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XL FINANCIAL ASSURANCE LTD.
SECOND AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
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TABLE OF CONTENTS
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SECTION 1 DEFINITIONS.................................................. 2
SECTION 2 SHAREHOLDINGS................................................ 2
SECTION 3 NUMBER AND ELECTION OF DIRECTORS............................. 2
SECTION 4 RESTRICTIONS ON TRANSFERS OF SHARES.......................... 3
(a) Prior Consents for Transfers........................ 3
(b) Sales or Transfers to Non-Parties................... 3
(c) Notice of Transfer.................................. 3
SECTION 5 INSURANCE REGULATIONS........................................ 3
(a) Insurance Regulations Generally..................... 3
(b) Maintenance of Books and Records.................... 3
SECTION 6 TRANSFER OF SHARES TO SUBSIDIARIES AND ASSIGNMENTS........... 3
(a) Transfer of Shares to Subsidiaries.................. 3
(b) Assignments......................................... 5
SECTION 7 ANTIDILUTION; EQUITY ACCOUNTING; REDEMPTION OF SHARES........ 5
(a) Sale of Shares by the Company....................... 5
(b) Equity Accounting Rights and Tax Considerations..... 5
(c) Redemption of Shares................................ 6
SECTION 8 LEGEND....................................................... 6
SECTION 9 COVENANTS OF THE COMPANY..................................... 6
(a) Issuance of Capital Stock........................... 6
(b) Lines of Business................................... 7
(c) Investment and Underwriting Guidelines.............. 7
(d) Capital Support..................................... 7
(e) Dividends........................................... 7
(f) Non-compliance with Covenants....................... 7
(g) Waiver of Covenants................................. 7
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SECTION 10 BUSINESS OF THE COMPANY...................................... 7
SECTION 11 NOTICES...................................................... 7
SECTION 12 BINDING EFFECT AND BENEFITS.................................. 7
SECTION 13 TERM; AMENDMENT; TERMINATION................................. 8
SECTION 14 REMEDIES FOR VIOLATIONS...................................... 8
SECTION 15 ENTIRE AGREEMENT............................................. 8
SECTION 16 SEVERABILITY................................................. 8
SECTION 17 SECTION AND OTHER HEADINGS................................... 8
SECTION 18 CHOICE OF LAW AND FORUM AND SERVICE OF PROCESS............... 8
(a) English Law......................................... 8
(b) English Courts...................................... 8
(c) Service of Process.................................. 9
SECTION 19 ARBITRATION.................................................. 9
SECTION 20 COUNTERPARTS................................................. 10
SECTION 21 CONSTRUCTION................................................. 10
EXHIBIT A DEFINITIONS.................................................. A-1
EXHIBIT B SHAREHOLDER JOINDER.......................................... B-1
SCHEDULE I SHAREHOLDINGS................................................ I-1
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SECOND AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
THIS SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (the
"Agreement") is dated as of July 21, 2006 among SECURITY CAPITAL ASSURANCE LTD,
a Bermuda exempted company ("SCA"), FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.,
a New York corporation ("FSA Holdings"); FINANCIAL SECURITY ASSURANCE INC., a
New York corporation ("FSANY"); and FINANCIAL SECURITY ASSURANCE INTERNATIONAL
LTD., a Bermuda exempted company ("FSA International") (SCA, FSANY and FSA
International are also referred to herein, individually, as a "Shareholder" and,
collectively, along with any other Person who shall execute a Shareholder
Joinder pursuant to the terms hereof, as the "Shareholders"); and XL FINANCIAL
ASSURANCE LTD., a Bermuda exempted company (the "Company") (the parties hereto
are referred to herein, individually, as a "Party" and, collectively, as the
"Parties").
