EX-10.1






Exhibit 10.1




	 
	Master Confirmation of OTC Collared ASAP Minus







	 	 	 	 	 
	Date:

	 	December 24, 2007
	 	ML Ref:
	To:

Attention:

From:

	 	Max Capital Group Ltd.

Peter Minton

Merrill Lynch International (“MLI”)

Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ
	 	


















	 	 	     





Dear Sir / Madam:



The purpose of this letter agreement (the “Master Confirmation”) and the supplemental
confirmation substantially in the form attached hereto as Exhibit A (the “Supplemental
Confirmation”, together with the Master Confirmation, this “Confirmation”) is to
confirm the terms and conditions of the above-referenced transaction entered into between
Counterparty and MLI through its agent Merrill Lynch, Pierce, Fenner & Smith Incorporated
(“MLPF&S” or “Agent”) on the Trade Date specified in the Supplemental Confirmation
(the “Transaction”). This Confirmation constitutes a “Confirmation” both on behalf of MLI,
as referred to in the ISDA Master Agreement specified below, and on behalf of MLPF&S, as agent of
MLI.



The definitions and provisions contained in the 2000 ISDA Definitions (the “Swap
Definitions”) and the 2002 ISDA Equity Derivatives Definitions (the “Equity
Definitions” and, together with the Swap Definitions, the “Definitions”), in each case
as published by the International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Swap Definitions and the Equity
Definitions, the Equity Definitions will govern, in the event of any inconsistency between the
Definitions and the Master Confirmation, the Master Confirmation will govern, and in the event of
any inconsistency between the Master Confirmation and the Supplemental Confirmation, the
Supplemental Confirmation will govern. References herein to the “Transaction” shall be deemed to
be references to a “Share Forward Transaction” for purposes of the Equity Definitions and a “Swap
Transaction” for the purposes of the Swap Definitions.



This Confirmation evidences a complete binding agreement between you and us as to the terms of
the Transaction to which this Confirmation relates. This Confirmation (notwithstanding anything to
the contrary herein), shall be subject to an agreement in the 1992 form of the ISDA Master
Agreement (Multicurrency Cross Border) (the “Master Agreement” or “Agreement”) as
if we had executed an agreement in such form (but without any Schedule and with elections specified
in the “ISDA Master Agreement” Section of the Master Confirmation) on the Trade Date. In the event
of any inconsistency between the provisions of that agreement and this Confirmation, this
Confirmation will prevail for the purpose of the Transaction.



	 	 	 
	The terms of the Transaction to which the Master Confirmation relates are as follows:

	General Terms:

	 	

	 

	 	

	Trade Date:

Buyer:

Seller:

Shares:

Number of Shares:

Settlement Price:

Forward Price:

Forward Price

Adjustment Amount:

Calculation Period:

Termination Date

Accelerated Termination Date:

First Acceleration Date:

Hedge Period:

Hedging Initiation Date:

Hedging Completion Date:

Initial Hedge Position:

Hedge Period Reference Price:

Calculation Period Suspension:

Exchange:

Prepayment/Variable

Obligation:

Prepayment Amount:

Prepayment Date:

Initial Share Delivery:

Initial Share Delivery Date:

Settlement Terms:

	 	As set forth in the Supplemental Confirmation.

Counterparty

MLI

Common shares, par value USD $1.00 per share, of Counterparty (Symbol: MXGL)

The result of the Prepayment Amount divided by the Settlement Price, subject to a

maximum number of Shares equal to Maximum Shares and a minimum number of Shares equal

to the Minimum Shares.

Forward Price minus Forward Price Adjustment Amount.

The average of the daily volume weighted average price per Share for all Rule 10b-18

eligible transactions on the Exchange in the Shares for each Exchange Business Day in

the Calculation Period (without regard to pre-open or after hours trading outside of

any regular trading session for each Exchange Business Day), as published by Bloomberg

at 4:15 pm New York City time on each Exchange Business Day during the Calculation

Period on page “MXGL.UQ <EQUITY> AQR SEC”, or such other page published by

Bloomberg or by another reporting service selected by the Calculation Agent (in

respect of any day, the “10b-18 VWAP Price”). For purposes of calculating the Forward

Price or the Unwind Forward Price, the Calculation Agent will include only those

trades which are reported during the period of time during which Counterparty could

purchase its own shares under Rule 10b-18(b)(2), and pursuant to the conditions of

Rule 10b-18(b)(3) and (b)(4) each under the Securities Exchange Act of 1934, as

amended (the “Exchange Act”).



As set forth in the Supplemental Confirmation.

Each Exchange Business Day immediately following the Hedging Completion Date up to and

including the Termination Date.

For each Transaction, the earlier to occur of: a) the date set forth in the

Supplemental Confirmation (as the same may be postponed in accordance with the

provisions hereof) (the “Scheduled Termination Date”), b) any Accelerated Termination

Date.

For each Transaction, any date, occurring on or after the First Acceleration Date but

prior to the Scheduled Termination Date, designated by MLI to be the Termination Date;

MLI shall notify Counterparty of such designation prior to 8 p.m. New York City time

on the Scheduled Trading Day immediately following such Accelerated Termination Date.

For each Transaction, as set forth in the Supplemental Confirmation.

Each consecutive Exchange Business Day beginning on the Hedging Initiation Date and

ending on the Hedging Completion Date, which is the period that MLI purchases Shares

to establish the Initial Hedge Position.

As set forth in the Supplemental Confirmation.

As set forth in the Supplemental Confirmation.

As set forth in the Supplemental Confirmation.

For each Transaction, as set forth in the Trade Notification, to be the arithmetic

average of the VWAP Prices for each Exchange Business Day in the Hedge Period.

In the event that either (i) MLI concludes, in its reasonable discretion, that it is

appropriate with respect to any legal, regulatory or self-regulatory requirements or

related policies and procedures (whether or not such requirements, policies or

procedures are imposed by law or have been voluntarily adopted by MLI) for it to

refrain from purchasing Shares on any relevant Scheduled Trading Day during a

Calculation Period or Unwind Averaging Period (each, a “Relevant Period”) (ii) any

Scheduled Trading Day during a Relevant Period is a Disrupted Day or (iii) in the

event that Counterparty determines in its sole discretion to undertake an offering of

Shares and MLI concludes, in its reasonable discretion, that Counterparty will be

engaged in a distribution of the Shares for purposes of Regulation M under the

Exchange Act, then, following any of the events above, MLI may by written notice to

Counterparty elect to exclude such number of Scheduled Trading Days, or portion

thereof, from a Relevant Period, as is specified in the notice. The notice shall not

specify, and MLI shall not otherwise communicate to Counterparty the reason(s) for

excluding all or a portion of one or more Scheduled Trading Days from a Relevant

Period. The Calculation Agent shall extend the Relevant Period to account for each

Scheduled Trading Day or portion thereof excluded from the Relevant Period.

