Document:

<PAGE>
                                                                    Exhibit 10.1

                               PURCHASE AGREEMENT

                                 By and Between

                        ALLEGHANY INSURANCE HOLDINGS LLC

                                       and

                              TALBOT HOLDINGS LTD.

                                   DATED AS OF
                                OCTOBER 31, 2001

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                               <C>
ARTICLE I PURCHASE OF SHARES AND ENTITLEMENTS.......................................................................2

   1.1.  Purchase of the Shares and the Entitlements................................................................2
         -------------------------------------------
   1.2.  Consideration..............................................................................................2
         -------------
   1.3.  Closing....................................................................................................2
         -------
   1.4.  Intentionally Left Blank...................................................................................2
         ------------------------
   1.5.  Stamp Duties...............................................................................................2
         ------------

ARTICLE II REPRESENTATIONS AND WARRANTIES OF AIHL...................................................................3

   2.1.  Organization...............................................................................................3
         ------------
   2.2.  Authority..................................................................................................3
         ---------
   2.3.  The Shares.................................................................................................3
         ----------

ARTICLE III REPRESENTATIONS AND WARRANTIES OF TALBOT HOLDINGS.......................................................3

   3.1.  Organization and Standing..................................................................................3
         -------------------------
   3.2.  Authority..................................................................................................3
         ---------

ARTICLE IV COVENANTS................................................................................................4

   4.1.  Cooperation and Reasonable Best Efforts....................................................................4
         ---------------------------------------
   4.2.  Letter Agreement re Post-Closing Covenants.................................................................4
         ------------------------------------------
   4.3.  No Election................................................................................................4
         -----------
   4.4.  No Liquidation of Talbot Capital...........................................................................4
         --------------------------------
   4.5.  Option Stock Purchase Agreement............................................................................5
         -------------------------------
   4.6.  Bermuda Approvals..........................................................................................5
         -----------------

ARTICLE V RELEASE AND COVENANT NOT TO SUE...........................................................................5

   5.1.  Talbot Holdings Release....................................................................................5
         -----------------------
   5.2.  Other Releases.............................................................................................5
         --------------

ARTICLE VI MISCELLANEOUS PROVISIONS.................................................................................6

   6.1.      Expenses...............................................................................................6
             --------
   6.2.      Notices................................................................................................6
             -------
   6.3.      Entire Agreement; Amendments and Waivers...............................................................7
             ----------------------------------------
   6.4.      Assignment.............................................................................................7
             ----------
   6.5.      Survival of Representations, Warranties and Covenants..................................................7
             -----------------------------------------------------
   6.6.      Governing Law..........................................................................................8
             -------------
   6.7.      Consent To Jurisdiction................................................................................8
             -----------------------
   6.8.      Waiver of Jury Trial...................................................................................8
             --------------------
   6.9.      Remedies...............................................................................................8
             --------
   6.10.     Interpretation.........................................................................................9
             --------------
   6.11.     No Benefit to Others...................................................................................9
             --------------------
   6.12.     Public Announcements...................................................................................9
             --------------------
   6.13.     Counterparts...........................................................................................9
             ------------
   6.14.     Headings...............................................................................................9
             --------
   6.15.     Severability...........................................................................................9
             ------------
</TABLE>

                                      -i-
<PAGE>

                                    EXHIBITS

Exhibit A         Warrant
Exhibit B         Assignment
Exhibit C         Letter Agreement re Post-Closing Covenants
Exhibit D         Releases
Exhibit E         Letter Agreement re Option Stock Purchase Agreement

                                      -ii-
<PAGE>

                               PURCHASE AGREEMENT

                PURCHASE AGREEMENT (this "Agreement"), dated as of October 31,
2001, by and between ALLEGHANY INSURANCE HOLDINGS LLC, a Delaware limited
liability company ("AIHL"), and Talbot Holdings LTD., a Bermuda exempted limited
liability company ("Talbot Holdings").

                              W I T N E S S E T H :

                WHEREAS, AIHL is the owner of 116,635,100 ordinary shares (the
"Shares"), constituting all of the issued and outstanding shares in the capital
of Alleghany Underwriting Holdings Ltd ("AUHL"), a company registered in England
and Wales under company number 02180028 and having its registered office at
Gracechurch House, 55 Gracechurch Street, London EC3V 0JP;

                WHEREAS, AIHL is the depositor of (a) a deposit in the amount of
$244,915,000 with Lloyd's in satisfaction of the funds at Lloyd's requirements
of Alleghany Underwriting Capital Ltd, Alleghany Underwriting Capital (Bermuda)
Ltd. and Talbot Underwriting Limited, which are the corporate members of Lloyd's
wholly owned by AUHL; and (b) a deposit in the amount of $10,000,000 with
Citibank, N.A. as trustee of the U.S. surplus lines trust fund in satisfaction
of the U.S. surplus lines trust fund requirements of such corporate members
(AIHL's right, title and interest in and to all of such deposits are hereinafter
collectively referred to as the "Entitlements");

