CGA GROUP, LTD.
SHAREHOLDERS AGREEMENT
DATED AS OF JUNE 12, 1997
AS AMENDED AND RESTATED AS OF MARCH 31, 1999
TABLE OF CONTENTS
Page
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1. TRANSFERS............................................................ 3
(a) Separation of Investment Units and Resale of Securities........ 3
(b) Right of First Offer........................................... 4
(c) Drag Along Right............................................... 6
(d) Tag Along Right................................................ 7
(e) Preemption Right............................................... 8
(f) Regulatory Transfer............................................ 10
(g) Termination of Rights.......................................... 10
2. RESTRICTIONS ON STOCK OWNERSHIP...................................... 10
(a) Share Ownership Limitations.................................... 10
(b) Prompt Disposition of Shares................................... 11
(c) Manner of Disposition.......................................... 12
3. REGISTRATION RIGHTS.................................................. 12
(a) Definitions.................................................... 12
(b) Demand Registration............................................ 13
(c) Piggyback Registration......................................... 16
(d) Expenses of Registration....................................... 17
(e) Registration Procedures........................................ 17
(f) Indemnification................................................ 20
(g) Information by the Holders..................................... 24
(h) Rule 144 Reporting............................................. 24
(i) "Market Stand-off" Agreement................................... 25
(j) Assignability.................................................. 26
(k) Termination.................................................... 26
4. INFORMATION AS TO COMPANY AND RELATED COVENANTS...................... 26
(a) Auditors....................................................... 26
(b) Financial Information.......................................... 26
(c) Business Report................................................ 27
(d) Inspection..................................................... 27
5. DEFINITIONS.......................................................... 27
(a) Terms Defined.................................................. 27
6. MISCELLANEOUS........................................................ 29
(a) Legends........................................................ 29
(b) Waiver; Amendments............................................. 29
(c) Amendment of Schedules I and II to this Agreement.............. 30
(d) Recapitalization, Exchanges, Etc............................... 30
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(e) Specific Performance........................................... 30
(f) Notices........................................................ 30
(g) Successors and Assigns......................................... 31
(h) Counterparts................................................... 31
(i) Entire Agreement............................................... 31
(j) Applicable Law................................................. 31
(k) Section Headings............................................... 31
(l) Holders of Warrant Shares...................................... 32
(m) Series B Holders............................................... 32
(n) Series C Holders............................................... 32
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SHAREHOLDERS AGREEMENT
Shareholders Agreement, dated as of June 12, 1997, as amended and restated
as of March 31, 1999 (this "Agreement") among CGA Group, Ltd., a company with
limited liability organized under the laws of Bermuda (the "Company"), each of
the persons whose names and addresses appear on Schedule I hereto, as such
Schedule I may be amended from time to time in accordance with the terms hereof
(the "Common Holders") and each of the persons whose names and addresses appear
on Schedule II hereto, as such Schedule II may be amended from time to time in
accordance with the terms hereof (the "Series C Holders"). It is expressly
understood among the parties that the term "Common Holders", as used herein,
shall include, without limitation, holders of Series B Conversion Shares and/or
Series C Conversion Shares (each as defined below). Each of the foregoing
defined terms shall include such persons' successors and assigns as permitted by
this Agreement. Certain capitalized terms used in this Agreement have the
meanings set forth in Section 5 of this Agreement.
RECITALS
WHEREAS, the Company has issued or has agreed to issue shares of the
following classes of capital stock: (i) Series A Cumulative Voting Preference
Shares, par value $.01 per share, of the Company ("Series A Preferred Stock"),
(ii) Series B Cumulative Voting Preference Shares, par value $.01 per share, of
the Company ("Series B Preferred Stock"), (iii) Series C Cumulative Voting
Preference Shares, par value $.01 per share, of the Company ("Series C Preferred
Stock") and (iv) common stock, par value of $.01 per share, of the Company (the
"Common Stock") (the Common Stock, the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, and any other shares of capital
stock of the Company, being collectively referred to herein as the "Company
Stock"); and
WHEREAS, certain investors have (i) purchased, pursuant to the terms of the
Series A Preferred Stock Subscription Agreement, dated as of June 9, 1997 (the
"Series A Preferred Stock Subscription Agreement"), the Series A Preferred Stock
and (ii) purchased, pursuant to the terms of the Warrant Acquisition Agreement,
dated as of June 9, 1997 (the "Warrant Acquisition Agreement"), warrants
("Warrants") to purchase Common Stock (or such shares of other stock into which
such Common Stock may have been converted prior to the exercise of the Warrant);
and
WHEREAS, certain initial Common Holders have purchased, pursuant to the
terms of the Investment Units Subscription Agreement, dated as of June 4, 1997
(the "Investment Units Subscription Agreement"), an aggregate of 1,600,000
investment units (the "Investment Units"), each such Investment Unit consisting
(a) prior to the Series B Conversion (as defined below) of (i) one share of
Series B Preferred Stock, (ii) 4.8925 shares of Common Stock, and (iii) upon the
occurrence of certain events described in such subscription agreement, one and
one-half (1.5) additional shares of Series B Preferred Stock (the "Commitment")
and (b) following the Series B Conversion (as defined below), of (i) a number of
shares of Common Stock equal to the ratio for such
shares set forth in the Company's Amended and Restated Bye-laws, (ii) 4.8925
shares of Common Stock and (iii) the Commitment; and
WHEREAS, certain other initial Common Holders have (i) purchased, pursuant
to the Founders' Subscription Agreement, dated as of June 12, 1997 (the
"Founders' Subscription Agreement"), an aggregate of 1,272,043 shares of Common
Stock and (ii) purchased, pursuant to the terms of the Sponsoring Investors' and
Founders' Stock Warrant Plan, dated as of June 17, 1997 (the "Sponsoring
Investors' and Founders' Stock Warrant Plan"), an aggregate of 847,729 warrants
to purchase Common Stock ("Sponsoring Investors' and Founders' Warrants"); and
WHEREAS, certain management employees of the Company have received and will
continue to receive the right to purchase, over the prescribed vesting period,
an aggregate of 1,494,771 warrants to purchase Common Stock (or such shares of
other stock into which such Common Stock may have been converted prior to the
exercise of the warrants) ("Employee Warrants") pursuant to the terms of the
Employee Stock Warrant Plan dated of June 17, 1997 (the "Employee Stock Warrant
Plan") (the Warrants, Sponsoring Investors' and Founders' Warrants and Employee
Warrants, collectively the "Warrant Shares"); and
WHEREAS, pursuant to the Company's Amended and Restated Bye-laws, the
issued and outstanding shares of Series B Preferred Stock shall, on the closing
date of the Company's initial issuance of Series C Preferred Stock (the "Series
C Closing Date"), automatically convert (the "Series B Conversion") into shares
of Common Stock (the "Series B Conversion Shares"), subject to the Maximum
Percentage limitations set forth in the Company's Amended and Restated Bye-laws;
and
WHEREAS, certain investors have agreed, pursuant to the terms of the Series
C Preferred Stock Subscription Agreement dated as of March 1, 1999 (the "Series
C Subscription Agreement"), to purchase on the Series C Closing Date the Series
C Preferred Stock, which shall be convertible into Common Shares (the "Series C
Conversion Shares") of the Company, on the terms and at the conversion ratio set
forth in the Company's Amended and Restated Bye-laws; and
WHEREAS, the parties hereto have agreed that, as of the date of the Series
B Conversion or of the conversion of any shares of Series C Preferred Stock into
Series C Conversion Shares, the holders of such Series B Conversion Shares
and/or Series C Conversion Shares shall be required to become party to this
Agreement and be bound by the provisions of this Agreement to the extent of
their ownership of such shares, it being understood that the Series B Conversion
Shares and Series C Conversion Shares shall be shares of Common Stock, as such
term is used in this Agreement; and
WHEREAS, the Common Holders and the Company desire to enter into the
agreements contained herein with respect to certain matters relating to the
operations of the Company and the disposition of Company Stock.
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NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. TRANSFERS
(a) Separation of Investment Units and Resale of Securities.
