Document:

Exhibit 4.1

 

CIBER, INC.

 

EMPLOYEE
STOCK PURCHASE PLAN

(as amended and restated May 4, 2009)

 

I.    Purpose

 

        The
CIBER, Inc. Employee Stock Purchase Plan (the “Plan”) is intended to
provide eligible employees of CIBER, Inc. and its Affiliated Corporations
(collectively, the “Company”), with an opportunity to acquire a proprietary
interest in the Company through their participation in a plan designed to
qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986 (the “Code”). “Affiliated Corporation” means any “subsidiary
corporation” (as such term is defined in Section 424(f) of the Code)
of CIBER, Inc.

 

II.    Administration

 

        (a)    Plan Administrator.    The
Plan shall be administered by the board of directors of the Company (the “Board”),
which may from time to time delegate all or part of its authority to a
committee (the “Committee”) composed of at least two members of the Board, all
of whom shall be Non-Employee Directors. A Non-Employee Director is a director
who meets the definition of Non-Employee Director under Rule 16b-3 of the
Securities Exchange Act of 1934 (the “1934”). References herein to the Plan
Administrator refer to the Board or, to the extent the Board delegates its
authority to the Committee, to the Committee. The Plan Administrator shall have
full authority to administer the Plan, and to adopt such rules and
regulations for administering the Plan as it may deem necessary in order to
comply with the requirements of Section 423 of the Code. The Plan
Administrator may delegate to an agent or agents any of its responsibilities
under the Plan except its responsibilities to establish the number of shares
available for purchase by employees during any purchase period, the maximum and
minimum percentage of base compensation to be paid by any single employee for
the purchase of stock during any of the periods and its authority to construe
and interpret the provisions of the Plan.

 

        (b)    Actions of Plan
Administrator.    All actions taken and all
interpretations and determinations made by the Plan Administrator in good faith
(including determinations of fair market value) shall be final and binding upon
all Participants, the Company and all other interested persons. No member of
the Plan Administrator shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan, and all members
of the Plan Administrator shall, in addition to their rights as directors, be
fully protected by the Company with respect to any such action, determination
or interpretation.

 

III.  Purchase Periods

 

        The
first purchase period under the Plan shall commence on January 1, 1995,
and shall terminate on March 31, 1995. Unless otherwise determined by the
Plan Administrator, a purchase period shall commence on the first day of each
succeeding calendar quarter and shall terminate on the last day of each such
quarter. The Plan Administrator may, from time to time, establish purchase
periods with differing commencement dates and durations. In no event, however,
shall a purchase period extend beyond 27 months. No two purchase periods
shall run concurrently.

 

C-1

 

IV.  Eligibility and Participation

 

        (a)    Except
as otherwise expressly provided herein, every employee of the Company who, on
the commencement date of the purchase period, is employed on a basis which
customarily requires not less than 20 hours of service per calendar week
is eligible to participate in the Plan during a purchase period.

 

        (b)    An
eligible employee may become a participant in the Plan (a “Participant”) for a
particular purchase period by completing the enrollment forms prescribed by the
Plan Administrator (including a purchase agreement and a payroll deduction
authorization) and filing such forms prior to the commencement date of the
purchase period with the person designated by the Plan Administrator. No
enrollment forms will be accepted from an individual who is not on the active
payroll of the Company on the filing date, unless such individual is
temporarily off the payroll by reason of illness, vacation, jury duty or other
employer-approved absence.

 

V.    Stock Subject to Plan

 

        (a)    Common Stock.    The
stock which is purchasable by Participants shall be the authorized but unissued
or reacquired common stock, par value $.01 per share, of CIBER, Inc. (the “Common
Stock”). In order to have shares available for sale under the Plan, the Company
may repurchase shares of Common Stock on the open market, issue authorized but
unissued stock or otherwise. The maximum number of shares which may be sold to
employees during any single purchase period shall be established by the Plan
Administrator prior to the beginning of the purchase period; provided however,
that the total number of shares which may be sold to employees throughout the
entire duration of the Plan shall not exceed 11,250,000 shares (which amount
reflects the 1996 and 1998 stock splits in the nature of a dividend, and is
subject to further adjustment under subparagraph (b) below).

 

        (b)    Changes in Capital Structure.    In
the event any change is made to the Common Stock purchasable under the Plan
(whether by reason of merger, consolidation, reorganization, recapitalization,
stock dividend in excess of 10% at any single time, stock split, combination of
shares, exchange of shares, changes in corporate structure or otherwise), then
appropriate adjustments shall be made to the maximum number of shares purchasable
under the Plan, the maximum number of shares purchasable under any right to
purchase stock outstanding under the Plan, and the number of shares and price
per share of stock subject to rights to purchase stock outstanding under the
Plan.

 

VI.  Purchase of Common Stock

 

        (a)    Right to Purchase.    An
eligible employee who becomes a Participant for a particular purchase period
shall have the right, as of the beginning of the purchase period, to purchase
Common Stock upon the terms and conditions set forth below and shall execute a
purchase agreement embodying such terms and conditions and such other
provisions, not inconsistent with the Plan, as the Plan Administrator may deem
advisable.

 

        (b)    Purchase Price Per Share.    Except
as provided in Section VI(j), the purchase price per share shall be
eighty-five percent (85%) of the fair market value of a share of Common Stock
on the commencement date of the purchase period. If the Common Stock is listed
on a national stock exchange or national market system, the fair market value
of a share of Common Stock on any date shall be the officially-quoted closing
sales price (or the closing bid, if no sales were reported) on such exchange or
system on the date in question. If the Common Stock is not traded publicly, the
fair market value of a share of Common Stock on any date shall be determined,
in good faith, by the Plan Administrator after consultation with outside legal,
accounting or other experts as the Plan

 

C-2

 

Administrator
may deem advisable, and the Plan Administrator shall maintain a written record
of its method of determining such value.

 

        (c)    Total Purchase Price.    Each
Participant shall, for any purchase period, have the right to purchase Common
Stock with a total purchase price equal to a designated percentage of the
Participant’s Compensation. A Participant’s “Compensation” for a particular
purchase period shall be the amount of the Participant’s base salary or wages,
overtime pay and, at the election of the Participant, bonuses and other
incentive payments, that are payable to the Participant at any time or from
time to time during the purchase period. Each Participant shall designate in
his or her purchase agreement the whole percentage of his or her Compensation
the Participant wishes to pay for the purchase of stock for the particular
purchase period, subject to the provisions set forth below which shall be
uniformly applied to all Participants in a particular purchase period:

 

(i)

The maximum percentage of
a Participant’s Compensation which may be paid for the purchase of stock in a
particular purchase period shall be ten percent (10%); provided, however, that
the Plan Administrator shall establish prior to the beginning of the purchase
period a maximum number of shares (subject to adjustment under Section V(b))
that may be purchased during the purchase period by each Participant.

 

(ii)

The minimum percentage of
a Participant’s Compensation which may be paid for the purchase of stock in a
particular purchase period shall be one percent (1%).

 

(iii)

No right to purchase
shares under the Plan shall be granted to an employee if such employee would,
immediately after the grant, own stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of CIBER, Inc.
or any Affiliated Corporation. An employee’s stock ownership shall be
determined under Section 424(d) of the Code and stock which an
employee may purchase under any outstanding options shall be treated as stock
owned by the employee.

 

Notwithstanding
the provisions of paragraphs (i) and (ii), above, the Plan Administrator
may, in its discretion, establish any other maximum and minimum percentages of
Compensation to be paid for stock under the Plan.

 

        (d)    Allocation of Available
Shares.    Should the total number of shares of
Common Stock which may be purchased under the purchase agreements of all
Participants for a particular purchase period exceed the number of shares available
for sale under the Plan, then the Plan Administrator shall make a pro rata
allocation of the available shares and shall notify each Participant of such
allocation.

 

        (e)    Payment.    Payment of
the purchase price for stock under the Plan shall be effected by means of
payroll deductions, which shall begin with the first pay period, the payment
date for which occurs coincident with or immediately following the commencement
date of the relevant purchase period and shall terminate with the last pay
period the payment date for which occurs on or prior to the last day of the
purchase period. Each payroll deduction shall be an amount equal to the
percentage of the Compensation included in that payroll payment that was
designated by the Participant in the Participant’s purchase agreement (subject
to termination as provided in Section VI(f)).

 

C-3

 

(f)    Termination of Right to
Purchase.    A Participant may, at any time on
or before 15 days prior to the last day of the purchase period, terminate
his or her right to purchase stock under the Plan by filing the prescribed
notification form with the Plan Administrator or its delegate. Any amounts
deducted from the Participant’s pay or otherwise collected from the Participant
by reason of his or her participation in the Plan for such purchase period
shall be refunded following the end of the purchase period, and no further
amounts will be collected from the Participant (by payroll deduction or
otherwise) during the remainder of the purchase period. A Participant’s
termination of his or her right to purchase shall be irrevocable with respect
to the purchase period to which it pertains.

 

        (g)    Change of Compensation
Percentage.    Except as set forth in Section VI(f),
a Participant may not reduce or increase the percentage of the Participant’s
Compensation to be paid for shares of Common Stock under the Participant’s
purchase agreement during a purchase period.

