(Multicurrency Cross Border)

                                      ISDA
              International Swaps and Derivatives Association, Inc.
                                MASTER AGREEMENT
                          dated as of December 16, 2002
                                     between
               BEAR STEARNS BANK PLC and PENN-AMERICA GROUP, INC.

have entered and/or anticipate  entering into one or more  transactions  (each a
"Transaction"  that are or will be  governed  by this  Master  Agreement,  which
includes the schedule (the  "Schedule"),  and the documents and other confirming
evidence (each a "Confirmation")  exchanged between the parties confirming those
Transactions.

Accordingly, the parties agree as follows:-

1. Interpretation

(a)           Definitions.  The terms  defined in Section 14 and in the Schedule
              will have the meanings  therein  specified for the purpose of this
              Master Agreement.

(b)           Inconsistency.  In the  event  of any  inconsistency  between  the
              provisions of the Schedule and the other provisions of this Master
              Agreement,  the  Schedule  will  prevail.  In  the  event  of  any
              inconsistency  between the provisions of any Confirmation and this
              Master Agreement (including the Schedule),  such Confirmation will
              prevail for purpose of the relevant Transaction.

(c)           Single Agreement. All Transactions are entered into in reliance on
              the fact that this Master Agreement and all  Confirmations  form a
              single agreement between the parties (collectively  referred to as
              this "Agreement"),  and the parties would not otherwise enter into
              any Transactions.

2.            Obligations

(a) General Conditions

(i)           Each party will make each  payment or delivery  specified  in each
              Confirmation to be made by it, subject to the other  provisions of
              this Agreement.
(ii)          Payments  under  this  Agreement  will be made on the due date for
              value on that date in the place of the  account  specified  in the
              relevant Confirmation or otherwise pursuant to this Agreement,  in
              feely  transferable funds and in the manner customary for payments
              in the required  currency.  Where  settlement is by delivery (that
              is, other than by payment), such delivery will be made for receipt
              on  the  due  date  in  the  manner  customary  for  the  relevant
              obligation unless otherwise specified in the relevant Confirmation
              or elsewhere in this agreement.
(iii)         Each  obligation of each party under Section 2(a)(i) is subject to
              (1) the condition  precedent that no Event of Default or Potential
              Event of Default  with respect to the other party has occurred and
              is  continuing,   (2)  the  condition   precedent  that  no  Early
              Termination  Date  in  respect  of the  relevant  Transaction  has
              occurred  or  been  effectively  designated  and  (3)  each  other
              applicable condition precedent specified in this Agreement.



<PAGE>




(b)           Change  of  Account.  Either  party may  change  its  account  for
              receiving  a payment  or  delivery  by giving  notice to the other
              party at least five  Local  Business  Days prior to the  scheduled
              date for the  payment or  delivery  to which such  change  applies
              unless  such  other  party  gives  timely  notice of a  reasonable
              objection to such change.
(c)           Netting. If on any date amounts would otherwise be payable:--

(i)           in the same currency; and

(ii)          in respect of the same Transaction,

by each party to the other,  then, on such date, each party's obligation to make
payment of any such amount will be  automatically  satisfied and discharged and,
if the  aggregate  amount that would  otherwise  have been  payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party,  replaced by an  obligation  upon the party by whom the larger  aggregate
amount  would  have been  payable  to pay to the other  party the  excess of the
larger aggregate amount over the smaller aggregate amount.

The parties may elect in respect of two or more  Transactions  that a net amount
will be  determined  in respect of all  amounts  payable on the same date in the
same  currency  in  respect of such  Transactions,  regardless  of whether  such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation  by specifying  that  subparagraph  (ii) above
will not apply to the Transactions  identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such  Transactions from such date). This election may
be  made  separately  for  different  groups  of  Transactions  and  will  apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.

(d) Deduction or Withholding for Tax.

(i)  Gross-up.  All  payments  under this  Agreement  will be made  without  any
deduction or  withholding  for or on account of any Tax unless such deduction or
withholding  is required by any  applicable  law, as modified by the practice of
any relevant  governmental  revenue authority,  then in effect. If a party is so
required to deduct or withhold, then that party ("X") will:--

(1) promptly notify the other party ("Y") of such requirement;

(2) pay to the relevant  authorities  the full amount required to be deducted or
withheld (including the full amount required to be deducted or withheld from any
additional  amount paid by X to Y under this  Section  2(d))  promptly  upon the
earlier of  determining  that such  deduction  or  withholding  is  required  or
receiving notice that such amount has been assessed against Y;

(3) promptly  forward to Y an official  receipt (or a certified  copy), or other
documentation  reasonably  acceptable  to Y,  evidencing  such  payment  to such
authorities; and

(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to
which Y is otherwise entitled under this Agreement, such additional amount as is
necessary to ensure that the net amount  actually  received by Y (free and clear
of  Indemnifiable  Taxes,  whether  assessed against X or Y) will equal the full
amount Y would have received had no such deduction or withholding been required.
However,  X will not be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for:--

(A) the  failure  by Y to comply  with or perform  any  agreement  contained  in
Section 4(a)(i), 4(a)(iii) or 4(d); or

(B) the failure of a  representation  made by Y pursuant  to Section  3(f) to be
accurate  and true unless such failure  would not have  occurred but for (I) any
action  taken  by a  taxing  authority,  or  brought  in a  court  of  competent
jurisdiction,  on or after  the  date on which a  Transaction  is  entered  into
(regardless  of whether  such action is taken or brought with respect to a party
to this Agreement) or (II) a Change in Tax Law.

                                            2                      ISDA(R)1992

<PAGE>


(ii) Liability. If:--

(1) X is required  by any  applicable  law,  as modified by the  practice of any
relevant governmental revenue authority, to make any deduction or withholding in
respect of which X would not be required to pay an additional  amount to Y under
Section 2(d)(i)(4);

(2) X does not so deduct or withhold; and

(3) a liability resulting from such Tax is assessed directly against X,
then,  except to the extent Y has  satisfied  or then  satisfies  the  liability
resulting  from such Tax, Y will promptly pay to X the amount of such  liability
(including  any  related  liability  for  interest,  but  including  any related
liability  for  penalties  only if Y has failed to comply  with or  perform  any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).

(e) Default  Interest;  Other  Amounts.  Prior to the  occurrence  or  effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment  obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after  judgment) on the overdue  amount to the other party on
demand in the same  currency as such  overdue  amount,  for the period from (and
including)  the  original  due date for payment to (but  excluding)  the date of
actual  payment,  at the Default  Rate.  Such interest will be calculated on the
basis of daily  compounding and the actual number of days elapsed.  If, prior to
the occurrence or effective  designation of an Early Termination Date in respect
of  the  relevant  Transaction,  a  party  defaults  in the  performance  of any
obligation  required to be settled by  delivery,  it will  compensate  the other
party on demand if and to the extent  provided for in the relevant  Confirmation
or elsewhere in this Agreement.

3. Representations
Each party represents to the other party (which  representations  will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the  representations in Section 3(f), at all times until the
termination of this Agreement) that:--

(a) Basic Representations.

