Exhibit 10.6
AMENDED AND RESTATED
CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION AGREEMENT
This Amended and Restated Catastrophe Equity Securities Issuance Option
Agreement (this "Agreement") is entered into as of January 1, 2001 between
Trenwick Group Ltd., a Bermuda company ("Trenwick"), on the one hand, and
European Reinsurance Company of Zurich, a corporation organized under the laws
of Switzerland (the "Option Writer"), on the other hand.
RECITALS
WHEREAS, LaSalle Re Holdings Limited, a Bermuda Company ("Company") and
Option Writer are parties to a Catastrophe Equity Securities Issuance Option
Agreement dated July 1, 1999 (the "Prior Agreement") along with Allianz Risk
Transfer, a corporation organized under the laws of Switzerland ("Allianz");
WHEREAS, the Prior Agreement obligated Option Writer to purchase up to
$55,000,000 of Company securities and Allianz to purchase up to $45,000,000 of
Company securities on the occurrence of certain specified events;
WHEREAS, pursuant to a definitive Agreement, Scheme of Arrangement, Plan of
Merger and Plan of Reorganization, dated as of December 19, 1999, amended and
restated as of March 20, 2000 and amended as of June 28, 2000, Trenwick and the
Company engaged in a series of transactions whereby Trenwick became the parent
company of the Company (the "Business Combination") on September 27, 2000;
WHEREAS, the parties to the Prior Agreement wish to amend and restate the
Prior Agreement in order to (i) reflect the changes in corporate structure of
the Company and Trenwick as a result of the Business Combination, (ii) provide
for the issuance by Trenwick of Preferred Shares (as defined below), (iii)
terminate the role of Allianz as a party to the Prior Agreement, (iv) restate
the commitment of Option Writer to purchase up to such number of Preferred
Shares having an aggregate Preferred Share Purchase Price (as defined below) of
$55,000,000, and (v) reflect such other terms, provisions, revisions and
amendments to the Prior Agreement as the parties deem necessary or appropriate
to effect the foregoing; and
WHEREAS, Trenwick and Option Writer desire to memorialize their agreement
with respect to the Securities Issuance Option (as defined below) on the terms
and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Trenwick and Option Writer agree as follows:
AGREEMENT
1. Definitions. Capitalized terms used in this Agreement shall have the
respective meanings ascribed to them below.
"A.M. Best Rating" means a rating of financial condition and performance,
as published from time to time, by A.M. Best Company.
"Affiliate" of, or Person "affiliated" with, a specified Person means a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled, by, or is under common control with, such specified Person.
"Business Combination" has the meaning ascribed to such term in the
Recitals of this Agreement.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in any of Hamilton, Bermuda; Zurich, Switzerland; or
London, England, are not required to be open.
"Certificate of Designation" means the Certificate of Designation,
Preferences and Rights of Series B Cumulative Perpetual Preferred Shares of
Trenwick, in the form attached as Exhibit A.
"Change of Control" means the earliest to occur of (a) the date that a
Person or group of affiliated Persons (an "Acquiring Person") acquires, or
obtains the right to acquire, legal or beneficial ownership of fifty percent
(50%) or more of the voting power of the issued and outstanding shares of
Trenwick, Company or any Company Subsidiary, (b) the date an Acquiring Person
acquires fifty percent (50%) or more of the assets of Trenwick or the Company or
any of the Company Subsidiaries, or (c) the date of any amalgamation,
consolidation or merger of Company or Trenwick or any Company Subsidiaries with
any Acquiring Person. For purposes hereof, the term "Acquiring Person" shall not
include (i) Trenwick, any of the Trenwick Subsidiaries or any employee benefit
plan (or related trust) sponsored or maintained by Trenwick, or any of its
Subsidiaries, or (ii) any other person where fifty percent (50%) or more of the
combined voting power of such Person's issued and outstanding shares or capital
stock is beneficially owned, directly or indirectly, by the Persons who were the
holders of the voting shares of Trenwick immediately prior to such acquisition,
amalgamation, consolidation or merger (as the case may be).
"Company" means LaSalle Re Holdings Limited, a Bermuda company.
"Company Subsidiaries" means any or all of LaSalle Re Limited, an insurance
company formed under the laws of Bermuda, LaSalle Re Corporate Capital Ltd., a
company formed under the laws of Bermuda, and such other direct or indirect
Subsidiaries of Company as may be agreed in writing between Company and Option
Writer.
"Effective Date" means January 1, 2001.
"Event" means any one or a series of "loss occurrence(s)" as defined in any
reinsurance agreement under which any Company Subsidiary incurs an Ultimate
Loss.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
"Exercise Date" means the date of purchase and sale of Preferred Shares
pursuant to an exercise of the Securities Issuance Option which date shall be
specified in the Notice of Exercise and shall be the later of thirty (30) days
following the delivery of the Notice of Exercise or ten (10) days following
receipt of all regulatory approvals applicable to Trenwick in connection with
such purchase and sale of Preferred Shares (including without limitation any
necessary approvals by the Bermuda Monetary Authority or Registrar of
Companies), provided that the Exercise Date shall not be later than the one
hundred eightieth (180th) day after delivery of the Notice of Exercise, or such
later date, if any, as may be determined by alternative dispute resolution under
Article 8 of this Agreement, which date shall be ten (10) days after the
rendering of a final decision under Article 8.
"Exercise Term" means (a) with respect to a single Event which (i) is a
windstorm, the one (1) year period commencing upon the occurrence of a
Qualifying Catastrophic Event and ending at 12:00 a.m. midnight Bermuda Time on
the first anniversary of such occurrence (as the same may be extended under
Section 2.4) during which Trenwick has the right to exercise the Securities
Issuance Option, or (ii) is other than a windstorm, the eighteen (18) month
period commencing upon the occurrence of a Qualifying Catastrophic Event and
ending at 12:00 a.m. midnight Bermuda Time on the date which is eighteen (18)
months following such occurrence (as the same may be extended under Section 2.4)
during which Trenwick has the right to exercise the Securities Issuance Option,
or (b) with respect to a series of Events, the period commencing upon the
occurrence of a Qualifying Catastrophic Event and ending one (1) year following
the end of the Exposure Period during which such series of Events occurs, which
one (1) year period ends at 12:00 a.m. midnight Bermuda Time on the January 1
next following the end of such Exposure Period (as the same may be extended
under Section 2.4), during which Trenwick has the right to exercise the
Securities Issuance Option.
"Exposure Period" means the one (1) year beginning at 12:00 a.m. midnight
Bermuda Time on January 1, 2001 and ending at 12:00 a.m. midnight Bermuda Time
on January 1, 2002.
"GAAP" means U.S. generally accepted accounting principles, consistently
applied.
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"GAAP Net Worth" means the amount equal to a company's shareholders' equity
plus minority interest, if any, as determined in accordance with GAAP.
"Mean Risk of Ruin" means Company Subsidiaries' mean probability of
incurring aggregate Ultimate Losses in excess of one hundred percent (100%) of
Company Subsidiaries' GAAP Net Worth plus fifty percent (50%) of Trenwick's GAAP
Net Worth during any one (1) year period, calculated using the Proprietary
Model.
"Non-assessable" means, with respect to shares of Trenwick, that no further
sums are required to be paid by the registered holders thereof in connection
with the issue of such shares.
"Non-Subject Business" means Company Subsidiaries' insurance and
reinsurance business other than Subject Business.
"Notice of Exercise" means the written notice of Trenwick's intent to
exercise the Securities Issuance Option as described in Section 2.3.
