VOTING AND CONVERSION
AGREEMENT
VOTING AND
CONVERSION AGREEMENT, dated as of March 14, 2007 (this “
Agreement ”), by and among PXRE Group Ltd., a Bermuda
company (“ Parent ”), Argonaut Group, Inc., a
Delaware corporation (the “ Company ”), Capital
Z Financial Services Fund II, L.P. (“ Capital Z Fund
”), Capital Z Financial Services Private Fund II, L.P.
(“ Capital Z Private Fund ”), CapZ PXRE
Holdings, LLC (“ CapZ Holdings ”), CapZ PXRE
Holdings Private, LLC (“ CapZ Holdings Private
”), Capital Z Management, LLC (“ Capital
Management ” and collectively with Capital Z Fund,
Capital Z Private Fund, CapZ Holdings and CapZ Holdings Private,
“ Cap Z ”), Reservoir Capital Master Fund, L.P.
(“ Reservoir Capital Master Fund ”), Reservoir
Capital Master Fund II, L.P. (“ Reservoir Capital Master
Fund II ”), Reservoir Capital Partners, L.P. (“
Reservoir Partners ”), Reservoir Capital Investment
Partners, L.P. (“ Reservoir Investment ”),
Reservoir Capital Group, L.L.C. (“ Reservoir Group
” and, collectively with Reservoir Capital Master Fund,
Reservoir Capital Master Fund II, Reservoir Partners and Reservoir
Investment, “ Reservoir ”), RER Reinsurance
Holdings, L.P. (“ RER ”) and Robert Stavis
(“ Robert Stavis ” and, collectively with Cap Z,
Reservoir, and RER “ Stockholders ”).
Capitalized terms not defined herein shall have the meaning
ascribed to such terms in the Merger Agreement (defined
below).
WHEREAS, Parent,
Merger Sub, a Delaware corporation and wholly owned subsidiary of
Parent (“ Merger Sub ”), and the Company have
entered into an Agreement and Plan of Merger, dated as of the date
hereof (as the same may be amended or supplemented, the “
Merger Agreement ”), providing for, among other
things, the merger of Merger Sub with and into the Company (the
“ Merger ”), upon the terms and subject to the
conditions set forth in the Merger Agreement;
WHEREAS, pursuant
to Section 8.14 of the Merger Agreement, Parent shall cause
the number of authorized common shares of Parent, par value $1.00
per share (the “ Common Shares ”) to be
increased (the “ Share Increase ”);
WHEREAS, pursuant
to Section 4.1(c) of the Merger Agreement, the number of
Common Shares outstanding shall be reduced pursuant to a
one-for-ten reverse stock split (the “ Reverse Stock
Split ”);
WHEREAS, pursuant
to Section 8.10 of the Merger Agreement, Parent shall cause
the name of Parent to be changed to “Argo Group International
Holdings, Ltd.” (the “ Name Change
”);
WHEREAS, pursuant
to Section 8.9 of the Merger Agreement, Parent shall increase
the number of members of the board of directors of Parent to twelve
(12) and shall use commercially reasonable efforts to increase
the number of members of the board of directors of Parent to
thirteen (13) (collectively, the “ Board Increase
”);
WHEREAS, as of the
date hereof, each Stockholder beneficially owns (as such term is
defined in Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder) the number of shares of (i)
Series A
Convertible Voting Preferred Shares of Parent, par value $1.00 per
share (“ Series A Preferred Shares ”),
(ii) Series B Convertible Voting Preferred Shares of
Parent, par value $1.00 per share (“ Series B
Preferred Shares ”), (iii) Series C Convertible
Voting Preferred Shares of Parent, par value $1.00 per share
(“ Series C Preferred Shares ” and
collectively with Series A Preferred Shares and Series B
Preferred Shares, “ Preferred Shares ”), (iv)
Class A Convertible Voting Common Shares of Parent, par value
$1.00 per share (“ Class A Common Shares
”), (v) Class B Convertible Voting Common Shares of
Parent, par value $1.00 per share (“ Class B Common
Shares ”), (vi) Class C Convertible Voting
Common Shares of Parent, par value $1.00 per share (“
Class C Common Shares ” and collectively with
Class A Common Shares and Class B Common Shares, “
Convertible Common Shares ”) and (vii) Common
Shares, set forth opposite such Stockholder’s name on
