Exhibit 10.1

 
	
 


 



MASTER COMMUTATION, RELEASE AND RESTRUCTURING
AGREEMENT


among


XL Capital Ltd; XL Insurance (Bermuda) Ltd;
XL Reinsurance America Inc.; X.L. Global 

Services, Inc.; XL Services (Bermuda) Ltd and X.L. America, Inc.;


Security Capital Assurance Ltd; XL Financial
Assurance Ltd.; XL Capital Assurance Inc.; XL 

Financial Administrative Services Inc.; SCA Bermuda Administrative Ltd.; XL
Capital 

Assurance (U.K.) Limited; and Certain Portfolio Trusts that are Affiliates of
XL Capital 

Assurance Inc. and may become party to this Agreement from time to time;


and


Counterparties to Credit Default Swap
Agreements with XL Capital Assurance Inc. and 

Affiliates of XL Capital Assurance Inc. that may become party to this Agreement
from time to 

time.


Dated as of July 28, 2008


	
  

 
	
 


 










TABLE OF CONTENTS


	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
 Page

 
	
  

 	
  

 	
  

 	
  

 	
 


 
	
  

 
	
 ARTICLE I

 
	
  

 
	
 DEFINITIONS

 
	
  

 
	
 Section 1.01

 	
  

 	
 Certain
 Defined Terms

 	
  

 	
 2

 
	
 Section 1.02

 	
  

 	
 Definitions

 	
  

 	
 10

 
	
 Section 1.03

 	
  

 	
 Interpretation
 and Rules of Construction

 	
  

 	
 11

 
	
  

 
	
 ARTICLE II

 
	
  

 
	
 COMMUTATION AND RELEASE

 
	
  

 
	
 Section 2.01

 	
  

 	
 Commutation
 and Release of Reinsurance Agreements

 	
  

 	
 12

 
	
 Section 2.02

 	
  

 	
 Termination
 of the Other Terminated Agreements

 	
  

 	
 12

 
	
 Section 2.03

 	
  

 	
 Commutation
 and Release of Quota Share Treaty

 	
  

 	
 12

 
	
 Section 2.04

 	
  

 	
 Commutation
 and Amendment of Other Reinsurance Agreements

 	
  

 	
 12

 
	
 Section 2.05

 	
  

 	
 Mutual
 Releases

 	
  

 	
 13

 
	
 Section 2.06

 	
  

 	
 Consideration

 	
  

 	
 17

 
	
 Section 2.07

 	
  

 	
 Closing

 	
  

 	
 17

 
	
 Section 2.08

 	
  

 	
 Closing
 Deliveries by the SCA Parties

 	
  

 	
 17

 
	
 Section 2.09

 	
  

 	
 Closing
 Deliveries by the XL Parties

 	
  

 	
 18

 
	
 Section 2.10

 	
  

 	
 Escrow

 	
  

 	
 19

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ARTICLE III

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 REPRESENTATIONS AND WARRANTIES OF THE SCA PARTIES

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 3.01

 	
  

 	
 Organization,
 Authority and Qualification of the SCA Parties

 	
  

 	
 20

 
	
 Section 3.02

 	
  

 	
 No Conflict

 	
  

 	
 20

 
	
 Section 3.03

 	
  

 	
 Governmental
 Consents and Approvals

 	
  

 	
 21

 
	
 Section 3.04

 	
  

 	
 Financial
 Information

 	
  

 	
 21

 
	
 Section 3.05

 	
  

 	
 Compliance
 with Laws

 	
  

 	
 22

 
	
 Section 3.06

 	
  

 	
 Effect of
 Commutations

 	
  

 	
 22

 
	
 Section 3.07

 	
  

 	
 Litigation

 	
  

 	
 22

 
	
 Section 3.08

 	
  

 	
 Placement of
 Stock Consideration

 	
  

 	
 22

 
	
 Section 3.09

 	
  

 	
 Regulatory
 Approvals

 	
  

 	
 23

 
	
 Section 3.10

 	
  

 	
 MLI CDS
 Agreements

 	
  

 	
 24

 
	
 Section 3.11

 	
  

 	
 Financial
 Security Master Facultative Commutation Agreement

 	
  

 	
 24

 
	
 Section 3.12

 	
  

 	
 Third-Party
 Agreements

 	
  

 	
 24

 
	
 Section 3.13

 	
  

 	
 Brokers

 	
  

 	
 24

 



-i-






	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ARTICLE IV

 
	
  

 
	
 REPRESENTATIONS AND WARRANTIES OF THE XL PARTIES

 
	
  

 
	
 Section 4.01

 	
  

 	
 Organization
 and Authority of the XL Parties

 	
  

 	
 25

 
	
 Section 4.02

 	
  

 	
 No Conflict

 	
  

 	
 25

 
	
 Section 4.03

 	
  

 	
 Governmental
 Consents and Approvals

 	
  

 	
 25

 
	
 Section 4.04

 	
  

 	
 Capitalization

 	
  

 	
 26

 
	
 Section 4.05

 	
  

 	
 XL Owned SCA
 Common Shares

 	
  

 	
 26

 
	
 Section 4.06

 	
  

 	
 Litigation

 	
  

 	
 26

 
	
 Section 4.07

 	
  

 	
 Regulatory
 Approvals

 	
  

 	
 26

 
	
 Section 4.08

 	
  

 	
 Brokers

 	
  

 	
 27

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ARTICLE V

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 REPRESENTATIONS AND WARRANTIES OF THE CDS COUNTERPARTIES

 
	
  

 
	
 Section 5.01

 	
  

 	
 Status

 	
  

 	
 27

 
	
 Section 5.02

 	
  

 	
 Powers

 	
  

 	
 27

 
	
 Section 5.03

 	
  

 	
 No Violation
 or Conflict

 	
  

 	
 27

 
	
 Section 5.04

 	
  

 	
 Consents

 	
  

 	
 27

 
	
 Section 5.05

 	
  

 	
 Obligations
 Binding

 	
  

 	
 27

 
	
 Section 5.06

 	
  

 	
 Absence of
 Litigation

 	
  

 	
 27

 
	
 Section 5.07

 	
  

 	
 Consent to
 Transactions

 	
  

 	
 28

 
	
 Section 5.08

 	
  

 	
 Ownership of
 Insurance Instruments

 	
  

 	
 28

 
	
 Section 5.09

 	
  

 	
 Brokers

 	
  

 	
 28

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ARTICLE VI

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ADDITIONAL AGREEMENTS

 
	
  

 
	
 Section 6.01

 	
  

 	
 Public
 Disclosure and Confidentiality

 	
  

 	
 28

 
	
 Section 6.02

 	
  

 	
 Regulatory
 and Other Authorizations; Notices and Consents

 	
  

 	
 30

 
	
 Section 6.03

 	
  

 	
 Notice of
 Developments

 	
  

 	
 31

 
	
 Section 6.04

 	
  

 	
 MLI ABS CDO
 Credit Default Swap Agreements

 	
  

 	
 31

 
	
 Section 6.05

 	
  

 	
 Third-Party
 Reinsurance Agreements

 	
  

 	
 31

 
	
 Section 6.06

 	
  

 	
 Ownership of
 Insurance Instruments

 	
  

 	
 32

 
	
 Section 6.07

 	
  

 	
 Compliance
 with Securities Laws

 	
  

 	
 32

 
	
 Section 6.08

 	
  

 	
 Passive
 Investor

 	
  

 	
 32

 
	
 Section 6.09

 	
  

 	
 XL Owned SCA
 Common Shares Covenant

 	
  

 	
 32

 
	
 Section 6.10

 	
  

 	
 Forbearance

 	
  

 	
 32

 
	
 Section 6.11

 	
  

 	
 Control of
 Litigation and Cooperation

 	
  

 	
 34

 
	
 Section 6.12

 	
  

 	
 CDS
 Counterparty Restructuring

 	
  

 	
 35

 
	
 Section 6.13

 	
  

 	
 Restriction
 on Commutations

 	
  

 	
 36

 
	
 Section 6.14

 	
  

 	
 Treatment of
 Public Finance Business

 	
  

 	
 36

 
	
 Section 6.15

 	
  

 	
 Further Action

 	
  

 	
 37

 



-ii-






	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 6.16

 	
  

 	
 Resignation
 of XL Nominees

 	
  

 	
 37

 
	
 Section 6.17

 	
  

 	
 Disclosure
 Schedules; Supplementation and Amendment of Schedules

 	
  

 	
 37

 
	
 Section 6.18

 	
  

 	
 SCA
 Shareholder Entity

 	
  

 	
 38

 
	
 Section 6.19

 	
  

 	
 Portfolio
 Trust

 	
  

 	
 38

 
	
 Section 6.20

 	
  

 	
 BlackRock

 	
  

 	
 38

 
	
 Section 6.21

 	
  

 	
 XLFA Merger

 	
  

 	
 38

 
	
 Section 6.22

 	
  

 	
 Collipulli
 Temuco and Banco de Brasil Policies

 	
  

 	
 38

 
	
 Section 6.23

 	
  

 	
 XLFA
 Redomestication

 	
  

 	
 39

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ARTICLE VII

 
	
  

 
	
 CONDITIONS TO CLOSING

 
	
  

 
	
 Section 7.01

 	
  

 	
 Conditions
 to Obligations of the SCA Parties

 	
  

 	
 39

 
	
 Section 7.02

 	
  

 	
 Conditions
 to Obligations of the XL Parties

 	
  

 	
 40

 
	
 Section 7.03

 	
  

 	
 Conditions
 to Obligations of the CDS Counterparties

 	
  

 	
 41

 
	
 Section 7.04

 	
  

 	
 Frustration
 of Closing Conditions

 	
  

 	
 42

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ARTICLE VIII

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 TERMINATION
 AND WITHDRAWAL

 
	
 Section 8.01

 	
  

 	
 Termination

 	
  

 	
 42

 
	
 Section 8.02

 	
  

 	
 Effect of
 Termination

 	
  

 	
 44

 
	
 Section 8.03

 	
  

 	
 CDS
 Counterparty Withdrawal

 	
  

 	
 44

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ARTICLE IX

 
	
  

 
	
 GENERAL PROVISIONS

 
	
  

 
	
 Section 9.01

 	
  

 	
 Expenses

 	
  

 	
 44

 
	
 Section 9.02

 	
  

 	
 Notices

 	
  

 	
 44

 
	
 Section 9.03

 	
  

 	
 Severability

 	
  

 	
 45

 
	
 Section 9.04

 	
  

 	
 Joinder of
 CDS Counterparties and Additional SCA Parties

 	
  

 	
 46

 
	
 Section 9.05

 	
  

 	
 Entire
 Agreement

 	
  

 	
 46

 
	
 Section 9.06

 	
  

 	
 Assignment

 	
  

 	
 46

 
	
 Section 9.07

 	
  

 	
 Amendment

 	
  

 	
 46

 
	
 Section 9.08

 	
  

 	
 Waiver

 	
  

 	
 46

 
	
 Section 9.09

 	
  

 	
 No
 Third-Party Beneficiaries

 	
  

 	
 47

 
	
 Section 9.10

 	
  

 	
 Rights and
 Remedies

 	
  

 	
 47

 
	
 Section 9.11

 	
  

 	
 Indemnification

 	
  

 	
 47

 
	
 Section 9.12

 	
  

 	
 No Survival

 	
  

 	
 48

 
	
 Section 9.13

 	
  

 	
 Several
 Liability of the CDS Counterparties

 	
  

 	
 48

 
	
 Section 9.14

 	
  

 	
 Governing
 Law and Jurisdiction

 	
  

 	
 48

 
	
 Section 9.15

 	
  

 	
 Waiver of
 Jury Trial

 	
  

 	
 49

 
	
 Section 9.16

 	
  

 	
 Fully
 Negotiated Agreement

 	
  

 	
 49

 
	
 Section 9.17

 	
  

 	
 Currency

 	
  

 	
 49

 
	
 Section 9.18

 	
  

 	
 Counterparts

 	
  

 	
 49

 



-iii-







EXHIBITS


	
  

 	
  

 	
  

 
	
 Exhibit No.

 	
  

 	
 Description

 
	
 


 	
  

 	
 


 
	
 1.01(a)

 	
  

 	
 2001
 Facultative Quota Share Commutation Agreement

 
	
 1.01(b)

 	
  

 	
 Adverse
 Development Cover Commutation Agreement

 
	
 1.01(c)

 	
  

 	
 Joinder
 Agreement

 
	
 1.01(d)

 	
  

 	
 Excess of
 Loss Commutation Agreement

 
	
 1.01(e)

 	
  

 	
 Facultative
 Master Certificate Commutation Agreement

 
	
 1.01(f)

 	
  

 	
 Quota Share
 Treaty Commutation Agreement

 
	
 1.01(g)

 	
  

 	
 Subscription
 Agreement

 
	
 1.01(h)

 	
  

 	
 XL Stock
 Resale and Registration Rights Agreement

 
	
 1.01(i)

 	
  

 	
 SCA
 Shareholder Entity Agreement

 
	
 1.01(j)

 	
  

 	
 SCA
 Registration Rights Agreement

 
	
 1.01(k)

 	
  

 	
 Transition
 Agreement Amendment

 
	
 2.06

 	
  

 	
 Securities
 Law Representations of the SCA Shareholder Entity

 
	
 6.18

 	
  

 	
 Form of SCA
 Shareholder Entity Trust Agreement

 



SCHEDULES


	
  

 	
  

 	
  

 
	
 Schedule

 	
  

 	
 Description

 
	
 


 	
  

 	
 


 
	
 1.01(a)

 	
  

 	
 MLI ABS CDO
 Credit Default Swap Agreements

 
	
 1.01(b)

 	
  

 	
 Other
 Terminated Agreements

 
	
 1.01(c)

 	
  

 	
 Knowledge of
 SCA

 
	
 1.01(d)

 	
  

 	
 Terms of the
 Escrow Agreement

 
	
 2.01

 	
  

 	
 Commuted
 Reinsurance Agreements

 
	
 2.04

 	
  

 	
 Other
 Reinsurance to be Commuted or Amended

 
	
 2.05

 	
  

 	
 Schedule
 2.05 Agreements

 
	
 2.06(a)

 	
  

 	
 SCA Parties
 Receiving a Portion of the Cash Consideration Amount

 
	
 2.06(b)

 	
  

 	
 SCA Parties
 Receiving a Portion of the Stock Consideration

 
	
 9.02

 	
  

 	
 Addresses
 for the CDS Counterparties

 



SCA PARTIES’ DISCLOSURE SCHEDULE


	
  

 	
  

 	
  

 
	
 Section

 	
  

 	
 Description

 
	
 


 	
  

 	
 


 
	
 Section 3.02

 	
  

 	
 Conflicts

 
	
 Section 3.03

 	
  

 	
 Governmental
 Consents and Approvals

 
	
 Section 3.05

 	
  

 	
 Compliance
 with Laws

 



-iv-






XL PARTIES’ DISCLOSURE SCHEDULE


	
  

 	
  

 	
  

 
	
 Section

 	
  

 	
 Description

 
	
 


 	
  

 	
 


 
	
 Section 4.02

 	
  

 	
 Conflicts

 
	
 Section 4.03

 	
  

 	
 Governmental
 Consents and Approvals

 
	
 Section
 4.04(a)

 	
  

 	
 Capitalization

 



-v-








PREAMBLE 


                    MASTER
COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT, dated as of July 28,
2008, is entered into by and among: 


                    (a)
XL CAPITAL LTD, an exempted limited company incorporated under the Laws of
Cayman Islands (“XL”), XL INSURANCE (BERMUDA) LTD (formerly known as
X.L. Insurance Ltd), a Bermuda exempted company (“XLI”), XL REINSURANCE
AMERICA INC., a New York insurance corporation (“XLRA”), X.L. GLOBAL
SERVICES, INC., a service company incorporated under the Laws of Delaware (“XLGS”),
XL SERVICES (BERMUDA) LTD, a service company incorporated under the Laws of
Bermuda (“XLBS”) and X.L. AMERICA, INC., a company incorporated under
the Laws of Delaware (“XLA”); 


                    (b)
SECURITY CAPITAL ASSURANCE LTD, a Bermuda exempted company (“SCA”), XL
FINANCIAL ASSURANCE LTD., a Bermuda exempted company (“XLFA”), XL
CAPITAL ASSURANCE INC., a New York insurance company (“XLCA”), XL
FINANCIAL ADMINISTRATIVE SERVICES INC., a company incorporated under the Laws
of Delaware (“XLFAS”), SCA BERMUDA ADMINISTRATIVE LTD., a company
incorporated under the Laws of Bermuda (“SCAB”), XL CAPITAL ASSURANCE
(U.K.) LIMITED, an insurance company regulated by the Financial Services
Authority and incorporated under the Laws of England and Wales (“XLCAUK”),
and those portfolio trusts that are Affiliates of XLCA and become a Party to
this Agreement from time to time pursuant to the execution of a joinder
agreement in the form attached hereto as Exhibit 1.01(c); and 


                    (c)
Such counterparties to credit default swap agreements with XLCA or Affiliates
    of XLCA that may become a Party to this Agreement from time to time pursuant
    to the execution of a joinder agreement in the form attached hereto as 

  Exhibit
1.01(c). 


RECITALS


                    WHEREAS,
XLI is the record and beneficial owner of approximately forty-six percent (46%)
of SCA’s issued and outstanding common shares (the “XL Owned SCA Common
Shares”); 


                    WHEREAS,
certain XL Parties and SCA Parties have entered into the Excess of Loss
Agreement, the Adverse Development Cover, the Facultative Master Certificate
and the 2001 Facultative Quota Share Treaty (all as defined in 
Article I);



                    WHEREAS,
XLCA and XLFA previously entered into a Facultative Quota Share Reinsurance
Treaty, dated as of October 6, 1999, as amended and restated by an Amended and
Restated Facultative Quota Share Reinsurance Treaty, dated as of June 22, 2001,
as further amended and restated by a Second Amended and Restated Facultative
Quota Share Reinsurance Treaty, dated as of May 1, 2004, and as further amended
and restated by a Third Amended and Restated Facultative Quota Share
Reinsurance Treaty, dated as of June 29, 2006 and effective July 1, 2006 (the “Quota
Share Treaty”); 






                    WHEREAS,
XLI guarantees the obligations of XLFA to XLCA under the Quota Share Treaty
pursuant to the Reinsurance Agreement Guarantee, dated as of October 6, 1999,
as amended as of June 22, 2001, as further amended as of May 1, 2004, and as
further amended as of August 4, 2006 (the “Guarantee”); 


                    WHEREAS,
XLFA and XLCA wish to (i) commute the Quota Share Treaty and all individual
risk cessions thereunder and (ii) fully and finally extinguish all rights and
obligations thereunder and thereby render the Guarantee null and void; 


                    WHEREAS,
the XL Parties and the SCA Parties wish to (i) commute the Excess of Loss
Agreement, the Adverse Development Cover, the Facultative Master Certificate
and all individual risk cessions thereunder, and the 2001 Facultative Quota
Share Treaty and all individual risk cessions thereunder and (ii) fully and
finally extinguish all the Parties’ rights and obligations under all such
agreements; 


                    WHEREAS,
the XL Parties and the SCA Parties have previously entered into those
agreements listed on Schedule 1.01(b) and now wish to (i) terminate such
agreements listed in Part I of Schedule 1.01(b) and (ii) fully and finally extinguish all the Parties’ rights and
obligations under such agreements, except as may be explicitly set forth in
this Agreement; and 


                    WHEREAS,
certain CDS Counterparties now and, on or prior to the Closing Date, additional
CDS Counterparties may, wish to enter into this Agreement and agree to consent
to the Transactions on the terms and conditions set forth in this Agreement
relating to the restructuring of SCA and its Affiliates. 


