Document:

ex10-5.htm

EXHIBIT 10.5

 

AMENDMENT 1

to ASSET PURCHASE AGREEMENT

 

THIS AMENDMENT (“Amendment 1”) is made effective as of November 2, 2012 to the Asset Purchase Agreement dated September 7, 2012 (the “Agreement”) by and between Steele Land and Inspection, LLC, successor-by-assignment to Steele and Company, LP (“Steele”) and ENGlobal U.S., Inc. (“ENGlobal”).

WHEREAS, the parties wish to redefine the assets that Purchaser desires to purchase from ENGlobal as the assets of ENGlobal related to the operation of the Land Division of the “Field Solutions” business segment (the “Business”) and modify the Purchase Price; and

WHEREAS, the parties wish to update certain disclosure schedules; and

WHEREAS, the parties wish to delete or modify certain terms related to entering into a Staffing Agreement; and

WHEREAS, the parties wish to specify that an affiliate of Steele will be the Assignee under certain of the closing documents.

NOW THEREFORE, in consideration of the covenants and agreements hereinafter contained, the parties do hereby agree as follows:

	
1.  

	
 The term “Business”, as defined in the Background Section shall be modified to mean the assets of Seller related to the operation of Seller’s land division of the Field Solutions business segment, including land acquisition.  The term shall not include Seller’s mid-stream inspection services business.

	
2.  

	
Schedule 1.1(b) shall be replaced with the attached, revised Schedule 1.1(b).

	
3.  

	
Schedule 1.1(d) shall be replaced with the attached, revised Schedule 1.1(d).

	
4.  

	
Schedule 1.1(e)(i) shall be replaced with the attached revised Schedule 1.1(e)(i).

	
5.  

	
Schedule 1.1(e)(ii) shall be replaced with the attached revised Schedule 1.1(e)(ii).

	
6.  

	
Schedule 1.1(e)(iii) shall be replaced with the attached revised Schedule 1.1(e)(iii).

	
7.  

	
Schedule 1.1(g) shall be replaced with the attached revised Schedule 1.1(g).

	
8.  

	
Section 1.1(i) shall be deleted in its entirety.

	
9.  

	
Schedule 1.2 shall be replaced with the attached revised Schedule 1.2.

 

  

  

  

 

	
10.  

	
Section 2.1 Purchase Price. shall be replaced in its entirety with the following language:

“2.1 Purchase Price.  The Purchase Price for the Purchased Assets shall be two million nine hundred twenty-five thousand five hundred fifty-nine dollars and 60 cents ($2,925,559.60), paid with a Promissory Note as described in Section 2.1 (a) below and with a cash payment, as described in Section 2.1(b) below.

(a) Promissory Note. The Purchaser shall execute and deliver to Seller a two million nine hundred seventeen thousand nine hundred nine dollars and 60 cents dollar ($2,917,909.60) promissory note made payable to the order of Seller (the “Promissory Note”).  The Promissory Note shall (1) be secured by a second lien position on the Purchased Assets of the Business operation, (2) bear interest at 8% per annum, and (3) be payable in four (4) installments, with 25% of the remaining principal balance and interest paid at the end of year one following the Closing Date, 33% of the remaining principal balance and interest paid at the end of year two, 50% of the remaining principal balance and interest paid at the end of year three, and the remaining principal and interest paid at the end of year four.  Seller agrees to take all reasonable steps necessary, if any, to subordinate its claims to the Purchased Assets of the Business or assets later acquired by Steele in the operation of the Business, to any senior lender, and agrees to execute a subordination agreement substantially in the form of the attached Schedule 2.1 if requested by Purchaser.  The amount of the Promissory Note was established at three million dollars, less the Accrued Compensated Absences shown on Schedule 2.2 and the property tax accrual shown on Schedule 2.2.

(b) Cash.  The Purchaser shall pay cash on the Closing Date for the prepaid accounts in the amount set forth on Schedule 1.1(g) for such accounts.”

	
11.  

	
Schedule 2.2 shall be replaced with the attached revised Schedule 2.2.

	
12.  

	
Section 2.3 Allocation of Purchase Price shall be amended as follows: Purchaser and Seller agree that the Purchase Price of the Business is allocated between fixed assets and intangible assets as follows:

Fixed Assets--$20,718.92

Goodwill--$2,904,840.70

	
13.  

	
Schedule 3.1 (c)(1) shall be replaced with the attached revised Schedule 3.1(c)(1).

	
14.  

	
Section 3.1(g)(iii) shall be replaced with the following language:

“(iii)           As of the Effective Date, Seller has made a commercially reasonable effort to list all of the General Contracts to be acquired by Purchaser.  As of the Closing Date, Schedule 1.1(e)(iii) will be, to the best of Seller’s knowledge, a complete and accurate list of the General Contracts to be acquired by Purchaser under this Agreement.”

 

  

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15.  

	
Schedule 3.1(p)(iii) shall be replaced with the attached revised Schedule 3.1(p)(iii).

	
16.  

	
Schedule 3.1(t)(iii) shall be replaced with the attached revised Schedule 3.1(u)(i).

	
17.  

	
Section 3.1(w) shall be deleted in its entirety.

	
18.  

