Exhibit 4.3
EXECUTION COPY
SHAREHOLDER AGREEMENT
THIS
SHAREHOLDER AGREEMENT (this “ Agreement ”) dated
November 18, 2008, is entered into between Syncora Private Trust
Company Limited (the “ Trustee ”), a Bermuda
company as trustee of the special purpose trust (the “
Trust ”) established by the Declaration of Trust
defined below and known as The CCRA Purpose Trust (the “
SCA Shareholder Entity ”), and Syncora Holdings Ltd
(formerly known as Security Capital Assurance Ltd), a Bermuda
exempted company (“ SCA ”).
WHEREAS,
SCA has entered into the Master Commutation, Release and
Restructuring Agreement dated as of July 28, 2008 (the “
Master Restructuring Agreement ”) with Syncora
Guarantee Inc. (formerly known as XL Capital Assurance Inc.)
(“ XLCA ”), Syncora Guarantee Re Ltd (formerly
known as XL Financial Assurance Ltd.), Syncora Guarantee Services
Inc. (formerly known as XL Financial Administrative Services Inc.),
Syncora Bermuda Administrative Ltd (formerly known as SCA Bermuda
Administrative Ltd.), Syncora Guarantee (U.K.) Ltd (formerly known
as XL Capital Assurance (U.K.) Limited) and those Portfolio Trusts
a party thereto, XL Capital Ltd., XL Insurance (Bermuda) Ltd.
(“ XLI ”), XL Reinsurance America Inc., X.L.
Global Services Inc., XL Services (Bermuda) Limited and X.L.
America, Inc. and the consenting counterparties party thereto (the
“ Consenting Counterparties ”);
WHEREAS,
in accordance with Section 2.10 of the Master Restructuring
Agreement, on August 5, 2008, the 30,069,049 Common Shares (as
hereinafter defined), which represent approximately 46% of the
outstanding Common Shares and all of the Common Shares beneficially
owned by XLI on the Closing Date (as such term is defined in the
Master Restructuring Agreement) (the “ SCA Shares
”), have been transferred to HSBC Institutional Trust
Services (Bermuda) Limited (the “ Escrow Agent
”) to be held by the Escrow Agent until released in
accordance with the terms of the Escrow Agreement dated as of July
30, 2008 (as amended, modified or supplemented from time to time,
the “ Escrow Agreement ”) among SCA, XLCA and
the Escrow Agent;
WHEREAS,
the parties to the Master Restructuring Agreement have agreed that
upon the satisfaction of the SCA Shareholder Entity Formation
Conditions (as such term is defined in the Master Restructuring
Agreement), the Escrow Agent will, in accordance with the terms of
the Escrow Agreement, release the SCA Shares and deliver them to
the SCA Shareholder Entity, which shall hold the SCA Shares in
accordance with the terms of that certain Declaration of Trust
dated as of the date hereof (the “ Declaration of
Trust ”) establishing the SCA Shareholder Entity;
and
WHEREAS,
the parties to the Master Restructuring Agreement have agreed that
in connection with the receipt of the SCA Shares by the SCA
Shareholder Entity, certain rights afforded to XLI under the
Bye-Laws (as hereinafter defined) and under that certain transition
agreement entered into on
August 4, 2006 between XLI, SCA
and the other parties thereto shall be transferred to the SCA
Shareholder Entity.
NOW,
THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:
Section
1. Definitions.
(a)
“ Act ” means the Companies Act 1981 of Bermuda,
as amended from time to time.
(b)
“ Affiliate ” means, with respect to any Person,
any other Person directly or indirectly controlling, controlled by
or under common control with such Person. For purposes of this
definition, the term “control” (including its
correlative meanings, the terms “controlling”,
“controlled by” and “under common control
with”) shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. For purposes of this
Agreement, no Consenting Counterparty shall be deemed to be an
Affiliate of the SCA Shareholder Entity and the SCA Shareholder
Entity shall not be deemed to be an Affiliate of SCA or any of its
Subsidiaries.
