As filed with the Securities and Exchange Commission on December 21, 2001.
PRELIMINARY COPY
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[ ] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 'SS' 240.14a-11(c) or 'SS' 240.14a-12
Filing By:
PXRE GROUP LTD.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee:
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
[Common Shares, par value $1.00 per share, of PXRE Group Ltd.]
(2) Aggregate number of securities to which transaction applies:
________ shares of PXRE Group Ltd. [Common Stock].
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(c)(1):
(4) Proposed maximum aggregate value of transaction:
(5) Filing fee: $__________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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[PXRE LOGO] PXRE GROUP LTD.
99 Front Street, Hamilton HM 12, Bermuda
FELLOW SHAREHOLDERS:
Our Board of Directors has called a Special General Meeting (the Meeting) of
Shareholders of PXRE Group Ltd. (PXRE Group) as described in the enclosed Notice
of Special General Meeting of Shareholders and Proxy Statement. The Meeting is
being called so that our Shareholders may consider and act upon certain matters
that require their approval to enable PXRE Group to raise additional capital
through a private placement sale of convertible preferred shares. At the
Meeting, our Shareholders will be asked to approve (1) the sale and issuance of
three series of convertible preferred shares (collectively, Preferred Shares):
7,500 shares of Series A Convertible Voting Preferred Shares (Series A Preferred
Shares), 5,000 shares of Series B Convertible Voting Preferred Shares (Series B
Preferred Shares) and 2,500 shares of Series C Convertible Voting Preferred
Shares (Series C Preferred Shares), in each case to be issued in sub-series,
pursuant to the Share Purchase Agreement, dated as of December 10, 2001, between
PXRE Group and certain investors, as it may be amended from time to time (the
Share Purchase Agreement), (2) division of 20,000,000 of PXRE Group's 50,000,000
authorized Common Shares into three new classes of Common Shares (collectively,
Convertible Common Shares): 10,000,000 Class A Convertible Voting Common Shares
(Class A Common Shares), 6,666,666-2/3 Class B Convertible Voting Common Shares
(Class B Common Shares) and 3,333,333-1/3 Class C Convertible Voting Common
Shares (Class C Common Shares), issuable upon conversion of Preferred Shares;
and automatic redesignation of such Convertible Common Shares as Common Shares
upon, and to the extent of, the exercise of conversion rights attaching thereto
on a one-for-one basis, (3) the expansion of our Board of Directors by two
members to a total of eleven members and (4) as a special resolution, an
amendment to our Bye-Laws which will authorize the creation of a new Class IV of
our Board of Directors, in accordance with the terms of the Description of
Stock, attached as an exhibit to the Share Purchase Agreement.
The principal reason we are seeking your approval for the sale and issuance of
our Preferred Shares is to raise capital in order to replenish capital lost as a
result of the events of September 11, 2001, retain our current "A" ratings with
Standard & Poor's and A.M. Best and to allow PXRE Group to realize the full
benefits of our strategic position.
The Board of Directors has unanimously approved these proposals, and recommends
that our Shareholders vote for these proposals. If these proposals are approved,
it is anticipated that the sale of Preferred Shares will close promptly
thereafter.
PXRE Group will hold the Meeting of Shareholders at 10:00 a.m., local time, on
__________, 2002 at the offices of PXRE Group, 99 Front Street, Hamilton HM 12,
Bermuda.
Whether or not you plan to attend the Meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us.
YOUR VOTE IS VERY IMPORTANT.
Gerald L. Radke
Chairman of the Board, Chief Executive Officer and President
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Neither the United States Securities and Exchange Commission nor any state
securities commission nor any Bermuda government agency has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this
proxy statement. Any representation to the contrary is a criminal offense.
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This proxy statement is dated _______, 2002
and was first mailed to PXRE Group Ltd. Shareholders on ________, 2002.
PXRE GROUP LTD.
99 Front Street, Hamilton HM 12, Bermuda
NOTICE OF SPECIAL GENERAL MEETING OF SHAREHOLDERS
To Be Held ______________
TO THE SHAREHOLDERS OF PXRE GROUP LTD.
A Special General Meeting of Shareholders (the Meeting) of PXRE Group
Ltd., a Bermuda company (PXRE Group), will be held at the offices of PXRE Group,
99 Front Street, Hamilton, Bermuda at 10:00 a.m., local time, for the following
purposes:
1. Preferred Share Issuance Proposal. To consider and approve the sale
and issuance of three series of convertible preferred shares
(collectively, Preferred Shares): 7,500 Series A Convertible
Preferred Shares (Series A Preferred Shares), 5,000 Series B
Convertible Preferred Shares (Series B Preferred Shares) and 2,500
Series C Convertible Preferred Shares (Series C Preferred Shares),
in each case to be issued in sub-series, pursuant to a Share
Purchase Agreement dated as of December 10, 2001 between PXRE Group
and certain investors, as it may be amended from time to time (the
Share Purchase Agreement).
2. New Common Shares Proposal. To consider and approve the division of
20,000,000 of PXRE Group's 50,000,000 authorized Common Shares into
three new classes of convertible common shares (collectively,
Convertible Common Shares): 10,000,000 Class A Convertible Voting
Common Shares (the Class A Common Shares issuable upon conversion of
the Series A Preferred Shares), 6,666,666-2/3 Class B Convertible
Voting Common Shares (the Class B Common Shares issuable upon
conversion of the Series B Preferred Shares), and 3,333,333-1/3
Class C Convertible Voting Common Shares (the Class C Common Shares
issuable upon conversion of the Series C Preferred Shares); and to
authorize the automatic redesignation of Convertible Common Shares
as Common Shares upon, and to the extent of, the exercise of
conversion rights attaching thereto on a one-for-one basis.
3. Increased Board of Directors Proposal. To consider and vote upon
adoption of a resolution to increase membership of our Board of
Directors by two members to a total of eleven members.
4. Class IV Directors Proposal. To consider and approve, as a special
resolution, an amendment to our Bye-Laws to create a new Class IV of
our Board of Directors, in accordance with the terms of the
Description of Stock, attached as an exhibit to the Share Purchase
Agreement.
5. Other Business. To transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
The accompanying Proxy Statement more fully describes the matters to be
considered at the Meeting.
Pursuant to the rules of the New York Stock Exchange (NYSE) and PXRE
Group's listing agreement with the NYSE with respect to the outstanding Common
Shares, Shareholder approval is required for the issuance of the Preferred
Shares contemplated by the Share Purchase Agreement. Under the rules of the
NYSE, the affirmative vote of the holders of a majority of the shares of Common
Shares represented cast, in person or by proxy, and entitled to vote at the
Meeting is required to approve Proposal 1, provided that the total vote cast
on the proposal represents a majority of the outstanding shares carrying the
right to vote.
In accordance with the Bye-Laws of PXRE Group, Proposal 2 and Proposal
3 must each be approved by a simple majority of the shares of Common Shares
cast, in person or by proxy, and entitled to vote at the Meeting, provided a
majority of the outstanding shares carrying the right to vote are represented in
person or by proxy.
In accordance with the Bye-Laws of PXRE Group, Proposal 4 must be
approved by 66-2/3% of the outstanding shares of Common Shares entitled to vote
on the proposal.
Only Shareholders of record of PXRE Group Common Shares at the close of
business on _________, 2001 (the Record Date), as shown by the transfer books of
PXRE Group, are entitled to notice of, and to vote at, the meeting and any
adjournments thereof. As of the Record Date there were _______ Common Shares
issued and outstanding.
All Shareholders are cordially invited to attend this Meeting in
person. Those Shareholders who are unable to attend in person are respectfully
urged to execute and return the enclosed Proxy card at their earliest
convenience. Any Proxy may be revoked by submitting, at least two (2) hours
prior to the commencement of the Meeting, either a written notice of such
revocation or a duly executed Proxy bearing a later date to PXRE Group at its
mailing address, Suite 231, 12 Church Street, Hamilton HM 11, Bermuda, Attn:
Secretary. Attendance at the Meeting by a Shareholder who has given a Proxy
shall not in and of itself constitute a revocation of such Proxy. Delivery of a
Proxy shall not preclude a Shareholder from attending and voting in person at
the Meeting and in such event, the Proxy shall be deemed to be revoked.
By Order of the Board of Directors,
David J. Doyle
Secretary
Hamilton, Bermuda
________, 2002
Important: Please complete and promptly return your Proxy in the enclosed
envelope.
Table of Contents
Page
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INFORMATION ABOUT THE SPECIAL GENERAL MEETING AND VOTING..............................
PROPOSAL 1-APPROVAL OF THE PREFERRED SHARE ISSUANCE PROPOSAL..........................4
BACKGROUND TO AND REASONS FOR THE PROPOSAL.......................................4
USE OF PROCEEDS..................................................................5
THE SHARE PURCHASE AGREEMENT.....................................................5
ANTI-TAKEOVER EFFECTS...........................................................13
VOTE REQUIRED FOR APPROVAL OF THE SHARE ISSUANCE PROPOSAL.......................14
PROPOSAL 2-APPROVAL OF THE NEW COMMON SHARES PROPOSAL................................15
VOTE REQUIRED FOR APPROVAL OF THE NEW COMMON SHARES PROPOSAL....................15
PROPOSAL 3-APPROVAL OF THE INCREASED BOARD OF DIRECTORS PROPOSAL.....................16
VOTE REQUIRED FOR APPROVAL OF THE INCREASED BOARD OF DIRECTORS PROPOSAL.........16
PROPOSAL 4-APPROVAL OF THE CLASS IV DIRECTORS PROPOSAL...............................17
VOTE REQUIRED FOR APPROVAL OF THE CLASS IV DIRECTORS PROPOSAL...................18
OTHER BUSINESS.......................................................................23
SHAREHOLDER PROPOSALS................................................................23
WHERE YOU CAN FIND MORE INFORMATION..................................................23
APPENDICES
Appendix I Share Purchase Agreement, dated as of December 10, 2001,
between PXRE Group and certain Purchasers named therein
Appendix II Form of Description of Stock
Appendix III Form of Investment Agreement
ATTACHMENT
Proxy Card
i
PROXY STATEMENT
SPECIAL GENERAL MEETING OF SHAREHOLDERS
PXRE GROUP LTD.
99 Front Street
Hamilton, HM 12, Bermuda
INFORMATION ABOUT THE SPECIAL GENERAL MEETING AND VOTING
What is the purpose of the Meeting?
We have sent you this proxy statement and the enclosed proxy card because the
Board of Directors of PXRE Group Ltd., a Bermuda corporation (PXRE Group), is
soliciting your proxy vote at a Special General Meeting of Shareholders (the
Meeting). This proxy statement summarizes the information you need to know in
order to vote at the Meeting. However, you do not need to attend the Meeting to
vote your shares. Instead, you may complete, sign and return the enclosed proxy
card.
What Proposals will be addressed at the Meeting?
We will address the following proposals at the Meeting:
1. The approval of the sale and issuance of preferred shares of PXRE
Group (Preferred Shares): 7,500 Series A Preferred Shares, 5,000
Series B Preferred Shares and 2,500 Series C Preferred Shares, each
in sub-series, pursuant to the Share Purchase Agreement.
2. The approval of the division of 20,000,000 of PXRE Group's
50,000,000 authorized Common Shares into three new classes of
convertible common shares of PXRE Group (Convertible Common Shares):
10,000,000 Class A Common Shares issuable upon conversion of Series
A Preferred Shares, 6,666,666-2/3 Class B Common Shares issuable
upon conversion of Series B Preferred Shares and 3,333,333-1/3 Class
C Common Shares issuable upon conversion of Series C Preferred
Shares; and automatic redesignation of Convertible Common Shares as
Common Shares upon, and to the extent of, the exercise of conversion
rights attaching thereto on a one-for-one basis.
3. The approval of the increase of our Board of Directors by two
members to a total of eleven members.
4. The approval, as a special resolution, of an amendment to our
Bye-Laws to create a new Class IV of our Board of Directors, in
accordance with the terms of the Description of Stock, attached as
an exhibit to the Share Purchase Agreement.
5. The transaction of such other business as may properly come before
the Meeting or any adjournments thereof.
Why is PXRE Group issuing Preferred Shares?
PXRE Group is issuing Preferred Shares in order to raise additional capital to
replenish the capital lost as a result of the events of September 11, to retain
its "A" ratings with Standard & Poor's and A.M. Best & Company and to allow
PXRE Group to effectively compete and write additional business in the
post-September 11 reinsurance market.
When and where is the special Shareholders' meeting being held?
The Meeting will take place at 10:00 am on __________, 2002 at the offices of
PXRE Group.
What do I need to do now?
After carefully reading and considering the information contained in this proxy
statement, please respond by completing, signing and dating your proxy card and
returning it in the enclosed postage paid envelope. Please submit your proxy as
soon as possible so that your shares may be represented at the Meeting.
How many votes do I have?
There were issued and outstanding __________ Common Shares as of ________, 2001,
the date set as the record date (the Record Date) for the purpose of determining
the Shareholders entitled to notice and to vote at the Meeting and any
adjournment thereof.
Each Common Share entitles the holder thereof, if such holder is reflected on
the Register of Members of PXRE Group as of the Record Date, to one vote on each
matter to be voted upon at the Meeting, except that if a person constructively
or beneficially, directly or indirectly, owns more than 9.9% of the voting power
of the outstanding Common Shares, the voting rights with respect to such shares
will be limited, in the aggregate, to voting power of 9.9%, as specified in PXRE
Group's Bye-Laws.
What happens if I don't indicate how to vote by proxy?
If you properly sign your proxy card but do not include instructions on how to
vote, your shares will be voted as follows:
o FOR approval of Proposal 1 for the sale and issuance of convertible
preferred shares of PXRE Group (Preferred Shares): 7,500 Series A
Preferred Shares, 5,000 Series B Preferred Shares and 2,500 Series C
Preferred Shares.
o FOR approval of Proposal 2 for the division of 20,000,000 of PXRE
Group's 50,000,000 authorized Common Shares into three new classes
of convertible common shares of PXRE Group (Convertible Common
Shares): 10,000,000 Class A Common Shares, 6,666,666-2/3 Class B
Common Shares and 3,333,333-1/3 Class C Common Shares, and for
automatic redesignation of Convertible Common Shares as Common
Shares upon, and to the extent of, the exercise of conversion rights
attaching thereto on a one-for-one basis.
o FOR approval of Proposal 3 for the expansion of our Board of
Directors to a total of eleven members.
o FOR approval of Proposal 4, as a special resolution, for an
amendment to our Bye-Laws to create a new Class IV of our Board of
Directors, in accordance with the terms of the Description of Stock,
attached as an exhibit to the Share Purchase Agreement.
What happens if I don't return a proxy card?
In connection with Proposals 1, 2 and 3, not returning your proxy card will mean
your vote will not count, unless you intend to be present in person to vote. In
connection with Proposal 4, not returning your proxy card will have the same
effect as voting against Proposal 4, unless you intend to be present in person
to vote. This is why it is so important that you make your vote count by
completing and returning your proxy card.
Can I change my vote after I have mailed my signed proxy card?
Yes. You can change your vote at any time before your proxy is voted at the
Meeting. You can do this in one of three ways:
o you can send a written notice to the Secretary of PXRE Group stating that you
would like to revoke your proxy;
o you can complete and submit a new proxy card to be received by the Secretary
of PXRE Group not less than 48 hours prior to the time appointed for the
Meeting; or
o you can attend the Meeting and vote in person.
2
Your attendance at the meeting alone will not revoke your proxy. Only your vote
at the meeting will revoke your proxy.
Am I entitled to appraisal rights?
The Board of Directors has not proposed any action for which the laws of Bermuda
entitle Shareholders to appraisal rights.
Does the issuance of the Preferred Shares have any anti-takeover effects with
respect to PXRE Group?
The purchasers of the Preferred Shares will acquire a substantial ownership
interest in PXRE Group's securities as well as certain rights to select
directors. This may result in preventing or discouraging an attempt by another
person or entity to take over or otherwise gain control over PXRE Group. See
"Anti-Takeover Effects."
How many Common Shares must be represented either in person or by proxy to hold
the meeting?
The presence at the meeting in person or by proxy of the holders of a majority
of the outstanding Common Shares is necessary to constitute a quorum for the
transaction of business at the Meeting.
How many votes are needed to approve the proposals?
Proposals 1, 2 and 3 must be approved by a simple majority of votes cast on the
proposal. Abstentions will be treated as votes cast and will have the same
effect as votes against each of the proposals and broker non-votes will have
no effect on the vote (except in the determination of whether the total votes
cast on a proposal represent over 50% in interest of all securities entitled to
vote on the proposal). Proposal 4 must be approved by 66-2/3% of the outstanding
shares entitled to vote on the proposal. Abstentions and broker non-votes will
have the same effect as voting against the proposal.
If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
Your broker will not be able to vote your shares without instructions from you.
To instruct your broker to vote your shares, follow the directions provided by
your broker.
Who can answer my other questions?
If you should have more questions about these proposals, or would like
additional copies of this proxy statement, you should contact:
Investor Relations or Treasurer
PXRE Group Ltd.
99 Front Street
Hamilton HM 12 Bermuda
Telephone: 441-296-5858
Fax Requests: Treasurer or Investor Relations
(441) 296-6162
E-Mail: james_dore@pxregroup.com
Who bears the cost of soliciting Proxies?
The cost of preparing, assembling and mailing this Proxy Statement and the
material enclosed herewith is being borne by PXRE Group. Directors, officers and
employees of PXRE Group may solicit Proxies orally or in writing, without
additional compensation. PXRE Group's regularly retained investor relations
firm, Corporate Communications Inc. may also be called upon to solicit Proxies
by telephone or by mail. PXRE Group will reimburse brokers, fiduciaries and
custodians for their costs in forwarding proxy materials to beneficial owners of
Common Shares held in their names.
3
PROPOSAL 1
APPROVAL OF THE PREFERRED SHARE ISSUANCE PROPOSAL
BACKGROUND TO AND REASONS FOR THE PROPOSAL
In the wake of the events of September 11, 2001, PXRE Group determined that it
was necessary to raise additional capital in order to replenish the capital lost
as a result of the September 11 events, to retain our "A" ratings with Standard
& Poor's and A.M. Best & Company, and to allow us to effectively compete and
write additional business in the post-September 11 reinsurance market. The
events of September 11, when coupled with the abnormally high industry losses
experienced in the first half of 2001, are resulting in significantly higher
prices and stricter terms for reinsurance globally. PXRE Group believes that our
20 year history, experienced underwriting team and the strong relationships that
we enjoy with our clients and brokers give us a strong franchise. PXRE Group
believes that this valuable franchise provides us with a favorable strategic
position in the dramatically hardening reinsurance market. However, PXRE Group
believes that we can only realize the benefits of our strategic position if we
have additional capital to allow us to both retain our "A" rating and have total
capital of at least $500 million in order to have sufficient size to effectively
compete with our larger competitors. To protect its market position in light of
these factors, PXRE Group decided to seek an investment and announce a
transaction prior to the end of the year in time for the reinsurance renewal
season. PXRE Group therefore retained Lazard Freres & Co. LLC to assist in
evaluating various capital raising alternatives and decided to pursue a private
placement to achieve the objectives outlined above.
In their effort to attract capital, Lazard and PXRE Group then spoke with
over 60 potential institutional investors on PXRE Group's behalf and PXRE Group
made presentations to over 15 of these investors, including presentations on
October 16, 2001 to the general partners of Capital Z Financial Services Private
Fund II, L.P. and Reservoir Capital Partners, L.P. Shortly thereafter, PXRE
Group commenced negotiations with Capital Z and Reservoir regarding the terms of
a potential investment in PXRE Group. These negotiations continued for several
weeks until the regularly scheduled meeting of PXRE Group's Board of Directors
on November 14, 2001.
The proposed terms of the investment by Capital Z and Reservoir were presented
to the Board on November 14, 2001. During deliberations of those terms, PXRE
Group was contacted by the management of Select Reinsurance, Ltd. (Select Re)
regarding PXRE Group's potential interest in a strategic transaction that would
result in the business combination of the two companies. Select Re is a 9.3%
Shareholder of PXRE Group. In addition, Gerald Radke (Chairman, President and
Chief Executive Officer of PXRE Group) and Jeffrey Radke (Executive Vice
President of PXRE Group) are members of the Board of Directors of Select Re.
Gerald Radke is also Co-Vice Chairman of Select Re and Jeffrey Radke was
formerly the President of Select Re and both are also Shareholders of Select
Re, holding less than 1% in the aggregate of Select Re's outstanding common
shares. Mr. Halbert Lindquist, one of PXRE Group's Directors, is also a
Shareholder in Select Re, holding less than 1% of Select Re's outstanding
common shares. Given the potential for conflicts of interest to arise in
discussions with Select Re, the Board of Directors appointed a Special
Committee and charged it with the power to negotiate with Select Re as well as
with Capital Z and Reservoir. The Special Committee consisted of Robert
Fiondella (Chairman), Wendy Luscombe, Phillip McLoughlin and Bernard Kelly.
Franklin Haftl and F. Sedgwick Browne were appointed as alternates.
On November 15, 2001, members of Select Re's Board of Directors and its
management engaged in various discussions with Lazard and the Special Committee
regarding a possible transaction. The parties conducted due diligence
investigations and further discussions between November 16 and 19, 2001. The
Special Committee then re-convened on November 20, 2001 and engaged in further
discussions with Select Re. The parties were unable to reach agreement as to
terms as well as the process and timing of negotiations and, therefore, agreed
to terminate discussions. Select Re subsequently confirmed its decision not to
pursue a transaction in a Schedule 13-D filed with the Securities and Exchange
Commission on November 27, 2001. The Special Committee then resumed negotiations
with Capital Z and Reservoir, and, on November 21, 2001, authorized PXRE Group
to negotiate definitive agreements consistent with the terms discussed with
Capital Z and Reservoir for consideration of the full Board of Directors of
PXRE Group.
4
The Board of Directors then convened on December 9, 2001 to consider the
proposed transaction with Capital Z, Reservoir and Richard E. Rainwater, an
individual investor with certain indirect interests in Reservoir, who had joined
Capital Z and Reservoir in seeking an investment in PXRE Group. The Board of
Directors deliberated and determined that the proposed private placement of
convertible preferred shares to Capital Z, Reservoir and Richard Rainwater was
in the best interests of PXRE Group and our Shareholders. The private placement
will involve the sale of 7,500 shares of newly issued Series A Convertible
Voting Preferred Shares at a price of $10,000 per share, 5,000 shares of newly
issued Series B Convertible Voting Preferred Shares at a price of $10,000 per
share and 2,500 shares of newly issued Series C Convertible Voting Preferred
Shares at a price of $10,000 per share. As of December 10, 2001, the Series A, B
and C Preferred Shares, on a converted basis, would represent approximately
22.3%, 14.9% and 7.4%, respectively, of the outstanding Common Shares of PXRE
Group.
USE OF PROCEEDS
The Share Purchase Agreement provides that the net proceeds from the sale of the
Preferred Shares shall be used by PXRE Group to expand its reinsurance business
in the lines of business in which it is currently involved. PXRE Group is
particularly focused on expanding the catastrophe, retrocessional, risk excess
and finite lines of business, which, PXRE Group believes, are likely to benefit
from the current changes in the reinsurance markets.
THE SHARE PURCHASE AGREEMENT
The following is a summary of certain provisions of the Share Purchase
Agreement, a copy of which is attached as Appendix I. However, this summary of
the Share Purchase Agreement does not purport to be complete and Shareholders
are urged to read the Share Purchase Agreement in its entirety.
The Board of Directors reserves the right to amend or waive the provisions of
the Share Purchase Agreement and the other documents related thereto in all
respects before or after the approval of the Share Purchase Agreement Proposal
by the Shareholders. In addition, the Board of Directors reserves its right to
terminate the Share Purchase Agreement in accordance with its terms
notwithstanding Shareholder approval.
Sale and issuance of the Preferred Shares.
On December 10, 2001, PXRE Group entered into a Share Purchase Agreement with
certain investors, Capital Z Financial Services Fund II, L.P., Capital Z
Financial Services Private Fund II, L.P. (together with Capital Z Financial
Services Fund II, L.P., Capital Z), Reservoir Capital Master Fund, L.P.,
Reservoir Capital Partners, L.P. (together with Reservoir Capital Master Fund,
L.P., Reservoir) and Richard E. Rainwater (Rainwater) (each of Capital Z,
Reservoir and Rainwater, a Purchaser, and together, the Purchasers). The Share
Purchase Agreement provides for the purchase of 7,500 shares of Series A
Preferred Shares, allocated to two sub-series of shares, 5,000 shares allocated
to sub-series A1 (A1 Preferred Shares) and 2,500 shares allocated to sub-series
A2 (A2 Preferred Shares); the purchase of 5,000 shares of Series B Preferred
Shares, allocated to two sub-series of shares, 3,333.333 shares allocated to
Series B1 (B1 Preferred Shares) and 1,666.667 shares allocated to Series B2 (B2
Preferred Shares); and 2,500 shares of Series C Preferred Shares, allocated to
two sub-series of shares, 1,666.667 shares allocated to Series C1 (C1 Preferred
Shares) and 833.333 shares allocated to Series C2 (C2 Preferred Shares).
Description of Stock.
The following is a summary of the material terms and provisions of the rights,
preferences and privileges of the Preferred Shares and Convertible Common Shares
as contained in the Description of Stock for Series A Convertible Voting
Preferred Shares, Series B Convertible Voting Preferred Shares, Series C
Convertible Voting Preferred Shares, Class A Convertible Voting Common Shares,
Class B Convertible Voting Common Shares and Class C Convertible Voting Common
Shares (Description of Stock), the form of which is contained as Exhibit A to
the Share Purchase Agreement (a copy of which is attached hereto as Appendix
II). However, this summary of the Description of Stock does not purport to be
complete and Shareholders are urged to read the Description of Stock in its
entirety.
5
Preferred Shares:
Series A Convertible Voting Preferred Shares
Series B Convertible Voting Preferred Shares
Series C Convertible Voting Preferred Shares.
Priority. The respective rights of each series of Preferred Shares to receive
dividends shall rank pari passu with each other, junior only to the Junior
Subordinated Deferrable Interest Debentures due 2027 of PXRE Corporation, the
8.85% Capital Trust Pass-through Securities of PXRE Capital Trust I and the PXRE
Corporation Guarantee with respect to such Capital Trust Pass-through
Securities, and senior to Common Shares, Convertible Common Shares and all other
classes and series of capital shares of PXRE Group, including without limitation
other classes and series of preferred shares. Upon the dissolution, liquidation
or winding up of PXRE Group, the respective holders of each series of Preferred
Shares would have, pari passu, the right to receive, subject to remaining funds,
cash equal to the liquidation preference for the respective series of Preferred
Shares and prior to the junior shares. If the remaining funds distributable upon
such liquidation, dissolution or winding-up of PXRE Group are insufficient to
permit payment to the respective holders of each series of Preferred Shares of
the full preferential amounts, then such remaining funds shall be distributed
ratably among the Preferred Shares.
Dividends. The Preferred Shares will be entitled to receive, when, as and if
declared by the Board of Directors and to the extent of funds legally available
for the payment of dividends, cumulative dividends per share at the rate per
annum of 8% of the sum of the stated value on each share plus any accrued and
unpaid dividends thereon, payable on a quarterly basis. To the extent such
dividends are not paid when due, dividends shall be payable and accrue at the
rate of 10% per annum compounded quarterly until paid. Such dividends, if
declared by the Board of Directors, shall be payable in shares of Preferred
Shares prior to the third anniversary of the closing and cash thereafter. PXRE
Group, at its sole election, may decide, in substitution in whole or in part for
dividends payable in shares, to pay dividends in cash to the extent of any
dividends that, if paid in additional shares of Preferred Shares, would
otherwise cause the Purchasers and their affiliates to own more than 49.9% of
the share capital of PXRE Group on a fully-diluted and fully-converted basis.
Conversion. For each series, each Preferred Share, in whole or in part, is
convertible at any time at the option of the holder into Convertible Common
Shares for such series. The number of Convertible Common Shares per Preferred
Share issuable upon any conversion will be determined by dividing a liquidation
preference for the series equal to the aggregate original purchase price of the
Preferred Shares plus accrued but unpaid dividends thereon, by the conversion
price then in effect. The initial conversion price will be $15.69, which
represents a premium of approximately 14% to the 30 day trading average of PXRE
Group's Common Shares prior to the announcement of this transaction. The
conversion price is subject to adjustment to avoid dilution in the event of
recapitalization, reclassification, stock split, consolidation, merger,
amalgamation or other similar event or an issuance of additional Common Shares
in a private transaction below the fair market value or in a registered public
offering below 95% of fair market value (in each case, fair market value being
the value immediately prior to the date of announcement of such issuance) or
without consideration. In addition, the conversion price is subject to
adjustment, for certain loss and loss expense development on reserves for losses
incurred on or before September 30, 2001 (and loss adjustment expenses related
thereto) and for any liability or loss arising out of pending material
litigation (other than legal fees and expenses), on an after-tax basis, equal to
an amount computed in accordance with a formula as set forth in the Description
of Stock. No adjustment will occur unless the development exceeds a deductible
of $7,000,000 and, with respect to all reserves other than reserves for certain
discontinued operations and the events of September 11, 2001 and liability
arising out of pending litigation, the adjustment is limited to $12,000,000 of
further development.
A1 Preferred Shares, B1 Preferred Shares and C1 Preferred Shares will be
mandatorily convertible into Class A Common Shares, Class B Common Shares and
Class C Common Shares, respectively, on the third anniversary of the date of
issuance, and all remaining Preferred Shares will be mandatorily convertible
into Convertible Common Shares on the sixth anniversary of the date of issuance.
The conversion price used in connection with the mandatory conversion of A1, B1
and C1 Preferred Shares includes price protection. Notwithstanding the
foregoing, on any conversion date, to the extent necessary to prevent the
initial Purchasers of Preferred Shares and their affiliates from owning more
than 49.9% of the capital shares of PXRE Group following conversion, PXRE Group
shall have the right (but not the obligation) to make a cash payment in lieu of
Convertible Common Shares equal to the fair market value of the Convertible
Common Shares that would have been received in excess of the 49.9% limitation in
connection with any conversion, plus an additional tax gross-up amount to take
into account in appropriate circumstances the difference between the federal
income tax rate on long-term capital gains and the federal ordinary
6
income tax rate that might apply to the recipient on the receipt of a cash
payment in lieu of Convertible Common Shares.
Voting. The Preferred Shares will vote on a fully converted basis with the
Common Shares and other voting securities, together as a class, on all matters
which are submitted to a vote of the Shareholders, other than the election of
directors, except that in no event shall Purchasers and their respective
affiliates be permitted to exercise voting rights, collectively through PXRE
Group securities, in excess of 49.9% of the aggregate voting power of PXRE Group
on any Shareholder matter. Bye-Law No. 20(4) of PXRE Group's Bye-Laws provides
that, subject to the sole discretion of the Board, no person is entitled to
exercise voting power in excess of a maximum limitation of 9.9% of the votes
conferred on all the issued and outstanding shares of PXRE Group. In the present
case, the Board has determined to waive this requirement with respect to Capital
Z (including for such purpose certain of its affiliates holding Preferred Shares
and Convertible Common Shares and Common Shares into which Preferred Shares and
Convertible Common Shares have respectively been converted), but not with
respect to Rainwater or Reservoir. As a result, upon issuance of the Preferred
Shares, and based upon shares outstanding as of December 10, 2001, except with
respect to the election of directors, Capital Z will have the power to exercise
23.6% of the voting power of the outstanding shares of PXRE Group, but the
voting power that each of Reservoir and Rainwater may exercise will be limited
to 9.9%.
For each series of Preferred Shares, for so long as any Preferred Shares remain
issued and outstanding, unless otherwise provided by law, the affirmative vote
of at least 50% of all the Preferred Shares issued and outstanding for such
series shall be necessary to permit PXRE Group to:
o authorize, create, designate, issue or sell any securities with rights that
rank pari passu with or senior to the Preferred Shares of such series or
adversely affect the holders of such Preferred Shares or Convertible Common
Shares for such series, or amend any existing capital shares if the effect is
to rank such capital shares pari passu with such Preferred Shares;
o in any manner alter or change the rights or other terms of the Preferred
Shares or Convertible Common Shares for such series as set forth in the
Description of Stock;
o reclassify any capital shares into shares that are either senior to or pari
passu with the Preferred Shares for such series in terms of dividends and
other distributions or that would adversely affect the rights appertaining to
Common Shares or Convertible Common Shares, as the case may be, which such
holders of Preferred Shares would have after conversion of the Preferred
Shares into Convertible Common Shares for such series or conversion of the
Convertible Common Shares into Common Shares;
o amend, alter or repeal any provision of the Memorandum of Association or
Bye-Laws of PXRE Group if such action would have an adverse effect on the
rights of the holders of Preferred Shares for the series or those rights
appertaining to Convertible Common Shares or Common Shares which such holders
would have after conversion of such Preferred Shares into Convertible Common
Shares or Convertible Common Shares into Common Shares; or
o make any change to the authorized number of Preferred Shares or Convertible
Common Shares or issuance of any additional Preferred Shares or Convertible
Common Shares.
Additionally, consent will be required in order for PXRE Group to take certain
acts for so long as the Purchasers, their respective affiliates and limited
partners meet certain ownership thresholds. The first threshold is that they
must collectively own, in the aggregate, in excess of 40% of the Preferred
Shares originally purchased by them (including for purposes of such calculation
any Convertible Common Shares and Common Shares into which such Convertible
Common Shares are converted). If this first threshold is met, then the consent
of each of (i) the majority of the outstanding Series A Preferred Shares and
Class A Common Shares, voting together as a single class (the Capital Z Group),
and (ii) the majority of outstanding Series B Preferred Shares, Series C
Preferred Shares, Class B Common Shares and Class C Common Shares, voting
together as a single class (the Reservoir/Rainwater Group), is required. The
second threshold requires that at least one of the Capital Z Group or the
Reservoir/Rainwater Group own at least 50% of the Preferred Shares originally
purchased by them (including for purposes of such calculation any Convertible
Common Shares and Common Shares into which such Convertible Common Shares are
converted).
7
If either group meets this threshold, then the consent of a majority
of the Shareholders in such group is required. The acts which require consent
are listed below:
o involving, at any time before the third anniversary of the closing, one or
more redemptions, offers to purchase, tender offers or other acquisitions of
Common Shares by or on behalf of PXRE Group collectively involving the
payment by or on behalf of PXRE Group of cash or other consideration having
an aggregate fair market value in excess of an amount equal to 20% of the
cumulative amount by which PXRE Group's consolidated net income in any
calendar year commencing with the year ending December 31, 2002 exceeds
$50,000,000 minus the sum of all cash and the fair market value of all
non-cash consideration paid in respect of redemptions, offers to purchase,
tender offers or other acquisitions of share capital of PXRE Group on or
after December 10, 2001 (the Permitted Tender Offer Amount);
o resulting in the sale of PXRE Group where the per share consideration paid to
Preferred Shares on an as converted basis is less than 200% of the current
conversion price;
o resulting in the sale or transfer of 25% or more of PXRE Group's assets;
o resulting in a voluntary delisting of the Common Shares from the New York
Stock Exchange;
o involving or resulting in the incurrence of additional indebtedness in excess
of $50,000,000 in the aggregate at any time before the third anniversary of
the closing, not including the first $55,000,000 of any refinancing of the
First Amended & Restated Credit Agreement dated August 31, 1999, among PXRE
Corporation, PXRE Group Ltd., PXRE (Barbados) Ltd., certain lenders and First
Union National Bank or resulting in a ratio of indebtedness to total capital
in excess of 0.25 to 1.00 at any time on or after the third anniversary of
the closing;
o effecting or attempting to effect a voluntary liquidation, dissolution or
winding-up of PXRE Group;
o resulting in an expansion by PXRE Group into lines of business other than
continuing lines of business in which PXRE Group is currently involved;
o increasing the amount of dividends paid with respect to Common Shares, at a
cumulative annualized rate of more than 10% at any time before the third
anniversary of the Closing (the Permitted Dividend Amount);
o involving the purchase or renewal of retrocessional or reinsurance coverage
from companies that are below certain standards, with certain exceptions for
coverages consistent with past practice with Select Re and Pennsylvania
Lumbermans Mutual Insurance Company;
o effecting any acquisition by PXRE Group at any time before the third
anniversary of the closing involving aggregate consideration in excess of
$50,000,000;
o increasing investment in any hedge funds beyond amounts held at September 30,
2001 without the prior unanimous approval of the investment committee of the
Board of Directors; and
o at any time on or after the third anniversary of the closing, resulting in
payment of any dividend or other distribution with respect to Common Shares
or resulting in a redemption, offer to purchase, tender offer or other
acquisition of share capital of PXRE Group involving consideration having an
aggregate fair market value in excess of the greater of the Permitted Tender
Offer Amount and the Permitted Dividend Amount.
Board Representation. The Description of Stock affords the Purchasers rights
with respect to directors on the Board of Directors of PXRE Group, as follows:
o for so long as Capital Z and its affiliates and their limited partners own at
least 50% of the Series A Preferred Shares acquired by Capital Z under the
Share Purchase Agreement (including for purposes of such calculation all
Class A Common Shares then held), the holders of the Series A Preferred
Shares and Class A Common Shares have the right to vote separately as a class
to elect two individuals to each serve a one-year term as Class IV Directors
of PXRE Group (each, a Capital Z Director). So long as Capital Z and its
affiliates and their
8
limited partners own at least 20% but less than 50% of the Series A Preferred
Shares acquired by Capital Z under the Share Purchase Agreement (including
for purposes of such calculation all Class A Common Shares then held), the
holders of the Series A Preferred Shares and Class A Common Shares have the
right to vote separately as a class to elect one Capital Z Director to serve
a one-year term as a Class IV Director of PXRE Group;
o for so long as Reservoir and its affiliates own at least 30% of the Series B
Preferred Shares acquired by Reservoir under the Share Purchase Agreement
(including for purposes of such calculation all Class B Common Shares then
held), the holders of the Series B Preferred Shares and Class B Common Shares
have the right to vote separately as a class to elect one individual to serve
a one-year term as a Class IV Director of PXRE Group (the Reservoir
Director);
o for so long as Rainwater and his affiliates own at least 60% of the Series C
Preferred Shares acquired by Rainwater under the Share Purchase Agreement
(including for purposes of such calculation all Class C Common Shares then
held), the holders of the Series C Preferred Shares and Class C Common Shares
shall have the right to vote separately as a class to elect one individual to
serve a one-year term as a Class IV Director of PXRE Group (the Rainwater
Director).
