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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) -- MARCH 31, 1999
CGA GROUP, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
BERMUDA 001-49632 98-0173536
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
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<TABLE>
<S> <C>
CRAIG APPIN HOUSE, 8 WESLEY STREET,
HAMILTON HM11, BERMUDA N/A
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES) (ZIP CODE)
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(441) 296-3165
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME OR ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS.
On March 31, 1999, the Company sold to certain existing shareholders of the
Company an aggregate of 43,997,863 shares of Series C Convertible Cumulative
Voting Preferred Stock, par value $.01 per share, of the Company (the "Series C
Preferred Stock") for net cash proceeds of $50,996,794.50. The sale was made
pursuant to the terms of the Series C Convertible Cumulative Voting Preferred
Stock Subscription Agreement (the "Series C Preferred Stock Subscription
Agreement") which is filed as Exhibit 4.1 to this Report. Pursuant to the terms
of the Series C Preferred Stock Subscription Agreement, 31,997,863 shares of
Series C Preferred Stock were sold at $1.50 per share pursuant to the basic
subscription privilege (and overallotments with respect thereto) and 12,000,000
shares of Series C Preferred Stock were sold at $0.25 per share pursuant to the
additional allotment privilege (and overallotments with respect thereto). Shares
of Series C Preferred Stock may be converted into shares of common stock, par
value $.01 per share, of the Company (the "Common Stock") on a one-for-one basis
at the holder's option at any time, and are mandatorily convertible into shares
of Common Stock on a one-for-one basis upon the occurrence of certain events.
The net proceeds from the transaction will be used for general corporate
purposes and to make capital investments in the Company's wholly owned
subsidiary, Commercial Guaranty Assurance, Ltd.
In connection with the consummation of the transactions contemplated by the
Series C Preferred Stock Subscription Agreement, on March 31, 1999, all issued
and outstanding shares of Series B Cumulative Voting Preferred Stock, par value
$.01 per share, of the Company (the "Series B Preferred Stock") were converted
into shares of Common Stock, at a conversion ratio of 11.816 shares of Common
Stock per share of Series B Preferred Stock. The conversion ratio was based on
an assumed value of $3.00 per share of Common Stock. As a result of the
conversion, 18,905,648 new shares of Common Stock were issued.
The Company has amended its Bye-laws (including the Appendices thereto) as
of March 31, 1999, to reflect the new capital structure of the Company as a
result of the consummation of the transactions described above. The Amended and
Restated Bye-laws of the Company and the amended Appendices thereto are filed as
Exhibits 4.2 and 4.3, respectively, to this Report.
The Company, the holders of the Common Stock and the holders of the Series
C Preferred Stock have entered into the Shareholders Agreement, dated as of June
12, 1997, as amended and restated as of March 31, 1999 (the "Amended and
Restated Shareholders Agreement"), to reflect the new capital structure of the
Company as a result of the consummation of the transactions described above, and
to add the new holders of Series C Preferred Stock as parties thereto with
respect to the shares of Series C Preferred Stock. The Amended and Restated
Shareholders Agreement is filed as Exhibit 4.4 to this Report.
ITEM 7. EXHIBITS.
The following exhibits are filed as part of this Report:
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EXHIBIT
NUMBER DESCRIPTION
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4.1 Series C Convertible Cumulative Voting Preferred Stock
Subscription Agreement, dated as of March 1, 1999.
4.2 Amended and Restated Bye-laws of CGA Group, Ltd. dated as of
March 31, 1999.
4.3 Amended and Restated Appendices to the Amended and Restated
Bye-Laws of the CGA Group, Ltd., dated as of March 31, 1999.
4.4 CGA Group, Ltd. Shareholders Agreement dated as of June 12,
1997, as amended and restated as of March 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CGA GROUP, LTD.
By: /s/ JAMES R. REINHART
------------------------------------
Name: James R. Reinhart
Title: Chief Financial Officer
Dated: April 8, 1999
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EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
4.1 Series C Convertible Cumulative Voting Preferred Stock
Subscription Agreement, dated as of March 1, 1999.
4.2 Amended and Restated Bye-laws of CGA Group, Ltd. dated as of
March 31, 1999.
4.3 Amended and Restated Appendices to the Amended and Restated
Bye-Laws of the CGA Group, Ltd., dated as of March 31, 1999.
4.4 CGA Group, Ltd. Shareholders Agreement dated as of June 12,
1997, as amended and restated as of March 31, 1999.
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EXHIBIT 4.1
CGA GROUP, LTD.
SERIES C CONVERTIBLE CUMULATIVE VOTING PREFERRED STOCK
SUBSCRIPTION AGREEMENT
Dated as of March 1, 1999
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TABLE OF CONTENTS
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PAGE
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ARTICLE 1 AUTHORIZATION; SUBSCRIPTION FOR SERIES C PREFERRED STOCK........ 1
Section 1.1 The Series C Preferred Stock................................ 1
Section 1.2 Subscription for Series C Preferred Stock................... 1
ARTICLE 2 CLOSING......................................................... 3
ARTICLE 3 CONDITIONS TO OBLIGATIONS OF THE INVESTORS...................... 3
Section 3.1 Accuracy of Representations and Warranties.................. 3
Section 3.2 Performance of Agreements; Regulatory Approvals; Credit
Rating.................................................... 4
Section 3.3 Compliance Certificate...................................... 4
Section 3.4 Amended and Restated Bye-laws............................... 4
Section 3.5 Other Agreements............................................ 4
Section 3.6 Opinion of Conyers Dill & Pearman........................... 4
Section 3.7 List of Shareholders........................................ 4
ARTICLE 4 CONDITIONS TO THE COMPANY'S OBLIGATIONS......................... 4
Section 4.1 Accuracy of Representations and Warranties.................. 4
Section 4.2 Performance of Agreements................................... 5
Section 4.3 Amended and Restated Bye-laws............................... 5
Section 4.4 Other Agreements............................................ 5
Section 4.5 Letters from Placement Agent................................ 5
Section 4.6 Payment for the Series C Preferred Stock.................... 5
Section 4.7 Waiver...................................................... 5
Section 4.8 Aggregate Funding........................................... 5
ARTICLE 5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE COMPANY.............................................. 5
Section 5.1 Due Organization, Valid Existence and Authority of the
Company and the Company's Initial Subsidiaries............ 5
Section 5.2 Authorization and Validity of Agreements.................... 6
Section 5.3 Capitalization.............................................. 6
Section 5.4 No Conflict with Other Instruments; No Approvals Required
Except as
Have Been Obtained........................................ 6
Section 5.5 Regulatory Filings; Compliance with Law..................... 6
Section 5.6 Stamp Duties or Taxes....................................... 7
Section 5.7 Private Offering of the Shares.............................. 7
Section 5.8 The Offering Circular....................................... 7
Section 5.9 Not an "Investment Company"................................. 7
Section 5.10 Company Obligations......................................... 7
Section 5.11 Operating Company........................................... 8
Section 5.12 No U.S. Trade or Business and Not a Controlled Foreign
Corporation............................................... 8
Section 5.13 Related Person Insurance Income............................. 8
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i
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PAGE
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Section 5.14 Operating Guidelines........................................ 8
Section 5.15 Passive Foreign Investment Company.......................... 9
Section 5.16 Use of Proceeds of the Offering............................. 9
Section 5.17 Shareholders................................................ 9
Section 5.18 Bermuda Withholding Tax..................................... 9
Section 5.19 No Events of Non-Compliance................................. 9
Section 5.20 Registration Rights......................................... 9
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS................. 9
Section 6.1 Due Organization, Good Standing and Authority of the
Investor.................................................. 9
Section 6.2 Authorization and Validity of Agreements.................... 9
Section 6.3 Investment Intent........................................... 10
Section 6.4 No Conflict with Other Instruments; No Approvals Required
Except as
Have Been Obtained........................................ 10
Section 6.5 Investor Awareness and Suitability.......................... 11
Section 6.6 Accredited Investor Status.................................. 12
Section 6.7 Receipt of Information, Access to Information............... 13
Section 6.8 Series C Preferred Stock Ownership Limitations.............. 13
ARTICLE 7 RESTRICTIONS ON TRANSFER........................................ 13
Section 7.1 Restrictive Legends......................................... 14
Section 7.2 Notice of Proposed Transfers................................ 14
ARTICLE 8 MISCELLANEOUS................................................... 15
Section 8.1 Survival of Representations, Warranties and Covenants....... 15
Section 8.2 Entire Agreement............................................ 15
Section 8.3 Severability................................................ 15
Section 8.4 Binding Effect; Benefit..................................... 15
Section 8.5 Assignability............................................... 15
Section 8.6 Amendment; Waiver........................................... 15
Section 8.7 Headings.................................................... 16
Section 8.8 Counterparts................................................ 16
Section 8.9 Applicable Law.............................................. 16
Section 8.10 Notices and Payment......................................... 16
Section 8.11 Full Payment................................................ 16
Section 8.12 Indemnification............................................. 16
Section 8.13 Submission to Jurisdiction.................................. 17
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EXHIBITS:
<S> <C> <C>
ANNEXES:
Annex I -- Form of Memorandum of Association
Annex II -- Form of Amended and Restated Bye-laws
Annex III -- Form of Amended and Restated Shareholders Agreement
Annex IV -- Opinion of Conyers Dill & Pearman
Annex V -- Operating Guidelines
Annex VI -- Letter Agreement with DCR
</TABLE>
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CGA GROUP, LTD.
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of March 1, 1999 (this "Agreement"), among
CGA Group, Ltd., a company with limited liability organized under the laws of
Bermuda (together with its successors and permitted assigns, the "Company"), and
each of the Investors identified in Schedule I hereto (collectively, together
with their successors and permitted assigns, the "Investors").
WHEREAS, the Company has distributed subscription rights (the "Rights") to
subscribe for shares of the Series C Cumulative Convertible Preferred Stock, par
value U.S. $.01 per share (the "Series C Preferred Stock") to the Investors
pursuant to an Offering Circular, dated January 21, 1999 as supplemented on
February 5, 1999, February 12, 1999 and February 22, 1999 (together with any
amendments, modifications or supplements thereto as may be made from time to
time on or prior to the Closing Date (as defined below), the "Offering
Circular");
WHEREAS, the Investors understand that the voting power of their aggregate
ownership of voting securities of the company is subject to the Maximum
Percentage limitation contained in Bye-laws 1(cc) and 50 of the Company's
Amended and Restated Bye-laws (as defined herein), and as a result the voting
power of some shares of Series C Preferred Stock may be reduced in accordance
with the terms of the Bye-laws as described in the "Description of Securities"
contained in the Offering Circular; and
WHEREAS, each of the Investors wishes to subscribe for and purchase,
severally and not jointly, and the Company wishes to issue and sell to each
Investor the number of shares of Series C Preferred Stock applicable to each
Investor set forth opposite such Investor's name on Schedule I hereto, on the
terms set forth herein.
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
AUTHORIZATION; SUBSCRIPTION FOR SERIES C PREFERRED STOCK
SECTION 1.1 The Series C Preferred Stock. The Company has authorized the
issuance and sale pursuant to this Agreement of up to 52,000,000 shares of
Series C Preferred Stock having such rights, restrictions and privileges as are
contained in or accorded by (i) the Memorandum of Association of the Company in
the form attached hereto as Annex I (the "Memorandum of Association"), (ii) the
Amended and Restated Bye-laws of the Company, in the form attached hereto as
Annex II and all appendices and exhibits thereto (the "Amended and Restated
Bye-Laws"), (iii) the Amended and Restated Shareholders Agreement, to be dated
as of the Closing Date, among the Company, the Investors and the other parties
named therein, in the form attached hereto as Annex III (as such agreement may
be amended, supplemented, restated or otherwise modified from time to time in
accordance with its terms, the "Amended and Restated Shareholders Agreement"),
and (iv) this Agreement. Subject to the terms and conditions hereof, the
Preferred Stock will be issued on the Closing Date.
SECTION 1.2 Subscription for Series C Preferred Stock. (a) Subject to the
terms and conditions of this Agreement, each of the Investors hereby irrevocably
subscribes for and agrees to purchase, severally and not jointly, the aggregate
number of shares of Series C Preferred Stock set forth below such Investor's
name on the signature page hereto for the purchase price specified in Article 2
hereof. Such aggregate number is comprised of (i) the number of shares of Series
C Preferred Stock which such Investor is entitled to purchase upon exercise of
the Rights distributed to such Investor pursuant to the Offering Circular (the
"Basic Subscription"), (ii) such number of additional shares of Series C
Preferred Stock which the Investor requests to purchase pursuant to the Front
End Additional Allotment Privilege (as defined below), (iii) such number of
additional shares of Series C Preferred Stock which the Investor requests to
purchase pursuant to the Back End Oversubscription Privilege (as defined below)
set forth in the Offering Circular and (iv) such number of additional shares of
Series C Preferred Stock which the Investor requests to purchase pursuant to the
<PAGE> 6
Additional Back End Privilege (as defined below) set forth in the Offering
Circular. The Investors acknowledge that the Company may actually issue and sell
to each Investor at the Closing fewer than the number of shares of Series C
Preferred Stock set forth below each Investor's name on its signature page
hereto, based upon the calculations of oversubscriptions and additional
allotments as set forth in this Agreement.
(b) In the event that the Company receives from the Investors subscriptions
to purchase at least U.S. $47 million in Series C Preferred Stock in the
aggregate at U.S. $1.50 per share pursuant to the Basic Subscription Privilege
and the Back End Oversubscription Privilege (as defined below), then those
Investors who fully exercise all Rights allotted to them pursuant to the Basic
Subscription Privilege will be entitled to purchase a portion of 12,000,000
additional shares of Series C Preferred Stock (the "Additional Shares") at a
price (the "Additional Allotment Price") of U.S. $0.25 per share (the "Front End
Additional Allotment Privilege"). The purchase by an Investor of its full
allotted number of shares pursuant to its Basic Subscription Privilege plus its
full allotted number of shares pursuant to its Front End Additional Allotment
Privilege is defined as such Investor's "Front End Purchase" and the average
price per share paid by such Investor for all such shares is defined as such
Investor's "Front End Share Price." The number of Additional Shares that each
Investor will be entitled to purchase at the Additional Allotment Price as part
of its Front End Purchase (a) will be contingent upon the dollar amount of the
Aggregate Basic Subscription (as defined below) and the resulting calculation of
Additional Back End Shares, as described below and (b) will equal a fraction
(the numerator of which will be the number of shares purchased pursuant to such
Investor's Basic Subscription Privilege and the denominator of which will be the
total number of shares purchased by all Investors who have fully exercised all
Rights allotted to them pursuant to the Basic Subscription Privilege) of the
number of shares equal to 12,000,000 minus the aggregate number of Additional
Back End Shares (as defined below) purchased by all Investors.
(c) If the aggregate purchase price of the shares subscribed for by all
Investors in the aggregate pursuant to the Basic Subscription Privilege (the
"Aggregate Basic Subscription") is less than U.S. $47 million, then those
Investors who fully exercise all Rights allotted to them pursuant to the Basic
Subscription Privilege will be entitled, as a group, to purchase a number of
shares of Series C Preferred Stock, at U.S. $1.50 per share (the "Back End
Oversubscription Shares"), equal to the difference between U.S. $47 million and
the Aggregate Basic Subscription (the "Back End Oversubscription Privilege").
Each such Investor shall be entitled to purchase a percentage of the Back End
Oversubscription Shares equal to a fraction, the numerator of which is the total
number of shares purchased by such Investor pursuant to its Basic Subscription
Privilege, and the denominator of which is the total number of shares purchased
by all Investors who have fully exercised all Rights allotted to them pursuant
to the Basic Subscription Privilege. Any unsubscribed-for Back End
Oversubscription Shares will be offered to those Investors who have elected to
purchase their own full allotment of Back End Oversubscription Shares, pro rata
based on the number of shares constituting such elections.
(d) Each Investor that elects to purchase Back End Oversubscription Shares
will also be entitled to purchase a number of Additional Shares (the "Additional
Back End Shares"), at the Additional Allotment Price of U.S. $0.25 per share
(the "Additional Back End Privilege"), such that the average price per share of
such Investor's Back End Oversubscription Shares and Additional Back End Shares,
taken as a whole, shall be 80% of the Front End Share Price.
(e) Based upon (i) the number of shares of Series C Preferred Stock which
an Investor subscribes for pursuant to the Basic Subscription Privilege, the
Front End Additional Allotment Privilege, the Back End Oversubscription
Privilege and the Additional Back End Privilege such number being determined
after all prorations described above have been effected, the number of shares of
Series C Preferred Stock issuable to each Investor shall be determined as soon
as practicable thereafter.
(f) For purposes of this Agreement, Maximum Percentage shall have the
meaning assigned to it in Bye-laws 1(cc) and 50 of the Amended and Restated
Bye-laws. In the event that the issuance of Series C
2
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Preferred Stock upon exercise of Rights would cause an Investor's ownership of
voting stock of the Company to exceed the Maximum Percentage, the voting power
of such Investors' Series C Preferred Stock shall be reduced pursuant to the
terms and conditions set forth in the Bye-laws and described in the Offering
Circular, so that such Investor will not violate the Maximum Percentage
limitation.
(g) No Investor shall be obligated to purchase any shares of Series C
Preferred Stock unless the conditions set forth in Article 3 hereof shall have
been satisfied or waived by such Investor on or prior to the Closing Date. The
Company shall not be obligated to sell any shares of the Series C Preferred
Stock unless the conditions set forth in Article 4 hereof shall have been
satisfied or waived by the Company on or prior to the Closing Date.
ARTICLE 2
CLOSING
The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place as follows:
(i) On the basis of the representations, warranties and covenants
herein set forth, the Company will sell to each of the Investors, and each
of the Investors will purchase from the Company, at the Closing on March 1,
1999 or such later date as the Company may designate upon not less than
five business days prior written notice, delivered by facsimile, to the
Investors (the "Closing Date"), (A) the number of shares of Series C
Preferred Stock set forth opposite each such Investor's name on Schedule I
hereto for the consideration of a cash purchase price set forth opposite
each such Investor's name on Schedule I hereto, to be paid on the Closing
Date. The Investors acknowledge and agree that the number of shares of
Series C Preferred Stock being sold to each Investor pursuant to this
Agreement shall not be known at the time such Investor executes this
Agreement but shall be calculable upon expiration of the Rights and after
application of the oversubscription and additional allotment allocations
described above such that Schedule I shall be completed on or prior to the
Closing. The aggregate cash purchase price for the aggregate number of
shares of Series C Preferred Stock set forth opposite the name of each
Investor on Schedule I (as such Schedule I shall be completed on or prior
to the Closing) hereto is such Investor's "Aggregate Purchase Price."
(ii) At the Closing, subject to the terms and conditions of this
Agreement and on the basis of the representations, warranties and covenants
herein set forth, the Company will deliver to each of the Investors, or
representatives thereof, a certificate or certificates registered in the
name of such Investor (or such other name as may be indicated in writing to
the Company prior to the Closing Date) representing the aggregate number of
shares of Series C Preferred Stock to be purchased by such Investor,
against payment of such Investor's Aggregate Purchase Price by wire
transfer, on the Closing Date, of immediately available funds to an account
specified to the Investors and the Placement Agent (as defined below) by
the Company at least three (3) Business Days prior to the Closing Date. The
Closing will take place at the offices of the Company in Hamilton, Bermuda
at 10:00 a.m., Bermuda time, on the Closing Date.
ARTICLE 3
CONDITIONS TO OBLIGATIONS OF THE INVESTORS
The obligation of each Investor to purchase the Series C Preferred Stock
under this Agreement is subject to the satisfaction at or prior to the Closing
Date of each of the following conditions:
SECTION 3.1 Accuracy of Representations and Warranties. All
representations and warranties of the Company and of each other Investor
contained herein shall be true in all material respects on and as of the Closing
Date as if made on and as of the Closing Date.
3
<PAGE> 8
SECTION 3.2 Performance of Agreements; Regulatory Approvals; Credit
Rating. (a) The Company shall have performed all obligations and agreements,
and complied with all covenants and conditions, contained in this Agreement to
be performed or complied with by it prior to or at the Closing Date.
(b) The Company and Commercial Guaranty Assurance, Ltd. (together with its
successors, "CGA") shall have obtained all consents and approvals of regulatory
bodies and authorities in Bermuda necessary on the Closing Date for CGA to carry
on the business of an insurer and a reinsurer, and CGA Investment Management,
Inc. (together with its successors, "CGAIM" and together with CGA, the "Initial
Subsidiaries") shall have obtained all consents and approvals of regulatory
bodies and authorities in the United States necessary on the Closing Date for
CGAIM to carry out its business.
(c) CGA shall have received a letter from Duff & Phelps Credit Rating
Company or any successor thereto ("DCR") dated as of the Closing Date confirming
that CGA will retain its AAA claims paying ability rating from DCR upon the
consummation of the transactions contemplated hereby, which letter shall be in
form and substance satisfactory to the Investors and shall have no other
conditions which need to be satisfied in order for CGA to retain its AAA claims
paying ability rating from DCR.
SECTION 3.3 Compliance Certificate. The Company shall have delivered to
such Investor a certificate, dated the Closing Date, of the Chief Executive
Officer of the Company to the effect that the conditions specified in Sections
3.1 (other than with respect to the representations and warranties of the
Investors), 3.2, 3.4 and 3.5 have been fulfilled.
SECTION 3.4 Amended and Restated Bye-laws. The Amended and Restated
Bye-laws of the Company shall have been approved by the shareholders of the
Company and duly adopted by the Company in substantially the form attached as
Annex II hereto.
SECTION 3.5 Other Agreements. The Amended and Restated Shareholders
Agreement shall have been executed and delivered to the Company by at least
seventy-five percent (75%) of the Common Holders (as defined therein) in
substantially the form attached as Annex III hereto (except for such changes as
are not material, which changes, however, shall have been provided to the
Investors prior to the Closing Date).
SECTION 3.6 Opinion of Conyers Dill & Pearman. Conyers Dill & Pearman,
Bermuda special counsel for the Company, shall have delivered to such Investor
an opinion dated the Closing Date in substantially the form attached as Annex IV
hereto.
SECTION 3.7 List of Shareholders. The Company shall have provided to such
Investor a list representing the Company's best information of the shareholders
of the Company and their respective shareholdings on the Closing Date. The
Investors acknowledge and agree that a true and complete list of the
shareholders of the Company and their respective shareholdings shall not be
known at the time each Investor executes this Agreement but shall be calculable
upon expiration of the Rights and after application of the Oversubscription
Privilege allocations described herein. The Company agrees to provide at the
Closing an Amended and Restated Schedule II hereto which shall set forth its
best information regarding the identity of the shareholders of the Company and
their respective shareholdings on the Closing Date.
If at or prior to the Closing all of the conditions in this Article 3 have
not been satisfied, any Investor may elect to waive such conditions or to be
relieved of all further obligations hereunder.
ARTICLE 4
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the shares of Series C
Preferred Stock under this Agreement is subject to the satisfaction at the
Closing Date of each of the following conditions:
SECTION 4.1 Accuracy of Representations and Warranties. All
representations and warranties of each Investor contained herein shall be true
in all material respects on and as of the Closing Date as if made on and as of
the Closing Date.
4
<PAGE> 9
SECTION 4.2 Performance of Agreements. Each Investor shall have performed
all obligations and agreements, and complied with all covenants and conditions,
contained in this Agreement to be performed or complied with by it prior to or
at the Closing Date and each such Investor shall notify the Company prior to the
Closing Date if the foregoing condition cannot be fulfilled by such Investor.
SECTION 4.3 Amended and Restated Bye-laws. The Amended and Restated
Bye-laws of the Company shall have been approved by the shareholders of the
Company and duly adopted by the Company in substantially the form attached as
Annex II hereto (except for such changes as are not material, which changes,
however, shall have been provided to the Investors prior to the Closing Date).
SECTION 4.4 Other Agreements. The Amended and Restated Shareholders
Agreement shall have been executed and delivered to the Company by at least
seventy-five percent (75%) of the Common Holders (as defined therein) in
substantially the form attached as Annex III hereto (except for such changes as
are not material, which changes, however, shall have been provided to the
Investors prior to the Closing Date).
SECTION 4.5 Letters from Placement Agent. The Company shall have received
from Salomon Smith Barney Inc. (the "Placement Agent") a letter dated as of the
Closing Date reasonably satisfactory to the Company, to the effect that neither
it nor any person (other than the Company and its affiliates) authorized to act
on its behalf has used any form of general solicitation or general advertising
in connection with the offer and sale of the Series C Preferred Stock,
including, without limitation, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
SECTION 4.6 Payment for the Series C Preferred Stock. Each Investor shall
have delivered to the Company and the Company shall have received full payment
in immediately available funds of the Aggregate Purchase Price of such Investor
as set forth in Schedule I.
SECTION 4.7 Waiver. Section 7.1 of the Series A Preferred Stock
Subscription Agreement, dated June 9, 1997, among the Company and the Investors
listed on Schedule I thereto pursuant to which the Company is prohibited from
issuing the Series C Preferred Stock, shall have been waived by holders of at
least ninety percent (90%) of the shares of the Company's issued and outstanding
Series A Preferred Stock, par value U.S. $0.01 per share (the "Series A
Preferred Stock"), in accordance with the provisions thereof for valid execution
of a waiver.
SECTION 4.8 Aggregate Funding. The Company shall have received on or
prior to the Closing Date gross proceeds from the sale of the Series C Preferred
Stock of not less than U.S. $40,000,000.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents, warrants and covenants to each of the Investors as
of the date of this Agreement and as of the Closing Date as follows:
SECTION 5.1 Due Organization, Valid Existence and Authority of the Company
and the Company's Initial Subsidiaries. (a) The Company has been duly
incorporated and is validly existing under the laws of Bermuda. Upon completion
of the Closing, the Company will have full right, power and authority to carry
on its business as conducted and as proposed to be conducted as described in the
Offering Circular. The Company has full right, power and authority to enter into
this Agreement, and perform its obligations hereunder. The Memorandum of
Association, in the form attached hereto as Annex I, is a true and complete copy
of the Memorandum of Association of the Company as in effect at the date of this
Agreement, and no amendment to such Memorandum of Association has been proposed
or adopted. At the Closing, the Amended and Restated Bye-laws of the Company
will be in the form attached hereto as Annex II. Upon completion of the Closing,
the Company will not own any interest in or control, directly or indirectly, any
other corporations, partnerships or other entities, other than the Initial
Subsidiaries.
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(b) Each of the Initial Subsidiaries has been duly incorporated and is
validly existing under the laws of its jurisdiction of incorporation. Upon
completion of the Closing and the use of the proceeds therefrom as described in
the Offering Circular, each Initial Subsidiary will have the full right, power
and authority to carry on its business as proposed to be conducted as described
in the Offering Circular (including the documents incorporated therein by
reference).
SECTION 5.2 Authorization and Validity of Agreements. This Agreement has
been duly authorized, executed and delivered by the Company and constitutes a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) (together, the "Creditor and Enforceability
Exceptions").
SECTION 5.3 Capitalization. The sale of the Series C Preferred Stock and
the issuance of the shares have been duly authorized by the Company and, upon
payment for the Series C Preferred Stock in accordance with Article 2 hereof,
the shares issued at Closing will be validly issued, fully paid and
non-assessable (meaning that no further sums will be payable in respect of the
holding of the Shares). Except as described in the Offering Circular (including
the documents incorporated therein by reference), the Company does not, and on
the Closing Date will not, have any outstanding or authorized options, warrants,
calls, rights or any other agreements of any character obligating it to issue
any of its shares or any securities convertible into or exchangeable for, or
evidencing the right to purchase or obtain, any of its shares or any agreements
or understandings with respect to the voting, sale or transfer of any of its
shares or any securities convertible into or exchangeable for or evidencing the
right to purchase or obtain any of its shares.
SECTION 5.4 No Conflict with Other Instruments; No Approvals Required
Except as Have Been Obtained. The execution and delivery of this Agreement by
the Company and compliance by the Company with the terms and conditions hereof,
will not violate, with or without the giving of notice or the lapse of time, or
both, or require any registration, qualification, approval or filing under, any
provision of law, statute, ordinance or regulation applicable to the Company or
any affiliate thereof, and will not conflict with, or require any consent or
approval under, or result in the breach or termination of any provision of, or
constitute a default under, or result in the acceleration of the performance of
the obligations of the Company or any affiliate thereof under, or result in the
creation of any claim, lien, charge or encumbrance upon any of the properties,
assets or businesses of the Company or any affiliate thereof pursuant to the
Memorandum of Association or Amended and Restated Bye-laws of the Company or the
organizational documents of such affiliate, as the case may be, or any order,
judgment, decree, law, ordinance or regulation applicable to the Company or such
affiliate, as the case may be, or any contract, instrument, agreement or
restriction to which the Company or such affiliate, as the case may be, is a
party or by which the Company or such affiliate, as the case may be, or any of
its assets or properties is bound. Except where the Company is obliged to obtain
Bermuda governmental approvals that have been obtained, neither the Company or
any affiliate thereof nor any of the Company's or any of its affiliates'
respective assets or properties is subject to any charter, bye-law, contract or
other instrument or agreement, order, judgment, decree, law, statute, ordinance
or regulation or any other restriction of any kind or character that would
prevent the Company from entering into this Agreement or from consummating the
transactions contemplated hereby in accordance with the terms hereof.
SECTION 5.5 Regulatory Filings; Compliance with Law. Upon completion of
the Closing and the use of proceeds therefrom as described in the Offering
Circular, CGA will be authorized on the Closing Date under Bermuda law to
conduct the business of selling insurance and reinsurance as contemplated by the
documents incorporated by reference in the Offering Circular and no further
approvals of insurance regulatory or other authorities are required for the
conduct of such business. Upon completion of the Closing, CGAIM will be
authorized on the Closing Date or immediately thereafter under the applicable
United States federal and state laws to conduct its business as contemplated by
the documents incorporated by reference in the Offering Circular and no further
approvals of regulatory or other authorities are required for the conduct of
such business. Upon completion of the Closing and the use of proceeds therefrom
as described in the Offering
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Circular, the Company and the Initial Subsidiaries will be in compliance with
all applicable laws and regulations.
SECTION 5.6 Stamp Duties or Taxes. No Bermuda stamp, transfer or similar
duties or taxes are payable in respect of the issuance and delivery of the
Shares, and the sale and delivery of the Series C Preferred Stock, to the
Investors pursuant to this Agreement and if any such taxes arise in connection
with the execution of this Agreement, or the consummation of any of the
transactions contemplated hereby, then the Company will pay such taxes.
SECTION 5.7 Private Offering of the Shares. (a) The offer and sale of the
Series C Preferred Stock and the issuance and delivery of the shares are
intended to be exempt from the provisions of Section 5 of the United States
Securities Act of 1933, as amended (the "Securities Act"), and from the
registration provisions of the applicable state securities laws. Neither the
Company nor anyone acting on its behalf has taken, or omitted to take, any
action, with respect to the Series C Preferred Stock or any securities similar
to the Series C Preferred Stock, or otherwise, that would bring the sale of the
Series C Preferred Stock and the issuance of the shares within the provisions of
Section 5 of the Securities Act or that would violate any blue sky laws of a
state of the United States or securities law of any foreign jurisdiction
(including Bermuda).
(b) In the case of each offer or sale of the Series C Preferred Stock, no
form of general solicitation or general advertising was used by the Company or
any person authorized to act on behalf of the Company, including, without
limitation, any advertisement, article, notice or other communication published
in any newspaper, magazine or similar medium or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
(c) Neither the Company nor anyone acting on its behalf has taken, or
omitted to take, any action, with respect to any other shares of the Company
issued and sold by the Company that would bring the issuance and sale of such
shares within the provisions of Section 5 of the Securities Act or that would
violate any blue sky laws of a state of the United States or securities law of a
foreign jurisdiction (including Bermuda).
(d) Neither the Company nor any Initial Subsidiary has issued or sold, or
agreed to issue or sell, any Series C Preferred Stock of the Company to any
persons other than to the Investors pursuant hereto.
SECTION 5.8 The Offering Circular. The Offering Circular (including the
documents incorporated therein by reference) does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. There is no fact which the Company has not
disclosed herein or in the Offering Circular (including the documents
incorporated therein by reference) nor any amendment or supplement thereto as of
the date thereof and at all times subsequent thereto up to the Closing Date
that, so far as the Company can now foresee, is reasonably likely to have a
material adverse effect on the performance of obligations hereunder by the
Company and its Initial Subsidiaries, considered as a whole, or on the business,
operations, financial condition, assets, liabilities or prospects of the Company
and its Initial Subsidiaries taken as a whole.
SECTION 5.9 Not an "Investment Company". Each of the Company and the
Initial Subsidiaries is not, and when conducting business as contemplated by the
Offering Circular (including the documents incorporated therein by reference)
will not be, an "investment company" or an entity "controlled" by an
\"investment company" as such terms are defined in the United States Investment
Company Act of 1940, as amended.
SECTION 5.10 Company Obligations. Each of the Company and its Initial
Subsidiaries has incurred no material liens or encumbrances on present or future
assets or revenues and has no material proceedings pending against, or to the
Company's knowledge, threatened against or affecting it before any court,
governmental authority, arbitration board or tribunal, in each of the foregoing
cases, other than as disclosed in the Offering Circular (including the documents
incorporated therein by reference) or referred to herein or in an attachment
hereto.
