intend to sometimes perform or contract for additional modeling analysis when reviewing our global commitments. We expect that the combination of reinsurance system information, together with the
various commercial models we expect to employ, will enable us to monitor and control our acceptance of exposure on a global basis. We also intend to use proprietary risk modeling systems to measure
expected losses for perils other than hurricane and earthquake and that include allowances for expenses and profit in pricing.
We
expect to seek to limit our overall exposure to risk by pursuing a disciplined underwriting strategy which will limit the amount of reinsurance we will supply in accordance with a
particular program or contract so as to achieve diversification within and across geographical zones. Commencing January 2002, St. Paul Re has maintained normal maximum program limits of
$5 million on risk programs, $6 million on casualty clash programs and $20 million on property catastrophe programs. In a small number of instances, we may exceed these limits. A
limited number of the Assumed Reinsurance Contracts do not contain loss cap ratios, which means that there is no contractual limit to the losses that we may be required to pay pursuant to such Assumed
Reinsurance Contracts.
We
intend to establish a procedure for underwriting control to ensure that all acceptances are made in accordance with our underwriting policy and aggregate control. We expect that each
underwriting individual will be given an underwriting authority limit, and that underwriting amounts above those limits will have to be submitted for approval to the chief underwriting officer.
Generally,
about 50% of premiums we write each year are expected to be for contracts which have effective dates in January, about 20% in April, about 20% in July and the remainder at
other times throughout the year. Premiums are generally due in installments over the contract term, with each installment generally received within 30 days after the due date.
Geographic Diversification
We intend to seek, based on the location of the risk, to diversify our exposure across geographic zones around the world in order to obtain a favorable spread of
risk. We intend to limit the coverage we provide for risks located in particular zones, so as to maintain our aggregate loss exposure from all contracts covering risks believed to be located in that
zone, to a predetermined level. We intend to monitor concentrations of risk in any particular geographic area, and to seek to avoid accumulations of property risks located in areas considered to have
a higher probability of natural catastrophes, such as the West Coast states, the Gulf Coast and Southeastern United States, as well as the Caribbean, Japan, Northern Europe and other exposed
international territories.
We
expect to establish the predetermined levels referred to in the prior paragraph annually on the basis of, and as a proportion of, shareholders' equity. If a proposed reinsurance
program would cause the limit then in effect to be exceeded, we would expect to decline the program, regardless of its desirability, unless we utilize retrocessional coverage, thereby reducing the net
aggregate exposure to the maximum limit permitted, or less. If we were to suffer a net financial loss in any fiscal year, thus reducing shareholders' equity, we would attempt to reduce the limits per
zone in the following year, with the possible effect that we would thereafter reduce existing business in a zone exceeding such limit.
We
intend to track our catastrophe exposures in all significant countries around the world. We intend to maintain a database of our exposures in each country and to conservatively
estimate our probable maximum loss in each country for the perils to which that country is subject (e.g., earthquakes, hurricanes, and floods.) We expect to base our estimates on catastrophe models
and underwriting assessments. In addition, we expect to use catastrophe modeling to review exposures
110
on events that cross country borders such as wind events that may affect the Caribbean and Florida or the United Kingdom and Continental Europe. The largest exposures are expected to be
in the United States for earthquake and hurricane, in the United Kingdom for flood and wind, and in Japan for earthquake and wind.
We
recognize that events may affect more than one zone, and to the extent we intend to reinsure a ceding insurer with a loss exposure in more than one zone, we intend to consider such
potential loss in testing its limits in all such affected zones. For example, a program with worldwide exposure may be subject to limits in the North America zones as well as other zones around the
world, as applicable. This results in very substantial "double-counting" of exposures in determining utilization of an aggregate within a given zone. Consequently, the total sum insured may be less
than the sums of utilized aggregates for all of the zones.
Retrocessional Reinsurance
We expect to obtain retrocessional reinsurance to, among other things, reduce volatility in general, and to increase our capacity offered on individual
reinsurance programs.
The
major types of retrocessional coverage we expect to purchase will include the following:
-
- specific
coverage for certain property, marine and casualty exposures,
-
- catastrophe
coverage for property business, and
-
- corporate
level coverage for the potential accumulation or aggregation of exposures across some or all of our operations.
We
may purchase further retrocessional coverage on an opportunistic basis. For a discussion of our Investment Agreement with St. Paul and RenaissanceRe, see "Certain Relationships and
Related TransactionsThe RenaissanceRe Investment."
We
expect that our decisions with respect to purchasing retrocessional coverage will consider both the potential coverage and market conditions with respect to the pricing, terms,
conditions and availability of such coverage, with the aim of securing cost-effective protection. We expect that the level of retrocessional coverage will vary over time, reflecting the underwriter's
and/or our view of the changing dynamics of both the underlying exposure and the reinsurance markets.
We
expect that, prior to entering into a retrocessional agreement, we will analyze the financial strength and rating of each retrocessionaire. We expect that retrocessional coverage will
generally be derived from companies rated "A" or better by Best's. Afterwards, the financial performance and rating status of all material retrocessionaires will be monitored. Retrocession agreements
do not relieve us from our obligations to the insurers and reinsurers from whom we assume business. The failure of retrocessionaires to honor their obligations could result in losses to us.
For
2002, St. Paul Re purchased an accident year aggregate excess-of-loss retrocession agreement which provides up to $200 million of coverage if the accident year loss ratio
exceeds a specified loss ratio attachment point for the 2002 accident year. This retrocessional agreement will cover risks retained by St. Paul Re and risks underwritten by Platinum with respect to
the 2002 accident year. The attachment point is net of inuring retrocessions and includes adjustable premium provisions that effectively cause the Company to pay to the retrocessionaire, on a pre-tax
income basis, up to 50% of such ceded losses, through additional premiums.
Platinum
Bermuda expects to reinsure up to approximately 70% of Platinum US's reinsurance business, excluding business subject to the Quota Share Retrocession Agreements, written after
the
111
Equity Public Offering, and we are seeking consent from the FSA for Platinum Bermuda to reinsure up to 55% of Platinum UK's reinsurance business, excluding business subject to the Quota Share
Retrocession Agreements, written after the Equity Public Offering; however, such consent may not be granted. St. Paul will write reinsurance in the United Kingdom and reinsure it 100% to us for
up to one year following the completion of the Equity Public Offering. For a discussion of potential future limits on the portion of the reinsurance written by Platinum UK after the Equity Public
Offering which can be reinsured to Platinum Bermuda, see "BusinessOur BusinessRegulationU.K. RegulationProposed Limits on Concentration of
Reinsurance Exposures."
Claims Administration
With respect to the Assumed Reinsurance Contracts, claims will be managed by St. Paul's claims department, with our supervision and management, pursuant to
the Quota Share Retrocession Agreements described below under "Certain Relationships and Related TransactionsThe St. Paul InvestmentQuota Share Retrocession
Agreements." We will reimburse St. Paul for costs of managing these claims. Platinum may, at its discretion and expense, take over administration of any specific claims. Our own claims
department will administer claims arising under our contracts other than the Assumed Reinsurance Contracts.
The
responsibilities of the claims department will include reviewing initial loss reports, monitoring claims handling activities of clients, requesting additional information where
appropriate, establishing initial case reserves and approving payment of individual claims. We expect that
authority for payment and establishing reserves will always be established in levels, depending upon rank and experience.
In
addition to managing reported claims and conferring with ceding companies on claims matters, we expect that the claims department will conduct periodic audits of specific claims and
the overall claims procedures of our clients at the offices of ceding companies. We expect to rely on the ability to monitor effectively the claims handling and claims reserving practices of ceding
companies in order to establish the proper reinsurance premium for reinsurance agreements and to establish proper loss reserves. Moreover, prior to accepting certain risks, we expect that our
underwriters will often request that the claims department conduct pre-underwriting claims audits of prospective ceding companies. Through these audits, we intend to attempt to evaluate
the ceding company's claims-handling practices, including the organization of their claims department, their fact-finding and investigation techniques, their loss notifications, the
adequacy of their reserves, their negotiation and settlement practices and their adherence to claims-handling guidelines. Following these audits, we expect that the claims department will provide
feedback to the ceding company, including an assessment of the claims operation and, if appropriate, recommendations regarding procedures, processing and personnel.
Reserves
We are required by applicable insurance laws and regulations and U.S. GAAP to establish reserves for payment of losses and loss adjustment expenses that will
arise from our products. These reserves will be balance sheet liabilities representing estimates of future amounts required to pay losses and loss adjustment expenses for insured claims which have
occurred at or before the balance sheet date, whether already known to us or not yet reported. Significant periods of time can elapse between the occurrence of an insured claim, its reporting by the
insured to the primary insurance company and from the insurance company to its reinsurance company. Loss reserves fall into two categories: reserves for reported losses and loss adjustment expenses
and reserves for incurred but not reported, or IBNR, losses and loss adjustment expenses.
112
Upon
receipt of a notice of claim from a ceding company, we will establish a case reserve for the estimated amount of the ultimate settlement. Case reserves are usually based upon the
amount of reserves reported by the primary insurance company and may subsequently be supplemented or reduced as deemed necessary by our claims department. We will also establish reserves for loss
amounts incurred but not yet reported, including expected development of reported claims. These IBNR reserves will include estimated legal and other loss adjustment expenses. We will calculate IBNR
reserves by using generally accepted actuarial techniques. We will utilize actuarial tools that rely on historical and pricing information and statistical models as well as our pricing analyses. We
will revise these reserves for losses and loss adjustment expenses as additional information becomes available and as claims are reported and paid.
Loss
reserves will represent our estimates, at a given point in time, of the ultimate settlement and administration costs of claims incurred, and it is possible that the ultimate
liability may exceed or be less than such estimates. Such estimates will not be precise because, among other things, they are based on predictions of future developments and estimates of future trends
in claim severity and frequency and other variable factors such as inflation and currency exchange rates. During the claim settlement period, it will often become necessary to refine and adjust the
estimates of liability on a claim either upward or downward, and any such adjustment would affect our results of operations in the period when the adjustment is determined. Even after such
adjustments, ultimate liability may materially exceed or be less than the revised estimates. In contrast to casualty losses, which frequently can be determined only through lengthy, unpredictable
litigation, property losses tend to be reported promptly and settled within a shorter period of time.
Our
estimates of reserves from reported and unreported losses and related reinsurance recoverable assets will be reviewed and updated. Adjustments resulting from changes in our estimates
will be reflected in current income. The analysis relies upon the basic assumption that past experience, adjusted for the effect of current developments and likely trends, is an appropriate basis to
estimate our current loss and loss adjustment expense liabilities. Because estimation of loss reserves is an inherently uncertain process, quantitative techniques frequently have to be supplemented by
professional and managerial judgment. In addition, trends that have affected development of reserves in the past may not necessarily occur or affect reserve development to the same degree in the
future.
The
uncertainty inherent in loss estimation is particularly pronounced for long-tail lines such as umbrella, general and professional liability and automobile liability,
where information, such as required medical treatment and costs for bodily injury claims, will only emerge over time. In the overall reserve setting process, provisions for economic inflation and
changes in the social and legal environment are considered. The uncertainty inherent in the reserving process for primary insurance companies is even greater for the reinsurer. This is because of, but
not limited to, the time lag inherent in reporting information from the insurer to the reinsurer and differing reserving practices among ceding companies. As a result, actual losses and loss
adjustment expenses may deviate, perhaps materially, from expected ultimate costs reflected in our current reserves.
In
setting reserves, we expect to utilize the same integrated, multi-disciplinary approach that we expect to use to establish our reinsurance prices. We expect that, after an initial
analysis by members of our actuarial staff, preliminary results will be shared with appropriate underwriters, pricing actuaries, claims and finance professionals and, as appropriate, senior
management. Final actuarial recommendations will incorporate feedback from these professionals. To the extent reserves prove to be insufficient to cover actual losses and loss adjustment expenses
after taking into account available retrocessional coverage, we would have to augment such reserves and incur a charge to earnings in the period during which such reserves are augmented that could be
material.
113
Under
U.S. GAAP, we will not be permitted to establish loss reserves until the occurrence of an event which may give rise to a loss. Once such an event occurs, we will establish reserves
based upon estimates of total losses incurred by the ceding insurers as a result of the event and our estimate of the portion of such loss we have reinsured. As a result, only loss reserves applicable
to losses incurred up to the reporting date may be set aside, with no allowance for the provision of a contingency reserve to account for expected future losses. Losses arising from future events will
be estimated and recognized at the time the loss is incurred and could be substantial.
Generally,
reserves are established without regard to whether we may subsequently contest the loss. We expect our policy to be to establish reserves for reported losses based upon
reports received from ceding companies, supplemented by our reserve estimates.
Investments
General Guidelines. We intend to develop investment guidelines for the management of our investment
portfolio by third party investment managers. Although these guidelines are expected to stress diversification of risk, preservation of capital and market liquidity, investments will be subject to
market-wide risks and fluctuations, as well as risks inherent in particular securities. The primary objective of the portfolio, to be set forth in the guidelines, will be to maximize
investment returns consistent with appropriate safety, diversification, tax and regulatory considerations and to provide sufficient liquidity to enable us to meet our obligations on a timely basis.
These guidelines will be subject to oversight and change at the discretion of our Board of Directors.
Our
investment strategy will take into consideration the risks inherent in property catastrophe and other reinsurance. For this reason management expects that our investment policy will
be conservative with a strong emphasis on high quality, fixed maturity investments. We expect that the guidelines will include limitations with respect to the maximum effective maturity. The duration
of the portfolio will vary according to decisions taken by the investment advisors on the outlook for interest rate movements, subject to limitations set forth in the guidelines. The duration
limitations set forth in the guidelines are expected to take into consideration the estimated duration of the reinsurance liabilities in the business.
Initially,
we expect to invest only in investment grade securities. We do not currently intend to invest any of our portfolio in equity securities, although we may do so in the future.
We do not intend to invest in real estate or other classes of alternative investments. We expect that our investment guidelines will contain restrictions and limitations designed to provide
diversification across our portfolio, including limitations on the portion of the portfolio that may be invested in the securities of any single issue or issuer, with the exception of sovereign
governments or agencies, including supernational agencies, with prescribed minimum ratings. Our investment managers may be instructed to invest some of the investment portfolio in currencies other
than U.S. dollars based
upon the business we anticipate writing, the exposures and loss reserves on our books, or regulatory requirements. We expect that our investment guidelines will provide that financial futures and
options and foreign exchange contracts may not be used in a speculative manner but may be used, subject to certain numerical restrictions set by the Board of Directors, only as part of a defensive
strategy to protect the market value of investments.
Insurance
company investments must comply with applicable laws and regulations which prescribe the kind, quality and concentration of investments. In general, these laws and regulations
permit investments, within specified limits and subject to some qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans,
real estate and some other investments.
Investment Management Agreement. We expect to enter into an investment management agreement,
effective upon completion of the Equity Public Offering, with Alliance Capital Management L.P., which will provide investment advisory services to us.
114
Valuation. We expect to classify our entire investment portfolio as
available-for-sale. All of our fixed income securities will be carried at their estimated fair value, with the difference between amortized cost and the fair value, net of any
deferred taxes, to be charged or credited directly to our shareholders' equity. We will calculate the fair value based on quoted market prices, as reported by reputable market data providers such as
Bloomberg, Reuters or Telerate. If quoted market prices are not available, fair values will be estimated either based on values obtained from independent pricing services or on a cash flow estimate.
Cash equivalents and short-term investments will be carried at cost, which we expect will approximate fair value. Realized gains and losses on disposal of investments will be determined
based upon specific identification of the cost of investments sold and will be recorded in our statements of operations. We will monitor the unrealized difference between the cost and the estimated
fair value of the securities in our portfolio. If the value of any of our investments declines in a manner that we believe is other than temporary, we will write down that investment and will record a
realized loss on our statement of operations.
Competition
The property and casualty reinsurance industry is highly competitive and, except for regulatory considerations, there are relatively few barriers to entry. We
will compete with insurers and reinsurers worldwide, many of which have greater financial, marketing and management resources than ours. Some of our competitors are large financial institutions who
have reinsurance divisions, while others are specialty reinsurance companies. Financial institutions have also created alternative capital market products that compete with reinsurance products, such
as reinsurance securitization. Our principal competitors vary by type of business. Bermuda-based reinsurers are significant competitors on property catastrophe business. Lloyd's of London syndicates
are significant competitors on marine business. On international business, the large European reinsurers are significant competitors. Large U.S. direct reinsurers, as well as lead U.S.-based broker
market reinsurers, are significant competitors on U.S. casualty business. On an overall basis, we expect that our most significant competitors will include General Re, Munich Re, Swiss Re, Employers
Re, Lloyd's of London, XL Capital, ACE, Converium Holding, Everest Re and PartnerRe.
Recently,
several individuals and companies in the reinsurance industry have established new, well-capitalized Bermuda-based reinsurers to benefit from improved market
conditions following the September 11, 2001 terrorist attack, and several existing competitors have raised additional capital or have announced plans to do so. Many of the reinsurers who have
entered the reinsurance markets have or could have more capital than we will have. In addition, there may be established companies or new companies of which we are not aware that may be planning to
commit capital to this market. Competition in the types of reinsurance business that we underwrite is based on many factors, including premium charges and other terms and conditions offered, services
provided,
ratings assigned by independent rating agencies, speed of claims payment, claims experience, perceived financial strength and experience and reputation of the reinsurer in the line of reinsurance to
be written. The full effect of this additional capital on the reinsurance market and on the terms and conditions of the reinsurance contracts of the types we expect to write may not be known for some
time.
The
reinsurance industry is highly concentrated. We estimate that, based on 2000 net premiums written, the four largest reinsurers currently have a market share of approximately 49%, and
the next ten largest property and casualty reinsurers currently have a market share of approximately 30%. Reinsurance companies have sought in recent years to expand their existing markets, obtain
critical mass in new markets, including life reinsurance, and further diversify risk. At the same time, consolidation in the worldwide insurance industry has created a smaller group of large ceding
companies that are retaining an increasing proportion of their business.
We
are aware of a number of initiatives by traditional as well as new capital market participants to produce alternative products (such as reinsurance securitizations, catastrophe bonds
and various
115
derivatives such as swaps) that may compete with certain types of reinsurance, such as property catastrophe. Over time, these numerous initiatives could significantly affect supply, pricing and
competition in our industry.
Ratings
Best's is generally considered to be a significant rating agency with respect to the evaluation of insurance and reinsurance companies. Best's ratings are based
on a quantitative evaluation of performance with respect to profitability, leverage and liquidity and a qualitative evaluation of spread of risk, reinsurance program, investments, reserves and
management. Insurance ratings are used by insurers and reinsurance intermediaries as an important means of assessing the financial strength and quality of reinsurers. In addition, a ceding company's
own rating may be adversely affected by the lack of a rating of its reinsurer. Therefore, the lack of a rating may dissuade a ceding company from reinsuring with us and may influence a ceding company
to reinsure with a competitor of ours that has an insurance rating.
Our
management has met with Best's, which has advised us that it expects to assign an initial financial strength rating of "A" (Excellent) to our operating subsidiaries upon the
completion of the Equity Public Offering and the receipt of the offering proceeds in line with certain representations we made to Best's. In addition, the rating assignment is contingent upon the
funding of our operating subsidiaries to the levels indicated by our management as well as the execution of all pertinent transactions as detailed by this prospectus. The rating assignment further
contemplates the initiation of certain capital support agreements between Platinum Holdings and its operating subsidiaries.
Employees
Currently, we employ Jerome T. Fadden, our President and Chief Executive Officer, William A. Robbie, our Executive Vice President and Chief Financial Officer, and
Michael E. Lombardozzi, our Executive Vice President and General Counsel. We expect to employ approximately 150 employees of St. Paul Re. None of our employees is expected to be subject to collective
bargaining agreements.
Mr.
Fadden has obtained a temporary work permit, and we are seeking longer-term work permits from the Bermuda authorities for him as well as for William A. Robbie,
Michael E. Lombardozzi and any other employees of Platinum Holdings or Platinum Bermuda who are not Bermuda citizens. Permits obtained will expire at various times over the next several years.
We have no reason to believe that these permits would not be extended upon request at their respective expirations. However, the Bermuda government recently announced a new policy that places a
six-year term limit on individuals with work permits, subject to certain exceptions for key employees.
Subsidiaries
Platinum UK and Platinum Bermuda are wholly owned operating subsidiaries of Platinum Holdings. Platinum UK was formed as a U.K. company on April 10, 2002,
and Platinum Bermuda was formed as a Bermuda company on May 8, 2002. Platinum US was formed as a Maryland company in 1995 and is a wholly owned subsidiary of St. Paul. We own Platinum UK
through Platinum Ireland and, upon completion of the Equity Public Offering, will own Platinum US through Platinum Finance, which will be a wholly owned subsidiary of Platinum Ireland, our wholly
owned intermediate holding subsidiary. Platinum Finance was formed as a Delaware corporation on May 10, 2002. Platinum Ireland was formed as an Irish company on May 3, 2002. Platinum
Holdings will enter into a capital support agreement for the benefit of one or more of our operating company subsidiaries, the effect of which is to assure that, at all times, those subsidiaries will
have adequate capital and surplus.
116
Our Facilities
Platinum Holdings' registered office is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. We expect to enter into a lease agreement in
Bermuda for approximately 5,000 to 10,000 square feet of office space. We will sublet a portion of the office space at that location to Platinum Bermuda for use as its principal offices.
The
principal offices of Platinum US will be located at 195 Broadway, New York, New York, where Platinum US will sub-lease from St. Paul approximately 50,000 square feet of office space.
The term of the lease ends August 31, 2003. We are currently exploring the possibility of leasing space at 195 Broadway after August 31, 2003 and are also considering options to
replace the office space at 195 Broadway with a new facility.
We expect that the principal offices of Platinum UK will be located at 52 Lime Street, London, where (subject to landlord's consent) St. Paul will sub-let to Platinum UK
approximately 7,600 square feet of office space. The term of the sub-lease is expected to end in 2003.
Platinum
US will enter into sub-lease agreements or assignments of leases with St. Paul with respect to approximately 4,000 square feet of office space in Chicago, 6,300 square feet of
office space in Miami and expects to enter into a sub-lease or assignment of lease of approximately 600 square feet of office space in Tokyo. The terms of these leases will end in 2005, 2006 and 2003
respectively.
Legal Proceedings
In the normal course of business, we may become involved in various claims and legal proceedings. We are not currently aware of any pending or threatened material
litigation.
Regulation
The business of reinsurance is regulated in most countries, although the degree and type of regulation varies significantly from one jurisdiction to another.
Reinsurers are generally subject to less direct regulation than primary insurers. In Bermuda, we operate under relatively less intensive regulatory regimes. However, in the United States and in the
United Kingdom, licensed reinsurers must comply with financial supervision standards comparable to those governing primary insurers. Accordingly, Platinum US and Platinum UK are subject to extensive
regulation under applicable statutes. In the United States, those statutes delegate regulatory, supervisory and administrative powers to state insurance commissioners.
We are aware of a number of new, proposed or potential legislative or industry changes that may impact upon the worldwide demand for reinsurance.
-
- Following
the September 11, 2001 terrorist attack, various proposed legislation was introduced in the U.S. Congress designed to ensure the
availability of insurance coverage for terrorist acts. Legislation has been adopted in the U.S. House of Representatives designed, among other things, to provide federal government loans over a
short-term period to commercial insurers and reinsurers for funding losses arising from terrorist acts against U.S. properties, which loans would be repaid through industry assessments
and, if losses exceed a threshold, policyholder assessments. Similar, alternative legislation has been adopted in the U.S. Senate; the Senate legislation provides for direct government assistance to
commercial insurers and reinsurers for covered losses that exceed a per-company "deductible." Adoption of legislation may also provide insurance and reinsurance capacity in the markets and to the
customers we expect to target and regulate the terms of insurance and reinsurance capacity
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and
reinsurance policies in a manner which could materially adversely affect us, directly or indirectly, by requiring coverage for terrorist acts to be offered by insurers and/or reinsurers,
benefiting our competitors, reducing the demand for reinsurance or benefiting insurers as compared to reinsurers such as us, providing sources of liquidity to U.S.-based companies, or
disproportionately benefiting U.S. or other foreign countries' companies over Bermuda-based companies such as ourselves. Legislation may be introduced in other jurisdictions.
-
- Over
the last few years capital markets participants, including exchanges and financial intermediaries, have developed financial products such as risk
securitizations, intended to compete with traditional reinsurance. We are also aware of many potential initiatives by capital market participants to produce additional alternative products that may
compete with the existing catastrophe reinsurance markets.
We
are unable to predict the extent to which the foregoing new, proposed or potential initiatives may affect the demand for our products or the risks which may be available for us to
consider underwriting.
As a holding company, Platinum Holdings is not subject to Bermuda insurance regulations.
The
Insurance Act, which regulates the insurance business of Platinum Bermuda, provides that no person may carry on any insurance business in or from within Bermuda unless registered as
an insurer under the Insurance Act by the Bermuda Monetary Authority, which is responsible for the day-to-day supervision of insurers. Under the Insurance Act, insurance
business includes reinsurance business. The Authority, in deciding whether to grant registration, has broad discretion to act as the Authority thinks fit in the public interest. The Authority is
required by the Insurance Act to determine whether the applicant is a fit and proper body to be engaged in the insurance business and, in particular, whether it has, or has available to it, adequate
knowledge and expertise. The registration of an applicant as an insurer is subject to its complying with the terms of its registration and such other conditions as the Authority may impose from time
to time. Platinum Bermuda has been registered with the Authority.
An
Insurance Advisory Committee appointed by the Bermuda Minister of Finance advises the Authority on matters connected with the discharge of the Authority's functions and
sub-committees thereof supervise and review the law and practice of insurance in Bermuda, including reviews of accounting and administrative procedures. The
day-to-day supervision of insurers is the responsibility of the Bermuda Registrar of Companies.
The
Insurance Act imposes on Bermuda insurance companies solvency and liquidity standards and auditing and reporting requirements and grants to the Authority powers to supervise,
investigate and intervene in the affairs of insurance companies. Certain significant aspects of the Bermuda insurance regulatory framework are set forth below.
Classification of Insurers. The Insurance Act distinguishes between insurers carrying on long-term business and
insurers carrying on general business. There are four classifications of insurers carrying on general business with Class 4 insurers subject to the strictest regulation. Platinum Bermuda is
registered as a Class 4 insurer and is regulated as such under the Insurance Act.
Cancellation of Insurer's Registration. An insurer's registration may be canceled by the Authority on certain grounds
specified in the Insurance Act, including failure of the insurer to comply with its obligations under the Insurance Act or if, in the opinion of the Authority, the insurer has not been carrying on
business in accordance with sound insurance principles.
Principal Representative. An insurer is required to maintain a principal office in Bermuda and to appoint and maintain a
principal representative in Bermuda. For the purpose of the Insurance
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Act, the principal office of Platinum Bermuda is at our principal executive offices in Bermuda, and Platinum Bermuda's principal representative will be our President and Chief Executive Officer.
Without a reason acceptable to the Authority, an insurer may not terminate the appointment of its principal representative, and the principal representative may not cease to act as such, unless
30 days' notice in writing to the Authority is given of the intention to do so. It is the duty of the principal representative, within 30 days of reaching the view that there is a
likelihood of the insurer for which the principal representative acts becoming insolvent or that a reportable "event" has, to the principal representative's knowledge, occurred or is believed to have
occurred, to make a report in writing to the Authority setting out all the particulars of the case that are available to the principal representative. Examples of such a reportable "event" include
failure by the insurer to comply substantially with a condition imposed upon the insurer by the Authority relating to a solvency margin or liquidity or other ratio.
Independent Approved Auditor. Every registered insurer must appoint an independent auditor who will annually audit and report
on the statutory financial statements and the statutory financial return of the insurer, both of which, in the case of Platinum Bermuda, are required to be filed annually with the Authority. The
independent auditor of Platinum Bermuda must be approved by the Authority and may be the same person or firm which audits Platinum Bermuda's financial statements and reports for presentation to its
shareholders. Platinum Bermuda's independent auditor is KPMG LLP.
Loss Reserve Specialist. As a registered Class 4 insurer, Platinum Bermuda will be required to submit an opinion of
its approved loss reserve specialist with its statutory financial return in respect of its loss and loss adjustment expense provisions. The loss reserve specialist, who will normally be a qualified
casualty actuary, must be approved by the Authority. Neal J. Schmidt, who will be the Chief Actuary of Platinum US, has been approved to act as Platinum Bermuda's loss reserve specialist.
Statutory Financial Statements. An insurer must prepare annual statutory financial statements. The Insurance Act prescribes
rules for the preparation and substance of such statutory financial statements (which include, in statutory form, a balance sheet, an income statement, a statement of capital and surplus and notes
thereto). The insurer is required to give detailed information and analyses regarding premiums, claims, reinsurance and investments. The statutory financial statements are not prepared in accordance
with U.S. GAAP and are distinct from the financial statements prepared for presentation to the insurer's shareholders under the Companies Act, which financial statements will be prepared in accordance
with U.S. GAAP. Platinum Bermuda, as a general business insurer, will be required to submit the annual statutory financial statements as part of the annual statutory financial return. The statutory
financial statements and the statutory financial return do not form part of the public records maintained by the Authority.
Annual Statutory Financial Return. Platinum Bermuda is required to file with the Authority a statutory financial return no
later than four months after its financial year end (unless specifically extended). The statutory financial return for an insurer includes, among other matters, a report of the approved independent
auditor on the statutory financial statements of such insurer, solvency certificates, the
statutory financial statements themselves, the opinion of the loss reserve specialist and a schedule of reinsurance ceded. The solvency certificates must be signed by the principal representative and
at least two directors of the insurer who are required to certify, among other matters, whether the minimum solvency margin has been met and whether the insurer complied with the conditions attached
to its certificate of registration. The independent approved auditor is required to state whether in its opinion it was reasonable for the directors to so certify. Where an insurer's accounts have
been audited for any purpose other than compliance with the Insurance Act, a statement to that effect must be filed with the statutory financial return.
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Minimum Solvency Margin and Restrictions on Dividends and Distributions. Under the Insurance Act, the value of the general
business assets of a Class 4 insurer, such as Platinum Bermuda, must exceed the amount of its general business liabilities by an amount greater than the prescribed minimum solvency margin.
Platinum Bermuda:
- (1)
- is
required, with respect to its general business, to maintain a minimum solvency margin equal to the greatest of:
- (A)
- $100,000,000;
- (B)
- 50%
of net premiums written (being gross premiums written less any premiums ceded by Platinum Bermuda, but Platinum Bermuda may not deduct more than 25% of gross premiums when
computing net premiums written); and
- (C)
- 15%
of loss and other insurance reserves;
- (2)
- 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 (and if it has failed to meet its minimum solvency margin or minimum liquidity ratio on the last day of any financial
year, Platinum Bermuda is prohibited, without the approval of the Authority, from declaring or paying any dividends during the next financial year);
- (3)
- is
prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year's statutory
balance sheet) unless it files with the Authority (at least seven days before payment of such dividends) an affidavit stating that it will continue to meet the required margins;
- (4)
- is
prohibited, without the approval of the Authority, from reducing by 15% or more its total statutory capital as set out in its previous year's financial statements, and any
application for such approval must include an affidavit stating that it will continue to meet the required margins; and
- (5)
- is
required, at any time it fails to meet its solvency margin, within 30 days (45 days where total statutory capital and surplus falls to $75 million or less)
after becoming aware of that failure or having reason to believe that such failure has occurred, to file with the Authority a written report containing certain information.
Additionally,
under the Companies Act, Platinum Holdings and Platinum Bermuda may declare or pay a dividend only if Platinum Holdings or Platinum Bermuda, as the case may be, has no
reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due, or that the realizable value of its assets would thereby be less than the
aggregate of its liabilities and its issued share capital and share premium accounts.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity ratio for general business insurers. An insurer
engaged in general business is required to maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and time deposits,
quoted investments, unquoted bonds and debentures, first liens on real estate, investment income due and accrued, accounts and premiums receivable and reinsurance balances receivable. There are
certain categories of assets which, unless specifically permitted by the Authority, do not automatically qualify as relevant assets, such as unquoted equity securities, investments in and advances to
affiliates and real estate and collateral loans. The relevant liabilities are total general business insurance reserves and total other liabilities less deferred income tax and sundry liabilities (by
interpretation, those not specifically defined).
Supervision, Investigation and Intervention. The Authority may appoint an inspector with extensive powers to investigate the
affairs of an insurer if the Authority believes that an investigation is required in the interest of the insurer's policyholders or persons who may become policyholders.
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In order to verify or supplement information otherwise provided to the Authority, the Authority may direct an insurer to produce documents or information relating to matters connected with the
insurer's business.
If
it appears to the Authority that there is a risk of the insurer becoming insolvent, or that it is in breach of the Insurance Act or any conditions imposed upon its registration, the
Authority may, among other things, direct the insurer (1) not to take on any new insurance business, (2) not to vary any insurance contract if the effect would be to increase the
insurer's liabilities, (3) not to make certain investments, (4) to realize certain investments, (5) to maintain in, or transfer to the custody of,
a specified bank, certain assets, (6) not to declare or pay any dividends or other distributions or to restrict the making of such payments and/or (7) to limit its premium income.
Disclosure of Information. In addition to powers under the Insurance Act to investigate the affairs of an insurer, the
Authority may require certain information from an insurer (or certain other persons) to be produced to it. Further, the Authority has been given powers to assist other regulatory authorities,
including foreign insurance regulatory authorities, with their investigations involving insurance and reinsurance companies in Bermuda but subject to restrictions. For example, the Authority must be
satisfied that the assistance being requested is in connection with the discharge of regulatory responsibilities of the foreign regulatory authority. Further, the Supervisor must consider whether to
cooperate is in the public interest. The grounds for disclosure are limited and the Insurance Act provides sanctions for breach of the statutory duty of confidentiality.
Certain Other Considerations. Platinum Holdings and Platinum Bermuda will each also need to comply with the provisions of the
Companies Act regulating the payment of dividends and making of distributions from contributed surplus. A company is prohibited from declaring or paying a dividend, or making a distribution out of
contributed surplus, if there are reasonable grounds for believing that: (a) the company is, or would after the payment be, 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.
Although
Platinum Bermuda is incorporated in Bermuda, it is classified as a non-resident of Bermuda for exchange control purposes by the Authority. Pursuant to its
non-resident status, Platinum Bermuda may hold any currency other than Bermuda Dollars and convert that currency into any other currency (other than Bermuda Dollars) without restriction.
As
"exempted" companies, Platinum Holdings and Platinum Bermuda may not, without the express authorization of the Bermuda legislature or under a license granted by the Minister of
Finance, participate in certain business transactions, including: (1) the acquisition or holding of land in Bermuda (except that held by way of lease or tenancy agreement which is required for
its business and held for a term not exceeding 50 years, or which is used to provide accommodation or recreational facilities for its officers and employees and held with the consent of the
Bermuda Minister of Finance, for a term not exceeding 21 years); (2) the taking of mortgages on land in Bermuda in excess of $50,000; or (3) the carrying on of business of any
kind for which it is not licensed in Bermuda, except in certain limited circumstances such as doing business with another exempted undertaking in furtherance of our business or Platinum Bermuda's
business (as the case may be) carried on outside Bermuda. Platinum Bermuda is a licensed reinsurer in Bermuda, and so may carry on activities in Bermuda that are related to and in support of its
reinsurance business.
The
Bermuda government actively encourages foreign investment in "exempted" entities like Platinum Holdings that are based in Bermuda, but do not operate in competition with local
businesses. As well as having no restrictions on the degree of foreign ownership, Platinum Holdings
and Platinum Bermuda are not currently subject to taxes on income or dividends or to any foreign exchange controls in Bermuda. In addition, there currently is no capital gains tax in Bermuda.
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Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may not engage in any gainful occupation in Bermuda without the specific permission of the appropriate governmental
authority. Such permission may be granted or extended upon showing that, after proper public advertisement, no Bermudian (or spouse of a Bermudian) is available who meets the minimum standards for the
advertised position. None of our executive officers is a Bermudian, and all such officers will be working in Bermuda under work permits. The Bermuda government recently announced a new policy that
places a six-year term limit on individuals with work permits, subject to certain exceptions for key employees.
Platinum US is organized and domiciled in the State of Maryland and licensed, authorized or accredited to write reinsurance in 24 states of the United States and
is seeking licenses in eight additional states. State insurance laws regulate many aspects of its reinsurance business and state insurance departments in the licensure states will supervise its
insurance operations. Its principal insurance regulatory authority will be the Maryland Insurance Administration.
U.S. Insurance Holding Company Regulation of Platinum Holdings, Platinum Ireland and Platinum Finance
Platinum Holdings and Platinum Ireland as the indirect parents of Platinum US and Platinum Finance as the direct parent of Platinum US will be subject to the
insurance holding company laws of Maryland, where Platinum US is organized and domiciled. These laws generally require the insurance holding company and each insurance company directly or indirectly
owned by the holding company to register with the insurance department of the state of Maryland and to furnish annually financial and other information about the operations of companies within the
holding company system. Generally, all transactions among companies in the holding company system affecting Platinum US, including sales, loans, reinsurance agreements, service agreements and dividend
payments, must be fair and, if material or of a specified category, require prior notice and approval or non-disapproval by the Maryland Insurance Commissioner.
The
insurance laws of Maryland prevent any person from acquiring control of Platinum Holdings, Platinum Ireland, Platinum Finance or Platinum US unless that person has filed a
notification with specified information with the Maryland Insurance Commissioner and has obtained his prior approval. Under the Maryland statutes, acquiring 10% or more of the voting stock of an
insurance company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. Accordingly, any person who acquires, directly or indirectly, 10% or
more of the voting securities of Platinum Holdings without the prior approval of the Maryland Insurance Commissioner will be in violation of these laws and may be subject to injunctive action
requiring the disposition or seizure of those securities by the Maryland Insurance Commissioner or prohibiting the voting of those securities and to other actions determined by the Maryland Insurance
Commissioner. In addition, many U.S. state insurance laws require prior notification of state insurance departments of a change in control of a non-domiciliary insurance company doing
business in that state. While these pre-notification statutes do not authorize the state insurance departments to disapprove the change in control, they authorize regulatory action in the affected
state if particular conditions exist such as undue market concentration. Any future transactions that would constitute a change in control of Platinum Holdings, Platinum Ireland or Platinum Finance
may require prior notification in those states that have adopted pre-acquisition notification laws.
These
laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Platinum Holdings, including through transactions, and in particular
unsolicited
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transactions, that some or all of the shareholders of Platinum Holdings might consider to be desirable.
The terms and conditions of reinsurance agreements generally are not subject to regulation by any U.S. state insurance department with respect to rates or policy
terms. This contrasts with primary insurance agreements, the rates and policy terms of which are generally closely regulated by state insurance departments. As a practical matter, however, the rates
charged by primary insurers do have an effect on the rates that can be charged by reinsurers.
State
insurance authorities have broad administrative powers with respect to various aspects of the reinsurance business, including: licensing to transact business, admittance of assets
to statutory surplus, regulating unfair trade and claims practices, establishing reserve requirements and solvency standards, and regulating investments and dividends. State insurance laws and
regulations require Platinum US to file financial statements with insurance departments everywhere it is licensed or authorized to do or accredited to do business, and the operations of Platinum US
are subject to examination by those departments at any time. Platinum US will prepare statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by
these departments. State insurance departments conduct periodic examinations of the books and records, financial reporting, policy filings and market conduct of insurance companies domiciled in their
states, generally once every three to five years. Examinations are generally
carried out in cooperation with the insurance departments of other states under guidelines promulgated by the NAIC.
Under
Maryland insurance law, Platinum US may pay dividends out of surplus, provided it must give the Maryland Insurance Commissioner at least thirty days' prior notice before paying an
"extraordinary dividend" or making an "extraordinary distribution". Extraordinary dividends and extraordinary distributions are dividends or distributions which, together with any other dividends and
distributions paid during the immediately preceding twelve-month period, would exceed the lesser of
- (1)
- ten
percent of Platinum US's statutory policyholders' surplus (as determined under statutory accounting principles) as of December 31 of the prior year; and
- (2)
- Platinum
US's net investment income excluding realized capital gains (as determined under statutory accounting principles) for the twelve-month period ending on December 31 of
the prior year, plus any amounts of net investment income (excluding realized capital gains) in the three preceding years which have not been distributed.
These
statutory limitations are subject to change. Platinum US may not pay extraordinary dividends or make extraordinary distributions until either the thirty-day notice period has expired
(without the Maryland Insurance Commissioner disapproving such payment) or the Maryland Insurance Commissioner has approved the payment within that period. Extraordinary dividends and extraordinary
distributions may only be paid out of earned surplus.
In
addition, Platinum US must give ten days' prior notice to the Maryland Insurance Commissioner of its intention to pay any dividend or make any distribution other than an extraordinary
dividend or extraordinary distribution. The Maryland Insurance Commissioner has the right to prevent payment of such a dividend or such a distribution if he determines, in his discretion, that after
the payment thereof, Platinum US's policyholders' surplus would be inadequate or could cause Platinum US to be in a hazardous financial condition.
In
order to enhance the regulation of insurers' solvency, the NAIC adopted a model law to implement risk-based capital ("RBC") requirements for life, health, and property and casualty
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insurance companies. Maryland has adopted the NAIC's model law. The RBC calculation, which regulators use to assess the sufficiency of an insurer's capital, measures the risk characteristics of a
company's assets, liabilities and certain off-balance sheet items. RBC is calculated by applying factors to various asset, premium and liability items. Within a given risk category, these
factors are higher for those items with greater underlying risk and lower for items with lower underlying risk. Insurers that have less statutory capital than the RBC calculation requires are
considered to have
inadequate capital and are subject to varying degrees of regulatory action depending upon the level of capital inadequacy. The RBC ratios of Platinum US are intended to be well above the ranges that
would require any regulatory or corrective action.
The
NAIC assists state insurance supervisory officials in achieving insurance regulatory objectives, including the maintenance and improvement of state regulation. From time to time
various regulatory and legislative changes have been proposed in the insurance industry, some of which could have an effect on reinsurers. The NAIC has instituted its Financial Regulatory
Accreditation Standards Program ("FRASP") in response to federal initiatives to regulate the business of insurance. FRASP provides a set of standards designed to establish effective state regulation
of the financial condition of insurance companies. Under FRASP, a state must adopt certain laws and regulations, institute required regulatory practices and procedures, and have adequate insurance
department personnel to enforce such items in order to become an "accredited" state. The NAIC determines whether individual states should be accredited, and each state's accreditation is determined by
the NAIC periodically. If a state is not accredited or loses its accreditation, accredited states are not able to accept certain financial examination reports of insurers prepared solely by the
regulatory agency in such unaccredited state. The state of Maryland is currently accredited under FRASP.
Platinum UK and Platinum Bermuda are not admitted to do business in the United States. However, the insurance laws of each state of the United States and of many
other countries regulate the sale of insurance and reinsurance within their jurisdictions by non-domestic insurers and reinsurers such as Platinum UK and Platinum Bermuda, which are not admitted to do
business within such jurisdictions. Such sale of insurance or reinsurance within a jurisdiction where the insurer is not admitted to do business is generally prohibited. We do not intend that Platinum
Bermuda maintain an office or solicit, advertise, settle claims or conduct other insurance activities in any jurisdiction other than Bermudaor, in the case of Platinum UK,
Londonwhere the conduct of such activities would require Platinum UK and Platinum Bermuda to be so admitted.
In
addition to the regulatory requirements imposed by the jurisdictions in which they are licensed, reinsurers' business operations are affected by regulatory requirements in various
states of the United States governing "credit for reinsurance" which are imposed on their ceding companies. In general, a ceding company which obtains reinsurance from a reinsurer that is licensed,
accredited or approved by the jurisdiction or state in which the reinsurer files statutory financial statements is permitted to reflect in its statutory financial statements a credit in an aggregate
amount equal to the liability for unearned premiums (which are that portion of premiums written which applies to the unexpired portion of the policy period) and loss reserves and loss expense reserves
ceded to the reinsurer. Platinum UK and Platinum Bermuda are not licensed, accredited or approved in any state in the U.S. The great majority of states, however, permit a credit to statutory surplus
resulting from reinsurance obtained from a non-licensed or non-accredited reinsurer to be offset to the extent that the reinsurer provides a letter of credit or other
acceptable security arrangement. A few states do not allow credit for reinsurance ceded to non-licensed reinsurers except in certain limited circumstances and others impose additional
requirements that make it difficult to become
accredited. Platinum UK or Platinum Bermuda may be subject to reinsurance premium excise taxes in the US (1%) and certain other jurisdictions.
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We
do not believe that Platinum UK and Platinum Bermuda are in violation of insurance laws of any jurisdiction in the United States. There can be no assurance, however, that inquiries or
challenges to Platinum UK's or Platinum Bermuda's reinsurance activities will not be raised in the future.
The framework for supervision of insurance companies in the United Kingdom is largely formed by EU Directives which are required to be implemented in member
states through national legislation. Directives aim to harmonize insurance regulation and supervision throughout the EU by laying down minimum standards in key areas, and requiring member states to
give mutual recognition to each other's standards of prudential supervision.
On
December 1, 2001, the FSA assumed its full powers and responsibilities under FSMA. The FSA is now the single statutory regulator responsible for regulating deposit taking,
insurance, investment and most other financial services business. It is a criminal offense for any person to carry on a regulated activity in the United Kingdom unless that person is authorized by the
FSA or falls under an exemption.
Insurance
business (which includes reinsurance business) is authorized and supervised by the FSA. Insurance business in the United Kingdom is divided between two main categories:
long-term insurance (which is primarily investment-related) and general insurance (for example, building and contents cover and motor (automobile) insurance). Under FSMA, effecting or
carrying out any contract of insurance, whether general or long-term, is a regulated activity requiring authorization.
Platinum UK has applied to the FSA to write the business conducted by St. Paul Re in the United Kingdom. Platinum UK will not be licensed by the FSA at the time of the completion of the
Equity
Public Offering. The issuance of the license is at the discretion of the FSA and we may not be able to obtain such a license. Until the first anniversary of the completion of the Equity Public
Offering we will have the right to underwrite specified reinsurance business on behalf of St. Paul. We will reinsure all such business, together with certain other business written by
St. Paul Re UK since January 1, 2002. If Platinum UK does not obtain a license by the first anniversary of the completion of the Equity Public Offering, or if the license it obtains
contains material limitations, our results of operations could be materially adversely affected, and we may not be able to conduct our UK operations in the manner described in this prospectus.
In its role as supervisor of insurance companies, the primary objective of the FSA is to fulfill its responsibilities under the FSMA regime relating to the safety
and soundness of insurance companies with the aim of strengthening, but not guaranteeing, the protection of insureds. The FSA carries out this prudential supervision of insurance companies through the
collection of information from statistical returns, through review of accountants' reports, by visits to insurance companies and through regular formal interviews.
The
FSA has adopted a risk-based approach to the supervision of insurance companies. Under this approach the FSA performs a formal risk assessment of every insurance company
or group carrying on business in the United Kingdom during each supervisory period, which varies in length according to the risk profile of the insurer. The FSA performs the risk assessment by
analyzing information which it receives during the normal course of its supervision, such as regular prudential returns on the financial position of the insurance company, or which it acquires through
a series of meetings with senior management of the insurance company. After each risk assessment, the FSA
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will inform the insurer of its views on the insurer's risk profile. This will include details of any remedial action which the FSA requires and the likely consequences if this action is not taken.
The Interim Prudential Sourcebook for Insurers requires that insurance companies maintain a margin of solvency at all times in respect of any general insurance
undertaken by the insurance company, the calculation of which in any particular case depends on the type and amount of insurance business a company writes. The method of calculation of the solvency
margin is set out in the Interim Prudential Sourcebook for Insurers, and for these purposes, an insurer's assets and its liabilities are subject to specific valuation rules set out in the Interim
Prudential Sourcebook for Insurers. Failure to maintain the required solvency margin is one of the grounds on which wide powers of intervention conferred upon the FSA may be exercised.
English law prohibits Platinum UK from declaring a dividend to its stockholders unless it has "profits available for distribution." The determination of whether a
company has profits available for distribution is based on its accumulated realized profits less its accumulated realized losses. While the United Kingdom insurance regulatory laws impose no statutory
restrictions on a general insurer's ability to declare a dividend, the FSA strictly controls the maintenance of each insurance company's solvency margin within its jurisdiction and may restrict
Platinum UK from declaring a dividend at a level which the FSA determines would adversely affect Platinum UK's solvency requirements. It is common practice in the United Kingdom to notify the FSA in
advance of any significant dividend payment.
U.K. insurance companies must prepare their financial statements under the Companies Act 1985 (as amended), which requires the filing with Companies House of
audited financial statements and related reports. Under the Interim Prudential Sourcebook for Insurers, audited accounts must be filed with the FSA within two months and 15 days (or
three months where the delivery of accounts is made electronically).
Each insurance company writing property, aviation, marine, business interruption or nuclear insurance or reinsurance business is required by the Interim
Prudential Sourcebook for Insurers to maintain an equalization reserve in respect of business written in the financial years ending on or after December 23, 1996 calculated in accordance with
the provisions of the Interim Prudential Sourcebook for Insurers.
Insurance
companies writing credit insurance business must maintain equalization reserves calculated in accordance with certain provisions of the Interim Prudential Sourcebook for
Insurers as related specifically to credit insurance business.
The FSA closely supervises the management of insurance companies through the approved persons regime, by which any appointment of persons to a position of
significant influence within an authorized person must be approved by the FSA. The FSA also has the authority to require there to be one or more independent directors on the board of directors of an
insurance company.
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FSMA regulates the acquisition of "control" of any U.K. insurance company authorized under FSMA. Any company or individual that (together with its or his
associates) directly or indirectly acquires 10% or more of the shares in the parent company of a U.K. authorized insurance company, or is entitled to exercise or control the exercise of 10% or more of
the voting power in such a parent company, would be considered to have acquired "control" for the purposes of the relevant legislation, as would a person who had significant influence over the
management of such parent company by virtue of his shareholding in it. A purchaser of more than 10% of the Common Shares would therefore be considered to have acquired "control" of Platinum UK.
Under
FSMA, any person proposing to acquire "control" over a U.K. authorized insurance company must give prior notification to the FSA of his intention to do so. The FSA would then have
three months to consider that person's application to acquire "control." In considering whether to approve such application, the FSA must be satisfied that both the acquirer is a fit and proper person
to have such "control" and that the interests of consumers would not be threatened by such acquisition of "control." Failure to make the relevant prior application would constitute a criminal offense.
The FSA has extensive powers to intervene in the affairs of an authorized person. FSMA imposes on the FSA statutory obligations to monitor compliance with the
requirements imposed by FSMA, and to enforce the provisions of FSMA and its related secondary legislation. The FSA has power, among other things, to enforceand take disciplinary measures
in respect ofbreaches of both the Interim Prudential Sourcebook for Insurers and breaches of the conduct of business rules generally applicable to authorized persons.
FSMA
permits the FSA to refer matters directly to its enforcement division in order to implement disciplinary or regulatory action, but more commonly enforcement action is preceded by
the exercise of the FSA's interventionist supervisory powers.
The
FSA has a general power on giving notice to require information and documents from authorized persons that the FSA reasonably requires in connection with the exercise of its
functions under the regulatory regime. The FSA also has two distinct statutory powers to appoint investigators.
Under
section 167 of FSMA, the FSA or the Secretary of State may appoint suitably competent persons to conduct an investigation on its behalf into the nature, conduct or state of
the business of an authorized person, a particular aspect of that business or the ownership or control of an authorized person where there is general concern about an authorized person but the
circumstances of the case do not suggest a specific breach or contravention of the regulatory regime.
By
contrast, under section 168 of FSMA, the FSA or the Secretary of State may order an investigation if there appear to be circumstances suggesting that certain specified breaches
or offenses under the regulatory regime have occurred (for example, breach of the general prohibition on performing regulated activities without suitable permission or misconduct by an approved
person). Investigators appointed under section 168 have significantly wider powers than investigators appointed under section 167.
The
FSA may also require an authorized person to provide a report prepared by certain skilled professionals to be approved by the FSA on any matter about which the FSA has required or
could require the provision of documents.
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The
FSA has many enforcement powers available to use against an authorized or approved person. These include public censure, unlimited fines and, in serious cases, the power to revoke or
vary permission to carry on regulated activities or an individual's approval. A serious case is one involving, among other things, the failure of an authorized person to satisfy the threshold
conditions or the FSA considering that an approved person is no longer fit and proper to perform the function in question. In addition, the FSA may revoke an authorized person's permission if it is
necessary to protect the interests of consumers or potential consumers.
The
FSA has further powers to obtain injunctions against authorized persons and to impose or seek restitution orders where persons have suffered loss. Once the FSA has made a decision to
take enforcement action (other than in the case of an application to the court for an injunction or restitution order) against an authorized or approved person, the person affected may refer the
matter to the Financial Services Tribunal, a quasi-judicial entity staffed and operated independently of the FSA and administered by the Lord Chancellor's Department. Appeal from the Tribunal on a
matter of law lies to the Court of Appeal provided that either the Tribunal or the Court of Appeal grants permission.
Finally,
the FSA is granted the power to prosecute criminal offenses arising under FSMA, and to prosecute insider dealing under Part V of the Criminal Justice Act 1993, and
breaches of money laundering regulations. The FSA's stated policy is to pursue criminal prosecution in all appropriate cases.
In July 2002, the FSA issued a consultation paper ("CP143") which sets forth proposed reforms to strengthen both the capital regime and systems and controls
requirements for insurers and reinsurers subject to the FSA's jurisdiction. CP143 includes proposals aimed at ensuring adequate diversification of an insurer's or reinsurer's exposures to reinsurers
(whether intra- or extra-group). In particular, it proposes a rebuttable presumption that an insurer or reinsurer must limit the gross earned premiums paid to a single reinsurer (or group of related
reinsurers) to a maximum of 20% of the insurer's or reinsurer's projected gross earned premiums in any financial year in order to meet prudential requirements. If an insurer or reinsurer wishes to
exceed this limit, it must first satisfy the FSA that this is appropriate. In addition, the relevant guidance indicates that an insurer or reinsurer would be permitted to take into account certain
acceptable loss mitigation techniques, such as effective security arrangements, in assessing the overall adequacy of the diversification of its reinsurance exposure.
CP143
also proposes to limit an insurer's or reinsurer's exposure to a single reinsurer (or group of related reinsurers) to 100% of its capital by requiring it to alert its FSA
supervisor if it approaches or has exceeded this limit and explain why it considers that prudent provision is or is not required for the excess exposure.
CP143
is currently in draft form. The final rules and guidance, the ultimate form of which may or may not differ from the contents of CP143, are expected to take effect in 2004 and will
apply to Platinum UK.
Substantial compliance with CP143 in its draft form is likely to be an effective condition for receiving FSA authorization. We are seeking consent from the FSA for Platinum Bermuda to
reinsure up to approximately 55% of Platinum UK's reinsurance business, excluding business subject to the Quota
Share Retrocession Agreements, written after the Equity Public Offering; however, such consent may not be granted.
As a holding company, Platinum Ireland is not subject to Irish insurance regulation. Platinum Ireland will initially function as a holding company. In the future,
it may be used to carry out reinsurance activities in Ireland or the European Union outside of the United Kingdom, provided that the necessary regulatory approvals are first obtained.
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MANAGEMENT
Our Directors and Executive Officers
We have assembled a new management team of experienced insurance industry professionals led by Steven H. Newman, who is Chairman of the Board, and
Jerome T. Fadden, who is President and Chief Executive Officer. The following table provides information regarding those persons who are our directors and executive officers:
Name
|
|
Age
|
|
Position
|
Steven H. Newman |
|
59 |
|
Chairman of the Board of Directors; Chairman of the Executive Committee |
Jerome T. Fadden |
|
45 |
|
President, Chief Executive Officer and Director; member of the Executive Committee |
Michael D. Price |
|
35 |
|
President and Chief Underwriting Officer, Platinum US (upon completion of the Equity Public Offering) |
William A. Robbie |
|
51 |
|
Executive Vice President and Chief Financial Officer |
Michael E. Lombardozzi |
|
40 |
|
Executive Vice President and General Counsel |
Neal J. Schmidt |
|
45 |
|
Executive Vice President and Chief Actuary, Platinum US (upon completion of the Equity Public Offering) |
H. Furlong Baldwin |
|
70 |
|
Director; Chairman of the Audit Committee |
|
|
|
|
|
Jonathan F. Bank |
|
59 |
|
Director; member of the Compensation and Audit Committees |
Dan R. Carmichael |
|
57 |
|
Director; member of the Compensation and Audit Committees |
Jay S. Fishman |
|
49 |
|
Director; member of the Executive and Compensation Committees |
Peter T. Pruitt |
|
69 |
|
Director; Chairman of the Compensation Committee |
Biographical
information about the foregoing persons for at least the last five years is as follows:
Steven H. Newman has been the Chairman of the Board of Platinum Holdings since June 2002. He was Chairman of the Board of Directors
of Swiss Re America from May 2000 to October 2000, and Chairman of the Board and Chief Executive Officer of Underwriters Re Group from 1987 to 2000. Prior to joining Underwriters Re,
Mr. Newman served as Executive Vice President and then President of the Home Insurance Company from 1983 to 1986, and Vice President and Casualty Actuary at American International Group from
1969 to 1982. He also served as an Advisory Director for HCC Insurance Holdings, Inc. from November 2000 to August 2002, Chairman of the Board of GCR Holdings, a Bermuda catastrophe reinsurer,
from 1995 to 1997 and a Director of Capital Re from 1995 to 1998. Mr. Newman has served as President of the Casualty Actuarial Society and Chairman of the Reinsurance Association of America. He
has represented the United States at United Nations conferences dealing with international insurance and reinsurance issues.
Jerome T. Fadden has been the President, Chief Executive Officer and a Director of Platinum Holdings since April 2002. In addition, he has
been the President and Chief Executive Officer of St. Paul Re since March 2002. Prior to joining St. Paul Re, Mr. Fadden had been employed by UBS PaineWebber where he served as Chief
Financial Officer from November 1999 through March 2001,
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and then Director of Strategic Development in the Office of the Chairman. Prior to joining UBS PaineWebber, from November 1998 to August 1999, Mr. Fadden was Executive Vice President and Chief
Financial Officer of Equus Re, a start up reinsurance operation sponsored by Kemper Insurance. Mr. Fadden served as Executive Vice President and Chief Financial Officer of NAC Re Corp. from
July 1996 through September 1998. Mr. Fadden served in a variety of senior management positions at The Travelers Group, including Treasurer as well as Chief Financial Officer of
The Travelers Group's property and casualty insurance unit, The Gulf Insurance Group.
Michael D. Price will be the President and Chief Underwriting Officer of Platinum US upon completion of the Equity Public Offering and has
been Chief Underwriting Officer of St. Paul Re since June 2002. Mr. Price served as Chief Operating Officer of Associated Aviation Underwriters Incorporated, which is a subsidiary of
Global Aerospace Underwriting Managers Ltd. specializing in aerospace insurance, from March 2001 through May 2002. He was Senior Vice President and Chief Underwriting Officer of Underwriters Re
Group, Inc. from May 1998 until the acquisition of Underwriters Re Group, Inc. by Swiss Re America Holding Corporation in May 2000; thereafter, Mr. Price held the position of
Chief Underwriting Officer at Swiss Re America Holding Corporation until September 2000. From July 1995 through May 1998, Mr. Price was employed by London Life and Casualty Reinsurance
Corporation, most recently as President, and prior thereto he was a project manager at Milliman and Robertson, Inc. He is a fellow of the Casualty Actuarial Society and a member of the American
Academy of Actuaries.
William A. Robbie has been Executive Vice President and Chief Financial Officer of Platinum Holdings since September 2002.
Mr. Robbie became Executive Vice President and Chief Financial Officer of St. Paul Re in August 2002. Mr. Robbie has held various positions with XL Capital Ltd. and its
subsidiaries since 1997, including Executive Vice PresidentFinancial Services, Senior Vice PresidentTreasurer and Executive Vice President, Chief Financial Officer and Chief
Administrative Officer of XL Mid Ocean Reinsurance in Hamilton, Bermuda. Mr. Robbie also has held senior management positions with several insurance companies, including the Prudential
Insurance Company of America, The Continental Corporation, Monarch Capital Corporation and Aetna Life & Casualty. Mr. Robbie began his career with Ernst & Ernst (now Ernst & Young LLP)
and is a certified public accountant.
Michael E. Lombardozzi has been Executive Vice President and General Counsel of Platinum Holdings since September 2002. Mr. Lombardozzi
became Executive Vice President and General Counsel of St. Paul Re in August 2002. Mr. Lombardozzi was Senior Vice PresidentPlanning and Operations of W.R. Berkley
Corporation from December 2001 to July 2002. From January 2001 to June 2001, he was Senior Vice President, Secretary and General Counsel of Orius Corp. From
January 1994 to January 2001, he was Senior Vice President, Secretary and General Counsel of Berkley Insurance Company. From 1986 to 1994, he was an associate with the law firm of Willkie Farr
& Gallagher.
Neal J. Schmidt has been an Executive Vice President and Chief Actuary of St. Paul Re since 1998 and will serve as Executive Vice
President and Chief Actuary of Platinum US upon completion of
the Equity Public Offering. Mr. Schmidt served as the Senior Vice President-Specialty Lines Underwriting of St. Paul Re from 1995 through 1998 and as Chief Actuary from 1986 through 1995. Prior to
joining St. Paul Re, he held positions in reinsurance and insurance with the Home Insurance Company. Mr Schmidt is a fellow of the Casualty Actuarial Society and a Member of the American Academy of
Actuaries.
H. Furlong Baldwin is the Chairman of Mercantile Bankshares Corporation, which is a bank holding corporation. Mr. Baldwin began his
career with Mercantile in 1956 when it was known as the Mercantile-Safe Deposit & Trust Company, eventually becoming President and then Chief
130
Executive Officer of the company, a position he held from 1976 until 2001. He is a Governor of the National Association of Securities Dealers, a past chairman of the Association of Bank Holding
Companies and a past president of the Maryland Bankers Association. Mr. Baldwin is a trustee of the Marine Corps Heritage Foundation, the Marine Corps University and the Virginia Historical
Society and is a member of the Council on Foreign Relations. From May 1998 to May 2002, Mr. Baldwin was a director of St. Paul and from 1968 to 1998, he was a director of USF&G
Corporation, which was acquired by St. Paul in 1998.
Jonathan F. Bank has been Senior Vice President of Tawa Associates Ltd., which is engaged in the acquisition, restructuring and
management of property and casualty companies in run off, since May 2001. From September 1999 through May 2001, he was the Insurance Practice Leader of PricewaterhouseCoopers' U.S.
insurance/reinsurance regulatory and restructuring practice group. Prior thereto, Mr. Bank was a partner at the law firm of Chadbourne & Parke LLP, where he specialized in
insurance and reinsurance dispute resolution and related regulatory matters. Mr. Bank is a member of the state bars of California, New York and Nebraska. He also served on the Advisory
Committee on Reinsurance for the National Association of Insurance Commissioners.
Dan R. Carmichael has been President, Chief Executive Officer and a director of Ohio Casualty Corporation, a property and casualty
insurance company, since December 2000. From 1995 through 2000, Mr. Carmichael served as President and Chief Executive Officer of IVANS, Inc., an industry-owned organization that provides
electronic communications services to insurance, healthcare and related organizations. Prior thereto, he served as Chairman, President and Chief Executive Officer of Anthem Casualty Insurance Group.
Mr. Carmichael is also a director of Alleghany Corporation, a holding company engaged through its subsidiaries in the insurance, industrial minerals and steel fasteners businesses, and he
serves as a trustee of the American Institute for Chartered Property Casualty Underwriters, the Insurance Institute of America and the Griffith Foundation for Insurance Education.
Jay S. Fishman has been the Chairman, Chief Executive Officer and President of The St. Paul Companies, Inc., and director of The
John Nuveen Company, since October 2001. Prior to that date, Mr. Fishman was employed as Chairman, President and Chief Executive Officer of The Travelers Insurance Group and as Chief
Operating OfficerFinance and Risk of Citigroup, Inc. Mr. Fishman held various executive positions with Citigroup and its predecessor since 1989 and with Travelers since
1993.
Peter T. Pruitt was Chairman of Willis Re Inc., a reinsurance intermediary, from June 1995 until his retirement in December 2001.
He also served as Chief Executive Officer of Willis Re Inc. from June 1995 through September 1999, and as Executive Vice President of Willis Corroon Corporation from November 1993 through June
1995. Prior thereto, Mr. Pruitt held various positions at Frank B. Hall & Co., an insurance brokerage firm, including President and Chief Operating Officer from August 1985
through November 1992. Mr. Pruitt served as a trustee of the College of Insurance (now St. John's University School of Risk Management) from 1986 until his retirement in 2001. He also
served as a trustee of the Insurance Institute of America and the American Institute for Property and Liability Underwriters.
Number and Terms of Directors
Platinum Holdings' Board of Directors consists of seven members, each of whose term of office will expire at the annual shareholders' meeting in 2003. Under
Platinum Holdings' bye-laws, directors will be elected at each annual general meeting of shareholders, in each case by an ordinary resolution of the shareholders. Candidates for election
will be nominated by us, acting through our Board of Directors. In connection with the RenaissanceRe Investment, we have agreed
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to nominate at our next meeting of shareholders, and to use our commercially reasonable efforts to cause the election of, one director designated by RenaissanceRe to the Board.
Pursuant
to the Investment Agreement we have entered into with RenaissanceRe and St. Paul, for three years from the anniversary of the date of the completion of the Equity Public
Offering, we will not increase the number of directors on Platinum Holdings' Board of Directors to more than nine without the prior written consent of RenaissanceRe, such consent to be provided in
RenaissanceRe's sole discretion. This three-year period will be extended for up to an additional two years so long as RenaissanceRe is accounting for its investment in us via the equity method and
RenaissanceRe reasonably believes that its ability to continue to equity account for its investment in us would be compromised by an increase in the number of directors.
Directors
may take action by a majority of the votes cast at a duly called and held meeting at which a quorum is present. A majority of directors in office at any time, or such greater
number as the shareholders may from time to time determine, constitutes a quorum for all purposes.
The
foregoing summarizes certain provisions of our bye-laws, which are subject to Bermuda law. See "Description of Platinum Holdings' Common Shares."
Committees of the Board of Directors
Our Board of Directors has an Executive Committee, a Compensation Committee and an Audit Committee, each of which reports to the Board. The Executive Committee
has the authority to oversee our general business and affairs to the fullest extent permitted by Bermuda law. The Compensation Committee has the authority to establish compensation policies and
recommend compensation programs to the Board of Directors; it also administers the 2002 Share Incentive Plan and the Capital Accumulation Plan, as described below. The Audit Committee is responsible
for meeting with our independent accountants regarding, among other issues, audits and adequacy of our accounting and control systems. The Audit Committee consists entirely of independent directors.
Recent legislation and New York Stock Exchange initiatives would require, among other things, the establishment of a Nominating Committee and a Corporate Governance Committee, as well as the
independence of all members of the Audit, Compensation, Nominating and Corporate Governance Committees. We are reviewing these requirements and expect to comply with them by their effective dates. In
connection with the RenaissanceRe Investment, we have agreed to use our commercially reasonable efforts to cause the appointment of the director designated by RenaissanceRe to the Board's Executive
Committee and, subject to applicable law, rules and regulations, to the Board's Nominating and Corporate Governance Committees, if any.
Compensation of Directors
The Company will compensate each director (other than any director who is an employee of the Company) in the amount of $25,000 per year as a retainer fee and an
additional $2,500 per meeting of the Board of Directors if the director attends in person, or an additional $1,000 per meeting if the director attends by telephone. The Company will compensate
directors in the amount of $1,500 per meeting of any Board committee attended by such director and an additional $5,000 per year for each committee chairperson. The Compensation Committee of the Board
of Directors is in the process of re-evaluating certain of these fees in light of the increase in duties and responsibilities of directors occasioned by recent legislative initiatives relating to
corporate governance, and will present its recommendations to the full Board of Directors. In light of such re-evaluation, some of these fees may be increased after the completion of the Equity Public
Offering. Fees for the Chairman of the Board and proposed stock option grants for non-employee directors are described below.
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Platinum has adopted a Share Unit Plan for Nonemployee Directors which will become effective upon the completion of the Equity Public Offering. Under the Share
Unit Plan, 50% of all fees earned by a nonemployee director (including retainer fees, meeting fees and committee fees)
during each calendar quarter are automatically converted into the number of "Share Units" that have a value at the end of such calendar quarter equal to the amount of fees earned. Each Share Unit is a
non-voting unit of measurement which is valued at the public trading price of the Common Shares. In addition to the 50% mandatory deferral, each nonemployee director may elect to have up
to a total of 100% of the director's fees converted into Share Units, provided the election is made before the start of the calendar year in which the fees are earned. A nonemployee director will
receive distributions under the Share Unit Plan following the expiration of five calendar years following the year in which his fees were originally converted into Share Units, or following
termination of his service on the Board of Directors, if earlier. Each distribution under the Share Unit Plan will be made, at the discretion of the Board, either in cash or in Common Shares or some
combination thereof.
Under Platinum's 2002 Share Incentive Plan described below, an initial non-qualified share option covering 25,000 Common Shares will be granted to
each of the nonemployee directors other than Mr. Newman upon the completion of the Equity Public Offering at the initial public offering price. The options will have a ten-year term
and will vest in equal annual installments on each of the first three anniversaries of the date of grant, subject to accelerated vesting in the event of a "Change in Control" (as defined in the Share
Incentive Plan). Following the Equity Public Offering, nonemployee directors will be eligible to receive option grants under the Share Incentive Plan in the sole discretion of the Compensation
Committee.
Mr. Newman
has entered into a letter agreement with St. Paul (which will be assigned to Platinum Holdings upon completion of the Equity Public Offering), pursuant to which he
agreed to serve as Chairman of Platinum Holdings' Board of Directors upon completion of the Equity Public Offering. As Chairman of the Board, he will be entitled to receive an annual fee of $60,000
and a fee of $5,000 for each meeting of the Board of Directors that he attends (not to exceed $20,000 per year). Upon completion of the Equity Public Offering, Mr. Newman will receive a stock
option grant to purchase 975,000 Common Shares at the initial public offering price. The option will have a ten-year term and will vest in equal annual installments on each of the first
three anniversaries of the date of grant. Under the agreement, Platinum Holdings will indemnify Mr. Newman, to the fullest extent permitted by law, if he is made or threatened to be made a
party to a proceeding by reason of his being or having been a director of Platinum Holdings.
Mr. Newman
also has entered into a letter agreement with St. Paul (which will be assigned to Platinum US upon completion of the Equity Public Offering), pursuant to which he will
provide consulting services to Platinum US through February 28, 2005 (which date may be automatically extended from year to year). During the consulting term, Mr. Newman will perform
services as reasonably requested, including assisting with the establishment and development of the reinsurance business of Platinum US. During the consulting term, Mr. Newman will receive an
annual consulting fee of $270,000 and will be eligible to receive an annual incentive equal to $440,000 at target, and a maximum incentive equal to 200% of target following the Equity Public Offering;
provided that he will receive, no later than February 28, 2003, a minimum incentive for
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calendar year 2002 of $366,670. The objectives for Mr. Newman's annual incentive following the Equity Public Offering will be determined by the Compensation Committee of the Board of Directors
of Platinum Holdings in consultation with Mr. Newman. On April 15, 2002, Mr. Newman received a one-time incentive payment of $100,000 from St. Paul. Mr. Newman is
subject to certain confidentiality, non-compete and non-solicitation provisions under the agreement. Mr. Newman's consulting services for Platinum US will be performed
through SHN Enterprises, Inc., which he has established for estate planning purposes and of which he is the sole shareholder.
Our Executive Officers
The following information is a summary of the employment arrangements that we expect to be applicable to our President and Chief Executive Officer and our other
executive officers, and a description of the incentive plans that we expect to be in place, upon completion of the Equity Public Offering:
Jerome T. Fadden. Mr. Fadden has an employment agreement with St. Paul for a five-year term that began March 4,
2002, subject to one-year renewal terms thereafter, pursuant to which he has agreed to serve as our President and Chief Executive Officer. Upon the completion of the Equity Public Offering, St. Paul
will assign all of its rights and obligations under the employment agreement to Platinum Holdings. Mr. Fadden will receive a base annual salary of at least $650,000 following the Equity Public
Offering. He will be eligible to receive a target annual bonus of 125% of base salary and a maximum annual bonus of 200% of the target bonus following the Equity Public Offering, and for 2002 he will
receive a minimum annual bonus of 125% of his base annual salary. The objectives for Mr. Fadden's annual bonus will be determined by the Compensation Committee of the Board of Directors, in
consultation with Mr. Fadden. The agreement provides for the purchase and maintenance by Platinum of a term life insurance policy in the amount of $4 million payable to a beneficiary
designated by Mr. Fadden, and that Mr. Fadden will be entitled to the reimbursement of reasonable Bermuda housing expenses, among other employee benefits and perquisites specified in the
agreement. On June 1, 2002, Mr. Fadden received a sign-on bonus of $250,000 from St. Paul. Mr. Fadden also received an initial grant of stock options to purchase up to
100,000 shares of St. Paul common stock, which are subject to the terms of the St. Paul 1994 Stock Plan and which vest in four equal annual installments on the first four anniversaries of the date of
grant. Upon completion of the Equity Public Offering, Mr. Fadden will forfeit such St. Paul stock options to the extent they are unvested and will receive a stock option grant to purchase
975,000 Common Shares at the initial public offering price. The options will have a ten-year term and will vest in equal annual installments on each of the first three anniversaries of the
date of grant.
If
Mr. Fadden's employment is terminated by us without "cause" or by Mr. Fadden for "good reason" (each as defined in the agreement), he will receive a payment equal to
three times the sum of his base salary and the greater of his target bonus and his bonus for the preceding year, and any base salary or other amounts accrued or owing through the date of termination,
provided that Mr. Fadden executes a release of claims, and up to three years of medical and dental coverage and immediate vesting of all outstanding stock options. In addition, all outstanding
stock options will remain exercisable for the lesser of five years and the remainder of their term. If Mr. Fadden's employment is terminated by us for cause or by Mr. Fadden other than
for good reason, he will receive no further payments, compensation or benefits under the agreement (other than amounts accrued prior to termination of employment) and all vested options will remain
exercisable for 30 days after termination. In the event his employment is terminated due to death or "disability" (as defined in the agreement), he will receive his base salary through the date
of termination and an annual bonus (at target level), prorated through the date of termination. In addition, all outstanding stock options will immediately vest and will remain exercisable (but not
beyond their term) for three
134
years, in the case of a disability termination, and one year, in the case of death. In the event Mr. Fadden's employment is terminated under circumstances described in the agreement within two
years after a change in control of the Company, Mr. Fadden will be entitled to certain severance benefits substantially as described above. In the event Mr. Fadden is subject to excise
tax on any severance payments made to him under the agreement, we will make a gross-up payment to compensate him for such tax liability. Mr. Fadden is subject to certain
confidentiality, non-compete and non-solicitation provisions under the agreement.
Michael D. Price. Mr. Price has an employment agreement with St. Paul Re for a three-year term beginning June 3, 2002. Upon the completion
of the Equity Public Offering, St. Paul Re will assign all of its rights and obligations under the employment agreement to Platinum US. Assuming completion of the Equity Public Offering, Mr. Price
will serve as the President and Chief Underwriting Officer of Platinum US following the Equity Public Offering. Mr. Price will receive a minimum base annual salary of at least $400,000 for the first
year of his term, $420,000 for the second year and $440,000 for the third year following the Equity Public Offering, and he will be eligible to receive a minimum annual bonus of 50% of base salary. On
June 3, 2002, Mr. Price received a sign-on bonus of $100,000 from St. Paul Re. Upon completion of the Equity Public Offering, Mr. Price will receive a stock option grant to purchase
300,000 Common Shares at the initial public offering price. The option will have a ten-year term and will vest, subject to continued employment, in three equal annual installments on each of the first
two anniversaries of the completion of the Equity Public Offering and on June 3, 2005. Mr. Price is also entitled to the reimbursement of reasonable moving and temporary housing expenses
(not exceeding $30,000).
If
Mr. Price's employment is terminated by Platinum US without "cause" or by Mr. Price for "good reason" (each as defined in the agreement), he will receive a payment equal to any
bonus payments to which he would have been entitled during the term of the agreement which have not been previously paid, 50% of his then current base salary and any base salary or other amounts
accrued and owing through the date of termination, provided that Mr. Price executes a release of claims. If Mr. Price's employment is terminated by Platinum US for cause or by
Mr. Price other than for good reason, he will receive no further payments, compensation or benefits under the
agreement (other than amounts accrued prior to termination of employment). Mr. Price is subject to certain confidentiality and non-solicitation provisions under the agreement.
William A. Robbie. Mr. Robbie has an employment agreement with St. Paul Re for a three-year term beginning August 5, 2002, subject
to one-year renewal terms thereafter. Upon the completion of the Equity Public Offering, St. Paul Re will assign all of its rights and obligations under the employment agreement to
Platinum Holdings. Assuming completion of the Equity Public Offering, Mr. Robbie serves as Executive Vice President and Chief Financial Officer of Platinum Holdings. Mr. Robbie will receive a base
annual salary of at least $350,000 following the Equity Public Offering. He will be eligible to receive a target annual bonus of 75% of base salary, and for 2002 he will receive a minimum annual bonus
of 50% of base salary prorated for the period of his employment with St. Paul Re and Platinum Holdings during the year. On August 5, 2002, Mr. Robbie received a sign-on bonus of $200,000 from
St. Paul Re. Upon completion of the Equity Public Offering, Mr. Robbie will receive a stock option grant to purchase 150,000 Common Shares at the initial offering price. The option will have a
ten-year term and will vest, subject to continued employment, in equal annual installments on each of the first four anniversaries of the completion of the Equity Public Offering. Mr. Robbie will be
entitled to the reimbursement of reasonable housing and living expenses (not exceeding $15,000 per month) following completion of the Equity Public Offering to the extent that he establishes a
residence in Bermuda.
If
Mr. Robbie's employment is terminated by Platinum Holdings without "cause" or by Mr. Robbie for "good reason" (each as defined in the agreement), he will receive a payment equal to
135
the sum of one year's base salary and target bonus and any base salary or other amounts accrued or owing through the date of termination, provided that Mr. Robbie executes a release of claims. If Mr.
Robbie's employment is terminated by Platinum Holdings for cause or by Mr. Robbie for other than good reason, he will receive no further payments, compensation or benefits under the agreement (other
than amounts accrued prior to termination of employment). Mr. Robbie is subject to certain confidentiality and non-solicitation provisions under the agreement.
Michael E. Lombardozzi. Mr. Lombardozzi has an employment agreement with St. Paul Re for a three-year term beginning August 5, 2002,
subject to one-year renewal terms thereafter. Upon the completion of the Equity Public Offering, St. Paul Re will assign all of its rights and obligations under the employment agreement to Platinum
Holdings. Mr. Lombardozzi serves as Executive Vice President and General Counsel of Platinum Holdings. Mr. Lombardozzi will receive a base annual salary of at least $350,000 following the Equity
Public Offering. He will be eligible to receive a target annual bonus of 75% of base salary and a minimum annual bonus of 50% of base salary for the 2003 and 2004 calendar years, and for 2002 he will
receive a minimum annual bonus of 50% of base salary prorated for the period of employment with St. Paul Re and Platinum Holdings during the year. On August 5, 2002, Mr. Lombardozzi received a sign-on
bonus of $275,000 from St. Paul Re. Upon completion of the Equity Public Offering, Mr. Lombardozzi will receive a stock option grant to purchase 150,000 Common Shares at the initial
offering price. The option will have a ten-year term and will vest, subject to continued employment, in equal annual installments on each of the first four anniversaries of the completion of the
Equity Public Offering. Mr. Lombardozzi will be entitled to the reimbursement of reasonable housing and living expenses (not exceeding
$15,000 per month) following completion of the Equity Public Offering to the extent that he establishes a residence in Bermuda.
If
Mr. Lombardozzi's employment is terminated by Platinum Holdings without "cause" or by Mr. Lombardozzi for "good reason" (each as defined in the agreement), he will receive a payment
equal to the sum of one year's base salary and target bonus and any base salary or other amounts accrued or owing through the date of termination, provided that Mr. Lombardozzi executes a release of
claims. If Mr. Lombardozzi's employment is terminated by Platinum Holdings for cause or by Mr. Lombardozzi for other than good reason, he will receive no further payments, compensation or benefits
under the agreement (other than amounts accrued prior to termination of employment). Mr. Lombardozzi is subject to certain confidentiality and non-solicitation provisions under the agreement.
Neal J. Schmidt. Mr. Schmidt will serve as Executive Vice President and Chief Actuary of Platinum US following the Equity Public
Offering. Mr. Schmidt will receive a base annual salary of $350,000 following the Equity Public Offering, and he will be eligible to receive a target annual bonus of 75% of base salary. For
2002, he will receive an annual bonus of at least $175,000 provided that he is continuously employed by St. Paul Re or Platinum US through the date of payment, which is expected to be
March 31, 2003, or if his employment is terminated other than for cause prior to that date. In addition to an annual bonus, Mr. Schmidt will receive, no later than July 1, 2004, a
retention bonus of $175,000 provided that he is continuously employed by St. Paul Re or Platinum US through July 1, 2004 or if his employment is terminated other than for cause prior to
that date. Upon completion of the Equity Public Offering, Mr. Schmidt will receive a stock option grant to purchase 150,000 Common Shares at the initial public offering price. The option will
have a ten-year term and will vest, subject to continued employment, in equal annual installments on each of the first four anniversaries of the date of grant.
136
Platinum has adopted the 2002 Share Incentive Plan, which will become effective upon completion of the Equity Public Offering. The Plan provides for the grant of
share options, share appreciation rights, share units and restricted shares. The material features of the Plan are summarized below.
Purpose. The purpose of the Plan is to advance the interests of the Company and its shareholders by attracting, retaining and
motivating key personnel upon whose judgment, initiative and effort the successful conduct of the Company's operations is largely dependent. The Plan is also intended to further align the interests of
employees, officers, agents, consultants, advisors and directors with those of the shareholders by promoting the ownership of Common Shares by these individuals.
Reservation of Shares. A total of 6,000,000 Common Shares are reserved for issuance under the Plan (including Common Shares
reserved for issuance to our directors and executive officers set forth in any employment or consulting agreement), which will be made available from authorized but unissued shares or from reacquired
shares. If any shares that are the subject of an award are not issued and cease to be issuable for any reason, these shares will no longer be charged against the maximum share limitations and may
again be made subject to awards. In addition, the number of Common Shares exchanged by a participant as payment to Platinum Holdings of the exercise price or tax withholding upon exercise of an option
will be added to the share reserve. The maximum number of Common Shares that may be made subject of restricted share awards under the Plan is limited to 1,000,000 Common Shares. In the event of
recapitalizations, reclassifications or other specified events affecting Platinum or the Common Shares, appropriate and equitable adjustments may be made to the number and kind of shares available for
grant, as well as to other maximum limitations, under the Plan, and the number and kind of shares or other rights and prices under outstanding awards.
Administration. The Plan will be administered by the Compensation Committee of the Board of Directors of Platinum Holdings.
The Compensation Committee shall, to the extent deemed necessary or advisable by the Board, be constituted so as to comply with the "non-employee director" requirements of
Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the "outside director" requirements of Section 162(m) of the Code. Subject to the
limitations set forth in the Plan, the Compensation Committee has the authority to determine the persons to whom awards are granted, the types of awards to be granted, the time at which awards will be
granted, the number of shares, units or other rights subject to each award, the exercise, base or purchase price of an award, the time or times at which the award will become vested, exercisable or
payable, and the duration of the award. The Compensation Committee will have the right, from time to time, to delegate to one or more officers of the Company the authority of the Committee to grant
and determine the terms and conditions of awards, subject to certain limitations.
Eligibility. Awards under the Plan may be granted to any employee, officer, director, agent, consultant or advisor of
Platinum Holdings or any of its subsidiaries. Recipients of awards will be selected from time to time by the Compensation Committee in its sole discretion.
Share Options. Share options granted under the Plan may be issued as either incentive options (within the meaning of
Section 422 of the Code), or as non-qualified options. The exercise price of an option will be determined by the Compensation Committee, provided that the exercise price per share
will not be less than the fair market value of a Common Share on the date of the grant of the option. The Compensation Committee will determine the vesting requirements and the
137
term of exercise of each option, including the effect of termination of employment or service of a participant. The maximum term of a share option will be ten years from the date of grant. To
exercise an option, the participant must pay the exercise price, subject to specified conditions, in cash or in Common Shares that have been held for at least six months, through a broker-assisted
"cashless exercise", by combination of any of the above methods or other method approved by the
Compensation Committee, and must pay any required tax withholding amounts. The Compensation Committee may also grant "reload options" for the number of Common Shares tendered by a participant to cover
the exercise price or withholding tax upon the exercise of a share option under the Plan. Under the Code, the maximum value of Common Shares (determined at the time of grant) that may be subject to
incentive options that become exercisable by an employee in any one year is limited to $100,000. The maximum number of Common Shares that may be covered under options granted under the Plan to any
individual in any calendar year is 1,000,000 Common Shares.
Share Appreciation Rights. A share appreciation right may be granted either in tandem with an option or without a related
option. A share appreciation right entitles the participant, upon exercise, to receive a payment based on the excess of the fair market value of a Common Share on the date of exercise over the base
price of the right (which may not be less than the fair market value of a Common Share on the date of grant), multiplied by the number of shares as to which the right is being exercised. The maximum
term of a share appreciation right will be ten years from the date of grant. No more than 1,000,000 Common Shares may be subject to share appreciation rights granted under the Plan to any one
participant during any calendar year. Share appreciation rights may be payable in cash or in Common Shares or in a combination of both. Share appreciation rights may also be granted together with
related dividend equivalent rights.
Share Units. An award of share units gives the participant the right to receive payment at the end of a vesting period based
on the value of the Common Share at the time of vesting. Share units are subject to vesting requirements, restrictions and conditions to payment as the Compensation Committee determines are
appropriate. Such vesting requirements may be based on the continued employment of the participant for a specified time period or on the attainment of specified business performance goals established
by the Committee. Share unit awards are payable in cash or in Common Shares or in a combination of both. Share units may also be granted together with related dividend equivalent rights.
Restricted Share Awards. A restricted share award represents Common Shares that are issued subject to restrictions on transfer and vesting
requirements as determined by the Compensation Committee. Vesting requirements may be based on the continued employment of the participant for specified time periods and on the attainment of specified
business performance goals established by the Compensation Committee. Subject to the transfer and vesting restrictions of the award, the participant will have the rights of a shareholder of Platinum
Holdings, including all voting and dividend rights, during the restriction period, unless the Committee determines otherwise at the time of the grant.
Change In Control. The Compensation Committee may, in an award agreement, provide for the effect of a change in control on an
award. These provisions may include the acceleration of vesting of an award, the elimination or modification of performance or other conditions, the extension of the time for exercise or realizing
gain from an award, the acceleration of payment, cash settlement of an award or other adjustments that the Compensation Committee considers appropriate.
Term; Amendment and Termination. The term of the Plan is ten years. The Board may terminate or amend the Plan at any
time, subject to shareholder approval under certain
138
circumstances provided in the Plan. However, no termination or amendment of the Plan will adversely affect the rights under any previously granted award.
Effective
upon completion of the Equity Public Offering, each of Messrs. Newman and Fadden will receive options to purchase 975,000 Common Shares; Mr. Price will receive an option to
purchase 300,000 Common Shares; and Messrs. Robbie, Lombardozzi and Schmidt will each receive an option to purchase 150,000 Common Shares. In addition, other employees of the Company will receive
options to purchase in the aggregate approximately 1,400,000 Common Shares, and each of the nonemployee directors of the Company other than Mr. Newman will receive options to purchase 25,000 Common
Shares, in each case effective upon completion of the Equity Public Offering. All of these options will have an exercise price per Common Share equal to the initial public offering price per Common
Share and a term of ten years, and will provide for the grant of reload options in accordance with the terms of the 2002 Share Incentive Plan.
Platinum has adopted the Capital Accumulation Plan (the "CAP Plan"), which will become effective upon completion of the Equity Public Offering. The CAP Plan
provides for the payment of a portion of a participant's annual bonus compensation in the form of restricted shares or in share options. The material features of the CAP Plan are summarized below.
Purpose. The purpose of the CAP Plan is to advance the interests of Platinum Holdings and its shareholders by attracting,
retaining and motivating key personnel upon whose judgment, initiative and effort the successful conduct of Platinum Holdings' operations is largely dependent. The CAP Plan is also intended to further
align the interests of officers, employees and consultants with those of the shareholders by promoting the ownership of Common Shares by these individuals.
Available Shares. No Common Shares are separately authorized for issuance under the CAP Plan. All Common Shares subject to
awards under the CAP Plan shall be taken from the Common Shares reserved under the 2002 Share Incentive Plan, as adjusted under the terms thereof.
Administration. The CAP Plan will be administered by the Compensation Committee of the Board of Directors of Platinum
Holdings. The Compensation Committee shall, to the extent deemed necessary or advisable by the Board, be constituted so as to comply with the "non-employee director" requirements of
Rule 16b-3 under the Exchange Act and the "outside director" requirements of Section 162(m) of the Code. Subject to the limitations set forth in the CAP Plan, the
Compensation Committee has the authority to determine which employees are eligible to participate in the CAP Plan, the number of restricted shares or share options to be awarded, the vesting schedule
of the share awards and the other terms and conditions of participation. The Compensation Committee will have the right, from time to time, to delegate to one or more officers of Platinum Holdings the
authority of the Committee to grant and determine the terms and conditions of awards, subject to certain limitations.
Eligibility. Awards under the CAP Plan may generally be granted to any officer or other employee or consultant of Platinum
Holdings or its subsidiaries who is entitled to bonus or incentive awards and is designated by the Compensation Committee to participate based on such criteria as the Committee deems appropriate. Upon
designation by the Compensation Committee, participation in the CAP Plan is generally mandatory, although the Committee may in certain circumstances make participation elective.
139
Restricted Shares. A portion of each participant's annual bonus compensation, determined in the discretion of the
Compensation Committee, will be paid in the form of restricted shares. The price of the restricted shares for purposes of determining the number of shares to be issued may be discounted from fair
market value (as defined in the CAP Plan) at the discretion of the Compensation Committee (to a maximum of 25%) in order to reflect the impact of the restricted nature and potential forfeiture of the
shares. The participant is not able to sell, pledge or otherwise dispose of the restricted shares, except by will or the laws of descent and distribution, for a period of two years, or such other
period, and subject to such conditions, as may be determined by the Compensation Committee. In the event that the participant has been continuously employed by Platinum Holdings or its subsidiaries
upon expiration of the restricted period, the participant shall obtain full dispositive power over his or her shares. The Compensation Committee may provide, in its discretion, that the restrictions
on the restricted shares immediately lapse upon certain events such as a change in control of the Company or the death, disability or retirement of a participant.
Share Options. The Compensation Committee may in its discretion permit a participant to elect to receive up to
one-third of his or her award in the form of a grant of non-qualified options. The Compensation Committee will determine the number of options to be awarded in lieu of each
share of restricted shares. The exercise price of an option will be equal to the fair market value of a Common Share on the date of the grant of the option. The Compensation Committee will determine
the vesting requirements and the term of exercise of each option, including the effect of termination of employment or service of a participant, provided, that unless the Committee provides otherwise,
the option will become vested and exercisable on the second anniversary of the date of grant if the participant has been continuously employed by Platinum Holdings or its subsidiaries. The term of a
share option will be ten years from the date of grant unless otherwise provided by the Compensation Committee. To exercise an option, the participant must pay the exercise price, subject to specified
conditions, in cash or in Common Shares that have been held for at least six months, through a broker-assisted "cashless exercise," or by combination of any of the above methods approved by the
Committee and must pay any required tax withholding amounts.
Change In Control. The Compensation Committee may, in an award agreement, provide for the effect of a change in control on an
award of restricted shares or share options. These provisions may include the lapse of restrictions or the acceleration of vesting of an award, the elimination or modification of any conditions, the
extension of the time for exercise, provision for cash settlement of an award or other adjustments that the Compensation Committee considers appropriate.
Term, Amendment and Termination. The term of the CAP Plan is ten years. The Board may amend the CAP Plan at any time,
subject to shareholder approval under certain circumstances provided in the CAP Plan or terminate the CAP Plan at any time, in each case, except as would adversely affect outstanding awards without
participant consent.
140
ST. PAUL INVESTMENT, RENAISSANCERE INVESTMENT AND PRINCIPAL SHAREHOLDERS
We expect to enter into a Formation and Separation Agreement relating to, among other things, the St. Paul Investment, which is the issuance of an aggregate of
6,000,000 Common Shares, or 15.0% of the outstanding Common Shares, as well as the St. Paul Option described below, to St. Paul in return for the Cash Contribution and St. Paul's contribution of the
Transferred Business having a net tangible book value at June 30, 2002 of $11 million (after reflecting a dividend of $15 million to be paid, prior to the completion of the Equity
Public Offering, to United States Fidelity and Guaranty Company, the current parent of Platinum US), and its agreement to enter into various agreements with us. St. Paul's Cash Contribution,
together with the net tangible book value of Platinum US at June 30, 2002 (consisting of approximately $5 million of cash and cash equivalents after reflecting the pre-closing dividend
referred to above) to be contributed as part of the Transferred Business, will represent an amount approximately equal to the initial public offering price less the underwriting discount for the
Common Shares privately placed to it. St. Paul will also contribute to Platinum certain tangible assets and other intangible assets with a net book value of approximately $7 million as
of June 30, 2002. If the underwriters exercise their option to purchase up to an additional 4,506,000 Common Shares in the Equity Public Offering in whole or in part, St. Paul has the option to
purchase at a price per share equal to the initial public offering price less the underwriting discount, additional Common Shares in order for it to retain the 15.0% interest, or up to 900,000
additional Common Shares if the underwriters' option is exercised in full.
As
part of the consideration for the Cash Contribution and St. Paul's contribution of the Transferred Business, we will grant St. Paul the St. Paul Option, which is a ten-year option,
exercisable in whole or in part, to purchase, at 120% of the initial public offering price, up to 6,000,000 Common Shares.
The
principal terms of the St. Paul Option are described under "Certain Relationships and Related TransactionsThe St. Paul
InvestmentSt. Paul Option Agreement".
The
following table shows St. Paul's ownership following the Equity Public Offering and St. Paul Investment, reflecting no exercise and full exercise of the underwriters' option to
purchase additional Common Shares:
Shares Issued
to St. Paul with
No Over-Allotment
Option Exercised
|
|
Shares St. Paul
May Purchase
If Underwriters'
Over-Allotment
Option Exercised
in Full
|
|
Maximum
Ownership of
Common Shares
by St. Paul following
the Equity Public Offering
and the St. Paul Investment
|
6,000,000 |
|
900,000 |
|
6,900,000 |
In
addition, we have entered into an Investment Agreement with RenaissanceRe and St. Paul relating to, among other things, the RenaissanceRe Investment, which is
the issuance to RenaissanceRe of an aggregate of 3,960,000 Common Shares, or 9.9% of the outstanding Common Shares, at a price per share equal to the initial public offering price less the
underwriting discount, as well as the RenaissanceRe Option described below. If the underwriters and St. Paul exercise their options to purchase up to an additional, in aggregate, 5,406,000
Common Shares in connection with the Equity Public Offering in whole or in part, RenaissanceRe has the option to purchase, at a price per share equal to the initial public offering price less the
underwriting discount, additional Common Shares in order for it to retain the 9.9% interest, or up to 594,000 additional Common Shares if the underwriters' and St. Paul's options are exercised
in full.
As
part of the consideration for the RenaissanceRe Investment, we will grant RenaissanceRe the RenaissanceRe Option, which is a ten-year option, exercisable in whole or in
part, to purchase, at 120% of the initial public offering price, up to 2,500,000 Common Shares.
141
The
principal terms of the RenaissanceRe Option are described under "Certain Relationships and Related TransactionsThe RenaissanceRe InvestmentRenaissanceRe
Option Agreement".
The
following table shows RenaissanceRe's ownership following the Equity Public Offering and the RenaissanceRe Investment, reflecting no exercise and full exercise of the underwriters'
option to purchase additional Common Shares:
Shares Issued to RenaissanceRe with No Over-Allotment Option Exercised
|
|
Shares RenaissanceRe
May Purchase If Underwriters' and St. Paul's
Over-Allotment Option Exercised in Full
|
|
Maximum Ownership of
Common Shares by RenaissanceRe following the Equity Public Offering, the St. Paul Investment and the RenaissanceRe Investment
|
3,960,000 |
|
594,000 |
|
4,554,000 |
St.
Paul's address is 385 Washington Street, St. Paul, Minnesota 55102. RenaissanceRe's address is Renaissance House, 8-12 Broadway, Pembroke HM 19, Bermuda. The Company is not aware
of any potential 5% beneficial owner of Common Shares other than St. Paul or RenaissanceRe.
The
completion of the St. Paul Investment under the Formation and Separation Agreement and the RenaissanceRe Investment under the Investment Agreement are conditioned upon completion of
the Equity Public Offering. The closing of the St. Paul Investment and the RenaissanceRe Investment will occur simultaneously with the completion of the Equity Public Offering. The completion of the
Equity Public Offering and the completion of the ESU Offering are conditioned on each other.
St.
Paul and RenaissanceRe have been granted rights to require the Company to register all of the Common Shares they acquire pursuant to the St. Paul Investment, the St. Paul Option, the
RenaissanceRe Investment, the RenaissanceRe Option or otherwise as provided under the Formation and Separation Agreement and the Investment Agreement, respectively. See "Shares Eligible for Future
Sale" and "Certain Relationships and Related Transactions."
Messrs. Newman, Fadden, Baldwin, Bank, Carmichael and Pruitt have indicated an interest in purchasing Common Shares in the Equity Public Offering as follows:
Mr. Newman |
|
80,000 Common Shares |
Mr. Fadden |
|
10,000 Common Shares |
Mr. Baldwin |
|
5,000 Common Shares |
Mr. Bank |
|
2,000 Common Shares |
Mr. Carmichael |
|
2,500 Common Shares |
Mr. Pruitt |
|
2,000 Common Shares |
142
Four other executive officers of Platinum Holdings have also indicated an interest in purchasing Common Shares in the Equity Public Offering in amounts not
exceeding 5,000 Common Shares. We have directed the underwriters to make these Common Shares available to these persons. All of these Common Shares will be subject to the 180-day restriction described
under "Underwriting." In addition, our directors and executive officers have been granted stock options exercisable at the initial public offering price effective upon completion of the Equity Public
Offering. The following table sets forth the number of Common Shares subject to the options granted to our directors and executive officers.
Name of Beneficial Owner
|
|
Number of Common Shares subject to
Stock Options expected to be granted
upon completion of the Equity Public Offering
|
|
Percent of Class(1)
|
|
|
|
|
|
Steven H. Newman |
|
975,000 |
|
2.4% |
Jerome T. Fadden |
|
975,000 |
|
2.4% |
Michael D. Price |
|
300,000 |
|
* |
Neal J. Schmidt |
|
150,000 |
|
* |
William A. Robbie |
|
150,000 |
|
* |
Michael E. Lombardozzi |
|
150,000 |
|
* |
H. Furlong Baldwin |
|
25,000 |
|
* |
Dan R. Carmichael |
|
25,000 |
|
* |
Jonathan F. Bank |
|
25,000 |
|
* |
Jay S. Fishman |
|
25,000 |
|
* |
Peter T. Pruitt |
|
25,000 |
|
* |
Directors and executive officers as a group |
|
2,825,000 |
|
7.1% |
- (1)
- Assuming
that 40,000,000 Common Shares are outstanding upon completion of the Equity Public Offering, which excludes (i) Common Shares which may be issued pursuant to the
underwriters' option to purchase additional Common Shares, and additional Common Shares which may be purchased by St. Paul and RenaissanceRe if the underwriters exercise their option,
(ii) Common Shares which may be issued pursuant to the St. Paul Option, (iii) Common Shares which may be issued pursuant to the RenaissanceRe Option, (iv) Common Shares
which may be issued pursuant to the Platinum 2002 Share Incentive Plan, (v) Common Shares which may be issued pursuant to the purchase contracts that are part of the equity security units issued in
the ESU Offering and (vi) Common Shares that may be issued upon exercise by St. Paul or RenaissanceRe of their pre-emptive rights in connection with the settlement of the purchase
contracts that are part of the equity security units.
- *
- Less
than 1%.
143
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following summarizes the material terms of the agreements among St. Paul, RenaissanceRe and Platinum listed below. This summary is
subject to, and is qualified in its entirety by reference to, all of the provisions of the relevant agreements. A copy of each agreement is filed as an exhibit to the registration statement of which
this prospectus is a part.
The St. Paul Investment
Prior to completion of the Equity Public Offering and the ESU Offering, we and St. Paul and certain of St. Paul's subsidiaries will enter into a
number of agreements with respect to our formation and operations. The terms of these agreements have been negotiated by Platinum and St. Paul but do not necessarily reflect terms that Platinum
or St. Paul would agree to with an independent third party.
Formation and Separation Agreement
General. Prior to the completion of the Equity Public Offering, the ESU Offering, the St. Paul
Investment and the RenaissanceRe Investment, we will enter into the Formation and Separation Agreement with St. Paul which will set forth the terms of our establishment and organization, certain
actions that will be required to be taken prior to the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment, termination of certain relationships with St. Paul and
certain continuing relationships with St. Paul following the completion of the Equity Public Offering, the St. Paul Investment and the ESU Offering. Under the Formation and Separation
Agreement, we will, among other things, reimburse St. Paul for certain specified expenses incurred in connection with our formation, the registration of the Common Shares and the St. Paul Investment.
The Formation and Separation Agreement also provides for St. Paul to reimburse us up to $4.5 million for certain transitional expenses. The Formation and Separation Agreement will
provide for St. Paul to contribute to us and our affiliates the Transferred Business, which consists of certain tangible and intangible assets required for the operation of our business, including
renewal rights in respect of reinsurance contracts underwritten by St. Paul, systems, records, assignments of leases and
furniture and fixtures, as well as all of the outstanding capital stock of Platinum US. It will also provide for St. Paul to make the Cash Contribution and for St. Paul and us to enter into
various agreements, including the Quota Share Retrocession Agreements by which we will reinsure the Assumed Reinsurance Contracts. Pursuant to the St. Paul Investment, as consideration for
St. Paul's Cash Contribution and the contribution of the Transferred Business, having a net tangible book value at June 30, 2002 of $11 million (after reflecting a dividend of
$15 million to be paid, prior to the completion of the Equity Public Offering, to United States Fidelity and Guaranty Company, the current parent of Platinum US), and its agreement to enter
into various agreements with us, we will issue to St. Paul 6,000,000 Common Shares, or 15.0% of the Common Shares to be outstanding following the Equity Public Offering, and we will grant
St. Paul the St. Paul Option. See "Option Agreement." St. Paul's Cash Contribution, together with the net tangible book value of the Transferred Business at June 30,
2002 (consisting of approximately $5 million of cash and cash equivalents after reflecting the pre-closing dividend referred to above) to be contributed as part of the Transferred Business,
will represent an amount approximately equal to the initial public offering price less the underwriting discount for the Common Shares privately placed to it. St. Paul will also contribute to
Platinum certain tangible assets and other intangible assets with a net book value of approximately $7 million as of June 30, 2002. If the underwriters exercise their option to purchase
additional Common Shares, St. Paul has the option to purchase, at a price per share equal to the initial public offering price less the underwriting discount, up to the number of additional
Common Shares as are necessary for it to retain its 15.0% interest. The number of Common Shares to be issued to St. Paul (including the number of Common Shares issuable pursuant to the
St. Paul Option) for the Cash Contribution and the contribution of the Transferred
144
Business was determined by St. Paul and Platinum Holdings, based on the nature of the business transferred, including the contractual arrangements between the parties, and the expected
valuation of Platinum Holdings in the Equity Public Offering.
General Cross Indemnification. The Formation and Separation Agreement provides that, except as
otherwise set forth in any provision of the Formation and Separation Agreement or any other agreement between St. Paul and us provided for therein:
-
- St.
Paul generally shall indemnify Platinum Holdings, Platinum Ireland, Platinum US, Platinum UK and Platinum Bermuda and their respective officers,
directors, employees, representatives and agents (the "Platinum Indemnitees") from and against any and all losses, liabilities, claims, damages, obligations, payments, costs and expenses
("Liabilities") of any such Platinum Indemnitee that arise out of any act, omission, event or condition occurring or arising prior to the completion of the Equity Public Offering relating to
(1) (A) the ownership, operation or use of the reinsurance business of St. Paul Re or the assets transferred to us by St. Paul or any of its subsidiaries, and (B) Platinum US; (2) any
breach by St. Paul, any of its subsidiaries, or any person acting on behalf of St. Paul or any such subsidiary of any representation, warranty, covenant or undertaking contained in the Formation and
Separation Agreement or any other agreement between St. Paul and us provided for thereby; and (3) any and all taxes (the "Pre-closing Taxes") (A) imposed on St. Paul
and its "affiliated group" as defined in Section 1504(a) of the Code for any taxable year, (B) relating to Platinum US or for which Platinum US could be liable for taxable periods or
portions thereof ending on or before the date of completion of the Equity Public Offering, or (C) directly relating to the assets transferred with the Transferred Business for any taxable
periods ending on or before the date of the completion of the Equity Public Offering, subject to certain exceptions. St. Paul will not be obligated to so indemnify any Platinum Indemnitee for any
Liabilities
arising out of any act or omission occurring or arising prior to the completion of the Equity Public Offering of any of Steven H. Newman, Jerome T. Fadden, William A.
Robbie, Michael E. Lombardozzi or Michael D. Price taken in furtherance of the organization of Platinum Holdings or its subsidiaries, the Equity Public Offering, the registration
statement of which this prospectus is a part, the agreements between St. Paul and us provided for in the Formation and Separation Agreement, or the transactions related thereto but otherwise do
include Liabilities arising out of any act or omission occurring or arising prior to the completion of the Equity Public Offering of any of such individuals in their capacities as officers of St. Paul
Re.
-
- Platinum
Holdings shall indemnify St. Paul, its subsidiaries and their respective officers, directors, employees, representatives and agents (the "St. Paul
Indemnitees") from and against any and all Liabilities of any such St. Paul Indemnitee that arise out of any act, omission, event or condition occurring or arising at or after the completion of the
Equity Public Offering relating to (1) the ownership, operation or use of the business of Platinum or the related assets by Platinum on or after the completion of the Equity Public Offering;
(2) any breach by Platinum Holdings, any of its subsidiaries or any person acting on behalf of Platinum Holdings or any such subsidiary of any representation, warranty, covenant or undertaking
contained in any agreement between St. Paul and us provided for in the Formation and Separation Agreement; and (3) any and all taxes that are not Pre-closing Taxes. Platinum's
Liabilities include all Liabilities relating to the employment agreements with Jerome T. Fadden, Steven H. Newman, William A. Robbie, Michael
E. Lombardozziand Michael D. Price irrespective of whether occurring or arising prior to, on or after the completion of the Equity Public
Offering and all Liabilities relating to the obligations of St. Paul and its subsidiaries to write or renew certain reinsurance agreements incepting on or after January 1, 2002.
145
This
general indemnification under the Formation and Separation Agreement does not cover any Liabilities relating to the Equity Public Offering under the federal or any state securities laws.
Securities Indemnification by Platinum Holdings. The Formation and Separation Agreement provides that
Platinum Holdings shall indemnify (including reimbursement for expenses) to the full extent permitted by law, St. Paul, its subsidiaries and their respective officers, directors, employees and agents,
and each person who controls any of them and the officers, directors, employees and agents of each such controlling person (each, a "St. Paul Registration Indemnitee"), from and against any and all
Liabilities arising out of or based upon any untrue statement or alleged untrue statement of a material fact in the "Platinum Information", being the information (other than the St. Paul Information
and Shared Information (each as defined below)) contained in the registration statement relating to the Equity Public Offering, the registration statement relating to the ESU Offering or the private
offering memorandum relating to the RenaissanceRe Investment, or arising out of or based upon any omission or alleged omission to state a material fact required to be stated or necessary to make the
statements in the Platinum Information not misleading.
Securities Indemnification by St. Paul. The Formation and Separation Agreement provides that St. Paul
shall indemnify (including reimbursement for expenses), to the full extent permitted by law,
Platinum Holdings, its subsidiaries and their respective officers, directors, employees and agents and each person who controls any of them and the officers, directors, employees, and agents of each
such controlling person (each, a "Platinum Registration Indemnitee") from and against any and all Liabilities (including "Damages", if any, owed by us to RenaissanceRe pursuant to Section 10.13
of the Investment Agreement (the "RenaissanceRe Liabilities")) arising out of or based upon any untrue statement or alleged untrue statement of a material fact in the "St. Paul Information" contained
in the registration statement relating to the Equity Public Offering, the registration statement relating to the ESU Offering, and the private offering memorandum relating to the RenaissanceRe
Investment, or arising out of or based upon any omission or alleged omission to state a material fact required to be stated or necessary to make the statements in the St. Paul Information not
misleading. St. Paul Information is generally the information in this prospectus and the prospectus relating to the ESU Offering set forth under the captions "The Predecessor Business" and in the
financial statements of "The St. Paul Companies, Inc. Reinsurance Underwriting Segment (Predecessor)."
Indemnification for Shared Information. Notwithstanding the indemnification provisions in the two
preceding paragraphs, St. Paul and Platinum shall indemnify (including reimbursement for expenses), to the full extent permitted by law, each Platinum Registration Indemnitee and each St. Paul
Registration Indemnitee, respectively, for 50% of any and all Liabilities (including RenaissanceRe Liabilities, if any) arising out of or based upon any untrue statement or alleged untrue statement of
a material fact in the Shared Information contained in the registration statement relating to the Equity Public Offering, the registration statement relating to the ESU Offering or the private
offering memorandum relating to the RenaissanceRe Investment or arising out of or based upon any omission or alleged omission to state a material fact required to be stated or necessary to make the
statements in the Shared Information not misleading. "Shared Information" means any numerical, financial, narrative or other information contained in the Platinum Information that is based on or
related to any pro forma financial information or disclosure with respect to the Transferred Business described in the registration statement.
Securities Contributions. If for any reason the foregoing securities indemnifications are unavailable
to, or are insufficient to hold harmless, any registration indemnitee, the indemnifying party shall contribute to the amount paid or payable by such registration indemnitee in a proportion to reflect
the parties' relative benefits and relative faults. For the avoidance of doubt, St. Paul may not require any contribution from Platinum for any Liabilities arising out of or based upon any St. Paul
Information, and Platinum may not require any contribution from St. Paul for any Liabilities
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arising out of or based upon any Platinum Information. Furthermore, any contribution with respect to any Liabilities arising out of or related to any Shared Information are limited to 50% of the
amount of such Liabilities.
Limitations on Securities Indemnification by St. Paul. St. Paul's aggregate liability to the Platinum
Registration Indemnitees, including with respect to RenaissanceRe Liabilities, is limited to a duration of two years following the completion of the Equity Public Offering and the ESU Offering and
covers only the excess of (1) $400 million over (2) any amounts directly paid or payable by St. Paul (x) to investors in the Equity Public Offering and the ESU Offering in respect
of claims against St. Paul arising under the registration statement relating to the Equity Public Offering and the registration
statement relating to the ESU Offering, (y) to RenaissanceRe in connection with the RenaissanceRe Investment, and/or (z) to the underwriters of the Equity Public Offering and the ESU
Offering pursuant to an obligation of St. Paul under the underwriting agreements for the Equity Public Offering and the ESU Offering to pay certain indemnification, contribution and expense
reimbursement obligations of Platinum to the underwriters if Platinum fails to pay in defined circumstances. The limitation to $400 million in clause (1) of the preceding sentence
applies to the Equity Public Offering, the ESU Offering and the RenaissanceRe Investment taken together and not individually. In the event Platinum Holdings is obligated to indemnify RenaissanceRe
with respect to RenaissanceRe Liabilities arising out of St. Paul Information or Shared Information, Platinum Holdings and St. Paul agree that (i) the payment by St. Paul
to Platinum Holdings of any amounts with respect to indemnification of such RenaissanceRe Liabilities shall be segregated from other indemnification payments (if any) made by St. Paul to
Platinum Holdings so that they may be available to RenaissanceRe (such segregated amounts not to exceed $40 million), and (ii) no payments shall be made by St. Paul to any
Platinum Registration Indemnitees or others that in the aggregate exceed $360 million prior to the satisfaction by St. Paul of any obligation to indemnify Platinum in order to satisfy
indemnification of any RenaissanceRe Liabilities prior to the termination of St. Paul's obligations to Platinum Registration Indemnitees. For a discussion of Platinum's obligations to indemnify
RenaissanceRe, see "The RenaissanceRe InvestmentInvestment AgreementIndemnification and Waiver."
If
Platinum Registration Indemnitees make a claim for the indemnification, contribution or reimbursement of expenses against St. Paul (including with respect to RenaissanceRe
Liabilities), St. Paul's obligation to indemnify, contribute to, or reimburse the Platinum Registration Indemnitees (including with respect to RenaissanceRe Liabilities) with respect to such
claim is conditioned on, and only payable upon, the concurrent settlement or resolution of all claims then outstanding at the time of such settlement or resolution against St. Paul (other than
claims by the underwriters of the Equity Public Offering and the ESU Offering) which are then subject to the limitation on liability set forth in the immediately preceding paragraph provided
St. Paul continues in good faith to seek and assist in the resolution or settlement of all such claims.
Non-Competition. The Formation and Separation Agreement generally provides that, for a
period of two years after the completion of the Equity Public Offering, neither St. Paul nor any of its subsidiaries or any of their respective directors, officers or agents may
- (1)
- offer,
issue, sell, refer or promote, directly or indirectly, any contracts of reinsurance of the same type as the Assumed Reinsurance Contracts and for which St. Paul has granted to
Platinum the rights to seek renewal, provided that Platinum continues to provide, during the two-year non-competition period, reinsurance coverage of such types to third
parties;
- (2)
- employ,
offer to employ or solicit with a view to employment specified key employees or employees in specified positions of Platinum; or
- (3)
- use
or disclose to any person other than Platinum Holdings or any of its subsidiaries any information relating to the Transferred Business of a confidential nature except in
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connection
with the administration of (1) the Assumed Reinsurance Contracts and the run-off business of St. Paul or (2) any liabilities retained by St. Paul. St. Paul, its
subsidiaries and their respective directors, officers and agents may disclose such confidential information relating to the Transferred Business only in the ordinary course of business, consistent
with past practice and shall use reasonable efforts to avoid providing such confidential information relating to the Transferred Business to a competitor of Platinum under circumstances reasonably
likely to materially impair the value of Platinum's right to seek such renewals of any reinsurance agreements underwritten by St. Paul Re and in effect as of the date of completion of the
Equity Public Offering.
In
addition, for two years after the completion of the Equity Public Offering, neither St. Paul nor any of its subsidiaries may sponsor or assist, directly or indirectly, in the
sponsorship of a newly formed property or casualty reinsurer for so long as St. Paul continues to own 10% or more of the outstanding Common Shares.
The
non-competition agreements in clauses (1) and (2) above are not binding upon a subsidiary of St. Paul after the time such person ceases to be a subsidiary. With certain exceptions,
the non-competition agreement in clause (1) above does not apply to any affiliate of St. Paul that is not a subsidiary of St. Paul, including any person which acquires all or substantially all of the
capital stock or assets of St. Paul through merger, consolidation, tender offer, acquisition of assets or otherwise, but the non-competition agreements in clauses (2) and (3) shall apply to
such affiliates of St. Paul.
Notwithstanding
the foregoing, neither St. Paul nor any of its subsidiaries is prohibited from
- (1)
- engaging
in any line of business in which it is engaged immediately after the completion of the Equity Public Offering and for which St. Paul has not transferred to Platinum the right
and any obligations to seek renewals, including, without limitation, the run-off business (but not including any renewals thereof) of St. Paul, purchasing reinsurance for its own account,
the reinsurance business written through Discover Re and Lloyd's of London operations and property catastrophe facultative business written by St. Paul's CATrisk Property division;
- (2)
- acquiring
any person or any interest in any person engaged in any line of business except for an acquisition of an interest of more than 49% of a person that generated 50% or more of
its gross revenues, excluding investment income and realized investment gains and losses, in the most recent fiscal year for which financial statements are available, by writing property or casualty
reinsurance (a "Permitted Acquiree"), provided that such an acquired person is not allowed to use the name "St. Paul", "USF&G" or "F&G" or any derivative thereof or any logo or mark identified with
such names in connection with its reinsurance business, provided further, however, that St. Paul and any of its subsidiaries may acquire an interest of more than 49% of a person that is not a
Permitted Acquiree if St. Paul or such subsidiary promptly divests the property or casualty reinsurance operations of such person; or
- (3)
- soliciting,
offering, issuing, selling, purchasing or referring any contracts of reinsurance of any type (A) with any of St. Paul's affiliates, (B) in connection with
St. Paul's run-off business (other than renewals thereof) or (C) in connection with finite business covered by any of the Quota Share Retrocession Agreements or which Platinum and
its subsidiaries declines to reinsure.
Transfer Restrictions. The Formation and Separation Agreement provides that, except in connection
with any tender or exchange offer made to all holders of Common Shares and certain other situations, St. Paul may not transfer more than 9.9% of the Common Shares outstanding at the time of such
transfer to any person that generated 50% or more of its gross revenues in the
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most recent fiscal year for which financial statements are available by writing property or casualty insurance or reinsurance.
Standstill Provisions. The Formation and Separation Agreement provides that St. Paul and its
subsidiaries will not, and St. Paul will use its commercially reasonable efforts to cause its affiliates and any officer, employee, agent or representative of St. Paul or such affiliates
(collectively, the "Representatives") to not, directly or indirectly, advise or encourage any party or entity with respect to the voting of any of our voting securities in an attempt to cause a change
in control of Platinum Holdings, initiate or otherwise solicit our shareholders for the granting of any proxy or the approval of one or more shareholder proposals or induce any other party or entity
to seek any proxy or to initiate any shareholder proposal that results or is designed to result in a change in control of Platinum Holdings, or directly or indirectly acquire, announce an intention to
acquire, or agree to acquire, by purchase or otherwise, beneficial ownership of any voting securities of Platinum Holdings, if, immediately after any such acquisition, St. Paul or any
subsidiary of St. Paul would beneficially own, in the aggregate, more than 24.9% of the voting securities of Platinum Holdings then outstanding, provided that there are no limitations on
St. Paul's ability to communicate with RenaissanceRe or any of its affiliates in respect of any matter.
A
change in control of Platinum Holdings is deemed to have occurred if (i) any person or group (as defined for purposes of Section 13 of the Exchange Act) (excluding
Platinum Holdings or any wholly owned subsidiary thereof) becomes the beneficial owner of more than 50% of the outstanding equity securities of Platinum Holdings representing the right to vote for the
election of directors or (ii) there shall occur a merger, consolidation or other business combination in which Platinum Holdings is acquired (unless the shareholders of Platinum Holdings
immediately before such business combination own, directly or indirectly, immediately following such business combination, at least a majority of the combined voting power of the entity resulting from
such business combination).
Pre-Emptive Rights. The Formation and Separation Agreement provides that if Platinum
Holdings proposes to issue (a "Dilutive Transaction") any Common Shares or any securities convertible into, exchangeable for or carrying in any way the right to acquire Common Shares ("New
Securities"), St. Paul will have the right to subscribe for up to such number of new securities of Platinum
Holdings as is necessary to maintain St. Paul's beneficial ownership interest in Platinum Holdings at the same percentage owned immediately prior to the Dilutive Transaction. The precise number of New
Securities to be issued to St. Paul will be rounded up to the nearest round lot number. The issuance of Common Shares upon the settlement of the purchase contracts forming part of the equity security
units issued hereby is deemed to be a Dilutive Transaction. St. Paul has the right to register any Common Shares acquired by it pursuant to such pre-emptive rights in accordance with the
provisions of the Registration Rights Agreement described under "Registration Rights Agreement with St. Paul."
St.
Paul will have no preemptive rights with respect to any new securities issued pursuant to any director or employee benefit plans of Platinum Holdings or any acquisition transaction
engaged in by Platinum Holdings. St. Paul's pre-emptive rights to subscribe for new securities will terminate at the time St. Paul beneficially owns less than 10% of Platinum Holdings'
outstanding Common Shares. Furthermore, St. Paul will have no pre-emptive rights with respect to any proposed Dilutive Transaction if
(1) in an underwritten public offering, the underwriters request a reduction of the number of new securities to be issued; (2) a nationally recognized investment bank mutually agreed by
Platinum Holdings and St. Paul advises St. Paul and Platinum Holdings in writing to the effect that exercising St. Paul's pre-emptive rights would materially hinder or interfere with the
proposed Dilutive Transaction. In addition, St. Paul will have no pre-emptive rights in the event of an issuance of Common Shares upon the conversion or exchange of New Securities with respect to the
issuance of which St. Paul had pre-emptive rights. In addition, St. Paul will have no preemptive
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rights to subscribe for New Securities if the ownership thereof would cause St. Paul to be a "United States 25% Shareholder." See "Description of Platinum Holdings' Common
SharesRestrictions on Transfer."
Share Buy-Back Programs. The Formation and Separation Agreement provides that if Platinum
Holdings repurchases its Common Shares (and if applicable, new securities as specified above under "Pre-Emptive Rights") in accordance with a repurchase program approved by
Platinum Holdings' board of directors, then St. Paul must sell to Platinum Holdings, on each day on which any Common Shares are so repurchased at a price equal to the average price of repurchases by
Platinum Holdings on such day, that number of Common Shares which is necessary to limit St. Paul's beneficial ownership interest in Platinum Holdings to no more than 24.9% of the outstanding Common
Shares after all such repurchases. St. Paul may require that any repurchases from it by Platinum Holdings must be at the average purchase price of any repurchases effected by Platinum Holdings on such
day pursuant to Rule 10b-18 under the Exchange Act.
Limit on Recovery from Platinum Officers and Directors. The Formation and Separation Agreement
provides that, in any legal action which may be commenced by St. Paul against Platinum, its officers and/or its directors, St. Paul shall not recover from Platinum's officers or
directors in excess of the amount Platinum is able to indemnify such officers or directors other than in the circumstance where such indemnification is restricted due to such officers and/or directors
having engaged in fraud, intentional misconduct or criminal acts. Platinum's officers and directors are third party beneficiaries of this agreement by St. Paul.
Quota Share Retrocession Agreements
Subject to the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment, St. Paul and its subsidiaries will transfer the
liabilities, related assets and rights and risks under the Assumed Reinsurance Contracts to our insurance company subsidiaries through several 100% Quota Share Retrocession Agreements, except that St.
Paul will retain the liabilities and related premiums with respect to the August 2002 European floods, which included $30 million in losses for the nine months ended September 30,
2002, and the losses, loss reserves, unearned premium reserves and other related reserves with respect to the 2002 underwriting year for certain casualty reinsurance business underwritten in London
and relating primarily to British financial services companies, which we refer to as the "2002 U.K. Bank Book." With respect to named storms in existence at the time of the completion of the Equity
Public Offering which cause insured damage within the ten days subsequent to such time, we will bear losses of up to $25 million in the aggregate, net of recoveries, subject to specified
exceptions, from the retrocessional reinsurance purchased by St. Paul that inures to our benefit. St. Paul will bear losses in respect of such storms that are, in the aggregate and net of recoveries
from such retrocessional reinsurance, in excess of $25 million up to $50 million. We also will bear all losses, in the aggregate and net of recoveries from such retrocessional
reinsurance, in excess of $50 million in respect of such storms. We have purchased third-party retrocessional coverage in an amount up to $100 million for losses in excess of
$50 million, in the aggregate, net of inuring retrocessions, with respect to damage that occurs during the 15-day period beginning at 12:01 a.m. on the day of pricing of the Equity
Public Offering, as a result of named storms in existence at that time but not yet in existence as of October 10, 2002. We will pay $2.5 million of the cost of this coverage, with St.
Paul bearing the remainder of its cost. All the Quota Share Retrocession Agreements will take effect as of 12:01 a.m. on the day immediately following the date of the completion of the Equity
Public Offering.
The
Quota Share Retrocession Agreements will provide for certain insurance subsidiaries of St. Paul to transfer to us cash and other assets in an amount equal to all of the existing loss
reserves (excluding reserves relating to liabilities retained by St. Paul), allocated loss adjustment expense
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reserves, other reserves related to non-traditional reinsurance treaties, unearned premium reserves (subject to agreed upon adjustments) and other related reserves as of the date of the transfer (as
determined 90 days after such date) and 100% of future premiums (less any ceding commission under the Quota Share Retrocession Agreements) associated with the Assumed Reinsurance Contracts relating to
periods after the date of the transfer, in each case exclusive of the August 2002 European floods, the 2002 U.K. Bank Book and the specified named storms as described above. With respect to certain
non-traditional contracts of reinsurance, a portion of the future premium will be applied to settle balances related to prior year experience for the benefit of St. Paul. Also, with respect to
certain other non-traditional contracts of reinsurance, St. Paul will cede losses in excess of profit balances related to prior year experience. We will indemnify St. Paul for any unpaid
losses, loss adjustment expenses and other payment obligations incurred by St. Paul under the Assumed Reinsurance Contracts on or after January 1, 2002 and prior to the time of the transfer. We
will also assume liability for 100% of all future loss, loss adjustment expense and other payment obligations that arise under the Assumed Reinsurance Contracts on and after the date of the transfer.
St. Paul will retain all of its reinsurance exposure not being transferred to us, including any related punitive damages, and will administer the associated run-off. The Quota Share Retrocession
Agreements provide, with limited exceptions, that retrocessional reinsurance purchased by St. Paul
Re in respect of the Assumed Reinsurance Contracts shall inure to our benefit and shall be at our expense.
Our
insurance subsidiaries will maintain in trust assets equal in value to the reserves on such existing and future business to secure their obligations to the St. Paul insurance
subsidiaries that cede business to us under the Quota Share Retrocession Agreements. We would be permitted to terminate the trusts if the reserves transferred by the insurance subsidiaries of
St. Paul do not exceed specified amounts (for example, $100 million in the case of Platinum US's Quota Share Retrocession Agreement with St. Paul Fire and Marine Insurance
Company) as of two successive calendar year ends.
Under the Quota Share Retrocession Agreements, St. Paul retains recorded underwriting gain or loss with respect to the Assumed Reinsurance Contracts for the period from
January 1, 2002 up to the transfer date, which is 12:01 a.m. on the day immediately following the date of completion of the Equity Public Offering. In addition, St. Paul will retain all
liabilities relating to the flooding in Europe in August 2002, which included $30 million in losses for the nine months ended September 30, 2002, and all liabilities with respect
to the 2002 U.K. Bank Book, as well as any liabilities in excess of $25 million up to $50 million, in the aggregate, relating to named storms in existence at the time of the completion
of the Equity Public Offering which cause insured damage within the ten days subsequent to such time. Accordingly, St. Paul retains underwriting losses, if any, with respect to catastrophes
(other than those specified above) arising before the transfer date to the extent reserves are established therefor as of such date (as determined 90 days after such date). Platinum bears all
underwriting loss from catastrophes occurring on or after the transfer date (other than the intermediate $25 million layer of coverage borne by St. Paul with respect to specified named
storms, on the terms described above), and any underwriting loss or gain resulting from reestimation of catastrophe losses established by St. Paul as of the transfer date (as determined 90 days
after such date) (other than with respect to the August 2002 European floods, the 2002 U.K. Bank Book and the intermediate $25 million layer of coverage borne by St. Paul with respect to
specified named storms, on the terms described above). Under the Quota Share Retrocession Agreements, premiums attributable to policy periods prior to the transfer date and future premiums with
respect to flooding in Europe in August 2002 are retained by St. Paul, and premiums attributable to periods on or following the transfer date are for Platinum's benefit. Consistent with St. Paul's
accounting practices, St. Paul and Platinum intend to allocate 2002 premiums attributable to catastrophe coverage before and after the transfer date between themselves on a pro rata basis over the
applicable policy period, without adjustment for seasonality
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that exists for certain catastrophe losses. Certain catastrophic events, such as hurricane and windstorm exposure in North America, tend to occur more frequently in the latter half of the calendar
year. Accordingly, Platinum's premium income attributable to certain catastrophe coverages and earned in the period following the time of effectiveness of the Quota Share Retrocession Agreements may
not, due to seasonality among other factors, sufficiently match Platinum's exposure to losses from certain catastrophic events which may occur in the remaining part of 2002.
Immediately following Platinum UK's receipt of a license from the FSA, Platinum UK and St. Paul Re UK will enter into a quota share retrocession agreement under which we may insure all
or part of a
specified reinsurance business written, after receipt by Platinum UK of a license from the FSA, on St. Paul Re UK paper because Platinum UK has not yet been approved as a reinsurer by the cedent. We
have not yet received this license, and it is possible that we will fail to obtain it.
Underwriting Management Agreements
In the case of business written in the United States and the United Kingdom, for the period of one year following the completion of the Equity Public Offering, we
will have the right to underwrite specified reinsurance business on behalf of St. Paul in cases where we are unable to underwrite that business ourselves because, despite using our reasonable
best efforts, we have not obtained a necessary regulatory license or approval to do so or we have not yet been approved as a reinsurer by the cedent. We will reinsure such business pursuant to the
Quota Share Retrocession Agreements or, following receipt by Platinum UK of a license from the FSA, may reinsure all or a part of such business pursuant to a quota share retrocession agreement to be
entered into between Platinum UK and St. Paul Re UK. This will allow us to participate in reinsurance business which is bound after the completion of the Equity Public Offering without any delay
occasioned by the start-up of our operations, including the lack of required licenses, and facilitate the transition of St. Paul Re's business to us.
For
a period of three years following the completion of the Equity Public Offering, we will underwrite on behalf of St. Paul Re, subject to the consent of St. Paul, renewals of in-force
contracts of finite reinsurance. St. Paul Re will retrocede to us 100% of the unpaid and future losses under currently in-force contracts and we will have the option to reinsure losses under certain
renewed contracts and will be required to offer to reinsure losses under other contracts for a fair market retrocession premium pursuant to the Quota Share Retrocession Agreements. Under the Quota
Share Retrocession Agreements, a portion of future premiums will be applied to settle balances related to prior year experience for the benefit of St. Paul. St. Paul will have an option to
renew this arrangement with us for a subsequent period of two years. In the United Kingdom, this arrangement will be limited to finite treaties which St. Paul Re has entered into with a
small number of identified cedents and any further finite treaties which may be entered into on behalf of St. Paul Re UK prior to the first anniversary of the completion of the Equity
Public Offering.
UK Business Transfer Agreement
St. Paul Reinsurance Company Limited ("St. Paul Re UK") and Platinum UK will enter into a UK Business Transfer Agreement under which Platinum UK will,
subject to the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment and as of the date of completion of the Equity Public Offering, acquire the reinsurance
business of St. Paul Re UK, together with the associated customer lists and goodwill (other than the assumption of liability for, or the management of, existing reinsurance contracts entered
into by St. Paul Re UK). If, at the completion of the Equity Public Offering, Platinum UK has not obtained a license, Platinum UK will carry on this reinsurance business solely as agent
of St. Paul Re UK in accordance with specific provisions included in the Underwriting Management Agreement between St. Paul Re UK and Platinum UK until the first anniversary of the completion
of the Equity Public Offering. During the term of this
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agency, this reinsurance business will be the subject of 100% quota share retrocession agreements to Platinum US. Once Platinum UK is authorized to carry on insurance business in the United Kingdom
in its own right, it will be entitled to write reinsurance business for its own account and benefit in succession to St. Paul Re UK. Platinum UK will not be in a position to write reinsurance
business for its own account and benefit in succession to St. Paul Re UK, unless and until such authorization shall have been obtained.
The
UK Business Transfer Agreement also provides for the transfer of certain St. Paul Re UK employees from St. Paul Re UK to Platinum UK and
provides for the allocation of assets and liabilities and certain other agreements with respect to employee compensation and benefit plans.
Master Services Agreements
Effective as of the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment, we expect to enter into Master Services Agreements
with St. Paul and certain of its subsidiaries for the provision by them of certain services for a transitional period of time. The principal services to be covered by these agreements include
accounting, payroll administration, human resources management and systems support. The services will be provided as long as we deem necessary, but no later than June 30, 2003, although the
provision of particular services may be extended on a case-by-case basis. The services are to be provided at their cost to St. Paul.
Run-off Services Agreements
Effective as of the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment, we will enter into Run-off Services Agreements with
St. Paul and certain of its subsidiaries under which we will, for a period of up to two years following completion of the Equity Public Offering, provide St. Paul with specified services in
administering the run-off of the reinsurance contracts entered into by St. Paul's insurance subsidiaries prior to January 1, 2002 and not reinsured by us and of the Assumed
Reinsurance Contracts. The services are to be provided at their cost to us.
Employee Benefits and Compensation Matters Agreement
Effective upon the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment, Platinum US will enter into an Employee Benefits and
Compensation Matters Agreement with St. Paul that provides for the transfer of our employees from St. Paul and provides
for the allocation of assets and liabilities and certain other agreements with respect to employee compensation and benefit plans. Pursuant to the agreement, all eligible employees of Platinum US will
continue to participate, through December 31, 2002, in certain St. Paul welfare and fringe benefit plans on the same basis as if they had remained St. Paul employees, after which the employees
will participate in employee benefit plans established and maintained by Platinum US. Platinum US will be responsible for the costs of providing this continuation coverage to eligible Platinum US
employees under the welfare and fringe benefit plans in accordance with the terms of a letter agreement to be entered into between St. Paul and Platinum US.
Each
Platinum US employee who participated in the St. Paul 401(k) plan, the St. Paul Stock Ownership Plan or the St. Paul Executive Savings Plan prior to the completion of the Equity
Public Offering will receive employer matching contributions under each plan through the date of completion of the Equity Public Offering, and all matching contributions, as well as performance share
awards under the St. Paul Stock Ownership Plan, will be fully vested as of the completion of the Equity Public Offering. Following the completion of the Equity Public Offering, the Platinum US
defined contribution plan will accept the rollover of eligible rollover distributions from the St. Paul 401(k) plan and the St. Paul Stock Ownership Plan.
