Document:

exv10w1

Exhibit 10.1

Execution Version

COMMON UNIT PURCHASE AGREEMENT

among

REGENCY ENERGY PARTNERS LP

and

THE PURCHASERS PARTY HERETO

 

 

Table of Contents

	 	 	 	 	 

	ARTICLE I DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	Section 1.01 Definitions
	 	 	1	 
	Section 1.02 Accounting Procedures and Interpretation
	 	 	5	 
	 
	 	 	 	 
	ARTICLE II AGREEMENT TO SELL AND PURCHASE
	 	 	5	 
	 
	 	 	 	 
	Section 2.01 Sale and Purchase
	 	 	5	 
	Section 2.02 Consideration
	 	 	5	 
	Section 2.03 Closing
	 	 	5	 
	Section 2.04 Conditions to Closing
	 	 	6	 
	Section 2.05 Regency Deliveries
	 	 	7	 
	Section 2.06 Purchasers’ Deliveries
	 	 	8	 
	Section 2.07 Independent Nature of Purchasers’ Obligations and Rights
	 	 	9	 
	 
	 	 	 	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES AND COVENANTS RELATED TO REGENCY
	 	 	9	 
	 
	 	 	 	 
	Section 3.01 Partnership Existence
	 	 	9	 
	Section 3.02 Capitalization and Valid Issuance of Purchased Units
	 	 	9	 
	Section 3.03 Regency SEC Documents
	 	 	11	 
	Section 3.04 No Material Adverse Change
	 	 	11	 
	Section 3.05 Litigation
	 	 	12	 
	Section 3.06 No Violations; Compliance with Laws
	 	 	12	 
	Section 3.07 Authority, Enforceability
	 	 	12	 
	Section 3.08 Approvals
	 	 	12	 
	Section 3.09 MLP Status
	 	 	13	 
	Section 3.10 Valid Private Placement
	 	 	13	 
	Section 3.11 Investment Company Status
	 	 	13	 
	Section 3.12 Certain Fees
	 	 	13	 
	Section 3.13 No Side Agreements
	 	 	13	 
	Section 3.14 Insurance
	 	 	13	 
	Section 3.15 Internal Accounting Controls
	 	 	13	 
	Section 3.16 Listing and Maintenance Requirements
	 	 	14	 
	Section 3.17 Subsequent Offerings
	 	 	14	 
	Section 3.18 Confidential Information
	 	 	14	 
	Section 3.19 Taking of Necessary Action
	 	 	14	 
	Section 3.20 Non-Disclosure; Interim Public Filings
	 	 	14	 
	 
	 	 	 	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE PURCHASERS
	 	 	15	 
	 
	 	 	 	 
	Section 4.01 Existence
	 	 	15	 
	Section 4.02 Authorization, Enforceability
	 	 	15	 
	Section 4.03 No Breach
	 	 	15	 

 

 

	 	 	 	 	 

	Section 4.04 Certain Fees
	 	 	15	 
	Section 4.05 No Side Agreements
	 	 	15	 
	Section 4.06 Investment
	 	 	16	 
	Section 4.07 Nature of Purchaser
	 	 	16	 
	Section 4.08 Receipt of Information
	 	 	16	 
	Section 4.09 Legend
	 	 	17	 
	Section 4.10 Short Selling
	 	 	17	 
	Section 4.11 Trading Activities
	 	 	17	 
	Section 4.12 Taking of Necessary Action
	 	 	17	 
	Section 4.13 Short Selling Acknowledgement and Agreement
	 	 	17	 
	 
	 	 	 	 
	ARTICLE V INDEMNIFICATION, COSTS AND EXPENSES 
	 	 	18	 
	 
	 	 	 	 
	Section 5.01 Indemnification by Regency
	 	 	18	 
	Section 5.02 Indemnification by the Purchasers
	 	 	18	 
	Section 5.03 Indemnification Procedure
	 	 	18	 
	 
	 	 	 	 
	ARTICLE VI MISCELLANEOUS 
	 	 	19	 
	 
	 	 	 	 
	Section 6.01 Interpretation and Survival of Provisions
	 	 	19	 
	Section 6.02 Survival of Provisions
	 	 	19	 
	Section 6.03 No Waiver; Modifications in Writing
	 	 	20	 
	Section 6.04 Binding Effect; Assignment
	 	 	20	 
	Section 6.05 Confidentiality
	 	 	21	 
	Section 6.06 Removal of Legend
	 	 	21	 
	Section 6.07 Communications
	 	 	21	 
	Section 6.08 Entire Agreement
	 	 	23	 
	Section 6.09 Governing Law
	 	 	24	 
	Section 6.10 Waiver of Jury Trial
	 	 	24	 
	Section 6.11 Execution in Counterparts
	 	 	24	 
	Section 6.12 Costs and Expenses
	 	 	24	 
	Section 6.13 Distributions
	 	 	24	 
	Section 6.14 Termination 
	 	 	24	 
	 
	 	 	 	 
	Exhibit A —  Registration Rights Agreement
	 	 	 	 
	Exhibit B —  LD Acquisition Agreement
	 	 	 	 
	Exhibit C —  Joint Venture Term Sheet
	 	 	 	 
	Exhibit D —  Legal Opinion
	 	 	 	 
	Schedule A —  List of Purchasers and Allocated Purchase Price
	 	 	 	 

 

 

COMMON UNIT PURCHASE AGREEMENT

     This COMMON UNIT PURCHASE AGREEMENT, dated as of March 23, 2011 (this
“Agreement”), is by and between REGENCY ENERGY PARTNERS LP, a Delaware limited partnership
(“Regency”), and each of the purchasers set forth in Schedule A hereto (the
“Purchasers”).

     WHEREAS, to fund a portion of Regency’s capital contribution to the Joint Venture (as defined
below) to fund the purchase price for the LD Acquisition (as defined below), Regency desires to
sell to each of the Purchasers, and each of the Purchasers desires, severally and not jointly, to
purchase from Regency, certain Common Units (as defined below), in accordance with the provisions
of this Agreement; and

     WHEREAS, Regency and the Purchasers will enter into a registration rights agreement (the
“Registration Rights Agreement”), substantially in the form attached hereto as Exhibit
A pursuant to which Regency will provide the Purchasers with certain registration rights with
respect to the Common Units acquired pursuant hereto.

     NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and
for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereby agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.01 Definitions. As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:

     “Affiliate” means, with respect to a specified Person, any other Person, directly or
indirectly controlling, controlled by or under direct or indirect common control with such
specified Person. For purposes of this definition, “control” (including, with correlative
meanings, “controlling,” “controlled by,” and “under common control with”) means the power to
direct or cause the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or otherwise.

     “Allocated Purchase Price” means with respect to each Purchaser, the dollar amount set
forth opposite such Purchaser’s name under the heading “Allocated Purchase Price” on Schedule
A hereto.

     “Basic Documents” means, collectively, this Agreement, the Partnership Agreement, the
Confidentiality Agreement, the LD Acquisition Agreement, the Joint Venture Agreement and any and
all other agreements or instruments executed and delivered by the Parties to evidence the
execution, delivery and performance of any of the Basic Documents, and any amendments, supplements,
continuations or modifications thereto.

     “Business Day” means any day other than a Saturday, Sunday, any federal legal holiday
or day on which banking institutions in the State of New York or State of Texas are authorized or
required by law or other governmental action to close.

 

 

     “Closing” shall have the meaning specified in Section 2.03.

     “Closing Date” shall have the meaning specified in Section 2.03.

     “Commission” means the United States Securities and Exchange Commission.

     “Commitment Fee” means a fee equal to 1.0% of each Purchaser’s Allocated Purchase
Price.

     “Common Units” means units representing limited partnership interests in Regency.

     “Company Lock-Up Date” means 60 days from the Closing Date.

     “Confidentiality Agreement” means the Confidentiality Agreement by and between each of
the Purchasers and Regency entered into in connection with the offering of the Purchased Units.

     “Delaware LLC Act” shall have the meaning specified in Section 3.02.

     “Delaware LP Act” shall have the meaning specified in Section 3.02.

     “Drop Dead Date” means the date that is sixty (60) days from the date hereof.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to
time, and the rules and regulations of the Commission promulgated thereunder.

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

     “General Partner” means Regency GP LP, a Delaware limited partnership, and includes
Regency GP LLC, a Delaware limited liability company and the general partner of Regency GP LP.

     “Governmental Authority” means, with respect to a particular Person, any country,
state, county, city and political subdivision in which such Person or such Person’s Property is
located or which exercises valid jurisdiction over any such Person or such Person’s Property, and
any court, agency, department, commission, board, bureau or instrumentality of any of them and any
monetary authority which exercises valid jurisdiction over any such Person or such Person’s
Property. Unless otherwise specified, all references to Governmental Authority herein with respect
to Regency means a Governmental Authority having jurisdiction over Regency, its Subsidiaries or any
of their respective Properties.

     “HSR Act” means the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended.

     “Indemnified Party” shall have the meaning specified in Section 5.03.

     “Indemnifying Party” shall have the meaning specified in Section 5.03.

2

 

     “Joint Venture” means ETP-Regency Midstream Holdings, LLC, a Delaware limited
liability company.

     “Joint Venture Agreement” means that certain Limited Liability Company Agreement of
ETP-Regency Midstream Holdings, LLC dated as of March 22, 2011, by and between La Grange
Acquisition, L.P. and Regency Midstream LLC.

     “Law” means any federal, state, local or foreign order, writ, injunction, judgment,
settlement, award, decree, statute, law, rule or regulation.

     “LD Acquisition” means the acquisition of the midstream assets contemplated by the LD
Acquisition Agreement.

     “LD Acquisition Agreement” means the Purchase Agreement dated as of March 22, 2011, by
and among the Joint Venture, LDH Energy Asset Holdings LLC, a Delaware limited liability company,
and Louis Dreyfus Highbridge Energy LLC, a Delaware limited liability company, substantially in the
form attached hereto as Exhibit B.

     “Lien” means any mortgage, claim, encumbrance, pledge, lien (statutory or otherwise),
security agreement, conditional sale or trust receipt or a lease, consignment or bailment,
preference or priority or other encumbrance upon or with respect to any property of any kind.

     “LTIP” shall have the meaning specified in Section 3.02(b).

     “NASDAQ” means the NASDAQ Global Select Market.

     “Partnership Agreement” means the Amended and Restated Agreement of Limited
Partnership of Regency, dated February 15, 2006, as amended as of the date hereof and from time to
time.

     “Partnership Securities” means any class or series of equity interest in Regency (but
excluding any options, rights, warrants and appreciation rights relating to an equity interest in
Regency), including without limitation Common Units, the Series A Preferred Units, and the
Incentive Distribution Rights (as defined in the Partnership Agreement).

     “Person” means any individual, corporation, company, voluntary association,
partnership, joint venture, trust, limited liability company, unincorporated organization,
government or any agency, instrumentality or political subdivision thereof, or any other form of
entity.

     “Property” means any interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible.

     “Purchased Units” means with respect to each Purchaser, the number of Common Units
equal to the quotient determined by dividing (a) the Allocated Purchase Price of such Purchaser by
(b) the Purchased Unit Price, rounded to the nearest whole number.

     “Purchased Unit Price” means $24.00 per Purchased Unit, subject to adjustment pursuant
to Section 6.13.

3

 

     “Purchase Price” means $204,000,000.00 which is the aggregate of each Purchaser’s
Allocated Purchase Price as set forth on Schedule A hereto.

     “Purchaser Related Parties” shall have the meaning specified in Section 5.01.

     “Purchasers” has the meaning set forth in the introductory paragraph of this
Agreement.

     “Regency” has the meaning set forth in the introductory paragraph.

     “Regency Credit Facility” means the Fifth Amended and Restated Credit Agreement, dated
as of December 1, 2004, as amended as of the date hereof and from time to time, by and among
Regency and the lenders named therein, as amended as of the date hereof.

     “Regency Financial Statements” shall have the meaning specified in Section
3.03.

     “Regency Material Adverse Effect” means any material and adverse effect on (a) the
assets, liabilities, financial condition, business, operations, affairs or prospects of Regency and
its Subsidiaries taken as a whole; (b) the ability of Regency and its Subsidiaries taken as a whole
to carry on their business as such business is conducted as of the date hereof or to meet their
obligations under the Basic Documents on a timely basis; (c) the ability of Regency to consummate
the transactions under any Basic Document or (d) the Interests as defined in the LD Acquisition
Agreement; provided, however, that a Regency Material Adverse Effect shall not
include any material and adverse effect on the foregoing to the extent such material and adverse
effect results from, arises out of, or relates to (x) a general deterioration in the economy or
changes in the general state of the industries in which the Regency Parties operate, except to the
extent that the Regency Parties, taken as a whole, are adversely affected in a disproportionate
manner as compared to other industry participants, (y) the outbreak or escalation of hostilities
involving the United States, the declaration by the United States of a national emergency or war or
the occurrence of any other calamity or crisis, including acts of terrorism, or (z) any change in
accounting requirements or principles imposed upon Regency and its Subsidiaries or their respective
businesses or any change in applicable Law, or the interpretation thereof.

     “Regency Parties” means Regency, the General Partner and all of Regency’s
Subsidiaries.

     “Regency Related Parties” shall have the meaning specified in Section 5.02.

     “Regency SEC Documents” shall have the meaning specified in Section 3.03.

     “Registration Rights Agreement” shall have the meaning set forth in the recitals.

     “Representatives” of any Person means the officers, directors, managers, employees,
agents, counsel, accountants, investment bankers and other representatives of such Person.

     “Securities Act” means the Securities Act of 1933, as amended from time to time, and
the rules and regulations of the Commission promulgated thereunder.

4

 

     “Subsidiary” means, as to any Person, any corporation or other entity of which: (i)
such Person or a Subsidiary of such Person is a general partner or manager; (ii) at least a
majority of the outstanding equity interest having by the terms thereof ordinary voting power to
elect a majority of the board of directors or similar governing body of such corporation or other
entity (irrespective of whether or not at the time any equity interest of any other class or
classes of such corporation or other entity shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries; or (iii) any corporation or other entity as to which
such Person consolidates for accounting purposes.

     “Walled Off Person” shall have the meaning set forth in Section 4.05.

     Section 1.02
Accounting Procedures and Interpretation. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with respect to accounting
matters hereunder shall be made, and all Regency Financial Statements and certificates and reports
as to financial matters required to be furnished to the Purchasers hereunder shall be prepared, in
accordance with GAAP applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q
promulgated by the Commission) and in compliance as to form in all material respects with
applicable accounting requirements and with the published rules and regulations of the Commission
with respect thereto.

ARTICLE II

AGREEMENT TO SELL AND PURCHASE

     Section 2.01 Sale and Purchase. Subject to the terms and conditions hereof, Regency hereby agrees to
issue and sell to each Purchaser, free and clear of any and all Liens, and each Purchaser,
severally and not jointly, hereby agrees to purchase from Regency, the number of Purchased Units as
set forth on Schedule A (such number of Purchased Units set forth thereon with respect to
each Purchaser), and each Purchaser agrees to pay Regency its Allocated Purchase Price.

     Section 2.02 Consideration. The amount per Common Unit each Purchaser will pay to Regency to purchase
the Purchased Units shall be the Purchased Unit Price, subject to adjustment in accordance with
Section 6.13. Upon payment of each Purchaser’s Purchase Price at Closing, such Purchaser’s
Purchased Units shall be fully paid for.

     Section 2.03 Closing. Subject to the terms and conditions hereof, the consummation of the purchase and
sale of the Purchased Units hereunder (the “Closing”) shall take place at 9:00 a.m.,
Central Daylight Time, on May 6, 2011 at the offices of Mayer Brown, 700 Louisiana Street, Ste
3400, Houston, Texas 77002-2730, or at such other location as mutually agreed by the Parties prior
to the Drop Dead Date as Regency and the Purchasers may agree (the “Closing Date”). The
parties agree that the Closing may occur via delivery of facsimiles of this Agreement and the other
closing deliveries.

5

 

     Section 2.04 Conditions to Closing.

          (a) Mutual Conditions. The respective obligations of each party to consummate the
purchase and issuance and sale of the Purchased Units shall be subject to the satisfaction on or
prior to the Closing Date of each of the following conditions (any or all of which may be waived by
a particular party on behalf of itself in writing, in whole or in part, to the extent permitted by
applicable Law):

	 	(i)	 	no statute, rule, order, decree or regulation
shall have been enacted or promulgated, and no action shall have been
taken, by any Governmental Authority which temporarily, preliminarily
or permanently restrains, precludes, enjoins or otherwise prohibits the
consummation of the transactions contemplated hereby or makes the
transactions contemplated hereby illegal;

	 	(ii)	 	there shall not be pending any suit, action or
proceeding by any Governmental Authority seeking to restrain, preclude,
enjoin or prohibit the transactions contemplated by this Agreement;

	 	(iii)	 	all authorizations, consents, orders,
approvals, declarations, filings or expiration of waiting periods
imposed under the HSR Act shall have been obtained or made; and

	 	(iv)	 	the closing of the LD Acquisition shall have
occurred, or shall occur concurrently with the Closing, in accordance
with the terms and conditions of the LD Acquisition Agreement, without
any material amendment, modification or waiver of such terms or
conditions.

          (b) Purchasers’ Conditions. The respective obligation of each Purchaser to consummate
the purchase of the Purchased Units shall be subject to the satisfaction on or prior to the Closing
Date of each of the following conditions (any or all of which may be waived by such Purchaser in
writing, in whole or in part with respect to its Purchased Units, to the extent permitted by
applicable Law):

	 	(i)	 	since the date of this Agreement, no Regency
Material Adverse Effect shall have occurred and be continuing;

	 	(ii)	 	no notice of delisting shall have been received
by Regency;

	 	(iii)	 	the representations and warranties of Regency
contained in this Agreement that are qualified by materiality or
Regency Material Adverse Effect shall be true and correct as of the
Closing Date as if made on and as of the Closing Date and all other
representations and warranties shall be true and correct in all
material respects as of the Closing Date as if made on and as of the
Closing Date (except that representations made as of a specific date
shall be required to be true and correct as of such date only);

6

 

	 	(iv)	 	the Purchased Units shall have been approved
for listing on the NASDAQ, subject to notice of issuance;

	 	(v)	 	the Joint Venture Agreement shall have been
amended to conform to substantially similar terms as those in the term
sheet provided to the Purchasers and attached hereto as Exhibit
C;

	 	(vi)	 	Regency shall have obtained binding obligations
to fund its capital contribution to the Joint Venture to fund the LD
Acquisition of (1) gross equity proceeds of at least $150 million
pursuant to this Agreement; and (2) at least $427.5 million in cash
from the issuance or incurrence of (A) borrowings under the Regency
Credit Facility, and/or (B) unsecured senior notes and/or (C) the
incurrence of unsecured senior bridge loans under an unsecured senior
bridge facility. The weighted average total effective yield for the
aggregate of all such debt shall be no more than 8.0%. Such
requirement in clause (2) above shall be reduced by any equity raised
in excess of $150 million; and

	 	(vii)	 	Regency shall have delivered, or caused to be
delivered, to the Purchasers at the Closing, Regency’s closing
deliveries described in Section 2.05.

          (c) Regency’s Conditions. The obligation of Regency to consummate the sale of the
Purchased Units to each Purchaser shall be subject to the satisfaction on or prior to the Closing
Date of the following condition (which may be waived by Regency in writing, in whole or in part, to
the extent permitted by applicable Law): the representations and warranties of such Purchaser
contained in this Agreement shall be true and correct in all material respects at and as of the
Closing Date as if made on and as of the Closing Date (except that representations made as of a
specific date shall be required to be true and correct as of such date only).