See "Proposal 4 - Approval of the Class IV Directors Proposal." The Description
of Stock also affords such Capital Z Directors and the Reservoir and Rainwater
Directors, collectively, certain representation on committees of the Board of
Directors.
Convertible Common Shares:
Class A Convertible Voting Common Shares
Class B Convertible Voting Common Shares
Class C Convertible Voting Common Shares.
General. Except as otherwise provided, each class of Convertible Common Shares
shall have the same rights, preferences and restrictions as Common Shares.
Priority. The Convertible Common Shares shall rank pari passu with the Common
Shares.
Conversion. Convertible Common Shares shall automatically convert into Common
Shares on a one-for-one ratio upon a transfer of record ownership thereof to any
person other than Capital Z, Reservoir, Rainwater, or any of their respective
affiliates or limited partners (including without limitation in connection with
a public offering of such shares), or a person approved by the Board of
Directors in its sole discretion. Convertible Common Shares may be converted at
the option of the holder thereof into Common Shares on a one-for-one ratio at
any time that such holder would be entitled to vote Preferred Shares generally
in the election of directors in accordance with the Description of Stock.
Voting. Except as otherwise provided specifically herein and in the Bye-Laws or
required by Bermuda law, each Convertible Common Share shall have the right and
power and be entitled to vote on any question or matter upon which, or in any
proceeding at which, the holders of Common Shares of PXRE Group are entitled to
vote and to be represented at and to receive notice of any meeting of
Shareholders (except for election or removal of directors of PXRE Group, as to
which the Convertible Common Shares shall only be able to vote for election or
removal of Class IV Directors as set forth in the Description of Stock). In
addition, the holders of Preferred Shares, Convertible Common Shares and Common
Shares shall vote together as one class and not as separate classes and each
holder of Convertible Common Shares shall be entitled to that number of votes
for each Convertible Common Share held by such holder equal to the number of
Common Shares that would be received by such holder if such Preferred Share were
fully converted. Notwithstanding the foregoing, the Class A Common Shares, the
Class B Common Shares and the Class C Common Shares shall be entitled to vote,
respectively, with the Series A Preferred Shares, Series B Preferred Shares and
Series C Preferred Shares in the election of the Capital Z Directors, the
Reservoir Director and the Rainwater Director, respectively, in each case as set
forth in the Description of Stock. Bye-Law No. 20(4) of PXRE Group's Bye-Laws
provides that, subject to the sole discretion of the Board, no person is
entitled to exercise voting power in excess of a maximum limitation of 9.9% of
the votes conferred on all the issued and outstanding shares of PXRE Group. In
the present case, the Board has determined to waive this requirement with
respect to Capital Z (including for such purpose certain of its affiliates
holding Preferred Shares and Convertible Common
9
Shares and Common Shares into which Preferred Shares and Convertible Common
Shares have respectively been converted), but not with respect to Rainwater or
Reservoir. As a result, upon issuance of the Preferred Shares, and based upon
shares outstanding as of December 10, 2001, except with respect to the election
of directors, Capital Z will have the power to exercise 23.6% of the voting
power of the outstanding shares of PXRE Group, but the voting power that each of
Reservoir and Rainwater may exercise will be limited to a maximum of 9.9%.
Purchase Price and Closing.
The aggregate purchase price to be paid by the Purchasers for the shares of
Preferred Stock to be issued in accordance with the Share Purchase Agreement
totals $150,000,000. The closing of the Preferred Share issuance will be
consummated, in accordance with the terms of the Share Purchase Agreement, upon
satisfaction or waiver of certain conditions as set forth in the Share Purchase
Agreement. See "Closing Conditions."
Representations and Warranties.
In the Share Purchase Agreement, PXRE Group made customary representations and
warranties to the Purchasers, including, without limitation, representations and
warranties regarding PXRE Group's organization, authority, share capital,
financial statements, litigation, liabilities, assets, intellectual property,
governmental consents, material contracts, taxes, insurance and employees. The
Purchasers also made customary representations and warranties to PXRE Group.
Covenants.
PXRE Group made certain covenants to the Purchasers, including, but not limited
to, covenants concerning use of proceeds from the Preferred Shares and conduct
of the business until the closing date. In addition to these covenants, under an
exclusivity covenant, PXRE Group agreed that it would not (i) make any offer or
proposal or enter into any contract to sell any share capital (other than
pursuant to equity plans of PXRE Group) or material assets of PXRE Group, effect
any recapitalization, restructuring, refinancing, merger, amalgamation,
consolidation or other business combination involving PXRE Group or (ii) provide
any non-public information to any third party in connection with any of these
types of transactions. Notwithstanding the foregoing exclusivity covenant, PXRE
Group is permitted to consider, negotiate, approve and recommend to Shareholders
of PXRE Group any unsolicited offers or proposals for an acquisition, by merger,
amalgamation, consolidation, tender offer or otherwise, of all of substantially
all of the assets or outstanding Common Shares of PXRE Group; however, PXRE
Group shall continue to be obligated under the Share Purchase Agreement until
terminated in accordance with the terms thereof.
Closing Conditions.
The obligation of PXRE Group to consummate the closing under the Share Purchase
Agreement is subject to the satisfaction or waiver of certain conditions
precedent, including, among other things:
o approval of the proposals set forth in this Proxy Statement by PXRE Group's
Shareholders;
o the accuracy on the closing date of the representations and warranties of the
Purchasers contained in the Share Purchase Agreement;
o the performance and compliance by the Purchasers in all material respects
with all agreements, covenants and obligations contained in the Share
Purchase Agreement to be performed or complied with by each purchaser at or
before the closing date;
o receipt of all necessary regulatory and third-party consents and approvals;
and
o the absence of any proceedings or investigations prohibiting the consummation
of the transactions contemplated by the Share Purchase Agreement.
The obligation of the Purchasers to consummate the investment under the Share
Purchase Agreement is subject to the satisfaction or waiver of certain
conditions, including:
o approval of the proposals set forth in this Proxy Statement by PXRE Group's
Shareholders;
10
o the accuracy on the closing date of the representations and warranties of
PXRE Group contained in the Share Purchase Agreement;
o the performance and compliance by PXRE Group in all material respects with
all agreements, covenants and obligations contained in the Share Purchase
Agreement to be performed or complied with by PXRE Group at or before the
closing date;
o receipt of all necessary regulatory and third-party consents and approvals;
o the absence of any proceedings or investigations prohibiting the consummation
of the transactions contemplated by the Share Purchase Agreement; and
o PXRE Group's retention of a Best's Rating of "A" or higher from A.M. Best &
Company and a rating of "A" or higher from Standard & Poor's.
Indemnification.
All representations and warranties of PXRE Group and the Purchasers contained in
the Share Purchase Agreement shall survive the consummation of the transactions
contemplated by the Share Purchase Agreement for a period of eighteen months
from the closing date; provided that the representations and warranties of PXRE
Group which relate to taxes and ERISA shall survive until the applicable statute
of limitations has expired, and the representations and warranties relating to
capitalization shall survive indefinitely. Each of PXRE Group and the Purchasers
has agreed to indemnify the other and the other's affiliates, agents and
representatives, from and against all damages incurred or suffered by them
arising directly from any breach of any representation, warranty or covenant of
PXRE Group or the Purchasers, as the case may be, contained in the Share
Purchase Agreement so long as the damages exceed $5.0 million. Neither party is
obligated to indemnify the other for any damages in excess of $75.0 million. The
$75 million limitation shall not apply with respect to any breach of PXRE
Group's representations regarding capitalization.
Regulatory Approvals and Consents.
The terms of the Share Purchase Agreement require that certain regulatory
approvals and consents be obtained in connection with the Preferred Share
issuance. These approvals and consents include (i) approval by the Insurance
Department of the State of Connecticut; (ii) approvals or consents from any
governmental or regulatory authorities that may become necessary in order to
carry out obligations under the Share Purchase Agreement; and (iii) all
approvals and consents required under any contracts to which PXRE Group is a
party. Each of PXRE Group and the Purchasers agreed to make any required filing
of a Notification and Report Form pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to the Preferred Share
issuance. PXRE Group also agreed that it would use its best efforts to obtain
executed letters from certain of its employees who receive benefits under
certain of PXRE Group's stock and severance plans.
Termination.
The Share Purchase Agreement may be terminated at any time:
o by mutual written consent of PXRE Group and the Purchasers thereto;
o by either PXRE Group or the Purchasers if (i) the closing of the transaction
shall not have occurred on or before May 31, 2002, unless the absence of such
occurrence is due to a material breach of the Share Purchase Agreement by the
party seeking to terminate the Share Purchase Agreement, or (ii) if any
governmental or regulatory authority has issued an order or taken action to
permanently enjoin or prohibit the closing of the transaction;
o by the Purchasers, if there has been a breach by PXRE Group of any
representation, warranty, covenant or agreement set forth in the Share
Purchase Agreement, which breach would reasonably be likely to be incapable
of being satisfied by May 31, 2002;
11
o by PXRE Group if there has been a breach by the Purchasers of any
representation, warranty, covenant or agreement set forth in the Share
Purchase Agreement, which breach would reasonably be likely to be incapable
of being satisfied by May 31, 2002; or
o by PXRE Group or the Purchasers if (i) the board of directors accepts an
unsolicited proposal from a third party or (ii) the Shareholders fail to
approve the transaction. The Share Purchase Agreement also provides for the
payment to the Purchasers of a termination fee in the amount of $7 million in
certain circumstances.
Employee Benefit Plan Considerations.
Pursuant to the terms of the Share Purchase Agreement, the executive officers
will execute a consent regarding their interests in certain employee benefit
plans of PXRE Group (the Consent), the form of which is contained as Exhibit D
to the Share Purchase Agreement (a copy of which is attached hereto as a
Appendix I). The following is a summary of the material terms and provisions of
the Consent. However, this summary of the Consent does not purport to be
complete and shareholders are urged to read the Consent in its entirety.
The executive officers of PXRE Group participate in certain stock plans which
provide for the acceleration of stock options and restricted stock in the event
of a "change in control" (as defined in the stock plans). Pursuant to the
Consent, however, each of the executive officers has agreed to accept a
modification to the change in control provisions under the stock plans whereby
in the event that the transactions contemplated by the Share Purchase Agreement
would constitute a change in control, the acceleration of the stock options and
restricted stock is conditioned on a termination of employment that triggers
benefits under a PXRE Group severance plan. The following table sets forth the
name of each executive officer and the number of shares underlying unvested
stock options and shares of restricted stock that would become accelerated in
the event of a termination which entitles the officer to severance under a PXRE
Group severance plan following the transactions contemplated in the Share
Purchase Agreement and assuming those transactions would constitute a change in
control.
Stock Option/ Restricted Stock Acceleration Following Termination of Employment
No. of securities underlying No. of shares of unvested
---------------------------- --------------------------
Name unvested stock options restricted stock
---- ---------------------- ----------------
Gerald L. Radke 156,285 30,569
Michael J. Bleisnick 114,494 17,814
James F. Dore 112,500 28,750
Gordon Forsyth, III 134,494 19,564
Jeffrey L. Radke 127,500 28,429
Bruce J. Byrnes 40,000 13,000
Under the PXRE Group Severance Plan for Certain Executives (the Executive
Severance Plan), in the case of a termination of employment within a one year
period (within a two year period for Gerald Radke) following a change in control
(as defined in the Executive Severance Plan) by PXRE Group without "cause" (as
defined in the Executive Severance Plan) or by the Executive on account of
"constructive discharge" (as defined in the Executive Severance Plan), the
executive is entitled to a lump sum payment generally equal to one year of
salary and benefits (two years for Gerald Radke if his employment is terminated
within one year following a change in control). Pursuant to the Consent, in the
event that the transactions contemplated by the Share Purchase Agreement would
constitute a change in control, executive officers participating in the
Executive Severance Plan have agreed that the consummation of the transactions
contemplated by the Share Purchase Agreement would not alone give the executive
the right to voluntarily resign on account of constructive discharge and trigger
severance payments. Additionally, the Consent provides that the proposed
transaction will not constitute a change in control for purposes of payments
under the Supplemental Executive Retirement Plan.
The Investment Agreement.
Pursuant to the terms of the Share Purchase Agreement, PXRE Group will enter
into an Investment Agreement, the form of which is contained as Exhibit C to the
Share Purchase Agreement (a copy of which is attached hereto as Appendix III).
The following is a summary of the material terms and provisions of the
Investment Agreement. However, this summary of the Investment Agreement does not
purport to be complete and Shareholders are urged to read the Investment
Agreement in its entirety.
12
Restrictions on Transfer. Each Purchaser agreed that it would not transfer the
shares acquired pursuant to the Share Purchase Agreement except if such transfer
of shares falls under the definition of a "permitted transfer," as more fully
described in the Investment Agreement, attached hereto as Appendix III, and the
recipient of such transferred shares executes a joinder agreement whereby it
becomes a party to the Investment Agreement unless certain exceptions apply.
Standstill Agreement. The Purchasers have agreed that they will not take any of
the following actions following the closing date without the approval of a
majority of the members of the Board of Directors of PXRE Group;
o increase their voting securities in any way or acquire any assets or
properties of PXRE Group or any subsidiary of PXRE Group during a period of
five years following the closing date of the Preferred Shares;
o sponsor or participate in any proxy election with respect to PXRE Group;
o directly sell short any shares of PXRE Group or engage in any hedging
transactions, except that the Purchasers may engage in certain specified
hedging transactions from and after the first anniversary of the Closing;
o join or participate in any partnership, voting trust or "group" with respect
to the securities acquired by the purchaser under the Share Purchase
Agreement or act in concert with any third person for the purpose of
impermissably holding or disposing of or acquiring any additional securities
of PXRE Group;
o deposit any securities acquired under the Share Purchase Agreement into a
voting trust or subject those securities to any arrangement or agreement with
respect to the voting thereof;
o take any other action to seek control of PXRE Group; or
o take any action to seek to circumvent any of the foregoing limitations.
Registration Rights. PXRE Group has agreed to afford the Purchasers certain
registration rights. PXRE Group has agreed that the holders of the Common Shares
issuable upon the conversion of the Class A Common Shares, the Class B Common
Shares and the Class C Common Shares (collectively, the Convertible Common
Shares) will have certain rights to demand that PXRE Group file a registration
statement on Form S-1, provided that the shares in such a registration have an
aggregate offering price in excess of $22.5 million. The holders of the Common
Shares issuable upon the conversion of the Convertible Common Shares will also
have certain rights to require PXRE Group to file shelf registration statements
provided that any such registration have an aggregate offering price in excess
of $2.0 million. PXRE Group also granted the Purchasers certain additional
registration rights, including piggyback rights.
Indemnification. Each of PXRE Group and the Purchasers has agreed to indemnify
the other, and the other's affiliates, agents and representatives, from and
against certain losses, claims, damages or liabilities to which they may become
subject under the securities laws or any federal or state law by any of them
resulting from or arising out of certain untrue statements of material facts
contained in any registration statement or omissions of material facts in any
registration statement.
PXRE Group also agreed to pay an aggregate commitment fee of $2.0 million to
Capital Z and Reservoir and to reimburse the Purchasers for certain fees and
expenses incurred by Purchasers relating to the transaction up to an aggregate
of $900,000.
ANTI-TAKEOVER EFFECTS
The Share Issuance Proposal could have a potential anti-takeover effect with
respect to PXRE Group. The Series A, Series B and Series C Preferred Shares,
upon conversion, will entitle the Purchasers to acquire a substantial percentage
of the outstanding Common Shares. As of December 10, 2001, the Preferred Shares,
on a fully converted basis, would represent approximately 44.6% of the
outstanding Common Shares of PXRE Group.
13
In addition, the Share Issuance Proposal involves the issuance of securities
that will entitle the holders to special voting rights. The holders of the
Series A Preferred Shares will have the exclusive right to select up to two of
eleven members of the Board of Directors; the holders of the Series B Preferred
Shares will have the right to select one member of the Board of Directors; and
the holders of the Series C Preferred Shares will have the right to select one
member of the Board of Directors. As a result of the Purchasers' substantial
ownership interest in PXRE Group's securities, it may be more difficult for a
third party to acquire PXRE Group. By virtue of a substantial percentage of the
Common Shares that the Purchasers would acquire upon conversion of the Series A,
Series B and Series C Preferred Shares (and the Convertible Common Shares into
which they are converted), a potential buyer would likely be deterred from any
effort to acquire PXRE Group absent the consent of the Purchasers or their
participation in the transaction. In addition, the consent of at least a
majority of the outstanding shares of the Series A, Series B and Series C
Preferred Shares, voting separately as a class, will be required for approval of
certain actions. See "Description of Stock." As a result, the Preferred Share
issuance contemplated by the Share Purchase Agreement might have the effect of
preventing or discouraging an attempt by another person or entity to take over
or otherwise gain control over PXRE Group. As of the date of this Proxy
Statement, management knows of no specific effort to accumulate securities of
PXRE Group or to obtain control of PXRE Group by means of a merger,
amalgamation, tender offer or solicitation in opposition to management or
otherwise.
VOTE REQUIRED FOR APPROVAL OF THE SHARE ISSUANCE PROPOSAL
Pursuant to the rules of the NYSE and PXRE Group's listing agreement with the
NYSE with respect to the outstanding Common Shares, Shareholder approval is
required for the issuance of securities convertible into Common Shares if the
Common Shares into which securities are convertible will have voting power equal
to or in excess of 20% of the voting power outstanding before the issuance of
such securities. The Preferred Share issuance contemplated by the Share Purchase
Agreement will constitute such an issuance. Shareholder approval of Proposal 1,
the Share Issuance Proposal, will constitute Shareholder approval for NYSE
purposes. Under the rules of the NYSE, the affirmative vote of the holders of a
simple majority of the shares of Common Shares cast in person or by proxy and
entitled to vote at the Meeting is required to approve Proposal 1, provided that
the total vote cast on the proposal represents a majority of the outstanding
shares carrying the right to vote.
PXRE Group does not believe that the Preferred Share issuance will result in a
change in control of PXRE Group. To the extent, however, that it could be viewed
as resulting in a change in control, approval of the Share Issuance Proposal
would constitute shareholder approval of the change in control for NYSE
purposes.
Each of the Share Issuance Proposal, the New Common Shares Proposal, the
Increased Board of Directors Proposal and the Class IV Directors Proposal will
be voted on separately by the Shareholders of PXRE Group. Neither PXRE Group nor
the Purchasers is obligated to consummate the transactions in the event
Shareholders fail to approve any of the Share Issuance Proposal, New Common
Shares Proposal, the Increased Board of Directors Proposal and the Class IV
Directors Proposal.
THE BOARD OF DIRECTORS OF PXRE GROUP UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE APPROVAL OF THE SHARE ISSUANCE PROPOSAL.
14
PROPOSAL 2
APPROVAL OF THE NEW COMMON SHARES PROPOSAL
At a meeting held on December 9, 2001, the Board of Directors, by
unanimous vote, approved, subject to approval by the Shareholders, a resolution
authorizing the division of 20,000,000 of PXRE Group's 50,000,000 authorized
Common Shares into three new classes of Common Shares of PXRE Group: Class A
Common Shares, Class B Common Shares and Class C Common Shares.
The Share Purchase Agreement provides for the creation of the Class A
Common Shares, the Class B Common Shares and the Class C Common Shares. Assuming
that the Share Issuance Proposal and the New Common Shares Proposal are approved
by the Shareholders, pursuant to the Share Purchase Agreement, PXRE Group will
be required to issue 7,500 shares of Series A Preferred Shares, 5,000 shares of
Series B Preferred Shares and 2,500 shares of Series C Preferred Shares to the
Purchasers. The Series A Preferred Shares will be convertible into Class A
Common Shares, the Series B Preferred Shares will be convertible into Class B
Common Shares and the Series C Preferred Shares will be convertible into Class C
Common Shares. In addition to the division of Common Shares into the new Class
A, Class B and Class C Common Shares, the approval of Shareholders is being
sought to the proposal that the new Class A Common Shares, Class B Common Shares
and Class C Common Shares shall automatically be redesignated as Common Shares
of PXRE Group upon, and to the extent of, the exercise of the conversion rights
attaching to the new Class A Common Shares, Class B Common Shares and Class C
Common Shares on a one-for-one basis.
Bye-law 7(1)(c) of the Bye-Laws of PXRE Group provides that PXRE Group
may divide Common Shares into classes, provided that any such division of Common
Shares be approved by an ordinary resolution of our Shareholders.
The terms and provisions of the rights, preferences and privileges of
Class A Common Shares, Class B Common Shares and Class C Common Shares are set
forth in Description of Stock, attached hereto as Exhibit II. For a summary of
these terms see "Proposal I--Approval of the Share Issuance Proposal."
VOTE REQUIRED FOR APPROVAL OF THE NEW COMMON SHARES PROPOSAL
The New Common Shares Proposal must be approved by a simple majority of
the votes cast on the proposal, provided a majority of the outstanding shares
carrying the right to vote are represented in person or by proxy.
Each of the Share Issuance Proposal, the New Common Shares Proposal,
the Increased Board of Directors Proposal and the Class IV Directors Proposal
will be voted on separately by the Shareholders of PXRE Group. Neither PXRE
Group nor the Purchasers is obligated to consummate the transactions in the
event Shareholders fail to approve any of the Share Issuance Proposal, the New
Common Shares Proposal, the Increased Board of Directors Proposal and the Class
IV Directors Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE NEW COMMON SHARES PROPOSAL.
15
PROPOSAL 3
APPROVAL OF THE INCREASED BOARD OF DIRECTORS PROPOSAL
At a meeting held on December 9, 2001, the Board of Directors, by
unanimous vote, approved, subject to approval by the Shareholders, a resolution
increasing the size of the Board of Directors by two members, to a total of
eleven members, in accordance with the Share Purchase Agreement, attached hereto
as Appendix I.
Assuming that the Increased Board of Directors Proposal is approved,
certain seats on the eleven member Board of Directors will be filled in
accordance with the Share Purchase Agreement and "Proposal 4--Approval of the
Class IV Directors Proposal", if Proposal 4 is also approved. Purchases shall be
entitled to four Board seats until such time as the Purchasers, together with
affiliates and limited partners, no longer beneficially own in the aggregate the
requisite levels of ownership of the Preferred Shares acquired under the Share
Purchase Agreement (including, for purposes of such calculations, the
Convertible Common Shares held by such persons). For a discussion of such
requisite levels of ownership for maintaining Board seats for the respective
Purchasers, see "Board Representation" in the Description of Stock attached
hereto as Appendix II. Any Director seats relinquished by Purchasers as a result
of the failure to maintain requisite ownership levels shall be filled thereafter
in accordance with Bye-law 22 of the PXRE Group Bye-Laws.
VOTE REQUIRED FOR APPROVAL OF THE INCREASED BOARD OF DIRECTORS PROPOSAL
The Increased Board of Directors Proposal must be approved by a simple
majority of the votes cast on the proposal, provided a majority of the
outstanding shares carrying the right to vote are represented in person or by
proxy.
Each of the Share Issuance Proposal, the New Common Shares Proposal,
the Increased Board of Directors Proposal and the Class IV Directors Proposal
will be voted on separately by the Shareholders of PXRE Group. Neither PXRE
Group nor the Purchasers is obligated to consummate the transactions in the
event Shareholders fail to approve any of the Share Issuance Proposal, the New
Common Shares Proposal, the Increased Board of Directors Proposal and the Class
IV Directors Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE INCREASED BOARD OF DIRECTORS PROPOSAL.
16
PROPOSAL 4
APPROVAL OF THE CLASS IV DIRECTORS PROPOSAL
At a meeting held on December 9, 2001, the Board of Directors, by
unanimous vote, approved, subject to approval by special resolution of the
Shareholders, an amendment to PXRE Group's Bye-Laws to create a new Class IV of
directors, in accordance with the Share Purchase Agreement, attached hereto as
Exhibit I. The terms of the proposed special resolution are set forth in the
Description of Stock, attached hereto as Appendix II. Shareholders are urged to
read Appendix II in its entirety.
Bye-law 22(a) governs the election and removal of PXRE Group's Board of
Directors. The Bye-Laws currently provide that the Board of Directors be divided
in three classes with staggered three year terms, Classes I, II and III. The
proposed special resolution will create a new class of directors, Class IV, as a
separate class of directors which will be selected by the Purchasers. Class IV
Directors will be selected annually and will have all of the same rights and
powers as the Class I, II and III Directors.
If Proposal 4 is approved together with Proposals 1, 2 and 3 by the
Shareholders, subject to certain share ownership requirements, holders of the
Series A Preferred Shares, separately as a class and together with the holders
of Class A Common Shares, will be entitled to select up to two of PXRE Group's
eleven directors, holders of the Series B Preferred Shares, separately as a
class and together with Class B Common Shares, will be entitled to select one of
PXRE Group's eleven directors as a Reservoir Director and holders of the Series
C Preferred Shares, separately as a class and together with Class C Common
Shares, will be entitled to select one of PXRE Group's eleven directors as a
Rainwater Director. In the event any Purchaser fails to maintain any requisite
ownership level and relinquishes a Board seat as a result, such Board seat will
thereafter be filled in accordance with Bye-law 22 of the PXRE Group Bye-Laws.
Two vacancies on PXRE Group's Board of Directors will be created upon
consummation of the Preferred Share issuance as a result of the resignations of
David W. Searfoss and one other current director to be determined. Concurrent
with the consummation of the transaction, two persons designated by Capital Z
will be selected to serve on the Board, one person selected by Reservoir will
serve on the Board and one person selected by Rainwater will serve on the Board.
Each of Capital Z, Reservoir and Rainwater have advised PXRE Group that, upon
consummation of the Preferred Share issuance, it will designate the persons
named below as the two Capital Z Directors, one Reservoir Director and one
Rainwater Director, respectively, to serve until the next annual meeting of
Shareholders and until their successors are selected by the holders of the
Series A Preferred Shares, Series B Preferred Shares and Series C Preferred
Shares (together with holders of respective Convertible Common Shares then held)
and have been duly qualified. Capital Z, Reservoir and Rainwater have advised
PXRE Group that they currently do not know of any circumstance which could
render any of these individuals unable to take office. The following sets forth
certain information concerning the persons who have been designated by Capital
Z, Reservoir and Rainwater to serve on PXRE Group's Board of Directors as the
Capital Z Directors, the Reservoir Director and the Rainwater Director.
Bradley E. Cooper, 35 (for Capital Z Director)
Mr. Cooper is a Partner and co-founder of Capital Z. Prior to joining Capital Z,
Mr. Cooper served in similar roles at Insurance Partners, L.P. ("Insurance
Partners") and International Insurance Investors, L.P. Prior to the formation of
Insurance Partners, Mr. Cooper was a Vice President of International Insurance
Advisors, Inc. and was an investment banker in the Financial Institutions Group
at Salomon Brothers, Inc. Mr. Cooper serves on the Board of Directors of
Highlands Insurance Group, CERES Group, Inc., Universal American Financial Corp.
and SNTL Corp.
Susan S. Fleming, 31 (for Capital Z Director)
Ms. Fleming is a Principal of Capital Z. Prior to joining Capital Z, Ms. Fleming
served as Vice President of Insurance Partners and was an investment banker in
the Mergers and Acquisitions Financial Institutions Group at Morgan Stanley &
Co. Ms. Fleming currently serves on the Board of Directors of Universal American
Financial Corp. and CERES Group, Inc.
17
Craig A. Huff, 37 (for Reservoir Director)
Mr. Huff is a Managing Director and co-founder of Reservoir Capital Group, a New
York-based private investment firm. Prior to co-founding Reservoir, he was a
partner at Ziff Brothers Investments, a generalist investment firm managing Ziff
family capital. Previously, he served as a Nuclear Submarine Officer in the U.S.
Navy. Mr. Huff currently serves on the Board of Directors of Orange-co, Inc. and
ARC Systems, Inc.
Rob Stavis, 39 (for Rainwater Director)
Mr. Stavis is a Partner of Bessemer Venture Partners, a private venture
capital firm, and focuses on investments in financial services technologies
and business process automation. Prior to joining Bessemer, he was the
co-head of global arbitrage trading for Salomon Smith Barney. While at
Salomon Smith Barney, Mr. Stavis served as a member of the firm's operating
committee, risk management committee and the control and compliance
committee. He currently serves on the Board of Directors of Access
International Financial Services, Inc., CapitalThinking, Inc., Diogenes, Inc.
and Supercritical Combustion Corporation.
VOTE REQUIRED FOR APPROVAL OF THE CLASS IV DIRECTORS PROPOSAL
The Class IV Directors Proposal must be approved by an affirmative vote
of 66 2/3% of the outstanding Common Shares entitled to vote. The Bye-Laws
provide that an amendment to Section 22 must be approved by a special resolution
of the Shareholders. Such a special resolution requires the vote of 66 2/3% of
the outstanding Common Shares of PXRE Group entitled to vote.
Each of the Share Issuance Proposal, the New Common Shares Proposal,
the Increased Board of Directors Proposal and the Class IV Directors Proposal
will be voted on separately by the Shareholders of PXRE Group. Neither PXRE
Group nor the Purchasers is obligated to consummate the transactions in the
event Shareholders fail to approve each of the Share Issuance Proposal, the New
Common Shares Proposal, the Increased Board of Directors Proposal and the Class
IV Directors Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE CLASS IV DIRECTORS PROPOSAL.
18
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Common
Shares of PXRE Group as of December 7, 2001, by (i) each director, (ii) the
Chief Executive Officer and each of the other four most highly compensated
executive officers during the fiscal year ending December 31, 2001, (iii) all
directors and executive officers as a group, and (iv) to our knowledge,
beneficial owners of more than 5% of its Common Shares.
Percent
Title of Class Name and Address Shares Beneficially Owned of Class
-------------- ---------------- ------------------------- --------
Common Shares Gerald L. Radke................................... 232,094(1) 1.95%
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares F. Sedgwick Browne................................ 26,947(2) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Robert W. Fiondella............................... 34,372(2) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Franklin D. Haftl................................. 26,015(2) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Bernard Kelly..................................... 33,341(2) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Halbert D. Lindquist............................... 5,325(2) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Wendy Luscombe.................................... 28,872(2) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Philip R. McLoughlin.............................. 27,503(2) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
19
Common Shares David W. Searfoss................................. 32,805(2) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Michael J. Bleisnick.............................. 85,305(3) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares James F. Dore..................................... 44,891(4) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Gordon Forsyth, III............................... 102,543(5) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Jeffrey Radke..................................... 52,325(6) *
c/o PXRE Group Ltd.
99 Front Street
Hamilton HM 12
Bermuda
Common Shares Phoenix Life...................................... 1,131,700 shares(7) 9.53%
Insurance Company and Affiliates
One American Row
Hartford, CT 06115
Common Shares Select Reinsurance Ltd............................ 1,112,200 shares(8) 9.37%
Corner House
20 Parliament Street, 4th Floor
Hamilton, HM 12 Bermuda
Common Shares DePrince, Race & Zollo, Inc....................... 1,309,300 shares(9) 11.03%
201 S. Orange Avenue
Suite 850
Orlando, FL 32801
Common Shares Royce & Associates, Inc........................... 988,103 shares(10) 8.32%
1414 Avenue of the Americas
New York, NY 10019
Common Shares FMR Corp. and Affiliates.......................... 1,189,000 shares(11) 10.02%
82 Devonshire Street
Boston, MA 02109
20
Common Shares SAB Capital Advisors, L.L.C. and Affiliates....... 1,178,900 shares(12) 9.93%
650 Madison Avenue
26th Floor
New York, NY 10022
All directors and executive officers
as a group (13 persons)...................... 731,445(13) 6.16%
* Beneficially owns less than 1% of PXRE Group's issued and outstanding Common
Shares.
(1) The number of Common Shares set forth opposite Mr. Radke's name includes
currently exercisable options to purchase 118,990 Common Shares. In
accordance with Rule 13d-3(d)(1) under the Exchange Act, such Common Shares
for which Mr. Radke holds currently exercisable options have been added to
the total number of issued and outstanding Common Shares solely for the
purpose of calculating the percentage of such total number of issued and
outstanding Common Shares beneficially owned by Mr. Radke.
(2) Includes with respect to each of the following individuals, currently
exercisable options to purchase the indicated number of Common Shares: Mr.
Browne, 14,832 shares; Mr. Fiondella, 31,872 shares; Mr. Haftl, 23,380
shares; Mr. Kelly, 27,028 shares; Mr. Lindquist, 4,325 shares; Ms.
Luscombe, 26,722 shares; Mr. McLoughlin, 24,336 shares; and Mr. Searfoss,
29,705 shares. In accordance with Rule 13d-3(d)(1) under the Exchange Act,
such Common Shares for which the named director holds currently exercisable
options have been added to the total number of issued and outstanding
Common Shares solely for the purpose of calculating the percentage of such
total number of issued and outstanding Common Shares beneficially owned by
such director.
(3) Includes currently exercisable options to purchase 54,984 Common Shares. In
accordance with Rule 13d-3(d)(1) under the Exchange Act, the 54,984 Common
Shares for which Mr. Bleisnick holds currently exercisable options have
been added to the total number of issued and outstanding Common Shares
solely for the purpose of calculating the percentage of such total number
of issued and outstanding Common Shares beneficially owned by Mr.
Bleisnick.
(4) Includes currently exercisable options to purchase 12,500 Common Shares. In
accordance with Rule 13d-3(d)(1) under the Exchange Act, the 12,500 Common
Shares for which Mr. Dore holds currently exercisable options have been
added to the total number of issued and outstanding Common Shares solely
for the purpose of calculating the percentage of such total number of
issued and outstanding Common Shares beneficially owned by Mr. Dore.
(5) Includes currently exercisable options to purchase 59,652 Common Shares. In
accordance with Rule 13d-3(d)(1) under the Exchange Act, the 59,652 Common
Shares for which Mr. Forsyth holds currently exercisable options have been
added to the total number of issued and outstanding Common Shares solely
for the purpose of calculating the percentage of such total number of
issued and outstanding Common Shares beneficially owned by Mr. Forsyth.
(6) Includes currently exercisable options to purchase 12,500 Common Shares. In
accordance with Rule 13d-3(d)(1) under the Exchange Act, the 12,500 Common
Shares for which Mr. Radke holds currently exercisable options have been
added to the total number of issued and outstanding Common Shares solely
for the purpose of calculating the percentage of such total number of
issued and outstanding Common Shares beneficially owned by Mr. Radke.
(7) According to the Form 13F filed with the Securities and Exchange Commission
(the Commission) on November 13, 2001 by Phoenix Life Insurance Company
(Phoenix Life) and various affiliates thereof, Phoenix Life may be deemed
to beneficially own the 1,131,700 Common Shares indicated opposite Phoenix
Life's name in the above table. Phoenix Home Life reports shared voting
power in respect of the 1,131,700 Common Shares.
(8) According to the Schedule 13G and Schedule 13D filed with the Commission on
November 26, 2001 by Select Reinsurance Ltd. (Select Re), Select may be
deemed to beneficially own the 1,112,200 Common
21
Shares indicated opposite Select Re's name in the above table. Select Re
reports sole voting power and sole dispositive power in respect of the
1,112,200 Common Shares, except that voting and dispositive power is
exercised through Select Re's sole investment advisor Mariner Investment
Group, Inc. and accordingly may be deemed to share voting and dispositive
power. Select Re also reports that Mr. William Michaelcheck is 100%
Shareholder of Mariner Investment Group, Inc. and Chairman of the Board of
Select Re.
(9) According to the Form 13F filed with the Commission on November 7, 2001 by
DePrince, Race & Zollo, Inc. (DePrince), DePrince may be deemed to
beneficially own the 1,309,300 Common Shares indicated opposite DePrince's
name in the above table. DePrince reports sole voting power in respect of
the 1,309,300 Common Shares. As provided by Bye-Law 20(4) of the PXRE Group
Bye-Laws, DePrince may not exercise voting power in excess of 9.9% of the
total votes conferred on all the issued and outstanding shares of the PXRE
Group. Accordingly, DePrince will only be permitted to exercise its vote
with respect to 1,154,142 Common Shares.
(10) According to the Form 13F filed with the Commission on November 8, 2001 by
Royce & Associates, Inc. (Royce), Royce may be deemed to beneficially own
the 988,103 Common Shares indicated opposite Royce's name in the above
table. Royce reports sole voting power in respect of the 988,103 Common
Shares.
(11) According to the Form 13F filed with the Commission on November 14, 2001 by
FMR Corp. (FMR) and various affiliates thereof, FMR may be deemed to
beneficially own the 1,189,000 Common Shares indicated opposite FMR's name
in the above table. FMR reports no voting power in respect of the 1,189,000
Common Shares. As provided by Bye-Law 20(4) of the PXRE Group Bye-Laws, FMR
may not exercise voting power in excess of 9.9% of the total votes
conferred on all the issued and outstanding shares of the PXRE Group.
Accordingly, FMR will only be permitted to exercise its vote with respect
to 1,154,142 Common Shares.
(12) Based on information provided to PXRE Group by SAB Capital Advisors, L.L.C.
and Affiliates (SAB), SAB may be deemed to beneficially own the 1,178,900
Common Shares indicated opposite SAB's name in the above table. As provided
by Bye-Law 20(4) of the PXRE Group Bye-Laws, SAB may not exercise voting
power in excess of 9.9% of the total votes conferred on all the issued and
outstanding shares of the PXRE Group. Accordingly, SAB will only be
permitted to exercise its vote with respect to 1,154,142 Common Shares.
(13) The directors and executive officers as a group beneficially own 6.16% of
PXRE Group's outstanding Common Shares. PXRE Group's directors and
executive officers as a group hold currently exercisable options which have
been added to the total number of issued and outstanding Common Shares
solely for the purpose of calculating the percentage of such total number
of issued and outstanding Common Shares beneficially owned by such
directors and executive officers as a group.