(i) Status.  It is duly  organised  and validly  existing  under the laws of the
jurisdiction of its  organisation or  incorporation  and, if relevant under such
laws, in good standing;

(ii)  Powers.  It has  the  power  to  execute  this  Agreement  and  any  other
documentation relating to this Agreement to which it is a party, to deliver this
Agreement  and any other  documentation  relating to this  Agreement  that it is
required by this Agreement to deliver and to perform its obligations  under this
Agreement and any obligations it has under any Credit Support  Document to which
it is a party and has taken all necessary  action to authorise  such  execution,
delivery and performance;

(iii) No Violation or Conflict. Such execution,  delivery and performance do not
violate  or  conflict  with  any law  applicable  to it,  any  provision  of its
constitutional  documents, any order or judgment of any court or other agency of
government applicable to it or any of its assets or any contractual  restriction
binding on or affecting it or any of its assets;

(iv)  Consents.  All  governmental  and other consents that are required to have
been  obtained  by it with  respect  to this  Agreement  or any  Credit  Support
Document  to which it is a party  have been  obtained  and are in full force and
effect and all conditions of any such consents have been complied with; and

(v) Obligations  Binding.  Its  obligations  under this Agreement and any Credit
Support Document to which it is a party constitute its legal,  valid and binding
obligations,  enforceable in accordance with their  respective terms (subject to
applicable bankruptcy,  reorganisation,  insolvency,  moratorium or similar laws
affecting  creditors'  rights generally and subject,  as to  enforceability,  to
equitable  principles of general application  (regardless of whether enforcement
is sought in a proceeding in equity or at law)).

                                        3
                                                                 ISDA(R)1992

<PAGE>



(b) Absence of Certain Events. No Event of Default or Potential Event of Default
or, to its knowledge,  Termination  Event with respect to it has occurred and is
continuing  and no such  event or  circumstance  would  occur as a result of its
entering into or performing its  obligations  under this Agreement or any Credit
Support Document to which it is a party.

(c) Absence of Litigation. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action,  suit or proceeding at law or in
equity or before any court,  tribunal,  governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this  Agreement  or any Credit  Support  Document to which it is a
party or its ability to perform its  obligations  under this  Agreement  or such
Credit Support Document.

(d)  Accuracy of  Specified  Information.  All  applicable  information  that is
furnished in writing by or on behalf of it to the other party and is  identified
for the purpose of this  Section  3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.

(e) Payer Tax Representation.  Each representation  specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.

(f) Payee Tax Representations.  Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.

4. Agreements

Each party  agrees with the other that,  so long as either party has or may have
any  obligation  under this  Agreement or under any Credit  Support  Document to
which it is a party:--

(a) Furnish  Specified  Information.  It will  deliver to the other party or, in
certain  cases under  subparagraph  (iii) below,  to such  government  or taxing
authority as the other party reasonably directs:--

(i) any forms,  documents or certificates  relating to taxation specified in the
Schedule or any Confirmation;

(ii) any other documents specified in the Schedule or any Confirmation; and

(iii) upon reasonable  demand by such other party, any form or document that may
be  required  or  reasonably  requested  in writing in order to allow such other
party or its Credit  Support  Provider to make a payment under this Agreement or
any applicable  Credit Support Document without any deduction or withholding for
or on account of any Tax or with such deduction or withholding at a reduced rate
(so long as the  completion,  execution or  submission  of such form or document
would not materially  prejudice the legal or commercial position of the party in
receipt of such  demand),  with any such form or  document  to be  accurate  and
completed  in a manner  reasonably  satisfactory  to such other  party and to be
executed and to be delivered with any reasonably required certification, in each
case by the date specified in the Schedule or such  Confirmation  or, if none is
specified, as soon as reasonably practicable.

(b) Maintain  Authorisations.  It will use all reasonable efforts to maintain in
full force and effect all consents of any  governmental  or other authority that
are required to be obtained by it with  respect to this  Agreement or any Credit
Support  Document to which it is a party and will use all reasonable  efforts to
obtain any that may become necessary in the future.

(c)  Comply  with  Laws.  It will  comply  in all  material  respects  with  all
applicable  laws and  orders to which it may be  subject if failure so to comply
would  materially  impair  its  ability to perform  its  obligations  under this
Agreement or any Credit Support Document to which it is a party.

(d) Tax Agreement.  It will give notice of any failure of a representation  made
by it under  Section 3(f) to be accurate and true promptly upon learning of such
failure.

(e)  Payment  of Stamp Tax.  Subject  to  Section  11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or  performance of this
Agreement by a jurisdiction in which it is incorporated,


                                    4                             ISDA(R)1992

<PAGE>

organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located  ("Stamp Tax  Jurisdiction")  and will indemnify the other party against
any Stamp Tax levied or imposed  upon the other party or in respect of the other
party's  execution  or  performance  of this  Agreement  by any such  Stamp  Tax
Jurisdiction  which is not also a Stamp Tax  Jurisdiction  with  respect  to the
other party.

5. Events of Default and Termination Events

(a) Events of Default. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following  events  constitutes  an event of default (an
"Event of Default") with respect to such party:--

(i)  Failure  to Pay or  Deliver.  Failure by the party to make,  when due,  any
payment under this Agreement or delivery under Section  2(a)(i) or 2(e) required
to be made by it if such  failure is not  remedied  on or before the third Local
Business Day after notice of such failure is given to the party;

(ii)  Breach of  Agreement.  Failure by the party to comply  with or perform any
agreement or obligation (other than an obligation to make any payment under this
Agreement  or  delivery  under  Section  2(a)(i) or 2(e) or to give  notice of a
Termination  Event  or  any  agreement  or  obligation  under  Section  4(a)(i),
4(a)(iii) or 4(d)) to be complied  with or performed by the party in  accordance
with this  Agreement if such failure is not remedied on or before the  thirtieth
day after notice of such failure is given to the party;

(iii) Credit Support Default.

(1) Failure by the party or any Credit Support  Provider of such party to comply
with or perform any  agreement or obligation to be complied with or performed by
it in accordance with any Credit Support  Document if such failure is continuing
after any applicable grace period has elapsed;

(2) the expiration or termination of such Credit Support Document or the failing
or ceasing of such  Credit  Support  Document to be in full force and effect for
the purpose of this Agreement (in either case other than in accordance  with its
terms) prior to the  satisfaction  of all  obligations  of such party under each
Transaction to which such Credit Support  Document  relates  without the written
consent of the other party; or

(3) the party or such Credit Support Provider disaffirms,  disclaims, repudiates
or rejects,  in whole or in part,  or  challenges  the  validity of, such Credit
Support Document;

(iv)  Misrepresentation.  A representation  (other than a  representation  under
Section  3(e) or (f) made or repeated or deemed to have been made or repeated by
the party or any Credit Support  Provider of such party in this Agreement or any
Credit  Support  Document  proves to have been  incorrect or  misleading  in any
material respect when made or repeated or deemed to have been made or repeated;