                    NOW,
THEREFORE, in consideration of the payments, covenants, conditions, promises
and releases contained herein, and for other fair and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Parties agree
as follows: 


ARTICLE I


DEFINITIONS


                    Section
1.01 Certain Defined Terms. For purposes of this Agreement: 


                    “1505 Application” means an application filed under Section 1505 of the
New York Insurance Laws. 


                    “2001 Facultative Quota Share Commutation Agreement” means the 2001
Facultative Quota Share Commutation Agreement to be executed by XLFA and XLI
and delivered at the Closing, in the form of Exhibit 1.01(a). 


                    “2001 Facultative Quota Share Treaty” means the Facultative Quota Share
Reinsurance Agreement, dated as of August 17, 2001, as amended by Amendment No.
1 to the 


-2-






Facultative
Quota Share Reinsurance Agreement, dated as of August 4, 2006, between XLFA and
XLI. 


                    
“ABS CDO CDSs” means the asset backed securities collateralized debt
obligation credit default swaps between XLCA or an Affiliate of XLCA and a CDS
Counterparty that are listed on an official schedule held by the SCA Parties
and the CDS Financial Advisor. 


                    
“Action” means any judicial, administrative or arbitral action, suit, or
proceeding by or before any Governmental Authority. 


                    
“Adverse Development Cover” means the Adverse Development Reinsurance
Agreement, dated as of August 4, 2006, between XLCA and XLRA, and the
Indemnification Agreement, dated as of August 4, 2006, between XLFA and XLI. 


                    
“Adverse Development Cover Commutation Agreement” means the Adverse
Development Cover Commutation Agreement to be executed by XLCA, XLRA, XLFA and
XLI delivered at the Closing, in the form of Exhibit 1.01(b). 



                    
“Affiliate” means, with respect to any Person, any other Person directly
or indirectly Controlling, Controlled by, or under common Control with such
Person, provided, that none of the SCA Parties shall be deemed to be an
Affiliate of any XL Party.  


                    
“Agreement” or “this Agreement” means this Master Commutation, Release
and Restructuring Agreement among the Parties (including the Exhibits and
Schedules hereto, the SCA Parties’ Disclosure Schedule and the XL Parties’ Disclosure
Schedule) and all amendments or waivers hereto made in accordance with the provisions of Sections
9.07 or 9.08 and joinder agreements hereto made in accordance with the provisions
of Sections 9.04. 


                    
“Ancillary Agreements” means the 2001 Facultative Quota Share
Commutation Agreement, the Excess of Loss Commutation Agreement, the Adverse
Development Cover Commutation Agreement, the Facultative Master Certificate
Commutation Agreement, the Quota Share Treaty Commutation Agreement, the
Subscription Agreement, the XL Stock Resale and Registration Rights Agreement
and the SCA Shareholder Entity Agreement. 


                    
“Banco de Brasil Policy” means the Financial Guaranty Insurance Policy
No. CA00127A, dated December 27, 2001, issued by XLCA in favor of MLI, together
with any endorsements thereto, relating to payments that are required to be
paid by FF Trust 2 to MLI in accordance with the original terms of a Single
Transaction ISDA Master Agreement and Schedule thereto, dated as of December
27, 2001 between FF Trust 2 and MLI. 


                    
“BlackRock” means BlackRock Financial Management, Inc. 


                    
“BMA” means the Bermuda Monetary Authority. 


                    
“Business Day” means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by Law to be closed in Bermuda or
New York. 


-3-






                    
“CDS Counterparties” means those counterparties to credit default swap
agreements with XLCA or Affiliates of XLCA that may become a Party to this
Agreement from time to time on or prior to Closing by way of executing a
joinder agreement pursuant to Section 9.04 in the form of Exhibit
1.01(c), either collectively or individually, as the context requires. 


                    
“CDS Financial Advisor” means FTI Consulting, Inc. or another advisor
designated by the Required Consenting Counterparties. 


                    
“Closing Date” means the date of the Closing. 


                    
“Control,” “Controlled,” or
“Controlling,” with respect to
the relationship between or among two or more Persons, means the possession,
directly or indirectly, or as trustee, personal representative or executor, of
the power to direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as trustee, as
personal representative or executor, by contract, by credit arrangement or
otherwise. 


                    
“Collipulli Temuco Policy” means the Financial Guaranty Insurance Policy
No. 10030-X, together with any endorsements thereto, relating to up to UF
1,150,000 aggregate principal amount of outstanding borrowings under the
Contrato de Apertura de Línea de Crédito, dated as of July 27, 2005, between
Banco de Crédito e Inversiones and Ruta de la Araucanía Sociedad Concesionaria
S.A. and issued pursuant to the Insurance and Reimbursement Agreement, dated as
of November 29, 2005, between XLI and Banco de Crédito e Inversiones and Ruta
de la Araucanía Sociedad Concesionaria S.A. 


                    
“Credit Agreement” means that certain Credit Agreement, dated as of
August 1, 2006, among SCA, XLCA, and XLFA, the various lenders from time to
time party thereto and Citibank, N.A., as administrative agent (as the same may
be amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof). 


                    “Declaration
of Trust” means a trust agreement in the form attached hereto as Exhibit
6.18 (with such reasonable changes thereto as the trustee of the SCA
Shareholder Entity or its counsel may require and that are approved by counsel
to the CDS Counterparties and counsel to the SCA Parties). 


                    
“EIB” means European Investment Bank, a non-profit bank owned by the
Member States of the European Union and established under the Treaty of Rome. 


                    
“EIB Guarantees” means (i) the Financial Guaranty 10017-X, dated July 5,
2001, issued by XLI in favor of EIB (Algarve), (ii) the Financial Guaranty
Number 10028-X, dated May 28, 2004, issued by XLI in favor of EIB (Autovia del
Camino, S.A.), (iii) the Financial Guaranty Number 10029-X, dated October 28,
2004, issued by XLI in favor of EIB (Autovia del los Vinedos), (iv) the
Financial Guaranty Number 10023-X, dated June 8, 2005, issued by XLI in favor
of EIB (Transform School (North Lanarkshire) Funding plc), and (v) the
Financial Guaranty Number 10019-X, dated May 4, 2005, issued by XLI in favor of
EIB (Healthcare Support (Newcastle) Finance plc). 


-4-






                    
“EIB Policies” means (i) the Financial Guaranty Number CA00041A, dated
July 5, 2001, issued by XLCA in favor of EIB, (ii) the Financial Guaranty
Number CA00995A, dated May 28, 2004, issued by XLCA in favor of EIB and the
Financial Guaranty Number UK0003A, dated May 28, 2004 issued by XLCAUK in favor
of EIB, (iii) the Financial Guaranty Number CA01220A, dated October 28, 2004,
issued by XLCA in favor of EIB and the Financial Guaranty Number UK0004A, dated
October 28, 2004, issued by XLCAUK in favor of EIB, (iv) the Financial Guaranty
Number CA02062A, dated June 8, 2005, issued by XLCA in favor of EIB and the
Financial Guaranty Number UK0008A, dated June 8, 2005, issued by XLCAUK in favor
of EIB and (v) the Financial Guaranty Number CA01937A, dated May 4, 2005 issued
by XLCA in favor of EIB and the Financial Guaranty Number UK0007B, dated May 4,
2005, issued by XLCAUK in favor of EIB. 


                    
“EIB Resolution Event” means (i) commutation of all of the EIB Policies
and full and final extinguishment of all Persons’ rights and obligations
thereunder, (ii) a general release in form reasonably acceptable to the XL
Parties by EIB of the XL Parties’ obligations with respect to all of the EIB
Guarantees or (iii) the provision by a creditworthy entity reasonably
acceptable to the XL Parties of a guaranty guaranteeing 100% of the XL Parties’
obligations under all of the EIB Guarantees. 


                    
“Escrow Agent” means HSBC Private Bank, Bermuda Trust Company Limited. 


                    
“Escrow Agreement” means the agreement pursuant to which the
Escrow Agent will hold the XL Owned SCA Common Shares pursuant to terms substantially
the same as those set forth in Schedule 1.01(d), if the XL Owned
SCA Common Shares are transferred to the Escrow Agent pursuant to Section
2.10. 


                    
“Excess of Loss Agreement” means the Excess of Loss Reinsurance
Agreement by and between XLFA and XLI, dated as of October 3, 2001. 


                    
“Excess of Loss Commutation Agreement” means the Excess of Loss
Commutation Agreement to be executed by XLFA and XLI and delivered at the
Closing, in the form of Exhibit 1.01(d). 


                    
“Facultative Master Certificate” means the Facultative Master Certificate
effective as of November 1, 2002, as amended and restated pursuant to the First
Amended and Restated Facultative Master Certificate, effective as of August 4,
2006, and as further amended and restated pursuant to the Second Amended and
Restated Facultative Master Certificate by and between XLRA and XLCA, dated as
of March 1, 2007. 


                    
“Facultative Master Certificate Commutation Agreement” means the
Facultative Master Certificate Commutation Agreement to be executed by XLCA and
XLRA and delivered at the Closing, in the form attached hereto as Exhibit
1.01(e). 


                    
“Financial Statements” means the GAAP Financial Statements, the XLCA
Statutory Financial Statements and the XLFA Statutory Financial Statements. 


                    
“Financial Security” means Financial Security Assurance Inc. 


-5-






                    
“Financial Security Commutations” means the Financial Security Master
Facultative Commutation and the commutations of the Other Financial Security
Agreements. 


                    
“Financial Security Agreements” means the Financial Security Master
Facultative Agreement and the Other Financial Security Agreements. 


                    
“Financial Security Guarantee” means the Reinsurance Agreement Guarantee,
dated November 3, 1998 and amended on July 5, 2006, issued by X.L. Insurance
Company, Ltd (later renamed XLI), guaranteeing XLFA’s obligations to Financial
Security under the Financial Security Master Facultative Agreement. 


                    
“Financial Security Master Facultative Agreement” means the Amended and
Restated Master Facultative Reinsurance Agreement, dated as of November 3,
1998, between Financial Security and XLFA; as amended by the First Amendment to
the Master Facultative Reinsurance Agreement, dated as of November 3, 1998,
between Financial Security and XLFA; as amended by the First Amendment to the
Amended and Restated Master Facultative Reinsurance Agreement, dated as of July
6, 2006, between Financial Security and XLFA. 


                    
“Financial Security Master Facultative Commutation” means the
commutation of the Financial Security Master Facultative Agreement pursuant to
a commutation and release agreement. 


                    
“GAAP” means United States generally accepted accounting principles in
effect from time to time. 


                    
“GAAP Financial Statements” means (i) the audited balance sheet of each
of SCA, XLFA and XLCA for the fiscal year ended December 31, 2007 and the
related audited statements of income, retained earnings, stockholders’ equity
and changes in financial position, together with all related notes and
schedules thereto and accompanied by the reports thereon of the SCA Parties’
accountants, and (ii) the unaudited balance sheet of each of SCA, XLFA and XLCA
for the three month period ended March 31, 2008 and the related unaudited
statements of income, retained earnings, stockholders’ equity and changes in
financial position, together with all related notes and schedules thereto. 


                    
“Governmental Authority” means any federal, national, supranational,
state, provincial, local, or similar government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body. 


                    
“Governmental Order” means any order, writ, judgment, injunction,
decree, stipulation, determination or award issued or entered by or with any
Governmental Authority. 


                    
“Jeffco Policies” means (i) the Municipal Bond Insurance Policy Number
CA00370A, together with any endorsements thereto, relating to $839,500,000
Jefferson County, Alabama, Sewer Revenue Refunding Warrants Series 2002-C,
consisting of $74,450,000 Series 2002-C-1-A Warrants, $74,450,000 Series
2002-C-1-B Warrants, $74,450,000 Series 2002-C-1-C Warrants, $75,450,000 Series
2002-C-1-D Warrants, $73,700,000 Series 2002-C-2 Warrants, $98,300,000 Series
2002-C-3 Warrants, $73,700,000 Series 2002-C-4 Warrants, $98,300,000 Series
2002-C-5 Warrants, $147,600,000 Series 2002-C-6 Warrants and $49,100,000 Series



-6-






2002-C-7
Warrants; (ii) the Municipal Bond Insurance Policy Number CA00522A, together
with any endorsements thereto, relating to $300,000,000 Jefferson County,
Alabama Sewer Revenue Refunding Warrants, Series 2003-B, consisting of
$55,000,000 Series 2003-B-2 Warrants, $25,000,000 Series 2003B-3 Warrants,
$25,000,000 Series 2003B-4 Warrants, $75,000,000 Series 2003B-5 Warrants,
$15,000,000 Series 2003B-6 and $105,000,000 Series 2003B-7 Warrants; and (iii)
the Debt Service Reserve Insurance Policy Number CA01568A, together with any
endorsements thereto, relating to up to $164,863,746.40 Parity Securities as
defined in the Trust Indenture, dated as of February 1, 1997, between Jefferson
County, Alabama and The Bank of New York (as successor to AmSouth Bank of
Alabama), as trustee, as such Indenture has been supplemented and amended. 


                    
“Knowledge of SCA” means the actual knowledge after due inquiry of those
Persons identified on Schedule 1.01(c). 


                    
“Law” means any federal, national, supranational, state, provincial,
local or similar statute, law, ordinance, regulation, rule (including any rules
regarding discovery), code, order, requirement or rule of law (including common
law). 


                    
“Lien” means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, proxy, voting trust or agreement, transfer restriction under any
shareholder or similar agreement, encumbrance or any other restriction or
limitation whatsoever. 



                    
“Minimum Consenting CDS Counterparty Restructuring Threshold” means (i)
at least seventy-five percent (75%) in notional amount of the aggregate sum of
the notional amounts of (A) the ABS CDO CDSs and (B) the collateralized debt
obligation credit default swaps between XLCA or an Affiliate of XLCA and a CDS
Counterparty that are listed on an official schedule held by the SCA Parties
and the CDS Financial Advisor; (ii) at least sixty-six and two-thirds percent
(66 2/3%) in total notional
amount of the ABS CDO CDSs; and (iii) at least sixty-six and two-thirds percent
(66 2/3%) in aggregate number of
the CDS Counterparties.  


                    
“MLI CDS Agreements” means the eight asset backed securities
collateralized debt obligation credit default swap agreements listed on Schedule
1.01(a). 


                    
“NYID” means the New York State Insurance Department. 


                    
“Other Financial Security Agreements” means all agreements between any
SCA Party and Financial Security, other than the Financial Security Master
Facultative Agreement, as to which the obligations of such SCA Parties are
secured by a letter of credit issued by the lenders pursuant to the Credit
Agreement for the benefit of Financial Security on September 19, 2006, as
heretofore amended, extended and renewed, bearing Citibank, N.A. reference
number 61652611. 


                    
“Other Terminated Agreements” means those agreements listed on Schedule
1.01(b). 


                    
“Party” means any party to this Agreement. 


-7-






                    
“Person” means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof. 


                    
“Quota Share Treaty Commutation” means the commutation of the Quota
Share Treaty pursuant to the Quota Share Treaty Commutation Agreement. 


                    
“Quota Share Treaty Commutation Agreement” means the Quota Share Treaty
Commutation Agreement to be executed by XLFA and XLCA and delivered at the
Closing, in the form of Exhibit 1.01(f). 


                    
“Reinsurance Guarantees” means (i) the Guarantee, (ii) the Financial
Security Guarantee and (iii) the EIB Guarantees. 


                    
“Required Consenting CDS Counterparties” means greater than 50% of the
total notional amount of all the credit default swaps between XLCA or an
Affiliate of XLCA and the CDS Counterparties. 


                    
“SCA Parties” means SCA, XLFA, XLCA, XLFAS, SCAB, XLCAUK and each of the
portfolio trusts that executes a joinder agreement pursuant to Section 9.04
in the form attached hereto as Exhibit 1.01(c), either collectively or
individually, as the context requires. 


                    
“SCA Registration Rights Agreement” means a registration rights
agreement for the XL Owned SCA Common Shares in substantially the form attached
hereto as Exhibit 1.01(j). 


                    
“SCA Share Sale Proceeds” means the proceeds, together with any interest
that may accrue thereon, of any sale of the XL Owned SCA Common Shares as owned
by the SCA Shareholder Entity and any cash dividends or distributions paid with
respect to such shares during such time as the XL Owned SCA Common Shares are
owned by the SCA Shareholder Entity. 


                    
“SCA Shareholder Entity” means a special purpose trust or other entity
formed pursuant to the Declaration of Trust. 


                    
“SCA Shareholder Entity Agreement” means an agreement substantially in
the form attached hereto as Exhibit 1.01(i). 


                    
“SCA Shareholder Entity Formation Conditions” means (i) the
selection of a trustee of the SCA Shareholder Entity mutually acceptable to the
Required Consenting CDS Counterparties and the SCA Parties; (ii) the establishment
of the SCA Shareholder Entity; (iii) the delivery by the SCA Shareholder Entity
of a true and correct written copy of customary securities
Law representations and agreements set forth on Exhibit 2.06 to the XL
Parties (or to the Escrow Agent, with a copy to the XL Parties, if the XL Owned
Common Shares have been transferred to the Escrow Agent pursuant to Section
2.10);
and (iv) any required approval the NYID, the Delaware Insurance Department and
the UK FSA of the SCA Shareholder Entity’s
acquisition of the XL Owned SCA Common Shares will have been obtained. 


-8-






                    
“SCA Shareholder Entity Formation Conditions Certificate” means a
certificate certified by the Secretaries of SCA, XLFA and XLCA stating that the
SCA Shareholder Entity Formation Conditions have been satisfied. 


                    
“Securities Act” means the Securities Act of 1933, as amended. 


                    
“Subscription Agreement” means the Subscription Agreement to be executed
by XLFA and XL and delivered at the Closing, in the form of Exhibit 1.01(g).



                    
“Subsidiary” or “Subsidiaries” means, with respect to a specified
Person, any corporation, partnership, limited partnership, limited liability
company or other entity as to which the specified Person, directly or
indirectly (including through one or more Subsidiaries), owns a majority of the
outstanding shares of stock or other ownership interests having voting power
under ordinary circumstances to elect directors of such corporation or other
Persons performing similar functions for such entity. 


                    
“Third-Party Reinsurance Agreements” means (i) the Financial Security
Master Facultative Agreement, and all individual risk cessions thereunder and
(ii) the EIB Policies. 


                    
“Transaction Documents” means this Agreement, the Ancillary Agreements
and any certificate, Financial Statement, report, list, writing or other
document delivered pursuant to this Agreement or the transactions contemplated
by this Agreement. 


                    
“Transactions” means all transactions contemplated by this Agreement and
the Ancillary Agreements. 


                    
“Transfer” means, with respect to a given security, any transaction
whereby a Person (a) offers, pledges, sells or contracts to sell any option or
contract to purchase, purchases any option or contract to sell, grants any
option, right or warrant to purchase, lends, or otherwise transfers or disposes
of, directly or indirectly, such security or any security convertible into, or
exercisable or exchangeable for, any or all of such security; or (b) enters
into any swap or other arrangement that transfers to another Person, in whole
or in part, any of the economic consequences of ownership of any or all of the
given security, whether any such transaction described in clause (a) or (b) is
to be settled by delivery of any or all of the given security or any other
security, in cash or otherwise. Notwithstanding the foregoing, in no event
shall any transfer or other transaction solely between or among the SCA Parties
constitute a “Transfer.” 


                    
“Transition Agreement” means the Transition Agreement, dated as of
August 4, 2006 and amended on May 3, 2007, among XL, XLI, XLA and SCA. 


                    
“Transition Agreement Amendment” means the Transition Agreement
Amendment No. 2 among XL, XLI, XLA and SCA in the form attached hereto as Exhibit
1.01(k). 


