Exhibit 4.1
DESCRIPTION OF STOCK:
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SERIES A CONVERTIBLE VOTING PREFERRED SHARES
($1.00 PAR VALUE PER SHARE),
SERIES B CONVERTIBLE VOTING PREFERRED SHARES
($1.00 PAR VALUE PER SHARE),
SERIES C CONVERTIBLE VOTING PREFERRED SHARES
($1.00 PAR VALUE PER SHARE),
CLASS A CONVERTIBLE VOTING COMMON SHARES
($1.00 PAR VALUE PER SHARE),
CLASS B CONVERTIBLE VOTING COMMON SHARES
($1.00 PAR VALUE PER SHARE)
AND
CLASS C CONVERTIBLE VOTING COMMON SHARES
($1.00 PAR VALUE PER SHARE)
of
PXRE GROUP LTD.
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TABLE OF CONTENTS
Page
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1. General.................................................................................................1
(a) Designation and Number.........................................................................1
(b) Priority.......................................................................................1
2. Certain Definitions.....................................................................................1
3. Voting Rights...........................................................................................7
(a) General Voting Rights..........................................................................7
(c) Consent of Series A Preferred Shares Required For Variation of Rights and Restrictions.........9
(d) Consent of Series B Preferred Shares Required For Variation of Rights and Restrictions........10
(e) Consent of Series C Preferred Shares Required For Variation of Rights and Restrictions........12
(f) Consent Required for Certain Actions..........................................................13
4. Dividend Rights........................................................................................15
(a) General.......................................................................................15
(b) Form of Dividends.............................................................................16
(c) Dividend Preference...........................................................................16
5. Liquidation Rights.....................................................................................17
(a) Priority......................................................................................17
(b) Notice of Liquidation.........................................................................18
6. Conversion.............................................................................................18
(a) General.......................................................................................18
(b) Surrender, Election and Payment...............................................................19
(c) Effective Date................................................................................20
(d) Share Certificates............................................................................20
(e) Acknowledgment of Obligation..................................................................20
(f) Current Conversion Price......................................................................20
(g) Reservation of Convertible Common Shares and Common Shares....................................20
(h) Mandatory Conversion..........................................................................21
7. Adjustment to Conversion Price.........................................................................22
(a) Adjustments for Recapitalizations, Etc........................................................22
(b) Adjustments for Issuances of Additional Shares................................................22
(c) Certain Rules in Applying the Adjustment for Additional Share Issuances.......................23
(d) Adjustment for Development....................................................................25
(e) Exclusions from the Adjustment for Additional Share Issuances.................................26
(f) Accountants' Certification....................................................................26
(g) Other Adjustments.............................................................................26
(h) Consolidation, Merger or Amalgamation.........................................................26
(j) Notices.......................................................................................27
8. Board of Directors.....................................................................................28
9. Class A Common Shares, Class B Common Shares and Class C Common Shares.................................29
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TABLE OF CONTENTS
(continued)
Page
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(a) Designation and Number of Class A, Class B and Class C Common Shares..........................29
(b) Priority......................................................................................29
(c) Voting........................................................................................29
(d) Conversion....................................................................................30
(e) General.......................................................................................30
ii
DESCRIPTION OF STOCK
The relative rights, preferences and restrictions granted to or
imposed upon the respective classes and series of Preferred Shares and
Convertible Common Shares created by PXRE Group Ltd. and upon the holders
thereof are set forth below.
1. General.
(a) Designation and Number. The designation of convertible Preferred
Shares created by this resolution shall be:
(i) "Series A Convertible Voting Preferred Shares, $1.00 par
value per share," of the Company, allocated among two sub-series, A1
Preferred Shares and A2 Preferred Shares (hereinafter referred to as
the "Series A Preferred Shares"), and the number of Series A Preferred
Shares which the Company shall be authorized to issue shall be 7,500
shares;
(ii) "Series B Convertible Voting Preferred Shares, $1.00 par
value per share," of the Company, allocated among two sub-series, B1
Preferred Shares and B2 Preferred Shares (hereinafter referred to as
the "Series B Preferred Shares"), and the number of Series B Preferred
Shares which the Company shall be authorized to issue shall be 5,000
shares; and
(iii) "Series C Convertible Voting Preferred Shares, $1.00 par
value per share," of the Company, allocated among two sub-series, C1
Preferred Shares and C2 Preferred Shares (hereinafter referred to as
the "Series C Preferred Shares"), and the number of Series C Preferred
Shares which the Company shall be authorized to issue shall be 2,500
shares.
(b) Priority. The Series A Preferred Shares, the Series B Preferred
Shares and the Series C Preferred Shares shall rank senior to the Common Shares,
the Convertible Common Shares and all other capital shares of the Company (now
or hereafter authorized or issued) other than the Trust Preferred and the Series
A Preferred Shares, the Series B Preferred Shares and the Series C Preferred
Shares shall rank pari passu with each other, in each case as to dividends and
as to the surplus assets of the Company available for distribution upon
liquidation, dissolution and winding-up as provided herein.
2. Certain Definitions.
(a) For purposes of this Description of Stock, the following terms
shall have the meanings indicated (such definitions to be equally applicable to
both singular and plural forms of the terms defined):
"Affiliates" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by or under common
control with, that Person; provided, however, that with respect to
Capital Z, CZI shall not be considered an Affiliate. For the purposes
of this definition, "control" (including with correlative meanings,
the terms "controlling", "controlled by", and "under common control
with") as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through ownership of
voting securities or by contract or otherwise.
"Assets" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal
or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the
goodwill related thereto, operated, owned or leased by such Person,
including cash, cash equivalents, investment assets, accounts and
notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory and goods.
"Business Day" means any day other than a Saturday, Sunday or
a day on which banking institutions in the State of New York or
Bermuda are authorized or obligated by law or executive order to
close.
"Capital Z" means, collectively, Capital Z Financial Services
Fund II, L.P. and Capital Financial Services Private Fund II, L.P.
"Class IV Director" means a Capital Z Director or Reservoir
Director or Rainwater Director.
"Class A Common Shares" means, collectively, the Class A
Convertible Voting Common Shares, $1.00 par value per share, of the
Company.
"Class B Common Shares" means, collectively, the Class B
Convertible Voting Common Shares, $1.00 par value per share, of the
Company.
"Class C Common Shares" means, collectively, the Class C
Convertible Voting Common Shares, $1.00 par value per share, of the
Company.
"Closing" has the meaning ascribed in the Purchase Agreement.
"Common Shares" means the Common Shares and shall also include
any common shares of the Company hereafter issued and outstanding and
any shares of the Company (other than the Preferred Shares and the
Convertible Common Shares) of any other class hereafter issued and
outstanding that is not preferred as to dividends or distribution of
assets in liquidation over any other class of shares of the Company or
has ordinary voting power for the election of directors of the
Company.
"Company" means PXRE Group Ltd.
"Company Securities" shall have the meaning given such term in
the Purchase Agreement.
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"Convertible Common Shares" means the Class A Common Shares,
the Class B Common Shares and the Class C Common Shares.
"CZI" means Capital Z Investments, L.P. and Capital Z
Investments II, L.P.
"Description of Stock" means this Description of Stock, as
amended, modified or supplemented from time to time.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as from time to time amended, and the rules, regulations and
interpretations promulgated thereunder.
"Fair Market Value" with respect to Common Shares, on any
date, shall be deemed to be the average of the reported closing prices
for each of the five (5) consecutive trading days ending on the
trading day before such date of determination. The reported closing
price for each day shall be the reported closing price on the
principal United States securities exchange or automated quotation
system on which the Common Shares are then listed or admitted to
trading. If the Common Shares are not then listed or admitted to
trading on any national securities exchange or automated quotation
system or if the closing price cannot be so determined, the Fair
Market Value shall be determined (x) by the written agreement of the
Company and the respective holder and (y) in the event that no such
agreement is reached within twenty (20) days after the date of the
event giving rise to the need to determine the Fair Market Value, (A)
by an independent appraiser of nationally recognized standing selected
by the respective holder and the Company or (B) if the respective
holder and the Company cannot agree on an appraiser within twenty (20)
days after the date of the event giving rise to the need to determine
the Fair Market Value, each shall select an independent appraiser of
nationally recognized standing and the two appraisers shall designate
a third independent appraiser of nationally recognized standing, whose
appraisal shall be determinative of such value. The cost of such
appraisal shall be borne by the Company. The Company shall cooperate,
and shall provide all necessary information and assistance, to permit
any determination under the preceding clauses (x) and (y). With
respect to Convertible Common Shares, the Fair Market Value shall
equal the Fair Market Value of the Common Shares into which such
Convertible Shares are convertible.
"Fully Converted" or "upon a Fully Converted basis" or "upon
Full Conversion" means, with respect to any Person as of any date,
that all Preferred Shares held by such Person have been (or shall be
deemed to have been, as appropriate) converted into Class A Common
Shares, Class B Common Shares and/or Class C Common Shares, as the
case may be, at the Current Conversion Price as of such date and
immediately thereafter such Class A Common Shares, Class B Common
Shares and Class C Common Shares shall have been (or shall be deemed
to have been, as appropriate) converted into Common Shares, in each
case in accordance with Section 6 of this Description of Stock.
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"GAAP" means United States generally accepted accounting
principles, consistently applied.