 

        (h)    Termination of Employment.    If
a Participant ceases to be an employee of the Company for any reason (including
death or retirement) during a purchase period, the Participant or the
Participant’s personal representative shall receive a cash refund of all sums
previously collected from the Participant during the purchase period, as well
as any sums carried over from a prior purchase period.

 

        (i)    Exercise.    Each
right to purchase stock under the Plan other than a right to purchase stock
which has been accelerated under the Plan or which has been previously
terminated under the Plan shall be exercised automatically on the last day of
the purchase period for the number of whole shares obtained by dividing the sum
on deposit from the Participant (and not refunded) by the purchase price per
share determined under Section VI(j), but in no event shall any right to
purchase stock under the Plan be exercised for more than the specified number
of shares, if any, (subject to adjustment under Section V(b)) established
by the Plan Administrator pursuant to Section VI(c)(i) prior to the
beginning of the purchase period, and the balance shall be at the sole option
of the Company promptly refunded or left on deposit for the ensuing quarterly
period, and in any case refunded after termination. For example, if a
Participant has $100.00 on account and the Company’s stock price pursuant to
this paragraph is determined to be $9.00 then eleven (11) shares will be
issued (11 × $9.00) and $1.00 will be left on deposit or refunded as
herein stated. Promptly after the date of exercise of any right to purchase
stock under the Plan, the Participant, or his or her nominee, shall receive, at
the Company’s sole option, a physical certificate, an electronic deposit, or
such other evidence of ownership of the purchased shares as the Plan
Administrator determines is reasonable. No more than one certificate or deposit
shall be issued or made pursuant to the exercise of any right to purchase stock
under the Plan.

 

        (j)    Reduction of Purchase Price.    If
the fair market value of a share of Common Stock on the last day of the
purchase period is less than the fair market value of such share on the
commencement date of the purchase period, then the purchase price per share
under the Plan on the last day of the purchase period shall be reduced to
85 percent (85%) of the fair market value of such share on the last day of
the purchase period.

 

        (k)    Rights as Stockholder.    A
Participant shall have no rights as a stockholder with respect to shares subject
to a right to purchase stock granted under the Plan until such right to
purchase is exercised. No adjustments shall be made for dividends,
distributions or other rights for which the record date is prior to the date of
exercise.

 

        (l)    Assignability.    No
right to purchase stock granted under the Plan shall be assignable or
transferable by a Participant other than by will or by the laws of the descent
and distribution, and during the lifetime of the Participant such rights to
purchase stock shall be exercisable only by the Participant.

 

        (m)    Accrual Limitations.    No
Participant shall be entitled to accrue rights to purchase stock under this
Plan which, when aggregated with purchase rights accruable by him under other
qualified employee stock purchase plans (within the meaning of Section 423
of the Code) of the Company, would permit such Participant to purchase more
than $25,000 worth of Common Stock (determined on the basis of the fair market
value of such Common Stock on the date the Participant accrues purchase rights
under the Plan) for each calendar year such purchase rights are at any time
outstanding.

 

        (n)    Merger or Liquidation of
Company.    In the event the Company or its
shareholders enter into an agreement to dispose of all or substantially all of
the assets or outstanding capital stock of the

 

C-4

 

Company
by means of sale, merger, reorganization or liquidation, each Participant may,
at the election of the Plan Administrator, either:

 

(i)   receive a stock certificate for the
number of shares of Common Stock paid for pursuant to payroll deductions made
on behalf of the Participant during the purchase period up to the day prior to
the date of such transaction; or

 

(ii) receive a cash
refund of all sums previously collected from the Participant during the
purchase period.

 

        (o)    No Interest.    No
interest shall be paid on any monies refunded to Participants pursuant to the
provisions of this Plan.

 

        (p)    Withholding.    The
Company may withhold, or require a Participant to make other satisfactory
arrangements for the payment of, any taxes required by any law or regulation of
any governmental authority, whether federal, state or local, in connection with
the purchase of stock under the Plan or the sale of such stock that is not held
for at least two years after the beginning of the purchase period during which
the stock was purchased. Such withholding may include all or any portion of any
payment or other compensation payable to the Participant, unless the
Participant reimburses the Company for such amount.

 

        (q)    Notice of Disposition.    Each
Participant shall notify the Company in writing if the Participant disposes of
any of the shares purchased pursuant to this Plan if such disposition occurs
within two years from the first day of the purchase period in which such shares
were purchased or within one year from the date on which the shares were
purchased (the “Notice Period”). The Company may, at any time during the Notice
Period, place a legend or legends on any certificate representing shares
acquired pursuant to this Plan requesting the Company’s transfer agent to
notify the Company of any transfer of the shares. The obligation of the Participant
to provide such notice shall continue notwithstanding the placement of any
legend on the certificates.

 

VII. Amendment

 

        The
Board may from time to time alter, amend, suspend or discontinue the Plan;
provided, however, that no such action shall adversely affect rights and
obligations with respect to rights to purchase stock at the time outstanding
under the Plan; and provided, further, that no such action of the Board may,
without the approval of the stockholders of the Company, increase the number of
shares subject to the Plan or the maximum number of shares for which a right to
purchase stock under the Plan may be exercised (unless necessary to effect the
adjustments required by Section V(b)), extend the term of the Plan, alter
the per share purchase price formula so as to reduce the purchase price per
share specified in the Plan, otherwise materially increase the benefits
accruing to Participants under the Plan or materially modify the requirements
for eligibility to participate in the Plan. Furthermore, the Plan may not,
without the approval of the stockholders of the Company, be amended in any
manner which will cause the Plan to fail to meet the requirements of an “employee
stock purchase plan” under Section 423 of the Code.

 

VIII. Effective Date

 

        This
Plan was originally approved by the Board and became effective on January 1,
1995, after the approval by the stockholders of CIBER, Inc. on October 31,
1994. The Plan was subsequently amended with shareholder approval October 29,
1996, May 10, 2001, May 2, 2002 and April 27, 2004.  The Plan is hereby amended effective May 4,
2009.

 

	
   

  	
  CIBER, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  MAC
  J. SLINGERLEND  

  
	
   

  	
   

  	
  Mac J.
  Slingerlend

  President/Chief Executive Officer

  

 

C-5EXHIBIT
10.1

WORKERS’ COMPENSATION AND EMPLOYER’S LIABILITY EXCESS OF LOSS REINSURANCE
CONTRACT

 

issued to

 

ZENITH INSURANCE COMPANY  

ZNAT
INSURANCE COMPANY  

both of Woodland Hills, California

 

1

 

WORKERS’ COMPENSATION AND EMPLOYER’S LIABILITY
EXCESS OF LOSS REINSURANCE CONTRACT

 

TABLE OF CONTENTS

 

	
  Article

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Preamble

  	
   

  	
  3

  
	
  1

  	
   

  	
   

  	
  Business Reinsured

  	
   

  	
  3

  
	
  2

  	
   

  	
   

  	
  Limit and Retention

  	
   

  	
  4

  
	
  3

  	
   

  	
   

  	
  Term

  	
   

  	
  4

  
	
  4

  	
   

  	
   

  	
  Special Termination

  	
   

  	
  5

  
	
  5

  	
   

  	
   

  	
  Territory

  	
   

  	
  6

  
	
  6

  	
   

  	
   

  	
  Warranties

  	
   

  	
  6

  
	
  7

  	
   

  	
   

  	
  Exclusions

  	
   

  	
  6

  
	
  8

  	
   

  	
   

  	
  Special Acceptance

  	
   

  	
  8

  
	
  9

  	
   

  	
   

  	
  Premium

  	
   

  	
  8

  
	
  10

  	
   

  	
   

  	
  Definitions

  	
   

  	
  9

  
	
  11

  	
   

  	
   

  	
  Net Retained Lines

  	
   

  	
  11

  
	
  12

  	
   

  	
   

  	
  Liability of Reinsurer

  	
   

  	
  11

  
	
  13

  	
   

  	
   

  	
  Currency

  	
   

  	
  11

  
	
  14

  	
   

  	
   

  	
  Illegality

  	
   

  	
  12

  
	
  15

  	
   

  	
   

  	
  Loss Reserve Funding

  	
   

  	
  12

  
	
  16

  	
   

  	
   

  	
  Compliance With
  California SB 2093

  	
   

  	
  16

  
	
  17

  	
   

  	
   

  	
  Taxes

  	
   

  	
  16

  
	
  18

  	
   

  	
   

  	
  Notice of Loss and Loss
  Settlements

  	
   

  	
  17

  
	
  19

  	
   

  	
   

  	
  Offset

  	
   

  	
  17

  
	
  20

  	
   

  	
   

  	
  Commutation

  	
   

  	
  18

  
	
  21

  	
   

  	
   

  	
  Extra Contractual
  Obligations / Loss in Excess of Policy Limits

  	
   

  	
  18

  
	
  22

  	
   

  	
   

  	
  Indemnification and
  Errors and Omissions

  	
   

  	
  19

  
	
  23

  	
   

  	
   

  	
  Access to Records

  	
   

