Exhibit 10.2


 


	
  

  	
  LIMITED LIABILITY PARTNERSHIP

  



 


CONFORMED COPY


 


DATED 6
DECEMBER 2004


 


 


ARCH REINSURANCE LTD. 

AS OBLIGOR


 


WITH


 


BARCLAYS BANK PLC

AS LENDER


 


 


AMENDMENT
AGREEMENT

RELATING TO A

LETTER OF CREDIT AND REIMBURSEMENT

AGREEMENT

DATED AS OF 25 NOVEMBER 2003


 





















 


THIS AGREEMENT is dated as of December 6, 2004 and is made effective as of the
Effective Date (as defined below) between:


 


(1)                            ARCH REINSURANCE LTD., a
corporation organized and existing under the laws of Bermuda (the “Obligor”); and


 


(2)                            BARCLAYS BANK PLC (the “Lender”).


 


IT IS AGREED as follows:


 


1.                                 DEFINITIONS AND
INTERPRETATION


 


1.1                           Definitions


 


In this
Agreement:


 


“Effective Date” means the date on which the Lender confirms
to the Obligor that it has received each of the documents listed in Schedule 1
(Conditions Precedent) in a form
and substance satisfactory to the Lender.


 


“Original Facility Agreement” means the Letter of Credit and
Reimbursement Agreement dated as of November 25, 2003 between Arch Reinsurance
Ltd., as the Obligor and the Lender, as amended and restated on August 19, 2004
and as further amended on November 24, 2004.


 


“Restated Agreement” means the Original Facility Agreement,
as amended by this Agreement, the terms of which are set out in Schedule 2 (Restated Agreement).


 


1.2                           Incorporation
of Defined Terms


 


(a)                                      Unless
a contrary indication appears, a term used in any other Fundamental Document or
in any notice given under or in connection with any Fundamental Document has
the same meaning in that Fundamental Document or notice as in this Agreement.


 


(b)                                     The
principles of construction set out in the Original Facility Agreement shall
have effect as if set out in this Agreement.


 


1.3                           Clauses


 


(a)                                      In
this Agreement any reference to a “Clause” or “Schedule” is, unless the context
otherwise requires, a reference to a Clause or Schedule of this Agreement.


 


(b)                                     Clause
and Schedule headings are for ease of reference only.


 


2.                                 AMENDMENT


 


With effect
from the Effective Date, the Original Facility Agreement shall be amended and
restated so that it shall be read and construed for all purposes as set out in
Schedule 2 (Restated Agreement).


 


1





















 


3.                                 REPRESENTATIONS


 


The Obligor
makes the representations specified in clause 4 of the Original Facility
Agreement as if each reference in those representations to “this Agreement” or “the
Fundamental Documents” includes a reference to (a) this Agreement and (b) the
Restated Agreement.


 


4.                                 CONTINUITY AND
FURTHER ASSURANCE


 


4.1                           Continuing
obligations


 


The provisions
of the Fundamental Documents shall, save as amended in this Agreement, continue
in full force and effect.


 


4.2                           Further
assurance


 


The Obligor
shall, at the request of the Lender and at its own expense, do all such acts
and things necessary or desirable to give effect to the amendments effected or
to be effected pursuant to this Agreement.


 


5.                                 FEES, COSTS AND
EXPENSES


 


5.1                           Transaction
expenses


 


The Obligor
shall promptly on demand pay the Lender the amount of all costs and expenses
(including legal fees) reasonably incurred by the Lender in connection with the
negotiation, preparation, printing and execution of this Agreement and any
other documents referred to in this Agreement.


 


5.2                           Enforcement
costs


 


The Obligor
shall, within three Business Days of demand, pay to the Lender the amount of
all costs and expenses (including legal fees) incurred by the Lender in
connection with the enforcement of, or the preservation of any rights under
this Agreement.


 


5.3                           Stamp
taxes


 


The Obligor
shall pay and, within three Business Days of demand, indemnify the Lender
against any cost, loss or liability the Lender incurs in relation to all stamp
duty, registration and other similar Taxes payable in respect of this
Agreement.


 


6.                                 MISCELLANEOUS


 


6.1                           Incorporation
of terms


 


The provisions
of clause 7.1 (Amendments and Waivers), clause 7.6 (Governing Law),
clause 7.7 (Consent to Jurisdiction) and clause 7.8
(Waiver of Jury Trial) of the
Restated Agreement shall be incorporated into this Agreement as if set out in
full in this Agreement and as if references in those clauses to “this Agreement”
are references to this Agreement.


 


6.2                           Designation
as Fundamental Document


 


The Obligor
and the Lender designate this Agreement as a Fundamental Document by execution
of this Agreement for the purposes of the definition of Fundamental Document in
the Original Facility Agreement.


 


2





















 


6.3                           Counterparts


 


This Agreement
may be executed in any number of counterparts, and this has the same effect as
if the signatures on the counterparts were on a single copy of this Agreement.


 


THIS AGREEMENT has been entered into on the date stated at the beginning of this
Agreement.


 


3





















 


SCHEDULE 1


 


CONDITIONS PRECEDENT


 


1.                                 Obligor


 


1.1                           A director’s
certificate certifying that there have been no changes to its constitutional
documents since November 24, 2004


 


1.2                           A copy of
the resolutions of the board of directors:


 


1.2.1                            approving
the terms of, and the transactions contemplated by, this Agreement and
resolving that it execute this Agreement;


 


1.2.2                            authorizing
a specified person or persons to execute this Agreement on its behalf; and


 


1.2.3                            authorizing
a specified person or persons, on its behalf, to sign and/or despatch all
documents and notices to be signed and/or despatched by it under or in
connection with this Agreement.


 


1.3                           A specimen
of the signature of each person authorized by the resolution referred to in
paragraph (b) above.


 


1.4                           A
certificate of the Corporate Secretary, or the equivalent thereof, certifying
that each copy document relating to it specified in this Schedule 1 is correct,
complete and in full force and effect as at a date no earlier than the date of
this Agreement.


 


2.                                 Legal
Opinions


 


2.1                           A legal
opinion of Clifford Chance LLP, as special New York counsel to the Lender.


 


2.2                           A legal
opinion of the Bermudan legal adviser to the Obligor in form and substance
satisfactory to the Lender.


 


3.                                 Other
documents and evidence


 


A copy of any
other authorisation or other document, opinion or assurance which the Lender
considers to be necessary or desirable (if it has notified the Obligor
accordingly) in connection with the entry into and performance of the
transaction contemplated by this Agreement or for the validity and
enforceability of this Agreement.


 


4





















 


SCHEDULE 2


 


RESTATED AGREEMENT


 


5





















 


SIGNATURES


 


	
  The
  Obligor

  	
   

  
	
   

  	
   

  
	
  ARCH REINSURANCE LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /S/ MARC
  GRANDISSON

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Marc
  Grandisson, as President, Deputy Chairman and Chief Operating Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  The
  Lender

  	
   

  
	
   

  	
   

  
	
  BARCLAYS BANK PLC

  	
   

  
	
   

  	
   

  
	
  /S/ RICHARD
  ASKEY

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Richard
  Askey

  	
   

  
				



 


6





















 


	
  

  	
  LIMITED LIABILITY PARTNERSHIP

  



 


 


DATED AS OF
NOVEMBER 25, 2003


 


(AS AMENDED
AND RESTATED ON AUGUST 19, 2004 AND ON NOVEMBER 24,


2004 AND
AMENDED AND RESTATED ON DECEMBER 6, 2004)


 


AND


 


ARCH
REINSURANCE LTD.


as Obligor


 


and


 


BARCLAYS BANK
PLC


as Lender


 


 


AMENDED AND
RESTATED LETTER OF CREDIT


AND


REIMBURSEMENT
AGREEMENT


 





















 


CONTENTS


 


	
  Clause

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Definitions And
  Interpretation

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Terms Of The
  Letter Of Credit Facility

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Conditions
  Of Issuance Of Letters Of Credit

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Representations And
  Warranties

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Events Of Default And
  Remedies

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Miscellaneous

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1

  	
  EXISTING ENCUMBRANCES

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 2

  	
  EXISTING INDEBTEDNESS

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 3

  	
  DISPOSITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A-1
  - Form of Tranche A Letters of Credit

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A-2
  - Form of Tranche B Letters of Credit

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B -
  Arch Reinsurance Security Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C -
  Form of Standby Letter of Credit Application

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit D -
  Form of Adjusted Collateral Value Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit E -
  Form of Compliance Certificate

  	
   

  



 





















 


LETTER OF CREDIT

AND REIMBURSEMENT AGREEMENT


 


LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT dated as of November 25, 2003 (as amended and restated on August 19,
2004, and on November 24, 2004 and amended and restated on December 6, 2004 and
otherwise amended and supplemented from time to time, this “Agreement”) by and among Arch Reinsurance
Ltd., a Bermuda company (the “Obligor”),
and Barclays Bank PLC (the “Lender”).


 


1.          DEFINITIONS AND INTERPRETATION


 


1.1        Definitions


 


Unless the
context clearly otherwise requires, the following terms shall have the
following respective meanings:


 


“Adjusted Collateral Value”  means, with
respect to the Obligor and at any date of determination, an amount equal to the
sum of (A) (i) to the extent that such Investments are comprised solely of U.S.
Government Securities, 90% of the market value of the aggregate Investments in
the Custodial Account, or (ii) to the extent that such Investments are not
comprised solely of U.S. Government Securities, 86.96% of the market value of
the aggregate Investments in the Custodial Account, and (B) 100% of the amount
of the aggregate cash deposits in the Custodial Account.  The Investments shall be “marked to market”
by the Custodian on a daily basis but the Custodian shall provide only monthly
reporting.


 


“Affiliate” means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person.  As used in this definition,
“control” (including, with its correlative meanings, “controlled by” and “under
common control with”) shall mean possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise), provided that,
in any event: (i) any Person which owns directly or indirectly 20% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation or 20% or more of the partnership or
other ownership interests of any other Person (other than as a limited partner
of such other Person) will be deemed to control such corporation or other
Person.


 


“Applicable Insurance Regulatory
Authority” means the insurance department or
similar administrative authority or agency that has the principal regulatory
jurisdiction over the Obligor or other Person.


 


“Beneficiary” means any Person designated a beneficiary of a Letter of Credit
issued pursuant to this Agreement.


 





















 


“Business Day” means any day other than a Saturday, Sunday or any other day on which
commercial banks in London and Bermuda are authorized or required to close.


 


“Capital Lease” means any lease which has been or should be capitalized on the books
of the lessee in accordance with GAAP.


 


“Capital Lease Obligations”
means, for any Person, all obligations of such Person
to pay rent or other amounts under a Capital Lease.  For purposes of this Agreement, the amount of
such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.


 


“Closing” means the delivery of the executed Fundamental Documents by the
parties thereto on the Closing Date.


 


“Closing Date” means the date on which all of the conditions set forth in Clause ‎3.1 shall have been satisfied or
waived by the Lender.


 


“Code” means the U. S. Internal Revenue Code
of 1986, as amended from time to time, and any rule or regulation issued
thereunder.


 


“Collateral” has the definition set forth in Clause ‎2.8 (Collateral Security).


 


“Compliance Certificate”
means a compliance certificate delivered to the Lender pursuant to sub-clause ‎5.1.2(i) (Compliance
Certificate) of
Clause ‎5.1 substantially in the form set
out in Exhibit E hereto.


 


“Constituent Documents” means, with respect to any Corporation, such Corporation’s
certificate of incorporation, memorandum of association or other similar
document concerning the formation, organization and existence of such
Corporation required under the laws of the jurisdiction of organization of such
Corporation, and such Corporation’s by-laws or other similar document required
under the laws of such jurisdiction of organization.


 


“Controlled Group” means all members of a
controlled group of corporations or other business entities and all trades or
businesses (whether or not incorporated) under common control which are treated
as a single employer under Section 414 of the Code.


 


“Consolidated Net Income” means, for
any Person, for any period, net income (or loss) after income taxes of such
Person and its Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP.


 


“Corporation” includes companies, associations, corporations, partnerships,
limited liability companies and other legal entities of all kinds.


 


“Custodial Account” shall have the meaning set forth in the Security Agreements executed
and delivered by the Obligor.


 


2





















 


“Custodian” shall have the meaning set forth in the Custodian Agreement.