                WHEREAS, all of the issued and outstanding shares of capital
stock of Talbot Holdings are owned by certain members of the executive
management of AUHL and its subsidiaries;

                WHEREAS, Talbot Holdings is the owner of all of the issued and
outstanding shares of capital stock of Talbot Capital Ltd., a Bermuda exempted
limited liability company and wholly owned subsidiary of Talbot Holdings
("Talbot Capital");

                WHEREAS, AIHL desires to sell and Talbot Holdings desires to
purchase the Shares, and AIHL desires to assign and Talbot Capital desires to
take an assignment of the Entitlements, all upon the terms and subject to the
conditions set forth in this Agreement; and

                WHEREAS, The Society of Lloyd's has approved the change of
controller of Alleghany Underwriting Capital Ltd, Alleghany Underwriting Capital
(Bermuda) Ltd, Talbot Underwriting Ltd, Alleghany Underwriting Ltd and has been
notified of the proposed change of controller of Alleghany Underwriting Risk
Services Ltd;

                NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and provisions contained herein, the parties hereto agree
as follows:

<PAGE>

                                   ARTICLE I

                       PURCHASE OF SHARES AND ENTITLEMENTS

                1.1.    Purchase of the Shares and the Entitlements. Upon the
terms and subject to the conditions set forth in this Agreement, at the Closing
(as hereinafter defined), (a) AIHL shall sell, convey, assign, transfer and
deliver the Shares to Talbot Holdings, and Talbot Holdings shall acquire the
Shares from AIHL, and (b) AIHL shall sell, convey, assign, transfer and deliver
(at the direction, and for the benefit, of Talbot Holdings) the Entitlements to
Talbot Capital, and Talbot Capital shall acquire the Entitlements from AIHL.

                1.2.    Consideration. At the Closing (as hereinafter defined),
Talbot Holdings shall pay to AIHL the sum of ten dollars ($10.00) in cash (the
"Cash Consideration"), and shall procure the issue to AIHL of a warrant (the
"Warrant") in the name of AIHL to subscribe for 100 Class A Redeemable
Non-Voting Preferred Shares, par value $0.01 per share, of Talbot Capital
("Talbot Capital Preferred Shares"). A copy of the Warrant is attached hereto as
Exhibit A.

                1.3.    Closing. Subject to receipt by AIHL of an opinion from
Swidler Berlin Shereff Friedman, LLP, tax counsel for AIHL, in form and
substance satisfactory to AIHL, the purchase and sale of the Shares and the
Entitlements pursuant to this Agreement (the "Closing") shall take place at the
offices of Dewey Ballantine in London, England at 5:00 p.m. local time on
November 5, 2001, or at such other place or time as the parties hereto agree in
writing (the "Closing Date"). At the Closing:

                (a)     AIHL shall cause AUHL to convene a meeting of its board
of directors to approve and direct the registration of the transfer of the
Shares to Talbot Holdings (pending only the share transfer form being stamped),
and to accept the resignations of Russell J.D. Willmer, Russell T. John, Robert
M. Hart, Richard P. Toft and Dorothea C. Gilliam as directors of AUHL and its
subsidiaries;

                (b)     AIHL shall deliver (i) to Talbot Holdings, a stock
transfer form in respect of the Shares duly executed in favor of Talbot Holdings
together with the share certificates representing the Shares, and (ii) to Talbot
Capital, an assignment evidencing the transfer of the Entitlements to Talbot
Capital in the form attached hereto as Exhibit B (the "Assignment"); and

                (c)     Talbot Holdings shall deliver to AIHL the Cash
Consideration and the Warrant.

                1.4.    Intentionally Left Blank

                1.5.    Stamp Duties. Talbot Holdings shall be responsible for
the payment of any and all stamp duties arising out of transactions contemplated
by this Agreement, including, without limitation, any related fines, penalties
and interest.

                                      -2-
<PAGE>

                                   ARTICLE II

                     REPRESENTATIONS AND WARRANTIES OF AIHL

                AIHL represents and warrants to Talbot Holdings as follows:

                2.1.    Organization. AIHL is a limited liability company duly
organized, validly existing and in good standing under the laws of Delaware, and
has all requisite power and authority to own its properties and to conduct its
business as now being conducted.

                2.2.    Authority. AIHL has all requisite power and authority to
enter into this Agreement and to carry out the transactions contemplated hereby.
The execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on the part of AIHL and this Agreement constitutes a legal, valid and
binding obligation of AIHL, enforceable against AIHL in accordance with its
terms.

                2.3.    The Shares. The Shares have been duly authorized and
validly issued and are fully paid, constitute all of the issued and outstanding
shares of capital stock of AUHL, and are owned by AIHL.

                                  ARTICLE III

                REPRESENTATIONS AND WARRANTIES OF TALBOT HOLDINGS

                Talbot Holdings represents and warrants to AIHL as follows:

                3.1.    Organization and Standing. Talbot Holdings is an exempt
limited liability company duly organized, validly existing and in good standing
under the laws of Bermuda, and has all requisite corporate power and authority
to own its properties and to conduct its business as now being conducted.

