Document:

<PAGE>
                                                                   EXHIBIT 10.59

                          PLEDGE AND SECURITY AGREEMENT

        THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of
January 16, 2002, is made by SPACELABS INTERNATIONAL, INC., a Delaware
corporation (the "Pledgor"), in favor of BANK OF AMERICA, N.A., a national
banking association ("Lender").

                                    RECITALS

        A. The Pledgor is a Subsidiary of the Borrowers that are parties to that
certain Credit Agreement, dated as of January 16, 2002, by and among Spacelabs
Medical Inc., a Delaware corporation, Spacelabs Medical, Inc., a California
corporation, Spacelabs Burdick, Inc., Vita-Stat Medical Services, Inc.,
Lifeclinic Medical Data Corporation, and Lifeclinic.com Corporation (the
"Borrowers") and the Lender (as amended, restated, modified, renewed,
supplemented or extended from time to time, the "Credit Agreement").

        B. It is a condition precedent to Lender's obligation to make its
initial Loan under the Credit Agreement that the Pledgor enter into this
Agreement and grant to the Lender the security interests hereinafter provided to
secure the obligations of the Borrowers described below.

        NOW, THEREFORE, to induce the Lender to make Loans under the Credit
Agreement, and in consideration of such extensions of credit as the Lender may
hereafter make to the Borrowers, the Pledgor, intending to be legally bound
hereby, covenants and agrees as follows:

        SECTION 1. Definitions; Interpretations.

            (a) Terms Defined in Credit Agreement. Except as set forth in
subsection (c) hereof, all capitalized terms used in this Agreement and not
otherwise defined herein have the meanings specified in the Credit Agreement.

            (b) Certain Defined Terms. As used in this Agreement, the following
terms have the following meanings:

        "Book-Entry Shares" means any Pledged Shares evidenced or represented by
a book-entry on the books of a Clearing Corporation.

        "Clearing Corporation" means a "clearing corporation", as defined in
Section 62A.8-102(1) of the UCC, at which the Lender and the Pledgor each
maintains a securities account.

        "Commission" has the meaning specified in subsection 11(b)(i).

        "Indemnified Liabilities" has the meaning specified in subsection 16(b).

        "Indemnified Person" has the meaning specified in subsection 16(b).

        "Pledged Collateral" has the meaning specified in Section 2.

        "Pledged Shares" means all shares of capital stock or other equity
securities referred to in subsections (a) and (b) of Section 2.

                                      -1-
<PAGE>

        "Secured Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under the Credit Agreement, this
Agreement and any other Loan Document owing by the Borrowers to the Lender,
whether for principal, interest, costs, fees, expenses, indemnities or
otherwise, whether now existing or hereafter arising, whether direct or indirect
(including those acquired by assignment), and whether due or to become due,
absolute or contingent, liquidated or unliquidated, determined or undetermined.

        "Securities Act" has the meaning specified in subsection 11(b)(i).

        "UCC" means the Uniform Commercial Code, as in effect from time to time,
of the State of Washington or of any other state the laws of which are required
as a result thereof to be applied in connection with the issue of perfection of
security interests; provided, that to the extent that the UCC is used to define
any term herein or in any other documents and such term is defined differently
in different Articles or Divisions of the UCC, the definition of such term
contained in Article or Division 9 shall govern.

            (c) Terms Defined in UCC. Notwithstanding subsection (a) hereof,
where applicable and except as otherwise defined herein, terms used in this
Agreement shall have the meanings assigned to them in the UCC.

            (d) Interpretation. The rules of interpretation and other
definitional provisions set forth in Annex A of the Credit Agreement shall be
applicable to this Agreement and are incorporated herein by this reference.

        SECTION 2. Pledge. As security for the payment, in full in cash when
due, whether at stated maturity, by acceleration or otherwise, and performance
of the Secured Obligations, the Pledgor hereby pledges, assigns, transfers,
hypothecates and sets over to the Lender and grants to the Lender a security
interest in all of the Pledgor's right, title and interest in, to and under the
following, whether now existing or owned or hereafter acquired or arising
(collectively, the "Pledged Collateral"):

            (a) 66 2/3% of the voting shares and all of the non-voting shares
of capital stock of the following companies (the "Pledged Subsidiaries") that
Pledgor is described as owning on the attached Schedule 1, including, without
limitation, any such securities that are Book-Entry Shares;

                (i) Spacelabs Medical Products Pty. Ltd., a corporation formed
            under the laws of Australia;

                (ii) Spacelabs Medical Ltd., a corporation formed under the laws
            of the United Kingdom;

                (iii) Spacelabs Medical SARL, a corporation formed under the
            laws of France;

                (iv) Spacelabs Medical S.r.l., a corporation formed under the
            laws of Italy; and

                (v) Spacelabs Medical GmbH, a corporation formed under the laws
            of Germany.

                                      -2-

<PAGE>

            (b) 66 2/3% of the voting shares and all of the non-voting shares of
capital stock or other equity securities of the Pledged Subsidiaries hereafter
acquired, received or owned by the Pledgor (whether in connection with any
recapitalization, reclassification or reorganization of the capital of the
Pledged Subsidiaries or otherwise), including, without limitation, any such
securities that are Book-Entry Shares;

            (c) all certificates, instruments or other writings representing or
evidencing the Pledged Shares (other than any Book-Entry Shares or any other
Pledged Shares that constitute part of a fungible bulk of securities in the
possession of a Clearing Corporation);

            (d) all warrants, options and other rights entitling the Pledgor to
acquire any interest in any Pledged Shares;

            (e) all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed or distributable in respect
of or in exchange for any or all of the Pledged Shares; and

            (f) all cash and non-cash proceeds of the foregoing.

        SECTION 3. Delivery or Transfer of Pledged Collateral.

            (a) All original certificates, instruments or other writings
representing or evidencing the Pledged Shares (other than certificated
securities that constitute part of a fungible bulk of securities in the
possession of a Clearing Corporation) owned by the Pledgor as of the date of
this Agreement shall be delivered to the Lender concurrently with the execution
and delivery of this Agreement, and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Lender.

            (b) In the event that any Pledged Shares are Book-Entry Shares which
are registered in the name of a Clearing Corporation, concurrently with the
execution and delivery of this Agreement, the Pledgor shall cause such Clearing
Corporation to make appropriate entries on its books, indicating that such
Book-Entry Shares are to be held as collateral for the benefit of Lender.

            (c) In the event that any Pledged Shares are certificated securities
that constitute part of a fungible bulk of securities in the custody of a
Clearing Corporation and are registered in such Clearing Corporation's name,
concurrently with the execution and delivery of this Agreement, the Pledgor
shall cause such Clearing Corporation to make appropriate entries on its books
indicating such Pledged Shares are to be held as collateral for the benefit of
the Lender.

            (d) Upon obtaining any Pledged Shares hereafter, the Pledgor agrees
that it will deliver such additional Pledged Shares to the Lender or otherwise
cause such Clearing Corporation to hold such additional Pledged Shares in the
manner described in subsection (a), (b) or (c) above, as applicable.

            (e) In connection with a transfer or assignment pursuant to Section
11.2 of the Credit Agreement, the Lender shall have the right to transfer to or
to register in its name or the name of any of its nominees any or all of the
Pledged Shares, subject to the provisions of Section 7(a). In addition, the
Lender shall have the right at any time to exchange certificates, instruments or
other writings representing or evidencing Pledged Shares for certificates,
instruments or other writings of smaller or larger denominations. As soon as
practicable after the purchase or receipt by the Pledgor of any Book-Entry

                                      -3-

<PAGE>

Shares, the Pledgor shall cause the issuer thereof to issue stock certificates
with respect to such shares and shall, immediately upon receipt thereof, deliver
such certificates to the Lender in accordance with this Section.

        SECTION 4. Representations and Warranties. The Pledgor represents and
warrants to the Lender that:

            (a) The Pledgor is the record legal and beneficial owner of the
Pledged Collateral including, without limitation, 66 2/3% of the voting and all
of the non-voting shares of capital stock of the Pledged Subsidiaries that
Pledgor is described as owning on the attached Schedule 1.

            (b) No other Person, except the Lender pursuant to this Agreement,
has any right, title, claim or interest (by way of Lien, purchase option or
otherwise) in or against or to the Pledged Collateral.

            (c) The pledge of the Pledged Collateral pursuant to this Agreement
creates in favor of the Lender a legally valid, binding and enforceable, first
priority perfected, security interest in the Pledged Collateral, securing the
payment of the Secured Obligations.

            (d) All Pledged Shares have been duly authorized, validly issued and
fully paid and are non-assessable.

            (e) The Pledgor (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware; (ii) has
the power and authority and all governmental licenses, authorizations, consents
and approvals to own its assets, carry on its business and to execute, deliver,
and perform its obligations under this Agreement; (iii) is duly qualified as a
foreign corporation and is licensed and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification or license, except where the failure
to so qualify would not have a Material Adverse Effect; and (iv) is in
compliance in all material respects with all Requirements of Law of any
Governmental Authority having jurisdiction over it and its business (including
the Federal Fair Labor Standards Act), except such as may be contested in good
faith, as to which a bona fide dispute may exist or which could not reasonably
be expected to have a Material Adverse Effect.

            (f) The execution, delivery and performance by the Pledgor of this
Agreement have been duly authorized by all necessary corporate action and do not
and will not (i) contravene the terms of any of the Pledgor's Organization
Documents, (ii) conflict with or result in any breach or contravention of, or
the creation of any Lien under, any indenture, agreement, lease, instrument,
contractual obligation, injunction, order, decree or undertaking to which the
Pledgor is a party, or (iii) violate any Requirement of Law.

            (g) No approval, consent, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, the Pledgor of this Agreement, the exercise by the Lender
of the voting or other rights provided for in this Agreement, or the remedies in
respect of the Pledged Collateral pursuant to this Agreement, except as may be
required in connection with the disposition of the Pledged Shares by laws
affecting the offering and sale of securities generally.

                                      -4-

<PAGE>

            (h) The Pledgor has full power, authority and legal right to pledge
the Pledged Collateral pursuant to this Agreement. There are and will be no
restrictions on the transferability of any Pledged Collateral transferred or
delivered by the Pledgor hereunder to the Lender or with respect to the
foreclosure, transfer or disposition thereof by the Lender.

            (i) The Pledgor has delivered to the Lender all Pledged Shares or
otherwise caused the Clearing Corporation to hold such Pledged Shares pursuant
to Sections 3(a), 3(b) or 3(c), as applicable.

            (j) All Pledged Shares are (i) certificated securities represented
or evidenced by certificates, instruments or other writings, the originals of
which are in the possession of the Pledgor (prior to delivery to the Lender
hereunder), (ii) certificated securities that constitute part of a fungible bulk
of securities in the custody of a Clearing Corporation and registered in such
Clearing Corporation's name, or (iii) uncertificated securities that are
Book-Entry Shares registered in the name of a Clearing Corporation.

            (k) Set forth on Schedule 1 attached hereto is a true, complete and
accurate list of all Pledged Shares owned by Pledgor as of the date of this
Agreement. The shares of capital stock of the Pledged Subsidiaries not owned by
Pledgor as of the date of this Agreement are owned by such Persons and in such
number of shares as are described on Schedule 1. All the information set forth
on Schedule 1 attached hereto is true, complete and accurate.

            (l) None of the Pledged Shares constitutes Margin Stock.

            (m) No options, warrants, calls, commitments or other rights to
acquire, sell or issue any shares of capital stock of the Pledged Subsidiaries
whether upon conversion, exercise or exchange of other securities or otherwise,
are outstanding and no proxies, voting trusts or other agreements or
understandings exist with respect to the voting of such capital stock. Neither
Pledgor nor and of the Pledged Subsidiaries is a party to any stockholder or
similar agreement with respect to the Pledged Collateral.