 


“Custodian Agreements” means the Custody Agreement dated 24 November 2003, between Fleet
National Bank, as Custodian, and Arch Reinsurance as the same may be amended,
supplemented, restated or otherwise modified from time to time.


 


“Default” means any event or condition specified in Clause ‎6.1, which, upon the giving of
notice, the lapse of time, or the happening of any further condition, would
become an Event of Default.


 


“Dollar Equivalent” means, with respect to any monetary amount in a currency other than
United States Dollars, at any date of determination thereof, the amount of
United States Dollars obtained by converting such currency involved in such
computation into United States Dollars at the spot rate for the purchase of
United States Dollars with the applicable currency as published in the
Financial Times (or any successor thereto) on the date of such determination.


 


“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and any rule or regulation
issued thereunder.


 


“ERISA Affiliate” has the meaning given to
it in Clause ‎4.12( ERISA)


 


“Event of Default” has the definition set forth in Clause ‎6.1.


 


“Facility” means the Letters of Credit that the Lender is willing to issue
under this Agreement as determined in its sole and absolute discretion  in an amount (including all Letter of Credit Obligations
and Reimbursement Obligations for the Obligors) not to exceed at the time of
issuance of any Letter of Credit $175,000,000 (United States Dollars or the
foreign currency Dollar Equivalent of any of the following G7 nations: Canada,
the European Union, and United Kingdom) in the aggregate.


 


“Facility Availability Date” means December
31, 2005.


 


“Facility Termination Date”
means December 31, 2008.


 


“Federal Funds Rate” means, for any period, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) equal to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day, provided that (a) if the day
for which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day, and
(b) if such rate is not so published for any Business Day, the Federal Funds
Rate for such Business Day shall be the average rate charged to the Lender on
such Business Day on such transactions as determined by the Lender.


 


3





















 


“Fundamental Documents” means and includes each of the following for the time being in
force:


 


(a)             this Agreement;


 


(b)            the Letters of Credit;


 


(c)             the Security Agreement;


 


(d)            the Custodian Agreement; and


 


(e)             any other Security Document.


 


“GAAP” shall mean U.S. generally accepted accounting principles in effect
from time to time.


 


“Group” means the Parent and its
Subsidiaries from time to time.


 


“Guarantee” of or by any Person (the
“guarantor”) means any obligation guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations (“primary obligations”) of
any other Person (the “primary obligor”) in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee shall not include (x) endorsements
of instruments for deposit or collection in the ordinary course of business or
(y) obligations of the Obligor under insurance contracts, reinsurance agreements
or retrocession agreements.  The amount
of any Guarantee shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by such Person in good faith.


 


“Indebtedness” means, for any Person: (a) obligations created, issued or incurred
by such Person for borrowed money (whether by loan, the issuance and sale of
debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to repurchase such
Property from such Person); (b) obligations of such Person to pay the deferred
purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued


 


4





















 


expenses
incurred, in the ordinary course of business; (c) indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) reimbursement
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such Person; (f)
Guarantees by such Person of Indebtedness of others; (g) Rate Hedging
Obligations of such Person; and (h) any other obligation for borrowed money or
other financial accommodation which in accordance with GAAP or SAP, as
applicable, would be shown as a liability on the consolidated balance sheet of
such Person.  For the avoidance of doubt,
Indebtedness shall not include (v) trade payables (including payables under
insurance contracts and reinsurance payables) and accrued expenses in each case
arising in the ordinary course of business, (w) obligations of the Obligor with
respect to Policies, (x) obligations arising under deferred compensation plans
of the Obligor and its Subsidiaries in effect on the date hereof or which have
been approved by the board of directors of the Obligor, (y) obligations with
respect to products underwritten by the Obligor in the ordinary course of
business, including insurance policies, annuities, performance and surety bonds
and any related contingent obligations and (z) reinsurance agreements entered
into by the Obligor in the ordinary course of business.


 


“Interest Rate” means the rate of interest per annum equal to two percentage points
(2%) above the LIBOR from time to time in effect, not to exceed the maximum
rate of interest permitted by applicable law.


 


“Investment” means (i) U.S. Government Securities and (ii) debt securities of
corporate issuers which (x) are denominated in United States Dollars, (y) in
the aggregate have an average weighted minimum rating of not less than AA- by
S&P and Aa3 by Moody’s and (z) individually have a minimum rating of not
less than BBB by S&P and Baa2 by Moody’s, provided,
however, that, for purposes of the foregoing paragraph (ii), no more
than 10% of the aggregate Investments maintained in the Custodial Account
established in the name of the Obligor may consist of debt securities of corporate
issuers with a rating of A or lower by S&P and Aa3 by Moody’s.


 


“ISP” means the International Standby Practices (ISP 1998), International
Chamber of Commerce Publication No. 590.


 


“Issue Date” means the date on which a
Letter of Credit is issued.


 


“Lender” means Barclays Bank PLC.


 


“Letter(s) of Credit” means either a Tranche A Letter of Credit and/or a Tranche B
Letter of Credit.


 


“Letter of Credit Obligations”
means, as at any date of determination thereof, on an
aggregate basis for all Letters of Credit issued at the request of the Obligor,
the maximum amount that could be drawn by the Beneficiaries of such Letters of
Credit (assuming,


 


5





















 


notwithstanding
any provision of a Letter of Credit to the contrary, that such Beneficiary was
then entitled to draw the full amount remaining available thereunder) but which
has not been drawn as of that date (for purposes of any Letters of Credit
denominated in the currency of Canada, the European Union, or the United
Kingdom, the maximum amount that could be drawn by the Beneficiaries of such
Letters of Credit shall be deemed to be the Dollar Equivalent of such amount as
of such date).


 


“LIBOR” means,


 


(a)             the applicable Screen Rate; or


 


(b)             (if no Screen Rate is available for the applicable currency) the
arithmetic mean of the rates (rounded upwards to four decimal places) as
supplied to the Lender at its request quoted by the Reference Banks to leading
Banks in the London interbank market,


 


as of the relevant time on the quotation date in accordance with market
practice for the offering of deposits in such currency and for the specified
period.


 


“Lien” means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property.  For purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any Property that
it has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement (other than an operating lease) relating to such Property.


 


“Margin Stock” means margin stock or “margin security” within the meaning of
Regulations T, U and X.


 


“Material Adverse Effect” means an event or
circumstance which has or could reasonably be expected to have a material
adverse effect on:


 


(a)             the ability of the Obligor to meet the obligations of this
Agreement;


 


(b)            the business assets or financial condition of the Obligor or the
Parent; or


 


(c)             the validity or enforceability of the rights and remedies of the
Lender under the Fundamental Documents.


 


“Moody’s” means Moody’s Investor Service, Inc. or any successor thereto.


 


“Multiemployer Plan” means a “multiemployer
plan” (as defined in Section (3)(37) of ERISA) contributed to for any employees
of any Affiliate of the Obligor.


 


“Net Worth” means the excess of total assets over total liabilities of the Group
which shall be determined on a consolidated basis in accordance with GAAP.


 


6





















 


“Obligor” means Arch Reinsurance Ltd., a
Bermuda company.


 


“Parent” means Arch Capital Group Ltd., a Bermuda company.


 


“Person” means and includes an individual, a partnership, trust, estate,
corporation, company, unincorporated organization, limited liability company
and a government or any agency, instrumentality or political subdivision
thereof.


 


“Plan” means an employee pension benefit
plan which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code as to which any Credit Party or any
member of the Controlled Group may have any liability.


 


“Property” means any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.


 


“Policies” means all insurance policies,
annuity contracts, guaranteed interest contracts and funding agreements
(including riders to any such policies or contracts, certificates issued with
respect to group life insurance or annuity contracts and any contracts issued
in connection with retirement plans or arrangements) and assumption
certificates issued or to be issued (or filed pending current review by
applicable governmental authorities) by the Obligor and any coinsurance
agreements entered into or to be entered into by the Obligor.


 


“Rate Hedging Obligations”
means, for any Person, any and all net obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (a) any agreements,
devices or arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward rates
applicable to such party’s assets, liabilities or exchange transactions,
including but not limited to, dollar-denominated or cross-currency interest
rate exchange agreements, forward currency exchange agreements, interest rate
cap or collar protection agreements, forward rate currency or interest rate
options, puts and warrants, or any similar derivative transactions, and (b) any
and all cancellations, buy backs, reversals, terminations or assignments of any
of the foregoing.


 


“Reference Banks” means
the principal London office of Barclays Bank PLC or such other banks as may be
appointed by the Lender.


 


“Regulations T, U and X” means,
respectively, Regulations T, U and X of the Board of Governors of the Federal
Reserve System of the United States (or any successor) as now and from time to
time hereafter in effect from the date of this Agreement.


 


“Reimbursement Obligations”
means with respect to the Obligor, all of its
obligations pursuant to Clause ‎2.2 to reimburse the Lender for payments made by the Lender upon any
drawings under any Tranche A Letter of Credit or any Tranche B Letter of
Credit issued at the request of the Obligor and to pay to the Lender all other
amounts that are


 


7





















 


payable by the
Obligor to the Lender pursuant to this Agreement and the other Fundamental
Documents.  For purposes of drawings
under any Letters of Credit denominated in the currency of Canada, the European
Union or the United Kingdom, the amount of such drawing shall be deemed to be
the Dollar Equivalent of such amount as of the date of repayment of such
drawing, provided, however, that, solely for the purpose of
determining the Obligor’s compliance with the requirements of Clause ‎5.1.3 hereof and Clause 1 of
either Security Agreement on any given date, the amount of any such
unreimbursed drawing shall be deemed to be the Dollar Equivalent of such amount
as of such date.


 


“Repeating Representations” means the
representations which are set out in Clause ‎4.1 to Clause ‎4.15 inclusive.


 


“SAP” means the accounting procedures and practices prescribed or
permitted by the Applicable Insurance Regulatory Authority, applied on a basis
consistent with those that are to be used in making the calculations for
purposes of determining compliance with this Agreement.


 


“SAP Financial Statements”
means the financial statements of the Obligor which
have been submitted or are required to be submitted to the Applicable Insurance
Regulatory Authority.


 


“S&P” shall mean Standard & Poor’s Rating Services, a division of The
McGraw Hill Companies, Inc. or any successor thereto.


 


“Screen Rate” means the British Bankers’
Association Interest Settlement Rate for the relevant currency period,
displayed on the appropriate page of the Telerate screen.  If the agreed page is replaced or service
ceases to be available, the Lender may specify another page or service
displaying the appropriate rate.


 


“Security” means a mortgage, pledge, Lien or
other security interest securing any obligation of any person or any other
agreement or arrangement having a substantially similar effect.


 


“Security Agreement” means the Security Agreement, dated November 25, 2003, in the form
of Exhibit B hereto, between the Lender and the Obligor, as the same may be
amended, supplemented, restated or otherwise modified from time to time,
securing the obligations of the Obligor under this Agreement and the relevant
Letters of Credit.


 


“Security Documents” means, collectively, the Security Agreement and each other
instrument or agreement that secures or guarantees the Reimbursement
Obligations.


 


“Single Employer Plan” means a Plan
maintained any member of the Controlled Group for employees of any member of
the Controlled Group.


 


“Subsidiary” of a Person means:


 


8





















 


(a)             any corporation more than 50% of the outstanding securities having
ordinary voting power of which shall at the time be owned or controlled,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; or


 


(b)            any partnership, association, joint venture, limited liability
company or similar business organization more than 50% of the ownership
interests having ordinary voting power of which shall at the time be so owned
or controlled.  Unless otherwise
expressly provided, all references herein to a “Subsidiary” shall mean a
Subsidiary of the Obligor.


 


“Tax” means any present or future tax, rate, duty, impost, governmental
charge or levy, including, without limitation thereto, any corporation, income
(other than any taxes imposed on or measured by the gross income or profits of
the Lender), value added, capital gains, sales, transfer, use, excise,
occupation, franchise, property, stamp or other tax or duty and any license,
registration and recording fee and all penalties, fines, interest imposed,
assessed or otherwise payable in respect of any of the foregoing and all
deductions or withholdings required to be made in respect of any of the
foregoing levied, assessed, charged or required by any government or taxing
authority in any country.