  	
  20

  
	
  24

  	
   

  	
   

  	
  Confidentiality

  	
   

  	
  20

  
	
  25

  	
   

  	
   

  	
  Arbitration

  	
   

  	
  21

  
	
  26

  	
   

  	
   

  	
  Service of Suit

  	
   

  	
  23

  
	
  27

  	
   

  	
   

  	
  Insolvency

  	
   

  	
  24

  
	
  28

  	
   

  	
   

  	
  Agency

  	
   

  	
  25

  
	
  29

  	
   

  	
   

  	
  Governing Law

  	
   

  	
  25

  
	
  30

  	
   

  	
   

  	
  Entire Agreement

  	
   

  	
  25

  
	
  31

  	
   

  	
   

  	
  Intermediary

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
  Company Signing Block

  	
   

  	
  27

  

 

2

 

WORKERS’ COMPENSATION AND
EMPLOYER’S LIABILITY EXCESS OF LOSS REINSURANCE CONTRACT

 

This Contract is made and entered into by and between
the ZENITH INSURANCE COMPANY and ZNAT INSURANCE COMPANY, both of Woodland
Hills, California, and any and/or all of the subsidiary and/or affiliated
companies which are or may hereafter be under the management of the Company
(hereinafter together called the “Company”) and the Subscribing Reinsurer
specifically identified in the Interests and Liabilities Agreement attached to
and forming part of this Contract (hereinafter called the “Reinsurer”).

 

It is understood and agreed that whenever the term “Company”
is used in this Contract, such term shall be held to include any and/or all of
the subsidiary and/or affiliated companies which are or may hereafter be under
the management of the Company, provided, however, that prior notice be given to
the Reinsurer of any such subsidiary and/or affiliated companies which may
hereafter come under the management of the Company prior to any risk attaching
hereunder, with full particulars as to how such inclusion is likely to affect
this Contract. In the event of either party maintaining that such inclusion
calls for alteration in existing terms, and an agreement not being arrived at,
then the business of such included Company is covered only for a period of
sixty days after notice to the Company that the Reinsurer does not wish to
cover the business so included.

 

It is agreed that the rights and liabilities of the parties
hereto shall be determined as though any existing internal pooling agreements
or internal reinsurance arrangements among the companies included within the
definition of “Company,” or as they may be amended from time to time, were
non-existent.

 

ARTICLE 1

 

BUSINESS REINSURED

 

This Contract is to indemnify the Company in respect
of the net excess liability as a result of any loss or losses which may occur
during the term of this Contract under any Policies covering business
underwritten and classified by the Company as Workers’ Compensation and/or
Employer’s Liability, in force at the inception of this Contract, or written or
renewed during the term of this Contract by or on behalf of the Company,
subject to the terms and conditions herein contained.

 

It is understood and agreed that the indemnity
afforded by this Contract shall apply to each and every Loss Occurrence,
whether involving any one or any combination of the classes of business listed
in the preceding paragraph, regardless of the number of Policies under which
such loss is payable or the number of different interests insured.

 

3

 

ARTICLE 2

 

LIMIT AND RETENTION

 

The Reinsurer shall be liable in respect of each and
every Loss Occurrence, for 100% of the Ultimate Net Loss over and above an
initial Ultimate Net Loss of $5,000,000 each and every Loss Occurrence, subject
to a limit of liability to the Reinsurer of $5,000,000 each and every Loss
Occurrence.

 

With respect to losses arising from Acts of Terrorism,
as defined under paragraph A. of the DEFINITIONS ARTICLE, the Reinsurer’s
liability for all such Loss Occurrences occurring during the term of this
Contract shall not exceed $5,000,000.

 

The Reinsurer’s liability for all Loss Occurrences
occurring during the term of this Contract (including the run-off period, if
any) shall not exceed $25,000,000.

 

Should the Contract be terminated and rewritten
effective January 1, 2010, as provided for in the final paragraph of the
TERM ARTICLE, the Reinsurer’s liability for all Loss Occurrences occurring
during the period from May 1, 2009 to January 1, 2010 shall not
exceed $16,666,667.

 

ARTICLE 3

 

TERM

 

This Contract shall
become effective at 12:01 a.m., Pacific Standard Time, May 1, 2009,
and shall remain in full force and effect for one year, expiring 12:01 a.m.,
Pacific Standard Time, May 1, 2010.

 

Upon expiration of this
Contract, the entire liability of the Reinsurer for losses occurring subsequent
to expiration shall cease concurrently with the expiration.

 

If coverage under this
Contract shall terminate while a loss covered hereunder is in progress, it is
agreed that, subject to the other conditions of this Contract, the Reinsurer
shall be liable for its proportion of the entire loss resulting from such occurrence
for which the Company is liable up to the limit of this Contract, provided no
part of such loss is claimed against any renewal or replacement of this
Contract.

 

By providing 30 days
written notice prior to expiration, the Company may elect to terminate the
Reinsurer’s liability hereunder on a run-off basis.  In such event, the Reinsurer shall remain
liable hereunder in respect of Policies in force at expiration, until the
earlier of the expiration or next renewal of such Policies, but in no event longer
than 18 months from the date of the expiration of this Contract. The Company
shall pay to the Reinsurer an additional premium equal to the rate set forth in
the PREMIUM ARTICLE multiplied by the Gross Net Earned Premium Income during
the run-off period, payable within 30 days after the end of each quarter.

 

4

 

Additionally, at January 1, 2010 the Company
shall have the option to terminate and reissue the Contract effective January 1,
2010 to January 1, 2011, at terms to be agreed between the Company and the
Reinsurer.  If terms are not agreed
between the parties, this Contract shall continue in force until its natural
expiration date of May 1, 2010.

 

ARTICLE 4

 

SPECIAL TERMINATION

 

A.                       The Company may terminate a Subscribing
Reinsurer’s percentage share in this Contract at any time by giving written
notice to the Subscribing Reinsurer 30 days in advance of the effective date of
termination, in the event of any of the following circumstances:

 

1.                          The Subscribing Reinsurer ceases
underwriting operations.

 

2.                          A state insurance department or other
legal authority orders the Subscribing Reinsurer to cease writing business, or
the Subscribing Reinsurer is placed under regulatory supervision.

 

3.                          The Subscribing Reinsurer has become
insolvent or has been placed into liquidation or receivership (whether
voluntary or involuntary), or there have been instituted against it proceedings
for the appointment of a receiver, liquidator, rehabilitator, conservator,
trustee in bankruptcy, or other agent known by whatever name, to take
possession of its assets or control of its operations.

 

4.                          The Subscribing Reinsurer’s policyholders’
surplus (or the equivalent under the Subscribing Reinsurer’s accounting system)
as reported in such financial statements of the Subscribing Reinsurer as
designated by the Company, has been reduced by 30% of the amount thereof at any
date during the prior 12 month period (including the period prior to the
inception of this Contract).

 

5.                          The Subscribing Reinsurer has merged with
or has become acquired or controlled by any company, corporation, or individual(s) not
controlling the Subscribing Reinsurer’s operations at the inception of this
Contract.

 

6.                          The Subscribing Reinsurer has retroceded
its entire liability under this Contract without the Company’s prior written
consent.

 

7.                          The Subscribing Reinsurer has been
assigned an A.M. Best’s rating of less than “A-” and/or an S&P rating
of less than “BBB+.” However, as respects Underwriting Members of Lloyd’s,
London, a Lloyd’s Market Rating of less than “A-” by A. M. Best and/or less
than “BBB+” by S&P shall apply.

 

B.                         The Subscribing
Reinsurer shall have no liability for Loss Occurrences commencing after
termination. The reinsurance premium due the Subscribing Reinsurer hereunder
(including any minimum reinsurance premium) shall be pro rated based on the
period of the 

 

5

 

Subscribing
Reinsurer’s participation hereon, and the Subscribing Reinsurer shall immediately
return any excess reinsurance premium received.

 

ARTICLE 5

 

TERRITORY

 

This Contract will cover wherever the Company’s
Policies cover.

 

ARTICLE 6

 

WARRANTIES

 

It is warranted for the purposes of this Contract
that:

 

A.                       The maximum amount which any one claimant
can contribute to the Ultimate Net Loss from any one Loss Occurrence is
$7,500,000, or so deemed.  The maximum
any one life is to be calculated from the “ground up,” not within the layer.

 

B.                         As respects Employer’s Liability, the
Company’s maximum Policy limit shall be $2,000,000, or so deemed.

 

Any losses which include Extra Contractual Obligations
and/or Loss in Excess of Policy Limits amounts shall be recoverable hereunder
without regard to the application of Warranty A. above.

 

ARTICLE 7

 

EXCLUSIONS

 

This Contract does not cover:

 

A.                       Excess insurance.

 

B.                         Assumed reinsurance, except fronted
business which is substantially reinsured by the Company.

 

C.                         In respect of any Policy issued or
reinsured by the Company to cover the following occupations or employments,
except when such occupations or employments are incidental to and form a minor
part of the usual occupation or employment of the insured:

 

1.                          Working and navigation of any vessel,
other than light craft on inland waterways and dredging.