If, in good faith, the Calculation Agent excludes a portion of a Scheduled Trading Day

from a Relevant Period (a “Partially Excluded Day”) the Calculation Agent shall in

calculating the Forward Price or Unwind Forward Price, extend the Relevant Period and

make adjustments to the weighting of the 10b-18 VWAP Prices during the Relevant

Period, with such adjustments based on, among other factors, the portion of the

Partially Excluded Day excluded and the volume, historical trading patterns and price

of the Shares.

Nasdaq National Market



Applicable

As set forth in the Supplemental Confirmation.

One (1) Exchange Business Day following the Hedging Initiation Date.

MLI shall deliver a number of shares specified in the Supplemental Confirmation to

Counterparty on the Initial Share Delivery Date

One (1) Exchange Business Day following the Hedge Completion Date. The Initial Share

Delivery Date shall be deemed a “Settlement Date” for purposes of Section 9.4 of the

Equity Definitions.



	 

	 	

	Physical Settlement:

Number of Shares

to be Delivered:

Settlement Date:

Settlement Currency:

Minimum Shares:

Maximum Shares:

Share Adjustments:

	 	Applicable



A number of Shares equal to (i) the Number of Shares, minus (A) Initial Share

Delivery; provided, however, that the Number of Shares to be Delivered cannot be less

than zero.

Three (3) Exchange Business Days following the Termination Date.

USD (all amounts shall be converted to the Settlement Currency by the Calculation

Agent)

As set forth in the Supplemental Confirmation.

As set forth in the Supplemental Confirmation.



	Method of Adjustment:

	 	Calculation Agent Adjustment, (but see Early Unwind as defined below)







For the avoidance of doubt, the Calculation Agent will not take into
account any increases in the stock borrow or dividends when making
any adjustments to the relevant terms of the related Transaction.



	 	 	 
	Extraordinary Events:

	 	

	 

	 	

	Consequences of Merger Events:

	 	

	Share-for-Share:

Share-for-Other:

	 	Calculation Agent Adjustment, but see Early Unwind

Calculation Agent Adjustment, but see Early Unwind
	Share-for-Combined:

Tender Offer:

Consequences of Tender Offers:

	 	Calculation Agent Adjustment, but see Early Unwind

Applicable



	Share-for-Share:

Share-for-Other:

	 	Calculation Agent Adjustment, but see Early Unwind

Calculation Agent Adjustment, but see Early Unwind
	Share-for-Combined:

	 	Calculation Agent Adjustment, but see Early Unwind
	Nationalization, Insolvency

or Delisting:

Additional Acknowledgement:

Additional Disruption Events:

	 	

Negotiated Close-Out, but see Early Unwind

Counterparty acknowledges that, notwithstanding anything herein or in the Definitions to the

contrary, on or within 5 Exchange Business Days after the Announcement Date of an Extraordinary

Event (irrespective of whether the event corresponding to the Announcement on the Announcement Date

is consummated), which Announcement Date occurs during the Calculation Period, the Seller may

notify Counterparty of Seller’s election to Early Unwind with respect to the Transaction.



	Hedging Disruption:

Increased Cost of Hedging:

Hedging Party:

Determining Party:

Early Unwind:

	 	Applicable

Not Applicable

MLI

MLI

Seller or Hedging Party, as the case may be, will have the right to terminate a Transaction and

designate the occurrence of an Early Unwind on any day following the determination by the

Calculation Agent of a public announcement or occurrence, whichever is earlier, of any of the

following events: a) a Merger Event, Tender Offer, Nationalization, Insolvency or Delisting, b) an

Additional Disruption Event or an Extraordinary Dividend (as defined below), c) an Event of Default

or Termination Event under the ISDA Master Agreement with respect to Counterparty as the

Defaulting or sole Affected Party, as the case may be, or d) a Potential Adjustment Event and the

Calculation Agent determines that no adjustment that it could make would produce a commercially

reasonable result.

In the event that the Hedging Party or Seller, as the case may be, designates an Early Unwind, then

the following terms shall become applicable to the relevant Transaction:







(i) the Number of Shares to be Delivered shall equal (a) the
Prepayment Amount, divided by (b) the Unwind Forward Price (as
defined below), with such result reduced by the Initial Share
Delivery (the “Unwind Number of Shares to be Delivered”);
for the avoidance of doubt: x) the Unwind Number of Shares to be
Delivered shall not be subject to the Minimum



	 	 	 
	Shares and Maximum Shares limitations, and y) if the Unwind Number of Shares to

	be Delivered is a negative number, neither party shall have a delivery

	obligation to the other of the absolute value of such negative number;

	The Final Unwind

Averaging Date:

Non-Reliance/Agreements and

Acknowledgements Regarding

Hedging Activities/Additional

Acknowledgements:

Dividends:

	 	(ii) the Unwind Forward Price shall equal the

average of the 10b-18 VWAP Prices for the

Unwind Averaging Period (as defined below), and

there shall be no Forward Price Adjustment

Amount; and

(iii) the “Unwind Averaging Period” shall be

each Exchange Business Day from and including

the Hedging Initiation Date to and including

the Final Unwind Averaging Date.



In connection with an Early Unwind, the

Exchange Business Day that MLI is able, acting

in a commercially reasonable manner, to close

out its hedge position with respect to the

Transaction.







Applicable

Counterparty shall promptly notify MLI of its

intention to declare or pay any dividends

during the Calculation Period or Unwind

Averaging Period, as the case may be, other

than regular dividends per calendar quarter in

the amount of $0.09 per share or less (“Regular

Dividends”, with all other dividends, whether a

quarterly dividend in a greater amount or a

dividend other than a quarterly dividend,

referred to as an “Extraordinary Dividend”).

There shall be no adjustment to the terms of a

Transaction to take into account of a Regular

Dividend. If an ex-dividend date occurs during

the Calculation Period or the Unwind Averaging

Period, as the case may be, with respect to an

Extraordinary Dividend, then MLI may terminate

the Transaction and designate an Early Unwind.






Additional Agreements, Representations and Covenants of Counterparty, Etc.:



Counterparty hereby represents and warrants to MLI that:



(a) During the Hedge Period, other than purchases made in connection with any of
Counterparty’s employee benefit plans, neither Counterparty nor any “affiliated purchaser” (as such
term is defined in Rule 10b-18 under the Exchange Act) will acquire Shares (or equivalent interests
or securities exchangeable, convertible or exercisable into Shares) or be a party to any repurchase
or similar agreements pursuant to which a valuation, averaging or hedging period overlaps with the
Hedge Period; and



(b) As of the date of this Agreement, Counterparty is not in possession of any material
nonpublic information regarding Counterparty or Shares.