(i) Prior to the occurrence of a Separation Event (as defined below), no
Common Holder may transfer any Company Stock constituting a part of an
Investment Unit other than collectively as a unit with the other Common Stock,
Series B Preferred Stock and the Commitment constituting a part of such
Investment Unit. Upon the occurrence of a Separation Event, a Common Holder may
transfer some or all of the Common Stock, the Series B Preferred Stock and the
Commitment constituting an Investment Unit other than collectively as a unit,
subject to applicable restrictions on transfers of Company Stock or Units set
forth in this Agreement, the Investment Units Subscription Agreement and the
Company's Amended and Restated Bye-Laws. The non-collective transfers described
in the immediately preceding sentence are referred to herein as the "Separate
Transfers". As used herein, the phrase "Separation Event" means the earlier to
occur of (x) a Trigger Event, provided that the Company receives written
notification from Duff & ▇▇▇▇▇▇ Credit Rating Company ("DCR") that neither such
Trigger Event nor the Separate Transfers will cause the claims paying ability
rating of Commercial Guaranty Assurance, Ltd. to be downgraded by DCR or (y)
receipt by the Company of written notification from DCR that the Separate
Transfers will not cause DCR to downgrade CGA's claims paying ability. The
parties to this Agreement expressly agree that the Series B Conversion shall not
constitute a Separation Event. Within 10 days prior to the occurrence of each
Trigger Event, the Company shall request in writing that DCR deliver the written
notification referred to in the proviso to clause (x) above. Upon the request of
any Investment Unit holder, the Company shall request in writing that DCR
deliver the written notification specified in clause (y) above. Notwithstanding
the foregoing, prior to a Separation Event, Commitments with an aggregate value
(which value shall be determined based on the product of (A) the maximum number
of shares of Series B Preferred Stock required to be purchased pursuant to such
Commitments and (B) $25.00) of up to $7.5 million may be transferred separately
from the Common Stock and Series B Preferred Stock constituting the Investment
Units held by a Common Holder without receipt from DCR of the notices provided
above; provided, further, that Olympus Growth Fund II, L.P. and Olympus
Executive Fund, L.P. shall have the first right, prior to any other Common
Holder, to so transfer all or any portion of the Commitments that it, or its
Affiliates, own; provided, further, that if Olympus Growth Fund II, L.P. and
Olympus Executive Fund, L.P. notifies the Company prior to the occurrence of a
Separation Event that it will not exercise such first right or that it will not
exercise such first right with respect to Commitments with an aggregate value of
$7.5 million, Commitments with an aggregate value equal to the difference
between $7.5 million and the aggregate value of the Commitments so transferred
by Olympus Growth Fund II, L.P. and Olympus Executive Fund, L.P. may be
transferred by such Common Holders as shall request such right on a pro rata
basis based on the amount of shares of Common Stock owned by each such
requesting Common Holder, as compared to the aggregate of all of the shares of
Common Stock owned by all
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of the requesting Common Holders, and as shall be approved by the Board of the
Company in its sole discretion.
(ii) No Common Holder shall transfer, prior to a Separation Event, any
Investment Units or Common Stock and, after a Separation Event, any Common Stock
held by such Common Holder, whether held separately or as part of one or more
Investment Units, other than, in each case, (a) in accordance with the Company's
Amended and Restated Bye-Laws and the provisions of this Section 1 and Section 2
hereof and (b) in accordance with Article VII of the Investment Unit
Subscription Agreement, Article VII of the Series C Subscription Agreement,
Article VII of the Founders' Subscription Agreement or Article IV of the Warrant
Acquisition Agreement, as the case may be. Unless (x) a registration statement
is in effect with respect to the Common Stock to be transferred or (y) the
transfer is made pursuant to Rule 144 of the Securities Act, or (z) the transfer
is of Common Stock that has been transferred previously pursuant to (x) or (y),
no Common Holder shall transfer any Common Stock whether held separately or as
part of one or more Investment Units, unless the transferee of such shares has
agreed to be bound by the terms of this Agreement and has duly executed a
counterpart of this Agreement. Any transfer or purported transfer made in
violation of this Section 1 and Section 2 hereof shall be null and void and of
no effect and the Company shall cause any correction required to be made to the
register of the Members of the Company to be effected.
(iii) No Series C Holder shall transfer any Series C Preferred Stock held
by such holder, other than, in each case, (a) in accordance with the Company's
Amended and Restated Bye-Laws and the provisions of this Section 1 and Section 2
hereof and (b) in accordance with Article VII of the Series C Subscription
Agreement. Unless (x) a registration statement is in effect with respect to the
Series C Preferred Stock, or (y) the transfer is made pursuant to Rule 144 of
the Securities Act, or (z) the transfer is of stock that has been transferred
previously pursuant to (x) or (y), no Series C Holder shall transfer any such
shares unless the transferee of such shares has agreed to be bound by the terms
of this Agreement and has duly executed a counterpart of this Agreement. Any
transfer or purported transfer made in violation of this Section 1 and Section 2
hereof shall be null and void and of no effect and the Company shall cause any
correction required to be made to the register of the Members of the Company to
be effected.
(b) Right of First Offer.
(i) Subject to subsection (vii) below, any Common Holder desiring to
transfer, prior to any Separation Event, Investment Units or Common Stock,
whether held separately or as part of one or more Investment Units and after a
Separation Event any Common Stock (hereinafter for purposes of this Section 1(b)
only, the "Securities"), held by such Common Holder (the "Seller") shall give
written notice (the "Sales Notice") to the other Common Holders that the Seller
desires to effect such a transfer (a "Sale") and setting forth the number of
Investment Units or shares of Common Stock proposed to be transferred by the
Seller.
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(ii) The receipt of the Sales Notice by each other Common Holder party to
this Shareholders Agreement shall constitute an offer (the "Offer") by the
Seller to sell to such Common Holder or group of Common Holders for cash the
Securities subject to the Sale, subject to the Seller's approval of the terms
and conditions of the Bid (as defined below). Each Common Holder, or any group
of one or more Common Holders, receiving an Offer shall have a 15-day period
(the "Order Period") in which to give a written notice (a "Bid") to the Seller
prior to the expiration of such 15-day period, which written notice shall set
the price per Security that such Common Holder or group of Common Holders
proposes to pay (the "Proposed Sales Price") and such other terms and conditions
it or they propose with respect to the Sale; provided, however, a Bid must be
for all of the Securities the Seller proposes to transfer as stated in the Sales
Notice.
(iii) Upon the receipt of all Bids, if any, the Seller shall have the right
to solicit offers for the Securities subject to the Sale from any non-affiliated
third-party (a "Third-Party Offer") for a period of 90 days from the date the
Order Period expires. To the extent the Seller receives a Third-Party Offer and
such Third-Party Offer contains a Proposed Sales Price in excess of the highest
Sales Price received by Seller pursuant to the Bids made by the Common Holders
or group of Common Holders, then Seller shall have the right to sell the
Securities to the Third-Party pursuant to its Offer. If no Bids are delivered
during the Order Period then the Seller shall be entitled to accept, in its sole
discretion, any Third-Party Offer it so chooses. If such sale pursuant to a
Third-Party Offer is not consummated within 120-days from receipt of the
Third-Party Offer, and no Bids of Common Holders are accepted by the Seller
within 10 days following the expiration of the 90-day period described in the
first sentence of this subparagraph (iii), then the provisions of this Section
1(b) shall be reinstated as to any other transfers proposed to be made by the
Seller.
(iv) The Common Holders or group of Common Holders providing a Bid to the
Seller during the Order Period as to all of the Securities subject to the Sale,
and which Bid is accepted by the Seller, shall be required to purchase and pay
for all the Securities accepted pursuant to their Bid within a 30-day period
from the date on which the buying Common Holder (or group of Common Holders)
receives written notice of the Seller's acceptance of the Bid; provided that if
the purchase and sale of such Securities is subject to any prior regulatory
approval, the time period during which such purchase and sale may be consummated
shall be extended until the expiration of five Business Days after all such
approvals shall have been received.
(v) Subject to the transfer restrictions of Section 1(a)(ii), the Seller
may transfer Investment Units or shares in accordance with subsection (b)(iii)
for consideration other than cash to an unaffiliated third-party only if the
Seller has first obtained and delivered to each of the Common Holders an opinion
of an independent investment banking firm of national standing indicating that
the fair market value of the per share non-cash consideration that the Seller
proposes to accept as consideration for such Investment Units or shares,
together with any per share cash consideration, is at least equal to the highest
proposed Sale Price received by the Seller pursuant to Bids made by the Common
Holders or group of Common Holders.
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(vi) Notwithstanding any provision of this Section 1(b), no action may be
taken by the Seller, the other Common Holders or the Company that would cause a
violation of the provisions of Section 2.
(vii) The Company shall take all reasonable steps necessary to ensure
application is made for the appropriate permissions from the Bermuda authorities
in connection with any Transfer complying with this Agreement. The Company
hereby acknowledges that no prior approval of the Bermuda Monetary Authority is
necessary for any Transfer between Persons who are designated as non-residents
of Bermuda for the purposes of the Exchange Control Act, 1972.
(viii) The provisions of this Section 1(b) shall not apply to:
(A) a Transfer of shares of Common Stock to an Affiliate of the
Seller;
(B) a Transfer of shares of Common Stock to another Common Holder;
(C) a Transfer of Investment Units to a Common Holder holding
Investment Units;
(D) a Transfer by one or more Common Holders of a majority of all
shares of Common Stock (and, if prior to a Separation Event, Investment
Units) then outstanding to any Person or Persons;
(E) a Transfer required by the provisions of Section 1(c) or Section
2;
(F) a Transfer permitted by the provisions of Section 1(d);
(G) a Transfer pursuant to an effective registration statement with
respect to the Common Stock to be transferred; or
(H) a Transfer on or after June 12, 2002; or
(c) Drag Along Right.