 


“Tranche A Letter(s) of Credit” means the
irrevocable standby letters of credit issued for the benefit of The Society and
Council of Lloyds or its affiliates or the managing agents of any Lloyds’
syndicate reinsured by the Obligor under this Agreement having an expiry date
up to five (5) years from the date of issue in the aggregate issued amount at
any one time when aggregated with any other outstanding Letters of Credit under
this Agreement not to exceed a face amount of $175,000,000.00 (United States
Dollars).


 


“Tranche B Letter(s) of Credit” means the
irrevocable standby letters of credit issued to a Beneficiary under this Agreement
having an expiry date 364 days from the date of issue in the aggregate issued
amount at any one time when aggregated with any other outstanding Tranche B
Letters of Credit under this Agreement not to exceed a face amount of
$25,000,000.00 (United States Dollars).


 


“U.S. Government Securities”
means securities that are direct obligations of, and
obligations the timely payment of principal and interest on which is fully
guaranteed by, the United States, or any agency or instrumentality of the
United States the obligations of which are backed by the full faith and credit
of the United States and in the form of conventional bills, bonds, and
notes.  In no event shall U.S. Government
Securities include any security providing for the payment of interest only.


 


1.2         Interpretation


 


1.2.1         The terms “hereof,” “hereunder” and “herein” refer to this Agreement as a
whole.


 


9





















 


1.2.2         References by number to Clauses, Schedules and Exhibits refer to the
Clauses, Schedules and Exhibits of this Agreement unless otherwise stated.


 


1.2.3         The singular form of any word also refers to the plural form of such
word, and vice versa, and any word of any
particular gender includes the correlative words of the other genders.


 


1.2.4         Any references in this Agreement to one or more items preceded by
the word “including” shall not be deemed limited to the stated items but shall
be deemed without limitation.


 


2.           TERMS OF THE LETTER OF CREDIT FACILITY


 


2.1         The Letters of Credit


 


2.1.1         On the terms and subject to the further conditions hereinafter set
forth and upon satisfaction of the conditions set forth in Clause ‎3, the Lender  hereby
agrees to issue on and after the Closing Date Tranche A Letters of Credit and
Tranche B Letters of Credit, each dated the date of its issuance,
substantially in the form of Exhibit A-1 and Exhibit A-2 respectively hereto
and in the aggregate issued at any one time in a face amount not to exceed
$175,000,000.00 (United States Dollars) and so long as (after giving effect to
the issuance of the requested Letter of Credit) the Adjusted Collateral Value
is not less than the sum of all amounts then outstanding with respect to the
Letter of Credit Obligations and Reimbursement Obligations, as more
specifically set forth below in sub-clause ‎2.1.2.  So long as any Letter
of Credit is outstanding and has not expired, this Agreement shall continue to
be in full force and effect with respect to such Letter of Credit, provided, however, that no Tranche A Letter
of Credit shall be renewed, nor shall any Tranche A Letter of Credit be issued,
on or after the Facility Availability Date.


 


2.1.2         The Obligor may, from time to time, request that the Lender issue in
the case of Tranche A Letters of Credit during the period from the date hereof
to but not including the Facility Availability Date and, in the case of Tranche
B Letters of Credit, during the period from the date hereof ending 364 days
prior to the Facility Termination Date, in an aggregate face amount (together
with the Letter of Credit Obligations and Reimbursement Obligations for the
Obligor) at any time issued up to but not exceeding, in the case of Tranche B
Letters of Credit, a face amount of $25,000,000 and, in the case of Tranche A
Letters of Credit, when aggregated with all outstanding Tranche B Letters of
Credit, the amount of the Facility; provided
however, (i) the aggregate amount
of Letter of Credit Obligations and Reimbursement Obligations at any time
issued shall not exceed the Adjusted Collateral Value and (ii) the aggregate
face amount of all Tranche A and Tranche B Letters of Credit issued under this
Agreement, shall not exceed $175,000,000. 
The Obligor shall make such request by executing and delivering


 


10





















 


to the
Lender the Lender’s then standard form standby letter of credit application and
related documentation (in hardcopy and/or electronic format acceptable to the
Lender).  The current standard form
standby letter of credit application is attached as Exhibit C hereto.  If there shall exist any inconsistency
between the terms of this Agreement (and the Security Documents) and any such
documentation relating to a Letter of Credit issued under this sub-clause ‎2.1.2, the terms of this Agreement
(and the Security Documents) shall control.


 


2.1.3         Upon written request from the Obligor submitted no earlier than 120
days, but no later than 45 days before the Facility Availability Date, and in
the Lender’s sole discretion, this Agreement shall be extended for such period
and on the terms and conditions as the Obligor and the Lender may agree.


 


2.1.4         Lender agrees to use its best endeavours to review the suspension of
certain covenants and events of defaults while cash deposits and/or cash
equivalents in the Custodian Account exceed the face amount of outstanding
Letters of Credit or such Letters of Credit are supported by back-to-back
letters of credit from acceptable banking institutions the terms and conditions
of which are acceptable to the Lender.


 


2.2         Reimbursement; Lender’s Responsibility


 


2.2.1         The Lender shall notify the Obligor of a drawing under any Letter of
Credit issued at the request of the Obligor on or prior to the date of payment
of such drawing by contacting the Obligor telephonically.  Reimbursement by the Obligor of the amount of
each such drawing is due and payable in full (i) on the same day that the
Lender honours such drawing, if the foregoing notice is received before 1:00
p.m. (London time) on the date of such drawing or (ii) on the Business Day immediately
following the date of such drawing, if the foregoing notice is received after
1:00 p.m. (London time) on the date of such drawing, and the Obligor absolutely
and unconditionally agrees to pay or cause to be paid to the Lender, on such
date, without demand, the amount of any drawing under a Letter of Credit issued
at the request of the Obligor.


 


2.2.2         The Obligor, absolutely and unconditionally, agrees to pay, or cause
to be paid, to the Lender, on demand, interest at the Interest Rate on any
amount (including on overdue interest to the extent permitted by law) due by
the Obligor hereunder that is not paid when due, for each day such amount is
unpaid.


 


2.3         Obligations of Lender


 


Whenever the
Lender receives a demand for payment under a Letter of Credit, it will promptly
examine the demand to determine whether or not it is in conformity with such
Letter of Credit under which it is presented.


 


11





















 


2.4         Unconditional Obligations of the
Obligors


 


The Obligor
agrees with the Lender that the following provisions shall apply with respect
to each Letter of Credit issued to the Obligor:


 


2.4.1         Except as otherwise expressly stated in any Letter of Credit, but
without limiting any provision of this Agreement or any Letter of Credit, there
may be accepted or honoured as complying with such Letter of Credit any
documents of any character that comply with the provisions and interpretations
contained in the ISP.


 


2.4.2         Neither the Lender nor any of its correspondents or agents shall be
responsible for: (i) the truth or accuracy of any statement contained in any
document received under the Letters of Credit; (ii) the validity, sufficiency
or genuineness of any such document believed by the Lender in good faith and in
the exercise of ordinary care to be valid, even if wholly fraudulent or forged;
(iii) any breach of contract between the Obligor or any other Person and the
beneficiary of any Letter of Credit; (iv) interruptions or delays in the
transmission or delivery of messages, by mail, courier service or electronic
means, whether in cipher or not; (v) any errors or omissions in the translation
of any document; (vi) failure or delay in giving any notice or in complying
with any other formality; (vii) delay in arrival or failure to arrive of any
property or required instrument or document; (viii) failure of any document to
bear adequate reference to a Letter of Credit, or failure of any Person to note
the amount of any payment on the reverse side of a Letter of Credit or to surrender
or to take up a Letter of Credit or to send forward documents as required by
the terms of a Letter of Credit, each of which provisions, if contained in a
Letter of Credit itself, it is agreed may be waived by the Lender; (ix) the
fact that any instructions, oral or written, given to the Lender purporting to
have been given by or on behalf of the Obligor and believed by the Lender in
good faith and in the exercise of ordinary care to be valid which pertain to
the issuance of any Letter of Credit, any extension, increase or other
modification of any Letter of Credit or other action to be taken or omitted
with reference thereto, were wholly or partly insufficient, erroneous,
unauthorized or fraudulent; or (x) any other act or omission as to which banks
are relieved from responsibility under the terms of the ISP, provided that none of the contingencies
referred to in subparagraphs (i) through (x) of sub-clause ‎2.4.2 is attributable to the gross
negligence or wilful misconduct of the Lender or any of its correspondents or
agents.


 


2.4.3         The Obligor will, without expense to the Lender, procure or cause to
be procured promptly all necessary licenses which are required with respect to
the transaction(s) which is/are the subject of any Letter of Credit issued for
the Obligor or to which any such Letter of Credit relates, will comply with or
cause to be complied with all applicable governmental regulations in regard
thereto, and will furnish or cause to be furnished to the Lender such documents
and certificates in respect thereof as the Lender may reasonably require.


 


12





















 


2.4.4         The Obligor hereby agrees to indemnify and hold harmless the Lender
from and against all liability, loss or expense (including reasonable legal
fees, court costs and other expenses which the Lender may incur in enforcing
its rights hereunder) incurred as a consequence of (i) any failure on the part
of the Obligor duly to perform its agreements contained in this Clause ‎2.4, (ii) any action taken or omitted
by the Lender or any of its correspondents in relation to any Letter of Credit
issued at the request of or on behalf of the Obligor, or (iii) any claims
asserted by any party to any transaction in connection with which such Letters
of Credit are issued, except such liability, loss or expense, if any, as is
incurred as a result of the gross negligence or wilful misconduct on the part
of the Lender or of any of its correspondents.


 


2.5         Regulatory Requirements; Additional
Costs


 


The Obligor
shall pay to the Lender from time to time upon demand such amounts as the
Lender determines in its sole discretion is necessary to compensate the Lender
for any costs attributable to the Lender’s issuing or having outstanding, or
the Lender’s participation in, or the Lender’s making payment under, any Letter
of Credit issued at the request of the Obligor resulting from the application
of any domestic or foreign law or regulation or the interpretation or
administration thereof applicable to the Lender regarding any reserve,
assessment, capitalization (including the cost of maintaining capital
sufficient to permit issuance of the Letters of Credit, provided the cost
attributed to the Letters of Credit is determined in good faith by any reasonable
method) or similar requirement whether existing at the time of issuance of any
such Letter of Credit or adopted thereafter, including, without limitation, any
reduction in amounts receivable hereunder as a result of any change in
applicable law, treaty, regulation, policy or directive, or the imposition of
any Tax or increase in any existing Tax, applicable to the transactions
contemplated hereunder or the commitment of the Lender hereunder.


 


2.6         Fees


 


2.6.1         The Obligor agrees to pay to the Lender the following fees in
connection with this Agreement:


 


(a)       a Letter of Credit renewal fee payable annually in arrears (and
calculated based upon a 360-day year and actual days elapsed) on the annual
anniversary of the Closing Date in an amount equal to .05% per annum of the
amount of the Facility;


 


(b)       a Letter
of Credit unused fee payable quarterly in arrears (and calculated based upon a
360-day year and actual days elapsed) on the last Business Day of each March,
June, September and December, commencing on December 6, 2004 equal to 0.075%
per annum of an amount equal to $175,000,000 minus the total Letter of Credit
Obligations from time to time outstanding;


 


13





















 


(c)       a Letter of Credit upfront fee to be paid to the Lender, prior to or
on the Closing Date equal to $180,000; and


 


2.6.2         The Obligor agrees to pay to the Lender separately, and for its own
account, the following fees with respect to Letters of Credit issued at the
request of the Obligor:


 


(a)       a Letter of Credit issuance fee payable quarterly in arrears (and
calculated based upon a 360-day and actual days elapsed) on the last Business
Day of each March, June, September and December with respect to each Letter of
Credit issued at the request of the Obligor in an amount equal to .45% per
annum of the maximum face amount of such Letter of Credit outstanding during
such quarter provided that, if the
Collateral includes, at the time of issuance of a requested Letter of Credit,
cash deposits or US Government Securities the Adjusted Collateral Value of
which equals the face amount of the requested Letter of Credit, the issuance
fee shall be reduced to 0.35% per annum of the maximum face amount of the
Letter of Credit outstanding during such quarter;


 


(b)       all other charges, costs and fees customarily imposed by the Lender
in connection with the issuance of such letters of credit.


