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EXHIBIT 10.1

 

 

 

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**4SIGMA (BERMUDA) LTD.**

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**BONDHOLDERS CONVERSION AGREEMENT**

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**THIS AGREEMENT** is made on November 8, 2001

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**BETWEEN**

(1)         **4SIGMA (BERMUDA) LTD**. (the **"Issuer"**);and

(2)         **THE  PARTIES  NAMED IN SCHEDULE 2**** **(the **"Preference  Share  Subscribers"**).

**WHEREAS**

(A)        The Issuer has issued to the PreferenceShare Subscribers (a) USD 450,000 in aggregate principal amount of 8 per cent.convertible bonds due 30 June 2003 pursuant to a subscription agreementdated 23 March 2001 and (b) USD 800,000 in aggregate principal amount of8 per cent. convertible bonds due 30 June 2003 pursuant to a rightsoffer document dated 25 May 2001 (together, the "**Bonds**").

(B)         The Preference Share Subscribers intendto convert the Bonds (including accrued interest) which they hold into 8% classE non-voting redeemable and convertible preference shares of nominal value ofUSD0.01 each (the "**Preference Shares**"), the terms ofwhich are substantially set out in the Term Sheet.  This shall take effect by way of issue of Preference Shares bythe Issuer to the relevant Preference Share Subscribers in accordance with theterms herein in return for transfer of the Bonds by the Preference ShareSubscribers to the Issuer.

# **IT IS AGREED** as follows:

# **1.        **INTERPRETATION

# **1.1      **Definitions

In this Agreementthe following expressions have the following meanings:

"**Assets**"means all the undertaking, property, assets, rights and revenues whatsoever ofthe Issuer, present and future, wherever situated in the world, and includeseach and any of them.

"**BondCertificate**" means a certificate representing one or moreBonds.

"**Closing Date**"means such later date as the parties hereto may agree.

"**IntellectualProperty Rights**" means all patents, trade marks, service marks(including any goodwill associated with them), all brands and trade names, allcopyrights and rights in the nature of copyright, database rights, designrights and registered designs and documented trade secrets and know-how and allother intellectual property rights now or in the future owned or enjoyed by theIssuer, all applications for the protection of any such rights in any part ofthe world and the benefit of all agreements and licences now or in the futureentered into or enjoyed by the Issuer relating to the use of exploitation ofany such rights.

"**Land**"means includes freehold and leasehold land and immovable property and in eachcase all buildings and structures upon and all things affixed (including tradeand tenant's fixtures) thereto.

"**PreferenceShare Certificate**" means a certificate representing one or morePreference Shares.

"**PreferenceShare Issue Price**" means an issue price for each PreferenceShare of USD1.00 (that is, one Preference Share for each USD1.00 in aggregateprincipal amount of Bonds except that fractions of Preference Shares shall notbe delivered and no compensation shall be payable in respect of anynon-delivery of a fraction of a Preference Share).

"**Term****Sheet**"means the term sheet as set out in Schedule 1 hereto.

## **1.2      **Statutes

Any referencein this Agreement to a statute, any provision thereof or to any statutoryinstrument, order or regulation made thereunder shall be construed as areference to such statute, provision, statutory instrument, order or regulationas the same may have been, or may from time to time be, amended or re-enacted.

## **2.             **SUBSCRIPTION, ISSUE AND ALLOTMENT

## **2.1          **Undertaking to issue and allot Preference Shares

The Issuerundertakes to the Preference Share Subscribers that, subject to and inaccordance with the provisions of this Agreement, the Preference Shares will beissued and allotted to the Preference Share Subscribers on the Closing Date.

## **2.2         **Undertaking to subscribe Preference Shares

EachPreference Share Subscriber undertakes to the Issuer that, subject to and inaccordance with the provisions of this Agreement, it will on the Closing Datesubscribe for such number of Preference Shares as is set out against its namein Schedule 2 at the Preference Share Issue Price and transfer to theIssuer the aggregate principal amount of Bonds as set out against its name inSchedule 2 as payment of the Preference Share Issue Price for each suchPreference Share.

## **2.3      **Cancellation of Bonds

Upon the transfer of theBonds to the Issuer pursuant to Clause 2.2 above, the Issuer shall, inaccordance with the terms and conditions of the Bonds, cancel such Bonds andthe Issuer shall not reissue or resell such Bonds.

## **3.        **SELLING RESTRICTIONS

Each party heretoacknowledges, represents, warrants and undertakes as set out in Schedule 3.

# **4.          **CLOSING

## **4.1        **Closing

The closing of the issue("**Closing**")shall take place on the Closing Date, whereupon:

### 4.1.1         *Delivery of Shares:* The Issuer shalldeliver to each Preference Share Subscriber the Preference Shares to which suchPreference Share Subscriber is entitled (by appropriate entry in the shareregister and the furnishing to such Subscriber the relevant Preference ShareCertificate).

