Exhibit 10.2

EXECUTION COPY

MASTER TRANSACTION AGREEMENT

among

CANOPIUS GROUP LIMITED,

CANOPIUS HOLDINGS BERMUDA LTD.,

CANOPIUS MERGERCO, INC.

and

TOWER GROUP, INC.

Dated as of April 25, 2012

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Table of Contents

(continued)

 

Table of Contents

 

          Page  

ARTICLE I

  

THE TRANSACTIONS

     2   

Section 1.1

  

Consideration.

     2   

Section 1.2

  

The Third Party Sale.

     3   

Section 1.3

  

The Merger.

     3   

Section 1.4

  

The SPS Transactions.

     3   

Section 1.5

  

The Managing Agency Acquisition.

     3   

Section 1.6

  

The Closings.

     4   

Section 1.7

  

Closing Deliveries.

     4   

ARTICLE II

  

REPRESENTATIONS AND WARRANTIES OF PARENT

     6   

Section 2.1

  

Corporate Status.

     6   

Section 2.2

  

Corporate and Governmental Authorization.

     7   

Section 2.3

  

Non-Contravention.

     8   

Section 2.4

  

Capitalization; Title to Shares.

     8   

Section 2.5

  

Subsidiaries; Ownership Interests.

     9   

Section 2.6

  

Financial Statements; Accounting Controls.

     9   

Section 2.7

  

Undisclosed Liabilities.

     11   

Section 2.8

  

Representations Regarding Omega.

     11   

Section 2.9

  

Absence of Certain Changes.

     11   

Section 2.10

  

Material Contracts.

     11   

Section 2.11

  

Books and Records.

     12   

Section 2.12

  

Investment Company.

     12   

Section 2.13

  

Litigation.

     12   

Section 2.14

  

Compliance with Laws.

     12   

Section 2.15

  

Permits and Licenses.

     13   

Section 2.16

  

The Corporate Member.

     13   

Section 2.17

  

Tax Matters.

     13   

Section 2.18

  

Insurance.

     14   

Section 2.19

  

Reinsurance Agreements.

     15   

Section 2.20

  

Investment Assets.

     15   

Section 2.21

  

Intercompany Accounts; Transactions with Affiliates or Other Shareholders.

     15   

Section 2.22

  

Finders’ Fees.

     16   

ARTICLE III

  

REPRESENTATIONS AND WARRANTIES OF INVESTOR

     16   

Section 3.1

  

Corporate Status.

     16   

Section 3.2

  

Corporate and Governmental Authorization.

     16   

Section 3.3

  

Non-Contravention.

     17   

Section 3.4

  

Sophisticated Investor; Purchase for Investment.

     17   

Section 3.5

  

Finders’ Fees.

     17   

Section 3.6

  

Litigation.

     17   

 

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Table of Contents

(continued)

 

ARTICLE IV

  

CERTAIN COVENANTS

     18   

Section 4.1

  

Operating Limitations.

     18   

Section 4.2

  

Notice of Certain Events.

     20   

Section 4.3

  

Access to Information; Confidentiality.

     21   

Section 4.4

  

Public Announcements.

     22   

Section 4.5

  

Consents, Approvals and Filings.

     22   

Section 4.6

  

The Merger Election.

     24   

Section 4.7

  

The SPS Transactions Right.

     31   

Section 4.8

  

The Managing Agency Acquisition Right.

     32   

Section 4.9

  

Return of Investment Premium.

     34   

Section 4.10

  

Further Assurances.

     35   

ARTICLE V

  

TERMINATION

     35   

Section 5.1

  

Termination.

     35   

Section 5.2

  

Effect of Termination.

     35   

ARTICLE VI

  

INDEMNIFICATION

     35   

Section 6.1

  

Survival.

     35   

Section 6.2

  

Indemnification by Parent.

     36   

Section 6.3

  

Indemnification by Investor.

     36   

Section 6.4

  

Certain Limitations.

     37   

Section 6.5

  

Payment Adjustments, Etc.

     38   

Section 6.6

  

Third Party Claim Procedures.

     39   

ARTICLE VII

  

DEFINITIONS

     40   

Section 7.1

  

Certain Terms.

     40   

Section 7.2

  

Construction.

     52   

ARTICLE VIII

  

MISCELLANEOUS

     53   

Section 8.1

  

Notices.

     53   

Section 8.2

  

Amendment; Waivers, Etc.

     55   

Section 8.3

  

Expenses.

     55   

Section 8.4

  

Governing Law, Etc.

     55   

Section 8.5

  

Successors and Assigns.

     56   

Section 8.6

  

Entire Agreement.

     56   

Section 8.7

  

Severability.

     56   

Section 8.8

  

Counterparts; Effectiveness; Third Party Beneficiaries.

     56   

Section 8.9

  

Specific Performance.

     57   

 

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Table of Contents

(continued)

 

Exhibits    Exhibit A    Investment Agreement Exhibit B    Merger Agreement Term
Sheet Exhibit C    The Restructuring Exhibit D    Offer Announcement Exhibit E
   Tax Certification Exhibit F    Expense Reimbursement

 

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This MASTER TRANSACTION AGREEMENT (this “Agreement”), dated as of April 25,
2012, is made by and entered into among Canopius Group Limited, a Guernsey
limited company (“Parent”), Canopius Holdings Bermuda Ltd., a Bermuda limited
company and a wholly owned Subsidiary of Parent (“Bermuda Holdco”), Canopius
Mergerco, Inc., a Delaware corporation and wholly owned Subsidiary of Bermuda
Holdco (“Delaware Holdco”) and Tower Group, Inc., a Delaware corporation
(“Investor”).

RECITALS

WHEREAS, Parent intends to commence an offer for cash (the “Cash Offer”) for
100% of the issued and outstanding ordinary shares of Omega Insurance Holdings
Limited, a Bermuda limited company (“Omega”);

WHEREAS, in order to provide equity financing to Parent for the Cash Offer,
Parent and Investor will, concurrently with the execution and delivery of this
Agreement, (i) enter into an Investment and Shareholders’ Agreement with each of
the principal shareholders of Parent (which principal shareholders, together
with the other shareholders of Parent, are referred to herein as the
“Shareholders”) in the form attached as Exhibit A (the “Investment Agreement”)
pursuant to which, upon the terms and subject to the conditions set forth
therein, Investor will acquire from Parent 31,766,961 newly issued “A” Ordinary
Shares of no par value of Parent (the “Class A Parent Shares”), which Class A
Parent Shares will, as of the closing of the transactions contemplated by the
Investment Agreement (the “Investment Closing”), represent approximately 10.7%
of the issued and outstanding ordinary shares of Parent;

WHEREAS, subject to the terms hereof, from and after the Investment Closing
until the date that is 18 months after the Investment Closing Date, Investor
will have the right, at its election, to (i) cause certain Subsidiaries of
Bermuda Holdco to execute and deliver, and perform their obligations under, an
Agreement and Plan of Merger having the terms set forth in Exhibit B (the
“Merger Agreement”), pursuant to which a newly formed Subsidiary of Delaware
Holdco that is a Delaware corporation (“Merger Sub”) will merge (the “Merger”)
with and into Investor and the outstanding shares of the capital stock of
Investor will be exchanged for Class A Ordinary Shares of Bermuda Holdco
(“Bermuda Holdco Shares”) and cash and (ii) cause Parent to sell, immediately
prior to the Merger, all of the issued and outstanding Bermuda Holdco Shares
(other than the Bermuda Holdco Shares to be paid to the stockholders of Investor
as consideration in connection with the Merger) (the “Third Party Sale”) to
certain Persons to be identified who are willing and able to purchase such
Bermuda Holdco Shares on the terms of the Third Party Sale Agreement (the
“Equity Investors”);

WHEREAS, from and after the date on which either (a) the shareholders of Omega
approve the Cash Offer (if the acquisition of Omega by Parent is implemented by
way of a merger, scheme or amalgamation) or (b) the Cash Offer becomes or is
declared unconditional to acceptances (if implemented by way of an offer) (the
“Threshold Date”) and prior to January 1, 2016, subject to the terms hereof
Parent will, at the election of Investor, (i) subject to the receipt of all
necessary consents of Lloyd’s and any other applicable Permits, cause either
(x) Canopius Managing Agents Limited (“CMAL”), (y) Omega Underwriting Agents
Limited (UK) (“Omega UAL”) or (z) another Lloyd’s managing agency formed by
Parent or Investor for the sole purpose of consummating the applicable
transactions contemplated by Section 4.7 or

 

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Section 4.8 of this Agreement to (A) establish a special purpose syndicate at
Lloyd’s (the “SPS”) the sole member of which will be Canopius Capital Eleven
Limited (the “Corporate Member”), (B) manage the SPS and (C) cause the SPS to
reinsure, on a quota share basis, business written by Syndicate 4444 (including
business directed to Syndicate 4444 by Investor and its Affiliates) (the “SPS
Establishment”) and (ii) subject to the receipt of all necessary consents of
Lloyd’s and any other applicable Permits, transfer 100% of the issued and
outstanding shares of the Corporate Member to Investor or its Affiliate (the
“Corporate Member Acquisition” and, together with the SPS Establishment, the
“SPS Transactions”);

WHEREAS, subject to the terms hereof, from and after the Threshold Date and
prior to January 1, 2016, Parent will, at the election of Investor, use its
Reasonable Best Efforts to cause the SPS to be granted approval by Lloyd’s to
operate as a stand-alone syndicate to underwrite business at Lloyd’s, including
by way of quota share reinsurance of Syndicate 4444;

WHEREAS, subject to the terms hereof, from and after the Investment Closing Date
and prior to January 1, 2016, Parent will, at the election of Investor, unless
the Managing Agency is a new entity formed by Investor, and subject to the
receipt of all necessary consents of Lloyd’s and any other applicable Permits,
transfer 100% of the issued and outstanding shares of the Managing Agency to
Investor or to an Affiliate of Investor as Investor may direct (the “Managing
Agency Acquisition”); and

WHEREAS, capitalized terms used in this Agreement have the meanings given to
such terms in Section 7.1.

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

ARTICLE I

THE TRANSACTIONS

Section 1.1 Consideration.

(a) On the Investment Closing Date, Investor shall pay the sum of $14,000,000
(the “Investment Premium”) into such account(s) as Parent shall have specified
to Investor not less than three Business Days prior to the Investment Closing
Date.

(b) The amount of the Investment Premium to be allocated to the right of
Investor to effect the transactions contemplated by Section 4.6 (the “Merger
Right”) shall be $3,000,000 (the “Merger Option Price”).

(c) The amount of the Investment Premium to be allocated to the right of
Investor to effect the transactions contemplated by Section 4.7 (the “SPS
Transactions Right”) shall be $4,000,000 (the “SPS Option Price”).

 

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(d) The amount of the Investment Premium to be allocated to the right of
Investor to effect the transactions contemplated by Section 4.8 (the “Managing
Agency Acquisition Right”) shall be $7,000,000 (the “Managing Agency Acquisition
Option Price”).

Section 1.2 The Third Party Sale.

Upon the terms and subject to the conditions set forth herein and in the Third
Party Sale Agreement, at the closing of the transactions contemplated thereby
(the “Third Party Sale Closing”), Parent shall sell, transfer, assign and
deliver to the Equity Investors, free and clear of all Liens, and the Equity
Investors shall purchase, all of the Bermuda Holdco Shares contemplated by
Section 4.6 to be sold pursuant to the Third Party Sale Agreement, for a
purchase price to be determined pursuant to Section 4.6 and specified in the
Third Party Sale Agreement. As of the Third Party Sale Closing Date, none of the
assets of Bermuda Holdco shall be subject to any Lien.

Section 1.3 The Merger.

Upon the terms and subject to the conditions set forth herein and in the Merger
Agreement, at the Merger Closing, Parent, Bermuda Holdco and Delaware Holdco
shall cause Merger Sub to merge with and into Investor with Investor continuing
as the surviving corporation and a wholly owned Subsidiary of Delaware Holdco,
which Merger will have the effects contemplated by the Merger Agreement. As of
the Merger Closing Date, none of the assets of Bermuda Holdco shall be subject
to any Lien.

Section 1.4 The SPS Transactions.

Upon the terms and subject to the conditions set forth herein, at the SPS
Closing, (a) Parent shall transfer (subject to all necessary consents of Lloyd’s
and any other applicable Permits having been obtained) to Investor, or any
Affiliate of Investor as directed by Investor, 100% of the issued and
outstanding shares of capital stock of the Corporate Member free and clear of
all Liens (other than ordinary course Liens imposed by Lloyd’s in connection
with the Corporate Member’s participation as a member of Syndicate 4444), as and
on the terms contemplated by Section 4.7, (b) the SPS and CMAL (or the Managing
Agency) shall enter into the Management Agreement and (c) the SPS and Syndicate
4444 shall enter into the Quota Share Reinsurance Agreement. As of the SPS
Closing Date, none of the assets of the Corporate Member shall be subject to any
Lien (other than ordinary course Liens imposed by Lloyd’s in connection with the
Corporate Member’s participation as a member of Syndicate 4444).

Section 1.5 The Managing Agency Acquisition.

Upon the terms and subject to the conditions set forth herein, at the Managing
Agency Closing, Parent shall (unless the managing agent is a new entity formed
by Investor) transfer or cause to be transferred (subject to all necessary
consents of Lloyd’s and any other applicable Permits having been obtained) to
Investor, or an Affiliate of Investor as directed by Investor, 100% of the
issued and outstanding shares of capital stock of the Managing Agency free and
clear of all Liens, as and on the terms contemplated by Section 4.8. As of the
Managing Agency Acquisition Closing Date, none of the assets of the Managing
Agency shall be subject to any Lien.

 

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Section 1.6 The Closings.

(a) Unless the Third Party Sale Agreement has been terminated in accordance with
its terms, and subject to the satisfaction or waiver of the conditions set forth
in the Third Party Sale Agreement, the Third Party Sale Closing shall take place
at the place and time to be specified in the Third Party Sale Agreement (which
time shall be immediately prior to the Merger Closing Date). The actual date and
time of the Third Party Sale Closing are herein referred to as the “Third Party
Sale Closing Date.”

(b) Unless the Merger Agreement has been terminated in accordance with its
terms, and subject to the satisfaction or waiver of each of the conditions set
forth in the Merger Agreement, the Merger Closing shall take place at the place
and time to be specified in or determined pursuant to the Merger Agreement
(which time shall be immediately after the Third Party Sale Closing Date). The
actual date and time of the Merger Closing are herein referred to as the “Merger
Closing Date.”

(c) The SPS Closing shall take place at the latest of (i) the date and time to
be specified by Investor in the SPS Notice delivered by Investor in accordance
with the terms of Section 4.7(a), (ii) the third Business Day after the date on
which the last of the Permits and Lloyd’s approvals referred to in clauses (i),
(ii) and (iii) of paragraph (a) of Section 4.7 shall have been obtained and
(iii) the Investment Closing Date. The actual date and time of the SPS Closing
are herein referred to as the “SPS Closing Date.”

(d) The Managing Agency Closing shall take place at the latest of (i) the date
and time to be specified by Investor in the Managing Agency Acquisition Notice
delivered by Investor in accordance with the terms of Section 4.8(a), (ii) the
third Business Day after the date on which the last of the Lloyd’s and FSA
approvals and other necessary Permits referred to in paragraph (a) of
Section 4.8 shall have been obtained and (iii) the Investment Closing Date. The
actual date and time of the Managing Agency Closing are herein referred to as
the “Managing Agency Closing Date.”

Section 1.7 Closing Deliveries.

(a) At the Third Party Sale Closing, each of the parties to the Third Party Sale
Agreement shall deliver to the other parties thereto the documents, certificates
and other deliverables contemplated to be delivered by them pursuant to the
Third Party Sale Agreement.

(b) At the Merger Closing, each of the parties to the Merger Agreement shall
deliver to the other parties the documents, certificates and other deliverables
contemplated by the Merger Agreement to be delivered by them to such other
parties.

(c) At the SPS Closing:

(i) Parent shall deliver or cause to be delivered to Investor:

A. certificates representing all of the shares of the Corporate Member, free and
clear of all Liens;

 

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B. counterparts to each of the Management Agreement and the Quota Share
Reinsurance Agreement, duly executed by each of the parties thereto (other than
Investor or any of its Affiliates); and

C. evidence reasonably satisfactory to Investor that the SPS has been
established and that it has received, and as of the SPS Closing Date has, all
necessary approvals and authorizations from Lloyd’s, and otherwise has all
Permits required to enter into the Management Agreement and the Quota Share
Reinsurance Agreement and to perform its obligations thereunder;

(ii) Investor shall deliver or cause to be delivered to Parent:

A. payment of the purchase price for the shares of the Corporate Member (as
determined by Section 4.7(a)(iii)) by wire transfer of immediately available
funds to an account designated in writing by Parent; and

B. counterparts to each of the Ancillary Agreements (other than the Investment
Agreement, the Merger Agreement and the Third Party Sale Agreement) to be
entered into by Investor or any of its Affiliates at the SPS Closing, duly
executed by Investor or such Affiliate; and

(iii) each party shall deliver to the other parties copies (or other evidence)
of all valid Governmental Approvals obtained, filed or made by such party or its
respective Affiliates with respect to the SPS Transactions; and

(iv) each party shall deliver to the other parties such other documents and
instruments as may be reasonably necessary to consummate the transactions
contemplated by this Agreement to be consummated at the SPS Closing.

(d) At the Managing Agency Closing:

(i) Parent shall deliver or cause to be delivered to Investor or an Affiliate of
Investor as directed by Investor:

A. (unless the managing agent is a new entity formed by Investor) certificates
representing all of the shares of the Managing Agency free and clear of all
Liens;

B. counterparts to each of the Ancillary Agreements (other than the Investment
Agreement, the Merger Agreement and the Third Party Sale Agreement), if any, to
be entered into by the Independent Syndicate or any Canopius Group Company at
the Managing Agency Closing, duly executed by the Independent Syndicate and such
Canopius Group Company that is a party thereto; and

C. evidence reasonably satisfactory to Investor that the Independent Syndicate
has received, and as of the Managing Agency Closing Date has, all necessary
approvals and authorizations from Lloyd’s, and otherwise

 

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has all Permits required to enter into the Ancillary Agreements, if any, to be
executed and delivered at the Managing Agency Closing and to perform its
obligations thereunder;

(ii) Investor shall deliver or cause to be delivered to Parent:

A. (unless the managing agent is a new entity formed by Investor) payment of the
purchase price for the shares of the Managing Agency (as determined by
Section 4.8(a)(vii)) by wire transfer of immediately available funds to an
account designated in writing by Parent; and

B. counterparts to each of the Ancillary Agreements (other than the Investment
Agreement, the Merger Agreement and the Third Party Sale Agreement), if any, to
be entered into by Investor or any of its Affiliates at the Managing Agency
Closing, duly executed by Investor or such Affiliate; and

(iii) each party shall deliver to the other parties copies (or other evidence)
of all valid Governmental Approvals obtained, filed or made by such party or its
respective Affiliates with respect to the Managing Agency Acquisition; and

(iv) each party shall deliver to the other parties such other documents and
instruments as may be reasonably necessary to consummate the transactions
contemplated by this Agreement to be consummated at the Managing Agency Closing.

(e) Each of the documents and instruments delivered by any party to another
party pursuant to this Section 1.7 shall be in form and substance reasonably
acceptable to such other party.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF PARENT

Subject to and as qualified by the matters set forth in the corresponding
sections or subsections of the Parent Disclosure Letter, Parent hereby
represents and warrants to Investor, as of the date hereof and, except for
Section 2.8, as of the Investment Closing Date, that, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect (provided that the foregoing exception does not apply to the
representations and warranties set forth in Sections 2.1, 2.2, 2.4, 2.8, 2.9 or
2.22):

Section 2.1 Corporate Status.

(a) Parent is a corporation duly organized, validly existing and in good
standing under the Laws of Guernsey and has all requisite corporate power and
authority to carry on its business as now conducted. Other than those
jurisdictions set forth in Section 2.1(a) of the Parent Disclosure Letter, if
and to the extent that Parent conducts business in a jurisdiction other than its
place of incorporation, Parent is duly qualified to do business as a foreign
corporation or other organization and is in good standing in each jurisdiction
in which the nature of its business or the properties owned, leased or operated
by it makes such qualification necessary. Parent has

 

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made available to Investor true, complete and correct copies of the
Organizational Documents of Parent as amended to date, and Parent is not in
material violation of any provision of such Organizational Documents. The
Organizational Documents of Parent as made available to Investor are in full
force and effect.

(b) Bermuda Holdco is a corporation duly organized, validly existing and in good
standing under the Laws of Bermuda and has all requisite corporate or
organizational power and authority to carry on its business as now conducted.
Other than those jurisdictions set forth in Section 2.1(b) of the Parent
Disclosure Letter, if and to the extent Bermuda Holdco conducts business in a
jurisdiction other than its place of incorporation, Bermuda Holdco is duly
qualified to do business as a foreign corporation or other organization and is
in good standing in each jurisdiction in which the nature of its business or the
properties owned, leased or operated by it makes such qualification necessary.
Parent has made, or has caused Bermuda Holdco to make, available to Investor
true, complete and correct copies of the Organizational Documents of Bermuda
Holdco as amended to date, and Bermuda Holdco is not in material violation of
any provision of such Organizational Documents. The Organizational Documents of
Bermuda Holdco as made available to Investor are in full force and effect.

(c) Except as set forth in Section 2.1(c) of the Parent Disclosure Letter, each
of the other Canopius Group Companies is a corporation or other organization
duly incorporated or organized, validly existing and in good standing under the
Laws of its jurisdiction of incorporation or organization and has all requisite
corporate or organizational power and authority to carry on its business as now
conducted The Organizational Documents of such other Canopius Group Companies
are in full force and effect and no such other Canopius Group Company is in
material violation of any provision of such Organizational Documents.