	
Section 4.3 shall be replaced with the following language:

“4.3           Liens.  The Purchased Assets shall be subject to no liens or encumbrances other than Permitted Encumbrances.  Any other liens and encumbrances against the Purchased Assets shall be satisfied and Seller shall, immediately after Closing, file or cause to be filed with the applicable Secretary of State’s office and any applicable local County Clerk, a termination statement for any lien or encumbrance affecting any of the Purchased Assets not consented to by Purchaser other than Permitted Encumbrances.”

	
19.  

	
Section 6.2 (d) shall be replaced with the following:

“Seller shall have used all commercially reasonable efforts to obtain and secure the written consent of its senior Lender, and obtained such consent and any necessary release of collateral as it pertains to the Purchased Assets.  Seller’s obligation to close is conditioned on obtaining the approval and consent of its Board of Directors and senior lender of these amended terms.”

	
20.  

	
Section 6.1 (h) shall be replaced with the following language:

“The Parties must have reached agreement on a mutually acceptable Shared Use and Services Agreement whereby Seller provides office space, payroll, billing and IT support and infrastructure to Purchaser post-closing in exchange for certain monetary consideration.”

	
21.  

	
Section 7.2 shall be replaced with the following:

“7.2           Time, Date, and Place of Closing.  The Closing shall occur at the office of  Seller at 654 N. Sam Houston Parkway E., Suite 400, Houston, Texas 77060 on November 2, 2012, or at such other time and date as the parties may mutually agree upon in writing (the “Closing Date”).

 

	
22.  

	
Section 7.3 (a) shall be replaced with the following:

“7.3            Cash Payment at Closing.  Purchaser shall deliver to Seller, in certified funds, a check for the prepayments and prepaid accounts set forth on revised Schedule 1.1(g).”

 

  

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23.  

	
Section 7.3 (b) is deleted in its entirety.

	
24.  

	
Section 7.6  Employees shall be replaced in its entirety with the following:

“Purchaser shall not be obligated to offer employment to any of Seller’s employees, but may at its option offer to employ such of Seller’s employees on such terms as Purchaser may determine in its sole discretion, except that compensation levels will be at least equivalent to those now in place as disclosed to Purchaser.  Any offer of employment which Purchaser extends to Seller’s employees is conditioned upon the Closing.  Balances for accrued compensated absences will be assumed by Seller and will be carried forward and credited to each employee’s account.”

	
25.  

	
Section 7.7. Key Employees shall be replaced in its entirety with the following language:

“Purchaser has determined that the employees listed on Schedule 7.7 are vital to the viability and success of the Business as a Key Employee of Seller (“Key Employees”) in which event such Key Employees shall be offered an Employment Agreement on terms and conditions acceptable to Purchaser to be signed prior to Closing, but which shall become effective only upon Closing.”

Schedule 7.7 shall be replaced with the attached Schedule 7.7.

	
26.  

	
Section 8.4 Accounts Receivable shall be replaced in its entirety with the following:

“In the event that Seller shall receive remittance from or on behalf of any account debtor with respect to the accounts receivable created after the Closing Date, Seller shall endorse without recourse such remittance to the order of Purchaser and forward such remittance to Purchaser within two (2) business days following receipt thereof.  Purchaser shall provide assistance to Seller to bill any unbilled amounts and to collect Accounts Receivable accruing prior to the Closing Date.

	
27.  

	
Section 9.5  Right of Set-Off.  The first sentence of the section shall be replaced in its entirety with the following:

“Upon written notice to Seller specifying in reasonable detail the basis for such set-off, Purchaser shall have the right to set off any amount to which it is entitled under Article 9 (Indemnity) against its payment obligations under the Promissory Note.”

	
28.  

	
Section 9.6    Rights of Indemnitor and Exclusive Remedy. The third sentence of the section shall be replaced in its entirety with the following:

“Purchaser’s right to set-off as set forth in and limited by Section 9.5 is the exclusive manner in which the Purchaser may make a claim for Indemnity under this Article 9.”

 

  

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Steele:                                                                                     

Steele Land and Inspection, LLC                                                     

 

 

By:  /s/ Brandon Steele                                                                         

Brandon Steele_________________                                                                                                                                

Chief Executive Officer                                                                                                                                         

Title

____________________________  

Date 

	
ENGlobal

ENGlobal U.S., Inc.

 

 

By:  /s/ William A. Coskey

William A. Coskey, P.E                                  

 

Chief Executive Officer                                  

Title

                                                                          

Date        

 

  

5Form of amended Quota Share Reinsurance Agreement, dated as of December 30, 2009

 Exhibit 10.7 
 [2010 CC2 LLQS] 
 THIS QUOTA SHARE TREATY dated 30 December 2009 (as amended by
endorsement[s] dated [—] and as further amended and restated with effect from [the day on which the sale of the Reinsurer’s parent company’s entire issued share capital is completed]
(the “Effective Date”) is made 
 BETWEEN 

 

	(1)	CANOPIUS CAPITAL TWO LIMITED, a company incorporated in England and Wales (no 5234105) whose registered office is at Gallery 9, One Lime Street, London EC3M 7HA
(the “Reinsured”); and 

  

	(2)	 [CANOPIUS BERMUDA]1 LIMITED, a company incorporated in Bermuda with offices at [Canon’s Court, 22 Victoria Street, Hamilton HM
12, Bermuda] (the “Reinsurer”). 