 


2.7         Payments and Computations


 


2.7.1         Except as specifically set forth in this Agreement, all payments to
be made by or on behalf of the Obligor under this Agreement shall be made to
the Lender, not later than 4:00 p.m. London time, on the date when due, in
immediately available funds by federal funds wire to the Lender in the
applicable currency at:


 


if United
States dollars:


 


Correspondent
Bank: Barclays Bank PLC, New York


ABA No.: 026
002 574


SWIFT Code:
BARC US33


For
Beneficiary Bank: Barclays Bank PLC, 54 Lombard Street, London


Sort Code:
20-00-00


SWIFT Code:
BARC GB22


Beneficiary:
Arch Reinsurance Ltd.


Account
Number: 84560255


 


if Canadian
dollars:


 


Correspondent
Bank: Canadian Imperial Bank of Commerce, Toronto


SWIFT Code:
CIBCCATT


For
Beneficiary Bank: Barclays Bank PLC, 54 Lombard Street, London


Sort Code:
20-00-00


 


14





















 


SWIFT Code:
BARC GB22


Beneficiary:
Arch Reinsurance Ltd.


Account
Number: 75287566


 


if
euro:


 


Beneficiary
Bank: Barclays Bank PLC, 54 Lombard Street, London


Sort
Code: 20-00-00


SWIFT Code:
BARC GB22


Beneficiary:
Arch Reinsurance Ltd.


Account
Number: 88196666


 


if pounds sterling:


 


Beneficiary
Bank: Barclays Bank PLC, 54 Lombard Street, London


Sort
Code 20-00-00


SWIFT
Code: BARC GB22


Beneficiary:
Arch Reinsurance Ltd.


Account
Number: 60950777


 


or to such
other address or account, or to the attention of such other Person as the
Lender  shall notify the Obligor.


 


2.7.2         All payments made by or on behalf of the Obligor under this
Agreement shall be made without setoff or counterclaim and free and clear of,
and without deduction for, any taxes (other than any taxes imposed on or measured
by the gross income or profits of the Lender), levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any country or
any political subdivision thereof or taxing or other authority therein unless
the Obligor is compelled by law to make such deduction or withholding.  If any such obligation is imposed upon the
Obligor with respect to any amount payable by it hereunder, it will pay to the
Lender, on the date on which such amount becomes due and payable hereunder and
in United States Dollars, such additional amount as shall be necessary to
enable the Lender to receive the same net amount which it would have received
on such due date had no such obligation been imposed upon the Obligor.  If, at any time, the Lender, or any permitted
assignee of the Lender hereunder (an “Assignee”),
is organized under the laws of any jurisdiction other than the United States or
any state or other political subdivision thereof, the Lender or the Assignee
shall deliver to the Obligor, through the Lender, on the date it becomes a
party to this Agreement, and at such other times as may be necessary in the
determination of the Obligor in its reasonable discretion, such certificates,
documents or other evidence, properly completed and duly executed by the Lender
or the Assignee (including, without limitation, Internal Revenue Service


 


15





















 


Form
W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the
Internal Revenue Service) to establish that the Lender or the Assignee is not
subject to deduction or withholding of United States Federal Income Tax under
Section 1441 or 1442 of the Internal Revenue Code or otherwise (or under any
comparable provisions of any successor statute) with respect to any payments to
the Lender or the Assignee of principal, interest, fees or other amounts
payable hereunder.  The Obligor shall not
be required to pay any additional amount to the Lender or any Assignee under
this sub-clause ‎2.7.2 if
the Lender or such Assignee shall have failed to satisfy the requirements of
the immediately preceding sentence; provided
that if the Lender or any Assignee shall have satisfied such
requirements on the date it became a party to this Agreement, nothing in this
sub-clause ‎2.7.2 shall
relieve the Obligor of its obligation to pay any additional amounts pursuant to
this sub-clause ‎2.7.2 in
the event that, as a result of any change in applicable law, the Lender or such
Assignee is no longer properly entitled to deliver certificates, documents or
other evidence at a subsequent date establishing the fact that the Lender or
the Assignee is not subject to withholding as described in the immediately
preceding sentence.


 


2.7.3         All payments made by or on behalf of the Obligor under this
Agreement shall be applied first to the payment of all fees, expenses and other
amounts due to the Lender (excluding principal and interest) by the Obligor,
then to accrued interest with respect to the Reimbursement Obligations, and the
balance on account of outstanding principal with respect to the Reimbursement
Obligations; provided, however, that upon the occurrence and
during the continuation of an Event of Default, payments will be applied to the
obligations of the Obligor to the Lender as the Lender determines in its sole
discretion.


 


2.7.4         All payments which shall be due hereunder on a day that is not a
Business Day shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension.


 


2.7.5         Computations of interest hereunder and computations of fees stated
to be on an annual basis shall be made on the basis of a year of 360 days for
the actual number of days elapsed (including the first day but excluding the
last day).


 


2.8         Collateral Security


 


All of the
obligations of the Obligor to the Lender under this Agreement and the other
Fundamental Documents shall be secured by a security interest and pledge
granted by the Obligor, as security for the Obligor’s obligations under this
Agreement and the Letters of Credit issued at the request of the Obligor, in
favour of the Lender, in the securities and other collateral described in each
Security Agreement (together with all property or interests therein and all
income therefrom and proceeds thereof, collectively, the “Collateral”).


 


16





















 


3.           CONDITIONS OF ISSUANCE OF LETTERS OF CREDIT


 


3.1         Conditions Precedent to Closing and
Issuance of Initial Letters of Credit


 


The
obligations of the Lender (in its sole and absolute discretion) to issue any
Letter of Credit under this Agreement on or after the Closing Date are subject
to the satisfaction, prior to or concurrently with the issuance of any such
Letter of Credit, of the following conditions precedent:


 


3.1.1         Fundamental Documents:  The Obligor shall have
executed and delivered to the Lender each  Fundamental
Document required hereunder, which shall be in full force and effect.


 


3.1.2         Proof of Corporate Action:.  The Lender shall have
received a certificate of the  Secretary or
an Assistant Secretary, or the equivalent thereof, from the Obligor, dated the
date hereof, setting forth resolutions of the  Board
of Directors, or the equivalent thereof, of the Obligor approving the
transactions contemplated by this Agreement and the other Fundamental Documents
and authorizing the execution, delivery and performance by such Person of this
Agreement and the other Fundamental Documents to which such Person is a party,
which certificates shall state that such resolutions are in full force and
effect without amendment.


 


3.1.3         Incumbency Certificates: The Lender shall have received a certificate of the Secretary or
Assistant Secretary, or the equivalent thereof, from the Obligor, dated the
date hereof, setting forth the names and containing a specimen signature of
each officer and director of such Person authorized to sign this Agreement and
the other Fundamental Documents to which such Person is a party and to give
notices and to take other action on behalf of the Obligor hereunder and in
relation to the Collateral.


 


3.1.4         Bermuda Requirements:  The Lender shall have
received a certificate of compliance issued by the Bermuda Regulatory Authority
(Registrar of Companies and the Bermuda Monetary Authority) for each of the
Parent and the Obligor in form and substance satisfactory to the Lender.


 


3.1.5         Legal Opinions: The Lender shall have received signed legal opinion of counsel for
the Obligor in form and substance satisfactory to the Lender, which opinion
shall be addressed to and allow reliance thereon by the Lender and its
respective successors and permitted assigns.


 


3.1.6         Proceedings and Documents:  All corporate and other
proceedings and all other matters in connection with the transactions
contemplated by this Agreement (including, without limitation, all regulatory
and third party approvals), the other Fundamental Documents and all other
documents incidental hereto and thereto, including all opinions of counsel,
shall be reasonably satisfactory in form and substance to the Lender.


 


17





















 


3.1.7         Financial Information:  The Lender is satisfied
that the financial data and other information furnished to the Lender by the
Obligor is accurate and complete in all material respects and fairly presents
in all material respects the financial position and the results of operations
for the period indicated therein.


 


3.1.8         Litigation:  The Lender is satisfied that there are no
legal or arbitral proceedings, or any proceedings by or before any governmental
or regulatory authority or agency, now pending or threatened against the Parent
or the Obligor, that are reasonably likely (either individually or in the
aggregate) to have a Material Adverse Effect.


 


3.1.9         Regulations and Policies:  There have been no material
changes in governmental regulation or policy affecting the Lender in respect of
this Agreement or the Obligor.


 


3.1.10       Consents and Approvals:  The Obligor and the Lender
have obtained all necessary consents and approvals.


 


3.1.11       Collateral Requirements:  The Lender is satisfied
with the Custodian Agreement, the Security Agreement, subordination of
custodian Liens and any other relevant documentation required in respect of
collateral requirements.


 


3.2         Additional Conditions Precedent to the
Issuance of Letters of Credit


 


The
obligations of the Lender to issue any Letter of Credit under this Agreement on
or after the Closing Date (including pursuant to sub-clause ‎2.1.1) are subject to the further
conditions precedent that, both immediately prior to the issuance of such
Letter of Credit and also after giving effect thereto:


 


3.2.1         no Default shall have occurred and be continuing;


 


3.2.2         the representations and warranties made by the Obligor in this
Agreement and each of the Fundamental Documents shall be true and complete in
all material respects on and as of the date of the issuance of such Letter of
Credit with the same force and effect as if made on and as of such date (or, if
any such representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date);


 


3.2.3         there has been no material adverse change in the financial
condition, operations, properties, business or prospects of the Parent (taken
as a whole) or the Obligor (taken as a whole) since the date of this Agreement;


 


3.2.4         the Lender shall have received a request for a Letter of Credit as
provided in sub-clause ‎2.1.2;  and


 


3.2.5         the Lender shall have received evidence satisfactory to it (i) that
the Adjusted Collateral Value requesting the issuance of the Letter of Credit
is not less than the


 


18





















 


sum of
all amounts then outstanding with respect to Letter of Credit Obligations and
Reimbursement Obligations, taking into account the amount of the requested
Letter of Credit, (ii) that each of the Investments utilized in the calculation
of Adjusted Collateral Value has been deposited into the Custodial Account, and
(iii) that the aggregate face amount of Tranche A and Tranche B Letters of
Credit issued under this Agreement (taking into account the requested Letter of
Credit) does not exceed $175,000,000 (United States Dollars).


 


Each request
for a Letter of Credit hereunder shall constitute a certification by the
Obligor to the effect set forth in the preceding sentence (both as of the date
of such notice and, unless the Obligor otherwise notifies the Lender prior to
the date of such Letter of Credit issuance, as of the date of such issuance).


 


4.           REPRESENTATIONS AND WARRANTIES


 


In order to
induce the Lender to enter into this Agreement and to issue the Letters of
Credit, the Obligor for itself hereby represents and warrants that:


 


4.1         Corporate Existence and Power


 


The Obligor
(a) is a company or corporation duly organized, validly existing without
limitation of its corporate existence and in good standing under the laws of
its jurisdiction of organization and (b) has adequate power and authority and
legal right to own or hold under lease the properties it purports to own or to
hold under lease and to carry on the business in which it is engaged or
presently proposes to engage.  The
Obligor has adequate power and authority to enter into this Agreement and each
of the other Fundamental Documents to which it is a party, to borrow hereunder,
to create the Collateral for the Reimbursement Obligations contemplated by this
Agreement and the Security Documents and to perform its obligations under this
Agreement and each of the other Fundamental Documents to which it is or is to
become a party as contemplated by this Agreement.


 


4.2         Authority


 


The execution
and delivery by the Obligor of this Agreement and each other Fundamental
Document to which it is or is to become a party as contemplated hereby, the
obtaining of Letters of Credit hereunder, the pledging of the Collateral for
the Reimbursement Obligations contemplated by this Agreement and the Security
Documents and the performance by the Obligor of its obligations in respect of this
Agreement and the other Fundamental Documents in accordance with their
respective terms, have been duly authorized by all necessary corporate action
on the part of the Obligor and do not and will not (a) contravene any provision
of the Constituent Documents of the Obligor, (b) conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default under
or, except as contemplated by this Agreement, result in the creation or
imposition of any Lien pursuant to the terms of any, mortgage, indenture, deed
of trust, security agreement, pledge agreement, charge or other instrument to
which the Obligor or any of its respective property is bound, (c) violate any
law, governmental rule, regulation, order


 


19





















 


or decree of
any court or administrative agency or governmental officer applicable to and
binding upon the Obligor, (d) require any waiver, consent or other action by
any governmental or regulatory authority or by any trustee or holder of any
Indebtedness or obligations of the Obligor or (e) require the approval of the
shareholders of the Obligor.