(d) Delaware Holdco was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and has not engaged in any business
activities or conducted any operations other than in connection with the
transactions contemplated by this Agreement.

Section 2.2 Corporate and Governmental Authorization.

(a) Each of the Canopius Group Companies has all requisite corporate or other
entity power and authority to execute and deliver the Transaction Agreements to
which it is or will be a party, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery by
each Canopius Group Company of each of the Transaction Agreements to which it is
or will be a party and the consummation by each Canopius Group Company of the
transactions contemplated by such Transaction Agreements have been or will be
duly authorized by all requisite corporate or other similar entity action on the
part of such Canopius Group Company. Each of the Transaction Agreements to which
any Canopius Group Company is or will be a party has been, or upon execution and
delivery thereof will be, duly executed and delivered by such Canopius Group
Company. Assuming due authorization, execution and delivery by the other parties
thereto, each of the Transaction Agreements to which each Canopius Group Company
is or will be a party constitutes, or upon execution and delivery thereof, will
constitute, the legal, valid and binding obligation of each such Canopius Group
Company, enforceable against it in accordance with its terms, except that

 

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(i) such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting creditors’ rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.

(b) Except for the approvals, filings and notifications imposed by applicable
Laws that are set forth in Section 2.2(b) of the Parent Disclosure Letter, the
execution and delivery by the Canopius Group Companies of the Transaction
Agreements to which any of them is or will be a party do not, and the
performance by each Canopius Group Company of, and the consummation by each
Canopius Group Company of the transactions contemplated by, such Transaction
Agreements does not and will not, require any consent, approval, license,
permit, order, qualification, authorization of, or registration or other action
by, or any filing with or notification to, any Governmental Authority (each, a
“Governmental Approval”).

Section 2.3 Non-Contravention.

The execution, delivery and performance of the Transaction Agreements by each
Canopius Group Company that is or will be a party thereto on the date of this
Agreement and the consummation of the transactions contemplated thereby by such
Canopius Group Company do not and will not (a) conflict with or result in any
violation or breach of any provision of the Organizational Documents of any of
the Canopius Group Companies, (b) assuming compliance with the matters referred
to in Section 2.2(b), conflict with or result in a violation or breach of any
provision of any applicable Law or (c) except for a Lien under the LOC Security
Package and assuming compliance with the matters referred to in Section 2.2(b),
require any consent of or other action by any Person under, result in any breach
of, or constitute a default (or event which, with the giving of notice or lapse
of time, or both, would constitute a default) under, or give to any Person any
rights of termination, acceleration or cancellation of, or result in the
creation of any Lien (other than Permitted Liens) on any of the assets or
properties of the Canopius Group Companies pursuant to, any Material Contract or
any other Contract to which any Canopius Group Company is a party.

Section 2.4 Capitalization; Title to Shares.

(a) Section 2.4(a) of the Parent Disclosure Letter sets forth the number of
authorized and issued and outstanding shares of each class or series of capital
stock of Parent as at the date of this Agreement. The Investment Agreement and
the Resolutions set forth the number of authorized and issued and outstanding
shares of each class or series of capital stock of Parent as they are
contemplated to be at the Investment Closing Date. All of the outstanding shares
of capital stock of Parent have been, and when issued the Class A Parent Shares
will be, duly authorized and validly issued and are fully paid and
nonassessable, and they are not, or when issued will not be, subject to, and
were not, or when issued will not be, issued in violation of any preemptive or
similar rights (provided that they are subject to such rights contemplated by
the Investment Agreement or the Organizational Documents of Parent).

(b) The authorized capital stock of Bermuda Holdco consists of 1 ordinary share,
par value $1.00 per share, of which 1 share is issued and outstanding. All of
the shares of

 

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capital stock of Bermuda Holdco have been duly authorized and validly issued and
are fully paid and nonassessable, and they are not subject to, and were not
issued in violation of, any preemptive or similar rights (provided that they are
subject to such rights contemplated by the Investment Agreement or the
Organizational Documents of Bermuda Holdco or Bermuda Law). Parent owns
beneficially and of record all of the shares of capital stock of Bermuda Holdco,
free and clear of all Liens, except for a Lien under the LOC Security Package.

(c) The authorized capital stock of Delaware Holdco consists of 200 shares, no
par value, of which 100 shares are issued and outstanding. All of the shares of
capital stock of Delaware Holdco have been duly authorized and validly issued
and are fully paid and nonassessable, and are not and were not issued in
violation of any preemptive or similar rights. Bermuda Holdco owns beneficially
and of record all of the shares of capital stock of Delaware Holdco, free and
clear of all Liens, except for a Lien under the LOC Security Package.

(d) Except as set forth in Section 2.4(d) of the Parent Disclosure Letter, there
are no outstanding (i) shares of capital stock of or other voting or equity
interests in any Canopius Group Company, (ii) securities of any Canopius Group
Company convertible into or exercisable or exchangeable for shares of capital
stock of or other voting or equity interests in any Canopius Group Company,
(iii) options or other rights or Contracts or commitments of any kind to acquire
from any Canopius Group Company, or other obligation of any Canopius Group
Company to issue, transfer or sell, any capital stock of or other voting or
equity interests in any Canopius Group Company or securities convertible into or
exercisable or exchangeable for capital stock of or other voting or equity
interests in any Canopius Group Company, (iv) voting trusts, proxies or other
similar Contracts or commitments to which any Canopius Group Company is bound
with respect to the voting of any shares of capital stock of or other voting or
equity interests in any Canopius Group Company or (v) contractual obligations or
commitments of any character restricting the transfer of, or requiring the
registration for sale of, any shares of capital stock of or other voting or
equity interests in any Canopius Group Company. Except as described in
Section 2.4(d) of the Parent Disclosure Letter, there are no outstanding
obligations of the Canopius Group Companies to repurchase, redeem or otherwise
acquire any of the securities described in clauses (i), (ii) or (iii) of the
previous sentence.

Section 2.5 Subsidiaries; Ownership Interests.

Except as set forth in Section 2.5 of the Parent Disclosure Letter, none of the
Canopius Group Companies has any Subsidiaries, and except as set forth in
Section 2.5 of the Parent Disclosure Letter and except for the Investment Assets
held by the Canopius Group Companies in the ordinary course of business, no
Canopius Group Company owns any shares of capital stock of or other voting or
equity interests in (including any securities exercisable or exchangeable for or
convertible into capital stock of or other voting or equity interests in) any
other Person.

Section 2.6 Financial Statements; Accounting Controls.

(a) Parent has or has caused to be delivered to Investor true, complete and
correct copies of (i) the unaudited consolidated financial statements of Parent
at and for the year ended December 31, 2011 (the “Balance Sheet Date”) and
(ii) the audited consolidated financial

 

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statements of Parent at and for the year ended December 31, 2010 (collectively,
the “Parent Financial Statements”), including in each case a balance sheet and
statements of income or operations, cash flows and retained earnings or
shareholders’ equity. The Parent Financial Statements (A) were derived from and
are consistent with the Books and Records, (B) have been prepared in accordance
with international financial reporting standards (“IFRS”) applied on a
consistent basis (except as may be indicated in the notes thereto), (C) present
a true and fair view of the financial position, results of operations and cash
flows of Parent and its consolidated Subsidiaries at and for the respective
periods indicated and (D) were prepared in compliance with the Canopius Group
Companies’ internal control procedures.

(b) Parent has or has caused to be delivered to Investor true, complete and
correct copies of (i) the audited financial statements of Canopius Bermuda
Limited (“Bermuda Insurer”) at and for the year ended December 31, 2010 (the
“Bermuda Insurer Financial Statements”), including a balance sheet and
statements of income or operations, cash flows and retained earnings or
shareholders’ equity. The Bermuda Insurer Financial Statements (A) were derived
from and are consistent with the Books and Records, (B) have been prepared in
accordance with generally accepted accounting principles in the United States
(“GAAP”) applied on a consistent basis (except as may be indicated in the notes
thereto), (C) present fairly, in all material respects, the financial position
and the results of its operations and its cash flows for the period indicated
and (D) were prepared in compliance with the Canopius Group Companies’ internal
control procedures, and (ii) the unaudited financial statements of Bermuda
Holdco and unaudited financial statements of each of Bermuda Insurer and
Canopius Underwriting Bermuda Limited, which are the only Subsidiaries of
Bermuda Holdco, at and for the year ended December 31, 2011 (the “Unaudited
Financial Statements”), including a balance sheet and statements of income or
operations and retained earnings or shareholders’ equity. The Unaudited
Financial Statements (A) were derived from and are consistent with the Books and
Records, (B) have been prepared in accordance with generally accepted accounting
principles, (C) except for the omission of certain disclosures required under
generally accepted accounting principles, present fairly the financial position
and the results of operations of the relevant Canopius Group Company to which
they relate at and for the period indicated and (D) were prepared in compliance
with the Canopius Group Companies’ internal control procedures.

(c) Parent and its Subsidiaries have devised and maintained systems of internal
accounting controls sufficient to provide reasonable assurances that (i) all
transactions are executed in accordance with management’s general or specific
authorization, (ii) all transactions are recorded as necessary to permit the
preparation of financial statements in conformity with IFRS and GAAP, as
applicable, to maintain proper accountability for items, (iii) access to its
property and assets is permitted only in accordance with management’s general or
specific authorization, (iv) the recorded accountability for items is compared
with the actual levels at reasonable intervals and appropriate action is taken
with respect to any differences and (v) reinsurance recoverables and premium and
other receivables are reported accurately, and proper and adequate procedures
are implemented to effect the collection thereof on a current and timely basis.

 

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Section 2.7 Undisclosed Liabilities.

None of the Canopius Group Companies (other than Bermuda Holdco and its
Subsidiaries) has any Liabilities except (a) as set forth in Section 2.7 of the
Parent Disclosure Letter, (b) for liabilities and obligations specifically
disclosed or reserved against in accordance with IFRS in the balance sheet as of
December 31, 2011 included in the Parent Financial Statements or specifically
disclosed in the notes thereto and (c) for Liabilities that (i) were incurred
after December 31, 2011 in the ordinary course of business consistent with past
practice and (ii) individually and in the aggregate will not, and would not
reasonably be expected to, have a Material Adverse Effect. Bermuda Holdco and
its Subsidiaries have no Liabilities other than those reflected in the Unaudited
Financial Statements or incurred after December 31, 2011 in the ordinary course
of business consistent with past practice.

Section 2.8 Representations Regarding Omega.

To the Knowledge of Parent, as of the date of this Agreement, Parent has no
reason to believe that: (a) the conditions to the Cash Offer set out in the
Offer Announcement will not be satisfied such that they would cause the
acquisition of Omega not to occur or (b) except as specified in the written due
diligence memorandum prepared by Parent with respect to Omega and its
Subsidiaries that was delivered by Parent to Investor, at the request of
Investor, by electronic mail on March 23, 2012, any fact or circumstance exists
that has had, or would reasonably be expected to have, individually or in the
aggregate, and in the context of the acquisition of Omega, a material adverse
effect on the assets, Liabilities, business, operations, condition (financial or
otherwise) or results of operations of Omega or its Subsidiaries, taken as a
whole.

Section 2.9 Absence of Certain Changes.

Except as set forth in Section 2.9 of the Parent Disclosure Letter, since the
Balance Sheet Date, the Business has been conducted in the ordinary course of
business consistent with past practice, there has not been any event,
development or set of circumstances that, individually or in the aggregate, has
had or would reasonably be expected to have a Material Adverse Effect and none
of the Canopius Group Companies has taken (or, in the case of clause (i), failed
to take) any of the actions listed in clauses (i) through (vii) of
Section 4.1(d).

Section 2.10 Material Contracts.

Each Material Contract is a valid and binding agreement of the Canopius Group
Company that is party thereto, as applicable and, to the Knowledge of Parent,
any other party thereto, and is in full force and effect, and none of the
Canopius Group Companies nor, to the Knowledge of Parent, any other party
thereto is in default or breach under (or is alleged to be in default or breach
under) the terms of, or has provided or received any notice of any intention to
terminate, any such Material Contract, and, to the Knowledge of Parent, no event
or circumstance has occurred that, with notice or lapse of time or both, would
constitute an event of default thereunder or result in a termination thereof or
would cause or permit the acceleration or other changes of any right or
obligation or the loss of any benefit thereunder.

 

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Section 2.11 Books and Records.

The Books and Records are true, complete and correct, have been maintained in
accordance with normal business practices and accurately present and reflect all
of the transactions and actions therein described.

Section 2.12 Investment Company.

None of the Canopius Group Companies is an investment company subject to
registration and regulation under the Investment Company Act of 1940, as
amended.

Section 2.13 Litigation.

Except as set forth in Section 2.13 of the Parent Disclosure Letter and except
for Litigation involving claims made in connection with Insurance Contracts in
the ordinary course of business, (a) there is no Litigation pending and served
on any Canopius Group Company, or to the Knowledge of Parent, has any Canopius
Group Company received any threat in writing of any Litigation against or
affecting the Business or any of the Canopius Group Companies and (b) there are
no settlement agreements or similar written agreements between a Canopius Group
Company and any Governmental Authority and, to the Knowledge of Parent, no
outstanding Orders against or affecting the Business or any of the Canopius
Group Companies.

Section 2.14 Compliance with Laws.

(a) Except as set forth in Section 2.14 of the Parent Disclosure Letter and
subject to paragraph (b) below, each of the Canopius Group Companies is, and at
all times since January 1, 2008 has been, in compliance with all applicable Law
and, to the Knowledge of Parent, has not been charged with, and is not and has
not been under investigation with respect to, any violation of any applicable
Law.

(b) To the Knowledge of Parent, none of the Canopius Group Companies or any
other Person having a direct or indirect beneficial interest in the Canopius
Group Companies appears on the Specially Designated Nationals and Blocked
Persons List of the Office of Foreign Assets Control of the United States
Department of the Treasury or in Annex I to the United States Executive Order
13224 – Blocking Property and Prohibiting Transactions with Persons Who Commit,
Threaten to Commit, or Support Terrorism (each a “Government List”). Each of the
Canopius Group Companies has instituted, maintains and has at all times complied
with internal control procedures designed to prevent, and which are reasonably
expected to prevent, such Canopius Group Company from being involved in any
money laundering scheme, unlawful trade or commerce, unlawful technology
transfer, fraud or other corrupt activity (including, without limitation, any
activity in contravention of the United Kingdom Bribery Act and, to the extent
applicable, the U.S. Foreign Corrupt Practices Act or the rules and regulations
administered by the U.S. Treasury Department’s Office of Foreign Assets Control
that prohibit, among other things, the engagement in transactions with, and the
provision of services to, those countries, territories, entities and individuals
listed from time to time on a Government List).

 

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Section 2.15 Permits and Licenses.

Except as set forth in Section 2.15 of the Parent Disclosure Letter, each of the
Canopius Group Companies has all licenses (including insurance licenses),
franchises, permits, privileges, immunities, certificates, variances, orders,
consents, approvals and other authorizations (including authorizations to write
excess and surplus lines insurance as a non-admitted or unlicensed insurance
carrier) from a Governmental Authority that are necessary to entitle it to own
or lease, operate and use its properties or assets and to carry on and conduct
its business as conducted on the date of this Agreement (the “Permits”), and all
such Permits are valid and in full force and effect. Except as set forth in
Section 2.15 of the Parent Disclosure Letter, (a) none of the Canopius Group
Companies has received any written notice of any violation of any Permit, (b) to
the Knowledge of Parent, no suspension, cancellation or non-renewal of any
Permit is pending or threatened, (c) the Canopius Group Companies have complied,
and are in compliance, with all terms and conditions of the Permits, (d) to the
Knowledge of Parent, no event or condition has occurred or exists that would
reasonably be expected to result in a violation or breach of, or a default or
loss of a benefit under, or acceleration of an obligation of any of the Canopius
Group Companies under, or a termination, revocation, cancellation or impairment
of, any Permit (in each case, with or without notice or lapse of time or both),
and (e) none of the Permits will be terminated or impaired or become terminable,
in whole or in part, as a result of the transactions contemplated by the
Transaction Agreements. None of the Canopius Group Companies is relying on any
exemption from or deferral of any Law or Permit that, to the Knowledge of
Parent, would not be available to the Canopius Group Companies after the
Investment Closing Date.

Section 2.16 The Corporate Member.

Except as set forth in Section 2.16 of the Parent Disclosure Letter, the
Corporate Member was organized on July 12, 2011, and since the date of its
organization, the Corporate Member has participated as a member of Syndicate
4444 for the 2012 Year of Account. The Corporate Member is a party to a
reinsurance contract with Investor and a managing agency agreement with CMAL.
The Corporate Member has no Liabilities other than Liabilities incurred as a
result of its participation as a member of Syndicate 4444 or Liabilities to
Investor.

Section 2.17 Tax Matters.

(a) Except as set forth in Section 2.17(a) of the Parent Disclosure Letter, all
Tax Returns required to be filed by, on behalf of or with respect to each
Canopius Group Company have been duly and timely filed and are complete and
correct. All Taxes (whether or not reflected on such Tax Returns) required to be
paid with respect to each Canopius Group Company have been duly and timely paid.
All Taxes required to be withheld by each Canopius Group Company have been duly
and timely withheld, and such withheld Taxes have been either duly and timely
paid to the proper Governmental Authority or properly set aside in accounts for
such purpose. Except as set forth in Section 2.17(a) of the Parent Disclosure
Letter, no Canopius Group Company is subject to tax in any jurisdiction other
than its jurisdiction of incorporation.

(b) No written agreement or other document waiving or extending, or having the
effect of waiving or extending, the statute of limitations or the period of
assessment or

 

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collection of any Taxes with respect to any Canopius Group Company, and no
written power of attorney with respect to any such Taxes, has been filed or
entered into with any Governmental Authority. No Taxes with respect to any
Canopius Group Company are currently under audit, examination or investigation
by any Governmental Authority or the subject of any judicial or administrative
proceeding. No Governmental Authority has asserted or threatened to assert any
deficiency, claim or issue with respect to Taxes or any adjustment to Taxes
against any Canopius Group Company with respect to any taxable period for which
the period of assessment or collection remains open. Except as set forth in
Section 2.17(b) of the Parent Disclosure Letter, no elections for Tax purposes
(including any entity classification elections) have been made with respect to
any Canopius Group Company that are in force or by which any Canopius Group
Company is bound. No jurisdiction in which any Canopius Group Company has not
filed a particular type of Tax Return or paid a particular type of Tax has
asserted that such Canopius Group Company is required to file such Tax Return or
pay such Tax in such jurisdiction.

(c) Except as set forth at Section 2.17(c) of the Parent Disclosure Letter, no
Canopius Group Company (i) has received or applied for a Tax ruling or entered
into an agreement with any Governmental Authority, in either case that would be
binding upon any Canopius Group Company after the Investment Closing Date,
(ii) is or has been a member of any affiliated, consolidated, combined or
unitary group for purposes of filing Tax Returns or paying Taxes or (iii) has
any liability for the Taxes of any Person (as a transferee or successor,
pursuant to any Tax sharing or indemnity agreement or other contractual
agreements, or otherwise).

(d) To the Knowledge of Parent, Parent has provided all information in response
to requests from Investor’s accountants, Ernst & Young, in emails dated March 9,
13, 14 and 22, 2012 in respect of Ernst & Young’s inquiries to determine whether
Parent or Bermuda Holdco is classified as a “passive foreign investment company”
as defined in Section 1297 of the Code.

(e) Except as set forth at Section 2.17(e) of the Parent Disclosure Letter,
United States persons and United States tax residents do not in the aggregate
own, directly or, to the Knowledge of Parent, indirectly, more than 5% of the
equity interests in Parent (not taking into account Class A Parent Shares).

Section 2.18 Insurance.

There is no claim by or with respect to any Company pending under any insurance
policy (including fidelity bonds and other similar instruments) relating to the
Assets, the Business or the employees, officers or directors of the Canopius
Group Companies as to which coverage has been questioned, denied or disputed by
the underwriters of such policies or in respect of which such underwriters have
reserved their rights. All premiums payable under such policies have been timely
paid, and the Canopius Group Companies have otherwise complied fully with the
terms and conditions of such policies. Such policies are of the type and in
amounts customarily carried by Persons conducting businesses similar to those of
the Canopius Group Companies. To the Knowledge of Parent, there is no threatened
termination of, premium increase with respect to, or alteration of coverage
under, any of such policies.

 

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Section 2.19 Reinsurance Agreements.

Except as set forth in Section 2.19 of the Parent Disclosure Letter, no
Reinsurance Agreement contains any provision providing that the other party
thereto may terminate or otherwise modify such Reinsurance Agreement by reason
of the transactions contemplated by this Agreement or the Investment Agreement;
no Reinsurance Agreement contains any provision which by its own terms would
result in a modification in the operation of such Reinsurance Agreement by
reason of the transactions contemplated by this Agreement or the Investment
Agreement; to the Knowledge of Parent, Parent has no reason to believe that all
amounts due or coming due in the future under each Reinsurance Agreement are not
or will not be collectible in full in the ordinary course; to the Knowledge of
Parent, no party to any Reinsurance Agreement is impaired such that a default
thereunder could reasonably be expected; each of the Canopius Group Companies,
as applicable, is entitled under applicable Law to take full credit for all
amounts recoverable by it pursuant to any Reinsurance Agreement to which it is a
party, and all such amounts have been properly recorded in the Books and
Records; such Reinsurance Agreements transfer such risk as would be required for
them to be properly accounted for as reinsurance; and all collateral provided by
any reinsurer in connection with any Reinsurance Agreement (i) is in a form
permitting the applicable Canopius Group Company to take credit for reinsurance
under the insurance Laws and regulations of its state of domicile, (ii) if other
than a letter of credit, is subject to a perfected security interest in favor of
the applicable Canopius Group Company, (iii) is not subject to any Contract
allowing that such collateral be reduced or diminished in any manner and (iv) is
sufficient to discharge the obligations of such reinsurer under the related
Reinsurance Agreements.