 BACKGROUND 

 

	A	The Reinsured and Flectat Limited (“Flectat”) are indirect wholly owned subsidiaries of Canopius Group Limited. 

 

	B	The Reinsured is an underwriting member of Lloyd’s which: 

 

	 	(i)	participated in Syndicate 4444 at Lloyd’s (the “Syndicate”) for the 2010 underwriting year of account (with a member’s
syndicate premium limit of £469,664,635 out of a total syndicate capacity of £550,000,000); 

  

	 	(ii)	did not participate in any other syndicate at Lloyd’s for the 2010 underwriting year of account; and 

 

	 	(iii)	did not underwrite at Lloyd’s for the 2011 underwriting year of account and does not underwrite at Lloyd’s for the 2012 underwriting year of
account. 

  

	C	The underwriting of the Reinsured at Lloyd’s for the 2010 underwriting year of account is in part supported by the Reinsurer’s FAL
described in Article 10. 

  

	D	In addition to this Treaty between the Reinsurer (as reinsurer) and the Reinsured (as reinsured), the Reinsurer is also party as reinsurer to the
following contracts of quota share reinsurance with Flectat as reinsured: 

  

	 	(i)	a contract (the “2011 Flectat LLQS”), originally made on 15 December 2010 but amended and restated with effect from the Effective
Date, under which the Reinsurer agreed to assume by way of quota share reinsurance 85% (subject to adjustment in specified circumstances) of all rights and obligations of Flectat in respect of its participation as a member of the
Syndicate as constituted for the 2011 underwriting year of account; and 

  

	1 	 Name of Reinsurer square-bracketed pending confirmation as to the date of the envisaged change of name relative to the expected date of signature of
the contract 

  
 1 

	 	(ii)	a contract (the “2012 Flectat LLQS”), originally made on 1 December 2011 but amended and restated with effect from the Effective
Date, under which the Reinsurer agreed to assume by way of quota share reinsurance 85% (subject to adjustment in specified circumstances) of all rights and obligations of Flectat in respect of its participation as a member of the
Syndicate as constituted for the 2012 underwriting year of account. 

 DEFINITIONS AND INTERPRETATION 

 

	A	In this Treaty, the following words and expressions have the meanings set out below: 

2010 CBL/OSIL Treaty: the reinsurance treaty made between the Reinsurer (as reinsured) and Omega Specialty Insurance Company
Limited (as reinsurer) in respect of certain of the Reinsurer’s rights and obligations pursuant to this Treaty; 
 2011
Flectat LLQS: the meaning given in Recital D(i); 
 2012 Flectat LLQS: the meaning given in Recital D(ii); 

Additional 2010 Solvency FAL Requirement Notification: the meaning given in paragraph (1) of Article 11; 

Business: the meaning given in paragraph (1) of Article 2; 

CBL/OSIL Treaties: the reinsurance treaties made between the Reinsurer (as reinsured) and Omega Specialty Insurance Company
Limited (as reinsurer) in respect of certain of the Reinsurer’s rights and obligations pursuant to this Treaty, the 2011 Flectat LLQS and the 2012 Flectat LLQS; 

Effective Date: the meaning given in the title to this Treaty; 

Expenses: the meaning given in paragraph (1)(v) of Article 6; 

FAL: funds at Lloyd’s in such form as is determined by Lloyd’s in accordance with, inter alia, the Membership and
Underwriting Conditions and Requirements (Funds at Lloyd’s) (as amended or replaced from time to time); 
 FAL
Providers’ Deed: the meaning given in Article 8; 
 Flectat: the meaning given in Recital A; 

GNPI: the meaning given in paragraph (1) of Article 6; 

Income: the meaning given in paragraph (1)(vi) of Article 6; 

Lloyd’s: the society incorporated by Lloyd’s Act 1871 by the name of Lloyd’s; 

  
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 Managing Agent: the meaning given in paragraph (2) of Article 1; 

Other Additional 2010 Solvency FAL: the meaning given in paragraph (2) of Article 11; 

Outgoings: the meaning given in paragraph (1)(vi) of Article 6; 

Premium: the meaning given in paragraph (1) of Article 6; 

Profit before PC: the meaning given in paragraph (1)(vi) of Article 6; 

Reinsurer’s Additional 2010 Solvency FAL: the meaning given in paragraph (1) of Article 11; 

Reinsurer’s Additional ECA FAL: the meaning given in the 2011 Flectat LLQS and the 2012 Flectat LLQS;

 Reinsurer’s FAL: the meaning given in paragraph (1) of Article 10; 

Relevant Percentage: the meaning given in paragraph (1) of Article 2; 

RITC: reinsurance to close (as defined in Lloyd’s Definitions Byelaw, No. 7 of 2005); and 

Syndicate: the meaning given in the meaning given in Recital B(i). 

 

	B	The ejusdem generis rule of construction shall not apply to this Treaty and accordingly, general words shall not be given a restrictive meaning by reason of
their being preceded or followed by words indicating a particular class or examples of acts, matters or things. 

  

	C	References in this Treaty to the parties and to Recitals, Articles and paragraphs are respectively to the parties to and Recitals, Articles and paragraphs of this
Treaty. 

 Article 1: Warranty and Undertakings 

 

	(1)	The Reinsured warrants that the background facts set out in Recitals A and B above are true and accurate. 