 

6

 

2.                          Manufacture, storage, filling, breaking
down, or transport of

 

a.                           Fireworks, ammunition, fuse, cartridges,
powder, nitroglycerine or any explosive.

 

b.                          Gasses and/or air under pressure in
containers (but this exclusion shall not apply to the storage or distribution
of liquid petroleum gas by wholesale or retail dealers).

 

3.                          Underground coal mines.

 

4.                          Manufacture of celluloid and pyroxylin.

 

5.                          Erection of structural iron and/or steel
works, unless in conjunction with ordinary construction of buildings.  Except that this exclusion shall not apply to
insureds engaged in steel work where such steel work erection is not beyond
twelve stories in height.

 

6.                          Contractors doing building wrecking
exclusively.

 

7.                          Tunneling.

 

8.                          Tower, steeple and chimney shaft work.

 

9.                          Operation of dry docks, docks, quays, and
wharves.  USL&H exposures are deemed
to be incidental so long as USL&H Gross Net Earned Premium Income (GNEPI)
does not exceed 10% of the Company’s total subject GNEPI.

 

10.                    Construction and maintenance of coffer
dams.

 

11.                    Subaqueous construction and/or other
subaqueous work.

 

12.                    Oil tanks and/or refining works.

 

13.                    Aviation risks involving flying risks,
commercial airlines and airline crews. This exclusion does not apply to any “ground”
personnel.

 

14.                    Operations involving atomic energy and
nuclear fission.

 

15.                    Operations of a carrier by rail.

 

In connection with those
occupations or employments enumerated under Item C. above, if the Company,
without the knowledge of and contrary to the instructions of its head office,
is bound or is unknowingly exposed on a risk falling otherwise within one of
the exclusions set forth, such risk is covered until the Company’s head office
receives knowledge thereof and, pending cancellation of such risk by the
Company, for a further period of 30 days after receipt of such knowledge by the
head office of the Company.

 

7

 

Where Policies are issued
by the Company through its membership of or participation in an assigned risk
plan or similar facility which involves occupations or employments prohibited
under Item C. above, such Policies are not excluded under this Contract.

 

D.                        In respect of any Policy issued or
reinsured by the Company to cover occupations or employments directly related
to Professional Sports Teams.

 

E.                          Liability of the Company arising, by
Contract, operation of law, or otherwise, from its participation or membership,
whether voluntary or involuntary, in any insolvency fund.  “Insolvency Fund” includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed; which provides for any assessment of or
payment or assumption by the Company of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent, or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.

 

F.                          A Loss Occurrence arising directly out
of:

 

1.                          War.

 

2.                          Nuclear Incidents, other than related to
an Act of Terrorism as defined in paragraph A. of the DEFINITIONS ARTICLE.

 

G.                         A Loss Occurrence arising from:

 

1.                          Federal Employers Liability Act business,
except incidental.

 

2.                          Jones Act business, except incidental.

 

ARTICLE 8

 

SPECIAL ACCEPTANCE

 

Business that is not within the scope of this Contract
may be submitted to the Reinsurer for special acceptance hereunder, and such
business, if accepted by the Reinsurer shall be covered hereunder, subject to
the terms and conditions of this Contract, except as modified by the special
acceptance. The Reinsurer shall be deemed to have accepted a risk if it has not
responded within 3 days after receiving the underwriting information on such
risk.

 

ARTICLE 9

 

PREMIUM

 

A.                       The Company shall pay the Reinsurer a
deposit premium of $5,000,000 for the term of this Contract, to be paid in the
amount of $1,250,000 on May 1, 2009, August 1, 2009, November 1,
2009 and February 1, 2010.

 

8

 

B.                         As soon as practicable following the
expiration of this Contract, the Company shall forward to the Reinsurer a
statement of its Gross Net Earned Premium Income for the term of this Contract,
and the reinsurance premium shall be adjusted at a rate of 0.95% multiplied by
the Company’s Gross Net Earned Premium Income. Should the premium so calculated
exceed the deposit premium paid in accordance with Paragraph A. above, the
Company will promptly pay the Reinsurer the difference. Should the premium so
calculated be less than the deposit premium, the Reinsurer will promptly refund
to the Company the difference, subject to a minimum premium of $4,000,000.

 

The term “Gross Net
Earned Premium Income” as used in this Contract shall mean the gross earned
premium income of the Company for the business covered by this Contract, less
premiums paid for reinsurances, recoveries under which would inure to the
benefit of this Contract.

 

ARTICLE 10

 

DEFINITIONS

 

A.                       The term “Act of Terrorism” as used in
this Contract shall mean any act that is certified by the Secretary of the
Treasury, in concurrence with the Secretary of State and the Attorney General
of the United States, to be an act of terrorism, as provided in TRIA, including
loss, damage, cost or expense directly or indirectly caused by, contributed to
by, resulting from, or arising out of or in connection with nuclear,
biological, chemical or radiological explosion, pollution and contamination as
a result of such act.

 

1.                          This definition does not apply when a
cause or event other than an “Act of Terrorism” is the principal contributing
factor to the loss, injury, damage, expense, cost, or legal obligation.

 

2.                          This definition does not apply to
strikes, riots, civil commotion or malicious mischief.

 

B.                         The term “Loss Occurrence” as used in
this Contract shall mean any one disaster or casualty or accident or loss or
series of disasters or casualties or accidents or losses arising out of or
caused by one event.  As respects a Loss Occurrence involving
Occupational Disease or Other Disease or Cumulative Trauma, the following shall
apply:

 

1.                          Per Employee
Coverage.  As respects
losses arising from Occupational Disease or Other Disease or Cumulative Trauma
suffered by a single employee, such Occupational Disease or Other Disease or
Cumulative Trauma shall be deemed a separate Loss Occurrence.  The date of loss shall be determined as
follows:

 

a.                           If the case is
compensable under the Workers’ Compensation Law, the date of the beginning of
the disability for which compensation is payable.

 

b.                          If the case is not
compensable under the Workers’ Compensation Law, the date that disability due
to said disease actually began.

 

9

 

c.                           If the claim is
made after employment has ceased, the date of cessation of such employment.

 

2.                          Per Event Coverage.  As respects losses arising from Occupational
Disease or Other Disease, regardless of the specific kind or class, suffered by
employees of one or more employers, all such losses sustained by the Company
from one event not exceeding 48 hours in duration shall, together with losses
not classified as Occupational Disease or Other Disease, be deemed to be a
single “Loss Occurrence.”

 

3.                          “Occupational Disease or Other Disease”
and “Cumulative Trauma” shall be defined by
applicable state or federal statutes, regulations or case law.

 

C.                         The term “Ultimate Net Loss” as used in
this Contract shall mean the actual loss paid by the Company or for which the
Company becomes liable to pay, such loss to include 90% of any Extra
Contractual Obligation (and expense) and 90% of any Loss in Excess of Policy
Limits as defined in the EXTRA CONTRACTUAL OBLIGATIONS / LOSS IN EXCESS OF
POLICY LIMITS ARTICLE, expenses of litigation and interest, claim-specific
declaratory judgment expenses, and all other loss expense of the Company
including subrogation, salvage, and recovery expenses (office expenses and
salaries of officials and employees not classified as loss adjusters are not
chargeable as expenses for purposes of this paragraph), but salvages and all
recoveries (including amounts due from all reinsurances that inure to the
benefit of this Contract, whether recovered or not), shall be first deducted
from such loss to arrive at the amount of liability attaching hereunder.

 

All salvages, recoveries
or payments recovered or received subsequent to loss settlement hereunder shall
be applied as if recovered or received prior to the aforesaid settlement, and
all necessary adjustments shall be made by the parties hereto.

 

The Company is permitted
to carry underlying quota share and excess of loss reinsurance, recoveries
under which shall inure to the Company’s sole benefit and shall be disregarded
for all purposes hereof.

 

For purposes of this
definition, the phrase “becomes liable to pay” shall mean the existence of a
judgment which the Company does not intend to appeal, or a release has been
obtained by the Company, or the Company has accepted a proof of loss.

 

The phrase “claim-specific
declaratory judgment expenses,” as used in this Contract will mean all expenses
incurred by the Company in connection with declaratory judgment actions brought
to determine the Company’s defense and/or indemnification obligations that are
allocable to specific Policies and claims subject to this Contract. Declaratory
judgment expenses will be deemed to have been incurred by the Company on the date
of the original loss (if any) giving rise to the declaratory judgment action.

 

Nothing in this clause
shall be construed to mean that losses are not recoverable hereunder until the
Company’s Ultimate Net Loss has been ascertained.

 

10

 

D.                        The term “Policy” as used in this
Contract shall mean any binder, policy, or contract of insurance issued,
accepted or held covered provisionally or otherwise, by or on behalf of the
Company.

 

ARTICLE 11

 

NET RETAINED LINES

 

This Contract applies only to that portion of any
insurance which the Company retains net for its own account and in calculating
the amount of any loss hereunder and also in computing the amount or amounts
excess of which this Contract attaches, only loss or losses in respect of that
portion of any insurance which the Company retains net for its own account,
disregarding any reinsurance that the Company designates as inuring to the
Company’s sole benefit, shall be included.