            (n) (i) It will derive substantial and direct benefits from the
            transactions contemplated by this Agreement and the other Loan
            Documents;

               (ii) It would not be able on its own to obtain financing on terms
            as favorable as those set forth in the Credit Agreement;

               (iii) It has received, will receive, or has the right to receive
            consideration that is the reasonable equivalent of the obligations
            and liability that it has incurred to the Lender under the terms of
            this Agreement;

               (iv) It is not insolvent as defined in Section 101 of the
            Bankruptcy Code or any applicable Debtor Relief Law, nor, after
            giving effect to the consummation of the transactions contemplated
            by this Agreement will it be rendered insolvent by its execution and
            delivery to the Lender of this Agreement;

               (v) It is not engaged or about to be engaged in any business or
            transaction for which the assets retained by it will be unreasonably
            small capital, taking into consideration its obligations to the
            Lender under this Agreement; and

                                      -5-

<PAGE>

               (vi) It does not intend to, or believe that it will, incur debts
            beyond its ability to pay them as they mature.

        The foregoing representations and warranties shall survive the execution
and delivery of this Agreement and shall be deemed restated automatically at
each such time as any additional Pledged Collateral is delivered hereunder to
the Lender.

        SECTION 5. Covenants. So long as any of the Secured Obligations remain
unsatisfied or Lender shall have any Commitment, the Pledgor agrees that:

            (a) Without limiting the scope or effect of any representation or
warranty made or deemed made by the Pledgor hereunder, the Pledgor, for itself
and its successors and assigns, does hereby irrevocably waive and release all
preemptive, first-refusal and other similar rights, if any, of the Pledgor to
purchase any or all of the Pledged Shares upon any sale thereof by the Lender
pursuant to the terms of this Agreement, whether such right to purchase arises
under any of the Pledgor's Organization Documents, by agreement, by operation of
law or otherwise.

            (b) The Pledgor warrants and covenants to defend the Lender's
security interest in and to the Pledged Collateral against the claims and
demands of all other Persons, and to appear in and defend any action, suit or
proceeding which may affect its title to, or the Lender's security interest in,
the Pledged Collateral.

            (c) The Pledgor agrees that it will not (i) sell, assign, transfer,
surrender or otherwise dispose of, or grant any option, warrant or other right
or interest with respect to, any of the Pledged Collateral, (ii) create or
permit to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the Lien created by this Agreement, or (iii) enter into any
shareholder agreement, voting agreement, voting trust, irrevocable proxies or
any other similar agreement or instrument with respect to any Pledged
Collateral.

            (d) The Pledgor shall, immediately upon its acquisition (directly or
indirectly) of any Pledged Shares hereafter, deliver such Pledged Shares to the
Lender or otherwise cause the Clearing Corporation to hold such Pledged Shares
in accordance with Sections 3(a), (b) or (c), as applicable. The Pledgor shall
not cause or permit any issuer of Pledged Shares to issue in favor of any Person
other than the Pledgor or the Clearing Corporation any shares of capital stock
or other equity securities.

            (e) The Pledgor shall pay promptly when due all taxes and other
governmental charges, all Liens and all other charges now or hereafter imposed
upon, relating to or affecting any Collateral.

            (f) The Pledgor will deliver promptly to the Lender all reports and
notices received by the Pledgor in respect of any Collateral.

        SECTION 6. Further Assurances. The Pledgor agrees that at any time and
from time to time, at its own cost and expense, it will promptly procure,
execute and deliver all further instruments, documents and agreements, and take
all further action, that may be necessary or desirable, or that the Lender may
request, in order to establish, maintain, preserve, protect and perfect the
Pledged Collateral, any security interest granted or purported to be granted
hereby and the priority of such security interest, or to enable the Lender to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral. Without limiting the generality of the foregoing, the
Pledgor further agrees that it shall, concurrently with the execution of this
Agreement and at any time and from time to time thereafter (a)

                                      -6-

<PAGE>

procure, execute and deliver to the Lender all stock powers, endorsements,
assignments and other instruments of transfer reasonably requested by the
Lender, (b) deliver to the Lender immediately upon receipt the originals of all
Pledged Shares and all certificates, instruments and other writings evidencing
the Pledged Collateral, and (c) cause the Lien of the Lender to be recorded or
registered in the books of any Clearing Corporation requested by the Lender.

        SECTION 7. Voting Rights; Dividends.

            (a) So long as no Default or Event of Default shall exist and be
continuing or result and continue therefrom (and, in the case of clause (i)
below, so long as written notice has not been given by the Lender to the
Pledgor):

                (i) The Pledgor shall be entitled to exercise any and all voting
            and other consensual rights pertaining to the Pledged Shares or any
            part thereof for any purpose not in violation of the terms of this
            Agreement or the Credit Agreement.

                (ii) The Pledgor shall be entitled to receive and retain any and
            all dividends or distributions paid in respect of the Pledged
            Shares, in compliance with the terms of the Credit Agreement, except
            the following:

                  (A) dividends paid or payable other than in cash in respect
                of, and instruments and other property received, receivable or
                otherwise distributed in respect of, or in exchange for, any
                Pledged Shares;

                  (B) dividends and other distributions paid or payable in cash
                in respect of any Pledged Shares in connection with a partial or
                total liquidation or dissolution or in connection with a
                reduction of capital, capital surplus or paid-in-surplus; and

                  (C) cash paid, payable or otherwise distributed in redemption
                of, or in exchange for, any Pledged Shares;

            all of which shall be, and all of which shall be forthwith delivered
            to the Lender to hold as, Pledged Collateral and shall, if received
            by the Pledgor, be received in trust for the benefit of the Lender,
            be segregated from the other property or funds of the Borrowers, and
            be forthwith delivered to the Lender as Pledged Collateral in the
            same form as so received (with any necessary endorsement and
            indemnity).

            (b) Upon the occurrence and during the continuance of a Default or
an Event of Default:

                (i) All rights of the Pledgor to exercise the voting and other
            consensual rights which it would otherwise be entitled to exercise
            pursuant to Section 7(a)(i) above shall cease upon written notice
            thereof from the Lender, and all such rights shall thereupon become
            vested in the Lender, who shall thereupon have the sole right to
            exercise such voting and other consensual rights.

                                      -7-

<PAGE>

                (ii) All rights of the Pledgor to receive the dividends or
            distributions which it would otherwise be authorized to receive and
            retain pursuant to Section 7(a)(ii) above shall cease, and all such
            rights shall thereupon become vested in the Lender, who shall
            thereupon have the sole right to receive and hold as Pledged
            Collateral such dividends.

                (iii) All dividends or distributions which are received by the
            Pledgor contrary to the provisions of paragraph (ii) of this Section
            7(b) shall be received in trust for the benefit of the Lender, shall
            be segregated from other funds of the Borrowers and shall be
            forthwith paid over to the Lender as Pledged Collateral in the same
            form as so received (with any necessary endorsement or indemnity).

            (c) In order to permit the Lender to exercise the voting and other
rights which it may be entitled to exercise pursuant to Section 7(b)(i) above,
and to receive all dividends and distributions which it may be entitled to
receive under Section 7(b)(ii) above, the Pledgor shall, if necessary, upon
written notice of the Lender, from time to time execute and deliver to the
Lender appropriate proxies, dividend payment orders and other instruments as the
Lender may reasonably request.

        SECTION 8. Authorization; Appointed Attorney-in-Fact. After the
occurrence and during the continuation of a Default or an Event of Default, the
Lender shall have the right to, in the name of the Pledgor, or in the name of
the Lender, or otherwise, without notice to or assent by the Pledgor, and the
Pledgor hereby constitutes and appoints the Lender (and any of the Lender's
officers, employees or agents designated by the Lender) as the Pledgor's true
and lawful attorney-in-fact, with full power and authority to take any action
and execute any and all endorsements, assignments, documents or instruments
which the Lender may reasonably deem necessary or desirable to accomplish the
purposes of this Agreement, including, without limitation, (a) to receive,
endorse and collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same, (b) to
perfect or continue perfected, maintain the priority of or provide notice of the
Lender's security interest in the Pledged Collateral, or (c) to maintain,
protect, sell, assign, convey or otherwise transfer title in or dispose of the
Pledged Collateral. The foregoing power of attorney is coupled with an interest
and irrevocable so long as any Commitment shall be in effect or the Secured
Obligations have not been paid and performed in full.

        SECTION 9. Lender Performance of Pledgor's Obligations. Upon the
occurrence and during the continuation of an Event of Default, the Lender may
perform or pay any obligation which the Pledgor has agreed to perform or pay
under or in connection with this Agreement, and the Pledgor shall reimburse the
Lender on demand for any amounts paid by the Lender pursuant to Section 16(a).

        SECTION 10. No Responsibility for Certain Actions. Notwithstanding any
provision contained in this Agreement, the Lender shall have no responsibility
for (a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Collateral, whether or not the Lender has or is deemed to have knowledge of such
matters, or (b) taking any necessary steps to preserve any rights against any
parties with respect to any Pledged Collateral. The Lender shall have no duty
with respect to the custody, safekeeping and physical preservation of the
Pledged Collateral in its possession other than as set forth in Section
62A.9A-207 of the UCC.

        SECTION 11. Remedies in General. Upon the occurrence and during the
continuance of an Event of Default:

                                      -8-

<PAGE>

            (a) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it under the Credit Agreement or any other Loan Document, all the rights and
remedies of a secured party under the UCC and other applicable laws and the
Lender may also, without notice except as specified below, sell the Pledged
Shares or any part thereof in one or more parcels at public or private sale, at
any exchange, broker's board or at any of the Lender's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the Lender
may deem commercially reasonable. The Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten (10) days' notice to the Pledgor
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Lender shall
not be obligated to make any sale of Pledged Shares regardless of notice of sale
having been given. The Lender may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. The Pledgor hereby waives any claims against the Lender arising by
reason of the fact that the price at which any Pledged Shares may have been sold
at such a private sale was less than the price which might have been obtained at
a public sale, even if the Lender accepts the first offer received and does not
offer such Pledged Shares to more than one offeree.

            (b) The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, the Lender
may be compelled, with respect to any sale of all or any part of the Pledged
Shares, to limit purchasers to those who will agree, among other things, to
acquire such securities for their own account, for investment, and not with a
view to the distribution or resale thereof. The Pledgor acknowledges and agrees
that any such sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale without such restrictions and
notwithstanding such circumstances, agrees that any such sale shall be deemed to
have been made in a commercially reasonable manner. The Lender shall be under no
obligation to delay the sale of any of the Pledged Shares for the period of time
necessary to permit the Pledgor to register such securities for public sale
under the Securities Act, or under applicable state securities laws, even if the
Pledgor would agree to do so.

            (c) If the Lender determines to exercise its right to sell any or
all of the Pledged Shares, upon written request, the Pledgor shall, from time to
time, furnish to the Lender all such information as the Lender may reasonably
request in order to determine the number of shares and other instruments
included in the Pledged Shares which may be sold by the Lender as exempt
transactions under the Securities Act of 1933, as from time to time amended, and
rules of the Securities and Exchange Commission thereunder, as the same are from
time to time in effect.

            (d) Any and all reasonable expenses which may be charged to or for
the account of Lender, including accounting fees, Attorney Costs, reasonable
costs of sale or transfer shall be reimbursed by or charged to the Pledgor
pursuant to Section 16(a).

            (e) Any cash held by the Lender as Pledged Collateral and all cash
proceeds received by the Lender in respect of any sale of, collection from, or
other realization upon all or any part of the Pledged Shares shall be applied by
the Lender as follows:

        First, to the payment of the reasonable costs and expenses of such sale,
including all reasonable expenses (including, without limitation, Attorney
Costs), liabilities and advances made or incurred by the Lender in connection
therewith;

                                      -9-

<PAGE>

        Next, to the Lender in respect of all reasonable fees (including,
without limitation, Attorney Costs), expenses and indemnities then due the
Lender under this Agreement, the Credit Agreement or any of the other Loan
Documents;

        Next, to the Lender based on the then outstanding principal amount of
the Secured Obligations, for application against interest then due in respect of
the Secured Obligations;

        Next, to the Lender based on the then outstanding principal amounts of
the Secured Obligations, for application against the Secured Obligations (other
than interest then due in respect thereof) until the Secured Obligations have
been paid in full; and

        Finally, after payment in full in cash of all Secured Obligations and
the termination of the Commitment, to the payment to the Pledgor, or its
successors or assigns, or to whomsoever may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.