### 4.1.2         *Payment of issue proceeds:* Subject toClause 4.2 (*Conditionsprecedent*), each Preference Share Subscriber shall pay for itsrespective Preference Shares by the surrender of the relevant Bond Certificatewith the endorsed form of transfer duly completed, at the registered office ofthe Issuer together with such evidence as the Issuer may reasonably require toprove the title of the relevant Preference Share Subscriber and the authorityof the individuals who have executed the form of transfer and the Issuer shallinstruct its registrars to amend the register maintained by each of them inrelation to the Bonds so that the Bonds are shown as having been transferred tothe Issuer and cancelled.

## **4.2      **Conditions precedent

Each Preference ShareSubscriber shall only be under an obligation to subscribe and pay for thePreference Shares if (a) all other Preference Share Subscribers duly subscribeand pay for the Preference Shares at the Closing, (b) the Issuer has fullyperformed all of its obligations hereunder and (c) all authorisations, consentsand approvals required by the Issuer for or in connection with the creation,issue and allotment of the Preference Shares have been obtained and are in fullforce and effect.

# **5.          **PROXIES AND WAIVER

## **5.1      **Proxies

Each of Jörg Menten,Roman Schenk and Dietrich Nord hereby irrevocably appoints Gerald Möller as hisproxy with respect to all voting rights under all shares in the Issuer owned byeach of them respectively and agrees further to execute any proxy forms, deedsor any other documents to give effect to such appointment under Bermudan law.

## **5.2        **Waivers

Solely for the purposeof giving effect to this Agreement and the subscription agreement dated on orabout the date of this Agreement between the Issuer, ESG Re Limited and HMIPartners L.L.C. relating to the issue of up to 3,000,000 Preference Shares (the"**SubscriptionAgreement**"), each Preference Share Subscriber herebyirrevocably waives:

(a)             all class rights with respect toany preference shares which it owns;

(b)            all pre-emption rights relating toand which may affect the issue and allotment of Preference Shares herein andunder the Subscription Agreement; and

(c)             all pre-emption rights with respectto any Ordinary Shares which it owns.

If such class rights orpre-emption rights would otherwise be breached by the issue of PreferenceShares, each Subscriber further agrees to execute any documents and to vote infavour of, or sign written resolutions to pass, any resolutions required togive effect to such waiver.

# **6.          **NEGATIVEPLEDGE

The Issuer shall not,for as long as any Preference Shares are outstanding, without the prior writtenconsent of the Preference Share Subscribers:

(a)             create, or agree or attempt tocreate, or permit to subsist any mortgage, fixed or floating charge, pledge orother security of any kind (including any security conferring power to converta floating charge into a fixed charge in relation to any Asset) or any trustover any Asset, or permit any lien (other than a lien arising by operation oflaw in the ordinary course of the Issuer's business) to arise or subsist overany Asset;

(b)            sell, assign, lease, licence orsub-license, or grant any interest in any of its Land or Intellectual PropertyRights, or purport to do any such act, or part with possession or ownership ofthem, or allow any third party access or the right to use any copy of any ofits Intellectual Property Rights.

7.**          ****SURVIVAL**

The provisions of thisAgreement shall continue in full force and effect notwithstanding thecompletion of the arrangements set out herein for the issue and allotment ofthe Preference Shares and regardless of any investigation by any party hereto.

8.**          ****TIME**

Any date or periodspecified herein may be postponed or extended by mutual agreement among theparties but, as regards any date or period originally fixed or so postponed orextended, time shall be of the essence.

9.**          ****NOTICES**

9.1**         Addresses for notices**

All notices and othercommunications hereunder shall be made in writing and in English (by letter orfax) and shall be sent as follows:

### 9.1.1         If to the Issuer, to it at:

4sigma(Bermuda) Ltd.

Cedar House

41 CedarAvenue

Hamilton HM12Bermuda

Fax:                          00-1-441-292-8666

Attention:                Shari L. Simons

with a copyto:

4sigmaLimitedc/o Clifford Chance PunderCecilienallee 6-040474 DusseldorfGermany

Fax:                          + 49-211-43-555-600

Attention:                Herbert Palmberger

### 9.1.2         If to any Preference Share Subscriber,to it at its address for the time being for the giving of notices to it by theIssuer in its capacity as a shareholder of the Issuer.

9.2         **Effectiveness**

Every notice or othercommunication sent in accordance with Clause 9.1 shall be effective uponreceipt by the addressee.

10.**         LAW****AND  JURISDICTION**

10.1       **Governing law**

This Agreement isgoverned by, and shall be construed in accordance with, the laws of Bermuda.

10.2       **Jurisdiction**

Each party hereto agreesthat the courts of Bermuda shall have jurisdiction to hear and determine anysuit, action or proceedings, and to settle any disputes, which may arise out ofor in connection with this Agreement (respectively, "**Proceedings**" and "**Disputes**")and, for such purposes, irrevocably submits to the jurisdiction of such courts.

10.3**       Appropriate forum**

Each party heretoirrevocably waives any objection which it might now or hereafter have to thecourts of Bermuda being nominated as the forum to hear and determine anyProceedings and to settle any Disputes, and agrees not to claim that any suchcourt is not a convenient or appropriate forum.