WHEREAS, XL Capital Ltd (formerly known as EXEL Limited), XL Insurance
(Bermuda) Ltd (formerly known as XL Insurance Ltd) ("XLI"), FSA Holdings, FSANY
and the Company are parties to an amended and restated shareholders agreement
dated as of April 27, 2001 (the "Amended and Restated Shareholders Agreement");
WHEREAS, FSANY is the holder of 150 Series A Preferred Shares and FSA
International is the holder of 213 Series A Preferred Shares in the Company
(collectively, the "FSA Preferred Shares") and SCA is the holder of 2,449 common
shares in the Company ("Common Shares");
WHEREAS, the Parties hereby acknowledge and agree that XLI executed a
transfer agreement in the form of transfer as provided in the Company's
Bye-laws, whereby XLI, as transferor, transferred all of the outstanding Common
Shares to SCA, as transferee;
WHEREAS, the Parties to this Agreement and XL Capital and XLI,
acknowledge and agree that each of XL Capital and XLI are no longer shareholders
of the Company or parties to this Agreement and shall have no further rights or
obligations with respect thereto;
WHEREAS, the Parties to this Agreement intend to adopt fourth amended
and restated bye-laws of the Company, as may be amended or restated from time to
time (the "Bye-Laws") to be effective as at the closing date of the initial
public offering of the shares of Security Capital Assurance Ltd ("SCA IPO"); and
WHEREAS, the Parties wish to amend and restate the Amended and Restated
Shareholders Agreement in certain respects to make modifications thereto, and to
restate the Amended and Restated Shareholders Agreement in its entirety as so
amended to be effective as at the closing date of the SCA IPO.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein have the meanings
provided in Exhibit A hereto and in the Bye-Laws unless the context otherwise
requires.
SECTION 2. SHAREHOLDINGS. The Company has issued the FSA Preferred
Shares and Common Shares and, at the effective date of this Agreement such
Shares are held as set forth in Schedule I of this Agreement. It is understood
and agreed that the Shareholders listed in Schedule I that are not party to the
Amended and Restated Shareholders Agreement are permitted Subsidiaries or
Transferees, entitled to own such Shares in accordance with the Share Purchase
Agreement, the Amended and Restated Shareholders Agreement, this Agreement and
the Bye-Laws. It is further understood and agreed that all requirements in such
agreements for the ownership of such Shares held by such Shareholders have
either been complied with or are hereby explicitly waived by the Parties.
SECTION 3. NUMBER AND ELECTION OF DIRECTORS. Each of the Parties hereby
agrees that:
(a) so long as FSA Holdings or its permitted Subsidiaries or
Transferees (collectively, "FSA") owns any of the FSA Preferred Shares,
FSA shall be entitled to designate two nominees for election as
Directors of the Company (such Directors, the "FSA Directors") and, in
the event that any such Director shall resign or otherwise cease to be
a Director, then FSA shall be entitled to designate his or her
replacement;
(b) so long as SCA or its permitted Subsidiaries or
Transferees (collectively, "SCA") owns all the Common Shares, SCA shall
be entitled to designate twelve nominees for election as Directors of
the Company (such Directors, the "SCA Directors") and, in the event
that any such Director shall resign or otherwise cease to be a
Director, then SCA shall be entitled to designate his or her
replacement;
(c) the FSA Directors shall be entitled to serve on each
committee created from time to time by the Board of Directors;
(d) FSA and SCA agree to vote their respective Shares in favor
of the election of the nominees of SCA and FSA designated in accordance
with this Section 3; and
(e) each SCA Director shall be entitled to ten votes and each
FSA Director shall be entitled to one vote with respect to any vote on
any matter put before the Board of Directors or any committee thereof.
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SECTION 4. RESTRICTIONS ON TRANSFER OF SHARES.
(a) PRIOR CONSENT FOR TRANSFERS. So long as any Shares shall
be outstanding, no Shareholder may Transfer any Shares, except as otherwise
provided in Section 6 hereof or in the bye-laws of the Company, in addition to
any restrictions under applicable law, without the prior written consent of the
Company and each other Shareholder; provided, however, that any Transfer made
with the consent of the Parties shall not cause a Rating Event. Any attempt to
Transfer any Shares in violation of such Section or the bye-laws shall be null
and void.
(b) SALES OR TRANSFERS TO NON-PARTIES. Any purchase of Shares
in the Company by or Transfer of Shares to a Person who is not a Party to this
Agreement shall be made only pursuant to the terms of this Agreement and on the
condition that such Person shall execute a Shareholder Joinder agreement,
substantially in the form of Exhibit B attached hereto, with the effect that the
holder shall thereafter be deemed to be a Shareholder for all purposes of this
Agreement with respect to all Shares purchased by the proposed Shareholder or
acquired from the Donor (as defined in Section 6 below).