     Section 2.05 Regency Deliveries. At the Closing, subject to the terms and conditions hereof, Regency
will deliver, or cause to be delivered, to the Purchasers:

          (a) The Purchased Units by either (i) electronic delivery to The Depository Trust Company on
Purchasers’ behalf, registered in such name(s) as Purchasers have designated or (ii) physical
certificate(s) to the address(es) provided by the Purchasers, in such name(s) as Purchasers have
designated, at the option of the Purchasers;

          (b) Copies of (i) the Certificate of Limited Partnership of Regency, (ii) the Certificate of
Limited Partnership of Regency GP LP and (iii) the Certificate of Formation of Regency GP LLC, each
certified by the Secretary of State of the jurisdiction of its formation as of a recent date;

          (c) A certificate of the Secretary of State of the State of Delaware, dated a recent date,
that Regency is in good standing;

7

 

          (d) A cross-receipt executed by Regency and delivered to each Purchaser certifying that it has
received the Allocated Purchase Price with respect to such Purchaser as of the Closing Date;

          (e) An opinion addressed to the Purchasers from legal counsel to Regency , dated as of the
Closing Date, in the form and substance attached hereto as Exhibit D;

          (f) The executed Registration Rights Agreement;

          (g) A certificate of the Secretary or Assistant Secretary of Regency GP, LLC, on behalf of
Regency, certifying as to and attaching (1) the Partnership Agreement, (2) board resolutions
authorizing the execution and delivery of the Basic Documents and the consummation of the
transactions contemplated thereby, including the issuance of the Purchased Units, and (3) its
incumbent officers authorized to execute the Basic Documents, setting forth the name and title and
bearing the signatures of such officers; and

          (h) A certificate, dated the Closing Date and signed by (x) the Chief Executive Officer and
(y) the Chief Financial Officer of Regency GP, LLC, in their capacities as such, stating that:

	 	(i)	 	Regency has performed and complied with the
covenants and agreements contained in this Agreement that are required
to be performed and complied with by Regency on or prior to the Closing
Date; and

	 	(ii)	 	the representations and warranties of Regency
contained in this Agreement that are qualified by materiality or
Regency Material Adverse Effect were true and correct when made and as
of the Closing Date and all other representations and warranties were
true and correct in all material respects when made and are true and
correct in all material respects as of the Closing Date, in each case
as though made at and as of the Closing Date (except that
representations made as of a specific date shall be required to be true
and correct as of such date only).

     Section 2.06 Purchasers’ Deliveries. At the Closing, subject to the terms and conditions hereof, each
Purchaser will deliver, or cause to be delivered, to Regency:

          (a) Payment to Regency of each Purchaser’s Allocated Purchase Price by wire transfer of
immediately available funds to an account designated by Regency in writing at least two Business
Days prior to the Closing Date;

          (b) The executed Registration Rights Agreement; and

          (c) A cross-receipt executed by each Purchaser and delivered to Regency certifying that it has
received its respective Purchased Units as of the Closing Date.

8

 

     Section 2.07 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each
Purchaser under any Basic Document are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under any Basic Document. The failure or waiver of performance under any
Basic Document by any Purchaser does not excuse performance by any other Purchaser. Nothing
contained herein or in any other Basic Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the transactions contemplated
by the Basic Documents. Each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of this Agreement or out of the other
Basic Documents, and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.

ARTICLE III

REPRESENTATIONS AND WARRANTIES AND COVENANTS

RELATED TO REGENCY

     Regency represents and warrants to and covenants with each Purchaser as follows:

     Section 3.01 Partnership Existence. Regency (a) is a limited partnership duly formed, validly existing
and in good standing under the laws of the State of Delaware; and (b) has all requisite power and
authority, and has all governmental licenses, authorizations, consents and approvals necessary, to
own, lease, use and operate its Properties and carry on its business as its business is now being
conducted, except where the failure to obtain such licenses, authorizations, consents and approvals
would not be reasonably likely to have a Regency Material Adverse Effect. Each of Regency’s
Subsidiaries has been duly incorporated or formed, as the case may be, and is validly existing and
in good standing under the laws of the State or other jurisdiction of its incorporation or
organization, as the case may be, and has all requisite power and authority, and has all
governmental licenses, authorizations, consents and approvals necessary, to own, lease, use or
operate its respective Properties and carry on its business as now being conducted, except where
the failure to obtain
such licenses, authorizations, consents and approvals would not be reasonably likely to have a
Regency Material Adverse Effect. None of Regency nor any of its Subsidiaries are in default in the
performance, observance or fulfillment of any provision of, in the case of Regency, the Partnership
Agreement or its Certificate of Limited Partnership or, in the case of any Subsidiary of Regency,
its respective certificate of incorporation, certification of formation, bylaws, limited liability
company agreement or other similar organizational documents. Each of Regency and its Subsidiaries
is duly qualified or licensed and in good standing as a foreign limited partnership, limited
liability company or corporation, as applicable, and is authorized to do business in each
jurisdiction in which the ownership or leasing of its respective Properties or the character of its
respective operations makes such qualification necessary, except where the failure to obtain such
qualification, license, authorization or good standing would not be reasonably likely to have a
Regency Material Adverse Effect.

     Section 3.02 Capitalization and Valid Issuance of Purchased Units. (a) As of the date of this
Agreement, prior to the issuance and sale of the Purchased Units, as contemplated hereby, the
issued and outstanding limited partner interests of Regency consist of 137,328,148 Common

9

 

Units,
4,371,586 Series A Preferred Units and the Incentive Distribution Rights (as defined in the
Partnership Agreement). The only issued and outstanding general partner interests of Regency are
the interests of the General Partner described in the Partnership Agreement. All outstanding
Common Units, Series A Preferred Units and Incentive Distribution Rights and the limited partner
interests represented thereby have been duly authorized and validly issued in accordance with the
Partnership Agreement and are fully paid (to the extent required under the Partnership Agreement)
and nonassessable (except as such nonassessability may be affected by matters described in Sections
17-303, 17-607 and 17-804 of the Delaware Revised Uniform Limited Partnership Act (the
“Delaware LP Act”)).

          (b) Other than the Regency GP LLC Long-Term Incentive Plan (the “LTIP”), Regency has
no equity compensation plans that contemplate the issuance of partnership interests of Regency (or
securities convertible into or exchangeable for partnership interests of Regency). No indebtedness
having the right to vote (or convertible into or exchangeable for securities having the right to
vote) on any matters on which Regency unitholders may vote are issued or outstanding. Except as
set forth in the first sentence of this Section 3.02(b), as contemplated by this Agreement
or as are provided in the Partnership Agreement, there are no outstanding or authorized (i)
options, warrants, preemptive rights, subscriptions, calls, or other rights, convertible or
exchangeable securities, agreements, claims or commitments of any character obligating Regency or
any of its Subsidiaries to issue, transfer or sell any partnership interests or other equity
interest in, Regency or any of its Subsidiaries or securities convertible into or exchangeable for
such partnership interests, (ii) obligations of Regency or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any partnership interests or equity interests of Regency or any of its
Subsidiaries or any such securities or agreements listed in clause (i) of this sentence or (iii)
voting trusts or similar agreements to which Regency or any of its Subsidiaries is a party with
respect to the voting of the equity interests of Regency or any of its Subsidiaries.

          (c) (i) All of the issued and outstanding equity interests of each of Regency’s Subsidiaries
(except for Edwards Lime Gathering LLC, of which Regency owns approximately 60% of the member
interests, and RIGS Haynesville Partnership Co., of which Regency owns
49.99% of the general partner interests) are owned, directly or indirectly, by Regency free
and clear of any Liens (except for such restrictions as may exist under applicable Law and except
for such Liens as may be imposed under the Regency Credit Facility), and all such ownership
interests have been duly authorized, validly issued and are fully paid (to the extent required in
the organizational documents of Regency’s Subsidiaries, as applicable) and non-assessable (except
as such nonassessability may be affected by matters described in Sections 17-303, 17-607 and 17-804
of the Delaware LP Act, Sections 18-607 and 18-804 of the Delaware Limited Liability Company Act
(the “Delaware LLC Act”) and Section 101.206 of the Texas Business Organizations Code) and
free of preemptive rights and (ii) except as disclosed in the Regency SEC Documents, neither
Regency nor any of its Subsidiaries owns any shares of capital stock or other securities of, or
interest in, any other Person, or is obligated to make any capital contribution to or other
investment in any other Person.

          (d) The Purchased Units being purchased by each of the Purchasers hereunder and the limited
partner interests represented thereby will be duly authorized by Regency pursuant to the
Partnership Agreement prior to the Closing and, when issued and delivered to such Purchaser against
payment therefor in accordance with the terms of this Agreement, will be

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validly issued, fully paid
(to the extent required by the Partnership Agreement) and nonassessable (except as such
nonassessability may be affected by matters described in Sections 17-303, 17-607 and 17-804 of the
Delaware LP Act) and will be free of any and all Liens and restrictions on transfer, other than (i)
restrictions on transfer under the Partnership Agreement or this Agreement and under applicable
state and federal securities laws and (ii) such Liens as are created by the Purchasers.

          (e) The Common Units are listed on the NASDAQ, and Regency has not received any notice of
delisting.

     Section 3.03 Regency SEC Documents. Regency has timely filed with the Commission all forms,
registration statements, reports, schedules and statements required to be filed by it under the
Exchange Act or the Securities Act (all such documents, collectively the “Regency SEC
Documents”). The Regency SEC Documents, including, without limitation, any audited or
unaudited financial statements and any notes thereto or schedules included therein (the
“Regency Financial Statements”), at the time filed (in the case of registration statements,
solely on the dates of effectiveness) (except to the extent corrected by a subsequently filed
Regency SEC Document filed prior to the date hereof) (a) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary in order
to make the statements therein (in light of the circumstances under which they were made in the
case of any prospectus) not misleading, (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as applicable, (c) complied as to form in
all material respects with applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, (d) in the case of the Regency Financial
Statements, were prepared in accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Form 10-Q of the Commission), and (e) in the case of the Regency Financial
Statements, fairly present (subject in the case of unaudited statements to normal, recurring and
year-end audit adjustments)
in all material respects the consolidated financial position of Regency and its Subsidiaries as of
the dates thereof and the consolidated results of its operations and cash flows for the periods
then ended. KPMG LLP is an independent, registered public accounting firm with respect to Regency
and has not resigned or been dismissed as independent public accountants of Regency as a result of
or in connection with any disagreement with Regency on a matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.

     Section 3.04 No Material Adverse Change. Except as set forth in or contemplated by the Regency SEC
Documents filed with the Commission on or prior to the date hereof, since the date of Regency’s
most recent Form 10-K filing with the Commission, Regency and its Subsidiaries have conducted their
respective businesses in the ordinary course, consistent with past practice, and there has been no
(a) change, event, occurrence, effect, fact, circumstance or condition that has had or would be
reasonably likely to have a Regency Material Adverse Effect, (b) acquisition or disposition of any
material asset by Regency or any of its Subsidiaries or any contract or arrangement therefor (other
than with respect to the LD Acquisition), otherwise than for fair value in the ordinary course of
business or as disclosed in the Regency SEC Documents, or (c) material change in Regency’s
accounting principles, practices or methods.

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     Section 3.05 Litigation. Except as set forth in the Regency SEC Documents, there is no action, suit, or
proceeding pending (including any investigation, litigation or inquiry) or, to Regency’s knowledge,
contemplated or threatened against or affecting any of the Regency Parties or any of their
respective officers, directors, properties or assets, which (a) questions the validity of this
Agreement or the right of Regency to enter into this Agreement or to consummate the transactions
contemplated hereby or (b) (individually or in the aggregate) would be reasonably likely to result
in a Regency Material Adverse Effect.

     Section 3.06 No Violations; Compliance with Laws. As of the Closing Date, the execution, delivery and
performance by Regency of the Basic Documents and compliance by Regency with the terms and
provisions hereof and thereof, and the issuance and sale by Regency of the Purchased Units, do not
and will not (a) assuming the accuracy of the representations and warranties of the Purchasers
contained herein and their compliance with the covenants contained herein, violate any provision of
any Law or Permit having applicability to Regency or any of its Subsidiaries or any of their
respective Properties, (b) result in a violation or breach of any provision of the certificate of
limited partnership or other organizational documents of Regency, or the Partnership Agreement, or
any organizational documents of any of Regency’s Subsidiaries, (c) require any consent, approval or
notice (other than those previously obtained or given) under or result in a violation or breach of
or constitute (with or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under any contract, agreement, instrument,
obligation, note, bond, mortgage, license, loan or credit agreement to which Regency or any of its
Subsidiaries is a party or by which Regency or any of its Subsidiaries or any of their respective
Properties may be bound, or (d) result in or require the creation or imposition of any Lien upon
or with respect to any of the Properties now owned or hereafter acquired by Regency or any of its
Subsidiaries, except in the case of clause (b) where any such violation, default, breach,
termination, cancellation, failure to receive consent, approval or notice, or acceleration with
respect to the foregoing provisions of this Section 3.06 would not be, individually or in
the aggregate, reasonably likely to result in a Regency Material Adverse Effect.

     Section 3.07 Authority, Enforceability. Regency has all necessary partnership power and authority to
execute, deliver and perform its obligations under the Basic Documents, and the execution, delivery
and performance by Regency of the Basic Documents have been duly authorized by all necessary action
on the part of the General Partner; and the Basic Documents constitute the legal, valid and binding
obligations of Regency, enforceable in accordance with their terms, except as such enforceability
may be limited by bankruptcy, insolvency, fraudulent transfer and similar laws affecting creditors’
rights generally or by general principles of equity and except as the rights to indemnification may
be limited by applicable law (regardless of whether such enforceability is considered in a
proceeding in law or in equity). No approval from the holders of the Common Units or Series A
Preferred Units is required in connection with Regency’s issuance and sale of the Purchased Units
to the Purchasers.

     Section 3.08 Approvals. Except for the approvals that have already been obtained and except for
authorizations, consents, orders or approvals under, or expiration of waiting periods imposed by,
the HSR Act, no authorization, consent, approval, waiver, license, qualification or written
exemption from, nor any filing, declaration, qualification or registration with, any Governmental
Authority or any other Person is required in connection with the execution,

12

 

delivery or performance
by Regency of any of the Basic Documents, except where the failure to receive such authorization,
consent, approval, waiver, license, qualification or written exemption from, or to make such
filing, declaration, qualification or registration would not, individually or in the aggregate, be
reasonably likely to have a Regency Material Adverse Effect.

     Section 3.09 MLP Status. Regency has, for each taxable year beginning after December 31, 2005, during
which Regency was in existence, met the gross income requirements of Section 7704(c)(2) of the
Internal Revenue Code of 1986, as amended.

     Section 3.10 Valid Private Placement. Assuming the accuracy of the representations and warranties of
the Purchasers contained in this Agreement, the sale and issuance of the Purchased Units to each of
the Purchasers pursuant to this Agreement is exempt from the registration requirements of the
Securities Act, and neither Regency nor, to the knowledge of Regency, any authorized agent acting
on its behalf has taken or will take any action hereafter that would cause the loss of such
exemptions.

     Section 3.11
Investment Company Status. Regency is not an “investment company” or a company controlled by an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.

     Section 3.12 Certain Fees. No fees or commissions are or will be payable by Regency to brokers,
finders, or investment bankers with respect to the sale of any of the Purchased Units or the
consummation of the transactions contemplated by this Agreement. Regency agrees that it will
indemnify and hold harmless each Purchaser from and against any and all claims, demands, or
liabilities for broker’s, finder’s, placement, or other similar fees or commissions incurred by
Regency or alleged to have been incurred by Regency in connection with the sale of the Purchased
Units or the consummation of the transactions contemplated by this Agreement.

     Section 3.13 No Side Agreements. There are no agreements by, among or between Regency or any of its
Affiliates, on the one hand, and any Purchaser or any of its Affiliates, on the other hand, with
respect to the transactions contemplated hereby other than the Basic Documents nor promises or
inducements for future transactions between or among any of such parties.

     Section 3.14 Insurance. Regency and its Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent and customary in
the businesses in which they are engaged. Regency does not have any reason to believe that it or
any Subsidiary will not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary to continue its
business.

     Section 3.15 Internal Accounting Controls. Regency and its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance with management’s
general or specific authorization, and (iv) the recorded

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accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with respect to any
differences. Regency is not aware of any failures of such internal accounting controls.

     Section 3.16 Listing and Maintenance Requirements. The issuance and sale of the Purchased Units does
not contravene NASDAQ rules and regulations.

     Section 3.17
Subsequent Offerings. Until the Company Lock-Up Date, without the prior written consent of the holders of a majority
of the Purchased Units, Regency will not grant, issue or sell any Common Units or any securities
convertible into or exchangeable therefor or take any other action that may result in the issuance
of any of the foregoing, other than (i) the Purchased Units, (ii) Common Units issued as restricted
units upon the vesting of phantom units or Common Units issued upon the exercise of options granted
under the LTIP, (iii) Common Units issued upon the conversion of Series A Preferred Units, or (iv)
the issuance or sale of Common Units at a price (less underwriting discounts and commissions) no
less than $24.00 per unit and in the aggregate amount of no more than $196,000,000.

     Section 3.18 Confidential Information. To the knowledge of Regency, none of its employees or executive
officers has disclosed material non-public information (other than the fact that Regency was
contemplating a private financing) to any prospective investor who has not entered into a
confidentiality or non-disclosure agreement between such prospective investor and Regency relating
to such information.

     Section 3.19 Taking of Necessary Action. Regency shall use its commercially
reasonable efforts promptly to take or cause to be taken all action and promptly to do or cause to
be done all things necessary, proper or advisable under applicable Law and regulations to
consummate and make effective the transactions contemplated by this Agreement. Without limiting
the foregoing, Regency shall use its commercially reasonable efforts to make all filings and obtain
all consents of Governmental Authorities that may be necessary or, in the reasonable opinion of the
other Parties, as the case may be, advisable for the consummation of the transactions contemplated
by the Basic Documents.

     Section 3.20 Non-Disclosure; Interim Public Filings. Regency shall, on or before 8:30
a.m., New York time, on the first Business Day following execution of this Agreement, issue a press
release disclosing all material terms of the transactions contemplated hereby. On or before the
fourth Business Day following the date hereof, Regency shall file a Current Report on Form 8-K with
the Commission (the “8-K Filing”) describing the terms of the transactions contemplated by this
Agreement and the other Basic Documents and in the LD Acquisition Agreement and including as
exhibits to such 8-K Filing, the other Basic Documents and the LD Acquisition Agreement, in the
form required by the Exchange Act.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES AND COVENANTS

OF THE PURCHASERS

     Each Purchaser, severally and not jointly, hereby represents and warrants and covenants to
Regency that:

     Section 4.01 Existence. Such Purchaser is duly organized and validly existing and in good standing
under the laws of its state of formation, with all necessary power and authority to own properties
and to conduct its business as currently conducted.