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SECTION 5.11 Operating Company. At the time the Company issues any Series
C Preferred Stock, the Company shall be an "operating company" as defined in
United States Department of Labor Regulation section 2510.3-101(c) issued under
the United States Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Company shall at all times thereafter conduct its activities
so that it will continue to qualify as such an "operating company." As a result,
pursuant to United States Department of Labor Regulation section
2510.3-101(a)(2)(i), at no time shall the assets of the Company constitute the
assets of any Investor or shareholder of the Company for purposes of Title I of
ERISA or Section 4975 of the United States Internal Revenue Code of 1986 (the
"Code").
SECTION 5.12 No U.S. Trade or Business and Not a Controlled Foreign
Corporation. The Company shall use its best efforts not to take, and to cause
CGA not to take, any action which the Company has reason to believe could cause
it or CGA to be considered engaged in the conduct of a trade or business in the
United States (within the meaning of Code Section 864) or to become a controlled
foreign corporation (within the meaning of Code Section 957) ("CFC"); provided,
however, that this Section 5.12 shall not apply to any action which affects the
election of directors pursuant to Section 12 of the Amended and Restated
Bye-laws; provided, further, that it is hereby understood that the Company shall
not be considered to violate this Section 5.12 in the event that (x) the board
of directors of the Company (the "Board") shall, in its sole discretion, request
the advice of counsel with respect to a proposed action and counsel determines
that in its opinion it is more likely than not that such proposed action will
not cause the Company or CGA to be engaged in the conduct of a trade or business
in the United States or become a CFC and (y) such proposed action to be taken by
the Company receives the prior approval of at least 75% of the members of the
Board then in office. The foregoing imposes no obligation on the Company or the
Board to seek the advice of counsel prior to taking any action unless the
Company wishes to take advantage of this second proviso to Section 5.12. It is
hereby understood that this Section 5.12 does not alter any provision in the
Company's Amended and Restated Bye-laws and all actions taken in connection
herewith must comply with such Amended and Restated Bye-laws.
SECTION 5.13 Related Person Insurance Income. (a) The Company shall use
its best efforts to cause CGA not to sell insurance or reinsurance to a U.S.
person that is a shareholder of the Company ("U.S. Shareholder") or a related
person (within the meaning of Section 953(c)(6) of the Code) to a U.S.
Shareholder ("Related Person") and which would therefore generate related person
insurance income (within the meaning of Section 953(c)(2) of the Code) ("RPII")
if the Company knows that (i) 20% or more of CGA's gross insurance income in any
taxable year (interpreted in accordance with Section 953(c)(3)(B) of the Code)
will be RPII and (ii) persons which are directly or indirectly insured or
reinsured by CGA ("Insureds") or Related Persons to Insureds own stock of CGA
that represents 20% or more of the combined voting power of all classes of stock
of the Company that are entitled to vote or 20% or more of the total value of
the Company ("Excess RPII"); provided, however, that it is hereby understood
that the Company shall not be considered to violate this Section 5.13(a) by
virtue of such sale which the Company has reason to believe will generate Excess
RPII if the Company receives the prior approval of 100% of the members of the
Board then in office; provided, further, that it is hereby understood that this
Section 5.13(a) does not alter any provision in the Amended and Restated
Bye-laws and all actions taken in connection herewith must comply with such
Amended and Restated Bye-laws.
(b) In the event that the Board shall have given prior authorization (as
provided in subsection (a) of this Section 5.13) for CGA to sell insurance or
reinsurance which the Company has reason to believe will generate Excess RPII
for any tax year, then, unless a U.S. statute, a final regulation of the U.S.
Treasury or a published ruling of the U.S. Internal Revenue Service issued after
the Closing Date provides or establishes that subpart F insurance income (as
defined in Code Section 953) does not constitute unrelated business taxable
income (as defined in Code Section 512), the Company shall notify any U.S.
Shareholder that the Company knows is subject, pursuant to Code Section 511, to
tax only on its unrelated business taxable income not later than June 30 of the
tax year in which the Company proposes that CGA generate Excess RPII of such
authorization.
SECTION 5.14 Operating Guidelines. Attached hereto as Annex V is a true,
correct and complete copy of the operating guidelines of the Company and the
Initial Subsidiaries (the "Operating Guidelines"),
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which were adopted by all necessary corporate action of the Board at a duly
called and convened meeting of the Board. The resolutions pursuant to which the
Operating Guidelines were adopted provide that the Operating Guidelines may only
be amended or revoked pursuant to a resolution adopted by a two-thirds vote of
the Board at a duly called and convened meeting of the Board. To the extent the
Operating Guidelines are followed by the Company and the Initial Subsidiaries,
(i) neither the Company nor CGA will be considered to be engaged in the conduct
of a trade or business in the United States through a U.S. "permanent
establishment" as defined in Article 3 of the Convention between the Government
of the United States of America and the Government of the United Kingdom of
Great Britain and Northern Ireland (on behalf of the Government of Bermuda)
relating to the Taxation of Insurance Enterprises and Mutual Assistance in Tax
Matters and (ii) neither the Company nor any Initial Subsidiaries will be
considered to be transacting the business of insurance in any state of the
United States without appropriate licenses or approvals.
SECTION 5.15 Passive Foreign Investment Company. The Company shall use
its best efforts to operate its business and the business of CGA in such manner
that neither the Company nor CGA will be considered a passive foreign investment
company within the meaning of Section 1297(a) of the Code.
SECTION 5.16 Use of Proceeds of the Offering. The net proceeds from the
Rights Offering shall be used by the Company for general corporate purposes and,
at the Company's discretion, to make a capital investment in CGA, which will use
such funds, if any, for general corporate purposes.
SECTION 5.17 Shareholders. Schedule II to this Agreement represents the
Company's best information regarding the identity and ownership interests of the
shareholders of the Company upon completion of the Closing. The Investors
acknowledge and agree that a true and complete list of the shareholders of the
Company and their respective shareholdings shall not be known at the time each
Investor executes this Agreement but shall be calculable upon expiration of the
Rights and after application of the Maximum Percentage limitation and
oversubscription and additional allotment allocations described herein. The
Company agrees to provide at the Closing an Amended and Restated Schedule II
which sets its best information regarding the identity of the shareholders of
the Company and their respective shareholdings on the Closing Date.
SECTION 5.18 Bermuda Withholding Tax. The making of payments to any
holder of the shares will not be subject to any tax withholding requirement
under current Bermuda tax law.
SECTION 5.19 No Events of Non-Compliance. No event has occurred and no
condition exists which, upon the consummation of transactions under this
Agreement would constitute an Event of Non-Compliance (as defined in the Series
A Subscription Agreement) with or without notice or lapse of time or both.
SECTION 5.20 Registration Rights. Other than as provided in the Amended
and Restated Shareholders Agreement, the Company has not agreed to register any
of its Series C Preferred Stock under the Securities Act.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Investors, severally and not jointly, hereby represents and
warrants to the Company as of the date of this Agreement and as of the Closing
Date as follows:
SECTION 6.1 Due Organization, Good Standing and Authority of the
Investor. Such Investor is a corporation, partnership, limited liability
company, trust or other legal entity and is duly organized, validly existing and
in good standing under the laws of such Investor's jurisdiction of organization
and not resident in Bermuda for Bermuda foreign exchange control purposes.
SECTION 6.2 Authorization and Validity of Agreements. This Agreement has
been duly authorized, executed and delivered by such Investor and, assuming the
due authorization, execution and delivery by the other parties hereto,
constitutes a valid and binding obligation of such Investor enforceable against
such Investor in accordance with its terms, subject to the Creditor and
Enforceability Exceptions. The Amended
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and Restated Shareholders Agreement has been duly authorized, executed and
delivered by such Investor at the Closing, and assuming, in the case of the
Amended and Restated Shareholders Agreement, the due authorization, execution
and delivery thereof by the other parties thereto, will constitute a valid and
binding obligation of such Investor enforceable against such Investor in
accordance with its terms, subject to the Creditor and Enforceability
Exceptions.
SECTION 6.3 Investment Intent. (a) Such Investor is acquiring the Series
C Preferred Stock for its own account as principal or for one or more separate
accounts maintained by such Investor or for the account of one or more pension
or trust funds of which such Investor is trustee, in each case, for investment
purposes only, and not with a view to, or for, the resale or other distribution
thereof, in whole or in part; provided that, subject to the terms hereof, the
disposition of such Investor's or their property shall at all times be within
such Investor's or their control.
(b) If the Series C Preferred Stock is acquired for the account of one or
more pension or trust funds, such Investor is acting as sole trustee (other than
with respect to the Investors listed on Schedule III) and has sole investment
discretion with respect to such Investor's acquisition of the Series C Preferred
Stock, and the determination and decision on such Investor's behalf to acquire
the Series C Preferred Stock for such pension or trust funds is being made by
the same individual or group of individuals who customarily pass on such
investments so that such Investor's decision as to acquisitions for all such
funds is the result of one study and conclusion. Such Investor (i) is an
insurance company and is using the assets of its general account or (ii) has
advised the Company in writing of such Investor's form of organization and,
except with respect to a commingled trust account, the accounts for which such
Investor is purchasing, and all such information provided to the Company is true
and correct as of the date hereof.
SECTION 6.4 No Conflict with Other Instruments; No Approvals Required
Except as Have Been Obtained. The execution and delivery of this Agreement and
Amended and Restated Shareholders Agreement by such Investor and the compliance
by such Investor with the terms and conditions hereof and thereof will not
violate, with or without the giving of notice or the lapse of time, or both, or
require any registration, qualification, approval or filing under, any provision
of law, statute, ordinance or regulation applicable to such Investor, and will
not conflict with, or require any consent or approval under, or result in the
breach or termination of any provision of, or constitute a default under, or
result in the acceleration of the performance of the obligations of such
Investor under, or result in the creation of any claim, lien, charge or
encumbrance upon any of the properties, assets or businesses of such Investor
pursuant to the articles of incorporation or bye-laws of such Investor (if such
Investor is a corporation) or equivalent organizational documents (if such
Investor is not a corporation) or any order, judgment, decree, law, statute,
ordinance or regulation applicable to such Investor or any contract, instrument,
agreement or restriction to which such Investor is a party or by which such
Investor or any of its assets or properties is bound other than any such (i)
violation, (ii) failure to register, qualify, obtain approval or file, (iii)
conflict, (iv) breach, termination or default, (v) acceleration, or (vi)
creation of claim, lien, charge or encumbrance that would not, individually or
in the aggregate, have a material adverse effect on such Investor's ability to
consummate the transactions contemplated hereby. Neither such Investor nor any
of its assets or properties is subject to any charter, bye-law, contract or
other instrument or agreement, order, judgment, decree, law, statute, ordinance
or regulation or any other restriction of any kind or char acter that would
prevent such Investor from entering into this Agreement or the Amended and
Restated Shareholders Agreement or from consummating the transactions
contemplated hereby or thereby in accordance with the terms hereof or thereof
other than that which would not, individually or in the aggregate have a
material adverse effect on such Investor's ability to consummate the
transactions contemplated in accordance with the terms hereof or thereof.
Notwithstanding anything in this Agreement to the contrary, no representation or
warranty is made by any Investor regarding compliance with ERISA or Section 4975
of the Code, or the effect under ERISA or Section 4975 of the Code of the
execution and delivery of this Agreement and the Amended and Restated
Shareholders Agreement by such Investor and the compliance by such Investor with
the terms and conditions hereof or thereof.
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SECTION 6.5 Investor Awareness and Suitability. Such Investor
acknowledges, agrees and is aware that:
(i) An investment in the Series C Preferred Stock involves a high
degree of risk, including, without limitation, the risks identified under
the caption "Risk Factors" in the Offering Circular, and such Investor may
lose the entire amount of its investment and such Investor has the
knowledge and experience in financial affairs that it is capable of
evaluating the merits and risks of purchasing the Series C Preferred Stock;
(ii) The Company has only recently been organized and has limited
financial and operating history;
(iii) The Offering Circular contains a summary of certain United
States and Bermuda tax consequences under current laws relating to (i) the
United States federal income taxation of the Company and CGA and of U.S.
Persons (as defined below) and non-U.S. Persons that own Series C Preferred
Stock of the Company and (ii) the Bermuda taxation of persons or entities
not resident in Bermuda for exchange control purposes that own Series C
Preferred Stock of the Company. Positions of, and developments in rulings
of, the United States Internal Revenue Service, court decisions or
legislative or administrative actions may have an adverse effect on one or
more of the tax benefits sought by the Company. Moreover, the Company
retains the right to alter the conduct of its affairs in such a manner as
to subject its business to United States federal and/or state taxation,
subject to the limitations set forth in Section 5.12 and the Operating
Guidelines. The Offering Circular does not address the Bermuda taxation of
Investors that are resident in Bermuda for exchange control purposes or the
taxation of Investors by any jurisdiction other than the United States or
Bermuda, which tax consequences may be significantly different from the tax
consequences discussed in the Offering Circular. (For purposes of this
Section 6.5, "U.S. Person" means (1) an individual who is a citizen or
resident of the United States, (2) a company, corporation or partnership
created or organized under the laws of the United States or any state
thereof, (3) an estate the income of which, from non-United States sources
and not effectively connected with the conduct of a trade or business in
the United States, is includable in gross income for United States federal
income tax purposes, and (4) a trust in respect of which (i) a court within
the United States may exercise primary supervision over its administration,
and (ii) one or more United States fiduciaries have the authority to
control all substantial decisions);
(iv) No Bermuda or United States federal or state regulatory authority
or any foreign agency has passed upon the accuracy, adequacy, validity or
completeness of the Offering Circular, this Agreement or the Amended and
Restated Shareholders Agreement or made any finding or determination as to
the fairness of an investment in the Series C Preferred Stock;
(v) The Series C Preferred Stock is illiquid, and such Investor must
bear the financial risk of investment in the Series C Preferred Stock for
an indefinite period of time and such Investor represents and warrants that
such Investor has the financial ability to bear the financial risk of its
investment, and, except for Starwood CGA, LLC, CGA Firemark Venture Fund I,
LLC and Lennar CGA Holdings, Inc., such Investor's investment does not
exceed ten percent (10%) of such Investor's net worth;
(vi) The Amended and Restated Bye-laws, the Amended and Restated
Shareholders Agreement and this Agreement contain substantial restrictions
on the transferability of the Series C Preferred Stock;
(vii) There is no existing public or other market for the Series C
Preferred Stock, and it is not expected that any such market will develop.
There can be no assurance that such Investor will be able to sell or
dispose of such Investor's Series C Preferred Stock. Without limiting the
generality of the foregoing, in order not to jeopardize the exempt status
under the Securities Act or under the securities laws of any other
jurisdiction of the offering contemplated hereby, the transferee of such
Series C Preferred Stock may, among other things, be required to fulfill
the investor suitability requirements thereunder;
(viii) The Series C Preferred Stock has not been registered under the
Securities Act or under the securities laws of any other jurisdiction,
including the states of the United States and, except as provided in the
Amended and Restated Shareholders Agreement, the Company is under no
obligation to, and
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currently does not intend to, register or qualify the Series C Preferred
Stock for resale by such Investor or assist such Investor in complying with
any exemption under the Securities Act or the securities laws of any such
jurisdiction or any other jurisdiction. An offer or sale of Series C
Preferred Stock by such Investor in the absence of registration under such
securities laws will require the availability of an exemption thereunder. A
restrictive legend in substantially the form set forth in Section 7.1
hereof shall be placed on the certificates representing the Series C
Preferred Stock and a notation shall be made in the appropriate records of
the Company indicating that the Series C Preferred Stock is subject to
restrictions on transfer;
(ix) Such Investor shall hold the Series C Preferred Stock subject to
this Agreement, the Amended and Restated Bye-laws of the Company and the
Amended and Restated Shareholders Agreement from time to time in effect and
shall have voting rights with respect to the Series C Preferred Stock as
specified in the Amended and Restated Bye-laws of the Company from time to
time in effect and subject to applicable law; and
(x) It is intended that no person or entity may acquire or own,
directly, indirectly or by attribution (within the meaning of Section 958
of the Code) 10% or more of the total combined voting power of the Common
Stock, the Series A Preferred Stock and the Series C Preferred Stock as
such voting power is described in the Amended and Restated Bye-laws.
SECTION 6.6 Accredited Investor Status. Such Investor hereby represents
and warrants to the Company that it qualifies as an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act because such
Investor is:
(a) A bank as defined in Section 3(a)(2) of the Securities Act or a
savings and loan association or other institution as defined in Section
(3)(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant to Section 15 of
the United States Securities Exchange Act of 1934; an insurance company as
defined in Section 2(13) of the Securities Act; an investment company
registered under the United States Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of that Act; a
Small Business Investment Company licensed by the United States Small
Business Administration under Section 301(c) or (d) of the United States
Small Business Investment Act of 1958; a plan established and maintained by
a state of the United States, its political subdivisions, or an agency or
instrumentality of such state or its political subdivisions for the benefit
of its employees, if such plan has total assets in excess of U.S.
$5,000,000; an employee benefit plan within the meaning of the ERISA, if
the investment decision is made by a plan fiduciary, as defined in Section
3(21) of ERISA, which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the employee
benefit plan has total assets in excess of U.S. $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that
are accredited investors; or
(b) A private business development company as defined in Section
202(a)(22) of the United States Investment Advisers Act of 1940; or an
organization described in Section 501(c)(3) of the Code, corporation,
Massachusetts or similar business trust, or partnership, not formed for the
specific purpose of acquiring the Series C Preferred Stock, with total
assets in excess of U.S. $5,000,000; or
(c) A director, executive officer or general partner of the Company;
or
(d) A natural person (i) who has had an individual income in excess of
U.S. $200,000 in each of the two most recent years or joint income with his
or her spouse in excess of U.S. $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year or (ii) whose individual net worth, or joint net worth with his or her
spouse, exceeds U.S. $1,000,000 at the time of the Closing. For Purposes of
this Section 6.6(d)(ii), "net worth" means the excess of total assets at
fair market value, including home, home furnishings and automobiles, over
total liabilities; or
(e) A trust, with total assets in excess of U.S. $5,000,000, not
formed for the specific purpose of acquiring the Series C Preferred Stock,
whose purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) under the Securities Act; or
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(f) An entity in which all of the equity owners are accredited
investors.
SECTION 6.7 Receipt of Information, Access to Information. Such Investor:
(a) has been furnished with the Offering Circular, the documents
incorporated by reference therein, the Amended and Restated Bye-laws of the
Company, the Amended and Restated Shareholders Agreement and any documents
that may have been made available upon such Investor's request (such
documents, other than the Offering Circular, being collectively referred to
as the "Other Documents"), and such Investor has carefully read the
Offering Circular, the documents incorporated therein by reference and the
Other Documents and understands and has evaluated the risks of a purchase
of the Series C Preferred Stock, including the considerations set forth
under the caption "Investment Considerations" in the Offering Circular;
(b) has been given the opportunity to ask questions of, and receive
answers from the Company concerning the terms and conditions of the
offering contemplated hereby and other matters pertaining to an investment
in the Series C Preferred Stock, has been given the opportunity to obtain
such additional information necessary to evaluate the merits and risks of a
purchase of the Series C Preferred Stock to the extent the Company
possesses such information, and has received all documents and information
that it has requested relating to an investment in the Series C Preferred
Stock;
(c) has not relied upon any representations or other information
(whether oral or written) from the Company or its directors, officers or
affiliates, or from any other persons, other than the representations
contained in this Agreement and the information contained or incorporated
by reference in the Offering Circular and the Other Documents; and
(d) has carefully considered and has, to the extent such Investor
believes such discussion necessary, discussed with such Investor's
professional legal, financial and tax advisers, the suitability of an
investment in the Series C Preferred Stock for such Investor's particular
financial and tax situation and has determined that such Investor's Series
C Preferred Stock is a suitable investment for such Investor.
SECTION 6.8 Series C Preferred Stock Ownership Limitations. To such
Investor's knowledge, such Investor's purchase on the Closing Date of Series C
Preferred Stock pursuant to this Agreement will not cause any person or entity
to own on the Closing Date directly, indirectly or by attribution (within the
meaning of Section 958 of the Code) 10% or more of the total combined voting
power of the Common Stock, the Series A Preferred Stock and the Series C
Preferred Stock as such voting power is described in the Bye-Laws or to be
treated by virtue of its ownership of stock in the Company as indirectly or
constructively owning on the Closing Date 10% or more of the voting power of all
classes of capital stock of CGA entitled to vote. Such Investor may rely on the
list of anticipated shareholders of the Company and their respective anticipated
shareholdings set forth in Schedule II hereto for purposes of making this
representation and warranty.
At such time as the Company supplies the Investors with names of the Series
C Preferred Stock investors, prior to the Closing, the Investors will indicate
whether the inclusion of any of the names will cause any person or entity to own
on the Closing Date directly, indirectly or by attribution (within the meaning
of Section 958 of the Code), 10% or more of the total combined voting power of
the Common Stock, the Series A Preferred Stock and the Series C Preferred Stock
as such voting power is described in the Bye-Laws or to be treated by virtue of
its ownership of stock in the Company as indirectly or constructively owning on
the Closing Date 10% or more of the voting power of all classes of capital stock
of CGA entitled to vote.
ARTICLE 7
RESTRICTIONS ON TRANSFER
Shares of Series C Preferred Stock and any shares of Common Stock issuable
upon conversion of the Series C Preferred Stock shall not be transferable except
upon the conditions specified in this Article 7, which are intended to ensure
compliance with the provisions of the Securities Act, applicable securities laws
of other jurisdictions and Bermuda law in respect of the transfer of any shares
of Series C Preferred Stock and any shares of Common Stock issuable upon
conversion of the Series C Preferred Stock and are in addition to the
13
<PAGE> 18
conditions relating to the transfer of the shares of Series C Preferred Stock
and shares of Common Stock issuable upon conversion of the Series C Preferred
Stock set forth in the Amended and Restated Shareholders Agreement and the
Amended and Restated Bye-laws.
SECTION 7.1 Restrictive Legends. In addition to any other legend required
by the Company's Amended and Restated Bye-laws or applicable law, each
certificate representing the Series C Preferred Stock and any shares of Common
Stock issuable upon conversion of the Series C Preferred Stock shall (unless
otherwise permitted by the provisions of this Article 7) be stamped or otherwise
imprinted with a legend in substantially the following form:
"Any sale, assignment, transfer, pledge or other disposition of the
shares represented by this certificate is restricted by, and the rights
of the holder of such securities are subject to, the terms and conditions
contained in the Amended and Restated Bye-laws of CGA Group, Ltd. (the
"Company"), the Series C Cumulative Convertible Preferred Stock
Subscription Agreement and the Amended and Restated Shareholders
Agreement which are available for examination by holders of these shares
at the registered office of the Company. In addition to the foregoing
restrictions, these securities have not been registered under the United
States Securities Act of 1933, as amended (the "Securities Act") or under
the securities laws of any jurisdiction and may not be transferred, sold
or otherwise disposed of unless a registration statement is in effect
under the Securities Act and any applicable securities laws with respect
to such shares or a written opinion of counsel acceptable to the Company
is provided to the Company to the effect that no registrations are
required under such securities laws. The prior approval of the Bermuda
Monetary Authority is not required for any sale, assignment, transfer,
pledge or other disposition of the securities represented by this
certificate provided that any such sale, assignment, transfer, pledge or
other disposition is between persons who are designated as non-residents
of Bermuda for the purposes of the Exchange Control Act, 1972."
SECTION 7.2 Notice of Proposed Transfers. (a) The holder of any
securities bearing the entire restrictive legend set forth in Section 7.1 above
("Restricted Securities"), by acceptance thereof, agrees that, unless a
registration statement is in effect under the Securities Act and under
applicable securities laws with respect to such Restricted Securities, prior to
any transfer or attempted transfer of such Restricted Securities, such holder
will give the Company (i) unless the transferee is an Affiliate of the
transferor (as defined in the Amended and Restated Shareholders Agreement),
written notice describing the proposed transfer of any Restricted Securities in
reasonable detail only to the extent necessary to evaluate whether such transfer
is in compliance with the applicable securities laws, the Amended and Restated
Shareholders Agreement and the Amended and Restated Bye-laws sections 61 through
63, (ii) unless the transferee is an Affiliate of the transferor (as defined in
the Amended and Restated Shareholders Agreement), such other information about
the proposed transfer of such Restricted Securities or the proposed transferee
of such Restricted Securities as the Company may reasonably request only to the
extent necessary to evaluate whether such transfer is in compliance with the
applicable securities laws, the Amended and Restated Shareholders Agreement and
61 through 63 of the Amended and Restated Bye-laws, and (iii) an opinion of
counsel (both counsel and opinion reasonably satisfactory to the Company (it
being understood that in-house counsel for such holder shall be considered
satisfactory to the Company)) to the effect that the proposed transfer of such
Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act and under other applicable securities laws.
The Company hereby acknowledges that no prior approval of the Bermuda Monetary
Authority is necessary for any transfer of restricted shares between persons who
are designated as non-residents of Bermuda for the purposes of the Exchange
Control Act, 1972.
(b) If the holder of the Restricted Securities delivers to the Company an
opinion of counsel that subsequent transfers of such Restricted Securities will
not require registration or qualification under the Securities Act or under
other applicable securities laws, the Company will, or will cause the transfer
agent, if any, for such Restricted Securities promptly after such contemplated
transfer to deliver new certificates for such Restricted Securities that do not
bear that section of the restrictive legend set forth in Section 7.1 above
imposed by the Securities Act and under other applicable securities laws of any
other jurisdictions. If the foregoing conditions entitling the holder to effect
a proposed transfer of such Restricted Securities without registration under the
Securities Act and under other applicable securities laws and the conditions
relating to
14
<PAGE> 19
the transfer of securities in the Amended and Restated Shareholders Agreement
have not been satisfied, the holder shall not transfer the Restricted
Securities, and the Company will cause the transfer agent not to transfer such
Restricted Securities on its books or issue any certificates representing such
Restricted Securities. Any purported transfer of Restricted Securities not in
accordance with applicable securities laws shall be void.
(c) No Investor shall transfer any shares of Series C Preferred Stock or
any shares of Common Stock issuable upon conversion of the Series C Preferred
Stock held by such Investor unless the transferee of such shares has agreed to
be bound by the terms of the Amended and Restated Shareholders Agreement and has
duly executed a counterpart signature page to the Amended and Restated
Shareholders Agreement. Any transfer or purported transfer made in violation of
this Section 7.2(c) hereof shall be null and void and of no effect and the
Company shall cause any correction required to be made to the register of the
Members of the Company to be effected.
(d) As used in this Agreement, the term "transfer" encompasses any sale,
transfer, pledge or other disposition of any securities referred to herein.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants of the parties contained in this
Agreement and in any document delivered or to be delivered pursuant to this
Agreement and in connection with the Closing hereunder shall survive the
Closing. The parties have made no representations or warranties other than those
that are expressly set forth in this Agreement and the Amended and Restated
Shareholders Agreement.
SECTION 8.2 Entire Agreement. This Agreement (including the Schedules,
Exhibits and Annexes hereto), constitutes the entire agreement among the parties
hereto and supersedes all prior agreements and understandings, oral and written,
among the parties hereto with respect to the subject matter hereof.
SECTION 8.3 Severability. Any provision of this Agreement that is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or lack of authorization without invalidating the remaining
provisions hereof or affecting the validity, unenforceability or legality of
such provision in any other jurisdiction.
SECTION 8.4 Binding Effect; Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their respective
successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto, and their respective successors, legal representatives and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
SECTION 8.5 Assignability. Except in connection with the transfer of
shares of the Series C Preferred Stock, as contemplated by the Company's Amended
and Restated Bye-laws, this Agreement and the Amended and Restated Shareholders
Agreement, this Agreement and the rights hereunder shall not be assignable by
any Investor without the prior written consent of the Company. The Company may
not assign its obligations hereunder without the prior consent of the Investors.
Any transfer in violation of this Section 8.5 shall be null and void.
SECTION 8.6 Amendment; Waiver. Except as provided in the last paragraph
of Article 3, no provision of this Agreement may be amended, waived or otherwise
modified except by an instrument in writing executed by the parties hereto;
provided, however, that the provisions of Sections 5.11, 5.12, 5.13, 5.14 and
5.15 may be amended, waived or otherwise modified by an instrument in writing
executed by the Company and the parties hereto that at the time just prior to
the amendment or modification own at least ninety percent (90%) of the Series C
Preferred Stock.
15
<PAGE> 20
SECTION 8.7 Headings. The Article and Section headings contained in this
Agreement are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
SECTION 8.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
SECTION 8.9 Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of New York without giving effect to the
principles of conflicts of laws thereof.
SECTION 8.10 Notices and Payment. (a) All notices, requests, demands and
other communications hereunder shall be in writing and, except to the extent
otherwise provided in this Agreement, shall be deemed to have been duly given if
delivered by same day or next day courier or mailed, registered mail, return
receipt requested, or transmitted by telegram, electronic transmission, telex or
facsimile (i) if to an Investor, at such Investor's address appearing on
Schedule I hereto or at any other address such Investor may have provided in
writing to the Company and (ii) if to the Company, at Craig Appin House, 8
Wesley Street, Hamilton HM 11 Bermuda, Attention: the Company Secretary, or such
other address as the Company may have furnished to the Investors in writing. A
notice hereunder shall be deemed to have been given on the day such notice is
sent or transmitted; provided, however, that if such notice is sent by next-day
courier it shall be deemed to have been given the day following sending and, if
by registered mail, five days following sending.
(b) Unless otherwise provided in this Agreement, payments hereunder shall
be made by wire transfer of immediately available funds.
SECTION 8.11 Full Payment. (a) All payments in respect of the Series C
Preferred Stock (including, without limitation, redemption and liquidation
payments, and payments under Section 8.11(b)), shall be made in immediately
available U.S. dollar funds, provided, however, that the Company may make
payments or redemptions in shares of Common Stock as set forth in the Bye-laws
attached as Annex II hereto. Each reference in this Agreement to U.S. dollars
(the "relevant currency") is of the essence. To the fullest extent permitted by
law, the obligations of the Company and each Investor in respect of any amount
due under this Agreement will, notwithstanding any payment in any other currency
(whether pursuant to a judgment or otherwise), be discharged only to the extent
of the amount in the relevant currency that the party entitled to receive such
payment may, in accordance with its normal procedures, purchase with the sum
paid in such other currency (after any premium and costs of exchange) on the
business day immediately following the day on which such party receives such
payment. If the amount in the relevant currency that may be so purchased for any
reason falls short of the amount originally due, the Company or such Investor,
as the case may be, will pay such additional amounts, in the relevant currency,
as may be necessary to compensate for the shortfall. Any obligation of the
Company or such Investor, as the case may be, not discharged by such payment
will, to the fullest extent permitted by applicable law, be due as a separate
and independent obligation and, until discharged as provided herein, will
continue in full force and effect.
(b) The Company will make all redemption and liquidation payments to the
holders of Series C Preferred Stock in respect of this Agreement and the Amended
and Restated Bye-laws free and clear of and without deductions or withholding
for or on account of any present or future taxes, duties, assessments, fees or
other governmental charges imposed or levied by or on behalf of Bermuda or any
other jurisdiction from or through which such payment is made to the holders of
Series C Preferred Stock (all such taxes, duties, assessments, fees or other
governmental charges being referred to herein as "Taxes"), unless such
withholding or deduction is required by law. In that event, the Company will pay
to the holders of Series C Preferred Stock such additional amounts as may be
necessary in order that every liquidation and redemption payment made by the
Company after deduction or withholding for or on account of any such present or
future Taxes will not be less than the amount then due and payable in respect of
this Agreement and the Amended and Restated Bye-laws.
SECTION 8.12 Indemnification. (a) The Company shall defend, hold harmless
and indemnify each Investor and its Affiliates from and against all damages,
losses, costs and expenses (including reasonable legal expenses) to which any of
such persons becomes subject as a result of any inaccuracy in any representation
or
16
<PAGE> 21
warranty of the Company contained in this Agreement or any document delivered in
connection herewith (including the certificate referred to in Section 3.3) or
the breach of any covenant or agreement of the Company contained in this
Agreement, the Company's Amended and Restated Bye-laws, or the Amended and
Restated Shareholders Agreement.
(b) In the event a party entitled to indemnification under this Agreement
(an "Indemnified Party") becomes aware of a claim, liability, expense or other
event with respect to which such party is entitled to indemnification (an
"Indemnification Event"), such Indemnified Party shall promptly give notice of
such Indemnification Event to the Company. The failure by any Indemnified Party
to give such notice to the Company within a reasonable period of time shall
relieve the Company of its obligations under this Section 8.12, if and to the
extent that it did not otherwise learn of such Indemnification Event and such
failure results in the forfeiture by the Company of substantial rights and
defenses.
(c) The Company shall have the right to defend, contest, settle or
otherwise resolve any Indemnification Event involving a third-party claim (a
"Third-Party Indemnification Event") as long as the Indemnification Event may
not possibly give rise to a non-monetary liability, including, without
limitation, injunctions and criminal liability; provided, however, that the
Company shall not settle or compromise any Third-Party Indemnification Event
without the Indemnified Party's prior written consent thereto, unless the terms
of such settlement or compromise provide for an unconditional release of the
Indemnified Parties. Notwithstanding the foregoing, any Indemnified Party shall
have the right to employ separate counsel (including local counsel), and the
Company shall bear the reasonable costs, fees and expenses of such separate
counsel if (i) the use of counsel chosen by the Company to represent such
Indemnified Party would present such counsel with any actual or potential
conflict of interest, (ii) the actual or potential defendants in, or targets of,
any Third-Party Indemnification Event include both such Indemnified Party and
the Company or any Affiliate thereof and such Indemnified Party shall have
reasonably concluded that there may be legal defenses available to it which are
different from or additional to those available to the Company or any Affiliate
thereof which is an actual or potential defendant in, or target of, such
Third-Party Indemnification Event, (iii) the Indemnification Event may give rise
to a non-monetary liability including, without limitation, injunctions and
criminal liability, or (iv) the Company has authorized such Indemnified Party to
employ separate counsel. The Indemnified Parties and the Company shall cooperate
fully in defending any Third-Party Indemnification Event, and the Company shall
have reasonable access to the books and records and personnel of the Indemnified
Parties that are relevant hereto.