                    
“Triggered Enforcement Rights” means a Party’s right to accelerate,
liquidate, close out, terminate, assess or demand damages or termination
payments under, withhold or set off payments under, alter the payment terms of,
demand collateral in respect of, or otherwise exercise remedies or enforcement
rights in respect of one or more transactions (including swap 


-9-






transactions),
agreements, policies, guarantees or treaties to which an SCA Party or an
Affiliate thereof is a party, other than in respect of the Credit Agreement; provided,
that, solely for purposes of Section 6.10(b), the definition of
“Triggered Enforcement Rights” includes the right of any counterparty to a
credit default swap agreement with XLCA or Affiliates of XLCA to accelerate,
liquidate, close out, terminate, assess or demand damages or termination
payments under, withhold or set off payments under, alter the payment terms of,
demand collateral in respect of, or otherwise exercise remedies or enforcement
rights in respect of one or more transactions (including swap transactions), agreements,
policies, guarantees or treaties to which an SCA Party or an Affiliate thereof
is a party, other than in respect of the Credit Agreement. 


                    
“UK FSA” means the Financial Services Authority in the United Kingdom. 


                    
“XLCA Statutory Financial Statements” means the annual financial
statements of XLCA filed with the NYID for the year ended December 31, 2007,
the quarterly financial statements of XLCA filed with the NYID for the quarter
ended March 31, 2008 and the Statement of Actuarial Opinion of XLCA filed with
the NYID for the year ended December 31, 2007. 


                    
“XLFA Redomestication” means the discontinuance of XLFA as a company
existing under the Laws of Bermuda and its continuation as a Delaware
corporation and the contribution to XLCA by the SCA Parties of all of the
common shares and Series A Redeemable Preferred Shares of XLFA. 


                    
“XLFA Statutory Financial Statements” means the annual financial
statements of XLFA filed with the BMA for the year ended December 31, 2007, and
the quarterly financial statements of XLFA filed with the BMA for the quarter
ended March 31, 2008, each prepared in accordance with Bermuda statutory
accounting principles applied on a basis consistent with past practices, and
the Statement of Actuarial Opinion of XLFA filed with the BMA for the year
ended December 31, 2007. 


                    
“XL Parties” means XL, XLI, XLRA, XLGS, XLBS and XLA, either
collectively or individually, as the context requires. 


                    
“XL Public Offering” means an offering of XL’s Class A Ordinary Shares,
par value $0.01 per share, and equity security units, in each case, registered
pursuant to the Securities Act. 


                    
“XL Stock Resale and Registration Rights Agreement” means the Resale
Registration Rights Agreement to be executed by XLFA and XL and delivered at
the Closing, in the form of Exhibit 1.01(h). 


                    
“XL/SCA Commutation Agreements” means (i) the 2001 Facultative Quota
Share Commutation Agreement, (ii) the Excess of Loss Commutation Agreement,
(iii) the Adverse Development Cover Commutation Agreement and (iv) the
Facultative Master Certificate Commutation Agreement. 


                    Section
1.02 Definitions. The following terms have the meanings set forth in the
Sections set forth below: 


-10-







	
 

	
 

	
 

	
 


	
Definition

	
 

	
Location

	
 


	


	
 

	


	
 


	
Allocated
 Funds

	
 

	
Section 6.12

	
 


	
Cash
 Consideration Amount

	
 

	
Section 2.06

	
 


	
CDS
 Counterparty Restructuring

	
 

	
Section 6.12

	
 


	
Challenging
 Action

	
 

	
Section
 6.11(a)

	
 


	
Closing

	
 

	
Section 2.07

	
 


	
Confidential
 Information

	
 

	
Section 6.01(b)

	
 


	
Consideration

	
 

	
Section 2.06

	
 


	
Guarantee

	
 

	
Recitals

	
 


	
Losses

	
 

	
Section
 9.11(a)

	
 


	
MLI

	
 

	
Section 3.10

	
 


	
MLI
 Agreement

	
 

	
Section 3.10

	
 


	
Providing
 Group

	
 

	
Section
 6.01(b)

	
 


	
Quota Share
 Treaty

	
 

	
Recitals

	
 


	
Receiving
 Group

	
 

	
Section
 6.01(b)

	
 


	
SCA

	
 

	
Preamble

	
 


	
SCA Indemnitees

	
 

	
Section
 9.11(a)

	
 


	
SCAB

	
 

	
Preamble

	
 


	
SEC

	
 

	
Section
 3.08(e)

	
 


	
Stock
 Consideration

	
 

	
Section 2.06

	
 


	
XL

	
 

	
Preamble

	
 


	
XL
 Indemnitees

	
 

	
Section
 9.11(b)

	
 


	
XL Owned SCA
 Common Shares

	
 

	
Recitals

	
 


	
XLA

	
 

	
Preamble

	
 


	
XLBS

	
 

	
Preamble

	
 


	
XLCA

	
 

	
Preamble

	
 


	
XLCAUK

	
 

	
Preamble

	
 


	
XLFA

	
 

	
Preamble

	
 


	
XLFAS

	
 

	
Preamble

	
 


	
XLGS

	
 

	
Preamble

	
 


	
XLI

	
 

	
Preamble

	
 


	
XLRA

	
 

	
Preamble

	
 





                    Section
1.03 Interpretation and Rules of Construction. In this Agreement, except
to the extent otherwise provided or that the context otherwise requires: 


                    (a)
when a reference is made in this Agreement to an Article, Section, Exhibit or
Schedule, such reference is to an Article or Section of, or a Schedule or
Exhibit to, this Agreement unless otherwise indicated; 


                    (b)
the table of contents and headings for this Agreement are for reference
purposes only and do not affect in any way the meaning or interpretation of
this Agreement; 


                    (c)
whenever the words “include,” “includes” or “including” are used in this
Agreement, they are deemed to be followed by the words “without limitation”; 


-11-






                    (d)
the words “hereof,” “herein” and “hereunder” and words of similar import, when
used in this Agreement, refer to this Agreement as a whole and not to any
particular provision of this Agreement; 


                    (e)
all terms defined in this Agreement have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto, unless
otherwise defined therein; 


                    (f)
the definitions contained in this Agreement are applicable to the singular as
well as the plural forms of such terms; 


                    (g)
any Law defined or referred to herein or in any agreement or instrument that is
referred to herein means such Law or statute as from time to time amended,
modified or supplemented, including by succession of comparable successor Laws;



                    (h)
references to a Person are also to its successors and permitted assigns; and 


                    (i)
the use of “or” is not intended to be exclusive unless expressly indicated
otherwise. 


ARTICLE II


COMMUTATION AND RELEASE


                    Subject
to the terms and conditions of this Agreement, at or prior to the Closing: 


                    Section
2.01 Commutation and Release of Reinsurance Agreements. The SCA Parties
and the XL Parties shall (i) commute the agreements listed in Part I of Schedule
2.01 and (ii) fully and finally extinguish all the Parties’ rights and
obligations under all such agreements pursuant to the XL/SCA Commutation
Agreements. 


                    Section
2.02 Termination of the Other Terminated Agreements. The SCA Parties and
the XL Parties shall terminate the Other Terminated Agreements listed in Part
I of Schedule 1.01(b) and, notwithstanding anything in any of the
Other Terminated Agreements listed in Part I of Schedule 1.01(b)
that provides that any term or condition survives termination, fully and
finally extinguish all rights and obligations of the Parties under all such
agreements. 


                    Section
2.03 Commutation and Release of Quota Share Treaty. XLCA and XLFA shall
(i) commute the Quota Share Treaty and (ii) fully and finally extinguish all
rights and obligations under the Quota Share Treaty pursuant to the Quota Share
Treaty Commutation Agreement. 



                    Section
2.04 Commutation and Amendment of Other Reinsurance Agreements. (a) The
SCA Parties intend to, but shall not be obligated to, commute or amend the
reinsurance agreements the SCA Parties have with third parties that are
identified on Schedule 2.04; provided, that until October 15, 2008, no
commutation or amendment of any agreement listed on  


-12-






Schedule 2.04 may involve the payment of cash
or other consideration by any SCA Party. For the avoidance of doubt, no
commutation or amendment of any agreement listed on Schedule 2.04 shall
involve the payment of Allocated Funds. 


                    (b)
Notwithstanding the foregoing, (i) the Financial Security Commutations, (ii)
the commutations of each EIB Policy, (iii) the general releases in a form
reasonably acceptable to the XL Parties of the XL Parties with respect to each
EIB Guarantee or (iv) the provision by a creditworthy entity reasonably
acceptable to the XL Parties of a guarantee guaranteeing 100% of the XL
Parties’ obligations under each EIB Guarantee may involve payment of cash or
other consideration payable at any time by any SCA Party. 


                    Section
2.05 Mutual Releases. (a) As of the Closing Date: 


	
 

	
 


	
 

	
          (i)
each SCA Party, on behalf of itself and its respective Subsidiaries, hereby
irrevocably and unconditionally releases and forever discharges each XL
Party, its parents, Subsidiaries and Affiliates, and its respective predecessors,
successors, assigns, officers, directors, agents, employees, shareholders,
representatives, underwriters, and attorneys, from any and all past, present
and future actions, causes of action, suits, debts, Liens, contracts, rights,
agreements, obligations, promises, liabilities, claims, counterclaims,
demands, damages, controversies, losses, costs and expenses (including
attorneys’ fees and costs actually incurred) of any kind, character,
description or nature whatsoever, known or unknown to any of the SCA Parties,
suspected or unsuspected, reported or unreported, fixed or contingent,
accrued or unaccrued, liquidated or unliquidated, whether grounded in Law or
equity or sounding in tort or contract or otherwise, which the SCA Party now
has, owns, holds or claims to have, own, or hold, or at any time heretofore
had, owned, or held or claimed to have had, owned, or held, or may hereafter
have, own, or hold or claim to have, own, or hold, arising directly or
indirectly out of, based upon, or in any way related to or in connection with
(A) (1) the Financial Security Agreements; (2) the agreements,
understandings, arrangements commuted or terminated pursuant to Sections
2.01, 2.02 and 2.03, and Other Terminated Agreements listed
in Part II of Schedule 1.01(b); (3) any of the Reinsurance
Guarantees; (4) any commutation of an EIB Policy; (5) the commutation or
termination of any of the foregoing listed in clauses (1), (2), (3) and (4);
or (6) any commutation or amendment of any agreement listed on Schedule
2.04 pursuant to or in accordance with this Agreement; (B) conduct or
other matters occurring on or prior to the Closing, other than contractual
obligations arising under written agreements between any XL Party and any SCA
Party (including those described on Schedule 2.05, but excluding those
expressly commuted or terminated pursuant to this Agreement or any Ancillary
Agreement) or (C) any tax liability, whether stemming from policies issued by
Subsidiaries of SCA prior to SCA’s IPO, after SCA’s IPO or otherwise, that
results from the XLFA Redomestication; provided, however, with respect to
both clauses (A) and (B), the provisions of this paragraph shall not
discharge any obligation of any of the XL Parties that has been undertaken or
imposed by the express terms of this Agreement or any Ancillary Agreement.  


	
 

	
 


	
 

	
          (ii)
 each SCA Party hereby irrevocably and unconditionally releases and forever
 discharges each CDS Counterparty, its parents, Subsidiaries and Affiliates,
 and its 





-13-






	
 

	
 


	
 

	
 


	
 

	
respective
 predecessors, successors, assigns, officers, directors, agents, employees,
 shareholders, representatives, underwriters, and attorneys, from any and all
 past, present and future actions, causes of action, suits, debts, Liens,
 contracts, rights, agreements, obligations, promises, liabilities, claims,
 counterclaims, demands, damages, controversies, losses, costs and expenses
 (including attorneys’ fees and costs actually incurred) of any kind,
 character, description or nature whatsoever, known or unknown to any of the
 SCA Parties, suspected or unsuspected, reported or unreported, fixed or
 contingent, accrued or unaccrued, liquidated or unliquidated, whether
 grounded in Law or equity or sounding in tort or contract or otherwise, which
 the SCA Party now has, owns, holds or claims to have, own, or hold, or at any
 time heretofore had, owned, or held or claimed to have had, owned, or held,
 or may hereafter have, own, or hold or claim to have, own, or hold, arising
 directly or indirectly out of, based upon, or in any way related to or in
 connection with (A) (1) the Financial Security Agreements; (2) the
 agreements, understandings, arrangements commuted or terminated pursuant to Sections
 2.01, 2.02 and 2.03, and Other Terminated Agreements listed
 in Part II of Schedule 1.01(b); (3) any of the Reinsurance
 Guarantees; (4) the commutation or termination of any of the foregoing listed
 in clauses (1), (2) and (3); (5) any commutation of an EIB Policy, any
 general release by EIB of the XL Parties’ obligations with respect to an EIB Guarantee,
 or any guaranty by a creditworthy entity reasonably acceptable to the XL
 Parties of the XL Parties’ obligations under any EIB Guarantee, each in
 accordance with this Agreement; or (6) any commutation or amendment of any
 agreement listed on Schedule 2.04 pursuant to or in accordance with
 this Agreement or (B) conduct occurring on or prior to the Closing with
 respect to this Agreement and the Transactions; provided, however,
 with respect to both clauses (A) and (B), the provisions of this paragraph shall
 not discharge any obligation of any of the CDS Counterparties that has been
 undertaken or imposed by the express terms of this Agreement, any Ancillary
 Agreement or any other agreement to which such CDS Counterparty is a party. 


	
 

	
 


	
 

	
          (b) As of
 the Closing Date: 


	
 

	
 


	
 

	
          (i)
 each XL Party, on behalf of itself and its respective Subsidiaries, hereby
 irrevocably and unconditionally releases and forever discharges each SCA
 Party, its parents, Subsidiaries and Affiliates, and its respective predecessors,
 successors, assigns, officers, directors, agents, employees, shareholders,
 representatives, underwriters, and attorneys, from any and all past, present
 and future actions, causes of action, suits, debts, Liens, contracts, rights,
 agreements, obligations, promises, liabilities, claims, counterclaims,
 demands, damages, controversies, losses, costs and expenses (including
 attorneys’ fees and costs actually incurred) of any kind, character,
 description or nature whatsoever, known or unknown to any of the XL Parties,
 suspected or unsuspected, reported or unreported, fixed or contingent,
 whether grounded in Law or equity or sounding in tort or contract or
 otherwise, which the XL Party now has, owns, holds or claims to have, own, or
 hold, or at any time heretofore had, owned, or held or claimed to have had,
 owned, or held, or may hereafter have, own, or hold or claim to have, own, or
 hold, arising directly or indirectly out of, based upon, or in any way
 related to or in connection with (A) (1) the Financial Security Agreements;
 (2) the agreements, understandings, arrangements commuted or terminated
 pursuant to Sections 2.01, 2.02 and 2.03, and Other
 Terminated Agreements listed in Part II of Schedule 1.01(b);
 (3) any 





-14-






	
 

	
 


	
 

	
 


	
 

	
of the
 Reinsurance Guarantees; (4) any commutation of an EIB Policy; (5) the
 commutation or termination of any of the foregoing listed in clauses (1),
 (2), (3) and (4); or (6) any commutation or amendment of any agreement listed
 on Schedule 2.04 pursuant to or in accordance with this Agreement or
 (B) conduct or other matters occurring on or prior to the Closing, other than
 contractual obligations arising under written agreements between any XL Party
 and any SCA Party (including those described on Schedule 2.05, but
 excluding those expressly commuted or terminated pursuant to this Agreement
 or any Ancillary Agreement); provided, however, with respect to
 both clauses (A) and (B), the provisions of this paragraph shall not
 discharge any obligation of any of the SCA Parties that has been undertaken
 or imposed by the express terms of this Agreement or any Ancillary Agreement.
 


	
 

	
 


	
 

	
          (ii)
 each XL Party hereby irrevocably and unconditionally releases and forever
 discharges each CDS Counterparty, its parents, Subsidiaries and Affiliates,
 and its respective predecessors, successors, assigns, officers, directors,
 agents, employees, shareholders, representatives, underwriters, and
 attorneys, from any and all past, present and future actions, causes of
 action, suits, debts, Liens, contracts, rights, agreements, obligations,
 promises, liabilities, claims, counterclaims, demands, damages,
 controversies, losses, costs and expenses (including attorneys’ fees and
 costs actually incurred) of any kind, character, description or nature
 whatsoever, known or unknown to any of the XL Parties, suspected or
 unsuspected, reported or unreported, fixed or contingent, accrued or
 unaccrued, liquidated or unliquidated, whether grounded in Law or equity or
 sounding in tort or contract or otherwise, which the XL Party now has, owns,
 holds or claims to have, own, or hold, or at any time heretofore had, owned,
 or held or claimed to have had, owned, or held, or may hereafter have, own,
 or hold or claim to have, own, or hold, arising directly or indirectly out
 of, based upon, or in any way related to or in connection with (A) (1) the
 Financial Security Agreements; (2) the agreements, understandings,
 arrangements commuted or terminated pursuant to Sections 2.01, 2.02
 and 2.03, and Other Terminated Agreements listed in Part II of Schedule
 1.01(b); (3) any of the Reinsurance Guarantees; (4) the commutation or
 termination of any of the foregoing listed in clauses (1), (2) and (3); (5)
 any commutation of an EIB Policy, any general release by EIB of the XL
 Parties’ obligations with respect to an EIB Guarantee, or any guaranty by a
 creditworthy entity reasonably acceptable to the XL Parties of the XL
 Parties’ obligations under any EIB Guarantee, each in accordance with this
 Agreement; or (6) any commutation or amendment of any agreement listed on Schedule
 2.04 pursuant to or in accordance with this Agreement, or (B) conduct
 occurring on or prior to the Closing with respect to this Agreement and the
 Transactions; provided, however, with respect to both clauses
 (A) and (B), the provisions of this paragraph shall not discharge any
 obligation of any of the CDS Counterparties that has been undertaken or
 imposed by the express terms of this Agreement, any Ancillary Agreement or
 any other agreement to which such CDS Counterparty is a party. 





                    (c)
As of the Closing Date, each CDS Counterparty hereby irrevocably and
unconditionally releases and forever discharges each SCA Party, each XL Party,
each of their respective parents, Subsidiaries and Affiliates, and each of their
respective predecessors, successors, assigns, officers, directors, agents,
employees, shareholders, representatives, underwriters, and attorneys, from any
and all past, present and future actions, causes of action, 


-15-






suits, debts,
Liens, contracts, rights, agreements, obligations, promises, liabilities,
claims, counterclaims, demands, damages, controversies, losses, costs and
expenses (including attorneys’ fees and costs actually incurred, except those
costs and expenses expressly agreed in writing to be paid by the SCA Parties)
of any kind, character, description or nature whatsoever, known or unknown to
any of the CDS Counterparties, suspected or unsuspected, reported or
unreported, fixed or contingent, accrued or unaccrued, liquidated or unliquidated,
whether grounded in Law or equity or sounding in tort or contract or otherwise,
which the CDS Counterparty now has, owns, holds or claims to have, own, or
hold, or at any time heretofore had, owned, or held or claimed to have had,
owned, or held, or may hereafter have, own, or hold or claim to have, own, or
hold, arising directly or indirectly out of, based upon, or in any way related
to or in connection with (A) (1) the Financial Security Agreements; (2) the
agreements, understandings, arrangements commuted or terminated pursuant to Sections
2.01, 2.02 and 2.03, and Other Terminated Agreements listed
in Part II of Schedule 1.01(b); (3) any of the Reinsurance
Guarantees; (4) the commutation or termination of any of the foregoing listed
in clauses (1), (2) and (3); (5) any commutation of an EIB Policy, any general
release by EIB of the XL Parties’ obligations with respect to an EIB Guarantee,
or any guaranty by a creditworthy entity reasonably acceptable to the XL
Parties of the XL Parties’ obligations under any EIB Guarantee, each in
accordance with this Agreement; or (6) commutation or amendment of any
agreement listed on Schedule 2.04 pursuant to or in accordance with this
Agreement; or (B) conduct occurring on or prior to the Closing with respect to this
Agreement and the Transactions; provided, however, that nothing
in this Section 2.05(c) releases any SCA Party or any XL Party from
fraud or intentional misconduct; provided, further, that with
respect to both clauses (A) and (B), the provisions of this paragraph shall not
discharge any obligation of any of the SCA Parties or XL Parties that has been
undertaken or imposed by the express terms of this Agreement, any Ancillary
Agreement or any other written agreement under which such CDS Counterparty has
any rights (whether as a party or otherwise) or otherwise amend existing credit
default swaps to which such CDS Counterparty is a party. 