     Section 4.02 Authorization, Enforceability. Such Purchaser has all necessary legal power and authority
to enter into, deliver and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement by such Purchaser and the consummation by it of the transactions
contemplated hereby have been duly and validly authorized by all necessary legal action, and no
further consent or authorization of such Purchaser is required. This Agreement has been duly
executed and delivered by such Purchaser and constitutes legal, valid and binding obligations of
such Purchaser; provided that, the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws relating to or affecting
creditors’ rights generally and by general principles of equity and except as the rights to
indemnification may be limited by applicable law (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

     Section 4.03 No Breach. The execution, delivery and performance of this Agreement by such Purchaser and
the consummation by such Purchaser of the transactions contemplated hereby will not (a) conflict
with or result in a breach or violation of any of the terms or provisions of, or constitute a
default under, any material agreement to which such Purchaser is a party or by which the Purchaser
is bound or to which any of the property or assets of such Purchaser is subject, (b) conflict with
or result in any violation of the provisions of the organizational documents of such Purchaser, or
(c) violate any statute, order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Purchaser or the property or assets of such Purchaser, except in the
case of clauses (a) and (c), for such conflicts, breaches, violations or defaults as would not
prevent the consummation of the transactions contemplated by this Agreement.

     Section 4.04 Certain Fees. No fees or commissions are or will be payable by such Purchaser to brokers,
finders, or investment bankers with respect to the purchase of any of the Purchased Units or the
consummation of the transactions contemplated by this Agreement. Such Purchaser agrees, severally
and not jointly with any other Purchaser, that it will indemnify and hold harmless Regency from and
against any and all claims, demands or liabilities for broker’s, finder’s, placement, or other
similar fees or commissions incurred by such Purchaser or alleged to have been incurred by such
Purchaser in connection with the purchase of the Purchased Units or the consummation of the
transactions contemplated by this Agreement.

     Section 4.05 No Side Agreements. There are no other agreements by, among or between such Purchaser and
any of its Affiliates, on the one hand, and Regency or any of its Affiliates, on the other hand,
with respect to the transactions contemplated hereby other than the

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Basic Documents, and there are
no promises or inducements for future transactions between or among any of such parties; provided,
however, that, subject to such Purchaser’s compliance with its obligations under the U.S. federal
securities laws and its internal policies: (a) such Purchaser, for purposes hereof, shall not be
deemed to include any employees, subsidiaries or Affiliates that are effectively walled off by
appropriate
“Chinese Wall” information barriers approved by Purchaser’s legal or compliance department (and
thus have not been privy to any information concerning this transaction) (a “Walled Off Person”)
and (b) the foregoing representations in this paragraph shall not apply to any transaction by or on
behalf of Purchaser that was effected by a Walled Off Person in the ordinary course of trading
without the advice or participation of Purchaser or receipt of confidential or other information
regarding this transaction provided by Purchaser to such entity.

     Section 4.06 Investment. The Purchased Units are being acquired for such Purchaser’s own account, the
account of its Affiliates, or the accounts of clients for whom such Purchaser exercises
discretionary investment authority (all of whom such Purchaser hereby represents and warrants are
“accredited investors” within the meaning of Rule 501(a) of Regulation D or “qualified
institutional buyers” within the meaning of Rule 144A promulgated by the Commission pursuant to the
Securities Act), not as a nominee or agent, and with no present intention of distributing the
Purchased Units or any part thereof, and that such Purchaser has no present intention of selling or
granting any participation in or otherwise distributing the same in any transaction in violation of
the securities Laws of the United States of America or any state, without prejudice, however, to
such Purchaser’s right at all times to sell or otherwise dispose of all or any part of the
Purchased Units under a registration statement under the Securities Act and applicable state
securities Laws or under an exemption from such registration available thereunder (including,
without limitation, if available, Rule 144 promulgated thereunder). If such Purchaser should in
the future decide to dispose of any of the Purchased Units, such Purchaser understands and agrees
(a) that it may do so only (i) in compliance with the Securities Act and applicable state
securities law, as then in effect, or pursuant to an exemption therefrom (including Rule 144 under
the Securities Act) or (ii) in the manner contemplated by any registration statement pursuant to
which such securities are being offered, and (b) that stop-transfer instructions to that effect
will be in effect with respect to such securities. Notwithstanding the foregoing, any Purchaser
may at any time transfer Purchased Units to an Affiliate of such Purchaser provided that any such
transaction is exempt from registration under the Securities Act and that such Affiliate agrees to
be bound by the terms and conditions of this Agreement.

     Section 4.07 Nature of Purchaser. Such Purchaser represents and warrants to, and covenants and agrees
with, Regency that, (a) it is an “accredited investor” within the meaning of Rule 501 of Regulation
D promulgated by the Commission pursuant to the Securities Act and (b) by reason of its business
and financial experience it has such knowledge, sophistication and experience in making similar
investments and in business and financial matters generally so as to be capable of evaluating the
merits and risks of the prospective investment in the Purchased Units, is able to bear the economic
risk of such investment and, at the present time, would be able to afford a complete loss of such
investment.

     Section 4.08
Receipt of Information. Such Purchaser acknowledges that it has (a) had access to Regency’s periodic filings with the
Commission and (b) been provided a reasonable

16

 

opportunity to ask questions of and receive answers
from Representatives of Regency regarding such matters.

     Section 4.09 Legend. It is understood that any certificates evidencing the Purchased Units will bear
the following legend: “These securities have not been registered under the Securities Act of 1933,
as amended (the “Securities Act”), or the securities laws of any state or other jurisdiction.
These securities may not be sold or offered for sale except pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from registration thereunder, in
each case in accordance with all applicable securities laws of the United States and any states or
other jurisdictions, and in the case of a transaction exempt from registration, such securities may
only be transferred if the transfer agent for such securities has received documentation
satisfactory to it that such transaction does not require registration under the Securities Act.”

     Section 4.10 Short Selling. Such Purchaser has not entered into any short sales of the Common
Units owned by it between the time it first began discussion with Regency about the transactions
contemplated by this Agreement and the date hereof (it being understood that the entering into of a
total return swap shall not be considered a short sale of Common Units); provided, however, that,
subject to such Purchaser’s compliance with its obligations under the U.S. federal securities laws
and its internal policies: (a) such Purchaser, for purposes hereof, shall not be deemed to include
any Walled Off Person and (b) the foregoing representations in this paragraph shall not apply to
any transaction by or on behalf of Purchaser that was effected by a Walled Off Person in the
ordinary course of trading without the advice or participation of Purchaser or receipt of
confidential or other information regarding this transaction provided by Purchaser to such entity.

     Section 4.11 Trading Activities. Such Purchaser’s trading activities, if any, with
respect to the Common Units will be in compliance with all applicable state and federal securities
laws, rules and regulations and the rules and regulations of the NASDAQ.

     Section 4.12 Taking of Necessary Action. Such Purchaser shall use its commercially
reasonable efforts promptly to take or cause to be taken all action and promptly to do or cause to
be done all things necessary, proper or advisable under applicable Law and regulations to
consummate and make effective the transactions contemplated by this Agreement. Without limiting
the foregoing, Purchaser shall use its commercially reasonable efforts to assist Regency in making
all filings and obtaining all consents of Governmental Authorities that may be necessary or, in the
reasonable opinion of the other Parties, as the case may be, advisable for the consummation of the
transactions contemplated by the Basic Documents.

     Section 4.13 Short Selling Acknowledgement and Agreement. Each Purchaser understands
and acknowledges, severally and not jointly with any other Purchaser, that the Commission currently
takes the position that coverage of Short Sales of securities “against the box” prior to the
effective date of a registration statement or prior to the time a Purchaser is eligible to sell
such securities under Rule 144 is a violation of Section 5 of the Securities Act.
Each Purchaser agrees, severally and not jointly, that it will not engage in any Short Sales
that result in the disposition of the Common Units acquired hereunder by such Purchaser until such
time as the Resale Registration Statement (as defined in the Registration Rights Agreement) is

17

 

declared or deemed effective by the Commission or such Common Units are no longer subject to any
restrictions on resale.

ARTICLE V

INDEMNIFICATION, COSTS AND EXPENSES

     Section 5.01
Indemnification by Regency. Regency agrees to indemnify each Purchaser and its
Representatives (collectively, “Purchaser Related Parties”) from, and hold each of them
harmless against, any and all losses, actions, suits, proceedings (including any investigations,
litigation or inquiries), demands, and causes of action, and, in connection therewith, and promptly
upon demand, pay or reimburse each of them for all reasonable costs, losses, liabilities, damages,
or expenses of any kind or nature whatsoever, including, without limitation, the reasonable fees
and disbursements of counsel and all other reasonable expenses incurred in connection with
investigating, defending or preparing to defend any such matter that may be incurred by them or
asserted against or involve any of them as a result of, arising out of, or in any way related to
the breach of any of the representations, warranties or covenants of Regency contained herein,
provided such claim for indemnification relating to a breach of any representation or warranty is
made prior to the expiration of such representation or warranty.

     Section 5.02
Indemnification by the Purchasers. Each Purchaser agrees, severally and not jointly, to
indemnify Regency, the General Partners and their respective Representatives (collectively,
“Regency Related Parties”) from, and hold each of them harmless against, any and all
losses, actions, suits, proceedings (including any investigations, litigation or inquiries),
demands, and causes of action, and, in connection therewith, and promptly upon demand, pay or
reimburse each of them for all reasonable costs, losses, liabilities, damages, or expenses of any
kind or nature whatsoever, including, without limitation, the reasonable fees and disbursements of
counsel and all other reasonable expenses incurred in connection with investigating, defending or
preparing to defend any such matter that may be incurred by them or asserted against or involve any
of them as a result of, arising out of, or in any way related to the breach of any of the
representations, warranties or covenants of such Purchaser contained herein, provided such claim
for indemnification relating to a breach of any representation or warranty is made prior to the
expiration of such representation or warranty, provided, however, that the liability of each
Purchaser shall not be greater in amount than such Purchaser’s Allocated Purchase Price.

     Section 5.03
Indemnification Procedure. Promptly after any Regency Related Party or Purchaser Related
Party (hereinafter, the “Indemnified Party”) has received notice of any indemnifiable claim
hereunder, or the commencement of any action, suit or proceeding by a third person, which the
Indemnified Party believes in good faith is an indemnifiable claim under this Agreement, the
Indemnified Party
shall give the indemnitor hereunder (the “Indemnifying Party”) written notice of such claim
or the commencement of such action, suit or proceeding, but failure to so notify the Indemnifying
Party will not relieve the Indemnifying Party from any liability it may have to such Indemnified
Party hereunder except to the extent that the Indemnifying Party is materially prejudiced by such
failure. Such notice shall state the nature and the basis of such claim to the extent then known.
The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter as long as the Indemnifying Party pursues the same diligently and in good
faith. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do

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so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in all commercially reasonable respects in the defense thereof
and the settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records and other information reasonably requested by the
Indemnifying Party and in the Indemnified Party’s possession or control. Such cooperation of the
Indemnified Party shall be at the cost of the Indemnifying Party. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or settle any such asserted
liability, and for so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted liability;
provided, however, that the Indemnified Party shall be entitled (i) at its expense,
to participate in the defense of such asserted liability and the negotiations of the settlement
thereof and (ii) if (A) the Indemnifying Party has failed to assume the defense and employ counsel
or (B) if the defendants in any such action include both the Indemnified Party and the Indemnifying
Party and counsel to the Indemnified Party shall have concluded that there may be reasonable
defenses available to the Indemnified Party that are different from or in addition to those
available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be
deemed to conflict with the interests of the Indemnifying Party, then the Indemnified Party shall
have the right to select a separate counsel and to assume such legal defense and otherwise to
participate in the defense of such action, with the expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the Indemnifying Party as
incurred. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not
settle any indemnified claim without the consent of the Indemnified Party, unless the settlement
thereof imposes no liability or obligation on, and includes a complete release from liability of,
and does not contain any admission of wrong doing by, the Indemnified Party.

ARTICLE VI

MISCELLANEOUS

     Section 6.01
Interpretation and Survival of Provisions. Article, Section, Schedule, and Exhibit
references are to this Agreement, unless otherwise specified. All references to instruments,
documents, contracts, and agreements are references to such instruments, documents, contracts, and
agreements as the same may be amended, supplemented, and otherwise modified from time to time,
unless otherwise specified. The word “including” shall mean “including but not limited to.”
Whenever Regency has an obligation under the Basic Documents, the expense of complying with that
obligation shall be an expense of Regency unless otherwise specified. Whenever any determination,
consent, or approval is to be made or given by the Purchasers, such action shall be in such
Purchaser’s sole discretion unless
otherwise specified in this Agreement. If any provision in the Basic Documents is held to be
illegal, invalid, not binding, or unenforceable, such provision shall be fully severable and the
Basic Documents shall be construed and enforced as if such illegal, invalid, not binding, or
unenforceable provision had never comprised a part of the Basic Documents, and the remaining
provisions shall remain in full force and effect.

     Section 6.02
Survival of Provisions. The representations and warranties set forth in Sections
3.02, 3.07, 3.08, 3.11, 3.12, 4.02, 4.04 and
4.05 hereunder shall survive the execution and delivery of this Agreement indefinitely, and
the other representations and warranties set forth

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herein shall survive for a period of twelve (12)
months following the Closing Date regardless of any investigation made by or on behalf of Regency
or the Purchasers. The covenants made in this Agreement or any other Basic Document shall survive
the Closing of the transactions described herein and remain operative and in full force and effect
regardless of acceptance of any of the Purchased Units and payment therefor and repayment or
repurchase thereof. All indemnification obligations of Regency and the Purchasers and the
provisions of Article V shall remain operative and in full force and effect unless such
obligations are expressly terminated in a writing referencing that individual Section, regardless
of any purported general termination of this Agreement.

     Section 6.03
No Waiver; Modifications in Writing.

          (a) Delay. No failure or delay on the part of any party in exercising any right, power, or
remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power, or remedy preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy. The remedies provided for herein are cumulative and are not
exclusive of any remedies that may be available to a party at law or in equity or otherwise.

          (b) Specific Waiver. Except as otherwise provided herein, no amendment, waiver, consent,
modification, or termination of any provision of this Agreement or any other Basic Document (except
in the case of the Partnership Agreement for amendments adopted pursuant to Sections 13.1,
13.2 or 13.3 thereof) shall be effective unless signed by each of the parties
hereto or thereto affected by such amendment, waiver, consent, modification, or termination. Any
amendment, supplement or modification of or to any provision of this Agreement or any other Basic
Document, any waiver of any provision of this Agreement or any other Basic Document, and any
consent to any departure by Regency from the terms of any provision of this Agreement or any other
Basic Document shall be effective only in the specific instance and for the specific purpose for
which made or given. Except where notice is specifically required by this Agreement, no notice to
or demand on Regency in any case shall entitle Regency to any other or further notice or demand in
similar or other circumstances.

     Section 6.04
Binding Effect; Assignment.

          (a) Binding Effect. This Agreement shall be binding upon Regency, each Purchaser, and their
respective successors and permitted assigns. Except as expressly provided in this Agreement, this
Agreement shall not be construed so as to confer any right or benefit upon any Person other than
the parties to this Agreement and their respective successors and permitted assigns.

          (b) Assignment of Rights. All or any portion of the rights and obligations of each Purchaser
under this Agreement may be transferred by such Purchaser to any Affiliate of such Purchaser
without the consent of Regency. No portion of the rights and obligations of each Purchaser under
this Agreement may be transferred by such Purchaser to a non-Affiliate without the written consent
of Regency.

20

 

     Section 6.05
Confidentiality. Notwithstanding anything herein to the contrary, the Confidentiality
Agreement shall remain in full force and effect regardless of any termination of this Agreement.
Other than the Form 8-Ks to be filed in connection with this Agreement and any press release
provided for in Section 3.20 and the other Basic Documents, Regency, the General Partner, their
respective Subsidiaries and any of their respective Representatives shall disclose the identity of,
or any other information concerning, any Purchaser or any of its Affiliates only after providing
such Purchaser a reasonable opportunity to review and comment on such disclosure; provided,
however, that nothing in this Section 6.05 shall delay any required filing or other
disclosure with the Commission, NASDAQ or any Governmental Authority or otherwise hinder Regency,
the General Partner, their respective Subsidiaries or their Representatives’ ability to timely
comply with all laws or rules and regulations of the Commission, NASDAQ or other Governmental
Authority.

     Section 6.06 Removal of Legend. In connection with a sale of the Purchased Units by a
Purchaser in reliance on Rule 144, the applicable Purchaser or its broker shall deliver to Regency
a broker representation letter providing any information Regency deems necessary to determine that
the sale of the Purchased Units is made in compliance with Rule 144, including, as may be
appropriate, a certification that such Purchaser is not an affiliate of Regency and regarding the
length of time the Purchased Units have been held. Upon receipt of such representation letter,
Regency shall as soon as reasonably practicable exchange any unit certificates bearing the legend
described in Section 4.09 for unit certificates without such legend. After any Purchaser or its
permitted assigns have held the Purchased Units for one year, if such Purchased Units still bear
the legend described in Section 4.09, such Purchaser may request Regency to remove the legend and
Regency agrees to take all steps necessary to effect the removal of the legend as soon as
reasonably practicable. Regency shall bear all direct costs and expenses associated with the
removal of a legend pursuant to this Section 6.06 (including without limitation reasonable fees of
legal counsel in connection with any legal opinion letters required to be issued in connection with
such removal), regardless of whether the request is made in connection with a sale or otherwise, so
long as such Purchaser or its permitted assigns provide to Regency any information Regency deems
necessary to determine that the legend is no longer required under the Securities Act or applicable
state laws, including a certification that the holder is not an Affiliate of Regency and regarding
the length of time the Purchased Units have been held.

     Section 6.07 Communications. All notices and demands provided for hereunder shall be in writing and
shall be given by registered or certified mail, return receipt requested, telecopy, air courier
guaranteeing overnight delivery or personal delivery to the following addresses:

          (a) If to Kayne Anderson MLP Investment Company, Kayne Anderson Energy Total Return Fund,
Inc., Kayne Anderson Midstream/Energy Fund, Inc., Kayne Anderson Energy Development Company, Kayne
Anderson Capital Income Partners (QP), LP, Kayne Anderson Midstream Institutional Fund, LP, Kayne
Anderson MLP Fund, LP or Kayne Anderson Non-Traditional Investments, LP:

21

 

1800 Avenue of the Stars, 2nd Floor

Los Angeles, California 90067

Attention: David Shladovsky, Esq.

Facsimile: (310) 284-6490

Internet electronic mail: dshladovsky@kaynecapital.com

717 Texas Avenue, Suite 3100

Houston, Texas 77002

Attn: James C. Baker

Facsimile: (713) 655-7359

Internet electronic mail: jbaker@kaynecapital.com

          with a copy to:

Baker Botts L.L.P.

98 San Jacinto Blvd., Ste 1500

Austin, Texas 78701

Attention: Laura L. Tyson, Esq.

Facsimile: (512) 322-8377

Internet electronic mail: laura.tyson@bakerbotts.com

          (b) If to Tortoise Energy Infrastructure Corporation, Tortoise Energy Capital Corporation,
Tortoise North American Energy Corporation, Tortoise MLP Fund, Inc. or Tortoise Capital Resources
Corporation:

Tortoise Capital Advisors, LLC

11550 Ash Street, Suite 300

Leawood, Kansas 66211

Attention: Terry Matlack

Facsimile: (913) 345-2763

Internet electronic mail: tmatlack@tortoiseadvisors.com

          with a copy to:

Husch Blackwell LLP

4801 Main street, Suite 100

Kansas City, MO 64112

Attention: Eric Gervais

Facsimile: (816) 983.8080

Internet electronic mail: eric.gervais@huschblackwell.com

          (c) If to Fiduciary/Claymore MLP Opportunity Fund, Nuveen Energy MLP Total Return Fund, MLP &
Strategic Equity Fund or Teachers’ Retirement System of Oklahoma:

22

 

Fiduciary Asset Management LLC

8235 Forsyth Blvd, Suite 700

St. Louis, Missouri 63105

Attention: Quinn Kiley

Facsimile: (314) 446-6701

Internet electronic mail: qkiley@famco.com

          with a copy to:

Baker Botts L.L.P.