(c) NOTICE OF TRANSFER. Any Shareholder making a Transfer
shall promptly
notify the Company, and the Company shall promptly notify the other
Shareholders, if any, of the name of each Transferee and the date of such
Transfer and the purchase price per Share transferred to such Transferee.
SECTION 5. INSURANCE REGULATIONS.
(a) INSURANCE REGULATIONS GENERALLY. Each Shareholder
severally agrees that it will comply in all material respects with all
applicable laws, rules and regulations affecting insurance companies in
connection with its interest in and relationship with the Company.
(b) MAINTENANCE OF BOOKS AND RECORDS. Each Shareholder
severally agrees that its respective books, accounts and records with respect to
all transactions pursuant to this Agreement shall be maintained to disclose
clearly and accurately in all material respects the nature and details of such
transactions, including such accounting information as may be necessary to
support the reasonableness of any charges or fees.
SECTION 6. TRANSFER OF SHARES TO SUBSIDIARIES AND ASSIGNMENTS.
(a) TRANSFER OF SHARES TO SUBSIDIARIES. Each Shareholder (the
"Donor") may Transfer all or any part of the Shares held thereby, either
directly or indirectly to (1) a corporation, company or partnership, at least
80% of the voting shares or capital of which is owned directly or indirectly by
such Donor, or (2) a corporation which owns directly or indirectly at least 80%
of the voting shares of such Donor
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(collectively, the "Donee"); provided that each such Transfer shall be subject
to the following terms and conditions:
(i) The Donor shall give written notice of the
Transfer to the Secretary of the Company within 15 days after
the date of Transfer, which notice shall include the following
information: the name of the Donor; the name, address and
taxpayer identification number (if any) of the Donee; the
Donee's relationship to the Donor; the number of Shares
Transferred; the purchase price per Share; and the date of
Transfer. Upon receipt of such notice, the Secretary of the
Company shall record the Transfer in the records of the
Company and shall send a copy of this Agreement to the Donee
and copies of the notice to each Shareholder.
(ii) The Donee receiving such Shares shall be subject
to all the terms and provisions of this Agreement as if the
Donee were a Shareholder. At or before the time such Transfer
becomes effective, the Donee shall (x) execute and deliver to
the Company and each other Shareholder a Shareholder Joinder
agreement, pursuant to which such Donee acknowledges being
subject to the terms and provisions of this Agreement, and (y)
provide to the Company and each other Shareholder such legal
opinion or other evidence, if any, as the Company and each
other Shareholder may reasonably require to confirm that the
Donee is not a Prohibited Entity. The Donor shall remain
liable hereunder for any non-performance of any obligations
hereunder by the Donee as though the Donor continued to own
the Shares Transferred pursuant to this Section.
(iii) The Donee shall succeed to all the rights,
responsibilities and liabilities with respect to such Shares,
except that, for all purposes of this Agreement, including the
nomination of Directors pursuant to the bye-laws, the
ownership percentage of the Donor and the Donee after such
Transfer shall be aggregated, and such Shareholders shall have
such rights hereunder as a group resulting from the aggregate
ownership percentage and shall be deemed to be one Shareholder
where appropriate in the context of this Agreement and the
Share Purchase Agreement.
(iv) The initial Donor shall continue to own directly
or indirectly at least 80% of the voting shares or capital of
the Donee, or the Donee shall continue to own directly or
indirectly at least 80% of the voting shares or capital of the
Donor, as the case may be, so long as the Donee owns the
Shares.
(v) Prior to the Transfer, the Donor and the Donee
shall obtain written confirmation from the Rating Agencies
that the Transfer will not result in a Rating Event and obtain
written approval or non-disapproval of the Transfer from, and
make any required filings with, all applicable
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insurance or securities regulators, including the Bermuda
Monetary Authority.
(vi) The Donor or the Donee shall reimburse the other
Parties for all reasonable expenses incurred by such other
Parties as a result of such Transfer.