Section 2.20 Investment Assets.

(a) Except as disclosed at Section 2.20(a) of the Parent Disclosure Letter, the
Canopius Group Companies have good and marketable title to all of their
Investment Assets (except securities sold under repurchase agreements or held in
any fiduciary or agency capacity), free and clear of any Lien (other than a
Permitted Lien), except for Liens under the LOC Security Package or to the
extent such securities are pledged or held in trust in the ordinary course of
business consistent with prudent business practices or normal practice at
Lloyd’s to secure obligations of the Canopius Group Companies.

(b) The Companies’ Investment Assets are valued on the books of the Canopius
Group Companies in accordance with IFRS or GAAP, as applicable.

(c) The Companies’ Investment Assets comply with applicable Law (including
applicable insurance company invested asset laws and regulations) and are, in
the case of Investment Assets held by a Canopius Group Company that is an
insurance company, admitted assets of the Canopius Group Companies under
applicable Law.

Section 2.21 Intercompany Accounts; Transactions with Affiliates or Other
Shareholders.

Section 2.21 of the Parent Disclosure Letter lists all Contracts or transactions
to or by which the Canopius Group Companies, on the one hand, and any
Shareholder or any Affiliate

 

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of any Shareholder or any current or former officer or director of any Canopius
Group Company or any Person affiliated or associated with any such individual
(including any member of such individual’s immediate family), on the other hand,
are or have been a party or otherwise bound or affected and that are currently
pending or in effect or that involve continuing Liabilities (each, an “Affiliate
Transaction”). Each Affiliate Transaction was on terms and conditions no more
favorable to the Canopius Group Companies than as would have been obtainable by
them at the time in a comparable arm’s-length transaction with a Third Party.
Each Affiliate Transaction has (a) received prior approval (or non-disapproval)
and (b) been disclosed, in each case, to the extent required under applicable
insurance holding company Law. No shareholder, officer, director or employee of
any of the Canopius Group Companies, or any family member, relative or Affiliate
of any such shareholder, officer, director or employee, (i) owns, directly or
indirectly, any interest in (A) any asset or other property used in or held for
use in the Business or (B) to Parent’s Knowledge, any Person that is a supplier,
customer or competitor of any of the Canopius Group Companies, (ii) to Parent’s
Knowledge, serves as an officer, director or employee of any Person that is a
supplier, customer or competitor of any of the Canopius Group Companies or
(iii) is a debtor or creditor of any of the Canopius Group Companies.

Section 2.22 Finders’ Fees.

Except for Keefe, Bruyette & Woods Limited, Aon Benfield Securities Limited and
West Hill Corporate Finance Limited, the fees and expenses of which will be paid
by Parent, there is no investment banker, broker, finder or other intermediary
retained by or authorized to act on behalf of any of the Canopius Group
Companies who might be entitled to any fee or commission from Investor or any of
its Affiliates (including, after the Investment Closing, any of the Canopius
Group Companies) upon consummation of the transactions contemplated by this
Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF INVESTOR

Investor represents and warrants to the Canopius Group Companies, as of the date
hereof and as of the Investment Closing Date, as follows:

Section 3.1 Corporate Status.

Investor is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted.

Section 3.2 Corporate and Governmental Authorization.

(a) Investor has all requisite corporate or organizational power and authority
to execute and deliver the Transaction Agreements to which it is or will be a
party, to perform its obligations thereunder and to consummate the transactions
contemplated thereby. The execution and delivery by Investor of each of the
Transaction Agreements to which it is or will be a party and the consummation by
Investor of the transactions contemplated by such Transaction Agreements have
been duly authorized by all requisite corporate or other similar organizational

 

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action on the part of Investor. Each of the Transaction Agreements to which
Investor is or will be a party has been, or upon execution and delivery thereof
will be, duly executed and delivered by Investor. Assuming due authorization,
execution and delivery by the other parties hereto or thereto, each Transaction
Agreement to which Investor is or will be a party constitutes, or upon execution
and delivery thereof, will constitute, the legal, valid and binding obligation
of Investor, enforceable against it in accordance with its terms.

(b) Except in connection or in compliance with the approvals, filings and
notifications imposed by applicable Law that are set forth in Section 3.2(b) of
the Investor Disclosure Letter, the execution and delivery by Investor of the
Transaction Agreements to which it is or will be a party do not, and the
performance by Investor, and the consummation by Investor of the transactions
contemplated by, such Transaction Agreements will not require any Governmental
Approval.

Section 3.3 Non-Contravention.

The execution, delivery and performance of the Transaction Agreements by
Investor that is or will be a party thereto and the consummation of the
transactions contemplated thereby to be consummated at the Investment Closing
Date do not and will not (a) conflict with or result in any violation or breach
of any provision of the Organizational Documents of Investor or (b) assuming
compliance with the matters referred to in Section 3.2(b), conflict with or
result in any violation or breach of any provision of any applicable Law.

Section 3.4 Sophisticated Investor; Purchase for Investment.

Investor is purchasing the Class A Parent Shares for investment for its own
account and not with a view to the distribution thereof. Investor is a
sophisticated investor with sufficient knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks (including for
tax, legal, regulatory, accounting and other financial purposes) of an
investment in the Class A Parent Shares.

Section 3.5 Finders’ Fees.

Except for MMC Securities (Europe) Ltd, Barclays PLC and FBR & Co., the fees and
expenses of which will be paid by Investor, there is no investment banker,
broker, finder or other intermediary retained by or authorized to act on behalf
of Investor who might be entitled to any fee or commission from Parent or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.

Section 3.6 Litigation.

Except as set forth in Section 3.6 of the Investor Disclosure Letter, there are
(a) no outstanding Orders against Investor, (b) no Litigation pending or, to the
Knowledge of Investor, threatened against Investor and (c) to the Knowledge of
Investor, no pending investigations by any Governmental Authority that in each
case would be reasonably expected to prevent, materially delay or otherwise
interfere with or have any material adverse effect on the ability of Investor to
consummate the transactions contemplated hereby and by the other Transaction
Agreements.

 

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ARTICLE IV

CERTAIN COVENANTS

Section 4.1 Operating Limitations.

(a) From the date hereof until the Investment Closing Date, except as otherwise
expressly permitted or required by this Agreement or the Investment Agreement or
as set forth in Section 4.1 of the Parent Disclosure Letter, Parent and Bermuda
Holdco shall not, and shall not permit any of their respective Subsidiaries to,
take any Restricted Action with respect to any Canopius Group Company without
the prior written consent of Investor (such consent not to be unreasonably
withheld or delayed).

(b) From the Investment Closing Date until the latest to occur of (i) the
consummation of the Merger, (ii) the expiration of the Merger Election and
(iii) the termination of the Merger Agreement, Parent, Bermuda Holdco and
Delaware Holdco shall not, and shall not permit any of their respective
Subsidiaries to, take any Restricted Action with respect to Bermuda Holdco or
any of its Subsidiaries without the prior written consent of Investor (such
consent not to be unreasonably withheld or delayed). Parent shall consult with
Investor prior to Parent or any Affiliate of Parent making any contribution to
Bermuda Holdco or any Subsidiary thereof and shall cooperate as reasonably
requested by Investor in connection with any such contribution, for the purpose
of ensuring that the Merger will be reasonably satisfactory to Investor from a
tax perspective.

(c) From the Investment Closing Date until the latest to occur of (i) the
consummation of the Managing Agency Acquisition and (ii) the expiration of the
Managing Agency Acquisition Right, Parent shall not, and shall not permit any of
its Subsidiaries (including, for the avoidance of doubt, Omega and its
Subsidiaries) to, (A) take any Restricted Action with respect to the Managing
Agency or the Corporate Member or (B) seek to vary the permissions of the
Managing Agency or the Corporate Member, to cease the authorization by Lloyd’s
of the Managing Agency or the Corporate Member or to keep the Managing Agency
and the Corporate Member in good standing with Lloyd’s, in each case without the
prior written consent of Investor (not to be unreasonably withheld or delayed);
provided that this paragraph shall cease to apply with respect to the Managing
Agency from such time as the parties agree that the Managing Agency will be a
new entity formed by Investor.

(d) As used in this Agreement, “Restricted Action” means, with respect to any
Canopius Group Company, any of the following actions taken by or with respect to
such Canopius Group Company, in each case other than: (i) any such action
expressly permitted or required by any Transaction Agreement (including, for the
avoidance of doubt, any actions constituting a part of the Restructuring,
including the dividend or other distribution by Bermuda Holdco that is
contemplated by paragraph 8 of Exhibit C) or (ii) any such action expressly or
reasonably considered to be required to be taken by any Canopius Group Company
in order for such Canopius Group Company to comply with applicable Law or any
Order:

(i) the failure by such Canopius Group Company to conduct and develop its
businesses in the ordinary course consistent with past practice or use its

 

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reasonable efforts to preserve intact its businesses, assets, relationships and
goodwill with customers, suppliers, contractors, licensors, employees, agents,
producers, distributors, insureds, Governmental Authorities and others having
business dealings with it, as applicable and in each case taken as a whole, or
to keep available the services of its officers and significant employees as of
the date hereof; provided that nothing in this paragraph shall:

A. require any Canopius Group Company to increase any compensation payable to
any of its employees outside of the ordinary course of business consistent with
past practice or prohibit any Canopius Group Company from terminating the
employment of any of its employees for “cause” (as defined and applied in a
manner consistent with past practice); or

B. require any Canopius Group Company to act in a manner inconsistent with its
ordinary course of business consistent with past practice in order to preserve
intact the business of any counterparty or Person doing business with any
Canopius Group Company that wishes voluntarily to cease to do business with such
Canopius Group Company.

(ii) except for the dividend referred to in paragraph 8 of Exhibit C, the
(A) declaration, setting aside or payment of any dividends on, or making any
other distributions (whether in cash, stock or property) in respect of, any of
such Canopius Group Company’s outstanding capital stock, (B) except as expressly
contemplated by the Resolutions, splitting, combination or reclassification of
any outstanding capital stock of such Canopius Group Company or issuance or
authorization of the issuance of any other securities in respect of, in lieu of
or in substitution for shares of such Canopius Group Company’s outstanding
capital stock or (C) purchase, redemption or other acquisition of any shares of
outstanding capital stock of such Canopius Group Company or any rights, warrants
or options to acquire any such shares; provided that nothing in this paragraph
shall apply to transactions with respect to which the only parties are wholly
owned Subsidiaries of Parent other than Bermuda Holdco or any of its
Subsidiaries, the Managing Agency (unless and until such time as the parties
determine in accordance with Section 4.8 that the Managing Agency will be a new
entity formed by Investor) or the Corporate Member;

(iii) except, in the case of Parent, for the issuance and redemption of shares
of Parent to or from (as applicable) employees of Parent and its Subsidiaries in
the ordinary course of business in a manner and amount consistent with past
practices relating to employees in effect as of the date hereof and in
accordance with the terms of the Investment Agreement and the Articles of
Incorporation of Parent or pursuant to the Resolutions, the issuance, sale,
grant, pledge or encumbering of any shares of capital stock of such Canopius
Group Company or any other voting securities or any securities convertible or
exchangeable into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities; provided that nothing in
this paragraph shall apply to transactions with respect to which the only
parties are wholly owned Subsidiaries of Parent other than Bermuda Holdco, any
of its Subsidiaries, the Managing Agency (unless and until such time as the
parties determine in accordance with Section 4.8 that the Managing Agency will
be a new entity formed by Investor) or the Corporate Member;

 

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(iv) the amendment of such Canopius Group Company’s Organizational Documents
other than (A) for administrative reasons; provided that such amendment would
not adversely affect any right of Investor or any of its Affiliates under any
Transaction Agreement or (B) in the case of Parent, pursuant to the Resolutions.
For the purposes of this paragraph (iv) Canopius Group Company shall mean:

 

  (a) in respect of the restriction in Section 4.1(a), all Canopius Group
Companies;

 

  (b) in respect of the restriction in Section 4.1(b) any Canopius Group Company
which is Bermuda Holdco or any of its Subsidiaries;

 

  (c) in respect of the restriction in Section 4.1(c), any Canopius Group
Company which is the Managing Agency (unless and until such time as the parties
determine in accordance with Section 4.8 that the Managing Agency will be a new
entity formed by Investor) or the Corporate Member;

(v) except as required by Law, the (A) material change in any of the Canopius
Group Companies’ methods, policies or practices of Tax accounting or methods of
reporting income or deductions for Tax purposes from those employed in the
preparation of its most recently filed Tax Return; (B) alteration or the making
of any material Tax election under U.S. Tax Law; or (C) preparing any Tax Return
in a manner that is not consistent with past practices;

(vi) in the case of any such Canopius Group Company that is Bermuda Holdco or
any of its Subsidiaries, the Managing Agency (unless and until the parties
determine that the Managing Agency will be a new entity formed by Investor in
accordance with Section 4.8) or the Corporate Member, any sale or transfer of
any asset of, or the assumption of any Liability by, such Canopius Group
Company, other than in the ordinary course of business consistent with past
practice; or

(vii) the agreement or commitment to do any of the foregoing.

Section 4.2 Notice of Certain Events.

From the date hereof until the earlier of the date this Agreement is terminated
pursuant to Section 5.1 and the expiration of all of the parties’ rights and
obligations under this Agreement (other than rights to indemnification under
Article VI), Parent shall promptly notify Investor in writing of: (a) any
circumstance, event or action the existence, occurrence or taking of which
(i) has had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect; (ii) has resulted in or would reasonably
be expected to result in any representation or warranty made by Parent hereunder
not being true and correct as of the date it was made or deemed to have been
made; or (iii) could result in the failure to occur of any

 

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Closing that has not yet occurred hereunder; (b) any written notice or other
communication in writing received from any Person alleging that the consent of
such Person is or may be required in connection with the transactions
contemplated by this Agreement or any Ancillary Agreement; (c) any notice or
other communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement or any Ancillary Agreement; and
(d) any Litigation commenced or, to the Knowledge of Parent, threatened against,
relating to or involving or otherwise affecting the Canopius Group Companies
that, if pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 2.13 or that relates to the consummation of
the transactions contemplated by this Agreement or any Ancillary Agreement.
Investor’s receipt of information pursuant to this Section 4.2 or otherwise
shall not operate as a waiver or otherwise affect any representation, warranty
or agreement given or made by Parent in this Agreement.

Section 4.3 Access to Information; Confidentiality.

(a) From the date hereof until the earlier of (i) the date this Agreement is
terminated pursuant to Section 5.1 and (ii) the expiration of all of the
parties’ rights and obligations under this Agreement (other than rights to
indemnification under Article VI), Parent shall, and shall cause its
Subsidiaries to, give Investor and its Affiliates reasonable access upon
reasonable advance notice during normal business hours to (i) all of the offices
and properties of the Canopius Group Companies, and the Books and Records;
(ii) such financial and operating data and other information relating to any
Canopius Group Company as Investor may reasonably request; and (iii) subject to
prior notification to and the consent of Parent (such consent not to be
unreasonably withheld, conditioned or delayed) and subject to Parent being
reasonably satisfied regarding the maintenance of confidentiality in respect of
any confidential information relating to Parent and the Canopius Group Companies
in compliance with this Section 4.3 (other than Bermuda Holdco and its
Subsidiaries after the Merger Closing Date, the Corporate Member after the SPS
Closing Date and the Managing Agency after the Managing Agency Closing Date),
the Representatives of the Canopius Group Companies whose assistance and
expertise are reasonably necessary to assist Investor in connection with
Investor’s investigation of the Canopius Group Companies. Any investigation
pursuant to this Section 4.3 shall be conducted in such manner as not to
interfere unreasonably with the conduct of the business of the Canopius Group
Companies. Investor and its Affiliates shall hold in confidence all confidential
information of any Canopius Group Company obtained pursuant to this Section 4.3,
unless any of them is compelled to disclose such information by judicial or
administrative process or by other requirement of Law, in any case except to the
extent such information can be shown to have been (i) previously known to
Investor or any of its Affiliates on a non-confidential basis, (ii) in the
public domain through no fault of Investor or any of its Affiliates or
(iii) later lawfully acquired by Investor or any of its Affiliates from a source
other than Parent or any of its Affiliates. The obligation of Investor and its
Affiliates to hold any such information in confidence shall be satisfied if they
exercise the same care with respect to such information as they would take to
preserve the confidentiality of their own similar information.

(b) From and after the Investment Closing until the date at which such
information would no longer be required by Investor or its Affiliates for any
reasonable business or administrative purpose or under applicable Law, Parent
shall and shall cause its Subsidiaries to provide Investor and its Affiliates
(including, after the Merger Closing, Bermuda Holdco and

 

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its Subsidiaries) information with respect to Parent and its Subsidiaries in a
readily readable and accessible form as may be reasonably necessary for, and
shall otherwise provide such cooperation to Investor and its Affiliates
(including, after the Merger Closing, Bermuda Holdco and its Subsidiaries) as
may be reasonably necessary for, financial reporting, loss reporting and
accounting matters, the preparation and filing of any Tax Returns, or the
defense of any Tax Claim or assessment and to meet reporting requirements to any
Third Party or Governmental Authority, including the obligation of Investor and,
after the Merger Closing, Bermuda Holdco, to file periodic (including quarterly
and annual) reports with the SEC. All such information and cooperation shall be
provided as promptly as practicable upon request and in any event sufficiently
in advance of any such reporting or filing requirements to give Investor,
Bermuda Holdco and any of their respective Affiliates, as applicable, a
reasonable period of time to review such information and incorporate it into
such reports or filings. For the avoidance of doubt, the covenants set forth in
this Section 4.3(b) shall also apply (i) after the Merger Closing with respect
to information regarding Bermuda Holdco and its Subsidiaries relating to periods
prior to the Merger Closing, (ii) after the SPS Closing with respect to
information regarding the Corporate Member relating to periods prior to the SPS
Closing and (iii) after the Managing Agency Closing with respect to information
regarding the Managing Agency relating to periods prior to the Managing Agency
Closing.

Section 4.4 Public Announcements.

No party to this Agreement or any Affiliate or Representative of such party
shall issue or cause the publication of any press release or public announcement
or otherwise communicate with any news media in respect of this Agreement or the
transactions contemplated by this Agreement without the prior written consent of
the other parties (which consent shall not be unreasonably withheld, conditioned
or delayed), except as may be required by Law or applicable securities exchange
rules, in which case the party required to publish such press release or public
announcement shall allow the other parties a reasonable opportunity to comment
on such press release or public announcement in advance of such publication.

Section 4.5 Consents, Approvals and Filings.

(a) The Canopius Group Companies and Investor shall, upon the delivery by
Investor of a Merger Notice pursuant to Section 4.6, an SPS Notice pursuant to
Section 4.7 or a Managing Agency Acquisition Notice pursuant to Section 4.8,
each use their reasonable efforts, and shall cooperate fully with each other to
(i) comply as promptly as practicable with all requirements of Governmental
Authorities applicable to the transactions contemplated by this Agreement to be
consummated at the Third Party Sale Closing and the Merger Closing, at the SPS
Closing or at the Managing Agency Closing, as applicable, and (ii) seek to
obtain as promptly as practicable all Governmental Approvals necessary or
advisable in connection with such transactions. The parties shall cooperate with
the reasonable requests of each other in seeking to obtain as promptly as
practicable all such Governmental Approvals.

(b) As soon as reasonably practicable after the delivery of a Merger Notice, SPS
Notice or Managing Agency Acquisition Notice, the parties shall cooperate to
make or cause to be made with all applicable Governmental Authorities requests
for approval of the transactions contemplated by this Agreement or any Ancillary
Agreement to occur at the Third

 

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Party Sale Closing and Merger Closing, the SPS Closing or the Managing Agency
Closing, as applicable, which requests shall include all required exhibits.
Prior to furnishing any written materials to any Governmental Authorities in
connection with the transactions contemplated by this Agreement or any Ancillary
Agreement, the furnishing party shall provide the other parties with a copy
thereof (save to the extent such information is subject to an attorney-client or
other legal privilege or subject to any obligation of confidentiality or privacy
to a Third Party) and such other parties shall have a reasonable opportunity to
provide comments thereon. Each party shall give to the other parties prompt
written notice if it receives any material notice or other material
communication from any Governmental Authorities in connection with the
transactions contemplated by this Agreement or any Ancillary Agreement, and, in
the case of any such notice or communication which is in writing, shall promptly
furnish such other parties with a copy thereof. Each party shall give to the
other parties reasonable prior written notice of the time and place when any
meetings or other conferences may be held by it with any Governmental
Authorities in connection with the transactions contemplated by this Agreement
or any Ancillary Agreement, and such other parties shall have the right to have
a representative or representatives attend or otherwise participate in any such
meeting or conference. Notwithstanding the foregoing, nothing in this
Section 4.5(b) shall require any party or any of such party’s Subsidiaries,
directors, officers and employees to disclose information or confer a right to
attend any meeting to the extent such attendance would breach any Law or Order
or confidentiality obligation to a Third Party that is not specifically waived
by such Third Party.

