Exhibit 10.1

EXECUTION VERSION

 

 

INVESTOR RIGHTS AGREEMENT

Dated as of December 31, 2016

 

 

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TABLE OF CONTENTS

 

         Page  

ARTICLE I REGISTRATION RIGHTS

     1  

1.1

  Shelf Registrations      1  

1.2

  Demand Registrations      3  

1.3

  Inclusion of Other Securities; Priority      4  

1.4

  Restrictions on Registration      4  

1.5

  Piggyback Registrations      5  

1.6

  Holdback Agreement      7  

1.7

  Registration Procedures      8  

1.8

  Registration Expenses      13  

1.9

  Indemnification      13  

1.10

  Participation in Underwritten Registrations      15  

1.11

  Rule 144 and 144A Reporting      16  

1.12

  Miscellaneous      16  

1.13

  Subject to Transfer Restrictions      17  

ARTICLE II COVENANTS

     17  

2.1

  Transfer Restrictions      17  

2.2

  Standstill      18  

2.3

  Redemptions and Accelerated Share Repurchases      20  

2.4

  Open-Market Repurchases      20  

2.5

  Ownership Threshold      22  

2.6

  Listing      23  

2.7

  Private Sale and Legends      23  

ARTICLE III TAX MATTERS

     23  

3.1

  Tax Return Information      23  

3.2

  PFIC and CFC Information      24  

3.3

  QEF Election      24  

3.4

  Retention of Tax Information      24  

ARTICLE IV MISCELLANEOUS

     24  

4.1

  Term      24  

4.2

  Notices      24  

4.3

  Investor Actions      25  

4.4

  No Partnership      25  

4.5

  Memorandum of Association      26  

4.6

  Amendments and Waivers      26  

4.7

  Assignment of Registration Rights      26  

4.8

  Assignment      26  

 

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4.9

  Severability      26  

4.10

  Counterparts      26  

4.11

  Entire Agreement      27  

4.12

  Governing Law; Arbitration; Waiver of Jury Trial      27  

4.13

  Agent for Service of Process      27  

4.14

  Specific Performance      27  

4.15

  No Third Party Beneficiaries      27  

4.16

  Defined Terms      27  

4.17

  Interpretation      35  

4.18

  Further Assurances      35  

 

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This INVESTOR RIGHTS AGREEMENT, dated as of December 31, 2016 (this
“Agreement”), is made between Arch Capital Group Ltd., an exempted company with
limited liability registered under the laws of Bermuda (together with its
successors and permitted assigns, the “Company”), and American International
Group, Inc., a Delaware corporation (the “Parent”).

A. On August 15, 2016 (the “Signing Date”), the Company and the Parent entered
into the Stock Purchase Agreement, dated as of the Signing Date (the “Stock
Purchase Agreement”), providing for, among other things, the issuance to the
Parent of certain securities of the Company.

B. On the date hereof, pursuant to the Stock Purchase Agreement, the Parent
acquired from the Company 1,276,282 Company Series D Preferred Shares
convertible into 12,762,820 Company Common Shares (such Company Series D
Preferred Shares, together with such Company Common Shares issuable by way of
conversion thereof, the “Convertible Preferred Shares”).

C. The Company and the Parent desire to establish in this Agreement certain
terms and conditions concerning the Parent’s and other Investors’ relationships
with and investments in the Company, including the registration rights for
Registrable Securities set forth in this Agreement.

D. Capitalized terms used in this Agreement are used as defined in Section 4.16.

Now, therefore, the parties hereto agree as follows:

ARTICLE I

REGISTRATION RIGHTS

1.1 Shelf Registrations.

(a) Shelf Registration. No later than the date that is ten (10) days, in the
case of a Shelf Registration Statement that is an Automatic Shelf Registration
Statement, or sixty (60) days, in the case of a Shelf Registration Statement
other than an Automatic Shelf Registration Statement, prior to the Six-Month
Restricted Date, the Company shall prepare and file with the SEC a Shelf
Registration Statement covering all Registrable Securities held by the Investors
pursuant to a Shelf Registration. If permitted under the Securities Act, such
Shelf Registration Statement shall be an “automatic shelf registration
statement” as defined in Rule 405 under the Securities Act. The Shelf
Registration shall provide for the resale of such Registrable Securities from
time to time by and pursuant to any method or combination of methods legally
available to the Investors (including, without limitation, an underwritten
offering, a direct sale to purchasers, a sale to or through brokers, dealers or
agents, a sale over the internet, block trades, derivative transactions with
third parties, sales in connection with short sales and other hedging
transactions). The Company shall comply with the applicable provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such Shelf Registration Statement in accordance with the intended
methods of disposition by the Parent and the other Investors thereof.

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(b) Effectiveness. The Company shall use its reasonable best efforts to
(i) cause the Shelf Registration Statement filed pursuant to Section 1.1(a) to
be declared effective by the SEC or otherwise become effective under the
Securities Act as promptly as practicable after the filing thereof and (ii) keep
such Shelf Registration Statement continuously effective and in compliance with
the Securities Act and useable for the resale of Registrable Securities covered
by such Shelf Registration Statement until such time as there are no Registrable
Securities remaining, including by filing successive replacement or renewal
Shelf Registration Statements upon the expiration of such Shelf Registration
Statement.

(c) Additional Selling Shareholders. At any time and from time to time when a
Shelf Registration Statement is effective, if the Parent or any other Investor
requests that the Parent or any other Investor be added as a selling shareholder
in such Shelf Registration Statement, the Company shall as promptly as
practicable amend or supplement the Shelf Registration Statement to cover such
additional Investor.

(d) Right to Effect Shelf Take-Down. The Parent and each other Investor shall be
entitled, at any time and from time to time when a Shelf Registration Statement
is effective, to sell any or all of the Registrable Securities covered by such
Shelf Registration Statement (a “Shelf Take-Down”).

(e) Underwritten Shelf Take-Downs. The Parent or any other Investor intending to
effect a Shelf Take-Down shall be entitled to request, by written notice to the
Company (an “Underwritten Shelf Take-Down Notice”), that the Shelf Take-Down be
an underwritten offering (an “Underwritten Shelf Take-Down”). The Underwritten
Shelf Take-Down Notice shall specify the number of Registrable Securities
intended to be offered and sold by the Parent and/or other Investor(s) pursuant
to the Underwritten Shelf Take-Down. The Company shall amend or supplement the
Shelf Registration as may be necessary in order to enable such Registrable
Securities to be distributed pursuant to the Underwritten Shelf Take-Down. The
Company will pay all Registration Expenses incurred in connection with any
registration or underwritten offering requested in accordance with this
Agreement. The Company shall not be required to facilitate an Underwritten Shelf
Take-Down unless the aggregate gross proceeds from such offering are reasonably
expected to be at least two-hundred million dollars ($200 million) and shall not
be required to effect more than two (2) Underwritten Shelf Take-Downs in any
twelve (12) month period.

(f) Selection of Underwriters. In connection with any such underwritten
offering, the Parent or any other Investor requesting such underwritten offering
shall have the right to select the investment banking firm(s) and manager(s) to
administer such underwritten offering as lead bookrunning managing
underwriter(s), subject to the approval of the Company (which approval shall not
be unreasonably withheld, conditioned or delayed). For such underwritten
offering, the Company will have the right to appoint one co-lead manager that
shall not serve in the capacity as a bookrunning underwriter.

(g) Non-Underwritten Shelf Take-Down. If the Parent or any other Investor
desires to initiate an offering or sale of all or part of the Parent’s or any
other Investor’s

 

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Registrable Securities that does not constitute an Underwritten Shelf Take-Down
(a “Non-Underwritten Shelf Take-Down”), the Parent or such other Investor shall
so indicate in a written notice (a “Non-Underwritten Shelf Take-Down Notice”)
delivered to the Company no later than three (3) Business Days (or in the event
any amendment or supplement to a Shelf Registration Statement is necessary, no
later than ten (10) Business Days) prior to the expected date of such
Non-Underwritten Shelf Take-Down, which request shall include (i) the total
number of Registrable Securities expected to be offered and sold in such
Non-Underwritten Shelf Take-Down, (ii) the expected plan of distribution of such
Non-Underwritten Shelf Take-Down and (iii) the action or actions required
(including the timing thereof) in connection with such Non-Underwritten Shelf
Take-Down (including the delivery of one or more share certificates representing
Registrable Securities to be sold in such Non-Underwritten Shelf Take-Down),
and, to the extent necessary, the Company shall file and effect an amendment or
supplement to its applicable Shelf Registration Statement for such purpose as
soon as practicable after receipt of such Non-Underwritten Shelf Take-Down
Notice.

1.2 Demand Registrations.

(a) Right to Demand Registrations. If the Company has not made available a Shelf
Registration, on or after the date that is sixty (60) days prior to the
Six-Month Restricted Date, the Parent or any other Investor may, by providing
written notice to the Company, request to sell all or a portion of the
Registrable Securities pursuant to a Registration Statement separate from a
Shelf Registration Statement (a “Demand Registration”). Each request for a
Demand Registration (a “Demand Registration Request”) shall specify the number
of Registrable Securities intended to be offered and sold by the Parent and any
other Investors pursuant to the Demand Registration and the intended method of
distribution thereof, including whether it is intended to be an underwritten
offering. As promptly as practicable and no later than ten (10) Business Days
after receipt of a Demand Registration Request, the Company shall register all
Registrable Securities that have been requested to be registered in the Demand
Registration Request. The Company shall use its reasonable best efforts to cause
the Registration Statement filed pursuant to this Section 1.2(a) to be declared
effective by the SEC or otherwise become effective under the Securities Act as
promptly as reasonably practicable after the filing thereof; provided, however,
that the Registration Statement filed pursuant to this Section 1.2(a) need not
be declared effective prior to the Six-Month Restricted Date. A Demand
Registration shall be effected by way of a Registration Statement on Form S-3 or
any similar short-form registration statement to the extent the Company is
permitted to use such form at such time, and may be effected through an existing
registration statement that is already effective under the Securities Act, or
through a post-effective amendment or supplement to any such Registration
Statement or other registration statement.

(b) Number of Demand Registrations. The Parent and the other Investors shall be
collectively entitled to request up to a total of three (3) Demand Registrations
(which, for the avoidance of doubt, shall be in addition to any Shelf
Registration pursuant to Section 1.1); provided, however, that a registration
shall not count as a Demand Registration for this purpose unless and until the
Parent and the other Investors are able to register and sell at least 75% of the
Registrable Securities requested to be included in such registration; provided,
that the Company shall not be required to comply with a Demand Registration
unless the aggregate gross proceeds from such offering are reasonably expected
to be at least two-hundred million dollars ($200 million).

 

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(c) Withdrawal. An Investor may, by written notice to the Company, withdraw its
Registrable Securities from a Demand Registration at any time prior to the
effectiveness of the applicable Registration Statement. Upon receipt of notices
from all applicable Investors to such effect, the Company shall cease all
efforts to seek effectiveness of the applicable Registration Statement, unless
the Company intends to effect a primary offering of securities pursuant to such
Registration Statement.