(v) Default under Specified Transaction.  The party, any Credit Support Provider
of such party or any  applicable  Specified  Entity of such  party (1)  defaults
under a Specified  Transaction and, after giving effect to any applicable notice
requirement or grace period,  there occurs a liquidation  of, an acceleration of
obligations under, or an early termination of, that Specified  Transaction,  (2)
defaults,  after giving effect to any  applicable  notice  requirement  or grace
period,  in making any payment or delivery due on the last payment,  delivery or
exchange  date  of,  or  any  payment  on  early  termination  of,  a  Specified
Transaction (or such default continues for at least three Local Business Days if
there is no applicable  notice  requirement or grace period) or (3)  disaffirms,
disclaims,  repudiates or rejects, on whole or in part, a Specified  Transaction
(or such  action is taken by any  person or entity  appointed  or  empowered  to
operate it or act on its behalf);

(vi) Cross Default.  If "Cross Default" is specified in the Schedule as applying
to the party, the occurrence or existence of (1) a default,  event of default or
other similar condition or event (however

                                    5                         ISDA(R)1992

<PAGE>


described) in respect of such party,  any Credit Support  Provider of such party
or any applicable Specified Entity of such party under one or more agreements or
instruments  relating to Specified  Indebtedness of any of them (individually or
collectively) in an aggregate  amount of not less than the applicable  Threshold
Amount (as  specified  in the  Schedule)  which has  resulted in such  Specified
Indebtedness  becoming, or becoming capable at such time of being declared,  due
and payable under such agreements or instruments, before it would otherwise have
been due and  payable  or (2) a  default  by such  party,  such  Credit  Support
Provider or such Specified  Entity  (individually or collectively) in making one
or more payments on the due date thereof in an aggregate amount of not less than
the applicable  Threshold  Amount under such  agreements or  instruments  (after
giving effect to any applicable notice requirement or grace period);

(vii)  Bankruptcy.  The party,  any Credit Support Provider of such party or any
applicable Specified Entity of such party:--

(1) is  dissolved  (other than  pursuant  to a  consolidation,  amalgamation  or
merger);  (2) becomes insolvent or is unable to pay its debts or fails or admits
in writing its  inability  generally  to pay its debts as they  become due;  (3)
makes a general  assignment,  arrangement or composition with or for the benefit
of its  creditors;  (4)  institutes  or has  instituted  against it a proceeding
seeking a judgment of  insolvency  or  bankruptcy  or any other relief under any
bankruptcy or insolvency law or other similar law affecting  creditors'  rights,
or a petition is presented for its winding-up or  liquidation,  and, in the case
of any such  proceeding  or petition  instituted  or presented  against it, such
proceeding  or petition (A) results in a judgment of insolvency or bankruptcy or
the entry of an order for relief or the making of an order for its winding-up or
liquidation  or (B) is not dismissed,  discharged,  stayed or restrained in each
case  within  30 days of the  institution  or  presentation  thereof;  (5) has a
resolution passed for its winding-up,  official management or liquidation (other
than pursuant to a consolidation,  amalgamation or merger); (6) seeks or becomes
subject  to  the  appointment  of  an  administrator,   provisional  liquidator,
conservator,  receiver,  trustee,  custodian or other similar official for it or
for all or substantially all its assets; (7) has a secured party take possession
of all or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied,  enforced or sued on or against all
or substantially all its assets and such secured party maintains possession,  or
any such process is not dismissed,  discharged,  stayed or  restrained,  in each
case  within 30 days  thereafter;  (8)  causes or is  subject  to any event with
respect  to it which,  under the  applicable  laws of any  jurisdiction,  has an
analogous  effect  to  any  of  the  events  specified  in  clauses  (1)  to (7)
(inclusive);  or (9)  takes any  action in  furtherance  of, or  indicating  its
consent to, approval of, or acquiescence in, any of the foregoing acts; or

(viii) Merger Without  Assumption.  The party or any Credit Support  Provider of
such  party  consolidates  or  amalgamates  with,  or  merges  with or into,  or
transfers all or  substantially  all its assets to,  another  entity and, at the
time of such consolidation, amalgamation, merger or transfer:--

(1) the  resulting,  surviving  or  transferee  entity  fails to assume  all the
obligations of such party or such Credit  Support  Provider under this Agreement
or any Credit  Support  Document to which it or its  predecessor  was a party by
operation  of law or pursuant to an  agreement  reasonably  satisfactory  to the
other party to this Agreement; or

(2) the  benefits of any Credit  Support  Document  fail to extend  (without the
consent of the other party) to the performance by such  resulting,  surviving or
transferee entity of its obligations under this Agreement.

(b) Termination  Events.  The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event  specified  below  constitutes  an  Illegality if the
event is specified  in (i) below,  a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified  in (iii) below,  and
if specified to be applicable, a Credit Event

                                        6
                                                                   ISDA(R)1992

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Upon Merger if the event is  specified  pursuant to (iv) below or an  Additional
Termination Event if the event is specified pursuant to (v) below:--

(i)  Illegality.  Due to the adoption of, or any change in, any  applicable  law
after  the  date  on  which  a  Transaction  is  entered  into,  or  due  to the
promulgation of, or any change in, the interpretation by any court,  tribunal or
regulatory  authority  with competent  jurisdiction  of any applicable law after
such date, it becomes  unlawful (other than as a result of a breach by the party
of Section 4(b)) for such party (which will be the Affected Party):--

(1) to  perform  any  absolute  or  contingent  obligation  to make a payment or
delivery or to receive a payment or delivery in respect of such  Transaction  or
to comply with any other material  provision of this Agreement  relating to such
Transaction; or

(2) to perform, or for any Credit Support Provider of such party to perform, any
contingent or other obligation which the party (or such Credit Support Provider)
has under any Credit Support Document relating to such Transaction;

(ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought in
a court of competent  jurisdiction,  on or after the date on which a Transaction
is entered  into  (regardless  of whether  such action is taken or brought  with
respect  to a party to this  Agreement)  or (y) a Change  in Tax Law,  the party
(which will be the Affected  Party) will, or there is a  substantial  likelihood
that it will, on the next succeeding  Scheduled  Payment Date (1) be required to
pay to the other party an additional  amount in respect of an Indemnifiable  Tax
under  Section  2(d)(i)(4)  (except in respect of interest  under  Section 2(e),
6(d)(ii) or 6 (e)) or (2) receive a payment  from which an amount is required to
be  deducted  or  withheld  for or on  account  of a Tax  (except  in respect of
interest  under  Section  2(e),  6(d)(ii) or 6(e)) and no  additional  amount is
required to be paid in respect of such Tax under Section  2(d)(i)(4) (other than
by reason of Section 2(d)(i)(4)(A) or (B));

(iii) Tax Event  Upon  Merger.  The party  (the  "Burdened  Party")  on the next
succeeding  Scheduled  Payment  Date  will  either  (1)  be  required  to pay an
additional  amount in respect of an Indemnifiable  Tax under Section  2(d)(i)(4)
(except in respect of  interest  under  Section  2(e),  6(d)(ii) or 6(e)) or (2)
receive a payment  from which an amount has been  deducted or withheld for or on
account of any  Indemnifiable  Tax in  respect  of which the other  party is not
required  to  pay  an  additional  amount  (other  than  by  reason  of  Section
2(d)(i)(4)(A)  or (B)), in either case as a result of a party  consolidating  or
amalgamating with, or merging with or into, or transferring all or substantially
all its assets to, another entity (which will be the Affected  Party) where such
action does not constitute an event described in Section 5(a)(viii);

(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the
Schedule as applying to the party, such party ("X"), any Credit Support Provider
of X or any applicable  Specified Entity of X consolidates or amalgamates  with,
or merges with or into,  or transfers  all or  substantially  all its assets to,
another entity and such action does not constitute an event described in Section
5(a)(viii) but the  creditworthiness  of the resulting,  surviving or transferee
entity is materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be,  immediately prior to such action (and, in
such event,  X or its  successor  or  transferee,  as  appropriate,  will be the
Affected Party); or

(v) Additional  Termination  Event.  If any  "Additional  Termination  Event" is
specified in the Schedule or any  Confirmation  as applying,  the  occurrence of
such event (and, in such event,  the Affected Party or Affected Parties shall be
as  specified  for such  Additional  Termination  Event in the  Schedule or such
Confirmation).