(vii) Permitted Donees of the Preferred Shares held
by FSA shall limited to be FSA Holdings or its direct or
indirect subsidiaries meeting the above requirements.
(b) ASSIGNMENTS. Except as provided in paragraph (a) of this
Section, neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the Parties hereto without the prior
written consent of the other Parties, except by operation of law; provided,
however, that any assignment made with the consent of the Parties shall not
cause a Rating Event. Subject to the preceding sentence, this Agreement will be
binding upon, and will inure to the benefit of and be enforceable by, the
Parties and their respective successors and assigns.
SECTION 7. ANTIDILUTION; EQUITY ACCOUNTING; REDEMPTION OF SHARES.
(a) SALE OF SHARES BY THE COMPANY. The Company agrees it will
not sell any Shares (or securities convertible into Shares) unless it shall
first offer to each Shareholder the right to purchase such additional number of
the type of Shares currently held thereby or, with the prior written consent of
the relevant Shareholder, the type of security proposed to be issued, as the
Company shall elect (or securities convertible into such Shares), upon the same
terms as proposed to be sold (or, in the case of an offer of Shares to a
Shareholder of a type different than being sold, upon "substantially" the same
terms as those being sold), as will permit such Shareholder to maintain its
proportion of the voting Shares (determined on the basis of the number of votes
such Shareholder is entitled to cast) issued and outstanding following such
sale. In the event that the Parties in good faith disagree as to terms intended
to constitute "substantially" the same terms, then the Company shall be entitled
to either (i) arbitrate such dispute under Section 19 hereof or (ii) offer
Shares of the same type currently held thereby at a price equal to book value
per Share under U.S. GAAP as of the date of the last completed fiscal quarter.
For purposes of the foregoing, the number of Shares issued and outstanding shall
include the number of Shares that would be outstanding upon full conversion of
any securities convertible into Shares.
(b) EQUITY ACCOUNTING RIGHTS AND TAX CONSIDERATIONS. The
Company and SCA agree (i) to take all reasonable actions necessary, or
reasonably believed by FSA to be necessary, to maintain equity accounting
treatment of FSA's investment in the Company on a consolidated basis with its
subsidiaries under U.S. GAAP as in effect from time to time and to ensure that
each FSA holder of the Preferred Shares shall not be subject to United States
income taxes on non-distributed income of the Company and (ii) so long as the
Company and SCA may
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reasonably do so, not to take any action which would result, or which FSA
reasonably believes would result, in FSA's being unable able to maintain equity
accounting treatment for its investment in the Company under U.S. GAAP or
subject any FSA holder of the Preferred Shares to United States income taxes on
non-distributed income of the Company; provided, however, that the Company shall
not be required to take such action or refrain from taking such action if it
might result, or the Company reasonably believes it would result, in a Rating
Event, the Company becoming a United States taxpayer or adverse tax consequences
to any Shareholder under the United States Internal Revenue Code in effect from
time to time.
(c) REDEMPTION OF SHARES. If the Company redeems any Shares
owned by an FSA Shareholder, at the option of the Company, then the Company
shall deliver to the FSA Shareholder cash equal to the applicable redemption
price of the redeemed Series A Preferred Shares on the date of redemption, as
provided in the Company's Bye-laws. On the date of redemption at the option of
the majority of the FSA Shareholders pursuant to the terms of the Company's
Bye-laws, the Company shall deliver to the FSA Shareholder cash equal to the
applicable redemption price of the redeemed Series A Preferred Shares; provided
that in the event of a redemption at the option of such majority of FSA
Shareholders due to the occurrence and continuation of an Extraordinary Event,
that has a material adverse effect on the rights of the FSA Shareholders, as
defined in the Company's Bye-laws, such FSA Shareholders may elect, at their
option, for the Company to deliver, or cause a third person to deliver to them
cash or SCA Shares, that in the aggregate, equal the applicable redemption price
of the redeemed Series A Preferred Shares. If the FSA Shareholders elect to
receive SCA Shares, as provided in the Company's Bye-laws, the SCA Shares
delivered to the redeemed Shareholder shall be (i) duly registered under the
U.S. Securities Act of 1933, as amended or (ii) subject to a registration rights
agreement that is substantially similar to the Registration Rights Agreement.