(d) Selection of Underwriters. If a Demand Registration is an underwritten
offering, the Parent or any other Investor requesting such underwritten offering
shall have the right to select the investment banking firm(s) and manager(s) to
administer such underwritten offering as lead bookrunning managing
underwriter(s), subject to the approval of the Company (which approval shall not
be unreasonably withheld, conditioned or delayed). For such underwritten
offering, the Company will have the right to appoint one co-lead manager that
shall not serve in the capacity as a bookrunning underwriter.

1.3 Inclusion of Other Securities; Priority. The Company shall not include in
any Demand Registration or Shelf Take-Down any securities that are not
Registrable Securities without the prior written consent of the Investors
participating in such Demand Registration or Shelf Take-Down (such consent not
to be unreasonably withheld, conditioned or delayed). If a Demand Registration
or Shelf Take-Down involves an underwritten offering and the managing
underwriters of such offering advise the Company and the Investors in writing
that, in their opinion, the number of Equity Securities proposed to be included
in such Demand Registration or Underwritten Shelf Take-Down, including all
Registrable Securities and all other Equity Securities proposed to be included
in such offering, exceeds the number of Equity Securities that can reasonably be
expected to be sold in such offering without adversely affecting the success of
the offering (including the price, timing or distribution of the securities to
be sold in such offering), the Company shall include in such Demand Registration
or Underwritten Shelf Take-Down: (i) first, the Registrable Securities proposed
to be sold by Investors in such offering; and (ii) second, any Equity Securities
proposed to be included therein by any other Persons (including Equity
Securities to be sold for the account of the Company and/or any other holders of
Equity Securities), allocated, in the case of this clause (ii), among such
Persons in such manner as the Company may determine. If more than one Investor
is participating in such Demand Registration or Underwritten Shelf Take-Down and
the managing underwriters of such offering determine that a limited number of
Registrable Securities may be included in such offering without reasonably being
expected to adversely affect the success of the offering (including the price,
timing or distribution of the securities to be sold in such offering), then the
Registrable Securities that are included in such offering shall be allocated pro
rata among the participating Investors on the basis of the number of Registrable
Securities initially requested to be sold by each such Investor in such
offering.

1.4 Restrictions on Registration.

(a) Right to Defer or Suspend Registration. In the event that the Company
determines in good faith that any one or more of the following circumstances
exist, the Company may, at its option, (x) defer, suspend or delay any Demand
Registration or (y) require the Parent and the other Investors to suspend any
offerings of Registrable Securities pursuant to a Registration Statement for the
periods specified:

 

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(i) if the Company is subject to any of its customary suspension or blackout
periods, for all or part of such period;

(ii) if the Company believes after consultation with counsel that an offering
would require the Company, under applicable securities laws and other laws, to
make disclosures of material non-public information that would not otherwise be
required to be disclosed at that time and the Company believes in good faith
that such disclosures at that time would have a material and adverse effect on
the Company; provided, that this exception shall continue to apply only during
the time that such material non-public information has not been disclosed and
remains material; provided, further, that upon disclosure of such material
non-public information, the Company shall (x) notify the Parent and the other
Investors whose Registrable Securities are included in the Registration
Statement; (y) terminate any deferment or suspension it has put into effect; and
(z) take such actions necessary to permit registered sales of Registrable
Securities as required or contemplated by this Agreement, including, if
necessary, preparation and filing of a post-effective amendment or prospectus
supplement so that the Registration Statement and any prospectus forming a part
thereof will not include an untrue statement of material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and

(iii) if any such offering would violate applicable Law.

(b) Limitation on Deferrals and Suspensions. The Company shall not be permitted
to defer registration or require the Parent and the other Investors to suspend
an offering pursuant to Section 1.4(a)(ii) if the duration of all such deferrals
or suspensions would for any individual reason exceed sixty (60) consecutive
days or if the duration of all such deferrals or suspensions would in the
aggregate exceed one hundred twenty (120) days in any twelve (12) month period.

(c) Withdrawal. If the Company delays or suspends a Demand Registration, the
Investor that initiated such Demand Registration shall be entitled to withdraw
its Demand Registration Request and, if it does so, such Demand Registration
Request shall not count against the limitation on the number of such Holder’s
Demand Registrations set forth in Section 1.2(b).

1.5 Piggyback Registrations.

(a) Right to Piggyback. Whenever the Company proposes to register any Equity
Securities under the Securities Act (other than a registration (i) pursuant to a
Registration Statement on Form S-8 (or other registration solely relating to an
offering or sale to employees or directors of the Company pursuant to any
employee share plan or other employee benefit arrangement), (ii) pursuant to a
Registration Statement on Form S-4 (or similar form that relates to a
transaction subject to Rule 145 under the Securities Act or any successor rule
thereto), (iii) in connection with any dividend or distribution reinvestment or
similar plan or (iv) pursuant to a registration in which the Company is offering
to exchange its own securities for other securities), whether for its own
account or for the account of one or more shareholders of the Company (other
than the Investors) (a “Piggyback Registration”), the Company shall give

 

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prompt written notice to each Investor of its intention to effect such a
registration (but in no event less than ten (10) days prior to the proposed date
of filing of the applicable Registration Statement) and, subject to Sections
1.5(b), 1.5(c) and 2.1, shall include in such Registration Statement and in any
offering of Equity Securities to be made pursuant to such Registration Statement
that number of Registrable Securities requested to be sold in such offering by
such Investor for the account of such Investor, provided that the Company has
received a written request for inclusion therein from such Investor no later
than five (5) business days after the date on which the Company has given notice
of the Piggyback Registration to Investors. The Company may terminate, delay or
withdraw a Piggyback Registration prior to the effectiveness of such
registration at any time in its sole discretion and, thereupon, (x) in the case
of a determination to terminate or withdraw any registration, the Company shall
be relieved of its obligation to register any Registrable Securities under this
Section 1.5 in connection with such registration and (y) in the case of a
determination to delay registration, the Company shall be permitted to delay
registering any Registrable Securities under this Section 1.5 for the same
period as the delay in registering the other equity securities covered by such
registration. If a Piggyback Registration is effected pursuant to a Registration
Statement on Form S-3 or the then-appropriate form for an offering to be made on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act or
any successor rule thereto (a “Piggyback Shelf Registration Statement”), the
Investors shall be notified by the Company of and shall have the right, but not
the obligation, to participate in any offering pursuant to such Piggyback Shelf
Registration Statement (a “Piggyback Shelf Take-Down”), subject to the same
limitations that are applicable to any other Piggyback Registration as set forth
above.

(b) Priority on Primary Registrations. If a Piggyback Registration or Piggyback
Shelf Take-Down is initiated as a primary underwritten offering on behalf of the
Company and the managing underwriters of the offering advise the Company in
writing that, in their opinion, the number of Equity Securities proposed to be
included in such offering, including all Registrable Securities and all other
Equity Securities proposed to be included in such offering, exceeds the number
of Equity Securities that can reasonably be expected to be sold in such offering
without adversely affecting the success of the offering (including the price,
timing or distribution of the securities to be sold in such offering), the
Company shall include in such Piggyback Registration or Piggyback Shelf
Take-Down: (i) first, the Equity Securities that the Company proposes to sell in
such offering; (ii) second, the Registrable Securities requested to be included
in such registration by the Parent or any other Investor, allocated, in the case
of this clause (ii), pro rata among such Investors on the basis of the number of
Registrable Securities initially proposed to be included by each such Investor
in such offering; and (iii) third, any Equity Securities proposed to be included
in such offering by any other Person to whom the Company has a contractual
obligation to facilitate such offering (subject to Section 1.12(a)), allocated,
in the case of this clause (iii), among such Persons in such manner as the
Company may determine, up to the number of Equity Securities, if any, that the
managing underwriters determine can be included in the offering without
reasonably being expected to adversely affect the success of the offering
(including the price, timing or distribution of the securities to be offered in
such offering).

(c) Priority on Secondary Registrations. If a Piggyback Registration or a
Piggyback Shelf Take-Down is initiated as an underwritten offering other than on
behalf of the Company, and the managing underwriters of the offering advise the
Company in writing that, in

 

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their opinion, the number of Equity Securities proposed to be included in such
offering, including all Registrable Securities and all other Equity Securities
requested to be included in such offering, exceeds the number of Equity
Securities which can reasonably be expected to be sold in such offering without
adversely affecting the success of the offering (including the price, timing or
distribution of the securities to be sold in such offering), the Company shall
include in such Piggyback Registration or Piggyback Shelf Take-Down: (i) first,
the Registrable Securities requested to be included in such registration by the
Parent or any other Investor, allocated, in the case of this clause (i), pro
rata among such Investors on the basis of the number of Registrable Securities
initially proposed to be included by each such Investor in such offering; and
(ii) second, any Equity Securities proposed to be included in such offering by
any other Person to whom the Company has a contractual obligation to facilitate
such offering (subject to Section 1.12(a)) and any Equity Securities that the
Company proposes to sell in such offering, allocated, in the case of this
clause (ii), among such Persons in such manner as the Company may determine, up
to the number of Equity Securities, if any, that the managing underwriters
determine can be included in the offering without reasonably being expected to
adversely affect the success of the offering (including the price, timing or
distribution of the securities to be offered in such offering).

(d) Selection of Underwriters. In any Piggyback Registration or Piggyback Shelf
Take-Down, including if initiated as a primary underwritten offering on behalf
of the Company or another securityholder, the Company shall have the right to
select the investment banking firm(s) to act as the underwriters (including
managing underwriter(s)) in connection with such offering.

1.6 Holdback Agreement.

(a) For so long as Parent and any other Investor, individually or together,
holds or Beneficially Owns at least five percent (5%) of the issued and
outstanding Company Common Shares on an as-converted basis, each Investor agrees
that in connection with any registered underwritten offering of Company Common
Shares, and upon request from the managing underwriter(s) for such offering,
such Investor shall not, without the prior written consent of such managing
underwriter(s), during such period as is reasonably requested by the managing
underwriter(s) (which period shall in no event be longer than three (3) days
prior to and ninety (90) days after the launch of such offering), Transfer any
Registrable Securities. The foregoing provisions of this Section 1.6(a) shall
not apply to offers or sales of Registrable Securities that are included in an
offering pursuant to Section 1.1, 1.2 or 1.5 of this Agreement and shall be
applicable to the Investors only if, for so long as and to the extent that the
Company, the directors and executive officers of the Company and each selling
shareholder included in such offering are subject to the same restrictions. Each
Investor agrees to execute and deliver such customary agreements as may be
reasonably requested by the managing underwriter(s) that are consistent with the
foregoing provisions of this Section 1.6(a) and are necessary to give further
effect thereto; provided, that the terms of such agreements shall not be more
restrictive than the restrictions to which the directors and executive officers
of the Company are subject.