                    (d)
The Parties acknowledge and agree that (A) the SCA Parties shall not be
responsible for the performance, or lack thereof, of any other Party’s
obligations pursuant to this Agreement or the Ancillary Agreements, (B) the XL
Parties shall not be responsible for the performance, or lack thereof, of any
other Party’s obligations pursuant to this Agreement or the Ancillary
Agreements and (C) a CDS Counterparty shall not be responsible for the
performance, or lack thereof, of any other Party’s obligations pursuant to this
Agreement or the Ancillary Agreements. 


                    (e)
Waiver of Statutory Rights. In connection with the releases granted
herein, each of the Parties hereby waives all rights conferred by the
provisions of California Civil Code Section 1542 and/or any similar state or
federal law. California Civil Code § 1542 provides as follows: 


A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR. 


-16-






The Parties
understand and acknowledge the significance and consequence of their waiver of
§ 1542 of the California Civil Code, as well as any other federal or state
statute or common law principle of similar effect, and acknowledge that this
waiver is a material inducement to and consideration for each Party’s execution
of this Agreement; provided, however, the provisions of this
paragraph shall not discharge any obligation of any of the Parties that has
been undertaken or imposed by the express terms of this Agreement, any
Ancillary or any other written agreement to which such Party is a party. 


                    Section
2.06 Consideration. At the Closing, the XL Parties shall (i) pay to the
SCA Parties an aggregate amount (inclusive of any amounts specified within the
XL/SCA Commutation Agreements) equal to One Billion, Seven Hundred and
Seventy-Five Million Dollars ($1,775,000,000) (the “Cash Consideration
Amount”), which will be paid to each of the SCA Parties in the amounts set
forth on Schedule 2.06(a); (ii) issue and transfer to the SCA Parties,
free and clear of any Liens, an aggregate of eight million (8,000,000) shares
of XL’s Class A Ordinary Shares, par value $0.01 per share (the “Stock
Consideration”), which will be transferred to each of the SCA Parties in
the number of shares set forth on Schedule 2.06(b), pursuant to the
terms of the Subscription Agreement and the XL Stock Resale and Registration
Rights Agreement; and (iii) subject to Section 2.10, transfer
to the SCA Shareholder Entity, free and clear of any Liens, all of the XL Owned
SCA Common Shares to be held in accordance with the terms of the Declaration
of Trust (the XL Owned SCA Common Shares, together with the Cash Consideration
Amount and the Stock Consideration, the “Consideration”). 


                    Section
2.07 Closing. (a) Subject to (i) satisfaction or waiver of all
conditions to the obligations of the parties set forth in Article VII
(other than those conditions anticipated to occur at Closing) and (ii) the
completion of an XL Public Offering, the closing of the commutations,
terminations and releases that are the subject of this Agreement (the “Closing”)
will be held at the offices of Weil, Gotshal & Manges LLP, 767 Fifth
Avenue, New York, NY 10153 at 10:00 a.m., New York time, on the same Business
Day as the completion of an XL Public Offering, or at such other place or at
such other time or on such other date as the Parties may mutually agree upon in
writing. Notwithstanding anything to the contrary contained herein, under no
circumstances will the XL Parties have any obligation to consummate any of the
Transactions required to be completed on or prior to the Closing until the
completion of an XL Public Offering. 


                    (b)
All of the actions to be taken at Closing will be deemed to occur
simultaneously, except that the Cash Consideration Amount to be received
by XLFA shall be received prior to the XLFA Redomestication, and the
commutation of the Quota Share Treaty shall occur after the XLFA
Redomestication. 


                    Section
2.08 Closing Deliveries by the SCA Parties. (a) At Closing, the SCA
Parties shall deliver or cause to be delivered to the XL Parties: 


	
 

	
 


	
 

	
          (i)
 receipt for the Cash Consideration Amount and the Stock Consideration
 received by the applicable SCA Parties; 





-17-






	
 

	
 


	
 

	
          (ii)
 the Subscription Agreement executed by each SCA Party which is a party
 thereto; 


	
 

	
 


	
 

	
         (iii)
 the XL Stock Resale and Registration Rights Agreement executed by each SCA
 Party which is a party thereto; 


	
 

	
 


	
 

	
         (iv)
 the 2001 Facultative Quota Share Commutation Agreement executed by each SCA
 Party which is a party thereto; 


	
 

	
 


	
 

	
          (v) the
 Excess of Loss Commutation Agreement executed by each SCA Party which is a
 party thereto; 


	
 

	
 


	
 

	
         (vi)
 the Adverse Development Cover Commutation Agreement executed by each SCA
 Party which is a party thereto; 


	
 

	
 


	
 

	
        (vii)
 the Facultative Master Certificate Commutation Agreement executed by each SCA
 Party which is a party thereto; 


	
 

	
 


	
 

	
       (viii)
 a true and complete original copy of a fully executed Quota Share Treaty
 Commutation Agreement; 


	
 

	
 


	
 

	
         (ix)
 the Transition Agreement Amendment executed by each SCA Party which is a
 party thereto; and 


	
 

	
 


	
 

	
          (x) an
 SCA Shareholder Entity Formation Conditions Certificate, if the SCA
 Shareholder Entity Formation Conditions have been satisfied. 





                    (b)
At Closing, the SCA Parties shall deliver or cause to be delivered to the XL
Parties and the CDS Counterparties a true and complete copy, certified by the
Secretary or Director of each of the SCA Parties, of the resolutions duly and
validly adopted by the Boards of Directors (or, in the case of each portfolio
trust that is an SCA Party, a direction letter authorized by its unitholder)
    of each of the SCA Parties evidencing its authorization of the execution
    and delivery of this Agreement and the Ancillary Agreements to which it is
    a party and the consummation of the Transactions. 


                    Section
2.09 Closing Deliveries by the XL Parties. (a) At Closing, the XL
Parties shall deliver to the SCA Parties: 


	
 

	
 


	
 

	
          (i)
 the Cash Consideration Amount by wire transfer in immediately available funds
 to a bank account or bank accounts of XLFA or XLCA (and, for the avoidance of
 doubt, no other entity) as SCA may direct, consistent with the allocation of
 the Cash Consideration Amount attached hereto as Schedule 2.06(a), in
 writing to XL at least three days prior to Closing; 





-18-







	
 

	
 


	
 

	
          (ii)
 stock certificates evidencing the Stock Consideration registered in the names
 of those SCA Parties designated on Schedule 2.06(b), together with an executed
    share transfer form evidencing the transfer of the XL Owned SCA Common Shares; 


	
 

	
 


	
 

	
          (iii)
 the Subscription Agreement executed by each XL Party which is a party
 thereto;


	
 

	
 


	
 

	
          (iv)
 the XL Stock Resale and Registration Rights Agreement executed by each XL
 Party which is a party thereto;


	
 

	
 


	
 

	
          (v)
 the 2001 Facultative Quota Share Commutation Agreement executed by each XL
 Party which is a party thereto;


	
 

	
 


	
 

	
          (vi)
 the Excess of Loss Commutation Agreement executed by each XL Party which is a
 party thereto;


	
 

	
 


	
 

	
          (vii)
 the Adverse Development Cover Commutation Agreement executed by each XL Party
 which is a party thereto;


	
 

	
 


	
 

	
          (viii)
 the Facultative Master Certificate Commutation Agreement executed by each XL
 Party which is a party thereto; and


	
 

	
 


	
 

	
          (ix)
 the Transition Agreement Amendment executed by each XL Party which is a party
 thereto.





                    (b)
At Closing, the XL Parties shall deliver to the SCA Parties and the CDS
Counterparties a true and complete copy, certified by the Secretary or Director
of each of the XL Parties, of the resolutions duly and validly adopted by the
Boards of Directors of each of the XL Parties evidencing its authorization of
the execution and delivery of this Agreement and the Ancillary Agreements to
which it is a party and the consummation of the Transactions. 


                    (c)
At Closing, but subject to Section 2.10, the XL Parties shall cause the
XL Owned SCA Common Shares (together with certificates evidencing such XL Owned
SCA Common Shares and stock powers duly endorsed in blank to be transferred to
the SCA Shareholder Entity, which will be owned and managed pursuant to the terms
of the Declaration of Trust. 


                    Section
2.10 Escrow. Notwithstanding anything to the contrary contained in this
Agreement, if XL does not receive an SCA Shareholder Entity Formation
Conditions Certificate from the SCA Parties in accordance with Section
2.08(a) at or prior to the Closing, the XL Parties shall, at Closing,
deposit with the Escrow Agent certificates evidencing all of the XL Owned SCA
Common Shares, free and clear of any Liens, together with stock powers duly
endorsed in blank, which are to be held by the Escrow Agent until released in
accordance with the Escrow Agreement. From and after delivery of such
certificates to the Escrow Agent at Closing, the XL Parties shall refrain from
exercising, and hereby irrevocably disclaim, any and all voting, economic or
other rights with respect to the XL Owned SCA Common Shares, and the XL Parties
will have no liability or further obligations to the SCA Parties or the CDS
Counterparties thereafter with respect to the XL Owned SCA Common Shares. 


-19-






ARTICLE III


REPRESENTATIONS AND WARRANTIES OF THE SCA
PARTIES


                    The
SCA Parties hereby jointly and severally represent and warrant to each of the
XL Parties and CDS Counterparties as follows: 


                    Section
3.01 Organization, Authority and Qualification of the SCA Parties. Each
of the SCA Parties is a corporation, company or business entity duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization and has all necessary power and authority to
enter into this Agreement and the Ancillary Agreements to which it may be a
party, to carry out its obligations hereunder and thereunder and to consummate
the Transactions. Except as set forth in Section 3.01 of the SCA
Parties’ Disclosure Schedule, each of the SCA Parties is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the properties owned or leased by it or the operation of its business makes
such licensing or qualification necessary. The execution and delivery of this
Agreement and the Ancillary Agreements to which each SCA Party is a party, the
performance by each SCA Party of its obligations hereunder and thereunder and the
consummation by each SCA Party of the Transactions have been duly authorized by
all requisite action on the part of each SCA Party and its shareholders. This
Agreement, the Transition Agreement Amendment, the SCA Shareholder Entity
Agreement and each Transaction have been approved by an independent committee
of SCA’s Board of Directors that did not include any member that was nominated
to SCA’s Board by any of the XL Parties, and this Agreement and each Ancillary
Agreement and Transaction to which each other SCA Party is a party has been
approved by such SCA Party’s Board of Directors (or, in the case of each
portfolio trust that is an SCA Party, a direction letter authorized by its
unitholder) or other appropriate authorizing body or Person. This Agreement has
been, and, upon their execution, the Ancillary Agreements to which each SCA
Party is a party shall have been, duly executed and delivered by each SCA
Party, and, assuming due authorization, execution and delivery by each of the
XL Parties and CDS Counterparties and receipt of all consents and approvals by
Governmental Authorities as required by Law, this Agreement constitutes, and,
upon their execution, the Ancillary Agreements shall constitute, legal, valid
and binding obligations of the SCA Parties enforceable against each of the SCA
Parties in accordance with their respective terms, subject to remedies under
applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws
affecting creditors’ rights. 


                    Section
3.02 No Conflict. Assuming the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred
to in Section 3.03, the execution, delivery and performance by each of
the SCA Parties of this Agreement and the Ancillary Agreements to which it is a
party do not and will not (a) violate, conflict with or result in the breach of
any provision of the Certificate of Incorporation or Bye-Laws (or similar
organizational documents) of any SCA Party, (b) conflict with or violate any
Law or Governmental Order applicable to any of the SCA Parties or any of their
assets, properties or businesses or, (c) except as set forth in Section 3.02
of the SCA Parties’ Disclosure Schedule, conflict with, result in any breach
of, constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or
give to others any rights of termination, amendment, acceleration, suspension,
revocation or 


-20-






cancellation
of, any note, bond, mortgage, indenture, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or arrangement to which any SCA
Party is a party, which would adversely affect the ability of any SCA Party to
carry out its obligations under this Agreement or any Ancillary Agreement or to
consummate the Transactions. 


                    Section
3.03 Governmental Consents and Approvals. (a) The execution, delivery
and performance of this Agreement and each Ancillary Agreement to which any SCA
Party is a party by the SCA Parties does not and will not require any consent,
approval, authorization or other order of, action by, filing with or
notification to, any Governmental Authority, except as described in Section
3.03 of the SCA Parties’ Disclosure Schedule. 


                    (b)
The SCA Parties sought and obtained (other than with respect to obtaining
confirmation from the NYID, the Delaware Insurance Department and the UK FSA
that they do not object to the transfer of the XL Owned SCA Common Shares to
the SCA Shareholder Entity, which confirmation will be sought and is
anticipated to be obtained promptly after the completion of the documentation
related to the Shareholder Entity) approval of this Agreement and each
commutation or other Transaction to which XLCA is a party from the NYID on the
grounds that (among other things) they are collectively, and each is
individually, fair and equitable. The SCA Parties have obtained (other than
with respect to obtaining confirmation from the NYID, the Delaware Insurance
Department and the UK FSA that they do not object to the transfer of the XL
Owned SCA Common Shares to the SCA Shareholder Entity, which confirmation will
be sought and is anticipated to be obtained promptly after the completion of
the documentation related to the Shareholder Entity) or completed all consents,
approvals, authorizations, orders, actions, filings or notifications listed on Section
3.03 of the SCA Parties’ Disclosure Schedule. The SCA Parties have provided
true and correct copies of such approvals to the XL Parties. To the Knowledge
of SCA, approvals have not been rescinded, modified or amended in any way. 


                    Section
3.04 Financial Information. (a) True and complete copies of the
Financial Statements have been delivered by the SCA Parties to the XL Parties
and CDS Counterparties. The Financial Statements (i) were prepared in
accordance with the books of account and other financial records of the SCA
Parties and (ii) present fairly the financial condition and results of
operations of the SCA Parties as of the dates thereof or for the periods
covered thereby. The GAAP Financial Statements have been prepared in accordance
with GAAP applied on a basis consistent with past practices. The XLCA Statutory
Financial Statements have been prepared in accordance with New York State
statutory accounting principles applied on a basis consistent with past
practices. The XLFA Statutory Financial Statements have been prepared in
accordance with Bermuda statutory accounting principles applied on a basis
consistent with past practices. 


                    (b)
True and complete copies of all pro forma balance sheets of the SCA Parties and
any related statements of income, retained earnings, stockholders’ equity,
changes in financial position and related notes and schedules thereto, prepared
to reflect each of the SCA Parties’ financial condition after giving effect to
the Transactions and provided to the NYID, have been delivered by the SCA
Parties to the XL Parties and the CDS Counterparties. 


-21-






                    Section
3.05 Compliance with Laws. (a) There is no violation of Law by any SCA
Party that has, or, if known by an appropriate Governmental Authority, could
reasonably be expected to adversely affect the legality, validity or
enforceability of this Agreement, any Ancillary Agreement or the consummation
of the Transactions and (b) except as provided in Section 3.05 of the
SCA Parties’ Disclosure Schedule, there is no Governmental Order that is
applicable to any SCA Party that has or could reasonably be expected to
adversely affect the legality, validity or enforceability of this Agreement,
any Ancillary Agreement or the consummation of the Transactions. 


                    Section
3.06 Effect of Commutations. As of the Closing, as a result of (i)
commutation of the Quota Share Treaty pursuant to the Quota Share Commutation
Agreement and (ii) commutation of the Financial Security Master Facultative
Agreement, the Guarantee and the Financial Security Guarantee shall no longer
have any force or effect and for all purposes shall be considered a nullity. If
any of the EIB Policies are commutated, then each EIB Guarantee that guarantees
XLCA’s obligations under each commuted EIB Policy will no longer have any force
or effect and will, for all purposes, be considered a nullity. 


                    Section
3.07 Litigation. No Action by or against any of the SCA Parties is
pending or, to the Knowledge of SCA, threatened, which could reasonably be
expected to affect the legality, validity or enforceability of this Agreement,
any Ancillary Agreement or the consummation of the Transactions. 


                    Section
3.08 Placement of Stock Consideration. Each of the SCA Parties that will
acquire a portion of the Stock Consideration: 


                    (a)
is acquiring the Stock Consideration for investment purposes only and not with
a view to or for distributing or reselling such Stock Consideration or any part
thereof, without prejudice, however, to such SCA Party’s right, subject to the
provisions of this Agreement, at all times to sell or otherwise dispose of all
or any part of such Stock Consideration pursuant to an effective registration
statement under the Securities Act or under an exemption from such registration
and in compliance with applicable federal and state securities or “blue sky”
Laws. Each such SCA Party understands that it must bear the economic risk of
this investment indefinitely, unless the Stock Consideration is registered
pursuant to the Securities Act and any applicable state securities or “blue
sky” Laws or an exemption from such registration is available. None of the SCA
Parties has any intention of participating in the formulation, determination,
or direction of the basic business decisions of any of the XL Parties; 


                    (b)
at the time it was first offered the Stock Consideration was, and at the date
hereof is, an “accredited investor” as defined in Rule 501(a) under the
Securities Act; 


                    (c)
understands that the Stock Consideration is being offered and provided as
partial consideration to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities or
“blue sky” Laws, and that the XL Parties are relying upon the truth and
accuracy of, and such SCA Party’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such SCA Party
set forth herein in order to determine the availability of such exemptions and
the eligibility of such SCA Party to acquire the Stock Consideration; 


-22-






                    (d)
has, either alone or together with its representatives, such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Stock Consideration, and has so evaluated the merits and risks of such
investment. Such SCA Party understands that an investment in the Stock
Consideration involves a high degree of risk that could result in complete
loss, is able to bear the economic risk of an investment in the Stock
Consideration and, at the present time, is able to afford a complete loss of
such investment; 


                    (e)
is knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in securities representing an
investment decision like that involved in the acquisition of the Stock
Consideration. Such SCA Party acknowledges that it has (i) access to XL’s
disclosures about its Class A Ordinary Shares made in XL’s filings with the
Securities and Exchange Commission (“SEC”), including its Annual Report
on Form 10-K for its last completed fiscal year, its Quarterly Reports on Form
10-Q for its latest fiscal quarters, and any Current Report on Form 8-K filed
by XL since the date of its last respective Annual Report on Form 10-K for its
last completed fiscal year; (ii) access to information about XL and its
financial condition, results of operations, business, properties, management
and prospects contained in an offering memorandum related to the issuance of
the Stock Consideration provided to the SCA Parties; and (iii) adequate access
and opportunity to discuss the investment opportunity with the management of
the XL Parties; 


                    (f)
in connection with its acceptance of the Stock Consideration, has not relied
upon any representations made by, or other information (whether oral or
written) furnished by or on behalf of, any of the XL Parties other than as set
forth in this Agreement, the Ancillary Agreements or XL’s filings with the
SEC or an offering memorandum related to the issuance of the stock consideration
provided to the SCA Parties.