 

The amount of the Reinsurer’s liability hereunder in
respect of any loss or losses shall not be increased by reason of the inability
of the Company to collect from any other reinsurers, whether specific or
general, any amounts which may have become due from them whether such inability
arises from the insolvency of such other Reinsurers or otherwise.

 

ARTICLE 12

 

LIABILITY OF REINSURER

 

The liability of the Reinsurer shall follow that of
the Company in every case and shall be subject in all respects to all the
general and special stipulations, clauses, waivers and modifications of the
Company’s Policy or Policies and any endorsements thereon.

 

The Company shall be the sole judge as to what shall
constitute a claim or loss covered under the Company’s original Policy and as
to the Company’s liability thereunder and as to the amount or amounts which it
shall be proper for the Company to pay thereunder; and the Reinsurer shall be
bound by the judgment of the Company as to the liability and obligation of the
Company under its original Policies, subject to the terms and conditions of
this Contract and the Company’s Policies.

 

Nothing herein shall in any manner create any
obligations or establish any rights against the Reinsurer in favor of any third
parties or any persons not parties to this Contract.

 

ARTICLE 13

 

CURRENCY

 

A.                       Where the word “Dollars” and/or the sign “$”
appear in this Contract, they shall mean United States Dollars.

 

11

 

B.                         For purposes of this Contract, where the
Company receives premiums or pays losses in currencies other than United States
Dollars, such premiums or losses shall be converted into United States Dollars
at the actual rates of exchange at which these premiums or losses are entered
in the Company’s books.

 

ARTICLE 14

 

ILLEGALITY

 

If any law or regulation of the Federal or State or
Local Government of any jurisdiction in which the Company is doing business
shall render illegal the arrangements made in this Contract, the Contract can
be terminated immediately, insofar as it applies to such jurisdiction, by the
Company giving notice to the Reinsurer to such effect.

 

ARTICLE 15

 

LOSS RESERVE FUNDING

 

Section 15.1  
Reinsurance Credit

 

(a)                      This clause is applicable to those
Reinsurers who cannot qualify for credit by the states having jurisdiction over
the Company’s loss reserves.

 

(b)                     As regards Policies or bonds issued by
the Company coming within the scope of this Contract, the Company agrees that
when it shall file with the insurance regulatory authorities having jurisdiction
over the Company’s reserves or set up on its books reserves for losses covered
hereunder which it shall be required to set up by law it will forward to the
Reinsurer a statement showing the proportion of such loss reserves which is
applicable to it.

 

(c)                      The Reinsurer hereby agrees that it will
provide to the Company via funds withheld, cash advances, Trust Agreement, or a
clean, irrevocable and unconditional Letter of Credit, an amount equal to the
Reinsurer’s proportion of the loss reserves in respect of known outstanding
losses that have been reported to the Reinsurer, allocated loss expenses
relating thereto, losses and loss expenses paid by the Company but not
recovered from the Reinsurer and Incurred But Not Reported loss and loss
expense as shown in the statement prepared by the Company (collectively, the “Statutory
Reserves”).

 

Section 15.2   Letters of Credit

 

 (a)                   In the event that the Reinsurer elects to comply with
the provisions of this Section 15.1 by providing a Letter of Credit for
the benefit of the Company, the provisions of this Section 15.2 shall
apply.  In such event, the Reinsurer
shall apply for and secure delivery to the Company, and thereafter maintain,
one or more clean, irrevocable and unconditional Letters of Credit in an amount
equal to the Statutory Reserves.  The
Letter of Credit shall 

 

12

 

be issued by a bank and
in a form acceptable to the Insurance Department of the State of California and
other applicable insurance regulators.

 

(b)                     Each of the Company and the Reinsurer
agree that the Letters of Credit provided by the Reinsurer under this provision
may be drawn upon at any time, notwithstanding any other provisions in this
Contract, and be utilized by the Company or any successor by operation of law
of the Company including, without limitation, any liquidator, rehabilitator,
receiver of conservator of the Company for the following purposes:

 

(i)                        to pay or reimburse the Company for the
Reinsurer’s share of premiums returned, but not yet recovered from the
Reinsurer, to the owners of the Policies on account of cancellation of such
Policies;

 

(ii)                     to pay or reimburse the Company for the
Reinsurer’s share of surrenders and benefits or losses paid by the Company, but
not yet recovered from the Reinsurer, under the terms and provisions of the
Policies;

 

(iii)                  to pay or reimburse the Company for any other amounts necessary to
secure the credit or reduction from liability for reinsurance taken by the
Company; and

 

(iv)                 to secure payment of the Reinsurer’s
obligations where a Letter of Credit will expire without renewal or be reduced
or replaced by a Letter of Credit for a reduced amount and where the Reinsurer’s
obligations under this Contract remain unliquidated and undischarged ten (10) days
prior to the expiration date, by withdrawing amounts equal to the Reinsurer’s
share of liabilities, to the extent the liabilities have not yet been funded by
the Reinsurer and exceed the amount of any reduced or replacement letter of
credit, and depositing those amounts in a separate account in the name of the
Company in a qualified United States financial institution as defined in
California Insurance Code Section 922.7(b) apart from its general
assets, in trust for such uses and purposes as specified in clauses (i) through
(iii) above as may remain after withdrawal.

 

(c)                      All of the foregoing should be applied
without diminution because of insolvency on the part of any of the Company or
the Reinsurer.

 

(d)                     In the event the Company draws upon any
Letter of Credit for the purposes set forth in subsection 15.2(b) in
excess of the actual amounts that are subsequently determined to be due, the
Company will return such excess to the Reinsurer, plus interest at the U.S.
Prime Rate as published in the Eastern Edition of The Wall
Street Journal applicable to the period during which the amounts
were held pursuant to subsection 15.2(b).

 

(e)                      Upon the termination of this Contract or
the replacement or cancellation of any Letter of Credit, the Company shall
provide its approval of the cancellation of the Letter of Credit.

 

13

 

Section 15.3 
Trust Fund

 

(a)                      In the event that the Reinsurer elects to
comply with the provisions of Section 15.1 by providing a trust account
for the benefit of the Company, the provisions of this Section 15.3 shall
apply.  In such event, the Reinsurer shall
enter into a trust agreement (the “Trust Agreement”) and establish a trust
account (the “Trust Account”) for the benefit of the Company with a bank (the “Trustee”)
acceptable to the Insurance Department of the State of California and other
applicable insurance regulators.

 

(b)                     The Reinsurer agrees to deposit, and
maintain in the Trust Account, assets equal to the Statutory Reserves to be
held in trust by the Trustee for the benefit of the Company as security for the
payment of the Reinsurer’s obligations to the Company under this Contract.

 

(c)                      The Reinsurer and the Company agree that
the assets so deposited in the Trust Account shall be valued according to their
current fair market value and shall consist only of cash (United States
dollars), certificates of deposit (issued by a United States financial
institution as defined in California Insurance Code Section 922.7(a) and
payable in United States dollars), and investments permitted by the California
Insurance Code, or any combination of the above (“Eligible Securities”);
provided that investments in or issued by an entity controlling, controlled by
or under common control with either the Company or the Reinsurer shall not
exceed five percent (5%) of total investments.

 

(d)                     The Reinsurer, prior to depositing assets
with the Trustee, shall execute all assignments and endorsements in blank, or
transfer legal title to the Trustee of all shares, obligations or any other
assets requiring assignments, in order that the Company, or the Trustee upon
direction of the Company, may whenever necessary negotiate any such assets
without consent or signature from the Reinsurer or any other entity.

 

(e)                      All settlements of account under the
Trust Agreement between the Company and the Reinsurer shall be made in cash or
its equivalent.

 

(f)                        The Reinsurer and the Company agree that
the assets held in the Trust Account may be withdrawn by the Company at any
time, notwithstanding any other provisions in this Contract, provided such
assets are applied and utilized by the Company (or any successor of the Company
by operation of law, including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the Company), without diminution
because of the insolvency of the Company or the Reinsurer, only for the following
purposes:

 

(i)                        to pay or reimburse the Company for the
Reinsurer’s share regarding any losses and allocated loss expenses paid by the
Company, but not recovered from the Reinsurer, or for unearned premiums due to
the Company if not otherwise paid by the Reinsurer;

 

(ii)                     to make payment to the Reinsurer of any
amounts held in the Trust Account that exceed one hundred and two percent
(102%) of the actual amount required to fund the Reinsurer’s obligations under
this Contract;

 

14

 

(iii)                  to pay any other amounts necessary to secure the credit or deduction
from liability for reinsurance taken by the Company; or

 

(iv)                 where the Company has received
notification of termination of the Trust Account and where any of the Reinsurer’s
obligations under this Agreement remain unliquidated and undischarged ten (10) days
prior to the termination date, to withdraw amounts equal to the obligations and
deposit those amounts in a separate account in the name of the Company in any
qualified United States financial institution as defined in Section 922.7(b) apart
from its general assets, in trust for such uses and purposes specified in
clauses (i) and (ii) of this section as may remain executory after
such withdrawal and for any period after the termination date.