(b) To the extent requested by the managing underwriter(s) for the applicable
offering, the Company and its directors and executive officers shall not effect
any sale registered under the Securities Act or other public distribution of
Equity Securities during the period commencing three (3) days prior to and
ending ninety (90) days after the launch of an

 

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underwritten offering pursuant to Section 1.1, 1.2 or 1.5 of this Agreement,
other than a registration (i) pursuant to a Registration Statement on Form S-8
(or other registration solely relating to an offering or sale to employees or
directors of the Company pursuant to any employee share plan or other employee
benefit arrangement), (ii) pursuant to a Registration Statement on Form S-4 (or
similar form that relates to a transaction subject to Rule 145 under the
Securities Act or any successor rule thereto), (iii) pursuant to a registration
in which the Company is offering to exchange its own securities for other
securities or (iv) in connection with any dividend or distribution reinvestment
or similar plan.

1.7 Registration Procedures.

(a) In connection with the registration obligations of the Company pursuant to
and in accordance with this Agreement, the Company will use its reasonable best
efforts to effect the registration and sale of such Registrable Securities in
accordance with the intended method of disposition thereof as promptly as
reasonably practicable, the Company shall:

(i) prepare and file with the SEC a Registration Statement with respect to such
Registrable Securities, cooperate with underwriters’ counsel in an underwritten
offering in connection with all required filings with FINRA and thereafter use
its reasonable best efforts to cause such Registration Statement to become
effective upon filing but in any event as soon as reasonably practicable after
the filing of such Registration Statement (provided, however, that a
Registration Statement filed pursuant to Section 1.2(a) need not be declared
effective prior to the Six-Month Restricted Date); provided, that before filing
a Registration Statement or any amendments or supplements thereto (other than
reports required to be filed by it under the Exchange Act that are incorporated
or deemed to be incorporated by reference into the Registration Statement), the
Company will furnish to the Parent and the other Investors copies of all
documents proposed to be filed. In the case of a Registration Statement pursuant
to Section 1.1 or 1.2, if the Parent informs the Company that it has any
objections to the filing of such Registration Statement, amendment or
supplement, the Company will not file such Registration Statement, amendment or
supplement. In the case of a Registration Statement pursuant to Section 1.5, the
Company will not file any Registration Statement or amendment or supplement to
such Registration Statement to which the Parent will have reasonably objected on
the grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or of the rules or
regulations thereunder;

(ii) use reasonable best efforts to prepare and file with the SEC such
amendments and supplements to any Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep such Registration Statement
effective until all of the Registrable Securities covered by such Registration
Statement have been disposed of and comply with the applicable requirements of
the Securities Act with respect to the disposition of the Registrable Securities
covered by such Registration Statement;

 

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(iii) furnish to the Parent and the other Investors, without charge, such number
of conformed copies of such Registration Statement and of each post-effective
amendment thereto, and deliver, without charge, such number of copies of each
preliminary prospectus, final prospectus, all exhibits and other documents filed
therewith and such other documents as the Parent and the other Investors may
reasonably request including in order to facilitate the disposition of the
Registrable Securities owned by it or any Investor;

(iv) use its reasonable best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
the Parent and the other Investors reasonably request in writing; provided that
the Company shall not be required to qualify generally to do business, subject
itself to taxation or consent to general service of process in any jurisdiction
where it would not otherwise be required to do so but for its obligations
pursuant to this Section 1.7(a)(iv);

(v) promptly as reasonably practicable notify the Parent and the other
Investors, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, upon discovery that, or upon the discovery
of the happening of any event as a result of which, the prospectus contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, and, as promptly as practicable, prepare and furnish to the
Parent and the other Investors a reasonable number of copies of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; provided, that any Investor receiving information pursuant to
this Section 1.7(a)(v) shall protect the confidentiality of, and not disclose,
any information regarding the Company which the Company determines in good faith
to be confidential and of which determination such Person is notified, unless
such information (A) is or becomes known to the public without a breach of this
Agreement or any other agreement to which such Person is a party, (B) is or
becomes available to such Person on a non-confidential basis from a source other
than the Company, (C) is independently developed by such Person, (D) is
requested or required by a deposition, interrogatory, request for information or
documents by a Governmental Authority, subpoena or similar process, or (E) is
otherwise required to be disclosed by applicable Law (other than securities
Laws);

(vi) promptly notify the Parent and the other Investors (A) when the prospectus
or any prospectus supplement or post-effective amendment has been filed and,
with respect to such Registration Statement or any post-effective amendment,
when the same has become effective, (B) of any request by the SEC for amendments
or supplements to such Registration Statement or to amend or to supplement such
prospectus or for additional information, (C) of the issuance by the SEC of any
stop order suspending the effectiveness of such Registration Statement or the
initiation of any proceedings for such purpose and (D) of the

 

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receipt by the Company or its legal counsel of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose;

(vii) use reasonable best efforts to cause all such Registrable Securities to be
listed on each securities exchange, if any, on which similar securities issued
by the Company are then listed;

(viii) enter into such customary agreements (including underwriting agreements
in form, scope and substance as is customary in underwritten offerings) and take
all such appropriate and reasonable other actions as the Parent, the Investors
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;

(ix) if such offering is an underwritten offering, make available upon
reasonable notice at reasonable times and for reasonable periods for inspection
by the Parent, the other Investors, any underwriter participating in any
disposition pursuant to such Registration Statement and any counsel, accountant
or other agent retained by the Parent and the other Investors or any such
underwriter, all financial and other records, pertinent corporate documents of
the Company related to the Company and its business as will be reasonably
necessary and requested by such Investor(s) or underwriters to enable them to
reasonably exercise their due diligence responsibilities, provided that any
Person receiving access to information or personnel pursuant to this
Section 1.7(a)(ix) shall (i) reasonably cooperate with the Company to limit any
resulting disruption to the Company’s business and (ii) protect the
confidentiality of, and not disclose, any information regarding the Company
which the Company determines in good faith to be confidential and of which
determination such Person is notified, unless such information (A) is or becomes
known to the public without a breach of this Agreement or any other to which
such Person is a party, (B) is or becomes available to such Person on a
non-confidential basis from a source other than the Company, (C) is
independently developed by such Person, (D) is requested or required by a
deposition, interrogatory, request for information or documents by a
Governmental Authority, subpoena or similar process, or (E) is otherwise
required to be disclosed by applicable law (other than securities laws);

(x) otherwise use its reasonable best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement in a form that satisfies
the provisions of Section 11(a) of the U.S. Securities Act and Rule 158
thereunder, which requirement shall be deemed satisfied if the Company timely
files complete and accurate information on Forms 10-K, 10-Q and 8-K under the
Exchange Act and otherwise complies with Rule 158 under the Securities Act or
any successor rule thereto;

(xi) in the event of the issuance of any stop order suspending the effectiveness
of a Registration Statement, or of any order suspending or preventing the use of
any related prospectus or ceasing trading of any securities

 

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included in such Registration Statement for sale in any jurisdiction, use
reasonable best efforts promptly to obtain the withdrawal of such order at the
earliest practicable time;

(xii) enter into such agreements and take such other actions as the Parent, the
Investors or the underwriters reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities, including, without
limitation, entering into a customary underwriting agreement and preparing for
and participating in such customary selling efforts as the underwriters
reasonably request in order to expedite or facilitate such disposition,
including, as the underwriters reasonably request, making members of senior
management of the Company, as would customarily participate in “road show” and
other customary marketing activities for an offering by the Company comparable
to such offering in size and type of securities offered, cooperate with the
managing underwriters or underwriter and make themselves available to
participate on a reasonable basis in “road show” and other customary marketing
activities reasonably requested by the managing underwriter(s);

(xiii) if such offering is an underwritten offering, use reasonable best efforts
to furnish to the Parent, each underwriter and the other Investors one or more
comfort letters, addressed to the underwriters, the Parent and the Investors,
dated the effective date of, or the date of the final receipt issued for, such
Registration Statement (the date of the closing under the underwriting agreement
for such offering), signed by the Company’s independent public accountants in
customary form and covering such matters of the type customarily covered by
comfort letters in similar underwritten offerings;

(xiv) if such offering is an underwritten offering, use its reasonable best
efforts to provide legal opinions of the Company’s outside counsel, addressed to
the underwriters, dated the effective date of, or the date of the final receipt
issued for, such Registration Statement (the date of the closing under the
underwriting agreement for such offering), each amendment and supplement
thereto, with respect to the Registration Statement, each amendment and
supplement thereto (including the preliminary prospectus) and such other
documents relating thereto in customary form and covering such matters of the
type customarily covered by legal opinions of such nature;

(xv) make available to the Parent and the other Investors each item of
correspondence from the SEC or the staff of the SEC and each item of
correspondence written by or on behalf of the Company to the SEC or the staff of
the SEC, in each case solely relating to such Registration Statement; and

(xvi) use commercially reasonable efforts to procure the cooperation of the
Company’s transfer agent in settling any Transfer of Registrable Securities,
including (A) with respect to the transfer of any physical share certificates
representing common shares into book-entry form in accordance with any
procedures reasonably requested by the Parent or the Investors or the
underwriters, and (B) to the extent such Registrable Securities are subject to a

 

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restrictive legend, by removing such legend (or eliminating or terminating such
comparable notations or arrangements on securities held in book-entry form) and,
if required by the Company’s transfer agent, delivering an opinion of the
Company’s counsel that the restriction referenced in such legend (or such
notations or arrangements) is no longer required in order to ensure compliance
with the Securities Act.

(b) The Company agrees not to file or make any amendment to any Registration
Statement with respect to any Registrable Securities, or any amendment of or
supplement to the prospectus used in connection therewith, that refers to the
Parent or any other Investor by name, or otherwise identifies the Parent or any
other Investor as the holder of any securities of the Company, without the
consent of the Parent (any such consent to be binding on each other Investor),
such consent not to be unreasonably withheld or delayed, unless and to the
extent such disclosure is required by applicable Law.

(c) The Company may require the Parent and any other Investor to furnish the
Company with such information regarding the Parent and such other Investor and
pertinent to the disclosure requirements relating to the registration and the
distribution of such securities as the Company may from time to time reasonably
request in writing. If within twenty (20) Business Days of the receipt of such a
written request from the Company, the Parent or any other Investor fails to
provide to the Company any information relating to the Parent or such Investor,
as applicable, that is required by applicable law to be disclosed in the
Registration Statement, the Company may exclude the Parent’s and such
Investor’s, as applicable, Registrable Securities from such Registration
Statement.

(d) The Parent agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 1.7(a)(v),
1.7(a)(vi)(B), 1.7(a)(vi)(C) or 1.7(a)(vi)(D) hereof, to the extent that such
event requires the discontinuance of the disposition of Registrable Securities
covered by a Registration Statement or the related prospectus and such notice
reasonably requests such discontinuance, that the Parent shall discontinue, and
shall cause each Investor to discontinue, disposition of any Registrable
Securities covered by such Registration Statement or the related prospectus
until receipt of the copies of the supplemented or amended prospectus
contemplated by Section 1.7(a)(iii) hereof, which supplement or amendment shall
be prepared and furnished as soon as practicable, or until the Parent and the
other Investors are advised in writing by the Company that the use of the
applicable prospectus may be resumed, and has received copies of any amended or
supplemented prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such prospectus
(such period during which disposition is discontinued being an “Interruption
Period”) and, if requested by the Company, the Parent shall use its commercially
reasonable efforts to return to the Company all copies then in its possession or
in the possession of any Investor, other than permanent file copies then in such
holder’s possession, of the prospectus covering such Registrable Securities at
the time of receipt of such request. As soon as practicable (and in any event no
later than two (2) Business Days) after the Company has determined that the use
of the applicable prospectus may be resumed, the Company shall provide written
notice to the Parent and the other Investors. In the event the Company invokes
an Interruption Period hereunder, as soon as practicable (and in any event no
later than two (2) Business Days) after the need for the Company to continue the
Interruption Period ceases for any reason, the Company shall provide written
notice to the Parent and the

 

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other Investors that such Interruption Period is no longer applicable.
Notwithstanding anything in this paragraph to the contrary, no Interruption
Period shall exceed sixty (60) days and, in any calendar year, no more than one
hundred twenty (120) days in the aggregate may be part of an Interruption
Period.