10.4**       Non-exclusivity**

The submission to thejurisdiction of the courts of Bermuda shall not (and shall not be construed soas to) limit the right of any party hereto to take Proceedings in any othercourt of competent jurisdiction, nor shall the taking of Proceedings in any oneor more jurisdictions preclude the taking of Proceedings in any otherjurisdiction (whether concurrently or not) if and to the extent permitted bylaw.

**AS WITNESS** the hands of the duly authorised representatives of theparties hereto the day and year first before written.

**SCHEDULE 1**

**TERM SHEET**

(1)       Descriptionof E Shares

There shall be created aclass E convertible non voting redeemable preference shares of US$0.01 each inthe Company ("**E Share**" or "**E Shares**").

(2)       Definitions

Terms used in thisSchedule, unless otherwise defined, shall have the meanings given to them inthe Bye-laws of the Company.

(3)       Dividends

(a)             The holders of the E Shares will beentitled to receive dividends at the rate of 8% per annum on the amount paid upor credited as paid up thereon (together with any premium paid at the date ofissue) (the "**E Fixed Dividend**").   Dividends on the E Shares shall becumulative and shall accrue and be compounded daily.

(b)            No dividend will be paid on the AShares, the Ordinary Shares, the B Shares, the C Shares or the D Shares unlessand until all accrued and unpaid dividends have been paid on the E Shares.

(4)       Capital

Subject at all times toany relevant insolvency laws or regulations in Bermuda and/or other applicablejurisdictions, in the event of a winding up of the Company or upon a reductionor return of capital, the holders of E Shares shall be entitled in priority tothe holders of Ordinary Shares, A Shares, B Shares, C Shares and D Shares outof the assets of the Company remaining after payments of its debts andliabilities and of the costs, charges and expenses of such winding up orreduction or return of capital an amount per E Share equal to the sum of (a)the amount paid up or credited as being paid up on such E Share (including thepremium (if any)) and (b) any accrued but unpaid E Fixed Dividend.

(5)       Conversionof E Shares to Ordinary Shares

(a)             At the option of any holder of EShares, each of the E Shares held by such member and which such member wishesto convert shall be converted into and re-designated as one Ordinary Share.

(b)            All accrued and unpaid E FixedDividends with respect to any E Shares being converted shall concurrently beconverted into Ordinary Shares at the rate of one Ordinary Share to everyUS$1.00, provided that the Company shall not issue fractions of Ordinary Sharesbut shall round any fractional amounts due to any member up or down to thenearest whole Ordinary Share (0.5 being rounded up).

(c)             To effect such conversion, therelevant member shall deliver to the Company a notice setting out the number ofE Shares to be converted and enclosing the share certificate(s) relating tosuch E Shares.  The Company shall effectsuch conversions within 7 days of receipt of such conversion notice and shallimmediately upon such conversion issue to the relevant members sharecertificates for the total number of Ordinary Shares converted from the EShares and the E Fixed Dividends (if any).

(d)            The Ordinary Shares resulting fromthe conversion shall rank for the full amount of all dividends on the OrdinaryShares paid by reference to a record date after, or declared or resolved to bepaid after, the date of conversion corresponding to the proportion of the wholeperiod in respect of which dividends are declared or resolved to be paid duringwhich the Ordinary Shares have existed.

(6)       Voting

The holders of the EShares shall have no right to vote other than as a class with respect to (a)any rights of such E Shares in accordance with the Bye-laws in which case theprovisions relating to class meetings contained in the Bye-Laws shall apply and(b) any resolution relating to any merger, reorganisation, amalgamation orbusiness combination of the Company.

(7)       Redemption

(a)             The Company shall redeem all the EShares on the earlier of:

(i)        1 October 2006; or

(ii)       the occurrence of an Event.

(b)            At least seven days (or such lesserperiod as shall be agreed between the Company and the holders of 75% of the EShares) prior to redemption of any shares under Paragraph (a) above, theCompany shall give notice to the relevant Shareholders specifying the totalamount of shares to be redeemed, the number of such holder's shares to beredeemed and the applicable redemption date and place at which the certificatesof such shares are to be procured for the redemption.  Upon such redemption date each of the Shareholders to which suchnotice was addressed shall be bound to deliver to the Company at such place thecertificates for such of the shares concerned as are held by it.  Upon delivery of the certificates theCompany shall pay to such holder the amount due to him in respect of suchredemption.  If any certificate sodelivered to the Company includes any shares not to be redeemed on the relevantdate, a new certificate for such shares shall be issued free of charge to theholder delivering such certificate to the Company.

(c)             On such redemption the holders ofthe E Shares redeemed shall be paid the amount paid-up or credited as paid-upon the E Shares (including the premium (if any)) together with a sum equal toany arrears on deficiency or accruals of dividend (whether earned or declaredor not) calculated to and including the date of such redemption.