 


4.3         Binding Effect of Agreement and Other
Fundamental Documents


 


4.3.1         This Agreement has been duly executed and delivered by the Obligor
and the agreements contained herein constitute, and the agreements contained in
each other Fundamental Document to which the Obligor is or is to become a party
will, when each such other Fundamental Document is executed and delivered,
constitute valid and legally binding obligations for the Obligor enforceable in
accordance with their respective terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
or other similar laws affecting the enforcement of creditors’ rights generally,
and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).


 


4.3.2         Each Security Document executed and delivered on or after the date
hereof will effectively create the Liens purported to be created thereby and
such Liens will be first-priority Liens on the Collateral covered thereby,
subject to no other Liens (except Liens in favour of the Custodian).


 


4.4         Financial Information


 


The Parent and
the Obligor have heretofore furnished to the Lender accurate and complete
financial data and other information in all material respects based on its
operations in previous years, and said financial data furnished to the Lender
is accurate and complete and fairly presents in all material respects the
financial position and the results of operations for the period indicated
therein in all material respects.


 


4.5         Pari passu ranking


 


The Obligor’s
payment obligations under the Finance Documents rank at least pari passu with the claims of all its
other unsecured and unsubordinated creditors, except for obligations
mandatorily preferred by law applicable to the Obligor.


 


4.6         Material Adverse Change; No Default


 


There has been
no material adverse change in the condition, financial or otherwise, of the
Parent or the Obligor since the date of the most recent financial statement and
no Default or Event of Default exists with respect to the Obligor.


 


4.7         Existing Security Interest


 


No Security
exists on or over the assets of the Obligor except as permitted by sub-clause ‎5.2.1.


 


20





















 


4.8         Litigation


 


There are no
legal or arbitral proceedings, or any proceedings by or before any governmental
or regulatory authority or agency, now pending or (to the knowledge of the
Obligor) threatened against the Parent or the Obligor that are reasonably
likely (either individually or in the aggregate) to have a Material Adverse
Effect.


 


4.9         Compliance with Laws and Agreements


 


The Obligor is
in compliance with laws, regulations and orders of any governmental agency or
authority applicable to it or its Properties and all indentures, agreements and
other instruments binding upon it or its Property, except where the failure to
do so, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.


 


4.10       Winding-up


 


No meeting has
been convened for the winding-up, administration, dissolution or liquidation of
the Obligor, no such step is intended by the Obligor and, so far as it is
aware, no petition, application or equivalent or analogous procedure under the
law of the jurisdiction of the Obligor’s incorporation is outstanding for its
winding-up, administration, dissolution or liquidation (save where such
petition, application or equivalent or analogous procedure is frivolous or
vexatious in nature).


 


4.11       Reorganizations


 


No step is
intended or has been taken by the Obligor for the reorganization,
reconstruction, merger, amalgamation or consolidation (or any equivalent or
analogous procedure) of the Obligor save where (i) it will survive such
procedure as a separate legal entity and such step or procedure will not have
or be likely to have a Material Adverse Effect or (ii) where all the Lenders
have provided their prior written consent to such procedure.


 


4.12       ERISA


 


The Obligor
contributes to Single Employer Plans maintained by its ERISA Affiliate but does
not contribute to a Multiemployer Plan. 
There exists no Unfunded Pension Liability with respect to any Single
Employer Plans, except as would not have a Material Adverse Effect.


 


For the
purposes of this Clause ‎4.12,
“Unfunded Pension Liability” means
the excess of an Employee Plan’s liabilities under Section 4001(a)(16) of
ERISA, over the current value of that plan’s assets, determined in accordance
with the assumptions used for funding an Employee Plan pursuant to Section 412
of the Code for the applicable plan year and “ERISA
Affiliate” means, with respect to a company, any Person that would
be deemed at any relevant time to be a single employer with the company
pursuant to Section 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA.


 


21





















4.13       Margin Stock


 


4.13.1       The Obligor is not engaged nor will it engage principally, or as one
of its important activities, in the business of owning or extending credit for
the purpose of “buying” or “carrying” any Margin Stock.


 


4.13.2       None of the extensions of credit under this Agreement will be used,
directly or indirectly, for the purpose of buying or carrying any Margin Stock,
for the purpose of reducing or retiring any Indebtedness that was originally
incurred to buy or carry any Margin Stock or for any other purpose which might
cause all or extensions of credit under this Agreement to be considered a “purpose credit” within the meaning of
Regulation U or Regulation X.


 


4.13.3       Neither the Obligor nor any agent acting on its behalf has taken or
will take any action which might cause the Finance Documents to violate any
regulation of the Board of Governors of the Federal Reserve System of the
United States.


 


4.14       Anti-Terrorism Laws


 


4.14.1       Neither the Obligor nor any of its Affiliates, is in violation of
any laws relating to terrorism or money laundering (“Anti-Terrorism Laws”), including Executive Order No. 13224 on
Terrorist Financing, effective September 24, 2001 (the “Executive Order”), and the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, Public Law 107-56.


 


4.14.2       Neither the Obligor nor any of its Affiliates is any of the
following:


 


(a)       a person or entity that is listed in the annex to, or is otherwise
subject to the provisions of, the Executive Order;


 


(b)       a person or entity owned or controlled by, or acting for or on
behalf of, any person or entity that is listed in the annex to, or is otherwise
subject to the provisions of, the Executive Order;


 


(c)       a person or entity with which any Lender is prohibited from dealing
or otherwise engaging in any transaction by any Anti-Terrorism law;


 


(d)       a person or entity that commits, threatens or conspires to commit or
supports “terrorism” as defined in
the Executive Order; or


 


(e)       a person or entity that is named as a “specially designated national and blocked person” on the most
current list published by the U.S. Treasury Department Office of Foreign Asset
Control at its official website or any replacement website or other replacement
official publication of such list.


 


4.14.3       The Obligor does not (i) to the best of its knowledge, conduct any
business or engage in making or receiving any contribution of funds, goods or
services to or for the benefit of any person described in paragraph (b) above,
(ii) to the best of


 


22





















 


its
knowledge ,deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to the Executive Order, or
(iii) engage in or conspire to engage in any transaction that evades or avoids,
or has the purpose of evading or avoiding, or attempt to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.


 


4.15       Custodian


 


Fleet National
Bank has not resigned as Custodian without a successor Custodian being
appointed.


 


4.16       Repeated Representations


 


Each of the
Repeated Representations will be correct and complied with in all material
respects on the Issue Date, each date that a Letter of Credit is renewed,
reissued and extended as if repeated then by reference to the then existing
circumstances.


 


5.           COVENANTS


 


5.1         Affirmative Covenants


 


The Obligor
for itself covenants and agrees that so long as any Letter of Credit is
outstanding:


 


5.1.1         Maintenance of Corporate Existence: The Obligor shall maintain its corporate existence.


 


5.1.2         Reporting Requirements:  The Obligor shall furnish to
the Lender:


 


(a)       Annual GAAP Financial Statements:  Within one hundred twenty
(120) days following the end of the Parent’s fiscal year (or, if a registered
company, such earlier date as the Parent’s Form 10-K is filed with the
Securities and Exchange Commission) copies of:


 


(i)        the consolidated and consolidating balance sheet of the Parent as at
the close of such fiscal year, and


 


(ii)       the consolidated and consolidating statements of income, changes in
surplus and cash flows of the Parent for such fiscal year,


 


in each case
setting forth in comparative form the figures for the preceding fiscal year and
prepared in accordance with GAAP, all in reasonable detail and accompanied by
an opinion thereon of PricewaterhouseCoopers LLP or other firm of independent
public accountants of recognized national standing selected by the Parent and
reasonably acceptable to the Lender, to the effect that the financial
statements have been prepared in accordance with GAAP (except for changes in
application in which such accountants concur) and present fairly in all
material respects in accordance with GAAP the financial condition of the Parent
as of the end of such fiscal year and the results of


 


23





















 


operations of
the Parent for the fiscal year then ended and that the examination of such
accountants in connection with such financial statements has been made in accordance
with generally accepted auditing standards and, accordingly, included such
tests of the accounting records and such other auditing procedures as were
considered necessary under the circumstances.


 


(b)       Quarterly GAAP Financial Statements:  As soon as available, and in
any event within sixty (60) days after the end of each quarterly fiscal period
of the Parent (other than the fourth fiscal quarter of any fiscal year), copies
of:


 


(i)        the balance sheet of the Parent as at the end of such fiscal quarter,
and


 


(ii)       the statements of income, changes in surplus and cash flows of the
Parent for such fiscal quarter and the portion of such fiscal year ended with
such fiscal quarter,


 


in each case
setting forth in comparative form the figures for the preceding fiscal year and
prepared in accordance with GAAP, all in reasonable detail and certified as
presenting fairly in accordance with GAAP the financial condition of the Parent
as of the end of such period and the results of operations for such period by a
senior officer of the Parent, subject only to normal year-end accruals and
audit adjustments and the absence of footnotes.


 


(c)       Annual/Quarterly Reports:  Concurrently with the
delivery of the financial statements required pursuant to paragraphs (a), (b),
(f) and (g) of this Clause, copies of all reports required to be filed with any
Applicable Insurance Regulatory Authority in connection with the filing of such
financial statements.


 


(d)       Management Letters:  Subject to the consent of
the independent certified public accountant in connection with an examination
of the financial statements of the Parent or the Obligor, promptly upon receipt
thereof, copies of any reports or management letters relating to the internal
financial controls and procedures delivered to the Parent and the Obligor by
any independent certified public accountant in connection with an examination
of the financial statements of the Parent or the Obligor, as applicable.


 


(e)       Additional Information:  Such additional information
as the Lender, may reasonably request concerning the Parent or the Obligor and
for that purpose all pertinent books and other documents relating to its
business, affairs and Properties, including Investments as shall from time to
time be designated by the Lender.


 


24





















 


(f)        Annual Obligor Financial Statements:  As soon as available, and in
any event within 90 days after the close of each fiscal year of the Obligor,
the summary consolidated balance sheet of the Obligor and its Subsidiaries as
at the end of such fiscal year and the related summary consolidated statement
of income of the Obligor and its Subsidiaries for such fiscal year, setting
forth in comparative form the consolidated figures for the fiscal year, all in
form and scope consistent in all material respects with the financial
statements of the Obligor previously delivered and certified by the chief
financial officer or controller of the Obligor, which certificate shall state
that such consolidated financial statements present fairly in all material
respects the consolidated financial position of the Obligor and its
Subsidiaries as at the dates indicated (subject to normal year-end audit
adjustments and the absence of full footnote disclosure).  As soon as available and in any event within
90 days after the close of each fiscal year or such later date as may be
required by the Bermuda Companies Law, the SAP Financial Statements for the
Obligor for such fiscal year.


 


(g)       Quarterly Obligor Statements:  As soon as available, and in
any event within sixty (60) days after the close of each of the first three
quarterly accounting periods in each fiscal year of the Obligor, a summary
consolidated balance sheet of the Obligor and its Subsidiaries as at the end of
such period and the related summary consolidated statement of income of the
Obligor and its Subsidiaries for such period and (in the case of the second and
third quarterly periods) for the period from the beginning of the current
fiscal year to the end of such quarterly period, setting forth in each case in
comparative form the consolidated figures for the corresponding periods of the
previous fiscal year, all in form and scope consistent in all material respects
with the financial statements of the Obligor previously provided and certified
by the chief financial officer or controller of the Obligor, as presenting
fairly in all material respects, on a basis consistent with such prior fiscal
periods, the information contained therein, subject to changes resulting from normal
year-end audit adjustments and the absence of full footnote disclosure.


 


(h)       Quarterly Custodial Account Certificate:  The Obligor shall furnish to
the Lender quarterly a Custodial Account Certificate substantially in the form
of Exhibit D hereto.