To PXRE Group's knowledge, no other person owns of record or
beneficially more than 5% of the outstanding Common Shares as of December 7,
2001.
22
OTHER BUSINESS
It is not intended to bring before the Meeting any matters except those
proposed herein. Management is not aware at this time of any other matters that
are to be presented for action. If, however, any other matters properly come
before the meeting, the persons named as proxies in the enclosed form of proxy
intend to vote in accordance with their judgment on the matters presented.
SHAREHOLDER PROPOSALS
If a Shareholder desires to present a proposal for inclusion in next
year's Proxy Statement relating to the Annual General Meeting of Shareholders
during the year 2002, such Shareholder must submit such proposal in writing to
PXRE Group or receipt not later than December 31, 2001. Proposals must comply
with the proxy rules relating to Shareholder proposals, in particular Rule 14a-8
under the Exchange Act, to be included in PXRE Group's 2002 proxy materials.
Shareholders who wish to submit a proposal for consideration at PXRE Group's
year 2002 annual general meeting of Shareholders, but who do not wish to submit
a proposal for inclusion in PXRE Group's proxy materials pursuant to Rule 14a-8
under the Exchange Act, should deliver a copy of their proposal no later than 45
days prior to the day and month of the notice of meeting pertaining to the 2001
Annual General Meeting of Shareholders during the year 2002 and otherwise comply
with the notice provisions of PXRE Group's Bye-Laws. If a Shareholder fails to
provide such 45 day notice, the respective proposal need not be addressed in the
proxy materials and the proxies may exercise their discretionary voting
authority when the proposal is raised at the Annual General Meeting. In either
case, proposals should be delivered to PXRE Group Ltd., Suite 231, 12 Church
Street, Hamilton, HM 11 Bermuda, Attention: Secretary.
WHERE YOU CAN FIND MORE INFORMATION
PXRE Group files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information filed by PXRE
Group at the SEC's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. PXRE Group's SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at http://www.sec.gov.
The SEC allows us to "incorporate by reference" information into this
proxy statement, which means that PXRE Group can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement, except for any information superseded by information in this proxy
statement. This proxy statement incorporates by reference the documents set
forth below that PXRE Group has previously filed with the SEC. These documents
contain important information about PXRE Group, including information concerning
such company's financial performance.
(1) Annual Report on Form 10-K for the fiscal year ended December 31,
2000 (filed with the SEC on March 29, 2001);
(2) Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001 (filed with the SEC on May 15, 2001, as amended by Form 10-Q/A
filed with the SEC on August 20, 2001) and June 30, 2001 (filed
with the SEC on August 20, 2001) and September 30, 2001 (filed with
the SEC on November 14, 2001); and
(3) Current Reports on Form 8-K filed with the SEC on March 16, 2001
(as amended by Form 8-K/A filed with the SEC on April 10, 2001) and
on December 11, 2001.
23
You may obtain a copy of PXRE Group's filings at no cost by writing to
PXRE Group at PXRE Group Ltd., 99 Front Street, Hamilton HM 12 Bermuda,
Attention: Investor Relations or Treasurer, or by telephoning PXRE Group at
441-296-5858. If you would like to request documents from PXRE Group, please do
so by __________, 2002 to receive them before PXRE Group's Special General
Meeting of Shareholders. PXRE Group will send such documents by first-class mail
within one business day of receiving any such request.
BY ORDER OF THE BOARD OF DIRECTORS
----------------------------------
David J. Doyle
Secretary
Hamilton, Bermuda
_____________________, 2002
24
Appendix I
SHARE PURCHASE AGREEMENT
dated as of December 10, 2001
by and among
PXRE GROUP LTD.
and
THE PURCHASERS NAMED ON
EXHIBIT A HERETO
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...........................................................................................1
1.1 Definitions.............................................................................................1
ARTICLE II SALE AND PURCHASE OF COMPANY SECURITIES; CLOSING.....................................................9
2.1 Sale and Purchase of Company Securities.................................................................9
2.2 The Closing............................................................................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................................10
3.1 Organization and Qualification.........................................................................10
3.2 Authority..............................................................................................10
3.3 Capitalization.........................................................................................11
3.4 Subsidiaries; Joint Ventures...........................................................................12
3.5 No Conflicts...........................................................................................13
3.6 Brokers................................................................................................13
3.7 Exemption from Registration............................................................................13
3.8 Litigation.............................................................................................13
3.9 SEC Filings and Financial Statements...................................................................14
3.10 Events Subsequent to the Date of the Last Financial Statement..........................................14
3.11 Absence of Undisclosed Liabilities.....................................................................15
3.12 Title to Assets, Properties and Rights.................................................................15
3.13 Patents, Trademarks, Copyrights and Licenses...........................................................15
3.14 Governmental Consents..................................................................................16
3.15 No Consent or Approval Required........................................................................17
3.16 Compliance with Laws...................................................................................17
3.17 Reinsurance Contracts; Retrocession Agreements.........................................................17
3.18 Loss Reserves; Actuarial Reports.......................................................................18
3.19 Taxes..................................................................................................18
3.20 Employees..............................................................................................19
3.21 ERISA..................................................................................................20
3.22 Ordinary Course........................................................................................20
3.23 Insurance..............................................................................................20
3.24 Statutory Statements...................................................................................21
3.25 Binding Authority......................................................................................21
3.26 Material Contracts.....................................................................................21
3.27 Affiliate Transactions.................................................................................22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER....................................................22
4.1 Organization; Power and Authority......................................................................22
4.2 No Conflicts...........................................................................................22
4.3 Investor Representations...............................................................................23
4.4 Additional Information.................................................................................24
ARTICLE V SHAREHOLDER AND REGULATORY APPROVAL AND OTHER CONSENTS...............................................24
5.1 Proxy Statement and Other Filings; Board Recommendations...............................................24
i
TABLE OF CONTENTS
(continued)
Page
5.2 Shareholder Meeting....................................................................................25
5.3 Connecticut Approval...................................................................................26
5.4 Other Authorizations; Consents.........................................................................27
5.5 Further Assurances.....................................................................................27
ARTICLE VI COMPANY COVENANTS...................................................................................28
6.1 Visits and Inspections.................................................................................28
6.2 Maintenance of Books and Records; Financial Statements; Report; Etc....................................28
6.3 Use of Proceeds........................................................................................28
6.4 Shares Issuable Upon Conversion........................................................................28
6.5 Public Announcements...................................................................................28
6.6 Exclusivity............................................................................................29
6.7 Conduct of Business....................................................................................29
6.8 Updating Schedules.....................................................................................31
ARTICLE VII INDEMNIFICATION....................................................................................32
7.1 Indemnification........................................................................................32
ARTICLE VIII CONDITIONS TO CLOSING.............................................................................35
8.1 The Purchasers' Conditions.............................................................................35
8.2 Company's Conditions...................................................................................37
ARTICLE IX TERMINATION AND ABANDONMENT.........................................................................38
9.1 Termination of Agreement and Abandonment of Transactions...............................................38
9.2 Procedures and Effect of Termination...................................................................39
ARTICLE X MISCELLANEOUS........................................................................................40
10.1 Notices................................................................................................40
10.2 Payment of Expenses....................................................................................41
10.3 Entire Agreement.......................................................................................41
10.4 Survival of Covenants..................................................................................41
10.5 Further Assurances; Post-Closing Cooperation...........................................................41
10.6 Waiver.................................................................................................41
10.7 Amendment..............................................................................................41
10.8 Third Party Beneficiaries..............................................................................41
10.9 No Assignment; Binding Effect..........................................................................41
10.10 Headings...............................................................................................42
10.11 Invalid Provisions.....................................................................................42
10.12 Governing Law..........................................................................................42
10.13 Waiver of Jury Trial...................................................................................42
10.14 Jurisdiction...........................................................................................43
10.15 Construction...........................................................................................43
10.16 Counterparts...........................................................................................43
10.17 Publicity..............................................................................................43
10.18 Confidentiality........................................................................................43
ii
This SHARE PURCHASE AGREEMENT (as amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof, this
"Agreement"), dated as of December 10, 2001, is made and entered into, by and
among PXRE Group Ltd., a Bermuda company (the "Company"), and each of the
Purchasers named on the signature page hereto (the "Purchasers" and each a
"Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company desires to sell to the Purchasers and the
Purchasers desire to purchase from the Company, Series A Convertible Voting
Preferred Shares, par value $1.00 per share, Series B Convertible Voting
Preferred Shares, par value $1.00 per share, and Series C Convertible Voting
Preferred Shares, par value $1.00 per share, all upon the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following
defined terms shall have the meanings indicated below:
"A1 Preferred Shares" means those Series A Preferred Shares issued as a
sub-series and designated as A1 Preferred Shares.
"A2 Preferred Shares" means those Series A Preferred Shares issued as a
sub-series and designated as A2 Preferred Shares.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by or under common control with, that
Person; provided, however, that with respect to Capital Z, CZI shall not be
considered an Affiliate. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by",
and "under common control with") as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through ownership of voting
securities or by contract or otherwise.
"Agreement" has the meaning ascribed to it in the forepart hereof.
"Annual Report" has the meaning ascribed to it in Section 3.9(a).
"Assets and Properties" means, with respect to any Person, all assets
and properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned
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or leased by such Person, including cash, cash equivalents, Investment Assets,
accounts and notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory and goods.
"B1 Preferred Shares" means those Series B Preferred Shares issued as a
sub-series and designated as B1 Preferred Shares.
"B2 Preferred Shares" means those Series B Preferred Shares issued as a
sub-series and designated as B2 Preferred Shares.
"Balance Sheet" has the meaning ascribed to it in Section 3.10.
"Bermuda Approval" means the Bermuda Monetary Authority's prior written
approval of the issuance and transferability of the Company Securities
contemplated hereunder.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in Bermuda and the State of New York are authorized or
obligated to close.
"Business or Condition" means the business, condition (financial or
otherwise), results of operations, Assets and Properties of the Company and each
of its Subsidiaries, individually or in the aggregate.
"C1 Preferred Shares" means those Series C Preferred Shares issued as a
sub-series and designated as C1 Preferred Shares.
"C2 Preferred Shares" means those Series C Preferred Shares issued as a
sub-series and designated as C2 Preferred Shares.
"Class A Common Shares" means the Class A Convertible Voting Common
Shares, par value $1.00 per share, of the Company issuable upon conversion of
the Series A Preferred Shares and having the rights, restrictions and
preferences specified in the Description of Stock.
"Class B Common Shares" means the Class B Convertible Voting Common
Shares, par value $1.00 per share, of the Company issuable upon conversion of
the Series B Preferred Shares and having the rights, restrictions and
preferences specified in the Description of Stock.
"Class C Common Shares" means the Class C Convertible Voting Common
Shares, par value $1.00 per share, of the Company issuable upon conversion of
the Series C Preferred Shares and having the rights, restrictions and
preferences specified in the Description of Stock.
"Closing" means the closing of the transactions contemplated by Section
2.2.
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"Closing Date" has the meaning ascribed to it in Section 2.2(a).
"Common Shares" has the meaning ascribed to it in Section 3.3(a).
"Company" has the meaning ascribed to it in the forepart of this
Agreement.
"Company Securities" means, collectively, the Preferred Shares, the
Class A Common Shares, Class B Common Shares and Class C Common Shares issuable
upon conversion of the Preferred Shares and the Common Shares issuable upon
conversion of the Class A Common Shares, Class B Common Shares and Class C
Common Shares.
"Connecticut Approval" has the meaning ascribed to it in Section 5.3.
"Connecticut Department" means the Insurance Department of the State of
Connecticut.
"Connecticut Insurance Law" means the insurance Law of the State of
Connecticut.
"Contract" means any agreement (including licenses with
non-governmental Persons), lease, evidence of Indebtedness, mortgage, indenture,
security agreement or other instrument or contract, whether written or oral.
"Convertible Common Shares" means Class A Common Shares, Class B Common
Shares and Class C Common Shares.
"CZI" means Capital Z Investments, L.P. and Capital Z Investments II,
L.P.
"Description of Stock" means the Description of Stock of the Series A
Preferred Shares, the Series B Preferred Shares, the Series C Preferred Shares,
the Class A Common Shares, the Class B Common Shares and the Class C Common
Shares in the form attached as Exhibit B hereto.
"Encumbrance" means any security interest, lien, pledge, claim, charge,
escrow, encumbrance, option, right of first offer, right of first refusal,
preemptive right, mortgage, indenture, security agreement or other similar
agreement, arrangement, contract, commitment, understanding or obligation,
whether written or oral and whether or not relating in any way to credit or the
borrowing of money.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
(or any successor legislation thereto), as amended from time to time and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to the Company, any trade or
business (whether or not incorporated) under common control with the Company and
which, together with the Company, are treated as a single employer within the
meaning of Sections 414(b) or (c) of the IRC, excluding each Purchaser and each
other Person which would not be an ERISA Affiliate if Purchaser did not own any
issued and outstanding
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shares of stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder.
"Existing Equity Plans" has the meaning ascribed to it in Section 6.6.
"Expense Letter" means that certain letter agreement, dated as of
November 16, 2001, as amended pursuant to that certain Letter Amendment dated as
the date hereof, by and between the Company and certain of the Purchasers
pursuant to which the Company agreed to reimburse the Purchasers for certain
expenses.
"Fee Letter" means that certain letter agreement, dated as of November
18, 2001, by and between the Company and certain of the Purchasers.
"Financial Statements" has the meaning ascribed to it in Section
3.9(b).
"Form A Filing" has the meaning ascribed to it in Section 5.3.
"GAAP" has the meaning ascribed to it in Section 3.9(b).
"Governmental Authorizations" has the meaning ascribed to it in Section
3.14(a).
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official, department, commission
board or other instrumentality of the United States, any foreign country or any
domestic or foreign state, county, city or other political subdivision.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HSR Approval" means any approvals required by the HSR Act in
connection with the issuance of the Company Securities and all other
transactions contemplated hereunder.
"Indebtedness" means (a) all indebtedness of the Company, including the
principal of, and premium, if any, and interest (including interest accruing
after the filing of a petition initiating any proceeding under any state,
federal or foreign bankruptcy laws, whether or not allowable as a claim in such
proceeding) on, all indebtedness, whether outstanding currently or hereafter
created (i) for borrowed money, (ii) for money borrowed by others and
guaranteed, directly or indirectly, by the Company, (iii) for money borrowed by
others for which the Company provides security, (iv) constituting purchase money
indebtedness the payment of which the Company is directly or contingently
liable, (v) under any lease of any real or personal property, which obligations
are capitalized on the Company's books in accordance with generally accepted
accounting principles or (vi) under any other arrangement under which
obligations are recorded as indebtedness on the Company's books in accordance
with generally accepted accounting principles and (b) any modifications,
refundings, deferrals,
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renewals or extensions of any such Indebtedness, or securities, notes or other
evidences of indebtedness issued in exchange for such Indebtedness; provided
that Indebtedness shall not include intercompany indebtedness outstanding or
hereafter created between the Company and any of its direct or indirect
wholly-owned Subsidiaries or between any two of more such direct or indirect
wholly-owned Subsidiaries of the Company.
"Intellectual Property" means trademarks and service marks (whether
registered or unregistered), trade names and designs, together with all goodwill
related to the foregoing; patents (including any continuations, continuations in
part, renewals and applications for any of the foregoing); copyrights (including
any registrations and applications therefor and whether registered or
unregistered); internet domain names; computer software; databases; works of
authorship; mask works; technology; trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models, user
interfaces, customer lists, inventions, discoveries, concepts, ideas,
techniques, methods, source codes, object codes, methodologies and, with respect
to all of the foregoing, related confidential data or information.
"Investment Agreement" means the Investment Agreement by and among the
Company and the Purchasers, the form of which is attached as Exhibit C hereto.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Company or
any Subsidiary.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Law" or "Laws" means, the common law and all federal, state, local and
foreign laws, rules and regulations, orders, judgments, decrees and other
determinations of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision or of any
Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other liabilities
(or contingencies that have not yet become liabilities) of a Person, whether
absolute, accrued, contingent (or based upon any contingency), known or unknown,
fixed or otherwise, or whether due or to become due.
"Losses" has the meaning ascribed to it in Section 7.1(a).
"Material Adverse Effect" means a material adverse effect on (x) the
business, operations or financial position of any of the Company and its
Subsidiaries, taken as a whole, (y) the ability of the Company to perform in a
timely manner any of its obligations under this Agreement or any of the other
Operative Documents or any transaction contemplated hereby or thereby or (z) the
legality, validity or enforceability of this Agreement and the other Operative
Documents; provided, however, that any change, effect, event condition or
development, occurrence or state of facts resulting
A-1-5
from or arising in connection with the following shall not constitute a Material
Adverse Effect for purposes of this Agreement, the other Operative Documents and
the transactions contemplated hereby and thereby:
(i) the public announcement of this Agreement and the
transactions herein contemplated;
(ii) changes in Law, GAAP or SAP; or
(iii) changes in the value of the Company's fixed income
investment portfolio (for purposes of clarification,
investments in hedge funds and similar investments
are excluded from such investment portfolio)
resulting from changes in prevailing interest rates.
Notwithstanding the foregoing, the following shall be excluded from the
determination of whether a Material Adverse Effect has occurred solely to the
extent that they do not collectively exceed $18 million in the aggregate on a
net after-tax basis, in each case, with respect to such matter: (A) losses
arising solely from a single loss occurrence occurring after the date hereof but
prior to the Closing (after giving effect to any applicable reinsurance
recoverable due to the Company, any reinstatement premiums due to or payable by
the Company and any adjustments in profit and ceding commissions, in each case
relating to such losses) and (B) any Loss Development (as such term is described
in the Description of Stock).
"Material Contracts" means (i) all of the Company's and its
Subsidiaries' Contracts which involve aggregate payments over the term of each
such Contract by or to the Company or its Subsidiaries of more than $1 million
or which extend for a term of more than a year from the date hereof, (ii) all of
the Company's and its Subsidiaries' material loan agreements, bank lines or
credit agreements, indentures, mortgages, deeds of trust, pledge and security
agreements, letters of credit or other debt instruments, (iii) all employment
contracts entered into by the Company or any of its Subsidiaries, (iv) any
guarantees of more than $1 million (individually) by the Company or any of its
Subsidiaries, (v) all non-competition and other similar agreements (including
without limitation those limiting the Company or any Affiliate thereof from
directly or indirectly engaging in any line of business, offering any products
or services or otherwise competing with any Person) and (vi) all other material
contracts not made in the ordinary course of business; provided that Material
Contracts shall not include reinsurance agreements or retrocessional agreements
entered into in the ordinary course of business of the Company and its
Reinsurance Subsidiaries.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which Company, any of its Subsidiaries or
any ERISA Affiliate is making, is obligated to make, has made or been obligated
to make, contributions on behalf of participants who are or were employed by any
of them.
"Operative Documents" means this Agreement, the Investment Agreement,
the Expense Letter, the Fee Letter, all other agreements to be executed and
delivered
A-1-6
pursuant to this Agreement between one or more Purchasers, on the one hand, and
the Company, on the other hand, the Description of Stock and all other
documents, certificates or instruments as may be contemplated hereby or thereby,
as modified or amended from time to time.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Post-Signing Events" has the meaning ascribed to it in Section 6.8(a).
"Pre-Signing Events" has the meaning ascribed to it in Section 6.8(a).
"Preferred Shares" means the Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares, and any sub-series established
thereof, in each case having the rights, restrictions, privileges and
preferences specified in the Description of Stock.
"Proxy Statement" means the proxy statement to be delivered to the
shareholders of the Company in connection with the special meeting of the
Company's shareholders to consider the proposals to (i) authorize the issuance
of the Company Securities in accordance with this Agreement or in accordance
with the terms of the Preferred Shares or the Convertible Common Shares, as the
case may be, (ii) create Convertible Common Shares, (iii) increase the size of
the Board of Directors from nine members to eleven members and (iv) establish
Class IV Directors and the terms of election or appointment thereof by the
holders of the Preferred Shares and the Convertible Common Shares.
"Public Offering" means the offer for sale to the public in an
underwritten offering of Common Shares pursuant to an effective registration
statement filed under the Securities Act.
"Purchase Price" has the meaning ascribed to it in Section 2.1.
"Purchasers" has the meaning ascribed to it in the forepart of this
Agreement.
"Quarterly Report" has the meaning ascribed to it in Section 3.9(a).
"Reinsurance Agreements" has the meaning ascribed to it in Section
3.17(a).
"Reinsurance Subsidiary" means each of PXRE Reinsurance Ltd., a company
organized under the laws of Bermuda and a direct wholly-owned subsidiary of the
Company, PXRE (Barbados) Ltd., a company organized under the laws of Barbados
and a direct wholly-owned subsidiary of the Company, and PXRE Reinsurance
Company, an insurance company organized under the laws of Connecticut and an
indirect wholly-owned Subsidiary of the Company.
"SAP" means, with respect to a reinsurance or insurance company, the
accounting procedures and practices prescribed or permitted from time to time by
the National
A-1-7
Association of Insurance Commissioners and adopted or promulgated by the
insurance regulatory authority in the state in which such reinsurance or
insurance company is domiciled and employed in a consistent manner throughout
the periods involved; provided that, with respect to reinsurance or insurance
companies not domiciled in the United States, SAP shall mean the accounting
procedures and practices adopted or promulgated from time to time by the
insurance regulatory authority in the jurisdiction in which such reinsurance or
insurance company is domiciled.
"SEC" means the United States Securities and Exchange Commission.
"SEC Document" means each report, schedule, registration statement and
definitive proxy statement filed by the Company with the SEC since December 31,
2000.
"Securities Act" means the Securities Act of 1933, as amended, of the
United States of America and the rules and regulations of the SEC thereunder.
"Series A Preferred Shares" means the Series A Convertible Voting
Preferred Shares, par value $1.00 per share, including shares allocated as
sub-series A1 Preferred Shares and A2 Preferred Shares, issued pursuant to this
Agreement and having the rights, restrictions, privileges and preferences
specified in the Description of Stock.
"Series B Preferred Shares" means the Series B Convertible Voting
Preferred Shares, par value $1.00 per share, including shares allocated as
sub-series B1 Preferred Shares and B2 Preferred Shares, issued pursuant to this
Agreement and having the rights, restrictions, privileges and preferences
specified in the Description of Stock.
"Series C Preferred Shares" means the Series C Convertible Voting
Preferred Shares, par value $1.00 per share, including shares allocated as
sub-series C1 Preferred Shares and C2 Preferred Shares, issued pursuant to this
Agreement and having the rights, restrictions, privileges and preferences
specified in the Description of Stock.
"Shareholder Approval" means the Company's shareholders' approval of
the following matters, in each case as described in the Proxy Statement: (i) the
issuance of the Company Securities in accordance with this Agreement or in
accordance with the terms of the Preferred Shares or the Convertible Common
Shares, as the case may be, (ii) the creation of Convertible Common Shares,
(iii) an increase in the size of the Board of Directors from nine members to
eleven members and (iv) the establishment of Class IV Directors and the terms of
election or appointment thereof by the holders of the Preferred Shares and the
Convertible Common Shares.
"Shareholders' Meeting" means the special meeting of the Company's
shareholders to be held by the Company in accordance with Section 5.2 hereof.
"Subsidiary" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than 50% of
either the equity interest in, or the voting control of, such Person, whether or
not existing on the date hereof.
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"Taxes" has the meaning ascribed to it in Section 3.19(a).
"Tax Returns" has the meaning ascribed to it in Section 3.19(a).
"Transfer" means, directly or indirectly, any sale, transfer,
assignment, hypothecation, pledge or other disposition of any Company Securities
or any interests therein.
"Unsolicited Proposal" has the meaning ascribed to it in Section 6.6.
"Welfare Plan" shall mean any welfare plan, as defined in Section 3(1)
of ERISA, which is maintained or contributed to by the Company, any of its
Subsidiaries or any ERISA Affiliate.
ARTICLE II
SALE AND PURCHASE OF COMPANY SECURITIES; CLOSING
2.1 Sale and Purchase of Company Securities. Subject to the terms and
conditions hereof and in reliance upon the representations and warranties of the
Purchasers and the Company contained herein or made pursuant hereto, the Company
agrees to sell to each of the Purchasers, and each Purchaser severally agrees to
purchase from the Company on the Closing Date, the number of Series A Preferred
Shares, Series B Preferred Shares and Series C Preferred Shares set forth
opposite such Purchaser's name on Exhibit A hereto. The aggregate principal
purchase price to be paid to the Company by each such Purchaser for such
Preferred Shares is specified opposite each respective Purchaser's name on
Exhibit A (such amount, the "Purchase Price").
2.2 The Closing.
(a) Subject to the terms and conditions hereof, the closing (the
"Closing") of the purchase and sale of the Preferred Shares will take place at
the offices of Conyers Dill & Pearman, Clarendon House, Church Street, Hamilton,
Bermuda, or at such other place as the Company and Purchasers shall mutually
agree, at 10:00 A.M., Bermuda time, on the fifth Business Day following the date
on which the last of the conditions to Closing set forth in Sections 8.1 and 8.2
have been satisfied or waived by the party or parties entitled to waive the same
or such other date as to which the Company and the Purchasers shall mutually
agree (the date and time of the Closing are herein referred to as the "Closing
Date").
(b) Subject to the terms and conditions hereof, on the Closing Date (i)
the Company will deliver to the Purchasers the Preferred Shares by delivering to
each Purchaser a certificate, registered in the name of such Purchaser (or its
designee, if any such designee is specified on Exhibit A) and reflecting the
number of Preferred Shares purchased by such Purchaser and (ii) each Purchaser
will deliver to the Company, by wire transfer to an account designated by the
Company, an amount equal to the Purchase Price for such Preferred Shares in
federal or other immediately available funds. At the Closing, there shall be
delivered to the Company's U.S. Counsel in New York and the
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Purchasers' U.S. Counsel in New York, as the case may be, the opinions,
certificates and other agreements, documents and instruments to be delivered
under Article VIII.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchasers as follows:
3.1 Organization and Qualification. The Company and each
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. The Company and each Subsidiary
is duly qualified and is authorized to do business and is in good standing as a
foreign corporation in each state or jurisdiction where the nature of its
business or the ownership of property make such qualification necessary, except
where the failure to be so qualified, individually or in the aggregate with all
such failures, would not and could not reasonably be expected to have a Material
Adverse Effect.
3.2 Authority.
(a) The Company has full power and authority to execute and
deliver this Agreement and the other Operative Documents, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby (subject to the Shareholder Approval, the
Bermuda Approval and the Connecticut Approval). The execution, delivery and
performance by the Company of this Agreement, the Expense Letter and the Fee
Letter and the consummation by it of the transactions contemplated hereby and
thereby have been, and the other Operative Documents will be, duly and validly
authorized by all necessary action by its Board of Directors, and no other
corporate action (other than the Shareholder Approval solely with respect to the
matters described in the definition of such term) is necessary to authorize the
execution, delivery and performance of this Agreement and the other Operative
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby. This Agreement, the Expense Letter and the Fee Letter have
been, and on the Closing Date, the other Operative Documents will be, duly and
validly executed and delivered by the Company and this Agreement, the Expense
Letter and the Fee Letter constitute, and on the Closing Date the other
Operative Documents will constitute, legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of equity.
(b) The Board of Directors by resolutions duly adopted at a
meeting duly called and held has unanimously (i) determined that this Agreement,
the issuance and sale of the Company Securities and the other transactions
contemplated hereby are advisable and in the best interests of the Company and
its shareholders and (ii) has approved this Agreement, the issuance and sale of
the Company Securities and the other transactions contemplated hereby.
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3.3 Capitalization.
(a) The authorized capital stock of the Company consists of:
(i) 50,000,000 common shares, par value $1.00 per share (the "Common Shares"),
of which 11,878,017 were issued and outstanding on December 7, 2001; and (ii)
10,000,000 undesignated preferred shares, par value $1.00 per share, none of
which were issued and outstanding on the date hereof. As of the Closing, the
authorized capital stock of the Company will consist of: (i) 30,000,000 Common
Shares, (ii) 10,000,000 Class A Common Shares, (iii) 6,666,666 2/3 Class B
Common Shares, (iv) 3,333,333 1/3 Class C Common Shares and (v) 10,000,000
preferred shares, par value $1.00 per share, of which 15,000 shares will be
designated as Series A Preferred Shares (of which 10,000 shares will be
sub-designated as A1 Preferred Shares and 5,000 shares will be sub-designated as
A2 Preferred Shares), 10,000 shares will be designated as Series B Preferred
Shares (of which 6,666 2/3 shares will be sub-designated as B1 Preferred Shares
and 3,333 1/3 shares will be sub-designated as B2 Preferred Shares) and 5,000
shares will be designated as Series C Preferred Shares (of which 3,333 2/3
shares will be sub-designated as C1 Preferred Shares and 1,666 1/3 shares will
be sub-designated as C2 Preferred Shares). When issued, all Company Securities
will be duly authorized, validly issued, fully paid and non-assessable. As of
the Closing, the Preferred Shares and Common Shares shall constitute the only
equity securities of the Company outstanding other than as disclosed in Schedule
3.3. On the Closing Date, the Company shall have reserved sufficient Class A
Common Shares, Class B Common Shares and Class C Common Shares for issuance upon
conversion of the Preferred Shares and sufficient Common Shares for issuance
upon conversion of the Class A Common Shares, Class B Common Shares and Class C
Common Shares. All Class A Common Shares, Class B Common Shares and Class C
Common Shares issuable upon conversion of the Preferred Shares and all Common
Shares issuable upon conversion of the Class A Common Shares, Class B Common
Shares and Class C Common Shares will, when issued, be duly authorized, validly
issued, fully paid and non-assessable. None of the Company Securities are
subject to preemptive or similar rights.
(b) Except as set forth on Schedule 3.3, and as contemplated
by this Agreement and the other Operative Documents, no Common Shares, Class A
Common Shares, Class B Common Shares or Class C Common Shares are reserved for
issuance other than Common Shares, Class A Common Shares, Class B Common Shares
or Class C Common Shares reserved in accordance with Section 6.4 hereof.
(c) Except as set forth on Schedule 3.3, there are no
outstanding options, warrants, subscriptions, rights, convertible or
exchangeable securities or other agreements or plans under which the Company may
become obligated to issue, sell or transfer Common Shares or other capital stock
or equity securities of the Company.
(d) Except as set forth on Schedule 3.3, and except as
provided in the Investment Agreement, there are no outstanding registration
rights with respect to any Common Shares or other capital stock or equity
securities of the Company.
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(e) Except as set forth on Schedule 3.3, and except as
provided by the terms of the Company Securities, there are no anti-dilution
protections or other adjustment provisions in existence with respect to any
Common Shares or other capital stock or equity securities of the Company.
(f) Except as set forth on Schedule 3.3, there are no voting
trusts, shareholder agreements, proxies or other agreements or understandings to
which the Company or any of its Subsidiaries is a party with respect to the
issuance, sale, redemption, registration, voting or transfer or other
disposition of Common Shares or other capital stock or equity securities of the
Company
3.4 Subsidiaries; Joint Ventures.
(a) The Company's only Subsidiaries are those set forth on
Schedule 3.4 hereto. The capital stock of such Subsidiaries is owned,
beneficially and of record and free and clear of all Encumbrances, by the
Company or a direct or indirect wholly owned Subsidiary thereof as set forth on
Schedule 3.4 hereto.
(b) All outstanding capital stock of the Subsidiaries has been
duly authorized and validly issued and is fully paid and non-assessable. There
are no outstanding options, warrants, subscriptions, rights, convertible
securities or other agreements or plans under which any Subsidiary may become
obligated to issue, sell or transfer any shares of its capital stock or other
securities.
(c) Except as set forth on Schedule 3.4, neither the Company
nor any of its Subsidiaries is engaged in any joint venture or partnership with
any other Person.
3.5 No Conflicts. Except as set forth on Schedule 3.5 hereto,
the execution and delivery by the Company of this Agreement and the other
Operative Documents, the performance by the Company of its obligations under
this Agreement and the other Operative Documents and the consummation of the
transactions contemplated hereby and thereby do not and will not (i) result in a
violation of the Company's organizational documents, (ii) conflict with, or
constitute a default under, any Contract to which the Company or any Subsidiary
is a party, (iii) result in any violation of any Law or order, judgment or
decree of any court or Governmental or Regulatory Authority having jurisdiction
over the Company or any of its assets or properties or (iv) result in, or
require, the creation or imposition of any Encumbrance upon any of the assets or
properties of the Company, which, in the case of clause (ii), (iii) or (iv)
above, individually or in the aggregate, would or could reasonably be expected
to have a Material Adverse Effect.
3.6 Brokers. Other than Lazard Freres & Co. LLC, no agent,
broker, finder, investment banker, financial advisor or other similar Person
will be entitled to any fee, commission or other compensation in connection with
the transactions contemplated by this Agreement or the other Operative Documents
on the basis of any act or statement made or alleged to have been made by the
Company or any of its Affiliates, directors, officers or other representatives.
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3.7 Exemption from Registration. Assuming the accuracy on the
date hereof and on the Closing Date of the representations and warranties of
each Purchaser set forth in Section 4.3 below, (i) the issuance and the sale of
the Preferred Shares to the Purchasers hereunder is, and (ii) the issuance of
the Class A Common Shares, Class B Common Shares and Class C Common Shares upon
conversion of the Preferred Shares and the issuance of Common Shares upon
conversion of Class A Common Shares, Class B Common Shares and Class C Common
Shares will be, exempt from the registration requirements of the Securities Act.
Neither the Company nor any Person authorized to act on the Company's behalf has
taken any action (including, without limitation, any offering of any securities
of the Company under circumstances which would require the integration of such
offering with the offering or issuance of the Company Securities under the
Securities Act) which could be reasonably expected to subject the offering,
issuance or sale of the Company Securities to the registration requirements of
Section 5 of the Securities Act.
3.8 Litigation. Except as set forth in Schedule 3.8, there are
no actions, suits, proceedings or investigations pending, or to the knowledge of
the Company or any of its Subsidiaries, threatened, against or affecting the
Company or any Subsidiary, other than those that, individually or in the
aggregate, would not and could not reasonably be expected to have a Material
Adverse Effect. The Company and its Subsidiaries are in compliance in all
material respects with (i) all orders or judgments issued by any Governmental or
Regulatory Authority with respect to the Company or any Subsidiary thereof and
(ii) all consent decrees and other agreements with any Governmental or
Regulatory Authority to which the Company or any Subsidiary thereof is a party
or by which any of their respective assets are bound.
3.9 SEC Filings and Financial Statements.
(a) The Company has filed all forms, reports and documents
required to be filed by it pursuant to Section 13 or Section 15(d) of the
Exchange Act within the last 12 months on a timely basis or has received and
complied with a valid extension of time for filing. The Company has made
available to the Purchasers the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (the "Annual Report") and the Company's
Quarterly Reports on Form 10-Q and/or Form 10-QA for the fiscal quarters ended
March 31, 2001, June 30, 2001 and September 30, 2001 (the Quarterly Report for
the fiscal quarter ended September 30, 2001 hereinafter referred to as the
"Quarterly Report"). Except as set forth on Schedule 3.9, all Company filings
with the SEC from and after December 31, 2000 complied as to form and substance
in all material respects with the rules and regulations of the Commission under
the Exchange Act on the respective date of filing and as of such date (or if
amended or superseded by a filing prior to the date of this Agreement, on the
date of such filing), did not contain any untrue statement of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) Except as set forth on Schedule 3.9, each of the
consolidated financial statements (including, in each case, any related notes
thereto) (collectively, the "Financial
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Statements") contained in the Annual Report and the Quarterly Report (i) was
prepared in accordance with generally accepted accounting principles in the
United States ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be expressly described in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the
Commission on Form 10-Q under the Exchange Act) and (ii) fairly presents in all
material respects the consolidated financial position of the Company as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements in the Quarterly Report were or are subject to normal and recurring
year-end adjustments, none of which are reasonably expected to be material in
nature.
3.10 Events Subsequent to the Date of the Last Financial
Statement. Except as otherwise disclosed in the SEC Documents, the Statutory
Statements, the Financial Statements or Schedule 3.10, since September 30, 2001,
except as contemplated by this Agreement, reflected on Schedule 3.10 or on the
balance sheet contained in the Quarterly Report (the "Balance Sheet") the
Company has not (i) sold, assigned, transferred or granted any exclusive license
with respect to any patent, trademark, trade name, service mark, copyright,
trade secret or other intangible asset necessary for the operation of its
business substantially as now conducted, (ii) suffered any loss of property
(other than in the ordinary course of business of the Company and its
Subsidiaries), or waived any right of substantial value to the Company or a
Subsidiary of the Company or (iii) entered into any commitment, obligation,
understanding or other arrangement, contingent or otherwise, to effect, directly
or indirectly, any of the foregoing. Except as otherwise disclosed in the SEC
Documents, the Statutory Statements, the Financial Statements or Schedule 3.10,
since September 30, 2001, no events have occurred which individually or in the
aggregate have had or could reasonably be expected to have a Material Adverse
Effect.
3.11 Absence of Undisclosed Liabilities. Except as reflected
in the Annual Report or the Quarterly Report or reserved against in the
financial statements contained therein or in the notes thereto or otherwise
disclosed in the SEC Documents, the Statutory Statements, the Financial
Statements or Schedule 3.11, there are no Liabilities of, relating to or
affecting the Company or any Subsidiary of the Company or any of their
respective Assets and Properties, other than Liabilities incurred in the
ordinary course of business consistent with past practice since December 31,
2000.