98 San Jacinto Blvd., Ste 1500

Austin, Texas 78701

Attention: Laura L. Tyson, Esq.

Facsimile: (512) 322-8377

Internet electronic mail: laura.tyson@bakerbotts.com

          (d) If to Regency:

Regency Energy Partners LP

2001 Bryan Street, Ste 3700

Dallas, Texas 75201

Attention: Paul M. Jolas, Executive Vice President and Chief Legal Officer

Facsimile: (214) 840-5208

Internet electronic mail: paul.jolas@regencygas.com

          with a copy to:

Mayer Brown

700 Louisiana Street, Ste 3400

Houston, Texas 77002-2730

Attention: Dan Fleckman

Facsimile: (713) 238-4718

Internet electronic mail: dfleckman@mayerbrown.com

or to such other address as Regency or such Purchaser may designate in writing. All notices and
communications shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; upon actual receipt if sent by certified or registered mail, return receipt
requested, or regular mail, if mailed; upon actual receipt of the overnight courier copy, if sent
via facsimile; and upon actual receipt when delivered to an air courier guaranteeing overnight
delivery.

     Section 6.08 Entire Agreement. This Agreement, the other Basic Documents and the other agreements and
documents referred to herein are intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained

23

 

herein and therein. There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein or the other Basic Documents with respect to the rights
granted by Regency or any of its Affiliates or the Purchasers or any of their Affiliates set forth
herein or therein. This Agreement, the other Basic Documents and the other agreements and
documents referred to herein or therein supersede all prior agreements and understandings between
the parties with respect to such subject matter.

     Section 6.09 Governing Law. This Agreement will be construed in accordance with and governed by the
laws of the State of Texas without regard to principles of conflicts of laws.

     Section 6.10 Waiver of Jury Trial. Each party to this Agreement irrevocably waives the right to a trial
by jury in connection with any matter arising out of this Agreement to the fullest extent permitted
by applicable law.

     Section 6.11 Execution in Counterparts. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which counterparts, when so
executed and delivered, shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Agreement.

     Section 6.12 Costs and Expenses. Each Party shall be responsible for such Party’s own
expenses in connection with this Agreement and the transactions contemplated hereby, except that
Regency will pay Baker Botts L.L.P. up to $50,000 for legal fees incurred by Baker Botts L.L.P. as
counsel to the Purchasers. Any fees in excess of $50,000 shall be paid pro rata by all Purchasers
in proportion to the aggregate number of Purchased Units set forth opposite the names of such
Purchasers on Schedule A.

     Section 6.13 Distributions. If the Closing Date is after the record date relating to
a distribution to be made to holders of Common Units with respect to the fiscal quarter ended March
31, 2011 or any other distribution to be made to holders of Common Units, then the Purchasers shall
not be entitled to receive such distribution but the Purchased Unit Price shall be reduced by an
amount equal to such per unit distribution and the number of Purchased Units set forth on Schedule
A shall be increased accordingly.

     Section 6.14 Termination.

          (a) Notwithstanding anything herein to the contrary, this Agreement may be terminated at any
time at or prior to the Closing by the written consent of a majority in interest of the Purchasers,
upon a breach in any material respect by Regency of any covenant or agreement set forth in this
Agreement.

          (b) Notwithstanding anything herein to the contrary, in the event that any condition to
Regency’s obligation to close specified in Sections 2.04(a) or 2.04(c) is not
satisfied or waived on the Closing Date, Regency may terminate this Agreement upon written notice
to the Purchasers.

          (c) Notwithstanding anything herein to the contrary, this Agreement shall automatically
terminate at any time at or prior to the Closing:

24

 

               (i) if a Law shall have been enacted or promulgated, or if any action shall have been
taken by any Governmental Authority of competent jurisdiction that permanently restrains,
permanently precludes, permanently enjoins or otherwise permanently prohibits the
consummation of the transactions contemplated by any of the other Basic Documents or makes
the transactions contemplated by any of the Basic Documents illegal;

          (ii) upon the termination of the LD Acquisition Agreement; or

          (iii) if the Closing shall not have occurred by the Drop Dead Date.

          (d) In the event of the termination of this Agreement as provided in this Section 6.14
(1) this Agreement shall forthwith become null and void, (2) within two (2) Business Days following
such termination, Regency shall pay the Commitment Fee to each Purchaser in immediately available
funds by wire transfer, and (3) there shall be no liability on the part of any Party hereto, except
as set forth in Section 6.12 and except with respect to the requirement to comply with the
Confidentiality Agreement; provided that nothing herein shall relieve any Party from any liability
or obligation with respect to any willful breach of this Agreement.

[Signature Pages Follow]

25

 

     IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of the date first
above written.

	 	 	 	 	 
	 	REGENCY ENERGY PARTNERS LP

 	 
	 	By:  	Regency GP LP, its general partner
 	 
	 	 	By: Regency GP LLC, its general partner 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	               /s/ Thomas E. Long
 	 
	 	 	Thomas E. Long 	 
	 	 	Executive Vice President and Chief

Financial Officer 	 

[Signature Page to Common Unit Purchase Agreement]

 

 

	 	 	 	 	 
	 	KAYNE ANDERSON MLP INVESTMENT 

COMPANY

 	 
	 	By:  	/s/ James C. Baker
 	 
	 	 	James C. Baker 	 
	 	 	Executive Vice President 	 
	 
	 	KAYNE ANDERSON ENERGY TOTAL 

RETURN FUND, INC.

 	 
	 	By:  	/s/ James C. Baker
 	 
	 	 	James C. Baker 	 
	 	 	Executive Vice President 	 
	 
	 	KAYNE ANDERSON MIDSTREAM/ENERGY 

FUND, INC.

 	 
	 	By:  	/s/ James C. Baker
 	 
	 	 	James C. Baker 	 
	 	 	Executive Vice President 	 
	 
	 	KAYNE ANDERSON ENERGY 

DEVELOPMENT COMPANY

 	 
	 	By:  	/s/ James C. Baker
 	 
	 	 	James C. Baker 	 
	 	 	Executive Vice President 	 

[Signature Page to Common Unit Purchase Agreement]

 

 

	 	 	 	 	 
	 	KAYNE ANDERSON CAPITAL INCOME

PARTNERS (QP), LP

 	 
	 	By:  	/s/ David Shladovsky
 	 
	 	 	David Shladovsky 	 
	 	 	General Counsel of Kayne Anderson Capital

Advisors, L.P. 	 
	 
	 	KAYNE ANDERSON MIDSTREAM 

INSTITUTIONAL FUND, LP

 	 
	 	By:  	/s/ David Shladovsky
 	 
	 	 	David Shladovsky 	 
	 	 	General Counsel of Kayne Anderson Capital

Advisors, L.P. 	 
	 
	 	KAYNE ANDERSON MLP FUND, LP

 	 
	 	By:  	/s/ David Shladovsky
 	 
	 	 	David Shladovsky 	 
	 	 	General Counsel of Kayne Anderson Capital

Advisors, L.P. 	 
	 
	 	KAYNE ANDERSON NON-TRADITIONAL 

INVESTMENTS, LP

 	 
	 	By:  	/s/ David Shladovsky
 	 
	 	 	David Shladovsky 	 
	 	 	General Counsel of Kayne Anderson Capital

Advisors, L.P. 	 

[Signature Page to Common Unit Purchase Agreement]

 

 

	 	 	 	 	 
	 	TORTOISE ENERGY INFRASTRUCTURE 

CORPORATION

 	 
	 	By:  	/s/ Zachary A. Hamel
 	 
	 	 	Zachary A. Hamel 	 
	 	 	Senior Vice President 	 
	 
	 	TORTOISE ENERGY CAPITAL 

CORPORATION

 	 
	 	By:  	/s/ Zachary A. Hamel
 	 
	 	 	Zachary A. Hamel 	 
	 	 	Senior Vice President 	 
	 
	 	TORTOISE NORTH AMERICAN ENERGY 

CORPORATION

 	 
	 	By:  	/s/ Zachary A. Hamel
 	 
	 	 	Zachary A. Hamel 	 
	 	 	Senior Vice President 	 
	 
	 	TORTOISE MLP FUND, INC.

 	 
	 	By:  	/s/ Zachary A. Hamel
 	 
	 	 	Zachary A. Hamel 	 
	 	 	Senior Vice President 	 
	 
	 	TORTOISE CAPITAL RESOURCES 

CORPORATION

 	 
	 	By:  	/s/ Zachary A. Hamel
 	 
	 	 	Zachary A. Hamel 	 
	 	 	Senior Vice President 	 

[Signature Page to Common Unit Purchase Agreement]

 

 

	 	 	 	 	 
	 	FIDUCIARY/CLAYMORE MLP 

OPPORTUNITY FUND

 	 
	 	By:  	/s/ Quinn T. Kiley
 	 
	 	 	Quinn T. Kiley, Vice President 	 
	 	 	 	 
	 
	 	NUVEEN ENERGY MLP TOTAL RETURN

FUND

 	 
	 	By:  	/s/ Quinn T. Kiley
 	 
	 	 	Quinn T. Kiley, Portfolio Manager 	 
	 	 	 	 
	 
	 	MLP & STRATEGIC EQUITY FUND

 	 
	 	By:  	/s/ Quinn T. Kiley
 	 
	 	 	Quinn T. Kiley, Portfolio Manager 	 
	 	 	 	 
	 
	 	TEACHERS’ RETIREMENT SYSTEM OF 

OKLAHOMA

 	 
	 	By:  	/s/ Quinn T. Kiley
 	 
	 	 	Quinn T. Kiley, Portfolio Manager 	 
	 	 	 	 

[Signature Page to Common Unit Purchase Agreement]

 

 

Exhibit A — Form of Registration Rights Agreement

 

 

Exhibit B — Form of LD Acquisition Agreement

 

 

Exhibit C — Joint Venture Term Sheet

 

 

Exhibit D — Form of Opinion of Regency Counselexv10w8

Exhibit 10.8

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

	 	 	 

	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL

	 	

 

 

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

INDEX

	 	 	 	 	 	 	 
	ARTICLE	 	SUBJECT	 	PAGE
	ARTICLE 1

	 	BUSINESS COVERED
	 	 	1	 
	ARTICLE 2

	 	COMMENCEMENT AND TERMINATION
	 	 	1	 
	ARTICLE 3

	 	SPECIAL TERMINATION
	 	 	1	 
	ARTICLE 4

	 	EXCLUSIONS
	 	 	3	 
	ARTICLE 5

	 	RETENTION AND LIMIT
	 	 	5	 
	ARTICLE 6

	 	REINSTATEMENT
	 	 	5	 
	ARTICLE 7

	 	PREMIUM
	 	 	5	 
	ARTICLE 8

	 	DEFINITION OF LOSS OCCURRENCE
	 	 	5	 
	ARTICLE 9

	 	NET RETAINED LINE
	 	 	8	 
	ARTICLE 10

	 	NET LOSS
	 	 	8	 
	ARTICLE 11

	 	EXTRA-CONTRACTUAL
OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS
	 	 	9	 
	ARTICLE 12

	 	NOTICE OF LOSS AND LOSS SETTLEMENT
	 	 	10	 
	ARTICLE 13

	 	ERRORS AND OMISSIONS
	 	 	10	 
	ARTICLE 14

	 	OFFSET
	 	 	11	 
	ARTICLE 15

	 	CURRENCY
	 	 	11	 
	ARTICLE 16

	 	FEDERAL EXCISE TAX AND OTHER TAXES
	 	 	11	 
	ARTICLE 17

	 	ACCESS TO RECORDS
	 	 	11	 
	ARTICLE 18

	 	SERVICE OF SUIT
	 	 	12	 
	ARTICLE 19

	 	CONFIDENTIALITY
	 	 	13	 
	ARTICLE 20

	 	PRIVACY
	 	 	13	 
	ARTICLE 21

	 	ARBITRATION
	 	 	14	 
	ARTICLE 22

	 	INSOLVENCY
	 	 	17	 
	ARTICLE 23

	 	RESERVES
	 	 	17	 
	ARTICLE 24

	 	MODE OF EXECUTION
	 	 	20	 
	ARTICLE 25

	 	LATE PAYMENTS
	 	 	20	 
	ARTICLE 26

	 	VARIOUS OTHER TERMS
	 	 	21	 
	ARTICLE 27

	 	INTERMEDIARY
	 	 	23	 

ATTACHMENTS:

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE — REINSURANCE (BRMA 35B)

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

TRANSMISSION AND DISTRIBUTION LINES EXCLUSION — ABOVE GROUND

FUNGI COVERAGE LIMITATION

TERRORISM EXCLUSION CLAUSE (NMA 2930B)

INFORMATION TECHNOLOGY HAZARDS CLARIFICATION CLAUSE (NMA2912)

	 	 	 

	TW No. G22283.11/G22287.11/G22288.11/G26396.11

C11-119542-003

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1.

 

	 	 	 

	EXHIBIT I —

	 	PROPERTY FIRST CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
	 
	EXHIBIT II —

	 	PROPERTY SECOND CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
	 
	EXHIBIT III —

	 	PROPERTY THIRD CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
	 
	EXHIBIT IV —

	 	PROPERTY FOURTH CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

	 	 	 

	TW No. G22283.11/G22287.11/G22288.11/G26396.11

C11-119542-003

FINAL

	 	

2.

 

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

ARTICLE 1

BUSINESS COVERED 

A. This Contract applies to all Loss Occurrences that occur with a date of loss during the term of
this Contract and arising from those Policies, except as hereinafter excluded, classified by the
Company as Fire, Allied Lines, Automobile Physical Damage (excluding Collision), Section I of
Homeowners and Multiple Peril Policies, Inland Marine and Property Agri Business that are in force
at the inception of this Contract or are written with a Policy periods (new and renewal) effective
during the term of this Contract (“Business Covered”).

B. The term “Policies”, whenever used herein, shall mean all binders, policies, contracts,
certificates and other obligations, whether oral or written, of insurance or reinsurance that are
Business Covered.

C. The reinsurance of all Business Covered hereunder shall be subject in all respects to the same
risks, terms, clauses, conditions, interpretations, alterations, modifications, cancellations and
waivers as the respective insurances (or reinsurances) of the Company’s Policies and the Reinsurer
shall pay losses as may be paid thereon, subject to the liability of the Company and the terms and
conditions of this Contract.

ARTICLE 2

COMMENCEMENT AND TERMINATION

     This Contract shall incept at 12:01 a.m., Eastern Standard Time, January 1, 2011, and remain
in force until 12:01 a.m., Eastern Standard Time, January 1, 2012. Should this Contract terminate
while a Loss Occurrence is in progress, the entire loss arising out of the Loss Occurrence shall be
subject to this Contract and its terms and conditions.

ARTICLE 3

SPECIAL TERMINATION

A. The Company or the Reinsurer may terminate, or commute Obligations arising under this Contract
in accordance with Paragraph C. below, upon the happening of any one of the following circumstances
at any time by the giving of thirty (30) days prior written notice to the other party:

1. A party ceases active underwriting operations or a State Insurance Department or other
legal authority orders the Reinsurer to cease writing business in all jurisdictions; or

2. The Reinsurer has filed a plan to enter into a Scheme of Arrangement or similar
procedure. “Scheme of Arrangement” is defined as a legislative or regulatory process that
provides a solvent Reinsurer the opportunity to settle its obligations with the Company
either (i) without the Company’s unrestrained consent or (ii) prior to the

	 	 	 

	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL

	 	

1.

 

Company having the ability to determine, with exact certainty, the actual amount of the
obligations still outstanding and ultimately due to the Company; or

3. A party has: a) become insolvent, b) been placed under supervision (voluntarily or
involuntarily), c) been placed into liquidation or receivership, or d) had instituted
against it proceedings for the appointment of a supervisor, receiver, liquidator,
rehabilitator, conservator or trustee in bankruptcy, or other agent known by whatever name,
to take possession of its assets or control of its operations; or

4. A reduction in the Reinsurer’s surplus, risk-based capital or financial strength rating
occurs:

a. As respects Reinsurers domiciled in the United States of America, (i) the
Reinsurer’s policyholders’ surplus (“PHS”) has been reduced by, whichever is
greater, thirty percent (30%) of the amount of PHS at the inception of this
Contract or thirty percent (30%) of the amount of PHS stated in its last filed
quarterly or annual statutory statement with its state of domicile; or (ii) the
Reinsurer’s total adjusted capital is less than two hundred percent (200%) of its
authorized control level risk-based capital; or (iii) the Reinsurer’s A.M. Best’s
insurer financial strength rating becomes less than “A-”.

b. As respects Reinsurers domiciled outside the United States of America, other
than Lloyd’s Syndicates (i) the Reinsurer’s Capital & Surplus (“C&S”) has been
involuntarily reduced by, whichever is greater, thirty percent (30%) of the
published currency amount of C&S at the inception of this Contract or thirty
percent (30%) of the published currency amount of C&S stated in its last filed
financial statement with its local regulatory authority; or (ii) as respects
Lloyd’s Syndicates, the Reinsurer’s total stamp capacity has been reduced by more
than thirty percent (30%) of the amount of total stamp capacity which stood at the
inception of this Contract. (This provision does not apply to any Lloyd’s Syndicate
that voluntarily reduces its total stamp capacity.) or (iii) the Reinsurer’s A.M.
Best’s insurer financial strength rating becomes less than “A-” or the Reinsurer’s
Standard & Poor’s Insurance Rating becomes less than “BBB”. or

5. A party has entered into a definitive agreement to (a) become merged with, acquired or
controlled by any company, corporation or individual(s) not controlling or affiliated with
the party’s operations previously; or (b) directly or indirectly assign all or essentially
all of its entire liability for obligations under this Contract to another party without
the other party’s prior written consent; or

6. There is either:

a. a severance or obstruction of free and unfettered communication and/or normal
commercial or financial intercourse between the United States of America and the
country in which the Reinsurer is incorporated or has its principal office as a
result of war, currency regulations or any circumstances arising out of political,
financial or economic uncertainty; or

b. a severance (of any kind) of any two (2) or more of the following executives of
the Reinsurer from active employment of the Reinsurer during the most recent forty
five (45) day period: chief underwriting officer, chief actuary, chief executive
officer or chief financial officer. This condition does not apply whenever the
severance in employment is for the publicly announced purpose of the individual’s
assuming within thirty (30) days a known position with another identified firm in
the (re)insurance industry or related field.

B. In the event the Company elects to terminate, the Company shall, with the notice of termination,
specify that termination will be on a Cut-Off basis, in which event the Company

	 	 	 

	TW No. G22283.11/G22287.11/G22288.11/G26396.11

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shall relieve the Reinsurer for losses occurring subsequent to the specified Termination Date, and that
Reinsurer shall not receive deposit premium installments beyond the date at which termination of
the Reinsurer is effected. In the event no losses occur prior to the specified termination date,
the Reinsurer shall within thirty (30) days of the termination date return a pro rata portion of
any ceded deposit premium paid hereunder, calculated as of the Termination Date, and cash in that
amount (less applicable ceding commission, if any, allowed thereon) and the minimum premium
provisions, if any, shall be waived. (The fraction of the deposit premium to be returned to the
Company shall equal the number of days from the Termination Date until the original expiration date
of the Contract period divided by the number of days in the original Contract period.) Upon final
determination of the adjusted premium for the Contract period, the Reinsurer shall be credited with
a portion of premium for this Contract, in the amount equal to the fraction of the number of days
the terminated Reinsurer participated in the Contract period divided by the number of days in the
Contract period multiplied by the reinsurance premium for the Contract period.