 

(g)                     The Reinsurer shall have the right to
seek the Company’ approval to withdraw all or any part of the assets from the
Trust Account and transfer such assets to the Reinsurer; provided that:

 

(i)                        the Reinsurer shall, at the time of
withdrawal, replace the withdrawn assets with Eligible Securities having a
market value equal to the market value of the assets withdrawn, so as to
maintain at all times the assets in the Trust Account in an amount equal to the
Statutory Reserves, or

 

(ii)                     after such withdrawal and transfer, the
market value of the assets in the Trust Account is no less than 102% of the
Statutory Reserves.  In the event that
the Reinsurer seeks the Company’s approval hereunder, the Company shall be the
sole judge as to the application of this provision, but shall not unreasonably
or arbitrarily withhold its approval.

 

(h)                     In the event that any of the Company
withdraws the assets from the Trust Account for the purposes set forth in Section 15.3(f) above
in excess of actual amounts subsequently determined to be due, the Company will
return such excess to the Reinsurer, plus interest at the U.S. Prime Rate as
published in the Eastern Edition of The Wall Street Journal
applicable to the period during which the amounts were held pursuant to
subsection 15.3(f).

 

Section 15.4   General Funding Provisions

 

(a)                      The financial institution chosen for the
issuance of the funding instrument shall have no responsibility whatsoever in
connection with the propriety of withdrawals made by the Company or the
disposition of funds withdrawn, except to ensure that withdrawals are made only
upon the order of properly authorized representatives of the Company.

 

(b)                     At annual intervals, or more frequently
as required by the Company, the Company shall prepare a specific statement, for
the sole purpose of amending the funding instrument, of the Statutory
Reserves.  If the statement shows that
the Statutory Reserves exceeds the balance of funding as of the statement date,
the Reinsurer shall, within 30 days after receipt of notice of such excess,
increase the amount of funding by the amount of such difference.  If, however, the statement shows that the
balance of funding as of the statement date exceeds the Statutory Reserves (or
102% of the Statutory Reserves if funding is provided 

 

15

 

by a Trust Agreement), the Company shall, within 30
days after receipt of written request from the Reinsurer, release such excess
by agreeing to reduce the amount of funding available by the amount of such
excess.

 

ARTICLE 16

 

COMPLIANCE WITH CALIFORNIA SB 2093

 

Any Reinsurer that has gained admission to transact
Workers’ Compensation reinsurance business in the State of California, or that
is reinsuring the injury, disablement, or death portions of Policies of Workers’
Compensation insurance in the State of California under the class of disability
insurance, shall comply with all applicable provisions of California
SB 2093 (California Insurance Code §§11690-11703, revised).  In the event of a delinquency proceeding,
receivership or insolvency of the Company, the Insurance Commissioner of the
State of California (the “Commissioner”) shall have the right to draw on any
sums from the Reinsurer’s deposit that are necessary for the Commissioner to
pay those reinsured claims and obligations, or to ensure their payment by the
California Insurance Guarantee Association, deemed by the Commissioner due
under this Contract, upon failure of the Reinsurer for any reason to make
payments under this Contract.  The
Commissioner shall give 30 days’ notice prior to drawing upon these funds of an
intent to do so.  Notwithstanding the
Commissioner’s right to draw on these funds, the Reinsurer shall otherwise
retain its right to determine the validity of those claims and obligations and
to contest their payment under this Contract. 
Prior to a Reinsurer’s deposit being drawn upon, in whole or in part,
the Insurance Department of the State of California (the “Department”) shall
provide the Reinsurer with an explanation of procedures that the Reinsurer may
use to explain to the Department why the use of the Reinsurer’s deposit may not
be appropriate under this Contract.

 

ARTICLE 17

 

TAXES

 

A.                       In consideration of the terms under which
this Contract is issued, the Company undertakes not to claim any deduction of
the premium hereon when making Canadian tax returns or when making tax returns,
other than Income or Profits Tax returns, to any state or territory of the
United States of America or to the District of Columbia.

 

B.        1.         The Reinsurer has agreed to allow, for
the purpose of paying the Federal Excise Tax, the applicable percentage of the
premium payable hereon (as imposed under the Internal Revenue Code) to the
extent such premium is subject to Federal Excise Tax.

 

2.                          In the event of
any return of premium becoming due hereunder, the Reinsurer shall deduct the
applicable percentage of the premium from the amount of the return, and the
Company or its agent should take steps to recover the Tax from the United
States Government.

 

16

 

ARTICLE 18

 

NOTICE OF LOSS AND LOSS SETTLEMENTS

 

The Company will advise the Reinsurer promptly of all
claims which in the opinion of the Company may involve the Reinsurer and of all
subsequent developments on these claims which may materially affect the
position of the Reinsurer.

 

In addition, the Company shall promptly advise the
Reinsurer of all bodily injury claims or losses involving any of the following:

 

1.                           Multiple
fatalities.

 

2.                           Paraplegia or more
extensive paralysis.

 

3.                           Severe brain injury
or severe brain damage prognosis.

 

4.                           Severe burn
injuries resulting in disfigurement or scarring.

 

The Reinsurer agrees to abide by the loss settlements
of the Company, provided that retroactive extension of Policy terms or
coverages made voluntarily by the Company and not in response to court
decisions (whether such court decision is against the Company or other
companies affording the same or similar coverages) will not be covered under
this Contract.

 

When so requested the Company will afford the
Reinsurer an opportunity to be associated with the Company, at the expense of
the Reinsurer, in the defense of any claim or suit or proceeding involving this
Contract and the Company will cooperate with the Reinsurer in the defense of
such claim, suit or proceeding.

 

The Reinsurer will pay its share of loss settlements
promptly upon receipt of proof of loss that is reasonably satisfactory to the
Reinsurer.

 

ARTICLE 19

 

OFFSET

 

Each party hereto shall
have, and may exercise at any time and from time to time, the right to offset
any balance or balances under this Contract, whether on account of premiums or
on account of losses or otherwise, due from each party to the other (or, if more
than one, any other) party hereto. 
However, that in the event of the insolvency of a party hereto, offsets
shall only be allowed in accordance with the provisions of Section 7427 of
the Insurance Law of the State of New York and the Insurance Law of the State
of California.

 

17

 

ARTICLE 20

 

COMMUTATION

 

A.                       Either the Reinsurer or the Company may
request commutation of that portion of any excess loss hereunder represented by
any outstanding claim or claims after 120 months from the date of an
occurrence.  If both parties desire to
commute a claim or claims, then within 60 days after such agreement, the
Company shall submit a statement of valuation of the outstanding claim or
claims showing the elements considered reasonable to establish the Ultimate Net
Loss and the Reinsurer shall pay the amount requested.

 

B.                         If agreement, as outlined in the
paragraph above, cannot be reached, the effort can be abandoned or alternately
the Company and the Reinsurer may mutually appoint an actuary or appraiser to
investigate, determine and capitalize such claim or claims.  If both parties then agree, the Reinsurer
shall pay its proportion of the amount so determined to be the capitalized
value of such claim or claims.

 

C.                         If the parties, as outlined in the
paragraphs above, fail to agree, they may abandon the effort or they may agree
to settle any difference using a panel of three actuaries, one to be chosen by
each party and the third by the two so chosen. 
If either party refuses or neglects to appoint an actuary within 30
days, the other party may appoint two actuaries.  If the two actuaries fail to agree on the
selection of a third actuary within 30 days of their appointment, each of them
shall name two, of whom the other shall decline one and the decision shall be
made by drawing lots.  All the actuaries
shall be regularly engaged in the valuation of Workers’ Compensation claims and
shall be Fellows of the Casualty Actuarial Society or of the American Academy
of Actuaries.  None of the actuaries
shall be under the control of either party to this Contract.

 

D.                        Each party shall submit its case to its
actuary within 30 days of the appointment of the third actuary.  The decision in writing of any two actuaries,
when filed with the parties hereto, shall be final and binding on both parties.
The expense of the actuaries and of the commutation shall be equally divided
between the two parties.  Said
commutation shall take place in Woodland Hills, California, unless some other
place is mutually agreed upon by the Company and the Reinsurer.

 

E.                          Payment by the Reinsurer of their
proportion of the amount or amounts, so mutually agreed, shall constitute a
complete and final release of the Reinsurer of all claims, both reported and
unreported.

 

ARTICLE 21

 

EXTRA CONTRACTUAL OBLIGATIONS / LOSS IN EXCESS OF POLICY LIMITS

 

A.                       This Contract shall
cover Extra Contractual Obligations, as provided in the definition of Ultimate
Net Loss.  “Extra Contractual Obligations”
shall be defined as those liabilities not covered under any other provision of
this Contract and that arise from the handling of any 

 

18

 

claim
on business covered hereunder, such liabilities arising because of, but not
limited to, the following:  failure by
the Company to settle within the Policy limit, or by reason of alleged or
actual negligence, fraud or bad faith in rejecting an offer of settlement or in
the preparation of the defense or in the trial of any action against its insured
or reinsured or in the preparation or prosecution of an appeal consequent upon
such action.