SECTION 8. LEGEND. So long as this Agreement remains in effect, all
certificates representing Shares shall have the following legend thereon:
The security represented by this instrument and its transfer are
subject to the provisions of a certain Second Amended and Restated
Shareholders Agreement (as amended from time to time, the "Agreement"),
among XL Financial Assurance Ltd. (the "Company") and its shareholders,
a copy of which Agreement is on file with the Secretary of the Company.
Transfers in violation of the Agreement are null and void. By
acceptance of this instrument, the holder hereof agrees to be bound by
the terms of the Agreement. No transfer may be effected without the
prior approval of the Bermuda Monetary Authority.
SECTION 9. COVENANTS OF THE COMPANY. The Company covenants that, until
this Agreement is terminated pursuant to Section 13 hereof, to the fullest
extent permitted by applicable law:
(a) ISSUANCE OF CAPITAL STOCK. The Company will not issue any
shares of capital stock or rights to acquire capital stock other than
in accordance with this Agreement.
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(b) LINES OF BUSINESS. The Company will limit its business to
the following lines of insurance and reinsurance or lines substantially
similar and activities incidental thereto: financial guaranty, surety,
credit and residual value.
(c) INVESTMENT AND UNDERWRITING GUIDELINES. The Company shall
have adopted and implemented underwriting guidelines, and thereafter
shall amend or supplement such guidelines only, by the unanimous vote
of the Board of Directors or a committee thereof, in each case with all
Directors serving thereon. The Company will not adopt or implement
investment guidelines that would result in a Rating Event.
(d) CAPITAL SUPPORT. The Company will not waive any provision
of any Support Agreement if to do so would result in a Rating Event.
(e) DIVIDENDS. The Company will not amend or repeal Bye-Law
50(2)(b) of the Company's bye-laws, if to do so would result in a
Rating Event.
(f) NON-COMPLIANCE WITH COVENANTS. Unless waived as provided
in paragraph (g) of this Section 9, a material non-compliance with the
covenants contained in this Section 9 shall be deemed to be an
Extraordinary Event as defined in the Bye-laws of the Company, with the
resulting rights, remedies and obligations of the Parties provided
therein.
(g) WAIVER OF COVENANTS. The Company may in any particular
instance not comply with any covenant or condition set forth herein if
before or after the time for such compliance all holders of Shares
shall either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall
extend to or affect such covenant or condition except to the extent so
expressly waived in writing and, until such waiver shall become
effective, the obligations of the Company in respect of any such
covenant or condition shall remain in full force and effect.
SECTION 10. BUSINESS OF THE COMPANY. It is the intention of the parties
that the Company will be the primary vehicle for reinsuring SCA's Financial
Guaranty Business.
SECTION 11. NOTICES. All notices and other communications hereunder
("Notices") shall be in writing and shall be deemed effective upon receipt.
Notices may be sent by facsimile to telephone numbers or addressed to the
Parties at their addresses as they appear on the records of the Company.
Whenever the Company is required to give Notice to a Shareholder, the Company
shall send, at the same time, a copy of the Notice to every other Shareholder.
Whenever Notice is required to be given to the Company, such Notice shall be
given to the Secretary of the Company and sent to the principal place of
business of the Company and to every other Shareholder.
SECTION 12. BINDING EFFECT AND BENEFITS. The terms of this Agreement
shall be binding upon and inure to the benefit of the Parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns, and shall be binding upon any
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Person to whom any Shares are Transferred, even if in violation of the
provisions of this Agreement, and upon the heirs, executors, administrators,
successors and assigns of each such Person.
SECTION 13. TERM; AMENDMENT; TERMINATION. This Agreement shall become
effective as of the closing date of the SCA IPO and shall remain in full force
and effect until an agreement in writing as to its amendment or termination
shall be entered into by the Shareholders; provided, however, that this
Agreement shall not be amended or terminated if such amendment or termination
would result in a Rating Event. Upon termination of this Agreement, the
Secretary of the Company shall, upon tender of the certificates representing
Shares, delete references to this Agreement contained in the legend endorsed
thereon pursuant to Section 8 hereof and return such certificates to the
Shareholder thereof. This Agreement shall be amended only by a writing mutually
agreed to by the Shareholders and the Company.