Additional Representations, Warranties and Covenants of MLI:



MLI hereby represents and warrants to Counterparty that during the Hedge Period: (a) it and
each person or entity subject to its control or acting on its behalf will purchase Shares in
respect of the Transaction in compliance with the time of purchase, price of purchase and volume of
purchase provisions of Rule 10b-18 under the Exchange Act.



(b) it will conduct its purchases in connection herewith in a manner that would not be deemed
to constitute a tender offer within the meaning of Section 14(d)(1) of the Exchange Act; and



(c) for the avoidance of doubt, MLI has implemented reasonable policies and procedures, taking
into consideration that nature of its business, to ensure that individuals making investment
decisions would not violate laws prohibiting trading on the basis of material nonpublic
information. Such individuals shall not be in possession of material nonpublic information during
all relevant times beginning on the date hereof and continuing through the Hedge Period and the
Calculation Period for any Transaction.



	 	 	 
	
 
	 	Each party represents and agrees that it has

complied, and will comply, in connection with

the Transaction and all related or

contemporaneous sales and purchases of Shares,

with the applicable provisions of the

Securities Act, and the Exchange Act, and the

rules and regulations each thereunder,

including, without limitation, Rules 10b-5 and

Regulation M under the Exchange Act; provided

that each party shall be entitled to rely

conclusively on any information communicated by

the other party concerning such other party’s

market activities.
	
 
	 	 
	Compliance with Securities

Laws:

	 	Each party acknowledges that the offer and sale

of each Transaction to it is intended to be

exempt from registration under the Securities

Act of 1933, as amended (the “Securities Act”),

by virtue of Section 4(2) thereof and/or the

provisions of Regulation D promulgated

thereunder (“Regulation D”). Accordingly, each

party represents and warrants to the other that

(i) it has the financial ability to bear the

economic risk of its investment in each

Transaction and is able to bear a total loss of

its investment, (ii) it is an “accredited

investor” as that term is defined under

Regulation D, (iii) it will purchase each

Transaction not with a view to the distribution

or resale thereof in a manner that would

violate the Securities Act and (iv) the

disposition of each Transaction is restricted

under this Master Confirmation, the Securities

Act and state securities laws.

The parties hereby agree that all documentation

with respect to the Transaction is intended to

qualify the Transaction as an equity instrument

for purposes of EITF 00-19. If Counterparty

would be obligated to receive cash from Seller

pursuant to the terms of this Confirmation for

any reason without having had the right (other

than pursuant to this paragraph) to elect to

receive Shares in satisfaction of such payment

obligation, then Counterparty may elect that

Seller deliver to Counterparty a number of

Shares having a cash value equal to the amount

of such payment obligation (such number of

Shares to be delivered to be determined by the

Calculation Agent acting in a commercially

reasonable manner to determine the number of

Shares that could be purchased over a

reasonable period of time with the cash

equivalent of such payment obligation).

Settlement relating to any delivery of Shares

pursuant to this paragraph shall occur within a

reasonable period of time.

For the avoidance of doubt, the parties hereby

acknowledge that Counterparty will under no

circumstances be required to pay any additional

amount in excess of the Prepayment Amount or

deliver any Shares to MLI pursuant to the terms

of any Transaction under this Master

Confirmation.
	
 
	 	Counterparty represents and warrants as of the

date hereof and the Trade Date that:
	
 
	 	(a) each of its filings under the Exchange Act

that are required to be filed from and

including the ending date of Counterparty’s

most recent prior fiscal year have been filed,

and that, as of the respective dates thereof

and hereof (as such filings may be amended or

supplemented), there is no misstatement of

material fact contained therein or omission of

a material fact required to be stated therein

or necessary to make the statements therein in

light of the circumstances in which they were

made not misleading;
	
 
	 	(b) Counterparty is not entering into the

Transaction to facilitate a distribution of the

common shares or in connection with a future

distribution of securities;
	
 
	 	(c) Counterparty is not entering into the

Transaction to create actual or apparent

trading activity in the common shares (or any

security convertible into or exchangeable for

common shares) or to manipulate the price of

the common shares (or any security convertible

into or exchangeable for common shares);
	
 
	 	(d) Counterparty acknowledges and agrees that

(i) the Transaction shall be made in MLI’s sole

discretion and for MLI’s sole account and (ii)

Counterparty does not have, and shall not

attempt to exercise, any influence over how,

when or whether to effect the Transaction,

including, without limitation, the price paid

or received per Share pursuant to the

Transaction. It is the intent of MLI and

Counterparty that this Transaction comply with

the requirements of Rule 10b5-1(c) under the

Exchange Act and that this Confirmation shall

be interpreted to comply with the requirements

of Rule 10b5-1(c)(1)(i)(A) and (B) and MLI and

Counterparty shall take no action that results

in the Transaction not so complying with such

requirements;
	
 
	 	(e) Counterparty represents and warrants to

MLI that neither it nor any “affiliated

purchaser” (as defined in Rule 10b-18 under the

Exchange Act) has made any purchases of blocks

pursuant to the proviso in Rule 10b-18(b)(4)

under the Exchange Act during the four full

calendar weeks immediately preceding the Trade

Date;
	
 
	 	(f) the purchase or writing of the Transaction

will not violate Rule 13e-1 or Rule 13e-4 under

the Exchange Act, and Counterparty is not

entering into the Transaction in anticipation

of, or in connection with, or to facilitate a

self-tender offer or a third-party tender

offer; and
	
 
	 	(g) Counterparty acknowledges that the

Transaction is a derivatives transaction; MLI

may purchase Shares for its own account at an

average price that may be greater than, or less

than, the price paid by Counterparty under the

terms of the Transaction; Counterparty also

acknowledges that in connection with the

Transaction, MLI will be engaging in customary

hedging activities, including purchases of

Shares, in its sole discretion for its own

account apart from purchases of Delivered

Shares (as defined below) and such purchases

for hedging as to time, price and amount may

not necessarily satisfy the conditions

specified in Rule 10b-18.
	