(c) From and after the date hereof, Parent and Investor shall each use their
reasonable efforts, and shall cooperate fully with each other to obtain as
promptly as reasonably practicable following the date hereof all required
approvals, consents, waivers or authorizations from Third Parties required in
connection with the consummation of the transactions contemplated by the
Transaction Agreements (each, a “Third Party Consent”); provided that any such
Third Party Consents that relate only to transactions to occur at any Closing
(other than the Investment Closing) will only be required to be obtained after
the exercise by Investor of its right to cause such Closing to occur pursuant to
Section 4.6, Section 4.7 or Section 4.8, as applicable. Investor shall be
responsible for the out-of-pocket third party costs (including any license or
other fees and expenses) associated with obtaining consents from Third Parties
or replacement of such rights to the extent required in connection with any of
the Subsequent Transactions or the Restructuring. Parent shall be responsible
for all costs and expenses relating to Third Party Consents required in
connection with the consummation of the transactions contemplated by the
Investment Agreement (other than any such consents required to be obtained by
Investor or any of its Affiliates or by the Bregal Investors or any of their
Affiliates).

 

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Section 4.6 The Merger Election.

(a) At any time during the period beginning on (subject to the proviso in clause
(i)(H) of Section 4.6(b) below) the Investment Closing Date and ending on the
date that is 18 months after the Investment Closing Date (the “Election
Period”), Investor may elect to effect the Merger and the Third Party Sale by
delivering a written notice of such election (a “Merger Notice”) to Parent and
paying to Parent, by wire transfer of immediately available funds, the Merger
Exercise Price. Upon delivery of the Merger Notice and payment of the Merger
Exercise Price:

(i) Bermuda Holdco will as soon as reasonably practicable thereafter contribute
Delaware Holdco to a new corporation organized under the laws of Delaware as a
direct wholly owned Subsidiary of Bermuda Holdco (“Top Holdco”), promptly
thereafter cause Delaware Holdco to form Merger Sub, and not permit Top Holdco,
Delaware Holdco or Merger Sub to engage in any business activities or conduct
any operations other than in connection with the transactions contemplated by
this Agreement or the Merger Agreement;

(ii) Investor will prepare the Merger Agreement, and Delaware Holdco will, and
will cause Merger Sub to, authorize, execute and deliver the Merger Agreement
and consummate the transactions contemplated thereby and hereby, including the
Merger;

(iii) Bermuda Holdco will transfer or cause to be transferred to Merger Sub, in
the manner and amounts specified by Investor, cash (to the extent held by, or
available through the liquidation of the assets of, Bermuda Holdco or any of its
Subsidiaries) and Bermuda Holdco Shares sufficient to permit Merger Sub to
complete the Merger and pay the Merger Consideration as contemplated by the
Merger Agreement; provided that, for the avoidance of doubt, nothing in this
Agreement will require Parent or any of its Affiliates to make any capital
contribution or provide any additional financing to Bermuda Holdco in order to
permit Bermuda Holdco to comply with its obligations under this
Section 4.6(a)(iii);

(iv) Parent will not, and will not permit any of its Subsidiaries to, take or
permit any action that would reasonably be expected materially and adversely to
affect the ability of Delaware Holdco or Merger Sub to pay the Merger
Consideration at the Merger Closing or otherwise to consummate the Merger or any
of the other transactions contemplated by this Agreement or the Merger Agreement
to occur at the Merger Closing;

(v) Investor, Parent and Bermuda Holdco will, prior to the Third Party Sale
Closing, comply with their respective obligations to effect or cause to be
effected the transactions described in Exhibit C (collectively, the
“Restructuring”), and will cooperate with each other so as to minimize any Taxes
that would be imposed on Bermuda Holdco or any of its Subsidiaries, or for which
Bermuda Holdco or any of its Subsidiaries otherwise may become liable, as a
result of, or in connection with, the Restructuring;

(vi) Parent will provide to counsel to Investor a certificate containing such
certifications, representations and warranties as Investor or its counsel may
reasonably request, including, among others, certifications, representations and
warranties substantially in the form of those set forth in Exhibit E (the “Tax
Certification”) and subject to the Deductible and the Cap in Section 6.4(a); and

(vii) Investor, Parent and each of their respective Affiliates will take such
other actions as may be reasonably necessary to consummate the Third Party Sale
and the Merger.

 

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(b) (i) At any time during the period beginning on the Threshold Date and ending
on the later of (I) the expiration of the Election Period and (II) if the Merger
Agreement is executed in accordance with this Section 4.6, the later of the
consummation of the Merger and the termination or expiration of the Merger
Agreement (or, if earlier, the date that is one year after the date of any
Merger Notice (or such later date as the parties may agree); provided that such
date may be extended for an additional three months if the Merger has not
occurred by the first anniversary of the date of the Merger Notice because one
or more required consents or approvals from Governmental Authorities with
respect to the Merger have not yet been obtained), each of Parent, Bermuda
Holdco and Delaware Holdco will cooperate with Investor to effect the Third
Party Sale and will prepare information, reports and marketing materials that
may be necessary or desirable in connection with the consummation of the Third
Party Sale, in each case as may be reasonably requested by Investor, including:

A. providing to Investor information (which Investor may provide to the Equity
Investors) regarding Bermuda Holdco and its Subsidiaries and their respective
industries reasonably requested by prospective Equity Investors;

B. assisting Investor in the preparation of one or more offering documents or
confidential information memoranda with respect to the Third Party Sale,
including any financial statements of Bermuda Holdco and its Subsidiaries and
cooperating in the preparation of audited “carve-out” financial statements for
Bermuda Holdco and its Subsidiaries and any other pro forma financial statements
as may be deemed reasonably necessary or reasonably advisable or that would be
required by Regulation S-X and Regulation S-K under the Securities Act (treating
the Third Party Sale as an offering registered under the Securities Act) and
otherwise preparing any financial statements that may reasonably be deemed to be
necessary, advisable or required to be included in the Registration Statement;

C. causing the appropriate members of management to participate in a reasonable
number of meetings, presentations, road shows and due diligence sessions;

D. reasonably cooperating with Investor’s marketing efforts in connection with
the Third Party Sale;

E. reasonably cooperating in seeking to satisfy the conditions set forth in the
letters of intent and related term sheets entered into with any prospective
Equity Investor;

F. providing and executing documents as may be reasonably requested by Investor,
and using their reasonable efforts to obtain customary certificates, legal
opinions and consents of accountants for use of their reports in any materials
relating to the Third Party Sale and customary representations letters in
connection with confidential information memoranda;

 

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G. using reasonable efforts to cause (so far as it is legally capable of
causing) an independent third-party accounting firm that is nationally
recognized in the United States and mutually acceptable to Investor and Parent
(the “Independent Auditor”) to provide assistance to Investor, including
providing consents to Investor to use its audit reports relating to Bermuda
Holdco and its Subsidiaries and to provide any necessary “comfort letters” in
connection therewith;

H. preparing and furnishing to Investor as promptly as practicable such
financial information and other data of Bermuda Holdco and its Subsidiaries as
Investor may reasonably request in connection with the Third Party Sale,
including:

1. the unaudited balance sheet and income statement of each of Bermuda Holdco
and its Subsidiaries for its first financial year covering the period from its
date of incorporation or organization up to and including December 31, 2008 and
the audited balance sheet, income statement, statement of cash flows and
statement of changes in shareholders’ equity, and the accompanying footnotes,
for each such Person for each financial year thereafter through the Merger
Closing Date as of and for the periods ended or ending, as applicable, on
December 31 of such year, in each case prepared in accordance with GAAP
consistently applied and accompanied by (so far as by making its reasonable
efforts Bermuda Holdco is able to cause the Independent Auditor to provide the
same) the unqualified opinion of the Independent Auditor;

2. no later than 45 calendar days following the end of each fiscal quarterly
period of Bermuda Holdco occurring prior to the Merger Closing Date (“Fiscal
Quarter”), the draft unaudited consolidated balance sheet and income statement
of each of Bermuda Holdco and its Subsidiaries as of and for such Fiscal Quarter
and the comparable period of the prior fiscal year, in each case prepared in
accordance with GAAP consistently applied; and

3. no later than 60 calendar days following the end of each Fiscal Quarter, the
final unaudited consolidated balance sheet, income statement, statement of cash
flows and statement of changes in shareholders’ equity, and all accompanying
footnotes, of Bermuda Holdco and its Subsidiaries, as of and for such Fiscal
Quarter and the comparable period of the prior fiscal year, in each case
prepared in accordance with GAAP consistently applied;

provided that, notwithstanding anything in this Agreement to the contrary,
Investor may by written notice elect to cause Parent and its Affiliates to begin
to comply with clause (B) and this clause (H) of this Section 4.6(b)(i) prior to
the Investment Closing Date but not before the Threshold Date; provided further
that, if Investor makes such election, Investor shall promptly (and in any event
within

 

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30 days after receiving notice thereof from Parent) reimburse Parent for the
reasonable and documented out-of-pocket third party costs and expenses incurred
by Parent and its Affiliates on or after the Threshold Date and prior to the
Investment Closing Date in connection with such obligations in accordance with
Exhibit F, and such costs and expenses will not be deemed Merger Expenses
hereunder for purposes of paragraphs 7 and 8 of Exhibit F;

I. using reasonable efforts periodically to update any financial statements, pro
forma financial information, financial data, audit reports and other information
relating to Bermuda Holdco and its Subsidiaries provided to any prospective
Equity Investor (“Third Party Investor Financial Information”) in connection
with the consummation of the Third Party Sale, and to ensure that the Third
Party Investor Financial Information does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and

(ii) As promptly as practicable after the date of the Merger Agreement, Parent
shall, as and if requested by Investor, enter into a stock purchase agreement
with the Equity Investors reflecting terms contemplated by Parent and Investor
and described in this Section 4.6(b)(ii) (the “Third Party Sale Agreement”),
provided that the Equity Investors have been identified and are willing and able
to enter into the Third Party Sale Agreement. The Third Party Sale Agreement
will include customary representations, warranties and indemnification and
limitation provisions and other terms mutually acceptable to Parent and
Investor, acting reasonably; provided that the customary representations and
warranties to be included in the Third Party Sale Agreement shall include, among
other things, representations and warranties of the type included in
Section 2.1, Section 2.2, Section 2.3 and Section 2.4 of this Agreement and
customary indemnification (subject to customary limitation, if any) with respect
thereto, and indemnification for all Losses resulting from or arising out of the
matters described in clause (c) of Section 6.2, in each case in form and
substance no less favorable to the Equity Investors as such representations and
the indemnities included in this Agreement are to Investor. On the terms and
subject to the conditions contained in the Third Party Sale Agreement, Parent
will sell, transfer and assign to the Equity Investors immediately prior to the
effective time of the Merger all the Bermuda Holdco Shares (other than the
Bermuda Holdco Shares to be paid as consideration to the stockholders of
Investor as consideration in connection with the Merger) for a purchase price in
cash equal to the sum of the Tangible Net Asset Value of Bermuda Holdco as of
the Third Party Sale Closing Date (after giving effect to the Restructuring)
plus such additional amount equal to the value of the Retained Business as to
which Parent and the Equity Investors may agree; provided, however, that for
purposes of determining the purchase price pursuant to the foregoing, the value
of the Retained Business shall include an amount calculated and agreed by
Investor and Parent, acting in good faith and reasonably, equal to the excess of
the value of Bermuda Insurer’s expected future income arising after the Merger
Closing from the Retained Business over the value of Investor’s expected future
income arising after the Merger Closing from the Investor 2011 Contract and the
Investor 2012 Contract assuming, for this purpose, that such contracts were not
commuted or cancelled.

 

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(c) (i) After the Merger Agreement is executed, Investor will prepare with the
assistance of Parent and Bermuda Holdco, and Parent, Bermuda Holdco and Investor
will cooperate with each other in preparing, a single document that will
constitute (A) the proxy statement to be filed by Investor with the SEC and sent
by Investor to the stockholders of Investor prior to the Merger (“Investor
Stockholders”) in connection with one or more Investor Stockholders Meetings (as
may be amended from time to time, the “Proxy Statement”) and (B) the prospectus
to be included in the registration statement of Bermuda Holdco on Form S-4 or
Form F-4 (as determined by Investor in its sole discretion) to be filed by
Bermuda Holdco, or any other registration statement or filing required to be
made by Bermuda Holdco or Merger Sub in connection therewith, with the SEC,
registering the Bermuda Holdco Shares to be exchanged for shares of Investor
held by Investor Stockholders in the Merger (collectively and as amended from
time to time, the “Registration Statement”), and shall promptly file such
document with the SEC.

(ii) Investor, Parent and Bermuda Holdco will each cause the Proxy Statement to
comply as to form in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations promulgated thereunder. Investor,
Parent and Bermuda Holdco will each cause the Registration Statement to comply
as to form in all material respects with the applicable provisions of the
Securities Act and the rules and regulations promulgated thereunder. Parent and
Bermuda Holdco will promptly furnish Investor all information (financial or
otherwise) concerning Bermuda Holdco, its Affiliates, its directors, officers
and shareholders and such other matters as may be reasonably necessary or
advisable in connection with the preparation of the Proxy Statement or the
Registration Statement, including without limitation (A) all financial
statements and financial data of Bermuda Holdco and its Subsidiaries as may
reasonably be deemed necessary, advisable or required under applicable U.S.
securities Laws for inclusion therein, (B) any information as may reasonably be
deemed necessary to prepare pro forma financial statements (including audited
“carve-out” financial statements for Bermuda Holdco and its Subsidiaries) and
other data as may reasonably be deemed necessary, advisable or required by
Regulation S-X and Regulation S-K under the Securities Act and (C) providing and
executing documents as may be reasonably requested by Investor, including
customary certificates and legal opinions. In addition, each of Parent and
Bermuda Holdco will use reasonable efforts to cause (so far as each of them is
legally capable of causing) the Independent Auditor to provide assistance to
Investor in connection with the Proxy Statement, the Registration Statement and
the Third Party Sale, including assisting with any financial information
provided to Investor and providing consents for Investor to use its audit
reports and to provide any necessary “comfort letters,” to the extent
applicable.

(iii) Investor, Parent and Bermuda Holdco will use their reasonable efforts to
cause the Registration Statement to become effective as promptly as practicable
(the date of effectiveness being the “Registration Statement Effective Date”)
and to remain effective as long as is necessary to consummate the Merger
(subject to the time limitations contemplated by Section 4.6(b)(i)). Parent,
Investor and Bermuda Holdco will use reasonable efforts to obtain, prior to the
effectiveness of the Registration Statement, all state securities laws or “Blue
Sky” permits, approvals or exceptions as required to consummate the Merger. Each
of Investor, Parent and Bermuda Holdco will

 

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use its reasonable efforts to have the Proxy Statement cleared by the SEC as
promptly as practicable after filing, including using reasonable efforts to
respond to any comments of the SEC or its staff. As promptly as practicable
after the Registration Statement Effective Date, the proxy statement and
prospectus included in the Proxy Statement (collectively, the “Proxy Materials”)
shall be mailed to the Investor Stockholders.

(iv) Each of Investor, Parent and Bermuda Holdco will promptly advise the other
upon becoming aware of (A) the time when the Registration Statement has become
effective or any supplement or amendment has been filed, (B) the issuance of any
stop order, (C) the suspension of the qualification of Bermuda Holdco Shares to
be paid as consideration in the Merger for offering or sale in any jurisdiction
or (D) any comments, responses or requests from the SEC relating to the
Registration Statement or Proxy Statement or any of the transactions
contemplated by the Merger Agreement. In addition, whenever any party learns of
the occurrence of any event or the existence of any fact that is required to be
set forth in an amendment or supplement to the Proxy Statement or the
Registration Statement, each of Investor, Parent and Bermuda Holdco, as the case
may be, will promptly inform the others of such occurrence and cooperate in
filing with the SEC and, if applicable, mailing to the Investor Stockholders
such amendment or supplement.

(v) No filing or amendment of, or supplement to: (A) the Registration Statement
will be made by Parent or Bermuda Holdco without the prior consent of Investor;
or (B) the Proxy Statement will be made by Investor without the prior consent of
Bermuda Holdco or Parent, in either case, the consent of the other relevant
party or parties not to be unreasonably withheld, conditioned or delayed and
without providing the applicable other party or parties a reasonable opportunity
to review and comment thereon.

(vi) The information supplied by Investor for inclusion in the Proxy Statement
or the Registration Statement will not, at (A) the Registration Statement
Effective Date, (B) the time the Proxy Materials (or any amendment of or
supplement to the Proxy Materials) are first mailed to the Investor
Stockholders, (C) the time of the Investor Stockholders Meeting and (D) the
effective time of the Merger, contain any untrue statement of a material fact or
fail to state any material fact required to be stated in the Proxy Statement or
the Registration Statement or necessary in order to make the statements in the
Proxy Statement or the Registration Statement not misleading. If, at any time
prior to the effective time of the Merger, any information relating to Investor
or any of its Subsidiaries is discovered by Investor that should be set forth in
an amendment or a supplement to the Proxy Statement and the Registration
Statement, Investor will promptly inform Bermuda Holdco. All documents that
Investor is responsible for filing with the SEC in connection with the Merger
will comply as to form and substance in all material respects with the
applicable requirements of Law.

(vii) The information supplied by Parent or Bermuda Holdco for inclusion in the
Proxy Statement or the Registration Statement will not, at (A) the Registration
Statement Effective Date, (B) the time the Proxy Materials (or any amendment of
or supplement to the Proxy Materials) are first mailed to the Investor

 

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Stockholders, (C) the time of the Investor Stockholders Meeting and (D) the
effective time of the Merger, contain any untrue statement of a material fact or
fail to state any material fact required to be stated in the Proxy Statement or
the Registration Statement or necessary in order to make the statements in the
Proxy Statement or the Registration Statement not misleading. If, at any time
prior to the effective time of the Merger, any information relating to Parent,
Bermuda Holdco, any of their Subsidiaries or any of the Shareholders is
discovered by Parent or Bermuda Holdco that should be set forth in an amendment
or a supplement to the Proxy Statement or the Registration Statement, Parent or
Bermuda Holdco will promptly inform Investor. All documents that Bermuda Holdco
or any of its Affiliates is responsible for filing with the SEC in connection
with the Merger shall comply as to form and substance in all material respects
with the applicable requirements of Law.

(viii) Each of Parent, Bermuda Holdco and Investor will file with the SEC in a
timely manner all forms, reports and documents required to be filed by it with
the SEC (including, in the case of Bermuda Holdco, any such forms, reports and
documents that are or would otherwise be required to be filed by it under
Section 15(d) of the Exchange Act from and after the date that the Registration
Statement is declared effective under the Securities Act and prior to the Merger
Closing Date) (collectively, the “Reports”). Investor, Parent and Bermuda Holdco
each agree that none of the Reports filed by it after the date of the Merger
Agreement and prior to the Merger Closing Date (and, if amended or superseded by
a filing prior to the Merger Closing Date, then on the date of such filing) will
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

(d) Each of Parent and Bermuda Holdco will use their respective reasonable
efforts to cause, and shall cooperate with Investor’s efforts to cause, the
Bermuda Holdco Shares to be issued or transferred to Investor Stockholders in
connection with the Merger to be approved for listing on the NASDAQ Global
Select Market, subject to official notice of issuance, prior to the Merger
Closing.

(e) The costs and expenses incurred by Parent and its Subsidiaries in connection
with Parent’s compliance with this Section 4.6 shall be dealt with in accordance
with Exhibit F.

(f) For the avoidance of doubt, and notwithstanding anything to the contrary in
this Agreement or any Ancillary Agreement, Investor shall have no obligation to
consummate the Merger or cause the Third Party Sale to be consummated, and may
withdraw its election to cause such Subsequent Transactions to occur at any time
and for any or no reason; provided that the foregoing shall not limit or
otherwise affect Investor’s obligations to consummate the transactions
contemplated by the Investment Agreement subject to and in accordance with its
terms, to pay the Investment Premium as contemplated by Section 1.1(a) or to
reimburse Parent and its Affiliates for expenses incurred in connection with the
Third Party Sale and the Merger as contemplated by, and in accordance with the
terms of, this Section 4.6 and Exhibit F.

 

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Section 4.7 The SPS Transactions Right.

(a) At any time following the Threshold Date and prior to January 1, 2016,
Investor may elect to require the actions contemplated by this Section 4.7 to be
taken by delivering a written notice of such election (an “SPS Notice”) to
Parent. Upon delivery of the SPS Notice, Parent will:

(i) (A) use its Reasonable Best Efforts to establish the SPS as soon as
reasonably practicable after the date on which the SPS Notice was delivered or,
if later, prior to the time specified in such SPS Notice (provided that the time
specified in such SPS Notice for consummation of the transactions contemplated
by this Section 4.7(a)(i) may not be sooner than four months after the date of
such SPS Notice and in any event shall be subject to any restrictions imposed by
Lloyd’s on the ability to effect any such transaction within any relevant time
period), (B) subject to Section 4.7(d), cause the Corporate Member to be the
sole member of the SPS, (C) use its Reasonable Best Efforts to cause the SPS and
CMAL, as of the date on which the SPS is established or as soon as reasonably
practicable thereafter, to have all Permits, and otherwise to have the full
ability, authority and capacity, to allow CMAL to manage the SPS and (D) subject
to Section 4.7(d), cause CMAL duly to execute and deliver the Management
Agreement and act as the managing agent of the SPS in accordance therewith;
provided that Parent may in its discretion choose to substitute the Managing
Agency for CMAL for all purposes of this Section 4.7(a)(i);

(ii) subject to Section 4.7(d) and to the SPS and CMAL (or, if applicable, the
Managing Agency) having all Permits referenced in Section 4.7(a)(i), and to the
fulfillment of all relevant requirements of Lloyd’s, cause the SPS (or, if
permission has already been obtained pursuant to Section 4.8(a)(i) for the SPS
to operate as a stand-alone syndicate, the Independent Syndicate) and Syndicate
4444 to enter into the Quota Share Reinsurance Agreement pursuant to which the
SPS (or the Independent Syndicate, as applicable) shall reinsure (a) 95% (or
such lesser percentage as may be required to comply with guidelines or
regulations of Lloyd’s) of the Investor Third Party Business and (b) 10% of the
whole account of Syndicate 4444’s business (other than the Investor Third Party
Business) for the 2013, 2014 and 2015 Years of Account; and

(iii) subject to Section 4.7(d) and to receipt of approval by Lloyd’s with
respect to the change of control of the Corporate Member, cause all of the
issued and outstanding shares of the Corporate Member to be transferred to
Investor for consideration equal to the Tangible Net Asset Value of the
Corporate Member as at the date of such transfer, such consideration to be paid
by Investor to Parent by wire transfer of immediately available funds to an
account designated in writing by Parent.