 

B.                         This Contract shall
cover Loss in Excess of Policy Limits, as provided in the definition of
Ultimate Net Loss.  “Loss in Excess of
Policy Limits” shall be defined as Loss in excess of the Policy limit, having
been incurred because of, but not limited to, failure by the Company to settle
within the Policy limit or by reason of alleged or actual negligence, fraud or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or reinsured or in
the preparation or prosecution of an appeal consequent upon such action.

 

C.                         An Extra
Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed
to have occurred on the same date as the loss covered under the Company’s
Policy, and shall constitute part of the original loss.

 

D.                        For the purposes of
the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall
mean any amounts for which the Company would have been contractually liable to
pay had it not been for the limit of the original Policy.

 

E.                          Loss adjustment
expense in respect of Extra Contractual Obligations and/or Loss in Excess of
Policy Limits shall be covered hereunder in the same manner as other loss
adjustment expense.

 

F.                          However, this Article shall not
apply where the loss has been incurred due to final legal adjudication of fraud
of a member of the Board of Directors or a corporate officer of the Company acting
individually or collectively or in collusion with any individual or corporation
or any other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.

 

G.                         In no event shall
coverage be provided to the extent not permitted under law.

 

ARTICLE 22

 

INDEMNIFICATION AND ERRORS AND
OMISSIONS

 

A.                       The Reinsurer
is reinsuring, to the amount herein provided, the obligations of the Company
under any original insurance.  The
Company shall be the sole judge as to:

 

1.                          what shall
constitute a claim or loss covered under any original insurance written by the
Company;

 

2.                          the Company’s
liability thereunder;

 

3.                          the amount or
amounts that it shall be proper for the Company to pay thereunder.

 

19

 

B.                         The Reinsurer
shall be bound by the judgment of the Company as to the obligation(s) and
liability(ies) of the Company under any original insurance.

 

C.                         Any inadvertent
error, omission or delay in complying with the terms and conditions of this
Contract shall not be held to relieve either party hereto from any liability
that would attach to it hereunder if such error, omission or delay had not been
made, provided such error, omission or delay is rectified immediately upon
discovery.

 

D.                        In the case of
exposures not within the terms and conditions hereof, the obligation of the
Reinsurer shall be limited to return of any premium paid hereon for such
exposure.

 

ARTICLE 23

 

ACCESS TO RECORDS

 

Provided that the Reinsurer shall give prior written
notice of their desire to obtain information, the Company shall place at the
disposal of the Reinsurer, and the Reinsurer, or its authorized representative,
shall have the right to inspect, at all reasonable times during the currency of
this Contract and thereafter, the books, records and papers of the Company
pertaining to the reinsurance provided hereunder. Notwithstanding the above,
the Reinsurer shall not have any right of access to such books, records and
papers of the Company if it is not current in all undisputed payments due the
Company.

 

ARTICLE 24

 

CONFIDENTIALITY

 

A.                       The Reinsurer hereby acknowledges that
the documents, information and data provided to it by the Company, whether
directly or through an authorized agent, in connection with the placement and
execution of this Contract (“Confidential Information”) are proprietary and
confidential to the Company. Confidential Information shall not include
documents, information or data that the Reinsurer can show:

 

1.                          are publicly known or have become
publicly known through no unauthorized act of the Reinsurer;

 

2.                          have been rightfully received from a
third person without obligation of confidentiality; or

 

3.                          were known by the Reinsurer prior to the
placement of this Contract without an obligation of confidentiality.

 

B.                         Absent the written consent of the
Company, the Reinsurer shall not disclose any Confidential Information to any
third parties, including any affiliated companies (except to the extent
necessary to enable affiliated companies or third parties engaged by the
Reinsurer to perform services related to this Contract on behalf of the
Reinsurer), except:

 

20

 

1.                          when required by retrocessionaires
subject to the business ceded to this Contract;

 

2.                          when required by regulators performing an audit of the Reinsurer’s
records and/or financial condition;

 

3.                          when required by external auditors
performing an audit of the Reinsurer’s records in the normal course of
business.

 

4.                          when required by attorneys or arbitrators
in connection with an actual or potential dispute hereunder; or

 

5.                          when required for the Reinsurer to
perform its obligations or enforce its rights under this Contract.

 

Further, the Reinsurer
agrees not to use any Confidential Information for any purpose not related to
the performance of its obligations or enforcement of its rights under this
Contract.

 

C.                         Notwithstanding the above, in the event
that the Reinsurer is required by court order, other legal process or any
regulatory authority to release or disclose any or all of the Confidential
Information, the Reinsurer agrees to provide the Company with written notice of
same at least 10 days or as soon as practicable prior to such release or
disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this
Article provided that such action would not be in violation of any law,
regulation or order.

 

D.                        The provisions of this Article shall
extend to the officers, directors and employees of the Reinsurer and its
affiliates, and shall be binding upon their successors and assigns.

 

ARTICLE 25

 

ARBITRATION

 

A.                       Any dispute arising out of the
interpretation, performance or breach of this Contract, including the formation
or validity thereof, shall be submitted for decision to a panel of three
arbitrators.  Notice requesting
arbitration shall be in writing and sent certified or registered mail, return
receipt requested.

 

B.                         One arbitrator shall be chosen by each
party and the two arbitrators shall then choose an impartial third arbitrator
who shall preside at the hearing.  If
either party fails to appoint its arbitrator within 30 days after being
requested to do so by the other party, the latter, after 10 days’ prior notice
by certified or registered mail of its intention to do so, may appoint the
second arbitrator.

 

C.                         If the two arbitrators do not agree on a
third arbitrator within 60 days of their appointment, the third arbitrator
shall be chosen in accordance with the procedures for selecting the third
arbitrator in force on the date the arbitration is demanded, established by the
AIDA Reinsurance and Insurance Arbitration Society — U.S. (ARIAS).  The arbitrators shall be 

 

21

 

persons knowledgeable about
insurance and reinsurance who have no personal or financial interest in the
result of the arbitration.  If a member
of the panel dies, becomes disabled or is otherwise unwilling or unable to
serve, a substitute shall be selected in the same manner as the departing
member was chosen and the arbitration shall continue.

 

D.                        Within 30 days after all arbitrators have
been appointed, the panel shall meet and determine timely periods for briefs,
discovery procedures and schedules of hearings.

 

E.                          The panel shall be relieved of all
judicial formality and shall not be bound by the strict rules of procedure
and evidence.  Notwithstanding anything
to the contrary in this Contract, the arbitrators may at their discretion,
request and consider underwriting and placement information provided by the
Company to the Reinsurer, as well as any correspondence exchanged by the
parties that is related to this Contract. 
The arbitration shall take place in Woodland Hills, California, or at
such other place as the parties shall agree. The decision of any two
arbitrators shall be in writing and shall be final and binding. The panel is
empowered to grant interim relief as it may deem appropriate.

 

F.                          The panel shall interpret this Contract
as an honorable engagement rather than as merely a legal obligation and shall
make its decision considering the custom and practice of the applicable
insurance and reinsurance business as promptly as possible after the
hearings.  Judgment upon an award may be
entered in any court having jurisdiction thereof.

 

G.                         Each party shall bear the expense of its
own arbitrator and shall jointly and equally bear with the other party the cost
of the third arbitrator.  The remaining
costs of the arbitration shall be allocated by the panel.  The panel may, at its discretion, award such
further costs and expenses as it considers appropriate, including but not
limited to attorneys’ fees, to the extent permitted by law.

 

H.                        At the Company’s
option, if more than one Subscribing Reinsurer is involved in arbitration relating
to this Contract, where there are common questions of law or fact and a
possibility of conflicting awards or inconsistent results, all such Subscribing
Reinsurers shall constitute and act as one party for purposes of this Article and
communications shall be made by the Company to each of the Subscribing
Reinsurers constituting the one party. 
However, the Subscribing Reinsurers shall have the right to assert
several, rather than joint defenses or claims, and to be represented by
separate counsel.

 

I.                             If any
Subscribing Reinsurer has subscribed to other reinsurance agreements with the
Company, under which a dispute has arisen where there are common questions of
law or fact with the dispute being arbitrated under this Contract, and a
possibility of conflicting awards or inconsistent results, then the Subscribing
Reinsurer, at the Company’s request, shall arbitrate all such reinsurance
disputes involving the same loss in one consolidated proceeding, subject to the
provisions of this Article.  The provisions
of this Article shall govern any arbitration involving multiple agreements
between the Company and Subscribing Reinsurer, regardless of whether the other
agreement(s) was entered into before or after the effective date of this
Contract.

 

22

 

J.                            If more than
one of the Subscribing Reinsurers are involved in an arbitration as respondent,
the time for the appointment of their party-appointed arbitrator shall be
extended to 60 days.  This provision
shall not change the liability of each of the Subscribing Reinsurers under the
terms of this Contract from several to joint.

 

K.                        It is hereby understood and agreed that
in the event the Reinsurer under this Contract or any other reinsurance
contract with the Company:

 

1.                          Transfers its claims-paying authority to
another entity; or

 

2.                          Ceases reinsurance underwriting
operations; or

 

3.                          Is ordered by a state insurance
department or other legal authority to cease writing business, or is placed
under regulatory supervision or in rehabilitation;

 

the
Company may, at its sole option, choose to sever this ARBITRATION ARTICLE from
the Contract, and seek adjudication of the dispute in any court of competent
jurisdiction, and the Reinsurer hereby agrees to submit to such jurisdiction.