 
	 	Counterparty covenants and agrees that:
	
 
	 	(a) during the term of the Transaction to

promptly notify any of the individuals named

below at MLI telephonically (which oral

communication shall be promptly confirmed by

telecopy to MLI), each of whom is

“over-the-wall” from traders at MLI or its

affiliates involved in the Trnasaction, if

Counterparty determines that as a result of an

acquisition or other business transaction or

for any other reason Counterparty will be

engaged in a distribution of Shares or other

securities for which the Shares are a reference

security for purposes of Rule 102 of Regulation

M under the Exchange Act and to promptly notify

MLI by telecopy of the period commencing on the

date that is one (1) business day before the

commencement of such distribution and ending on

the day on which Counterparty completes the

distribution (the “Distribution Period”);
	
 
	 	 
	
 
	 	(b) Without the prior written consent of MLI,

neither Counterparty nor any “affiliated

purchaser” (as such term is defined in Rule

10b-18 under the Exchange Act), other than

purchases made in connection with any of

counterparty’s employee benefit plans, will

acquire Shares (or equivalent interests or

securities exchangeable, convertible or

exercisable into Shares) or be a party to any

repurchase or similar agreements pursuant to

which a valuation, averaging or hedging period

overlaps or potentially overlaps with the term

of the Transaction, other than in those

transactions disclosed in writing to MLI on or

prior to the date hereof; in connection with

such disclosed transactions and otherwise,

Counterparty will not take any action that

would or could cause MLI’s or MLPF&S’s

purchases of Shares during the Transaction term

not to comply with Rule 10b-18 under the

Exchange Act, as if such rule applied to the

Transaction; and
	
 
	 	(c) Counterparty shall report the Transaction

as required in any applicable report filed by

the Counterparty pursuant to the Exchange Act

in compliance with Regulation S-K and/or

Regulation S-B under the Exchange Act, as

applicable.
	
 
	 	MLI covenants and agrees that it will purchase

the Shares delivered to Counterparty or

acquired to close out a stock borrow position

relating to the Initial Share Delivery

delivered to Counterparty in a manner that

complies with the limitations set forth in

clauses (b)(2), (b)(3), (b)(4) and (c) of Rule

10b-18 under the Exchange Act, as if such rule

could be applied to such purchases (“Delivered

Shares”).






	 	 	 
	Account Details:

	 	

	Account for payment to MLI: JP Morgan Chase Bank, New York

	Bankruptcy Rights:

Set-Off:

Collateral:

Transfer:

Regulation:

Indemnity:

	 	ABA# 021000021

FAO: MLI Equity Derivatives

A/C: 066213118

In the event of Counterparty’s bankruptcy, MLI’s rights in connection with the Transaction shall

not exceed those rights held by common shareholders. For the avoidance of doubt, the parties

acknowledge and agree that MLI’s rights with respect to any other claim arising from the

Transaction prior to Counterparty’s bankruptcy shall remain in full force and effect and shall not

be otherwise abridged or modified in connection herewith.

None.

None.

Counterparty may transfer any of its rights or delegate its obligations under the Transaction with

the prior written consent of MLI. MLI may assign and delegate its rights and obligations under the

Transaction (the “Transferred Obligations”) to any subsidiary of ML & Co. (the “Assignee”) by

notice specifying the effective date of such transfer (“Effective Date”) and including an executed

acceptance and assumption by the Assignee of the Transferred Obligations; provided that (i)

Counterparty will not, as a result of such transfer, be required to pay to the Assignee an amount

in respect of an Indemnifiable Tax under Section 2(d)(i)(4) of the Agreement (except in respect of

interest under Section 2(e), 6(d)(ii), or 6(e)) greater than the amount in respect of which

Counterparty would have been required to pay to MLI in the absence of such transfer; and (ii) the

Assignee will not, as a result of such transfer, be required to withhold or deduct on account of a

Tax under Section 2(d)(i) of the Agreement (except in respect of interest under Section 2(e),

6(d)(ii), or 6(e)) an amount in excess of that which MLI would have been required to withhold or

deduct in the absence of such transfer, unless the Assignee would be required to make additional

payments pursuant to Section 2(d)(i)(4) of the Agreement corresponding to such excess. On the

Effective Date, (a) MLI shall be released from all obligations and liabilities arising under the

Transferred Obligations; and (b) if MLI has not assigned and delegated its rights and obligations

under the Agreement and the Transaction thereunder, the Transferred Obligations shall cease to be a

Transaction under the Agreement and shall be deemed to be a Transaction under the master agreement,

if any, between Assignee and Counterparty, provided that, if at such time Assignee and Counterparty

have not entered into a master agreement, Assignee and Counterparty shall be deemed to have entered

into an ISDA form of Master Agreement (Multicurrency-Cross Border) with a Schedule substantially in

the form of the Schedule to the Agreement but amended to reflect the name of the Assignee and the

address for notices and any amended representations under Part 2 of the Agreement as may be

specified in the notice of transfer.

MLI is regulated by The Securities and Futures Authority Limited and has entered into the

Transaction as principal.

Counterparty agrees to indemnify MLI, its Affiliates and their respective directors, officers,

agents and controlling parties and MLI agrees to indemnify Counterparty, its Affiliates and their

respective directors, officers, agents and controlling parties (each such person being indemnified,

an “Indemnified Party” and each such person providing such an indemnity, an “Indemnifying Party”)

from and against any and all losses, claims, damages and liabilities, joint and several, to which

such Indemnified Party may become subject because of the untruth of any representation: a) in the

case were MLI is the Indemnified Party, by Counterparty or a breach by Counterparty of any

agreement or covenant under this Confirmation, in the Agreement or any other agreement relating to

the Agreement or the Transaction, or b) in the case were Counterparty is the Indemnified Party, by

MLI or a breach by MLI of any agreement or covenant under this Confirmation, in the Agreement or

any other agreement relating to the Agreement or the Transaction, and in either event, the relevant

Indemnifying Party will reimburse any Indemnified Party for all reasonable expenses (including

reasonable legal fees and expenses) as they are incurred in connection with the investigation of,

preparation for, or defense of, any pending or threatened claim or any action or proceeding arising

therefrom, whether or not such Indemnified Party is a party thereto provided, however, that an

Indemnifying Party shall have no liability to any Indemnified Party to the extent that any such

losses, claims, damages and liabilities, joint and several, (i) are finally determined by a court

of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such

Indemnified Party (and in any such case, such Indemnified Party shall promptly return to the

Indemnifying Party any amounts previously expended by the Indemnifying Party hereunder) or (ii) are

trading losses incurred by MLI as part of its purchase or sales of Shares pursuant to this

Confirmation (unless Counterparty has breached any agreement, term or covenant herein).