(b) Parent and its Affiliates shall use their Reasonable Best Efforts to ensure
that, immediately after the SPS Closing, each of CMAL (or, if applicable, the
Managing Agency) and the Corporate Member (as sole member of the SPS and in
respect of such membership) will directly or indirectly own, possess, license,
lease or, through an enforceable written contractual obligation, have access to,
or the legal right to use or receive the benefit of, all properties and assets
(both tangible and intangible) that are necessary under the relevant Lloyd’s
rules or other

 

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applicable Laws and regulations for the conduct of the business and operations
of the Corporate Member as the sole member of the SPS which is to operate in
accordance with the business plan for the SPS for the 2013 Year of Account.

(c) The costs and expenses incurred by Parent and its Subsidiaries in connection
with Parent’s compliance with this Section 4.7 shall be dealt with in accordance
with Exhibit F.

(d) Neither the Corporate Member Acquisition nor the entry by the parties
thereto into the Management Agreement or the Quota Share Reinsurance Agreement
will be effected prior to the Investment Closing Date.

(e) For the avoidance of doubt, and notwithstanding anything to the contrary in
this Agreement or any Ancillary Agreement, Investor shall have no obligation to
consummate the SPS Transactions, and may withdraw its election to cause the SPS
Transactions to occur at any time and for any or no reason; provided that the
foregoing shall not limit or otherwise affect Investor’s obligations to
consummate the transactions contemplated by the Investment Agreement subject to
and in accordance with its terms, to pay the Investment Premium contemplated by
Section 1.1(a) or to reimburse Parent and its Affiliates for expenses incurred
in connection with the SPS Transactions as contemplated by, and in accordance
with the terms of, this Section 4.7 and Exhibit F.

Section 4.8 The Managing Agency Acquisition Right.

(a) At any time following the Investment Closing Date and prior to January 1,
2016, Investor may elect to cause the actions contemplated by this Section 4.8
to be taken by delivering a written notice of such election (a “Managing Agency
Acquisition Notice”) to Parent. Upon delivery of the Managing Agency Acquisition
Notice, Parent will:

(i) use its Reasonable Best Efforts to obtain permission from Lloyd’s for the
SPS to operate as a stand-alone syndicate (the “Independent Syndicate”) to
underwrite business at Lloyd’s and to commence underwriting as a stand alone
syndicate on a date specified in the Managing Agency Acquisition Notice (which
date shall be at the commencement of an underwriting year unless agreed
otherwise and shall be at least four months from the date of the Managing Agency
Acquisition Notice);

(ii) determine, subject to the prior approval of Investor (such approval not to
be unreasonably withheld, conditioned or delayed, except in the case of Parent’s
determining that the Managing Agency will be a new entity to be formed by
Investor) and subject to approval from Lloyd’s and the FSA, whether the Managing
Agency will be Omega UAL or Newco MA, and, if the Managing Agency will be a new
entity to be formed by Parent, form the Managing Agency in the jurisdiction
designated by Investor (provided that Lloyd’s would grant registration as a
managing agency to a company incorporated in such jurisdiction) and not permit
such a Managing Agency to engage in any activities or conduct any operations
other than in connection with the transactions contemplated by this Agreement;
provided that Parent may not determine that the Managing Agency will be a new
entity to be formed by Investor without the prior written consent of Investor
(such consent not to be unreasonably withheld, conditioned or delayed);

 

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(iii) use its Reasonable Best Efforts to cause each of the SPS and the Managing
Agency to have all Permits, and otherwise to have the full ability, authority
and capacity, to allow the Managing Agency to manage the SPS or Independent
Syndicate, as applicable, and, unless Parent had initially chosen to comply with
its obligations under Section 4.7(a)(ii) by using the Managing Agency rather
than CMAL, cause the transfer of the management of the SPS from CMAL to the
Managing Agency as soon as reasonably practicable following the date on which
all necessary Permits to manage the SPS or Independent Syndicate, as applicable,
are obtained by the Managing Agency and cause the Managing Agency to be
substituted for CMAL under the Management Agreement and to act as the managing
agency of the SPS in accordance therewith;

(iv) cause the Managing Agency to cooperate with Investor, and cause the
Managing Agency to provide all necessary support to Investor upon reasonable
request, in each case in connection with the preparation and submission of the
business plan for the Independent Syndicate (the “Independent Syndicate Business
Plan”), the principles, objectives and outline of which shall be set by
Investor, and cause the Managing Agency to advise Investor as necessary with
respect to the preparation of the business plan in conformity with Lloyd’s
requirements; provided that if the Managing Agency is a new entity formed by
Investor, Parent shall or shall cause one of its Affiliates to cooperate with
Investor and provide all necessary support to Investor and the Managing Agency
upon reasonable request in connection with the preparation and submission of the
Independent Syndicate Business Plan;

(v) cause the Managing Agency to advise and assist Investor with respect to the
calculation of the “Funds at Lloyd’s” requirements for the Corporate Member in
relation to the Independent Syndicate and the proposed business plan thereof;
provided that if the Managing Agency is a new entity formed by Investor, Parent
shall comply or cause one of its Affiliates to comply with the obligations of
the Managing Agency under this Section 4.8(a)(v);

(vi) subject to Lloyd’s approval of the Independent Syndicate and its business
plan in a form reasonably satisfactory to Investor, cause Syndicate 4444 to cede
10% of its whole account to the Independent Syndicate by way of quota share
reinsurance and renew such 10% quota share reinsurance agreement if Investor and
Parent agree to do so; and

(vii) unless the Managing Agency is a new entity formed by Investor, and subject
to receipt of all necessary approvals by Lloyd’s and other necessary regulatory
consents, cause the entire share capital of the Managing Agency to be
transferred to Investor for consideration equal to the Tangible Net Asset Value
of the Managing Agency as at the date of such transfer, such consideration to be
paid by Investor by wire transfer of immediately available funds to an account
designated in writing by Parent.

 

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(b) Parent and its Affiliates shall use their Reasonable Best Efforts to ensure
that, immediately after the Managing Agency Closing (if any), the Managing
Agency (if not a new entity formed by Investor) will directly or indirectly own,
possess, license, lease or, through an enforceable written contractual
obligation, have access to, or the legal right to use or receive the benefit of,
all properties and assets (both tangible and intangible) which are necessary
under the relevant Lloyd’s rules or other applicable Laws and regulations for
the Managing Agency to conduct its business in accordance with the relevant
business plan for the Independent Syndicate; provided that if the business plan
for the Independent Syndicate requires certain services to be provided by Parent
or any of its Subsidiaries, such services will be provided on arms’-length
commercial terms.

(c) The costs and expenses incurred by Parent and its Subsidiaries in connection
with Parent’s compliance with this Section 4.8 shall be dealt with in accordance
with Exhibit F.

(d) For the avoidance of doubt, and notwithstanding anything to the contrary in
this Agreement or any Ancillary Agreement, Investor shall have no obligation to
consummate the Managing Agency Acquisition, and may withdraw its election to
cause the Managing Agency Acquisition to occur at any time and for any or no
reason; provided that the foregoing shall not limit or otherwise affect
Investor’s obligations to consummate the transactions contemplated by the
Investment Agreement subject to and in accordance with its terms, to pay the
Investment Premium contemplated by Section 1.1(a) or to reimburse Parent and its
Affiliates for expenses incurred in connection with the Managing Agency
Acquisition as contemplated by, and in accordance with the terms of, this
Section 4.8 and Exhibit F.

Section 4.9 Return of Investment Premium.

If Parent or any of its Affiliates breaches this Agreement, the Investment
Agreement, the Third Party Sale Agreement or the Merger Agreement in any
material respect (other than any such breach that (a) is solely a breach of a
representation or warranty that was deemed to have been made as of the
Investment Closing Date, (b) did not exist as of the date of this Agreement and
(c) was caused solely by external factors outside of the control of Parent) and
such breach causes the failure to occur of (i) the Merger, (ii) the SPS
Transactions or (iii) the Managing Agency Acquisition (it being understood for
the avoidance of doubt that if any such breach causes the existence of a
situation or set of circumstances that materially and adversely affects the
benefits that Investor (acting in good faith) reasonably expects to derive from
any such Subsequent Transaction, including any such situation in which Investor
would suffer any material Liability or restriction as a result of effecting any
such Subsequent Transaction that Investor would not have suffered absent such
breach, then such breach will for all purposes hereunder be deemed to have
caused the failure of such Subsequent Transaction to occur), then Parent shall
promptly pay to Investor, as liquidated damages with respect to all Losses
resulting from the failure of the Merger, the SPS Transactions and the Managing
Agency Acquisition to occur and not as a penalty, by wire transfer of
immediately available funds to an account designated in writing by Investor, an
amount equal to the Merger Option Price plus $10,000,000 (in the event that it
is the Merger that does not occur), the SPS Option Price (in the event that it
is any of the SPS Transactions that does not occur) and the Managing Agency
Acquisition Option Price (in the event that it is the Managing Agency
Acquisition that does not occur), as applicable, plus interest on such amounts
from the Investment Closing Date to the date of payment at the Interest Rate.

 

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Section 4.10 Further Assurances.

Without prejudice to the provisions of Section 4.6(e), Section 4.7(c) and
Section 4.8(c), each of the parties will, and will cause their Affiliates and
their Affiliates’ representatives to, execute and deliver such additional
instruments, documents, conveyances or assurances and take such other actions as
shall be necessary or reasonably requested by the other parties hereto to
confirm and assure the rights and obligations provided for in this Agreement and
render effective the consummation of the transactions contemplated hereby, or
otherwise to carry out the intent and purposes of this Agreement.

ARTICLE V

TERMINATION

Section 5.1 Termination.

This Agreement may be terminated at any time prior to the Investment Closing
Date by the written agreement of Investor, Parent, Bermuda Holdco and Delaware
Holdco and shall automatically terminate upon termination of the Investment
Agreement prior to the Investment Closing.

Section 5.2 Effect of Termination.

If this Agreement is terminated pursuant to Section 5.1, this Agreement shall
become void and of no effect without liability of any party (or any of its
directors, officers, employees, stockholders, Affiliates, agents,
representatives or advisors) to the other parties hereto; provided that no such
termination shall relieve any party of liability for a breach of this Agreement
(or affect any party’s right to enforce specifically the terms of this Agreement
in the event of any breach in accordance with Section 8.9) occurring prior to
such termination. The provisions of Section 4.4 (Public Announcements), this
Section 5.2 and Sections 5.1 (Termination), 7.1 (Certain Terms), 7.2
(Construction) and Article VIII (Miscellaneous) shall survive any termination
hereof pursuant to Section 5.1.

ARTICLE VII

NDEMNIFICATION

Section 6.1 Survival.

The representations and warranties of the parties contained in this Agreement
shall survive the Investment Closing until the date that is 24 months after the
Investment Closing Date; provided that the representations and warranties in
Sections 2.1 (Corporate Status), 2.2 (Corporate and Governmental Authorization),
2.17 (Tax Matters), 2.22 (Finders’ Fees), 3.1 (Corporate Status), 3.2 (Corporate
and Governmental Authorization) and 3.5 (Finders’ Fees) shall survive until 60
days after the expiration of the applicable statute of limitations and the

 

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representations and warranties in Section 2.4 (Capitalization; Title to Shares)
shall survive indefinitely. The covenants and agreements of the parties
contained in this Agreement that (x) are specifically required to be fully
performed or complied with at or prior to any Closing shall survive such Closing
until the date that is 24 months after the applicable Closing Date or (y) are to
be performed or complied with after any Closing shall survive until fully
performed or complied with. Notwithstanding the preceding sentences, any breach
of representation, warranty, covenant or agreement in respect of which indemnity
may be sought under this Agreement shall survive the time at which it would
otherwise terminate pursuant to the preceding sentences, if notice of the
inaccuracy or breach thereof giving rise to such right of indemnity shall have
been given to the party against which such indemnity may be sought prior to such
time.

Section 6.2 Indemnification by Parent.

Subject to Section 6.4, from and after the Investment Closing, Parent shall
defend, indemnify and hold harmless each of Investor, its Affiliates and their
respective officers, directors, employees, agents, advisers and representatives
(collectively, the “Investor Indemnitees”) from and against, and pay or
reimburse the Investor Indemnitees for, any and all damage, loss, Liability, and
expense (including reasonable expenses of investigation, enforcement and
collection and reasonable attorneys’ and accountants’ fees and expenses in
connection with any Litigation and any incidental, indirect or consequential
damages, losses, liabilities or expenses, and any lost profits or diminution in
value), whether or not involving a third party claim (collectively, “Losses”),
resulting from or arising out of (a) any inaccuracy in or breach of any
representation or warranty made by Parent in this Agreement, (b) any failure of
Parent to perform any covenant or agreement under this Agreement other than any
such failure of Parent resulting from or arising out of any action of any
Canopius Group Company taken or not taken at the written direction of Investor
pursuant to this Agreement, (c) if the Merger occurs, any Liability of Bermuda
Holdco or any of its Subsidiaries based on, arising out of or related to any
action, omission or event occurring, or any circumstance existing, prior to the
Merger Closing, other than insurance liabilities under the express terms of any
Insurance Contract or Reinsurance Agreement constituting a part of the Retained
Business, (d) if the Corporate Member Acquisition occurs, any Liability of the
Corporate Member based on, arising out of or related to any action, omission or
event occurring, or any circumstance existing, prior to the SPS Closing, other
than insurance liabilities under the express terms of any Insurance Contract or
Reinsurance Agreement to which the Corporate Member is a party as of the date of
the SPS Closing and (e) if the Managing Agency Acquisition occurs, any Liability
of the Managing Agency based on, arising out of or related to any action,
omission or event occurring, or any circumstance existing, prior to the Managing
Agency Closing; provided that if the Managing Agency is Omega UAL, Parent shall
have no liability under this Section 6.2(e) for any fact, matter, event or
circumstance occurring prior to the Investment Closing Date.

Section 6.3 Indemnification by Investor.

Subject to Section 6.4, from and after the Investment Closing, Investor shall
defend, indemnify and hold harmless Parent and its officers, directors,
employees, agents, advisers and representatives (collectively, the “Parent
Indemnitees”) from and against, and pay or reimburse the Parent Indemnitees for,
any and all Losses resulting from or arising out of (a)

 

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any inaccuracy in or breach of any representation or warranty made by Investor
in or pursuant to this Agreement or (b) any failure of Investor to perform any
covenant or agreement under this Agreement.

Section 6.4 Certain Limitations.

(a) Except with respect to inaccuracies in or breaches of the representations
and warranties contained in Sections 2.1 (Corporate Status) 2.2 (Corporate and
Governmental Authorization), 2.4 (Capitalization; Title to Shares), 2.17 (Tax
Matters) and 2.22 (Finders’ Fees) (the “Parent Fundamental Representations”),
Parent shall not be required to indemnify Investor Indemnitees for Losses under
Section 6.2(a) until the aggregate amount of all such Losses exceeds $1,000,000
(the “Deductible”), in which event Parent shall be responsible only for Losses
in excess of such Deductible. The maximum amount for which Parent will be liable
pursuant to Section 6.2(a) and Section 6.2(b) (exclusive of any amounts paid by
Parent to Investor with respect to the failure of any of the Merger, the SPS
Transactions or the Managing Agency Acquisition to occur in accordance with
Section 4.9 and the following sentence) shall not in the aggregate exceed
$50,000,000 (the “Aggregate Cap”); provided, however, that the maximum amount
for which Parent will be liable pursuant to Section 6.2(a) (other than with
respect to breaches of Parent Fundamental Representations) shall not in the
aggregate exceed $15,000,000 (the “Representations Cap”). For the avoidance of
doubt, the Investor Indemnitees’ rights to indemnification for Losses arising
out of the failure of any of the Merger, the SPS Transactions and the Managing
Agency Acquisition to occur shall be limited to (i) with respect to the Merger,
the Merger Option Price plus $10,000,000, (ii) with respect to any of the SPS
Transactions, the SPS Option Price and (iii) with respect to the Managing Agency
Acquisition, the Managing Agency Acquisition Option Price, in each case plus
interest on such amount from the Investment Closing Date to the date on which
such amount is paid at the Interest Rate.

(b) Except with respect to inaccuracies in or breaches of the representations
and warranties contained in Sections 3.1 (Corporate Status), Section 3.2
(Corporate and Governmental Authorization) and 3.5 (Finders’ Fees) (the
“Investor Fundamental Representations”), Investor shall not be required to
indemnify Parent Indemnitees for Losses under Section 6.3(a) until the aggregate
amount of all such Losses exceeds the Deductible, in which event Investor shall
be responsible only for Losses in excess of such Deductible. The maximum amount
for which Investor will be liable pursuant to Section 6.3(a) and Section 6.3(b)
shall not in the aggregate exceed the Aggregate Cap; provided, however, that the
maximum amount for which Investor will be liable pursuant to Section 6.3(a)
(other than with respect to breaches of Investor Fundamental Representations)
shall not in the aggregate exceed the Representations Cap.

(c) For purposes of this Article VI, any inaccuracy in or breach of any
representation or warranty (other than any representation or warranty set forth
in Section 2.7, Section 2.8 or Section 2.9) shall be determined without regard
to any materiality, Material Adverse Effect or similar qualification contained
in or otherwise applicable to such representation or warranty.

(d) The rights and remedies of any party in respect of any inaccuracy or breach
of any representation, warranty, covenant or agreement shall in no way be
limited by the

 

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fact that the act, omission, occurrence or other state of facts or circumstances
upon which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement as
to which there is no inaccuracy or breach. The representations, warranties and
covenants of Parent (as qualified by the matters set forth in the Parent
Disclosure Letter) and the Investor Indemnitees’ rights to indemnification with
respect thereto, shall not be affected or deemed waived by reason of (and the
Investor Indemnitees shall be deemed to have relied upon the representations and
warranties of Parent set forth herein notwithstanding) (i) any investigation
made by or on behalf of any of the Investor Indemnitees (including by any of its
advisers, consultants or representatives) or by reason of the fact that any of
the Investor Indemnitees or any of such advisers, consultants or representatives
knew or should have known that any such representation or warranty is, was or
might be inaccurate, regardless of whether such investigation was made or such
knowledge was obtained before or after the execution and delivery of this
Agreement or (ii) Investor’s waiver of any condition set forth in any
Transaction Agreement.

(e) Except as contemplated by Section 4.9 and as provided in Section 8.9, the
indemnity provided for in this Article VI shall be the sole and exclusive remedy
of Investor Indemnitees or Parent Indemnitees, as the case may be, after the
Investment Closing for any inaccuracy of any representation or warranty of
Parent or Investor, respectively, herein or any other breach of this Agreement,
provided that nothing herein shall limit in any way any such party’s remedies in
respect of fraud, intentional misrepresentation or omission, intentional breach
or willful misconduct by the other parties in connection with the transactions
contemplated hereby.

(f) No party to this Agreement (or any of its Affiliates) shall, in any event,
be liable or otherwise responsible to any other party (or any of its Affiliates)
for any punitive damages of such other party (or any of its Affiliates) arising
out of or relating to this Agreement or the performance or breach hereof, other
than any such damages arising in connection with a Third Party Claim.

(g) Notwithstanding anything to the contrary in this Agreement, none of the
limitations in Section 6.1 or, with respect to the Deductible and the Cap, this
Section 6.4 shall apply in the event of any fraud, intentional misrepresentation
or omission or willful misconduct on the part of any of the parties or its
Affiliates.

Section 6.5 Payment Adjustments, Etc.

(a) Any indemnity payment made by Parent to Investor Indemnitees, on the one
hand, or by Investor to Parent Indemnitees, on the other hand, pursuant to this
Article VI in respect of any Loss shall be net of an amount equal to (x) any
insurance proceeds actually received by the Indemnified Party in respect of such
claim minus (y) any related costs and expenses, including the aggregate cost of
pursuing any related insurance claims; provided, however, that neither party
shall have any obligation to seek to recover any insurance proceeds in
connection with making a claim under this Article VI. If an Indemnified Party
receives any amounts under applicable insurance policies, or from any other
Person alleged to be responsible for any Losses, subsequent to an
indemnification payment by the Indemnifying Party, then such Indemnified Party
shall promptly reimburse the Indemnifying Party for any payment made or

 

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expense incurred by such Indemnifying Party in connection with providing such
indemnification payment up to the amount received by the Indemnified Party, net
of any expenses incurred by such Indemnified Party in collecting such amount.