(c) Event of Default and  Illegality.  If an event or  circumstance  which would
otherwise  constitute  or give rise to an Event of Default also  constitutes  an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.

                                        7
                                                                    ISDA(R)1992



<PAGE>


6. Early Termination

(a) Right to Terminate  Following  Event of Default.  If at any time an Event of
Default  with  respect to a party (the  "Defaulting  Party") has occurred and is
then continuing,  the other party (the "Non-defaulting  Party") may, by not more
than 20 days notice to the  Defaulting  Party  specifying  the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions.  If, however,
"Automatic  Early  Termination"  is  specified  in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur  immediately  upon the  occurrence  with  respect to such party of an
Event of Default  specified in Section  5(a)(vii)(1),  (3),  (5), (6) or, to the
extent  analogous  thereto,  (8), and as of the time  immediately  preceding the
institution  of the  relevant  proceeding  or the  presentation  of the relevant
petition upon the  occurrence  with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).

(b) Right to Terminate Following Termination Event.

(i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon
becoming  aware of it,  notify the other  party,  specifying  the nature of that
Termination  Event and each Affected  Transaction  and will also give such other
information  about  that  Termination  Event as the other  party may  reasonably
require.

(ii) Transfer to Avoid Termination  Event. If either an Illegality under Section
5(b)(i)(1) or a Tax Event occurs and there is only one Affected  Party,  or if a
Tax Event Upon Merger occurs and the Burdened Party is the Affected  Party,  the
Affected  Party  will,  as a  condition  to its  right  to  designate  an  Early
Termination Date under Section 6(b)(iv),  use all reasonable efforts (which will
not  require  such  party  to  incur a loss,  excluding  immaterial,  incidental
expenses) to transfer within 20 days after it gives notice under Section 6(b)(i)
all its rights and  obligations  under this Agreement in respect of the Affected
Transactions  to another of its Offices or Affiliates  so that such  Termination
Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give notice to
the other party to that effect  within such 20 day period,  whereupon  the other
party may effect such a transfer  within 30 days after the notice is given under
Section 6(b)(i).
Any such transfer by a party under this Section  6(b)(ii) will be subject to and
conditional  upon the prior  written  consent of the other party,  which consent
will not be withheld if such other party's policies in effect at such time would
permit it to enter into transactions with the transferee on the terms proposed.

(iii) Two Affected Parties.  If an Illegality under Section  5(b)(i)(1) or a Tax
Event  occurs  and there  are two  Affected  Parties,  each  party  will use all
reasonable  efforts to reach  agreement  within 30 days after notice  thereof is
given under Section 6(b)(i) on action to avoid that Termination Event.

(iv) Right to Terminate. If:--

(1) a transfer under Section  6(b)(ii) or an agreement under Section  6(b)(iii),
as the  case  may  be,  has not  been  effected  with  respect  to all  Affected
Transactions  within 30 days after an Affected  party gives notice under Section
6(b)(i); or

(2) an  Illegality  under Section  5(b)(i)(2),  a Credit Event Upon Merger or an
Additional  Termination  Event occurs, or a Tax Event Upon Merger occurs and the
Burdened  Party  is not the  Affected  Party,  either  party  in the  case of an
Illegality,  the  Burdened  Party in the case of a Tax Event  Upon  Merger,  any
Affected Party in the case of a Tax Event or an Additional  Termination Event if
there is more than one  Affected  Party,  or the party which is not the Affected
Party in the case of a Credit  Event Upon  Merger or an  Additional  Termination
Event if there is only one  Affected  Party may, by not more than 20 days notice
to the other party and provided that the relevant Termination Event is then

                                        8
                                                                    ISDA(R)1992

<PAGE>


continuing, designate a day not earlier than the day such notice is effective as
an Early Termination Date in respect of all Affected Transactions.

(c) Effect of Designation.

(i) If notice  designating an Early Termination Date is given under Section 6(a)
or (b), the Early Termination Date will occur on the date so designated, whether
or not the relevant Event of Default or Termination Event is then continuing.

(ii) Upon the occurrence or effective  designation of an Early Termination Date,
no further  payments or deliveries  under Section  2(a)(i) or 2(e) in respect of
the Terminated  Transactions  will be required to be made, but without prejudice
to the other  provisions  of this  Agreement.  The  amount,  if any,  payable in
respect of an Early  Termination  Date shall be  determined  pursuant to Section
6(e).

(d) Calculations.

(i) Statement.  On or as soon as reasonably practicable following the occurrence
of an Early Termination Date, each party will make the calculations on its part,
if any,  contemplated  by Section  6(e) and will  provide  to the other  party a
statement (1) showing, i n reasonable detail,  such calculations  (including all
relevant  quotations  and  specifying any amount payable under Section 6(e)) and
(2) giving details of the relevant  account to which any amount payable to it is
to be  paid.  In the  absence  of  written  confirmation  from the  source  of a
quotation  obtained in determining a Market Quotation,  the records of the party
obtaining  such  quotation  will be  conclusive  evidence of the  existence  and
accuracy of such quotation.

(ii) Payment  Date.  An amount  calculated  as being due in respect of any Early
Termination  Date under  Section  6(e) will be payable on the day that notice of
the amount payable is effective (in the case of an Early  Termination Date which
is designated or occurs as a result of an Event of Default) and on the day which
is two Local  Business Days after the day on which notice of the amount  payable
is effective (in the case of an Early  Termination Date which is designated as a
result of a Termination  Event).  Such amount will be paid together with (to the
extend permitted under applicable law) interest thereon (before as well as after
judgment) in the Termination  Currency,  from (and including) the relevant Early
Termination  Date to (but  excluding)  the date  such  amount  is  paid,  at the
Applicable  Rate.  Such  interest  will be  calculated  on the  basis  of  daily
compounding and the actual number of days elapsed.

(e) Payments on Early  Termination.  If an Early  Termination  Date occurs,  the
following  provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the  "First  Method"  or the  "Second  Method".  If the  parties  fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The  amount,  if any,  payable  in  respect  of an  Early  Termination  Date and
determined pursuant to this Section will be subject to any Setoff.