1.8 Registration Expenses.

(a) The Company shall pay directly or promptly reimburse all costs, fees and
expenses (other than Selling Expenses) incident to the Company’s performance of
or compliance with this Agreement, including, without limitation, (i) all SEC,
FINRA and other registration and filing fees; (ii) all fees and expenses
associated with filings to be made with, or the listing of any Registrable
Securities on, any securities exchange or over-the-counter trading market on
which the Registrable Securities are to be listed or quoted; (iii) all fees and
expenses of complying with securities and blue sky laws (including fees and
disbursements of counsel in connection therewith); (iv) all printing, messenger,
telephone and delivery expenses (including the cost of distributing prospectuses
in preliminary and final form as well as any supplements thereto); (v) all fees
and expenses incurred in connection with any “road show” for underwritten
offerings, including all costs of travel, lodging and meals; (vi) all transfer
agent’s and registrar’s fees; (vii) all fees and expenses of counsel to the
Company; (viii) all fees and expenses of the Company’s independent public
accountants (including any fees and expenses arising from any special audits or
“comfort letters”) and any other Persons retained by the Company in connection
with or incident to any registration of Registrable Securities pursuant to this
Agreement; and (ix) all fees and expenses of underwriters (other than Selling
Expenses) customarily paid by the issuers or sellers of securities (all such
costs, fees and expenses, “Registration Expenses”). Each Investor shall pay the
fees and expenses of any counsel engaged by such Investor and shall bear its
respective Selling Expenses associated with a registered sale of its Registrable
Securities pursuant to this Agreement.

(b) The obligation of the Company to bear and pay the Registration Expenses
shall apply irrespective of whether a registration, once properly demanded or
requested, becomes effective or is withdrawn or suspended; provided, that the
Registration Expenses for any Registration Statement withdrawn solely at the
request of one or more Investor(s) (unless withdrawn following commencement of a
suspension pursuant to Section 1.4(c)) shall be borne by such Investor(s).

1.9 Indemnification.

(a) In connection with the registration of Registrable Securities pursuant to
this Agreement, the Company agrees to indemnify and hold harmless, and hereby
does indemnify and hold harmless, the Parent and the other Investors, their
affiliates and their respective directors, officers, employees and partners and
each Person who is a “controlling person” of the Parent or the other Investors
(within the meaning of the Securities Act or the Exchange Act) against, and pay
and reimburse the Parent and the other Investors, affiliate, director, officer,
employee or partner or controlling person for any losses, claims, damages,
liabilities, (collectively, “Losses”) joint or several, to which the Parent and
the other Investors or any such affiliate, director, officer, employee or
partner or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise

 

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out of or are based upon (i) any untrue or alleged untrue statement of material
fact contained in any Registration Statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto, or any “issuer free
writing prospectus” as such term is defined under Rule 433 under the Securities
Act or (ii) any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will pay and reimburse the Parent and the other Investors and each
such affiliate, director, officer, employee, partner and controlling person for
any legal or any other expenses actually and reasonably incurred by them in
connection with investigating, defending or settling any such loss, claim,
liability, action or proceeding; provided that the Company will not be liable in
any such case to the extent that any such Losses arise out of or are based upon
an untrue statement or alleged untrue statement, or omission or alleged
omission, made in such Registration Statement, any such prospectus or
preliminary prospectus or any amendment or supplement thereto, or any “issuer
free writing prospectus” as such term is defined under Rule 433 under the
Securities Act, or in any application, in reliance upon, and in conformity with,
written information prepared and furnished to the Company by the Parent or any
other Investor expressly for use therein and provided, further, that the Company
shall not be liable to the extent that any Losses arise out of or are based upon
the use of any prospectus after such time as the Company has advised Parent or
any other Investor in writing that a post-effective amendment or supplement
thereto is required.

(b) In connection with any Registration Statement in which the Parent or any
other Investor is participating, the Parent and each other Investor will furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such Registration Statement
or prospectus and will indemnify and hold harmless the Company, its directors
and officers, each underwriter and each other Person who is a “controlling
person” of the Parent or the other Investors (within the meaning of the
Securities Act or the Exchange Act) and each such underwriter against any
losses, claims, damages, liabilities, joint or several, to which the Company or
any such director or officer, any such underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue or
alleged untrue statement of material fact contained in the Registration
Statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or in any application, (ii) any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) the failure of such Investor to
deliver a prospectus in accordance with the requirements of the Securities Act,
but, with respect to clauses (i) and (ii), only to the extent that such untrue
statement or omission is made in such Registration Statement, any such
prospectus or preliminary prospectus or any amendment or supplement thereto, or
in any application, in each case in reliance upon, and in conformity with,
written information prepared and furnished to the Company by the Parent or any
other Investor expressly for use therein, and the Parent and any such other
Investor will reimburse the Company and each such director, officer, underwriter
and controlling Person for any legal or any other expenses actually and
reasonably incurred by them in connection with investigating, defending or
settling any such loss, claim, liability, action or proceeding; provided that
the obligation to indemnify and hold harmless will be limited to the net amount
of proceeds received by the Parent and each other Investor (in the
aggregate) from the sale of Registrable Securities pursuant to such Registration
Statement.

 

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(c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party’s reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party (such consent not to be unreasonably withheld). If such
defense is assumed, the indemnifying party will not be subject to any liability
for any settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, provided that
the indemnifying party will be liable for one additional counsel if in the
reasonable judgment of counsel for any indemnified party a conflict of interest
may exist between such indemnified party and any other of such indemnified
parties with respect to such claim.

(d) The indemnification provided for under this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the registration and sale of any securities
by any Person entitled to any indemnification hereunder and the expiration or
termination of this Agreement.

(e) If the indemnification provided for in this Section 1.9 is legally
unavailable to an indemnified party with respect to any loss, liability, claim,
damage or expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, will contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other hand in connection with the statements or omissions which
resulted in such loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and the indemnified party will be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding the foregoing, the amount the Parent and
any other Investor will be obligated to contribute pursuant to this
Section 1.9(e) will be limited to an amount equal to the proceeds received by
the Parent and each other Investor (in the aggregate) in respect of the
Registrable Securities sold pursuant to the Registration Statement which gives
rise to such obligation to contribute (less the aggregate amount of any damages
which the Parent and each other Investor has otherwise been required to pay in
respect of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the sale of such
Registrable Securities).

1.10 Participation in Underwritten Registrations. No Person may participate in
any underwritten offering pursuant to this Agreement unless such Person
(i) agrees to sell such Person’s securities on the basis provided in any
underwriting arrangements in customary form approved by the Persons entitled
under this Agreement to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting

 

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arrangements; provided, that no Investor included in any underwritten offering
shall be required to make any representations or warranties to the Company or
the underwriters (other than representations and warranties regarding (A) such
Investor’s ownership of its Registrable Securities to be sold in such offering,
(B) such Investor’s power and authority to effect such Transfer and (C) such
matters pertaining to such Investor’s compliance with securities laws as may be
reasonably requested by the managing underwriter(s)) or to undertake any
indemnification obligations to the Company or the underwriters with respect
thereto, except to the extent otherwise provided in Section 1.9 hereof.

1.11 Rule 144 and 144A Reporting.

(a) With a view to making available the benefits of certain rules and
regulations of the SEC which may permit the sale of the Registrable Securities
to the public without registration, the Company agrees to use its reasonable
best efforts to file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
and keep public information available at any time when the Company is subject to
such reporting requirements.

Upon request of the Parent or the other Investors, the Company will deliver to
the Parent and the other Investors a written statement as to whether it has
complied with such informational and reporting requirements and will, within the
limitations of the exemptions provided by Rule 144 (as such rule may be amended
from time to time) or any similar rule enacted by the SEC, instruct the transfer
agent to remove the restrictive legend affixed to any Subject Securities to
enable such shares to be sold in compliance with Rule 144 (as such rule may be
amended from time to time) or any similar rule enacted by the SEC.

(b) For purposes of facilitating sales pursuant to Rule 144A, so long as the
Company is not subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Parent, each Investor and any prospective purchaser of the
Parent’s or any Investor’s securities will have the right to obtain from the
Company, upon written request of the Parent prior to the time of sale, a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents that the Company would have been required to file if the
Company were subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act as the Parent, the Investors or prospective purchaser may
reasonably request in writing in availing itself of any rule or regulation of
the SEC allowing the Parent or any other Investor, as applicable, to sell any
such securities without registration.

1.12 Miscellaneous.

(a) No Inconsistent Agreements. The Company represents and warrants that it has
not entered into, and agrees that it will not enter into, any agreement with
respect to its securities that violates or subordinates or is otherwise
inconsistent with the rights granted to the Holders of Registrable Securities
under this Agreement. For the term of this Agreement, the Company shall not
grant to any Person the right to require the Company to register any Equity
Securities of the Company, or any securities convertible or exchangeable into or
exercisable for such securities, without written consent of the Parent, unless
such rights are explicitly made subordinate to all rights granted hereunder.

 

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(b) Adjustments Affecting Registrable Securities. The Company will not on its
own initiative, except to the extent required by applicable law or an
enforceable court order, propose any of the following actions to be taken by the
general meeting of shareholders after the date of this Agreement with respect to
Subject Securities if such actions would materially and adversely affect the
ability of the Parent or the other Investors to include the Registrable
Securities in a registration undertaken pursuant to this Agreement:
(i) implementing Transfer restrictions on Subject Securities, (ii) implementing
limits on dispositions of Subject Securities, (iii) adopting restrictions on the
nature of Transferees of Subject Securities or (iv) implementing or adopting any
similar restrictions or limitations with respect to the Transfer of Subject
Securities in violation of the terms of this Agreement. For the avoidance of
doubt, any actions which occur by operation of Law, pursuant to an enforceable
court order or are taken by the general meeting of shareholders shall not be
deemed to be a violation of this Section 1.12(b).

(c) Dilution. If, from time to time, there is any change in the capital
structure of the Company by way of a split, dividend, combination or
reclassification, or through a merger, amalgamation, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue.

(d) Conversion of Other Securities. If the Parent or any other Investor offers
Registrable Securities by forward sale, or by an offering (directly or by
entering into a derivative transaction with a broker-dealer or other financial
institution) of any options, rights, warrants or other securities that are
offered with, convertible into or exercisable or exchangeable for any
Registrable Securities, the Registrable Securities subject to such forward sale
or underlying such options, rights or warrants or other securities shall be
eligible for registration pursuant to this Agreement.