(c)
“ Business Day ” means any day excluding
Saturday, Sunday and any day on which banks in New York, New York
or Hamilton, Bermuda have the option or are required by law or
other governmental action to close.
(d)
“ Bye-Laws ” means the Amended and Restated
Bye-Laws of SCA, as amended from time to time.
(e)
“ Common Shares ” means the common shares, $0.01
par value per common share, of SCA, and any share capital into
which such common shares shall have been converted or any share
capital resulting from a reclassification of such common
shares.
(f)
“ Finance and Risk Oversight Committee ” means
the finance and risk oversight committee of the SCA
Board.
(g)
“ Independent ” means, with respect to any
director or nominee for director, an individual who is both (i)
“independent” (as defined in the corporate governance
rules of the listing standards of the New York Stock Exchange) of
(A) SCA and its subsidiaries and (B) each Consenting Counterparty
and the SCA Shareholder Entity, assuming, for purposes of this
clause (B), that such independence standard were applied to, and
such individual were a director of, each such Consenting
Counterparty and the SCA Shareholder Entity (including, for the
avoidance of doubt, the Trustee) and (ii) not a director, officer
or employee of the SCA Shareholder Entity (including, for the
avoidance of doubt, the Trustee) or any Consenting Counterparty, or
an officer or employee of SCA or any of its Affiliates.
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(h)
“ Material Subsidiary ” means at any time, (i)
XLCA and (ii) any subsidiary of SCA which at such time is a
“significant subsidiary” as defined under Regulation
S-X of the Securities Exchange Act of 1934, as amended.
(i)
“ New York Stock Exchange ” means the New York
Stock Exchange Inc.
(j)
“ Person ” means an individual, corporation,
partnership, association, trust, limited liability company or any
other entity or organization, including a government or political
subdivision or an agency, unit or instrumentality
thereof.
(k)
“ Representatives ” means with respect to any
Person, such Person’s Affiliates and its and their respective
officers, directors, employees, accountants, counsel, consultants,
advisors, agents and representatives.
(l)
“ SCA Board ” means the board of directors of
SCA.
(m)
“ SCA Board Nominee ” means an individual who
was nominated for election by the SCA Board (and who is not an SCA
Shareholder Entity Nominee).
(n)
“ Voting Restriction Termination Event ” means
the time at which the SCA Shareholder Entity’s and its
Affiliates’ aggregate ownership of the then outstanding
Common Shares is first equal to or less than 35%.
Section
2 . Corporate Governance.
(a)
Voting of SCA Shares . The SCA Shareholder Entity will vote
the SCA Shares at each annual or special meeting of shareholders of
SCA at which directors are to be elected, or execute proxies or
written consents, as the case may be, in favor of (i) each SCA
Shareholder Entity Nominee then standing for election and (ii) with
respect to each other open board seat then standing for election
that is not required to be filled by an SCA Shareholder Entity
Nominee pursuant to Section 2(b) below, an individual that is
Independent or, at the SCA Shareholder Entity’s election, an
SCA Board Nominee; provided that in exercising its
discretion pursuant to the foregoing clause (ii), the SCA
Shareholder Entity will vote the SCA Shares so that a majority of
the SCA Board is at all times Independent; provided ,
however , that the SCA Shareholder Entity shall not vote in
favor of any individual who, to the SCA Shareholder Entity’s
knowledge (after reasonable inquiry is made to such individual, and
if different from such individual, the proponent of the proxy
solicitation), is either receiving or entitled to receive, directly
or indirectly, any compensation or entitlement to indemnification,
or is named or entitled to be named as a beneficiary under any
D&O insurance policy, for service on the SCA Board, any SCA
Board committees or any SCA subsidiary boards or committees from
the Consenting Counterparties or the SCA Shareholder
Entity.
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(b)
SCA Shareholder Entity Nominees .