 

	(2)	In the event that the managing agent of the Syndicate (the “Managing Agent”) proposes to reinsure to close the 2009 or any prior
underwriting year of account of any other Lloyd’s syndicate into the 2010 underwriting year of account of the Syndicate, the Reinsured shall use its reasonable endeavours to procure that the Managing Agent consults
with the Reinsurer in good faith and provides to the Reinsurer such information as it may reasonably request for the purposes of such consultation. 

 Article 2: Scope of Reinsurance: Indemnity 
  

	(1)	 By this Treaty, the Reinsured agrees to cede and the Reinsurer agrees to assume by way of quota share reinsurance on the terms and
conditions set out below 85% (the “Relevant Percentage”) of all rights and obligations of 

  
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the Reinsured in respect of its participation as a member of the Syndicate for the 2010 underwriting year of account including (i) all business allocated by the Managing
Agent to the pure 2010 underwriting year of account of the Syndicate (ii) all business signed by the Managing Agent into the 2010 underwriting year of account of the Syndicate and (iii) all business accepted by the
Managing Agent for the 2010 underwriting year of account of the Syndicate by way of RITC (or if an account is closed into the 2010 underwriting year of account of the Syndicate other than by reinsurance, all business
accepted on such closure) in respect of any earlier year of account of the Syndicate and/or of any year of account of any other syndicate at Lloyd’s (the “Business”). 

 

	(2)	Accordingly the Reinsurer shall, subject to the operation of paragraph (4) of Article 10, indemnify the Reinsured for the Reinsurer’s
Relevant Percentage share of all liabilities, obligations and outgoings of the Reinsured as a member of the Syndicate for the 2010 year of account (other than amounts taken into account in the reduction of premium under Article
6) including any amounts payable for RITC of an underwriting year of account or, if the account is closed other than by reinsurance, all provisions made on closure in the Syndicate accounts for all liabilities attributable to that and
prior closed underwriting years of account. 

 Article 3: Term and Termination 

This Treaty shall commence as of 00.01 on 1 January 2010. 
 Without prejudice to any rights that may have accrued under this Treaty or any of its rights or remedies (i) either party may at any time terminate this Treaty with immediate effect by giving written
notice to the other party if the performance of this Treaty is prohibited or rendered impossible de jure or de facto, in particular as a consequence of any law or regulation which is or shall be in force in any country or territory and
(ii) the Reinsurer may at any time terminate this Treaty with immediate effect by giving written notice to the Reinsured if the 2010 CBL/OSIL Treaty is terminated for any reason, PROVIDED that any provisions of this Treaty
which are expressly or impliedly intended to survive termination shall continue in force. 
 Article 4: Original Terms 

All business ceded and assumed hereunder shall be subject to all the same terms, clauses and conditions as contained in the original policies including
all variations and/or extensions that may be agreed from time to time by the Managing Agent. 
 The said business and this Treaty shall
be subject to all applicable Byelaws and regulations of Lloyd’s. 
 Article 5: Information 

The Reinsured shall take all available steps to obtain from the Managing Agent and deliver promptly to the Reinsurer on receipt,
until the 2010 underwriting year of account of the Syndicate is closed, copies of all: 
  

	(a)	Syndicate business forecasts to the extent they relate to the Syndicate as constituted for the 2010 underwriting year of account;

  
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	(b)	reports, accounts, forecasts and notices which the Managing Agent submits or is required by Lloyd’s to submit to members of the Syndicate as
constituted for the 2010 underwriting year of account; 

  

	(c)	the Syndicate’s quarterly returns to Lloyd’s (to be delivered within 60 days of the end of each quarter) to the extent they relate to the
Syndicate as constituted for the 2010 underwriting year of account; 

  

	(d)	the most recently completed actuarial loss reserve study for the Syndicate to the extent it relates to the Syndicate as constituted for the 2010
underwriting year of account; and 

  

	(e)	such other information in writing concerning the Syndicate as constituted for the 2010 underwriting year of account which the Reinsurer may from time to
time reasonably require. 

 Article 6: Premium 

 

	(1)	The premium payable hereunder by the Reinsured (“Premium”) shall be an amount equal to that described in paragraph (i) below
(“GNPI”) adjusted in accordance with the provisions of paragraphs (ii) to (vii) below: 

  

	 	(i)	GNPI shall be the Relevant Percentage of the Reinsured’s share of the original gross premium of the Business (net of commissions,
brokerage, policy taxes and similar deductions, and premium repayable on cancellation or as return premium) including premium for the RITC of any prior year of account or, if the liabilities of a closed prior year were brought in other than
by reinsurance, the reserves transferred to the 2010 year of account in respect thereof; 

  

	 	(ii)	from GNPI shall be deducted the Relevant Percentage of the Reinsured’s share of all paid premium and other costs of the reinsurances
protecting the Business (not including, for the avoidance of any doubt, the RITC of the 2010 underwriting year of account of the Syndicate); 

 

	 	(iii)	to the resulting sum shall be added the Relevant Percentage of the Reinsured’s share of the Syndicate’s profits on exchange in respect of
the 2010 underwriting year of account and from the same shall be deducted the Relevant Percentage of the Reinsured’s share of the Syndicate’s losses on exchange in respect of the 2010 underwriting year of account;

  