"Notice of Objection" means Option Writer's written notice of objection to
a Notice of Exercise, as described in Section 2.3.
"Option Fee" means the amounts paid by Trenwick to Option Writer as
consideration for the Securities Issuance Option, as set forth in Section 2.1.
"Option Writer" means the organization named in the preamble of this
Agreement, which shall be (a) entitled to the financial benefits and privileges,
and subject to the financial burdens and obligations, of Option Writer under
this Agreement , (b) obligated to fully comply with all representations,
warranties, conditions, covenants and agreements applicable to Option Writer
under this Agreement, and (c) referred to in this Agreement as an "Option
Writer".
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Share Purchase Price" means the higher of US$100.00 or par value
per Preferred Share payable by Option Writer to Trenwick as set forth in Section
2.3.
"Preferred Shares" means the Series B Cumulative Convertible Perpetual
Preferred Shares of Trenwick, current par value US$0.10 per share.
"Prior Agreement" means the Catastrophe Equity Securities Issuance Option
Agreement dated July 1, 1999 by and among the Company, European Re and Allianz.
"Proprietary Model" means the probability and risk analysis model developed
by the Company Subsidiaries in the form utilized by the Company Subsidiaries at
the Effective Date, subject to material modifications as agreed by Trenwick and
Option Writer.
"Qualifying Catastrophic Event" means (a) with respect to any single Event,
an Event occurring during the Exposure Period pursuant to which the Company
Subsidiaries incur an Ultimate Loss in excess of US$140,000,000 (the "Single
Event Attachment Point"), or (b) with respect to any series of Events during the
Exposure Period, a series of Events that, when considered in the aggregate,
cause the Company Subsidiaries to incur an Ultimate Loss in excess of
US$220,000,000 (the "Multiple Event Attachment Point"). Any Qualifying
Catastrophic Event that commences during the Exposure Period, whether or not it
terminates within the Exposure Period, shall be deemed to have occurred within
the Exposure Period. A single Event that has occurred during the Exposure Period
but which has not developed into a Qualifying Catastrophic Event prior to the
first anniversary of the Event (or eighteen (18) months following the date of
the Event if the Event is other than a windstorm) shall not constitute a
Qualifying Catastrophic Event for purposes of this Agreement. A single Event
that has occurred during the Exposure Period
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and which develops into a Qualifying Catastrophic Event prior to the first
anniversary of the Event (or eighteen (18) months following the date of the
Event if the Event is other than a windstorm), but after expiration of the
Exposure Period (as the same may be extended), shall constitute a Qualifying
Catastrophic Event for purposes of this Agreement. With respect to a single
Event which develops into a Qualifying Catastrophic Event, such Qualifying
Catastrophic Event shall be deemed to have occurred as of the date such single
Event occurred. A series of Events that has occurred during the Exposure Period
but which has not developed into a Qualifying Catastrophic Event prior to the
end of one (1) year following the end of such Exposure Period shall not
constitute a Qualifying Catastrophic Event for purposes of this Agreement. A
series of Events that has occurred during the Exposure Period and which develops
into a Qualifying Catastrophic Event prior to the end of one (1) year following
the end of such Exposure Period, but after expiration of the Exposure Period,
shall constitute a Qualifying Catastrophic Event for purposes of this Agreement.
With respect to a series of Events which develops into a Qualifying Catastrophic
Event, such Qualifying Catastrophic Event shall be deemed to have occurred
during the Exposure Period in which such series of Events occurred.
"Registration Rights Agreement" means the Registration Rights Agreement
described in Section 6.2.
"Rule 144A" means Rule 144A of the General Regulations of the Securities
Act.
"S&P Rating" means a claims payment ability rating or credit rating, as
applicable, as published from time to time, by the Standard & Poor's Division of
The McGraw-Hill Companies.
"SEC" means the U.S. Securities and Exchange Commission.
"SEC Filings" means all documents and reports filed by Trenwick or the
Company, as a case may be, with the SEC from January of 1997 through the date of
this Agreement.
"Securities Act" means the U.S. Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
"Securities Issuance Option" means Trenwick's option to obligate Option
Writer to purchase up to 550,000 Preferred Shares, subject to the terms and
conditions set forth in this Agreement.
"Subject Business" means all business underwritten by the Company
Subsidiaries classified as property (including workers compensation losses
arising from a property peril) and marine.
"Subsidiary" means, with respect to any Person, any corporation or other
entity (including, without limitation, partnerships, joint ventures, and
associations) regardless of its jurisdiction of organization or formation, at
least a majority of the total combined voting power of all classes of voting
stock or other ownership interests of which shall, at the time of which any
determination is being made, be owned by such Person, either directly or
indirectly through one or more other Subsidiaries.
"Transaction Agreements" means this Agreement, its schedules and exhibits,
the Registration Rights Agreement and the Certificate of Designation.
"Trenwick" means Trenwick Group Ltd., a Bermuda company.
"Trenwick Common Stock" means the common shares of Trenwick, par value
US$.10 per share.
"Trenwick Financial Statements" means the consolidated financial statements
of Trenwick specified in Section 3.7.
"Trenwick Subsidiaries" means all Subsidiaries of Trenwick.
"Ultimate Loss" means the actual direct losses (including all paid losses,
all reserves for unpaid losses (including without limitation outstanding loss
reserves and incurred but not reported loss reserves), and loss
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adjustment expense paid by the Company Subsidiaries) incurred by the Company
Subsidiaries on the Subject Business prior to accounting for any retrocessional
reinsurance.
"U.S." or "US" means the United States of America.
"US$" means United States Dollars. To the extent any losses, liabilities or
other amounts described or referred to in this Agreement are stated or
denominated in currencies other than United States Dollars, such losses,
liabilities or amounts shall be stated, for purposes of this Agreement, in their
respective United States Dollar equivalents as shown in the Trenwick Financial
Statements.
2. Securities Issuance Option.
2.1. Option Fee. To acquire the right to exercise the Securities
Issuance Option during the Exercise Term with respect to a Qualifying
Catastrophic Event, Trenwick shall pay to Option Writer a fee (the "Option
Fee") as set forth on the attached Schedule 2.1. The Option Fee payment
shall be delivered upon the later of the Effective Date or the date of
execution of this Agreement. In consideration of the payment of the Option
Fee as may be required under this Agreement, Option Writer hereby grants to
Trenwick the right to exercise the Securities Issuance Option on the terms
set forth in this Agreement.
2.2. Exercise Rights. Trenwick shall have the right to exercise the
Securities Issuance Option one or more times with respect to any one
Qualifying Catastrophic Event, subject to the following limitations:
a. The Securities Issuance Option must be exercised with respect
to Preferred Shares having a minimum aggregate Preferred Share
Purchase Price of US$10,000,000 or an integral multiple of
US$1,000,000 above such amount.
b. In no case shall the Preferred Shares issued pursuant to all
exercises of the Securities Issuance Option have an aggregate
Preferred Share Purchase Price of greater than US$55,000,000.
c. In no case shall the Securities Issuance Option be exercised
more than one time in any calendar quarter.