SECTION 14. REMEDIES FOR VIOLATIONS. The Shares cannot be readily
purchased or sold on the open market and for this reason, among others, the
Parties hereto will be irreparably damaged in the event that this Agreement is
not adhered to by the Parties hereto. In the event of any controversy concerning
the right or obligation to purchase, sell or vote any Shares, such right or
obligation shall be enforceable in a court of equity by a decree of specific
performance. The Parties to this Agreement shall have, in addition to the rights
granted by this Section 14, all other legal and equitable remedies which may be
available, and the exercise by a Party of the rights granted by this Section 14
shall not be deemed an election of remedies.
SECTION 15. ENTIRE AGREEMENT. This Agreement contains the entire
understanding and agreement between the Parties hereto and supersedes any prior
agreements among the Parties pertaining to the matters dealt with in this
Agreement. There are no representations, warranties, promises, covenants or
understandings about such matters other than those expressly set forth in this
Agreement or the Share Purchase Agreement.
SECTION 16. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions of
this Agreement, and in such event this Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
SECTION 17. SECTION AND OTHER HEADINGS. The section and other headings
contained in this Agreement are for reference purposes only, and shall not
affect the interpretation of this Agreement.
SECTION 18. CHOICE OF LAW AND FORUM AND SERVICE OF PROCESS.
(a) ENGLISH LAW. This Agreement shall be governed by and
construed in accordance with English law, without regard to principles of
conflicts of law.
(b) ENGLISH COURTS. To the extent that an action is required
to further, or otherwise is not inconsistent with, arbitration pursuant to
Section 19 hereof, each Party hereby
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irrevocably submits to the non-exclusive jurisdiction of any court of general
jurisdiction sitting in London, England, over any action or proceeding arising
out of or relating to this Agreement, and each Party hereby irrevocably agrees
that all claims in respect of such action or proceeding may be heard and
determined in such court, except that actions or proceedings to collect on
judgments issued by a London court may be brought in any jurisdiction where the
losing Party has assets. Each Party hereby irrevocably waives the defense of an
inconvenient forum to the maintenance of such action or proceeding. Each Party
hereby irrevocably waives, to the fullest extent it may effectively do so, any
right to trial by jury of any action or proceeding arising out of or relating to
this Agreement.
(c) SERVICE OF PROCESS. Each Party hereby agrees that process
in any action or proceeding may be served by registered mail, return receipt
requested, or in any other manner permitted by the rules of the court in which
the action or proceeding may be brought.
SECTION 19. ARBITRATION. Except as provided in Section 19(e) below, any
dispute, controversy or claim arising out of or relating to this Agreement or to
any actual or alleged breach, cancellation, termination or invalidity of this
Agreement shall be finally and fully determined in London, England, under the
provisions of the Arbitration Act of 1996 (the "Act") and/or any statutory
modifications or amendments thereto, for the time being in force, by a Board
composed of three arbitrators to be selected for each controversy as follows:
(a) Any Party to an arbitration proceeding hereunder may, in
the event of such a dispute, controversy or claim, notify the other
Party or Parties to such dispute, controversy or claim of its desire to
arbitrate the matter, and at the time of such notification the Party
desiring arbitration shall notify any other Party or Parties of the
name of the arbitrator selected by it. The other Party or Parties who
has been so notified shall within forty-five (45) calendar days
thereafter select an arbitrator and notify the Party desiring
arbitration of the name of such second arbitrator. If the Party or
Parties notified of a desire for arbitration shall fail or refuse to
nominate the second arbitrator within forty-five (45) calendar days
following the receipt of such notification, the Party who first served
notice of a desire to arbitrate may, within a period of thirty (30)
calendar days following the expiration of such forty-five (45) day
period, apply to a judge of the High Court of Justice of England and
Wales for the appointment of a second arbitrator and in such a case the
arbitrator appointed by such a judge shall be deemed to have been
nominated by the Party or Parties who failed to select the second
arbitrator. The two arbitrators, chosen as above provided, shall within
thirty (30) calendar days after the appointment of the second
arbitrator choose a third arbitrator. In the event of the failure of
the first two arbitrators to agree on a third arbitrator within said
thirty (30) calendar day period, either of the Parties may within a
period of thirty (30) calendar days thereafter, after notice to the
other Party or Parties, apply to a judge of the High Court of Justice
of England and Wales for the appointment of a third arbitrator and in
such case the person so appointed shall be deemed and shall act as the
third arbitrator. Upon acceptance of the appointment by said third
arbitrator, the Board of Arbitration for the controversy in question
shall be
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deemed fixed. Each arbitrator selected to serve on the Board of
Arbitration shall be an active or retired executive officer of an
insurance or a reinsurance company having no direct or indirect
financial interest in either party or its Affiliates and otherwise free
of any actual or potential conflict of interest that might reasonably
prevent such person from acting in a judicious and impartial manner.