Schedule I (and with respect to each Stockholder, such
Preferred Shares, Convertible Common Shares and Common Shares,
together with any other Common Shares, the beneficial ownership of
which is acquired by such Stockholder from and including the date
hereof through and including the date on which this Agreement is
terminated in accordance with its terms (including through the
exercise of any stock options, warrants or similar instruments),
its “ Subject Shares ”);
WHEREAS, pursuant
to that certain Description of Stock of Parent, dated as of
February 12, 2002 (the “ Description of Stock
”), attached to the bye-laws of Parent, as amended (the
“ Bye-Laws ”), Stockholders as holders of
Preferred Shares and Convertible Common Shares have been granted
certain approval rights with respect to actions proposed to be
taken by Parent in connection with the Merger, including the right
to approve (i) the expansion by Parent into lines of business
other than continuing lines of business in which Parent is
currently involved and (ii) any alteration or change to the terms,
designations, powers, preferences or relative participating,
optional or other special rights, or the qualifications,
limitations or restrictions of the Preferred Shares or Convertible
Common Shares;
WHEREAS, pursuant
to the Description of Stock, Stockholders may opt at any time to
convert (i) Preferred Shares to Convertible Common Shares and
(ii) Convertible Common Shares to Common Shares;
WHEREAS, as a
condition to their willingness to enter into this Agreement,
Stockholders have required that Parent reduce the conversion price
applicable to the conversion of Preferred Shares to Convertible
Common Shares on the terms set forth herein only if the Merger is
consummated; and
WHEREAS, as a
condition to its willingness to enter into the Merger Agreement,
Parent and the Company have requested that Stockholders enter into
this Agreement pursuant to which each Stockholder shall, among
other things, (i) vote all of their Subject Shares in favor of
the proposal to approve and adopt the Merger Agreement and the
Merger, the Share Increase, the Reverse Stock Split, the amendment
and restatements of the memorandum of association of Parent (the
“ Memorandum of Association ”) and the Bye-Laws
(such amendment and restatements together, the “ Amendment
and Restatements ”), the Name Change and the Board
Increase, (ii) deliver the consent described in
Section 5 hereof and (iii) convert all of their
Preferred Shares and Convertible Common Shares into Common Shares,
immediately prior to consummation of the Merger.
NOW, THEREFORE, to
induce the Company and Parent to enter into, and in consideration
of their entering into, the Merger Agreement, and in consideration
of the representations, warranties, covenants and agreements set
forth in this Agreement, and intending to be legally bound hereby,
the parties hereto agree as follows:
Section 1.
Limited Irrevocable Proxies .
(a) Each
Stockholder hereby irrevocably grants to, and appoints, Parent and
any individual who shall be designated by Parent,
Stockholder’s proxy and attorney-in-fact (with full power of
substitution and resubstitution), for and in the name, place and
stead of Stockholder, to vote its Subject Shares, or grant a
consent or approval in respect of such Subject Shares, at any
meeting of stockholders of Parent or at any adjournment or
postponement thereof or in any other circumstances upon which their
vote, consent or other approval is sought, in the manner
contemplated by Sections 6(a)(i)-(vii) hereof;
provided , however , that each Stockholder shall be
entitled to revoke such proxy in the event the Closing does not
occur for any reason on or before August 31, 2007 or the
Merger Agreement is terminated in accordance with its
terms.
(b) Each
Stockholder represents and warrants that any proxies heretofore
given in respect of its Subject Shares are not irrevocable and that
any such proxies have been or are hereby revoked.