 


(i)        Compliance Certificate: The Obligor shall supply to the Lender, with each set of financial
statements delivered pursuant to paragraphs (a), (b) (f) and (g) of this
clause, a Compliance Certificate setting out (in reasonable detail)
computations as to compliance with sub-clauses ‎6.1.5 and ‎6.1.6
as at the date as at which those financial statements were drawn up.  Each


 


25





















 


Compliance
Certificate shall be signed by the chief financial officer or controller of the
Obligor.


 


(j)        Notification of Default:  The Obligor shall
notify the Lender of the occurrence of any Default (and of any action taken or
proposed to be taken to remedy it) promptly after becoming aware of it.


 


(k)       Material litigation:  The Obligor shall
notify the Lender of any litigation proceedings current, or to its knowledge,
pending or threatened in writing which are likely to have a Material Adverse
Effect.


 


5.1.3         Minimum Rating:  The Obligor shall
at all times maintains a minimum AM Best Financial
Strength Rating of B++.


 


5.1.4         Maintenance of Adjusted Collateral Value:  The Obligor shall at all
times maintain Collateral in the Custodial Account maintained in its name in an
amount such that the Adjusted Collateral Value is not less than the sum of all
amounts then outstanding with respect to the sum of the Letter of Credit
Obligations and Reimbursement Obligations. 
If the Obligor requests that the Lender issue Letter(s) of Credit in a
currency other than US dollars, the Obligor shall deposit additional Collateral
in the Custodial Amount the Adjusted Collateral Value of which shall be no less
than 120% of the Dollar Equivalent of the face amount of the requested non-US
dollar Letter(s) of Credit.  The Obligor
agrees that if the Adjusted Collateral Value of the Collateral in the Custodial
Account is less than the sum of the Letter of Credit Obligations and the
Reimbursement Obligations, the Lender may require the Obligor to pay to the
Custodian the amount of any such deficiency, which amount shall be payable by
no later than 5:00 p.m. (New York time) on the Business Day immediately
following the date of notice by the Lender and which payment shall be deposited
by the Custodian into the applicable Custodial Account in the form of cash or
Investments.  At any time, other than
after the occurrence and during the continuation of a Default or an Event of
Default, the Obligor may substitute Collateral to the extent such substitution
arises from normal trade activities within the Custodial Account in accordance
with the provisions of Clause 1 of the Security Agreement between the
Obligor and the Lender.


 


5.1.5         ERISA:  The Obligor shall not:


 


(a)       allow, or permit any of its ERISA
Affiliates which are Subsidiaries of the Obligor to allow (i) any Single
Employer Plan with respect to which the Obligor or its ERISA
Affiliates which are Subsidiaries of the Obligor may have any liability to
terminate, (ii) the Obligor or any of its ERISA
Affiliates which are Subsidiaries of the Obligor to withdraw from any Single
Employer Plan and, if applicable, a Multiemployer Plan, or (iii) any


 


26





















 


Accumulated Funding Deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived,
to exist involving any of its Single Employer Plans, to the extent that any of
the events described in (i), (ii) or (iii), singly or in the aggregate, could
have a Material Adverse Effect; or


 


(b)       fail, or permit any of its ERISA
Affiliates which are Subsidiaries of the Obligor to fail, to comply with ERISA or other related provisions of the Code, if any such
non-compliance, singly or in the aggregate, would be reasonably likely to have
a Material Adverse Effect.


 


5.1.1         Financial Testing: The
financial covenant set out in this sub-clauses ‎6.1.5 and ‎6.1.6
below shall be tested by reference to each of the financial statements and/or
each Compliance Certificate delivered pursuant to sub-clause ‎5.1.2(i) (Compliance Certificate).


 


5.2         Negative Covenants


 


5.2.1          Negative Pledge:


 


(a)       Neither the Obligor nor any of its Subsidiaries will permit, create,
assume, incur or suffer to exist any Lien on any asset
tangible or intangible now owned or hereafter acquired by it, except as set out
in paragraph (b) below.


 


(b)       Paragraph (a) above does not apply to:


 


(i)        Liens created pursuant to the Security Documents;


 


(ii)       Liens existing on the date hereof and listed on Schedule 1 (Existing Encumbrances) hereto;


 


(iii)      Liens securing repurchase agreements constituting a borrowing of
funds by the Obligor or any of its Subsidiaries in the ordinary course of
business for liquidity purposes and in no event for a period exceeding 90 days
in each case;


 


(iv)     Liens arising pursuant to purchase money mortgages, capital leases
or security interests securing Indebtedness representing the purchase price (or
financing of the purchase price within 90 days after the respective purchase)
of assets acquired after the Closing Date;


 


(v)      Liens (x) on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Obligor or any of its
Subsidiaries and not created in contemplation of such event or (y) securing
Acquired Indebtedness so long as such Lien existed prior to the contemplated
acquisition, was not created in contemplation of such acquisition and only
relates to assets of the Person so acquired;


 


27





















 


(vi)     Liens securing obligations owed by the Obligor or any of its
Subsidiaries to the Parent or any other Subsidiary of the Parent, in each case
solely to the extent that such Liens are required by an Applicable Insurance
Regulatory Authority for such Person to maintain such obligations;


 


(vii)    Liens securing insurance obligations of the Obligor or any of its
Subsidiaries owed to the Parent or any other Subsidiary of the Parent, in each
case solely to the extent that such Liens are required or requested by ratings
agencies, clients or brokers for such Person to maintain such insurance
obligations;


 


(viii)   Liens on investments and cash balances of the Obligor or any of its
Subsidiaries securing obligations of the Obligor or any of its Subsidiaries in
respect of trust or similar arrangements formed, letters of credit issued or
funds withheld balances established, in each case, in the ordinary course of
business for the benefit of cedents to secure
reinsurance recoverables owed to them by the Obligor
or any of its Subsidiaries;


 


(ix)      inchoate Liens for taxes, assessments or governmental charges or
levies not yet due or Liens for taxes, assessments or governmental charges or
levies being contested in good faith and by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP;


 


(x)       Liens in respect of property or assets of the Obligor or any of its
Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers’,
warehousemen’s, materialmen’s and mechanics’ Liens
and other similar Liens arising in the ordinary course of business, and (x)
which do not in the aggregate materially detract from the value of the
Obligor’s or any such Subsidiary’s property or assets or materially impair the
use thereof in the operation of the business of the Obligor or any Subsidiary
of the Obligor or (y) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture or
sale of the property or assets subject to any such Lien;


 


(xi)      licenses, sublicenses, leases, or subleases granted to other Persons
not materially interfering with the conduct of the business of the Obligor or
any of its Subsidiaries;


 


28





















 


(xii)          easements, rights-of-way, restrictions, encroachments and other
similar charges or encumbrances, and minor title deficiencies, in each case not
securing Indebtedness and not materially interfering with the conduct of the
business of the Obligor or any of its Subsidiaries;


 


(xiii)         Liens arising out of the existence of judgments or awards not
constituting an Event of Default under Clause ‎6.1;


 


(xiv)        Liens (other than Liens imposed under ERISA)
incurred in the ordinary course of business in connection with workers
compensation claims, unemployment insurance and social security benefits and
Liens securing the performance of bids, tenders, leases and contracts in the
ordinary course of business, statutory obligations, surety bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course of
business and consistent with past practice (exclusive of obligations in respect
of the payment for borrowed money);


 


(xv)         bankers’ Liens, rights of setoff and other similar Liens existing
solely with respect to cash and cash equivalents on deposit in one or more
accounts maintained by the Obligor or any of its Subsidiaries, in each case
granted in the ordinary course of business in favor
of the bank or banks with which such accounts are maintained;


 


(xvi)        Liens arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
sub-paragraphs of this sub-clause ‎5.2.1, provided that such Indebtedness is not increased and is not
secured by any additional assets;


 


(xvii)       Liens in respect of property or assets of the Obligor or any of its
Subsidiaries securing Indebtedness of the type described in sub-paragraphs (vi)
or (x) of the definition of “Permitted Indebtedness”;


 


(xviii)      Liens in respect of property or assets of any Subsidiary of the
Obligor securing Indebtedness of the type described in paragraph (ix) of the
definition of “Permitted Indebtedness”; provided
that the aggregate amount of the Indebtedness secured by such Liens
shall not, when added to the aggregate amount of all outstanding obligations of
the Parent secured by Liens incurred pursuant to paragraph (b)(xx) of
sub-clause ‎5.2.1 exceed
at any time 5% of Net Worth of the Parent at the time of incurrence of any new
Liens under this paragraph (xviii);


 


(xix)         Liens in respect of property or assets of the Obligor securing
Indebtedness of the Obligor in respect of letters of credit issued to
reinsurance cedents, or to lessors
of real property in lieu of security


 


29





















 


deposits
in connection with leases of the Obligor, in each case in the ordinary course
of business; and


 


(xx)     in addition to the Liens described in sub-paragraphs (i) through
(xix) above, Liens securing obligations of the Parent; provided that the aggregate amount of the
obligations secured by such Liens shall not, when added to the aggregate amount
of outstanding Indebtedness of the Obligor or any of its Subsidiaries pursuant
to paragraph (ix) of the definition of “Permitted Indebtedness”, exceed at any
time 5% of Net Worth of the Parent at the time of incurrence of any new Liens
under this paragraph (xx).


 


5.2.2         Disposals:


 


(a)       The Obligor shall not nor will it permit any of its Subsidiaries to
sell, convey, assign, lease, abandon or otherwise transfer or dispose of,
voluntarily or involuntarily (any of the foregoing being referred to in this
paragraph (a) as a “Disposition” and any series of related Dispositions
constituting but a single Disposition), any of its properties or assets,
tangible or intangible (including but not limited to sale, assignment, discount
or other disposition of accounts, contract rights, chattel paper or general
intangibles with or without recourse), except as set forth in paragraph (b)
below.


 


(b)       Paragraph (a) above does not apply to:


 


(i)        any Disposition of used, worn out, obsolete or surplus property of
the Obligor or any of its Subsidiaries in the ordinary course of business; or


 


(ii)       license (as licensor) of intellectual property so long as such
license does not materially interfere with the business of the Obligor or any
of its Subsidiaries; or


 


(iii)      the Disposition of cash, cash equivalents and investment securities;
or


 


(iv)     the release, surrender or waiver of contract, tort or other claims
of any kind as a result of the settlement of any litigation or threatened
litigation; or


 


(v)      the granting or existence of Liens (and foreclosure thereon) not
prohibited by this Agreement; or


 


(vi)     the lease or sublease of real property so long as such lease or
sublease does not materially interfere with the business of the Obligor or any
of its Subsidiaries; or


 


30





















 


(vii)    dividends; or


 


(viii)   any ceding of insurance or reinsurance in the ordinary course of
business; or


 


(ix)      any Disposition by the Obligor or any of its Subsidiaries of any
Non-Core Asset (as defined in the Subscription Agreement) or as set forth in
Schedule 3 (Dispositions); or


 


(x)       Dispositions by the Obligor or any of its Subsidiaries of properties
or assets having an aggregate fair value (as determined in good faith by the
board of directors of the Obligor) of less than $1,000,000; or


 


(xi)      Dispositions by the Obligor or any of its Subsidiaries of any of its
respective properties or assets to the Parent, to any wholly-owned Subsidiary
of the Parent or (except as to property or assets consisting of the capital
stock of Subsidiaries) to Alternative Re Holdings Limited; or


 


(xii)     other Dispositions to the extent that the fair market value of the
assets the subject thereof (as determined in good faith by the board of
directors or senior management of the Obligor), when added to the fair market value
of the assets the subject of any such other Disposition or Dispositions under
this paragraph (xii) previously consummated during the same fiscal year of the
Obligor (as determined in good faith by the board of directors or senior
management of the Obligor), does not constitute more than 10% of the
consolidated assets of the Group as of the last day of the most recently ended
fiscal year of the Group.


 


5.2.3         Financial Indebtedness:  The Obligor shall not incur
or permit to subsist, and shall not permit any of its Subsidiaries to incur or
subsist, any Indebtedness except Permitted Indebtedness.


 


5.2.4         Definitions:  In this Clause ‎5.2 the following terms have the following meanings.


 


(a)       “Acquired Indebtedness” means Indebtedness of the Obligor or any of
its Subsidiaries acquired pursuant to an acquisition not prohibited under this
Agreement (or Indebtedness assumed at the time of such acquisition of an asset
securing such Indebtedness), provided that
such Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such acquisition.