(i) If at any time and from time to time after the date of this Agreement
Common Holders holding a majority of all shares of Common Stock then issued and
outstanding (whether or not any or all of such shares are held separately or as
part of Investment Units, the "Transferring Investors") wish to Transfer in a
bona fide arm's-length sale for cash consideration all of the Common Stock (and,
if prior to a Separation Event, the Investment Units) held by the Transferring
Investors to any Person or Persons who are not Affiliates of the Transferring
Investors (for purposes of this Section 1(c), the "Proposed Transferee"), the
Transferring Investors shall have the right (the "Drag-Along Right"), subject to
applicable law and compliance with Section 1(a) with respect to such Transfer,
to require all (but not less than all) other Common Holders to sell, pursuant to
Section 1(c)(ii), to the Proposed Transferee all (but not less than all) of the
shares of Common Stock (and, if prior to a Separation Event, the Investment
Units) then owned by
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such other Common Holders. Each Common Holder agrees to take all steps necessary
to enable such Common Holder to comply with the provisions of this Section 1(c).
(ii) To exercise a Drag-Along Right, the Transferring Investors shall give
each other Common Holder and the Company a written notice (for purposes of this
Section 1(c), a "Drag-Along Notice") containing (a) the aggregate number of
shares of Common Stock (and, if prior to a Separation Event, the Investment
Units) that the Proposed Transferee proposes to acquire from the Transferring
Investors and the other Common Holders, (b) the name and address of the Proposed
Transferee and (c) the proposed purchase price, terms of payment and other
material terms and conditions of the Proposed Transferee's offer. Each Common
Holder shall thereafter be obligated, subject to applicable law, to sell all
(but not less than all) of its shares of Common Stock (and, if prior to a
Separation Event, its Investment Units) as provided in such Drag-Along Notice,
provided that the sale to the Proposed Transferee is consummated within one
hundred and twenty (120) days of delivery of the Drag-Along Notice. If the sale
is not consummated within such 120-day period, then each Common Holder shall no
longer be obligated to sell such Common Holder's shares of Common Stock (or, if
prior to a Separation Event, Investment Units) pursuant to that specific
Drag-Along Right but shall remain subject to the provisions of this Section 1(c)
with respect to any subsequent Drag-Along Rights.
(d) Tag Along Right.
If at any time or from time to time after the date of this Agreement one or
more Common Holders (whether or not such shares are held separately or as part
of Investment Units, the "Transferors") wish to Transfer, in one transaction or
a Series of related transactions, a majority of the then issued and outstanding
Common Stock (whether or not such shares of Common Stock are held separately or
as part of Investment Units) to any Person or Persons who are not Affiliates of
the Transferors (other than pursuant to an effective registration statement with
respect to the shares of Common Stock to be transferred or as a result of a
pledge of shares as security for a bona fide loan), such Transferors shall
notify each other Common Holder holding Common Stock (and, if prior to a
Separation Event, Investment Units) (the "Other Holders") and the Company, in
writing, of such Transfer and its terms and conditions. Within 20 days of the
date that such notice is deemed to have been given (as provided in Section 6(f)
herein) to such Other Holders, each of the Other Holders shall notify the
Transferors if it elects to participate in such Transfer. Each of the Other
Holders that so notifies the Transferors shall be obligated to sell, at the same
price and on the same terms as the Transferors, such number of shares of Common
Stock (or, if prior to a Separation Event, such number of shares of Common Stock
or Investment Units, as the case may be) equal to the number of shares of Common
Stock (or, if prior to a Separation Event, such number of shares of Common Stock
or Investment Units, as the case may be) the third party actually proposes to
purchase multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock (or, if prior to a Separation Event, such number of
shares of Common Stock or Investment Units, as the case may be) owned by such
Other Holder and the denominator of which shall be the aggregate number of
shares of Common Stock (or, if prior to a Separation Event, such number of
shares of Common
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Stock or Investment Units, as the case may be) held by the Transferors and each
Other Holder exercising its rights under this Section 1(d).
(e) Preemption Right
If at any time from and after the date hereof, the Company proposes to
issue equity securities of any kind (the term "equity securities" shall include
for these purposes any warrants, options or other rights to acquire equity
securities or debt securities convertible into equity securities) of the Company
(except for issuances pursuant to the terms of the Stock Warrant Plans and
issuances in connection with (i) a Qualified Public Offering, (ii) a conversion
or exchange of any outstanding securities, (iii) a stock dividend, (iv) the
exercise of any right existing pursuant to any agreements in effect immediately
following June 17, 1997 to acquire equity securities of the Company, including,
without limitation, pursuant to the Warrants and the Commitments, or (v) a
merger, amalgamation, reclassification or other reorganization), then, as to
each Common Holder who holds Company Stock at such time, the Company shall:
(i) give written notice (the "Offer Notice") setting forth in
reasonable detail (1) the designation and all of the terms and provisions
of the equity securities proposed to be issued (the "Proposed Securities"),
including, where applicable, the voting powers, preferences and relative
participating, optional or other special rights, and the qualification,
limitations or restrictions thereof and interest rate and maturity; (2) the
price, if applicable, and other terms of the proposed sale or issuance of
such securities; (3) the amount of such securities proposed to be issued;
and (4) such other information as may be reasonably required in order to
evaluate the proposed issuance; and
(ii) offer to issue to each such Common Holder a portion of the
Proposed Securities equal to a percentage determined by dividing (x) the
number of shares of Common Stock held by such Common Holder (whether held
separately or as part of one or more Investment Units) by (y) the total
number of shares of Common Stock including those part of any Investment
Units then issued and outstanding (the quotient of (x) and (y) with respect
to each such Common Holder is referred to hereinafter as such Common
Holder's "Allotted Amount").
Each such Common Holder that wishes to exercise any or all of its
preemption rights hereunder must deliver a written notice (the "Election
Notice") to that effect to the Company within fifteen (15) days after the date
the Offer Notice was deemed to have been given (as provided in Section 6(f)
herein) by the Company. Each such Election Notice shall set forth (i) the
portion of such Common Holder's Allotted Amount for which such Common Holder has
elected to subscribe and (ii) the amount, if any, of additional Proposed
Securities for which such Common Holder wishes to subscribe (the "Proposed
Overallotment Amount" with respect to each such Common Holder) in the event that
all of the Proposed Securities offered or issued to the Common Holders as a
whole are not fully subscribed for; provided, however, that in no event shall
any Common Holder be permitted to subscribe for or purchase shares of Company
Stock to the extent that such Common Holder would be in violation of Section 2
of this
8
Agreement or the Maximum Percentage limitations set forth in Bye-law 1(ac) and
Bye-law 50 of the Company's Amended and Restated Bye-laws.
Each Common Holder shall be entitled to subscribe for all or a portion of
its Proposed Overallotment Amount only to the extent that one or more Common
Holders does not subscribe for its full Allotted Amount. Any such
unsubscribed-for Proposed Securities ("Excess Proposed Securities") shall be
allocated pro rata (and by rounding down to the nearest whole share) among those
Common Holders electing to receive their Proposed Overallotment Amount in
proportion to the aggregate number of shares requested by them pursuant to the
Allotted Amount and Proposed Overallotment Amount; provided, however, that in no
event shall any Common Holder be permitted to subscribe for or purchase shares
of Company Stock to the extent that such Common Holder would be in violation of
Section 2 of this Agreement or the Maximum Percentage limitations set forth in
Bye-law 1(ac) and Bye-law 50 of the Company's Amended and Restated Bye-laws.
Upon the expiration of the offering period described above, the Company
may, in its sole discretion, offer to sell or issue such Proposed Securities
that the Common Holders have not elected to purchase or exercise, as the case
may be, during the 180 days following such expiration, on terms and conditions
no more favorable to the prospective purchasers thereof than those offered to
such Common Holders. Any such sale or issuance of Proposed Securities may be
consummated within 60 days after the expiration of such 180-day period. Any
Proposed Securities offered, sold or issued by the Company after such 180-day
period (other than pursuant to the immediately preceding sentence) must be
reoffered to the Common Holders pursuant to this Section 1(e). The election by a
Common Holder not to exercise its preemption rights under this Section 1(e) in
any one instance shall not affect its right (other than in respect of a
reduction in its percentage holdings) as to any subsequent proposed issuance.
Any sale or issuance of such securities by the Company without first giving the
Common Holders the rights described in this Section 1(e) shall be void and of no
force and effect and the Company shall cause any correction required to be made
to the Register of the Members of the Company to be effected.
The Company hereby agrees that it shall cause each of its wholly-owned
subsidiaries to comply with the terms of this Section 1(e) with respect to the
issuance of any equity securities by such subsidiary (except for issuances of
stock dividends or in connection with a merger, amalgamation, reclassification
or other reorganization).
The parties to this Agreement agree that (a) for the purposes of this
Section 1(e) only, holders of Series B Preferred Stock shall be deemed to be
Common Holders with respect to the Company's offering of rights to purchase
Series C Preferred Stock, on substantially the terms set forth in the Rights
Offering Circular dated as of January 21, 1999, as supplemented on February 5,
1999 (the "Rights Offering"), it being understood that for the purposes of such
Rights Offering, the then-existing shares of Series B Preferred Stock shall be
deemed to have been converted into Series B Conversion Shares at the rate set
forth in the Company's Amended and Restated Bye-
9
laws and (b) the Rights Offering shall be deemed to be in full compliance with
this Section 1(e).