(i) Events of Default.  If the Early  Termination  Date results from an Event of
Default:--

(1) First Method and Market Quotation.  If the First Method and Market Quotation
apply, the Defaulting Party will pay to the Non-defaulting  Party the excess, if
a positive number,  of (A) the sum of the Settlement  Amount  (determined by the
Non-defaulting  Party)  in  respect  of  the  Terminated  Transactions  and  the
Termination   Currency   Equivalent   of  the  Unpaid   Amounts   owing  to  the
Non-defaulting  Party over (B) the Termination Currency Equivalent of the Unpaid
Amounts owing to the Defaulting Party.

(2) First Method and Loss.  If the First Method and Loss apply,  the  Defaulting
Party  will  pay  to  the  Non-defaulting  Party,  if  a  positive  number,  the
Non-defaulting Party's Loss in respect of this Agreement.

(3)  Second  Method  and  Market  Quotation.  If the  Second  Method  and Market
Quotation  apply,  an  amount  will  be  payable  equal  to (A)  the  sum of the
Settlement Amount (determined by the

                                    9                           ISDA(R)1992

<PAGE>

Non-defaulting  Party)  in  respect  of  the  Terminated  Transactions  and  the
Termination   Currency   Equivalent   of  the  Unpaid   Amounts   owing  to  the
Non-defaulting  Party less (B) the Termination Currency Equivalent of the Unpaid
Amounts owing to the Defaulting Party. If that amount is a positive number,  the
Defaulting  Party will pay it to the  Non-defaulting  Party; if it is a negative
number, the  Non-defaulting  Party will pay the absolute value of that amount to
the Defaulting Party.

(4) Second Method and Loss. If the Second Method and Loss Apply,  an amount will
be  payable  equal  to the  Non-defaulting  Party's  Loss  in  respect  of  this
Agreement. If that amount is a positive number, the Defaulting Party will pay it
to the  Non-defaulting  Party; if it is a negative  number,  the  Non-defaulting
Party will pay the absolute value of that amount to the Defaulting Party.

(ii)  Termination   Events.  If  the  Early  Termination  Date  results  from  a
Termination Event:--

(1) One Affected Party. If there is one Affected Party,  the amount payable will
be  determined  in  accordance  with  Section  6(e)(i)(3),  if Market  Quotation
applies,  or Section 6(e)(i)(4),  if Loss applies,  except that, in either case,
references  to the  Defaulting  Party and to the  Non-defaulting  Party  will be
deemed to be  references  to the  Affected  Party and the party which is not the
Affected  Party,   respectively,   and  if  Loss  applies  and  fewer  than  all
Transactions  are being  terminated,  Loss shall be calculated in respect of all
Terminated Transactions.

(2) Two Affected Parties. If there are two Affected Parties:--

(A) if Market Quotation  applies,  each party will determine a Settlement Amount
in respect of the Terminated  Transactions,  and an amount will be payable equal
to (I) the sum of (a) one-half of the difference  between the Settlement  Amount
of the Party with the higher  Settlement  Amount ("X") and the Settlement Amount
of the party  with the lower  Settlement  Amount  ("Y") and (b) the  Termination
Currency  Equivalent of the Unpaid Amounts owing to X less (II) the  Termination
Currency Equivalent of the Unpaid Amounts owing to Y; and

(B) if Loss  applies,  each  party  will  determine  its Loss in respect of this
Agreement  (or,  if fewer than all the  Transactions  are being  terminated,  in
respect of all Terminated  Transactions)  and an amount will be payable equal to
one-half  of the  difference  between the Loss of the party with the higher Loss
("X") and the Loss of the party with the lower Loss ("Y").
If the  amount  payable  is a  positive  number,  Y will pay it to X; if it is a
negative number, X will pay the absolute value of that amount to Y.

(iii)  Adjustment for Bankruptcy.  In circumstances  where an Early  Termination
Date occurs because "Automatic Early Termination" applies in respect of a party,
the  amount  determined  under  this  Section  6(e)  will  be  subject  to  such
adjustments as are  appropriate  and permitted by law to reflect any payments or
deliveries  made by one party to the other under this Agreement (and retained by
such other party) during the period from the relevant Early  Termination Date to
the date for payment determined under Section 6(d)(ii).

(iv) Pre-Estimate.  The parties agree that if Market Quotation applies an amount
recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not
a  penalty.  Such  amount is  payable  for the loss of  bargain  and the loss of
protection  against  future  risks and  except  as  otherwise  provided  in this
Agreement neither party will be entitled to recover any additional  damages as a
consequence of such losses.

                                       10
                                                                   ISDA(R)1992


<PAGE>




7. Transfer

Subject  to  Section  6(b)(ii),  neither  this  Agreement  nor any  interest  or
obligation  in or under this  Agreement  may be  transferred  (whether by way of
security or otherwise) by either party without the prior written  consent of the
other party, except that:--

(a)  a  party  may  make  such  a  transfer  of  this  Agreement  pursuant  to a
consolidation  or amalgamation  with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and

(b) a party may make such a transfer  of all or any part of its  interest in any
amount payable to it from a Defaulting Party under Section 6(e).

Any purported transfer that is not in compliance with this Section will be void.

8. Contractual Currency
(a) Payment in the Contractual Currency.  Each payment under this Agreement will
be made in the relevant  currency  specified in this  Agreement for that payment
(the  "Contractual  Currency").  To the extent  permitted by applicable law, any
obligation to make payments  under this  Agreement in the  Contractual  Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual  Currency,  except to the extent such  tender  results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in  converting  the  currency  so  tendered  into the  Contractual
Currency,  of the full amount in the Contractual Currency of all amounts payable
in respect of this  Agreement.  If for any reason the amount in the  Contractual
Currency so  received  falls  short of the amount in the  Contractual  Currently
payable in respect of this  Agreement,  the party  required  to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the  Contractual  Currency as may be necessary to  compensate  for the
shortfall.  If for any reason the amount in the Contractual Currency so received
exceeds  the  amount in the  Contractual  Currency  payable  in  respect of this
Agreement,  the party  receiving the payment will refund  promptly the amount of
such excess.

(b)  Judgments.  To the extent  permitted by applicable  law, if any judgment or
order  expressed in a currency other than the  Contractual  Currency is rendered
(i) for the payment of any amount owing in respect of this  Agreement,  (ii) for
the payment of any amount  relating to any early  termination in respect of this
Agreement  or (iii) in respect of a judgment  or order of another  court for the
payment  of any  amount  described  in (i) or  (ii)  above,  the  party  seeking
recovery,  after recovery in full of the aggregate amount to which such party is
entitled  pursuant  to the  judgment  or  order,  will be  entitled  to  receive
immediately  from the other party the amount of any shortfall of the Contractual
Currency  received  by such  party as a  consequence  of sums paid in such other
currency  and  will  refund  promptly  to the  other  party  any  excess  of the
Contractual  Currency  received by such party as a  consequence  of sums paid in
such other  currency if such shortfall or such excess arises or results from any
variation  between  the rate of exchange  at which the  Contractual  Currency is
converted  into the  currency of the  judgment or order for the purposes of such
judgment or order and the rate of  exchange at which such party is able,  acting
in a reasonable  manner and in good faith in  converting  the currency  received
into the Contractual  Currency,  to purchase the  Contractual  Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange  payable in connection  with the purchase of or conversion  into the
Contractual Currency.