	 	(iv)	to the resulting sum shall be added the Relevant Percentage of the Reinsured’s share of investment income (net of investment losses and expenses) in
respect of the 2010 underwriting year of account of the Syndicate accounted for by the Syndicate at closure of the 2010 underwriting year of account; 

 

	 	(v)	from the resulting sum shall be deducted the Relevant Percentage of the amounts (“Expenses”) set out below: 

 

	 	(a)	 the Reinsured’s share of syndicate operating expenses including taxes and levies not included in (i) above in respect

  
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of the 2010 underwriting year of account of the Syndicate accounted for by the Syndicate at closure of the 2010 underwriting year of account; 

 

	 	(b)	the Reinsured’s standard personal expenses of Lloyd’s Central Fund Contribution and Lloyd’s Subscription as deducted by the
Managing Agent; 

  

	 	(c)	an amount equal to 1.0% of the Reinsured’s member’s syndicate premium limit in respect of the 2010 underwriting year of account of the Syndicate
(as set out in Recital B above); 

  

	 	(vi)	from the resulting sum shall be deducted an amount equal to 17.5% of the Profit Before PC as referred to and defined below, calculated as follows:

 “Income” 
 (a) GNPI less the Relevant Percentage of the Reinsured’s share of all paid premium and other costs of the reinsurances protecting the Business as defined in
(ii) above; 
 (b) the Relevant Percentage of the Reinsured’s share of the Syndicate’s
profits (net of losses) on exchange as defined in (iii) above; and 
 (c) the Relevant Percentage of the
Reinsured’s share of investment income (net of investment losses and expenses) accounted for by the Syndicate as defined in (iv) above; 
 “Outgoings”: 
 (a) the Relevant Percentage of the
Reinsured’s share of all paid claims and losses and paid claims and loss expenses hereunder in respect of the 2010 underwriting year of account of the Syndicate (for the avoidance of doubt after the benefit of the Relevant
Percentage of the Reinsured’s share of the Syndicate’s recoveries under protecting reinsurances); 

(b) the Relevant Percentage of the Reinsured’s share of any amounts payable for RITC of the 2010 underwriting
year of account of the Syndicate or, if the account is closed other than by reinsurance, all provisions made in the Syndicate accounts on closure for all liabilities including outstanding claims and claims incurred but not reported
attributable to that and prior closed underwriting years of account; 
 (c) the Relevant Percentage of the
Reinsured’s share of syndicate operating expenses including taxes and levies as referred to in paragraph (v)(a) above; 

  
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 (d) the Relevant Percentage of the Reinsured’s standard personal expenses
of Lloyd’s Central Fund Contribution and Lloyd’s Subscription as referred to in paragraph (v)(b) above; and 
 (e) the Relevant Percentage of an amount equal to 1.0% of the Reinsured’s member’s syndicate premium limit in respect of the 2010 underwriting year of account of the Syndicate
as referred to in paragraph (v)(c) above, 
 the excess, if any, of the sum of all Income less the sum of all
Outgoings being the “Profit Before PC”; 
  

	 	(vii)	from the resulting sum shall be deducted to defray the Reinsured’s expenses an overriding commission of GBP50,000 plus the Relevant Percentage of the
amounts charged to the Reinsured by (a) Canopius Group Limited or any of its subsidiaries or (b) third parties as letter of credit or other fees for providing Funds at Lloyd’s or collateral to support the underwriting of the
Reinsured as a member of the Syndicate for the 2010 underwriting year of account. 

  

	(2)	Premium in currencies other than £Sterling shall be converted into £Sterling at the rates used in the Reinsured’s books of account and shall be
payable in £Sterling. 

 Article 7: Protecting Reinsurances: Follow the Fortunes 

This Treaty is net of and the Reinsurer shall be automatically protected by all reinsurance protections of whatever nature of the Reinsured
as a member of the Syndicate for the 2010 underwriting year of account and the Reinsurer shall in addition have the benefit, subject to the terms of closure of an account, of all rights of salvage or other recoveries of the
Reinsured so that the gross and net accounts respectively of the Reinsurer shall save as to the overriding commission specified in paragraph (vii) in Article 6 follow in all respects those of the Reinsured. 

Further, the Reinsurer shall be automatically protected by all excess of loss reinsurance protections of the Reinsured to the extent that
claims in respect of the Reinsured’s participation are recovered under such excess of loss reinsurances. 
 This Treaty is to pay
(and only to pay) losses in line with those which the Reinsured may itself pay, the true intent of this Treaty being that the Reinsurer shall, in every case to which this Treaty applies, follow without question all settlements and
compromises (including those which are made on a ‘without prejudice’ basis or are of a wholly ex gratia nature) of the Reinsured. 
 Article 8: Settlement 
 Premium and other income of the Business shall until closure
of the 2010 underwriting year of account be retained within the Premiums Trust Funds and other trust funds of the Reinsured as a member of the Syndicate and utilised in accordance with the terms of the applicable trust deeds for the
settlement of claims and the other underwriting liabilities of the Business so that, except to the extent that (i) calls are made earlier on the Reinsured in respect of such liabilities or (ii) early releases to the
Reinsured from its Premiums Trust Funds on account of underwriting profits as a member of the Syndicate for the 2010 underwriting year of account are 