ISDA Master Agreement



With respect to the Agreement, MLI and Counterparty each agree as follows:



Specified Entities:




(i) in relation to MLI, for the purposes of:



	 	 	 
	Section 5(a)(v):not applicable

	 	

	 

	Section 5(a)(vi):not applicable

	 	

	 

	Section 5(a)(vii):

	 	not applicable
	 

	 	

	Section 5(b)(iv):

	 	not applicable
	 

	 	

	and (ii) in relation to Counterparty, for the purposes of:

	Section 5(a)(v):not applicable

	 	

	 

	Section 5(a)(vi):not applicable

	 	

	 

	Section 5(a)(vii):

	 	not applicable
	 

	 	

	Section 5(b)(iv):

	 	not applicable
	 

	 	







“Specified Transaction” will have the meaning specified in Section 14 of the Agreement.



The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the Agreement will not
apply to MLI and Counterparty.



The “Automatic Early Termination” provision of Section 6(a) of the Agreement will not apply
to MLI or to Counterparty.



Payments on Early Termination for the purpose of Section 6(e) of the Agreement: (i) Loss
shall apply; and (ii) the Second Method shall apply.



“Termination Currency” means USD.



Tax Representations:




	 	(I)	 	For the purpose of Section 3(e) of the Agreement, each party represents
to the other party that it is not required by any applicable law, as modified by
the practice of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of any Tax from
any payment (other than interest under Section 2(e), 6(d)(ii), or 6(e) of the
Agreement) to be made by it to the other party under the Agreement. In making this
representation, each party may rely on (i) the accuracy of any representations made
by the other party pursuant to Section 3(f) of the Agreement, (ii) the satisfaction
of the agreement contained in Section 4(a)(i) or 4(a)(iii) of the Agreement, and
the accuracy and effectiveness of any document provided by the other party pursuant
to Section 4(a)(i) or 4(a)(iii) of the Agreement, and (iii) the satisfaction of the
agreement of the other party contained in Section 4(d) of the Agreement; provided
that it will not be a breach of this representation where reliance is placed on
clause (ii) above and the other party does not deliver a form or document under
Section 4(a)(iii) of the Agreement by reason of material prejudice to its legal or
commercial position.






	 	(II)	 	For the purpose of Section 3(f) of the Agreement, each party makes the
following representations to the other party:






	 	(i)	 	MLI represents that it is a company organized under the
laws of England and Wales.






	 	(ii)	 	Counterparty represents that it is a corporation
incorporated under the laws of Bermuda and is a non-US individual,
corporation, partnership or other entity, that acts exclusively through
offices or agents located outside of the U.S.





Delivery Requirements: For the purpose of Sections 3(d), 4(a)(i) and (ii)
of the Agreement, each party agrees to complete (accurately and in a manner reasonably satisfactory
to the other party), execute, and deliver to the other party the following documents:



Tax forms, documents or certificates to be delivered are:



Any document required or reasonably requested to allow the other party to
make payments under this Agreement without any deduction or withholding for
or on account of any Tax or with such deduction or withholding at a reduced
rate.



Other documents to be delivered:



	 	 	 	 	 	 	 
	Party Required to	 	 	 	 	 	Covered by Section
	Deliver Document	 	Document Required to be Delivered	 	When Required	 	3(d) Representation
	Counterparty

	 	Evidence of the authority and

true signatures of each official

or representative signing this

Confirmation
	 	Upon or before

execution and

delivery of this

Confirmation
	 	





Yes
	 

	 	 
	 	 
	 	 
	Counterparty

	 	Certified copy of the resolution

of the Board of Directors or

equivalent document authorizing

the execution and delivery of

this Confirmation
	 	

Upon or before

execution and

delivery of this

Confirmation
	 	







Yes
	 

	 	 
	 	 
	 	 
	Each party

	 	Executed Supplemental

Confirmation, substantially in

the form of Exhibit A hereto, in

respect of the Transaction
	 	



On or before the

Trade Date
	 	





Yes
	 

	 	 
	 	 
	 	 
	MLI

	 	Guarantee of its Credit Support

Provider, substantially in the

form of Exhibit B attached

hereto, together with evidence

of the authority and true

signatures of the signatories,

if applicable
	 	





Upon or before

execution and

delivery of this

Confirmation
	 	











Yes
	 

	 	 
	 	 
	 	 






	 	 	 	 	 
	Addresses for Notices: For the purpose of Section 12(a) of the Agreement:

	Address for notices or communications to MLI:
	 	 
	Address:	 	c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
	
 
	 	Four World Financial Center

North Tower, 5th Floor

New York, NY 10080

Attention:
	 	





Equity-Linked Capital Markets -

Dariush Maanavi

Charles Hill

Gary Rosenblum






	 	 	 	 	 
	 
	 	Telephone No.:  (212) 449-6763
	 
	 	Facsimile No.:  (212) 738-1069
	(For all purposes)

	Address:
	 	Merrill Lynch & Co., Inc.
	 
	 	Merrill Lynch World Headquarters
	 
	 	4 World Financial Center, 5th Floor
	 
	 	New York, New York  10080
	 
	 	Attention:  Equity Linked COO
	 
	 	Facsimile No.:  (212) 738-1801     Telephone No.:  (212) 449-8637






(For all purposes)



Additionally, a copy of all notices pursuant to Sections 5, 6, and 7 as well as any changes to
Counterparty’s address, telephone number or facsimile number should be sent to:




Merrill Lynch & Co., Inc.


Merrill Lynch World Headquarters


4 World Financial Center, 21st Floor


New York, New York 10080


Attention: Head of Americas Credit Risk Management




and




Address: GMI Counsel


Merrill Lynch World Headquarters


4 World Financial Center, 5th Floor


New York, New York 10080


Attention: Equity Legal



Address for notices or communications to Counterparty for all purposes:




Max Capital Group Ltd.


Max Re House


2 Front Street


Hamilton, HM 11


Bermuda


Phone: (441) 296-8800


Attention: Peter Minton, Chief Operating Officer




With copies to:




Akin Gump Strauss Hauer & Feld LLP


590 Madison Avenue


New York, New York 10022


Phone: (212) 872-1095


Attention: Kerry E. Berchem, Esq.



Process Agent: For the purpose of Section 13(c) of the Agreement, MLI appoints as its process
agent:




	 	 	 	Merrill Lynch, Pierce, Fenner & Smith Incorporated






	 	222	 	Broadway, 16th Floor






	 	 	 	New York, NY 10038






	 	 	 	Attention: Litigation Department





Counterparty does not appoint a Process Agent.



Multibranch Party. For the purpose of Section 10(c) of the Agreement: Neither MLI nor
Counterparty is a Multibranch Party.



Calculation Agent. The Calculation Agent is MLI, whose judgments, determinations and calculations
in the Transaction and any related hedging transaction between the parties shall be made in good
faith and in a commercially reasonable manner.



Credit Support Document.