                3.2.    Authority. All of the permits, approvals, qualifications
or consents of third parties and regulatory authorities which are required for
the consummation of the transactions contemplated by this Agreement have been
obtained. Talbot Holdings has all requisite power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on the part of Talbot Holdings and Talbot Capital and this Agreement
constitutes a legal, valid and binding obligation of Talbot Holdings enforceable
against Talbot Holdings in accordance with its terms.

                                      -3-
<PAGE>

                                   ARTICLE IV

                                    COVENANTS

                4.1.    Cooperation and Reasonable Best Efforts. Subject to the
terms and conditions hereof, (a) each of the parties hereto shall cooperate with
the other in connection with consummating the transactions contemplated by this
Agreement, and (b) each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. (For purposes of this Agreement, the covenant of the parties to
use their "reasonable best efforts" shall not require any party to incur any
unreasonable expenses.)

                4.2.    Letter Agreement re Post-Closing Covenants. At the
Closing, AIHL and AUHL shall enter into a letter agreement in the form set forth
as Exhibit C hereto.

                4.3.    No Election. Neither Talbot Holdings nor Talbot Capital
has made the election permitted to be made by U.S. Treasury Regulation Section
301.7701-3(c), and Talbot Holdings will not make, and will not allow Talbot
Capital to make, the election permitted to be made by U.S. Treasury Regulation
Section 301.7701-3(c) to be effective as of any date in the taxable year of
Talbot Holdings in which the Closing occurs or in the following taxable year.

                4.4.    No Liquidation of Talbot Capital. Talbot Holdings shall
not, and shall not permit Talbot Capital to, take any action that would result
in the voluntary liquidation, dissolution or winding up of Talbot Capital, a
sale of all or substantially all of the assets of Talbot Capital (whether in a
single transaction or series of related transactions), or any amalgamation or
consolidation (and Talbot Capital is not a surviving entity in any form) of
Talbot Capital, prior to the determination of Residual FAL (as defined in the
Certificate of Designation of the Talbot Capital Preferred Shares).

                4.5.    Option Stock Purchase Agreement. At the Closing,
Alleghany Corporation and AUHL shall enter into a letter agreement in the form
set forth as Exhibit D hereto.

                4.6.    Bermuda Approvals. Application has been made to (a) the
Bermuda Monetary Authority for the approval of (i) the transfer of the ultimate
beneficial ownership of Alleghany Underwriting Capital (Bermuda) Ltd. from
Alleghany Corporation to Talbot Holdings, and (ii) the issue by Talbot Capital
of the Warrant to AIHL; and (b) the Bermuda Supervisor of Insurance for the
approval of the transfer of the ultimate beneficial ownership of Alleghany
Underwriting Capital (Bermuda) Ltd. from Alleghany Corporation to Talbot
Holdings. In the event that these approvals have not been obtained by 5:00 p.m.
local time in London, England on November 5, 2001, the parties hereto hereby
agree to take, or cause to be taken, such action as is necessary or advisable to
allow the Closing to occur no later than November 30, 2001.

                                      -4-
<PAGE>

                                   ARTICLE V

                         RELEASE AND COVENANT NOT TO SUE

                5.1.    Talbot Holdings Release Effective as of the Closing,
Talbot Holdings, for itself as well as its subsidiaries (including, without
limitation, after the Closing Date, AUHL and its subsidiaries) and their
respective successors, agents and assigns, does hereby forever, finally, fully,
and unconditionally release and discharge AIHL and its parent Alleghany
Corporation and their respective subsidiaries, affiliates, parents, successors,
predecessors and assigns, and all of their respective past and present members,
managers, employees, officers, directors, agents, representatives, attorneys,
insurers, accountants and shareholders, in their individual, official and
representative capacities, from and against any and all claims, debts,
liabilities, demands, obligations, promises, agreements, contracts, covenants,
liens, losses, costs and expenses, damages, suits, actions and causes of action
whatsoever, at law or in equity, that any of them ever had, now have, or
hereafter can, shall or may have, from the beginning of the world to the Closing
Date, whether known or unknown, suspected or unsuspected, matured or unmatured,
liquidated or unliquidated, jointly or severally, directly or indirectly,
accrued or unaccrued, contingent or fixed (collectively, "Claims") for, upon, or
by reason of any matter, cause or thing whatsoever, including, without
limitation, any and all Claims arising out of, or relating to, any act or
omission in connection with the management or conduct of the business or affairs
of AUHL or any of its subsidiaries, and further covenants not to sue upon any
such Claims. Notwithstanding the foregoing, AIHL shall not be released from any
Claims arising out of or relating to any breach by AIHL of its obligations under
this Agreement or any documents delivered pursuant hereto.

                5.2.    Other Releases. At the Closing, releases in the forms
set forth in Exhibit E hereto shall be executed and delivered by the parties
thereto.