C. If both parties agree to commute, then within sixty (60) days after such agreement, the Company
shall submit a statement of valuation of the total of the net present value (“capitalized”) of the
ceded (1) Net Loss Reserves, (2) Loss Adjustment Expense Reserves, and (3) unearned premium
reserve, after deduction for any ceding commission allowed thereon, (the “Valuation Statement”). If
agreement cannot be reached, the effort can be abandoned or alternately the Company and the
Reinsurers may mutually appoint an actuary or appraiser to investigate, determine the capitalized
value of the reserves to be returned to the Company. Such actuary shall be an independent and
neutral actuary, Casualty Actuarial Society, experienced in such matters and the mutually agreed
actuary shall render a decision. In the event that the Company and the Reinsurer are unable to
agree upon a single actuary within thirty (30) days, the parties shall ask the then current
President of the Casualty Actuarial Society to appoint an actuary with those qualifications within
another thirty (30) days. The decision of the actuary will be final and binding on both parties.
The Company and the Reinsurer shall share equally the fees and expenses of the actuary. Upon
payment of the amount so agreed or determined by the actuary to the Company, the Reinsurer and the
Company shall each be completely released from all liability to each other under this Contract.

ARTICLE 4

EXCLUSIONS

A. This Contract shall not cover:

1. Policies or portions thereof classified by the Company as: Accident and Health,
Aviation, Casualty, Crop Hail, Fidelity and Surety, and Ocean Marine.

2. Collision.

3. Policies of Excess of Loss Reinsurance.

4. Financial Guarantee and Insolvency.

5. Mortgage Impairment and Difference In Conditions business.

6. Flood damage, except under Automobile Physical Damage, Inland Marine, Homeowners or
Commercial Multi-Peril Policies.

7.
Loss or liability excluded by the provisions of the “Nuclear Incident Exclusion Clause — Physical
Damage — Reinsurance (BRMA 35B)” attached to and forming part of this Contract.

			
	 	 	 
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8. a. Pool, Association or Syndicate business except for participation in the Mutual
Reinsurance Bureau, as excluded by the provisions of the “Pools Exclusion Clause”.
Nevertheless, it is specifically agreed that liability accruing to the Company from its
participation in the following shall not be excluded:

	 	i.	 	The following so-called Coastal Pools:
Alabama Insurance Underwriting Association
Florida Windstorm Underwriting Association
Louisiana Insurance Underwriting Association
Mississippi Insurance Underwriting Association
North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting Association
Texas Catastrophe Property Insurance Association
Georgia Insurance Underwriting Association
	 
	 	ii.	 	All “FAIR Plan” business

for all perils including riot and civil disorder otherwise
protected hereunder shall not be excluded except, however, that
this Contract does not include any increase in such liability
resulting from:

a) the inability of any other participant in such FAIR Plan or
Coastal Pool to meet its liability

b) any claim against such FAIR Plan or Coastal Pool, or any
participant therein, including the Company, whether by way of
subrogation or otherwise, brought by or on behalf of any
insolvency fund (as defined in the Insolvency Funds Exclusion
Clause incorporated in this Contract).

b. Fire and Lightning losses on Mill and Elevator properties processed through or
not processed through the Association of American Mill & Elevator Mutual Insurance
Companies, known as the Mill Mutuals, Itasca, Illinois and the Association of
American Mill and Agri Insurers.

9. Loss/or Damage/or Costs/or Expenses arising from Seepage and/or Pollution and/or
Contamination, other than Contamination from Smoke Damage. Nevertheless, this exclusion
does not preclude payment of the cost of the removal of debris of property damaged by a
loss otherwise covered hereunder, but subject always to a limit of not more than five
thousand dollars ($5,000) plus twenty five percent (25%) of the Company’s property loss
under original Policy.

10. Regarding interests which at time of loss or damage are on shore, no liability shall
attach hereto in respect of any loss or damage which is occasioned by war, invasion,
hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or
usurped power, or martial law or confiscation by order of any government or public
authority.

     This War Exclusion Clause shall not, however, apply to interests which at time of loss
or damage are within the territorial limits of the United States of America (comprising the
fifty States of the Union and the District of Columbia and including Bridges between the
U.S.A. and Mexico, provided they are under United States ownership), Canada, St. Pierre and
Miquelon, provided such interests are insured under Policies, endorsements, or binders
containing a standard war or hostilities or warlike operations exclusion clause.

			
	 	 	 
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11. Any liability of the Company arising, by contract, operation of law, or otherwise, from
its participation or membership, whether voluntary or involuntary, in any insolvency fund
is excluded from this Contract. “Insolvency Fund” includes any guaranty fund, insolvency
fund, plan, pool, association, fund or other arrangement, howsoever denominated,
established or governed, which provides for any assessment of or payment or assumption by
the Company of part or all of any claim, debt, charge, fee, or other obligation of an
insurer, or its successors or assigns, which has been declared by any competent authority
to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee
or other obligation in whole or in part.

12. Transmission and Distribution Lines Exclusion — Above Ground (150M Exclusion).

13. Fungi Coverage Limitation (NMA 2955).

14. Terrorism (NMA 2930b).

15. Information Technology Hazard Clarification Clause (NMA 2912).

B. Any exclusion listed above (other than exclusions A(1), A(4), A(6), A(7), A(9), A(10), A(11),
A(14) & A(15)) shall be automatically waived as respects a Policy issued by the Company on a risk
with respect to which only a minor or incidental part of the operations covered involves the
exclusion. An incidental part of an insured’s regular operations shall mean not greater than ten
percent (10%) of the insured’s regular operations.

ARTICLE 5

RETENTION AND LIMIT

See EXHIBITS I, II, III, and IV attached to and forming part of this Contract.

ARTICLE 6

REINSTATEMENT

     See EXHIBITS I, II, III, and IV attached to and forming part of this Contract.

ARTICLE 7

PREMIUM

See EXHIBITS I, II, III, and IV attached to and forming part of this Contract.

ARTICLE 8

DEFINITION OF LOSS OCCURRENCE

A. The term “Loss Occurrence” shall mean the sum of all individual losses directly occasioned by
any one disaster, accident or loss or series of disasters, accidents or losses arising out of one
event which occurs within the area of one state of the United States or province of Canada and
states or provinces contiguous thereto and to one another. However, the duration and extent of any
one “Loss Occurrence” shall be limited to all individual losses

			
	 	 	 
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sustained by the Company occurring during any period of one hundred sixty eight (168) consecutive
hours arising out of and directly occasioned by the same event except that the term “Loss
Occurrence” shall be further defined as follows:

1. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and
water damage, all individual losses sustained by the Company occurring during any period of
seventy two (72) consecutive hours arising out of and directly occasioned by the same
event. However, the event need not be limited to one state or province or states or
provinces contiguous thereto.

2. As regards riot, riot attending a strike, civil commotion, vandalism and malicious
mischief, all individual losses sustained by the Company occurring during any period of
seventy two (72) consecutive hours within the area of one municipality or county and the
municipalities or counties contiguous thereto arising out of and directly occasioned by the
same event. The maximum duration of seventy two (72) consecutive hours may be extended in
respect of individual losses which occur beyond such seventy two (72) consecutive hours
during the continued occupation of an assured’s premises by strikers, provided such
occupation commenced during the aforesaid period.

3. As regards earthquake (the epicenter of which need not necessarily be within the
territorial confines referred to in the opening paragraph of this Article) and fire
following directly occasioned by the earthquake, only those individual fire losses which
commence during the period of one hundred sixty eight (168) consecutive hours may be
included in the Company’s “Loss Occurrence”.

4. As regards “Freeze”, only individual losses directly occasioned by collapse, breakage of
glass and water damage (caused by bursting of frozen pipes and tanks) may be included in
the Company’s “Loss Occurrence”.

5. As regards firestorms, brush fires and any other fires or series of fires, irrespective
of origin (except as provided in A(2) and A(3) above), which spread through trees,
grassland or other vegetation, all individual losses sustained by the Company which
commence during any period of one hundred sixty eight (168) consecutive hours within a one
hundred (100) mile radius of any fixed point selected by the Company where a claim has
actually been made may be included in the Company’s “Loss Occurrence.” However, an
individual loss subject to this subparagraph cannot be included in more than one “Loss
Occurrence”.

B. Except for those “Loss Occurrences” referred to in A(1) and A(2) the Company may choose the date
and time when any such period of consecutive hours commences provided that it is not earlier than
the date and time of the occurrence of the first recorded individual loss sustained by the Company
arising out of that disaster, accident or loss and provided that only one such period of one
hundred sixty eight (168) consecutive hours shall apply with respect to one event.

C. However, as respects those “Loss Occurrences” referred to in A(1) and A(2), if the disaster,
accident or loss occasioned by the event is of greater duration than seventy two (72) consecutive
hours, then the Company may divide that disaster, accident or loss into two (2) or more “Loss
Occurrences” provided no two (2) periods overlap and no individual loss is included in more than
one such period and provided that no period commences earlier than the date and time of the
occurrence of the first recorded individual loss sustained by the Company arising out of that
disaster, accident or loss.

D. No individual losses occasioned by an event that would be covered by seventy two (72) hours
clauses may be included in any “Loss Occurrence” claimed under the one hundred sixty eight (168)
hours provision.

			
	 	 	 
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ARTICLE 9

NET RETAINED LINE

A. This Contract applies only to that portion of any Policy which the Company retains net for its
own account, and in calculating the amount of any loss hereunder and also in computing the amount
or amounts in excess of which this Contract attaches, only loss or losses in respect of that
portion of any Policy which the Company retains net for its own account shall be included.

B. The amount of the Reinsurers’ liability hereunder in respect of any loss or losses shall not be
increased by reason of the inability of the Company to collect from any other Reinsurers, whether
specific or general, any amounts which may have become due from such Reinsurers, whether such
inability arises from the insolvency of such other Reinsurers or otherwise.

C. Inter-company reinsurance among the companies collectively called the “Company” shall be
entirely disregarded for all purposes of this Contract.

D. Permission is hereby granted the Company to carry underlying reinsurance and layers of
catastrophe reinsurance both below and above this layer of coverage and recoveries made thereunder
shall be disregarded for all purposes of this Contract and shall inure to the sole benefit of the
Company.

ARTICLE 10

NET LOSS

A. The term “Net Loss” shall mean the actual loss sustained by the Company from Business Covered
hereunder including (i) sums paid in settlement of claims and suits and in satisfaction of
judgments, (ii) prejudgment interest when added to a judgment, (iii) ninety percent (90%) of any
Extra-Contractual Obligations (iv) ninety percent (90%) of any Losses Excess of Policy Limits, (v)
any interest on judgments other than prejudgment interest when added to a judgment and (vi) all
Loss Adjustment Expenses incurred by the Company. In the event that the Company’s original Policies
and/or specific coverage parts of their original Policies are issued on a cost inclusive basis,
such loss adjustment expenses shall be included within the Company’s Net Loss for the purposes of
recovery hereunder.

B. “Loss Adjustment Expenses” shall mean: (i) expenses sustained in connection with adjustment,
defense, settlement and litigation of claims and suits, satisfaction of judgments, resistance to or
negotiations concerning a loss (which shall include the expenses and the pro rata share of the
salaries of the Company’s field employees according to the time occupied in adjusting such Loss and
the expenses of the Company’s employees while diverted from their normal duties to the service of
field adjustment but shall not include any salaries of officers or normal overhead expenses of the
Company), (ii) legal expenses and costs incurred in connection with coverage questions regarding
specific claims and legal actions, including Declaratory Judgment Expenses, connected thereto,
(iii) all interest on judgments other than prejudgment interest except when included in Net Loss,
and (iv) expenses sustained to obtain recoveries, salvages or other reimbursements, or to secure
the reversal or reduction of a verdict or judgment.

C. “Declaratory Judgment Expenses” as used in this Contract shall mean legal expenses paid by the
Company in the investigation, analysis, evaluation, resolution or litigation of coverage issues
between the Company and its insured(s), under Policies reinsured hereunder, for a specific loss or
losses tendered under such Policies, which loss or losses are not excluded under this Contract.

D. All salvages, recoveries, payments and reversals or reductions of verdicts or judgments (net of
the cost of obtaining such salvage, recovery, payment or reversal or reduction of a verdict or
judgment) whether recovered, received or obtained prior or subsequent to loss settlement under this
Contract, including amounts recoverable under other reinsurance whether

			
	 	 	 
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collected or not, shall be
applied as if recovered, received or obtained prior to the aforesaid settlement and shall be
deducted from the actual losses sustained to arrive at the amount of the net loss. Nothing in this
Article shall be construed to mean losses are not recoverable until the Net Loss to the Company
finally has been ascertained.

E. The Reinsurers shall be subrogated, as respects any loss for which the Reinsurers shall actually
pay or become liable, but only to the extent of the amount of payment by or the amount of liability
to the Reinsurers, to all the rights of the Company against any person or other entity who may be
legally responsible for damages as a result of said loss. Should the Company elect not to enforce
such rights, the Reinsurers are hereby authorized and empowered to bring any appropriate action in
the name of the Company or its policyholders, or otherwise to enforce such rights. The Reinsurers
shall promptly remit to the Company the amount of any judgment awarded in such an action in excess
of the amount of payment by, or the amount of liability to, the Reinsurers hereunder.

ARTICLE 11

EXTRA-CONTRACTUAL OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS

A. “Extra-Contractual Obligations” means those liabilities not covered under any other provision of
this Contract, other than Loss Excess of Policy Limits, including but not limited to compensatory,
consequential, punitive, or exemplary damages together with any legal costs and expenses incurred
in connection therewith, paid as damages or in settlement by the Company arising from an allegation
or claim of its insured, its insured’s assignee, or other third party, which alleges negligence,
gross negligence, bad faith or other tortious conduct on the part of the Company in the handling,
adjustment, rejection, defense or settlement of a claim under a Policy that is the Business
Covered.

B. “Loss Excess of Policy Limits” means any amount of loss, together with any legal costs and
expenses incurred in connection therewith, paid as damages or in settlement by the Company in
excess of its Policy Limits, but otherwise within the coverage terms of the Policy, arising from an
allegation or claim of its insured, its insured’s assignee, or other third party, which alleges
negligence, gross negligence, bad faith or other tortious conduct on the part of the Company in the
handling of a claim under a Policy or bond that is the Business Covered, in rejecting a settlement
within the Policy Limits, in discharging a duty to defend or prepare the defense in the trial of an
action against its insured, or in discharging its duty to prepare or prosecute an appeal consequent
upon such an action. For the avoidance of doubt, the decision by the Company to settle a claim for
an amount within the coverage of the Policy but not within the Policy Limit when the Company has
reasonable basis to believe that it may have legal liability to its insured or assignee or other
third party on the claim will be deemed a Loss Excess of Policy Limits. The Company will provide
Reinsurers an explanation relating to the Company’s motivation for settlement and use its best
efforts to obtain the Reinsurers’ prior counsel and concurrence in the Company’s action. A
reasonable basis shall mean it is more likely than not a trial would result in a verdict excess of
the Policy Limits, in the opinion of counsel assigned to defend the insured or otherwise retained
by the Company.

C. An Extra-Contractual Obligation or a Loss Excess of Policy Limits shall be deemed to have
occurred on the same date as the loss covered under the Company’s original Policy and shall be
considered part of the original loss (subject to other terms of this Contract).

			
	 	 	 
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D. Neither an Extra-Contractual Obligation nor a Loss Excess of Policy Limits shall include a loss
incurred by the Company as the result of any fraudulent or criminal act directed against the
Company by any officer or director of the Company acting individually or collectively or in
collusion with any other organization or party involved in the presentation, defense, or settlement
of any claim under this Contract.

E. Recoveries, whether collectible or not, including any retentions and/or deductibles, from any
other form of insurance or reinsurance which protect the Company against any loss or liability
covered under this Article shall inure to the benefit of the Reinsurers and shall be deducted from
the total amount of any Extra-Contractual Obligation and/or Loss Excess of Policy Limits in
determining the amount of Extra-Contractual Obligation and/or Loss Excess of Policy Limits that
shall be indemnified under this Article.

F. The Company shall be indemnified in accordance with this Article to the extent permitted by
applicable law.

ARTICLE 12

NOTICE OF LOSS AND LOSS SETTLEMENT

A. The Company shall advise the Reinsurers promptly of all Loss Occurrences which, in the opinion
of the Company, may result in a claim hereunder and of all subsequent developments thereto which,
in the opinion of the Company, may materially affect the position of the Reinsurers. Inadvertent
omission or oversight in giving such notice shall in no way affect the liability of the Reinsurers.
However, the Reinsurers shall be informed of such omission or oversight promptly upon its
discovery.

B. Prompt notice shall be given to the Reinsurers by the Company on any Loss Occurrence wherein the
Company’s reserve exceeds fifty percent (50%) of the Company’s loss retention.

C. The Company shall have the right to settle all claims under its Policies. All loss settlements
made by the Company, whether under strict Policy conditions or by way of compromise, that are the
Business Covered and that are not an Ex-gratia Settlement shall be final and binding subject to the
liability of the Company and the terms and conditions of this Contract. The Reinsurer shall follow
the liability of the Company (to the extent provided in this Contract) and shall pay or allow, as
the case may be, its share of each such settlement in accordance with this Contract all amounts for
which it is obligated as soon as possible, but not later than ten (10) business days, of being
furnished by the Company with reasonable evidence of the amount due. Reasonable evidence of the
amount due shall consist of a certification by the Company, accompanied by proof of loss
documentation the Company customarily presents with its claims payment requests, that the amount
requested to be paid and submitted by the certification, is, upon information and belief, due and
payable to the Company by the Reinsurers under the terms and conditions of this Contract.

ARTICLE 13

ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made by the Company in connection with this Contract
shall not relieve the Reinsurer from any liability which would have attached had such error or
omission not occurred, provided always that such error or omission shall be rectified as soon as
possible, provided that the liability of the Reinsurer shall not extend beyond the coverage
provided by this Contract nor to extend coverage to Policies that are not the Business Covered
hereunder. This Article shall not apply to a sunset provision, if any in this Contract, nor to a
commutation made in connection with this Contract.

			
	 	 	 
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ARTICLE 14

OFFSET

     The Company and the Reinsurer shall have the right to offset any balance or amounts due from
one party to the other under the terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on account of premiums or losses or
otherwise and immediately inform the Intermediary accordingly. In the event of the insolvency of
any party, offset shall be as permitted by applicable law.

ARTICLE 15

CURRENCY

A. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to
mean United States Dollars and all transactions under this Contract shall be in United States
Dollars.

B. Amounts paid or received by the Company in any other currency shall be converted to United
States Dollars at the rate of exchange at the date such transaction is entered on the books of the
Company.

ARTICLE 16

FEDERAL EXCISE TAX AND OTHER TAXES

A. To the extent that any portion of the reinsurance premium for this Contract is subject to the
Federal Excise Tax (as imposed under Section 4371 of the Internal Revenue Code) and the Reinsurer
is not exempt therefrom, the Reinsurers shall allow for the purpose of paying the Federal Excise
Tax, a deduction by the Company of the applicable percentage of the premium payable hereon. In the
event of any return of premium becoming due hereunder, the Reinsurers shall deduct the applicable
same percentage from the return premium payable hereon and the Company or its agent shall take
steps to recover the tax from the United States Government. In the event of any uncertainty, upon
the written request of the Company, the Reinsurer will immediately file a certificate signed by a
senior corporate officer of the Reinsurer certifying to its entitlement to the exemption from the
Federal Excise Tax with respect to one or more transactions.