For
purposes of the St. Paul stock option plans, transfer of an employee's employment from St. Paul to Platinum US will be deemed to be a termination of employment. All St. Paul
stock options
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held by Platinum US employees that are vested as of the completion of the Equity Public Offering will be exercisable in accordance with their terms and the relevant stock option plan. All stock
options held by Platinum US employees that are unvested as of the completion of the Equity Public Offering will terminate as of the completion of the Equity Public Offering; and each such Platinum US
employee will be entitled to receive, for each unvested stock option that otherwise would have vested during the period from the date of completion of the Equity Public Offering through the second
anniversary of such date, a cash payment from us (to be reimbursed to us by St. Paul) on each date an option otherwise would have vested equal to the number of shares subject to the employee's
options that otherwise would have vested on such vesting date, multiplied by the spread between the exercise price per share and the closing price per share of the common stock of St. Paul on
the date of completion of the Equity Public Offering, provided the employee is still employed by Platinum US as of each such date. All unvested St. Paul restricted stock held by Platinum US employees
that otherwise would have vested during the period from the date of completion of the Equity Public Offering through the first anniversary of such date, will vest immediately prior to the date of
completion of the Equity Public Offering. All other St. Paul restricted stock that is unvested as of the date of completion of the Equity Public Offering will terminate as of such date and be of no
further force and effect.
Each
Platinum US employee who is a participant in the St. Paul tax-qualified defined benefit pension plan or is a participant in the St. Paul retiree health plan as of
the date of completion of the Equity Public Offering and who is (i) within two years of satisfying the minimum retirement eligibility requirements of the pension plan (or the minimum
requirement to receive retiree health or life insurance benefits in the case of the retiree health plan) or (ii) is at least 50 years old and has a minimum of 20 years of credited
service under the plan, will receive additional age and service credit under the corresponding plan for service provided to Platinum US and its affiliates following
the date of completion of the Equity Public Offering as if such service had been with St. Paul in an amount equal to only the amount of additional age and service credit each such employee needs to
meet the minimum retirement eligibility requirements under the pension plan (and the minimum requirement to receive retiree health and life insurance benefits under the retiree health plan). The
Platinum US defined contribution plan will accept the rollover of eligible rollover distributions from the St. Paul defined benefit pension plan, including amounts credited for retiree medical under
the cash balance portion of the St. Paul defined benefit pension plan.
Each
Platinum US employee who, as of the date of completion of the Equity Public Offering, is a participant in the portion of the St. Paul Benefit Equalization Plan (the "BEP") that
provides benefits that otherwise would have been provided under the St. Paul defined benefit plan if not for limitations of the Internal Revenue Code and who is (i) within two years of
satisfying the minimum retirement eligibility requirements of the BEP or (ii) is at least 50 years old and has a minimum of 20 years of credited service under the BEP will receive
additional age and service credit under the BEP for service provided to Platinum US and its affiliates following the date of completion of the Equity Public Offering as if such service had been with
St. Paul in an amount equal to only the amount of additional age and service credit each such employee needs to meet the minimum retirement eligibility requirements under the BEP.
In
addition, St. Paul will reimburse Platinum US for the annual bonus each of the eligible Platinum US employees would have been eligible to receive based on actual St. Paul performance
based on 100% of 2001 bonus targets and prorated for the period from January 1, 2002 through the date of completion of the Equity Public Offering, provided that each such employee is employed
by Platinum US on the date that 2002 annual bonuses are paid. Platinum US will also adopt the St. Paul's Enhanced Severance Program and will keep the program in effect for St. Paul Re employees
transferred to Platinum US for 90 days following the date of completion and St. Paul will remain liable for the expense of each eligible Platinum US employee who is terminated during the
90-day period based on such employee's accrued service and salary through the date of
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completion of the Equity Public Offering. St. Paul has also agreed to continue in effect its Enhanced Severance Program for 90 days following the Equity Public Offering for all St. Paul Re
employees whose employment is not transferred to Platinum US. St. Paul also agrees to honor certain retention obligations entered into with St. Paul Re employees and to recognize for purposes
of the retention obligations, service provided to Platinum US following the date of completion of the Equity Public Offering. St. Paul shall be liable for the cost of certain other retention
obligations for St. Paul employees with respect to the period through the date of completion of the Equity Public Offering and Platinum US shall be liable for the cost of such retention obligations
with respect to the period after the date of completion of the Equity Public Offering.
St. Paul
shall generally retain all liabilities with respect to any employee benefit plan, program, policy or arrangement maintained by St. Paul for the benefit of
St. Paul Re employees (including St. Paul Re employees who become employees of Platinum US), any other liabilities of any nature whatsoever relating to such persons that relate to the
periods on or prior to the completion of the Equity Public Offering or any other liabilities of any nature whatsoever relating to St. Paul Re employees who do not become Platinum US employees
that relate to any period before or after such date.
Transitional Trademark License Agreements
Effective as of the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment, we will enter into several Transitional Trademark
License Agreements with St. Paul (or subsidiaries of St. Paul) under which we will be granted a royalty-free, limited, non-sublicensable (except to our operating subsidiaries),
non-transferable, exclusive license to use certain St. Paul trademarks and service marks in connection with our reinsurance business for one year after completion of the Equity Public
Offering. Under these agreements, St. Paul will retain exclusive ownership of these marks, and we will be permitted to sublicense our operating subsidiaries to use them.
Registration Rights Agreement with St. Paul
Effective as of the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment, Platinum Holdings will enter into a registration
rights agreement with St. Paul. Under this agreement, commencing one year after the completion of the Equity Public Offering (unless we consent to an earlier date, such consent not to be
unreasonably withheld, provided that such earlier date shall not be less than 180 days after completion of the Equity Public Offering unless Goldman, Sachs & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Salomon Smith Barney Inc. consent), St. Paul will have the right to require us, subject to specified exceptions, on four occasions, to register under the 1933 Act any
Common Shares owned by St. Paul or its affiliates for sale in a public offering. From and after the fifth anniversary after the completion of the Equity Public Offering, St. Paul will
have the right to an additional two demand registrations if St. Paul beneficially owns more than 9.9% of the Common Shares then outstanding. We have also agreed to use our reasonable best
efforts to enable St. Paul, from and after the third anniversary of the completion of the Equity Public Offering, to distribute the Common Shares it beneficially owns in an offering on a
continuous or delayed basis pursuant to a registration statement on Form S-3 or F-3 under the 1933 Act, provided that St. Paul gives us written notice specifying
the aggregate number of Common Shares that it intends to attempt to distribute in each fiscal quarter at least ten business days prior to the beginning of such fiscal quarter.
St.
Paul may not require Platinum Holdings to effect more than one demand registration per 12-month period, and St. Paul must include a number of Common Shares in each demand
registration with a market value equal to at least $50 million, except that this limitation will not apply to St. Paul's last demand registration. If we propose to file a registration
statement covering Common Shares at any time, St. Paul will have the right to include Common Shares held by it or its
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affiliates (including shares obtainable pursuant to the St. Paul Option and upon the settlement of the purchase contracts forming part of the equity security units on the share purchase date) in the
registration, in each case on a second-priority basis pro-rata with any other shareholders, with Platinum Holdings including its shares on a first-priority basis.
Sublease Agreements
Effective as of the completion of the Equity Public Offering, the ESU Offering and the St. Paul Investment, we will enter into various sublease agreements or
assignments of lease with St. Paul or one of its subsidiaries under which we will rent office space in New York (until August 31, 2003), Chicago (until August 31, 2005) and Miami
(until November 30, 2006). We also expect to enter into sublease agreements or assignments of lease with St. Paul or one of its subsidiaries under which we will rent office space in
London (until March 28, 2003) and Tokyo (until June 30, 2003). See "BusinessOur BusinessOur Facilities."
St. Paul Option Agreements
Effective as of the completion of the Equity Public Offering, Platinum Holdings will enter into agreements with certain wholly owned subsidiaries of St. Paul
designated by St. Paul with respect to the St. Paul Option, which will give such subsidiaries of St. Paul the right to purchase an aggregate of up to 6,000,000 Common Shares under the
circumstances described below. The exercise price per share under the St. Paul Option is 120% of the initial public offering price per share. The exercise price of the St. Paul Option is
subject to antidilution adjustment, including the following. If we make specified distributions, including cash, in any calendar year to all or substantially all holders of our Common Shares (the
"Current Distribution") in an aggregate amount per Common Share that, when combined with the aggregate amount per Common Share of all other such distributions paid to all or substantially all holders
of our Common Shares within that calendar year, exceeds (1) for calendar year 2003, the Initial Dividend (as defined below) or (2) for any subsequent calendar year, an amount equal to
the Initial Dividend increased at a rate of 10% per annum from January 1, 2003, compounded annually on December 31 of each year commencing in 2003 (such excess of the Current
Distribution being herein referred to as the "Excess Distribution Amount"), the exercise price per share in effect immediately prior to the close of business on the date fixed for such payment shall
be reduced by the Excess Distribution Amount, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for such payment. The "Initial
Dividend" means the distributions described above per Common Share paid by us to all or substantially all holders of our Common Shares during the 2003 calendar year as determined by our Board of
Directors, up to a maximum of $0.44 per Common Share.
The
St. Paul Option is exercisable, in whole or in part, at any time prior to the tenth anniversary of the completion of the Equity Public Offering.
Exercise
of the St. Paul Option by St. Paul in full immediately after completion of the Equity Public Offering would increase its percentage interest in our Common Shares to
approximately 26.1%, assuming no exercise of the underwriters', St. Paul's and RenaissanceRe's options to purchase additional Common Shares in connection with the Equity Public Offering or of
the RenaissanceRe Option. However, St. Paul has agreed with Platinum Holdings that prior to any exercise of the St. Paul Option, it will, if necessary, dispose of a sufficient number of Common
Shares so that,
immediately after exercise of the St. Paul Option, St. Paul will not be a "United States 25% Shareholder." See "Description of Platinum Holdings' Common SharesRestrictions
on Transfer."
Each of the St. Paul Option Agreements provides that the St. Paul Option may be transferred (1) in the event of a merger of St. Paul into another person, or a sale,
transfer or lease of all or substantially all the assets of St. Paul to another person; provided, that such transfer is to the other
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party to such transaction with St. Paul or (2) at any time on or after the second anniversary of the date of completion of the Equity Public Offering to up to three institutional accredited
investors, subject to certain conditions set forth therein.
Transactions in Ordinary Course of Business with St. Paul
At present, St. Paul Re does not provide a meaningful amount of reinsurance to St. Paul. After completion of the Equity Public Offering, the ESU Offering, the St.
Paul Investment and the RenaissanceRe Investment, we expect to compete for business from St. Paul on the same basis as other reinsurance companies, but only to the extent that we are able to conclude
that securing that business would not cause us to be subject to the rules regarding "RPII" under the Code. For a discussion of those rules, see "U.S. Federal Income Tax ConsequencesCommon
Shares" below.
The RenaissanceRe Investment
We, St. Paul and RenaissanceRe have entered into the Investment Agreement, and prior to completion of the Equity Public Offering and the ESU Offering, we,
St. Paul and RenaissanceRe will enter into the other agreements described below with respect to the RenaissanceRe Investment in Platinum and the business arrangements between us and
RenaissanceRe following the completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment. RenaissanceRe is a Bermuda company principally
engaged, through its operating subsidiaries, in the property catastrophe reinsurance business.
Investment Agreement
General. We have entered into an Investment Agreement with St. Paul and RenaissanceRe, which
sets forth the terms of the RenaissanceRe Investment as well as certain continuing relationships between us and RenaissanceRe following the completion of the Equity Public Offering, the ESU
Offering, the St. Paul Investment and the RenaissanceRe Investment. The closing of the RenaissanceRe Investment is conditioned on the completion of the Equity Public Offering, the ESU Offering
and the St. Paul Investment.
Purchase and Sale of Common Shares. Under the Investment Agreement, RenaissanceRe or one of its
wholly owned subsidiaries will purchase from us, at a price per share equal to the initial public offering price less the underwriting discount, 3,960,000 Common Shares (or 9.9% of the Common Shares
outstanding upon completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment, assuming no exercise of the underwriters' option to
purchase additional Common Shares) in a private placement that will close concurrently with the Equity Public Offering, the ESU Offering and the St. Paul Investment. If the underwriters
exercise their option to purchase additional Common Shares in the Equity Public Offering, RenaissanceRe will have the option to purchase, at a price per share equal to the initial public offering
price less the underwriters' discount, as many additional Common Shares as are required in order for it to retain its 9.9% interest (up to a maximum of 594,000 Common Shares).
RenaissanceRe Option. As additional consideration for RenaissanceRe's investment, Platinum Holdings
will issue to RenaissanceRe a ten-year option to purchase up to an additional 2,500,000 Common Shares at a price per share equal to 120% of the initial public offering price. See
"RenaissanceRe Option Agreement" below.
Right to Nominate One Director. The Investment Agreement provides that, for so long as RenaissanceRe
beneficially owns Common Shares representing at least 62.5% of the Common Shares purchased pursuant to the Investment Agreement, one qualified person designated by RenaissanceRe, who is reasonably
acceptable to Platinum Holdings, but not an officer, director or employee of RenaissanceRe or any of its subsidiaries, will be nominated by Platinum Holdings for election as a director of Platinum
Holdings at each shareholder meeting at which directors are elected. We will use our commercially reasonable efforts to cause the election of such nominee to
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our Board of Directors, including by soliciting proxies from our shareholders for such nominee and by voting all management proxies in favor of such nominee, except for those proxies that
specifically indicate to the contrary. We will also use commercially reasonable efforts to cause this director's appointment to the Executive Committee, and subject to applicable law, rules and
regulations, including stock exchange rules, to the Nominating Committee and the Corporate Governance Committee of our Board of Directors, if any. This director will be indemnified to the same extent
under our bye-laws as the other members of our Board of Directors. If at any time RenaissanceRe beneficially owns Common Shares representing less than 62.5% of the Common Shares purchased pursuant to
the Investment Agreement, RenaissanceRe will cause its nominated director to immediately resign as a director. For purposes of the Investment Agreement, RenaissanceRe is not considered to
"beneficially own" Common Shares that it has the right to acquire upon exercise of the RenaissanceRe Option.
The
Investment Agreement also provides that, for so long as RenaissanceRe beneficially owns Common Shares representing at least 62.5% of the Common Shares purchased pursuant to the
Investment Agreement, RenaissanceRe will have the right to designate a representative to attend (but not to vote at) meetings of our Board of Directors and to receive notices, agendas, minutes and all
other materials distributed to participants of such meetings.
In
addition, RenaissanceRe will lose the right to nominate one director or designate a representative to attend (but not to vote at) meetings of our Board of Directors and to receive
materials related to such meetings in the event of any change in control of RenaissanceRe. If a change in control occurs, upon our request, RenaissanceRe will cause its nominated director to
immediately resign from our Board of Directors. A change in control of RenaissanceRe will be deemed to have occurred if (i) any person becomes the beneficial owner of more than 50% of the
outstanding common shares of RenaissanceRe or (ii) there occurs a merger, consolidation or other business combination in which RenaissanceRe is acquired (unless the shareholders of
RenaissanceRe immediately before such business combination own, directly or indirectly, immediately following such business combination, at least a majority of the combined voting power of the entity
resulting from such business combination).
For
three years from the anniversary of the date of the completion of the Equity Public Offering, we will not increase the number of directors on our Board of Directors to more than nine
without the prior written consent of RenaissanceRe, such consent to be provided at RenaissanceRe's sole discretion. This three-year period will be extended for up to an additional two years so long as
RenaissanceRe is accounting for its investment in us via the equity method and RenaissanceRe reasonably believes (and confirms to us upon our reasonable request) that its ability to continue to equity
account for its investment in us would be compromised by an increase in the number of directors.
Indemnification and Waiver. The Investment Agreement provides that Platinum Holdings shall indemnify
(including reimbursement for expenses) to the full extent permitted by law, RenaissanceRe, its subsidiaries and their respective officers, directors, employees and agents, and each person who controls
any of them and the officers, directors, employees and agents of each such controlling person (each a "RenaissanceRe Indemnitee") from and against any and all liabilities arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in the registration statement relating to the Equity Public Offering and the registration statement relating to the ESU
Offering, or arising out of or based upon any omission or alleged omission from such registration statement to state a material fact required to be stated or necessary to make the statements therein
not misleading. If for any reason the foregoing indemnification is unavailable to, or is insufficient to hold harmless a RenaissanceRe Indemnitee, Platinum Holdings shall contribute to the amount paid
or payable by the RenaissanceRe Indemnitee in a proportion to reflect the parties' relative benefits and relative faults.
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Limit on Recovery from Platinum Officers and Directors. The Investment Agreement provides that, in any legal action which may
be commenced by RenaissanceRe against Platinum, its officers and/or its directors, RenaissanceRe shall not recover from Platinum's officers or directors in excess
of the amount Platinum is able to indemnify such officers or directors other than in the circumstance where such indemnification is restricted due to such officers and/or directors having engaged in
fraud, intentional misconduct or criminal acts. Platinum's officers and directors are third party beneficiaries of this agreement by RenaissanceRe.
Competition. We will compete with RenaissanceRe in writing various coverages, and the Investment Agreement does not restrict
either party in competing with the other.
Transfer Restrictions, Registration Rights and Standstill Agreement
Effective as of the completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment, we will enter
into a Transfer Restrictions, Registration Rights and Standstill Agreement (the "Standstill Agreement") with RenaissanceRe.
Transfer Restrictions. The Standstill Agreement provides that, prior to the first anniversary of the
completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment, RenaissanceRe may not transfer any interest in the Common Shares it
purchased pursuant to the Investment Agreement except (i) to any wholly owned subsidiary of RenaissanceRe that enters into a standstill agreement with us containing terms and conditions
equivalent to those in the Standstill Agreement; (ii) pursuant to any tender offer or exchange offer which is recommended by our Board of Directors; or (iii) in a transfer by operation
of law upon consummation of a merger or consolidation of RenaissanceRe into another person. Any such permitted transfer must be made in accordance with all applicable U.S. federal and state securities
laws.
The
Standstill Agreement also provides that, except in connection with any tender or exchange offer made to all holders of Common Shares and certain other situations, RenaissanceRe may
not at any time transfer more than 9.9% of the Common Shares outstanding at the time of such transfer to any person that generated 50% or more of its gross revenues in the most recent fiscal year for
which financial statements are available by writing property or casualty insurance or reinsurance.
Registration Rights. The Standstill Agreement provides that, commencing one year after the completion
of the Equity Public Offering, RenaissanceRe will have the right to require us, subject to specified exceptions, on four occasions, to register under the Securities Act any Common Shares owned by
RenaissanceRe or its subsidiaries for sale in a public offering. From and after the fifth anniversary after the completion of the Equity Public Offering, RenaissanceRe will have the right to an
additional two demand registrations if RenaissanceRe beneficially owns more than 9.9% of the Common Shares then outstanding. We have also agreed to use our reasonable best efforts to enable
RenaissanceRe, from and after the third anniversary of the completion of the Equity Public Offering, to distribute the Common Shares it beneficially owns in an offering on a continuous or delayed
basis pursuant to a registration statement on Form S-3 or F-3 under the 1933 Act, provided that RenaissanceRe gives us written notice specifying the aggregate number of
Common Shares
that it intends to attempt to distribute in each fiscal quarter at least ten business days prior to the beginning of such fiscal quarter.
RenaissanceRe
may not require Platinum Holdings to effect more than one demand registration per 12-month period, and RenaissanceRe must include a number of Common Shares in
each demand registration with a market value equal to at least $50 million, except that this limitation will not apply to RenaissanceRe's last demand registration. If we propose to
file a registration statement covering Common Shares at any time, RenaissanceRe will have the right to include Common Shares held by it or its subsidiaries (including Common Shares obtainable
pursuant to the
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RenaissanceRe Option) in the registration, in each case on a second-priority basis pro rata with any other shareholders, with Platinum Holdings including its Common Shares on a first-priority basis.
Standstill Provisions. The Standstill Agreement provides that RenaissanceRe and its subsidiaries will
not, and RenaissanceRe will use its commercially reasonable efforts to cause its affiliates and any officer, employee, agent or representative of RenaissanceRe or such affiliates (collectively, the
"Representatives") to not, advise or encourage any party or entity with respect to the voting of any of our voting securities in an attempt to cause a change in control of Platinum Holdings, initiate
or otherwise solicit our shareholders for the granting of any proxy or the approval of one or more shareholder proposals or induce any other party or entity to seek any proxy or to initiate any
shareholder proposal that results or is designed to result in a change in control of Platinum Holdings, or directly or indirectly acquire, announce an intention to acquire, or agree to acquire, by
purchase or otherwise, beneficial ownership of any voting securities of Platinum Holdings, if, immediately after any such acquisition, RenaissanceRe or any subsidiary of RenaissanceRe would
beneficially own, in the aggregate, more than 19.9% of the voting securities of Platinum Holdings then outstanding (or up to 24.9% with our approval) provided that there are no limitations on
RenaissanceRe's ability to discuss any matter, including a change in control of Platinum Holdings, with St. Paul or any of its affiliates.
A
change in control of Platinum Holdings is deemed to have occurred if (i) any person or group (as defined for purposes of Section 13 of the Exchange Act) (excluding
Platinum Holdings or any wholly owned subsidiary thereof) becomes the beneficial owner of more than 50% of the outstanding equity securities of Platinum Holdings representing the right to vote for the
election of directors or (ii) there shall occur a merger, consolidation or other business combination in which Platinum Holdings is acquired (unless the shareholders of Platinum Holdings
immediately before such business combination own, directly or indirectly, immediately following such business combination, at least a majority of the combined voting power of the entity resulting from
such business combination).
Share Buy-Back Programs. The Standstill Agreement provides that if Platinum Holdings
repurchases its Common Shares (and if applicable, New Securities as specified below under "Pre-Emptive Rights") in accordance with a repurchase program approved by Platinum
Holdings' Board of Directors, then RenaissanceRe must sell to Platinum Holdings, on each day on which any Common Shares are so repurchased at a price equal to the average price of repurchases by
Platinum
Holdings on such day, that number of Common Shares which is necessary to limit RenaissanceRe's beneficial ownership interest in Platinum Holdings to no more than 19.9% of the outstanding voting
securities of Platinum Holdings (or up to 24.9% with our approval) after all such repurchases. RenaissanceRe may require that any repurchases from it by Platinum Holdings must be at the average
purchase price of any repurchases effected by Platinum Holdings on such day pursuant to Rule 10b-18 under the Exchange Act.
Pre-Emptive Rights. The Standstill Agreement provides that if Platinum Holdings proposes
to issue (a "Dilutive Transaction") any Common Shares or any securities convertible into, exchangeable for or carrying in any way the right to acquire Common Shares ("New Securities"), subject to
specified exclusions, as indicated below, RenaissanceRe will have the right to subscribe for up to such number of New Securities of Platinum Holdings as is necessary to maintain RenaissanceRe's
beneficial ownership interest in Platinum Holdings at the same percentage owned immediately prior to the Dilutive Transaction. The precise number of New Securities to be issued to RenaissanceRe will
be rounded up to the nearest round lot number. The issuance of Common Shares upon the settlement of the purchase contracts forming part of the equity security units issued in the ESU Offering is
deemed to be a Dilutive Transaction. RenaissanceRe has the right to register any Common Shares acquired by it pursuant to such pre-emptive rights in accordance with
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the provisions of the Standstill Agreement described under "Transfer Restrictions, Registration Rights and Standstill AgreementRegistration Rights" above.
RenaissanceRe
will have no pre-emptive rights with respect to any New Securities issued pursuant to any director or employee benefit plans of Platinum Holdings or any
acquisition transaction engaged in by Platinum Holdings. RenaissanceRe's pre-emptive rights to subscribe for New Securities will terminate at the time RenaissanceRe beneficially owns less
than 6.25% of Platinum Holdings' outstanding Common Shares. Furthermore, RenaissanceRe will have no pre-emptive rights with respect to any proposed Dilutive Transaction if (1) in an
underwritten public offering, the underwriters request a reduction of the number of New Securities to be issued; or (2) a nationally recognized investment bank mutually agreed by Platinum
Holdings and RenaissanceRe advises RenaissanceRe and Platinum Holdings in writing to the effect that exercising RenaissanceRe's pre-emptive rights would materially hinder or interfere with
the proposed Dilutive Transaction. In addition, RenaissanceRe will have no pre-emptive rights in the event of an issuance of Common Shares upon the conversion or exchange of New Securities
with respect to the issuance of which RenaissanceRe had pre-emptive rights. In addition, RenaissanceRe will have no pre-emptive rights to subscribe for New Securities if the ownership
thereof would cause RenaissanceRe to beneficially own more than 19.9% of the voting securities of Platinum Holdings then outstanding (or up to 24.9% with our approval).
RenaissanceRe Option Agreement
Effective as of the completion of the Equity Public Offering, Platinum Holdings will enter into an agreement with RenaissanceRe with respect to the RenaissanceRe
Option, which will give RenaissanceRe the right to purchase up to 2,500,000 Common Shares under the circumstances
described below. The exercise price per share under the RenaissanceRe Option is 120% of the initial public offering price per share. The exercise price of the RenaissanceRe Option is subject to
anti-dilution provisions, including the following. If we make specified distributions, including cash, in any calendar year to all or substantially all holders of our Common Shares (the
"Current Distribution") in an aggregate amount per Common Share that, when combined with the aggregate amount per Common Share of all other such distributions paid to all or substantially all holders
of our Common Shares within that calendar year, exceeds (1) for calendar year 2003, the Initial Dividend (as defined below) or (2) for any subsequent calendar year, an amount equal to
the Initial Dividend increased at a rate of 10% per annum from January 1, 2003, compounded annually on December 31 of each year commencing in 2003 (such excess of the Current
Distribution being herein referred to as the "Excess Distribution Amount"), the exercise price per Common Share in effect immediately prior to the close of business on the date fixed for such payment
shall be reduced by the Excess Distribution Amount, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for such payment. The "Initial
Dividend" means the distributions described above paid per Common Share by us to all or substantially all holders of our Common Shares during the 2003 calendar year as determined by our Board of
Directors, up to a maximum of $0.44 per Common Share.
The
RenaissanceRe Option is exercisable, in whole or in part, at any time prior to the tenth anniversary of the completion of the Equity Public Offering.
Exercise
of the RenaissanceRe Option by RenaissanceRe in full immediately after completion of the Equity Public Offering would increase its percentage interest in our Common Shares to
approximately 15%, assuming no exercise of the underwriters', St. Paul's and RenaissanceRe's options to purchase additional Common Shares in connection with the Equity Public Offering.
RenaissanceRe
has agreed with Platinum Holdings that prior to any exercise of the RenaissanceRe Option, it will, if necessary, dispose of a sufficient number of Common Shares so that,
immediately after exercise of the RenaissanceRe Option, RenaissanceRe will not beneficially own more than 19.9% of the voting securities of Platinum Holdings then outstanding (or up to
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24.9% with our approval). See "Description of Platinum Holdings' Common SharesRestrictions on Transfer."
The
RenaissanceRe Option provides that it may be transferred by RenaissanceRe (1) in the event of a merger of RenaissanceRe into another person, or a sale, transfer or lease of
all or substantially all the assets of RenaissanceRe to another person; provided that such transfer is to the other party to such transaction with RenaissanceRe or (2) at any time on or after
the second anniversary of the date of completion of the Equity Public Offering to up to three institutional accredited investors, subject to certain conditions set forth therein.
Business Arrangements
We will enter into the Services and Capacity Reservation Agreement with RenaissanceRe as described below, and we also expect to engage in other transactions with
RenaissanceRe in the ordinary course of business. The terms of any of our transactions with RenaissanceRe may be less favorable to us than the terms that would be available to us from an independent
third party. St. Paul and RenaissanceRe have informed us that they expect to engage in transactions with each other in the ordinary course of business.
Services and Capacity Reservation Agreement. Subject to completion of the Equity Public Offering, the
ESU Offering, the St. Paul Investment and the RenaissanceRe Investment, we will enter into a five-year Services and Capacity Reservation Agreement with RenaissanceRe, effective
October 1, 2002, pursuant to which RenaissanceRe will provide services to us in connection with our property catastrophe book of business.
No
more than twice per year, in October and March, or at such other times as may be agreed to by RenaissanceRe, at our request RenaissanceRe will analyze our property catastrophe
treaties and contracts and will assist us in measuring risk and managing our aggregate catastrophe exposure.
At
our request, and based upon the analysis described above, RenaissanceRe will provide us with quotations for rates for non-marine property catastrophe retrocessional
coverage with aggregate limits up to $100,000,000 annually, either on an excess-of-loss or proportional basis. Such quotations will be in RenaissanceRe's sole discretion, which is expected to reflect,
among other things, an analysis of exposure, limit retention, exclusions and other treaty terms. The annual fee for the coverage commitment and the services described above that we will pay to
RenaissanceRe will be the greater of (i) $4,000,000 and (ii) 3.5% of our aggregate gross written non-marine non-finite property catastrophe premium (including reinstatements), adjusted
annually 30 days after each anniversary and payable in addition to any retrocessional premium otherwise payable to RenaissanceRe for retrocessional coverage purchased by us from RenaissanceRe.
Either party may terminate this agreement if the other party is deemed impaired or insolvent by applicable regulatory or judicial authorities or is the subject of conservation, rehabilitation,
liquidation, bankruptcy or other similar insolvency proceedings.
Possible Referrals. We expect that we and RenaissanceRe may refer business to each other, to be
accepted in the discretion of the party receiving the referral, and that compensation will be paid for referral business at negotiated rates.
Transactions in Ordinary Course of Business with RenaissanceRe. At present, St. Paul Re does not
provide or obtain a meaningful amount of reinsurance to or from RenaissanceRe. After completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe
Investment, we expect that, in addition to the arrangements referred to above, we will compete for business from and engage in other transactions with RenaissanceRe on the same
basis as other reinsurance companies, but only to the extent that we are able to conclude that securing that business would not cause us to be subject to the rules regarding "RPII" under the Code. For
a discussion of those rules, see "U.S. Federal Income Tax ConsequencesCommon SharesRPII Companies" below.
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PLATINUM UNDERWRITERS FINANCE, INC.
Platinum Finance is a Delaware corporation created with the filing of a certificate of incorporation with the Secretary of State of the State of Delaware on
May 10, 2002. The certificate of incorporation is in the form filed as an exhibit to the registration statement of which this prospectus forms a part. As of the date hereof, Platinum Finance
has no indebtedness and no subsidiaries. Immediately after the completion of this offering, Platinum Finance will own all of the outstanding capital stock of Platinum US.
Platinum
Finance was formed in order to:
(a)
issue the senior notes; and
(b)
contribute a portion of the proceeds of the senior notes to Platinum US. It may engage in activities necessary, appropriate, convenient or incidental to these purposes, but may also
engage in other financings and activities.
The
senior notes will initially be pledged and held by the collateral agent to secure the obligations of the holders of units under the related purchase contracts. The senior notes will
be unsecured and guaranteed by Platinum Holdings on a senior, unsecured basis.
The
senior notes will rank equally with all of Platinum Finance's future unsecured senior indebtedness but will be effectively subordinated to any indebtedness or other obligations of
Platinum Finance's subsidiaries. Neither Platinum US nor Platinum UK is currently expected to issue preferred stock but Platinum US is expected to owe Platinum Regency $100 million pursuant to
a surplus note. Other than with respect to interest payments due on the senior notes on or prior to the share purchase date, which will be funded out of proceeds of the offering retained by Platinum
Finance, all distributions on the senior notes will be made available through the receipt of dividends by Platinum Finance from Platinum US.
ACCOUNTING TREATMENT
The net proceeds from the sale of the units will be allocated between the purchase contracts and the senior notes in our consolidated financial statements based
on the underlying fair value of each instrument. The present value of the purchase contract adjustment payments will be initially charged to shareholders' equity, with an offsetting credit to
liabilities. Subsequent contract adjustment payments will be allocated between this liability account and interest expense based on a constant rate calculation over the life of the transaction.
The
purchase contracts are forward transactions in the Common Shares. Upon settlement of a purchase contract, Platinum Holdings will receive $25 pursuant to that purchase contract and
will issue the requisite number of Common Shares. The $25 Platinum Holdings receives will be credited to shareholders' equity and allocated between the Common Shares and additional paid-in
capital accounts.
Before
the issuance of Common Shares upon settlement of the purchase contracts, the purchase contracts will be reflected in our diluted earnings per share calculations using the "if
converted" method, which will assume that the Common Shares were issued and the proceeds received were used to pay down the senior notes.
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DESCRIPTION OF THE EQUITY SECURITY UNITS
We summarize below the principal terms of the equity security units, which are referred to as the "units", and the purchase contracts and
senior notes which comprise the units. The following description is not complete, and we refer you to the agreements which will govern your rights as a holder of units. See "Available
Information."
Overview
Each unit will have a stated amount of $25. Each unit will initially consist of and represent:
-
- you
will agree to purchase, and Platinum Holdings will agree to sell, for $25, Common Shares on the share purchase date, the number of which will be
determined by the settlement rate described below, based on the average trading price of the Common Shares for a period preceding the share purchase date, calculated in the manner described below; and
-
- Platinum
Holdings will pay you contract adjustment payments on a quarterly basis at the annual rate of % of the stated amount of $25, subject
to its right to defer such payments as specified below; and
(2)
a 1/40, or 2.5%, ownership interest in a senior note due , 2007 of Platinum Finance, an indirect, wholly owned subsidiary of Platinum Holdings, with a principal amount
of $1,000, on which Platinum Finance will pay interest at the initial annual rate of % until the settlement date of a successful remarketing of the senior notes and at the reset
rate
(as described below) thereafter. On and prior to the share purchase date, interest will be payable quarterly in arrears and, thereafter, semi-annually in arrears. The senior notes will be
guaranteed by Platinum Holdings on a senior, unsecured basis.
The
ownership interests in senior notes that are a component of your units will be owned by you, but will initially be pledged to the collateral agent for the benefit of Platinum
Holdings to secure your obligations under the related purchase contracts. Each holder of normal units may elect at any time on or before the second business day prior to the share purchase date
(subject to certain exceptions) to withdraw from the pledge the pledged senior notes or, after a successful remarketing or tax event redemption described below, the pledged treasury securities
underlying the normal units by substituting, as pledged securities, specifically identified treasury securities that will pay at maturity an amount equal to the aggregate principal amount of the
senior notes or treasury consideration, as the case may be, for which substitution is being made. Upon such substitution, the pledged senior notes or pledged treasury securities, as the case may be,
will be released from the pledge and delivered to the holder. The normal units would then become "stripped units." Holders of stripped units may recreate normal units by re-substituting
senior notes or, after a successful remarketing or a tax event redemption, the applicable specified treasury securities, for the treasury securities underlying the stripped units.
Platinum
Holdings will enter into:
-
- a
purchase contract agreement with JPMorgan Chase Bank, as purchase contract agent, governing the appointment of the purchase contract agent as the agent and
attorney-in-fact for the holders of the units, the purchase contracts, the transfer, exchange or replacement of certificates representing the units and certain other matters
relating to the units; and
-
- a
pledge agreement with State Street Bank and Trust Company, as collateral agent, custodial agent and securities intermediary, creating a pledge and security
interest for its benefit to secure the obligations of holders of units under the purchase contracts.
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As
a beneficial owner of the units, you will be deemed to have:
-
- irrevocably
agreed to be bound by the terms of the purchase contract agreement, the pledge agreement and your purchase contract for so long as you remain a
beneficial owner of such units; and
-
- appointed
the purchase contract agent under the purchase contract agreement as your agent and attorney-in-fact to enter into and
perform the purchase contract and pledge agreement on your behalf and in your name.
In
addition, as a beneficial owner of the units, you will be deemed by your acceptance of the units to have agreed, for all tax purposes, to treat yourself as the owner of the related
interests in the senior notes or the treasury securities, as the case may be, and to treat your interest in the senior notes as Platinum Finance's indebtedness.
We
will allocate the entire purchase price of each unit to the ownership interest in the related senior note and none to the related purchase contract on our consolidated financial
statements.
Creating Stripped Units and Recreating Normal Units
Holders of normal units will have the ability to "strip" those units and take delivery of the pledged senior notes or, after a successful remarketing or tax event
redemption, the pledged treasury securities, creating "stripped units," and holders of stripped units will have the ability to recreate normal units from their stripped units by depositing senior
notes or, after a successful remarketing or tax event redemption, the applicable treasury securities as described in more detail below. Holders who elect to create stripped units or recreate normal
units will be responsible for any related fees or expenses.
Each holder of normal units may create stripped units and withdraw the pledged senior notes or, after a successful remarketing or tax event redemption, the
pledged treasury securities underlying the normal units by substituting, as pledged securities, the treasury securities described below in a total principal amount at maturity equal to the aggregate
principal amount of the senior notes or treasury securities, as the case may be, for which substitution is being made. Holders of normal units may create stripped units at any time on or before the
second business day prior to the share purchase date, except that they may not create stripped units during the period from four business days prior to the first day of any remarketing period until
the expiration of three business days after the end of that period.
Because
treasury securities are issued in integral multiples of $1,000, holders of normal units may make the substitution only in integral multiples of 40 normal units. However, after a
successful remarketing of the senior notes or the occurrence of a tax event redemption, the holders may make the substitution only in integral multiples of normal units such that both the treasury
securities to be deposited and the treasury securities to be released are in integral multiples of $1,000. In order to create 40 stripped units, a normal unit holder must substitute, as pledged
securities, zero-coupon U.S. treasury securities (CUSIP No. ) which mature on , 2005 and will pay $1,000 at maturity. Upon creation of the stripped units,
the
treasury securities will be pledged with the collateral agent to secure your obligation to purchase the Common Shares under your purchase contract, and the pledged senior notes or, after a successful
remarketing or tax event redemption, the pledged treasury securities underlying the normal units will be released to the unit holder.
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To
create stripped units, you must:
-
- deposit
with the collateral agent the treasury securities described above, which will be substituted for the pledged senior notes or, after a successful
remarketing or tax event redemption, the pledged treasury securities underlying your normal units and pledged to the collateral agent to secure your obligation to purchase the Common Shares under your
purchase contract;
-
- transfer
the normal units to the purchase contract agent; and
-
- deliver
a notice to the purchase contract agent stating that you have deposited the specified treasury securities with the collateral agent and are
requesting that the purchase contract agent instruct the collateral agent to release to you the pledged senior notes or, after a successful remarketing or tax event redemption, the pledged treasury
securities underlying the normal units.
Upon
the deposit and the receipt of an instruction from the purchase contract agent, the collateral agent will effect the release to the purchase contract agent of the underlying pledged
senior notes or, after a successful remarketing or tax event redemption, the pledged treasury securities from the pledge under the pledge agreement free and clear of Platinum Holdings' security
interest. The purchase contract agent will:
-
- cancel
the related normal units;
-
- transfer
to you the underlying pledged senior notes or, after a successful remarketing or tax event redemption, the pledged treasury securities; and
-
- deliver
to you the stripped units.
Any
senior notes or treasury securities, as the case may be, released to you will be tradable separately from the resulting stripped units. Interest on the senior notes will continue to
be payable in accordance with their terms.
If
the pledged senior notes are prepaid in full prior to the share purchase date as described in "Prepayment of Pledged Notes," you will not be able to strip your normal
units.
Each holder of stripped units may recreate normal units by substituting, as pledged securities, senior notes or, after a successful remarketing or tax event
redemption, the applicable treasury securities then constituting a part of the normal units for the treasury securities underlying the stripped units. Holders may recreate normal units at any time on
or before the second business day prior to the share purchase date, except that they may not recreate normal units during the period from four business days prior to the first day of any remarketing
period until the expiration of three business days after the end of that period.
Upon
recreation of normal units, the senior notes or, after a successful remarketing or tax event redemption, the applicable treasury securities will be pledged with the collateral agent
to secure the holder's obligation to purchase Common Shares under the purchase contract, and the treasury securities underlying the stripped units will be released to the unit holder. Because treasury
securities are issued in integral multiples of $1,000, holders of stripped units may make the
substitution only in integral multiples of 40 stripped units. If, however, treasury securities have replaced the senior notes as a component of the normal units as the result of a successful
remarketing of the senior notes or a tax event redemption, holders of the stripped units may make this substitution at any time on or prior to the second business day immediately preceding the share
purchase date, but using the applicable treasury securities instead of senior notes and only in
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integral multiples of stripped units such that both the treasury securities to be deposited and the treasury securities to be released are in integral multiples of $1,000.
To
recreate normal units from stripped units, you must:
-
- deposit
with the collateral agent:
-
- if
the substitution occurs prior to a successful remarketing of the senior notes or the occurrence of a tax event redemption, senior notes having an
aggregate principal amount equal to the aggregate stated amount of your stripped units; or
-
- if
the substitution occurs after a successful remarketing of the senior notes or the occurrence of a tax event redemption, the applicable treasury securities
then constituting a part of the normal units;
-
- transfer
the stripped units to the purchase contract agent; and
-
- deliver
a notice to the purchase contract agent stating that you have deposited the senior notes or, after a successful remarketing or tax event redemption,
the applicable treasury securities with the collateral agent and are requesting that the purchase contract agent instruct the collateral agent to release to you the pledged treasury securities
underlying those stripped units.
The
senior notes or, after a successful remarketing or tax event redemption, the applicable treasury securities will be substituted for the pledged treasury securities underlying your
stripped units and will be pledged with the collateral agent to secure your obligation to purchase Common Shares under your purchase contract.
Upon
the deposit and receipt of an instruction from the purchase contract agent, the collateral agent will effect the release to the purchase contract agent of the underlying pledged
treasury
securities from the pledge under the pledge agreement free and clear of Platinum Holdings' security interest. The purchase contract agent will:
-
- cancel
the related stripped units;
-
- transfer
to you the underlying treasury securities; and
-
- deliver
to you the normal units.
Current Payments
If you hold normal units, you will receive payments consisting of:
-
- quarterly
contract adjustment payments on the purchase contracts payable by Platinum Holdings at the annual rate of % of the $25 stated
amount through and including the share purchase date;
-
- quarterly
interest payments on the senior notes pledged in respect of your normal units at the annual rate of % of the principal amount until
a successful remarketing of the senior notes; and
-
- if
your senior notes are successfully remarketed, a cash payment on the share purchase date in respect of each of your normal units equal to 1/40, or 2.5%,
of a quarterly interest payment payable on the $1,000 principal amount of a senior note at the initial annual rate of %.
If
you hold stripped units and do not separately hold senior notes, or if you hold normal units but the pledged senior notes have been prepaid in full as described under
"Prepayment of Pledged Notes," you will receive only quarterly contract adjustment payments on the purchase
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contracts payable by Platinum Holdings at the annual rate of % of the $25 stated amount through and including the share purchase date. However, you will be required for U.S. federal
income tax purposes to recognize original issue discount on the pledged treasury securities on a constant yield basis or acquisition discount on the treasury securities when it is paid or accrues
generally in accordance with your regular method of tax accounting.
The
contract adjustment payments are subject to deferral by Platinum Holdings until no later than the share purchase date as described below. If Platinum Holdings defers any of these
payments, Platinum Holdings will accrue additional payments on the deferred amounts at the annual rate of % until paid. Platinum Finance is not entitled to defer interest payments
on
the senior notes.
Both
Platinum Holdings and Platinum Finance are holding companies with no operations of their own. Platinum Holdings' ability to pay its obligations under the purchase contracts and the
guarantee is dependent upon its ability to obtain cash dividends or obtain loans from its subsidiaries. Similarly, Platinum Finance's ability to pay its obligations under the senior notes is dependent
upon its ability to obtain cash dividends or obtain loans from its subsidiaries. Platinum Holdings' and Platinum Finance's operating subsidiaries are separate and distinct legal entities and will have
no obligation, contingent or otherwise, to pay any dividends or make any other distributions (except for payments required pursuant to the terms of intercompany indebtedness) to Platinum Holdings or
Platinum Finance. Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the abilities of Platinum Holdings' and Platinum Finance's
subsidiaries to transfer funds to Platinum Holdings and Platinum Finance in the form of cash dividends, loans or advances. See "BusinessOur BusinessRegulation."
In
addition, because Platinum Holdings and Platinum Finance are holding companies, except to the extent that Platinum Holdings or Platinum Finance has priority or equal claims against
its subsidiaries as a creditor, Platinum Finance's obligations under the senior notes and Platinum Holdings obligations under the guarantee and the purchase contracts will be effectively subordinated
to the debt and other obligations of their respective subsidiaries because, as the shareholders of their subsidiaries, they will be subject to the prior claims of creditors of their subsidiaries. As
of June 30, 2002, on a pro forma basis, Platinum Finance's subsidiaries had no liabilities or obligations that would have effectively ranked senior to the senior notes and Platinum Holdings'
subsidiaries had approximately $270 million in liabilities and obligations that would have effectively ranked senior to the guarantees.
If
you hold senior notes separately from the units and do not separately hold stripped units, you will receive only the interest payable on the senior notes. The senior notes, whether
held separately from or as part of the units, will pay interest at the initial annual rate of % of the principal amount of $1,000 per senior note until the settlement date of a
successful remarketing. If there is a successful remarketing of the senior notes, the rate of interest payable from the settlement date of the successful remarketing until their maturity on
, 2007 will be the reset rate, which will be a rate established by the remarketing agent that meets the requirements described under "Remarketing." However, if a reset rate
meeting the requirements described in this prospectus cannot be established on a remarketing date, the interest rate will not be reset on such date and will continue to be the initial annual rate of
%, until a reset rate meeting the requirements described in this prospectus can be established on a later date no later than the third business day prior to the share purchase date. If
no remarketing occurs prior to the share purchase date, the initial rate will continue to be the rate at which the senior notes accrue interest until maturity of the senior notes.
Contract
adjustment payments and interest payments on the senior notes payable for any period will be computed (1) for any full quarterly period on the basis of a
360-day year of twelve
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30-day months and (2) for any period shorter than a full quarterly period, on the basis of a 30-day month and, for periods of less than a month, on the basis of the
actual number of days elapsed per 30-day month. Contract adjustment payments and interest on the senior notes will accrue from the date of original issuance and will be payable quarterly
in arrears on , ,
and
of each year, commencing on ,
2003; provided, however, that following the share purchase date,
interest on the senior notes shall be payable semi-annually in arrears
on and
of each year. Contract adjustment payments shall cease accruing on the share
purchase date. However, if the purchase contracts are settled early, at your option, or terminated (upon the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to
Platinum Holdings), the right to receive contract adjustment payments and deferred contract adjustment payments will also terminate.
Platinum
Finance's obligations with respect to the senior notes will be unsecured and will rank equally with all of its other unsecured and unsubordinated debt. See "Description of the
Senior Notes" below. Platinum Holdings' guarantee of Platinum Finance's obligations with respect to the senior notes will be unsecured and will rank equally in right of payment to all other senior
unsecured debt of Platinum Holdings. Platinum Holdings' obligations with respect to contract adjustment payments will be subordinate and junior in right of payment to its obligations under its senior
debt.
Contract
adjustment payments and interest payments on the senior notes will be payable to the holders of units as they are registered on the books and records of the purchase contract
agent on the relevant record dates. So long as the units remain in book-entry only form, the record date will be the business day prior to the relevant payment dates. Contract adjustment
payments will be paid through the purchase contract agent, which will hold amounts received in respect of the contract adjustment payments for the benefit of the holders of the purchase contracts that
are a part of such units. Subject to any applicable laws and regulations, each interest payment on the senior notes will be made as described under "Global Clearance and Settlement" below. If the
units do not remain in book-entry only form, the relevant record dates will be the 15th calendar day prior to the relevant payment dates. If any date on which these payments and
distributions are to be made is not a business day, then amounts payable on that date will be made on the next day that is a business day (and so long as the payment is made on the next business day,
without any interest or other payment on account of any such delay). However, if such business day is in the next calendar year, payment will be made on the prior business day, in each case with the
same force and effect as if made on the payment date.
Option to Defer Contract Adjustment Payments
Platinum Holdings may, at its option and upon prior written notice to the holders of the units and the purchase contract agent, defer payment of all or part of
the contract adjustment payments on the related purchase contracts forming a part of normal units and stripped units until no later than the share purchase date. However, deferred contract adjustment
payments will accrue additional contract adjustment payments at the rate of % per year (compounding on each succeeding payment date) until paid. If you elect to settle your purchase
contracts early, or the purchase
contracts are terminated upon the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to Platinum Holdings, your right to receive contract adjustment payments and
deferred contract adjustment payments will also terminate.
In
the event that Platinum Holdings elects to defer the payment of contract adjustment payments on the purchase contracts until the share purchase date, each holder of normal units and
stripped units will receive on the share purchase date in respect of the deferred contract adjustment payments, in lieu of a cash payment, a number of Common Shares equal to (a) the aggregate
amount of deferred contract adjustment payments payable to the holder divided by (b) the
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applicable market value of the Common Shares (as defined below under "Description of the Purchase Contracts").
Platinum
Holdings will not issue any fractional Common Shares with respect to the payment of deferred contract adjustment payments on the share purchase date. In lieu of fractional
shares otherwise issuable with respect to such payment of deferred contract adjustment payments, the holder will be entitled to receive an amount in cash equal to the fraction of a Common Share,
calculated on an aggregate basis with respect to all such payments you are entitled to receive, multiplied by the applicable market value of the Common Shares.
In
the event Platinum Holdings exercises its option to defer the payment of contract adjustment payments, then until the deferred contract adjustment payments have been paid, it will not
declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of Platinum Holdings' capital stock other than:
-
- purchases,
redemptions or acquisitions of shares of its capital stock in connection with any employment contract, benefit plan or other similar arrangement
with or for the benefit of employees, officers, directors or agents or a share purchase or dividend reinvestment plan, or the satisfaction by Platinum Holdings of its obligations pursuant to any
contract or security outstanding on the date of such event;
-
- as
a result of a reclassification of capital stock or the exchange or conversion of one class or series of its capital stock for another class or series of
its capital stock;
-
- the
purchase of fractional interests in shares of its capital stock pursuant to the conversion or exchange provisions of the capital stock or the security
being converted or exchanged;
-
- dividends
or distributions in its capital stock (or rights to acquire its capital stock), or repurchases, redemptions or acquisitions of its capital stock in
connection with the issuance or exchange of its capital stock (or securities convertible into or exchangeable for shares of its capital stock); or
-
- redemptions,
exchanges or repurchases of any rights outstanding under a shareholder rights plan or the declaration or payment thereunder of a dividend or
distribution of or with respect to rights in the future.
Platinum
Holdings' subsidiaries will not be restricted from making any similar payments on their capital stock if Platinum Holdings exercises its option to defer payments of any contract
adjustment payments.
Description of the Purchase Contracts
Each purchase contract underlying a unit, unless earlier terminated, or earlier settled at your option or upon specified mergers and other transactions described
below, will obligate you to purchase, and Platinum Holdings to sell, for $25, on the share purchase date a number of newly issued Common Shares equal to the settlement rate.
The
settlement rate, subject to adjustment under certain circumstances as described under "Anti-dilution Adjustments" below, will be as follows:
-
- If
the "applicable market value" of the Common Shares (which is the average of the closing price per Common Share on each of the 20 consecutive trading days
ending on the third trading day immediately preceding the share purchase date) is equal to or greater than the threshold appreciation price of $ (which is %
above
$ , which is the initial public offering price of the Common Shares) then the settlement rate (which is equal to $25 divided by
$ ) will be Common Shares
per purchase contract.
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Accordingly,
if the market price for the Common Shares increases to an amount that is greater than $ on the settlement date, the aggregate
market value of the Common Shares issued upon
settlement of each purchase contract, assuming that this market value is the same as the applicable market value of the Common Shares, will be greater than $25, and if the market price equals
$ the aggregate market value of those shares, assuming that this market value is the same as the applicable market value of the
Common Shares, will equal $25.
-
- If
the applicable market value of the Common Shares is less than $ but greater than
$ , the settlement rate will be equal to $25
divided by the applicable market value of Common Shares per
purchase contract. Accordingly, if the market price for the Common Shares increases but that market price is less than $ on the
settlement date, the aggregate market value of the Common
Shares issued upon settlement of each purchase contract, assuming that this market value is the same as the applicable market value of the Common Shares, will equal $25.
-
- If
the applicable market value of the Common Shares is less than or equal to $ , the settlement rate (which is equal to $25 divided by
$ ) will be Common Shares per purchase contract. Accordingly,
if the market price for the Common Shares decreases to an amount that is less than $ on the
settlement date, the aggregate market value of the Common Shares issued upon settlement of each purchase contract, assuming that this market value is the same as the applicable market value of the
Common Shares, will be less than $25, and if the market price equals $ , the aggregate market value of those shares, assuming that
this market value is the same as the applicable market
value of the Common Shares, will equal $25.
For
purposes of determining the applicable market value for the Common Shares, the closing price of the Common Shares on any date of determination means the closing sale price or, if no
closing sale price is reported, the last reported sale price of the Common Shares on the New York Stock Exchange on that date. If the Common Shares are not listed for trading on the New York Stock
Exchange on any date, the closing price of the Common Shares on any date of determination means the closing sale price as reported in the composite transactions for the principal U.S. securities
exchange on which the Common Shares are listed, or if the Common Shares are not so listed on a U.S. securities exchange, as reported by the Nasdaq stock market, or, if the Common Shares are not so
reported, the last quoted bid price for the Common Shares in the over-the-counter market as reported by the National Quotation Bureau or similar organization or, if that bid
price is not available, the market value of the Common Shares on that date as determined by a nationally recognized independent investment banking firm retained by Platinum Holdings for this purpose.
A
trading day is a day on which the Common Shares (1) are not suspended from trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (2) have traded at least once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the Common Shares by the close of business on such day.
Settlement
Settlement of the purchase contracts will occur on the share purchase date, unless:
-
- you
have settled the related purchase contract prior to the share purchase date through the delivery of cash to the purchase contract agent in the manner
described in "Early Settlement";
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-
- Platinum
Holdings is involved in a merger, acquisition or consolidation prior to the share purchase date in which at least 30% of the consideration for the
Common Shares consists of cash or cash equivalents, and you have settled the related purchase contract through an early settlement as described in "Early Settlement Upon Cash Merger"; or
-
- an
event described under "Termination of Purchase Contracts" below has occurred.
The
settlement of the purchase contracts on the share purchase date will occur as follows:
-
- for
the stripped units or normal units that include pledged treasury securities, the cash payments on the treasury securities will automatically be applied
to satisfy in full your obligation to purchase the Common Shares under the purchase contracts; and
-
- for
the normal units in which the related senior notes remain a part of the normal units because of a failed remarketing, Platinum Holdings will exercise its
rights as a secured party to dispose of the senior notes in accordance with applicable law in order to satisfy in full your obligation to purchase Common Shares under the purchase contracts.
In
either event, the Common Shares will then be issued and delivered to you or your designee, upon payment of the applicable consideration, presentation and surrender of the certificate
evidencing the units, if the units are held in certificated form, and payment by you of any transfer or similar taxes payable in connection with the issuance of the Common Shares to any person other
than you.
Prior
to the date on which the Common Shares are issued in settlement of the purchase contracts, the Common Shares underlying the related purchase contracts will not be deemed to be
outstanding for any purpose and you will have no rights with respect to the Common Shares, including voting rights, rights to respond to tender offers and rights to receive any dividends or other
distributions on the Common Shares, by virtue of holding the purchase contracts.
No
fractional Common Shares will be issued by Platinum Holdings pursuant to the purchase contracts. In lieu of fractional shares otherwise issuable, you will be entitled to receive an
amount in cash equal to the fraction of a Common Share, calculated on an aggregate basis in respect of the purchase contracts you are settling, multiplied by the applicable market value.
Remarketing
The senior notes held by each holder of normal units will be remarketed in a remarketing, unless the holder elects not to participate in the remarketing. In the
event of a successful remarketing, the proceeds of such remarketing will be used to purchase treasury securities, which will be pledged to secure the obligations of such participating holder of normal
units under the related purchase contract. Cash payments received upon maturity of the pledged treasury securities underlying the normal units of such holder will be used (1) to satisfy such
holder's obligation to purchase Common Shares on the share purchase date and (2) to make a cash payment to such holder on the share purchase date of an amount per normal unit equal to 1/40, or
2.5%, of a quarterly interest payment payable on the $1,000 principal amount of a senior note at the initial annual rate of %.
Unless
a holder of normal units delivers treasury securities in the amount and the types specified by the remarketing agent, as described below, the senior notes that are included in the
normal units will be remarketed on the remarketing date, or, if the remarketing agent fails to remarket the senior notes on such date, a later date as described below. The remarketing date will be the
third business day preceding , 2005, the last quarterly payment date before the share purchase date.
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Platinum
Holdings and Platinum Finance will enter into a remarketing agreement with a nationally recognized investment banking firm, pursuant to which that firm will agree, as
remarketing agent, to use commercially reasonable best efforts to remarket the senior notes that are included in normal units (or separately held senior notes) that are participating in the
remarketing, at a price per senior note equal to at least 100.25% of the remarketing value. It is currently anticipated that Goldman, Sachs & Co. will be the remarketing agent.
Prior
to any remarketing, Platinum Finance and Platinum Holdings plan to file and obtain effectiveness of a registration statement with respect to the remarketing if so required under
the U.S. federal securities laws at the time.
The
"remarketing value" of a senior note will be equal to the sum of:
- (1)
- the
value at the remarketing date (or any subsequent remarketing date described below) of such amount of treasury securities that will pay, on or prior to the share purchase date, an
amount of cash equal to the interest payment scheduled to be payable on the senior note on that date, assuming for this purpose, even if not true, that the interest rate on the senior notes remains at
the initial rate; and
- (2)
- the
value at the remarketing date (or any subsequent remarketing date) of such amount of treasury securities that will pay, on or prior to the share purchase date, an amount of cash
equal to the principal amount of the senior note.
For
purposes of (1) and (2) above, the value on the remarketing date (or any subsequent remarketing date) of the treasury securities will assume that (a) the
treasury securities are highly liquid treasury securities maturing on or within 35 days prior to the share purchase date (as determined in good faith by the remarketing agent in a manner
intended to minimize the cash value of the treasury securities) and (b) those treasury securities are valued based on the ask-side price of the treasury securities at a time between
9:00 a.m. and 11:00 a.m., New York City time, selected by the remarketing agent, on the remarketing date (or any subsequent remarketing date). as determined on a third-day
settlement basis by a reasonable and customary means selected in good faith by the remarketing agent, plus accrued interest to that date.
The
remarketing agent will use the proceeds from the successful remarketing of the senior notes included in normal units to purchase, in its discretion, the amount and the types of
treasury securities described in (1) and (2) above in respect of each such senior note that has been remarketed. The remarketing agent will purchase such treasury securities in open
market transactions or at treasury auction and deliver them through the purchase contract agent to the collateral agent to secure the obligations under the related purchase contracts of the holders of
the normal units whose senior notes participated in the remarketing. The remarketing agent will deduct as a remarketing fee, after allowing for the aggregate purchase price of such treasury
securities, an amount not exceeding 25 basis points (0.25%) of the total proceeds from such remarketing. The remarketing agent will remit the remaining portion of the proceeds, if any, for payment to
the holders of the normal units participating in the remarketing.
Alternatively,
a holder of normal units may elect not to participate in the remarketing and, instead, retain the senior notes underlying those normal units by delivering, in respect of
each senior note to be retained, the treasury securities described in (1) and (2) above, in the amount and the types specified by the remarketing agent, to the purchase contract agent on
or prior to the fourth business day prior to the first day of a remarketing period and such treasury securities will be pledged to secure the obligations of such non-participating holder
under the related purchase contracts. Cash payments received upon maturity of such pledged treasury securities will be used (1) to satisfy such holders obligation to purchase common shares
pursuant to such holder's purchase contracts and (2) to make a payment to such holder on the share purchase date of an amount per unit equal to a quarterly interest payment on a
1/40 ownership interest of a senior note
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at the initial annual rate of %. If a holder of senior notes does not participate in the remarketing, the interest rate on such senior notes will nevertheless be reset if the
remarketing is successful.
The
purchase contract agent will give holders notice of the remarketing, including the specific treasury securities (including the CUSIP numbers and/or the principal terms thereof) that
must be
delivered by holders that elect not to participate in the remarketing, on the seventh business day prior to the first day of a remarketing period. A holder electing not to participate in the
remarketing must notify the purchase contract agent of such election and deliver such specified treasury securities to the purchase contract agent not later than 10:00 a.m., New York City time,
on the fourth business day prior to the first day of a remarketing period. A holder that notifies the purchase contract agent of such election but does not so deliver the treasury securities and a
holder that does not notify the purchase contract agent of its intention to make a cash settlement will be deemed to have elected to participate in the remarketing.
In
order to facilitate the remarketing of the senior notes at the remarketing value described above, the remarketing agent will reset the rate of interest on the senior notes, effective
from the settlement date of a successful remarketing until their maturity on , 2007. The reset rate will be the rate sufficient to cause the then current market value of each senior note
to be equal to at least 100.25% of the remarketing value. If the remarketing agent cannot establish a reset rate meeting such requirements on the remarketing date and therefore cannot remarket the
senior notes participating in the remarketing on the remarketing date at a price per senior note equal to at least 100.25% of the remarketing value, the remarketing agent will attempt to establish a
reset rate meeting these requirements on each of the two immediately following business days. If the remarketing agent cannot establish a reset rate meeting these requirements on either of those days,
it will attempt to establish such a reset rate on each of the three business days immediately
preceding , 2005. If the remarketing agent cannot establish such a reset rate during that
period, it will further attempt to establish such a reset rate on the third business day immediately preceding the share purchase date. We refer to each of these periods as "remarketing periods" in
this prospectus. Any such remarketing will be at a price per senior note equal to at least 100.25% of the remarketing value on the subsequent remarketing date. If the remarketing agent fails to
remarket the senior notes at that price by the end of the third business day immediately preceding the share purchase date, any holder of normal units that has not otherwise settled its purchase
contracts in cash by the business day immediately preceding the share purchase date (but without regard to the notice requirements described below under "Notice to Settle with Cash") will
be deemed to have directed Platinum Holdings to retain the securities pledged as collateral in satisfaction of such holder's obligations under the related purchase contract, and Platinum Holdings will
exercise its rights as a secured party with respect to such securities and may, subject to applicable law, retain the securities or sell them in one or more public or private sales to satisfy in full
such holder's obligation to purchase the Common Shares under the related purchase contracts on the share purchase date.
Unless
the purchase contracts have been settled early, the obligation of a holder of purchase contracts to pay the purchase price for the Common Shares under the underlying purchase
contracts on the share purchase date is a non-recourse obligation payable solely out of the proceeds of the senior notes or treasury securities pledged as collateral to secure the purchase
obligation. A holder of a stripped unit who receives any payments of principal on account of any pledged treasury securities will be obligated to deliver such payments to Platinum Holdings for
application to its obligation under the related purchase contracts. In no event will a holder of a purchase contract be liable for any deficiency between such proceeds and the purchase price for the
Common Shares under the purchase contract.
We
will cause a notice of any failed remarketing period to be published on the fourth business day immediately following such period, by publication in a daily newspaper in the English
language
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of general circulation in New York City, which is expected to be The Wall Street Journal. We will also release this information by means of Bloomberg and Reuters (or successor or equivalent)
newswire. In addition, Platinum Holdings will request, not later than seven nor more than 15 calendar days prior to the remarketing period, that the depositary (initially The Depository Trust Company)
notify its participants holding senior notes, normal units and stripped units of the remarketing period.
Optional Remarketing
On or prior to the fourth business day immediately preceding the first day of a remarketing period, but no earlier than the payment date immediately preceding
, 2005, holders of senior notes that are not included as part of normal units may elect to
have their senior notes included in the remarketing by delivering their senior notes along
with a notice of this election to the custodial agent. The custodial agent will hold these senior notes in an account separate from the collateral account in which the securities pledged to secure the
holders' obligations under the purchase contracts will be held. Holders of senior notes electing to have their senior notes remarketed will also have the right to withdraw that election on or prior to
the fourth business day immediately preceding the first day of the relevant remarketing period.
On
the business day immediately preceding the first day of a remarketing period, the custodial agent will deliver these separate senior notes to the remarketing agent for remarketing.
The remarketing agent will use commercially reasonable best efforts to remarket the separately held senior notes included in the remarketing on the remarketing date at a price per senior note equal to
at least 100.25% of the remarketing value. After deducting as a remarketing fee an amount not exceeding 25 basis points (0.25%) of the total proceeds from such remarketing, the remarketing agent will
remit to the collateral agent the remaining portion of the proceeds, if any, for payment to such participating holders.
If,
as described above, the remarketing agent cannot remarket the senior notes during a remarketing period, the remarketing agent will promptly return the senior notes to the custodial
agent to release to the holders following the conclusion of that period.
Early Settlement
At any time not later than 10:00 a.m., New York City time, on the seventh business day prior to , 2005, a
holder of units may settle the
related purchase contracts by delivering to the purchase contract agent immediately available funds in an amount equal to $25 multiplied by the number of purchase contracts being settled provided
that, at such time, if so required under the U.S. federal securities laws, there is in effect a registration statement covering the Common Shares to be
delivered in respect of the purchase contracts being settled. If such registration is required, Platinum Holdings will use its commercially reasonable efforts to file and obtain effectiveness of such
registration statement. Holders may settle the related purchase contracts early only in integral multiples of 40.
No
later than the third business day after an early settlement, Platinum Holdings will issue and deliver, and the holder will be entitled to receive, Common Shares for
each unit early settled, regardless of the market price of the Common Shares on the date of early settlement, subject to adjustment under the circumstances described under
"Anti-dilution Adjustments" below. At that time, the holder's right to receive future contract adjustment payments and any deferred contract adjustment payments will
terminate. The holder will also receive ownership interests in the senior notes or treasury securities underlying those units.
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Notice to Settle with Cash
Unless treasury securities have replaced the ownership interests in the senior notes as a component of normal units as a result of a successful remarketing of the
ownership interests in the senior notes, a tax event redemption has occurred or the purchase contract has been settled early or otherwise terminated, a holder of normal units may settle the related
purchase contract with separate cash prior to 11:00 a.m., New York City time, on the business day immediately preceding the share purchase date. A holder of a normal unit wishing to settle the
related purchase contract with separate cash must notify the purchase contract agent by presenting and surrendering the normal unit certificate evidencing the normal unit at the offices of the
purchase contract agent with the form of "Notice to Settle by Separate Cash" on the reverse side of the certificate completed and executed as indicated on or prior to 5:00 p.m., New York City
time, on the seventh business day immediately preceding the share purchase date. If a holder who has given notice of its intention to settle the related purchase contract with separate cash fails to
deliver the cash to the collateral agent prior to 11:00 a.m., New York City time, on the business day immediately preceding the share purchase date, such holder will be deemed to have directed
us to retain the related senior note in full satisfaction of the holder's obligation to purchase Common Shares under the related purchase contract.
Early Settlement Upon Cash Merger
Prior to the share purchase date, if Platinum Holdings is involved in a merger, acquisition or consolidation in which at least 30% of the consideration for its
Common Shares consists of cash or cash equivalents ("cash merger"), then on or after the date of the cash merger each holder of the units will have the right to accelerate and settle the related
purchase contract at the settlement rate in effect immediately before the cash merger. This right is referred to as the "merger early settlement right." Platinum Holdings will provide each of the
holders with a notice of the completion
of a cash merger within five business days thereof. The notice will specify a date, which shall be not less than 20 nor more than 30 calendar days after the date of the notice, on which the merger
early settlement will occur and a date by which each holder's merger early settlement right must be exercised. The notice will set forth, among other things, the applicable settlement rate and the
amount of the cash, securities and other consideration receivable by the holder upon settlement. To exercise the merger early settlement right, you must deliver to the purchase contract agent, on or
before 5:00 p.m., New York City time, on the day specified in the notice, the certificate evidencing your units, if the units are held in certificated form, and payment of the applicable
purchase price in the form of a certified or cashier's check. If you exercise the merger early settlement right, Platinum Holdings will deliver to you on the merger early settlement date the kind and
amount of securities, cash or other property that you would have been entitled to receive if the purchase contract had been settled immediately before the cash merger at the settlement rate in effect
at such time. You will also receive the senior notes or treasury securities underlying those units. If you do not elect to exercise your merger early settlement right, your units will remain
outstanding and continue to be subject to normal settlement on the share purchase date.
Anti-dilution Adjustments
The formula for determining the settlement rate and the number of Common Shares to be delivered upon an early settlement will be adjusted, without duplication, if
certain events occur, including:
- (1)
- the
payment of a dividend or other distributions on the Common Shares in Common Shares;
- (2)
- the
issuance to all holders of the Common Shares of rights, options or warrants, other than pursuant to any dividend reinvestment, share purchase or similar plans, entitling them to
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The
"current market price" per Common Share on any day means the average of the closing price per Common Share on each of the 20 consecutive trading days ending on the earlier of the day
in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "ex date", when used with respect to any
issuance or distribution, means the first date on which the Common Shares trade without the right to receive the issuance or distribution.
In
the case of reclassifications, consolidations, mergers, sales or transfers of assets or other transactions that cause the Common Shares to be converted into the right to receive other
securities, cash or property, each purchase contract then outstanding would, without the consent of the holders of units, become a contract to purchase only the kind and amount of such securities,
cash or property instead of Common Shares. In such event, on the share purchase date the settlement rate then in effect will be applied to the value on the share purchase date of the securities, cash
or property a holder would have received if it had held the shares covered by the purchase contract when the applicable transaction occurred. Holders have the right to settle their obligations under
the purchase contracts early in the event of certain cash mergers as described under "Early Settlement Upon Cash Merger."
If
at any time Platinum Holdings makes a distribution of property to its common shareholders that would be taxable to the shareholders as a dividend for U.S. federal income tax purposes
(that is, distributions, evidences of indebtedness or assets, but generally not stock dividends or rights to
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subscribe for capital stock), and, pursuant to the settlement rate adjustment provisions of the purchase contract agreement, the settlement rate is increased, that increase may be deemed to be
the receipt of taxable income to holders of units. See "U.S. Federal Income Tax ConsequencesPurchase ContractsAdjustment to Settlement Rate."
In
the case of the payment of a dividend or other distribution on the Common Shares of shares of capital stock of any class or series, or similar equity interests, of or relating to a
subsidiary or other business unit, which we refer to as a "spin-off", the settlement rate in effect immediately before the close of business on the record date fixed for determination of
shareholders entitled to receive that distribution will be increased by multiplying:
-
- the
settlement rate by
-
- a
fraction, the numerator of which is the current market price per Common Share plus the fair market value, determined as described below, of those shares of
capital stock or similar equity interests so distributed applicable to one Common Share and the denominator of which is the current market price per Common Share.
The
adjustment to the settlement rate under the preceding paragraph will occur on the date that is the earlier of:
-
- the
tenth trading day following the effective date of the spin-off; and
-
- the
date of the securities being offered in the initial public offering of the spin-off, if that initial public offering is effected
simultaneously with the spin-off.
For
purposes of this section, "initial public offering" means the first time securities of the same class or type as the securities being distributed in the spin-off are
offered to the public for cash.
In
the event of a spin-off that is not effected simultaneously with an initial public offering of the securities being distributed in the spin-off, the fair
market value of the securities to be distributed to holders of the Common Shares means the average of the closing sale prices of those securities over the first 10 trading days following the effective
date of the spin-off. Also, for purposes of such a spin-off, the current market price of the Common Shares means the average of the closing sale prices of the Common Shares
over the first 10 trading days following the effective date of the spin-off.
If,
however, an initial public offering of the securities being distributed in the spin-off is to be effected simultaneously with the spin-off, the fair market
value of the securities being distributed in the spin-off means the initial public offering price, while the current market price of the Common Shares means the closing sale price of the
Common Shares on the trading day on which the initial public offering price of the securities being distributed in the spin-off is determined.
In
addition, Platinum Holdings may increase the settlement rate if its board of directors deems it advisable to avoid or diminish any income tax to holders of the Common Shares resulting
from any dividend or distribution of shares (or rights to acquire shares) or from any event treated as a dividend or distribution for income tax purposes or for any other reasons.
Adjustments
to the settlement rate will be calculated to the nearest 1/10,000th of a share. No adjustment in the settlement rate will be required unless the adjustment would require an
increase or decrease of at least one percent in the settlement rate. If an adjustment is not required to be made because it would not increase or decrease the settlement rate by at least one percent,
then the adjustment will be carried forward and taken into account in any subsequent adjustment.
Platinum
Holdings will be required, as soon as practicable following the occurrence of an event that requires or permits an adjustment in the settlement rate, to provide written notice
to the purchase contract agent of the occurrence of that event. Platinum Holdings will also be required to
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deliver a statement setting forth in reasonable detail the method by which the adjustment to the settlement rate was determined and setting forth the revised settlement rate.
Each
adjustment to the settlement rate will result in a corresponding adjustment to the number of Common Shares issuable upon early settlement of a purchase contract.
Pledged Securities and Pledge Agreement
The ownership interests in the senior notes or treasury securities underlying the units will be pledged to the collateral agent for Platinum Holdings' benefit.
Under the pledge agreement, the pledged securities will secure the obligations of holders of units to purchase Common Shares under the related purchase contracts. A holder of a unit cannot separate or
separately transfer the purchase contract from the pledged securities underlying the unit. Your rights to the pledged securities will be subject to the security interest created by the pledge
agreement. You will not be permitted to withdraw the pledged securities related to the units from the pledge arrangement except:
-
- to
substitute specified treasury securities for the related pledged ownership interests in the senior notes or other pledged treasury securities in order to
create a stripped unit;
-
- to
substitute ownership interests in the senior notes or specified treasury securities for the related pledged treasury securities upon the recreation of a
normal unit;
-
- upon
delivering specified treasury securities when electing not to participate in a remarketing; or
-
- upon
the termination or early settlement of the purchase contracts.
Subject
to Platinum Holdings' security interest and the terms of the purchase contract agreement and the pledge agreement:
-
- each
holder of normal units that include ownership interests in the senior notes will retain ownership of the interests in the senior notes and will be
entitled through the purchase contract agent and the collateral agent to all of the rights of a holder of ownership interests in the senior notes, including interest payments, voting, redemption and
repayment rights; and
-
- each
holder of units that include treasury securities will retain ownership of the treasury securities.
Platinum
Holdings will have no interest in the pledged securities other than its security interest.
Quarterly Payments on Pledged Securities
The collateral agent, upon receipt of quarterly payments on the pledged securities underlying the normal units, will distribute those payments to the purchase
contract agent, which will, in turn, distribute that amount to persons who were the holders of normal units on the record date for the payment. As long as the normal units remain in
book-entry only form, the record date for any payment will be one business day before the relevant payment date.
Termination of Purchase Contracts
The purchase contracts, Platinum Holdings' related rights and obligations and those of the holders of the units, including their rights to receive contract
adjustment payments or deferred contract adjustment payments and obligations to purchase Common Shares, will automatically terminate upon the occurrence of particular events of Platinum Holdings'
bankruptcy, insolvency or reorganization.
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Upon
such a termination of the purchase contracts, the collateral agent will release the securities held by it to the purchase contract agent for distribution to the holders. If a holder
would otherwise have been entitled to receive less than $1,000 principal amount at maturity of any treasury security upon termination of the purchase contract, the purchase contract agent will dispose
of the security for cash and pay the cash to the holder. Upon termination, however, the release and distribution may be subject to a delay. If Platinum Holdings becomes the subject of a case under the
federal bankruptcy code, a delay in the release of the pledged ownership interests in the senior notes or treasury securities may occur as a result of the imposition of an automatic stay under the
bankruptcy code and continue until the automatic stay has been lifted. The automatic stay will not be lifted until such time as the bankruptcy judge agrees to lift it and allow your collateral to be
returned to you. Similarly, if Platinum Holdings becomes the subject of winding up proceedings under the Bermuda Companies Act 1981, a delay may result from the automatic stay of proceedings against
Platinum Holdings and may continue until the court decides to lift the stay.
Prepayment of Pledged Notes
As explained below under "Description of the Senior NotesDefault and Related MattersEvents of Default", upon the occurrence of
particular events of Platinum Finance's bankruptcy, insolvency or reorganization and in some other situations, the principal amount of the senior notes may become due and payable prior to their stated
maturity. Should this occur, and the senior notes are prepaid in full, prior to a successful remarketing of the senior notes or the termination of the purchase contracts, the principal amount of, and
any accrued interest on, the senior notes forming part of the normal units will be paid to the collateral agent, who for each 40 normal units will purchase a zero-coupon U.S. treasury
security that matures on , 2005 and pays $1,000 at maturity and remit the remaining amount, if any, to the purchase contract agent for payment to such holders. The treasury
securities
will be substituted for the prepaid senior notes and will be pledged to the collateral agent to secure the obligations of the holders of normal units to purchase Common Shares. Thereafter, normal
units will be treated similarly to stripped units. Accordingly, you will not be able to "strip" your normal units, you will receive only quarterly contract adjustment payments on your normal units and
you will not have the right to settle with cash. In all other respects, including the automatic termination of the purchase contracts upon the occurrence of particular events of Platinum Holdings'
bankruptcy, insolvency or reorganization, the rights and obligations of the holders of normal units will remain unaffected by the prepayment of the senior notes.
The Purchase Contract Agreement
Distributions on the units will be payable, purchase contracts will be settled and transfers of the units will be registrable at the office of the purchase
contract agent in the Borough of Manhattan, The City of New York. In addition, if the units do not remain in book-entry only form, payment of distributions on the units may be made, at our
option, by check mailed to the address of the persons shown on the unit register.
If
any quarterly payment date or the share purchase date is not a business day, then any payment or settlement required to be made on that date will be made on the next business day (and
so long as the payment is made on the next day that is a business day, without any interest or other payment on account of any such delay), except that, in the case of a payment only, if the next
business day is in the next calendar year, the payment will be made on the prior business day with the same force and effect as if made on the payment date.
If
your units are held in certificated form and you fail to surrender the certificate evidencing your units to the purchase contract agent on the share purchase date, the Common Shares
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issuable in settlement of the related purchase contracts will be registered in the name of the purchase contract agent. These shares, together with any distributions on them, will be held by the
purchase contract agent as agent for your benefit, until the certificate is presented and surrendered or you provide satisfactory evidence that the certificate has been destroyed, lost or stolen,
together with any indemnity that may be required by the purchase contract agent and us.
If
your units are held in certificated form and (1) the purchase contracts have terminated prior to the share purchase date, (2) the related pledged securities have been
transferred to the purchase contract agent for distribution to the holders and (3) you fail to surrender the certificate evidencing your units to the purchase contract agent, the pledged
securities that would otherwise be delivered to you and any related payments will be held by the purchase contract agent as agent for your benefit, until you present and surrender the certificate or
provide the evidence and indemnity described above.
The
purchase contract agent will not be required to invest or to pay interest on any amounts held by it before distribution.
No
service charge will be made for any registration of transfer or exchange of the units, except for any applicable tax or other governmental charge.
Modification
The purchase contract agreement and the pledge agreement will contain provisions permitting Platinum Holdings and the purchase contract agent, and in the case of
the pledge agreement, the collateral agent, to modify the purchase contract agreement or the pledge agreement without the consent of the holders for, among other things, the following purposes:
-
- to
evidence the succession of another person to Platinum Holdings' obligations;
-
- to
add to the covenants for the benefit of holders or to surrender any of Platinum Holdings' rights or powers under those agreements so long as such
covenants or such surrender do not adversely affect the validity, perfection or priority of the security interests granted or created under the pledge agreement;
-
- to
evidence and provide for the acceptance of appointment of a successor purchase contract agent or a successor collateral agent, custodial agent or
securities intermediary; or
-
- to
cure any ambiguity, to correct or supplement any provisions that may be inconsistent, or to make any other provisions with respect to such matters or
questions, provided that such action shall not adversely affect the interest of the holders.
The
purchase contract agreement, the pledge agreement and the purchase contracts may be amended or modified with the consent of the holders of a majority of the units at the time
outstanding. However, no modification or amendment may, without the consent of the holder of each outstanding unit affected by the modification or amendment:
-
- change
any payment date;
-
- change
the amount or type of pledged securities required to be pledged to secure obligations under the units, impair the right of the holder of any units to
receive distributions on the pledged securities underlying the units or otherwise materially adversely affect the holder's rights in or to the pledged securities;
-
- reduce
any contract adjustment payment or change the place or currency of that payment or increase any amounts payable by holders in respect of the units or
decrease any other amounts receivable by holders in respect of the units;
-
- impair
the right to institute suit for the enforcement of any purchase contract or the right to receive any contract adjustment payments;
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-
- reduce
the number of Common Shares purchasable under any purchase contract, increase the price to purchase Common Shares on settlement of any purchase
contract, change the share purchase date or otherwise materially adversely affect the holder's rights under any purchase contract; or
-
- reduce
the above stated percentage of outstanding units the consent of whose holders is required for the modification or amendment of the provisions of the
purchase contract agreement, the pledge agreement or the purchase contracts;
provided,
that if any amendment or proposal referred to above would adversely affect only the normal units or the stripped units, then only the affected class of holders as of the record date for the
holders entitled to vote thereon will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the consent of not less than a majority of
such class.
No Consent to Assumption
Each holder of units, by acceptance of the units, will under the terms of the purchase contract agreement and the units be deemed expressly to have withheld any
consent to assumption (i.e., affirmance) of the related purchase contracts by Platinum Holdings or its trustee if it becomes the subject of a case under the federal bankruptcy code.
Consolidation, Merger, Sale or Conveyance
Platinum Holdings will agree in the purchase contract agreement that it will not (1) merge with or into or consolidate with any other entity or
(2) transfer, lease or convey all or substantially all of its assets to any other person, or buy all or substantially all the assets of another person, unless:
-
- Platinum
Holdings is the continuing entity or the successor entity is organized under the laws of Bermuda or the United States or any state thereof or the
District of Columbia;
-
- the
successor entity expressly assumes Platinum Holdings' obligations under the purchase contract agreement, the pledge agreement, the purchase contracts and
the remarketing agreement; and
-
- Platinum
Holdings is not, or the successor entity is not, immediately after such merger, consolidation, transfer, lease or conveyance, in default in the
performance of any of its obligations under the purchase contract agreement, the pledge agreement, the purchase contracts or the remarketing agreement.
Title
Platinum Holdings, the purchase contract agent and the collateral agent and any agent of Platinum Holdings, the purchase contract agent and the collateral agent
may treat the registered holder of any units as the absolute owner of those units for the purpose of making payment and settling the related purchase contracts and for all other purposes regardless of
any notice to the contrary.
Defaults under the Purchase Contract Agreement
Within 30 days after the occurrence of any default by Platinum Holdings in any of its obligations under the purchase contract agreement of which a
responsible officer of the purchase contract agent (as defined in the purchase contract agreement) has actual knowledge, the
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purchase contract agent will give notice of such default to the holders of the units unless such default has been cured or waived.
The
purchase contract agent is not required to enforce any of the provisions of the purchase contract agreement against Platinum Holdings. Each holder of units shall have the right to
institute suit for the enforcement of any payment of contract adjustment payments then due and payable and the right to purchase Common Shares as provided in such holder's purchase contract and
generally exercise any other rights and remedies provided by law.
Governing Law
The purchase contract agreement, the pledge agreement and the purchase contracts will be governed by and construed in accordance with, the laws of the State of
New York, without regard to its principles of conflicts of laws.
Global Units
Platinum Holdings will issue the units in the form of a global security registered in the name of Cede & Co., as nominee for the Depository Trust Company.
For a discussion of the global securities, see "Global Clearance and Settlement."
Replacement of Units Certificates
If physical certificates are issued, Platinum Holdings will replace any mutilated certificate at your expense upon surrender of that certificate to the purchase
contract agent. Platinum Holdings will replace certificates that become destroyed, lost or stolen at your expense upon delivery to Platinum Holdings and to the purchase contract agent of satisfactory
evidence that the certificate has been destroyed, lost or stolen, together with any indemnity that may be required by the purchase contract agent and Platinum Holdings.
Platinum
Holdings, however, is not required to issue any certificates representing units on or after the business day immediately preceding the earlier of the share purchase date or the
date the purchase contracts terminate. In place of the delivery of a replacement certificate following the share purchase date, the purchase contract agent, upon delivery of the evidence and indemnity
described above, will deliver the Common Shares issuable pursuant to the purchase contracts included in the units evidenced by the certificate, or, if the purchase contracts have terminated prior to
the share purchase date, transfer the pledged senior notes or the pledged securities related to the units evidenced by the certificate.
Information Concerning the Purchase Contract Agent
JPMorgan Chase Bank will initially act as purchase contract agent. The purchase contract agent will act as the agent and attorney-in-fact
for the holders of units from time to time. The purchase contract agreement will not obligate the purchase contract agent to exercise any discretionary authority in connection with a default under the
terms of the purchase contract agreement, the pledge agreement, the purchase contract or the pledged securities.
The
purchase contract agreement will contain provisions limiting the liability of the purchase contract agent. The purchase contract agreement will contain provisions under which the
purchase contract agent may resign or be replaced. Resignation or replacement of the purchase contract agent would be effective upon the appointment of a successor.
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The
purchase contract agent and its affiliates are among a number of banks with which Platinum Holdings, Platinum Finance and their subsidiaries and affiliates maintain various banking
and trust relationships.
Information Concerning the Collateral Agent
State Street Bank and Trust Company will initially act as collateral agent. The collateral agent will act solely as our agent and will not assume any obligation
or relationship of agency or trust for or with any of the holders of the units except for the obligations owed by a pledgee of property to the owner thereof under the pledge agreement and applicable
law.
The
pledge agreement will contain provisions limiting the liability of the collateral agent. The pledge agreement will contain provisions under which the collateral agent may resign or
be replaced. Resignation or replacement of the collateral agent would be effective upon the appointment of a successor.
The
collateral agent and its affiliates are among a number of banks with which Platinum Holdings, Platinum Finance and their subsidiaries and affiliates maintain various banking and
trust relationships.
Miscellaneous
The purchase contract agreement will provide that Platinum Holdings will pay all fees and expenses related to:
-
- the
enforcement by the purchase contract agent of the rights of the holders of the units; and
-
- with
certain exceptions, stock transfer and similar taxes attributable to the initial issuance and delivery of Common Shares upon settlement of the purchase
contracts.
Should
you elect to create stripped units or recreate normal units, you will be responsible for any fees or expenses payable in connection with the substitution of the applicable pledged
securities, as well as any commissions, fees or other expenses incurred in acquiring the pledged securities to be substituted, and we will not be responsible for any of those fees or expenses.
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DESCRIPTION OF THE SENIOR NOTES
The Senior Notes Will Be Issued Under the Indenture
As required by U.S. federal law for all bonds and notes of companies that are publicly offered, the senior notes are governed by a document called the
"indenture." The indenture is a contract among Platinum Finance, as issuer, Platinum Holdings, as guarantor, and JPMorgan Chase Bank, which acts as trustee. The trustee has two main roles. First, the
trustee can enforce your rights against Platinum Finance or Platinum Holdings if either of them defaults. There are some limitations on the extent to which the trustee acts on your behalf, as
described below. Second, the trustee performs administrative duties for Platinum Finance, such as sending you interest payments, transferring your senior notes to a new buyer if you sell them and
sending you notices.
The
indenture and its associated documents contain the full legal text of the matters described in this section. The indenture and the senior notes are governed by New York law, without
regard to conflicts of laws principles thereof. Platinum Finance has filed a copy of the indenture with the SEC as part of the registration statement. See "Available Information" for information on
how to obtain a copy of the indenture.
Because
this section is a summary, it does not describe every aspect of the senior notes and the indenture. This summary is subject to and qualified in its entirety by reference to all
the provisions of the indenture, including definitions of certain terms used in the indenture. For example, in this section capitalized words are used to signify defined terms that have been given
special meaning in the indenture. The meanings are described for only the more important terms. In addition,
references in parentheses refer to certain sections of the indenture. Whenever reference is made to particular sections of the indenture or terms defined in the indenture, those sections or defined
terms are incorporated by reference.
Platinum Finance May Issue Other Series of Debt Securities
The indenture permits Platinum Finance to issue different series of debt securities from time to time. The senior notes will be a single, distinct series of debt
securities. A summary of the terms of the senior notes is provided below under "Overview of the Senior Notes." The indenture does not limit the aggregate amount of debt securities that
Platinum Finance may issue, nor does it limit the number of other series or the aggregate amount of any particular series.
The
indenture and the senior notes do not limit the ability of Platinum Finance or Platinum Holdings to incur other debt or to issue other securities. Also, Platinum Finance and Platinum
Holdings are not subject to financial or similar restrictions by the terms of the senior notes, except for certain "restrictive covenants" described below. When reference is made to a series of debt
securities, it is intended to mean a series, such as the senior notes, issued under the Indenture. When reference is made to the senior notes or these senior notes, it is intended to mean the senior
notes offered by means of this prospectus.
Overview of the Senior Notes
Interest
The title of the senior notes will be % Senior Guaranteed Notes due 2007. The senior notes will mature
on , 2007. The senior notes
will bear interest from the original issuance date or from the most recent interest payment date on which interest has been paid or duly provided for, as the case may be. The senior notes will
initially pay interest at the annual rate of % quarterly in arrears on
each ,
,
and
, commencing on , 2003.
After the share purchase date, the senior notes will pay interest semi-annually in arrears on each and until
maturity. If the senior notes are successfully
remarketed, the amount of interest accrued with respect to any period commencing on or after the settlement date of the successful remarketing and ending on or prior to their maturity
185
on , 2007 will be calculated at the reset rate described under "Description of the Equity Security UnitsRemarketing." If the remarketing agent cannot establish a reset
rate meeting the requirements described under "Description of the Equity Security UnitsRemarketing", the remarketing agent will not reset the interest rate on the senior notes and the
reset rate will continue to be the initial annual
rate of %, until the remarketing agent can establish such a reset rate on a later date no later than the third business day prior to the share purchase date, and if a reset rate cannot
be established by such date, the initial rate will continue to be the rate at which the senior notes accrue interest until maturity. The senior notes are not redeemable prior to their stated maturity
except as described below and will not have the benefit of a sinking fund.
Platinum
Holdings will irrevocably guarantee on a senior and unsecured basis the payment in full of the interest payments that are required to be paid on the senior notes, the principal
amount of the senior notes, interest payments on overdue interest payments and principal amounts due on the senior notes, to the extent permitted by law, and any other payments due to holders of
senior notes under the senior notes, as further described under "Guarantee" below.
The
amount of interest payable for any period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of interest payable
for any period shorter than a full quarterly or semi-annual period for which interest is computed will be computed on the basis of the actual number of days elapsed in the
90-day period. In the event that any date on which interest is payable on the senior notes is not a business day, the payment of the interest payable on that date will be made on the next
succeeding day that is a business day, without any interest or other payment in respect of the delay, except that, if the business day is in the next succeeding calendar year, then the payment will be
made on the immediately preceding business day, in each case with the same force and effect as if made on the scheduled payment date.
Both
Platinum Holdings and Platinum Finance are holding companies with no operations of their own. Platinum Finance's ability to pay its obligations under the senior notes is dependent
upon its ability to obtain cash dividends or other cash payments or obtain loans from its subsidiaries. Similarly, Platinum Holdings' ability to pay its obligations under the guarantee is dependent
upon its ability to obtain cash dividends or obtain loans from its subsidiaries. Platinum Holdings' and Platinum Finance's operating subsidiaries are separate and distinct legal entities and will have
no obligation, contingent or otherwise, to pay any dividends or make any other distributions (except for payments required pursuant to the terms of intercompany indebtedness) to Platinum Holdings or
Platinum Finance. Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the abilities of Platinum Holdings' and Platinum Finance's
subsidiaries to transfer funds to Platinum Holdings and Platinum Finance in the form of cash dividends, loans or advances. See "BusinessOur BusinessRegulation."
In
addition, because Platinum Holdings and Platinum Finance are holding companies, except to the extent that Platinum Holdings or Platinum Finance have priority or equal claims against
their subsidiaries as a creditor, Platinum Finance's obligations under the senior notes and Platinum Holdings' obligations under the guarantee will be effectively subordinated to the debt and other
obligations of their respective subsidiaries because, as the shareholders of their subsidiaries, they will be subject to the prior claims of creditors of their subsidiaries. As of June 30,
2002, on a pro forma basis, Platinum Finance's subsidiaries had no liabilities or obligations that would have effectively ranked senior to the senior notes and Platinum Holdings' subsidiaries had
approximately $270 million in liabilities and obligations that would have effectively ranked senior to the guarantees.
There
are no provisions in either the indenture or the senior notes that protect the holders in the event that Platinum Finance incurs substantial additional indebtedness, whether or not
in connection with a change in control. In addition, there are no provisions in the guarantee that protect the holders in the event that Platinum Holdings or its subsidiaries incur substantial
additional indebtedness, whether or not in connection with a change in control.
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Remarketing
The senior notes will be remarketed as described under "Description of the Equity Security UnitsRemarketing."
Optional Remarketing
Under the purchase contract agreement, on or prior to the fourth business day immediately preceding the first day of a remarketing period but no earlier than the
payment date immediately preceding , 2005, holders of senior notes that are not included as
part of normal units may elect to have their senior notes included in the remarketing by
delivering their senior notes along with a notice of this election to the collateral agent. The collateral agent will hold such senior notes in an account separate from the collateral account in which
the securities pledged to secure the holders' obligations under the purchase contracts will be held. Holders of senior notes that are not included in normal units and that elect to have their notes
remarketed will also have the right to withdraw that election on or prior to the fourth business day immediately preceding the first day of the relevant remarketing period.
Tax Event Redemption
If a tax event occurs and is continuing, Platinum Finance may, at its option, redeem the senior notes in whole, but not in part, at any time at the redemption
price for each senior note referred to below. Installments of interest on senior notes which are due and payable on or prior to a redemption date will be payable to holders of the senior notes
registered as such at the close of business on the relevant record dates. If, following the occurrence of a tax event, Platinum Finance exercises its option to redeem the senior notes, the proceeds of
the redemption will be payable in cash to the holders of the senior notes. If a tax event redemption occurs prior to a successful remarketing of the senior notes, the redemption price for the senior
notes forming part of normal units at the time of the tax event redemption will be distributed to the collateral agent, who in turn will purchase the applicable treasury portfolio described below on
behalf of the holders of normal units and remit the remainder of the redemption price, if any, to the purchase contract agent for
payment to such holders. The treasury portfolio will be substituted for the redeemed senior notes and will be pledged to the collateral agent to secure the obligations of the holders of the normal
units to purchase the Common Shares under the purchase contracts.
"Tax
event" means the receipt by Platinum Finance of an opinion of nationally recognized tax counsel experienced in such matters to the effect that there is more than an insubstantial
risk that interest payable by Platinum Finance on the senior notes on the next interest payment date will not be deductible, in whole or in part, by Platinum Finance for U.S. federal income tax
purposes as a result of (i) any amendment to, change in, or announced proposed change in, the laws, or any regulations thereunder, of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation (other than any such amendment, change or announced proposed change to the so-called "earnings stripping" provisions of Section 163(j) of the
Internal Revenue Code, which limit the ability of U.S. corporations to deduct interest on certain debt owed to or guaranteed by related foreign persons), (ii) any amendment to or change in an
official interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority or (iii) any official interpretation,
pronouncement or application that provides for a position with respect to any such laws or regulations that differs from the generally accepted position on the date of this prospectus, which
amendment, change or proposed change is effective or which interpretation or pronouncement is announced on or after the date of this prospectus.
If
a tax event redemption occurs prior to a successful remarketing of the senior notes, the treasury portfolio to be purchased on behalf of the holders of the normal units will consist
of a portfolio of zero-coupon U.S. treasury securities consisting of interest or principal strips of U.S. treasury securities that mature on or prior to the share purchase date in an
aggregate amount
187
equal to the aggregate principal amount of the senior notes included in the normal units on the tax event redemption date and with respect to each scheduled interest payment date on the senior notes
that occurs after the tax event redemption date and on or before , 2005, interest or principal
strips of U.S. treasury securities that mature on or prior to that interest payment date
in an aggregate amount equal to the aggregate interest payment that would be due on the aggregate principal amount of the senior notes included in the normal units on that date if the interest rate of
the senior notes were not reset, effective from the settlement date of a successful remarketing. These treasury securities are non-callable by Platinum Finance.
Solely
for purposes of determining the treasury portfolio purchase price in the case of a tax event redemption date occurring after either a successful remarketing of the senior notes or
the share purchase date, "treasury portfolio" shall mean a portfolio of zero-coupon U.S. treasury securities consisting of principal or interest strips of U.S. treasury securities that
mature on or prior to , 2007 in an aggregate amount equal to the aggregate principal amount of the senior notes outstanding on the tax event redemption date and with respect to
each
scheduled interest payment date on the senior notes that occurs after the tax event redemption date, interest or principal strips of U.S. treasury securities that mature on or prior to that interest
payment date in an aggregate amount equal to the aggregate interest payment that would be due on the aggregate principal amount of the senior notes outstanding on the tax event redemption date.
"Redemption
price" means for each senior note the product of the principal amount of the senior note and a fraction the numerator of which is the treasury portfolio purchase price and
the denominator of which is, in the case of a tax event redemption occurring prior to a successful remarketing of the senior notes, the aggregate principal amount of senior notes included in normal
units, and in the case of a tax event redemption date occurring after a successful remarketing of the senior notes, the aggregate principal amount of the senior notes. Depending on the amount of the
treasury portfolio purchase price, the redemption amount could be less than or greater than the principal amount of the senior notes.
"Treasury
portfolio purchase price" means the lowest aggregate price quoted by a primary U.S. government securities dealer in New York City to the quotation agent on the third business
day immediately preceding the tax event redemption date for the purchase of the treasury portfolio for settlement on the tax event redemption date.
"Quotation
agent" means each of Goldman, Sachs & Co. or its successor or any other primary U.S. government securities dealer in New York City selected by Platinum Finance.
Notice
of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each registered holder of senior notes to be redeemed at
its registered address. Unless Platinum Finance defaults in payment of the redemption price, on and after the redemption date, interest shall cease to accrue on the senior notes. In the event any
senior notes are called for redemption, neither Platinum Finance nor the trustee will be required to register the transfer of or exchange the senior notes to be redeemed during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of redemption and ending at the close of business on the day of such mailing.
Form and Denomination
Platinum Finance will issue the senior notes that are released from the pledge following the substitution or early settlement in the form of a global security
registered in the name of Cede & Co., as nominee of DTC. For a discussion of global securities, see "Global Clearance and Settlement."
Exchange and Transfer of Definitive Notes. If Platinum Finance issues definitive senior notes, you may have your senior notes
broken into more senior notes of the same series of smaller authorized denominations or combined into fewer senior notes of the same series of larger
188
authorized denominations, as long as the total principal amount is not changed. (Section 305) This is called an "exchange."
You
may exchange or transfer definitive senior notes at the office of the trustee. The trustee acts as Platinum Finance's agent for registering senior notes in the names of Holders and
transferring senior notes. Platinum Finance may change this appointment to another entity or itself. The entity performing the role of maintaining the list of registered Holders is called the
"Security Registrar." (Section 305)
You
will not be required to pay a service charge to transfer or exchange definitive senior notes, but you may be required to pay for any tax or other governmental charge associated with
the exchange or transfer. The transfer or exchange will only be made if the Security Registrar is satisfied with your proof of ownership.
Platinum
Finance may cancel the designation of any particular transfer agent. Platinum Finance may also approve a change in the office through which any transfer agent acts.
(Section 1002)
Payments
Platinum Finance will pay interest to you if you are a direct Holder listed in the trustee's records at the close of business on a particular day in advance of
each Interest Payment Date, even if you no longer own the senior note on the Interest Payment Date. That particular day is called the "Regular Record Date." (Section 307) The Regular Record
Date relating to an Interest Payment Date for any senior note will be the business day next preceding an Interest Payment Date. Holders buying and selling senior notes must work out between them how
to compensate for the fact that Platinum Finance will pay all the interest for an interest period to the one who is the registered Holder on the Regular Record Date. The most common manner is to
adjust the sales price of the senior notes to prorate interest fairly between buyer and seller. This prorated interest amount is called "accrued interest."
Platinum
Finance will pay interest, principal, any premium and any other money due on the senior notes at the corporate trust office of the trustee in New York City. That office is
currently located at 450 West 33rd Street, New York, New York. You must make arrangements to have your payments picked up at or wired from that office. Platinum Finance may also choose to pay interest
by mailing checks.
Platinum
Finance may also arrange for additional payment offices, and may cancel or change these offices, including use of the trustee's corporate trust office. These offices are called
"Paying Agents." Platinum Finance may also choose to act as its own Paying Agent. Platinum Finance must notify you of changes in the Paying Agents for the senior notes. (Section 1002)
Notices
Platinum Finance and the trustee will send notices regarding the senior notes only to direct Holders, using their addresses as listed in the trustee's records.
(Sections 101 and 106)
Regardless
of who acts as Paying Agent, all money paid by Platinum Finance to a Paying Agent that remains unclaimed at the end of one year after the amount is due to direct Holders will
be repaid to Platinum Finance. After that one-year period, you may look only to Platinum Finance or Platinum Holdings for payment and not to the trustee, any other Paying Agent or anyone
else. (Section 1003)
Overview of Remainder of This Description
In the remainder of this description "you" or "your" refer to direct Holders and not "street name" or other indirect holders of senior notes. As an indirect
holder of an interest in the Global Note, you should read the subsection above entitled "Form and Denomination."
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The
remainder of this description summarizes:
-
- your
rights under several special situations, such as if Platinum Finance or Platinum Holdings merges with another company or if Platinum Finance wants to
change a term of the senior notes;
-
- promises
each of Platinum Finance and Platinum Holdings makes to you about how each will run its business, or certain business actions that Platinum Finance
and Platinum Holdings promise not to take (known as "restrictive covenants"); and
-
- your
rights if Platinum Finance defaults or experiences other financial difficulties.
Special Situations
Mergers and Similar Events
Platinum Finance and Platinum Holdings are generally permitted to consolidate with or merge into any other person. In this section, "person" refers to any
individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political
subdivision of a government or governmental agency. Each of Platinum Finance and Platinum Holdings is also permitted to sell substantially all of its assets to any other person, or to buy
substantially all of the assets of any other person. However, Platinum Finance or Platinum Holdings may not take any of these actions unless all the following conditions are met:
-
- Where
Platinum Finance or Platinum Holdings merges out of existence or sells all or substantially all of its assets, the other person must be organized under
the laws of a State or the District of Columbia or under Federal law, or in the case of Platinum Holdings, Bermuda, and it must agree to be legally responsible for the senior notes in the case of
Platinum Finance, or in the case of Platinum Holdings, the guarantee. Upon assumption of Platinum Finance's or Platinum Holdings' obligations by such a person in such circumstances, Platinum Finance
and Platinum Holdings, as the case may be, shall be relieved of all obligations and covenants under the indenture and the senior notes and the guarantee, as the case may be.
-
- The
merger, sale of all or substantially all of Platinum Finance's or Platinum Holdings' assets or other transaction must not cause a default on the senior
notes, and Platinum Finance and Platinum Holdings, as the case may be, must not already be in default unless the merger or other transaction would cure the default. For purposes of this
no-default test, a default would include an Event of Default that has occurred and not been cured, as described below under "What is an Event of Default?" A default for this
purpose would also include any event that would be an Event of Default if Platinum Finance or Platinum Holdings received the required notice of its default or if under the indenture the default would
become an event of default after existing for a specified period of time.
-
- It
is possible that the merger, sale of all or substantially all of Platinum Finance's or Platinum Holdings' assets or other transaction would cause some of
its property to become subject to a mortgage or other legal mechanism giving lenders preferential rights in that property over other lenders or over its general creditors if Platinum Finance or
Platinum Holdings, as the case may be, fails to pay them back. If a merger or other transaction would create any Liens on its property, Platinum Finance or Platinum Holdings, as the case may be, shall
if such Liens were not permitted grant an equivalent or higher-ranking Lien on the same property to you and the other direct Holders of the Securities. (Section 801)
190
Modification and Waiver
There are three types of changes Platinum Finance can make to the indenture and the senior notes.
Changes Requiring Your Approval. First, there are changes that cannot be made to the indenture without your specific
approval. Following is a list of those types of changes:
-
- change
the Stated Maturity of the principal or interest on a senior note;
-
- reduce
any amounts due on a senior note;
-
- reduce
the amount of principal payable upon acceleration of the Maturity of a senior note following an Event of Default;
-
- change
the place or currency of payment for a senior note;
-
- impair
your right to sue for payment;
-
- reduce
the percentage in principal amount of the senior notes, the approval of the Holders of which is needed to modify or amend the indenture or the rights
of holders of the senior notes;
-
- reduce
the percentage in principal amount of the senior notes, the approval of the Holders of which is needed to waive compliance with certain provisions of
the indenture or to waive certain defaults;
-
- modify
any other aspect of the provisions dealing with modification and waiver of the indenture, except to increase the percentage required for any
modification or to provide that other provisions of the indenture may not be modified or waived without your consent; and
-
- change
in any manner adverse to the interests of the Holders the obligations of Platinum Holdings in respect of the due and punctual payment of principal and
interest on the senior notes, interest payments on overdue interest payments and principal amounts due under the senior notes and any other payments due to holders of the senior notes under the senior
notes. (Section 902)
Changes Not Requiring Approval. The second type of change does not require any vote by Holders of the senior notes. This type
is limited to corrections and clarifications and certain other changes that would not adversely affect Holders of the senior notes. Similarly, Platinum Finance does not need any approval to make
changes that affect only debt securities to be issued under the indenture after the changes take effect. Platinum Finance may also make changes or obtain waivers that do not adversely affect a
particular senior note, even if they affect other senior notes or other debt securities issued under the indenture. In those cases, Platinum Finance needs only to obtain any required approvals from
the Holders of the affected senior notes or other debt securities.
Changes Requiring a Majority Vote. Any other change to the indenture and the senior notes would require the following
approval:
-
- If
the change affects only the senior notes, it must be approved by the Holders of a majority in principal amount of the senior notes.
-
- If
the change affects the senior notes as well as one or more other series of debt securities issued under the indenture, it must be approved by the Holders
of a majority in principal amount of each series affected by the change. In each case, the required approval must be given by written consent. Most changes fall into this category.
The
same vote would be required for Platinum Finance to obtain a waiver of a past default. However, Platinum Finance cannot obtain a waiver of a payment default or any other aspect of
the indenture or the senior notes listed in the first category described previously under "Changes
191
Requiring Your Approval" unless Platinum Finance obtains your individual consent to the waiver. (Section 513)
Further Details Concerning Voting. Senior notes will not be considered outstanding, and therefore not eligible to vote, if
Platinum Finance or Platinum Holdings has deposited with the trustee or any
paying agent other than Platinum Finance or Platinum Holdings or set aside in trust for you money for their payment or redemption. (Section 101)
Platinum
Finance will generally be entitled to set any day as a record date for the purpose of determining the Holders of outstanding senior notes that are entitled to vote or take other
action under the indenture. In certain limited circumstances, the trustee will be entitled to set a record date for action by Holders. If Platinum Finance or the trustee sets a record date for a vote
or other action to be taken by Holders of senior notes, that vote or action may be taken only by persons who are Holders of outstanding senior notes on the record date and must be taken within
180 days following the record date or another period that Platinum Finance may specify (or as the trustee may specify, if it set the record date). Platinum Finance may shorten or lengthen (but
not beyond 180 days) this period from time to time. (Section 104)
"Street
name" and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if Platinum Finance seeks to change the indenture
or the senior notes or request a waiver.
Limitations on Liens
Platinum Finance covenants that, so long as any of the senior notes remain outstanding, it will not create or assume any Indebtedness for money borrowed which is
secured by a Lien upon the voting stock of Platinum US or any future significant subsidiary, without equally and ratably securing the senior notes (and, if Platinum Finance elects, any other of its
Indebtedness that is not subordinate to the senior notes and with respect to which the governing instruments regulate, or pursuant to which Platinum Finance is otherwise obligated, to provide such
security) by a Lien ranking ratably with and equally to (or prior to) such secured Indebtedness for so long as such Indebtedness is so secured. The foregoing does not apply to any Lien upon the voting
stock of any significant subsidiary in place prior to the acquisition of the subsidiary by Platinum Finance.
Default and Related Matters
Ranking
The senior notes are not secured by any property or assets of Platinum Finance. Accordingly, your ownership of senior notes means you are one of Platinum
Finance's unsecured creditors. The senior notes are not subordinated to any of Platinum Finance's other debt obligations and therefore they rank equally with all of Platinum Finance's other unsecured
and unsubordinated indebtedness.
The guarantee will be unsecured and rank equally in right of payment to all other senior unsecured debt of Platinum Holdings.
Events of Default
You will have special rights if an Event of Default occurs and is not cured, as described later in this subsection.
What is an Event of Default? The term "Event of Default" means any of the following:
-
- Principal
or any premium on a senior note is not paid on its due date.
-
- Interest
on a senior note is not paid within 30 days of its due date.
-
- Platinum
Finance or Platinum Holdings remains in breach of a restrictive covenant or any other term of the indenture for 90 days after Platinum
Finance and Platinum Holdings receive
192
a
notice of default stating Platinum Finance or Platinum Holdings, as the case may be, is in breach. The notice must be sent by either the trustee or Holders of at least 25% of the principal amount
of the senior notes. If the notice is sent by the Holders of at least 25% of the principal amount of the senior notes, the Holders must also give notice to the trustee.
-
- The
guarantee ceases to be in full force and effect.
-
- a
default by Platinum Finance or Platinum Holdings under any debt for money borrowed having an aggregate principal amount outstanding of at least
$25 million, or a default by Platinum Finance or Platinum Holdings under any mortgage, indenture or instrument under which there may be issued or may be secured or evidenced any debt for money
borrowed of Platinum Finance or Platinum Holdings having an aggregate principal amount outstanding of at least $25 million, whether such debt exists now or is created later, which default
(A) results because Platinum Finance or Platinum Holdings did not pay any part of the principal of such debt when the principal was due after any applicable grace period expires or
(B) causes the debt to become due and payable before the date on which it would otherwise have become due, without, in the case of clause (A), such debt being discharged or without, in the case
of clause (B), such debt being discharged or such acceleration having been rescinded or annulled, both within 10 days after the trustee or the holders of at least
25% in principal amount of the senior notes give Platinum Finance or Platinum Holdings notice of the default and require that Platinum Finance or Platinum Holdings remedy the breach.
-
- Platinum
Finance or Platinum Holdings files for bankruptcy or certain other events in bankruptcy, insolvency or reorganization occur. (Section 501)
Remedies If an Event of Default Occurs. If an Event of Default has occurred and has not been cured, the trustee or the
Holders of at least 25% in principal amount of the senior notes may declare the entire principal amount of all the senior notes due and immediately payable. This is called a declaration of
acceleration of Maturity. If an Event of Default occurs because of certain events in bankruptcy, insolvency or reorganization, the principal amount of all the senior notes will be automatically
accelerated, without any action by the trustee or any Holder. A declaration of acceleration of Maturity may be cancelled by the Holders of at least a majority in principal amount of the senior notes.
(Section 502)
Except
in cases of default, where the trustee has some special duties, the trustee is not required to take any action under the indenture at the request of any Holders unless the Holders
offer the trustee reasonable protection from expenses and liability (called an "indemnity"). (Section 603) If reasonable indemnity is provided, the Holders of a majority in principal amount of
the senior notes outstanding may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. These majority Holders may also
direct the trustee in performing any other action under the indenture. (Section 512)
Before
you bypass the trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the senior notes,
the following must occur:
-
- You
must give the trustee written notice that an Event of Default has occurred and remains uncured.
-
- The
Holders of at least 25% in principal amount of all outstanding senior notes must make a written request that the trustee take action because of the Event
of Default, and must offer reasonable indemnity to the trustee against the cost and other liabilities of taking that action.
-
- The
trustee must have not taken action for 90 days after receipt of the above notice and offer of indemnity.
193
-
- No
direction inconsistent with this written request has been given to the trustee during the same 90-day period by the Holders of a majority in principal
amount of outstanding senior notes. (Section 507)
However,
you are entitled at any time to bring a lawsuit for the payment of money due on your senior note on or after the due date of that payment. (Section 508)
"Street
name" and other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request of the trustee and to make or
cancel a declaration of acceleration.
Each
of Platinum Finance and Platinum Holdings will furnish to the trustee every year a written statement of two of its officers certifying that to their knowledge it is in compliance
with the indenture and the senior notes, or else specifying any default. (Section 1006)
Regarding the Trustee
JPMorgan Chase Bank is the trustee under the indenture. The trustee shall be subject to all the duties and responsibilities specified with respect to an indenture
trustee under the Trust Indenture Act. The trustee and its affiliates have performed services for Platinum Finance and Platinum Holdings and their affiliates in the ordinary course of business.
Guarantee
Under the guarantee, Platinum Holdings will irrevocably and unconditionally guarantee, on a senior and unsecured basis, the payment in full of the following:
-
- interest
payments that are required to be paid on the senior notes;
-
- the
principal amount of the senior notes;
-
- interest
payments on overdue interest payments and principal amounts due on the senior notes, to the extent permitted by law; and
-
- any
other payments due to holders of senior notes under the senior notes.
The
guarantee will be unsecured and rank equally in right of payment to all other senior unsecured debt of Platinum Holdings. In addition, Platinum Holdings is a holding company and its
assets will consist primarily of the capital stock of its subsidiaries. Accordingly, Platinum Holdings will depend on dividends and other distributions from its subsidiaries in order to make payments
on the guarantee. Platinum Holdings' guarantee is effectively junior to the debt and other liabilities of its subsidiaries.
The
senior notes and the guarantee do not limit Platinum Holdings' or Platinum Finance's ability or the ability of their subsidiaries to incur indebtedness. This would include
indebtedness that ranks equally with the senior notes and the guarantee.
The
guarantee will be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts of laws principles thereof.
194
GLOBAL CLEARANCE AND SETTLEMENT
Platinum Holdings will issue the units and Platinum Finance will issue the senior notes that are released from the pledge following the substitution of the
applicable treasury securities or early settlement, in the form of a global security, or Global Security, registered in the name of Cede & Co., as nominee of DTC. We refer to the global
security representing the units as the Global Unit and to the global security representing the senior notes as the Global Note. Each global security will be issued only in fully registered form and
the Global Note will be issued without interest coupons.
You
may hold your beneficial interests in a Global Security directly through DTC if you have an account at DTC, or indirectly through organizations that have accounts at DTC.
What is a Global Security? A global security is a special type of indirectly held security in the form of a certificate held
by a depositary for the investors in a particular issue of securities. Since Platinum
Holdings and Platinum Finance choose to issue the units and the senior notes in the form of a global security, the ultimate beneficial owners can only be indirect holders. This is done by requiring
that the Global Units and the Global Notes be registered in the name of a financial institution selected by Platinum Holdings or Platinum Finance, as appropriate, and by requiring that the units
included in the Global Units and the senior notes included in the Global Note not be transferred to the name of any other direct holder unless the special circumstances described below occur.
The
financial institution that acts as the sole direct holder of a Global Security is called the "Depositary." Any person wishing to own a unit or a senior note must do so indirectly by
virtue of an account with a broker, bank or other financial institution that in turn has an account with the Depositary. In the case of the units and the senior notes, DTC will act as depositary and
Cede & Co. will act as its nominee.
Except
under the limited circumstances described below or upon the creation of normal units, a Global Security may be transferred, in whole and not in part, only to DTC, to another
nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in a Global Security will be represented, and transfers of such beneficial interests will be made, through accounts of
financial institutions acting on behalf of beneficial owners either directly as account holders, or indirectly through account holders, at DTC.
Beneficial
interests in the Global Unit will be in multiples of $25 and beneficial interests in the Global Note will be in multiples of $1,000.
Special Investor Considerations for Global Securities. As an indirect holder, an investor's rights relating to the Global
Security will be governed by the account rules of the investor's financial institution and of the Depositary, DTC, as well as general laws relating to securities transfers. Platinum Holding and
Platinum Finance will not recognize this type of investor as a holder of units or senior notes and instead will deal only with DTC, the Depositary that holds the Global Securities.
An
investor in units or separate senior notes should be aware that because these securities will be issued only in the form of global securities:
-
- The
investor cannot get units or senior notes registered in his or her own name.
-
- The
investor cannot receive physical certificates for his or her interest in the units or senior notes.
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-
- The
investor will be a "street name" holder and must look to his or her own bank or broker for payments on the senior notes and protection of his or her
legal rights relating to the units or senior notes.
-
- The
investor may not be able to sell interests in the units or senior notes to some insurance companies and other institutions that are required by law to
own their securities in the form of physical certificates.
-
- DTC's
policies will govern payments, transfers, exchanges and other matters relating to the investor's interest in the Global Securities. Platinum Finance
and the trustee have no responsibility for any aspect of DTC's actions or for its records of ownership interests in the Global Note. Likewise, Platinum Holdings and the purchase contract agent have no
responsibility for any aspect of DTC's actions or for its records of ownership interests in the Global Unit. None of Platinum Finance, Platinum Holdings, the trustee or the purchase contract agent
supervises DTC in any way.
Description of DTC. DTC has informed Platinum Holdings and Platinum Finance that:
DTC
is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the
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 for financial institutions that have accounts with it, and to facilitate the clearance and settlement of securities transactions between the account
holders through electronic book-entry changes in their accounts, thereby eliminating the need for physical movement of certificates. DTC account holders include securities brokers and
dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system is also available to banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a DTC account holder, either directly or indirectly.
DTC's
rules are on file with the SEC.
DTC's
records reflect only the identity of its participants to whose accounts beneficial interests in the Global Securities are credited. These participants may or may not be the owners
of the beneficial interests so recorded. The participants will be responsible for keeping account of their holdings on behalf of their beneficial owners.
Definitive Securities
In a few special situations described in the next paragraph, a Global Security will terminate and interests in it will be exchanged for physical certificates
representing senior notes or units, as the case may be. After that exchange, the choice of whether to hold the senior notes or units directly or in "street name" (in computerized
book-entry form) will be up to the investor. Investors must consult their own bank or broker to find out how to have their interests in units or senior notes transferred to their own name,
so that they will be direct holders.
The
special situations for termination of the Global Securities are:
-
- When
DTC notifies Platinum Finance or Platinum Holdings, as the case may be, that it is unwilling, unable or no longer qualified to continue as Depositary.
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-
- Platinum
Holdings elects to terminate its arrangement with the Depositary with respect to the units.
-
- In
the case of the Global Note, when an event has occurred that constitutes, or with the giving of notice or passage of time would constitute, an Event of
Default and has not been cured. See "Description of the Senior NotesDefault and Related MattersEvents of Default."
-
- In
the case of a Global Unit, whenever continuing default by Platinum Holdings in respect of its obligations under one or more purchase contracts has
occurred.
Platinum
Finance would issue definitive Notes:
-
- only
in fully registered form;
-
- without
interest coupons; and
-
- in
denominations of $1,000 and even multiples of $1,000 except that a senior note held as part of a normal unit represents an ownership interest of 1/40th,
or 2.5%, of a senior note in aggregate principal amount of $1,000 and will therefore correspond to the stated amount of $25 per normal unit.
Platinum
Holdings would issue definitive Units:
-
- only
in fully registered form; and
-
- in
denominations of $25 and even multiples of $25.
When
a Global Security terminates, DTC (and not Platinum Finance, Platinum Holdings, the purchase contract agent or the trustee) is responsible for deciding the names of the institutions
that will be the initial direct holders.
Exercise of Legal Rights under the Units and the Senior Notes
Platinum Holdings' and Platinum Finance's obligations, as well as the obligations of the purchase contract agent and the trustee and those of any third parties
employed by Platinum Finance, Platinum Holdings, the purchase contract agent or the trustee, run only to persons who are registered as holders of units or senior notes, as the case may be. Platinum
Finance and Platinum Holdings do not have obligations to you so long as the units or senior notes you hold are issued in the form of Global Securities, or if definitive securities are issued, if you
hold in "street name" or by other indirect means. For example, once Platinum Holdings or Platinum Finance makes payment to the registered holder, it has no further responsibility for the payment even
if that holder is legally required to pass the payment along to you as a "street name" customer but does not do so.
So
long as you hold units or senior notes as a beneficial interest in a global security or if Platinum Holdings or Platinum Finance issues definitive securities and you hold them in
"street name", you should check with the institution through which you hold your beneficial interest to find out, among other things:
-
- how
it handles securities payments and notices;
-
- whether
it imposes fees or charges;
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-
- how
it would handle voting if ever required;
-
- whether
and how you can instruct it to send you securities registered in your own name so you can be a direct holder as described below; and
-
- how
it would pursue rights under the senior notes or units if there were a default or other event triggering the need for holders to act to protect their
interests.
Payment and Paying Agents
The trustee will make payments of principal of, and interest and any premium on, each Global Note to Cede & Co., the nominee for DTC, as the registered
owner. The purchase contract agent will make contract adjustment payments on each Global Unit to Cede & Co., the nominee for DTC, as the registered owner. The principal of, and interest and any
premium on, the Global Note and the contract adjustment payments on the Global Unit will be payable in immediately available funds in U.S. dollars.
We
understand that it is DTC's current practice, upon DTC's receipt of any payment of principal of, or interest or any premium on, global securities such as the Global Unit and the
Global Note, to credit the accounts of DTC account holders with payment in amounts proportionate to their respective beneficial interests in the stated amount of the Global Unit or principal amount of
the Global Note as shown on the records of DTC. Payments by DTC participants to owners of beneficial interests in the Global Unit or Global Note held through these participants will be the
responsibility of the participants, as is now the case with securities held for the accounts of customers registered in "street name."
Neither
Platinum Finance, Platinum Holdings, the purchase contract agent nor the trustee will have any responsibility or liability for any aspect of DTC's or its participants' records
relating to, or payments made on account of, beneficial ownership interests in the Global Units or Global Note or for maintaining, supervising or reviewing any records relating to these beneficial
ownership interests.
"Street
name" holders and other owners of beneficial interests in a Global Note should consult their banks or brokers for information on how they will receive payments.
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DESCRIPTION OF PLATINUM HOLDINGS' COMMON SHARES
The following description of the share capital of Platinum Holdings summarizes certain provisions of Platinum Holdings' bye-laws. A copy of Platinum
Holdings' bye-laws is incorporated by reference into the registration statement of which this prospectus is a part. All references in this description to "we", "us", "our" and the
"Company" refer to Platinum Holdings unless the context otherwise requires.
General
At the completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment, our authorized share capital
will consist of: (i) 200,000,000 Common Shares, par value $0.01 per share, of which 40,000,000 Common Shares will be outstanding (assuming the underwriters' option to purchase additional Common
Shares is not exercised), and (ii) 25,000,000 preferred shares, par value $0.01 per share, none of which will be outstanding.
Common Shares
Holders of Common Shares have no pre-emptive, redemption, conversion or sinking fund rights, provided, however, that pursuant to the Formation and
Separation Agreement and the Standstill Agreement, Platinum Holdings has granted St. Paul and RenaissanceRe, respectively, the pre-emptive rights specified therein. See "Certain Relationships and
Related TransactionsThe St. Paul InvestmentFormation and Separation Agreement" and "The RenaissanceRe InvestmentTransfer Restrictions, Registration
Rights and Standstill Agreements." Subject to the limitation on voting rights described below, holders of Common Shares are entitled to one vote per share on all matters submitted to a vote of holders
of Common Shares. Most matters to be approved by holders of Common Shares require approval by a simple majority vote. The holders of at least 75% of the Common Shares voting in person or by proxy at a
meeting must generally approve an amalgamation with another company. In addition, a resolution to remove our auditor before the expiration of its term of office must be approved by at least
two-thirds of the votes cast at a meeting of the shareholders of the Company. The quorum for any meeting of our shareholders is two or more persons holding or representing a majority of
the outstanding Common Shares on an unadjusted basis. Our Board of Directors has the power to approve our discontinuation from Bermuda to another jurisdiction. The rights attached to any class of
shares, common or preferred,
may be varied with the consent in writing of the holders of at least 75% of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate
general meeting of the holders of the shares of the class in accordance with the Bermuda Companies Act.
In
the event of a liquidation, dissolution or winding-up of the Company, the holders of Common Shares are entitled to share equally and ratably in the assets of the Company,
if any, remaining after the payment of all debts and liabilities of the Company and the liquidation preference of any outstanding preferred shares. All outstanding Common Shares are fully paid and
nonassessable. Authorized but unissued shares may, subject to any rights attaching to existing shares, be issued at any time and at the discretion of the Board of Directors without the approval of the
shareholders of the Company, with such rights, preferences and limitations as the Board may determine.
Limitation on Voting Rights
Each Common Share has one vote on a poll of the shareholders, except that, if and for as long as the number of issued Controlled Shares (as defined below) of any
person would constitute 10% or more of the combined voting power of the issued Common Shares of the Company (after giving effect to any prior reduction in voting power as described below), each issued
Controlled Share,
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regardless of the identity of the registered holder thereof, will confer a fraction of a vote as determined by the following formula:
(T
- - C) ÷ (9.1 × C)
Where: |
|
(1) |
|
"T" is the aggregate number of votes conferred by all the issued Common Shares immediately prior to that application of the Formula with respect to such issued Controlled Shares adjusted to take into account any prior
reduction taken with respect to any issued Controlled Shares pursuant to the "sequencing provision" described below; and |
|
|
(2) |
|
"C" is the number of issued Controlled Shares attributable to that person. "Controlled Shares" of any person refers to all Common Shares owned by that person, whether (i) directly, (ii) with respect to persons who are U.S. persons, by
application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the Code or (iii) beneficially, directly or indirectly, within the meaning of Section 13(d)(3) of the Exchange Act, and the rules and
regulations thereunder. |
The formula will be applied successively as many times as may be necessary to ensure that no person will be a 10% Shareholder (as defined below) at any time (the "sequencing provision").
For the purposes of determining the votes exercisable by shareholders as of any date, the formula first will be applied to the Common Shares of each shareholder in declining order based on the
respective numbers of total Controlled Shares attributable to each shareholder. Thus, the formula will be applied first to the votes of Common Shares held by the shareholder to whom the largest number
of total Controlled Shares is attributable and thereafter sequentially with respect to the shareholder with the next largest number of total Controlled Shares. The formula will be applied iteratively
thereafter to ensure that no person will be a 10% Shareholder. In each case, calculations are made on the basis of the aggregate number of votes conferred by the issued Common Shares as of such date,
as reduced by the application of the formula to any issued Common Shares of any shareholder with a larger number of total Controlled Shares as of such date. "10% Shareholder" means a person who owns,
in the aggregate, (i) directly, (ii) with respect to persons who are U.S. persons, by application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the
Code or (iii) beneficially, directly or indirectly, within the meaning of Section 13(d)(3) of the Exchange Act, issued Common Shares of the Company carrying 10% or more of the total
combined voting rights attaching to all issued Common Shares.
Because of the voting limitation described in the preceding paragraph, the Common Shares owned by St. Paul will have reduced voting rights, and if RenaissanceRe ever owns 10% or more of
Platinum Holdings' Common Shares, the Common Shares owned by RenaissanceRe will also have reduced voting rights. In addition the voting limitation will also be applied to the Common Shares owned by
RenaissanceRe to the extent that the application of the voting limitation to the Common Shares owned by St. Paul would cause RenaissanceRe to hold 10% or more of the total voting rights
attached to Platinum Holdings' Common Shares, even if RenaissanceRe owns less than 10% of Platinum Holdings' Common Shares. Should St. Paul or RenaissanceRe dispose of some or all of the Common Shares
it owns, the reduced voting rights with respect to the Common Shares disposed of by St. Paul or RenaissanceRe will be eliminated (except if the disposition is to any other person who holds, or who as
a result of such transaction would hold, 10% or more of our total voting rights), and those Common Shares thereafter will be entitled to full voting rights, subject to future dilution to avoid
creating a 10% Shareholder. Therefore, the voting power of the Common Shares held by all of our shareholders other than St. Paul (or, if applicable, RenaissanceRe) will be diluted upon any such
disposition by St. Paul or RenaissanceRe. Although St. Paul and RenaissanceRe have informed us that they currently intend to continue their share ownership in Platinum Holdings for the foreseeable
future, there can be no assurance in this regard.
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Our
directors are empowered to require any shareholder to provide information as to that shareholder's beneficial ownership of Common Shares, the names of persons having beneficial
ownership of the shareholder's Common Shares, relationships, associations or affiliations with other shareholders or any other facts the directors may deem relevant to a determination of the number of
Controlled Shares attributable to any person. Our directors may disregard the votes attached to
the Common Shares of any holder failing to respond to such a request or submitting incomplete or untrue information.
Our
directors retain certain discretion to make such final adjustments to the aggregate number of votes attaching to the Common Shares of any shareholder that they consider fair and
reasonable in all the circumstances to ensure that no person will be a 10% Shareholder at any time.
Restrictions on Transfer
Platinum Holdings' bye-laws contain several provisions restricting the transferability of Common Shares. Platinum Holdings' directors are required to
decline to register a transfer of Common Shares if they have reason to believe that the result of such transfer would be (i) that any person other than a St. Paul Person or a RenaissanceRe
Person would become or continue to be a 10% Shareholder or (ii) that a St. Paul Person or a RenaissanceRe Person would become or continue to be a United States 25% Shareholder, in each case
without giving effect to the limitation on voting rights described above. Similar restrictions apply to Platinum Holdings' ability to issue or repurchase Common Shares. "St. Paul Person" means any of
St. Paul and its affiliates following the completion of the Equity Public Offering, "United States 25% Shareholder" means a U.S. person who owns, directly or by application of the constructive
ownership rules of Sections 958(a) and 958(b) of the Code, 25% or more of either (i) the total combined voting rights attaching to the issued Common Shares and the issued shares of any other
class of the Company or (ii) the total combined value of the issued Common Shares and any other issued shares of the Company, determined pursuant to Section 957 of the Code, and
"RenaissanceRe Person" means any of RenaissanceRe and its affiliates following the completion of the Equity Public Offering. Only for the purposes of these provisions of our bye-laws, it is assumed
that all RenaissanceRe Persons are U.S. Persons. These restrictions on the transfer, issuance or repurchase of shares do not apply to any issuance of shares pursuant to the purchase contracts included
in the equity security units, through the limitations on voting rights, discussed above, do apply to such Common Shares.
Our
directors also may, in their absolute discretion, decline to register the transfer of any Common Shares if they have reason to believe (i) that the transfer may expose us, any
of our subsidiaries, any shareholder or any person ceding insurance to any of our subsidiaries to adverse tax or regulatory treatment in any jurisdiction or (ii) that registration of the
transfer under the 1933 Act or under any U.S. state securities laws or under the laws of any other jurisdiction is required and such registration has not been duly effected. In addition, our directors
may decline to approve or register a transfer of shares unless all applicable consents, authorizations, permissions or approvals of any governmental body or agency in Bermuda, the United States or any
other applicable jurisdiction required to be obtained prior to such transfer shall have been obtained.
We
are authorized to request information from any holder or prospective acquiror of Common Shares as necessary to give effect to the transfer, issuance and repurchase restrictions
described above, and may decline to effect any transaction if complete and accurate information is not received as requested.
Conyers,
Dill & Pearman, our Bermuda counsel, has advised us that while the precise form of the restrictions on transfer contained in our bye-laws is untested, as a
matter of general principle, restrictions on transfers are enforceable under Bermuda law and are not uncommon. A proposed transferee will be permitted to dispose of any Common Shares purchased that
violate the
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restrictions and as to the transfer of which registration is refused. The proposed transferor of those Common Shares will be deemed to own those Common Shares for dividend, voting and reporting
purposes until a transfer of such Common Shares has been registered on the register of shareholders of the Company.
If
the directors refuse to register a transfer for any reason, they must notify the proposed transferor and transferee within 30 days of such refusal. Our bye-laws also
provide that our Board of Directors may suspend the registration of transfers for any reason and for such periods as it may determine, provided that it may not suspend the registration of transfers
for more than 45 days in any period of 365 consecutive days.
Our
directors may designate our Chief Executive Officer to exercise their authority to decline to register transfers or to limit voting rights as described above, or to take any other
action, for as long as the Chief Executive Officer is also a director.
The
voting restrictions and restrictions on transfer described above may have the effect of delaying, deferring or preventing a change in control of us.
Preferred Shares
Pursuant to our bye-laws and Bermuda law, our Board of Directors by resolution may establish one or more series of preferred shares having a number of
shares, designations, relative voting rights, dividend rates, liquidation and other rights, preferences, limitations and powers as may be fixed by the Board of Directors without any further
shareholder approval which, if any preferred shares are issued, will include restrictions on voting and transfer intended to avoid having us constitute a "controlled foreign corporation" for U.S.
federal income tax purposes. If our Board of Directors issues preferred shares conferring any voting rights, it will amend our bye-laws to apply the limitations on the voting rights discussed above
under "Limitation on Voting Rights" to those preferred shares. Any rights, preferences, powers and limitations as may be established could also have the effect of discouraging an attempt
to obtain control of the Company. The issuance of preferred shares could also adversely affect the voting power of the holders of our Common Shares, deny such holders the receipt of a premium on their
Common Shares in the event of a tender or other offer for the Common Shares and depress the market price of the Common Shares. We have no current plans to issue any preferred shares.
Bye-laws
Our bye-laws provide for our corporate governance, including the establishment of share rights, modification of those rights, issuance of share
certificates, imposition of a lien over shares in respect of unpaid amounts on those shares, calls on shares which are not fully paid, forfeiture of shares, the transfer of shares, alterations of
capital, the calling and conduct of general meetings, proxies, the appointment and removal of directors, conduct and power of directors, the payment of dividends, the appointment of an auditor and our
winding-up.
Our
bye-laws provide that our Board of Directors shall be elected annually and shall not be staggered. Shareholders may only remove a director for cause prior to the
expiration of that director's term at a special meeting of shareholders at which a majority of the holders of shares voting thereon vote in favor of that action. For a description of the number and
term of our Directors, see "ManagementNumber and Terms of Directors" above.
Our
bye-laws also provide that if our Board of Directors in its absolute discretion determines that share ownership by any shareholder may result in adverse tax, regulatory
or legal consequences to us, any of our subsidiaries or any other shareholder, then we will have the option, but not the obligation, to repurchase all or part of the shares held by such shareholder to
the extent
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the Board of Directors determines it is necessary to avoid such adverse or potential adverse consequences. The price to be paid for such shares will be the fair market value of such shares.