  
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permitted by Lloyd’s and the Reinsured makes a corresponding payment on account to the Reinsurer, settlement between the parties (calculated by or on behalf of the
Reinsured in the manner set out in a ‘Final Declared Result’ statement of account in a form to be agreed between the Reinsurer and the Reinsured, using as appropriate figures contained in the audited accounts of the Syndicate
prepared following and reflecting the RITC of the Syndicate for the 2010 underwriting year of account and taking full account of all such amounts which may be payable by the parties under the terms of the FAL Providers’ Deed
entered into between, inter alios, Canopius Group Limited, the Reinsured and the Reinsurer and having effect on the Effective Date (the “FAL Providers’ Deed”)) shall be made, in
£Sterling (having converted into £Sterling any amounts in currencies other than £Sterling at the rates used in the Reinsured’s books of account), on and follow the closure of the account and releases, if any, from the
relevant trust funds. 
 Article 9: Records 
 All records of the Reinsured insofar as they relate to the business covered by this Treaty shall be open to inspection by the Reinsurer at all reasonable times and the Reinsured shall
on request use all endeavours to obtain for the Reinsurer, at the Reinsurer’s expense, copies of or access to the records of the Syndicate to the extent permitted by the underwriting agency agreement between the
Reinsured and the Managing Agent. 
 Article 10: Security and Limitation of Liability 

 

	(1)	 The Reinsurer shall (i) provide or procure the provision to Lloyd’s of one or more letters of credit, cash deposits and/or
investments (in a form acceptable to Lloyd’s) having an aggregate value of £[—]2 and (ii) use its reasonable endeavours to procure that Omega Specialty Insurance Company Limited shall provide or
procure the provision to Lloyd’s of one or more letters of credit, cash deposits and/or investments (in a form acceptable to Lloyd’s) having an aggregate value of
£[—]3 to
 form part of the FAL of the Reinsured pursuant to the terms of the CBL/OSIL Treaties (the FAL provided by the Reinsurer and the FAL provided by Omega Specialty Insurance Company Limited together, the
“Reinsurer’s FAL”), which shall form part of the FAL of the Reinsured and be deposited on interavailable terms such that it will support the underwriting of Flectat for the 2011 and subsequent
underwriting years of account as well as the Reinsured’s underwriting at Lloyd’s for the 2010 underwriting year of account and (subject to the provisions and operation of the FAL Providers’ Deed) stand as security
for the performance of the Reinsurer’s obligations under this Treaty, the 2011 Flectat LLQS and the 2012 Flectat LLQS. 

  

	(2)	The cost of provision of the Reinsurer’s FAL shall be paid by the Reinsurer or others (but not the Reinsured). 

 

	(3)	The Reinsurer may, at any time permitted by Lloyd’s, substitute for all or any part of the Reinsurer’s FAL any other assets of
equivalent value acceptable under Lloyd’s requirements as FAL. 

  

	2 	 Relevant figure representing CBL’s share of FAL to be inserted, to be ascertained 

	3 	 Relevant figure representing OSIL’s share of FAL to be inserted, to be ascertained 

  
 8 

	(4)	 The liability of the Reinsurer under this Treaty beyond an amount equal to the premium payable to the Reinsurer under Article 6 (subject
to the provisions of Article 8 concerning settlement at Syndicate level) shall, when aggregated with all liabilities of the Reinsurer under the 2011 Flectat LLQS and the 2012 Flectat LLQS beyond an amount equal to the
aggregate premium payable to the Reinsurer under the 2011 Flectat LLQS and the 2012 Flectat LLQS (subject to the provisions of the 2011 Flectat LLQS and the 2012 Flectat LLQS concerning settlement at Syndicate
level), be limited to and in no circumstances exceed in aggregate £[—]4 plus the aggregate value of any Reinsurer’s Additional ECA FAL provided or procured to be provided
from time to time by the Reinsurer to Lloyd’s pursuant to the terms of the 2011 Flectat LLQS or the 2012 Flectat LLQS. 

 

	(5)	 For the avoidance of any doubt, the aggregate liability of the Reinsurer under this Treaty alone shall not exceed an amount equal to the premium
payable to the Reinsurer under Article 6 (subject to the provisions of Article 8 concerning settlement at Syndicate level) plus £[—]5 plus the aggregate value of any Reinsurer’s Additional
ECA FAL provided or procured to be provided from time to time by the Reinsurer to Lloyd’s pursuant to the terms of the 2011 Flectat LLQS or the 2012 Flectat LLQS. 