(8)       Pre-emptionRights

(a)             The Company shall not allot anyequity securities on any terms to a person unless it has made an offer (an"**Offer**")to each holder of E Shares, on the same or more favourable terms, of aproportion of those securities which is equal (or as nearly as practicableequal) to the proportion of (i) the nominal value of Ordinary Shares whichwould be held by such holder if it exercised fully its option to convert allits E Shares into Ordinary Shares to (ii) the nominal value of all outstandingOrdinary Shares plus such number of Ordinary Shares outstanding as would beissued if all the holders of E Shares fully exercised their options to converttheir E Shares into Ordinary Shares. For this purpose, the Directors shalldetermine the number of Ordinary Shares into which the E Shares would converton the basis of Paragraph (5) above. The Company shall not allot any of those securities to a person unlessthe period during which any such offer may be accepted has expired or theCompany has received notice of the acceptance or refusal of every offer somade.

(b)            At least 10 days prior to the dateof the proposed issue of equity securities, the Company shall make an Offer inwriting to the holders of the E Shares either personally or by post to him atthe address for the time being for the giving of notices to him by the Companyin his capacity as a Shareholder of the Company.  The Offer must state a period of not less than 10 days duringwhich it may be accepted and the offer shall not be withdrawn before the end ofsuch period.

 

**SCHEDULE 2**

**BOND HOLDINGS/PREFERENCESHARE COMMITMENTS**
| **Preference Share**             |   | **Aggregate**        |   | **Accrued**  |   | **Total**  |   | **Number of**  |   |
|----------------------------------|--------|----------------------|--------|--------------|--------|------------|--------|----------------|--------|
| **Subscriber**                   |   | **Principal Amount** |   | **Interest** |   | **(USD)**  |   | **Preference** |   |
|                             |   | **of Bonds (USD)**   |   | **(USD)**    |   |       |   | **Shares**     |   |
|                             |   |                 |   |         |   |       |   |           |   |
| ESG Re Limited                   |   | 854,545.45           |   | 30,176.84    |   | 884,722.29 |   | 884,722        |   |
|                             |   |                 |   |         |   |       |   |           |   |
| Head Company Profit Sharing Plan |   | 5,340.91             |   | 188.61       |   | 5,529.52   |   | 5,530          |   |
|                             |   |                 |   |         |   |       |   |           |   |
| HMI Partners L.L.C.              |   | 315,113.64           |   | 11,127.71    |   | 326,241.35 |   | 326,241        |   |
|                             |   |                 |   |         |   |       |   |           |   |
| Jörg Menten                 |   | 7,500                |   | 332.05       |   | 7,832.05   |   | 7,832          |   |
|                             |   |                 |   |         |   |       |   |           |   |
| Gerald Möller               |   | 30,000               |   | 1,121.10     |   | 31,121.10  |   | 31,121         |   |
|                             |   |                 |   |         |   |       |   |           |   |
| Dietrich Nord                    |   | 15,500               |   | 560.55       |   | 15,560.55  |   | 15,561         |   |
|                             |   |                 |   |         |   |       |   |           |   |
| Roman Schenk                     |   | 15,000               |   | 560.55       |   | 15,560.55  |   | 15,561         |   |

 

**SCHEDULE 3      **

**SELLINGRESTRICTIONS**

1.         **General**

Each party heretoacknowledges that no action has been or will be taken in any jurisdiction bythe Issuer or any Preference Share Subscriber that would permit a publicoffering of the Preference Shares, or possession or distribution of anyoffering material in relation thereto, in any country or jurisdiction whereaction for that purpose is required. Each party hereto undertakes to each otherparty hereto that it will comply with all applicable laws and regulations ineach country or jurisdiction in which it purchases, offers, sells or deliversthe Preference Shares or has in its possession or distributes such offeringmaterial, in all cases at its own expense.

2.         **United States**

The Preference Shareshave not been and will not be registered under the United States Securities Actof 1933, as amended, and may not be offered or sold within the United Statesexcept pursuant to an exemption from, or in a transaction not subject to, theregistration requirements of the United States Securities Act of 1933, asamended. Each party hereto represents, warrants and undertakes to each otherparty hereto that neither it nor any of its affiliates (including any personacting on behalf of any party hereto or any of its affiliates) has offered orsold, or will offer or sell, any Preference Shares in any circumstances whichwould require the registration of any of the Preference Shares under the UnitedStates Securities Act of 1933, as amended, or the registration of the Issuer,the Preference Shares under the United States Investment Company Act of 1940,as amended. Terms used in this paragraph have the meanings given to them in theUnited States Securities Act of 1933, as amended, and the regulationsthereunder.

3.         **Bermuda**

The Issuer has appliedfor and secured the consent of the Bermuda Monetary Authority (the "**Authority**")to the issuance to the Preference Share Subscribers of the Preference Shares.In granting such consent, the Authority accepts no responsibility for thefinancial soundness of any proposal or for the correctness of any statementsmade or opinions expressed with respect to the Preference Shares or the Issuer.Any transfer of the Preference Shares will also require the consent of theAuthority.