(e) DTC Eligibility. The Company shall use its reasonable best efforts to cause
the Convertible Preferred Shares, concurrently with the registration of such
Convertible Preferred Shares pursuant to this ARTICLE I, to be eligible for the
depository and book-entry transfer services of The Depository Trust Company.

1.13 Subject to Transfer Restrictions. For the avoidance of doubt, any exercise
by any Investor of its rights pursuant to Section 1.1 or Section 1.2 shall at
all times be subject to the limitations set forth in Section 2.1.

ARTICLE II

COVENANTS

2.1 Transfer Restrictions.

(a) Other than Permitted Transfers, neither the Parent nor any Investor shall
Transfer any Convertible Preferred Shares until the date that is the eighteen
(18) month anniversary of the date of this Agreement (such date, the “Restricted
Period Termination Date”); provided that the Parent or any other Investor may
Transfer any Convertible Preferred Shares, not counting Convertible Preferred
Shares that are Transferred pursuant to a Permitted Transfer, (i) up to an
aggregate amount equal to one-third (1/3) of the Original Convertible Preferred

 

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Shares during the Six-Month Restricted Period and (ii) up to an aggregate amount
equal to two-thirds (2/3) of the Original Convertible Preferred Shares
(including any Convertible Preferred Shares Transferred by the Parent or any
other Investor during the Six-Month Restricted Period) in the Twelve-Month
Restricted Period.

(b) “Permitted Transfer” means, in each case so long as such Transfer is in
accordance with applicable Law:

(i) a Transfer of Convertible Preferred Shares to a Permitted Transferee, so
long as such Permitted Transferee, to the extent it has not already done so,
executes a customary joinder to this Agreement, in form and substance reasonably
acceptable to the Company, in which such Permitted Transferee agrees to be an
“Investor” for all purposes of this Agreement;

(ii) a Transfer of Convertible Preferred Shares in connection with a Merger
Transaction approved by the Board; and

(iii) a Transfer of Convertible Preferred Shares to the Company.

(c) Notwithstanding anything to the contrary contained herein, including the
occurrence of the Restricted Period Termination Date or the expiration or
inapplicability of the Six-Month Restricted Period or the Twelve-Month
Restricted Period, none of the Parent or any other Investor shall Transfer any
Convertible Preferred Shares other than in accordance with all applicable Laws
and the other terms and conditions of this Agreement.

(d) In connection with any Transfer to a Permitted Transferee prior to the
termination of this Agreement pursuant to Section 4.1, the Parent shall cause
any Permitted Transferee to execute a customary joinder to this Agreement, in
form and substance reasonably acceptable to the Company, in which such Permitted
Transferee agrees to become a party to this Agreement and to be an “Investor”
for all purposes of this Agreement and provides notice information for the
purposes of Section 4.2.

2.2 Standstill.

(a) Until the date on which the Parent and the other Investors Beneficially Own
Convertible Preferred Shares representing less than five percent (5%) of the
total issued and outstanding Company Common Shares on an as-converted basis,
without the prior written consent of the Company, the Parent shall not, and
shall cause each of the other Investors not to, directly or indirectly:

(i) acquire, offer to acquire or agree to acquire Beneficial Ownership of
Company Common Shares, except pursuant to share splits, reverse share splits,
share dividends or distributions, or combinations or any similar
recapitalizations on or after the date hereof;

(ii) effect or seek, offer or propose (whether publicly or otherwise) to effect,
or announce any intention to effect or cause or participate in or in any way
assist or encourage any other Person to effect or seek, offer or propose
(whether

 

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publicly or otherwise) to effect or participate in (a) any acquisition of any
securities (or beneficial ownership thereof) or assets of the Company or any of
its Affiliates, including rights or options to acquire such ownership;
(b) initiate or propose any merger, tender offer, business combination,
restructuring, recapitalization or other extraordinary transaction involving, or
any change of control of, the Company or any of its Subsidiaries; or (c) any
shareholder proposal or make, or in any way participate in, directly or
indirectly, any “solicitation” of “proxies” to vote, or seek to influence any
Person with respect to the voting of, Company Common Shares, or become a
“participant” in a “solicitation” (as such terms are defined in Regulation 14A
under the Exchange Act) with respect to Company Common Shares;

(iii) deposit any Company Common Shares into a voting trust or subject Company
Common Shares to any proxy, arrangement or agreement with respect to the voting
of such securities or other agreement having a similar effect;

(iv) initiate or propose a call for any special meeting of the Company’s
shareholders;

(v) seek or propose to influence, advise, change or control the management,
board of directors of the Company, governing instruments or policies of the
Company or any of its Subsidiaries;

(vi) participate in any acquisition of assets or business of the Company or its
Subsidiaries or Affiliates outside of the ordinary course of business; or

(vii) propose, or agree to, or enter into any discussions, negotiations or
arrangements with, or provide any confidential information to, any third party
with respect to any of the foregoing.

(b) The prohibition in Section 2.2(a)(i) shall not apply to ordinary course of
business activities of the Parent, each Investor or any of their respective
Affiliates in connection with:

(i) proprietary and third party fund and asset management activities;

(ii) brokerage and securities trading activities;

(iii) financial services and insurance activities;

(iv) acquisitions made as a result of (A) a share split, share dividend,
reorganization, recapitalization, reclassification, combination, exchange of
shares or other like change or (B) in connection with securing or collecting
indebtedness previously contracted in good faith and not with the intention of
circumventing the prohibition in Section 2.2(a)(i); and

(v) acquisitions made in connection with a transaction in which the Parent, any
of the Investors or any of their respective Affiliates acquires a previously
unaffiliated business entity that Beneficially Owns Company Common Shares, or
any securities convertible into, or exercisable or exchangeable for, Company
Common Shares, at the time of the consummation of such acquisition;

 

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provided that, in the case of each of (i) through (v) of this Section 2.2(b),
such ordinary course of business activities shall be made without the intent to
influence the control of the Company.

2.3 Redemptions and Accelerated Share Repurchases. In the event of a proposed
redemption or accelerated share repurchase of Company Common Shares by the
Company or its Subsidiaries (for the avoidance of doubt, excluding an
Open-Market Repurchase), notwithstanding the Transfer restrictions set forth in
Section 2.1, each Investor shall hold a right of first refusal to cause the
Company or its Subsidiaries to redeem or repurchase Company Series D Preferred
Shares that such Investor holds up to its Redemption/ASR Amount. The Company
shall give written notice of a proposed redemption or accelerated share
repurchase to the Parent and each other Investor at least five (5) days prior to
the date of the proposed redemption or accelerated share repurchase. Such notice
shall set forth the material terms and conditions of the proposed redemption or
accelerated share repurchase, including the proposed manner of redemption or
repurchase, the number or amount and description of the shares proposed to be
redeemed or repurchased, the proposed transaction date, the proposed redemption
or repurchase price per share, and an offer to each Investor of a right of first
refusal to cause the Company or its Subsidiaries to redeem or repurchase Company
Series D Preferred Shares that such Investor holds up to its Redemption/ASR
Amount. At any time during the five (5) day period following receipt of such
notice, each Investor shall have the right to elect to redeem or resell its
Redemption/ASR Amount of Company Series D Preferred Shares at the Redemption/ASR
Price and upon the terms and conditions set forth in the notice. After the
expiration of such five (5) day period, the Company shall be free to complete
the proposed redemption or repurchase of Company Common Shares; provided that
(i) the Company redeems or repurchases any Company Series D Preferred Shares any
Investor elected to have redeemed or repurchased pursuant to its response to the
Company’s notice, on the terms and conditions set forth in the notice,
simultaneously with any redemption or repurchase of Company Common Shares from
any other shareholder of the Company; (ii) any redemption or repurchase of such
Company Common Shares from any other shareholder must be on terms no less
favorable to the Company than those set forth in the notice delivered to the
Investors; and (iii) the redemption or repurchase must close no later than
ninety (90) days after the proposed date included in the notice. Notwithstanding
anything to the contrary, the Investors’ rights of first refusal pursuant to
this Section 2.3 shall expire on the Restricted Period Termination Date.

2.4 Open-Market Repurchases. In the event of an open-market repurchase of
Company Common Shares by the Company or its Subsidiaries other than pursuant to
accelerated share repurchases covered by Section 2.3 (an “Open-Market
Repurchase”, and the number of Company Common Shares that are repurchased in
such Open-Market Repurchase, the “Repurchased Amount”), notwithstanding the
Transfer restrictions set forth in Section 2.1, each Investor shall be entitled
to cause the Company to repurchase a number of Company Series D Preferred Shares
it holds up to and including its respective OMR Investor Put Amount.

(a) If the Company determines to effect an Open-Market Repurchase pursuant to a
plan intended to be compliant under Rule 10b5-1(c) under the Exchange Act, the
Company shall give written notice of such plan for an Open-Market Repurchase to
each Investor at least seven (7) Business Days prior to the start of such plan.
Such Investor may elect to sell to the

 

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Company a number of Company Series D Preferred Shares it holds up to and
including its OMR Investor Put Amount at the OMR Put Price for such plan by
giving written notice to the Company of its election (including the number of
shares it elects to sell) no later than five (5) Business Days following receipt
of the Company’s notice regarding such Open-Market Repurchase. If the Investor
elects to participate in such Open-Market Repurchase (which for the avoidance of
doubt shall be with respect to any Open-Market Repurchase during the entire
period of such plan),

(i) the Company shall provide a statement to the Investor at the end of each day
during such period on which the Company purchases any Company Common Shares
pursuant such Open-Market Repurchase setting forth:

1. the purchases of Company Common Shares made on such day and the volume
weighted average price paid for such Company Common Shares;

2. the OMR Investor Put Amount for such day; and

3. the OMR Put Price for such day; and

(ii) the Company and such Investor shall use their respective reasonable best
efforts to effect the share purchase within three (3) Business Days of any day
on which an Open-Market Repurchase is made pursuant to such plan.

(b) For Open-Market Repurchases other than pursuant to a plan intended to be
compliant under Rule 10b5-1(c) under the Exchange Act as set forth in
Section 2.4(a) above, the Company shall give written notice of a proposed
Open-Market Repurchase to each Investor (x) no later than 5:00 P.M. New York
City time on the Friday before a week for which the Company intends to effect an
Open-Market Repurchase, which notice shall set forth the week or weeks of the
Open-Market Repurchase or (y) other than notices for a week or week(s) as set
forth in clause (x), no later than one (1) Business Day prior to a date on which
the Company intends to effect such Open-Market Repurchase. Such Investor may
elect to sell to the Company a number of Company Series D Preferred Shares it
holds up to and including its OMR Investor Put Amount at the OMR Put Price by
giving written notice to the Company of its election no later than (i) in the
case of clause (x) above 8:00 A.M. New York City time on the first Business Day
of the week of such proposed Open-Market Repurchase or (ii) in the case of
clause (y) above 8:00 A.M. New York City time on the date of such proposed
Open-Market Repurchase. If the Investor elects to participate in such
Open-Market Repurchase (which for the avoidance of doubt in the case of clause
(x) above shall be with respect to any Open-Market Repurchase during such week),

(i) the Investors may condition its participation on the receipt of a minimum
price per share of Company Common Shares;

(ii) the Company shall provide a statement to the Investor at the end of each
day during such week(s) or day on which the Company purchases any Company Common
Shares pursuant such Open-Market Repurchase setting forth:

 

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1. the purchases of Company Common Shares made on such day and the average price
paid for such Company Common Shares;

2. the OMR Investor Put Amount for such day; and

3. the OMR Put Price for such day; and

(iii) the Company and such Investor shall use their respective reasonable best
efforts to effect the share purchase within three (3) Business Days of any day
on which an Open-Market Repurchase is made during such period.