(c) Separate  Indemnities.  To the extent  permitted by  applicable  law,  these
indemnities  constitute  separate  and  independent  obligations  from the other
obligations in this  Agreement,  will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof  being  made for any other  sums  payable  in  respect of this
Agreement.

(d) Evidence of Loss.  For the purpose of this Section 8, it will be  sufficient
for a party to  demonstrate  that it would  have  suffered  a loss had an actual
exchange or purchase been made.




                                       11

                                                                   ISDA(R)1992

<PAGE>

9. Miscellaneous
(a) Entire  Agreement.  This  Agreement  constitutes  the entire  agreement  and
understanding  of the parties with respect to its subject  matter and supersedes
all oral communication and prior writings with respect thereto.

(b)  Amendments.  No  amendment,  modification  or  waiver  in  respect  of this
Agreement will be effective unless in writing  (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.

(c)  Survival  of  Obligations.  Without  prejudice  to  Section  2(a)(iii)  and
6(c)(ii),  the  obligations of the parties under this Agreement will survive the
termination of any Transaction.

(d)  Remedies  Cumulative.  Except as  provided in this  Agreement,  the rights,
powers,  remedies and  privileges  provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.

(e) Counterparts and Confirmations.

(i) This Agreement (and each  amendment,  modification  and waiver in respect of
it) may be executed  and  delivered  in  counterparts  (including  by  facsimile
transmission), each of which will be deemed an original.

(ii) The  parties  intend  that  they  are  legally  bound by the  terms of each
Transaction  from the  moment  they  agree to those  terms  (whether  orally  or
otherwise).  A Confirmation shall be entered into as soon as practicable and may
be executed and delivered in counterparts  (including by facsimile transmission)
or be created by an exchange of telexes or by an exchange of electronic messages
on an electronic messaging system, which in each case will be sufficient for all
purposes to evidence a binding  supplement to this  Agreement.  The parties will
specify  therein or through another  effective means that any such  counterpart,
telex or electronic message constitutes a Confirmation.

(f) No Waiver of Rights.  A failure or delay in exercising  any right,  power or
privilege  in respect of this  Agreement  will not be  presumed  to operate as a
waiver,  and a single or partial exercise of any right,  power or privilege will
not be presumed to preclude any subsequent or further  exercise,  of that right,
power or privilege or the exercise of any other right, power or privilege.

(g)  Headings.  The  headings  used in this  Agreement  are for  convenience  of
reference  only and are not to affect  the  construction  of or to be taken into
consideration in interpreting this Agreement.

10. Offices; Multibranch Parties

(a) If Section  10(a) is specified in the Schedule as applying,  each party that
enters into a  Transaction  through an Office other than its head or home office
represents to the other party that,  notwithstanding the place of booking office
or jurisdiction of  incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office.  This  representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into. (b) Neither party may
change the Office through which it makes and receives payments or deliveries for
the  purpose of a  Transaction  without the prior  written  consent of the other
party. (c) If a party is specified as a Multibranch Party in the Schedule,  such
Multibranch  Party  may  make and  receive  payments  or  deliveries  under  any
Transaction  through any Office listed in the Schedule,  and the Office  through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.

11. Expenses

A Defaulting Party will, on demand,  indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses,  including legal fees and
Stamp  Tax,  incurred  by such  other  party by  reason of the  enforcement  and
protection of its rights under this Agreement or any Credit Support Document



                                       12
                                                                   ISDA(R)1992

<PAGE>

to which the Defaulting  Party is a party or by reason of the early  termination
of any Transaction, including, but not limited to, costs of collection.

12. Notices

(a)  Effectiveness.  Any  notice  or  other  communication  in  respect  of this
Agreement  may be given in any manner set forth below  (except  that a notice or
other  communication  under  Section  5 or 6  may  not  be  given  by  facsimile
transmission  or  electronic  messaging  system) to the  address or number or in
accordance  with the  electronic  messaging  system  details  provided  (see the
Schedule) and will be deemed effective as indicated:--

(i) if in  writing  and  delivered  in person or by  courier,  on the date it is
delivered;

(ii) if sent by telex, on the date the recipient's answerback is received;

(iii) if sent by  facsimile  transmission,  on the  date  that  transmission  is
received by a  responsible  employee of the  recipient in legible form (it being
agreed that the burden of proving  receipt will be on the sender and will not be
met by a transmission report generated by the sender's facsimile machine);

(iv) if sent by  certified  or  registered  mail  (airmail,  if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered or its
delivery is attempted; or

(v) if sent by electronic  messaging system, on the date that electronic message
is received,  unless the date of that delivery (or  attempted  delivery) or that
receipt,  as applicable,  is not a Local Business Day or that  communication  is
delivered (or attempted) or received, as applicable, after the close of business
on a Local Business Day, in which case that communication  shall be deemed given
and effective on the first following day that is a Local Business Day.

(b)  Change of  Addresses.  Either  party may by notice to the other  change the
address,  telex or facsimile  number or electronic  messaging  system details at
which notices or other communications are to be given to it.

13. Governing Law and Jurisdiction

(a)  Governing  Law.  This  Agreement  will  be  governed  by and  construed  in
accordance with the law specified in the Schedule.

(b) Jurisdiction.  With respect to any suit,  action or proceedings  relating to
this Agreement ("Proceedings"), each party irrevocably:--

(i) submits to the  jurisdiction  of the English  courts,  if this  Agreement is
expressed to be governed by English law, or to the non-exclusive jurisdiction of
the courts of the State of New York and the United States District Court located
in the Borough of Manhattan in New York City, if this  Agreement is expressed to
be governed by the laws of the State of New York; and

(ii) waives any  objection  which it may have at any time to the laying of venue
of any  Proceedings  brought  in any such  court,  waives  any  claim  that such
Proceedings  have been brought in an  inconvenient  forum and further waives the
right to object, with respect to such Proceedings, that such court does not have
any jurisdiction over such party.
Nothing in this Agreement  precludes  either party from bringing  Proceedings in
any other jurisdiction  (outside,  if this Agreement is expressed to be governed
by English law, the Contracting  States, as defined in Section 1(3) of the Civil
Jurisdiction  and  Judgments  Act  1982  or  any   modification,   extension  or
re-enactment  thereof  for the time  being in force)  nor will the  bringing  of
Proceedings  in  any  one  or  more  jurisdictions   preclude  the  bringing  of
Proceedings in any other jurisdiction.

(c) Service of Process.  Each party  irrevocably  appoints the Process Agent (if
any) specified  opposite its name in the Schedule to receive,  for it and on its
behalf, service of process in any Proceedings. If for any


                                       13
                                                                   ISDA(R)1992

<PAGE>



reason  any  party's  Process  Agent is unable to act as such,  such  party will
promptly notify the other party and within 30 days appoint a substitute  process
agent acceptable to the other party. The parties  irrevocably consent to service
of process  given in the manner  provided for notices in Section 12.  Nothing in
this  Agreement  will affect the right of either  party to serve  process in any
other manner permitted by law.