                                   ARTICLE VI

                            MISCELLANEOUS PROVISIONS

                6.1.    Expenses. Whether or not the Closing takes place and
regardless of whether this Agreement is terminated, each party hereto shall pay
all of the costs and expenses incurred by it in connection with this Agreement
or in consummating the transactions contemplated hereby (including, without
limitation, disbursements and expenses of its attorneys, accountants and
advisors). Except for the services provided by Lexicon Partners, whose fees and
expenses will be paid by AIHL, no agent, broker, investment banker, person or
firm acting on behalf of Talbot Holdings or under Talbot Holdings' authority is
or will be entitled to any broker's, finder's or investment banker's fee or any
other commission or similar fee directly or indirectly from any of the parties
hereto in connection with the negotiation or consummation of any of the
transactions contemplated hereby.

                6.2.    Notices. All notices or other communications required or
permitted under this Agreement shall be in writing and shall be effective upon
delivery by hand or upon receipt if sent certified or registered mail (postage
prepaid and return receipt requested) or by a nationally

                                      -5-
<PAGE>

recognized overnight courier service (appropriately marked for overnight
delivery) or upon transmission if sent by telex or facsimile (with request for
immediate confirmation of receipt in a manner customary for communications of
such respective type and with physical delivery of the communication being made
by one of the other means specified in this Section 6.2 as promptly as
practicable thereafter). Notices are to be addressed as follows:

        If to AIHL, to

                Alleghany Insurance Holdings LLC
                375 Park Avenue
                New York, New York 10152
                Attention: Robert M. Hart, Esq.
                           Manager
                Facsimile: 212-759-3295

        with a copy to

                Dewey Ballantine LLP
                1301 Avenue of the Americas
                New York, New York 10019
                Attention: Linda E. Ransom, Esq.
                Facsimile: 212-259-6333

        If to Talbot Holdings, to

                Talbot Holdings Ltd.
                Clarendon House
                2 Church Street
                Hamilton HM 11
                Bermuda
                Attention: Secretary
                Facsimile: 441-292-4720

        with a copy to

                Denton Wilde Sapte
                One Fleet Place
                London EC4M 7WS
                United Kingdom
                Attention: George Sandars, Esq.
                Facsimile: 44-207-246-7777

                Any party may change the person and addresses to which notices
or other communications are to be sent to it by giving written notice of any
such change in the manner provided herein for giving notice.

                                      -6-
<PAGE>

                6.3.    Entire Agreement; Amendments and Waivers. This
Agreement, together with the exhibits delivered pursuant hereto, sets forth the
entire agreement and understanding of the parties hereto in respect of the
transactions contemplated hereby, and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof. No party
hereto has relied upon any oral or written statement, representation, warranty,
covenant, condition, understanding or agreement made by any other party or any
representative, agent or employee thereof, except for those expressly set forth
in this Agreement or in the exhibits or schedules delivered pursuant hereto.
This Agreement may be amended or modified, and the terms hereof may be waived,
only by a writing signed by each of the parties hereto or, in the case of a
waiver, by the party entitled to the benefit of the terms being waived.

                6.4.    Assignment. This Agreement shall be binding upon, and
inure to the benefit of, the respective successors and assigns of the parties
hereto; provided, however, that no assignment of any rights or delegation of any
obligations provided for herein shall be made by a party hereto without the
express prior written consent of the other party hereto, which consent shall not
be unreasonably withheld.

                6.5.    Survival of Representations, Warranties and Covenants.
All representations, warranties and covenants, of the parties hereto which are
contained in this Agreement, together with the exhibits delivered pursuant
hereto, shall survive the Closing and remain operative and in full force and
effect, regardless of any investigation heretofore or hereafter made by or on
behalf of any of the parties hereto.

                6.6.    Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.

                6.7.    Consent To Jurisdiction. The parties hereto agree that
any suit, action or proceeding seeking to enforce any provision of, or based on
any matter arising out of or in connection with, this Agreement, any documents
delivered pursuant hereto or the transactions contemplated hereby or thereby
shall be brought in the United States District Court for the Southern District
of New York or any New York State court sitting in Manhattan, and each of the
parties hereby consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Each party agrees that service of process on such party by
hand delivery, or by certified or registered mail (postage prepaid and return
receipt requested) or by a nationally recognized overnight courier service
(appropriately marked for overnight delivery), addressed as provided in
Section 6.2, shall be deemed effective service of process on such party.

                6.8.    Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY

                                      -7-
<PAGE>

DOCUMENTS DELIVERED PURSUANT HERETO OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.

                6.9.    Remedies. Without intending to limit the remedies
available to any party hereto, each party (i) acknowledges that breach of this
Agreement or any documents delivered pursuant hereto will result in irreparable
harm for which there is no adequate remedy at law, (ii) agrees that any party
seeking to enforce this Agreement or any documents delivered pursuant hereto
shall be entitled to injunctive relief, including specific performance, or other
equitable remedies upon any such breach, and (iii) the prevailing party in any
action brought pursuant to, or related to or referenced in any way in this
Agreement or any documents delivered pursuant hereto shall be entitled to
recover its attorneys' fees from the losing party.