"Indebtedness" means (a) all indebtedness of the Company and
its subsidiaries, including the principal of, and premium, if any, and
interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign
bankruptcy laws, whether or not allowable as a claim in such
proceeding) on, all indebtedness, whether outstanding currently or
hereafter created (i) for borrowed money, (ii) for money borrowed by
one or more other Persons and guaranteed, directly or indirectly, by
the Company or any subsidiary thereof, (iii) for money borrowed by one
or more other Persons for which the Company or any subsidiary thereof
provides security, (iv) constituting purchase money indebtedness the
payment of which the Company or any subsidiary thereof is directly or
contingently liable, (v) under any lease of any real or personal
property, which obligations are capitalized on the consolidated books
of the Company and its subsidiaries in accordance with GAAP or (vi)
under any other arrangement under which obligations are recorded as
indebtedness on the consolidated books of the Company and its
subsidiaries in accordance with GAAP and (b) any and all
modifications, refundings, deferrals, renewals or extensions of any
such indebtedness, or securities, notes or other evidences of
indebtedness issued in exchange for such indebtedness. Without
limiting the generality of the foregoing, the term "Indebtedness"
shall include the Trust Preferred and any comparable securities of the
Company or any subsidiary thereof at any time outstanding; provided
that Indebtedness shall not include intercompany indebtedness
outstanding or hereafter created between the Company and any of its
direct or indirect wholly-owned Subsidiaries (as defined in the
Purchase Agreement, but limited in this paragraph to direct and
indirect wholly owned subsidiaries) or between any two of more such
direct or indirect wholly owned Subsidiaries of the Company.
"Investment Agreement" means the Investment Agreement dated as
of the Closing Date (as defined in the Purchase Agreement) by and
among the Company, the Purchasers (as defined in the Purchase
Agreement) and such other Persons as may become a party thereto from
time to time, as the same may be amended from time to time.
"Permitted Tender Offer Amount" means, as of any date, an
amount equal to (a) 20% of the cumulative amount by which the
Company's consolidated net income (determined in accordance with GAAP)
in any calendar year commencing with the year ending December 31, 2002
exceeds $50,000,000 minus (b) the sum of all cash and the fair market
value of all non-cash consideration paid or payable by the Company or
any Affiliate thereof in respect of redemptions, offers to purchase,
tender offers or other acquisitions of capital stock of the Company
effected or commenced after December 10, 2001.
"Person" or "person" means an individual, corporation,
partnership, firm, association, joint venture, trust, unincorporated
organization, limited liability
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company, government, governmental body, agency, political subdivision
or other entity.
"Preferred Shares" means, collectively, the Series A Preferred
Shares, the Series B Preferred Shares and the Series C Preferred
Shares.
"Purchase Agreement" means the Share Purchase Agreement dated
as of December 10, 2001 by and among the Company and the Purchasers,
as the same may be amended from time to time.
"Purchasers" shall have the meaning given such term in the
Purchase Agreement.
"Rainwater" means Richard E. Rainwater, an individual.
"Reservoir" means, collectively, Reservoir Capital Partners,
L.P. and Reservoir Capital Master Fund, L.P.
"Securities Act" means the United States Securities Act of
1933, as from time to time amended, and the rules, regulations and
interpretations promulgated thereunder.
"Stated Value" shall mean, with respect to each Preferred
Share, $10,000.00.
"Tax Gross-Up" shall mean an additional cash payment to be
made to any Purchaser who (i) receives a cash payment in lieu of
Convertible Common Shares on the conversion of Preferred Shares
pursuant to Section 6(a)(iv) hereof, (ii) is or, in the case of a
Purchaser that is a partnership for U.S. federal income tax purposes
and that has a direct or indirect partner that is, then subject to
U.S. federal income tax on the receipt of the cash payment in lieu of
Convertible Common Shares as ordinary income (all such persons
referred to herein as "U.S. Tax Purchasers" and each, a "U.S. Tax
Purchaser") and (iii) would have realized a "long-term capital gain"
or a "long-term capital loss" (within the meaning of Section 1222(3)
or (4) of the Internal Revenue Code of 1986, as amended (the "Code"),
on a sale of the Convertible Common Shares into which the Preferred
Shares would otherwise have been converted, such additional cash
payment equal to an amount such that (a) the sum of (i) the Fair
Market Value of the Convertible Common Shares that such U.S. Tax
Purchaser would otherwise have received plus (ii) the additional cash
payment hereunder, such sum multiplied by 1 minus the highest U.S.
federal income tax rate which would be applicable to any ordinary
income received by a U.S. taxpayer of the same type (individual,
corporation or other entity) as such U.S. Tax Purchaser, equals (b)
the Fair Market Value of the Convertible Common Shares that such U.S.
Tax Purchaser would otherwise have received multiplied by 1 minus the
highest U.S. federal income tax rate which is then generally
applicable to "net capital gain" (within the meaning of Section
1222(11) of the Code) received by a U.S. taxpayer of the
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same type (individual, corporation or other entity) as such U.S. Tax
Purchaser in the taxable year of the conversion.
"Trust Preferred" shall mean, collectively, (i) the Junior
Subordinated Deferrable Interest Debentures due 2027 of PXRE
Corporation, (ii) the 8.85% Capital Trust Pass-through Securities of
PXRE Capital Trust I and (iii) the PXRE Corporation Guarantee with
respect to such Capital Trust Pass-through Securities.
(b) The following terms, when used in this Description of Stock, shall
have the meanings provided for such terms in the sections set forth below (such
definitions to be equally applicable to both singular and plural forms of the
terms defined):
Term Section(s)
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Adjustment Date 7(d)
Additional Common Shares 7(b)
Adjusted Shareholders' Equity 7(d)
Aggregate Voting Limitation 3(a)
Announcement Date 6(g)
Appointed Actuary 7(d)
Bye-Law 20(4) 3(a)
Capital Z Director 3(b)(i)
Conversion Date 6(h)(ii)(A)
Conversion Date FMV 6(h)(ii)(A)
Conversion Price 6(f)
Current Conversion Price 6(f)
Definitive Loss Report 7(d)
Discontinued Operations 7(d)
Dividend Due Date 4(a)
First Mandatory Conversion 6(h)(i)
Junior Shares 4(c)
LD Above Deductible 7(d)
Loss Development 7(d)
Mandatory Conversion 6(h)(i)
Maximum Lawful Rate 4(c)
NOL 7(d)
NYSE Rules 8(b)
Observer 8(e)
Old Conversion Price 7(b)
Permitted Tender Offer Amount 3(e)(i)
Rainwater Director 3(b)(iv)
Reinsuring Company 3(e)(ix)
Reservoir Director 3(b)(iii)
Second Mandatory Conversion 6(h)(i)
September Financial Statement 7(d)
Series A Conversion Ratio 6(a)(i)
Series B Conversion Ratio 6(a)(ii)
Series C Conversion Ratio 6(a)(iii)
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Term Section(s)
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Series A Preferred Liquidation Preference 5(a)(i)
Series B Preferred Liquidation Preference 5(a)(i)
Series B Preferred Liquidation Preference 5(a)(i)
Conversion Ratio 6(a)
Series A Preferred Shares 1(a)(i)
Series B Preferred Shares 1(a)(ii)
WTC Loss 7(d)
(c) The words "hereof", "herein" and "hereunder" and other words of
similar import refer to this Description of Stock as a whole and not to any
particular Section or other subdivision.
(d) All dollar amounts referenced herein shall be denominated in
United States dollars.
3. Voting Rights.
(a) General Voting Rights. Except as otherwise provided specifically
herein and in the Bye-Laws or required by Bermuda law, (i) each Preferred Share
and Convertible Common Share shall have the right and power and be entitled to
vote on any question or matter upon which, or in any proceeding at which, the
holders of Common Shares of the Company are entitled to vote and to be
represented at and to receive notice of any meeting of shareholders, (ii) the
holders of Preferred Shares, Convertible Common Shares and Common Shares shall
vote together as one class and not as separate classes and (iii) each holder of
Preferred Shares and/or Convertible Common Shares shall be entitled to that
number of votes for each Preferred Share and each Convertible Common Share held
by such holder equal to the number of Common Shares that would be received by
such holder if such shares were Fully Converted as of the record date for the
vote which is being taken or, if no such record date is established, as of the
date such vote is taken or any written consent of shareholders is solicited.
(i) Subject to clause (iii) below and notwithstanding anything
to the contrary in the Bye-Laws, Capital Z and each Affiliate thereof
to whom or which (as the case may be) any Company Securities are
Transferred (as such term is defined in the Purchase Agreement), to
the extent such Transfer does not result in the transferring Person or
any other Person being considered a United States Shareholder within
the meaning of Section 951(b) of the Code, without regard to Section
953(c) of the Code and without the application of Bye-Law 20(4), shall
be exempt from the application of the aggregate voting limitation set
forth in Bye-Law 20(4) of the Bye-Laws of the Company or any similar
provision in the Bye-Laws as may be in effect from time to time
(collectively, "Bye-Law 20(4)").
(ii) For the avoidance of doubt, the holding of Company
Securities by Reservoir and Rainwater shall be subject to application
of the aggregate voting limitation set forth in Bye-Law 20(4).
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(iii) In no event shall Purchasers and their respective
Affiliates be permitted to exercise control, collectively through the
Company Securities or any other shares, in excess of 49.9% of the
aggregate voting power of the Company on any shareholder voting
matters (the "Aggregate Voting Limitation"). Notwithstanding the
foregoing, the preceding sentence shall in no event limit or modify in
any manner the rights granted to the holders of Preferred Shares and
Convertible Common Shares under clauses (b), (c), (d), (e) and (f) of
this Section 3 and under clause (c) of Section 9 of this Description
of Stock. The Aggregate Voting Limitation shall be applied in the
manner set forth in Bye-Law 20(4) as if the Maximum Percentage set
forth therein was equal to 49.9%.