3.12 Title to Assets, Properties and Rights. The Company (or a
Subsidiary of the Company) has good and marketable title (or a valid leasehold
interest) to all of the Assets and Properties (whether real, personal or mixed)
necessary for the conduct of the business of Company and its Subsidiaries
substantially as now conducted, free and clear of all Encumbrances, except for
(i) liens for current taxes, assessments and other governmental charges not yet
due and payable or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded for which reserves have
been established as required by GAAP or SAP; (ii) easements, covenants,
conditions and restrictions (whether or not of record) as to which no material
violation or encroachment exists or, if such violation or encroachment exists,
as to which the cure of such violation or encroachment would not materially
interfere with the conduct of the
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Company's business; (iii) any zoning or other governmentally established
restrictions or encumbrances; (iv) workers or unemployment compensation liens
arising in the ordinary course of business; (v) carriers', landlords',
mechanic's, materialman's, supplier's, vendor's or similar liens arising in the
ordinary course of business securing amounts which are not delinquent, which
remain payable without penalty or which are being contested in good faith and by
appropriate proceedings, (vi) purchase money liens on any office equipment
hereafter acquired or the assumption of any lien on such office equipment; or
(vii) Encumbrances disclosed on Schedule 3.12 or any minor imperfection of title
or Encumbrances which, individually or in the aggregate with other Encumbrances,
do not and could not reasonably be expected to materially impair the use or
value of the Assets and Properties of the Company and its Subsidiaries. Such
Assets and Properties are in such operating condition and repair as is suitable
for the uses for which they are used in the Company's business, are not subject
to any condition which materially interferes with the use thereof by the Company
or a Subsidiary of Company, as the case may be, and constitute all assets,
properties, interests in properties and rights necessary to permit the Company
and its Subsidiaries to carry on their business after the Closing substantially
as conducted by the Company and its Subsidiaries prior thereto.
3.13 Patents, Trademarks, Copyrights and Licenses. The Company
(or a Subsidiary) owns or has the right pursuant to a license to use all the
Intellectual Property necessary for the conduct of the business of the Company
and its Subsidiaries as now conducted. To the best knowledge of the Company,
neither the Company nor any Subsidiary has interfered with, infringed upon or
misappropriated any Intellectual Property rights of any Person, and except as
set forth on Schedule 3.13, neither the Company nor any Subsidiary has received
from any Person in the past two years any notice, charge, complaint, claim or
assertion thereof, and no such claim is impliedly threatened by an offer to
license from another Person under a claim of use.
3.14 Governmental Consents.
(a) The Company and each of its Subsidiaries has, and is in
good standing with respect to, all governmental consents, approvals, licenses
(including without limitation insurance licenses), authorizations, permits,
certificates, inspections and franchises (collectively, "Governmental
Authorizations") necessary to continue to conduct the business of the Company
and its Subsidiaries as now conducted and to own or lease and operate the Assets
and Properties necessary for the conduct by the Company and its Subsidiaries of
their business as now conducted, all of which are valid and in full force and
effect, except for such failures that, individually or in the aggregate, do not
have and could not reasonably be expected to have a Material Adverse Effect.
(b) Each of the Reinsurance Subsidiaries is duly licensed,
authorized, approved or accredited (as required by the respective jurisdiction)
to conduct a reinsurance business in the jurisdictions listed on Schedule 3.14,
and is not transacting any insurance or reinsurance business in any jurisdiction
in which it is not so licensed, authorized, approved, accredited (as the case
may be) or otherwise permitted to transact such business.
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(c) Except as set forth in Schedule 3.14:
(i) neither the Company nor any of its Subsidiaries has
received any notice, oral or written, (A) that it is required to obtain, or that
it is engaging in any activity that would require it to obtain, any Governmental
Authorization that it does not now possess or (B) that it is engaging in any
activity that would cause modification, limitation, non-renewal, revocation or
suspension of any Governmental Authorization and no action, inquiry,
investigation or proceeding looking to or contemplating any of the actions
specified in clauses (A) and (B) above is pending or, to the knowledge of the
Company, threatened;
(ii) all reports, statements, documents, registrations,
filings and submissions to state insurance regulatory authorities submitted or
made by the Company or its Subsidiaries complied in all material respects with
applicable Law in effect when filed, and in each instance were filed in all
material respects on a timely basis;
(iii) no material deficiencies have been asserted by any
such regulatory authority with respect to any such reports, statements,
documents, registrations, filings or submissions that have not been satisfied in
all material respects
(iv) the Company has made available for inspection by
the Purchasers all filings made by the Reinsurance Subsidiaries with any
Governmental or Regulatory Authority since December 31, 1998, including, without
limitation, each Statutory Statement, and any reports of examination, market
conduct studies or other reports relating to any Reinsurance Subsidiary issued
by any Governmental or Regulatory Authority since December 31, 1998.
3.15 No Consent or Approval Required. No consent, approval,
waiver, permit, order or authorization of, or declaration to or filing with, any
Person or Governmental or Regulatory Authority, and no consent under any permit
or any Contract is required by the Company or any of its Subsidiaries for the
valid authorization, execution and delivery by the Company of this Agreement,
the other Operative Documents or its consummation of the transactions
contemplated hereby and thereby, other than (i) those consents, approvals,
authorizations, declarations or filings which have been obtained or made, as the
case may be prior to the Closing Date, (ii) required filings with the SEC and
the New York Stock Exchange, (iii) the obtaining of the Bermuda Approval, (iv)
the Shareholder Approval, (v) the Connecticut Approval, (vi) HSR Approval, and
(vii) the consents described on Schedule 3.15.
3.16 Compliance with Laws. The Company and each of its
Subsidiaries has duly complied in all material respects with, and their Assets
and Properties, business operations and leaseholds used in connection with the
business of the Company and its Subsidiaries are in material compliance with,
the provisions of all Laws applicable to the Company and each of its
Subsidiaries, Assets and Properties and the conduct of their business, and there
have been no citations, notices or orders of noncompliance issued to the Company
or any of its Subsidiaries under or with respect to any such Law.
A-1-16
3.17 Reinsurance Contracts; Retrocession Agreements.
(a) Each retrocession and reinsurance agreement pursuant to
which a Reinsurance Subsidiary has ceded, transferred, reinsured or assumed any
obligations or liabilities under any reinsurance or insurance agreement with
respect to which such Reinsurance Subsidiary has booked any liability or
recoverable or under which such Reinsurance Subsidiary has any contingent
liabilities or rights (collectively, the "Reinsurance Agreements") is in full
force and effect. Each such Reinsurance Agreement is a valid and binding
agreement of the applicable Reinsurance Subsidiary, enforceable against such
Reinsurance Subsidiary 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)). To the knowledge of
the Company, each Reinsurance Agreement is a valid and binding obligation of
each other party thereto, enforceable against such party in accordance with the
terms of such Reinsurance Agreement (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)).
(b) Except as noted on Schedule 3.17, no Reinsurance
Subsidiary, nor, to the knowledge of the Company, any other party to a
Reinsurance Agreement pursuant to which such Reinsurance Subsidiary has ceded,
transferred or reinsured any obligations or liabilities ("Retrocessional
Agreements") is in default in any material respect as to any provision thereof,
and no such Retrocession Agreement contains any provision providing that the
other party thereto may commute or, in the case of any Retrocession Agreement
whose term has not previously expired, terminate such Retrocession Agreement by
reason of the transactions contemplated by this Agreement or the other Operative
Documents. Each Reinsurance Subsidiary party to a Retrocession Agreement is
entitled to take full credit (except as set forth on Schedule F of such
Reinsurance Subsidiary's Statutory Statement or on Schedule 3.17) in its
respective Statutory Statements pursuant to applicable Laws for all reinsurance
and coinsurance ceded pursuant to any Retrocession Agreement to which such
Reinsurance Subsidiary is party. Except as set forth in Schedule 3.17, (i) to
the knowledge of the Company, none of the other parties to any such Retrocession
Agreement is insolvent or the subject of a rehabilitation, (ii) to the knowledge
of the Company, the financial condition of any such other party to a
Retrocession Agreement is not impaired to the extent that a default thereunder
is reasonably anticipated and (iii) no notice of intended cancellation or
termination has been received by the Company or any of its Subsidiaries from any
of such other parties.
3.18 Loss Reserves; Actuarial Reports. The reserves for
payment of benefits, losses, claims and expenses under all reinsurance and
retrocession agreements to which any Reinsurance Subsidiary is a party reflected
in, or included with, the financial statements set forth in the Statutory
Statements and Financial Statements (i) were
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computed in accordance with Standards of Practice issued by the Actuarial
Standards Board (including the Casualty Actuarial Society's Statement of
Principles Regarding Property and Casualty Loss and Loss Adjustment Expense
Reserves), (ii) are based on actuarial assumptions that are consistent with the
relevant contract provisions and (iii) are in compliance with the requirements
of applicable Law. The admitted assets of each Reinsurance Subsidiary as
determined under applicable Laws are in an amount at least equal to the minimum
amounts required by applicable Laws. The Company has made available to the
Purchasers a true and complete copy of all actuarial reports prepared by
actuaries, independent or otherwise, with respect to any Reinsurance Subsidiary
in the last 24 months, together with all attachments, addenda, supplements and
modifications thereto.
3.19 Taxes.
(a) The Company and each Subsidiary of the Company has filed
all material federal, state, local, foreign and other tax returns, statements,
forms and reports, and any other returns (including information returns),
statements, forms and reports ("Tax Returns") with all Governmental or
Regulatory Authorities required to be filed by it. The Company and each
Subsidiary has paid or caused to be paid, or duly reserved for in the Financial
Statements, all taxes, fees, assessments and other governmental charges or
levies (including interest and penalties) ("Taxes") owed by the Company and each
Subsidiary of the Company. The Company and each Subsidiary of the Company has
withheld and paid all Taxes required to have been withheld and paid, including
Taxes in connection with amounts paid or owing to any employee, creditor,
independent contractor or other third party. Neither the Company nor any
Subsidiary of the Company has any material liabilities for Taxes other than
those incurred in the ordinary course of business and in respect of which
adequate reserves are being maintained by it in accordance with GAAP or SAP, as
the case may be. There are no applicable Taxes, fees or other governmental
charges payable by the Company or any Subsidiary of the Company in connection
with the execution and delivery of this Agreement or the other Operative
Documents or in connection with any of the transactions contemplated hereby or
thereby (including without limitation the issuance of the Company Securities as
contemplated herein and therein).
(b) Except as set forth in Schedule 3.19, all material
deficiencies asserted or assessments made by any Governmental or Regulatory
Authority with respect to Taxes of the Company or any Subsidiary of the Company
have been paid or are being contested in good faith. Except as disclosed in
Schedule 3.19, (i) there are no action, suits, investigations, audits or claims
in progress by any Governmental or Regulatory Authority relating to Taxes of the
Company or any Subsidiary of the Company, (ii) no issue has been raised by
written inquiry of a Governmental or Regulatory Authority in any current or
prior examination which, by application of the same principles, would reasonably
be expected to result in a proposed deficiency for any subsequent taxable
period, (iii) no claim has been made by a Governmental or Regulatory Authority
in a jurisdiction where the Company or any Subsidiary of the Company does not
file Tax Returns to the effect that the Company or such Subsidiary, as
applicable, is or may be subject to taxation by that jurisdiction, and (iv)
there are no outstanding waivers or comparable consents
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regarding the application of any statute of limitations in respect of Taxes of
the Company or any Subsidiary of the Company.
(c) None of the Company or any Subsidiary of the Company or
any of their respective directors or officers has received any written or, to
the knowledge of the Company, oral notice from any taxing authority that it
intends to conduct an audit or investigation of the Company or any Subsidiary of
the Company. The Company is not subject to any ruling of any taxing authority
(other than the assurance from the Minister of Finance of Bermuda under the
Exempted Undertakings Tax Protection Act, 1966 of Bermuda as described in the
Company's Form S-4 Registration Statement filed with the SEC in August of 1999).
(d) There are no material liens for Taxes of the Company or
any Subsidiary of the Company upon the assets of the Company or any Subsidiary
of the Company, except for liens arising as a matter of Law relating to current
Taxes not yet due.
3.20 Employees. The Company has complied in all respects with
all applicable laws relating to the employment of labor, including provisions
relating to wages, hours, equal opportunity, collective bargaining and the
payment of Social Security and other taxes. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, commitment or arrangement with any labor
union, and no labor union has requested or, to the knowledge of the Company, has
sought to represent any of the employees, representatives or agents of the
Company and there is no labor strike, dispute, slowdown or stoppage actually
pending or, to the knowledge of the Company, threatened against or involving the
Company.
3.21 ERISA.
(a) Schedule 3.21 lists each defined benefit plan, within
the meaning of Section 3(35) of ERISA (whether or not subject to Title IV
thereof), maintained by the Company or any ERISA Affiliate within the last six
years (or with respect to which any of them could reasonably be expected to have
any liability), and copies of the most recent actuarial valuation report, if
any, with respect to any such plan has been made available to Purchaser. None of
the Company, any ERISA Affiliate or any organization to which any of them is a
successor or parent corporation (within the meaning of Section 4069(6) of ERISA)
has engaged in any transaction which is subject to Section 4069 of ERISA.
(b) Neither the Company nor any ERISA Affiliate has any
obligation to contribute to any multiemployer plan subject to Title IV of ERISA,
and there are no circumstances pursuant to which the Company or any ERISA
Affiliate could be assessed with withdrawal liability by any such multiemployer
plan under Section 4201 of ERISA.
(c) Schedule 3.21 lists each employee benefit plan maintained
by the Company or any Subsidiary and each such plan that is intended to be
qualified under Section 401 of the IRC has received a favorable determination as
to its qualified status
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from the Internal Revenue Service, and to the knowledge of the Company, nothing
has occurred with respect to the operation of any such plan which could cause
the loss of such qualification.
(d) Each employee benefit plan maintained by the Company or
any ERISA Affiliate has been maintained in accordance with its terms and with
all provisions of ERISA and the Code (including rules and regulations
thereunder) and other applicable Laws.
(e) Neither the Company nor any ERISA Affiliate has incurred
any liability under Section 4062, 4063 or 4064 of ERISA.
3.22 Ordinary Course. Except as set forth on Schedule 3.22,
since September 30, 2001, the Company and each of its Subsidiaries has conducted
its operations only in the ordinary course of business consistent with past
practice.
3.23 Insurance. A complete and correct list and copies of all
policies of insurance of any kind or nature covering the Company and its
Subsidiaries, including, without limitation, policies of life, fire, theft,
employee fidelity and other casualty and liability insurance, has been provided
to the Purchasers, and such policies are in full force and effect. Such policies
are in amounts customary for the industry in which Company or such Subsidiary
operates.
3.24 Statutory Statements.
(a) The Company has previously furnished to the Purchasers
true and complete copies of the following statutory statements, in each case
together with all exhibits, schedules and notes thereto and any affirmations and
certifications filed therewith (collectively, the "Statutory Statements"): (i)
the annual statement of each Reinsurance Subsidiary as at December 31 in each of
the years ended 1998, 1999 and 2000 (the "Annual Statements"); and (ii) the
quarterly statement of PXRE Reinsurance Company for the quarterly period ended
September 30, 2001 (the "Quarterly Statements").
(b) Except as set forth on Schedule 3.24, the Statutory
Statements (i) present fairly the statutory financial condition of each
Reinsurance Subsidiary for the periods therein specified, (ii) were prepared in
conformity with SAP, except as expressly set forth within the subject financial
statements and (iii) were correct in all material respects when filed, and there
were no material omissions therefrom. To the extent filed prior to the Closing,
the Annual Statements for the year ending December 31, 2001 and Quarterly
Statements for quarters ending after September 30, 2001 for each Reinsurance
Subsidiary, when filed with the insurance regulatory authority of the applicable
jurisdiction of organization, will present fairly the financial condition of
such Reinsurance Subsidiary as at the dates indicated and the statutory results
of operations of such Reinsurance Subsidiary for the periods specified therein,
will be prepared in conformity with SAP, will be correct in all material
respects and there will be no material omissions therefrom. The Statutory
Statements were (or, with respect to Statutory
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Statements filed after the date hereof, will be) compiled from and are (or, with
respect to Statutory Statements filed after the date hereof, will be) in
accordance with the books and records of the Reinsurance Subsidiaries.
3.25 Binding Authority. No reinsurance intermediary, agent,
manager or broker has the legal power or authority to bind any Reinsurance
Subsidiary with respect to any reinsurance or insurance contract.
3.26 Material Contracts. Schedule 3.26 sets forth a list of
all Material Contracts of the Company and its Reinsurance Subsidiaries. Each
such Material Contract of the Company or any Reinsurance Subsidiary is a valid
and binding agreement of Company or its Subsidiaries (as the case may be)
enforceable against the Company or such Subsidiary 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)), and neither the Company nor any of its Subsidiaries has any
knowledge that any Material Contract is not a valid and binding agreement
against the other parties thereto. The Company and each of its Subsidiaries has
fulfilled all material obligations required pursuant to the Material Contract to
have been performed by the Company or such Subsidiary on its part.
3.27 Affiliate Transactions. Except as set forth in the
Company's proxy statement for the year 2000 as filed with the SEC (the "2000
Proxy Statement") or the SEC Documents, there have been no transactions between
the Company or any of its Subsidiaries and any director, executive officer,
shareholder or Affiliate of the Company or any of its Subsidiaries or loans,
guarantees or pledges to, by or for the Company or any of its Subsidiaries from,
to, by or for any of such persons, other than (i) reinsurance contracts (and
derivative contracts in connection therewith) entered into between the
Reinsurance Subsidiaries and Select Reinsurance Ltd., true and complete copies
of which have been provided to the Purchasers, (ii) loans pursuant to the
Company's PC Rental Plan, (iii) salary advances of less than $20,000 for any
single executive officer, and (iv) consulting agreements involving aggregate
consideration of less than $10,000. Other than as set forth in the 2000 Proxy
Statement or the SEC Documents, none of the executive officers, or directors of
the Company or any of its Subsidiaries, or any spouse or relative of any of such
persons, has been a director or officer of, or has had any direct or indirect
interest in, any person or business enterprise which during such period has been
a supplier, customer or sales agent of the Company or any of its Subsidiaries or
has competed with or been engaged in any business of the kind being conducted by
the Company or any of its Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
Each Purchaser, severally and not jointly, hereby represents and
warrants to the
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Company as follows:
4.1 Organization; Power and Authority. Each Purchaser, other
than Mr. Rainwater, is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, and each Purchaser
has full power and authority to execute and deliver this Agreement and the
other Operative Documents to which it is a party and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby (subject to the HSR Approval, the Connecticut Approval and the
Bermuda Approval). The execution and delivery by such Purchaser of this
Agreement, the Expense Letter and the Fee Letter (to the extent a party thereto)
and the performance by such Purchaser of its obligations hereunder and
thereunder have been, and the other Operative Documents to which it is a party
will be, duly and validly authorized by such Purchaser. This Agreement, the
Expense Letter and the Fee Letter to which it is a party have been duly and
validly executed and delivered by such Purchaser and constitute, and
upon the execution and delivery by such Purchaser of the other Operative
Documents to which it is a party, such other Operative Documents will
constitute, legal, valid and binding obligations of such Purchaser enforceable
against it in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity.
4.2 No Conflicts. The execution, delivery and performance of
this Agreement and the other Operative Documents to which it is a party and the
consummation by such Purchaser of the transactions contemplated hereby and
thereby do not and will not conflict with, or constitute a default under, any
Contract to which such Purchaser is a party, or result in a violation of such
Purchaser's organizational documents or any order, judgment or decree of any
court or Governmental or Regulatory Authority having jurisdiction over such
Purchaser or any of its properties and, no consent, authorization or order of,
or filing or registration with, any Governmental or Regulatory Authority, except
for such filings as may be required by the Exchange Act and except for the HSR
Approval, the Connecticut Approval and the Bermuda Approval, is required by such
Purchaser for the execution, delivery and performance of this Agreement or any
of the other Operative Documents to which it is a party.
4.3 Investor Representations.
(a) Such Purchaser is acquiring the Company Securities for its
own account as principal, for investment purposes only, and not for or with a
view to the resale, distribution or granting of a participation therein, in
whole or in part, in violation of the Securities Act or the securities laws of
any State applicable to such Purchaser.
(b) Such Purchaser acknowledges its understanding that the
offering and sale of the Company Securities has not been registered under the
Securities Act, on the basis of the exemption in Section 4(2) thereof relating
to transactions not involving a public offering, or any state securities laws.
Such Purchaser understands that the Company's reliance on the Section 4(2)
exemption is based on the representations herein made by the Purchasers. Such
Purchaser is an "Accredited Investor" as that term is defined in Regulation D
under the Securities Act.
A-1-22
(c) Such Purchaser acknowledges that it is familiar with the
limitations which are imposed by the Securities Act on any Transfer of an
interest in the Company Securities. Such Purchaser understands and acknowledges
that it may have to bear the economic risk of its investment in the Company
Securities for an indefinite period of time unless the Company Securities are
subsequently registered under the Securities Act or an exemption therefrom is
available. Such Purchaser hereby agrees that the Company Securities will not be
transferred other than (i) pursuant to a registration under the Securities Act
or pursuant to an exemption therefrom, (ii) in compliance with any applicable
state securities laws, (iii) as permitted under the Investment Agreement and
(iv) with prior Bermuda Approval.
(d) Such Purchaser has been given access to all information
regarding the Company and the business, condition and operations of the Company
that such Purchaser has requested in order to evaluate its investment in the
Company Securities. Such Purchaser has been given the opportunity to ask
questions of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Company Securities
and other matters pertaining to such Purchaser's investment in the Company
Securities. Such Purchaser and its representatives have been solely responsible
for Purchaser's investigation of the Company and its management and business,
for Purchaser's own analysis of the merits and risks of its investment pursuant
to this Agreement, and for its own analysis of the fairness and desirability of
the terms of the investment.
(e) Such Purchaser understands that, unless and until
registered for sale under the Securities Act, the Company Securities will bear
the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE
OFFERED, SOLD OR TRANSFERRED EXCEPT (i) PURSUANT TO (A) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR (B) AN APPLICABLE EXEMPTION
FROM REGISTRATION THEREUNDER AND UNDER APPLICABLE STATE SECURITIES LAWS AS TO
WHICH AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY SHALL HAVE BEEN
DELIVERED TO THE COMPANY AND (ii) WITH THE PRIOR WRITTEN APPROVAL OF THE BERMUDA
MONETARY AUTHORITY."
(f) Brokers. No agent, broker, finder, investment banker,
financial advisor or other similar Person will be entitled to any fee,
commission or other compensation in connection with any of the transactions
contemplated by this Agreement or the other Operative Documents on the basis of
any act or statement made or alleged to have been made by such Purchaser or any
of its Affiliates, directors, officers or other representatives.
4.4 Additional Information. No information provided in writing
by such Purchaser in connection with the preparation of the Proxy Statement
shall, at the
A-1-23
time such information is provided, at the time of the mailing of the Proxy
Statement, on the date of the Shareholders' Meeting and on the Closing Date,
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading; provided however that the Purchasers shall have the
right to correct any untrue statements or omissions so long as such correction
is received by the Company within a reasonable period of time prior to the
mailing of the Proxy Statement.
ARTICLE V
SHAREHOLDER AND REGULATORY APPROVAL AND OTHER CONSENTS
5.1 Proxy Statement and Other Filings; Board Recommendations.
(a) As promptly as practicable after the execution of this
Agreement, the Company shall prepare and file with the SEC a preliminary Proxy
Statement and any necessary supplements and amendments thereto. Each of the
parties hereto shall use all commercially reasonable efforts to finalize the
Proxy Statement as promptly as practicable after the date hereof. Each of the
Purchasers shall provide promptly to the Company information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the Company, may be required or appropriate for inclusion in the preliminary
Proxy Statement, or in any amendments or supplements thereto. In addition, the
parties shall cooperate in the preparation of the Proxy Statement and any
amendments and supplements thereto. As promptly as practicable after it has been
determined by the Company that the Proxy Statement is final, the Proxy Statement
shall be mailed to the shareholders of Company. Each of the parties hereto shall
cause the Proxy Statement to comply in all material respects as to form and
substance with respect to such party with the applicable requirements of (i) the
Exchange Act, (ii) the Securities Act, (iii) the rules and regulations of the
New York Stock Exchange and (iv) Bermuda law. As promptly as practicable after
the date of this Agreement, each of Company and Purchasers will prepare and file
any other filings required to be filed by such party by it under the Exchange
Act, the Securities Act or any other federal, foreign or blue sky or related
Laws relating to the issuance of the Company Securities and the transactions
contemplated by this Agreement and the other Operative Documents. The Company
shall notify the Purchasers promptly upon the receipt of any comments from the
SEC or its staff or any other government officials relating to the Proxy
Statement or of any request by the SEC or its staff or any other government
officials for amendments or supplements to preliminary Proxy Statement or for
additional information and, except as may be prohibited by Law applicable to
such party, each party will supply the other with copies of all related
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff or any other government officials, on the other
hand. Each of the Company and the Purchasers will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 5.1(a) to comply in all material respects with all applicable
requirements of Law.
(b) The Proxy Statement shall (i) include a proposal that the
shareholders of the Company approve the issuance of the Company Securities and
the consummation
A-1-24
of all other transactions contemplated under this Agreement and the other
Operative Documents, (ii) include a proposal that the size of the Board of
Directors be increased from nine members to eleven members and (iii) include a
proposal to amend Bye-Law 22(1) of the Company to authorize the election of
directors as contemplated in the Description of Stock.
(c) Each of the Purchasers, on the one hand, and the Company,
on the other hand, shall promptly inform the other of any event which is
required to be set forth in an amendment or supplement to the Proxy Statement or
any other filing and the Company shall amend or supplement the Proxy Statement
to the extent required by Law to do so.
5.2 Shareholder Meeting.
(a) The Company shall take all action necessary, in accordance
with its Memorandum of Association, Bye-Laws and applicable Law, to call and
convene the Shareholders' Meeting as promptly as practicable after the date
hereof for the purpose of voting upon the matters included in the Proxy
Statement. The Company may adjourn or postpone the Shareholders' Meeting if, and
only if, the requisite number of Common Shares necessary to conduct business at
the Shareholders' Meeting are not represented, either in person or by proxy.
Without limiting the generality of the foregoing, the Company agrees that,
subject to its rights to terminate this Agreement pursuant to Section 9.1, its
obligations pursuant to the first sentence of this Section 5.2 shall not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of an offer to merge, amalgamate, consolidate, or
acquire substantially all of the assets of, the Company. The Company shall use
all commercially reasonable efforts to (i) hold the Shareholder's Meeting as
soon as practicable after the date hereof, (ii) solicit from its shareholders
proxies in favor of the proposals included in the Proxy Statement and (iii)
obtain a favorable vote at the Shareholder's Meeting on the proposals included
in the Proxy Statement.
(b) The Board of Directors shall recommend that the Company's
shareholders vote in favor of adopting and approve the proposals described in
clauses (i), (ii) and (iii) of Section 5.1(b) and the Proxy Statement shall
include a statement to such effect. The Board of Directors shall not withdraw or
modify, in a manner adverse to the Purchasers, the approval or recommendation by
such Board of Directors of this transaction contemplated hereby.
5.3 Connecticut Approval. Each Purchaser shall use all
commercially reasonable efforts, and the Company shall cooperate, in obtaining
any required approvals of the Connecticut Department in connection with the
issuance of the Company Securities and all other transactions contemplated
hereunder (the "Connecticut Approval"). In connection with the Connecticut
Approval, each Purchaser shall use all commercially reasonable efforts to make
its initial filing pursuant to Connecticut Insurance Law Section 38a-136 on Form
A under the Connecticut Insurance Law (the "Form A Filing") with respect to the
transactions contemplated hereby within fifteen Business Days of the date
hereof. Each Purchaser shall use all commercially reasonable
A-1-25
efforts to supply promptly any additional information and documentary material
that may be requested by the Connecticut Department in connection therewith.
Each Purchaser agrees to provide a draft of its respective Form A Filing to the
Company for its review and to consult with the Company relating to any issues
arising as a result of the Company's review, prior to the submission of the Form
A Filing by each Purchaser to the Connecticut Department. Each Purchaser agrees
to promptly provide the Company with a copy of the Form A Filing and each
amendment or supplement thereto in final form upon the submission thereof to the
Connecticut Department. The Company and the Purchasers each agree to make all
other appropriate filings with the Connecticut Department and such other filings
as may be required under the insurance Laws of any other state or jurisdiction
in which the Company or any of its Subsidiaries do business. Each Purchaser
agrees to seek an expedited hearing under the Connecticut Insurance Law with
respect to the transactions contemplated hereby. The parties hereto will not
knowingly take any action that will have the intentional effect of materially
delaying, impairing or impeding the receipt of any required approvals. The
Company and the Purchasers will use all their respective commercially reasonable
efforts to assist one another in obtaining the Connecticut Approval, including,
without limitation, providing such financial statements and other information as
may reasonably be requested.
5.4 Other Authorizations; Consents.
(a) Each party hereto shall take all commercially reasonable
steps necessary or desirable, and proceed diligently and in good faith and shall
use all reasonable efforts to obtain, as promptly as practicable, (i) all
authorizations, consents, orders and approvals of all Governmental or Regulatory
Authorities that may be or become necessary for such party's execution and
delivery of, and the performance of its obligations pursuant to, this Agreement
and the other Operative Documents, including, without limitation, Connecticut
Approval and (ii) all approvals and consents (including, without limitation,
those approvals, consents and authorizations specified in Schedule 3.15)
required under all Contracts to which the Company or any of its Subsidiaries is
a party (including, without limitation, all Contracts involving indebtedness of
the Company) to consummate the transactions contemplated hereby. Each party will
cooperate fully (including, without limitation, by providing all information the
other party reasonably requests) with the other parties in promptly seeking to
obtain all such authorizations, consents, orders and approvals. Each party
hereto agrees to make an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby as
soon as reasonably practicable after the date hereof, but in no event later than
January 4, 2002, use their commercially reasonable efforts to cause the waiting
period under the HSR Act to expire as quickly as possible and to supply promptly
any additional information and documentary material that may be requested
pursuant to the HSR Act. Notwithstanding the foregoing, none of the Purchasers
nor any of their respective Affiliates shall have any obligation to dispose of,
hold separate or otherwise restrict its enjoyment of any of its Assets and
Properties.
(b) Each party hereto shall promptly inform the other party of
any communication from any Governmental or Regulatory Authority regarding any of
the transactions contemplated by this Agreement. If any party or Affiliate
thereof receives a
A-1-26
request for additional information or documentary material from any such
Governmental or Regulatory Authority with respect to the transactions
contemplated hereby, then such party will endeavor in good faith to make, or
cause to be made, as soon as reasonably practicable and after consultation with
the other party, an appropriate response in compliance with such request.
(c) The Company shall use its best efforts to obtain executed
letters in substantially the form attached as Exhibit D hereto from those
employees of the Company and its Subsidiaries who have received benefits under
any of the Company's Existing Equity Plans or any other employee benefit, bonus
or severance or compensation plans maintained by the Company or any ERISA
Affiliate and who will, or may, be entitled to receive additional benefits as a
result of the transactions contemplated hereby being considered a change of
control under such Existing Equity Plans or other plans.
5.5 Further Assurances. The Company will, whenever and as
often as reasonably requested to do so by the Purchasers do, execute,
acknowledge and deliver any and all such other and further acts, assignments,
transfers and any instruments of further assurance, approvals and consents as
are necessary or proper in order to complete, ensure and perfect the sale,
transfer and conveyance to the Purchasers the Company Securities and the
consummation of the other transactions contemplated hereby.
ARTICLE VI
COMPANY COVENANTS
6.1 Visits and Inspections. The Company shall permit
authorized representatives of each Purchaser, from time to time but only during
normal business hours, to visit and inspect the Assets and Properties of the
Company, inspect, audit and make extracts from the books and records of the
Company and its Subsidiaries, and discuss with the officers, employees and
independent accountants of the Company and its Subsidiaries, its business,
assets, liabilities, financial condition, business prospects and results of
operations.
6.2 Maintenance of Books and Records; Financial Statements;
Report; Etc. The Company shall keep, and cause its Subsidiaries to keep,
adequate records and books of account with respect to its business activities in
which proper entries are made in accordance with generally accepted accounting
principles reflecting all of its Subsidiaries' financial transactions. The
Company shall furnish to each Purchaser promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which the Company has made available to its shareholders
and copies of any regular, periodic and special reports or registration
statements which the Company files with the SEC or any Governmental or
Regulatory Authority which may be substituted therefor, or any national
securities exchange.
6.3 Use of Proceeds. The Company shall use the net proceeds
from the sale of the Preferred Shares to expand its reinsurance business in the
lines of business currently conducted.
A-1-27
6.4 Shares Issuable Upon Conversion. On and after the Closing
Date, the Company shall reserve and keep available, out of its authorized and
unissued stock, solely for the purpose of effecting the conversion (i) of the
Preferred Shares, the full number of Convertible Common Shares as shall from
time to time be sufficient to effect the conversion of the Preferred Shares from
time to time outstanding and (ii) the Convertible Common Shares, the full number
of Common Shares as shall from time to time be sufficient to effect the
conversion of the Convertible Common Shares from time to time outstanding.
6.5 Public Announcements. The Company and the Purchasers, and
their respective Affiliates, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statement with respect to the transactions contemplated by this
Agreement and shall not issue any such press release or make any such public
statement without the advance approval of the other party following such
consultation (such approval not to be unreasonably withheld or delayed), except
as may be required by applicable Law, court process or by the requirements of
any securities exchange.
6.6 Exclusivity. Prior to the Closing Date the Company will
refrain, and cause its Affiliates, officers, directors, employees, agents and
other representatives (including without limitation any brokers, legal counsel,
accountants, or financial advisors of the Company) to refrain, from directly or
indirectly (x) making any offer or proposal to any Person or entering into any
contract with any Person to (i) sell, issue or otherwise transfer any capital
stock of the Company (other than pursuant to equity plans of the Company in
effect on the date hereof (without giving effect to any amendment thereof after
the date hereof)) (the "Existing Equity Plans") to officers, directors and
employees of the Company and its Subsidiaries); or (ii) sell or otherwise
transfer any material assets or properties of the Company; or (iii) effect any
recapitalization, refinancing, restructuring, merger, consolidation, or other
business combination involving the Company; (y) entertaining, soliciting,
encouraging, accepting, negotiating or otherwise holding substantive discussions
(and shall immediately cease any such actions currently underway with any
Persons other than the Purchasers) regarding any offer or proposal from any
Person to (i) purchase or otherwise acquire any of the capital stock of the
Company; or (ii) sell or otherwise transfer any material assets or properties of
the Company; or (iii) effect any recapitalization, refinancing, restructuring,
merger, consolidation, or other business combination involving the Company; or
(z) providing any non-public information regarding the Company to any Person in
connection with a transaction of the type described in subsections (i), (ii) and
(iii) above; provided that notwithstanding anything to the contrary in this
Section 6.6, the Company may consider, negotiate, approve and recommend to the
Shareholders of the Company any unsolicited offers or proposals for an
acquisition, by merger, amalgamation consolidation, tender offer or otherwise,
of all or substantially all of the assets or outstanding Common Shares of the
Company (an "Unsolicited Proposal"); provided, further, that unless this
Agreement is terminated pursuant to Section 9.1, no such actions shall affect
the obligations of the Company under this Agreement (including without
limitation the obligation of the Board of Directors of the Company to recommend
to the shareholders of the Company the consummation of the transactions
contemplated by this Agreement and
A-1-28
the other Operative Documents). Further, in connection with any Unsolicited
Proposal, the Company or any Affiliate thereof, may enter into a confidentiality
agreement with, and provide any non-public information regarding the Company to,
any Person in connection with any such Unsolicited Proposal. If any such offer
or proposal is made to or received from any Person, the Company will promptly
advise such Person by written notice of the terms of this Section 6.6 and will
promptly deliver a copy of such notice to the Purchasers.
6.7 Conduct of Business. Except as otherwise expressly
permitted in this Agreement as set forth in Schedule 6.7 or with the prior
written consent of the Purchasers, between the date of this Agreement and the
Closing, the Company shall, and shall cause its Subsidiaries to, conduct their
respective business only in the ordinary course and consistent with past
practice. Without limiting the generality of the foregoing and except as
expressly provided herein:
(a) The Company shall use, and shall cause its Subsidiaries to
use, all commercially reasonable efforts to (i) preserve intact the present
business organization, reputation, and, other than in the ordinary course of
business, policyholder relations of each of the Company and its Subsidiaries,
(ii) keep available the services of the present officers, directors, and
employees of each of the Company and its Subsidiaries, (iii) maintain in full
force and effect all Material Contracts, documents, and arrangements referred to
in Sections 3.17 and 3.32 hereof, except those Contracts which expire in
accordance with their terms or are terminated by the Company and its
Subsidiaries in the ordinary course of business and are not renewed in the
ordinary course of business and (iv) maintain each rating classification
assigned as of the date hereof by A.M. Best Company, Inc. and Standard & Poor's.
(b) The Company shall, and shall cause each of its
Subsidiaries to (i) maintain all licenses, qualifications, and authorizations of
each of the Company and its Subsidiaries to do business in each jurisdiction in
which it is so licensed, qualified, or authorized, (ii) maintain all Assets and
Properties of each of the Company and its Subsidiaries in good working order and
condition, ordinary wear and tear excepted and (iii) continue all current
marketing and selling activities relating to the business, operations, and
affairs of each of the Company and its Subsidiaries.
(c) The Company shall cause the books and records of each of
the Company and its Subsidiaries to be maintained in the usual manner and
consistent with past practice and shall not permit a material change in any
underwriting, investment, actuarial, financial reporting, Tax, or accounting
practice or policy of the Company and its Subsidiaries except as may be required
by GAAP or SAP.
(d) With respect to Tax Returns for taxable periods ending on
or prior to the Closing Date, the Company shall, and shall cause each of its
Subsidiaries to, (i) prepare properly and to file duly and validly all reports
and all Tax Returns required to be filed with any governmental or regulatory
authorities with respect to the business, operations, or affairs of such entity,
(ii) pay duly and fully all Taxes indicated by such Tax Returns or otherwise
levied or assessed upon such entity or any of its Assets and
A-1-29
Properties, and to withhold or collect and pay to the proper taxing authorities
all Taxes that such entity is required to so withhold or collect and pay, unless
such Taxes are being contested in good faith and, if appropriate, reasonable
reserves therefor have been established and reflected in the books and records
of such entity and in accordance with GAAP and SAP and (iii) provide the
Purchasers with copies of all Tax Returns prepared by the Company and its
Subsidiaries as promptly as, and to the extent, practicable prior to filing for
the Purchasers' review and comment.