4.         **Germany**

Each Preference ShareSubscriber confirms that it has complied and will comply with the SecuritiesSales Prospectus Act (the "**Act**") of the Federal Republic ofGermany *(Wertpapier-Verkaufsprospektgesetz)*.  Each Preference Share Subscriber furtherrepresents, warrants and undertakes that it has not engaged in, and will notengage in, a public offering *(öffentliches Angebot)* within the meaningof the Act with respect to any Preference Share otherwise than in accordancewith all applicable legal and regulatory requirements.

**SIGNATURES**
| ***The Issuer***                        |                  |
|-----------------------------------------|-----------------------|
| **4SIGMA  (BERMUDA) LTD.**              |
| By:                                     | s/Gerald Möller  | By: |
|                                    | GERALD MÖLLER    |
| ***The Preference Share  Subscribers*** |
| **ESG  RE LIMITED**                     |
| By:                                     | s/Margaret L. Webster |
|                                    | Corporate Secretary   |
|                                    |                  |
| **HEAD  COMPANY PROFIT SHARING PLAN**   |
| By:                                     | s/John C Head III     |
|                                    | *Trustee*             |
|                                    |                  |
| **HMI  PARTNERS L.L.C.**                |
| By:                                     | s/John C Head III     |
|                                    |                  |
|                                    |                  |
| **JÖRG  MENTEN**                   |
| **s/Jörg  Menten**                 |
|                                         |                       |  |  |

**______________________________________________________________________**

**GERALD MÖLLER**

 

**______________________________________________________________________**

**DIETRICH NORD**

 

**______________________________________________________________________**

**ROMAN SCHENK**

 

**______________________________________________________________________**

 

**4SIGMA (BERMUDA) LTD.**

**8 PER CENT NON-VOTINGREDEEMABLE AND CONVERTIBLE PREFERENCE SHARES**

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**SUBSCRIPTION AGREEMENT**

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**THIS AGREEMENT** is made on November 8, 2001

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**BETWEEN**

(1)**           4SIGMA(BERMUDA) LTD.** (the "**Issuer**");** **and

(2)           **THE PARTIESNAMED IN SCHEDULE 2**(each, a "**Subscriber**").

**WHEREAS**

The Issuer hasauthorised the creation and issue of 5,000,000 8% class E non-voting redeemableand convertible preference shares of nominal value of USD0.01 each (the "**PreferenceShares**"), the terms of which are substantially set out in theTerm Sheet, of which 3,000,000 will be issued for cash.  Each of the Subscribers intends to makefurther investments in the Issuer by agreeing to subscribe for the PreferenceShares in the terms set out herein.

**IT IS AGREED** as follows:

**1.        ****INTERPRETATION**

**1.1      Definitions**

In this Agreement thefollowing expressions have the following meanings:

“**Availability Period**” meansthe period from and including the date hereof to 31 December 2002 (inclusive).

“**Business Day**” means a day onwhich banks are generally open for business in Bermuda and the United States.

“**Commitment**” means, inrelation to each Subscriber, the number of Preference Shares opposite its namein Schedule 2.

“**Issue Notice**” means a noticein writing substantially in the form set out in Schedule 4.

“**Issue Price**” means USD1.00per Preference Share.

“**Minimum Number**” means 100,000Preference Shares.

“**Share Certificate**” means acertificate representing one or more Preference Shares.

“**Subscription Date**” means theBusiness Day stated as such in the relevant Issue Notice, provided that suchday may not be less than two Business Days after the date on which the IssueNotice is received by each Subscriber.

“**Term Sheet**” means the termsheet set out in Schedule 1.

“**Total Commitment**” means3,000,000 Preference Shares.

1.2**       Statutes**

Any reference in thisAgreement to a statute, any provision thereof or to any statutory instrument,order or regulation made thereunder shall be construed as a reference to suchstatute, provision, statutory instrument, order or regulation as the same mayhave been, or may from time to time be, amended or re-enacted.

2.**        ****SUBSCRIPTION, ISSUE AND ALLOTMENT**

2.1**       Undertaking to subscribe**

Each of the Subscribers,severally and not jointly, undertakes to the Issuer that, subject to and inaccordance with the provisions of this Agreement, it will on each SubscriptionDate during the Availability Period, subscribe and pay for such number ofPreference Shares required by the Issue Notice provided that:

(i)              thetotal number of Preference Shares to be issued on that Subscription Date shallnot be less than the Minimum Number and shall be in multiples of 100,000(representing USD100,000);

(ii)            thenumber of Preference Shares to be subscribed by each Subscriber shall be in thesame proportion to the total number of Preference Shares to be issued on thatSubscription Date as such Subscriber’s Commitment be as to the TotalCommitment;

(iii)           thetotal number of Preference Shares subscribed by each Subscriber shall notexceed its respective Commitment; and

(iv)           theissue of the relevant Issue Notice by the Issuer is duly authorised by theunanimous approval of the board of directors of the Issuer.