(b) Election of Directors. The Preferred Shares and Convertible Common
Shares shall not have the right and power or be entitled to vote in the election
of directors of the Company except as set forth below:
(i) so long as Capital Z and its Affiliates and their limited
partners shall own at least 50% of the Series A Preferred Shares
acquired by Capital Z under the Purchase Agreement (including for
purposes of such calculation, all Class A Common Shares then held by
such Persons), the holders of the Series A Preferred Shares and Class
A Common Shares shall have, in addition to the other voting rights set
forth herein, the exclusive right, voting separately as a class, to
annually elect by the affirmative vote of the holders of at least 50%
of all Series A Preferred Shares and Class A Common Shares, voting
together, two individuals to each serve as Class IV Directors of the
Company (each, a "Capital Z Director");
(ii) so long as Capital Z and its Affiliates and their limited
partners shall own at least 20% but less than 50% of the Series A
Preferred Shares acquired by Capital Z under the Purchase Agreement
(including for purposes of such calculation, all Class A Common Shares
then held by such Persons), the holders of the Series A Preferred
Shares and Class A Common Shares shall have, in addition to the other
voting rights set forth herein, the exclusive right, voting separately
as a class, to annually elect by the affirmative vote of the holders
of at least 50% of all Series A Preferred Shares and Class A Common
Shares, voting together, one individual to serve as a Class IV
Director of the Company; provided that in the event that Capital Z and
its Affiliates and their limited partners shall own less than 20% of
the Series A Preferred Shares acquired by Capital Z pursuant to the
Purchase Agreement (including for purposes of such calculation, all
Class A Common Shares then held by such Persons), then the holders of
the Series A Preferred Shares shall be entitled to vote generally in
the election of directors in accordance with Section 3(a) hereof; and
(iii) so long as Reservoir and its Affiliates and their
limited partners shall own at least 30% of the Series B Preferred
Shares acquired by Reservoir under the Purchase Agreement (including
for purposes of such calculation, all Class B Common Shares then held
by such Persons), the holders of the Series B Preferred Shares and
Class B Common Shares shall have, in addition to the other voting
rights set forth herein, the exclusive right, voting separately as a
class, to
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annually elect by the affirmative vote of the holders of at least 50%
of all Series B Preferred Shares and Class B Common Shares, voting
together, one individual to serve as a Class IV Director of the
Company (the "Reservoir Director"); provided that in the event that
Reservoir and its Affiliates and their limited partners shall own less
than 30% of the Series B Preferred Shares acquired by Reservoir
pursuant to the Purchase Agreement (including for purposes of such
calculation, all Class B Common Shares then held by such Persons),
then the holders of the Series B Preferred Shares shall be entitled to
vote generally in the election of directors in accordance with Section
3(a) hereof.
(iv) so long as Rainwater and his Affiliates shall own at
least 60% of the Series C Preferred Shares acquired by Rainwater under
the Purchase Agreement (including for purposes of such calculation,
all Class C Common Shares then held by such Persons), the holders of
the Series C Preferred Shares and Class C Common Shares shall have, in
addition to the other voting rights set forth herein, the exclusive
right, voting separately as a class, to annually elect by the
affirmative vote of the holders of at least 50% of all Series C
Preferred Shares and Class C Common Shares, voting together, one
individual to serve as a Class IV Director of the Company (the
"Rainwater Director"); provided that in the event that Rainwater and
his Affiliates shall own less than 60% of the Series C Preferred
Shares acquired by Rainwater pursuant to the Purchase Agreement
(including for purposes of such calculation, all Class C Common Shares
held by such Persons), then the holders of the Series C Preferred
Shares shall be entitled to vote generally in the election of
directors in accordance with Section 3(a) hereof.
(c) Consent of Series A Preferred Shares Required For Variation of
Rights and Restrictions. So long as any Series A Preferred Shares remain issued
and outstanding, unless the vote or consent of the holders of a greater number
of shares shall then be required by law overriding the provisions herein, the
affirmative vote or consent of the holders of at least 50% of all of the Series
A Preferred Shares at the time issued and outstanding, voting as a class, given
in person or by proxy either in writing (as may be permitted by law and the
Bye-Laws) or at any special or annual meeting, shall be necessary to permit,
effect or validate the taking of any of the following actions by the Company:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital shares or rights, options, warrants or
other securities convertible into or exercisable or exchangeable for
capital shares or any debt security which by its terms is convertible
into or exchangeable for any equity security or has any other equity
feature or any security that is a combination of debt and equity,
which, in each case, as to the payment of dividends or distribution of
assets, including, without limitation, distributions to be made upon a
liquidation, dissolution or winding-up of the Company, is pari passu
with or is senior to the Series A Preferred Shares or which in any
manner adversely affects the holders of the Series A Preferred Shares
or the Class A Common Shares, or amend the terms of any existing class
or series of capital shares if the effect of such amendment would be
to rank such class or series senior to or pari passu with
9
the Series A Preferred Shares as to dividends or distribution of
assets, including, without limitation, distributions to be made upon a
liquidation, dissolution or winding-up of the Company;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series A Preferred Shares or the Class A Common Shares;
(iii) reclassify the shares of any class or series of capital
shares into shares of any class or series of capital shares (A)
ranking, either as to payment of dividends, distributions of Assets or
redemptions, including, without limitation, distributions to be made
upon a liquidation, dissolution or winding-up of the Company, senior
to or pari passu with the Series A Preferred Shares or (B) which in
any manner adversely affects the rights of the holders of the Series A
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class A Common Shares, as the case
may be, which such holders would have after conversion of the Series A
Preferred Shares into Class A Common Shares or conversion of the Class
A Common Shares into Common Shares;
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of the Memorandum of Association or
Bye-Laws, if such amendment, alteration or repeal would have an
adverse effect on the rights of the holders of the Series A Preferred
Shares or any powers, rights, privileges or preference appertaining to
Common Shares or Class A Common Shares which such holders would have
after conversion of the Series A Preferred Shares into Class A Common
Shares or conversion of Class A Common Shares into Common Shares
(including, without limitation, by granting voting rights to holders
of bonds, debentures or other obligations); or
(v) any change to the authorized number of Preferred Shares or
Convertible Common Shares or issuance of additional Preferred Shares
or Convertible Common Shares.
(d) Consent of Series B Preferred Shares Required For Variation of
Rights and Restrictions. So long as any Series B Preferred Shares remain issued
and outstanding, unless the vote or consent of the holders of a greater number
of shares shall then be required by law overriding the provisions herein, the
affirmative vote or consent of the holders of at least 50% of all of the Series
B Preferred Shares at the time issued and outstanding, voting separately as a
class, given in person or by proxy either in writing (as may be permitted by law
and the Bye-Laws) or at any special or annual meeting, shall be necessary to
permit, effect or validate the taking of any of the following actions by the
Company:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital shares or rights, options, warrants or
other securities convertible into or exercisable or exchangeable for
capital shares or any debt security which by its terms is convertible
into or exchangeable for any equity
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security or has any other equity feature or any security that is a
combination of debt and equity, which, in each case, as to the payment
of dividends or distribution of assets, including, without limitation,
distributions to be made upon a liquidation, dissolution or winding-up
of the Company, is pari passu with or is senior to the Series B
Preferred Shares or which in any manner adversely affects the holders
of the Series B Preferred Shares or the Class B Common Shares, or
amend the terms of any existing class or series of capital shares if
the effect of such amendment would be to rank such class or series
senior to or pari passu with the Series B Preferred Shares as to
dividends or distribution of assets, including, without limitation,
distributions to be made upon a liquidation, dissolution or winding-up
of the Company;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series B Preferred Shares or the Class B Common Shares;
(iii) reclassify the shares of any class or series of capital
shares into shares of any class or series of capital shares (A)
ranking, either as to payment of dividends, distributions of Assets or
redemptions, including, without limitation, distributions to be made
upon a liquidation, dissolution or winding-up of the Company, senior
to or pari passu with the Series B Preferred Shares or (B) which in
any manner adversely affects the rights of the holders of the Series B
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class B Common Shares, as the case
may be, which such holders would have after conversion of the Series B
Preferred Shares into Class B Common Shares or conversion of the Class
B Common Shares into Common Shares;
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of the Memorandum of Association or
Bye-Laws of the Company, if such amendment, alteration or repeal would
have an adverse effect on the rights of the holders of the Series B
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class B Common Shares which such
holders would have after conversion of the Series B Preferred Shares
into Class B Common Shares or conversion of Class B Common Shares into
Common Shares (including, without limitation, by granting voting
rights to holders of bonds, debentures or other obligations); or
(v) any change to the authorized number of Preferred Shares or
Convertible Common Shares or issuance of additional Preferred Shares
or Convertible Common Shares.
(e) Consent of Series C Preferred Shares Required For Variation of
Rights and Restrictions. So long as any Series C Preferred Shares remain issued
and outstanding, unless the vote or consent of the holders of a greater number
of shares shall then be required by law overriding the provisions herein, the
affirmative vote or consent of the holders of at least 50% of all of the Series
C Preferred Shares at the time issued and outstanding, voting separately as a
11
class, given in person or by proxy either in writing (as may be permitted by law
and the Bye-Laws) or at any special or annual meeting, shall be necessary to
permit, effect or validate the taking of any of the following actions by the
Company:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital shares or rights, options, warrants or
other securities convertible into or exercisable or exchangeable for
capital shares or any debt security which by its terms is convertible
into or exchangeable for any equity security or has any other equity
feature or any security that is a combination of debt and equity,
which, in each case, as to the payment of dividends or distribution of
assets, including, without limitation, distributions to be made upon a
liquidation, dissolution or winding-up of the Company, is pari passu
with or is senior to the Series C Preferred Shares or which in any
manner adversely affects the holders of the Series C Preferred Shares
or the Class C Common Shares, or amend the terms of any existing class
or series of capital shares if the effect of such amendment would be
to rank such class or series senior to or pari passu with the Series C
Preferred Shares as to dividends or distribution of assets, including,
without limitation, distributions to be made upon a liquidation,
dissolution or winding-up of the Company;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series C Preferred Shares or the Class C Common Shares;
(iii) reclassify the shares of any class or series of capital
shares into shares of any class or series of capital shares (A)
ranking, either as to payment of dividends, distributions of Assets or
redemptions, including, without limitation, distributions to be made
upon a liquidation, dissolution or winding-up of the Company, senior
to or pari passu with the Series C Preferred Shares or (B) which in
any manner adversely affects the rights of the holders of the Series C
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class C Common Shares, as the case
may be which such holders would have after conversion of the Series C
Preferred Shares into Class C Common Shares or conversion of the Class
C Common Shares into Common Shares; or
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of the Memorandum of Association or
Bye-Laws of the Company, if such amendment, alteration or repeal would
have an adverse effect on the rights of the holders of the Series C
Preferred Shares or any powers, rights, privileges or preference
appertaining to Common Shares or Class C Common Shares which such
holders would have after conversion of the Series C Preferred Shares
into Class C Common Shares or conversion of Class C Common Shares into
Common Shares (including, without limitation, by granting voting
rights to holders of bonds, debentures or other obligations).