2.3. Method of Exercise. In the event that Trenwick desires to
exercise the Securities Issuance Option with respect to a Qualifying
Catastrophic Event, Trenwick shall provide written notice to Option Writer
during the Exercise Term of its intent to exercise the Securities Issuance
Option (a "Notice of Exercise"). The Notice of Exercise shall specify (a)
the aggregate Preferred Share Purchase Price for the Preferred Shares to be
issued pursuant to the exercise of the Securities Issuance Option and the
proposed Exercise Date, and (b) with respect to the applicable Qualifying
Catastrophic Event, the amount of the Ultimate Loss relating to such
Qualifying Catastrophic Event, including the amount of (i) paid losses,
(ii) losses reported but not yet then paid, and (iii) losses incurred but
not yet then reported, including assumptions underlying the calculation of
item (iii). Following delivery of a Notice of Exercise in accordance with
Section 10.2, Option Writer shall have until the end of the thirty (30) day
period following delivery of the Notice of Exercise to investigate whether
the conditions to exercise of the Securities Issuance Option set forth in
Section 5.2 have been satisfied and shall, by the end of such thirty (30)
day period, if Option Writer determines that such conditions have not been
satisfied, issue a Notice of Objection (as defined below); provided,
however, that if the Exercise Date is extended for more than an additional
thirty (30) days (beyond the initial thirty (30) day notice period) as
described in the definition of Exercise Date in Article 1 above, Option
Writer shall have a period of ten (10) business days to update its
investigation, which ten (10) business day period shall commence on the
date which is the later of (a) the date that Trenwick certifies to Option
Writer that all conditions to exercise of the Securities Issuance Option
set forth in Section 5.2 have been satisfied, or (b) the thirtieth (30th)
day preceding the actual Exercise Date. In connection with such
investigation, Trenwick shall provide or procure for Option Writer, or its
designated agent, reasonable access to loss records of the applicable
Company Subsidiaries relating to the Qualifying Catastrophic Event in
question (including, without limitation, policy files, claim files, and
loss and loss reserve files or information), during normal business hours
of the applicable Company Subsidiaries, in order to allow Option Writer to
undertake such investigation. In the event that Option Writer determines
that the conditions for exercise of Securities Issuance Option have not
been met, Option
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Writer shall deliver a written notice of objection to exercise of the
Securities Issuance Option (the "Notice of Objection") to Trenwick within
such thirty (30) day period or the ten (10) business day update period
described above, as applicable. Such Notice of Objection shall specify in
reasonable detail the reason(s) for Option Writer's objection to the
exercise of the Securities Issuance Option. If, within twenty (20) days
following delivery of the Notice of Objection to Trenwick, Trenwick and
Option Writer cannot reach an agreement regarding the exercise of the
Securities Issuance Option, their dispute shall be submitted to dispute
resolution in accordance with Article 8 below. With respect to Option
Writer, in the event that Option Writer has not issued a Notice of
Objection in accordance with this Section 2.3, Option Writer shall deliver,
on the Exercise Date (or the next following Business Day if the Exercise
Date is not a Business Day), by wire transfer of immediately available
funds, in U.S. dollars, the aggregate Preferred Share Purchase Price
specified in the Notice of Exercise, against the delivery by Trenwick of
the corresponding number of Preferred Shares.
2.4. Extension of Exercise Term. Notwithstanding anything in this
Agreement to the contrary, in the event that Trenwick files, prior to the
end of any Exercise Term, preliminary proxy materials with the SEC relating
to a submission to registered holders of Trenwick Common Stock for approval
of the issuance of the Preferred Shares (or the issuance of shares of
Trenwick Common Stock upon conversion of the Preferred Shares), as required
by any exchange listing or other regulatory requirements, the Exercise Term
shall be extended by a period of ninety (90) days plus, if any such
materials are not reviewed by the staff at the SEC within thirty (30) days,
an additional number of days (not to exceed fifteen (15) days in any event)
equal to the number of days in excess of thirty (30) between the filing of
such preliminary materials with the SEC and the initial receipt by Trenwick
of written comments from the SEC staff.
3. Representations and Warranties of Trenwick. Trenwick represents and
warrants to Option Writer as of the Effective Date as follows (it being
understood that, subject to the terms of Section 10.11, the representations and
warranties contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5(a), 3.6, 3.7, 3.8, 3.9,
3.10 and 3.11 shall be deemed to be repeated by Trenwick on each Exercise Date):
3.1. Existence and Qualifications. Trenwick is a company duly
organized, validly existing and in compliance with filing requirements and
payment of government fees required under the laws of Bermuda and the
Company and each of the Company Subsidiaries is a company duly organized,
validly existing and in compliance with filing requirements and payments of
government fees required under its representative place of domicile.
Subject to obtaining Bermuda governmental approvals for issuance of the
Preferred Shares, Trenwick has the full corporate power and authority to
execute and deliver the Transaction Agreements, and to perform its
obligations under, and to consummate the transactions contemplated by, the
Transaction Agreements, including, without limitation, the delivery of the
Preferred Shares pursuant to the exercise of the Securities Issuance Option
as described in this Agreement.
3.2. No Violation or Conflict. The execution and delivery by Trenwick
of the Transaction Agreements, and the performance of Trenwick under the
Transaction Agreements, do not violate or conflict with any applicable law,
rule or regulation, any provision of Trenwick's memorandum of association
or Bye-Laws or any order or judgment of any court or other government
agency applicable to Trenwick or any of its assets or any of the Trenwick
Subsidiaries, or any contractual restriction binding upon or affecting
Trenwick or any of the Trenwick Subsidiaries or their respective assets,
except in the case of violations or conflicts with rules or regulations
which, individually, or in the aggregate, do not have a material adverse
effect on Trenwick's ability to perform its obligations under this
Agreement.
3.3. Consents. All Bermuda governmental and other consents that are
required to have been obtained by Trenwick with respect to the execution
and delivery of this Agreement have been obtained and are in full force and
effect and all conditions of any such consents have been complied with or,
will have been obtained or complied with (as the case may be) as of the
applicable Exercise Date or prior to any conversion of Preferred Shares
into Trenwick Common Stock, provided always that any information requested
from Option Writer necessary in connection with such consent or obtaining
the same shall have been supplied in a timely manner (as the circumstances
may warrant).
3.4. Licenses and Permits. The Company Subsidiaries have all requisite
material licenses, permits and authority (collectively, "Licenses") that
are necessary for the conduct of their respective insurance
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businesses, such Licenses are in full force and effect, and no proceeding
is pending or, to Trenwick's knowledge, threatened to suspend, revoke or
limit any License which is material to the operations of any such Company
Subsidiaries.
3.5. Absence of Litigation.
a. There is not pending or to its knowledge threatened, against
Trenwick or the Trenwick Subsidiaries, any action, suit or proceeding
before any court, tribunal, governmental body, agency or official or
any arbitrator or mediator that would reasonably be expected to
materially and adversely affect the legality, validity and
enforceability against Trenwick of any Transaction Agreement.
b. There is not pending or to its knowledge threatened, against
the Trenwick or the Trenwick Subsidiaries, any action, suit or
proceeding before any court, tribunal, governmental body, agency or
official or any arbitrator or mediator that, if adversely determined,
could reasonably be expected to materially and adversely affect the
financial condition of the Trenwick, the Company or any Company
Subsidiary.
3.6. Options or Other Rights. Except for this Agreement and as set
forth in the attached Schedule 3.6, there is no outstanding right,
subscription, warrant, call, unsatisfied preemptive right, option or other
agreement of any kind to purchase or otherwise to receive from Trenwick any
Preferred Shares.