MLI: Guarantee of ML&Co in the form attached hereto as Exhibit B.



Counterparty: Not Applicable



Credit Support Provider.



With respect to MLI: Merrill Lynch and Co. and with respect to Counterparty, Not Applicable.



Governing Law. This Confirmation will be governed by, and construed in accordance with, the laws
of the State of New York.



Netting of Payments. The provisions of Section 2(c) of the Agreement shall not be applicable to
the Transaction.



Accuracy of Specified Information.  Section 3(d) of the Agreement is hereby amended by
adding in the third line thereof after the word “respect” and before the period the words “or, in
the case of audited or unaudited financial statements or balance sheets, a fair presentation of the
financial condition of the relevant person.”



Basic Representations. Section 3(a) of the Agreement is hereby amended by the deletion of
“and” at the end of Section 3(a)(iv); the substitution of a semicolon for the period at the
end of Section 3(a)(v) and the addition of Sections 3(a)(vi), as follows:



Eligible Contract Participant; Line of Business. It is an “eligible contract
participant” as defined in the Commodity Futures Modernization Act of 2000, and it
has entered into this Confirmation and the Transaction in connection with its
business or a line of business (including financial intermediation), or the
financing of its business.



Amendment of Section 3(a)(iii). Section 3(a)(iii) of the Agreement is modified to read as follows:



No Violation or Conflict. Such execution, delivery and performance do not
materially violate or conflict with any law known by it to be applicable to it, any
provision of its constitutional documents, any order or judgment of any court or
agency of government applicable to it or any of its assets or any material
contractual restriction relating to Specified Indebtedness binding on or affecting
it or any of its assets.



Amendment of Section 3(a)(iv). Section 3(a)(iv) of the Agreement is modified by inserting
the following at the beginning thereof:



“To such party’s best knowledge,”



Acknowledgements:



(1) The parties acknowledge and agree that there are no other representations, agreements or other
undertakings of the parties in relation to the Transaction, except as set forth in this
Confirmation.



(2) The parties hereto intend for:




(a) the Transaction to be a “securities contract” as defined in Section 741(7) of Title 11
of the United States Code (the “Bankruptcy Code”), qualifying for the protections
under Section 555 of the Bankruptcy Code;




(b) a party’s right to liquidate the Transaction and to exercise any other remedies upon the
occurrence of any Event of Default under the Agreement with respect to the other party to
constitute a “contractual right” as defined in the Bankruptcy Code;




(c) all payments for, under or in connection with the Transaction, all payments for the
Shares and the transfer of such Shares to constitute “settlement payments” as defined in the
Bankruptcy Code.



Amendment of Section 6(d)(ii). Section 6(d)(ii) of the Agreement is modified by deleting
the words “on the day” in the second line thereof and substituting therefor “on the day that is
three Local Business Days after the day”. Section 6(d)(ii) is further modified by deleting
the words “two Local Business Days” in the fourth line thereof and substituting therefor “three
Local Business Days.”



Amendment of Definition of Reference Market-Makers. The definition of “Reference Market-Makers” in
Section 14 is hereby amended by adding in clause (a) after the word “credit” and before the
word “and” the words “or to enter into transactions similar in nature to Transactions”.



Consent to Recording. Each party consents to the recording of the telephone conversations of
trading and marketing personnel of the parties and their Affiliates in connection with this
Confirmation. To the extent that one party records telephone conversations (the “Recording
Party”) and the other party does not (the “Non-Recording Party”), the Recording Party
shall in the event of any dispute, make a complete and unedited copy of such party’s tape of the
entire day’s conversations with the Non-Recording Party’s personnel available to the Non-Recording
Party. The Recording Party’s tapes may be used by either party in any forum in which a dispute is
sought to be resolved and the Recording Party will retain tapes for a consistent period of time in
accordance with the Recording Party’s policy unless one party notifies the other that a particular
transaction is under review and warrants further retention.



Disclosure. Each party hereby acknowledges and agrees that MLI has authorized Counterparty to
disclose the Transaction and any related hedging transaction between the parties if and to the
extent that Counterparty reasonably determines (after consultation with MLI) that such disclosure
is required by law or by the rules of any securities exchange or similar trading platform.



Severability. If any term, provision, covenant or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid or unenforceable in
whole or in part for any reason, the remaining terms, provisions, covenants, and conditions hereof
shall continue in full force and effect as if this Confirmation had been executed with the invalid
or unenforceable provision eliminated, so long as this Confirmation as so modified continues to
express, without material change, the original intentions of the parties as to the subject matter
of this Confirmation and the deletion of such portion of this Confirmation will not substantially
impair the respective benefits or expectations of parties to this Agreement; provided,
however, that this severability provision shall not be applicable if any provision of
Section 2, 5, 6 or 13 of the Agreement (or any definition or
provision in Section 14 to the extent that it relates to, or is used in or in connection
with any such Section) shall be so held to be invalid or unenforceable.



Affected Parties. For purposes of Section 6(e) of the Agreement, each party shall be
deemed to be an Affected Party in connection with Illegality and any Tax Event.





1





Please confirm that the foregoing correctly sets forth the terms of our agreement by
executing the copy of this Master Confirmation enclosed for that purpose and returning it to us.



Very truly yours,



MERRILL LYNCH INTERNATIONAL



By:      

Name:

Title:




Confirmed as of the date first above written:



MAX CAPITAL GROUP LTD.



By:      

Name:

Title:




Acknowledged and agreed as to matters relating to the Agent:



MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,



solely in its capacity as Agent hereunder



By:      

Name:

Title:




2




EXHIBIT A




FORM OF SUPPLEMENTAL CONFIRMATION




	 
	Supplemental Confirmation of OTC Collared ASAP Minus







	 	 	 	 	 
	Date:

	 	December 24, 2007
	 	ML Ref:
	To:

	 	Max Capital Group Ltd. (“Counterparty”)
	 	

	
 
	 	 
	 	

	Attention:

From:

	 	Peter Minton

Merrill Lynch International (“MLI”)

Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ
	 	
















	 	 	     





Dear Sir / Madam:



Capitalized terms used herein, unless defined herein, have the meanings set forth in the
Master Confirmation of OTC Collared ASAP Minus between the Company and MLI, dated as of December
24, 2007.



The purpose of this Supplemental Confirmation is to confirm the terms and conditions of the
Transaction under the Master Confirmation.