(b) The Indemnifying Party shall increase any indemnity payment under this
Article VI to the applicable Indemnified Party to compensate for any Tax
detriment to the Indemnified Party that is actually realized by it as a result
of such indemnity payment or a payment pursuant to this paragraph prior to the
end of the close of the taxable year in which the fourth anniversary of such
indemnity payment occurs (the aggregate of such indemnity payment and such
increase, an “Indemnity Payment”). To the extent the Loss that gave rise to an
Indemnity Payment results in a Tax benefit to the Indemnified Party that is
actually realized by it prior to the end of the close of the taxable year in
which the fourth anniversary of such Indemnity Payment occurs, the Indemnified
Party shall remit to the applicable Indemnifying Party such Tax benefit
(determined on a with and without basis) (a “Tax Benefit Payment”); provided
that in no event shall the cumulative Tax benefit remitted by the Indemnified
Party exceed the amount of the applicable Indemnity Payment. If any such Tax
benefit is subsequently disallowed prior to the end of the close of the taxable
year in which the fourth anniversary of such Tax Benefit Payment occurs, the
applicable Indemnifying Party shall make an appropriate reconciliation payment
to the Indemnified Party. Notwithstanding the foregoing provisions of this
Section 6.5(b), if any Deductible or Cap described in Section 6.4(a) is
applicable, no Tax Benefit Payment shall be required to be made to the extent
such Tax Benefit Payment could cause the Indemnified Party not to be fully
compensated for its Loss.

(c) To the extent permitted by Law, indemnification payments hereunder shall be
treated by the parties as an adjustment to the consideration hereunder.

(d) Once a Loss is agreed to by the Indemnifying Party or finally adjudicated or
determined to be payable pursuant to this Article VI, the Indemnifying Party
shall satisfy its obligations within five Business Days of such agreement or
such final adjudication or determination by wire transfer of immediately
available funds to an account designated in writing by the Indemnified Party.
The parties hereto agree that should an Indemnifying Party not make full payment
of any such obligations within such five Business Day period, any amount payable
shall be increased by the interest on such amount, compounded daily (based on a
365-day year), at the Interest Rate from and including the date of agreement of
the Indemnifying Party or final adjudication or determination to and including
the date of payment.

Section 6.6 Third Party Claim Procedures.

In the case of any Litigation asserted by a third party (a “Third Party Claim”)
against a party entitled to indemnification under Section 6.2 or Section 6.3 of
this Agreement (an “Indemnified Party”), notice shall be given by the
Indemnified Party to the party required to provide indemnification (the
“Indemnifying Party”) promptly after such Indemnified Party has written notice
of such Third Party Claim, and the Indemnifying Party (at the expense of such
Indemnifying Party and so long as the Indemnifying Party acknowledges in writing
its obligation to indemnify the Indemnified Party for Losses related to such
Third Party Claim) shall be entitled to assume the defense of such Third Party
Claim by delivering a written notice of its election to assume the defense of
such Third Party Claim to the Indemnified Party provided that

 

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(a) counsel for the Indemnifying Party who shall conduct the defense of such
Third Party Claim shall be reasonably satisfactory to the Indemnified Party, and
the Indemnified Party may participate in such defense at such Indemnified
Party’s expense, and (b) the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its indemnification
obligation under this Agreement except to the extent that such failure results
in a lack of actual notice to the Indemnifying Party and such Indemnifying Party
is materially prejudiced as a result of such failure to give notice. If the
Indemnifying Party does not promptly assume the defense of such Third Party
Claim following notice thereof in the circumstances referred to above, the
Indemnified Party shall be entitled to assume (or continue to conduct) and
control such defense and, subject to prior notification to the Indemnifying
Party, to settle or agree to pay in full such Third Party Claim subject to the
consent of the Indemnifying Party (which consent shall not be unreasonably
withheld or delayed for longer than five Business Days, after which, if the
Indemnifying Party has not yet responded to such request for consent, the
Indemnifying Party shall be deemed to have given its consent to such settlement)
without prejudice to the ability of the Indemnified Party to enforce its claim
for indemnification against the Indemnifying Party hereunder. Except with the
prior written consent of the Indemnified Party (except where such consent is
unreasonably withheld or delayed), no Indemnifying Party, in the defense of any
such Third Party Claim, shall consent to entry of any judgment or enter into any
settlement in respect of the Third Party Claim, and in no circumstances shall
the Indemnifying Party, in the defense of any such Third Party Claim, consent to
entry of any judgment or enter into any settlement that provides for injunctive
or other non-monetary relief affecting the Indemnified Party or that does not
include as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of an irrevocable release from all Liability
with respect to such Third Party Claim. If the Indemnified Party determines in
good faith that the conduct of the defense or any proposed settlement of any
Third Party Claim would reasonably be expected to affect adversely the
Indemnified Party’s Tax liability or the ability of the Canopius Group Company
to conduct its business, or that the Indemnified Party may have available to it
one or more defenses or counterclaims that are inconsistent with one or more of
those that may be available to the Indemnifying Party in respect of such Third
Party Claim, the Indemnified Party shall have the right at all times to take
over and control the defense, settlement, negotiation or Litigation relating to
any such Third Party Claim at the reasonable cost of the Indemnifying Party;
provided that if the Indemnified Party does so take over and control, the
Indemnified Party shall not settle such Third Party Claim without the written
consent of the Indemnifying Party, such consent not to be unreasonably withheld
or delayed. In any event, Parent and Investor shall cooperate in the defense of
any Third Party Claim subject to this Article VI and the records of each shall
be reasonably available to the other with respect to such defense.

ARTICLE VII

DEFINITIONS

Section 7.1 Certain Terms.

The following terms have the respective meanings given to them below:

“Affiliate” means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person.

 

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“Affiliate Transaction” has the meaning set forth in Section 2.21.

“Aggregate Cap” has the meaning set forth in Section 6.4(a).

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

“Ancillary Agreement” means the Investment Agreement, the Management Agreement,
the Merger Agreement, the Third Party Sale Agreement and the Quota Share
Reinsurance Agreement.

“Assets” means all of the assets that are used or held for use in connection
with the Business or are reflected on the Year End Balance Sheets or were
acquired after the Balance Sheet Date.

“Balance Sheet Date” has the meaning set forth in Section 2.6(a).

“Bermuda Employees” has the meaning set forth in Exhibit C.

“Bermuda Holdco” has the meaning set forth in the Preamble.

“Bermuda Holdco Shares” has the meaning set forth in the Recitals.

“Bermuda Insurer” has the meaning set forth in Section 2.6(b).

“Bermuda Insurer Financial Statements” has the meaning set forth in
Section 2.6(b).

“Books and Records” means all accounts, ledgers and records (including computer
generated, recorded or stored records) relating to the business of the Canopius
Group Companies, including customer lists, contract forms, applications,
enrollment forms, policy information, policyholder information, claim records,
sales records, underwriting records, administrative, pricing, underwriting,
claims handling and reserving manuals, corporate and accounting and other
records (including the books of account and other records), Tax records
(including Tax Returns), disclosure and other documents and filings required
under applicable Law, financial records, and compliance records relating to the
business of the Canopius Group Companies, including any database, magnetic or
optical media and any other form of recorded, computer generated or stored
information or process relating to the operations of the Canopius Group
Companies.

“Bregal Investors” has the meaning set forth in the Investment Agreement.

“Business” means the business and operations of the Canopius Group Companies as
conducted as of the date hereof and at any time between the date hereof and the
Investment Closing.

“Business Day” means any day, other than a Saturday or a Sunday, on which
commercial banks in New York, New York, Guernsey and London, England, are open
for normal banking business.

 

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“Canopius Group Companies” means Parent and each of its Subsidiaries; provided
that, for the avoidance of doubt, Omega and its Subsidiaries will not be
considered Subsidiaries of Parent for purposes of Article II.

“Cash Offer” has the meaning set forth in the Recitals.

“CC11L” has the meaning set forth in Exhibit C.

“Class A Parent Shares” has the meaning set forth in the Recitals.

“Closing” means (as the context may require) any of the Investment Closing, the
Third Party Sale Closing, the Merger Closing and the SPS Closing.

“Closing Date” means (as the context may require) any of the Investment Closing
Date, the Third Party Sale Closing Date, the Merger Closing Date and the SPS
Closing Date.

“CMAL” has the meaning set forth in the Recitals.

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

“Contract” means any contract, agreement, understanding, indenture, note, bond,
loan, instrument, lease, conditional sale contract, purchase or sales order,
mortgage, license or other enforceable arrangement or agreement, whether in
writing or oral.

“Corporate Member” has the meaning set forth in the Recitals.

“Corporate Member Acquisition” has the meaning set forth in the Recitals.

“Costs Budget” has the meaning set forth in Exhibit F.

“Costs Statement” has the meaning set forth in Exhibit F.

“Covenants Cap” has the meaning set forth in Section 6.4(a).

“DGCL” means the General Corporation Law of the State of Delaware, as amended.

“Deductible” has the meaning set forth in Section 6.4(a).

“Delaware Holdco” has the meaning set forth in the Preamble.

“Effective Time” has the meaning set forth in Exhibit B.

“Election Period” has the meaning set forth in Section 4.6(a).

“Equity Investors” has the meaning set forth in the Recitals.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

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“Fiscal Quarter” has the meaning set forth in Section 4.6(b)(i)(H)(2).

“Flectat” has the meaning set forth in Exhibit C.

“FSA” means the Financial Services Authority of the UK (or any successor
authority or authorities carrying out insurance or insurance mediation
regulatory functions in the United Kingdom or the function of the competent
authority under Part VI of FSMA from time to time).

“FSMA” means the UK Financial Services and Markets Act 2000 (as amended from
time to time).

“GAAP” has the meaning set forth in Section 2.6(b).

“Governmental Approval” has the meaning set forth in Section 2.2(b).

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, any entity, authority or body exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, any court, tribunal or arbitrator, and any regulatory
or self-regulatory authority, agency, commission body or organization,
including, for the avoidance of doubt, the FSA and Lloyd’s.

“Government List” has the meaning set forth in Section 2.14(b).

“IFRS” has the meaning set forth in Section 2.6(a).

“Indebtedness” means, with respect to any Person, without duplication, (a) all
obligations of such Person for borrowed money, or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid (other than trade payables
incurred in the ordinary course of business consistent with past practices),
(d) all obligations of such Person under conditional sale or other title
retention agreements relating to any property purchased by such Person, (e) all
obligations of such Person incurred or assumed as the deferred purchase price of
property or services (excluding obligations of such Person to creditors for raw
materials, inventory, services and supplies incurred in the ordinary course of
business consistent with past practices), (f) all lease obligations of such
Person capitalized on the books and records of such Person, (g) all obligations
of others secured by a Lien on property or assets owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed,
(h) all obligations of such Person under interest rate, currency or commodity
derivatives or hedging transactions, (i) all letters of credit or performance
bonds issued for the account of such Person (excluding (1) letters of credit
issued for the benefit of suppliers to support accounts payable to suppliers
incurred in the ordinary course of business consistent with past practices,
(2) standby letters of credit relating to workers’ compensation insurance and
(3) surety bonds and customs bonds) and (j) all guaranties and arrangements
having the economic effect of a guaranty by such Person of any Indebtedness of
any other Person.

“Indemnified Party” has the meaning set forth in Section 6.6.

 

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“Indemnifying Party” has the meaning set forth in Section 6.6.

“Indemnity Payment” has the meaning set forth in Section 6.5(b).

“Independent Auditor” has the meaning set forth in Section 4.6(b)(i)(G).

“Independent Syndicate” has the meaning set forth in Section 4.8(a)(i).

“Independent Syndicate Business Plan” has the meaning set forth in
Section 4.8(a)(iv).

“Insurance Contracts” means all insurance or reinsurance Contracts, binders,
slips, certificates, endorsements, riders, treaties, policies, products or other
arrangements (other than the Reinsurance Agreements, sold, issued, entered into,
serviced or administered by any Canopius Group Company in connection with the
Business), in each case as such Contract, binder, slip, certificate,
endorsement, rider, treaty, policy, product or other arrangement may have been
amended, modified or supplemented.

“Interest Rate” means 12% per annum.

“Investment Agreement” has the meaning set forth in the Recitals.

“Investment Assets” means any investment assets (whether or not required by IFRS
or GAAP to be reflected on a balance sheet) beneficially owned by the Canopius
Group Companies, including bonds, notes, debentures, mortgage loans, real estate
and all other instruments of Indebtedness, stocks, partnership or joint venture
interests and all other equity interests, certificates issued by or interests in
trusts, derivatives and all other assets acquired for investment purposes.

“Investment Closing” has the meaning set forth in the Recitals.

“Investment Closing Date” means the date of the Closing of the Investment
Agreement.

“Investment Premium” has the meaning set forth in Section 1.1(a).

“Investor” has the meaning set forth in the Preamble.

“Investor 2011 Contract” has the meaning set forth in Exhibit C.

“Investor 2012 Contract” has the meaning set forth in Exhibit C.

“Investor Fundamental Representations” has the meaning set forth in
Section 6.4(a).

“Investor Disclosure Letter” means the letter, dated as of the date hereof,
delivered by Investor to Parent prior to the execution of this Agreement and
identified as the Investor Disclosure Letter.

 

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“Investor Indemnitees” has the meaning set forth in Section 6.2.

“Investor Shares” has the meaning set forth in Exhibit B.

“Investor Stockholders” has the meaning set forth in Section 4.6(c)(i).

“Investor Stockholders Meeting” means the meeting of the stockholders of
Investor at which the Investor Stockholders shall consider the adoption of the
Merger Agreement and the approval of the Merger.

“Investor Third Party Business” means insurance and reinsurance business that
Investor or any of its Affiliates directly or indirectly refers to Syndicate
4444 and which was not written by Syndicate 4444 prior to the date of this
Agreement and as to which, prior to the underwriting of such business, Investor
notifies CMAL or the Managing Agency, as applicable, that such business
constitutes “Investor Third Party Business” hereunder.

“IRS” means the Internal Revenue Service.

“Knowledge” means the actual knowledge (and not any imputed or constructive
knowledge and without any obligation to conduct any inquiry), of: (a) with
respect to Parent, the individuals listed in Section 7.1(a) of the Parent
Disclosure Letter and (b) with respect to Investor, the individuals listed in
Section 7.1(a) of the Investor Disclosure Letter.

“Law” means any federal, state, provincial or local, domestic or foreign law,
statute, legislation, code, treaty, ordinance, or common law or any rule,
regulation, direction, Order, agency requirement or other requirement or rule of
law of a Governmental Authority.

“Liability” means any and all liabilities, obligations, debts and commitments of
any kind, character or description, whether known or unknown, asserted or not
asserted, absolute or contingent, fixed or unfixed, matured or unmatured,
accrued or unaccrued, disputed or undisputed, liquidated or unliquidated,
secured or unsecured, joint or several, due or to become due, vested or
unvested, executory, determined, determinable or otherwise, whenever or however
incurred or arising (including whether arising out of any contract or tort based
on negligence or strict liability) and whether or not the same would be required
by IFRS or GAAP to be reflected in financial statements or disclosed in the
notes thereto.

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge,
charge, security interest, lease, encumbrance or other adverse claim of any kind
in respect of such property or asset.

“Litigation” means any action, cause of action, claim, cease and desist letter,
demand, suit, arbitration proceeding, citation, summons, subpoena or
investigation of any nature, civil, criminal, regulatory or otherwise, in law or
in equity.

“Lloyd’s” means Lloyd’s of London.

“LOC Security Package” means the guarantees, shares security deeds and account
security deeds given or made or to be given or made in favor of ING Bank N.V.,
London Branch

 

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as Security Trustee or the Banks (as defined below) in connection with a letter
of credit agreement dated November 29, 2010, as amended and restated on
November 4, 2011, under which ING Bank N.V., London Branch, Commerzbank
Aktiengesellschaft and Barclays Bank PLC (the “Banks”) have made available to
Canopius Capital Two Limited (the “Account Party”) a letter of credit facility
of up to £75,000,000 to provide funds at Lloyd’s on behalf of the Account
Party, as the same has been or is to be further amended and restated in order to
increase the maximum amount of such facility to £105,000,000 in order to
facilitate the acquisition by Parent of Omega Insurance Holdings Limited.

“Losses” has the meaning set forth in Section 6.2.

“Management Agreement” means the Management Agreement to be executed and
delivered by and between the Corporate Member and the Managing Agency pursuant
to which the Managing Agency will manage the business of the Corporate Member as
the sole member of the SPS, all on commercially reasonable terms reasonably
acceptable to Investor and Parent.

“Managing Agency” means, as determined by Parent pursuant to, and in accordance
with the terms of, Section 4.8(a)(ii), Omega UAL or Newco MA.

“Managing Agency Acquisition” has the meaning set forth in the Recitals.

“Managing Agency Acquisition Notice” has the meaning set forth in
Section 4.8(a).

“Managing Agency Acquisition Right” has the meaning set forth in Section 1.1(d).

“Managing Agency Closing” means the closing of the Managing Agency Acquisition.

“Managing Agency Closing Date” has the meaning set forth in Section 1.6(d).

“Managing Agency Expenses” has the meaning set forth in Exhibit F.

“Managing Agency Acquisition Option Price” has the meaning set forth in
Section 1.1(d).

“Material Adverse Effect” means a material adverse effect on (a) the assets,
liabilities, business, operations, condition (financial, regulatory or
otherwise) or results of operations of (i) the Canopius Group Companies, taken
as a whole or (ii) Bermuda Holdco and its Subsidiaries (other than Subsidiaries
that are contemplated to be sold or transferred pursuant to the Restructuring),
taken as a whole, or (b) the ability of any of the Canopius Group Companies or
any of their Affiliates to perform its obligations under any of the Transaction
Agreements or to consummate the transactions contemplated thereby, but
excluding, in the case of clause (a), any material adverse effect resulting
after the date hereof from (x) a change in general economic or market
conditions, (y) matters affecting the property and casualty insurance or
reinsurance industry generally or (z) changes in IFRS or GAAP, to the extent
that any such effect described in the preceding clauses (x) through (z) does not
materially and disproportionately affect the Canopius Group Companies relative
to other Persons engaged in the industries in which the Canopius Group Companies
operate.

 

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“Material Contract” means each of the following types of Contracts to which any
Canopius Group Company is a party or by which any Canopius Group Company is
otherwise bound and, other than with respect to the Contracts described in
clauses (a), (d) or (j) below, is material to Parent and its Subsidiaries as a
whole: (a) any Contract relating to Indebtedness (whether incurred, assumed,
guaranteed or secured by any asset) or to any interest rate, derivatives or
hedging transaction; (b) any joint venture, partnership, limited liability
company or other similar Contract; (c) any Contract or series of related
Contracts, including any option Contract, relating to the acquisition or
disposition of any business, a material amount of stock or assets of any other
Person or any division or line of business thereof or any material real property
(whether by merger, sale of stock, sale of assets or otherwise), or which grants
a right of first refusal or offer of the same; (d) any Contract that (i) limits
the freedom of any of the Canopius Group Companies to compete in any line of
business or with any Person or in any area or that would so limit the freedom of
Investor, any of its Affiliates or any of the Canopius Group Companies after the
Investment Closing, (ii) contains exclusivity obligations or restrictions
binding on the Canopius Group Companies that would be binding on Investor, any
of its Affiliates or any of the Canopius Group Companies after the Investment
Closing or (iii) provides for a preferred or “most favored nation” status for
any party thereto; (e) any sales, distribution, agency, services or other
similar Contract; (f) any Contract described in Sections 2.13 (Litigation), 2.18
(Insurance) or 2.21 (Intercompany Accounts; Transactions with Affiliates or
Other Shareholders); (g) any managing general agent Contract that is either in
force or with respect to which any of the Canopius Group Companies has any
continuing obligations; (h) any Contract evidencing a participation by any of
the Canopius Group Companies in any pools, syndicates or associations other than
statutorily mandated pools, syndicates or associations; (i) any Reinsurance
Agreement; (j) any Contract (including any capital maintenance or keepwell
agreement) under which (i) any Person has directly or indirectly guaranteed any
Liabilities of any of the Canopius Group Companies or (ii) any of the Canopius
Group Companies has directly or indirectly guaranteed any Liabilities of any
other Person (in each case other than endorsements for the purpose of collection
in the ordinary course of business); or (k) any other Contract that (i) was not
entered into in the ordinary course of business consistent with past practice
and (ii) is material to any of the Canopius Group Companies.

“Merger” has the meaning set forth in the Recitals.

“Merger Agreement” has the meaning set forth in the Recitals.

“Merger Closing” means the closing of the transactions contemplated by the
Merger Agreement.

“Merger Closing Date” has the meaning set forth in Section 1.6(b).

“Merger Consideration” has the meaning set forth in Exhibit B.

“Merger Election” means Investor’s right to effect the Merger pursuant to
Section 4.6.

 

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“Merger Exercise Price” means $1,000,000.

“Merger Expenses” has the meaning set forth in Exhibit F.

“Merger Notice” has the meaning set forth in Section 4.6(a).

“Merger Option Price” has the meaning set forth in Section 1.1(b).

“Merger Right” has the meaning set forth in Section 1.1(b).

“Merger Sub” has the meaning set forth in the Recitals.

“Newco MA” means a Lloyd’s managing agency formed by Parent or Investor for the
purposes of consummating the transactions contemplated by Section 4.7 or
Section 4.8 (as the case may be).

“Offset Expenses” has the meaning set forth in Exhibit F.

“Order” means any order, judgment, stipulation, decree, injunction,
determination, award, ruling, writ or arbitration award of a Governmental
Authority (including any court of competent jurisdiction).

“Organizational Documents” means the articles of incorporation, certificate of
incorporation, charter, bylaws, articles of formation, certificate of formation,
regulations, operating agreement, certificate of limited partnership,
partnership agreement, and all other similar documents, instruments or
certificates executed, adopted, or filed in connection with the creation,
formation, organization or on-going business of a Person, including any
amendments thereto.