3.7. Financial Statements. Trenwick has furnished, or will upon
request furnish, Option Writer with true and complete copies of the audited
consolidated balance sheets and audited consolidated statements of
operations for the previous three fiscal years of Trenwick or its
accounting predecessor, the Company (collectively the "Trenwick Financial
Statements"). The Trenwick Financial Statements have been prepared in
accordance with GAAP and present fairly in all material respects the
consolidated financial position of Trenwick and the Trenwick Subsidiaries
and the results of their operations as of the dates indicated and for the
periods then ended.
3.8. Binding Obligations. The execution of the Transaction Agreements
has been duly authorized by all necessary corporate action of Trenwick, and
such Transaction Agreements (a) have been duly executed and delivered by
Trenwick, (b) constitute legal, valid and binding obligations of Trenwick,
and (c) are enforceable against Trenwick in accordance with their terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium
or similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application).
3.9. Preferred Shares. Trenwick has, or will have as of the applicable
Exercise Date, authority to issue Preferred Shares with an aggregate
Preferred Share Purchase Price of US$55,000,000, and such Preferred Shares,
when issued pursuant to the exercise of the Securities Issuance Option,
shall, upon delivery of payment therefor, be validly issued, fully paid and
Non-assessable. Upon issuance pursuant to this Agreement, the Preferred
Shares shall be free and clear of any lien, encumbrance or other
restriction (except as otherwise set forth in the Transaction Agreements
and in any consent issued by the Bermuda Monetary Authority, provided
always that Trenwick shall use reasonable efforts to have removed any
restriction contained in such consent affecting the transferability of the
Preferred Shares), and upon delivery of and payment for the Preferred
Shares as provided in this Agreement, Option Writer will acquire good title
to the Preferred Shares purchased under this Agreement, free and clear of
any lien, encumbrance or other restriction (except as may be created by
Option Writer, as otherwise set forth in the Transaction Agreements and in
any consent issued by the Bermuda Monetary Authority, provided always that
Trenwick shall use reasonable efforts to have removed any restriction
contained in such consent affecting the transferability of the Preferred
Shares to persons not designated as being resident in Bermuda for foreign
exchange control purposes). Trenwick has reserved for issuance an aggregate
of 550,000 Preferred Shares for issuance on one or more Exercise Dates
pursuant to Section 2 of this Agreement.
3.10. Trenwick Common Stock. The shares of Trenwick Common Stock into
which the Preferred Shares may be converted, as set forth in the
Certificate of Designation, shall, upon conversion, be validly issued,
fully paid and Non-assessable. Such shares of Trenwick Common Stock shall
be free and clear of any lien, encumbrance or other restriction (except as
may be created by Option Writer, as otherwise set forth in the Transaction
Agreements and in any consent issued by the Bermuda Monetary Authority,
provided always that
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Trenwick shall use reasonable efforts to have removed any restriction
contained in such consent affecting the transferability of the Trenwick
Common Stock), and upon conversion as provided in the Certificate of
Designation, Option Writer will acquire good title to the number of shares
of Trenwick Common Stock into which such Preferred Shares are converted,
free and clear of any lien, encumbrance or other restriction (except as may
be created by Option Writer, as otherwise set forth in the Transaction
Agreements and in any consent issued by the Bermuda Monetary Authority,
provided always that Trenwick shall use reasonable efforts to have removed
any restriction contained in such consent affecting the transferability of
the Trenwick Common Stock to persons not designated as being resident in
Bermuda for foreign exchange control purposes). Such shares of Trenwick
Common Stock shall be subject to the Registration Rights Agreement
described in Section 6.2. Trenwick has reserved for issuance the maximum
number of shares of Trenwick Common Stock as may be required upon the
conversion of the Preferred Stock to be issued and sold pursuant to Section
2 of this Agreement.
3.11. No Insolvency or Bankruptcy. Neither Trenwick nor any Trenwick
Subsidiary (a) is the subject of any voluntary or involuntary petition
under any bankruptcy, insolvency or similar law affecting creditors
generally, (b) is the subject of any liquidation, transformation or
rehabilitation proceeding, or (c) has had a receiver or similar person or
entity appointed for any of its property.
3.12. Acquired Businesses. All documents and instruments in connection
with the Business Combination have been executed and delivered by the
parties thereto, and if required, filed with the government offices having
jurisdiction over the Business Combination. The Business Combination has
been consummated and Trenwick, the Company or the Company Subsidiaries, as
the case may be, have acquired or succeeded to the full legal right, power
and authority to own and operate the assets and Licenses of the Company and
the Company Subsidiaries. No default or event giving rise to a default
under any agreement or instrument in connection with the Business
Combination has occurred which would cause the Business Combination to be
revoked, dissolved or otherwise set aside.
Notwithstanding the foregoing, (a) a breach of the representations and
warranties contained in Section 3.1, 3.2, 3.3, 3.4, 3.9 or 3.10 at any Exercise
Date shall prevent exercise of the Securities Issuance Option unless and until
such breach is cured in accordance with Section 10.11, and (b) a breach of the
representations and warranties contained in Sections 3.5(a), 3.6 or 3.7 at any
Exercise Date shall not in any way prevent or delay exercise of the Securities
Issuance Option. Notwithstanding the preceding sentence, each party shall have
the right to recover damages that may be available at law or equity from any
other party for any loss or injury that is caused by any inaccuracy or breach of
any representation or warranty made by such other party.
4. Representations and Warranties of Option Writer. Option Writer
represents and warrants to Trenwick as follows (it being understood that,
subject to the terms of Section 10.11, the representations contained in Sections
4.1, 4.2, 4.3, 4.4, 4.5 and 4.6 shall be deemed to be repeated by Option Writer
on each Exercise Date):
4.1. Existence and Qualifications of Option Writer. Option Writer is a
corporation duly organized, validly existing and in compliance with filing
requirements and payment of government fees required under the laws of
Switzerland, and Option Writer has the full corporate power and authority
to execute and deliver the Transaction Agreements, and to perform its
obligations under, and consummate the transactions contemplated by, the
Transaction Agreements, including, without limitation, the purchase of the
Preferred Shares pursuant to the exercise of the Securities Issuance Option
by Trenwick as described in this Agreement.
4.2. No Violation or Conflict. The execution and delivery of the
Transaction Agreements by Option Writer, and the performance of Option
Writer under the Transaction Agreements, do not violate or conflict with
any applicable law, any provision of Option Writer's organizational
documents or any order or judgment of any court or other government agency
applicable to s Option Writer (or any of its assets or subsidiary or
affiliated companies to the extent any such order or judgment would have a
material adverse effect on the rights or privileges of Trenwick under this
Agreement), or any contractual restriction binding upon or affecting Option
Writer (or any of its subsidiary or affiliated companies or its assets to
the extent any such restriction would have a material adverse effect on the
rights or privileges of Trenwick under this Agreement).
4.3. Consents. All governmental and other consents that are required
to have been obtained by Option Writer with respect to the execution and
delivery of this Agreement have been obtained by Option Writer
8
and are in full force and effect and all conditions of any such consents
have been complied with.
4.4. Absence of Litigation. There is not pending or to its knowledge,
threatened against any Option Writer or any of its Subsidiaries or
Affiliates, any action, suit or proceeding before any court, tribunal,
governmental body, agency or official or any arbitrator or mediator that
would reasonably be expected to materially and adversely affect the
legality, validity and enforceability against Option Writer of any
Transaction Agreement.