B. In consideration of the terms under which this Contract is issued, the Company undertakes not to
claim any deduction of the premium hereon when making Canadian Tax returns or when making tax
returns, other than Income or Profits Tax returns, to any State or Territory of the United States
of America or to the District of Columbia.

ARTICLE 17

ACCESS TO RECORDS

A. The Company shall place at the disposal of the Reinsurer at all reasonable times, and the
Reinsurer shall have the right to inspect (and make reasonable copies) through its designated
representatives during the term of this Contract and thereafter, all non-privileged books, records
and papers of the Company directly related to any reinsurance hereunder, or the subject matter
hereof, provided that if the Reinsurer has ceased active market operations, this right of access
shall be subject to that Reinsurer being current in all payments owed the Company that are not
currently the subject of a formal dispute (such as the initiation of an Arbitration or Mediation).
For the purposes of this Article, “non-privileged” refers to books, records and papers that are not
subject to the Attorney-client privilege and Attorney-work product doctrine.

			
	 	 	 
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B. “Attorney-client privilege” and “Attorney-work product” shall have the meanings ascribed to each
by statute and/or the court of final adjudication in the jurisdiction whose laws govern the
substantive law of a claim arising under a Policy reinsured under this Contract.

C. Notwithstanding anything to the contrary in this Contract, for any claim or loss under a Policy
reinsured under this Contract, should the Reinsurer assert, pursuant to the Common Interest
Doctrine (“Doctrine”), that it has the right to examine any document that the Company alleges is
subject to the Attorney-client privilege or the Attorney-work product privilege, upon the Reinsurer
providing to the Company substantiation of any law which reasonably supports the basis for the
Reinsurer’s conclusion that the Doctrine applies and the Doctrine will be upheld as applying
between the Company and the Reinsurer as against third parties pursuant to the substantive law(s)
which govern the claim or loss, the Company shall give the Reinsurer access to such document.

D. Notwithstanding any other provision to the contrary, once a claim and all directly related
claims are finally settled by the Company, the Reinsurer shall be entitled to review all reasonable
and applicable claims records that support a Company request for payment of a claim hereunder for
Net Loss for Business Covered hereunder. In the event that the Reinsurer shall have paid an amount
for Net Loss to the Company and the records do not support the obligation of the Reinsurer to have
paid the claim, the Company shall promptly return any payment made in error.

ARTICLE 18

SERVICE OF SUIT

A. This Article only applies to a Reinsurer domiciled outside of the United States and/or
unauthorized in any state, territory or district of the United States having jurisdiction over the
Company. Furthermore, this Article will not be read to conflict with or override any obligations of
the parties to arbitrate their disputes under this Contract. This Article is intended as an aid to
compelling arbitration if called for by this Contract or enforcing any such arbitration or arbitral
award, not as an alternative to any Arbitration provision in this Contract that is applicable for
resolving disputes arising out of this Contract.

B. In the event of any dispute, the Reinsurer, at the request of the Company, shall submit to the
jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article
constitutes or should be understood to constitute a waiver of any obligation to arbitrate disputes
arising from this Contract or the Reinsurer’s rights to commence an action in any court of
competent jurisdiction in the United States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted by the laws of the United States or
of any state in the United States.

C. The Reinsurer, once the appropriate court is selected, whether such court is the one originally
chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or
otherwise, as provided above, will comply with all requirements necessary to give said court
jurisdiction and, in any suit instituted against any of them upon this Contract, will abide by the
final decision of such court or any appellate court in the event of an appeal.

D. Service of process in any such suit against the Reinsurer may be made upon Mendes and Mount, 750
Seventh Avenue, New York, New York 10019-6829, — or in substitution therefore, the Firm identified
by the Reinsurer on the Reinsurer’s signature page to this Contract, — (“Firm”) and in any suit
instituted, the Reinsurer shall abide by the final decision of such court or of any appellate court
in the event of an appeal.

E. The Firm is authorized and directed to accept service of process on behalf of the Reinsurer in
any such suit and/or upon the request of the Company to give a written
undertaking to the Company that they shall enter a general appearance upon the Reinsurer’s behalf
in the event such a suit shall be instituted.

			
	 	 	 
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F. Further, as required by and pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, the Reinsurer hereby designates the Superintendent,
Commissioner or Director of Insurance or other officer specified for that purpose in the statute,
or his successor or successors in office, as their true and lawful Attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or
any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as
the person to whom the said officer is authorized to mail such process or a true copy thereof.

ARTICLE 19

CONFIDENTIALITY

A. The information, data, statements, representations and other materials provided by the Company
or the Reinsurer to the other arising from consideration and participation in this Contract whether
contained in the reinsurance submission, this Contract, or in materials or discussions arising from
or related to this Contract, may contain confidential or proprietary information as expressly
indicated by the Disclosing Party (“Disclosing Party”) in writing from time to time to the other
party of the respective parties (“Confidential Information”). This Confidential Information is
intended for the sole use of the parties to this Contract (and their affiliates involved in
management or operation of assumed reinsurance business, retrocessionaires, prospective
retrocessionaires, intermediaries involved in such placements, respective auditors and legal
counsel) as may be necessary in analyzing and/or accepting a participation in and/or executing
their respective responsibilities under or related to this Contract. Disclosing or using
Confidential Information relating to this Contract, without the prior written consent of the
Disclosing Party, for any purpose beyond (i) the scope of this Contract, (ii) the reasonable extent
necessary to perform rights and responsibilities expressly provided for under this Contract, (iii)
the reasonable extent necessary to administer, report to and effect recoveries from retrocessional
Reinsurers, (iv) the reporting to regulatory or other governmental authorities as may be legally
required or (v) persons with a need to know the information, (all of the preceding persons or
entities who are legally obligated by either written agreement or otherwise to maintain the
confidentiality of the Confidential Information) is expressly forbidden. Copying, duplicating,
disclosing, or using Confidential Information for any purpose beyond this expressed purpose is
forbidden without the prior written consent of the Disclosing Party.

B. Should a party (“Receiving Party”) receive a third party demand pursuant to subpoena, summons,
or court or governmental order, to disclose Confidential Information that has been provided by
another party to this Contract, the Receiving Party shall make commercially reasonable efforts to
provide the Disclosing Party with written notice of any subpoena, summons, or court or governmental
order, at least ten (10) days prior to such release or disclosure. Unless the Disclosing Party has
given its prior permission to release or disclose the Confidential Information, the Receiving Party
shall not comply with the subpoena prior to the actual date required by the subpoena. If a
protective order or appropriate remedy is not obtained, the Receiving Party may disclose only that
portion of the Confidential Information that it is legally obligated to disclose. However,
notwithstanding anything to the contrary in this Contract, in no event, to the extent permitted by
law, shall this Article require the Receiving Party not to comply with the subpoena, summons, or
court or governmental order.

ARTICLE 20

PRIVACY

A. Privacy Awareness. The Company and the Reinsurer are aware of and in compliance with
their responsibilities and obligations under:

1. The Gramm-Leach-Bliley Act of 1999 (the “Act”) and applicable Federal and State laws and
regulations implementing the Act. The Company and the Reinsurer will only use Non-Public
Personal Information as permitted by law; and

			
	 	 	 
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2. The applicable provisions of the Health Insurance Portability and Accountability Act
(“HIPAA”) and the related requirements of any regulations promulgated thereunder including
without limitation the Federal Privacy Regulations as contained in 45 CFR Part 160 and 164
(the “Federal Privacy Regulations”). The Company and the Reinsurer will only use protected
health information as permitted by law.

B. Non-Disclosure. To the extent required or prohibited by applicable law or regulation,
the Reinsurer shall not disclose any (a) Non-Public Personal Information or (b) protected health
information (as defined in 45 CFR 164.501) it receives from the Company to anyone other
than:

1. The Reinsurer, the Reinsurer’s affiliates, legal counsel, auditors, consultants,
regulators, rating agencies and any other persons or entities to whom such disclosure is
required to effect, administer, or enforce a reinsurance contract; or any retrocessional
reinsurance contract applicable to the losses that are the subject of this Contract, or

2. Persons or entities to whom disclosure is required by applicable law or regulation.

C. Non-Public Personal Information. “Non-Public Personal Information” shall for the purpose
of this Contract mean financial or health information that personally identifies an individual,
including claimants under Policies reinsured under this Contract, and which information is not
otherwise available to the public.

ARTICLE 21

ARBITRATION

A. Any and all disputes between the Company and the Reinsurer arising out of, relating to, or
concerning this Contract, whether sounding in contract or tort and whether arising during or after
termination of this Contract, shall be submitted to the decision of a board of arbitration composed
of two (2) arbitrators and an umpire (“Board”) meeting at a site in the city in which the principal
headquarters of the Company are located. The arbitration shall be conducted under the Federal
Arbitration Act and shall proceed as set forth below.

B. A notice requesting arbitration, or any other notice made in connection therewith, shall be in
writing and be sent certified or registered mail, return receipt requested to the affected parties.
The notice requesting arbitration shall state in particulars all issues to be resolved in the view
of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative
date for the hearing, which date shall be no sooner than ninety (90) days and no later than one
hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within
thirty (30) days of receipt of claimant’s notice, the respondent shall notify claimant of any
additional issues to be resolved in the arbitration and of the name of its appointed arbitrator.

C. The members of the Board shall be impartial, disinterested and not currently representing any
party participating in the arbitration, and shall be current or former senior officers of insurance
or reinsurance concerns, experienced in the line(s) of business that are the subject of this
Contract. The Company and the Reinsurer as aforesaid shall each appoint an arbitrator and the two
(2) arbitrators shall choose an umpire before instituting the hearing. As time is of the essence,
if the respondent fails to appoint its arbitrator within thirty (30) days after
having received claimant’s written request for arbitration, the claimant is authorized to and shall
appoint the second arbitrator. If the two (2) arbitrators fail to agree upon the appointment of an
umpire within thirty (30) days after notification of the appointment of the second arbitrator,
within ten (10) days thereof, the two (2) arbitrators shall request ARIAS U.S. (“ARIAS”) to apply
its procedures to appoint an umpire for the arbitration with the qualifications set forth above in
this Article. If the use of ARIAS procedures fails to name an umpire, either party may apply to a
court of competent jurisdiction to appoint an umpire with the above required qualifications. The
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scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement
shall be appointed in the same fashion as the resigning or deceased member was appointed.

D. The claimant and respondent shall each submit initial briefs to the Board outlining the facts,
the issues in dispute and the basis, authority, and reasons for their respective positions within
thirty (30) days of the date of notice of appointment of the umpire. The claimant and the
respondent may submit a reply brief to the Board within ten (10) days after filing of the initial
brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not
later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable
responses shall be allowed at the arbitration hearing to new material contained in any amendments
filed to the briefs but not previously responded to.

E. The Board shall make a decision and award with regard to the terms expressed in this Contract,
the original intentions of the parties to the extent reasonably ascertainable, and the custom and
usage of the insurance and reinsurance business that is the subject of this Contract.
Notwithstanding any other provision of this Contract, the Board shall have the right and obligation
to consider underwriting and submission-related documents in any dispute between the parties.

F. The Board shall be relieved of all judicial formalities and the decision and award shall be
based upon a hearing in which evidence shall be allowed though the formal rules of evidence shall
not strictly apply. Cross examination and rebuttal shall be allowed. The Board may request a
post-hearing brief to be submitted within twenty (20) days of the close of the hearing.

G. The Board shall render its decision and award in writing within thirty (30) days following the
close of the hearing or the submission of post-hearing briefs, whichever is later, unless the
parties consent to an extension. Every decision by the Board shall be by a majority of the members
of the Board and each decision and award by the majority of the members of the Board shall be final
and binding upon all parties to the proceeding. Such decision shall be a condition precedent to any
right of legal action arising out of the arbitrated dispute which either party may have against the
other. However, the Board is not authorized to award punitive, exemplary or enhanced compensatory
damages.

H. The Board may award (i) interest at a rate not in excess of that set forth in the Article
entitled LATE PAYMENTS, calculated from the date the Board determines that any amounts due
the prevailing party should have been paid to the prevailing party, and (ii) applicable Attorneys’
fees and costs.

I. Either party may apply to a court of competent jurisdiction for an order confirming any decision
and the award; a judgment of that Court shall thereupon be entered on any decision or award. If
such an order is issued, the Attorneys’ fees of the party so applying and court costs will be paid
by the party against whom confirmation is sought.

J. Except in the event of a consolidated arbitration, each party shall bear the expense of the one
arbitrator appointed by or for it and shall jointly and equally bear with the other party the
expense of any stenographer requested, and of the umpire. The remaining costs of the arbitration
proceedings shall be finally allocated by the Board.

K. Subject to customary and recognized legal rules of privilege, each party participating in the
arbitration shall have the obligation to produce those documents and as witnesses at the
arbitration those of its employees, and those of its affiliates as any other participating party
reasonably requests, providing always that the same witnesses and documents be obtainable and
relevant to the issues before the arbitration and not be unduly burdensome or excessive in the
opinion of the Board.

			
	 	 	 
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L. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and
in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted
as the Board shall determine in its sole discretion to be in the interest of fairness, full
disclosure, and a prompt hearing, decision and award by the Board.

M. The Board shall be the final judge of the procedures of the Board, the conduct of the
arbitration, of the rules of evidence, the rules of privilege, discovery and production and of
excessiveness and relevancy of any witnesses and documents upon the petition of any participating
party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and
other orders to enforce their decisions. The Board shall also have the authority to issue interim
decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing
and decision and award by the Board.

N. Upon request made to the Board not later than ten (10) days after the umpire’s appointment, the
Board may order a consolidated hearing as respects common issues between the Company and all
affected Reinsurers participating in this Contract if the Board is satisfied in its discretion that
the issues in dispute affect more than one Reinsurer and a consolidated hearing would be in the
interest of fairness, and a prompt and cost effective resolution of the issues in dispute.

O. If the parties mutually agree to or the Board orders a consolidated hearing, all other affected
participating Reinsurers shall join and participate in the arbitration under time frames
established by the Board and will be bound by the Board’s decision and award unless excused by the
Board in its discretion. A consolidated hearing shall not result in any change or modification of
any Reinsurer’s liability for its participation, that is several, but not joint shall remain the
same.

P. Any Reinsurer may decline to actively participate in a consolidated arbitration if in advance of
the hearing, that Reinsurer shall file with the Board a written agreement in form satisfactory to
the Board to be bound by the decision and award of the Board in the same fashion and to the same
degree as if it actively participated in the arbitration.

Q. In the event of an order of consolidation by the Board, the arbitrator appointed by the original
Reinsurer shall be subject to being, and may be, replaced within thirty (30) days of the decision
to have a consolidated arbitration by an arbitrator named collectively by the Reinsurers or in the
absence of agreement, by the Lead Reinsurer, or if there is no Lead Reinsurer involved in the
dispute, the Reinsurer with the largest participation in this Contract affected by the dispute. In
the event two (2) or more Reinsurers affected by the dispute each have the same largest
participation, they shall agree among themselves as to the replacement arbitrator, if any, to be
appointed. The umpire shall be the final determiner in the event of any dispute over replacement of
that arbitrator. All other aspects of the arbitration shall be conducted as provided for in this
Article provided that (1) each party actively participating in the consolidated arbitration will
have the right to its own attorney, position, and related claims and defenses; (2) each party will
not, in presenting its position, be prevented from presenting its position by the position set
forth by any other party; and (3) the cost and expense of the arbitration, exclusive of Attorneys’
fees (which will be borne exclusively by the respective retaining party unless otherwise determined
by the Board) but including the expense of any stenographer which shall be borne by each party
actively participating in the consolidated arbitration or as the Board shall determine to be fair
and appropriate under the circumstances.

			
	 	 	 
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ARTICLE 22

INSOLVENCY

(This Article shall be deemed to read as required to meet the statutory insolvency clause
requirements of the Company.)

A. In the event of insolvency or the appointment of a conservator, liquidator, or statutory
successor of the Company, the portion of any risk or obligation assumed by the Reinsurer shall be
payable to the conservator, liquidator, or statutory successor on the basis of claims allowed
against the insolvent Company by any court of competent jurisdiction or by any conservator,
liquidator, or statutory successor of the Company having authority to allow such claims, without
diminution because of that insolvency, or because the conservator, liquidator, or statutory
successor has failed to pay all or a portion of any claims.

B. Payments by the Reinsurer as above set forth shall be made directly to the Company or to its
conservator, liquidator, or statutory successor, except where this Contract specifically provides
another payee of such reinsurance or except as provided by applicable law and regulation (such as
subsection (a) of section 4118 of the New York Insurance Laws) in the event of the insolvency of
the Company.

C. In the event of the insolvency of the Company, the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a
claim against the insolvent Company on the Policy or Policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and during the pendency of such claim any
Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where
such claim is to be adjudicated any defense or defenses which it may deem available to the Company
or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable subject to court approval against the insolvent Company as part of
the expense of liquidation to the extent of a proportionate share of the benefit which may accrue
to the Company solely as a result of the defense undertaken by the Reinsurer.

D. Where two (2) or more Reinsurers are involved in the same claim and a majority in interest elect
to interpose defense to such claim, the expense shall be apportioned in accordance with the terms
of this Contract as though such expense had been incurred by the Company.

ARTICLE 23

RESERVES

A. If, at any time during the period of this Contract and thereafter the reinsurance provided by a
Reinsurer participating in this Contract does not qualify for full statutory accounting credit for
reinsurance by regulatory authorities having jurisdiction over the Company (whether by reason of
lack of license, accreditation or otherwise) such that a financial penalty to the Company would
result on any statutory statement or report the Company is required to make or file with insurance
regulatory authorities (or a court of law in the event of insolvency), the Reinsurer shall secure
the Reinsurer’s share of Obligations for which such full statutory credit is not granted by those
authorities in a manner, form, and amount acceptable to the Company and to all applicable insurance
regulatory authorities in accordance with this Article.

			
	 	 	 
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B. The Reinsurer shall secure such Obligations, within thirty (30) days after the receipt of
the Company’s written request regarding the Reinsurer’s share of Obligations under this Contract
(but not later than December 31) of each year by either:

1. Clean, irrevocable, and unconditional evergreen letter(s) of credit issued and
confirmed, if confirmation is required by the applicable insurance regulatory authorities,
by a qualified United States financial institution as defined under the Insurance Law of
the Company’s domiciliary state and acceptable to the Company and to insurance regulatory
authorities;

2. A trust account meeting at least the standards of New York’s Insurance Regulation 114
and the Insurance Law of the Company’s domiciliary state; or

3. Cash advances or funds withheld or a combination of both, which will be under the
exclusive control of the Company (“Funds Deposit”).

C. The “Obligations” referred to herein means, subject to the preceding paragraphs, the then
current (as of the end of each calendar quarter) sum of any:

1. amount of the ceded unearned premium reserve for which the Reinsurer is responsible to
the Company;

2. amount of Net Losses and Loss Adjustment Expenses and other amounts paid by the Company
for which the Reinsurer is responsible to the Company but has not yet paid;

3. amount of ceded reserves for Net Losses and Loss Adjustment Expenses for which the
Reinsurer is responsible to the Company;

4. amount of return and refund premiums paid by the Company for which the Reinsurer is
responsible to the Company but has not yet paid.

D. The Company, or its successors in interest, may draw, at any time and from time to time, upon
the:

1. Established letter of credit (or subsequent cash deposit);

2. Established trust account (or subsequent cash deposit); or

3. Funds Deposit;

without diminution or restriction because of the insolvency of either the Company or the Reinsurer
for one or more of the following purposes set forth below.