(e) The Company shall use, and shall cause each of the its
Subsidiaries to use, all commercially reasonable efforts to maintain in full
force and effect substantially the same levels of coverage as the insurance
afforded to the Company under the insurance Contracts in force as of the date
hereof.
(f) The Company shall, and shall cause each of its
Subsidiaries to, refrain from making any capital expenditures other than in the
ordinary course of business consistent with past practice (and in no event
greater than $2,000,000 in the aggregate) without the prior written consent of
the Purchasers.
(g) The Company shall, and shall cause each of its
Subsidiaries to, refrain from amending its organizational or charter documents
and from taking any action with respect to any such amendment.
(h) The Company shall, and shall cause each of its
Subsidiaries to, refrain from authorizing or issuing any shares of its capital
stock or other equity securities or entering into any Contract or granting any
option, warrant, or right calling for the authorization or issuance of any such
shares or other equity securities, or creating or issuing any securities
directly or indirectly convertible into or exchangeable for any such shares or
other equity securities, or issuing any options, warrants, or rights to purchase
any such convertible securities, except for issuances under the Existing Equity
Plans.
(i) The Company shall, and shall cause each of its
Subsidiaries to, refrain from declaring, authorizing, or paying any dividend or
other distribution (whether in cash, stock or other property) to shareholders in
respect of its capital stock and from directly or indirectly redeeming or
purchasing any of its capital stock or any interest in or right to acquire any
such stock, other than a quarterly cash dividend of $.06 per outstanding Common
Share.
6.8 Updating Schedules.
(a) The Company will, promptly upon becoming aware of any
fact, matter, circumstance or event, which fact, matter, circumstance or event
arose either (i) on or prior to the date hereof (a "Pre-signing Event") or (ii)
after the date hereof but prior to the Closing (a "Post-Signing Event"), in any
case, requiring supplementation or amendment of the schedules provided by the
Company or any of its Subsidiaries attached hereto, supplement or amend such
schedules to this Agreement to reflect any fact, matter, circumstance or event,
which, if existing, occurring or known on the date of this Agreement, would have
been required to be set forth or described in such schedules
A-1-30
which were or have been rendered inaccurate thereby. All supplements and
amendments to the schedules provided by the Company or any of its Subsidiaries
are provided for the information of the Purchasers only and no such supplement
or amendment to the schedules shall (i) amend or supplement the representations
and warranties (and corresponding schedules) made as of the date hereof or (ii),
have any effect for the purpose of determining (A) satisfaction of the
conditions set forth in Article VIII hereof or (B) except as set forth in
Section 7.1(a)(v), compliance by the Company with its covenants and agreements
set forth herein.
(b) Each Purchaser will, promptly upon becoming aware of any
Pre-signing Event or Post-Signing Event requiring supplementation or amendment
of the schedules provided by such Purchaser attached hereto, supplement or amend
such schedules to this Agreement to reflect any fact, matter, circumstance or
event, which, if existing, occurring or known on the date of this Agreement,
would have been required to be set forth or described in such schedules which
were or have been rendered inaccurate thereby. All supplements and amendments to
the schedules provided by any Purchaser are provided for the information of the
Company only and no such supplement or amendment to the schedules shall (i)
amend or supplement the representations and warranties (and corresponding
schedules) made as of the date hereof or (ii), have any effect for the purpose
of determining (A) satisfaction of the conditions set forth in Article VIII
hereof or (B) except as set forth in Section 7.1(b)(iv), compliance by any
Purchaser with its covenants and agreements set forth herein.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification.
(a) The Company hereby agrees to indemnify and hold harmless
each Purchaser and its Affiliates, and their respective directors, officers,
employees and other agents and representatives from and against any and all
liabilities, judgments, claims, settlements, losses, damages, reasonable fees
(including reasonable attorneys' and other experts' fees and disbursements),
liens, taxes, penalties, obligations and expenses (collectively, "Losses")
incurred or suffered by any such Person arising out of, based upon or relating
to any breach of any representation, warranty or covenant of the Company
contained in this Agreement or other Operative Document; provided that:
(i) the Company shall have no obligation to indemnify
the Purchasers hereunder with respect to breaches of representations and
warranties unless and until, and then only to the extent, the aggregate amount
of Losses arising as a result of breach of representations and warranties shall
exceed $5,000,000; provided that the limitation contained in this clause (i)
shall not be applicable to any breach of the representations and warranties
contained in Section 3.3;
(ii) the Company shall have no obligation to indemnify
the Purchasers hereunder for Losses arising as a result of breach of
representations and
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warranties in excess of $75,000,000 (in the aggregate); provided that the
limitation contained in this clause (ii) shall not be applicable to any breach
of the representations and warranties contained in Section 3.3;
(iii) the Company's obligations under this Section 7.1
with respect to representations and warranties shall terminate eighteen months
after the Closing Date (except with respect to claims made prior to such date as
to which such obligations shall continue until final resolution of such claims);
(iv) Notwithstanding the foregoing, the limitations set
forth in clause (iii) above shall not be applicable to the representations and
warranties in Section 3.3, which shall survive the Closing indefinitely, and
Sections 3.19 and 3.21, which shall survive the Closing until the expiration of
all applicable statutes of limitation (including all periods of extension
thereof, whether automatic or permissive); and
(v) the Company shall have no obligation to indemnify
the Purchasers hereunder with respect to any breach of a representation or
warranty of the Company resulting from a Post-Signing Event to the extent that
the schedules to this Agreement were amended to reflect such Post-Signing Event
prior to Closing. For the avoidance of doubt, the Company shall indemnify,
consistent with the terms of this Article VII, the Purchasers with respect to
any breach of a representation or warranty resulting from a Pre-Signing Event
(irrespective of whether or not disclosed in the schedules to this Agreement) or
from a Post-Signing Event to the extent that the schedules to this Agreement
were not amended to reflect such Post-Signing Event prior to Closing.
(b) Each Purchaser (severally and not jointly) hereby agrees
to indemnify the Company and its Affiliates and their respective directors,
officers, employees and other agents and representatives from and against all
Losses incurred or suffered by any such Person arising out of, based upon or
relating to any breach of any representation, warranty or covenant of a
Purchaser contained in this Agreement or any other Operative Document, provided
that:
(i) the Purchasers shall have no obligation to indemnify
the Company hereunder with respect to breaches of representations and warranties
unless and until, and then only to the extent, the aggregate amount of Losses
arising as a result of breach of representations and warranties shall exceed
$5,000,000;
(ii) the Purchasers shall have no obligation to
indemnify the Company hereunder for Losses arising as a result of the breach of
representations and warranties in excess of $75,000,000 (in the aggregate);
(iii) the Purchaser's obligations under this Section
7.1(b) with respect to representations and warranties shall terminate eighteen
months after the Closing Date (except with respect to claims made prior to such
date as to which such obligations shall continue until final resolution of such
claims); and
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(iv) the Purchasers shall not have any obligation to
indemnify the Company hereunder with respect to any breach of a representation
or warranty of the Purchasers resulting from a Post-Signing Event to the extent
that the schedules to this Agreement were amended to reflect such Post-Signing
Event prior to Closing. For the avoidance of doubt, the Purchasers shall
indemnify, consistent with the terms of this Article VII, the Company with
respect to any breach of a representation or warranty resulting from a
Pre-Signing Event (irrespective of whether or not disclosed in the schedules to
this Agreement) or from a Post-Signing Event to the extent that the schedules to
this Agreement were not amended to reflect such Post-Signing Event prior to
Closing.
(c) Promptly upon receipt by a party indemnified under this
Section 7.1 of notice of the commencement of any action against such indemnified
party in respect of which indemnity or reimbursement may be sought against an
indemnifying party, such indemnified party shall notify the indemnifying party
in writing of the commencement of such action, but the failure so to notify the
indemnifying party shall not relieve it of any liability which it may have to
any indemnified party under this Section 7.1 unless such failure materially
adversely affects the defense of such action. In case notice of commencement of
any such action shall be given to the indemnifying party as above provided, the
indemnifying party shall be entitled to participate in and to assume the defense
of such action at its own expense, with counsel chosen by it, if the
indemnifying party acknowledges to the indemnified party in writing its
obligation to indemnify the indemnified party with respect to such action. The
indemnifying party shall be liable for the fees and expenses of counsel for the
indemnified party for any period during which the indemnifying party has not
assumed the defense thereof (other than during any period in which the
indemnified party shall have failed to give notice of the action as provided
above). If the indemnifying party assumes the defense of an action, the
indemnified party shall agree to any settlement, compromise or discharge of such
action that the indemnifying party may recommend and that by its terms obligates
the indemnifying party to pay the full amount of the liability in connection
with such action, and which releases the indemnified party completely in
connection with such action; provided that, the indemnifying party shall not
agree, without the prior written consent of the indemnified party, to the entry
of any judgment or settlement, compromise or decree that provides for injunctive
or other nonmonetary relief affecting the indemnified party. The indemnified
party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be paid by the indemnified party unless (i) the indemnifying party fails
to assume the defense of such action in a timely manner and in accordance with
the foregoing or (ii) the indemnified party has been advised in writing by
counsel that representation of such indemnified party and the indemnifying party
by the same counsel would be inappropriate under applicable standards of
professional conduct (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party).
In the foregoing circumstances, the indemnified parties shall be entitled to
engage, and the indemnifying party shall pay the reasonable costs and expenses
of, one counsel (plus any necessary local counsel) for all indemnified parties.
The indemnifying party shall not be liable for any settlement entered into
without its prior written consent (which consent shall not be unreasonably
withheld or delayed).
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(d) This Section 7.1 shall be the exclusive remedy available
to the Company and the Purchasers and their respective Affiliates, directors,
officers, employees and other agents and representatives in respect of the
breach of any representation or warranty of the Company or the Purchasers, as
the case may be, contained in this Agreement or any other Operative Document.
(e) Solely for purposes of calculating Losses under Sections
7.1(a) and (b), a breach of a representation or warranty contained in this
Agreement or any other Operative Document shall be deemed to exist either if
such representation or warranty is actually inaccurate or breached as of the
relevant date or if such representation or warranty would have been breached or
been inaccurate if such representation or warranty had not contained any
limitation or qualification as to materiality, Material Adverse Effect or
knowledge, it being the intention of the parties hereto that the indemnified
parties shall be indemnified and held harmless from and against all Losses
arising out of, based on or related to the failure of any such representation or
warranty to be true, correct and complete without qualification as to
materiality, Material Adverse Effect or knowledge.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 The Purchasers' Conditions. The obligations of the
Purchasers hereunder are subject to the following (all or any of which may be
waived in whole or in part by the Purchasers in their sole discretion):
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true, correct and
complete in all material respects on and as of the Closing Date (other than
those that are qualified by a reference to materiality or Material Adverse
Effect, which representations and warranties as so qualified shall have been
true, correct and complete in all respects), and any representations and
warranties made as of a specified date earlier than the Closing Date shall have
been true, correct and complete in all material respects on and as of such
earlier date (other than those that are qualified by a reference to materiality
or Material Adverse Effect, which representations and warranties as so qualified
shall have been true, correct and complete in all respects).
(b) Material Adverse Effect. Except as disclosed in the SEC
Documents, the Statutory Statements or the Financial Statements, since September
30, 2001 there shall have been no event, occurrence, development or state of
circumstances that individually, or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect.
(c) Performance. The Company shall have performed and
complied, in all material respects, with each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by the Company at
or before the Closing.
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(d) Officers' Certificates. The Purchasers shall have received
(i) a certificate, dated the Closing Date and executed by the Chief Executive
Officer of the Company certifying as to the matters covered by Sections 8.1(a)
and 8.1(c) hereof and (ii) a certificate, dated the Closing Date and executed by
the Secretary of the Company, each in form and substance as is customary for
transactions such as those contemplated by this Agreement.
(e) Opinion of Counsel. The Purchasers shall have received the
opinion of Morgan, Lewis & Bockius LLP, counsel to the Company, and the opinion
of Conyers Dill & Pearman, special Bermuda counsel to the Company, each dated
the Closing Date and addressed to Purchasers, each in form and substance as is
customary for transactions such as those contemplated by this Agreement.
(f) Delivery of Documents and Preferred Shares. Each Purchaser
shall have received duly executed copies of the Operative Documents and the
Preferred Shares purchased by such Purchaser hereunder.
(g) No Actions or Proceedings. No action, proceeding,
investigation, regulation or legislation (including, without limitation, any
temporary restraining order, preliminary or permanent injunction or other order)
shall have been instituted or issued by, or threatened or proposed before any,
Governmental or Regulatory Authority to enjoin, restrain or prohibit the
consummation of the transactions contemplated hereby or the other Operative
Documents, including, without limitation, the issuance of the Preferred Shares.
(h) Regulatory Consents and Approvals. All consents, approvals
and actions of, filings with and notices to, any Governmental or Regulatory
Authority (including, without limitation, the Connecticut Approval, the HSR
Approval, the Bermuda Approval and the other consents, authorizations and
approvals set forth in Section 3.15 and Schedule 3.15) necessary to permit the
Purchasers and the Company to perform their respective obligations under this
Agreement and the other Operative Documents to which they are a party, and to
consummate the transactions contemplated hereby and thereby shall have been duly
obtained, made or given, shall be in form and substance reasonably satisfactory
to Purchasers and shall be in full force and effect.
(i) Shareholder Approval. The Company shall have received the
Shareholder Approval.
(j) No Change in Law. As of the Closing Date, there shall not
have been any change in any Law applicable to any Purchaser that would prevent
the performance of this Agreement or the consummation by such Purchaser of any
material aspect of the transactions contemplated hereby.
(k) Ratings. The Reinsurance Subsidiaries shall have a rating
of "A" or higher from A.M. Best & Company and a rating of "A" or higher from
Standard & Poor's and neither rating agency shall have publicly announced,
orally or in writing, a pending downgrade of the rating assigned to any
Reinsurance Subsidiary to a rating below "A".
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For the avoidance of doubt, the placing of such ratings on ratings watch, with
or without negative implications, shall not constitute a public announcement of
a pending downgrade.
(l) Third Party Consents. All approvals, consents and waivers
necessary, or reasonably requested by the Purchasers (other than with respect to
any Governmental or Regulatory Authority and the Shareholder Approval),
including, without limitation, those listed on Schedule 8.1(l), to permit the
Purchasers and the Company to perform their respective obligations under this
Agreement and the other Operative Documents to which they are a party, and to
consummate the transactions contemplated hereby and thereby shall have been duly
obtained, made or given, shall be in form and substance reasonably satisfactory
to Purchasers and shall be in full force and effect.
8.2 Company's Conditions. The obligations of the Company
hereunder are subject to the following (all or any of which may be waived in
whole or in part by the Company in its sole discretion):
(a) Payment. The Company shall have received full payment of
the Purchase Price from the Purchasers in consideration for the sale of the
Preferred Shares.
(b) Delivery of Documents. The Company shall have received
duly executed copies of the Operative Documents from the Purchasers.
(c) Representations and Warranties. The representations and
warranties of each Purchaser set forth in this Agreement shall be true, correct
and complete in all material respects on and as of the Closing Date (other than
those that are qualified by a reference to materiality or Material Adverse
Effect, which representations and warranties as so qualified shall be true,
correct and complete in all respects), and any representations and warranties
made as of a specified date earlier than the Closing Date shall have been true,
correct and complete in all material respects on and as of such earlier date
(other than those that are qualified by a reference to materiality or Material
Adverse Effect, which representations and warranties as so qualified shall have
been true, correct and complete in all respects).
(d) Performance. Each Purchaser shall have performed and
complied, in all material respects, with each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by such Purchaser
at or before the Closing.
(e) Officers' Certificates. The Company shall have received
from each Purchaser (i) a certificate, dated the Closing Date and executed by an
officer of such Purchaser certifying as to the matters covered by Sections
8.2(a) and 8.2(c) hereof, and (ii) a certificate, dated the Closing Date and
executed by the secretary or assistant secretary of such Purchaser each in form
and substance as is customary for transactions as those contemplated by this
Agreement.
(f) Opinion of Counsel. The Company shall have received the
opinion of outside counsel to each of the Purchasers (which counsel shall be
reasonably acceptable
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to the Company and which shall include Weil, Gotshal & Manges LLP and local
Bermuda counsel to the Purchasers) dated the Closing Date, addressed to the
Company, each in form and substance as is customary for transactions such as
those contemplated by this Agreement.
(g) No Actions or Proceedings. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, Governmental or Regulatory Authority or
legislative body to enjoin, restrain or prohibit the consummation of the
transactions contemplated hereby or by the Preferred Shares.
(h) Regulatory Consents and Approvals. All consents, approvals
and actions of, filings with and notices to, any Governmental or Regulatory
Authority (including, without limitation, the Connecticut Approval, the HSR
Approval, the Bermuda Approval and the other consents, authorizations and
approvals set forth in Section 3.15 and Schedule 3.15) necessary to permit the
Purchasers and the Company to perform their respective obligations under this
Agreement and the Operative Agreements to which they are a party, and to
consummate the transactions contemplated hereby and thereby shall have been duly
obtained, made or given, and shall be in full force and effect. The Company
shall have obtained copies of all Consents referred to in Schedule 3.15, which
shall be in form and substance acceptable to Purchasers and their counsel.
(i) Shareholder Approval. The Company shall have received the
Shareholder Approval.
(j) No Change in Law. As of the Closing Date, there shall not
have been any change in any Law applicable to any Purchaser that would prevent
the performance of this Agreement or the consummation by such Purchaser of any
material aspect of the transactions contemplated hereby.
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Termination of Agreement and Abandonment of Transactions.
Anything herein to the contrary notwithstanding, this Agreement and the
transactions contemplated hereby may be terminated at any time before the
Closing:
(a) by mutual written consent of the Company and the
Purchasers;
(b) by written notice of either the Company or either (x)
Capital Z Financial Services Fund II, L.P. and Capital Z Financial Services
Private Fund II, L.P., acting collectively, or (y) Reservoir Capital Partners,
L.P., Reservoir Capital Master Fund, L.P. and Richard E. Rainwater, acting
collectively, if the Closing has not occurred on or before May 31, 2002;
provided, however, neither the Company, on the one hand, nor the Purchasers
on the other hand, shall have the right to terminate this Agreement pursuant to
this Section 9.1(b) if the failure of the Closing to occur on or prior to such
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date is due to a material breach of this Agreement by the party seeking to
terminate this Agreement;
(c) by written notice of either the Company or either (x)
Capital Z Financial Services Fund II, L.P. and Capital Z Financial Services
Private Fund II, L.P., acting collectively, or (y) Reservoir Capital Partners,
L.P., Reservoir Capital Master Fund, L.P. and Richard E. Rainwater, acting
collectively, if any Governmental or Regulatory Authority shall have issued an
order, decree or ruling or taken any other action permanently enjoining
restraining or otherwise prohibiting the Closing and such order, decree, ruling
or other action shall have become final and nonappealable;
(d) by either (x) Capital Z Financial Services Fund II, L.P.
and Capital Z Financial Services Private Fund II, L.P., acting collectively, or
(y) Reservoir Capital Partners, L.P., Reservoir Capital Master Fund, L.P. and
Richard E. Rainwater, acting collectively, if there has been a breach by the
Company of any representation, warranty, covenant or agreement set forth in this
Agreement, such that the conditions set forth in Section 8.1(a) or 8.1(c) would
reasonably be likely to be incapable of being satisfied by May 31, 2002;
(e) by the Company, if there has been a breach by a Purchaser
of any representation, warranty, covenant or agreement set forth in this
Agreement, such that the conditions set forth in Section 8.2(a) or 8.2(c) would
reasonably be likely to be incapable of being satisfied by May 31, 2002;
(f) by the Company or either (x) Capital Z Financial Services
Fund II, L.P. and Capital Z Financial Services Private Fund II, L.P., acting
collectively, or (y) Reservoir Capital Partners, L.P., Reservoir Capital Master
Fund, L.P. and Richard E. Rainwater, acting collectively, if the Board of
Directors shall accept an Unsolicited Proposal pursuant to Section 6.6 hereof or
the shareholders of the Company shall have voted on and failed to approve the
issuance of the Company Securities and all other transactions contemplated
hereunder.
9.2 Procedures and Effect of Termination.
(a) Subject to Section 9.2(b) hereof, if this Agreement shall
be terminated and the transactions contemplated hereby are not consummated as
described above, this Agreement shall become void and be of no further force and
effect and there shall be no obligation on the part of the Company or the
Purchasers, except for the provisions of this Agreement relating to the
obligations of the parties under this Article IX and Article X (including,
without limitation, Section 10.2 [Payment of Expenses] and Section 10.18
[Confidentiality]). None of the parties hereto shall have any liability in
respect of a termination of this Agreement prior to Closing except as provided
for in Section 9.2 and provided that nothing in this Article IX shall relieve
any party from liability for any breaches of this Agreement.
(b) In the event that this Agreement is terminated pursuant to
Section 9.1(d) (but solely for a breach of Section 5.1 or 5.2) or pursuant to
Section 9.1(f) and
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provided that the Company is not entitled to terminate this Agreement pursuant
to Section 9.1(e) hereof, then the Company shall, promptly, but in no event
later than three Business Days after the date of such termination, pay to the
Purchasers an aggregate termination fee of $7,000,000 (exclusive of any amounts
paid by the Company pursuant to the Fee Letter, the Expense Letter or Section
10.2 hereof), to be divided pro rata among the Purchasers and payable by wire
transfer of same day funds. Notwithstanding the foregoing, any amounts that
would otherwise be payable to Capital Z Financial Services Fund II, L.P. or
Capital Z Financial Services Private Fund II, L.P. pursuant to this paragraph
shall in lieu thereof be payable directly to Capital Z Management, LLC.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission
against facsimile confirmation or mailed by prepaid first class certified mail,
return receipt requested, or mailed by nationally recognized overnight courier
prepaid, to the parties at the following addresses or facsimile numbers:
(a) If to the Company, to:
PXRE Group Ltd.
Suite 231
12 Church Street
Hamilton HM 11
Bermuda
Facsimile No.: (441) 296-6162
Attn: Gerald L. Radke
with a copy to:
Morgan Lewis & Bockius, LLP
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6273
Attn: Nancy H. Corbett
(b) If to a Purchaser, as specified on Exhibit A:
All such notices, requests and other communications will (i) if delivered
personally against written receipt to the address as provided in this Section,
be deemed given upon delivery, (ii) if delivered by facsimile transmission to
the facsimile number as provided for in this Section, be deemed given upon
facsimile confirmation, (iii) if delivered by mail in the manner described above
to the address as provided for in this Section, be deemed given on the earlier
of the third Business Day following mailing or upon receipt
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and (iv) if delivered by nationally recognized overnight courier to the address
as provided in this Section, be deemed given on the earlier of the first
Business Day following the date sent by such overnight courier or upon receipt
(in each case regardless of whether such notice, request or other communication
is received by any other Person to whom a copy of such notice is to be delivered
pursuant to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other parties hereto.
10.2 Payment of Expenses. Except as otherwise specifically set
forth in the Fee Letter and the Expense Letter, the Company and the Purchasers
will each be responsible for the payment of their own respective costs and
expenses incurred in connection with the negotiations leading up to and the
performance of their respective obligations pursuant to this Agreement.
10.3 Entire Agreement. This Agreement and the other Operative
Documents supersede all prior discussions and agreements between the parties
with respect to the subject matter hereof and thereof and contain the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof.
10.4 Survival of Covenants. The covenants and agreements of
the Company and Purchasers contained in this Agreement will survive the Closing.
10.5 Further Assurances; Post-Closing Cooperation. At any time
or from time to time after the Closing, the Company shall at its own cost and
expense execute and deliver to Purchasers such other documents and instruments,
provide such materials and information and take such other actions as Purchasers
may reasonably request to consummate the transactions contemplated by this
Agreement and the other Operative Documents and otherwise to cause the Company
to fulfill their obligations under this Agreement and the other Operative
Documents.
10.6 Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by Law or otherwise afforded, will be cumulative
and not alternative.
10.7 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
10.8 Third Party Beneficiaries. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors and assigns, and it is not the intention of the
parties to confer third-party beneficiary rights, and this Agreement does not
confer any such rights, upon any other Person.
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10.9 No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned (by operation of law
or otherwise) by the Company without the prior written consent of Purchasers, or
by any Purchaser without the prior written consent of the Company and any
attempt to do so will be void; provided that this Agreement shall in no event
prohibit or restrict in any manner the transferability of the Company Securities
(subject however to the restrictions on transferability and assignment set forth
in the Investment Agreement); and provided, further, that any Purchaser may
assign its rights under this Agreement and the other Operative Documents (i) to
any Affiliate of such Purchaser subject to the prior consent of the Company,
which consent may be withheld by the Company only if such assignment would
result or is reasonably likely to result in material negative tax consequences
to the Company or any of its shareholders (it being understood that no such
assignment shall relieve assignor of its obligation hereunder) and (ii) to
another Purchaser or any Affiliate of another Purchaser subject to the prior
consent of the Company, which consent may be withheld by the Company only if
such assignment would result or is reasonably likely to result in material
negative tax consequences to the Company or any of its shareholders (it being
understood that such assignment will relieve assignor of its obligations
hereunder). Subject to the preceding sentence, this Agreement is binding upon,
inures to the benefit of and is enforceable by the parties hereto and their
respective successors and assigns.
10.10 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
10.11 Invalid Provisions. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance therefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
10.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
10.13 Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
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PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE OTHER OPERATIVE DOCUMENTS OR ANY
DOCUMENTS RELATED HERETO.
10.14 Jurisdiction. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state courts of the State of New York located
in New York County and the United States Federal District Court of the Southern
District of New York for the purpose of any suit, action or other proceeding
arising out of or based upon this Agreement or the subject matter hereof and
agrees that any such action, suit or proceeding shall be brought only in such
court (and waives any objection based on forum non conveniens or any other
objection to venue therein); provided however, that such consent to jurisdiction
is solely for the purpose referred to in this Section 9.16 and shall not be
deemed to be a general submission to the jurisdiction of said Courts other than
for such purpose.
10.15 Construction. The parties hereto agree that this
Agreement is the product of negotiation between sophisticated parties and
individuals, all of whom were represented by counsel, and each of whom had an
opportunity to participate in and did participate in, the drafting of each
provision hereof. Accordingly, ambiguities in this Agreement, if any, shall not
be construed strictly or in favor of or against any party hereto but rather
shall be given a fair and reasonable construction without regard to the rule of
contra proferentum.
10.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
10.17 Publicity. At all times at or before the Closing, the
parties hereto shall each consult with the other parties hereto before issuing
or making any reports, statements, or releases to the public with respect to
this Agreement or the other Operative Documents and the transactions
contemplated hereby and thereby and shall use good faith efforts to agree on the
text of a joint public report, statement, or release or shall use good faith
efforts to obtain the other parties' approval of the text of any public report,
statement, release to be made solely on behalf of a party.
10.18 Confidentiality.
(a) Any information delivered pursuant to the terms of this
Agreement or received in connection with the negotiation or preparation of this
Agreement or the other Operative Documents (including, without limitation, in
connection with the performance by the Purchasers of their due diligence) which
is known or should be known to the receiving party to be confidential shall be
kept confidential by the parties and shall not be divulged to third parties,
other than to the respective parties' affiliates, members,
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beneficial interest holders and managers, accountants, attorneys and advisors
(collectively, "Representatives"); provided that each party shall be responsible
for the confidentiality of information given to its respective Representatives;
and provided further, that any party may disclose any information pursuant to
any legal requirement or any court, regulatory or governmental order, request or
requirement. Each party shall give the other parties notice of any required
legal or court, regulatory or governmental disclosure so that such other parties
may have an opportunity to seek to prevent or limit disclosure.
(b) The provisions of Section 10.18(a) shall not apply to
information that is (i) received by a party (or an Affiliate of such party) that
is or becomes generally available to the public other than as a result of a
breach by such party or any of its Affiliates of the provisions of Section
10.18(a), (ii) hereafter lawfully acquired by a party (or an Affiliate of such
party) on a non-confidential basis from a source that, to such party's knowledge
at the time, is not providing such information in violation of a confidentiality
or similar agreement with any Person or (iii) known to such party prior to
receipt thereof from the other party or its Affiliates.
[signature page to follow]
A-1-43
IN WITNESS WHEREOF, this Share Purchase Agreement has been duly
executed and delivered by the duly authorized representative of each party
hereto as of the date first above written.
PXRE Group Ltd.
/s/ Gerald L. Radke
By:_________________________________
Name: Gerald L. Radke
Title: Chairman, President & CEO
Capital Z Financial Services Fund II, L.P.
By: Capital Z Partners, L.P., its general
partner
By: Capital Z Partners, Ltd., its general
partner
/s/ Brad Cooper
By:_________________________________
Name: Brad Cooper
Title: Senior Vice President
Capital Z Financial Services Private Fund II,
L.P.
By: Capital Z Partners, L.P., its general
partner
By: Capital Z Partners, Ltd., its general
partner
/s/ Brad Cooper
By:_________________________________
Name: Brad Cooper
Title: Senior Vice President
Reservoir Capital Partners, L.P.
By: Reservoir Capital Group, L.L.C., its
sole general partner
/s/ Craig Huff
By:_________________________________
Name: Craig Huff
Title: Managing Director
A-1-44
Reservoir Capital Master Fund, L.P.
By: Reservoir Capital Group, L.L.C., its
sole general partner
/s/ Craig Huff
By:_________________________________
Name: Craig Huff
Title: Managing Director
Richard E. Rainwater, an individual
By: Randy Chappel, as attorney-in-fact
/s/ Richard Rainwater by
Randy Chappel
By:_________________________________
[SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT]
A-1-45
Appendix II
DESCRIPTION OF STOCK:
================================================================================
SERIES A CONVERTIBLE VOTING PREFERRED SHARES
($1.00 PAR VALUE PER SHARE),
SERIES B CONVERTIBLE VOTING PREFERRED SHARES
($1.00 PAR VALUE PER SHARE),
SERIES C CONVERTIBLE VOTING PREFERRED SHARES
($1.00 PAR VALUE PER SHARE),
CLASS A CONVERTIBLE VOTING COMMON SHARES
($1.00 PAR VALUE PER SHARE),
CLASS B CONVERTIBLE VOTING COMMON SHARES
($1.00 PAR VALUE PER SHARE)
AND
CLASS C CONVERTIBLE VOTING COMMON SHARES
($1.00 PAR VALUE PER SHARE)
of
PXRE GROUP LTD.
================================================================================
TABLE OF CONTENTS
Page
----
1. General.................................................................................................1
(a) Designation and Number.........................................................................1
(b) Priority.......................................................................................1
2. Certain Definitions.....................................................................................1
3. Voting Rights...........................................................................................7
(a) General Voting Rights..........................................................................7
(c) Consent of Series A Preferred Shares Required For Variation of Rights and Restrictions.........9
(d) Consent of Series B Preferred Shares Required For Variation of Rights and Restrictions........10
(e) Consent of Series C Preferred Shares Required For Variation of Rights and Restrictions........12
(f) Consent Required for Certain Actions..........................................................13
4. Dividend Rights........................................................................................15
(a) General.......................................................................................15
(b) Form of Dividends.............................................................................16
(c) Dividend Preference...........................................................................16
5. Liquidation Rights.....................................................................................17
(a) Priority......................................................................................17
(b) Notice of Liquidation.........................................................................18
6. Conversion.............................................................................................18
(a) General.......................................................................................18
(b) Surrender, Election and Payment...............................................................19
(c) Effective Date................................................................................20
(d) Share Certificates............................................................................20
(e) Acknowledgment of Obligation..................................................................20
(f) Current Conversion Price......................................................................20
(g) Reservation of Convertible Common Shares and Common Shares....................................20
(h) Mandatory Conversion..........................................................................21
7. Adjustment to Conversion Price.........................................................................22
(a) Adjustments for Recapitalizations, Etc........................................................22
(b) Adjustments for Issuances of Additional Shares................................................22
(c) Certain Rules in Applying the Adjustment for Additional Share Issuances.......................23
(d) Adjustment for Development....................................................................25
(e) Exclusions from the Adjustment for Additional Share Issuances.................................26
(f) Accountants' Certification....................................................................26
(g) Other Adjustments.............................................................................26
(h) Consolidation, Merger or Amalgamation.........................................................26
(j) Notices.......................................................................................27
8. Board of Directors.....................................................................................28
9. Class A Common Shares, Class B Common Shares and Class C Common Shares.................................29
i
TABLE OF CONTENTS
(continued)
Page
----
(a) Designation and Number of Class A, Class B and Class C Common Shares..........................29
(b) Priority......................................................................................29
(c) Voting........................................................................................29
(d) Conversion....................................................................................30
(e) General.......................................................................................30
ii
DESCRIPTION OF STOCK
The relative rights, preferences and restrictions granted to or
imposed upon the respective classes and series of Preferred Shares and
Convertible Common Shares created by PXRE Group Ltd. and upon the holders
thereof are set forth below.
1. General.
(a) Designation and Number. The designation of convertible Preferred
Shares created by this resolution shall be:
(i) "Series A Convertible Voting Preferred Shares, $1.00 par
value per share," of the Company, allocated among two sub-series, A1
Preferred Shares and A2 Preferred Shares (hereinafter referred to as
the "Series A Preferred Shares"), and the number of Series A Preferred
Shares which the Company shall be authorized to issue shall be 7,500
shares;
(ii) "Series B Convertible Voting Preferred Shares, $1.00 par
value per share," of the Company, allocated among two sub-series, B1
Preferred Shares and B2 Preferred Shares (hereinafter referred to as
the "Series B Preferred Shares"), and the number of Series B Preferred
Shares which the Company shall be authorized to issue shall be 5,000
shares; and
(iii) "Series C Convertible Voting Preferred Shares, $1.00 par
value per share," of the Company, allocated among two sub-series, C1
Preferred Shares and C2 Preferred Shares (hereinafter referred to as
the "Series C Preferred Shares"), and the number of Series C Preferred
Shares which the Company shall be authorized to issue shall be 2,500
shares.
(b) Priority. The Series A Preferred Shares, the Series B Preferred
Shares and the Series C Preferred Shares shall rank senior to the Common Shares,
the Convertible Common Shares and all other capital shares of the Company (now
or hereafter authorized or issued) other than the Trust Preferred and the Series
A Preferred Shares, the Series B Preferred Shares and the Series C Preferred
Shares shall rank pari passu with each other, in each case as to dividends and
as to the surplus assets of the Company available for distribution upon
liquidation, dissolution and winding-up as provided herein.
2. Certain Definitions.
(a) For purposes of this Description of Stock, the following terms
shall have the meanings indicated (such definitions to be equally applicable to
both singular and plural forms of the terms defined):
"Affiliates" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by or under common
control with, that Person; provided, however, that with respect to
Capital Z, CZI shall not be considered an Affiliate. For the purposes
of this definition, "control" (including with correlative meanings,
the terms "controlling", "controlled by", and "under common control
A-II-1
with") as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through ownership of
voting securities or by contract or otherwise.
"Assets" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal
or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the
goodwill related thereto, operated, owned or leased by such Person,
including cash, cash equivalents, investment assets, accounts and
notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory and goods.
"Business Day" means any day other than a Saturday, Sunday or
a day on which banking institutions in the State of New York or
Bermuda are authorized or obligated by law or executive order to
close.
"Capital Z" means, collectively, Capital Z Financial Services
Fund II, L.P. and Capital Financial Services Private Fund II, L.P.
"Class IV Director" means a Capital Z Director or Reservoir
Director or Rainwater Director.
"Class A Common Shares" means, collectively, the Class A
Convertible Voting Common Shares, $1.00 par value per share, of the
Company.
"Class B Common Shares" means, collectively, the Class B
Convertible Voting Common Shares, $1.00 par value per share, of the
Company.
"Class C Common Shares" means, collectively, the Class C
Convertible Voting Common Shares, $1.00 par value per share, of the
Company.
"Closing" has the meaning ascribed in the Purchase Agreement.
"Common Shares" means the Common Shares and shall also include
any common shares of the Company hereafter issued and outstanding and
any shares of the Company (other than the Preferred Shares and the
Convertible Common Shares) of any other class hereafter issued and
outstanding that is not preferred as to dividends or distribution of
assets in liquidation over any other class of shares of the Company or
has ordinary voting power for the election of directors of the
Company.
"Company" means PXRE Group Ltd.
"Company Securities" shall have the meaning given such term in
the Purchase Agreement.
A-II-2
"Convertible Common Shares" means the Class A Common Shares,
the Class B Common Shares and the Class C Common Shares.
"CZI" means Capital Z Investments, L.P. and Capital Z
Investments II, L.P.
"Description of Stock" means this Description of Stock, as
amended, modified or supplemented from time to time.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as from time to time amended, and the rules, regulations and
interpretations promulgated thereunder.
"Fair Market Value" with respect to Common Shares, on any
date, shall be deemed to be the average of the reported closing prices
for each of the five (5) consecutive trading days ending on the
trading day before such date of determination. The reported closing
price for each day shall be the reported closing price on the
principal United States securities exchange or automated quotation
system on which the Common Shares are then listed or admitted to
trading. If the Common Shares are not then listed or admitted to
trading on any national securities exchange or automated quotation
system or if the closing price cannot be so determined, the Fair
Market Value shall be determined (x) by the written agreement of the
Company and the respective holder and (y) in the event that no such
agreement is reached within twenty (20) days after the date of the
event giving rise to the need to determine the Fair Market Value, (A)
by an independent appraiser of nationally recognized standing selected
by the respective holder and the Company or (B) if the respective
holder and the Company cannot agree on an appraiser within twenty (20)
days after the date of the event giving rise to the need to determine
the Fair Market Value, each shall select an independent appraiser of
nationally recognized standing and the two appraisers shall designate
a third independent appraiser of nationally recognized standing, whose
appraisal shall be determinative of such value. The cost of such
appraisal shall be borne by the Company. The Company shall cooperate,
and shall provide all necessary information and assistance, to permit
any determination under the preceding clauses (x) and (y). With
respect to Convertible Common Shares, the Fair Market Value shall
equal the Fair Market Value of the Common Shares into which such
Convertible Shares are convertible.