(d) The indemnification provisions of this Article 8 shall be in addition
to any rights each Indemnified Party may otherwise have.
SECTION 8.13 Submission to Jurisdiction. The Company irrevocably submits
to the non-exclusive jurisdiction of any New York State or federal court sitting
in The City of New York and any court sitting in Bermuda, and any appellate
court from any thereof, in any suit, action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby (a "Related
Proceeding"), and the Company hereby irrevocably agrees that all claims in
respect of any Related Proceeding may be heard and determined in such New York
State or federal court or any court sitting in Bermuda. The Company hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of any Related Proceeding and any
objection to any Related Proceeding on the grounds of venue, residence or
domicile. A final judgment in any such suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
any other manner provided by law.
The Company hereby irrevocably appoints the CT Corporation System (the
"Process Agent"), with an office on the date hereof at 1633 Broadway, New York,
New York, United States of America, as its agent to receive on behalf of the
Company and its property service of copies of the summons and complaint and any
other process that may be served in any Related Proceeding in such New York
State or federal court sitting in The City of New York. Service may be made by
U.S. registered mail or other comparable means or by delivering by hand a copy
of such process to the Company in care of the Process Agent at the address
specified above for the Process Agent (such service to be effective upon the
mailing or delivery by hand of such process to the office of the Process Agent),
and the Company hereby irrevocably authorizes and directs the Process
17
<PAGE> 22
Agent to accept on its behalf such service. Failure of the Process Agent to give
notice to the Company, or failure of the Company to receive notice of such
service of process, shall not affect in any way the validity of such service on
the Process Agent or the Company. As an alternative method of service, the
Company also irrevocably consents to the service of any and all process in any
Related Proceeding in a New York State or federal court sitting in The City of
New York by sending by U.S. registered mail or other comparable means copies of
such process to the Company at its address under Section 8.10 (such service to
be effective seven days after mailing thereof). The Company covenants and agrees
that it shall take any and all reasonable action, including the execution and
filing of any and all documents, that may be necessary to continue the
designation of the Process Agent in full force and effect, and to cause the
Process Agent to continue to act as such. Nothing herein shall affect the right
of any party to serve legal process in any other manner permitted by law or
affect the right of any party to bring any suit, action or proceeding against
any other party or its property in the courts of other jurisdictions.
To the extent that the Company has or hereafter may acquire any immunity
from any legal action, suit or proceeding, from jurisdiction of any court or
from setoff or any legal process (whether through service or notice, attachment
in aid of execution or otherwise) with respect to itself or any of its property,
the Company hereby irrevocably waives and agrees not to plead or claim such
immunity in respect of its obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CGA GROUP, LTD.
By: /s/ RICHARD A. PRICE
------------------------------------
Name: Richard A. Price
Title: Chief Executive Officer
Counterpart Signature Pages Begin on Next Page
18
<PAGE> 23
COUNTERPART SIGNATURE PAGE FOR INVESTOR
The undersigned hereby agrees to become a party to that certain Series C
Cumulative Convertible Preferred Stock Subscription Agreement dated as of
, 1999 (the "Agreement") among CGA Group, Ltd. (the "Company")
and others. From and after the undersigned's execution and delivery and the
Company's acceptance of this Counterpart Signature Page, the undersigned shall
be a party to this Agreement.
--------------------------------------
Printed Name of Investor
By:
------------------------------------
Title:
-----------------------------------
Address:
---------------------------------
--------------------------------------
--------------------------------------
Date: , 1999
The Investor whose signature appears above hereby subscribes for:
Shares of Series C Preferred Stock pursuant to the BASIC
SUBSCRIPTION PRIVILEGE; and (Number of shares to be completed by Investor)*
Shares of Series C Preferred Stock pursuant to the FRONT END
ADDITIONAL ALLOTMENT PRIVILEGE. (Number of shares to be completed by Investor)*
Shares of Series C Preferred Stock pursuant to the BACK END
OVERSUBSCRIPTION PRIVILEGE. (Number of shares to be completed by Investor)*
Shares of Series C Preferred Stock pursuant to the ADDITIONAL
BACK END PRIVILEGE. (Number of shares to be completed by Investor)*
- ---------------
* An Investor may write or type the word "Maximum" in any of the blanks above to
indicate that it wishes to subscribe for the maximum amount of such shares
offered to such Investor pursuant to this Agreement.
19
<PAGE> 24
SCHEDULE I -- INVESTORS
Pacific Life Insurance Company
PM Group Life Insurance Company
Morgan Guaranty Trust Company of New York as Trustee of the Multi-Market Special
Investment Trust Fund of Morgan Guaranty Trust Company of New York
Morgan Guaranty Trust Company of New York as Trustee of the Commingled Pension
Trust Fund (Multi-Market Special Investment Fund II) of Morgan Guaranty Trust
Company of New York
Third Avenue Trust on behalf of the Third Avenue Value Fund Series
Olympus Growth Fund II, L.P.
Olympus Executive Fund, L.P.
ACE Limited
Lennar CGA Holdings, Inc.
CGA Firemark Venture Fund I, LLC
Prudential Securities Group Incorporated
Shidler/CGA Corp.
Shidler Equities Corp.
Shidler Equities, L.P.
Doreen Denton
Paul Lambert
Robert Holman
Samuel Tang
Mark S. Whiting
Anthony R. Montemurno
Michael Brennan
James R. Reinhart
Gary Heigl
William Walton
Geoffrey N. Kauffman
Michael J. Wirth
20
<PAGE> 1
EXHIBIT 4.2
AMENDED AND RESTATED
BYE-LAWS
OF
CGA GROUP, LTD.
MARCH 31, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
BYE-LAWS PAGE
- -------- ----
<C> <S> <C>
1. Interpretation.............................................. 1
2. Board of Directors.......................................... 4
3. Management of the Company................................... 5
4. Power to appoint Chief Executive Officer.................... 5
5. Power to appoint manager.................................... 5
6. Power to authorise specific actions......................... 5
7. Power to appoint attorney................................... 5
8. Power to delegate to a committee............................ 5
9. Power to appoint and dismiss employees...................... 6
10. Power to borrow and charge property......................... 6
11. Exercise of power to redeem or purchase shares of or
discontinue the Company..................................... 6
12. Election of Directors....................................... 6
13. Defects in appointment of Directors......................... 7
14. Alternate Directors......................................... 8
15. Removal of Directors........................................ 8
16. Vacancies on the Board...................................... 9
17. Notice of meetings of the Board............................. 9
18. Quorum at meetings of the Board............................. 9
19. Meetings of the Board....................................... 9
20. Unanimous written resolutions............................... 10
21. Contracts and disclosure of Directors' interests............ 10
22. Remuneration of Directors................................... 10
23. Officers of the Company..................................... 10
24. Appointment and Removal of Officers......................... 10
25. Remuneration of Officers.................................... 11
26. Duties of Officers; Exercise of Executive Authority......... 11
27. Chairman of meetings........................................ 11
28. Register of Directors and Officers.......................... 11
29. Obligations of Board to keep minutes........................ 11
30. Indemnification of Directors and Officers of the Company.... 11
31. Waiver of claim by Member................................... 12
32. Notice of annual general meeting............................ 12
33. Notice of special general meeting........................... 12
34. Accidental omission of notice of general meeting............ 12
35. Meeting called on requisition of Members.................... 12
36. Short notice................................................ 13
37. Postponement of meetings.................................... 13
38. Quorum for general meeting.................................. 13
39. Adjournment of meetings..................................... 13
40. Attendance at meetings...................................... 13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
BYE-LAWS PAGE
- -------- ----
<C> <S> <C>
41. Written resolutions......................................... 13
42. Attendance of Directors..................................... 14
43. Voting at meetings.......................................... 14
44. [Intentionally omitted]..................................... 14
45. Decision of chairman........................................ 14
46. Voting by poll.............................................. 15
47. Seniority of joint holders voting........................... 15
48. Instrument of proxy......................................... 15
49. Representation of corporations or other non-natural Person
at meetings................................................. 15
50. Rights of shares; Votes of Members; Special Votes of Members
Relating to Insurance Subsidiary.......................... 15
51. Power to issue shares....................................... 16
52. Variation of rights, alteration of share capital and
purchase of shares of the Company........................... 17
53. Registered holder of shares................................. 18
54. Death of a joint holder..................................... 18
55. Share certificates.......................................... 18
56. Calls on shares............................................. 18
57. Forfeiture of shares........................................ 18
58. Contents of Register of Members............................. 19
59. Inspection of Register of Members........................... 19
60. Determination of record dates............................... 19
61. Instrument of transfer...................................... 19
62. Restriction on transfer..................................... 19
64. Representative of deceased Member........................... 20
65. Registration on death or bankruptcy......................... 20
66. Declaration of dividends by the Board....................... 21
67. Other distributions......................................... 21
68. Reserve fund................................................ 21
69. Deduction of Amounts due to the Company..................... 21
70. Issue of bonus shares....................................... 21
71. Records of account.......................................... 21
72. Financial year end.......................................... 22
73. Financial statements........................................ 22
74. Appointment of Auditor...................................... 22
75. Remuneration of Auditor..................................... 22
76. Vacation of office of Auditor............................... 22
77. Access to books of the Company.............................. 22
78. Report of the Auditor....................................... 22
79. Notices to Members of the Company........................... 23
80. Notices to joint Members.................................... 23
81. Service and delivery of notice.............................. 23
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
BYE-LAWS PAGE
- -------- ----
<C> <S> <C>
82. The seal.................................................... 23
83. Manner in which seal is to be affixed....................... 23
84. Winding-up/distribution by liquidator....................... 23
85. Alteration of Bye-laws...................................... 24
</TABLE>
APPENDICES:
<TABLE>
<S> <C> <C>
Appendix A -- Designations, Number, Voting Powers, Preferences and Rights
of Series A Cumulative Voting Preference Shares
Appendix B -- Designations, Number, Voting Powers, Preferences and Rights
of Series B Cumulative Voting Preference Shares
Appendix C -- Designations, Number, Voting Powers and Rights of Common
Shares
Appendix D -- Designations, Number, Voting Powers, Preferences and Rights
of Series C Convertible Cumulative Voting Preference
Shares.
EXHIBIT:
Exhibit I -- Series A Preferred Stock Subscription Agreement
</TABLE>
iii
<PAGE> 5
INTERPRETATION
1. INTERPRETATION
(1) In these Bye-laws the following words and expressions shall, where not
inconsistent with the context, have the following meanings respectively:
(a) "Act" means the Companies Act 1981 as amended from time to time;
(b) "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 and includes each
officer, director, trustee or general partner of such Person, and each
owner of 10% or more of any class of voting stock or interests of such
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.
A Person shall not be deemed an Affiliate of the Company solely through
possession of the right to elect one director;
(c) "Affiliated Member" means with respect to any other Member a
Member who is an Affiliate of such other Member;
(d) "Alternate Director" means an alternate Director appointed in
accordance with these Bye-laws;
(e) "Auditor" means the independent representative of the Members
appointed to audit the accounts of the Company pursuant to the Act;
(f) "Board" means the Board of Directors appointed or elected
pursuant to these Bye-laws and acting by resolution in accordance with the
Act and these Bye-laws or the Directors present at a meeting of Directors
at which there is a quorum;
(g) "Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in the City of New York or Bermuda are
authorised by law or executive order to close;
(h) "Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities
convertible or exchangeable into such equity;
(i) "Cause" means, with respect to any Person exercising his powers
and discharging his duties as a Director or Officer, as the case may be,
(i) a failure of such Person to act honestly and in good faith with a view
to the best interests of the Company or (ii) a determination by a majority
of the Board that such Person has failed to exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances;
(j) "CEO Director" has the meaning ascribed to such term in Bye-law
12;
(k) "Chairman" has the meaning ascribed to such term in Bye-law 12;
(l) "Closing Date" means June 17, 1997;
(m) "Code" means the United States Internal Revenue Code of 1986, as
amended;
(n) "Commitment Draw" means the purchase of Series B Preference
Shares by certain Members pursuant to Section 1.3 of the Investment Unit
Subscription Agreement;
(o) "Common Shares" has the meaning ascribed to such term in Bye-law
50;
(p) "Company" means the company for which these Bye-laws are
approved and confirmed;
<PAGE> 6
(q) "Controlled Shares" in reference to any Person means all shares
of the Company that such Person is deemed to own directly, indirectly or by
attribution (within the meaning of Section 958 of the Code);
(r) "day" means any calendar day, whether or not such day is a
Business Day;
(s) "Director" means a director of the Company and shall include an
Alternate Director;
(t) "Designating Member(s)" means any Member(s) or class of Members
entitled to designate a Director pursuant to the provisions of
subparagraphs (2) or (3) of Bye-law 12 and, with respect to the CEO
Director, means the Chief Executive Officer of the Company;
(u) "Eligible Investment Unit Investor" means (i) each of the
following Members for so long as such Member, together with its Affiliates,
owns (either separately or as part of Investment Units) the lesser of (A)
at least 5% of the Common Shares then outstanding or (B) the number of
Common Shares acquired by such Member pursuant to the Investment Unit
Subscription Agreement: Capital Reinsurance Company, Pacific Mutual Life
Insurance Company, J.P. Morgan Investment Management, Inc., Third Avenue
Trust, Olympus Growth Fund, II L.P., ACE Limited, Lennar CGA Holdings,
Inc., Starwood CGA, LLC, CGA Firemark Venture Fund I, LLC, Mutual Discovery
Fund, Inc., and Prudential Securities Group Inc. and (ii) any transferee of
an Eligible Investment Unit Investor if and for so long as such transferee,
or a transferee of such transferee, together with its Affiliates, owns as a
result of an acquisition of shares from a single Eligible Investment Unit
Investor (either separately or as part of Investment Units) at least 5%
(or, in the case of a transferee of CGA Firemark Venture Fund I, LP, or a
transferee of such transferee, at least 4.6%) of the Common Shares then
outstanding; provided that, no group of Affiliated Members shall be deemed
to be more than one Eligible Investment Unit Investor, provided further,
that, with respect to Affiliated Members which together own (either
separately or as part of Investment Units) sufficient Common Shares to
qualify as an Eligible Investment Unit Investor, (x) if one such Affiliated
Member owns (either separately or as part of Investment Units) a larger
percentage of Common Shares than the other such Affiliated Members, such
Affiliated Member shall be deemed the Eligible Investment Unit Investor and
(y) if no such Affiliated Member owns (either separately or as part of
Investment Units) a larger percentage of Common Shares than the other such
Affiliated Members, the Affiliated Member designated by such Affiliated
Members shall be deemed the Eligible Investment Unit Investor;
(v) "Event of Non-Compliance" means an Event of Non-Compliance as
such term is defined in the Series A Preferred Stock Subscription Agreement
as in effect on the Closing Date;
(w) "Independent Director" means a director who is neither an
officer of the Company nor an officer, director, employee or Affiliate of
any Member;
(x) "Insurance Subsidiary" means Commercial Guaranty Assurance,
Ltd., a Bermuda exempted company with limited liability (and its
successors);
(y) "Investment Unit Directors" shall have the meaning ascribed to
such term in Bye-law 12;
(z) "Investment Unit Subscription Agreement" means the Company's
Investment Units Subscription Agreement, dated as of the Closing Date,
among the Company and certain Members;
(aa) "Majority Controlled Affiliates" of any specified Person means
(A) any other Person (i) who beneficially owns a majority of the Voting
Stock of such specified Person or (ii) a majority of whose Voting Stock is
beneficially owned by (a) such specified Person or (b) a Person that
beneficially owns a majority of such specified Person's Voting Stock or (B)
in the case of specified Persons who are natural Persons, any relatives, or
structures for the benefit of the relatives, of such specified Person;
(bb) "Management Director" shall have the meaning ascribed to such
term in Bye-law 12;
(cc) "Maximum Percentage" means, with respect to any Person, ten
percent (10%) or, if applicable, such other percentage as the Board shall
have previously approved for such Person;
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(dd) "Member" means the Person registered in the Register of Members
as the holder of shares in the Company and, when two or more Persons are so
registered as joint holders of shares, means the Person whose name stands
first in the Register of Members as one of such joint holders or all of
such Persons as the context so requires;
(ee) "notice" means written notice as further defined in these
Bye-laws unless otherwise specifically stated;
(ff) "Officer" means any person appointed by the Board to hold an
office in the Company;
(gg) "Person" means an individual, a partnership, a joint-stock
company, a corporation, a trust or unincorporated organization, a limited
liability company or a government or an agency or political subdivision
thereof;
(hh) "Preference Shares" has the meaning ascribed to such term in
Bye-law 50;
(ii) "Preferred Stock" as applied to the Capital Stock of any
corporation means Capital Stock of any class or classes (however
designated) that is preferred as to the payment of dividends, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital Stock of any other
class of such corporation;
(jj) "Qualified Public Offering" means the completion of an
underwritten public offering for Common Shares pursuant to a registration
statement under the United States Securities Act of 1933, as amended,
resulting in net proceeds to the Company of at least U.S. $50,000,000;
(kk) "Register of Directors and Officers" means the Register of
Directors and Officers referred to in these Bye-laws;
(ll) "Register of Members" means the Register of Members referred to
in these Bye-laws;
(mm) "Resident Representative" means any Person appointed to act as
resident representative under the Act and includes any deputy or assistant
resident representative;
(nn) "Restricted Subsidiary" means those subsidiaries designated or
classified as Restricted Subsidiaries pursuant to Section 7.9 of the Series
A Preferred Stock Subscription Agreement;
(oo) "Secretary" means the person appointed to perform any or all
the duties of secretary of the Company and includes any deputy or assistant
secretary;
(pp) "Series A Preference Shares" has the meaning ascribed to such
term in Appendix A hereto;
(qq) "Series A Preferred Directors" has the meaning ascribed to such
term in Bye-law 12;
(rr) "Series A Preferred Stock Subscription Agreement" means that
certain Series A Preferred Stock Subscription Agreement, attached hereto
(without the attached schedules or annexes (other than Annex VII)) as
Exhibit I;
(ss) "Series B Preference Shares" has the meaning ascribed to such
term in Appendix B hereto;
(tt) "Series C Preference Shares" has the meaning ascribed to such
term in Appendix D hereto;
(uu) [Intentionally omitted.]
(vv) "Shareholders Agreement" means that certain Amended and
Restated Shareholders Agreement, dated as of March 31, 1999, among the
Company and certain Members, as such agreement may be amended,
supplemented, restated or otherwise modified from time to time;
(ww) "Shidler" means Jay H. Shidler and his Majority Controlled
Affiliates (except with respect to the use of this term in Bye-law 12,
where "Shidler" shall mean Jay H. Shidler and his Majority Controlled
Affiliates other than his relatives or any trust, corporation or other
entity for the benefit of his relatives);
(xx) "Shidler Director" has the meaning ascribed to such term in
Bye-law 12;
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<PAGE> 8
(yy) "Specified Holders" means the holders of the shares of the
Company as of the Closing Date and their Majority Controlled Affiliates;
(zz) "Sponsoring Investors" means the Specified Holders who acquired
shares of the Company pursuant to the Founders' Common Stock Subscription
Agreement, among the Company and certain Members, and the Transferees of
such Specified Holders;
(aaa) "Transferee" shall have the meaning ascribed to such term in
Schedule -- Form D hereto;
(bbb) "United States" means the United States of America, its
territories, possessions and areas subject to its jurisdiction;
(ccc) "U.S. Person" means an individual who is a citizen or resident
of the United States, a company, corporation or partnership created or
organized under the laws of the United States or any state thereof, an
estate, the income of which, from non-United States sources and not
effectively connected with the conduct of a trade or business in the United
States, is includable in gross income for United States federal income tax
purposes, or a trust, if (i) a court within the United States may exercise
primary supervision of the trust, and (ii) one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust; and
(ddd) "Voting Stock" of any Person means all classes of Capital
Stock of such Person then outstanding and entitled to vote in the election
of directors of such Person, or Persons performing similar functions.
(2) In these Bye-laws, where not inconsistent with the context:
(a) words denoting the plural number include the singular number and
vice versa;
(b) words denoting the masculine gender include the feminine gender;
(c) the word:
(i) "may" shall be construed as permissive;
(ii) "shall" shall be construed as imperative; and
(d) unless otherwise provided herein words or expressions defined in
the Act shall bear the same meaning in these Bye-laws.
(3) Expressions referring to writing or written shall, unless the contrary
intention appears, include facsimile, printing, lithography, photography and
other modes of representing words in a visible form.
(4) Headings used in these Bye-laws are for convenience only and are not to
be used or relied upon in the construction hereof.
(5) Appendices A, B, C and D are each a part of these Bye-laws and all
references to these Bye-laws shall include such Appendices and, where conflicts
exist between the terms of any such Appendix and these Bye-laws (not including
the Appendices), the terms of such Appendix shall prevail.
(6) The Exhibit to these Bye-laws is not to be construed as part of these
Bye-laws.
(7) All references herein to "$", "US$", "dollar" or "cash" are to United
States dollars in immediately available funds.
BOARD OF DIRECTORS
2. BOARD OF DIRECTORS
The business of the Company shall be managed and conducted by the Board.
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<PAGE> 9
3. MANAGEMENT OF THE COMPANY
(1) In managing the business of the Company, the Board may exercise all
such powers of the Company as are not, by statute or by these Bye-laws, required
to be exercised by the Company in general meeting, subject, nevertheless, to
these Bye-laws, the provisions of any statute and to such directions as may be
prescribed by the Company in general meeting.
(2) No regulation or alteration to these Bye-laws made by the Company in
general meeting shall invalidate any prior act of the Board which would have
been valid if that regulation or alteration had not been made.
(3) The Board may procure that the Company pays all expenses incurred in
promoting and incorporating the Company.
4. POWER TO APPOINT CHIEF EXECUTIVE OFFICER
The Board shall appoint a natural person to the office of Chief Executive
Officer of the Company who shall, subject to the control of the Board, supervise
and administer all of the general business and affairs of the Company, PROVIDED
THAT, prior to a Qualified Public Offering, such person shall be a Member while
such person serves as Chief Executive Officer.
5. POWER TO APPOINT MANAGER
The Board may appoint a person to act as manager of the Company's day to
day business and may entrust to and confer upon such manager such powers and
duties as it deems appropriate for the transaction or conduct of such business.
6. POWER TO AUTHORISE SPECIFIC ACTIONS
The Board may from time to time and at any time authorise any non-United
States Person or body of Persons to act on behalf of the Company for any
specific purpose and in connection therewith to execute any agreement, document
or instrument on behalf of the Company. The Board may revoke any authorisation
at any time.
7. POWER TO APPOINT ATTORNEY
The Board may from time to time and at any time by power of attorney
appoint any company, firm, Person or body of Persons, whether nominated directly
or indirectly by the Board, to be an attorney of the Company for such purposes
and with such powers, authorities and discretions (not exceeding those vested in
or exercisable by the Board) and for such period and subject to such conditions
as it may think fit and any such power of attorney may contain such provisions
for the protection and convenience of Persons dealing with any such attorney as
the Board may think fit and may also authorise any such attorney to sub-delegate
all or any of the powers, authorities and discretions so vested in the attorney.
Such attorney may, if so authorised under the seal of the Company, execute any
deed or instrument under such attorney's personal seal with the same effect as
the affixation of the seal of the Company. The Board may revoke any power of
attorney at any time.
8. POWER TO DELEGATE TO A COMMITTEE
(1) The Board may delegate any of its powers to one or more committees
appointed by the Board, which committee(s) shall consist only of Directors,
unless otherwise set forth in these Bye-laws, and every such committee shall
conform to such directions as the Board shall impose on them. No committee
appointed by the Board shall consist entirely of non-directors.
(2) The following committees shall be established by the Board:
(a) A Compensation Committee consisting of at least five (5) members.
None of the members of the Compensation Committee shall be officers or
employees of the Company.
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<PAGE> 10
(b) An Audit Committee consisting of at least five (5) members.
(c) An Underwriting Committee consisting of at least seven (7)
members.
(d) An Investment Committee consisting of at least five (5) members.
(3) The Board shall, by resolution adopted by the affirmative vote of a
majority of the Board, in accordance with these Bye-laws, elect and designate
the members of any committees established by the Board. Any member of any
committee may be removed from such committee either with or without cause, at
any time, by resolutions adopted by the affirmative vote of a majority of the
Board at any meeting thereof.
(4) Meetings of each committee shall be held upon call of the chairperson
of such committee or of two members of such committee. Meetings of each
committee may also be held at such other times as such committee may determine.
Meetings of a committee shall be held at such places (outside the United States)
and upon such notice as such committee may determine or as may be specified in
the calls of such meetings. Any such chairperson, if present, or such member or
members of each committee as may be designated by the Board, shall preside at
meetings thereof or, in the event of the absence or disability of any such
chairperson or failing such designation, the committee shall select from among
its members present a presiding committee member as chairperson.
(5) At each meeting of any committee there shall be present to constitute a
quorum for the transaction of business at least a majority of the members of
such committee. Any alternate member who is replacing an absent member shall be
counted in determining whether a quorum is present. The vote of a majority of
the members present at a meeting of any standing committee at the time of the
vote, if a quorum is present at such time, shall be the act of such committee.
(6) Each of the committees shall keep minutes of its meetings, which shall
be reported to the Board at its regular meetings, and if called for by the
Board, at any special meeting.
9. POWER TO APPOINT AND DISMISS EMPLOYEES
The Board may appoint, suspend or remove any manager, secretary, clerk,
agent or employee of the Company and may fix their remuneration and determine
their duties.
10. POWER TO BORROW AND CHARGE PROPERTY
The Board may exercise all the powers of the Company to borrow money and to
mortgage or charge its undertaking, property and uncalled capital, or any part
thereof, and may issue debentures, debenture stock and other securities whether
outright or as security for any debt, liability or obligation of the Company or
any third party.
11. EXERCISE OF POWER TO REDEEM OR PURCHASE SHARES OF OR DISCONTINUE THE
COMPANY
(1) The Board may exercise all the powers of the Company to redeem or
purchase all or any part of its own shares pursuant to Section 42 and Section
42A of the Act and these Bye-laws. No vote of the Members shall be required in
this regard.
(2) The Board may exercise all the powers of the Company to discontinue the
Company under the Act and to continue the Company in a named country or
jurisdiction outside Bermuda pursuant to Section 132G of the Act.
12. ELECTION OF DIRECTORS
(1) The Board shall consist of at least thirteen Directors or such number
in excess thereof as may be necessary to comply with the other provisions of
this Bye-law 12 or, after a Qualified Public Offering, such number as the
Members may from time to time determine, who shall be elected or appointed at
the annual general meeting, at any special general meeting called for the
purpose or in accordance with these Bye-laws, in particular this Bye-law 12, and
who shall hold office for such term as the Members may determine or, in the
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<PAGE> 11
absence of such determination, until the next annual general meeting or until
their successors are elected or appointed or their office is otherwise vacated,
and any general meeting may authorise the Board to fill any vacancy in their
number left unfilled at a general meeting.
(2) Notwithstanding the provisions of subparagraph (1) of this Bye-law and
except as otherwise provided in this Bye-law, at any time the Board shall
consist of: one Director (the "Shidler Director") designated by Shidler, for so
long as Shidler is a Member and holds at least 2.5% of the issued and
outstanding Common Shares or, if Shidler no longer holds such shares, designated
by a majority of the Common Shares held by Sponsoring Investors voting as a
class; one Director (the "CEO Director") who is the Chief Executive Officer of
the Company or a person designated by the Chief Executive Officer (provided,
that such Director shall no longer be a Director immediately after such Chief
Executive Officer ceases to be a Member or ceases to serve as the Chief
Executive Officer); a number of Directors (the "Investment Unit Directors")
equal to the greater of eight and the number of Eligible Investment Unit
Investors existing at such time, designated as follows: each Eligible Investment
Unit Investor shall appoint one Director and, if the number of Eligible
Investment Unit Investors is at any time less than eight, such number of
Directors as is necessary to increase the total number of Investment Unit
Directors to eight shall be designated by a majority of the holders of the
Common Shares other than (i) the Sponsoring Investors and (ii) the Eligible
Investment Unit Investors other than ACE Limited (as long as ACE Limited is not
a U.S. Person), PROVIDED THAT, if necessary, the voting power of any U.S. Person
which is a holder of Common Shares eligible to vote to designate such additional
Investment Unit Directors shall be diluted such that such U.S. Person cannot in
effect designate more than one Director; two directors designated by the holders
of the Series C Preference Shares; one Director (the "Management Director")
designated by a majority of the Common Shares held by Sponsoring Investors
voting as a class other than Common Shares held by the Chief Executive Officer
and Shidler and any Persons treated as "related" to either of such Persons under
the attribution rules set forth in Section 958 of the Code.
(3) Notwithstanding subparagraphs (1) and (2) of this Bye-law, upon the
occurrence of an Event of Non-Compliance (unless at such time another Event of
Non-Compliance has occurred previously and is continuing), the Board shall be
increased by two additional Directors (the "Series A Preferred Directors") and
each such additional Director shall be designated exclusively by the holders of
at least a majority of the Series A Preference Shares voting separately as a
class, provided that such increases in the size of the Board shall be effective,
and each such Director so designated shall be a Director, only until such time
as no Event of Non-Compliance is continuing and, upon all Events of
Non-Compliance ceasing to continue, each such additional Director shall
automatically vacate and be deemed to have resigned from the office of Director
and shall no longer be a Director. There shall never be more than two (2) Series
A Preferred Directors. The rights of the holders of Series A Preference Shares
shall exist even if such rights shall cause the holders of the Series A
Preference Share to exceed the percentage limitation that no Person shall hold
10% or more of the combined voting power of the capital stock of the Company.
(4) The rights and obligations provided by subparagraph (2) of this Bye-law
shall terminate upon a Qualified Public Offering for all members, except that
(a) Shidler, if and for so long as he continues to hold, on a fully diluted
basis, at least 5% of the Common Shares outstanding following a Qualified Public
Offering and (b) any Eligible Investment Unit Investor that continues to hold,
on a fully diluted basis, at least 5% of the Common Shares outstanding following
a Qualified Public Offering will retain the right to designate one Director
(notwithstanding any other provision of these Bye-laws to the contrary, Shidler
or any such Eligible Investment Unit Investor that so designates a Director
shall not be entitled to participate with the other Members in voting for other
Directors to the extent that such participation would result in Shidler or such
Eligible Investment Unit Investor holding the Maximum Percentage in terms of
voting power of the Controlled Shares).
13. DEFECTS IN APPOINTMENT OF DIRECTORS
All acts done bona fide at any meeting of the Board or by a committee of
the Board duly authorised to take such action or by any person acting as a
Director shall, notwithstanding that it be afterwards discovered that there was
some defect in the appointment of any Director or person acting as aforesaid, or
that they or any
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<PAGE> 12
of them were disqualified, be as valid as if every such person had been duly
appointed and was qualified to be a Director.
14. ALTERNATE DIRECTORS
(1) (a) Prior to a Qualified Public Offering, any Designating Member(s) may
designate a Person to act as an Alternate Director in the alternative to the
Director designated by such Designating Member(s). After a Qualified Public
Offering, any general meeting of the Company may elect a person or persons to
act as an Alternate Director in the alternative to any one or more of the
Directors of the Company or may authorise the Board to appoint such Alternate
Directors; PROVIDED THAT only the holders of a majority of the Series A
Preference Shares may designate Alternate Directors for the Series A Preferred
Directors.
(b) Unless the Designating Member(s) otherwise indicate objection
thereto by notice in writing deposited with the Secretary or the Members
otherwise resolve, as the case may be, any Director may appoint a person or
persons to act as an Alternate Director in the alternative to himself or
herself by notice in writing deposited with the Secretary.
(c) Any person so appointed as an Alternate Director shall have all
the rights and powers of the Director or Directors for whom such person is
appointed in the alternative provided that such person shall not be counted
more than once in determining whether or not a quorum is present.
(2) An Alternate Director shall be entitled to receive notice of all
meetings of the Board and to attend and vote at any such meeting at which a
Director for whom such Alternate Director was appointed in the alternative is
not personally present and generally to perform at such meeting all the
functions of such Director for whom such Alternate Director was appointed.
(3) An Alternate Director shall cease to be such if (x) the Director for
whom such Alternate Director was appointed ceases for any reason to be a
Director but may be re-appointed by the Designating Member(s), the Members or
the Board, as the case may be, in accordance with subparagraph 1(a) of this
Bye-law, as alternate to the person appointed to fill the vacancy in accordance
with these Bye-laws or (y) such Alternate Director is removed by the Designating
Member(s), the Members, the Board or the Director, as the case may be, which
appointed such Alternate Director.
15. REMOVAL OF DIRECTORS
(1) The Designating Member(s) may remove the Director appointed by it
(them) pursuant to Bye-law 12, with or without Cause, and the Board may remove
any Director, for Cause only, at any time without notice or a special general
meeting and a vacancy on the Board created by the removal of a Director under
the provisions of this subparagraph may be filled by such Designating Member(s)
in accordance with Bye-law 12, PROVIDED THAT the rights and obligations provided
by this subparagraph, other than with respect to a Series A Preferred Director
designated pursuant to subparagraph (3) of Bye-law 12, shall terminate upon a
Qualified Public Offering.