2.2**       Undertaking to issue and allot**

The Issuer undertakes toeach Subscriber that, subject to and in accordance with the provisions of thisAgreement, such number of Preference Shares as set out in the relevant IssueNotice will be issued and allotted to the Subscriber on each Subscription Date.

3.**         SELLING****RESTRICTIONS**

Each party heretoacknowledges, represents, warrants and undertakes as set out in Schedule 3.

4.**        ****CLOSING**

4.1**       Closing**

The closing of eachissue shall take place on the relevant Subscription Date, whereupon:

### 4.1.1          *Delivery ofPreference Shares:* The Issuer shall deliver to the Subscribers therelevant Preference Shares (by appropriate entry in the share register andfurnishing to each Subscriber the Share Certificate in respect of the relevantPreference Shares).

### 4.1.2          *Payment ofissue proceeds:* Subject to Clause 4.2, each Subscriber shall pay forthe relevant Preference Shares by credit transfer in United States dollars tosuch account as the Issuer has designated to the Subscribers in the relevantIssue Notice or otherwise as agreed between the Issuer and the Subscribers.

4.2**       Conditions precedent**

### Each Subscriber shall only be under an obligation tosubscribe and pay for the Preference Shares on a Subscription Date if (a) theIssuer has fully performed all of its obligations hereunder and (b) allauthorisations, consents and approvals required by the Issuer for or inconnection with the creation, issue and allotment of the Preference Shares havebeen obtained and are in full force and effect, as of the relevant SubscriptionDate.

5.         DISCHARGE

The Subscribers shall bedischarged from their obligation to subscribe for the Preference Shareshereunder upon the occurrence of the following events:

##### (i)        any action,step or legal proceeding, threatened or otherwise, is taken by the Issuer orany other person for the winding-up, dissolution, administration orre-organisation (whether by way of voluntary arrangement, scheme of arrangementor otherwise) or for the appointment, threatened or otherwise, of a liquidator,receiver, administrator, administrative receiver, conservator, custodian,trustee or similar officer of it or any of its subsidiaries or of any or all ofits revenues and assets or that of any subsidiary;

##### (ii)       theadmission of any of the Issuer’s ordinary shares to listing and trading on arecognised stock exchange; or

##### (iii)      the sale ofall or substantially all of the Issuer’s shares or assets.

6.**        ****SURVIVAL**

The provisions of thisAgreement shall continue in full force and effect notwithstanding thecompletion of the arrangements set out herein for the issue and allotment ofthe Preference Shares and regardless of any investigation by any party hereto.

7.         **TIME**

Any date or periodspecified herein may be postponed or extended by mutual agreement among theparties but, as regards any date or period originally fixed or so postponed orextended, time shall be of the essence.

 

8.**        ****NOTICES**

8.1**       Addresses for notices**

All notices and othercommunications hereunder shall be made in writing and in English (by letter orfax) and shall be sent as follows:

### 8.1.1          If tothe Issuer, to it at:

4sigma(Bermuda) Ltd.

Cedar House

41 CedarAvenue

Hamilton HM12Bermuda

Fax:                          00-1-441-292-8666

Attention:                Shari L. Simons

with a copyto:

4sigmaLimitedc/o Clifford Chance PunderCecilienallee 6-040474 DusseldorfGermany

 

Fax:                          + 49-211-43-555-600

Attention:                Herbert Palmberger

### 8.1.2          If tothe Subscriber, to it at its address for the time being for the giving ofnotices to it by the Issuer in its capacity as a shareholder of the Issuer.

8.2**       Effectiveness**

Every notice or othercommunication sent in accordance with Clause 8.1 shall be effective uponreceipt by the addressee.

9.**         LAW****AND JURISDICTION**

9.1**       Governing law**

This Agreement isgoverned by, and shall be construed in accordance with, the laws of Bermuda.

9.2**       Jurisdiction**

Each party hereto agreesthat the courts of Bermuda shall have jurisdiction to hear and determine anysuit, action or proceedings, and to settle any disputes, which may arise out ofor in connection with this Agreement (respectively, “**Proceedings**” and “**Disputes**”)and, for such purposes, irrevocably submits to the jurisdiction of such courts.

9.3**       Appropriate forum**

Each party heretoirrevocably waives any objection which it might now or hereafter have to thecourts of Bermuda being nominated as the forum to hear and determine anyProceedings and to settle any Disputes, and agrees not to claim that any suchcourt is not a convenient or appropriate forum.

9.4**       Non-exclusivity**

The submission to thejurisdiction of the courts of Bermuda shall not (and shall not be construed soas to) limit the right of any party hereto to take Proceedings in any othercourt of competent jurisdiction, nor shall the taking of Proceedings in any oneor more jurisdictions preclude the taking of Proceedings in any otherjurisdiction (whether concurrently or not) if and to the extent permitted bylaw.

 

**AS WITNESS** the hands of the duly authorised representatives of theparties hereto the day and year first before written.