                6.10.   Interpretation. This Agreement and any documents
delivered pursuant hereto are the result of arm's-length negotiations between
the parties hereto and have been prepared jointly by the parties. In applying
and interpreting the provisions of this Agreement and any documents delivered
pursuant hereto, there shall be no presumption that this Agreement and such
documents were prepared by any one party or that this Agreement or such
documents shall be construed in favor of or against any one party.

                6.11.   No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement and in any documents
delivered pursuant hereto are for the sole benefit of the parties hereto and
their respective successors and permitted assigns and they shall not be
construed as conferring and are not intended to confer any rights on any other
persons, except as provided in Article V hereof and Exhibit E hereto.

                6.12.   Public Announcements. A press release in a form mutually
agreed will be issued upon execution of this Agreement. Each party hereto agrees
that it will not issue any other press release or otherwise make any public
announcement with respect to this Agreement and the transactions contemplated
hereby without the prior consent of the other party hereto (such consent not to
be unreasonably withheld or delayed), unless such party determines in good faith
that it is so obligated by applicable law, in which case such party shall
consult, to the extent practicable, with the other party prior to issuing such
press release or making such public announcement.

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

                6.14.   Headings. The section headings contained in this
Agreement are inserted for convenience of reference only and shall not affect
the meaning or interpretation of this Agreement.

                6.15.   Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

                                      -8-
<PAGE>

                IN WITNESS WHEREOF, each party hereto has caused this Agreement
to be duly executed as of the date first above written.

                                                ALLEGHANY INSURANCE HOLDINGS LLC

                                                By: /s/ Robert M. Hart
                                                    ----------------------------
                                                    Name:  Robert M. Hart
                                                    Title: Manager
Witness:

By: /s/ Benson J. Chapman
    --------------------------------------
    Name:  Benson J. Chapman

                                                TALBOT HOLDINGS LTD.

                                                By: /s/ Michael A E Carpenter
                                                    ----------------------------
                                                    Name:  Michael A E Carpenter
                                                    Title: Vice President
Attest:

By: /s/ Jane S Clouting
    --------------------------------------
    Name:  Jane S Clouting
    Title: Assistant Secretary

                                      -9-
<PAGE>

                                                                       Exhibit A

                                     WARRANT

           TO PURCHASE CLASS A REDEEMABLE NON-VOTING PREFERRED SHARES

                                       OF

                               TALBOT CAPITAL LTD.

Date of Issuance: November 5, 2001                         Number of Shares: 100

                Talbot Capital Ltd., a Bermuda exempted limited liability
company (the "Company"), for value received, hereby certifies that Alleghany
Insurance Holdings LLC, a Delaware limited liability company (the "Holder"), or
registered assigns, is entitled, subject to the terms set forth herein, at any
time after November 5, 2001 and on or before November 5, 2011 (the "Subscription
Period"), to subscribe for 100 Class A Redeemable Non-Voting Preferred Shares,
par value $0.01 per share, of the Company (the "Preferred Shares"), at the
subscription price of Ten Million United States Dollars (US$10,000,000) (the
"Subscription Price"). The Preferred Shares constitute all of the authorized
Class A Redeemable Non-Voting Preferred Shares of the Company, and, in
accordance with the rights of the Preferred Shares set forth in the Certificate
of Designation of the Preferred Shares appended to the Company's Bye-laws (the
"Rights"), entitle the Holder to the greater of (a) the Stated Value of the
Preferred Shares (as defined in the Rights), and (b) one-third of the sum of the
Residual FAL (as defined in the Rights) and the Stated Value of the Preferred
Shares, plus in either case unpaid cumulative dividends on the Preferred Shares.

                1.      Exercise of Warrant.

                        (a)     Exercise of this Warrant by the Holder shall be
made at any time during the Subscription Period by the surrender of this
Warrant, along with a duly executed notice of exercise in the form attached
hereto as Exhibit 1, at the Company's principal offices, together with payment
in full of the Subscription Price by certified or official bank check payable to
the order of the Company, or such other form of payment as shall be acceptable
to the Company and the Holder.

                        (b)     The exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on the day on
which this Warrant shall have been surrendered to the Company as provided in
Section 1(a) above. At such time, the person or persons in whose name or names
any certificates for Preferred Shares shall be issuable upon such exercise shall
be deemed to have become the holder or holders of record of the Preferred Shares
represented by such certificates.

                        (c)     As soon as practicable after the exercise of
this Warrant, and in any event within ten (10) days thereafter, the Company at
its expense shall cause to be issued in the name of, and delivered to, the
Holder, or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of full
shares

<PAGE>

of Preferred Shares to which such Holder shall be entitled upon such exercise.
The Company shall not be required upon exercise of this Warrant to issue any
fractional Preferred Shares, but shall make adjustment therefor in cash as
determined in good faith by the Board of Directors of the Company.