(2) Following a Qualified Public Offering, other than with respect to a
Series A Preferred Director designated pursuant to subparagraph (3) of Bye-law
12, the Members may, at any special general meeting convened and held in
accordance with these Bye-laws, remove a Director, with or without Cause,
provided that the notice of any such meeting convened for the purpose of
removing a Director shall contain a statement of the intention so to do and be
served on such Director not less than 14 days before the meeting and at such
meeting such Director shall be entitled to be heard on the motion for such
Director's removal.
(3) A vacancy on the Board created by the removal of a Director under the
provisions of subparagraph (2) of this Bye-law may be filled by the Members at
the meeting at which such Director is removed and, in the absence of such
election or appointment, the Board may fill the vacancy.
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16. VACANCIES ON THE BOARD
(1) The Designating Member(s) shall have the power from time to time and at
any time to appoint any person as a Director to fill a vacancy on the Board
occurring with respect to the Director such Designating Member(s) is (are)
entitled to designate and to appoint an Alternate Director to such Director so
appointed, PROVIDED THAT the rights and obligations provided by this
subparagraph, other than with respect to a Series A Preferred Director
designated pursuant to subparagraph (3) of Bye-law 12, of this Bye-law shall
terminate upon a Qualified Public Offering.
(2) Following a Qualified Public Offering, the Board shall have the power,
other than with respect to a Series A Preferred Director designated pursuant to
subparagraph (3) of Bye-law 12, from time to time and at any time to appoint any
person as a Director to fill a vacancy on the Board, unless filled by the
Members pursuant to subparagraph (3) of Bye-law 15, and to appoint an Alternate
Director to any Director so appointed.
(3) The Board may act notwithstanding any vacancy in its number but, if and
for so long as its number is reduced below the number fixed by these Bye-laws as
the quorum necessary for the transaction of business at meetings of the Board,
the continuing Directors or Director may act only for the purpose of:
(a) summoning a general meeting of the Company; or
(b) preserving the assets of the Company.
(4) The office of Director shall be vacated by a Director if such Director:
(a) is removed from office pursuant to these Bye-laws or is prohibited
from being a Director by law;
(b) is or becomes bankrupt or makes any arrangement or composition
with his creditors generally;
(c) is or becomes of unsound mind or dies;
(d) resigns his or her office by notice in writing to the Company.
17. NOTICE OF MEETINGS OF THE BOARD
(1) A Director may, and the Secretary on the requisition of a Director
shall, at any time summon a meeting of the Board.
(2) Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given, not less than five (5) Business Days prior to such
meeting, to such Director verbally in person or by telephone or otherwise
communicated (provided that a written confirmation thereof is delivered to such
Director prior to the meeting date) or sent to such Director by post, cable,
telex, telecopier, facsimile or other mode of representing words in a legible
and non-transitory form reasonably expected to be received at least five
Business Days prior to such meeting at such Director's last known address or any
other address given by such Director to the Company for this purpose.
18. QUORUM AT MEETINGS OF THE BOARD
The quorum necessary for the transaction of business at a meeting of the
Board shall be a majority of the number of Directors constituting the Board.
19. MEETINGS OF THE BOARD
(1) The Board may meet for the transaction of business, adjourn and
otherwise regulate its meetings as it sees fit.
(2) Directors may participate in any meeting of the Board by means of such
telephone, electronic or other communication facilities as permit all persons
participating in the meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall constitute presence
in
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person at such meeting, except that Directors may not participate in any meeting
of the Board while present in the United States.
(3) A resolution put to the vote at a meeting of the Board shall be carried
by the affirmative votes of a majority of the votes cast and in the case of an
equality of votes the resolution shall fail; PROVIDED THAT no resolution passed
at a meeting of the Board shall be the act of the Board unless a majority of the
Directors voting on such resolution are Investment Unit Directors; PROVIDED THAT
the rights and obligations provided by the foregoing proviso of this Bye-law
shall (i) not be in effect during an Event of Non-Compliance and (ii) terminate
upon a Qualified Public Offering.
20. UNANIMOUS WRITTEN RESOLUTIONS
A resolution in writing signed by all the Directors, which may be in
counterparts, shall be as valid as if it had been passed at a meeting of the
Board duly called and constituted, such resolution to be effective on the date
on which the last Director signs the resolution; PROVIDED THAT at such time no
Director has revoked his signature; AND FURTHER PROVIDED THAT no such resolution
shall be valid unless the last signature of a Director is affixed outside the
United States. Such resolution shall be deemed to be adopted, as an act of the
Board, at the place where, and at the time when, the last signature of a
Director is affixed thereto.
21. CONTRACTS AND DISCLOSURE OF DIRECTORS' INTERESTS
(1) Any Director, any Director's firm, or partner or any company or other
Person with whom any Director is associated, may act in a professional capacity
for the Company and such Director or such Director's firm or partner or such
company or other Person shall be entitled to remuneration for professional
services as if such Director were not a Director, provided that nothing herein
contained shall authorise a Director or Director's firm or partner or such
company or other Person to act as Auditor of the Company.
(2) A Director who is directly or indirectly interested in a contract or
proposed contract or arrangement with the Company shall declare the nature of
such interest as required by the Act.
(3) Following a declaration being made pursuant to this Bye-law, and unless
disqualified by the chairman of the relevant Board meeting, a Director may vote
in respect of any contract or proposed contract or arrangement in which such
Director is interested and may be counted in the quorum at such meeting.
22. REMUNERATION OF DIRECTORS
No Directors, other than Independent Directors, shall receive any
remuneration for their services as Directors. The remuneration (if any) of
Independent Directors shall be determined by the Company in general meeting and
shall be deemed to accrue from day to day. The Directors shall also be paid all
reasonable (such reasonableness to be determined by the Board) travel, hotel and
other expenses properly incurred by them in attending and returning from
meetings of the Board, any committee appointed by the Board, general meetings of
the Company, or in connection with the business of the Company or their duties
as Directors generally.
OFFICERS
23. OFFICERS OF THE COMPANY
The Officers of the Company shall consist of a Chairman, a Deputy Chairman,
a Chief Executive Officer, a Secretary and such additional Officers as the Board
may from time to time determine, all of whom shall be deemed to be Officers for
the purposes of these Bye-laws.
24. APPOINTMENT AND REMOVAL OF OFFICERS
(1) The Board shall, as soon as possible after each annual general meeting,
appoint a Chairman and a Deputy Chairman; provided that the initial Chairman
shall be the Shidler Director who shall serve as
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Chairman at least one year after his appointment as Chairman unless he is
removed for Cause or he resigns such office prior thereto.
(2) The Secretary and additional Officers, if any, shall be appointed by
the Board from time to time.
(3) Notwithstanding anything to the contrary contained herein, the Board
may suspend or remove any Officer with or without Cause at any time.
25. REMUNERATION OF OFFICERS
The Officers shall receive such remuneration as the Board may from time to
time determine in accordance with their employment contracts, if any, or
otherwise.
26. DUTIES OF OFFICERS; EXERCISE OF EXECUTIVE AUTHORITY
(1) The Officers shall have such powers and perform such duties in the
management, business and affairs of the Company as may be delegated to them by
the Board from time to time or as may otherwise be provided to them in these
Bye-laws.
(2) No Officer and no Person appointed to any position or granted any
authority in accordance with Bye-law 4, 5, 6 or 7 shall have authority to
conduct any business of the Company in the United States, including, without
limitation, entering into any contracts or compromising or settling any claim
against the Company.
27. CHAIRMAN OF MEETINGS
The Chairman shall act as chairman at all meetings of the Members and of
the Board at which such person is present. In his or her absence the Deputy
Chairman, if present, shall act as chairman and in the absence of both of them a
chairman shall be appointed or elected by those present at the meeting and
entitled to vote.
28. REGISTER OF DIRECTORS AND OFFICERS
The Board shall cause to be kept in one or more books at the registered
office of the Company a Register of Directors and Officers and shall enter
therein the particulars required by the Act.
MINUTES
29. OBLIGATIONS OF BOARD TO KEEP MINUTES
(1) The Board shall cause minutes to be duly entered in books provided for
the purpose:
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each meeting of the Board
and of any committee appointed by the Board; and
(c) of all resolutions and proceedings of general meetings of the
Members, meetings of the Board, meetings of managers and meetings of
committees appointed by the Board.
(2) Minutes prepared in accordance with the Act and these Bye-laws shall be
kept by the Secretary at the registered office of the Company.
INDEMNITY
30. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
The Directors, Alternate Directors, Secretary and other Officers (such term
to include, for the purposes of Bye-laws 30 and 31, any person appointed to any
committee by the Board) for the time being acting in
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relation to any of the affairs of the Company and the liquidator or trustees (if
any) for the time being acting in relation to any of the affairs of the Company
and every one of them, and their heirs, executors and administrators, shall be
indemnified and secured harmless out of the assets of the Company from and
against all actions, costs, charges, losses, damages and expenses which they or
any of them, their heirs, executors or administrators, shall or may incur or
sustain by or by reason of any act done, concurred in or omitted in or about the
execution of their duty, or supposed duty, or in their respective offices or
trusts, and none of them shall be answerable for the acts, receipts, neglects or
defaults of the others of them or for joining in any receipts for the sake of
conformity, or for any bankers or other Persons with whom any moneys or effects
belonging to the Company shall or may be lodged or deposited for safe custody,
or for insufficiency or deficiency of any security upon which any moneys of or
belonging to the Company shall be placed out on or invested, or for any other
loss, misfortune or damage which may happen in the execution of their respective
offices or trusts, or in relation thereto, PROVIDED THAT this indemnity shall
not extend to any matter in respect of any fraud or dishonesty which may attach
to any of said Persons.
31. WAIVER OF CLAIM BY MEMBER
To the extent permitted by applicable law, each Member agrees to waive any
claim or right of action such Member might have, whether individually or by or
in the right of the Company, against any Director, Alternate Director or Officer
on account of any action taken by such Director, Alternate Director or Officer
on or after the Closing Date, or the failure of such Director, Alternate
Director or Officer to take any action on or after the Closing Date, in such
Person's capacity as Director, Alternate Director or Officer, PROVIDED THAT such
waiver shall not extend to any matter in respect of any gross negligence,
willful misconduct, fraud or dishonesty which may attach to such Director,
Alternate Director or Officer.
MEETINGS
32. NOTICE OF ANNUAL GENERAL MEETING
The annual general meeting of the Company shall be held in each year at
such time and place outside the United States as the Chairman or any two
Directors or any Director and the Secretary or the Board shall determine.
Written notice of such meeting stating the date, place and time at which the
meeting is to be held, that the election of Directors will take place thereat
and, as far as practicable, the other business to be conducted at the meeting
shall be given to each Person that is a Member as of the record date not less
than 10 nor more than 60 days before the date of such meeting.
33. NOTICE OF SPECIAL GENERAL MEETING
The Chairman or any two Directors or any Director and the Secretary or the
Board may convene a special general meeting of the Company whenever in their
judgment such a meeting is necessary. Written notice of such meeting stating the
date, time, place (which shall not be a place in the United States) and the
general nature of the business to be considered at the meeting shall be given to
each Person that is a Member as of the record date not less than 10 nor more
than 60 days before the date of such meeting.
34. ACCIDENTAL OMISSION OF NOTICE OF GENERAL MEETING
The accidental omission to give notice of a general meeting to, or the
non-receipt of notice of a general meeting by, any Person entitled to receive
notice shall not invalidate the proceedings at that meeting.
35. MEETING CALLED ON REQUISITION OF MEMBERS
Notwithstanding anything herein, the Board shall, on the requisition of
Members holding at the date of the deposit of the requisition not less than
one-tenth of such of the paid-up share capital of the Company as at the date of
the deposit carries the right to vote at general meetings of the Company,
forthwith proceed to convene a special general meeting of the Company and the
provisions of Section 74 of the Act shall apply.
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36. SHORT NOTICE
A general meeting of the Company shall, notwithstanding that it is called
by shorter notice than that specified in these Bye-laws, be deemed to have been
properly called if it is so agreed by (i) all the Members entitled to attend and
vote thereat in the case of an annual general meeting; and (ii) by a majority in
number of the Members having the right to attend and vote at the meeting, being
a majority together holding not less than 95% in nominal value of the shares
having a right to attend and vote thereat in the case of a special general
meeting.
37. POSTPONEMENT OF MEETINGS
The Secretary, at the direction of the Person or Persons calling the
Meeting, may postpone any general meeting called in accordance with the
provisions of these Bye-laws (other than a meeting requisitioned under these
Bye-laws) provided that notice of postponement is given to each Member before
the time for such meeting. Fresh notice of the date, time and place for the
postponed meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
38. QUORUM FOR GENERAL MEETING
At any general meeting of the Company two or more persons present in person
and representing in person or by proxy in excess of 50% of the total issued
shares in the Company entitled to vote at the meeting shall form a quorum for
the transaction of business, PROVIDED THAT if the Company shall at any time have
only one Member, one Member present in person or by proxy shall form a quorum
for the transaction of business at any general meeting of the Company held
during such time. If within half an hour from the time appointed for the meeting
a quorum is not present, the meeting shall stand adjourned to the same day one
week later, at the same time and place or to such other day, time or place as
the Secretary may determine and as to which the Secretary shall give notice in
compliance with these Bye-laws.
39. ADJOURNMENT OF MEETINGS
The chairman of a general meeting may, with the consent of the Members at
any general meeting at which a quorum is present (and shall if so directed),
adjourn the meeting. Unless, at the time of the adjournment, the meeting is
adjourned to a specific date and time, fresh notice of the date, time and place
for the resumption of the adjourned meeting shall be given to each Member in
accordance with the provisions of these Bye-laws.
40. ATTENDANCE AT MEETINGS
Members may participate in any general meeting by means of such telephone,
electronic or other communication facilities as permit all persons participating
in the meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall constitute presence
in person at such meeting except that no Member may participate by such means of
communication where such Member is present at the time of the meeting in the
United States.
41. WRITTEN RESOLUTIONS
(1) Subject to subparagraph (6), anything which may be done by resolution
of the Company in general meeting or by resolution of a meeting of any class of
the Members of the Company, may, without a meeting and without any previous
notice being required, be done by resolution in writing signed by, or, in the
case of a Member that is a corporation or another non-natural Person, whether or
not a company within the meaning of the Act, on behalf of, all of the Members
who at the date of the resolution would be entitled to attend the meeting and
vote on the resolution.
(2) A resolution in writing may be signed by, or, in the case of a Member
that is a corporation or another non-natural Person, whether or not a company
within the meaning of the Act, on behalf of, all the Members, or any class
thereof, in as many counterparts as may be necessary.
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(3) For the purposes of this Bye-law, the date of the resolution is the
date when the resolution is signed by, or, in the case of a Member that is a
corporation or another non-natural Person, whether or not a company within the
meaning of the Act, on behalf of, the last Member to sign and any reference in
any Bye-law to the date of passing of a resolution is, in relation to a
resolution made in accordance with this Bye-law, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-law is as
valid as if it had been passed by the Company in general meeting or by a meeting
of the relevant class of Members, as the case may be; PROVIDED THAT no such
resolution shall be valid unless the last signature of a Member is affixed
outside the United States. Any reference in any Bye-law to a meeting at which a
resolution is passed or to Members voting in favour of a resolution shall be
construed accordingly.
(5) A resolution in writing made in accordance with this Bye-law shall
constitute minutes for the purposes of Sections 81 and 82 of the Act.
(6) This Bye-law shall not apply to:
(a) a resolution passed pursuant to Section 89(5) of the Act; or
(b) a resolution passed for the purpose of removing a Director before
the expiration of his term of office under these Bye-laws.
42. ATTENDANCE OF DIRECTORS
The Directors of the Company shall be entitled to receive notice of and to
attend and be heard at any general meeting.
43. VOTING AT MEETINGS
(1) Subject to the provisions of the Act and these Bye-laws, any question
proposed for the consideration of the Members at any general meeting duly called
and convened shall be decided by the affirmative votes of a majority of the
votes cast after giving effect to any reduction in voting power required under
Bye-law 50 in accordance with the provisions of these Bye-laws and in the case
of an equality of votes the resolution shall fail; PROVIDED THAT, any of the
following shall require the affirmative votes of not less than two-thirds ( 2/3)
of the votes of the Members entitled to vote at a general meeting after giving
effect to any reduction in voting power required under Bye-law 50 in accordance
with the provisions of these Bye-laws: (i) any material change or changes in the
Company's business; (ii) any amendment of the Memorandum of Association; (iii)
any voluntary liquidation, dissolution or winding up of the Company or similar
procedures affecting the Company; (iv) the authorisation of a new class or
classes of share capital of the Company; (v) any increase in the number of
authorised shares of the Company; (vi) the merger or amalgamation of the Company
into or with another company or corporation, the merger or amalgamation of any
other company or corporation into or with the Company, or the sale, conveyance,
mortgage, pledge or lease of all or substantially all the assets of the Company;
or (vii) the acquisition of 50% or more of the issued and outstanding shares of
the Company's Common Shares by one or more purchasers acting in concert in a
single transaction or in a series of related transactions, including, without
limitation, acquisitions occasioned by a purchase or exchange.
(2) No Member shall be entitled to vote at any general meeting unless such
Member has paid all the calls on all shares held by such Member.
44. [INTENTIONALLY OMITTED]
45. DECISION OF CHAIRMAN
At any general meeting a declaration by the chairman of the meeting that a
question proposed for consideration has been carried, or carried unanimously, or
by a particular majority, or lost, and an entry to that effect in a book
containing the minutes of the proceedings of the Company shall, subject to the
provisions of these Bye-laws, be conclusive evidence of that fact.
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46. VOTING BY POLL
At any general meeting of the Company, a resolution put to the vote of the
meeting shall be voted upon by a poll and, subject to any rights or restrictions
at such time being lawfully attached to any class of shares and except as
otherwise provided in the Appendices hereto, every Person present at such
meeting shall have, one vote for each share of which such Person is the holder
or for which such Person holds a proxy (subject to Bye-law 50(2)) and such vote
shall be counted in the manner set out below in this Bye-law or in the case of a
general meeting at which one or more Members are present by telephone in such
manner as the chairman of the meeting may direct, and the result of such poll
shall be deemed to be the resolution of the meeting at which the poll was
demanded. Each person present and entitled to vote shall be furnished with a
ballot paper on which such person shall record his or her vote in such manner as
shall be determined at the meeting having regard to the nature of the question
on which the vote is taken, and each ballot paper shall be signed or initialled
or otherwise marked so as to identify the voter and the registered holder in the
case of a proxy. At the conclusion of the poll, the ballot papers shall be
examined and counted by a committee of not less than two Members or proxy
holders appointed by the chairman for that purpose and the result of the poll
shall be declared by the chairman.
47. SENIORITY OF JOINT HOLDERS VOTING
In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders, and for this purpose seniority shall be determined
by the order in which the names stand in the Register of Members.
48. INSTRUMENT OF PROXY
The instrument appointing a proxy shall be in writing in the form, or as
near thereto as circumstances admit, of Form "A" in the Schedule hereto, under
the hand of the appointor or of the appointor's attorney duly authorised in
writing, or if the appointor is a corporation, either under its seal, or under
the hand of a duly authorised officer or attorney. The decision of the chairman
of any general meeting as to the validity of any instrument of proxy shall be
final.
49. REPRESENTATION OF CORPORATIONS OR OTHER NON-NATURAL PERSON AT MEETINGS
A corporation or other non-natural Person which is a Member may, by written
instrument, authorise such person as it thinks fit to act as its representative
at any meeting of the Members and the person so authorised shall be entitled to
exercise the same powers on behalf of the corporation or other non-natural
Person which such person represents as that corporation or other non-natural
Person could exercise if it were an individual Member. Notwithstanding the
foregoing, the chairman of the meeting may accept such assurances as he or she
thinks fit as to the right of any person to attend and vote at general meetings
on behalf of a corporation or other non-natural Person which is a Member.
SHARE CAPITAL AND SHARES
50. RIGHTS OF SHARES; VOTES OF MEMBERS; SPECIAL VOTES OF MEMBERS RELATING TO
INSURANCE SUBSIDIARY
(1) Subject to any resolution of the Members to the contrary and without
prejudice to any special rights previously conferred on the holders of any
existing shares or class of shares, the share capital of the Company shall be
divided into shares of two classes, Preference Shares ("Preference Shares") and
Common Shares ("Common Shares"). Preference Shares shall be divided into three
series, Series A Preference Shares,
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Series B Preference Shares and Series C Preference Shares. Holders of Preference
Shares and Common Shares shall, subject to the provisions of these Bye-laws and
the Appendices:
(a) be entitled to such dividends as the Board may from time to time
declare;
(b) in the event of a winding-up or dissolution of the Company,
whether voluntary or involuntary or for the purpose of a reorganization or
otherwise or upon any distribution of capital, be entitled to the surplus
assets of the Company; and
(c) generally be entitled to enjoy all of the rights attaching to
shares.
In addition to the above described rights and subject to the below described
limitations, the holders of the Preference Shares and Common Shares shall have
the rights described in the relevant Appendix A, Appendix B, Appendix C and
Appendix D hereto.
(2) At any meeting of Members (or in connection with any written resolution
in lieu of such a meeting), each Member holding shares of the Company, in the
case of a meeting, present in person or by proxy, shall be entitled to such
number of votes as otherwise indicated in these Bye-laws with respect to such
shares, on a non-cumulative basis, for each such share registered in such
Member's name in the Register of Members, provided that if and for so long as
the votes conferred by the Controlled Shares of any Person shall equal or exceed
the Maximum Percentage applicable to such Person of the votes conferred by all
of the issued and outstanding shares of the Company, each share comprised in
such Controlled Shares shall confer only a fraction of a vote, including,
without limitation, at any election of Directors, according to the following
formula:
(T X Maximum Percentage) - 1
----------------------------
C
Where:
"T" is the aggregate number of votes conferred by all of the issued
and outstanding shares of the Company, and
"C" is the number of votes conferred by the Controlled Shares of
such Person.
(3) If, as a result of giving effect to the foregoing provisions of this
Bye-law 50 or otherwise, the votes conferred by the Controlled Shares of a
Person would otherwise represent an amount equal to or greater than the Maximum
Percentage applicable to such Person, the votes conferred by the Controlled
Shares of such Person shall be reduced in accordance with the foregoing
provisions of this Bye-law 50. Such process shall be repeated until the votes
conferred by the Controlled Shares of each Person represent less than the
Maximum Percentage applicable to such Person. The limitations described in this
subparagraph shall not apply to the designation of Directors by certain Members
or classes of Members pursuant to subparagraphs (2) and (3) of Bye-law 12,
subparagraph (1) of Bye-law 15 and subparagraph (1) of Bye-law 16.
(4) Notwithstanding any other provisions of these Bye-laws to the contrary,
with respect to any matter required to be submitted to a vote of the members of
the Insurance Subsidiary, the Company shall be required to submit a proposal
relating to such matters to the Members who shall vote at a meeting in
accordance with these Bye-laws and shall vote all the shares of the Insurance
Subsidiary held by the Company in accordance with and proportional to such vote
of the Members; PROVIDED THAT the Board shall not be required to submit such a
proposal contemplated by this Bye-law 50(4) to the Members at such time as the
Insurance Subsidiary shall no longer be a subsidiary of the Company.
51. POWER TO ISSUE SHARES
(1) Subject to these Bye-laws and to any resolution of the Members to the
contrary and without prejudice to any special rights previously conferred on the
holders of any existing shares or class of shares, including, without
limitation, the rights of preemption contained in the Shareholders Agreement,
the Board shall have power to issue any unissued and authorised shares of the
Company on such terms and conditions as it may determine and any such shares or
class of shares may be issued with such preferred, deferred or other
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special rights or such restrictions, whether in regard to dividend, voting,
return of capital or otherwise as the Company may from time to time by
resolution of the Members prescribe; PROVIDED THAT the Board shall have used its
best efforts to assure that upon consummation of any such issuance or
determination no Person shall hold the Maximum Percentage applicable to such
Person in terms of voting power of the Controlled Shares.
(2) The Board shall, in connection with the issue of any share, have the
power to pay such commission and brokerage as may be permitted by law.
(3) The Company shall not give, whether directly or indirectly, whether by
means of loan, guarantee, provision of security or otherwise, any financial
assistance for the purpose of a purchase or subscription made or to be made by
any Person of or for any shares in the Company, but nothing in this Bye-Law
shall prohibit transactions mentioned in Sections 39A and 39B of the Act.
(4) Subject to the rights of the holders of any existing classes of shares,
the Company may from time to time do any one or more of the following things:
(a) make arrangements on the issue of shares for a difference between
the Members in the amounts and times of payments of calls on their shares;
(b) accept from any Member the whole or a part of the amount remaining
unpaid on any shares held by him, although no part of that amount has been
called up;
(c) pay dividends in proportion to the amount paid up on each share
where a larger amount is paid up on some shares than on others; and
(d) issue its shares in fractional denominations and deal with such
fractions to the same extent as its whole shares and shares in fractional
denominations shall have in proportion to the respective fractions
represented thereby all of the rights of whole shares including (but
without limiting the generality of the foregoing) the right to vote, to
receive dividends and distributions and to participate in a winding up.
52. VARIATION OF RIGHTS, ALTERATION OF SHARE CAPITAL AND PURCHASE OF SHARES OF
THE COMPANY
(1) Subject to the provisions of Sections 42 and 43 of the Act and the
terms of the Preference Shares, any preference shares may be issued or converted
into shares that, at a determinable date or at the option of the Company, are
liable to be redeemed on such terms and in such manner as the Company before the
issue or conversion may by resolution of the Members determine.
(2) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of the shares of that class) may, whether or not the Company is being
wound up, be varied, subject to the terms of such shares and, in the case of the
Preference Shares, the Appendices hereto, with the consent in writing of the
holders of three-fourths of the issued shares of that class or with the sanction
of a resolution passed by a majority of the votes cast at a separate general
meeting of the holders of the shares of the class in accordance with Section
47(7) of the Act. The rights conferred upon the holders of the shares of any
class issued with preferred or other rights shall not, unless otherwise
expressly provided by the terms of issue of the shares of that class, be deemed
to be varied by the creation or issue of further shares ranking pari passu
therewith.
(3) The Company may from time to time by resolution of the Members change
the currency denomination of, increase, alter or reduce its share capital in
accordance with the provisions of Sections 45 and 46 of the Act, subject to the
terms of such shares and, in the case of the Preference Shares, the Appendices
hereto. Where, on any alteration of share capital, fractions of shares or some
other difficulty would arise, the Board may deal with or resolve the same in
such manner as it thinks fit including, without limiting the generality of the
foregoing, the issue to Members, as appropriate, of fractions of shares and/or
arranging for the sale or transfer of the fractions of shares of Members.
(4) The Company may from time to time redeem or purchase its own shares in
accordance with Bye-law 11 or otherwise and the provisions of Sections 42 and
42A of the Act; PROVIDED THAT, except in
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the case of a redemption or purchase of Series A Preference Shares during an
Event of Non-Compliance, the Company shall have used its best efforts to ensure
that upon consummation of any such redemption or purchase no Person shall hold
the Maximum Percentage applicable to such Person in terms of voting power of the
Controlled Shares.
53. REGISTERED HOLDER OF SHARES
(1) The Company shall be entitled to treat the registered holder of any
share as the absolute owner thereof and accordingly shall not be bound to
recognize any equitable or other claim to, or interest in, such share on the
part of any other Person.
(2) Any dividend, interest or other moneys payable in cash in respect of
shares may be paid by cheque or draft sent through the post directed to the
Member at such Member's address in the Register of Members or, in the case of
joint holders, to such address of the holder first named in the Register of
Members, or to such Person and to such address as the holder or joint holders
may in writing direct. If two or more Persons are registered as joint holders of
any shares any one can give an effectual receipt for any dividend paid in
respect of such shares.
54. DEATH OF A JOINT HOLDER
Where two or more Persons are registered as joint holders of a share or
shares then in the event of the death of any joint holder or holders the
remaining joint holder or holders shall be absolutely entitled to the said share
or shares and the Company shall recognize no claim in respect of the estate of
any joint holder except in the case of the last survivor of such joint holders.
55. SHARE CERTIFICATES
(1) Every Member shall be entitled to a certificate under the seal of the
Company (or a facsimile thereof) specifying the number and, where appropriate,
the class of shares held by such Member and whether the same are fully paid up
and, if not, how much has been paid thereon. The Board may by resolution
determine, either generally or in a particular case, that any or all signatures
on certificates may be printed thereon or affixed by mechanical means.
(2) The Company shall be under no obligation to complete and deliver a
share certificate unless specifically called upon to do so by the Person to whom
such shares have been allotted.
(3) If any such certificate issued to a Member shall be proved to the
satisfaction of the Board to have been worn out, lost, mislaid or destroyed the
Board may cause a new certificate to be issued and request an indemnity from
such Member for the lost certificate if it sees fit.
56. CALLS ON SHARES
(1) The Board may from time to time make such calls as it thinks fit upon
the Members in respect of any monies unpaid on the shares allotted to or held by
such Members and, if a call is not paid on or before the day appointed for
payment thereof, the Member may at the discretion of the Board be liable to pay
the Company interest on the amount of such call at such rate as the Board may
determine, from the date when such call was payable up to the actual date of
payment. The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
(2) The Board may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment of such
calls.
57. FORFEITURE OF SHARES
(1) If any Member fails to pay, on the day appointed for payment thereof,
any call in respect of any share allotted to or held by such Member, the Board
may, at any time thereafter during such time as the call
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<PAGE> 23
remains unpaid, direct the Secretary to forward to such Member a notice in the
form, or as near thereto as circumstances admit, of Form "B" in the Schedule
hereto.
(2) If the requirements of such notice are not complied with, any such
share may at any time thereafter before the payment of such call and the
interest due in respect thereof be forfeited by a resolution of the Board to
that effect, and such share shall thereupon become the property of the Company
and may be disposed of as the Board shall determine.
(3) A Member whose share or shares have been forfeited as aforesaid shall,
notwithstanding such forfeiture, be liable to pay to the Company all calls owing
on such share or shares at the time of the forfeiture and all interest due
thereon.
REGISTER OF MEMBERS
58. CONTENTS OF REGISTER OF MEMBERS
The Board shall cause to be kept in one or more books a Register of Members
and shall enter therein the particulars required by the Act.
59. INSPECTION OF REGISTER OF MEMBERS
The Register of Members shall be open to inspection at the registered
office of the Company on every Business Day, subject to such reasonable
restrictions as the Board may impose, so that not less than two hours in each
Business Day be allowed for inspection. The Register of Members may, after
notice has been given by advertisement in an appointed newspaper to that effect,
be closed for any time or times not exceeding in the whole thirty days in each
year.
60. DETERMINATION OF RECORD DATES
Notwithstanding any other provision of these Bye-laws the Board may fix any
date (except that if such date is with respect to the payment of dividends as
provided in any of the Appendices, such date shall always be on the first day of
the month during which such payment is scheduled to be made) as the record date
for:
(a) determining the Members entitled to receive any dividend; and
(b) determining the Members entitled to receive notice of and to vote
at any general meeting of the Company.
TRANSFER OF SHARES
61. INSTRUMENT OF TRANSFER
(1) An instrument of transfer shall be in the form or as near thereto as
circumstances admit of Form "C" in the Schedule hereto or in such other common
form as the Board may accept. Such instrument of transfer shall be signed by or
on behalf of the transferor and transferee provided that, in the case of a fully
paid share, the Board may accept the instrument signed by or on behalf of the
transferor alone. The transferor shall be deemed to remain the holder of such
share until the same has been transferred to the transferee in the Register of
Members.
(2) The Board may refuse to recognize any instrument of transfer unless it
is accompanied by the certificate in respect of the shares to which it relates
and by such other evidence as the Board may reasonably require to show the right
of the transferor to make the transfer.
62. RESTRICTION ON TRANSFER
(1) The Board shall refuse to register a transfer unless (x) all applicable
consents, authorisations and permissions of any governmental body or agency in
Bermuda have been obtained and (y) the Board or its
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<PAGE> 24
transfer agent determines that such transfer would not cause the transferee or
any U.S. Person to become a "United States Shareholder" of the Company or the
Insurance Subsidiary, as such term is defined under Section 951(b) of the Code,
as amended; PROVIDED FURTHER, that a request to transfer shall not be
unreasonably refused. A refusal shall not be deemed unreasonable based upon the
failure of the Board to receive evidence of satisfaction of condition (x) or (y)
above. The Board may reasonably require the transferor to show that such
transferor has complied with the terms regarding transfers in the Shareholders'
Agreement to make the transfer, to the extent such terms are applicable to such
transfer. If a transferor is not negligent in providing information to the Board
or its agent in response to a request for such information in connection with a
transfer, the Company shall indemnify and hold harmless such transferor in
respect of any and all liabilities to the Company, its affiliates, holders of
Capital Stock of the Company and their respective affiliates in connection with
such transfer causing the transferee or any U.S. Person to become a United
States Shareholder.
(2) If the Board refuses to register a transfer of any share the Secretary
shall, as soon as practicable but in no event later than five days after the
date on which the transfer request was lodged with the Company or its agent,
send to the transferor and transferee notice of the refusal or acceptance.