(c) Each
Stockholder understands and acknowledges that Parent is entering
into the Merger Agreement in reliance upon such Stockholder’s
execution and delivery of this Agreement. Each Stockholder
hereby affirms that the proxy set forth in this
Section 1 is coupled with an interest and is
irrevocable until such time as this Agreement terminates in
accordance with its terms and that no subsequent proxies with
respect to its Subject Shares shall be given (and if given shall
not be effective). Each Stockholder hereby further affirms that
the irrevocable proxy is given in connection with the execution of
the Merger Agreement and that such irrevocable proxy is given to
secure the performance of the duties of such Stockholder under this
Agreement. Each Stockholder hereby ratifies and confirms all that
such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy is executed and intended to
be irrevocable in accordance with the provisions of the Bye-Laws
and Bermuda law. The power of attorney granted by each Stockholder
is a durable power of attorney and shall survive the dissolution,
bankruptcy, death or incapacity of such Stockholder.
Section 2.
Representations and Warranties of Stockholders . Each
Stockholder hereby represents and warrants as follows:
(a)
Ownership of Subject Shares . Stockholder is the record and
beneficial owner of, and has good, valid and marketable title to,
the Subject Shares set forth opposite its name on
Schedule I , free and clear of any liens, warrants,
options or other rights to purchase or acquire such Subject Shares
other than those imposed by securities laws and by this Agreement.
Stockholder has the exclusive right to vote the Subject Shares set
forth opposite its name on Schedule I , and none of
such Subject Shares is subject to any voting trust or other
agreement, arrangement or restriction with respect to the voting of
such Subject Shares, except as contemplated by this
Agreement.
(b)
Authority; No Conflict . Stockholder has all requisite power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by Stockholder and constitutes a valid and
binding obligation of Stockholder enforceable against Stockholder
in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not,
conflict with, result in any violation of, or constitute (with or
without notice or lapse of time or both) default under, any
provision of any trust agreement, loan or credit agreement, bond,
note, mortgage, indenture, lease, partnership agreement or other
contract, agreement, obligation, commitment, arrangement,
understanding, instrument, permit, concession, franchise or license
or any statute, law, ordinance, rule, regulation, judgment, order,
notice or decree applicable to Stockholder or to any of
Stockholder’s property or assets.
(c) No
Filings; Consents . No consents or approvals of, or filings or
registrations with, any Governmental Entity or any other Person are
necessary to be made by Stockholder in connection with (i) the
execution and delivery by Stockholder of this Agreement and
(ii) the performance by Stockholder of its obligations under
this Agreement, including the grant of the limited irrevocable
proxy pursuant to Section 1(a) hereof.
(d)
Reliance . Each Stockholder understands and acknowledges
that Parent is entering into the Merger Agreement in reliance upon
such Stockholder’s execution and delivery of this
Agreement.
(e)
Brokers . No broker, finder or investment banker is entitled
to any brokerage, finder’s or other fee or commission from
Parent or the Company in connection with the transactions
contemplated by this Agreement based upon arrangements made by or
on behalf of Stockholders.
Section 3.
Representations and Warranties of the Company . The Company
hereby represents and warrants that the Company has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has
been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. The
execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, result in any
violation of, or constitute (with or without notice or lapse of
time or both) default under, any provisions of the certificate of
incorporation or by-laws of the Company or any trust agreement,
loan or credit agreement, bond, note, mortgage, indenture, lease or
other contract, agreement, obligation, commitment, arrangement,
understanding, instrument, permit, concession, franchise or license
or any statute, law, ordinance, rule, regulation, judgment, order,
notice or decree applicable to the Company or any of the
Company’s property or assets. No broker, finder or investment
banker is entitled to any brokerage, finder’s or other fee or
commission from Stockholder or Parent in connection with the
transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
Section 4.
Representations and Warranties of Parent . Parent hereby
represents and warrants that Parent has all requisite corporate
power and authority to enter into
this Agreement
and to consummate the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by
Parent and constitutes a valid and binding obligation of Parent
enforceable against Parent in accordance with its terms. The
execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, result in any
violation of, or constitute (with or without notice or lapse of
time or both) default under, any provisions of the Memorandum of
Association or Bye-Laws or any t
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