        SECTION 12. Notices. All notices or other communications hereunder shall
be given in the manner as specified, and shall be effective as provided, in the
Credit Agreement, to the following addresses:

        To the Pledgor:                     Spacelabs International, Inc.
                                            c/o Spacelabs Medical, Inc.
                                            15520 NE 40th Street
                                            Redmond, WA  98073
                                            Attention:  James A. Richman
                                            Telecopy No. (425) 702-2310

        with copies to:                            Spacelabs Medical, Inc.
                                            15520 N.E. 40th Street
                                            Redmond, Washington  98073
                                            Attention:  Eugene DeFelice
                                            Telecopy No. (425) 883-7091

                                            King and Spalding
                                            191 Peachtree Street
                                            Atlanta, Georgia  30303
                                            Attention:  Hector Llorens
                                            Telecopy No. (404) 572-5149

        To the Lender:                      Bank of America, N.A.
                                            55 South Lake, Suite 900
                                            Pasadena, California  91101
                                            Attention:  Michael R. Williamson
                                            Telecopy No. (626) 578-6069

                                            Graham & Dunn PC
                                            1420 Fifth Avenue, 33rd Floor
                                            Seattle, Washington  98101
                                            Attention:  Mark A. Finkelstein
                                            Telecopy No. (206) 340-9599

                                      -10-

<PAGE>

        SECTION 13. Amendments; Waivers. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Pledgor herefrom, shall
in any event be effective unless the same shall be made as provided in the
Credit Agreement. No failure on the part of the Lender to exercise, and no delay
in exercising, any right, remedy, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. Unless otherwise
specified in any such waiver or consent, a waiver or consent given hereunder
shall be effective only in the specific instance and for the specific purpose
for which given.

        SECTION 14. Cumulative Remedies. The rights, powers and remedies of the
Lender under this Agreement are cumulative and shall be in addition to all
rights, powers and remedies available to the Lender pursuant to the Credit
Agreement, the other Loan Documents and at law or in equity, all of which
rights, powers and remedies shall be cumulative and may be exercised
successively or concurrently without impairing the Lender's rights hereunder.

        SECTION 15. Certain Waivers. The Pledgor waives, to the fullest extent
permitted by law, any right to require the Lender (i) to proceed against any
Person, (ii) to exhaust any other collateral or security for any of the Secured
Obligations, (iii) to pursue any remedy in the Lender's power, or (iv) to make
or give any presentments, demands for performance, notices of nonperformance,
protests, notices of protests or notices of dishonor in connection with any of
the Pledged Collateral.

        SECTION 16. Costs and Expenses; Indemnification; Other Charges.

            (a) Costs and Expenses. The Pledgor agrees to pay on demand:

                (i) the reasonable out-of-pocket costs and expenses of the
            Lender and any of its Affiliates, and the Lender's Attorney Costs,
            in connection with the negotiation, preparation, execution, delivery
            and administration of this Agreement, and any amendments,
            modifications or waivers of the terms thereof, and the custody of
            the Pledged Collateral; and

                (ii) all reasonable costs and expenses of the Lender and its
            Affiliates, including Attorney Costs, in connection with the
            enforcement or attempted enforcement of, and preservation of any
            rights or interests under, this Agreement, including in any
            out-of-court workout or other refinancing or restructuring or in any
            bankruptcy case, and the custody or preservation, protection, sale
            or collection of, or other realization upon, any of the Pledged
            Collateral, including all reasonable expenses of taking, collecting,
            holding, sorting, handling, preparing for sale, selling, or the
            like, and other such reasonable expenses of sales and collections of
            Pledged Collateral, and any and all reasonable losses, costs and
            expenses sustained by the Lender as a result of any failure by the
            Pledgor to perform or observe its obligations contained herein.

            (b) Indemnification. In addition to the agreement to indemnify
contained in Section 11(f), the Pledgor hereby agrees to indemnify the Lender,
any Affiliate of Lender, and Lender's directors, officers, employees, agents,
counsel and other advisors (each an "Indemnified Person") against, and hold each
of them harmless from, any and all liabilities, obligations, losses, claims,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever, including Attorney Costs, to an Indemnified
Person, which may be imposed on, incurred by, or asserted against any
Indemnified Person, in any way relating to or arising out of this Agreement or
the transactions

                                      -11-

<PAGE>

contemplated hereby or any action taken or omitted to be taken by it hereunder
(the "Indemnified Liabilities"); provided that the Pledgor shall not be liable
to any Indemnified Person for any portion of such Indemnified Liabilities to the
extent they are found by a final decision of a court of competent jurisdiction
to have resulted from such Indemnified Person's gross negligence or willful
misconduct. If and to the extent that the foregoing indemnification is for any
reason held unenforceable, the Pledgor agrees to make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.

            (c) Other Charges. The Pledgor agrees to indemnify the Lender
against and hold it harmless from any and all present and future stamp,
transfer, documentary and other such taxes, levies, fees, assessments and other
charges made by any jurisdiction by reason of the execution, delivery,
performance and enforcement of this Agreement.

            (d) Interest. Any amounts payable to the Lender under this Section
or otherwise under this Agreement if not paid upon demand shall bear interest
from the date of such demand until paid in full, at the rate of interest
applicable under the Credit Agreement.

        SECTION 17. Binding Effect; Transferability; No Third-Party
Beneficiaries. This Agreement shall be binding upon, inure to the benefit of and
be enforceable by the Pledgor and the Lender and their respective successors and
assigns, provided, however, that, except as expressly permitted in the Credit
Agreement, the Pledgor may not assign any of its rights hereunder or interests
herein without the written consent of the Lender. The Pledgor acknowledges that
upon any assignment or other transfer by the Lender of any of the Secured
Obligations in connection with a sale or transfer pursuant to Section 11.2 of
the Credit Agreement, the Lender may transfer its interest herein to the
assignee, transferee, or successor who shall thereupon become vested with all
the rights, remedies, powers, security interests and liens herein granted to the
Lender, subject, however, to the restrictions contained herein. No Persons other
than the Pledgor, the Lender, and the assignees of the Lender are intended to be
benefited hereby or shall have any-rights hereunder, as third-party
beneficiaries or otherwise.

        SECTION 18. Governing Law; Choice of Forum; Service of Process.

            (a) THIS PLEDGE AND SECURITY AGREEMENT SHALL BE INTERPRETED AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS PROVIDED THAT
PERFECTION ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO
APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF
THE STATE OF WASHINGTON; PROVIDED THAT THE LENDER SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.

            (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE AND
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF
THE STATE OF WASHINGTON OR OF THE UNITED STATES OF AMERICA LOCATED IN KING
COUNTY, WASHINGTON, AND BY EXECUTION AND DELIVERY OF THIS PLEDGE AND SECURITY
AGREEMENT, EACH OF THE PLEDGORS AND THE LENDER CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH
OF THE PLEDGORS AND THE LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH COURTS IN RESPECT OF THIS PLEDGE AND SECURITY AGREEMENT OR
ANY

                                      -12-

<PAGE>

DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING: (1) THE LENDER SHALL
HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE PLEDGORS OR THEIR
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE LENDER DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE
OBLIGATIONS AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS
FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.

            THE PLEDGORS HEREBY WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON THEM AND CONSENT THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE PLEDGORS AT THEIR ADDRESSES SET
FORTH IN SECTION 12.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE
(5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S. MAIL POSTAGE
PREPAID. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE
LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.

        SECTION 19. Waiver of Jury Trial. PLEDGORS AND THE LENDER EACH
IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS PLEDGE AND
SECURITY AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY LENDER-RELATED
PERSON OR PARTICIPANT, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR
OTHERWISE. THE PLEDGORS AND THE LENDER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THE CREDIT AGREEMENT, THIS PLEDGE AND SECURITY AGREEMENT OR
THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THE CREDIT AGREEMENT, THIS PLEDGE AND SECURITY AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

        SECTION 20. Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof.

        SECTION 21. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.

                                      -13-

<PAGE>

        SECTION 22. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.

        SECTION 23. Incorporation of Provisions of the Credit Agreement. To the
extent the Credit Agreement contains provisions of general applicability to the
Loan Documents, such provisions are incorporated herein by this reference.

        SECTION 24. No Inconsistent Requirements. The Pledgor acknowledges that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
agrees that to the extent permitted by law, all such covenants, terms and
provisions are cumulative and all shall be performed and satisfied in accordance
with their respective terms. In the event any covenant, term or provision herein
contradicts any covenant, term or provision of the Credit Agreement, the terms
of the Credit Agreement shall control.

        SECTION 25. Continuing Security Interest; Termination. This Agreement
shall create a continuing security interest in the Pledged Collateral and shall
apply to all past, present and future Secured Obligations, including Secured
Obligations that arise under transactions that continue any Secured Obligation,
increase or decrease any Secured Obligation, or from time to time create new
Secured Obligations after all or any prior Secured Obligations have been
satisfied. Upon termination of the Commitment of the Lender under the Loan
Documents and the payment and performance in full of all Secured Obligations,
the security interests granted under this Agreement shall terminate and the
Lender shall return, at the Pledgor's expense, all the Pledged Collateral as
shall not have been sold or otherwise applied pursuant to the terms hereof.
Notwithstanding the foregoing, the obligations of the Pledgor under Sections
11(f) and 16 shall survive such termination.

        IN WITNESS WHEREOF, the Pledgor has executed this Agreement as of the
day and year first above written.

                                    PLEDGOR:

                                    SPACELABS INTERNATIONAL, INC.,
                                    a Delaware corporation

                                    By:
                                       -----------------------------------------
                                       Its:
                                           -------------------------------------
Accepted:

BANK OF AMERICA, N.A., as Lender

By:
   --------------------------------
Title:
      -----------------------------

                                      -14-
<PAGE>

                                   SCHEDULE 1

                                       TO

                          PLEDGE AND SECURITY AGREEMENT

<TABLE>
<CAPTION>

                                                                                     SHARES                             SHARES OWNED
                                                         SHARES         SHARES      OWNED BY          OTHER               BY OTHER
      PLEDGED SUBSIDIARY             CLASS OF STOCK      ISSUED      OUTSTANDING    PLEDGOR         SHAREHOLDER          SHAREHOLDER
-----------------------------        --------------     ---------    -----------   ---------      --------------         -----------
<S>                                  <C>             <C>           <C>          <C>          <C>                         <C>
Spacelabs Medical Products              Common       1,500,100     1,500,100    1,500,099
 Pty. Ltd. (Australia)               Preferred           1,995         1,995        1,995    Spacelabs Medical, Inc. (CA)      1

Spacelabs Medical Ltd. (UK)             Common       1,250,000     1,250,000    1,249,999    Spacelabs Medical, Inc. (CA)      1

Spacelabs Medical SARL (France)         Common         194,300       194,300      194,297    Spacelabs Medical, Inc. (CA)      3

Spacelabs Medical SmbH                     N/A        EU25,600      EU25,600     EU25,600

Spacelabs Medical S.r.l. (Italy)        Common           2,000         2,000        1,980    Spacelabs Medical, Inc. (CA)     20

</TABLE>

                                      A-1Exhibit 10.6

                              AMENDED AND RESTATED

             CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION AGREEMENT

     This Amended and Restated Catastrophe Equity Securities Issuance Option
Agreement (this "Agreement") is entered into as of January 1, 2001 between
Trenwick Group Ltd., a Bermuda company ("Trenwick"), on the one hand, and
European Reinsurance Company of Zurich, a corporation organized under the laws
of Switzerland (the "Option Writer"), on the other hand.

                                    RECITALS

     WHEREAS, LaSalle Re Holdings Limited, a Bermuda Company ("Company") and
Option Writer are parties to a Catastrophe Equity Securities Issuance Option
Agreement dated July 1, 1999 (the "Prior Agreement") along with Allianz Risk
Transfer, a corporation organized under the laws of Switzerland ("Allianz");

     WHEREAS, the Prior Agreement obligated Option Writer to purchase up to
$55,000,000 of Company securities and Allianz to purchase up to $45,000,000 of
Company securities on the occurrence of certain specified events;

     WHEREAS, pursuant to a definitive Agreement, Scheme of Arrangement, Plan of
Merger and Plan of Reorganization, dated as of December 19, 1999, amended and
restated as of March 20, 2000 and amended as of June 28, 2000, Trenwick and the
Company engaged in a series of transactions whereby Trenwick became the parent
company of the Company (the "Business Combination") on September 27, 2000;

     WHEREAS, the parties to the Prior Agreement wish to amend and restate the
Prior Agreement in order to (i) reflect the changes in corporate structure of
the Company and Trenwick as a result of the Business Combination, (ii) provide
for the issuance by Trenwick of Preferred Shares (as defined below), (iii)
terminate the role of Allianz as a party to the Prior Agreement, (iv) restate
the commitment of Option Writer to purchase up to such number of Preferred
Shares having an aggregate Preferred Share Purchase Price (as defined below) of
$55,000,000, and (v) reflect such other terms, provisions, revisions and
amendments to the Prior Agreement as the parties deem necessary or appropriate
to effect the foregoing; and

     WHEREAS, Trenwick and Option Writer desire to memorialize their agreement
with respect to the Securities Issuance Option (as defined below) on the terms
and conditions set forth herein.

     NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Trenwick and Option Writer agree as follows:

                                    AGREEMENT

     1. Definitions. Capitalized terms used in this Agreement shall have the
respective meanings ascribed to them below.

     "A.M. Best Rating" means a rating of financial condition and performance,
as published from time to time, by A.M. Best Company.

     "Affiliate" of, or Person "affiliated" with, a specified Person means a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled, by, or is under common control with, such specified Person.

     "Business Combination" has the meaning ascribed to such term in the
Recitals of this Agreement.

     "Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in any of Hamilton, Bermuda; Zurich, Switzerland; or
London, England, are not required to be open.

<PAGE>

     "Certificate of Designation" means the Certificate of Designation,
Preferences and Rights of Series B Cumulative Perpetual Preferred Shares of
Trenwick, in the form attached as Exhibit A.

     "Change of Control" means the earliest to occur of (a) the date that a
Person or group of affiliated Persons (an "Acquiring Person") acquires, or
obtains the right to acquire, legal or beneficial ownership of fifty percent
(50%) or more of the voting power of the issued and outstanding shares of
Trenwick, Company or any Company Subsidiary, (b) the date an Acquiring Person
acquires fifty percent (50%) or more of the assets of Trenwick or the Company or
any of the Company Subsidiaries, or (c) the date of any amalgamation,
consolidation or merger of Company or Trenwick or any Company Subsidiaries with
any Acquiring Person. For purposes hereof, the term "Acquiring Person" shall not
include (i) Trenwick, any of the Trenwick Subsidiaries or any employee benefit
plan (or related trust) sponsored or maintained by Trenwick, or any of its
Subsidiaries, or (ii) any other person where fifty percent (50%) or more of the
combined voting power of such Person's issued and outstanding shares or capital
stock is beneficially owned, directly or indirectly, by the Persons who were the
holders of the voting shares of Trenwick immediately prior to such acquisition,
amalgamation, consolidation or merger (as the case may be).

     "Company" means LaSalle Re Holdings Limited, a Bermuda company.

     "Company Subsidiaries" means any or all of LaSalle Re Limited, an insurance
company formed under the laws of Bermuda, LaSalle Re Corporate Capital Ltd., a
company formed under the laws of Bermuda, and such other direct or indirect
Subsidiaries of Company as may be agreed in writing between Company and Option
Writer.

     "Effective Date" means January 1, 2001.

     "Event" means any one or a series of "loss occurrence(s)" as defined in any
reinsurance agreement under which any Company Subsidiary incurs an Ultimate
Loss.

     "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.

     "Exercise Date" means the date of purchase and sale of Preferred Shares
pursuant to an exercise of the Securities Issuance Option which date shall be
specified in the Notice of Exercise and shall be the later of thirty (30) days
following the delivery of the Notice of Exercise or ten (10) days following
receipt of all regulatory approvals applicable to Trenwick in connection with
such purchase and sale of Preferred Shares (including without limitation any
necessary approvals by the Bermuda Monetary Authority or Registrar of
Companies), provided that the Exercise Date shall not be later than the one
hundred eightieth (180th) day after delivery of the Notice of Exercise, or such
later date, if any, as may be determined by alternative dispute resolution under
Article 8 of this Agreement, which date shall be ten (10) days after the
rendering of a final decision under Article 8.

     "Exercise Term" means (a) with respect to a single Event which (i) is a
windstorm, the one (1) year period commencing upon the occurrence of a
Qualifying Catastrophic Event and ending at 12:00 a.m. midnight Bermuda Time on
the first anniversary of such occurrence (as the same may be extended under
Section 2.4) during which Trenwick has the right to exercise the Securities
Issuance Option, or (ii) is other than a windstorm, the eighteen (18) month
period commencing upon the occurrence of a Qualifying Catastrophic Event and
ending at 12:00 a.m. midnight Bermuda Time on the date which is eighteen (18)
months following such occurrence (as the same may be extended under Section 2.4)
during which Trenwick has the right to exercise the Securities Issuance Option,
or (b) with respect to a series of Events, the period commencing upon the
occurrence of a Qualifying Catastrophic Event and ending one (1) year following
the end of the Exposure Period during which such series of Events occurs, which
one (1) year period ends at 12:00 a.m. midnight Bermuda Time on the January 1
next following the end of such Exposure Period (as the same may be extended
under Section 2.4), during which Trenwick has the right to exercise the
Securities Issuance Option.

     "Exposure Period" means the one (1) year beginning at 12:00 a.m. midnight
Bermuda Time on January 1, 2001 and ending at 12:00 a.m. midnight Bermuda Time
on January 1, 2002.

     "GAAP" means U.S. generally accepted accounting principles, consistently
applied.

                                       2
<PAGE>

     "GAAP Net Worth" means the amount equal to a company's shareholders' equity
plus minority interest, if any, as determined in accordance with GAAP.

     "Mean Risk of Ruin" means Company Subsidiaries' mean probability of
incurring aggregate Ultimate Losses in excess of one hundred percent (100%) of
Company Subsidiaries' GAAP Net Worth plus fifty percent (50%) of Trenwick's GAAP
Net Worth during any one (1) year period, calculated using the Proprietary
Model.

     "Non-assessable" means, with respect to shares of Trenwick, that no further
sums are required to be paid by the registered holders thereof in connection
with the issue of such shares.

     "Non-Subject Business" means Company Subsidiaries' insurance and
reinsurance business other than Subject Business.

     "Notice of Exercise" means the written notice of Trenwick's intent to
exercise the Securities Issuance Option as described in Section 2.3.

     "Notice of Objection" means Option Writer's written notice of objection to
a Notice of Exercise, as described in Section 2.3.

     "Option Fee" means the amounts paid by Trenwick to Option Writer as
consideration for the Securities Issuance Option, as set forth in Section 2.1.

     "Option Writer" means the organization named in the preamble of this
Agreement, which shall be (a) entitled to the financial benefits and privileges,
and subject to the financial burdens and obligations, of Option Writer under
this Agreement , (b) obligated to fully comply with all representations,
warranties, conditions, covenants and agreements applicable to Option Writer
under this Agreement, and (c) referred to in this Agreement as an "Option
Writer".

     "Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, government (or an agency or political subdivision
thereof) or other entity of any kind.

     "Preferred Share Purchase Price" means the higher of US$100.00 or par value
per Preferred Share payable by Option Writer to Trenwick as set forth in Section
2.3.

     "Preferred Shares" means the Series B Cumulative Convertible Perpetual
Preferred Shares of Trenwick, current par value US$0.10 per share.

     "Prior Agreement" means the Catastrophe Equity Securities Issuance Option
Agreement dated July 1, 1999 by and among the Company, European Re and Allianz.

     "Proprietary Model" means the probability and risk analysis model developed
by the Company Subsidiaries in the form utilized by the Company Subsidiaries at
the Effective Date, subject to material modifications as agreed by Trenwick and
Option Writer.

     "Qualifying Catastrophic Event" means (a) with respect to any single Event,
an Event occurring during the Exposure Period pursuant to which the Company
Subsidiaries incur an Ultimate Loss in excess of US$140,000,000 (the "Single
Event Attachment Point"), or (b) with respect to any series of Events during the
Exposure Period, a series of Events that, when considered in the aggregate,
cause the Company Subsidiaries to incur an Ultimate Loss in excess of
US$220,000,000 (the "Multiple Event Attachment Point"). Any Qualifying
Catastrophic Event that commences during the Exposure Period, whether or not it
terminates within the Exposure Period, shall be deemed to have occurred within
the Exposure Period. A single Event that has occurred during the Exposure Period
but which has not developed into a Qualifying Catastrophic Event prior to the
first anniversary of the Event (or eighteen (18) months following the date of
the Event if the Event is other than a windstorm) shall not constitute a
Qualifying Catastrophic Event for purposes of this Agreement. A single Event
that has occurred during the Exposure Period

                                       3
<PAGE>

and which develops into a Qualifying Catastrophic Event prior to the first
anniversary of the Event (or eighteen (18) months following the date of the
Event if the Event is other than a windstorm), but after expiration of the
Exposure Period (as the same may be extended), shall constitute a Qualifying
Catastrophic Event for purposes of this Agreement. With respect to a single
Event which develops into a Qualifying Catastrophic Event, such Qualifying
Catastrophic Event shall be deemed to have occurred as of the date such single
Event occurred. A series of Events that has occurred during the Exposure Period
but which has not developed into a Qualifying Catastrophic Event prior to the
end of one (1) year following the end of such Exposure Period shall not
constitute a Qualifying Catastrophic Event for purposes of this Agreement. A
series of Events that has occurred during the Exposure Period and which develops
into a Qualifying Catastrophic Event prior to the end of one (1) year following
the end of such Exposure Period, but after expiration of the Exposure Period,
shall constitute a Qualifying Catastrophic Event for purposes of this Agreement.
With respect to a series of Events which develops into a Qualifying Catastrophic
Event, such Qualifying Catastrophic Event shall be deemed to have occurred
during the Exposure Period in which such series of Events occurred.

     "Registration Rights Agreement" means the Registration Rights Agreement
described in Section 6.2.

     "Rule 144A" means Rule 144A of the General Regulations of the Securities
Act.

     "S&P Rating" means a claims payment ability rating or credit rating, as
applicable, as published from time to time, by the Standard & Poor's Division of
The McGraw-Hill Companies.

     "SEC" means the U.S. Securities and Exchange Commission.

     "SEC Filings" means all documents and reports filed by Trenwick or the
Company, as a case may be, with the SEC from January of 1997 through the date of
this Agreement.

     "Securities Act" means the U.S. Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.

     "Securities Issuance Option" means Trenwick's option to obligate Option
Writer to purchase up to 550,000 Preferred Shares, subject to the terms and
conditions set forth in this Agreement.

     "Subject Business" means all business underwritten by the Company
Subsidiaries classified as property (including workers compensation losses
arising from a property peril) and marine.

     "Subsidiary" means, with respect to any Person, any corporation or other
entity (including, without limitation, partnerships, joint ventures, and
associations) regardless of its jurisdiction of organization or formation, at
least a majority of the total combined voting power of all classes of voting
stock or other ownership interests of which shall, at the time of which any
determination is being made, be owned by such Person, either directly or
indirectly through one or more other Subsidiaries.

     "Transaction Agreements" means this Agreement, its schedules and exhibits,
the Registration Rights Agreement and the Certificate of Designation.

     "Trenwick" means Trenwick Group Ltd., a Bermuda company.

     "Trenwick Common Stock" means the common shares of Trenwick, par value
US$.10 per share.

     "Trenwick Financial Statements" means the consolidated financial statements
of Trenwick specified in Section 3.7.

     "Trenwick Subsidiaries" means all Subsidiaries of Trenwick.

     "Ultimate Loss" means the actual direct losses (including all paid losses,
all reserves for unpaid losses (including without limitation outstanding loss
reserves and incurred but not reported loss reserves), and loss

                                       4
<PAGE>

adjustment expense paid by the Company Subsidiaries) incurred by the Company
Subsidiaries on the Subject Business prior to accounting for any retrocessional
reinsurance.

     "U.S." or "US" means the United States of America.

     "US$" means United States Dollars. To the extent any losses, liabilities or
other amounts described or referred to in this Agreement are stated or
denominated in currencies other than United States Dollars, such losses,
liabilities or amounts shall be stated, for purposes of this Agreement, in their
respective United States Dollar equivalents as shown in the Trenwick Financial
Statements.