12
(f) Consent Required for Certain Actions. Each action or series of
actions set forth below in this Section 3(f) shall require:
(x) if Capital Z, Reservoir and Rainwater (together with their Affiliates
and limited partners) own, in the aggregate, at least 40% of the Preferred
Shares originally purchased by them (including for the purposes of such
calculation any Convertible Common Shares and Common Shares into which such
Convertible Common Shares have converted), the consent of each of (i)
holders of more than 50% of the issued and outstanding Series A Preferred
Shares and Class A Common Shares, voting together as a single class, and
(ii) holders of more than 50% of the issued and outstanding Series B
Preferred Shares, Series C Preferred Shares, Class B Common Shares and
Class C Common Shares, all voting together as a single class;
(y) if the condition specified in clause (x) is not satisfied and Capital Z
(together with its Affiliates and limited partners) owns at least 50% of
the Preferred Shares purchased by it (including for the purposes of such
calculation any Convertible Common Shares and Common Shares into which such
Convertible Common Shares have converted), the consent of holders of more
than 50% of the issued and outstanding Series A Preferred Shares and Class
A Common Shares, voting together as a single class; and
(z) if the condition specified in clause (x) is not satisfied and Resevoir
and Rainwater, collectively (together with their Affiliates and limited
partners) own at least 50% of the Preferred Shares originally purchased by
them (including for the purposes of such calculation any Convertible Common
Shares and Common Shares into which such Convertible Common Shares have
converted), the consent of holders of more than 50% of the issued and
outstanding Series B Preferred Shares, Series C Preferred Shares, Class B
Common Shares and Class C Common Shares, all voting together as a single
class:
(i) at any time before the third anniversary of the Closing,
involve one or more redemptions, offers to purchase, tender offers or
other acquisitions of capital stock of the Company by or on behalf of
the Company collectively involving the payment by or on behalf of the
Company or any subsidiary thereof of cash and/or other consideration
having an aggregate fair market value in excess of the Permitted
Tender Offer Amount.
(ii) result in a sale of the Company by merger, sale of Assets
or consolidation or amalgamation where the per share consideration
paid to the holders of Preferred Shares on an as converted basis is
less than 200% of the Current Conversion Price;
(iii) result in the sale or transfer of 25% or more of the
Company's Assets;
(iv) result in a voluntarily delisting of the Common Shares
from the New York Stock Exchange;
(v) (A) at any time before the third anniversary of the
Closing, involve or result in the incurrence of additional
Indebtedness from and after the Closing in
13
excess of $50,000,000 in the aggregate, and provided such
$50,000,000 shall not be inclusive of the first $55,000,000 of any
refinancing of the First Union Credit Agreement (as defined in the
Purchase Agreement) and (B) at any time on or after the third
anniversary of the Closing, involve or result in a ratio of
Indebtedness to total capital (equal to the sum of shareholders equity
plus indebtedness including Trust Preferred, as it appears on the
Company's balance sheet as of the date of measurement and prepared in
accordance with GAAP) in excess of 0.25 to 1.00;
(vi) effect or attempt to effect a voluntary liquidation,
dissolution or winding up of the Company;
(vii) result in an expansion by the Company into lines of
business other than continuing lines of business in which the Company
is currently involved;
(viii) at any time before the third anniversary of the Closing
increase the amount of dividends and other distributions (whether of
cash or other property or rights) paid with respect to Common Shares,
at a cumulative annualized rate of more than 10% from the last
dividend declared prior to the Closing, from and after the Closing
(such amount, as reduced by the amount of all cash and the fair market
value of all property and rights paid by or on behalf of the Company
as a dividend or distribution with respect to Common Shares, is
referred to as the "Permitted Dividend Amount");
(ix) involve the purchase or renewal of retrocessional or
reinsurance coverage from companies with a Standard & Poor's or A.M.
Best rating below "A-" unless, in each case, such coverage is acquired
pursuant to a contract that requires the applicable reinsurer or
retrocessionaire (the "Reinsuring Company") to post and maintain
collateral upon a loss in an amount equal to the reserves for such
loss and either (A) the obligations of such Reinsuring Company are
guaranteed by a direct or indirect parent thereof having Standard
&Poor's and A.M. Best ratings of "A-" or better or (B) such Reinsuring
Company has capital and surplus as of the date of purchase or renewal
of such coverage of at least $1 billion; provided, however, that
notwithstanding the foregoing in this clause (ix), the Company may
continue to purchase and renew reinsurance coverage with Select Re and
renew, but not increase, coverage with Pennsylvania Lumbermans Mutual
Insurance Company, in each case in the ordinary course of business
consistent with past practice;
(x) at any time before the third anniversary of the Closing,
effect an acquisition by the Company involving aggregate consideration
in excess of $50,000,000;
(xi) involve or result in any additional or increased
investment by the Company or any of its Subsidiaries in any hedge
funds or similar investments beyond the amounts held at September 30,
2001 without the prior unanimous approval of the Investment Committee
of the Board of Directors; or
14
(xii) at any time on or after the third anniversary of the Closing,
involves or results in (A) the payment of any dividend or other distribution
(whether in cash or other property or rights) with respect to Common Shares or
(B) involves or results in a redemption, offer to purchase, tender offer or
other acquisition of capital stock of the Company by or on behalf of the Company
collectively involving the payment by or on behalf of the Company or any
subsidiary thereof of cash and/or other consideration having an aggregate fair
market value in excess of the greater of (i) the Permitted Tender Offer Amount
and (ii) the Permitted Dividend Amount.
4. Dividend Rights.
(a) General. For the purposes of this Section 4, each December 31,
March 31, June 30 and September 30 (commencing December 31, 2001) on which any
Preferred Shares shall be outstanding shall be deemed to be a "Dividend Due
Date". The holders of the Preferred Shares shall be entitled to receive, if,
when and as declared by the Board of Directors out of funds legally available
therefor, cumulative dividends on each share (i) at any time such dividends are
to be paid in shares of Preferred Shares in accordance with the terms hereof,
the rate of 8% per annum and (ii) at any time such dividends are to be paid in
cash in accordance with the terms hereof, the rate of 8% per annum, on the sum
of (x) the Stated Value on each Preferred Share plus (y) the amount of any
accrued and unpaid dividends thereon, and no more, calculated on the basis of a
year of 360 days consisting of twelve 30-day months, payable on each Dividend
Due Date, with respect to the quarterly period ending on the day immediately
preceding such Dividend Due Date (except that if any such date is not a Business
Day, then such dividend shall be payable on the next Business Day following such
Dividend Due Date, provided that for the purposes of computing such dividend
payment, no interest or sum in lieu of interest shall accrue from such Dividend
Due Date to the next Business Day following such Dividend Due Date). Dividends
on each Preferred Share shall accrue and be cumulative from and after the date
of issuance of such Preferred Share whether or not such dividends are declared
and whether or not there shall be net profits or net assets of the Company
legally available for the payment of such dividends. The amount of Dividends
payable per share for each full dividend period shall be computed by dividing by
four the 8% annual rate. The record date for the payment of dividends on the
Preferred Shares shall in no event be more than sixty (60) days nor less than
fifteen (15) days prior to a Dividend Due Date. Any such dividend that is to be
paid in Preferred Shares shall be payable by delivery to such holders, at their
respective addresses as they appear in the stock register, of certificates
representing the appropriate number of duly authorized, validly issues, fully
paid and nonassessable shares of Series A Preferred Shares to holders of Series
A Preferred Shares, Series B Preferred Shares to holders of Series B Preferred
Shares and Series C Preferred Shares to holders of Series C Preferred Shares.
Any such dividend that is to be paid in cash shall be payable by delivery of
such cash amounts to such holders at their respective addresses as they appear
in the stock register.
(b) Form of Dividends. Dividends payable on any Dividend Due Date
shall, if declared by the Board of Directors of the Company or any duly
authorized committee thereof and regardless of when actually paid, accrue and be
payable (i) prior to the third anniversary of the Closing, in Series A Preferred
Shares to holders of Series A Preferred Shares, in Series B Preferred Shares to
holders of Series B Preferred Shares and in Series C Preferred Shares to
15
holders of Series C Preferred Shares and (ii) from and after the third
anniversary of the Closing, accrue and be payable in cash. The number of Series
A Preferred Shares, Series B Preferred Shares or Series C Preferred Shares, as
the case may be, so payable on any Dividend Due Date as a dividend per Series A
Preferred Share, Series B Preferred Share or Series C Preferred Share, as the
case may be, shall be equal to the amount of dividends that would have been
payable on such share if such dividend were being paid in cash on such Dividend
Due Date divided by the Stated Value. Any additional Series A Preferred Shares,
Series B Preferred Shares or Series C Preferred Shares issued pursuant to this
Section 4(b) shall be governed by this resolution and shall be subject in all
respects to the same terms as the Series A Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares, respectively, originally issued hereunder.