	 	 	 	 	 
	The terms of the Transaction to which the Supplemental Confirmation relates are as follows:

	Trade Date:
	 	January 2, 2008
	Prepayment Amount:
	 	$	50,000,000	 
	Forward Price Adjustment
Amount:
	 	2.29% of the Hedge Period Reference Price
	Initial Share Delivery:
	 	A number of Shares equal to 90% of the Minimum Shares.
	First Acceleration Date:
	 	22 scheduled Scheduled Trading Days after the Hedge Completion Date.
	Scheduled Termination Date:
	 	88 Scheduled Trading Days after the Hedge Completion Date subject to MLI’s right to
	 
	 	accelerate the Termination Date to any date on or after the First Acceleration
	 
	 	Date.
	Minimum Shares:
	 	As set forth in the Trade Notification, to be a number of shares equal to (a) the
	 
	 	Prepayment Amount divided by (b) 110% of the Hedge Period Reference Price.
	Maximum Shares:
	 	As set forth in the Trade Notification, to be a number of shares equal to (a) the
	 
	 	Prepayment Amount divided by (b) 96% of the Hedge Period Reference Price.
	Hedging Initiation Date:
	 	The Scheduled Trading Day immediately succeeding the first Exchange Business Day on
	 
	 	or after the Trade Date on which the closing price of the Shares on the Exchange is
	 
	 	equal to or less than $31.00.  If a Hedging Initiation Date does not occur by the
	 
	 	fifteenth Scheduled Trading Day immediately succeeding the Trade Date, then the
	 
	 	Transaction specified in this Supplemental Confirmation shall be terminated and
	 
	 	neither party shall have any payment or delivery obligations as a result of this
	 
	 	Transaction and all obligations and rights under this Transaction shall cease.
	Hedging Completion Date:
	 	The date MLI completes its purchase of the Initial Hedge Position provided such
	 
	 	date shall be no later than 15 Trading Days following the Hedging Initiation Date;
	 
	 	MLI will notify Counterparty of such date
	Initial Hedge Position:
	 	The number of Shares determined by MLI to be its initial hedge position
	Ordinary Dividend Amount:
	 	USD$0.09
	Scheduled Dividend Dates:
	 	Februrary 15, 2008, May 15, 2008






Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the
copy of this Supplemental Confirmation enclosed for that purpose and returning it to us.





3



Very truly yours,



MERRILL LYNCH INTERNATIONAL



By:      

Name:

Title:




Confirmed as of the date first above written:



MAX CAPITAL GROUP LTD.



By:      

Name:

Title:




Acknowledged and agreed as to matters relating to the Agent:



MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,



solely in its capacity as Agent hereunder



By:      

Name:

Title:




4




EXHIBIT B




FORM OF TRADE NOTIFICATION




Trade Notification



	 	 	 	 	 
	Date:	 	[TBD], 2008 ML Ref: ______________
	To:	 	Max Capital Group Ltd. (“Counterparty”)	 	 
	Attention:

From:

	 	Peter Minton

Merrill Lynch International (“MLI”)
	 	



	
 
	 	 
	 	








Merrill Lynch Financial Centre




2 King Edward Street




London EC1A 1HQ



The purpose of this Trade Notification is to notify you of certain terms in the Transaction
entered into between Merrill Lynch International (“MLI”) and Max Capital Group Ltd.
(“Counterparty”) (together, the “Contracting Parties”) on the Trade Date specified below.



This Trade Notification supplements, forms part of, and is subject to the Supplemental
Confirmation dated as of December 24, 2007 (the “Supplemental Confirmation”) between the
Contracting Parties, as amended and supplemented from time to time. The Supplemental Confirmation
is subject to the Master Confirmation dated as of December 24, 2007 (the “Master Confirmation”)
between the Contracting Parties, as amended and supplemented from time to time. All provisions
contained in the Master Confirmation and the Supplemental Confirmation govern this Trade
Notification except as expressly modified below.



	 	 	 	 	 
	Trade Date:	 	January 2, 2008
	Hedge Completion Date:

Hedge Period Reference Price:

	 	[ ]

USD[ ]
	 	









5




	 	 	 	 	 
	Minimum Shares:

Maximum Shares:

	 	[ ]

[ ]
	 	



	
 
	 	 	 	Very truly yours,

MERRILL LYNCH INTERNATIONAL

By:      

Name:
	
 
	 	 	 	Title:






6




EXHIBIT C




GUARANTEE OF MERRILL LYNCH & CO., INC.




FOR VALUE RECEIVED, receipt of which is hereby acknowledged, MERRILL LYNCH & CO., INC., a
corporation duly organized and existing under the laws of the State of Delaware (“ML & Co.”),
hereby unconditionally guarantees to Max Capital Group Ltd. (the “Company”), the due and punctual
payment of any and all amounts payable by Merrill Lynch International (“MLI”), or any assignee,
transferee or delegatee of MLI, provided such entity is an affiliate of MLI (“Assignee”), under the
terms of the Master Confirmation of OTC Collared ASAP Minus between the Company and MLI, dated as
of December 24, 2007 (with the Supplemental Confirmation thereto, the “Agreement”), including, in
case of default, interest on any amount due, when and as the same shall become due and payable,
whether on the scheduled payment dates, at maturity, upon declaration of termination or otherwise,
according to the terms thereof. In case of the failure of MLI punctually to make any such payment,
ML & Co. hereby agrees to make such payment, or cause such payment to be made, promptly upon demand
made by the Company to ML & Co.; provided, however, that delay by the Company in
giving such demand shall in no event affect ML & Co.’s obligations under this Guarantee. This
Guarantee shall remain in full force and effect or shall be reinstated (as the case may be) if at
any time any payment guaranteed hereunder, in whole or in part, is rescinded or must otherwise be
returned by the Company upon the insolvency, bankruptcy or reorganization of MLI or otherwise, all
as though such payment had not been made. This is a guarantee of payment in full, not collection.



ML & Co. hereby agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Agreement; the absence of any action to enforce
the same; any waiver or consent by the Company concerning any provisions thereof; the rendering of
any judgment against MLI or any action to enforce the same; or any other circumstances that might
otherwise constitute a legal or equitable discharge of a guarantor or a defense of a guarantor. ML
& Co. covenants that this guarantee will not be discharged except by complete payment of the
amounts payable under the Agreement. This Guarantee shall continue to be effective if MLI merges
or consolidates with or into another entity, loses its separate legal identity, ceases to exist or
transfers, assigns or delegates any of its rights or obligations as provided for in the Agreement.



ML & Co. hereby waives diligence; presentment; protest; notice of protest, acceleration, and
dishonor; filing of claims with a court in the event of insolvency or bankruptcy of MLI; all
demands whatsoever, except as noted in the first paragraph hereof; and any right to require a
proceeding first against MLI.



ML & Co. hereby certifies and warrants that this Guarantee constitutes the valid obligation of
ML & Co. and complies with all applicable laws.