The parties to this Agreement further agree that upon consummation of the
Rights Offering, the Company may, in the discretion of the Company's Board of
Directors, issue and sell additional equity securities of the Company at no less
than the per share price of Common Stock contemplated by the Rights Offering
(based upon the conversion price of the Series C Preferred Stock of $1.50 as of
the date of its original issuance and a purchase price of $1.50 per share of
Series C Preferred Stock) and for aggregate gross proceeds equal to the
difference between $200 million and the gross proceeds raised pursuant to the
Rights Offering (the "Subsequent Offering"), and that the Common Holders and
Series B Holders hereby consent to such Subsequent Offering and waive, for one
year following the consummation of the Rights Offering (and for an additional 60
days, as set forth above in this Section 1(e), if necessary, for the Company to
consummate the transactions contemplated in such Subsequent Offering), their
preemption rights contained in this Section 1(e) with respect to any such
Subsequent Offering.
(f) Regulatory Transfer.
If a Common Holder reasonably determines and delivers written notice to the
Company that its holding of shares of Company Stock (x) has resulted in a
violation of any law or governmental rule, regulation, order or decree to which
such Common Holder is subject, or (y) has caused such Common Holder to become
subject to and be required to comply with any law, regulation, order or decree
to which it was not theretofore subject, the result of which violation or
subjection and compliance, as the case may be, would be materially adverse to
such Common Holder, the Company shall use its commercially reasonable efforts,
after such Common Holder has complied with Section 1(b), to locate on behalf of
the Common Holder a purchaser for all or part of the Company Stock held by such
Common Holder.
(g) Termination of Rights.
The rights and obligations provided by this Section 1 shall expire upon a
Qualified Public Offering.
2. RESTRICTIONS ON STOCK OWNERSHIP
(a) Share Ownership Limitations.
(i) Notwithstanding any other provision of this Agreement, no Common Holder
may transfer, purchase or acquire (except by operation of law) any Company
Stock, directly, indirectly or by attribution, or take any other action if such
transfer, purchase, acquisition or other action would cause any Person to (A)
become a 10% Investor (as defined in Section 5(a) hereof) or (B) own more than
20% of the issued and outstanding shares of Common Stock calculated on a fully
diluted basis (a "20% Common Investor"). For avoidance of doubt, it is agreed
that for purposes of determining whether any person is a 20% Common Investor,
such person shall be
10
deemed to own all shares of Common Stock issuable upon exercise of warrants,
options or other similar derivative securities or issuable upon conversion or
exchange of any convertible or exchangeable security of the Company.
(ii) Without limiting Section 2(a)(i), if any Common Holder becomes a 10%
Investor or a 20% Common Investor, such Common Holder (the "Excess Investor")
shall give notice to the Company within five (5) days following the date of such
Common Holder's becoming aware that it has become a 10% Investor or 20% Common
Investor. Such notice shall specify the identity of such record or beneficial
owner, and such Common Holder shall furnish to the Company such other
information as the Company shall reasonably request.
(iii) Any proposed Transfer in violation of this Section (2)(a) made known
to the Company shall not be registered in the Register of Members of the
Company. If the Company learns that a Common Holder is holding Company Stock in
violation of this Section 2(a) that is registered in the Register of Members,
the Company may deregister the transfer of the Common Stock held in violation of
this Section 2(a) and register such Company Stock in the name of the Member that
transferred such Company Stock or repurchase the Company Stock held in violation
of this Section 2(a) as determined by the Board in its absolute and unfettered
discretion, subject to the restrictions on repurchase set forth in Bye-law 52(4)
of the Company's Amended and Restated Bye-laws.
(iv) The Board of Directors of the Company may, in its sole discretion,
waive any of the provisions of this Section 2(a) with respect to one or more
Common Holders.
(b) Prompt Disposition of Shares.
If a Common Holder takes any action resulting in a violation of the
provisions of Section (2)(a) and the Company determines, pursuant to a
Super-Majority Board Action (as defined in Section 5(a) hereof), that the
disposition of Company Stock by such Excess Investor is in the interest of the
Company and its Members, (i) the Company shall require the Excess Investor to
dispose of a number of shares of Company Stock such that such Excess Investor or
other Person, as the case may be, no longer exceeds the limitations set forth in
Section (2)(a) and (ii) each Common Holder hereby agrees, if so required by the
Company, to sell such Company Stock as the Company may direct in accordance with
Section 2(c). Any disposition pursuant to this Section (2)(b) should occur no
later than the 28th calendar day after the date on which the Excess Investor
first violated, or caused another Person to violate, the share ownership
limitations set forth in Section (2)(a) and such Excess Investor shall make all
reasonable efforts to effect such disposition within such 28-day period. The
determination of whether an Excess Investor is in violation of the share
ownership limitations of Section (2)(a) and, if so, whether such disposition is
in the interests of the Company and its members may be made on behalf of the
Company by the Board, pursuant to a Super-Majority Board Action, in its judgment
and such determination shall be binding on the Common Holders.
11
(c) Manner of Disposition.
Any Company Stock required to be disposed of pursuant to Section (2)(b)
shall (i) (x) if purchased by the Excess Investor or a Related Person from
another Common Holder or Common Holders, be resold to such other Common Holder
or Common Holders at the original purchase price and (y) each Common Holder
agrees, if applicable, to purchase such Company Stock back from the Excess
Investor as contemplated by the foregoing clause, or (ii) if otherwise acquired
by the Excess Investor, be sold to any Person subject to the restrictions of
Section (2)(a) (including, but not limited to, the Company if a sale to the
Company would not cause any Person to exceed the share ownership limitations of
Section (2)(a)), but within the time period set forth in Section (2)(b).
Notwithstanding the foregoing, a holder of Series A Preferred Stock shall
not be obligated to dispose of shares of such Stock, but it may be obligated in
accordance with the foregoing to dispose of other classes of stock of the
Company.
3. REGISTRATION RIGHTS
The Common Holders shall have the right to have their Registrable
Securities registered under the Securities Act and applicable United States
state securities laws in accordance with the following provisions.
(a) Definitions.
As used in this Section 3:
(i) "Commission" shall mean the Securities and Exchange Commission or any
other United States of America federal agency at the time administering the
Securities Act;
(ii) the term "Holder" shall mean any holder of Registrable Securities;
(iii) the term "Initiating Holder" shall mean any Holder or Holders who in
the aggregate are Holders of more than 10% of the then issued and outstanding
Registrable Securities;
(iv) the terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
(v) the term "Registrable Securities" shall mean (1) Common Stock issued to
the initial Common Holders, (2) Series B Conversion Shares, (3) Series C
Conversion Shares, (4) any additional Common Stock acquired by the Common
Holders, including any Common Stock acquired upon the exercise of options
granted under the Stock Warrant Plans, and (5) any Common Stock issued as a
dividend or other
12
distribution with respect to, or in exchange for or in replacement of, the
securities referred to in clauses (1), (2), (3), and (4) above;
(vi) "Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with its obligations under Sections 3(b)
and 3(c) hereof, including, without limitation, all Commission, National
Association of Securities Dealers ("NASD") and stock exchange or Nasdaq
registration and filing fees and expenses, fees and expenses of compliance with
applicable state securities or "blue sky" laws (including, without limitation,
reasonable fees and disbursements of counsel for the underwriters in connection
with "blue sky" qualifications of the Registrable Securities), printing
expenses, messenger and delivery expenses, the fees and expenses incurred in
connection with the listing of the securities to be registered in an initial
public offering on each securities exchange or national market system on which
such securities are to be so listed and, following such initial public offering,
the fees and expenses incurred in connection with the listing of such securities
to be registered on each securities exchange or national market system on which
such securities are listed, fees and disbursements of counsel for the Company
and all independent certified public accountants (including the expenses of any
annual audit and "cold comfort" letters required by or incident to such
performance and compliance), the fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (including the fees and
expenses of any "qualified independent underwriter" required by the NASD), the
reasonable fees of one counsel retained in connection with each such
registration by the holders of a majority of the Registrable Securities being
registered, the reasonable fees and expenses of any special experts retained by
the Company in connection with such registration, and fees and expenses of other
Persons retained by the Company (but not including any underwriting discounts or
commission or transfer taxes, if any, attributable to the sale of Registrable
Securities by holders of such Registrable Securities other than the Company);
and
(vii) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
(b) Demand Registration.