E. Draws shall be made only for the following purposes:

1. To make payment to and reimburse the Company for the Reinsurer’s share of Net Loss and
Loss Adjustment Expense and other amounts paid by the Company under its Policies and for
which the Reinsurer is responsible under this Contract that is due to the Company but
unpaid by the Reinsurer including but not limited to the Reinsurer’s share of premium
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2. To obtain a cash advance of the entire amount of the remaining balance under any
letter of credit in the event that the Company:

a. has received notice of non-renewal or expiration of the letter of credit or
trust account;

b. has not received assurances satisfactory to the Company of any required increase
in the amount of the letter of credit or trust account, or its replacement or other
continuation of the letter of credit or trust account at least thirty (30) days
before its stated expiration date;

c. has been made aware that others may attempt to attach or otherwise place in
jeopardy the security represented by the letter of credit or trust account; or

d. has concluded that the trustee or issuing (or confirming) bank’s financial
condition is such that the value of the security represented by the letter of
credit or trust account may be in jeopardy;

and under any of those circumstances where the Reinsurer’s entire Obligations, or part
thereof, under this Contract remain un-liquidated and un-discharged at least thirty (30)
days prior to the stated expiration date or at the time the Company learns of the possible
jeopardy to the security represented by the letter of credit or trust account.

F. If the Company draws on the letter of credit or trust account to obtain a cash advance, the
Company will hold the amount of the cash advance so obtained in the name of the Company in any
qualified United States financial institution as defined under the Insurance Law of the Company’s
domiciliary state in trust solely to secure the Obligations referred to above and for the use and
purposes enumerated above and to return any balance thereof to the Reinsurer:

1. Upon the complete and final liquidation and discharge of all of the Reinsurer’s
Obligations to the Company under this Contract; or

2. In the event the Reinsurer subsequently provides alternate or replacement security
consistent with the terms hereof and acceptable to the Company.

G. The Company will prepare and forward at annual intervals or more frequently as determined by the
Company, but not more frequently than quarterly to the Reinsurer a statement for the purposes of
this Article, showing the Reinsurer’s share of Obligations as set forth above. If the Reinsurer’s
share thereof exceeds the then existing balance of the security provided, the Reinsurer will,
within fifteen (15) days of receipt of the Company’s statement, but never later than December 31 of
any year, increase the amount of the letter of credit, (or subsequent cash deposit), trust account
or Funds Deposit to the required amount of the Reinsurer’s share of Obligations set forth in the
Company’s statement, but never later than December 31 of any year. If the Reinsurer’s share thereof
is less than the then existing balance of the security provided, the Company will release the
excess thereof to the Reinsurer upon the Reinsurer’s written request. The Reinsurer will not
attempt to prevent the Company from holding the security provided or Funds Deposit so long as the
Company is acting in accordance with this Article. The Company shall pay interest earned on the
deposited amounts to the Reinsurers as the parties shall have agreed at the time of the deposit.

H. Any assets deposited to a trust account will be valued according to their current fair market
value and will consist only of cash (U.S. legal tender), certificates of deposit issued by a
qualified United States financial institution as defined under the Insurance Law of the Company’s
domiciliary state and payable in cash, and investments of the types no less
conservative than those specified in Section 1404 (a)(1)(2)(3)(8) and (10) of the New York
Insurance Law and which are admitted assets under the Insurance Law of the Company’s

			
	 	 	 
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domiciliary state. Investments issued by the parent, subsidiary, or affiliate of either
the Company or the Reinsurer will not be eligible investments. All assets so deposited will be
accompanied by all necessary assignments, endorsements in blank, or transfer of legal title to the
trustee in order that the Company may negotiate any such assets without the requirement of consent
or signature from the Reinsurer or any other entity.

I. All settlements of account between the Company and the Reinsurer will be made in cash or its
equivalent. All income earned and received by the amount held in an established trust account will
be added to the principal.

J. The Company’s “successors in interest” will include those by operation of law, including without
limitation, any liquidator, rehabilitator, receiver, or conservator.

K. The Reinsurer will take any other reasonable steps that may be required for the Company to take
full credit on its statutory financial statements for the reinsurance provided by this Contract.

ARTICLE 24

MODE OF EXECUTION

A. This Contract may be executed by:

1. an original written ink signature of paper documents;

2. an exchange of facsimile copies showing the original written ink signature of paper
documents;

3. electronic signature technology employing computer software and a digital signature or
digitizer pen pad to capture a person’s handwritten signature in such a manner that the
signature is unique to the person signing, is under the sole control of the person signing,
is capable of verification to authenticate the signature and is linked to the document
signed in such a manner that if the data is changed, such signature is invalidated.

B. The use of any one or a combination of these methods of execution shall constitute a legally
binding and valid signing of this Contract.

ARTICLE 25

LATE PAYMENTS

A. Payments from the Reinsurer to the Company for coverage providing pro rata forms of reinsurance
shall have a due date as expressed in the Article entitled NOTICE OF LOSS AND LOSS
SETTLEMENT. Payments from the Reinsurer to the Company for coverage providing excess of loss
reinsurance shall have as a due date the date on which the proof of loss or demand for payment is
received by the Reinsurer. Payment not received within sixty (60) days of the due date shall be
deemed overdue (the “Overdue Date”). Payments due from the Reinsurer to the Company will not be
considered overdue if the Reinsurer requests, in writing, that such payment be made by drawing on a
letter of credit or other similar method of funding that has been established for this Contract,
provided that there is an adequate balance in place, and further provided that such advice to draw
is received by the Company within the sixty (60) day deadline set forth above. Payments from the
Company to the Reinsurer will have a due date as the date specified in this Contract and will be
overdue sixty (60) days thereafter. Premium adjustments will be overdue sixty (60) days from the
Contract due date or one hundred twenty (120) days after the expiration or renewal date, whichever
is greater.

			
	 	 	 
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B. In the event that this Contract provides excess of loss reinsurance, the Company will
provide the Reinsurer with a reasonable proof of loss and a copy of the claim adjuster’s report(s)
or any other reasonable evidence of indemnification. If subsequent to receipt of this evidence, the
information contained therein is unreasonably insufficient or not in substantial accordance with
the contractual conditions of this Contract, then the payment due date as specified above will be
deemed to be the date upon which the Reinsurer received the additional information necessary to
approve payment of the claim and the claim is presented in a reasonably acceptable manner. This
paragraph is only for the purpose of establishing when a claim payment is overdue, and will not
alter the provisions of the Article entitled NOTICE OF LOSS AND LOSS SETTLEMENT or other
pertinent contractual stipulations of this Contract.

C. If payment is made of overdue amounts within thirty (30) days of the Overdue Date, overdue
amounts will bear simple interest from the Overdue Date at a rate determined by the annualized one
month London Interbank Offered Rate for the first business day of the calendar month in which the
amount becomes overdue, as published in The Wall Street Journal, plus two hundred (200)
basis points to be calculated weekly. If payment is made of overdue amounts more than thirty (30)
days after the due date, overdue amounts will bear simple interest from the Overdue Date at a rate
determined by the annualized one month London Interbank Offered Rate for the first business day of
the calendar month in which the amount becomes overdue, as published in The Wall Street
Journal, plus four hundred (400) basis points to be calculated on a weekly basis, but in no
event less than eight percent (8%) simple interest. If the sum of the compensating additional
amount computed in respect of any overdue payment is less than one quarter of one percent (0.25%)
of the amount overdue, or one thousand dollars ($1,000), whichever is greater, and/or the overdue
period is one week or less, then the interest amount shall be waived. The basis point standards
referred to above shall be doubled if the late payment is due from a Reinsurer who is no longer an
active reinsurance market. Interest shall cease to accrue upon the party’s payment of an overdue
amount to the Intermediary.

ARTICLE 26

VARIOUS OTHER TERMS

A. This Contract shall be binding upon and inure to the benefit of the Company and Reinsurer and
their respective successors and assigns provided, however, that this Contract may not be assigned
by either party without the prior written consent of the other which consent may be withheld by
either party in its sole unfettered discretion. This provision shall not be construed to preclude
the assignment by the Company of reinsurance recoverables to another party for collection.

B. The territorial limits of this Contract shall be identical with those of the Company’s Policies.

C. This Contract shall constitute the entire agreement between the parties with respect to the
Business Covered hereunder. There are no understandings between the parties other than as expressed
in this Contract. Any change or modification of this Contract shall be null and void unless made by
amendment to the Contract and signed by both parties.

D. Except as may be provided in the Article entitled ARBITRATION, this Contract shall be
governed by and construed according to the laws of the Commonwealth of Pennsylvania, exclusive of
that state’s rules with respect to conflicts of law.

E. The headings preceding the text of the Articles and paragraphs of this Contract are intended and
inserted solely for the convenience of reference and shall not affect the meaning, interpretation,
construction or effect of this Contract.

F. This Contract is solely between the Company and the Reinsurer, and in no instance shall any
insured, claimant or other third party have any rights under this Contract.

			
	 	 	 
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G. If any provision of this Contract should be invalid under applicable laws, the latter shall
control but only to the extent of the conflict without affecting the remaining provisions of this
Contract.

H. The failure of the Company or Reinsurer to insist on strict compliance with this Contract or to
exercise any right or remedy shall not constitute a waiver of any rights contained in this Contract
nor estop the parties from thereafter demanding full and complete compliance nor prevent the
parties from exercising any remedy.

I. Each party shall be excused for any reasonable failure or delay in performing any of its
respective obligations under this Contract, if such failure or delay is caused by Force Majeure.
“Force Majeure” shall mean any act of God, strike, lockout, act of public enemy, any accident,
explosion, fire, storm, earthquake, flood, drought, peril of sea, riot, embargo, war or foreign,
federal, state or municipal order or directive issued by a court or other authorized official,
seizure, requisition or allocation, any failure or delay of transportation, shortage of or
inability to obtain supplies, equipment, fuel or labor or any other circumstance or event beyond
the reasonable control of the party relying upon such circumstance or event; provided, however,
that no such Force Majeure circumstance or event shall excuse any failure or delay beyond a period
exceeding thirty (30) days from the date such performance would have been due but for such
circumstance or event.

J. All Articles of this Contract shall survive the termination of this Contract until all
Obligations between the parties have been finally settled.

K. This Contract may be executed by the parties hereto in any number of counterparts, and by each
of the parties hereto in separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.

L. Whenever the word “Company” is used in this Contract, such term shall mean each and all
affiliated companies which are or may hereafter be under common control provided notice be given to
the Reinsurers of any newly affiliated companies which may hereafter come under common control as
soon as practicable, with full particulars as to how such affiliation is likely to affect this
Contract. In the event that either party maintains that such affiliation calls for altering the
terms of this Contract and an agreement for alteration not being arrived at, then the Business
Covered of such newly affiliated company is covered at existing terms for a period not to exceed
(90) ninety days after notice by either party that it does not wish to cover the business of the
newly affiliated company at the existing terms.

M. The term “Reinsurer” shall refer to each Reinsurer participating severally and not jointly in
this Contract. The subscribing (Re)insurers’ obligations under contracts of (re)insurance to which
they subscribe are several and not joint and are limited solely to the extent of their individual
subscriptions. The subscribing (Re)insurers are not responsible for the subscription of any
co-subscribing (Re)insurer who for any reason does not satisfy all or part of its obligations.

N. For purposes of sending and receiving notices and payments required by this Contract other than
in respect of the Articles entitled SERVICE OF SUIT and RESERVES herein, the
reinsured company that is set forth first in the definition of “Company” is deemed the agent of all
other reinsured companies referenced herein. In no event, however, shall any reinsured company be
deemed the agent of another with respect to the terms of the Article entitled INSOLVENCY.

O. Whenever the content of this Contract requires, the gender of all words shall include the
masculine, feminine and neuter, and the number of all words shall include the singular and the
plural. This Contract shall be construed without regard to any presumption or other rule requiring
construction against the party causing this Contract to be drafted.

			
	 	 	 
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P. The Company shall furnish the Reinsurer, in accordance with regulatory requirements,
periodic reporting of premiums and losses that relate to the Business Covered in this Contract as
may be needed for Reinsurers’ completion of financial statements to regulatory authorities.

Q. When so requested in writing, the Company shall afford the Reinsurer or its representatives an
opportunity to be associated with the Company, at the expense of the Reinsurer, in the defense of
any claim, suit or proceeding involving this reinsurance, and the Company and the Reinsurer shall
cooperate in every respect in the defense of such claim, suit or proceeding, provided the Company
shall have the right to make any decision in the event of disagreement over any matter of defense
or settlement.

ARTICLE 27

INTERMEDIARY 

A. Towers Watson Pennsylvania Inc. (“Towers Watson”) is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All communications (including but not limited
to notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment
expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the
Reinsurer through Towers Watson, Centre Square East, 1500 Market Street, Philadelphia,
Pennsylvania, 19102-4790. Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to
constitute payment to the Company only to the extent that such payments are actually received by
the Company. In acting as Intermediary for this Contract, the Intermediary shall (i) comply with
all aspects of New York Regulation 98 and shall (ii) be entitled to withdraw funds in accordance
with section 32.3(a)(3) of that Regulation including commissions, excise tax and interest received
on its premium and loss accounts, and shall also (iii) return to the Reinsurer any brokerage
allowed by the Reinsurer and taken on premium ceded to the Reinsurer but refunded or returned to
the Company.

B. Whenever notice is required within this Contract, such notice may be given by certified mail,
registered mail, or overnight express mail. Notice shall be deemed to be given on the date received
by the receiving party.

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

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22.

 

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE —

REINSURANCE (BRMA 35B)

	1.	 	This reinsurance does not cover any loss or liability accruing to the Company, directly or
indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers
formed for the purpose of covering Atomic or Nuclear Energy risks.
	 
	2.	 	Without in any way restricting the operation of paragraph (1) of this Clause, this
reinsurance does not cover any loss or liability accruing to the Company, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance against Physical Damage
(including business interruption or consequential loss arising out of such Physical Damage)
to:

	 	I.	 	Nuclear reactor power plants including all auxiliary property on the site, or
	 
	 	II.	 	Any other nuclear reactor installation, including laboratories handling
radioactive materials in connection with reactor installations and “critical
facilities” as such, or
	 
	 	III.	 	Installations for fabricating complete fuel elements or for processing
substantial quantities of “special nuclear material” and for reprocessing, salvaging,
chemically separating, storing or disposing of “spent” nuclear fuel or waste
materials, or
	 
	 	IV.	 	Installations other than those listed in paragraph (2) III above using
substantial quantities of radioactive isotopes or other products of nuclear fission.

	3.	 	Without in any way restricting the operations of paragraphs (1) and (2) hereof, this
reinsurance does not cover any loss or liability by radioactive contamination accruing to the
Company, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on
property which is on the same site as a nuclear reactor power plant or other nuclear
installation and which normally would be insured therewith except that this paragraph (3)
shall not operate:

	 	(a)	 	where Company does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
	 
	 	(b)	 	where said insurance contains a provision excluding coverage
for damage to property caused by or resulting from radioactive contamination,
however caused. However, on and after 1st January 1960, this sub-paragraph (b)
shall only apply provided the said radioactive contamination exclusion
provision has been approved by the Governmental Authority having jurisdiction
thereof.

	4.	 	Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this
reinsurance does not cover any loss or liability by radioactive contamination accruing to the
Company, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.
	 
	5.	 	It is understood and agreed that this Clause shall not extend to risks using radioactive
isotopes in any form where the nuclear exposure is not considered by the Company to be the
primary hazard.
	 
	6.	 	The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act
of 1954 or by any law amendatory thereof.

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

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1.

 

	7.	 	Company to be sole judge of what constitutes:

	 	(a)	 	substantial quantities, and
	 
	 	(b)	 	the extent of installation, plant or site.

Notes: Without in any way restricting the operation of paragraph (1) hereof, it is understood and
agreed that:

	 	(a)	 	All Policies issued by the Company on or before 31st December
1957 shall be free from the application of the other provisions of this Clause
until expiry date or 31st December 1960 whichever first occurs whereupon all
the provisions of this Clause shall apply.
	 
	 	(b)	 	With respect to any risk located in Canada Policies issued by
the Company on or before 31st December 1958 shall be free from the application
of the other provisions of this Clause until expiry date or 31st December 1960
whichever first occurs whereupon all the provisions of this Clause shall apply.

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

2.

 

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

	A.	 	It is agreed that the following is excluded hereunder:

	 	(1)	 	All business derived directly or indirectly from any Pool, Association or
Syndicate which maintains its own reinsurance facilities.
	 
	 	(2)	 	Any Pool or Scheme, (whether voluntary or mandatory) formed after 1st March,
1968 for the purpose of insuring property whether on a country-wide basis or in
respect of designated areas. This exclusion shall not apply to so-called Automobile
Insurance Plans or other Pools formed to provide coverage for Automobile Physical
Damage.
	 
	 	(3)	 	Business written by the Company for the same perils, which is known at the
time to be insured by, or in excess of underlying amounts placed in any Pool,
Association or Syndicate formed for the purpose of writing oil, gas or petro-chemical
plants and/or oil or gas drilling rigs.

	 	 	 	Nevertheless, this exclusion does not apply:

	 	(a)	 	where the Total Insured Value over all interests of the
risk in question is less than $250,000,000.
	 
	 	(b)	 	to interests traditionally underwritten as Inland Marine or
Stock and/or Contents written on a Blanket Basis.
	 
	 	(c)	 	to Contingent Business Interruption, except when the
Company is aware that the key location is known at the time to be insured in
any Pool, Association or Syndicate named above, other than as provided for
under (a), above.
	 
	 	(d)	 	Risks as follows:
	 
	 	 	 	offices, hotels, apartments, hospitals, educational establishments, public
utilities (other than railroad schedules) and builder’s risks on the
classes of risks specified in this subsection (d) only.

	B.	 	Where this Clause attaches to Catastrophe Excess of Loss Reinsurance Agreements, the
following SECTIONS are added:

	 	(1)	 	Nevertheless the Reinsurers specifically agree that liability accruing to the
Company from its participation in Residual Market Mechanisms including but not limited
to:

	 	(a)	 	“Coastal Pools”
	 
	 	(b)	 	All “Fair Plan” and “Rural Risk Plan” Business, and
	 
	 	(c)	 	California Earthquake Authority (“CEA”), and Citizens
Property Insurance Corporation (Florida) (“CPIC”)

	 	 	 	for all perils otherwise protected hereunder shall not be excluded, except that this
reinsurance does not include any increase in such liability resulting from:

	 	(i)	 	The inability of any other participant in
such Residual Market Mechanisms to meet its liability.
	 
	 	(ii)	 	Any claim against such Residual Market
Mechanisms or any participant therein, including the Company, whether
by way of subrogation or otherwise, brought by or on behalf of any
insolvency fund (as defined in the Insolvency Funds Exclusion Clause
incorporated in this Contract).

	 	(2)	 	In respect of the CEA, where an assessment is made against the Company by the
CEA, the Company may include in its Ultimate Net Loss only that assessment directly
attributable to each separate loss occurrence covered hereunder. The Company’s initial
capital contribution to the CEA shall not be included in the Ultimate Net Loss.
	 
	 	(3)	 	In respect of the Citizens Property Insurance Corporation (“CPIC”), where an
assessment is made against the Company by the Citizens Property Insurance Corporation,
(“CPIC”)

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

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1.

 

	 	 	 	the maximum loss that the Company may include in the Ultimate Net Loss in
respect of any loss occurrence hereunder shall not exceed the lesser of:

	 	(a)	 	The Company’s assessment from CPIC for the accounting year
in which the loss occurrence commenced, or
	 
	 	(b)	 	The product of the following:

	 	(i)	 	The Company’s percentage participation in
CPIC for the accounting year in which the loss occurrence commenced;
and
	 
	 	(ii)	 	CPIC’s total losses in such loss
occurrence.