Platinum
Holdings' bye-laws and those of Platinum Bermuda and Platinum Ireland provide that matters required to be submitted to a vote of their shareholders are required to be submitted
to Platinum Holdings' shareholders and the shareholders of such subsidiaries are required to vote the subsidiaries' shares in accordance with and in proportion to the vote of Platinum Holdings'
shareholders.
Transfer Agent
Our registrar and transfer agent for the Common Shares is Mellon Investor Services LLC.
Differences in Corporate Law
The Companies Act differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. Set forth below is a summary of
certain significant provisions of the Companies Act (including modifications adopted pursuant to our bye-laws) applicable to us, which differ in certain respects from provisions of
Delaware corporate law, which is the law that governs many U.S. public companies. The following statements are summaries, and do not purport to deal with all aspects of Bermuda law that may be
relevant to us and our shareholders.
Interested Directors. Our bye-laws provide that transactions we enter into in which a
director has an interest are not voidable by us, nor can the interested director be liable to us for any profit realized pursuant to such transactions, provided the nature of the interest is disclosed
at the first opportunity at a meeting of directors, or in writing to the directors. Under Delaware law, such a transaction would not be voidable if (i) the material facts as to the interested
director's relationship or interests are disclosed or are known to the board of directors and the board in good faith authorized the transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors constitute less than a quorum, (ii) the material facts as to the director's relationship or interest and as to the transaction
are disclosed or are known to the shareholders entitled to vote on the transaction and the transaction is specifically approved in good faith by vote of the shareholders or (iii) the
transaction is fair to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee of the board of directors or the shareholders. Under Delaware law,
the interested director could be held liable for a transaction in which that director derived an improper personal benefit.
Mergers and Similar Arrangements. We may acquire the business of another Bermuda company or a company
incorporated outside Bermuda and carry on such business when it is within the objects of our memorandum of association. In the case of an amalgamation, we may amalgamate with another Bermuda company
or with an entity incorporated outside Bermuda. A shareholder who did not vote in favor of the amalgamation may apply to a Bermuda court for a proper valuation of his or her shares if he or she is not
satisfied that fair value has been offered for those shares. The court ordinarily would not disapprove the transaction on that ground absent evidence of fraud or bad faith. Under Delaware law, with
certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and the holders of a majority of the outstanding
shares entitled to vote thereon. Under Delaware law, a stockholder of a corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal
rights pursuant to which the stockholder may receive cash in the amount of the fair value of the shares held by that stockholder (as determined by a court) in lieu of the consideration that
stockholder would otherwise receive in the transaction. Delaware law does not provide stockholders of a corporation with voting or appraisal rights when the corporation acquires another business
through the issuance of its stock or other
203
consideration (i) in exchange for the assets of the business to be acquired; (ii) in exchange for the outstanding stock of the corporation to be acquired; (iii) in a merger of
the corporation to be acquired with a subsidiary of the acquiring corporation; or (iv) in a merger in which the corporation's certificate of incorporation is not amended and the corporation
issues less than 20% of its common stock outstanding prior to the merger.
Takeovers. Bermuda law provides that where an offer is made for shares of another company and, within
four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer (other than shares held by or for the offeror or its subsidiaries) accept, the offeror may
by notice require the nontendering shareholders to transfer their shares on the terms of the offer. Dissenting shareholders may apply to the court within one month of the notice objecting to the
transfer. The burden is on the dissenting shareholders to show that the court should exercise its discretion to enjoin the required transfer, which the court will be unlikely to do unless the offer is
obviously and convincingly unfair. Delaware law provides that a parent corporation, by resolution of its board of directors and without any shareholder vote, may merge with any subsidiary of which it
owns at least 90% of the outstanding shares of each class of stock that is entitled to vote on the transaction. Upon any such merger, dissenting stockholders of the subsidiary would have appraisal
rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are not as extensive as the rights
of shareholders under legislation or judicial precedent in many U.S. jurisdictions. Class actions and derivative actions are generally not available to shareholders under the laws of Bermuda. However,
the Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a shareholder to commence an action in our name to remedy a wrong done to us where the act
complained of is alleged to be beyond our corporate power or is illegal or would result in the violation of our memorandum of association or bye-laws. Furthermore, consideration would be
given by the court to acts that are alleged to constitute a fraud against the minority shareholders or where an act requires the approval of a greater percentage of shareholders than actually approved
it. The winning party in such an action generally would be able to recover a portion of attorneys' fees incurred in connection with such action. Class actions and derivative actions generally are
available to stockholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has
discretion to permit the winning party to recover attorneys' fees incurred in connection with such action.
Indemnification of Directors. Our bye-laws indemnify our directors and officers in their
capacity as such in respect of any loss arising or liability attaching to them by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which a director
or officer may be guilty in relation to us other than in respect of his own fraud or dishonesty, which is the maximum extent of indemnification permitted under the Companies Act. Under Delaware law, a
corporation may indemnify a director or officer of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in
defense of an action, suit or proceeding by reason of such position if (i) the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and (ii) with respect to any criminal action or proceeding, if the director or officer had no reasonable cause to believe his conduct was unlawful.
Inspection of Corporate Records. Members of the general public have the right to inspect our public
documents available at the office of the Registrar of Companies in Bermuda, which will include our memorandum of association (including our objects and powers) and alterations to our
memorandum of association, including any increase or reduction of our authorized capital. Our shareholders have the additional right to inspect our bye-laws, minutes of general meetings
and our
204
audited financial statements, which must be presented to the annual general meeting of shareholders. Our register of shareholders is also open to inspection by shareholders without charge, and to
members of the public for a fee. We are required to maintain a share register in Bermuda but may establish a branch register outside Bermuda. We are required to keep at our registered office a
register of our directors and officers which is open for inspection by members of the public without charge. Bermuda law does not, however, provide a general right for shareholders to inspect or
obtain copies of any other corporate records. Delaware law permits any stockholder to inspect or obtain copies of a corporation's stockholder list and its other books and records for any purpose
reasonably related to such person's interest as a stockholder.
Enforcement of Judgments and Other Matters. We have been advised by Conyers, Dill & Pearman, our
Bermuda counsel, that there is doubt as to whether the courts of Bermuda would enforce (1) judgments of United States courts obtained in actions against us or our directors and officers, as
well as the experts named in this prospectus who reside outside the United States predicated upon the civil liability provisions of the United States federal securities laws and (2) original
actions brought in Bermuda against us or our directors and officers, as well as the experts named in this prospectus who reside outside the United States predicated solely upon United States federal
securities laws. There is no treaty in effect between the United States and Bermuda providing for such enforcement, and there are grounds upon which Bermuda courts may not enforce judgments of United
States courts. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies available under the U.S. federal securities laws, would not be allowed in Bermuda courts as
contrary to Bermuda's public policy.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Equity Public Offering, there has been no public market for the Common Shares, and no predictions can be made as to the effect, if any, that market
sales of Common Shares or the availability of Common Shares for sale will have on the market price prevailing from time to time. Public or private sales of substantial amounts of Common Shares, or the
perception that such sales could take place, may adversely affect prevailing market prices of the Common Shares as well as the ability of the Company to raise additional capital in the public equity
markets at a desirable time and price.
Upon
completion of the Equity Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment, Platinum Holdings will have outstanding 40,000,000 Common
Shares
(assuming the underwriters' option to purchase additional Common Shares is not exercised), 30,040,000 of which will have been sold in the Equity Public Offering, 6,000,000 of which will have been
issued in the St. Paul Investment and 3,960,000 of which will have been issued in the RenaissanceRe Investment, each as described under "St. Paul Investment, RenaissanceRe Investment and
Principal Shareholders." In the event the underwriters' option to purchase additional Common Shares is exercised in full, St. Paul has the option to purchase (at a price per share equal to the initial
public offering price less the underwriting discount) up to an aggregate of 900,000 Common Shares in order to maintain its 15.0% initial share ownership in Platinum Holdings, and RenaissanceRe has the
option to purchase (at a price per share equal to the initial public offering price less the underwriting discount) up to an aggregate of 594,000 Common Shares in order to maintain its 9.9% initial
share ownership in Platinum Holdings. As a result, if the underwriters' option to purchase additional Common Shares is exercised in full and St. Paul and RenaissanceRe exercise in full their options
to maintain their respective ownership interests, there would be outstanding an additional 6,000,000 Common Shares. Furthermore, upon the settlement of the purchase contracts forming part of the
equity security units on the share purchase date, an additional number of Common Shares, to be determined based upon a settlement rate, will be sold to the holders of the equity security units. In
that event, St. Paul and RenaissanceRe may exercise their pre-emptive rights to purchase a corresponding number of Common Shares to maintain their proportionate ownership interests in Platinum
Holdings. In addition, St. Paul may acquire up to an additional 6,000,000 Common Shares through exercise of the St. Paul Option and RenaissanceRe may acquire up to an additional 2,500,000 Common
Shares through exercise of the RenaissanceRe Option, and the purchase contracts underlying the equity security units to be sold in the ESU Offering obligate us to sell, for $25, on the Share Purchase
Date a number of newly issued Common Shares equal to a settlement rate based on the average trading price of our Common Shares at that time. The Common Shares sold in the Equity Public Offering and
issuable to the holders of equity security units on the Share Purchase Date will be freely transferable without restriction or further registration under the 1933 Act, except for any of those Common
Shares owned at any time by an "affiliate" of the Company within the meaning of Rule 144 under the 1933 Act (which sales will be subject to volume limitations and certain other restrictions).
The Common Shares issued in the St. Paul Investment and the RenaissanceRe Investment or upon exercise of the St. Paul Option or the RenaissanceRe Option, and the Common Shares St. Paul and
RenaissanceRe may purchase, through their pre-emptive rights, upon the settlement of the purchase contracts forming part of the equity security units, will be deemed "restricted securities" as defined
in Rule 144 under the 1933 Act and may not be resold in the absence of registration under the 1933 Act or pursuant to an exemption from such registration, including the exemption provided by
Rule 144 under the 1933 Act.
In
connection with the St. Paul Investment and the RenaissanceRe Investment, Platinum Holdings granted St. Paul and RenaissanceRe the right to require the registration of their Common
Shares under the 1933 Act. See "Certain Relationships and Related TransactionsThe St. Paul
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InvestmentRegistration Rights Agreement with St. Paul" and "The RenaissanceRe InvestmentTransfer Restrictions, Registration Rights and Standstill
AgreementRegistration Rights."
Platinum Holdings, its officers and directors, Platinum Finance, St. Paul and RenaissanceRe have agreed with the underwriters not to offer, sell, contract to sell, pledge, grant any
option to purchase, hedge, make any short sale or otherwise dispose of any Common Shares or equity security units (including the related purchase contracts and senior notes), any securities of the
Company that are
substantially similar to Common Shares or equity security units (including the related purchase contracts and senior notes), or any securities of Platinum Finance that are substantially similar to the
senior notes, or any options or warrants to purchase any Common Shares or equity security units (including the related purchase contracts and senior notes), or any securities convertible into,
exchangeable for or that represent the right to receive Common Shares or equity security units (including the related purchase contracts and senior notes) (and, with respect to the Company, other than
the initial issuance of Common Shares to be offered and sold concurrently with this offering and the securities to be offered and sold in the St. Paul Investment and the RenaissanceRe
Investment) during the period from the date of this prospectus continuing to and including the date 180 days after the date of this prospectus, except with the prior written consent of Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Salomon Smith Barney Inc. and subject to other specified exceptions.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material U.S. federal income tax consequences of the purchase, ownership and disposition of the units, the ownership
interests in the senior notes, treasury securities and purchase contracts that are or may be the components of a unit, and the Common Shares acquired under a purchase contract. Except for matters
where it is explicitly stated that we will not receive an opinion of counsel, this discussion is the opinion of Sullivan & Cromwell, our U.S. tax counsel (subject to the qualifications, assumptions
and factual determinations set forth in this discussion). Except where otherwise indicated, this discussion only applies to U.S. holders (defined below) who purchase units in the initial offering at
their original offering price and hold the units, the ownership interests in senior notes, treasury securities, purchase contracts and the Common Shares as capital assets (generally, assets held for
investment). This discussion is based upon the Internal Revenue Code of 1986 as amended (the "Code"), treasury regulations (including proposed treasury regulations) issued thereunder, Internal Revenue
Service ("IRS") rulings and pronouncements and judicial decisions now in effect, all of which are subject to change, possibly with retroactive effect.
This
discussion does not address all aspects of U.S. federal income taxation that may be relevant to U.S. holders in light of their particular circumstances, such as U.S. holders who are
subject to special tax treatment (for example, (1) banks, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt organizations or
traders in securities who elect to mark to market, (2) persons holding units, senior notes or the Common Shares as part of a straddle, hedge, conversion transaction or other integrated
investment, or (3) persons whose functional currency is not the U.S. dollar). In addition, this discussion does not address alternative minimum taxes or any state, local or foreign tax laws.
For
purposes of this discussion, "U.S. holder" means (1) a person who is a citizen or resident of the United States, (2) a domestic corporation, (3) an estate whose
income is subject to U.S. federal income tax regardless of its source, or (4) a trust if a United States court is able to exercise primary supervision over the trust's administration and one
or more United States persons are authorized to control all substantial decisions of the trust. Prospective investors that are not U.S. holders should refer to
"Non-United States Holders" below and are urged to consult their tax advisors with respect to the U.S. federal income tax consequences of an investment in units, including the potential
application of U.S. withholding taxes.
No statutory, administrative or judicial authority directly addresses the treatment of units or instruments similar to units for U.S. federal income tax purposes.
As a result, no assurance can be given that the IRS or a court will agree with the tax consequences described below. The discussion below assumes that, for U.S. federal income tax purposes,
(i) the senior notes and the purchase contracts will be treated as separate securities, (ii) the purchase contracts will be treated as forward contracts to purchase Common Shares and the
contract adjustment payments will be treated as payments to U.S. holders for investing in such contracts and (iii) the senior notes will be treated as indebtedness of Platinum Finance.
Nevertheless, the IRS could conceivably assert a different position with respect to one or more of the foregoing points, and were such position to prevail, a U.S. holder could experience tax
consequences that are different from those described herein. For example, if the IRS were to assert successfully that the purchase contracts and the senior notes should be treated as a single
contingent debt instrument, the principal consequences to holders would be that (a) the holder's acquisition of Common Shares pursuant to the purchase contracts would result in taxable gain or
loss, (b) any such gain would be ordinary income rather than capital gain, and (c) a holder's gain from disposition of the units prior to maturity would likewise be ordinary income
rather than capital gain. Prospective investors are urged to consult their tax
208
advisors with respect to the U.S. federal income tax consequences of the purchase, ownership and disposition of units, the ownership interests in senior notes and the Common Shares of Platinum
Holdings acquired under a purchase contract in light of their own particular circumstances, as well as the effect of any state, local or foreign tax laws.
Allocation of Purchase Price. A U.S. holder's acquisition of a normal unit will be treated as the acquisition of a
unit consisting of two components, an ownership interest in the senior note and the related purchase contract. The purchase price of each unit will be allocated between the ownership interest in the
senior note and the purchase contract constituting the unit, in proportion to their respective fair market values at the time of purchase. Such allocation will establish the U.S. holder's initial tax
basis in the ownership interest in the senior note and the purchase contract. Platinum Holdings and Platinum Finance expect to report the fair market value of each senior note as $1,000.00 (or $25.00
for each 2.5% ownership interest in a senior note) and the fair market value of each purchase contract as $0.00. This allocation will be binding on each U.S. holder (but not on the IRS) unless such
U.S. holder explicitly discloses a contrary position on a statement attached to the U.S. holder's timely filed U.S. federal income tax return for the taxable year in which a unit is acquired. Thus,
absent such disclosure, a U.S. holder should allocate the purchase price for a unit in accordance with the values reported by us. The remainder of this discussion assumes that this allocation of the
purchase price of a unit will be respected for U.S. federal income tax purposes. If these allocations are not respected ultimately, the timing and amount of interest income reported by the U.S.
holders and the amount of capital gain or loss ultimately realized upon the disposition of the Common Shares acquired pursuant to the purchase contracts could be impacted.
Ownership of Senior Notes or Treasury Securities. For U.S. federal income tax purposes, a U.S. holder will be treated as
owning the applicable ownership interest in the senior notes or treasury securities constituting a part of the units owned. Platinum Holdings and Platinum Finance (under the terms of the units) and
each U.S. holder (by acquiring units) agree to treat the ownership interests in the senior notes or treasury securities constituting a part of the units as owned by such U.S. holder for all tax
purposes, and the remainder of this discussion assumes such treatment. The U.S. federal income tax consequences of owning ownership interests in the senior notes or treasury securities are discussed
below (see "Senior Notes", "Stripped Units" and "Treasury Securities Purchased on Remarketing or a Tax Event Redemption").
Sales, Exchanges or Other Taxable Dispositions of Units. If a U.S. holder sells, exchanges or otherwise disposes of units in
a taxable disposition, such U.S. holder will be treated as having sold, exchanged or disposed of each of the purchase contract and the ownership interest in the senior note (or treasury securities)
that constitute such unit. The proceeds realized on such disposition will be allocated between the purchase contract and the ownership interest in the senior note (or treasury securities) in
proportion to their respective fair market values. As a result, as to each of the purchase contract and the senior note (or treasury securities), a U.S. holder generally will recognize gain or loss
equal to the difference between the portion of the proceeds received by such U.S. holder that is allocable to the purchase contract and the ownership interest in the senior note (or treasury
securities) and such U.S. holder's adjusted tax basis in the purchase contract and the ownership interest in the senior note (or treasury securities). For treatment of amounts received with respect to
contract adjustment payments or deferred contract adjustment payments, see "Purchase ContractsContract Adjustment Payments and Deferred Contract Adjustment Payments" below.
In
the case of the purchase contract and the treasury securities, such gain or loss generally will be capital gain or loss except that amounts received with respect to accrued but unpaid
interest on treasury securities will be treated as ordinary income to the extent not previously taken into income.
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Such gain or loss generally will be long-term capital gain or loss if the U.S. holder held the units for more than one year immediately prior to such disposition. Long-term
capital gains of individuals are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. The rules governing the determination of the character of gain
or loss on the disposition of an ownership interest in a senior note are summarized below under "Senior NotesSales, Exchanges, Remarketing or Other Taxable Dispositions of
Senior Notes." Because gain on the disposition of an ownership interest in a senior note generally should be treated as ordinary interest income and loss on the disposition of an ownership interest in
a senior note should be treated as ordinary loss to the extent of the U.S. holder's prior inclusions of original issue discount (as described in more detail below), dispositions of a unit consisting
of a purchase contract and an ownership interest in a senior note before the interest reset date may give rise to capital gain or loss on the purchase contract and ordinary income or loss on the
ownership interest in the senior note, which must be reported separately for U.S. federal income tax purposes.
If
the sale, exchange or other disposition of a unit occurs when the purchase contract has a negative value, we believe that a U.S. holder should be considered to have received
additional
consideration for the ownership interest in the senior note (or treasury securities) in an amount equal to such negative value and to have paid such amount to be released from such U.S. holder's
obligations under the related purchase contract. Because, as discussed below, any gain on the disposition of an ownership interest in a senior note prior to the interest reset date generally will be
treated as ordinary interest income for U.S. federal income tax purposes, the ability to offset such interest income with a loss on the purchase contract may be limited. Due to the lack of authority
directly addressing the treatment of a sale, exchange or other disposition of a unit (or an instrument similar to a unit) at a time when the purchase contract has negative value, such treatment is
unclear and counsel will not render an opinion on such treatment. U.S. holders should consult their tax advisors regarding a disposition of a unit at a time when the purchase contract has a negative
value.
Classification of the Senior Notes. In connection with the issuance of the senior notes, our U.S. tax counsel,
Sullivan & Cromwell, will deliver an opinion that, under current law, and based on certain representations, facts and assumption set forth in the opinion, the senior notes should be classified
as indebtedness for U.S. federal income tax purposes.
Platinum
Holdings and Platinum Finance (under the terms of the senior notes) and each U.S. holder (by acquiring an ownership interest in the senior notes) agree to treat the senior notes
as indebtedness of Platinum Finance for all tax purposes. The remainder of this discussion assumes such treatment.
Original Issue Discount. Because of the manner in which the interest rate on the senior notes is reset, we believe that the
senior notes should be classified as contingent payment debt instruments subject to the "noncontingent bond method" for accruing original issue discount, as set forth in the applicable treasury
regulations. Platinum Holdings and Platinum Finance intend to treat the senior notes in that manner, and the remainder of this discussion assumes that the senior notes will be so treated for U.S.
federal income tax purposes. Because of the lack of direct authority addressing the classification of senior notes (or notes with terms similar to senior notes) as contingent payment debt obligations,
such classification is unclear and counsel will not render an opinion on such classification.
As
discussed more fully below, the effects of applying the noncontingent bond method will be (1) to require each U.S. holder, regardless of such holder's usual method of tax
accounting, to use an accrual method with respect to the interest income on the ownership interest in the senior notes,
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(2) to require each U.S. holder to accrue interest income in excess of interest payments actually received for all accrual periods through ,
200 , and possibly for
accrual periods thereafter, and (3) generally to result in ordinary, rather than capital, treatment of any gain and any loss (to the extent such loss does not exceed the U.S. holder's prior
inclusions of original issue discount on the ownership interest in the senior note) on the sale, exchange or other disposition of an ownership interest in the senior notes. See "Senior
NotesSales, Exchanges, Remarketing or Other Taxable Dispositions of Senior Notes" below.
A
U.S. holder will be required to accrue original issue discount on a constant yield to maturity basis based on the "comparable yield" of the senior notes. The comparable yield of the
senior notes generally will be the rate at which Platinum Finance would issue a fixed rate noncontingent debt instrument with terms and conditions similar to the senior notes. Platinum Finance is
required to provide the comparable yield and a projected payment schedule, based on the comparable yield, to holders of the senior notes. Platinum Finance has determined that the comparable yield is
% and the projected payments are
$ on ,
200 ,
$ for each subsequent quarter ending on or prior
to , 200 and
$ for each semi-annual payment period ending
after , 200 . Platinum Finance has also
determined that the projected payment for the senior notes, per $1,000 of principal amount, at the maturity date is $ , or
$ for each 2.5% ownership
interest in a senior note (which includes the stated principal amount of the senior notes as well as the final projected interest payment).
The
amount of original issue discount on a senior note for each accrual period is determined by multiplying the comparable yield of the senior note (adjusted for the length of the
accrual period) by the senior note's adjusted issue price at the beginning of the accrual period. Based on the allocation of the purchase price of each unit described above (see "Normal
UnitsAllocation of Purchase Price"), the adjusted issue price of each senior note, per $1,000 of principal amount, at the beginning of the first accrual period will be $1,000, or $25 for
each 2.5% ownership interest in a senior note, and the adjusted issue price of each senior note at the beginning of each subsequent accrual period will be equal to $1,000, or $25 for each 2.5%
ownership interest in a senior note increased by any original issue discount previously accrued by such U.S. holders on such senior note (or ownership interest therein) and decreased by the amount of
projected payments on such senior note (or ownership interest therein) through such date. The amount of original issue discount so determined will then be allocated on a ratable basis to each day in
the accrual period that such U.S. holders hold the senior note (or ownership interest therein).
If,
after the date on which the interest rate on the senior notes is reset, the remaining amounts of principal and interest payable differ from the payments set forth on the projected
payment schedule, negative or positive adjustments reflecting such difference should generally be taken into account by a U.S. holder as adjustments to interest income in a reasonable manner over the
period to which they relate. We expect to account for any such difference with respect to a period as an adjustment for that period.
A
U.S. holder is generally bound by the comparable yield and projected payment schedule provided by Platinum Finance. If a U.S. holder decides to use its own comparable yield and
projected payment schedule, it must explicitly disclose this fact and the reason that it has used its own comparable yield and projected payment schedule. In general, this disclosure must be made on a
statement attached to the U.S. holder's timely filed U.S. federal income tax return for the
taxable year that includes the date of its acquisition of the ownership interests in the senior notes. The comparable yield and projected payment schedule are supplied by Platinum Finance solely for
computing income under the noncontingent bond method for U.S. federal income tax purposes and do not constitute projections or representations as to the amounts that such U.S. holder will actually
receive as a result of owning ownership interests in the senior notes or units.
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Because
income with respect to the senior notes will constitute interest for U.S. federal income tax purposes, corporate holders of units (or senior notes) will not be entitled to the
dividends-received deduction with respect of such income.
Tax Basis in Senior Notes. A U.S. holder's tax basis in the ownership interest in the senior notes will equal the portion of the purchase
price for the units allocated to the ownership interests in the senior notes as described above (see "Normal UnitsAllocation of Purchase Price"), increased by the amount of
original issue discount included in income with respect to the ownership interests in the senior notes and decreased by the amount of projected payments with respect to the ownership interest in the
senior notes through the computation date.
Sales, Exchanges, Remarketing or Other Taxable Dispositions of Senior Notes. A U.S. holder will recognize gain or loss on a disposition of
ownership interest in the senior notes (including a tax event redemption or upon the remarketing of the senior notes) in an amount equal to the difference between the amount realized by such U.S.
holder on the disposition of the ownership interest in the senior notes and such U.S. holder's adjusted tax basis in such ownership interest in the senior notes. Selling expenses incurred by such U.S.
holder, including the remarketing fee, will reduce the amount of gain or increase the amount of loss recognized by such U.S. holder upon a disposition of the ownership interests in the senior notes.
Gain recognized on the disposition of the ownership interest in the senior notes prior to the date on which the interest rate on the senior notes is reset will be treated as ordinary interest income.
Loss recognized on the disposition of the ownership interest in the senior notes prior to the interest rate reset date will be treated as ordinary loss to the extent of such U.S. holder's prior
inclusions of original issue discount on the ownership interest in the senior note. Any loss in excess of such amount will be treated as a capital loss. In general, gain recognized on the disposition
of the ownership interest in the senior notes on or after the interest rate reset date will be ordinary interest income to the extent attributable to the excess, if any, of the total remaining
principal and interest payments due on the ownership interest in the senior notes over the total remaining payments set forth on the projected payment schedule for the ownership interest in the senior
notes. Any gain recognized in excess of such amount and any loss recognized on such a disposition will generally be treated as a capital gain or loss. Long-term capital gains of
individuals are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Acquisition of the Common Shares of Platinum Holdings Under a Purchase Contract. A U.S. holder generally will not
recognize gain or loss on the purchase of Platinum Holdings' Common Shares under a purchase contract, except with respect to any cash paid to a U.S. holder in lieu of a fractional share of the Common
Shares, which should be treated as paid in exchange for such fractional share. A U.S. holder's aggregate initial tax basis in the Common Shares acquired under a purchase contract should generally
equal the purchase price paid for such Common Shares, plus the properly allocable portion of such U.S. holder's adjusted tax basis (if any) in the purchase contract (see "Normal
UnitsAllocation of Purchase Price"), less the portion of such purchase price and adjusted tax basis allocable to the fractional share. The holding period for the Common Shares acquired
under a purchase contract will commence on the day following the acquisition of such Common Shares.
Early Settlement of Purchase Contract. The purchase of Platinum Holdings' Common Shares upon early settlement of a purchase contract will
be treated as described above (see "Purchase ContractsAcquisition of the Common Shares of Platinum Holdings Under a Purchase Contract"). A U.S. holder of units will not
recognize gain or loss on the return of such U.S. holder's proportionate share of ownership interests in the senior notes or treasury securities upon early
212
settlement of a purchase contract and will have the same adjusted tax basis and holding period in such senior notes or treasury securities as before such early settlement.
Termination of Purchase Contract. If a purchase contract terminates, a U.S. holder of units will recognize gain or loss equal
to the difference between the amount realized (if any) and such U.S. holder's adjusted tax basis (if any) in the purchase contract at the time of such termination. Any such gain or loss will be
capital and generally will be long-term capital gain or loss if the U.S. holder held the purchase contract for more than one year prior to such termination. Long-term capital
gains of individuals are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. A U.S. holder will not recognize gain or loss on the return of such U.S.
holder's proportionate share of ownership interests in the senior notes or treasury securities upon termination of the purchase contract and such U.S. holder will have the same adjusted tax basis and
holding period in such ownership interests in the senior notes or treasury securities as before such termination.
Adjustment to Settlement Rate. A U.S. holder of units might be treated as receiving a constructive dividend distribution from
us if (1) the settlement rate is adjusted and as a result of such adjustment such U.S. holder's proportionate interest in our assets or earnings and profits is increased and (2) the
adjustment is not made pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the settlement rate would not be considered made pursuant to such a formula if the
adjustment were made to compensate a U.S. holder for certain taxable distributions with respect to Platinum Holdings' Common Shares. Thus, under certain circumstances, an increase in the
settlement rate might give rise to a taxable dividend to a U.S. holder of units even though such U.S. holder would not receive any cash related thereto.
Because
there is no direct authority addressing the treatment of the contract adjustment payments or deferred contract adjustment payments, such treatment is unclear and counsel will not
render an opinion on such treatment. Contract adjustment payments and deferred contract adjustment payments may constitute taxable ordinary income to a U.S. holder when received or accrued, in
accordance with such U.S. holder's regular method of tax accounting. To the extent we are required to file information returns with respect to the contract adjustment payments or deferred contract
adjustment payments, we intend to report such payments as taxable ordinary income to U.S. holders. U.S. holders should consult their tax advisors concerning the treatment of contract adjustment
payments and deferred contract adjustment payments, including the possibility that any contract adjustment payment or deferred contract adjustment payment may be treated as a loan, purchase price
adjustment, rebate or payment analogous to an option premium, rather than being includible in income on a current basis.
The
treatment of contract adjustment payments and deferred contract adjustment payments could affect a U.S. holder's adjusted tax basis in a purchase contract or the Common Shares of
Platinum Holdings received under a purchase contract or the amount realized by a U.S. holder upon the sale or disposition of a unit or the termination of a purchase contract. In particular,
-
- amounts
received on a sale or disposition of a unit or on termination of a purchase contract with respect to any accrued but unpaid contract adjustment
payments or deferred contract adjustment payments that have not been included in a U.S. holder's income may be treated as ordinary income,
-
- any
deferred contract adjustment payments that have been taken into income at the time they accrued but that are no longer payable to a U.S. holder because
the purchase contract has been terminated by reason of the bankruptcy of Platinum Holdings may give rise to an ordinary deduction in the year in which it ceases to be payable;
213
-
- any
contract adjustment payments or deferred contract adjustment payments that have been included in a U.S. holder's income, but that have not been paid to
such U.S. holder, may increase such U.S. holder's adjusted tax basis in the purchase contract, and
-
- any
contract adjustment payments or deferred contract adjustment payments that have been paid to a U.S. holder, but that have not been included in such U.S.
holder's income, may either reduce such U.S. holder's adjusted tax basis in the purchase contract or result in an increase in the amount realized on a termination or disposition of the purchase
contract.
Dividends. Distributions to U.S. holders with respect to the Common Shares will be treated as
ordinary dividend income to the extent of Platinum Holdings' current or accumulated earnings and profits as determined for U.S. federal income tax purposes, subject to the discussion below relating to
the potential application of the "controlled foreign corporation", "related person insurance income", or "passive foreign investment company" rules. Such dividends will not be eligible for the
dividends-received deduction allowed to U.S. corporations under the Code. The amount of any distribution in excess of Platinum Holdings' current and accumulated earnings and profits will first be
applied to reduce your tax basis in the Common Shares, and any amount in excess of tax basis will be treated as gain from the sale or exchange of your Common Shares.
Classification of Platinum Holdings, Platinum UK, Platinum Bermuda or Platinum Ireland as a Controlled Foreign
Corporation. Each "United States shareholder" of a foreign corporation that is a "controlled foreign corporation" ("CFC") for an uninterrupted period of
30 days or more during a taxable year, and who owns shares in the CFC directly or indirectly through foreign entities on the last day of the CFC's taxable year must include in its gross income
for U.S. federal income tax purposes its pro rata share of the CFC's "subpart F income", even if the subpart F income is not distributed. If Platinum Holdings, Platinum Bermuda, Platinum Ireland
and/or Platinum UK is deemed to be a CFC, substantially all of Platinum Holdings' income and that of each of Platinum Bermuda and Platinum Ireland will be subpart F income. Any U.S. corporation,
citizen, resident or other U.S. person who owns, directly or indirectly through foreign persons, or is considered to own (by application of the rules of constructive ownership set forth in Code
section 958(b), applying to family members, partnerships, estates, trusts or controlled corporations or holders of certain options, including for these purposes, holders of our equity security
units) 10% or more of the total combined voting power of all classes of stock of the foreign corporation will be considered to be a "United States shareholder". A foreign insurance company such as
Platinum UK or Platinum Bermuda is treated as a CFC (other than for purposes of related person insurance income, as described below) only if its "United States shareholders" collectively own more than
25% of the total combined voting power or total value of the corporation's stock. Because of the limitations on concentration of voting power of our Common Shares, the dispersion of Platinum Holdings'
share ownership among holders other than St. Paul and its subsidiaries, the provisions for directed voting on matters requiring action by the shareholders of Platinum Bermuda, Platinum UK and Platinum
Ireland, including the election of members of the board of directors, and the restrictions on transfer, issuance or repurchase of Common Shares, you should not be subject to treatment as a United
States shareholder of a CFC. However, these prophylactic provisions have not been tested in court
and it is possible that they could be challenged by the Internal Revenue Service and found to be ineffective in preventing CFC status from arising. Because Platinum Holdings' bye-laws
provide that no single shareholder (including St. Paul) is permitted to hold as much as 10% of the total combined voting power of Platinum Holdings, shareholders of Platinum Holdings should not be
viewed as United States shareholders of a CFC for purposes of these rules. Again, there can be no assurance that these ownership limitations will be effective. Assuming they are effective, however,
neither the indirect foreign tax credit nor the intercompany dividends received deduction attributable
214
to U.S. source income will be available to U.S. corporate holders of the Common Shares who, absent such provision, would qualify therefor.
RPII Companies. Different definitions of "United States shareholder" and "controlled foreign
corporation" are applicable in the case of a foreign corporation which earns "related person insurance income" ("RPII"). RPII is defined in Code section 953(c)(2) as any "insurance income"
attributable to policies of insurance or reinsurance with respect to which the person (directly or indirectly) insured is a "United States shareholder" or a "related person" to such a shareholder. In
general, and subject to certain limitations, "insurance income" is income (including premium and investment income) attributable to the issuing of any insurance or reinsurance contract in connection
with risks located in a country other than the country under the laws of which the controlled foreign corporation is created or organized and which would be taxed under the portions of the Code
relating to insurance companies if the income were the income of a domestic insurance company.
The
term "related person" for this purpose means someone who controls or is controlled by the United States shareholder or someone who is controlled by the same person or persons which
control the United States shareholder. "Control" is measured by either more than 50% in value or more than 50% in voting power of stock, applying constructive ownership principles similar to the rules
of section 958 of the Code. A corporation's pension plan is ordinarily not a "related person" with respect to the corporation unless the pension plan owns, directly or indirectly through the
application of constructive ownership rules similar to those contained in section 958, more than 50%, measured by vote or value, of the stock of the corporation. For purposes of inclusion of
Platinum UK's or Platinum Bermuda's RPII in the income of United States shareholders, unless an exception applies, the term "United States shareholder" includes all U.S. persons who own, directly or
indirectly, any amount (rather than 10% or more) of Platinum UK's or Platinum Bermuda's stock. Platinum UK or Platinum Bermuda will be treated as a controlled foreign corporation for RPII purposes if
such persons collectively own directly, indirectly or constructively 25% or more of the stock of Platinum UK or Platinum Bermuda by vote or value. St. Paul will, for federal income tax purposes,
actually or constructively own approximately % of the Common Shares of Platinum Holdings upon completion of the Equity Public Offering. Accordingly, unless an exception applies, it is
likely that Platinum UK and Platinum Bermuda will each be treated as a CFC for purposes of the RPII rules.
RPII Exceptions. The special RPII rules do not apply if:
-
- direct
or indirect insureds and persons related to such insureds, whether or not U.S. persons, are treated at all times during the taxable year as owning
less than 20% of the voting power and less than 20% of the value of the stock of Platinum UK or Platinum Bermuda, as applicable,
-
- RPII,
determined on a gross basis, is less than 20% of Platinum UK's or Platinum Bermuda's gross insurance income for the taxable year, as applicable,
-
- Platinum
UK or Platinum Bermuda elects to be taxed on its RPII as if the RPII were effectively connected with the conduct of a United States trade or
business and to waive all treaty benefits with respect to RPII and meets certain other requirements, or
-
- Platinum
UK or Platinum Bermuda elects to be treated as a United States corporation.
Platinum
UK and Platinum Bermuda have not and do not intend to make either of the elections described above. Additionally, as subsidiaries of St. Paul and RenaissanceRe may be reinsured
by Platinum UK and/or Platinum Bermuda, persons related to insureds may indirectly own more than 20% of the value of the stock of Platinum UK and Platinum Bermuda. Thus, only the second exception may
be available.
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Where
none of these exceptions applies, each U.S. person who owns directly or indirectly shares in Platinum Holdings (and therefore, indirectly in Platinum UK and Platinum Bermuda) at
the end of any taxable year, will be required to include in its gross income for United States federal income tax purposes its share of RPII of Platinum UK and/or Platinum Bermuda for the entire
taxable year. This inclusion will be determined as if such RPII were distributed proportionately only to such United States shareholders holding Common Shares at the end of the taxable year. The
inclusion will be limited to the current-year earnings and profits of Platinum UK or Platinum Bermuda, as applicable, reduced by the shareholder's pro rata share, if any, of certain
prior-year deficits in earnings and profits.
Computation of RPII. In order to determine how much RPII each of Platinum UK and Platinum Bermuda has
earned in each taxable year, we will obtain and rely upon information from Platinum UK's and Platinum Bermuda's insureds and reinsureds to determine whether any of the insureds, reinsureds or other
persons related to such insureds or reinsureds own our shares and are U.S. persons. Each year, each of Platinum UK and Platinum Bermuda will send a letter after the most recent taxable year to each
person who was a policyholder to represent whether it was a United States shareholder of the Company or related to a United States shareholder during the year. For any taxable year in which Platinum
UK's or Platinum Bermuda's gross RPII is 20% or more of its gross insurance income for the year, we may also seek information from our shareholders as to
whether direct or indirect owners of our shares at the end of the year are U.S. persons so that the RPII may be determined and apportioned among such persons. To the extent we are unable to determine
whether a direct or indirect owner of shares is a U.S. person, we may assume that such owner is not a U.S. person, thereby increasing the per share RPII amount for all United States shareholders.
Apportionment of RPII to United States Shareholders. If Platinum UK's or Platinum Bermuda's RPII for
any future taxable year is 20% or more of its gross insurance income, every U.S. person directly or indirectly owning Common Shares on the last day of that year will be required to include in gross
income its share of Platinum UK's or Platinum Bermuda's RPII for such year, whether or not distributed. A U.S. person owning Common Shares during our taxable year but not on the last day of the
taxable year for which Platinum Bermuda and/or Platinum UK is a controlled foreign corporation within the meaning of the RPII provisions of the Code, which would normally be December 31, is not
required to include in gross income any part of Platinum UK's or Platinum Bermuda's RPII. Correspondingly, a U.S. person directly or indirectly owning Common Shares on the last day of the taxable year
in which Platinum UK or Platinum Bermuda is a controlled foreign corporation for purposes of these provisions is required to include in its income its pro rata share of the RPII for the entire year,
even though it did not own the Common Shares for the entire year.
Information Reporting. Each U.S. person who is a direct or indirect shareholder of Platinum Holdings
on the last day of its taxable year must attach to the income tax or information return it would normally file for the period which includes that date a Form 5471 if Platinum UK or Platinum
Bermuda is a CFC for RPII purposes for any continuous thirty-day period during its taxable year, whether or not any net RPII income is required to be reported. Platinum UK or Platinum
Bermuda, as the case may be, will not be considered to be a CFC for this purpose and, therefore, Form 5471 will not be required, for any taxable year in which Platinum UK's or Platinum
Bermuda's gross RPII constitutes less than 20% of its gross insurance income. For any year in which Platinum UK's or Platinum Bermuda's gross RPII constitutes 20% or more of its gross insurance
income, we intend to provide Form 5471 to our direct or indirect United States shareholders for attachment to the returns of such shareholders. The amounts of the RPII inclusions may be subject
to adjustment based upon subsequent IRS examination. A tax-exempt organization will be required to attach Form 5471 to its information return in the circumstances described above.
Failure to file Form 5471 may result
216
in penalties. In addition, U.S. persons who at any time acquire 10% or more of our shares will have an independent obligation to file Form 5471.
Tax-Exempt Shareholders. Tax-exempt entities will be required to treat
certain subpart F insurance income, including RPII, that is includible in income by the tax-exempt entity as unrelated business taxable income.
Distributions; Basis; Exclusion of Distributions from Gross Income. A U.S. holder's tax basis in
Platinum Holdings' Common Shares will be increased by the amount of any RPII that the shareholder includes in income. The shareholder may exclude from income the amount of any distribution by Platinum
Holdings to the extent of the RPII included in income for the year in which
the distribution was paid or for any prior year. The U.S. holder's tax basis in Platinum Holdings' Common Shares will be reduced by the amount of such distributions that are excluded from income.
While, in certain circumstances, a U.S. shareholder may be able to exclude from income distributions with respect to RPII that a prior shareholder included in income, that exclusion will not generally
be available to holders who purchase Common Shares in the Equity Public Offering, pursuant to a purchase contract or in the public trading markets and are therefore unable to identify the previous
shareholder and demonstrate that such shareholder had previously included the RPII in income.
Dispositions of Common Shares. Subject to the discussion below relating to the potential application
of Code section 1248 or the passive foreign investment company rules, you will recognize a gain or loss for United States federal income tax purposes upon the sale or exchange of any Common
Shares equal to the difference between the amount realized upon such sale or exchange and the holder's basis in the Common Shares. If the holder's holding period for these Common Shares is more than
one year, any gain will be subject to tax at a current maximum marginal tax rate of 20% (18% if the holding period is more than five years) for individuals and 35% for corporations.
Code
section 1248 provides that if a U.S. person disposes of stock in a foreign corporation and such person owned directly, indirectly through certain foreign entities or
constructively 10% or more of the voting shares of the corporation at any time during the five-year period ending on the date of disposition when the corporation was a CFC, any gain from
the sale or exchange of the shares may be treated as ordinary income to the extent of the CFC's earnings and profits during the period that the shareholder held the shares (with certain adjustments).
A 10% U.S. shareholder may in certain circumstances be required to report a disposition of shares of a CFC by attaching IRS Form 5471 to the U.S. income tax or information return that it would
normally file for the taxable year in which the disposition occurs. Code section 953(c)(7) generally provides that section 1248 also will apply to the sale or exchange of shares in a
foreign corporation if the foreign corporation would be taxed as an insurance company if it were a domestic corporation, regardless of whether the shareholder is a 10% shareholder or whether RPII
constitutes 20% or more of the corporation's gross insurance income. Existing Treasury regulations do not address whether Code section 1248 and the requirement to file Form 5471 would
apply if the foreign corporation is not a CFC but the foreign corporation has a subsidiary that is a CFC or that would be taxed as an insurance company if it were a domestic corporation (although, as
discussed above, shareholders of 10% or more of the shares of Platinum Holdings will have an independent obligation to file Form 5471 in respect of the taxable year in which they reach the 10%
threshold). Code section 1248 and the requirement to file Form 5471 should not apply to dispositions of Common Shares because (i) we should not have any U.S. shareholders that own
directly, indirectly or constructively 10% or more of the voting power of the Common Shares, and (ii) we are not directly engaged in the insurance business and, under proposed regulations, Code
sections 953 and 1248 appear to be applicable only in the case of shares of corporations that are directly engaged in the insurance business. However, the IRS might
217
interpret the proposed regulations in a different manner and the proposed regulations may be amended or promulgated in final form so as to provide that Code section 1248 and the requirement to
file Form 5471 will apply to dispositions of Common Shares.
Foreign Tax Credit. If U.S. persons own a majority of the Company's shares, only a portion of the
current income inclusions under the CFC, RPII and passive foreign investment company rules, if any, and of dividends paid by us (including any gain from the sale of Common Shares that is treated as a
dividend under section 1248 of the Code) will be treated as foreign source income for purposes of computing a shareholder's U.S. foreign tax credit limitation.
Uncertainty as to Application of RPII. Regulations interpreting the RPII provisions of the Code exist
only in proposed form. It is not certain whether these regulations will be adopted in their proposed form or what changes might ultimately be made or whether any such changes, as well as any
interpretation or application of the RPII rules by the IRS, the courts or otherwise, might have retroactive effect. Accordingly, the meaning of the RPII provisions and their application to Platinum UK
and Platinum Bermuda is uncertain. These provisions include the grant of authority to the U.S. Treasury to prescribe "such regulations as may be necessary to carry out the purposes of this subsection,
including . . . regulations preventing the avoidance of this subsection through cross insurance arrangements or otherwise." In addition, there can be no assurance that the
IRS will not challenge any determinations by Platinum UK or Platinum Bermuda as to the amount, if any, of RPII that should be includible in your income or that the amounts of the RPII inclusions will
not be subject to adjustment based upon subsequent IRS examination. Each U.S. person considering an investment in Common Shares should consult its tax advisor as to the effects of these uncertainties.
Passive Foreign Investment Companies. Sections 1291 through 1298 of the Code contain special rules
applicable to foreign corporations that are "passive foreign investment companies" ("PFICs"). In general, a foreign corporation will be a PFIC during a given year if:
-
- 75%
or more of its income constitutes "passive income" or
-
- 50%
or more of its assets produce passive income.
If
we were to be characterized as a PFIC during a given year, U.S. holders would be subject to a penalty tax at the time of their sale at a gain of, or receipt of an "excess
distribution" with respect to, their Common Shares, unless such shareholders elected to be taxed on their pro rata share of our earnings whether or not such earnings were distributed or elected to be
taxed on the investment in Common Shares on a mark-to-market basis. In general, a shareholder receives an "excess distribution" if the amount of the distribution is more than
125% of the average distribution with respect to the stock during the three preceding taxable years (or shorter period during which the taxpayer held the stock). In general, the penalty tax is
equivalent to an interest charge on taxes that are deemed due during the period the U.S. holder owned the shares, computed by assuming that the excess distribution or gain (in the case of a sale) with
respect to the shares was taxed in equal portions at the highest applicable tax rate on ordinary income throughout the holder's period of ownership. The interest charge is equal to the applicable rate
imposed on underpayments of U.S. federal income tax for such period.
For
the above purposes, passive income is defined to include income of the kind which would be foreign personal holding company income under Code section 954(c), and generally
includes interest, dividends, annuities and other investment income. The PFIC statutory provisions, however, contain an express exception for income "derived in the active conduct of an insurance
business by a corporation which is predominantly engaged in an insurance business . . . ."
This
exception is intended to ensure that income derived by a bona fide insurance company is not treated as passive income, except to the extent such income is attributable to financial
reserves
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in excess of the reasonable needs of the insurance business. We expect, for purposes of the PFIC rules, that each of Platinum UK and Platinum Bermuda will be predominantly engaged in an insurance
business and is unlikely to have financial reserves in excess of the reasonable needs of its insurance business. The PFIC statutory provisions contain a look-through rule stating that, for
purposes of determining whether a foreign corporation is a PFIC, such foreign corporation shall be treated as if it received "directly its proportionate share of the income
.. . ." and as if it "held its proportionate share of the assets . . ." of any other corporation in which it owns at least 25% by value of the stock.
While no explicit guidance is provided by the statutory language, under this look-through rule we should be deemed to own the assets and to have received the income of Platinum Holdings'
insurance subsidiaries directly for purposes of determining whether Platinum Holdings qualifies for the insurance exception. This interpretation of the look-through rule is consistent with
the legislative intention generally to exclude bona fide insurance companies from the application of PFIC provisions; there can, of course, be no assurance as to what positions the IRS or a court
might take in the future. Each U.S. person considering an investment in Common Shares should consult its tax advisor as to the effects of the PFIC rules.
Other. Except as discussed below under "Backup Withholding Tax and Information Reporting" with
respect to backup withholding, dividends paid by Platinum Holdings will not be subject to U.S. withholding tax.
Transfer Reporting Requirements
A U.S. person (including a tax exempt entity) that purchases Platinum Holdings' Common Shares in the Equity Public Offering may be required to file a
Form 926 or similar form with the IRS if the cost of such purchases, including the cost of certain related purchases and purchases by related persons, exceeds $100,000. In the event such person
fails to file any such required form, such person could be required to pay a penalty equal to 10% of the gross amount paid for such Common Shares (subject to a maximum penalty of $100,000, except in
cases involving intentional disregard). U.S. persons should consult their own tax advisors with respect to this or any other reporting requirement which may apply with respect to their acquisition of
Platinum Holdings' Common Shares.
Proposed U.S. Tax Legislation
Recently proposed U.S. legislation targeting so-called "inversion transactions", if enacted, would under certain circumstances treat a foreign corporation as a
U.S. corporation for U.S. federal income tax purposes and under other circumstances would require obtaining IRS approval of the terms of related-party transactions. In addition, interest deductions on
debt borrowed from or guaranteed by a related non-U.S. party would be more severely limited than under existing so-called "earnings stripping" provisions.
Platinum
Holdings and its subsidiaries would appear not to be subject to the proposed legislation directed at inversion transactions as currently drafted. However, the proposed changes
to the earnings stripping provisions could impose significant restrictions on the amount of interest deductible by Platinum Holdings' U.S. subsidiaries on certain debt owed to or guaranteed by related
non-U.S. parties (including the surplus note to be issued by Platinum US to Platinum Ireland and the senior notes to be issued by Platinum Finance and guaranteed by Platinum Holdings). We cannot
predict whether the proposed legislation (or any similar legislation) will be enacted or, if enacted, what the specific provisions or the effective date of any such legislation would be, or whether it
would have any effect on us or our subsidiaries.
If
the inversion legislation were enacted and made applicable to Platinum Holdings or its subsidiaries, Platinum Holdings could be treated as a U.S. corporation. If Platinum Holdings
were
219
treated as a U.S. corporation, it would be subject to taxation in the U.S. at regular corporate rates. The U.S. tax consequences to the U.S. and non-U.S. holders of Common Shares would be
significantly different from those described in the preceding sections. If the inversion legislation were to so apply, however, the earnings stripping provisions would, if also enacted, be
inapplicable to the extent the non-U.S. related-party lender or guarantor was treated as a U.S. corporation under the inversion legislation. Prospective investors should consult their tax advisors
regarding the U.S. tax consequences to them, in their particular circumstances, if we were treated as a U.S. corporation.
In
addition, a bill has been introduced in the House of Representatives that would effectively denyby deferring for an extended perioda U.S.-based insurer or
reinsurer that reinsures or retrocedes a portion of its risk with or to a related foreign-based reinsurer or retrocedent in a low tax rate jurisdiction (such as Bermuda) a deduction for the portion of
the insurance or reinsurance premium ceded to the related foreign-based party, thereby effectively subjecting all of the premium income to U.S. tax. Moreover, a senior official of the U.S. Treasury
Department has also identified related party reinsurance arrangements as an area that requires study because it may result in an inappropriate shift of income from a U.S. corporate group to its
foreign affiliates, implying that, were that to be the conclusion of such a study, legislation, possibly in the form of legislation imposing a premium-based tax, might be needed. Enactment of
legislation of either type could materially adversely affect our earnings and shareholders' investments.
Substitution of Treasury Securities to Create Stripped Units. A U.S. holder of normal units who delivers treasury securities
to the collateral agent in substitution for ownership interests in senior notes or other pledged securities generally will not recognize gain or loss upon the delivery of such treasury securities or
the release of the senior notes or other pledged securities to such U.S. holder. Such U.S. holder will continue to take into account items of income or deduction otherwise includible or deductible,
respectively, by such U.S. holder with respect to such treasury securities and ownership interests in senior notes or other pledged securities, and the purchase contract will not be affected by such
delivery and release. In general, a U.S. holder will be required for U.S. federal income tax purposes to recognize original issue discount on the treasury securities on a constant yield basis, or
acquisition discount on the treasury securities when it is paid or accrues generally in accordance with such U.S. holder's normal method of accounting. U.S. holders should consult their own tax
advisors concerning the tax consequences of purchasing, owning and disposing of the treasury securities so delivered to the collateral agent.
Substitution of Senior Notes to Recreate Normal Units. A U.S. holder of stripped units who delivers ownership interests in
senior notes to the collateral agent in substitution for pledged treasury securities generally will not recognize gain or loss upon the delivery of such ownership interests in the senior notes or the
release of the pledged treasury securities to such U.S. holder. Such U.S. holder will continue to take into account items of income or deduction otherwise includible or deductible, respectively, by
such holder with respect to such pledged treasury securities and such senior notes. Such U.S. holder's tax basis in the ownership interests in the senior notes, the pledged treasury securities and the
purchase contract will not be affected by such delivery and release. U.S. holders should consult their own advisors concerning the tax consequences of purchasing, owning and disposing of the treasury
securities so released to them.
A remarketing or a tax event redemption will be a taxable event for U.S. holders, which will be subject to tax in the manner described above under
"Senior NotesSales, Exchanges, Remarketing or Other Taxable Dispositions of Senior Notes."
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Ownership of Treasury Securities. In the event of a remarketing of the senior notes or a tax event redemption prior to the
share purchase date, Platinum Holdings and Platinum Finance (under the terms of the units) and each U.S. holder (by acquiring units) agree to treat the U.S. holder's share of the treasury securities
constituting a part of its units as owned by the U.S. holder for U.S. federal income tax purposes. In such a case, the U.S. holder will be required to include in income any amount earned on its pro
rata share of the treasury securities for U.S. federal income tax purposes. The remainder of this discussion assumes that U.S. holders will be treated as the owners of their share of the treasury
securities constituting a part of such units for U.S. federal income tax purposes.
Interest Income and Original Issue Discount. In the event of a remarketing of the senior notes, the treasury securities may,
and in the event of a tax event redemption prior to the share purchase date, the treasury securities will, consist of stripped treasury securities. Following a remarketing of the senior notes or a tax
event redemption prior to the share purchase date, U.S. holders will be required to treat their pro rata portion of each stripped U.S. treasury security as a bond that was originally issued on the
date the collateral agent acquired the relevant treasury securities and that has original issue discount equal to their pro rata portion of the excess of the amounts payable on such treasury
securities over the value of the treasury securities at the time the collateral agent acquires them on behalf of U.S. holders. U.S. holders will be required to include such original issue discount
(but not acquisition discount on short-term treasury securities as described below) in income for U.S. federal income tax purposes as it accrues on a constant yield to maturity basis,
regardless of their regular method of tax accounting. To the extent that a payment from the treasury securities made in respect of a scheduled interest payment on a remarketed or tax event redeemed
senior note exceeds the amount of such original issue discount allocable to such treasury securities, such payment will be treated as a return of a U.S. holder's investment in the treasury securities
and will not be considered current income for U.S. federal income tax purposes.
In
the case of any treasury security with a maturity of one year or less from the date of its issue (or from the date the collateral agent acquired the relevant treasury security in the
case of any stripped treasury security), U.S. holders will generally be required to include acquisition discount in income as it accrues only if they are accrual basis taxpayers. U.S. holders that are
accrual basis taxpayers will generally accrue such acquisition discount on a straight-line basis, unless they make an election to accrue such acquisition discount on a constant yield to
maturity basis.
Tax Basis of U.S. Holders in their Share of Treasury Securities. The initial tax basis of U.S. holders in their share of
treasury securities will equal their pro rata portion of the amount paid by the collateral agent for the treasury securities. A U.S. holder's adjusted tax basis in its share of the treasury securities
will be increased by the amount of original issue discount included in income with respect thereto and decreased by the amount of cash received in respect of its share of the treasury securities.
Sales, Exchanges or Other Dispositions of a U.S. Holder's Share of Treasury Securities. U.S. holders that obtain the release of their
share of the treasury securities and subsequently dispose of such interest will recognize gain or loss on such disposition in an amount equal to the difference between the amount realized upon such
disposition and such U.S. holders' adjusted tax basis in the treasury securities, except that amounts received with respect to accrued but unpaid interest on
treasury securities will not be treated as part of the amount realized, but rather, will be treated as ordinary interest income to the extent not previously taken into income.
The following discussion only applies to non-U.S. holders. A "non-U.S. holder" is a holder that is not a U.S. person for U.S. federal
income tax purposes. Non-U.S. holders that may be subject to
221
special rules, such as "controlled foreign corporations," "passive foreign investment companies" or "foreign personal holding companies" should consult their own tax advisors to determine the U.S.
federal, state and local foreign tax consequences that may be relevant to them in their particular circumstances. This discussion assumes, as noted above, that for United States federal income tax
purposes, the purchase contracts and the senior notes will be respected as separate securities and the senior notes will be classified as indebtedness. In addition, Platinum Holdings and Platinum
Finance (under the terms of the senior notes) and each non-U.S. holder (by acquiring an ownership interest in the senior notes) agree to treat the senior notes as indebtedness of Platinum Finance for
all tax purposes. If the senior notes were nonetheless recharacterized, depending on the nature of the recharacterization, payments under the senior notes could become subject to United States
withholding at a 30% rate, unless reduced by treaty.
United States Federal Withholding Tax. The 30% United States federal withholding tax will not apply to any payment of
principal or interest (including original issue discount) on the ownership interest in the senior notes or treasury securities provided that the non-U.S. holder:
-
- does
not actually (or constructively) own 10% or more of the total combined voting power of all classes of stock of Platinum Finance entitled to vote;
-
- is
not a controlled foreign corporation that is related to Platinum Finance through stock ownership;
-
- is
not a bank whose receipt of interest on the senior notes or treasury securities is described in section 881(c)(3)(A) of the Code; and
-
- provides
its name and address on IRS Form W-8BEN (or other applicable form), and certifies, under penalties of perjury, that it is not a
United States person, or (b) if normal units, stripped units, senior notes or treasury securities are held through certain foreign intermediaries or foreign partnerships, satisfies the
certification requirements of applicable U.S. Treasury regulations.
The
30% U.S. federal withholding tax will not apply to any contract adjustment payments, dividends paid on the Common Shares acquired under a purchase contract or any gain realized on
the sale, exchange, or other disposition of normal units, stripped units, treasury securities, senior notes and Platinum Holdings' Common Shares acquired under the purchase contract. However, interest
income including original issue discount and any gain treated as ordinary income realized on the sale, exchange or other disposition of a senior note will be subject to withholding in certain
circumstances unless the conditions described above are met.
United States Federal Income Tax. If a non-U.S. holder is engaged in a trade or business in the United States and
interest (including original issue discount) on the ownership interest in the senior notes or treasury securities, dividends on Platinum Holdings' Common Shares, or to the extent they constitute
taxable income, contract adjustment payments from the purchase contracts are effectively connected with the conduct of that trade or business, such holder will be subject to United States federal
income tax on the interest, dividends or contract adjustment payments on a net income basis (although exempt from the 30% withholding tax, if otherwise applicable), in the same manner as if the holder
were a U.S. person as defined under the Code. The non-U.S. holder must satisfy certain certification and disclosure requirements in order to establish its exemption from withholding with
respect to interest on the ownership interest in the senior notes or treasury securities that is effectively connected income. In addition, a non-U.S. holder that is a foreign corporation
may be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of its earnings and profits for the taxable year, subject to adjustments, that are effectively connected with the
conduct by the holder of a trade or business in the United States. For this purpose, interest on the ownership interest in the senior notes or treasury securities, dividends on the Common
222
Shares and, to the extent they constitute taxable income, the contract adjustment payments from the purchase contracts will be included in earnings and profits.
Any
gain realized on the disposition of a treasury security, an ownership interest in a senior note (to the extent not treated as interest income under the contingent payment debt
rules), purchase contract or the Common Shares generally will not be subject to United States federal income tax unless:
U.S. Holders. Unless a U.S. holder is an exempt recipient, such as a corporation, payments with respect to units, senior
notes, purchase contracts, treasury securities or the Common Shares, the proceeds received with respect to a fractional Common Share upon the settlement of a purchase contract, and the proceeds
received from the sale of units, ownership interests in senior notes, purchase contracts, treasury securities or the Common Shares, may be subject to information reporting and may also be subject to
U.S. federal backup withholding tax if such U.S. holder fails to supply accurate taxpayer identification numbers or otherwise fails to comply with applicable U.S. information reporting or
certification requirements. The U.S. federal backup withholding tax rate for 2002 is 30% (scheduled to be reduced gradually to 28% by the year 2006). Any amounts so withheld generally will be allowed
as a credit against the U.S. holder's U.S. federal income tax liability.
Non-U.S. Holders. In general, the amount of interest paid to a non-U.S. holder and the tax withheld
with respect to such interest must be reported annually to the IRS and the holder. In general, no backup withholding will be required regarding payments of interest to a non-U.S. holder on
ownership interests in senior notes or treasury securities provided that we do not have actual knowledge or reason to know that the holder is a United States person and the holder has satisfied the
certification requirements described above under "Non-United States HoldersUnited States Federal Withholding Tax."
In
addition, no information reporting or backup withholding will be required regarding (i) dividend payments or contract adjustment payments made within the United States or
(ii) the proceeds of the sale of normal units, stripped units, ownership interests in senior notes, treasury securities, or Platinum Holdings' Common Shares made within the United States or
conducted through certain United States financial intermediaries if, in each case:
-
- the
payor receives the required certification with respect to the non-U.S. holder and does not have actual knowledge or reason to know that the
holder is a United States person; or
-
- the
holder otherwise establishes an exemption.
Backup
withholding may apply if the non-U.S. holder fails to comply with applicable U.S. information reporting or certification requirements.
Any
amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the non-U.S. holder's United States federal income tax liability
provided the required information is furnished to the IRS.
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ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the acquisition, holding and disposition of units (and the securities underlying such units)
by employee benefit plans that are subject to Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended ("ERISA"), plans, individual retirement accounts and other arrangements
that are subject to Section 4975 of the Code or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or
ERISA (collectively, "similar laws"), and entities whose underlying assets are considered to include "plan assets" of such plans, accounts and arrangements (each, a "plan").
This
summary is based on the provisions of ERISA and the Code (and the related regulations and administrative and judicial interpretations) as of the date hereof. This summary does not
purport to be complete, and no assurance can be given that future legislation, court decisions, administrative regulations, rulings or administrative pronouncements will not significantly modify the
requirements summarized herein. Any such changes may be retroactive and may thereby apply to transactions entered into prior to the date of their enactment or release.
General Fiduciary Matters
ERISA and the Code impose certain duties on persons who are fiduciaries of a plan subject to Title I of ERISA or Section 4975 of the Code and prohibit
certain transactions involving the assets of a plan and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the
administration of such a plan or the management or disposition of the assets of such a plan, or who renders investment advice for a fee or other compensation to such a plan, is generally considered to
be a fiduciary of the plan. Plans may purchase units (and the securities underlying such units) subject to the investing fiduciary's determination that the investment satisfies ERISA's fiduciary
standards and other requirements under ERISA, the Code or similar laws applicable to investments by the plan.
In
considering an investment in units using a portion of the assets of any plan, a fiduciary should determine whether the investment is in accordance with the documents and instruments
governing the plan and the applicable provisions of ERISA, the Code or any similar law relating to a fiduciary's duties to the plan including, without limitation, the prudence, diversification,
liquidity, exclusive
benefit, delegation and prohibited transaction provisions of ERISA, the Code and any other applicable similar laws.
Any
insurance company proposing to invest assets of its general account in the securities should consider the extent that such investment would be subject to the requirements of ERISA in
light of the U.S. Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.Ct. 517 (1993), which in
certain circumstances treats those general account assets as assets of a plan for purposes of the fiduciary responsibility provisions of ERISA and the prohibited transaction rules of ERISA and the
Code. In addition, such potential investor should consider the effect of any subsequent legislation or other guidance that has or may become available relating to that decision, including
Section 401(c) of ERISA and the regulations promulgated thereunder.
Prohibited Transaction Issues
Section 406 of ERISA and Section 4975 of the Code prohibit plans subject to Title I of ERISA or Section 4975 of the Code from engaging in
specified transactions involving plan assets with persons or entities who are "parties in interest," within the meaning of ERISA, or "disqualified persons," within the meaning of Section 4975
of the Code, unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be
224
subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the plan that engages in such a non-exempt prohibited transaction may
be subject to penalties and liabilities under ERISA and the Code.
If
the units are purchased by a plan, the units (and the securities underlying such units) will be deemed to constitute "plan assets" and the acquisition, holding and disposition of the
units (and the securities underlying such units) may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, if
Platinum Holdings, Platinum Finance, or any subsequent seller, is a party in interest or disqualified person with respect to such plan, unless an exemption is available. In this regard, the U.S.
Department of Labor has issued prohibited transaction class exemptions, or "PTCEs," that may apply to these transactions. These class exemptions include, without limitation, PTCE 84-14
respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38 respecting
bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts, and PTCE 96-23 respecting transactions determined by in-house asset
managers. Each of these PTCEs contains conditions and limitations on its application. Fiduciaries of plans which consider purchasing units (and the securities underlying such units) in reliance on any
of these or any other PTCEs should carefully review such PTCE to assure it is applicable.
Accordingly,
by its purchase of the units (and the securities underlying such units), each holder, and the fiduciary of any plan that is a holder, will be deemed to have represented and
warranted on each day from and including the date of its purchase of the units (and the securities underlying such units) through and including the date of satisfaction of its obligation under the
purchase contract and the disposition of any such unit (and any security underlying such unit) either (i) that it is not a plan or (ii) that the acquisition, holding and the disposition
of any unit (and any security underlying such unit) by such holder does not and will not constitute a prohibited transaction under ERISA or Section 4975 of the Code or other similar laws
because an exemption (which, in the case of a plan subject to ERISA or the Code, shall be a PTCE) is available with respect to such transactions and the conditions of such exemption have been
satisfied.
In
addition, each plan that is a holder and the fiduciary of such plan will be deemed to have represented and warranted to Platinum Holdings, Platinum Finance and the remarketing agent
that such participation in the remarketing program will not constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code or other similar laws for which an exemption
is not available.
The
foregoing discussion is general in nature and is not intended to be all-inclusive. Each plan should consult its own ERISA and tax advisors and/or counsel regarding the
consequences of an investment in the units (and the securities underlying such units).
The
sale of units (and the securities underlying such units) shall not be deemed a representation by Platinum Holdings or Platinum Finance that the investment meets all relevant legal
requirements with respect to plans generally or any particular plan or that such an investment is appropriate for plans generally or any particular plan.
225
UNDERWRITING
Platinum Holdings, Platinum Finance and the underwriters named below have entered into an underwriting agreement with respect to the units being offered. Subject
to certain conditions, each underwriter has severally agreed to purchase the number of units set forth in the following table. Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Smith Barney Inc. are acting as joint book-running managers of this offering.
Underwriters
|
|
Number of Units
|
Goldman, Sachs & Co. |
|
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
|
|
Salomon Smith Barney Inc. |
|
|
Banc of Amierca Securities LLC |
|
|
Credit Suisse First Boston Corporation |
|
|
J.P. Morgan Securities Inc. |
|
|
|
|
|
|
Total |
|
5,000,000 |
|
|
|
The
underwriters are committed to take and pay for all of the units being offered, if any are taken, other than the units covered by the option described below unless and until this
option is exercised.
The
completion of the ESU Offering is conditioned upon the consummation of the concurrent Equity Public Offering of Platinum Holdings' Common Shares.
If
the underwriters sell more units than the total number set forth in the table above, the underwriters have an option to buy up to an additional 750,000 units from Platinum Holdings to
cover such sales. The underwriters may buy units pursuant to this option not later than 13 days after the initial issuance of the units. If any units are purchased pursuant to this option, the
underwriters will severally purchase units in approximately the same proportions as set forth above.
The
following table shows the per unit and total underwriting discounts and commissions to be paid to the underwriters by Platinum Finance. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase 750,000 additional units.
Paid by Platinum Finance
|
|
No Exercise
|
|
Full Exercise
|
Per Unit |
|
$ |
|
|
$ |
|
Total |
|
$ |
|
|
$ |
|
Units
sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any units sold by the underwriters
to securities dealers may be sold at a discount from the initial public offering price of up to
$ per unit from the initial public offering price. Any such
securities
dealers may resell any units purchased from the underwriters to certain other brokers or dealers at a discount from the initial public offering price of up to
$ per unit
from the initial public offering price. If all the units are not sold at the initial public offering price, the underwriters may change the offering price and the other selling terms.
The
units are a new issue of securities with no established trading market. No assurance can be given as to the liquidity of the trading market for the units.
Platinum Holdings, its officers and directors, Platinum Finance, St. Paul and RenaissanceRe have agreed with the underwriters not to offer, sell, contract to sell, pledge, grant
any option to purchase, hedge, make any short sale or otherwise dispose of any Common Shares or equity security units (including the related purchase contracts and senior notes), or any securities of
the
226
Company that are substantially similar to Common Shares or equity security units (including the related purchase contracts and senior notes), or any securities of Platinum Finance that are
substantially similar to the senior notes, or any options or warrants to purchase any Common Shares or equity security units (including the related purchase contracts and senior notes), or any
securities convertible into, exchangeable for or that represent the right to receive Common Shares or equity security units (and, with respect to the Company, other than the initial issuance of Common
Shares to be offered and sold concurrently with this offering and the securities to be offered and sold in the St. Paul Investment and the RenaissanceRe Investment) during the period from the
date of this prospectus continuing to and including the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Salomon Smith Barney Inc. and subject to other specified conditions. See "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions.
Prior
to the ESU Offering and the concurrent Equity Public Offering, there has been no public market for the units or Platinum Holdings' Common Shares. The annual rate of the contact
adjustment payments, the reference price and threshold appreciation price of the purchase contracts and the initial annual interest rate on the senior notes included in the units will be negotiated
among Platinum Holdings, Platinum Finance and the representatives of the underwriters. Among the factors to be considered in determining these terms of the units, in addition to prevailing market
conditions, will be the initial public offering price of Platinum Holdings' Common Shares set in the concurrent Equity Public Offering, Platinum Holdings' historical performance, estimates of Platinum
Holdings' business potential and earnings prospects, an assessment of Platinum Holdings' management and the consideration of the above factors in relation to market valuation of companies in related
businesses.
The
normal units have been approved for listing on the New York Stock Exchange, subject to notice of issuance, under the symbol "PTP Pr M".
In
connection with the ESU Offering, the underwriters may purchase and sell units in the open market. These transactions may include short sales, stabilizing transactions and purchases
to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of units than they are required to purchase in the ESU Offering. "Covered" short sales
are sales made in an amount not greater than the underwriters' option to purchase additional units from Platinum Holdings in the ESU Offering. The underwriters may close out any covered short position
by either exercising their option to purchase additional units or purchasing units in the open market. In determining the source of units to close out the covered short position, the underwriters will
consider, among other things, the price of units available for purchase in the open market as compared to the price at which they may purchase units through their option to purchase additional units
from Platinum Holdings. "Naked" short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing units in the open market. A naked short
position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the units in the open market after pricing that could adversely affect
investors who purchase in the ESU Offering. Stabilizing transactions consist of various bids for or purchases of units made by the underwriters in the open market prior to the completion of the ESU
Offering.
The
underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the
representatives have repurchased units sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases
to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of the units, and together with the
imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the units. As a result, the price of the units may be higher than the price that otherwise might exist in
the open market. If these activities are
227
commenced, they may be discontinued at any time. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise.
Each
underwriter has represented, warranted and agreed that (i) it has not offered or sold and, prior to the expiry of a period of six months after the date of issue of the units,
will not offer or sell any units 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 that have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has only communicated or caused to be communicated, and will only communicate or cause to be communicated, any invitation or inducement to engage
in investment activity (within the meaning of section 21 of the Financial Services and Markets Act of 2000 (the "FSMA")) received by it in connection with the issue or sale of any units in
circumstances in which section 21(1) of the FSMA does not apply to Platinum Holdings; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to the units in, from or otherwise involving the United Kingdom.
The
units may not be offered, sold, transferred or delivered in or from The Netherlands, as part of their initial distribution or as part of any re-offering, and neither this
prospectus nor any other document in respect of the ESU Offering may be distributed or circulated in The Netherlands, other than to individuals or legal entities which include, but are not limited to,
banks, brokers, dealers, institutional investors and undertakings with a treasury department, who or which trade or invest in securities in the conduct of a business or profession.
A
prospectus in electronic format will be made available on the websites maintained by one or more of the lead managers of this offering and may also be made available on websites
maintained by other underwriters. The underwriters may agree to allocate a number of units to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated
by the lead managers to underwriters that may make Internet distributions on the same basis as other allocations.
Platinum
Holdings and Platinum Finance have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the 1933 Act.
The
underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of units offered.
Platinum Finance and Platinum Holdings estimate that their share of the total expenses of the ESU Offering, excluding underwriting discounts and commissions, will be approximately $1.1
million.
Several
of the underwriters and their affiliates have provided from time to time, and expect to provide in the future, investment and commercial banking and financial advisory services
to Platinum Holdings, Platinum Finance, St. Paul and their respective affiliates in the ordinary course of business, for which they have received and may continue to receive customary fees and
commissions. The joint book-running managers, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc., are currently acting as joint book-running
managers of the concurrent Equity Public Offering.
To
a limited extent, St. Paul has agreed to pay certain indemnification obligations of Platinum Holdings and Platinum Finance to the underwriters if Platinum Holdings or Platinum Finance
fails to pay in specified circumstances.
VALIDITY OF THE SECURITIES
The validity of the purchase contracts, the Common Shares issuable upon their settlement and the guarantee under Bermuda law will be passed upon for Platinum
Holdings by Conyers, Dill & Pearman, Hamilton, Bermuda. The validity of the purchase contracts, the senior notes and the
228
guarantee will be passed upon for Platinum Holdings and Platinum Finance by Sullivan & Cromwell, New York, New York, and for the underwriters by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New York, New York, in each case in reliance on the opinion of Conyers, Dill & Pearman with respect to Bermuda
law. Sullivan & Cromwell is also advising St. Paul, the sponsor of Platinum Holdings, in connection with the establishment of Platinum Holdings. Furthermore, Platinum Holdings is being advised
as to certain matters in connection with its organization and the Equity Public Offering by Sullivan & Cromwell. Dewey Ballantine LLP has advised Platinum Holdings and Platinum Finance
regarding certain matters, including agreements between Platinum Holdings and its affiliates and St. Paul and its affiliates.
EXPERTS
The consolidated balance sheet of Platinum Underwriters Holdings, Ltd. and the combined statements of identifiable underwriting assets and liabilities,
underwriting results, identifiable underwriting cash flows and combined financial statement schedules of The St. Paul Companies, Inc. Reinsurance Underwriting Segment (Predecessor) included in
the registration statement have been audited by KPMG LLP, independent auditors, as set forth in their reports appearing herein. The statements and combined financial statement schedules
referred to above are included in reliance upon such reports of KPMG LLP, given upon the authority of such firm as experts in accounting and auditing. The audit report covering Predecessor's
December 31, 2001, 2000 and 1999 combined statements contains an explanatory paragraph that states that the
combined statements are not intended to be a complete presentation of Predecessor's or St. Paul's financial position, results of operations, or cash flows.
AVAILABLE INFORMATION
Upon completion of this offering, Platinum Holdings will file annual, quarterly and current reports, proxy statements and other information with the SEC. You may
read and copy any documents filed by Platinum Holdings at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Platinum Holdings' SEC filings will also be available over the internet at the SEC's website at
http://www.sec.gov. The Common Shares have been approved for listing on the NYSE, subject to notice of issuance. Upon listing, periodic reports, proxy statements and other information concerning
Platinum Holdings will be available for review at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. After the completion of the Equity Public Offering, Platinum
Holdings expects to provide annual reports to its shareholders that include financial information reported on by its independent public accountants and quarterly reports containing unaudited interim
financial information for the first three fiscal quarters of each fiscal year.
We
have filed a registration statement on Form S-1 with the SEC (File Nos. 333-99019 and 333-99019-1) relating to the ESU Offering. This prospectus is a part of the
registration statement and does not contain all of the information in the registration statement. Whenever a reference is made in this prospectus to one of our contracts or other documents, please be
aware that the reference is not necessarily complete and that you should refer to the exhibits that are a part of the registration statement for a copy of the contract or other document. You may
review a copy of the registration statement at the SEC's public reference room in Washington, D.C. as well as through the SEC's internet site.
We
also have filed a registration statement on Form S-1 (File No. 333-86906) relating to the Equity Public Offering. You also may review a copy of that registration
statement at the SEC's public reference room in Washington, D.C. as well as through the SEC's internet site.
229
ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS AND OTHER MATTERS
Platinum Holdings is a Bermuda company, and certain of its officers and directors are or will be residents of various jurisdictions outside the United States. A
substantial portion of the assets of Platinum Holdings and of such officers and directors, at any one time, are or may be located in jurisdictions outside the United States. In particular, Platinum
Bermuda is also a Bermuda
corporation. Therefore, it ordinarily could be difficult for investors to effect service of process within the United States on Platinum Holdings or any of these officers and directors who reside
outside the United States or to recover against Platinum Holdings or any such individuals on judgments of courts in the United States, including judgments predicated upon civil liability provisions
under the U.S. federal securities laws. Notwithstanding the foregoing, Platinum Holdings has irrevocably agreed that it may be served with process with respect to actions against it arising out of
violations of the U.S. federal securities laws in any federal or state court in the United States relating to the transactions covered by this prospectus by serving CT Corporation System, 1633
Broadway, 30th Floor, New York, New York 10019, telephone 1-800-624-0909, its United States agent appointed for that purpose. Nevertheless, it may be difficult for you to effect service of process
within the United States upon Platinum Holdings' directors, officers and experts who reside outside the United States or to enforce in the United States judgments of U.S. courts obtained in actions
against Platinum Holdings or its directors and officers, as well as the experts named in this document, who reside outside the United States. Platinum Holdings has been advised by Conyers,
Dill & Pearman, its Bermuda counsel, that there is doubt as to whether the courts of Bermuda would enforce (1) judgments of U.S. courts obtained in actions against such persons or
Platinum Holdings predicated upon the civil liability provisions of the U.S. federal securities laws and (2) original actions brought in Bermuda against such persons or Platinum Holdings
predicated solely upon U.S. federal securities laws. There is no treaty in effect between the United States and Bermuda providing for such enforcement, and there are grounds upon which Bermuda courts
may not enforce judgments of U.S. courts. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies available under the U.S. federal securities laws, would not be
allowed in Bermuda courts as contrary to Bermuda's public policy.
230
THE PREDECESSOR BUSINESS
We present below selected historical combined financial data of St. Paul Re. Our pro forma underwriting results presented under "Management's Discussion
and Analysis of Pro Forma Financial Condition and Underwriting Results" in this prospectus show that our 2001 net premiums written, as adjusted for the business not transferred and the exclusion of
the St. Paul corporate aggregate excess-of-loss reinsurance program, represent approximately 82% of St. Paul Re's net premiums written for the same period. Also, we are
assuming no premium or loss development on business entered into prior to January 1, 2002. Accordingly, we caution that St. Paul Re's underwriting results and St. Paul Re's
combined statements presented in this prospectus are not indicative of the actual results that we will achieve once we commence operations. For a detailed discussion of our pro forma combined
statements of underwriting results, see "Pro Forma Financial Information."
In addition to the effect of the non-transfer of certain portions of St. Paul Re's business to us and the exclusion of the St. Paul corporate aggregate
excess-of-loss reinsurance program, other factors may cause our actual results to differ materially from St. Paul Re's results. For example, although we continue to be
afforded the benefits of St. Paul Re's retrocessional program for the remainder of 2002, we may enter into reinsurance contracts with significantly different terms and conditions from those that have
been made available to St. Paul Re from St. Paul and which form the basis of St. Paul Re's results. Furthermore, the additional premiums recorded in 2001 by St. Paul Re's finite
risk business primarily associated with the September 11, 2001 terrorist attack were exceedingly high and not necessarily indicative of the recurring premium volume we expect to write in that
business segment. In addition, St. Paul Re's combined statements reflect the discounting of the liability for certain assumed reinsurance contracts using rates up to 7.5%, based on its return
on invested assets or, in many cases, on yields contractually guaranteed to it on funds held by the ceding company, as permitted by the state of domicile of a company included in St. Paul Re.
It is our current intention to make arrangements to permit such discounting to a similar extent as St. Paul Re, which may include the organization and licensing of a U.S. subsidiary in addition
to Platinum US. If arrangements permitting us to discount reserves to the same extent as St. Paul Re are not made, reinsurance contracts of a similar type entered into in the future would be
reported on an undiscounted basis.
As
further discussed in the Notes under "Pro Forma Combined Statements of Underwriting Results for the six months ended June 30, 2002 and 2001, and the year ended
December 31, 2001", the
following table illustrates the difference between Platinum's pro forma financial information and St. Paul Re's for the year ended December 31, 2001.
|
|
Year Ended December 31, 2001
|
|
|
|
Historical
St. Paul Re
|
|
Pro Forma Platinum
|
|
|
|
($ in millions)
|
|
Net premiums earned |
|
$ |
1,593 |
|
$ |
1,302 |
|
Underwriting losses and expenses |
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
1,922 |
|
|
1,440 |
|
Underwriting expenses |
|
|
397 |
|
|
306 |
|
|
|
|
|
|
|
Total underwriting losses and expenses |
|
|
2,319 |
|
|
1,746 |
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
(726 |
) |
$ |
(444 |
) |
|
|
|
|
|
|
231
Selected Combined Financial Data
Five-year Summary of St. Paul Re Selected Combined Financial Data
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
663 |
|
$ |
701 |
|
$ |
1,677 |
|
$ |
1,073 |
|
$ |
913 |
|
$ |
1,017 |
|
$ |
1,155 |
|
Net premiums earned |
|
|
682 |
|
|
600 |
|
|
1,593 |
|
|
1,121 |
|
|
878 |
|
|
1,003 |
|
|
1,198 |
|
Losses and loss adjustment expenses |
|
|
460 |
|
|
426 |
|
|
1,922 |
|
|
811 |
|
|
500 |
|
|
658 |
|
|
819 |
|
Underwriting expenses |
|
|
213 |
|
|
230 |
|
|
397 |
|
|
424 |
|
|
302 |
|
|
341 |
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
9 |
|
$ |
(56) |
|
$ |
(726 |
) |
$ |
(114 |
) |
$ |
76 |
|
$ |
4 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory combined ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss expense ratio |
|
|
67.4 |
% |
|
71.0 |
% |
|
120.6 |
% |
|
72.3 |
% |
|
57.0 |
% |
|
65.6 |
% |
|
68.4 |
% |
|
Underwriting expense ratio |
|
|
29.2 |
% |
|
36.5 |
% |
|
25.1 |
% |
|
39.7 |
% |
|
35.1 |
% |
|
33.3 |
% |
|
31.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
96.6 |
% |
|
107.5 |
% |
|
145.7 |
% |
|
112.0 |
% |
|
92.1 |
% |
|
98.9 |
% |
|
99.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted combined ratio* |
|
|
93.1 |
% |
|
116.2 |
% |
|
117.6 |
% |
|
120.4 |
% |
|
109.2 |
% |
|
98.9 |
% |
|
99.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of catastrophes on combined ratio** |
|
|
(1.5) |
% |
|
2.7 |
% |
|
40.4 |
% |
|
12.0 |
% |
|
16.3 |
% |
|
8.6 |
% |
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- *
- For
purposes of meaningful comparison, adjusted combined ratios in 1999 - 2001 exclude the impact of the reinsurance treaties described in Note 8 to the combined statements, and
in 2001, the impact of the September 11, 2001 terrorist attack.
- **
- Excludes
ceded losses under the St. Paul corporate aggregate excess-of-loss reinsurance program and St. Paul Re's aggregate excess-of-loss treaties.
232
Recent Developments
The following table summarizes St. Paul Re's selected combined financial data for the nine months ended September 30, 2002 and 2001. For the Company's pro
forma combined underwriting results for the nine months ended September 30, 2002 and 2001, see "Recent Developments" on page 69 of this prospectus.
|
|
Nine Months
Ended
September 30,
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
893 |
|
$ |
1,196 |
|
Net premiums earned |
|
|
985 |
|
|
1,045 |
|
Losses and loss adjustment expenses |
|
|
708 |
|
|
1,330 |
|
Underwriting expenses |
|
|
291 |
|
|
284 |
|
Underwriting loss |
|
$ |
(14 |
) |
$ |
(569 |
) |
Statutory combined ratio: |
|
|
|
|
|
|
|
|
Loss and loss expense ratio |
|
|
71.9 |
% |
|
127.3 |
% |
|
Underwriting expense ratio |
|
|
28.4 |
% |
|
27.4 |
% |
|
Combined ratio |
|
|
100.3 |
% |
|
154.7 |
% |
|
Adjusted combined ratio* |
|
|
94.7 |
% |
|
120.2 |
% |
|
Impact of catastrophes on combined ratio** |
|
|
3.8 |
% |
|
56.7 |
% |
- *
- For
purposes of meaningful comparison, adjusted combined ratio in 2001 excludes the impact of the reinsurance treaties described in Note 8 to the combined statements, and the
impact of the September 11, 2001 terrorist attack.
- **
- Excludes
ceded losses under the St. Paul corporate aggregate excess-of-loss reinsurance program and St. Paul Re's aggregate excess-of-loss treaties.
The 25.3% decrease in net premiums written for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001 was primarily due to the
reduced volume from the lines of business targeted for exit as part of St. Paul's strategic initiative to improve profitability and the rescission of a large quota share contract in the second quarter
of 2002. These declines were partly offset by significant rate increases achieved on 2002 renewals. Net premiums earned in the nine months ended September 30, 2001 includes $89 million
in additional premiums as a result of the September 11, 2001 terrorist attack.
The $555 million improvement in underwriting results principally reflects a significant decline in catastrophe losses (the year prior period reflected $679 million of
losses relating to the September 11, 2001 terrorist attack and $50 million relating to a chemical plant explosion in Toulouse, France) as well as the impact of substantial rate increases
on 2002 renewals, favorable prior year development and benefits derived from exiting unprofitable lines of business. Catastrophe losses for the nine months ended September 30, 2002 were
$34 million as compared to $754 million for the nine months ended September 30, 2001. Catastrophe losses incurred for the nine months ended September 30, 2002 include
$30 million from the flooding in Europe in August 2002 and an additional $16 million of adverse development for the September 11, 2001 terrorist attack, partly offset by favorable
development on prior year catastrophes of $15 million.
233
Management's Discussion and Analysis of Financial Condition and
Underwriting Results of the Predecessor Business
The following discussion and analysis pertains to the operating results of the Reinsurance underwriting segment of St. Paul, for the years ended
December 31, 2001, 2000 and 1999, and for the six-month periods ended June 30, 2002 and 2001. This discussion and analysis should be read in conjunction with St. Paul Re's
combined statements and related notes found on pages F-15 to F-37, because they contain important information that is helpful in evaluating St. Paul Re's operating results and financial condition.
St.
Paul Re's operations include the underwriting results of certain insurance and reinsurance subsidiaries in St. Paul's group of companies, as well as the underwriting results of the
reinsurance departments of St. Paul Fire and Marine Insurance Company, and United States Fidelity and Guaranty Company ("USF&G"), St. Paul's two largest U.S. insurance subsidiaries. The financial
results reported herein for St. Paul Re reconcile to St. Paul's reinsurance segment results reported in St. Paul's audited consolidated financial statements for each year in the three-year
period ended December 31, 2001, which are included in St. Paul's 2001 Annual Report to Shareholders, and in St. Paul's June 30, 2002 Quarterly Report on Form 10-Q (unaudited).
It
is the practice of St. Paul to evaluate the performance of its property-casualty insurance underwriting segments on the basis of underwriting results. Therefore, this discussion
focuses on each segment's performance based on underwriting results. St. Paul does not allocate assets or investment income to its respective underwriting segments, and therefore, neither assets nor
surplus are specifically identifiable for St. Paul Re. As a result, the following discussion and analysis focuses almost exclusively on those factors influencing underwriting performance for each of
St. Paul Re's four business segments. Those segments, whose results are analyzed in more detail later in this discussion, are as follows: North American Casualty, North American Property,
International, and Finite Risk.
In
the years prior to 2002, St. Paul Re generally underwrote traditional treaty and facultative reinsurance for property, casualty, ocean marine, surety, accident and health and
certain specialty classes of coverage for leading property and casualty insurance companies worldwide. St. Paul Re also underwrote certain types of "non-traditional" reinsurance, which
provides limited traditional underwriting risk combined with financial risk protection. In late 2001, St. Paul announced a series of actions designed to improve its profitability, including plans to
narrow the product offering and geographic presence of its reinsurance operations. As a result, in January 2002, St. Paul Re began focusing almost exclusively on the following types of reinsurance
coverages: property catastrophe, excess-of-loss casualty, marine and traditional finite.
Critical Accounting Policies
St. Paul Re's significant accounting policies are described in the notes to St. Paul's Reinsurance Underwriting Segment (Predecessor)'s Combined Statements. The
following is a summary of the critical accounting policies that affected the components comprising St. Paul Re's underwriting performance: premiums, reserves and reinsurance.
Premiums were recorded at the inception of each policy, based upon information received from ceding companies and their brokers. For
excess-of-loss contracts, the amount of premium was usually contractually documented at inception, and no management judgment was necessary in accounting for this. Premiums
were earned on a pro rata basis over the contract period. For proportional treaties, the amount of premium was normally estimated at inception by the ceding company. St. Paul Re accounted for such
premium using the initial estimates, and then adjusted
234
them once a sufficient period for actual premium reporting had elapsed, normally around three years. For the year ended December 31, 2001 the net amount of premium written resulting from
estimate accruals was less than 25% of total premiums written. St. Paul Re also accrued for reinstatement premiums resulting from losses. Such accruals were based upon actual contractual terms, and
the only element of management judgment involved was with respect to the amount of loss reserves, as described below.
Reinstatement
and additional premiums are written at the time a loss event occurs where coverage limits for the remaining life of the contract are reinstated under
pre-defined contract terms. Reinstatement premiums are the premiums charged for the restoration of the reinsurance limit of a catastrophe contract to its full amount after payment by the
reinsurer of losses as a result of an occurrence. These premiums relate to the future coverage obtained during the remainder of the initial policy term, and are earned over the remaining policy term.
Additional premiums are premiums charged after coverage has expired, related to experience during the policy term, which are earned immediately.
Under U.S. GAAP, St. Paul Re was not permitted to establish loss reserves until the occurrence of an event which may give rise to a loss. Once such an event
occurred, St. Paul Re established reserves based upon estimates of total losses incurred by the ceding insurers as a result of the event and St. Paul Re's estimate of the portion of such loss it has
reinsured. As a result, only loss reserves applicable to losses incurred up to the reporting date may be set aside, with no allowance for the provision of a contingency reserve to account for expected
future losses. Losses arising from future events will be estimated and recognized at the time the loss is incurred and could be substantial.
Setting
appropriate reserves is an inherently uncertain process. Loss reserves represent St. Paul Re's estimates, at a given point in time, of ultimate settlement and adjustment costs of
losses
incurred (including IBNR losses). St. Paul Re regularly reviewed and updated these estimates, using the most current information available. Consequently, the ultimate liability for a loss was likely
to differ from the original estimate. Whenever St. Paul Re determined that any existing loss reserves were inadequate, St. Paul Re was required to record such change in estimate; increasing the loss
reserves with a corresponding negative impact, which could be material, in St. Paul Re's underwriting results in the period in which the deficiency was identified. The establishment of new reserves,
or the adjustment of reserves for reported claims, could result in significant upward or downward changes to St. Paul Re's financial condition or results of underwriting in any particular period.
The
reserve for losses and loss adjustment expenses was based upon reports, individual case estimates received from ceding companies, and management's estimates. St. Paul Re management's
estimates were used mostly to estimate IBNR loss amounts. For certain catastrophic events, there was considerable uncertainty underlying the assumptions and associated estimated reserves for losses
and loss adjustment expenses. Reserves were reviewed regularly and, as experience developed and additional information became known, the reserves were adjusted as necessary. Such changes in estimate,
if necessary, were reflected in results of operations in the current period.
Liabilities
for unpaid losses and LAE related to certain assumed reinsurance contracts are discounted to the present value of estimated future payments. The liabilities related to these
reinsurance contracts were discounted based on our return on invested assets, or in many cases, on yields contractually guaranteed to us on funds held by the ceding company, as permitted.
235
Written premiums, earned premiums, and incurred losses and LAE reflected the net effects of assumed and ceded reinsurance transactions. Reinsurance accounting was
followed for assumed and ceded transactions when risk transfer requirements had been met. These requirements involved significant assumptions being made related to the amount and timing of expected
cash flows, as well as the interpretation of underlying contract terms. Assumed reinsurance contracts that did not transfer significant insurance risk were required to be accounted for as deposits.
These deposits were accounted for as financing transactions, with interest expense credited to the contract deposit. Premiums received on retroactive reinsurance contracts are not reflected in the
statement of operations, but rather are recorded in the combined statement of identifiable underwriting assets and liabilities as an increase to loss and loss adjustment expense reserves for the
liabilities assumed and as assets based on the consideration received. A deferred charge or credit is recorded for any difference between liabilities assumed and consideration received.
Consolidated Overview
The following table summarizes St. Paul Re's results for the periods presented.
|
|
Six Months Ended
June 30,
|
|
Year Ended December 31,
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
663 |
|
$ |
701 |
|
$ |
1,677 |
|
$ |
1,073 |
|
$ |
913 |
|
|
Change in unearned premiums |
|
|
19 |
|
|
(101 |
) |
|
(84 |
) |
|
48 |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
682 |
|
|
600 |
|
|
1,593 |
|
|
1,121 |
|
|
878 |
|
Losses and underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
460 |
|
|
426 |
|
|
1,922 |
|
|
811 |
|
|
500 |
|
|
Policy acquisition expenses |
|
|
178 |
|
|
188 |
|
|
315 |
|
|
336 |
|
|
220 |
|
|
Other underwriting expenses |
|
|
35 |
|
|
42 |
|
|
82 |
|
|
88 |
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses and underwriting expenses |
|
|
673 |
|
|
656 |
|
|
2,319 |
|
|
1,235 |
|
|
802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
9 |
|
$ |
(56 |
) |
$ |
(726 |
) |
$ |
(114 |
) |
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
Net premiums written declined $38 million for the six months ended June 30, 2002 compared to the six months ended June 30, 2001. The decrease
in net premiums written in 2002 was primarily due to the reduced volume from the lines of business targeted for exit as part of St. Paul's strategic initiative to improve profitability. In addition,
the rescission of a large quota share contract in the second quarter of 2002 also contributed to the decrease in volume. The premium decline was partially offset by new business written in the
accident and health line of business and by rate increases. Reinsurance rates continued to increase in 2002, primarily in response to the terrorist attack in the United States in
September 2001. Rate increases on business renewed on January 1, 2002 averaged approximately 29% across all business segments.
The
$65 million improvement in underwriting results reflected the impact of substantial rate increases on 2002 renewals, as well as favorable prior year development on catastrophe
losses, absence of current year catastrophe losses and benefits derived from exiting unprofitable lines of business.
236
Year Ended December 31, 2001 vs. Year Ended December 31, 2000
The
56% increase in net written premiums in 2001 was principally driven by new business growth in the North American Casualty and North American Property segments, additional premiums
recorded for prior underwriting years in the North American Casualty segment, and strong price increases in all segments. Price increases continued throughout 2001 in response to the growing demand
for reinsurance coverages, and those increases accelerated during the fourth quarter in the aftermath of the September 11, 2001 terrorist attack. In 2000, net premium growth was driven by new
business opportunities in the non-traditional reinsurance market and price increases across virtually all lines of traditional reinsurance coverage.
Underwriting
results in 2001 were dominated by losses resulting from the terrorist attack, which totaled $556 million. Excluding those losses, underwriting results in 2001 were
still significantly worse than in 2000, with deterioration centered in the North American Casualty and Finite Risk segments. Catastrophe losses (excluding the September 11, 2001 terrorist
attack) totaled $92 million in 2001, driven by losses from the explosion of a chemical plant in Toulouse, France and Tropical Storm Allison in the United States. Catastrophe losses in 2000
totaled $135 million and were primarily the result of additional loss development from European storms occurring near the end of 1999.
The
deterioration in 2000 underwriting results compared with 1999 was due to significant adverse loss development from years prior to 2000, including development from the European storms
at the end of 1999. Adverse prior-year loss development on retrocessional business written in St. Paul Re's London operations also played a significant role in 2000's underwriting loss. In
addition, the North American treaty casualty business accounted for $131 million of underwriting losses in 2000.
Retrocessional Reinsurance
St. Paul Re's underwriting results for 2001, 2000 and 1999 reflect the benefits of its retrocessional reinsurance program. Under this program, St. Paul Re
purchases reinsurance for its own benefit, to limit the effect on its financial condition and operating results of large and multiple losses. Under this program, St. Paul Re ceded the following
amounts to reinsurers:
|
|
Six Months Ended
June 30,
|
|
Year Ended
December 31,
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
($ in millions)
|
Net premiums written |
|
$ |
39 |
|
$ |
102 |
|
$ |
177 |
|
$ |
254 |
|
$ |
318 |
Net premiums earned |
|
|
29 |
|
|
94 |
|
|
172 |
|
|
260 |
|
|
314 |
Losses and loss adjustment expenses |
|
|
(28 |
) |
|
144 |
|
|
396 |
|
|
386 |
|
|
377 |
Underwriting expenses |
|
|
4 |
|
|
6 |
|
|
14 |
|
|
13 |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
Net underwriting benefit |
|
$ |
(53 |
) |
$ |
56 |
|
$ |
238 |
|
$ |
138 |
|
$ |
93 |
|
|
|
|
|
|
|
|
|
|
|
Included
in the above totals were the impacts of the St. Paul corporate aggregate excess-of-loss reinsurance programs that were entered into effective on January 1
of each year except 2002 and St. Paul Re's aggregate excess-of-loss-treaty, a separate aggregate excess-of-loss treaty exclusive to St. Paul Re. St. Paul chose not to have a
corporate aggregate excess-of-loss reinsurance program in place in 2002. Coverage under the St. Paul corporate aggregate excess-of-loss reinsurance programs was triggered when incurred insurance
losses and loss adjustment expenses spanning all segments of St. Paul's business exceeded accident year attachment loss ratios specified in the treaty. In addition, St. Paul Re's results benefited
from St. Paul Re's aggregate excess-of-loss-treaty in each year. These treaties are collectively referred to hereafter as the "reinsurance treaties."
237
The
following table describes the combined impact of these cessions under the reinsurance treaties on St. Paul Re's results.
|
|
Six Months Ended
June 30,
|
|
Year Ended
December 31,
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
($ in millions)
|
St. Paul Corporate Aggregate Excess-of-Loss Reinsurance Program: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums written |
|
$ |
|
|
$ |
2 |
|
$ |
(67 |
) |
$ |
80 |
|
$ |
89 |
|
Ceded losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
(126 |
) |
|
140 |
|
|
164 |
|
Ceded earned premiums |
|
|
|
|
|
1 |
|
|
(67 |
) |
|
80 |
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pretax benefit (detriment) |
|
|
|
|
|
(1 |
) |
|
(59 |
) |
|
60 |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
St. Paul Re's Aggregate Excess-of-Loss Treaties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums written |
|
|
5 |
|
|
45 |
|
|
119 |
|
|
55 |
|
|
62 |
|
Ceded losses and adjustment expenses |
|
|
(25 |
) |
|
102 |
|
|
278 |
|
|
122 |
|
|
150 |
|
Ceded earned premiums |
|
|
(3 |
) |
|
43 |
|
|
119 |
|
|
55 |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pretax benefit (detriment) |
|
|
(22 |
) |
|
59 |
|
|
159 |
|
|
67 |
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
Combined Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums written |
|
|
5 |
|
|
47 |
|
|
52 |
|
|
135 |
|
|
151 |
|
Ceded losses and loss adjustment expenses |
|
|
(25 |
) |
|
102 |
|
|
152 |
|
|
262 |
|
|
314 |
|
Ceded earned premiums |
|
|
(3 |
) |
|
44 |
|
|
52 |
|
|
135 |
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pretax benefit (detriment) |
|
$ |
(22 |
) |
$ |
58 |
|
$ |
100 |
|
$ |
127 |
|
$ |
163 |
|
|
|
|
|
|
|
|
|
|
|
St.
Paul was not party to a corporate all-lines aggregate excess-of-loss treaty in 2002. In 2001, St. Paul did not cede any losses to the St. Paul corporate aggregate
excess-of-loss reinsurance program, but did reallocate benefits from its 2000 and 1999 treaties among its business segments, resulting in a detriment to St. Paul Re's reported results for calendar
year 2001. This reallocation was necessary to reflect the impact of differences between St. Paul's actual 2001 experience on losses ceded to the St. Paul corporate aggregate excess-of-loss reinsurance
program in 2000 and 1999, by segment, and the anticipated experience on those losses in 2000 and 1999, when the initial segment allocation was made. The impact of the 2000 and 1999 St. Paul corporate
aggregate excess-of-loss reinsurance program was allocated to St. Paul Re based on St. Paul Re's underwriting results relative to the underwriting results of St. Paul's other underwriting segments.
Net
underwriting detriment in the 2002 six-month period was driven by a commutation of a certain portion of the St. Paul Re aggregate excess-of-loss treaty. The commutation of
this treaty resulted in a net loss of $14 million. This was done in conjunction with the commutation of similar assumed reinsurance treaties which resulted in a net gain of $10 million.
The combined effect of these commutations resulted in a net loss of $4 million.
The
combined net pretax benefit (detriment) of the reinsurance treaties was allocated to St. Paul Re's business segments as follows:
|
|
Six Months Ended
June 30,
|
|
Year Ended
December 31,
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
($ in millions)
|
North American Casualty |
|
$ |
(6 |
) |
$ |
4 |
|
$ |
13 |
|
$ |
42 |
|
$ |
28 |
North American Property |
|
|
(3 |
) |
|
35 |
|
|
40 |
|
|
49 |
|
|
60 |
International |
|
|
(4 |
) |
|
16 |
|
|
30 |
|
|
36 |
|
|
51 |
Finite Risk |
|
|
(9 |
) |
|
3 |
|
|
17 |
|
|
0 |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(22 |
) |
$ |
58 |
|
$ |
100 |
|
$ |
127 |
|
$ |
163 |
|
|
|
|
|
|
|
|
|
|
|
238
September 11, 2001 Terrorist Attack
On September 11, 2001, terrorists hijacked four commercial passenger jets in the United States. Two of the jets were flown into the World Trade Center
towers in New York, N.Y., causing their collapse. The third jet was flown into the Pentagon building in Washington, D.C., causing severe damage, and the fourth jet crashed in rural Pennsylvania. This
terrorist attack caused significant loss of life and resulted in unprecedented losses for the property and casualty insurance industry. St. Paul Re's estimated net pretax loss incurred as a result of
the terrorist attack totaled $556 million in 2001, distributed among business segments as follows:
|
|
Year Ended
December 31, 2001
|
|
|
($ in millions)
|
North American Property |
|
$ |
233 |
North American Casualty |
|
|
32 |
International |
|
|
162 |
Finite Risk |
|
|
129 |
|
|
|
|
Total |
|
$ |
556 |
|
|
|
St.
Paul Re continually evaluated the adequacy of the net loss provision recorded, based on claim experience, collections from its reinsurers, and other factors. In the first six months
of 2002, St. Paul Re did not record any additions or reductions to its original estimated loss provision recorded in 2001 for the terrorist attack. Through June 30, 2002, St. Paul Re had made
net loss payments totaling $110 million related to the attack since it occurred, of which $107 million were made in the first six months of 2002.
For
further information related to the terrorist attack, refer to the Notes to The St. Paul Companies, Inc. Reinsurance Underwriting Segment (Predecessor) Combined Statements
beginning on page F-18 of this prospectus.
Elimination of One-Quarter Reporting Lag
In the first quarter of 2000, St. Paul Re eliminated the one-quarter reporting lag for its reinsurance operations based in the United Kingdom ("St.
Paul Re-U.K.") in order to report the results of those operations on a current basis. As a result, St. Paul Re's results for 2000 include St. Paul Re-U.K.'s results for the fourth quarter
of 1999 and all of 2000. The incremental impact of eliminating the reporting lag, which consists of St. Paul Re-U.K.'s results for the three months ended December 31, 2000, was as
follows.
|
|
Year Ended
December 31, 2000
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
7 |
|
Net premiums earned |
|
|
51 |
|
Underwriting loss |
|
|
(10 |
) |
239
Underwriting Results By Segment
The following table summarizes written premiums, underwriting results, statutory combined ratios and adjusted combined ratios (as described in the footnote to the
table) for each of St. Paul Re's business segments for the last three years. These segments are managed in a carefully coordinated fashion with strong elements of centralized control. As a result,
management monitors and evaluates the financial performance of these segments principally based on their underwriting results. Following the table are detailed analyses of each segment's results.
|
|
Six Months
Ended
June 30,
|
|
Year Ended December 31,
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
North American Casualty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
228 |
|
$ |
296 |
|
$ |
667 |
|
$ |
340 |
|
$ |
262 |
|
|
Net premiums earned |
|
|
271 |
|
|
261 |
|
|
588 |
|
|
319 |
|
|
245 |
|
|
Losses and loss adjustment expenses |
|
|
230 |
|
|
274 |
|
|
584 |
|
|
261 |
|
|
61 |
|
|
Underwriting expenses |
|
|
91 |
|
|
96 |
|
|
219 |
|
|
134 |
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
(50 |
) |
$ |
(109 |
) |
$ |
(215 |
) |
$ |
(76 |
) |
$ |
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
117.9 |
% |
|
141.4 |
% |
|
135.4 |
% |
|
124.9 |
% |
|
68.8 |
% |
|
Adjusted combined ratio* |
|
|
115.3 |
% |
|
142.6 |
% |
|
131.5 |
% |
|
131.4 |
% |
|
82.2 |
% |
North American Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
110 |
|
$ |
75 |
|
$ |
216 |
|
$ |
170 |
|
$ |
207 |
|
|
Net premiums earned |
|
|
125 |
|
|
75 |
|
|
216 |
|
|
204 |
|
|
196 |
|
|
Losses and loss adjustment expenses |
|
|
74 |
|
|
36 |
|
|
381 |
|
|
133 |
|
|
153 |
|
|
Underwriting expenses |
|
|
35 |
|
|
33 |
|
|
67 |
|
|
72 |
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
16 |
|
$ |
6 |
|
$ |
(232 |
) |
$ |
(1 |
) |
$ |
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
88.0 |
% |
|
92.8 |
% |
|
207.3 |
% |
|
104.6 |
% |
|
112.6 |
% |
|
Adjusted combined ratio* |
|
|
85.1 |
% |
|
127.6 |
% |
|
116.9 |
% |
|
122.2 |
% |
|
134.8 |
% |
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
174 |
|
$ |
174 |
|
$ |
248 |
|
$ |
145 |
|
$ |
160 |
|
|
Net premiums earned |
|
|
120 |
|
|
108 |
|
|
242 |
|
|
188 |
|
|
160 |
|
|
Incurred losses and loss adjustment expenses |
|
|
52 |
|
|
25 |
|
|
289 |
|
|
128 |
|
|
102 |
|
|
Underwriting expenses |
|
|
28 |
|
|
30 |
|
|
62 |
|
|
70 |
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
40 |
|
$ |
53 |
|
$ |
(109 |
) |
$ |
(10 |
) |
$ |
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
62.5 |
% |
|
45.5 |
% |
|
143.8 |
% |
|
111.6 |
% |
|
114.0 |
% |
|
Adjusted combined ratio* |
|
|
58.9 |
% |
|
64.0 |
% |
|
89.5 |
% |
|
125.0 |
% |
|
134.7 |
% |
Finite Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
151 |
|
$ |
156 |
|
$ |
546 |
|
$ |
418 |
|
$ |
284 |
|
|
Net premiums earned |
|
|
166 |
|
|
156 |
|
|
547 |
|
|
410 |
|
|
277 |
|
|
Incurred losses and loss adjustment expenses |
|
|
104 |
|
|
91 |
|
|
668 |
|
|
289 |
|
|
184 |
|
|
Underwriting expenses |
|
|
59 |
|
|
71 |
|
|
49 |
|
|
148 |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
3 |
|
$ |
(6 |
) |
$ |
(170 |
) |
$ |
(27 |
) |
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
97.8 |
% |
|
106.7 |
% |
|
131.6 |
% |
|
106.2 |
% |
|
85.8 |
% |
|
Adjusted combined ratio* |
|
|
91.8 |
% |
|
108.3 |
% |
|
114.2 |
% |
|
106.2 |
% |
|
94.9 |
% |
240
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
663 |
|
$ |
701 |
|
$ |
1,677 |
|
$ |
1,073 |
|
$ |
913 |
|
|
Net premiums earned |
|
|
682 |
|
|
600 |
|
|
1,593 |
|
|
1,121 |
|
|
878 |
|
|
Incurred losses and loss adjustment expenses |
|
|
460 |
|
|
426 |
|
|
1,922 |
|
|
811 |
|
|
500 |
|
|
Underwriting expenses |
|
|
213 |
|
|
230 |
|
|
397 |
|
|
424 |
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting result |
|
$ |
9 |
|
$ |
(56 |
) |
$ |
(726 |
) |
$ |
(114 |
) |
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss expense ratio |
|
|
67.4 |
% |
|
71.0 |
% |
|
120.6 |
% |
|
72.3 |
% |
|
57.0 |
% |
|
Underwriting expense ratio |
|
|
29.2 |
% |
|
36.5 |
% |
|
25.1 |
% |
|
39.7 |
% |
|
35.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
96.6 |
% |
|
107.5 |
% |
|
145.7 |
% |
|
112.0 |
% |
|
92.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted combined ratio* |
|
|
93.1 |
% |
|
116.2 |
% |
|
117.6 |
% |
|
120.4 |
% |
|
109.2 |
% |
- *
- For purposes of meaningful comparison, adjusted combined ratios in all periods presented exclude the impact of the reinsurance treaties described before the
table and the September 11, 2001 terrorist attack.
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
Loss Ratio
The
loss ratio measures insurance losses and loss adjustment expenses incurred as a percentage of earned premiums.
St.
Paul Re's reported loss ratio for the six months ended June 30, 2002 was 67.4%, compared with 71.0% in the same 2001 period. The 3.6 percentage point improvement in the loss ratio
was primarily due to rate increases across all segments and the exit of unprofitable lines of business, tempered by deteriorating results in discontinued lines of business (surplus lines, bond and
credit).
St. Paul Re's reported expense ratio for the six months ended June 30, 2002 was 29.2%, compared with 36.5% in the same period of 2001. The significant
improvement in the expense ratio was due to the exiting of unprofitable lines of business.
Year Ended December 31, 2001 vs. Years Ended December 31, 2000 and December 31, 1999
Loss Ratio
St. Paul Re's reported loss ratio in 2001 included a 42.6 percentage point detriment from losses incurred in the terrorist attack. The reported loss ratios in
2001, 2000 and 1999 also included benefits from the reinsurance treaties.
Catastrophe
losses totaled $880 million in 2001, of which $788 million was due to the September 11, 2001 terrorist attack. Most of the other $92 million of
catastrophe losses were the result of a variety of storms throughout the year in the U.S. and the explosion of a chemical
241
manufacturing plant in Toulouse, France. In 2000 and 1999, catastrophe losses totaled $135 million and $143 million, respectively. Additional loss development arising from severe
windstorms that struck portions of Europe in late 1999 and severe flooding in the United Kingdom drove the 2000 total. Major events contributing to the 1999 total included Hurricane Floyd, earthquakes
in Taiwan and Turkey, and European windstorms.
St. Paul Re's reported expense ratio in 2001 included an 8.2 percentage point benefit resulting from a $91 million reduction in contingent commissions that
had been accrued prior to September 11, 2001. The magnitude of losses from the terrorist attack resulted in the reversal of that accrual. The reported expense ratios in 2001, 2000 and 1999
included detriments from the reinsurance treaties. No underwriting expenses were ceded under the treaties; however, the expense ratios in all three years included the effects of written premiums ceded
under the treaties.
During
2000, St. Paul Re reduced its estimate of ultimate losses on certain non-traditional reinsurance business by $56 million, and made a corresponding increase in
its estimate of reserves for contingent commissions by $66 million. Although these changes in estimate did not have a significant impact on underwriting results for the year, they did distort
the components of the combined ratio in 2000. Excluding these changes, the loss ratio would have been 89.8%, and the expense ratio would have been 29.8% (both excluding the benefits of the reinsurance
treaties).
The following pages provide a more detailed discussion of results for the years ended December 2001, 2000 and 1999 and for the three-month and six-month periods ended June 30,
2002 and 2001 produced by St. Paul Re's four business segments. To provide a more meaningful analysis of the underlying performance of St. Paul Re's business segments, the discussion of segment
results excludes the impact of the September 11, 2001 terrorist attack in 2001 and the reinsurance treaties in all three years. The impact of the terrorist attack on individual segment results
and the impact of the reinsurance treaties were discussed earlier in this prospectus.
North American Casualty
The North American Casualty segment consisted of casualty reinsurance underwritten for customers with exposures in the United States and Canada. In 2001, the
following types of casualty coverages were offered: general, workers' compensation, auto, medical professional, non-medical professional, directors and officers, employment practices,
surplus lines, umbrella and environmental impairment. This segment also included accident and health reinsurance coverages. As discussed earlier in this prospectus, in 2002, St. Paul narrowed its
reinsurance product focus in an effort to improve profitability. As a result, the North American Casualty segment offered the following coverages in the first six months of 2002: general and
automobile liability, professional liability, workers' compensation, accident and health coverages and casualty clash. The following
242
table summarizes results for this segment for the periods presented, and excludes the impact of the reinsurance treaties and the September 11, 2001 terrorist attack.
|
|
Six Months
Ended
June 30,
|
|
Year Ended December 31,
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
233 |
|
$ |
296 |
|
$ |
679 |
|
$ |
400 |
|
$ |
288 |
|
Percentage increase (decrease) over prior year |
|
|
(21 |
)% |
|
|
|
|
70 |
% |
|
39 |
% |
|
|
|
Underwriting gain (loss) |
|
$ |
(44 |
) |
$ |
(113 |
) |
$ |
(195 |
) |
$ |
(114 |
) |
$ |
47 |
|
Loss and loss adjustment expense ratio |
|
|
82.9 |
% |
|
106.2 |
% |
|
95.7 |
% |
|
94.6 |
% |
|
42.1 |
% |
Underwriting expense ratio |
|
|
32.4 |
% |
|
36.4 |
% |
|
35.8 |
% |
|
36.8 |
% |
|
40.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
115.3 |
% |
|
142.6 |
% |
|
131.5 |
% |
|
131.4 |
% |
|
82.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
The $63 million decrease in net premiums written was primarily due to the rescission of a large quota share contract in the second quarter of 2002. The
premium volume was also impacted by a decline in premiums resulting from lines of business being exited. Rate increases averaged 29% in the first six months of 2002, and new business written in the
accident and health reinsurance market served to partially offset the decline in premiums.
The
$69 million reduction in underwriting losses compared with the six months ended June 30, 2001 is attributable to improved rates and risk selection, as well as less
unfavorable development in casualty business written in prior years.
A significant portion of the 70% increase in net written premium volume over 2000 was due to additional premiums recorded on business from the underwriting years
2000 and 1999. St. Paul Re had been conservative in recording estimated premiums from ceding companies in a soft market environment, but as rate increases began to accelerate faster than anticipated,
it was determined that estimated premiums to be received from cedents for the underwriting years 2000 and 1999 were under accrued. St. Paul Re recorded the increase in premium from those years in 2001
as the revenue materialized. In addition, new business from large quota share contracts accounted for approximately $65 million of premium growth in 2001, and accident and health new
business contributed approximately $51 million to premium volume for the year.
The
reported underwriting result in 2001 included losses from underwriting years prior to 2001. These losses were centered in surplus lines and first-dollar auto reinsurance coverages.
The surplus lines losses primarily resulted from higher than expected frequency of losses associated with program business. In particular, the experience attributable to certain black car and tow
truck programs was worse than expected. In addition, competitive market conditions in the earlier underwriting years contributed to a soft pricing environment for surplus lines reinsurance in those
years. The first-dollar auto losses in 2001 were primarily the result of unfavorable emergence stemming from the binders and professional indemnity book.
243
The 39% increase in net premium volume in 2000 compared with 1999 was largely driven by new business. In 2000, St. Paul Re entered the accident and health
market to take advantage of significant improvements in the medical stop loss market. This business accounted for $33 million of written premiums in 2000. In addition, a large quota share
treaty also contributed $45 million in new premium volume in 2000. North American surplus lines casualty business written by St. Paul Re's London operations increased by $23 million in
2000, due to price increases and the withdrawal of other surplus lines underwriters in London.
The
reported underwriting loss for 2000 deteriorated significantly to $114 million, compared with an underwriting profit of $47 million in 1999. In 2000, St. Paul Re
started to experience an increase in claims reported from underwriting years 1997 through 1999 which had not been evident in 1999.
North American Property
The North American Property segment consisted of property reinsurance business underwritten for customers with exposures in the United States and Canada. In 2001,
coverages offered included proportional, per-risk, excess-of-loss reinsurance and excess and surplus lines insurance, and catastrophe treaties. This segment also
included the results of retrocessional reinsurance business, and crop and agricultural reinsurance. As discussed earlier in this prospectus, in 2002, St. Paul narrowed its reinsurance product focus in
an effort to improve profitability. As a result, the North American Property segment offered the following coverage in the first six months of 2002: property catastrophe, property pro rata and
property risk excess-of-loss. The following table summarizes results for this segment for the periods presented, and excludes the impact of the reinsurance treaties and the September 11, 2001
terrorist attack.
|
|
Six Months Ended
June 30,
|
|
Year Ended December 31,
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
110 |
|
$ |
107 |
|
$ |
230 |
|
$ |
218 |
|
$ |
254 |
|
Percentage increase (decrease) over prior year |
|
|
3 |
% |
|
|
|
|
6 |
% |
|
(14 |
)% |
|
|
|
Underwriting gain (loss) |
|
$ |
19 |
|
$ |
(29 |
) |
$ |
(39 |
) |
$ |
(51 |
) |
$ |
(87 |
) |
Loss and loss adjustment expense ratio |
|
|
56.4 |
% |
|
96.0 |
% |
|
88.1 |
% |
|
91.6 |
% |
|
106.1 |
% |
Underwriting expense ratio |
|
|
28.7 |
% |
|
31.6 |
% |
|
28.8 |
% |
|
30.6 |
% |
|
28.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
85.1 |
% |
|
127.6 |
% |
|
116.9 |
% |
|
122.2 |
% |
|
134.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
The $3 million increase in net premiums written was due to rate increases that averaged 31% in the first six months of 2002, which more than offset the
significant decline in business volume resulting from St. Paul Re's withdrawal from or reduction in several lines of business in this segment.
The
improvement in underwriting results in 2002 reflected the impact of exiting unprofitable lines of business, rate increases, a lack of significant catastrophe losses and favorable
development on prior year catastrophe losses.
244
The 6% increase in premium volume in 2001 over 2000 was primarily due to rate increases throughout this segment, the impact of which was substantially offset by a
deliberate reduction in business volume for crop reinsurance and retrocessional reinsurance due to unfavorable treaty terms and conditions. Price increases for risk
excess-of-loss reinsurance grew substantially as the year progressed, reflecting the impact of poor results on prior treaties. Proportional premium volume grew nearly 40% over
2000, primarily due to price increases.
The
improvement in underwriting results compared with 2000 was primarily due to a reduction in retrocessional reinsurance losses. St. Paul Re began exiting unprofitable lines of the
retrocessional market in 2000, and by the end of 2001, underwrote a minimal amount of that business. Proportional reinsurance coverages produced improved results over 2000, largely due to favorable
loss development on 1999 and prior underwriting years. These improvements were partially offset by deterioration in North American reinsurance results from business underwritten in London. In
addition, excess-of-loss reinsurance results in 2001 suffered from the effects of tropical storm Allison, which struck the southeastern United States in the spring. Crop
reinsurance losses were significant in 2001, due to adverse loss development on both 2001 and 2000 underwriting year business. Several hailstorms in the U.S. played a major factor in the 2001
underwriting year losses. In addition, crop reinsurance results in 2001 reflected the negative impact of competitive market conditions in prior years that resulted in a soft pricing environment for
this business.
The 14% decline in net premium volume in 2000 compared with 1999 reflected an intentional reduction in business volume due to concerns about underlying price
levels, catastrophe exposures and unsatisfactory treaty terms. Retrocessional net premiums declined approximately 27%, and proportional volume was down 45% from 1999 levels. Near the end of 2000, some
underlying price improvement emerged due to the continuing deterioration in results for reinsurers.
With
the exception of catastrophe business, all lines of business recorded unprofitable results in 2000. Excess-of-loss business showed improvement over 1999, due
to the lack of catastrophe losses and favorable prior-year development. Proportional business results deteriorated from 1999, due to loss development from the 1999 underwriting year. Per
risk excess-of-loss results were also worse than 1999. Crop reinsurance results in 2000 deteriorated from 1999, and retrocessional business from the London market produced
significant losses despite a declining book of business.
International
In 2001, St. Paul Re's International segment underwrote property and casualty reinsurance for customers domiciled outside of North America. This segment also
included results from marine and aerospace business for customers located throughout the world, because of the global nature of those exposures. As discussed earlier in this prospectus, in 2002, St.
Paul narrowed its reinsurance product focus in an effort to improve profitability. As a result, the International segment offered the following coverages in the first six months of 2002: property
catastrophe, property pro rata, property risk excess-of-loss and marine coverages. The following table summarizes results for this segment for the periods presented, and excludes the impact of the
reinsurance treaties and the September 11, 2001 terrorist attack.
245
|
|
Six Months Ended
June 30,
|
|
Year Ended December 31,
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
176 |
|
$ |
184 |
|
$ |
255 |
|
$ |
176 |
|
$ |
212 |
|
Percentage increase (decrease) over prior year |
|
|
(4 |
)% |
|
|
|
|
45 |
% |
|
(17 |
)% |
|
|
|
Underwriting gain (loss) |
|
$ |
44 |
|
$ |
37 |
|
$ |
24 |
|
$ |
(47 |
) |
$ |
(73 |
) |
Loss and loss adjustment expense ratio |
|
|
39.6 |
% |
|
42.4 |
% |
|
65.8 |
% |
|
88.9 |
% |
|
96.5 |
% |
Underwriting expense ratio |
|
|
19.3 |
% |
|
21.6 |
% |
|
23.7 |
% |
|
36.1 |
% |
|
38.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
58.9 |
% |
|
64.0 |
% |
|
89.5 |
% |
|
125.0 |
% |
|
134.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
The $8 million decrease in net premiums written in 2002 was due to St. Paul Re's decision to exit the aviation market and close certain international
offices. Rate increases averaging 39% in the International segment partially offset these declines.
The
$7 million increase in underwriting gain was mainly attributable to favorable development on prior year reserves across all lines. Also contributing to the increase in
underwriting gain is the absence of catastrophe losses in the period and significant rate increases achieved in 2002.
The 45% increase in net premiums over 2000 reflected improving market conditions in 2001, characterized by significant rate increases and increasingly favorable
terms and conditions on new and renewal business during the year. The magnitude of year-over-year premium growth in 2001 was partially aided by St. Paul Re's deliberate actions
in 2000 to reduce premium volume in certain underperforming lines of business, including proportional treaty business and low-level per risk excess-of-loss
business. Net premium growth in 2001 was centered in property coverages, where rate increases averaged 33% for the year. For marine coverages, rate increases averaged 20% in 2001.
During
2001, St. Paul Re sought to take advantage of market conditions and realign its portfolio by further reducing underperforming business volume, and expanding new business in
virtually all of its remaining operations. The significant improvement in the loss ratio compared with 2000 reflected the success of those efforts, and also reflected a significant decline in
catastrophe losses. In 2001, the only major catastrophe affecting the International segment (excluding the September 11, 2001 terrorist attack) was the explosion of a chemical plant in
Toulouse, France, which resulted in $13 million of incurred losses. By contrast, 2000 results included a cumulative total of $34 million of catastrophe losses, the majority of which
resulted from additional loss development from severe windstorms that struck portions of Europe in late 1999.
The 17% decline in 2000 net premiums written compared with 1999 resulted from St. Paul Re's deliberate reduction in pro rata property business volume due to
unacceptable underwriting conditions. In addition, St. Paul Re changed the method it used to estimate reinsurance premiums in the International segment for the 1999 underwriting year following St.
Paul's merger with USF&G
Corporation in 1998 and the subsequent integration of F&G Re, the reinsurance department of USF&G into St. Paul Re's operations. Throughout the majority of 2000, worldwide reinsurance market
conditions remained unfavorable, and St. Paul Re maintained a cautious approach to premium growth in the International arena. However, the spate of large catastrophe losses which
246
occurred in late 1999 and affected calendar year 2000 results proved to be the catalyst for an increase in property catastrophe reinsurance pricing. In the last quarter of 2000, the soft market
conditions that had prevailed for several years began to improve, laying the groundwork for significantly improved operating conditions in 2001.
Although
2000 was relatively free from major natural catastrophes, adverse development from the aforementioned 1999 catastrophic events contributed significantly to St. Paul Re's
reported results in 2000. Of the $34 million of catastrophe losses incurred in 2000, the only significant events that actually occurred in 2000 were a series of storm and flood losses in the
United Kingdom, which resulted in losses of $13 million.
In
1999, market conditions were difficult due to excess capacity and severe competition in the reinsurance sector. Overall pricing continued to be inadequate as worldwide reinsurers
competed for market share in a stagnant worldwide non-life insurance market. St. Paul Re's International segment loss ratio in 1999 suffered from a total of $63 million of
catastrophe losses resulting from earthquakes in Taiwan and Turkey, Typhoon Bart in Japan, Hurricane Floyd, and the severe windstorms in Northern Europe.
Finite Risk
In 2001, St. Paul Re's Finite Risk segment underwrote non-traditional reinsurance treaties for leading insurance and reinsurance companies worldwide.
Non-traditional reinsurance combines limited traditional underwriting risk with financial risk protection and is generally utilized by sophisticated insurers who are willing to share in a
portion of their insurance losses. Products include multi-year excess-of-loss treaties, aggregate stop loss treaties, finite quota share treaties, loss portfolio
transfers, and adverse loss development covers. This segment also included bond and credit reinsurance coverages. As discussed earlier in this prospectus, in 2002, St. Paul narrowed its reinsurance
product focus in an effort to improve profitability. As a result, the Finite Risk segment offered the following coverages in the first six months of 2002: multi-year excess-of-loss, aggregate stop
loss, finite quota share, loss portfolio transfer and adverse loss development contracts. The following table summarizes results for this segment for the periods presented, and excludes the impact of
the reinsurance treaties and the September 11, 2001 terrorist attack.
|
|
Six Months Ended
June 30,
|
|
Year Ended
December 31,
|
|
|
|
2002
|
|
2001
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
149 |
|
$ |
161 |
|
$ |
424 |
|
$ |
418 |
|
$ |
311 |
|
Percentage increase (decrease) over prior year |
|
|
(7 |
)% |
|
|
|
|
1 |
% |
|
34 |
% |
|
|
|
Underwriting gain (loss) |
|
$ |
11 |
|
$ |
(10 |
) |
$ |
(57 |
) |
$ |
(28 |
) |
$ |
26 |
|
Loss and loss adjustment expense ratio |
|
|
56.8 |
% |
|
62.2 |
% |
|
80.7 |
% |
|
70.5 |
% |
|
77.3 |
% |
Underwriting expense ratio |
|
|
35.0 |
% |
|
46.1 |
% |
|
33.5 |
% |
|
35.7 |
% |
|
17.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
91.8 |
% |
|
108.3 |
% |
|
114.2 |
% |
|
106.2 |
% |
|
94.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
247
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
The $12 million decrease in net premiums written in the first six months of 2002 was due to St. Paul Re's decision to exit the bond and credit market;
however, that decline was offset by a $25 million positive premium adjustment related to one finite quota share contract.
The
$11 million underwriting gain in the first six months of 2002 included a $10 million favorable impact due to a commutation of an aggregate excess-of-loss treaty, offset
by adverse prior-year marine and aviation loss development, as well as adverse loss experience on the bond and credit business in runoff. The $10 million loss in the 2001 period was
primarily due to an $11 million loss related to the Petrobras oil platform collapse in March 2001.
Net written premiums grew slightly in 2001 over an abnormally large premium base in 2000 that had resulted from three large new contracts and additional premiums
related to a specific contract. Bond and credit reinsurance coverages accounted for $63 million of net written premium volume in 2001, compared with $62 million in 2000.
The
deterioration in underwriting results in 2001 was primarily due to $31 million of losses generated by bond and credit reinsurance, of which $15 million resulted from
surety bond losses related to Enron Corporation's bankruptcy filing in late 2001. Bond and credit losses in 2000 totaled $2 million. In addition, the Finite Risk segment incurred
$39 million of losses from three major marine and aviation events: the collapse of the Petrobras oil platform; a terrorist group's ground attack on commercial airliners in Sri Lanka; and the
chemical plant explosion in Toulouse, France.
Net written premiums in 2000 increased $107 million over 1999, of which $67 million collectively resulted from the origination of two new loss
portfolio transfer contracts and one new finite quota share treaty. In addition, $47 million of additional written premiums were recognized on a specific aggregate stop-loss
contract due to adverse loss development.
Additional
loss development from the severe storms that struck portions of Europe in late 1999 accounted for $36 million of underwriting losses in 2000 in the Finite Risk segment.
However, $52 million in underwriting profits were recognized in 2000 from five large treaties that were either commuted or experienced favorable loss development.
During
2000, the Finite Risk segment reduced its estimate of ultimate losses on certain non-traditional reinsurance business by $56 million, and correspondingly
increased its estimate of profit commission reserves by $66 million. Excluding these changes, the loss ratio would have been 84.2%, and the expense ratio would have been 19.6%.
Capital Resources and Liquidity
St. Paul Re's primary sources of capital resources and liquidity were premium revenues received from its reinsurance business, and capital contributions, when
necessary, from St. Paul. As a component of St. Paul's consolidated operations, St. Paul Re was dependent upon St. Paul to provide the necessary capital to adequately support the level of its business
operations.
Exposures to Market Risk
Market risk can be described as the risk of change in fair value of a financial instrument due to changes in interest rates, equity prices, creditworthiness,
foreign exchange rates or other factors. As a component of St. Paul's consolidated operations with no invested assets of its own, St. Paul Re
248
had no direct exposure to these various types of market risk, except for the potential impact of changes in foreign currency exchange rates on its insurance reserves. St. Paul actively managed its
exposure to such foreign currency risks by purchasing investments denominated in foreign currencies to hedge insurance reserves denominated in the same currencies, which effectively reduced its
foreign currency exchange rate exposure.
Reserves for Losses and Loss Adjustment Expenses for Predecessor Business
General Information
Losses represent the amounts paid, or expected to be paid, to ceding companies for events that have occurred. The cost of investigating, resolving and processing
these claims is known as loss adjusting expenses, or LAE. Reserves are established that reflect the estimated unpaid total cost of these two items. These reserves include estimates of the total cost
of claims that were reported but not yet paid, and the cost of claims incurred but not yet reported, or IBNR. The reserves for unpaid losses and LAE at December 31, 2001 cover claims that were
incurred not only in 2001 but also in prior years. Loss reserves are reduced for estimates of salvage and subrogation.
Because
many of the reinsurance coverages offered by St. Paul Re involve losses that may not ultimately be settled for many years after they are incurred, subjective adjustments as to
ultimate exposure to losses are an integral and necessary component of the loss reserving process. The inherent uncertainties of estimating loss reserves are further exacerbated for reinsurers by the
significant times that often elapse between the occurrence of an insured loss, the reporting of that loss to the primary insurer and, ultimately to the reinsurer, and the primary insurers payment of
that loss and subsequent indemnification by the reinsurer. Reserves are recorded by considering a range of estimates bounded by a high point and a low point. Within that range, management's best
estimate is recorded. Reserves are continually reviewed, using various statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic, social
and legal factors. Reserves established in prior years are adjusted as loss experience develops and new information becomes available. Adjustments to previously estimated reserves are reflected in
financial results in periods in which they are made.
While
the carried reserves make a reasonable provision for unpaid loss and LAE obligations, it should be noted that the process of estimating required reserves does, by its very nature,
involve uncertainty. The level of uncertainty can be influenced by factors such as the existence of long-tail coverage (when loss payments may occur for several years) and changes in claims handling
practices, as well as factors noted above, and actual claim payments and LAE could be significantly different than estimates.
Liabilities for unpaid losses and LAE related to certain assumed reinsurance contracts are discounted to the present value of estimated future payments. Prior to discounting, these
liabilities totaled $306.4 million, $198.7 million, and $72.7 million at December 31, 2001, 2000 and 1999, respectively. The total discounted liability reflected on our
combined statements of identifiable underwriting assets and liabilities was $264.9 million, $146.7 million and $47.6 million at December 31, 2001, 2000 and 1999,
respectively. During 2001, $33 million of discount was amortized and $85 million of additional discount was accrued. The liabilities related to these reinsurance contracts
were discounted using rates up to 7.5%, based on our return on invested assets or, in many cases, on yields contractually guaranteed to us on funds held by the ceding company, as permitted by the
state of domicile, the Vermont Department of Banking, Insurance, Securities and Healthcare Administration.
249
Ten-year Development
The table below presents a development of net loss and LAE reserve liabilities and payments for the years 1992 through 2001. The top line on the table shows the
estimated liability for unpaid losses and LAE, net of reinsurance recoverables, recorded at the balance sheet date for each of the years indicated.
In
1997, St. Paul changed the method by which it assigned loss activity to a particular year for assumed reinsurance written by our U.K.-based reinsurance operation, a component of St.
Paul Re. Prior to 1997, that loss activity was assigned to the year in which the underlying reinsurance contract was written. In 1997, our analysis indicated that an excess amount of loss activity was
being assigned to prior years because of this practice. As a result, we implemented an improved procedure in 1997 that more accurately assigns loss activity for this business to the year in which it
occurred. This change had the impact of increasing favorable development on previously established reserves by approximately $110 million in 1997. There was no net impact on total incurred
losses, however, because there was a corresponding increase in the provision for current year loss activity in 1997. Development data for individual years prior to 1997 in this table were not restated
to reflect this new procedure because reliable data to do so was not available.