(i) Request for Registration. If the Company shall receive from an
Initiating Holder, at any time after 180 days after a Qualified Public Offering,
a written request that the Company effect any registration with respect to all
or a part of the Registrable Securities, the Company will:
(A) promptly give written notice of the proposed registration to all
other Holders of Registrable Securities; and
(B) as soon as practicable, use its best efforts to effect a
registration statement, in accordance with Section 3(e), as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request in accordance with
such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in
13
such request as are specified in a written request received by the Company
within 10 Business Days after written notice from the Company is deemed
given (as provided in Section 6(f) herein) under Section 3(b)(i)(A) above;
provided that the Company shall not be obligated to effect, or take any
action to effect, any such registration pursuant to this Section 3(b):
(v) within 180 days following the effective date of any
underwritten public offering of the Company's securities;
(w) for a period of 180 days following the date of the Board
resolution described in this clause (w), if the Company furnishes to
the Holders requesting the filing of a registration statement pursuant
to this Section 3(b) a certificate signed by the President or Chief
Executive Officer of the Company stating that the Board has passed a
resolution authorizing the Company to register any of its equity
securities for its own account and the Company is in the process of
effecting such registration (it being understood that the limitation
described in this clause (w) shall not affect any Holder's rights with
respect to a registration effected pursuant to Section 3(c));
(x) in any particular jurisdiction in which the Company would be
required as a result of such registration to (1) qualify generally to
do business in any jurisdiction where it would not otherwise be
required to qualify but for this clause (x), (2) subject itself to
taxation or regulation of its insurance business in any such
jurisdiction other than Bermuda or (3) consent to service of process
in effecting such registration, qualification or compliance;
(y) if the Registrable Securities requested by all Holders to be
registered pursuant to such request do not (i) represent at least 10%
of the Registrable Securities or (ii) have an anticipated aggregate
public offering price (before any underwriting discounts and
commissions) of at least $10,000,000.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 3(b)(ii) below, include other
securities of the Company which are held by Persons who, by virtue of agreements
with the Company, are entitled to include their securities in any such
registration, but the right of such Persons to include any of their securities
in any such registration shall be subject to the limitations set forth in
Section 3(b)(ii) below.
Holders holding a majority of the Registrable Securities requested to be
registered may, at any time prior to the effective date of the registration
statement relating to such registration, revoke such request, without liability
to any of the other Holders or the Other Shareholders (as defined below), by
providing a written notice to the Company revoking such request.
14
(ii) Underwriting. The Initiating Holders shall distribute the Registrable
Securities covered by their request by means of an underwriting (which
underwriter shall be selected by the Company and reasonably acceptable to the
Initiating Holders).
If holders of Common Stock other than Registrable SECURITIES who are
entitled, by virtue of agreements with the Company, to have Common Stock
included in such a registration (the "Other Shareholders") request such
inclusion, the securities of such Other Shareholders shall be included in the
underwriting subject to the applicable provisions of this Section 3. The Holders
whose shares are to be included in such registration and the Company shall
(together with all Other Shareholders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected for
such underwriting by the Company and reasonably acceptable to the Initiating
Holders. Notwithstanding any other provision of this Section 3(b), if the
representative advises the Holders or the Company in writing that (i) marketing
factors require a limitation on the number of shares to be underwritten or (ii)
the inclusion of shares held by officers and directors of the Company in the
offering could, in the representative's best judgment, materially reduce the
offering price per share, then, in the case of the preceding clause (i), the
Common Stock held by Other Shareholders shall be excluded from such underwriting
to the extent so required by such limitations and, in the case of the preceding
clause (ii), the Common Stock held by officers and directors of the Company
shall be excluded from such underwriting to the extent advised by the
representative. If, after the exclusion of such shares, further reductions are
required to meet the limitation on the number of shares to be underwritten as
advised by the representative, the number of shares that may be included in the
underwriting by each Holder requesting inclusion in the registration shall be
reduced on a pro rata basis (based on the number of shares held at such time by
the respective Holders requesting inclusion in such registration) by such
minimum number of shares as is necessary to comply with such limitation. If any
Other Shareholder who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and the
Initiating Holders. If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the representative so
agrees and if the number of Registrable Securities and other securities which
would otherwise have been included in such registration and underwriting will
not thereby be limited. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall not be included in such registration.
(iii) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting the filing of a registration statement pursuant to this
Section 3(b) a certificate signed by the President or Chief Executive Officer of
the Company stating that, in the good faith judgment of the Board, it would be
materially detrimental to the Company and its members for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for a period of not more than 90 days after receipt of the
15
request of the Initiating Holders; provided, however, that the Company may not
utilize this right more than once in any twelve (12) month period.
(c) Piggyback Registration.
(i) If the Company shall determine to register any of its Common Stock either
for its own account or for the account of a holder or holders of Common Stock
(other than a registration on Form S-8 (or similar or successor form) relating
solely to stock option, stock purchase or other employee benefit plans, or a
registration on Form S-4 (or similar or successor form) relating solely to a
transaction exempt under Rule 145 of the Securities Act, or a registration on
any registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities), the Company
will:
(A) promptly give to each of the Holders a written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws); and
(B) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests made by the Holders within fifteen (15) days after the date
written notice described in clause (i)(A) above is deemed given (as
provided in Section 6(f) herein) by the Company except as set forth in
Section 3(c)(ii) below. Such written request may specify all or a part of
the Holders' Registrable Securities.
(ii) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting (which underwriter
shall be selected by the Company, in its sole discretion), the Company shall so
advise each of the Holders as a part of the written notice given pursuant to
Section 3(c)(i)(A). In such event, the right of each of the Holders to
registration pursuant to this Section 3(c) shall be conditioned upon such
Holders' participation in such underwriting and the inclusion of such Holders'
Registrable Securities in the underwriting to the extent provided herein. The
Holders whose shares are to be included in such registration shall (together
with the Company and the Other Shareholders distributing their Common Stock
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected for
underwriting by the Company. Notwithstanding any other provision of this Section
3(c), if the representative advises the Holders or the Company in writing that
(i) marketing factors require a limitation on the number of shares to be
underwritten or (ii) the inclusion of shares held by the officers and directors
of the Company in the offering could, in the representative's best judgment,
materially reduce the offering price per share, then, in the case of the
preceding clause (i), the Common Stock held by Other Shareholders shall be
excluded from such underwriting to the extent so required by such limitations
and, in the case of the preceding clause (ii), the Common Stock held by officers
and directors of the
16
Company shall be excluded from such underwriting to the extent so advised by the
representative. If, after exclusion of such shares, further reductions are
required to meet the limitation on the number of shares to be underwritten as
advised by the representative, the number of shares that may be included in the
underwriting by each Holder requesting inclusion in such registration shall be
reduced, on a pro rata basis (based on the number of shares held at such time by
the respective Holders requesting inclusion in such registration), by such
minimum number of shares as is necessary to comply with such limitation (it is
hereby understood that the foregoing shall not be a limitation on the number of
shares of Common Stock to be registered by the Company). If any of the Holders
or any officer, director or Other Shareholder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall not be included in such
registration.
(iii) Number. Each of the Holders shall be entitled to have its shares
included in an unlimited number of registrations pursuant to this Section 3(c).
(d) Expenses of Registration.
Upon the exercise of registration rights set forth in this Section 3, the
Company shall pay all Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 3, provided
that such expenses shall not include Selling Expenses which shall be borne by
the Holders of the securities so registered pro rata on the basis of the number
of their shares so registered; provided, however, that the Company shall not
otherwise be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by any of the Holders, as applicable,
including, without limitation, as provided in the last paragraph of Section
3(b)(i), the registration statement does not become effective, in which case
each of the Holders and Other Shareholders requesting registration and
thereafter withdrawing its request for registration shall bear such Registration
Expenses pro rata on the basis of the number of its shares so included in the
registration request (it is hereby understood that this proviso shall not apply
to a withdrawal of a registration being effected pursuant to Section 3(c));
provided, further, however, that the Company shall not otherwise be required to
pay any Registration Expenses after the Company has effected four (4)
registrations pursuant to Section 3(b) requested by an Initiating Holder and
such registrations have been declared or ordered effective and the sales of such
Registrable Securities shall have closed.
(e) Registration Procedures.