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(i)
Until the occurrence of a Voting Restriction Termination Event, the
SCA Shareholder Entity will have the right to nominate for the SCA
Board (i) for so long as the SCA Board consists of nine or fewer
directors, such number of nominees as would equal one nominee less
than a majority of the directors and (ii) for so long as the SCA
Board consists of ten or more directors, such number of nominees as
would equal two nominees less than a majority of the directors (the
“ SCA Shareholder Entity Nominees ”);
provided that until the occurrence of a Voting Restriction
Termination Event, the SCA Shareholder Entity shall at all times be
entitled to nominate at least one nominee to the SCA Board. Such
SCA Shareholder Entity Nominees will be allocated among the classes
of the SCA Board as follows: (i) two to the “Class I”
directors and (ii) one each to the “Class II” directors
and “Class III” directors (or as substantially
equivalent thereto if for any reason the SCA Board consists of more
or fewer than nine directors), in each case, as such
“classes” of directors are described in paragraph (3)
of Section 8 of the Bye-Laws. For the avoidance of doubt, so long
as the SCA Board consists of eleven directors, the SCA Shareholder
Entity will have the right to nominate four of the eleven
directors. If, for any reason, there is a vacancy in the SCA Board,
which vacancy is of a director so nominated by the SCA Shareholder
Entity, SCA shall fill that vacancy as soon as practicable with an
SCA Shareholder Entity Nominee. Similarly, if there is a vacancy
created by an increase in the number of directors, then such
vacancy shall be filled in a manner consistent with the SCA
Shareholder Entity’s rights set forth in this Section
2(b)(i). Moreover, if the size of the SCA Board is at any time
reduced, the SCA Shareholder Entity shall direct such number of SCA
Shareholder Entity Nominees, if any, in excess of those to which
the SCA Shareholder Entity is entitled based on the reduced size of
the SCA Board to resign from the SCA Board and any directorships
they hold with subsidiaries of SCA. All SCA Shareholder Entity
Nominees shall agree for the benefit of SCA to abide by such
direction. All SCA Shareholder Entity Nominees shall be
Independent.
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(ii)
The initial persons who shall serve as SCA Shareholder Entity
Nominees (each such person, an “ Initial SCA Shareholder
Entity Nominee ”) until their successors are elected and
qualified or until their earlier death, resignation or removal from
office, and their respective classes on the SCA Board, shall be as
follows:
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Name
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Class
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Duncan P. Hennes
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Class I
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Edward Muhl
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Class I
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Robert J. White
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Class II
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Thomas S. Norsworthy
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Class III
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SCA shall take all action
necessary to cause the Initial SCA Shareholder Entity Nominees to
be appointed to the SCA Board immediately after the Effective Date
(as defined below); provided that prior to the Effective
Date, each SCA Shareholder Entity Nominee who agrees to comply with
the confidentiality provisions of SCA’s Corporate Governance
Guidelines as in effect on the date hereof shall have
“observer status” on the SCA Board and on the board of
directors of XLCA. Unless otherwise agreed by SCA and the
Consenting Counterparties Enforcer (as such term is defined in the
Declaration of Trust), the SCA Shareholder Entity shall at the
expiration of such Initial SCA Shareholder Entity Nominee’s
then existing term submit such person’s name to SCA’s
Nominating & Governance Committee in accordance with Section
2(b)(vii) and, unless such person is objected to by such committee
in accordance with such section, nominate such person as an SCA
Shareholder Entity Nominee until such time that such person
resigns, is removed in accordance with SCA’s Bye-Laws or
otherwise is not available to serve on the SCA Board. If, at any
time, the SCA Shareholder Entity shall have the right pursuant to
Section 2(b)(i) to fill a vacancy on the SCA Board that cannot be
filled by an Initial SCA Shareholder Entity Nominee, whether as a
result of an Initial SCA Shareholder Entity Nominee’s death,
resignation or removal from office, an increase in the number of
directors on the SCA Board, the agreement by SCA and the Consenting
Counterparties Enforcer (as such term is defined in the Declaration
of Trust) not to re-nominate an Initial SCA Shareholder Entity
Nominee or otherwise, the person to fill such vacancy shall be
selected in accordance with Section 1.2.3 of Schedule B of the
Declaration of Trust. Following the selection of a person other
than an Initial SCA Shareholder Entity Nominee in accordance with
paragraph A or B of Schedule E of the Declaration of Trust, the
provisions of the second preceding sentence shall apply to any
re-nomination of such person to the same extent as though such
person were an Initial SCA Shareholder Entity Nominee.