The
upper portion of the table, which shows the re-estimated amounts relating to the previously recorded liabilities, is based upon experience as of the end of each
succeeding year. These estimates are either increased or decreased as further information becomes known about individual claims and as changes in the trend of claim frequency and severity become
apparent.
The
"Cumulative redundancy (deficiency)" line on the table for any given year represents the aggregate change in the estimates for all years subsequent to the year the reserves were
initially established. For example, the 1992 net reserve of $2,265 million developed to $2,231 million, or a $34 million redundancy, by the end of 1994. By the end of 2001, the
1992 reserve had developed a redundancy of $518 million. The changes in the estimate of 1992 loss reserves were reflected in operations during the past nine years. Likewise, the deficiency that
developed with respect to year-end 2000 reserves was reflected in our results of operations for 2001.
In
1993, St. Paul Re adopted the provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts". This statement
required, among other things, that reinsurance recoverables on unpaid losses and LAE be shown as an asset, instead of the prior practice of netting this amount against insurance reserves for balance
sheet reporting purposes.
The
middle portion of the table, which includes data for only those periods impacted since the adoption of SFAS No. 113 (the years 1992 through 2001), represents a reconciliation
between the net reserve liability as shown on the top line of the table and the gross reserve liability as shown in St. Paul Re's combined statements of identifiable underwriting assets and
liabilities on page F-16 of this prospectus. This portion of the table also presents the gross re-estimated reserve liability as of the end of the latest
re-estimation period (December 31, 2001) and the related re-estimated reinsurance recoverable.
The
lower portion of the table presents the cumulative amounts paid with respect to the previously recorded liability as of the end of each succeeding year. For example, as of
December 31, 2001, $1,573 million of the currently estimated $1,747 million of net losses and LAE that have been incurred for the years up to and including 1992 have been paid. Thus, as
of December 31, 2001, it is estimated that $174 million of net incurred losses and LAE have yet to be paid for the years up to and including 1992.
Caution
should be exercised in evaluating the information shown in this table. It should be noted that each amount includes the effects of all changes in amounts for prior periods. For
250
example, the portion of the development shown for year-end 1996 reserves that relates to 1991 losses is included in the cumulative redundancy (deficiency) for the years 1991 through 1996.
In
addition, the table presents calendar year data. It does not present accident or policy year development data, which some readers may be more accustomed to analyzing. The social,
economic and legal conditions and other trends which have had an impact on the changes in the estimated liability in the past are not necessarily indicative of the future. Accordingly, readers are
cautioned against extrapolating any conclusions about future results from the information presented in this table.
Note 4
to the combined statements, on page F-24 of St. Paul Re's combined statements, includes a reconciliation of beginning and ending loss reserve liabilities for each of the
last three years and is incorporated herein by reference. Additional information about our reserves is contained in Note 4 of St. Paul Re's combined statements on page F-24 of this
prospectus.
Analysis of Loss and Loss Adjustment Expense (LAE) Development
|
|
Year ended December 31,
|
|
|
1992
|
|
1993
|
|
1994
|
|
1995
|
|
1996
|
|
1997
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
Net liability for unpaid losses and LAE |
|
$ |
2,265 |
|
$ |
2,189 |
|
$ |
2,241 |
|
$ |
2,424 |
|
$ |
2,695 |
|
$ |
3,116 |
|
$ |
3,226 |
|
$ |
2,855 |
|
$ |
2,666 |
|
$ |
3,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability re-estimated as of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later |
|
|
2,225 |
|
|
2,179 |
|
|
2,218 |
|
|
2,431 |
|
|
2,758 |
|
|
3,040 |
|
|
3,058 |
|
|
2,730 |
|
|
2,761 |
|
|
|
Two years later |
|
|
2,231 |
|
|
2,158 |
|
|
2,246 |
|
|
2,476 |
|
|
2,689 |
|
|
2,712 |
|
|
2,754 |
|
|
2,744 |
|
|
|
|
|
|
Three years later |
|
|
2,211 |
|
|
2,179 |
|
|
2,272 |
|
|
2,423 |
|
|
2,239 |
|
|
2,447 |
|
|
2,739 |
|
|
|
|
|
|
|
|
|
Four year later |
|
|
2,231 |
|
|
2,202 |
|
|
2,225 |
|
|
2,065 |
|
|
2,094 |
|
|
2,439 |
|
|
|
|
|
|
|
|
|
|
|
|
Five years later |
|
|
2,262 |
|
|
2,168 |
|
|
1,874 |
|
|
1,853 |
|
|
2,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six years later |
|
|
2,238 |
|
|
1,803 |
|
|
1,681 |
|
|
1,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven years later |
|
|
1,870 |
|
|
1,649 |
|
|
1,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight years later |
|
|
1,749 |
|
|
1,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine years later |
|
|
1,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross cumulative redundancy (deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative redundancy (deficiency) |
|
$ |
518 |
|
$ |
542 |
|
$ |
572 |
|
$ |
583 |
|
$ |
622 |
|
$ |
677 |
|
$ |
487 |
|
$ |
111 |
|
$ |
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251
Net liability for unpaid losses and LAE |
|
$ |
2,265 |
|
$ |
2,189 |
|
$ |
2,241 |
|
$ |
2,424 |
|
$ |
2,695 |
|
$ |
3,116 |
|
$ |
3,226 |
|
$ |
2,855 |
|
$ |
2,666 |
|
$ |
3,693 |
Reinsurance recoverable on unpaid losses |
|
|
714 |
|
|
687 |
|
|
694 |
|
|
674 |
|
|
669 |
|
|
613 |
|
|
251 |
|
|
596 |
|
|
902 |
|
|
1,256 |
|
Gross Liability |
|
|
2,979 |
|
|
2,876 |
|
|
2,935 |
|
|
3,098 |
|
|
3,365 |
|
|
3,729 |
|
|
3,477 |
|
|
3,451 |
|
|
3,568 |
|
|
4,949 |
|
Gross re-estimated liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later |
|
|
2,931 |
|
|
2,865 |
|
|
2,909 |
|
|
3,113 |
|
|
3,436 |
|
|
3,208 |
|
|
3,356 |
|
|
3,325 |
|
|
3,664 |
|
|
|
|
Two years later |
|
|
2,939 |
|
|
2,841 |
|
|
2,946 |
|
|
3,166 |
|
|
2,917 |
|
|
3,039 |
|
|
3,069 |
|
|
3,428 |
|
|
|
|
|
|
|
Three years later |
|
|
2,916 |
|
|
2,871 |
|
|
2,979 |
|
|
2,715 |
|
|
2,714 |
|
|
2,784 |
|
|
3,123 |
|
|
|
|
|
|
|
|
|
|
Four year later |
|
|
2,944 |
|
|
2,901 |
|
|
2,579 |
|
|
2,491 |
|
|
2,474 |
|
|
2,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Five years later |
|
|
2,984 |
|
|
2,553 |
|
|
2,352 |
|
|
2,279 |
|
|
2,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six years later |
|
|
2,684 |
|
|
2,302 |
|
|
2,154 |
|
|
2,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven years later |
|
|
2,423 |
|
|
2,143 |
|
|
2,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight years later |
|
|
2,294 |
|
|
2,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine years later |
|
|
2,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross cumulative redundancy (deficiency) |
|
$ |
655 |
|
$ |
700 |
|
$ |
754 |
|
$ |
786 |
|
$ |
860 |
|
$ |
893 |
|
$ |
354 |
|
$ |
23 |
|
$ |
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative amount of net liability paid through: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later |
|
$ |
492 |
|
$ |
369 |
|
$ |
339 |
|
$ |
365 |
|
$ |
357 |
|
$ |
414 |
|
$ |
696 |
|
$ |
780 |
|
$ |
663 |
|
|
|
|
Two years later |
|
|
768 |
|
|
620 |
|
|
579 |
|
|
599 |
|
|
640 |
|
|
967 |
|
|
1,318 |
|
|
1,343 |
|
|
|
|
|
|
|
Three years later |
|
|
951 |
|
|
792 |
|
|
736 |
|
|
780 |
|
|
1,071 |
|
|
1,425 |
|
|
1,650 |
|
|
|
|
|
|
|
|
|
|
Four years later |
|
|
1,079 |
|
|
905 |
|
|
863 |
|
|
1,117 |
|
|
1,416 |
|
|
1,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Five years later |
|
|
1,154 |
|
|
998 |
|
|
1,134 |
|
|
1,375 |
|
|
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six years later |
|
|
1,212 |
|
|
1,217 |
|
|
1,336 |
|
|
1,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven years later |
|
|
1,399 |
|
|
1,391 |
|
|
1,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight years later |
|
|
1,544 |
|
|
1,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine years later |
|
|
1,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative amount of gross liability paid through: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later |
|
$ |
551 |
|
$ |
410 |
|
$ |
376 |
|
$ |
397 |
|
$ |
381 |
|
$ |
439 |
|
$ |
746 |
|
$ |
838 |
|
$ |
706 |
|
|
|
|
Two years later |
|
|
861 |
|
|
689 |
|
|
643 |
|
|
650 |
|
|
685 |
|
|
1,033 |
|
|
1,410 |
|
|
1,435 |
|
|
|
|
|
|
|
Three years later |
|
|
1,068 |
|
|
882 |
|
|
817 |
|
|
847 |
|
|
1,152 |
|
|
1,523 |
|
|
1,760 |
|
|
|
|
|
|
|
|
|
|
Four years later |
|
|
1,212 |
|
|
1,007 |
|
|
957 |
|
|
1,217 |
|
|
1,525 |
|
|
1,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Five years later |
|
|
1,297 |
|
|
1,110 |
|
|
1,258 |
|
|
1,500 |
|
|
1,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six years later |
|
|
1,362 |
|
|
1,355 |
|
|
1,483 |
|
|
1,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven years later |
|
|
1,572 |
|
|
1,548 |
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight years later |
|
|
1,734 |
|
|
1,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine years later |
|
|
1,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL INFORMATION
|
|
Page
|
Platinum Underwriters Holdings, Ltd. |
|
|
Independent Auditors' Report |
|
F-2 |
Consolidated Balance Sheet |
|
F-3 |
Notes to Consolidated Balance Sheet |
|
F-4 |
The St. Paul Companies, Inc. Reinsurance Underwriting Segment (Predecessor) |
|
|
Independent Auditors' Report |
|
F-14 |
Combined StatementsAs of December 31, 2001, 2000 and 1999 |
|
F-15 |
Notes to Combined StatementsAs of December 31, 2001, 2000 and 1999 |
|
F-18 |
Combined StatementsAs of June 30, 2002 and 2001 (unaudited) |
|
F-31 |
Notes to Combined StatementsAs of June 30, 2002 and 2001 (unaudited) |
|
F-34 |
F-1
INDEPENDENT AUDITORS' REPORT
The Board Of Directors And Shareholder
Platinum Underwriters Holdings, Ltd.:
We
have audited the accompanying consolidated balance sheet of Platinum Underwriters Holdings, Ltd. and subsidiaries (the Company) as of June 30, 2002. This financial
statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit.
We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In
our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Platinum Underwriters Holdings, Ltd. and
subsidiaries as of June 30, 2002, in conformity with accounting principles generally accepted in the United States of America.
Minneapolis,
Minnesota
August 29, 2002, except as to
Notes 3 and 5, which are as of
September 16, 2002
F-2
PLATINUM UNDERWRITERS HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEET
June 30, 2002
ASSETS |
Cash |
|
$ |
120,000 |
Cash held in trust |
|
|
10,000 |
|
|
|
Total assets |
|
$ |
130,000 |
|
|
|
LIABILITIES |
Payable to affiliate |
|
$ |
10,000 |
|
|
|
SHAREHOLDER'S EQUITY |
Common Shares(par value $0.01; 135,000,000 shares authorized; 1,200,000 shares issued and outstanding) |
|
$ |
12,000 |
Additional paid-in capital |
|
|
108,000 |
|
|
|
Total shareholder's equity |
|
$ |
120,000 |
|
|
|
Total liabilities and shareholder's equity |
|
$ |
130,000 |
|
|
|
See
accompanying notes to consolidated balance sheet.
F-3
PLATINUM UNDERWRITERS HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET
June 30, 2002
1. Organization
Platinum Underwriters Holdings, Ltd. ("Platinum Holdings") was incorporated on April 19, 2002 and was capitalized on April 24, 2002 under the laws of Bermuda, to
hold subsidiaries that provide property, casualty, and other reinsurance to insurers and reinsurers on a worldwide basis. Platinum Holdings will operate through wholly owned subsidiaries established
and to be established or acquired, including Platinum Underwriters Reinsurance, Inc. ("Platinum US"), Platinum Re (UK) Limited ("Platinum UK"), and Platinum Underwriters Bermuda, Ltd. ("Platinum
Bermuda") (collectively referred to as the "Company"). Platinum Holdings owns Platinum Bermuda directly and will own Platinum US, Platinum UK and Platinum Underwriters Finance, Inc. ("Platinum
Finance") through Platinum Regency Holdings ("Platinum Ireland"), a wholly owned intermediate Irish holding company.
Platinum
Bermuda was incorporated on May 9, 2002 under the laws of Bermuda and is licensed under the Bermuda Insurance Act of 1978, as amended (the "Bermuda Insurance Act") and related
regulations.
Platinum
US (formerly named USF&G Family Insurance Company) was incorporated in 1995 under the laws of Maryland and is licensed under the Maryland insurance laws and related regulations.
Platinum US will be acquired by Platinum Holdings at the time of the consummation of Platinum Holdings' initial public offering (the "Public Offering").
Platinum
UK was incorporated on April 10, 2002 under the laws of the United Kingdom and has applied to be licensed under the Financial Services and Market Act 2000 ("FSMA") and related
regulations.
Platinum
Regency was incorporated on May 3, 2002 under the laws of Ireland.
Platinum
Finance was incorporated on May 10, 2002 under the laws of Delaware and has not yet issued common stock. Prior to the Public Offering, Platinum Finance will issue common stock
to Platinum Ireland and will be nominally capitalized.
The
Company's initial capitalization of $120,000, as reflected in the consolidated balance sheet, was provided by an organizing trust.
On
May 29, 2002, Platinum Holdings completed a 100-for-1 stock split of its Common Shares, resulting in 135,000,000 shares authorized and 1,200,000 shares issued and
outstanding, all with a par value of $0.01.
Concurrent
with the Public Offering, the Company has agreed to sell Common Shares and an option to purchase additional Common Shares to The St. Paul Companies, Inc.
("St. Paul") in a private placement in exchange for cash and certain assets contributed by St. Paul. This private placement is discussed in more detail in Note 3.
Also,
concurrent with the Public Offering is an offering of equity security units discussed in Note 3.
F-4
2. Summary of Significant Accounting Policies
These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
The
Company's business will be written through various underwriting subsidiaries, which will be required to file statutory financial statements with state and foreign regulatory
authorities. The accounting principles used to prepare these statutory financial statements may differ from U.S. GAAP.
For the period from April 24, 2002 (date of inception) through June 30, 2002, the Company did not commence operations and therefore did not generate any revenues
or related expenses. During this period, the Company was capitalized for $120,000, as discussed in Note 1.
Due
to nominal activity, the Company has not included consolidated statements of operations, comprehensive income, shareholder's equity and cash flows.
The June 30, 2002 balance sheet consolidates the balance sheets of Platinum Holdings, Platinum Bermuda, Platinum Regency and Platinum UK, with Platinum UK
capitalized on a very nominal basis. Platinum Finance will be acquired by Platinum Holdings prior to the consummation of
Platinum Holdings' Public Offering, at which time the balance sheet of Platinum Finance will be consolidated into the balance sheet of Platinum Holdings. Platinum US will be acquired by Platinum
Holdings on the consummation of Platinum Holdings' Public Offering, at which time the balance sheet of Platinum US will be consolidated into the balance sheet of Platinum Holdings. Through June 30,
2002, Platinum US has been a non-operating subsidiary of St. Paul and has written no insurance business, although it is licensed to do so in a number of states. Its only activity to date relates to
approximately $19 million of investment grade fixed income and short-term investment securities. Prior to St. Paul's contribution of Platinum US, a dividend of $15 million will be made
by Platinum US to United States Fidelity and Guaranty Company, its parent, subject to approval by the Maryland Insurance Administration. Transactions between the Company and its subsidiaries or among
subsidiaries are eliminated in consolidation.
Cash of $10,000, provided by St. Paul, is held in trust at Conyers, Dill & Pearman on behalf of Platinum Holdings to be utilized to pay specified formation
expenses.
Upon
closing of the Public Offering this amount will be repaid to St. Paul.
Costs incurred by the Company relating to its organization will be expensed as incurred.
As
the Company becomes active in the underwriting of reinsurance, it intends to record transactions based on the following accounting policies, which are consistent with U.S. GAAP.
F-5
The Company's financial statements will include estimates and assumptions that have an effect on the amounts reported. The most significant estimates will be
those relating to reserves for losses
and loss adjustment expenses. These estimates will be continually reviewed and adjustments made as necessary, but actual results could be significantly different than expected at the time such
estimates are made. Results of changes in estimates will be reflected in results of operations in the period in which the change is made.
Assumed reinsurance premiums will be recognized as revenues proportionately over the coverage period. Premiums earned will be recorded in the statements of
operations, net of our cost to purchase reinsurance. Premiums not yet recognized as revenue will be recorded in the balance sheet as unearned premiums, gross of any ceded unearned premiums. Written
and earned premiums, and the related costs, which have not yet been reported to the Company will be estimated and accrued. Due to the time lag inherent in reporting of premiums by cedents, such
estimated premiums written and earned, as well as related costs, may be significant. Differences between such estimates and actual amounts will be recorded in the period in which the actual amounts
are determined.
Reinstatement
and additional premiums will be accrued as provided for in the provisions of assumed reinsurance contracts and based on experience under such contracts. Reinstatement
premiums are the premiums charged for the restoration of the reinsurance limit of a catastrophe contract to its full amount after payment by the reinsurer of losses as a result of an occurrence. These
premiums relate to the future coverage obtained during the remainder of the initial policy term, and are earned over the remaining policy term. Additional premiums are premiums charged after coverage
has expired, related to experience during the policy term, which are earned immediately. An allowance for uncollectible premiums will be established for possible non-payment of such
amounts due, as deemed necessary.
Losses represent the amounts paid, or expected to be paid, to ceding companies for events that have occurred. The costs of investigating, resolving and processing
these claims are known as loss adjustment expenses ("LAE"). These items will be recorded on the Company's statements of operations, net of ceded reinsurance, meaning that gross losses and loss
adjustment expenses incurred will be reduced by the amounts recovered or expected to be recovered under retrocessional contracts.
Written premiums, earned premiums, and incurred losses and loss adjustment expenses will reflect the net effects of assumed and ceded reinsurance transactions.
Reinsurance accounting will be followed for assumed and ceded transactions when risk transfer requirements have been met. These requirements involve significant assumptions being made related to the
amount and timing of expected cash flows, as well as the interpretation of underlying contract terms. Assumed
F-6
reinsurance contracts that do not transfer significant insurance risk are required to be accounted for as deposits. These contract deposits will be accounted for as financing transactions, with
interest expense credited to the contract deposit.
The reserves for losses and LAE will be estimated based on reports received from ceding companies, supplemented by the Company's estimates of reserves for which
ceding company reports have not been received and by the Company's own historical experience. To the extent that the Company's own historical experience is inadequate for estimating reserves, such
estimates may be based upon industry experience and management's judgment. These reserves will include estimates of the total cost of claims that were reported, but not yet paid, and the cost of
claims incurred but not yet reported ("IBNR"). Loss reserves will be reduced for estimated amounts of salvage and subrogation recoveries. Estimated amounts recoverable from reinsurers on unpaid losses
and LAE will be reflected as assets. We currently intend to make arrangements to permit us to discount the liability for certain assumed reinsurance contracts using rates based on our return on
invested assets or, in many cases, on yields contractually guaranteed to us on funds held by the ceding company.
For
reported losses, reserves will be established on a "case" basis within the parameters of coverage provided in the underlying insurance policy and reinsurance agreement. For IBNR
losses, reserves will be estimated using established actuarial methods. Case and IBNR reserve estimates will consider such variables as past loss experience, changes in legislative conditions, changes
in judicial interpretation of legal liability and policy coverages, and inflation.
Because
many of the reinsurance coverages offered by the Company will likely involve claims that may not ultimately be settled for many years after they are incurred, subjective
judgments as to ultimate exposure to losses will be an integral and necessary component of the loss reserving process. The inherent uncertainties of estimating loss reserves are further exacerbated
for reinsurers by the significant amount of time that often elapses between the occurrence of an insured loss, the reporting of that loss to the primary insurer and, ultimately to the reinsurer, and
the primary insurer's payment of that loss and subsequent indemnification by the reinsurer. Reserves will be
recorded considering a range of estimates bounded by a high and low point. Within that range, management's best estimate will be recorded. Reserves will be continually reviewed, using a variety of
statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic, social and legal factors. Reserves established in prior years will be
adjusted as loss experience develops and new information becomes available. Adjustments to previously estimated reserves will be reflected in financial results in the periods in which they are made.
It should be noted that the process of estimating required reserves does, by its very nature, involve uncertainty. The level of uncertainty can be influenced by factors such as the existence of long
tail coverage (when loss payments may not occur for several years) and changes in claim handling practices, as well as the factors noted above, and actual claim payments and LAE could be significantly
different from the estimates.
F-7
The costs directly related to the acquisition of reinsurance contracts are referred to as policy acquisition expenses and consist of commissions and other direct
underwriting expenses. Although these expenses are incurred when a reinsurance contract is written, such expenses will be deferred and amortized over the same period as the corresponding premiums are
recorded as earned revenues.
On
a regular basis, an analysis of the recoverability of the deferred policy acquisition expenses, in relation to the expected recognition of revenues, including anticipated investment
income will be performed. Any adjustments will be reflected as period costs. Should the analysis indicate that the acquisition costs are unrecoverable, further analyses are completed to determine if a
reserve is required to provide for losses which may exceed the related unearned premiums.
The Company's functional currency will be the United States dollar. Foreign currency transactions will be remeasured to the functional currency, and the resulting
foreign exchange gains or losses will be reflected in income. The remeasurement will be calculated using current exchange rates for the balance sheet amounts and average exchange rates for revenues
and expenses.
The Company's entire fixed income portfolio will be classified as available-for-sale, and thus will be carried at estimated fair value,
with the difference between amortized cost and fair value charged or credited directly to shareholders' equity. Fair values will be based on quoted market prices, where available, from a third-party
pricing service. If quoted market prices are not available, fair values will be estimated using values obtained from independent pricing services or a cash flow estimate will be used.
Short-term investments will be carried at cost, which the Company expects will approximate fair value.
If
the Company invests in equity securities in the future, such securities will also be classified as available for sale and will be carried at estimated fair value, based on quoted
market prices obtained from a third-party pricing service.
Realized
gains and losses on disposal of investments will be determined based upon specific identification of the cost of investments sold and will be recorded in the Company's
statements of operations.
The
difference between the cost and estimated fair value of investments will be monitored. If any of the Company's investments experience a decline in value that is believed to be other
than temporary, the investment will be written down and a realized loss will be recorded on the Company's statement of operations. For investments carried at estimated fair value, the difference
between cost and fair value, net of any deferred taxes, will be recorded as a part of Shareholders' equity.
F-8
Cash
equivalents will be carried at amortized cost, which the Company expects will approximate fair value, and will include all securities that, at their purchase date, have a maturity
of less than ninety days.
The net proceeds from the sale of the units will be allocated between the purchase contracts and the senior notes in the Company's consolidated financial
statements based on the underlying fair value of each instrument. The present value of the purchase contract adjustment payments will be
initially charged to shareholders' equity, with an offsetting credit to liabilities. Subsequent contract adjustment payments will be allocated between this liability account and interest expense based
on a constant rate calculation over the life of the transaction.
The
purchase contracts are forward transactions in the Company's Common Shares. Upon settlement of a purchase contract, the Company will receive $25 pursuant to that purchase contract
and will issue the requisite number of Common Shares. The $25 the Company receives will be credited to shareholders' equity and allocated between the Company's Common Shares and additional paid-in
capital accounts.
Before
the issuance of Common Shares upon settlement of the purchase contracts, the purchase contracts will be reflected in our diluted earnings per share calculations using the "if
converted" method, which will assume that the Common Shares were issued and the proceeds received were used to pay down the Senior Notes.
Income taxes will be recorded under the liability method. Deferred income tax assets or liabilities will be recorded based on differences between tax basis and
financial statement amounts that will result in taxable or deductible amounts in future years. A valuation allowance will be established for deferred tax assets where it is more likely than not that
future tax benefits will not be realized.
The calculation of earnings per Common Share will be based upon the weighted average number of Common Shares outstanding adjusted for options outstanding and
outstanding purchase contracts relating to the equity security units.
3. Formation and Separation Agreement, Investment Agreement and Initial Public Offering
Concurrent with the Public Offering, the Company will, pursuant to a Formation and Separation Agreement to be entered into with St. Paul, issue Common Shares to
St. Paul in a private placement as well as an option to purchase additional Common Shares at any time during the 10 years following the Public Offering in exchange for cash and certain assets
described in Note 4. The Company refers to this private placement as the "St. Paul Investment". The number of shares
to be issued to St. Paul will be determined prior to completion of the initial public offering. The additional shares which St. Paul will have an option to purchase as well as the price to be paid by
F-9
St. Paul, will also be determined prior to completion of the initial public offering. The number of shares to be sold to St. Paul pursuant to the St. Paul Investment is designed to hold its ownership
in the Company, following the Public Offering, at an ownership level under 25%, but with the voting power limited to 9.9% of the outstanding Common Shares. To the extent the underwriters exercise
their over-allotment option to purchase additional Common Shares from Platinum Holdings, St. Paul will have the option to purchase up to the number of additional Common Shares
required to maintain its ownership level. In order to maintain the ownership level, the total number of shares to be sold to St. Paul is also subject to adjustment if the number of Common Shares
offered in the Public Offering is changed hereafter.
Concurrently
with the Public Offering, the Company will, pursuant to an Investment Agreement entered into with RenaissanceRe Holdings Ltd. ("RenaissanceRe"), issue Common Shares
to RenaissanceRe in a private placement as well as an option to purchase additional Common Shares at any time during the 10 years following the Public Offering in exchange for cash. The Company
refers to this private placement as the "RenaissanceRe Investment". The number of shares to be issued to RenaissanceRe will be determined prior to completion of the Public Offering. The additional
shares which RenaissanceRe will have an option to purchase, as well as the price to be paid by RenaissanceRe, will also be determined prior to completion of the Public Offering. The number of shares
to be sold to RenaissanceRe pursuant to the RenaissanceRe Investment is designed to result in its ownership in the Company, following the Public Offering, being at an ownership level of 9.9%. To the
extent the underwriters exercise their option to purchase additional Common Shares from Platinum Holdings, RenaissanceRe will have the option to purchase up to the number of additional Common Shares
required to maintain its ownership level. In order to maintain the ownership level, the total number of shares to be sold to RenaissanceRe is also subject to adjustment if the number of Common Shares
offered in the Public Offering is changed hereafter.
Concurrently
with the Public Offering, the Company will offer equity security units for an aggregate offering price of $125 million, plus up to an additional $18.75 million
if the underwriters' option to purchase additional units is exercised in full (the "ESU Offering"), by means of a separate prospectus. Each unit will consist of (a) a contract to purchase
Common Shares from Platinum Holdings in 2005 and (b) a senior note of Platinum Finance due in 2007.
4. Acquisition of Assets from St. Paul
In exchange for the ownership interest discussed in Note 3, St. Paul will contribute cash to the Company and transfer to the Company certain tangible
assets used in St. Paul's reinsurance operation, including the net assets of Platinum US as well as certain fixed assets such as furniture and equipment, systems and software. Intangible assets to be
transferred include broker lists, contract renewal rights and licenses. These assets will be recorded at the values as reflected on St. Paul's books at the time of the transfer.
5. Related Party Transactions
In connection with the organization, initial financing and commencement of operations of the Company, the Company plans to enter into various agreements with St.
Paul and its affiliates and
F-10
with RenaissanceRe and its affiliates. These agreements will be put in place to support the operations of Platinum Holdings.
Subject
to completion of the Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe Investment, the Company will enter into a five-year Services and Capacity
Reservation Agreement with RenaissanceRe, effective October 1, 2002.
The
minimum fee for the coverage commitment and the services provided by RenaissanceRe under this agreement is $4 million at inception and at each anniversary, adjusted to 3.5% of the
Company's gross written non-marine property catastrophe premium, if such amount is greater than $4 million.
The
Company may terminate this agreement if RenaissanceRe is deemed impaired or insolvent by applicable regulatory or judicial authorities or is the subject of conservation,
rehabilitation, liquidation, bankruptcy or similar insolvency proceedings.
6. Taxation
Under current Bermuda law, the Company will not be required to pay any taxes in Bermuda on either income or capital gains. The Company has received from the
Minister of Finance of Bermuda an assurance under The Exempted Undertakings Tax Protection Act, 1966 of Bermuda that in the event of any such taxes being imposed, the Company will be exempted until
2016. There will be no withholding taxes imposed on dividend distributions from Bermuda.
Under
current United States law, Platinum US will be subject to the 35% corporate tax rate. A 5% withholding tax will apply to dividends distributed from Platinum Finance to Platinum
Ireland provided Platinum Ireland is entitled to the benefits of the U.S.-Irish Tax Treaty and meets certain other requirements. Gross reinsurance premiums related to U.S. risks that are paid to
Platinum Bermuda will be subject to a 1% U.S. excise tax. Platinum UK may file for exemption from this excise tax under the U.S.-U.K. Treaty if it satisfies the requirements of the Treaty. Dividend
distributions from the Company to its U.S. shareholders generally will be subject to U.S. federal
income tax. Shareholders holding less than 10% of the voting power of the Company's shares are not entitled to a dividends-received deduction for earnings related to Platinum US and are not entitled
to a U.S. foreign tax credit for foreign taxes paid on earnings related to Platinum UK or Platinum Ireland.
Under
current United Kingdom law, Platinum UK will be taxed at the U.K. corporate tax rate (generally 30%). There will be no withholding tax on dividends distributed from Platinum UK to
Platinum Ireland.
Under
current Irish law, Platinum Ireland will be taxed at a 25% corporate tax rate on non-trading income and a 16% corporate tax rate on trading income (the latter to be reduced to
12.5% as of January 1, 2003). There will be no withholding tax on dividends distributed from Platinum Ireland to the Company.
F-11
7. Employee Benefit Plans and Stock Option Plans
The Company intends to offer benefit plans and stock option plans to its employees as a form of compensation.
8. Reinsurance
The Company's ceded reinsurance program will be structured to protect its operations from potential losses in excess of acceptable levels. Reinsurers will be
expected to honor their obligations under ceded reinsurance contracts. In the event these companies are unable to honor their obligations, the Company will pay these amounts. Allowances for
uncollectible reinsurance will be established for possible nonpayment of such amounts due, as deemed necessary.
Upon
the commencement of the Company's operations, it will enter into Quota Share Retrocession Agreements with St. Paul to transfer to the Company, St. Paul's rights and obligations,
under specified ceded reinsurance contracts.
9. Segment Information
Platinum Holdings will have three reportable segments, which will consist of Global Property and Marine, Global Casualty and Finite Risk. These segments are
consistent with the global manner in which Platinum Holdings' leadership intends to manage the business.
The
Global Property and Marine segment will include principally property and marine reinsurance coverages that will be written by Platinum Holdings, both in the United States and foreign
markets. The majority of the property business will consist of catastrophe excess-of-loss reinsurance treaties. The segment will also include property per-risk
excess-of-loss treaties and North American property surplus lines treaties. Marine reinsurance will include coverages for hull and cargo, primarily under
excess-of-loss treaties.
The
Global Casualty segment will include principally general casualty, automotive casualty, workers compensation, and environmental coverages. This segment will also include professional
liability coverages, including directors and officers, and errors and omissions reinsurance. Also included will be accident and health reinsurance in the United States, in the form of
self-insured medical stop loss coverages. Reinsurance coverages throughout the global casualty segment will generally be in the form of excess-of-loss treaties,
including umbrella coverages.
The
Finite Risk segment will include principally non-traditional reinsurance treaties for leading insurance companies worldwide. Products will include multi-year
funded excess-of-loss treaties, aggregate stop loss treaties, finite quota share treaties, loss portfolio transfers and adverse loss development covers. The classes of risks
written through finite products will generally be consistent with the classes covered by Platinum Holdings' traditional reinsurance products.
The
accounting policies of the segments will be the same as those described in the summary of significant accounting policies.
10. Statutory Requirements and Dividend Restrictions
Platinum Holdings' insurance subsidiaries will be subject to certain limitations on dividends that may be paid to Platinum Holdings based on solvency or other
regulatory requirements in each
F-12
jurisdiction. Such limitations generally require that dividends be paid from surplus and may require regulatory approval prior to payment.
11. Credit Facility Disclosure
Platinum Holdings has entered into a 364 day committed credit facility with a group of banks which will provide $100 million of aggregate borrowing
capacity. The credit facility contains various covenants and agreements, including the requirement to maintain a specified tangible net worth and leverage ratios, and terminates on June 20,
2003 unless extended with the consent of the banks. It is a condition to Platinum Holdings' ability to borrow under the Credit Facility that it have received not less than $825,000,000 of aggregate
proceeds (net of the underwriters' discount) from the sale of its Common Shares in its initial public offering and the sale of Common Shares to St. Paul and RenaissanceRe in a private placement.
12. Contingent Liabilities
Expenses have been incurred by St. Paul associated with the formation and organization as well as maintenance of the Company, including insurance costs, legal
fees, bank expenses and salaries for which the Company has agreed to reimburse St. Paul for, upon completion of the Public Offering. Total expenses incurred under this agreement as of
June 30, 2002 were $5.1 million. Upon completion of the Public Offering, the Company will record these as liabilities on its consolidated financial statements.
F-13
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The St. Paul Companies, Inc.:
We have audited the accompanying combined statements of identifiable underwriting assets and liabilities of The St. Paul Companies, Inc. Reinsurance
Underwriting Segment (Predecessor) as of December 31, 2001, 2000 and 1999, and the related combined statements of underwriting results and identifiable underwriting cash flows for each of the
years in the three-year period ended December 31, 2001. The combined statements are the responsibility of the Predecessor's management. Our responsibility is to express an opinion on these
combined statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
combined statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
The
accompanying combined statements were prepared to present the historical underwriting results and identifiable cash flows of the Predecessor and the asset and liability balances
specifically attributable to reinsurance underwriting operations of The St. Paul Companies, Inc. (St. Paul) as described in Note 1. The combined statements do not contain an allocation
of St. Paul's equity structure, investment portfolio assets, investment income, or cash flows from investing and financing activities. Accordingly, the combined statements are not intended to
be a complete presentation of Predecessor's or St. Paul's financial position, results of operations, or cash flows.
In
our opinion, the combined statements referred to above present fairly, in all material respects, the identifiable underwriting assets and liabilities of The St. Paul
Companies, Inc. Reinsurance Underwriting Segment (Predecessor) as of December 31, 2001, 2000 and 1999, and its underwriting results and its identifiable underwriting cash flows for each
of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
In
connection with our audits of the combined statements, we also have audited the related combined financial statement schedules III through V, as listed in the index in
Item 16(b) of Form S-1. These financial statement schedules are the responsibility of the Predecessor's management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In
our opinion, based on our audits such combined financial statement schedules III through V, when considered in relation to the combined statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Minneapolis, Minnesota
April 23, 2002
F-14
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
COMBINED STATEMENTS OF UNDERWRITING RESULTS
|
|
Year Ended December 31,
|
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
1,677 |
|
$ |
1,073 |
|
$ |
913 |
|
Change in unearned premiums |
|
|
(84 |
) |
|
48 |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
1,593 |
|
|
1,121 |
|
|
878 |
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
1,922 |
|
|
811 |
|
|
500 |
|
Policy acquisition expenses |
|
|
315 |
|
|
336 |
|
|
220 |
|
Other underwriting expenses |
|
|
82 |
|
|
88 |
|
|
82 |
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
2,319 |
|
|
1,235 |
|
|
802 |
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
(726 |
) |
$ |
(114 |
) |
$ |
76 |
|
|
|
|
|
|
|
|
|
See
notes to combined statements.
F-15
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
COMBINED STATEMENTS OF IDENTIFIABLE UNDERWRITING ASSETS AND LIABILITIES
|
|
As of December 31,
|
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Identifiable Assets |
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverables: |
|
|
|
|
|
|
|
|
|
|
|
Unpaid losses |
|
$ |
1,256 |
|
$ |
902 |
|
$ |
596 |
|
|
Paid losses |
|
|
38 |
|
|
37 |
|
|
47 |
|
Premium receivable |
|
|
720 |
|
|
528 |
|
|
530 |
|
Reserve for uncollectible premiums receivable |
|
|
(13 |
) |
|
(11 |
) |
|
(10 |
) |
Funds held by reinsureds |
|
|
495 |
|
|
386 |
|
|
246 |
|
Deferred acquisition costs |
|
|
107 |
|
|
86 |
|
|
87 |
|
Ceded unearned premiums |
|
|
25 |
|
|
20 |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
2,628 |
|
$ |
1,948 |
|
$ |
1,521 |
|
|
|
|
|
|
|
|
|
Identifiable Liabilities |
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense reserves |
|
$ |
4,949 |
|
$ |
3,568 |
|
$ |
3,451 |
|
Assumed paid losses payable |
|
|
78 |
|
|
87 |
|
|
52 |
|
Unearned premium reserves |
|
|
401 |
|
|
315 |
|
|
376 |
|
Reinsurance premiums payable |
|
|
215 |
|
|
208 |
|
|
243 |
|
Underwriting expenses payable |
|
|
181 |
|
|
262 |
|
|
200 |
|
Funds held under reinsurance treaties |
|
|
169 |
|
|
71 |
|
|
52 |
|
Profit commission reserves |
|
|
110 |
|
|
196 |
|
|
140 |
|
Financial reinsurance Liability |
|
|
67 |
|
|
27 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Total identifiable liabilities |
|
$ |
6,170 |
|
$ |
4,734 |
|
$ |
4,514 |
|
|
|
|
|
|
|
|
|
See
notes to combined statements.
F-16
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
COMBINED STATEMENTS OF IDENTIFIABLE UNDERWRITING CASH FLOWS
|
|
Year Ended December 31,
|
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Premiums collected, net |
|
$ |
1,536 |
|
$ |
1,252 |
|
$ |
979 |
|
Loss and loss adjustment expenses paid |
|
|
(952 |
) |
|
(1,013 |
) |
|
(905 |
) |
Policy acquisition expenses paid |
|
|
(398 |
) |
|
(411 |
) |
|
(298 |
) |
Other underwriting expenses paid |
|
|
(124 |
) |
|
(42 |
) |
|
58 |
|
|
|
|
|
|
|
|
|
Cash provided by (used by) underwriting |
|
$ |
62 |
|
$ |
(214 |
) |
$ |
(166 |
) |
|
|
|
|
|
|
|
|
See
notes to combined statements.
F-17
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
NOTES TO COMBINED STATEMENTS
1. Summary of Significant Accounting Policies
The accompanying combined statements pertain to the Reinsurance underwriting segment of The St. Paul Companies, Inc. ("St. Paul"), for the years
ended December 31, 2001, 2000 and 1999. The Reinsurance underwriting segment of St. Paul is the predecessor to Platinum Underwriters Holdings, Ltd. and is hereinafter referred to as
"Predecessor." Predecessor statements are presented on a combined basis, including certain insurance and reinsurance subsidiaries within the St. Paul group, as well as the underwriting results
of the reinsurance departments of St. Paul Fire and Marine Insurance Company ("Fire and Marine") and United States Fidelity and Guarantee Company ("USF&G"), St. Paul's two largest
U.S. insurance subsidiaries.
The
statements of underwriting results reconcile to the Reinsurance underwriting segment results as reported in St. Paul's audited consolidated financial statements for each year
in the three-year period ended December 31, 2001, which are included in St. Paul's Annual Report to Shareholders. It is the practice of St. Paul to evaluate the performance of its
property-liability insurance underwriting segments on the basis of underwriting results.
The
statements of identifiable underwriting assets and liabilities represent those balances that are specifically attributable to the reinsurance underwriting operations of
St. Paul. St. Paul manages its property-liability investment portfolio in the aggregate, as part of a separate segment and does not allocate assets, or investment income, to its
respective underwriting segments. There is also no equity structure allocated to Predecessor. For these reasons, a complete Predecessor balance sheet is not maintained.
Similarly,
the statement of identifiable underwriting cash flows includes only cash flow activity that is specifically attributable to the underwriting operations of Predecessor, and
does not include any cash flows from investing and financing activities.
The accompanying combined statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
Predecessor's
business is written by several of St. Paul's underwriting subsidiaries, which are required to file financial statements with state and foreign regulatory authorities. The
accounting principles used to prepare these statutory financial statements follow prescribed or permitted accounting principles, which differ from U.S. GAAP. Prescribed statutory accounting practices
include state laws, regulations and general administrative rules issued by the state of domicile as well as a variety of publications and manuals of the National Association of Insurance Commissioners
("NAIC"). Permitted statutory accounting practices encompass all accounting practices not so prescribed, but allowed by the state of domicile.
In the first quarter of 2000, Predecessor eliminated the one-quarter reporting lag for its reinsurance operations based in the United Kingdom ("St.
Paul Re U.K.") in order to report the results of those operations on a current basis. As a result, Predecessor's results for 2000 include St. Paul Re U.K.'s results for the fourth quarter of 1999 and
all quarters of 2000. The incremental
F-18
impact of eliminating the reporting lag, which consists of St. Paul Re-U.K.'s results for the three months ended December 31, 2000, was as follows.
|
|
Year Ended
December 31, 2000
|
|
|
|
($ in millions)
|
|
Net premiums written |
|
$ |
7 |
|
Net premiums earned |
|
|
51 |
|
Underwriting loss |
|
|
(10 |
) |
These combined statements include estimates and assumptions that have an effect on the amounts reported. The most significant estimates are those relating to
reserves for losses and loss adjustment expenses. These estimates are continually reviewed and adjustments are made as necessary, but actual results could be significantly different than expected when
estimates were made.
Assumed reinsurance premiums are recognized as revenues proportionately over the coverage period. Net premiums earned are recorded in the statement of
underwriting results, net of our cost to purchase reinsurance. Net premiums not yet recognized as revenue are recorded in the balance sheet as unearned premiums, gross of any ceded unearned premiums.
Written and earned premiums, and the related costs, which have not yet been reported to Predecessor are estimated and accrued. Due to the time lag inherent in reporting of premiums by cedents, such
estimated premiums written and earned, as well as related costs, may be significant. Differences between such estimates and actual amounts are recorded in the period in which the actual amounts are
determined.
Reinstatement
and additional premiums are accrued as provided for in the provisions of assumed reinsurance contracts and based on experience under such contracts. Reinstatement premiums
are the premiums charged for the restoration of the reinsurance limit of a catastrophe contract to its full amount after payment by the reinsurer of losses as a result of an occurrence. These premiums
relate to the future coverage obtained during the remainder of the initial policy term, and are earned over the remaining policy term. Additional premiums are premiums charged after coverage has
expired, related to experience during the policy term, which are earned immediately. An allowance for uncollectible premiums is established for possible non-payment of such amounts due, as deemed
necessary.
Losses represent the amounts paid, or expected to be paid, to ceding companies for events that have occurred. The costs of investigating, resolving and processing
these claims are known as loss adjustment expenses ("LAE"). These items are recorded on the statement of underwriting
F-19
results net of ceded reinsurance, meaning that gross losses and loss adjustment expenses incurred are reduced by the amounts recovered or expected to be recovered under retrocessional contracts.
Written premiums, earned premiums, and incurred losses and loss adjustment expenses reflect the net effects of assumed and ceded reinsurance transactions.
Reinsurance accounting is followed for assumed and ceded transactions when risk transfer requirements have been met. These requirements involve significant assumptions being made related to the amount
and timing of expected cash flows, as well as the interpretation of underlying contract terms. Assumed reinsurance contracts that do not transfer significant insurance risk are required to be
accounted for as deposits. These contract deposits are accounted for as financing transactions, with interest expense credited to the contract deposit.
The reserves for losses and LAE are estimated based on reports received from ceding companies, supplemented with analysis by the claims department and actuaries
of Predecessor. These reserves include estimates of the total cost of claims that were reported, but not yet paid, and the cost of claims incurred but not yet reported ("IBNR"). Loss reserves are
reduced for estimated amounts of salvage and subrogation recoveries. Estimated amounts recoverable from reinsurers on unpaid losses and LAE are reflected as assets.
For
reported losses, reserves are established on a "case" basis within the parameters of coverage provided in the underlying insurance policy or reinsurance agreement. For IBNR losses,
reserves
are estimated using established actuarial methods. Case and IBNR reserve estimates consider such variables as past loss experience, changes in legislative conditions, changes in judicial
interpretation of legal liability and policy coverages, and inflation.
Because
many of the reinsurance coverages offered by Predecessor involve claims that may not ultimately be settled for many years after they are incurred, subjective judgments as to
ultimate exposure to losses are an integral and necessary component of the loss reserving process. The inherent uncertainties of estimating loss reserves are further exacerbated for reinsurers by the
significant amount of time that often elapses between the occurrence of an insured loss, the reporting of that loss to the primary insurer and, ultimately to the reinsurer, and the primary insurer's
payment of that loss and subsequent indemnification by the reinsurer. Reserves are recorded by considering a range of estimates bounded by a high and low point. Within that range, management's best
estimate is recorded. Reserves are continually reviewed, using a variety of statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic,
social and legal factors. Reserves established in prior years are adjusted as loss experience develops and new information becomes available. Adjustments to previously estimated reserves are reflected
in financial results in the periods in which they are made.
While
we believe the carried reserves make a reasonable provision for unpaid loss and LAE obligations, it should be noted that the process of estimating required reserves does, by its
very nature, involve uncertainty. The level of uncertainty can be influenced by factors such as the
F-20
existence of long tail coverage (when loss payments may not occur for several years) and changes in claim handling practices, as well as the factors noted above, and actual claim payments and LAE
could be significantly different from the estimates.
Liabilities
for unpaid losses and LAE related to certain assumed reinsurance contracts are discounted to the present value of estimated future payments. Prior to discounting, these
liabilities totaled $306.4 million, $198.7 million, and $72.7 million at December 31, 2001, 2000 and 1999, respectively. The total discounted liability reflected on our
combined statements of identifiable underwriting assets and liabilities was $264.9 million, $146.7 million and $47.6 million at December 31, 2001, 2000 and 1999,
respectively. The liabilities related to these reinsurance contracts were discounted using rates up to 7.5%, based on our return on invested assets or, in many cases, on yields contractually
guaranteed to us on funds held by the ceding company, as permitted by the Vermont Department of Banking, Insurance, Securities and Healthcare Administration.
The costs directly related to the acquisition of reinsurance contracts are referred to as policy acquisition expenses and consist of commissions and other direct
underwriting expenses. Although these expenses are incurred when a reinsurance contract is written, such expenses are deferred
and amortized over the same period as the corresponding premiums are recorded as earned revenues.
On
a regular basis, an analysis of the recoverability of the deferred policy acquisition expenses, in relation to the expected recognition of revenues, including anticipated investment
income is performed. Any adjustments are reflected as period costs. Should the analysis indicate that the acquisition costs are unrecoverable, further analyses are completed to determine if a reserve
is required to provide for losses that may exceed the related unearned premiums.
Functional currencies are assigned to foreign operations, which are generally the currencies of the local operating environment. Foreign currency amounts are
remeasured to the functional currency, and the resulting foreign exchange gains or losses are reflected in income, outside of underwriting results. Functional currency amounts are then translated into
U.S. dollars. The unrealized gain or loss from this translation is recorded in St. Paul's equity. Both the remeasurement and translation are calculated using current exchange rates for the balance
sheet amounts and average exchange rates for revenues and expenses.
2. Related Party Transactions
The following summarizes Predecessor's related party transactions:
Predecessor cedes certain business to two affiliated special purpose entities ("SPE") which were established by St. Paul for the purpose of increasing
Predecessor's capacity to write certain
F-21
excess-of-loss reinsurance, principally property, marine, and aviation. The most significant of these agreements is with George Town Re. George Town Re was established by St.
Paul in 1996 for the purpose of entering into a single reinsurance treaty with Predecessor, providing an additional $45.1 million of underwriting capacity over a 10-year period.
Premiums ceded under these agreements were $5.2 million in 2001, $4.3 million in 2000, and $11.1 million in 1999. Losses ceded under these agreements totaled $9.8 million
in 2001, $5.4 million in 2000, and $12.4 million in 1999.
Predecessor
assumes certain primary business from other business segments of St. Paul. Premiums assumed under these agreements were $25.8 million in 2001, $6.2 million in
2000, and $7.6 million in 1999. Losses assumed under these agreements were $18.6 million in 2001, $7.7 million in 2000, and $1.6 million in 1999. Predecessor paid
commissions of $9.5 million in 2001, $2.3 million in 2000, and $2.7 million in 1999, related to business assumed under these agreements.
St. Paul management has entered into various agreements with affiliated parties, under arm's length terms. Under these agreements, the affiliated parties have
agreed to perform investment management services for St. Paul Re U.K., guarantee the performance of St. Paul obligations, make funds available under a revolving loan agreement, and provide certain
reinsurance coverage. Included in underwriting expenses are certain expenses allocated to Predecessor from St. Paul, including costs such as corporate communications and marketing, corporate
finance, corporate actuarial, corporate tax, corporate audit, legal services, corporate executives, corporate human resources, and employee benefit costs. These allocated costs totaled
$3.2 million, $6.3 million and $1.8 million in 2001, 2000, and 1999, respectively.
Mountain Ridge Insurance Company ("Mountain Ridge"), one of the insurance legal entities included in Predecessor, holds notes receivable from St. Paul.
Amounts due under these notes receivable totaled $59 million, $37 million and $17 million as of December 31, 2001, 2000 and 1999, respectively. Principal and all accrued
interest on these notes are payable on demand. These demand notes are reflected as an asset and as additional paid-in capital, as permitted by the State of Vermont Department of Banking, Insurance,
Securities and Healthcare Administration.
3. September 11, 2001 Terrorist Attack
On September 11, 2001, terrorists hijacked four commercial passenger jets in the United States. Two of the jets were flown into the World Trade Center
towers in New York, NY, causing their collapse. The third jet was flown into the Pentagon building in Washington, DC, causing severe damage, and the fourth jet crashed in rural Pennsylvania. This
terrorist attack caused significant loss of life and resulted in unprecedented losses for the property-casualty insurance industry.
Estimated
gross losses and loss adjustment expenses incurred as a result of the terrorist attack totaled $931 million. The estimated net underwriting loss of $556 million
from that event included an estimated benefit of $143 million from cessions made under various reinsurance agreements, a net
F-22
$141 million benefit from additional and reinstatement premiums, and a $91 million reduction in contingent commission expenses.
The
estimated losses were based on a variety of actuarial techniques, coverage interpretation and claims estimation methodologies, and included an estimate of losses incurred but not
reported, as well as estimated costs related to the settlement of claims. The estimate of losses is also based on the belief that property and casualty insurance losses from the terrorist attack will
total between $30 billion and $35 billion for the insurance industry. This estimate of industry losses is subject to significant uncertainties and may change over time as additional
information becomes available. A material increase in the estimate of industry losses would likely cause a corresponding material increase to Predecessor's provision for losses related to the attack.
The
estimated underwriting loss of $556 million is recorded in the accompanying 2001 combined statement of underwriting results in the following line items:
|
|
($ in millions)
|
|
Net premiums earned |
|
$ |
141 |
|
Losses and loss adjustment expenses |
|
|
(788 |
) |
Other underwriting expenses |
|
|
91 |
|
|
|
|
|
|
Total underwriting loss |
|
$ |
(556 |
) |
|
|
|
|
The
estimated underwriting loss of $556 million was distributed among Predecessor's segments as follows:
|
|
($ in millions)
|
North American Property |
|
$ |
233 |
North American Casualty |
|
|
32 |
International |
|
|
162 |
Finite Risk |
|
|
129 |
|
|
|
|
Total underwriting loss |
|
$ |
556 |
|
|
|
F-23
4. Reserves for Losses and Loss Adjustment Expenses
The following table represents a reconciliation of beginning and ending loss and loss adjustment expense ("LAE") reserves for each of the last three years.
|
|
Year Ended December 31,
|
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Loss and LAE reserves at beginning of year, as reported |
|
$ |
3,568 |
|
$ |
3,451 |
|
$ |
3,477 |
|
Less reinsurance recoverables on unpaid losses at beginning of year |
|
|
(902 |
) |
|
(596 |
) |
|
(251 |
) |
|
|
|
|
|
|
|
|
Net loss and LAE reserves at beginning of year |
|
|
2,666 |
|
|
2,855 |
|
|
3,226 |
|
Provision for losses and LAE for claims incurred: |
|
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
1,827 |
|
|
936 |
|
|
668 |
|
|
Prior years |
|
|
95 |
|
|
(125 |
) |
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
Total incurred |
|
|
1,922 |
|
|
811 |
|
|
500 |
|
|
|
|
|
|
|
|
|
Losses and LAE payment for claims incurred: |
|
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
(232 |
) |
|
(220 |
) |
|
(175 |
) |
|
Prior years |
|
|
(663 |
) |
|
(780 |
) |
|
(696 |
) |
|
|
|
|
|
|
|
|
|
|
Total paid |
|
|
(895 |
) |
|
(1,000 |
) |
|
(871 |
) |
|
|
|
|
|
|
|
|
|
Net loss and LAE reserves at end of year |
|
|
3,693 |
|
|
2,666 |
|
|
2,855 |
|
Plus reinsurance recoverables on unpaid Losses at end of year |
|
|
1,256 |
|
|
902 |
|
|
596 |
|
|
|
|
|
|
|
|
|
Loss and LAE reserves at end of year, as reported |
|
$ |
4,949 |
|
$ |
3,568 |
|
$ |
3,451 |
|
|
|
|
|
|
|
|
|
In
2001, prior year development was attributable to several lines of business. The North American Property segment continued to have worse than expected loss emergence, largely driven by
certain property business underwritten through Predecessor's London office. Also included in this emergence was an increase in the reserve position of the surplus lines business which exhibited poor
loss development in the 1999 and 2000 accident years.
A
reduction in prior year losses was recorded for both 2000 and 1999. In both years, favorable prior year loss development was primarily attributable to better than expected loss
emergence on the Casualty Excess book of business. As older underwriting years are maturing, they continue to
display favorable emergence and current indications are significantly better than the initial ultimate loss estimates.
Predecessor continues to have exposure, through its reinsurance of primary insurance contracts written many years ago, to claims alleging injury or damage from
environmental pollution or seeking payment for the cost to clean up polluted sites. In addition, Predecessor has received asbestos injury claims tendered under general casualty policies that it
reinsures.
F-24
The
following table summarizes Predecessor's combined environmental and asbestos reserves balance at December 31, 2001 and 2000. Amounts in the "net" column are reduced by
retrocessions.
|
|
December 31,
|
|
|
2001
|
|
2000
|
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
|
($ in millions)
|
Environmental |
|
$ |
18 |
|
$ |
8 |
|
$ |
25 |
|
$ |
11 |
Asbestos |
|
|
13 |
|
|
4 |
|
|
17 |
|
|
5 |
|
|
|
|
|
|
|
|
|
Total environmental and asbestos reserves |
|
$ |
31 |
|
$ |
12 |
|
$ |
42 |
|
$ |
16 |
|
|
|
|
|
|
|
|
|
5. Employee Benefit Plans
Employees of Predecessor participate in various employee benefit, stock incentive, and retirement plans administered by St. Paul. Predecessor reimburses St. Paul
for costs associated with these plans. The following summarizes underwriting expenses recorded by Predecessor in connection with each of these plans.
|
|
Year Ended December 31,
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
($ in millions)
|
Retirement Plans |
|
$ |
6.2 |
|
$ |
3.8 |
|
$ |
1.8 |
Post Retirement Plans |
|
|
0.3 |
|
|
0.3 |
|
|
0.3 |
Variable Stock Option Plan |
|
|
0.1 |
|
|
0.6 |
|
|
0.8 |
|
|
|
|
|
|
|
|
Total |
|
$ |
6.6 |
|
$ |
4.7 |
|
$ |
2.9 |
|
|
|
|
|
|
|
In
addition, St. Paul sponsors a stock based incentive program, the Long-Term Incentive Plan ("LTIP"), which is exclusive to certain employees of Predecessor. Underwriting
expenses (benefits) recorded by Predecessor in connection with the LTIP totaled ($2.3) million in 2001, ($4.0) million in 2000, and $2.0 million in 1999.
6. Commitments and Contingencies
We are contingently liable for a financial guarantee in the form of a credit enhancement, with total exposure of approximately $15 million as of
December 31, 2001.
A portion of Predecessor's business activities is conducted in rented premises. Predecessor also enters into leases for equipment, such as office machines and
computers. Total rental expense was $5.8 million in 2001, $9.3 million in 2000 and $9.2 million in 1999.
F-25
Certain
leases are non-cancelable, and Predecessor would remain responsible for payment even if the space or equipment was no longer utilized. On December 31, 2001,
the minimum rents for which Predecessor would be liable under these types of leases are as follows: $6.9 million in 2002, $3.4 million in 2003, $1.7 million in 2004,
$.8 million in 2005, $.8 million in 2006, and $2.8 million thereafter.
In the ordinary course of conducting business, we have been named as defendants in various lawsuits. Some of these lawsuits attempt to establish liability under
reinsurance contracts issued by our underwriting operations. Plaintiffs in these lawsuits are asking for money damages or to have the court direct the activities of our operations in certain ways. It
is possible that the settlement of these lawsuits may be material to our results of operations and liquidity in the period in which they occur. However, we believe the total amounts that we, and our
subsidiaries, will ultimately have to pay in these matters will have no material effect on our overall financial position.
7. Fourth Quarter 2001 Strategic Review
In December 2001, St. Paul announced the results of a strategic review of all of its operations, which included a decision to exit a number of businesses
and countries. These decisions included the narrowing of product offerings and geographic presence relative to Predecessor's businesses. As part of that review, it was determined that Predecessor
would no longer underwrite aviation or bond and credit reinsurance, or offer certain financial risk and capital markets reinsurance products. Predecessor would also substantially reduce the North
American business underwritten in London. Predecessor would focus on several areas, including property catastrophe reinsurance, excess-of-loss casualty reinsurance, marine and
traditional finite reinsurance.
The
following table presents the net premiums earned and underwriting results for 2001, 2000 and 1999 for the businesses to be exited under these actions, including the allocation of St.
Paul's corporate excess-of-loss reinsurance programs.
|
|
Year Ended December 31,
|
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Net premiums earned |
|
$ |
362 |
|
$ |
307 |
|
$ |
116 |
|
Underwriting results |
|
|
(318 |
) |
|
(84 |
) |
|
(153 |
) |
8. Reinsurance
The primary purpose of Predecessor's ceded reinsurance program, including the aggregate excess-of-loss coverages discussed below, is to
protect its operations from potential losses in excess of acceptable levels. Reinsurers are expected to honor their obligations under ceded reinsurance
contracts. In the event these companies are unable to honor their obligations, Predecessor will pay these amounts. Allowances have been established for possible nonpayment of such amounts due.
F-26
The
largest concentrations of total reinsurance recoverables and ceded unearned premiums at December 31, 2001 were with Underwriters Re-Bermuda ("Underwriters Re") and
with General Reinsurance Corporation ("Gen Re"). Gen Re, accounting for approximately 11.6% of Predecessor's recoverables, is rated "A++" by A.M. Best, "Aaa" by Moody's and "AAA" by Standard
and Poor's for its financial strength. Although Underwriters Re (accounting for approximately 20.4% of Predecessor's recoverables) is not rated by the major rating agencies, these recoverables are
fully collateralized with funds held and letters of credit.
Predecessor's
underwriting results in 2001, 2000 and 1999 were impacted by the St. Paul corporate aggregate excess-of-loss reinsurance program that were entered
into effective January 1 of each year (hereinafter referred to as the "St. Paul corporate program"). Coverage under the St. Paul corporate program treaties was triggered when St. Paul's
incurred insurance losses and LAE across all lines of business exceeded accident year attachment loss ratios specified in the treaty. Predecessor results also benefited from a separate aggregate
excess-of-loss reinsurance treaty, exclusive to Predecessor in each year that were unrelated to the St. Paul corporate program. The combined impact of these treaties (together
the "reinsurance treaties") is included in the table that follows.
|
|
Year Ended December 31,
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
($ in millions)
|
St. Paul Corporate Aggregate Excess-of-Loss Reinsurance Program |
|
|
|
|
|
|
|
|
|
Ceded premiums written |
|
$ |
(67 |
) |
$ |
80 |
|
$ |
89 |
Ceded losses and loss adjustment expenses |
|
|
(126 |
) |
|
140 |
|
|
164 |
Ceded premiums earned |
|
|
(67 |
) |
|
80 |
|
|
89 |
|
|
|
|
|
|
|
|
Net underwriting benefit (detriment) |
|
$ |
(59 |
) |
$ |
60 |
|
$ |
75 |
|
|
|
|
|
|
|
Predecessor Aggregate Treaty |
|
|
|
|
|
|
|
|
|
Ceded premiums written |
|
$ |
119 |
|
$ |
55 |
|
$ |
62 |
Ceded losses and loss adjustment expenses |
|
|
278 |
|
|
122 |
|
|
150 |
Ceded premiums earned |
|
|
119 |
|
|
55 |
|
|
62 |
|
|
|
|
|
|
|
|
Net underwriting benefit |
|
$ |
159 |
|
$ |
67 |
|
$ |
88 |
|
|
|
|
|
|
|
Combined total |
|
|
|
|
|
|
|
|
|
Ceded premiums written |
|
$ |
52 |
|
$ |
135 |
|
$ |
151 |
Ceded losses and loss adjustment expenses |
|
|
152 |
|
|
262 |
|
|
314 |
Ceded premiums earned |
|
|
52 |
|
|
135 |
|
|
151 |
|
|
|
|
|
|
|
|
Net underwriting benefit |
|
$ |
100 |
|
$ |
127 |
|
$ |
163 |
|
|
|
|
|
|
|
The
impact of the 2000 and 1999 St. Paul corporate aggregate excess-of-loss reinsurance program treaties was allocated to Predecessor, based on its incurred losses and LAE, relative to
both the incurred losses and LAE of St. Paul's other underwriting segments, and the loss ratio attachment point as prescribed in the contracts. The 2001 amounts shown above include the
F-27
impact of a reallocation of premiums and losses ceded in 2000 and 1999. This reallocation was necessary to reflect the impact of differences between St. Paul's actual 2001 experience on losses ceded
to the corporate program in 2000 and 1999, by segment, and the anticipated experience on those losses in 2000 and 1999 when the initial segment allocation was made.
During
2001, St. Paul did not cede losses to its corporate aggregate excess-of-loss reinsurance program. Ceded written and earned premiums in 2001 included $2 million representing
the allocation to Predecessor of the initial deposit premiums under the 2001 corporate aggregate excess-of-loss reinsurance program treaty.
The
effect of assumed and ceded reinsurance on premiums written, premiums earned and insurance losses and loss adjustment expenses is as follows (including the impact of the reinsurance
treaties):
|
|
Year Ended December 31
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
($ in millions)
|
Premiums Written |
|
|
|
|
|
|
|
|
|
Assumed |
|
$ |
1,854 |
|
$ |
1,327 |
|
$ |
1,231 |
Ceded |
|
|
177 |
|
|
254 |
|
|
318 |
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
1,677 |
|
$ |
1,073 |
|
$ |
913 |
|
|
|
|
|
|
|
Premiums Earned |
|
|
|
|
|
|
|
|
|
Assumed |
|
$ |
1,765 |
|
$ |
1,381 |
|
$ |
1,192 |
Ceded |
|
|
172 |
|
|
260 |
|
|
314 |
|
|
|
|
|
|
|
|
Total premiums earned |
|
$ |
1,593 |
|
$ |
1,121 |
|
$ |
878 |
|
|
|
|
|
|
|
Insurance Losses and Loss Adjustment Expenses |
|
|
|
|
|
|
|
|
|
Assumed |
|
$ |
2,318 |
|
$ |
1,197 |
|
$ |
877 |
Ceded |
|
|
396 |
|
|
386 |
|
|
377 |
|
|
|
|
|
|
|
Total insurance losses and loss adjustment expenses |
|
$ |
1,922 |
|
$ |
811 |
|
$ |
500 |
|
|
|
|
|
|
|
9. Segment Information
Predecessor has four reportable segments, which consist of North American Property, North American Casualty, International, and Finite Risk. These segments are
consistent with the manner in which Predecessor's business has been managed.
The
North American Property segment consists of property reinsurance business underwritten for customers domiciled in the United States and Canada. Coverages offered included
proportional, per-risk, excess-of-loss and surplus lines reinsurance, and catastrophe treaties. This segment also includes retrocessional reinsurance business and
crop and agricultural reinsurance. The North American surplus lines business center has been aggregated with the North American Property segment as the aggregation is consistent with Predecessor's
management structure and the business center meets the aggregation criteria required for external segment reporting.
F-28
The
North American Casualty segment consists of casualty reinsurance underwritten for customers domiciled in the United States and Canada. Casualty coverages offered include general
workers' compensation, medical professional, non-medical professional, directors and officers, employment practices, umbrella and environmental impairment. The Accident and Health business
center, which consists predominantly of North American Risks, is aggregated with the North American Casualty segment as the aggregation is consistent with Predecessor's management structure and the
business center meets the aggregation criteria required for external reporting. In addition, Predecessor has one significant account which includes both property and casualty business, but is managed
as a business center within the North American Casualty segment. For this reason, this business center, which meets the aggregation criteria for external segment reporting, has been aggregated with
the North American Casualty segment.
The
International segment underwrites property and casualty reinsurance for customers domiciled outside of North America. This segment also includes the results from marine and aerospace
business due to the global nature of those exposures.
The
Finite Risk segment underwrites non-traditional reinsurance treaties for leading insurance companies worldwide. Non-traditional reinsurance combines limited
traditional underwriting risk with financial risk protection and is generally utilized by large commercial customers who are willing to share in a portion of their insurance losses. Due to
Predecessor's management structure, the Bond and Credit business center has been aggregated with the Finite Risk segment. This business center meets the aggregation criteria required for external
segment reporting.
Predecessor
monitors and evaluates the performance of its segments based principally on their underwriting results. Assets are not specifically identifiable for these segments. The
accounting policies of the segments are the same as those described in the summary of significant accounting policies.
The following summary presents financial data of Predecessor's operations based on their location.
|
|
Year Ended December 31,
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
($ in millions)
|
Net Premiums Earned |
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
1,097 |
|
$ |
810 |
|
$ |
656 |
Non-U.S. |
|
|
496 |
|
|
311 |
|
|
222 |
|
|
|
|
|
|
|
|
Total net premiums earned |
|
$ |
1,593 |
|
$ |
1,121 |
|
$ |
878 |
|
|
|
|
|
|
|
F-29
The summary below presents net premiums earned and underwriting results for Predecessor's reportable segments.
|
|
Year Ended December 31,
|
|
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
($ in millions)
|
|
Net Premiums Earned |
|
|
|
|
|
|
|
|
|
|
North American Property |
|
$ |
216 |
|
$ |
204 |
|
$ |
196 |
|
North American Casualty |
|
|
588 |
|
|
319 |
|
|
245 |
|
International |
|
|
242 |
|
|
188 |
|
|
160 |
|
Finite Risk |
|
|
547 |
|
|
410 |
|
|
277 |
|
|
|
|
|
|
|
|
|
|
Total net premiums earned |
|
$ |
1,593 |
|
$ |
1,121 |
|
$ |
878 |
|
|
|
|
|
|
|
|
|
Underwriting Gain/(Loss) |
|
|
|
|
|
|
|
|
|
|
North American Property |
|
$ |
(232 |
) |
$ |
(1 |
) |
$ |
(28 |
) |
North American Casualty |
|
|
(215 |
) |
|
(76 |
) |
|
75 |
|
International |
|
|
(109 |
) |
|
(10 |
) |
|
(21 |
) |
Finite Risk |
|
|
(170 |
) |
|
(27 |
) |
|
50 |
|
|
|
|
|
|
|
|
|
|
Total underwriting gain/(loss) |
|
$ |
(726 |
) |
$ |
(114 |
) |
$ |
76 |
|
|
|
|
|
|
|
|
|
Each
of Predecessor's segments generates a significant volume of reinsurance premiums through two reinsurance brokers. Total premiums written through these two brokers
totaled $587 million, $518 million, and $512 million for the years ended December 31, 2001, 2000 and 1999, respectively.
10. Quarterly Results of Operations (Unaudited)
The following is an unaudited summary of Predecessor's quarterly results for the last two years.
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
|
($ in millions)
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
421 |
|
$ |
280 |
|
$ |
584 |
|
$ |
392 |
|
Net premiums earned |
|
|
303 |
|
|
297 |
|
|
533 |
|
|
460 |
|
Underwriting loss |
|
|
(22 |
) |
|
(35 |
) |
|
(512 |
) |
|
(157 |
) |
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
|
($ in millions)
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
384 |
|
$ |
192 |
|
$ |
248 |
|
$ |
249 |
|
Net premiums earned |
|
|
311 |
|
|
219 |
|
|
262 |
|
|
329 |
|
Underwriting loss |
|
|
(71 |
) |
|
(30 |
) |
|
(13 |
) |
|
(0 |
) |
The
fourth quarter of 2001 included the impact of a $56 million increase in Predecessor's estimate of losses incurred as a result of the September 11, 2001
terrorist attack.
F-30
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
COMBINED STATEMENTS OF UNDERWRITING RESULTS
(Unaudited)
|
|
Six Months
Ended
June 30,
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Net premiums earned |
|
|
|
|
|
|
|
Net premiums written |
|
$ |
663 |
|
$ |
701 |
|
Change in unearned premiums |
|
|
19 |
|
|
(101 |
) |
|
|
|
|
|
|
|
Net premiums earned |
|
|
682 |
|
|
600 |
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
460 |
|
|
426 |
|
Policy acquisition expenses |
|
|
178 |
|
|
188 |
|
Other underwriting expenses |
|
|
35 |
|
|
42 |
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
673 |
|
|
656 |
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
$ |
9 |
|
$ |
(56 |
) |
|
|
|
|
|
|
See
notes to combined statements.
F-31
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
COMBINED STATEMENTS OF IDENTIFIABLE ASSETS AND LIABILITIES
(Unaudited)
|
|
As of June 30,
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Identifiable assets |
|
|
|
|
|
|
|
Reinsurance recoverables: |
|
|
|
|
|
|
|
|
Unpaid losses |
|
$ |
1,190 |
|
$ |
1,019 |
|
|
Paid losses |
|
|
38 |
|
|
78 |
|
Premium Receivable |
|
|
687 |
|
|
576 |
|
Reserve for uncollectible premiums receivable |
|
|
(28 |
) |
|
(19 |
) |
Funds held by reinsureds |
|
|
540 |
|
|
446 |
|
Deferred policy acquisition costs |
|
|
88 |
|
|
108 |
|
Ceded unearned premiums |
|
|
35 |
|
|
28 |
|
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
2,550 |
|
$ |
2,236 |
|
|
|
|
|
|
|
Identifiable liabilities |
|
|
|
|
|
|
|
Loss and loss adjustment expense reserves |
|
$ |
4,822 |
|
$ |
3,663 |
|
Assumed paid losses payable |
|
|
80 |
|
|
66 |
|
Unearned premium reserves |
|
|
394 |
|
|
418 |
|
Reinsurance premiums payable |
|
|
288 |
|
|
307 |
|
Underwriting expenses payable |
|
|
147 |
|
|
293 |
|
Funds held under reinsurance treaties |
|
|
145 |
|
|
95 |
|
Profit commission reserves |
|
|
107 |
|
|
216 |
|
Financial reinsurance liability |
|
|
106 |
|
|
51 |
|
|
|
|
|
|
|
|
|
Total identifiable liabilities |
|
$ |
6,089 |
|
$ |
5,109 |
|
|
|
|
|
|
|
See
notes to combined statements.
F-32
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
COMBINED STATEMENTS OF IDENTIFIABLE CASH FLOWS
(Unaudited)
|
|
Six Months
Ended
June 30,
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Premiums collected, net |
|
$ |
829 |
|
$ |
718 |
|
Loss and loss adjustment expenses paid |
|
|
(573 |
) |
|
(485 |
) |
Policy acquisition expenses paid |
|
|
(186 |
) |
|
(221 |
) |
Other underwriting expenses paid |
|
|
(132 |
) |
|
(22 |
) |
|
|
|
|
|
|
Cash used by underwriting |
|
$ |
(62 |
) |
$ |
(10 |
) |
|
|
|
|
|
|
See
notes to combined statements.
F-33
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
NOTES TO COMBINED STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying combined financial statements pertain to the Reinsurance underwriting segment of The St. Paul Companies, Inc. ("St. Paul"), for the
six-month periods ended June 30, 2002 and 2001. The Reinsurance underwriting segment of St. Paul is the predecessor to Platinum Underwriters Holdings, Ltd. and is hereinafter referred to
as "Predecessor". Predecessor financial statements are presented on a combined basis, including certain insurance and reinsurance subsidiaries within the St. Paul group, as well as the underwriting
results of the reinsurance departments of St. Paul Fire and Marine Insurance Company ("Fire and Marine") and United States Fidelity and Guarantee Company ("USF&G"), St. Paul's two largest U.S.
insurance subsidiaries.
The
statements of underwriting results reconcile to the Reinsurance underwriting segment results as reported in St. Paul's June 30, 2002 Form 10-Q as filed with the
Securities and Exchange Commission. It is the practice of St. Paul to evaluate the performance of its property-liability insurance underwriting segments on the basis of underwriting results.
The
statements of identifiable assets and liabilities represent those balances that are specifically attributable to the underwriting operations of Predecessor. St. Paul manages its
property-liability investment portfolio in the aggregate, as part of a separate segment and does not allocate assets, or investment income, to its respective underwriting segments. There is also no
equity structure allocated to Predecessor. For these reasons, a complete Predecessor balance sheet is not maintained.
Similarly,
the statement of identifiable cash flows includes only cash flow activity that is specifically attributable to the underwriting operations of Predecessor, and does not include
any cash flows from investment and financing activities.
Reference
should be made to the Notes to Combined Statements on pages F-18 to F-30 of this document. The amounts in those notes have not changed materially except
as in the ordinary course of business or as otherwise disclosed in these notes.
2. Reinsurance
The primary purpose of Predecessor's ceded reinsurance program is to protect its operations from potential losses in excess of acceptable levels. Reinsurers are
expected to honor their obligations under ceded reinsurance contracts. In the event these companies are unable to honor their obligations, Predecessor will pay these amounts. Allowances have been
established for possible nonpayment of such amounts due.
In
2002, St. Paul is not party to an all-lines, corporate excess-of-loss reinsurance treaty. In the three preceding years, cessions made under such treaties had a significant impact on
Predecessor's reported financial results. In 2001, St. Paul was party to such an agreement that incepted on January 1 of that year. Coverage under that treaty was not triggered in the first six
months of 2001. However, Predecessor recorded ceded written premiums of $2 million and ceded earned premiums of $1 million in those six months representing Predecessor's share of the
initial premium paid for this treaty.
F-34
Predecessor
was party to a separate aggregate excess-of-loss reinsurance treaty, unrelated to the corporate treaty, in both 2002 and 2001. Coverage has not been triggered under that
treaty in the 2002, however in the first six months of 2002, Predecessor recorded ceded written premiums of $5 million, ceded earned premiums of $(3) million, and ceded loss and loss and
loss adjustment expenses of $(25) million, for a net detriment of $22 million as a result of this treaty. Included in the net detriment for the quarter was a $14 million detriment
due to the partial commutation of the 1999 and 2001 aggregate excess-of-loss reinsurance treaties. For the six months ended June 30, 2001, Predecessor ceded $45 million of written
premiums, $43 million of earned premiums and $102 million of losses and loss adjustment expenses, for a net benefit of $59 million as a result of this treaty.
The
effect of assumed and ceded reinsurance on premiums written, premiums earned and insurance losses and loss adjustment expenses was as follows:
|
|
Six Months
Ended
June 30,
|
|
|
2002
|
|
2001
|
|
|
($ in millions)
|
Premiums Written |
|
|
|
|
|
|
Assumed |
|
$ |
702 |
|
$ |
803 |
Ceded |
|
|
39 |
|
|
102 |
|
|
|
|
|
|
Net premiums written |
|
$ |
663 |
|
$ |
701 |
|
|
|
|
|
Premiums Earned |
|
|
|
|
|
|
Assumed |
|
$ |
711 |
|
$ |
694 |
Ceded |
|
|
29 |
|
|
94 |
|
|
|
|
|
|
Total premiums earned |
|
$ |
682 |
|
$ |
600 |
|
|
|
|
|
Insurance Losses and Loss Adjustment Expenses |
|
|
|
|
|
|
Assumed |
|
$ |
432 |
|
$ |
570 |
Ceded |
|
|
(28 |
) |
|
144 |
|
|
|
|
|
|
Total net insurance losses and loss adjustment expenses |
|
$ |
460 |
|
$ |
426 |
|
|
|
|
|
3. Segment Information
Predecessor has four reportable segments: North American Property, North American Casualty, International, and Finite Reinsurance. These segments are consistent
with the manner in which Predecessor's business has been managed.
Predecessor
monitors and evaluates the performance of its segments based principally on their underwriting results. Assets are not specifically identifiable for these segments.
F-35
The
summary below presents premiums earned and underwriting results for Predecessor's reportable segments.
|
|
Six Months
Ended
June 30,
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
Premiums earned |
|
|
|
|
|
|
|
North American Property |
|
$ |
125 |
|
$ |
75 |
|
North American Casualty |
|
|
271 |
|
|
261 |
|
International |
|
|
120 |
|
|
108 |
|
Finite Reinsurance |
|
|
166 |
|
|
156 |
|
|
|
|
|
|
|
|
Total premiums earned |
|
$ |
682 |
|
$ |
600 |
|
|
|
|
|
|
|
Underwriting gain (loss) |
|
|
|
|
|
|
|
North American Property |
|
$ |
16 |
|
$ |
6 |
|
North American Casualty |
|
|
(50 |
) |
|
(109 |
) |
International |
|
|
40 |
|
|
53 |
|
Finite Reinsurance |
|
|
3 |
|
|
(6 |
) |
|
|
|
|
|
|
|
Total underwriting gain/(loss) |
|
$ |
9 |
|
$ |
(56 |
) |
|
|
|
|
|
|
4. Exited Lines of Business
The following table presents the net premiums earned and underwriting results for the six months ended June 30, 2002 and 2001 for the lines of business to
be exited, announced as part of St. Paul's December 2001 strategic review. Based on the relative results of the exited business and the continuing business, during the six months ended
June 30, 2001, no portion of the corporate aggregate excess-of-loss reinsurance program was allocated to the exited business. During the six months ended June 30, 2002, St. Paul did not
enter into a corporate aggregate excess-of-loss reinsurance program.
|
|
Six Months
Ended
June 30,
|
|
|
|
2002
|
|
2001
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
$ |
167 |
|
$ |
177 |
|
Underwriting results |
|
|
(44 |
) |
|
(6 |
) |
F-36
5. Subsequent Event-George Town Re Commutation
George Town Re was established by St. Paul in 1996 for the purpose of entering into a single reinsurance treaty with Predecessor, providing additional
underwriting capacity to Predecessor over a 10 year period. The agreement with George Town Re was terminated on July 8, 2002 and George
Town Re was liquidated. Management does not expect there to be a material impact on Predecessor's underwriting results from this transaction.
6. Subsequent Event-European Flooding Catastrophe Losses
In August 2002, heavy rains and flooding caused substantial loss of life and property in parts of Europe. Based on preliminary information available, and applying
customary actuarial techniques applicable to catastrophe events, Predecessor has estimated that incurred losses in respect of this event could be material to Predecessor's third quarter 2002
underwriting results.
F-37
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell only the units offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
TABLE OF CONTENTS
|
|
Page
|
Prospectus Summary |
|
1 |
Risk Factors |
|
31 |
Use of Proceeds |
|
55 |
Dilution |
|
57 |
Dividend Policy |
|
60 |
Capitalization |
|
61 |
Ratio of Earnings to Fixed Charges |
|
62 |
Pro Forma Financial Information |
|
63 |
Recent Developments |
|
69 |
Management's Discussion and Analysis of Pro Forma Financial Condition and Underwriting Results |
|
71 |
Business |
|
96 |
Management |
|
129 |
St. Paul Investment, RenaissanceRe Investment and Principal Shareholders |
|
141 |
Certain Relationships and Related Transactions |
|
144 |
Platinum Underwriters Finance, Inc. |
|
163 |
Accounting Treatment |
|
163 |
Description of the Equity Security Units |
|
164 |
Description of the Senior Notes |
|
185 |
Global Clearance and Settlement |
|
195 |
Description of Platinum Holdings' Common Shares |
|
199 |
Shares Eligible for Future Sale |
|
206 |
U.S. Federal Income Tax Consequences |
|
208 |
ERISA Considerations |
|
224 |
Underwriting |
|
226 |
Validity of the Securities |
|
228 |
Experts |
|
229 |
Available Information |
|
229 |
Enforceability of Civil Liabilities under United States Federal Securities Laws and Other Matters |
|
230 |
The Predecessor Business |
|
231 |
Index to Consolidated Financial Statements and Financial Information |
|
F-1 |
Through and including , 2002 (the
25th day after the date of this prospectus), all dealers effecting transactions
in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to an unsold allotment or subscription.
5,000,000 Units
Platinum Underwriters Holdings, Ltd.
Equity Security Units
PROSPECTUS
Goldman, Sachs & Co.
Merrill Lynch & Co.
Salomon Smith Barney
Banc of America Securities LLC
Credit Suisse First Boston
JPMorgan
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth expenses and costs payable by Platinum Underwriters Holdings, Ltd. ("Platinum Holdings") and Platinum Underwriters Finance, Inc.
("Platinum Finance") expected to be incurred in connection with the issuance and distribution of the securities described in this registration statement. All amounts are estimated except for the
Securities and Exchange Commisson's registration fee and the National Association of Securities Dealers, Inc.'s filing fee.
|
|
Amount to be paid
|
Securities and Exchange Commission registration fee |
|
$ |
26,450 |
NASD filing fee |
|
|
14,875 |
Legal fees and expenses |
|
|
520,000 |
NYSE listing fees and expenses |
|
|
50,425 |
Accounting fees and expenses |
|
|
25,000 |
Printing and engraving fees |
|
|
500,000 |
Miscellaneous |
|
|
10,000 |
|
|
|
Total |
|
$ |
1,146,750 |
|
|
|
Item 14. Indemnification of Directors and Officers
Section 98 of the Companies Act 1981 provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability
which by virtue of Bermuda law otherwise would be imposed on them, except in cases where such liability arises from the fraud or dishonesty of which such director, officer or auditor may be guilty in
relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any
proceeding, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted if granted relief by the Supreme Court of Bermuda in certain proceedings arising under
Section 281 of the Companies Act.
Platinum
Holdings has adopted provisions in its bye-laws that provide that it shall indemnify its officers and directors to the maximum extent permitted under the Companies
Act.
In
addition, the underwriting agreement filed as Exhibit 1 to this registration statement provides for indemnification of Platinum Holdings, its officers and its directors by the
underwriters under certain circumstances.
The
by-laws of Platinum Finance provide that Platinum Finance shall indemnify to the fullest extent permitted by law any person made, or threatened to be made a party to an action, suit
or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or, such person's testator or intestate is or was a director, officer or employee of
Platinum Finance or serves or served at the request of Platinum Finance any other enterprise as a director, officer or employee.
The
certificate of incorporation also provides that a director will not be personally liable to Platinum Finance or its stockholders for monetary damages for breach of fiduciary duty as
a director, except to the extent that the exemption from liability or limitation thereof is not permitted by the Delaware General Corporation Law.
II-1
Section 145
of the Delaware General Corporation Law permits indemnification against expenses, fines, judgments and settlements incurred by any director, officer or employee of a
company in the event of pending or threatened civil, criminal, administrative or investigative proceedings, if such person was, or was threatened to be made, a party by reason of the fact that he or
she is or was a director, officer or employee of the company. Section 145 also provides that the indemnification provided for therein shall not be deemed exclusive of any other rights to which
those seeking indemnification may otherwise be entitled.
In
addition, the underwriting agreement filed as Exhibit 1 to the registration statement provides for indemnification of Platinum Finance, its officers and its directors by the
underwriters under certain circumstances.
Item 15. Recent Sales of Unregistered Securities
Platinum Holdings was incorporated on April 19, 2002 under the laws of Bermuda. Platinum Holdings expects to enter into a Formation and Separation
Agreement pursuant to which, among other things, Platinum Holdings will sell 6,000,000 Common Shares in a private placement to The St. Paul Companies, Inc. (the number of shares being subject
to adjustment as provided therein), contingent upon completion of the offering registered by this registration statement. Platinum Holdings has entered into an Investment Agreement pursuant to which,
among other things, Platinum Holdings will sell 3,960,000 Common Shares in a private placement to RenaissanceRe Holdings Ltd. (the number of shares being subject to adjustment as provided therein),
contingent upon completion of the offering registered by this registration statement. The St. Paul Companies, Inc. and RenaissanceRe Holdings Ltd. are the sole purchasers in the private
placements and are each a "qualified institutional buyer" as such term is defined in Rule 144A under the Securities Act of 1933. Accordingly, the private placement will be made in reliance upon
the exemptions from registration provided in such circumstance by the no-action letters regarding Black Box Incorporated (publicly available June 26, 1990) and Squadron, Ellenoff, Plesent &
Lehrer (publicly available February 28, 1992). The Formation and Separation Agreement is filed as Exhibit 2 to this registration statement. The Investment Agreement is filed as
Exhibit 10.44 to this registration statement.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number
|
|
Description
|
1 |
|
Form of Underwriting Agreement. |
2 |
|
Form of Formation and Separation Agreement.** |
3.1 |
|
Memorandum of Association of Platinum Holdings.** |
3.2 |
|
Form of Restated Bye-Laws of Platinum Holdings.** |
3.3 |
|
Certificate of Incorporation of Platinum Finance.* |
3.4 |
|
By-Laws of Platinum Finance.* |
4.1 |
|
Form of Certificate of the Common Shares, par value $0.01 per share, of Platinum Holdings.** |
4.2 |
|
Indenture. |
4.3 |
|
Form of Indenture Supplement. |
4.4 |
|
Form of Purchase Contract Agreement. |
II-2
4.5 |
|
Form of Pledge Agreement. |
4.6 |
|
Form of Senior Note of Platinum Finance (included in Exhibit 4.3). |
4.7 |
|
Form of Guarantee of Platinum Holdings (included in Exhibit 4.3). |
4.8 |
|
Form of Normal Unit (included in Exhibit 4.4). |
4.9 |
|
Form of Stripped Unit (included in Exhibit 4.4). |
5.1 |
|
Opinion of Conyers, Dill & Pearman.* |
5.2 |
|
Opinion of Sullivan & Cromwell.* |
8 |
|
Opinion of Sullivan & Cromwell as to certain tax matters.* |
10.1 |
|
Employment Agreement between Jerome T. Fadden and The St. Paul Companies, Inc.** |
10.2 |
|
Letter Agreement between Steven H. Newman and The St. Paul Companies, Inc.** |
10.3 |
|
Employment Agreement between Michael D. Price and St. Paul Re, Inc.** |
10.4 |
|
Letter Agreement between Steven H. Newman and The St. Paul Companies, Inc.** |
10.5 |
|
Form of Employee Benefits and Compensation Matters Agreement.** |
10.6 |
|
Form of Master Services Agreement.** |
10.7 |
|
Form of U.K. Master Services Agreement.** |
10.8 |
|
Form of Runoff Services Agreement.** |
10.9 |
|
Form of U.K. Runoff Services Agreement.** |
10.10 |
|
Form of Transitional Trademark License Agreement.** |
10.11 |
|
Form of Registration Rights Agreement.** |
10.12 |
|
Form of Underwriting Management Agreement.** |
10.13 |
|
Form of U.K. Underwriting Agency and Underwriting Management Agreement.** |
10.14 |
|
Form of Assignment and Assumption Agreement.** |
10.15 |
|
Form of Sub Lease Agreement.** |
10.16 |
|
Form of Option Agreement.** |
10.17 |
|
Form of 100% Quota Share Retrocession Agreement (Traditional).** |
10.18 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D-1).** |
10.19 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - A).** |
10.20 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - B-1).** |
10.21 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - B-2).** |
10.22 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - C).** |
10.23 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D-2).** |
10.24 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D Stop Loss).** |
10.25 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D Spread Loss).** |
10.26 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D-3).** |
10.27 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D-4).** |
II-3
10.28 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - E).** |
10.29 |
|
Form of U.K. Business Transfer Agreement.** |
10.30 |
|
Form of UK 100% Quota Share Retrocession Agreement (Traditional).** |
10.31 |
|
Form of UK 100% Quota Share Retrocession Agreement (Non-Traditional - A).** |
10.32 |
|
Form of UK 100% Quota Share Retrocession Agreement (Non-Traditional - B-1).** |
10.33 |
|
Form of 364-Day Credit Agreement.** |
10.34 |
|
Amendment to the Letter Agreement between Jerome T. Fadden and The St. Paul Companies, Inc.** |
10.35 |
|
Amendment to the Letter Agreement between Steven H. Newman and The St. Paul Companies, Inc.** |
10.36 |
|
Amendment to the Letter Agreement between Michael D. Price and St. Paul Re., Inc.** |
10.37 |
|
Form of Quota Share Retrocession Agreement between St. Paul Reinsurance Company Limited and Platinum Re (UK) Limited.** |
10.38 |
|
Form of Trust Agreement by and among Platinum Underwriters Reinsurance, Inc., St. Paul Fire and Marine Insurance Company and a trustee.** |
10.39 |
|
Form of Trust Agreement by and among Platinum Underwriters Reinsurance, Inc., Mountain Ridge Insurance Company and a trustee.** |
10.40 |
|
Employment Agreement between William Robbie and St. Paul Re, Inc.** |
10.41 |
|
Employment Agreement Between Michael Lombardozzi and St. Paul Re, Inc.** |
10.42 |
|
Amendment to the Employment Agreement between William A. Robbie and St. Paul Re, Inc.** |
10.43 |
|
Amendment to the Employment Agreement between Michael E. Lombardozzi and St. Paul Re, Inc.** |
10.44 |
|
Investment Agreement by and among Platinum Underwriters Holdings, Ltd., The St. Paul Companies, Inc. and RenaissanceRe Holdings Ltd.** |
10.45 |
|
Form of Transfer Restrictions, Registration Rights and Standstill Agreement (included in Exhibit 10.44).** |
10.46 |
|
Form of RenaissanceRe Option Agreement (included in Exhibit 10.44).** |
10.47 |
|
Form of Services and Capacity Reservation Agreement (included in Exhibit 10.44).** |
10.48 |
|
Letter Amendment to 364-Day Credit Agreement.** |
23.1 |
|
Consent of KPMG LLP. |
23.2 |
|
Consent of Conyers, Dill & Pearman (included in Exhibit 5.1).* |
23.3 |
|
Consent of Sullivan & Cromwell (included in Exhibit 5.2).* |
23.4 |
|
Consent of Sullivan & Cromwell (included in Exhibit 8).* |
24.1 |
|
Power of Attorney for Platinum Holdings.* |
24.2 |
|
Power of Attorney for Platinum Finance.* |
24.3 |
|
Power of Attorney for William A. Robbie.* |
II-4
25.1 |
|
Statement of Eligibility of Trustee on Form T-1 under the Trust Indenture Act of 1939, as amended, of JPMorgan Chase Bank to act as Trustee under the Senior Debt Indenture for the Senior Notes of Platinum
Finance.* |
25.2 |
|
Statement of Eligibility of Trustee on Form T-1 under the Trust Indenture Act of 1939, as amended, of JPMorgan Chase Bank to act as Trustee under the Senior Debt Indenture for the Guarantee by Platinum Holdings of the
Senior Notes of Platinum Finance.* |
- *
- Previously
filed.
- **
- Incorporated
by reference from Registration Statement No. 333-86906 of Platinum Underwriters Holdings, Ltd.
(b) Financial Statement Schedules of Predecessor
Schedule III |
|
Supplementary Insurance Information |
Schedule IV |
|
Reinsurance |
Schedule V |
|
Valuation and Qualifying Accounts |
Item 17. Undertakings
The undersigned Registrants hereby undertake:
(a)
To provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters
to permit prompt delivery to each purchaser.
(b)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrants pursuant to the
foregoing provisions described under "Item 14. Indemnification of Directors and Officers" above, 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 to 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 such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of their counsels the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(c)(1)
For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this registration statement as of the time it was declared effective.
(2)
For the purpose of determining any liability under the Securities Act of 1933, 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.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Platinum Underwriters Holdings, Ltd. has duly caused this amended Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Dublin, Ireland, on the 22nd day of October, 2002.
|
|
PLATINUM UNDERWRITERS HOLDINGS, LTD. |
|
|
By: |
|
/s/ JEROME T. FADDEN Name: Jerome T. Fadden
Title: President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities indicated on October 22,
2002:
Name
|
|
Title
|
* Steven H. Newman |
|
Chairman of the Board of Directors |
/s/ JEROME T. FADDEN Jerome T. Fadden |
|
President, Chief Executive Officer and Director |
* William A. Robbie |
|
Principal Accounting Officer and Principal Financial Officer |
* H. Furlong Baldwin |
|
Director |
* Jonathan F. Bank |
|
Director |
* Dan R. Carmichael |
|
Director |
* Jay S. Fishman |
|
Director |
* Peter T. Pruitt |
|
Director |
* Donald Puglisi |
|
Authorized Representative in the United States |
*By: |
|
/s/ JEROME T. FADDEN Jerome T. Fadden, Attorney-in-fact |
|
|
|
|
II-6
Pursuant to the requirements of the Securities Act of 1933, Platinum Underwriters Finance, Inc. has duly caused this amended Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Dublin, Ireland, on the 22nd day of October, 2002.
|
|
PLATINUM UNDERWRITERS FINANCE, INC. |
|
|
By: |
|
/s/ JEROME T. FADDEN Name: Jerome T. Fadden
Title: President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities indicated on October 22,
2002:
Name
|
|
Title
|
|
|
|
|
|
|
|
* Steven H. Newman |
|
Chairman of the Board of Directors |
|
|
/s/ JEROME T. FADDEN Jerome T. Fadden |
|
President, Chief Executive Officer and Director |
|
|
* William A. Robbie |
|
Director and Principal Financial and Accounting Officer |
|
|
*By: |
|
/s/ JEROME T. FADDEN Jerome T. Fadden, Attorney-in-fact |
|
|
|
|
II-7
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESOR)
SCHEDULE IIISUPPLEMENTARY INSURANCE INFORMATION
($ in millions)
|
|
Deferred policy acquisition expenses
|
|
Gross loss and
loss adjustment
expense reserves
|
|
Gross unearned premiums
|
At December 31, |
|
|
|
|
|
|
|
|
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
North American Property |
|
$ |
14 |
|
$ |
694 |
|
$ |
54 |
|
|
North American Casualty |
|
|
73 |
|
|
2,286 |
|
|
242 |
|
|
International |
|
|
9 |
|
|
902 |
|
|
59 |
|
|
Finite Risk |
|
|
11 |
|
|
1,067 |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
107 |
|
$ |
4,949 |
|
$ |
401 |
|
|
|
|
|
|
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
North American Property |
|
$ |
14 |
|
$ |
439 |
|
$ |
53 |
|
|
North American Casualty |
|
|
51 |
|
|
1,903 |
|
|
162 |
|
|
International |
|
|
10 |
|
|
669 |
|
|
51 |
|
|
Finite Risk |
|
|
11 |
|
|
557 |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
86 |
|
$ |
3,568 |
|
$ |
315 |
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
|
|
|
North American Property |
|
$ |
20 |
|
$ |
414 |
|
$ |
95 |
|
|
North American Casualty |
|
|
38 |
|
|
1,821 |
|
|
140 |
|
|
International |
|
|
18 |
|
|
711 |
|
|
102 |
|
|
Finite Risk |
|
|
11 |
|
|
505 |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
87 |
|
$ |
3,451 |
|
$ |
376 |
|
|
|
|
|
|
|
II-8
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
SCHEDULE IIISUPPLEMENTARY INSURANCE INFORMATION
($ in millions)
|
|
Premiums earned
|
|
Insurance losses and loss adjustment expenses
|
|
Amortization of policy acquisition expenses
|
|
Other operating expenses
|
|
Premiums written
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Property |
|
$ |
216 |
|
$ |
381 |
|
$ |
53 |
|
$ |
14 |
|
$ |
216 |
|
North American Casualty |
|
|
588 |
|
|
584 |
|
|
190 |
|
|
29 |
|
|
667 |
|
International |
|
|
242 |
|
|
289 |
|
|
39 |
|
|
23 |
|
|
248 |
|
Finite Risk |
|
|
547 |
|
|
668 |
|
|
33 |
|
|
16 |
|
|
546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,593 |
|
$ |
1,922 |
|
$ |
315 |
|
$ |
82 |
|
$ |
1,677 |
|
|
|
|
|
|
|
|
|
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Property |
|
$ |
204 |
|
$ |
133 |
|
$ |
55 |
|
$ |
17 |
|
$ |
170 |
|
North American Casualty |
|
|
319 |
|
|
261 |
|
|
110 |
|
|
24 |
|
|
340 |
|
International |
|
|
188 |
|
|
128 |
|
|
38 |
|
|
32 |
|
|
145 |
|
Finite Risk |
|
|
410 |
|
|
289 |
|
|
133 |
|
|
15 |
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,121 |
|
$ |
811 |
|
$ |
336 |
|
$ |
88 |
|
$ |
1,073 |
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Property |
|
$ |
196 |
|
$ |
153 |
|
$ |
58 |
|
$ |
13 |
|
$ |
207 |
|
North American Casualty |
|
|
245 |
|
|
61 |
|
|
85 |
|
|
24 |
|
|
262 |
|
International |
|
|
160 |
|
|
102 |
|
|
47 |
|
|
32 |
|
|
160 |
|
Finite Risk |
|
|
277 |
|
|
184 |
|
|
30 |
|
|
13 |
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
878 |
|
$ |
500 |
|
$ |
220 |
|
$ |
82 |
|
$ |
913 |
|
|
|
|
|
|
|
|
|
|
|
II-9
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
SCHEDULE IVREINSURANCE
Years Ended December 31, 2001, 2000 and 1999
($ in millions)
|
|
Gross amount
|
|
Ceded to other companies
|
|
Assumed from other companies
|
|
Net amount
|
|
Percentage of amount assumed to net
|
|
Insurance premiums earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 |
|
$ |
|
|
$ |
172 |
|
$ |
1,765 |
|
$ |
1,593 |
|
110.8 |
% |
|
2000 |
|
$ |
|
|
$ |
260 |
|
$ |
1,381 |
|
$ |
1,121 |
|
123.2 |
% |
|
1999 |
|
$ |
|
|
$ |
314 |
|
$ |
1,192 |
|
$ |
878 |
|
135.8 |
% |
II-10
THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)
SCHEDULE VVALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000 and 1999
($ in millions)
Description
|
|
Balance at beginning of year
|
|
Charged to costs and expenses
|
|
Additions Charged to other accounts
|
|
Deductions(1)
|
|
Balance at end of year
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums receivable from underwriting activities |
|
$ |
11.0 |
|
2.6 |
|
|
|
0.5 |
|
$ |
13.1 |
|
Reinsurance |
|
$ |
11.5 |
|
6.9 |
|
|
|
|
|
$ |
18.4 |
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums receivable from underwriting activities |
|
$ |
9.6 |
|
2.2 |
|
|
|
0.8 |
|
$ |
11.0 |
|
Reinsurance |
|
$ |
11.2 |
|
0.3 |
|
|
|
|
|
$ |
11.5 |
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums receivable from underwriting activities |
|
$ |
9.9 |
|
0.8 |
|
|
|
1.1 |
|
$ |
9.6 |
|
Reinsurance |
|
$ |
12.7 |
|
|
|
|
|
1.5 |
|
$ |
11.2 |
- (1)
- Deductions
include write-offs of amounts determined to be uncollectible and unrealized foreign exchange gains and losses.
II-11
INDEX TO EXHIBITS
Exhibit
Number
|
|
Description
|
1 |
|
Form of Underwriting Agreement. |
2 |
|
Form of Formation and Separation Agreement.** |
3.1 |
|
Memorandum of Association of Platinum Holdings.** |
3.2 |
|
Form of Restated Bye-Laws of Platinum Holdings.** |
3.3 |
|
Certificate of Incorporation of Platinum Finance.* |
3.4 |
|
By-Laws of Platinum Finance.* |
4.1 |
|
Form of Certificate of the Common Shares, par value $0.01 per share, of Platinum Holdings.** |
4.2 |
|
Indenture. |
4.3 |
|
Form of Indenture Supplement. |
4.4 |
|
Form of Purchase Contract Agreement. |
4.5 |
|
Form of Pledge Agreement. |
4.6 |
|
Form of Senior Note of Platinum Finance (included in Exhibit 4.3). |
4.7 |
|
Form of Guarantee of Platinum Holdings (included in Exhibit 4.3). |
4.8 |
|
Form of Normal Unit (included in Exhibit 4.4). |
4.9 |
|
Form of Stripped Unit (included in Exhibit 4.4). |
5.1 |
|
Opinion of Conyers, Dill & Pearman.* |
5.2 |
|
Opinion of Sullivan & Cromwell.* |
8 |
|
Opinion of Sullivan & Cromwell as to certain tax matters.* |
10.1 |
|
Employment Agreement between Jerome T. Fadden and The St. Paul Companies, Inc.** |
10.2 |
|
Letter Agreement between Steven H. Newman and The St. Paul Companies, Inc.** |
10.3 |
|
Employment Agreement between Michael D. Price and St. Paul Re, Inc.** |
10.4 |
|
Letter Agreement between Steven H. Newman and The St. Paul Companies, Inc.** |
10.5 |
|
Form of Employee Benefits and Compensation Matters Agreement.** |
10.6 |
|
Form of Master Services Agreement.** |
10.7 |
|
Form of U.K. Master Services Agreement.** |
10.8 |
|
Form of Runoff Services Agreement.** |
10.9 |
|
Form of U.K. Runoff Services Agreement.** |
10.10 |
|
Form of Transitional Trademark License Agreement.** |
10.11 |
|
Form of Registration Rights Agreement.** |
10.12 |
|
Form of Underwriting Management Agreement.** |
10.13 |
|
Form of U.K. Underwriting Agency and Underwriting Management Agreement.** |
10.14 |
|
Form of Assignment and Assumption Agreement.** |
10.15 |
|
Form of Sub Lease Agreement.** |
10.16 |
|
Form of Option Agreement.** |
10.17 |
|
Form of 100% Quota Share Retrocession Agreement (Traditional).** |
10.18 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D-1).** |
10.19 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - A).** |
10.20 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - B-1).** |
10.21 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - B-2).** |
10.22 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - C).** |
10.23 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D-2).** |
10.24 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D Stop Loss).** |
10.25 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D Spread Loss).** |
10.26 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D-3).** |
10.27 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - D-4).** |
10.28 |
|
Form of 100% Quota Share Retrocession Agreement (Non-Traditional - E).** |
10.29 |
|
Form of U.K. Business Transfer Agreement.** |
10.30 |
|
Form of UK 100% Quota Share Retrocession Agreement (Traditional).** |
10.31 |
|
Form of UK 100% Quota Share Retrocession Agreement (Non-Traditional - A).** |
10.32 |
|
Form of UK 100% Quota Share Retrocession Agreement (Non-Traditional - B-1).** |
10.33 |
|
Form of 364-Day Credit Agreement.** |
10.34 |
|
Amendment to the Letter Agreement between Jerome T. Fadden and The St. Paul Companies, Inc.** |
10.35 |
|
Amendment to the Letter Agreement between Steven H. Newman and The St. Paul Companies, Inc.** |
10.36 |
|
Amendment to the Letter Agreement between Michael D. Price and St. Paul Re., Inc.** |
10.37 |
|
Form of Quota Share Retrocession Agreement between St. Paul Reinsurance Company Limited and Platinum Re (UK) Limited.** |
10.38 |
|
Form of Trust Agreement by and among Platinum Underwriters Reinsurance, Inc., St. Paul Fire and Marine Insurance Company and a trustee.** |
10.39 |
|
Form of Trust Agreement by and among Platinum Underwriters Reinsurance, Inc., Mountain Ridge Insurance Company and a trustee.** |
10.40 |
|
Employment Agreement between William Robbie and St. Paul Re, Inc.** |
10.41 |
|
Employment Agreement Between Michael Lombardozzi and St. Paul Re, Inc.** |
10.42 |
|
Amendment to the Employment Agreement between William A. Robbie and St. Paul Re, Inc.** |
10.43 |
|
Amendment to the Employment Agreement between Michael E. Lombardozzi and St. Paul Re, Inc.** |
10.44 |
|
Investment Agreement by and among Platinum Underwriters Holdings, Ltd., The St. Paul Companies, Inc. and RenaissanceRe Holdings Ltd.** |
10.45 |
|
Form of Transfer Restrictions, Registration Rights and Standstill Agreement (included in Exhibit 10.44).** |
10.46 |
|
Form of RenaissanceRe Option Agreement (included in Exhibit 10.44).** |
10.47 |
|
Form of Services and Capacity Reservation Agreement (included in Exhibit 10.44).** |
10.48 |
|
Letter Amendment to 364-Day Credit Agreement.** |
23.1 |
|
Consent of KPMG LLP. |
23.2 |
|
Consent of Conyers, Dill & Pearman (included in Exhibit 5.1).* |
23.3 |
|
Consent of Sullivan & Cromwell (included in Exhibit 5.2).* |
23.4 |
|
Consent of Sullivan & Cromwell (included in Exhibit 8).* |
24.1 |
|
Power of Attorney for Platinum Holdings.* |
24.2 |
|
Power of Attorney for Platinum Finance.* |
24.3 |
|
Power of Attorney for William A. Robbie.* |
25.1 |
|
Statement of Eligibility of Trustee on Form T-1 under the Trust Indenture Act of 1939, as amended, of JPMorgan Chase Bank to act as Trustee under the Senior Debt Indenture for the Senior Notes of Platinum
Finance.* |
25.2 |
|
Statement of Eligibility of Trustee on Form T-1 under the Trust Indenture Act of 1939, as amended, of JPMorgan Chase Bank to act as Trustee under the Senior Debt Indenture for the Guarantee by Platinum Holdings of the
Senior Notes of Platinum Finance.* |
- *
- Previously
filed.
- **
- Incorporated
by reference from Registration Statement No. 333-86906 of Platinum Underwriters Holdings, Ltd.
QuickLinks
PROSPECTUS SUMMARY
The Company
The ESU Offering
The ESU OfferingExplanatory Diagrams
Selected Pro Forma Financial Information and Operating Data
Pro Forma Consolidated Balance Sheet Data
Pro Forma Combined Underwriting Results
Pro Forma Underwriting Results by Operating Segment
Recent Developments
RISK FACTORS
USE OF PROCEEDS
DILUTION
DIVIDEND POLICY
CAPITALIZATION
RATIO OF EARNINGS TO FIXED CHARGES
PRO FORMA FINANCIAL INFORMATION
Year Ended December 31, 2001
RECENT DEVELOPMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA FINANCIAL CONDITION AND UNDERWRITING RESULTS
Formation of Platinum Holdings and Presentation of Pro Forma Financial Information and Historical St. Paul Re Combined Financial Information
BUSINESS Industry Overview
Our Business
MANAGEMENT
ST. PAUL INVESTMENT, RENAISSANCERE INVESTMENT AND PRINCIPAL SHAREHOLDERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The St. Paul Investment
The RenaissanceRe Investment
PLATINUM UNDERWRITERS FINANCE, INC.
ACCOUNTING TREATMENT
DESCRIPTION OF THE EQUITY SECURITY UNITS
DESCRIPTION OF THE SENIOR NOTES
GLOBAL CLEARANCE AND SETTLEMENT
DESCRIPTION OF PLATINUM HOLDINGS' COMMON SHARES
SHARES ELIGIBLE FOR FUTURE SALE
U.S. FEDERAL INCOME TAX CONSEQUENCES
ERISA CONSIDERATIONS
UNDERWRITING
VALIDITY OF THE SECURITIES
EXPERTS
AVAILABLE INFORMATION
ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS AND OTHER MATTERS
THE PREDECESSOR BUSINESS
Selected Combined Financial Data
Recent Developments
Management's Discussion and Analysis of Financial Condition and Underwriting Results of the Predecessor Business
Capital Resources and Liquidity
Exposures to Market Risk
Reserves for Losses and Loss Adjustment Expenses for Predecessor Business
Analysis of Loss and Loss Adjustment Expense (LAE) Development
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL INFORMATION
INDEPENDENT AUDITORS' REPORT
PLATINUM UNDERWRITERS HOLDINGS, LTD. CONSOLIDATED BALANCE SHEET June 30, 2002
PLATINUM UNDERWRITERS HOLDINGS, LTD. NOTES TO CONSOLIDATED BALANCE SHEET June 30, 2002
INDEPENDENT AUDITORS' REPORT
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) COMBINED STATEMENTS OF UNDERWRITING RESULTS
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) COMBINED STATEMENTS OF IDENTIFIABLE UNDERWRITING ASSETS AND LIABILITIES
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) COMBINED STATEMENTS OF IDENTIFIABLE UNDERWRITING CASH FLOWS
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) NOTES TO COMBINED STATEMENTS
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) COMBINED STATEMENTS OF UNDERWRITING RESULTS (Unaudited)
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) COMBINED STATEMENTS OF IDENTIFIABLE ASSETS AND LIABILITIES (Unaudited)
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) COMBINED STATEMENTS OF IDENTIFIABLE CASH FLOWS (Unaudited)
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) NOTES TO COMBINED STATEMENTS (Unaudited)
PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
SIGNATURES
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESOR) SCHEDULE IIISUPPLEMENTARY INSURANCE INFORMATION ($ in millions)
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) SCHEDULE IIISUPPLEMENTARY INSURANCE INFORMATION ($ in millions)
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) SCHEDULE IVREINSURANCE Years Ended December 31, 2001, 2000 and 1999 ($ in millions)
THE ST. PAUL COMPANIES, INC. REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR) SCHEDULE VVALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000 and 1999 ($ in millions)
INDEX TO EXHIBITS
EX-1
3
a2091654zex-1.txt
EXHIBIT 1
EXHIBIT 1
PLATINUM UNDERWRITERS HOLDINGS, LTD.
PLATINUM UNDERWRITERS FINANCE, INC.
5,000,000
EQUITY SECURITY UNITS
-------------
UNDERWRITING AGREEMENT
October __, 2002
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Smith Barney Inc.
Banc of America Securities LLC
Credit Suisse First Boston Corporation
J.P. Morgan Securities Inc.
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Platinum Underwriters Holdings, Ltd., a Bermuda company (the "Company")
proposes, subject to the terms and conditions stated herein, to enter into the
Purchase Contracts (the "Purchase Contracts") with you on behalf of the
Underwriters named in Schedule I hereto (the "Underwriters"). The Purchase
Contracts are evidenced by the Unit Certificates and are referred to in the
Purchase Contract Agreement, to be dated as , 2002 (the "Purchase Contract
Agreement"), between the Company and JPMorgan Chase Bank, as Purchase Contract
Agent (the "Purchase Contract Agent"), underlying an aggregate of 5,000,000
Equity Security Units with a stated amount of $25 (the "Firm Units"). In
connection therewith, the Company and its indirect subsidiary, Platinum
Underwriters Finance, Inc., a Delaware corporation ("Platinum Finance"),
propose, subject to the terms and conditions stated herein, that Platinum
Finance issue and sell to the Underwriters an aggregate of $125,000,000 of __%
senior notes (the "Senior Notes"), guaranteed by the Company on a senior,
unsecured basis (the "Guarantee"). The Senior Notes and the Guarantee will be
issued pursuant to an Indenture, dated as of October 10, 2002 (the "Base
Indenture"), between the Company, Platinum Finance and JPMorgan Chase Bank, as
Trustee (the "Trustee"), as supplemented by the First Supplemental Indenture, to
be dated as of , 2002 (the "First Supplemental
1
Indenture and, together with the Base Indenture, the "Indenture") between the
Company, Platinum Finance and the Trustee.
In connection with the Purchase Contract Agreement, pursuant to the Pledge
Agreement, to be dated as of , 2002 (the "Pledge Agreement"), among the
Company, the Purchase Contract Agent and State Street Bank and Trust Company, as
collateral agent, custodial agent and securities intermediary (the "Collateral
Agent"), the Senior Notes issued hereunder initially will be pledged by the
Purchase Contract Agent on behalf of the holders of the Units to secure such
holders' obligations to the Company under the Purchase Contracts underlying such
Units. The rights to purchase newly issued Common Shares, par value $0.01 per
share, of the Company (the "Issuable Common Shares") under a Purchase Contract,
together with an ownership interest in a Pledged Note or Pledged Treasury
Consideration or a Pledged Treasury Security securing such Purchase Contract,
subject to (a) the obligations owed to the Company under such Purchase Contract
and (b) the pledge arrangements under the Pledge Agreement securing the
foregoing obligations, collectively constitute an Equity Security Unit (a
"Unit"). Unless the context otherwise requires, for purposes of this Agreement,
the act of entering into a Purchase Contract underlying a Unit and purchasing an
ownership interest in a Note underlying a Unit shall be referred to as a
"purchase" of such Unit. In addition to the purchase of Firm Units subject to
the terms and conditions herein, the Company and Platinum Finance propose to
grant the Underwriters an option to purchase up to 750,000 additional Units (the
"Optional Units"). The Firm Units and any Optional Units purchased by the
Underwriters are herein called the "Units".
Concurrently with the public offering of the Units, the Company is making
an initial public offering of 30,040,000 Common Shares (the "Firm Shares") and,
at the election of the underwriters of such offering (the "Common Shares
Underwriters"), up to an additional 4,506,000 Common Shares (the "Optional
Shares" and, together with the Firm Shares, the "Shares"), by means of a
separate prospectus (the "Common Shares Prospectus") and pursuant to a separate
underwriting agreement (the "Common Shares Underwriting Agreement").
Concurrently with the public offering of the Units, the Company has agreed
to (i) sell to Renaissance Re Holdings, Ltd., a Bermuda company ("RenRe"), and
RenRe has agreed to purchase, (A) 3,960,000 Common Shares at the First Time of
Delivery (as defined in Section 5 hereof) and (B) up to 594,000 additional
Common Shares (as determined by RenRe) in the event the Underwriters elect to
purchase Optional Shares (collectively, the "RenRe Investment Shares") pursuant
to the RenRe Investment Agreement (as defined in Schedule II hereof) and (ii)
grant RenRe an option to purchase up to an additional 2,500,000 Common Shares
(the "RenRe Investment Option," and together with the RenRe Investment Shares,
the "RenRe Private Offering Securities"), pursuant to the RenRe Option Agreement
(as defined in Schedule II hereof).
On or prior to the First Time of Delivery or immediately thereafter, (i)
The St. Paul Companies, Inc., a Minnesota corporation ("St. Paul"), and its
subsidiaries that are engaged in the reinsurance business will (A) contribute
$ million in cash and (B) retrocede certain reinsurance agreements, and
contribute certain assets specified in Section 2.01 of the Formation and
Separation Agreement (as defined in Schedule II hereof) (such reinsurance
agreements and such assets collectively, the "Business"), to the Company and its
subsidiaries and (ii) the Company will (A) issue to St. Paul (X) 6,000,000
Common Shares at the First Time of Delivery and (Y) up to 900,000 additional
Common Shares (as determined by St. Paul) in the event the Underwriters elect to
purchase Optional Shares (collectively, the "St. Paul Investment Shares") and
(B) grant to St. Paul an option to purchase up to
2
an additional 6,000,000 Common Shares (the "St. Paul Investment Option," and
together with the St. Paul Investment Shares, the "St. Paul Private Offering
Securities") (the actions described in the foregoing clauses (i) and (ii), the
"Transaction"). The Company will conduct the Business through its wholly-owned
operating subsidiaries, Platinum Underwriters Reinsurance, Inc., a Maryland
corporation that, prior to the First Time of Delivery, is indirectly owned by
St. Paul ("Platinum US"), Platinum Re (UK) Limited, a U.K. company ("Platinum
UK"), and Platinum Underwriters Bermuda, Ltd., a Bermuda company ("Platinum
Bermuda"). The Company will own Platinum US and Platinum UK through its
wholly-owned intermediate holding subsidiary, Platinum Regency Holdings, an
Ireland company ("Platinum Ireland" and, together with Platinum UK and Platinum
Bermuda, the "Non-U.S. Subsidiaries"). Platinum US will be owned directly by
Platinum Finance, which is a wholly-owned subsidiary of Platinum Ireland. As
used in this Agreement, the "Filed Agreements" shall mean those agreements set
forth on Schedule II hereto, each of which has been or will be executed and
delivered in connection with the Transaction.
It is understood and agreed that Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc. (the "Lead
Underwriters") are joint book-running managers for the offering of the Units
contemplated hereby and any determinations or other actions to be made under
this Agreement by the Underwriters shall require the concurrence of Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Smith Barney Inc.
Capitalized terms used herein without definition shall be used as defined
in the Purchase Contract Agreement (as defined herein).
1. The Company and Platinum Finance, jointly and severally, represent and
warrant to, and agree with, each of the Underwriters that:
(a) A registration statement on Form S-1 (File Nos. 333-99019 and
333-99019-01) (the "Initial Registration Statement") in respect of the Units,
the Purchase Contracts and the Senior Notes underlying the Units, the Guarantee
and the Issuable Common Shares (collectively, the "Securities"), has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated
or, to the knowledge of the Company, threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or filed
with the Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 6(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective (but excluding Form
T-1), each as amended at the time such part of the Initial Registration
Statement became effective or such part of the Rule 462(b) Registration
Statement, if
3
any, became or hereafter becomes effective, are hereinafter collectively called
the "Registration Statement"; and such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission; each Preliminary Prospectus, at
the time of filing thereof, conformed in all material respects to the
requirements of the Act and the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act") and, in each case, the rules and regulations of the
Commission thereunder, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company or
Platinum Finance by an Underwriter through the Lead Underwriters expressly for
use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the Trust Indenture Act and, in each case, the rules and regulations of the
Commission thereunder, and do not and will not, as of the applicable effective
date as to the Registration Statement and any amendment thereto, and as of the
applicable filing date as to the Prospectus and any amendment or supplement
thereto, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company or Platinum
Finance by an Underwriter through the Lead Underwriters expressly for use
therein;
(d) None of the Company, any of its subsidiaries or the Business has
sustained since December 31, 2001, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus; and,
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital stock
or the capital or surplus or long-term debt of the Company, any of its
subsidiaries or the Business or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the general
affairs, management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole, or of the
Business, otherwise than as set forth or contemplated in the Prospectus;
(e) At the First Time of Delivery, the Company and its subsidiaries will
have good title to all personal property described in the Prospectus as being
owned by them upon consummation of the Transaction, in each case free and clear
of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and at the First Time of Delivery,
any real property and buildings held under lease by the Company and its
subsidiaries will be held by them under valid, subsisting and enforceable
sub-leases and assignments of leases with such exceptions as are not material
and do not materially
4
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries. The Company does not own any real
property;
(f) The Company has been duly incorporated and is validly existing as a
company in good standing under the laws of Bermuda, with corporate power and
authority to own its properties and conduct its business as described in the
Prospectus, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any business so
as to require such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such jurisdiction;
each subsidiary of the Company has been duly incorporated and is validly
existing as a corporation or a company in good standing under the laws of its
jurisdiction of organization, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus, and has been
duly qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each jurisdiction in which it owns or leases
properties or conducts any business, or will own or lease property or conduct
business at the First Time of Delivery, so as to require such qualification, or
is subject to no material liability or disability by reason of the failure to be
so qualified in any such jurisdiction;
(g) Each of this Agreement, the Jurisdiction Agreement, dated as of the
date hereof (the "Units Jurisdiction Agreement"), among the Company, Platinum
Finance, St. Paul and the Underwriters, the Common Shares Underwriting Agreement
and the Jurisdiction Agreement, dated as of the date hereof (the "Common Shares
Jurisdiction Agreement" and together with the Units Jurisdiction Agreement, the
"Jurisdiction Agreements"), among the Company, St. Paul and the Common Shares
Underwriters, has been duly authorized, executed and delivered by the Company;
and each of this Agreement and the Units Jurisdiction Agreement has been duly
authorized, executed and delivered by Platinum Finance;
(h) Except as described in the Prospectus, each of the Company and its
subsidiaries (i) was formed solely for the purpose of engaging in the
Transaction and the transactions contemplated hereby and by the Common Shares
Underwriting Agreement and the Filed Agreements and operating the Business after
the First Time of Delivery and (ii) has not engaged in any business activities,
conducted any operations, entered into any agreements or contracts, incurred any
liabilities, or owned any assets or property, other than in connection with the
Transaction and the transactions contemplated hereby and by the Common Shares
Underwriting Agreement and the Filed Agreements;
(i) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and non-assessable and
conform in all material respects to the description of the capital stock
contained in the Prospectus; all of the issued shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued, are
fully paid and non-assessable and will be owned directly or indirectly by the
Company at the First Time of Delivery, free and clear of all liens,
encumbrances, equities or claims; except as described in the Prospectus under
the captions "Certain Relationships and Related Transactions--St. Paul
Investment--Formation and Separation Agreement--Pre-Emptive Rights," "Certain
Relationships and Related Transactions--St. Paul Investment--St. Paul Option
Agreement," "Certain Relationships and Related Transactions--The RenaissanceRe
Investment--Pre-Emptive Rights," "Certain Relationships and Related
Transactions--The RenaissanceRe Investment--RenaissanceRe Option Agreement," and
"Description of the Equity Security Units," the holders of outstanding shares of
capital stock of the Company are not entitled to
5
preemptive or other rights to acquire the Shares; there are no outstanding
securities convertible into or exchangeable for, or warrants, rights or options
to purchase from the Company, or obligations of the Company to issue, Common
Shares or any other class of capital stock of the Company (except for the Units
and as set forth in the Prospectus under the captions "Management", "Certain
Relationships and Related Transactions--St. Paul Investment--St Paul Option
Agreement," "Certain Relationships and Related Transactions--the RenaissanceRe
Investment--RenaissanceRe Option Agreement" and "Underwriting"); there are no
restrictions on subsequent transfers of the Shares under the laws of Bermuda or
the United States (other than, pursuant to the securities laws of the United
States, by affiliates of the Company and other than as described in the
Prospectus under the caption "Description of Platinum Holdings' Common Shares");
and no party has the right to require the Company to register securities except
as disclosed in the Prospectus;
(j) All of (i) the Shares to be issued and sold by the Company to the
Common Shares Underwriters under the Common Shares Underwriting Agreement (ii)
the St. Paul Private Offering Securities and (iii) the RenRe Private Offering
Securities have been duly authorized and, when issued and delivered against
payment therefor as provided in the Common Shares Underwriting Agreement, the
Formation and Separation Agreement and the RenRe Investment Agreement,
respectively, will be validly issued and fully paid and non-assessable and will
conform in all material respects to the description of the Common Shares
contained in the Prospectus; and the Issuable Common Shares have been duly
authorized and reserved for issuance and, when issued and delivered in
accordance with the provisions of the Purchase Contracts, the Purchase Contract
Agreement and the Pledge Agreement, will be validly issued and fully paid and
non-assessable and will conform in all material respects to the description of
the Common Shares contained in the Prospectus or to any amended or supplemented
description of the Common Shares contained in a then effective report or
registration statement filed pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the issuance of Issuable Common Shares will
not be subject to any preemptive or other similar right;
(k) The Units have been duly authorized and, when duly executed,
authenticated and delivered against payment therefor as provided herein and in
the Purchase Contract Agreement, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles, and will be in the form contemplated by, and will be
entitled to the benefits of, the Purchase Contract Agreement; at the First Time
of Delivery, the Units will conform in all material respects to the description
thereof contained in the Prospectus; and the issuance of the Units is not
subject to preemptive or other similar rights;
(l) The Purchase Contracts underlying the Units have been duly authorized
by the Company and, when duly executed, authenticated and delivered as provided
herein and in the Purchase Contract Agreement, will constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles; at the First
Time of Delivery, the Purchase Contracts will conform in all material respects
to the description thereof contained in the Prospectus; and the issuance of the
Purchase Contracts is not subject to any preemptive or similar rights;
6
(m) The Indenture has been duly qualified under the Trust Indenture Act;
and at the First Time of Delivery, the Indenture will conform in all material
respects to the description thereof contained in the Prospectus;
(n) The Senior Notes have been duly authorized by Platinum Finance and,
when the Senior Notes are duly executed, authenticated, issued and delivered as
provided herein and in the Indenture, the Senior Notes will constitute valid and
legally binding obligations of Platinum Finance, enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles, and will be in the
form contemplated by, and will be entitled to the benefits of, the Indenture;
and at the First Time of Delivery, the Senior Notes will conform in all material
respects to the description thereof contained in the Prospectus;
(o) The Guarantee has been duly authorized by the Company and, upon the
due execution, authentication, issuance and delivery of the Senior Notes and the
due endorsement of the Guarantee thereon, such Guarantee will have been duly
executed and delivered and will constitute a valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles, and will be entitled to the benefits of the Indenture; and at the
First Time of Delivery, the Guarantees will conform in all material respects to
the description thereof contained in the Prospectus;
(p) The Remarketing Agreement to be entered into by the Company, Platinum
Finance, the Purchase Contract Agent and the Remarketing Agent, has been duly
authorized by each of the Company and Platinum Finance and, when executed and
delivered by each of the Company and Platinum Finance, will be duly executed and
delivered by each of the Company and Platinum Finance; and at the time of such
execution and delivery, the Remarketing Agreement will conform in all material
respects to the description thereof contained in the Prospectus;
(q) The Pledge Agreement creates, as collateral security for the
performance when due by the holders from time to time of the Units of their
respective obligations under the Purchase Contracts constituting part of such
Units, a valid and perfected security interest (as defined in the Uniform
Commercial Code, as adopted and in effect in the State of New York (the "New
York UCC")) in favor of the Collateral Agent for the benefit of the Company, in
the right, title and interest of such holders in the securities and other assets
and interests pledged to the Collateral Agent pursuant to the Pledge Agreement
(the "Pledged Securities");
(r) The Units and the Issuable Common Shares have been approved for
listing on the New York Stock Exchange (the "Exchange"), subject to notice of
issuance, and at each Time of Delivery, the Units issued at or prior to such
Time of Delivery, and the Issuable Common Shares relating to such Units, upon
notice of issuance, will be listed on the Exchange;
(s) The issue and sale of the Securities, the Shares, the St. Paul Private
Offering Securities and the RenRe Private Offering Securities, the compliance by
each of the Company and Platinum Finance with all of the provisions of this
Agreement and the Units Jurisdiction Agreement, the compliance by the Company
with all of the provisions of the Common Shares Underwriting Agreement and the
Common Shares Jurisdiction Agreement, and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or give rise to a right of termination under (i) the
7
memorandum of association or bye-laws or other organizational document of the
Company or any of its subsidiaries, (ii) any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the properties or assets of the Company or any of
its subsidiaries is subject, or (iii) any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties, except, in
the case of clause (ii) or (iii), as would not, individually or in the
aggregate, have a material adverse effect on the consolidated financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries (taken as a whole) following the First Time of Delivery, or affect
the due authorization and valid issuance of the Securities, the Shares, the St.
Paul Private Offering Securities or the RenRe Private Offering Securities;
(t) Neither the Company nor any of its subsidiaries is in violation of its
memorandum of association or bye-laws or other organizational documents or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or by
which it or any of its properties may be bound;
(u) The statements set forth in the Prospectus under the captions
"Business--Regulation", "St. Paul Investment, RenaissanceRe Investment and
Principal Shareholders", "Certain Relationships and Related Transactions",
"Description of Platinum Holdings' Common Shares", "Description of the Equity
Security Units", "Description of the Senior Notes", "Certain Tax Considerations"
and "Underwriting", insofar as they purport to describe the provisions of the
laws and documents referred to therein, are true and complete in all material
respects;
(v) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company, any of its subsidiaries
or the Business is a party or of which any property of the Company, any of its
subsidiaries or the Business is the subject which, if determined adversely to
the Company, any of its subsidiaries or the Business, would individually or in
the aggregate have a material adverse effect on the consolidated financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, or of the Business following the First Time of
Delivery; and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others;
(w) Each of the Filed Agreements when executed and delivered prior to the
First Time of Delivery will have been duly authorized, executed and delivered by
the Company or a subsidiary of the Company, as the case may be, and, assuming
that parties to the Filed Agreements other than the Company and its subsidiaries
have the power and authority to enter into and perform such agreements and that
such agreements have been duly authorized, executed and delivered by such
parties and constitute valid and binding agreements of such parties, will
constitute a valid and binding agreement of the Company and each of its
subsidiaries, as the case may be, enforceable against the Company and each of
its subsidiaries, in accordance with its terms, except that (i) such enforcement
may be subject to bankruptcy, insolvency, reorganization, moratorium, or other
laws now or hereafter in effect affecting creditors' rights generally, (ii) the
enforceability thereof is subject to the general principles of equity (whether
such enforceability is considered in a proceeding in equity or at law), and
(iii) no representation or warranty is made with respect to the enforceability
of indemnification and contribution provisions relating to violations under the
Act contained in the Formation and Separation Agreement (as defined in Schedule
II hereto), the Registration Rights Agreement (as defined in
8
Schedule II hereto) and the Transfer Restrictions and Registration Rights
Agreement (as defined in Schedule II hereto);
(x) Except as described in the Prospectus, no consent, approval,
authorization, registration or qualification of or with any governmental agency
or body or any court is required to be obtained or made by the Company or any of
its subsidiaries for the issue and sale of the Securities, the Shares, the St.
Paul Private Offering Securities and the RenRe Private Offering Securities, the
consummation of the Transaction and the transactions contemplated by this
Agreement, the Common Shares Underwriting Agreement, the Jurisdiction Agreements
and the Filed Agreements, except (i) the registration under the Act of the
Shares and the Securities and the Exchange Act of the Shares and the Units, (ii)
such consents, approvals, authorizations, registrations or qualifications as may
be required under state securities, Blue Sky or insurance securities laws in
connection with the purchase and distribution of the Securities by the
Underwriters and the Shares by the Common Shares Underwriters under the Common
Shares Underwriting Agreement, (iii) the filing of the Prospectus under the
Bermuda Companies Act 1981 in connection with the issue and sale of the Shares,
(iv) such consents, approvals, authorizations, registrations or qualifications
as may be required and have been obtained from the Bermuda Monetary Authority,
(v) such consents, approvals, authorizations, registrations or qualifications
that have been obtained or made under the Trust Indenture Act or the Insurance
Laws (as defined below) of the State of Maryland, Bermuda and Ireland and (vi)
such consents, approvals, authorizations, registrations or qualifications the
failure of which to obtain or make would not, individually or in the aggregate
have a material adverse effect on the consolidated financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, following the First Time of Delivery, or affect
the due authorization and valid issuance of the Securities, the Shares, the St.
Paul Private Offering Securities or the RenRe Private Offering Securities;
(y) The execution, delivery and performance of each of the Filed
Agreements by each of the parties thereto and the consummation of the
Transaction and the transactions therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give rise to a right of termination under (i) the
memorandum of association or bye-laws or other organizational document of the
Company or any of its subsidiaries, (ii) any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the properties or assets of the Company or any of
its subsidiaries is subject, or (iii) any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties, except, in
the case of clause (ii) or (iii), as would not, individually or in the
aggregate, have a material adverse effect on the consolidated financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, following the First Time of Delivery, or affect
the due authorization and valid issuance of the Securities, the Shares, the St.