 

 

**SCHEDULE1**

**Term Sheet**

(1)       Descriptionof E Shares

There shall be created aclass E convertible non voting redeemable preference shares of US$0.01 each inthe Company ("**E Share**" or "**E Shares**").

(2)       Definitions

Terms used in thisSchedule, unless otherwise defined, shall have the meanings given to them inthe Bye-laws of the Company.

(3)       Dividends

(a)             Theholders of the E Shares will be entitled to receive dividends at the rate of 8%per annum on the amount paid up or credited as paid up thereon (together withany premium paid at the date of issue) (the “**E Fixed Dividend**”).   Dividends on the E Shares shall becumulative and shall accrue and be compounded daily.

(b)             Nodividend will be paid on the A Shares, the Ordinary Shares, the B Shares, the CShares or the D Shares unless and until all accrued and unpaid dividends havebeen paid on the E Shares.

(4)       Capital

Subject at all times toany relevant insolvency laws or regulations in Bermuda and/or other applicablejurisdictions, in the event of a winding up of the Company or upon a reductionor return of capital, the holders of E Shares shall be entitled in priority tothe holders of Ordinary Shares, A Shares, B Shares, C Shares and D Shares outof the assets of the Company remaining after payments of its debts and liabilitiesand of the costs, charges and expenses of such winding up or reduction orreturn of capital an amount per E Share equal to the sum of (a) the amount paidup or credited as being paid up on such E Share (including the premium (ifany)) and (b) any accrued but unpaid E Fixed Dividend.

(5)       Conversionof E Shares to Ordinary Shares

(a)             At the option of any holder of EShares, each of the E Shares held by such member and which such member wishesto convert shall be converted into and re-designated as one Ordinary Share.

(b)            All accrued and unpaid E FixedDividends with respect to any E Shares being converted shall concurrently beconverted into Ordinary Shares at the rate of one Ordinary Share to everyUS$1.00, provided that the Company shall not issue fractions of Ordinary Sharesbut shall round any fractional amounts due to any member up or down to thenearest whole Ordinary Share (0.5 being rounded up).

(c)             To effect such conversion, therelevant member shall deliver to the Company a notice setting out the number ofE Shares to be converted and enclosing the share certificate(s) relating tosuch E Shares.  The Company shall effectsuch conversions within 7 days of receipt of such conversion notice and shallimmediately upon such conversion issue to the relevant members sharecertificates for the total number of Ordinary Shares converted from the EShares and the E Fixed Dividends (if any).

(d)            The Ordinary Shares resulting fromthe conversion shall rank for the full amount of all dividends on the Ordinary Sharespaid by reference to a record date after, or declared or resolved to be paidafter, the date of conversion corresponding to the proportion of the wholeperiod in respect of which dividends are declared or resolved to be paid duringwhich the Ordinary Shares have existed.

(6)       Voting

The holders of the EShares shall have no right to vote other than as a class with respect to (a)any rights of such E Shares in accordance with the Bye-laws in which case theprovisions relating to class meetings contained in the Bye-Laws shall apply and(b) any resolution relating to any merger, reorganisation, amalgamation orbusiness combination of the Company.

(7)       Redemption

(a)           TheCompany shall redeem all the E Shares on the earlier of:

(i)        1 October 2006; or

(ii)       the occurrence of an Event.

(b)             Atleast seven days (or such lesser period as shall be agreed between the Companyand the holders of 75% of the E Shares) prior to redemption of any shares underParagraph (a) above, the Company shall give notice to the relevant Shareholdersspecifying the total amount of shares to be redeemed, the number of suchholder's shares to be redeemed and the applicable redemption date and place atwhich the certificates of such shares are to be procured for the redemption.  Upon such redemption date each of theShareholders to which such notice was addressed shall be bound to deliver tothe Company at such place the certificates for such of the shares concerned asare held by it.  Upon delivery of thecertificates the Company shall pay to such holder the amount due to him inrespect of such redemption.  If anycertificate so delivered to the Company includes any shares not to be redeemedon the relevant date, a new certificate for such shares shall be issued free ofcharge to the holder delivering such certificate to the Company.

(c)                   On suchredemption the holders of the E Shares redeemed shall be paid the amountpaid-up or credited as paid-up on the E Shares (including the premium (if any))together with a sum equal to any arrears on deficiency or accruals of dividend(whether earned or declared or not) calculated to and including the date ofsuch redemption.

 

(8)       Pre-emptionRights

(a)           TheCompany shall not allot any equity securities on any terms to a person unlessit has made an offer (an “**Offer**”) to each holder of E Shares, on thesame or more favourable terms, of a proportion of those securities which isequal (or as nearly as practicable equal) to the proportion of (i) the nominalvalue of Ordinary Shares which would be held by such holder if it exercisedfully its option to convert all its E Shares into Ordinary Shares to (ii) thenominal value of all outstanding Ordinary Shares plus such number of OrdinaryShares outstanding as would be issued if all the holders of E Shares fully exercisedtheir options to convert their E Shares into Ordinary Shares. For this purpose,the Directors shall determine the number of Ordinary Shares into which the EShares would convert on the basis set out in Paragraph (5) above.  The Company shall not allot any of thosesecurities to a person unless the period during which any such offer may beaccepted has expired or the Company has received notice of the acceptance orrefusal of every offer so made.