 


31





















 


(b)       “Permitted Indebtedness”
means:


 


(i)        Indebtedness of the Obligor or any of its Subsidiaries incurred
pursuant to this Agreement or the JPMorgan Credit
Agreement (as defined in item 3 of Schedule 1 (Existing
Indebtedness));


 


(ii)       Indebtedness of the Obligor or any of its Subsidiaries existing on
the date hereof and listed on Schedule 2 (Existing
Indebtedness) and refinancings by the
Obligor or any of its Subsidiaries thereof; provided
that the aggregate principal amount of any such refinancing
Indebtedness is not greater than the aggregate principal amount of the
Indebtedness being refinanced plus the amount of any premiums required to be
paid thereof and fees and expenses associated therewith;


 


(iii)      Indebtedness of the Obligor or any of its Subsidiaries under any
Rate Hedging Obligations, in each case entered into to protect the Obligor or
such Subsidiary against fluctuations in interest rates, currency exchange rates
or other rate fluctuations and not entered into for speculative purposes;


 


(iv)     Any Indebtedness owed by the Obligor or any of its Subsidiaries to
the Parent or any of its Subsidiaries;


 


(v)      Indebtedness in respect of purchase money obligations and Capital
Lease Obligations of the Obligor or any of its Subsidiaries, and refinancings thereof; provided
that the aggregate principal amount of all such Capital Lease
Obligations does not exceed at any time outstanding $25,000,000 at the time of
incurrence of any new Indebtedness under this sub-paragraph (v);


 


(vi)     Indebtedness of the Obligor or any of its Subsidiaries in respect of
letters of credit issued to reinsurance cedents, or
to lessors of real property in lieu of security
deposits in connection with leases of the Obligor or such Subsidiary, in each
case in the ordinary course of business;


 


(vii)    Indebtedness of the Obligor or any of its Subsidiaries incurred in
the ordinary course of business in connection with workers’ compensation
claims, self-insurance obligations, unemployment insurance or other forms of
governmental insurance or benefits and pursuant to letters of credit or other
security arrangements entered into in connection with such insurance or
benefit;


 


(viii)   Acquired Indebtedness of the Obligor or any of its Subsidiaries;


 


(ix)      additional Indebtedness of the Obligor or any of its Subsidiaries
not otherwise permitted under sub-paragraph (i) through (viii) of this


 


32





















 


definition
which, when added to the aggregate amount of all outstanding Indebtedness
obligations secured by Liens incurred by the Obligor or any of its Subsidiaries
pursuant to paragraph ‎5.2.1(b)(xx),
shall not exceed at any time outstanding 5% of the Group’s Net Worth at the
time of incurrence of any new Indebtedness under this paragraph (ix).


 


(x)       Indebtedness arising from Guarantees made by the Obligor or any of
its Subsidiaries of Indebtedness of the type described in sub-paragraphs (i)
through (ix) of this definition.


 


(c)       “Subscription Agreement” means the Subscription Agreement, dated as
of October 24, 2001, as amended as of November 20, 2001, by and among the
Parent and the other parties thereto.


 


6.           EVENTS OF DEFAULT AND REMEDIES


 


6.1         Events of Default Defined


 


With respect
to the Obligor, each of the following is an “Event
of Default:”


 


6.1.1         failure by the Obligor to pay any amount payable by it hereunder on
the date due;


 


6.1.2         if the validity or enforceability of any Security Document to which
the Obligor is a party shall be contested by any Person;


 


6.1.3         if any representation or warranty made by or on behalf of the
Obligor in this Agreement, in any other Fundamental Document or in any
certificate, report or financial or other statement furnished to the Lender at
any time under or in connection with this Agreement, any other Fundamental
Document or any other such document or agreement shall have been untrue in any
material respect when made or deemed to have been made;


 


6.1.4         default by the Obligor in the observance or performance of its
covenants set forth in (i) Clause ‎5; or (ii) default by the Obligor in the observance or performance
of its obligation to maintain the value of the Custodial Account maintained in
its name in accordance with Clause 1 of the Security Agreement between it and
the Lender;


 


6.1.5         failure by the Parent to maintain a minimum Net Worth that is at any
time less than the sum of: (i) $1,400,000,000; (ii) the Net Cash Proceeds of
any common or preferred equity raised by the Parent after the date of this
Agreement; and (iii) 40% (forty percent) of Consolidated Net Income for each
financial year of the Parent:


 


(a)       in this sub-clause ‎(a) the following term has the following meaning.


 


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(i)        “Net Cash Proceeds”
means for any issuance of equity, the gross cash proceeds (including any cash
received by way of deferred payment pursuant to a promissory note, receivable
or otherwise, but only as and when received) received from such issuance, net
of reasonable transaction costs (including, as applicable, any underwriting,
brokerage or other customary commissions and reasonable legal, advisory and
other fees and expenses associated therewith).


 


6.1.6         the Parent Leverage Ratio on the last day of any fiscal quarter or
fiscal year of the Parent is greater than 0.35:1.00.  For purposes of this sub-clause ‎6.1.6:


 


(a)       “Parent Leverage Ratio”
means, at any time, the ratio of (i) Consolidated Indebtedness at such time to
(ii) Consolidated Total Capital at such time;


 


(b)       “Consolidated Indebtedness”
means, as of any date of determination, (i) all Indebtedness of the Group which
at such time would appear on the liability side of a balance sheet of such
Persons prepared on a consolidated basis in accordance with GAAP plus (ii) any
Indebtedness for borrowed money of any other Person (other than any member of
the Group) as to which any member of the Group has created a Guarantee (but
only to the extent of such Guarantee). 
For the avoidance of doubt, “Consolidated Indebtedness” shall not
include any Guarantees of any Person under or in connection with letters of credit
or similar facilities so long as no unreimbursed
drawings or payments have been made in respect thereof; and


 


(c)       “Consolidated Total Capital”
means, as of any date of determination, the sum of (i) Consolidated
Indebtedness and (ii) Net Worth of the Parent at such time;


 


6.1.7         the Parent permits, creates, assumes, incurs or suffers to exist any
Lien on any asset, tangible or intangible, now owned or hereafter acquired,
other than in the same manner, and subject to the same limitations, as
otherwise permitted under sub-clause (b) of Clause ‎5.2.1 (Negative Pledge)
and except as set out on Schedule 1 (Existing
Encumbrances); for the avoidance of doubt for this purpose,
reference to “Subsidiaries”  (including
in the definition of “Permitted Indebtedness”) shall include Subsidiaries of
the Parent;


 


6.1.8         the Parent making a Disposition (as defined in sub-clause 5.2.2 (a))
of any of its properties or assets, tangible or intangible, other than in the
same manner, and subject to the same limitations, as otherwise permitted under
sub-clause (b) of Clause ‎5.2.2 (Disposals) and
except as set out in Schedule 3 (Dispositions);
for the avoidance of doubt for this purpose, references to “Subsidiaries”
includes Subsidiaries of the Parent;;


 


34





















 


6.1.9         non-compliance by the Parent or its ERISA
Affiliates of the covenant set forth in Clause ‎5.1.5 (ERISA);


 


6.1.10       default by the Obligor in the observance or performance of any other
covenant or agreement contained in this Agreement or any other Fundamental
Document and the continuance thereof unremedied for
10 days after receipt by the Obligor of written notice of the default from the
Lender;


 


6.1.11       an order shall be made by a competent court or a resolution shall be
passed for the winding up or dissolution or rehabilitation of the Parent or the
Obligor save for the purposes of amalgamation, merger, consolidation,
reorganization or other similar arrangement on terms approved by the Lender
(not involving the insolvency of the Parent or the Obligor) and save that if
any such order or resolution is sought in an involuntary proceeding against any
the Person, such Person shall have thirty (30) days from the commencement of
such proceeding to obtain an order staying, vacating or dismissing such
proceedings, or a petition shall be presented to, or an order shall be made by
a competent court for the appointment of, an administrator of the Parent or the
Obligor and such petition or order shall not have been stayed, vacated or
dismissed within thirty (30) days after the presentation of such petition or
the making of such order;


 


6.1.12       the Parent or the Obligor shall cease to carry on the whole or
substantially the whole of its business, save for the purposes of amalgamation,
merger, consolidation, reorganization or other similar arrangement (not
involving or arising out of the insolvency of the Parent or the Obligor) which
is permitted hereunder, or the Parent or the Obligor shall suspend payment of
its debts generally or shall be unable to, or shall admit inability to, pay its
debts as they fall due, or shall be adjudicated or found bankrupt or insolvent
by any competent court in a voluntary or involuntary bankruptcy or insolvency
proceeding and, in the case of an involuntary proceeding, such adjudication or
finding is not stayed, vacated or dismissed for thirty (30) days, or shall
enter into any composition or other similar arrangement with its creditors
generally;


 


6.1.13       a receiver, administrator, liquidator or other similar official
shall be appointed in relation to the Parent or the Obligor or in relation to
the whole or a substantial part of its assets or to the Collateral or a
distress, execution or other process shall be levied or enforced upon or out
against, or any encumbrance shall take possession of, the whole or a substantial
part of its assets or the Collateral and in any of the foregoing cases, such
action or person shall not be discharged, dismissed, vacated, stayed or bonded
within thirty (30) days;


 


6.1.14       any seizure, vesting or intervention by or under authority of a
government occurs, by which the Parent’s or the Obligor’s management is
displaced or its authority in the conduct of its business is curtailed;


 


35





















 


6.1.15       default by the Parent or the Obligor in (i) any payment of principal
of or interest of any Indebtedness beyond the period of grace, if any, provided
in the instrument or agreement under which such Indebtedness was created; or
(ii) default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated maturity, provided  that
the aggregate principal amount of all Indebtedness under paragraphs (i) and
(ii) of this sub-clause ‎6.1.15
which would then become due and payable would equal or exceed, in the case of
the Parent or the Obligor, $15,000,000; or


 


6.1.16       One or more judgments or decrees shall be entered against the Parent
or the Obligor involving in the aggregate a liability (to the extent not paid
or covered by insurance) of, in the case of the Parent or the Obligor,
$15,000,000 or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 60 days after the
entry thereof.


 


6.2         Remedies


 


6.2.1         Without limiting any other rights or remedies of the Lender provided
for elsewhere in this Agreement or any other Fundamental Document, or by
applicable law, or in equity, or otherwise, (i) if any Event of Default shall
occur and be continuing with respect to the Obligor, the Lender may, by notice
to the Obligor, declare all amounts owing under this Agreement and any Letters
of Credit (whether or not such Letter of Credit Obligations be contingent or unmatured) issued at the request of the Obligor to be
forthwith due and payable, whereupon all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Obligor,
and (ii) if any Event of Default shall occur and be continuing with respect to
the Parent, the Lender may, by notice to the Obligor, declare all amounts owing
under this Agreement and any Letters of Credit (whether or not such Letter of
Credit Obligations be contingent or unmatured) issued
at the request of the Obligor to be forthwith due and payable, whereupon all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Obligor.  The
Lender may immediately take any and all remedies with respect to the Collateral
permitted by the Security Documents.


 


6.2.2         Upon declaration as provided for above, the Obligor shall, as
specified in written notice by the Lender, either (i) immediately deliver to
the Lender, any amounts


 


36





















 


required
to be paid in accordance with sub-clause ‎6.2.1 hereof (the “Letter of Credit Amount”), or (ii) with the
consent of the Beneficiary or Beneficiaries thereof, cause any Letters of
Credit to be cancelled forthwith in a manner satisfactory to the Lender.  In addition to providing the Letter of Credit
Amount, the Obligor shall provide the Lender with any documentation as the
Lender may from time to time request to perfect its rights in the Letter of
Credit Amount, including, without limitation, pledge agreements and financing
statements in form and substance satisfactory to the Lender.  The Lender shall hold the Letter of Credit
Amount in its own name, for the exclusive purpose of applying such Letter of
Credit Amount toward the immediate payment of amounts which are thereafter
drawn under any Letter of Credit, and, to the extent of such payment, the
Reimbursement Obligations shall be deemed to be satisfied.  Upon the expiry date of all Letters of
Credit, any Letter of Credit Amount remaining after satisfaction of all
Reimbursement Obligations shall be remitted to the order of the relevant
Obligor.  The Obligor shall remain liable
for the relevant amount of any deficiency in respect of its Letter of Credit
Obligations and Reimbursement Obligations.