4.5. Investment Representation. Option Writer understands that the
issuance of Preferred Shares under this Agreement and the issuance of
Trenwick Common Stock upon conversion of Preferred Shares have not been and
will not (except as set forth in the Registration Rights Agreement) be
registered under the Securities Act and such Preferred Shares and Trenwick
Common Stock will be issued in reliance upon the exemption afforded by
Section 4(2) of the Securities Act for transactions by an issuer not
involving any public offering. Option Writer represents that (a) it is
acquiring the Preferred Shares and such Trenwick Common Stock solely for
its own account, for investment purposes only, and not with a view to
distribution, fractionalization or resale thereof, (b) it will not sell or
otherwise dispose of the Preferred Shares or such Trenwick Common Stock
except in compliance with the registration requirements or exemption
provisions of applicable securities laws including the Securities Act, (c)
it has not relied on Trenwick for any explanation of the application of the
various U.S. state and federal securities laws with regard to the
acquisition of the Preferred Shares and such Trenwick Common Stock, (d) it
has access to complete information regarding the business and finances of
Trenwick, and has received, read and understood the contents of the SEC
Filings, (e) it has such knowledge and experience in business and financial
matters that it has been able to fully understand and completely evaluate
the risks and merits of holding the Preferred Shares and such Trenwick
Common Stock as provided in this Agreement, and (f) it is able to bear the
economic risk and limitation in liquidity of an investment in the Preferred
Shares and such Trenwick Common Stock.
4.6. Binding Obligations. The execution of the Transaction Agreements
to which Option Writer is a party have been duly authorized by all
necessary corporate action of Option Writer, and such Transaction
Agreements (a) have been duly executed and delivered by Option Writer, (b)
constitute legal, valid and binding obligations of Option Writer, and (c)
are enforceable against Option Writer in accordance with their terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium
or similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application).
Notwithstanding the foregoing, each party shall have the right to recover
damages that may be available at law from any other party for any loss or injury
that is caused by any inaccuracy or breach of any representation or warranty
made by such other party.
5. Conditions.
5.1. Conditions to Effectiveness of Agreement. The effectiveness of
this Agreement shall be subject to the satisfaction by Trenwick, at or
prior to, or waiver by Option Writer at or prior to, its execution and
delivery, of the following conditions (it being understood that unless
Option Writer makes an objection at or prior to such execution and
delivery, this Agreement shall be deemed effective for all purposes upon
such execution and delivery):
a. Registration Rights Agreement. Trenwick and Option Writer
shall have entered into the Registration Rights Agreement as described
in Section 6.2.
b. Compliance with Laws and Consents. Trenwick shall have
complied with all laws and regulations applicable to the authorization
and issuance of the Preferred Shares and, subject to the following
sentence, the conversion of Preferred Shares into Trenwick Common
Stock, including the adoption or authorization by the Board of
Directors of Trenwick of the Certificate of Designation. Trenwick and
Option Writer shall have obtained all consents and approvals (whether
shareholder, regulatory, contractual or otherwise) necessary for the
authorization and issuance of the Preferred Shares, the conversion of
the Preferred Shares into Trenwick Common Stock, and the authorization
and issuance of such Trenwick Common Stock, including without
limitation the approval of any applicable insurance regulatory body or
agency, and the approval of any filing or application required under
applicable securities laws (whether of Bermuda, the U.S., any state of
the U.S., or any other
9
applicable jurisdiction), provided, however, that if any insurance
regulator shall for any reason decline to approve the conversion of
the Preferred Shares and/or the issuance of Trenwick Common Stock
pursuant to such conversion, but shall approve the authorization and
issuance of the Preferred Shares, then such approval of the conversion
of the Preferred Shares and/or the issuance of Trenwick Common Stock
pursuant to such conversion, as applicable, shall not be a condition
to exercise of the Securities Issuance Option, provided further,
however, that Trenwick has reasonably cooperated with Option Writer to
obtain such approvals. Notwithstanding the foregoing, if any consent,
approval or other matter necessary for conversion of the Preferred
Shares into Trenwick Common Stock is of such a nature that it cannot
be obtained or achieved until at or about the time of such conversion,
then such consent, approval or other matter shall not be a condition
to exercise of the Securities Issuance Option.
c. No Insolvency or Bankruptcy. Neither Trenwick, the Company nor
the Company Subsidiaries (a) is the subject of any voluntary or
involuntary petition under bankruptcy, insolvency or similar law
affecting creditors generally (provided, however, that Trenwick or
LaSalle Re Limited, as applicable, shall not be in breach of this
condition with respect to an involuntary petition unless such
involuntary petition is not dismissed within sixty (60) days following
Trenwick's or LaSalle Re Limited's receipt of notice of filing such
petition), (b) is the subject of any liquidation, transformation or
rehabilitation proceeding, or (c) has had a receiver or similar person
or entity appointed for any of its property.
d. Payment of Fees. All Option Fee payments, and any other fees
which Trenwick is obligated to pay for the benefit of any Option
Writer pursuant to the Transaction Agreements, then due shall have
been paid in full.
5.2. Conditions to Exercise of Securities Issuance Option. The right
of Trenwick to exercise the Securities Issuance Option (or any increment of
the Securities Issuance Option) shall be subject to the satisfaction by
Trenwick at, or waiver by Option Writer at or prior to, the Exercise Date,
of the following conditions:
a. Occurrence of Event. A Qualifying Catastrophic Event shall
have occurred with respect to the Company Subsidiaries.
b. Trenwick and Company Net Worth. After accounting for the
applicable Qualifying Catastrophic Event, Trenwick's GAAP Net Worth
shall not be less than $225,000,000 (excluding contingent interest
notes and outstanding trust preferred stock as reflected in the
Trenwick Financial Statements as of September 30, 2000) and the
Company Subsidiaries' consolidated GAAP Net Worth in the aggregate
shall not be less than US$125,000,000, provided, however, that in no
case will Preferred Shares previously issued or proposed to be issued
be included in such GAAP Net Worth calculation.
c. Review of Financial Statements by Auditor. Trenwick's regular
outside auditor or accounting firm shall have reviewed Trenwick's
consolidated balance sheet and statement of operations for the most
recent quarter ending prior to the date of the applicable Notice of
Exercise, and shall have issued a review report on such quarterly
financial statements. In addition, Trenwick shall have provided an
adjusted consolidated balance sheet for Trenwick and the Company as at
the applicable Exercise Date, and Trenwick shall have represented and
warranted, as of such Exercise Date, that such adjusted consolidated
balance sheet presents fairly, in all material respects, the financial
position of Trenwick and the Company of the date indicated.
d. No Insolvency or Bankruptcy. Neither Trenwick, the Company nor
the Company Subsidiaries shall (a) be the subject of any voluntary or
involuntary petition under bankruptcy, insolvency or similar law
affecting creditors generally(provided, however, that Trenwick or
LaSalle Re Limited, as applicable, shall not be in breach of this
condition with respect to an involuntary petition unless such
involuntary petition is not dismissed within sixty (60) days following
Trenwick's or LaSalle Re Limited's receipt of notice of filing such
petition), (b) be the subject of any liquidation, transformation or
rehabilitation proceeding, or (c) has had a receiver or similar person
or entity appointed for any of its property.
e. Payment of Fees. All Option Fee payments, and any other fees
which Trenwick is obligated to pay for the benefit of any Option
Writer pursuant to the Transaction Agreements, then due shall have
been paid in full.