This Guarantee shall be governed by, and construed in accordance with, the laws of the State
of New York.



This Guarantee may be terminated at any time by notice by ML & Co. to the Company given in
accordance with the notice provisions of the Agreement, effective upon receipt of such notice by
the Company or such later date as may be specified in such notice; provided,
however, that this Guarantee shall continue in full force and effect with respect to any
obligation of MLI or any Assignee under the Agreement entered into prior to the effectiveness of
such notice of termination.



This Guarantee becomes effective concurrent with the effectiveness of the Agreement, according
to its terms.



7



IN WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its corporate name by
its duly authorized representative.



MERRILL LYNCH & CO., INC.



By:     

Name:

Title:




Date:



8



COVER STATEMENT



CLIENT/COUNTERPARTY RELATIONSHIP




Dear Client/Counterparty:



Merrill Lynch is pleased to provide the attached statement of Generic Risks Associated with
Over-the-Counter Derivative Transactions under this Cover Statement that concerns, among other
things, the nature of our relationship with you in the context of such transactions. This
statement was developed for our new and our ongoing client/counterparties in response to
suggestions that OTC derivative dealers consider taking steps to ensure that market participants
utilizing OTC derivatives understand their risk exposures and the nature of their relationships
with dealers before they enter into OTC derivative transactions.



Merrill Lynch (“we”) are providing to you and your organization (“you”) the attached statement
of Generic Risks Associated with Over-the-Counter Derivative Transactions in order to identify, in
general terms, certain of the principal risks associated with individually negotiated
over-the-counter (“OTC”) derivative transactions. The attached statement does not purport to
identify the nature of the specific market or other risks associated with a particular transaction.



Before entering into an OTC derivative transaction, you should ensure that you fully
understand the terms of the transaction, relevant risk factors, the nature and extent of your risk
of loss and the nature of the contractual relationship into which you are entering. You should
also carefully evaluate whether the transaction is appropriate for you in light of your experience,
objectives, financial resources, and other relevant circumstances and whether you have the
operational resources in place to monitor the associated risks and contractual obligations over the
term of the transaction. If you are acting as a financial adviser or agent, you should evaluate
these considerations in light of the circumstances applicable to your principal and the scope of
your authority.



If you believe you need assistance in evaluating and understanding the terms or risks of a
particular OTC derivative transaction, you should consult appropriate advisers before entering into
the transaction.



Unless we have expressly agreed in writing to act as your adviser with respect to a particular
OTC derivative transaction pursuant to terms and conditions specifying the nature and scope of our
advisory relationship, we are acting in the capacity of an arm’s length contractual Counterparty to
you in connection with the transaction and not as your financial adviser or fiduciary.
Accordingly, unless we have so agreed to act as your adviser, you should not regard transaction
proposals, suggestions or other written or oral communications from us as recommendations or advice
or as expressing our view as to whether a particular transaction is appropriate for you or meets
your financial objectives.



Finally, we and/or our affiliates may from time to time take proprietary positions and/or make
a market in instruments identical or economically related to OTC derivative transactions entered
into with you, or may have an investment banking or other commercial relationship with and access
to information from the issuer(s) of securities, financial instruments, or other interests
underlying OTC derivative transactions entered into with you. We may also undertake proprietary
activities, including hedging transactions related to the initiation or termination of an OTC
derivative transaction with you, that may adversely affect the market price, rate index or other
market factor(s) underlying an OTC derivative transaction entered into with you and consequently
the value of the transaction.



9



A. GENERIC RISKS ASSOCIATED WITH




OVER-THE-COUNTER DERIVATIVE TRANSACTIONS




OTC derivative transactions, like other financial transactions, involve a variety of significant
risks. The specific risks presented by a particular OTC derivative transaction necessarily depend
upon the terms of the transaction and your circumstances. In general, however, all OTC derivative
transactions involve some combination of market risk, credit risk, funding risk and operational
risk.



Market risk is the risk that the value of a transaction will be adversely affected
by fluctuations in the level or volatility of or correlation or relationship between
one or more market prices, rates or indices or other market factors or by
illiquidity in the market for the relevant transaction or in a related market.



Credit risk is the risk that a Counterparty will fail to perform its obligations to
you when due.



Funding risk is the risk that, as a result of mismatches or delays in the timing of
cash flows due from or to your counterparties in OTC derivative transactions or
related hedging, trading, collateral or other transactions, you or your Counterparty
will not have adequate cash available to fund current obligations.



Operational risk is the risk of loss to you arising from inadequacies in or failures
of your internal systems and controls for monitoring and quantifying the risks and
contractual obligations associated with OTC derivative transactions, for recording
and valuing OTC derivative and related transactions, or for detecting human error,
systems failure or management failure.



There may be other significant risks that you should consider based on the terms of a specific
transaction. Highly customized OTC derivative transactions in particular may increase liquidity
risk and introduce other significant risk factors of a complex character. Highly leveraged
transactions may experience substantial gains or losses in value as a result of relatively small
changes in the value or level of an underlying or related market factor.



Because the price and other terms on which you may enter into or terminate an OTC derivative
transaction are individually negotiated, these may not represent the best price or terms available
to you from other sources.



In evaluating the risks and contractual obligations associated with a particular OTC derivative
transaction, you should also consider that an OTC derivative transaction may be modified or
terminated only by mutual consent of the original parties and subject to agreement on individually
negotiated terms. Accordingly, it may not be possible for you to modify, terminate or offset your
obligations or your exposure to the risks associated with a transaction prior to its scheduled
termination date.



Similarly, while market makers and dealers generally quote prices or terms for entering into or
terminating OTC derivative transactions and provide indicative or mid-market quotations with
respect to outstanding OTC derivative transactions, they are generally not contractually obligated
to do so. In addition, it may not be possible to obtain indicative or mid-market quotations for an
OTC derivative transaction from a market maker or dealer that is not a Counterparty to the
transaction. Consequently, it may also be difficult for you to establish an independent value for
an outstanding OTC derivative transaction. You should not regard your Counterparty’s provision of
a valuation or indicative price at your request as an offer to enter into or terminate the relevant
transaction at that value or price, unless the value or price is identified by the Counterparty as
firm or binding.



This brief statement does not purport to disclose all of the risks and other material
considerations associated with OTC derivative transactions. You should not construe this generic
disclosure statement as business, legal, tax or accounting advice or as modifying applicable law.
You should consult your own business, legal, tax and accounting advisers with respect to proposed
OTC derivative transactions and you should refrain from entering into any OTC derivative
transaction unless you have fully understood the terms and risks of the transaction, including the
extent of your potential risk of loss.




10