All claims, demands, denials of claims and notices pursuant to this
Section 19 shall be given in accordance with Section 11 hereof.
(b) The Board of Arbitration shall fix, by a notice in writing
to the Parties, a reasonable time and place for the hearing and shall
follow the rules and regulations governing the course and conduct of an
arbitration proceeding under the London Court of International
Arbitration rules, including discovery by the Parties, which rules are
deemed to be incorporated by reference herein.
(c) The Board of Arbitration shall, within ninety (90)
calendar days following the conclusion of the hearing, render its
decision on the matter or matters in controversy in writing and shall
cause a copy thereof to be served on the Parties thereto. In case the
Board of Arbitration fails to reach a unanimous decision, the decision
of the majority of the members of the Board of Arbitration shall be
deemed to be the decision of the Board of Arbitration and the same
shall be final and binding on the Parties thereto. Such decision shall
be a complete defense to any attempted appeal or litigation of such
decision in the absence of serious irregularity. Without limiting the
foregoing, the Parties waive any right to appeal to, and/or seek
collateral review of the decision of the Board of Arbitration by, any
court or other body to the fullest extent permitted by applicable law,
including, without limitation, application or appeal under Sections 45
and 69 of the Act.
(d) Any order as to the costs of the arbitration shall be in
the sole discretion of the Board of Arbitration, who may direct to whom
and by whom and in what manner they shall be paid. The Board of
Arbitration shall have no power or authority to order the payment of
punitive damages.
(e) Nothing in Section 18 or 19 hereof shall preclude a Party
from seeking an injunction, specific performance or other equitable
remedy from any court of competent jurisdiction.
SECTION 20. 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 constitute one and the same instrument.
SECTION 21. CONSTRUCTION. Whenever required by the context, references
herein to the singular shall include the plural and references herein to the
masculine gender shall include the feminine gender.
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IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered
this Agreement as of the date first above written.
SECURITY CAPITAL ASSURANCE LTD
By:
-------------------------------------------
Name:
Title:
FINANCIAL SECURITY
ASSURANCE HOLDINGS LTD.
By:
-------------------------------------------
Name:
Title:
FINANCIAL SECURITY ASSURANCE INC.
By:
-------------------------------------------
Name:
Title:
FINANCIAL SECURITY ASSURANCE INTERNATIONAL LTD.
By:
-------------------------------------------
Name:
Title:
[XLFA SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT]
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XL FINANCIAL ASSURANCE LTD.
By:
-------------------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED:
XL CAPITAL LTD
By:
-------------------------------------------
Name:
Title:
XL INSURANCE (BERMUDA) LTD
By:
-------------------------------------------
Name:
Title:
[XLFA SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT]
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EXHIBIT A
TO THE
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
DEFINITIONS
"Board of Directors" means the Board of Directors of the Company.
"Director" means a member of the Board of Directors of the Company.
"Common Shares" means the common shares of the Company.
"FSA Shareholder" means the holder(s) of Series A Preferred Shares.