10
f. Certification. With respect to any exercise of the Securities
Issuance Option, Trenwick shall deliver to Option Writer, at or prior
to the applicable Exercise Date, a certificate, in the form attached
as Schedule 5.2(f), executed by a duly authorized officer of Trenwick
and dated as of such Exercise Date, provided, however, that in
accordance with Article 3, the failure to include, in such
certificate, references to truth and accuracy of the representations
and warranties in any or all of Sections 3.5, 3.6 or 3.7 shall not in
any way prevent or delay such exercise of the Securities Issuance
Option.
g. Legal Opinion. With respect to the first exercise of the
Securities Issuance Option only, Option Writer shall have received,
from special counsel for Trenwick an opinion of counsel, dated on or
about the Exercise Date, which is substantially in the form attached
as Schedule 5.2(g).
h. Amendment of Certain Documents. Trenwick shall not, without
the prior approval of Option Writer, have amended the Bye-Laws in any
manner which would materially and adversely affect the ability of
Option Writer to purchase, transfer or convert Preferred Shares as
described in this Agreement.
6. Covenants and Agreements.
6.1. Preferred Shares. In the event of the issuance of Preferred
Shares pursuant to an exercise of the Securities Issuance Option, such
Preferred Shares shall be subject to, and governed by, the provisions of
the Certificate of Designation and the Bye-Laws of Trenwick.
6.2. Registration Rights. Concurrently with this Agreement, Trenwick
and Option Writer shall enter into the Registration Rights Agreement,
substantially in the form attached as Schedule 6.2.
6.3. Preferred Share Resale Rights.
a. The Preferred Shares will be freely transferable subject only
to the following sentence and to restrictions imposed by Bermuda, U.S.
federal and state securities laws, and the Bye-laws of Trenwick. Any
transfer of Preferred Shares during the first three (3) years
following issuance of such Preferred Shares shall require the prior
written consent of Trenwick, which consent shall not be unreasonably
withheld. Any transfer of Preferred Shares after the first three (3)
years following issuance of such Preferred Shares shall require at
least ten (10) days prior written notice to Trenwick, and Trenwick
shall have five days following receipt of such notice to provide the
proposed transferor with a list, not to exceed five (5) Persons, of
"Prohibited Transferees" to which the proposed transferor will be
prohibited from transferring any Preferred Shares. For purposes of
this Section 6.3(a), Prohibited Transferees shall include each of the
up to five (5) Persons whose names are set forth on the list described
above and all Affiliates of each such Person. The provisions of this
Section 6.3(a) shall apply to all transfers of Preferred Shares,
whether by Option Writer or otherwise.
The certificates evidencing the Preferred Shares shall bear legends on the
front and back which evidences restrictions upon transferability of the
Preferred Shares. The legend on the front of each certificate shall read as
follows:
THIS CERTIFICATE IS RESTRICTED FROM TRANSFER AS INDICATED ON THE REVERSE
SIDE.
The legend on the reverse side of each certificate shall read as follows:
ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO ALL OF THE PROVISIONS OF THE
BYE-LAWS OF THE COMPANY AS THEY MAY BE AMENDED FROM TIME TO TIME, AND THE
AMENDED AND RESTATED CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION
AGREEMENT DATED AS OF JANUARY 1, 2001 BETWEEN THE COMPANY, AND EUROPEAN
REINSURANCE COMPANY OF ZURICH; WHICH ARE AVAILABLE FOR EXAMINATION BY
HOLDERS OF SHARES AT THE REGISTERED OFFICE OF THE COMPANY. IN ADDITION TO
THE FOREGOING
11
RESTRICTIONS, THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") OR ANY UNITED STATES SECURITIES LAWS AND
MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS (I) A
REGISTRATION STATEMENT IS IN EFFECT UNDER THE SECURITIES ACT WITH RESPECT
TO SUCH SHARES OR A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED AND (II)
EXCEPT IN THE CASE OF PUBLICLY TRADED SHARES, THE TRANSFEREE IS OTHERWISE
APPROVED BY APPLICABLE BERMUDA REGULATORY AUTHORITIES.
The legends shall be removed from any Preferred Share Certificates as to which,
in an opinion of counsel reasonably satisfactory to Trenwick (which opinion
shall be paid for solely by the registered holder of such Preferred Shares),
such registration described in the legends is not necessary or required, and
that the transfer will not otherwise violate this Agreement, the Securities Act,
the Exchange Act, or applicable securities laws, and does not require the
approval of any Bermuda regulatory authorities; and any stop transfer
instructions previously given to Trenwick's transfer agent shall be revoked as
to such Preferred Shares upon the delivery of the opinion of counsel described
above.
b. The shares of Trenwick Common Stock into which the Preferred
Shares may be convertible may be subject to registration as
contemplated by the Registration Rights Agreement.
Prior to the registration of any shares of Trenwick Common Stock into which
the Preferred Shares are converted, pursuant to the Registration Rights
Agreement or otherwise, the certificates representing such shares of Trenwick
Common Stock shall bear legends on both the front and back which evidence
restrictions upon transferability of such shares of Trenwick Common Stock. The
legend on the front of each certificate shall read as follows:
THIS CERTIFICATE IS RESTRICTED FROM TRANSFER AS INDICATED ON THE REVERSE
SIDE.
The legend on the reverse side of each certificate shall read as follows:
ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO ALL OF THE PROVISIONS OF THE
BYE-LAWS OF THE COMPANY AS THEY MAY BE AMENDED FROM TIME TO TIME, WHICH ARE
AVAILABLE FOR EXAMINATION BY HOLDERS OF SHARES AT THE REGISTERED OFFICE OF
THE COMPANY. IN ADDITION TO THE FOREGOING RESTRICTIONS, THESE SHARES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
OR ANY UNITED STATES SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF UNLESS (I) A REGISTRATION STATEMENT IS IN EFFECT
UNDER THE SECURITIES ACT WITH RESPECT TO SUCH SHARES OR A WRITTEN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY IS OBTAINED TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED AND (II) EXCEPT IN THE CASE OF PUBLICLY TRADED
SHARES, THE TRANSFEREE IS OTHERWISE APPROVED BY APPLICABLE BERMUDA
REGULATORY AUTHORITIES.
The legends shall be removed from any certificate representing either (a) shares
of Trenwick Common Stock sold under an effective registration statement under
the Securities Act in a sale approved by applicable Bermuda regulatory
authorities, or (b) shares of Trenwick Common Stock as to which, in an opinion
of counsel reasonably satisfactory to Trenwick (which opinion shall be paid for
solely by the registered holder of such shares of Trenwick Common Stock), such
registration is not necessary or required, and that the transfer will not
otherwise violate the Securities Act, the Exchange Act, or applicable securities
laws, and does not require the approval of any Bermuda regulatory authorities;
and stop transfer instructions previously given to Trenwick's transfer agent
shall be revoked as to such shares of Trenwick Common Stock upon the occurrence
of (a) or (b) above.
12
6.4. Preferred Share Liquidation Preference. During the period that
the Securities Issuance Option remains exercisable under this Agreement,
and during any period when Preferred Shares remain issued and outstanding
following issuance under this Agreement, Trenwick shall not issue any (a)
debt securities convertible into equity securities of Trenwick which rank
senior to the Preferred Shares with respect to dividend or distribution
rights or right to distribution on liquidation or (b) any preferred shares
or other class of shares of Trenwick which ranks senior to the Preferred
Shares with respect to dividend or distribution rights or rights to
distributions on liquidation without the prior written approval, which
approval shall not be unreasonably withheld, of (a) Option Writer if no
Preferred Shares are issued or outstanding, or (b) if Preferred Shares are
then issued and outstanding, the registered holders of more than fifty
percent (50%) of such Preferred Shares.