"Fully Converted" or "upon a Fully Converted basis" or "upon
Full Conversion" means, with respect to any Person as of any date,
that all Preferred Shares held by such Person have been (or shall be
deemed to have been, as appropriate) converted into Class A Common
Shares, Class B Common Shares and/or Class C Common Shares, as the
case may be, at the Current Conversion Price as of such date and
immediately thereafter such Class A Common Shares, Class B Common
Shares and Class C Common Shares shall have been (or shall be deemed
to have been, as appropriate) converted into Common Shares, in each
case in accordance with Section 6 of this Description of Stock.
A-II-3
"GAAP" means United States generally accepted accounting
principles, consistently applied.
"Indebtedness" means (a) all indebtedness of the Company and
its subsidiaries, including the principal of, and premium, if any, and
interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign
bankruptcy laws, whether or not allowable as a claim in such
proceeding) on, all indebtedness, whether outstanding currently or
hereafter created (i) for borrowed money, (ii) for money borrowed by
one or more other Persons and guaranteed, directly or indirectly, by
the Company or any subsidiary thereof, (iii) for money borrowed by one
or more other Persons for which the Company or any subsidiary thereof
provides security, (iv) constituting purchase money indebtedness the
payment of which the Company or any subsidiary thereof is directly or
contingently liable, (v) under any lease of any real or personal
property, which obligations are capitalized on the consolidated books
of the Company and its subsidiaries in accordance with GAAP or (vi)
under any other arrangement under which obligations are recorded as
indebtedness on the consolidated books of the Company and its
subsidiaries in accordance with GAAP and (b) any and all
modifications, refundings, deferrals, renewals or extensions of any
such indebtedness, or securities, notes or other evidences of
indebtedness issued in exchange for such indebtedness. Without
limiting the generality of the foregoing, the term "Indebtedness"
shall include the Trust Preferred and any comparable securities of the
Company or any subsidiary thereof at any time outstanding; provided
that Indebtedness shall not include intercompany indebtedness
outstanding or hereafter created between the Company and any of its
direct or indirect wholly-owned Subsidiaries (as defined in the
Purchase Agreement, but limited in this paragraph to direct and
indirect wholly owned subsidiaries) or between any two of more such
direct or indirect wholly owned Subsidiaries of the Company.
"Investment Agreement" means the Investment Agreement dated as
of the Closing Date (as defined in the Purchase Agreement) by and
among the Company, the Purchasers (as defined in the Purchase
Agreement) and such other Persons as may become a party thereto from
time to time, as the same may be amended from time to time.
"Permitted Tender Offer Amount" means, as of any date, an
amount equal to (a) 20% of the cumulative amount by which the
Company's consolidated net income (determined in accordance with GAAP)
in any calendar year commencing with the year ending December 31, 2002
exceeds $50,000,000 minus (b) the sum of all cash and the fair market
value of all non-cash consideration paid or payable by the Company or
any Affiliate thereof in respect of redemptions, offers to purchase,
tender offers or other acquisitions of capital stock of the Company
effected or commenced after December 10, 2001.
"Person" or "person" means an individual, corporation,
partnership, firm, association, joint venture, trust, unincorporated
organization, limited liability
A-II-4
company, government, governmental body, agency, political subdivision
or other entity.
"Preferred Shares" means, collectively, the Series A Preferred
Shares, the Series B Preferred Shares and the Series C Preferred
Shares.
"Purchase Agreement" means the Share Purchase Agreement dated
as of December 10, 2001 by and among the Company and the Purchasers,
as the same may be amended from time to time.
"Purchasers" shall have the meaning given such term in the
Purchase Agreement.
"Rainwater" means Richard E. Rainwater, an individual.
"Reservoir" means, collectively, Reservoir Capital Partners,
L.P. and Reservoir Capital Master Fund, L.P.
"Securities Act" means the United States Securities Act of
1933, as from time to time amended, and the rules, regulations and
interpretations promulgated thereunder.
"Stated Value" shall mean, with respect to each Preferred
Share, $10,000.00.
"Tax Gross-Up" shall mean an additional cash payment to be
made to any Purchaser who (i) receives a cash payment in lieu of
Convertible Common Shares on the conversion of Preferred Shares
pursuant to Section 6(a)(iv) hereof, (ii) is or, in the case of a
Purchaser that is a partnership for U.S. federal income tax purposes
and that has a direct or indirect partner that is, then subject to
U.S. federal income tax on the receipt of the cash payment in lieu of
Convertible Common Shares as ordinary income (all such persons
referred to herein as "U.S. Tax Purchasers" and each, a "U.S. Tax
Purchaser") and (iii) would have realized a "long-term capital gain"
or a "long-term capital loss" (within the meaning of Section 1222(3)
or (4) of the Internal Revenue Code of 1986, as amended (the "Code"),
on a sale of the Convertible Common Shares into which the Preferred
Shares would otherwise have been converted, such additional cash
payment equal to an amount such that (a) the sum of (i) the Fair
Market Value of the Convertible Common Shares that such U.S. Tax
Purchaser would otherwise have received plus (ii) the additional cash
payment hereunder, such sum multiplied by 1 minus the highest U.S.
federal income tax rate which would be applicable to any ordinary
income received by a U.S. taxpayer of the same type (individual,
corporation or other entity) as such U.S. Tax Purchaser, equals (b)
the Fair Market Value of the Convertible Common Shares that such U.S.
Tax Purchaser would otherwise have received multiplied by 1 minus the
highest U.S. federal income tax rate which is then generally
applicable to "net capital gain" (within the meaning of Section
1222(11) of the Code) received by a U.S. taxpayer of the
A-II-5
same type (individual, corporation or other entity) as such U.S. Tax
Purchaser in the taxable year of the conversion.
"Trust Preferred" shall mean, collectively, (i) the Junior
Subordinated Deferrable Interest Debentures due 2027 of PXRE
Corporation, (ii) the 8.85% Capital Trust Pass-through Securities of
PXRE Capital Trust I and (iii) the PXRE Corporation Guarantee with
respect to such Capital Trust Pass-through Securities.
(b) The following terms, when used in this Description of Stock, shall
have the meanings provided for such terms in the sections set forth below (such
definitions to be equally applicable to both singular and plural forms of the
terms defined):
Term Section(s)
---- ----------
Adjustment Date 7(d)
Additional Common Shares 7(b)
Adjusted Shareholders' Equity 7(d)
Aggregate Voting Limitation 3(a)
Announcement Date 6(g)
Appointed Actuary 7(d)
Bye-Law 20(4) 3(a)
Capital Z Director 3(b)(i)
Conversion Date 6(h)(ii)(A)
Conversion Date FMV 6(h)(ii)(A)
Conversion Price 6(f)
Current Conversion Price 6(f)
Definitive Loss Report 7(d)
Discontinued Operations 7(d)
Dividend Due Date 4(a)
First Mandatory Conversion 6(h)(i)
Junior Shares 4(c)
LD Above Deductible 7(d)
Loss Development 7(d)
Mandatory Conversion 6(h)(i)
Maximum Lawful Rate 4(c)
NOL 7(d)
NYSE Rules 8(b)
Observer 8(e)
Old Conversion Price 7(b)
Permitted Tender Offer Amount 3(e)(i)
Rainwater Director 3(b)(iv)
Reinsuring Company 3(e)(ix)
Reservoir Director 3(b)(iii)
Second Mandatory Conversion 6(h)(i)
September Financial Statement 7(d)
Series A Conversion Ratio 6(a)(i)
Series B Conversion Ratio 6(a)(ii)
Series C Conversion Ratio 6(a)(iii)
A-II-6
Term Section(s)
---- ----------
Series A Preferred Liquidation Preference 5(a)(i)
Series B Preferred Liquidation Preference 5(a)(i)
Series B Preferred Liquidation Preference 5(a)(i)
Conversion Ratio 6(a)
Series A Preferred Shares 1(a)(i)
Series B Preferred Shares 1(a)(ii)
WTC Loss 7(d)
(c) The words "hereof", "herein" and "hereunder" and other words of
similar import refer to this Description of Stock as a whole and not to any
particular Section or other subdivision.
(d) All dollar amounts referenced herein shall be denominated in
United States dollars.
3. Voting Rights.
(a) General Voting Rights. Except as otherwise provided specifically
herein and in the Bye-Laws or required by Bermuda law, (i) each Preferred Share
and Convertible Common Share shall have the right and power and be entitled to
vote on any question or matter upon which, or in any proceeding at which, the
holders of Common Shares of the Company are entitled to vote and to be
represented at and to receive notice of any meeting of shareholders, (ii) the
holders of Preferred Shares, Convertible Common Shares and Common Shares shall
vote together as one class and not as separate classes and (iii) each holder of
Preferred Shares and/or Convertible Common Shares shall be entitled to that
number of votes for each Preferred Share and each Convertible Common Share held
by such holder equal to the number of Common Shares that would be received by
such holder if such shares were Fully Converted as of the record date for the
vote which is being taken or, if no such record date is established, as of the
date such vote is taken or any written consent of shareholders is solicited.
(i) Subject to clause (iii) below and notwithstanding anything
to the contrary in the Bye-Laws, Capital Z and each Affiliate thereof
to whom or which (as the case may be) any Company Securities are
Transferred (as such term is defined in the Purchase Agreement), to
the extent such Transfer does not result in the transferring Person or
any other Person being considered a United States Shareholder within
the meaning of Section 951(b) of the Code, without regard to Section
953(c) of the Code and without the application of Bye-Law 20(4), shall
be exempt from the application of the aggregate voting limitation set
forth in Bye-Law 20(4) of the Bye-Laws of the Company or any similar
provision in the Bye-Laws as may be in effect from time to time
(collectively, "Bye-Law 20(4)").
(ii) For the avoidance of doubt, the holding of Company
Securities by Reservoir and Rainwater shall be subject to application
of the aggregate voting limitation set forth in Bye-Law 20(4).
A-II-7
(iii) In no event shall Purchasers and their respective
Affiliates be permitted to exercise control, collectively through the
Company Securities or any other shares, in excess of 49.9% of the
aggregate voting power of the Company on any shareholder voting
matters (the "Aggregate Voting Limitation"). Notwithstanding the
foregoing, the preceding sentence shall in no event limit or modify in
any manner the rights granted to the holders of Preferred Shares and
Convertible Common Shares under clauses (b), (c), (d), (e) and (f) of
this Section 3 and under clause (c) of Section 9 of this Description
of Stock. The Aggregate Voting Limitation shall be applied in the
manner set forth in Bye-Law 20(4) as if the Maximum Percentage set
forth therein was equal to 49.9%.
(b) Election of Directors. The Preferred Shares and Convertible Common
Shares shall not have the right and power or be entitled to vote in the election
of directors of the Company except as set forth below:
(i) so long as Capital Z and its Affiliates and their limited
partners shall own at least 50% of the Series A Preferred Shares
acquired by Capital Z under the Purchase Agreement (including for
purposes of such calculation, all Class A Common Shares then held by
such Persons), the holders of the Series A Preferred Shares and Class
A Common Shares shall have, in addition to the other voting rights set
forth herein, the exclusive right, voting separately as a class, to
annually elect by the affirmative vote of the holders of at least 50%
of all Series A Preferred Shares and Class A Common Shares, voting
together, two individuals to each serve as Class IV Directors of the
Company (each, a "Capital Z Director");
(ii) so long as Capital Z and its Affiliates and their limited
partners shall own at least 20% but less than 50% of the Series A
Preferred Shares acquired by Capital Z under the Purchase Agreement
(including for purposes of such calculation, all Class A Common Shares
then held by such Persons), the holders of the Series A Preferred
Shares and Class A Common Shares shall have, in addition to the other
voting rights set forth herein, the exclusive right, voting separately
as a class, to annually elect by the affirmative vote of the holders
of at least 50% of all Series A Preferred Shares and Class A Common
Shares, voting together, one individual to serve as a Class IV
Director of the Company; provided that in the event that Capital Z and
its Affiliates and their limited partners shall own less than 20% of
the Series A Preferred Shares acquired by Capital Z pursuant to the
Purchase Agreement (including for purposes of such calculation, all
Class A Common Shares then held by such Persons), then the holders of
the Series A Preferred Shares shall be entitled to vote generally in
the election of directors in accordance with Section 3(a) hereof; and
(iii) so long as Reservoir and its Affiliates and their
limited partners shall own at least 30% of the Series B Preferred
Shares acquired by Reservoir under the Purchase Agreement (including
for purposes of such calculation, all Class B Common Shares then held
by such Persons), the holders of the Series B Preferred Shares and
Class B Common Shares shall have, in addition to the other voting
rights set forth herein, the exclusive right, voting separately as a
class, to
A-II-8
annually elect by the affirmative vote of the holders of at least 50%
of all Series B Preferred Shares and Class B Common Shares, voting
together, one individual to serve as a Class IV Director of the
Company (the "Reservoir Director"); provided that in the event that
Reservoir and its Affiliates and their limited partners shall own less
than 30% of the Series B Preferred Shares acquired by Reservoir
pursuant to the Purchase Agreement (including for purposes of such
calculation, all Class B Common Shares then held by such Persons),
then the holders of the Series B Preferred Shares shall be entitled to
vote generally in the election of directors in accordance with Section
3(a) hereof.
(iv) so long as Rainwater and his Affiliates shall own at
least 60% of the Series C Preferred Shares acquired by Rainwater under
the Purchase Agreement (including for purposes of such calculation,
all Class C Common Shares then held by such Persons), the holders of
the Series C Preferred Shares and Class C Common Shares shall have, in
addition to the other voting rights set forth herein, the exclusive
right, voting separately as a class, to annually elect by the
affirmative vote of the holders of at least 50% of all Series C
Preferred Shares and Class C Common Shares, voting together, one
individual to serve as a Class IV Director of the Company (the
"Rainwater Director"); provided that in the event that Rainwater and
his Affiliates shall own less than 60% of the Series C Preferred
Shares acquired by Rainwater pursuant to the Purchase Agreement
(including for purposes of such calculation, all Class C Common Shares
held by such Persons), then the holders of the Series C Preferred
Shares shall be entitled to vote generally in the election of
directors in accordance with Section 3(a) hereof.
(c) Consent of Series A Preferred Shares Required For Variation of
Rights and Restrictions. So long as any Series A Preferred Shares remain issued
and outstanding, unless the vote or consent of the holders of a greater number
of shares shall then be required by law overriding the provisions herein, the
affirmative vote or consent of the holders of at least 50% of all of the Series
A Preferred Shares at the time issued and outstanding, voting as a class, given
in person or by proxy either in writing (as may be permitted by law and the
Bye-Laws) or at any special or annual meeting, shall be necessary to permit,
effect or validate the taking of any of the following actions by the Company:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital shares or rights, options, warrants or
other securities convertible into or exercisable or exchangeable for
capital shares or any debt security which by its terms is convertible
into or exchangeable for any equity security or has any other equity
feature or any security that is a combination of debt and equity,
which, in each case, as to the payment of dividends or distribution of
assets, including, without limitation, distributions to be made upon a
liquidation, dissolution or winding-up of the Company, is pari passu
with or is senior to the Series A Preferred Shares or which in any
manner adversely affects the holders of the Series A Preferred Shares
or the Class A Common Shares, or amend the terms of any existing class
or series of capital shares if the effect of such amendment would be
to rank such class or series senior to or pari passu with
A-II-9
the Series A Preferred Shares as to dividends or distribution of
assets, including, without limitation, distributions to be made upon a
liquidation, dissolution or winding-up of the Company;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series A Preferred Shares or the Class A Common Shares;
(iii) reclassify the shares of any class or series of capital
shares into shares of any class or series of capital shares (A)
ranking, either as to payment of dividends, distributions of Assets or
redemptions, including, without limitation, distributions to be made
upon a liquidation, dissolution or winding-up of the Company, senior
to or pari passu with the Series A Preferred Shares or (B) which in
any manner adversely affects the rights of the holders of the Series A
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class A Common Shares, as the case
may be, which such holders would have after conversion of the Series A
Preferred Shares into Class A Common Shares or conversion of the Class
A Common Shares into Common Shares;
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of the Memorandum of Association or
Bye-Laws, if such amendment, alteration or repeal would have an
adverse effect on the rights of the holders of the Series A Preferred
Shares or any powers, rights, privileges or preference appertaining to
Common Shares or Class A Common Shares which such holders would have
after conversion of the Series A Preferred Shares into Class A Common
Shares or conversion of Class A Common Shares into Common Shares
(including, without limitation, by granting voting rights to holders
of bonds, debentures or other obligations); or
(v) any change to the authorized number of Preferred Shares or
Convertible Common Shares or issuance of additional Preferred Shares
or Convertible Common Shares.
(d) Consent of Series B Preferred Shares Required For Variation of
Rights and Restrictions. So long as any Series B Preferred Shares remain issued
and outstanding, unless the vote or consent of the holders of a greater number
of shares shall then be required by law overriding the provisions herein, the
affirmative vote or consent of the holders of at least 50% of all of the Series
B Preferred Shares at the time issued and outstanding, voting separately as a
class, given in person or by proxy either in writing (as may be permitted by law
and the Bye-Laws) or at any special or annual meeting, shall be necessary to
permit, effect or validate the taking of any of the following actions by the
Company:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital shares or rights, options, warrants or
other securities convertible into or exercisable or exchangeable for
capital shares or any debt security which by its terms is convertible
into or exchangeable for any equity
A-II-10
security or has any other equity feature or any security that is a
combination of debt and equity, which, in each case, as to the payment
of dividends or distribution of assets, including, without limitation,
distributions to be made upon a liquidation, dissolution or winding-up
of the Company, is pari passu with or is senior to the Series B
Preferred Shares or which in any manner adversely affects the holders
of the Series B Preferred Shares or the Class B Common Shares, or
amend the terms of any existing class or series of capital shares if
the effect of such amendment would be to rank such class or series
senior to or pari passu with the Series B Preferred Shares as to
dividends or distribution of assets, including, without limitation,
distributions to be made upon a liquidation, dissolution or winding-up
of the Company;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series B Preferred Shares or the Class B Common Shares;
(iii) reclassify the shares of any class or series of capital
shares into shares of any class or series of capital shares (A)
ranking, either as to payment of dividends, distributions of Assets or
redemptions, including, without limitation, distributions to be made
upon a liquidation, dissolution or winding-up of the Company, senior
to or pari passu with the Series B Preferred Shares or (B) which in
any manner adversely affects the rights of the holders of the Series B
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class B Common Shares, as the case
may be, which such holders would have after conversion of the Series B
Preferred Shares into Class B Common Shares or conversion of the Class
B Common Shares into Common Shares;
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of the Memorandum of Association or
Bye-Laws of the Company, if such amendment, alteration or repeal would
have an adverse effect on the rights of the holders of the Series B
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class B Common Shares which such
holders would have after conversion of the Series B Preferred Shares
into Class B Common Shares or conversion of Class B Common Shares into
Common Shares (including, without limitation, by granting voting
rights to holders of bonds, debentures or other obligations); or
(v) any change to the authorized number of Preferred Shares or
Convertible Common Shares or issuance of additional Preferred Shares
or Convertible Common Shares.
(e) Consent of Series C Preferred Shares Required For Variation of
Rights and Restrictions. So long as any Series C Preferred Shares remain issued
and outstanding, unless the vote or consent of the holders of a greater number
of shares shall then be required by law overriding the provisions herein, the
affirmative vote or consent of the holders of at least 50% of all of the Series
C Preferred Shares at the time issued and outstanding, voting separately as a
A-II-11
class, given in person or by proxy either in writing (as may be permitted by law
and the Bye-Laws) or at any special or annual meeting, shall be necessary to
permit, effect or validate the taking of any of the following actions by the
Company:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital shares or rights, options, warrants or
other securities convertible into or exercisable or exchangeable for
capital shares or any debt security which by its terms is convertible
into or exchangeable for any equity security or has any other equity
feature or any security that is a combination of debt and equity,
which, in each case, as to the payment of dividends or distribution of
assets, including, without limitation, distributions to be made upon a
liquidation, dissolution or winding-up of the Company, is pari passu
with or is senior to the Series C Preferred Shares or which in any
manner adversely affects the holders of the Series C Preferred Shares
or the Class C Common Shares, or amend the terms of any existing class
or series of capital shares if the effect of such amendment would be
to rank such class or series senior to or pari passu with the Series C
Preferred Shares as to dividends or distribution of assets, including,
without limitation, distributions to be made upon a liquidation,
dissolution or winding-up of the Company;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series C Preferred Shares or the Class C Common Shares;
(iii) reclassify the shares of any class or series of capital
shares into shares of any class or series of capital shares (A)
ranking, either as to payment of dividends, distributions of Assets or
redemptions, including, without limitation, distributions to be made
upon a liquidation, dissolution or winding-up of the Company, senior
to or pari passu with the Series C Preferred Shares or (B) which in
any manner adversely affects the rights of the holders of the Series C
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class C Common Shares, as the case
may be which such holders would have after conversion of the Series C
Preferred Shares into Class C Common Shares or conversion of the Class
C Common Shares into Common Shares; or
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of the Memorandum of Association or
Bye-Laws of the Company, if such amendment, alteration or repeal would
have an adverse effect on the rights of the holders of the Series C
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class C Common Shares which such
holders would have after conversion of the Series C Preferred Shares
into Class C Common Shares or conversion of Class C Common Shares into
Common Shares (including, without limitation, by granting voting
rights to holders of bonds, debentures or other obligations).
A-II-12
(f) Consent Required for Certain Actions. Each action or series of
actions set forth below in this Section 3(f) shall require:
(x) if Capital Z, Reservoir and Rainwater (together with their Affiliates
and limited partners) own, in the aggregate, at least 40% of the Preferred
Shares originally purchased by them (including for the purposes of such
calculation any Convertible Common Shares and Common Shares into which such
Convertible Common Shares have converted), the consent of each of (i)
holders of more than 50% of the issued and outstanding Series A Preferred
Shares and Class A Common Shares, voting together as a single class, and
(ii) holders of more than 50% of the issued and outstanding Series B
Preferred Shares, Series C Preferred Shares, Class B Common Shares and
Class C Common Shares, all voting together as a single class;
(y) if the condition specified in clause (x) is not satisfied and Capital Z
(together with its Affiliates and limited partners) owns at least 50% of
the Preferred Shares purchased by it (including for the purposes of such
calculation any Convertible Common Shares and Common Shares into which such
Convertible Common Shares have converted), the consent of holders of more
than 50% of the issued and outstanding Series A Preferred Shares and Class
A Common Shares, voting together as a single class; and
(z) if the condition specified in clause (x) is not satisfied and Resevoir
and Rainwater, collectively (together with their Affiliates and limited
partners) own at least 50% of the Preferred Shares originally purchased by
them (including for the purposes of such calculation any Convertible Common
Shares and Common Shares into which such Convertible Common Shares have
converted), the consent of holders of more than 50% of the issued and
outstanding Series B Preferred Shares, Series C Preferred Shares, Class B
Common Shares and Class C Common Shares, all voting together as a single
class:
(i) at any time before the third anniversary of the Closing,
involve one or more redemptions, offers to purchase, tender offers or
other acquisitions of capital stock of the Company by or on behalf of
the Company collectively involving the payment by or on behalf of the
Company or any subsidiary thereof of cash and/or other consideration
having an aggregate fair market value in excess of the Permitted
Tender Offer Amount.
(ii) result in a sale of the Company by merger, sale of Assets
or consolidation or amalgamation where the per share consideration
paid to the holders of Preferred Shares on an as converted basis is
less than 200% of the Current Conversion Price;
(iii) result in the sale or transfer of 25% or more of the
Company's Assets;
(iv) result in a voluntarily delisting of the Common Shares
from the New York Stock Exchange;
(v) (A) at any time before the third anniversary of the
Closing, involve or result in the incurrence of additional
Indebtedness from and after the Closing in
A-II-13
excess of $50,000,000 in the aggregate, and provided such
$50,000,000 shall not be inclusive of the first $55,000,000 of any
refinancing of the First Union Credit Agreement (as defined in the
Purchase Agreement) and (B) at any time on or after the third
anniversary of the Closing, involve or result in a ratio of
Indebtedness to total capital (equal to the sum of shareholders equity
plus indebtedness including Trust Preferred, as it appears on the
Company's balance sheet as of the date of measurement and prepared in
accordance with GAAP) in excess of 0.25 to 1.00;
(vi) effect or attempt to effect a voluntary liquidation,
dissolution or winding up of the Company;
(vii) result in an expansion by the Company into lines of
business other than continuing lines of business in which the Company
is currently involved;
(viii) at any time before the third anniversary of the Closing
increase the amount of dividends and other distributions (whether of
cash or other property or rights) paid with respect to Common Shares,
at a cumulative annualized rate of more than 10% from the last
dividend declared prior to the Closing, from and after the Closing
(such amount, as reduced by the amount of all cash and the fair market
value of all property and rights paid by or on behalf of the Company
as a dividend or distribution with respect to Common Shares, is
referred to as the "Permitted Dividend Amount");
(ix) involve the purchase or renewal of retrocessional or
reinsurance coverage from companies with a Standard & Poor's or A.M.
Best rating below "A-" unless, in each case, such coverage is acquired
pursuant to a contract that requires the applicable reinsurer or
retrocessionaire (the "Reinsuring Company") to post and maintain
collateral upon a loss in an amount equal to the reserves for such
loss and either (A) the obligations of such Reinsuring Company are
guaranteed by a direct or indirect parent thereof having Standard
&Poor's and A.M. Best ratings of "A-" or better or (B) such Reinsuring
Company has capital and surplus as of the date of purchase or renewal
of such coverage of at least $1 billion; provided, however, that
notwithstanding the foregoing in this clause (ix), the Company may
continue to purchase and renew reinsurance coverage with Select Re and
renew, but not increase, coverage with Pennsylvania Lumbermans Mutual
Insurance Company, in each case in the ordinary course of business
consistent with past practice;
(x) at any time before the third anniversary of the Closing,
effect an acquisition by the Company involving aggregate consideration
in excess of $50,000,000;
(xi) involve or result in any additional or increased
investment by the Company or any of its Subsidiaries in any hedge
funds or similar investments beyond the amounts held at September 30,
2001 without the prior unanimous approval of the Investment Committee
of the Board of Directors; or
A-II-14
(xii) at any time on or after the third anniversary of the Closing,
involves or results in (A) the payment of any dividend or other distribution
(whether in cash or other property or rights) with respect to Common Shares or
(B) involves or results in a redemption, offer to purchase, tender offer or
other acquisition of capital stock of the Company by or on behalf of the Company
collectively involving the payment by or on behalf of the Company or any
subsidiary thereof of cash and/or other consideration having an aggregate fair
market value in excess of the greater of (i) the Permitted Tender Offer Amount
and (ii) the Permitted Dividend Amount.
4. Dividend Rights.
(a) General. For the purposes of this Section 4, each December 31,
March 31, June 30 and September 30 (commencing December 31, 2001) on which any
Preferred Shares shall be outstanding shall be deemed to be a "Dividend Due
Date". The holders of the Preferred Shares shall be entitled to receive, if,
when and as declared by the Board of Directors out of funds legally available
therefor, cumulative dividends on each share (i) at any time such dividends are
to be paid in shares of Preferred Shares in accordance with the terms hereof,
the rate of 8% per annum and (ii) at any time such dividends are to be paid in
cash in accordance with the terms hereof, the rate of 8% per annum, on the sum
of (x) the Stated Value on each Preferred Share plus (y) the amount of any
accrued and unpaid dividends thereon, and no more, calculated on the basis of a
year of 360 days consisting of twelve 30-day months, payable on each Dividend
Due Date, with respect to the quarterly period ending on the day immediately
preceding such Dividend Due Date (except that if any such date is not a Business
Day, then such dividend shall be payable on the next Business Day following such
Dividend Due Date, provided that for the purposes of computing such dividend
payment, no interest or sum in lieu of interest shall accrue from such Dividend
Due Date to the next Business Day following such Dividend Due Date). Dividends
on each Preferred Share shall accrue and be cumulative from and after the date
of issuance of such Preferred Share whether or not such dividends are declared
and whether or not there shall be net profits or net assets of the Company
legally available for the payment of such dividends. The amount of Dividends
payable per share for each full dividend period shall be computed by dividing by
four the 8% annual rate. The record date for the payment of dividends on the
Preferred Shares shall in no event be more than sixty (60) days nor less than
fifteen (15) days prior to a Dividend Due Date. Any such dividend that is to be
paid in Preferred Shares shall be payable by delivery to such holders, at their
respective addresses as they appear in the stock register, of certificates
representing the appropriate number of duly authorized, validly issued, fully
paid and nonassessable shares of Series A Preferred Shares to holders of Series
A Preferred Shares, Series B Preferred Shares to holders of Series B Preferred
Shares and Series C Preferred Shares to holders of Series C Preferred Shares.
Any such dividend that is to be paid in cash shall be payable by delivery of
such cash amounts to such holders at their respective addresses as they appear
in the stock register.
(b) Form of Dividends. Dividends payable on any Dividend Due Date
shall, if declared by the Board of Directors of the Company or any duly
authorized committee thereof and regardless of when actually paid, accrue and be
payable (i) prior to the third anniversary of the Closing, in Series A Preferred
Shares to holders of Series A Preferred Shares, in Series B Preferred Shares to
holders of Series B Preferred Shares and in Series C Preferred Shares to
A-II-15
holders of Series C Preferred Shares and (ii) from and after the third
anniversary of the Closing, accrue and be payable in cash. The number of Series
A Preferred Shares, Series B Preferred Shares or Series C Preferred Shares, as
the case may be, so payable on any Dividend Due Date as a dividend per Series A
Preferred Share, Series B Preferred Share or Series C Preferred Share, as the
case may be, shall be equal to the amount of dividends that would have been
payable on such share if such dividend were being paid in cash on such Dividend
Due Date divided by the Stated Value. Any additional Series A Preferred Shares,
Series B Preferred Shares or Series C Preferred Shares issued pursuant to this
Section 4(b) shall be governed by this resolution and shall be subject in all
respects to the same terms as the Series A Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares, respectively, originally issued hereunder.
Notwithstanding anything in this paragraph to the contrary, at the sole election
of the Company contained in a resolution of the Board of Directors or any duly
authorized committee thereof, in substitution in whole or in part for such
dividends payable in Preferred Shares (pursuant to clause (i) above), such
dividends may be paid in cash to the extent of any dividends that, if paid in
additional Preferred Shares, would otherwise cause the Purchasers and their
Affiliates to own more than 49.9% of the capital stock of the Company on a fully
diluted and Fully Converted basis.
(c) Dividend Preference. Any dividend which shall not be paid on the
Dividend Due Date on which it shall become due shall be deemed to be "past due"
until such dividend is paid. So long as any dividend in respect of any
outstanding Preferred Share shall be past due at any time such dividends are to
be paid in cash in accordance with the terms hereof, the dividend rate
applicable to such Preferred Share shall be increased to 10% per annum
compounded quarterly.
Notwithstanding anything to the contrary set forth in this
Section 4, if at any time during which any Preferred Share remains outstanding
the dividend rate payable thereon exceeds the highest rate of interest
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in
such event and so long as the Maximum Lawful Rate would be so exceeded, the
dividend rate of in respect of Preferred Shares shall be equal to the Maximum
Lawful Rate; provided, however, that if at any time thereafter the dividend rate
payable thereon is less than the Maximum Lawful Rate, dividends shall continue
to accrue thereon at the Maximum Lawful Rate until such time as the total
dividends earned are equal to the total dividends which would have been earned
had the dividend rate on such Preferred Share been (but for the operation of
this paragraph) the dividend rate payable since the Closing.
Dividends paid on Preferred Shares in an amount less than the
total amount of such dividends at the time accumulated and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
Preferred Shares at the time outstanding.
The rights of Series A Preferred Shares, the Series B
Preferred Shares and Series C Preferred shares shall rank pari passu with each
other with respect to the right to receive dividends, and such Preferred Shares
shall rank senior in all respects to Common Shares, the Convertible Common
Shares and all other classes and series of capital shares of the Company,
including without limitation other classes and series of preferred shares other
than the Trust Preferred (collectively, "Junior Shares").
A-II-16
If a dividend upon any Preferred Shares, or any other
outstanding preferred stock of the Company ranking on a parity with the
Preferred Shares as to dividends, is in arrears, all dividends or other
distributions declared upon each series of such stock may only be declared pro
rata so that in all cases the amount of dividends or other distributions
declared per share of each such series bear to each other the same ratio that
the accumulated and unpaid dividends per share on the shares of each such series
bear to each other. Except as set forth above, if a dividend upon any Preferred
Shares, or any other outstanding stock of the Company ranking on a parity with
the Preferred Shares as to dividends, is in arrears: (i) no dividends, in cash,
stock or other property, may be paid or declared and set aside for payment or
any other distribution made upon any stock of the Company ranking junior to the
Preferred Shares as to dividends; (ii) no stock of the Company ranking on a
parity with the Preferred Shares as to dividends may be (A) redeemed pursuant to
a sinking fund or otherwise, except (1) by means of a redemption pursuant to
which all outstanding shares of Preferred Shares and all stock of the Company
ranking on a parity with the Preferred Shares as to dividends are redeemed or
pursuant to which a pro rata redemption is made from all holders of the
Preferred Shares and all stock of the Company ranking on a parity with the
Preferred Shares as to dividends (in each case, only so long as the Preferred
Shares is otherwise redeemable pursuant hereto), the amount allocable to each
series of such stock being determined on the basis of the aggregate liquidation
preference of the outstanding shares of each series and the shares of each
series being redeemed only on a pro rata basis or (2) by conversion of such
stock ranking on a parity with the Preferred Shares as to dividends into, or
exchange of such stock for, Junior Shares or (B) purchased or otherwise acquired
for any consideration by the Company except (1) pursuant to an acquisition made
pursuant to the terms of one or more offers to purchase all of the outstanding
shares of the Preferred Shares and all stock of the Company ranking on a parity
with the Preferred Shares as to dividends (which offers shall describe such
proposed acquisition of all such stock ranking on a parity with the Preferred
Shares), which offers shall each have been accepted by the holders of more than
50% of the shares of each series or class of stock receiving such offer
outstanding at the commencement of the first of such purchase offers, or (2) by
conversion of such stock ranking on a parity with the Preferred Shares as to
dividends into, or exchange of such stock for, Junior Stock; and (iii) no stock
ranking junior to the Preferred Shares as to dividends may be redeemed,
purchased or otherwise acquired for consideration (including pursuant to sinking
fund requirements) except by conversion into or exchange for Junior Shares.
5. Liquidation Rights.
(a) Priority. In the event of any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary:
(i) before any payment or distribution of the Assets of the
Company (whether from paid in share capital, share premium or surplus)
shall be made to or set apart for the holders of Junior Shares or any
other shares of the Company other than Trust Preferred, the holders,
on a pari passu basis, of the shares of (A) Series A Preferred Shares
shall be entitled to receive from the Assets of the Company, payment
in cash of an amount equal to the aggregate of the Stated Value per
share of each issued and outstanding Series A Preferred Share plus all
accrued and unpaid dividends thereon (the "Series A Preferred
Liquidation Preference"), (B) Series B Preferred Shares shall be
entitled to receive from the
A-II-17
Assets of the Company, payment in cash of an amount equal to the
aggregate of the Stated Value per share of the issued and outstanding
Series B Preferred Shares plus all accrued and unpaid dividends
thereon (the "Series B Preferred Liquidation Preference") and (C)
Series C Preferred Shares shall be entitled to receive from the Assets
of the Company, payment in cash of an amount equal to the aggregate of
the Stated Value per share of each issued and outstanding Series C
Preferred Share plus all accrued and unpaid dividends thereon (the
"Series C Preferred Liquidation Preference"). If the Assets
distributable upon such liquidation, dissolution or winding-up of the
Company shall be insufficient to permit payment to the respective
holders of the shares of Series A Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares of the full preferential amounts
as set forth in this Section 5(a)(i), then such Assets shall be
distributed ratably among the shares of Series A Preferred Shares, the
Series B Preferred Shares and the Series C Preferred Shares; and
(ii) any proceeds remaining after payment of the Series A
Preferred Liquidation Preference, the Series B Preferred Liquidation
Preference and the Series C Preferred Liquidation Preference shall be
distributed ratably among the Common Shares, the Convertible Common
Shares and other classes of shares of the Company in accordance with
the relevant rights and restrictions thereof, if any.
(b) Notice of Liquidation. Subject to any other requirement under law,
written notice of any liquidation, dissolution or winding up of the Company,
stating the payment date or dates when and the place or places where the amounts
distributable in such circumstances shall be payable, shall be given (not less
than thirty (30) days prior to any payment date stated therein), to the holders
of record of the Preferred Shares at their respective addresses as the same
shall appear on the register of shareholders of the Company.
6. Conversion. The following provisions are subject to compliance with
applicable law, and if the exercise of these rights would violate relevant law,
such rights set out below will be suspended until such rights can be exercised
in compliance with applicable law:
(a) General. Each holder of Preferred Shares shall have the right, at
the option of such holder, at any time to convert, upon the terms and provisions
of this Section 6, one or more Series A Preferred Shares, Series B Preferred
Shares or Series C Preferred Shares into fully paid and nonassessable Class A
Common Shares, Class B Common Shares or Class C Common Shares, respectively, or
any class of shares or other securities into which such Class A Common Shares,
Class B Common Shares or Class C Common Shares shall have been changed or any
class of shares or other securities resulting from a reclassification thereof.
(i) Such conversion of Series A Preferred Shares to Class A
Common Shares shall be made at the conversion rate of one Series A
Preferred Share for a number of Class A Common Shares equal to a
fraction (the "Series A Conversion Ratio"), (i) the numerator of which
is equal to the Series A Preferred Liquidation Preference on a per
share basis and (ii) the denominator of which is equal to the Current
Conversion Price in effect at such time. The Class A Common Shares
A-II-18
issuable upon conversion of the Series A Preferred Shares, when such
Class A Common Shares shall be issued in accordance with the terms
hereof, shall be duly authorized, validly issued, fully paid and
nonassessable Class A Common Shares.