(d) Waiver of Immunities.  Each party irrevocably  waives, to the fullest extent
permitted by applicable  law, with respect to itself and its revenues and assets
(irrespective  of their use or  intended  use),  all  immunity on the grounds of
sovereignty or other similar  grounds from (i) suit,  (ii)  jurisdiction  of any
court, (iii) relief by way of injunction,  order for specific performance or for
recovery of property,  (iv)  attachment of its assets  (whether  before or after
judgment)  and (v) execution or  enforcement  of any judgment to which it or its
revenues or assets might  otherwise be entitled in any Proceedings in the courts
of  any  jurisdiction  and  irrevocably  agrees,  to  the  extent  permitted  by
applicable law, that it will not claim any such immunity in any Proceedings.

14. Definitions As used in this Agreement:--

"Additional Termination Event" has the meaning specified in Section 5(b).

"Affected Party" has the meaning specified in Section 5(b).

"Affected  Transactions"  means  (a)  with  respect  to  any  Termination  Event
consisting  of  an  Illegality,   Tax  Event  or  Tax  Event  Upon  Merger,  all
Transactions  affected by the occurrence of such Termination  Event and (b) with
respect to any other Termination Event, all Transactions.

"Affiliate"  means,  subject to the  Schedule,  in relation  to any person,  any
entity  controlled,  directly  or  indirectly,  by the  person,  any entity that
controls,  directly  or  indirectly,  the  person  or  any  entity  directly  or
indirectly under common control with the person. For this purpose,  "control" of
any entity or person  means  ownership  of a majority of the voting power of the
entity or person.

"Applicable Rate" means:--
(a) in respect of obligations  payable or deliverable  (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;

(b) in respect of an  obligation  to pay an amount under  Section 6(e) of either
party from and after the date  (determined in accordance with Section  6(d)(ii))
on which that amount is payable, the Default Rate;

(c) in respect of all other  obligations  payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting  Party, the Non-default
Rate; and

(d) in all other cases, the Termination Rate.

"Burdened Party" has the meaning specified in Section 5(b).

"Change in Tax Law" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation  of any  law)  that  occurs  on or after  the  date on which  the
relevant Transaction is entered into.

"consent"  includes  a  consent,  approval,  action,  authorisation,  exemption,
notice, filing, registration or exchange control consent.

"Credit Event Upon Merger" has the meaning specified in Section 5(b).

"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.

"Credit Support Provider" has the meaning specified in the Schedule.

"Default  Rate"  means a rate per  annum  equal to the  cost  (without  proof or
evidence of any actual  cost) to the relevant  payee (as  certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.


                                       14
                                                                   ISDA(R)1992

<PAGE>

"Defaulting Party" has the meaning specified in Section 6(a).

"Early  Termination  Date" means the date  determined in accordance with Section
6(a) or 6(b)(iv).

"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.

"Illegality" has the meaning specified in Section 5(b).

"Indemnifiable  Tax" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation  authority  imposing such
Tax and the  recipient  of such  payment or a person  related to such  recipient
(including,  without  limitation,  a connection  arising from such  recipient or
related person being or having been a citizen or resident of such  jurisdiction,
or being or having been organized,  present or engaged in a trade or business in
such  jurisdiction,  or having or having had a permanent  establishment or fixed
place of business in such  jurisdiction,  but  excluding  a  connection  arising
solely  from such  recipient  or  related  person  having  executed,  delivered,
performed  its  obligations  or  received a payment  under,  or  enforced,  this
Agreement or a Credit Support Document).

"law" includes any treaty, law, rule or regulation (as modified,  in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"lawful" and "unlawful" will be construed accordingly.

"Local Business Day" means,  subject to the Schedule,  a day on which commercial
banks are open for business  (including dealings in foreign exchange and foreign
currency  deposits) (a) in relation to any obligation under Section 2(a)(i),  in
the place(s) specified in the relevant Confirmation or, if not so specified,  by
reference, in this Agreement, (b) in relation to any other payment, in the place
where the  relevant  account is located  and,  if  different,  in the  principal
financial  centre,  if any, of the currency of such payment,  (c) in relation to
any notice or other  communication,  including notice contemplated under Section
5(a)(i),  in the city  specified  in the  address  for  notice  provided  by the
recipient  and, in the case of a notice  contemplated  by Section  2(b),  in the
place  where the  relevant  new  account is to be located and (d) in relation to
Section  5(a)(v)(2),  in the relevant  locations for performance with respect to
such Specified Transaction.

"Loss"  means,  with  respect  to  this  Agreement  or  one or  more  Terminated
Transactions,  as the  case  may  be,  and a  party,  the  Termination  Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case  expressed as a negative  number)
in connection  with this  Agreement or that  Terminated  Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the  election of such party but without  duplication,  loss or
cost  incurred  as a  result  of  its  terminating,  liquidating,  obtaining  or
reestablishing any hedge or related trading position (or any gain resulting from
any of them).  Loss  includes  losses  and costs (or  gains) in  respect  of any
payment or delivery  required to have been made (assuming  satisfaction  of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid  duplication,  if Section 6(e)(i)(1) or (3)
or  6(e)(ii)(2)(A)  applies.  Loss does not  include a  party's  legal  fees and
out-of-pocket  expenses referred to under Section 11. A party will determine its
Loss as of the relevant  Early  Termination  Date, or, if that is not reasonably
practicable,  as of the earliest date thereafter as is reasonably practicable. A
party  may (but need not)  determine  its Loss by  reference  to  quotations  of
relevant  rates or  prices  from one or more  leading  dealers  in the  relevant
markets.

"Market  Quotation" means,  with respect to one or more Terminated  Transactions
and a party  making  the  determination,  an amount  determined  on the basis of
quotations from Reference  Market-makers.  Each quotation will be for an amount,
if any, that would be paid to such party  (expressed as a negative number) or by
such party  (expressed as a positive  number) in  consideration  of an agreement
between such party  (taking into account any existing  Credit  Support  Document
with  respect  to the  obligations  of such  party)  and the  quoting  Reference
Market-maker to enter into a transaction (the  "Replacement  Transaction")  that
would have the effect of  preserving  for such party the economic  equivalent of
any payment or delivery  (whether  the  underlying  obligation  was  absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such  Terminated  Transaction
or group of Terminated  Transactions  that would,  but for the occurrence of the
relevant Early Termination Date, have

                                       15
                                                                 ISDA(R)1992

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been required  after that date.  For this purpose,  Unpaid Amounts in respect of
the  Terminated  Transaction  or  group  of  Terminated  Transactions  are to be
excluded but,  without  limitation,  any payment or delivery that would, but for
the relevant Early Termination Date, have been required  (assuming  satisfaction
of each applicable conditions precedent) after that Early Termination Date is to
be included. The Replacement  Transaction would be subject to such documentation
as such party and the Reference Marketmaker may, in good faith, agree. The party
making the determination (or its agent) will request each Reference Market-maker
to provide its quotation to the extent reasonably practicable as of the same day
and time  (without  regard to different  time zones) on or as soon as reasonably
practicable  after the relevant Early  Termination  Date. The day and time as of
which those  quotations are to be obtained will be selected in good faith by the
party obliged to make a determination  under Section 6(e), and, if each party is
so obliged, after consultation with the other. If more than three quotations are
provided,  the Market  Quotation will be the arithmetic  mean of the quotations,
without  regard to the  quotations  having the  highest  and lowest  values.  If
exactly three such  quotations  are provided,  the Market  Quotation will be the
quotation  remaining after disregarding the highest and lowest  quotations.  For
this  purpose,  if more than one  quotation has the same highest value or lowest
value,  then one of such quotations  shall be  disregarded.  If fewer than three
quotations are provided,  it will be deemed that the Market Quotation in respect
of such  Terminated  Transaction or group of Terminated  Transactions  cannot be
determined.