In the case of each registration effected by the Company pursuant to
Section 3, the Company will keep the Holders requesting inclusion in such
registration advised in writing as to the initiation of each registration and as
to the completion thereof. In connection with any offering of Registrable
Securities registered pursuant to clause (b) or (c) of this Section 3, the
Company shall use its best efforts to obtain all necessary permissions from the
Bermuda governmental authorities and, upon obtaining such permission, at its
expense, the Company shall:
17
(i) prepare and file with the Commission, as promptly as practical after
receipt of a request for registration pursuant to this Section 3, a registration
statement on any form for which the Company then qualifies, and which form shall
be available for the sale of the Registrable Securities in accordance with the
intended methods of distribution thereof, and use its best efforts to cause such
registration statement to become and remain effective as provided herein;
provided that before filing with the Commission a registration statement or
prospectus or any amendments or supplements thereto, the Company will (A)
furnish, to one counsel selected by the Holders of a majority of the Registrable
Securities requested to be registered, copies of all such documents proposed to
be filed for said counsel's review and comment and (B) notify each Holder of
Registrable Securities to be registered of any stop order issued or threatened
by the Commission and take all reasonable actions required to prevent the entry
of such stop order or to remove it if entered;
(ii) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration effective for a period of one
hundred and eighty (180) days or until the Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs (but not before the time periods referred to in Section 4(3) of the
Securities Act and Rule 174 promulgated thereunder, or any successor provisions,
if applicable) and comply with the provisions of the Securities Act with respect
to the disposition of securities covered by such registration statement during
such period in accordance with the intended method of disposition by sellers
thereof set forth in such registration statement; provided, however, that (A)
such 180-day period shall be extended for a period of time equal to the period,
if any, during which the Holders refrain from selling any securities included in
such registration in accordance with provisions of the last paragraph of this
Section 3(e) and (B) in the case of any registration of Registrable Securities
on Form S-3 which are intended to be offered on a continuous or delayed basis,
such 180-day period shall be extended until all such Registrable Securities are
sold, provided that (x) Rule 415, or any successor Rule under the Securities
Act, permits an offering on a continuous or delayed basis and (y) the applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment which (1)
includes any prospectus required by Section 10(a)(3) of the Securities Act or
(2) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation in
the registration statement by reference to periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act of the information specified in clauses
(1) and (2) above;
(iii) furnish to each underwriter, if any, and each Holder of Registrable
Securities covered by such registration statement such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the prospectus included in such
registration statement (including each preliminary prospectus) in conformity
with the requirements of the Securities Act, and such other documents incident
thereto as each of the Holders from time to time may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by such
Holder;
18
(iv) use its best efforts to register or qualify such Registrable
Securities under such other state securities or "blue sky" laws of such
jurisdictions as any Holder, and underwriter, if any, of Registrable Securities
covered by such registration statement reasonably requests and do any and all
other acts and things that may be reasonably necessary or advisable to enable
such Holder and each underwriter, if any, to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Holder; provided that
the Company will not be required as a result thereof to (A) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this clause (iv), (B) subject itself to taxation or regulation
of its insurance business in any such jurisdiction other than Bermuda or (C)
consent to general service of process in any such jurisdiction;
(v) use its best efforts to cause the Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Holder or Holders thereof
to consummate the disposition of such Registrable Securities;
(vi) immediately notify each Holder of such Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event that comes to the Company's
attention if as a result of such event the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and the Company will promptly prepare and
furnish to such Holder a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(vii) use its best efforts to cause all such Registrable Securities to be
listed on a national securities exchange in the United States or Nasdaq and on
each securities exchange on which similar securities issued by the Company may
then be listed, and enter into such customary agreements including a listing
application and indemnification agreement in customary form, and, subject to
Bermuda law, to provide a transfer agent and registrar for such Registrable
Securities covered by such registration statement no later than the effective
date of such registration statement;
(viii) enter into such customary agreements (including an underwriting
agreement or qualified independent underwriting agreement, in each case, in
customary form) and take all such other actions as the Holders of a majority of
the Registrable Securities being covered by such registration statement or the
underwriters retained by such Holders, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities, including
customary representations, warranties, indemnities and agreements;
19
(ix) make available for inspection, during business hours of the Company,
by any Holder of Registrable Securities covered by such registration statement,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
Holder or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, "Records"), if any, as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees, and those of the Company's
affiliates, if any, to supply all information and respond to all inquiries
reasonably requested by any such Inspector in connection with such registration
statement;
(x) use its best efforts to obtain a "cold comfort" letter from the
Company's appointed auditors in customary form and covering such matters of the
type customarily covered by "cold comfort" letters as the Holders of a majority
in interest of the Registrable Securities being sold reasonably request; and
(xi) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission and all conditions imposed by Bermuda governmental
authorities or under Bermuda law, including, without limitation, under the
Bermuda Companies Act, and make available to the Holders, as soon as reasonably
practicable, an earnings statement covering a period of at least twelve months
beginning after the effective date of the registration statement (as the term
"effective date" is defined in Rule 158(c) under the Securities Act) which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
It shall be a condition precedent to the obligation of the Company to take
any action with respect to any Registrable Securities that the Holder thereof
shall furnish to the Company such information regarding the Registrable
Securities and any other Company Stock held by such Holder and the intended
method of disposition of the Registrable Securities held by such Holder as the
Company shall reasonably request and as shall be required in connection with the
action taken by the Company.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3(e)(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e)(vi) hereof, and,
if so directed by the Company (at the Company's expense), such Holder will
deliver to the Company all copies (including, without limitation, any and all
drafts), other than permanent file copies, then in such Holder's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice.
(f) Indemnification.
(i) In the event of any registration of any shares of Company Stock under
the Securities Act pursuant to this Agreement, the Company will indemnify and
20
hold harmless each of the Holders of any Registrable Securities covered by such
registration statement, their respective directors and officers, general
partners, limited partners and managing directors, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls, is controlled by or is under common
control with any such Holder or any such underwriter within the meaning of the
Securities Act (and directors, officers, controlling Persons, partners and
managing directors of any of the foregoing) against any and all losses, claims,
damages and liabilities (or actions in respect thereto), joint or several, and
expenses (including any amounts paid in any settlement effected with the
Company's consent, which consent will not be unreasonably withheld) to which
such Holder, any such director or officer or general or limited partner or
managing director or any such underwriter or controlling Person may become
subject under the Securities Act, United States state securities "blue sky"
laws, common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) or expenses arise out
of or are based upon (A) any untrue statement (or alleged untrue statement) of
any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto,
(B) any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or (C) any violation (or alleged violation) by the Company of any United States
federal, state or common law Rule or regulation applicable to the Company and
relating to action required of or inaction by the Company in connection with any
such registration, qualification or compliance. The Company will reimburse each
such Holder, director, officer, general partner, limited partner, managing
director or underwriter and controlling Person (and directors, officers,
controlling Persons, partners and managing directors of any of the foregoing)
for any legal and any other expenses reasonably incurred in connection with
investigating or defending such claim, loss, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such claim, loss, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based on any untrue statement
(or alleged untrue statement) or omission (or alleged omission) made in such
registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information furnished to the Company by such Holder in its capacity as a
Holder or any such director, officer, general or limited partner, managing
director, underwriter or controlling Person specifically stating that it is for
use therein; provided, further, however, that the Company shall not be liable to
any Holder, any Person who participates as an underwriter in the offering or
sale of Registrable Securities, if any, or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, pursuant to
this Section 3(f) with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus or the final
prospectus or the final prospectus as amended or supplemented, as the case may
be, to the extent that any such loss, claim, damage or liability of such Holder,
underwriter or controlling Person results from the fact that such Holder or
underwriter sold Registrable Securities to a Person to whom there was not sent
or given, at or prior to the written confirmation of such sale, a copy of the
final prospectus or of the final prospectus as then amended or supplemented,
whichever is
21
most recent, if the Company has previously furnished copies thereof to such
Holder or underwriter and such final prospectus, as then amended or
supplemented, had corrected any such misstatement or omission.
The indemnity provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of such Holder or any such
director, officer, general partner, limited partner, managing director,
underwriter or controlling Person and shall survive the transfer of such
securities by such Holder.
(ii) Each of the Holders will, if Registrable Securities held by it are
included in any registration statement filed in accordance with the provisions
hereof, (x) indemnify, on a several and not joint basis, the Company and its
directors, officers, controlling Persons and all other prospective sellers and
their respective directors, officers, general and limited partners, managing
directors, and their respective controlling Persons against all claims, losses,
damages and liabilities (or actions in respect thereof) and expenses to which
any such Person may become subject under the Securities Act, United States state
securities "blue sky" laws, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (A) any untrue statement (or alleged
untrue statement) of a material fact with respect to such Holder contained in
any such registration statement, preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, or (B) any omission
(or alleged omission) to state therein a material fact with respect to such
Holder required to be stated therein or necessary to make the statements made by
such Holder therein not misleading and (y) reimburse the Company and its
directors, officers, controlling Persons and all other prospective sellers and
their respective directors, officers, general and limited partners, managing
directors, and their respective controlling Persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in the case of both clause (x)
and clause (y), to the extent, and only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by such Holder
with respect to such Holder and stated to be specifically for use therein;
provided, however, that the obligations of each of the Holders hereunder shall
be limited to an amount equal to the proceeds to be received by such Holder from
securities sold by such Holder pursuant to such registration statement or
prospectus.
The indemnity provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any of
the Holders of Registrable Securities, underwriters or any of their respective
directors, officers, general or limited partners, managing directors or
controlling Persons and shall survive the transfer of such securities by such
Holder.
(iii) Each party entitled to indemnification under this Section 3(f) (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge
22
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom, shall
be approved by the Indemnified Party (whose approval shall not unreasonably be
withheld) and the Indemnified Party may participate in such defense at such
party's expense (unless the Indemnified Party shall have reasonably concluded
that there may be a conflict of interest between the Indemnifying Party and the
Indemnified Party in such action, in which case the fees and expenses of the
Indemnified Party's counsel shall be at the expense of the Indemnifying Party
and shall be reimbursed as they are incurred); and provided, further, that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 3 except to
the extent the Indemnifying Party is actually materially prejudiced thereby. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as a term thereof
the giving by the claimant or plaintiff to such Indemnified Party of an
unconditional release from all liability with respect to such claim or
litigation. Each Indemnified Party shall promptly furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with the defense of such claim and litigation resulting therefrom.