(ii) Such conversion of Series B Preferred Shares to Class B
Common Shares shall be made at a conversion rate of one Class B
Preferred Share for a number of Class B Common Shares equal to a
fraction (the "Series B Conversion Ratio"), (i) the numerator of which
is equal the Series B Liquidation Preference on a per share basis and
(ii) the denominator of which is equal to the Current Conversion Price
in effect at such time. The Class B Common Shares issuable upon
conversion of the Series B Preferred Shares, when such Class B Common
Shares shall be issued in accordance with the terms hereof, shall be
duly authorized, validly issued, fully paid and nonassessable Class B
Common Shares.
(iii) Such conversion of Series C Preferred Shares to Class C
Common Shares shall be made at a conversion rate of one Class C
Preferred Share for a number of Class C Common Shares equal to a
fraction (the "Series C Conversion Ratio"), (i) the numerator of which
is equal the Series C Liquidation Preference on a per share basis and
(ii) the denominator of which is equal to the Current Conversion Price
in effect at such time. The Class C Common Shares issuable upon
conversion of the Series C Preferred Shares, when such Class C Common
Shares shall be issued in accordance with the terms hereof, shall be
duly authorized, validly issued, fully paid and nonassessable Class C
Common Shares.
(iv) To the extent necessary to prevent the Purchasers and
their Affiliates from owning more than 49.9% of the capital shares of
the Company upon a fully diluted and Fully Converted basis, subject to
the provisions of Section 7(i) hereof, the Company shall have the
right (but not the obligation) to make a cash payment in lieu of a
payment in Class A Common Shares, Class B Common Shares or Class C
Common Shares, as the case may be, equal to the Fair Market Value at
the time of such conversion of the Common Shares that the Purchasers
would have received upon Full Conversion in excess of the 49.9%
limitation. Such right must be exercised, if at all, and the cash
payment and related Tax Gross-Up must be paid, at the time of such
conversion.
(b) Surrender, Election and Payment. Each Preferred Share may be
converted by the holder thereof during normal business hours on any Business Day
by surrender of such Preferred Share, accompanied by written evidence of the
holder's election to convert such Preferred Share, to the Company at its office
designated pursuant to the Bye-Laws of the Company (or, if such conversion is in
connection with an underwritten public offering of Common Shares, at the
location at which the underwriting agreement requires that such Common Shares
(or Preferred Shares) be delivered). Payment of the conversion price for the
Convertible Common Shares specified in such election shall be made by applying
to such payment an aggregate number of Preferred Shares equal to the number
obtained by dividing (x) the number of Class A Common Shares, Class B Common
Shares or Class C Common Shares, as the case may be, specified in such election
by (y) the Series A Conversion Ratio, the Series B
A-II-19
Conversion Ratio or the Series C Conversion Ratio, respectively. Such holder
shall thereupon be entitled to receive the number of Convertible Common Shares
specified in such election.
(c) Effective Date. Each conversion of Preferred Shares pursuant to
Section 6(c) hereof shall be deemed to have been effected immediately prior to
the close of business on the Business Day on which such Preferred Shares shall
have been surrendered to the Company as provided in Section 6(c) hereof, and
such conversion shall be at the Current Conversion Price in effect at such time.
On each such day that the conversion of Preferred Shares is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Class A Common Shares, Class B Common Shares or Class C Common Shares, as the
case may be, are issuable upon such conversion, as provided in Section 6(e)
hereof, shall be deemed to have become the holder or holders of record of such
Class A Common Shares, Class B Common Shares or Class C Common Shares, as the
case may be.
(d) Share Certificates. As promptly as practicable after the
conversion of any Preferred Shares, in whole or in part, and in any event within
ten (10) Business Days thereafter, the Company at its expense (including the
payment by it of any applicable issue, stamp or other taxes on the issue of the
Convertible Common Shares or on the share certificate therefor, other than any
income or capital gains taxes) will cause to be issued in the name of and
delivered to the holder thereof or as such holder may direct, a certificate or
certificates for the number of Class A Common Shares, Class B Common Shares or
Class C Common Shares, as the case may be, to which such holder shall be
entitled upon such conversion on the effective date of such conversion.
(e) Acknowledgment of Obligation. The Company will, at the time of or
at any time after each conversion of Preferred Shares, upon the request of the
holder thereof or of any Common Shares issued upon such conversion, acknowledge
in writing its continuing obligation to afford to such holder all rights, if
any, to which such holder shall continue to be entitled; provided, that if any
such holder shall fail to make any such request, the failure shall not affect
the continuing obligations of the Company to afford such rights to such holder.
(f) Current Conversion Price. The term "Conversion Price" shall mean
initially $15.69. The term "Current Conversion Price" as used herein shall mean
the Conversion Price, as the same may be adjusted from time to time as
hereinafter provided (including, without limitation, pursuant to Section 7
hereof), in effect at any given time; provided, however, that the Current
Conversion Price shall not be lower than the par value of the Class A Common
Shares, the Class B Common Shares or the Class C Common Shares. In determining
the Current Conversion Price, the result shall be expressed to the nearest
$0.01, but any such lesser amount shall be carried forward and shall be
considered at the time of (and together with) the next subsequent adjustment
which, together with any adjustments to be carried forward, shall amount to
$0.01 per Class A Common Share, Class B Common Share or Class C Common Share
more.
(g) Reservation of Convertible Common Shares and Common Shares. The
Company shall at all times reserve and keep available out of authorized but
unissued the maximum number of Convertible Common Shares and Common Shares into
which all Preferred Shares and Convertible Common Shares, respectively, from
time to time issued and outstanding are convertible.
A-II-20
(h) Mandatory Conversion. The following conversion provisions shall
also be applicable to the Preferred Shares:
(i) If not previously converted, all of the issued and
outstanding A1 Preferred Shares, B1 Preferred Shares and C1 Preferred
Shares, inclusive of all dividends paid in Preferred Shares in
accordance with this Description of Stock, will be mandatorily
converted into Class A Common Shares, Class B Common Shares or Class C
Common Shares, respectively, on the third anniversary of the Closing
(the "First Mandatory Conversion"). If not previously converted by the
Purchasers, all of the issued and outstanding A2 Preferred Shares, B2
Preferred Shares and C2 Preferred Shares inclusive of all dividends
paid in Preferred Shares in accordance with this Description of Stock,
will be mandatorily converted into Class A Common Shares, Class B
Common Shares or Class C Common Shares, respectively, on the sixth
anniversary of the Closing (the "Second Mandatory Conversion", and
collectively with the First Mandatory Conversion, the "Mandatory
Conversion"). To the extent that less than all of the Preferred Shares
to be converted are converted (for whatever reason) the Convertible
Common Shares issued in such Mandatory Conversion shall be allocated
among the holders on a pro rata basis.
(ii) The conversion price used in connection with the First
Mandatory Conversion shall be determined as follows:
(A) if the Current Conversion Price as of the date of
the First Mandatory Conversion (the "Conversion Date") is
equal to or less than the Fair Market Value of the Common
Shares as of the Conversion Date (the "Conversion Date FMV"),
the Current Conversion Price used in the First Mandatory
Conversion shall be the Conversion Price as of the Conversion
Date;
(B) if the Current Conversion Price as of the
Conversion Date is greater than the Conversion Date FMV, the
conversion price used in the First Mandatory Conversion shall
equal the sum of (x) the product obtained by multiplying the
Conversion Date FMV by 0.8 plus (y) the product obtained by
multiplying the Current Conversion Price as of the Conversion
Date by 0.2.
(iii) The conversion price used in connection with the Second
Mandatory Conversion shall be the Current Conversion Price as of the
date of the Second Mandatory Conversion.
(iv) The mechanics for conversion and other provisions
relating to the conversion of Preferred Shares set forth elsewhere in
this Section 6 and in Section 7 hereof shall apply to the automatic
conversion of Preferred Shares pursuant to this Section 6(h).
A-II-21
7. Adjustment to Conversion Price.
The Conversion Price shall be adjusted, from time to time, as follows:
(a) Adjustments for Recapitalizations, Etc. In case the
Company shall (i) subdivide its outstanding Common Shares, (ii) combine the
issued and outstanding Common Shares into a smaller number of shares, (iii)
issue by reclassification of Common Shares, any shares of the Company or (iv)
pay a dividend or make a distribution on the outstanding Common Shares in
capital shares of the Company, then, in any such case, the Current Conversion
Price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Preferred Share were to Fully Convert such
Preferred Share immediately after such action, such holder would be entitled to
receive the number of shares of the Company which such holder would have owned
immediately following such action had such Preferred Shares been converted
immediately prior thereto (with any record date requirement being deemed to have
been satisfied), and, in any such case, such Conversion Price shall thereafter
be subject to further adjustments under this Section 7. An adjustment made
pursuant to this Section 7(a) shall become effective retroactively immediately
after the effective date.
(b) Adjustments for Issuances of Additional Shares. Subject to
the exceptions referred to in Section 7(e) hereof, in case the Company shall at
any time or from time to time after the date hereof issue any additional Common
Shares ("Additional Common Shares") either (i) for no consideration or (ii) for
a consideration per share that is either (A) less than 95% of the Fair Market
Value of the Common Shares on the last day prior to the date of announcement of
such issuance in a registered public offering or (B) less than the Fair Market
Value of the Common Shares in a private transaction, then (in the case of either
clause (i) or (ii)), and thereafter successively upon each such issuance, the
Current Conversion Price shall be adjusted pursuant to the following formula:
NCP = OCP x OB + X
------
OA
where NCP = the new Current Conversion Price
OCP = the existing Current Conversion Price immediately before the new issue
(the "Old Conversion Price")
OB = the total outstanding Common Shares (on a fully diluted basis
immediately before the new issue)
X = number of Common Shares issuable at Fair Market Value of the Common
Shares for the total consideration to be received for the new issue
OA = the total outstanding Common Shares (on a fully diluted basis)
immediately after the new issue;
provided, however, that any such adjustment shall be made only if such
adjustment results in a Current Conversion Price less than the Current
Conversion Price in effect immediately prior to the issuance of such Additional
Common Shares. The Company may, but shall not be required to, make any
adjustment of the Current Conversion Price if the amount of such adjustment
shall
A-II-22
be less than one percent (1%) of the Current Conversion Price immediately prior
to such adjustment, but any adjustment that would otherwise be required then to
be made which is not so made shall be carried forward and shall be made at the
time of (and together with) the next subsequent adjustment which, together with
any adjustments so carried forward, shall amount to not less than one percent
(1%) of the Current Conversion Price immediately prior to such adjustment.
(c) Certain Rules in Applying the Adjustment for Additional Share
Issuances. For purposes of any adjustment as provided in Section 7(b) hereof,
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
Common Shares for cash, the consideration received by the Company
therefor shall be deemed to be the cash proceeds received by the
Company for such Additional Common Shares after deducting any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with the issuance of such
Additional Common Shares.
(ii) Non-Cash Consideration. In case of the issuance of
Additional Common Shares for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of
the consideration other than cash so received or to be received by the
Company shall be deemed to be the value of such consideration at the
time of its receipt by the Company as determined in good faith by the
Board, except that where the non-cash consideration consists of the
cancellation, surrender or exchange of outstanding obligations of the
Company (or where such obligations are otherwise converted into Common
Shares), the value of the non-cash consideration shall be deemed to be
the principal amount of the obligations canceled, surrendered,
satisfied, exchanged or converted. If the Company receives
consideration, part or all of which consists of publicly traded
securities (i.e., in lieu of cash), the value of such non-cash
consideration shall be the aggregate fair market value of such
securities (based on the latest reported sale price regular way) as of
the close of the day immediately preceding the date of their receipt
by the Company.
(iii) Options, Warrants, Convertibles, Etc.
(A) In case of the issuance, whether by distribution
or sale to holders of its Common Shares or to others, by the
Company of (i) any security (other than Preferred Shares and
Convertible Common Shares) that is convertible into Common
Shares or (ii) any rights, options or warrants to purchase
Common Shares, if inclusion thereof in calculating adjustments
under this Section 7 would result in a Current Conversion
Price lower than if excluded, the Company shall be deemed to
have issued, for the consideration described below, the number
of Common Shares into which such convertible security may be
converted when first convertible, or the number of Common
Shares deliverable upon the exercise of such rights, options
or warrants when first exercisable, as the case may be (and
A-II-23
such shares shall be deemed to be Additional Common Shares for
purposes of Section 7(b) hereof).
(B) The consideration deemed to be received by the
Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the
consideration so received determined as provided in Section
7(c)(i) and (ii) hereof plus (x) any consideration or
adjustment payment to be received by the Company in connection
with such conversion or, as applicable, (y) the aggregate
price at which Common Shares are to be delivered upon the
exercise of such rights, options or warrants when first
exercisable (or, if no price is specified and such shares are
to be delivered at an option price related to the Fair Market
Value of the subject Common Shares, an aggregate option price
bearing the same relation to the Fair Market Value of the
subject Common Shares at the time such rights, options or
warrants were granted).
(C) If, subsequently, (1) such number of shares into
which such convertible security is convertible, or which are
deliverable upon the exercise of such rights, options or
warrants, is increased or (2) the conversion or exercise price
of such convertible security, rights, options or warrants is
decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the Current
Conversion Price under Section 7(b) hereof) with respect to
such convertible security, rights, options or warrants, as the
case may be, shall be recalculated as of the time of such
issuance but giving effect to such changes (but any such
recalculation shall not result in the Current Series A
Conversion Price being higher than that which would be
calculated without regard to such issuance).
(D) On the expiration or termination of such rights,
options or warrants, or rights to convert, the Current
Conversion Price hereunder shall be readjusted (up or down as
the case may be) to such Current Conversion Price as would
have been obtained had the adjustments made with respect to
the issuance of such rights, options, warrants or convertible
securities been made upon the basis of the delivery of only
the number of Common Shares actually delivered upon the
exercise of such rights, options or warrants or upon the
conversion of any such securities and at the actual exercise
or conversion prices (but any such recalculation shall not
result in the Current Conversion Price being higher than that
which would be calculated without regard to such issuance).
(iv) Number of Shares Outstanding. The number of Common Shares
at the time outstanding shall exclude all Common Shares then owned or
held by or for the account of the Company but shall include the
aggregate number of Common Shares at the time deliverable in respect
of outstanding convertible securities, rights, options and warrants;
provided, that to the extent that such rights, options, warrants or
conversion privileges are not exercised, such Common
A-II-24
Shares shall be deemed to be outstanding only until the expiration
dates of the rights, warrants, options or conversion privileges or the
prior cancellation thereof.
(d) Adjustment for Development. The Current Conversion Price shall be
adjusted upwards or downwards as of each Adjustment Date (as defined below) by
multiplying the Current Conversion Price immediately prior to such adjustment
date by a fraction (i) the numerator of which is (x) Adjusted Shareholders'
Equity minus (y) the cumulative amount of any Loss Development (as defined
below) recognized after the Closing in excess of $7,000,000 (the "LD Above
Deductible") and (ii) the denominator of which is the Adjusted Shareholders'
Equity, it being understood that no adjustment pursuant to this Section 7(d)
shall be made if such adjustment shall increase the initial Conversion Price as
adjusted by the provisions of this Section 7 other than those contained in this
Section 7(d). The LD Above Deductible shall be applied on an after-tax basis.
The term "Adjusted Shareholders' Equity" shall mean the common shareholders'
equity, as reflected in the GAAP financial statements of the Company as of
September 30, 2001 (the "September Financial Statement"), provided that such
shareholders' equity shall be adjusted by substituting the loss and expense
reserves set forth in the Definitive Loss Reserve Report (as defined below) for
the corresponding reserves set forth in the September Financial Statement. The
term "Adjustment Dates" shall mean the dates of completion of the annual audit
and reserve review of the Company by the Company's duly appointed auditor with
respect to the years ended December 31, 2001, 2002 and 2003 and the term
"Adjustment Date" shall mean any of such dates of completion, as well as the
dates of completion of any reserve audit requested by the Purchasers. The term
"Loss Development" shall mean (i) any net positive or adverse loss and loss
expense reserve development (including without limitation as a result of
uncollectible reinsurance, net of any allowance for uncollectible reinsurance
recorded as of September 30, 2001, reinstatement premiums and any adjustments
in profit commissions and ceding commissions) on reserves for losses incurre
on or prior to September 30, 2001 and loss adjustment expenses related thereto
and established with respect to (x) the losses and loss adjustment expenses
related to the events of September 11, 2001 (the "WTC Loss"), (y) lines of
business other than the Discontinued Operations and the WTC Loss in an amount
not to exceed $12,000,000 on an after-tax basis and (z) the Discontinued
Operations (defined below), in each case as set forth in the loss reserve
report delivered to the Purchasers on December 10, 2001 (the "Definitive Loss
Reserve Report"); and (ii) any liability or loss (other than legal fees and
expenses) arising out of material litigation existing at the time of Closing.
The term "Discontinued Operations" shall mean (i) Lloyds' Syndicate 1224,
(ii) the excess and surplus lines insurance business assumed from Transnational
Insurance Company and (iii) the casualty business underwritten by PXRE Direct
Underwriting Managers, Inc. The Purchasers shall have the right to request a
reserve audit at any time they should reasonably believe it necessary. The
reserve audit shall be performed by an independent actuary mutually acceptable
to the Company and the Purchasers (the "Appointed Actuary"). Upon conclusion of
the reserve audit, the Appointed Actuary shall issue a written reserve opinion
and the conclusion set forth in such reserve opinion shall be binding upon the
Company and the Purchasers. The expense of any reserve audit requested by the
Purchasers shall be borne by the Purchasers.
(e) Exclusions from the Adjustment for Additional Share Issuances. No
adjustment of the Current Conversion Price under Section 7(b) hereof shall be
made as a result of or in connection with (i) the issuance of Common Shares upon
conversion of the Convertible Common Shares, (ii) the issuance or grant of any
options, warrants or other rights convertible
A-II-25
into capital shares of the Company to employees, officers and directors of the
Company pursuant to restricted stock agreements or stock options or other equity
compensation plans (such plans having been approved by the shareholders of the
Company), or the issuance of the Company's capital shares thereunder, in an
amount not to exceed 500,000 Common Shares per calendar year and 2,100,000
Common Shares in the aggregate (subject to adjustment pursuant to Section 7(a))
or (iii) issuances in connection with an underwritten public offering of Common
Shares at a price 95% or more of the Fair Market Value at the time of such
offering.
(f) Accountants' Certification. Whenever the Current Conversion Price
is adjusted as provided in this Section 7, the Company will promptly obtain a
certificate of the Chief Financial Officer of the Company setting forth the
Current Conversion Price as so adjusted, the computation of such adjustment and
a brief statement of the facts accounting for such adjustment, and will mail to
the holders of Series A Preferred Shares a copy of such certificate. The holders
of the Preferred Shares may within sixty (60) days object to the calculation of
the Current Conversion Price by providing written notice to the Company in
accordance with the Bye-Laws of the Company, which notice will set forth the
basis of such objection. Such objection shall be submitted to the Company's
auditor for review (at the expense of the Company) and the determination of the
Company's auditor shall be binding.
(g) Other Adjustments. In case any event shall occur as to which any
of the provisions of this Section 7 are not strictly applicable but the failure
to make any adjustment would not fairly protect the conversion rights
represented by the Preferred Shares in accordance with the essential intent and
principles of Sections 6 and 7 hereof, then, in each such case, upon the request
of the holders of a majority of the Preferred Shares, the Company shall appoint
a firm of independent public accountants of recognized national standing
selected by the Board (who may be the regular auditors of the Company), which
shall give their opinion upon the adjustment, if any, on a basis consistent with
the essential intent and principles established in Sections 6 and 7 hereof,
necessary to preserve, without dilution, the conversion rights represented by
the Preferred Shares. Upon receipt of such opinion, the Company will promptly
mail copies thereof to the holders of the Preferred Shares and shall make the
adjustments described therein.
(h) Consolidation, Merger or Amalgamation. If the Company shall at any
time consolidate with or merge into another corporation (where the Company is
not the continuing corporation after such merger or consolidation) or if the
Company is amalgamated, or the Company shall sell, transfer or lease all or
substantially all of its Assets, or the Company shall change its Common Shares
into property other than capital shares of the Company, then, in any such case,
the holder of a Preferred Share shall thereupon (and thereafter) be entitled to
receive, upon the Full Conversion of such Preferred Shares in whole or in part,
the securities or other property to which (and upon the same terms and with the
same rights as) a holder of the number of Common Shares deliverable upon Full
Conversion of such Preferred Share would have been entitled if such Full
Conversion had occurred immediately prior to such consolidation, merger or
amalgamation, such sale of Assets or such change (with any record date
requirement being deemed to have been satisfied), and such conversion rights
shall thereafter continue to be subject to further adjustments under this
Section 7, without limiting any other rights of holders of Preferred Shares. The
Company shall take such steps in connection with such consolidation, merger or
amalgamation, such sale of Assets or such change as may be necessary to assure
such
A-II-26
holder that the provisions of the shares of Preferred Shares shall thereafter
continue to be applicable in relation to any securities or property thereafter
deliverable upon the conversion of the Preferred Shares, including, but not
limited to, obtaining a written obligation to supply such securities or property
upon such conversion and to be so bound by the Preferred Shares.
(i) If any adjustment to the Current Conversion Price pursuant to this
Section 7 would result in the Purchasers and their Affiliates being able to
convert into more than 49.9% of the capital shares of the Company upon a fully
diluted and Fully Converted basis, the Company shall have the right (but not the
obligation) to elect (within 5 business days of the date of the event giving
rise to such adjustment) to make a cash payment in lieu of effecting such
adjustment to the Current Conversion Price. Such cash payment shall equal the
sum of the Fair Market Value as of the date of conversion of the Common Shares
that the Purchasers would have received in excess of the 49.9% limitation upon
the Full Conversion of their Preferred Shares as of the date of such adjustment
plus the related Tax Gross-Up. Such cash payment shall be allocated pro rata
among the Preferred Shares and shall be payable upon conversion of any such
Preferred Shares pursuant to Section 6 of this Description of Stock.
(j) Notices. In case at any time:
(i) the Company shall take any action which would require an
adjustment in the Current Conversion Price pursuant to Section 7(a) or
(c); or
(ii) the Company shall authorize the granting to the holders
of its Common Shares of any distributions on Common Shares as set
forth in Section 7(a); or
(iii) there shall be any reorganization, reclassification or
change of Common Shares (other than a change in par value or, if and
when permitted by law, from par value to no par value or from no par
value to par value), or any consolidation, merger or amalgamation to
which the Company is a party and for which approval of any
shareholders of the Company is required, or any sale, transfer or
lease of all or substantially all of the Assets of the Company; or
(iv) there shall be a voluntary dissolution, liquidation or
winding-up of the Company;
then, in any one or more of such cases, unless the matter is to be determined at
a general meeting of shareholders, the Company shall give written notice to the
holders of the Preferred Shares, not less than ten (10) days before any record
date or other date set for definitive action, of the date on which such action,
distribution, reorganization, reclassification, change, sale, transfer, lease,
consolidation, merger, amalgamation, dissolution, liquidation or winding-up
shall take place, as the case may be. Such notice shall also set forth such
facts as shall indicate the effect of any such action (to the extent such
effect may be known at the date of such notice) on the Current Conversion
Price and the kind and amount of the shares and other securities and property
deliverable upon conversion of the Preferred Shares. Such notice shall also
specify any date as of which the holders of the Common Shares of record shall
be entitled to exchange their Common Shares for securities or other property
deliverable upon any such reorganization,
A-II-27
reclassification, change, sale, transfer, lease, consolidation, merger,
amalgamation, dissolution, liquidation or winding-up, as the case may be.
8. Board of Directors. (a) Each of the Purchasers acknowledge that any
persons designated by the Purchasers to serve on the Board of Directors who are
not employees or officers of one of the Purchasers or of the general partner or
managing partner of such Purchaser or of an entity listed on Schedule B hereto,
or in the case of any Purchaser who is an individual, such individual, must be
reasonably acceptable to the Board of Directors of the Company.
(b) Until such time as the Purchasers (together with their Affiliates
and limited partners) no longer beneficially own in the aggregate at least 50%
of the Preferred Shares acquired by such Persons under the Purchase Agreement
(including for the purposes of such calculation, the Convertible Common Shares
held by such Persons), the Board of Directors shall consist of eleven directors.
(c) So long as Reservoir and Rainwater collectively (together with
respective Affiliates and their limited partners) beneficially owns 20% or more
of the Preferred Shares acquired by Reservoir and Rainwater under the Purchase
Agreement or the terms of this Description of Stock (including for purposes of
such calculation, all Class B Common Shares and Class C Common Shares then held
by such Persons), a Reservoir Director or Rainwater Director (at Reservoir's
election) shall serve on each of the committees of the Board of Directors;
provided that a Reservoir Director or Rainwater Director shall not serve on the
Audit Committee of the Board of Directors if such person does not meet the
requirements of the rules and regulations of the New York Stock Exchange (the
"NYSE Rules"), or on the Compensation Committee if as a result the Company could
not avail itself of the available exemptions of the Internal Revenue Code of
1986, as amended, or Section 16(b) of the Exchange Act, including Rule 16b-3
thereunder or any successor rule.
(d) So long as Capital Z (together with its Affiliates and their
limited partners) together beneficially owns 20% or more of the Preferred Shares
acquired by Capital Z under the Purchase Agreement or the terms of this
Description of Stock (including for purposes of such calculation, all Class A
Common Shares then held by such Persons), one of the Capital Z Directors shall
serve on each of the committees of the Board of Directors; provided a Capital Z
Director shall not serve on the Audit Committee of the Board of Directors if
such person does not meet the requirements of the rules and regulations of the
NYSE Rules or on the Compensation Committee if as a result the Company could not
avail itself of the available exemptions of the Internal Revenue Code of 1986,
as amended, or Section 16(b) of the Exchange Act, including Rule 16b-3
thereunder or any successor rule.
(e) Whether or not Capital Z, Reservoir or Rainwater designates any
member of the Board of Directors, each of Capital Z, Reservoir and Rainwater, so
long as either (together with its Affiliates and their limited partners)
continues to beneficially own 20% or more of the Preferred Shares acquired by
Capital Z, Reservoir or Rainwater, as the case may be, under the Purchase
Agreement or the terms of this Certificate of Designations (including for the
purposes of such calculation, the Convertible Common Shares held by such
Persons), may designate one individual (each, an "Observer") to attend all
meetings of the Board of Directors (and any committees thereof) in a non-voting
observer capacity. Each Observer shall be entitled to receive all notices,
reports, presentations and materials as if the Observer were a member of
A-II-28
the Board. Each Observer may be required to deliver a confidentiality agreement
reasonably required by the Company, and shall be subject to removal from any
meeting or barred from review of any information relating to (i) the Company's
relationship with the persons or series represented by such person at the
Board's option or (ii) if the Company reasonably believes upon the advice of
counsel that such exclusion is necessary to preserve the attorney-client
privilege. Such confidentiality agreement shall not limit the right of the such
Observer to share with Capital Z, Reservoir or Rainwater, as the case may be (or
any of its Affiliates, as the case may be) any confidential information relating
to the Company disclosed to such Observer provided that Capital Z, Reservoir or
Rainwater, as the case may be (or its Affiliates, as the case may be) maintains
confidential information confidential to the same extent as such Observer is
required under such confidentiality agreement.
9. Class A Common Shares, Class B Common Shares and Class C Common
Shares
(a) Designation and Number of Class A, Class B and Class C Common
Shares. The designation of Convertible Common Shares by this resolution shall
be:
(i) "Class A Common Shares, $1.00 par value," of the Company,
and the number of Class A Common Shares which the Company shall be
authorized to issue shall be 10,000,000 shares;
(ii) "Class B Common Shares, $1.00 par value," of the Company,
and the number of Class B Common Shares which the Company shall be
authorized to issue shall be 6,666,666 and 2/3 shares; and
(iii) "Class C Common Shares, $1.00 par value," of the
Company, and the number of Class C Common Shares which the Company
shall be authorized to issue shall be 3,333,333 and 1/3 shares;
(b) Priority. The Convertible Common Shares shall rank pari passu with
the Common Shares.
(c) Voting.
(i) Except as otherwise provided specifically herein and in
the Bye-Laws or required by Bermuda law, (A) each Convertible Common
Share shall have the right and power and be entitled to vote on any
question or matter upon which, or in any proceeding at which, the
holders of Common Shares of the Company are entitled to vote and to be
represented at and to receive notice of any meeting of shareholders
(except for election or removal of directors of the Company, as to
which the Convertible Common Shares shall only be able to vote for
election or removal of Class IV Directors as set forth in Section 3 of
this Description of Stock), (B) the holders of Preferred Shares,
Convertible Common Shares and Common Shares shall vote together as one
class and not as separate classes and (C) each holder of Convertible
Common Shares shall be entitled to that number of votes for each
Convertible Common Share held by such holder equal to the number of
Common Shares that would be received by such holder if such Preferred
Share were Fully Converted pursuant to Section 9(d) hereof.
A-II-29
(ii) Notwithstanding the foregoing, the Class A Common Shares,
the Class B Common Shares and the Class C Common Shares shall be
entitled to vote with the Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares in the election of the
Capital Z Directors, respectively, the Reservoir Director and the
Rainwater Director, respectively, in each case as set forth in Section
3 of this Description of Stock.
(d) Conversion. Convertible Common Shares shall automatically convert
into Common Shares on a one-for-one ratio upon a transfer of record ownership
thereof to any Person other than (i) Capital Z, Reservoir, Rainwater, or any of
their respective Affiliates or limited partners (including without limitation in
connection with a public offering of such shares) or (ii) a Person approved by
the Board in its sole discretion. Convertible Common Shares may be converted at
the option of the holder thereof into Common Shares on a one-for-one ratio at
any time that such holder would be entitled to vote Preferred Shares generally
in the election of directors in accordance with clause (b)(ii), (b)(iii) or
(b)(iv) of Section 3 of this Description of Stock.
(e) General. Except as provided for in this Section 9 or elsewhere in
this Description of Stock, the Convertible Common Shares shall have the same
rights, preferences and restrictions as the Common Shares.
A-II-30
Appendix III
================================================================================
INVESTMENT AGREEMENT
dated as of _________, 2002
by and among
PXRE GROUP LTD.
and
THE INVESTORS NAMED ON EXHIBIT A HERETO
================================================================================
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS.........................................................................................1
1.1 Definitions.............................................................................................1
ARTICLE II RESTRICTIONS ON TRANSFER............................................................................6
2.1 Restrictions on Transfer................................................................................6
2.2 Involuntary Transfer....................................................................................7
ARTICLE III STANDSTILL AGREEMENT................................................................................7
3.1 Standstill Restrictions.................................................................................7
ARTICLE IV REGISTRATION RIGHTS.................................................................................9
4.1 Requests for Registration...............................................................................9
4.2 Long-Form Registrations................................................................................10
4.3 Short-Form Registrations...............................................................................10
4.4 Priority on Demand Registrations.......................................................................11
4.5 Other Registration Rights..............................................................................11
4.6 Blackout Events........................................................................................11
4.7 Right to Piggyback.....................................................................................12
4.8 Piggyback Expenses.....................................................................................12
4.9 Holdback...............................................................................................12
4.10 Selection of Underwriters..............................................................................12
4.11 Registration Procedures................................................................................13
4.12 Fees Generally.........................................................................................15
4.13 Number of Registration Requests........................................................................15
ARTICLE V INDEMNIFICATION....................................................................................15
5.1 Indemnification by the Company.........................................................................15
5.2 Indemnification by a Holder............................................................................16
5.3 Contribution by Indemnifying Party.....................................................................17
5.4 Indemnification Procedure..............................................................................17
5.5 Underwriting Agreement.................................................................................18
5.6 Financial Assistance...................................................................................18
ARTICLE VI MISCELLANEOUS......................................................................................18
6.1 Specific Performance...................................................................................18
6.2 Amendments.............................................................................................19
6.3 Successors and Assigns.................................................................................19
6.4 Notices................................................................................................19
6.5 Rule 144...............................................................................................21
6.6 Headings; Certain Conventions..........................................................................21
6.7 Invalid Provisions.....................................................................................21
6.8 Governing Law..........................................................................................21
6.9 Waiver of Jury Trial...................................................................................22
6.10 Jurisdiction...........................................................................................22
6.11 Counterparts...........................................................................................22
6.12 Entire Agreement.......................................................................................22
i
This INVESTMENT AGREEMENT (as amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof, this "Investment
Agreement"), dated as of _________, 2002, is made by and among PXRE Group Ltd.,
a Bermuda company (the "Company"), and each of the Investors named in the
signature page hereto (each an "Investor" and collectively, the "Investors").
RECITALS
WHEREAS, the Company and the Investors have entered into that certain
Purchase Agreement, dated as of December 10, 2001 (as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof, the "Purchase Agreement"), pursuant to which, among other things,
the Investors are acquiring newly issued shares of Series A Convertible Voting
Preferred Shares, par value $1.00 per share, Series B Convertible Voting
Preferred Shares, par value $1.00 per share and Series C Convertible Voting
Preferred Shares, par value $1.00 per share, of the Company (collectively, the
"Preferred Shares"); and
WHEREAS, the Purchase Agreement, among other things, provides that the
execution and delivery of this Investment Agreement is a condition to the
consummation of the other transactions contemplated by the Purchase Agreement.
NOW THEREFORE, in connection with the Purchase Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following defined terms, when used in this
Investment Agreement, shall have the respective meanings set forth below
(such definitions to be equally applicable to both singular and plural
forms of the terms defined):
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by or under common control with, that
Person; provided, however, that with respect to Capital Z, CZI shall not be
considered an Affiliate. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by",
and "under common control with") as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through ownership of voting
securities or by contract or otherwise.
"Allowed Hedging Transactions" has the meaning ascribed to it in
Section 3.1(d).
"Blackout Event" has the meaning ascribed to it in Section 4.6.
A-III-1
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
"Capital Z" means Capital Z Financial Services Fund II, L.P. and
Capital Z Financial Services Private Fund II, L.P., collectively.
"Capital Z Holders" means for so long as such Person owns Registrable
Securities, Capital Z, any Affiliate thereof and any Person acquiring or
otherwise receiving, directly or indirectly, Registrable Securities from Capital
Z or any Affiliate thereof in accordance with Article II hereof.
"Class A Common Shares" means the Class A Convertible Voting Common
Shares of the Company, par value $1.00 per share.
"Class B Common Shares" means the Class B Convertible Voting Common
Shares of the Company, par value $1.00 per share.
"Class C Common Shares" means the Class C Convertible Voting Common
Shares of the Company, par value $1.00 per share.
"Closing" has the meaning ascribed to it in the Purchase Agreement.
"Closing Date" has the meaning ascribed to it in the Purchase
Agreement.
"Code" means the Internal Revenue Code of 1986 of the United States of
America, as amended.
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means common shares of the Company, par value $1.00 per
share, excluding however the Convertible Common Shares.
"Company" has the meaning ascribed to it in the introductory paragraph
of this Investment Agreement.
"Company Securities" means the Preferred Shares, the Convertible Common
Shares and the Common Shares issuable upon conversion of the Convertible Common
Shares.
"Convertible Common Shares" means the Class A Common Shares, the Class
B Common Shares and the Class C Common Shares.
"CZI" means Capital Z Investments, L.P. and Capital Z Investments II,
L.P.
"Demand Registration" means any Long-Form Registration or Short-Form
Registration requested in accordance with Section 4.1(a).
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"Exchange Act" means the Securities Exchange Act of 1934 of the United
States of America, as amended, and the rules and regulations of the Commission
issued thereunder.
"Fair Market Value" with respect to Common Shares, on any date, shall
be deemed to be the average of the reported closing prices for each of the five
(5) consecutive trading days ending on the trading day before such date of
determination. The reported closing price for each day shall be the reported
closing price on the principal national securities exchange or automated
quotation system on which the Common Shares are then listed or admitted to
trading. With respect to the Convertible Common Shares, the Fair Market Value
shall equal the Fair Market Value of the Common Shares into which such
Convertible Common Shares are Convertible. In the case of the Preferred Shares,
and with respect to the Common Shares if they are not then listed or admitted to
trading on any national securities exchange or automated quotation system or if
the closing price cannot be so determined, the Fair Market Value shall be
determined by (x) the written agreement of the Company and the respective holder
of Company Securities being valued and (y) in the event that no such agreement
is reached within twenty (20) days after the date of the event giving rise to
the need to determine the Fair Market Value, (A) by an appraiser of recognized
standing selected by the respective holder of Company Securities and the Company
or (B) if the respective holder of Company Securities and the Company cannot
agree on an appraiser within twenty (20) days after the date of the event giving
rise to the need to determine the Fair Market Value, each shall select an
appraiser of recognized standing and the two appraisers shall designate a third
appraiser of recognized standing, whose appraisal shall be determinative of such
value. The cost of such appraisal shall be borne by the Company. The Company
shall cooperate, and shall provide all necessary information and assistance, to
permit any determination under the preceding clauses (x) and (y).
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state,
country, city or other political subdivision.
"Hedging Contracts" means with respect to the Common Shares (or any
shares convertible into Common Shares), any interest rate contracts, foreign
exchange contracts, currency swaps or option agreements, forward contracts,
commodity swaps, purchase or option agreements, other commodity price hedging
arrangements and all other similar agreements or arrangements designed to alter
the risks of any Person arising from fluctuations in interest rates, currency
values or commodity prices.
"Holder" means any Person owning Registrable Securities who is a party
to this Investment Agreement or any transferee obtaining Registrable Securities
in accordance with Article II hereof for so long as such Person shall hold
Registrable Securities.
"Investment Agreement" has the meaning set forth in the forepart
hereof.
A-III-3
"Investors" has the meaning ascribed to it in the introductory
paragraph of this Investment Agreement.
"Involuntary Transfer" means any involuntary Transfer or Transfer by
operation of law of Company Securities by or in which the owner of such Company
Securities shall be deprived or divested of any right, title or interest in or
to Company Securities, including, without limitation, by seizure under levy of
attachment or execution or by foreclosure upon a pledge, pursuant to any statute
pertaining to escheat or abandoned property, upon or occasioned by the legal
incompetence of a legal representative of any owner of Company Securities.