"SCA Financial Guaranty Insurance Business" means business insured by
XL Capital Assurance Inc. or its Affiliates after the date hereof that (i)
qualifies as "financial guaranty insurance" under Section 6901(a)(1)(A) of the
New York Insurance Law and regulations and rulings thereunder, as amended and
supplemented from time to time, (ii) is within the Underwriting Guidelines, and
(iii) is not incidental to an insurance or reinsurance transaction involving
primarily other types of insurance coverages or part of a package insurance
policy providing (or reinsurance agreement assuming) other insurance coverages.
"Notice" means a notice pursuant to Section 11 of this Agreement.
"Prohibited Entity" means a proposed Transferee not meeting the
requirements of Section 6 of this Agreement.
"Rating Agencies" means initially Standard & Poor's Ratings Services
and ▇▇▇▇▇'▇ Investors Service, Inc. and thereafter those securities rating
agencies designated by the Board of Directors.
"Rating Event" means either of the following actions by any of the
Rating Agencies: (i) the downgrade or withdrawal of the Company's claims-paying
ability or insurer/insurance financial strength or equivalent rating or (ii) the
placement of the Company's rating on credit watch or the equivalent with
negative implications.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of November 3, 1998, between FSA Holdings and XL Capital
Ltd, as amended and supplemented from time to time, pertaining to FSA Holdings'
common stock.
"SCA Shares" means common shares, par value $.01 per share, of SCA
listed on the New York Stock Exchange and any securities issued in respect
thereof, or in substitution therefor, in connection with any stock split,
dividend, combination, or any reclassification, recapitalization, merger,
consolidation, exchange or other similar reorganization.
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"Selling Shareholder" means any Shareholder whose Shares, or any
interest therein, are to be Transferred pursuant to this Agreement.
"Series A Preferred Shares" means the Series A preferred shares of the
Company.
"Shareholder" means an owner of Common Shares or Preferred Shares.
"Shareholder Joinder" means a joinder agreement signed by a Person who
is not a party to this Agreement.
"Shares" means collectively, the Preferred Shares and the Common
Shares.
"Share Purchase Agreement" means the Share Purchase Agreement, dated as
of November 3, 1998, among XL Capital Ltd, FSA Holdings and the Company, as
amended or supplemented from time to time.
"Support Agreement" means any guaranty, net worth maintenance
agreement, stop loss reinsurance agreement or any similar support agreement
provided by XL Capital or a Subsidiary of XL Capital to the Company in order to
obtain a rating or credit for a rating at least in the double-A category from
the Ratings Agencies on the Company's insurance or reinsurance obligations or to
thereafter avoid a Rating Event but specifically excluding any quota share
reinsurance agreement.
"Transfer" means to directly or indirectly sell, assign, transfer,
pledge, mortgage, hypothecate or in any other way dispose of Shares or any
interest therein, and shall include the process whereby Shares are Transferred.
"Transferee" means the Person to whom Shares are proposed to be or are
Transferred.
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EXHIBIT B
TO THE
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
SHAREHOLDER JOINDER
By execution of this Shareholder Joinder, the undersigned agrees to
become a Party to that certain Second Amended and Restated Shareholders
Agreement dated as of July 21, 2006, as amended or supplemented through the date
hereof (the "Agreement"), among Security Capital Assurance Ltd, Financial
Security Assurance Holdings Ltd., Financial Security Assurance Inc., Financial
Security Assurance International Ltd. and XL Financial Assurance Ltd. The
undersigned shall have all the rights, and shall observe all of the obligations,
applicable to a Shareholder. Capitalized terms herein shall have the meanings
set forth in the Agreement.
Name: _______________________ Number of Shares Acquired: _________________
Address for With copies
Notices: to:
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Signature:
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Date:
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SCHEDULE I
SHAREHOLDINGS
------------------------------------ -------------------- ---------------- --------------------- ----------------
Name of Shareholder Number of Common % of Number of Preferred % of
Shares Total Shares Shares Total Shares
------------------------------------ -------------------- ---------------- --------------------- ----------------
Security Capital Assurance Ltd. 2,449 87 0 0
------------------------------------ -------------------- ---------------- --------------------- ----------------
Financial Security Assurance Inc. 0 0 150 5
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Financial Security Assurance 0 0 213 8
International Ltd.
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