Notwithstanding anything in this paragraph to the contrary, at the sole election
of the Company contained in a resolution of the Board of Directors or any duly
authorized committee thereof, in substitution in whole or in part for such
dividends payable in Preferred Shares (pursuant to clause (i) above), such
dividends may be paid in cash to the extent of any dividends that, if paid in
additional Preferred Shares, would otherwise cause the Purchasers and their
Affiliates to own more than 49.9% of the capital stock of the Company on a fully
diluted and Fully Converted basis.
(c) Dividend Preference. Any dividend which shall not be paid on the
Dividend Due Date on which it shall become due shall be deemed to be "past due"
until such dividend is paid. So long as any dividend in respect of any
outstanding Preferred Share shall be past due at any time such dividends are to
be paid in cash in accordance with the terms hereof, the dividend rate
applicable to such Preferred Share shall be increased to 10% per annum
compounded quarterly.
Notwithstanding anything to the contrary set forth in this
Section 4, if at any time during which any Preferred Share remains outstanding
the dividend rate payable thereon exceeds the highest rate of interest
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in
such event and so long as the Maximum Lawful Rate would be so exceeded, the
dividend rate of in respect of Preferred Shares shall be equal to the Maximum
Lawful Rate; provided, however, that if at any time thereafter the dividend rate
payable thereon is less than the Maximum Lawful Rate, dividends shall continue
to accrue thereon at the Maximum Lawful Rate until such time as the total
dividends earned are equal to the total dividends which would have been earned
had the dividend rate on such Preferred Share been (but for the operation of
this paragraph) the dividend rate payable since the Closing.
Dividends paid on Preferred Shares in an amount less than the
total amount of such dividends at the time accumulated and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
Preferred Shares at the time outstanding.
The rights of Series A Preferred Shares, the Series B
Preferred Shares and Series C Preferred shares shall rank pari passu with each
other with respect to the right to receive dividends, and such Preferred Shares
shall rank senior in all respects to Common Shares, the Convertible Common
Shares and all other classes and series of capital shares of the Company,
including without limitation other classes and series of preferred shares other
than the Trust Preferred (collectively, "Junior Shares").
16
If a dividend upon any Preferred Shares, or any other
outstanding preferred stock of the Company ranking on a parity with the
Preferred Shares as to dividends, is in arrears, all dividends or other
distributions declared upon each series of such stock may only be declared pro
rata so that in all cases the amount of dividends or other distributions
declared per share of each such series bear to each other the same ratio that
the accumulated and unpaid dividends per share on the shares of each such series
bear to each other. Except as set forth above, if a dividend upon any Preferred
Shares, or any other outstanding stock of the Company ranking on a parity with
the Preferred Shares as to dividends, is in arrears: (i) no dividends, in cash,
stock or other property, may be paid or declared and set aside for payment or
any other distribution made upon any stock of the Company ranking junior to the
Preferred Shares as to dividends; (ii) no stock of the Company ranking on a
parity with the Preferred Shares as to dividends may be (A) redeemed pursuant to
a sinking fund or otherwise, except (1) by means of a redemption pursuant to
which all outstanding shares of Preferred Shares and all stock of the Company
ranking on a parity with the Preferred Shares as to dividends are redeemed or
pursuant to which a pro rata redemption is made from all holders of the
Preferred Shares and all stock of the Company ranking on a parity with the
Preferred Shares as to dividends (in each case, only so long as the Preferred
Shares is otherwise redeemable pursuant hereto), the amount allocable to each
series of such stock being determined on the basis of the aggregate liquidation
preference of the outstanding shares of each series and the shares of each
series being redeemed only on a pro rata basis or (2) by conversion of such
stock ranking on a parity with the Preferred Shares as to dividends into, or
exchange of such stock for, Junior Shares or (B) purchased or otherwise acquired
for any consideration by the Company except (1) pursuant to an acquisition made
pursuant to the terms of one or more offers to purchase all of the outstanding
shares of the Preferred Shares and all stock of the Company ranking on a parity
with the Preferred Shares as to dividends (which offers shall describe such
proposed acquisition of all such stock ranking on a parity with the Preferred
Shares), which offers shall each have been accepted by the holders of more than
50% of the shares of each series or class of stock receiving such offer
outstanding at the commencement of the first of such purchase offers, or (2) by
conversion of such stock ranking on a parity with the Preferred Shares as to
dividends into, or exchange of such stock for, Junior Stock; and (iii) no stock
ranking junior to the Preferred Shares as to dividends may be redeemed,
purchased or otherwise acquired for consideration (including pursuant to sinking
fund requirements) except by conversion into or exchange for Junior Shares.
5. Liquidation Rights.
(a) Priority. In the event of any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary:
(i) before any payment or distribution of the Assets of the
Company (whether from paid in share capital, share premium or surplus)
shall be made to or set apart for the holders of Junior Shares or any
other shares of the Company other than Trust Preferred, the holders,
on a pari passu basis, of the shares of (A) Series A Preferred Shares
shall be entitled to receive from the Assets of the Company, payment
in cash of an amount equal to the aggregate of the Stated Value per
share of each issued and outstanding Series A Preferred Share plus all
accrued and unpaid dividends thereon (the "Series A Preferred
Liquidation Preference"), (B) Series B Preferred Shares shall be
entitled to receive from the
17
Assets of the Company, payment in cash of an amount equal to the
aggregate of the Stated Value per share of the issued and outstanding
Series B Preferred Shares plus all accrued and unpaid dividends
thereon (the "Series B Preferred Liquidation Preference") and (C)
Series C Preferred Shares shall be entitled to receive from the Assets
of the Company, payment in cash of an amount equal to the aggregate of
the Stated Value per share of each issued and outstanding Series C
Preferred Share plus all accrued and unpaid dividends thereon (the
"Series C Preferred Liquidation Preference"). If the Assets
distributable upon such liquidation, dissolution or winding-up of the
Company shall be insufficient to permit payment to the respective
holders of the shares of Series A Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares of the full preferential amounts
as set forth in this Section 5(a)(i), then such Assets shall be
distributed ratably among the shares of Series A Preferred Shares, the
Series B Preferred Shares and the Series C Preferred Shares; and
(ii) any proceeds remaining after payment of the Series A
Preferred Liquidation Preference, the Series B Preferred Liquidation
Preference and the Series C Preferred Liquidation Preference shall be
distributed ratably among the Common Shares, the Convertible Common
Shares and other classes of shares of the Company in accordance with
the relevant rights and restrictions thereof, if any.
(b) Notice of Liquidation. Subject to any other requirement under law,
written notice of any liquidation, dissolution or winding up of the Company,
stating the payment date or dates when and the place or places where the amounts
distributable in such circumstances shall be payable, shall be given (not less
than thirty (30) days prior to any payment date stated therein), to the holders
of record of the Preferred Shares at their respective addresses as the same
shall appear on the register of shareholders of the Company.
6. Conversion. The following provisions are subject to compliance with
applicable law, and if the exercise of these rights would violate relevant law,
such rights set out below will be suspended until such rights can be exercised
in compliance with applicable law:
(a) General. Each holder of Preferred Shares shall have the right, at
the option of such holder, at any time to convert, upon the terms and provisions
of this Section 6, one or more Series A Preferred Shares, Series B Preferred
Shares or Series C Preferred Shares into fully paid and nonassessable Class A
Common Shares, Class B Common Shares or Class C Common Shares, respectively, or
any class of shares or other securities into which such Class A Common Shares,
Class B Common Shares or Class C Common Shares shall have been changed or any
class of shares or other securities resulting from a reclassification thereof.
(i) Such conversion of Series A Preferred Shares to Class A
Common Shares shall be made at the conversion rate of one Series A
Preferred Share for a number of Class A Common Shares equal to a
fraction (the "Series A Conversion Ratio"), (i) the numerator of which
is equal to the Series A Preferred Liquidation Preference on a per
share basis and (ii) the denominator of which is equal to the Current
Conversion Price in effect at such time. The Class A Common Shares
18
issuable upon conversion of the Series A Preferred Shares, when such
Class A Common Shares shall be issued in accordance with the terms
hereof, shall be duly authorized, validly issued, fully paid and
nonassessable Class A Common Shares.
(ii) Such conversion of Series B Preferred Shares to Class B
Common Shares shall be made at a conversion rate of one Class B
Preferred Share for a number of Class B Common Shares equal to a
fraction (the "Series B Conversion Ratio"), (i) the numerator of which
is equal the Series B Liquidation Preference on a per share basis and
(ii) the denominator of which is equal to the Current Conversion Price
in effect at such time. The Class B Common Shares issuable upon
conversion of the Series B Preferred Shares, when such Class B Common
Shares shall be issued in accordance with the terms hereof, shall be
duly authorized, validly issued, fully paid and nonassessable Class B
Common Shares.
(iii) Such conversion of Series C Preferred Shares to Class C
Common Shares shall be made at a conversion rate of one Class C
Preferred Share for a number of Class C Common Shares equal to a
fraction (the "Series C Conversion Ratio"), (i) the numerator of which
is equal the Series C Liquidation Preference on a per share basis and
(ii) the denominator of which is equal to the Current Conversion Price
in effect at such time. The Class C Common Shares issuable upon
conversion of the Series C Preferred Shares, when such Class C Common
Shares shall be issued in accordance with the terms hereof, shall be
duly authorized, validly issued, fully paid and nonassessable Class C
Common Shares.