 


6.2.3         Upon the occurrence and during the continuation of any Default or
Event of Default under this Agreement, no Letter of Credit shall be issued,
renewed or extended under this Agreement without the consent of the Lender.


 


7.           MISCELLANEOUS


 


7.1         Amendments and Waivers


 


No amendment
or waiver of any provision of this Agreement or any other Fundamental Document
nor consent to any departure by the Obligor therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Lender and the Obligor and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.


 


7.2         Addresses for Notices


 


All notices
and other communications provided for hereunder shall be in writing unless
otherwise stated herein and shall be delivered by e-mail, fax, hand delivery,
or recognized courier service that provides delivery within two Business Days:


 


if to Arch
Reinsurance Ltd., at:


 


Wessex House


45 Reid Street


Hamilton HM 12


Bermuda


Attn:  Controller


Telephone:  +1 (441) 278-9200


 


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Facsimile:  +1 (441) 278-9230


E-mail:  michelle.seymour@archreinsurance.bm


 


if to the
Lender, at


 


54 Lombard
Street


London EC3V
9EX


England


Attn:  Richard Askey/Malcolm
Heard/Brendan Mahoney


Telephone:  +44 (0) 207 699 3124/3314 or switchboard +44
(0) 207 699 5000


Facsimile:  +44 (0) 207 699 2407


E-mail: Richard.G.Askey@barclayscorporate.com


Malcolm.Heard@barclayscorporate.com or Brendan.Mahoney@barclayscorporate.com


and
shall be effective when delivered at the address specified in or pursuant to
this Clause, or such other address notified to the other party in writing.


 


7.3         Successors and Assigns


 


This Agreement
is a continuing obligation of the Obligor and shall, until the date on which
all amounts due and owing hereunder are paid in full (i) be binding upon the
Obligor, its successors and assigns, and (ii) inure to the benefit of and be
enforceable by the Lender and its successors and assigns, provided  that any
assignment of this Agreement or any part hereof by the Obligor shall be void.


 


7.4         Payment of Expenses and Taxes;
Indemnities


 


7.4.1         (i) The Obligor hereby agrees to pay or reimburse the Lender for all
its out-of-pocket costs and expenses incurred in connection with the
development, preparation and attention to the execution of the Fundamental
Documents, and of documents embodying or relating to amendments, waivers or
consents with respect to any of the foregoing, including the reasonable fees
and out-of-pocket costs and expenses of counsel to the Lender, (ii) the Obligor
agrees to pay and to save the Lender from all registration, recording and
filing fees and all liabilities with respect to, or resulting from, any delay
by the Obligor in paying stamp and other Taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, any
of the Fundamental Documents or any amendment, waiver or consent with respect
thereto or the consummation of any of the transactions contemplated thereby,
(iii) the Obligor agrees to pay or reimburse the Lender for all its
out-of-pocket costs and expenses incurred in connection with the preparation
and attention to the execution and issuance of Letters of Credit issued at the
request of the Obligor and (iv) the Obligor agrees to pay or reimburse the
Lender for all out-of-pocket costs and expenses incurred by it in connection
with the enforcement or preservation of any rights against the Obligor under or
in respect of this Agreement and the other Fundamental Documents (including the
fees and expenses of lawyers retained by the Lender, including the allocated
costs of internal counsel, and remuneration


 


38





















 


paid to agents and experts not in the full-time employ
of the Lender for services rendered on behalf of the Lender) on a full
indemnity basis.  All such amounts will be paid by the Obligor
on demand.


 


7.4.2         The Obligor agrees to indemnify the Lender, and its directors,
officers, employees, agents and Affiliates from, and hold each of them harmless
against, any and all claims, damages, losses, liabilities, costs and expenses
(including without limitation, reasonable fees and disbursements of counsel)
arising as a consequence of (i) any failure by the Obligor to pay the Lender,
as required under this Agreement, punctually on the due date thereof, any
amount payable by the Obligor to the Lender or (ii) the acceleration, in
accordance with the terms of this Agreement, of the time of payment of any of
the Reimbursement Obligations, except to the extent caused by the Lender’s
negligence or wilful misconduct or breach of this Agreement.  Such losses, costs or expenses may include,
without limitation, (i) any costs incurred by the Lender in carrying funds to
cover any overdue principal, overdue interest, or any other overdue sums
payable by the Obligor to the Lender or (ii) any losses incurred or sustained
by the Lender in liquidating or reemploying funds acquired by the Lender from
third parties.


 


7.4.3         The Obligor agrees to indemnify the Lender, and its directors,
officers, employees, agents and Affiliates from, and hold each of them harmless
against, any and all claims, damages, liabilities, losses, costs and expenses
(including without limitation, reasonable fees and disbursements of counsel)
arising out of or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings) with respect to the Obligor relating to any transaction
contemplated by this Agreement or any other Fundamental Document, any actions
or omissions of the Obligor or any of the Obligor’s directors, officers,
employees or agents in connection with this Agreement or any other Fundamental
Document, including without limitation, the reasonable fees and disbursements
of counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or wilful misconduct of
the Person to be indemnified).


 


7.5         Right of Set-Off


 


The Obligor
agrees that, in addition to (and without limitation of) any right of setoff,
banker’s Lien or counterclaim the Lender may otherwise have, the Lender shall
be entitled, at its option, to offset balances (general or special, time or
demand, provisional or final, and regardless of whether such balances are then
due to the Obligor) held by it for the account of the Obligor at any of the
Lender’s offices, in Dollars or in any other currency, against any amount
payable by the Obligor under this Agreement or any Letter of Credit that is not
paid when due, taking into account any applicable grace period, in which case
it shall promptly notify the Obligor thereof, provided  that the Lender’s failure


 


39





















 


to give such
notice shall not affect the validity thereof. 
In furtherance thereof, the Obligor hereby grants to the Lender, a
continuing Lien, security interest and right of setoff as security for all
liabilities and obligations to the Lender, whether now existing or hereafter
arising, upon and against all deposits, credits, collateral and property of the
Obligor, now or hereafter in the possession, custody, safekeeping or control of
the Lender or any entity under the control of Fleet National Bank and its
successors and assigns or in transit to any of them.  At any time after the occurrence of an Event
of Default, without demand or notice (any such notice being expressly waived by
the Obligor), the Lender may setoff the same or any part thereof and apply the
same to any liability or obligation of the Obligor even though unmatured and regardless of the adequacy of any other
collateral securing the Obligor’s obligations hereunder.  ANY AND ALL RIGHTS TO REQUIRE THE LENDER TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE OBLIGOR’S OBLIGATIONS HEREUNDER, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE OBLIGOR,
ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.  At the option of the Lender, if there is a
separate revolving line of credit, line of credit, or other credit facility
existing between the Lender and the Obligor, the Lender is irrevocably authorized
to satisfy the Obligor’s reimbursement obligation to the Lender, in whole or in
part, by making an advance under such facility.


 


7.6         Governing Law


 


This
Agreement, and the rights and obligations of the parties hereunder, shall be
governed by, and construed in accordance with the laws of the State of New York
without giving effect to the choice of law or conflicts of law principles
thereof.


 


7.7         Consent to Jurisdiction


 


The Obligor
hereby expressly submits to the non-exclusive jurisdiction of all federal and
state courts sitting in the State of New York, and agrees that any process or
notice of motion or other application to any of said courts or a judge thereof
may be served upon the Obligor within or without such court’s jurisdiction by
registered or certified mail, return receipt requested, or by personal service,
at the Obligor’s address (or at such other address as the Obligor shall specify
by a prior notice in writing to the Lender), provided reasonable time for
appearance is allowed.  The Obligor
hereby irrevocably waives any objection which it may now or hereafter have to
the laying of venue to any suit, action or proceeding arising out or relating
to this Agreement brought in any federal or state courts sitting in the State
of New York and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.  Notwithstanding the
foregoing, the Lender may sue the Obligor in any jurisdiction where the Obligor
or any of its assets may be found and may serve legal process upon the Obligor
in any other manner permitted by law.


 


40





















 


7.8         Waiver of Jury Trial


 


THE OBLIGOR
AND THE LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL
DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE ADMINISTRATION OF
THIS AGREEMENT OR ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NO
PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. 
EXCEPT AS PROHIBITED BY LAW, THE OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY
HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.  THE OBLIGOR CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER.  THIS
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER INTO THIS
AGREEMENT AND THE OTHER FUNDAMENTAL DOCUMENTS.


 


7.9         Interest


 


All agreements
between the Lender and the Obligor are hereby expressly limited so that in no
contingency or event whatsoever shall the amount paid or agreed to be paid to
the Lender for the use or the forbearance of the indebtedness evidenced hereby
exceed the maximum permissible under applicable law.  As used herein, the term “applicable law”
shall mean the law in effect as of the date hereof; provided, however,
that in the event there is a change in the law which results in a higher
permissible rate of interest, then this Agreement shall be governed by such new
law as of its effective date.  In this
regard, it is expressly agreed that it is the intent of the Lender and the
Obligor in the execution, delivery and acceptance of this Agreement to contract
in strict compliance with the laws of the State of New York from time to time
in effect.  If, under or from any
circumstances whatsoever, fulfilment of any provision hereof or of any of the
agreements executed herewith at the time of performance of such provision shall
be due, shall involve transcending the limit of such validity prescribed by
applicable law, then the obligation to be fulfilled shall automatically be
reduced to the limits of such validity, and if under or from circumstances
whatsoever the Lender should ever receive as interest an amount which would
exceed the highest lawful rate, such amount which would be excessive interest
shall be applied to the reduction of the principal balance evidenced hereby and
not


 


41





















 


to the
payment of interest.  This provision shall control every other
provision of all agreements between the Obligor and the Lender.


 


7.10       Confidentiality


 


The Lender
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential in accordance
with the terms of this Agreement, (b) to the extent requested by any regulatory
authority or self-regulatory body, (c) to the extent required by applicable
laws or regulations or by any subpoena or similar legal process, (d) to any
other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) with the consent of the Obligor or
(h) to the extent such Information (i) becomes publicly available other than as
a result of a breach of this Clause ‎7.10.  For the purposes of
this Clause ‎7.10,
“information” means all information received by the Lender relating to the
Parent or Obligor or any Subsidiary of the Parent or Obligor or their
respective businesses, other than any such information that is available to the
Lender on a non-confidential basis prior to disclosure by the Parent or
Obligor.  Any Person required to maintain
the confidentiality of Information as provided in this Clause ‎7.10 shall be considered to have
complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information or the Lender has
treated such Information in a manner consistent with banking industry standards
for the treatment of confidential information. 
Notwithstanding anything herein to the contrary, each party to this
Agreement (and any employee, representative or other agent of each such party)
may disclose to any and all Persons, without limitation of any kind, the U.S.
federal income tax treatment and the U.S. federal income tax structure of the
transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are provided to it relating to such tax
treatment and tax structure.  However, no
disclosure of any information relating to such tax treatment or tax structure
may be made to the extent nondisclosure is reasonably necessary in order to
comply with applicable securities laws. 
The provisions of this Clause ‎7.10 shall survive the Facility Termination Date and the Letter of
Credit Obligations hereunder.


 


7.11       Table of Contents and Captions


 


The Table of
Contents hereof and captions herein are included for convenience of reference
only and shall not constitute a part of this Agreement for any other purpose.


 


7.12       Integration


 


This Agreement
is intended by the parties as the final, complete and exclusive statement of
the transactions evidenced by this Letter of Credit and Reimbursement Agreement.  All


 


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prior or
contemporaneous promises, agreements and understandings, whether oral or
written, are deemed to be superseded by this Agreement, and no party is relying
on any promise, agreement or understanding not set forth in this Agreement.


 


7.13       Counterparts


 


This Agreement
may be executed in multiple counterparts each of which shall be an original and
all of which when taken together shall constitute but one and the same
Agreement.


 


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IN WITNESS WHEREOF, the parties have
caused this Agreement to be duly executed and delivered by their respective
officers, as an instrument under seal, as of the date first above written.


 


 


ARCH REINSURANCE LTD., as Obligor


 


By:


 


Name:


 


Title:


 


 


BARCLAYS BANK PLC, as Lender


 


By:


 


Name:


 


Title:


 


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