Notwithstanding the foregoing, Involuntary Transfer shall not include the
Transfer of Company Securities in a Permitted Transfer, provided that the
transferee is a party hereto or executes a Joinder Agreement and becomes a party
to this agreement.
"Joinder Agreement" means a Joinder Agreement in form and substance
reasonably satisfactory to the Company.
"Law" or "Laws" means, the common law and all federal, state, local and
foreign laws, rules and regulations, orders, judgments, decrees and other
determinations of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision or of any
Governmental or Regulatory Authority.
"Long-Form Registration" has the meaning ascribed to it in Section
4.1(a).
"Permitted Transfer" means any Transfer (i) in accordance with Bermuda
Law and the Bye-laws of the Company and (ii) pursuant to a registered public
offering, in accordance with Rule 144 or pursuant to another available exemption
under the Securities Act, which meets the following conditions:
(a) such Transfer (i) does not result in any Person
"controlling" (as such term is defined in ss.38a-129(3) of the
Connecticut Insurance Law) the Company, (ii) is approved by
the Connecticut Department of Insurance prior to effecting
such Transfer or entering into any agreement to effect any
such Transfer or (iii) the Connecticut Department of Insurance
has consented to a Disclaimer of Affiliation (as defined by
applicable Connecticut insurance regulations) relating to such
Transfer; and
(b) such Transfer does not result in the Company or
any Subsidiary of the Company being deemed a controlled
foreign corporation, for any purposes other than the inclusion
of Related Person Insurance Income, under the Code, and does
not result in the transferring Person or any other Person
being considered a United States Shareholder within the
meaning of Section 951(b) of the Code, without regard to
Section 953(c) of the Code and without application of Bye-law
20(4) of the Company's Bye-Laws; provided, however, that this
subsection (b)
A-III-4
shall not be a condition to a Permitted Transfer if the Board
of Directors agrees, prior to any Transfer, to waive such
condition.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Piggyback Holders" has the meaning ascribed to it in Section 4.7.
"Preferred Shares" has the meaning ascribed to it in the recitals
hereto.
"Purchase Agreement" has the meaning ascribed to it in the recitals
hereto.
"Rainwater" means Richard E. Rainwater, an individual.
"Rainwater Holder" means for so long as such Person owns Registrable
Securities, Rainwater, any Affiliate thereof and any Person acquiring or
otherwise receiving, directly or indirectly, Registrable Securities from
Rainwater or any Affiliate thereof in accordance with Article II hereof.
"Registrable Securities" means, at any time, the Common Shares issued
or issuable upon the conversion of the Convertible Common Shares; provided,
however, that "Registrable Securities" shall not include any Common Shares or
other securities obtained or transferred pursuant to an effective registration
statement under the Securities Act.
"Registration Expenses" has the meaning ascribed to it in Section
4.12(a).
"Registration Statement" has the meaning ascribed to it in Section
4.11(a).
"Requesting Holders" means, with respect to any Demand Registration,
the Capital Z Holders, if Capital Z Holders have requested such Demand
Registration, the Reservoir Holders, if Reservoir Holders have requested such
Demand Registration, and the Rainwater Holders, if Rainwater Holders have
requested such Demand Registration.
"Required Capital Z Holders" means, as of the date of any determination
thereof, Capital Z Holders which then hold Registrable Securities representing
at least a majority (by number of shares) of the Registrable Securities then
held by all Capital Z Holders.
"Required Rainwater Holders" means, as of the date of any determination
thereof, Rainwater Holders which then hold Registrable Securities representing
at least a majority (by number of shares) of the Registrable Securities then
held by all Rainwater Holders.
"Required Reservoir Holders" means, as of the date of any determination
thereof, Reservoir Holders which then hold Registrable Securities representing
at least a majority (by number of shares) of the Registrable Securities then
held by all Reservoir Holders.
A-III-5
"Reservoir" means, collectively, Reservoir Capital Partners, L.P. and
Reservoir Capital Master Fund, L.P.
"Reservoir Holder" means for so long as such Person owns Registrable
Securities, Reservoir, any Affiliate thereof and any Person acquiring or
otherwise receiving, directly or indirectly, Registrable Securities from
Reservoir or any Affiliate thereof in accordance with Article II hereof.
"Securities Act" means the Securities Act of 1933, as amended, of the
United States of America and the rules and regulations of the Commission issued
thereunder.
"Selling Expenses" has the meaning ascribed to it in Section 4.12(a).
"Short-Form Registration" has the meaning ascribed to it in Section
4.1(a).
"Subsidiary" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns at least 50% of
either the equity interest in, or the voting control of, such Person, whether or
not existing on the date hereof.
"Transfer" means, directly or indirectly, any sale, transfer,
assignment, hypothecation, pledge or other disposition of any Company Securities
or any interests therein.
"Violation" has the meaning ascribed to it in Section 5.1.
ARTICLE II
RESTRICTIONS ON TRANSFER
2.1 Restrictions on Transfer. Each of Capital Z, Reservoir,
Rainwater and any transferee receiving Company Securities covenants and
agrees with the Company that it will not Transfer any Preferred Shares (or
Convertible Common Shares or any Common Shares into which the Convertible
Common Shares have been converted) held by such Person unless (i) such
Transfer is a Permitted Transfer and (ii) the transferee in any such
Permitted Transfer executes a Joinder Agreement and thereby becomes a party
to this Investment Agreement; provided, however, that any Person receiving
Company Securities registered in a public offering or in a sale under Rule
144 of the Securities Act shall not be obligated to execute a Joinder
Agreement.
2.2 Involuntary Transfer.
(a) Upon the occurrence of any event that would cause any
Company Securities to be Transferred by Involuntary Transfer, the holder of
such Company Securities subject to such Involuntary Transfer (or the legal
representative or successor thereof) shall give the Company written notice
thereof stating the terms of such Involuntary Transfer, the identity of the
transferee or proposed transferee, the
A-III-6
price or other consideration, if readily determinable, for which the
Company Securities are proposed to be or have been Transferred and the
number of Company Securities which are the subject of such Transfer. Upon
the receipt of such notice, the Company shall have the right and option to
purchase all (but not less than all) of such Company Securities, which
right shall be exercised by written notice given by the Company to the
transferor (or transferee following occurrence of the Involuntary Transfer)
within a period of forty-five (45) days from the date by which the Company
receives such notice.
(b) If the Company otherwise obtains actual knowledge of an
Involuntary Transfer as to which written notice pursuant to Section 2.2(a)
has not been given, the Company shall have the right and option to purchase
all (but not less than all) of such Company Securities, which right shall
be exercised by written notice given by the Company to the transferor (or
transferee following the occurrence of the Involuntary Transfer) within
forty-five (45) days following the later of (i) the Company's obtaining
actual knowledge of such proposed or completed Transfer and (ii) the date
of such Involuntary Transfer.
(c) Any purchase pursuant to this Section 2.2 shall be at the
price and on the terms applicable to such Involuntary Transfer. If the
nature of the event giving rise to such Involuntary Transfer is such that
no readily determinable consideration is to be paid for or assigned to the
Transfer of the Company Securities, the price to be paid by the Company for
each of the Company Securities shall be the Fair Market Value thereof as of
the date of Transfer. The closing of the purchase and sale of such Company
Securities pursuant to this Section 2.2 shall be held at the place and on
the date established by the Company, which in no event shall be less than
ten (10) nor more than thirty (30) days from the date on which the Company
gives notice of its election to purchase such Company Securities, and shall
be in accordance with the procedures set forth in this Section 2.2.
ARTICLE III
STANDSTILL AGREEMENT
3.1 Standstill Restrictions.
(a) During a period of five years following the Closing Date,
Capital Z, Reservoir, Rainwater and any transferee receiving Company
Securities covenant and agree that, without the prior affirmative vote of a
majority of the members of the Board of Directors in a specific resolution
to that effect adopted prior to the taking of such action, they shall not,
and they shall not permit any of their respective Affiliates to, directly
or indirectly acquire, agree to acquire, propose to acquire (or publicly
announce or otherwise disclose an intention to propose to acquire) or offer
to acquire or become the beneficial owner of, or obtain any rights in
respect of, by purchase or otherwise, any (x) material asset of the Company
or any Subsidiary or (y) additional Common Shares or other capital shares
of the Company
A-III-7
(provided that holders of Company Securities shall be permitted to convert
their Preferred Shares and Convertible Common Shares in accordance with the
terms thereof) and it being understood and agreed that neither Capital Z
nor Reservoir shall be deemed to beneficially own any capital shares or
assets of the Company held by their limited partners or held by investment
partnerships or funds in which Reservoir, Capital Z or Rainwater or their
respective Affiliates have invested, in each case provided that such
limited partner, investment partnership or investment fund is not an
Affiliate of Capital Z or Reservoir, as applicable.
(b) So long as Capital Z, Reservoir, Rainwater and any
transferee receiving Company Securities own any Preferred Shares or
Convertible Common Shares, Capital Z, Reservoir, Rainwater and any
transferee receiving Company Securities covenant and agree that without the
prior affirmative vote of a majority of the members of the Board of
Directors in a specific resolution to that effect adopted prior to the
taking of such action, they shall not, and they shall not permit any of
their respective Affiliates to, directly or indirectly:
(i) sell short any Common Shares or other capital shares of
the Company except as provided below in Section 3.1(d);
(ii) engage in any Hedging Transactions except as provided
below in Section 3.1(d);
(iii) propose (or publicly announce or otherwise disclose an
intention to propose), solicit, offer, seek to effect, negotiate with
or provide any confidential information relating to the Company or its
business to any other Person with respect to, any tender or exchange
offer, merger, amalgamation, consolidation, share exchange, business
combination, restructuring, recapitalization or similar transaction
involving the Company;
(iv) make, or in any way participate in, or assist any
Person in, any "solicitation" of "proxies" to vote (as such terms are
defined in Rule 14a-1 under the Exchange Act), solicit any consent
with respect to the voting of any Company Securities or become a
"participant" (as such term is defined in Item 4, Instruction 3 of
Schedule 14A to the Exchange Act) in any solicitation subject to Rule
14a-12(c) under the Exchange Act with respect to the Company;
(v) initiate, propose or otherwise solicit shareholders for
the approval of one or more shareholder proposals with respect to the
Company as described in Rule 14a-8 under the Exchange Act, or induce
or attempt to induce any other Person to initiate any shareholder
proposal;
(vi) except to the extent contemplated by this Investment
Agreement, form, join or in any other way participate in any
partnership, pooling agreement, syndicate, voting trust or other
"group" with respect to the Company Securities or otherwise act in
concert with any third Person for the purpose of (x)
A-III-8
acquiring any Company Securities or (y) holding or disposing of
Company Securities for any purpose otherwise prohibited by this
Section 3.1;
(vii) except as specifically provided for in the Bye-Laws of
the Company, deposit any Company Securities into a voting trust or
subject any Company Securities to any arrangement or agreement with
respect to the voting thereof;
(viii) call or seek to have called any meeting of the
shareholders of the Company for any purpose otherwise prohibited by
this Section 3.1;
(ix) take any other action to seek control of the Company;
or
(x) agree to do any of the foregoing, or advise, assist,
encourage or persuade any Person to take any action with respect to
any of the foregoing.
(c) Each holder of Company Securities agrees that it will notify
the Company promptly if any written inquiries or written proposals are
received by, any written information is exchanged with respect to, or any
substantive negotiations or discussions are initiated or continued with,
any Purchaser or any of their respective Affiliates regarding any matter
described in this Section 3.1.
(d) Notwithstanding the restrictions set forth above in Section
3.1(a) or (b), with respect to any or all Company Securities, from and
after the first anniversary of the Closing, the holders of Company
Securities may (i) effect prepaid forward contracts, zero premium collars,
call sales, and capped call spread forwards and (ii) engage in similar
newly created hedging transactions (collectively, "Allowed Hedging
Contracts").
ARTICLE IV
REGISTRATION RIGHTS
4.1 Requests for Registration. (a) On or after the first
anniversary of the Closing, the Capital Z Holders (collectively), the
Reservoir Holders (collectively) and the Rainwater Holders (collectively)
may each request in writing that the Company register under the Securities
Act all or part of the Registrable Securities owned by them (x) on Form S-1
or any similar long-form registration statement (any such registration, a
"Long-Form Registration") or (y) on Form S-3 or any similar short-form
registration statement (any such registration, a "Short-Form
Registration"), if the Company qualifies to use such short form, and any
such written notice shall specify the number of Registrable Securities to
be registered. Thereafter, the Company shall use its best efforts to effect
the registration under the Securities Act and to include in such
registration (x) all Registrable Securities which such Requesting Holders
have so requested to be included therein and (y) all other Registrable
Securities to be included pursuant to this Article IV.
A-III-9
(b) Any Requesting Holders that request a Demand Registration pursuant
to Section 4.1(a) may, at any time prior to the effective date of the
registration statement relating to such Demand Registration, revoke such request
by providing written notice to the Company; provided, however, that
notwithstanding such revocation, such Demand Registration shall be deemed a
request for purposes of Section 4.2 unless such Requesting Holders agree to pay
for all of the Registration Expenses incurred by the Company with respect to
such revoked Demand Registration.
(c) With respect to any Demand Registration where the number of
securities covered by the applicable registration statement is less than 50% of
the Registrable Securities requested by the Requesting Holders to be included in
such Demand Registration, the Requesting Holders may decide (x) to proceed with
such Demand Registration, provided, however, that such Demand Registration shall
not be deemed a request for purposes of Section 4.2 or (y) to abandon such
Demand Registration, in which case the Company shall reimburse the Requesting
Holders for all reasonable expenses (not limited to Selling Expenses) incurred
in connection with such abandoned Demand Registration and such Demand
Registration shall not be deemed a request for purposes of Section 4.2.
4.2 Long-Form Registrations. The Company shall be obligated to
effect up to two Long-Form Registrations for each of (a) the Capital Z
Holders (as a group) and (b) the Reservoir Holders and the Rainwater
Holders (as a group); provided, however, that the Company shall have no
obligation to file such Long-Form Registration unless the request for such
registration has been made by (x) in the case of the Capital Z Holders, the
holders of a majority of Company Securities held by the Capital Z Holders
on the date of such request and (y) in the case of the Reservoir Holders
and Rainwater Holders, the holders of a majority of Company Securities held
by the Reservoir Holders and Rainwater Holders on the date of such request;
and provided, further, that the Company shall have no obligation to file
such Long-Form Registration unless the reasonable anticipated aggregate
offering price for the Registrable Securities covered by such Long-Form
Registration would exceed $22,500,000. The Company shall pay all
Registration Expenses and the Requesting Holders shall pay all Selling
Expenses in connection with such Long-Form Registration. All Long-Form
Registrations (unless otherwise requested by the relevant Requesting
Holders) shall be underwritten registrations.
4.3 Short-Form Registrations. In addition to the Long-Form
Registrations contemplated by Section 4.2, Capital Z Holders, Reservoir
Holders and Rainwater Holders shall be entitled to request an unlimited
number of Short-Form Registrations, with respect to which the Company shall
pay all Registration Expenses and the Requesting Holders shall pay all
Selling Expenses; provided, however, that the Company shall have no
obligation to file such Short-Form Registration unless the reasonable
anticipated aggregate offering price would exceed $2,000,000. Demand
Registrations will be Short-Form Registrations whenever the Company is
qualified to use Form S-3 or any similar short form registration statement.
The Company shall
A-III-10
not be required to effect more than two Short-Form Registrations in any
consecutive 12 month period.
4.4 Priority on Demand Registrations. If a Demand Registration
is an underwritten offering and the managing underwriters advise the
Company in writing that in their opinion the number of Registrable
Securities requested to be included exceeds the number of Registrable
Securities which can be sold in such offering without adversely affecting
the marketability of such offering, the Company shall include any
securities to be sold in such Demand Registration in the following order:
(i) first, the Registrable Securities requested to be included in such
registration by the Requesting Holders and by the Piggyback Holders
(pursuant to Section 4.7(a)), pro rata, based upon their total ownership,
on a fully diluted basis; (ii) second, the securities which the Company
proposes to sell; and (iii) third, any securities other than Registrable
Securities to be sold by Persons other than the Company included pursuant
to Section 4.5.
4.5 Other Registration Rights. Except as provided in this
Investment Agreement, without the written consent of a majority (by number
of shares) of the holders of the Preferred Shares, the Company will not
grant to any Person the right to request the Company to register any equity
securities of the Company, or any securities convertible, exchangeable or
exercisable for or into such securities, other than registration rights
which are junior in all instances to the rights granted to the Holders in
this Article IV.
4.6 Blackout Events. If, in the reasonable good faith judgment
of the Company, any pending bankruptcy or insolvency, pending material
merger, amalgamation, acquisition, corporate reorganization, other material
transaction or other event or circumstance involving the Company or any of
its Affiliates makes it imprudent for the Company to file a registration
statement or to be in registration (any such event, circumstance or
transaction, a "Blackout Event"), the Company shall not be obligated to
effect (whether by filing a registration statement, seeking effectiveness
of a registration statement or otherwise) any registration requested by the
Capital Z Holders, the Reservoir Holders or the Rainwater Holders;
provided, however, that the Company may only refuse to effect such
registration twice in any twelve month period. If the Company determines
that a Blackout Event exists, any registration requested by Capital Z
Holders, Reservoir Holders or Rainwater Holders shall be postponed until
the Blackout Event no longer exists; provided, further, that no such
postponement shall exceed 90 days. In the event a Blackout Event exists and
the Company has elected to postpone any registration, in the case of a
Demand Registration, the Requesting Holders may choose to withdraw their
request for registration and such withdrawn request shall not be deemed a
request for purposes of Section 4.2 and the Company shall reimburse the
Requesting Holders and any Piggyback Holders for all reasonable expenses
(not limited to Selling Expenses) incurred with such abandoned
registration.
A-III-11
4.7 Right to Piggyback. (a) Whenever the Company proposes to
register any of its equity securities under the Securities Act on behalf of
the Company or otherwise (including pursuant to Section 4.1(a)) (other than
on Forms S-4 or S-8 or any successor forms), the Company shall give written
notice to all Holders (or holders of Preferred Shares if all such Shares
have not yet been converted) (the "Piggyback Holders"). If any Piggyback
Holders so request in writing within thirty (30) days after delivery of
such notice by the Company, the Company shall include in any such
registration statement the Registrable Securities held by such Piggyback
Holder and requested to be included in such registration. Any such written
request by the Piggyback Holders shall contain an undertaking on the part
of each Piggyback Holder to provide all such information and materials
concerning such Piggyback Holder and the distribution proposed by such
Piggyback Holder as the Company may reasonably request in order to comply
with all applicable requirements in connection with such registration.
(b) If such registration is an underwritten offering and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included exceeds the number of securities which can
be sold in such offering without adversely affecting the marketability of such
offering, the Company shall include any securities to be sold in such
registration in the following order: (i) first, in the case where such
registration is not a Demand Registration, the securities requested to be
included in such registration by the Company (if such registration is a
registration initiated by the Company) or any other Person (if such registration
is not a registration initiated by the Company) who, subject to Section 4.5, can
request such registration; (ii) second, the securities requested to be included
by the Piggyback Holders; and (iii) third, any securities to be sold by any
other Person or the Company (if such shares are not included pursuant to clause
(i) above). Notwithstanding the foregoing, with respect to any Demand
Registration, the priorities set forth in Section 4.4 shall control such Demand
Registration.
4.8 Piggyback Expenses. In all Piggyback Registrations, (a) the
Registration Expenses of the Holders of the Registrable Securities shall be
paid by the Company and (b) the Selling Expenses applicable to the
Registrable Securities shall be borne by the Piggyback Holders thereof in
proportion to the number of Registrable Securities sold by such Piggyback
Holder pursuant to such registration.
4.9 Holdback. Each Holder of Registrable Securities agrees, so
long as every director and officer also agrees, not to effect any public
sale or distribution of Registrable Securities, or any securities
convertible, exchangeable or exercisable for or into Registrable
Securities, during the seven days prior to, and the 90-day period beginning
on, the effective date of any underwritten offering (unless the managing
underwriters of such underwritten offering otherwise agree).
4.10 Selection of Underwriters. In connection with any
registration pursuant to Section 4.1(a), the Holders requesting such
registration may effect the
A-III-12
offer and sale of Registrable Securities pursuant to an underwritten
offering with underwriters selected by such Holders and reasonably
acceptable to the Company.
4.11 Registration Procedures. If and whenever the Company is
required by the provisions of this Agreement to use its best efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, the Company shall:
(a) prepare and file with the Commission a registration
statement (the "Registration Statement") with respect to such Registrable
Securities and use commercially reasonable efforts to cause that
Registration Statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission any amendments and
supplements to the Registration Statement and the prospectus in connection
therewith as may be necessary to keep the Registration Statement effective
until the earliest of (i) the period of time required by the Commission,
(ii) 180 days from the effective date and (iii) the sale of all Registrable
Securities covered thereby; provided that the Company may discontinue any
registration of its securities that are not Registrable Securities (and,
under the circumstances specified in Section 4.6, its securities that are
Registrable Securities) at any time prior to the effective date of such
Registration Statement;
(c) furnish to each selling Holder such reasonable number of
copies of the prospectus, including each preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as the selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities owned by the selling Holder;
(d) use commercially reasonable efforts to register or qualify
the Registrable Securities covered by the Registration Statement under the
securities or blue sky laws of such states as the selling Holders shall
reasonably request, and do any and all other acts that may be reasonably
necessary to enable the selling Holders to consummate the public sale or
other disposition in such states of the Registrable Securities owned by the
selling Holder; provided, however, that the Company shall not be required
in connection with this Section 4.11(d) to qualify as a foreign corporation
or execute a general consent to service of process in any jurisdiction;
(e) in connection with any underwritten offering, obtain a
comfort letter from the Company's independent public accountants who have
certified the Company's financial statements included in such Registration
Statement in customary form and covering such matters of the type
customarily covered by comfort letters and an opinion from the Company's
counsel in customary form and covering such matters of the type customarily
covered in public issuances of securities;
A-III-13
(f) notify each Holder of Registrable Securities covered by the
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event of which the Company has knowledge as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. Each Holder of Registrable Securities agrees upon receipt of such
notice forthwith to cease making offers and sales of Registrable Securities
pursuant to such Registration Statement or deliveries of the prospectus
contained therein for any purpose until the Company has prepared and
furnished such amendment or supplement to the prospectus as may be
necessary so that, as thereafter delivered to purchasers of such
Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any
Holders of Registrable Securities, use commercially reasonable efforts to
furnish on the date that Registrable Securities are delivered to the
underwriters for sale pursuant to such registration: (i) an opinion dated
such date of counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to such Holder, covering
such matters as are customarily covered in opinions of issuer's counsel
delivered to the underwriters in connection with underwritten public
offerings and (ii) a letter dated such date from the independent certified
public accountants retained by the Company, addressed to the underwriters
and to such Holder, stating that they are independent certified public
accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements of the Company
included in the Registration Statement or the prospectus, or any amendment
or supplement thereof, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including
information as to the period ending no more than five Business Days prior
to the date of such letter) with respect to such registration as such
underwriters reasonably may request;
(h) make available for inspection upon reasonable notice during
the Company's regular business hours by each Holder of Registrable
Securities, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by such Holder or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney, accountant
or agent in connection with such Registration Statement; provided, however,
that there shall be no obligation to provide any such information unless
and
A-III-14
until any recipient of such information has executed a confidentiality
agreement in form and substance reasonably satisfactory to the Company; and
(i) provide a CUSIP number for all Registrable Securities
covered by such Registration Statement not later than the effective date of
such Registration Statement and, if applicable, provide the Company's
transfer agent with printed certificates for such Registrable Securities
which are in a form eligible for deposit with the Depositary Trust Company.
In connection with each registration hereunder, each Holder of
Registrable Shares shall (a) provide such information and execute such documents
as may reasonably be required in connection with such registration, (b) agree to
sell Registrable Shares on the basis provided in any underwriting arrangements
and (c) complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements, which arrangements shall not be
inconsistent herewith.
4.12 Fees Generally. (a) All expenses incident to the Company's
performance of or compliance with this Article IV, including without
limitation internal expenses (including without limitation all salaries and
expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the expense
of any liability insurance, the expenses and fees for listing securities on
one or more securities exchanges, all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), printing expenses, messenger
and delivery expenses, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding underwriting fees, discounts and commissions) and other Persons
retained by the Company (all such expenses being herein called
"Registration Expenses") shall be borne by the Company, except that each
Holder shall pay any underwriting fees, discounts or commissions
attributable to the sale of its Registrable Securities (all such expenses
being herein called "Selling Expenses").
(b) In connection with each Demand Registration and Piggyback
Registration, the Company shall reimburse the Requesting Holders and Piggyback
Holders, respectively, for the reasonable fees and disbursements of one counsel
selected by the Requesting Holders.
4.13 Number of Registration Requests. For the avoidance of doubt,
the rights granted pursuant to Sections 4.1 and 4.2 inure to the benefit of
the Capital Z Holders collectively on the one hand, and the Reservoir
Holders and the Rainwater Holders collectively, on the other hand.
A-III-15
ARTICLE V
INDEMNIFICATION
5.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder and the Affiliates of such Holder,
and their respective directors, officers, general and limited partners,
agents and representatives, and each other person, if any, who controls
such Holder within the meaning of the Securities Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations: (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus (but only if such statement
is not corrected in the final prospectus) contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading (but only if such omission is
not corrected in the final prospectus) or (iii) any violation or alleged
violation by the Company in connection with the registration of Registrable
Securities under the Securities Act, the Exchange Act, any state securities
law or any rule or regulation promulgated under the Securities Act, the
Exchange Act or any state securities law (each a "Violation"); and the
Company will pay to each such Holder, Affiliate or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement
contained in this Section 5.1 shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by any such Holder or controlling person.
Each indemnified party shall 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 defense of
such claim and litigation resulting therefrom.
5.2 Indemnification by a Holder. To the extent permitted by law,
each selling Holder (including without limitation Piggyback Holders) will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject, under
the Securities Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages or
A-III-16
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent that such Violation occurs in
reliance upon and in conformity with written information furnished (and not
subsequently corrected prior to the Company's request that the registration
statement be declared effective) by such Holder expressly for use in
connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this Section 5.2 in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 5.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without
the consent of such Holder, which consent shall not be unreasonably
withheld; provided that in no event shall any indemnity under this Section
5.2 exceed the net proceeds from the offering received by such Holder.
5.3 Contribution by Indemnifying Party. (a) If the
indemnification provided for in this Article V from the indemnifying party
is unavailable to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable
by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
(b) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.3 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
5.4 Indemnification Procedure. Promptly after receipt by an
indemnified party under this Section 5.4 of notice of the commencement of
any action (including any governmental action), such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 5.4, deliver to
A-III-17
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties. The failure to deliver
written notice to the indemnifying party within a reasonable time after the
commencement of any such action, if materially prejudicial to its ability
to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 5.4 to the extent of
such prejudice, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 5.4. The
indemnified party shall have the right, but not the obligation, to
participate in the defense of any action referred to above through counsel
of its own choosing and shall have the right, but not the obligation, to
assert any and all separate defenses, cross claims or counterclaims which
it may have, and the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
has been specifically authorized in advance by the indemnifying party, (ii)
there is a conflict of interest that prevents counsel for the indemnifying
party from adequately representing the interests of the indemnified party
or there are defenses available to the indemnified party that are different
from, or additional to, the defenses that are available to the indemnifying
party, (iii) the indemnifying party does not employ counsel that is
reasonably satisfactory to the indemnified party within a reasonable period
of time or (iv) the indemnifying party fails to assume the defense or does
not reasonably contest such action in good faith, in which case, if the
indemnified party notifies the indemnifying party that it elects to employ
separate counsel, the indemnifying party shall not have the right to assume
the defense of such action on behalf of the indemnified party and the
reasonable fees and expenses of such separate counsel shall be borne by the
indemnifying party; provided, however, that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm (in addition to one firm acting as local counsel) for all
indemnified parties.
5.5 Underwriting Agreement. Notwithstanding the foregoing, to
the extent that the provisions on indemnification and contribution
contained in the underwriting agreement (if any) entered into in connection
with any underwritten public offering of the Registrable Securities are in
conflict with the foregoing provisions, the provisions in such underwriting
agreement shall control.
5.6 Financial Assistance. The Company shall have no obligation
under the provisions of Article IV and V unless and until the requirements
of any of the exclusions or exemptions applicable to the provisions of
Section 39 of the Companies Act of 1981 in Bermuda, as amended, are
satisfied so as to provide compliance with that section. Each Holder shall
waive or may approve, where formal meetings or written resolutions of
shareholders or other action may be appropriate to waive or approve, the
financial assistance as described in Section 39 and related
A-III-18
provisions. The provisions of Article V and VI hereof shall be subject to
this Article 5.6.
ARTICLE VI
MISCELLANEOUS
6.1 Specific Performance. In the event of a breach by any party
to this Investment Agreement of its obligations under this Investment
Agreement, any party injured by such breach, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this Investment
Agreement. The parties agree that the provisions of this Investment
Agreement shall be specifically enforceable, it being agreed by the parties
that the remedy at law, including monetary damages, for breach of any such
provision will be inadequate compensation for any loss and that any defense
in any action for specific performance that a remedy at law would be
adequate is waived.
6.2 Amendments. This Agreement may be amended, supplemented or
modified only by a written agreement signed by the Company, the Required
Capital Z Holders, the Required Reservoir Holders and the Required
Rainwater Holders.
6.3 Successors and Assigns. This Investment Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns of the parties hereto;
provided, however, that the benefits of this Investment Agreement shall
inure to and be enforceable by any transferee of Registrable Securities
only if such transferee shall have executed a Joinder Agreement.
6.4 Notices. (a) All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given if
delivered personally against written receipt or by facsimile transmission
against facsimile confirmation or mailed by prepaid first class certified
mail, return receipt requested or mailed by nationally recognized overnight
courier prepaid, to the parties at the following addresses or facsimile
numbers:
If to any Capital Z Holder, to:
Capital Z Financial Services Fund II, L.P.
54 Thompson Street
New York, NY 10012
Facsimile No.: (212) 965-2301
Attn: General Counsel
A-III-19
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Facsimile No.: (212) 310-8007
Attn: Joseph T. Verdesca, Jr., Esq.
If to any Reservoir Holder, to:
Reservoir Capital Partners, L.P.
c/o Reservoir Capital Group, L.L.C.
650 Madison Avenue, 26th Floor
New York, New York 10022
Facsimile No.: (212) 610-9020
Attn: Craig Huff
with a copy to:
Reservoir Capital Partners, L.P.
c/o Reservoir Capital Group, L.L.C.
650 Madison Avenue, 26th Floor
New York, New York 10022
Facsimile No.: (212) 610-9020
Attn: General Counsel
with a second copy to:
Reservoir Capital Partners, L.P.
c/o Reservoir Capital Group, L.L.C.
650 Madison Avenue, 26th Floor
New York, New York 10022
Facsimile No.: (212) 610-9020
Attn: Aaron Goldberg
If to any Rainwater Holder:
Richard E. Rainwater
777 Main Street
Suite 2250
Fort Worth, TX 76102
Facsimile No.: (817) 820-6650
A-III-20
with a copy to:
Thompson & Knight L.L.P.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Facsimile No.: (214) 969-1751
Attn: Jeffrey A. Zlotky
If to the Company, to:
PXRE Group Ltd.
Suite 231
12 Church Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 296-6162
Attn: Gerald L. Radke
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Nancy Corbett, Esq.
(b) All such notices, requests and other communications will (i) if
delivered personally to the address as provided in this Section 6.4, be deemed
given upon delivery, (ii) if delivered by facsimile transmission to the
facsimile number as provided in this Section 6.4, be deemed given upon facsimile
confirmation, and (iii) if delivered by mail in the manner described above to
the address as provided in this Section 6.4, be deemed given on the earlier of
the third Business Day following mailing or upon receipt and (iv) if delivered
by overnight courier to the address as provided in this Section 6.4, be deemed
given on the earlier of the first Business Day following the date sent by such
nationally recognized overnight courier or upon receipt. Any party hereto may
from time to time change its address, facsimile number or other information for
the purpose of notices to such party by giving notice specifying such change to
the other parties hereto.
6.5 Rule 144. So long as Company is subject to the reporting
requirements under the Exchange Act, it shall comply with such requirements
so as to permit sales of Registrable Securities by the holders thereof
pursuant to Rule 144 under the Securities Act.
6.6 Headings; Certain Conventions. The headings used in this
Investment Agreement are for convenience of reference only and shall not
define or limit the provisions hereof.
6.7 Invalid Provisions. If any provision of this Investment
Agreement is held to be illegal, invalid or unenforceable under any present
or future law, and if
A-III-21
the rights or obligations of any party hereto under this Investment
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Investment Agreement will be
construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof, (c) the remaining provisions
of this Investment Agreement will remain in full force and effect and will
not be affected by the illegal, invalid or unenforceable provision or by
its severance therefrom and (d) in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically as a part of
this Investment Agreement a legal, valid and enforceable provision as
similar in terms to such illegal, invalid or unenforceable provision as may
be possible.
6.8 Governing Law. This Investment Agreement shall be governed
by and construed in accordance with the domestic laws of the State of New
York, without giving effect to any choice or conflict of law provision or
rule (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
State of New York.
6.9 Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES),
THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE
OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE OPERATIVE
AGREEMENTS OR ANY DOCUMENTS RELATED HERETO.
6.10 Jurisdiction. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state courts of the State of New York located
in New York County and the United States Federal District Court of the
Southern District of New York for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or the subject
matter hereof and agrees that any such action, suit or proceeding shall be
brought only in such court (and waives any objection based on forum non
conveniens or any other objection to venue therein); provided however, that
such consent to jurisdiction is solely for the purpose referred to in this
Section 6.10 and shall not be deemed to be a general submission to the
jurisdiction of said Courts other than for such purpose.
6.11 Counterparts. This Investment Agreement may be executed in
any number of counterparts, each of which will be deemed an original, but
all of which together will constitute one and the same instrument.
A-III-22
6.12 Entire Agreement. This Investment Agreement supersedes all
prior discussions and agreements between the parties with respect to the
subject matter hereof and contains the sole and entire agreement among the
parties hereto with respect to the subject matter hereof, and in the event
of any conflict between this Agreement and the Bye-Laws of the Company,
this Agreement shall govern.
[Signature page follows]
A-III-23
IN WITNESS WHEREOF, the parties have executed this Investment Agreement
as of the date first written above.
PXRE GROUP LTD.
By:
---------------------------------------
Name:
Title:
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.
By: Capital Z Partners, L.P.,
its general partner
By: Capital Z Partners, Ltd.,
its general partner
By:
---------------------------------------
Name:
Title:
CAPITAL Z FINANCIAL SERVICES PRIVATE FUND
II, L.P.
By: Capital Z Partners, L.P.,
its general partner
By: Capital Z Partners, Ltd.,
its general partner
By:
---------------------------------------
Name:
Title:
RESERVOIR CAPITAL PARTNERS, L.P.
By: Reservoir Capital Group, L.L.C.,
its sole general partner
By:
------------------------------------
Name:
Title:
A-III-24
RESERVOIR CAPITAL MASTER FUND, L.P.
By: Reservoir Capital Group, L.L.C.,
its sole general partner
By:
------------------------------------
Name:
Title:
------------------------------
Richard E. Rainwater
A-III-25
PXRE GROUP LTD.
PROXY
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________________, 2002
The undersigned hereby appoints Gerald L. Radke and James F. Dore, and
each of them, with full power of substitution, the proxies of the undersigned to
vote all shares of Common Shares of PXRE Group Ltd. (the Company) which the
undersigned is entitled to vote at the Special Meeting of Shareholders, to be
held at the offices of PXRE Group Ltd., 99 Front Street, Hamilton HM 12, Bermuda
on ______________, 2002, commencing at 10 a.m., local time, or any adjournment
or adjournments thereof, with all the powers the undersigned would possess if
personally present upon:
[X] Please mark your votes as in this example.
The Board of Directors recommends a vote FOR Proposal 1.
1. Approval of the sale and issuance of 7,500 Series A Convertible Voting
Preferred Shares, 5,000 Series B Convertible Voting Preferred Shares and 2,500
Series C Convertible Voting Preferred Shares, each in sub-series.
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For Against Abstain
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[ ] [ ] [ ]
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The Board of Directors recommends a vote FOR Proposal 2.
2. Division of 20,000,000 of the Company's 50,000,000 authorized Common Shares
into three new classes of common shares: 10,000,000 Class A Convertible Voting
Common Shares, 6,666,666-2/3 Class B Convertible Voting Common Shares and
3,333,333-1/3 Class C Convertible Voting Common Shares and each such share to be
automatically redesignated as a Common Share of the Company upon, and to the
extent of, the exercise of the conversion rights attaching to Class A, Class B
and Class C Convertible Voting Common Shares on a one-for-one basis.
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For Against Abstain
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[ ] [ ] [ ]
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The Board of Directors recommends a vote FOR Proposal 3.
3. Authorization of the expansion of the Board of Directors by two members to a
total of eleven members.
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For Against Abstain
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[ ] [ ] [ ]
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The Board of Directors recommends a vote FOR Proposal 4.
4. As a special resolution, an amendment to Bye-law 22, to add to the beginning
thereof the words "This Bye-law 22 shall be read subject to any special
resolution of the Members relating thereto" and as a special resolution, the
creation of a new Class IV Director in terms of the attached wording.
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For Against Abstain
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[ ] [ ] [ ]
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This Proxy is solicited on behalf of the Board of Directors. The proxy
will be voted as directed. In the absence of direction, it will be voted FOR
Proposals 1, 2, 3 and 4. On any other matters that may come before the meeting,
this Proxy will be voted at the discretion of the persons named.
Signature __________________________ Date_____________
Please sign your name exactly as it appears hereon. When signing as an
attorney, agent, executor, administrator, trustee, guardian or corporate
officer, please give your full title as such. Each joint owner should sign the
Proxy.
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as..............................'SS'