                    (g)
acknowledges that the Stock Consideration was offered and will be issued to the
SCA Parties without any general solicitation or general advertising, including
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general solicitation
or general advertising; 


                    (h)
understands that nothing in this Agreement or any other materials presented by
or on behalf of XL to the SCA Parties in connection with the issuance of the
Stock Consideration constitutes legal, tax or investment advice. Each SCA Party
has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its receipt
of the Stock Consideration; and 


                    (i)
if located or domiciled outside the United States, has complied with all Laws
in each foreign jurisdiction in which it will receive or be the record or
beneficial owner of the Stock Consideration. 


                    Section
3.09 Regulatory Approvals. The NYID has approved in writing the terms of
this Agreement and any Transaction to which XLCA is a party, including the
Quota Share Treaty Commutation Agreement, pursuant to applicable Law, including
Section 1505 of the New York Insurance Law. The BMA has approved in writing the
terms of this Agreement as they relate to XLFA prior to the XLFA
Redomestication. The UK FSA has been provided a 


-23-






copy of this
Agreement and has raised no objection to XLCAUK entering into this Agreement,
and the UK FSA has confirmed in writing that the 14-day waiting period
applicable under the Letter of Undertaking, dated May 20, 2008, will not apply
to XLCAUK’s execution of this Agreement. A copy of each such written approval
has been delivered to the XL Parties and the CDS Counterparties and such
written approvals have not been withdrawn, rescinded, revoked, amended or
altered in any way. The SCA Parties have provided the NYID, the BMA and the UK
FSA with all information the SCA Parties deemed material and all information
requested by the NYID, the BMA or the UK FSA. All information provided by the
SCA Parties to the NYID, the BMA or the UK FSA was true, correct and complete
in all material respects. Notwithstanding anything to the contrary, the NYID,
the BMA and the UK FSA have not confirmed that they are not objecting to the
transfer of the XL Owned SCA Common Shares to the SCA Shareholder Entity but
the SCA Parties will seek to obtain such confirmations promptly and anticipate
that such confirmations will be obtained promptly after the completion of the
documentation related to the Shareholder Entity. 



                    Section
3.10 MLI CDS Agreements. The SCA Parties have entered into an agreement
with Merrill Lynch International (“MLI”) pursuant to which MLI will terminate
the MLI CDS Agreements prior to or simultaneously with the Closing (the “MLI
Agreement”). A true and correct copy of the MLI Agreement has been
delivered to the XL Parties. The MLI Agreement remains in full force and effect
and has not been amended, waived, terminated or repealed in any way. The amount
of consideration for the termination of the MLI CDS Agreements pursuant to the
MLI Agreement is no greater than $500 million in the aggregate together with
the release of all claims related to such MLI CDS Agreements.  


                    Section
3.11 Financial Security Master Facultative Commutation Agreement. The
SCA Parties have entered into an agreement with Financial Security pursuant to
which the Financial Security Master Facultative Agreement will be commuted prior
to, or simultaneously with, the Closing. A true and correct copy of the
Financial Security Master Facultative Commutation Agreement has been delivered
to the XL Parties. The Financial Security Master Facultative Commutation
Agreement remains in full force and effect and has not been amended, waived,
terminated or repealed in any way. 


                    Section
3.12 Third-Party Agreements. None of the transactions contemplated by Section
2.04 and listed on Schedule 2.04 is between any SCA Party or any of
its affiliates, officers, directors, employees, agents, counsel,
sub-contractors or other representatives or related parties, on the one hand,
and any other SCA Party or any of its affiliates, officers, directors,
employees, agents, counsel, sub-contractors or other representatives or related
parties, on the other hand. 


                    Section
3.13 Brokers. Except for Rothschild & Sons Limited, whose fees will
be paid exclusively by the SCA Parties, no broker, advisor, finder or
investment banker is entitled to any brokerage, finder’s or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the SCA Parties. 


-24-






ARTICLE IV


REPRESENTATIONS AND WARRANTIES OF THE XL
PARTIES


                    The
XL Parties hereby jointly and severally represent and warrant to each of the
SCA Parties and the CDS Counterparties as follows: 


                    Section
4.01 Organization and Authority of the XL Parties. Each of the XL
Parties is a corporation, company or business entity duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization and has all necessary power and authority to
enter into this Agreement and the Ancillary Agreements to which it may be a
party, to carry out its obligations hereunder and thereunder and to consummate
the Transactions. Each of the XL Parties is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary. The execution and delivery of this Agreement and the
Ancillary Agreements to which each XL Party is a party, the performance by each
XL Party of its obligations hereunder and thereunder, and the consummation by
each XL Party of the Transactions have been duly authorized by all requisite
action on the part of each XL Party. This Agreement has been, and, upon the
execution of the Ancillary Agreements to which each XL Party is a party, shall
have been, duly executed and delivered by each XL Party, and, assuming due
authorization, execution and delivery by each of the SCA Parties and CDS
Counterparties and receipt of all consents and approvals by Governmental
Authorities as required by Law, this Agreement constitutes, and upon their
execution, the Ancillary Agreements shall constitute, legal, valid and binding
obligations of the XL Parties enforceable against each of the XL Parties in
accordance with their respective terms, subject to remedies under applicable
bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting
creditors’ rights. 


                    Section
4.02 No Conflict. Assuming the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred
to in Section 4.03, the execution, delivery and performance by each of
the XL Parties of this Agreement and the Ancillary Agreements to which it is a
party do not and will not (a) violate, conflict with or result in the breach of
any provision of the Certificate of Incorporation or Bye-Laws (or similar
organizational documents) of each XL Party, (b) conflict with or violate any
Law or Governmental Order applicable to any XL Party or (c) except as set forth
in Section 4.02 of the XL Parties’ Disclosure Schedule, conflict with,
or result in any breach of, constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a default) under,
require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, any note,
bond, mortgage, indenture, contract, agreement, lease, sublease, license,
permit, franchise or other instrument or arrangement to which any XL Party is a
party, which would adversely affect the ability of any XL Party to carry out
its obligations under this Agreement or any Ancillary Agreement and to
consummate the Transactions. 


                    Section
4.03 Governmental Consents and Approvals. (a) The execution, delivery
and performance of this Agreement and each Ancillary Agreement to which it is a
party by each of the XL Parties does not and will not require any consent,
approval, authorization or 


-25-






other order
of, action by, filing with or notification to any Governmental Authority,
except as described in Section 4.03 of the XL Parties’ Disclosure
Schedule. 


                    (b)
The XL Parties sought and obtained approval of this Agreement and each
commutation or other Transaction to which XLRA is a party from the NYID on the
grounds that (among other things) they are collectively, and each is
individually, fair and equitable. The XL Parties have provided true and correct
copies of such approval to the SCA Parties. To the knowledge of XL’s executive
officers, after due inquiry, such approval has not been rescinded, modified or
amended in any way. 


                    Section
4.04 Capitalization. (a) Section 4.04(a) of the XL Parties’
Disclosure Schedule sets forth the type and number of authorized equity
securities of XL and the type and number of such equity securities that are
issued and outstanding as at July 25, 2008. 


                    (b)
All issued and outstanding shares of XL’s capital stock as at July 28, 2008
have been duly authorized for issuance, are validly issued and are fully paid
and nonassessable. The Stock Consideration has been duly authorized and, upon
issuance to the SCA Parties pursuant to the terms of this Agreement and the
Subscription Agreement, will be validly issued, fully paid and nonassessable,
free and clear of all Liens other than those contained in applicable securities
Laws. 


                    Section
4.05 XL Owned SCA Common Shares. XLI is the record and beneficial owner
of the XL Owned SCA Common Shares, free and clear of any and all Liens other
than restrictions on transfer imposed by applicable securities and insurance
Laws, has all right, title and interest in and to the XL Owned SCA Common
Shares and has all requisite power and authority to sell, assign, transfer and
deliver the XL Owned SCA Common Shares, free and clear of all Liens other than
restrictions on transfer contained in applicable securities or insurance Laws,
or deposit with the Escrow Agent certificates evidencing all of the XL Owned
SCA Common Shares, free and clear of any Liens, together with stock powers duly
endorsed in blank pursuant to Section 2.10, as the case may be, to the
SCA Shareholder Entity. 


                    Section
4.06 Litigation. No Action by or against any of the XL Parties is
pending or, to the actual knowledge of each of the XL Parties after due
inquiry, threatened, which could reasonably be expected to affect the legality,
validity or enforceability of this Agreement, any Ancillary Agreement or the
consummation of the Transactions. 


                    Section
4.07 Regulatory Approvals. The NYID has approved in writing the terms
of this Agreement and any Transaction to which XLRA is a party, including the
Adverse Development Cover Commutation Agreement, pursuant to applicable Law,
including Section 1505 of the New York State Insurance Laws. A copy of each such
written approval has been delivered to the SCA Parties and the CDS Counterparties
and such written approvals have not been withdrawn, rescinded, revoked, amended
or altered. The XL Parties have provided the NYID, the BMA and the UK FSA with
all information the XL Parties deemed material and all information requested
by the NYID, the BMA or the UK FSA. All information provided by the XL Parties
to the NYID, the BMA or the UK FSA was true, correct and complete in all material
respects. 


-26-






                    Section
4.08 Brokers. Except for The Blackstone Group L.P. whose fees will be
paid exclusively by the XL Parties, no broker, advisor, finder or investment
banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the Transactions (other than in
respect of the XL Public Offering) based upon arrangements made by or on behalf
of the XL Parties. 


ARTICLE V


REPRESENTATIONS AND WARRANTIES OF THE CDS
COUNTERPARTIES


                    Each
of the CDS Counterparties hereby represents and warrants as to itself only, and
neither jointly nor jointly and severally with the other CDS Counterparties, to
each of the XL Parties and SCA Parties as follows: 


                    Section
5.01 Status. It is duly organized and validly existing under the laws of
the jurisdiction of its organization or incorporation and, if relevant under
such laws, is in good standing. 


                    Section
5.02 Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement (including the Ancillary Agreements to
which it is a party), to deliver this Agreement and any other documentation
relating to this Agreement that it is required by this Agreement to deliver,
and to perform its obligations under this Agreement, and it has taken all
necessary action to authorize such execution, delivery and performance. 


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


                    Section
5.04 Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement have been obtained and
are in full force and effect and all conditions of any such consents have been
complied with. 


                    Section
5.05 Obligations Binding. Its obligations under this Agreement
constitute its legal, valid and binding obligations, enforceable in accordance
with their respective terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar Laws affecting creditors’ rights generally,
and subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at Law)). 


                    Section
5.06 Absence of Litigation. There is no pending, and it has not received
written threat of any action, suit or proceeding at Law or in equity or before
any court, tribunal, governmental body, agency or official or any arbitrator
that is likely to affect the legality, validity or enforceability of this
Agreement against it or its ability to perform its obligations under this Agreement.



-27-






                    Section
5.07 Consent to Transactions. It consents to the effect of the
consummation of the covenants contained in this Agreement and the Ancillary
Agreements, including (i) the commutation of the Quota Share Treaty pursuant to
the Quota Share Commutation Agreement, (ii) the commutation of the Financial
Security Master Facultative Agreement, (iii) the commutation of any EIB Policy
in accordance with Section 6.05(c) and (iv) as a consequence of the
foregoing, the effective nullity of the Guarantee and the Financial Security
Guarantee and, if any EIB Policy is commuted, the EIB Guarantee that guarantees
XLCA’s obligation under such commuted EIB Policy, such that each has no further
force or effect.


                    Section
5.08 Ownership of Insurance Instruments. (a) It has: 


	
 

	
 


	
 

	
          (i)
 provided to the SCA Parties a written list (prepared in good faith by, and
 reflecting the best belief of, an officer of such CDS Counterparty) of (A)
 those credit default swap agreements with XLCA or Affiliates of XLCA to which
 such CDS Counterparty is party, and of which such CDS Counterparty is a
 beneficial owner, at the time it became a Party and (B) the notional amount
 of each such credit default swap agreement; or 


	
 

	
 


	
 

	
          (ii)
 confirmed in writing by an officer of such CDS Counterparty, to the best
 belief of such confirming officer, a list provided by the SCA Parties of (A)
 those credit default swap agreements with XLCA or Affiliates of XLCA to which
 such CDS Counterparty is party, and of which such CDS Counterparty is a
 beneficial owner, at the time it became a Party and (B) the notional amount
 of each such credit default swap agreement.





                    (b)
For an abundance of clarity, the foregoing representations and warranties
contained in Section 5.08(a) only reflect the best belief of the officer
of the CDS Counterparty preparing the list or confirming a list prepared by
SCA. The CDS Counterparty is not making any representation or warranty that is
not qualified by the best belief of such officer, and it will not be bound by
or subject to liability based on any inaccuracy contained in any such list that
ultimately results from such officer’s best belief being inadvertently
inaccurate. 


                    Section
5.09 Brokers. Except for the CDS Financial Advisor and BlackRock, whose
fees will be paid exclusively by the SCA Parties, no broker, advisor, finder or
investment banker is entitled to any brokerage, finder’s or other fee or
commission from it in connection with the Transactions based upon arrangements
made by or on behalf of any of the CDS Counterparties. 


ARTICLE VI


ADDITIONAL AGREEMENTS


                    Section
6.01 Public Disclosure and Confidentiality. (a) No SCA Party or XL Party
shall make or permit any of its officers, employees, agents, counsel,
sub-contractors or other representatives to make any public disclosure
simultaneously with, or close in time to, the 


-28-






execution of
this Agreement or the Closing, other than in conjunction with an XL Public
Offering (such information disclosed in conjunction with an XL Public Offering
to be pursuant to a Quarterly Report on Form 10-Q, a Current Report on Form
8-K, a prospectus supplement, or other material that complies with the
requirements of the Securities Act, including any press release, other material
or internet postings) regarding the existence or terms of this Agreement, to
any person or company or to the public, without the prior written consent of
the other Parties subject to this Section 6.01, such consent not to be
unreasonably withheld or delayed; provided, further, that XL and
any of its officers, employees, agents, counsels, sub-contractors or other
representatives (expressly including any investment banks) may make disclosures
relating to the existence and terms of this Agreement and the Transactions to
rating agencies and potential investors in connection with the marketing of an
XL Public Offering, including, for the avoidance of doubt, information relating
to the reinsurance agreements and guarantees being terminated pursuant to this
Agreement such as exposures, valuations and other data; provided, further,
that if a disclosure is required by Law, the SCA Party or the XL Party so
required may make such disclosure so long as (i) it uses its reasonable best
efforts to reasonably cooperate as to the timing and content of such disclosure
to the extent reasonably practicable without violating any Law and (ii) other
than with respect to press releases, securities filings and similar public
disclosure or disclosures in conjunction with an XL Public Offering, it
reasonably cooperates with any other SCA Party or XL Party seeking to obtain a
protective order concerning such disclosure if such XL Party or SCA Party
requesting cooperation shall pay for all reasonable fees and expenses,
including legal fees, associated with such cooperation. 


                    (b)
Past Confidential Information. The SCA Parties and their officers,
employees, agents, counsel, sub-contractors and other representatives, as a
group, and the XL Parties and their officers, employees, agents, counsel,
sub-contractors and other representatives, as a group, agree to keep
confidential within their groups any information received prior to Closing from
any Party in the other group pursuant to a confidentiality agreement,
arrangement or understanding in place prior to Closing between the SCA Parties
and the XL Parties that was commuted or terminated pursuant to Sections 2.01,
2.02 or 2.03 of this Agreement or set forth in Part II of Schedule
1.01(b) (“Confidential Information”), including information about
exposure, claims, mark or other information related to an individual CDS
Counterparty; provided, that Confidential Information will not include
any information that (i) was publicly available prior to its disclosure to a
member of the group receiving the Confidential Information (a “Receiving
Group”), (ii) was known to a member of the Receiving Group prior to
disclosure by a member of the group providing the Confidential Information (a “Providing
Group”) and was not received under obligations of confidentiality or from a
Person obligated to keep such information confidential or (iii) is or becomes
available to the Receiving Group on a nonconfidential basis from a source other
than the Providing Group or its agents, provided, that such other Person
is not bound by a confidentiality agreement with the Providing Group, provided,
further, that XL and any of its officers, employees, agents, counsels,
sub-contractors or other representatives (expressly including any investment
banks) may make disclosures relating to the existence and terms of this
Agreement and the transactions contemplated in this Agreement to rating
agencies and investors in connection with the marketing of an XL Public
Offering, including, for the avoidance of doubt, information relating to the
reinsurance agreements and guarantees being terminated pursuant to this
Agreement such as exposures, valuations and other data. In the event that any
Party subject to this Section 6.01(b), or such Party’s agents, becomes
legally compelled by deposition, subpoena, or other court or action by a
Governmental Authority to disclose any of 


-29-






the Confidential
Information covered by this Agreement, the Receiving Group with which such
Party is associated is permitted to make such disclosure of Confidential
Information as it determines is reasonably necessary, upon consultation with
counsel, to comply with applicable Laws; provided, that such Receiving
Group makes a reasonable effort to provide the Providing Group with prompt
written notice to that effect and such Receiving Group reasonably cooperates
with the Providing Group if the Providing Group seeks to obtain a protective
order concerning such Confidential Information, provided, that the
Providing Group pays for all of the Receiving Group’s fees and expenses,
including legal fees, associated with such cooperation. Notwithstanding
anything contained in any other agreement, arrangement or understanding between
the SCA Parties and the XL Parties, (i) the XL Parties may disclose
Confidential Information, as reasonably needed, to any other XL Party, any
nationally recognized rating agency then providing a financial strength rating
for any XL Party or any officer, employee, agent, counselor, sub-contractor and
other representative of any such agency or any XL Party, (ii) the SCA Parties
may disclose Confidential Information, as reasonably needed, to any other SCA Party,
any nationally recognized rating agency then providing a financial strength
rating for any SCA Party, or any officer, employee, agent, counselor,
sub-contractor and other representative of any such agency or any SCA Party and
(iii) this Section 6.01(b) supersedes all prior confidentiality rights
and obligations between the SCA Parties and the XL Parties with respect to
“Confidential Information,” as defined above. 


                    (c)
Regulatory Compliance. The SCA Parties will provide the XL Parties, at
the XL Parties’ sole cost and expense, upon reasonable notice and during normal
business hours, all documents, files, books and records and reasonable access
to, and will request reasonable cooperation from, all employees of the SCA
Parties, as the XL Parties may reasonably request from time to time, for the
limited use by the XL Parties in compliance with any legal, regulatory,
accounting, or audit requirement or examination. The XL Parties will provide
the SCA Parties, at the SCA Parties’ sole cost and expense, upon reasonable
notice and during normal business hours, all documents, files, books and
records and reasonable access to, and will request reasonable cooperation from,
all employees of the XL Parties, as the SCA Parties may reasonably request from
time to time, for the limited use by the SCA Parties in compliance with any
legal, regulatory, accounting, or audit requirement or examination. The XL
Parties and the SCA Parties will treat all information received pursuant to
this Section 6.01(c) as if it were Confidential Information subject to Section
6.01(b). 