Paul Private Offering Securities or the RenRe Private Offering Securities;
(z) Neither the Company nor Platinum Finance is or, after giving effect to
the offering and sale of the Shares, the St. Paul Private Offering Securities,
the RenRe Private Offering Securities and the Units, will be an "investment
company", as such term is defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act");
9
(aa) Except as described in the Prospectus, each of the Company and its
subsidiaries is duly licensed as an insurance holding company or as an insurer
or reinsurer, as the case may be, under the insurance laws (including laws that
relate to companies that control insurance companies) and the rules, regulations
and interpretations of the insurance regulatory authorities thereunder
(collectively, "Insurance Laws"), of each jurisdiction in which the conduct of
its business as described in the Prospectus requires such licensing, except for
such jurisdictions in which the failure of the Company and its subsidiaries to
be so licensed would not, individually or in the aggregate, have a material
adverse effect on the consolidated financial position, shareholder's equity or
results of operations of the Company and its subsidiaries, taken as a whole,
following the First Time of Delivery. Each of the Company and its subsidiaries
has made all required filings under applicable holding company statutes or other
Insurance Laws in each jurisdiction where such filings are required, except for
such jurisdictions in which the failure to make such filings would not,
individually or in the aggregate, have a material adverse effect on the
consolidated financial position, shareholder's equity or results of operations
of the Company and its subsidiaries, taken as a whole, following the First Time
of Delivery. Except as described in the Prospectus, each of the Company and its
subsidiaries has all other necessary authorizations, approvals, orders,
consents, certificates, permits, registrations and qualifications of and from
all insurance regulatory authorities necessary to conduct their respective
businesses as described in the Prospectus and all of the foregoing are in full
force and effect, except where the failure to have such authorizations,
approvals, orders, consents, certificates, permits, registrations or
qualifications or their failure to be in full force and effect would not,
individually or in the aggregate, have a material adverse effect on the
consolidated financial position, shareholder's equity or results of operations
of the Company and its subsidiaries, taken as a whole, following the First Time
of Delivery. None of the Company or any of its subsidiaries has received any
notification from any insurance regulatory authority or other governmental
authority in the United States, Bermuda, Ireland, the United Kingdom or
elsewhere to the effect that any additional authorization, approval, order,
consent, certificate, permit, registration or qualification is needed to be
obtained by either the Company or any of its subsidiaries; and no insurance
regulatory authority has issued any order or decree impairing, restricting or
prohibiting the payment of dividends by the Company or any of its subsidiaries;
(bb) On or prior to the First Time of Delivery or immediately thereafter,
the Company and its subsidiaries will own or possess or will be licensed to use,
or will be able to acquire on reasonable terms, all material patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, services marks and trade names that are
necessary for the Company and its subsidiaries to be able to conduct the
business of reinsurance in the manner and to the extent described in the
Prospectus, and none of the Company or any of its subsidiaries has received any
notice of infringement of or conflict with asserted rights of others with
respect to any of the foregoing, except for those which, if determined adversely
to the Company or any of its subsidiaries, would not have a material adverse
effect on the consolidated financial position, shareholder's equity or results
of operations of the Company and its subsidiaries taken as a whole following the
First Time of Delivery;
(cc) Each of the Company and its subsidiaries has filed all statutory
financial returns, reports, documents and other information required to be filed
pursuant to the applicable Insurance Laws of the United States and the various
states thereof, Bermuda, Ireland, the United Kingdom and each other jurisdiction
applicable thereto, and has duly paid all taxes (including franchise taxes and
similar fees) it is required to have paid under the applicable Insurance Laws of
the United States and the various
10
states thereof, Bermuda, Ireland, the United Kingdom and each other jurisdiction
applicable thereto, except where the failure, individually or in the aggregate,
to file such return, report, document or information or to pay such taxes would
not have a material adverse effect on the consolidated financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, following the First Time of Delivery; and each
of the Company and its subsidiaries maintains its books and records in
accordance with, and is otherwise in compliance with, the applicable Insurance
Laws of the United States and the various states thereof, Bermuda, Ireland, the
United Kingdom and each other jurisdiction applicable thereto, except where the
failure to so maintain its books and records or be in compliance would not
individually or in the aggregate have a material adverse effect on the
consolidated financial position, shareholders' equity or results of operations
of the Company and its subsidiaries, taken as a whole, following the First Time
of Delivery;
(dd) Any tax returns required to be filed by the Company or any of its
subsidiaries in any jurisdiction have been filed and any material taxes,
including any withholding taxes, excise taxes, penalties and interest,
assessments and fees and other charges due or claimed to be due from such
entities have been paid, other than any of those being contested in good faith
and for which adequate reserves have been provided or any of those currently
payable without penalty or interest;
(ee) The Company and Platinum Bermuda have received from the Bermuda
Minister of Finance an assurance under The Exempted Undertakings Tax Protection
Act, 1966 of Bermuda to the effect set forth in the Common Shares Prospectus
under the caption "Certain Tax Considerations--Taxation of the Company, Platinum
US, Platinum UK, Platinum Bermuda and Platinum Ireland--Bermuda," and the
Company has not received any notification to the effect (and is not otherwise
aware) that such assurance may be revoked or otherwise not honored by the
Bermuda government;
(ff) The Company and its subsidiaries have not taken, and have no plan or
intention to take, directly or indirectly, any action that would or would be
reasonably expected to cause or result in (i) the Company and/or any Non-U.S.
Subsidiary being treated as engaged in a trade or business within the United
States for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) the Company and/or any Non-U.S. Subsidiary being treated as a
passive foreign investment company within the meaning of section 1297 of the
Code, (iii) the Company and/or any Non-U.S. Subsidiary being treated as a
controlled foreign corporation within the meaning of section 957 of the Code or
(iv) any shareholder of the Company having "related party insurance income"
inclusions for U.S. federal income tax purposes as a result of being a
shareholder of the Company;
(gg) No stamp or other issuance or transfer taxes or duties and no capital
gains, income, withholding or other taxes are payable by or on behalf of the
Underwriters to Bermuda or any political subdivision or taxing authority thereof
or therein in connection with the sale and delivery by the Company of the
Securities to or for the respective accounts of the Underwriters or the sale and
delivery outside Bermuda by the Underwriters of the Securities to the initial
purchasers thereof; and no registration, documentary, recording, transfer or
other similar tax, fee or charge by any Bermuda government authority is payable
in connection with the execution, delivery, filing, registration or performance
of this Agreement;
(hh) It is not necessary to register under the Act the St. Paul Private
Offering Securities or the RenRe Private Offering Securities to be sold to St.
Paul, because the issuance of such securities will be exempt from registration
under the Act;
11
(ii) There are no currency exchange control laws or withholding taxes, in
each case of Bermuda, the United Kingdom or Ireland (or any political
subdivision or taxing authority thereof), that would be applicable to the
payment of dividends (i) on the Shares by the Company (other than as may apply
to residents of Bermuda for Bermuda exchange control purposes) or (ii) by any of
the Company's subsidiaries to the Company. The Bermuda Monetary Authority has
designated the Company and Platinum Bermuda as nonresident for exchange control
purposes and has granted permission for the issue and transfer of the Shares
(including permission for the issue or transfer of up to 20% of the Company's
shares in issue from time to time to persons resident in Bermuda for exchange
control purposes), subject to the condition that the Common Shares of the
Company shall be listed on the Exchange or any other appointed stock exchange.
Such permission has not been revoked and is in full force and effect, and the
Company has no knowledge of any proceedings planned or threatened for the
revocation of such permission. The Company and Platinum Bermuda are "exempted
companies" under Bermuda law and have not (i) acquired and do not hold any land
in Bermuda, other than that held by way of lease or tenancy for terms of not
more than 21 years, without the express authorization of the Bermuda
legislature, (ii) taken mortgages on land in Bermuda to secure an amount in
excess of $50,000, without the consent of the Bermuda Minister of Finance, (iii)
acquired any bonds or debentures secured by any land in Bermuda (other than
certain types of Bermuda government securities), or (iv) conducted their
business in a manner that is prohibited for "exempted companies" under Bermuda
law. Neither the Company nor Platinum Bermuda has received notification from the
Bermuda Monetary Authority or any other Bermuda governmental authority of
proceedings relating to the modification or revocation of its designation as
nonresident for exchange control purposes, its permission to issue and transfer
the Shares, or its status as an "exempted company";
(jj) Under the Units Jurisdiction Agreement, each of the Company and
Platinum Finance has validly and irrevocably submitted to the non-exclusive
jurisdiction of any United States Federal or State court in the Borough of
Manhattan, the City of New York, State of New York (a "New York Court") with
respect to suits, actions or proceedings brought by any Underwriter or by any
person who controls such Underwriter within the meaning of either Section 15 of
the Act or Section 20 of the Exchange Act against the Company arising out of or
in connection with violations of United States federal securities laws relating
to offers and sales of the Units and has validly and irrevocably waived, to the
fullest extent permitted by law, any objections that it may now or hereafter
have to the laying of venue of any such suit, action or proceeding brought in
any New York Court based on or arising under this Agreement or any claims that
any such suit, action or proceeding brought in any New York Court has been
brought in an inconvenient forum; and, under the Units Jurisdiction Agreement,
the Company has duly and irrevocably appointed CT Corporation System as its
agent to receive service of process with respect to actions arising out of or in
connection with any such suit, action or proceeding, and service of process on
CT Corporation System effected in the manner set forth in the Units Jurisdiction
Agreement will be effective under the laws of Bermuda to confer personal
jurisdiction over the Company;
(kk) Immediately following the First Time of Delivery, St. Paul will have
transferred to the Company and its subsidiaries those assets, liabilities and
businesses that, together with the Filed Agreements, are necessary for the
Company and its subsidiaries to be able to conduct the Business in the manner
and to the extent described in the Prospectus;
(ll) The Company has not taken, directly or indirectly, any action that has
constituted or that was designed to or which has constituted or which might
reasonably be expected to cause or result in,
12
under the Exchange Act or otherwise, the stabilization or manipulation of the
price of any security of St. Paul or the Company to facilitate the sale or
resale of the Units;
(mm) The historical financial statements and schedules of Predecessor (as
defined in the Prospectus) included in the Prospectus and the Registration
Statement (i) present fairly in all material respects the identifiable
underwriting assets and liabilities of The St. Paul Companies, Inc. Reinsurance
Underwriting Segment as of December 31, 2001, 2000 and 1999, and its
underwriting results and its identifiable underwriting cash flows for each of
the years in the three-year period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America, and
(ii) comply as to form in all material respects with the applicable accounting
requirements of the Act;
(nn) Immediately following the First Time of Delivery, the Company will
repurchase and cancel the Common Shares held by Codan Trust Company Limited, and
immediately following such repurchase and cancellation, St. Paul and the holders
of the Shares will be the only holders of issued and outstanding Common Shares;
and
(oo) KPMG, LLP, who have certified certain financial statements of the
Company, its subsidiaries and the Business, are independent public accountants
as required by the Act and the rules and regulations of the Commission
thereunder.
2. St. Paul represents and warrants to, and agrees with, each of the
Underwriters that:
(a) St. Paul has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Minnesota; and each
subsidiary of St. Paul that is a party to a Filed Agreement has been duly
incorporated and is validly existing as a corporation or a company in good
standing under the laws of its jurisdiction of organization, with corporate
power and authority to own its properties and conduct its business as described
in the Prospectus;
(b) Each of this Agreement, the Common Shares Underwriting Agreement and
the Jurisdiction Agreements has been duly authorized, executed and delivered by
St. Paul;
(c) All consents, approvals, authorizations, orders, registrations,
clearances and qualifications of or with any court or governmental agency or
body having jurisdiction over St. Paul or any of its subsidiaries or any of
their properties required for the execution and delivery by St. Paul of this
Agreement, the Common Shares Underwriting Agreement and the Jurisdiction
Agreements to be duly and validly authorized have been obtained or made and are
in full force and effect;
(d) The compliance by St. Paul with all applicable provisions of this
Agreement, the Common Shares Underwriting Agreement and the Jurisdiction
Agreements and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, or give rise to a
right of termination under (i) the certificate of incorporation or bylaws of St.
Paul, (ii) any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which St. Paul is a party or by which St. Paul is
bound or to which any of the properties or assets of St. Paul is subject, or
(iii) any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over St. Paul or any of its properties,
except, in the case of clause (ii) or (iii), as would not, individually or in
the aggregate, have a material adverse effect on the consolidated financial
position, shareholders' equity or results of operations of St. Paul and its
subsidiaries, taken as a whole, or of the Business;
13
(e) Each of the Filed Agreements when executed and delivered prior to the
First Time of Delivery will have been duly authorized, executed and delivered by
St. Paul or a subsidiary of St. Paul, as the case may be, and, assuming that
parties to the Filed Agreements other than St. Paul and its subsidiaries have
the power and authority to enter into and perform such agreements and that such
agreements have been duly authorized, executed and delivered by such parties and
constitute valid and binding agreements of such parties, will constitute a valid
and binding agreement of St. Paul and its subsidiaries, enforceable against St.
Paul and its subsidiaries, as the case may be, in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, or other laws now or hereafter in effect affecting
creditors' rights generally, (ii) the enforceability thereof is subject to the
general principles of equity (whether such enforceability is considered in a
proceeding in equity or at law), and (iii) no representation or warranty is made
with respect to the enforceability of the indemnification and contribution
provisions relating to violations under the Act contained in the Formation and
Separation Agreement, the Registration Rights Agreement and the Transfer
Restrictions and Registration Rights Agreement;
(f) Except as described in the Prospectus, no consent, approval,
authorization, registration or qualification of or with any governmental agency
or body or any court is required to be obtained or made by St. Paul or any of
its subsidiaries for the consummation of the Transaction and the transactions
contemplated by this Agreement, the Common Shares Underwriting Agreement, the
Jurisdiction Agreements and the Filed Agreements, except (i) such as have been
obtained or made under the Insurance Laws of the State of Maryland, Bermuda and
Ireland and (ii) such consents, approvals, authorizations, registrations or
qualifications the failure of which to obtain or make would not, individually or
in the aggregate, have a material adverse effect on the consolidated financial
position, shareholders' equity or results of operations of St. Paul and its
subsidiaries, taken as a whole, or of the Business;
(g) The execution, delivery and performance of each of the Filed
Agreements by St. Paul or any of its subsidiaries party thereto and the
consummation of the Transaction and the transactions therein contemplated will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give rise to a right of
termination under (i) the certificate of incorporation or bylaws or other
organizational documents of St. Paul or any of its subsidiaries, (ii) any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which St. Paul or any of its subsidiaries is a party or by which
St. Paul or any of its subsidiaries is bound or to which any of the properties
or assets of St. Paul or its subsidiaries is subject, or (iii) any statute or
any order, rule or regulation of any court or governmental agency or body having
jurisdiction over St. Paul, any of its subsidiaries, or any of their properties,
except, in the case of clause (ii) or (iii), as would not, individually or in
the aggregate, have a material adverse effect on the consolidated financial
position, shareholders' equity or results of operations of St. Paul and its
subsidiaries, taken as a whole, or of the Business;
(h) The historical financial statements and schedules of Predecessor
included in the Prospectus and the Registration Statement present fairly in all
material respects the underwriting results of Predecessor as of the dates and
for the periods indicated, comply as to form with the applicable accounting
requirements of the Act and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as otherwise noted therein);
14
(i) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which St. Paul or any of its subsidiaries in
respect of the Business is a party or of which any property of St. Paul or any
of its subsidiaries in respect of the Business is the subject which, if
determined adversely to St. Paul or any of its subsidiaries in respect of the
Business, would individually or in the aggregate have a material adverse effect
on the consolidated financial position, shareholders' equity or results of
operations of St. Paul and its subsidiaries, taken as a whole, or of the
Business; and to St. Paul's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(j) St. Paul and its subsidiaries in respect of the Business have not
sustained since December 31, 2001, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus; and,
since December 31, 2001, there has not been any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management or results of operations of St. Paul or any of its
subsidiaries in respect of the Business, otherwise than as set forth or
contemplated in the Prospectus;
(k) Under the Units Jurisdiction Agreement, St. Paul has validly and
irrevocably submitted to the non-exclusive jurisdiction of any New York Court
with respect to suits, actions or proceedings arising out of or in connection
with violations of United States federal securities laws relating to offers and
sales of the Units and has validly and irrevocably waived, to the fullest extent
permitted by law, any objections that it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in any New York Court
based on or arising under this Agreement or any claims that any such suit,
action or proceeding brought in any New York Court has been brought in an
inconvenient forum; and
(l) KPMG, LLP, who have certified certain financial statements of
St. Paul, its subsidiaries and the Business, are independent public accountants
as required by the Act and the rules and regulations of the Commission
thereunder.
3. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Underwriters, severally and not jointly, agree to enter into the
Purchase Contracts underlying the number of Firm Units set forth opposite the
name of such Underwriter in Schedule I hereto, (b) Platinum Finance agrees that
it will issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from Platinum Finance, at a
purchase price of ____% of the principal amount thereof, the principal amount of
Senior Notes underlying the number of Firm Units set forth opposite the name of
such Underwriter in Schedule I hereto, and (c) in the event and to the extent
that the Underwriters shall exercise the election to enter into additional
Purchase Contracts underlying Optional Units as provided below, (i) the Company
and each of the Underwriters, severally and not jointly, agree to enter into
that number of additional Purchase Contracts as to which such election shall
have been exercised (to be adjusted by you so as to eliminate fractional
Purchase Contracts) determined by multiplying the aggregate number of additional
Purchase Contracts the Underwriters elect to purchase by a fraction, the
numerator of which is the maximum number of Optional Units set forth opposite
the name of such Underwriter in Schedule I hereto and the denominator of which
is the maximum number of Optional Units set forth in total opposite the names of
all such Underwriters in Schedule I hereto and (ii) Platinum Finance agrees that
it will issue and sell to each of the Underwriters and each of the Underwriters
agrees, severally and not jointly, to purchase
15
from Platinum Finance at the purchase price set forth in clause (a) of this
Section 3, an aggregate amount of Senior Notes underlying such additional
Optional Units.
The Company hereby grants to the Underwriters the right to enter into,
at their election, Purchase Contracts underlying up to 750,000 Optional Units
and Platinum Finance hereby grants the Underwriters the right to purchase
from Platinum Finance at their election up to an aggregate of $18,750,000
principal amount of Senior Notes underlying such Optional Units, for the sole
purpose of covering overallotments in the sale of the Firm Units; provided,
however, that the Underwriters may exercise such overallotment elections only
in integral multiples of 40 Optional Units. Any such election to enter into
such additional Purchase Contracts and purchase such Senior Notes may be
exercised only by written notice from you to the Company and Platinum
Finance, given within a period beginning on the date hereof and ending 13
calendar days after the First Time of Delivery and setting forth the
aggregate number of such additional Purchase Contracts to be entered into and
principal amount of Senior Notes to be purchased and the date on which the
related Optional Units are to be delivered, as determined by you but in no
event later than 13 calendar days after the First Time of Delivery nor
earlier than the First Time of Delivery (as defined in Section 5 hereof) or,
unless you, the Company and Platinum Finance otherwise agree in writing,
earlier than two or later than ten business days after the date of such
notice.
4. (a) Upon the authorization by you of the release of the Firm Units,
the several Underwriters propose to offer the Firm Units for sale upon the terms
and conditions set forth in the Prospectus.
(b) Each Underwriter agrees that it will not offer, sell or deliver any of
the Units in any jurisdiction outside the United States except under
circumstances that will result in compliance by the Company, Platinum Finance
and the several Underwriters with the applicable laws thereof, and that it will
take at its own expense whatever action is required to permit its purchase and
resale of the Units in such jurisdictions. Each Underwriter understands that no
action has been taken to permit a public offering in any jurisdiction outside
the United States where action would be required for such purpose. Each
Underwriter agrees not to cause any advertisement of the Units to be published
in any newspaper or periodical or posted in any public place and not to issue
any circular relating to the Units, except in any case with the Lead
Underwriters' express written consent and then only at its own expense.
(c) Each Underwriter represents, warrants and agrees that: (i) it has not
offered or sold and, prior to the expiry of a period of six months from the
closing of the offering of the Units, will not offer or sell any Units 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 have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has only communicated or caused to be
communicated and will only communicate or cause to be communicated any
invitation or inducement to engage in investment activity (within the meaning of
section 21 of the Financial Services and Markets Act 2000 (the "FSMA")) received
by it in connection with the issue or sale of any Units in circumstances in
which section 21(1) of the FSMA does not apply to the Company; and (iii) it has
complied and will comply with all applicable provisions of the FSMA with respect
to anything done by it in relation to the Units in, from or otherwise involving
the United Kingdom.
5. (a) The Units to be purchased by each Underwriter hereunder, in
definitive form and registered in the name of Cede & Co., shall be delivered by
or on behalf of the Company and Platinum
16
Finance to the Lead Underwriters, through the facilities of The Depository Trust
Company ("DTC"), for the account of such Underwriter, against payment by or on
behalf of such Underwriter of the purchase price therefor by wire transfer of
Federal (same-day) funds to the account specified by Platinum Finance to the
Lead Underwriters at least forty-eight hours in advance. [The Company will cause
the certificates representing the Units to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of [Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004] [DTC or its designated custodian] (the
"Designated Office").] The time and date of such delivery and payment shall be,
with respect to the Firm Units, 9:30 a.m., New York City time, on _____________,
2002 or such other time and date as the Lead Underwriters, the Company and
Platinum Finance may agree upon in writing, and, with respect to the Optional
Units, 9:30 a.m., New York time, on the date specified by the Lead Underwriters
in the written notice given by the Lead Underwriters of the Underwriters'
election to purchase such Optional Units, or such other time and date as the
Lead Underwriters, the Company and Platinum Finance may agree upon in writing.
Such time and date for delivery of the Firm Units is herein called the "First
Time of Delivery", such time and date for delivery of the Optional Units, if not
the First Time of Delivery, is herein called the "Second Time of Delivery", and
each such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 9 hereof, including the
cross receipt for the Units and any additional documents requested by the
Underwriters pursuant to Section 9 hereof, will be delivered at the offices
of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 (the
"Closing Location"), and the Units will be delivered at the offices of
Sullivan & Cromwell, all at such Time of Delivery. A meeting will be held at
the Closing Location at 2:00 p.m., New York City time, on the New York
Business Day next preceding such Time of Delivery, at which meeting the final
drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes of this
Section 5, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
6. The Company and Platinum Finance agree, jointly and severally, with
each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus, of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or suspending
17
any such qualification, promptly to use its reasonable best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply in all material
respects with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete the
distribution of the Securities, provided that in connection therewith neither
the Company nor Platinum Finance shall be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction or become subject to taxation in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with written and electronic copies of the Prospectus in New York
City in such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Units and if at such time any event shall have occurred as a result of which
the Prospectus as then amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act or the Trust Indenture Act, to notify
you and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many written and electronic
copies as you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or omission
or effect such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Units at any time nine months
or more after the time of issue of the Prospectus, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as many
written and electronic copies as you may reasonably request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder,
any Units, Purchase Contracts, Senior Notes, Common Shares or any securities of
the Company or Platinum Finance that are substantially similar to the Units,
Purchase Contracts, Senior Notes or Common Shares, including but not limited to
any securities that are convertible into or exchangeable for, or that represent
the right to receive, Common Shares or any such substantially similar securities
(other than (i) the Shares issued pursuant to the Common Stock Underwriting
Agreement, (ii) the St. Paul Private Offering Securities and the RenRe Private
Offering Securities, and (iii) securities issued pursuant to any director or
employee stock option or benefit plans existing on, or upon the conversion or
exchange of convertible or exchangeable securities outstanding as of, the date
of this Agreement), without the prior written consent of the Lead Underwriters;
18
(f) To make available to its shareholders all information as required by
the Exchange Act;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional non-confidential information concerning the business and
financial condition of the Company as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the extent
the accounts of the Company and its subsidiaries are consolidated in reports
furnished to its shareholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Units
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list, subject to notice of issuance, the
Units and the Issuable Common Shares on the Exchange;
(j) To file with the Commission such information on Form 10-Q or Form 10-K
as may be required by Rule 463 under the Act;
(k) If the Company and Platinum Finance elect to rely upon Rule 462(b),
the Company and Platinum Finance shall file a Rule 462(b) Registration Statement
with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement, and the Company and Platinum Finance
shall at the time of filing either pay to the Commission the filing fee for the
Rule 462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act;
(l) Prior to or contemporaneously with the First Time of Delivery, use
commercially reasonable efforts to consummate the Transaction;
(m) Immediately upon receipt of payment for the Firm Shares, the Company
shall cause all of the Common Shares held by Codan Trust Company Limited to be
repurchased and cancelled;
(n) To reserve and keep available at all times, free of preemptive rights,
Issuable Common Shares to satisfy the obligation of the Company to issue Common
Shares pursuant to the Purchase Contracts; and
(o) To enter into the Remarketing Agreement with a nationally recognized
investment banking firm at least one month prior to , 2005, such Remarketing
Agreement to contain provisions that are consistent in all material respects
with the descriptions in the Prospectus of the rights and obligations of each of
the Company, Platinum Finance, the Purchase Contract Agent and the Remarketing
Agent under the Remarking Agreement.
7. St. Paul agrees with each of the Underwriters that, during the period
beginning from the date hereof and continuing to and including the date 180 days
after the date of the Prospectus, it will not offer, sell, contract to sell or
otherwise dispose of any Common Shares, Units, Purchase Contracts, Senior Notes
or any securities of the Company or Platinum Finance that are substantially
similar to the Common Shares, Units, Purchase Contracts or Senior Notes
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive,
19
Common Shares or any such substantially similar securities, without the prior
written consent of the Lead Underwriters.
8. The Company, Platinum Finance and St. Paul covenant and agree with the
several Underwriters that the Company, Platinum Finance and St. Paul will pay or
cause to be paid the following: (i) the fees, disbursements and expenses of the
counsel and accountants of the Company and Platinum Finance in connection with
the registration of the Securities under the Act and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or producing any Agreement
among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Securities; (iii) all expenses
in connection with the qualification of the Securities for offering and sale
under state securities laws as provided in Section 6(b) hereof, including the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such qualification and in connection with the Blue Sky survey; (iv) all
fees and expenses in connection with listing the Units and the Issuable Common
Shares on the Exchange; (v) the filing fees incident to, and the reasonable fees
and disbursements of counsel for the Underwriters in connection with, securing
any required review by the National Association of Securities Dealers, Inc. of
the terms of the sale of the Securities; (vi) the cost and charges of any
transfer agent or registrar; (vii) any fees charged by securities rating
services for rating the Units; (viii) the cost of preparing the Securities and
any certificates thereof and any agreements, documents and instruments incident
thereto; (ix) the fees and expenses of the Purchase Contract Agent and
Collateral Agent, and any agent of the Purchase Contract Agent and the
Collateral Agent, and the fees and disbursements of any counsel for the Purchase
Contract Agent, Collateral Agent or Remarketing Agent in connection with the
Purchase Contract Agreement, Pledge Agreement or Remarketing Agreement; (x) the
fees and expenses of the Trustee under the Indenture, and any agent of the
Trustee, and the fees and disbursements of any counsel for the Trustee in
connection with the Indenture and the Notes; and (xi) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 10 and 13 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Units by them, and
any advertising expenses connected with any offers they may make.
9. The obligations of the Underwriters hereunder, as to the Units to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company, Platinum Finance and St. Paul herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company, Platinum Finance and
St. Paul shall have performed all of their respective obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 6(a) hereof;
if the Company and Platinum Finance have elected to rely upon Rule 462(b), the
Rule 462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional
20
information on the part of the Commission shall have been complied with to your
reasonable satisfaction;
(b) Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Underwriters, shall have furnished to you such written opinion or opinions (a
draft of each such opinion is attached as Annex II(a) hereto), dated such Time
of Delivery in a form or forms acceptable to you, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to render such opinion or opinions;
(c) Sullivan & Cromwell, counsel for the Company and Platinum Finance,
shall have furnished to you their written opinion or opinions (a draft of such
opinion or opinions are attached as Annex II(b) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) Assuming each of this Agreement, the Common Shares
Underwriting Agreement and the Jurisdiction Agreements has been duly
authorized, executed and delivered by the Company under Bermuda law,
each of this Agreement, the Common Shares Underwriting Agreement and
the Jurisdiction Agreements has been duly executed and delivered by
the Company.
(ii) Each of this Agreement, the Common Shares Underwriting
Agreement and the Jurisdiction Agreements has been duly authorized,
executed and delivered by St. Paul.
(iii) Platinum US has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Maryland, with corporate power and authority to conduct its business
as described in the Prospectus.
(iv) All of the outstanding shares of Platinum US's common
stock have been duly authorized and validly issued and are fully paid
and non-assessable. Platinum Finance is the registered owner of 50,000
shares of Platinum US's common stock, and such shares constitute all
of the outstanding shares of Platinum US's capital stock.
(v) Platinum Finance has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to conduct its business
as described in the Prospectus.
(vi) All of the outstanding shares of Platinum Finance's
common stock have been duly authorized and validly issued and are
fully paid and non-assessable. Platinum Ireland is the registered
owner of 100 shares of Platinum Finance's common stock, and such
shares constitute all of the outstanding shares of Platinum Finance's
capital stock.
(vii) To such counsel's knowledge, the only agreements in
which the Company has agreed to register any securities are the
Registration Rights Agreement and the Transfer Restrictions and
Registration Rights Agreement.
(viii) Assuming that each of the Formation and Separation
Agreement and the Registration Rights Agreement has been duly
authorized, executed and delivered by the Company under Bermuda law,
the Formation and Separation Agreement and the Registration Rights
Agreement have been duly authorized, executed and delivered by the
Company, and constitute valid and legally binding obligations of the
Company enforceable
21
in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles, except that such counsel expresses no
opinion as to the enforceability of any indemnification or
contribution provisions relating to violations under any federal or
state securities laws contained in the Formation and Separation
Agreement and the Registration Rights Agreement.
(ix) The Formation and Separation Agreement and the
Registration Rights Agreement have been duly authorized, executed and
delivered by St. Paul and constitute valid and legally binding
obligations of St. Paul enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, except that such
counsel expresses no opinion as to the enforceability of any
indemnification or contribution provisions relating to violations
under any federal or state securities laws contained in the Formation
and Separation Agreement and the Registration Rights Agreement.
(x) Assuming that each of the Filed Agreements (other than
the Formation and Separation Agreement and the Registration Rights
Agreement) that is governed by New York law and to which the Company
is a party has been duly authorized, executed and delivered by the
Company under Bermuda law, each of such agreements has been duly
authorized, executed and delivered by the Company and constitutes a
valid and legally binding obligation of the Company enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles.
(xi) Each of the Filed Agreements (other than the Formation
and Separation Agreement and the Registration Rights Agreement) that
is governed by New York law and to which St. Paul is a party, has been
duly authorized, executed and delivered by St. Paul and constitutes a
valid and legally binding obligation of St. Paul enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles.
(xii) Each of the Filed Agreements that is governed by New
York law and to which Platinum Finance is a party has been duly
authorized, executed and delivered by Platinum Finance and constitutes
a valid and legally binding obligation of Platinum Finance enforceable
in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles.
(xiii) Each of this Agreement and the Units Jurisdiction
Agreement has been duly authorized, executed and delivered by Platinum
Finance.
(xiv) Each of the Filed Agreements that is governed by New
York law and to which Platinum US is a party has been duly authorized,
executed and delivered by Platinum US and constitutes a valid and
legally binding obligation of Platinum US enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization and similar laws of general applicability
relating to or affecting creditors'
22
rights and to general equity principles, except that such counsel
expresses no opinion as to the enforceability of any leases,
sub-leases or assignments of leases or other agreements relating to
real property constituting a Filed Agreement.
(xv) Each of the Filed Agreements that is governed by New
York law and to which St. Paul Fire and Marine Insurance Company, a
Minnesota corporation and a wholly owned subsidiary of St. Paul ("Fire
and Marine"), is a party, has been duly authorized, executed and
delivered by Fire and Marine and constitutes a valid and legally
binding obligation of Fire and Marine enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(xvi) No consent, approval, authorization or order of, or
qualification with, any United States federal or New York State
governmental body or agency is required for the issue and sale of the
Units, the Shares, the St. Paul Private Offering Securities or the
RenRe Private Offering Securities, except such as may be required by
the Act, the Exchange Act, the Trust Indenture Act and the securities
or Blue Sky laws of the State of New York.
(xvii) (a) The issuance by the Company of the Units and the
Common Shares, (b) the sale by the Company of the Units to you
pursuant to the Underwriting Agreement and of the Common Shares
pursuant to the Common Shares Underwriting Agreement, (c) the
performance by the Company of its obligations under the Underwriting
Agreement and the Common Shares Underwriting Agreement, (d) the
issuance by the Company of the St. Paul Private Offering Securities
to St. Paul and (e) the issuance by the Company of the RenRe Private
Offering Securities to RenRe will not (i) result in a default under
or a breach of any of the Filed Agreements that is governed by New
York law to which the Company is a party, or (ii) violate any
Federal law of the United States or law of the State of New York
or the Delaware General Corporation Law applicable to the Company;
provided, however, that, for the purposes of this paragraph (xvii),
such counsel may express no opinion with respect to Federal or state
securities laws, other antifraud laws or fraudulent transfer laws;
and provided, further, that insofar as performance by the Company
of its obligations under such agreements is concerned, such counsel
expresses no opinion as to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights.
(xviii) The execution, delivery and performance by St. Paul
of its obligations under the Underwriting Agreement and the Common
Shares Underwriting Agreement will not violate any Federal law of
the United States or law of the State of New York or the Delaware
General Corporation Law applicable to St. Paul; provided, however,
that, for the purposes of this paragraph (xviii), such counsel
expresses no opinion with respect to Federal or state securities
laws, other antifraud laws or fraudulent transfer laws; and
provided, further, that insofar as performance by St. Paul of its
obligations under such agreements is concerned, such counsel
expresses no opinion as to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights.
23
(xix) The execution, delivery and performance by Platinum US
of its obligations under each of the Filed Agreements to which it is a
party will not (a) violate Platinum US's certificate of incorporation
or by-laws, (b) result in a default under or breach of any of the
Filed Agreements to which it is a party, or (c) violate any Federal
law of the United States or law of the State of New York applicable to
Platinum US; provided, however, that, for the purposes of this
paragraph (xix), such counsel expresses no opinion with respect to
Federal or state securities laws, other antifraud laws or fraudulent
transfer laws; provided, further, that insofar as performance by
Platinum US of its obligations under such agreements is concerned,
such counsel expresses no opinion as to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights.
(xx) (a) The issuance by Platinum Finance of the Senior Notes
in accordance with the Indenture and the First Supplemental Indenture
relating to the Senior Notes, (b) the sale by Platinum Finance of the
Senior Notes to the Underwriters pursuant to the Underwriting
Agreement and (iii) the performance by Platinum Finance of its
obligations under the Underwriting Agreement will not (i) violate
Platinum Finance's certificate of incorporation or by-laws, (ii)
result in a default under or breach of any of the Filed Agreements
to which it is a party, or (iii) violate any Federal law of the
United States or law of the State of New York or the Delaware
General Corporation Law applicable to Platinum Finance; provided,
however, that, for the purposes of this paragraph (xx), such counsel
expresses no opinion with respect to Federal or state securities
laws, other antifraud laws or fraudulent transfer laws; and
provided, further, that insofar as performance by Platinum Finance
of its obligations under such agreements is concerned, such counsel
expresses no opinion as to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights.
(xxi) The Remarketing Agreement to be entered into by the
Company, Platinum Finance, the Purchase Contract Agent and the
Remarketing Agent, has been duly authorized by Platinum Finance, and
the Senior Notes will entitle holders thereof to the benefits of
the Remarketing Agreement and the Purchase Contract Agreement, in each
case in respect of the remarketing of the Senior Notes;
(xxii) Based on such counsel's examination of the Order of the
Maryland Insurance Administration, dated October ___, 2002, approving
or acknowledging that no regulatory approval is required for, inter
alia, the transactions contemplated by the Filed Agreements to which
the Company or Platinum US is a party, and the issuance to Platinum US
by the New York State Insurance Department of a license to engage in
the reinsurance business, all statutory and regulatory consents,
authorizations, approvals and filings required to be obtained or made
by or on behalf of the Company and Platinum US under the insurance
laws of the State of Maryland and the insurance laws of the State of
New York to consummate the transactions contemplated by the Filed
Agreements to which the Company or Platinum US is a party, and in the
case of Platinum US, to conduct its business as described in the
Prospectus, have been obtained or made.
(xxiii) Assuming that the Units have been duly authorized,
executed, authenticated, issued and delivered by the Company under
Bermuda law, the Units have been duly authorized, executed,
authenticated, issued and
24
delivered by the Company, and assuming due execution by the Purchase
Contract Agent as attorney-in-fact of the holders thereof and due
authentication by the Purchase Contract Agent, such Units constitute
valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization and
similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, and are in the
form contemplated by, and are entitled to the benefits of, the
Purchase Contract Agreement;
(xxiv) Assuming the Purchase Contracts underlying the Units
have been duly authorized, issued and delivered by the Company under
Bermuda law, the Purchase Contracts underlying the Units have been
duly authorized, issued and delivered and constitute valid and
legally binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization and similar laws of
general applicability relating to or affecting creditors' rights and
to general equity principles;
(xxv) The Indenture has been duly qualified under the Trust
Indenture Act;
(xxvi) The Senior Notes underlying the Units have been duly
authorized, executed, authenticated, issued and delivered by
Platinum Finance and constitute valid and legally binding
obligations of Platinum Finance, enforceable against Platinum
Finance in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization and similar laws of
general applicability relating to or affecting creditors' rights and
to general equity principles; the Senior Notes are in the form
contemplated by, and are entitled to the benefits of, the Indenture;
(xxvii) Assuming the Guarantees underlying the Units have been
duly authorized by the Company under Bermuda law, the Guarantees
have been duly authorized, issued and delivered and will constitute
valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles, and are entitled to the benefits of the
Indenture;
(xxviii) Under the NY UCC in effect at such Time of Delivery, the
Pledge Agreement creates, as collateral security for the performance
when due by the holders of the Units under the respective Purchase
Contracts, a valid security interest (as that term is defined in the
New York UCC) in favor of the Collateral Agent for the benefit of
the Company, in the right, title and interest of such holders in all
of the Pledged Securities that constitute "securities" (as that term
is defined in Section 8-102(a)(15) of the New York UCC); and in the
case of such Pledged Securities that are certificated (as defined in
the New York UCC), such security interest shall be perfected upon
delivery of such certificates (endorsed in blank) to the Collateral
Agent and, assuming that neither the
25
Collateral Agent nor the Company has notice on or prior to the date of
such delivery of an adverse claim with respect to such Pledged
Securities, the Collateral Agent has acquired a security interest in
the Pledged Securities free of any adverse claim (as that term in
defined in the New York UCC); in the case of Pledged Securities that
are credited by a securities intermediary (as defined in the New York
UCC) to a securities account (as defined in the New York UCC) in the
name of a Collateral agent, the Collateral Agent shall have a
perfected security interest in all security entitlements (as defined
in the New York UCC) relating to such Pledged Securities;
(xxix) Under the laws of the State of New York relating to
submission to jurisdiction, pursuant to the Units Jurisdiction
Agreement, (i) each of the Company, Platinum Finance and St. Paul has
validly and irrevocably submitted to the non-exclusive jurisdiction of
any United States Federal or New York State court and has validly
and irrevocably waived any objection to the venue of a proceeding in
any such court, and (ii) the Company has validly and irrevocably
appointed CT Corporation System as its authorized agent for the
purpose and to the extent described in the Units Jurisdiction
Agreement, and service of process effected on such agent in the
manner set forth therein will be effective to confer valid personal
jurisdiction over the Company, assuming, in each of clauses (i)
and (ii), (a) with respect to the Company only, the validity of
such actions under Bermuda law and (b) the due authorization,
execution and delivery of this Agreement by or on behalf of the
Underwriters.
(xxx) Registration of the Company or Platinum Finance under
the Investment Company Act is not required.
(xxxi) No registration of the Private Offering Securities under
the Act is required for the issuance and delivery of the Private
Offering Securities in the manner contemplated by the Formation and
Separation Agreement and the RenRe Investment Agreement, respectively;
provided, however, that such counsel may express no opinion as to when
and under what circumstances any Private Offering Securities may be
reoffered or resold.
(xxxii) The statements made under the captions "Business--Our
Business--U.S. Regulation--U.S. Insurance Holding Company Regulation
of Platinum Holdings, Platinum Ireland and Platinum Finance" and "--
-- --State Insurance Regulation of Platinum US" in the Prospectus
insofar as they relate to summaries of the provisions of the insurance
laws of the State of Maryland therein described, are accurate, fair
and complete.
Such counsel shall also furnish to you its written opinion that the
Registration Statement, as of its effective date, and the Prospectus, as of the
date of the Prospectus, appeared on their face to be appropriately responsive in
all material respects to the requirements of the Act, the Trust Indenture Act
and the applicable rules and regulations of the Commission thereunder. Further,
nothing that came to such counsel's attention in the course of its review has
caused such counsel to believe that the Registration Statement, as of its
effective date, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of the date of the
Prospectus, contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. Also,
nothing that has come to such counsel's attention has caused such counsel to
believe that the Prospectus, as of the
26
date and time of delivery of this letter, contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. Such counsel shall state that they do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for those made
under the captions "Description of the Equity Security Units" and "Descriptions
of the Senior Notes", insofar as they purport to constitute a summary of the
terms of the Securities and the Filed Agreements relating to the Securities,
under the captions "U.S. Federal Income Tax Consequences", insofar as they
purport to describe the provisions of United States federal tax laws referred to
therein, and in the first and second paragraphs under the caption "St. Paul
Investment, RenaissanceRe Investment and Principal Shareholders" and under the
caption "Certain Relationships and Related Transactions" and "Underwriting"
insofar as they relate to provisions of documents therein described.
Such counsel may state that its opinions are solely for the benefit of the
several Underwriters and may not be relied upon by any other person.
(d) Conyers, Dill & Pearman, outside Bermuda counsel for the Company,
shall have furnished to you their written opinion (a draft of such opinion is
attached as Annex II(c) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) Each of the Company and Platinum Bermuda is a limited
liability company duly incorporated and existing under the laws of Bermuda
in good standing ("good standing" meaning solely that it has not failed to
make any filing with any Bermuda governmental authority or to pay any
Bermuda government fee or tax which would make it liable to be struck off
the Register of Companies and thereby cease to exist under the laws of
Bermuda).
(ii) Each of the Company and Platinum Bermuda has the power and
capacity to acquire by purchase or otherwise and hold, sell, dispose of and
deal in real property situated outside Bermuda and in personal property of
all kinds wheresoever situated.
(iii) The Company has the necessary corporate power and authority,
pursuant to its Memorandum of Association, to carry on its business as
described in the Registration Statement. Platinum Bermuda has the necessary
corporate power and authority, pursuant to its Memorandum of Association,
to carry on its business as described in the Registration Statement,
including its insurance and reinsurance business as described in the
Registration Statement, and was registered as a Class 4 insurer in terms of
the Insurance Act 1978 effective [ ] 2002 and subject to Platinum Bermuda
being capitalized with US $[ ] is authorized to carry on business in that
capacity as described in the Registration Statement subject to the
provisions of the Insurance Act, 1978 and the regulations promulgated
thereunder, and the conditions set out in Schedule I to the Certificate of
Registration, issued by the Registrar of Companies to Platinum Bermuda,
dated [ ] 2002. No further approvals of the insurance regulatory,
governmental or administrative body or authority of Bermuda are required
for the conduct of such business by each of the Company and Platinum
Bermuda respectively.
(iv) Each of the Company and Platinum Bermuda has the necessary
corporate power and authority to enter into and perform its obligations
under the Documents (as
27
defined in Annex II(c) hereto). The execution and delivery of the Documents
by the Company and Platinum Bermuda and the performance by the Company and
Platinum Bermuda of their respective obligations thereunder including, but
not limited to, in the case of the Company, the issue and sale of the
Shares, the St. Paul Private Offering Securities, the RenRe Private
Offering Securities and the Units (and the Purchase Contracts and the
Guarantees underlying such Units) and the Issuable Common Shares and the
performance of the transactions contemplated by the Documents and the
Registration Statement, will not violate the memorandum of association or
bye-laws of the Company or of Platinum Bermuda nor any applicable law,
regulation, order or decree in Bermuda.
(v) Each of the Company and Platinum Bermuda has taken all
corporate action required to authorize its execution, delivery and
performance of the Documents. The Documents have been duly executed and
delivered by or on behalf of the Company or Platinum Bermuda, as
applicable, and constitute the valid, binding and enforceable obligations
of the Company or Platinum Bermuda, as applicable, in accordance with the
terms thereof.
(vi) The Remarketing Agreement to be entered into by the Company,
Platinum Finance, the Purchase Contract Agent and the Remarketing Agent,
has been duly authorized by the Company and, when executed and delivered by
the Company, will be duly executed and delivered by the Company; and at
the time of such execution and delivery, the Remarketing Agreement will
conform in all material respects to the description thereof contained in
the Prospectus;
(vii) The Guarantees have been duly authorized by the Company.
(viiii) The Company has taken all corporate action required to duly
authorize its execution and delivery to the SEC of the Registration
Statement.
(ix) No order, consent, approval, licence, authorisation or
validation of, registration with or exemption by any government or public
body or authority of Bermuda or any sub-division thereof is required to
authorise or is required in connection with the execution, delivery,
performance and enforcement of the Documents, except such as have been duly
obtained in accordance with Bermuda law.
(x) No order, consent, approval, license, authorization or
validation of, registration with or exemption by any government or public
body or authority of Bermuda or any sub-division thereof is required to
authorize or is required in connection with the valid issue and sale of the
Shares, the St. Paul Private Offering Securities, the RenRe Private
Offering Securities and the Units, except such as have been duly obtained
in accordance with Bermuda law.
(xi) It is not necessary or desirable to ensure the enforceability
in Bermuda of the Documents that they be registered in any register kept
by, or filed with, any governmental authority or regulatory body in
Bermuda.
(xii) The Company has an authorized share capitalization as
described in the Registration Statement. Upon payment in cash or in kind by
the Common Shares Underwriters, the Underwriters, St. Paul and RenRe for
the Shares, the Units, the St. Paul Private Offering Securities and the
RenRe Private Offering Securities, respectively, in
28
accordance with the Common Shares Underwriting Agreement, this Agreement,
the Formation and Separation Agreement and the RenRe Investment Agreement,
respectively, the Common Shares, the Units, the St. Paul Private Offering
Securities and the RenRe Private Offering Securities will be duly
authorized and validly issued, fully paid and nonassessable
("nonassessable" meaning that no further sums are required to be paid by
the holders thereof in connection with the issue thereof). The issuance of
each of the Units and the Purchase Contracts is not subject to pre-emptive
or similar rights.
(xiii) Based solely on such counsel's review of the bye-laws of the
Company and the Register of Members of the Company, and except as disclosed
in the Prospectus under the captions "Certain Relationships and Related
Transactions - Agreements between Platinum and St. Paul - Formation and
Separation Agreement - Pre-Emptive Rights", "Certain Relationships and
Related Transactions - Agreements between Platinum and St. Paul - St. Paul
Option Agreement", "Certain Relationships and Related Transactions - The
RenaissanceRe Investment - Investment Agreement -Transfer Restrictions,
Registration Rights and Standstill Agreement - Pre-Emptive Rights,"
"Certain Relationships and Related Transactions - The RenaissanceRe
Investment - RenaissanceRe Option Agreement," "Description of the Equity
Security Units", "Management" and "Underwriting", the Company has no (i)
outstanding securities or other obligations convertible into or
exchangeable or exercisable for shares in the authorized share capital of
the Company, or (ii) outstanding rights to subscribe for or purchase, or
options for the purchase of, or agreement providing for the issuance
(contingent or otherwise) of, or calls, commitments or claims of any
character relating to, any shares in the authorized share capital of the
Company, or (iii) securities convertible into or exchangeable or
exercisable for any shares in the authorized share capital of the Company,
or (iv) obligation (in the nature of the existence of a pre-emptive or
similar right) to offer the shares in the authorized share capital of the
Company to any shareholder of the Company prior to the sale of the Units,
the Shares, the St. Paul Private Offering Securities or the RenRe Private
Offering Securities.
(xiv) Subject to the requirement that shares of the Company are
listed on the New York Stock Exchange or on another appointed stock
exchange (as defined in section 2(1) of the Companies Act 1981, the Company
has received permission under the Exchange Control Act 1972 (and
Regulations made thereunder) from the Bermuda Monetary Authority for: (i)
the issue and subsequent free transferability of the Company's shares, up
to the amount of its authorised capital from time to time, to and among
persons non-resident of Bermuda for exchange control purposes; (ii) the
issue and subsequent free transferability of up to 20% of the Company's
shares in issue from time to time to persons resident in Bermuda for
exchange control purposes; and (iii) the issue of options, warrants,
depository receipts, rights, loan notes and other securities of the Company
and the subsequent free transferability thereof.
(xv) The Shares, the St. Paul Private Offering Securities, the
RenRe Private Offering Securities and the Issuable Common Shares conform to
the description of the Company's Common Shares found in the Prospectus
under the caption "Description of Platinum Holdings' Common Shares".
29
(xvi) The issue and sale of the Shares, the St. Paul Private
Offering Securities, the RenRe Private Offering Securities and the Units by
the Company pursuant to the Documents will not constitute unlawful
financial assistance by the Company under Bermuda law.
(xvii) The form of certificates for the Shares and the St. Paul
Investment Shares conforms to the requirements of Bermuda law.
(xviii) Based solely on such counsel's review of a certified copy of
the Register of Members of Platinum Bermuda dated [ ] 2002, all of the
issued common shares of Platinum Bermuda have been duly authorised and
validly issued, fully paid and non-assessable (as such term is defined
above) and are registered in the name of the Company.
(xix) Based solely on such counsel's review of a certified copy of
the Register of Members of the Company dated [ ] 2002, all of the issued
Common Shares of the Company have been duly authorised and validly issued,
fully paid and non-assessable (as such term is defined above) and are
registered in the name of Codan Trust Company Limited (the "Purpose
Trust").
(xx) The Company has a contractual right to and has taken all
necessary corporate action other than the payment of the repurchase price
of US$120,000 to effect the repurchase of the Common Shares held by the
Purpose Trust and upon the receipt of the payment of the repurchase price
of US$120,000 by the Purpose Trust, the Company shall be entitled, without
any further action by the Company or the Purpose Trust, to cancel the
Common Shares held by the Purpose Trust by making the appropriate entry in
the Register of Members of the Company, and thereafter the Purpose Trust
will not have any rights as a member of the Company.
(xxi) The Documents will not be subject to ad valorem stamp duty in
Bermuda and no registration, documentary, recording, transfer or other
similar tax, fee or charge is payable in Bermuda in connection with the
execution, delivery, filing, registration or performance of the Documents
or the issue and delivery of the Shares, the Units, the St. Paul Private
Offering Securities and the RenRe Private Offering Securities to the Common
Shares Underwriters, the Underwriters, St. Paul and RenRe, respectively,
pursuant to the Common Shares Underwriting Agreement, the Units
Underwriting Agreement, the Formation and Separation Agreement and the
RenRe Investment Agreement, respectively.
(xxii) Under current Bermuda law there is no Bermuda income tax,
withholding tax, capital gains tax, capital transfer tax, estate or
inheritance tax, payable by investors who are not resident in Bermuda (or
are deemed not to be resident in Bermuda for Bermuda exchange purposes).
(xxiii) The Company and Platinum Bermuda have received from the
Bermuda Minister of Finance an assurance under The Exempted Undertakings
Tax Protection Act 1966 of Bermuda to the effect that in the event Bermuda
enacts any legislation imposing tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the
nature of estate duty or inheritance tax, then such tax will not apply to
the Company and Platinum Bermuda or to any of their operations or their
shares, debentures
30
or other obligations, until March 28, 2016. This assurance will not prevent
the application of any tax or duty on persons ordinarily resident in
Bermuda or the application of any tax payable in accordance with the
provisions of The Land Tax Act 1967 of Bermuda or otherwise payable in
relation to any property leased to the Company or Platinum Bermuda.
(xxiv) The statements in the Prospectus under the captions
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Underwriting Results - Liquidity and Capital Resources - Restrictions on
Dividend Payments from our Operating Subsidiaries - Bermuda", "Business -
Regulation - Bermuda", "Description of Platinum Holdings' Common Shares",
the fourth paragraph set forth under the caption "Risk Factors - Risks
Related to Our Common Shares - There are limitations on the ownership,
transfers and voting rights of our Common Shares", and, the first and
second paragraphs under "Item 14. Indemnification of Directors and
Officers" in Part II of the Registration Statement insofar as such
statements constitute summaries of the legal matters referred to therein,
fairly present the information called for with respect to such legal
matters and documents and fairly summarize the matters referred to therein.
(xxv) The Company can sue and be sued in its own name under the
laws of Bermuda.
(xxvi) The choice of the Foreign Laws (as defined in Annex II(c)
hereto) as the governing law of the Documents is a valid choice of law and
would be recognized and given effect to in any action brought before a
court of competent jurisdiction in Bermuda, except for those laws (i) which
such court considers to be procedural in nature, (ii) which are revenue or
penal laws or (iii) the application of which would be inconsistent with
public policy, as such term is interpreted under the laws of Bermuda. The
submission in the Documents to the non-exclusive jurisdiction of the
Foreign Courts (as defined in Annex II(c) hereto) is valid and binding upon
the Company.
(xxvii) The courts of Bermuda would recognise as a valid judgment, a
final and conclusive judgment in personam obtained in the Foreign Courts
against the Company based upon the Documents under which a sum of money is
payable (other than a sum of money payable in respect of multiple damages,
taxes or other charges of a like nature or in respect of a fine or other
penalty) and would give a judgment based thereon provided that (a) such
courts had proper jurisdiction over the parties subject to such judgment,
(b) such courts did not contravene the rules of natural justice of Bermuda,
(c) such judgment was not obtained by fraud, (d) the enforcement of the
judgment would not be contrary to the public policy of Bermuda, (e) no new
admissible evidence relevant to the action is submitted prior to the
rendering of the judgment by the courts of Bermuda and (f) there is due
compliance in seeking validation of such judgment with the correct
procedures under the laws of Bermuda.
(xxviii) Under Section 16 of the Companies Act 1981, the bye-laws of
the Company shall bind the Company and the members of the Company to the
same extent as if such bye-laws had been signed and sealed by each such
member, and contain covenants on the part of each such member to observe
all the provisions of the bye-laws of the Company, except, as provided in
Section 17 of the Companies Act 1981, no member of the Company shall be
bound by an alteration made in the bye-laws after the date on which
31
he became a member, if and so far as the alteration requires him to take or
subscribe for more shares than the number held by him at the date on which
the alteration is made, or in any way increases his liability as at that
date to contribute to the share capital of, or otherwise to pay money to,
the Company (unless the member agrees in writing, either before or after
the alteration is made, to be bound thereby).
(xxix) Based solely on a search of the Register of Charges,
maintained by the Registrar of Companies pursuant to Section 55 of the
Companies Act 1981, conducted at [ ] on [ ], there are no registered
charges registered against the Company or Platinum Bermuda.
(xxx) Based solely upon a search of the Cause Book of the Supreme
Court of Bermuda conducted at [ ] on [ ], there are no judgments, nor
legal or governmental proceedings pending in Bermuda to which either of the
Company or Platinum Bermuda is a party.
(xxxi) Neither the Underwriters, the Units Underwriters, St. Paul
nor RenRe will be deemed to be resident, domiciled or carrying on business
in Bermuda by reason only of the execution, performance and enforcement of
the Documents.
(xxxii) Each of the Underwriters, the Units Underwriters, St. Paul
and RenRe has standing to bring an action or proceedings before the
appropriate courts in Bermuda for the enforcement of the Documents. It is
not necessary or advisable in order for any Underwriter, Units Underwriter,
St. Paul or RenRe to enforce its rights under the Documents, including the
exercise of remedies thereunder, that it be licensed, qualified or
otherwise entitled to carry on business in Bermuda.
(xxxiii) The Company and Platinum Bermuda have been designated as
non-resident for the purposes of the Exchange Control Act, 1972 and as such
are free to acquire, hold and sell foreign currency and securities. No
currency exchange control laws or withholding taxes of Bermuda apply to the
payment of dividends (a) on the Common Shares by the Company or (b) by
Platinum Bermuda to the Company, except in each case as described in or
contemplated by the Registration Statement; and Platinum Bermuda is not
currently prohibited by any Bermuda law or governmental authority, directly
or indirectly, from paying any dividends to the Company, from making any
other distributions on its capital stock, from repaying to the Company any
loans or advances to it from the Company or from transferring any of its
property or assets to the Company, except as summarized in the Registration
Statement.
(xxxiv) Neither the Company nor Platinum Bermuda is entitled to any
immunity under the laws of Bermuda, whether characterized as sovereign
immunity or otherwise, from any legal proceedings to enforce the Documents
in respect of itself or its property.
(xxxv) The procedure for the service of process on the Company
through C.T. Corporation System in New York, New York, United States of
America, acting as agent for the Company, as set out in Section 1 (jj) of
this Agreement and in the Jurisdiction Agreements, would be effective, in
so far as Bermuda law is concerned, to constitute valid service of the
proceedings on the Company.
32
(e) Slaughter & May, outside U.K. counsel for the Company, shall
have furnished to you their written opinion or opinions (a draft of such opinion
or opinions attached as Annex II(d) hereto), dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) Each of Platinum UK and St. Paul Reinsurance Company Limited,
a wholly-owned subsidiary of St. Paul ("St. Paul Re UK"), is a validly
existing limited liability company duly incorporated under the laws of
England and registered in England and has power and authority under its
Memorandum of Association to own leasehold property and conduct its
business as described in the Prospectus. St. Paul Management Limited, a
wholly-owned subsidiary of St. Paul ("SPML") is a validly existing limited
liability company duly incorporated under the laws of England and
registered in England.
(ii) Platinum Ireland is the duly registered holder of [two]
ordinary shares of [one pound] each in Platinum UK and such shares are all
of the issued shares of Platinum UK and all such shares have been duly and
validly authorized and issued.
(iii) Provided that each of the Underwriters complies with its
obligations under Sections 4(b) and 4(c) of this Agreement (notwithstanding
Section 9 of this Agreement), the issue and sale of the Units being
delivered at each Time of Delivery in the manner described in the
Prospectus, the issue and sale of the Shares, the St. Paul Investment
Shares and the RenRe Investment Shares, the grant of the St. Paul
Investment Option and the RenRe Investment Option and the compliance by the
Company, Platinum Finance and St. Paul with all of the provisions of this
Agreement and the Common Shares Underwriting Agreement, as applicable, and
the consummation of the transactions herein and therein contemplated will
not conflict with or result in any violation of the provisions of (i) the
Memorandum or Articles of Association of Platinum UK, St. Paul Re UK or
SPML, or (ii) any statute or statutory instrument of the United Kingdom, or
(iii) any rule or regulation of the Financial Services Authority set out in
the Financial Services Authority Handbook.
(iv) Each of the UK Agreements (as defined in Annex II(d) hereto)
to which Platinum UK is a party has been duly authorized and executed by
Platinum UK, and constitutes a valid and binding agreement of Platinum UK
enforceable against Platinum UK.
(v) Each of the UK Agreements to which St. Paul Re UK is a party
has been duly authorized and executed by St. Paul Re UK, and constitutes a
valid and binding agreement of St. Paul Re UK enforceable against St. Paul
Re UK.
(vi) Each of the UK Agreements to which SPML is a party has been
duly authorized and executed by SPML, and constitutes a valid and binding
agreement of SPML enforceable against SPML.
(vii) Assuming that each of the UK Agreements to which a person
other than Platinum UK, St. Paul Re UK or SPML is a party has been duly
authorized and executed by such person, each such UK Agreement constitutes
a valid and binding agreement of such person enforceable against such
person.
33
(viii) Except as provided in the Prospectus, neither Platinum UK,
St. Paul Re UK nor SPML is required to obtain any consent, approval,
authorization or order of, or make any filing with, the Financial Services
Authority or any other regulatory body in the United Kingdom in order to
perform their respective obligations under the UK Agreements and, in the
case of Platinum UK and except as provided in the Prospectus, to conduct
its business as described in the Prospectus.
(ix) The execution, delivery and performance by Platinum UK of
each of the UK Agreements to which Platinum UK is a party and the
consummation of the transactions therein contemplated will not conflict
with or result in any violation of (i) the Memorandum or Articles of
Association of Platinum UK, or (ii) any statute or statutory instrument of
the United Kingdom, or (iii) any rule or regulation of the Financial
Services Authority set out in the Financial Services Authority Handbook.
(x) The execution, delivery and performance by St. Paul Re UK of
each of the UK Agreements to which St. Paul Re UK is a party and the
consummation of the transactions therein contemplated will not conflict
with or result in any violation of (i) the Memorandum or Articles of
Association of St. Paul Re UK, or (ii) any statute or statutory instrument
of the United Kingdom, or (iii) any rule or regulation of the Financial
Services Authority set out in the Financial Services Authority Handbook.
(xi) The execution, delivery and performance by SPML of each of
the UK Agreements to which SPML is a party and the consummation of the
transactions therein contemplated will not conflict with or result in any
violation of (i) the Memorandum or Articles of Association of SPML, or (ii)
any statute or statutory instrument of the United Kingdom, or (iii) any
rule or regulation of the Financial Services Authority set out in the
Financial Services Authority Handbook.
(xii) The statements set forth in the Prospectus and listed in
Schedule 2 to Annex II(d) hereof, insofar as they purport to describe the
provisions of the laws and documents referred to therein, are accurate and
fair.
(f) A&L Goodbody, outside Irish counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(e) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) Platinum Ireland has been duly incorporated under the laws of
Ireland. Based only on searches carried out in the Irish Companies Office
and the Central Office of the High Court on [ ], 2002 Platinum Ireland is
validly existing under the laws of Ireland and no steps have been taken or
are being taken to appoint a receiver, examiner or liquidator over it or to
wind it up and Platinum Ireland has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact its business in Ireland.
34
(ii) All of the issued shares of Platinum Ireland have been duly
and validly authorized and issued, are fully paid and are not subject to
calls for any additional payments. Ten thousand (10,000) shares have been
issued, nine thousand, nine hundred and ninety nine (9,999) registered in
the name of the Company and one registered in the name of Platinum Bermuda.
To the best of such counsel's knowledge, based on a Certificate of Jerome
T. Fadden, all the issued shares are free and clear of all liens,
encumbrances, equities or claims.
(iii) Based only on the Certificate of Jerome T. Fadden and
searches carried out in the Central Office of the High Court, such counsel
does not know of any legal or governmental proceedings pending or
threatened in Ireland to which Platinum Ireland is a party or to which any
of the properties of Platinum Ireland is subject.
(iv) Based on the Certificate of Jerome T. Fadden, there is no
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which Platinum Ireland is a party or by which Platinum
Ireland is bound or to which any of the property or assets of Platinum
Ireland is subject, nor is such counsel actually aware of any such
agreement referred to in this paragraph.
(v) Based only on the Certificate of Jerome T. Fadden, Platinum
Ireland is not in violation of its Certificate of Incorporation or its
Memorandum or Articles of Association.
(vi) Based only on the description of the Transaction in the
Prospectus, Platinum Ireland is not required under Irish law to obtain any
consent, approval, authorization or order of, or make any filling with, any
governmental agency or body or any court in Ireland to conduct its
business, pay any dividends or consummate the Transaction and based only on
the description thereof in the Prospectus, the transactions contemplated by
the Filed Agreements.
(vii) Based only on the description of the Transaction in the
Prospectus, the consummation of the Transaction and based only on the
description thereof in the Prospectus, the transactions contemplated in the
Filed Agreements will not result in any violation of the Certificate of
Incorporation or the Memorandum and Articles of Association of Platinum
Ireland, any Irish statute, any rule or regulation of any governmental
agency or body of Ireland having general application, or based only on the
Certificate of Jerome T. Fadden and on searches in the Central Office of
the High Court on [ ], any order of any court of Ireland.
(viii) Based only on the descriptions in the Prospectus and the
Common Shares Prospectus, the issue and sale of the Units being delivered
at such Time of Delivery by the Company and by Platinum Finance, the issue
and sale of the Shares, the St. Paul Private Offering Securities and the
RenRe Private Offering Securities and the compliance by the Company,
Platinum Finance and St. Paul with all of the provisions of this Agreement
and the Common Shares Underwriting Agreement, as applicable, and the
consummation of the transactions herein and therein contemplated will not
result in any violation of the Certificate of Incorporation or the
Memorandum and Articles of Association of Platinum Ireland, any Irish
statute, any rule or regulation of any governmental agency or body of
Ireland having general application or based only on the Certificate of
Jerome T.
35
Faddenand on searches in the Central Office of the High Court on [ ], 2002,
any order of any court of Ireland.
(ix) The statements in the Prospectus under the captions
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Underwriting Results--Liquidity and Capital Resources--Restrictions on
Dividend Payments from our Operating Subsidiaries--Ireland" and
"Business--Regulation--Ireland Regulation" insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the requirements of Irish law with
respect to such legal matters, documents and proceedings and fairly
summaries the matters referred to therein.
(x) Based only on the Certificate of Jerome T. Fadden, Platinum
Ireland has not received any notification from any insurance regulatory
authority or other governmental authority to the effect that any
authorization not already held by Platinum Ireland, approval, order,
consent, certificate, permit, registration or qualification is needed to be
obtained, to conduct its business as described in the Prospectus or to pay
any dividends.
(xi) Based only on the Certificate of Jerome T. Fadden and
searches carried out in the Irish Companies Office, Platinum Ireland has
filed all statutory financial returns, reports, documents and other
information required to be filed under Irish law and Platinum Ireland
maintains its books and registers required by the Companies Acts 1963 to
2001 of Ireland in accordance with those Acts.
(g) Bruce A. Backberg, Senior Vice President and Corporate Secretary of
St. Paul, shall have furnished to you his written opinion (a draft of such
opinion is attached as Annex II(f) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) Each of St. Paul and Fire and Marine has been duly
incorporated and is an existing corporation in good standing under the laws
of the State of Minnesota.
(ii) Fire and Marine has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification or is subject to
no material liability or disability by reason of failure to be so qualified
in any such jurisdiction.
(iii) Each of this Agreement, the Common Shares Underwriting
Agreement and the Jurisdiction Agreements has been duly authorized,
executed and delivered by St. Paul.
(iv) Assuming that each of the Filed Agreements that is governed
by a law other than Minnesota law or New York law and to which St. Paul or
Fire and Marine is a party has been duly executed and delivered under the
applicable law, each such Filed Agreement has been duly authorized,
executed and delivered by St. Paul or Fire and Marine, as the case may be.
(v) Each of the Filed Agreements that is governed by New York law
and to which St. Paul is a party has been duly authorized, executed and
delivered by St. Paul.
36
(vi) Each of the Filed Agreements that is governed by Minnesota
law and to which Fire and Marine is a party has been duly authorized,
executed and delivered by Fire and Marine and constitutes a valid and
legally binding obligation of Fire and Marine enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(vii) Assuming that each of the Filed Agreements that is governed
by Minnesota law and to which Platinum US is a party has been duly
authorized, executed and delivered by Platinum US under the laws of the
State of Maryland, each such Filed Agreement has been duly authorized,
executed and delivered by Platinum US and constitutes a valid and legally
binding obligation of the Company enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(viii) To such counsel's knowledge, there are no legal or
governmental proceedings pending to which St. Paul or Fire and Marine, in
each case in respect of the Business, is a party or of which the Business
is the subject, which, if determined adversely to St. Paul or Fire and
Marine, as the case may be, would individually or in the aggregate (after
giving effect to any applicable insurance, reinsurance or reserves
therefor) have a material adverse effect on the consolidated financial
position, shareholders' equity or results of operations of Platinum and its
subsidiaries taken as a whole at the First Time of Delivery; and, to such
counsel's knowledge, no such proceedings are threatened by governmental
authorities or by others.
(ix) The compliance by St. Paul with the provisions of the Filed
Agreements to which St. Paul is a party and the consummation of the
transactions contemplated in such agreements will not (i) result in a
default under or breach of any agreement or instrument known to me to which
St. Paul is a party or by which St. Paul is bound or to which any of the
property or assets of St. Paul is subject, (ii) violate the provisions of
St. Paul's Restated Articles of Incorporation, as amended, or By-laws, as
amended, or (iii) violate any statute or any order, rule or regulation
known to such counsel of any court or governmental agency or body having
jurisdiction over St. Paul or any of its properties, provided that such
counsel is expressing no opinion under this clause (iii) with respect to
the indemnification and contribution provisions relating to federal and
state securities laws contained in the Formation and Separation Agreement
and the Registration Rights Agreement.
(x) The compliance by St. Paul with the provisions of each of
this Agreement, the Common Shares Underwriting Agreement and the
Jurisdiction Agreements and the consummation of the transactions therein
contemplated will not (i) result in a default under or breach of any
agreement or instrument known to such counsel to which St. Paul is a party
or by which St. Paul is bound or to which any of the property or assets of
St. Paul is subject, or (ii) violate the provisions of St. Paul's Restated
Articles of Incorporation, as amended, or By-laws, as amended.
(xi) The compliance by Fire and Marine with the provisions of the
Filed Agreements to which Fire and Marine is a party and the consummation
of the transactions
37
therein contemplated will not (i) result in a default under or breach of
any agreement or instrument known to such counsel to which Fire and Marine
is a party or by which Fire and Marine is bound or to which any of the
property or assets of Fire and Marine is subject, (ii) violate the
provisions of the Articles of Incorporation, as amended, or By-laws, as
amended, of Fire and Marine, or (iii) violate any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over Fire and Marine or any of its
properties.
(xii) Neither St. Paul nor Fire and Marine is in violation of its
Restated Articles of Incorporation, as amended, or its Articles of
Incorporation, as amended, respectively, or its By-laws, as amended, or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any agreement or instrument known to
such counsel to which it is a party or by which it or any of its properties
is or may be bound, except where any such default does not have or would
not reasonably be expected to have a material adverse effect on Platinum
and its subsidiaries taken as a whole.
(xiii) Based on such counsel's examination of the Order of the
Maryland Insurance Administration, dated October ___, 2002, approving or
acknowledging that no regulatory approval is required for, inter alia, the
transactions contemplated by the Filed Agreements to which St. Paul or Fire
and Marine is a party, and the issuance to Platinum US by the New York
State Insurance Department of a license to engage in the reinsurance
business, no consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the consummation by St. Paul or Fire and Marine of the
transactions contemplated by the Underwriting Agreement or the Filed
Agreements to which either is a party, except the registration under the
Act of the Common Shares, the Purchase Contracts, the Senior Notes, the
Guarantees and the Units and under the Exchange Act of the Common Shares
and the Units and the qualification of the Indenture under the Trust
Indenture Act, and such consents, approvals, authorizations, registrations
or qualifications as may be required under Maryland insurance laws and New
York insurance laws, which have been obtained, or such as may be required
under other state insurance laws or foreign laws or as may be required by
state securities or Blue Sky laws in connection with the purchase and
distribution of the Units by the Underwriters and of the Common Shares by
the Common Shares Underwriters.
(xiv) All statutory and regulatory consents, authorizations,
approvals and filings required to be obtained or made by or on behalf of
St. Paul and Fire and Marine under the insurance laws of the State of
Minnesota to consummate the transactions contemplated by the Filed
Agreements to which St. Paul or Fire and Marine are a party have been
obtained or made.
(xv) To such counsel's knowledge, neither St. Paul nor Fire and
Marine has received any notification from any insurance authority,
commission or other insurance regulatory body to the effect that any
license from such authority, commission or body is needed to be obtained by
St. Paul or Fire and Marine, in each case in respect of the Business, or
that St. Paul or Fire and Marine is not in compliance with any applicable
insurance laws, in each case in respect of the Business, except where such
failure to
38
obtain such license or to be in such compliance would not, individually or
in the aggregate (after giving effect to any applicable insurance,
reinsurance or reserves therefor), have a material adverse effect on the
consolidated financial position or shareholders' equity of Platinum and its
subsidiaries taken as a whole at the First Time of Delivery.
Such counsel may state that his opinion is solely for the benefit of the
several Underwriters and may not be relied upon by any other person.
(h) Bruce Saul, Vice President-Corporate, Legal Services of St. Paul,
shall have furnished to you his written opinion (a draft of such opinion is
attached as Annex II (g) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that (all capitalized terms used
but not defined in the subparagraphs of this Section 9(h) have the meanings
specified in such opinion):
(i) Each of USF&G and Platinum US has been duly incorporated and
is an existing corporation in good standing under the laws of the State of
Maryland and, in the case of Platinum US, has corporate power and authority
to conduct its business as described in the Prospectus.
(ii) All of the issued shares of capital stock of Platinum US have
been duly authorized and validly issued, are fully paid and non-assessable,
and , immediately prior to the First Time of Delivery, were owned by USF&G,
free and clear of all liens, encumbrances, equities or claims.
(iii) Each of the Filed Agreements to which Platinum US is a party
has been duly authorized, executed and delivered by Platinum US.
(iv) Each of the Filed Agreements that is governed by Maryland law
and to which Platinum US is a party constitutes a valid and legally binding
obligation of Platinum US enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(v) Assuming that each of the Filed Agreements that is governed
by Maryland law has been duly authorized, executed and delivered by each
party thereto (other than Platinum US) under the laws of jurisdiction where
such party is domiciled, each such Filed Agreement has been duly
authorized, executed and delivered by each party thereto and constitutes a
valid and legally binding obligation of such party enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
(vi) To such counsel's knowledge, there are no legal or
governmental proceedings pending to which USF&G or Platinum US is a party,
which, if determined adversely to USF&G or Platinum US, as the case may be,
would individually or in the aggregate (after giving effect to any
applicable insurance, reinsurance or reserves therefor) have a material
adverse effect on the consolidated financial position, shareholders' equity
or results of operations of Platinum and its subsidiaries, taken as a
whole, following the First Time of Delivery (as such term is defined in the
Underwriting Agreement); and, to such
39
counsel's knowledge, no such proceedings are threatened by governmental
authorities or by others.
(vii) The compliance by Platinum US with the provisions of the
Filed Agreements to which Platinum US is a party and the consummation of
the transactions therein contemplated will not (i) result in a default
under or breach of any agreement or instrument known to such counsel to
which Platinum US is a party or by which Platinum US is bound or to which
any of the property or assets of Platinum US is subject, (ii) violate the
provisions of Platinum US's Articles of Incorporation, as amended, or
By-laws, as amended, or (iii) violate any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over Platinum US or any of their properties.
(viii) Neither USF&G nor Platinum US is in violation of its articles
of incorporation or by laws or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
agreement or instrument known to such counsel to which it is a party or by
which it or any of its properties is or may be bound, except where any such
default does not have or would not reasonably be expected to have a
material adverse effect on Platinum and its subsidiaries taken as a whole.
(ix) Based on such counsel's examination of the Order of the
Maryland Insurance Administration, dated October __, 2002, approving or
acknowledging that no regulatory approval is required for, INTER ALIA, the
transactions contemplated by the Filed Agreements to which Platinum US is a
party, no statutory or regulatory consent, authorization, approval or
filing is required to be obtained or made under the laws of Maryland in
connection with such transactions or the transactions contemplated by the
Underwriting Agreement or the Formation and Separation Agreement other than
such as have been obtained or made, and other than such as may be required
under Maryland securities or Blue Sky laws.
(x) Each of USF&G and Platinum US is, and, in the case of
Platinum US, will continue to be immediately following the First Time of
Delivery, a duly licensed insurance company under the insurance laws of the
State of Maryland.
(xi) To such counsel's knowledge, Platinum US has not received any
notification from any insurance authority, commission or other insurance
regulatory body to the effect that Platinum US is not in compliance with
any applicable insurance laws.
(xii) The statements made under the captions "Business--Our
Business--Regulation--U.S. Regulation--U.S. Insurance Holding Company
Regulation of Platinum Holdings, Platinum, Ireland and Platinum Finance"
and "- State Insurance Regulation of Platinum US" in the Prospectus insofar
as they relate to summaries of provisions of the insurance laws of the
State of Maryland therein described are accurate, fair and complete.
Such counsel may state that his opinion is solely for the benefit of the
several Underwriters and may not be relied upon by any other person.
(i) Michael Lombardozzi, General Counsel of the Company, shall have
furnished to you his written opinion (a draft of such opinion is attached as
Annex II(h) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
40
To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of
which any property of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a material adverse effect on
the consolidated financial position, shareholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of such
counsel's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(j) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, KPMG, LLP shall have
furnished to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set forth in
Annex I hereto (the executed copy of the letter delivered prior to the execution
of this Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective amendment to
the Registration Statement and as of each Time of Delivery is attached as Annex
I(b) hereto);
(k) (i)(A) Neither the Company nor any of its subsidiaries shall have
sustained since April 24, 2002, any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (B) since April 24, 2002, there shall not have been any change in the
capital stock, capital or surplus or long-term debt of the Company or any
of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of the
Company and its subsidiaries, taken as a whole, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (A) or (B), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Units being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(ii)(A) Neither St. Paul nor any of its subsidiaries in respect of the
Business shall have sustained since December 31, 2001, any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus, and (B) since December 31, 2001, there
shall not have been any change, or any development involving a prospective
change, in or affecting the general affairs, management or results of
operations of St. Paul and its subsidiaries in respect of the Business,
otherwise than as set forth or contemplated in the Prospectus, the effect
of which, in any such case described in clause (A) or (B), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Units being delivered at such Time of Delivery on the terms
and in the manner contemplated in the Prospectus;
41
(l) On or after the date hereof (i) no downgrading shall have occurred in
the rating accorded the Company's debt securities or the Company's financial
strength or claims paying ability by any "nationally recognized statistical
rating organization", as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly
announced that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities or the
Company's financial strength or claims paying ability;
(m) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the Exchange; (ii) a suspension or material limitation in trading
in the Company's securities on the Exchange; (iii) a general moratorium on
commercial banking activities in New York or London declared by the relevant
authorities or a material disruption in commercial banking or securities
settlement or clearance services in the United States or the United Kingdom;
(iv) a change or development involving a prospective change in Bermuda taxation
affecting the Company or the Shares or the transfer thereof; (v) the outbreak or
escalation of hostilities involving the United States, the United Kingdom or
Bermuda or the declaration by the United States, the United Kingdom or Bermuda
of a national emergency or war or (vi) the occurrence of any other calamity or
crisis or any change in financial, political or economic conditions in the
United States, the United Kingdom, Bermuda or elsewhere, if the effect of any
such event specified in clause (v) or (vi) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Units being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(n) The Units to be sold at such Time of Delivery and the Issuable Common
Shares related thereto shall have been duly listed, subject to notice of
issuance, on the Exchange;
(o) The Company has obtained and delivered to the Underwriters executed
copies of the agreements required by Section 9(o) of the Common Shares
Underwriting Agreement;
(p) The Company and Platinum Finance shall have complied with the
provisions of Section 6(c) hereof with respect to the furnishing of prospectuses
on the New York Business Day next succeeding the date of this Agreement;
(q) Each of the Company and Platinum Finance shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of officers
of the Company and Platinum Finance, respectively, reasonably satisfactory to
you as to the accuracy of the representations and warranties of the Company and
Platinum Finance, as applicable, herein at and as of such Time of Delivery, as
to the performance by the Company and Platinum Finance of all of their
respective obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (k)(i) of this
Section 9 and as to such other matters as you may reasonably request;
(r) St. Paul shall have furnished or caused to be furnished to you at such
Time of Delivery certificates of officers of St. Paul reasonably satisfactory to
you as to the accuracy of the representations and warranties of St. Paul herein
at and as of such Time of Delivery, as to the performance by St. Paul of all of
its obligations hereunder to be performed at or prior to such Time of Delivery,
as to the matters set forth in subsection (k)(ii) of this Section 9 and as to
such other matters as you may reasonably request;
42
(s) All conditions to the consummation of the Transaction, as set forth in
the Filed Agreements, shall have been satisfied or waived prior to the First
Time of Delivery; and
(t) The closing of the offering of the Shares under the Common Shares
Underwriting Agreement and the sale of the RenRe Private Offering Securities
pursuant to the RenRe Investment Agreement shall have occurred simultaneously
with the closing of the offering of Units hereunder.
10. (a) The Company and Platinum Finance, jointly and severally, will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; PROVIDED, HOWEVER, that neither
the Company nor Platinum Finance shall be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company or Platinum Finance by any
Underwriter through the Lead Underwriters expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company,
Platinum Finance and St. Paul against any losses, claims, damages or liabilities
to which the Company, Platinum Finance or St. Paul, as the case may be, may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company and Platinum Finance by such Underwriter
through the Lead Underwriters expressly for use therein; and will reimburse the
Company, Platinum Finance and St. Paul for any legal or other expenses
reasonably incurred by the Company, Platinum Finance or St. Paul, as the case
may be, in connection with investigating or defending any such action or claim
as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party and St. Paul in
writing of the commencement thereof; but the omission so to notify the
indemnifying party and St. Paul shall not relieve the indemnifying party from
any liability which it may have to any indemnified party otherwise than under
such subsection. In case any such action shall be brought against any
43
indemnified party and it shall notify the indemnifying party and St. Paul of the
commencement thereof, the indemnifying party (and, if it is reasonably likely
that St. Paul will be liable to make any payment pursuant to Section 10(e)
hereof, St. Paul at its own expense) shall be entitled to participate therein
and, to the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party (and, if the indemnifying
party is the Company, St. Paul) shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 10 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and Platinum Finance on the one hand and the Underwriters on the
other from the offering of the Units. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and Platinum
Finance (which for purposes of this subsection (d) shall include the fault of
St. Paul) on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and
Platinum Finance on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and Platinum Finance bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or Platinum Finance (which for purposes of this subsection (d) shall be
deemed to include, without limitation, the information described in Schedule III
hereto) on the one hand or the Underwriters on the other and the Company's and
Platinum Finance's (which for purposes of this subsection (d) shall include St.
Paul's), on the one hand, and the Underwriter's, on the other, relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and Platinum Finance and the Underwriters
agree that it would not be just
44
and equitable if contributions pursuant to this subsection (d) were determined
by PRO RATA allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Units underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) In the event that the Company and Platinum Finance fail to fulfill
when due any of their payment obligations under subsections (a) or (d) of this
Section 10 because they have not obtained the necessary funds from internal
sources (due to insurance regulatory or other legal restrictions) or external
sources, St. Paul agrees to make all such payments to the same extent as the
Company or Platinum Finance is obligated to do so; provided, however, that
notwithstanding anything to the contrary in this Section 10, (i) St. Paul's
aggregate liability to the Underwriters under this subsection (e) and to the
Common Shares Underwriters under Section 10(e) of the Common Shares Underwriting
Agreement, taken together, shall not exceed the excess of (I) $400 million over
(II) the sum of (x) any indemnification, contribution or reimbursement of
expense payments paid or payable by St. Paul to the Company pursuant to Section
10.02 of the Formation and Separation Agreement (including with respect to any
"Damages" owed by the Company to RenRe pursuant to Section 10.13 of the RenRe
Investment Agreement), (y) any amount paid or payable by St. Paul to RenRe in
connection with the RenRe Investment and/or (z) any damages or other amounts
paid or payable by St. Paul to investors purchasing Units pursuant to the
Prospectus, and any amendment or supplement thereto, or Common Shares pursuant
to the Common Shares Prospectus, and any amendment or supplement thereto, and
(ii) St. Paul's obligation to make a payment under this subsection (e) shall
arise only in the event, and to the extent, that the related obligation of the
Company or Platinum Finance to make a payment to the Underwriters under
subsections (a) and (d) of this Section 10 relates to the information described
in Schedule III hereto and Schedule III to the Common Shares Underwriting
Agreement. The Company, Platinum Finance, St. Paul and the Underwriters
understand that the identification of items in Schedule III hereto is made
solely for the purposes of defining St. Paul's obligations to the Underwriters
pursuant to this subsection (e) and for no other purpose. St. Paul must advise
the Lead Underwriters in writing 60 days prior to paying or agreeing to pay an
amount pursuant to clauses (i)(II)(x) or (y) of the second preceding sentence
that would reduce St. Paul's remaining aggregate potential liability to the
Underwriters pursuant to clause (ii) to below $100 million. The Company, St.
Paul and the Underwriters further understand that in the event the Company is
obligated under Section 10.02 of the Formation and Separation Agreement to
indemnify RenRe with respect to "Damages" pursuant to Section 10.13 of the RenRe
Investment Agreement arising out of "St. Paul Information" or "Shared
Information" (each as defined in the Formation and Separation Agreement), (i)
the payment by St. Paul to the Company of any amounts so owing shall be
segregated from other
45
indemnification payments (if any) made by St. Paul to the Company under Section
10.02 of the Formation and Separation Agreement so that they may be available to
RenRe (such segregated amounts not to exceed $40 million), and (ii) no payments
shall be made by St. Paul to any "Company Registration Indemnitees" (as defined
in the Formation and Separation Agreement) or others that in the aggregate
exceed $360 million prior to the satisfaction by St. Paul of any obligation to
indemnify the Company in order to satisfy indemnification of any "Damages" prior
to the termination (pursuant to Section 10.06 of the Formation and Separation
Agreement) of St. Paul's obligation under Section 10.02 of the Formation and
Separation Agreement.
(f) The obligations of the Company, Platinum Finance and St. Paul under
this Section 10 shall be in addition to any liability which the Company,
Platinum Finance and St. Paul may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 10 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company, Platinum Finance and
St. Paul (including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company) and to each
person, if any, who controls the Company within the meaning of the Act.
11. (a) If any Underwriter shall default in its obligation to purchase the
Units which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Units on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Units,
then the Company and Platinum Finance shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
reasonably satisfactory to you to purchase such Units on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
Platinum Finance that you have so arranged for the purchase of such Units, or
the Company and Platinum Finance notify you that they have so arranged for the
purchase of such Units, you or the Company and Platinum Finance shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company and Platinum Finance agree to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Units.
(b) If, after giving effect to any arrangements for the purchase of the
Units of a defaulting Underwriter or Underwriters by you and the Company and
Platinum Finance as provided in subsection (a) above, the aggregate number of
such Units which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the Units to be purchased at such Time of Delivery, then
the Company and Platinum Finance shall have the right to require each
non-defaulting Underwriter to purchase the number of shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Units which such Underwriter agreed to purchase
hereunder) of the Units of such defaulting Underwriter or Underwriters for which
such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
46
(c) If, after giving effect to any arrangements for the purchase of the
Units of a defaulting Underwriter or Underwriters by you and the Company and
Platinum Finance as provided in subsection (a) above, the aggregate number of
such Units which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Units to be purchased at such Time of Delivery, or if the
Company and Platinum Finance shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase Units of
a defaulting Underwriter or Underwriters, then this Agreement (or, with respect
to the Second Time of Delivery, the obligations of the Underwriters to purchase
and of the Company and Platinum Finance to sell the Optional Units) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company and Platinum Finance, except for the expenses to be
borne by the Company and Platinum Finance and the Underwriters as provided in
Section 8 hereof and the indemnity and contribution agreements in Section 10
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
12. The respective indemnities, agreements, representations, warranties
and other statements of the Company, Platinum Finance, St. Paul and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter, or any officer or director or
controlling person of any Underwriter, the Company, Platinum Finance or St.
Paul, or any officer or director or controlling person of the Company, Platinum
Finance or St. Paul, and shall survive delivery of and payment for the Units.
13. If this Agreement shall be terminated pursuant to Section 11 hereof,
neither the Company nor Platinum Finance shall then be under any liability to
any Underwriter except as provided in Sections 8 and 10 hereof; but, if for any
other reason, any Units are not delivered by or on behalf of the Company and
Platinum Finance as provided herein, the Company and Platinum Finance will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Units not so delivered, but neither the Company nor Platinum
Finance shall then be under any further liability to any Underwriter except as
provided in Sections 8 and 10 hereof.
14. In respect of any judgment or order given or made for any amount due
hereunder that is expressed and paid in currency (the "judgment currency") other
than United States dollars, the party against whom such judgment or order has
been given or made will indemnify each party in whose favor such judgment or
order has been given or made (the "Indemnitee") against any loss incurred by the
Indemnitee as a result of any variation as between (i) the rate of exchange at
which the United States dollar amount is converted into the judgment currency
for the purpose of such judgment or order and (ii) the rate of exchange at which
the Indemnitee is able to purchase United States dollars with the amount of the
judgment currency actually received by such Indemnitee. The foregoing indemnity
shall constitute a separate and independent obligation of the Company and the
Underwriters and shall continue in full force and effect notwithstanding any
such judgment or order as aforesaid. The term "rate of exchange" shall include
any premiums and costs of exchange payable in connection with the purchase of or
conversion into United States dollars.
15. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by the Lead Underwriters on behalf of you.
47
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of (i) Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department, (ii) Merrill Lynch, Pierce, Fenner & Smith Incorporated, North
Tower, World Financial Center, New York, New York 10281, Attention: _________,
and (iii) Salomon Smith Barney Inc., 388 Greenwich Street, New York, New York
10013, Attention:________; and if to the Company shall be delivered or sent by
mail to the address of the Company set forth in the Registration Statement,
Attention: Secretary; and if to Platinum Finance shall be delivered or sent by
mail to the address of Platinum Finance set forth in the Registration Statement;
and if to St. Paul shall be delivered to The St. Paul Companies, Inc., 385
Washington Street, St. Paul, Minnesota 55102, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 10(c) hereof
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company and Platinum Finance by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
16. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company, Platinum Finance and St. Paul and, to the
extent provided in Sections 10 and 12 hereof, the officers and directors of the
Company, Platinum Finance and St. Paul and each person who controls the Company,
Platinum Finance, St. Paul or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Units from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
17. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
18. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES
OF SUCH STATE.
19. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
20. The Company is authorized, subject to applicable law, to disclose any
and all aspects of this potential transaction that are necessary to support any
U.S. federal income tax benefits expected to be claimed with respect to such
transaction and all materials of any kind (including tax opinions and other tax
analyses) related to those benefits, without the Underwriters imposing any
limitation of any kind.
[SIGNATURE PAGE FOLLOWS]
48
If the foregoing is in accordance with your understanding, please sign and
return to us eight counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the
Company, Platinum Finance and St. Paul. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
PLATINUM UNDERWRITERS HOLDINGS, LTD.
By:
--------------------------------------
Name:
Title:
PLATINUM UNDERWRITERS FINANCE, INC.
By:
--------------------------------------
Name:
Title:
THE ST. PAUL COMPANIES, INC.
By:
--------------------------------------
Name:
Title:
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON SMITH BARNEY INC.
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON CORPORATION
J.P. MORGAN SECURITIES INC.
BY:
-------------------------------------
(Goldman, Sachs & Co.)
BY:
-------------------------------------
(Merrill Lynch, Pierce, Fenner &
Smith Incorporated)
BY:
-------------------------------------
(Salomon Smith Barney Inc.)
On behalf of each of the Underwriters
2
SCHEDULE I
NUMBER OF OPTIONAL
UNITS TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM UNITS MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- ----------------- ------------------
Goldman, Sachs & Co.................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
Salomon Smith Barney Inc............................................
Banc of America Securities LLC......................................
Credit Suisse First Boston Corporation..............................
J.P. Morgan Securities Inc..........................................
1
SCHEDULE II
FILED AGREEMENTS TO WHICH PLATINUM UNDERWRITERS HOLDINGS, LTD., A BERMUDA COMPANY (THE "COMPANY"), IS A GOVERNING
PARTY LAW
- ----------------------------------------------------------------------------------------------------------------------
- Formation and Separation Agreement, dated as of the date hereof (the "FORMATION AND SEPARATION New York
AGREEMENT"), between the Company and St. Paul (as defined herein).
- Master Services Agreement, dated as of the First Time of Delivery (the "MASTER SERVICES New York
AGREEMENT"), between the Company and St. Paul.
- Transitional Trademark License Agreement, dated as of the First Time of Delivery (the New York
"TRADEMARK LICENSE AGREEMENT"), between the Company and St. Paul.
- Registration Rights Agreement, dated as of the First Time of Delivery (the "REGISTRATION RIGHTS New York
AGREEMENT"), between the Company and St. Paul.
- Option Agreement, dated as of the First Time of Delivery (the "OPTION AGREEMENT"), between the New York
Company and St. Paul.
- Capital Support Agreement, dated as of __________, 2002 (the "CAPITAL SUPPORT AGREEMENT"), New York
between the Company and Platinum US (as defined herein).
- Capital Support Agreement, dated as of __________, 2002 (the "UK CAPITAL SUPPORT AGREEMENT"), England
between the Company and Platinum UK (as defined herein).
- 364-Day Credit Agreement, dated as of June 21, 2002, among the Company, the banks, financial New York
institutions and other institutional lenders listed on the signature pages thereof, JPMorgan
Chase Bank and Bank Of America, N.A., as syndication agents, Salomon Smith Barney Inc., as lead
arranger, and Citibank, N.A., as agent for the lenders.
- Purchase Contract Agreement, dated as of ____________ (the "PURCHASE CONTRACT AGREEMENT"), New York
between the Company and _____________, as Purchase Contract Agent.
- Indenture, dated as of ____________, among the Company (the "BASE INDENTURE"), Platinum Finance New York
(as defined herein) and JPMorgan Chase Bank, as Trustee.
- First Supplemental Indenture, dated as of ____________ (the "SUPPLEMENTAL INDENTURE"), among New York
the Company, Platinum Finance and JPMorgan Chase Bank, as Trustee.
- Pledge Agreement, dated as of _______________ (the "PLEDGE AGREEMENT"), among the Company, New York
_________________, as Collateral Agent, Custodial Agent and Securities Intermediary, and
_________________, as Purchase Contract Agent.
- Investment Agreement, dated as of __________ (the "RENRE INVESTMENT AGREEMENT"), among the New York
Company, St. Paul and RenRe (as defined herein).
II-1
- Transfer Restrictions and Registration Rights Agreement, dated as of __________ (the "TRANSFER New York
RESTRICTIONS AND REGISTRATION RIGHTS AGREEMENT"), between the Company and RenRe.
- Option Agreement, dated as of ___________ (the "RENRE OPTION AGREEMENT"), between the Company New York
and RenRe.
- Services and Capacity Reservation Agreement, dated as of __________ (the "SERVICES AND CAPACITY [New York]
RESERVATION AGREEMENT"), between the Company and RenRe.
FILED AGREEMENTS TO WHICH PLATINUM UNDERWRITERS FINANCE, INC., A DELAWARE CORPORATION ("PLATINUM GOVERNING
FINANCE"), IS A PARTY LAW
- ----------------------------------------------------------------------------------------------------------------------
- Base Indenture New York
- Supplemental Indenture New York
FILED AGREEMENTS TO WHICH PLATINUM UNDERWRITERS REINSURANCE INC., A MARYLAND DOMICILED INSURANCE COMPANY GOVERNING
("PLATINUM US"), IS A PARTY LAW
- ----------------------------------------------------------------------------------------------------------------------------
- Employee Benefits and Compensation Matters Agreement, dated as of the First Time of Delivery New York
(the "Employee Matters Agreement"), between St. Paul and Platinum US.
- Run-Off Services Agreement, dated as of the First Time of Delivery (the "US RUN-OFF SERVICES New York
AGREEMENT"), between Platinum US and Fire & Marine (as defined herein).
- Underwriting Management Agreement, dated as of the First Time of Delivery (the "US UNDERWRITING New York
AGREEMENT"), between Platinum US and Fire & Marine.
- Capital Support Agreement New York
- Assignment and Assumption Agreement, dated as of the First Time of Delivery (the "FLORIDA LEASE [not specified]
ASSIGNMENT AGREEMENT"), between Metropolitan Life Insurance Company, Platinum US and St. Paul
Re, Inc. (as defined herein).
- Assignment and Assumption Agreement, dated as of the First Time of Delivery (the "ILLINOIS [not specified]
LEASE ASSIGNMENT AGREEMENT"), between WHCHC Real Estate Limited Partnership, St. Paul Re, Inc.
and Platinum US.
- Sub Lease Agreement, dated as of the First Time of Delivery (the "SUB LEASE AGREEMENT"), New York
between Platinum US and St. Paul Re, Inc.
- 100% Quota Share Retrocession Agreement (Traditional), dated as of the First Time of Delivery Minnesota
(the "US QUOTA SHARE TRADITIONAL"), between Platinum US and Fire & Marine.
- 100% Quota Share Retrocession Agreement (Non-Traditional - D-1), dated as of the First Time of Vermont
Delivery (the "US QUOTA SHARE NON-TRADITIONAL D-1"), between Platinum US and Mountain Ridge (as
defined herein).
- 100% Quota Share Retrocession Agreement (Non-Traditional - A), dated as of the First Time of Minnesota
Delivery (the "US QUOTA SHARE NON-TRADITIONAL A"), between Platinum US and Fire & Marine.
- 100% Quota Share Retrocession Agreement (Non-Traditional - B-1), dated as of the First Time of Minnesota
Delivery (the "US QUOTA SHARE NON-TRADITIONAL B-1"), between Platinum US and Fire & Marine.
II-2
- 100% Quota Share Retrocession Agreement (Non-Traditional - B-2), dated as of the First Time of Minnesota
Delivery (the "US QUOTA SHARE NON-TRADITIONAL B-2"), between Platinum US and Fire & Marine.
- 100% Quota Share Retrocession Agreement (Non-Traditional - C), dated as of the First Time of Minnesota
Delivery (the "US QUOTA SHARE NON-TRADITIONAL C"), between Platinum US and Fire & Marine.
- 100% Quota Share Retrocession Agreement (Non-Traditional - D-2), dated as of the First Time of Vermont
Delivery (the "US QUOTA SHARE NON-TRADITIONAL D-2"), between Platinum US and Mountain Ridge.
- 100% Quota Share Retrocession Agreement (Non-Traditional - D Stop Loss), dated as of the First Vermont
Time of Delivery (the "US QUOTA SHARE NON-TRADITIONAL D STOP LOSS"), between Platinum US and
Mountain Ridge.
- 100% Quota Share Retrocession Agreement (Non-Traditional - D Spread Loss), dated as of the Minnesota
First Time of Delivery (the "US QUOTA SHARE NON-TRADITIONAL D SPREAD LOSS"), between Platinum
US and Fire & Marine.
- 100% Quota Share Retrocession Agreement (Non-Traditional - D-3), dated as of the First Time of Minnesota
Delivery (the "US QUOTA SHARE NON-TRADITIONAL D-3"), between Platinum US and Fire & Marine.
- 100% Quota Share Retrocession Agreement (Non-Traditional - D-4), dated as of the First Time of Minnesota
Delivery (the "US QUOTA SHARE NON-TRADITIONAL D-4"), between Platinum US and Fire & Marine.
- 100% Quota Share Retrocession Agreement (Non-Traditional - E), dated as of the First Time of Minnesota
Delivery (the "US QUOTA SHARE NON-TRADITIONAL E"), between Platinum US and Fire & Marine.
- 100% Quota Share Retrocession Agreement (Traditional), dated as of the First Time of Delivery England
(the "UK QUOTA SHARE TRADITIONAL"), between Platinum US and St. Paul Re UK (as defined herein).
- 100% Quota Share Retrocession Agreement (Non-Traditional - A), dated as of the First Time of England
Delivery (the "UK QUOTA SHARE NON-TRADITIONAL A"), between Platinum US and St. Paul Re UK.
- 100% Quota Share Retrocession Agreement (Non-Traditional - B-1), dated as of the First Time of England
Delivery (the "UK QUOTA SHARE NON-TRADITIONAL B-1"), between Platinum US and St. Paul Re UK.
- Trust Agreement, dated as of the First Time of Delivery (the "FIRE AND MARINE TRUST Maryland
AGREEMENT"), among Platinum US, Fire and Marine and [Name of Trustee Bank].
- Trust Agreement, dated as of the First Time of Delivery (the "MOUNTAIN RIDGE TRUST AGREEMENT"), Maryland
among Platinum US, Mountain Ridge and [Name of Trustee Bank].
- Trust Agreement, dated as of the First Time of Delivery (the "ST. PAUL RE UK TRUST AGREEMENT"), Maryland
among Platinum US, St. Paul Re UK and [Name of Trustee Bank].
II-3
FILED AGREEMENTS TO WHICH PLATINUM RE (UK) LIMITED, A LIMITED LIABILITY COMPANY INCORPORATED UNDER THE GOVERNING
LAWS OF ENGLAND ("PLATINUM UK"), IS A PARTY LAW
- ----------------------------------------------------------------------------------------------------------------------
- U.K. Master Services Agreement, dated as of the First Time of Delivery (the "UK MASTER SERVICES England
AGREEMENT"), between St. Paul Re UK and Platinum UK.
- U.K. Run-off Services Agreement, dated as of the First Time of Delivery (the "UK RUN-OFF England
SERVICES AGREEMENT"), between St. Paul Re UK and Platinum UK.
- U.K. Underwriting Agency and Underwriting Management Agreement, dated as of the First Time of England
Delivery (the "UK UNDERWRITING AGREEMENT"), between Platinum UK and St. Paul Re UK.
- U.K. Business Transfer Agreement, dated as of the First Time of Delivery (the "UK BUSINESS England
TRANSFER AGREEMENT"), between Platinum UK and St. Paul Re UK and St. Paul Management Limited.
- U.K. Capital Support Agreement England
- [UK Lease]
FILED AGREEMENTS TO WHICH THE ST. PAUL COMPANIES INC., A MINNESOTA CORPORATION GOVERNING
("ST. PAUL"), IS A PARTY LAW
- ------------------------------------------------------------------------------------------------------------------------
- Formation and Separation Agreement New York
- Employee Matters Agreement New York
- Master Services Agreement New York
- Trademark License Agreement New York
- Registration Rights Agreement New York
- Option Agreement New York
- RenRe Investment Agreement New York
FILED AGREEMENTS TO WHICH ST. PAUL FIRE AND MARINE INSURANCE COMPANY, A MINNESOTA DOMICILED INSURANCE GOVERNING
COMPANY ("FIRE & MARINE"), IS A PARTY LAW
- ----------------------------------------------------------------------------------------------------------------------
- US Run-Off Services Agreement New York
- US Underwriting Agreement New York
- US Quota Share Traditional Minnesota
- US Quota Share Non-Traditional A Minnesota
- US Quota Share Non-Traditional B-1 Minnesota
- US Quota Share Non-Traditional B-2 Minnesota
- US Quota Share Non-Traditional C Minnesota
- US Quota Share Non-Traditional D Spread Loss Minnesota
- US Quota Share Non-Traditional D-3 Minnesota
- US Quota Share Non-Traditional D-4 Minnesota
- US Quota Share Non-Traditional E Minnesota
- Fire and Marine Trust Agreement Maryland
II-4
FILED AGREEMENTS TO WHICH MOUNTAIN RIDGE INSURANCE COMPANY, A VERMONT DOMICILED INSURANCE COMPANY GOVERNING
("MOUNTAIN RIDGE"), IS A PARTY LAW
- ----------------------------------------------------------------------------------------------------------------------
- US Quota Share Non-Traditional D-1 Vermont
- US Quota Share Non-Traditional D-2 Vermont
- US Quota Share Non-Traditional D Stop Loss Vermont
- Mountain Ridge Trust Agreement Maryland
FILED AGREEMENTS TO WHICH ST. PAUL REINSURANCE COMPANY LIMITED, A LIMITED LIABILITY COMPANY INCORPORATED GOVERNING
UNDER THE LAWS OF ENGLAND ("ST. PAUL RE UK"), IS A PARTY LAW
- ----------------------------------------------------------------------------------------------------------------------
- UK Quota Share Traditional England
- UK Quota Share Non-Traditional A England
- UK Quota Share Non-Traditional B-1 England
- UK Master Services Agreement England
- UK Run-Off Services Agreement England
- UK Underwriting Agreement England
- UK Business Transfer Agreement England
- St. Paul Re UK Trust Agreement Maryland
- Inter-company Asset Transfer Agreement, dated as of the First Time of Delivery, between St. England
Paul Re UK and SPML (as defined herein) (the "UK Inter-Company Asset Transfer Agreement").
- Letter agreement, dated as of the First Time of Delivery, between St. Paul Re UK and SPML England
regarding services to be provided under the UK Master Services Agreement ("UK Letter
Agreement").
- [UK Lease]
FILED AGREEMENTS TO WHICH ST. PAUL RE, INC., A NEW YORK CORPORATION, IS A PARTY GOVERNING
LAW
- ------------------------------------------------------------------------------------------------------------------------
- Florida Lease Assignment Agreement [not specified]
- Illinois Lease Assignment Agreement [not specified]
- Sub Lease Agreement New York
FILED AGREEMENTS TO WHICH ST. PAUL MANAGEMENT LIMITED, A LIMITED LIABILITY COMPANY INCORPORATED UNDER GOVERNING
THE LAWS OF ENGLAND ("SPML"), IS A PARTY LAW
- ----------------------------------------------------------------------------------------------------------------------
- UK Inter-company Asset Transfer Agreement England
- UK Letter Agreement England
FILED AGREEMENTS TO WHICH RENAISSANCE RE HOLDINGS, LTD., A BERMUDA COMPANY ("RENRE"), IS A PARTY GOVERNING
LAW
- ------------------------------------------------------------------------------------------------------------------------
- RenRe Investment Agreement New York
- Transfer Restrictions and Registration Rights Agreement New York
- RenRe Option Agreement New York
- Services and Capacity Reservation Agreement [New York]
II-5
SCHEDULE III
1. In any Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, the following information:
- All information (including both text and tables) in the following
sections: "Pro Forma Financial Information", "Management's Discussion
and Analysis of Pro Forma Financial Condition and Underwriting
Results", "St. Paul Investment and Principal Shareholders" and "The
Predecessor Business";
- All information (including both text and tables) in the "Prospectus
Summary" section under the captions "--Background and the Transferred
Business", "--St. Paul's Share Ownership", "--Selected Pro Forma
Consolidated Financial Information and Operating Data";
- The information set forth in each table in the "Business" section
under the captions "Our Business--Our Lines of Business" and "Our
Business--Marketing";
- All text of the second paragraph in the "Business" section under the
caption "Our Business--Marketing";
- All information (including both text and tables) on pages [ ];
- The following phrases and sentences:
- "At January 1, 2001, St. Paul Re had approximately 398
employees" and "from a total of 398 employees who were
employed by St. Paul Re as of January 1, 2001";
- "The number of underwriting offices was reduced by St. Paul
Re from ten at January 1, 2001 to five as of March 31, 2002";
- "With respect to January 2002 renewals, St. Paul Re
experienced substantial rate increases, generally ranging
from 20% to 50% depending on the line of business";
- "Commencing January 2002, St. Paul Re has maintained normal
maximum program limits of $5 million on risk programs, $6
million on casualty clash programs and $20 million on
property catastrophe programs"; and
- "St. Paul Re has conducted authorized reinsurance activities
in the U.S. and London for many years, and has been well
established as a lead underwriter in excess casualty,
property catastrophe and certain other classes of
reinsurance".
III-1
2. In the Registration Statement, or any amendment or supplement thereto, the
following information:
- In Part II, all information (including both text and tables) set forth
under the captions "Financial Statement Schedules of
Predecessor--Schedule III--Supplementary Insurance Information",
"Financial Statement Schedules of Predecessor--Schedule
IV--Reinsurance", and "Financial Statement Schedules of
Predecessor--Schedule V--Valuation and Qualifying Accounts".
III-2
ANNEX I
Pursuant to Section 9(i) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company and Predecessor (as such term is defined in the Prospectus) for the
periods specified in such letter, as indicated in their reports thereon,
copies of which have been separately furnished to the representatives of
the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the [unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows] included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives and on the basis of specified procedures
including inquiries of officials of the Company and St. Paul who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that cause them to
believe that the unaudited condensed consolidated financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to
[the consolidated results of operations and financial position] of
Predecessor for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such five
fiscal years which were included or incorporated by reference in the St.
Paul's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
A-1
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of St. Paul, the Company and their respective
subsidiaries, inspection of the minute books of St. Paul, the Company and
their respective subsidiaries since the date of the latest audited
financial statements included in the Prospectus, inquiries of officials of
St. Paul, the Company and their respective subsidiaries responsible for
financial and accounting matters and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention that
caused them to believe that:
(A) (i) the [unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows] included in the Prospectus do not comply as to form in
all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations, or (ii) any material modifications should be made
to the [unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows] included in the Prospectus for them to be in conformity
with generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included
in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation rights,
upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or the capital or surplus, or any increase in the
consolidated long-term debt of the Company and its subsidiaries,
or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in
the latest balance sheet included in
A-2
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or
per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other
period of corresponding length specified by the Representatives,
except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of St. Paul, the Company and their respective
subsidiaries, which appear in the Prospectus, or in Part II of, or in
exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of St. Paul, the Company
and their respective subsidiaries and have found them to be in agreement.
A-3
EX-4.2
4
a2090035zex-4_2.txt
EXHIBIT 4.2
EXHIBIT 4.2
================================================================================
PLATINUM UNDERWRITERS FINANCE, INC.
COMPANY
and
PLATINUM UNDERWRITERS HOLDINGS, LTD.
GUARANTOR
to
JPMORGAN CHASE BANK
TRUSTEE
----------
INDENTURE
Dated as of October 10, 2002
GUARANTEED DEBT SECURITIES
----------
================================================================================
Platinum Underwriters Finance, Inc.
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of October 10, 2002
Trust Indenture Act
Section Indenture Section
Section 310(a)(1) ..........................................609
(a)(2) ..........................................609
(a)(3) ..........................................Not Applicable
(a)(4) ..........................................Not Applicable
(b) ..........................................608
610
Section 311(a) ..........................................613
(b) ..........................................613
Section 312(a) ..........................................701
702(a)
(b) ..........................................702(b)
(c) ..........................................702(a)
Section 313(a) ..........................................703(a)
(b) ..........................................703(a)
(c) ..........................................703(a)
(d) ..........................................703(b)
Section 314(a) ..........................................704
(b) ..........................................Not Applicable
(c)(1) ..........................................102
(c)(2) ..........................................102
(c)(3) ..........................................Not Applicable
(d) ..........................................Not Applicable
(e) ..........................................102
Section 315(a) ..........................................601
(b) ..........................................602
(c) ..........................................601
(d) ..........................................601
(d)(1) ..........................................601
(d)(2) ..........................................601
(d)(3) ..........................................601
(e) ..........................................514
Section 316(a) ..........................................101
(a)(1)(A) ..........................................502
512
(a)(1)(B) ..........................................513
(a)(2) ..........................................Not Applicable
(b) ..........................................508
Section 317(a)(1) ..........................................503
(a)(2) ..........................................504
(b) ..........................................1003
Section 318(a) ..........................................107
- ----------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
TABLE OF CONTENTS
Page
----
PARTIES........................................................................1
RECITALS OF THE COMPANY........................................................1
RECITALS OF THE GUARANTOR......................................................1
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 101. Definitions......................................................1
Section 102. Compliance Certificates and Opinions.............................6
Section 103. Form of Documents Delivered to Trustee...........................7
Section 104. Acts of Holders; Record Dates....................................7
Section 105. Notices, Etc., to Trustee, Company and Guarantor.................9
Section 106. Notice to Holders; Waiver........................................9
Section 107. Conflict with Trust Indenture Act...............................10
Section 108. Effect of Headings and Table of Contents........................10
Section 109. Successors and Assigns..........................................10
Section 110. Separability Clause.............................................10
Section 111. Benefits of Indenture...........................................10
Section 112. Governing Law; Jurisdiction.....................................10
Section 113. Legal Holidays..................................................11
ARTICLE TWO
Security Forms
Section 201. Forms Generally.................................................11
Section 202. Form of Face of Security........................................12
Section 203. Form of Reverse of Security.....................................14
Section 204. Form of Guarantee...............................................17
Section 205. Form of Legend for Global Securities............................19
Section 206. Form of Trustee's Certificate of Authentication.................20
ARTICLE THREE
The Securities
Section 301. Amount Unlimited; Issuable in Series............................20
Section 302. Denominations...................................................23
Section 303. Execution, Authentication, Delivery and Dating..................23
Section 304. Temporary Securities............................................24
Section 305. Registration, Registration of Transfer and Exchange.............25
- ----------
NOTE: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-i-
Section 306. Mutilated, Destroyed, Lost and Stolen Securities................26
Section 307. Payment of Interest; Interest Rights Preserved..................27
Section 308. Persons Deemed Owners...........................................28
Section 309. Cancellation....................................................28
Section 310. Computation of Interest.........................................29
Section 311. CUSIP Numbers...................................................29
ARTICLE FOUR
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture.........................29
Section 402. Application of Trust Money......................................30
ARTICLE FIVE
Remedies
Section 501. Events of Default...............................................30
Section 502. Acceleration of Maturity; Rescission and Annulment..............33
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.........................................................34
Section 504. Trustee May File Proofs of Claim................................35
Section 505. Trustee May Enforce Claims Without Possession of Securities.....35
Section 506. Application of Money Collected..................................36
Section 507. Limitation on Suits.............................................36
Section 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest....................................................37
Section 509. Restoration of Rights and Remedies..............................37
Section 510. Rights and Remedies Cumulative..................................37
Section 511. Delay or Omission Not Waiver....................................37
Section 512. Control by Holders..............................................37
Section 513. Waiver of Past Defaults.........................................38
Section 514. Undertaking for Costs...........................................39
Section 515. Waiver of Stay or Extension Laws................................39
ARTICLE SIX
The Trustee
Section 601. Certain Duties and Responsibilities.............................39
Section 602. Notice of Defaults..............................................40
Section 603. Certain Rights of Trustee.......................................40
Section 604. Not Responsible for Recitals or Issuance of Securities..........41
Section 605. May Hold Securities.............................................41
Section 606. Money Held in Trust.............................................41
Section 607. Compensation and Reimbursement..................................42
Section 608. Disqualification; Conflicting Interests.........................42
Section 609. Corporate Trustee Required; Eligibility.........................42
Section 610. Resignation and Removal; Appointment of Successor...............43
Section 611. Acceptance of Appointment by Successor..........................44
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Section 612. Merger, Conversion, Consolidation or Succession to Business.....45
Section 613. Preferential Collection of Claims Against Company or Guarantor..45
Section 614. Appointment of Authenticating Agent.............................45
ARTICLE SEVEN
Holders' Lists and Reports by Trustee, Company and Guarantor
Section 701. Company and Guarantor to Furnish Trustee Names and Addresses
of Holders......................................................47
Section 702. Preservation of Information; Communications to Holders..........47
Section 703. Reports by Trustee..............................................48
Section 704. Reports by the Company..........................................49
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 801. Company or Guarantor May Consolidate, Etc., Only on Certain
Terms...........................................................49
Section 802. Successor Person Substituted....................................50
ARTICLE NINE
Supplemental Indentures
Section 901. Supplemental Indentures Without Consent of Holders..............51
Section 902. Supplemental Indentures with Consent of Holders.................52
Section 903. Execution of Supplemental Indentures............................53
Section 904. Effect of Supplemental Indentures...............................53
Section 905. Conformity with Trust Indenture Act.............................53
Section 906. Reference in Securities to Supplemental Indentures..............54
ARTICLE TEN
Covenants
Section 1001. Payment of Principal, Premium and Interest......................54
Section 1002. Maintenance of Office or Agency.................................54
Section 1003. Money for Securities Payments to Be Held in Trust...............54
Section 1004. Corporate Existence.............................................56
Section 1005. Limitation on Liens.............................................56
Section 1006. Statement by Officers as to Default.............................56
Section 1007. Waiver of Certain Covenants.....................................57
ARTICLE ELEVEN
Redemption of Securities
Section 1101. Applicability of Article........................................57
Section 1102 Election to Redeem; Notice to Trustee...........................57
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Section 1103. Selection by Trustee of Securities to Be Redeemed...............58
Section 1104 Notice of Redemption............................................58
Section 1105. Deposit of Redemption Price.....................................59
Section 1106. Securities Payable on Redemption Date...........................59
Section 1107. Securities Redeemed in Part.....................................59
ARTICLE TWELVE
Sinking Funds
Section 1201. Applicability of Article........................................60
Section 1202. Satisfaction of Sinking Fund Payments with Securities...........60
Section 1203. Redemption of Securities for Sinking Fund.......................60
ARTICLE THIRTEEN
Guarantees
Section 1301. Guarantee.......................................................61
Section 1302. Execution and Delivery of Guarantees............................62
ARTICLE FOURTEEN
Defeasance and Covenant Defeasance
Section 1401. Applicability of Article; Company's Option to Effect
Defeasance or Covenant Defeasance...............................63
Section 1402. Defeasance and Discharge........................................63
Section 1403. Covenant Defeasance.............................................64
Section 1404. Conditions to Defeasance or Covenant Defeasance.................64
Section 1405. Deposited Money and U.S. Government Obligations to be Held
in Trust; Other Miscellaneous Provisions........................66
Section 1406. Reinstatement...................................................66
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INDENTURE, dated as of October 10, 2002, among Platinum
Underwriters Finance, Inc., a corporation duly organized and existing under
the laws of the State of Delaware, having its principal office at 195
Broadway, 28th Floor, New York, New York 10007 (herein called the "COMPANY"),
and Platinum Underwriting Holdings, Ltd., a Bermuda corporation duly
organized and existing under the laws of Bermuda, having its principal office
at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda (hereinafter
called the "GUARANTOR"), and JPMorgan Chase Bank, a New York banking
corporation duly organized and existing under the laws of the State of New
York, having its principal office at 450 West 33rd Street, New York, New York
as Trustee (herein called the "TRUSTEE").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance from time to time of its unsecured
and unsubordinated debentures, notes or other evidences of indebtedness (herein
called the "SECURITIES"), to be issued in one or more series as in this
Indenture provided.
All things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.
RECITALS OF THE GUARANTOR
The Guarantor desires to make the Guarantees as provided for
herein.
All things necessary to make this Indenture a valid agreement of
the Guarantor, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of series
thereof, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
Section 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted at the date of
such computation; and
(4) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in
that Article.
"ACT", when used with respect to any Holder, has the meaning
specified in Section 104.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. 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 securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AUTHENTICATING AGENT" means any Authenticating Agent appointed
pursuant to Section 614 to authenticate Securities and which, initially, shall
be the Trustee.
"BOARD OF DIRECTORS" means either the board of directors of the
Company or the Guarantor, as the case may be, and any duly authorized committee
of such boards.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Corporate Secretary or an Assistant Corporate Secretary of the Company or the
Guarantor, as the case may be, to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"BUSINESS DAY", when used with respect to any Place of Payment,
means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in that Place of Payment are authorized or obligated
by law to close.
"COMMISSION" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"COMPANY REQUEST" or "COMPANY ORDER" and "GUARANTOR REQUEST" and
"GUARANTOR ORDER" means respectively, a written request or order signed in the
name of the Company or the Guarantor, as the case may be, by the Chairman of the
Board, the President or a
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Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary of the Company or the Guarantor, as the case may be, and
delivered to the Trustee.
"CORPORATE TRUST OFFICE" means the principal office of the
Trustee in The City of New York, at which at any particular time its corporate
trust business in such City may be administered. At the date hereof, such office
is located at 450 West 33rd Street, New York, New York 10001, Attention:
Institutional Trust Services.
"CORPORATION" includes corporations, associations, companies and
business trusts.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DEPOSITORY" means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more Global
Securities, the clearing agency registered under the Exchange Act specified for
that purpose as contemplated by Section 301.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 as it
may be amended and any successor act thereto.
"GLOBAL SECURITY" means a security bearing the legend
specified in Section 202 evidencing all or part of a series of Securities,
authenticated and delivered to the Depository for such series or its nominee,
and registered in the name of such Depository or nominee.
"GUARANTEE" means any guarantee of the Guarantor endorsed on a
Security, authenticated and delivered pursuant to this Indenture and shall
include the Guarantee set forth in Article 13.
"GUARANTOR" means the Person named as the "Guarantor" in the
first paragraph of this instrument until a successor corporation shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Guarantor" shall mean such successor corporation.
"HOLDER" means a Person in whose name a Security is registered in
the Security Register.
"INDENTURE" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of particular series of Securities established as
contemplated by Section 301.
"INTEREST", when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity.
"INTEREST PAYMENT DATE", when used with respect to any security,
means the Stated Maturity of an installment of interest on such Security.
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"MATURITY", when used with respect to any Security, means the
date on which the principal of such Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, call for redemption or otherwise.
"OFFICERS' CERTIFICATE" means a certificate signed by the
Chairman of the Board, the President or a Vice President, and by the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company
or the Guarantor, as the case may be, and delivered to the Trustee. One of the
officers signing an Officers' Certificate given pursuant to Section 1006 shall
be the principal executive, financial or accounting officer of the Company or
the Guarantor, as the case may be.
"OPINION OF COUNSEL" means a written opinion of counsel, who may
be counsel for the Company or the Guarantor, as the case may be.
"ORIGINAL ISSUE DISCOUNT SECURITY" means any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502.
"OUTSTANDING", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company or the Guarantor) in trust or
set aside and segregated in trust by the Company or the Guarantor (if
the Company or the Guarantor shall act as its own Paying Agent) for
the Holders of such Securities; PROVIDED that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee
has been made; and
(iii) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by
a protected purchaser in whose hands such Securities are valid
obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, (i) the principal
amount of an Original Issue Discount Security that shall be deemed to be
Outstanding shall be the amount of the principal thereof that would be due and
payable as of the date of such determination upon acceleration of the Maturity
thereof pursuant to Section 502, (ii) the principal amount of a Security
denominated in a foreign currency or currencies shall be the U.S. dollar
equivalent, determined on the date of original issuance of such Security, of the
principal amount (or, in the case of an Original Issue Discount Security, the
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U.S. dollar equivalent on the date of original issuance of such Security of the
amount determined as provided in (i) above) of such Security, and (iii)
Securities owned by the Company or the Guarantor or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or the
Guarantor or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor.
"PAYING AGENT" means any Person authorized by the Company or the
Guarantor to pay the principal of (and premium, if any) or interest on any
Securities on behalf of the Company or the Guarantor, as the case may be.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
"PLACE OF PAYMENT", when used with respect to the Securities of
any series, means the place or places where the principal of (and premium, if
any) and interest on the Securities of that series are payable as specified as
contemplated by Section 301.
"PREDECESSOR SECURITY" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"REDEMPTION DATE", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"REDEMPTION PRICE", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"REGULAR RECORD DATE" for the interest payable on any Interest
Payment Date on the Securities of any series means the date specified for that
purpose as contemplated by Section 301.
"RESPONSIBLE OFFICER", when used with respect to the Trustee,
means any officer of the Trustee with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer of the Trustee to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"SECURITIES" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 305.
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"SPECIAL RECORD DATE" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 307.
"STATED MATURITY", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder, and
if at any time there is more than one such Person, "Trustee" as used with
respect to the Securities of any series shall mean the Trustee with respect to
Securities of that series.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 905; PROVIDED, however, that in the event the Trust Indenture Act of
1939 is amended after such date, "Trust Indenture Act" means, to the extent
required by such amendment, the Trust Indenture Act of 1939 as amended.
"U.S. GOVERNMENT OBLIGATIONS" has the meaning specified in
Section 1404.
"VICE PRESIDENT", when used with respect to the Company,
Guarantor or the Trustee, means any vice president, whether or not designated by
a number or a word or words added before or after the title "vice president".
Section 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Except as otherwise expressly provided by this Indenture, upon
any application or request by the Company or the Guarantor to the Trustee to
take any action under any provision of this Indenture, the Company or the
Guarantor, as the case may be, shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel such action is authorized
or permitted by this Indenture and that all such conditions precedent, if any,
have been complied with, except that in the case of any such application or
request as to which the furnishing of such documents is specifically required by
any provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
-6-
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of any officer of the Company or the
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company or the Guarantor stating that the information with respect to such
factual matters is in the possession of the Company or the Guarantor, unless
such counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company or the
Guarantor or both of them. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"ACT" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Section 601)
conclusive in favor of the Trustee and the Company or the Guarantor, if made in
the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying
-7-
that the individual signing such instrument or writing acknowledged to him the
execution thereof. Where such execution is by a signer acting in a capacity
other than his individual capacity, such certificate or affidavit shall also
constitute sufficient proof of his authority. The fact and date of the execution
of any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the
Security Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee, the
Company or the Guarantor in reliance thereon, whether or not notation of such
action is made upon such Security.
(e) The Company may set any day as a record date for the
purpose of determining the Holders of Outstanding Securities of any series
entitled to give, make or take any request, demand, authorization, direction,
notice, consent, waiver or other action provided or permitted by this Indenture
to be given, made or taken by Holders of Securities of such series, PROVIDED
that the Company may not set a record date for, and the provisions of this
paragraph shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date; PROVIDED that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities of such
series on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 106.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 502, (iii) any request to institute
proceedings referred to in Section 507(2) or (iv) any direction referred to in
Section 512, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; PROVIDED that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and
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of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities of the relevant series on the date such action is taken.
Promptly after any record date is set pursuant to this paragraph, the Trustee,
at the Company's expense, shall cause notice of such record date, the proposed
action by Holders and the applicable Expiration Date to be given to the Company
in writing and to each Holder of Securities of the relevant series in the manner
set forth in Section 106.
With respect to any record date set pursuant to this Section, the
party hereto which sets such record dates may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day; PROVIDED that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities of the relevant series in the manner
set forth in Section 106, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section, the party hereto which set such record date shall be deemed to
have initially designated the 180th day after such record date as the Expiration
Date with respect thereto, subject to its right to change the Expiration Date as
provided in this paragraph. Notwithstanding the foregoing, no Expiration Date
shall be later than the 180th day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
Section 105. NOTICES, ETC., TO TRUSTEE, COMPANY AND GUARANTOR.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or the
Guarantor shall be sufficient for every purpose hereunder if made,
given, furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Institutional Trust Services, or
(2) the Company or the Guarantor by the Trustee or by any
Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to the Company addressed to it at the
address of its principal office specified in the first paragraph of
this instrument with a copy to the Guarantor addressed to it at the
address specified in the first paragraph of this instrument or at any
other address previously furnished in writing to the Trustee by the
Company or the Guarantor, as the case may be.
Section 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each Holder
affected by such event, at his address as it appears in
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the Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Section 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Indenture by
any of the provisions of the Trust Indenture Act, such required provision shall
control.
Section 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company or
the Guarantor shall bind its respective successors and assigns, whether so
expressed or not.
Section 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
Section 112. GOVERNING LAW; JURISDICTION.
This Indenture, the Securities and the Guarantees shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to the conflicts of laws principles thereof.
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The Guarantor irrevocably (i) agrees that any legal suit, action
or proceeding against it arising out of or based on this Indenture or the
transactions contemplated hereby or the Securities may be instituted in any
United States Federal or State court in the Borough of Manhattan, the City of
New York, State of New York (a "NEW YORK COURT"), (ii) waives, to the fullest
extent it may effectively do so, any objection which it may now or hereafter
have to the laying of venue of any such proceeding, and (iii) submits to the
non-exclusive jurisdiction of such courts in any such suit, action or
proceeding. The Guarantor irrevocably waives any immunity to jurisdiction to
which it may otherwise be entitled or become entitled (including sovereign
immunity, immunity to pre-judgment attachment, post-judgment attachment and
execution) in any legal suit, action or proceeding against it arising out of or
based on this Indenture or the transactions contemplated hereby or the
Securities which is instituted in any New York Court or in any foreign court. To
the fullest extent permitted by law, the Guarantor hereby waives any objection
to the enforcement by any competent foreign court of any judgment validly
obtained in any such proceeding. The Guarantor designates and appoints CT
Corporation System in New York City as its authorized agent (the "AUTHORIZED
AGENT") upon which process may be served in any such action arising out of or
based on this Indenture or the transactions contemplated hereby or the
Securities which may be instituted in any New York Court, expressly consents to
the jurisdiction of any such court in respect of any such action, and waives any
other requirements of or objections to personal jurisdiction with respect
thereto. Such appointment shall be irrevocable. The Guarantor represents and
warrants that its Authorized Agent has agreed to act as such agent for service
of process and the Guarantor agrees to take any and all action, including the
filing of any and all documents and instruments, that may be necessary to
continue such appointment in full force and effect as aforesaid. Service of
process upon the Authorized Agent and written notice of such service of process
to the Guarantor shall be deemed, in every respect, effective service of process
upon the Guarantor.
Section 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or
Stated Maturity of any Security shall not be a Business Day at any Place of
Payment, then (unless otherwise provided in Section 301 of this Indenture or in
the Securities) payment of interest or principal (and premium, if any) need not
be made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity, provided that no interest shall accrue with respect to such payment,
for the period from and after such Interest Payment Date, Redemption Date or
Stated Maturity, as the case may be.
ARTICLE TWO
Security Forms
Section 201. FORMS GENERALLY.
The Securities of each series shall be in substantially the form
set forth in this Article, or in such other form as shall be established by or
pursuant to a Board Resolution or in one or more indentures supplemental hereto,
in each case with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture, and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or depository therefor or as may, consistently herewith, be
determined by the officers
-11-
executing such Securities, as evidenced by their execution thereof. The
Guarantees by the Guarantor to be endorsed on the Securities of each series
shall be in substantially the form set forth in this Article, or in such other
form as shall be established by or pursuant to a Board Resolution or in one or
more indentures supplemental hereto, in each case with such appropriate
insertions, omissions, substitutions and other corrections as are required or
permitted by this Indenture or any indenture supplemental hereto, and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith be determined by the
officers executing such Guarantees, as evidenced by their execution of such
Guarantees. If the form of Securities or the related Guarantee of any series is
established by action taken pursuant to a Board Resolution, a copy of an
appropriate record of such action shall be certified by the Secretary or an
Assistant Secretary of the Company and the Guarantor, as the case may be, and
delivered to the Trustee at or prior to the delivery of the Company Order and
Guarantor Order contemplated by Section 303 for the authentication and delivery
of such Securities.
The Trustee's certificates of authentication shall be in
substantially the form set forth in this Article.
The definitive Securities shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner,
provided that such method is permitted by the rules of any securities exchange
on which such securities may be listed, all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
Section 202. FORM OF FACE OF SECURITY.
[Insert any legend required by the Internal Revenue Code and the
regulations thereunder.]
Platinum Underwriters Finance, Inc.
-----------------
No. ______ $ _______
Platinum Underwriters Finance, Inc. a corporation duly organized
and existing under the laws of the State of Delaware (herein called the
"COMPANY", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_________________________________ or registered assigns, the principal sum of
_______________________ Dollars on _______________________ _________ [IF THE
SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT --, and to pay interest
thereon from __________ or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on ________________
and _______________ in each year, commencing ___________, at the rate of ___%
per annum, until the principal hereof is paid or made available for payment [IF
APPLICABLE INSERT --, provided that any principal and premium, and any such
installment of interest, which is overdue shall bear interest at the rate of
___% per annum (to the extent that the payment of such interest shall be legally
enforceable), from the dates such amounts are due until they are paid or made
available for payment, and such interest shall be payable on demand]. The
interest so payable shall be calculated on the basis of a 360-day year of twelve
30-day months. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such
-12-
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the ______ or _______ (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture]. [IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY,
INSERT -- The principal of this Security shall not bear interest except in the
case of a default in payment of principal upon acceleration, upon redemption or
at Stated Maturity and in such case the overdue principal and any overdue
premium shall bear interest at the rate of ___% per annum (to the extent that
the payment of such interest shall be legally enforceable), from the dates such
amounts are due until they are paid or made available for payment. Interest on
any overdue principal or premium shall be payable on demand. [Any such interest
on overdue principal or premium which is not paid on demand shall bear interest
at the rate of ______% per annum (to the extent that the payment of such
interest on interest shall be legally enforceable), from the date of such demand
until the amount so demanded is paid or made available for payment. Interest on
any overdue interest shall be payable on demand.]
Payment of the principal of (and premium, if any) [IF APPLICABLE,
INSERT - and any such interest on this Security] will be made at the office or
agency of the Company maintained for that purpose in New York, New York, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts [IF APPLICABLE, INSERT -- ;
PROVIDED, HOWEVER, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register].
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated:
------------
PLATINUM UNDERWRITERS
FINANCE, INC.
By
------------------------
Attest:
- -------------------
Section 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of
the Company (herein called the "SECURITIES"), issued and to be issued in one or
more series under an Indenture, dated as of October 10, 2002 (herein called the
"INDENTURE", which term shall have the meaning assigned to it in such
instrument), between the Company and JPMorgan Chase Bank, as Trustee (herein
called the "TRUSTEE", which term includes any successor trustee under the
Indenture), and reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof [IF APPLICABLE,
INSERT --, limited in aggregate principal amount to $___________].
[IF APPLICABLE, INSERT -- The Securities of this series are
subject to redemption upon not more than 60 or less than 30 days' notice by
mail,] [IF APPLICABLE, INSERT -- (1) on _________ in any year commencing with
the year _____ and ending with the year ______ through operation of the sinking
fund for this series at a Redemption Price equal to 100% of the principal
amount, and (2)] at any time [on or after ________, 20__], as a whole or in
part, at the election of the Company, at the following Redemption Prices
(expressed as percentages of the principal amount): If redeemed [on or before
_____________, __%, and if redeemed] during the 12-month period beginning
_______ of the years indicated.
Redemption Redemption
Year Price Year Price
---- ---------- ---- ----------
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and thereafter at a Redemption Price equal to _____,% of the principal amount,
together in the case of any such redemption [IF APPLICABLE, INSERT -- (whether
through operation of the sinking fund or otherwise)] with accrued interest to
the Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.]
[IF APPLICABLE, INSERT -- The Securities of this series are
subject to redemption upon not more than 60 or less than 30 days' notice by
mail, (1) on ____________ in any year commencing with the year ____ and ending
with the year ____ through operation of the sinking fund for this series at the
Redemption Prices for redemption through operation of the sinking fund
(expressed as percentages of the principal amount) set forth in the table below,
and (2) at any time [on or after ___________, as a whole or in part, at the
election of the Company, at the Redemption Prices for redemption otherwise than
through operation of the sinking fund (expressed as percentages of the principal
amount) set forth in the table below: If redeemed during the 12-month period
beginning ____________ of the years indicated,
Redemption Price For
Redemption Otherwise
Redemption Price For Than Through
Redemption Through Operation of the
Year Operation of the Sinking Fund Sinking Fund
---- --------------------------------- ------------------------
and thereafter at a Redemption Price equal to _____% of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.]
[The sinking fund for this series provides for the redemption on
__________ in each year beginning with the year ________ and ending with the
year ______ of [not less than] $_______ [("mandatory sinking fund") and not more
than $__________] aggregate principal amount of Securities of this series.
[Securities of this series acquired or redeemed by the Company otherwise than
through [mandatory] sinking fund payments may be credited against subsequent
[mandatory] sinking fund payments otherwise required to be made -- in the
inverse order in which they become due.]
In the event of redemption of this Security in part only, a new
Security or Securities of this series and of a like tenor for the unredeemed
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
[IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY,-- If
an Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the
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Securities of this series may be declared due and payable in the manner and with
the effect provided in the Indenture.]
[IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, -- If an
Event of Default with respect to Securities of this series shall occur and be
continuing, an amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal to -- INSERT FORMULA FOR DETERMINING THE
AMOUNT. Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal, premium and overdue interest (in
each case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and premium and interest, if any, on the Securities of this series
shall terminate.]
[The Indenture contains provisions for defeasance at any time of
[the entire indebtedness of this Security or] [certain restrictive covenants and
Events of Default with respect to this Security] [, in each case] upon
compliance with certain conditions set forth therein.]
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the majority of the Holders in principal amount
of the Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium, and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
this series and of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
Prior to due presentment for registration of transfer of this
Note, the Company, the Guarantor, the Trustee, any paying agent and the
Registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Note shall be overdue and notwithstanding any notice
of ownership or writing hereon made by anyone other than the
-16-
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and premium, if any, and interest due hereon and for all other
purposes, and neither the Company, the Guarantor nor the Trustee nor any paying
agent nor any Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or
the interest on this Note, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, shareholder, officer or director, past, present or future, as
such, of the Company or the Guarantor or of any predecessor or successor
corporations, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.