(iv) To the extent necessary to prevent the Purchasers and
their Affiliates from owning more than 49.9% of the capital shares of
the Company upon a fully diluted and Fully Converted basis, subject to
the provisions of Section 7(i) hereof, the Company shall have the
right (but not the obligation) to make a cash payment in lieu of a
payment in Class A Common Shares, Class B Common Shares or Class C
Common Shares, as the case may be, equal to the Fair Market Value at
the time of such conversion of the Common Shares that the Purchasers
would have received upon Full Conversion in excess of the 49.9%
limitation. Such right must be exercised, if at all, and the cash
payment and related Tax Gross-Up must be paid, at the time of such
conversion.
(b) Surrender, Election and Payment. Each Preferred Share may be
converted by the holder thereof during normal business hours on any Business Day
by surrender of such Preferred Share, accompanied by written evidence of the
holder's election to convert such Preferred Share, to the Company at its office
designated pursuant to the Bye-Laws of the Company (or, if such conversion is in
connection with an underwritten public offering of Common Shares, at the
location at which the underwriting agreement requires that such Common Shares
(or Preferred Shares) be delivered). Payment of the conversion price for the
Convertible Common Shares specified in such election shall be made by applying
to such payment an aggregate number of Preferred Shares equal to the number
obtained by dividing (x) the number of Class A Common Shares, Class B Common
Shares or Class C Common Shares, as the case may be, specified in such election
by (y) the Series A Conversion Ratio, the Series B
19
Conversion Ratio or the Series C Conversion Ratio, respectively. Such holder
shall thereupon be entitled to receive the number of Convertible Common Shares
specified in such election.
(c) Effective Date. Each conversion of Preferred Shares pursuant to
Section 6(c) hereof shall be deemed to have been effected immediately prior to
the close of business on the Business Day on which such Preferred Shares shall
have been surrendered to the Company as provided in Section 6(c) hereof, and
such conversion shall be at the Current Conversion Price in effect at such time.
On each such day that the conversion of Preferred Shares is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Class A Common Shares, Class B Common Shares or Class C Common Shares, as the
case may be, are issuable upon such conversion, as provided in Section 6(e)
hereof, shall be deemed to have become the holder or holders of record of such
Class A Common Shares, Class B Common Shares or Class C Common Shares, as the
case may be.
(d) Share Certificates. As promptly as practicable after the
conversion of any Preferred Shares, in whole or in part, and in any event within
ten (10) Business Days thereafter, the Company at its expense (including the
payment by it of any applicable issue, stamp or other taxes on the issue of the
Convertible Common Shares or on the share certificate therefor, other than any
income or capital gains taxes) will cause to be issued in the name of and
delivered to the holder thereof or as such holder may direct, a certificate or
certificates for the number of Class A Common Shares, Class B Common Shares or
Class C Common Shares, as the case may be, to which such holder shall be
entitled upon such conversion on the effective date of such conversion.
(e) Acknowledgment of Obligation. The Company will, at the time of or
at any time after each conversion of Preferred Shares, upon the request of the
holder thereof or of any Common Shares issued upon such conversion, acknowledge
in writing its continuing obligation to afford to such holder all rights, if
any, to which such holder shall continue to be entitled; provided, that if any
such holder shall fail to make any such request, the failure shall not affect
the continuing obligations of the Company to afford such rights to such holder.
(f) Current Conversion Price. The term "Conversion Price" shall mean
initially $15.69. The term "Current Conversion Price" as used herein shall mean
the Conversion Price, as the same may be adjusted from time to time as
hereinafter provided (including, without limitation, pursuant to Section 7
hereof), in effect at any given time; provided, however, that the Current
Conversion Price shall not be lower than the par value of the Class A Common
Shares, the Class B Common Shares or the Class C Common Shares. In determining
the Current Conversion Price, the result shall be expressed to the nearest
$0.01, but any such lesser amount shall be carried forward and shall be
considered at the time of (and together with) the next subsequent adjustment
which, together with any adjustments to be carried forward, shall amount to
$0.01 per Class A Common Share, Class B Common Share or Class C Common Share
more.
(g) Reservation of Convertible Common Shares and Common Shares. The
Company shall at all times reserve and keep available out of authorized but
unissued the maximum number of Convertible Common Shares and Common Shares into
which all Preferred Shares and Convertible Common Shares, respectively, from
time to time issued and outstanding are convertible.
20
(h) Mandatory Conversion. The following conversion provisions shall
also be applicable to the Preferred Shares:
(i) If not previously converted, all of the issued and
outstanding A1 Preferred Shares, B1 Preferred Shares and C1 Preferred
Shares, inclusive of all dividends paid in Preferred Shares in
accordance with this Description of Stock, will be mandatorily
converted into Class A Common Shares, Class B Common Shares or Class C
Common Shares, respectively, on the third anniversary of the Closing
(the "First Mandatory Conversion"). If not previously converted by the
Purchasers, all of the issued and outstanding A2 Preferred Shares, B2
Preferred Shares and C2 Preferred Shares inclusive of all dividends
paid in Preferred Shares in accordance with this Description of Stock,
will be mandatorily converted into Class A Common Shares, Class B
Common Shares or Class C Common Shares, respectively, on the sixth
anniversary of the Closing (the "Second Mandatory Conversion", and
collectively with the First Mandatory Conversion, the "Mandatory
Conversion"). To the extent that less than all of the Preferred Shares
to be converted are converted (for whatever reason) the Convertible
Common Shares issued in such Mandatory Conversion shall be allocated
among the holders on a pro rata basis.
(ii) The conversion price used in connection with the First
Mandatory Conversion shall be determined as follows:
(A) if the Current Conversion Price as of the date of
the First Mandatory Conversion (the "Conversion Date") is
equal to or less than the Fair Market Value of the Common
Shares as of the Conversion Date (the "Conversion Date FMV"),
the Current Conversion Price used in the First Mandatory
Conversion shall be the Conversion Price as of the Conversion
Date;
(B) if the Current Conversion Price as of the
Conversion Date is greater than the Conversion Date FMV, the
conversion price used in the First Mandatory Conversion shall
equal the sum of (x) the product obtained by multiplying the
Conversion Date FMV by 0.8 plus (y) the product obtained by
multiplying the Current Conversion Price as of the Conversion
Date by 0.2.
(iii) The conversion price used in connection with the Second
Mandatory Conversion shall be the Current Conversion Price as of the
date of the Second Mandatory Conversion.
(iv) The mechanics for conversion and other provisions
relating to the conversion of Preferred Shares set forth elsewhere in
this Section 6 and in Section 7 hereof shall apply to the automatic
conversion of Preferred Shares pursuant to this Section 6(h).
21
7. Adjustment to Conversion Price.
The Conversion Price shall be adjusted, from time to time, as follows:
(a) Adjustments for Recapitalizations, Etc. In case the
Company shall (i) subdivide its outstanding Common Shares, (ii) combine the
issued and outstanding Common Shares into a smaller number of shares, (iii)
issue by reclassification of Common Shares, any shares of the Company or (iv)
pay a dividend or make a distribution on the outstanding Common Shares in
capital shares of the Company, then, in any such case, the Current Conversion
Price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Preferred Share were to Fully Convert such
Preferred Share immediately after such action, such holder would be entitled to
receive the number of shares of the Company which such holder would have owned
immediately following such action had such Preferred Shares been converted
immediately prior thereto (with any record date requirement being deemed to have
been satisfied), and, in any such case, such Conversion Price shall thereafter
be subject to further adjustments under this Section 7. An adjustment made
pursuant to this Section 7(a) shall become effective retroactively immediately
after the effective date.
(b) Adjustments for Issuances of Additional Shares. Subject to
the exceptions referred to in Section 7(e) hereof, in case the Company shall at
any time or from time to time after the date hereof issue any additional Common
Shares ("Additional Common Shares") either (i) for no consideration or (ii) for
a consideration per share that is either (A) less than 95% of the Fair Market
Value of the Common Shares on the last day prior to the date of announcement of
such issuance in a registered public offering or (B) less than the Fair Market
Value of the Common Shares in a private transaction, then (in the case of either
clause (i) or (ii)), and thereafter successively upon each such issuance, the
Current Conversion Price shall be adjusted pursuant to the following formula:
NCP = OCP x OB + X
------
OA
where NCP = the new Current Conversion Price
OCP = the existing Current Conversion Price immediately before the new issue
(the "Old Conversion Price")
OB = the total outstanding Common Shares (on a fully diluted basis
immediately before the new issue)
X = number of Common Shares issuable at Fair Market Value of the Common
Shares for the total consideration to be received for the new issue
OA = the total outstanding Common Shares (on a fully diluted basis)
immediately after the new issue;
provided, however, that any such adjustment shall be made only if such
adjustment results in a Current Conversion Price less than the Current
Conversion Price in effect immediately prior to the issuance of such Additional
Common Shares. The Company may, but shall not be required to, make any
adjustment of the Current Conversion Price if the amount of such adjustment
shall
22
be less than one percent (1%) of the Current Conversion Price immediately prior
to such adjustment, but any adjustment that would otherwise be required then to
be made which is not so made shall be carried forward and shall be made at the
time of (and together with) the next subsequent adjustment which, together with
any adjustments so carried forward, shall amount to not less than one percent
(1%) of the Current Conversion Price immediately prior to such adjustment.
(c) Certain Rules in Applying the Adjustment for Additional Share
Issuances. For purposes of any adjustment as provided in Section 7(b) hereof,
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
Common Shares for cash, the consideration received by the Company
therefor shall be deemed to be the cash proceeds received by the
Company for such Additional Common Shares after deducting any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with the issuance of such
Additional Common Shares.