                    Section
6.02 Regulatory and Other Authorizations; Notices and Consents. The SCA
Parties and the XL Parties shall use their reasonable best efforts to obtain
and maintain all authorizations, consents, orders and approvals of all
Governmental Authorities and officials that may be or become necessary for the
execution and delivery of, and the performance of their obligations pursuant
to, this Agreement and the Ancillary Agreements, and will reasonably cooperate
with the other SCA Parties and XL Parties in promptly seeking to obtain all
such authorizations, consents, orders and approvals. Each of the SCA Parties
and XL Parties shall use reasonable best efforts to resolve objections, if any,
as may be asserted by any Governmental Authority with respect to the
Transactions under any Law. In connection therewith, if any Action is
instituted (or threatened to be instituted) challenging any Transaction as
violative of any Law, subject to and in accordance with Section 6.11,
the SCA Parties and the XL Parties shall use their reasonable best efforts and
reasonably cooperate with one another to contest and resist any such Action and
to have vacated, lifted, reversed, or overturned any decree, judgment, 


-30-






injunction or
other order, whether temporary, preliminary or permanent, that is in effect and
that prohibits, prevents, or restricts consummation of the Transactions,
including by pursuing all available avenues of administrative and judicial
appeal, unless, by mutual agreement, the SCA Parties and the XL Parties decide
that litigation is not in their respective best interests. 


                    Section
6.03 Notice of Developments. Prior to the Closing, each Party shall
promptly notify the other Parties in writing of all events, circumstances,
facts and occurrences arising subsequent to the date of this Agreement which
could reasonably be expected to result in any material breach of a
representation or warranty or covenant of such Party contained in this
Agreement or which could have the effect of making any material representation
or warranty of such Party contained in this Agreement untrue or incorrect in
any respect. 


                    Section
6.04 MLI ABS CDO Credit Default Swap Agreements. Prior to the Closing,
the SCA Parties shall not amend, alter, waive or repeal any of the terms of the
MLI CDS Agreement without the prior written approval of the XL Parties. 


                    Section
6.05 Third-Party Reinsurance Agreements. (a) The SCA Parties shall (i)
provide the XL Parties with copies of all documents, files, books and records
relating to any Third-Party Reinsurance Agreement for so long as it remains in
force as reasonably requested by the XL Parties from time to time, and
reasonable access to, and will request reasonable cooperation from, upon
reasonable notice during normal business hours, all employees of the SCA
Parties whose employment responsibilities are related to any Third-Party
Reinsurance Agreement for so long as it remains in force and (ii) subject to
any applicable Law, pay all claims under any Third-Party Reinsurance Agreement
for so long as it remains in force as they become due, other than claims
reasonably contested by the SCA Parties in good faith. 


                    (b)
Prior to the Closing, the SCA Parties shall not amend, alter, waive or repeal
any of the terms of the Financial Security Master Facultative Commutation
Agreement without the prior written approval of the XL Parties. 


                    (c)
The SCA Parties shall use their commercially reasonable efforts to commute each
of the EIB Policies and fully and finally extinguish each Person’s rights and
obligations thereunder pursuant to commutation and release agreements in forms
reasonably satisfactory to the XL Parties or effectuate another EIB Resolution
Event; provided, however, that the use of such commercially
reasonable efforts shall not require the SCA Parties to pay amounts in excess
of those set forth in a letter delivered concurrently herewith to the XL
Parties and the CDS Financial Advisor. Until an EIB Resolution Event occurs,
XLCA shall (i) refrain from novating or assigning the EIB Policies to any
Person, provided, that it may reinsure the EIB Policies as it sees fit
and (ii) refrain from selling, leasing, assigning, reinsuring or transferring
in any way (whether in one transaction or a series of related transactions) a
majority of its assets to any Person, unless either (A) the EIB Policies are
sold, leased, assigned, reinsured or transferred (as the case may be) with all
or substantially all of such assets to the Person purchasing, leasing,
reinsuring, or receiving all or substantially all of such assets or (B) the XL
Parties provide their consent, which consent shall not be unreasonably withheld
or delayed. Notwithstanding the foregoing, nothing in this paragraph shall in
any way restrict or limit the SCA Parties from selling, leasing, assigning,
reinsuring, transferring or otherwise disposing of, in any manner (whether in
one or more transactions) the public finance business of the SCA Parties. 


-31-






                    Section
6.06 Ownership of Insurance Instruments. (a) On and as of the date
hereof, and on the Closing Date (at a time prior to the Closing) and as of the
Closing, the SCA Parties shall provide written notice to the XL Parties setting
forth, to the Knowledge of SCA, the then current aggregate notional value of
all credit default swap agreements with XLCA or Affiliates of XLCA of which the
CDS Counterparties have either represented in writing to the SCA Parties in
accordance with Section 5.08 or confirmed in writing to the SCA Parties
in accordance with Section 5.08, as being a party thereto and a
beneficial owner thereof. 


                    (b)
Each CDS Counterparty, in respect of itself, agrees that, prior to Closing, it
will not sell or transfer in any way any right to or title in any credit
default swap agreement with XLCA or an Affiliate of XLCA in which such CDS Counterparty
has beneficial ownership, or to which it is party, unless the transferee agrees
to become a Party to this Agreement pursuant to Section 9.04 by signing
a joinder agreement immediately upon consummation of any such sale or transfer.



                    Section
6.07 Compliance with Securities Laws. If any SCA Party is or becomes the
record or beneficial owner of any or all of the Stock Consideration, it will
comply with all Laws applicable to the Transfer of any or all of the Stock
Consideration. 


                    Section
6.08 Passive Investor. For a period of two years from the Closing, none
of the SCA Parties will take any action to participate in the formulation,
determination or direction of the basic business decisions of any of the XL
Parties. 


                    Section
6.09 XL Owned SCA Common Shares Covenant. If any CDS Counterparty
becomes the record or beneficial owner of any or all of the XL Owned SCA Common
Shares, it will comply with all Laws applicable to the Transfer of any or all
of the XL Owned SCA Common Shares. 


                    Section
6.10 Forbearance. The Parties covenant and agree with each other and
their respective Affiliates, successors and assigns, that: 


                    (a)
subsequent to the date hereof: 


                    (i)
none of the SCA Parties shall hereinafter, for any reason whatsoever, demand,
claim, file suit or initiate any Action against any of the XL Parties or the
CDS Counterparties in respect of any rights released pursuant to Section
2.05(a); 


                    (ii)
none of the XL Parties shall hereinafter, for any reason whatsoever, demand,
claim, file suit or initiate any Action against any of the SCA Parties or the
CDS Counterparties in respect of any rights released pursuant to Section
2.05(b); and 


                    (iii)
none of the CDS Counterparties shall hereinafter, for any reason whatsoever,
demand, claim, file suit or initiate any Action against any of the SCA Parties
or the XL Parties in respect of any rights released pursuant to Section
2.05(c). 


                    (b)
Subsequent to the date hereof and until the earlier of (i) October 15, 2008 or
(ii) the termination of this Agreement pursuant to Section 8.01, no CDS
Counterparty will exercise any Triggered Enforcement Right to the extent
triggered (or argued by any CDS 


-32-






Counterparty
to be triggered) as a result of the fact that any of the SCA Parties or any of
their Affiliates (A) is or is becoming insolvent (either because its financial
condition is such that the sum of its debts is greater than the fair market
value of its assets, or because the fair saleable value of its assets is less
than the amount required to pay its probable liabilities on its existing debts
as they mature), (B) has or will have unreasonably small capital with which to
engage in its business, (C) has or will have incurred debts beyond its ability
to pay as they become due, (D) does not have or will not have an excess of
required reserves and other liabilities over admitted assets, (E) has or will
have insufficient assets to reinsure all outstanding risks with other solvent
authorized assuming insurers after paying all accrued claims owed, (F) has a
credit rating that has been downgraded or withdrawn by any rating agency, or
has sold credit protection or provided a guarantee with respect to an asset-backed
security or other reference obligation and the credit rating with respect to
such asset-backed security or other reference obligation has been downgraded or
withdrawn by any rating agency, (G) is a party to an agreement with or for the
benefit of a CDS Counterparty where a cross-default or termination event has
occurred or to the extent it results from the occurrence of an event described
in clauses (A) through (F), or (H) has admitted in writing to any set of
circumstances described in clauses (A) through (G); provided, that if
any counterparty to a credit default swap agreement with XLCA or Affiliates of
XLCA exercises a Triggered Enforcement Right in respect of such credit default
swap as a result of the occurrence of an event described in clauses (A) through
(E) or (H) (but solely with respect to clauses (A) through (E)), and the CDS
Counterparties representing the Minimum Consenting CDS Counterparty
Restructuring Threshold so elect in writing, this Section 6.10(b) shall
no longer apply to any CDS Counterparty; provided, further that
this sentence shall not apply with respect to any such Triggered Enforcement
Right (x) withdrawn by such counterparty or deemed ineffective by a
Governmental Authority within five (5) Business Days or (y) if the current payment
obligation of the SCA Parties arising from the exercise of such Triggered
Enforcement Right does not exceed $35 million with respect to any given
counterparty. The SCA Parties shall give notice to the CDS Counterparties
promptly after receiving notice of the exercise of a Triggered Enforcement
Right. 


                    (c)
Subsequent to the date hereof and until the earlier of (i) Closing or (ii) the
termination of this Agreement pursuant to Section 8.01, the XL Parties
will not exercise any Triggered Enforcement Rights to the extent triggered as a
result of the fact that any of the SCA Parties or any of their Affiliates (A)
is or is becoming insolvent (either because its financial condition is such
that the sum of its debts is greater than the fair market value of its assets
or because the fair saleable value of its assets is less than the amount
required to pay its probable liabilities on its existing debts as they mature),
(B) has or will have unreasonably small capital with which to engage in its
business and (C) has or will have incurred debts beyond its ability to pay as
they become due, (D) does not have or will not have an excess of required
reserves and other liabilities over admitted assets, (E) has or will have
insufficient assets to reinsure all outstanding risks with other solvent
authorized assuming insurers after paying all accrued claims owed, (F) has a
credit rating that has been downgraded or withdrawn by any rating agency, or
has sold credit protection or provided a guarantee with respect to an
asset-backed security or other reference obligation and the credit rating with
respect to such asset-backed security or other reference obligation has been
downgraded or withdrawn by any rating agency, (G) is a party to an agreement
with or for the benefit of a CDS Counterparty where a cross-default or
termination event has occurred or to the extent it results from the occurrence
of an event described in clauses 


-33-






(A) through
(F), or (H) has admitted in writing to any set of circumstances described in
clauses (A) through (G). 


                    (d)
For the avoidance of doubt, nothing herein shall restrict or impair the
exercise of Triggered Enforcement Rights by any CDS Counterparty or by any XL
Party in the event that any of the SCA Parties or any of their Affiliates
institutes or has instituted against it a proceeding relating to its
insolvency, bankruptcy, rehabilitation, liquidation, or reorganization under
any bankruptcy or insolvency Law or other similar Law affecting creditors’ rights,
or has a petition presented relating to its winding-up, rehabilitation,
insolvency, bankruptcy, reorganization or liquidation, regardless of whether or
not such proceeding or petition (i) results in a judgment of insolvency or
bankruptcy or the entry of an order against it relating to any rehabilitation,
insolvency, bankruptcy, reorganization or liquidation or (ii) is not dismissed,
discharged, stayed or restrained. Further, for the avoidance of doubt, the CDS
Counterparties may submit claims on account of their credit default swaps,
policies or other agreements with any SCA Party to the SCA Parties as they
become due in the ordinary course, other than claims subject to forbearance
pursuant to Section 6.10(b). 


                    Section
6.11 Control of Litigation and Cooperation. (a) As between the SCA
Parties and the XL Parties, the XL Parties shall have the right (but not the
obligation) to control and direct, through counsel of its own choosing, the
defense and settlement of any Action against any SCA Party brought by any
Person that challenges the validity or enforceability of this Agreement or any
Ancillary Agreement, including any fraudulent conveyance Action or any other
Action under any bankruptcy or insolvency Law or other similar Law affecting
creditors’ rights (a “Challenging Action”). The SCA Parties and the XL
Parties shall promptly provide written notice to each other and the CDS
Counterparties upon becoming aware of any Challenging Action or threatened
Challenging Action. Subject to the first sentence of this Section 6.11(a),
the SCA Parties shall be entitled to participate fully in the defense of such
Challenging Action with internal counsel or with outside counsel (at the SCA
Parties’ own expense). 


                    (b)
The SCA Parties shall actively and in good faith reasonably cooperate in any
defense of a Challenging Action controlled by the XL Parties. Such cooperation
by the SCA Parties shall include (i) providing to the XL Parties, upon their
reasonable request, all documents and information necessary to, or which could
assist in, the defense, appeal or settlement of any such Challenging Action,
(ii) making the SCA Parties’ employees (and using its commercially reasonable
efforts to make the SCA Parties’ former employees) and representatives
available to be interviewed by the XL Parties upon reasonable notice and at
reasonable times and (iii) offering truthful deposition and trial testimony
upon the request of the XL Parties. 


                    (c)
The XL Parties and the SCA Parties shall actively and in good faith reasonably
cooperate in the defense of any third-party Actions other than Challenging
Actions brought or made against any such Party relating to the subject matter
of, or any Transactions consummated or to be consummated under, this Agreement
or any Ancillary Agreement. Such cooperation shall include (i) providing to any
such Party against which any such Action is made, upon such Party’s reasonable
request, all documents and information necessary to, or which could assist in,
the defense, appeal or settlement of any such Action, (ii) making its employees
(and using its commercially reasonable efforts to make its former employees)
and representatives 


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available to
be interviewed by the Party against which any such Action is made upon
reasonable notice and at reasonable times, (iii) offering truthful deposition
and trial testimony upon the request of the Party against which any such Action
is made and (iv) otherwise consulting with the Party against which any such Action
is made and, to the extent the Action is made against more than one Party,
coordinating, to the extent feasible, the handling and defense of any such
Action; provided, however, that nothing herein shall require
disclosure by any such Party of any information subject to the attorney-client
privilege or in conflict with any contractual confidentiality restriction to
which such Party is bound, except when a protective order issued by a
Governmental Authority would reasonably ensure Confidentiality of the disclosed.



                    Section
6.12 CDS Counterparty Restructuring. Following the Closing Date (except
to the extent the Allocated Funds, as defined below, are paid to or for the
benefit of the CDS Counterparties pursuant to clause (i) or (ii) of this Section
6.12), XLCA shall segregate and hold an aggregate amount of Eight Hundred
and Twenty Million Dollars ($820,000,000) in cash (together with any SCA Share
Sale Proceeds and the premiums or other payments described in the last sentence
of this Section 6.12) separately in an interest bearing account or
otherwise invested as may be agreed in writing between the SCA Parties and the
Required Consenting CDS Counterparties (together with any interest earned
thereon, the “Allocated Funds”), it being understood that such
interest bearing account or other investment vehicle described in this sentence
will be maintained at Wilmington Trust Company, or, if maintained with a CDS
Counterparty or an Affiliate of a CDS Counterparty, such CDS Counterparty shall
have waived in writing its rights of set-off with respect to, and any security
interest or other lien on, the Allocated Funds, solely for purposes of (i)
commuting, terminating, amending and/or otherwise restructuring, as applicable,
existing agreements (a “CDS Counterparty Restructuring”) pursuant
to an agreement among the applicable SCA Parties and CDS Counterparties representing
not less than the Minimum Consenting CDS Counterparty Restructuring Threshold
and (ii) after October 15, 2008, the payment of any actual claims or losses on
existing agreements and insurance policies issued to or for the benefit of CDS
Counterparties and, it being understood that, such funds shall not be used for
any other purpose, except that, in the event that XLCA becomes subject to a
rehabilitation or liquidation proceeding, the Allocated Funds shall no longer
be separately held or segregated or limited in use to the purpose stated above
and shall be part of the general assets of XLCA. XLCA shall provide quarterly
reports to the CDS Counterparties setting forth an accounting, in reasonable
detail, with respect to the Allocated Funds and any investments maintained
therein; provided, that nothing in this Section 6.12, including
the creation of the Allocated Funds, shall (i) in any way limit the rights or
claims of the CDS Counterparties, the liabilities of the SCA Parties in respect
of such claims, or the rights of the CDS Counterparties in respect of other
assets of the SCA Parties or (ii) constitute a waiver of any defense the SCA
Parties may have with respect to any such claims or liabilities.
Notwithstanding anything else herein, no CDS Counterparty has any obligation
to participate in the CDS Counterparty Restructuring, including, for the avoidance
of doubt, commuting, terminating, amending and/or otherwise restructuring, as
applicable, existing agreements. The premiums or other payments that a CDS
Counterparty makes in respect of its credit default swap agreements with XLCA
or Affiliates of XLCA during the period that such CDS Counterparty forbears
from exercising any Triggered Enforcement Right under such credit default swap
pursuant to Section 6.10(b) shall be included in the Allocated Funds.
 After the Closing, the SCA Parties and
the CDS Counterparties will negotiate in
good faith in an effort to reach agreement
on a CDS Counterparty Restructuring
on or prior to October 15, 2008
that is fair and equitable to both
the SCA Parties and the CDS Counterparties.


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                    Section
6.13 Restriction on Commutations. Until October 15, 2008, the SCA
Parties shall not effect any commutations, settlements, restructurings or
terminations of policies or contracts not expressly contemplated by this
Agreement that involve the payment of any consideration by the SCA Parties,
without the consent of CDS Counterparties representing the Minimum Consenting
CDS Counterparty Restructuring Threshold, provided, that during such
period the SCA Parties may effect any action (including commutations) related
to the EIB Policies in accordance with Section 6.05, may consummate the
Financial Security Commutations, and may effect commutations, settlements,
restructurings and terminations (i) that involve cash payments not in excess
of an aggregate amount set forth in a letter delivered concurrently herewith
to the XL Parties and the CDS Financial Advisor during such period (of which
(A) an amount set forth in such letter may not be used for the commutation,
settlement, restructuring or termination of any policy or contract other than
JeffCo Policies and (B) no more than an amount set forth in such letter may be
for CDS policies and contracts); provided, however, that no such
commutation, settlement, restructuring or termination (other than with respect
to JeffCo Policies) may involve payment by the SCA Parties of cash, debt or
other consideration in excess of the reserves (including case and unearned
premium reserves) related to the risks being commuted; (ii) of the reinsurance
contracts provided in Schedule 2.04 (in accordance with Section 2.04);
(iii) that are settlements required pursuant to the express terms of insurance
policies and contracts of the SCA Parties; and (iv) that are for cash
collateralization of up to $24 million of letters of credit issued under the
Credit Agreement; provided, that such outstanding letters of credit
shall be extended for one year; provided, further, that until
October 15, 2008, prior to effecting any commutation, settlement, restructuring
or termination permitted under Section 6.13(i) or (ii): (w) XLCA shall
provide the CDS Financial Advisor reasonable advance notice and such
information as may be reasonably necessary to evaluate such proposed
commutation, settlement, restructuring or termination (which advance notice and
information shall be supplied to the CDS Financial Advisor not later than five
(5) Business Days prior to consideration of such commutation, settlement,
restructuring or termination by XLCA’s board of directors as provided below);
(x) at the option of the CDS Financial Advisor, and no later than five (5)
Business Days after being provided such notice and information by XLCA
regarding such proposed commutation, settlement, restructuring or termination,
the CDS Financial Advisor may provide XLCA with a written response to such
proposed commutation, settlement, restructuring or termination; (y) XLCA shall
provide such written response to its board of directors for consideration at
the XLCA board of directors meeting at which such commutation, settlement,
restructuring or termination will be presented for approval; and (z) will
obtain the approval of the XLCA board of directors for such commutation,
settlement, restructuring or termination after so providing such response to
the board. For the avoidance of doubt, no such commutation, settlement,
restructuring or amendment shall involve the payment of Allocated Funds except
to the extent provided in Section 6.12.  