	 	 	 	Assessments for accounting years other than the accounting year in which the Loss
Occurrence commenced may not be included in the Company’s Ultimate Net Loss hereunder.
	 
	 	 	 	Moreover, in respect of the CPIC, Ultimate Net Loss hereunder shall not include any monies
expended to purchase or retire bonds as a consequence of being a member of the CPIC or to
meet any obligations arising from the deferment by CPIC of the collection of monies.

NOTES: Wherever used herein the terms:

	 	 	 	“Company” shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other
term is used in the attached reinsurance document to designate the reinsured company or
companies.
	 
	 	 	 	“Agreement” shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other
term is used to designate the attached reinsurance document.
	 
	 	 	 	“Coastal Pools” means liability accruing to the Company from its participation in state
Residual Market Mechanisms formed to protect property located in those states of the United
States of America which border the Gulf of Mexico, Hawaii, Florida, Georgia, South Carolina
and North Carolina.
	 
	 	 	 	“Pool”, “Syndicate” or “Association” refers to a mandatory or voluntary collection of
unaffiliated insurers, reinsurers or both, who are associated together and using a common
underwriting manager, whether as an employee or as a third party contractor, for the
purposes of accepting risk and providing insurance or reinsurance either severally or
jointly.
	 
	 	 	 	“Reinsurers” shall be understood to mean “Reinsurers”, “Underwriters” or whatever other
term is used in the attached reinsurance document to designate the Reinsurer or Reinsurers.
	 
	 	 	 	“Ultimate Net Loss” shall be understood to mean “Loss”, “Net Loss” or whatever other term
is used to designate the amount of loss to which this reinsurance coverage and the limit
and retention of the attached reinsurance document apply.

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

2.

 

TRANSMISSION AND DISTRIBUTION LINES EXCLUSION — ABOVE GROUND

(150M EXCLUSION)

All above ground transmission and distribution lines, including wire, cables, poles, pylons,
standards, towers, other supporting structures and any equipment of any type which may be attendant
to such installations of any description, for the purpose of transmission and distribution of
electrical power, telephone or telegraph signals, and all communication signals whether audio or
visual.

This exclusion applies to all equipment other than those on or within 150 meters (or 500 feet) from
the insured structure.

This exclusion applies both to physical loss or damage to the equipment and all business
interruption, consequential loss, and/or other contingent losses related to transmission and
distribution lines, other than contingent property damage/business interruption losses (including
expenses), arising from loss and/or damage to lines of third parties.

LSW1633

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

FUNGI COVERAGE LIMITATION (PROPERTY CATASTROPHE PROGRAM)

This reinsurance agreement excludes absolutely any loss, damage, cost expense, or liability arising
from Fungi unless directly caused by or arising from one of the following listed perils:

Earthquake, Seaquake, Seismic and/or Volcanic Disturbance/Eruption, Hurricane, Rainstorm,
Windstorm, Tornado, Cyclone, Typhoon, Tsunami, Flood, Hail, Freeze, Ice Storm, Weight of Snow or
Ice, Avalanche, Meteor/Asteroid Impact, Landslip, Landslide, Mudslide, Bush Fire, Forest Fire,
Lightning, Explosion, Fire, Aircraft and Vehicle Impact, Riots, Strikes and Civil Commotion.

Such losses arising from Fungi may only be included in the Company’s Ultimate Net Loss if they
manifest themselves, and are reported to the Reinsured within twelve (12) months of the start of
the event identified in relation to that Ultimate Net Loss.

Losses arising from Fungi shall not in and of themselves constitute an event for the purposes of
recovery hereunder.

If this reinsurance contract includes cover for Extra-Contractual Obligations or Excess of Policy
Limit payments, then such losses which arise out of claims where Fungi are present or alleged to be
present may be included in the Ultimate Net Loss but only up to a maximum of twenty five percent
(25%) of the Ultimate Net Loss.

For the purposes of this reinsurance contract, Fungi shall be taken to include any type or form of
fungus, mold or mildew and any mycotoxins, spores, scents or by products produced or released by
fungi.

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

TERRORISM EXCLUSION

(Property Treaty Reinsurance)

Notwithstanding any provision to the contrary within this reinsurance contract or any endorsement
thereto, it is agreed that this reinsurance contract excludes loss, damage, cost, or expense
directly or indirectly caused by, contributed to by, resulting from, or arising out of or in
connection with any act of terrorism, as defined herein, regardless of any other cause or event
contributing concurrently or in any other sequence to the loss.

An act of terrorism includes any act, or preparation in respect of action, or threat of action
designed to influence the government de jure or de facto of any nation or any political division
thereof, or in pursuit of political, religious, ideological, or similar purposes to
intimidate the public or a section of the public of any nation by any person or group(s) of persons
whether acting alone or on behalf of or in connection with any organization(s) or government(s) de
jure or de facto, and which:

	(i)	 	involves violence against one or more persons; or
	 
	(ii)	 	involves damage to property; or
	 
	(iii)	 	endangers life other than that of the person committing the action; or
	 
	(iv)	 	creates a risk to health or safety of the public or a section of the public; or
	 
	(v)	 	is designed to interfere with or to disrupt an electronic system.

This reinsurance contract also excludes loss, damage, cost, or expense directly or indirectly
caused by, contributed to by, resulting from, or arising out of or in connection with any action in
controlling, preventing, suppressing, retaliating_against, or responding to any act of
terrorism.

Notwithstanding the above and subject otherwise to the terms, conditions, and limitations
of this reinsurance contract, in respect only of personal lines this reinsurance contract will pay
actual loss or damage (but not related cost or expense) caused by any act of terrorism provided
such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out
of or in connection with biological, chemical, radioactive, or nuclear pollution or contamination
or explosion.

NMA2930b

19/12/01

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

INFORMATION TECHNOLOGY HAZARDS CLARIFICATION CLAUSE

Losses arising directly or indirectly, out of:

	 	(i)	 	loss of, alteration of, or damage to

or

	 	(ii)	 	a reduction in the functionality, availability or operation of
	 
	 	 	 	a computer system, hardware, program, software, data, information repository,
microchip, integrated circuit or similar device in computer equipment or
non-computer equipment, whether the property of the policyholder of the reinsured
or not, do not in and of themselves constitute an event unless arising out of one
or more of the following perils:

	 	 	 	fire, lightning, explosion, aircraft or vehicle impact, falling objects,
windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano,
tsunami, flood, freeze or weight of snow.

23/11/00

NMA2912

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

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Exhibit I — Page 1.

TW No. G22287.11

EXHIBIT I

PROPERTY FIRST CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for each and every Loss
Occurrence, for ninety five percent (95%) of the excess Net Loss above an initial Net Loss to the
Company of three million dollars ($3,000,000) each and every Loss Occurrence; but the Reinsurers
shall not be liable for more than one million nine hundred thousand dollars ($1,900,000) of Net
Loss for each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the remaining five
percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more risks are involved in
a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

A. Each claim hereunder shall reduce the amount of the Reinsurers’ liability from the time of the
occurrence of the loss by the sum paid, but the sum so exhausted immediately shall be reinstated
from the time of the occurrence of the loss.

B. For each amount so reinstated, the Company agrees to pay an additional premium calculated by
multiplying one hundred percent (100%) of the annual premium hereon by the product of the
percentage that the amount reinstated bears to the limit (i.e., one million nine hundred thousand
dollars ($1,900,000)) of this Contract. Nevertheless, the liability of the Reinsurers shall never
be more than one million nine hundred thousand dollars ($1,900,000) in respect of any one Loss
Occurrence, nor more than three million eight hundred thousand dollars ($3,800,000) in all in
respect of all losses occurring during the term of this Contract.

C. A provisional reinstatement premium shall be paid by the Company at the time the Reinsurers pay
the loss giving rise to the reinstatement premium through an offset of the provisional
reinstatement premium due the Reinsurers against the loss payment due the Company, with only the
net amount due to be remitted by the debtor party. The amount of this provisional reinstatement
premium shall be based on one hundred percent (100%) of the estimated annual reinsurance premium
hereunder.

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

Exhibit I — Page 2.

TW No. G22287.11

D. As promptly as possible after the loss has been paid by the Reinsurers and the annual
reinsurance premium hereunder has been finally determined, the Company shall prepare and submit to
the Reinsurers a final statement of reinstatement premium due. Any reinstatement premium shown to
be due the Reinsurers (less prior payments, if any) shall be remitted by the Company with its
statement. Any return reinstatement premium shown to be due the Company shall be remitted by the
Reinsurers as promptly as possible after receipt of the Company’s final statement.

E. In the event there are any mid-term terminations in the participation of any Reinsurer in this
Contract, payment of any such reinstatement premium in full shall be paid to the Reinsurer who
incurred the loss that generates the reinstatement premium.

ARTICLE 7

PREMIUM

A. As premium for the reinsurance provided hereunder, the Company shall pay the Reinsurers zero
point nine five five six percent (0.9556%) of its Net Subject Earned Premium for the Contract
period.

B. The Company shall pay the Reinsurers a deposit premium of two hundred sixty six thousand five
hundred twelve dollars ($266,512) in equal quarterly installments of sixty six thousand six hundred
twenty eight dollars ($66,628) on January 1, April 1, July 1 and October 1, 2011. This Contract
shall be subject to a minimum premium of two hundred thirteen thousand two hundred seven dollars
($213,207).

C. As promptly as possible after the end of the Contract period, the Company shall provide a report
to the Reinsurers setting forth the premium due hereunder, computed in accordance with the first
paragraph, and any additional premium due the Reinsurers or return premium due the Company shall be
remitted promptly.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross earned premium of the
Company for the classes of business reinsured hereunder, less the earned portion of premium for
reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

Exhibit II — Page 1.

TW No. G22288.11

EXHIBIT II

PROPERTY SECOND CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for each and every Loss
Occurrence, for ninety five percent (95%) of the excess Net Loss above an initial Net Loss to the
Company of five million dollars ($5,000,000) each and every Loss Occurrence; but the Reinsurers
shall not be liable for more than four million seven hundred fifty thousand dollars ($4,750,000) of
Net Loss for each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the remaining five
percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more risks are involved in
a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

A. Each claim hereunder shall reduce the amount of the Reinsurers’ liability from the time of the
occurrence of the loss by the sum paid, but the sum so exhausted immediately shall be reinstated
from the time of the occurrence of the loss.

B. For each amount so reinstated, the Company agrees to pay an additional premium calculated by
multiplying one hundred percent (100%) of the annual premium hereon by the product of the
percentage that the amount reinstated bears to the limit (i.e., four million seven hundred fifty
thousand dollars ($4,750,000)) of this Contract. Nevertheless, the liability of the Reinsurers
shall never be more than four million seven hundred fifty thousand dollars ($4,750,000) in respect
of any one Loss Occurrence, nor more than nine million five hundred thousand dollars ($9,500,000)
in all in respect of all losses occurring during the term of this Contract.

C. A provisional reinstatement premium shall be paid by the Company at the time the Reinsurers pay
the loss giving rise to the reinstatement premium through an offset of the provisional
reinstatement premium due the Reinsurers against the loss payment due the Company, with only the
net amount due to be remitted by the debtor party. The amount of this provisional reinstatement
premium shall be based on one hundred percent (100%) of the estimated annual reinsurance premium
hereunder.

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

Exhibit II — Page 2.

TW No. G22288.11

D. As promptly as possible after the loss has been paid by the Reinsurers and the annual
reinsurance premium hereunder has been finally determined, the Company shall prepare and submit to
the Reinsurers a final statement of reinstatement premium due. Any reinstatement premium shown to
be due the Reinsurers (less prior payments, if any) shall be remitted by the Company with its
statement. Any return reinstatement premium shown to be due the Company shall be remitted by the
Reinsurers as promptly as possible after receipt of the Company’s final statement.

E. In the event there are any mid-term terminations in the participation of any Reinsurer in this
Contract, payment of any such reinstatement premium in full shall be paid to the Reinsurer who
incurred the loss that generates the reinstatement premium.

ARTICLE 7

PREMIUM

A. As premium for the reinsurance provided hereunder, the Company shall pay the Reinsurers one
point three two zero zero percent (1.3200%) of its Net Subject Earned Premium for the Contract
period.

B. The Company shall pay the Reinsurers a deposit premium three hundred sixty eight thousand one
hundred forty dollars ($368,140) in equal quarterly installments of ninety two thousand thirty five
dollars ($92,035) on January 1, April 1, July 1 and October 1, 2011. This Contract shall be subject
to a minimum premium of two hundred ninety four thousand five hundred ten dollars ($294,510).

C. As promptly as possible after the end of the Contract period, the Company shall provide a report
to the Reinsurers setting forth the premium due hereunder, computed in accordance with the first
paragraph, and any additional premium due the Reinsurers or return premium due the Company shall be
remitted promptly.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross earned premium of the
Company for the classes of business reinsured hereunder, less the earned portion of premium for
reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

Exhibit III — Page 3.

TW No. G22283.11

EXHIBIT III

PROPERTY THIRD CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for each and every Loss
Occurrence, for ninety five percent (95%) of the excess Net Loss above an initial Net Loss to the
Company of ten million dollars ($10,000,000) each and every Loss Occurrence; but the Reinsurers
shall not be liable for more than fourteen million two hundred fifty thousand dollars ($14,250,000)
of Net Loss for each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the remaining five
percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more risks are involved in
a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

A. Each claim hereunder shall reduce the amount of the Reinsurers’ liability from the time of the
occurrence of the loss by the sum paid, but the sum so exhausted immediately shall be reinstated
from the time of the occurrence of the loss.

B. For each amount so reinstated, the Company agrees to pay an additional premium calculated by
multiplying one hundred percent (100%) of the annual premium hereon by the product of the
percentage that the amount reinstated bears to the limit (i.e., fourteen million two hundred fifty
thousand dollars ($14,250,000)) of this Contract. Nevertheless, the liability of the Reinsurers
shall never be more than fourteen million two hundred fifty thousand dollars ($14,250,000) in
respect of any one Loss Occurrence, nor more than twenty eight million five hundred thousand
dollars ($28,500,000) in all in respect of all losses occurring during the term of this Contract.

C. A provisional reinstatement premium shall be paid by the Company at the time the Reinsurers pay
the loss giving rise to the reinstatement premium through an offset of the provisional
reinstatement premium due the Reinsurers against the loss payment due the

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

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Exhibit III — Page 4.

TW No. G22283.11

Company, with only the net amount due to be remitted by the debtor party. The amount of this
provisional reinstatement premium shall be based on one hundred percent (100%) of the estimated
annual reinsurance premium hereunder.

D. As promptly as possible after the loss has been paid by the Reinsurers and the annual
reinsurance premium hereunder has been finally determined, the Company shall prepare and submit to
the Reinsurers a final statement of reinstatement premium due. Any reinstatement premium shown to
be due the Reinsurers (less prior payments, if any) shall be remitted by the Company with its
statement. Any return reinstatement premium shown to be due the Company shall be remitted by the
Reinsurers as promptly as possible after receipt of the Company’s final statement.

E. In the event there are any mid-term terminations in the participation of any Reinsurer in this
Contract, payment of any such reinstatement premium in full shall be paid to the Reinsurer who
incurred the loss that generates the reinstatement premium.

ARTICLE 7

PREMIUM

A. As premium for the reinsurance provided hereunder, the Company shall pay the Reinsurers one
point nine four three five percent (1.9435%) of its Net Subject Earned Premium for the Contract
period.

B. The Company shall pay the Reinsurers a deposit premium of five hundred forty two thousand twenty
eight dollars ($542,028) in equal quarterly installments of one hundred thirty five thousand five
hundred seven dollars ($135,507) on January 1, April 1, July 1 and October 1, 2011. This Contract
shall be subject to a minimum premium of four hundred thirty three thousand six hundred twenty one
dollars ($433,621).

C. As promptly as possible after the end of the Contract period, the Company shall provide a report
to the Reinsurers setting forth the premium due hereunder, computed in accordance with the first
paragraph, and any additional premium due the Reinsurers or return premium due the Company shall be
remitted promptly.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross earned premium
of the Company for the classes of business reinsured hereunder, less the earned portion of premium
for reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

Exhibit IV — Page 1.

TW No. G26396.11

EXHIBIT IV

PROPERTY FOURTH CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for each and every Loss
Occurrence, for ninety five percent (95%) of the excess Net Loss above an initial Net Loss to the
Company of twenty five million dollars ($25,000,000) each and every Loss Occurrence; but the
Reinsurers shall not be liable for more than nineteen million dollars ($19,000,000) of Net Loss for
each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the remaining five
percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more risks are involved in
a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

A. Each claim hereunder shall reduce the amount of the Reinsurers’ liability from the time of the
occurrence of the Loss by the sum paid, but the sum so exhausted immediately shall be reinstated
from the time of the occurrence of the Loss.

B. For each amount so reinstated, the Company agrees to pay an additional premium calculated by
multiplying one hundred percent (100%) of the annual premium hereon by the product of the
percentage that the amount reinstated bears to the limit (i.e., nineteen million dollars
($19,000,000)) of this Contract. Nevertheless, the liability of the Reinsurers shall never be more
than nineteen million dollars ($19,000,000) in respect of any one Loss Occurrence, nor more than
thirty eight million dollars ($38,000,000) in all in respect of all losses occurring during the
term of this Contract.

C. A provisional reinstatement premium shall be paid by the Company at the time the Reinsurers pay
the Loss giving rise to the reinstatement premium through an offset of the provisional
reinstatement premium due the Reinsurers against the Loss payment due the

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL
	 	

 

 

Exhibit IV — Page 2.

TW No. G26396.11

Company, with only the net amount due to be remitted by the debtor party. The amount of this
provisional reinstatement premium shall be based on one hundred percent (100%) of the estimated
annual reinsurance premium hereunder.

D. As promptly as possible after the Loss has been paid by the Reinsurers and the annual
reinsurance premium hereunder has been finally determined, the Company shall prepare and submit to
the Reinsurers a final statement of reinstatement premium due. Any reinstatement premium shown to
be due the Reinsurers (less prior payments, if any) shall be remitted by the Company with its
statement. Any return reinstatement premium shown to be due the Company shall be remitted by the
Reinsurers as promptly as possible after receipt of the Company’s final statement.

E. In the event there are any mid-term terminations in the participation of any Reinsurer in this
Contract, payment of any such reinstatement premium in full shall be paid to the Reinsurer who
incurred the Loss that generates the reinstatement premium.

ARTICLE 7

PREMIUM

A. As premium for the reinsurance provided hereunder, the Company shall pay the Reinsurers one
point six three five zero percent (1.6350%) of its Net Subject Earned Premium for the Contract
period.

B. The Company shall pay the Reinsurers a deposit premium of four hundred fifty six thousand
dollars ($456,000) in equal quarterly installments of one hundred fourteen thousand dollars
($114,000) on January 1, April 1, July 1 and October 1, 2011. This Contract shall be subject to a
minimum premium of three hundred sixty four thousand eight hundred dollars ($364,800).

C. As promptly as possible after the end of the Contract period, the Company shall provide a report
to the Reinsurers setting forth the premium due hereunder, computed in accordance with the first
paragraph, and any additional premium due the Reinsurers or return premium due the Company shall be
remitted promptly.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross earned premium of the
Company for the classes of business reinsured hereunder, less the earned portion of premium for
reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2011

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

			
	 	 	 
	TW No. G22283.11/G22287.11/G22288.11/G26396.11

FINAL

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