(3) Unless a transferor or transferee knowingly provides incorrect
information to the Board or its agent in connection with a proposed transfer,
such transferor or transferee shall have no liability to the Company, its
affiliates, other holders of Capital Stock of the Company and their respective
affiliates in connection with such transfer.
63. TRANSFERS BY JOINT HOLDERS
The joint holders of any share or shares may transfer such share or shares
to one or more of such joint holders, and the surviving holder or holders of any
share or shares previously held by them jointly with a deceased Member may
transfer any such share to the executors or administrators of such deceased
Member.
TRANSMISSION OF SHARES
64. REPRESENTATIVE OF DECEASED MEMBER
In the case of the death of a Member, the survivor or survivors where the
deceased Member was a joint holder, and the legal personal representatives of
the deceased Member where the deceased Member was a sole holder, shall be the
only persons recognized by the Company as having any title to the deceased
Member's interest in the shares. Nothing herein contained shall release the
estate of a deceased joint holder from any liability in respect of any share
which had been jointly held by such deceased Member with other persons. Subject
to the provisions of Section 52 of the Act, for the purpose of this Bye-law,
legal personal representative means the executor or administrator of a deceased
Member or such other person as the Board may in its absolute discretion decide
as being properly authorised to deal with the shares of a deceased Member.
65. REGISTRATION ON DEATH OR BANKRUPTCY
Any Person becoming entitled to a share in consequence of the death or
bankruptcy of any Member may be registered as a Member upon such evidence as the
Board may deem sufficient or may elect to nominate some Person to be registered
as a transferee of such share, and in such case the Person becoming entitled
shall execute in favour of such nominee an instrument of transfer in the form,
or as near thereto as circumstances admit, of Form "D" in the Schedule hereto.
On the presentation thereof to the Board, accompanied by such evidence as the
Board may require to prove the title of the transferor, the transferee shall be
registered as a Member but the Board shall, in either case, have the same right
to decline or suspend registration as it would have had in the case of a
transfer of the share by that Member before such Member's death or bankruptcy,
as the case may be.
20
<PAGE> 25
DIVIDENDS AND OTHER DISTRIBUTIONS
66. DECLARATION OF DIVIDENDS BY THE BOARD
The Board may, subject to these Bye-laws, including, without limitation,
the terms of the Preference Shares, and in accordance with Section 54 of the Act
and any restrictions contained in Bye-law 51, declare a dividend to be paid to
the Members, in proportion to the number of shares held by them, and such
dividend may be paid in cash or wholly or partly in specie in which case the
Board may fix the value for distribution in specie of any assets.
67. OTHER DISTRIBUTIONS
The Board may declare and make such other distributions (in cash or in
specie) to the Members as may be lawfully made out of the assets of the Company.
68. RESERVE FUND
The Board may from time to time before declaring a dividend set aside, out
of the surplus or profits of the Company, such sum as it thinks proper as a
reserve fund to be used to meet contingencies or for equalizing dividends or for
any other special purpose.
69. DEDUCTION OF AMOUNTS DUE TO THE COMPANY
The Board may deduct from the dividends or distributions payable to any
Member all monies due, if uncontested, from such Member to the Company on
account of calls.
CAPITALIZATION
70. ISSUE OF BONUS SHARES
(1) The Board may resolve to capitalise any part of the amount for the time
being standing to the credit of any of the Company's share premium or other
reserve accounts or to the credit of the profit and loss account or otherwise
available for distribution by applying such sum in paying up unissued shares to
be allotted as fully paid bonus shares pro rata to the Members.
(2) The Company may capitalise any sum standing to the credit of a reserve
account or sums otherwise available for dividend or distribution by applying
such amounts in paying up in full partly paid shares of those Members who would
have been entitled to such sums if they were distributed by way of dividend or
distribution.
ACCOUNTS AND FINANCIAL STATEMENTS
71. RECORDS OF ACCOUNT
The Board shall cause to be kept proper records of account with respect to
all transactions of the Company in accordance with the requirements of the Act
and Section 4 of the Shareholders Agreement, and, in particular, without
limitation, with respect to:
(a) all sums of money received and expended by the Company and the
matters in respect of which the receipt and expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
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<PAGE> 26
Such records of account shall be kept at the registered office of the
Company or, subject to Section 83 (2) of the Act, at such other place as the
Board thinks fit and shall be available for inspection by the Directors during
normal business hours.
72. FINANCIAL YEAR END
The financial year end of the Company may be determined by resolution of
the Board and failing such resolution shall be 31st December in each year.
73. FINANCIAL STATEMENTS
Subject to any rights to waive laying of accounts pursuant to Section 88 of
the Act, financial statements as required by the Act shall be laid before the
Members in general meeting.
AUDIT
74. APPOINTMENT OF AUDITOR
Subject to Section 88 of the Act, at the annual general meeting or at a
subsequent special general meeting in each year, an independent representative
of the Members shall be appointed by them as Auditor of the accounts of the
Company. Such Auditor may be a Member but no Director, Officer or employee of
the Company shall, during his or her continuance in office, be eligible to act
as an Auditor of the Company.
75. REMUNERATION OF AUDITOR
The remuneration of the Auditor shall be fixed by the Company in general
meeting or in such manner as the Members may determine.
76. VACATION OF OFFICE OF AUDITOR
If the office of Auditor becomes vacant by the resignation or death of the
Auditor, or by the Auditor becoming incapable of acting by reason of illness or
other disability at a time when the Auditor's services are required, the Board
shall, as soon as practicable, convene a special general meeting to fill the
vacancy thereby created.
77. ACCESS TO BOOKS OF THE COMPANY
The Auditor shall at all reasonable times have access to all books kept by
the Company and to all accounts and vouchers relating thereto, and the Auditor
may call on the Directors or Officers of the Company for any information in
their possession relating to the books or affairs of the Company.
78. REPORT OF THE AUDITOR
(1) Subject to any rights to waive laying of accounts or appointment of an
Auditor pursuant to Section 88 of the Act, the accounts of the Company shall be
audited at least once in every year.
(2) The financial statements provided for by these Bye-laws shall be
audited by the Auditor in accordance with generally accepted auditing standards.
The Auditor shall make a written report thereon in accordance with United States
generally accepted auditing standards and the report of the Auditor shall be
submitted to the Members in general meeting.
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<PAGE> 27
NOTICES
79. NOTICES TO MEMBERS OF THE COMPANY
A notice may be given by the Company to any Member either by delivering it
to such Member in person or by sending it to such Member's address in the
Register of Members or to such other address given for the purpose. For the
purposes of this Bye-law, a notice may be sent by mail, courier service, cable,
telex, telecopier, facsimile or other mode of representing words in a legible
and non-transitory form.
80. NOTICES TO JOINT MEMBERS
Any notice required to be given to a Member shall, with respect to any
shares held jointly by two or more Persons, be given to whichever of such
Persons is named first in the Register of Members and notice so given shall be
sufficient notice to all the holders of such shares.
81. SERVICE AND DELIVERY OF NOTICE
Any notice shall be deemed to have been served at the time when the same
would be delivered in the ordinary course of transmission and, in proving such
service, it shall be sufficient to prove that the notice was properly addressed
and prepaid, if posted, and the time when it was posted, delivered to the
courier or to the cable company or transmitted by telex, facsimile or other
method, as the case may be.
SEAL OF THE COMPANY
82. THE SEAL
The seal of the Company shall be in such form as the Board may from time to
time determine. The Board may adopt one or more duplicate seals for use outside
Bermuda, other than in the United States of America.
83. MANNER IN WHICH SEAL IS TO BE AFFIXED
The seal of the Company shall not be affixed to any instrument except
attested by the signature of a Director and the Secretary or any two Directors,
or any person appointed by the Board for the purpose, provided that any
Director, Officer or Resident Representative, may affix the seal of the Company
attested by such Director, Officer or Resident Representative's signature to any
authenticated copies of these Bye-laws, the incorporating documents of the
Company, the minutes of any meetings or any other documents required to be
authenticated by such Director, Officer or Resident Representative.
WINDING-UP
84. WINDING-UP/DISTRIBUTION BY LIQUIDATOR
If the Company shall be wound up the liquidator may, with the sanction of a
resolution of the Members and subject to the rights of the holders of the
Preference Shares, divide amongst the Members in specie or in kind the whole or
any part of the assets of the Company (whether they shall consist of property of
the same kind or not) and may, for such purpose, set such value as he or she
deems fair upon any property to be divided as aforesaid and may determine how
such division shall be carried out as between the Members or different classes
of Members. The liquidator may, with the like sanction, vest the whole or any
part of such assets in trustees upon such trusts for the benefit of the Members
as the liquidator shall think fit, but so that no Member shall be compelled to
accept any shares or other securities or assets whereon there is any liability.
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<PAGE> 28
ALTERATION OF BYE-LAWS
85. ALTERATION OF BYE-LAWS
Notwithstanding anything to the contrary contained herein and except as
otherwise provided in the Appendices, no Bye-law shall be rescinded, altered or
amended and no new Bye-law shall be made until the same has been approved by a
resolution of the Board and by a resolution of the holders of a majority of each
of the Series A Preference Shares, the Series B Preference Shares, the Series C
Preference Shares, and the Common Shares.
24
<PAGE> 29
SCHEDULE -- FORM A (BYE-LAW 48)
PROXY
I/We
of
the holder(s) of share(s) in the above-named company hereby appoint
or failing him/her or failing him/her
as my/our proxy to vote on my/our behalf at the general meeting
of the Company to be held on the day of , 19 , and at any
adjournment thereof.
Dated this day of , 19
* GIVEN under the seal of the Company
* Signed by the above-named
--------------------------------------
--------------------------------------
Witness
- ---------------
* Delete as applicable.
25
<PAGE> 30
SCHEDULE -- FORM B (BYE-LAW 57)
NOTICE OF LIABILITY TO FORFEITURE FOR NON PAYMENT OF CALL
You have failed to pay the call of [amount of call] made on the day
of , 19 last, in respect of the [number] share(s) [numbers in figures]
standing in your name in the Register of Members of the Company, on the
day of , 19 last, the day appointed for payment of such call. You
are hereby notified that unless you pay such call together with interest thereon
at the rate of per annum computed from the said day of
, 19 last, on or before the day of , 19 next at the place
of business of the Company the share(s) will be liable to be forfeited.
Dated this day of , 19
[Signature of Secretary]
By order of the Board
26
<PAGE> 31
SCHEDULE -- FORM C (BYE-LAW 61)
TRANSFER OF A SHARE OR SHARES
FOR VALUE RECEIVED ____________ [amount] ____________ [transferor] hereby
sells, assigns and transfers unto ____________ [transferee] of ____________
[address] ____________ [number and type of shares] shares of ____________ [name
of Company]
Dated
--------------------------------------
--------------------------------------
(Transferor)
In the presence of:
--------------------------------------
(Witness)
--------------------------------------
(Transferee)
In the presence of:
--------------------------------------
(Witness)
27
<PAGE> 32
SCHEDULE -- FORM D (BYE-LAW 65)
TRANSFER BY A PERSON BECOMING ENTITLED ON
DEATH/BANKRUPTCY OF A MEMBER
I/We having become entitled in consequence of the [death/bankruptcy] of
[name of the deceased Member] to [number and type] share(s) standing in the
register of members of [Company] in the name of the said [name of deceased
Member] instead of being registered myself/ourselves elect to have [name of
transferee] (the "Transferee") registered as a transferee of such share(s) and
I/we do hereby accordingly transfer the said share(s) to the Transferee to hold
the same unto the Transferee his or her executors administrators and assigns
subject to the conditions on which the same were held at the time of the
execution thereof; and the Transferee does hereby agree to take the said
share(s) subject to the same conditions.
WITNESS our hands this ______ day of
______, 19__
Signed by the above-named )
[person or persons entitled] )
in the presence of: )
Signed by the above-named )
[transferee] )
in the presence of: )
28
<PAGE> 1
EXHIBIT 4.3
APPENDIX A
TO THE BYE-LAWS
DESIGNATIONS, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS
OF
SERIES A CUMULATIVE VOTING PREFERENCE SHARES
1. Designation and Number. The Series A Preference Shares shall be for
the purposes of the Act designated as a separate Series of Preference Shares in
the Company and shall be designated the Series A Cumulative Voting Preference
Shares, par value U.S.$.01 per share (the "Series A Preference Shares"); and the
number of shares designated as the Series A Preference Shares shall be initially
10,000,000; provided, that no such shares may be issued in excess of 2,600,000
shares other than as dividends on the Series A Preference Shares or in exchange
for outstanding Series A Preference Shares.
2. Dividends.
(a) (i) Subject to the provisions of Section 2(b) of this Appendix A, the
holders of Series A Preference Shares shall be entitled to receive, when and as
declared, out of the net profits or surplus of the Company legally available
therefor, dividends per share at the rate of 13.75% per annum (subject to
adjustments as subsequently provided, the "Series A Preferred Dividend Rate")
based on the Series A Preferred Stated Value (as defined below), payable as the
Board may determine; provided that, (A) such dividends accruing on or prior to
June 17, 2002 shall be payable only in Series A Preference Shares (with each
share being valued for this purpose at the Series A Preferred Stated Value) and
(B) such dividends accruing thereafter shall be payable only in cash at a rate
of 11.75% per annum, and, to the extent such dividends accrue in excess of a
rate of 11.75% per annum (the "Excess Dividend Rate"), such Excess Dividend Rate
shall be payable in cash or in Series A Preference Shares (with each share being
valued for this purpose at the Series A Preferred Stated Value), or cash in part
and Series A Preference Shares (with each share being valued for this purpose at
the Series A Preferred Stated Value) in part (such option shall be in the
Company's sole discretion, except that the Company shall use its best efforts to
obtain written assurance from Duff & Phelps Credit Rating Company that the
payment in cash of such Excess Dividend Rate will not adversely affect the AAA
claims paying ability rating of the Insurance Subsidiary and if such assurance
is obtained with respect to all or a portion of such Excess Dividend Rate, then
the entire Excess Dividend Rate or, if such assurance is only with respect to a
portion of the Excess Dividend Rate, such portion, if any, shall be payable only
in cash). The Board shall determine to pay, and shall set apart for or pay, such
dividends to the holders of the Series A Preference Shares before any dividends
(other than the dividends payable in Shares Junior to the Series A Preferred (as
defined below)) shall be set apart for or paid upon the Series B Preference
Shares, the Series C Preference Shares, the Common Shares or any other shares of
Capital Stock ranking on liquidation junior to the Series A Preference Shares
(such shares being referred to hereinafter collectively as "Shares Junior to the
Series A Preferred"). All dividends declared upon Series A Preference Shares
shall be declared pro rata per share.
(ii) Notwithstanding the foregoing, the Series A Preferred Dividend Rate
shall be adjusted as follows (such adjustments being cumulative):
(A) if at any time after June 17, 2002, the Series A Preference Shares
are rated investment grade (a rating of BBB- or higher from Duff & Phelps
Credit Rating Company (or any successor thereto) ("DCR") or the
then-equivalent rating in the event that DCR changes its rating
designations after June 17, 1997), the Series A Preferred Dividend Rate
shall be decreased by 200 basis points for the period from such time until
redemption;
(B) In the event that the Company fails to keep the Registration
Statement on Form S-1 with respect to the Series A Preference Shares ("the
Shelf Registration Statement") effective continuously until June 17, 1999
or such shorter period that will terminate when all the Series A Preference
Shares required by the Series A Preferred Stock Subscription Agreement to
be covered by such Shelf
<PAGE> 2
Registration Statement have been sold pursuant to such registration
statement, then the Series A Preferred Dividend Rate shall be increased or,
to the extent previously increased as provided below in clause (C) of this
Section 2(a)(ii), further increased, as the case may be, by 50 basis points
for the period from the date that the Shelf Registration Statement is no
longer effective until the earlier of (y) the date the Shelf Registration
Statement is again deemed effective and (z) June 17, 1999; and
(C) if an Event of Non-Compliance occurs, the Series A Preferred
Dividend Rate shall be increased or further increased, as the case may be,
by 250 basis points for the period from the date of such event until the
date that no Event of Non-Compliance is continuing.
(b) Dividends on the Series A Preference Shares shall be fully cumulative,
whether or not in any fiscal year there shall be net profits or surplus
available for the payment of dividends in such fiscal year, so that, if in any
fiscal year or years, dividends in whole or in part are not paid upon the Series
A Preference Shares, unpaid dividends shall accrue quarterly at the Series A
Preferred Dividend Rate and be compounded quarterly. Dividends on the Series A
Preference Shares shall accrue at the Series A Preferred Dividend Rate based on
the actual number of days elapsed over a year of 360 days from June 17, 1997
through and until the redemption of such shares.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company or similar procedures affecting the Company, and
after the Company has paid or set aside all amounts due to creditors and any
dividends accrued but unpaid on the Series A Preference Shares pursuant to
Sections 2(a) and (b) above (and any dividends accrued but unpaid with respect
to any such accrued but unpaid dividends as a result of compounding at a
quarterly rate) through the date of such liquidation, dissolution or winding up
or similar procedure, the holders of Series A Preference Shares then issued and
outstanding shall be entitled, on a pro rata per share basis, to be paid out of
the assets of the Company available for distribution to its Members, before any
payment shall be made to the holders of Shares Junior to the Series A Preferred,
an amount equal to US $25.00 (the "Series A Preferred Stated Value") per share,
subject to adjustment in the event of any share split or combination with
respect to such shares. The aggregate of all liquidation payments to which the
holder of a Series A Preference Share shall become entitled under this Section 3
with respect to each Series A Preference Share held by it shall be referred to
as its "Series A Liquidation Value."
(b) If upon any such liquidation, dissolution or winding up of the Company
(or similar procedure affecting the Company) the remaining assets of the Company
available for the distribution to its shareholders shall be insufficient to pay
the holders of Series A Preference Shares the full Series A Liquidation Value
for each Series A Preference Share held by such holders, the holders of Series A
Preference Shares and the holders of any class of shares ranking on liquidation
on parity with the Series A Preference Shares, if any, shall share ratably in
any distribution of the remaining assets and funds of the Company in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full.
(c) The holders of Series A Preference Shares shall not participate with
the holders of the Shares Junior to the Series A Preferred in the distribution
of any assets of the Company in excess of the aggregate Series A Liquidation
Value of the outstanding Series A Preference Shares.
(d) The amalgamation of the Company into or with another company or
corporation, the amalgamation of any other company or corporation into or with
the Company, or the sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Company shall not be deemed to be a
liquidation, dissolution or winding up (or similar procedure) of the Company for
purposes of this Section 3.
4. Voting.
(a) Except as otherwise provided by the Bye-laws (including Bye-law 12(3))
or as set forth below, each issued and outstanding Series A Preference Share
shall entitle the holder thereof to seven votes at each general meeting of the
Company with respect to any and all matters presented to the Members of the
Company for their action or consideration; provided, that if at any time at
which a vote is taken by the
2
<PAGE> 3
Members there are greater than 2,600,000 Series A Preference Shares outstanding,
each Series A Preference Share shall entitle the holder thereof to such number
of votes as determined by dividing 18,200,000 by the number of issued and
outstanding Series A Preference Shares. Except as provided by law or by the
provisions of paragraph (b) below or by the Bye-laws, the holders of Series A
Preference Shares and of any other outstanding preference shares shall vote
together with the holders of Common Shares as a single class.
(b) Notwithstanding anything in the Bye-laws to the contrary, the Company
shall not (i) amend, alter or repeal the preferences or special rights attached
to the Series A Preference Shares as set out in the Bye-laws, including this
Appendix A, or (ii) authorize or issue shares of any class or Series having any
preference or priority as to dividends or redemption or upon liquidation
superior to or on parity with the Series A Preference Shares, in each case,
without the written consent of the holders of at least 90% of the then issued
and outstanding Series A Preference Shares, given in writing, consenting
separately as a class.
5. Redemption.
(a) Each issued and outstanding Series A Preference Share shall be redeemed
in full for an amount equal to the Series A Preferred Stated Value per share
plus dividends accrued but unpaid thereon pursuant to Sections 2(a) and (b)
above (and any dividends accrued but unpaid with respect to any such accrued but
unpaid dividends as a result of compounding at a quarterly rate) through the
date of such redemption, subject to adjustment in the event of any share split
or combination with respect to such shares, payable in cash on the date which is
June 17, 2007.
(b) Upon the occurrence of a Change In Control Event, any holder of
outstanding Series A Preference Shares may elect to have all of its Series A
Preference Shares redeemed by giving written notice to the Company no later than
thirty (30) calendar days after written notice to such holder of such Change In
Control Event, and each Series A Preference Share as to which a holder has
elected redemption shall be redeemed in full for the sum of (i) 101% of the sum
of (A) the Series A Preferred Stated Value per share and (B) any non-cash
dividends accrued but unpaid thereon pursuant to Sections 2(a) and (b) above
(and any non-cash dividends accrued but unpaid with respect to any such accrued
but unpaid dividends as a result of compounding at a quarterly rate) through the
date of such redemption and (ii) any cash dividends accrued but unpaid thereon
pursuant to Section 2(a) and (b) above (and any cash dividends accrued but
unpaid with respect to any such accrued but unpaid dividends as a result of
compounding at a quarterly rate) through the date of such redemption, subject to
adjustment in the event of any share split or combination with respect to such
shares. For purposes of this Section 5(b), "Change in Control Event" means an
event or Series of events by which (A) any "person" or "group" (as defined in
Sections 13(d)(3) and 14(d) of the United States Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than one or more Specified Holders
or an underwriter engaged in a firm commitment underwriting in connection with a
public offering of the Voting Stock (as defined below) of the Company, is or
becomes the "beneficial owner" (as defined under Rule 13d-3 of the Exchange
Act), directly or indirectly, of at least 35% of the total voting power of the
Voting Stock of the Company; (B) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board (together
with any new Directors (x) whose election by the Board or whose nomination for
election by the Members of the Company was approved by a vote of 66 2/3% of the
Directors of the Company then still in office who were either Directors at the
beginning of such period or whose election or nomination for election was
previously so approved or (y) were designated by one or more Specified Holders
(provided that, in the case of a designation by other holders in addition to
Specified Holders, such new Director was designated by Specified Holders
sufficient to make such designation without the approval or votes of such other
holders) pursuant to Bye-law 12(2) or 12(3)) shall cease for any reason to
constitute 66 2/3% of the Directors of the Company then still in office;
provided that, in the event that a "person" or "group" (as defined in Section
13(d)(3) and 14(d) of the Exchange Act), other than one or more Specified
Holders acting pursuant to Bye-law 12(2) or 12(3), that is the "beneficial
owner" (as defined under Rule 13d-3 under the Exchange Act), directly or
indirectly, of less than 35% of the Voting Stock of the Company is able to elect
a majority of the Board of Directors of the Company pursuant to an agreement
with the Company, a Change In Control Event shall be deemed to have occurred; or
(C) the Company consolidates with or amalgamates into, or conveys, transfers or
leases all or substantially all of its assets to any Person, or any Person
consolidates with or amalgamates into the Company, in either event pursuant to a
3
<PAGE> 4
transaction in which any Voting Stock of the Company issued and outstanding
immediately prior to the effectiveness thereof is reclassified or changed into
or exchanged for cash, securities or property, unless (i) such Change In Control
Event arises from a transaction between the Company and a Restricted Subsidiary
thereof, or (ii) such Change In Control Event arises from a transaction
involving an exchange of Voting Stock by the holders of the Voting Stock of the
Company at such time for Voting Stock of a surviving entity immediately
following which such holders own at least 50% of the outstanding Voting Stock of
such surviving entity and upon consummation of which none of the events
described in clause (A) or (B) shall have occurred in respect of such surviving
entity.
(c) On or after June 17, 2002, all or a portion of the issued and
outstanding Series A Preference Shares may be redeemed in cash, at the Company's
option and in its sole discretion, at any time or from time to time (provided
such time is during a Business Day) upon ten calendar days' prior written notice
to the holders thereof, and each Series A Preference Share so redeemed shall be
redeemed for the sum of (i) the applicable redemption percentage (as set forth
below) of the sum of (A) the Series A Preferred Stated Value per share and (B)
any non-cash dividends accrued but unpaid thereon pursuant to Sections 2(a) and
(b) above (and any non-cash dividends accrued but unpaid with respect to any
such accrued but unpaid dividends as a result of compounding at a quarterly
rate) through the date of redemption and (ii) any cash dividends accrued but
unpaid thereon pursuant to Sections 2(a) and (b) above (and any cash dividends
accrued but unpaid with respect to any such accrued but unpaid dividends as a
result of compounding at a quarterly rate) through the date of such redemption,
subject to adjustment in the event of any share split or combination with
respect to such shares.
<TABLE>
<CAPTION>
REDEMPTION
REDEMPTION DATE PERCENTAGES
- --------------- -----------
<S> <C>
June 15, 2002 to June 14, 2003.............................. 111%
June 15, 2003 to June 14, 2004.............................. 108%
June 15, 2004 to June 14, 2005.............................. 106%
June 15, 2005 to June 14, 2006.............................. 104%
June 15, 2006 to June 14, 2007.............................. 102%
</TABLE>
(d) Notwithstanding the foregoing, on and prior to June 17, 2000, up to 35%
of the issued and outstanding Series A Preference Shares may be redeemed in
cash, at the Company's option and in its sole discretion, at any time or from
time to time (provided such time is during a Business Day) upon ten calendar
days' prior written notice to the holders thereof, and each Series A Preference
Share so redeemed shall be redeemed for the sum of (i) 120% of the sum of (A)
the Series A Preferred Stated Value per share and (B) any non-cash dividends
accrued but unpaid thereon pursuant to Sections 2(a) and (b) above (and any
non-cash dividends accrued but unpaid with respect to any such accrued but
unpaid dividends as a result of compounding at a quarterly rate) through the
date of such redemption and (ii) any cash dividends accrued but unpaid thereon
pursuant to Section 2(a) and (b) above (and any cash dividends accrued but
unpaid with respect to any such accrued but unpaid dividends as a result of
compounding at a quarterly rate) through the date of such redemption, subject to
adjustment in the event of any share split or combination with respect to such
shares, provided that any redemption made by the Company pursuant to this
Section 5(d) shall only be made with the net proceeds from one or more public
offerings in the United States of the Company's shares registered with the
Commission.
(e) Any redemption of Series A Preference Shares pursuant to this Section
5, other than Section 5(b), shall be made pro rata from among the registered
holders of such shares then issued and outstanding and with ten calendar days'
prior notice to such registered holders.
(f) Notwithstanding any other provision of this Section 5, any redemption
pursuant to this Section 5 shall be subject to the Company being in compliance
with the Act as determined by the Board. If the Company is unable, as determined
by the Board, to redeem any Series A Preference Shares pursuant to this Section
5 because such redemption would violate the applicable laws of Bermuda, then the
Company shall redeem such Series A Preference Shares as soon thereafter as
redemption would not violate such laws. Any Series A Preference Shares that are
redeemed shall be permanently retired and shall no longer be deemed
4
<PAGE> 5
issued and outstanding and shall not under any circumstances be reissued, and
the Company may from time to time take such appropriate corporate action as may
be necessary to reduce the number of authorized Series A Preference Shares
accordingly.
6. Dividend and Redemption Preferences.
(a) For so long as any of the Series A Preference Shares remains
outstanding, the Company shall not (i) purchase, redeem or otherwise acquire any
Shares Junior to the Series A Preferred (other than (1) Series B Preference
Shares in accordance with the terms thereof in effect as of June 17, 1997 (and
not as amended thereafter) and (2) redemptions or repurchases of any Common
Shares held by directors, officers or employees of the Company and its
Subsidiaries which shares are subject to redemption or repurchase upon any such
person ceasing to be a director, officer or employee, as the case may be, of the
Company, each in accordance with the terms of any applicable agreement between
the Company and any such person or the terms of any agreement or plan pursuant
to which such shares were issued, provided that such repurchases and
redemptions, in the aggregate, are in respect of no more than 10% of the number
of Common Shares issued and outstanding on June 17, 1997 (or the equivalent
number of any other securities into which or for which the Common Shares may be
converted or exchanged as set forth in the Bye-laws) and are redeemed or
repurchased for an amount not in excess of the fair market value at the time of
redemption or repurchase) or (ii) declare or pay or set apart for payment any
dividend on or make any distribution to Shares Junior to the Series A Preferred,
whether in cash or other property, other than dividends payable in Shares Junior
to the Series A Preferred.
(b) For so long as (i) on or after June 17, 2007, the Company shall have
failed to redeem Series A Preference Shares pursuant to Section 5(a)
(notwithstanding Section 5(f)) or (ii) there are any unpaid (cash or non-cash)
dividends which have accrued in respect of any Series A Preference Shares, the
Company shall not (A) purchase, redeem or otherwise acquire any Shares Junior to
the Series A Preferred (other than under Section 6(a)(i)(2) above) or (B)
declare or pay or set apart for payment dividends on or make distributions to
shares ranking on parity with the Series A Preference Shares (for avoidance of
doubt, this clause (B) shall not apply to Series B Preference Shares or Series C
Preference Shares.
5
<PAGE> 6
APPENDIX B
TO THE BYE-LAWS
DESIGNATIONS, NUMBER, VOTING POWERS
PREFERENCES AND RIGHTS
OF
SERIES B CUMULATIVE VOTING PREFERENCE SHARES
1. Designation and Number. The Series B Preference Shares shall be a
separate Series of Preference Shares in the Company and shall be designated the
Series B Cumulative Voting Preference Shares, par value US $0.01 per share (the
"Series B Preference Shares"); and the number of shares designated the Series B
Preference Shares shall be initially 10,000,000; provided, that there shall no
more than 1,600,000 shares issued and outstanding at any one time other than as
dividends on the Series B Preference Shares, in connection with a Commitment
Draw or in exchange for outstanding Series B Preference Shares.
2. Dividends.
(a) Subject to the provisions of Section 2(b) of this Appendix B, Section
6(a)(ii) of Appendix A and Section 7 of Appendix D to the Bye-laws, the holders
of Series B Preference Shares shall be entitled to receive, when and as
declared, out of the net profits or surplus of the Company legally available
therefor, dividends per share at the rate of 7.00% per annum (the "Series B
Preferred Dividend Rate") based on the Series B Preferred Stated Value (as
defined in Section 3(a) of this Appendix B), payable as the Board may determine;
provided, that such dividends accruing on or prior to June 17, 2007 and so long
as any Series A Preference Shares are outstanding shall be payable only in
Series B Preference Shares (with each share being valued for this purpose at the
Series B Preferred Stated Value) and such dividends accruing thereafter shall be
payable only in cash. Subject to Section 6(a)(ii) of Appendix A and Section 7 of
Appendix D to the Bye-laws, the Board shall determine to pay, and shall set
apart for or pay, such dividends to holders of the Series B Preference Shares
after any dividends then due upon the Series A Preference Shares, the Series C
Preference Shares and any other shares ranking on liquidation senior to the
Series B Preference Shares (such shares being referred to hereinafter
collectively as "Shares Senior to the Series B Preferred") shall be set apart
for or paid upon the Shares Senior to the Series B Preferred and before any
dividends (other than dividends payable in Shares Junior to the Series B
Preferred (as defined below)) shall be set apart for or paid upon the Common
Shares or any other shares ranking on liquidation junior to the Series B
Preference Shares (such shares being referred to hereinafter collectively as
"Shares Junior to the Series B Preferred") in any year. All dividends declared
upon Series B Preference Shares shall be declared pro rata per share.
(b) Dividends on the Series B Preference Shares shall be fully cumulative,
whether or not in any fiscal year there shall be net profits or surplus
available for the payment of dividends in such fiscal year, so that, if in any
fiscal year or years, dividends in whole or in part are not paid upon the Series
B Preference Shares, unpaid dividends shall accrue quarterly at the Series B
Preferred Dividend Rate and be compounded quarterly. Dividends on the Series B
Preference Shares shall accrue at the Series B Preferred Dividend Rate based on
the actual number of days elapsed over a year of 360 days from the date of
issuance of such shares through and until the redemption of such shares.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company or similar procedures affecting the Company, and
after the Company has paid or set aside all amounts due to creditors and the
holders of the Shares Senior to the Series B Preferred and any dividends accrued
but unpaid on the Series B Preference Shares pursuant to Sections 2(a) and (b)
above (and any dividends accrued but unpaid thereon with respect to any such
accrued but unpaid dividends as a result of compounding at a quarterly rate)
through the date of such liquidation, dissolution or winding up (or similar
procedure), the holders of Series B Preference Shares then issued and
outstanding shall be entitled, on a pro rata per share basis, to be paid out of
the assets of the Company available for distribution to its Members, after the
Company has paid or set apart for payment all amounts due to creditors and the
holders of Shares Senior to the Series B Preferred and before any payment shall
be made by the Company to the holders of Shares Junior to the
<PAGE> 7
Series B Preferred, an amount equal to U.S.$25.00 (the "Series B Preferred
Stated Value") per Series B Preference Share, subject to adjustment in the event
of any share split or combination with respect to such shares. The aggregate of
all liquidation payments to which the holder of a Series B Preference Share
shall become entitled under this Section 3 with respect to each Series B
Preference Share held by it shall be referred to as its "Series B Liquidation
Value."
(b) If upon any such liquidation, dissolution or winding up of the Company
(or similar procedure affecting the Company) the remaining assets of the Company
available for the distribution to its Members shall be insufficient to pay the
holders of Series B Preference Shares the full Series B Liquidation Value for
each Series B Preference Share held by such holders, the holders of Series B
Preference Shares and the holders of any class of shares ranking on liquidation
on parity with the Series B Preference Shares shall share ratably in any
distribution of the remaining assets and funds of the Company in proportion to
the respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
said shares were paid in full.