Article 11: Additional Funds at Lloyd’s 
  

	(1)	If (i) the 2010 underwriting year of account of the Syndicate is not closed as at 31 December 2012 and (ii) at any time after the Effective
Date and before the 2010 underwriting year of account of the Syndicate is closed the Reinsured is required by Lloyd’s to provide additional FAL in order to meet an increase in the Reinsured’s open
year solvency deficiency in respect of its underwriting as a member of the Syndicate for the 2010 underwriting year of account the Reinsured will promptly notify the Reinsurer of that fact and of the amount of additional FAL
required by Lloyd’s (“Additional 2010 Solvency FAL Requirement Notification”) and the Reinsurer shall (i) promptly provide or procure the provision to Lloyd’s, in a form acceptable to
Lloyd’s to stand as FAL of the Reinsured, to be deposited in the FAL of the Reinsured a letter of credit, cash or investments having an aggregate value of 32% of 85% of the amount of the required additional
FAL and (ii) use its reasonable endeavours to procure that Omega Specialty Insurance Company Limited shall provide or procure the provision to Lloyd’s, in a form acceptable to Lloyd’s to stand as FAL of the
Reinsured, to be deposited in the FAL of the Reinsured a letter of credit, cash or investments having an aggregate value of 68% of 85% of the amount of the required additional FAL pursuant to the terms of the 2010
CBL/OSIL Treaty (the additional FAL provided by the Reinsurer and the additional FAL provided by Omega Specialty Insurance Company Limited together, the “Reinsurer’s Additional 2010 Solvency
FAL”). For the avoidance of doubt, the Reinsurer shall not be liable to make good any failure of Omega Specialty Insurance Company Limited to provide FAL pursuant to the terms of the 2010 CBL/OSIL Treaty.

  

	(2)	If the Reinsurer does not, within 21 days of receiving the Additional 2010 Solvency FAL Requirement Notification, provide or procure the provision of the
full amount (or any) of the Reinsurer’s Additional 2010 Solvency 

  

	4 	 i.e. the aggregate of CBL’s and OSIL’s respective limits of liability 

	5 	 i.e. the aggregate of CBL’s and OSIL’s respective limits of liability 

  
 9 

	 	
FAL, the Reinsured may elect (but shall not be obliged) to provide, or permit there to be provided by another for its benefit, the required additional FAL (“Other
Additional 2010 Solvency FAL”). If the Reinsured does provide (or permit there to be provided by another for its benefit) Other Additional 2010 Solvency FAL, the Reinsurer shall pay to the Reinsured, promptly
following release by Lloyd’s from the Reinsured’s FAL of all or part of the Other Additional 2010 Solvency FAL, an amount calculated by (i) multiplying the amount of the Other Additional 2010 Solvency FAL
released by the percentage corresponding to five hundred basis points plus the LIBOR rate for a 6 month £Sterling deposit as at the date on which the Reinsured provided (or permitted there to be provided by another for its benefit) the
Other Additional 2010 Solvency FAL and (ii) multiplying the result of that calculation (“A”) by x/42 where x is the number of complete calendar months (or part thereof) for which the released Other Additional
2010 Solvency FAL was deposited in the Reinsured’s FAL PROVIDED that the amount payable by the Reinsurer shall not exceed A. 

 Article 12: Cash Calls 
 In the event that the Reinsured is required by the
Managing Agent to meet a cash call in respect of the Syndicate’s 2010 underwriting year of account, the Reinsured is entitled (unless the Reinsurer expressly elects and settles otherwise) to a cash settlement from
(i) the Reinsurer’s FAL and/or (as the case may be) (ii) any Reinsurer’s Additional ECA FAL provided or procured to be provided from time to time by the Reinsurer to Lloyd’s pursuant to the terms
of the 2011 Flectat LLQS or the 2012 Flectat LLQS, equal to 85% of the amount of such cash call. 
 Amounts recovered under
this provision shall be treated as a payment on account of the amount which the Reinsurer may be liable (subject always to the operation of paragraph (4) of Article 10) to pay under Article 2. 

Article 13: Guarantee 

[Article deleted] 
 Article 14: Errors and Omissions 
 It is hereby understood and agreed that any inadvertent
delays, omissions or errors made in connection with this Treaty shall not be held to relieve any of the parties hereto from any liability which would have attached to them hereunder if such delay, omission or error had not occurred provided that
rectification is made upon discovery. 
 Article 15: Non-Waiver 
 The failure of the Reinsured or the Reinsurer to insist on compliance with the contract to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedy
contained herein nor stop either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedy in the future. 

  
 10 

 Article 16: Insolvency 
 Where an Insolvency Event (as defined below) occurs in relation to the Reinsured the following terms shall apply (and, in the event of any inconsistency between these terms and any other terms of
this Treaty, the following terms shall prevail): 
  

	(1)	Notwithstanding any requirement in this Treaty that the Reinsured shall actually make payment in discharge of its liability to its policyholders before becoming
entitled to payment from the Reinsurer: 

  

	 	(a)	the Reinsurer shall be liable to pay the Reinsured even though the Reinsured is unable actually to pay, or discharge its liability to, its
policyholders, but 

  

	 	(b)	nothing in this clause shall operate to accelerate the date for payment by the Reinsurer of any sum which may be payable to the Reinsured, which sum shall
only become payable as and when the Reinsured would have discharged, by actual payment, its liability for its then current net loss but for the Reinsured being the subject of any Insolvency Event. 

 

	(2)	The existence, quantum, valuation and date for payment of any sum which the Reinsurer is liable to pay the Reinsured under this Treaty shall be those and
only those for which the Reinsurer would be liable to the Reinsured if the liability of the Reinsured to its policyholders had been determined without reference to any term in any composition or scheme of arrangement or any
similar such arrangement, entered into between the Reinsured and its policyholders, unless and until the Reinsurer serves written notice to the contrary on the Reinsured in relation to any composition or scheme of arrangement.

  

	(3)	The Reinsurer shall be entitled (but not obliged) to set-off, against any sum which it may be liable to pay the Reinsured, any sum for which the
Reinsured is liable to pay the Reinsurer. 