The Securities of this series are issuable only in registered
form without coupons in denominations of $________ and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflicts of laws principles thereof.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
Section 204. FORM OF GUARANTEE.
For value received, Platinum Underwriters Holdings, Ltd., a
corporation organized under the laws of Bermuda (herein called the "GUARANTOR",
which term includes any successor under the Indenture referred to in the Note
upon which this Guarantee is endorsed), hereby absolutely, fully and
unconditionally and irrevocably guarantees to the Holder of the Note upon which
this Guarantee is endorsed, and to the Trustee on behalf of such Holder, (a) the
due and punctual payment of the principal of, premium, if any, and interest, if
any, on such Note, and the due and punctual payment of any sinking fund payments
provided in such Note when and as the same shall become due and payable, whether
at the Stated Maturity or by declaration of acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on overdue principal of
and interest on such Note, if any, if lawful, and (c) the due and punctual
payment of any and all other payments due to the Holder, all in accordance with
the terms of such Note and of the Indenture. In case of the failure of the
Company punctually to make any
-17-
such payment of principal, premium, if any, or interest, if any, the Guarantor
hereby agrees to cause any such payment to be made punctually when and as the
same shall become due and payable, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise, and as if such
payment were made by the Company.
The Guarantor hereby agrees that its obligations hereunder are a
guaranty of payment and not a guaranty of collection or performance and shall be
unconditional and absolute, irrespective of the validity, regularity or
enforceability of such Note or the Indenture or any limitation of the Company
thereunder or any limitation on the method or terms of payment thereunder which
may now or hereafter be caused or imposed in any manner whatsoever, the absence
of any action to enforce the same, any waiver or consent by the Holder of such
Note or by the Trustee with respect to any provisions thereof or of the
Indenture, the obtaining of any judgment against the Company or any action to
enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. The Guarantor hereby
waives the benefits of division and discussion, diligence, presentment, demand
of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Note or the indebtedness
evidenced thereby and all demands whatsoever, and covenants that this Guarantee
will not be discharged except by complete performance of the obligations
contained in such Note and in this Guarantee. Without limiting the generality of
the foregoing, the Guarantor hereby agrees that the obligations of the Guarantor
hereunder shall not be released, affected or impaired by assignment or transfer
in whole or in part of the Note whether or not made without notice to or the
consent of the Guarantor and shall not be subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of, including, but not limited to, setoff, counterclaim, recoupment or
termination whatsoever, and that such obligations shall not be released,
affected or impaired regardless of whether or not any Holder, including the
Holder of the Note, or anyone on behalf of any such Holder shall have instituted
any suit, action or proceeding or exhausted its remedies or taken any steps to
enforce any rights against the Company or any other person to compel any such
performance or observance or to collect all or part of any such amount, either
pursuant to the provisions of the Indenture or the Note or at law or in equity,
and regardless of any other condition or contingency, or by reason of the
invalidity, illegality or unenforceability of the Note or the Indenture or
otherwise and that such obligations shall not be discharged or impaired or
otherwise affected by the failure of the Trustee or any Holder of such Note to
assert any claim or demand or to enforce any remedy under the Indenture or such
Note, any other guarantee or any other agreement, by any waiver, amendment,
indulgence or modification (whether material or otherwise) of any provision of
any thereof, by any default, failure or delay, willful or otherwise, in the
performance of any obligations under the Indenture, the Note or this Guarantee,
or by the voluntary or involuntary liquidation, sale or other disposition of all
or substantially all of the assets of the Company or the Guarantor, or any
receivership, insolvency, bankruptcy, reorganization, or other similar
proceedings, affecting the Company or any of its assets, or the release of any
property from the lien and security interest created by the Indenture or the
Note or of any other security for the Note, or the release or discharge of the
Company or the Guarantor from the performance or observance of any agreement,
covenant, term or condition contained in the Indenture or the Note by operation
of law, or the merger or consolidation of the Company or the Guarantor, or any
other cause, whether similar or dissimilar to the foregoing, or by any other act
or omission that may or might in any manner or to any extent vary the risk or
obligations of the Guarantor or that would otherwise operate as a discharge of a
surety or guarantor as a matter
-18-
of law or equity (other than the performance of the obligations contained in
such Note and in this Guarantee).
The Holder of the Note upon which this Guarantee is endorsed is
entitled to the further benefits relating hereto set forth in the Indenture. No
reference herein to the Indenture and no provision of this Guarantee or of the
Indenture shall alter or impair the guarantee of the Guarantor, which is
absolute and unconditional, of the due and punctual payment of the principal of
and interest, or any such other payments, on the Note upon which this Guarantee
is endorsed.
This Guarantee shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the conflicts
of laws principles thereof.
All terms used in this Guarantee which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
This Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Guarantee is
endorsed shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be
duly executed.
PLATINUM UNDERWRITERS
HOLDINGS, LTD.
By:
----------------------------
Name:
Title:
Attest:
By:
--------------------------
Name:
Title:
Section 205. FORM OF LEGEND FOR GLOBAL SECURITIES.
Any Global Security authenticated and delivered hereunder shall
bear a legend in substantially the following form:
"This Security is a Global Security within the meaning of
the Indenture hereinafter referred to and is registered in the name of
a Depository or a nominee thereof. This Security may not be exchanged
in whole or in part for a Security registered, and no transfer of this
Security in whole or in part may be registered in the name of any
person
-19-
other than such Depository or a nominee thereof, except in the limited
circumstances described in the Indenture."
Section 206. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificates of authentication shall be in
substantially the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
JPMORGAN CHASE BANK,
as Trustee
By
-----------------------------
Authorized Officer
ARTICLE THREE
The Securities
Section 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall
be established in or pursuant to a Board Resolution of the Company or the
Guarantor, as the case may be, and, subject to Section 303, set forth, or
determined in the manner provided, in an Officers' Certificate, or established
in one or more indentures supplemental hereto, prior to the issuance of
Securities and the Guarantees to be endorsed thereon of any series,
(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from Securities of any other
series);
(2) any limit upon the aggregate principal amount of the
Securities of the series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in
lieu of, other Securities of the series pursuant to Section 304, 305,
306, 906 or 1107 and except for any Securities which, pursuant to
Section 303, are deemed never to have been authenticated and delivered
hereunder);
(3) the Person to whom any interest on a Security of the
series shall be payable, if other than the Person in whose name that
Security (or one or more
-20-
Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest;
(4) the date or dates on which the principal of the
Securities of the series is payable or the method of determination
thereof;
(5) the rate or rates at which the Securities of the series
shall bear interest, if any, the date or dates from which such
interest shall accrue, the Interest Payment Dates on which such
interest shall be payable and the Regular Record Date for the interest
payable on any Interest Payment Date;
(6) the place or places where the principal of (and premium,
if any) and interest on Securities of the series shall be payable;
(7) the period or periods within which, the price or prices
at which, and the terms and conditions upon which, Securities of the
series may be redeemed, in whole or in part, at the option of the
Company;
(8) the obligation, if any, of the Company to redeem or
purchase Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof, the
condition, if any, giving rise to such obligation and the period or
periods within which, the price or prices at which and the terms and
conditions upon which, Securities of the series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation and any
provisions for the remarketing of such securities;
(9) any provisions necessary to permit or facilitate the
issuance, payment or conversion of any Securities of the series that
may be converted into securities or other property other than
Securities of the same series (including shares of the Company's
common or preferred stock or other Securities of the Company) and of
like tenor, whether in addition to, or in lieu of, any payment of
principal or other amount and whether at the option of the Company or
otherwise;
(10) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which Securities of the series
shall be issuable;
(11) the currency or currencies, including composite
currencies, in which payment of the principal of and any premium and
interest on the Securities of the series shall be payable if other
than the currency of the United States of America and, if so, whether
the securities of the series may be discharged other than as provided
in Article Four;
(12) if the principal of or any premium or interest on any
Securities of the series is to be payable, at the election of the
Company or the Holder thereof, in one or more currencies, composite
currencies or currency units other than that or those in which such
Securities are stated to be payable, the currency, currencies,
composite currency, composite currencies or currency units in which
the principal of or any premium or interest on such Securities as to
which such election is made shall be payable, the periods within which
and the terms and
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conditions upon which such election is to be made and the amount so
payable (or the manner in which such amount shall be determined and
the calculation agent, if any, with respect thereto);
(13) if the amount of payments of principal of and any premium
or interest on the Securities of the series may be determined with
reference to an index, a formula or any other method, the manner in
which such amounts shall be determined and the calculation agent, if
any, with respect thereto;
(14) whether the Securities of the series shall be issued in
whole or in part in the form of one or more Global Securities and, in
such case, the Depository with respect to such Global Security or
Securities and the circumstances under which any such Global Security
may be exchanged for Securities registered in the name of, and any
transfer of such Global Security may be registered in the name of, a
Person other than such Depository or its nominee, if other than as set
forth in Section 305;
(15) if other than the principal amount thereof, the portion
of the principal amount of Securities of the series which shall be
payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 502;
(16) the application, if any, of Section 1402 or 1403 to the
Securities of any series;
(17) the place or places where, subject to the provisions of
Section 1001, the principal of and any premium or interest on
Securities of the series shall be payable, any Securities of the
series may be surrendered for registration of transfer, Securities of
the series may be surrendered for exchange and notices and demands to
or upon the Company in respect of the Securities of the series and
this Indenture may be served;
(18) the right, if any, of the Company or a third party to
redeem or purchase Securities of the series and the period or periods
within which, the price or prices at which and the terms and
conditions upon which Securities of the series shall be redeemed or
purchased, in whole or in part, pursuant to such right;
(19) any terms applicable to Original Issue Discount, if any,
(as that term is defined in the Internal Revenue Code of 1986, as
amended, and the regulations thereunder) including the rate or rates
at which such Original Issue Discount, if any, shall accrue;
(20) any addition to or change in the Events of Default which
apply to any Securities of the series and any change in the right of
the Trustee or the requisite Holders of such Securities to declare the
principal amount thereof due and payable pursuant to Section 502;
(21) any proposed listing on any national or foreign
securities exchange of the Securities of the series; and
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(22) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in or pursuant
to the Board Resolution referred to above and (subject to Section 303) set forth
in the Officers' Certificate or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company and
the Guarantor and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of the series. Such Board
Resolution may provide general terms or parameters for Securities of such series
and may provide that the specific terms of particular Securities of such series,
and the Persons authorized to determine such terms or parameters, may be
determined in accordance with or pursuant to the Company Order for
authentication and delivery of such Securities.
Section 302. DENOMINATIONS.
The Securities of each series shall be issuable in registered
form without coupons in such denominations as shall be specified as contemplated
by Section 301. In the absence of any such provisions with respect to the
Securities of any series, the Securities of such series shall be issuable in
denominations of $1,000 and any integral multiple thereof.
Section 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Chief Executive Officer, its President or one of its
Vice Presidents. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities of any series
executed by the Company to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Securities, and the
Trustee in accordance with the Company Order shall authenticate and deliver such
Securities. If the form or terms of the Securities of the series have been
established in or pursuant to one or more Board Resolutions as permitted by
Sections 201 and 301, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(a) if the form of such Securities has been established by or
pursuant to Board Resolution as permitted by Section 201, that such
form has been established in conformity with the provisions of this
Indenture;
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(b) if the terms of such Securities have been established by
or pursuant to Board Resolution as permitted by Section 301, that such
terms have been established in conformity with the provisions of this
Indenture; and
(c) that such Securities, when authenticated and delivered by
the Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid
and legally binding obligations of the Company, enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting the enforcement of
creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 301 and of the
preceding paragraph, if all Securities of a series are not to be originally
issued at one time, it shall not be necessary to deliver the Officers'
Certificate otherwise required pursuant to Section 301 or the Company Order and
Opinion of Counsel otherwise required pursuant to such preceding paragraph at or
prior to the time of authentication of each Security of such series if such
documents are delivered at or prior to the time of authentication upon original
issuance of the first Security of such series to be issued.
Each Security shall be dated the date of its authentication.
Neither any Security nor the Guarantee endorsed thereon, shall be
entitled to any benefit under this Indenture or be valid or obligatory for any
purpose unless there appears on such Security a certificate of authentication
substantially in the form provided for herein executed by the Trustee by manual
signature, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Security shall have been authenticated and
delivered hereunder but never issued and sold by the Company, and the Company
shall deliver such Security to the Trustee for cancellation as provided in
Section 309 together with a written statement (which need not comply with
Section 102 and need not be accompanied by an Opinion of Counsel) stating that
such Security has never been issued and sold by the Company, for all purposes of
this Indenture such Security shall be deemed never to have been authenticated
and delivered hereunder and shall never be entitled to the benefits of this
Indenture.
Reference is made to Section 1302 concerning the execution and
delivery of the Guarantees.
Section 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series,
the Company may execute, and upon Company Order the Trustee shall authenticate
and deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of
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which they are issued and having endorsed thereon Guarantees executed by the
Guarantor substantially of the tenor of the definitive Guarantees, and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities and such Guarantees may determine, as
evidenced by their execution of such Securities and such Guarantees.
If temporary Securities of any series are issued, the Company
will cause definitive Securities of that series to be prepared without
unreasonable delay. After the preparation of definitive Securities of such
series, the temporary Securities of such series shall be exchangeable for
definitive Securities of such series upon surrender of the temporary Securities
of such series at the office or agency of the Company in a Place of Payment for
that series, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Securities of any series the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of the same series and of a like tenor of
authorized denominations. Until so exchanged the temporary Securities of any
series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series.
Section 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the register maintained in such office and in any
other office or agency of the Company in a Place of Payment being herein
sometimes collectively referred to as the "SECURITY REGISTER") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and of transfers of Securities. The Trustee
is hereby appointed "SECURITY REGISTRAR" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security of
any series at the office or agency in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series, of any authorized denominations and of a like aggregate
principal amount and tenor having endorsed thereon a Guarantee or Guarantees
executed by the Guarantor.
At the option of the Holder, Securities of any series may be
exchanged for other Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor, upon surrender
of the Securities to be exchanged at such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive having endorsed thereon a Guarantee or
Guarantees executed by the Guarantor.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be
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accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed, by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange Securities of any series during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption of Securities of that series selected for redemption under Section
1104 and ending at the close of business on the day of such mailing, or (ii) to
register the transfer of or exchange any Security so selected for redemption in
whole or in part, except the unredeemed portion of any Security being redeemed
in part.
Notwithstanding the foregoing, no Global Security shall be
registered for transfer or exchange, or authenticated or delivered, pursuant to
this Section 305 or Section 304, 306, 906 or 1107 in the name of a Person other
than the Depository for such Security or its nominee until (i) the Depository
with respect to a Global Security notifies the Company that it is unwilling or
unable to continue as Depository for such Global Security or the Depository
ceases to be a clearing agency registered under the Exchange Act, (ii) the
Company executes and delivers to the Trustee a Company Order that such Global
Security shall be so transferable and exchangeable or (iii) there shall have
occurred and be continuing an Event of Default with respect to the Securities of
such series. Upon the occurrence in respect of any Global Security of any series
of any one or more of the conditions specified in clauses (i), (ii) or (iii) of
the preceding sentence or such other conditions as may be specified as
contemplated by Section 301 for such series, such Global Security may be
registered for transfer or exchange for Securities registered in the names of,
or authenticated and delivered to, such Persons as the Depository with respect
to such series shall direct.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any Global Security, whether pursuant to this Section,
Section 304, 306, 906 or 1107 or otherwise, shall also be a Global Security and
bear the legend specified in Section 205.
Section 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and of like tenor and principal
amount having endorsed thereon a Guarantee executed by the Guarantor and bearing
a number not contemporaneously outstanding.
If there shall be delivered to the Company, the Guarantor and the
Trustee (i) evidence to their satisfaction of the destruction, loss or theft of
any Security and (ii) such security or indemnity as may be required by them to
save each of them and any agent of either of them harmless, then, in the absence
of notice to the Company, the Guarantor or the Trustee that such Security has
been acquired by a protected purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen
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Security, a new Security of the same series and of like tenor and principal
amount having endorsed thereon a Guarantee executed by the Guarantor and bearing
a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series and the Guarantee endorsed
thereon, issued pursuant to this Section in lieu of any destroyed, lost or
stolen Security shall constitute an original additional contractual obligation
of the Company in the case of the Security and the Guarantor in the case of the
Guarantee endorsed therein, whether or not the destroyed, lost or stolen
Security shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Securities of that series and the Guarantee endorsed thereon, duly issued
hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Unless otherwise provided as contemplated by Section 301 with
respect to any series of Securities, interest on any Security which is payable,
and is punctually paid or duly provided for, on any Interest Payment Date shall
be paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Any interest on any Security of any series which is payable, but
is not punctually paid or duly provided for, on any Interest Payment Date
(herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the
Holder on the relevant Regular Record Date by virtue of having been such Holder,
and such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities of such series
(or their respective Predecessor Securities) are registered at the
close of business on a Special Record Date for the payment of such
Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security of such series and the
date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited
to be held in trust for the
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benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the
name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class postage prepaid, to each
Holder of Securities of such series at his address as it appears in
the Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the
Securities of such series (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date
and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on
the Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which
such Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
Section 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of
transfer, the Company, the Guarantor, the Trustee and any agent of the Company,
the Guarantor or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Section 307) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Guarantor, the Trustee nor any agent of
the Company, the Guarantor or the Trustee shall be affected by notice to the
contrary. None of the Company, the Guarantor, the Trustee or any agent of the
Company, the Guarantor or the Trustee shall have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of a Security in global form or for maintaining,
supervising or receiving any records relating to such beneficial ownership
interests.
Section 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration
of transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company or the Guarantor may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company or the Guarantor may
have acquired
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in any manner whatsoever, and may deliver to the Trustee (or to any other Person
for delivery to the Trustee) for cancellation any Securities previously
authenticated hereunder which the Company has not issued and sold, and all
Securities so delivered shall be promptly cancelled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Securities held by the Trustee shall be disposed of in
accordance with its normal procedures unless otherwise directed by a Company
Order.
Section 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.
Section 311. CUSIP NUMBERS.
The Company in issuing the Securities may use a "CUSIP", "CINS",
or "ISIN" number (if then generally in use), and the Company and the Trustee
shall use such "CUSIP" "CINS", or "ISIN" number in notices of redemption or
exchange as a convenience to Holders; PROVIDED that any such notice shall state
that no representation is made as to the correctness of such "CUSIP" "CINS", or
"ISIN" number either as printed on the Securities or as contained in any notice
of redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Securities; and PROVIDED FURTHER that
failure to use "CUSIP" "CINS", or "ISIN" numbers in any notice of redemption or
exchange shall not affect the validity or sufficiency of such notice. The
Company shall promptly notify the Trustee of any change in "CUSIP" "CINS", or
"ISIN" number for the Securities.
ARTICLE FOUR
Satisfaction and Discharge
Section 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further
effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been destroyed,
lost or stolen and which have been replaced or paid as provided
in Section 306 and (ii) Securities for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have
been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
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(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of such
deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company or the Guarantor has paid or caused to be
paid all other sums payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 607, the obligations
of the Company to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
Section 402. APPLICATION OF TRUST MONEY.
Subject to provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company or the Guarantor acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee.
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ARTICLE FIVE
Remedies
Section 501. EVENTS OF DEFAULT.
"EVENT OF DEFAULT", wherever used herein with respect to
Securities of any series, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Security
of that series when it becomes due and payable, and continuance of
such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium,
if any, on) any Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when
and as due by the terms of a Security of that series; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company or the Guarantor in this Indenture (other than
a covenant or warranty a default in whose performance or whose breach
is elsewhere in this Section specifically dealt with or which has
expressly been included in this Indenture solely for the benefit of a
series of Securities other than that series), and continuance of such
default or breach for a period of 90 days after there has been given,
by registered or certified mail, to the Company and the Guarantor by
the Trustee or to the Company, the Guarantor and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding
Securities of that series a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is
a "NOTICE OF DEFAULT" hereunder; or
(5) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or the
Guarantor in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or the
Guarantor a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or the Guarantor under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or the Guarantor or of any substantial part of its
respective property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a period of
90 consecutive days; or
(6) the commencement by the Company or the Guarantor of a
voluntary case or proceeding under any applicable Federal or State
bankruptcy,
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insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect
of the Company or the Guarantor in an involuntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or
relief under any applicable Federal or State law, or the consent by it
to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or the Guarantor or of
any substantial part of its respective property, or the making by it
of an assignment for the benefit of creditors, or the admission by it
in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company or the Guarantor
in furtherance of any such action; or
(7) the Guarantee of the Guarantor ceases to be in full force
and effect, or the Guarantor shall deny or disaffirm its obligations
under the Guarantee; or
(8) the Company or the Guarantor defaults with respect to
indebtedness for money borrowed having an aggregate principal amount
of at least $25 million, or the Company or the Guarantor defaults
under any mortgage, indenture or instrument under which the Company or
the Guarantor may have issued, secured or evidenced indebtedness
having an aggregate principal amount of at least $25 million, whether
such indebtedness exists now or is created later, which default (A)
results from the failure by the Company or the Guarantor to pay any
part of the principal of such indebtedness when the principal became
due after the expiration of any grace period or (B) causes the
acceleration of such indebtedness, without, in the case of clause (A)
above, such indebtedness being discharged or without, in the case of
clause (B) above, such indebtedness being discharged or such
acceleration having been rescinded or annulled, both within 10 days
after there has been given, by registered or certified mail, to the
Company or the Guarantor, as the case may be, by the Trustee or
holders of at least 25% in aggregate principal amount of the
Securities, a written notice specifying the default or acceleration
and stating that such Notice is a "Notice of Default" hereunder; or
(9) any other Event of Default provided with respect to
Securities of that series.
Upon receipt by the Trustee of any Notice of Default pursuant to
this Section 501 with respect to Securities of a series all or part of which is
represented by a Global Security, a record date shall be established for
determining Holders of Outstanding Securities of such series entitled to join in
such Notice of Default, which record date shall be at the close of business on
the day the Trustee receives such Notice of Default. The Holders on such record
date, or their duly designated proxies, and only such Persons, shall be entitled
to join in such Notice of Default, whether or not such Holders remain Holders
after such record date; PROVIDED, HOWEVER, that unless Holders of at least 25%
in principal amount of the Outstanding Securities of such series, or their
proxies, shall have joined in such Notice of Default prior to the date which is
the ninetieth
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day after such record date, such Notice of Default shall automatically and
without further action by any Holder be cancelled and of no further effect.
Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from
giving, (i) after expiration of such 90-day period, a new Notice of Default
identical to a Notice of Default which has been cancelled pursuant to the
proviso to the preceding sentence or (ii) during any such 90-day period, an
additional Notice of Default with respect to any new or different fact or
circumstance permitting the giving of a Notice of Default with respect to
Securities of such series, in either of which events a new record date shall be
established pursuant to the provisions of this Section 501.
Section 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified
in Sections 501(5) and (6)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if any of the
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount of such Securities as may be specified in the terms
thereof) of all of the Securities of that series to be due and payable
immediately, by a notice in writing to the Company and the Guarantor (and to the
Trustee if given by Holders), and upon any such declaration such principal
amount (or specified amount) shall become immediately due and payable. If an
Event of Default specified in Section 501(5) or (6) occurs and is continuing,
then all the Securities shall IPSO FACTO become due and payable immediately in
an amount equal to the principal amount (or, if any of the Securities of that
series are Original Issue Discount Securities, such portion of the principal
amount of such Securities as may be specified in the terms thereof) of the
Securities together with accrued and unpaid interest, if any, to the date the
Securities become due and payable, without any declaration or other act on the
part of the Trustee or any Holder. Thereupon, the Trustee may, at its
discretion, proceed to protect and enforce the rights of Holders of the
Securities by appropriate means.
At any time after such a declaration of acceleration with respect
to Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company, the
Guarantor and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company or the Guarantor has paid or deposited with
the Trustee a sum sufficient to pay
(A) all overdue interest on all Securities of that
series,
(B) the principal of (and premium, if any, on) any
Securities of that series which have become due otherwise than by
such declaration of acceleration and interest thereon at the rate
or rates prescribed therefor in such Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate or rates
prescribed therefor in such Securities, and
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(D) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that
series, other than the non-payment of the principal of Securities of
that series which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, with respect to Securities of
a series all or part of which is represented by a Global Security, a record date
shall be established for determining Holders of Outstanding Securities of such
series entitled to join in such notice, which record date shall be at the close
of business on the day the Trustee receives such notice. The Holders on such
record date, or their duly designated proxies, and only such Persons, shall be
entitled to join in such notice, whether or not such Holders remain Holders
after such record date; PROVIDED, HOWEVER, that unless such declaration of
acceleration, or rescission and annulment, as the case may be, shall have become
effective by virtue of the requisite percentage having joined in such notice
prior to the day which is the ninetieth day after such record date, such notice
of declaration of acceleration, or rescission and annulment, as the case may be,
shall automatically and without further action by any Holder be cancelled and of
no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy
of a Holder, of Securities of any series from giving, (i) after expiration of
such 90-day period, a new written notice of declaration of acceleration, or
rescission and annulment thereof, as the case may be, that is identical to a
written notice which has been cancelled pursuant to the proviso to the preceding
sentence or (ii) during any such 90-day period an additional written notice of
declaration of acceleration with respect to any other Event of Default with
respect to Securities of such series, or an additional written notice of
rescission or annulment of any declaration of acceleration with respect to any
other Event of Default with respect to Securities of such series, in either of
which events a new record date shall be established pursuant to the provisions
of this Section 502.
Section 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue
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interest, at the rate or rates prescribed therefor in such Securities, and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company, the Guarantor or any other obligor upon
such Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company, the Guarantor or any
other obligor upon such Securities, wherever situated.
If an Event of Default with respect to Securities of any series
occurs and is continuing, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the Holders of Securities of such
series by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relating to the Company, the Guarantor or any other
obligor upon the Securities or the property of the Company, the Guarantor or of
such other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee shall
have made any demand on the Company or the Guarantor for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents
as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement,
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adjustment or composition affecting the Securities or the rights of any Holder
thereof or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
Section 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal (or
premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607, including the reasonable fees and expenses of its
counsel; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively.
Section 507. LIMITATION ON SUITS.
No Holder of any Security of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the
Securities of that series;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities of that series shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 90 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
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(5) no direction inconsistent with such written request has
been given to the Trustee during such 90-day period by the Holders of
a majority in principal amount of the Outstanding Securities of that
series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
Section 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST.
Notwithstanding any other provision in this Indenture, the Holder
of any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the Stated Maturity or Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
Section 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Securities to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
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Section 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, PROVIDED that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
Upon receipt by the Trustee of any written notice directing the
time, method or place of conducting any such proceeding or exercising any such
trust or power, with respect to Securities of a series all or part of which is
represented by a Global Security, a record date shall be established for
determining Holders of Outstanding Securities of such series entitled to join in
such notice, which record date shall be at the close of business on the day the
Trustee receives such notice. The Holders on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to join in such
notice, whether or not such Holders remain Holders after such record date;
PROVIDED, HOWEVER, that unless the Holders of a majority in principal amount of
the Outstanding Securities of such series shall have joined in such notice prior
to the day which is the ninetieth day after such record date, such notice shall
automatically and without further action by any Holder be cancelled and of no
further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of
a Holder, from giving, (i) after expiration of such 90-day period, a new notice
identical to a notice which has been cancelled pursuant to the proviso to the
preceding sentence or (ii) during any such 90-day period, a new direction
contrary to or different from such direction, in either of which events a new
record date shall be established pursuant to the provisions of this Section 512.
Section 513. WAIVER OF PAST DEFAULTS.
Subject to Section 502, the Holders of a majority in principal
amount of the Outstanding Securities of any series may, by notice to the
Trustee, waive an existing or past default with respect to the Securities of
such series and its consequences, except a default
(1) in the payment of principal of (or premium, if any) or
interest on any Security of such series, or in the deposit of any
sinking fund payment when and as due,
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security of such series affected, or
(3) in respect of an existing or past default described in
clause (4), (5) or (6) of Section 501, which may be waived by the
Holders of a majority in principal amount of all Outstanding
Securities voting together as a single class.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Persons entitled to waive any past default
hereunder. If a record
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date is fixed, the Holders on such record date, or their duly designated
proxies, and only such Persons, shall be entitled to waive any default
hereunder, whether or not such Holders remain Holders after such record date;
PROVIDED, HOWEVER, that unless such majority in principal amount shall have
waived such default prior to the date which is the ninetieth day after such
record date, any such waiver previously given shall automatically and without
further action by any Holder be cancelled and of no further effect.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Securities of any series, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of (or premium,
if any) or interest on any Security on or after the Stated Maturity or
Maturities expressed in such Security (or, in the case of redemption, on or
after the Redemption Date).
Section 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company and the Guarantor covenant (to the extent that they
may lawfully do so) that they will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company and
the Guarantor (to the extent that it may lawfully do so) hereby expressly waive
all benefit or advantage of any such law and covenants that they will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
ARTICLE SIX
The Trustee
Section 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act.
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Notwithstanding the foregoing, no provision of this Indenture
shall require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. Whether or not therein expressly
so provided, every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
Section 602. NOTICE OF DEFAULTS.
If a default occurs hereunder with respect to Securities of any
series, the Trustee shall give the Holders of Securities of such series notice
of such default as and to the extent provided in the Trust Indenture Act,
PROVIDED, HOWEVER, that in the case of any default of the character specified in
Section 501(4) with respect to Securities of such series, no such notice to
Holders shall be given until at least 30 days after the occurrence thereof. For
the purpose of this Section, the term "DEFAULT" means any event which is, or
after notice or lapse of time or both would become, an Event of Default with
respect to Securities of such series.
Section 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company or the Guarantor
mentioned herein shall be sufficiently evidenced by a Company Request
or Company Order or a Guarantor Request or Guarantor Order, as the
case may be, or as otherwise expressly provided herein and any
resolution of the Board of Directors of the Company or the Guarantor
may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and
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liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company or the Guarantor, or both,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered, or omitted to be taken by it in good faith and reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Indenture;
(i) the Trustee shall not be charged with knowledge of any
default or Event of Default with respect to the Securities unless
either (1) a Responsible Officer shall have actual knowledge of such
default or Event of Default or (2) written notice of such default or
Event of Default shall have been given to the Trustee by the Company
or by any Holder of the Securities; and
(j) the permissive rights of the Trustee enumerated herein
shall not be construed as duties.
Section 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company or the Guarantor, as the case may be, and the Trustee or any
Authenticating Agent assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities or the Guarantees. The Trustee or any
Authenticating Agent shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
Section 605. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company or the Guarantor, in its
individual or any other capacity, may become the owner or pledgee of Securities
and, subject to Sections 608 and 613, may otherwise deal with the Company and
the Guarantor with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.
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Section 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Company or the Guarantor, as the case may
be.
Section 607. COMPENSATION AND REIMBURSEMENT.
The Company and the Guarantor, joint and severally, agree
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(5) and 501(6), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency,
reorganization, or other similar law.
To secure the Company's and Guarantor's payment obligations in
this Section 607, the Trustee shall have a lien prior to the Securities on all
money or property held or collected by the Trustee, in its capacity as Trustee,
except money or property held in trust to pay principal of, premium, if any, and
interest on particular Securities.
The provisions of this Section 607 shall survive the resignation
or removal of the Trustee and the termination of this Indenture.
Section 608. DISQUALIFICATION; CONFLICTING INTERESTS.
The Trustee for the Securities of any series issued hereunder
shall be subject to the provisions of Section 310(b) of the Trust Indenture Act
during the period of time provided for therein. In determining whether the
Trustee has a conflicting interest as defined in Section 310(b)
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of the Trust Indenture Act with respect to the Securities of any series, there
shall be excluded this Indenture with respect to Securities of more than one
series.
Section 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be one (and only one) trustee hereunder
with respect to the Securities of each series, which may be the Trustee
hereunder for Securities of one or more other series, which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws (including the Trust Indenture Act) to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of said supervising or examining authority, then for the
purposes of this Section, and the extent permitted by the Trust Indenture Act,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the Company
and the Guarantor. If the instrument of acceptance by a successor Trustee
required by Section 611 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Securities of such series.
(c) The Trustee may be removed at any time with respect to
the Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series, delivered to the Trustee
and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 and
shall fail to resign after written request therefor by the Company, by
the Guarantor or by any Holder who has been a bona fide Holder of a
Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request thereof by the Company,
the Guarantor or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
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then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to all securities, or (ii) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, with respect to the Securities of one or more series, the Company, by
a Board Resolution, shall promptly appoint a successor Trustee or Trustees with
respect to the Securities of that or those series (it being understood that any
such successor Trustee may be appointed with respect to the Securities of one or
more or all of such series and that at any time there shall be only one Trustee
with respect to the Securities of any particular series) and shall comply with
the applicable requirements of Section 611. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any Series shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with the applicable requirements of Section
611, become the successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by the Company. If
no successor Trustee with respect to the Securities of any Series shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner required by Section 611, any Holder who has been a bona fide Holder of a
Security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and
each removal of the Trustee with respect to the Securities of any series and
each appointment of a successor Trustee with respect to the Securities of any
series to all Holders of Securities of such series in the manner provided in
Section 106. Each notice shall include the name of the successor Trustee with
respect to the Securities of such series and the address of its Corporate Trust
Office.
Section 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor
Trustee with respect to all Securities, every such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company, to the
Guarantor and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on the request of the Company, the Guarantor or
the successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor
Trustee with respect to the Securities of one or more (but not all) series, the
Company, the Guarantor, the retiring Trustee and each successor Trustee with
respect to the Securities of one or more series shall execute and deliver an
indenture supplemental hereto wherein each successor Trustee shall accept such
appointment and which (1) shall contain such provisions as shall be necessary or
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desirable to transfer and confirm to, and to vest in, each successor Trustee all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series to which the appointment of such
successor Trustee relates, (2) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
as to which the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee, and (3) shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co- trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company, the Guarantor or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Securities of
that or those series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company
and the Guarantor shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts referred to in paragraph (a) and (b) of this Section, as the
case may be.
(d) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
Section 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
Section 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY OR GUARANTOR.
The Trustee shall comply with Section 311(a) of the Trust
Indenture Act with respect to each series of Securities for which it is Trustee.
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Section 614. APPOINTMENT OF AUTHENTICATING AGENT.
At any time when any of the Securities remain Outstanding the
Trustee may appoint an Authenticating Agent or Agents with respect to one or
more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon exchange,
registration of transfer or partial redemption thereof or pursuant to Section
306, and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company and the Guarantor. The Trustee
may at any time terminate the agency of an Authenticating Agent by giving
written notice thereof to such Authenticating Agent and to the Trustee. Upon
receiving such a notice of resignation or upon such a termination, or in case at
any time such Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment, to all Holders of Securities of the series with
respect to which such Authenticating Agent will serve in the manner provided in
Section 106. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time
to time reasonable compensation for its services under this Section.
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If an appointment with respect to one or more series is made
pursuant to this Section, the Securities of such series may have endorsed
thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
JPMORGAN CHASE BANK,
as Trustee
By
-----------------------
As Authenticating Agent
By
-----------------------
Authorized Officer
ARTICLE SEVEN
Holders' Lists and Reports by Trustee, Company and Guarantor
Section 701. COMPANY AND GUARANTOR TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS.
The Company and the Guarantor will furnish or cause to be
furnished to the Trustee
(a) semi-annually, not later than June 30 and December 31 in
each year, a list, in such form as the Trustee may reasonably require,
of the names and addresses of the Holders as of the preceding June 15
or December 15, as the case may be, and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company or the
Guarantor of any such request, a list of similar form and content as
of a date not more than 15 days prior to the time such list is
furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar; provided that the Company and Guarantor shall
not be obligated to provide such a list of Holders at any time that such list
would not differ from the last such list provided by the Company and the
Guarantor to the Trustee under this Section 701.
Section 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 701 and the names
and addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
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(b) If three or more Holders (herein referred to as
"APPLICANTS") apply in writing to the Trustee, and furnish the Trustee
reasonable proof that each such applicant has owned a Security for a period of
at least six months preceding the date of such application, and such application
states that the applicants desire to communicate with the other Holders with
respect to their rights under this Indenture or under the Securities and is
accompanied by a copy of the form of proxy or other communication which such
applicants propose to transmit, then the Trustee shall, within five business
days after the receipt of such application, at its election, either
(i) afford such applicants access to the information
preserved at the time by the Trustee in accordance with Section
702(a), or
(ii) inform such applicants as to the approximate number of
Holders whose names and addresses appear in the information preserved
at the time by the Trustee in accordance with Section 702(a), and as
to the approximate cost of mailing to such Holders the form of proxy
or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access
to such information, the Trustee shall, upon the written request of such
applicants, mail to each Holder whose name and address appear in the information
preserved at the time by the Trustee in accordance with Section 702(a) a copy of
the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the reasonable expenses
of mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interest of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee shall mail
copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company, the Guarantor and the Trustee that neither the
Company, the Guarantor nor the Trustee nor any agent of either of them shall be
held accountable by reason of the disclosure of any such information as to the
names and addresses of the Holders in accordance with Section 702(b) regardless
of the source from which such information was derived, and that the Trustee
shall not be held accountable by reason of mailing any material pursuant to a
request made under Section 702(b).
Section 703. REPORTS BY TRUSTEE.
(a) Within 60 days of each May 15, the Trustee shall transmit
to Holders such reports concerning the Trustee and its actions under this
Indenture as may be required pursuant to the Trust Indenture Act in the manner
provided pursuant thereto.
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(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
Section 704. REPORTS BY THE COMPANY.
The Company shall:
(1) file with the Trustee, within 15 days after the Company
is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not required
to file information, documents or reports pursuant to either of said
Sections, then it shall file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by
the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of
the Exchange Act in respect of a security listed and registered on a
national securities exchange as may be prescribed from time to time in
such rules and regulations;
(2) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
(3) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, within 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 801. COMPANY OR GUARANTOR MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
Neither the Company nor the Guarantor shall consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, and neither the Company nor
the Guarantor shall permit any Person to consolidate with or merge into the
Company or the Guarantor, as the case may be, or convey, transfer or lease its
properties and assets substantially as an entirety to the Company or the
Guarantor, as the case may be, unless:
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(1) in case the Company or Guarantor shall consolidate with
or merge into another Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, the
Person formed by such consolidation or into which the Company or
Guarantor, as the case may be, is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets
of the Company or Guarantor, as the case may be, substantially as an
entirety shall be a corporation, partnership or trust organized and
existing under the laws of the United States of America, any State
thereof or the District of Columbia or, in the case of the Guarantor,
Bermuda, and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Securities and the
performance of every covenant of this Indenture on the part of the
Company or Guarantor, as the case may be, to be performed or observed;
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company
or Guarantor or a Subsidiary as a result of such transaction as having
been incurred by the Company or Guarantor or such Subsidiary at the
time of such transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger or
such conveyance, transfer or lease, properties or assets of the
Company or Guarantor, as the case may be, would become subject to a
mortgage, pledge, lien, security interest or other encumbrance which
would not be permitted by this Indenture, the Company or Guarantor or
such successor corporation or Person, as the case may be, shall take
such steps as shall be necessary effectively to secure the Securities
equally and ratably with (or prior to) all indebtedness secured
thereby; and
(4) the Company or Guarantor, as the case may be, has
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply
with this Article and that all conditions precedent herein provided
for relating to such transaction have been complied with.
Section 802. SUCCESSOR PERSON SUBSTITUTED.
Upon any consolidation by the Company or the Guarantor, as the
case may be, with or merger by the Company or the Guarantor, as the case may be,
into any other Person or any conveyance, transfer or lease of the properties and
assets of the Company or Guarantor, as the case may be, substantially as an
entirety in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company or the Guarantor, as the case may be, is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of the Company or
Guarantor, as the case may be, under this Indenture with the same effect as if
such successor Person had been named as the Company or the Guarantor, as the
case may be, herein, and thereafter, except in the
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case of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
Section 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and the
Guarantor, when authorized by Board Resolutions, and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company or the Guarantor and the assumption by any such successor of
the covenants of the Company or the Guarantor herein and in the
Securities or the Guarantees; or
(2) to add to the covenants of the Company or the Guarantor
for the benefit of the Holders of all or any series of Securities (and
if such covenants are to be for the benefit of less than all series of
Securities, stating that such covenants are expressly being included
solely for the benefit of such series) or to surrender any right or
power herein conferred upon the Company or the Guarantor; or
(3) to add any additional Events of Default; or
(4) to add to or change any of the provisions of this
Indenture to such extent as shall be necessary to permit or facilitate
the issuance of Securities in bearer form, registerable or not
registerable as to principal, and with or without interest coupons, or
to permit or facilitate the issuance of Securities in uncertificated
form; or
(5) to change or eliminate any of the provisions of this
Indenture, provided that any such change or elimination shall become
effective only when there is no Security Outstanding of any series
created prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision; or
(6) to secure the Securities pursuant to the requirements of
Section 1005 or otherwise; or
(7) to establish the form or terms of Securities of any
series as permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one
or more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 611(b); or
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(9) to add to or change any of the provisions of this
Indenture with respect to any Securities that by their terms may be
converted into securities or other property other than Securities of
the same series and of like tenor, in order to permit or facilitate
the issuance, payment or conversion of such Securities; or
(10) to qualify or maintain qualification of this Indenture
under the Trust Indenture Act; or
(11) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, PROVIDED such action shall not
adversely affect the interests of the Holders of Securities of any
series in any material respect.
Section 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of a majority in principal amount
of the Outstanding Securities affected by such supplemental indenture voting
together as a single class, by Act of said Holders delivered to the Company, the
Guarantor and the Trustee, the Company and the Guarantor, when authorized by
Board Resolutions, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture; PROVIDED, HOWEVER, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Security affected
thereby,
(1) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Security, or reduce
the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or reduce the amount of
the principal of an Original Issue Discount Security that would be due
and payable upon a declaration of acceleration of the Maturity thereof
pursuant to Section 502, or change any Place of Payment where, or the
coin or currency in which, any Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption
Date), or
(2) reduce the percentage in principal amount of the
Outstanding Securities of any series, 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 this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513
or Section 1007, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby, PROVIDED, HOWEVER, that this clause shall not be
deemed to require the consent of any Holder with respect to changes in
the references to "the Trustee" and
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concomitant changes in this Section and Section 1007, or the deletion
of this proviso, in accordance with the requirements of Sections
611(b) and 901(8); or
(4) change in any manner adverse to the interests of the
Holders of any Outstanding Securities the terms and conditions of the
obligations of the Guarantor in respect of the due and punctual
payment of the principal thereof (and premium, if any) and interest,
if any, thereon (including any interest on overdue principal or
overdue interest)or any sinking fund payments or any other payments
due to the Holders provided in respect thereof.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record date,
or their duly designated proxies, and only such Persons, shall be entitled to
consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; PROVIDED, HOWEVER, that unless such consent
shall have become effective by virtue of the requisite percentage having been
obtained prior to the date which is the ninetieth day after such record date,
any such consent previously given shall, automatically and without further
action by any Holder, be cancelled and of no further effect.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Section 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, in
addition to the documents required by Section 102, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
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Section 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company, the Guarantees endorsed thereon may be executed by the
Guarantor and such Securities may be authenticated and delivered by the Trustee
in exchange for Outstanding Securities of such series.
ARTICLE TEN
Covenants
Section 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees for the benefit of each series
of Securities that it will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities of that series in accordance
with the terms of the Securities and this Indenture.
Section 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in each Place of Payment for any series
of Securities an office or agency where Securities of that series may be
presented or surrendered for payment, where Securities of that series may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities of that series and
this Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more
other offices or agencies where the Securities of one or more series may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; PROVIDED, HOWEVER, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in each Place of Payment for Securities of any series for
such purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
Section 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company or the Guarantor shall at any time act as its own
Paying Agent with respect to any series of Securities, it will, on or before
each due date of the principal of (and premium, if any) or interest on any of
the Securities of that series, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal (and premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise
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disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company and the Guarantor shall have one or more
Paying Agents for any series of Securities, it will, on or before each due date
of the principal of (and premium, if any) or interest on any Securities of that
series, deposit with a Paying Agent a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent for any series of
Securities other than the Trustee to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee, subject to
the provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Securities of that series in
trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities of that series) in the making of
any payment of principal (and premium, if any) or interest on the
Securities of that series; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company or the Guarantor, in trust for the payment of the principal
of (and premium, if any) or interest on any Security of any series and remaining
unclaimed for one year after such principal (and premium, if any) or interest
has become due and payable shall be paid to the Company or the Guarantor, as the
case may be, on Company Request or Guarantor Request, as the case may be, or (if
then held by the Company or the Guarantor) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company (or to the Guarantor pursuant to its
Guarantee) for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company or the
Guarantor as trustee thereof, shall thereupon cease.
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Section 1004. CORPORATE EXISTENCE.
Subject to Article Eight, each of the Company and the Guarantor
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and all licenses and permits material
to the normal conduct of its business; PROVIDED, HOWEVER, that neither the
Company nor the Guarantor shall not be required to preserve any such right or
franchise if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
the Guarantor, as the case may be, and that the loss thereof is not
disadvantageous in any material respect to the Holders.
Section 1005. LIMITATION ON LIENS.
The Company will not, and will not permit any Significant
Subsidiary to, directly or indirectly, create, issue, assume, incur or guarantee
any indebtedness for money borrowed which is secured by a mortgage, pledge,
lien, security interest or other encumbrance of any nature on any of the Voting
Stock of a Significant Subsidiary unless the Outstanding Securities (together
with such other indebtedness of the Company or such Significant Subsidiary then
existing or thereafter created which is not subordinate to the Outstanding
Securities as the Company may elect) shall be secured equally and ratably with
(or prior to) such secured indebtedness for money borrowed so long as such
secured indebtedness for money borrowed shall be so secured. This Section shall
not prevent the sale or other disposition of a Significant Subsidiary.
For purposes of this Section, "Voting Stock" means all classes of
stock (including any and all shares, interests, participations or other
equivalents (however designated) of corporate stock) then outstanding of a
Significant Subsidiary normally entitled to vote in elections of directors. For
purposes of this Section, "SIGNIFICANT SUBSIDIARY" means Platinum Underwriters
Reinsurance Inc. and any other Subsidiary the assets of which, determined as of
the last day of the most recent calendar quarter ended at least 30 days prior to
the date of such determination and in accordance with generally accepted
accounting principles as in effect on the last day of such calendar quarter,
exceed 20% of the Consolidated Assets of the Company. For purposes of this
Section, "CONSOLIDATED ASSETS OF THE COMPANY" means the assets of the Company
and its consolidated subsidiaries, to be determined as of the last day of the
most recent calendar quarter ended at least 30 days prior to the date of such
determination and in accordance with generally accepted accounting principles as
in effect on the last day of such calendar quarter.
Section 1006. STATEMENT BY OFFICERS AS TO DEFAULT.
Each of the Company and the Guarantor will deliver to the
Trustee, within 120 days after the end of each fiscal year of the Company and
the Guarantor, as the case may be, ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company or the Guarantor, as the case may be, is in default in the
performance and observance of any of the terms, provisions and conditions of
Sections 1001 to 1006, inclusive, and if the Company or the Guarantor, as the
case may be, shall be in default, specifying all such defaults and the nature
and status thereof of which they may have knowledge.
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Section 1007. WAIVER OF CERTAIN COVENANTS.
The Company and the Guarantor may omit in any particular instance
to comply with any term, provision or condition set forth in Sections 1002 to
1005, inclusive, if before the time for such compliance the Holders of a
majority in principal amount of the Outstanding Securities shall, by Act of such
Holders, waive compliance in such instance with such term, provision or
condition. In the event that there shall be included in this Indenture any
covenant, other than a covenant to pay principal, premium (if any) and interest,
solely for the benefit of one or more, but less than all, series of Securities,
then, unless otherwise expressly provided with respect to such covenant, the
Company and the Guarantor may similarly omit in any particular instance to
comply with any term, provision or condition of such covenant if before the time
of such compliance the holders of a majority in principal amount of all
Outstanding Securities entitled to the benefit of such covenant, by Act of such
Holders, acting together as a single class, waive compliance in such instance
with such term, provision or condition. No such waiver contemplated by this
Section 1007 shall extend to or affect such term, provision or condition except
to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the Guarantor and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Persons entitled to waive any such term,
provision or condition. If a record date is fixed, the Holders on such record
date, or their duly designated proxies, and only such Persons, shall be entitled
to waive any such term, provision or condition hereunder, whether or not such
Holders remain Holders after such record date; PROVIDED, HOWEVER, that unless
the Holders of at least a majority in principal amount of (i) the Outstanding
Securities or (ii) the Outstanding Securities of such series, as the case may
be, shall have waived such term, provision or condition prior to the date which
is 90 days after such record date, any such waiver previously given shall
automatically and without further action by any Holder be cancelled and of no
further effect.
ARTICLE ELEVEN
Redemption of Securities
Section 1101. APPLICABILITY OF ARTICLE.
Securities of any series which are redeemable before their Stated
Maturity shall be redeemable in accordance with their terms and (except as
otherwise specified as contemplated by Section 301 for Securities of any series)
in accordance with this Article.
Section 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be
evidenced by a Board Resolution. In case of any redemption at the election of
the Company of less than all the Securities of any series, the Company shall, at
least 60 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities of such series to be
redeemed. In the case of any redemption of Securities prior to the expiration of
any restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, the Company
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shall furnish the Trustee with an Officers' Certificate evidencing compliance
with such restriction.
Section 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series are to be redeemed,
the particular Securities to be redeemed shall be selected not less than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to the minimum authorized denomination for
Securities of that series or any integral multiple thereof) of the principal
amount of Securities of such series of a denomination larger than the minimum
authorized denomination for Securities of that series.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
Section 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the outstanding Securities of any series
are to be redeemed, the identification (and, in the case of partial
redemption, the principal amounts) of the particular Securities to be
redeemed,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and, if
applicable, that interest thereon will cease to accrue on and after
said date,
(5) the place or places where such Securities are to be
surrendered for payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the
case.
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Notice of redemption of Securities to be redeemed at the election
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
Section 1105. DEPOSIT OF REDEMPTION PRICE.
On or prior to any 10:00 a.m., New York City time, on Redemption
Date, the Company or the Guarantor shall deposit with the Trustee or with a
Paying Agent (or, if the Company or the Guarantor is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.
Section 1106. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company and the Guarantor shall default in the payment of the
Redemption Price and accrued interest) such Securities shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
said notice, such Security shall be paid by the Company or the Guarantor at the
Redemption Price, together with accrued interest to the Redemption Date;
PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Securities,
or one or more Predecessor Securities, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
Section 1107. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be
surrendered at a Place of Payment therefor (with, if the Company, the Guarantor
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, the Guarantor and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities of
the same series and of like tenor, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered having
endorsed thereon a Guarantee or Guarantees executed by the Guarantor.
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ARTICLE TWELVE
Sinking Funds
Section 1201. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking
fund for the retirement of Securities of a series except as otherwise specified
as contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by
the terms of Securities of any series is herein referred to as a "MANDATORY
SINKING FUND PAYMENT", and any payment in excess of such minimum amount provided
for by the terms of Securities of any series is herein referred to as an
"OPTIONAL SINKING FUND PAYMENT". If provided for by the terms of Securities of
any series, the cash amount of any sinking fund payment may be subject to
reduction as provided in Section 1202. Each sinking fund payment shall be
applied to the redemption of Securities of any series as provided for by the
terms of Securities of such series.
Section 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company or the Guarantor (1) may deliver Outstanding
Securities of a series (other than any previously called for redemption) and (2)
may apply as a credit Securities of a series which have been redeemed either at
the election of the Company pursuant to the terms of such Securities or through
the application of permitted optional sinking fund payments pursuant to the
terms of such Securities, in each case in satisfaction of all or any part of any
sinking fund payment with respect to the Securities of such series required to
be made pursuant to the terms of such Securities as provided for by the terms of
such series; PROVIDED that such Securities have not been previously so credited.
Such Securities shall be received and credited for such purpose by the Trustee
at the Redemption Price specified in such Securities for redemption through
operation of the sinking fund and the amount of such sinking fund payment shall
be reduced accordingly.
Section 1203. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 90 days prior to each sinking fund payment date for
any series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash and the portion thereof, if any,
which is to be satisfied by delivering and crediting Securities of that series
pursuant to Section 1202 and will also deliver to the Trustee any Securities to
be so delivered. Not less than 60 days before each such sinking fund payment
date the Trustee shall select the Securities to be redeemed upon such sinking
fund payment date in the manner specified in Section 1103 and cause notice of
the redemption thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 1104. Such notice having been duly
given, the redemption of such Securities shall be made upon the terms and in the
manner stated in Sections 1106 and 1107.
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ARTICLE THIRTEEN
Guarantees
Section 1301. GUARANTEE.
The Guarantor hereby absolutely, fully and unconditionally and
irrevocably guarantees to each Holder of a Security authenticated and delivered
by the Trustee, and to the Trustee on behalf of each such Holder, (a) the due
and punctual payment of the principal of, premium, if any, and interest, if any,
on each such Security and the due and punctual payment of any sinking fund
payments provided for pursuant to the terms of such Security when and as the
same shall become due and payable, whether at the Stated Maturity, by
declaration of acceleration, call for redemption or otherwise, (b) the due and
punctual payment of interest on overdue principal of and interest on each such
Security, if any, if lawful, and (c) the due and punctual payment of any and all
other payments due to the Holder of each such Security all in accordance with
the terms of such Security and of this Indenture. In case of the failure of the
Company punctually to make any such payment of principal (or premium, if any) or
interest, if any, or sinking fund payment, the Guarantor hereby agrees to cause
any such payment to be made punctually when and as the same shall become due and
payable, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise, and as if such payment were made by the Company.
The Guarantor hereby agrees that its obligations hereunder are a
guaranty of payment and not a guaranty of collection or performance and shall be
unconditional and absolute, irrespective of the validity, regularity or
enforceability of such Security or this Indenture or any limitation of the
Company thereunder or any limitations on the method or terms of payment
thereunder which may now or hereafter be caused or imposed in any manner
whatsoever, the absence of any action to enforce the same, any waiver or consent
by the Holder of such Security or by the Trustee with respect to any provisions
thereof or of this Indenture, the obtaining of any judgment against the Company
or any action to enforce the same or any other circumstances which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
The Guarantor hereby waives the benefits of division and discussion, diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest or notice with respect of such Security or the
indebtedness evidenced thereby or with respect to any sinking fund payment
required pursuant to the terms of such Security and all demands whatsoever, and
covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities and in the
Guarantees.
Without limiting the generality of the foregoing, the Guarantor
hereby agrees that the obligations of the Guarantor hereunder shall not be
released, affected or impaired by assignment or transfer in whole or in part of
such Security whether or not made without notice to or the consent of the
Guarantor and shall not be subject to any reduction, limitation, impairment or
termination for any reason, including any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense of, including,
but not limited to, setoff, counterclaim, recoupment or termination whatsoever,
and that such obligations shall not be released, affected or impaired regardless
of whether or not any Holder or such Security, or anyone on behalf of any such
Holder shall have instituted any suit, action or proceeding or exhausted its
remedies or taken any steps to enforce any rights against the Company or any
other person to compel any such performance or observance or to collect all or
part of any such
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amount, either pursuant to the provisions of this Indenture or such Security or
at law or in equity, and regardless of any other condition or contingency, or by
reason of the invalidity, illegality or unenforceability of such Security or
this Indenture or otherwise and that such obligations shall not be discharged or
impaired or otherwise affected by the failure of the Trustee or any Holder of
such Security to assert any claim or demand or to enforce any remedy under this
Indenture or such Security, any other guarantee or any other agreement, by any
waiver, amendment, indulgence or modification (whether material or otherwise) of
any provision of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of any obligations under this Indenture, such
Security or this Guarantee, or by the voluntary or involuntary liquidation, sale
or other disposition of all or substantially all of the assets of the Company or
the Guarantor, or any receivership, insolvency, bankruptcy, reorganization, or
other similar proceedings, affecting the Company or any of its assets, or the
release of any property from the lien and security interest created by this
Indenture or such Security or of any other security for such Security, or the
release or discharge of the Company or the Guarantor from the performance or
observance of any agreement, covenant, term or condition contained in this
Indenture or such Security by operation of law, or the merger or consolidation
of the Company or the Guarantor, or any other cause, whether similar or
dissimilar to the foregoing, or by any other act or omission that may or might
in any manner or to any extent vary the risk or obligations of the Guarantor or
that would otherwise operate as a discharge of a surety or guarantor as a matter
of law or equity (other than the performance of the obligations contained in
such Security and in this Guarantee).
If the Trustee or the Holder of any Security is required by any
court or otherwise to return to the Company or the Guarantor, or any custodian,
receiver, liquidator, trustee, sequestrator or other similar official acting in
relation to the Company or the Guarantor, any amount paid to the Trustee or such
Holder in respect of a Security, this Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. The Guarantor further
agrees, to the fullest extent that it lawfully may do so, that, as between the
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
the maturity of the obligations guaranteed hereby may be accelerated as provided
in Article Five hereof for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition extant under any applicable bankruptcy law
preventing such acceleration in respect of the obligations guaranteed hereby.
The Guarantor shall be subrogated to all rights of the Holders of
the Securities of a particular series against the Company in respect of any
amounts paid by the Guarantor on account of the Securities of such Series
pursuant to the provisions of the Guarantees of this Indenture; PROVIDED,
HOWEVER, that the Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation until the
principal of (and premium, if any) and interest, if any, on all Securities of
such series issued hereunder shall have been paid in full.
Section 1302. EXECUTION AND DELIVERY OF GUARANTEES.
To evidence its guarantee provided in Section 1301, the Guarantor
hereby agrees to execute the Guarantees, in a form established pursuant to
Section 201, to be endorsed on each Security authenticated and delivered by the
Trustee. Each such Guarantee shall be executed on behalf of the Guarantor by its
Chairman of the Board, Chief Executive Officer, President or one of its Vice
Presidents or its Treasurer under a facsimile of its corporate seal reproduced
thereon and attested by its Secretary or one of its Deputy Secretaries. The
signature of any of these officers on the Guarantees may be manual or facsimile.
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Guarantees bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Guarantor shall bind
the Guarantor, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of the Securities
upon which such Guarantees are endorsed or did not hold such offices at the date
of such Securities.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Guarantee
endorsed thereon on behalf of the Guarantor. The Guarantor hereby agrees that
its Guarantee set forth in Section 1301 shall remain in full force and effect
notwithstanding any failure to endorse on each Security a notation of such
Guarantee.
ARTICLE FOURTEEN
Defeasance and Covenant Defeasance
Section 1401. APPLICABILITY OF ARTICLE; COMPANY'S OPTION TO EFFECT DEFEASANCE
OR COVENANT DEFEASANCE.
If pursuant to Section 301 provision is made for either or both
of (a) defeasance of the Securities of a series under Section 1402 or (b)
covenant defeasance of the Securities of a series under Section 1303, then the
provisions of such Section or Sections, as the case may be, together with the
other provisions of this Article Fourteen, shall be applicable to the Securities
of such series, and the Company may at its option by Board Resolution, at any
time, with respect to the Securities of such series, elect to have either
Section 1402 (if applicable) or Section 1403 (if applicable) be applied to the
Outstanding Securities of such series upon compliance with the conditions set
forth below in this Article Fourteen.
Section 1402. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise of the above option applicable to
this Section, the Company shall be deemed to have been discharged from its
obligations with respect to the Outstanding Securities of such series on and
after the date the conditions precedent set forth below are satisfied
(hereinafter, "DEFEASANCE"). For this purpose, such defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities of such series and to have satisfied
all its other obligations under such Securities and this Indenture insofar as
such Securities are concerned (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Outstanding Securities of such series to
receive, solely from the trust fund described in Section 1404 as more fully set
forth in such Section, payments of the principal of (and premium, if any) and
interest on such Securities when such payments are due, (B) the Company's
obligations with respect to such Securities under Sections 304, 305, 306, 1002
and 1003 and such obligations as shall be ancillary thereto, (C) the rights,
powers, trusts, duties, immunities and other provisions in respect of the
Trustee hereunder and (D) this Article Fourteen. Subject to compliance with this
Article Fourteen, the Company may exercise its option under this Section 1402
notwithstanding the prior exercise of its option under Section 1403 with respect
to the Securities of such series. Following a defeasance, payment of the
Securities of such series may not be accelerated because of an Event of Default.
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Section 1403. COVENANT DEFEASANCE.
Upon the Company's exercise of the above option applicable to
this Section, the Company shall be released from its obligations under (i)
Section 1005, (ii) the occurrence of an event specified in Section 501(4) (with
respect to Section 1005) shall not be deemed an Event of Default and (iii) any
other section, clause or provision applicable to such Securities that are
determined pursuant to Section 301 to be subject to this provision with respect
to the Outstanding Securities of such series on and after the date the
conditions precedent set forth below are satisfied (hereinafter, "COVENANT
DEFEASANCE"). For this purpose, such covenant defeasance means that, with
respect to the Outstanding Securities of such series, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such Section or Clause whether directly or
indirectly by reason of any reference elsewhere herein to any such Section or
Clause or by reason of any reference in any such Section or Clause to any other
provision herein or in any other document, but the remainder of this Indenture
and such Securities shall be unaffected thereby. Following a covenant
defeasance, payment of the Securities of such series may not be accelerated
because of or by reference to the Sections specified above in this Section 1403.
Section 1404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions precedent to application of
either Section 1402 or Section 1403 to the Outstanding Securities of such
series:
(1) the Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 609 who shall agree to comply with the
provisions of this Article Thirteen applicable to it) as trust funds
in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of such Securities, (A) money in an amount, or
(B) U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, sufficient,
without reinvestment, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which
shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, (i) the principal of (and premium, if any) and interest
on the Outstanding Securities of such series to maturity or
redemption, as the case may be, and (ii) any mandatory sinking fund
payments or analogous payments applicable to the Outstanding
Securities of such series on the due dates thereof. Before such a
deposit the Company may make arrangements satisfactory to the Trustee
for the redemption of Securities at a future date or dates in
accordance with Article Eleven, which shall be given effect in
applying the foregoing. For this purpose, "U.S. GOVERNMENT
OBLIGATIONS" means securities that are (x) direct obligations of the
United States of America for the payment of which its full faith and
credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United
States of America the 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
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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.
(2) No Event of Default or event which with notice or lapse
of time or both would become an Event of Default with respect to the
Securities of such series shall have occurred and be continuing (A) on
the date of such deposit or (B) insofar as subsections 501(5) and (6)
are concerned, at any time during the period ending on the 121st day
after the date of such deposit or, if longer, ending on the day
following the expiration of the longest preference period applicable
to the Company in respect of such deposit (it being understood that
the condition in this clause (B) is a condition subsequent and shall
not be deemed satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not (A)
cause the Trustee for the Securities of such series to have a
conflicting interest as defined in 0 or for purposes of the Trust
Indenture Act with respect to any securities of the Company or (B)
result in the trust arising from such deposit to constitute, unless it
is qualified as, a regulated investment company under the Investment
Company Act of 1940, as amended.
(4) Such defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default under, this
Indenture or any other agreement or instrument to which the Company is
a party or by which it is bound.
(5) In the case of an election under Section 1402, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (x) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (y) since the
date of this 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 shall confirm that, the Holders of the
Outstanding Securities of such series 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 time as would have been the case if such
defeasance had not occurred.
(6) In the case of an election under Section 1403, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the Outstanding Securities of such
series 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
-65-
same manner and at the same times as would have been the case if such
covenant defeasance had not occurred.
(7) Such defeasance or covenant defeasance shall be effected
in compliance with any additional terms, conditions or limitations
which may be imposed on the Company in connection therewith pursuant
to Section 301.
(8) The Company 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
under Section 1402 or the covenant defeasance under Section 1403 (as
the case may be) have been complied with.
Section 1405. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee -- collectively, for
purposes of this Section 1405, the "TRUSTEE") pursuant to Section 1404 in
respect of the Outstanding Securities of such series shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities and
this Indenture, to the payment, either directly or through any Paying Agent (but
not including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the money or U.S. Government
Obligations deposited pursuant to Section 1404 or the principal and interest
received in respect thereof.
Anything herein to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 1404
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent defeasance or covenant defeasance.
Section 1406. REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money
in accordance with Section 1402 or 1403 by reason of any order or judgment or
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under the
Securities of such series shall be revived and reinstated as though no deposit
had occurred pursuant to this Article Fourteen until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1402 or 1403; PROVIDED, HOWEVER, that if the Company makes any payment of
principal of (and premium, if any) any such Security following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the money held by the Trustee or
the Paying Agent.
-66-
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
-67-
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, all as of the day and year first above written.
PLATINUM UNDERWRITERS FINANCE, INC.,
as Issuer
By:/s/ Jerome T. Fadden
----------------------------------
Name: Jerome T. Fadden
Title: President and Chief
Executive Officer
PLATINUM UNDERWRITERS HOLDINGS, LTD.,
as Guarantor
By:/s/ Jerome T. Fadden
----------------------------------
Name: Jerome T. Fadden
Title: President and Chief
Executive Officer
JPMORGAN CHASE BANK,
as Trustee
By:/s/ Joanne Adamis
----------------------------------
Name: Joanne Adamis
Title: Vice President
EX-4.3
5
a2090035zex-4_3.txt
EXHIBIT 4.3
EXHIBIT 4.3
================================================================================
PLATINUM UNDERWRITERS FINANCE, INC.
COMPANY
and
PLATINUM UNDERWRITERS HOLDINGS, LTD.
GUARANTOR
to
JPMORGAN CHASE BANK
TRUSTEE
------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of *, 2002
GUARANTEED DEBT SECURITIES
------------
================================================================================
FIRST SUPPLEMENTAL INDENTURE, dated as of *, 2002 (the "First
Supplemental Indenture"), among PLATINUM UNDERWRITERS FINANCE, INC., a
corporation duly organized and existing under the laws of the State of Delaware
(the "Company"), PLATINUM UNDERWRITERS HOLDINGS, LTD., a Bermuda corporation
(the "Guarantor"), and JPMORGAN CHASE BANK, a New York banking corporation, as
trustee (the "Trustee").
WHEREAS, the Company and the Guarantor executed and delivered the
indenture, dated as of *, 2002 (the "Base Indenture"), to the Trustee to provide
for the future issuance of the Company's guaranteed debt securities (the
"Securities"), to be issued from time to time in one or more series as might be
determined by the Company under the Base Indenture;
WHEREAS, pursuant to the terms of the Base Indenture, the Company
desires to provide for the establishment of a new series of its Securities to be
known as its *% Senior Guaranteed Notes due 2007 (the "Notes"), the form and
substance of such Notes and the terms, provisions and conditions thereof to be
set forth as provided in the Base Indenture and this First Supplemental
Indenture (together, the "Indenture"); and
WHEREAS, the Company and the Guarantor have requested that the Trustee
execute and deliver this First Supplemental Indenture and satisfy all
requirements necessary to make this First Supplemental Indenture a valid
instrument in accordance with its terms, and to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee, the valid
obligations of the Company and all acts and things necessary have been done and
performed to make this First Supplemental Indenture enforceable in accordance
with its terms, and the execution and delivery of this First Supplemental
Indenture has been duly authorized in all respects:
NOW, THEREFORE, in consideration of the purchase and acceptance of the
Notes by the Holders thereof, and for the purpose of setting forth, as provided
in the Indenture, the form and substance of the Notes and the terms, provisions
and conditions thereof, the Company and the Guarantor covenant and agree with
the Trustee as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITION OF TERMS.
Unless otherwise provided herein or unless the context otherwise
requires:
(a) a term defined in the Base Indenture has the same meaning when
used in this First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental Indenture has
the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) headings are for convenience of reference only and do not affect
interpretation;
(e) the following terms have the meanings given to them in the
Purchase Contract Agreement (as defined below): Failed Remarketing; Last Failed
Remarketing; Normal Units; Purchase Contract Agent; Remarketing Agent,
Remarketing Agreement; Remarketing Date; Remarketing Value; Separate Notes;
Subsequent Remarketing Date; and Underwriting Agreement;
(f) the following terms have the meanings given to them in this
Section 1.1(f):
"Global Note" shall mean a Global Security representing the
Notes.
"Interest Rate" shall have the meaning set forth in Section 2.5.
"Over-Allotment Option" shall mean the option granted to the
underwriters pursuant to the Underwriting Agreement to purchase
up to an additional 750,000 Normal Units.
"Purchase Contract Agreement" shall mean the Purchase Contract
Agreement, dated as of *, 2002, between the Company and JPMorgan
Chase Bank, as purchase contract agent.
"Reset Agent" means a nationally recognized investment banking
firm chosen by the Company to determine the Reset Rate.
"Reset Date" shall mean the date following the Remarketing Date
or a Subsequent Remarketing Date, as applicable, on which the
trades in a successful remarketing of the Notes pursuant to the
Purchase Contract Agreement and the Remarketing Agreement settle.
"Reset Rate" means the lowest interest rate per annum (rounded to
the nearest one-thousandth (0.001) of one percent per annum), as
determined by the Reset Agent, that the Notes shall bear in order
for the Notes to have a market value at the Remarketing Date or
any Subsequent Remarketing Date, as the case may be, of at least
100.25% of the Remarketing Value, assuming, for this purpose,
even if not true, that all of the Notes are held as components of
Normal Units and will be remarketed.
2
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE NOTES
Section 2.1. DESIGNATION, PRINCIPAL AMOUNT AND AUTHORIZED DENOMINATION.
There is hereby authorized a series of Securities designated the *%
Senior Guaranteed Notes due 2007, limited in aggregate principal amount to
$125,000,000, which amount to be issued shall be as set forth in any Company
Order for the authentication and delivery of Notes pursuant to the Base
Indenture and which amount may be increased by up to $18,750,000 in the event
the Over-Allotment option is exercised. The Notes shall be issuable only in
registered form and without coupons in denominations of $1000 and any integral
multiples thereof except that an interest in a Note held as part of a Normal
Unit represents an ownership interest of 1/40th, or 2.5%, of a Note in aggregate
principal amount of $1000 and will therefore correspond to the stated amount of
$25 per Normal Unit.
Section 2.2. MATURITY.
The Stated Maturity Date of the Notes will be *, 2007.
Section 2.3. FORM AND PAYMENT.
(a) The Notes, on original issuance, shall be issued in the form of
(i) one or more definitive, fully registered Notes registered initially in the
name of JPMorgan Chase Bank, as Purchase Contract Agent and (ii) one fully
registered Global Note registered in the name of The Depository Trust Company
("DTC"), as Depository, or its nominee, and deposited with the Trustee, as
custodian for DTC, for credit by DTC to the respective accounts of beneficial
owners of the Separate Notes represented thereby (or such other accounts as they
may direct).
(b) The principal of and the interest on the Notes shall be payable
at the office or agency of the Company maintained for that purpose in any coin
or currency of the United States of America that at the time of payment is legal
tender for the payment of public or private debts; PROVIDED, HOWEVER, that
payment of interest may be made at the option of the Company by check mailed to
the registered Holder at such address as shall appear in the Security Register
or by wire transfer to an account appropriately designated by the Holder
entitled thereto.
Section 2.4. GLOBAL NOTE.
(a) DTC shall serve as the initial Depository for the Global Note.
(b) Unless and until it is exchanged for definitive Notes in
registered form in accordance with Section 305 of the Base Indenture, a Global
Note may be transferred, in whole but not in part, only to another nominee of
the Depository, or to a successor
3
Depository selected or approved by the Company or to a nominee of such successor
Depository.
Section 2.5. INTEREST AND INTEREST RATE RESET.
(a) Each Note will bear interest from its Issue Date or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, as the case may be, initially at the rate of *% per annum (the "Interest
Rate") up to but excluding the Reset Date; provided, however, that in the event
that a Last Failed Remarketing occurs, each Note shall continue to bear interest
at the Interest Rate until the principal of the Notes is paid or made available
for payment. In the event the Notes are successfully remarketed pursuant to the
Purchase Contract and Remarketing Agreement, each Note shall bear interest at
the Reset Rate from and including the Reset Date to the date on which the
principal of the Notes is paid or made available for payment; PROVIDED that any
principal and installment of interest which is overdue shall bear interest (to
the extent that payment of such interest is enforceable under applicable law) at
the Interest Rate up to but excluding the Reset Date, if any, and thereafter at
the Reset Rate, from the dates such amounts are due until they are paid or made
available for payment, and such interest shall be payable on demand. Interest on
the Notes initially shall be payable quarterly in arrears on [*, *, * and *] of
each year (each, an "Interest Payment Date"), commencing [*], 2002, through and
including *, 2005 and then semi-annually in arrears on the Interest Payment
Dates of * and * of each year, commencing *, 2006, until the principal thereof
is paid or made available for payment.
(b) The amount of interest payable for any period on any Interest
Payment Date will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Except as provided in the following sentence, the amount
of interest payable for any period shorter than a full quarterly or semi-annual,
as applicable, period for which interest is computed will be computed on the
basis of the actual number of days elapsed in such a 90-day or 180-day period,
as applicable. In the event that any date on which interest is payable on the
Notes is not a Business Day, then payment of interest payable on such date will
be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
The Notes do not have the benefit of any sinking fund obligation.
4
ARTICLE III
FORM OF NOTE
Section 3.1. FORM OF NOTE.
The Notes and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the following forms:
[IF THE NOTE IS A GLOBAL NOTE, INSERT - This Note is a Global Note
within the meaning of the Indenture hereinafter referred to and is
registered in the name of the Depository or a nominee of the Depository.
This Note is exchangeable for Notes registered in the name of a person
other than the Depository or its nominee only in the limited circumstances
described in the Indenture, and no transfer of this Note (other than a
transfer of this Note as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository) may be registered except in limited
circumstances.
Unless this Note is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the
issuer or its agent for registration of transfer, exchange or payment, and
any Note issued is registered in the name of Cede & Co. or such other name
as requested by an authorized representative of The Depository Trust
Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since
the registered owner hereof, Cede & Co., has an interest herein.]
No.
CUSIP No. $___________________
5
PLATINUM UNDERWRITERS FINANCE, INC.
*% SENIOR GUARANTEED NOTE DUE 2007
PLATINUM UNDERWRITERS FINANCE, INC., a Delaware corporation (the
"Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
___________________, the principal sum of ______ dollars ($______________) on
[*], 2007 (such date is hereinafter referred to as the "Stated Maturity Date"),
and to pay interest on said principal sum from *, 2002, or from the most recent
interest payment date initially at the rate of *% per annum (the "Interest
Rate") up to, but excluding, the Reset Date; provided, however, that in the
event a Last Failed Remarketing occurs, this Note shall continue to bear
interest at the Interest Rate until the principal of the Notes is paid or made
available for payment. In the event the Notes are successfully remarketed
pursuant to the Purchase Contract and Remarketing Agreement, this Note shall
bear interest at the Reset Rate, from and including the Reset Date to the date
on which principal hereof is paid or made available for payment; PROVIDED that
any principal and installment of interest which is overdue shall bear interest
(to the extent that payment of such interest is enforceable under applicable
law) at the Interest Rate up to but excluding the Reset Date, if any, and
thereafter at the Reset Rate, from the dates such amounts are due until they are
paid or made available for payment, and such interest shall be payable on
demand. Interest on this Note initially shall be payable quarterly in arrears on
[*, *, *, and *] of each year (each, an "Interest Payment Date"), commencing *,
2002 through and including *, 2005, and then semi-annually in arrears on the
Interest Payment Dates of * and * of each year, commencing on *, 2006 until the
principal hereof is paid or made available for payment. The amount of interest
payable for any period on any Interest Payment Date shall be computed on the
basis of a 360-day year consisting of twelve 30-day months. Except as provided
in the following sentence, the amount of interest payable for any period shorter
than a full quarterly or semi-annual period, as applicable, for which interest
is computed will be computed on the basis of the actual number of days elapsed
in such a 90-day or 180-day period, as applicable. In the event that any date on
which interest is payable on this Note is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. The interest
installment so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the person
in whose name this Note is registered at the close of business on the regular
record date for such interest installment, which as long as any Notes are
represented by a Global Note shall be the close of business on the Business Day
next preceding such Interest Payment Date; PROVIDED, HOWEVER, if pursuant to the
terms of the Indenture the Notes are no longer represented by a Global Note, the
Company may select such regular record date for such interest installment which
shall be more than one Business Day but less than 60 Business Days prior to such
Interest Payment Date. Any such interest installment not punctually paid or duly
provided for
6
shall forthwith cease to be payable to the registered Holders on such regular
record date and may be paid to the Person in whose name this Note is registered
at the close of business on a special record date to be fixed by the Trustee for
the payment of such defaulted interest, notice whereof shall be given to the
registered Holders of this series of Notes not less than 10 days prior to such
special record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the Notes
may be listed, and upon such notice as may be required by such exchange all as
more fully provided in the Indenture. The principal of and the interest on this
Note shall be payable at the office or agency of the Company maintained for that
purpose in any coin or currency of the United States of America that at the time
of payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that payment of interest may be made at the option of the Company by
check mailed to the registered Holder at such address as shall appear in the
Register or by wire transfer to an account appropriately designated by the
Holder entitled thereto.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if fully set forth at this place.
Unless the certificate of authorization hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note and
the Guarantee endorsed herein shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
7
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed under its corporate seal.
Dated:
PLATINUM UNDERWRITERS
FINANCE, INC.
By:
----------------------
Name:
Title:
[SEAL]
Attest:
- --------------------
CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series designated herein referred to
in the within-mentioned Indenture.
JPMORGAN CHASE BANK,
as Trustee
By:
----------------------
Authorized Officer
8
(FORM OF REVERSE OF NOTE)
This Note is one of a duly authorized series of the Senior Guaranteed
Notes of the Company (herein sometimes referred to as the "Securities"),
specified in the Indenture hereinafter referred to, all issued or to be issued
in one or more series under and pursuant to an Indenture dated as of *, 2002
(the "Base Indenture"), duly executed and delivered among the Company, Platinum
Underwriters Holdings, Ltd., as guarantor (herein called the "Guarantor") and
JPMorgan Chase Bank, as Trustee (the "Trustee") (such Base Indenture as
supplemented by the First Supplemental Indenture, dated *, 2002, the
"Indenture"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the Holders of the Securities. By the terms of the Indenture, the Securities are
issuable in series that may vary as to amount, date of maturity, rate of
interest and in other respects as provided in the Indenture. This series of
Securities is limited in aggregate principal amount as specified in said First
Supplemental Indenture.
The Securities of this series were initially issued as components of
the Company's equity units that are in the form of Normal Units, each such
Normal Unit initially consisting of (a) a stock purchase contract (each, a
"Purchase Contract") under which (i) the holder will agree to purchase from the
Company on *, 2005, a specified number of newly issued common shares, par value
$0.01 per share, of the Company and (ii) the Company will pay to the holder
quarterly contract adjustment payments and (b) a 1/40, or 2.5%, ownership
interest in a Security of this series of $1,000 principal amount. In accordance
with the terms of the Purchase Contract Agreement, on their initial issuance the
Securities of this series were pledged by the Purchase Contract Agent, on behalf
of the holders of the Normal Units, to State Street Bank and Trust Company, as
collateral agent, custodial agent and securities intermediary (the "Collateral
Agent"), pursuant to the Pledge Agreement, dated as of *, 2002 (the "Pledge
Agreement"), among the Company, the Purchase Contract Agent and the Collateral
Agent, to secure such holders' obligations to purchase common shares of the
Company under the Purchase Contracts. Pursuant to the Remarketing Agreement, the
Remarketing Agent shall use its commercially reasonable best efforts to remarket
the Securities of this series that are included in Normal Units at a specified
price on certain dates, all as specified in Section 5.4(b) of the Purchase
Contract Agreement. Pursuant to Section 4.5(d) of the Pledge Agreement, Holders
of all other Securities of this series may elect to have such Securities
remarketed in accordance with the procedures set forth therein.
If a Tax Event (as herein defined) shall occur and be continuing, the
Company may, at its option, redeem the Notes then Outstanding in whole (but not
in part) at any time ("Tax Event Redemption") at the Redemption Price (as herein
defined). If such Tax Event Redemption occurs prior to a successful remarketing
pursuant to Section 5.4 of the Purchase Contract Agreement, the Redemption Price
payable with respect to the Notes pledged to the Collateral Agent under the
Pledge Agreement will be paid to the
9
Collateral Agent on the Tax Event Redemption Date on or prior to 12:00 p.m., New
York City time, by wire transfer in immediately available funds at such place
and at such account as may be designated by the Collateral Agent in exchange for
the Notes pledged to the Collateral Agent; in such event, the Collateral Agent
shall apply such Redemption Price pursuant to the terms of the Purchase Contract
Agreement and the Pledge Agreement.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the date of redemption (the "Tax Event Redemption Date") to
each registered Holder of Notes of this Series to be redeemed at its registered
address as more fully provided in the Indenture. Unless the Company defaults in
payment of the Redemption Price, on and after the Tax Event Redemption Date
interest shall cease to accrue on such Notes of this Series.
"Quotation Agent" means Goldman, Sachs & Co. or any of its successors
or any other primary U.S. government securities dealer in The City of New York
selected by the Company.
"Redemption Price" means, for each Note, the product of (i) the
principal amount of such Note and (ii) a fraction whose numerator is the
applicable Treasury Portfolio Purchase Price (as herein defined) and whose
denominator is the applicable Tax Event Redemption Principal Amount (as herein
defined).
"Tax Event" means the receipt by the Company of an opinion of a
nationally recognized tax counsel experienced such matters, to the effect that
there is more than an insubstantial risk that interest payable by the Company on
the Notes on the next Interest Payment Date will not be deductible, in whole or
in part, by the Company for United States federal income tax purposes as a
result of (a) any amendment to, or change (including any announced proposed
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein affecting taxation
(other than any such amendment, change or announced proposed change to the
so-called "earnings stripping" provisions of Section 163(j) of the Internal
Revenue Code, which limit the ability of U.S. corporations to deduct interest on
certain debt owed to or guaranteed by related foreign persons), (b) any
amendment to or change in an official interpretation or application of such laws
or regulations by any legislative body, court, governmental agency or regulatory
authority or (c) any official interpretation, pronouncement or application that
provides for a position with respect to such laws or regulations that differs
from the generally accepted position on *, 2002, which amendment, change or
proposed change is effective or which interpretation or pronouncement is
announced on or after *, 2002.
"Tax Event Redemption Principal Amount" means (i) in the case of a Tax
Event Redemption Date occurring prior to a successful remarketing of the Notes
pursuant to the Purchase Contract Agreement, the aggregate principal amount of
Notes included in Normal Units on such date, and (ii) in the case of a Tax Event
Redemption Date
10
occurring after a successful remarketing of the Notes pursuant to the Purchase
Contract Agreement, the aggregate principal amount of the Notes.
"Treasury Portfolio Purchase Price" means the lowest aggregate price
quoted by a primary U.S. government securities dealer in New York City to the
Quotation Agent on the third Business Day immediately preceding the Tax Event
Redemption Date for the purchase of the Treasury Portfolio for settlement on the
Tax Event Redemption Date.
"Treasury Portfolio" means: (i) if a Tax Event Redemption occurs prior
to a successful remarketing of the Notes pursuant to the provisions of the
Purchase Contract Agreement, a portfolio (A) of zero-coupon U. S. Treasury
securities consisting of principal or interest strips of U.S. Treasury
securities that mature on or prior to *, 2005 in an aggregate amount equal to
the applicable Tax Event Redemption Principal Amount and (B) with respect to
each scheduled Interest Payment Date on the Notes that occurs after the Tax
Event Redemption Date and on or before *, 2005, interest or principal strips of
U.S. Treasury securities that mature on or prior to such Interest Payment Date
in an aggregate amount equal to the aggregate interest payment that would be due
on the applicable Tax Event Redemption Principal Amount on such date if the
interest rate of the Notes were not reset on the Reset Date, and (ii) solely for
purposes of determining the Treasury Portfolio Purchase Price in the case of a
Tax Event Redemption Date occurring after a successful remarketing of the Notes
pursuant to the Purchase Contract Agreement or *, 2005, a portfolio (A) of
zero-coupon U.S. Treasury securities consisting of principal or interest strips
of U.S. Treasury securities that mature on or prior to the Maturity Date in an
aggregate amount equal to the applicable Tax Event Redemption Principal Amount
and (B) with respect to each scheduled Interest Payment Date on the Notes that
occurs after the Tax Event Redemption Date and on or before the Maturity Date,
interest or principal strips of U.S. Treasury securities that mature on or prior
to such Interest Payment Date in an aggregate amount equal to the aggregate
interest payment that would be due on the applicable Tax Event Redemption
Principal Amount of the Notes Outstanding on the Tax Event Redemption Date.
The Notes do not have the benefit of any sinking fund obligation.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Notes may be declared,
and upon such declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the Guarantor and the rights of the Holders of the Notes under the
Indenture at any time by the Company, the Guarantor and the Trustee with the
consent of the majority of the Holders in principal amount of the Notes at the
time Outstanding. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Notes at the time
Outstanding, on behalf of the Holders of all the Notes, to waive compliance by
the Company or the Guarantor, or both, with certain
11
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Note at the times, place and rate, and in the coin or currency
herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, this Note is transferable by the registered Holder hereof on
the Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Trustee in the City of New York and
State of New York accompanied by a written instrument or instruments of transfer
in form satisfactory to the Company or the Trustee duly executed by the
registered Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes of authorized denominations and for the same
aggregate principal amount and series will be issued to the designated
transferee or transferees. No service charge will be made for any such transfer,
but the Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Note,
the Company, the Guarantor, the Trustee, any paying agent and the Registrar may
deem and treat the registered holder hereof as the absolute owner hereof
(whether or not this Note shall be overdue and notwithstanding any notice of
ownership or writing hereon made by anyone other than the Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company, the Guarantor nor the Trustee nor any paying agent nor any
Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Note, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture, against any incorporator,
shareholder, officer or director, past, present or future, as such, of the
Company or the Guarantor or of any predecessor or successor corporations,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issuance
hereof, expressly waived and released.
The Indenture imposes certain limitations on the ability of the
Company and the Guarantor to, among other things, merge or consolidate with any
other Person or sell, assign, transfer, lease or convey all or substantially all
of its properties and assets. All such covenants and limitations are subject to
a number of important qualifications and
12
exceptions. The Company and Guarantor must report periodically to the Trustee on
compliance with the covenants in the Indenture.
The Notes of this series are issuable only in registered form without
coupons, in denominations of $1000 and any integral multiple thereof except that
an interest in a Note held as part of a Normal Unit represents an ownership
interest of 1/40th, or 2.5%, of a Note in aggregate principal amount of $1000
and will therefore correspond to the stated amount of $25 per Normal Unit. As
provided in the Indenture and subject to certain limitations therein set forth,
Notes of this series so issued are exchangeable for a like aggregate principal
amount of Notes of this series of a different authorized denomination, as
requested by the Holder surrendering the same.
[IF NOTE IS A GLOBAL NOTE, INSERT - This Note is a Global Note and is
subject to the provisions of the Indenture relating to Global Notes, including
the limitations in Section 305 of the Base Indenture on transfers and exchanges
of Global Notes.]
All terms used in this Note that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
This Note and the Guarantee endorsed herein shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to conflicts of laws principles thereof.
13
GUARANTEE
For value received, Platinum Underwriters Holdings, Ltd., a
corporation organized under the laws of Bermuda (herein called the "Guarantor",
which term includes any successor under the Indenture referred to in the Note
upon which this Guarantee is endorsed), hereby absolutely, fully and
unconditionally and irrevocably guarantees to the Holder of the Note upon which
this Guarantee is endorsed, and to the Trustee on behalf of such Holder, (a) the
due and punctual payment of the principal of and interest (and, if applicable,
the Redemption Price) on such Note, whether at the Stated Maturity or by
acceleration, call for redemption or otherwise, (b) the due and punctual payment
of interest on overdue principal of and interest on such Note, if any, if
lawful, and (c) the due and punctual payment of any and all other payments due
to the Holder, all in accordance with the terms of such Note and of the
Indenture. In case of the failure of the Company punctually to make any such
payment of principal, premium, if any, or interest, if any, the Guarantor hereby
agrees to cause any such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or by declaration
of acceleration, call for redemption or otherwise, and as if such payment were
made by the Company.
The Guarantor hereby agrees that its obligations hereunder are a
guaranty of payment and not a guaranty of collection or performance and shall be
unconditional and absolute, irrespective of the validity, regularity or
enforceability of such Note or the Indenture or any limitation of the Company
thereunder or any limitation on the method or terms of payment thereunder which
may now or hereafter be caused or imposed in any manner whatsoever, the absence
of any action to enforce the same, any waiver or consent by the Holder of such
Note or by the Trustee with respect to any provisions thereof or of the
Indenture, the obtaining of any judgment against the Company or any action to
enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. The Guarantor hereby
waives the benefits of division and discussion, diligence, presentment, demand
of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Note or the indebtedness
evidenced thereby and all demands whatsoever, and covenants that this Guarantee
will not be discharged except by complete performance of the obligations
contained in such Note and in this Guarantee. Without limiting the generality of
the foregoing, the Guarantor hereby agrees that the obligations of the Guarantor
hereunder shall not be released, affected or impaired by assignment or transfer
in whole or in part of the Note whether or not made without notice to or the
consent of the Guarantor and shall not be subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of, including, but not limited to, setoff, counterclaim, recoupment or
termination whatsoever, and that such obligations shall not be released,
affected or impaired regardless of whether or not any Holder, including the
Holder of the Note, or anyone on behalf of any such Holder shall have instituted
any suit, action or proceeding or
14
exhausted its remedies or taken any steps to enforce any rights against the
Company or any other person to compel any such performance or observance or to
collect all or part of any such amount, either pursuant to the provisions of the
Indenture or the Note or at law or in equity, and regardless of any other
condition or contingency, or by reason of the invalidity, illegality or
unenforceability of the Note or the Indenture or otherwise and that such
obligations shall not be discharged or impaired or otherwise affected by the
failure of the Trustee or any Holder of such Note to assert any claim or demand
or to enforce any remedy under the Indenture or such Note, any other guarantee
or any other agreement, by any waiver, amendment, indulgence or modification
(whether material or otherwise) of any provision of any thereof, by any default,
failure or delay, willful or otherwise, in the performance of any obligations
under the Indenture, the Note or this Guarantee, or by the voluntary or
involuntary liquidation, sale or other disposition of all or substantially all
of the assets of the Company or the Guarantor, or any receivership, insolvency,
bankruptcy, reorganization, or other similar proceedings, affecting the Company
or any of its assets, or the release of any property from the lien and security
interest created by the Indenture or the Note or of any other security for the
Note, or the release or discharge of the Company or the Guarantor from the
performance or observance of any agreement, covenant, term or condition
contained in the Indenture or the Note by operation of law, or the merger or
consolidation of the Company or the Guarantor, or any other cause, whether
similar or dissimilar to the foregoing, or by any other act or omission that may
or might in any manner or to any extent vary the risk or obligations of the
Guarantor or that would otherwise operate as a discharge of a surety or
guarantor as a matter of law or equity (other than the performance of the
obligations contained in such Note and in this Guarantee).
The Holder of the Note upon which this Guarantee is endorsed is
entitled to the further benefits relating hereto set forth in the Indenture. No
reference herein to the Indenture and no provision of this Guarantee or of the
Indenture shall alter or impair the guarantee of the Guarantor, which is
absolute and unconditional, of the due and punctual payment of the principal of
and interest, or any such other payments, on the Note upon which this Guarantee
is endorsed.
This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws principles thereof.
All terms used in this Guarantee which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
This Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Note upon which this Guarantee is
endorsed shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
15
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly
executed.
PLATINUM UNDERWRITERS
HOLDINGS, LTD.
By:
----------------------
Name:
Title:
Attest:
By:
---------------------------
Name:
Title:
16
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Note to:
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(INSERT ASSIGNEE'S SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(INSERT ADDRESS AND ZIP CODE OF ASSIGNEE)
agent to transfer this Note on the Register. The agent may substitute another to
act for him or her.
Dated:
Signed:
-------------------------
Signature Guarantee:
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THIS NOTE)
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
17
ARTICLE IV
ORIGINAL ISSUE OF NOTES
Section 4.1. ORIGINAL ISSUE OF NOTES.
Notes in the aggregate principal amount of $ 125,000,000 (which amount
may be increased by up to $18,750,000 in the event the Over-Allotment Option is
exercised) may, upon execution of this First Supplemental Indenture, be executed
by the Company and delivered to the Trustee for authentication, and the Trustee
shall thereupon authenticate and deliver said Notes in accordance with a Company
Order. The Issue Date of the Notes shall be *, 2002.
ARTICLE V
MISCELLANEOUS
Section 5.1. RATIFICATION OF BASE INDENTURE.
The Base Indenture, as supplemented by this First Supplemental
Indenture, is in all respects ratified and confirmed, and this First
Supplemental Indenture shall be deemed part of the Base Indenture in the manner
and to the extent herein and therein provided.
Section 5.2. GOVERNING LAW.
THIS FIRST SUPPLEMENTAL INDENTURE AND EACH NOTE AND GUARANTEE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 5.3. NOT RESPONSIBLE FOR RECITALS.
The recitals contained in this First Supplemental Indenture and the
Securities, except the Trustee's certificate of authentication, shall be taken
as the statements of the Company or the Guarantor, as the case may be, and the
Trustee assumes no responsibility for their correctness and makes no
representation as to the validity or sufficiency of this First Supplemental
Indenture.
Section 5.4. COUNTERPARTS.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
18
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed by their respective officers
thereunto duly authorized, on the date or dates indicated in the acknowledgments
and as of the day and year first above written.
PLATINUM UNDERWRITERS
FINANCE, INC.,
as Issuer
By:
----------------------
Name:
Title:
PLATINUM UNDERWRITERS
HOLDINGS, LTD.,
as Guarantor
By:
----------------------
Name:
Title:
JPMORGAN CHASE BANK,
as Trustee
By:
----------------------
Name:
Title:
EX-4.4
6
a2090035zex-4_4.txt
EXHIBIT 4.4
EXHIBIT 4.4
PLATINUM UNDERWRITERS HOLDINGS, LTD.
AND
JPMORGAN CHASE BANK,
AS PURCHASE CONTRACT AGENT
PURCHASE CONTRACT AGREEMENT
DATED AS OF , 2002
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 Definitions..................................................................................1
SECTION 1.2 Compliance Certificates and Opinions........................................................15
SECTION 1.3 Form of Documents Delivered to Agent........................................................16
SECTION 1.4 Acts of Holders; Record Dates...............................................................17
SECTION 1.5 Notices.....................................................................................18
SECTION 1.6 Notice to Holders; Waiver...................................................................19
SECTION 1.7 Effect of Headings and Table of Contents....................................................20
SECTION 1.8 Successors and Assigns......................................................................20
SECTION 1.9 Separability Clause.........................................................................20
SECTION 1.10 Benefits of Agreement......................................................................20
SECTION 1.11 Governing Law; Jurisdiction................................................................20
SECTION 1.12 Legal Holidays.............................................................................21
SECTION 1.13 Counterparts...............................................................................22
SECTION 1.14 Inspection of Agreement....................................................................22
SECTION 1.15 Appointment of Financial Institution as Agent for the Company..............................22
SECTION 1.16 No Waiver..................................................................................22
ARTICLE II
CERTIFICATE FORMS
SECTION 2.1 Forms of Certificates Generally.............................................................22
SECTION 2.2 Form of Agent's Certificate of Authentication...............................................24
ARTICLE III
THE UNITS
SECTION 3.1 Title and Terms; Denominations..............................................................24
SECTION 3.2 Rights and Obligations Evidenced by the Certificates........................................24
SECTION 3.3 Execution, Authentication, Delivery and Dating..............................................25
SECTION 3.4 Temporary Certificates......................................................................26
SECTION 3.5 Registration; Registration of Transfer and Exchange.........................................27
SECTION 3.6 Book-Entry Interests........................................................................28
SECTION 3.7 Notices to Holders..........................................................................29
SECTION 3.8 Appointment of Successor Clearing Agency....................................................29
SECTION 3.9 Definitive Certificates.....................................................................29
SECTION 3.10 Mutilated, Destroyed, Lost and Stolen Certificates.........................................30
SECTION 3.11 Persons Deemed Owners......................................................................31
SECTION 3.12 Cancellation...............................................................................32
Page
----
SECTION 3.13 Establishment of Stripped Units............................................................32
SECTION 3.14 Reestablishment of Normal Units............................................................34
SECTION 3.15 Transfer of Collateral upon Occurrence of Termination Event................................35
SECTION 3.16 No Consent to Assumption...................................................................36
SECTION 3.17 CUSIP Numbers..............................................................................36
ARTICLE IV
THE NOTES
SECTION 4.1 Payment of Interest; Rights to Interest Payments Preserved; Notice..........................36
SECTION 4.2 Notice and Voting...........................................................................37
SECTION 4.3 Tax Event Redemption........................................................................38
SECTION 4.4 Consent to Treatment for Tax Purposes.......................................................38
SECTION 4.5 Prepayment of Notes.........................................................................39
ARTICLE V
THE PURCHASE CONTRACTS; THE REMARKETING
SECTION 5.1 Purchase of Common Shares...................................................................39
SECTION 5.2 Contract Adjustment Payments................................................................41
SECTION 5.3 Deferral of Contract Adjustment Payments....................................................47
SECTION 5.4 Payment of Purchase Price; Remarketing......................................................49
SECTION 5.5 Issuance of Common Shares...................................................................54
SECTION 5.6 Adjustment of Settlement Rate...............................................................55
SECTION 5.7 Notice of Adjustments and Certain Other Events..............................................62
SECTION 5.8 Termination Event; Notice...................................................................63
SECTION 5.9 Early Settlement............................................................................63
SECTION 5.10 Early Settlement Upon Cash Merger..........................................................65
SECTION 5.11 Charges and Taxes..........................................................................67
SECTION 5.12 No Fractional Shares.......................................................................67
ARTICLE VI
REMEDIES
SECTION 6.1 Unconditional Right of Holders to Receive Purchase Contract Adjustment
Payments and Purchase Common Shares......................................................68
SECTION 6.2 Restoration of Rights and Remedies..........................................................68
SECTION 6.3 Rights and Remedies Cumulative..............................................................68
SECTION 6.4 Delay or Omission Not Waiver................................................................69
SECTION 6.5 Undertaking for Costs.......................................................................69
SECTION 6.6 Waiver of Stay or Extension Laws............................................................69
ii
Page
----
ARTICLE VII
THE AGENT
SECTION 7.1 Certain Duties and Responsibilities.........................................................69
SECTION 7.2 Notice of Default...........................................................................70
SECTION 7.3 Certain Rights of Agent.....................................................................71
SECTION 7.4 Not Responsible for Recitals or Issuance of Units...........................................72
SECTION 7.5 May Hold Units..............................................................................72
SECTION 7.6 Money Held in Custody.......................................................................72
SECTION 7.7 Compensation and Reimbursement..............................................................72
SECTION 7.8 Corporate Agent Required; Eligibility.......................................................73
SECTION 7.9 Resignation and Removal; Appointment of Successor...........................................73
SECTION 7.10 Acceptance of Appointment by Successor.....................................................75
SECTION 7.11 Merger, Conversion, Consolidation or Succession to Business................................75
SECTION 7.12 Preservation of Information................................................................75
SECTION 7.13 No Obligations of Agent....................................................................76
SECTION 7.14 Tax Compliance.............................................................................76
ARTICLE VIII
SUPPLEMENTAL AGREEMENTS
SECTION 8.1 Supplemental Agreements Without Consent of Holders..........................................76
SECTION 8.2 Supplemental Agreements with Consent of Holders.............................................77
SECTION 8.3 Execution of Supplemental Agreements........................................................78
SECTION 8.4 Effect of Supplemental Agreements...........................................................79
SECTION 8.5 Reference to Supplemental Agreements........................................................79
ARTICLE IX
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property Except
Under Certain Conditions.................................................................79
SECTION 9.2 Rights and Duties of Successor Corporation..................................................79
SECTION 9.3 Opinion of Counsel Given to Agent...........................................................80
ARTICLE X
COVENANTS
SECTION 10.1 Performance Under Purchase Contracts.......................................................80
SECTION 10.2 Maintenance of Office or Agency............................................................80
SECTION 10.3 Company to Reserve Common Shares...........................................................81
SECTION 10.4 Covenants as to Common Shares..............................................................81
iii
PAGE
EXHIBITS
EXHIBIT A Form of Normal Units Certificate
EXHIBIT B Form of Stripped Units Certificate
EXHIBIT C Instruction from Purchase Contract Agent to Collateral Agent
EXHIBIT D Instruction to Purchase Contract Agent
EXHIBIT E Notice to Settle by Separate Cash
iv
PURCHASE CONTRACT AGREEMENT, dated as of *, 2002, between Platinum
Underwriters Holdings, Ltd., a Bermuda corporation (the "Company"), and JPMorgan
Chase Bank, a New York banking corporation, acting as purchase contract agent
and attorney-in-fact for the Holders of Units from time to time (the "Agent").
RECITALS
The Company has duly authorized the execution and delivery of this
Agreement and the Certificates evidencing the Units.
All things necessary to make the Purchase Contracts, when the
Certificates are executed by the Company and authenticated, executed on behalf
of the Holders and delivered by the Agent, as provided in this Agreement, the
valid obligations of the Company, and to constitute this Agreement a valid
agreement of the Company, in accordance with its terms, have been done.
WITNESSETH:
For and in consideration of the premises and the purchase of the Units
by the Holders thereof, it is mutually agreed as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1 DEFINITIONS.
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular, and
nouns and pronouns of the masculine gender include the feminine and neuter
genders;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision; and
(d) the following terms have the meanings given to them in this
Section 1.1(d):
"Act" when used with respect to any Holder, has the meaning specified
in Section 1.4(a).
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"Agent" means the Person named as the "Agent" in the first paragraph
of this Agreement until a successor Agent shall have become such pursuant
to the applicable provisions of this Agreement, and thereafter "Agent"
shall mean such Person.
"Agent-purchased Treasury Consideration" has the meaning specified in
Section 5.4(b)(i).
"Agreement" means this agreement as originally executed or as it may
from time to time be supplemented or amended by one or more agreements
supplemental hereto entered into pursuant to the applicable provisions
hereof.
"Applicable Market Value" has the meaning specified in Section 5.1(c).
"Applicants" has the meaning specified in Section 7.12(b).
"Bankruptcy Code" means Title 11 of the United States Code, or any
other law of the United States that from time to time provides a uniform
system of bankruptcy laws.
"Beneficial Owner" means, with respect to a Book-Entry Interest, a
Person who is the beneficial owner of such Book-Entry Interest as reflected
on the books of the Clearing Agency or on the books of a Person maintaining
an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with
the rules of such Clearing Agency).
"Board of Directors" means either the Board of Directors of the
Company or the Executive Committee of such Board or any other committee of
such Board duly authorized to act generally or in any particular respect
for the Board hereunder.
"Board Resolution" means (i) a copy of a resolution certified by the
Secretary or the Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification, (ii) a copy of a unanimous written consent of
the Board of Directors or (iii) a certificate signed by the authorized
officer or officers to whom the Board of Directors has delegated its
authority, and in each case, delivered to the Agent.
2
"Book-Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 3.6.
"Business Day" means any day that is not a Saturday, Sunday or day on
which banking institutions and trust companies in The City of New York[ or
in the city where the principal corporate trust office of the Collateral
Agent is located] or at a place of payment are authorized or required by
law, regulation or executive order to close.
"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated, whether voting or non-voting) corporate
stock or similar interests in other types of entities.
"Cash Merger" has the meaning set forth in Section 5.10(a).
"Cash Merger Date" means the date on which a Cash Merger is
consummated.
"Cash Settlement" has the meaning set forth in Section 5.4(a).
"Certificate" means a Normal Units Certificate or a Stripped Units
Certificate.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act that is acting as a
depositary for the Units and in whose name, or in the name of a nominee of
that organization, shall be registered a Global Certificate and which shall
undertake to effect book-entry transfers and pledges of the Units.
"Clearing Agency Participant" means a broker, dealer, bank, trust
company, clearing corporation, other financial institution or other Person
for whom from time to time the Clearing Agency effects book-entry transfers
and pledges of securities deposited with the Clearing Agency.
"Closing Price" has the meaning specified in Section 5.1(c).
"Collateral" has the meaning specified in Section 2.1(a) of the Pledge
Agreement.
"Collateral Agent" means State Street Bank and Trust Company, a
Massachusetts trust company, as Collateral Agent under the Pledge Agreement
until a successor Collateral Agent shall have become such pursuant to the
applicable provisions of the Pledge Agreement, and thereafter "Collateral
Agent" shall mean the Person who is then the Collateral Agent thereunder.
3
"Collateral Substitution" has the meaning specified in Section
3.13(a).
"Common Shares" means the Common Shares, par value $0.01 per share, of
the Company.
"Company" means the Person named as the "Company" in the first
paragraph of this Agreement until a successor shall have become such
pursuant to the applicable provisions of this Agreement, and thereafter
"Company" shall mean such successor.
"Constituent Person" has the meaning specified in Section 5.6(b).
"Contract Adjustment Payments" means, in the case of Normal Units and
Stripped Units, the amount payable by the Company in respect of each
Purchase Contract constituting a part of such Unit, which amount shall be
equal to [ ]% per year of the Stated Amount, in each case computed (i)
for any full quarterly period on the basis of a 360-day year of twelve
30-day months and (ii) for any period shorter than a full quarterly period,
on the basis of a 30-day month, and for periods of less than a month, on
the basis of the actual number of days elapsed per 30-day month, plus any
Deferred Contract Adjustment Payments accrued pursuant to Section 5.3.
"Corporate Trust Office" means the corporate trust office of the Agent
at which, at any particular time, its corporate trust business shall be
principally administered, which office at the date hereof is located at 450
West 33rd Street, New York, New York 10001, Attention: Institutional Trust
Services.
"Coupon Rate" means the percentage rate per annum at which each Note
will bear interest initially.
"Current Market Price" has the meaning specified in Section 5.6(a)(8).
"Custodial Agent" means State Street Bank and Trust Company, a
Massachusetts trust company, as Custodial Agent under the Pledge Agreement
until a successor Custodial Agent shall have become such pursuant to the
applicable provisions of the Pledge Agreement, and thereafter "Custodial
Agent" shall mean the Person who is then the Custodial Agent thereunder.
"Default" means a default by the Company in any of its obligations
under this Agreement.
"Deferred Contract Adjustment Payments" has the meaning specified in
Section 5.3(a).
"Depositary" means, initially, DTC, until another Clearing Agency
becomes its successor.
4
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Early Settlement" has the meaning specified in Section 5.9(a).
"Early Settlement Amount" has the meaning specified in Section 5.9(a).
"Early Settlement Date" has the meaning specified in Section 5.9(a).
"Early Settlement Rate" has the meaning specified in Section 5.9(b).
"Exchange Act" means the Securities Exchange Act of 1934 and any
statute successor thereto, in each case as amended from time to time, and
the rules and regulations promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.4(f).
"Expiration Time" has the meaning specified in Section 5.6(a)(6).
"Failed Remarketing" has the meaning specified in Section 5.4(b)(ii).
"Fair Market Value" with respect to securities distributed in a
Spin-Off means (a) in the case of any Spin-Off that is effected
simultaneously with an Initial Public Offering of such securities, the
initial public offering price of those securities and (b) in the case of
any other Spin-Off, (i) the average of the Sale Price of those securities
over the first ten Trading Days after the effective date of such Spin-Off
or (ii) if the Sale Price is required to be defined without regard to the
price on any Trading Days, the Sale Price as of the effective date of such
Spin-Off.
"First Supplemental Indenture" means the First Supplemental Indenture,
dated as of *, 2002, to the Indenture among Platinum Underwriters Finance,
Inc., the Company and the Trustee.
"Global Certificate" means a Certificate that evidences all or part of
the Units and is registered in the name of a Depositary or a nominee
thereof.
"Holder" means the Person in whose name the Unit evidenced by a Normal
Units Certificate and/or a Stripped Units Certificate is registered in the
related Normal Units Register and/or the Stripped Units Register, as the
case may be.
"Indenture" means the Indenture, dated as of *, 2002, among Platinum
Underwriters Finance, Inc., the Company and the Trustee pursuant to which
the Notes are to be issued, as originally executed and delivered and as it
may from time to time be supplemented or amended by one or more indentures
5
supplemental thereto entered into pursuant to the applicable provisions
thereof and shall include the terms of a particular series established as
contemplated thereof.
"Initial Public Offering" with respect to a Spin-Off means the first
time securities of the same class or type as the securities being
distributed in such Spin-Off are bona fide offered to the public for cash.
"Issuer Order" or "Issuer Request" means a written order or request
signed in the name of the Company by the Chief Executive Officer, the Chief
Financial Officer, the President, any Vice-President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary (or other
officer performing similar functions) of the Company and delivered to the
Agent.
"Last Failed Remarketing" has the meaning specified in Section
5.4(b)(ii).
"Merger Early Settlement" has the meaning specified in Section
5.10(a).
"Merger Early Settlement Amount" has the meaning specified in Section
5.10(b).
"Merger Early Settlement Date" has the meaning specified in Section
5.10(a)(i).
"Non-electing Share" has the meaning specified in Section 5.6(b).
"Normal Unit" means the collective rights and obligations of a Holder
of a Normal Units Certificate in respect of a 1/40 undivided beneficial
interest in a Note or the appropriate Treasury Consideration, as the case
may be, subject in each case to the Pledge thereof, and the related
Purchase Contract.
"Normal Units Certificate" means a certificate evidencing the rights
and obligations of a Holder in respect of the number of Normal Units
specified on such certificate, substantially in the form of Exhibit A
hereto.
"Normal Units Register" and "Normal Units Registrar" have the
respective meanings specified in Section 3.5(a).
"Notes" means the *% Senior Guaranteed Notes due * 2007 of Platinum
Underwriters Finance, Inc. issued under the Indenture and guaranteed by the
Company.
"NYSE" has the meaning specified in Section 5.1(c).
"Officers' Certificate" means a certificate signed by the Chief
Executive Officer, the Chief Financial Officer, the President or any
Vice-President, and by
6
the Treasurer, any Assistant Treasurer, the Secretary or any Assistant
Secretary (or other officer performing similar functions) of the Company
and delivered to the Agent.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company or an
Affiliate of the Company and who shall be reasonably acceptable to the
Agent.
"Opt-out Treasury Consideration" has the meaning specified in Section
5.4(b)(iv).
"Outstanding Units" means, as of the date of determination, all Normal
Units or Stripped Units evidenced by Certificates theretofore
authenticated, executed and delivered under this Agreement, except:
(i) If a Termination Event has occurred, (A) Stripped Units
and (B) Normal Units for which the related Notes or the appropriate
Treasury Consideration, as the case may be, has been theretofore
deposited with the Agent in trust for the Holders of such Normal
Units;
(ii) Normal Units and Stripped Units evidenced by Certificates
theretofore cancelled by the Agent or delivered to the Agent for
cancellation or deemed cancelled pursuant to the provisions of this
Agreement; and
(iii) Normal Units and Stripped Units evidenced by Certificates
in exchange for or in lieu of which other Certificates have been
authenticated, executed on behalf of the Holder and delivered pursuant
to this Agreement, other than any such Certificate in respect of which
there shall have been presented to the Agent proof satisfactory to it
that such Certificate is held by a protected purchaser in whose hands
the Normal Units or Stripped Units evidenced by such Certificate are
valid obligations of the Company;
provided, that in determining whether the Holders of the requisite number
of the Normal Units or Stripped Units have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Normal Units
or Stripped Units owned by the Company or any Affiliate of the Company
shall be disregarded and deemed not to be outstanding, except that, in
determining whether the Agent shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Normal Units or Stripped Units which a Responsible Officer of the Agent
knows to be so owned shall be so disregarded. Normal Units or Stripped
Units so owned which have been pledged in good faith may be regarded as
Outstanding Units if the pledgee establishes to the satisfaction of the
Agent the pledgee's right so to act with respect to such Normal Units or
7
Stripped Units and that the pledgee is not the Company or any Affiliate of
the Company.
"Payment Date" means each *, *, * and *, commencing *, 2002 and ending
on * , 2005.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Platinum Underwriters Finance" means Platinum Underwriters Finance,
Inc., a Delaware corporation.
"Pledge" means the pledge under the Pledge Agreement of the Notes, the
Treasury Securities or the appropriate Treasury Consideration, in each case
constituting a part of the Units, property, cash, securities, financial
assets and security entitlements of the Collateral Account (as defined in
the Pledge Agreement) and any proceeds of any of the foregoing.
"Pledge Agreement" means the Pledge Agreement, dated as of the date
hereof, by and among the Company, the Collateral Agent, the Custodial
Agent, the Securities Intermediary and the Agent, on its own behalf and as
attorney-in-fact for the Holders from time to time of the Units.
"Pledged Notes" has the meaning set forth in Section 2.1(c) of the
Pledge Agreement.
"Pledged Treasury Consideration" has the meaning set forth in Section
2.1(c) of the Pledge Agreement.
"Pledged Treasury Securities" has the meaning set forth in Section
2.1(c) of the Pledge Agreement.
"Predecessor Certificate" means a Predecessor Normal Units Certificate
or a Predecessor Stripped Units Certificate.
"Predecessor Normal Units Certificate" of any particular Normal Units
Certificate means every previous Normal Units Certificate evidencing all or
a portion of the rights and obligations of the Company and the Holder under
the Normal Units evidenced thereby; and, for the purposes of this
definition, any Normal Units Certificate authenticated and delivered under
Section 3.10 in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Normal Units Certificate shall be deemed to evidence the same rights
and obligations of the Company and the Holder as the mutilated, destroyed,
lost or stolen Normal Units Certificate.
8
"Predecessor Stripped Units Certificate" of any particular Stripped
Units Certificate means every previous Stripped Units Certificate
evidencing all or a portion of the rights and obligations of the Company
and the Holder under the Stripped Units evidenced thereby; and, for the
purposes of this definition, any Stripped Units Certificate authenticated
and delivered under Section 3.10 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Stripped Units Certificate shall be deemed to
evidence the same rights and obligations of the Company and the Holder as
the mutilated, destroyed, lost or stolen Stripped Units Certificate.
"Prepayment Event" has the meaning specified in Section 4.5.
"Prepayment Treasury Consideration" means, with respect to a Normal
Unit, a 1/40, or 2.5%, undivided beneficial ownership interest in a
zero-coupon U.S. Treasury security (CUSIP Number *) maturing on *, 2005
that will pay $1,000 on such maturity date.
"Purchase Contract," when used with respect to any Unit, means the
contract forming a part of such Unit and obligating the Company to sell and
the Holder of such Unit to purchase Common Shares on the terms and subject
to the conditions set forth in Article Five.
"Purchase Contract Settlement Fund" has the meaning specified in
Section 5.5.
"Purchase Price" has the meaning specified in Section 5.1(a).
"Purchased Shares" has the meaning specified in Section 5.6(a)(6).
"Quotation Agent" means Goldman, Sachs & Co. or any of its successors
or any other primary U.S. government securities dealer in New York City
selected by the Company.
"Record Date" for the payment of a distribution payable on any Payment
Date means, as to any Global Certificate, the Business Day next preceding
such Payment Date, and as to any other Certificate, the 15th calendar day
preceding such Payment Date.
"Redemption Price" means, for each Note, the product of (i) the
principal amount of such Note and (ii) a fraction whose numerator is the
applicable Treasury Portfolio Purchase Price and whose denominator is the
applicable Tax Event Redemption Principal Amount.
9
"Register" means the Normal Units Register and the Stripped Units
Register, as applicable.
"Registrar" means the Normal Units Registrar and the Stripped Units
Registrar, as applicable.
"Remarketing Agent" has the meaning specified in Section 5.4(b)(i).
"Remarketing Agreement" means the Remarketing Agreement to be entered
into by and among the Company, Platinum Underwriters Finance, the
Remarketing Agent and the Agent.
"Remarketing Date" means the third Business Day preceding *, 2005.
"Remarketing Fee" has the meaning specified in Section 5.4(b)(i).
"Remarketing Period" means each of (i) the three Business Day period
beginning on the Remarketing Date and ending after the two immediately
following Business Days; (ii) the three Business Day period immediately
preceding *, 2005; and (iii) the third Business Day immediately preceding
the Share Purchase Date.
"Remarketing Rate" means the percentage rate per year at which each
Note will bear interest on and following the Reset Date.
"Remarketing Value" means the sum of
(i) the value at the Remarketing Date or any Subsequent
Remarketing Date, as the case may be, of U.S. Treasury securities that
will pay, on or prior to the Share Purchase Date, an amount of cash
equal to the interest payment scheduled to be payable on that date on
the Note, assuming for that purpose, even if not true, that the
interest rate on the Note is equal to the Coupon Rate, and
(ii) the value at the Remarketing Date or any Subsequent
Remarketing Date, as the case may be, of U.S. Treasury securities that
will pay, on or prior to the Share Purchase Date, an amount of cash
equal to the Stated Amount of such Note;
provided that for purposes of clauses (i) and (ii) above, the Remarketing
Value shall be calculated on the assumptions that (x) the U.S. Treasury
securities are highly liquid and mature on or within 35 days prior to the
Share Purchase Date, as determined in good faith by the Remarketing Agent
in a manner intended to minimize the cash value of the U.S. Treasury
securities, and (y) the U.S. Treasury securities are valued based on the
ask-side price of such U.S. Treasury securities at a time between 9:00 a.m.
and 11:00 a.m., New York City time, selected by the
10
Remarketing Agent, on the Remarketing Date or any Subsequent Remarketing
Date, as the case may be, as determined on a third-day settlement basis by
a reasonable and customary means selected in good faith by the Remarketing
Agent, plus accrued interest to that date.
"Reorganization Event" has the meaning specified in Section 5.6(b).
"Reset Date" means the date following the Remarketing Date or a
Subsequent Remarketing Date, as applicable, on which the trades in a
successful remarketing of the Notes, pursuant to the provisions of Section
5.4, settle.
"Responsible Officer" means, when used with respect to the Agent, any
officer within the Institutional Trust Services unit of the Agent (or any
successor unit or department of the Agent) located at the Corporate Trust
Office of the Agent who has direct responsibility for the administration of
this Agreement and, for the purposes of Section 7.1(b)(2), shall also
include any officer of the Agent to whom any corporate trust matter is
referred because of such person's knowledge of and familiarity with the
particular subject.
"Sale Price" of any securities distributed in a Spin-Off on any
Trading Day means the closing sale price per share (or if no closing sale
price is reported, the average of the bid and ask prices or, if more than
one in either case, the average of the average bid and average ask prices)
on such Trading Day as reported in composite transactions for the principal
U.S. securities exchange on which such securities are traded or, if such
securities are not listed on a U.S. national or regional securities
exchange, as reported by the Nasdaq Stock Market, or if such securities are
not so reported, the last quoted bid price for such securities in the
over-the-counter market as reported by the National Quotation Bureau or
similar organization, or, if such bid price is not available, the market
value of such securities on such date as determined by a nationally
recognized independent investment banking firm retained by the Company for
this purpose.
"Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time, and the rules
and regulations promulgated thereunder.
"Securities Intermediary" means State Street Bank and Trust Company, a
Massachusetts trust company, in its capacity as Securities Intermediary
under the Pledge Agreement, together with its successors in such capacity.
"Senior Indebtedness" means indebtedness of any kind of the Company
unless the instrument under which such indebtedness is incurred expressly
provides that it is in parity or subordinate in right of payment to the
Contract Adjustment Payments.
"Separate Notes" has the meaning set forth in the Pledge Agreement.
11
"Settlement Date" means any Early Settlement Date or Merger Early
Settlement Date or the Share Purchase Date.
"Settlement Rate" has the meaning specified in Section 5.1(a).
"Share Purchase Date" means *, 2005.
"Spin-Off" means a dividend or other distribution on the Common Shares
or shares of Capital Stock of any class or series, or similar equity
interests, of or relating to a subsidiary or other business unit of the
Company.
"Stated Amount" means, with respect to any one Normal Unit or Stripped
Unit, $25, and with respect to any one Note, $1,000.
"Stripped Unit" means the collective rights and obligations of a
Holder of a Stripped Units Certificate in respect of a 1/40 undivided
beneficial interest in a Treasury Security, subject to the Pledge thereof,
and the related Purchase Contract.
"Stripped Units Certificate" means a certificate evidencing the rights
and obligations of a Holder in respect of the number of Stripped Units
specified on such certificate, substantially in the form of Exhibit B
hereto.
"Stripped Units Register" and "Stripped Units Registrar" have the
respective meanings specified in Section 3.5(a).
"Subsequent Remarketing" has the meaning specified in Section
5.4(b)(ii).
"Subsequent Remarketing Date" means any date during any Remarketing
Period on which the Remarketing Agent attempts a Subsequent Remarketing in
accordance with Section 5.4 hereof.
"Tax Event" means the receipt by the Company of an opinion of a
nationally recognized tax counsel experienced in such matters to the effect
that there is more than an insubstantial risk that interest payable by
Platinum Underwriters Finance on the Notes on the next Payment Date will
not be deductible, in whole or in part, by Platinum Underwriters Finance
for United States federal income tax purposes, as a result of (a) any
amendment to, or change (including any announced proposed change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation
(other than any such amendment, change or announced proposed change to the
so-called "earnings stripping" provisions of Section 163(j) of the Internal
Revenue Code, which limit the ability of U.S. corporations to deduct
interest on certain debt owed to or guaranteed by related foreign persons),
(b) any amendment to or change in an official interpretation or application
of such laws or regulations by any legislative body, court,
12
governmental agency or regulatory authority or (c) any official
interpretation, pronouncement or application that provides for a position
with respect to such laws or regulations that differs from the generally
accepted position on _________, 2002, which amendment, change or proposed
change is effective or which interpretation or pronouncement is announced
on or after __________, 2002.
"Tax Event Redemption" means, if a Tax Event shall occur and be
continuing, the redemption of the Notes, at the option of Platinum
Underwriters Finance, in whole but not in part, on not less than 30 days
nor more than 60 days' prior written notice.
"Tax Event Redemption Date" means the date upon which a Tax Event
Redemption is to occur.
"Tax Event Redemption Principal Amount" means (i) in the case of a Tax
Event Redemption Date occurring prior to a successful remarketing of the
Notes pursuant to Section 5.4 hereof, the aggregate principal amount of
Notes included in Normal Units outstanding on such date, and (ii) in the
case of a Tax Event Redemption Date occurring after either a successful
remarketing of the Notes pursuant to Section 5.4 hereof or the Share
Purchase Date, the aggregate principal amount of the Notes outstanding on
such date.
"Tax Event Redemption Treasury Consideration" means, with respect to a
Normal Unit and the U.S. Treasury securities in the Treasury Portfolio,
(A) a 1/40, or 2.5%, undivided beneficial ownership interest in a $1,000
principal or interest amount of a principal or interest strip in a U.S.
Treasury security included in such Treasury Portfolio which matures on or
prior to the Share Purchase Date and (B) for each scheduled interest
Payment Date on the Notes that occurs after the Tax Event Redemption Date
and on or before the Share Purchase Date a *% undivided beneficial
ownership interest in a $1,000 principal or interest of a principal or
interest strip in a U.S. Treasury security included in the Treasury
Portfolio that matures on or prior to that interest Payment Date.
"Termination Date" means the date, if any, on which a Termination
Event occurs.
"Termination Event" means the occurrence of any of the following
events:
(i) at any time on or prior to the Share Purchase Date, a
judgment, decree or court order shall have been entered granting
relief under the Bankruptcy Code or any other similar foreign, federal
or state law, adjudicating the Company to be insolvent, or approving
as properly filed a petition seeking reorganization or liquidation of
the Company, and, unless such judgment, decree or order shall have
been entered within 60
13
days prior to the Share Purchase Date, such decree or order shall have
continued undischarged and unstayed for a period of 60 days;
(ii) at any time on or prior to the Share Purchase Date, a
judgment, decree or court order for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of the
Company or of its property substantially in its entirety, or for the
winding up or liquidation of its affairs, shall have been entered,
and, unless such judgment, decree or order shall have been entered
within 60 days prior to the Share Purchase Date, such judgment, decree
or order shall have continued undischarged and unstayed for a period
of 60 days; or
(iii) at any time on or prior to the Share Purchase Date, the
Company shall file a petition for relief under the Bankruptcy Code or
any other similar foreign, federal or state law, or shall consent to
the filing of a bankruptcy proceeding against it, or shall file a
petition or answer or consent seeking reorganization or liquidation
under the Bankruptcy Code or any other similar foreign, federal or
state law, or shall consent to the filing of any such petition, or
shall consent to the appointment of a receiver or liquidator or
trustee or assignee in bankruptcy or insolvency of it or of its
property substantially in its entirety, or shall make an assignment
for the benefit of creditors, or shall admit in writing its inability
to pay its debts generally as they become due.
"Threshold Appreciation Price" has the meaning specified in Section
5.1(a).
"TIA" means the Trust Indenture Act of 1939, and any statute successor
thereto, in each case as amended from time to time, and the rules and
regulations promulgated thereunder.
"Trading Day" has the meaning specified in Section 5.1(c).
"Treasury Consideration" means the Agent-purchased Treasury
Consideration, the Opt-out Treasury Consideration, the Prepayment Treasury
Consideration or the Tax Event Redemption Treasury Consideration.
"Treasury Portfolio" means: (i) if a Tax Event Redemption occurs prior
to a successful remarketing of the Notes pursuant to the provisions of
Section 5.4 hereof, a portfolio of (A) zero-coupon U.S. Treasury securities
consisting of principal or interest strips of U.S. Treasury securities that
mature on or prior to the Share Purchase Date in an aggregate amount equal
to the applicable Tax Event Redemption Principal Amount and (B) with
respect to each scheduled interest Payment Date on the Notes that occurs
after the Tax Event Redemption Date and on or before the Share Purchase
Date, interest or principal strips of U.S. Treasury securities that mature
on or prior to such interest Payment Date in an aggregate
14
amount equal to the aggregate interest payment that would be due on the
applicable Tax Event Redemption Principal Amount on such date if the
interest rate of the Notes were not reset on the Reset Date, and (ii)
solely for purposes of determining the Treasury Portfolio Purchase Price in
the case of a Tax Event Redemption Date occurring after either of a
successful remarketing of the Notes or the Share Purchase Date, a portfolio
of (A) zero-coupon U.S. Treasury securities consisting of principal or
interest strips of U.S. Treasury securities that mature on or prior to *,
2007 in an aggregate amount equal to the applicable Tax Event Redemption
Principal Amount and (B) with respect to each scheduled interest Payment
Date on the Notes that occurs after the Tax Event Redemption Date and on or
before *, 2007, interest or principal strips of U.S. Treasury securities
that mature on or prior to such interest Payment Date in an aggregate
amount equal to the aggregate interest payment that would be due on the
applicable Tax Event Redemption Principal Amount.
"Treasury Portfolio Purchase Price" means the lowest aggregate price
quoted by a primary U.S. government securities dealer in New York City to
the Quotation Agent on the third Business Day immediately preceding the Tax
Event Redemption Date for the purchase of the Treasury Portfolio for
settlement on the Tax Event Redemption Date.
"Treasury Security" means a zero-coupon U.S. Treasury security (CUSIP
Number *) maturing on *, 2005 that will pay $1,000 on such maturity date.
"Trustee" means JPMorgan Chase Bank, a New York banking corporation,
as trustee under the Indenture and the First Supplemental Indenture, or any
successor thereto.
"Underwriting Agreement" means the Underwriting Agreement relating to
the Units dated *, 2002 among the Company, Platinum Underwriters Finance,
Inc., The St. Paul Companies, Inc. and the underwriters named therein.
"Unit" means a Normal Unit or a Stripped Unit.
"Vice-President" means any vice-president, whether or not designated
by a number or a word or words added before or after the title
"vice-president."
SECTION 1.2 COMPLIANCE CERTIFICATES AND OPINIONS.
Except as otherwise expressly provided by this Agreement, upon any
application or request by the Company to the Agent to take any action under any
provision of this Agreement, the Company shall furnish to the Agent an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Agreement relating to the proposed action have been complied with and, if
requested by the Agent, an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent, if any, have been complied with,
except that in the case of any such
15
application or request as to which the furnishing of such documents is
specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Agreement shall include:
(a) a statement that the individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such individual, he or she
has made such examination or investigation as is necessary to enable such
individual to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of such individual
based on his or her knowledge, such condition or covenant has been complied
with.
SECTION 1.3 FORM OF DOCUMENTS DELIVERED TO AGENT.
(a) In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary
that all such matters be certified by, or covered by the opinion of, only
one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect
to some matters and one or more other such Persons as to other matters, and
any such Person may certify or give an opinion as to such matters in one or
several documents.
(b) Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or
in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or
Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company unless such counsel
knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
16
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4 ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Agent and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Agreement and (subject to
Section 7.1) conclusive in favor of the Agent and the Company, if made in
the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Agent deems
sufficient.
(c) The ownership of Units shall be proved by the Normal Units
Register or the Stripped Units Register, as the case may be.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Certificate shall bind every
future Holder of the same Certificate and the Holder of every Certificate
issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof in respect of anything done, omitted or suffered to be done
by the Agent or the Company in reliance thereon, whether or not notation of
such action is made upon such Certificate.
(e) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Units entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Agreement to be given, made or
taken by Holders of Units. If any record date is set pursuant to this
paragraph, the Holders of the Outstanding Normal Units and the Outstanding
Stripped Units, as the case may be, on such record date, and no other
Holders, shall be entitled to take the relevant action with respect to the
Normal Units or the Stripped Units, as the case may be, whether or not such
Holders remain Holders after such record date; provided that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite number of Outstanding
17
Units on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which
a record date has previously been set pursuant to this paragraph (whereupon
the record date previously set shall automatically and with no action by
any Person be cancelled and of no effect), and nothing in this paragraph
shall be construed to render ineffective any action taken by Holders of the
requisite number of Outstanding Units on the date such action is taken.
Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given
to the Agent in writing and to each Holder of Units in the manner set forth
in Section 1.6.
(f) With respect to any record date set pursuant to this Section, the
Company may designate any date as the "Expiration Date" and from time to
time may change the Expiration Date to any earlier or later day; provided
that no such change shall be effective unless notice of the proposed new
Expiration Date is given to the Agent in writing, and to each Holder of
Units in the manner set forth in Section 1.6, on or prior to the existing
Expiration Date. If an Expiration Date is not designated with respect to
any record date set pursuant to this Section, the Company shall be deemed
to have initially designated the 180th day after such record date as the
Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the
foregoing, no Expiration Date shall be later than the 180th day after the
applicable record date.
SECTION 1.5 NOTICES.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Agreement to
be made upon, given or furnished to, or filed with:
(a) the Agent by any Holder or by the Company shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if
made, given, furnished or filed in writing and personally delivered,
mailed, first-class postage prepaid, telecopied or delivered by overnight
air courier guaranteeing next day delivery, addressed to and received by
the Agent at JPMorgan Chase Bank, 450 West 33rd Street, 15th Floor, New
York, NY 10001, Attention: Institutional Trust Services, telecopy: (212)
946-8154, or at any other address furnished in writing by the Agent to the
Holders and the Company; or
(b) the Company by the Agent or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if
made, given, furnished or filed in writing and personally delivered,
mailed, first-class postage prepaid, telecopied or delivered by overnight
air courier guaranteeing at least second day delivery, addressed to and
received by the Company at Platinum
18
Underwriters Holdings, Ltd. *, Attention: *, telecopy: *, or at any other
address furnished in writing to the Agent by the Company; or
(c) the Collateral Agent by the Agent, the Company or any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and
personally delivered, mailed, first-class postage prepaid, telecopied or
delivered by overnight air courier guaranteeing next day delivery,
addressed to and received by the Collateral Agent at State Street Bank and
Trust Company, Goodwin Square, 225 Asylum Street, Hartford, CT 06103,
Attention: Corporate Trust Administration, telecopy: (860) 244-1889, or at
any other address furnished in writing by the Collateral Agent to the
Agent, the Company and the Holders; or
(d) the Trustee by the Company shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if made, given,
furnished or filed in writing and personally delivered, mailed, first-class
postage prepaid, telecopied or delivered by overnight air courier
guaranteeing next day delivery, addressed to and received by the Trustee at
JPMorgan Chase Bank, 450 West 33rd Street, 15th Floor, New York, NY 10001,
Attention: Institutional Trust Services, telecopy: (212) 946-8154, or at
any other address furnished in writing by the Trustee to the Company.
SECTION 1.6 NOTICE TO HOLDERS; WAIVER.
(a) Where this Agreement provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at its address as it appears in the
applicable Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders.
Where this Agreement provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Agent, but
such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
(b) In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the
Agent shall constitute a sufficient notification for every purpose
hereunder.
19
SECTION 1.7 EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.8 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 1.9 SEPARABILITY CLAUSE.
If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in order to carry out the intentions of the parties
hereto as nearly as may be possible and (ii) the invalidity or unenforceability
of any provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 1.10 BENEFITS OF AGREEMENT.
Nothing in this Agreement or in the Units, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and, to the extent provided hereby, the Holders, any benefits or any legal or
equitable right, remedy or claim under this Agreement. The Holders from time to
time shall be beneficiaries of this Agreement and shall be bound by all of the
terms and conditions hereof and of the Units evidenced by their Certificates by
their acceptance of delivery of such Certificates.
SECTION 1.11 GOVERNING LAW; JURISDICTION.
(a) This Agreement and the Units shall be governed by, deemed to be a
contract under, and construed in accordance with, the laws of the State of
New York, without regard to the conflicts of laws principles thereof.