     2. Securities Issuance Option.

          2.1. Option Fee. To acquire the right to exercise the Securities
     Issuance Option during the Exercise Term with respect to a Qualifying
     Catastrophic Event, Trenwick shall pay to Option Writer a fee (the "Option
     Fee") as set forth on the attached Schedule 2.1. The Option Fee payment
     shall be delivered upon the later of the Effective Date or the date of
     execution of this Agreement. In consideration of the payment of the Option
     Fee as may be required under this Agreement, Option Writer hereby grants to
     Trenwick the right to exercise the Securities Issuance Option on the terms
     set forth in this Agreement.

          2.2. Exercise Rights. Trenwick shall have the right to exercise the
     Securities Issuance Option one or more times with respect to any one
     Qualifying Catastrophic Event, subject to the following limitations:

               a. The Securities Issuance Option must be exercised with respect
          to Preferred Shares having a minimum aggregate Preferred Share
          Purchase Price of US$10,000,000 or an integral multiple of
          US$1,000,000 above such amount.

               b. In no case shall the Preferred Shares issued pursuant to all
          exercises of the Securities Issuance Option have an aggregate
          Preferred Share Purchase Price of greater than US$55,000,000.

               c. In no case shall the Securities Issuance Option be exercised
          more than one time in any calendar quarter.

          2.3. Method of Exercise. In the event that Trenwick desires to
     exercise the Securities Issuance Option with respect to a Qualifying
     Catastrophic Event, Trenwick shall provide written notice to Option Writer
     during the Exercise Term of its intent to exercise the Securities Issuance
     Option (a "Notice of Exercise"). The Notice of Exercise shall specify (a)
     the aggregate Preferred Share Purchase Price for the Preferred Shares to be
     issued pursuant to the exercise of the Securities Issuance Option and the
     proposed Exercise Date, and (b) with respect to the applicable Qualifying
     Catastrophic Event, the amount of the Ultimate Loss relating to such
     Qualifying Catastrophic Event, including the amount of (i) paid losses,
     (ii) losses reported but not yet then paid, and (iii) losses incurred but
     not yet then reported, including assumptions underlying the calculation of
     item (iii). Following delivery of a Notice of Exercise in accordance with
     Section 10.2, Option Writer shall have until the end of the thirty (30) day
     period following delivery of the Notice of Exercise to investigate whether
     the conditions to exercise of the Securities Issuance Option set forth in
     Section 5.2 have been satisfied and shall, by the end of such thirty (30)
     day period, if Option Writer determines that such conditions have not been
     satisfied, issue a Notice of Objection (as defined below); provided,
     however, that if the Exercise Date is extended for more than an additional
     thirty (30) days (beyond the initial thirty (30) day notice period) as
     described in the definition of Exercise Date in Article 1 above, Option
     Writer shall have a period of ten (10) business days to update its
     investigation, which ten (10) business day period shall commence on the
     date which is the later of (a) the date that Trenwick certifies to Option
     Writer that all conditions to exercise of the Securities Issuance Option
     set forth in Section 5.2 have been satisfied, or (b) the thirtieth (30th)
     day preceding the actual Exercise Date. In connection with such
     investigation, Trenwick shall provide or procure for Option Writer, or its
     designated agent, reasonable access to loss records of the applicable
     Company Subsidiaries relating to the Qualifying Catastrophic Event in
     question (including, without limitation, policy files, claim files, and
     loss and loss reserve files or information), during normal business hours
     of the applicable Company Subsidiaries, in order to allow Option Writer to
     undertake such investigation. In the event that Option Writer determines
     that the conditions for exercise of Securities Issuance Option have not
     been met, Option

                                       5
<PAGE>

     Writer shall deliver a written notice of objection to exercise of the
     Securities Issuance Option (the "Notice of Objection") to Trenwick within
     such thirty (30) day period or the ten (10) business day update period
     described above, as applicable. Such Notice of Objection shall specify in
     reasonable detail the reason(s) for Option Writer's objection to the
     exercise of the Securities Issuance Option. If, within twenty (20) days
     following delivery of the Notice of Objection to Trenwick, Trenwick and
     Option Writer cannot reach an agreement regarding the exercise of the
     Securities Issuance Option, their dispute shall be submitted to dispute
     resolution in accordance with Article 8 below. With respect to Option
     Writer, in the event that Option Writer has not issued a Notice of
     Objection in accordance with this Section 2.3, Option Writer shall deliver,
     on the Exercise Date (or the next following Business Day if the Exercise
     Date is not a Business Day), by wire transfer of immediately available
     funds, in U.S. dollars, the aggregate Preferred Share Purchase Price
     specified in the Notice of Exercise, against the delivery by Trenwick of
     the corresponding number of Preferred Shares.

          2.4. Extension of Exercise Term. Notwithstanding anything in this
     Agreement to the contrary, in the event that Trenwick files, prior to the
     end of any Exercise Term, preliminary proxy materials with the SEC relating
     to a submission to registered holders of Trenwick Common Stock for approval
     of the issuance of the Preferred Shares (or the issuance of shares of
     Trenwick Common Stock upon conversion of the Preferred Shares), as required
     by any exchange listing or other regulatory requirements, the Exercise Term
     shall be extended by a period of ninety (90) days plus, if any such
     materials are not reviewed by the staff at the SEC within thirty (30) days,
     an additional number of days (not to exceed fifteen (15) days in any event)
     equal to the number of days in excess of thirty (30) between the filing of
     such preliminary materials with the SEC and the initial receipt by Trenwick
     of written comments from the SEC staff.

     3. Representations and Warranties of Trenwick. Trenwick represents and
warrants to Option Writer as of the Effective Date as follows (it being
understood that, subject to the terms of Section 10.11, the representations and
warranties contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5(a), 3.6, 3.7, 3.8, 3.9,
3.10 and 3.11 shall be deemed to be repeated by Trenwick on each Exercise Date):

          3.1. Existence and Qualifications. Trenwick is a company duly
     organized, validly existing and in compliance with filing requirements and
     payment of government fees required under the laws of Bermuda and the
     Company and each of the Company Subsidiaries is a company duly organized,
     validly existing and in compliance with filing requirements and payments of
     government fees required under its representative place of domicile.
     Subject to obtaining Bermuda governmental approvals for issuance of the
     Preferred Shares, Trenwick has the full corporate power and authority to
     execute and deliver the Transaction Agreements, and to perform its
     obligations under, and to consummate the transactions contemplated by, the
     Transaction Agreements, including, without limitation, the delivery of the
     Preferred Shares pursuant to the exercise of the Securities Issuance Option
     as described in this Agreement.

          3.2. No Violation or Conflict. The execution and delivery by Trenwick
     of the Transaction Agreements, and the performance of Trenwick under the
     Transaction Agreements, do not violate or conflict with any applicable law,
     rule or regulation, any provision of Trenwick's memorandum of association
     or Bye-Laws or any order or judgment of any court or other government
     agency applicable to Trenwick or any of its assets or any of the Trenwick
     Subsidiaries, or any contractual restriction binding upon or affecting
     Trenwick or any of the Trenwick Subsidiaries or their respective assets,
     except in the case of violations or conflicts with rules or regulations
     which, individually, or in the aggregate, do not have a material adverse
     effect on Trenwick's ability to perform its obligations under this
     Agreement.

          3.3. Consents. All Bermuda governmental and other consents that are
     required to have been obtained by Trenwick with respect to the execution
     and delivery of this Agreement have been obtained and are in full force and
     effect and all conditions of any such consents have been complied with or,
     will have been obtained or complied with (as the case may be) as of the
     applicable Exercise Date or prior to any conversion of Preferred Shares
     into Trenwick Common Stock, provided always that any information requested
     from Option Writer necessary in connection with such consent or obtaining
     the same shall have been supplied in a timely manner (as the circumstances
     may warrant).

          3.4. Licenses and Permits. The Company Subsidiaries have all requisite
     material licenses, permits and authority (collectively, "Licenses") that
     are necessary for the conduct of their respective insurance

                                       6
<PAGE>

     businesses, such Licenses are in full force and effect, and no proceeding
     is pending or, to Trenwick's knowledge, threatened to suspend, revoke or
     limit any License which is material to the operations of any such Company
     Subsidiaries.

          3.5. Absence of Litigation.

               a. There is not pending or to its knowledge threatened, against
          Trenwick or the Trenwick Subsidiaries, any action, suit or proceeding
          before any court, tribunal, governmental body, agency or official or
          any arbitrator or mediator that would reasonably be expected to
          materially and adversely affect the legality, validity and
          enforceability against Trenwick of any Transaction Agreement.

               b. There is not pending or to its knowledge threatened, against
          the Trenwick or the Trenwick Subsidiaries, any action, suit or
          proceeding before any court, tribunal, governmental body, agency or
          official or any arbitrator or mediator that, if adversely determined,
          could reasonably be expected to materially and adversely affect the
          financial condition of the Trenwick, the Company or any Company
          Subsidiary.

          3.6. Options or Other Rights. Except for this Agreement and as set
     forth in the attached Schedule 3.6, there is no outstanding right,
     subscription, warrant, call, unsatisfied preemptive right, option or other
     agreement of any kind to purchase or otherwise to receive from Trenwick any
     Preferred Shares.

          3.7. Financial Statements. Trenwick has furnished, or will upon
     request furnish, Option Writer with true and complete copies of the audited
     consolidated balance sheets and audited consolidated statements of
     operations for the previous three fiscal years of Trenwick or its
     accounting predecessor, the Company (collectively the "Trenwick Financial
     Statements"). The Trenwick Financial Statements have been prepared in
     accordance with GAAP and present fairly in all material respects the
     consolidated financial position of Trenwick and the Trenwick Subsidiaries
     and the results of their operations as of the dates indicated and for the
     periods then ended.

          3.8. Binding Obligations. The execution of the Transaction Agreements
     has been duly authorized by all necessary corporate action of Trenwick, and
     such Transaction Agreements (a) have been duly executed and delivered by
     Trenwick, (b) constitute legal, valid and binding obligations of Trenwick,
     and (c) are enforceable against Trenwick in accordance with their 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).

          3.9. Preferred Shares. Trenwick has, or will have as of the applicable
     Exercise Date, authority to issue Preferred Shares with an aggregate
     Preferred Share Purchase Price of US$55,000,000, and such Preferred Shares,
     when issued pursuant to the exercise of the Securities Issuance Option,
     shall, upon delivery of payment therefor, be validly issued, fully paid and
     Non-assessable. Upon issuance pursuant to this Agreement, the Preferred
     Shares shall be free and clear of any lien, encumbrance or other
     restriction (except as otherwise set forth in the Transaction Agreements
     and in any consent issued by the Bermuda Monetary Authority, provided
     always that Trenwick shall use reasonable efforts to have removed any
     restriction contained in such consent affecting the transferability of the
     Preferred Shares), and upon delivery of and payment for the Preferred
     Shares as provided in this Agreement, Option Writer will acquire good title
     to the Preferred Shares purchased under this Agreement, free and clear of
     any lien, encumbrance or other restriction (except as may be created by
     Option Writer, as otherwise set forth in the Transaction Agreements and in
     any consent issued by the Bermuda Monetary Authority, provided always that
     Trenwick shall use reasonable efforts to have removed any restriction
     contained in such consent affecting the transferability of the Preferred
     Shares to persons not designated as being resident in Bermuda for foreign
     exchange control purposes). Trenwick has reserved for issuance an aggregate
     of 550,000 Preferred Shares for issuance on one or more Exercise Dates
     pursuant to Section 2 of this Agreement.

          3.10. Trenwick Common Stock. The shares of Trenwick Common Stock into
     which the Preferred Shares may be converted, as set forth in the
     Certificate of Designation, shall, upon conversion, be validly issued,
     fully paid and Non-assessable. Such shares of Trenwick Common Stock shall
     be free and clear of any lien, encumbrance or other restriction (except as
     may be created by Option Writer, as otherwise set forth in the Transaction
     Agreements and in any consent issued by the Bermuda Monetary Authority,
     provided always that

                                       7
<PAGE>

     Trenwick shall use reasonable efforts to have removed any restriction
     contained in such consent affecting the transferability of the Trenwick
     Common Stock), and upon conversion as provided in the Certificate of
     Designation, Option Writer will acquire good title to the number of shares
     of Trenwick Common Stock into which such Preferred Shares are converted,
     free and clear of any lien, encumbrance or other restriction (except as may
     be created by Option Writer, as otherwise set forth in the Transaction
     Agreements and in any consent issued by the Bermuda Monetary Authority,
     provided always that Trenwick shall use reasonable efforts to have removed
     any restriction contained in such consent affecting the transferability of
     the Trenwick Common Stock to persons not designated as being resident in
     Bermuda for foreign exchange control purposes). Such shares of Trenwick
     Common Stock shall be subject to the Registration Rights Agreement
     described in Section 6.2. Trenwick has reserved for issuance the maximum
     number of shares of Trenwick Common Stock as may be required upon the
     conversion of the Preferred Stock to be issued and sold pursuant to Section
     2 of this Agreement.