(c) The holders of Series B Preference Shares shall not participate with
the holders of the Shares Junior to the Series B Preferred in the distribution
of any assets of the Company in excess of the aggregate Series B Liquidation
Value of the outstanding Series B Preference Shares to the Members.
(d) The amalgamation of the Company into or with another company or
corporation, the amalgamation of any other company or corporation into or with
the Company, or the sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Company shall not be deemed to be a
liquidation, dissolution or winding up (or similar procedure) of the Company for
purposes of this Section 3.
4. Voting.
(a) Except as otherwise provided in the Bye-laws or as set forth below,
each issued and outstanding Series B Preference Share shall entitle the holder
thereof to five votes at each general meeting of Members of the Company with
respect to any and all matters presented to the Members of the Company for their
action or consideration; provided, that if at any time at which a vote is taken
by the Members there are greater than 1,600,000 Series B Preference Shares
issued and outstanding, each Series B Preference Share shall entitle the holder
thereof to such number of votes as determined by dividing 8,000,000 by the
number of issued and outstanding Series B Preference Shares. Except as provided
by law or by the provisions of paragraph (b) below or by the Bye-laws, holders
of Series B Preference Shares and of any other issued and outstanding preference
shares shall vote together with the holders of Common Shares as a single class.
(b) Except as set forth in paragraph (c) below, Series B Preference Shares
issued in connection with the Commitment Draw shall not entitle the holders
thereof to any votes on matters presented to the Members of the Company for any
reason.
(c) Notwithstanding anything in the Bye-laws to the contrary, the Company
shall not (i) amend, alter or repeal the preferences or special rights attached
to the Series B Preference Shares as set out in the Bye-laws, including this
Appendix B, or (ii) authorize or issue shares of any class or Series having any
preference or priority as to dividends or redemption or upon liquidation
superior to or on parity with the Series B Preference Shares (other than the
Series A Preference Shares), in each case, without the written consent of the
holders of at least 90% of the then outstanding Series B Preference Shares
including holders of Series B Preference Shares issued in connection with a
Commitment Draw, given in writing, consenting separately as a class.
5. Redemption.
(a) Subject to Section 6 of Appendix A and Section 7 of Appendix D, each
issued and outstanding Series B Preference Share shall be redeemed in full for
an amount equal to the Series B Preferred Stated Value per share plus dividends
accrued but unpaid thereon pursuant to Sections 2(a) and (b) above (and any
dividends accrued but unpaid with respect to any such accrued but unpaid
dividends as a result of compounding at a quarterly rate) through the date of
such redemption, subject to adjustment in the event of any share split or
combination with respect to such shares, payable in cash on the date that is the
earliest to occur of (i) June 17, 2012, (ii) the Qualified Public Offering,
(iii) the acquisition of a majority of the issued
2
<PAGE> 8
and outstanding Common Shares at the time of such acquisition by one or more
purchasers acting in concert in a single transaction or in a Series of related
transactions including, without limitation, acquisitions occasioned by a
purchase or exchange, or an amalgamation, consolidation, share acquisition or
other form of corporate reorganization in which Persons who were holders of
Common Shares immediately prior to such corporate reorganization do not,
immediately thereafter, own more than 50% of the Common Shares previous voting
power, measured immediately prior to such corporate reorganization, in the
acquiring, amalgamated, consolidated or otherwise reorganized company with
respect to its issued and outstanding voting securities; provided, however, that
the distribution of Rights pursuant to an Offering Circular dated January 21,
1999, as supplemented on February 5, 1999 and February 12, 1999, and a
Subsequent Offering (as defined in the Amended and Restated Shareholders
Agreement, dated March 31, 1999) shall not trigger a redemption under any of the
foregoing clauses (i), (ii) or (iii).
(b) Any redemption of Series B Preference Shares pursuant to this Section 5
shall be made pro rata from among the registered holders of such shares then
issued and outstanding and with ten calendar days' prior notice to such holders.
(c) Notwithstanding any other provision of this Section 5 and subject to
Section 6 of Appendix A and Section 7 of Appendix D, any redemption pursuant to
this Section 5 shall be subject to the Company being in compliance with the Act,
as determined by the Board. If the Company is unable, as determined by the
Board, to redeem any Series B Preference Shares pursuant to this Section 5
because such redemption would violate the applicable laws of Bermuda, then the
Company shall redeem such Series B Preference Shares as soon thereafter as
redemption would not violate such laws. Any Series B Preference Shares that are
redeemed shall be permanently retired, shall no longer be deemed outstanding and
shall not under any circumstances be reissued, and the Company may from time to
time take such appropriate corporate action as may be necessary to reduce the
number of authorized Series B Preference Shares accordingly.
6. Dividend and Redemption Preferences.
(a) For so long as any of the Series B Preference Shares remains issued and
outstanding, the Company shall not (i) purchase, redeem or otherwise acquire any
Shares Junior to the Series B Preferred (other than redemptions or repurchases
of any Common Shares held by directors, officers or employees of the Company and
its Subsidiaries which shares are subject to redemption or repurchase upon any
such person ceasing to be a director, officer or employee, as the case may be,
of the Company, each in accordance with the terms of any applicable agreement
between the Company and any such person or the terms of any agreement or plan
pursuant to which such shares were issued, provided that such repurchases and
redemptions, in the aggregate, are in respect of no more than 10% of the number
of Common Shares issued and outstanding on June 17, 1997 (or the equivalent
number of any other securities into which or for which the Common Shares may be
converted or exchanged as set forth in the Bye-laws) and are redeemed or
repurchased for an amount not in excess of the fair market value at the time of
redemption or repurchase) or (ii) declare or pay or set apart for payment any
dividend on or make any distribution to Shares Junior to the Series B Preferred,
whether in cash or other property, other than dividends payable in Shares Junior
to the Series B Preferred.
(b) For so long as (i) the Company shall fail to redeem Series B Preference
Shares pursuant to Section 5(a) (notwithstanding Section 5(c)) or (ii) there are
any unpaid (cash or non-cash) dividends in respect of any Series B Preference
Shares, the Company shall not declare or pay or set apart for payment dividends
(other than dividends payable in Shares Junior to the Series B Preferred) on or
make distributions to shares ranking on parity with the Series B Preference
Shares.
7. Conversion. The Series B Preference Shares are not convertible into
any other security of the Company except as provided in Section 7(a) below.
(a) All Series B Preference Shares issued and outstanding on the date of
issuance of the Series C Preference Shares (the "Series C Closing Date") shall
automatically, without any action on the part of the Company or the holder
thereof, be converted into Common Shares. The number of Common Shares into which
such Series B Preference Shares shall be converted shall be determined by
dividing (X) the Series B Preferred Stated Value per share plus dividends
accrued but unpaid on the Series B Preference Shares
3
<PAGE> 9
pursuant to Sections 2(a) and (b) above (and any dividends accrued but unpaid
with respect to any such accrued but unpaid dividends as a result of compounding
at a quarterly rate) through the date of such conversion, subject to adjustment
in the event of any share split or combination with respect to such shares by
(Y) a conversion price of US$3.00 per share and rounding down to the nearest
whole share.
(b) The Series B Preference Shares shall be deemed to have been converted
into Common Shares on the Series C Closing Date, and the person entitled to
receive the Common Shares issuable upon such conversion shall be deemed for all
purposes to be the record holder of such Common Shares as of the close of
business on the Series C Closing Date. Accordingly, certificates for Series B
Preference Shares outstanding immediately preceding the Series C Closing Date
shall only represent such number of Common Shares into which the Series B
Preference Shares were converted.
(c) Holders of certificates for Series B Preference Shares on the Series C
Closing Date can obtain certificates for Common Shares by surrendering their
certificates for Series B Preference Shares, duly endorsed if the Company shall
so require, or accompanied by appropriate instruments of transfer satisfactory
to the Company, at the office of the transfer agent for the Series B Preference
Shares, or at such other office as may be designated by the Company, together
with written request to convert the Series B Preference Shares being surrendered
into Common Shares. Such notice shall also state the name and address in which
such holder wishes the certificate for the Common Shares issuable upon
conversion to be issued. As soon as practicable after receipt of the
certificates representing the Series B Preference Shares to be converted and the
notice of election to convert the same, the Company shall issue and deliver at
said office a certificate for the number of whole Common Shares issuable upon
conversion of the Series B Preference Shares.
4
<PAGE> 10
APPENDIX C
TO THE BYE-LAWS
DESIGNATIONS, NUMBER, VOTING POWERS AND RIGHTS
OF
COMMON SHARES
1. Designation and Number. The Common Shares shall be for the purposes of
the Act designated as a separate class of shares in the Company and shall be
designated the Common Shares, par value U.S.$.01 per share (the "Common
Shares"). The number of shares constituting the Common Shares shall be
200,000,000.
2. Dividends. Subject to the rights and preferences of the Series A
Preference Shares, the Series B Preference Shares, the Series C Preference
Shares or any other shares ranking on liquidation senior to the Common Shares
(such shares being referred to hereinafter collectively as "Shares Senior to the
Common Shares"), the holders of the Common Shares shall be entitled to receive,
if, when and as declared, out of net profits or surplus of the Company legally
available therefor, such dividends per share as the Board shall determine. All
dividends declared upon Common Shares shall be declared pro rata per share.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company or similar procedures affecting the Company, and
after the Company has paid or set aside all amounts due to creditors and the
holders of the Shares Senior to the Common Shares and any dividends accrued but
unpaid on the Common Shares, the holders of Common Shares then outstanding shall
be entitled, on a pro rata per share basis, to the remaining assets of the
Company available for distribution to its shareholders.
(b) The amalgamation of the Company into or with another company or
corporation, the amalgamation of any other company or corporation into or with
the Company, or the sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Company shall not be deemed to be a
liquidation, dissolution or winding up (or similar procedure) of the Company for
purposes of this Section 3.
4. Voting.
(a) Except as otherwise provided in the Bye-laws or set forth below, each
issued and outstanding Common Share shall entitle the holder thereof to two
votes at each general meeting of the Company with respect to any and all matters
presented to the Members of the Company for their action or consideration.
Except as provided by law or by the provisions of Section 4(b) below or by the
Bye-laws, holders of Common Shares and holders of any Series of issued and
outstanding Preference Shares, which pursuant to the provisions of these
Bye-laws entitle the holder thereof to vote with respect to any and all matters
presented to the Members of the Company for their action or consideration, shall
vote together as a single class.
(b) The Company shall not amend, alter or repeal the special rights of the
Common Shares as set out in the Bye-laws, including Section 4 of this Appendix
C, without the written consent of the holders of at least 90% of the then
outstanding Common Shares, given in writing; provided, however, that any change
in the number of votes per share to which a holder of a Common Share is entitled
shall not be effective without the written consent of the holders of at least
90% of the then outstanding Common Shares voting separately as a class.
<PAGE> 11
APPENDIX D
TO THE BYE-LAWS
DESIGNATIONS, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF
SERIES C CONVERTIBLE CUMULATIVE VOTING PREFERENCE SHARES
1. Designation and Number. The Series C Preference Shares shall be for
the purposes of the Act designated as a separate Series of Preference Shares in
the Company and shall be designated the Series C Convertible Cumulative Voting
Preference Shares, par value U.S.$.01 per share (the "Series C Preference
Shares"); and the number of shares designated as Series C Preference Shares
shall be initially 52,000,000.
2. Dividends. The holders of Series C Preference Shares shall not be
entitled to receive any dividends with respect to such shares.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company or similar procedures affecting the Company, and
after the Company has paid or set aside all amounts due to creditors and the
holders of the Series A Preference Shares and any other shares ranking on
liquidation senior to the Series C Preference Shares through the date of such
liquidation, dissolution or winding up (or similar procedure), the holders of
Series C Preference Shares then issued and outstanding shall be entitled, on a
pro rata per share basis, to be paid out of the assets of the Company available
for distribution to its Members before any payment shall be made by the Company
to the holders of the Series B Preference Shares, the Common Shares or any other
shares of Capital Stock ranking on liquidation junior to the Series C Preference
Shares (such shares being referred to hereinafter collectively as "Shares Junior
to the Series C Preferred"), an amount equal to (i) U.S. $1.50 (the "Series C
Preferred Stated Value") per share, subject to adjustment in the event of any
share split or combination with respect to such shares plus (ii) an amount equal
to 7.00% per annum of the Series C Preferred Stated Value, which amount shall
calculated based on the actual number of days elapsed over a year of 360 days
from the Series C Closing Date through the date of such liquidation and shall be
compounded annually. The sum of the amounts set forth in clauses (i) and (ii) of
the immediately preceding sentence to which the holder of a Series C Preference
Share shall become entitled under this Section 3 with respect to each such
Preference Share held by it shall be referred to as its "Series C Liquidation
Value."
(b) If, upon any such liquidation, dissolution or winding up of the Company
(or similar procedure affecting the Company), the remaining assets of the
Company available for the distribution to its Members shall be insufficient to
pay the holders of Series C Preference Shares the full Series C Liquidation
Value for each Series C Preference Share held by such holders, the holders of
Series C Preference Shares and the holders of any class of shares ranking on
liquidation on parity with the Series C Preference Shares shall share ratably in
any distribution of the remaining assets and funds of the Company in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full.
(c) The holders of Series C Preference Shares shall not participate with
the holders of the Shares Junior to the Series C Preferred in the distribution
of any assets of the Company to the Members in excess of the aggregate Series C
Liquidation Value of the outstanding Series C Preference Shares.
(d) The amalgamation of the Company into or with another company or
corporation, the amalgamation of any other company or corporation into or with
the Company, or the sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Company shall not be deemed to be a
liquidation, dissolution or winding up (or similar procedure) of the Company for
purposes of this Section 3.
4. Voting.
(a) Except as otherwise provided by the Bye-laws (including Bye-law 12(3))
or as set forth below, each issued and outstanding Series C Preference Share
shall entitle the holder thereof to one vote at each general meeting of the
Company with respect to any and all matters presented to the Members of the
Company for
<PAGE> 12
their action or consideration. Except as provided by law or by the provisions of
Section 4(b) below or by the Bye-laws, the holders of Series C Preference Shares
and of any other outstanding preference shares that entitle the holder to vote
shall vote together with the holders of Common Shares as a single class.
(b) Notwithstanding anything in the Bye-laws to the contrary, the Company
shall not (i) amend, alter or repeal the preferences or special rights attached
to the Series C Preference Shares as set out in the Bye-laws, including this
Appendix D, or (ii) authorize or issue shares of any class or Series having any
preference or priority as to redemption or upon liquidation superior to or on
parity with the Series C Preference Shares, in each case, without the written
consent of the holders of at least 90% of the then issued and outstanding Series
C Preference Shares, given in writing, consenting separately as a class.
5. Redemption.
(a) The Series C Preference Shares shall be redeemed by the Company upon a
Sale (as defined below) of the Company but only if and to the extent that the
consideration to be paid (or deemed to be paid) for each Series C Preference
Share in connection with such Sale is less than the Series C Liquidation Value.
In such case, the Company shall redeem in full each Series C Preference Share
for the Series C Liquidation Value. In the case of an asset sale as described in
clause (i) of paragraph (b) below, the consideration per share deemed to be paid
for each Series C Preference Share shall be determined by (x) dividing the
aggregate gross purchase price received by the Company in connection therewith
by the fully diluted number of Common Shares outstanding assuming conversion or
exchange of all convertible or exchangeable securities and exercise of all
warrants and other derivative securities for Common Shares and (y) multiplying
the result of the calculation in clause (x) by the number of shares into which
each Series C Preference Share is convertible at the time of the consummation of
the applicable Sale based upon the then applicable Conversion Price. Upon the
consummation of any such Sale, the Company shall promptly give notice to the
holders of Series C Preference Shares setting forth the per share consideration
payable in respect of the Series C Preference Shares calculated pursuant to the
immediately preceding sentence. Except as set forth in Section 5(c), below, the
Series C Preference Shares may not be redeemed by the holder under any
circumstances, and the redemption contemplated by this Section 5(a) shall be
made ten (10) calendar days following dispatch of such notice.
(b) For purposes of this Section 5, a "Sale" of the Company shall mean, (i)
a sale or other transfer in one or a series of related transactions of all or
substantially all of the assets of the Company and its subsidiaries taken as a
whole and (ii) a merger, consolidation or amalgamation to which the Company is a
party which results in the owners of all of the Company's classes of voting
securities prior to such merger, consolidation or amalgamation owning securities
with less than 50% of the then-outstanding voting power of the surviving entity
following such merger, consolidation or amalgamation.
(c) At the Maturity Date (as defined in Section 6 below), the Series C
Preference Shares shall, at the option of the Company, either (i) be redeemed
for cash in an amount per share equal to the Series C Liquidation Value or (ii)
converted in Common Shares as provided by Section 6 below. No later than 10 days
prior to the Maturity Date, the Company shall give notice to the holders of
Series C Preference Shares of the impending maturity of such shares, of whether
the Company intends to redeem such shares for cash or Common Shares, and of the
then-applicable Series C Liquidation Value or number of Common Shares into which
a Series C Preference Share is then convertible.
(d) Any redemption of Series C Preference Shares pursuant to this Section 5
(other than a redemption pursuant to Section 5(c) above) shall be made pro rata
from among the registered holders of such shares then issued and outstanding and
with ten calendar days' prior notice to such registered holders.
(e) Notwithstanding any other provision of this Section 5, any redemption
pursuant to this Section 5 shall be subject to the Company being in compliance
with the Act as determined by the Board. If the Company is unable, as determined
by the Board, to redeem any Series C Preference Shares pursuant to this Section
5 because such redemption would violate the applicable laws of Bermuda, then the
Company shall redeem such Series C Preference Shares as soon thereafter as
redemption would not violate such laws. Any Series C Preference Shares that are
redeemed shall be permanently retired and shall no longer be deemed
2
<PAGE> 13
issued and outstanding and shall not under any circumstances be reissued, and
the Company may from time to time take such appropriate corporate action as may
be necessary to reduce the number of authorized Series C Preference Shares
accordingly.
6. Conversion.
(a) For purposes of this Section 6 the following definitions shall apply:
(i) "Conversion Date" shall mean the earlier to occur of the Maturity
Date or the date upon which the Series C Preference Shares are required to
be converted pursuant to the provisions of clause (ii) of Section 6(b)
below;
(ii) "Conversion Price" shall mean U.S. $1.50 per share, as adjusted
from time to time as provided herein;
(iii) "Fair Market Value" shall mean the last reported sales price of
Common Shares on the Nasdaq National Market on the date on which the fair
market value is to be determined or, in the absence of any reported sales
of Common Shares on such date, on the first preceding date on which any
such sale shall have been reported. If the Company's Common Shares are not
listed on the Nasdaq National Market on the date on which the fair market
value is to be determined, the Board of Directors shall determine in good
faith the fair market value in whatever manner it considers appropriate;
(iv) "Issue Date" shall mean March 31, 1999; and
(v) "Maturity Date" shall mean March 31, 2009.
(b) The Series C Preference Shares shall automatically be converted into
Common Shares at the earlier to occur of (i) the Maturity Date, with such Series
C Preference Shares being converted in such case into such number of Common
Shares as provided in Section 6(c) below, notwithstanding the then-applicable
Conversion Price, or (ii) the issuance by the Company in one or a series of
related transactions either privately or through registered public offerings
(other than pursuant to acquisitions, mergers or other business combinations or
pursuant to stock option plans, stock purchase plans or other employee benefit
plans or arrangements) of equity securities (which, for purposes of
clarification, shall not include any debt securities convertible or exchangeable
for equity securities of the Company) resulting in aggregate gross proceeds to
the Company of at least fifty million dollars (US$50,000,000) and at a price per
share determined by a majority of the Board of Directors to be fair and
reasonable ("New Equity"), with such Series C Preference Shares being converted
in such case into such number of Common Shares as set forth in Section 6(d)
below. The Company shall deliver a notice to each holder of Series C Preference
Shares at least ten days prior to the Maturity Date or, with respect to an event
described in clause (ii) of the immediately preceding sentence, promptly upon a
determination by the Board of Directors that such event is reasonably likely to
occur. Such notice shall set forth (i) the Maturity Date or the expected closing
date of such event, as applicable and (ii) the Fair Market Value, in addition to
the items specified in Section 5(c) above.
(c) If an election is not made pursuant to Section 5(c) above, at the
Maturity Date, the Series C Preference Shares shall, notwithstanding the
then-applicable Conversion Price, be converted into such number of Common
Shares, determined by dividing the Series C Liquidation Value by (x) the
Conversion Price if the Fair Market Value per Common Share at the Maturity Date
is at least U.S. $1.50 or (y) ninety-five percent (95%) of the Fair Market
Value, if the Fair Market Value per Common Share at the Maturity Date is less
than U.S. $1.50. The conversion ratio described in the preceding sentence shall
not be applicable to the conversion of the Series C Preference Shares into
Common Shares on a date prior to the Maturity Date.
(d) Upon the issuance by the Company of New Equity, each Series C
Preference Share shall be converted into such number of Common Shares to be
determined by dividing the Series C Preferred Stated Value by the Conversion
Price.
(e) Series C Preference Shares may be converted into Common Shares at any
time at the option of the holder at the then-applicable Conversion Price. For
purposes of conversions at the option of the holder
3
<PAGE> 14
contemplated by this Section 6(e), each Series C Preference Share shall be
valued at the Series C Preferred Stated Value.
(f) With respect to any conversions of securities pursuant to the preceding
paragraphs of this Section 6, the holder thereof shall surrender the
certificates therefor, duly endorsed if the Company shall so require, or
accompanied by appropriate instruments of transfer satisfactory to the Company,
at the office of the transfer agent for the Series C Preference Shares, or at
such other office as may be designated by the Company, together with written
notice that such holder irrevocably elects to convert such shares. Such notice
shall also state the name and address in which such holder wishes the
certificate for the Common Shares issuable upon conversion to be issued. As soon
as practicable after receipt of the certificates representing the Series C
Preference Shares to be converted and the notice of election to convert the
same, the Company shall issue and deliver at said office a certificate for the
number of whole Common Shares issuable upon conversion of the Series C
Preference Shares surrendered for conversion (rounding down to the nearest whole
share), to the person entitled to receive the same. The Series C Preference
Shares shall be deemed to have been converted immediately prior to the close of
business on the date such shares are surrendered for conversion and notice of
election to convert the same is received by the Company in accordance with the
foregoing provision, and the person entitled to receive the Common Shares
issuable upon such conversion shall be deemed for all purposes as the record
holder of such Common Shares as of the close of business on such date.
(g) No fractional Common Shares shall be issued upon conversion of any
Series C Preference Shares. If more than one stock certificate for Series C
Preference Shares shall be surrendered for conversion at one time by the same
holder, the number of full Common Shares issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares represented by all
the certificates so surrendered. If the conversion of any Series C Preference
Shares results in a fractional Common Share, the Company shall round down to the
nearest whole share amount and issue a certificate for such whole number of
shares.
(h) The Conversion Price shall be adjusted from time to time as follows:
(i) In the event that the Company shall pay or make a dividend or
other distribution on any class of Common Shares or Preference Shares
(other than the Series C Preference Shares) of the Company in Common
Shares, the Conversion Price in effect at the opening of business on the
date following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be reduced by
multiplying such Conversion Price 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, and the denominator of which
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following
the date fixed for such determination. For purposes of this subsection, the
number of Common Shares at any time outstanding shall not include shares
held in the treasury of the Company or issued to the treasury as a dividend
with respect thereto.
(ii) In the event that the Company shall issue options, rights or
warrants to any holders of any class of Common Shares or Preference Shares
(other than the Series C Preference Shares) of the Company entitling them
to subscribe for or purchase Common Shares or at a price per share less
than the Conversion Price on the date fixed for the determination of
stockholders entitled to receive such options, rights or warrants (other
than pursuant to a dividend reinvestment plan, an employee stock option
plan, an employee stock warrant plan or any similar plan for the benefit of
the employees of the Company and/or its subsidiaries), the Conversion Price
in effect at the opening of business on the day following the date fixed
for such determination shall be reduced by multiplying such Conversion
Price 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, 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 issuable upon exercise of
such options, rights or warrants, such reduction to become effective
immediately after the opening of business on the day following the date
fixed for such determination. For the purposes of this subsection (ii), the
number of Common Shares at any time outstanding shall not
4
<PAGE> 15
include shares held in the treasury of the Company or issuable pursuant to
warrants held in or issued to treasury.
(iii) In the event that outstanding Common Shares shall be subdivided
into a greater number of Common Shares, the Conversion Price in effect at
the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding Common Shares shall be combined into a
smaller number of Common Shares, the Conversion Price in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iv) In the event that the Company shall, by dividend or otherwise,
distribute to any holders of any class of Common Shares or Preference
Shares (other than the Series C Preference Shares) of the Company evidences
of its indebtedness or assets (including (A) securities, but excluding (B)
any rights or warrants referred to in subsection (ii) above, any dividend
or distribution paid in cash out of the consolidated retained earnings of
the Company and any dividend or distribution referred to in subsection (i)
above), the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by a
fraction, the numerator of which shall be the Fair Market Value of the
Common Shares on the date fixed for such determination less the then fair
market value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive and shall be described in a statement
filed with the transfer agent for the Series C Preference Shares) of the
portion of the evidences of indebtedness or assets so distributed
applicable to one share of Common Shares, and the denominator of which
shall be such Fair Market Value of the Common Shares, such adjustment to
become effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such distribution.
(v) The reclassification of Common Shares into securities including
securities other than Common Shares (other than any reclassification upon a
consolidation or merger to which Section 6(j) below applies) shall be
deemed to involve (A) 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 for the
determination of stockholders entitled to receive such distribution" and
the "date fixed for such determination" within the meaning of subsection
(iv) above), and (B) a subdivision 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 became effective" or "the day
upon which such subdivision becomes effective" as the case may be, and "the
day upon which such combination becomes effective" within the meaning of
subsection (iii) above).
(vi) Notwithstanding the foregoing, no adjustment to the Conversion
Price for the Series C Preference Shares shall be required unless such
adjustment would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which by reason of this
subsection (vi) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section shall be made to the nearest cent or to the nearest one-
hundredth of a share, as the case may be.
(i) Whenever the Conversion Price shall be adjusted as herein provided (i)
the Company shall forthwith make available at the office of the transfer agent
for the Series C Preference Shares a statement describing in reasonable detail
the adjustment, the facts requiring such adjustment and the method of
calculation used; and (ii) the Company shall cause to be mailed by first class
mail, postage prepaid, as soon as practicable to each holder of record of Series
C Preference Shares a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price.
5
<PAGE> 16
(j) In the event of any consolidation of the Company with, or merger of the
Company into, any other corporation (other than a merger in which the Company is
the surviving corporation and which does not result in any reclassification,
conversion, exchange or cancellation of outstanding Common Shares of the
Company) or a sale, lease or conveyance of the assets of the Company as an
entirety or substantially as an entirety, or any statutory exchange of
securities with another corporation, the holder of each share of Series C
Preference Shares shall have the right, after such consolidation, merger, sale
or exchange to convert such share only into the number and kind of shares of
stock or other securities, and the amount of cash or other property receivable
upon such consolidation, merger, sale or exchange by a holder of the number of
Common Shares issuable upon conversion of such Series C Preference Shares
immediately prior to such consolidation, merger, sale or exchange. No provision
shall be made for adjustments in the Conversion Price. The provisions of this
Section 6(j) shall similarly apply to successive consolidations, mergers, sales
or exchanges.
(k) The Company shall pay any taxes that may be payable in respect of the
issuance of Common Shares upon conversion of Series C Preference Shares, but the
Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance of Common Shares in the name other than
that in which the Series C Preference Shares so converted are registered, and
the Company shall not be required to issue or deliver any such shares unless and
until the person requesting such issuance shall have paid to the Company the
amount of any such taxes, or shall have established to the satisfaction of the
Company that such taxes have been paid.
(l) The Company may (but shall not be required to) make such reductions in
the Conversion Price, in addition to those required by subsections (i) through
(iv) of Section 6(h) above, as it considers to be advisable in order that
certain stock-related distributions hereafter made by the Company to its
stockholders shall not be taxable.
(m) The Company shall at all times reserve and keep available out of its
authorized but unissued Common Shares the full number of Common Shares issuable
upon the conversion of all Series C Preference Shares then outstanding.
7. Dividend and Redemption Preferences
(a) For so long as any of the Series C Preference Shares remains
outstanding, the Company shall not declare or pay or set apart for payment any
dividend on or make any distribution to Shares Junior to the Series C Preferred,
whether in cash or other property, including dividends payable in Shares Junior
to the Series C Preferred other than dividends on Series B Preference Shares
payable in accordance with Appendix B.
(b) In the event of any default by the Company on any payment due to the
holders of Series C Preference Shares, the Company shall not (A) purchase,
redeem or otherwise acquire any Shares Junior to the Series C Preferred, (B)
declare or pay or set apart for payment dividends on or make distributions to
Shares Junior to the Series C Preferred and (C) pay or set apart for payment
dividends on any shares ranking on parity with the Series C Preference Shares.
6
<PAGE> 1
EXHIBIT 4.4
CGA GROUP, LTD.
SHAREHOLDERS AGREEMENT
DATED AS OF JUNE 12, 1997
AS AMENDED AND RESTATED AS OF MARCH 31, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. TRANSFERS................................................... 2
(a) Separation of Investment Units and Resale of
Securities.................................................. 2
(b) Right of First Offer.................................... 3
(c) Drag Along Right........................................ 4
(d) Tag Along Right......................................... 5
(e) Preemption Right........................................ 5
(f) Regulatory Transfer..................................... 7
(g) Termination of Rights................................... 7
2. RESTRICTIONS ON STOCK OWNERSHIP............................. 7
(a) Share Ownership Limitations............................. 7
(b) Prompt Disposition of Shares............................ 8
(c) Manner of Disposition................................... 8
3. REGISTRATION RIGHTS......................................... 8
(a) Definitions............................................. 9
(b) Demand Registration..................................... 9
(c) Piggyback Registration.................................. 11
(d) Expenses of Registration................................ 12
(e) Registration Procedures................................. 12
(f) Indemnification......................................... 14
(g) Information by the Holders.............................. 17
(h) Rule 144 Reporting...................................... 17
(i) "Market Stand-off" Agreement............................ 17
(j) Assignability........................................... 18
(k) Termination............................................. 18
4. INFORMATION AS TO COMPANY AND RELATED COVENANTS............. 18
(a) Auditors................................................ 18
(b) Financial Information................................... 19
(c) Business Report......................................... 19
(d) Inspection.............................................. 19
5. DEFINITIONS................................................. 19
(a) Terms Defined........................................... 19
6. MISCELLANEOUS............................................... 21
(a) Legends................................................. 21
(b) Waiver; Amendments...................................... 21
(c) Amendment of Schedules I and II to this Agreement....... 21
(d) Recapitalization, Exchanges, Etc. ...................... 21
(e) Specific Performance.................................... 21
(f) Notices................................................. 21
(g) Successors and Assigns.................................. 22
(h) Counterparts............................................ 22
(i) Entire Agreement........................................ 22
(j) Applicable Law.......................................... 22
(k) Section Headings........................................ 22
(l) Holders of Warrant Shares............................... 22
(m) Series B Holders........................................ 22
(n) Series C Holders........................................ 22
</TABLE>
i
<PAGE> 3
SHAREHOLDERS AGREEMENT
Shareholders Agreement, dated as of June 12, 1997, as amended and restated
as of March 31, 1999 (this "Agreement") among CGA Group, Ltd., a company with
limited liability organized under the laws of Bermuda (the "Company"), each of
the persons whose names and addresses appear on Schedule I hereto, as such
Schedule I may be amended from time to time in accordance with the terms hereof
(the "Common Holders") and each of the persons whose names and addresses appear
on Schedule II hereto, as such Schedule II may be amended from time to time in
accordance with the terms hereof (the "Series C Holders"). It is expressly
understood among the parties that the term "Common Holders", as used herein,
shall include, without limitation, holders of Series B Conversion Shares and/or
Series C Conversion Shares (each as defined below). Each of the foregoing
defined terms shall include such persons' successors and assigns as permitted by
this Agreement. Certain capitalized terms used in this Agreement have the
meanings set forth in Section 5 of this Agreement.