(iv) In order to provide for a just and equitable contribution in
circumstances in which the foregoing indemnity agreements provided for in this
Section 3(f) is for any reason held to be unenforceable although applicable in
accordance with its terms, the Company and the Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect (A) the relative benefits received by the Company, on the
one hand, and the Holders of the Registrable Securities included in the offering
on the other hand, from the offering of the Registrable Securities and any other
securities included in such offering, and (B) the relative fault of the Company,
on the one hand, and the Holders of the Registrable Securities included in the
offering, on the other, with respect to the statements or omissions that
resulted in such loss, liability, claim, damage or expense, or action in respect
thereof, as well as any other relevant equitable considerations; provided,
however, that no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to a
contribution from any Person who was not guilty of such fraudulent
misrepresentation. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or the Holders of the Registrable Securities, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Holders of the Registrable Securities agree that it would not be just and
equitable if a contribution pursuant to this Section 3(f) were to be determined
by pro rata allocation or by any other method of allocation that does not take
into account the equitable considerations referred to herein. Notwithstanding
anything to the contrary contained herein, the Company and the Holders agree
that any contribution
23
required to be made by a Holder pursuant to this Section 3(f) shall not exceed
the net proceeds from the offering of Registrable Securities (before deducting
expenses) received by such Holder with respect to such offering. For purposes of
this Section 3(f), each Person, if any, who controls a Holder within the meaning
of Section 15 of the Securities Act shall have the same rights to contribution
as such Holder, and each director of the Company, each officer of the Company
who signed the registration statement, and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as the Company.
(v) The foregoing indemnity agreements of the Company and the Holders are
subject to the condition that, insofar as they relate to any loss, claim,
liability or damage made in a preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the "Final
Prospectus"), such indemnity agreements shall not inure to the benefit of any
underwriter if a copy of the Final Prospectus was furnished to the underwriter
and was not furnished to the Person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(g) Information by the Holders.
Each of the Holders and each Other Shareholder holding Company Stock
included in any registration shall furnish to the Company such information
regarding such Holder or Other Shareholder and the distribution proposed by such
Holder or Other Shareholder as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 3.
(h) Rule 144 Reporting.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of the restricted
securities to the public without registration, the Company agrees to:
(A) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
from and after the effective date of the first registration statement under
the Securities Act filed by the Company for an offering of its securities
to the general public;
(B) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject
to such reporting requirements; and
(C) so long as any Holder owns any Registrable Securities, furnish to
such Holder upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 under the Securities
Act (at any time from and after the effective date of the first
registration statement
24
filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after
it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports
and documents so filed as such Holder may reasonably request in availing
itself of any Rule or regulation of the Commission allowing such Holder to
sell any such securities without registration.
(i) "Market Stand-off" Agreement.
(i) If any registration of Common Stock (or other securities) of the
Company shall be in connection with an underwritten public offering, each Holder
of Registrable Securities agrees not to effect any sale or distribution,
including any private placement or any sale pursuant to Rule 144A under the
Securities Act (or any successor provision) or otherwise or any sale pursuant to
Rule 144 under the Securities Act (or any successor provision), under the
Securities Act of any Registrable Securities, other than by pro-rata
distribution to its shareholders, partners or other beneficial holders, and not
to effect any such sale or distribution of any other equity security of the
Company or of any security convertible into or exchangeable or exercisable for
any equity security of the Company (in each case, other than as part of such
underwritten public offering) during the ten calendar days prior to, and during
the 180 calendar day period (or such lesser period as may be agreed upon between
such Holders and the representative of the underwriters of such offering) that
begins on the effective date of such registration statement (except as part of
such registration), without the consent of the representative of the
underwriters of such offerings; provided, however, that written notice of such
registration has been deemed given (as provided in Section 6(f) herein) to each
Holder of Registrable Securities at least two Business Days prior to the
anticipated beginning of the ten calendar day period referred to above.
(ii) If requested by the representative of the underwriters, the Holders
shall execute a separate agreement to the foregoing effect. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said 180-day period. The
provisions of this Section 3(ii) shall be binding upon any transferee who
acquires Registrable Securities, including, without limitation, any Holder's
shareholders, partners or other beneficial holders, whether or not such
transferee is entitled to the registration rights provided hereunder.
(iii) If any registration of Registrable Securities shall be in connection
with an underwritten public offering, the Company agrees (A) not to effect any
public sale or distribution of any of its equity securities or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than any such sale or distribution of such securities in
connection with any amalgamation, merger or consolidation by the Company or any
Affiliate of the Company or the acquisition by the Company or an Affiliate of
the Company of the shares or substantially all the assets of any other Person or
in connection with a stock option, stock purchase or other employee benefit
plan) during the ten days prior to, and during the 180-day period (or such
lesser period as may be agreed upon between the Company and the representative
of the underwriters of such offering) which begins on the effective date of such
registration
25
statement (except as part of such registration) without the consent of the
representative of the underwriters of such offering and (B) that any agreement
entered into after the date hereof pursuant to which the Company issues or
agrees to issue any privately placed equity securities shall contain a provision
under which the holders of such securities agree not to effect any sale or
distribution of any such securities during the period and in the manner referred
to in the foregoing clause (A) of this Section 3(i)(iii).
(j) Assignability.
The registration rights set forth in this Section 3 shall be assignable by
any Holder, in whole or in part, to any transferee of Registrable Securities
provided such transferee agrees to be bound by all provisions of this Agreement.
(k) Termination.
The registration rights set forth in this Section 3 shall not be available
to any Holder if, in the opinion of counsel to the Company, all of the
Registrable Securities then owned by such Holder could be sold in any 90-day
period pursuant to Rule 144 under the Securities Act (without giving effect to
the provisions of Rule 144(k)).
4. INFORMATION AS TO COMPANY AND RELATED COVENANTS
(a) Auditors.
The Company shall maintain a system of accounting established and
administered in accordance with United States generally accepted accounting
principles ("U.S. GAAP") and shall set aside on its books all such proper
reserves as shall be required by U.S. GAAP. The Company shall retain a firm of
independent chartered accountants of recognized standing to audit and report on
the Company's annual consolidated balance sheets and statements of operations,
shareholders' equity and cash flows and to report to the Board. Subject to the
requirements of the Companies Act of 1981 of Bermuda and the regulations
promulgated thereunder, all major accounting policies and principles shall be
determined by the Board in accordance with U.S. GAAP.
(b) Financial Information.
The Company shall prepare annual consolidated balance sheets and statements
of operations, shareholders' equity and cash flows of the Company and its
subsidiaries, which shall be prepared in accordance with U.S. GAAP, and setting
forth in each case in comparative form the figures for the previous year, and
audited by the auditors referred to in Section 4(a) hereof. The Company shall
also prepare quarterly unaudited, consolidated balance sheets and statements of
operations, shareholders' equity and cash flows of the Company and its
subsidiaries, certified by the Chief Financial Officer and the Chief Executive
Officer of the Company and prepared in accordance with U.S. GAAP and setting
forth in each case in comparative form the same figures for the previous year
and, in addition, year-to-date figures. The Company will furnish to all Common
Holders the following information within the time specified: (i) as soon as
practicable after the end of each fiscal quarter and, in any event within 45
days thereafter,
26
all of the quarterly financial information referred to herein, and (ii) as soon
as practicable after the end of each fiscal year, and in any event within 110
days thereafter, all of the annual financial information referred to herein.
(c) Business Report.
The Company shall prepare and deliver to each Common Holder within 45 days
after the end of each calendar quarter a report as to the implementation of the
Company's business plan during such quarter, which report shall be accompanied
by a certificate signed by the Chief Executive Officer and the Chief Financial
Officer of the Company as to the Company's compliance with its operating
guidelines during such quarter; provided, however, that in lieu of providing
such certified report to those Common Holders whose names are set forth on
Schedule I hereto (each a "Sponsoring Investor" and, collectively, the
"Sponsoring Investors") on a quarterly basis, the Company need only furnish to
the Sponsoring Investor such report, accompanied by the certificate referred to
above, within 45 days after the end of each calendar year, as to the Company's
compliance with its operating guidelines during such year.
(d) Inspection.
From and after the date hereof, the Company will permit each Common Holder,
its nominee, assignee or its representative, to visit and inspect any of the
properties of the Company, to examine all its books of account, records, reports
and other papers not contractually required of the Company to be kept
confidential or secret, to make copies and extracts therefrom, and to discuss
its affairs, finances and accounts with its officers, directors, key employees
and independent public accountants or any of them (and by this provision the
Company authorizes said accountants to discuss with said Common Holder, its
nominee, assign and representatives the finances and affairs of the Company and
its Subsidiaries), all at such reasonable times and as often as may be
reasonably requested.
(e) The provisions of Section 4(a)-(d) shall expire upon the closing of the
Qualified Public Offering.
5. DEFINITIONS
(a) Terms Defined.
As used in this Agreement, the following terms have the respective meaning
set forth below:
$: means United States dollars.
Affiliate: means (i) with respect to a Person, any other Person directly or
indirectly controlling, controlled by or under common control with such Person
and, in the case of an individual Common Holder, means members of his or her
immediate family or a trust for their benefit, (ii) a nominee(s) of a Person or
a principal of a nominee
27
Person, (iii) a trustee of a trust, or (iv) such Person's shareholders,
partners, beneficiaries or members.
Board: means the board of directors of the Company.
Business Day: means any day except a Saturday, Sunday or other day on which
commercial banks in The City of New York or Bermuda are authorized by law or
executive order to close.
Commission: means the United States Securities and Exchange Commission.