          3.11. No Insolvency or Bankruptcy. Neither Trenwick nor any Trenwick
     Subsidiary (a) is the subject of any voluntary or involuntary petition
     under any bankruptcy, insolvency or similar law affecting creditors
     generally, (b) is the subject of any liquidation, transformation or
     rehabilitation proceeding, or (c) has had a receiver or similar person or
     entity appointed for any of its property.

          3.12. Acquired Businesses. All documents and instruments in connection
     with the Business Combination have been executed and delivered by the
     parties thereto, and if required, filed with the government offices having
     jurisdiction over the Business Combination. The Business Combination has
     been consummated and Trenwick, the Company or the Company Subsidiaries, as
     the case may be, have acquired or succeeded to the full legal right, power
     and authority to own and operate the assets and Licenses of the Company and
     the Company Subsidiaries. No default or event giving rise to a default
     under any agreement or instrument in connection with the Business
     Combination has occurred which would cause the Business Combination to be
     revoked, dissolved or otherwise set aside.

     Notwithstanding the foregoing, (a) a breach of the representations and
warranties contained in Section 3.1, 3.2, 3.3, 3.4, 3.9 or 3.10 at any Exercise
Date shall prevent exercise of the Securities Issuance Option unless and until
such breach is cured in accordance with Section 10.11, and (b) a breach of the
representations and warranties contained in Sections 3.5(a), 3.6 or 3.7 at any
Exercise Date shall not in any way prevent or delay exercise of the Securities
Issuance Option. Notwithstanding the preceding sentence, each party shall have
the right to recover damages that may be available at law or equity from any
other party for any loss or injury that is caused by any inaccuracy or breach of
any representation or warranty made by such other party.

     4. Representations and Warranties of Option Writer. Option Writer
represents and warrants to Trenwick as follows (it being understood that,
subject to the terms of Section 10.11, the representations contained in Sections
4.1, 4.2, 4.3, 4.4, 4.5 and 4.6 shall be deemed to be repeated by Option Writer
on each Exercise Date):

          4.1. Existence and Qualifications of Option Writer. Option Writer is a
     corporation duly organized, validly existing and in compliance with filing
     requirements and payment of government fees required under the laws of
     Switzerland, and Option Writer has the full corporate power and authority
     to execute and deliver the Transaction Agreements, and to perform its
     obligations under, and consummate the transactions contemplated by, the
     Transaction Agreements, including, without limitation, the purchase of the
     Preferred Shares pursuant to the exercise of the Securities Issuance Option
     by Trenwick as described in this Agreement.

          4.2. No Violation or Conflict. The execution and delivery of the
     Transaction Agreements by Option Writer, and the performance of Option
     Writer under the Transaction Agreements, do not violate or conflict with
     any applicable law, any provision of Option Writer's organizational
     documents or any order or judgment of any court or other government agency
     applicable to s Option Writer (or any of its assets or subsidiary or
     affiliated companies to the extent any such order or judgment would have a
     material adverse effect on the rights or privileges of Trenwick under this
     Agreement), or any contractual restriction binding upon or affecting Option
     Writer (or any of its subsidiary or affiliated companies or its assets to
     the extent any such restriction would have a material adverse effect on the
     rights or privileges of Trenwick under this Agreement).

          4.3. Consents. All governmental and other consents that are required
     to have been obtained by Option Writer with respect to the execution and
     delivery of this Agreement have been obtained by Option Writer

                                       8
<PAGE>

     and are in full force and effect and all conditions of any such consents
     have been complied with.

          4.4. Absence of Litigation. There is not pending or to its knowledge,
     threatened against any Option Writer or any of its Subsidiaries or
     Affiliates, any action, suit or proceeding before any court, tribunal,
     governmental body, agency or official or any arbitrator or mediator that
     would reasonably be expected to materially and adversely affect the
     legality, validity and enforceability against Option Writer of any
     Transaction Agreement.

          4.5. Investment Representation. Option Writer understands that the
     issuance of Preferred Shares under this Agreement and the issuance of
     Trenwick Common Stock upon conversion of Preferred Shares have not been and
     will not (except as set forth in the Registration Rights Agreement) be
     registered under the Securities Act and such Preferred Shares and Trenwick
     Common Stock will be issued in reliance upon the exemption afforded by
     Section 4(2) of the Securities Act for transactions by an issuer not
     involving any public offering. Option Writer represents that (a) it is
     acquiring the Preferred Shares and such Trenwick Common Stock solely for
     its own account, for investment purposes only, and not with a view to
     distribution, fractionalization or resale thereof, (b) it will not sell or
     otherwise dispose of the Preferred Shares or such Trenwick Common Stock
     except in compliance with the registration requirements or exemption
     provisions of applicable securities laws including the Securities Act, (c)
     it has not relied on Trenwick for any explanation of the application of the
     various U.S. state and federal securities laws with regard to the
     acquisition of the Preferred Shares and such Trenwick Common Stock, (d) it
     has access to complete information regarding the business and finances of
     Trenwick, and has received, read and understood the contents of the SEC
     Filings, (e) it has such knowledge and experience in business and financial
     matters that it has been able to fully understand and completely evaluate
     the risks and merits of holding the Preferred Shares and such Trenwick
     Common Stock as provided in this Agreement, and (f) it is able to bear the
     economic risk and limitation in liquidity of an investment in the Preferred
     Shares and such Trenwick Common Stock.

          4.6. Binding Obligations. The execution of the Transaction Agreements
     to which Option Writer is a party have been duly authorized by all
     necessary corporate action of Option Writer, and such Transaction
     Agreements (a) have been duly executed and delivered by Option Writer, (b)
     constitute legal, valid and binding obligations of Option Writer, and (c)
     are enforceable against Option Writer in accordance with their 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).

     Notwithstanding the foregoing, each party shall have the right to recover
damages that may be available at law from any other party for any loss or injury
that is caused by any inaccuracy or breach of any representation or warranty
made by such other party.

     5. Conditions.

          5.1. Conditions to Effectiveness of Agreement. The effectiveness of
     this Agreement shall be subject to the satisfaction by Trenwick, at or
     prior to, or waiver by Option Writer at or prior to, its execution and
     delivery, of the following conditions (it being understood that unless
     Option Writer makes an objection at or prior to such execution and
     delivery, this Agreement shall be deemed effective for all purposes upon
     such execution and delivery):

               a. Registration Rights Agreement. Trenwick and Option Writer
          shall have entered into the Registration Rights Agreement as described
          in Section 6.2.

               b. Compliance with Laws and Consents. Trenwick shall have
          complied with all laws and regulations applicable to the authorization
          and issuance of the Preferred Shares and, subject to the following
          sentence, the conversion of Preferred Shares into Trenwick Common
          Stock, including the adoption or authorization by the Board of
          Directors of Trenwick of the Certificate of Designation. Trenwick and
          Option Writer shall have obtained all consents and approvals (whether
          shareholder, regulatory, contractual or otherwise) necessary for the
          authorization and issuance of the Preferred Shares, the conversion of
          the Preferred Shares into Trenwick Common Stock, and the authorization
          and issuance of such Trenwick Common Stock, including without
          limitation the approval of any applicable insurance regulatory body or
          agency, and the approval of any filing or application required under
          applicable securities laws (whether of Bermuda, the U.S., any state of
          the U.S., or any other

                                       9
<PAGE>

          applicable jurisdiction), provided, however, that if any insurance
          regulator shall for any reason decline to approve the conversion of
          the Preferred Shares and/or the issuance of Trenwick Common Stock
          pursuant to such conversion, but shall approve the authorization and
          issuance of the Preferred Shares, then such approval of the conversion
          of the Preferred Shares and/or the issuance of Trenwick Common Stock
          pursuant to such conversion, as applicable, shall not be a condition
          to exercise of the Securities Issuance Option, provided further,
          however, that Trenwick has reasonably cooperated with Option Writer to
          obtain such approvals. Notwithstanding the foregoing, if any consent,
          approval or other matter necessary for conversion of the Preferred
          Shares into Trenwick Common Stock is of such a nature that it cannot
          be obtained or achieved until at or about the time of such conversion,
          then such consent, approval or other matter shall not be a condition
          to exercise of the Securities Issuance Option.

               c. No Insolvency or Bankruptcy. Neither Trenwick, the Company nor
          the Company Subsidiaries (a) is the subject of any voluntary or
          involuntary petition under bankruptcy, insolvency or similar law
          affecting creditors generally (provided, however, that Trenwick or
          LaSalle Re Limited, as applicable, shall not be in breach of this
          condition with respect to an involuntary petition unless such
          involuntary petition is not dismissed within sixty (60) days following
          Trenwick's or LaSalle Re Limited's receipt of notice of filing such
          petition), (b) is the subject of any liquidation, transformation or
          rehabilitation proceeding, or (c) has had a receiver or similar person
          or entity appointed for any of its property.

               d. Payment of Fees. All Option Fee payments, and any other fees
          which Trenwick is obligated to pay for the benefit of any Option
          Writer pursuant to the Transaction Agreements, then due shall have
          been paid in full.

          5.2. Conditions to Exercise of Securities Issuance Option. The right
     of Trenwick to exercise the Securities Issuance Option (or any increment of
     the Securities Issuance Option) shall be subject to the satisfaction by
     Trenwick at, or waiver by Option Writer at or prior to, the Exercise Date,
     of the following conditions:

               a. Occurrence of Event. A Qualifying Catastrophic Event shall
          have occurred with respect to the Company Subsidiaries.

               b. Trenwick and Company Net Worth. After accounting for the
          applicable Qualifying Catastrophic Event, Trenwick's GAAP Net Worth
          shall not be less than $225,000,000 (excluding contingent interest
          notes and outstanding trust preferred stock as reflected in the
          Trenwick Financial Statements as of September 30, 2000) and the
          Company Subsidiaries' consolidated GAAP Net Worth in the aggregate
          shall not be less than US$125,000,000, provided, however, that in no
          case will Preferred Shares previously issued or proposed to be issued
          be included in such GAAP Net Worth calculation.

               c. Review of Financial Statements by Auditor. Trenwick's regular
          outside auditor or accounting firm shall have reviewed Trenwick's
          consolidated balance sheet and statement of operations for the most
          recent quarter ending prior to the date of the applicable Notice of
          Exercise, and shall have issued a review report on such quarterly
          financial statements. In addition, Trenwick shall have provided an
          adjusted consolidated balance sheet for Trenwick and the Company as at
          the applicable Exercise Date, and Trenwick shall have represented and
          warranted, as of such Exercise Date, that such adjusted consolidated
          balance sheet presents fairly, in all material respects, the financial
          position of Trenwick and the Company of the date indicated.

               d. No Insolvency or Bankruptcy. Neither Trenwick, the Company nor
          the Company Subsidiaries shall (a) be the subject of any voluntary or
          involuntary petition under bankruptcy, insolvency or similar law
          affecting creditors generally(provided, however, that Trenwick or
          LaSalle Re Limited, as applicable, shall not be in breach of this
          condition with respect to an involuntary petition unless such
          involuntary petition is not dismissed within sixty (60) days following
          Trenwick's or LaSalle Re Limited's receipt of notice of filing such
          petition), (b) be the subject of any liquidation, transformation or
          rehabilitation proceeding, or (c) has had a receiver or similar person
          or entity appointed for any of its property.

               e. Payment of Fees. All Option Fee payments, and any other fees
          which Trenwick is obligated to pay for the benefit of any Option
          Writer pursuant to the Transaction Agreements, then due shall have
          been paid in full.