                2.      Reservation of Preferred Shares. The Company agrees
that, at all times during the Subscription Period, the Company will have duly
authorized and in reserve, and will keep available solely for issuance and
delivery upon the exercise of this Warrant, such number of Preferred Shares as
shall be issuable upon the exercise of this Warrant. The Company represents that
the Preferred Shares have been duly authorized and constitute all of the
authorized Class A Non-Voting Preferred Shares of the Company; none of the
Preferred Shares have been issued and are outstanding; and, when issued and
delivered upon exercise of the Warrant, the Preferred Shares will be validly
issued, fully paid and nonassessable, free and clear of all restrictions on sale
or transfer and free and clear of all preemptive rights and rights of first
refusal. The Company further covenants and agrees that it will pay, when due and
payable, any and all foreign, federal and state stamp, original issue or similar
taxes which may be payable in respect of the issuance of any Preferred Shares or
certificates therefor.

                3.      Reporting Requirements. For so long as this Warrant and
any Preferred Shares issuable upon exercise thereof are outstanding, the Company
will furnish to the Holder such reports as are furnished to Lloyd's (or
succeeding regulatory authority) in respect of the Corporate Members (as defined
in the Rights) and syndicates on which such Corporate Members have written for
the 2001 year of account and prior years of account.

                4.      Transfer. Title to this Warrant may be transferred by
the due endorsement (with signature guaranteed) by the Holder of an assignment
in the form attached hereto as Exhibit 2. On surrender of this Warrant and said
duly endorsed assignment to the Company, the Company at its expense will issue
and deliver to or on the order of the Holder a new Warrant of like tenor, in
such name as the Holder (on payment by such Holder or any applicable transfer
taxes) may direct.

                5.      Replacement of Warrants. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

                6.      No Impairment. The Company will not, without the
Holder's written consent, amend its Bye-laws to alter the Rights. In addition,
the Company will not, without the Holder's written consent, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but it will at all times in good faith assist in the
carrying out of all of the provisions of this Warrant and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against impairment. A change of control of the

                                      -2-
<PAGE>

Corporate Members (as defined in the Rights) shall not be deemed to be an
impairment provided that the Residual FAL (as defined in the Rights) continues
to include the funds at Lloyd's of such Corporate Members.

                7.      No Rights as a Stockholder. This Warrant does not confer
upon the Holder any rights or liabilities as a shareholder of the Company prior
to the exercise of this Warrant.

                8.      Amendment. This Warrant may not be modified or amended
except by an instrument in writing signed by the Company and the Holder.

                9.      Notices. All notices and other communications required
or permitted to be given to the Company or the Holder shall be delivered by
hand, or sent by first class registered or certified mail, postage prepaid, or
sent by telecopy, to the Company at Clarendon House, 2 Church Street, Hamilton
HM11, Bermuda, or to the Holder at such address and telecopy number as may have
been furnished to the Company in writing by the Holder.

                10.     Remedies. The Company acknowledges and agrees that the
remedies at law of the Holder in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.

                11.     Miscellaneous. This Warrant shall be binding upon the
Company's successors. This Warrant shall be construed and enforced in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed entirely within such State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof.

                                                TALBOT CAPITAL LTD.

                                                By:
                                                    ----------------------------
                                                    Name:  Michael A E Carpenter
                                                    Title: Vice President

Attest:

By:
    -------------------------------
    Name:  Jane S Clouting
    Title: Assistant Secretary

                                      -3-
<PAGE>

                                                                       Exhibit 1

                               NOTICE OF EXERCISE
                                   OF WARRANT

To: Talbot Capital Ltd.                                   Date:
                                                                ----------------

                The undersigned, pursuant to the provisions set forth in the
Warrant dated November 5, 2001, hereby irrevocably elects to exercise the
Warrant to subscribe for 100 Class A Redeemable Non-Voting Preferred Shares, par
value $.01 per share, of Talbot Capital Ltd. subject to the Memorandum of
Association and Bye-laws of Talbot Capital Ltd., and tenders herewith payment of
the Subscription Price in full in the amount of Ten Million United States
Dollars (US$10,000,000).

                Please issue a certificate or certificates for such Class A
Redeemable Non-Voting Preferred Shares in the name of, and pay any cash for any
fractional share to:

                                                Alleghany Insurance Holdings LLC
                                                375 Park Avenue
                                                New York, New York 10152

                                                By:
                                                    ----------------------------
                                                    Name:
                                                    Title: Manager

<PAGE>

                                                                       Exhibit 2

                              ASSIGNMENT OF WARRANT

                FOR VALUE RECEIVED, the undersigned Holder of the Warrant dated
November 5, 2001 hereby sells, assigns and transfers unto ____________, whose
address is _____________________, all of the right, title and interest of the
undersigned in and to such Warrant, and does hereby irrevocably constitute and
appoint _____________________ as its attorney-in-fact to register such transfer
on the books of Talbot Capital Ltd. maintained for the purpose, with full power
of substitution in the premises.