 For the purposes of this Article, an “Insolvency
Event” shall occur if: 
  

	A	(i)(in relation to (1), (2) and (3) above) a winding-up petition is presented in respect of the Reinsured or a provisional liquidator is appointed over
it or if the Reinsured goes into administration, administrative receivership or receivership or if the Reinsured has a scheme of arrangement or voluntary arrangement proposed in relation to all or any part of its affairs; or

 (ii)(in relation to (1) above) if the Reinsured goes into compulsory or voluntary liquidation,

 or, in each case, if the Reinsured becomes subject to any other similar insolvency process (whether under the laws of England and
Wales or elsewhere); and 
  

	B	the Reinsured is unable to pay its debts as and when they fall due within the meaning of section 123 of the Insolvency Act 1986 (or any statutory amendment or
re-enactment of that section). 

  
 11 

 Article 17: Arbitration 
 Any dispute arising out of or relating to the interpretation, performance or breach of this Treaty, as well as the formation, validity, binding effect and/or termination thereof and/or any non-contractual
claims, shall be referred to arbitration under ARIAS UK Arbitration Rules by a panel of three arbitrators. The Reinsurer or the Reinsured may request arbitration in writing sent to the other party (the respondent) by certified or
registered post, return receipt requested. 
 One arbitrator shall be chosen by the Reinsurer and one by the Reinsured, and the
two arbitrators shall, before instituting the hearing, choose an impartial third arbitrator who shall preside at the hearing. If the Reinsurer fails to appoint its arbitrator within 30 days after being requested to do so by the
Reinsured, the Reinsured may appoint the second arbitrator. 
 Where the two party-appointed arbitrators have failed to appoint a
third arbitrator within 30 days of the arbitration demand, then upon application ARIAS (UK) will appoint an arbitrator to fill the vacancy. At any time prior to the appointment by ARIAS (UK) the party or arbitrators in default may make such
appointment. 
 All arbitrators will be disinterested persons (including those who have retired) having at least 10 years experience of
insurance or reinsurance within the industry or as lawyers or other professional advisers serving the industry. 
 Within 30 days after notice
of appointment of all arbitrators the panel will meet and determine timely periods for briefs, discovery procedures and schedules for hearings. 

The panel may in its sole discretion make such orders and directions as it considers to be necessary for the final determination of the matters in
dispute and shall have the widest discretion permitted under the law governing the arbitral procedure when making such orders or directions. Unless the panel agrees otherwise, arbitration will take place in England, but the venue may be changed when
the panel deems such change to be in the best interest of the arbitration proceeding. The decision of any two arbitrators when rendered in writing will be final and binding. The panel is empowered to grant interim relief as it may deem appropriate.

 Each party will bear the costs of its own arbitrator and will bear, jointly and equally with the other party, the costs of the third
arbitrator. The panel will allocate the remaining costs of the arbitration. The panel may, at its discretion, award such further costs, interest and expenses as it considers appropriate, including without limitation, with respect to legal fees.

 The governing law of this Treaty shall be the substantive law of England and Wales. 
 The provisions of this Article shall survive the expiration or termination of this Treaty. 

Article 18: Notices 
 Any notice or other
communication under or in connection with this Treaty shall be delivered personally or sent by first class pre-paid post return receipt required, to the intended recipient. 

 

	(a)	in the case of the Reinsured: 

 Gallery 9, 
 One Lime Street, 

London EC3M 7HA, 

United Kingdom. 

Attn: The Secretary 

  
 12 

	(b)	in the case of the Reinsurer: 

 [Atlantic House 
 11 Par-La-Ville Road 

Hamilton HM 11 

Bermuda] 
 Attn:
The Directors, [Canopius Bermuda] Limited 
 or such other addresses as the relevant party has specified in writing to the party
giving notice. 
 In the absence of evidence of earlier receipt, any notice or other communication shall be deemed to have been duly given:

  

	(i)	if delivered personally, at the time of delivery but if delivery takes place outside business hours, the commencement of business following delivery or transmission; or

  

	(ii)	if sent by first class mail to an address in the United Kingdom on the second Business Day after posting in the United Kingdom; 

 

	(iii)	if sent by air mail from or to the United Kingdom, the fifth Business Day after posting. 

 In proving service by post it shall be sufficient to prove that the envelope containing the notice was properly addressed, stamped and posted. 
 Article 19: Counterparts 
 This Treaty may be executed in counterparts, each of which shall
be deemed an original and all of which shall constitute one and the same instrument. 
 This document is EXECUTED AS A DEED and is
delivered and takes effect at the date written at the beginning of it. 

  
 13 

									
	Executed as a deed by CANOPIUS	  		 	)	  	
	CAPITAL TWO LIMITED acting by	  		 	)	  	
	two directors or a director and its	  		 	)	  	
	company secretary:	  		 	)	  	
				
		  		 	Director	  	
				
		  		 	Director/Secretary	  	
				
	Signed as a deed on behalf of	  		 	)	  	
	[CANOPIUS BERMUDA] LIMITED,	  		 	)	  	
	a company incorporated in Bermuda,	  		 	)	  	
	as reinsurer for its 100% participation	  		 	)	  	
	herein	  		 	)	  	
					
	by:	 	  
	  	and	 	  
	  	

 each being persons who, in accordance with the laws of that territory, are acting under the authority of that company

  
 14

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