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(iii)
SCA shall include the SCA Shareholder Entity Nominees in each slate
of directors proposed, recommended or nominated for election by SCA
or the SCA Board, and will use the same efforts to cause the
election of such nominees as it uses for the SCA Board Nominees in
connection with that election (it being understood that for so long
as the SCA Board shall remain classified under the Act, this
Section 2(b)(iii) shall apply to only the SCA Shareholder Entity
Nominees assigned to the appropriate “class” then up
for election).
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(iv)
SCA agrees that each SCA Shareholder Entity Nominee shall be
entitled to receive compensation and indemnification from SCA and
its subsidiaries, and to be covered by D&O insurance policies
of SCA
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and its subsidiaries, on the same
terms as the SCA Board Nominees who are Independent. The SCA
Shareholder Entity agrees that no SCA Shareholder Entity Nominee
shall receive, directly or indirectly, any compensation or
entitlement to indemnification, or be named as a beneficiary under
any D&O insurance policy, for service on the SCA Board, any SCA
Board committees or any SCA subsidiary boards or committees from
the Consenting Counterparties or the SCA Shareholder
Entity.
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(v)
Notwithstanding any provision of SCA’s Corporate Governance
Guidelines and any confidentiality undertaking by the SCA
Shareholder Entity or any SCA Shareholder Entity Nominee to the
contrary, the parties to this Agreement acknowledge and agree that,
from and after the Effective Date, each SCA Shareholder Entity
Nominee (i) is hereby authorized to disclose information to the SCA
Shareholder Entity and its Representatives, (ii) is under no
obligation to communicate any information received from the SCA
Shareholder Entity or any of its Representatives to the SCA
Chairman or any other Person and (iii) is authorized to initiate
communications, directly or indirectly, with the SCA Shareholder
Entity and its Representatives without any requirement to first
pre-clear such communications with the SCA Chairman or any other
Person, in each case, to the extent such SCA Shareholder Entity
Nominee determines in good faith that the taking or the failure to
take any such actions will not be inconsistent with his or her
fiduciary duties to SCA under applicable law. For the avoidance of
doubt, the provisions of the immediately preceding sentence shall
not apply to disclosures to or communications with the Consenting
Counterparties or their Representatives. SCA shall, effective as of
the Effective Date, amend SCA’s Corporate Governance
Guidelines to extent necessary so that SCA’s Corporate
Governance Guidelines do not contain any provisions inconsistent
with this Section 2(b)(v).
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(vi)
Until the occurrence of a Voting Restriction Termination Event, the
SCA Shareholder Entity will not knowingly take any action to form
or join a “group” within the meaning of Section
13(d)(3) of the Exchange Act with any other Person, including
without limitation any of the Consenting Counterparties, for the
purpose of seeking to elect more than the number of SCA Shareholder
Entity Nominees to which it is then entitled under Section 2(b)(i);
provided that, subject to Section 2(a), the foregoing shall
in no way prohibit the SCA Shareholder Entity from voting any
securities of SCA in its discretion (including in connection with
any election contest) or otherwise independently exercising its
rights as a shareholder of SCA; provided , further ,
that for the avoidance of doubt, the execution and delivery of this
Agreement and the Declaration of Trust shall not be deemed to be in
violation of this Section 2(b)(vi).
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(vii)
Prior to any individual becoming an SCA Shareholder Entity Nominee
or, in the case of any individual then serving as an SCA
Shareholder Entity Nominee, continuing to serve as an SCA
Shareholder Entity Nominee following the expiration of his or her
then existing term, the SCA Shareholder Entity shall submit the
name of such individual, together with the information and
documentation referred to in paragraphs (2) and (5) of clause (B)
of Schedule E of the Declaration of Trust, to SCA’s
Nominating & Governance Committee for consideration and
approval pursuant to this Section 2(b)(vii). During the 10-Business
Day period following such submission, SCA’s Nominating &
Corpor
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