Date:                                           Holder:
     -----------------------------

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

                                                       [Signature Guaranteed]

<PAGE>

                                                                       Exhibit B

                                   ASSIGNMENT

                FOR VALUE RECEIVED, ALLEGHANY INSURANCE HOLDINGS LLC, a Delaware
limited liability company ("Assignor"), hereby assigns, conveys, grants, sets
over and transfers to TALBOT CAPITAL LTD., a Bermuda exempted limited liability
company ("Assignee"), all of Assignor's right, title and interest in and to the
following:

                (a)     (i)     the deposit with Lloyd's of US$70,978,000 on
                                behalf of Alleghany Underwriting Capital Ltd
                                ("AUCL") in satisfaction of its funds at Lloyd's
                                requirements, which deposit is evidenced by a
                                Lloyd's Deposit Trust Deed made the 17th day of
                                October, 2001 (Lloyd's of London Member Code
                                053561C);

                        (ii)    the deposit with Lloyd's of US$172,989,000 on
                                behalf of Alleghany Underwriting Capital
                                (Bermuda) Ltd ("AUC(B)L") in satisfaction of its
                                funds at Lloyd's requirements, which deposit is
                                evidenced by a Lloyd's Deposit Trust Deed made
                                the 17th day of October, 2001 (Lloyd's of London
                                Member Code 053562K);

                        (iii)   the deposit with Lloyd's of US$948,000 on behalf
                                of Talbot Underwriting Ltd ("Talbot
                                Underwriting") in satisfaction of its funds at
                                Lloyd's requirements, which deposit is evidenced
                                by a Lloyd's Deposit Trust Deed made the 17th
                                day of October, 2001 (Lloyd's of London Member
                                Code 054159J); and

                        (iv)    the deposit with Citibank, N.A. of US$10,000,000
                                in satisfaction of the U.S. Surplus Lines Trust
                                Fund requirements of Syndicate 376 (account no.
                                437602-00);

                        (all of the foregoing deposits being collectively
                        referred to herein as the "Deposits"),

                (b)     any and all agreements, contracts, documents or
                        instruments evidencing Assignor's right, title and
                        interest in and to the Deposits, including without
                        limitation the Lloyd's Deposit Trust Deeds referred to
                        in clauses (a)(i), (a)(ii) and (a)(iii) above, subject
                        to the terms and conditions of such agreements,
                        contracts, documents and instruments; and

                (c)     all of Assignor's right, title and interest in and to
                        any or all of the proceeds of any or all of the
                        foregoing;

to have and to hold unto Assignee and its successors and assigns forever.

                Assignee acknowledges and agrees that the Deposits were made in
compliance with the requirements of Lloyd's or the U.S. Surplus Lines Trust Fund
in support of the underwriting activities of AUCL, AUC(B)L and Talbot
Underwriting, and are under the direct control of Lloyd's or Citibank, as the
case may be. Accordingly, Assignee agrees that it will not

<PAGE>

seek recourse to any of the Deposits or take any action in respect of the
Deposits under circumstances that would render AUCL, AUC(B)L or Talbot
Underwriting insolvent.

                This Assignment is made without any representation or warranty,
express or implied, by Assignor.

                This Assignment will be binding upon, and inure to the benefit
of, Assignor and Assignee and their respective successors and assigns.

                This Assignment shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements made
and to be performed entirely within such State.

                This Assignment may be executed in counterparts, each of which
when so executed and delivered shall be deemed an original, but all of which
taken together shall constitute but one and the same instrument.

Dated as of the 5th day of November, 2001.

                                                ALLEGHANY INSURANCE HOLDINGS LLC

                                                By:
                                                    ----------------------------
                                                    Name:  David B. Cuming
                                                    Title: Manager

                                                TALBOT CAPITAL LTD.

                                                By:
                                                    ----------------------------
                                                    Name:  Michael A E Carpenter
                                                    Title: Vice President

                                      -2-
<PAGE>

                                                                       EXHIBIT C

                        Alleghany Insurance Holdings LLC
                                 375 Park Avenue
                               New York, NY 10152

                                November 5, 2001

Alleghany Underwriting Holdings Ltd
Gracechurch House
55 Gracechurch Street
London  EC3V 0JP
United Kingdom

Gentlemen:

                Reference is made to that certain Purchase Agreement dated as of
October 31, 2001 (the "Agreement") by and between Alleghany Insurance Holdings
LLC ("AIHL") and Talbot Holdings Ltd. ("Talbot Holdings"), which provides for
the sale by AIHL to Talbot Holdings of all of the issued and outstanding shares
in the capital of Alleghany Underwriting Holdings Ltd ("AUHL"). Defined terms
used but not defined herein shall have the meanings ascribed thereto in the
Agreement.