(b)             Atleast 10 days prior to the date of the proposed issue of equity securities, theCompany shall make an Offer in writing to the holders of the E Shares eitherpersonally or by post to him at the address for the time being for the givingof notices to him by the Company in his capacity as a Shareholder of theCompany.  The Offer must state a periodof not less than 10 days during which it may be accepted and the offer shallnot be withdrawn before the end of such period.

 

**SCHEDULE2**

**Commitments**
| **Subscriber**      |   | **Number  of**         |   | **Commitments** |   |
|---------------------|--------|------------------------|--------|-----------------|--------|
|                |   | **Preference  Shares** |   | **(USD)**       |   |
|                |   |                   |   |            |   |
| ESG Re Limited      |   | 1,800,000              |   | 1,800,000       |   |
|                |   |                   |   |            |   |
| HMI Partners L.L.C. |   | 1,200,000              |   | 1,200,000       |   |

 

**SCHEDULE3 SELLING RESTRICTIONS**

1.         **General**

Each party heretoacknowledges that no action has been or will be taken in any jurisdiction bythe Issuer or each Subscriber that would permit a public offering of thePreference Shares, or possession or distribution of any offering material inrelation thereto, in any country or jurisdiction where action for that purposeis required. Each party hereto undertakes to each other party hereto that itwill comply with all applicable laws and regulations in each country orjurisdiction in which it purchases, offers, sells or delivers the PreferenceShares or has in its possession or distributes such offering material, in allcases at its own expense.

2.         **United States**

The Preference Shareshave not been and will not be registered under the United States Securities Actof 1933, as amended, and may not be offered or sold within the United Statesexcept pursuant to an exemption from, or in a transaction not subject to, theregistration requirements of the United States Securities Act of 1933, asamended. Each party hereto represents, warrants and undertakes to each otherparty hereto that neither it nor any of its affiliates (including any personacting on behalf of any party hereto or any of its affiliates) has offered orsold, or will offer or sell, any Preference Shares in any circumstances whichwould require the registration of any of the Preference Shares under the UnitedStates Securities Act of 1933, as amended, or the registration of the Issuer,the Preference Shares under the United States Investment Company Act of 1940,as amended. Terms used in this paragraph have the meanings given to them in theUnited States Securities Act of 1933, as amended, and the regulationsthereunder.

3.         **Bermuda**

The Issuer has appliedfor and secured the consent of the Bermuda Monetary Authority (the "**Authority**")to the issuance to each Subscriber of the Preference Shares. In granting suchconsent, the Authority accepts no responsibility for the financial soundness ofany proposal or for the correctness of any statements made or opinionsexpressed with respect to the Preference Shares or the Issuer. Any transfer ofthe Preference Shares will also require the consent of the Authority.

4.         **Germany**

EachSubscriber confirms that it has complied and will comply with the SecuritiesSales Prospectus Act (the “**Act**”) of the Federal Republic of Germany *(Wertpapier-Verkaufsprospektgesetz)*.Each Subscriber further represents, warrants and undertakes that it has notengaged in, and will not engage in, a public offering *(öffentliches Angebot)*within the meaning of the Act with respect to any Preference Share otherwisethan in accordance with all applicable legal and regulatory requirements.

 

**SCHEDULE 4**

**IssueNotice**

[*on letterhead of the Issuer*]

To:      ESG Re LtdHMI Partners L.L.C.

Dated:

Dear Sirs,

1.         Werefer to the agreement (the "**Subscription Agreement**") dated [*insert dateof Subscription Agreement*] 2001 between us, ESG Re Ltd and HMIPartners L.L.C. relating to the issue of up to 3,000,000 Preference Shares.

2.         Termsused here have the meaning given to them in the Subscription Agreement.

3.         Wehereby give you notice that, pursuant to the Subscription Agreement on [*insertSubscription Date*], we wish to issue [•] Preference Shares, of whichyou will subscribe for [•].

4.             Weconfirm that our board of directors have unanimously approved the issuing ofthis Issue Notice.

Yours faithfully

 

 

.......................................Authorised Signatoryfor and on behalf of 4sigma (Bermuda) Ltd.

**SIGNATURES**

***The Issuer***
| **4SIGMA  (BERMUDA) LTD.** |                  |
|----------------------------|-----------------------|
| By:                        | s/Gerald Möller  | By: |
|                       |                  |   |
| ***The Subscribers***      |                  |
| **ESG  RE LIMITED**        |                  |
| By:                        | s/Margaret L. Webster |   |
|                       | Corporate Secretary   |   |
|                       |                  |   |
| **HMI  PARTNERS L.L.C.**   |                  |
| By:                        | s/John C Head III     |   |
|                            |                       |  |  |  |