Exchange Act: means the United States Securities Exchange Act of 1934, as
amended.
The terms "hold" and "holder": mean with reference to any Common Stock, the
Person whose name appears in the register of Members of the Company.
Person: means an individual, partnership, joint-stock company, corporation,
trust or unincorporated organization, limited liability company, or a government
or agency or political subdivision thereof or any other entity.
Qualified Public Offering: means the completion of an underwritten public
offering of Common Stock pursuant to a registration statement under the
Securities Act resulting in net proceeds to the Company of at least $50,000,000.
Related Person: means any Person who bears a relationship to an Excess
Investor as described in Section 958 of the Code.
Securities Act: means the United States Securities Act of 1933, as amended.
Stock Warrant Plans: means (i) the Employee Stock Warrant Plan of the
Company dated June 17, 1997, (ii) the Sponsoring Investors' and Founders' Stock
Warrant Plan of the Company dated June 17, 1997 and (iii) any employee stock
warrant, stock option or similar plan approved by the Board and the Shareholders
of the Company.
Super-Majority Board Action: means a vote of three-quarters (3/4) of the
directors serving on the Board at the time of such vote.
10% Investor: means a U.S. Person that (i) owns directly, indirectly or by
attribution (within the meaning of ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Internal
Revenue Code of 1986, as amended) 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote or (ii) by virtue of
such ownership is treated as owning indirectly or constructively 10% or more of
the total combined voting power of all classes of the stock entitled to vote of
Commercial Guaranty Assurance, Ltd., a Bermuda company with limited liability
(and its successors).
28
Transfer: means any sale, assignment, pledge, hypothecation, or other
disposition or encumbrance of any interest.
Trigger Event: means (a) the closing of a Qualified Public Offering, (b)
the consummation of an acquisition of a majority of the issued and outstanding
shares of Common Stock at the time of such acquisition by one or more purchasers
acting in concert in a single transaction or in a Series of related transactions
(including, without limitation, acquisitions pursuant to an amalgamation,
exchange offer, business combination, consolidation, or corporate
reorganization) resulting in the ultimate beneficial ownership of such acquired
shares of Common Stock being different than before such acquisition or (c) the
sale of all or substantially all of the assets of the Company unless the
ultimate beneficial owners of a majority of the ownership interests in the
acquiror of such assets were the ultimate beneficial owners of a majority of the
issued and outstanding shares of Common Stock at the time of or immediately
before such sale. It is expressly acknowledged and agreed by the parties to this
Agreement that the Subsequent Offering (as defined in Section 1(e) of this
Agreement) shall not be a Trigger Event.
U.S. Person: means an individual who is a citizen or resident of the United
States, a company, corporation or partnership created or organized under the
laws of the United States or any state thereof, an estate, the income of which,
from non-United States sources and not effectively connected with the conduct of
a trade or business in the United States, is includable in gross income for
United States federal income tax purposes, or a trust, if (i) a court within the
United States may exercise primary supervision of the trust, and (ii) one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust.
6. MISCELLANEOUS
(a) Legends.
In addition to any other legends required by applicable law, the Company's
Amended and Restated Bye-laws or any other agreement restricting the Transfer of
the Company Stock or Investment Units, as the case may be, each certificate
evidencing the Common Stock or Investment Units, as the case may be, acquired by
the Common Holders will bear a legend reflecting the restrictions on the
transfer of such shares contained in this Agreement and in the Investment Units
Subscription Agreement, the Warrant Acquisition Agreement or the Founders'
Subscription Agreement, as the case may be.
(b) Waiver; Amendments.
Except as expressly provided otherwise herein, neither this Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the Company and each of the
Common Holders and Series C Holders at the time who are party to this Agreement;
provided, however, that any provision hereof other than Section 4 may be
amended, which amendment shall
29
be effective as to all parties hereto, with the consent of the Company and the
parties hereto that at the time just prior to the amendment hold at least
seventy-five percent (75%) of the Common Stock (it being understood that for the
purposes of such calculation, the Series C Preferred Stock shall be deemed to
have been converted into shares of Common Stock at the then applicable
conversion rate for such shares, as set forth in the Company's Amended and
Restated Bye-laws (the "Assumed Conversion")); provided, further, however, that
any amendment to Section 4 shall require the consent of the Company and the
parties hereto that at the time just prior to the amendment hold at least ninety
percent (90%) of the Common Stock, taking into account the Assumed Conversion.
(c) Amendment of Schedules I and II to this Agreement.
The Secretary of the Company shall, from time to time in the ordinary
course of business as reasonably necessary, amend Schedules I and II to this
Agreement to reflect accurately the addition or deletion of parties to this
Agreement by virtue of the succession, assignment, or other transfer of shares
of Company Stock in accordance with this Agreement, or exercise of Warrants
pursuant to the Warrant Acquisition Agreement or otherwise, and applicable law.
(d) Recapitalization, Exchanges, Etc.
The provisions of this Agreement shall apply to the full extent set forth
herein with respect to shares or other securities of the Company that may be
issued in respect of, in exchange for, or in substitution of the Common Stock.
The Company agrees not to enter into any transaction with any Person pursuant to
which shares or other securities of such Person will be exchanged or substituted
for the Common Stock unless it is a condition to such transaction that such
Person and the Common Holders execute an agreement substantially in the form of
this Agreement (or the surviving provisions hereof).
(e) Specific Performance.
Each of the parties hereto acknowledges and agrees that, in the event of
any breach of this Agreement, the non-breaching parties would be irreparably
harmed and could not be made whole by monetary damages. Accordingly, each of the
parties hereto agrees that the other parties, in addition to any other remedy to
which they may be entitled at law or in equity, shall be entitled to compel
specific performance of this Agreement.
(f) Notices.
All notices, requests, demands and other communications hereunder shall be
in writing and, except to the extent otherwise provided in this Agreement, shall
be deemed to have been duly given if delivered by same day or next day courier
or mailed, registered mail, return receipt requested, or transmitted by
telegram, telex or facsimile (i) if to a Common Holder or Series C Holder, at
such holder's address appearing on the applicable Schedule attached hereto or at
any other address such holder may have
30
provided in writing to the Company and (ii) if to the Company, at ▇▇▇▇▇ Appin
House, 2nd Floor, ▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ HMFX, Bermuda, Attention: Secretary,
or such other address as the Company may have furnished to such holders in
writing. A notice hereunder shall be deemed to have been given on the day such
notice is sent or transmitted; provided, however, that if such notice is sent by
next-day courier it shall be deemed to have been given the day following sending
and, if by registered mail, five days following sending.
(g) Successors and Assigns.
Except as otherwise provided herein, this Agreement shall inure to the
benefit of, and be binding upon, the successors and assigns of each of the
parties; provided, however, that this Agreement may not be assigned by any party
hereto other than in compliance with the terms hereof, including the
restrictions on transfers of Company Stock as set forth in Sections 1 and 2
hereof.
(h) Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall be considered one
and the same agreement.
(i) Entire Agreement.
This Agreement, the Founders' Subscription Agreement and the Series C
Subscription Agreement constitute the entire understanding of the parties hereto
and supersede all prior understandings among such parties.
(j) Applicable Law.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder, shall be determined under,
governed by and construed in accordance with the laws of New York without giving
effect to the principles of conflicts of laws thereof. Each party hereto agrees
that any suit, action or other proceeding arising out of this Agreement shall be
brought and litigated in the courts of New York (or if a suit, action or other
proceeding arising out of this Agreement is unable to be brought or is dismissed
for jurisdictional reasons in the courts of New York, then the suit, action or
proceeding arising out of this Agreement shall be brought in the courts of
Bermuda) and each party hereto hereby irrevocably consents to personal
jurisdiction and venue in any such court and hereby waives any claim it may have
that such court is an inconvenient forum for the purposes of any such suit,
action or other proceeding.
(k) Section Headings.
The headings of the sections and subsections of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part thereof.
31
(l) Holders of Warrant Shares.
Each of the parties hereto hereby consents and agrees that any holder of
the Warrant Shares not already a party hereto may become a party to this
Agreement upon exercise of the Warrant by executing a counterpart signature page
hereto and such holder shall then be reflected on Schedule I hereto as a Common
Holder. Each of the parties hereto hereby agrees that each of the holders of the
Warrants are third party beneficiaries of this Section 6(l).
(m) Series B Holders.
The holders of Common Stock who also hold shares of Series B Preferred
Stock expressly acknowledge and agree that upon the Series B Conversion, such
holders shall become bound by the provisions of this Agreement with respect to
the Series B Conversion Shares received by them as a result of such conversion.
(n) Series C Holders.
The holders of Common Stock who subscribe for shares of Series C Preferred
Stock pursuant to the Series C Subscription Agreement expressly acknowledge and
agree that upon the conversion of any such shares of Series C Preferred Stock,
such holders shall become bound by the provisions of this Agreement with respect
to the Series C Conversion Shares received by them as a result of such
conversion.
32
IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement as of the date first above written.
COMPANY:
CGA GROUP, LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. PRICE
------------------------------
Name: ▇▇▇▇▇▇▇ ▇. Price
Title: Chief Executive Officer
33