RECITALS
WHEREAS, the Company has issued or has agreed to issue shares of the
following classes of capital stock: (i) Series A Cumulative Voting Preference
Shares, par value $.01 per share, of the Company ("Series A Preferred Stock"),
(ii) Series B Cumulative Voting Preference Shares, par value $.01 per share, of
the Company ("Series B Preferred Stock"), (iii) Series C Cumulative Voting
Preference Shares, par value $.01 per share, of the Company ("Series C Preferred
Stock") and (iv) common stock, par value of $.01 per share, of the Company (the
"Common Stock") (the Common Stock, the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, and any other shares of capital
stock of the Company, being collectively referred to herein as the "Company
Stock"); and
WHEREAS, certain investors have (i) purchased, pursuant to the terms of the
Series A Preferred Stock Subscription Agreement, dated as of June 9, 1997 (the
"Series A Preferred Stock Subscription Agreement"), the Series A Preferred Stock
and (ii) purchased, pursuant to the terms of the Warrant Acquisition Agreement,
dated as of June 9, 1997 (the "Warrant Acquisition Agreement"), warrants
("Warrants") to purchase Common Stock (or such shares of other stock into which
such Common Stock may have been converted prior to the exercise of the Warrant);
and
WHEREAS, certain initial Common Holders have purchased, pursuant to the
terms of the Investment Units Subscription Agreement, dated as of June 4, 1997
(the "Investment Units Subscription Agreement"), an aggregate of 1,600,000
investment units (the "Investment Units"), each such Investment Unit consisting
(a) prior to the Series B Conversion (as defined below) of (i) one share of
Series B Preferred Stock, (ii) 4.8925 shares of Common Stock, and (iii) upon the
occurrence of certain events described in such subscription agreement, one and
one-half (1.5) additional shares of Series B Preferred Stock (the "Commitment")
and (b) following the Series B Conversion (as defined below), of (i) a number of
shares of Common Stock equal to the ratio for such shares set forth in the
Company's Amended and Restated Bye-laws, (ii) 4.8925 shares of Common Stock and
(iii) the Commitment; and
WHEREAS, certain other initial Common Holders have (i) purchased, pursuant
to the Founders' Subscription Agreement, dated as of June 12, 1997 (the
"Founders' Subscription Agreement"), an aggregate of 1,272,043 shares of Common
Stock and (ii) purchased, pursuant to the terms of the Sponsoring Investors' and
Founders' Stock Warrant Plan, dated as of June 17, 1997 (the "Sponsoring
Investors' and Founders' Stock Warrant Plan"), an aggregate of 847,729 warrants
to purchase Common Stock ("Sponsoring Investors' and Founders' Warrants"); and
WHEREAS, certain management employees of the Company have received and will
continue to receive the right to purchase, over the prescribed vesting period,
an aggregate of 1,494,771 warrants to purchase Common Stock (or such shares of
other stock into which such Common Stock may have been converted prior to the
exercise of the warrants) ("Employee Warrants") pursuant to the terms of the
Employee Stock Warrant Plan dated of June 17, 1997 (the "Employee Stock Warrant
Plan") (the Warrants, Sponsoring Investors' and Founders' Warrants and Employee
Warrants, collectively the "Warrant Shares"); and
<PAGE> 4
WHEREAS, pursuant to the Company's Amended and Restated Bye-laws, the
issued and outstanding shares of Series B Preferred Stock shall, on the closing
date of the Company's initial issuance of Series C Preferred Stock (the "Series
C Closing Date"), automatically convert (the "Series B Conversion") into shares
of Common Stock (the "Series B Conversion Shares"), subject to the Maximum
Percentage limitations set forth in the Company's Amended and Restated Bye-laws;
and
WHEREAS, certain investors have agreed, pursuant to the terms of the Series
C Preferred Stock Subscription Agreement dated as of March 1, 1999 (the "Series
C Subscription Agreement"), to purchase on the Series C Closing Date the Series
C Preferred Stock, which shall be convertible into Common Shares (the "Series C
Conversion Shares") of the Company, on the terms and at the conversion ratio set
forth in the Company's Amended and Restated Bye-laws; and
WHEREAS, the parties hereto have agreed that, as of the date of the Series
B Conversion or of the conversion of any shares of Series C Preferred Stock into
Series C Conversion Shares, the holders of such Series B Conversion Shares
and/or Series C Conversion Shares shall be required to become party to this
Agreement and be bound by the provisions of this Agreement to the extent of
their ownership of such shares, it being understood that the Series B Conversion
Shares and Series C Conversion Shares shall be shares of Common Stock, as such
term is used in this Agreement; and
WHEREAS, the Common Holders and the Company desire to enter into the
agreements contained herein with respect to certain matters relating to the
operations of the Company and the disposition of Company Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. TRANSFERS
(a) Separation of Investment Units and Resale of Securities.
(i) Prior to the occurrence of a Separation Event (as defined below), no
Common Holder may transfer any Company Stock constituting a part of an
Investment Unit other than collectively as a unit with the other Common Stock,
Series B Preferred Stock and the Commitment constituting a part of such
Investment Unit. Upon the occurrence of a Separation Event, a Common Holder may
transfer some or all of the Common Stock, the Series B Preferred Stock and the
Commitment constituting an Investment Unit other than collectively as a unit,
subject to applicable restrictions on transfers of Company Stock or Units set
forth in this Agreement, the Investment Units Subscription Agreement and the
Company's Amended and Restated Bye-Laws. The non-collective transfers described
in the immediately preceding sentence are referred to herein as the "Separate
Transfers". As used herein, the phrase "Separation Event" means the earlier to
occur of (x) a Trigger Event, provided that the Company receives written
notification from Duff & Phelps Credit Rating Company ("DCR") that neither such
Trigger Event nor the Separate Transfers will cause the claims paying ability
rating of Commercial Guaranty Assurance, Ltd. to be downgraded by DCR or (y)
receipt by the Company of written notification from DCR that the Separate
Transfers will not cause DCR to downgrade CGA's claims paying ability. The
parties to this Agreement expressly agree that the Series B Conversion shall not
constitute a Separation Event. Within 10 days prior to the occurrence of each
Trigger Event, the Company shall request in writing that DCR deliver the written
notification referred to in the proviso to clause (x) above. Upon the request of
any Investment Unit holder, the Company shall request in writing that DCR
deliver the written notification specified in clause (y) above. Notwithstanding
the foregoing, prior to a Separation Event, Commitments with an aggregate value
(which value shall be determined based on the product of (A) the maximum number
of shares of Series B Preferred Stock required to be purchased pursuant to such
Commitments and (B) $25.00) of up to $7.5 million may be transferred separately
from the Common Stock and Series B Preferred Stock constituting the Investment
Units held by a Common Holder without receipt from DCR of the notices provided
above; provided, further, that Olympus Growth Fund II, L.P. and Olympus
Executive Fund, L.P. shall have the first right, prior to any other Common
Holder, to so transfer all or any portion of the Commitments that it, or its
Affiliates, own; provided, further, that if Olympus Growth Fund II, L.P. and
Olympus Executive Fund, L.P. notifies the Company prior to the occurrence of a
Separation Event
2
<PAGE> 5
that it will not exercise such first right or that it will not exercise such
first right with respect to Commitments with an aggregate value of $7.5 million,
Commitments with an aggregate value equal to the difference between $7.5 million
and the aggregate value of the Commitments so transferred by Olympus Growth Fund
II, L.P. and Olympus Executive Fund, L.P. may be transferred by such Common
Holders as shall request such right on a pro rata basis based on the amount of
shares of Common Stock owned by each such requesting Common Holder, as compared
to the aggregate of all of the shares of Common Stock owned by all of the
requesting Common Holders, and as shall be approved by the Board of the Company
in its sole discretion.
(ii) No Common Holder shall transfer, prior to a Separation Event, any
Investment Units or Common Stock and, after a Separation Event, any Common Stock
held by such Common Holder, whether held separately or as part of one or more
Investment Units, other than, in each case, (a) in accordance with the Company's
Amended and Restated Bye-Laws and the provisions of this Section 1 and Section 2
hereof and (b) in accordance with Article VII of the Investment Unit
Subscription Agreement, Article VII of the Series C Subscription Agreement,
Article VII of the Founders' Subscription Agreement or Article IV of the Warrant
Acquisition Agreement, as the case may be. Unless (x) a registration statement
is in effect with respect to the Common Stock to be transferred or (y) the
transfer is made pursuant to Rule 144 of the Securities Act, or (z) the transfer
is of Common Stock that has been transferred previously pursuant to (x) or (y),
no Common Holder shall transfer any Common Stock whether held separately or as
part of one or more Investment Units, unless the transferee of such shares has
agreed to be bound by the terms of this Agreement and has duly executed a
counterpart of this Agreement. Any transfer or purported transfer made in
violation of this Section 1 and Section 2 hereof shall be null and void and of
no effect and the Company shall cause any correction required to be made to the
register of the Members of the Company to be effected.
(iii) No Series C Holder shall transfer any Series C Preferred Stock held
by such holder, other than, in each case, (a) in accordance with the Company's
Amended and Restated Bye-Laws and the provisions of this Section 1 and Section 2
hereof and (b) in accordance with Article VII of the Series C Subscription
Agreement. Unless (x) a registration statement is in effect with respect to the
Series C Preferred Stock, or (y) the transfer is made pursuant to Rule 144 of
the Securities Act, or (z) the transfer is of stock that has been transferred
previously pursuant to (x) or (y), no Series C Holder shall transfer any such
shares unless the transferee of such shares has agreed to be bound by the terms
of this Agreement and has duly executed a counterpart of this Agreement. Any
transfer or purported transfer made in violation of this Section 1 and Section 2
hereof shall be null and void and of no effect and the Company shall cause any
correction required to be made to the register of the Members of the Company to
be effected.
(b) Right of First Offer.
(i) Subject to subsection (vii) below, any Common Holder desiring to
transfer, prior to any Separation Event, Investment Units or Common Stock,
whether held separately or as part of one or more Investment Units and after a
Separation Event any Common Stock (hereinafter for purposes of this Section 1(b)
only, the "Securities"), held by such Common Holder (the "Seller") shall give
written notice (the "Sales Notice") to the other Common Holders that the Seller
desires to effect such a transfer (a "Sale") and setting forth the number of
Investment Units or shares of Common Stock proposed to be transferred by the
Seller.
(ii) The receipt of the Sales Notice by each other Common Holder party to
this Shareholders Agreement shall constitute an offer (the "Offer") by the
Seller to sell to such Common Holder or group of Common Holders for cash the
Securities subject to the Sale, subject to the Seller's approval of the terms
and conditions of the Bid (as defined below). Each Common Holder, or any group
of one or more Common Holders, receiving an Offer shall have a 15-day period
(the "Order Period") in which to give a written notice (a "Bid") to the Seller
prior to the expiration of such 15-day period, which written notice shall set
the price per Security that such Common Holder or group of Common Holders
proposes to pay (the "Proposed Sales Price") and such other terms and conditions
it or they propose with respect to the Sale; provided, however, a Bid must be
for all of the Securities the Seller proposes to transfer as stated in the Sales
Notice.
(iii) Upon the receipt of all Bids, if any, the Seller shall have the right
to solicit offers for the Securities subject to the Sale from any non-affiliated
third-party (a "Third-Party Offer") for a period of 90 days from the date the
Order Period expires. To the extent the Seller receives a Third-Party Offer and
such Third-Party
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Offer contains a Proposed Sales Price in excess of the highest Sales Price
received by Seller pursuant to the Bids made by the Common Holders or group of
Common Holders, then Seller shall have the right to sell the Securities to the
Third-Party pursuant to its Offer. If no Bids are delivered during the Order
Period then the Seller shall be entitled to accept, in its sole discretion, any
Third-Party Offer it so chooses. If such sale pursuant to a Third-Party Offer is
not consummated within 120-days from receipt of the Third-Party Offer, and no
Bids of Common Holders are accepted by the Seller within 10 days following the
expiration of the 90-day period described in the first sentence of this
subparagraph (iii), then the provisions of this Section 1(b) shall be reinstated
as to any other transfers proposed to be made by the Seller.
(iv) The Common Holders or group of Common Holders providing a Bid to the
Seller during the Order Period as to all of the Securities subject to the Sale,
and which Bid is accepted by the Seller, shall be required to purchase and pay
for all the Securities accepted pursuant to their Bid within a 30-day period
from the date on which the buying Common Holder (or group of Common Holders)
receives written notice of the Seller's acceptance of the Bid; provided that if
the purchase and sale of such Securities is subject to any prior regulatory
approval, the time period during which such purchase and sale may be consummated
shall be extended until the expiration of five Business Days after all such
approvals shall have been received.
(v) Subject to the transfer restrictions of Section 1(a)(ii), the Seller
may transfer Investment Units or shares in accordance with subsection (b)(iii)
for consideration other than cash to an unaffiliated third-party only if the
Seller has first obtained and delivered to each of the Common Holders an opinion
of an independent investment banking firm of national standing indicating that
the fair market value of the per share non-cash consideration that the Seller
proposes to accept as consideration for such Investment Units or shares,
together with any per share cash consideration, is at least equal to the highest
proposed Sale Price received by the Seller pursuant to Bids made by the Common
Holders or group of Common Holders.
(vi) Notwithstanding any provision of this Section 1(b), no action may be
taken by the Seller, the other Common Holders or the Company that would cause a
violation of the provisions of Section 2.
(vii) The Company shall take all reasonable steps necessary to ensure
application is made for the appropriate permissions from the Bermuda authorities
in connection with any Transfer complying with this Agreement. The Company
hereby acknowledges that no prior approval of the Bermuda Monetary Authority is
necessary for any Transfer between Persons who are designated as non-residents
of Bermuda for the purposes of the Exchange Control Act, 1972.
(viii) The provisions of this Section 1(b) shall not apply to:
(A) a Transfer of shares of Common Stock to an Affiliate of the
Seller;
(B) a Transfer of shares of Common Stock to another Common Holder;
(C) a Transfer of Investment Units to a Common Holder holding
Investment Units;
(D) a Transfer by one or more Common Holders of a majority of all
shares of Common Stock (and, if prior to a Separation Event, Investment
Units) then outstanding to any Person or Persons;
(E) a Transfer required by the provisions of Section 1(c) or Section
2;
(F) a Transfer permitted by the provisions of Section 1(d);
(G) a Transfer pursuant to an effective registration statement with
respect to the Common Stock to be transferred; or
(H) a Transfer on or after June 12, 2002; or
(c) Drag Along Right.
(i) If at any time and from time to time after the date of this Agreement
Common Holders holding a majority of all shares of Common Stock then issued and
outstanding (whether or not any or all of such shares are held separately or as
part of Investment Units, the "Transferring Investors") wish to Transfer in a
bona fide arm's-length sale for cash consideration all of the Common Stock (and,
if prior to a Separation Event, the
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Investment Units) held by the Transferring Investors to any Person or Persons
who are not Affiliates of the Transferring Investors (for purposes of this
Section 1(c), the "Proposed Transferee"), the Transferring Investors shall have
the right (the "Drag-Along Right"), subject to applicable law and compliance
with Section 1(a) with respect to such Transfer, to require all (but not less
than all) other Common Holders to sell, pursuant to Section 1(c)(ii), to the
Proposed Transferee all (but not less than all) of the shares of Common Stock
(and, if prior to a Separation Event, the Investment Units) then owned by such
other Common Holders. Each Common Holder agrees to take all steps necessary to
enable such Common Holder to comply with the provisions of this Section 1(c).
(ii) To exercise a Drag-Along Right, the Transferring Investors shall give
each other Common Holder and the Company a written notice (for purposes of this
Section 1(c), a "Drag-Along Notice") containing (a) the aggregate number of
shares of Common Stock (and, if prior to a Separation Event, the Investment
Units) that the Proposed Transferee proposes to acquire from the Transferring
Investors and the other Common Holders, (b) the name and address of the Proposed
Transferee and (c) the proposed purchase price, terms of payment and other
material terms and conditions of the Proposed Transferee's offer. Each Common
Holder shall thereafter be obligated, subject to applicable law, to sell all
(but not less than all) of its shares of Common Stock (and, if prior to a
Separation Event, its Investment Units) as provided in such Drag-Along Notice,
provided that the sale to the Proposed Transferee is consummated within one
hundred and twenty (120) days of delivery of the Drag-Along Notice. If the sale
is not consummated within such 120-day period, then each Common Holder shall no
longer be obligated to sell such Common Holder's shares of Common Stock (or, if
prior to a Separation Event, Investment Units) pursuant to that specific
Drag-Along Right but shall remain subject to the provisions of this Section 1(c)
with respect to any subsequent Drag-Along Rights.
(d) Tag Along Right.
If at any time or from time to time after the date of this Agreement one or
more Common Holders (whether or not such shares are held separately or as part
of Investment Units, the "Transferors") wish to Transfer, in one transaction or
a Series of related transactions, a majority of the then issued and outstanding
Common Stock (whether or not such shares of Common Stock are held separately or
as part of Investment Units) to any Person or Persons who are not Affiliates of
the Transferors (other than pursuant to an effective registration statement with
respect to the shares of Common Stock to be transferred or as a result of a
pledge of shares as security for a bona fide loan), such Transferors shall
notify each other Common Holder holding Common Stock (and, if prior to a
Separation Event, Investment Units) (the "Other Holders") and the Company, in
writing, of such Transfer and its terms and conditions. Within 20 days of the
date that such notice is deemed to have been given (as provided in Section 6(f)
herein) to such Other Holders, each of the Other Holders shall notify the
Transferors if it elects to participate in such Transfer. Each of the Other
Holders that so notifies the Transferors shall be obligated to sell, at the same
price and on the same terms as the Transferors, such number of shares of Common
Stock (or, if prior to a Separation Event, such number of shares of Common Stock
or Investment Units, as the case may be) equal to the number of shares of Common
Stock (or, if prior to a Separation Event, such number of shares of Common Stock
or Investment Units, as the case may be) the third party actually proposes to
purchase multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock (or, if prior to a Separation Event, such number of
shares of Common Stock or Investment Units, as the case may be) owned by such
Other Holder and the denominator of which shall be the aggregate number of
shares of Common Stock (or, if prior to a Separation Event, such number of
shares of Common Stock or Investment Units, as the case may be) held by the
Transferors and each Other Holder exercising its rights under this Section 1(d).
(e) Preemption Right.
If at any time from and after the date hereof, the Company proposes to
issue equity securities of any kind (the term "equity securities" shall include
for these purposes any warrants, options or other rights to acquire equity
securities or debt securities convertible into equity securities) of the Company
(except for issuances pursuant to the terms of the Stock Warrant Plans and
issuances in connection with (i) a Qualified Public Offering, (ii) a conversion
or exchange of any outstanding securities, (iii) a stock dividend, (iv) the
exercise of any right existing pursuant to any agreements in effect immediately
following June 17, 1997 to acquire
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<PAGE> 8
equity securities of the Company, including, without limitation, pursuant to the
Warrants and the Commitments, or (v) a merger, amalgamation, reclassification or
other reorganization), then, as to each Common Holder who holds Company Stock at
such time, the Company shall:
(i) give written notice (the "Offer Notice") setting forth in
reasonable detail (1) the designation and all of the terms and provisions
of the equity securities proposed to be issued (the "Proposed Securities"),
including, where applicable, the voting powers, preferences and relative
participating, optional or other special rights, and the qualification,
limitations or restrictions thereof and interest rate and maturity; (2) the
price, if applicable, and other terms of the proposed sale or issuance of
such securities; (3) the amount of such securities proposed to be issued;
and (4) such other information as may be reasonably required in order to
evaluate the proposed issuance; and
(ii) offer to issue to each such Common Holder a portion of the
Proposed Securities equal to a percentage determined by dividing (x) the
number of shares of Common Stock held by such Common Holder (whether held
separately or as part of one or more Investment Units) by (y) the total
number of shares of Common Stock including those part of any Investment
Units then issued and outstanding (the quotient of (x) and (y) with respect
to each such Common Holder is referred to hereinafter as such Common
Holder's "Allotted Amount").
Each such Common Holder that wishes to exercise any or all of its
preemption rights hereunder must deliver a written notice (the "Election
Notice") to that effect to the Company within fifteen (15) days after the date
the Offer Notice was deemed to have been given (as provided in Section 6(f)
herein) by the Company. Each such Election Notice shall set forth (i) the
portion of such Common Holder's Allotted Amount for which such Common Holder has
elected to subscribe and (ii) the amount, if any, of additional Proposed
Securities for which such Common Holder wishes to subscribe (the "Proposed
Overallotment Amount" with respect to each such Common Holder) in the event that
all of the Proposed Securities offered or issued to the Common Holders as a
whole are not fully subscribed for; provided, however, that in no event shall
any Common Holder be permitted to subscribe for or purchase shares of Company
Stock to the extent that such Common Holder would be in violation of Section 2
of this Agreement or the Maximum Percentage limitations set forth in Bye-law
1(ac) and Bye-law 50 of the Company's Amended and Restated Bye-laws.
Each Common Holder shall be entitled to subscribe for all or a portion of
its Proposed Overallotment Amount only to the extent that one or more Common
Holders does not subscribe for its full Allotted Amount. Any such
unsubscribed-for Proposed Securities ("Excess Proposed Securities") shall be
allocated pro rata (and by rounding down to the nearest whole share) among those
Common Holders electing to receive their Proposed Overallotment Amount in
proportion to the aggregate number of shares requested by them pursuant to the
Allotted Amount and Proposed Overallotment Amount; provided, however, that in no
event shall any Common Holder be permitted to subscribe for or purchase shares
of Company Stock to the extent that such Common Holder would be in violation of
Section 2 of this Agreement or the Maximum Percentage limitations set forth in
Bye-law 1(ac) and Bye-law 50 of the Company's Amended and Restated Bye-laws.
Upon the expiration of the offering period described above, the Company
may, in its sole discretion, offer to sell or issue such Proposed Securities
that the Common Holders have not elected to purchase or exercise, as the case
may be, during the 180 days following such expiration, on terms and conditions
no more favorable to the prospective purchasers thereof than those offered to
such Common Holders. Any such sale or issuance of Proposed Securities may be
consummated within 60 days after the expiration of such 180-day period. Any
Proposed Securities offered, sold or issued by the Company after such 180-day
period (other than pursuant to the immediately preceding sentence) must be
reoffered to the Common Holders pursuant to this Section 1(e). The election by a
Common Holder not to exercise its preemption rights under this Section 1(e) in
any one instance shall not affect its right (other than in respect of a
reduction in its percentage holdings) as to any subsequent proposed issuance.
Any sale or issuance of such securities by the Company without first giving the
Common Holders the rights described in this Section 1(e) shall be void and of no
force and effect and the Company shall cause any correction required to be made
to the Register of the Members of the Company to be effected.
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The Company hereby agrees that it shall cause each of its wholly-owned
subsidiaries to comply with the terms of this Section 1(e) with respect to the
issuance of any equity securities by such subsidiary (except for issuances of
stock dividends or in connection with a merger, amalgamation, reclassification
or other reorganization).
The parties to this Agreement agree that (a) for the purposes of this
Section 1(e) only, holders of Series B Preferred Stock shall be deemed to be
Common Holders with respect to the Company's offering of rights to purchase
Series C Preferred Stock, on substantially the terms set forth in the Rights
Offering Circular dated as of January 21, 1999, as supplemented on February 5,
1999 (the "Rights Offering"), it being understood that for the purposes of such
Rights Offering, the then-existing shares of Series B Preferred Stock shall be
deemed to have been converted into Series B Conversion Shares at the rate set
forth in the Company's Amended and Restated Bye-laws and (b) the Rights Offering
shall be deemed to be in full compliance with this Section 1(e).
The parties to this Agreement further agree that upon consummation of the
Rights Offering, the Company may, in the discretion of the Company's Board of
Directors, issue and sell additional equity securities of the Company at no less
than the per share price of Common Stock contemplated by the Rights Offering
(based upon the conversion price of the Series C Preferred Stock of $1.50 as of
the date of its original issuance and a purchase price of $1.50 per share of
Series C Preferred Stock) and for aggregate gross proceeds equal to the
difference between $200 million and the gross proceeds raised pursuant to the
Rights Offering (the "Subsequent Offering"), and that the Common Holders and
Series B Holders hereby consent to such Subsequent Offering and waive, for one
year following the consummation of the Rights Offering (and for an additional 60
days, as set forth above in this Section 1(e), if necessary, for the Company to
consummate the transactions contemplated in such Subsequent Offering), their
preemption rights contained in this Section 1(e) with respect to any such
Subsequent Offering.
(f) Regulatory Transfer.
If a Common Holder reasonably determines and delivers written notice to the
Company that its holding of shares of Company Stock (x) has resulted in a
violation of any law or governmental rule, regulation, order or decree to which
such Common Holder is subject, or (y) has caused such Common Holder to become
subject to and be required to comply with any law, regulation, order or decree
to which it was not theretofore subject, the result of which violation or
subjection and compliance, as the case may be, would be materially adverse to
such Common Holder, the Company shall use its commercially reasonable efforts,
after such Common Holder has complied with Section 1(b), to locate on behalf of
the Common Holder a purchaser for all or part of the Company Stock held by such
Common Holder.
(g) Termination of Rights.
The rights and obligations provided by this Section 1 shall expire upon a
Qualified Public Offering.
2. RESTRICTIONS ON STOCK OWNERSHIP
(a) Share Ownership Limitations.
(i) Notwithstanding any other provision of this Agreement, no Common Holder
may transfer, purchase or acquire (except by operation of law) any Company
Stock, directly, indirectly or by attribution, or take any other action if such
transfer, purchase, acquisition or other action would cause any Person to (A)
become a 10% Investor (as defined in Section 5(a) hereof) or (B) own more than
20% of the issued and outstanding shares of Common Stock calculated on a fully
diluted basis (a "20% Common Investor"). For avoidance of doubt, it is agreed
that for purposes of determining whether any person is a 20% Common Investor,
such person shall be deemed to own all shares of Common Stock issuable upon
exercise of warrants, options or other similar derivative securities or issuable
upon conversion or exchange of any convertible or exchangeable security of the
Company.
(ii) Without limiting Section 2(a)(i), if any Common Holder becomes a 10%
Investor or a 20% Common Investor, such Common Holder (the "Excess Investor")
shall give notice to the Company within
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<PAGE> 10
five (5) days following the date of such Common Holder's becoming aware that it
has become a 10% Investor or 20% Common Investor. Such notice shall specify the
identity of such record or beneficial owner, and such Common Holder shall
furnish to the Company such other information as the Company shall reasonably
request.
(iii) Any proposed Transfer in violation of this Section (2)(a) made known
to the Company shall not be registered in the Register of Members of the
Company. If the Company learns that a Common Holder is holding Company Stock in
violation of this Section 2(a) that is registered in the Register of Members,
the Company may deregister the transfer of the Common Stock held in violation of
this Section 2(a) and register such Company Stock in the name of the Member that
transferred such Company Stock or repurchase the Company Stock held in violation
of this Section 2(a) as determined by the Board in its absolute and unfettered
discretion, subject to the restrictions on repurchase set forth in Bye-law 52(4)
of the Company's Amended and Restated Bye-laws.
(iv) The Board of Directors of the Company may, in its sole discretion,
waive any of the provisions of this Section 2(a) with respect to one or more
Common Holders.
(b) Prompt Disposition of Shares.
If a Common Holder takes any action resulting in a violation of the
provisions of Section (2)(a) and the Company determines, pursuant to a
Super-Majority Board Action (as defined in Section 5(a) hereof), that the
disposition of Company Stock by such Excess Investor is in the interest of the
Company and its Members, (i) the Company shall require the Excess Investor to
dispose of a number of shares of Company Stock such that such Excess Investor or
other Person, as the case may be, no longer exceeds the limitations set forth in
Section (2)(a) and (ii) each Common Holder hereby agrees, if so required by the
Company, to sell such Company Stock as the Company may direct in accordance with
Section 2(c). Any disposition pursuant to this Section (2)(b) should occur no
later than the 28th calendar day after the date on which the Excess Investor
first violated, or caused another Person to violate, the share ownership
limitations set forth in Section (2)(a) and such Excess Investor shall make all
reasonable efforts to effect such disposition within such 28-day period. The
determination of whether an Excess Investor is in violation of the share
ownership limitations of Section (2)(a) and, if so, whether such disposition is
in the interests of the Company and its members may be made on behalf of the
Company by the Board, pursuant to a Super-Majority Board Action, in its judgment
and such determination shall be binding on the Common Holders.
(c) Manner of Disposition.
Any Company Stock required to be disposed of pursuant to Section (2)(b)
shall (i) (x) if purchased by the Excess Investor or a Related Person from
another Common Holder or Common Holders, be resold to such other Common Holder
or Common Holders at the original purchase price and (y) each Common Holder
agrees, if applicable, to purchase such Company Stock back from the Excess
Investor as contemplated by the foregoing clause, or (ii) if otherwise acquired
by the Excess Investor, be sold to any Person subject to the restrictions of
Section (2)(a) (including, but not limited to, the Company if a sale to the
Company would not cause any Person to exceed the share ownership limitations of
Section (2)(a)), but within the time period set forth in Section (2)(b).
Notwithstanding the foregoing, a holder of Series A Preferred Stock shall
not be obligated to dispose of shares of such Stock, but it may be obligated in
accordance with the foregoing to dispose of other classes of stock of the
Company.
3. REGISTRATION RIGHTS
The Common Holders shall have the right to have their Registrable
Securities registered under the Securities Act and applicable United States
state securities laws in accordance with the following provisions.
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(a) Definitions.
As used in this Section 3:
(i) "Commission" shall mean the Securities and Exchange Commission or
any other United States of America federal agency at the time administering
the Securities Act;
(ii) the term "Holder" shall mean any holder of Registrable
Securities;
(iii) the term "Initiating Holder" shall mean any Holder or Holders
who in the aggregate are Holders of more than 10% of the then issued and
outstanding Registrable Securities;
(iv) the terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed
or required to be filed) and the declaration or ordering of effectiveness
of such registration statement;
(v) the term "Registrable Securities" shall mean (1) Common Stock
issued to the initial Common Holders, (2) Series B Conversion Shares, (3)
Series C Conversion Shares, (4) any additional Common Stock acquired by the
Common Holders, including any Common Stock acquired upon the exercise of
options granted under the Stock Warrant Plans, and (5) any Common Stock
issued as a dividend or other distribution with respect to, or in exchange
for or in replacement of, the securities referred to in clauses (1), (2),
(3), and (4) above;
(vi) "Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with its obligations under Sections
3(b) and 3(c) hereof, including, without limitation, all Commission,
National Association of Securities Dealers ("NASD") and stock exchange or
Nasdaq registration and filing fees and expenses, fees and expenses of
compliance with applicable state securities or "blue sky" laws (including,
without limitation, reasonable fees and disbursements of counsel for the
underwriters in connection with "blue sky" qualifications of the
Registrable Securities), printing expenses, messenger and delivery
expenses, the fees and expenses incurred in connection with the listing of
the securities to be registered in an initial public offering on each
securities exchange or national market system on which such securities are
to be so listed and, following such initial public offering, the fees and
expenses incurred in connection with the listing of such securities to be
registered on each securities exchange or national market system on which
such securities are listed, fees and disbursements of counsel for the
Company and all independent certified public accountants (including the
expenses of any annual audit and "cold comfort" letters required by or
incident to such performance and compliance), the fees and disbursements of
underwriters customarily paid by issuers or sellers of securities
(including the fees and expenses of any "qualified independent underwriter"
required by the NASD), the reasonable fees of one counsel retained in
connection with each such registration by the holders of a majority of the
Registrable Securities being registered, the reasonable fees and expenses
of any special experts retained by the Company in connection with such
registration, and fees and expenses of other Persons retained by the
Company (but not including any underwriting discounts or commission or
transfer taxes, if any, attributable to the sale of Registrable Securities
by holders of such Registrable Securities other than the Company); and
(vii) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities.
(b) Demand Registration.
(i) Request for Registration. If the Company shall receive from an
Initiating Holder, at any time after 180 days after a Qualified Public Offering,
a written request that the Company effect any registration with respect to all
or a part of the Registrable Securities, the Company will:
(A) promptly give written notice of the proposed registration to all
other Holders of Registrable Securities; and
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(B) as soon as practicable, use its best efforts to effect a
registration statement, in accordance with Section 3(e), as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request in accordance with
such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within 10 Business
Days after written notice from the Company is deemed given (as provided in
Section 6(f) herein) under Section 3(b)(i)(A) above; provided that the
Company shall not be obligated to effect, or take any action to effect, any
such registration pursuant to this Section 3(b):
(v) within 180 days following the effective date of any
underwritten public offering of the Company's securities;
(w) for a period of 180 days following the date of the Board
resolution described in this clause (w), if the Company furnishes to the
Holders requesting the filing of a registration statement pursuant to
this Section 3(b) a certificate signed by the President or Chief
Executive Officer of the Company stating that the Board has passed a
resolution authorizing the Company to register any of its equity
securities for its own account and the Company is in the process of
effecting such registration (it being understood that the limitation
described in this clause (w) shall not affect any Holder's rights with
respect to a registration effected pursuant to Section 3(c));
(x) in any particular jurisdiction in which the Company would be
required as a result of such registration to (1) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this clause (x), (2) subject itself to taxation or
regulation of its insurance business in any such jurisdiction other than
Bermuda or (3) consent to service of process in effecting such
registration, qualification or compliance;
(y) if the Registrable Securities requested by all Holders to be
registered pursuant to such request do not (i) represent at least 10% of
the Registrable Securities or (ii) have an anticipated aggregate public
offering price (before any underwriting discounts and commissions) of at
least $10,000,000.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 3(b)(ii) below, include other
securities of the Company which are held by Persons who, by virtue of agreements
with the Company, are entitled to include their securities in any such
registration, but the right of such Persons to include any of their securities
in any such registration shall be subject to the limitations set forth in
Section 3(b)(ii) below.
Holders holding a majority of the Registrable Securities requested to be
registered may, at any time prior to the effective date of the registration
statement relating to such registration, revoke such request, without liability
to any of the other Holders or the Other Shareholders (as defined below), by
providing a written notice to the Company revoking such request.
(ii) Underwriting. The Initiating Holders shall distribute the Registrable
Securities covered by their request by means of an underwriting (which
underwriter shall be selected by the Company and reasonably acceptable to the
Initiating Holders).