 

ARTICLE 26

 

SERVICE OF SUIT

 

A.                       This Article applies only to those
Reinsurers not domiciled in the United States of America, and/or not authorized
in any state, territory and/or district of the United States of America where
authorization is required by insurance regulatory authorities.

 

B.                         This Article shall not be read to
conflict with or override the obligations of the parties to arbitrate their
disputes as provided for in the ARBITRATION ARTICLE.  This Article is intended as an aid to
compelling arbitration or enforcing such arbitration or arbitral award, not as
an alternative to the ARBITRATION ARTICLE for resolving disputes arising out of
this Contract.

 

C.                         In the event of the failure of the
Reinsurer to pay any amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, shall submit to the jurisdiction of a court of
competent jurisdiction within the United States.  Nothing in this Article constitutes or
should be understood to constitute a waiver of the Reinsurer’s rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.  The
Reinsurer, once the appropriate court is selected, whether such court is the
one originally chosen by the Company and accepted by the Reinsurer or is
determined by removal, transfer, or otherwise, as provided for above, shall
comply with all requirements necessary to give said court jurisdiction and, in
any suit instituted against the Reinsurer upon this Contract, shall abide by
the final decision of such court or of any appellate court in the event of an
appeal.

 

23

 

D.                        Service of process in such suit may be
made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York
10019-6829.  The above-named are
authorized and directed to accept service of process on behalf of the Reinsurer
in any such suit.

 

E.                          Further, pursuant to any statute of any
state, territory or district of the United States that makes provision
therefor, the Reinsurer hereby designates the Superintendent, Commissioner or
Director of Insurance, or other officer specified for that purpose in the statute,
or his successor or successors in office, as its true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder arising
out of this Contract, and hereby designates the above-named as the person to
whom the said officer is authorized to mail such process or a true copy
thereof.

 

ARTICLE 27

 

INSOLVENCY

 

A.                       All references
to the insolvency of the Company are applicable individually to the insolvency
of each and every company collectively referred to as the “Company.”

 

B.                         In the event of
the insolvency of the Company, the reinsurance shall be payable directly to the
Company, or to its liquidator, receiver, conservator or statutory successor on
the basis of the liability of the Company without diminution because of the
insolvency of the Company or because the liquidator, receiver, conservator or
statutory successor of the Company has failed to pay all or a portion of any
claim.  It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of the Company shall
give written notice to the Reinsurer of the pendency of a claim against the
Company indicating the Policy or bond reinsured, which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or statutory
successor.  The expense thus incurred by
the Reinsurer shall be chargeable, subject to the approval of the court,
against the Company as part of the expense of conservation or liquidation to
the extent of a pro rata share of the benefit that may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.

 

C.                         Where two or
more reinsurers are involved in the same claim and a majority in interest elect
to interpose defense to such claim, the expense shall be apportioned in
accordance with the terms of this reinsurance Contract as though such expense
had been incurred by the Company.

 

D.                        As to all
reinsurance made, ceded, renewed or otherwise becoming effective under this
Contract, the reinsurance shall be payable as set forth above by the Reinsurer
to the Company or to its liquidator, receiver, conservator or statutory
successor, (except as 

 

24

 

provided
by Sections 4118(a)(1)(A) and 1114(c) of the New York Insurance
Law) or except (1) where the Contract specifically provides another payee
in the event of the insolvency of the Company, or (2) where the Reinsurer,
with the consent of the direct insured or insureds, has assumed such Policy
obligations of the Company as direct obligations of the Reinsurer to the payees
under such Policies and in substitution for the obligations of the Company to
such payees.  Then, and in that event
only, the Company, with the prior approval of the certificate of assumption on
New York risks by the Superintendent of Insurance of the State of New York, is
entirely released from its obligation and the Reinsurer shall pay any loss
directly to payees under such Policy.

 

ARTICLE 28

 

AGENCY

 

If more than one company is named as a party to this
Contract, the first named company shall be deemed the agent of the other
companies for purposes of sending or receiving notices required by the terms
and conditions of this Contract, and for purposes of remitting or receiving any
monies due any party.

 

ARTICLE 29

 

GOVERNING LAW

 

This Contract shall be governed by and interpreted in
accordance with the laws of the State of California.

 

ARTICLE 30

 

ENTIRE AGREEMENT

 

This Contract sets forth all of the duties and
obligations between the Company and the Reinsurer and supersedes any and all
prior or contemporaneous written agreements with respect to matters referred to
in this Contract. This Contract may not be modified or changed except by an
amendment to this Contract in writing signed by both parties.

 

25

 

ARTICLE 31

 

INTERMEDIARY

 

Guy Carpenter &
Company, LLC, is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder for all Reinsurers except those who are
negotiating directly with the Company. All communications (including notices,
statements, premiums, return premiums, commissions, taxes, losses, loss
expense, salvages, and loss settlements) relating thereto shall be transmitted
to the Company or the Reinsurer through Guy Carpenter & Company,
LLC,  One Convention Place, 701 Pike Street, Suite 2000, Seattle, Washington
98101.  Payments by the Company to the
Intermediary shall be deemed payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary
shall be deemed payment to the Company only to the extent that such payments
are actually received by the Company.

 

26

 

IN WITNESS WHEREOF, the Company has caused this
Contract to be executed by its duly authorized representative(s) this 29th day of May, in the year of 2009.

 

ZENITH INSURANCE COMPANY 

ZNAT INSURANCE COMPANY

 

	
   

  	
  /s/ Jack D. Miller

  	
   

  
	
   

  	
  President of Zenith Insurance Company

  	
   

  
	
   

  	
  President of ZNAT Insurance Company

  	
   

  

 

WORKERS’ COMPENSATION
AND EMPLOYER’S LIABILITY EXCESS OF LOSS REINSURANCE CONTRACT

 

27

 

A version of the form of Interests and Liabilities
Agreement that follows was executed by each of Aspen Insurance UK Limited,
Hannover Rückversicherung AG, Lloyd’s Underwriter Syndicate No. 2987 BRT,
Odyssey America Reinsurance Corporation, Partner Reinsurance Company of the
U.S. and Swiss Reinsurance America Corporation as a Subscribing Reinsurer.  Each version of the Interests and Liabilities
Agreement executed by the Subscribing Reinsurers is identical, except for the
Subscribing Reinsurer’s share in the interests and liabilities, the amount of
brokerage payable by the Subscribing Reinsurer, the payee of the brokerage and
with respect to Swiss Reinsurance America Corporation, the elimination of the
last two paragraphs.

 

1

 

FORM OF

INTERESTS
AND LIABILITIES AGREEMENT

 

(the “Agreement”)

 

of

 

	
  [

  	
   

  	
  ]

  

 

(the “Subscribing Reinsurer”)

 

as
respects the

 

WORKERS’ COMPENSATION AND EMPLOYER’S LIABILITY EXCESS OF LOSS REINSURANCE
CONTRACT

Effective:
May 1, 2009

 

(the “Contract”)

 

issued
to and executed by

 

ZENITH
INSURANCE COMPANY 

ZNAT INSURANCE COMPANY

 

(together
the “Company”)

 

The Subscribing Reinsurer’s share in the interests and
liabilities of the Reinsurer as set forth in the Contract shall be [      ]%.

 

The share of the Subscribing Reinsurer in the
interests and liabilities of the Reinsurer in respect of the Contract shall be
separate and apart from the shares of other subscribing reinsurers, if any, on
the Contract.  The interests and
liabilities of the Subscribing Reinsurer shall not be joint with those of such
other subscribing reinsurers and in no event shall the Subscribing Reinsurer
participate in the interests and liabilities of such other subscribing
reinsurers.

 

This Agreement shall become effective at 12:01 a.m.,
Pacific Standard Time, May 1, 2009 and shall be subject to the
provisions of the Term Article and the Special Termination Article and
all other terms and conditions of the Contract.

 

Premium and loss payments made to Guy Carpenter shall
be deposited in a Premium and Loss Account in accordance with Section 32.3(a)(1) of
Regulation 98 of the New York Insurance Department.  The Subscribing Reinsurer consents to
withdrawals from said account in accordance with Section 32.3(a)(3) of
the Regulation, including interest and Federal Excise Tax.

 

2

 

Brokerage for this
Contract is [    ]% of gross ceded
premium.

 

IN WITNESS WHEREOF, the Subscribing Reinsurer has
caused this Agreement to be executed by its duly authorized representative as
follows:

 

on this
                              day
of
                                                  ,
in the year                 .

 

	
  [

  	
   

  	
  ]

  

 

Market Reference Number:

 

ZENITH
INSURANCE COMPANY 

ZNAT INSURANCE COMPANY

 

WORKERS’ COMPENSATION
AND EMPLOYER’S LIABILITY EXCESS OF LOSS REINSURANCE CONTRACT

 

3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00159-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00159-of-00352.parquet"}]]