6.5. Restrictions on Trenwick. During the period when any Preferred
Shares remain issued and outstanding, without the prior written consent of
the registered holders of more than fifty percent (50%) of such Preferred
Shares, which consent shall not be unreasonably withheld, (a) Trenwick a
shall not dispose of any of its interest in the Company or the Company
Subsidiaries, and (b) Trenwick, the Company and the Company Subsidiaries
shall not (i) except in the ordinary course of business, make any loan or
advance to, or investment in, any Person, or (ii) enter into related party
transactions at other than arm's length.
6.6. Option Writer's Securities Filings. Notwithstanding anything in
the Agreement to the contrary, Option Writer shall be responsible for
making any regulatory filing required of it under Section 13(d) or Section
16 of the Exchange Act, but the making of any such filings shall not be a
condition to the exercise of the Securities Issuance Option.
6.7. Regulatory Filings for Conversion. Trenwick, Option Writer and
their respective Affiliates shall make all regulatory filings which are
necessary or desirable to permit Option Writer to convert any Preferred
Shares into shares of Trenwick Common Stock in accordance with the terms of
the Certificate of Designation as promptly as possible following any
request by Option Writer. Option Writer and Trenwick shall cooperate and
use reasonable efforts to obtain any insurance and other regulatory
approvals for such conversion which have not previously been obtained.
6.8. Change of Control. In the event of a Change of Control:
a. If all or any portion of the Securities Issuance Option
remains unexercised, this Agreement shall automatically be terminated
in accordance with Section 7.2 unless such Change of Control shall
have received the prior approval of Option Writer. In the event such
Change of Control is so approved, this Agreement shall remain in full
force and effect and shall be fully binding upon Option Writer.
b. If any Preferred Shares are then issued and outstanding,
unless such Change of Control is approved by the registered holders of
such Preferred Shares as set forth in the Certificate of Designation,
or unless such Change of Control involves a sale of all or
substantially all Trenwick's assets (in which case holders of the
Preferred Shares shall have no voting or approval rights as stated in
the Certificate of Designation), the respective rights, privileges and
obligations of Trenwick and such registered holders shall, subject to
the provisions of Section 42 of the Bermuda Companies Act of 1981
being satisfied (if applicable), be as set forth in the Certificate of
Designation.
Notwithstanding the foregoing, the termination of this Agreement shall not
affect any rights or obligations arising out of or relating to events occurring
or circumstances existing prior to such termination.
6.9. Information Supplied by Trenwick. Trenwick shall provide Option
Writer with such information as Option Writer may reasonably request in
order to determine whether Trenwick has satisfied the conditions to
exercise set forth in Section 5.2 of this Agreement.
6.10. Operational Covenant. Trenwick shall comply with the operational
covenant set forth in the attached Schedule 6.10.
6.11. Option Writer Credit Support. Option Writer shall, promptly upon
request by Trenwick,
13
in the event that the S&P Rating of Option Writer falls below AA- or the
A.M. Best Rating of Option Writer falls below A- during any period in which
Trenwick has the ability to exercise the Securities Issuance Option, (a)
purchase at Option Writer's sole expense an irrevocable standby letter of
credit, from a financial institution reasonably acceptable to Trenwick,
which letter of credit secures the performance of Option Writer under this
Agreement and is issued by a bank which maintains an S&P Rating of AA-, or
(b) otherwise obtain credit support reasonably approved by and acceptable
to Trenwick with respect to the obligations of Option Writer under this
Agreement, which credit support may include a guaranty, in form and
substance reasonably acceptable to Trenwick, from an affiliate of Option
Writer which maintains, throughout the period such guaranty is effective,
an S&P Rating of at least AA- or an A.M. Best Rating of at least A-. Such
letter of credit shall remain in effect until the earlier of (a) five (5)
days following the end of the period during which Trenwick has the ability
to exercise the Securities Issuance Option, or (b) the date that the
rating(s) whose fall triggered the credit support obligation in the first
sentence of this Section 6.11 returns to the requisite minimum level so
that the S&P Rating of Option Writer shall again be at least AA-, and/or
the A.M. Best Rating of Option Writer shall again be at least A-. Such
letter of credit shall initially be in a principal amount equal to Option
Writer's percentage interest in the aggregate Preferred Share Purchase
Price of the Preferred Shares covered by any then unexercised portion of
the Securities Issuance Option, if any, and shall subsequently be adjusted
from time to time based on the aggregate Preferred Share Purchase Price of
the Preferred Shares subject to exercise under the Securities Issuance
Option.
6.12. Indebtedness. Trenwick shall comply with the covenants regarding
indebtedness set forth on the attached Schedule 6.12.
6.13. Additional Covenants. Trenwick shall comply with the additional
covenants set forth on the attached Schedule 6.13.
6.14. Notices. Trenwick shall promptly give notice to Option Writer of
(a) any material breach of the representations and warranties contained in
Article 3 above of which the Chairman, President, Chief Financial Officer
or the Chief Underwriting Officer of Trenwick become aware, and (b) any
action, suit or proceeding before any court, tribunal, governmental body,
agency or official or any arbitrator or mediator that is not covered by
insurance or in which injunctive or similar relief is sought which, if
adversely determined, could reasonably be expected to materially and
adversely affect the financial condition of the Trenwick or any Company
Subsidiary.
6.15. Access to Books and Records. At all times prior to the
termination of this Agreement, upon execution of a confidentiality
agreement reasonably satisfactory to Trenwick and Option Writer, Trenwick
or the Company will give Option Writer, and Option Writer's accountants,
counsel, consultants, employees and agents, full access during normal
business hours and upon reasonable notice, to all documents, records, work
papers and information (but expressly excluding any material related to
underwriting procedures, standards or information) relating to the
financial positions of the Company and any Company Subsidiary as Option
Writer shall from time to time reasonably request. In addition, Trenwick or
the Company will permit Option Writer, and Option Writer's accountants,
counsel, consultants, employees and agents, reasonable access to such
personnel of Trenwick or the Company and their accountants, during normal
business hours and upon reasonable notice, as may be necessary or useful to
Option Writer in its review of the above-mentioned documents, records and
information.
6.16. Further Assurances. Trenwick and Option Writer each agree to use
all reasonable good faith efforts to take all actions and to do all things
necessary, proper or advisable to consummate the transactions contemplated
hereby.
7. Termination. This Agreement and the transactions contemplated by this
Agreement shall be terminated:
7.1. By mutual written consent signed by Trenwick and Option Writer at
any time prior to the end of the Exposure Period, in which case Option
Writer shall refund to Trenwick a prorata portion of the annual Option Fee
previously paid for the then current year;
7.2. Upon a Change of Control occurring while all or any portion of
the Securities Issuance Option remains unexercised, which Change of Control
has not received the prior approval of Option Writers as set forth in
Section 6.8(a), in which case Option Writer shall refund to Trenwick a
prorata portion of the percentage
14
of the annual Option Fee previously paid for the then current year which is
allocable to any then unexercised portion of the Securities Issuance Option
(provided, however, that the provision in the last paragraph of Section 6.8
shall apply with respect to any Preferred Shares then outstanding); or
7.3. Upon the latest of:
a. Expiration of the Exposure Period;
b. Expiration of the Exercise Term for the latest Qualifying
Catastrophic Event (including an Event that develops into a Qualified
Catastrophic Event outside the Exposure Period);
c. The Exercise Date for which a Notice of Exercise was properly
delivered during the Exercise Term, as such date may be extended
pursuant to the submission of any matter to alternative dispute
resolution under Article 8; or
d. The first day on which no Preferred Shares issued pursuant to
this Agreement (including without limitation Preferred Shares issued
on the Exercise Date specified in paragraph (c) of Section 7.3) remain
issued and outstanding.