                                       10
<PAGE>

               f. Certification. With respect to any exercise of the Securities
          Issuance Option, Trenwick shall deliver to Option Writer, at or prior
          to the applicable Exercise Date, a certificate, in the form attached
          as Schedule 5.2(f), executed by a duly authorized officer of Trenwick
          and dated as of such Exercise Date, provided, however, that in
          accordance with Article 3, the failure to include, in such
          certificate, references to truth and accuracy of the representations
          and warranties in any or all of Sections 3.5, 3.6 or 3.7 shall not in
          any way prevent or delay such exercise of the Securities Issuance
          Option.

               g. Legal Opinion. With respect to the first exercise of the
          Securities Issuance Option only, Option Writer shall have received,
          from special counsel for Trenwick an opinion of counsel, dated on or
          about the Exercise Date, which is substantially in the form attached
          as Schedule 5.2(g).

               h. Amendment of Certain Documents. Trenwick shall not, without
          the prior approval of Option Writer, have amended the Bye-Laws in any
          manner which would materially and adversely affect the ability of
          Option Writer to purchase, transfer or convert Preferred Shares as
          described in this Agreement.

     6. Covenants and Agreements.

          6.1. Preferred Shares. In the event of the issuance of Preferred
     Shares pursuant to an exercise of the Securities Issuance Option, such
     Preferred Shares shall be subject to, and governed by, the provisions of
     the Certificate of Designation and the Bye-Laws of Trenwick.

          6.2. Registration Rights. Concurrently with this Agreement, Trenwick
     and Option Writer shall enter into the Registration Rights Agreement,
     substantially in the form attached as Schedule 6.2.

          6.3. Preferred Share Resale Rights.

               a. The Preferred Shares will be freely transferable subject only
          to the following sentence and to restrictions imposed by Bermuda, U.S.
          federal and state securities laws, and the Bye-laws of Trenwick. Any
          transfer of Preferred Shares during the first three (3) years
          following issuance of such Preferred Shares shall require the prior
          written consent of Trenwick, which consent shall not be unreasonably
          withheld. Any transfer of Preferred Shares after the first three (3)
          years following issuance of such Preferred Shares shall require at
          least ten (10) days prior written notice to Trenwick, and Trenwick
          shall have five days following receipt of such notice to provide the
          proposed transferor with a list, not to exceed five (5) Persons, of
          "Prohibited Transferees" to which the proposed transferor will be
          prohibited from transferring any Preferred Shares. For purposes of
          this Section 6.3(a), Prohibited Transferees shall include each of the
          up to five (5) Persons whose names are set forth on the list described
          above and all Affiliates of each such Person. The provisions of this
          Section 6.3(a) shall apply to all transfers of Preferred Shares,
          whether by Option Writer or otherwise.

     The certificates evidencing the Preferred Shares shall bear legends on the
front and back which evidences restrictions upon transferability of the
Preferred Shares. The legend on the front of each certificate shall read as
follows:

     THIS CERTIFICATE IS RESTRICTED FROM TRANSFER AS INDICATED ON THE REVERSE
     SIDE.

The legend on the reverse side of each certificate shall read as follows:

     ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THE SHARES
     REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO ALL OF THE PROVISIONS OF THE
     BYE-LAWS OF THE COMPANY AS THEY MAY BE AMENDED FROM TIME TO TIME, AND THE
     AMENDED AND RESTATED CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION
     AGREEMENT DATED AS OF JANUARY 1, 2001 BETWEEN THE COMPANY, AND EUROPEAN
     REINSURANCE COMPANY OF ZURICH; WHICH ARE AVAILABLE FOR EXAMINATION BY
     HOLDERS OF SHARES AT THE REGISTERED OFFICE OF THE COMPANY. IN ADDITION TO
     THE FOREGOING

                                       11
<PAGE>

     RESTRICTIONS, THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
     ACT OF 1933 (THE "SECURITIES ACT") OR ANY UNITED STATES SECURITIES LAWS AND
     MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS (I) A
     REGISTRATION STATEMENT IS IN EFFECT UNDER THE SECURITIES ACT WITH RESPECT
     TO SUCH SHARES OR A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY IS
     OBTAINED TO THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED AND (II)
     EXCEPT IN THE CASE OF PUBLICLY TRADED SHARES, THE TRANSFEREE IS OTHERWISE
     APPROVED BY APPLICABLE BERMUDA REGULATORY AUTHORITIES.

The legends shall be removed from any Preferred Share Certificates as to which,
in an opinion of counsel reasonably satisfactory to Trenwick (which opinion
shall be paid for solely by the registered holder of such Preferred Shares),
such registration described in the legends is not necessary or required, and
that the transfer will not otherwise violate this Agreement, the Securities Act,
the Exchange Act, or applicable securities laws, and does not require the
approval of any Bermuda regulatory authorities; and any stop transfer
instructions previously given to Trenwick's transfer agent shall be revoked as
to such Preferred Shares upon the delivery of the opinion of counsel described
above.

               b. The shares of Trenwick Common Stock into which the Preferred
          Shares may be convertible may be subject to registration as
          contemplated by the Registration Rights Agreement.

     Prior to the registration of any shares of Trenwick Common Stock into which
the Preferred Shares are converted, pursuant to the Registration Rights
Agreement or otherwise, the certificates representing such shares of Trenwick
Common Stock shall bear legends on both the front and back which evidence
restrictions upon transferability of such shares of Trenwick Common Stock. The
legend on the front of each certificate shall read as follows:

     THIS CERTIFICATE IS RESTRICTED FROM TRANSFER AS INDICATED ON THE REVERSE
     SIDE.

The legend on the reverse side of each certificate shall read as follows:

     ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THE SHARES
     REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO ALL OF THE PROVISIONS OF THE
     BYE-LAWS OF THE COMPANY AS THEY MAY BE AMENDED FROM TIME TO TIME, WHICH ARE
     AVAILABLE FOR EXAMINATION BY HOLDERS OF SHARES AT THE REGISTERED OFFICE OF
     THE COMPANY. IN ADDITION TO THE FOREGOING RESTRICTIONS, THESE SHARES HAVE
     NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
     OR ANY UNITED STATES SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR
     OTHERWISE DISPOSED OF UNLESS (I) A REGISTRATION STATEMENT IS IN EFFECT
     UNDER THE SECURITIES ACT WITH RESPECT TO SUCH SHARES OR A WRITTEN OPINION
     OF COUNSEL ACCEPTABLE TO THE COMPANY IS OBTAINED TO THE EFFECT THAT NO SUCH
     REGISTRATION IS REQUIRED AND (II) EXCEPT IN THE CASE OF PUBLICLY TRADED
     SHARES, THE TRANSFEREE IS OTHERWISE APPROVED BY APPLICABLE BERMUDA
     REGULATORY AUTHORITIES.

The legends shall be removed from any certificate representing either (a) shares
of Trenwick Common Stock sold under an effective registration statement under
the Securities Act in a sale approved by applicable Bermuda regulatory
authorities, or (b) shares of Trenwick Common Stock as to which, in an opinion
of counsel reasonably satisfactory to Trenwick (which opinion shall be paid for
solely by the registered holder of such shares of Trenwick Common Stock), such
registration is not necessary or required, and that the transfer will not
otherwise violate the Securities Act, the Exchange Act, or applicable securities
laws, and does not require the approval of any Bermuda regulatory authorities;
and stop transfer instructions previously given to Trenwick's transfer agent
shall be revoked as to such shares of Trenwick Common Stock upon the occurrence
of (a) or (b) above.

                                       12
<PAGE>

          6.4. Preferred Share Liquidation Preference. During the period that
     the Securities Issuance Option remains exercisable under this Agreement,
     and during any period when Preferred Shares remain issued and outstanding
     following issuance under this Agreement, Trenwick shall not issue any (a)
     debt securities convertible into equity securities of Trenwick which rank
     senior to the Preferred Shares with respect to dividend or distribution
     rights or right to distribution on liquidation or (b) any preferred shares
     or other class of shares of Trenwick which ranks senior to the Preferred
     Shares with respect to dividend or distribution rights or rights to
     distributions on liquidation without the prior written approval, which
     approval shall not be unreasonably withheld, of (a) Option Writer if no
     Preferred Shares are issued or outstanding, or (b) if Preferred Shares are
     then issued and outstanding, the registered holders of more than fifty
     percent (50%) of such Preferred Shares.

          6.5. Restrictions on Trenwick. During the period when any Preferred
     Shares remain issued and outstanding, without the prior written consent of
     the registered holders of more than fifty percent (50%) of such Preferred
     Shares, which consent shall not be unreasonably withheld, (a) Trenwick a
     shall not dispose of any of its interest in the Company or the Company
     Subsidiaries, and (b) Trenwick, the Company and the Company Subsidiaries
     shall not (i) except in the ordinary course of business, make any loan or
     advance to, or investment in, any Person, or (ii) enter into related party
     transactions at other than arm's length.

          6.6. Option Writer's Securities Filings. Notwithstanding anything in
     the Agreement to the contrary, Option Writer shall be responsible for
     making any regulatory filing required of it under Section 13(d) or Section
     16 of the Exchange Act, but the making of any such filings shall not be a
     condition to the exercise of the Securities Issuance Option.

          6.7. Regulatory Filings for Conversion. Trenwick, Option Writer and
     their respective Affiliates shall make all regulatory filings which are
     necessary or desirable to permit Option Writer to convert any Preferred
     Shares into shares of Trenwick Common Stock in accordance with the terms of
     the Certificate of Designation as promptly as possible following any
     request by Option Writer. Option Writer and Trenwick shall cooperate and
     use reasonable efforts to obtain any insurance and other regulatory
     approvals for such conversion which have not previously been obtained.

          6.8. Change of Control. In the event of a Change of Control:

               a. If all or any portion of the Securities Issuance Option
          remains unexercised, this Agreement shall automatically be terminated
          in accordance with Section 7.2 unless such Change of Control shall
          have received the prior approval of Option Writer. In the event such
          Change of Control is so approved, this Agreement shall remain in full
          force and effect and shall be fully binding upon Option Writer.

               b. If any Preferred Shares are then issued and outstanding,
          unless such Change of Control is approved by the registered holders of
          such Preferred Shares as set forth in the Certificate of Designation,
          or unless such Change of Control involves a sale of all or
          substantially all Trenwick's assets (in which case holders of the
          Preferred Shares shall have no voting or approval rights as stated in
          the Certificate of Designation), the respective rights, privileges and
          obligations of Trenwick and such registered holders shall, subject to
          the provisions of Section 42 of the Bermuda Companies Act of 1981
          being satisfied (if applicable), be as set forth in the Certificate of
          Designation.

     Notwithstanding the foregoing, the termination of this Agreement shall not
affect any rights or obligations arising out of or relating to events occurring
or circumstances existing prior to such termination.

          6.9. Information Supplied by Trenwick. Trenwick shall provide Option
     Writer with such information as Option Writer may reasonably request in
     order to determine whether Trenwick has satisfied the conditions to
     exercise set forth in Section 5.2 of this Agreement.

          6.10. Operational Covenant. Trenwick shall comply with the operational
     covenant set forth in the attached Schedule 6.10.

          6.11. Option Writer Credit Support. Option Writer shall, promptly upon
     request by Trenwick,

                                       13
<PAGE>

     in the event that the S&P Rating of Option Writer falls below AA- or the
     A.M. Best Rating of Option Writer falls below A- during any period in which
     Trenwick has the ability to exercise the Securities Issuance Option, (a)
     purchase at Option Writer's sole expense an irrevocable standby letter of
     credit, from a financial institution reasonably acceptable to Trenwick,
     which letter of credit secures the performance of Option Writer under this
     Agreement and is issued by a bank which maintains an S&P Rating of AA-, or
     (b) otherwise obtain credit support reasonably approved by and acceptable
     to Trenwick with respect to the obligations of Option Writer under this
     Agreement, which credit support may include a guaranty, in form and
     substance reasonably acceptable to Trenwick, from an affiliate of Option
     Writer which maintains, throughout the period such guaranty is effective,
     an S&P Rating of at least AA- or an A.M. Best Rating of at least A-. Such
     letter of credit shall remain in effect until the earlier of (a) five (5)
     days following the end of the period during which Trenwick has the ability
     to exercise the Securities Issuance Option, or (b) the date that the
     rating(s) whose fall triggered the credit support obligation in the first
     sentence of this Section 6.11 returns to the requisite minimum level so
     that the S&P Rating of Option Writer shall again be at least AA-, and/or
     the A.M. Best Rating of Option Writer shall again be at least A-. Such
     letter of credit shall initially be in a principal amount equal to Option
     Writer's percentage interest in the aggregate Preferred Share Purchase
     Price of the Preferred Shares covered by any then unexercised portion of
     the Securities Issuance Option, if any, and shall subsequently be adjusted
     from time to time based on the aggregate Preferred Share Purchase Price of
     the Preferred Shares subject to exercise under the Securities Issuance
     Option.