"Non-default  Rate" means a rate per annum equal to the cost  (without  proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.

"Non-defaulting Party" has the meaning specified in Section 6(a).

"Office" means a branch or office of a party,  which may be such party's head or
home office.

"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.

"Reference  Market-makers"  means four leading  dealers in the  relevant  market
selected  by the party  determining  a Market  Quotation  in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an  extension  of credit  and (b) to the  extent  practicable,  from  among such
dealers having an office in the same city.

"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its  seat,  (b) where an Office  through  which the party is acting  for
purposes of this  Agreement  is located,  (c) in which the party  executes  this
Agreement and (d) in relation to any payment, from or through which such payment
is made.

"Schedule  Payment  Date"  means a date on which a payment or  delivery is to be
made under Section 2(a)(i) with respect to a Transaction.

"Set-off" means set-off, offset,  combination of accounts, right of retention or
withholding  or  similar  right or  requirement  to which the payer of an amount
under Section 6 is entitled or subject  (whether  arising under this  Agreement,
another contract,  applicable law or otherwise) that is exercised by, or imposed
on, such payer.

"Settlement  Amount"  means,  with respect to a party and any Early  Termination
Date, the sum of:--

(a) the  Termination  Currency  Equivalent  of the  Market  Quotations  (whether
positive or negative)  for each  Terminated  Transaction  or group of Terminated
Transactions for which a Market Quotation is determined; and

(b) such party's Loss (whether positive or negative and without reference to any
Unpaid  Amounts)  for  each  Terminated   Transaction  or  group  of  Terminated
Transactions  for which a Market Quotation cannot be determined or would not (in
the  reasonable  belief  of  the  party  making  the  determination)  produce  a
commercially reasonable result.

"Specified Entity" has the meaning specified in the Schedule.

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                                                                   ISDA(R)1992

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"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.

"Specified  Transaction"  means,  subject to the Schedule,  (a) any  transaction
(including an agreement with respect thereto) now existing or hereafter  entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable  Specified  Entity of such party) and the other party to
this  Agreement  (or any Credit  Support  Provider  of such  other  party or any
applicable  Specified  Entity  of  such  other  party)  which  is  a  rate  swap
transaction,  basis swap,  forward rate transaction,  commodity swap,  commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option,  foreign  exchange  transaction,  cap  transaction,  floor
transaction, collar transaction, currency swap transaction,  cross-currency rate
swap transaction,  currency option or any other similar  transaction  (including
any option with respect to any of these  transactions),  (b) any  combination of
these  transactions  and (c) any other  transaction  identified  as a  Specified
Transaction in this Agreement or the relevant confirmation.

"Stamp Tax" means any stamp, registration, documentation or similar tax.

"Tax" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest,  penalties and additions thereto) that is
imposed by any  government  or other taxing  authority in respect of any payment
under this Agreement other than a stamp, registration,  documentation or similar
tax.

"Tax Event" has the meaning specified in Section 5(b).

"Tax Event Upon Merger" has the meaning specified in Section 5(b).

"Terminated  Transactions"  means with respect to any Early Termination Date (a)
if resulting  from a  Termination  Event,  all Affected  Transaction  and (b) if
resulting from an Event of Default,  all Transactions (in either case) in effect
immediately  before  the  effectiveness  of the  notice  designating  that Early
Termination  Date (or, if "Automatic  Early  Termination"  applies,  immediately
before that Early Termination Date).

"Termination Currency" has the meaning specified in the Schedule.

"Termination Currency Equivalent" means, in respect of any amount denominated in
the Termination  Currency,  such Termination  Currency amount and, in respect of
any amount  denominated in a currency other than the  Termination  Currency (the
"Other  Currency"),  the amount in the  Termination  Currency  determined by the
party  making the  relevant  determination  as being  required to purchase  such
amount of such Other Currency as at the relevant Early  Termination Date, or, if
the relevant Market  Quotation or Loss (as the case may be), is determined as of
a later date, that later date,  with the Termination  Currency at the rate equal
to the spot exchange rate of the foreign  exchange  agent  (selected as provided
below) for the purchase of such Other Currency with the Termination  Currency at
or about  11:00  a.m.  (in the  city in which  such  foreign  exchange  agent is
located) on such date as would be customary for the determination of such a rate
for the  purchase  of such  Other  Currency  for  value  on the  relevant  Early
Termination  Date or that later date.  The foreign  exchange agent will, if only
one party is obliged to make a determination  under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.

"Termination Event" means an Illegality,  a Tax Event or a Tax event Upon Merger
or, if specified to be  applicable,  a Credit Event Upon Merger or an Additional
Termination Event.

"Termination  Rate" means a rate per annum equal to the  arithmetic  mean of the
cost (without  proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.

"Unpaid Amounts" owing to any party means,  with respect to an Early Termination
Date, the aggregate of

(a) in respect of all Terminated  Transactions,  the amounts that became payable
(or that would have  become  payable but for  Section  2(a)(iii))  to such party
under  Section  2(a)(i)  on or prior to such  Early  Termination  Date and which
remain  unpaid as at such  Early  Termination  Date and (b) in  respect  of each
Terminated Transaction,  for each obligation under Section 2(a)(i) which was (or
would have been but for Section 2(a)(iii)) required to be settled by delivery to
such party on or prior to such Early  Termination Date and which has not been so
settled as at such Early Termination Date, an amount equal to the fair market


                                       17
                                                                   ISDA(R)1992

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value of that which was (or would have been)  required to be delivered as of the
originally  scheduled  date for  delivery,  in each case  together  with (to the
extent  permitted  under  applicable  law)  interest,  in the  currency  of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but  excluding) such Early
Termination  Date,  at the  Applicable  Rate.  Such amounts of interest  will be
calculated  on the  basis of daily  compounding  and the  actual  number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably  determined  by the party obliged to make the  determination
under  Section 6(e) or, if each party is so obliged,  it shall be the average of
the  Termination  Currency  Equivalents  of the fair  market  values  reasonably
determined by both parties.

IN WITNESS  WHEREOF the parties have executed  this  document on the  respective
dates  specified  below with effect from the date specified on the first page of
this document.

BEAR STEARNS BANK, PLC                    PENN-AMERICA GROUP, INC.


By: /s/ Timothy Murray                    By: /s/ Joseph F. Morris
Name: Timothy Murray
Title: Authorized Signatory               Title: SVP, CFO and Treasurer
Date: 12-19-02                            Date: 12-19-02




                                       18
                                                                    ISDA(R)1992

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