(ii) Non-Cash Consideration. In case of the issuance of
Additional Common Shares for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of
the consideration other than cash so received or to be received by the
Company shall be deemed to be the value of such consideration at the
time of its receipt by the Company as determined in good faith by the
Board, except that where the non-cash consideration consists of the
cancellation, surrender or exchange of outstanding obligations of the
Company (or where such obligations are otherwise converted into Common
Shares), the value of the non-cash consideration shall be deemed to be
the principal amount of the obligations canceled, surrendered,
satisfied, exchanged or converted. If the Company receives
consideration, part or all of which consists of publicly traded
securities (i.e., in lieu of cash), the value of such non-cash
consideration shall be the aggregate fair market value of such
securities (based on the latest reported sale price regular way) as of
the close of the day immediately preceding the date of their receipt
by the Company.
(iii) Options, Warrants, Convertibles, Etc.
(A) In case of the issuance, whether by distribution
or sale to holders of its Common Shares or to others, by the
Company of (i) any security (other than Preferred Shares and
Convertible Common Shares) that is convertible into Common
Shares or (ii) any rights, options or warrants to purchase
Common Shares, if inclusion thereof in calculating adjustments
under this Section 7 would result in a Current Conversion
Price lower than if excluded, the Company shall be deemed to
have issued, for the consideration described below, the number
of Common Shares into which such convertible security may be
converted when first convertible, or the number of Common
Shares deliverable upon the exercise of such rights, options
or warrants when first exercisable, as the case may be (and
23
such shares shall be deemed to be Additional Common Shares for
purposes of Section 7(b) hereof).
(B) The consideration deemed to be received by the
Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the
consideration so received determined as provided in Section
7(c)(i) and (ii) hereof plus (x) any consideration or
adjustment payment to be received by the Company in connection
with such conversion or, as applicable, (y) the aggregate
price at which Common Shares are to be delivered upon the
exercise of such rights, options or warrants when first
exercisable (or, if no price is specified and such shares are
to be delivered at an option price related to the Fair Market
Value of the subject Common Shares, an aggregate option price
bearing the same relation to the Fair Market Value of the
subject Common Shares at the time such rights, options or
warrants were granted).
(C) If, subsequently, (1) such number of shares into
which such convertible security is convertible, or which are
deliverable upon the exercise of such rights, options or
warrants, is increased or (2) the conversion or exercise price
of such convertible security, rights, options or warrants is
decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the Current
Conversion Price under Section 7(b) hereof) with respect to
such convertible security, rights, options or warrants, as the
case may be, shall be recalculated as of the time of such
issuance but giving effect to such changes (but any such
recalculation shall not result in the Current Series A
Conversion Price being higher than that which would be
calculated without regard to such issuance).
(D) On the expiration or termination of such rights,
options or warrants, or rights to convert, the Current
Conversion Price hereunder shall be readjusted (up or down as
the case may be) to such Current Conversion Price as would
have been obtained had the adjustments made with respect to
the issuance of such rights, options, warrants or convertible
securities been made upon the basis of the delivery of only
the number of Common Shares actually delivered upon the
exercise of such rights, options or warrants or upon the
conversion of any such securities and at the actual exercise
or conversion prices (but any such recalculation shall not
result in the Current Conversion Price being higher than that
which would be calculated without regard to such issuance).
(iv) Number of Shares Outstanding. The number of Common Shares
at the time outstanding shall exclude all Common Shares then owned or
held by or for the account of the Company but shall include the
aggregate number of Common Shares at the time deliverable in respect
of outstanding convertible securities, rights, options and warrants;
provided, that to the extent that such rights, options, warrants or
conversion privileges are not exercised, such Common
24
Shares shall be deemed to be outstanding only until the expiration
dates of the rights, warrants, options or conversion privileges or the
prior cancellation thereof.
(d) Adjustment for Development. The Current Conversion Price shall be
adjusted upwards or downwards as of each Adjustment Date (as defined below) by
multiplying the Current Conversion Price immediately prior to such adjustment
date by a fraction (i) the numerator of which is (x) Adjusted Shareholders'
Equity minus (y) the cumulative amount of any Loss Development (as defined
below) recognized after the Closing in excess of $7,000,000 (the "LD Above
Deductible") and (ii) the denominator of which is the Adjusted Shareholders'
Equity, it being understood that no adjustment pursuant to this Section 7(d)
shall be made if such adjustment shall increase the initial Conversion Price as
adjusted by the provisions of this Section 7 other than those contained in this
Section 7(d). The LD Above Deductible shall be applied on an after-tax basis The
term "Adjusted Shareholders' Equity" shall mean the common shareholders' equity,
as reflected in the GAAP financial statements of the Company as of September 30,
2001 (the "September Financial Statement"), provided that such shareholders'
equity shall be adjusted by substituting the loss and expense reserves set forth
in the Definitive Loss Reserve Report (as defined below) for the corresponding
reserves set forth in the September Financial Statement. The term "Adjustment
Dates" shall mean the dates of completion of the annual audit and reserve review
of the Company by the Company's duly appointed auditor with respect to the years
ended December 31, 2001, 2002 and 2003 and the term "Adjustment Date" shall mean
any of such dates of completion, as well as the dates of completion of any
reserve audit requested by the Purchasers. The term "Loss Development" shall
mean (i) any net positive or adverse loss and loss expense reserve development
(including without limitation as a result of uncollectible reinsurance, net of
any allowance for uncollectible reinsurance recorded as of September 30, 2001,
reinstatement premiums and any adjustments in profit commissions and ceding
commissions) on reserves for losses incurred on or prior to September 30, 2001
and loss adjustment expenses related thereto and established with respect to (x)
the losses and loss adjustment expenses related to the events of September 11,
2001 (the "WTC Loss"), (y) lines of business other than the Discontinued
Operations and the WTC Loss in an amount not to exceed $12,000,000 on an
after-tax basis and (z) the Discontinued Operations (defined below), in each
case as set forth in the loss reserve report delivered to the Purchasers on
December 10, 2001 (the "Definitive Loss Reserve Report"); and (ii) any liability
or loss (other than legal fees and expenses) arising out of material litigation
existing at the time of Closing. The term "Discontinued Operations" shall mean
(i) Lloyds' Syndicate 1224, (ii) the excess and surplus lines insurance business
assumed from Transnational Insurance Company and (iii) the casualty business
underwritten by PXRE Direct Underwriting Managers, Inc. The Purchasers shall
have the right to request a reserve audit at any time they should reasonably
believe it necessary. The reserve audit shall be performed by an independent
actuary mutually acceptable to the Company and the Purchasers (the "Appointed
Actuary"). Upon conclusion of the reserve audit, the Appointed Actuary shall
issue a written reserve opinion and the conclusion set forth in such reserve
opinion shall be binding upon the Company and the Purchasers. The expense of any
reserve audit requested by the Purchasers shall be borne by the Purchasers.
(e) Exclusions from the Adjustment for Additional Share Issuances. No
adjustment of the Current Conversion Price under Section 7(b) hereof shall be
made as a result of or in connection with (i) the issuance of Common Shares upon
conversion of the Convertible Common Shares, (ii) the issuance or grant of any
options, warrants or other rights convertible
25
into capital shares of the Company to employees, officers and directors of the
Company pursuant to restricted stock agreements or stock options or other equity
compensation plans (such plans having been approved by the shareholders of the
Company), or the issuance of the Company's capital shares thereunder, in an
amount not to exceed 500,000 Common Shares per calendar year and 2,100,000
Common Shares in the aggregate (subject to adjustment pursuant to Section 7(a))
or (iii) issuances in connection with an underwritten public offering of Common
Shares at a price 95% or more of the Fair Market Value at the time of such
offering.
(f) Accountants' Certification. Whenever the Current Conversion Price
is adjusted as provided in this Section 7, the Company will promptly obtain a
certificate of the Chief Financial Officer of the Company setting forth the
Current Conversion Price as so adjusted, the computation of such adjustment and
a brief statement of the facts accounting for such adjustment, and will mail to
the holders of Series A Preferred Shares a copy of such certificate. The holders
of the Preferred Shares may within sixty (60) days object to the calculation of
the Current Conversion Price by providing written notice to the Company in
accordance with the Bye-Laws of the Company, which notice will set forth the
basis of such objection. Such objection shall be submitted to the Company's
auditor for review (at the expense of the Company) and the determination of the
Company's auditor shall be binding.
(g) Other Adjustments. In case any event shall occur as to which any
of the provisions of this Section 7 are not strictly applicable but the failure
to make any adjustment would not fairly protect the conversion rights
represented by the Preferred Shares in accordance with the essential intent and
principles of Sections 6 and 7 hereof, then, in each such case, upon the request
of the holders of a majority of the Preferred Shares, the Company shall appoint
a firm of independent public accountants of recognized national standing
selected by the Board (who may be the regular auditors of the Company), which
shall give their opinion upon the adjustment, if any, on a basis consistent with
the essential intent and principles established in Sections 6 and 7 hereof,
necessary to preserve, without dilution, the conversion rights represented by
the Preferred Shares. Upon receipt of such opinion, the Company will promptly
mail copies thereof to the holders of the Preferred Shares and shall make the
adjustments described therein.
(h) Consolidation, Merger or Amalgamation. If the Company shall at any
time consolidate with or merge into another corporation (where the Company is
not the continuing corporation after such merger or consolidation) or if the
Company is amalgamated, or the Company shall sell, transfer or lease all or
substantially all of its Assets, or the Company shall change its Common Shares
into property other than capital shares of the Company, then, in any such case,
the holder of a Preferred Share shall thereupon (and thereafter) be entitled to
receive, upon the Full Conversion of such Preferred Shares in whole or in part,
the securities or other property to which (and upon the same terms and with the
same rights as) a holder of the number of Common Shares deliverable upon Full
Conversion of such Preferred Share would have been entitled if such Full
Conversion had occurred immediately prior to such consolidation, merger or
amalgamation, such sale of Assets or such change (with any record date
requirement being deemed to have been satisfied), and such conversion rights
shall thereafter continue to be subject to further adjustments under this
Section 7, without limiting any other rights of holders of Preferred Shares. The
Company shall take such steps in connection with such consolidation, merger or
amalgamation, such sale of Assets or such change as may be necessary to assure
such
26
holder that the provisions of the shares of Preferred Shares shall thereafter
continue to be applicable in relation to any securities or property thereafter
deliverable upon the conversion of the Preferred Shares, including, but not
limited to, obtaining a written obligation to supply such securities or property
upon such conversion and to be so bound by the Preferred Shares.