          6.12. Indebtedness. Trenwick shall comply with the covenants regarding
     indebtedness set forth on the attached Schedule 6.12.

          6.13. Additional Covenants. Trenwick shall comply with the additional
     covenants set forth on the attached Schedule 6.13.

          6.14. Notices. Trenwick shall promptly give notice to Option Writer of
     (a) any material breach of the representations and warranties contained in
     Article 3 above of which the Chairman, President, Chief Financial Officer
     or the Chief Underwriting Officer of Trenwick become aware, and (b) any
     action, suit or proceeding before any court, tribunal, governmental body,
     agency or official or any arbitrator or mediator that is not covered by
     insurance or in which injunctive or similar relief is sought which, if
     adversely determined, could reasonably be expected to materially and
     adversely affect the financial condition of the Trenwick or any Company
     Subsidiary.

          6.15. Access to Books and Records. At all times prior to the
     termination of this Agreement, upon execution of a confidentiality
     agreement reasonably satisfactory to Trenwick and Option Writer, Trenwick
     or the Company will give Option Writer, and Option Writer's accountants,
     counsel, consultants, employees and agents, full access during normal
     business hours and upon reasonable notice, to all documents, records, work
     papers and information (but expressly excluding any material related to
     underwriting procedures, standards or information) relating to the
     financial positions of the Company and any Company Subsidiary as Option
     Writer shall from time to time reasonably request. In addition, Trenwick or
     the Company will permit Option Writer, and Option Writer's accountants,
     counsel, consultants, employees and agents, reasonable access to such
     personnel of Trenwick or the Company and their accountants, during normal
     business hours and upon reasonable notice, as may be necessary or useful to
     Option Writer in its review of the above-mentioned documents, records and
     information.

          6.16. Further Assurances. Trenwick and Option Writer each agree to use
     all reasonable good faith efforts to take all actions and to do all things
     necessary, proper or advisable to consummate the transactions contemplated
     hereby.

     7. Termination. This Agreement and the transactions contemplated by this
Agreement shall be terminated:

          7.1. By mutual written consent signed by Trenwick and Option Writer at
     any time prior to the end of the Exposure Period, in which case Option
     Writer shall refund to Trenwick a prorata portion of the annual Option Fee
     previously paid for the then current year;

          7.2. Upon a Change of Control occurring while all or any portion of
     the Securities Issuance Option remains unexercised, which Change of Control
     has not received the prior approval of Option Writers as set forth in
     Section 6.8(a), in which case Option Writer shall refund to Trenwick a
     prorata portion of the percentage

                                       14
<PAGE>

     of the annual Option Fee previously paid for the then current year which is
     allocable to any then unexercised portion of the Securities Issuance Option
     (provided, however, that the provision in the last paragraph of Section 6.8
     shall apply with respect to any Preferred Shares then outstanding); or

          7.3. Upon the latest of:

               a. Expiration of the Exposure Period;

               b. Expiration of the Exercise Term for the latest Qualifying
          Catastrophic Event (including an Event that develops into a Qualified
          Catastrophic Event outside the Exposure Period);

               c. The Exercise Date for which a Notice of Exercise was properly
          delivered during the Exercise Term, as such date may be extended
          pursuant to the submission of any matter to alternative dispute
          resolution under Article 8; or

               d. The first day on which no Preferred Shares issued pursuant to
          this Agreement (including without limitation Preferred Shares issued
          on the Exercise Date specified in paragraph (c) of Section 7.3) remain
          issued and outstanding.

     8. Alternative Dispute Resolution. Any dispute arising out of or in
connection with this Agreement, including any question regarding its existence,
validity or termination shall be referred to and finally resolved by arbitration
under the UNCITRAL model law. There shall be a panel of three arbitrators.
Trenwick shall appoint one arbitrator and the applicable Option Writer shall
appoint one arbitrator and the two arbitrators thus appointed shall appoint the
third. If a party fails to appoint the arbitrator within thirty (30) days of
receipt of a request to do so from the other party, or if the two arbitrators
fail to agree on the third arbitrator within thirty (30) days of their
appointment, the appointment shall be made, upon request of a party, by the
Supreme Court of Bermuda. The place of arbitration shall be Bermuda at the
Bermuda International Commercial Arbitration Centre and the language of the
arbitration shall be English. Judgment upon the award entered by the arbitrators
may be entered in any court having jurisdiction thereof. The costs and expenses
of the arbitration shall be borne equally by the parties involved, and any
interest and fees and expenses of counsel shall be borne as the arbitrators
consider just under the circumstances, as directed in the award. In the event
that a Notice of Objection specifies failure to satisfy the condition in Section
5.2(a) as a reason for such Notice of Objection, then any dispute over
satisfaction of such Section 5.2(a) condition shall be subject to separate
arbitration pursuant to this paragraph, provided, however, that all three
arbitrators shall be independent Fellows of the Casualty Actuarial Society, and
such arbitrators shall review applicable loss data solely for the purpose of
determining whether the condition in Section 5.2(a) has been satisfied.

     9. Intermediary. Trenwick and Option Writer represent and acknowledge that
Aon Re (Bermuda) Ltd. has acted as the sole intermediary for all purposes with
respect to the negotiation of this Agreement, and that neither Trenwick nor
Option Writer has engaged any other broker or finder in connection with the
transactions contemplated by this Agreement. Trenwick and Option Writer agree
that all fees or commissions payable to Aon Re (Bermuda) Ltd. in connection with
this transaction shall be the sole responsibility of Trenwick.

     10. Miscellaneous.

          10.1. Amendments. The provisions of this Agreement may not be waived,
     altered, amended or repealed, in whole or in part, except by the written
     consent of all parties to this Agreement.

          10.2. Notices. Any notice or other communication required or permitted
     under this Agreement shall be in writing and shall be deemed to have been
     given (a) on the date of delivery if delivered personally or by facsimile
     transmission, receipt confirmed, (b) twenty-four (24) hours after sending
     if sent by reputable overnight delivery service, or (c) seventy-two (72)
     hours after mailing if sent by certified, registered or express mail,
     postage prepaid, if properly addressed or directed to such party at the
     appropriate address or facsimile number set forth below, or such address or
     facsimile number as such party may designate by written notice to the other
     parties:

                                       15
<PAGE>

          (i)  if to Trenwick to:

               Trenwick Group Ltd.
               Continental Building
               25 Church Street
               Hamilton HM 12 Bermuda
               Attention: James F. Billett, Jr.
               Fax No.: (441) 292-4878

               with a copy to:

               Aon Re (Bermuda) Ltd.
               Dorchester House
               7 Church Street
               P.O. Box HM 2020
               Hamilton HM HX Bermuda
               Attention: Paul Markey
               Fax No.:  (441) 296-5130

               and a copy to:

               Aon Securities Corporation
               123 N. Wacker Drive
               Chicago, Illinois 60606
               Attention: Bryon Ehrhart
               Fax No.:  (312) 701-2174

               if to Option Writer to:

               European Reinsurance Company of Zurich
               Mintflower Place
               8 Par-la-Ville Road, 8th Floor
               P.O. Box HM 1767
               Hamilton HM GX Bermuda
               Attention: David R. Whiting
               Fax No.: (441) 295-1575

               with a copy to:

               Brown & Wood, LLP
               One World Trade Center
               New York, New York, 10048
               Attention: Robert Donatucci, Esq.
               Fax No.:  (212) 839-5599

          10.3. Entire Agreement. This Agreement (including the Exhibits and the
     Schedules) contains the entire agreement between the parties, and
     supersedes all prior agreements, written or oral, with respect to the
     Securities Issuance Option, including, but not limited to the Prior
     Agreement.

          10.4. Governing Law. This Agreement shall be governed by and construed
     in accordance with the laws of Bermuda (without regard to any choice of law
     or conflict of law rules that would cause the application of any laws or
     rules of any jurisdiction other than Bermuda).

          10.5. Successors and Assigns. This Agreement shall be binding upon and
     inure to the benefit of the parties and their respective successors and
     assigns and legal representatives, and any references to a specific party
     in this Agreement shall include such party's permitted successors or
     assigns. Neither party shall have the right to assign or otherwise transfer
     its rights or obligations under this Agreement without the prior written
     consent of the

                                       16
<PAGE>

     other party. The covenant of Trenwick contained in Section 6.13 is personal
     to Option Writer, and, except as otherwise specifically stated in Section
     6.13, in no case shall the rights and privileges of Option Writer under
     Section 6.13 be assignable or transferable.

          10.6. Severability. Each term, covenant, condition or provision of
     this Agreement shall be viewed as separate and distinct, and in the event
     that any such term, covenant, condition or provision shall be deemed by a
     court of competent jurisdiction to be invalid, the remaining provisions
     shall continue in full force and effect.

          10.7. Necessary Acts. Each party to this Agreement shall perform any
     further acts and execute and deliver any additional agreements,
     assignments, documents or instruments that may be reasonably necessary or
     desirable to carry out the provisions or effectuate the purposes of this
     Agreement.

          10.8. Legal Expenses. Subject to the provisions of Article 8, if any
     legal action or any arbitration or other proceeding is brought to enforce
     the provisions of this Agreement, or because of an alleged dispute, breach,
     default or misrepresentation in connection with any of the provisions of
     this Agreement, the successful or prevailing party or parties, whether such
     party or parties have instituted the action, shall be entitled to recover
     all attorneys' fees and other costs incurred in such action or proceeding,
     in addition to any other relief to which it or they may be entitled.

          10.9. Counterparts. This Agreement may be executed in separate
     counterparts, each of which when so executed and delivered shall be an
     original, but all of which shall together constitute one and the same
     instrument.

          10.10. Headings. The headings in this Agreement are for reference
     only, and shall not affect the interpretation of this Agreement.

          10.11. Right to Cure. In the event of a breach (a) by Trenwick of any
     of the representations and warranties set forth in Article 3, (b) by any
     Option Writer of any of the representations and warranties set forth in
     Article 4, or (c) by either Trenwick or any Option Writer of its respective
     covenants and agreements under Article 6, the entity committing such breach
     shall have sixty (60) days following its receipt of notice of such breach
     in which to cure such breach, unless such sooner cure is necessary in order
     to effect the terms of this Agreement. Except as specifically set forth in
     Article 3 above, the inability or failure of Trenwick or any Option Writer
     to cure such breach shall neither (i) give Trenwick or any Option Writer
     the right to terminate this Agreement nor (ii) excuse Trenwick or any
     Option Writer from the performance of their respective obligations
     hereunder. Notwithstanding the preceding sentence, Trenwick or any Option
     Writer shall have the right to recover any damages that may result from any
     breach of this Agreement.

          10.12. Specific Performance. Each of the parties to this Agreement
     acknowledges and agrees that in the event of any breach of this Agreement,
     the non-breaching parties would be irreparably harmed and could not be made
     whole by monetary damages. Accordingly, each of the parties to this
     Agreement agrees that the other parties, in addition to any other remedies
     to which they may be entitled at law or in equity, shall be entitled to
     compel specific performance of this Agreement.

          10.13. Termination of Prior Agreement with respect to Allianz.
     Pursuant to Section 7.1 of the Prior Agreement, the rights, duties,
     obligations and liabilities of Allianz under the Prior Agreement shall be
     terminated and memorialized by an agreement of termination in the form of
     the attached Schedule 10.13.

                                       17
<PAGE>

     IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly
executed as of the date first written above.

Trenwick Group Ltd.

By:  /s/ STEVEN J. BENSINGER              By:  /s/ COLEMAN D. ROSS
   --------------------------------          --------------------------------

                                                 Executive Vice President and
Title:  Executive Vice President          Title: Chief Financial Officer
      -----------------------------             -----------------------------

European Reinsurance Company
Of Zurich

By:  /s/ J. SCOTT BRADLEY                 By:/s/ DAVID R. WHITING
   --------------------------------          --------------------------------

Title:  Member of Senior Management       Title:  Member of Senior Management

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00035-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00035-of-00352.parquet"}]]