If holders of Common Stock other than Registrable Securities who are
entitled, by virtue of agreements with the Company, to have Common Stock
included in such a registration (the "Other Shareholders") request such
inclusion, the securities of such Other Shareholders shall be included in the
underwriting subject to the applicable provisions of this Section 3. The Holders
whose shares are to be included in such registration and the Company shall
(together with all Other Shareholders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected for
such underwriting by the Company and reasonably acceptable to the Initiating
Holders. Notwithstanding any other provision of this Section 3(b), if the
representative advises the Holders or the Company in writing that (i) marketing
factors require a limitation on the number of shares to be underwritten or (ii)
the inclusion of shares held by officers and directors of the Company in the
offering could, in the representative's best judgment, materially reduce the
offering price per share, then, in the case of
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<PAGE> 13
the preceding clause (i), the Common Stock held by Other Shareholders shall be
excluded from such underwriting to the extent so required by such limitations
and, in the case of the preceding clause (ii), the Common Stock held by officers
and directors of the Company shall be excluded from such underwriting to the
extent advised by the representative. If, after the exclusion of such shares,
further reductions are required to meet the limitation on the number of shares
to be underwritten as advised by the representative, the number of shares that
may be included in the underwriting by each Holder requesting inclusion in the
registration shall be reduced on a pro rata basis (based on the number of shares
held at such time by the respective Holders requesting inclusion in such
registration) by such minimum number of shares as is necessary to comply with
such limitation. If any Other Shareholder who has requested inclusion in such
registration as provided above disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holders. If the underwriter has not limited
the number of Registrable Securities or other securities to be underwritten, the
Company may include its securities for its own account in such registration if
the representative so agrees and if the number of Registrable Securities and
other securities which would otherwise have been included in such registration
and underwriting will not thereby be limited. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall not be
included in such registration.
(iii) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting the filing of a registration statement pursuant to this
Section 3(b) a certificate signed by the President or Chief Executive Officer of
the Company stating that, in the good faith judgment of the Board, it would be
materially detrimental to the Company and its members for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for a period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
(c) Piggyback Registration.
(i) If the Company shall determine to register any of its Common Stock
either for its own account or for the account of a holder or holders of Common
Stock (other than a registration on Form S-8 (or similar or successor form)
relating solely to stock option, stock purchase or other employee benefit plans,
or a registration on Form S-4 (or similar or successor form) relating solely to
a transaction exempt under Rule 145 of the Securities Act, or a registration on
any registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities), the Company
will:
(A) promptly give to each of the Holders a written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws); and
(B) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests made by the Holders within fifteen (15) days after the date
written notice described in clause (i)(A) above is deemed given (as
provided in Section 6(f) herein) by the Company except as set forth in
Section 3(c)(ii) below. Such written request may specify all or a part of
the Holders' Registrable Securities.
(ii) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting (which underwriter
shall be selected by the Company, in its sole discretion), the Company shall so
advise each of the Holders as a part of the written notice given pursuant to
Section 3(c)(i)(A). In such event, the right of each of the Holders to
registration pursuant to this Section 3(c) shall be conditioned upon such
Holders' participation in such underwriting and the inclusion of such Holders'
Registrable Securities in the underwriting to the extent provided herein. The
Holders whose shares are to be included in such registration shall (together
with the Company and the Other Shareholders distributing their Common Stock
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected for
underwriting by the Company. Notwithstanding any other provision of this Section
3(c), if the representative advises the Holders
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<PAGE> 14
or the Company in writing that (i) marketing factors require a limitation on the
number of shares to be underwritten or (ii) the inclusion of shares held by the
officers and directors of the Company in the offering could, in the
representative's best judgment, materially reduce the offering price per share,
then, in the case of the preceding clause (i), the Common Stock held by Other
Shareholders shall be excluded from such underwriting to the extent so required
by such limitations and, in the case of the preceding clause (ii), the Common
Stock held by officers and directors of the Company shall be excluded from such
underwriting to the extent so advised by the representative. If, after exclusion
of such shares, further reductions are required to meet the limitation on the
number of shares to be underwritten as advised by the representative, the number
of shares that may be included in the underwriting by each Holder requesting
inclusion in such registration shall be reduced, on a pro rata basis (based on
the number of shares held at such time by the respective Holders requesting
inclusion in such registration), by such minimum number of shares as is
necessary to comply with such limitation (it is hereby understood that the
foregoing shall not be a limitation on the number of shares of Common Stock to
be registered by the Company). If any of the Holders or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall not be included in such registration.
(iii) Number. Each of the Holders shall be entitled to have its shares
included in an unlimited number of registrations pursuant to this Section 3(c).
(d) Expenses of Registration.
Upon the exercise of registration rights set forth in this Section 3, the
Company shall pay all Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 3, provided
that such expenses shall not include Selling Expenses which shall be borne by
the Holders of the securities so registered pro rata on the basis of the number
of their shares so registered; provided, however, that the Company shall not
otherwise be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by any of the Holders, as applicable,
including, without limitation, as provided in the last paragraph of Section
3(b)(i), the registration statement does not become effective, in which case
each of the Holders and Other Shareholders requesting registration and
thereafter withdrawing its request for registration shall bear such Registration
Expenses pro rata on the basis of the number of its shares so included in the
registration request (it is hereby understood that this proviso shall not apply
to a withdrawal of a registration being effected pursuant to Section 3(c));
provided, further, however, that the Company shall not otherwise be required to
pay any Registration Expenses after the Company has effected four (4)
registrations pursuant to Section 3(b) requested by an Initiating Holder and
such registrations have been declared or ordered effective and the sales of such
Registrable Securities shall have closed.
(e) Registration Procedures.
In the case of each registration effected by the Company pursuant to
Section 3, the Company will keep the Holders requesting inclusion in such
registration advised in writing as to the initiation of each registration and as
to the completion thereof. In connection with any offering of Registrable
Securities registered pursuant to clause (b) or (c) of this Section 3, the
Company shall use its best efforts to obtain all necessary permissions from the
Bermuda governmental authorities and, upon obtaining such permission, at its
expense, the Company shall:
(i) prepare and file with the Commission, as promptly as practical
after receipt of a request for registration pursuant to this Section 3, a
registration statement on any form for which the Company then qualifies,
and which form shall be available for the sale of the Registrable
Securities in accordance with the intended methods of distribution thereof,
and use its best efforts to cause such registration statement to become and
remain effective as provided herein; provided that before filing with the
Commission a registration statement or prospectus or any amendments or
supplements thereto, the Company will (A) furnish, to one counsel selected
by the Holders of a majority of the Registrable Securities requested to be
registered, copies of all such documents proposed to be filed for said
counsel's review and comment and (B) notify each Holder of Registrable
Securities to be registered of any stop order issued or
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<PAGE> 15
threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
effective for a period of one hundred and eighty (180) days or until the
Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs (but not before the time
periods referred to in Section 4(3) of the Securities Act and Rule 174
promulgated thereunder, or any successor provisions, if applicable) and
comply with the provisions of the Securities Act with respect to the
disposition of securities covered by such registration statement during
such period in accordance with the intended method of disposition by
sellers thereof set forth in such registration statement; provided,
however, that (A) such 180-day period shall be extended for a period of
time equal to the period, if any, during which the Holders refrain from
selling any securities included in such registration in accordance with
provisions of the last paragraph of this Section 3(e) and (B) in the case
of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 180-day
period shall be extended until all such Registrable Securities are sold,
provided that (x) Rule 415, or any successor Rule under the Securities Act,
permits an offering on a continuous or delayed basis and (y) the applicable
rules under the Securities Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a post-effective
amendment which (1) includes any prospectus required by Section 10(a)(3) of
the Securities Act or (2) reflects facts or events representing a material
or fundamental change in the information set forth in the registration
statement, the incorporation in the registration statement by reference to
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act
of the information specified in clauses (1) and (2) above;
(iii) furnish to each underwriter, if any, and each Holder of
Registrable Securities covered by such registration statement such number
of copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), and the prospectus
included in such registration statement (including each preliminary
prospectus) in conformity with the requirements of the Securities Act, and
such other documents incident thereto as each of the Holders from time to
time may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Holder;
(iv) use its best efforts to register or qualify such Registrable
Securities under such other state securities or "blue sky" laws of such
jurisdictions as any Holder, and underwriter, if any, of Registrable
Securities covered by such registration statement reasonably requests and
do any and all other acts and things that may be reasonably necessary or
advisable to enable such Holder and each underwriter, if any, to consummate
the disposition in such jurisdictions of the Registrable Securities owned
by such Holder; provided that the Company will not be required as a result
thereof to (A) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this clause (iv), (B)
subject itself to taxation or regulation of its insurance business in any
such jurisdiction other than Bermuda or (C) consent to general service of
process in any such jurisdiction;
(v) use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company to enable the Holder or Holders
thereof to consummate the disposition of such Registrable Securities;
(vi) immediately notify each Holder of such Registrable Securities at
any time when a prospectus relating thereto is required to be delivered
under the Securities Act of the happening of any event that comes to the
Company's attention if as a result of such event the prospectus included in
such registration statement contains an untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Company
will promptly prepare and furnish to such Holder a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus will not contain an
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<PAGE> 16
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(vii) use its best efforts to cause all such Registrable Securities to
be listed on a national securities exchange in the United States or Nasdaq
and on each securities exchange on which similar securities issued by the
Company may then be listed, and enter into such customary agreements
including a listing application and indemnification agreement in customary
form, and, subject to Bermuda law, to provide a transfer agent and
registrar for such Registrable Securities covered by such registration
statement no later than the effective date of such registration statement;
(viii) enter into such customary agreements (including an underwriting
agreement or qualified independent underwriting agreement, in each case, in
customary form) and take all such other actions as the Holders of a
majority of the Registrable Securities being covered by such registration
statement or the underwriters retained by such Holders, if any, reasonably
request in order to expedite or facilitate the disposition of such
Registrable Securities, including customary representations, warranties,
indemnities and agreements;
(ix) make available for inspection, during business hours of the
Company, by any Holder of Registrable Securities covered by such
registration statement, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or
other agent retained by any such Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries (collectively,
"Records"), if any, as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's
officers, directors and employees, and those of the Company's affiliates,
if any, to supply all information and respond to all inquiries reasonably
requested by any such Inspector in connection with such registration
statement;
(x) use its best efforts to obtain a "cold comfort" letter from the
Company's appointed auditors in customary form and covering such matters of
the type customarily covered by "cold comfort" letters as the Holders of a
majority in interest of the Registrable Securities being sold reasonably
request; and
(xi) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and all conditions imposed by
Bermuda governmental authorities or under Bermuda law, including, without
limitation, under the Bermuda Companies Act, and make available to the
Holders, as soon as reasonably practicable, an earnings statement covering
a period of at least twelve months beginning after the effective date of
the registration statement (as the term "effective date" is defined in Rule
158(c) under the Securities Act) which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
It shall be a condition precedent to the obligation of the Company to
take any action with respect to any Registrable Securities that the Holder
thereof shall furnish to the Company such information regarding the
Registrable Securities and any other Company Stock held by such Holder and
the intended method of disposition of the Registrable Securities held by
such Holder as the Company shall reasonably request and as shall be
required in connection with the action taken by the Company.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described
in Section 3(e)(vi) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities until such Holder's receipt of the
copies of the supplemented or amended prospectus contemplated by Section
3(e)(vi) hereof, and, if so directed by the Company (at the Company's
expense), such Holder will deliver to the Company all copies (including,
without limitation, any and all drafts), other than permanent file copies,
then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
(f) Indemnification.
(i) In the event of any registration of any shares of Company Stock under
the Securities Act pursuant to this Agreement, the Company will indemnify and
hold harmless each of the Holders of any Registrable
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<PAGE> 17
Securities covered by such registration statement, their respective directors
and officers, general partners, limited partners and managing directors, each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls, is controlled by or is
under common control with any such Holder or any such underwriter within the
meaning of the Securities Act (and directors, officers, controlling Persons,
partners and managing directors of any of the foregoing) against any and all
losses, claims, damages and liabilities (or actions in respect thereto), joint
or several, and expenses (including any amounts paid in any settlement effected
with the Company's consent, which consent will not be unreasonably withheld) to
which such Holder, any such director or officer or general or limited partner or
managing director or any such underwriter or controlling Person may become
subject under the Securities Act, United States state securities "blue sky"
laws, common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) or expenses arise out
of or are based upon (A) any untrue statement (or alleged untrue statement) of
any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto,
(B) any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or (C) any violation (or alleged violation) by the Company of any United States
federal, state or common law Rule or regulation applicable to the Company and
relating to action required of or inaction by the Company in connection with any
such registration, qualification or compliance. The Company will reimburse each
such Holder, director, officer, general partner, limited partner, managing
director or underwriter and controlling Person (and directors, officers,
controlling Persons, partners and managing directors of any of the foregoing)
for any legal and any other expenses reasonably incurred in connection with
investigating or defending such claim, loss, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such claim, loss, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based on any untrue statement
(or alleged untrue statement) or omission (or alleged omission) made in such
registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information furnished to the Company by such Holder in its capacity as a
Holder or any such director, officer, general or limited partner, managing
director, underwriter or controlling Person specifically stating that it is for
use therein; provided, further, however, that the Company shall not be liable to
any Holder, any Person who participates as an underwriter in the offering or
sale of Registrable Securities, if any, or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, pursuant to
this Section 3(f) with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus or the final
prospectus or the final prospectus as amended or supplemented, as the case may
be, to the extent that any such loss, claim, damage or liability of such Holder,
underwriter or controlling Person results from the fact that such Holder or
underwriter sold Registrable Securities to a Person to whom there was not sent
or given, at or prior to the written confirmation of such sale, a copy of the
final prospectus or of the final prospectus as then amended or supplemented,
whichever is most recent, if the Company has previously furnished copies thereof
to such Holder or underwriter and such final prospectus, as then amended or
supplemented, had corrected any such misstatement or omission.
The indemnity provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of such Holder or any such
director, officer, general partner, limited partner, managing director,
underwriter or controlling Person and shall survive the transfer of such
securities by such Holder.
(ii) Each of the Holders will, if Registrable Securities held by it are
included in any registration statement filed in accordance with the provisions
hereof, (x) indemnify, on a several and not joint basis, the Company and its
directors, officers, controlling Persons and all other prospective sellers and
their respective directors, officers, general and limited partners, managing
directors, and their respective controlling Persons against all claims, losses,
damages and liabilities (or actions in respect thereof) and expenses to which
any such Person may become subject under the Securities Act, United States state
securities "blue sky" laws, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (A) any untrue statement (or alleged
untrue statement) of a material fact with respect to such Holder contained in
any such registration statement,
15
<PAGE> 18
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (B) any omission (or alleged omission) to state therein a
material fact with respect to such Holder required to be stated therein or
necessary to make the statements made by such Holder therein not misleading and
(y) reimburse the Company and its directors, officers, controlling Persons and
all other prospective sellers and their respective directors, officers, general
and limited partners, managing directors, and their respective controlling
Persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in the case of both clause (x) and clause (y), to the extent, and only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by such Holder with respect to such Holder and stated
to be specifically for use therein; provided, however, that the obligations of
each of the Holders hereunder shall be limited to an amount equal to the
proceeds to be received by such Holder from securities sold by such Holder
pursuant to such registration statement or prospectus.
The indemnity provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any of
the Holders of Registrable Securities, underwriters or any of their respective
directors, officers, general or limited partners, managing directors or
controlling Persons and shall survive the transfer of such securities by such
Holder.
(iii) Each party entitled to indemnification under this Section 3(f) (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of the Indemnified Party's counsel shall be at the expense of
the Indemnifying Party and shall be reimbursed as they are incurred); and
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 3 except to the extent the Indemnifying Party is actually
materially prejudiced thereby. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as a term thereof the giving by the claimant or plaintiff to such
Indemnified Party of an unconditional release from all liability with respect to
such claim or litigation. Each Indemnified Party shall promptly furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
(iv) In order to provide for a just and equitable contribution in
circumstances in which the foregoing indemnity agreements provided for in this
Section 3(f) is for any reason held to be unenforceable although applicable in
accordance with its terms, the Company and the Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect (A) the relative benefits received by the Company, on the
one hand, and the Holders of the Registrable Securities included in the offering
on the other hand, from the offering of the Registrable Securities and any other
securities included in such offering, and (B) the relative fault of the Company,
on the one hand, and the Holders of the Registrable Securities included in the
offering, on the other, with respect to the statements or omissions that
resulted in such loss, liability, claim, damage or expense, or action in respect
thereof, as well as any other relevant equitable considerations; provided,
however, that no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to a
contribution from any Person who was not guilty of such fraudulent
misrepresentation. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to
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<PAGE> 19
information supplied by the Company or the Holders of the Registrable
Securities, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders of the Registrable Securities agree that it would
not be just and equitable if a contribution pursuant to this Section 3(f) were
to be determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to herein.
Notwithstanding anything to the contrary contained herein, the Company and the
Holders agree that any contribution required to be made by a Holder pursuant to
this Section 3(f) shall not exceed the net proceeds from the offering of
Registrable Securities (before deducting expenses) received by such Holder with
respect to such offering. For purposes of this Section 3(f), each Person, if
any, who controls a Holder within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as such Holder, and each director
of the Company, each officer of the Company who signed the registration
statement, and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act shall have the same rights to contribution
as the Company.
(v) The foregoing indemnity agreements of the Company and the Holders are
subject to the condition that, insofar as they relate to any loss, claim,
liability or damage made in a preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the "Final
Prospectus"), such indemnity agreements shall not inure to the benefit of any
underwriter if a copy of the Final Prospectus was furnished to the underwriter
and was not furnished to the Person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(g) Information by the Holders.
Each of the Holders and each Other Shareholder holding Company Stock
included in any registration shall furnish to the Company such information
regarding such Holder or Other Shareholder and the distribution proposed by such
Holder or Other Shareholder as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 3.
(h) Rule 144 Reporting.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of the restricted
securities to the public without registration, the Company agrees to:
(A) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
from and after the effective date of the first registration statement under
the Securities Act filed by the Company for an offering of its securities
to the general public;
(B) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject
to such reporting requirements; and
(C) so long as any Holder owns any Registrable Securities, furnish to
such Holder upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 under the Securities
Act (at any time from and after the effective date of the first
registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as such Holder may
reasonably request in availing itself of any Rule or regulation of the
Commission allowing such Holder to sell any such securities without
registration.
(i) "Market Stand-off" Agreement.
(i) If any registration of Common Stock (or other securities) of the
Company shall be in connection with an underwritten public offering, each Holder
of Registrable Securities agrees not to effect any sale or
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distribution, including any private placement or any sale pursuant to Rule 144A
under the Securities Act (or any successor provision) or otherwise or any sale
pursuant to Rule 144 under the Securities Act (or any successor provision),
under the Securities Act of any Registrable Securities, other than by pro-rata
distribution to its shareholders, partners or other beneficial holders, and not
to effect any such sale or distribution of any other equity security of the
Company or of any security convertible into or exchangeable or exercisable for
any equity security of the Company (in each case, other than as part of such
underwritten public offering) during the ten calendar days prior to, and during
the 180 calendar day period (or such lesser period as may be agreed upon between
such Holders and the representative of the underwriters of such offering) that
begins on the effective date of such registration statement (except as part of
such registration), without the consent of the representative of the
underwriters of such offerings; provided, however, that written notice of such
registration has been deemed given (as provided in Section 6(f) herein) to each
Holder of Registrable Securities at least two Business Days prior to the
anticipated beginning of the ten calendar day period referred to above.
(ii) If requested by the representative of the underwriters, the Holders
shall execute a separate agreement to the foregoing effect. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said 180-day period. The
provisions of this Section 3(ii) shall be binding upon any transferee who
acquires Registrable Securities, including, without limitation, any Holder's
shareholders, partners or other beneficial holders, whether or not such
transferee is entitled to the registration rights provided hereunder.
(iii) If any registration of Registrable Securities shall be in connection
with an underwritten public offering, the Company agrees (A) not to effect any
public sale or distribution of any of its equity securities or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than any such sale or distribution of such securities in
connection with any amalgamation, merger or consolidation by the Company or any
Affiliate of the Company or the acquisition by the Company or an Affiliate of
the Company of the shares or substantially all the assets of any other Person or
in connection with a stock option, stock purchase or other employee benefit
plan) during the ten days prior to, and during the 180-day period (or such
lesser period as may be agreed upon between the Company and the representative
of the underwriters of such offering) which begins on the effective date of such
registration statement (except as part of such registration) without the consent
of the representative of the underwriters of such offering and (B) that any
agreement entered into after the date hereof pursuant to which the Company
issues or agrees to issue any privately placed equity securities shall contain a
provision under which the holders of such securities agree not to effect any
sale or distribution of any such securities during the period and in the manner
referred to in the foregoing clause (A) of this Section 3(i)(iii).
(j) Assignability.
The registration rights set forth in this Section 3 shall be assignable by
any Holder, in whole or in part, to any transferee of Registrable Securities
provided such transferee agrees to be bound by all provisions of this Agreement.
(k) Termination.
The registration rights set forth in this Section 3 shall not be available
to any Holder if, in the opinion of counsel to the Company, all of the
Registrable Securities then owned by such Holder could be sold in any 90-day
period pursuant to Rule 144 under the Securities Act (without giving effect to
the provisions of Rule 144(k)).
4. INFORMATION AS TO COMPANY AND RELATED COVENANTS
(a) Auditors.
The Company shall maintain a system of accounting established and
administered in accordance with United States generally accepted accounting
principles ("U.S. GAAP") and shall set aside on its books all such proper
reserves as shall be required by U.S. GAAP. The Company shall retain a firm of
independent chartered accountants of recognized standing to audit and report on
the Company's annual consolidated
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balance sheets and statements of operations, shareholders' equity and cash flows
and to report to the Board. Subject to the requirements of the Companies Act of
1981 of Bermuda and the regulations promulgated thereunder, all major accounting
policies and principles shall be determined by the Board in accordance with U.S.
GAAP.
(b) Financial Information.
The Company shall prepare annual consolidated balance sheets and statements
of operations, shareholders' equity and cash flows of the Company and its
subsidiaries, which shall be prepared in accordance with U.S. GAAP, and setting
forth in each case in comparative form the figures for the previous year, and
audited by the auditors referred to in Section 4(a) hereof. The Company shall
also prepare quarterly unaudited, consolidated balance sheets and statements of
operations, shareholders' equity and cash flows of the Company and its
subsidiaries, certified by the Chief Financial Officer and the Chief Executive
Officer of the Company and prepared in accordance with U.S. GAAP and setting
forth in each case in comparative form the same figures for the previous year
and, in addition, year-to-date figures. The Company will furnish to all Common
Holders the following information within the time specified: (i) as soon as
practicable after the end of each fiscal quarter and, in any event within 45
days thereafter, all of the quarterly financial information referred to herein,
and (ii) as soon as practicable after the end of each fiscal year, and in any
event within 110 days thereafter, all of the annual financial information
referred to herein.
(c) Business Report.
The Company shall prepare and deliver to each Common Holder within 45 days
after the end of each calendar quarter a report as to the implementation of the
Company's business plan during such quarter, which report shall be accompanied
by a certificate signed by the Chief Executive Officer and the Chief Financial
Officer of the Company as to the Company's compliance with its operating
guidelines during such quarter; provided, however, that in lieu of providing
such certified report to those Common Holders whose names are set forth on
Schedule I hereto (each a "Sponsoring Investor" and, collectively, the
"Sponsoring Investors") on a quarterly basis, the Company need only furnish to
the Sponsoring Investor such report, accompanied by the certificate referred to
above, within 45 days after the end of each calendar year, as to the Company's
compliance with its operating guidelines during such year.
(d) Inspection.
From and after the date hereof, the Company will permit each Common Holder,
its nominee, assignee or its representative, to visit and inspect any of the
properties of the Company, to examine all its books of account, records, reports
and other papers not contractually required of the Company to be kept
confidential or secret, to make copies and extracts therefrom, and to discuss
its affairs, finances and accounts with its officers, directors, key employees
and independent public accountants or any of them (and by this provision the
Company authorizes said accountants to discuss with said Common Holder, its
nominee, assign and representatives the finances and affairs of the Company and
its Subsidiaries), all at such reasonable times and as often as may be
reasonably requested.
(e) The provisions of Section 4(a)-(d) shall expire upon the closing of the
Qualified Public Offering.
5. DEFINITIONS
(a) Terms Defined.
As used in this Agreement, the following terms have the respective meaning
set forth below:
$: means United States dollars.
Affiliate: means (i) with respect to a Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person and, in the case of an individual Common Holder, means
members of his or her immediate family or a trust for their benefit, (ii) a
nominee(s) of a Person or a principal of a nominee Person, (iii) a trustee
of a trust, or (iv) such Person's shareholders, partners, beneficiaries or
members.
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Board: means the board of directors of the Company.
Business Day: means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York or Bermuda are authorized by
law or executive order to close.
Commission: means the United States Securities and Exchange
Commission.
Exchange Act: means the United States Securities Exchange Act of
1934, as amended.
The terms "hold" and "holder": mean with reference to any Common
Stock, the Person whose name appears in the register of Members of the
Company.
Person: means an individual, partnership, joint-stock company,
corporation, trust or unincorporated organization, limited liability
company, or a government or agency or political subdivision thereof or any
other entity.
Qualified Public Offering: means the completion of an underwritten
public offering of Common Stock pursuant to a registration statement under
the Securities Act resulting in net proceeds to the Company of at least
$50,000,000.
Related Person: means any Person who bears a relationship to an
Excess Investor as described in Section 958 of the Code.
Securities Act: means the United States Securities Act of 1933, as
amended.
Stock Warrant Plans: means (i) the Employee Stock Warrant Plan of the
Company dated June 17, 1997, (ii) the Sponsoring Investors' and Founders'
Stock Warrant Plan of the Company dated June 17, 1997 and (iii) any
employee stock warrant, stock option or similar plan approved by the Board
and the Shareholders of the Company.
Super-Majority Board Action: means a vote of three-quarters ( 3/4) of
the directors serving on the Board at the time of such vote.
10% Investor: means a U.S. Person that (i) owns directly, indirectly
or by attribution (within the meaning of Section 958 of the United States
Internal Revenue Code of 1986, as amended) 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote or (ii) by virtue of such ownership is treated as owning indirectly or
constructively 10% or more of the total combined voting power of all
classes of the stock entitled to vote of Commercial Guaranty Assurance,
Ltd., a Bermuda company with limited liability (and its successors).
Transfer: means any sale, assignment, pledge, hypothecation, or other
disposition or encumbrance of any interest.
Trigger Event: means (a) the closing of a Qualified Public Offering,
(b) the consummation of an acquisition of a majority of the issued and
outstanding shares of Common Stock at the time of such acquisition by one
or more purchasers acting in concert in a single transaction or in a Series
of related transactions (including, without limitation, acquisitions
pursuant to an amalgamation, exchange offer, business combination,
consolidation, or corporate reorganization) resulting in the ultimate
beneficial ownership of such acquired shares of Common Stock being
different than before such acquisition or (c) the sale of all or
substantially all of the assets of the Company unless the ultimate
beneficial owners of a majority of the ownership interests in the acquiror
of such assets were the ultimate beneficial owners of a majority of the
issued and outstanding shares of Common Stock at the time of or immediately
before such sale. It is expressly acknowledged and agreed by the parties to
this Agreement that the Subsequent Offering (as defined in Section 1(e) of
this Agreement) shall not be a Trigger Event.
U.S. Person: means an individual who is a citizen or resident of the
United States, a company, corporation or partnership created or organized
under the laws of the United States or any state thereof, an estate, the
income of which, from non-United States sources and not effectively
connected with the conduct of a trade or business in the United States, is
includable in gross income for United States federal income tax purposes,
or a trust, if (i) a court within the United States may exercise primary
supervision
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of the trust, and (ii) one or more United States fiduciaries have the
authority to control all substantial decisions of the trust.
6. MISCELLANEOUS
(a) Legends.
In addition to any other legends required by applicable law, the Company's
Amended and Restated Bye-laws or any other agreement restricting the Transfer of
the Company Stock or Investment Units, as the case may be, each certificate
evidencing the Common Stock or Investment Units, as the case may be, acquired by
the Common Holders will bear a legend reflecting the restrictions on the
transfer of such shares contained in this Agreement and in the Investment Units
Subscription Agreement, the Warrant Acquisition Agreement or the Founders'
Subscription Agreement, as the case may be.
(b) Waiver; Amendments.
Except as expressly provided otherwise herein, neither this Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the Company and each of the
Common Holders and Series C Holders at the time who are party to this Agreement;
provided, however, that any provision hereof other than Section 4 may be
amended, which amendment shall be effective as to all parties hereto, with the
consent of the Company and the parties hereto that at the time just prior to the
amendment hold at least seventy-five percent (75%) of the Common Stock (it being
understood that for the purposes of such calculation, the Series C Preferred
Stock shall be deemed to have been converted into shares of Common Stock at the
then applicable conversion rate for such shares, as set forth in the Company's
Amended and Restated Bye-laws (the "Assumed Conversion")); provided, further,
however, that any amendment to Section 4 shall require the consent of the
Company and the parties hereto that at the time just prior to the amendment hold
at least ninety percent (90%) of the Common Stock, taking into account the
Assumed Conversion.
(c) Amendment of Schedules I and II to this Agreement.
The Secretary of the Company shall, from time to time in the ordinary
course of business as reasonably necessary, amend Schedules I and II to this
Agreement to reflect accurately the addition or deletion of parties to this
Agreement by virtue of the succession, assignment, or other transfer of shares
of Company Stock in accordance with this Agreement, or exercise of Warrants
pursuant to the Warrant Acquisition Agreement or otherwise, and applicable law.
(d) Recapitalization, Exchanges, Etc.
The provisions of this Agreement shall apply to the full extent set forth
herein with respect to shares or other securities of the Company that may be
issued in respect of, in exchange for, or in substitution of the Common Stock.
The Company agrees not to enter into any transaction with any Person pursuant to
which shares or other securities of such Person will be exchanged or substituted
for the Common Stock unless it is a condition to such transaction that such
Person and the Common Holders execute an agreement substantially in the form of
this Agreement (or the surviving provisions hereof).
(e) Specific Performance.
Each of the parties hereto acknowledges and agrees that, in the event of
any breach of this Agreement, the non-breaching parties would be irreparably
harmed and could not be made whole by monetary damages. Accordingly, each of the
parties hereto agrees that the other parties, in addition to any other remedy to
which they may be entitled at law or in equity, shall be entitled to compel
specific performance of this Agreement.
(f) Notices.
All notices, requests, demands and other communications hereunder shall be
in writing and, except to the extent otherwise provided in this Agreement, shall
be deemed to have been duly given if delivered by same day or next day courier
or mailed, registered mail, return receipt requested, or transmitted by
telegram, telex or facsimile (i) if to a Common Holder or Series C Holder, at
such holder's address appearing on the applicable
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Schedule attached hereto or at any other address such holder may have provided
in writing to the Company and (ii) if to the Company, at Craig Appin House, 2nd
Floor, 8 Wesley Street, Hamilton HMFX, Bermuda, Attention: Secretary, or such
other address as the Company may have furnished to such holders in writing. A
notice hereunder shall be deemed to have been given on the day such notice is
sent or transmitted; provided, however, that if such notice is sent by next-day
courier it shall be deemed to have been given the day following sending and, if
by registered mail, five days following sending.
(g) Successors and Assigns.
Except as otherwise provided herein, this Agreement shall inure to the
benefit of, and be binding upon, the successors and assigns of each of the
parties; provided, however, that this Agreement may not be assigned by any party
hereto other than in compliance with the terms hereof, including the
restrictions on transfers of Company Stock as set forth in Sections 1 and 2
hereof.
(h) Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall be considered one
and the same agreement.
(i) Entire Agreement.
This Agreement, the Founders' Subscription Agreement and the Series C
Subscription Agreement constitute the entire understanding of the parties hereto
and supersede all prior understandings among such parties.
(j) Applicable Law.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder, shall be determined under,
governed by and construed in accordance with the laws of New York without giving
effect to the principles of conflicts of laws thereof. Each party hereto agrees
that any suit, action or other proceeding arising out of this Agreement shall be
brought and litigated in the courts of New York (or if a suit, action or other
proceeding arising out of this Agreement is unable to be brought or is dismissed
for jurisdictional reasons in the courts of New York, then the suit, action or
proceeding arising out of this Agreement shall be brought in the courts of
Bermuda) and each party hereto hereby irrevocably consents to personal
jurisdiction and venue in any such court and hereby waives any claim it may have
that such court is an inconvenient forum for the purposes of any such suit,
action or other proceeding.
(k) Section Headings.
The headings of the sections and subsections of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part thereof.
(l) Holders of Warrant Shares.
Each of the parties hereto hereby consents and agrees that any holder of
the Warrant Shares not already a party hereto may become a party to this
Agreement upon exercise of the Warrant by executing a counterpart signature page
hereto and such holder shall then be reflected on Schedule I hereto as a Common
Holder. Each of the parties hereto hereby agrees that each of the holders of the
Warrants are third party beneficiaries of this Section 6(l).
(m) Series B Holders.
The holders of Common Stock who also hold shares of Series B Preferred
Stock expressly acknowledge and agree that upon the Series B Conversion, such
holders shall become bound by the provisions of this Agreement with respect to
the Series B Conversion Shares received by them as a result of such conversion.
(n) Series C Holders.
The holders of Common Stock who subscribe for shares of Series C Preferred
Stock pursuant to the Series C Subscription Agreement expressly acknowledge and
agree that upon the conversion of any such
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shares of Series C Preferred Stock, such holders shall become bound by the
provisions of this Agreement with respect to the Series C Conversion Shares
received by them as a result of such conversion.
IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement as of the date first above written.
COMPANY:
CGA GROUP, LTD.
By: /s/ RICHARD A. PRICE
--------------------------------------
Name: Richard A. Price
Title: Chief Executive Officer
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