(c) Notwithstanding anything to the contrary herein, (x) if Investor informs the
Company that it does not wish to participate in any Open-Market Repurchase or
does not respond within the time periods set forth in Section 2.4(a) or
Section 2.4(b), as applicable, the Company may proceed with such Open-Market
Repurchase and shall have no obligation to purchase any shares from an Investor
pursuant to such Open-Market Repurchase and (y) if the Company does not purchase
any Company Common Shares during such Open-Market Repurchase it shall not be
required to purchase any Company Series D Preferred Shares from any Investor.

(d) Notwithstanding anything to the contrary, the Investors’ rights to cause the
Company to make repurchases pursuant to this Section 2.4 shall expire on the
Restricted Period Termination Date.

2.5 Ownership Threshold. Neither any Investor nor the Company shall take any
action that could reasonably be expected to result in the Parent, the Investors
or any of their respective Affiliates, acting alone or as part of a Group,
directly or indirectly, either (i) to Beneficially Own more than five percent
(5%) of the Company Common Shares or any other class of Voting Securities, or
any securities convertible into, or exercisable or exchangeable for, Company
Common Shares or other Voting Securities (excluding Company Series D Preferred
Shares and other securities that are not convertible in the hands of the
holder), or (ii) to have a Total BHC Ownership Level in excess of twenty-three
and one-half percent (23.5%) of the Company’s total equity; provided that if the
Investors (collectively) do come (i) to Beneficially Own more than five percent
(5%) of the Company Common Shares or any other class of Voting Securities, or
any securities convertible into, or exercisable or exchangeable for, Company
Common Shares or other Voting Securities (excluding Company Series D Preferred
Shares and other securities that are not convertible in the hands of the holder)
or (ii) to have a Total BHC Ownership Level in excess of twenty-three and
one-half percent (23.5%) of the Company’s total equity (the number of securities
in excess of either or both of such five percent (5%) and twenty-three and
one-half percent (23.5%) levels, the “Excess Shares Amount”), (a) the Parent and
each other Investor may Transfer a number of such Equity Securities equal to the
Excess Shares Amount multiplied by its Pro Rata Portion freely without regard to
the Transfer restrictions set forth in Section 2.1, and (b) in the event of an
action taken by the Company that causes such ownership thresholds to be
exceeded, the Company and the Investors shall negotiate in good faith for the
Company to repurchase Equity Securities from the Investors so that the Investors
(collectively) will no longer (i) Beneficially Own more than five percent
(5%) of the Company Common Shares or any other class of Voting Securities, or
any securities convertible into, or exercisable or exchangeable for, Company
Common Shares or other Voting Securities

 

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(excluding Company Series D Preferred Shares and other securities that are not
convertible in the hands of the holder) or (ii) have a Total BHC Ownership Level
in excess of twenty-three and one-half percent (23.5%) of the Company’s total
equity.

2.6 Listing. The Company agrees to use commercially reasonable efforts to cause
the Company Common Shares to continue to be listed on the NASDAQ Stock Market or
another national securities exchange.

2.7 Private Sale and Legends.

(a) Except as provided in Section 2.1, the Company agrees that nothing in this
Agreement shall prohibit the Investors, at any time and from time to time, from
selling or otherwise Transferring Company Series D Preferred Shares pursuant to
a private sale or other transaction which is not registered pursuant to the
Securities Act.

(b) At the request of an Investor and to the extent the Company Series D
Preferred Shares are subject to a restrictive legend, whether such securities
are certificated or held in book-entry form, (i) the purchaser who takes
ownership from an Investor holding any certificates for such Company Series D
Preferred Shares shall be entitled, upon conversion of Company Series D
Preferred Shares to Company Common Shares in such Transfer, to receive from the
Company new certificates for the appropriate number of Company Common Shares not
bearing such legend (or the elimination or termination of such comparable
notations or arrangements on securities held in book-entry form) and (ii) the
Company shall procure the cooperation of the Company’s transfer agent in
removing such legend (or the elimination or termination of such notations or
arrangements). If required by the Company or the Company’s transfer agent, the
Investor shall deliver an opinion of its counsel that the restriction referenced
in such legend (or such notations or arrangements) is no longer required in
order to ensure compliance with the Securities Act.

ARTICLE III

TAX MATTERS

3.1 Tax Return Information. The Company will as promptly as practicable furnish
to any Investor information reasonably requested to enable such Investor or its
direct or indirect equity owners to comply with any applicable tax reporting
requirements with respect to Convertible Preferred Shares held by such Investor,
including, without limitation, such information as may be reasonably requested
by such Investor to complete U.S. federal, state or local or non-U.S. income tax
returns (including, for the avoidance of doubt, information regarding the source
of any dividends paid or deemed paid with respect to Convertible Preferred
Shares held by such Investor or its direct or indirect equity owners); provided,
that this Section 3.1 shall not require the Company to provide information to
any Investor regarding the computation of earnings and profits for U.S. federal
income tax purposes (and any Investor should assume that the Company’s
distributions constitute dividends for U.S. federal income tax purposes), except
to the extent that such information is otherwise required to be provided by the
Company under Section 3.2 or Section 3.3. The Company will provide any
tax-related information that is required to be provided to the Investors by the
Company or any of its Subsidiaries in respect of a fiscal year within sixty
(60) calendar days following the end of such fiscal year.

 

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3.2 PFIC and CFC Information. After the end of each taxable year, the Company
will timely determine whether the Company or any of its Subsidiaries is expected
to be, or was, a PFIC or CFC for any taxable year and inform the Investors of
its determination. If the Company believes the Company or any of its
Subsidiaries is a PFIC or a CFC for any taxable year or there is a reasonable
possibility that the Company or any of its Subsidiaries may be a PFIC or a CFC
for any taxable year, the Company will prepare an annual statement that sets
forth the amount that the Investors would be required to include in taxable
income on their U.S. tax returns if the Company or such Subsidiary were in fact
to constitute a PFIC or a CFC for such taxable year, as well as any other
information required to comply with applicable CFC and PFIC reporting
requirements. Each of the Investors will cooperate with the Company, and provide
such information as may be reasonably requested by the Company, to determine
whether the Company is a CFC.

3.3 QEF Election. If the Company believes there is a reasonable possibility that
the Company or any of its Subsidiaries constitutes a PFIC for any taxable year,
the Company will provide the Investors with the information necessary in order
for the Investors or any direct or indirect equity owner therein, as the case
may be, to timely and properly make an election under section 1295 of the Code
to treat the Company or such Subsidiary as a “qualified electing fund” (a “QEF
Election”) and comply with the reporting requirements applicable to such a QEF
Election. The Company will obtain professional assistance experienced in matters
relating to the relevant aspects of the Code to the extent necessary to make the
determinations and to provide the information and statements described in
Section 3.2 and this Section 3.3.

3.4 Retention of Tax Information. The Company hereby undertakes to keep any
documentation supporting any tax-related information supplied to any Investor as
provided under this ARTICLE III for no less than seven (7) years.

ARTICLE IV

MISCELLANEOUS

4.1 Term. This Agreement will be effective as of the date hereof and shall
automatically terminate at such time as the Investors no longer Beneficially Own
any Subject Securities. If this Agreement is terminated pursuant to this
Section 4.1, this Agreement shall become void and of no further force and
effect, except for the provisions set forth in this ARTICLE IV.

4.2 Notices.

(a) All notices, requests, claims, demands and other communications under this
Agreement shall be in writing and shall be given or made (and shall be deemed to
have been duly given or made upon receipt) by delivery in person, by overnight
courier service, by facsimile with receipt confirmed (followed by delivery of an
original via overnight courier service) or by registered or certified mail
(postage prepaid, return receipt requested) to the

 

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respective parties hereto at the following respective addresses (or at such
other address for a party hereto as shall be specified in a notice given in
accordance with this Section 4.2):

 

  (i) if to the Parent:

American International Group, Inc.

175 Water Street

New York, NY 10038

Attention: General Counsel

Facsimile: (212) 770-3500

with a copy to (which shall not constitute notice):

Sullivan & Cromwell LLP

125 Broad Street

New York, NY 10004

Attention: Robert G. DeLaMater & Jared M. Fishman

Facsimile: (212) 291-9037

 

  (ii) if to the Company:

Arch Capital Group Ltd.

Waterloo House, Ground Floor

100 Pitts Bay Road

Pembroke HM 08, Bermuda

Attention: Mark D. Lyons

Facsimile: (441) 278-9255

with a copy to (which shall not constitute notice):

Cahill Gordon & Reindel LLP

80 Pine Street

New York, New York 10005

Attention: John Schuster

Facsimile: (212) 269-5420

4.3 Investor Actions. Any determination, consent or approval of, or notice or
request delivered by, or any similar action of, the Investors (each, an
“Investor Action”) shall be made by, and shall be valid and binding upon, all
Investors if made by (i) holders of a majority of the Registrable Securities
then Beneficially Owned by all Investors or (ii) the Parent; provided, that in
the event of any conflict between any Investor Action made by holders of a
majority of the Registrable Securities then Beneficially Owned by all Investors
and an Investor Action made by the Parent, the Investor Action made by the
Parent shall control.

4.4 No Partnership. Nothing in this Agreement shall be taken to constitute a
partnership between any of the parties to this Agreement or the appointment of
the parties to this Agreement as agent for the others.

 

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4.5 Memorandum of Association. Upon the occurrence of a conflict between any
provision of this Agreement and any provision of the Memorandum of Association,
then this Agreement will prevail, subject to applicable Law, and in the event
applicable Law would conflict with the provisions of this Agreement, the Company
will use its best efforts to facilitate the provision of this Agreement.

4.6 Amendments and Waivers. No provision of this Agreement may be amended,
supplemented or modified except by a written instrument signed by all of the
parties thereto. No provision of this Agreement may be waived except by a
written instrument signed by the party against whom the waiver is to be
effective. No failure or delay by any party hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law.

4.7 Assignment of Registration Rights. The rights of the Parent and any other
Investor to registration of all or any portion of its Registrable Securities
pursuant to this Agreement may be assigned by the Parent or such Investor to any
Permitted Transferee to the extent of the Registrable Securities Transferred as
long as (i) the Parent or such Investor, within ten (10) days after such
Transfer, furnishes to the Company written notice of the Transfer to the
Permitted Transferee and (ii) such Permitted Transferee agrees, following such
Transfer, to be subject to all applicable restrictions and obligations set forth
in this Agreement, and executes a customary joinder to this Agreement, in form
and substance reasonably acceptable to the Company, in which case the applicable
Permitted Transferee shall be the beneficiary to all rights of the Parent or
such Investor and subject to all restrictions and obligations applicable to the
Parent or such Investor pursuant to this Agreement, to the same extent as the
Parent or such Investor.