                    Section
6.14 Treatment of Public Finance Business. The SCA Parties and the CDS
Counterparties understand that the approval by the NYID of any CDS Counterparty
Restructuring will require addressing XLCA’s public finance business to the
satisfaction of the NYID. The SCA Parties and the CDS Counterparties hereby
agree to negotiate in good faith in an effort to reach an agreement on the appropriate
treatment of such public finance business in 


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connection
with the CDS Counterparty Restructuring (it being understood that failure to
reach such agreement, notwithstanding good faith negotiations, shall not
constitute a default hereunder or give rise to any cause of action against any
Party hereto). Without the consent of CDS Counterparties representing the
Minimum Consenting CDS Counterparty Restructuring Threshold, the SCA Parties
shall not transfer or otherwise dispose of such public finance business prior
to October 15, 2008, except for reinsurance cessions for risk management
purposes not intended to effectuate a transfer of the business in whole or any
substantial part or to the extent it is agreed between the NYID and the SCA
Parties that to transfer such public finance business is necessary and/or in
the public interest (as to which the CDS Counterparties reserve all rights to
challenge or object). 


                    Section
6.15 Further Action. Subject to the next sentence, each of the Parties
shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, to do or cause to be done all things necessary, proper or
advisable under applicable Law, and to execute and deliver such documents and
other papers, as may be required to carry out the provisions of this Agreement
and the Ancillary Agreements to which it is a party and to consummate and make
effective the Transactions reasonably as requested by the Parties, including
the matters contemplated by Section 6.18. Notwithstanding anything to
the contrary herein or otherwise, the Parties agree that the XL Parties have
(i) complete and sole discretion whether or not any XL Public Offering will be
completed and (ii) no obligation to the SCA Parties or the CDS Counterparties
to complete any XL Public Offering. 


                    Section
6.16 Resignation of XL Nominees. The XL Parties shall use their
reasonable best efforts to cause those four members of the SCA Board of Directors
nominated by any of the XL Parties to resign from SCA’s Board of Directors
effective as of the Closing. From and after the Closing, XL shall refrain from
exercising any rights granted to it under SCA’s Bye-Laws.1


                    Section
6.17 Disclosure Schedules; Supplementation and Amendment of Schedules.
The SCA Parties may, at their option, include in the Schedules items that are
not material in order to avoid any misunderstanding, and such inclusion, or any
references to dollar amounts, shall not be deemed to be an acknowledgement or
representation that such items are material, to establish any standard of
materiality or to define further the meaning of such terms for purposes of this
Agreement. Information disclosed in the Schedules shall constitute a disclosure
for all purposes under this Agreement notwithstanding any reference to a
specific section, and all such information shall be deemed to qualify the
entire Agreement and not just such section. From time to time, prior to the
Closing, the SCA Parties shall have the right to supplement or amend the
Schedules with respect to any matter arising hereafter or discovered after the
delivery of the Schedules pursuant to this Agreement. No such supplement or
amendment shall have any effect on the satisfaction of the condition to closing
set forth in Section 7.01(a); provided, however, if the
Closing shall occur, then the Parties (other than the SCA Parties) shall be
deemed to have waived any right or claim pursuant to the terms of this
Agreement or otherwise, including pursuant to Section 9.11 hereof, with
respect to any and all matters disclosed pursuant to any such supplement or
amendment prior to the Closing. 


	
 

	
 


	



	
1

	
Consider naming directors.
 





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                    Section
6.18 SCA Shareholder Entity. The SCA Parties and the CDS Counterparties
agree to cause the SCA Shareholder Entity to be promptly created, and in no
event later than ten (10) days after the Closing, by taking all actions
reasonably necessary to cause a trustee to enter into the Declaration of Trust.
SCA and the SCA Shareholder Entity shall enter into the SCA Shareholder Entity
Agreement and the SCA Registration Rights Agreement concurrent with or promptly
after creation of the SCA Shareholder Entity. If the XL Owned SCA Common Shares
are transferred to the Escrow Agent pursuant to Section 2.10, then SCA
and XLCA shall promptly, but in no event later than two (2) Business Days following
the satisfaction of the SCA Shareholder Entity Formation Conditions, deliver
a written notice to the Escrow Agent conforming to the requirements of the Escrow
Agreement directing the Escrow Agreement to release all of the XL Owned SCA Common
Shares (together with the related certificates and stock powers) to the SCA Shareholder
Entity. The vacancies on the board of directors of SCA created by the resignations
as of the Closing of the four directors of SCA nominated by the XL Parties shall
be filled by appointment of the initial nominees of the SCA Shareholder Entity
to the board of directors of SCA in accordance with the SCA Shareholder Entity
Agreement. Each of the SCA Parties and the Required Consenting CDS
Counterparties will use their reasonable best efforts to take all appropriate
action and will cooperate fully with each other and their respective officers,
directors, employees, agents, counsel, accountants and other designees in
connection with any steps required to be taken to satisfy each of the SCA
Shareholder Entity Formation Conditions. Furthermore, the SCA Parties and the
CDS Counterparties shall work together in good faith to achieve the goals of
the SCA Parties and the CDS Counterparties as set forth in this Agreement and
any Ancillary Agreement to which an SCA Party and a CDS Counterparty is a
party, and those described in this Section 6.18. Notwithstanding Sections
9.07 and 9.08, the SCA Shareholder Entity Formation Conditions may
be amended and modified from time to time upon the written agreement of SCA and
the Required Consenting CDS Counterparties. 


                    Section
6.19 Portfolio Trust. The SCA Parties will direct each portfolio trust
that is a party to a credit default swap agreement with a CDS Counterparty to
execute a joinder agreement in the form attached hereto as Exhibit 1.01(c)
and become a Party to this Agreement promptly upon receiving notice that such
CDS Counterparty became a Party, and in no event later than the earlier of (i)
the Closing or (ii) three (3) Business Days after such CDS Counterparty became
a Party. 


                    Section
6.20 BlackRock. The SCA Parties shall reasonably cooperate with
BlackRock, including providing BlackRock with reasonable access to information
and reasonable access to, and will request reasonable cooperation from,
personnel of the SCA Parties, in order to permit BlackRock to complete its work
as early in the month of August 2008 as is reasonably practicable. 


                    Section
6.21 XLFA Merger. As soon as practicable following the later of (i) the
Closing and (ii) the occurrence of the XLFA Redomestication, XLFA as continued
in Delaware or its successor pursuant to the XLFA Redomestication shall merge
into and with XLCA. 


                    Section
6.22 Collipulli Temuco and Banco de Brasil Policies. (a) (i) The SCA
Parties will provide the XL Parties with copies of all documents, files, books
and records relating to either the Collipulli Temuco Policy or the Banco de
Brasil Policy as reasonably requested by the XL Parties from time to time, and
reasonable access to, and will request reasonable 


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cooperation
from, upon reasonable notice and during normal business hours, all employees of
the SCA Parties whose employment responsibilities are related to either the
Collipulli Temuco Policy or the Banco de Brasil Policy. 


	
 

	
 


	
 

	
          (ii)
 The XL Parties will provide the SCA Parties with copies of all documents,
 files, books and records relating to either the Collipulli Temuco Policy or
 the Banco de Brasil Policy as reasonably requested by the SCA Parties from
 time to time, and reasonable access to, and will request reasonable
 cooperation from, upon reasonable notice and during normal business hours,
 all employees of the XL Parties whose employment responsibilities are related
 to either the Collipulli Temuco Policy or the Banco de Brasil Policy. 





                    (b)
The XL Parties will reasonably cooperate with the SCA Parties in connection
with the remediation of the Collipulli Temuco Policy and will cause XLI to
issue a replacement policy for the Collipulli Temuco Policy to the new
liquidity provider on substantially the same terms as the XLI policy currently
in force. 



                    (c)
Upon written direction of the SCA Parties, and only upon written direction of
the SCA Parties, the XL Parties will exercise any right, power or authority
provided to it with respect to the Collipulli Temuco transaction, including the
giving of consents, providing appropriate waivers and taking any other actions
related to the performance and enforcement of its rights under the financing
documents; provided, that the XL Parties are not required to take any action
that will be in violation of any Law, and may take any action required by, or
necessary to be in compliance with, any applicable Law.  



                    Section
6.23 XLFA Redomestication. Prior
to the Closing, the SCA Parties shall pre-clear the certificate that will
effect the XLFA Redomestication with the Delaware Secretary of State and
provide evidence of such pre-clearance to the other parties hereto. At the
Closing, after XLFA receives the Cash Consideration Amount to be received by
it under Section
2.08, the SCA Parties shall cause such pre-cleared certificate to be filed
with the Secretary of State of Delaware, thereby effecting the XLFA
Redomestication.  


ARTICLE VII


CONDITIONS TO CLOSING


                    Section
7.01 Conditions to Obligations of the SCA Parties. The obligations of
the SCA Parties to consummate the Transactions are subject to the fulfillment or
written waiver, at or prior to the Closing, of each of the following
conditions: 


                    (a)
Representations, Warranties and Covenants. (i) The representations and
warranties of the XL Parties contained in this Agreement (A) that are not qualified
by “materiality” will have been true and correct in all material respects when
made and will be true and correct in all material respects as of the Closing
with the same force and effect as if made as of the Closing, and (B) that are
qualified by “materiality” will have been true and correct when made and will
be true and correct as of the Closing with the same force and effect as if made
as


-39-






of the
Closing, except to the extent such representations and warranties are as of
another date, in which case such representations and warranties will be true
and correct as of that date, (ii) the covenants and agreements contained in
this Agreement to be complied with by the XL Parties on or before the Closing
will have been complied with in all material respects, (iii) the
representations and warranties of the CDS Counterparties contained in this
Agreement (A) that are not qualified by “materiality” will have been true and
correct in all material respects when made and will be true and correct in all
material respects as of the Closing with the same force and effect as if made
as of the Closing, and (B) that are qualified by “materiality” will have been
true and correct when made and will be true and correct as of the Closing with
the same force and effect as if made as of the Closing, except to the extent
such representations and warranties are as of another date, in which case such
representations and warranties will be true and correct as of that date, and
(iv) the covenants and agreements contained in this Agreement to be complied
with by the CDS Counterparties on or before the Closing will have been complied
with in all material respects; 


                    (b)
No Proceeding or Litigation. No Action will have been commenced by any
Governmental Authority against any of the Parties seeking to restrain or
materially and adversely alter the Transactions which, in the reasonable, good
faith determination of the Board of Directors of each of the SCA Parties, after
consulting with legal counsel, is likely to render it impossible or unlawful to
consummate such transactions; 


                    (c)
Outside Date. 10:00 a.m., New York time, on August 5, 2008, shall have
passed; 



                    (d)
Closing Deliveries. All closing documents required to be delivered under
Section 2.08 and Section 2.09 hereof shall have been delivered;  


                    (e)
Financial Security Commutations. The Financial Security Commutations
shall have been consummated prior to or simultaneously with the Closing; 


                    (f)
MLI CDS Agreements. Termination of the MLI CDS Agreements will have
occurred prior to, or will occur simultaneously with, the Closing; 


                    (g)
Effectiveness of Board Resignations. All four directors of SCA designated
by the XL Parties shall have tendered their resignations effective as of the
Closing; 



                    (h)
Consents. None of the consents listed in Section 3.03 of the SCA
Parties’ Disclosure Schedule or Section 4.03 of the XL Parties’ Disclosure
Schedule have been withdrawn, rescinded, revised, amended or altered in any
way; and  



                    (i)
Officers Certificate. Receipt of a certificate simultaneously with the
Closing of a duly authorized officer of each of the XL Parties certifying in
respect of such XL Party as to the matters set forth in Sections 7.01(a)(i) and
7.01(a)(ii).  


                    Section
7.02 Conditions to Obligations of the XL Parties. The obligations of the
XL Parties to consummate the Transactions are subject to the fulfillment or written
waiver, at or prior to the Closing, of each of the following conditions: 


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                    (a)
Representations, Warranties and Covenants. (i) The representations and
warranties of the SCA Parties contained in this Agreement (A) that are not qualified
by “materiality” will have been true and correct in all material respects when
made and will be true and correct in all material respects as of the Closing
with the same force and effect as if made as of the Closing, and (B) that are
qualified by “materiality” will have been true and correct when made and will
be true and correct as of the Closing with the same force and effect as if made
as of the Closing, except to the extent such representations and warranties are
as of another date, in which case such representations and warranties will be
true and correct as of that date, (ii) the covenants and agreements contained
in this Agreement to be complied with by the SCA Parties on or before the
Closing will have been complied with in all material respects, (iii) the
representations and warranties of the CDS Counterparties contained in this
Agreement (A) that are not qualified by “materiality” will have been true and
correct in all material respects when made and will be true and correct in all
material respects as of the Closing with the same force and effect as if made
as of the Closing, and (B) that are qualified by “materiality” will have been
true and correct when made and will be true and correct as of the Closing with
the same force and effect as if made as of the Closing, except to the extent
such representations and warranties are as of another date, in which case such
representations and warranties will be true and correct as of that date, and
(iv) the covenants and agreements contained in this Agreement to be complied
with by the CDS Counterparties on or before the Closing will have been complied
with in all material respects; 


                    (b)
Financial Security Commutations. The Financial Security Commutations
shall have been consummated prior to or simultaneously with the Closing; 


                    (c)
No Proceeding or Litigation. No Action will have been commenced by any
Governmental Authority against any of the Parties seeking to restrain or
materially and adversely alter the Transactions which, in the reasonable, good
faith determination of the Board of Directors of each of the XL Parties, after
consulting with legal counsel, is likely to render it impossible or unlawful to
consummate such transactions; 


                    (d)
Consents. None of the consents listed in Section 3.03 of the SCA
Parties’ Disclosure Schedule or Section 4.03 of the XL Parties’
Disclosure Schedule have been withdrawn, rescinded, revised, amended or altered
in any way; 


                    (e)
Closing Deliveries. The closing documents required to be delivered under
Section 2.08 and Section 2.09 hereof shall have been delivered; 


                    (f)
MLI CDS Agreements. Termination of the MLI CDS Agreements will have
occurred prior to, or will occur simultaneously with, the Closing; and 


                    (g)
Officers Certificate. Receipt of a certificate simultaneously with the
Closing of a duly authorized officer of each of the SCA Parties certifying in
respect of such SCA Party as to the matters set forth in Sections 7.02(a)(i)
and 7.02(a)(ii). 


                    Section
7.03 Conditions to Obligations of the CDS Counterparties. The
obligations of each CDS Counterparty to consummate the Transactions are subject
to the fulfillment or written waiver, at or prior to the Closing, of each of
the following conditions: 


-41-






                    (a)
Representations, Warranties and Covenants. (i) The representations and
warranties of the SCA Parties contained in this Agreement (A) that are not
qualified by “materiality” will have been true and correct in all material
respects when made and will be true and correct in all material respects as of
the Closing with the same force and effect as if made as of the Closing, and
(B) that are qualified by “materiality” will have been true and correct when
made and will be true and correct as of the Closing with the same force and
effect as if made as of the Closing, except to the extent such representations
and warranties are as of another date, in which case such representations and
warranties will be true and correct as of that date, (ii) the covenants and
agreements contained in this Agreement to be complied with by the SCA Parties
on or before the Closing will have been complied with in all material respects,
(iii) the representations and warranties of the XL Parties contained in this
Agreement (A) that are not qualified by “materiality” will have been true and
correct in all material respects when made and will be true and correct in all
material respects as of the Closing with the same force and effect as if made
as of the Closing, and (B) that are qualified by “materiality” will have been
true and correct when made and will be true and correct as of the Closing with
the same force and effect as if made as of the Closing, except to the extent
such representations and warranties are as of another date, in which case such
representations and warranties will be true and correct as of that date, and
(iv) the covenants and agreements contained in this Agreement to be complied
with by the XL Parties on or before the Closing will have been complied with in
all material respects; 


                    (b)
No Proceeding or Litigation. No Action will have been commenced by any
Governmental Authority against any of the Parties seeking to restrain or
materially and adversely alter the Transactions which, in the reasonable, good
faith determination of the CDS Counterparties, after consulting with legal
counsel, is likely to render it impossible or unlawful to consummate such
Transactions; 


                    (c)
Effectiveness of Board Resignations. All four directors of SCA designated
by the XL Parties shall have tendered their resignations effective as of the
Closing; and 


                    (d)
Closing Deliveries. The closing documents required to be delivered under
Section 2.08 and Section 2.09 hereof shall have been delivered. 


                    Section
7.04 Frustration of Closing Conditions. None of the XL Parties, the SCA
Parties or any CDS Counterparty may rely on the failure of any condition set
forth in Section 7.01, Section 7.02 or Section 7.03, as
the case may be, to be satisfied if such failure was primarily caused by such
Party’s or Parties’ breach of any provision of this Agreement or failure to use
its or their reasonable best efforts to consummate the Transactions in
accordance with the terms of this Agreement. 


ARTICLE VIII


TERMINATION AND WITHDRAWAL


                    Section
8.01 Termination. This Agreement may be terminated at any time prior to
the Closing: 


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                    (a)
by the XL Parties, provided, that they are not in breach of this
Agreement, if between the date hereof and the Closing Date if: (i) any of the
representations and warranties of any of the SCA Parties or the CDS
Counterparties contained in this Agreement, (A) that are not qualified by
“materiality,” were not true and correct in all material respects when made,
or, (B) that are qualified by “materiality,” were not true and correct when
made; (ii) any of the SCA Parties or the CDS Counterparties failed to comply in
any material respect with the covenants or agreements contained in this
Agreement to be complied with by it; or (iii) any of the SCA Parties makes a
general assignment for the benefit of its creditors or any proceeding is instituted
by or against any of the SCA Parties seeking to adjudicate any one of them as
bankrupt or insolvent, seeking the liquidation, winding up or reorganization of
any one of them, or seeking any arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy, insolvency,
rehabilitation or reorganization as to any one of them; provided, however,
that prior to termination for any breach of this Agreement described in the
preceding subsection (i) or (ii), the XL Parties must provide written notice of
such breach to the SCA Parties and such breach must remain outstanding without
material cure for fifteen (15) days after delivery of such notice; 


                    (b)
by the SCA Parties, provided, that they are not in breach of this
Agreement, if between the date hereof and the Closing Date if: (i) any of the
representations and warranties of any of the XL Parties or the CDS
Counterparties contained in this Agreement, (A) that are not qualified by
“materiality,” were not true and correct in all material respects when made,
or, (B) that are qualified by “materiality,” were not true and correct when
made; (ii) any of the XL Parties or the CDS Counterparties failed to comply in
any material respect with the covenants or agreements contained in this
Agreement to be complied with by it; or (iii) any of the XL Parties makes a
general assignment for the benefit of its creditors or any proceeding is
instituted by or against any XL Party seeking to adjudicate any one of them as
bankrupt or insolvent, seeking the liquidation, winding up or reorganization of
any one of them, or seeking any arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy, insolvency,
rehabilitation or reorganization as to any one of them; provided, however,
that prior to termination for any breach of this Agreement described in the
preceding subsection (i) or (ii), the SCA Parties must provide
written notice of such breach to the XL Parties and such breach must remain
outstanding without material cure for fifteen (15) days after delivery of such
notice; 


                    (c)
by the SCA Parties, as a group, or the XL Parties, as a group, if the Closing
shall not have occurred on or prior to August 15, 2008; provided, however,
that the right to terminate this Agreement under this Section 8.01(c)
shall not be available to the SCA Parties, as a group, or the XL Parties, as a
group, if failure to fulfill any obligation under this Agreement by any member
of such group shall have been the cause of, or shall have resulted in, the
failure of the Closing to occur on or prior to such date; 


                    (d)
by any Party, in the event that any Governmental Authority shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Transactions, and such order, decree, ruling or other
action shall have become final and non-appealable; or 


                    (e)
by the mutual written consent of the SCA Parties and the XL Parties. 


-43-






                    Section
8.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall forthwith
become void and there shall be no continuing obligations on the part of any
Party hereto except (a) as set forth in Sections 6.01, 9.01, 9.11,
9.12, 9.13 and 9.14, and (b) that nothing herein shall
relieve any Party from liability for any breach of this Agreement prior to its
termination. 