(b) The Company irrevocably (i) agrees that any legal suit, action or
proceeding against it arising out of or based on this Agreement or the
transactions contemplated hereby or the Units may be instituted in any
United States Federal or State court in the Borough of Manhattan, The City
of New York (a "New York Court"), (ii) waives, to the fullest extent it may
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any such proceeding, and (iii) submits to the
non-exclusive jurisdiction of such courts in any such suit, action or
proceeding. The Company irrevocably waives any immunity to jurisdiction to
which it may otherwise be entitled or become entitled (including sovereign
immunity, immunity to pre-judgment attachment, post-judgment attachment and
execution) in any legal suit, action or proceeding against it arising out
of or based on this Agreement or the transactions contemplated hereby or
the
20
Units which is instituted in any New York Court or in any foreign court. To
the fullest extent permitted by law, the Company hereby waives any
objection to the enforcement by competent foreign court of any judgment
validly obtained in any such proceeding. The Company designates and
appoints CT Corporation System in New York City as its authorized agent
(the "Authorized Agent") upon which process may be served in any such
action arising out of or based on this Agreement or the transactions
contemplated hereby or the Units which may be instituted in any New York
Court, expressly consents to the jurisdiction of any such court in respect
of any such action, and waives any other requirements of or objections to
personal jurisdiction with respect thereto. Such appointment shall be
irrevocable. The Company represents and warrants that its Authorized Agent
has agreed to act as such agent for service of process and the Company
agrees to take any and all action, including the filing of any and all
documents and instruments, that may be necessary to continue such
appointment in full force and effect as aforesaid. Service of process upon
the Authorized Agent and written notice of such service of process to the
Company shall be deemed, in every respect, effective service of process
upon the Company.
SECTION 1.12 LEGAL HOLIDAYS.
(a) In any case where any Payment Date shall not be a Business Day,
then (notwithstanding any other provision of this Agreement or the Normal
Units Certificates) payments on the Notes shall not be made on such date,
but such payments shall be made on the next succeeding day which is a
Business Day with the same force and effect as if made on such Payment
Date, provided that no interest shall accrue or be payable by the Company
in respect of such payment for the period from and after any such Payment
Date, except that if such next succeeding Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day with the same force and effect as if made on such
Payment Date.
(b) If any date on which Contract Adjustment Payments are to be made
on the Purchase Contracts is not a Business Day, then payment of the
Contract Adjustment Payments payable on that date will be made on the next
succeeding day which is a Business Day, and no interest or additional
payment will be paid in respect of the delay. However, if that Business Day
is in the next succeeding calendar year, the payment will be made on the
immediately preceding Business Day with the same force and effect as if
made on that Payment Date.
(c) In any case where the Share Purchase Date shall not be a Business
Day, then (notwithstanding any other provision of this Agreement or the
Certificates), the Purchase Contracts shall not be performed on such date,
but the Purchase Contracts shall be performed on the next succeeding day
which is a
21
Business Day with the same force and effect as if performed on the Share
Purchase Date.
SECTION 1.13 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing any such counterpart.
SECTION 1.14 INSPECTION OF AGREEMENT.
A copy of this Agreement shall be available at all reasonable times
during normal business hours at the Corporate Trust Office for inspection by any
Holder.
SECTION 1.15 APPOINTMENT OF FINANCIAL INSTITUTION AS AGENT FOR THE
COMPANY.
The Company may appoint a financial institution (which may be the
Collateral Agent) to act as its agent in performing its obligations and in
accepting and enforcing performance of the obligations of the Agent and the
Holders, under this Agreement and the Purchase Contracts, by giving notice of
such appointment in the manner provided in Section 1.5 hereof. Any such
appointment shall not relieve the Company in any way from its obligation
hereunder.
SECTION 1.16 NO WAIVER.
No failure on the part of the Company, the Agent, the Collateral
Agent, the Securities Intermediary or any of their respective agents to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise by the Company, the Agent, the Collateral
Agent, the Securities Intermediary or any of their respective agents of any
right, power or remedy hereunder preclude any further exercise thereof or the
exercise of any right, power or remedy. The remedies herein are cumulative and
are not exclusive of any remedies provided by law.
ARTICLE II
CERTIFICATE FORMS
SECTION 2.1 FORMS OF CERTIFICATES GENERALLY.
(a) The Normal Units Certificates (including the form of Purchase
Contract forming part of the Normal Units evidenced thereby) shall be in
substantially the form set forth in Exhibit A hereto, with such letters,
numbers or other marks of identification or designation and such legends or
endorsements printed, lithographed or engraved thereon as may be required
by the rules of any
22
securities exchange or quotation system on which the Normal Units are
listed or quoted for trading or any depositary therefor, or as may,
consistently herewith, be determined by the officers of the Company
executing such Normal Units Certificates, as evidenced by their execution
of the Normal Units Certificates.
(b) The definitive Normal Units Certificates shall be printed,
lithographed or engraved on steel engraved borders or may be produced in
any other manner, all as determined by the officers of the Company
executing such Normal Units Certificates, consistent with the provisions of
this Agreement, as evidenced by their execution thereof.
(c) The Stripped Units Certificates (including the form of Purchase
Contracts forming part of the Stripped Units evidenced thereby) shall be in
substantially the form set forth in Exhibit B hereto, with such letters,
numbers or other marks of identification or designation and such legends or
endorsements printed, lithographed or engraved thereon as may be required
by the rules of any securities exchange or the quotation system on which
the Stripped Units may be listed or quoted for trading or any depositary
therefor, or as may, consistently herewith, be determined by the officers
of the Company executing such Stripped Units Certificates, as evidenced by
their execution of the Stripped Units Certificates.
(d) The definitive Stripped Units Certificates shall be printed,
lithographed or engraved on steel engraved borders or may be produced in
any other manner, all as determined by the officers of the Company
executing such Stripped Units Certificates, consistent with the provisions
of this Agreement, as evidenced by their execution thereof.
(e) Every Global Certificate authenticated, executed on behalf of the
Holders and delivered hereunder shall bear a legend in substantially the
following form:
"THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS DEFINED ON THE REVERSE HEREOF) AND IS
REGISTERED IN THE NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF.
THIS CERTIFICATE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
CERTIFICATE REGISTERED, AND NO TRANSFER OF THIS CERTIFICATE IN WHOLE
OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN
SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.
[Unless this Certificate is presented by an authorized representative
of the Depository Trust Company (55 Water Street, New York, New York)
to
23
the Company or its agent for registration or transfer, exchange or
payment, and any Certificate issued is registered in the name of Cede
& Co., or such other name as requested by an authorized representative
of the Depository Trust Company, and any payment hereon is made to
Cede & Co., ANY TRANSFER PLEDGE OR OTHER USE HEREOF OR OTHERWISE BY A
PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has
an interest herein.]"
SECTION 2.2 FORM OF AGENT'S CERTIFICATE OF AUTHENTICATION.
(a) The form of the Agent's certificate of authentication of the
Normal Units shall be in substantially the form set forth on the form of
the Normal Units Certificates.
(b) The form of the Agent's certificate of authentication of the
Stripped Units shall be in substantially the form set forth on the form of
the Stripped Units Certificates.
ARTICLE III
THE UNITS
SECTION 3.1 TITLE AND TERMS; DENOMINATIONS.
(a) The aggregate number of Normal Units and Stripped Units, if any,
evidenced by Certificates authenticated, executed on behalf of the Holders
and delivered hereunder is limited to 5,000,000 (5,750,000 if the
underwriters' option to purchase additional Normal Units pursuant to the
Underwriting Agreement is exercised in full), except for Certificates
authenticated, executed on behalf of the Holder and delivered upon
registration of transfer of, in exchange for, or in lieu of, other
Certificates pursuant to Section 3.4, 3.5, 3.10, 3.13, 3.14, 5.9(e),
5.10(e) or 8.5.
(b) The Certificates shall be issuable only in registered form and
only in denominations of a single Unit and any integral multiple thereof.
SECTION 3.2 RIGHTS AND OBLIGATIONS EVIDENCED BY THE CERTIFICATES.
(a) Each Normal Units Certificate shall evidence the number of Normal
Units specified therein, with each such Normal Unit representing the
ownership by the Holder thereof of a 1/40 undivided beneficial interest in
a Note or the appropriate Treasury Consideration, as the case may be,
subject to the Pledge of such interest in the Note or the Treasury
Consideration, as the case may be, by such Holder pursuant to the Pledge
Agreement, and the rights and obligations of the Holder thereof and the
Company under one Purchase Contract. The Agent as attorney-in-fact for, and
on behalf of, the Holder of each Normal
24
Unit shall pledge, pursuant to the Pledge Agreement, the interest in the
Note or the Treasury Consideration forming a part of such Normal Unit, to
the Collateral Agent and grant to the Collateral Agent a security interest
in the right, title, and interest of such Holder in such interest in the
Note or Treasury Consideration for the benefit of the Company, to secure
the obligation of such Holder under the related Purchase Contract to
purchase the Common Shares of the Company.
(b) Each Stripped Units Certificate shall evidence the number of
Stripped Units specified therein, with each such Stripped Unit representing
the ownership by the Holder thereof of a 1/40 undivided beneficial interest
in a Treasury Security, subject to the Pledge of such interest in such
Treasury Security by such Holder pursuant to the Pledge Agreement, and the
rights and obligations of the Holder thereof and the Company under one
Purchase Contract. The Agent as attorney-in-fact for, and on behalf of, the
Holder of each Stripped Unit shall pledge, pursuant to the Pledge
Agreement, the interest in the Treasury Security forming a part of such
Stripped Unit, to the Collateral Agent and grant to the Collateral Agent a
security interest in the right, title, and interest of such Holder in such
interest in the Treasury Security for the benefit of the Company, to secure
the obligation of such Holder under the related Purchase Contract to
purchase the Common Shares of the Company.
(c) Prior to the purchase of Common Shares under each Purchase
Contract, such Purchase Contract shall not entitle the Holder of the
related Units Certificates to any of the rights of a holder of Common
Shares, including, without limitation, the right to vote or receive any
dividends or other payments or to consent or to receive notice as a
shareholder in respect of the meetings of shareholders or for the election
of directors of the Company or for any other matter, or any other rights
whatsoever as a shareholder of the Company.
SECTION 3.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
(a) Subject to the provisions of Sections 3.13 and 3.14, upon the
execution and delivery of this Agreement, and at any time and from time to
time thereafter, the Company may deliver Certificates executed by the
Company to the Agent for authentication, execution on behalf of the Holders
and delivery, together with its Issuer Order for authentication of such
Certificates, and the Agent in accordance with such Issuer Order shall
authenticate, execute on behalf of the Holders and deliver such
Certificates.
(b) The Certificates shall be executed on behalf of the Company by
the Chief Executive Officer, the Chief Financial Officer, the President,
any Vice-President, the Treasurer, any Assistant Treasurer, the Secretary
or any Assistant Secretary (or other officer performing similar functions)
of the Company and delivered to the Agent. The signature of any of these
officers on the Certificates may be manual or facsimile.
25
(c) Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall
bind the Company, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of
such Certificates or did not hold such offices at the date of such
Certificates.
(d) No Purchase Contract evidenced by a Certificate shall be valid
until such Certificate has been executed on behalf of the Holder by the
manual signature of an authorized officer of the Agent, as such Holder's
attorney-in-fact. Such signature by an authorized officer of the Agent
shall be conclusive evidence that the Holder of such Certificate has
entered into the Purchase Contract or Purchase Contracts evidenced by such
Certificate.
(e) Each Certificate shall be dated the date of its authentication.
(f) No Certificate shall be entitled to any benefit under this
Agreement or be valid or obligatory for any purpose unless there appears on
such Certificate a certificate of authentication substantially in the form
provided for herein executed by an authorized officer of the Agent by
manual signature, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been
duly authenticated and delivered hereunder.
SECTION 3.4 TEMPORARY CERTIFICATES.
(a) Pending the preparation of definitive Certificates, the Company
shall execute and deliver to the Agent, and the Agent shall authenticate,
execute on behalf of the Holders, and deliver, in lieu of such definitive
Certificates, temporary Certificates which are in substantially the form
set forth in Exhibit A or Exhibit B hereto, as the case may be, with such
letters, numbers or other marks of identification or designation and such
legends or endorsements printed, lithographed or engraved thereon as may be
required by the rules of any securities exchange on which the Normal Units
or Stripped Units, as the case may be, are listed or quoted for trading or
any depositary transfer, or as may, consistently herewith, be determined by
the officers of the Company executing such Certificates, as evidenced by
their execution of the Certificates.
(b) If temporary Certificates are issued, the Company will cause
definitive Certificates to be prepared without unreasonable delay. After
the preparation of definitive Certificates, the temporary Certificates
shall be exchangeable for definitive Certificates upon surrender of the
temporary Certificates at the Corporate Trust Office, at the expense of the
Company and without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Certificates, the Company shall execute and
deliver to the Agent, and the Agent shall authenticate, execute on behalf
of the Holder, and deliver in exchange therefor, one or more definitive
Certificates of like tenor and
26
denominations and evidencing a like number of Normal Units or Stripped
Units, as the case may be, as the temporary Certificate or Certificates so
surrendered. Until so exchanged, the temporary Certificates shall in all
respects evidence the same benefits and the same obligations with respect
to the Normal Units or Stripped Units, as the case may be, evidenced
thereby as definitive Certificates.
SECTION 3.5 REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE.
(a) The Agent shall keep at the Corporate Trust Office a register
(the "Normal Units Register") in which, subject to such reasonable
regulations as it may prescribe, the Agent shall provide for the
registration of Normal Units Certificates and of transfers of Normal Units
Certificates (the Agent, in such capacity, the "Normal Units Registrar")
and a register (the "Stripped Units Register") in which, subject to such
reasonable regulations as it may prescribe, the Agent shall provide for the
registration of the Stripped Units Certificates and transfers of Stripped
Units Certificates (the Agent, in such capacity, the "Stripped Units
Registrar").
(b) Upon surrender for registration of transfer of any Certificate at
the Corporate Trust Office, the Company shall execute and deliver to the
Agent, and the Agent shall authenticate, execute on behalf of the
designated transferee or transferees, and deliver one or more new
Certificates of like tenor and denominations, registered in the name of the
designated transferee or transferees, and evidencing a like number of
Normal Units or Stripped Units, as the case may be.
(c) At the option of the Holder, Certificates may be exchanged for
other Certificates, of like tenor and denominations and evidencing a like
number of Normal Units or Stripped Units, as the case may be, upon
surrender of the Certificates to be exchanged at the Corporate Trust
Office. Whenever any Certificates are so surrendered for exchange, the
Company shall execute and deliver to the Agent, and the Agent shall
authenticate, execute on behalf of the Holder, and deliver the Certificates
which the Holder making the exchange is entitled to receive.
(d) All Certificates issued upon any registration of transfer or
exchange of a Certificate shall evidence the ownership of the same number
of Normal Units or Stripped Units, as the case may be, and be entitled to
the same benefits and subject to the same obligations, under this Agreement
as the Normal Units or Stripped Units, as the case may be, evidenced by the
Certificate surrendered upon such registration of transfer or exchange.
(e) Every Certificate presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Agent)
be duly endorsed, or be accompanied by a written instrument of transfer in
form
27
satisfactory to the Company and the Agent duly executed by the Holder
thereof or its attorney duly authorized in writing.
(f) No service charge shall be made for any registration of transfer
or exchange of a Certificate, but the Company and the Agent may require
payment from the Holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration
of transfer or exchange of Certificates, other than any exchanges pursuant
to Sections 3.6, 3.9 and 8.5 not involving any transfer.
(g) Notwithstanding the foregoing, the Company shall not be obligated
to execute and deliver to the Agent, and the Agent shall not be obligated
to authenticate, execute on behalf of the Holder and deliver, any
Certificate presented or surrendered for registration of transfer or for
exchange on or after the Business Day immediately preceding the earlier of
the Share Purchase Date or the Termination Date. In lieu of delivery of a
new Certificate, upon satisfaction of the applicable conditions specified
above in this Section and receipt of appropriate registration or transfer
instructions from such Holder, the Agent shall,
(i) if the Share Purchase Date has occurred, deliver the
Common Shares issuable in respect of the Purchase Contracts forming a
part of the Units evidenced by such Certificate,
(ii) in the case of Normal Units, if a Termination Event shall
have occurred prior to the Share Purchase Date, transfer the Notes or
the appropriate Treasury Consideration, as applicable, relating to
such Normal Units, or
(iii) in the case of Stripped Units, if a Termination Event
shall have occurred prior to the Share Purchase Date, transfer the
Treasury Securities relating to such Stripped Units,
in each case subject to the applicable conditions and in accordance with
the applicable provisions of Article V.
SECTION 3.6 BOOK-ENTRY INTERESTS.
The Certificates, on original issuance, will be issued in the form of
one or more fully registered Global Certificates, to be delivered to the
Depositary or a nominee or custodian thereof by, or on behalf of, the Company.
Such Global Certificate shall initially be registered on the books and records
of the Company in the name of Cede & Co., the nominee of the Depositary, and no
Beneficial Owner will receive a definitive Certificate representing such
Beneficial Owner's interest in such Global Certificate, except as provided in
Section 3.9. The Agent shall enter into a customary agreement with the
Depositary if so requested by the Company. Unless and until definitive, fully
registered Certificates have been issued to Beneficial Owners pursuant to
Section 3.9:
28
(a) the provisions of this Section 3.6 shall be in full force and
effect;
(b) the Company and the Agent shall be entitled to deal with the
Clearing Agency for all purposes of this Agreement (including the payment
of Contract Adjustment Payments, if any, and receiving approvals, votes or
consents hereunder) as the Holder of the Units and the sole holder of the
Global Certificate(s) and shall have no obligation to the Beneficial
Owners;
(c) to the extent that the provisions of this Section 3.6 conflict
with any other provisions of this Agreement or any Certificate, the
provisions of this Section 3.6 shall control; and
(d) the rights of the Beneficial Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by
law and agreements between such Beneficial Owners and the Clearing Agency
and/or the Clearing Agency Participants.
The Clearing Agency will make book-entry transfers among Clearing
Agency Participants and receive and transmit payments of Contract Adjustment
Payments to such Clearing Agency Participants.
SECTION 3.7 NOTICES TO HOLDERS.
Whenever a notice or other communication to the Holders is required to
be given under this Agreement, the Company or the Company's agent shall give
such notices and communications to the Holders and, with respect to any Units
registered in the name of a Clearing Agency or the nominee of a Clearing Agency,
the Company or the Company's agent shall, except as set forth herein, have no
obligations to the Beneficial Owners.
SECTION 3.8 APPOINTMENT OF SUCCESSOR CLEARING AGENCY.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Units, the Company may, in its sole
discretion, appoint a successor Clearing Agency with respect to the Units.
SECTION 3.9 DEFINITIVE CERTIFICATES.
If
(i) a Clearing Agency notifies the Company that it is
unwilling or unable to continue its services as securities depositary
with respect to the Units and a successor Clearing Agency is not
appointed within 90 days after such discontinuance pursuant to
Section 3.8,
29
(ii) the Company elects to terminate the book-entry system
arrangements through the Clearing Agency with respect to the Units, or
(iii) there shall have occurred and be continuing a default by
the Company in respect of its obligations under one or more Purchase
Contracts,
then upon surrender of the Global Certificates representing the Book-Entry
Interests with respect to the Units by the Clearing Agency, accompanied by
registration instructions, the Company shall cause definitive Certificates to be
delivered to Beneficial Owners in accordance with the instructions of the
Clearing Agency. The Company shall not be liable for any delay in delivery of
such instructions and may conclusively rely on and shall be protected in relying
on, such instructions.
SECTION 3.10 MUTILATED, DESTROYED, LOST AND STOLEN CERTIFICATES.
(a) If any mutilated Certificate is surrendered to the Agent, the
Company shall execute and deliver to the Agent, and the Agent shall
authenticate, execute on behalf of the Holder, and deliver in exchange
therefor, a new Certificate at the cost of the Holder, evidencing the same
number of Normal Units or Stripped Units, as the case may be, and bearing a
Certificate number not contemporaneously outstanding.
(b) If there shall be delivered to the Company and the Agent (i)
evidence to their satisfaction of the destruction, loss or theft of any
Certificate, and (ii) such security or indemnity at the cost of the Holder
as may be required by them to hold each of them and any agent of either of
them harmless, then, in the absence of notice to the Company or to a
Responsible Officer of the Agent that such Certificate has been acquired by
a protected purchaser, the Company shall execute and deliver to the Agent,
and the Agent shall authenticate, execute on behalf of the Holder, and
deliver to the Holder, in lieu of any such destroyed, lost or stolen
Certificate, a new Certificate, evidencing the same number of Normal Units
or Stripped Units, as the case may be, and bearing a Certificate number not
contemporaneously outstanding.
(c) Notwithstanding the foregoing, the Company shall not be obligated
to execute and deliver to the Agent, and the Agent shall not be obligated
to authenticate, execute on behalf of the Holder, and deliver to the
Holder, a Certificate on or after the Business Day immediately preceding
the earlier of the Share Purchase Date or the Termination Date. In lieu of
delivery of a new Certificate, upon satisfaction of the applicable
conditions specified above in this Section and receipt of appropriate
registration or transfer instructions from such Holder, the Agent shall
30
(i) if the Share Purchase Date has occurred, deliver the
Common Shares issuable in respect of the Purchase Contracts forming a
part of the Units evidenced by such Certificate,
(ii) in the case of Normal Units, if a Termination Event shall
have occurred prior to the Share Purchase Date, transfer the Notes or
the appropriate Treasury Consideration, as applicable, relating to
such Normal Units, or
(iii) in the case of Stripped Units, if a Termination Event
shall have occurred prior to the Share Purchase Date, transfer the
Treasury Securities relating to such Stripped Units,
in each case subject to the applicable conditions and in accordance with
the applicable provisions of Article V.
(d) Upon the issuance of any new Certificate under this Section, the
Company and the Agent may require the payment by the Holder of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Agent) connected therewith.
(e) Every new Certificate issued pursuant to this Section in lieu of
any destroyed, lost or stolen Certificate shall constitute an original
additional contractual obligation of the Company and of the Holder in
respect of the Unit evidenced thereby, whether or not the destroyed, lost
or stolen Certificate (and the Units evidenced thereby) shall be at any
time enforceable by anyone, and shall be entitled to all the benefits and
be subject to all the obligations of this Agreement equally and
proportionately with any and all other Certificates delivered hereunder.
(f) The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen
Certificates.
SECTION 3.11 PERSONS DEEMED OWNERS.
(a) Prior to due presentment of a Certificate for registration of
transfer, the Company and the Agent, and any agent of the Company or the
Agent, may treat the Person in whose name such Certificate is registered on
the Register as the owner of the Units evidenced thereby, for the purpose
of receiving quarterly payments on the Notes or Treasury Consideration,
receiving payment of Contract Adjustment Payments, if any, and any Deferred
Contract Adjustment Payments, performance of the Purchase Contracts and for
all other purposes whatsoever, whether or not any such payments shall be
overdue and notwithstanding any
31
notice to the contrary, and neither the Company nor the Agent, nor any
agent of the Company or the Agent, shall be affected by notice to the
contrary.
(b) Notwithstanding the foregoing, with respect to any Global
Certificate, nothing herein shall prevent the Company, the Agent or any
agent of the Company or the Agent, from treating the Clearing Agency as the
sole Holder of such Global Certificate or from giving effect to any written
certification, proxy or other authorization furnished by any Clearing
Agency (or its nominee), as a Holder of such Global Certificate, with
respect to such Global Certificate or impair, as between such Clearing
Agency and owners of beneficial interests in such Global Certificate, the
operation of customary practices governing the exercise of rights of such
Clearing Agency (or its nominee) as a Holder of such Global Certificate.
SECTION 3.12 CANCELLATION.
(a) All Certificates surrendered (i) for delivery of Common Shares on
or after any Settlement Date; (ii) upon the transfer of Notes or Treasury
Consideration or Treasury Securities, as the case may be, after the
occurrence of a Termination Event or pursuant to an Early Settlement or
Merger Early Settlement, or a Collateral Substitution or an establishment
or re-establishment of a Normal Unit; or (iii) upon the registration of a
transfer or exchange of a Unit shall, if surrendered to any Person other
than the Agent, be delivered to the Agent and, if not already cancelled,
shall be promptly cancelled by it. The Company may at any time deliver to
the Agent for cancellation any Certificates previously authenticated,
executed on behalf of the Holder and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Certificates so
delivered shall, upon Issuer Order, be promptly cancelled by the Agent. No
Certificates shall be authenticated, executed on behalf of the Holder and
delivered in lieu of or in exchange for any Certificates cancelled as
provided in this Section, except as expressly permitted by this Agreement.
All cancelled Certificates held by the Agent shall be disposed of by the
Agent in accordance with its then customary procedures.
(b) If the Company or any Affiliate of the Company shall acquire any
Certificate, such acquisition shall not operate as a cancellation of such
Certificate unless and until such Certificate is delivered to the Agent
cancelled or for cancellation.
SECTION 3.13 ESTABLISHMENT OF STRIPPED UNITS.
(a) A Holder may separate the Pledged Notes or Pledged Treasury
Consideration (other than Prepayment Treasury Consideration), as
applicable, from the related Purchase Contracts in respect of the Normal
Units held by such Holder by substituting for such Pledged Notes or Pledged
Treasury Consideration, as the case may be, Treasury Securities that will
pay at the Share Purchase Date
32
an amount equal to the aggregate Stated Amount of such Normal Units (a
"Collateral Substitution"), at any time from and after the date of this
Agreement and on or prior to the second Business Day immediately preceding
the Share Purchase Date, by (i) depositing with the Collateral Agent
Treasury Securities having an aggregate principal amount equal to the
aggregate Stated Amount of such Normal Units, and (ii) transferring the
related Normal Units to the Agent accompanied by a notice to the Agent,
substantially in the form of Exhibit D hereto, stating that the Holder has
transferred the relevant amount of Treasury Securities to the Collateral
Agent and requesting that the Agent instruct the Collateral Agent to
release the Pledged Notes or Pledged Treasury Consideration, as the case
may be, underlying such Normal Units, whereupon the Agent shall promptly
give such instruction to the Collateral Agent, substantially in the form of
Exhibit C hereto. Notwithstanding the foregoing, a Holder may not separate
the Pledged Notes or Pledged Treasury Consideration from the related
Purchase Contracts in respect of the Normal Units held by such Holder
during the periods beginning on the fourth Business Day prior to the first
day of any Remarketing Period and ending on the third Business Day after
the end of such Remarketing Period. Upon receipt of the Treasury Securities
described in clause (i) above and the instruction described in clause (ii)
above, in accordance with the terms of the Pledge Agreement, the Collateral
Agent will release to the Agent, on behalf of the Holder, such Pledged
Notes or Pledged Treasury Consideration from the Pledge, free and clear of
the Company's security interest therein, and upon receipt thereof the Agent
shall promptly:
(x) cancel the related Normal Units;
(y) transfer the Pledged Notes or Pledged Treasury
Consideration, as the case may be, to the Holder; and
(z) authenticate, execute on behalf of such Holder and
deliver a Stripped Units Certificate executed by the Company in
accordance with Section 3.3 evidencing the same number of Purchase
Contracts as were evidenced by the cancelled Normal Units.
(b) Holders who elect to separate the Pledged Notes or Pledged
Treasury Consideration, as the case may be, from the related Purchase
Contract and to substitute Treasury Securities for such Pledged Notes or
Pledged Treasury Consideration shall be responsible for any fees or
expenses payable to the Collateral Agent for its services as Collateral
Agent in respect of the substitution, and the Company shall not be
responsible for any such fees or expenses.
(c) Holders may make Collateral Substitutions (i) if Treasury
Securities are being substituted for Pledged Notes, only in integral
multiples of 40 Normal Units, or (ii) if the Collateral Substitutions occur
after a successful remarketing of the Notes pursuant to the provisions of
Section 5.4 or after a Tax
33
Event Redemption, as the case may be, only in integral multiples of Normal
Units such that the Treasury Securities to be deposited and the Treasury
Consideration to be released are in integral multiples of $1,000.
(d) In the event a Holder making a Collateral Substitution pursuant
to this Section 3.13 fails to effect a book-entry transfer of the Normal
Units or fails to deliver a Normal Units Certificate to the Agent after
depositing Treasury Securities with the Collateral Agent, the Pledged Notes
or Pledged Treasury Consideration, as the case may be, constituting a part
of such Normal Units, and any distributions on such Pledged Notes or
Pledged Treasury Consideration shall be held in the name of the Agent or
its nominee in trust for the benefit of such Holder, until such Normal
Units are so transferred or the Normal Units Certificate is so delivered,
as the case may be, or, with respect to a Normal Units Certificate, such
Holder provides evidence satisfactory to the Company and the Agent that
such Normal Units Certificate has been destroyed, lost or stolen, together
with any indemnity that may be required by the Agent and the Company.
(e) Except as described in this Section 3.13, for so long as the
Purchase Contract underlying a Normal Unit remains in effect, such Normal
Unit shall not be separable into its constituent parts, and the rights and
obligations of the Holder of such Normal Unit in respect of the Pledged
Note or the Pledged Treasury Consideration, as the case may be, and the
Purchase Contract comprising such Normal Unit may be acquired, and may be
transferred and exchanged, only as a Normal Unit.
SECTION 3.14 REESTABLISHMENT OF NORMAL UNITS.
(a) A Holder of Stripped Units may reestablish Normal Units at any
time from and after the date of this Agreement and on or prior to the
second Business Day immediately preceding the Share Purchase Date, by (i)
depositing with the Collateral Agent the Notes or the appropriate Treasury
Consideration (identified and calculated by reference to the Treasury
Consideration then comprising Normal Units), as the case may be, then
comprising such number of Normal Units as is equal to the number of such
Stripped Units and (ii) transferring such Stripped Units to the Agent
accompanied by a notice to the Agent, substantially in the form of Exhibit
D hereto, stating that the Holder has transferred the relevant amount of
Notes or the appropriate Treasury Consideration, as the case may be, to the
Collateral Agent and requesting that the Agent instruct the Collateral
Agent to release the Pledged Treasury Securities underlying such Stripped
Unit, whereupon the Agent shall promptly give such instruction to the
Collateral Agent, substantially in the form of Exhibit C hereto.
Notwithstanding the foregoing, a Holder may not reestablish Normal Units
during the periods beginning on the fourth Business Day prior to the first
day of any Remarketing Period and ending on the third Business Day after
the end of such Remarketing Period. Upon receipt of the Notes or the
appropriate Treasury
34
Consideration, as the case may be, described in clause (i) above and the
instruction described in clause (ii) above, in accordance with the terms of
the Pledge Agreement, the Collateral Agent will release to the Agent, on
behalf of the Holder, such Pledged Treasury Securities from the Pledge,
free and clear of the Company's security interest therein, and upon receipt
thereof the Agent shall promptly:
(x) cancel the related Stripped Units;
(y) transfer the Pledged Treasury Securities to the Holder;
and
(z) authenticate, execute on behalf of such Holder and
deliver a Normal Units Certificate executed by the Company in
accordance with Section 3.3 evidencing the same number of Purchase
Contracts as were evidenced by the cancelled Stripped Units.
(b) Holders of Stripped Units may reestablish Normal Units (i) if
Notes are being substituted for the Pledged Treasury Securities, only in
integral multiples of 40 Stripped Units for 40 Normal Units or (ii) if the
reestablishment occurs after a successful remarketing of the Notes pursuant
to the provisions of Section 5.4 or after a Tax Event Redemption, as the
case may be, only in integral multiples of Stripped Units such that the
Treasury Consideration to be deposited and the Treasury Securities to be
released are in integral multiples of $1,000.
(c) Except as provided in this Section 3.14, for so long as the
Purchase Contract underlying a Stripped Unit remains in effect, such
Stripped Unit shall not be separable into its constituent parts, and the
rights and obligations of the Holder of such Stripped Unit in respect of
the Pledged Treasury Securities and Purchase Contract comprising such
Stripped Unit may be acquired, and may be transferred and exchanged, only
as a Stripped Unit.
SECTION 3.15 TRANSFER OF COLLATERAL UPON OCCURRENCE OF TERMINATION
EVENT.
Upon the occurrence of a Termination Event and the transfer to the
Agent of the Notes or the appropriate Treasury Consideration or the Treasury
Securities, as the case may be, underlying the Normal Units and the Stripped
Units pursuant to the terms of the Pledge Agreement, the Agent shall request
transfer instructions with respect to such Notes or the appropriate Treasury
Consideration or Treasury Securities, as the case may be, from each Holder by
written request mailed to such Holder at its address as it appears in the Normal
Units Register or the Stripped Units Register, as the case may be. Upon
book-entry transfer of the Normal Units or Stripped Units or delivery of a
Normal Units Certificate or Stripped Units Certificate to the Agent with such
transfer instructions, the Agent shall transfer the Notes, the appropriate
Treasury Consideration or the Treasury Securities underlying such Normal Units
or Stripped Units, as the case may be, to such Holder by book-entry transfer, or
other appropriate procedures, in accordance with such
35
instructions. In the event a Holder of Normal Units or Stripped Units fails to
effect such transfer or delivery, the Notes, the appropriate Treasury
Consideration or the Treasury Securities, as the case may be, underlying such
Normal Units or Stripped Units, as the case may be, and any distributions
thereon, shall be held in the name of the Agent or its nominee in trust for the
benefit of such Holder, until such Normal Units or Stripped Units are
transferred or the Normal Units Certificate or Stripped Units Certificate is
surrendered or such Holder provides satisfactory evidence that such Normal Units
Certificate or Stripped Units Certificate has been destroyed, lost or stolen,
together with any indemnity that may be required by the Agent and the Company.
In the case of the Treasury Portfolio or any Treasury Securities, the Agent may
dispose of the subject securities for cash and pay the applicable portion of
such cash to the Holders in lieu of such Holders' Treasury Securities, where
such Holder would otherwise have been entitled to receive less than $1,000 of
any such security.
SECTION 3.16 NO CONSENT TO ASSUMPTION.
Each Holder of a Unit, by acceptance thereof, shall be deemed
expressly to have withheld any consent to the assumption (i.e., affirmance),
under Section 365 of the Bankruptcy Code or otherwise, of the Purchase Contract
by the Company, any receiver, liquidator or person or entity performing similar
functions or its trustee in the event that the Company becomes the debtor under
the Bankruptcy Code or subject to other similar state or federal law providing
for reorganization or liquidation.
SECTION 3.17 CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Agent shall use "CUSIP" numbers in notices of
redemption as a convenience to Holders; PROVIDED that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Agent of any
changes in the "CUSIP" numbers.
ARTICLE IV
THE NOTES
SECTION 4.1 PAYMENT OF INTEREST; RIGHTS TO INTEREST PAYMENTS
PRESERVED; NOTICE.
(a) A payment on any Note or Treasury Consideration, as the case may
be, which is paid on any Payment Date shall, subject to receipt thereof by
the Agent from the Collateral Agent as provided by the terms of the Pledge
Agreement, be paid to the Person in whose name the Normal Units Certificate
(or one or more Predecessor Normal Units Certificates) of which such Note
or the
36
appropriate Treasury Consideration is a part is registered at the close of
business on the Record Date for such Payment Date.
(b) Each Normal Units Certificate evidencing Notes delivered under
this Agreement upon registration of transfer of or in exchange for or in
lieu of any other Normal Units Certificate shall carry the rights to
interest accrued and unpaid, and rights to accrue interest, which were
carried by the Notes underlying such other Normal Units Certificate.
(c) In the case of any Normal Unit with respect to which Early
Settlement of the underlying Purchase Contract is effected on an Early
Settlement Date, or with respect to which Merger Early Settlement of the
underlying Purchase Contract is effected on a Merger Early Settlement Date,
or with respect to which Cash Settlement is effected on the Business Day
immediately preceding the Share Purchase Date, or with respect to which a
Collateral Substitution is effected, in each case on a date that is after
any Record Date and on or prior to the next succeeding Payment Date,
payments on the Note or the appropriate Treasury Consideration, as the case
may be, underlying such Normal Unit otherwise payable on such Payment Date
shall be payable on such Payment Date notwithstanding such Early
Settlement, Merger Early Settlement, Cash Settlement or Collateral
Substitution, as the case may be, and such payments shall, subject to
receipt thereof by the Agent, be payable to the Person in whose name the
Normal Units Certificate (or one or more Predecessor Normal Unit
Certificates) was registered at the close of business on such Record Date.
Except as otherwise expressly provided in the immediately preceding
sentence, in the case of any Normal Unit with respect to which Early
Settlement, Merger Early Settlement or Cash Settlement of the underlying
Purchase Contract is effected, or with respect to which a Collateral
Substitution has been effected, payments on the related Notes or payments
on the appropriate Treasury Consideration that would otherwise be payable
after the applicable Settlement Date or after such Collateral Substitution,
as the case may be, shall not be payable hereunder to the Holder of such
Normal Unit; provided, that to the extent that such Holder continues to
hold the separated Notes that formerly comprised a part of such Holder's
Normal Units, such Holder shall be entitled to receive any payments on such
separated Notes.
SECTION 4.2 NOTICE AND VOTING.
Under and subject to the terms of the Pledge Agreement and this
Agreement, the Agent will be entitled to exercise the voting and any other
consensual rights pertaining to the Pledged Notes but only to the extent
instructed by the Holders as described below. Upon receipt of notice of any
meeting at which holders of Notes are entitled to vote or upon any solicitation
of consents, waivers or proxies of holders of Notes, the Agent shall, as soon as
practicable thereafter, mail to the Holders of Normal Units a notice (a)
containing such information as is contained in the notice or solicitation,
37
(b) stating that each Holder on the record date set by the Agent therefor
(which, to the extent possible, shall be the same date as the record date for
determining the holders of Notes entitled to vote) shall be entitled to instruct
the Agent as to the exercise of the voting rights pertaining to the Pledged
Notes underlying their Normal Units and (c) stating the manner in which such
instructions may be given. Upon the written request of any Holder of Normal
Units on such record date, the Agent shall endeavor insofar as practicable to
vote or cause to be voted, in accordance with the instructions set forth in such
request, the maximum number of Pledged Notes as to which any particular voting
instructions are received. In the absence of specific instructions from the
Holder of a Normal Unit, the Agent shall abstain from voting the Pledged Note
underlying such Normal Unit. The Company hereby agrees, if applicable, to
solicit Holders of Normal Units to timely instruct the Agent in order to enable
the Agent to vote such Pledged Notes.
SECTION 4.3 TAX EVENT REDEMPTION.
Upon the occurrence of a Tax Event Redemption prior to the successful
remarketing of the Notes pursuant to the provisions of Section 5.4, the Company
may elect to instruct in writing the Collateral Agent to apply, and upon such
written instruction, the Collateral Agent shall apply, out of the aggregate
Redemption Price for the Notes that are components of Normal Units, an amount
equal to the Tax Event Redemption Principal Amount to purchase on behalf of the
Holders of Normal Units the Treasury Portfolio and promptly remit the remaining
portion of such Redemption Price to the Agent for payment to the Holders of such
Normal Units. The Treasury Portfolio will be substituted for the Pledged Notes,
and will be pledged to the Collateral Agent in accordance with the terms of the
Pledge Agreement to secure the obligation of each Holder of a Normal Unit to
purchase the Common Shares under the Purchase Contract constituting a part of
such Normal Unit. Following the occurrence of a Tax Event Redemption prior to a
successful remarketing of the Notes pursuant to the provisions of Section 5.4,
the Holders of Normal Units and the Collateral Agent shall have such security
interests, rights and obligations with respect to the Treasury Portfolio as the
Holder of Normal Units and the Collateral Agent had in respect of the Notes, as
the case may be, subject to the Pledge thereof as provided in Articles II, III,
IV, V and VI of the Pledge Agreement, and any reference herein or in the
Certificates to the Note shall be deemed to be a reference to such Treasury
Portfolio and any reference herein or in the Certificates to interest on the
Notes shall be deemed to be a reference to corresponding distributions on the
Treasury Portfolio. The Company may cause to be made in any Normal Unit
Certificates thereafter to be issued such change in phraseology and form (but
not in substance) as may be appropriate to reflect the substitution of the
Treasury Portfolio for Notes as collateral.
Upon the occurrence of a Tax Event Redemption after the successful
remarketing of the Notes, the Redemption Price will be payable in cash to the
holders of the Notes.
38
SECTION 4.4 CONSENT TO TREATMENT FOR TAX PURPOSES.
Each Holder of a Normal Unit or a Stripped Unit, by its acceptance
thereof, covenants and agrees to treat itself as the owner, for federal, state
and local income and franchise tax purposes of (i) the related Notes or the
appropriate Treasury Consideration, in the case of the Normal Units, or (ii) the
Treasury Securities, in the case of the Stripped Units. Each Holder of a Normal
Unit, by its acceptance thereof, further covenants and agrees (i) to treat the
Notes as indebtedness of Platinum Underwriters Finance, Inc. for federal, state
and local income and franchise tax purposes and (ii) to allocate *% of the issue
price of a Normal Unit in the Initial Public Offering to the beneficial interest
in the Note and *% of the issue price to the Purchase Contract.
SECTION 4.5 PREPAYMENT OF NOTES.
Upon the prepayment in full of the principal of the Notes prior to
the earlier to occur of a successful remarketing of the Notes pursuant to the
provisions of Section 5.4 and a Termination Event (a "Prepayment Event"), the
Company shall instruct the Collateral Agent in writing to purchase, and upon
such written instruction, the Collateral Agent shall purchase the Prepayment
Treasury Consideration on behalf of the Holders of Normal Units and promptly
remit the remaining portion of any payments received with respect to such
Notes to the Agent for payment to the Holders of such Normal Units. Any
distribution to Holders of excess funds shall be payable at the Corporate
Trust Office or, at the option of the Holder, by check mailed to the address
of the Person entitled thereto at such address as it appears on the Register
or by wire transfer to an account maintained in the United States specified
by the Holder. The Prepayment Treasury Consideration will be substituted for
the Pledged Notes, and will be pledged to the Collateral Agent in accordance
with the terms of the Pledge Agreement to secure the obligation of each
Holder of a Normal Unit to purchase the Common Shares under the Purchase
Contract constituting a part of such Normal Unit. Following the occurrence of
a Prepayment Event, the Holders of Normal Units and the Collateral Agent
shall have such security interests, rights and obligations with respect to
the Prepayment Treasury Consideration as the Holder of Normal Units and the
Collateral Agent had in respect of the Notes, as the case may be, subject to
the Pledge thereof as provided in Articles II, III, IV, V and VI of the
Pledge Agreement, and any reference herein or in the Certificates to the Note
shall be deemed to be a reference to such Prepayment Treasury Consideration.
The Company may cause to be made in any Normal Unit Certificates thereafter
to be issued such change in phraseology and form (but not in substance) as
may be appropriate to reflect the substitution of the Prepayment Treasury
Consideration for Notes as collateral.
39
ARTICLE V
THE PURCHASE CONTRACTS; THE REMARKETING
SECTION 5.1 PURCHASE OF COMMON SHARES.
(a) Each Purchase Contract shall, unless an Early Settlement has
occurred in accordance with Section 5.9, or a Merger Early Settlement has
occurred in accordance with Section 5.10, obligate the Holder of the
related Unit to purchase, and the Company to sell, on the Share Purchase
Date at a price equal to $25 (the "Purchase Price"), a number of newly
issued Common Shares equal to the Settlement Rate unless, on or prior to
the Share Purchase Date, a Termination Event shall have occurred. The
"Settlement Rate" is equal to,
(i) if the Applicable Market Value (as defined below) is
equal to or greater than $* (the "Threshold Appreciation Price"), *
Common Shares per Purchase Contract,
(ii) if the Applicable Market Value is less than the Threshold
Appreciation Price, but is greater than $*, the number of Common
Shares per Purchase Contract equal to the Purchase Price divided by
the Applicable Market Value, and
(iii) if the Applicable Market Value is equal to or less than
$*, * Common Shares per Purchase Contract,
in each case subject to adjustment as provided in Section 5.6 (and in each
case rounded upward or downward to the nearest 1/10,000th of a share).
(b) No fractional Common Shares will be issued by the Company with
respect to the payment of Contract Adjustment Payments on the Share
Purchase Date. In lieu of fractional shares otherwise issuable with respect
to such payment of Contract Adjustment Payments, the Holder will be
entitled to receive an amount in cash as provided in Section 5.12.
(c) The "Applicable Market Value" means the average of the Closing
Price per Common Share on each of the 20 consecutive Trading Days ending on
the third Trading Day immediately preceding the Share Purchase Date. The
"Closing Price" of the Common Shares on any date of determination means the
closing sale price (or, if no closing price is reported, the last reported
sale price) of the Common Shares on the New York Stock Exchange (the
"NYSE") on such date or, if the Common Shares are not listed for trading on
the NYSE on any such date, as reported in the composite transactions for
the principal United States securities exchange on which the Common Shares
are so listed, or if the Common Shares are not so listed on a United States
securities exchange, as reported by The Nasdaq Stock Market, or, if the
Common Shares are not so reported, the last
40
quoted bid price for the Common Shares in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or, if
such bid price is not available, the market value of the Common Shares on
such date as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Company. A "Trading Day"
means a day on which the Common Shares (A) are not suspended from trading
on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) have traded at
least once on the national or regional securities exchange or association
or over-the-counter market that is the primary market for the trading of
the Common Shares at the close of business on such day.
(d) Each Holder of a Unit, by its acceptance thereof, irrevocably
authorizes the Agent to enter into and perform the related Purchase
Contract on its behalf as its attorney-in-fact (including the execution of
Certificates on behalf of such Holder), agrees to be bound by the terms and
provisions thereof, covenants and agrees to perform its obligations under
such Purchase Contract, consents to the provisions hereof, irrevocably
authorizes the Agent as its attorney-in-fact to enter into and perform the
Pledge Agreement on its behalf as its attorney-in-fact, and consents to and
agrees to be bound by the Pledge of the Notes, the appropriate Treasury
Consideration or the Treasury Securities pursuant to the Pledge Agreement;
provided that upon a Termination Event, the rights of the Holder of such
Unit under the Purchase Contract may be enforced without regard to any
other rights or obligations. Each Holder of a Unit, by its acceptance
thereof, further covenants and agrees, that, to the extent and in the
manner provided in Section 5.4 and the Pledge Agreement, but subject to the
terms thereof, payments in respect of the Pledged Notes, the Pledged
Treasury Consideration or the Pledged Treasury Securities to be paid upon
settlement of such Holder's obligations to purchase Common Shares under the
Purchase Contract, shall be paid on the Share Purchase Date by the
Collateral Agent to the Company in satisfaction of such Holder's
obligations under such Purchase Contract and such Holder shall acquire no
right, title or interest in such payments.
(e) Upon registration of transfer of a Certificate, the transferee
shall be bound (without the necessity of any other action on the part of
such transferee) under the terms of this Agreement, the Purchase Contracts
underlying such Certificate and the Pledge Agreement, and the transferor
shall be released from the obligations under this Agreement, the Purchase
Contracts underlying the Certificate so transferred and the Pledge
Agreement. The Company covenants and agrees, and each Holder of a
Certificate, by its acceptance thereof, likewise covenants and agrees, to
be bound by the provisions of this paragraph.
SECTION 5.2 CONTRACT ADJUSTMENT PAYMENTS.
(a) Subject to Section 5.3 herein, the Company shall pay, on each
Payment Date, the Contract Adjustment Payments, if any, payable in respect
of
41
each Purchase Contract to the Person in whose name a Certificate (or one or
more Predecessor Certificates) is registered on the Register at the close
of business on the Record Date next preceding such Payment Date in such
coin or currency of the United States as at the time of payment shall be
legal tender for payments. The Contract Adjustment Payments, if any, will
be payable at the Corporate Trust Office or, at the option of the Company,
by check mailed to the address of the Person entitled thereto at such
Person's address as it appears on the Register or by wire transfer to the
account maintained in the United States designated by a prior written
notice by such Person.
(b) Upon the occurrence of a Termination Event, the Company's
obligation to pay Contract Adjustment Payments (including any accrued
Deferred Contract Adjustment Payments), if any, shall cease.
(c) Each Certificate delivered under this Agreement upon registration
of transfer of or in exchange for or in lieu of any other Certificate
(including as a result of a Collateral Substitution or the re-establishment
of a Normal Unit) shall carry the rights to Contract Adjustment Payments,
if any, accrued and unpaid, and to accrue Contract Adjustment Payments, if
any, which were carried by the Purchase Contracts underlying such other
Certificates.
(d) Subject to Sections 5.4, 5.9 and 5.10, in the case of any Unit
with respect to which Early Settlement or Merger Early Settlement of the
underlying Purchase Contract is effected on an Early Settlement Date or a
Merger Early Settlement Date, respectively, or in respect of which Cash
Settlement of the underlying Purchase Contract is effected on the Business
Day immediately preceding the Share Purchase Date, or with respect to which
a Collateral Substitution or an establishment or re-establishment of a
Normal Unit pursuant to Section 3.14 is effected, in each case on a date
that is after any Record Date and on or prior to the next succeeding
Payment Date, Contract Adjustment Payments on the Purchase Contract
underlying such Unit otherwise payable on such Payment Date shall be
payable on such Payment Date notwithstanding such Cash Settlement, Early
Settlement, Merger Early Settlement, Collateral Substitution or
establishment or re-establishment of Normal Units, and such Contract
Adjustment Payments shall, subject to receipt thereof by the Agent, be
payable to the Person in whose name the Certificate evidencing such Unit
(or one or more Predecessor Certificates) was registered at the close of
business on such Record Date. Except as otherwise expressly provided in the
immediately preceding sentence, in the case of any Unit with respect to
which Early Settlement or Merger Early Settlement or Cash Settlement of the
underlying Purchase Contract is effected on an Early Settlement Date or
Merger Early Settlement Date or on the Business Day immediately preceding
the Share Purchase Date, as the case may be, or with respect to which a
Collateral Substitution or an establishment or re-establishment of a Normal
Unit has been effected, Contract Adjustment Payments, if any, that would
otherwise be payable after the Early Settlement Date, or Merger Early
42
Settlement Date, Collateral Substitution or such establishment or
re-establishment with respect to such Purchase Contract shall not be
payable.
(e) The Company's obligations with respect to Contract Adjustment
Payments (including any accrued or Deferred Contract Adjustment Payments)
will be subordinated and junior in right of payment to the Company's
obligations under any Senior Indebtedness.
(f) Subject to the provisions of Section 5.8, in the event (x) of any
payment by, or distribution of assets of, the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution, winding-up, liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership
or other proceedings, or (y) subject to the provisions of Section 5.2(h)
below, that (i) a default shall have occurred and be continuing with
respect to the payment of principal, interest or any other monetary amounts
due and payable on any Senior Indebtedness and such default shall have
continued beyond the period of grace, if any, specified in the instrument
evidencing such Senior Indebtedness (and the Agent shall have received
written notice thereof from the Company or one or more holders of Senior
Indebtedness or their representative or representatives or the trustee or
trustees under any indenture pursuant to which any such Senior Indebtedness
may have been issued), or (ii) the maturity of any Senior Indebtedness
shall have been accelerated because of a default in respect of such Senior
Indebtedness (and the Agent shall have received written notice thereof from
the Company or one or more holders of Senior Indebtedness or their
representative or representatives or the trustee or trustees under any
indenture pursuant to which any such Senior Indebtedness may have been
issued), then:
(i) the holders of all Senior Indebtedness shall first be
entitled to receive, in the case of clause (x) above, payment in full
of all amounts due or to become due upon all Senior Indebtedness and,
in the case of subclauses (i) and (ii) of clause (y) above, payment of
all amounts due thereon, or provision shall be made for such payment
in money or money's worth, before the Holders of any of the Units are
entitled to receive any Contract Adjustment Payments on the Purchase
Contracts underlying the Units;
(ii) any payment by, or distribution of assets of, the Company
of any kind or character, whether in cash, property or securities, to
which the Holders of any of the Units would be entitled except for the
provisions of Sections 5.2(e) through (q), including any such payment
or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being subordinated to
the payment of such Contract Adjustment Payments on the Purchase
Contracts underlying the Securities, shall be paid or delivered by the
Person making such
43
payment or distribution, whether a trustee in bankruptcy, a receiver
or liquidating trustee or otherwise, directly to the holders of such
Senior Indebtedness or their representative or representatives or to
the trustee or trustees under any indenture under which any
instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate amounts remaining unpaid on
account of such Senior Indebtedness held or represented by each, to
the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid after giving effect to any concurrent
payment or distribution (or provision therefor) to the holders of such
Senior Indebtedness, before any payment or distribution is made of
such Contract Adjustment Payments to the Holders of such Units; and
(iii) in the event that, notwithstanding the foregoing, any
payment by, or distribution of assets of, the Company of any kind or
character, whether in cash, property or securities, including any such
payment or distribution which may be payable or deliverable by reason
of the payment of any other indebtedness of the Company being
subordinated to the payment of Contract Adjustment Payments on the
Purchase Contracts underlying the Securities, shall be received by the
Agent or the Holders of any of the Securities when such payment or
distribution is prohibited pursuant to Sections 5.2(e) through (q),
such payment or distribution shall be paid over to the holders of such
Senior Indebtedness or their representative or representatives or to
the trustee or trustees under any indenture pursuant to which any
instruments evidencing any such Senior Indebtedness may have been
issued, ratably as aforesaid, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior
Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution (or provision therefor) to the
holders of such Senior Indebtedness.
(g) For purposes of Sections 5.2(e) through (q), the words "cash,
property or securities" shall not be deemed to include shares of stock of
the Company as reorganized or readjusted, or securities of the Company or
any other Person provided for by a plan of reorganization or readjustment,
the payment of which is subordinated at least to the extent provided in
Sections 5.2(e) through (q) with respect to such Contract Adjustment
Payments on the Securities to the payment of all Senior Indebtedness which
may at the time be outstanding; PROVIDED that (i) the indebtedness or
guarantee of indebtedness, as the case may be, that constitutes Senior
Indebtedness is assumed by the Person, if any, resulting from any such
reorganization or readjustment, and (ii) the rights of the holders of the
Senior Indebtedness are not, without the consent of each such holder
adversely affected thereby, altered by such reorganization or readjustment.
44
(h) Any failure by the Company to make any payment on or perform any
other obligation under Senior Indebtedness, other than any indebtedness
incurred by the Company or assumed or guaranteed, directly or indirectly,
by the Company for money borrowed (or any deferral, renewal, extension or
refunding thereof) or any indebtedness or obligation as to which the
provisions of Sections 5.2(e) through (g) shall have been waived by the
Company in the instrument or instruments by which the Company incurred,
assumed, guaranteed or otherwise created such indebtedness or obligation,
shall not be deemed a default or event of default if (i) the Company shall
be disputing its obligation to make such payment or perform such obligation
and (ii) either (A) no final judgment relating to such dispute shall have
been issued against the Company which is in full force and effect and is
not subject to further review, including a judgment that has become final
by reason of the expiration of the time within which a party may seek
further appeal or review, and (B) in the event a judgment that is subject
to further review or appeal has been issued, the Company shall in good
faith be prosecuting an appeal or other proceeding for review and a stay of
execution shall have been obtained pending such appeal or review.
(i) Subject to the payment in full of all Senior Indebtedness, the
Holders of the Purchase Contracts underlying the Units shall be subrogated
(equally and ratably with the holders of all obligations of the Company
which by their express terms are subordinated to Senior Indebtedness of the
Company to the same extent as payment of the Contract Adjustment Payments
in respect of the Purchase Contracts underlying the Units is subordinated
and which are entitled to like rights of subrogation) to the rights of the
holders of Senior Indebtedness to receive payments or distributions of
cash, property or securities of the Company applicable to the Senior
Indebtedness until all such Contract Adjustment Payments owing on the
Purchase Contracts underlying the Units shall be paid in full, and as
between the Company, its creditors other than holders of such Senior
Indebtedness and the Holders, no such payment or distribution made to the
holders of Senior Indebtedness by virtue of Sections 5.2(e) through (q)
that otherwise would have been made to the Holders shall be deemed to be a
payment by the Company on account of such Senior Indebtedness, it being
understood that the provisions of Sections 5.2(e) through (q) are and are
intended solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
(j) Nothing contained in Sections 5.2(e) through (q) or elsewhere in
this Agreement or in the Units is intended to or shall impair, as among the
Company, its creditors other than the holders of Senior Indebtedness and
the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders such Contract Adjustment Payments on
the Purchase Contracts underlying the Units as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Holders and creditors of the
Company other than the holders of Senior
45
Indebtedness, nor shall anything herein or therein prevent the Agent or any
Holder from exercising all remedies otherwise permitted by applicable law
upon default under this Agreement, subject to the rights, if any, under
these Sections 5.2(e) through (q), of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
(k) Upon payment or distribution of assets of the Company referred to
in these Sections 5.2(e) through (q), the Agent and the Holders shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which any such dissolution, winding up, liquidation or
reorganization proceeding affecting the affairs of the Company is pending
or upon a certificate of the trustee in bankruptcy, receiver, assignee for
the benefit of creditors, liquidating trustee or agent or other Person
making any payment or distribution, delivered to the Agent or to the
Holders, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to these Sections 5.2(e) through (q).
(l) The Agent shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee or representative on behalf of such holder) to
establish that such notice has been given by a holder of Senior
Indebtedness or a trustee or representative on behalf of any such holder or
holders. In the event that the Agent determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant
to Sections 5.2(e) through (q), the Agent may request such Person to
furnish evidence to the reasonable satisfaction of the Agent as to the
amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under Sections 5.2(e)
through (q), and, if such evidence is not furnished, the Agent may defer
payment to such Person pending judicial determination as to the right of
such Person to receive such payment.
(m) Nothing contained in Sections 5.2(e) through (q) shall affect the
obligations of the Company to make, or prevent the Company from making,
payment of the Contract Adjustment Payments, except as provided in these
Sections 5.2(e) through (q).
(n) Each Holder of Securities, by his acceptance thereof, authorizes
and directs the Agent on his, her or its behalf to take such action as may
be necessary or appropriate to effectuate the subordination provided in
Sections 5.2(e) through (q) and appoints the Agent his, her or its
attorney-in-fact, as the case may be, for any and all such purposes.
46
(o) The Company shall give prompt written notice to the Agent of any
fact known to the Company that would prohibit the making of any payment of
moneys to or by the Agent in respect of the Purchase Contracts underlying
the Units pursuant to the provisions of this Section 5.2. Notwithstanding
the provisions of Sections 5.2(e) through (q) or any other provisions of
this Agreement, the Agent shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment of
moneys to or by the Agent, or the taking of any other action by the Agent,
unless and until the Agent shall have received written notice thereof
mailed or delivered to a Responsible Officer of the Agent from the Company,
any Holder, any paying agent or the holder or representative of any Senior
Indebtedness; PROVIDED that if at least two Business Days prior to the date
upon which by the terms hereof any such moneys may become payable for any
purpose, the Agent shall not have received with respect to such moneys the
notice provided for in this Section 5.2(o), then, anything herein contained
to the contrary notwithstanding, the Agent shall have full power and
authority to receive such moneys and to apply the same to the purpose for
which they were received and shall not be affected by any notice to the
contrary that may be received by it within two Business Days prior to or on
or after such date.
(p) The Agent in its individual capacity shall be entitled to all the
rights set forth in this Section 5.2 with respect to any Senior
Indebtedness at the time held by it, to the same extent as any other holder
of Senior Indebtedness and nothing in this Agreement shall deprive the
Agent of any of its rights as such holder.
(q) No right of any present or future holder of any Senior
Indebtedness to enforce the subordination herein shall at any time or in
any way be prejudiced or impaired by any act or failure to act on the part
of the Company or by any noncompliance by the Company with the terms,
provisions and covenants of this Agreement, regardless of any knowledge
thereof which any such holder may have or be otherwise charged with.
(r) Nothing in this Section 5.2 shall apply to claims of, or payments
to, the Agent under or pursuant to Section 7.7 hereof.
With respect to the holders of Senior Indebtedness, (i) the duties and
obligations of the Agent shall be determined solely by the express provisions of
this Agreement; (ii) the Agent shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this Agreement;
(iii) no implied covenants or obligations shall be read into this Agreement
against the Agent; and (iv) the Agent shall not be deemed to be a fiduciary as
to such holders.
47
SECTION 5.3 DEFERRAL OF CONTRACT ADJUSTMENT PAYMENTS.
(a) The Company shall have the right, at any time prior to the Share
Purchase Date, to defer the payment of any or all of the Contract
Adjustment Payments otherwise payable on any Payment Date, but only if the
Company shall give the Holders and the Agent written notice of its election
to defer each such deferred Contract Adjustment Payment (specifying the
amount to be deferred) at least ten Business Days prior to the earlier of
(i) the next succeeding Payment Date or (ii) the date the Company is
required to give notice of the Record Date or Payment Date with respect to
payment of such Contract Adjustment Payments to the NYSE or other
applicable self-regulatory organization or to Holders of the Units, but in
any event not less than one Business Day prior to such Record Date. Any
Contract Adjustment Payments so deferred shall, to the extent permitted by
law, accrue additional Contract Adjustment Payments thereon at the rate of
*% per year (computed on the basis of a 360-day year of twelve 30-day
months), compounding on each succeeding Payment Date, until paid in full
(such deferred installments of Contract Adjustment Payments, if any,
together with the additional Contract Adjustment Payments, if any, accrued
thereon, being referred to herein as the "Deferred Contract Adjustment
Payments"). Deferred Contract Adjustment Payments, if any, shall be due on
the next succeeding Payment Date except to the extent that payment is
deferred pursuant to this Section 5.3. No Contract Adjustment Payments may
be deferred to a date that is after the Settlement Date and no such
deferral period may end other than on a Payment Date. If the Purchase
Contracts are terminated upon the occurrence of a Termination Event, the
Holder's right to receive Contract Adjustment Payments, if any, and
Deferred Contract Adjustment Payments, will terminate.
(b) In the event that the Company elects to defer the payment of
Contract Adjustment Payments on the Purchase Contracts until a Payment Date
prior to the Share Purchase Date, then all Deferred Contract Adjustment
Payments, if any, shall be payable to the registered Holders as of the
close of business on the Record Date immediately preceding such Payment
Date.
(c) In the event that the Company elects to defer the payment of
Contract Adjustment Payments on the Purchase Contracts until the Share
Purchase Date, each Holder will receive on the Share Purchase Date in lieu
of a cash payment a number of Common Shares (in addition to a number of
Common Shares equal to the Settlement Rate) equal to (A) the aggregate
amount of Deferred Contract Adjustment Payments payable to such Holder (net
of any required tax withholding on such Deferred Contract Adjustment
Payment, which shall be remitted to the appropriate taxing jurisdiction)
divided by (B) the Applicable Market Value.
(d) No fractional Common Shares will be issued by the Company with
respect to the payment of Deferred Contract Adjustment Payments on the
Share
48
Purchase Date. In lieu of fractional shares otherwise issuable with respect
to such payment of Deferred Contract Adjustment Payments, the Holder will
be entitled to receive an amount in cash as provided in Section 5.12.
(e) In the event the Company exercises its option to defer the
payment of Contract Adjustment Payments then, until the earlier of (x) the
Termination Date or (y) the date on which the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make
a liquidation payment with respect to, any of the Company's Capital Stock
other than:
(i) purchases, redemptions or acquisitions of shares of
Capital Stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the
benefit of employees, officers, directors or agents or a share
purchase or dividend reinvestment plan, or the satisfaction by the
Company of its obligations pursuant to any contract or security
outstanding on the date the Company exercises its right to defer the
payment of Contract Adjustment Payments;
(ii) as a result of a reclassification of the Company's
Capital Stock or the exchange or conversion of one class or series of
the Company's Capital Stock for another class or series of the
Company's Capital Stock;
(iii) the purchase of fractional interests of the Company's
Capital Stock pursuant to the conversion or exchange provisions of
such Capital Stock or the security being converted or exchanged;
(iv) dividends or distributions in the Company's Capital Stock
(or rights to acquire the Company's Capital Stock) or repurchases,
acquisitions or redemptions of the Company's Capital Stock in exchange
for or out of the net cash proceeds of the sale of the Company's
Capital Stock (or securities convertible into or exchangeable for
shares of the Company's Capital Stock); or
(v) redemptions, exchanges or repurchases of any rights
outstanding under a shareholder rights plan or the declaration or
payment thereunder of a dividend or distribution of or with respect to
rights in the future.
SECTION 5.4 PAYMENT OF PURCHASE PRICE; REMARKETING.
(a) Unless a Tax Event Redemption, Prepayment Event, successful
remarketing of the Notes pursuant to the provisions of this Section 5.4 or
Termination Event has occurred, or a Holder of a Unit has settled the
underlying Purchase Contract through an Early Settlement pursuant to
Section 5.9 or a
49
Merger Early Settlement pursuant to Section 5.10, each Holder of a Normal
Unit may pay in cash ("Cash Settlement") the Purchase Price for the Common
Shares to be purchased pursuant to a Purchase Contract if such Holder
notifies the Agent by surrender of the Normal Unit Certificate and delivery
of a notice in substantially the form of Exhibit E hereto of its intention
to make a Cash Settlement. Such notice shall be made on or prior to
5:00 p.m., New York City time, on the seventh Business Day immediately
preceding the Share Purchase Date. The Agent shall promptly notify the
Collateral Agent of the receipt of such a notice from a Holder intending to
make a Cash Settlement.
(i) A Holder of a Normal Unit who has so notified the Agent
of its intention to make a Cash Settlement is required to pay the
Purchase Price to the Collateral Agent prior to 11:00 a.m., New York
City time, on the Business Day immediately preceding the Share
Purchase Date in lawful money of the United States by certified or
cashiers' check or wire transfer, in each case in immediately
available funds payable to or upon the order of the Company. Any cash
received by the Collateral Agent will be paid to the Company on the
Share Purchase Date in settlement of the Purchase Contract in
accordance with the terms of this Agreement and the Pledge Agreement.
(ii) If a Holder of a Normal Unit fails to notify the Agent of
its intention to make a Cash Settlement in accordance with paragraph
(a)(i) above, the Holder shall be deemed to have consented to the
disposition of the Pledged Notes pursuant to the remarketing as
described in paragraph (b) below. If a Holder of a Normal Unit does
notify the Agent as provided in paragraph (a)(i) above of its
intention to pay the Purchase Price in cash, but fails to make such
payment as required by paragraph (a)(i) above, such failure shall
constitute an event of default; however, the Notes of such a Holder
will not be remarketed but instead the Collateral Agent, for the
benefit of the Company, will exercise its rights as a secured party
with respect to such Notes, including but not limited to those rights
specified in subsection (b)(iii) below.
(b) (i) Unless a Tax Event Redemption or Prepayment Event has
occurred, the Company and Platinum Underwriters Finance shall engage a
nationally recognized investment bank (the "Remarketing Agent") pursuant to
a Remarketing Agreement to be mutually agreed on by the Company, Platinum
Underwriters Finance, the Agent and the Remarketing Agent, but providing
for remarketing procedures substantially as set forth below to sell the
Notes of Holders of Normal Units, other than Holders that have elected not
to participate in the remarketing pursuant to the procedures set forth in
clause (iv) below, and holders of Separate Notes that have elected to
participate in the remarketing pursuant to the procedures set forth in
Section 4.5(d) of the Pledge Agreement. On the seventh Business Day prior
to first day of each Remarketing Period, the
50
Agent shall give Holders of Normal Units and holders of Separate Notes
notice of the remarketing in a daily newspaper in the English language of
general circulation in The City of New York (which is expected to be THE
WALL STREET JOURNAL) including the specific U.S. Treasury security or
securities (including the CUSIP number and/or the principal terms of such
Treasury security or securities) described in clause (iv) below, that must
be delivered by Holders of Normal Units that elect not to participate in
the remarketing pursuant to clause (iv) below no later than 10:00 a.m., New
York City time, on the fourth Business Day preceding the first day of such
Remarketing Period. The Company or the Agent, at the Company's request,
shall request not later than seven nor more than 15 calendar days prior to
any Remarketing Period, that the Clearing Agency notify the Clearing Agency
participants of such Remarketing Period. The Agent shall notify, by
10:00 a.m., New York City time, on the third Business Day preceding the
first day of such Remarketing Period, the Remarketing Agent and the
Collateral Agent of the aggregate number of Notes of Normal Unit Holders to
be remarketed. On the third Business Day preceding the first day of such
Remarketing Period, no later than by 10:00 a.m., New York City time,
pursuant to the terms of the Pledge Agreement, the Custodial Agent will
notify the Remarketing Agent of the aggregate number of Separate Notes to
be remarketed. No later than 10:00 a.m., New York City time, on the
Business Day immediately preceding the first day of such Remarketing
Period, the Collateral Agent and the Custodial Agent, pursuant to the terms
of the Pledge Agreement, will deliver for remarketing to the Remarketing
Agent all Notes to be remarketed. Upon receipt of such notice from the
Agent and the Custodial Agent and such Notes from the Collateral Agent and
the Custodial Agent, the Remarketing Agent will, on the Remarketing Date,
use its commercially reasonable best efforts to sell such Notes on such
date at an aggregate price equal to at least 100.25% of the Remarketing
Value. The Remarketing Agent will use the proceeds from a successful
remarketing to purchase the appropriate U.S. Treasury securities (the
"Agent-purchased Treasury Consideration") with the CUSIP numbers, if any,
selected by the Remarketing Agent, described in clauses (i)(1) and (ii)(1)
of the definition of Remarketing Value related to the Notes of Holders of
Normal Units that were remarketed. On or prior to the third Business Day
following the Remarketing Date or any Subsequent Remarketing Date on which
the Notes are successfully remarketed, the Remarketing Agent shall deliver
such Agent-purchased Treasury Consideration to the Agent, which shall
thereupon deliver such Agent-purchased Treasury Consideration to the
Collateral Agent. The Collateral Agent, for the benefit of the Company,
will thereupon apply such Agent-purchased Treasury Consideration, in
accordance with the Pledge Agreement, to secure such Holders' obligations
under the Purchase Contracts. In the event of a successful remarketing
pursuant to this Section 5.4, the Remarketing Agent will deduct as a
remarketing fee an amount not exceeding 25 basis points (.25%) of the total
proceeds from the remarketing (the "Remarketing Fee"). The Remarketing
Agent will remit (1) the portion of the proceeds from the remarketing
attributable to the Separate Notes to the holders of Separate Notes that
were remarketed and (2) the
51
remaining portion of the proceeds, less those proceeds used to purchase the
Agent-purchased Treasury Consideration, to the Agent for the benefit of the
Holders of the Normal Units that were remarketed, all determined on a pro
rata basis, in each case, on or prior to the third Business Day following
the Remarketing Date or any Subsequent Remarketing Date on which the Notes
were successfully remarketed. Holders whose Notes are so remarketed will
not otherwise be responsible for the payment of any Remarketing Fee in
connection therewith.
(ii) If, in spite of using its commercially reasonable best
efforts, the Remarketing Agent cannot remarket the Notes included in
the remarketing at a price equal to at least 100.25% of the
Remarketing Value on the Remarketing Date, the Remarketing Agent will
attempt to establish a Remarketing Rate meeting these requirements on
each of the two immediately following Business Days. If the
Remarketing Agent cannot establish a Remarketing Rate meeting these
requirements on either of those days, the remarketing in such period
will be deemed to have failed (a "Failed Remarketing"). In the event
of a Failed Remarketing with respect to the first Remarketing Period,
the Remarketing Agent will undertake the procedures set forth in
clause (i) above on each of the three Business Days in the second
Remarketing Period. In the event of a Failed Remarketing in the second
Remarketing Period, the Remarketing Agent will further attempt to
establish such a Remarketing Rate on the third Business Day
immediately preceding the Share Purchase Date. If, in spite of using
its commercially reasonable best efforts, the Remarketing Agent fails
to remarket the Notes underlying the Normal Units at a price equal to
at least 100.25% of the Remarketing Value in accordance with the terms
of the Pledge Agreement by 4:00 p.m., New York City time, on the third
Business Day immediately preceding the Share Purchase Date, the "Last
Failed Remarketing" will be deemed to have occurred. Each remarketing
attempt that takes place in accordance with this Section 5.4 after the
Remarketing Date is referred to herein as a "Subsequent Remarketing."
Within three Business Days following the date of a Failed Remarketing
or the Last Failed Remarketing, as the case may be, the Remarketing
Agent shall return any Notes delivered to it to the Collateral Agent
and the Custodial Agent, as applicable. The Collateral Agent, for the
benefit of the Company, may exercise its rights as a secured party
with respect to such Notes, including those actions specified in (b)
(iii) below; provided that if upon the Last Failed Remarketing, the
Collateral Agent exercises such rights for the benefit of the Company
with respect to such Notes, any accumulated and unpaid interest on
such Notes will become payable by Platinum Underwriters Finance to the
Agent for payment to the Holders of the Normal Units to which such
Notes relate. Such payment will be made by Platinum Underwriters
Finance on or prior to 11:00 a.m., New York City time, on the Share
Purchase Date in lawful money of the United
52
States by certified or cashier's check or wire transfer in immediately
available funds payable to or upon the order of the Agent. The Company
will cause a notice of any Failed Remarketing and of the Last Failed
Remarketing to be published on the fourth Business Day following each
Failed Remarketing and the Last Failed Remarketing, as the case may
be, in a daily newspaper in the English language of general
circulation in The City of New York, which shall be THE WALL STREET
JOURNAL, if such newspaper is then so published. The Company will also
release this information by means of Bloomberg and Reuters newswire.
(iii) With respect to any Notes which constitute part of Normal
Units which are subject to the Last Failed Remarketing, the Collateral
Agent for the benefit of the Company reserves all of its rights as a
secured party with respect thereto and, subject to applicable law and
Section 5.4 (e) below, may, among other things, (A) retain such Notes
in full satisfaction of the Holders' obligations under the Purchase
Contracts or (B) sell such Notes in one or more public or private
sales or otherwise.
(iv) A Holder of Normal Units may elect not to participate in
the remarketing and retain the Notes underlying such Units by
notifying the Agent of such election and delivering the specific U.S.
Treasury security or securities (including the CUSIP number and/or the
principal terms of such security or securities) identified by the
Agent (as having been based solely on the identification that the
Remarketing Agent shall have advised the Agent) that constitute the
U.S. Treasury securities described in clauses (i) and (ii) of the
definition of Remarketing Value relating to the retained Notes (as if
only such Notes were being remarketed) (the "Opt-out Treasury
Consideration") to the Agent not later than 10:00 a.m., New York City
time, on the fourth Business Day prior to the beginning of any
Remarketing Period. Upon receipt thereof by the Agent, the Agent shall
deliver such Opt-out Treasury Consideration to the Collateral Agent,
which will, for the benefit of the Company, thereupon apply such
Opt-out Treasury Consideration to secure such Holder's obligations
under the Purchase Contracts. On the Business Day immediately
preceding the first day of a Remarketing Period, the Collateral Agent,
pursuant to the terms of the Pledge Agreement, will deliver the
Pledged Notes of such Holder to the Agent. Within three Business Days
following the last day of such Remarketing Period, (A) if the
remarketing was successful, the Agent shall distribute such Notes to
the Holders thereof, and (B) if there was a Failed Remarketing on such
date, the Agent will deliver such Notes to the Collateral Agent, which
will, for the benefit of the Company, thereupon apply such Notes to
secure such Holders' obligations under the Purchase Contract and
return the Opt-out Treasury Consideration delivered by such Holders to
such Holders. A Holder that does not so deliver the Opt-out Treasury
Consideration or does
53
not so notify the agent of its election not to participate in the
remarketing pursuant to this clause (iv) shall be deemed to have
elected to participate in the remarketing.
(c) Upon the maturity of the Pledged Treasury Securities underlying
the Stripped Units and, in the event of a successful remarketing, a
Prepayment Event or a Tax Event Redemption, the Pledged Treasury
Consideration underlying the Normal Units on the Share Purchase Date, the
Collateral Agent shall remit to the Company an amount equal to the
aggregate Purchase Price applicable to such Units, as payment for the
Common Shares issuable upon settlement thereof without needing to receive
any instructions from the Holders of such Units. In the event the payments
in respect of the Pledged Treasury Securities or the Pledged Treasury
Consideration underlying a Unit is in excess of the Purchase Price of the
Purchase Contract being settled thereby, the Collateral Agent will
distribute such excess to the Agent for the benefit of the Holder of such
Unit when received.
(d) Any distribution to Holders of excess funds and interest
described in Section 5.4 (b) and (c) above shall be payable at the
Corporate Trust Office or, at the option of the Holder or the holder of
Separate Notes, as applicable, by check mailed to the address of the Person
entitled thereto at such address as it appears on the Register or by wire
transfer to an account maintained in the United States specified by the
Holder or the holder of Separate Notes, as applicable.
(e) Notwithstanding anything to the contrary herein or in the Pledge
Agreement, subject to Section 3.2 of the Pledge Agreement, the obligations
of each Holder to pay the Purchase Price are non-recourse obligations and
are payable solely out of the proceeds of any Collateral pledged to secure
the obligations of the Holders (except to the extent paid by Cash
Settlement, Early Settlement or Merger Early Settlement) and in no event
will Holders be liable for any deficiency between such payments and the
Purchase Price.
(f) Notwithstanding anything to the contrary herein, the Company
shall not be obligated to issue any Common Shares in respect of a Purchase
Contract or deliver any certificates therefor to the Holder of the related
Unit unless the Company shall have (i) received payment in full of the
aggregate Purchase Price for the Common Shares to be purchased thereunder
by such Holder in the manner herein set forth or (ii) exercised its rights
as a secured party under Section 5.4(b)(iii).
SECTION 5.5 ISSUANCE OF COMMON SHARES.
Unless a Termination Event shall have occurred on or prior to the
Share Purchase Date or an Early Settlement or a Merger Early Settlement shall
have occurred, on the Share Purchase Date, upon the Company's receipt of payment
in full of the Purchase Price for the Common Shares purchased by the Holders
pursuant to the
54
foregoing provisions of this Article and subject to Section 5.6(b) or the
Company's exercise of its rights as a secured party pursuant to Section
5.4(b(iii), the Company shall issue and deposit with the Agent, for the benefit
of the Holders of the Outstanding Units, one or more certificates representing
the newly issued Common Shares, registered in the name of the Agent (or its
nominee) as custodian for the Holders (such certificates for Common Shares,
together with any dividends or distributions for which both a record date and
payment date for such dividend or distribution has occurred after the Share
Purchase Date, being hereinafter referred to as the "Purchase Contract
Settlement Fund"), to which the Holders are entitled hereunder. Subject to the
foregoing, upon surrender of a Certificate to the Agent on or after the Share
Purchase Date, together with settlement instructions thereon duly completed and
executed, the Holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole Common Shares
which such Holder is entitled to receive pursuant to the provisions of this
Article V (after taking into account all Units then held by such Holder)
together with cash in lieu of fractional shares as provided in Section 5.12 and
any dividends or distributions with respect to such shares constituting part of
the Purchase Contract Settlement Fund, but without any interest thereon, and the
Certificate so surrendered shall forthwith be cancelled. Such shares shall be
registered in the name of the Holder or the Holder's designee as specified in
the settlement instructions provided by the Holder to the Agent. If any Common
Shares issued in respect of a Purchase Contract are to be registered to a Person
other than the Person in whose name the Certificate evidencing such Purchase
Contract is registered, no such registration shall be made unless the Person
requesting such registration has paid any transfer and other taxes required by
reason of such registration in a name other than that of the registered Holder
of such Certificate or has established to the satisfaction of the Company that
such tax either has been paid or is not payable.
SECTION 5.6 ADJUSTMENT OF SETTLEMENT RATE.
(a) Adjustments for Dividends, Distributions, Stock Splits, Etc.
(1) STOCK DIVIDENDS. In case the Company shall pay or make a
dividend or other distribution on the Common Shares in Common Shares,
the Settlement Rate, as in effect at the opening of business on the
day following the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be
increased by dividing such Settlement Rate by a fraction of which the
numerator shall be the number of Common Shares outstanding at the
close of business on the date fixed for such determination and the
denominator shall be the sum of such number of Common Shares and the
total number of Common Shares constituting such dividend or other
distribution, such increase to become effective immediately after the
opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (1), the number of
Common Shares at the time outstanding shall not include shares held in
the treasury of the Company but shall include any
55
shares issuable in respect of any scrip certificates issued in lieu of
fractions of Common Shares. The Company will not pay any dividend or
make any distribution on Common Shares held in the treasury of the
Company.
(2) SHARE PURCHASE RIGHTS. In case the Company shall issue
rights, options or warrants to all holders of its Common Shares (that
are not available on an equivalent basis to Holders of the Units upon
settlement of the Purchase Contracts underlying such Units) entitling
them, for a period expiring within 45 days after the record date for
the determination of shareholders entitled to receive such rights,
options or warrants, to subscribe for or purchase Common Shares at a
price per share less than the Current Market Price per Common Share on
the date fixed for the determination of shareholders entitled to
receive such rights, options or warrants (other than pursuant to a
dividend reinvestment, share purchase or similar plan), the Settlement
Rate in effect at the opening of business on the day following the
date fixed for such determination shall be increased by dividing such
Settlement Rate by a fraction, the numerator of which shall be the
number of Common Shares outstanding at the close of business on the
date fixed for such determination plus the number of Common Shares
which the aggregate of the offering price of the total number of
Common Shares so offered for subscription or purchase would purchase
at such Current Market Price per Common Share and the denominator of
which shall be the number of Common Shares outstanding at the close of
business on the date fixed for such determination plus the number of
Common Shares so offered for subscription or purchase, such increase
to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes
of this paragraph (2), the number of Common Shares at any time
outstanding shall not include shares held in the treasury of the
Company but shall include any shares issuable in respect of any scrip
certificates issued in lieu of fractions of Common Shares. The Company
shall not issue any such rights, options or warrants in respect of
Common Shares held in the treasury of the Company.
(3) STOCK SPLITS; REVERSE SPLITS. In case outstanding Common
Shares shall be subdivided or split into a greater number of Common
Shares, the Settlement Rate in effect at the opening of business on
the day following the day upon which such subdivision or split becomes
effective shall be proportionately increased, and, conversely, in case
outstanding Common Shares shall each be combined into a smaller number
of Common Shares, the Settlement Rate in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after
the opening of
56
business on the day following the day upon which such subdivision,
split or combination becomes effective.
(4) DEBT OR ASSET DISTRIBUTIONS. (i) In case the Company
shall, by dividend or otherwise, distribute to all holders of its
Common Shares evidences of its indebtedness or assets (including
securities, but excluding any rights or warrants referred to in
paragraph (2) of this Section, shares of capital stock of any class or
series, or similar equity interests, of or relating to a subsidiary or
other business unit in the case of a Spin-Off referred to in the next
paragraph, or any dividend or distribution paid exclusively in cash
and any dividend or distribution referred to in paragraph (1) of this
Section), the Settlement Rate shall be adjusted so that the same shall
equal the rate determined by dividing the Settlement Rate in effect
immediately prior to the close of business on the date fixed for the
determination of shareholders entitled to receive such distribution by
a fraction, the numerator of which shall be the Current Market Price
per Common Share on the date fixed for such determination less the
then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution
filed with the Agent) of the portion of the assets or evidences of
indebtedness so distributed applicable to one Common Share and the
denominator of which shall be such Current Market Price per Common
Share, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the
determination of shareholders entitled to receive such distribution.
In any case in which this paragraph (4) is applicable, paragraph (2)
of this Section shall not be applicable.
(ii) In the case of a Spin-Off, the Settlement Rate in effect
immediately before the close of business on the record date fixed for
determination of shareholders entitled to receive that distribution
will be increased by multiplying the Settlement Rate by a fraction,
the numerator of which is the Current Market Price per Common Share
plus the Fair Market Value of the portion of those shares of Capital
Stock or similar equity interests so distributed applicable to one
Common Share and the denominator of which is the Current Market Price
per Common Share. Any adjustment to the settlement rate under this
paragraph 4(ii) will occur on the date that is the earlier of (1) the
tenth Trading Day following the effective date of the Spin-Off and (2)
the date of the securities being offered in the Initial Public
Offering of the Spin-Off, if that Initial Public Offering is effected
simultaneously with the Spin-Off.
(5) CASH DISTRIBUTIONS. In case the Company shall, (i) by
dividend or otherwise, distribute to all holders of its Common Shares
cash (excluding any cash that is distributed in a Reorganization Event
to which
57
Section 5.6(b) applies or as part of a distribution referred to in
paragraph (4) of this Section) in an aggregate amount that, combined
together with (ii) the aggregate amount of any other distributions to
all holders of its Common Shares made exclusively in cash (other than
regular quarterly, semi-annual or annual cash dividends) within the 12
months preceding the date of payment of such distribution and in
respect of which no adjustment pursuant to this paragraph (5) or
paragraph (6) of this Section has been made and (iii) the aggregate of
any cash plus the fair market value as of the date or expiration of
the tender or exchange offer referred to below (as determined by the
Board of Directors, whose determination shall be conclusive and
described in a Board Resolution filed with the Agent) of consideration
payable in respect of any tender or exchange offer (other than
consideration payable in respect of any odd-lot tender offer) by the
Company or any of its subsidiaries for all or any portion of the
Common Shares concluded within the 12 months preceding the date of
payment of the distribution described in clause (i) above and in
respect of which no adjustment pursuant to this paragraph (5) or
paragraph (6) of this Section has been made, exceeds 10% of the
product of the Current Market Price per Common Share on the date for
the determination of holders of Common Shares entitled to receive such
distribution times the number of Common Shares outstanding on such
date, then, and in each such case, immediately after the close of
business on such date for determination, the Settlement Rate shall be
increased so that the same shall equal the rate determined by dividing
the Settlement Rate in effect immediately prior to the close of
business on the date fixed for determination of the shareholders
entitled to receive such distribution by a fraction (A) the numerator
of which shall be equal to the Current Market Price per Common Share
on the date fixed for such determination less an amount equal to the
quotient of (x) the combined amount distributed or payable in the
transactions described in clauses (i), (ii) and (iii) above and (y)
the number of Common Shares outstanding on such date for determination
and (B) the denominator of which shall be equal to the Current Market
Price per Common Share on such date for determination.
(6) TENDER OFFERS. In case (i) a tender or exchange offer
made by the Company or any subsidiary of the Company for all or any
portion of the Common Shares shall expire and such tender or exchange
offer (as amended upon the expiration thereof) shall require the
payment to shareholders (based on the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of Purchased
Shares) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution filed with the Agent)
that when combined together with (ii) the aggregate of the cash plus
the fair market value (as determined by the Board of Directors, whose
determination shall be
58
conclusive and described in a Board Resolution filed with the Agent),
as of the expiration of such tender or exchange offer (other than
consideration payable in respect of any odd-lot tender offer), of
consideration payable in respect of any other tender or exchange
offer, by the Company or any subsidiary of the Company for all or any
portion of the Common Shares expiring within the 12 months preceding
the expiration of such tender or exchange offer and in respect of
which no adjustment pursuant to paragraph (5) of this Section or this
paragraph (6) has been made and (iii) the aggregate amount of any
distributions to all holders of the Company's Common Shares made
exclusively in cash (other than regular quarterly, semi-annual or
annual cash dividends) within the 12 months preceding the expiration
of such tender or exchange offer and in respect of which no adjustment
pursuant to paragraph (5) of this Section or this paragraph (6) has
been made, exceeds 10% of the product of the Current Market Price per
Common Share as of the last time (the "Expiration Time") tenders could
have been made pursuant to such tender or exchange offer (as it may be
amended) times the number of Common Shares outstanding (including any
tendered shares) on the Expiration Time, then, and in each such case,
immediately prior to the opening of business on the day after the date
of the Expiration Time, the Settlement Rate shall be adjusted so that
the same shall equal the rate determined by dividing the Settlement
Rate immediately prior to the close of business on the date of the
Expiration Time by a fraction (A) the numerator of which shall be
equal to (x) the product of (I) the Current Market Price per Common
Share on the date of the Expiration Time and (II) the number of Common
Shares outstanding (including any tendered shares) on the Expiration
Time less (y) the amount of cash plus the fair market value
(determined as aforesaid) of the aggregate consideration payable to
shareholders based on the transactions described in clauses (i), (ii)
and (iii) above (assuming in the case of clause (i) the acceptance, up
to any maximum specified in the terms of the tender or exchange offer,
of Purchased Shares), and (B) the denominator of which shall be equal
to the product of (x) the Current Market Price per Common Share as of
the Expiration Time and (y) the number of Common Shares outstanding
(including any tendered shares) as of the Expiration Time less the
number of all shares validly tendered and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares").
(7) RECLASSIFICATION. The reclassification of Common Shares
into securities including securities other than Common Shares (other
than any reclassification upon a Reorganization Event to which Section
5.6(b) applies) shall be deemed to involve (i) a distribution of such
securities other than Common Shares to all holders of Common Shares
(and the effective date of such reclassification shall be deemed to be
"the date fixed
59
for the determination of shareholders entitled to receive such
distribution" and the "date fixed for such determination" within the
meaning of paragraph (4) of this Section), and (ii) a subdivision,
split or combination, as the case may be, of the number of Common
Shares outstanding immediately prior to such reclassification into the
number of Common Shares outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day
upon which such subdivision or split becomes effective" or "the day
upon which such combination becomes effective," as the case may be,
and "the day upon which such subdivision, split or combination becomes
effective" within the meaning of paragraph (3) of this Section).
(8) "CURRENT MARKET PRICE". The "Current Market Price" per
Common Share means (a) on any day the average of the Closing Price per
Common Share on each of the 20 consecutive Trading Days ending on the
earlier of the day in question and the day before the "ex date" with
respect to the issuance or distribution requiring such computation,
(b) in the case of any Spin-Off that is effected simultaneously with
an Initial Public Offering of the securities being distributed in the
Spin-Off, the Closing Price of the Common Shares on the Trading Day on
which the initial price of the securities being distributed in the
Spin-Off is determined, and (c) in the case of any other Spin-Off, the
average of the Closing Prices per Common Share over the first 10
Trading Days after the effective date of such Spin-Off. For purposes
of this paragraph, the term "ex date," when used with respect to any
issuance or distribution, shall mean the first date on which the
Common Shares trades regular way on such exchange or in such market
without the right to receive such issuance or distribution.
(9) CALCULATION OF ADJUSTMENTS. All adjustments to the
Settlement Rate shall be calculated to the nearest 1/10,000th of a
Common Share (or if there is not a nearest 1/10,000th of a share to
the next lower 1/10,000th of a share). No adjustment in the Settlement
Rate shall be required unless such adjustment would require an
increase or decrease of at least one percent therein; provided, that
any adjustments which by reason of this subparagraph are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. If an adjustment is made to the Settlement Rate
pursuant to paragraph (1), (2), (3), (4), (5), (6), (7) or (10) of
this Section 5.6(a), an adjustment shall also be made to the
Applicable Market Value solely to determine which of clauses (i), (ii)
or (iii) of the definition of Settlement Rate in Section 5.1(a) will
apply on the Share Purchase Date. Such adjustment shall be made by
multiplying the Applicable Market Value by a fraction, the numerator
of which shall be the Settlement Rate immediately after such
adjustment pursuant to paragraph (1), (2), (3), (4), (5), (6), (7) or
(10) of this Section 5.6(a) and the denominator of which shall be the
Settlement Rate
60
immediately before such adjustment; provided, that if such adjustment
to the Settlement Rate is required to be made pursuant to the
occurrence of any of the events contemplated by paragraph (1), (2),
(3), (4), (5), (7) or (10) of this Section 5.6(a) during the period
taken into consideration for determining the Applicable Market Value,
appropriate and customary adjustments shall be made to the Settlement
Rate.
(10) INCREASE OF SETTLEMENT RATE. The Company may make such
increases in the Settlement Rate, in addition to those required by
this Section, as it considers to be advisable in order to avoid or
diminish any income tax to any holders of Common Shares resulting from
any dividend or distribution of Capital Stock or issuance of rights or
warrants to purchase or subscribe for stock or from any event treated
as such for income tax purposes or for any other reasons.
(b) Adjustment for Consolidation, Merger or Other Reorganization
Event.
In the event of
(1) any consolidation or merger of the Company with or into
another Person (other than a merger or consolidation in which the
Company is the continuing corporation and in which the Common Shares
outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of the Company or
another corporation),
(2) any sale, transfer, lease or conveyance to another Person
of the property of the Company as an entirety or substantially as an
entirety,
(3) any statutory exchange of securities of the Company with
another Person (other than in connection with a merger or
acquisition), or
(4) any liquidation, dissolution or winding up of the Company
other than as a result of or after the occurrence of a Termination
Event (any such event, a "Reorganization Event"),
each Common Share covered by each Purchase Contract forming part of a Unit
immediately prior to such Reorganization Event shall, after such Reorganization
Event, be converted for purposes of the Purchase Contract into the kind and
amount of securities, cash and other property receivable in such Reorganization
Event (without any interest thereon, and without any right to dividends or
distribution thereon which have a record date that is prior to the Share
Purchase Date per Common Share) by a holder of Common Shares that (i) is not a
Person with which the Company consolidated or into which the Company merged or
which merged into the Company or to which such sale or transfer was made, as the
case may be (any such Person, a "Constituent Person"), or an
61
Affiliate of a Constituent Person to the extent such Reorganization Event
provides for different treatment of Common Shares held by Affiliates of the
Company and non-Affiliates, and (ii) failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon such Reorganization Event (provided that if the kind or amount
of securities, cash and other property receivable upon such Reorganization Event
is not the same for each Common Share held immediately prior to such
Reorganization Event by a Person other than a Constituent Person or an Affiliate
thereof and in respect of which such rights of election shall not have been
exercised ("Non-electing Share"), then for the purpose of this Section the kind
and amount of securities, cash and other property receivable upon such
Reorganization Event by each Non-electing Share shall be deemed to be the kind
and amount so receivable per Common Share by a plurality of the Non-electing
Shares). On the Share Purchase Date, the Settlement Rate then in effect will be
applied to the value on the Share Purchase Date of such securities, cash or
other property.
In the event of such a Reorganization Event, the Person formed by such
consolidation, merger or exchange or the Person which acquires the assets of the
Company or, in the event of a liquidation or dissolution of the Company, the
Company or a liquidating trust created in connection therewith, shall execute
and deliver to the Agent an agreement supplemental hereto providing that the
Holder of each Outstanding Unit shall have the rights provided by this Section
5.6. Such supplemental agreement shall provide for adjustments which, for events
subsequent to the effective date of such supplemental agreement, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section. The above provisions of this Section shall similarly apply to
successive Reorganization Events.
SECTION 5.7 NOTICE OF ADJUSTMENTS AND CERTAIN OTHER EVENTS.
(a) Whenever the Settlement Rate is adjusted as herein provided, the
Company shall:
(i) forthwith compute the Settlement Rate in accordance with
Section 5.6 and prepare and transmit to the Agent an Officers'
Certificate setting forth the Settlement Rate, the method of
calculation thereof in reasonable detail, and the facts requiring such
adjustment and upon which such adjustment is based; and
(ii) as soon as practicable following the occurrence of an
event that requires an adjustment to the Settlement Rate pursuant to
Section 5.6 (or if the Company is not aware of such occurrence, as
soon as practicable after becoming so aware), provide a written notice
to the Agent of the occurrence of such event and a statement setting
forth in reasonable detail the method by which the adjustment to the
Settlement Rate was determined and setting forth the adjusted
Settlement Rate.
62
(b) The Agent shall not at any time be under any duty or
responsibility to any Holder of Units to determine whether any facts exist
which may require any adjustment of the Settlement Rate, or with respect to
the nature or extent or calculation of any such adjustment when made, or
with respect to the method employed in making the same. The Agent shall not
be accountable with respect to the validity or value (or the kind or
amount) of any Common Shares, or of any securities or property, which may
at the time be issued or delivered with respect to any Purchase Contract,
and the Agent makes no representation with respect thereto. The Agent shall
not be responsible for any failure of the Company to issue, transfer or
deliver any Common Shares pursuant to a Purchase Contract or to comply with
any of the duties, responsibilities or covenants of the Company contained
in this Article.
SECTION 5.8 TERMINATION EVENT; NOTICE.
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of Holders
to receive Contract Adjustment Payments, if any, or any Deferred Contract
Adjustment Payments and obligations of Holders to purchase Common Shares, shall
immediately and automatically terminate, without the necessity of any notice or
action by any Holder, the Agent or the Company, if, on or prior to the Share
Purchase Date, a Termination Event shall have occurred. Upon and after the
occurrence of a Termination Event, the Normal Units shall thereafter represent
the right to receive the Notes or the appropriate Treasury Consideration, as the
case may be, forming a part of such Normal Units, and the Stripped Units shall
thereafter represent the right to receive the Treasury Securities forming a part
of such Stripped Units, in each case in accordance with the provisions of
Section 4.3 of the Pledge Agreement. Upon the occurrence of a Termination Event,
the Company shall promptly but in no event later than two Business Days
thereafter give written notice to the Agent, the Collateral Agent and to the
Holders, at their addresses as they appear in the Register.
SECTION 5.9 EARLY SETTLEMENT.
(a) Subject to and upon compliance with the provisions of this
Section 5.9, Purchase Contracts underlying Units having an aggregate Stated
Amount equal to $1,000 or an integral multiple thereof may, at the option
of the Holder thereof, be settled early ("Early Settlement") on or prior to
10:00 a.m., New York City time, on the seventh Business Day immediately
preceding the Share Purchase Date. Holders of Stripped Units (and after a
Prepayment Event, Holders of Normal Units) may only effect Early Settlement
of the related Purchase Contracts in integral multiples of 40 Stripped
Units, and if Treasury Consideration has been substituted for the Notes as
a component in the Normal Units due to a successful remarketing or the
occurrence of a Tax Event Redemption, Purchase Contracts underlying such
Normal Units may only be settled early in integral multiples of Normal
Units such that the Treasury
63
Consideration to be deposited and the Treasury Consideration to be released
are in integral multiples of $1,000. In order to exercise the right to
effect Early Settlement with respect to any Purchase Contracts, the Holder
of the Certificate evidencing the related Units shall deliver such
Certificate to the Agent at the Corporate Trust Office duly endorsed for
transfer to the Company or in blank with the form of Election to Settle
Early on the reverse thereof duly completed and accompanied by payment
payable to the Company in immediately available funds in an amount (the
"Early Settlement Amount") equal to (A) the product of (i) the Purchase
Price multiplied by (ii) the number of Purchase Contracts with respect to
which the Holder has elected to effect Early Settlement, plus (B) if such
delivery is made with respect to any Purchase Contracts during the period
from the close of business on any Record Date next preceding any Payment
Date to the opening of business on such Payment Date, an amount equal to
the Contract Adjustment Payments, if any, payable on such Payment Date with
respect to such Purchase Contracts; provided that no payment shall be
required pursuant to clause (B) of this sentence if the Company shall have
elected to defer the Contract Adjustment Payments which would otherwise be
payable on such Payment Date. Except as provided in the immediately
preceding sentence and subject to Section 5.2(d), no payment or adjustment
shall be made upon Early Settlement of any Purchase Contract on any
Contract Adjustment Payments accrued on such Purchase Contract or on
account of any dividends on the Common Shares issued upon such Early
Settlement. If the foregoing requirements are first satisfied with respect
to Purchase Contracts underlying any Unit at or prior to 5:00 p.m., New
York City time, on a Business Day, such day shall be the "Early Settlement
Date" with respect to such Unit and if such requirements are first
satisfied after 5:00 p.m., New York City time, on a Business Day or on a
day that is not a Business Day, the "Early Settlement Date" with respect to
such Units shall be the next succeeding Business Day.
(b) Upon Early Settlement of any Purchase Contract by the Holder of
the related Units, the Company shall issue, and the Holder shall be
entitled to receive, * Common Shares on account of such Purchase Contract
(the "Early Settlement Rate"). The Early Settlement Rate shall be adjusted
in the same manner and at the same time as the Settlement Rate is adjusted
pursuant to Section 5.6. As promptly as practicable after Early Settlement
of Purchase Contracts in accordance with the provisions of this Section
5.9, the Company shall issue and shall deliver to the Agent at the
Corporate Trust Office a certificate or certificates for the full number of
Common Shares issuable upon such Early Settlement together with payment in
lieu of any fraction of a share, as provided in Section 5.12.
(c) No later than the third Business Day after the applicable Early
Settlement Date the Company shall cause (i) the Common Shares issuable upon
Early Settlement of Purchase Contracts to be issued and delivered, and (ii)
the related Pledged Notes or Pledged Treasury Consideration, in the case of
Normal
64
Units, or the related Pledged Treasury Securities, in the case of Stripped
Units, to be released from the Pledge by the Collateral Agent and
transferred, in each case, to the Agent for delivery to the Holder thereof
or the Holder's designee.
(d) Upon Early Settlement of any Purchase Contracts, and subject to
receipt of Common Shares from the Company and the Pledged Notes, Pledged
Treasury Consideration or Pledged Treasury Securities, as the case may be,
from the Collateral Agent, as applicable, the Agent shall, in accordance
with the instructions provided by the Holder thereof on the applicable form
of Election to Settle Early on the reverse of the Certificate evidencing
the related Units, (i) transfer to the Holder the Pledged Notes, Pledged
Treasury Consideration or Pledged Treasury Securities, as the case may be,
forming a part of such Units, and (ii) deliver to the Holder a certificate
or certificates for the full number of Common Shares issuable upon such
Early Settlement together with payment in lieu of any fraction of a share,
as provided in Section 5.12.
(e) In the event that Early Settlement is effected with respect to
Purchase Contracts underlying less than all the Units evidenced by a
Certificate, upon such Early Settlement the Company shall execute and the
Agent shall authenticate, execute on behalf of the Holder and deliver to
the Holder thereof, at the expense of the Company, a Certificate evidencing
the Units as to which Early Settlement was not effected.
(f) No Early Settlement will be permitted under this Section 5.9
unless, at the time of delivery of the Election to Settle Early form or the
time the Early Settlement is effected, there is an effective registration
statement with respect to the Common Shares to be issued and delivered in
connection with such Early Settlement, if such a registration statement is
required (in the view of counsel, which need not be in the form of a
written opinion, for either the Company or the Agent) under the Securities
Act. If such a registration statement is so required, the Company covenants
and agrees to use its commercially reasonable efforts to (A) have in effect
a registration statement covering the Common Shares to be delivered in
respect of the Purchase Contracts being settled and (B) provide a
prospectus in connection therewith, in each case in a form that the Agent
may use in connection with such Early Settlement.
SECTION 5.10 EARLY SETTLEMENT UPON CASH MERGER.
(a) In the event of a merger or consolidation of the Company of the
type described in clause (1) of Section 5.6(b) in which the Common Shares
outstanding immediately prior to such merger or consolidation are exchanged
for consideration consisting of at least 30% cash or cash equivalents (any
such event a "Cash Merger"), then the Company (or the successor to the
Company hereunder) shall be required to offer the Holder of each Unit the
right to settle the Purchase Contract underlying such Unit prior to the
Share Purchase Date
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("Merger Early Settlement") as provided herein. On or before the fifth
Business Day after the consummation of a Cash Merger, the Company or, at
the request and expense of the Company, the Agent, shall give all Holders
notice of the occurrence of the Cash Merger and of the right of Merger
Early Settlement arising as a result thereof. The Company shall also
deliver a copy of such notice to the Agent and the Collateral Agent.
Each such notice shall contain:
(i) the date, which shall be not less than 20 nor more than
30 calendar days after the date of such notice, on which the Merger
Early Settlement will be effected (the "Merger Early Settlement
Date");
(ii) the date, which shall be on or one Business Day prior to
the Merger Early Settlement Date, by which the Merger Early Settlement
right must be exercised;
(iii) the Settlement Rate in effect as a result of such Cash
Merger and the kind and amount of securities, cash and other property
receivable by the Holder upon settlement of each Purchase Contract
pursuant to Section 5.6(b);
(iv) a statement to the effect that all or a portion of the
Purchase Price payable by the Holder to settle the Purchase Contract
will be offset against the amount of cash so receivable upon exercise
of Merger Early Settlement, as applicable; and
(v) the instructions a Holder must follow to exercise the
Merger Early Settlement right.
(b) To exercise a Merger Early Settlement right, a Holder shall
deliver to the Agent at the Corporate Trust Office on or before 5:00 p.m.,
New York City time, on the date specified in the notice the Certificate(s)
evidencing the Units with respect to which the Merger Early Settlement
right is being exercised duly endorsed for transfer to the Company or in
blank with the form of Election to Settle Early on the reverse thereof duly
completed and accompanied by payment payable to the Company in immediately
available funds in an amount equal to the Early Settlement Amount less the
amount of cash that otherwise would be deliverable by the Company or its
successor upon settlement of the Purchase Contract in lieu of Common Shares
pursuant to Section 5.6(b) and as described in the notice to Holders (the
"Merger Early Settlement Amount").
(c) On the Merger Early Settlement Date, the Company shall deliver or
cause to be delivered (i) the net cash, securities and other property to be
received by such exercising Holder, equal to the Settlement Rate as
adjusted pursuant to Section 5.6, in respect of the number of Purchase
Contracts for which
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such Merger Early Settlement right was exercised, and (ii) the related
Pledged Notes or Pledged Treasury Consideration, in the case of Normal
Units, or Pledged Treasury Securities, in the case of Stripped Units, to be
released from the Pledge by the Collateral Agent and transferred, in each
case, to the the Corporate Trust Office for delivery to the Holder thereof
or its designee. In the event a Merger Early Settlement right shall be
exercised by a Holder in accordance with the terms hereof, all references
herein to Share Purchase Date shall be deemed to refer to such Merger Early
Settlement Date.
(d) Upon Merger Early Settlement of any Purchase Contracts, and
subject to receipt of such net cash, securities or other property from the
Company and the Pledged Notes, Pledged Treasury Consideration or Pledged
Treasury Securities, as the case may be, from the Collateral Agent, as
applicable, the Agent shall, in accordance with the instructions provided
by the Holder thereof on the applicable form of Election to Settle Early on
the reverse of the Certificate evidencing the related Units, (i) transfer
to the Holder the Pledged Notes, Pledged Treasury Consideration or Pledged
Treasury Securities, as the case may be, forming a part of such Units, and
(ii) deliver to the Holder such net cash, securities or other property
issuable upon such Merger Early Settlement together with payment in lieu of
any fraction of a share, as provided in Section 5.12.
(e) In the event that Merger Early Settlement is effected with
respect to Purchase Contracts underlying less than all the Units evidenced
by a Certificate, upon such Merger Early Settlement the Company (or the
successor to the Company hereunder) shall execute and the Agent shall
authenticate, execute on behalf of the Holder and deliver to the Holder
thereof, at the expense of the Company, a Certificate evidencing the Units
as to which Merger Early Settlement was not effected.
SECTION 5.11 CHARGES AND TAXES.
The Company will pay all stock transfer and similar taxes attributable
to the initial issuance and delivery of the Common Shares pursuant to the
Purchase Contracts and in payment of any Deferred Contract Adjustment Payments;
provided, that the Company shall not be required to pay any such tax or taxes
which may be payable in respect of any exchange of or substitution for a
Certificate evidencing a Unit or any issuance of a Common Share in a name other
than that of the registered Holder of a Certificate surrendered in respect of
the Units evidenced thereby, other than in the name of the Agent, as custodian
for such Holder, and the Company shall not be required to issue or deliver such
Common Share certificates or Certificates unless and until the Person or Persons
requesting the transfer or issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
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SECTION 5.12 NO FRACTIONAL SHARES.
No fractional shares or scrip representing fractional Common Shares
shall be issued or delivered upon settlement on the Share Purchase Date or upon
Early Settlement or Merger Early Settlement of any Purchase Contracts. If
Certificates evidencing more than one Purchase Contract shall be surrendered for
settlement at one time by the same Holder, the number of full Common Shares
which shall be delivered upon settlement shall be computed on the basis of the
aggregate number of Purchase Contracts evidenced by the Certificates so
surrendered. Instead of any fractional Common Share which would otherwise be
deliverable upon settlement of any Purchase Contracts on the applicable
Settlement Date or upon Early Settlement or Merger Early Settlement, the
Company, through the Agent, shall make a cash payment in respect of such
fractional shares in an amount equal to the value of such fractional shares
times the Applicable Market Value. The Company shall provide the Agent from time
to time with sufficient funds to permit the Agent to make all cash payments
required by this Section 5.12 in a timely manner.
ARTICLE VI
REMEDIES
SECTION 6.1 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PURCHASE
CONTRACT ADJUSTMENT PAYMENTS AND PURCHASE COMMON SHARES.
The Holder of any Unit shall have the right, which is absolute and
unconditional,
(a) subject to the right of the Company to defer payment thereof
pursuant to Section 5.3, and to the forfeiture of any Deferred Contract
Adjustment Payments upon Early Settlement pursuant to Section 5.9 or upon
Merger Early Settlement pursuant to Section 5.10 or upon the occurrence of
a Termination Event, to receive payment of each installment of the Contract
Adjustment Payments, if any, with respect to the Purchase Contract
constituting a part of such Unit on the respective Payment Date for such
Unit, and to institute suit for the enforcement of such right to receive
Contract Adjustment Payments, and
(b) to purchase Common Shares pursuant to the Purchase Contract
constituting a part of such Unit and to institute suit for the enforcement
of any such right to purchase Common Shares, and such rights shall not be
impaired without the consent of such Holder.
SECTION 6.2 RESTORATION OF RIGHTS AND REMEDIES.
If any Holder has instituted any proceeding to enforce any right or
remedy under this Agreement and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to such Holder, then
and in every such case,
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subject to any determination in such proceeding, the Company and such Holder
shall be restored severally and respectively to their former positions hereunder
and thereafter all rights and remedies of such Holder shall continue as though
no such proceeding had been instituted.
SECTION 6.3 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates in Section 3.10(f),
no right or remedy herein conferred upon or reserved to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.4 DELAY OR OMISSION NOT WAIVER.
No delay or omission of any Holder to exercise any right or remedy
upon a default shall impair any such right or remedy or constitute a waiver of
any such right. Every right and remedy given by this Article or by law to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by such Holders.
SECTION 6.5 UNDERTAKING FOR COSTS.
All parties to this Agreement agree, and each Holder of a Unit, by its
acceptance of such Unit shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Agreement, or in any suit against the Agent for any action taken,
suffered or omitted by it as Agent, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; provided that
the provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Agent, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% of the
Outstanding Units, or to any suit instituted by any Holder for the enforcement
of distributions on any Notes or Contract Adjustment Payments, if any, on any
Purchase Contract on or after the respective Payment Date therefor in respect of
any Unit held by such Holder, or for enforcement of the right to purchase Common
Shares under the Purchase Contract constituting part of any Unit held by such
Holder.
SECTION 6.6 WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the
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benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Agreement; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE VII
THE AGENT
SECTION 7.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) (1) The Agent undertakes to perform, with respect to the Units
and Separate Notes, such duties and only such duties as are specifically
set forth in this Agreement and the Pledge Agreement, and no implied
covenants or obligations shall be read into this Agreement against the
Agent; and
(2) in the absence of bad faith, willful misconduct or
negligence on its part, the Agent may, with respect to the Units and
Separate Notes, conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Agent and conforming to the
requirements of this Agreement, but in the case of any certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Agent, the Agent shall be under a duty to examine the
same to determine whether or not they conform to the requirements of
this Agreement (but need not confirm or investigate the accuracy of
the mathematical calculations or other facts stated therein).
(b) No provision of this Agreement shall be construed to relieve the
Agent from liability for its own negligent action, its own negligent
failure to act, its own bad faith or its own willful misconduct, except
that:
(1) this paragraph (b) shall not be construed to limit the
effect of paragraph (a) of this Section;
(2) the Agent shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Agent was negligent in ascertaining the pertinent facts; and
(3) no provision of this Agreement shall require the Agent to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers.
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(c) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Agent shall be subject to the provisions of
this Section.
(d) The Agent is authorized to execute and deliver the Pledge
Agreement in its capacity as Agent. The Agent shall be entitled to all of
the rights, privileges, immunities and indemnities contained in this
Agreement with respect to any duties of the Agent under, or actions taken,
omitted to be taken or suffered by the Agent pursuant to the Pledge
Agreement.
SECTION 7.2 NOTICE OF DEFAULT.
Within 30 days after the occurrence of any default by the Company
hereunder of which a Responsible Officer of the Agent has actual knowledge, the
Agent shall transmit by mail to the Company and the Holders of Units, as their
names and addresses appear in the applicable Register, notice of such default
hereunder, unless such default shall have been cured or waived.
SECTION 7.3 CERTAIN RIGHTS OF AGENT.
Subject to the provisions of Section 7.1:
(a) the Agent may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document reasonably believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by an Officers' Certificate, Issuer Order or Issuer
Request, and any resolution of the Board of Directors of the Company may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Agreement the Agent shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Agent (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate of the Company;
(d) the Agent may consult with counsel and the advice of such counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
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(e) the Agent shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Agent, in its discretion, may make reasonable further
inquiry or investigation into such facts or matters related to the
execution, delivery and performance of the Purchase Contracts as it may see
fit, and, if the Agent shall determine to make such further inquiry or
investigation, it shall be given a reasonable opportunity to examine the
books, records and premises of the Company, personally or by agent or
attorney; and
(f) the Agent may execute any of the powers hereunder or perform any
duties hereunder either directly or by or through agents or attorneys or an
Affiliate of the Agent and the Agent shall not be responsible for any
misconduct or negligence on the part of any agent or attorney or an
Affiliate appointed by the Agent with due care PROVIDED that such agent or
attorney or Affiliate agrees for the benefit of the Company and the Holders
that it is and shall be subject to the same standards as the Agent's
hereunder.
SECTION 7.4 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF UNITS.
The recitals contained herein and in the Certificates shall be taken
as the statements of the Company and the Agent assumes no responsibility for
their accuracy. The Agent makes no representations as to the validity or
sufficiency of either this Agreement or of the Units, or of the Pledge Agreement
or the Pledge. The Agent shall not be accountable for the use or application by
the Company of the Units or the proceeds therefrom or in respect of the Purchase
Contracts.
SECTION 7.5 MAY HOLD UNITS.
Any Registrar or any other agent of the Company, or the Agent and its
Affiliates, in their individual or any other capacity, may become the owner or
pledgee of Units and may otherwise deal with the Company, the Collateral Agent
or any other Person with the same rights it would have if it were not Registrar
or such other agent, or the Agent.
SECTION 7.6 MONEY HELD IN CUSTODY.
Money held by the Agent in custody hereunder need not be segregated
from the Agent's other funds except to the extent required by law or provided
herein. The Agent shall be under no obligation to invest or pay interest on any
money received by it hereunder except as otherwise agreed in writing with the
Company.
SECTION 7.7 COMPENSATION AND REIMBURSEMENT.
The Company agrees:
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(a) to pay to the Agent from time to time reasonable compensation for
all services rendered by it hereunder;
(b) except as otherwise expressly provided herein, to reimburse the
Agent upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Agent in accordance with any provision of
this Agreement (including the reasonable compensation and the reasonable
expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence,
willful misconduct or bad faith; and
(c) to indemnify the Agent and any predecessor Agent for, and to hold
it harmless against, any loss, liability or expense incurred without
negligence, willful misconduct or bad faith on its part, arising out of or
in connection with the acceptance or administration of its duties
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The Agent shall promptly notify the Company
of any third party claim which may give rise to the indemnity hereunder and
give the Company the opportunity to control the defense of such claim with
counsel reasonably satisfactory to the indemnified party, and no such claim
shall be settled without the written consent of the Company, which consent
shall not be unreasonably withheld.
For purposes of this Section 7.7, "Agent" shall include any
predecessor Agent; provided, however, that the negligence, bad faith or willful
misconduct of any Agent hereunder shall not affect the rights of any other Agent
hereunder.
The provisions of this Section 7.7 shall survive the termination of
this Agreement, the satisfaction or discharge of the Units and/or the Separate
Notes and/or the resignation or removal of the Agent.
SECTION 7.8 CORPORATE AGENT REQUIRED; ELIGIBILITY.
There shall at all times be an Agent hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having (or being a member of a bank
holding company having) a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by federal or state authority and having a
Corporate Trust Office in the Borough of Manhattan, The City of New York, if
there be such a corporation, qualified and eligible under this Article and
willing to act on reasonable terms. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Agent shall cease to be eligible in accordance
with the provisions of this
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Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 7.9 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Agent and no appointment of a
successor Agent pursuant to this Article shall become effective until the
acceptance of appointment by the successor Agent in accordance with the
applicable requirements of Section 7.10.
(b) The Agent may resign at any time by giving written notice thereof
to the Company 60 days prior to the effective date of such resignation. If
the instrument of acceptance by a successor Agent required by Section 7.10
shall not have been delivered to the Agent within 30 days after the giving
of such notice of resignation, the resigning Agent may petition any court
of competent jurisdiction for the appointment of a successor Agent.
(c) The Agent may be removed at any time by Act of the Holders of a
majority in number of the Outstanding Units delivered to the Agent and the
Company.
(d) If at any time:
(1) the Agent fails to comply with Section 310(b) of the TIA,
as if the Agent were an indenture trustee under an indenture qualified
under the TIA, after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Unit for at least six
months; or
(2) the Agent shall cease to be eligible under Section 7.8
and shall fail to resign after written request therefor by the Company
or by any such Holder; or
(3) the Agent shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Agent or of its
property shall be appointed or any public officer shall take charge or
control of the Agent or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, (x) the Company by a Board Resolution may remove
the Agent, or (y) any Holder who has been a bona fide Holder of a Unit for
at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of
the Agent and the appointment of a successor Agent.
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(e) If the Agent shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Agent for any reason,
the Company, by a Board Resolution, shall promptly appoint a successor
Agent and shall comply with the applicable requirements of Section 7.10. If
no successor Agent shall have been so appointed by the Company and accepted
appointment in the manner required by Section 7.10, any Holder who has been
a bona fide Holder of a Unit for at least six months may, on behalf of
itself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Agent.
(f) The Company shall give, or shall cause such successor Agent to
give, notice of each resignation and each removal of the Agent and each
appointment of a successor Agent by mailing written notice of such event by
first-class mail, postage prepaid, to all Holders as their names and
addresses appear in the applicable Register. Each notice shall include the
name of the successor Agent and the address of its Corporate Trust Office.
SECTION 7.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Agent, every
such successor Agent so appointed shall execute, acknowledge and deliver to
the Company and to the retiring Agent an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Agent
shall become effective and such successor Agent, without any further act,
deed or conveyance, shall become vested with all the rights, powers,
agencies and duties of the retiring Agent. On the request of the Company or
the successor Agent, such retiring Agent shall, upon payment of its
charges, execute and deliver an instrument transferring to such successor
Agent all the rights, powers and trusts of the retiring Agent and shall
duly assign, transfer and deliver to such successor Agent all property and
money held by such retiring Agent hereunder.
(b) Upon request of any such successor Agent, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Agent all such rights, powers and agencies
referred to in paragraph (a) of this Section.
(c) No successor Agent shall accept its appointment unless at the
time of such acceptance such successor Agent shall be qualified and
eligible under this Article.
SECTION 7.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any Person into which the Agent may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Agent shall be a party, or any Person
succeeding to all or
75
substantially all the corporate trust business of the Agent, shall be the
successor of the Agent hereunder, provided such Person shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Certificates shall have been authenticated and executed on behalf of the
Holders, but not delivered, by the Agent then in office, any successor to such
Agent shall adopt such authentication and execution and deliver the Certificates
so authenticated and executed with the same effect as if such successor Agent
had itself authenticated and executed such Units.
SECTION 7.12 PRESERVATION OF INFORMATION.
The Agent shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders received by the Agent in its
capacity as Registrar.
SECTION 7.13 NO OBLIGATIONS OF AGENT.
Except to the extent otherwise provided in this Agreement, the Agent
assumes no obligation and shall not be subject to any liability under this
Agreement, the Pledge Agreement or any Purchase Contract in respect of the
obligations of the Holder of any Unit thereunder. The Company agrees, and each
Holder of a Certificate, by such Holder's acceptance thereof, shall be deemed to
have agreed, that the Agent's execution of the Certificates on behalf of the
Holders shall be solely as agent and attorney-in-fact for the Holders, and that
the Agent shall have no obligation to perform such Purchase Contracts on behalf
of the Holders, except to the extent expressly provided in Article V.
SECTION 7.14 TAX COMPLIANCE.
(a) The Agent, on its own behalf and on behalf of the Company, will
comply with all applicable certification, information reporting and
withholding (including "backup" withholding) requirements imposed by
applicable tax laws, regulations or administrative practice with respect to
(i) any payments made with respect to the Units or (ii) the issuance,
delivery, holding, transfer, redemption or exercise of rights under the
Units. Such compliance shall include, without limitation, the preparation
and timely filing of required returns and the timely payment of all amounts
required to be withheld to the appropriate taxing authority or its
designated agent.
(b) The Agent shall comply with any reasonable written direction
timely received from the Company with respect to the execution or
certification of any required documentation and the application of such
requirements to particular payments or Holders or in other particular
circumstances, and may for purposes of this Agreement conclusively rely on
any such direction in accordance with the provisions of Section 7.1(a)(2).
(c) The Agent shall maintain all appropriate records documenting
compliance with such requirements, and shall make such records available,
on
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written request, to the Company or its authorized representative within a
reasonable period of time after receipt of such request.
ARTICLE VIII
SUPPLEMENTAL AGREEMENTS
SECTION 8.1 SUPPLEMENTAL AGREEMENTS WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and the Agent, at any time and
from time to time, may enter into one or more agreements supplemental hereto, in
form satisfactory to the Company and the Agent, for any of the following
purposes:
(a) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company herein
and in the Certificates; or
(b) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(c) to evidence and provide for the acceptance of appointment
hereunder by a successor Agent; or
(d) to make provision with respect to the rights of Holders pursuant
to the requirements of Section 5.6(b) or 5.10; or
(e) to cure any ambiguity, to correct or supplement any provisions
herein which may be inconsistent with any other provisions herein, or to
make any other provisions with respect to such matters or questions arising
under this Agreement, provided such action shall not adversely affect the
interests of the Holders.
SECTION 8.2 SUPPLEMENTAL AGREEMENTS WITH CONSENT OF HOLDERS.
(a) With the consent of the Holders of not less than a majority of
the outstanding Purchase Contracts voting together as one class, by Act of
said Holders delivered to the Company and the Agent, the Company, when
authorized by a Board Resolution, and the Agent may enter into an agreement
or agreements supplemental hereto for the purpose of modifying in any
manner the terms of the Purchase Contracts, or the provisions of this
Agreement or the rights of the Holders in respect of the Units; provided,
however, that, except as contemplated herein, no such supplemental
agreement shall, without the consent of the Holder of each Outstanding Unit
affected thereby:
(1) change any Payment Date;
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(2) change the amount or the type of Collateral required to
be Pledged to secure a Holder's obligations under the Purchase
Contract, impair the right of the Holder of any Purchase Contract to
receive distributions on the related Collateral (except for the rights
of Holders of Normal Units to substitute the Treasury Securities for
the Pledged Notes or Pledged Treasury Consideration or the rights of
holders of Stripped Units to substitute Notes or appropriate Treasury
Consideration for the Pledged Treasury Securities) or otherwise
materially adversely affect the Holder's rights in or to such
Collateral;
(3) reduce any Contract Adjustment Payments or any Deferred
Contract Adjustment Payment, or change any place where, or the coin or
currency in which, any Contract Adjustment Payment is payable or
increase any amounts payable in respect of the Units or decrease any
other amounts receivable by Holders in respect of the Units;
(4) impair the right to institute suit for the enforcement of
any Purchase Contract, any Contract Adjustment Payment, if any, or any
Deferred Contract Adjustment Payment, if any;
(5) reduce the number of Common Shares to be purchased
pursuant to any Purchase Contract, increase the price to purchase
Common Shares upon settlement of any Purchase Contract, change the
Share Purchase Date or otherwise materially adversely affect the
Holder's rights under any Purchase Contract; or
(6) reduce the percentage of the outstanding Purchase
Contracts the consent of whose Holders is required for any such
supplemental agreement;
PROVIDED, that if any amendment or proposal referred to above would
adversely affect only the Normal Units or the Stripped Units, then only the
affected class of Holder as of the record date for the Holders entitled to
vote thereon will be entitled to vote on or consent to such amendment or
proposal, and such amendment or proposal shall not be effective except with
the consent of Holders of not less than a majority of such class; provided,
however, that no such agreement, whether with or without the consent of
Holders, shall affect Section 3.16.
(b) It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental
agreement, but it shall be sufficient if such Act shall approve the
substance thereof.
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SECTION 8.3 EXECUTION OF SUPPLEMENTAL AGREEMENTS.
In executing, or accepting the additional agencies created by, any
supplemental agreement permitted by this Article or the modifications thereby of
the agencies created by this Agreement, the Agent shall be entitled to receive
and (subject to Section 7.1) shall be fully protected in relying upon, an
Officer's Certificate and an Opinion of Counsel stating that the execution of
such supplemental agreement is authorized or permitted by this Agreement and
that all conditions precedent to the execution of such supplemental agreement
have been satisfied. The Agent shall enter into any such supplemental agreement
which does not materially adversely affect the Agent's own rights, duties or
immunities under this Agreement or otherwise.
SECTION 8.4 EFFECT OF SUPPLEMENTAL AGREEMENTS.
Upon the execution of any supplemental agreement under this Article,
this Agreement shall be modified in accordance therewith, and such supplemental
agreement shall form a part of this Agreement for all purposes; and every Holder
of Certificates theretofore or thereafter authenticated, executed on behalf of
the Holders and delivered hereunder shall be bound thereby.
SECTION 8.5 REFERENCE TO SUPPLEMENTAL AGREEMENTS.
Certificates authenticated, executed on behalf of the Holders and
delivered after the execution of any supplemental agreement pursuant to this
Article may, and shall if required by the Agent, bear a notation in form
approved by the Agent as to any matter provided for in such supplemental
agreement. If the Company shall so determine, new Certificates so modified as to
conform, in the opinion of the Agent and the Company, to any such supplemental
agreement may be prepared and executed by the Company and authenticated,
executed on behalf of the Holders and delivered by the Agent in exchange for
Outstanding Certificates.
ARTICLE IX
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 9.1 COVENANT NOT TO MERGE, CONSOLIDATE, SELL OR CONVEY
PROPERTY EXCEPT UNDER CERTAIN CONDITIONS.
The Company covenants that, so long as any Units are outstanding,
it will not (a) merge with or into or consolidate with any other Person or
(b) transfer, lease or convey all or substantially all its assets to any
Person, unless (i) either the Company shall be the continuing entity, or the
successor (if other than the Company) shall be a corporation, partnership or
trust organized and existing under the laws of Bermuda or the United States
of America or a State thereof or the District of Columbia and such Person
shall expressly assume all the obligations of the Company under the Purchase
Contracts, this Agreement, the Remarketing Agreement and the Pledge Agreement
by one or more
79
supplemental agreements in form reasonably satisfactory to the Agent and the
Collateral Agent, executed and delivered to the Agent and the Collateral Agent
by such Person, and (ii) the Company or such successor, as the case may be,
shall not, immediately after such merger or consolidation, or such transfer,
lease or conveyance, be in default in the performance of any covenant or
condition hereunder, under any of the Purchase Contracts, under the Remarketing
Agreement or under the Pledge Agreement.
SECTION 9.2 RIGHTS AND DUTIES OF SUCCESSOR CORPORATION.
(a) In case of any such consolidation, merger, transfer, lease or
conveyance and upon any such assumption by a successor entity in accordance
with Section 9.1, such successor entity shall succeed to and be substituted
for the Company with the same effect as if it had been named herein as the
Company. Such successor entity thereupon may cause to be signed, and may
issue either in its own name or in the name of the Company, any or all of
the Certificates evidencing Units issuable hereunder which theretofore
shall not have been signed by the Company and delivered to the Agent; and,
upon the order of such successor corporation, instead of the Company, and
subject to all the terms, conditions and limitations in this Agreement
prescribed, the Agent shall authenticate and execute on behalf of the
Holders and deliver any Certificates which previously shall have been
signed and delivered by the officers of the Company to the Agent for
authentication, execution on behalf of the Holder and delivery, and any
Certificate evidencing Units which such successor entity thereafter shall
cause to be signed and delivered to the Agent for that purpose. All the
Certificates so issued shall in all respects have the same legal rank and
benefit under this Agreement as the Certificates theretofore or thereafter
issued in accordance with the terms of this Agreement as though all of such
Certificates had been issued at the date of the execution hereof.
(b) In case of any such consolidation, merger, transfer, lease or
conveyance such change in phraseology and form (but not in substance) may
be made in the Certificates evidencing Units thereafter to be issued as may
be appropriate.
SECTION 9.3 OPINION OF COUNSEL GIVEN TO AGENT.
The Agent, subject to Sections 7.1 and 7.3, shall receive an Opinion
of Counsel as conclusive evidence that any such consolidation, merger, transfer,
lease or conveyance, and any such assumption, complies with the provisions of
this Article and that all conditions precedent to the consummation of any such
consolidation, merger, sale, assignment, transfer, lease or conveyance have been
met.
80
ARTICLE X
COVENANTS
SECTION 10.1 PERFORMANCE UNDER PURCHASE CONTRACTS.
The Company covenants and agrees for the benefit of the Holders from
time to time of the Units that it will duly and punctually perform its
obligations under the Purchase Contracts in accordance with the terms of the
Purchase Contracts and this Agreement.
SECTION 10.2 MAINTENANCE OF OFFICE OR AGENCY.
(a) The Company will maintain in the Borough of Manhattan, The City
of New York an office or agency where Certificates may be presented or
surrendered for acquisition of Common Shares upon settlement of the
Purchase Contracts on any Settlement Date and for transfer of Collateral
upon occurrence of a Termination Event, where Certificates may be
surrendered for registration of transfer or exchange, for a Collateral
Substitution or reestablishment of Normal Units and where notices and
demands to or upon the Company in respect of the Units and this Agreement
may be served. The Company will give prompt written notice to the Agent of
the location, and any change in the location, of such office or agency. If
at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Agent with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Company hereby appoints the Agent as its
agent to receive all such presentations, surrenders, notices and demands.
(b) The Company may also from time to time designate one or more
other offices or agencies where Certificates may be presented or
surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan, The City of New
York for such purposes. The Company will give prompt written notice to the
Agent of any such designation or rescission and of any change in the
location of any such other office or agency. The Company hereby designates
as the place of payment for the Units the Corporate Trust Office and
appoints the Agent at its Corporate Trust Office as paying agent in such
city.
SECTION 10.3 COMPANY TO RESERVE COMMON SHARES.
The Company shall at all times prior to the Share Purchase Date
reserve and keep available, free from preemptive rights, out of its authorized
but unissued Common Shares the maximum number of Common Shares issuable against
tender of
81
payment in respect of all Purchase Contracts constituting a part of the Units
evidenced by Outstanding Certificates.
SECTION 10.4 COVENANTS AS TO COMMON SHARES.
The Company covenants that all Common Shares which may be issued
against tender of payment in respect of any Purchase Contract constituting a
part of the Outstanding Units will, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable.
SECTION 10.5 STATEMENTS OF OFFICER OF THE COMPANY AS TO DEFAULT.
The Company will deliver to the Agent, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers
thereof the Company is in default in the performance and observance of any of
the terms, provisions and conditions hereof, and if the Company shall be in
default, specifying all such defaults and the nature and status thereof of
which such Officers may have knowledge. In the event the Company shall change
its fiscal year at any time the Units are outstanding, the Company shall
notify the Agent of the effective date of such change.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PLATINUM UNDERWRITERS HOLDINGS, LTD.
By:
-------------------------------------
Name:
Title:
JPMORGAN CHASE BANK,
as Purchase Contract Agent
By:
-------------------------------------
Name:
Title:
EXHIBIT A
FORM OF NORMAL UNITS CERTIFICATE
(FORM OF GLOBAL CERTIFICATE LEGEND)
[THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE
CONTRACT AGREEMENT (AS DEFINED ON THE REVERSE HEREOF) AND IS REGISTERED IN THE
NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF
THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.]*
[SO LONG AS DTC IS THE DEPOSITARY, INSERT: Unless this Certificate is presented
by an authorized representative of The Depository Trust Company (55 Water
Street, New York, New York) to the Company or its agent for registration or
transfer, exchange or payment, and any Certificate issued is registered in the
name of Cede & Co., or such other name as requested by an authorized
representative of the Depository Trust Company, and any payment hereon is made
to Cede & Co., ANY TRANSFER PLEDGE OR OTHER USE HEREOF OR OTHERWISE BY A PERSON
IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein.]
(Form of Face of Normal Units Certificate)
Platinum Underwriters Holdings, Ltd.
___% Adjustable Conversion Rate Equity Security Units
No._______________ CUSIP No.
Number of Normal Units _____________
This Normal Units Certificate certifies that _____ is the registered
Holder of the number of Normal Units set forth above. Each Normal Unit
represents (i) either (a) a 1/40, or 2.5%, beneficial ownership interest of the
Holder in one % Senior Note due 2007 (the "Note") of Platinum Underwriters
Finance, Inc., a Delaware corporation, having a principal amount of $1,000,
subject to the Pledge of such Note by such Holder pursuant to the Pledge
Agreement, or (b) if the Note has been remarketed by the Remarketing Agent (or
if the Holder has elected not to have the Note remarketed or a Tax Event
Redemption has occurred), the appropriate Treasury Consideration, subject to the
Pledge of such Treasury Consideration by such Holder pursuant to the Pledge
Agreement, and (ii) the rights and obligations of the Holder under one Purchase
Contract with Platinum Underwriters Holdings, Ltd., a Bermuda corporation (the
"Company").
- ----------
* To be inserted in Global Certificates only.
A-1
Each Normal Unit will have a stated amount of $25 (the "Stated Amount"). All
capitalized terms used herein which are defined in the Purchase Contract
Agreement have the meaning set forth therein.
Pursuant to the Pledge Agreement, the interest in the Note or the
appropriate Treasury Consideration, as the case may be, constituting part of
each Normal Unit evidenced hereby has been pledged to the Collateral Agent, for
the benefit of the Company, to secure the obligations of the Holder under the
Purchase Contract comprising a part of such Normal Unit to purchase Common
Shares of the Company. Prior to the purchase of Common Shares under each
Purchase Contract, such Purchase Contracts shall not entitle the Holders of
Normal Units Certificates to any of the rights of a holder of Common Shares,
including without limitation, the right to vote or receive any dividends or
other payments or to consent or to receive notice as shareholders in respect of
the meetings of shareholders, or for the election of directors of the Company or
for any other matter or any other rights whatsoever as shareholder of the
Company.