4.8 Assignment. Except as provided in Section 4.7 hereof, this Agreement shall
not be assigned, in whole or in part, by operation of law or otherwise without
the prior written consent of the parties hereto. Any attempted assignment in
violation of this Section 4.8 shall be void. This Agreement shall be binding
upon, shall inure to the benefit of, and shall be enforceable by the parties
hereto and their successors and permitted assigns.

4.9 Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced under any Law or as a matter of public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated by this Agreement is not affected in any manner
materially adverse to any party hereto. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties hereto as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the greatest extent possible.

4.10 Counterparts. This Agreement may be executed in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile or other means of electronic
transmission shall be as effective as delivery of a manually executed
counterpart of this Agreement.

 

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4.11 Entire Agreement. Except as otherwise expressly provided in this Agreement,
this Agreement constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral, between or on behalf of the Parent and/or
its Affiliates, on the one hand, and the Company and/or its Affiliates, on the
other hand, with respect to the subject matter hereof.

4.12 Governing Law; Arbitration; Waiver of Jury Trial.

(a) This Agreement, and all claims and defenses arising out of or relating to
this Agreement or the formation, breach, termination or validity of this
Agreement, shall in all respects be governed by, and construed in accordance
with, the Laws of the State of New York without giving effect to any conflicts
of Law principles of such state that would apply the Laws of another
jurisdiction.

(b) Section 11.10(b) through (f) of the Stock Purchase Agreement shall apply to
this Agreement mutatis mutandis.

4.13 Agent for Service of Process. Without prejudice to any other permitted mode
of service, the Company irrevocably agrees that service of any claim form,
notice or other document for the purpose of Section 4.12 shall be duly served
upon it if delivered personally or sent by pre-paid recorded delivery, special
delivery or registered post to Cahill Gordon & Reindel LLP, 80 Pine Street, New
York, NY 10005 Attention: John Schuster, Esq., or such other Person and address
in New York, New York as the Company shall notify the Parent of in writing from
time to time and the parties agree that failure by such appointed Person to
notify their appointor of any such service shall not invalidate the proceedings
concerned.

4.14 Specific Performance. (a) The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached,
(b) it is accordingly agreed that, without the necessity of posting bond or
other undertaking, the parties hereto shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in accordance with this Agreement,
this being in addition to any other remedy to which such party is entitled at
law or in equity and (c) in the event that any Action is brought in equity to
enforce the provisions of this Agreement, no party hereto shall allege, and each
party hereto hereby waives the defense or counterclaim that there is an adequate
remedy at law.

4.15 No Third Party Beneficiaries. This Agreement is for the sole benefit of the
parties hereto and their successors and permitted assigns, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.

4.16 Defined Terms. Capitalized terms when used in this Agreement have the
following meanings:

 

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“Action” means any claim, action, suit, arbitration or proceeding by or before
any Governmental Authority, court, tribunal or arbitration body.

“Affiliate” means, with respect to any Person, any other Person that, at the
time of determination, directly or indirectly through one or more
intermediaries, Controls, is Controlled by or is under common Control with such
Person; provided that for the avoidance of doubt, the Company and the Parent
shall not be deemed to be Affiliates of each other.

“Agreement” has the meaning set forth in the preamble.

“Automatic Shelf Registration Statement” means an “automatic shelf registration
statement” as defined in Rule 405 under the Securities Act.

“Beneficial Owner,” “Beneficially Own” or “Beneficial Ownership” has the meaning
assigned to such term in Rule 13d-3 under the Exchange Act, and a Person’s
Beneficial Ownership of securities shall be calculated in accordance with the
provisions of such Rule (in each case, irrespective of whether or not such Rule
is actually applicable in such circumstance). In addition, a Person shall be
deemed to be the Beneficial Owner of, and shall be deemed to Beneficially Own,
and shall be deemed to have Beneficial Ownership of, any securities which are
the subject of, or the reference securities for, or that underlie, any
Derivative Instrument of such Person, with the number of securities Beneficially
Owned being the notional or other number of securities specified in the
documentation evidencing the Derivative Instrument as being subject to be
acquired upon the exercise or settlement of the Derivative Instrument or as the
basis upon which the value or settlement amount of such Derivative Instrument is
to be calculated in whole or in part or, if no such number of securities is
specified in such documentation, as determined by the Board in its sole
discretion to be the number of securities to which the Derivative Instrument
relates.

“BHC Act” means the Bank Holding Company Act of 1956, as amended, together with
any regulations promulgated thereunder.

“Board” means the Board of Directors of the Company.

“Business Day” means any day that is not a Saturday, a Sunday or other day on
which commercial banks in the City of New York, New York are required or
authorized by Law to remain closed.

“CFC” means a “controlled foreign corporation” within the meaning of section 957
of the Code.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Company” has the meaning set forth in the preamble and includes the Company’s
successors by merger, acquisition, reorganization or otherwise.

“Company Common Shares” means the common shares, par value $0.0033 per share, of
the Company.

 

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“Company Series D Preferred Shares” means the preference shares, par value $0.01
per share, of the Company designated as the “Series D Convertible Participating
Non-Voting Perpetual Preferred Shares”.

“Contract” means any contract, agreement, instrument, undertaking, indenture,
commitment, loan, license, settlement, consent, note or other legally binding
obligation (whether or not in writing).

“Control,” “Controlled” and “Controlling” means, with respect to any Person, the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms “Controlled by” and “under common Control with” shall
be construed accordingly.

“Controlled Affiliate” means any Affiliate of the specified Person that is,
directly or indirectly, Controlled by the specified Person.

“Conversion Rate” means one (1) divided by the number (or fraction) of Company
Common Shares issuable upon the conversion of one (1) Company Series D Preferred
Share.

“Convertible Preferred Shares” has the meaning set forth in the recitals.

“Demand Registration” has the meaning set forth in Section 1.2(a).

“Demand Registration Request” has the meaning set forth in Section 1.2(a).

“Derivative Instruments” means any and all derivative securities (as defined
under Rule 16a-1 under the Exchange Act) that increase in value as the value of
any Equity Securities of the Company increases, including a long convertible
security, a long call option and a short put option position, in each case,
regardless of whether (i) such derivative security conveys any voting rights in
any Equity Security, (ii) such derivative security is required to be, or is
capable of being, settled through delivery of any Equity Security or (iii) other
transactions hedge the value of such derivative security.

“Encumbrance” means any mortgage, commitment, transfer restriction, deed of
trust, pledge, option, power of sale, retention of title, right of pre-emption,
right of first refusal, executorial attachment, hypothecation, security
interest, encumbrance, claim, lien or charge of any kind, or an agreement,
arrangement or obligation to create any of the foregoing.

“Equity Securities” means any and all (i) shares, interests, participations or
other equivalents (however designated) of capital stock or other voting
securities of a corporation, any and all equivalent or analogous ownership (or
profit) or voting interests in a Person (other than a corporation),
(ii) securities convertible into or exchangeable for shares, interests,
participations or other equivalents (however designated) of capital stock or
voting securities of a corporation, and securities convertible into or
exchangeable for any equivalent or analogous ownership (or profit) or voting
interests in a Person (other than a corporation), and (iii) any and all
warrants, rights or options to purchase any of the foregoing, whether voting or
nonvoting, and, in each case, whether or not such shares, interests,
participations, equivalents, securities, warrants, options, rights or other
interests are authorized or otherwise existing on any date of determination.

 

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“Excess Shares Amount” has the meaning set forth in Section 2.5.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any
similar federal statute and the rules and regulations thereunder, as in effect
from time to time.

“FINRA” means the Financial Industry Regulatory Authority, Inc.

“GAAP” means generally accepted accounting principles in the United States of
America.

“Governmental Authority” means any supranational, national, regional, federal,
state, provincial, territorial, municipal or local court, administrative body or
other governmental or quasi-governmental entity or authority or SRO with
competent jurisdiction (including any arbitration panel or body) exercising
legislative, judicial, regulatory or administrative functions of or pertaining
to supranational, national, regional, federal, state, provincial, territorial,
municipal or local government, including any department, commission, board,
agency, bureau, subdivision, instrumentality or other regulatory,
administrative, arbitral or judicial authority.

“Group” has the meaning assigned to such term in Section 13(d)(3) of the
Exchange Act.

“Interruption Period” has the meaning set forth in Section 1.7(d).

“Investor” means each of the Parent, any successor and any Permitted Transferee
who becomes a party hereto pursuant to Section 4.7.

“Investor Action” has the meaning set forth in Section 4.3.

“Law” means any supranational, federal, state, local or foreign law (including
common law), statute or ordinance, or any rule, regulation, or agency
requirement of any Governmental Authority.

“Losses” has the meaning set forth in Section 1.9(a).

“Memorandum of Association” means the Company’s memorandum of association as
then in effect.

“Merger Transaction” means any transaction or series of related transactions
involving: (i) any acquisition (whether direct or indirect, including by way of
merger, share exchange, consolidation, business combination or other similar
transaction) or purchase from the Company or any of its Subsidiaries that would
result in any Person or Group Beneficially Owning more than fifty percent
(50%) of the total outstanding Equity Securities of the Company (measured by
voting power or economic interest), (ii) any tender offer, exchange offer or
other secondary acquisition that would result in any Person or Group
Beneficially Owning more than fifty percent (50%) of the total outstanding
Equity Securities of the Company (measured by voting power or economic
interest), or (iii) any transaction pursuant to which Company Common Shares are
exchanged for, or canceled and converted into the right to receive, another
security.

 

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“Non-Underwritten Shelf Take-Down” has the meaning set forth in Section 1.1(g).

“Non-Underwritten Shelf Take-Down Notice” has the meaning set forth in
Section 1.1(g).

“OMR Aggregate Holdings” means, with respect to any Open-Market Repurchase, the
total number of Company Series D Preferred Shares held by all Investors in the
aggregate at the time of such Open-Market Repurchase.

“OMR Aggregate Put Amount” means, with respect to any Open-Market Repurchase,
the lesser of (i) (A) three (3) multiplied by (B) the Repurchased Amount
multiplied by (C) the Conversion Rate and (ii) the OMR Aggregate Holdings.

“OMR Investor Put Amount” means, with respect to any Investor and any
Open-Market Repurchase, the Pro Rata Portion of the Investor with respect to
Company Series D Preferred Shares multiplied by the OMR Aggregate Put Amount.

“OMR Put Price” means, with respect to any Open-Market Repurchase, the
Repurchase Price divided by the Conversion Rate.

“Open-Market Repurchase” has the meaning set forth in Section 2.4.

“Original Convertible Preferred Shares” means the 1,276,282 Company Series D
Preferred Shares issued to the Parent by the Company on the date hereof (as
adjusted from time to time to reflect appropriately the effect of any share
split, reverse share split, share dividend, reorganization, recapitalization,
reclassification, combination, exchange of shares or other like change).