                    Section
8.03 CDS Counterparty Withdrawal. If the Closing does not take place on
or prior to August 15, 2008, a CDS Counterparty may withdraw from this
Agreement and such CDS Counterparty shall have no obligations or rights
hereunder or in connection with the Transactions (including under Sections
2.05(c) and 6.10(b) and notwithstanding any provision to the
contrary in Section 9.08 or otherwise), by providing notice of such
withdrawal to all Parties by August 20, 2008, and after such withdrawal, such
CDS Counterparty will no longer be deemed to be a “CDS Counterparty” for
purposes of this Agreement and any Ancillary Agreement. 


ARTICLE IX


GENERAL PROVISIONS


                    Section
9.01 Expenses. Except as otherwise specified in this Agreement or any
other written agreement, all costs and expenses, including fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the Transactions, shall be paid by the Party
incurring such costs and expenses, whether or not the Closing shall have
occurred. 


                    Section
9.02 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by an internationally recognized overnight courier service, by
facsimile or electronic mail (upon electronic confirmation of delivery), or by
registered or certified mail (postage prepaid, return receipt requested), to the
respective Parties at the following addresses (or at such other address for a
Party as shall be specified in a notice given in accordance with this Section
9.02): 


	
 

	
 

	
 

	
 


	
 

	
(a)

	
if to any of
 the SCA Parties:


	
 

	
 

	
 

	
 


	
 

	
 

	
Address:

	
c/o XL
 Capital Assurance Inc.


	
 

	
 

	
 

	
1221 Avenue
 of the Americas


	
 

	
 

	
 

	
New York, NY
 10020-1001


	
 

	
 

	
Facsimile:

	
212.478.3579


	
 

	
 

	
Electronic
 Mail:

	
susan.comparato@scafg.com


	
 

	
 

	
Attention:

	
Susan
 Comparato, General Counsel


	
 

	
 

	
 

	
 


	
 

	
 

	
with a copy
 to:





-44-






	
 

	
 

	
 

	
 


	
 

	
 

	
Address:

	
Weil,
 Gotshal & Manges


	
 

	
 

	
 

	
767 Fifth
 Avenue


	
 

	
 

	
 

	
New York, NY
 10153


	
 

	
 

	
Facsimile:

	
212.310.8007


	
 

	
 

	
Electronic
 Mail:

	
gary.holtzer@weil.com


	
 

	
 

	
Attention:

	
Gary T.
 Holtzer


	
 

	
 

	
 


	
 

	
(b)

	
if to any of
 the XL Parties:


	
 

	
 

	
 

	
 


	
 

	
 

	
Address:

	
c/o XL
 Capital Ltd


	
 

	
 

	
 

	
XL House


	
 

	
 

	
 

	
One
 Bermudiana Road


	
 

	
 

	
 

	
Hamilton


	
 

	
 

	
 

	
Bermuda, HM
 11


	
 

	
 

	
Facsimile:

	
441.294.7307


	
 

	
 

	
Electronic
 Mail:

	
kirstin.gould@xlgroup.com


	
 

	
 

	
Attention:

	
Kirstin
 Gould, General Counsel


	
 

	
 

	
 


	
 

	
with a copy
 to:

	
 


	
 

	
 

	
 

	
 


	
 

	
 

	
Address:

	
Cadwalader,
 Wickersham & Taft LLP


	
 

	
 

	
 

	
One World
 Financial Center


	
 

	
 

	
 

	
New York, NY
 10281


	
 

	
 

	
Facsimile:

	
212.504.6666


	
 

	
 

	
Electronic
 Mail:

	
louis.bevilacqua@cwt.com


	
 

	
 

	
Attention:

	
Louis J.
 Bevilacqua





                    (c)
if to the CDS Counterparties, to the address, facsimile or electronic mail
address listed on Schedule 9.02 hereto, which shall be kept on file by
XL, and updated by XL from time to time (with copies of updates provided to the
SCA Parties and Davis Polk & Wardwell at the address listed below) based on
the execution and delivery of joinder agreements by additional CDS Counterparties
in accordance with Section
9.04 below: 


	
 

	
 

	
 

	
 


	
 

	
with a copy
 to:

	
 


	
 

	
 

	
 

	
 


	
 

	
 

	
Address:

	
Davis Polk
 & Wardwell


	
 

	
 

	
 

	
450 Lexington
 Avenue


	
 

	
 

	
 

	
New York, NY
 10017


	
 

	
 

	
Facsimile:

	
212.450.3092


	
 

	
 

	
Electronic
 Mail:

	
donald.bernstein@dpw.com


	
 

	
 

	
Attention:

	
Donald S.
 Bernstein





                    Section
9.03 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced under any Law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect for so long as the economic or legal substance of the
Transactions is not affected in any manner materially adverse to either Party
hereto. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an 


-45-






acceptable
manner so that the Transactions are consummated as originally contemplated to
the greatest extent possible. 


                    Section
9.04 Joinder of CDS Counterparties and Additional SCA Parties. Any
counterparty to a credit default swap agreement with XLCA or an Affiliate of
XLCA or any portfolio trust that is an Affiliate of XLCA may become a Party to
this Agreement prior to the Closing by executing a joinder agreement in the form
attached hereto as Exhibit 1.01(c). Upon execution and delivery of each
joinder agreement pursuant to its terms, each party will be deemed to be a CDS
Counterparty or an SCA Party (as applicable) for all purposes related hereto
and shall be deemed, without limitation, to have made the releases set forth
in
Section 2.05(c) hereof (with respect to the CDS Counterparties) or in Section
2.05(a) hereof (with respect to the SCA Parties). 


                    Section
9.05 Entire Agreement. This Agreement and the Ancillary Agreements
constitute the entire agreement of the Parties with respect to the subject
matter hereof and thereof and supersede all prior agreements and undertakings,
both written and oral, between any of the Parties with respect to the subject
matter hereof and thereof. 


                    Section
9.06 Assignment. This Agreement may not be assigned by operation of Law
or otherwise without the express written consent of all Parties (which consent
may be granted or withheld in the sole discretion of each of the Parties) and
any such assignment or attempted assignment without such consent shall be void.



                    Section
9.07 Amendment. This Agreement may not be amended, altered, supplemented
or modified except (a) by an instrument in writing signed by, or on behalf of,
all Parties, or (b) by a waiver in accordance with Section 9.08; provided,
that, notwithstanding anything to the contrary in this Section 9.07 or
in Section 9.08 below, the following sections and definitions set forth
in this Agreement may not be amended, altered, supplemented, modified or waived
without the unanimous consent of the CDS Counterparties: the definitions of
“XLFA Redomestication,” “Minimum Consenting CDS Counterparty Restructuring
Threshold” and “Required Consenting CDS Counterparties,” and Sections 2.05,
2.06, 2.07(b), 2.10, 6.03, 6.04, 6.05,
6.06, 6.07, 6.10(b), 6.10(d), 6.12, 6.13,
6.14, 6.16, 6.18, 6.20, 6.21, 6.23, 9.07
and 9.08. 


                    Section
9.08 Waiver. Subject to the provisions in Section 9.07 above,
which provide that, notwithstanding anything to the contrary in Section 9.07
or this Section 9.08, the following sections and definitions set forth
in this Agreement may not be amended, altered, supplemented, modified or waived
without the unanimous consent of the CDS Counterparties: the definitions of
“XLFA Redomestication,” “Minimum Consenting CDS Counterparty Restructuring
Threshold” and “Required Consenting CDS Counterparties,” and Sections 2.05,
2.06, 2.07(b), 2.10, 6.03, 6.04, 6.05,
6.06, 6.07, 6.10(b), 6.10(d), 6.12, 6.13,
6.14, 6.16, 6.18, 6.20, 6.21, 6.23, 9.07
and 9.08, the SCA Parties, acting unanimously as a group, and the XL
Parties, acting unanimously as a group, may (a) extend the time for the
performance of any of the obligations that one or more members of another group
owes to one or more of its members, (b) waive any right that one or more of its
members may have due to inaccuracies in the representations and warranties made
by any member of another group or contained in any Transaction Document or (c)
waive compliance with any of the agreements of any member of another group,
solely as they relate to the members of such waiving group, or conditions to
the obligations of the members of such waiving group contained herein. Any such
extension, waiver 


-46-






or amendment
shall be valid only if set forth in an instrument in writing signed by all of
the SCA Parties and XL Parties to be bound thereby. Any such extension, waiver
or amendment will promptly be provided to all CDS Counterparties in writing
and, if any CDS Counterparty objects to such extension, waiver or amendment,
such CDS Counterparty will have five (5) Business Days from receipt of such extension,
    waiver or amendment to provide written notice to all other Parties that it
    intends to withdraw from this Agreement. If such CDS Counterparty provides
    such timely notice, it will be deemed to have withdrawn as a Party to this
    Agreement on the date that such waiver, extension or amendment becomes effective
    and the terms hereof shall have no further force or effect with regard to
    such CDS Counterparty; provided,
    that (i) any release made by any CDS Counterparty withdrawing as a party
    to this Agreement pursuant to this Section 9.08 and any release made
    by any SCA Party or any XL Party with respect to such withdrawing CDS Counterparty,
    in each case to the extent such releases shall have become effective prior
    to the time of such withdrawal, shall in each case remain in full force and
    effect after such withdrawal, and (ii) following such withdrawal, subject
    to the preceding clause
(i), such withdrawing CDS Counterparty shall cease to have any other
obligations or rights hereunder or in connection with the Transactions
(including under Sections 2.05(c) and 6.10(b)), and after such
withdrawal, such CDS Counterparty will no longer be deemed to be a “CDS
Counterparty” for purposes of this Agreement or any Ancillary Agreement.
If the CDS Counterparty does not provide such timely notice, it shall be deemed
to have approved the waiver, extension or amendment. Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a subsequent
waiver of the same term or condition or as a waiver of any other term or
condition of this Agreement. The failure of any Party hereto to assert any of
its rights hereunder shall not constitute a waiver of any other rights. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available. 


                    Section
9.09 No Third-Party Beneficiaries. This Agreement shall be binding upon
and inure solely to the benefit of the Parties and, except as provided in Section
2.05, their respective successors and permitted assigns, and nothing
herein, express or implied, is intended to or shall confer upon any other
Person any legal or equitable right, benefit, remedy or right of action of any
nature whatsoever, arising directly or indirectly out of, based upon, or in any
way related to or in connection with this Agreement or the Ancillary
Agreements. 


                    Section
9.10 Rights and Remedies. Each Party acknowledges and agrees that each
Party would be irreparably damaged if any of the provisions of this Agreement
are not performed in accordance with their specific terms and that any material
breach of this Agreement by another Party could not be adequately compensated
by monetary damages alone. Accordingly, in addition to any other right or
remedy to which such Party may be entitled, at Law or in equity, it shall be
entitled to enforce any provision of this Agreement by a decree of specific
performance and to temporary, preliminary and permanent injunctive relief to
prevent breaches or threatened breaches of any of the provisions of this
Agreement, without posting any bond or other undertaking. For the avoidance of
doubt, any liability of any CDS Counterparty that may arise in connection with
this Agreement shall neither be joint nor joint and several with any other CDS
Counterparty. 


                    Section
9.11 Indemnification. (a) The XL Parties shall jointly and severally
indemnify and hold harmless each of the SCA Parties, and their respective
Subsidiaries, Affiliates, officers, directors, employees, agents, successors
and permitted assigns (collectively, 


-47-






“SCA
Indemnitees”), for and against any and all liabilities, losses, damages,
claims, costs, expenses, interest, awards, judgments and penalties (including
attorneys’ and consultants’ fees and expenses) actually suffered or incurred
(including any action, claim, suit or other proceeding brought or otherwise
initiated by any of them) (“Losses”) by any such SCA Indemnitee arising
out of or resulting from the breach of any provision of this Agreement prior to
Closing by any of the XL Parties. 


                    (b)
The SCA Parties shall jointly and severally indemnify and hold harmless each of
the XL Parties, and their respective Subsidiaries, Affiliates, officers,
directors, employees, agents, successors and permitted assigns (collectively, “XL
Indemnitees”), for and against any and all Losses incurred by any such XL
Indemnitee arising out of or resulting from (i) the breach of any provision of
this Agreement prior to Closing by any of the SCA Parties or (ii) any action
taken pursuant to the written direction of the SCA Parties under Section
6.22 or prohibited to be taken pursuant to Section 6.22. 


                    Section
9.12 No Survival. None of the representations and warranties other than
those contained in Sections 3.01 (other than as to enforceability for
reasons other than fraud, ultra vires
action, improper authorization, or failure to be duly organized, validly
existing or in good standing in any applicable jurisdiction), 3.02, 3.03,
4.01, 4.02, 4.03, 4.04, 4.05, 5.01, 5.02
and 5.03 shall survive the Closing. The representations and
warranties contained in Sections 3.01 (other than as to enforceability
for reasons other than fraud, ultra vires
action, improper authorization, or failure to be duly organized, validly
existing or in good standing in any applicable jurisdiction), 3.02, 3.03,
4.01, 4.02, 4.03, 4.04, 4.05, 5.01, 5.02
and 5.03 shall survive for the statute of limitations for contracts of
the nature of this Agreement. 


                    Section
9.13 Several Liability of the CDS Counterparties. For the avoidance of
doubt, the obligations of the CDS Counterparties under this Agreement shall be
several and not joint and several. 


                    Section
9.14 Governing Law and Jurisdiction. This Agreement shall be interpreted
under and governed by the Laws of the State of New York without giving effect
to conflicts of law provisions thereof. In the event that there is a dispute
between or among the Parties arising under this Agreement, other than with
respect to events arising under the 2001 Facultative Quota Share Commutation
Agreement or the Excess of Loss Commutation Agreement, the Parties (i) agree
that the exclusive forum to seek remedy shall be to institute a legal
proceeding in the courts of the State of New York located in the City and
County of New York, (ii) hereby expressly submit to the personal jurisdiction
and venue of such courts for the purposes thereof and expressly waive any claim
of lack of personal jurisdiction and improper venue and any claim that such
courts are an inconvenient forum and (iii) agree that the prevailing Parties
shall be entitled to recover their reasonable attorneys’ fees, costs and
disbursements from the other Parties (in addition to any other relief to which
the prevailing Parties may be entitled). Each Party hereby irrevocably consents
to the service of process of any of the aforementioned courts in any such suit,
action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the address provided to the Parties in
accordance with Section 9.02, such service to become effective ten (10)
days after such mailing. 


-48-






                    Section
9.15 Waiver of Jury Trial. Each of the Parties hereby waives to the
fullest extent permitted by applicable Law any right it may have to a trial by
jury with respect to any litigation directly or indirectly arising out of,
under, or in connection with this Agreement or the Transactions. Each of the
Parties hereby (i) certifies that no representative, agent or attorney of any
other Party has represented, expressly or otherwise, that such other Party
would not, in the event of litigation, seek to enforce the foregoing waiver and
(ii) acknowledges that it has been induced to enter into this Agreement and the
Transactions, as applicable, by, among other things, the mutual waivers and
certifications in this Section 9.15. 


                    Section
9.16 Fully Negotiated Agreement. Each Party has had the opportunity to
negotiate the terms, consult with counsel, and modify the provisions of this
Agreement and the Ancillary Agreements. Therefore, the terms of this Agreement
and the Ancillary Agreements shall be considered and interpreted without any
presumption, inference or rule requiring construction or interpretation of any
provision of this Agreement against the interests of the drafter of the
Agreement. 


                    Section
9.17 Currency. Unless otherwise specified in this Agreement, all
references to currency, monetary values and dollars set forth herein shall mean
United States (U.S.) Dollars and all payments hereunder shall be made in United
States Dollars. 


                    Section
9.18 Counterparts. This Agreement may be executed and delivered in
multiple counterparts, each of which, when so executed and delivered, shall be
an original, but such counterparts shall together constitute but one and the
same instrument and agreement. A facsimile or Portable Document Format copy of
a signature shall have the same force and effect as an original signature. 


[NO FURTHER TEXT ON THIS PAGE]


-49-






                    IN
WITNESS WHEREOF, the SCA Parties, XL Parties and CDS Counterparties have caused
this Agreement to be executed as of the date first written above. 


	
 

	
 

	
 


	
 

	
XL CAPITAL
 LTD


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Fiona Luck


	
 

	
 

	



	
 

	
 

	
Name: Fiona Luck


	
 

	
 

	
Title: Executive Vice President and Chief of Staff


	
 

	
 

	
 


	
 

	
XL INSURANCE
 (BERMUDA) LTD


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Fiona Luck


	
 

	
 

	



	
 

	
 

	
Name: Fiona Luck


	
 

	
 

	
Title: Executive Vice President and Chief of Staff


	
 

	
 

	
 


	
 

	
XL
 REINSURANCE AMERICA INC.


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Steven P. Agosta


	
 

	
 

	



	
 

	
 

	
Name: Steven P. Agosta


	
 

	
 

	
Title: Vice President, General Counsel and Secretary


	
 

	
 

	
 


	
 

	
X.L. GLOBAL
 SERVICES, INC.


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Kenneth P. Meagher


	
 

	
 

	



	
 

	
 

	
Name: Kenneth P. Meagher


	
 

	
 

	
Title: Assistant Secretary


	
 

	
 

	
 


	
 

	
XL SERVICES
 (BERMUDA) LTD


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Fiona Luck


	
 

	
 

	



	
 

	
 

	
Name: Fiona Luck


	
 

	
 

	
Title: Deputy Chairman





[SIGNATURE PAGE – COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]






	
 

	
 

	
 


	
 

	
X.L.
 AMERICA, INC.


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Richard G. McCarty


	
 

	
 

	



	
 

	
 

	
Name: Richard G. McCarty


	
 

	
 

	
Title: Senior Vice President, General Counsel and Secretary


	
 

	
 

	
 


	
 

	
SECURITY
 CAPITAL ASSURANCE LTD


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Claude LeBlanc


	
 

	
 

	



	
 

	
 

	
Name: Claude LeBlanc


	
 

	
 

	
Title: Executive Vice President


	
 

	
 

	
 


	
 

	
XL FINANCIAL
 ASSURANCE LTD.


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Thomas Currie


	
 

	
 

	



	
 

	
 

	
Name: Thomas Currie


	
 

	
 

	
Title: Senior Vice President


	
 

	
 

	
 


	
 

	
XL CAPITAL
 ASSURANCE INC.


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Susan Comparato


	
 

	
 

	



	
 

	
 

	
Name: Susan Comparato


	
 

	
 

	
Title: Senior Vice President and General Counsel


	
 

	
 

	
 


	
 

	
XL FINANCIAL
 ADMINISTRATIVE SERVICES INC.


	
 

	
 

	
 


	
 

	
By:

	
 /s/ Susan Comparato


	
 

	
 

	



	
 

	
 

	
Name: Susan Comparato


	
 

	
 

	
Title: Managing Director and Secretary





[SIGNATURE PAGE – COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]






	
 
	
 
	
 

	
 
	
SCA BERMUDA
 ADMINISTRATIVE LTD.

	
 
	
 
	
 

	
 
	
By:
	
 /s/ Thomas Currie


	
 
	
 
	


	
 
	
 
	
Name: Thomas Currie

	
 
	
 
	
Title: Senior Vice President

	
 
	
 
	
 

	
 
	
XL CAPITAL
 ASSURANCE (U.K.) LIMITED

	
 
	
 
	
 

	
 
	
By:
	
 /s/ Fredrick B. Hnat

	
 
	
 
	


	
 
	
 
	
Name: Fredrick B. Hnat

	
 
	
 
	
Title: Managing Director and Chief Operating Officer




[SIGNATURE PAGE – COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]