The Pledge Agreement provides that all payments in respect of the
Pledged Notes or Pledged Treasury Consideration received by the Collateral
Agent shall be paid by the Collateral Agent by wire transfer in same day
funds (i) in the case of (A) quarterly cash distributions on Normal Units
which include Pledged Notes or Pledged Treasury Consideration and (B) any
payments in respect of the Notes or Treasury Consideration, as the case may
be, that have been released from the Pledge pursuant to the Pledge Agreement,
to the Agent to the account designated by the Agent, no later than 10:00
a.m., New York City time, on the Business Day such payment is received by the
Collateral Agent (provided that in the event such payment is received by the
Collateral Agent on a day that is not a Business Day or after 9:00 a.m., New
York City time, on a Business Day, then such payment shall be made no later
than 9:30 a.m., New York City time, on the next succeeding Business Day) and
(ii) in the case of payments in respect of any Pledged Notes or Pledged
Treasury Consideration, as the case may be, to be paid upon settlement of
such Holder's obligations to purchase Common Shares under the Purchase
Contract, to the Company on the Share Purchase Date (as defined herein) in
accordance with the terms of the Pledge Agreement, in full satisfaction of
the respective obligations of the Holders of the Normal Units of which such
Pledged Notes or Pledged Treasury Consideration are a part under the Purchase
Contracts forming a part of such Normal Units. Quarterly distributions on
Normal Units which include Pledged Notes or Pledged Treasury Consideration
(other than Prepayment Treasury Consideration) which are payable quarterly in
arrears on *, *, *, and * each year, commencing *, 2002 (a "Payment Date"),
shall, subject to receipt thereof by the Agent from the Trustee or Collateral
Agent, as the case may be, be paid to the Person in whose name this Normal
Units Certificate (or a Predecessor Normal Units Certificate) is registered
at the close of business on the Record Date for such Payment Date.
Each Purchase Contract evidenced hereby obligates the Holder of this
Normal Units Certificate to purchase, and the Company to sell, on *, 2005 (the
"Share Purchase Date"), at a price equal to $25 (the "Purchase Price"), a number
of Common
A-2
Shares, $0.01 par value per share ("Common Shares"), of the Company, equal to
the Settlement Rate, unless on or prior to the Share Purchase Date there shall
have occurred a Termination Event or an Early Settlement or Merger Early
Settlement with respect to the Normal Units of which such Purchase Contract is a
part, all as provided in the Purchase Contract Agreement, as defined and more
fully described on the reverse hereof. The Purchase Price for the Common Shares
purchased pursuant to each Purchase Contract evidenced hereby, if not paid
earlier, shall be satisfied on the Share Purchase Date by either (i) the
application of payments received with regard to Pledged Treasury Consideration,
or (ii) the exercise of the Company's rights as a secured party in connection
with the Pledged Notes, as the case may be.
Payments on the Notes or the appropriate Treasury Consideration will
be payable at the office of the Agent in The City of New York or, at the option
of the Company, by check mailed to the address of the Person entitled thereto as
such address appears on the Normal Units Register or by wire transfer to an
account specified by the Company.
The Company shall pay on each Payment Date in respect of each Purchase
Contract forming part of a Normal Unit evidenced hereby an amount (the "Contract
Adjustment Payments") equal to *% per year of the Stated Amount, computed on the
basis of a 360-day year of twelve 30-day months, subject to deferral at the
option of the Company as provided in the Purchase Contract Agreement and more
fully described on the reverse hereof (provided that if on any date on which
Contract Adjustment Payments are to be made on the Purchase Contracts is not a
Business Day, then payment of the Contract Adjustment Payments payable on that
date will be made on the next succeeding day which is a Business Day, and no
interest or payment will be paid in respect of the delay, except that if such
next succeeding Business Day is in the next succeeding calendar year, such
payment will be made on the immediately preceding Business Day). Such Contract
Adjustment Payments shall be payable to the Person in whose name this Normal
Units Certificate (or a Predecessor Normal Units Certificate) is registered at
the close of business on the Record Date for such Payment Date.
Contract Adjustment Payments will be payable at the office of the
Agent in The City of New York or, at the option of the Company, by check mailed
to the address of the Person entitled thereto as such address appears on the
Normal Units Register or by wire transfer to the account designated by such
Person in writing.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Agent by manual signature, this Normal Units Certificate shall not be
entitled to any benefit under the Pledge Agreement or the Purchase Contract
Agreement or be valid or obligatory for any purpose.
A-3
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
-------------
PLATINUM UNDERWRITERS HOLDINGS, LTD.
By:
-------------------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to obligations
of such Holder under the Purchase
Contracts evidenced hereby)
By: JPMORGAN CHASE BANK,
not individually but solely as
Attorney-in-Fact of such Holder
By:
----------------------------------
Name:
Title:
A-4
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Normal Units Certificates referred to in the within
mentioned Purchase Contract Agreement.
JPMORGAN CHASE BANK,
as Purchase Contract Agent
Dated: By:
---------------- ----------------------------------
Authorized Officer
A-5
(Form of Reverse of Normal Units Certificate)
Each Purchase Contract evidenced hereby is governed by a Purchase
Contract Agreement, dated as of *, 2002 (as may be supplemented from time to
time, the "Purchase Contract Agreement"), between the Company and JPMorgan Chase
Bank, as Purchase Contract Agent (including its successors thereunder, herein
called the "Agent"), to which Purchase Contract Agreement and supplemental
agreements thereto reference is hereby made for a description of the respective
rights, limitations of rights, obligations, duties and immunities thereunder of
the Agent, the Company, and the Holders and of the terms upon which the Normal
Units Certificates are, and are to be, executed and delivered. All defined terms
used but not defined in this Certificate have the meanings ascribed to them in
the Purchase Contract Agreement.
Each Purchase Contract evidenced hereby obligates the Holder of this
Normal Units Certificate to purchase, and the Company to sell, on the Share
Purchase Date at a price equal to $25 (the "Purchase Price"), a number of Common
Shares of the Company equal to the Settlement Rate, unless, on or prior to the
Share Purchase Date, there shall have occurred a Termination Event or a Cash
Settlement, Early Settlement or Merger Early Settlement with respect to the Unit
of which such Purchase Contract is a part. The "Settlement Rate" is equal to (a)
if the Applicable Market Value (as defined below) is equal to or greater than $*
(the "Threshold Appreciation Price"), * Common Shares per Purchase Contract, (b)
if the Applicable Market Value is less than the Threshold Appreciation Price but
is greater than $*, the number of Common Shares per Purchase Contract equal to
the Purchase Price divided by the Applicable Market Value and (c) if the
Applicable Market Value is equal to or less than $*, * Common Shares per
Purchase Contract, in each case subject to adjustment as provided in the
Purchase Contract Agreement. No fractional Common Shares will be issued upon
settlement of Purchase Contracts, as provided in the Purchase Contract
Agreement.
The "Applicable Market Value" means the average of the Closing Price
per Common Share on each of the 20 consecutive Trading Days ending on the third
Trading Day immediately preceding the Share Purchase Date or, in the event of a
Cash Merger, the Cash Merger Date.
The "Closing Price" of the Common Shares on any date of determination
means the closing sale price (or, if no closing sale price is reported, the last
reported sale price) of the Common Shares on the New York Stock Exchange (the
"NYSE") on such date or, if the Common Shares are not listed for trading on the
NYSE on any such date, as reported in the composite transactions for the
principal United States securities exchange on which the Common Shares are so
listed, or if the Common Shares are not so listed on a United States national or
regional securities exchange, as reported by The Nasdaq Stock Market, or, if the
Common Shares are not so reported, the last quoted bid price for the Common
Shares in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, or, if such bid price is not available, the
market value of the Common Shares on such date as determined by a nationally
recognized independent investment banking firm retained for this purpose by the
Company.
A-6
A "Trading Day" means a day on which the Common Shares (A) are not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the Common Shares at the close of business on such day.
Each Purchase Contract evidenced hereby may be settled prior to the
Share Purchase Date through Cash Settlement, Early Settlement or Merger Early
Settlement, in accordance with the terms of the Purchase Contract Agreement.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Normal Units Certificate shall pay the Purchase Price for the
Common Shares purchased pursuant to each Purchase Contract evidenced hereby (i)
by effecting a Cash Settlement, an Early Settlement or Merger Early Settlement,
(ii) by application of payments received in respect of the Pledged Treasury
Consideration acquired from the proceeds of a remarketing of the related Pledged
Notes underlying the Normal Units represented by this Normal Units Certificate
as contemplated by Section 5.4 of the Purchase Contract Agreement or (iii) if
the Holder has elected not to participate in the remarketing, by application of
payments received in respect of the Pledged Opt-out Treasury Consideration
deposited by such Holder in respect of such Purchase Contract or (iv) if a Tax
Event Redemption has occurred prior to the successful remarketing of the Notes
as contemplated by Section 5.4 of the Purchase Contract Agreement, by
application of payments received in respect of the Pledged Treasury
Consideration purchased by the Collateral Agent on behalf of the Holder of this
Normal Units Certificate. If, as provided in the Purchase Contract Agreement,
upon the occurrence of a Last Failed Remarketing the Collateral Agent, for the
benefit of the Company, exercises its rights as a secured creditor with respect
to the Pledged Notes related to this Normal Units Certificate, any accrued and
unpaid interest on such Pledged Notes will become payable by the Company to the
Holder of this Normal Units Certificate in the manner provided for in the
Purchase Contract Agreement.
Under and subject to the terms of the Pledge Agreement and the
Purchase Contract Agreement, the Agent will be entitled to exercise the voting
and any other consensual rights pertaining to the Pledged Notes, but only to the
extent instructed by the Holders as described below. Upon receipt of notice of
any meeting at which holders of Notes are entitled to vote or upon the
solicitation of consents, waivers or proxies of holders of Notes, the Agent
shall, as soon as practicable thereafter, mail to the Holders of Normal Units a
notice (a) containing such information as is contained in the notice or
solicitation, (b) stating that each such Holder on the record date set by the
Agent therefor (which, to the extent possible, shall be the same date as the
record date for determining the holders of Notes entitled to vote) shall be
entitled to instruct the Agent as to the exercise of the voting rights
pertaining to the Pledged Notes constituting a part of such Holder's Normal
Units and (c) stating the manner in which such instructions may be given. Upon
the written request of any Holder of Normal Units on such record date, the Agent
shall endeavor insofar as practicable to vote or cause to be voted, in
accordance
A-7
with the instructions set forth in such request the maximum number of Pledged
Notes as to which any particular voting instructions are received. In the
absence of specific instructions from the Holder of a Normal Unit, the Agent
shall abstain from voting the Pledged Note evidenced by such Normal Unit.
The Normal Units Certificates are issuable only in registered form and
only in denominations of a single Normal Unit and any integral multiple thereof.
The transfer of any Normal Units Certificate will be registered and Normal Units
Certificates may be exchanged as provided in the Purchase Contract Agreement.
The Normal Units Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents permitted by the Purchase
Contract Agreement. No service charge shall be required for any such
registration of transfer or exchange of a Normal Units Certificate, but the
Company and the Agent may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Certificates, other than exchanges not
involving any transfer as provided for in the Purchase Contract Agreement. The
Holder of a Normal Unit may substitute for the Pledged Notes or Pledged Treasury
Consideration securing its obligations under the related Purchase Contract
Treasury Securities in accordance with the terms of the Purchase Contract
Agreement and the Pledge Agreement. From and after such Collateral Substitution,
the Unit for which such Pledged Treasury Securities secures the Holder's
obligation under the Purchase Contract shall be referred to as a "Stripped
Unit." A Holder that elects to substitute Treasury Securities for Pledged Notes
or Pledged Treasury Consideration, thereby creating Stripped Units, shall be
responsible for any fees or expenses payable in connection therewith. Except as
provided in the Purchase Contract Agreement, for so long as the Purchase
Contract underlying a Normal Unit remains in effect, such Normal Unit shall not
be separable into its constituent parts, and the rights and obligations of the
Holder of such Normal Units in respect of the Pledged Note or Pledged Treasury
Consideration and Purchase Contract comprising such Normal Unit may be acquired,
and may be transferred and exchanged, only as a Normal Unit.
A Holder of Stripped Units may reestablish Normal Units at any time
from and after the date of the Purchase Contract Agreement and on or prior to
the second Business Day immediately preceding the Share Purchase Date by
depositing with the Collateral Agent the Notes or the appropriate Treasury
Consideration in exchange for the release of the Pledged Treasury Securities in
accordance with the terms of the Purchase Contract Agreement and the Pledge
Agreement.
Subject to the next succeeding paragraph, the Company shall pay, on
each Payment Date, the Contract Adjustment Payments, if any, payable in respect
of each Purchase Contract to the Person in whose name the Normal Units
Certificate (or one or more Predecessor Normal Units Certificates) evidencing
such Purchase Contract is registered on the Normal Units Register at the close
of business on the Record Date next preceding such Payment Date. The Contract
Adjustment Payments, if any, will be payable at the Corporate Trust Office or,
at the option of the Company, by check mailed to the address of the Person
entitled thereto at such Person's address as it appears on the
A-8
Normal Units Register or by wire transfer to the account designated by such
Person in writing.
The Company shall have the right, at any time prior to the Share
Purchase Date, to defer the payment of any or all of the Contract Adjustment
Payments otherwise payable on any Payment Date, but only if the Company shall
give the Holders and the Agent written notice of its election to defer each such
Contract Adjustment Payments as provided in the Purchase Contract Agreement. Any
Contract Adjustment Payments so deferred shall, to the extent permitted by law,
accrue additional Contract Adjustment Payments thereon at the rate of *% per
year (computed on the basis of a 360-day year of twelve 30-day months),
compounding on each succeeding Payment Date, until paid in full (such deferred
installments of Contract Adjustment Payments, if any, together with the
additional Contract Adjustment Payments, if any, accrued thereon, are referred
to herein as the "Deferred Contract Adjustment Payments"). Deferred Contract
Adjustment Payments, if any, shall be due on the next succeeding Payment Date
except to the extent that payment is deferred pursuant to the Purchase Contract
Agreement. No Contract Adjustment Payments may be deferred to a date that is
after the Share Purchase Date and no such deferral period may end other than on
a Payment Date.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until a Payment Date prior to the
Share Purchase Date, then all Deferred Contract Adjustment Payments, if any,
shall be payable to the registered Holders as of the close of business on the
Record Date immediately preceding such Payment Date.
The Company's obligations with respect to Contract Adjustment Payments
(including any accrued or Deferred Contract Adjustment Payments) will be
subordinated and junior in right of payment to the Company's obligations under
any Senior Indebtedness.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Share Purchase Date, the
Holder of this Normal Units Certificate will receive on the Share Purchase Date,
in lieu of a cash payment, a number of Common Shares (in addition to the number
of Common Shares equal to the Settlement Rate) equal to (i) the aggregate amount
of Deferred Contract Adjustment Payments payable to the Holder of this Normal
Units Certificate divided by (ii) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not, and will not permit any
subsidiary of the Company to, declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of the Company's Capital Stock other than (i) purchases,
redemptions or acquisitions of shares of the Company's Capital Stock in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of employees, officers, directors
A-9
or agents or a stock purchase or dividend reinvestment plan, or the satisfaction
by the Company of its obligations pursuant to any contract or security
outstanding on the date the Company exercises its rights to defer the Contract
Adjustment Payments; (ii) as a result of a reclassification of the Company's
Capital Stock or the exchange or conversion of one class or series of the
Company's Capital Stock for another class or series of the Company's Capital
Stock; (iii) the purchase of fractional interests in shares of any series of the
Company's Capital Stock pursuant to the conversion or exchange provisions of
such Capital Stock or the security being converted or exchanged; (iv) dividends
or distributions in any series of the Company's Capital Stock (or rights to
acquire Capital Stock) or repurchases, acquisitions or redemptions of the
Company's Capital Stock in connection with the issuance or exchange of any
series of the Company's Capital Stock (or securities convertible into or
exchangeable for shares of the Company's Capital Stock); or (v) redemptions,
exchanges or repurchases of any rights outstanding under a shareholder rights
plan or the declaration or payment thereunder of a dividend or distribution of
or with respect to rights in the future.
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive accumulated Contract Adjustment Payments, if any, or any
Deferred Contract Adjustment Payments and the obligations of the Holders to
purchase Common Shares, shall immediately and automatically terminate, without
the necessity of any notice or action by any Holder, the Agent or the Company,
if, on or prior to the Share Purchase Date, a Termination Event shall have
occurred. Upon the occurrence of a Termination Event, the Company shall promptly
but in no event later than two Business Days thereafter give written notice to
the Agent, the Collateral Agent and to the Holders, at their addresses as they
appear in the Normal Units Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Pledged Notes or
Pledged Treasury Consideration from the Pledge in accordance with the provisions
of the Pledge Agreement.
Upon registration of transfer of this Normal Units Certificate, the
transferee shall be bound (without the necessity of any other action on the part
of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract
Agreement, the Purchase Contracts evidenced hereby and the Pledge Agreement and
the transferor shall be released from the obligations under the Purchase
Contract Agreement, the Purchase Contracts evidenced by this Normal Units
Certificate and the Pledge Agreement. The Company covenants and agrees, and the
Holder, by its acceptance hereof, likewise covenants and agrees, to be bound by
the provisions of this paragraph.
The Holder of this Normal Units Certificate, by its acceptance hereof,
irrevocably authorizes the Agent to enter into and perform the related Purchase
Contracts forming part of the Normal Units evidenced hereby on his behalf as his
attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company or its trustee in the event
that the Company becomes the subject of a case under the Bankruptcy Code, agrees
to be bound by the terms and
A-10
provisions thereof, covenants and agrees to perform such Holder's obligations
under such Purchase Contracts, consents to the provisions of the Purchase
Contract Agreement, authorizes the Agent to enter into and perform the Pledge
Agreement on such Holder's behalf as attorney-in-fact, and consents to the
Pledge of the Notes or the appropriate Treasury Consideration underlying this
Normal Units Certificate pursuant to the Pledge Agreement. The Holder further
covenants and agrees, that, to the extent and in the manner provided in the
Purchase Contract Agreement and the Pledge Agreement, but subject to the terms
thereof, payments in respect of the Pledged Notes or the Pledged Treasury
Consideration to be paid upon settlement of such Holder's obligations to
purchase Common Shares under the Purchase Contract, shall be paid on the Share
Purchase Date by the Collateral Agent to the Company in satisfaction of such
Holder's obligations under such Purchase Contract and such Holder shall acquire
no right, title or interest in such payments. The obligations of each Holder to
pay the Purchase Price are non-recourse obligations and except to the extent
paid by Cash Settlement, Early Settlement or Merger Early Settlement, are
payable solely out of the proceeds of any Collateral pledged to secure the
obligations of the Holders and in no event will Holders be liable for any
deficiency between such payments and the Purchase Price. Notwithstanding
anything to the contrary herein, the Company shall not be obligated to issue any
Common Shares in respect of a Purchase Contract or deliver any certificates
therefor to the Holder of the related Unit unless the Company shall have (i)
received payment in full of the aggregate Purchase Price for the Common Shares
to be purchased thereunder by such Holder in the manner herein set forth or (ii)
exercised its rights as a secured party under Section 5.4(b)(iii) of the
Purchase Contract Agreement.
Each Holder of any Unit, and each Beneficial Owner thereof, by its
acceptance thereof or of its interest therein, further agrees to treat (i)
itself as the owner of the related Notes, Treasury Consideration or Treasury
Securities, as the case may be, and (ii) the Notes as indebtedness of Platinum
Underwriters Finance, Inc. in each case, for United States federal, state and
local income and franchise tax purposes.
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
outstanding Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, deemed
to be a contract under, and construed in accordance with, the laws of the State
of New York, without regard to the conflicts of laws principles thereof.
The Company, the Agent and its Affiliates and any agent of the Company
or the Agent may treat the Person in whose name this Normal Units Certificate is
registered as the owner of the Normal Units evidenced hereby for the purpose of
receiving quarterly payments of interest on the Notes or the Treasury
Consideration, as the case may be, receiving payments of Contract Adjustment
Payments, if any, and any Deferred Contract Adjustment Payments, performance of
the Purchase Contracts and for all other purposes whatsoever, whether or not any
payments in respect thereof be overdue
A-11
and notwithstanding any notice to the contrary, and neither the Company, the
Agent, such Affiliates nor any such agent shall be affected by notice to the
contrary.
The Purchase Contracts shall not, prior to the settlement thereof,
entitle the Holder to any of the rights of a holder of Common Shares.
A copy of the Purchase Contract Agreement is available for inspection
at the offices of the Agent.
A-12
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - Custodian
-----------------------------------
(cust) (minor)
Under Uniform Gifts to Minors Act
-----------------------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
A-13
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto ___________________________________________________________________________
________________________________________________________________________________
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Normal Units Certificates and all rights thereunder, hereby
irrevocably constituting and appointing ________________________________________
attorney to transfer said Normal Units Certificates on the books of Platinum
Underwriters Holdings, Ltd. with full power of substitution in the premises.
Dated:________________ Signature:
---------------------------------
NOTICE: The signature to this assignment
must correspond with the name as it appears
upon the face of the within Normal Units
Certificates in every particular, without
alteration or enlargement or any change
whatsoever.
Signature Guarantee:
-----------------------------------------------------------
A-14
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for Common Shares
deliverable upon settlement on or after the Share Purchase Date of the Purchase
Contracts underlying the number of Normal Units evidenced by this Normal Units
Certificate be registered in the name of, and delivered, together with a check
in payment for any fractional share, to the undersigned at the address indicated
below unless a different name and address have been indicated below. If shares
are to be registered in the name of a Person other than the undersigned, the
undersigned will pay any transfer tax payable incident thereto.
Dated:_______________ Signature:
--------------------------
Signature Guarantee:
----------------
(if assigned to another person)
If shares are to be registered in the REGISTERED HOLDER
name of and delivered to a Person other
than the Holder, please (i) print such
Person's name and address and (ii) Please print name and address of
provide a guarantee of your signature: Registered Holder:
- ---------------------------------------- ------------------------------------
Name Name
- ---------------------------------------- ------------------------------------
Address Address
Social Security or other Taxpayer
Identification Number, if any
A-15
ELECTION TO SETTLE EARLY
The undersigned Holder of this Normal Units Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Normal Units evidenced by this Normal Units
Certificate specified below. The option to effect Early Settlement may be
exercised only with respect to Purchase Contracts underlying Normal Units with
an aggregate Purchase Price equal to $1,000 or an integral multiple thereof. The
undersigned Holder directs that a certificate for Common Shares deliverable upon
such Early Settlement be registered in the name of, and delivered, together with
a check in payment for any fractional share and any Normal Units Certificate
representing any Normal Units evidenced hereby as to which Early Settlement of
the related Purchase Contracts is not effected, to the undersigned at the
address indicated below unless a different name and address have been indicated
below. Pledged Notes or Pledged Treasury Consideration deliverable upon such
Early Settlement will be transferred in accordance with the transfer
instructions set forth below. If Common Shares are to be registered in the name
of a Person other than the undersigned, the undersigned will pay any transfer
tax payable incident thereto.
Dated:_________________ Signature:
--------------------------
Signature Guarantee: Signature Guarantee:
------------------- ----------------
Number of Units evidenced hereby as to which Early Settlement of the
related Purchase Contracts is being elected:
If Common Shares are to be registered in REGISTERED HOLDER
the name of and delivered to and Pledged
Notes or Pledged Treasury Consideration
are to be transferred to a Person other Please print name and address of
than the Holder, please print such Registered Holder:
Person's name and address:
- ---------------------------------------- ------------------------------------
Name Name
- ---------------------------------------- ------------------------------------
Address Address
Social Security or other Taxpayer
Identification Number, if any
Transfer instructions for Pledged Notes or Pledged Treasury Consideration
transferable upon Early Settlement or a Termination Event:
A-16
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global Certificate have
been made:
STATED AMOUNT
AMOUNT OF AMOUNT OF OF THE GLOBAL
DECREASE IN INCREASE IN CERTIFICATE SIGNATURE OF
STATED AMOUNT STATED AMOUNT FOLLOWING AUTHORIZED
OF THE GLOBAL OF THE GLOBAL SUCH DECREASE OFFICER OF
DATE CERTIFICATE CERTIFICATE OR INCREASE AGENT
- -------------- ----------------- ----------------- ---------------- --------------
A-17
EXHIBIT B
FORM OF STRIPPED UNITS CERTIFICATE
(FORM OF GLOBAL CERTIFICATE LEGEND)
[THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE
CONTRACT AGREEMENT (AS DEFINED ON THE REVERSE HEREOF) AND IS REGISTERED IN THE
NAME OF A CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF
THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.]*
[SO LONG AS DTC IS THE DEPOSITARY, INSERT: Unless this Certificate is presented
by an authorized representative of The Depository Trust Company (55 Water
Street, New York, New York) to the Company or its agent for registration of
transfer, exchange or payment, and any Certificate issued is registered in the
name of Cede & Co., or such other name as requested by an authorized
representative of The Depository Trust Company, and any payment hereon is made
to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an
interest herein.]
Form of Face of Stripped Units Certificate
No. CUSIP No.
Number of Stripped Units
This Stripped Units Certificate certifies that _________ is the
registered Holder of the number of Stripped Units set forth above. Each Stripped
Unit represents (i) a 1/40 undivided beneficial ownership interest in a Treasury
Security, subject to the Pledge of such interest in such Treasury Security by
such Holder pursuant to the Pledge Agreement, and (ii) the rights and
obligations of the Holder under one Purchase Contract with platinum Underwriters
Holdings, Ltd., a Bermuda corporation (the "Company"). Each Stripped Unit will
have a stated amount of $25 (the "Stated Amount"). All capitalized terms used
herein which are defined in the Purchase Contract Agreement have the meaning set
forth therein.
Pursuant to the Pledge Agreement, the Treasury Security constituting
part of each Stripped Unit evidenced hereby has been pledged to the Collateral
Agent, for the benefit of the Company, to secure the obligations of the Holder
under the Purchase
- ----------
* To be inserted in Global Certificates only.
B-1
Contract comprising a part of such Stripped Unit to purchase Common Shares of
the Company. Prior to the purchase of Common Shares under each Purchase
Contract, such Purchase Contracts shall not entitle the Holders of Normal Units
Certificates to any of the rights of a holder of Common Shares, including
without limitation, the right to vote or receive any dividends or other payments
or to consent or to receive notice as shareholders in respect of the meetings of
shareholders, or for the election of directors of the Company or for any other
matter or any other rights whatsoever as shareholder of the Company.
Each Purchase Contract evidenced hereby obligates the Holder of this
Stripped Units Certificate to purchase, and the Company to sell, on *, 2005 (the
"Share Purchase Date"), at a price equal to $25 (the "Purchase Price"), a number
of Common Shares, $0.01 par value per share ("Common Shares"), of the Company,
equal to the Settlement Rate, unless on or prior to the Share Purchase Date
there shall have occurred a Termination Event or an Early Settlement or Merger
Early Settlement with respect to the Stripped Units of which such Purchase
Contract is a part, all as provided in the Purchase Contract Agreement and more
fully described on the reverse hereof. The Purchase Price (as defined herein)
for the Common Shares purchased pursuant to each Purchase Contract evidenced
hereby, if not paid earlier, shall be paid on the Share Purchase Date by
application of payments received in respect of the Pledged Treasury Securities
pledged to secure the obligations of the Holder under such Purchase Contract in
accordance with the terms of the Pledge Agreement.
The Company shall pay on each Payment Date in respect of each Purchase
Contract forming part of a Stripped Unit evidenced hereby an amount (the
"Contract Adjustment Payments") equal to *% per year of the Stated Amount,
computed on the basis of a 360-day year of twelve 30-day months, subject to
deferral at the option of the Company as provided in the Purchase Contract
Agreement and more fully described on the reverse hereof (provided that if on
any date on which Contract Adjustment Payments are to be made on the Purchase
Contracts is not a Business Day, then payment of the Contract Adjustment
Payments payable on that date will be made on the next succeeding day which is a
Business Day, and no interest or payment will be paid in respect of the delay,
except that if such next succeeding Business Day is in the next succeeding
calendar year, such payment will be made on the immediately preceding Business
Day). Such Contract Adjustment Payments shall be payable to the Person in whose
name this Stripped Units Certificate (or a Predecessor Stripped Units
Certificate) is registered at the close of business on the Record Date for such
Payment Date.
Contract Adjustment Payments will be payable at the office of the
Agent in the City of New York or, at the option of the Company, by check mailed
to the address of the Person entitled thereto as such address appears on the
Normal Units Register or by wire transfer to the account designated by such
Person in writing.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
B-2
Unless the certificate of authentication hereon has been executed by
the Agent by manual signature, this Stripped Units Certificate shall not be
entitled to any benefit under the Pledge Agreement or the Purchase Contract
Agreement or be valid or obligatory for any purpose.
B-3
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:_________________
PLATINUM UNDERWRITERS HOLDINGS, LTD.
By:
-------------------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to obligations
of such Holder under the Purchase
Contracts evidenced hereby)
By: JPMORGAN CHASE BANK, not
individually but solely as
Attorney-in-Fact of such Holder
By:
---------------------------------
Name:
Title:
B-4
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Stripped Units Certificates referred to in the
within-mentioned Purchase Contract Agreement.
JPMORGAN CHASE BANK,
as Purchase Contract Agent
By:
----------------------------------
Authorized Officer
B-5
(Form of Reverse of Stripped Units Certificate)
Each Purchase Contract evidenced hereby is governed by a Purchase
Contract Agreement, dated as of *, 2002 (as may be supplemented from time to
time, the "Purchase Contract Agreement"), between the Company and JPMorgan Chase
Bank, as Purchase Contract Agent (including its successors thereunder, herein
called the "Agent"), to which the Purchase Contract Agreement and supplemental
agreements thereto reference is hereby made for a description of the respective
rights, limitations of rights, obligations, duties and immunities thereunder of
the Agent, the Company and the Holders and of the terms upon which the Stripped
Units Certificates are, and are to be, executed and delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Stripped Units Certificate to purchase, and the Company to sell, on the Share
Purchase Date at a price equal to $25 (the "Purchase Price"), a number of Common
Shares of the Company equal to the Settlement Rate, unless, on or prior to the
Share Purchase Date, there shall have occurred a Termination Event or a Cash
Settlement, an Early Settlement or Merger Early Settlement with respect to the
Unit of which such Purchase Contract is a part. The "Settlement Rate" is equal
to (a) if the Applicable Market Value (as defined below) is equal to or greater
than $* (the "Threshold Appreciation Price"), * Common Shares per Purchase
Contract, (b) if the Applicable Market Value is less than the Threshold
Appreciation Price but is greater than $*, the number of Common Shares per
Purchase Contract equal to the Purchase Price divided by the Applicable Market
Value and (c) if the Applicable Market Value is equal to or less than $*, *
Common Shares per Purchase Contract, in each case subject to adjustment as
provided in the Purchase Contract Agreement. No fractional Common Shares will be
issued upon settlement of Purchase Contracts, as provided in the Purchase
Contract Agreement.
The "Applicable Market Value" means the average of the Closing Price
per Common Share on each of the 20 consecutive Trading Days ending on the third
Trading Day immediately preceding the Share Purchase Date or in the event of a
Cash Merger, the Cash Merger Date.
The "Closing Price" of the Common Shares on any date of determination
means the closing sale price (or, if no closing sale price is reported, the last
reported sale price) of the Common Shares on the New York Stock Exchange (the
"NYSE") on such date or, if the Common Shares are not listed for trading on the
NYSE on any such date, as reported in the composite transactions for the
principal United States securities exchange on which the Common Shares are so
listed, or if the Common Shares are not so listed on a United States national or
regional securities exchange, as reported by The Nasdaq Stock Market, or, if the
Common Shares are not so reported, the last quoted bid price for the Common
Shares in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, or, if such bid price is not available, the
market value of the Common Shares on such date as determined by a nationally
recognized independent investment banking firm retained for this purpose by the
Company.
B-6
A "Trading Day" means a day on which the Common Shares (A) are not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the Common Shares at the close of business of such day.
Each Purchase Contract evidenced hereby may be settled prior to the
Share Purchase Date through Cash Settlement, Early Settlement or Merger Early
Settlement, in accordance with the terms of the Purchase Contract Agreement.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Stripped Units Certificate shall pay the Purchase Price for the
Common Shares purchased pursuant to each Purchase Contract evidenced hereby (i)
by effecting a Cash Settlement, an Early Settlement or Merger Early Settlement
or (ii) by application of payments received in respect of the Pledged Treasury
Securities underlying the Stripped Units represented by this Stripped Units
Certificate.
The Company shall not be obligated to issue any Common Shares in
respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment in full of the aggregate Purchase
Price for the Common Shares to be purchased thereunder in the manner herein set
forth.
The Stripped Units Certificates are issuable only in registered form
and only in denominations of a single Stripped Unit and any integral multiple
thereof. The transfer of any Stripped Units Certificate will be registered and
Stripped Units Certificates may be exchanged as provided in the Purchase
Contract Agreement. The Stripped Units Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents
permitted by the Purchase Contract Agreement. No service charge shall be
required for any such registration of transfer or exchange of a Stripped Units
Certificate, but the Company and the Agent may require payment from the Holder
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Certificates, other than exchanges not involving any transfer as provided for in
the Purchase Contract Agreement. The Holder of a Stripped Unit may substitute
for the Pledged Treasury Securities securing its obligations under the related
Purchase Contract Notes or the appropriate Treasury Consideration in accordance
with the terms of the Purchase Contract Agreement and the Pledge Agreement. From
and after such Collateral Substitution, the Unit for which such Pledged Notes or
Pledged Treasury Consideration secures the Holder's obligation under the
Purchase Contract shall be referred to as a "Normal Unit." A Holder that elects
to substitute Notes or the appropriate Treasury Consideration for Pledged
Treasury Securities, thereby reestablishing Normal Units, shall be responsible
for any fees or expenses payable in connection therewith. Except as provided in
the Purchase Contract Agreement, for so long as the Purchase Contract underlying
a Stripped Unit remains in effect, such Stripped Unit shall not be separable
B-7
into its constituent parts, and the rights and obligations of the Holder of such
Stripped Unit in respect of the Pledged Treasury Security and the Purchase
Contract comprising such Stripped Unit may be acquired, and may be transferred
and exchanged, only as a Stripped Unit.
A Holder of Normal Units may establish Stripped Units at any time from
and after the date of the Purchase Contract Agreement and on or prior to the
second Business Day immediately preceding the Share Purchase Date by depositing
with the Collateral Agent Treasury Securities in exchange for the release of the
Pledged Notes or the appropriate Pledged Treasury Consideration in accordance
with the terms of the Purchase Contract Agreement and the Pledge Agreement.
Subject to the next succeeding paragraph, the Company shall pay, on
each Payment Date, the Contract Adjustment Payments, if any, payable in respect
of each Purchase Contract to the Person in whose name the Stripped Units
Certificate (or one or more Predecessor Stripped Units Certificates) evidencing
such Purchase Contract is registered on the Stripped Units Register at the close
of business on the Record Date next preceding such Payment Date. Contract
Adjustment Payments, if any, will be payable at the Corporate Trust Office or,
at the option of the Company, by check mailed to the address of the Person
entitled thereto at such Person's address as it appears on the Stripped Units
Register or by wire transfer to the account designated by such Person in
writing.
The Company shall have the right, at any time prior to the Share
Purchase Date, to defer the payment of any or all of the Contract Adjustment
Payments otherwise payable on any Payment Date, but only if the Company shall
give the Holders and the Agent written notice of its election to defer each such
Contract Adjustment Payments as provided in the Purchase Contract Agreement. Any
Contract Adjustment Payments so deferred shall, to the extent permitted by law,
accrue additional Contract Adjustment Payments thereon at the rate of *% per
year (computed on the basis of a 360-day year of twelve 30-day months),
compounding on each succeeding Payment Date, until paid in full (such deferred
installments of Contract Adjustment Payments, if any, together with the
additional Contract Adjustment Payments, if any, accrued thereon, are referred
to herein as the "Deferred Contract Adjustment Payments"). Deferred Contract
Adjustment Payments, if any, shall be due on the next succeeding Payment Date
except to the extent that payment is deferred pursuant to the Purchase Contract
Agreement. No Contract Adjustment Payments may be deferred to a date that is
after the Share Purchase Date and no such deferral period may end other than on
a Payment Date.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until a Payment Date prior to the
Share Purchase Date, then all Deferred Contract Adjustment Payments, if any,
shall be payable to the registered Holders as of the close of business on the
Record Date immediately preceding such Payment Date.
B-8
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Share Purchase Date, the
Holder of this Stripped Units Certificate will receive on the Share Purchase
Date, in lieu of a cash payment, a number of Common Shares (in addition to the
number of Common Shares equal to the Settlement Rate) equal to (i) the aggregate
amount of Deferred Contract Adjustment Payments payable to the Holder of this
Stripped Units Certificate divided by (ii) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not, and will not permit any
subsidiary of the Company to, declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of the Company's Capital Stock other than (i) purchases,
redemptions or acquisitions of shares of the Company's Capital Stock in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of employees, officers, directors or agents
or a stock purchase or dividend reinvestment plan, or the satisfaction by the
Company of its obligations pursuant to any contract or security outstanding on
the date the Company exercises its rights to defer the Contract Adjustment
Payments; (ii) as a result of a reclassification of the Company's Capital Stock
or the exchange or conversion of one class or series of the Company's Capital
Stock for another class or series of the Company's Capital Stock; (iii) the
purchase of fractional interests in shares of the Company's Capital Stock
pursuant to the conversion or exchange provisions of such Capital Stock or the
security being converted or exchanged; (iv) dividends or distributions in any
series of the Company's Capital Stock (or rights to acquire Capital Stock) or
repurchases, acquisitions or redemptions of the Company's Capital Stock in
connection with the issuance or exchange of any series of the Company's Capital
Stock (or securities convertible into or exchangeable for shares of the
Company's Capital Stock); or (v) redemptions, exchanges or repurchases of any
rights outstanding under a shareholder rights plan or the declaration or payment
thereunder of a dividend or distribution of or with respect to rights in the
future.
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive accumulated Contract Adjustment Payments, if any, or any
Deferred Contract Adjustment Payments, and the obligations of the Holders to
purchase Common Shares, shall immediately and automatically terminate, without
the necessity of any notice or action by any Holder, the Agent or the Company,
if, on or prior to the Share Purchase Date, a Termination Event shall have
occurred. Upon the occurrence of a Termination Event, the Company shall promptly
but in no event later than two business days thereafter give written notice to
the Agent, the Collateral Agent and to the Holders, at their addresses as they
appear in the Stripped Units Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Pledged Treasury
Securities from the Pledge in accordance with the provisions of the Pledge
Agreement.
B-9
Upon registration of transfer of this Stripped Units Certificate, the
transferee shall be bound (without the necessity of any other action on the part
of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract
Agreement, the Purchase Contracts evidenced hereby and the Pledge Agreement and
the transferor shall be released from the obligations under the Purchase
Contract Agreement, the Purchase Contracts evidenced by this Stripped Units
Certificate and the Pledge Agreement. The Company covenants and agrees, and the
Holder, by his acceptance hereof, likewise covenants and agrees, to be bound by
the provisions of this paragraph.
The Holder of this Stripped Units Certificate, by its acceptance
hereof, irrevocably authorizes the Agent to enter into and perform the related
Purchase Contracts forming part of the Stripped Units evidenced hereby on his
behalf as its attorney-in-fact, expressly withholds any consent to the
assumption (i.e., affirmance) of the Purchase Contracts by the Company or its
trustee in the event that the Company becomes the subject of a case under the
Bankruptcy Code, agrees to be bound by the terms and provisions thereof,
covenants and agrees to perform such Holder's obligations under such Purchase
Contracts, consents to the provisions of the Purchase Contract Agreement,
authorizes the Agent to enter into and perform the Pledge Agreement on such
Holder's behalf as attorney-in-fact, and consents to the Pledge of the Treasury
Securities underlying this Stripped Units Certificate pursuant to the Pledge
Agreement. The Holder further covenants and agrees, that, to the extent and in
the manner provided in the Purchase Contract Agreement and the Pledge Agreement,
but subject to the terms thereof, payments in respect of the Pledged Treasury
Securities, to be paid upon settlement of such Holder's obligations to purchase
Common Shares under the Purchase Contract, shall be paid on the Share Purchase
Date by the Collateral Agent to the Company in satisfaction of such Holder's
obligations under such Purchase Contract and such Holder shall acquire no right,
title or interest in such payments. The obligations of each Holder to pay the
Purchase Price are non-recourse obligations and except to the extent paid by
Early Settlement or Merger Early Settlement, are payable solely out of the
proceeds of any Collateral pledged to secure the obligations of the Holders and
in no event will Holders be liable for any deficiency between such payments and
the Purchase Price.
Each Holder of any Unit, and each Beneficial Owner thereof, by its
acceptance thereof or of its interest therein, further agrees to treat (i)
itself as the owner of the related Notes, Treasury Consideration or Treasury
Securities, as the case may be, and (ii) the Notes as indebtedness of the
Platinum Underwriters Finance, Inc., in each case, for United States federal,
state and local income and franchise tax purposes.
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
B-10
The Purchase Contracts shall for all purposes be governed by and
deemed to be a contract under, and construed in accordance with, the laws of the
State of New York, without regard to conflicts of laws principles thereof.
The Company, the Agent and its Affiliates and any agent of the Company
or the Agent may treat the Person in whose name this Stripped Units Certificate
is registered as the owner of the Stripped Units evidenced hereby for the
purpose of receiving any Contract Adjustment Payments and any Deferred Contract
Adjustment Payments, performance of the Purchase Contracts and for all other
purposes whatsoever, whether or not any payments in respect thereof be overdue
and notwithstanding any notice to the contrary, and neither the Company, the
Agent, such Affiliate, nor any such agent shall be affected by notice to the
contrary.
The Purchase Contracts shall not, prior to the settlement thereof,
entitle the Holder to any of the rights of a holder of Common Shares.
A copy of the Purchase Contract Agreement is available for inspection
at the offices of the Agent.
B-11
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - Custodian
-----------------------------------
(cust) (minor)
Under Uniform Gifts to Minors Act
-----------------------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list.
B-12
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto ___________________________________________________________________________
________________________________________________________________________________
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)_______________________________________________________________________
________________________________________________________________________________
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Stripped Units Certificates and all rights thereunder, hereby
irrevocably constituting and appointing ______________________________________
attorney to transfer said Stripped Units Certificates on the books of Platinum
Underwriters Holdings, Ltd. with full power of substitution in the premises.
Dated:_________________ Signature:
-----------------------------
NOTICE: The signature to this assignment
must correspond with the name as it
appears upon the face of the within
Stripped Units Certificates in every
particular, without alteration or
enlargement or any change whatsoever.
Signature Guarantee:
-----------------------------------------------------------
B-13
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for Common Shares
deliverable upon settlement on or after the Share Purchase Date of the Purchase
Contracts underlying the number of Stripped Units evidenced by this Stripped
Units Certificate be registered in the name of, and delivered, together with a
check in payment for any fractional share, to the undersigned at the address
indicated below unless a different name and address have been indicated below.
If shares are to be registered in the name of a Person other than the
undersigned, the undersigned will pay any transfer tax payable incident thereto.
Dated:_________________ Signature:
--------------------------
Signature Guarantee:
----------------
(if assigned to another person)
If shares are to be registered in the REGISTERED HOLDER
name of and delivered to a Person other
than the Holder, please (i) print such
Person's name and address and (ii) Please print name and address of
provide a guarantee of your signature: Registered Holder:
- ---------------------------------------- ------------------------------------
Name Name
- ---------------------------------------- ------------------------------------
Address Address
Social Security or other Taxpayer
Identification Number, if any
B-14
ELECTION TO SETTLE EARLY
The undersigned Holder of this Stripped Units Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Stripped Units evidenced by this Stripped
Units Certificate specified below. The option to effect Early Settlement may be
exercised only with respect to Purchase Contracts underlying Stripped Units with
an aggregate Purchase Price equal to $1,000 or an integral multiple thereof. The
undersigned Holder directs that a certificate for Common Shares deliverable upon
such Early Settlement be registered in the name of, and delivered, together with
a check in payment for any fractional share and any Stripped Units Certificate
representing any Stripped Units evidenced hereby as to which Early Settlement of
the related Purchase Contracts is not effected, to the undersigned at the
address indicated below unless a different name and address have been indicated
below. Pledged Treasury Securities deliverable upon such Early Settlement will
be transferred in accordance with the transfer instructions set forth below. If
shares are to be registered in the name of a Person other than the undersigned,
the undersigned will pay any transfer tax payable incident thereto.
Dated:________________ Signature:
--------------------------
Signature Guarantee:
----------------
Number of Units evidenced hereby as to which Early Settlement of the
related Purchase Contracts is being elected:
If Common Shares are to be registered in REGISTERED HOLDER
the name of and delivered to and Pledged
Treasury Securities are to be transferred
to a Person other than the Holder, please Please print name and address of
print such Person's name and address: Registered Holder:
- ---------------------------------------- ------------------------------------
Name Name
- ---------------------------------------- ------------------------------------
Address Address
Social Security or other Taxpayer
Identification Number, if any
Transfer instructions for Pledged Treasury Securities, transferable upon Early
Settlement or a Termination Event:
B-15
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global Certificate have
been made:
STATED AMOUNT
AMOUNT OF AMOUNT OF OF THE GLOBAL
DECREASE IN INCREASE IN CERTIFICATE SIGNATURE OF
STATED AMOUNT STATED AMOUNT FOLLOWING AUTHORIZED
OF THE GLOBAL OF THE GLOBAL SUCH DECREASE OFFICER OF
DATE CERTIFICATE CERTIFICATE OR INCREASE AGENT
- -------------- ----------------- ----------------- ---------------- --------------
B-16
EXHIBIT C
INSTRUCTION FROM PURCHASE CONTRACT AGENT TO
COLLATERAL AGENT
State Street Bank and Trust Company
*
*
*
Attention: *
Re: EQUITY SECURITY UNITS OF PLATINUM UNDERWRITERS
HOLDINGS, LTD. (THE "COMPANY")
We hereby notify you in accordance with Section 4.1 of the Pledge
Agreement, dated as of *, 2002, among the Company, you, as Collateral Agent,
Custodial Agent and Securities Intermediary, and us, as Purchase Contract Agent
and as attorney-in-fact for the holders of [Normal Units] [Stripped Units] from
time to time, that the holder of securities listed below (the "Holder") has
elected to substitute [$ _______ aggregate principal amount of Treasury
Securities (CUSIP No. _____)] [$_______ principal amount of Notes or the
appropriate Treasury Consideration, as the case may be,] in exchange for the
related [Pledged Notes or Pledged Treasury Consideration] [Pledged Treasury
Securities (CUSIP No. ____),] held by you in accordance with the Pledge
Agreement and has delivered to us a notice stating that the Holder has
transferred [Treasury Securities] [Notes or the appropriate Treasury
Consideration] to you, as Collateral Agent. We hereby instruct you, upon receipt
of such [Pledged Treasury Securities] [Pledged Notes or Pledged Treasury
Consideration], and upon the payment by such Holder of any applicable fees, to
release the [Notes or Treasury Consideration, as the case may be,] [Treasury
Securities] related to such [Normal Units] [Stripped Units] to us in accordance
with the Holder's instructions. Capitalized terms used herein but not defined
shall have the meaning set forth in the Purchase Contract Agreement.
Date:_________________
JPMORGAN CHASE BANK,
As Purchase Contract Agent under the Purchase
Contract Agreement, dated as of *, 2002,
between the Company and the Purchase Contract
Agent
By:
------------------------------------
Name:
Title:
C-1
Please print name and address of Registered Holder electing to substitute
[Treasury Securities] [Notes or Treasury Consideration, as the case may be,] for
the [Pledged Notes or Pledged Treasury Consideration, as the case may be,]
[Pledged Treasury Securities]:
Name
Address
Social Security or other Taxpayer Identification
Number, if any
C-2
EXHIBIT D
INSTRUCTION TO PURCHASE CONTRACT AGENT
JPMorgan Chase Bank
450 West 33rd Street
New York, New York 10001
Attn: Institutional Trust Services
Re: EQUITY SECURITY UNITS OF PLATINUM UNDERWRITERS
HOLDINGS, LTD. (THE "COMPANY")
The undersigned Holder hereby notifies you, as Purchase Contract Agent
under the Purchase Contract Agreement, dated as of *, 2002, between the Company
and you, that it has delivered to State Street Bank and Trust Company, as
Collateral Agent, Custodial Agent and Securities Intermediary [$_________
aggregate principal amount of Treasury Securities] [$_________ principal amount
of Notes or the appropriate Treasury Consideration, as the case may be,] in
exchange for the related [Pledged Notes or Pledged Treasury Consideration, as
the case may be,] [Pledged Treasury Securities] held by the Collateral Agent, in
accordance with Section 4.1 of the Pledge Agreement, dated as of *, 2002, among
you, the Company and the Collateral Agent. The undersigned Holder has paid the
Collateral Agent all applicable fees relating to such exchange. The undersigned
Holder hereby instructs you to instruct the Collateral Agent to release to you
on behalf of the undersigned Holder the [Pledged Notes or Pledged Treasury
Consideration, as the case may be,] [Pledged Treasury Securities] related to
such [Normal Units] [Stripped Units]. Capitalized terms used herein but not
defined shall have the meaning set forth in the Purchase Contract Agreement.
Date:
By:
---------------------------------------
Signature Guarantee:
----------------------
Dated:
Please print name and address of
Registered Holder:
Name Social Security or other Taxpayer
Identification Number, if any
Address
EXHIBIT E
NOTICE TO SETTLE BY SEPARATE CASH
JPMorgan Chase Bank
450 West 33rd Street
New York, New York 10001
Attn: Institutional Trust Services
Re: EQUITY SECURITY UNITS OF PLATINUM UNDERWRITERS
HOLDINGS, LTD. (THE "COMPANY")
The undersigned Holder hereby notifies you in accordance with Section
5.4 of the Purchase Contract Agreement, dated as of *, 2002, between the Company
and you, that it has delivered to State Street Bank and Trust Company, as
Collateral Agent, Custodial Agent and Securities Intermediary as Purchase
Contract Agent, Attorney-in-Fact and Trustee for the Holders of the Purchase
Contracts, that such Holder has elected to pay to the Collateral Agent, on or
prior to 11:00 a.m. New York City time, on the Business Day immediately
preceding the Share Purchase Date, (in lawful money of the United States by
certified or cashiers check or wire transfer, in each case in immediately
available funds), $_________ as the Purchase Price for the Common Shares
issuable to such Holder by the Company under the related Purchase Contract on
the Share Purchase Date. The undersigned Holder hereby instructs you to notify
promptly the Collateral Agent of the undersigned Holder's election to make such
cash settlement with respect to the Purchase Contracts related to such Holder's
Normal Units. Capitalized terms used herein but not defined shall have the
meaning set forth in the Purchase Contract Agreement.
Date:
By:
---------------------------------------
Signature Guarantee:
-----------------------
Dated:
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
Please print name and address of
Registered Holder:
Name Social Security or other Taxpayer
Identification Number, if any
Address
EX-4.5
7
a2090035zex-4_5.txt
EXHIBIT 4.5
EXHIBIT 4.5
PLATINUM UNDERWRITERS HOLDINGS, LTD.
STATE STREET BANK AND TRUST COMPANY
AS COLLATERAL AGENT, CUSTODIAL AGENT
AND SECURITIES INTERMEDIARY
AND
JPMORGAN CHASE BANK
AS PURCHASE CONTRACT AGENT
PLEDGE AGREEMENT
DATED AS OF *, 2002
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions........................................................................2
ARTICLE II
PLEDGE; CONTROL AND PERFECTION
SECTION 2.1 The Pledge.........................................................................4
SECTION 2.2 Control and Perfection.............................................................5
ARTICLE III
PAYMENTS ON COLLATERAL
SECTION 3.1 Payments...........................................................................7
SECTION 3.2 Application of Payments............................................................9
ARTICLE IV
SUBSTITUTION, RELEASE, REPLEDGE AND SETTLEMENT OF NOTES
SECTION 4.1 Collateral Substitution and the Creation of Stripped Units.........................9
SECTION 4.2 Collateral Substitution and the Re-Creation of Normal Units.......................10
SECTION 4.3 Termination Event.................................................................11
SECTION 4.4 Early Settlement; Merger Early Settlement; Cash Settlement........................11
SECTION 4.5 Remarketing; Application of Proceeds; Settlement..................................12
ARTICLE V
VOTING RIGHTS -- NOTES
SECTION 5.1 Exercise by Purchase Contract Agent...............................................14
ARTICLE VI
RIGHTS AND REMEDIES; TAX EVENT REDEMPTION
SECTION 6.1 Rights and Remedies of the Collateral Agent.......................................15
SECTION 6.2 Substitutions.....................................................................16
SECTION 6.3 Tax Event Redemption..............................................................16
SECTION 6.4 Prepayment of Notes...............................................................17
ARTICLE VII
REPRESENTATIONS AND WARRANTIES; COVENANTS
SECTION 7.1 Representations and Warranties of the Holders.....................................17
SECTION 7.2 Representations and Warranties of the Collateral Agent, Custodial
Agent and Securities Intermediary.................................................18
SECTION 7.3 Covenants.........................................................................19
ARTICLE VIII
THE COLLATERAL AGENT
SECTION 8.1 Appointment, Powers and Immunities................................................19
SECTION 8.2 Instructions of the Company.......................................................21
SECTION 8.3 Reliance..........................................................................21
SECTION 8.4 Rights in Other Capacities........................................................21
SECTION 8.5 Non-Reliance on Collateral Agent..................................................22
SECTION 8.6 Compensation and Indemnity........................................................22
SECTION 8.7 Failure to Act....................................................................23
SECTION 8.8 Resignation.......................................................................23
SECTION 8.9 Right to Appoint Agent or Advisor.................................................25
SECTION 8.10 Survival..........................................................................25
SECTION 8.11 Exculpation.......................................................................25
ARTICLE IX
AMENDMENT
SECTION 9.1 Amendment Without Consent of Holders..............................................25
SECTION 9.2 Amendment with Consent of Holders.................................................26
SECTION 9.3 Execution of Amendments...........................................................27
SECTION 9.4 Effect of Amendments..............................................................27
SECTION 9.5 Reference to Amendments...........................................................27
ARTICLE X
MISCELLANEOUS
SECTION 10.1 No Waiver.........................................................................27
SECTION 10.2 GOVERNING LAW.....................................................................28
SECTION 10.3 Notices...........................................................................28
SECTION 10.4 Successors and Assigns............................................................28
SECTION 10.5 Counterparts......................................................................29
SECTION 10.6 Severability......................................................................29
SECTION 10.7 Expenses, Etc.....................................................................29
SECTION 10.8 Security Interest Absolute........................................................29
SECTION 10.9 Waiver of Jury Trial..............................................................30
EXHIBIT A Instruction from Purchase Contract Agent to Collateral Agent
EXHIBIT B Instruction to Purchase Contract Agent
EXHIBIT C Instruction to Custodial Agent Regarding Remarketing
EXHIBIT D Instruction to Custodial Agent Regarding Withdrawal from
Remarketing
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of *, 2002 (this "Agreement"), among Platinum
Underwriters Holdings, Ltd., a Bermuda corporation (the "Company"), State Street
Bank and Trust Company, a Massachusetts trust company, not individually but
solely as collateral agent (in such capacity, together with its successors in
such capacity, the "Collateral Agent"), as custodial agent (in such capacity,
together with its successors in such capacity, the "Custodial Agent") and as
"securities intermediary" as defined in Section 8-102(a)(14) of the Code (as
defined herein) (in such capacity, together with its successors in such
capacity, the "Securities Intermediary"), and JPMorgan Chase Bank, a New York
banking corporation, not individually but solely as purchase contract agent and
as attorney-in-fact of the Holders from time to time of the Units (in such
capacity, together with its successors in such capacity, the "Purchase Contract
Agent") under the Purchase Contract Agreement (as defined herein).
RECITALS
WHEREAS, the Company and the Purchase Contract Agent are parties to the
Purchase Contract Agreement, dated as of the date hereof (as modified and
supplemented and in effect from time to time, the "Purchase Contract
Agreement"), pursuant to which there may be issued Units having a Stated Amount
of $25 per Unit, all of which will initially be Normal Units.
WHEREAS, each Normal Unit will be comprised of (a) a Purchase Contract and
(b) either beneficial ownership of (i) a 1/40, or 2.5%, beneficial ownership
interest in a Note having a $1,000 principal amount or (ii) following the
remarketing of the Notes in accordance with the Purchase Contract Agreement and
the Remarketing Agreement or if the Holder has elected not to have the Note
remarketed or a Tax Event Redemption in accordance with the Purchase Contract
Agreement and the terms of the Notes, the appropriate Treasury Consideration.
WHEREAS, in accordance with the terms of the Purchase Contract Agreement, a
holder of Normal Units may separate the Notes or the appropriate Treasury
Consideration, as applicable, from the related Purchase Contracts by
substituting for such Notes or the appropriate Treasury Consideration, as the
case may be, Treasury Securities that will pay in the aggregate an amount equal
to the aggregate Stated Amount of such Normal Units. Upon such separation, the
Normal Units will become Stripped Units. Each Stripped Unit will be comprised of
(a) a Purchase Contract and (b) a 1/40 undivided beneficial interest in a
Treasury Security.
WHEREAS, pursuant to the terms of the Purchase Contract Agreement and the
Purchase Contracts, the Holders, from time to time, of the Units have
irrevocably authorized the Purchase Contract Agent, as attorney-in-fact of such
Holders, among other things, to execute and deliver this Agreement on behalf of
such Holders and to grant the pledge provided hereby of the Notes, any Treasury
Consideration and any Treasury
Securities delivered in exchange therefor to secure each Holder's obligations
under the related Purchase Contract, as provided herein and subject to the terms
hereof.
NOW, THEREFORE, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Company, the Collateral
Agent, the Securities Intermediary, the Custodial Agent and the Purchase
Contract Agent, on its own behalf and as attorney-in-fact of the Holders from
time to time of the Units, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions
For all purposes of this agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(a) capitalized terms used but not defined herein are used as defined in
the Purchase Contract Agreement;
(b) the defined terms in this Agreement have the meanings assigned to
them in this Article and include the plural as well as the singular; and
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Agreement" means this agreement as originally executed or as it may from
time to time be supplemented or amended by one or more agreements supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Code" has the meaning specified in Section 6.1 hereof.
"Collateral" has the meaning specified in Section 2.1 hereof.
"Collateral Account" means the securities account (number *) maintained at
* in the name "JPMorgan Chase Bank, as Purchase Contract Agent on behalf of the
holders of certain securities of Platinum Underwriters Holdings, Ltd.,
Collateral Account subject to the security interest of State Street Bank and
Trust Company, as Collateral Agent, for the benefit of Platinum Underwriters
Holdings, Ltd., as pledgee" and any successor account.
"Collateral Agent" has the meaning specified in the first paragraph of this
Agreement.
-2-
"Company" means the Person named as the "Company" in the first paragraph of
this Agreement until a successor shall have become such, and thereafter
"Company" shall mean such successor.
"Custodial Agent" has the meaning specified in the first paragraph of this
Agreement.
"Intermediary" means any entity that in the ordinary course of its business
maintains securities accounts for others and is acting in that capacity.
"Pledge" has the meaning specified in Section 2.1 hereof.
"Pledged Notes" has the meaning specified in Section 2.1 hereof.
"Pledged Treasury Consideration" has the meaning specified in Section 2.1
hereof.
"Pledged Treasury Securities" has the meaning specified in Section 2.1
hereof.
"Proceeds" means all interest, dividends, cash, instruments, securities,
financial assets (as defined in Section 8-102(a)(9) of the Code) and other
property from time to time received, receivable or otherwise distributed upon
the sale, exchange, collection or disposition of the Collateral or any proceeds
thereof.
"Purchase Contract Agent" has the meaning specified in the first paragraph
of this Agreement.
"Purchase Contract Agreement" has the meaning specified in the Recitals.
"Securities Intermediary" has the meaning specified in the first paragraph
of this Agreement.
"Security Entitlement" has the meaning set forth in Section 8-102(a) (17)
of the Code.
"Separate Notes" means any Notes that are not Pledged Notes.
"TRADES Regulations" means the regulations of the United States Department
of the Treasury, published at 31 C.F.R. Part 357, as amended from time to time.
Unless otherwise defined herein, all terms defined in the TRADES Regulations are
used herein as therein defined.
"Transfer" means, with respect to the Collateral and in accordance with the
instructions of the Collateral Agent, the Purchase Contract Agent or the Holder,
as applicable:
-3-
(i) in the case of Collateral consisting of securities which cannot be
delivered by book-entry or which the parties agree are to be
delivered in physical form, delivery in appropriate physical form to
the recipient accompanied by any duly executed instruments of
transfer, assignments in blank, transfer tax stamps and any other
documents necessary to constitute a legally valid transfer to the
recipient;
(ii) in the case of Collateral consisting of securities maintained in
book-entry form by causing a "securities intermediary" (as defined
in Section 8-102(a)(14) of the Code) to (a) credit a "security
entitlement" (as defined in Section 8-102(a)(17) of the Code) with
respect to such securities to a "securities account" (as defined in
Section 8-501(a) of the Code) maintained by or on behalf of the
recipient and (b) to issue a confirmation to the recipient with
respect to such credit. In the case of Collateral to be delivered to
the Collateral Agent, the securities intermediary shall be the
Securities Intermediary and the securities account shall be the
Collateral Account. In addition, any Transfer of Treasury Securities
and Treasury Consideration hereunder shall be made in accordance
with the TRADES Regulations and other applicable law.
ARTICLE II
PLEDGE; CONTROL AND PERFECTION
SECTION 2.1 The Pledge
(a) The Holders from time to time acting through the Purchase Contract
Agent, as their attorney-in-fact, and the Purchase Contract Agent, as such
attorney-in-fact, hereby pledge and grant to the Collateral Agent, for the
benefit of the Company, as collateral security for the performance when due by
such Holders of their respective obligations under the related Purchase
Contracts, a security interest in all of the right, title and interest of the
Purchase Contract Agent and such Holders in:
(i) (A) the Notes, Treasury Consideration or Treasury Securities
constituting a part of the Units, (B) any Treasury Securities
delivered in exchange for any Notes or Treasury Consideration, as
applicable, in accordance with Section 4.1 hereof, and (C) any Notes
or Treasury Consideration, as applicable, delivered in exchange for
any Treasury Securities in accordance with Section 4.2 hereof, in
each case that have been Transferred to or otherwise received by the
Collateral Agent and not released by the Collateral Agent to such
Holders under the provisions of this Agreement;
-4-
(ii) the Collateral Account and all securities, financial assets,
security entitlements, cash and other property credited thereto and
all Security Entitlements related thereto; and
(iii) all Proceeds of the foregoing (all of the foregoing, collectively,
the "Collateral").
(b) Prior to or concurrently with the execution and delivery of this
Agreement, the Purchase Contract Agent, on behalf of the initial Holders of the
Units, shall cause the Notes comprising a part of the Normal Units to be
Transferred to the Collateral Agent for the benefit of the Company.
(c) The pledge provided in this Section 2.1 is herein referred to as the
"Pledge" and the Notes (including any Notes that are delivered pursuant to
Section 6.2 hereof), Treasury Consideration and Treasury Securities subject to
the Pledge, excluding any Notes, Treasury Consideration or Treasury Securities
released from the Pledge as provided in Sections 4.1 and 4.2 hereof,
respectively, are hereinafter referred to as "Pledged Notes," "Pledged Treasury
Consideration" and "Pledged Treasury Securities," respectively. Subject to the
Pledge and the provisions of Section 2.2 hereof, the Holders from time to time
shall have full beneficial ownership of the Collateral. For purposes of
perfecting the Pledge under applicable law, including, to the extent applicable,
the TRADES Regulations or the Uniform Commercial Code as adopted and in effect
in any applicable jurisdiction, the Collateral Agent shall be the agent of the
Company as provided herein. Whenever directed by the Collateral Agent acting on
behalf of the Company, the Securities Intermediary shall have the right to
reregister the Notes or any other securities held in physical form in its name.
(d) Except as may be required in order to release Notes or Treasury
Consideration, as applicable, in connection with a Tax Event Redemption or with
a Holder's election to convert its investment from a Normal Unit to a Stripped
Unit, or except as otherwise required to release Notes as specified herein,
neither the Collateral Agent, the Custodial Agent nor the Securities
Intermediary shall relinquish physical possession of any certificate evidencing
Notes, Treasury Securities or Treasury Consideration, as applicable, prior to
the termination of this Agreement. If it becomes necessary for the Securities
Intermediary to relinquish physical possession of a certificate in order to
release a portion of the Notes evidenced thereby from the Pledge, the Securities
Intermediary shall use its best efforts to obtain physical possession of a
replacement certificate evidencing any Notes remaining subject to the Pledge
hereunder registered to it or endorsed in blank within fifteen days of the date
it relinquished possession. The Securities Intermediary shall promptly notify
the Company and the Collateral Agent of the Securities Intermediary's inability
to obtain possession of any such replacement certificate as required hereby.
-5-
SECTION 2.2 Control and Perfection
(a) In connection with the Pledge granted in Section 2.1, and subject to
the other provisions of this Agreement, the Holders from time to time acting
through the Purchase Contract Agent, as their attorney-in-fact, hereby authorize
and direct the Securities Intermediary (without the necessity of obtaining the
further consent of the Purchase Contract Agent or any of the Holders), and the
Securities Intermediary agrees, to comply with and follow any instructions and
entitlement orders (as defined in Section 8-102(a)(8) of the Code) that the
Collateral Agent may deliver upon the written direction of the Company with
respect to the Collateral Account, the Collateral credited thereto and any
Security Entitlements with respect to any thereof. In the event the Securities
Intermediary receives from the Holders or the Purchase Contract Agent
entitlement orders which conflict with entitlement orders received from the
Collateral Agent, the Securities Intermediary shall follow the entitlement
orders received from the Collateral Agent. Such instructions and entitlement
orders may, without limitation, direct the Securities Intermediary to transfer,
redeem, assign, or otherwise deliver the Notes, the Treasury Consideration and
the Treasury Securities, and any Security Entitlements with respect thereto or
sell, liquidate or dispose of such assets through a broker designated by the
Company, and to pay and deliver any income, proceeds or other funds derived
therefrom to the Company. The Holders from time to time acting through the
Purchase Contract Agent hereby further authorize and direct the Collateral
Agent, as agent of the Company, to, upon written direction of the Company,
itself issue instructions and entitlement orders, and to otherwise take action,
with respect to the Collateral Account, the Collateral credited thereto and any
Security Entitlements with respect thereto, pursuant to the terms and provisions
hereof, all without the necessity of obtaining the further consent of the
Purchase Contract Agent or any of the Holders. The Collateral Agent shall be the
agent of the Company and shall act only in accordance with the terms hereof or
as otherwise directed in writing by the Company. Without limiting the generality
of the foregoing, the Collateral Agent shall issue entitlement orders to the
Securities Intermediary when and as required by the terms hereof or as otherwise
directed in writing by the Company.
(b) The Securities Intermediary hereby confirms and agrees that:
(i) all securities or other property underlying any financial assets
credited to the Collateral Account shall be registered in the name
of the Securities Intermediary, or its nominee, indorsed to the
Securities Intermediary, or its nominee, or in blank or credited to
another Collateral Account maintained in the name of the Securities
Intermediary and in no case will any financial asset credited to the
Collateral Account be registered in the name of the Purchase
Contract Agent, the Collateral Agent, the Company or any Holder,
payable to the order of, or specially indorsed to, the Purchase
Contract Agent, the Collateral Agent, the Company or any Holder
except to the extent the foregoing have been specially indorsed to
the Securities Intermediary or in blank;
-6-
(ii) all property delivered to the Securities Intermediary pursuant to
this Agreement (including, without limitation, any Notes, Treasury
Consideration or Treasury Securities) will be promptly credited to
the Collateral Account;
(iii) the Collateral Account is an account to which financial assets are
or may be credited, and the Securities Intermediary shall, subject
to the terms of this Agreement, treat the Purchase Contract Agent as
entitled to exercise the rights of any financial asset credited to
the Collateral Account;
(iv) the Securities Intermediary has not entered into, and until the
termination of this Agreement will not enter into, any agreement
with any other Person relating to the Collateral Account and/or any
financial assets credited thereto pursuant to which it has agreed to
comply with entitlement orders (as defined in Section 8-102(a)(8) of
the Code) of such other Person; and
(v) the Securities Intermediary has not entered into, and until the
termination of this Agreement will not enter into, any agreement
with the Company, the Collateral Agent or the Purchase Contract
Agent purporting to limit or condition the obligation of the
Securities Intermediary to comply with entitlement orders as set
forth in this Section 2.2 hereof.
(c) The Securities Intermediary hereby agrees that each item of property
(whether investment property, financial asset, security, instrument or cash)
credited to the Collateral Account shall be treated as a "financial asset"
within the meaning of Section 8-102(a)(9) of the Code.
(d) In the event of any conflict between this Agreement (or any portion
thereof) and any other agreement now existing or hereafter entered into, the
terms of this Agreement shall prevail.
(e) The Purchase Contract Agent hereby irrevocably constitutes and
appoints the Collateral Agent and the Company, with full power of substitution,
as the Purchase Contract Agent's attorney-in-fact to take on behalf of, and in
the name, place and stead of the Purchase Contract Agent and the Holders, any
action necessary or desirable to perfect and to keep perfected the security
interest in the Collateral referred to in Section 2.1. The grant of such
power-of-attorney shall not be deemed to require of the Collateral Agent any
specific duties or obligations not otherwise assumed by the Collateral Agent
hereunder. Notwithstanding the foregoing, in no event shall the Collateral Agent
or Securities Intermediary be responsible for the preparation or filing of any
financing or continuation statements in the appropriate jurisdictions or
responsible for maintenance or perfection of any Security Interest hereunder.
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ARTICLE III
PAYMENTS ON COLLATERAL
SECTION 3.1 Payments
So long as the Purchase Contract Agent is the registered owner of the
Pledged Notes, Pledged Treasury Consideration or Pledged Treasury Securities, it
shall receive all payments thereon. If the Pledged Notes are reregistered such
that the Collateral Agent becomes the registered holder, all payments of the
principal of, or interest on, the Pledged Notes and all payments of the
principal of, or cash distributions on, any Pledged Treasury Consideration or
Pledged Treasury Securities, that are received by the Collateral Agent and that
are properly payable hereunder shall be paid by the Collateral Agent by wire
transfer in same day funds:
(i) in the case of (A) quarterly cash distributions on Normal Units
which include Pledged Notes or Pledged Treasury Consideration, as
the case may be, and (B) any payments of principal or, if
applicable, any Tax Event Redemption Treasury Consideration, (as
specified in clause (B) of the definition of such term) with respect
to any Notes or Treasury Consideration, as the case may be, that
have been released from the Pledge pursuant to Section 4.3 hereof,
to the Purchase Contract Agent, for the benefit of the relevant
Holders of the Normal Units, to the account designated by the
Purchase Contract Agent for such purpose no later than 11:00 a.m.,
New York City time, on the Business Day such payment is received by
the Collateral Agent (provided that in the event such payment or
payment instructions are received by the Collateral Agent after 9:00
a.m., New York City time, on a Business Day, then such payment shall
be made no later than 10:30, New York City time, on the next
succeeding Business Day and in the event such payment or payment
instructions are received by the Collateral Agent on a day that is
not a Business Day, then such payment shall be made no later than
12:00 p.m., New York City time, on the next succeeding Business
Day);
(ii) in the case of any payments with respect to any Treasury Securities
that have been released from the Pledge pursuant to Section 4.3
hereof to the Holders of the Stripped Units, to the accounts
designated by the Purchase Contract Agent in writing for such
purpose no later than 2:00 p.m., New York City time, on the Business
Day such payment is received by the Collateral Agent (provided that
in the event such payment or payment instructions are received by
the Collateral Agent after 10:00 a.m., New York City time, on a
Business Day, then such payment shall be made no later than 10:30,
New York City time, on the next succeeding Business Day and in the
event such payment or payment instructions are received by the
Collateral Agent on a day that is not a Business Day, then such
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payment shall be made no later than 12:00 p.m., New York City time,
on the next succeeding Business Day); any payment to be made
directly to the Holders of such Stripped Units shall be subject
to applicable federal withholding law, including the requirement
that a Holder shall have provided to the Collateral Agent its
certified taxpayer identification number by furnishing
appropriate Forms W-9 (or such other forms as shall be applicable);
(iii) in the case of payments in respect of any Pledged Notes, Pledged
Treasury Consideration or Pledged Treasury Securities, as the case
may be, to be paid upon settlement of such Holder's obligations to
purchase Common Shares under the Purchase Contract, to the Company
on the Share Purchase Date in accordance with the procedure set
forth in Section 4.5(a) or 4.5(b) hereof, in full satisfaction of
the respective obligations of the Holders under the related Purchase
Contracts; and
(iv) in the case of any payments in respect of any Pledged Notes upon a
Prepayment Event, in accordance with the written instructions of the
Purchase Contract Agent for the purchase of the Prepayment Treasury
Consideration and as set forth in Section 4.5 of the Purchase
Contract Agreement.
SECTION 3.2 Application of Payments
All payments received by the Purchase Contract Agent as provided herein
shall be applied by the Purchase Contract Agent pursuant to the provisions of
the Purchase Contract Agreement. If, notwithstanding the foregoing, the Purchase
Contract Agent shall receive any payments of principal on account of any Notes
or Treasury Consideration, as applicable, that, at the time of such payment, are
Pledged Notes or Pledged Treasury Consideration, as the case may be (other than
payments to which it is entitled pursuant to the terms of the Purchase Contract
Agreement), or a Holder of a Stripped Unit shall receive any payments of
principal on account of any Treasury Securities that, at the time of such
payment, are Pledged Treasury Securities (other than payments to which it is
entitled pursuant to the terms of the Purchase Contract Agreement), the Purchase
Contract Agent or such Holder shall hold the same as trustee of an express trust
for the benefit of the Company (and promptly deliver the same over to the
Company) for application to the obligations of the Holders under the related
Purchase Contracts, and the Holders shall acquire no right, title or interest in
any such payments of principal so received.
ARTICLE IV
SUBSTITUTION, RELEASE, REPLEDGE AND SETTLEMENT OF NOTES
SECTION 4.1 Collateral Substitution and the Creation of Stripped Units
At any time on or prior to the second Business Day immediately preceding
the Share Purchase Date, a Holder of Normal Units shall have the right to
substitute Treasury Securities for the Pledged Notes or Pledged Treasury
Consideration, as the case may be, securing such Holder's obligations under the
Purchase Contracts comprising a part of
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such Normal Units, in integral multiples of 40 Normal Units, or after a
successful remarketing of the Notes pursuant to the Purchase Contract Agreement
or a Tax Event Redemption, in integral multiples of Normal Units so that
Treasury Securities to be deposited and the applicable Treasury Consideration,
as the case may be, to be released are in integral multiples of $1,000, by (a)
Transferring to the Collateral Agent Treasury Securities having an aggregate
principal amount equal to the aggregate Stated Amount of such Normal Units and
(b) delivering such Normal Units to the Purchase Contract Agent, accompanied by
a notice, substantially in the form of Exhibit B hereto, to the Purchase
Contract Agent stating that such Holder has Transferred Treasury Securities to
the Collateral Agent pursuant to clause (a) above (stating the principal amount,
the maturities and the CUSIP numbers of the Treasury Securities Transferred by
such Holder) and requesting that the Purchase Contract Agent instruct the
Collateral Agent to release from the Pledge the Pledged Notes or Pledged
Treasury Consideration related to such Normal Units, whereupon the Purchase
Contract Agent shall promptly give such instruction to the Collateral Agent in
the form provided in Exhibit A; provided that, such Holder may not substitute
such Treasury Securities for such Pledged Notes or Pledged Treasury
Consideration pursuant to this Section 4.1 after a Prepayment Event or during
the period from four Business Days prior to any Remarketing Period until the
expiration of three Business Days after the end of such Remarketing Period. Upon
receipt of Treasury Securities from a Holder of Normal Units and the related
instruction from the Purchase Contract Agent, the Collateral Agent shall release
the Pledged Notes or Pledged Treasury Consideration and shall promptly Transfer
such Pledged Notes or Pledged Treasury Consideration free and clear of any lien,
pledge or security interest created hereby, to the Purchase Contract Agent. All
items Transferred and/or substituted by any Holder pursuant to this Section 4.1,
Section 4.2 or any other Section of this Agreement shall be Transferred and/or
substituted free and clear of all liens, claims and encumbrances.
SECTION 4.2 Collateral Substitution and the Re-Creation of Normal Units
At any time on or prior to the second Business Day immediately preceding
the Share Purchase Date, a Holder of Stripped Units shall have the right to
reestablish Normal Units (a) consisting of the Purchase Contracts and Notes in
integral multiples of 40 Normal Units, or (b) after a remarketing of the Notes
pursuant to the Purchase Contract Agreement or a Tax Event Redemption,
consisting of the Purchase Contracts and the appropriate Treasury Consideration
(identified and calculated by reference to the Treasury Consideration then
comprising Normal Units) or the appropriate portion of the Treasury Portfolio in
integral multiples of Stripped Units so that the Treasury Consideration to be
deposited and the Treasury Securities to be released are in integral multiples
of $1,000, by (x) Transferring to the Collateral Agent Notes or the appropriate
Treasury Consideration, as the case may be, then comprising such number of
Normal Units as is equal to such Stripped Units and (y) delivering such Stripped
Units to the Purchase Contract Agent, accompanied by a notice, substantially in
the form of Exhibit B hereto, to the Purchase Contract Agent stating that such
Holder has transferred Notes or Treasury Consideration to the Collateral Agent
pursuant to clause (a) above and requesting that the Purchase Contract Agent
instruct the Collateral Agent to release from
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the Pledge the Pledged Treasury Securities related to such Stripped Units,
whereupon the Purchase Contract Agent shall give such instruction to the
Collateral Agent in the form provided in Exhibit A. Upon receipt of the Notes or
the appropriate Treasury Consideration, as the case may be, from such Holder and
the instruction from the Purchase Contract Agent, the Collateral Agent shall
release the Pledged Treasury Securities and shall promptly Transfer such
Treasury Securities, free and clear of any lien, pledge or security interest
created hereby, to the Purchase Contract Agent.
SECTION 4.3 Termination Event
(a) Upon receipt by the Collateral Agent of written notice from the
Company or the Purchase Contract Agent that there has occurred a Termination
Event and identifying the nature of the Termination Event, the Collateral Agent
shall release all Collateral from the Pledge and shall promptly Transfer any
Pledged Notes or Pledged Treasury Consideration, as the case may be, and Pledged
Treasury Securities to the Purchase Contract Agent for the benefit of the
Holders of the Normal Units and the Stripped Units, respectively, free and clear
of any lien, pledge or security interest or other interest created in favor of
the Collateral Agent hereby.
(b) If such Termination Event shall result from the Company's becoming a
debtor under the Bankruptcy Code, and if the Collateral Agent shall advise the
Purchase Contract Agent in writing that the Collateral Agent shall for any
reason be prohibited from promptly effectuating the release and Transfer of all
Pledged Notes, Pledged Treasury Consideration or Pledged Treasury Securities, as
the case may be, as provided by this Section 4.3, the Purchase Contract Agent
shall:
(i) use its reasonable best efforts to obtain an opinion of a nationally
recognized law firm reasonably acceptable to the Collateral Agent to
the effect that, as a result of the Company's being the debtor in
such a bankruptcy case, the Collateral Agent will not be prohibited
from releasing or Transferring the Collateral as provided in this
Section 4.3, and shall deliver such opinion to the Collateral Agent
within ten days after the occurrence of such Termination Event, and
if (y) the Purchase Contract Agent shall be unable to obtain such
opinion within ten days after the occurrence of such Termination
Event or (z) the Collateral Agent shall continue, after delivery of
such opinion, to refuse to effectuate the release and Transfer of
all Pledged Notes, Pledged Treasury Consideration or Pledged
Treasury Securities, as the case may be, as provided in this Section
4.3, then the Purchase Contract Agent shall within fifteen days
after the occurrence of such Termination Event commence an action or
proceeding in the court with jurisdiction of the Company's case
under the Bankruptcy Code seeking an order requiring the Collateral
Agent to effectuate the release and transfer of all Pledged Notes,
Pledged Treasury Consideration or Pledged Treasury Securities, as
the case may be, as provided by this Section 4.3 or
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(ii) commence an action or proceeding like that described in subsection
(i) hereof within ten days after the occurrence of such Termination
Event.
SECTION 4.4 Early Settlement; Merger Early Settlement; Cash Settlement
Upon written notice to the Collateral Agent by the Purchase Contract Agent
that one or more Holders of Units have elected to effect Early Settlement,
Merger Early Settlement or Cash Settlement of their respective obligations under
the Purchase Contracts forming a part of such Units in accordance with the terms
of the Purchase Contracts and the Purchase Contract Agreement (setting forth the
number of such Purchase Contracts as to which such Holders have elected to
effect Early Settlement, Merger Early Settlement or Cash Settlement), and that
the Purchase Contract Agent has received from such Holders, and paid to the
Company as confirmed in writing by the Company, the related Early Settlement
Amounts, Merger Early Settlement Amounts or Cash Settlement Amounts, as the case
may be, pursuant to the terms of the Purchase Contracts and the Purchase
Contract Agreement and that all conditions to such Early Settlement, Merger
Early Settlement or Cash Settlement, as the case may be, have been satisfied,
then the Collateral Agent shall release from the Pledge (a) Pledged Notes or
Pledged Treasury Consideration, as the case may be, in the case of a Holder of
Normal Units or (b) Pledged Treasury Securities, in the case of a Holder of
Stripped Units, identified by the Purchase Contract Agent as relating to such
Purchase Contracts as to which such Holders have elected to effect Early
Settlement, Merger Early Settlement or Cash Settlement, and shall Transfer all
such Pledged Notes, Pledged Treasury Consideration or Pledged Treasury
Securities, as the case may be, free and clear of any lien, pledge or security
interest created hereby, to the Purchase Contract Agent for the benefit of the
Holders.
SECTION 4.5 Remarketing; Application of Proceeds; Settlement
(a) Pursuant to the Purchase Contract Agreement, the Purchase Contract
Agent shall notify, by 10:00 a.m., New York City time, on the third Business Day
preceding the first day of any Remarketing Period, the Remarketing Agent and the
Collateral Agent of the aggregate principal amount of Notes comprising part of
Normal Units to be remarketed. The Collateral Agent shall, by 10:00 a.m., New
York City time, on the Business Day immediately preceding the first day of any
Remarketing Period, without any instruction from Holders of Normal Units,
deliver (i) the Pledged Notes to be remarketed to the Remarketing Agent for
remarketing and (ii) the remaining Pledged Notes to the Purchase Contract Agent
for distribution to the Holders that have elected not to participate in the
remarketing in accordance with the Purchase Contract Agreement. After deducting
as the remarketing fee an amount not exceeding 25 basis points (.25%) of the
total proceeds of such remarketing, the Remarketing Agent will deliver the
Agent-purchased Treasury Consideration (as defined in the Purchase Contract
Agreement) purchased from the proceeds of a successful remarketing to the
Purchase Contract Agent, which shall thereupon deliver such Agent-purchased
Treasury Consideration to the Collateral Agent. Upon receipt of the
Agent-purchased Treasury Consideration from the
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Purchase Contract Agent following a successful remarketing, the Collateral
Agent, for the benefit of the Company, shall thereupon hold such Agent-purchased
Treasury Consideration to secure such Holders' obligations under the Purchase
Contracts. On the Share Purchase Date, the Collateral Agent shall apply that
portion of the payments received in respect of the Pledged Treasury
Consideration equal to the aggregate Stated Amount of the related Normal Units
to satisfy in full the obligations of such Holders of Normal Units to pay the
Purchase Price under the related Purchase Contracts. The remaining portion of
such Proceeds, if any, shall be distributed by the Collateral Agent to the
Purchase Contract Agent for payment to each Holder of a Normal Unit a cash
payment in an amount equal to 1/40, or 2.5%, of a quarterly interest payment on
the $1000 principal amount of a Senior Note at the initial annual rate of * %.
(b) Promptly following a Failed Remarketing, the Notes delivered to the
Remarketing Agent and the Purchase Contract Agent pursuant to Section 4.5(a)
shall be returned to the Collateral Agent, together with written notice from the
Remarketing Agent of the Failed Remarketing. The Collateral Agent, for the
benefit of the Company, shall thereupon hold such Notes to secure the
obligations of Holders of Normal Units under the Purchase Contracts. The
Remarketing Agent shall make one or more attempts to remarket the Notes in
accordance with the procedures set forth in the Purchase Contract Agreement and
the Remarketing Agreement between the Remarketing Date and the Share Purchase
Date, provided that the requirements of Section 5.4(b)(ii) of the Purchase
Contract Agreement have been met. If by 4:00 p.m., New York City time, on the
third Business Day immediately preceding the Share Purchase Date the Remarketing
Agent has failed to remarket the Notes at a price equal to at least 100.25% of
the Remarketing Value (as described in the Purchase Contract Agreement), the
"Last Failed Remarketing" shall be deemed to have occurred. In this case, the
Remarketing Agent shall advise the Collateral Agent in writing that it cannot
remarket the related Pledged Notes of such Holders of Normal Units and the Notes
delivered to the Remarketing Agent pursuant to Section 4.5(a) shall promptly be
returned to the Collateral Agent. The Collateral Agent, for the benefit of the
Company will, at the written direction of the Company, deliver or dispose of the
Pledged Notes in accordance with the Company's written instructions to satisfy
in full, from any such disposition or retention, such Holders' obligations to
pay the Purchase Price for the Common Shares; provided that if upon a Failed
Remarketing or the Last Failed Remarketing, as the case may be, the Collateral
Agent delivers or disposes of the Pledged Notes in accordance with the written
instructions of the Company, any accrued and unpaid interest on such Notes will
become payable by the Company to the Purchase Contract Agent for payment to the
Holder of the Normal Units to which such Notes relate in accordance with the
Purchase Contract Agreement.
(c) In the event a Holder of Stripped Units has not made an Early
Settlement, Merger Early Settlement or Cash Settlement of the Purchase Contracts
underlying its Stripped Units, such Holder shall be deemed to have elected to
pay for the Common Shares to be issued under such Purchase Contracts from the
payments received in respect of the related Pledged Treasury Securities. Without
receiving any instruction from any
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such Holder of Stripped Units, the Collateral Agent shall apply such payments to
the settlement of such Purchase Contracts on the Share Purchase Date pursuant to
written instructions from the Purchase Contract Agent. In the event the payments
received in respect of the related Pledged Treasury Securities are in excess of
the aggregate Purchase Price of the Purchase Contracts being settled thereby,
the Collateral Agent shall distribute such excess, when received, to the
Purchase Contract Agent for payment to such Holders of Stripped Units.
(d) Pursuant to the Remarketing Agreement and Purchase Contract
Agreement, on or prior to the fourth Business Day preceding the first day of any
Remarketing Period, but no earlier than the Payment Date immediately preceding
*, 2005, holders of Separate Notes may elect to have their Separate Notes
remarketed by delivering their Separate Notes, together with a notice of such
election, substantially in the form of Exhibit C hereto, to the Custodial Agent.
On the third Business Day prior to the first day of any Remarketing Period, by
10:00 a.m., New York City time, the Custodial Agent shall notify the Remarketing
Agent of the principal amount of such Separate Notes to be remarketed. The
Custodial Agent will hold such Separate Notes in an account separate from the
Collateral Account. A holder of Separate Notes electing to have its Separate
Notes remarketed will also have the right to withdraw such election by written
notice to the Custodial Agent, substantially in the form of Exhibit D hereto, on
or prior to the fourth Business Day immediately preceding the first day of any
Remarketing Period, upon which notice the Custodial Agent will return such
Separate Notes to such holder. On the Business Day immediately preceding the
first day of any Remarketing Period, the Custodial Agent will deliver to the
Remarketing Agent for remarketing all Separate Notes delivered to the Custodial
Agent pursuant to this Section 4.5(d) and not withdrawn pursuant to the terms
hereof prior to such date. The portion of the proceeds from such remarketing
equal to the amount calculated in respect of such Separate Notes as set forth in
Section 5.4(b) of the Purchase Contract Agreement will automatically be remitted
by the Remarketing Agent to the Custodial Agent for the benefit of the holders
of such Separate Notes. In addition, after deducting as the remarketing fee an
amount not exceeding 25 basis points (.25%) of the total proceeds of such
remarketing of such Separate Notes, the Remarketing Agent will remit to the
Custodial Agent the remaining portion of the proceeds, if any, for payment to
such holders. If, despite using commercially reasonable best efforts, the
Remarketing Agent advises the Custodial Agent in writing that there has been a
Failed Remarketing, the Remarketing Agent will promptly return such Notes to the
Custodial Agent for redelivery to the holders of such Separate Notes. For
purposes of this Section 4.5(d), a "holder" of a Separate Notes shall mean the
Person in whose name such Separate Notes is registered on the books of the
registrar for the Notes.
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ARTICLE V
VOTING RIGHTS -- NOTES
SECTION 5.1 Exercise by Purchase Contract Agent
The Purchase Contract Agent may exercise, or refrain from exercising, any
and all voting and other consensual rights pertaining to the Pledged Notes or
any part thereof for any purpose not inconsistent with the terms of this
Agreement and in accordance with the terms of the Purchase Contract Agreement;
provided that the Purchase Contract Agent shall not exercise or, as the case may
be, shall not refrain from exercising such right if, in the judgment of the
Company, such action would impair or otherwise have a material adverse effect on
the value of all or any of the Pledged Notes; and provided, further, that the
Purchase Contract Agent shall give the Company and the Collateral Agent at least
five Business Days' prior written notice of the manner in which it intends to
exercise, or its reasons for refraining from exercising, any such right. Upon
receipt of any notices and other communications in respect of any Pledged Notes,
including notice of any meeting at which holders of Notes are entitled to vote
or solicitation of consents, waivers or proxies of holders of Notes, the
Collateral Agent shall use reasonable efforts to send promptly to the Purchase
Contract Agent such notice or communication, and as soon as reasonably
practicable after receipt of a written request therefor from the Purchase
Contract Agent, execute and deliver to the Purchase Contract Agent such proxies
and other instruments in respect of such Pledged Notes (in form and substance
satisfactory to the Collateral Agent) as are prepared by the Purchase Contract
Agent with respect to the Pledged Notes.
ARTICLE VI
RIGHTS AND REMEDIES; TAX EVENT REDEMPTION
SECTION 6.1 Rights and Remedies of the Collateral Agent
(a) In addition to the rights and remedies available at law or in
equity, after an event of default under the Purchase Contracts, the Collateral
Agent shall have all of the rights and remedies with respect to the Collateral
of a secured party under the Uniform Commercial Code (or any successor thereto)
as in effect in the State of New York from time to time (the "Code") (whether or
not the Code is in effect in the jurisdiction where the rights and remedies are
asserted) and the TRADES Regulations and such additional rights and remedies to
which a secured party is entitled under the laws in effect in any jurisdiction
where any rights and remedies hereunder may be asserted. Wherever reference is
made in this Agreement to any section of the Code, such reference shall be
deemed to include a reference to any provision of the Code which is a successor
to, or amendment of, such section. Without limiting the generality of the
foregoing, such remedies may include, to the extent permitted by applicable law,
(i) retention of the Pledged Notes or other Collateral in full satisfaction of
the Holders' obligations under the
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Purchase Contracts or (ii) sale of the Pledged Notes or other Collateral in one
or more public or private sales or otherwise at the written direction of the
Company.
(b) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, in the event the Collateral Agent is unable
to make payments to the Company on account of any Pledged Treasury Consideration
or Pledged Treasury Securities as provided in Article III hereof in satisfaction
of the obligations of the Holder of the Units of which such Pledged Treasury
Consideration or Pledged Treasury Securities, as applicable, is a part under the
related Purchase Contracts, the inability to make such payments shall constitute
an event of default under the Purchase Contracts and the Collateral Agent shall
have and may exercise, with reference to such Pledged Treasury Securities or
such Pledged Treasury Consideration, as applicable, and such obligations of such
Holder, any and all of the rights and remedies available to a secured party
under the Code and the TRADES Regulations after default by a debtor, and as
otherwise granted herein or under any other law.
(c) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, the Collateral Agent is hereby irrevocably
authorized to receive and collect all payments of (i) the principal amount of,
or interest on, the Pledged Notes, or (ii) the principal amount of the Pledged
Treasury Consideration or Pledged Treasury Securities, subject, in each case, to
the provisions of Article III, and as otherwise granted herein.
(d) The Purchase Contract Agent, individually and as attorney-in-fact
for each Holder of Units, agrees that, from time to time, upon the written
request of the Company or the Collateral Agent (acting upon the written request
of the Company), the Purchase Contract Agent or such Holder shall execute and
deliver such further documents and do such other acts and things as may be
necessary, including as the Company or the Collateral Agent (acting upon the
written request of the Company) may reasonably request in order to maintain the
Pledge, and the perfection and priority thereof, and to confirm the rights of
the Collateral Agent hereunder. The Purchase Contract Agent shall have no
liability to any Holder for executing any documents or taking any such acts
requested by the Company or the Collateral Agent (acting upon the written
request of the Company) hereunder, except for liability for its own negligent
act, its own negligent failure to act, its own bad faith or its own willful
misconduct.
(e) The Collateral Agent shall not be deemed to have knowledge of any
event of default unless it has received notice thereof from the Company or the
Purchase Contract Agent.
SECTION 6.2 Substitutions
Whenever a Holder has the right to substitute Treasury Securities, Notes,
or Treasury Consideration, as the case may be, for Collateral held by the
Collateral Agent, such substitution shall not constitute a novation of the
security interest created hereby.
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SECTION 6.3 Tax Event Redemption
Upon the occurrence of a Tax Event Redemption prior to the Share Purchase
Date or the earlier successful remarketing of the Notes pursuant to Section 5.4
of the Purchase Contract Agreement and the receipt of the Redemption Price of
the Pledged Notes by the Collateral Agent, the Collateral Agent will, at the
written direction of the Company, apply an amount, out of such Redemption Price,
equal to the aggregate Redemption Price with respect to the Pledged Notes to
purchase on behalf of the Holders of Normal Units the Tax Event Redemption
Treasury Consideration and promptly remit the remaining portion of such
Redemption Price, if any, to the Purchase Contract Agent for payment to the
Holders of Normal Units. The Collateral Agent shall transfer the Tax Event
Redemption Treasury Consideration to the Collateral Account to secure the
obligation of all Holders of Normal Units to purchase Common Shares of the
Company under the Purchase Contracts constituting a part of such Normal Units,
in substitution for the Pledged Notes. Thereafter the Collateral Agent shall
have such security interests, rights and obligations with respect to the Tax
Event Redemption Treasury Consideration as it had in respect of the Pledged
Notes as provided in Articles II, III, IV, V and VI, and any reference herein to
the Notes shall be deemed to be reference to such Tax Event Redemption Treasury
Consideration, and any reference herein to interest on the Notes shall be deemed
to be a reference to corresponding distributions on such Tax Event Redemption
Treasury Consideration. Upon the occurrence of a Tax Event Redemption, the
Collateral Agent shall be authorized to surrender the Notes in accordance with
the provisions of the Indenture.
SECTION 6.4 Prepayment of Notes
Upon the occurrence of a Prepayment Event prior to the Share Purchase
Date or the earlier successful remarketing of the Notes pursuant to Section
5.4 of the Purchase Contract Agreement and the receipt in full by the
Collateral Agent of the principal amount of and accrued interest, if any, on
the Pledged Notes, the Collateral Agent will, at the written direction of the
Company, purchase the Prepayment Treasury Consideration and promptly remit
the remaining portion, if any, of the amounts received in respect of the
principal and accrued interest on the Pledged Notes to the Purchase Contract
Agent for payment to the Holders of Normal Units. The Collateral Agent shall
transfer the Prepayment Treasury Consideration to the Collateral Account to
secure the obligation of all Holders of Normal Units to purchase Common
Shares of the Company under the Purchase Contracts constituting a part of
such Normal Units, in substitution for the Pledged Notes. Thereafter the
Collateral Agent shall have such security interests, rights and obligations
with respect to the Prepayment Treasury Consideration as it had in respect of
the Pledged Notes as provided in Articles II, III, IV, V and VI, and any
reference herein to the Notes shall be deemed to be reference to such
Prepayment Treasury Consideration, and any reference herein to interest on
the Notes shall be deemed to be a reference to corresponding distributions on
such Prepayment Treasury Consideration.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES; COVENANTS
SECTION 7.1 Representations and Warranties of the Holders
The Holders from time to time, acting through the Purchase Contract Agent
as their attorney-in-fact (it being understood that the Purchase Contract Agent
shall not be liable for any representation or warranty made by or on behalf of a
Holder), hereby represent and warrant to the Collateral Agent, which
representations and warranties shall be deemed repeated on each day a Holder
Transfers Collateral that:
(a) such Holder has the power to grant a security interest in and lien
on Collateral;
(b) such Holder is the sole beneficial owner of the Collateral and, in
the case of Collateral delivered in physical form, is the sole holder of such
Collateral and is the sole beneficial owner of, or has the right to Transfer,
the Collateral it Transfers to the Collateral Agent, free and clear of any
security interest, lien, encumbrance, call, liability to pay money or other
restriction other than the security interest and lien granted under Section 2.1;
(c) upon the Transfer of the Collateral to the Collateral Account, the
Collateral Agent, for the benefit of the Company, will have a valid and
perfected first priority security interest therein (assuming that any central
clearing operation or any Intermediary or other entity not within the control of
the Holder involved in the Transfer of the Collateral, including the Collateral
Agent, gives the notices and takes the action required of it hereunder and under
applicable law for perfection of that interest and assuming the establishment
and exercise of control pursuant to Section 2.2); and
(d) the execution and performance by the Holder of its obligations under
this Agreement will not result in the creation of any security interest, lien or
other encumbrance on the Collateral other than the security interest and lien
granted under Section 2.1 or violate any provision of any existing law or
regulation applicable to it or of any mortgage, charge, pledge, indenture,
contract or undertaking to which it is a party or which is binding on it or any
of its assets.
SECTION 7.2 Representations and Warranties of the Collateral Agent,
Custodial Agent and Securities Intermediary
The Collateral Agent, Custodial Agent and Securities Intermediary (each an
"Agent") hereby represents and warrants:
(a) The Collateral Agent, Custodial Agent and Securities Intermediary is
a trust company duly incorporated and validly existing under the laws of
Massachusetts;
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(b) The execution, delivery and performance by the Collateral Agent, the
Custodial Agent and the Securities Intermediary of this Agreement have each been
duly authorized by all necessary corporate action on the part of each such
Agent; this Agreement has been duly executed and delivered by the Collateral
Agent, the Custodial Agent and the Securities Intermediary and constitutes a
valid and legally binding obligation of each of the Agents, enforceable against
such Agents in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles;
(c) The execution, delivery and performance by the Collateral Agent, the
Custodial Agent and the Securities Intermediary of this Agreement do not violate
or constitute a breach of the Articles of Incorporation or By-Laws of any of
such Agents; and
(d) No consent of any federal or state banking authority having
regulatory authority over the Agents in their individual capacity is required
for the execution and delivery of, or performance by the Agents of their
respective obligations under, this Agreement.
SECTION 7.3 Covenants
The Holders from time to time, acting through the Purchase Contract Agent
as their attorney-in-fact (it being understood that the Purchase Contract Agent
shall not be liable for any covenant made by or on behalf of a Holder), hereby
covenant to the Collateral Agent that for so long as the Collateral remains
subject to the Pledge:
(a) neither the Purchase Contract Agent nor such Holders will create or
purport to create or allow to subsist any mortgage, charge, lien, pledge or any
other security interest whatsoever over the Collateral or any part of it other
than pursuant to this Agreement; and
(b) neither the Purchase Contract Agent nor such Holders will sell or
otherwise dispose (or attempt to dispose) of the Collateral or any part of it
except for the beneficial interest therein, subject to the pledge hereunder,
transferred in connection with the Transfer of the Units.
ARTICLE VIII
THE COLLATERAL AGENT
SECTION 8.1 Appointment, Powers and Immunities
(a) The Collateral Agent shall act as agent for the Company hereunder
with such powers as are specifically vested in the Collateral Agent by the terms
of this
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Agreement, together with such other powers as are reasonably incidental thereto.
Each of the Collateral Agent, the Custodial Agent and the Securities
Intermediary:
(i) shall have no duties or responsibilities except those expressly set
forth in this Agreement and no implied covenants or obligations
shall be inferred from this Agreement against any of them, nor shall
any of them be bound by the provisions of any agreement by any party
hereto beyond the specific terms hereof;
(ii) shall not be responsible for any recitals contained in this
Agreement, or in any certificate or other document referred to or
provided for in, or received by it under, this Agreement, the Units
or the Purchase Contract Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement (other than as against the Collateral Agent), the Units or
the Purchase Contract Agreement or any other document referred to or
provided for herein or therein or for any failure by the Company or
any other Person (except the Collateral Agent, the Custodial Agent
or the Securities Intermediary, as the case may be) to perform any
of its obligations hereunder or thereunder or, except as expressly
required hereby, for the existence, validity, perfection, priority
or maintenance of any security interest created hereunder;
(iii) shall not be required to initiate or conduct any litigation or
collection proceedings hereunder (except in the case of the
Collateral Agent, pursuant to directions furnished under Section
8.2, subject to Section 8.6);
(iv) shall not be responsible for any action taken or omitted to be taken
by it hereunder or under any other document or instrument referred
to or provided for herein or in connection herewith or therewith,
except for its own negligence, bad faith or willful misconduct; and
(v) shall not be required to advise any party as to selling or
retaining, or taking or refraining from taking any action with
respect to, the Units or other property deposited hereunder.
Subject to the foregoing, during the term of this Agreement, the Collateral
Agent, in connection with the safekeeping and preservation of the Collateral
hereunder, shall use the same standard of care it applies for similar property
held for its own account.
(b) No provision of this Agreement shall require the Collateral Agent,
the Custodial Agent or the Securities Intermediary to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder. In no event shall the Collateral Agent, the Custodial
Agent or the Securities Intermediary be liable for any amount in excess of the
value of the Collateral or for any special, indirect, individual, consequential
damages or lost profits or loss of business, arising in connection with this
Agreement. Notwithstanding the foregoing, the Collateral Agent,
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the Custodial Agent, the Purchase Contract Agent and Securities Intermediary,
each in its individual capacity, hereby waive any right of set-off, banker's
lien, liens or perfection rights as securities intermediary or any counterclaim
with respect to any of the Collateral. If the Company fails to pay the
Collateral Agent, the Custodial Agent and Securities Intermediary fees in
connection with this Agreement, the Collateral Agent, the Custodial Agent and
Securities Intermediary retains the right to set-off those fees from any funds
to be transferred to the Company.
(c) The Collateral Agent, Custodial Agent and Securities Intermediary
shall have no liability whatsoever for the action or inaction of any Clearing
Agency or any book-entry system thereof. In no event shall any Clearing Agency
or any book-entry system thereof be deemed an agent or subcustodian of the
Collateral Agent, Custodial Agent and Securities Intermediary.
SECTION 8.2 Instructions of the Company.
The Company shall have the right, by one or more instruments in writing
executed and delivered to the Collateral Agent, the Custodial Agent or the
Securities Intermediary, as the case may be, to direct the time, method and
place of conducting any proceeding for the realization of any right or remedy
available to the Collateral Agent, the Custodial Agent or the Securities
Intermediary, as the case may be, or of exercising any power conferred on the
Collateral Agent, the Custodial Agent or the Securities Intermediary, as the
case may be, or to direct the taking or refraining from taking of any action
authorized by this Agreement; provided that (i) such direction shall not
conflict with the provisions of any law or of this Agreement and (ii) the
Collateral Agent, the Custodial Agent and the Securities Intermediary shall each
receive indemnity reasonably satisfactory to it as provided herein. Nothing in
this Section 8.2 shall impair the right of the Collateral Agent in its
discretion to take any action or omit to take any action which it deems proper
and which is not inconsistent with such direction.
SECTION 8.3 Reliance
Each of the Securities Intermediary, the Custodial Agent and the Collateral
Agent shall be entitled conclusively to rely upon any certification, order,
judgment, opinion, notice or other communication (including, without limitation,
any thereof by telephone or facsimile) reasonably believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper Person
or Persons (without being required to determine the correctness of any fact
stated therein), and upon advice and statements of legal counsel and other
experts selected by the Collateral Agent, the Custodial Agent or the Securities
Intermediary, as the case may be. As to any matters not expressly provided for
by this Agreement, the Collateral Agent, the Custodial Agent and the Securities
Intermediary shall in all cases be fully protected in acting, or in refraining
from acting, hereunder in accordance with instructions given by the Company in
accordance with this Agreement.
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SECTION 8.4 Rights in Other Capacities
The Collateral Agent, the Custodial Agent and the Securities Intermediary
and their affiliates may (without having to account therefor to the Company)
accept deposits from, lend money to, make their investments in and generally
engage in any kind of banking, trust or other business with the Purchase
Contract Agent, any Holder of Units and any holder of Separate Notes (and any of
their respective subsidiaries or affiliates) as if it were not acting as the
Collateral Agent, the Custodial Agent or the Securities Intermediary, as the
case may be, and the Collateral Agent, the Custodial Agent and the Securities
Intermediary and their affiliates may accept fees and other consideration from
the Purchase Contract Agent, any Holder of Units or any holder of Separate Notes
without having to account for the same to the Company; provided that each of the
Securities Intermediary, the Custodial Agent and the Collateral Agent covenants
and agrees with the Company that it shall not accept, receive or permit there to
be created in favor of itself (and waives any right of set-off or banker's lien
with respect to) and shall take no affirmative action to permit there to be
created in favor of any other Person, any security interest, lien or other
encumbrance of any kind in or upon the Collateral and the Collateral shall not
be commingled with any other assets of any such Person.
SECTION 8.5 Non-Reliance on Collateral Agent
None of the Securities Intermediary, the Custodial Agent or the Collateral
Agent shall be required to keep itself informed as to the performance or
observance by the Purchase Contract Agent or any Holder of Units of this
Agreement, the Purchase Contract Agreement, the Units or any other document
referred to or provided for herein or therein or to inspect the properties or
books of the Purchase Contract Agent or any Holder of Units. The Collateral
Agent, the Custodial Agent and the Securities Intermediary shall not have any
duty or responsibility to provide the Company or the Remarketing Agent with any
credit or other information concerning the affairs, financial condition or
business of the Purchase Contract Agent, any Holder of Units or any holder of
Separate Notes (or any of their respective subsidiaries or affiliates) that may
come into the possession of the Collateral Agent, the Custodial Agent or the
Securities Intermediary or any of their respective affiliates.
SECTION 8.6 Compensation and Indemnity
The Company agrees:
(a) to pay each of the Collateral Agent, the Custodial Agent and the
Securities Intermediary from time to time such compensation as shall be agreed
in writing between the Company and the Collateral Agent, Custodial Agent or the
Securities Intermediary, as the case may be, for all services rendered by each
of them hereunder and
(b) to indemnify the Collateral Agent, the Custodial Agent and the
Securities Intermediary (which for purposes of this paragraph, in each case,
shall include its directors, officers, employees and agents) for, and to hold
each of them harmless from and
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against, any loss, liability or reasonable out-of-pocket expense incurred
without negligence, willful misconduct or bad faith on its part, arising out of
or in connection with the acceptance or administration of its powers and duties
under this Agreement, including the reasonable out-of-pocket costs and expenses
(including reasonable fees and expenses of counsel) of defending itself against
any claim or liability in connection with the exercise or performance of such
powers and duties or collecting such amounts. The Collateral Agent, the
Custodial Agent and the Securities Intermediary shall each promptly notify the
Company of any third party claim which may give rise to the indemnity hereunder
and give the Company the opportunity to control the defense of such claim with
counsel reasonably satisfactory to the indemnified party and no such claim shall
be settled without the written consent of the Company, which consent shall not
be unreasonably withheld.
SECTION 8.7 Failure to Act
In the event of any ambiguity in the provisions of this Agreement or any
dispute between or conflicting claims by or among the parties hereto or any
other Person with respect to any funds or property deposited hereunder, the
Collateral Agent, Custodial Agent and the Securities Intermediary shall be
entitled, after prompt notice to the Company and the Purchase Contract Agent, at
its sole option, to refuse to comply with any and all claims, demands or
instructions with respect to such property or funds so long as such dispute or
conflict shall continue, and neither the Collateral Agent, Custodial Agent nor
the Securities Intermediary shall be or become liable in any way to any of the
parties hereto for its failure or refusal to comply with such conflicting
claims, demands or instructions. The Collateral Agent, Custodial Agent and the
Securities Intermediary shall be entitled to refuse to act until either (i) such
conflicting or adverse claims or demands shall have been finally determined by a
court of competent jurisdiction or settled by agreement between the conflicting
parties as evidenced in a writing, reasonably satisfactory to the Collateral
Agent, Custodial Agent or the Securities Intermediary, as the case may be, or
(ii) the Collateral Agent, the Custodial Agent or the Securities Intermediary,
as the case may be, shall have received security or an indemnity reasonably
satisfactory to the Collateral Agent, Custodial Agent or the Securities
Intermediary, as the case may be, sufficient to save the Collateral Agent,
Custodial Agent or the Securities Intermediary, as the case may be, harmless
from and against any and all loss, liability or reasonable out-of-pocket expense
which the Collateral Agent, Custodial Agent or the Securities Intermediary, as
the case may be, may incur by reason of its acting without bad faith, willful
misconduct or negligence. The Collateral Agent, Custodial Agent or the
Securities Intermediary may in addition elect to commence an interpleader action
or seek other judicial relief or orders as the Collateral Agent, Custodial Agent
or the Securities Intermediary, as the case may be, may deem necessary.
Notwithstanding anything contained herein to the contrary, neither the
Collateral Agent, Custodial Agent nor the Securities Intermediary shall be
required to take any action that is in its reasonable opinion contrary to law or
to the terms of this Agreement, or which would in its reasonable opinion subject
it or any of its officers, employees or directors to liability.
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SECTION 8.8 Resignation
Subject to the appointment and acceptance of a successor Collateral Agent,
Custodial Agent or Securities Intermediary, as provided below, (a) the
Collateral Agent, Custodial Agent and the Securities Intermediary may resign at
any time by giving notice thereof to the Company and the Purchase Contract Agent
as attorney-in-fact for the Holders of Units, (b) the Collateral Agent,
Custodial Agent and the Securities Intermediary may be removed at any time by
the Company and (c) if the Collateral Agent, Custodial Agent or the Securities
Intermediary fails to perform any of its material obligations hereunder in any
material respect for a period of not less than 20 days after receiving written
notice of such failure by the Purchase Contract Agent and such failure shall be
continuing, the Collateral Agent, Custodial Agent or the Securities Intermediary
may be removed by the Purchase Contract Agent. The Purchase Contract Agent shall
promptly notify the Company of any removal of the Collateral Agent, the
Custodial Agent or the Securities Intermediary pursuant to clause (c) of the
immediately preceding sentence. Upon any such resignation or removal, the
Company shall have the right to appoint a successor Collateral Agent, Custodial
Agent or Securities Intermediary, as the case may be. If no successor Collateral
Agent, Custodial Agent or Securities Intermediary, as the case may be, shall
have been so appointed and shall have accepted such appointment within 30 days
after the retiring Collateral Agent's, Custodial Agent's or Securities
Intermediary's giving of notice of resignation or such removal, then the
retiring Collateral Agent, Custodial Agent or Securities Intermediary, as the
case may be, may at the Company's expense petition any court of competent
jurisdiction for the appointment of a successor Collateral Agent, Custodial
Agent or Securities Intermediary, as the case may be. Upon removal of the
Collateral Agent, Custodial Agent or Securities Intermediary, no fees paid to
the retiring Collateral Agent, Custodial Agent or Securities Intermediary
pursuant to Section 8.6(a) of this Agreement shall be refunded. Each of the
Collateral Agent, Custodial Agent and the Securities Intermediary shall be a
bank which has an office in New York, New York with a combined capital and
surplus of at least $50,000,000. Upon the acceptance of any appointment as
Collateral Agent, Custodial Agent or Securities Intermediary, as the case may
be, hereunder by a successor Collateral Agent, Custodial Agent or Securities
Intermediary, as the case may be, such successor shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent, Custodial Agent or Securities Intermediary, as the case may
be, and the retiring Collateral Agent, Custodial Agent or Securities
Intermediary, as the case may be, shall take all appropriate action to transfer
any money and property held by it hereunder (including the Collateral) to such
successor. The retiring Collateral Agent, Custodial Agent or Securities
Intermediary shall, upon such succession, be discharged from its duties and
obligations as Collateral Agent, Custodial Agent or Securities Intermediary
hereunder. After any retiring Collateral Agent's, Custodial Agent's or
Securities Intermediary's resignation hereunder as Collateral Agent, Custodial
Agent or Securities Intermediary, the provisions of this Section 8.8 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Collateral Agent, Custodial Agent or
Securities Intermediary. Any resignation or removal of the Collateral Agent
hereunder shall be deemed for all purposes
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of this Agreement as the simultaneous resignation or removal of the Custodial
Agent and the Securities Intermediary hereunder.
Any corporation into which the Collateral Agent, the Custodial Agent or the
Securities Intermediary, in its individual capacity, may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Collateral Agent in its
individual capacity shall be a party, or any corporation to which substantially
all the corporate trust business of the Collateral Agent in its individual
capacity may be transferred, shall be the Collateral Agent, the Custodial Agent,
or the Securities Intermediary, as the case may be, respectively, under this
Agreement without further act.
SECTION 8.9 Right to Appoint Agent or Advisor
The Collateral Agent shall have the right to appoint agents or advisors in
connection with any of its duties hereunder, and the Collateral Agent shall not
be liable for any action taken or omitted by, or in reliance upon the advice of,
such agents or advisors selected in good faith. The appointment of agents (other
than legal counsel) pursuant to this Section 8.9 shall be subject to prior
consent of the Company, which consent shall not be unreasonably withheld.
SECTION 8.10 Survival
The provisions of this Article VIII shall survive termination of this
Agreement and the resignation or removal of the Collateral Agent, the Custodial
Agent or the Securities Intermediary.
SECTION 8.11 Exculpation
Anything in this Agreement to the contrary notwithstanding, in no event
shall any of the Collateral Agent, the Custodial Agent or the Securities
Intermediary or their officers, employees or agents be liable under this
Agreement to any third party for indirect, special, punitive or consequential
loss or damage of any kind whatsoever, including lost profits, whether or not
the likelihood of such loss or damage was known to the Collateral Agent, the
Custodial Agent or the Securities Intermediary, or any of them, incurred without
any act or deed that is found to be attributable to gross negligence, bad faith
or willful misconduct on the part of the Collateral Agent, the Custodial Agent
or the Securities Intermediary.
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ARTICLE IX
AMENDMENT
SECTION 9.1 Amendment Without Consent of Holders
Without the consent of any Holders or the holders of any Separate Notes,
the Company, the Collateral Agent, the Custodial Agent, the Securities
Intermediary and the Purchase Contract Agent, at any time and from time to time,
may amend this Agreement, in form satisfactory to the Company, the Collateral
Agent, the Custodial Agent, the Securities Intermediary and the Purchase
Contract Agent, for any of the following purposes:
(i) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company; or
(ii) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon
the Company so long as such covenants or such surrender do not
adversely affect the validity, perfection or priority of the
security interests granted or created hereunder; or
(iii) to evidence and provide for the acceptance of appointment hereunder
by a successor Collateral Agent, Custodial Agent, Securities
Intermediary or Purchase Contract Agent; or
(iv) to cure any ambiguity, to correct or supplement any provisions
herein which may be inconsistent with any other such provisions
herein, or to make any other provisions with respect to such matters
or questions arising under this Agreement, provided such action
shall not adversely affect the interests of the Holders.
SECTION 9.2 Amendment with Consent of Holders
With the consent of the Holders of not less than a majority of the Purchase
Contracts at the time outstanding, by Act of said Holders delivered to the
Company, the Purchase Contract Agent or the Collateral Agent, as the case may
be, the Company, when duly authorized, the Purchase Contract Agent, the
Collateral Agent, the Custodial Agent and the Securities Intermediary may amend
this Agreement for the purpose of modifying in any manner the provisions of this
Agreement or the rights of the Holders in respect of the Units; provided,
however, that no such supplemental agreement shall, without the consent of the
Holder of each Outstanding Unit adversely affected thereby,
(i) change the amount or type of Collateral underlying a Unit (except
for the rights of holders of Normal Units to substitute the Treasury
Securities for the Pledged Notes or the Pledged Treasury
Consideration, as the case may
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be, or the rights of Holders of Stripped Units to substitute Notes
or the appropriate Treasury Consideration, as applicable, for the
Pledged Treasury Securities), impair the right of the Holder of any
Unit to receive distributions on the underlying Collateral or
otherwise adversely affect the Holder's rights in or to such
Collateral; or
(ii) otherwise effect any action that would require the consent of the
Holder of each Outstanding Unit affected thereby pursuant to the
Purchase Contract Agreement if such action were effected by an
agreement supplemental thereto; or
(iii) reduce the percentage of Purchase Contracts the consent of whose
Holders is required for any such amendment.
It shall not be necessary for any Act of Holders under this Section to approve
the particular form of any proposed amendment, but it shall be sufficient if
such Act shall approve the substance thereof.
SECTION 9.3 Execution of Amendments
In executing any amendment permitted by this Article IX, the Collateral
Agent, the Custodial Agent, the Securities Intermediary and the Purchase
Contract Agent shall be entitled to receive and (subject to Section 8.1 hereof,
with respect to the Collateral Agent, and Section 7.1 of the Purchase Contract
Agreement, with respect to the Purchase Contract Agent) shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Agreement and that all conditions
precedent, if any, to the execution and delivery of such amendment have been
satisfied and, in the case of an amendment pursuant to Section 9.1, that such
amendment does not adversely affect the validity, perfection or priority of the
security interests granted or created hereunder.
SECTION 9.4 Effect of Amendments
Upon the execution of any amendment under this Article IX, this Agreement
shall be modified in accordance therewith, and such amendment shall form a part
of this Agreement for all purposes; and every Holder of Certificates theretofore
or thereafter authenticated, executed on behalf of the Holders and delivered
under the Purchase Contract Agreement shall be bound thereby.
SECTION 9.5 Reference to Amendments
Certificates authenticated, executed on behalf of the Holders and delivered
after the execution of any amendment pursuant to this Article IX may, and shall
if required by the Collateral Agent or the Purchase Contract Agent, bear a
notation in form approved by the Purchase Contract Agent as to any matter
provided for in such amendment. If the Company shall so determine, new
Certificates so modified as to conform, in the opinion
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of the Purchase Contract Agent and the Company, to any such amendment may be
prepared and executed by the Company and authenticated, executed on behalf of
the Holders and delivered by the Purchase Contract Agent in accordance with the
Purchase Contract Agreement in exchange for outstanding Certificates.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 No Waiver
No failure on the part of any party hereto or any of its agents to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise by any party hereto or any of its agents of
any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The remedies herein
are cumulative and are not exclusive of any remedies provided by law.
SECTION 10.2 GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES
THEREOF. Without limiting the foregoing, the above choice of law is expressly
agreed to by the Securities Intermediary, the Collateral Agent, the Custodial
Agent and the Holders from time to time acting through the Purchase Contract
Agent, as their attorney-in-fact, in connection with the establishment and
maintenance of the Collateral Account, which law, for purposes of the Code,
shall be deemed to be the law governing all Security Entitlements related
thereto. In addition, such parties agree that, for purposes of the Code, New
York shall be the Securities Intermediary's jurisdiction. The Company, the
Collateral Agent and the Holders from time to time of the Units, acting through
the Purchase Contract Agent as their attorney-in-fact, hereby submit to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York state court sitting in the Borough of
Manhattan in New York City for the purposes of all legal proceedings arising out
of or relating to this Agreement or the transactions contemplated hereby. The
Company, the Collateral Agent and the Holders from time to time of the Units,
acting through the Purchase Contract Agent as their attorney-in-fact,
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
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SECTION 10.3 Notices
Unless otherwise stated herein, all notices, requests, consents and other
communications provided for herein (including, without limitation, any
modifications of, or waivers or consents under, this Agreement) shall be given
or made in writing (including, without limitation, by telecopy) delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or, as to any party, at such other address as shall be
designated by such party in a notice to the other parties. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when personally delivered or, in the case of a mailed notice or
notice transmitted by telecopier, upon receipt, in each case given or addressed
as aforesaid.
SECTION 10.4 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the Company, the Collateral Agent, the
Custodial Agent, the Securities Intermediary and the Purchase Contract Agent,
and the Holders from time to time of the Units, by their acceptance of the same,
shall be deemed to have agreed to be bound by the provisions hereof and to have
ratified the agreements of, and the grant of the Pledge hereunder by, the
Purchase Contract Agent.
SECTION 10.5 Counterparts
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
SECTION 10.6 Severability
If any provision hereof is invalid and unenforceable in any jurisdiction,
then, to the fullest extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties hereto
as nearly as may be possible and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 10.7 Expenses, Etc.
The Company agrees to reimburse the Collateral Agent, the Securities
Intermediary and the Custodial Agent for:
(a) all reasonable out-of-pocket costs and all reasonable expenses of
the Collateral Agent, the Custodial Agent and the Securities Intermediary
(including, without limitation, the reasonable fees and expenses of counsel to
the Collateral Agent, the Custodial Agent and the Securities Intermediary), in
connection with (i) the negotiation,
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preparation, execution and delivery or performance of this Agreement and (ii)
any modification, supplement or waiver of any of the terms of this Agreement;
(b) all reasonable costs and expenses of the Collateral Agent (which for
purposes of this paragraph shall include its directors, officers, employees and
agents) (including, without limitation, reasonable fees and expenses of counsel)
in connection with (i) any enforcement or proceedings resulting or incurred in
connection with causing any Holder of Units to satisfy its obligations under the
Purchase Contracts forming a part of the Units and (ii) the enforcement of this
Section 10.7; and
(c) all transfer, stamp, documentary or other similar taxes, assessments
or charges levied by any governmental or revenue authority in respect of this
Agreement or any other document referred to herein and all costs, expenses,
taxes, assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated
hereby.
SECTION 10.8 Security Interest Absolute
All rights of the Collateral Agent and security interests hereunder, and
all obligations of the Holders from time to time hereunder, shall be absolute
and unconditional irrespective of:
(a) any lack of validity or enforceability of any provision of the
Purchase Contracts or the Units or any other agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or any other
term of, or any increase in the amount of, all or any of the obligations of
Holders of Units under the related Purchase Contracts, or any other amendment or
waiver of any term of, or any consent to any departure from any requirement of,
the Purchase Contract Agreement or any Purchase Contract or any other agreement
or instrument relating thereto; or
(c) any other circumstance which might otherwise constitute a defense
available to, or discharge of, a borrower, a guarantor or a pledgor.
SECTION 10.9 Waiver of Jury Trial
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
-30-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PLATINUM UNDERWRITERS HOLDINGS, LTD.
By:
---------------------------------------------
Name:
Title:
Address for Notices:
Platinum Underwriters Holdings, Ltd.
*
*
Attention: *
Telecopy: *
Telephone: *
JPMorgan Chase Bank,
as Purchase Contract Agent and
as attorney-in-fact of the Holders
from time to time of the Units
By:
---------------------------------------------
Name:
Title:
Address for Notices:
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Institutional Trust Services
Telecopy: (212) 946-8154
Telephone: *
-31-
State Street Bank and Trust Company,
as Collateral Agent, Custodial Agent
and Securities Intermediary
By:
---------------------------------------------
Name:
Title:
Address for Notices:
c/o State Street Bank and Trust Company of Connecticut
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attention: Corporate Trust Administration
Telecopy: 860-244-1889
Telephone: 860-244-1813
-32-
EXHIBIT A
INSTRUCTION FROM PURCHASE CONTRACT
AGENT TO COLLATERAL AGENT
State Street Bank and Trust Company
c/o State Street Bank and Trust Company of Connecticut
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: EQUITY SECURITY UNITS OF PLATINUM UNDERWRITERS
HOLDINGS, LTD. (THE "COMPANY")
We hereby notify you in accordance with Section [4.1] [4.2] of the Pledge
Agreement, dated as of *, 2002, (the "Pledge Agreement") among the Company,
yourselves, as Collateral Agent, Custodial Agent and Securities Intermediary and
ourselves, as Purchase Contract Agent and as attorney-in-fact for the holders of
[Normal Units] [Stripped Units] from time to time, that the holder of Units
listed below (the "Holder") has elected to substitute [$_____ aggregate
principal amount of Treasury Securities (CUSIP No. _____)] [$_______ aggregate
principal amount of Notes or $_____ aggregate principal amount of Treasury
Consideration (CUSIP No. _____)] in exchange for the related [Pledged Notes or
Pledged Treasury Consideration] [Pledged Treasury Securities] held by you in
accordance with the Pledge Agreement and has delivered to us a notice stating
that the Holder has Transferred [Treasury Securities] [Notes or the Treasury
Consideration] to you, as Collateral Agent. We hereby instruct you, upon receipt
of such [Pledged Treasury Securities] [Pledged Notes or Pledged Treasury
Consideration], to release the [Notes or the Treasury Consideration] [Treasury
Securities] related to such [Normal Units] [Stripped Units] to us in accordance
with the Holder's instructions. Capitalized terms used herein but not defined
shall have the meaning set forth in the Pledge Agreement.
Date:
---------------
JPMORGAN CHASE BANK,
as Purchase Contract Agent
By:
-----------------------
Name:
Title:
A-1
Please print name and address of Registered Holder electing to substitute
[Treasury Securities] [Notes or Treasury Consideration] for the [Pledged Notes
or the Pledged Treasury Consideration] [Pledged Treasury Securities]:
Name: Social Security or other Taxpayer
Identification Number, if any:
Address:
A-2
EXHIBIT B
INSTRUCTION TO PURCHASE CONTRACT AGENT
JPMorgan Chase Bank
as Purchase Contract Agent
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Institutional Trust Services
Re: EQUITY SECURITY UNITS OF PLATINUM UNDERWRITERS
HOLDINGS, LTD. (THE "COMPANY")
The undersigned Holder hereby notifies you that it has delivered to State
Street Bank and Trust Company, as Collateral Agent, [$_______ aggregate
principal amount of Treasury Securities (CUSIP No. _____)] [$_______ aggregate
principal amount of Notes or $_____ principal amount of Treasury Consideration
(CUSIP No. _____)] in exchange for the related [Pledged Notes or Pledged
Treasury Consideration] [Pledged Treasury Securities] held by the Collateral
Agent, in accordance with Section 4.1 of the Pledge Agreement, dated as of *,
2002 (the "Pledge Agreement"), between you, the Company and the Collateral
Agent. The undersigned Holder hereby instructs you to instruct the Collateral
Agent to release to you on behalf of the undersigned Holder the [Pledged Notes
or the Pledged Treasury Consideration] [Pledged Treasury Securities] related to
such [Normal Units] [Stripped Units]. Capitalized terms used herein but not
defined shall have the meaning set forth in the Pledge Agreement.
Date: Signature:
---------------- ------------------------------------
Signature Guarantee:
-------------------------
Please print name and address of Registered Holder:
Name: Social Security or other Taxpayer
Identification Number, if any:
Address:
B-1
EXHIBIT C
INSTRUCTION TO CUSTODIAL AGENT REGARDING REMARKETING
State Street Bank and Trust Company
c/o State Street Bank and Trust Company of Connecticut
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: NOTES OF PLATINUM UNDERWRITERS FINANCE, INC.
The undersigned hereby notifies you in accordance with Section 4.5(d) of
the Pledge Agreement, dated as of *, 2002 (the "Pledge Agreement"), among
Platinum Underwriters Holdings, Ltd., yourselves, as Collateral Agent,
Securities Intermediary and Custodial Agent, and JPMorgan Chase Bank, as
Purchase Contract Agent and as attorney-in-fact for the Holders of Normal Units
and Stripped Units from time to time, that the undersigned elects to deliver on
the fourth Business Day immediately preceding the first day of the Remarketing
Period commencing on __________, 2005 $__________ aggregate principal amount of
Notes for delivery to the Remarketing Agent for remarketing pursuant to Section
4.5(d) of the Pledge Agreement. The undersigned will, upon request of the
Remarketing Agent, execute and deliver any additional documents deemed by the
Remarketing Agent or by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Notes tendered hereby.
The undersigned hereby instructs you, upon receipt of the proceeds of such
remarketing from the Remarketing Agent, net of amounts payable to the
Remarketing Agent in accordance with the Pledge Agreement, to deliver such
proceeds to the undersigned in accordance with the instructions indicated herein
under "A. Payment Instructions." The undersigned hereby instructs you, in the
event of [a/the Last] Failed Remarketing upon receipt of the Notes tendered
herewith from the Remarketing Agent, to deliver such Notes to the person(s) and
the address(es) indicated herein under "B. Delivery Instructions."
With this notice, the undersigned hereby (i) represents and warrants that
the undersigned has full power and authority to tender, sell, assign and
transfer the Notes tendered hereby and that the undersigned is the record owner
of any Notes tendered herewith in physical form or a participant in The
Depository Trust Company ("DTC") and the beneficial owner of any Notes tendered
herewith by book-entry transfer to your account at DTC and (ii) agrees to be
bound by the terms and conditions of Section 4.5(d) of the Pledge Agreement.
Capitalized terms used herein but not defined shall have the meaning set forth
in the Pledge Agreement.
C-1
Date:
---------------
Signature:
--------------------------
Signature Guarantee:
Name:
----------------------------------------
(Please Print)
Address:
----------------------------------------
(Please Print)
Country:
Zip Code:
Telecopy (include country code if outside U.S.):
Telephone (include country code if outside U.S.):
(Tax Identification or Social Security Number):
A. PAYMENT INSTRUCTIONS
Proceeds of the remarketing should be paid by check in the name of the person(s)
set forth below and mailed to the address set forth below.
Name(s):
----------------------------------------
(Please Print)
Address:
----------------------------------------
(Please Print)
Zip Code:
Country:
Telecopy (include country code if outside U.S.):
Telephone (include country code if outside U.S.):
(Tax Identification or Social Security Number):
C-2
B. DELIVERY INSTRUCTIONS
In the event of [a/the Last] Failed Remarketing, Notes which are in physical
form should be delivered to the person(s) set forth below and mailed to the
address set forth below.
Name(s):
----------------------------------------
(Please Print)
Address:
----------------------------------------
(Please Print)
Zip Code:
Country:
Telecopy (include country code if outside U.S.):
Telephone (include country code if outside U.S.):
(Tax Identification or Social Security Number):
In the event of [a/the Last] Failed Remarketing, Notes which are in book-entry
form should be credited to the account at The Depository Trust Company set forth
below.
Name of Account Party: DTC Account Number:
C-3
EXHIBIT D
INSTRUCTION TO CUSTODIAL AGENT REGARDING
WITHDRAWAL FROM REMARKETING
State Street Bank and Trust Company
c/o State Street Bank and Trust Company of Connecticut
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: NOTES OF PLATINUM UNDERWRITERS FINANCE, INC.
The undersigned hereby notifies you in accordance with Section 4.5(d) of
the Pledge Agreement, dated as of *, 2002 (the "Pledge Agreement"), among
Platinum Underwriters Holdings, Ltd., yourselves, as Collateral Agent,
Securities Intermediary and Custodial Agent, and JPMorgan Chase Bank, as
Purchase Contract Agent and as attorney-in-fact for the Holders of Normal Units
and Stripped Units from time to time, that the undersigned elects to withdraw
the $_____ aggregate principal amount of Notes delivered to the Custodial Agent
on ___________, 2005 for remarketing pursuant to Section 4.5(d) of the Pledge
Agreement. The undersigned hereby instructs you to return such Notes to the
undersigned in accordance with the undersigned's instructions. With this notice,
the undersigned hereby agrees to be bound by the terms and conditions of Section
4.5(d) of the Pledge Agreement. Capitalized terms used herein but not defined
shall have the meaning set forth in the Pledge Agreement.
Date:
---------------
Signature:
-------------------------
Signature Guarantee:
Name(s):
----------------------------------------
(Please Print)
Address:
----------------------------------------
(Please Print)
Zip Code:
Country:
Telecopy (include country code if outside U.S.):
Telephone (include country code if outside U.S.):
D-1
(Tax Identification or Social Security Number):
A. DELIVERY INSTRUCTIONS
In the event of [a/the Last] Failed Remarketing, Notes which are in physical
form should be delivered to the person(s) set forth below and mailed to the
address set forth below.
Name(s):
----------------------------------------
(Please Print)
Address:
----------------------------------------
(Please Print)
Zip Code:
Country:
Telecopy (include country code if outside U.S.):
Telephone (include country code if outside U.S.):
(Tax Identification or Social Security Number):
In the event of [a/the Last] Failed Remarketing, Notes which are in book-entry
form should be credited to the account at The Depository Trust Company set forth
below.
Name of Account Party: DTC Account Number:
D-2
EX-23.1
8
a2090035zex-23_1.txt
CONSENT OF KPMG
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
THE ST. PAUL COMPANIES, INC.
PLATINUM UNDERWRITERS HOLDINGS, LTD.
PLATINUM UNDERWRITERS FINANCE, INC.:
We consent to the inclusion in Amendment No. 2 to the Registration
Statement on Form S-1 of Platinum Underwriters Holdings, Ltd. and
Platinum Underwriters Finance, Inc. and the related prospectus of our report
dated April 23, 2002 with respect to the combined statements of
identifiable underwriting assets and liabilities of The St. Paul
Companies Inc. Reinsurance Underwriting Segment (Predecessor) as of
December 31, 2001, 2000 and 1999 and the related combined statements of
underwriting results and identifiable underwriting cash flows for each of the
years in the three-year period ended December 31, 2001, and related
combined financial statement schedules III through V, and of our report dated
August 29, 2002 (except as to Notes 3 and 5, which are as of
September 16, 2002) with respect to the consolidated balance sheet of
Platinum Underwriters Holdings, Ltd. as of June 30, 2002, which reports
appear in the Registration Statement on Form S-1 and to the reference to
our firm under the heading "Experts" in the prospectus of Platinum
Underwriters Holdings, Ltd. and Platinum Underwriters Finance, Inc. The audit
report covering Predecessor's December 31, 2001, 2000 and 1999 combined
statements contains an explanatory paragraph that states that the combined
statements are not intended to be a complete presentation of Predecessor's or
St. Paul's financial position, results of operations or cash flows.
Minneapolis, Minnesota
October 7, 2002
/s/ KPMG LLP
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