“Offer Announcement” means the draft of the announcement of the Cash Offer
appended to this Agreement as Exhibit D.

“Omega” has the meaning set forth in the Recitals.

“Omega UAL” has the meaning set forth in the Recitals.

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

“Parent Fundamental Representations” has the meaning set forth in
Section 6.4(a).

“Parent Disclosure Letter” means the letter, dated as of the date hereof,
delivered by Parent to Investor prior to the execution of this Agreement and
identified as the Parent Disclosure Letter.

“Parent Financial Statements” has the meaning set forth in Section 2.6(a).

“Parent Indemnitees” has the meaning set forth in Section 6.3.

“Permits” has the meaning set forth in Section 2.15.

 

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“Permitted Liens” means (a) statutory Liens for Taxes and other governmental
charges and assessments that are not yet due and payable or that are being
contested in good faith by appropriate proceedings and for which accruals or
reserves have been established against the full amount of such Liability on the
Year End Balance Sheets, (b) statutory Liens of carriers, warehousemen,
mechanics, materialmen and other similar Liens arising in the ordinary course of
business, (c) easements, rights of way, zoning ordinances and other similar
encumbrances of record affecting real property, and (d) statutory Liens in favor
of lessors arising in connection with any property leased to the Canopius Group
Company, which Liens and other encumbrances described in clauses (a) through
(d) do not materially detract from the current value or materially interfere
with the current use by the Canopius Group Company of the assets, properties or
rights affected thereby and would not reasonably be expected to have or result
in a Material Adverse Effect.

“Person” means a natural person, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.

“Proxy Statement” has the meaning set forth in Section 4.6(c)(i).

“Proxy Materials” has the meaning set forth in Section 4.6(c)(iii).

“Quota Share Reinsurance Agreement” means the Quota Share Reinsurance Agreement
between the SPS and Syndicate 4444 dated as of the SPS Closing Date and having
the terms mutually acceptable to Parent and Investor in their reasonable
discretion.

“Reasonable Best Efforts” means, with respect to the obligations of Parent and
its Affiliates under this Agreement, the best efforts of Parent or such relevant
Affiliate; provided that an obligation to use Reasonable Best Efforts under this
Agreement will not require Parent or any of its Affiliates to (i) take any
action that would, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect or that would, individually or in the
aggregate, be materially and disproportionately burdensome to the Condor Group
Companies (taken as a whole) relative to the benefits that would inure to
Investor and its Affiliates (taken as a whole) as a result of such action and
after taking into account the terms of this Agreement and the other Transaction
Agreements (including the consideration paid by Investor with respect to the
transaction or transactions to which such action relates); (ii) make a material
adverse change to the overall business strategy of Parent and its Subsidiaries,
taken as a whole; (iii) require Parent or any of its Affiliates to dispose of
any asset that would be material to Parent and its Subsidiaries, taken as a
whole; (iv) take any action that would breach, violate or contravene any
material applicable Law in any material respect; (v) initiate any Litigation; or
(vi) for the avoidance of doubt, require Parent or any of its Affiliates to
capitalize Bermuda Holdco or Bermuda Insurer as a result of Losses incurred by
either of them in the ordinary course of business.

“Registration Statement” has the meaning set forth in Section 4.6(c)(i).

“Registration Statement Effective Date” has the meaning set forth in
Section 4.6(c)(iii).

 

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“Reinsurance Agreement” means any outwards reinsurance or retrocessional treaty
or agreement to which the Canopius Group Company is a party and (a) which is in
force as of the date hereof, (b) is terminated or expired as of the date hereof
but under which the Canopius Group Company or any of its Affiliates may continue
to receive benefits or have obligations or (c) is an assumption reinsurance
agreement.

“Relevant Transfer” has the meaning set forth in Exhibit F.

“Reports” has the meaning set forth in Section 4.6(c)(viii).

“Representations Cap” has the meaning set forth in Section 6.4(a).

“Representatives” means, with respect to any Person, its officers, employees,
counsel, financial advisers, accountants, actuaries, auditors, consultants and
other authorized representatives and agents.

“Resolutions” has the meaning set forth in the Investment Agreement.

“Restricted Action” has the meaning set forth in Section 4.1(d).

“Restructuring” has the meaning set forth in Section 4.6(a)(v).

“Retained Assets” has the meaning set forth in Exhibit C.

“Retained Business” has the meaning set forth in Exhibit C.

“Retained Employees” has the meaning set forth in Exhibit F.

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Shareholders” has the meaning set forth in the Recitals.

“SPS” has the meaning set forth in the Recitals.

“SPS Closing” means the closing of the SPS Transactions.

“SPS Closing Date” has the meaning set forth in Section 1.6(c).

“SPS Establishment” has the meaning set forth in the Recitals.

“SPS Expenses” has the meaning set forth in Exhibit F.

“SPS Notice” has the meaning set forth in Section 4.7(a).

“SPS Option Price” has the meaning set forth in Section 1.1(c).

“SPS Transactions” has the meaning set forth in the Recitals.

 

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“SPS Transactions Right” has the meaning set forth in Section 1.1(c).

“Subsidiary” means, with respect to any Person, any entity of which securities
or other ownership interests (a) having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
or (b) representing at least 50% of such securities or ownership interests are
at the time directly or indirectly owned by such Person.

“Subsequent Transactions” means the Third Party Sale, the Merger, the SPS
Transactions and the Managing Agency Acquisition.

“Surviving Corporation” has the meaning set forth in Exhibit B.

“Syndicate 4444” means Lloyd’s of London Syndicate 4444.

“Tangible Net Asset Value” means, (i) with to respect to Bermuda Holdco, the
meaning ascribed to such term in Exhibit C and (ii) with respect to any other
Person as of any relevant date, the value of the total assets of such Person,
calculated in accordance with (a) generally accepted accounting standards,
practices and principles in the United Kingdom (in the case of the Corporate
Member and the Managing Agency, if the Managing Agency is a UK company) or
(b) IFRS (if the Managing Agency is formed in a jurisdiction other than the
United States or the United Kingdom), as applicable, and, in the case of clause
(ii), excluding assets constituting goodwill, intellectual property or other
intangible assets, less the total liabilities of such Person, calculated in
accordance with such applicable accounting standards.

“Tax” means (a) all taxes, charges, fees, duties, customs, tariffs, imposts,
payments in lieu, levies, penalties or other assessments or charges in the
nature of a tax or any other similar payment imposed by any Governmental
Authority, whether payable by reason of contract, assumption, transferee
liability, operation of Law, agreement entered into with a Tax Authority, or
otherwise, including, but not limited to, income, license, recording,
occupation, environmental, customs duties, single business, margin,
unemployment, premium, value-added, disability, mortgage, inventory, alternative
or add-on minimum, profits, receipts, excise, property, sales, use, transfer,
franchise, payroll, withholding, social security, estimated or other taxes or
any other similar payment or similar items or fees, and (b) any interest,
penalty, fine or addition to any of the foregoing, whether disputed or not.

“Tax Authority” means any Governmental Authority having primary jurisdiction
over the assessment, determination, collection or imposition of any Tax.

“Tax Benefit Payment” has the meaning set forth in Section 6.5(b).

“Tax Certification” has the meaning set forth in Section 4.6(a)(vi).

“Tax Return” means any federal, state, local or foreign tax report, return
(including information return), claim for refund, election, notice, estimated
tax filing, declaration, statement, report, schedule, form or information return
or any amendment to any of the foregoing relating to Taxes request, or other
statement or document (including any related or supporting information) supplied
to, required to be filed with, or required to be maintained by any Tax Authority
with respect to Taxes, including any return or filing made on a consolidated,
group, combined, unified or affiliated basis and any schedules or filings
related to uncertain tax positions, and any schedule, attachment or supplement
thereto, and any amendment thereof.

 

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“Third Party” means any Person as defined in this Agreement or in Section 13(d)
of the Exchange Act, other than Parent or any of its Affiliates.

“Third Party Claim” has the meaning set forth in Section 6.6.

“Third Party Consent” has the meaning set forth in Section 4.5(c).

“Third Party Investor Financial Information” has the meaning set forth in
Section 4.6(b)(i)(I).

“Third Party Sale” has the meaning set forth in the Recitals.

“Third Party Sale Agreement” has the meaning set forth in Section 4.6(b)(ii).

“Third Party Sale Closing” has the meaning set forth in Section 1.2.

“Third Party Sale Closing Date” has the meaning set forth in Section 1.6(a).

“Threshold Date” has the meaning set forth in the Recitals.

“Top Holdco” has the meaning set forth in the Section 4.6(a)(i).

“Transaction Agreements” means, collectively, this Agreement and the Ancillary
Agreements.

“Unaudited Financial Statements” has the meaning set forth in Section 2.6(b).

“Year End Balance Sheets” means (a) the IFRS balance sheet as of December 31,
2010 included in the Parent Financial Statements and (b) the GAAP balance sheet
as of December 31, 2010 included in the Bermuda Holdco Financial Statements.

Section 7.2 Construction.

The words “hereby,” “hereof,” “herein” and “hereunder” and words of like import
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The words “party” or “parties” shall
refer to parties to this Agreement. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. References to Articles, Sections, Exhibits and Schedules
are to Articles, Section, Exhibits and Schedules of this Agreement unless
otherwise specified. All Exhibits, Schedules and Disclosure Letters annexed
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Any capitalized term used in any
Exhibit, Schedule or Disclosure Letter but not otherwise defined therein shall
have the meaning given to such term in this Agreement. Any singular term in this
Agreement shall be deemed to include the plural, and any plural term the
singular. Whenever the words “include,” “includes” or “including” are used in
this Agreement,

 

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they shall be deemed to be followed by the words “without limitation,” whether
or not they are in fact followed by those words or words of like import.
“Writing,” “written” and comparable terms refer to printing, typing and other
means of reproducing words (including electronic media) in a visible form.
References to any agreement, contract, instrument, statute, rule or regulation
are to that agreement, contract, instrument, statute, rule or regulation as
amended, modified, supplemented or replaced from time to time (and, in the case
of statutes, includes rules and regulations promulgated under said statutes).
References to any Person include the successors and permitted assigns of that
Person. References to “dollars” or “$” means lawful money of the United States
of America. References to “Sterling” or “£” means lawful money of the United
Kingdom. References from or through any date mean, unless otherwise specified,
from and including or through and including, respectively. Any reference to
“days” means calendar days unless Business Days are expressly specified. All
time periods within or following which any payment is to be made or act is to be
done shall be calculated by excluding the date on which the period commences and
including the date on which the period ends and by extending the period to the
first succeeding Business Day if the last day of the period is not a Business
Day. The Transaction Agreements are to be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.

ARTICLE VIII

MISCELLANEOUS

Section 8.1 Notices.

All notices, requests, demands, waivers and other communications required or
permitted to be given or made under this Agreement shall be in writing and shall
be deemed to have been duly given or made if (a) delivered personally,
(b) mailed by certified or registered mail with postage prepaid, (c) sent by
next-Business Day or overnight mail or delivery, or (d) sent by facsimile or
email with receipt confirmed (followed by delivery of an original via
next-Business Day or overnight mail or delivery), as follows (or at such other
address for a Party as shall be specified by like notice):

 

  (a) if to Investor,

Tower Group, Inc.

120 Broadway (31st Floor)

New York, New York 10271

Telephone:      (212) 655-2000

Fax:      (212) 655-2199

Attention:        Elliot S. Orol

Email:  eorol@twrgrp.com

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

Willkie Farr & Gallagher LLP

787 Seventh Avenue

 

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New York, New York 10019

Telephone:      (212) 728-8000

Fax:      (212) 728-8111

Attention:       John M. Schwolsky

      Joseph D. Ferraro

Email:  jschwolsky@willkie.com

    jferraro@willkie.com

 

  (b) if to Parent, Bermuda Holdco or Delaware Holdco,

Canopius Group Limited

c/o Ogier Corporate Services (Guernsey) Limited

Ogier House, St Julian’s Avenue, St Peter Port,

Guernsey GY1 1WA, Channel Islands

Telephone:      +44(0) 1481 721672 (switchboard)

       +44 (0) 1481 752248 (direct)

Fax:      +44 (0) 1481 721575

Attention:            Ian Ross/Marcus Leese

Email:  Ian.Ross@ogier.com and CanopiusGroupLimited@ogier.com

and

Canopius Holdings Bermuda Limited

Atlantic House, 11 Par La Ville Road,

Hamilton, HM 11, Bermuda

Telephone: + 1 (441) 292-9905

Fax: + 1 (441) 292-9459

Attention: Susan Patschak

Email: Susan.Patschak@canopius.bm

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

Canopius Holdings UK Limited

Gallery 9, One Lime Street,

London, United Kingdom, EC3M 7HA

Telephone: +44 (0) 29 7337 3796

Attention: Paul Donovan

Email: Paul.Donovan@canopius.com

All such notices, requests, demands, waivers and other communications will be
deemed to have been received (i) if by personal delivery, on the day of such
delivery, (ii) if by certified or registered mail, on the fifth Business Day
after the mailing thereof, (iii) if by next-Business Day or overnight mail or
delivery, on the day delivered or (iv) if by fax or email prior to 5:00 p.m. at
the place of receipt, on the day on which such fax or email was sent; provided
that a copy is also sent by next-Business Day or overnight mail or delivery.

 

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Section 8.2 Amendment; Waivers, Etc.

No amendment, modification or discharge of this Agreement, and no waiver
hereunder, shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the amendment, modification,
discharge or waiver is sought. Any such waiver shall constitute a waiver only
with respect to the specific matter described in such writing and shall in no
way impair the rights of the party granting such waiver in any other respect or
at any other time. Neither the waiver by any of the parties hereto of a breach
of or a default under any of the provisions of this Agreement, nor the failure
by any of the parties, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege hereunder,
shall be construed as a waiver of any other breach or default of a similar
nature, or as a waiver of any of such provisions, rights or privileges
hereunder. The rights and remedies herein provided are cumulative and none is
exclusive of any other, or of any rights or remedies that any party may
otherwise have at law or in equity.

Section 8.3 Expenses.

Except as otherwise provided herein, all costs, fees and expenses incurred in
connection with this Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby, whether or not consummated, shall be paid by
the party incurring such costs, fees or expenses.

Section 8.4 Governing Law, Etc.

THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING AS TO VALIDITY,
INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OR RULES OF CONFLICT OF LAWS THEREOF. Each of Investor,
Parent and Bermuda Holdco hereby irrevocably submits to the jurisdiction of the
courts of the State of New York and the federal courts of the United States of
America located in the State, City and County of New York solely in respect of
the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated hereby and thereby. Each of Investor, Parent and Bermuda Holdco
irrevocably agrees that all claims in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated hereby and
thereby, or with respect to any such action or proceeding, shall be heard and
determined in such a New York State or federal court, and that such jurisdiction
of such courts with respect thereto shall be exclusive, except solely to the
extent that all such courts shall lawfully decline to exercise such
jurisdiction. Each of Investor, Parent and Bermuda Holdco hereby waives, and
agrees not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document or in respect of
any such transaction, that it is not subject to such jurisdiction. Each of
Investor, Parent and Bermuda Holdco hereby waives, and agrees not to assert, to
the maximum extent permitted by Law, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such document
or in respect of any such transaction, that such action, suit or proceeding may
not be brought or is not maintainable in such courts or that the venue thereof
may not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts. Each of

 

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Investor, Parent and Bermuda Holdco hereby consents to and grant any such court
jurisdiction over the person of such party and over the subject matter of any
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 8.1 or in
such other manner as may be permitted by law, shall be valid and sufficient
service thereof.

Section 8.5 Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns; provided
that except as permitted below, this Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto. Notwithstanding the foregoing, without the consent of
Parent or any of its Affiliates, each of Investor and its Subsidiaries may
transfer or assign (including by way of a pledge), in whole or from time to time
in part, to one or more of its Affiliates any of its rights under this
Agreement; provided that no such transfer or assignment will (a) relieve
Investor of its obligations hereunder or (b) increase the liability of the
Parent or any of its Subsidiaries hereunder and the Investor and its
Subsidiaries will procure that upon any Affiliate to which any rights under this
Agreement shall have been assigned ceasing to be an Affiliate, such an Affiliate
shall reassign such rights to Investor or one of its Subsidiaries or an
Affiliate thereof. Upon any such permitted assignment, the references in this
Agreement to Investor shall also apply to any such assignee unless the context
otherwise requires.

Section 8.6 Entire Agreement.

This Agreement and the Ancillary Agreements (when executed and delivered)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.

Section 8.7 Severability.

If any provision, including any phrase, sentence, clause, section or subsection,
of this Agreement is determined by a court of competent jurisdiction to be
invalid, inoperative or unenforceable for any reason, such circumstances shall
not have the effect of rendering such provision in question invalid, inoperative
or unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever. Upon any such determination, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.

Section 8.8 Counterparts; Effectiveness; Third Party Beneficiaries.

This Agreement may be executed in several counterparts, each of which shall be
deemed an original and all of which shall together constitute one and the same
instrument. This Agreement shall become effective when each party shall have
received a counterpart hereof signed by all of the other parties. Until and
unless each party has received a counterpart hereof signed by the other parties,
this Agreement shall have no effect and no party shall have any right

 

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or obligation hereunder (whether by virtue of any other oral or written
agreement or other communication). Except as provided under Article VI, no
provision of this Agreement is intended to confer any rights, benefits,
remedies, obligations, or liabilities hereunder upon any Person other than the
parties and their respective successors and assigns.

Section 8.9 Specific Performance.

The parties agree that irreparable damage would occur if any provision of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement or to enforce specifically the performance of the terms and
provisions hereof in any court specified in Section 8.4, in addition to any
other remedy to which they are entitled at law or in equity.

[Remainder of page intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.

 

TOWER GROUP, INC. By  

/s/ Michael H. Lee

  Name:   

Michael H. Lee

  Title:   

Chairman, CEO and President

CANOPIUS GROUP LIMITED By  

/s/ Roger Le Tissier

  Name:   

Roger Le Tissier

  Title:   

Director

     CANOPIUS HOLDINGS BERMUDA LIMITED By  

/s/ Nigel Godfrey

  Name:   

Nigel Godfrey

  Title:   

Alternate Director for Andre Perez

CANOPIUS MERGERCO, INC. By  

/s/ Susan J. Patschak

  Name:   

Susan J. Patschak

  Title:   

Director

[Signature Page to Master Transaction Agreement]

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EXHIBIT B

MERGER AGREEMENT TERM SHEET

This Merger Agreement Term Sheet has been prepared in connection with, and forms
an integral part of, the Master Transaction Agreement, dated as of April 25,
2012 (the “Master Transaction Agreement”), by and among Canopius Group Limited,
a Guernsey limited company (“Parent”), Canopius Holdings Bermuda Ltd., a Bermuda
limited company (“Bermuda Holdco”), Canopius Mergerco, Inc., a Delaware
corporation (“Delaware Holdco”), and Tower Group, Inc., a Delaware corporation
(“Investor”) (each, a “Party” and, collectively, the “Parties”). Capitalized
terms used but not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Master Transaction Agreement.

 

I. TRANSACTION STRUCTURE

 

Parties to Merger Agreement:   

Investor, Delaware Holdco and Merger Sub.

 

“Investor” means Tower Group, Inc., a Delaware corporation.

 

“Delaware Holdco” means Canopius Mergerco, Inc., a Delaware corporation that
(after its contribution to Top Holdco as contemplated by Section 4.6(a)(i) of
the Master Transaction Agreement) is wholly owned by Top Holdco, a Delaware
corporation that is wholly owned by Bermuda Holdco.

 

“Merger Sub” means a newly formed Delaware corporation that is wholly owned by
Delaware Holdco.

General Structure:    A reverse triangular merger whereby Merger Sub will merge
with and into Investor, with Investor continuing as the surviving corporation
and a wholly owned Subsidiary of Delaware Holdco. Third Party Sale:    Effective
immediately prior to the consummation of the Merger, Parent shall sell all of
the issued and outstanding Bermuda Holdco Shares (other than the Bermuda Holdco
Shares to be paid to the stockholders of Investor as consideration in connection
with the Merger) to the Equity Investors at a purchase price in cash equal to
the sum of the Tangible Net Asset Value of Bermuda Holdco as of the Third Party
Sale Closing Date (after giving effect to the Restructuring) plus, such
additional amount equal to the value of the Retained Business as to which Parent
and the

 

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   Equity Investors may agree; provided, however, that for purposes of
determining the purchase price pursuant to the foregoing, the value of the
Retained Business shall include an amount calculated and agreed by Investor and
Parent, acting in good faith and reasonably, equal to the excess of the value of
Bermuda Insurer’s expected future income arising after Merger Closing from the
Retained Business over the value of Investor’s expected future income arising
after the Merger Closing from the Investor 2011 Contract and the Investor 2012
Contract assuming, for this purpose, that such contracts were not commuted or
cancelled (the “Third Party Sale”). Consummation of the Merger will be
conditional on the completion of the Third Party Sale. Merger Consideration:   
At the effective time of the Merger, among other things, (i) each share of
Investor common stock, par value $0.01 per share (“Investor Shares”), then
issued and outstanding will be cancelled and automatically converted into and
become the right to receive a certain number of shares of Bermuda Holdco common
stock, par value $0.01 per share, and a certain amount of cash, in each case as
may be determined by Investor in its sole discretion (collectively, the “Merger
Consideration”), (ii) each outstanding restricted share of Investor common
stock, whether or not vested, will become fully vested and free of forfeiture
restriction and converted into the right to receive a cash payment equal to the
fair market value of the Merger Consideration as of the Merger Closing Date and
(iii) each outstanding option to acquire Investor Shares, whether or not vested,
will be converted into the right to receive a cash payment equal to the excess,
if any, of the dollar value of the Merger Consideration over the per share
exercise price of such option, multiplied by the number of shares covered by
such option.