(i) If any adjustment to the Current Conversion Price pursuant to this
Section 7 would result in the Purchasers and their Affiliates being able to
convert into more than 49.9% of the capital shares of the Company upon a fully
diluted and Fully Converted basis, the Company shall have the right (but not the
obligation) to elect (within 5 business days of the date of the event giving
rise to such adjustment) to make a cash payment in lieu of effecting such
adjustment to the Current Conversion Price. Such cash payment shall equal the
sum of the Fair Market Value as of the date of conversion of the Common Shares
that the Purchasers would have received in excess of the 49.9% limitation upon
the Full Conversion of their Preferred Shares as of the date of such adjustment
plus the related Tax Gross-Up. Such cash payment shall be allocated pro rata
among the Preferred Shares and shall be payable upon conversion of any such
Preferred Shares pursuant to Section 6 of this Description of Stock.
(j) Notices. In case at any time:
(i) the Company shall take any action which would require an
adjustment in the Current Conversion Price pursuant to Section 7(a) or
(c); or
(ii) the Company shall authorize the granting to the holders
of its Common Shares of any distributions on Common Shares as set
forth in Section 7(a); or
(iii) there shall be any reorganization, reclassification or
change of Common Shares (other than a change in par value or, if and
when permitted by law, from par value to no par value or from no par
value to par value), or any consolidation, merger or amalgamation to
which the Company is a party and for which approval of any
shareholders of the Company is required, or any sale, transfer or
lease of all or substantially all of the Assets of the Company; or
(iv) there shall be a voluntary dissolution, liquidation or
winding-up of the Company;
then, in any one or more of such cases, unless the matter is to be determined at
a general meeting of shareholders, the Company shall give written notice to the
holders of the Preferred Shares, not less than ten (10) days before any record
date or other date set for definitive action, of the date on which such action,
distribution, reorganization, reclassification, change, sale, transfer, lease,
consolidation, merger, amalgamation, dissolution, liquidation or winding-up
shall take place, as the case may be. Such notice shall also set forth such
facts as shall indicate the effect of any such action (to the extent such
effect may be known at the date of such notice) on the Current Conversion
Price and the kind and amount of the shares and other securities and property
deliverable upon conversion of the Preferred Shares. Such notice shall also
specify any date as of which the holders of the Common Shares of record shall
be entitled to exchange their Common Shares for securities or other property
deliverable upon any such reorganization,
27
reclassification, change, sale, transfer, lease, consolidation, merger,
amalgamation, dissolution, liquidation or winding-up, as the case may be.
8. Board of Directors. (a) Each of the Purchasers acknowledge that any
persons designated by the Purchasers to serve on the Board of Directors who are
not employees or officers of one of the Purchasers or of the general partner or
managing partner of such Purchaser or of an entity listed on Schedule B hereto,
or in the case of any Purchaser who is an individual, such individual, must be
reasonably acceptable to the Board of Directors of the Company.
(b) Until such time as the Purchasers (together with their Affiliates
and limited partners) no longer beneficially own in the aggregate at least 50%
of the Preferred Shares acquired by such Persons under the Purchase Agreement
(including for the purposes of such calculation, the Convertible Common Shares
held by such Persons), the Board of Directors shall consist of eleven directors.
(c) So long as Reservoir and Rainwater collectively (together with
respective Affiliates and their limited partners) beneficially owns 20% or more
of the Preferred Shares acquired by Reservoir and Rainwater under the Purchase
Agreement or the terms of this Description of Stock (including for purposes of
such calculation, all Class B Common Shares and Class C Common Shares then held
by such Persons), a Reservoir Director or Rainwater Director (at Reservoir's
election) shall serve on each of the committees of the Board of Directors;
provided that a Reservoir Director or Rainwater Director shall not serve on the
Audit Committee of the Board of Directors if such person does not meet the
requirements of the rules and regulations of the New York Stock Exchange (the
"NYSE Rules"), or on the Compensation Committee if as a result the Company could
not avail itself of the available exemptions of the Internal Revenue Code of
1986, as amended, or Section 16(b) of the Exchange Act, including Rule 16b-3
thereunder or any successor rule.
(d) So long as Capital Z (together with its Affiliates and their
limited partners) together beneficially owns 20% or more of the Preferred Shares
acquired by Capital Z under the Purchase Agreement or the terms of this
Description of Stock (including for purposes of such calculation, all Class A
Common Shares then held by such Persons), one of the Capital Z Directors shall
serve on each of the committees of the Board of Directors; provided a Capital Z
Director shall not serve on the Audit Committee of the Board of Directors if
such person does not meet the requirements of the rules and regulations of the
NYSE Rules or on the Compensation Committee if as a result the Company could not
avail itself of the available exemptions of the Internal Revenue Code of 1986,
as amended, or Section 16(b) of the Exchange Act, including Rule 16b-3
thereunder or any successor rule.
(e) Whether or not Capital Z, Reservoir or Rainwater designates any
member of the Board of Directors, each of Capital Z, Reservoir and Rainwater, so
long as either (together with its Affiliates and their limited partners)
continues to beneficially own 20% or more of the Preferred Shares acquired by
Capital Z, Reservoir or Rainwater, as the case may be, under the Purchase
Agreement or the terms of this Certificate of Designations (including for the
purposes of such calculation, the Convertible Common Shares held by such
Persons), may designate one individual (each, an "Observer") to attend all
meetings of the Board of Directors (and any committees thereof) in a non-voting
observer capacity. Each Observer shall be entitled to receive all notices,
reports, presentations and materials as if the Observer were a member of
28
the Board. Each Observer may be required to deliver a confidentiality agreement
reasonably required by the Company, and shall be subject to removal from any
meeting or barred from review of any information relating to (i) the Company's
relationship with the persons or series represented by such person at the
Board's option or (ii) if the Company reasonably believes upon the advice of
counsel that such exclusion is necessary to preserve the attorney-client
privilege. Such confidentiality agreement shall not limit the right of the such
Observer to share with Capital Z, Reservoir or Rainwater, as the case may be (or
any of its Affiliates, as the case may be) any confidential information relating
to the Company disclosed to such Observer provided that Capital Z, Reservoir or
Rainwater, as the case may be (or its Affiliates, as the case may be) maintains
confidential information confidential to the same extent as such Observer is
required under such confidentiality agreement.
9. Class A Common Shares, Class B Common Shares and Class C Common
Shares
(a) Designation and Number of Class A, Class B and Class C Common
Shares. The designation of Convertible Common Shares by this resolution shall
be:
(i) "Class A Common Shares, $1.00 par value," of the Company,
and the number of Class A Common Shares which the Company shall be
authorized to issue shall be 10,000,000 shares;
(ii) "Class B Common Shares, $1.00 par value," of the Company,
and the number of Class B Common Shares which the Company shall be
authorized to issue shall be 6,666,666 and 2/3 shares; and
(iii) "Class C Common Shares, $1.00 par value," of the
Company, and the number of Class C Common Shares which the Company
shall be authorized to issue shall be 3,333,333 and 1/3 shares;
(b) Priority. The Convertible Common Shares shall rank pari passu with
the Common Shares.
(c) Voting.
(i) Except as otherwise provided specifically herein and in
the Bye-Laws or required by Bermuda law, (A) each Convertible Common
Share shall have the right and power and be entitled to vote on any
question or matter upon which, or in any proceeding at which, the
holders of Common Shares of the Company are entitled to vote and to be
represented at and to receive notice of any meeting of shareholders
(except for election or removal of directors of the Company, as to
which the Convertible Common Shares shall only be able to vote for
election or removal of Class IV Directors as set forth in Section 3 of
this Description of Stock), (B) the holders of Preferred Shares,
Convertible Common Shares and Common Shares shall vote together as one
class and not as separate classes and (C) each holder of Convertible
Common Shares shall be entitled to that number of votes for each
Convertible Common Share held by such holder equal to the number of
Common Shares that would be received by such holder if such Preferred
Share were Fully Converted pursuant to Section 9(d) hereof.
29
(ii) Notwithstanding the foregoing, the Class A Common Shares,
the Class B Common Shares and the Class C Common Shares shall be
entitled to vote with the Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares in the election of the
Capital Z Directors, respectively, the Reservoir Director and the
Rainwater Director, respectively, in each case as set forth in Section
3 of this Description of Stock.
(d) Conversion. Convertible Common Shares shall automatically convert
into Common Shares on a one-for-one ratio upon a transfer of record ownership
thereof to any Person other than (i) Capital Z, Reservoir, Rainwater, or any of
their respective Affiliates or limited partners (including without limitation in
connection with a public offering of such shares) or (ii) a Person approved by
the Board in its sole discretion. Convertible Common Shares may be converted at
the option of the holder thereof into Common Shares on a one-for-one ratio at
any time that such holder would be entitled to vote Preferred Shares generally
in the election of directors in accordance with clause (b)(ii), (b)(iii) or
(b)(iv) of Section 3 of this Description of Stock.
(e) General. Except as provided for in this Section 9 or elsewhere in
this Description of Stock, the Convertible Common Shares shall have the same
rights, preferences and restrictions as the Common Shares.
30