“Parent” has the meaning set forth in the preamble.

“Permitted Transfer” has the meaning set forth in Section 2.1(b).

“Permitted Transferees” means (i) the Parent and (ii) any Controlled Affiliate.

“Person” means an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization or a
government or department or agency thereof.

“PFIC” means a “passive foreign investment company” within the meaning of
section 1297 of the Code.

“Piggyback Registration” has the meaning set forth in Section 1.5(a).

“Piggyback Shelf Registration Statement” has the meaning set forth in
Section 1.5(a).

“Piggyback Shelf Take-Down” has the meaning set forth in Section 1.5(a).

“Pro Rata Portion” means, with respect to any Investor and any type of Subject
Securities or other Equity Securities at any time of determination, the ratio
determined by dividing (A) the

 

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number of shares of such type of Subject Securities or Equity Securities (or any
securities convertible into, or exercisable or exchangeable for, such Subject
Securities or Equity Securities) held by such Investor by (B) the total number
of shares of such type of Subject Securities or Equity Securities (or any
securities convertible into, or exercisable or exchangeable for, such Subject
Securities or Equity Securities) held by all Investors in the aggregate.

“QEF Election” has the meaning set forth in Section 3.3.

“Redemption/ASR Amount” means, with respect to any Investor and any proposed
redemption or accelerated share repurchase by the Company or its Subsidiaries,
the lesser of (i) the number of Company Series D Preferred Shares held by such
Investor immediately prior to the proposed redemption or repurchase and
(ii) (A) the number of Company Common Shares the Company or its Subsidiaries
propose to redeem or repurchase in the aggregate in such proposed redemption or
accelerated share repurchase multiplied by (B) the Conversion Rate multiplied by
(C) such Investor’s Pro Rata Portion with respect to Company Series D Preferred
Shares as of immediately prior to such proposed redemption or accelerated share
repurchase.

“Redemption/ASR Price” means, with respect to any proposed redemption or
accelerated share repurchase by the Company or its Subsidiaries, (i) the amount
proposed to be paid for each Company Common Share to be redeemed or repurchased
divided by (ii) the Conversion Rate.

“Register,” “registered” and “registration” (regardless of case) refer to a
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such Registration Statement, and compliance with applicable
state securities laws of such states in which the Parent notifies the Company of
its or any Investor’s intention to offer Registrable Securities.

“Registrable Securities” means any Equity Securities, including Company Common
Shares, issued or issuable directly or indirectly with respect to the
Convertible Preferred Shares issued pursuant to the Stock Purchase Agreement by
way of conversion or exchange thereof or share dividend or share split or in
connection with a combination of shares, recapitalization, reclassification,
merger, amalgamation, arrangement, consolidation or other reorganization. As to
any particular securities constituting Registrable Securities, such securities
will cease to be Registrable Securities when (x) they have been effectively
registered or qualified for sale by prospectus filed under the Securities Act
and disposed of in accordance with the Registration Statement covering such
securities or (y) they have been sold to the public through a broker, dealer or
market maker pursuant to Rule 144 or other exemption from registration under the
Securities Act. For purposes of this Agreement, a Person will be deemed to be a
holder of Registrable Securities whenever such Person has the right to acquire
directly or indirectly such Registrable Securities (upon conversion or exercise
in connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.

“Registration Expenses” has the meaning set forth in Section 1.8(a).

“Registration Statement” means the prospectus and other documents filed with the
SEC to effect a registration under the Securities Act.

 

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“Representatives” of a Person means such Person’s Affiliates and the directors,
officers, employees, advisors, agents, consultants, accountants, attorneys,
sources of financing, investment bankers and other representatives of such
Person and of such Person’s Affiliates.

“Repurchase Price” means, with respect to any Open-Market Repurchase, the
average price paid by the Company or its Subsidiaries to repurchase Company
Common Shares on any such day pursuant to such Open-Market Repurchase.

“Repurchased Amount” has the meaning set forth in Section 2.4.

“Restricted Period Termination Date” has the meaning set forth in
Section 2.1(a).

“Rule 144” means Rule 144 under the Securities Act or any successor or similar
rule as may be enacted by the SEC from time to time, as in effect from time to
time.

“Rule 144A” means Rule 144A under the Securities Act or any successor or similar
rule as may be enacted by the SEC from time to time, as in effect from time to
time.

“SEC” means the United States Securities and Exchange Commission or any other
federal agency administering the Securities Act.

“Securities Act” means the United States Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations thereunder, as in
effect from time to time.

“Selling Expenses” means all underwriting discounts, selling commissions and
transfer taxes applicable to the sale of Registrable Securities hereunder.

“Shelf Registration” means registering under the Securities Act an offering of
securities to be made on a delayed or continuous basis pursuant to Securities
Act Rule 415 or any successor rule thereto on a Shelf Registration Statement (or
an existing Automatic Shelf Registration Statement or a prospectus supplement
that shall be deemed to be part of an existing Automatic Shelf Registration
Statement in accordance with Rule 430B under the Securities Act).

“Shelf Registration Statement” means a Registration Statement on Form S-3 or the
then-appropriate form for an offering to be made on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act or any successor rule
thereto.

“Shelf Take-Down” has the meaning set forth in Section 1.1(d).

“Signing Date” has the meaning set forth in the recitals.

“Six-Month Restricted Date” means the date that is the six (6) month anniversary
of the date of this Agreement.

“Six-Month Restricted Period” means the period from and including the Six-Month
Restricted Date to and including the date prior to the Twelve-Month Restricted
Date.

 

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“SRO” means (i) any “self-regulatory organization” as defined in
Section 3(a)(26) of the Exchange Act, (ii) any other United States or foreign
securities exchange, futures exchange, commodities exchange or contract market
or (iii) any other securities exchange.

“Stock Purchase Agreement” has the meaning set forth in the recitals.

“Subject Securities” means Company Common Shares and Company Series D Preferred
Shares.

“Subsidiary” in respect of a Person, means any corporation, partnership, joint
venture, trust, limited liability company, unincorporated association or other
entity in respect of which such Person: (w) is entitled to more than 50% of the
interest in the capital or profits; (x) holds or controls a majority of the
voting securities or other voting interests; (y) has rights via holdings of debt
or other contract rights that are sufficient for control and consolidation for
GAAP purposes; or (z) has the right to appoint or elect a majority of the board
of directors or Persons performing similar functions.

“Total BHC Ownership Level” means the percentage of the total equity of the
Company that the Parent, the Investors or any of their respective Affiliates
that directly or indirectly Controls, or is Controlled by or under the direct or
indirect common Control with, the Parent or the Investors or with the power,
directly or indirectly, to direct the management or policies of the Parent or
the Investors or any of their respective Affiliates, or the officers and
directors thereof in the aggregate, directly or indirectly own, Control or have
the power to vote, calculated in a manner consistent with the BHC Act.

“Transfer” means (i) any direct or indirect sale, lease, assignment,
Encumbrance, disposition or other transfer (by operation of law or otherwise),
either voluntary or involuntary, or entry into any Contract, option or other
arrangement or understanding with respect to any sale, lease, assignment,
Encumbrance, disposition or other transfer (by operation of law or otherwise),
of any Equity Security or (ii) to enter into any Derivative Instrument, swap or
any other Contract, agreement, transaction or series of transactions that hedges
or transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of any Equity Security, whether any such Derivative
Instrument, swap, Contract, agreement, transaction or series of transactions is
to be settled by delivery of securities, in cash or otherwise.

“Transferee” means a Person to whom a Transfer is made or is proposed to be
made.

“Transferor” means a Person that Transfers or proposes to Transfer.

“Twelve-Month Restricted Date” means the date that is the twelve (12) month
anniversary of the date of this Agreement.

“Twelve-Month Restricted Period” means the period from and including the
Twelve-Month Restricted Date to and including the date prior to the Restricted
Period Termination Date.

“Underwritten Shelf Take-Down” has the meaning set forth in Section 1.1(e).

“Underwritten Shelf Take-Down Notice” has the meaning set forth in
Section 1.1(e).

 

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“Voting Securities” means Company Common Shares, any other securities of the
Company entitled to vote at any general meeting of the Company and any other
securities of the Company that would be considered a class of voting shares for
purposes of the BHC Act.

4.17 Interpretation. The words “hereof” and “herein” and similar words shall be
construed as references to this Agreement as a whole and not limited to the
particular Article, Section or Schedule in which the reference appears. Unless
the context otherwise requires, references herein: (x) to Articles, Sections and
Schedules mean the Articles and Sections of, and Schedules attached to, this
Agreement; and (y) to an agreement, instrument or other document, means such
agreement, instrument or other document as amended, supplemented and modified
from time to time to the extent permitted by the provisions thereof. Any
reference to a wholly owned Subsidiary of a Person shall mean such Subsidiary is
directly or indirectly wholly owned by such Person. The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms. No rule of construction against the draftsperson shall be applied in
connection with the interpretation or enforcement of this Agreement and this
Agreement shall be interpreted literally not taking into account any other facts
or circumstances, including any conduct, actions, statements, intentions,
assumptions or beliefs of any of the parties at any time, as this Agreement is
the product of negotiations between sophisticated parties advised by counsel.
The headings in this Agreement do not affect its interpretation. The schedules,
exhibits and annexes form part of this Agreement. References to “$”, “US$” or
“U.S. dollars” are to U.S. dollars. Any reference to a “company” includes any
company, corporation or other body corporate, wherever and however incorporated
or established. Any reference to a statute, statutory provision or subordinate
legislation (“legislation”) includes references to: (a) that legislation as
re-enacted or amended by or under any other legislation before or after the
Signing Date; (b) any legislation which that legislation re-enacts (with or
without modification); and (c) any subordinate legislation made under that
legislation before or after the Signing Date, as re-enacted or amended as
described in (a), or under any legislation referred to in (b). Any reference to
writing shall include any mode of reproducing words in a legible and
non-transitory form. References to one gender include all genders and references
to the singular include the plural and vice versa. References to “ordinary
course” or words of similar meaning when used in this Agreement shall mean with
respect to any Person “the ordinary course of business of such Person,
consistent with past practice” unless specified otherwise. References to
“includes” or “including” or words of similar meaning when used in this
Agreement shall mean “including without limitation” unless specified otherwise.

4.18 Further Assurances. Each of the parties (as reasonably requested by the
other party) shall execute and deliver, or shall cause to be executed and
delivered, such documents and other instruments and shall take, or shall cause
to be taken, such further actions as may be reasonably required to carry out the
provisions of this Agreement and give effect to the transactions contemplated by
this Agreement.

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IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of
the date and year set forth above.

 

AMERICAN INTERNATIONAL GROUP, INC. By:   /s/ Alon Neches Name:   Alon Neches
Title:   Vice President – Strategy and Mergers and Acquisitions

 

Signature Page

Investor Rights Agreement

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IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of
the date and year set forth above.

 

ARCH CAPITAL GROUP LTD. By:   /s/ Mark D. Lyons Name:   Mark D. Lyons Title:  
Executive Vice President and Chief Financial Officer

 

Signature Page

Investor Rights Agreement