 

II. REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Representations and Warranties:    In the Merger Agreement, Delaware Holdco
shall provide representations and warranties relating to itself and its
Subsidiaries as of the date of the Merger Agreement no less favorable to
Investor than those contained in the Master Transaction Agreement under Section
2.1 (Corporate Status), Section 2.2 (Corporate and Governmental

 

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Authorization), Section 2.3 (Non-Contravention), Section 2.4 (Capitalization;
Title to Shares) and Section 2.7 (Undisclosed Liabilities), with such changes as
are necessary to reflect the structure, timing and goals of the Merger described
in this Merger Agreement Term Sheet, and such other customary representations
and warranties as Investor may reasonably request from Delaware Holdco or Merger
Sub.

 

Investor shall only provide representations and warranties in the Merger
Agreement relating to its corporate status, corporate and government
authorization and non-contravention, which representations and warranties shall
be substantially similar to those contained in Section 3.1 (Corporate Status),
Section 3.2 (Corporate and Governmental Authorization) and Section 3.3
(Non-Contravention) of the Master Transaction Agreement.

General Covenants:    The Merger Agreement shall provide for customary covenants
relating to Delaware Holdco and its Subsidiaries that are no less favorable to
Investor than those contained in the Master Transaction Agreement under Section
4.1 (Operating Limitations), Section 4.2 (Notice of Certain Events), Section 4.3
(Access to Information; Confidentiality), Section 4.4 (Public Announcements),
Section 4.5 (Consents, Approvals and Filings), and Section 4.10 (Further
Assurances), with such changes as are necessary to reflect the structure, timing
and goals of the Merger described in this Merger Agreement Term Sheet, and such
other customary covenants as Investor may reasonably request from Delaware
Holdco and Merger Sub. The parties to the Merger Agreement shall cooperate to
effect the Merger in a manner reasonably satisfactory to Investor from a tax
perspective.   

 

III. Closing

 

General; Closing Conditions   

The closing of the Third Party Sale and the closing of the Merger (the
“Closing”) shall take place two Business Days following satisfaction of the
following conditions (other than those conditions that by their nature cannot be
satisfied until the Closing, but subject to the satisfaction of those
conditions):

 

(a)     approval of the Merger and adoption of the Merger Agreement by Investor
Stockholders;

 

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(b)     all consents, approvals and actions of, filings with and notices to any
Governmental Authority required of Investor to consummate the Merger shall have
been obtained or made; and

 

(c)     the Registration Statement shall have been declared effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.

Effects of the Merger:   

Upon the terms and subject to the conditions set forth in the Merger Agreement,
and in accordance with the DGCL, Merger Sub shall be merged with and into
Investor at the Effective Time. Following the Merger, the separate corporate
existence of Merger Sub shall cease and Investor shall continue as the surviving
corporation (the “Surviving Corporation”).

 

Subject to the provisions of the Merger Agreement, a certificate of merger
satisfying the applicable requirements of the DGCL shall be duly executed by
Investor and as soon as practicable following the Closing shall be filed with
the Secretary of State of the State of Delaware. The Merger shall become
effective at the time of the filing of such certificate of merger with the
Secretary of State of the State of Delaware or at such later time as may be
designated by Investor and specified in such certificate of merger (the date and
time the Merger becomes effective being the “Effective Time”).

 

At the Effective Time, by virtue of the Merger and without any action on the
part of the Parties or any of their respective shareholders, each share of
Merger Sub common stock issued and outstanding immediately prior to the
Effective Time, and all rights in respect thereof, shall forthwith be cancelled
and cease to exist and be converted into one fully paid and nonassessable share
of common stock of the Surviving Corporation, which shall constitute the only
outstanding shares of capital stock of the Surviving Corporation and which shall
be held by Delaware Holdco.

Officers and Directors:    From and after the Effective Time, the officers and
directors of each of Delaware Holdco, Bermuda Holdco and the Surviving
Corporation shall be determined in accordance with the Merger Agreement and
related documents.

 

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Investor Termination Rights:    Investor shall have no obligation to consummate
the Merger and may terminate the Merger Agreement in its sole discretion at any
time and for any reason without liability.

 

IV. Other

 

Governing Law:    The Merger Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into therein, without regard to principles of choice of law or conflicts
of laws that might lead to the application of laws other than the laws of the
State of Delaware. Specific Performance:    The parties agree that irreparable
damage would occur to Investor if any provision of the Merger Agreement
applicable to Delaware Holdco or Merger Sub were not performed in accordance
with the terms thereof and that Investor shall be entitled to an injunction or
injunctions to prevent breaches of the Merger Agreement or to enforce
specifically the performance of the terms and provisions of the Merger
Agreement.

 

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EXHIBIT C

THE RESTRUCTURING

(Clause 4.6(a)(v))

 

1. Parent and Investor will cooperate and work together in good faith to seek to
identify promptly after the date of this Agreement:

 

  (a) the specific Contracts of insurance and assumed reinsurance pursuant to
which Bermuda Insurer insures or reinsures risk that will be retained by Bermuda
Insurer after the Merger Closing (the “Retained Business”). The Retained
Business shall comprise:

 

  (i) the loss reserves and unearned premium reserves relating to all third
party business written by Bermuda Insurer;

 

  (ii) 25% of Bermuda Insurer’s 72.58% economic interest in the 2010
underwriting Year of Account of Syndicate 4444 under its quota share reinsurance
arrangement with Canopius Capital Two Limited, dated December 30, 2009 and as
amended, which for the avoidance of doubt includes Bermuda Insurer’s interests
in the reserves and loss adjustment reserves relating to the 2010 underwriting
Year of Account of Syndicate 4444;

 

  (iii) 10.14% of the Bermuda Insurer’s 67.65% economic interest in the 2011
pure underwriting Year of Account of Syndicate 4444 under its quota share
reinsurance arrangement with Flectat Limited (“Flectat”), dated December 15,
2010 and as amended, which for the avoidance of doubt includes Bermuda Insurer’s
interests in the reserves, loss adjustment reserves and unearned premium
reserves relating to the 2011 underwriting Year of Account of Syndicate 4444,
subject to Investor commuting or cancelling its reinsurance (“Investor 2011
Contract”) of Flectat. The 10.14% interest will increase to 25% with respect to
the Bermuda Insurer’s interests in the incoming RITC of the 2010 and prior
underwriting Years of Account of Syndicate 4444; and

 

  (iv)

10.33% of the Bermuda Insurer’s 58.09% economic interest in the 2012
underwriting Year of Account of Syndicate 4444 under its quota share reinsurance
arrangement with Flectat, dated December 1, 2011 and as amended, which for the
avoidance of doubt includes Bermuda Insurer’s interests in the reserves, loss
adjustment reserves and unearned premium reserves relating to the 2012
underwriting Year of Account of Syndicate 4444, subject to Investor commuting or
cancelling its reinsurance (“Investor 2012 Contract”) of Canopius Capital Eleven
Limited (“CC11L”). The 10.33% interest will increase to 25% with respect to the

 

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  Bermuda Insurer’s interests in the incoming RITC to the extent that it relates
to the 2010 and prior underwriting Years of Account of Syndicate 4444.

 

  (b) the steps through which the Contracts of insurance and assumed reinsurance
not included in the Retained Business will be transferred from Bermuda Insurer;

 

  (c) the employees to be hired by Bermuda Insurer (the “Bermuda Employees”),
which employees are intended to support the Retained Business after the Merger
Closing; and

 

  (d) the systems and other non-insurance assets necessary to support such
Retained Business and other business operations of Investor and its Affiliates
and the other non-insurance assets that will also be retained by Bermuda Holdco
or Bermuda Insurer after the Merger Closing (the “Retained Assets”).

 

2. Parent will use its Reasonable Best Efforts to cause, as of the Merger
Closing, Bermuda Holdco to have no Subsidiaries (other than Top Holdco, Delaware
Holdco, Merger Sub, and Bermuda Insurer) and shall cause Condor Underwriting
Bermuda Limited to be transferred from Bermuda Holdco to another Condor Group
Company (not being Bermuda Holdco or a Subsidiary of Bermuda Holdco). Parent
will, as at the Merger Closing, cause Bermuda Insurer to continue to be a wholly
owned Subsidiary of Bermuda Holdco.

 

3. Parent and Investor agree that any transfer of any Subsidiary or other assets
of Bermuda Holdco required as a result of paragraph 2 above shall be carried out
through a distribution or by a sale in an arm’s-length transaction for cash at
no more than fair market value and in a manner that is mutually acceptable to
Investor and Parent and that any other transaction required to be effected
pursuant to this Exhibit C shall be effected on arm’s-length terms at no more
than fair market value.

 

4. Parent will use reasonable efforts to cause (a) the Retained Business to
continue to be in full force and effect, (b) Bermuda Insurer to continue to hold
such Retained Business subject to any losses arising in the ordinary course of
business and (c) the Bermuda Employees to be employed by, and continue
employment with, Bermuda Holdco or Bermuda Insurer.

 

5. Parent and Investor will agree or determine the consolidated Tangible Net
Asset Value of Bermuda Holdco as of the Merger Closing in accordance with
paragraph 6 below.

 

6. The consolidated Tangible Net Asset Value of Bermuda Holdco as of the Merger
Closing will be calculated on the basis that the consolidated net assets of
Bermuda Holdco consist solely (and such assets shall consist solely) of
marketable securities and cash (before taking into account any dividend or other
distribution to be determined pursuant to paragraph 8 below) and such systems
and other insurance and non-insurance assets and liabilities held in connection
with or necessary to support such Retained Business and loss reserves and
unearned premium, if any, associated with the Retained Business determined by
agreement in writing between Parent and Investor.

 

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7. Following the Merger Closing, Investor shall cause Bermuda Insurer to deposit
sufficient funds at Lloyd’s, co-mingled as necessary, with the funds at Lloyd’s
of Canopius Capital Two Limited or Flectat or CC11L to support Bermuda Insurer’s
underwriting at Lloyd’s until such time that such funds at Lloyd’s are released
by Lloyd’s after the closure of the 2012 Year of Account and all prior
underwriting Years of Account.

 

8. Subject to its obligation to maintain the Retained Business and the Retained
Assets and subject to Law and the receipt of all necessary consents or approvals
from any Governmental Authority, Parent shall, at the request of Investor prior
to the Merger Closing, cause Bermuda Holdco to pay a dividend or other
distribution of income or capital, after which the Tangible Net Asset Value of
Bermuda Holdco for the purposes of Section 4.6(b)(ii) will be the consolidated
Tangible Net Asset Value agreed or determined by paragraphs 5 and 6 above after
giving effect to such dividend or other distribution.

The fair value amount of the dividend or distribution shall, if made in cash, be
the amount of the cash paid and, if made in other than cash, the fair value
amount of the dividend or distribution shall be determined, mutatis mutandis, by
the provisions of paragraphs 5 and 6 above.

 

9. If and to the extent that Bermuda Holdco is unable or not permitted to
declare, make, or pay the dividend or distribution of capital referred to in
paragraph 8 above, the Tangible Net Asset Value of Bermuda Holdco for the
purposes of Section 4.6(b)(ii) shall be the consolidated Tangible Net Asset
Value agreed or determined by paragraphs 5 and 6 above less the fair value
amount of the dividend or other distribution (if any) which is permitted to be
paid or made.

 

10. Parent and Investor shall cooperate and work together in good faith to
ensure that the loss and loss adjustment expense reserves supporting the
Retained Business will be determined by Parent’s internal actuary’s best
estimate of the adequacy and sufficiency of such reserves consistent with
(a) Parent’s accounting policy for establishing the loss and loss adjustment
reserves and (b) Parent’s best practice for establishing such reserves.

 

11. Investor shall have the right, at the cost of Investor, to cause such
reserves to be evaluated by an independent third party actuarial firm engaged by
Investor for the purpose of confirming the adequacy and sufficiency of such
reserves and certifying in writing as to their adequacy and sufficiency.

 

12. If, at the end of such process, there is a dispute between Investor and
Parent as to the adequacy and sufficiency of such reserves, Investor and Parent
shall jointly engage another independent actuarial firm to resolve such dispute,
which resolution of such independent actuarial firm shall be final and binding
on Investor and Parent. The costs of such third independent actuarial firm shall
be borne by Investor.

 

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13. Parent and Investor agree that the determination of the appropriate amount
of such reserves pursuant to this process shall be completed prior to the Merger
Closing.

 

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EXHIBIT E

TAX CERTIFICATION

The certifications, representations and warranties to be included in the
certificate to be provided by Parent to counsel to Investor pursuant to
Section 4.6(a)(vi) shall include, among others, the following:

1. As of the time immediately prior to the Third Party Sale, (a) the authorized
capital stock of Bermuda Holdco consists of a single class of [—] ordinary
shares, par value $[1] per share, of which [    ] shares are issued and
outstanding, (b) Parent owns beneficially and of record [    ] of such shares,
and has beneficially and of record owned such shares (and no other shares) of
Bermuda Holdco since January 1, 2010, and (c) all of such issued and outstanding
shares not owned by Parent are owned by Merger Sub and have been owned by Merger
Sub since [—], 2012.

2. Except as may be permitted by Section 4.1(b) of the Master Transaction
Agreement, since January 1, 2010, Parent has not made any capital contribution
to Bermuda Holdco or to any Subsidiary of Bermuda Holdco (including by way of
transfer pricing that is favorable to Bermuda Holdco or its applicable
Subsidiary). Any capital contributions made by Parent to Bermuda Holdco or to
any Subsidiary of Bermuda Holdco prior to [January 1, 2010] were not made in
connection with the Merger.]

3. Delaware Holdco, a Delaware corporation, was formed on [—], 2012. Since such
date its authorized capital stock has consisted of [—] shares, par value $[—]
per share, of which [—] shares are issued and outstanding. From its date of
formation through [—], 2012, Bermuda Holdco owned beneficially and of record all
of the shares of capital stock of Delaware Holdco, free and clear of all Liens.
From [—], 2012, Top Holdco has owned beneficially and of record all of the
shares of capital stock of Delaware Holdco, free and clear of all Liens.

4. Top Holdco, a Delaware corporation, was formed on [—], 2012. Since such date
its authorized capital stock has consisted of [—] shares, par value $[—] per
share, of which [—] shares are issued and outstanding. Bermuda Holdco has since
Top Holdco’s formation owned beneficially and of record all of the shares of
capital stock of Top Holdco, free and clear of all Liens.

5. Merger Sub, a Delaware corporation, was formed on [—], 2012. Since such date
its authorized capital stock has consisted of [—] shares, par value $[—] per
share, of which [—] shares are issued and outstanding. Delaware Holdco has since
Merger Sub’s formation owned beneficially and of record all of the shares of
capital stock of Merger Sub, free and clear of all Liens.

6. Except for the Third Party Sale Agreement and the Merger Agreement, there are
no outstanding (i) shares of capital stock or other voting or equity interests
in Bermuda Holdco or any of its Subsidiaries, (ii) securities convertible into
or exercisable or exchangeable for shares of capital stock of or other voting or
equity interests in Bermuda Holdco or any of its

 

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Subsidiaries, (iii) options or other rights or Contracts or commitments of any
kind to acquire or to issue, transfer or sell, any capital stock of or other
voting or equity interests in Bermuda Holdco or any of its Subsidiaries or
securities convertible into or exercisable or exchangeable for capital stock of
or other voting or equity interests in Bermuda Holdco or any of its
Subsidiaries, (iv) voting trusts, proxies or other similar Contracts or
commitments to which any Canopius Group Company is bound with respect to the
voting of any shares of capital stock of or other voting or equity interests in
Bermuda Holdco or any of its Subsidiaries or (v) contractual obligations or
commitments of any character restricting the transfer of, or requiring the
registration for sale of, any shares of capital stock of or other voting or
equity interests in Bermuda Holdco or any of its Subsidiaries. There are no
outstanding obligations of the Canopius Group Companies to repurchase, redeem or
otherwise acquire any of the securities described in clauses (i), (ii) or
(iii) of the previous sentence.

7. Bermuda Insurer was incorporated on [—], 2007, has engaged in the business of
insuring or reinsuring third parties and other Canopius Group Companies with
effect from [—] using employees provided by Canopius Underwriting Bermuda
Limited and such business continues to the date of the Merger.

 

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EXHIBIT F

EXPENSE REIMBURSEMENT

1. The parties will cooperate and work together in good faith to prepare
promptly after the date of this Agreement, a detailed budget of the reasonable
out-of-pocket third party costs and expenses (“Costs Budget”) for each of the
Transactions (including estimated major items of expenditure) broken down on a
monthly basis for each of the Transactions and containing such further
information as any of the parties may reasonably request as to any and all
matters relating to the projected costs and expenses for each of the
Transactions.

For the avoidance of doubt the parties agree that such costs and expenses shall
include (a) if paid by the Parent or its Subsidiaries, the costs and expenses of
the firms of actuaries referred to in Exhibit C and (b) any bank fees and
charges incurred by the Parent or its Subsidiaries as a result of any
rearrangement or refinancing of the Condor Group’s Funds at Lloyd’s required to
be made as a result of the Transactions.

2. Parent will keep and maintain reasonably detailed records and documentation
showing the out-of-pocket third party costs and expenditure incurred by the
Parent and its Subsidiaries in connection with each of the Transactions and will
submit to the Investor within 30 Business Days of the end of each month a
statement (a “Costs Statement”) of the out-of-pocket third party costs and
expenses incurred by the Parent and its Subsidiaries (including, if applicable,
any costs of any employees in accordance with paragraphs 4 to 6 (inclusive)
below and any irrecoverable value added tax but excluding transfer or similar
Taxes or Taxes imposed on any gains) in connection with the Transactions broken
down for each of (i) the Merger (“Merger Expenses”), (ii) the SPS Transaction
(“SPS Expenses”) and (iii) the Managing Agency Acquisition (“Managing Agency
Expenses”). The Costs Statement will show an analysis, review and reconciliation
of the Merger Expenses, the SPS Expenses and the Managing Agency Expenses with
the Costs Budget for the corresponding month.

3. Where any individual item of cost or expenditure (aggregating, for this
purpose, any reasonably related individual costs and expenses) is reasonably
expected to exceed $50,000, Parent shall: (i) obtain, if required by Investor,
to the extent reasonably practicable, estimates or quotes for the work involved
and (ii) the prior written approval of Investor (not to be unreasonably
withheld, conditioned or delayed), in either case, in advance of such costs or
expenditure being incurred.

4. Investor acknowledges that Parent and its Subsidiaries will be retaining or
employing certain employees (such employees, if retained by Parent or any of its
Subsidiaries at the written request of Investor, (not to be unreasonably
withheld conditioned or delayed) the “Retained Employees”) solely for and in
connection with the Transactions, and Investor agrees to reimburse Parent or its
relevant Subsidiary for all reasonable costs and expenses of employment or
termination (including, but not limited to, salaries, fees, pension costs, other
benefits and expenses, national insurance, redundancy, tax and PAYE (if
applicable)) incurred by Parent or such Subsidiary as a direct result of
retaining and continuing to employ such Retained Employees or terminating them
if: (i) so required at the request of the Investor or (ii) as Parent considers
reasonably necessary.

 

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5. If the services, or any part of them, carried out by the Retained Employees
in relation to the Transactions are in future transferred to: (a) Investor; or
(b) any other third party on Investor’s behalf, then Parent and Investor shall
(and shall procure any third party shall) co-operate and work with each other in
good faith to transfer (whether pursuant to the Transfer of Undertakings
(Protection of Employment) Regulations 2006 or otherwise) or novate the
contracts of employment or for services of each relevant Retained Employee to
Investor or any relevant third party (“Relevant Transfer”), it being
acknowledged and understood that Investor shall not be obligated to hire any
such Retained Employees or, once hired and to the extent permitted by applicable
Law, to employ any such Retained Employees on an other than “at-will” basis.

6. Where a Relevant Transfer occurs, Parent shall comply with and discharge its
obligations to or in respect of the Retained Employees in the period prior to
the Relevant Transfer, and shall be liable in respect of any claims made by the
Retained Employees in relation to the period up to the Relevant Transfer, and
Investor shall (or shall procure any third party shall) assume liability for,
comply with and discharge its obligations to or in respect of the Retained
Employees on and from the Relevant Transfer and Investor shall be liable in
respect of any claims made by the Retained Employees in relation to the period
on and from the Relevant Transfer.

7. Investor shall reimburse Parent within 10 Business Days after the date on
which any Costs Statement is submitted to Investor in accordance with paragraph
2 above for the costs and expenses set out in such statement in accordance with
the terms of this Exhibit F; provided that, from and after the time at which the
Merger Exercise Price is paid pursuant to Section 4.6 and for so long as the sum
of (i) the Merger Expenses plus (ii) the Offset Expenses (as defined below) does
not exceed the Merger Exercise Price, Investor may, by delivery of a written
notice to Parent and in lieu of reimbursing Parent for any such costs and
expenses under the foregoing provisions of this paragraph 7, designate such
expenses (or any portion thereof) “Offset Expenses” for purposes of this
Agreement.

8. If, as of the date that is 45 days after the time at which the last of the
obligations of Parent to effect the Transactions under Section 4.6, Section 4.7
or Section 4.8 has been satisfied or expired, the Merger Exercise Price exceeds
the sum of (i) the Merger Expenses plus (ii) the Offset Expenses, then Parent
shall promptly pay to Investor by wire transfer of immediately available funds
an amount equal to such excess.

 

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