8. Alternative Dispute Resolution. Any dispute arising out of or in
connection with this Agreement, including any question regarding its existence,
validity or termination shall be referred to and finally resolved by arbitration
under the UNCITRAL model law. There shall be a panel of three arbitrators.
Trenwick shall appoint one arbitrator and the applicable Option Writer shall
appoint one arbitrator and the two arbitrators thus appointed shall appoint the
third. If a party fails to appoint the arbitrator within thirty (30) days of
receipt of a request to do so from the other party, or if the two arbitrators
fail to agree on the third arbitrator within thirty (30) days of their
appointment, the appointment shall be made, upon request of a party, by the
Supreme Court of Bermuda. The place of arbitration shall be Bermuda at the
Bermuda International Commercial Arbitration Centre and the language of the
arbitration shall be English. Judgment upon the award entered by the arbitrators
may be entered in any court having jurisdiction thereof. The costs and expenses
of the arbitration shall be borne equally by the parties involved, and any
interest and fees and expenses of counsel shall be borne as the arbitrators
consider just under the circumstances, as directed in the award. In the event
that a Notice of Objection specifies failure to satisfy the condition in Section
5.2(a) as a reason for such Notice of Objection, then any dispute over
satisfaction of such Section 5.2(a) condition shall be subject to separate
arbitration pursuant to this paragraph, provided, however, that all three
arbitrators shall be independent Fellows of the Casualty Actuarial Society, and
such arbitrators shall review applicable loss data solely for the purpose of
determining whether the condition in Section 5.2(a) has been satisfied.
9. Intermediary. Trenwick and Option Writer represent and acknowledge that
Aon Re (Bermuda) Ltd. has acted as the sole intermediary for all purposes with
respect to the negotiation of this Agreement, and that neither Trenwick nor
Option Writer has engaged any other broker or finder in connection with the
transactions contemplated by this Agreement. Trenwick and Option Writer agree
that all fees or commissions payable to Aon Re (Bermuda) Ltd. in connection with
this transaction shall be the sole responsibility of Trenwick.
10. Miscellaneous.
10.1. Amendments. The provisions of this Agreement may not be waived,
altered, amended or repealed, in whole or in part, except by the written
consent of all parties to this Agreement.
10.2. Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to have been
given (a) on the date of delivery if delivered personally or by facsimile
transmission, receipt confirmed, (b) twenty-four (24) hours after sending
if sent by reputable overnight delivery service, or (c) seventy-two (72)
hours after mailing if sent by certified, registered or express mail,
postage prepaid, if properly addressed or directed to such party at the
appropriate address or facsimile number set forth below, or such address or
facsimile number as such party may designate by written notice to the other
parties:
15
(i) if to Trenwick to:
Trenwick Group Ltd.
Continental Building
25 Church Street
Hamilton HM 12 Bermuda
Attention: James F. Billett, Jr.
Fax No.: (441) 292-4878
with a copy to:
Aon Re (Bermuda) Ltd.
Dorchester House
7 Church Street
P.O. Box HM 2020
Hamilton HM HX Bermuda
Attention: Paul Markey
Fax No.: (441) 296-5130
and a copy to:
Aon Securities Corporation
123 N. Wacker Drive
Chicago, Illinois 60606
Attention: Bryon Ehrhart
Fax No.: (312) 701-2174
if to Option Writer to:
European Reinsurance Company of Zurich
Mintflower Place
8 Par-la-Ville Road, 8th Floor
P.O. Box HM 1767
Hamilton HM GX Bermuda
Attention: David R. Whiting
Fax No.: (441) 295-1575
with a copy to:
Brown & Wood, LLP
One World Trade Center
New York, New York, 10048
Attention: Robert Donatucci, Esq.
Fax No.: (212) 839-5599
10.3. Entire Agreement. This Agreement (including the Exhibits and the
Schedules) contains the entire agreement between the parties, and
supersedes all prior agreements, written or oral, with respect to the
Securities Issuance Option, including, but not limited to the Prior
Agreement.
10.4. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of Bermuda (without regard to any choice of law
or conflict of law rules that would cause the application of any laws or
rules of any jurisdiction other than Bermuda).
10.5. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns and legal representatives, and any references to a specific party
in this Agreement shall include such party's permitted successors or
assigns. Neither party shall have the right to assign or otherwise transfer
its rights or obligations under this Agreement without the prior written
consent of the
16
other party. The covenant of Trenwick contained in Section 6.13 is personal
to Option Writer, and, except as otherwise specifically stated in Section
6.13, in no case shall the rights and privileges of Option Writer under
Section 6.13 be assignable or transferable.
10.6. Severability. Each term, covenant, condition or provision of
this Agreement shall be viewed as separate and distinct, and in the event
that any such term, covenant, condition or provision shall be deemed by a
court of competent jurisdiction to be invalid, the remaining provisions
shall continue in full force and effect.
10.7. Necessary Acts. Each party to this Agreement shall perform any
further acts and execute and deliver any additional agreements,
assignments, documents or instruments that may be reasonably necessary or
desirable to carry out the provisions or effectuate the purposes of this
Agreement.
10.8. Legal Expenses. Subject to the provisions of Article 8, if any
legal action or any arbitration or other proceeding is brought to enforce
the provisions of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties, whether such
party or parties have instituted the action, shall be entitled to recover
all attorneys' fees and other costs incurred in such action or proceeding,
in addition to any other relief to which it or they may be entitled.
10.9. Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
10.10. Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
10.11. Right to Cure. In the event of a breach (a) by Trenwick of any
of the representations and warranties set forth in Article 3, (b) by any
Option Writer of any of the representations and warranties set forth in
Article 4, or (c) by either Trenwick or any Option Writer of its respective
covenants and agreements under Article 6, the entity committing such breach
shall have sixty (60) days following its receipt of notice of such breach
in which to cure such breach, unless such sooner cure is necessary in order
to effect the terms of this Agreement. Except as specifically set forth in
Article 3 above, the inability or failure of Trenwick or any Option Writer
to cure such breach shall neither (i) give Trenwick or any Option Writer
the right to terminate this Agreement nor (ii) excuse Trenwick or any
Option Writer from the performance of their respective obligations
hereunder. Notwithstanding the preceding sentence, Trenwick or any Option
Writer shall have the right to recover any damages that may result from any
breach of this Agreement.
10.12. Specific Performance. Each of the parties to this Agreement
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 to this
Agreement agrees that the other parties, in addition to any other remedies
to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of this Agreement.
10.13. Termination of Prior Agreement with respect to Allianz.
Pursuant to Section 7.1 of the Prior Agreement, the rights, duties,
obligations and liabilities of Allianz under the Prior Agreement shall be
terminated and memorialized by an agreement of termination in the form of
the attached Schedule 10.13.
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IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly
executed as of the date first written above.
Trenwick Group Ltd.
By: /s/ STEVEN J. BENSINGER By: /s/ COLEMAN D. ROSS
-------------------------------- --------------------------------
Executive Vice President and
Title: Executive Vice President Title: Chief Financial Officer
----------------------------- -----------------------------
European Reinsurance Company
Of Zurich
By: /s/ J. SCOTT BRADLEY By:/s/ DAVID R. WHITING
-------------------------------- --------------------------------
Title: Member of Senior Management Title: Member of Senior Management