                For good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, AIHL and AUHL hereby agree that, in the event
that the Closing takes place under the Agreement:

                1.      Access to, and Retention of, Books and Records. For so
long as AIHL is required to include information about AUHL and its subsidiaries
(hereinafter collectively referred to as the "AUHL Group") in its financial
reports, tax returns and other documents, or for such period as the accuracy or
correctness of any financial reports, tax returns, tax information and other
documents furnished to, or at the request of, AIHL may be examined or audited by
any government, regulatory authority or other body (whether or not governmental)
with jurisdiction over AIHL, AUHL will, and will cause each of its subsidiaries
to, allow AIHL (and AIHL's attorneys, accountants and agents) access to all of
the properties, personnel, corporate books and financial records of such
company, and to examine and make copies of the books of accounts and other
financial records of such company, all at such reasonable times and such
intervals as AIHL shall reasonably determine. AUHL will also keep or cause to be
kept, and will cause each of its subsidiaries to keep, appropriate records and
books of account in which complete entries are to be made reflecting its and
their business and financial transactions, such entries to be made in accordance
with past practices consistently applied. Further, prior to discarding or
destroying any copies of the AUHL Group's corporate books and financial records,
AUHL will notify AIHL in writing of the proposed discarding or destruction of
any such corporate books and financial records (describing the records or
documents to be discarded or destroyed in reasonable

<PAGE>

Alleghany Underwriting Holdings Ltd
November 5, 2001
Page 2

detail) and will afford AIHL the reasonable opportunity to copy or take
possession of all or any of such corporate books and financial records prior to
their being discarded or destroyed.

                2.      Preparation of Financial Statements. Promptly following
the Closing, AUHL will promptly, but in no event later than November 14, 2001,
prepare and furnish to AIHL financial statements which fairly present in all
material respects the consolidated financial position and results of operations
of the AUHL Group for the fiscal period through October 31, 2001, which
statements shall be consistent with, and of the type and in the form customarily
furnished by, AUHL to AIHL prior to the Closing. Thereafter, AUHL will provide
AIHL's auditors, KPMG LLP ("KPMG"), with access to all of the AUHL Group's
corporate books and financial records, at such reasonable times and intervals as
KPMG shall reasonably request, to permit KPMG to audit and otherwise express an
opinion with respect to such financial statements.

                3.      Preparation of U.S. Tax Return Information. Following
the Closing, AUHL will promptly, but in no event later than July 31, 2002,
prepare and furnish to AIHL all information, statements, and returns relating
to, or arising out of the ownership by AIHL of, the AUHL Group (including
without limitation the U.S. income tax information returns on IRS Form(s) 5471,
and the schedules required by the instructions thereto, required under Sections
6038, 6046 or 6046A of the Internal Revenue Code of 1986, as amended (the
"Code") and necessary for the preparation of the U.S. income tax returns of AIHL
(or the U.S. income tax returns of the "affiliated group" (as that term is
defined in Section 1504 of the Code) that includes AIHL) for any taxable period
ending prior to or including the Closing.

                4.      Change of Names. On the Closing Date or as soon as
practicable thereafter, AUHL shall, and shall cause each of its subsidiaries
whose name includes the word "Alleghany" to, change its name so that none of
such companies has the word "Alleghany" in its name, and AUHL shall, and shall
cause each of its subsidiaries to, cease using the word Alleghany in any of
their business dealings.

                5.      Miscellaneous.

                        (a)     Notices. All notices or other communications
required or permitted under this letter agreement shall be in writing and shall
be effective upon delivery by hand or upon receipt if sent certified or
registered mail (postage prepaid and return receipt requested) or by a
nationally recognized overnight courier service (appropriately marked for
overnight delivery) or upon transmission if sent by telex or facsimile (with
request for immediate confirmation of receipt in a manner customary for
communications of such respective type and with physical delivery of the
communication being made by one of the other means specified in this Section
5(a) as promptly as practicable thereafter). Notices are to be addressed as
follows:

<PAGE>

Alleghany Underwriting Holdings Ltd
November 5, 2001
Page 3

                If to AIHL, to

                Alleghany Insurance Holdings LLC
                375 Park Avenue
                New York, New York 10152
                Attention: Robert M. Hart, Esq.
                           Manager
                Facsimile:    212-759-3295

                with a copy to

                Dewey Ballantine LLP
                1301 Avenue of the Americas
                New York, New York 10019
                Attention: Linda E. Ransom, Esq.
                Facsimile: 212-259-6333

                If to AUHL, to

                Alleghany Underwriting Holdings Ltd
                Gracechurch House
                55 Gracechurch Street
                London EC3V 0JP
                United Kingdom
                Attention: Mr. Michael E A Carpenter
                           President
                Facsimile: 44-207-550-3555

                with a copy to

                Denton Wilde Sapte
                One Fleet Place
                London  EC4M 7WS
                United Kingdom
                Attention: George Sandars, Esq.
                Facsimile: 44-207-246-7777

                        Any party may change the person and addresses to which
notices or other communications are to be sent to it by giving written notice of
any such change in the manner provided herein for giving notice.

                        (b)     Amendments and Waivers. This letter agreement
may be amended or modified, and the terms hereof may be waived, only by a
writing signed by each of the parties hereto or, in the case of a waiver, by the
party entitled to the benefit of the terms being waived.

<PAGE>

Alleghany Underwriting Holdings Ltd
November 5, 2001
Page 4

                        (c)     Assignment. This letter agreement shall be
binding upon, and inure to the benefit of, the respective successors and assigns
of the parties hereto; provided, however, that no assignment of any rights or
delegation of any obligations provided for herein shall be made by a party
hereto without the express prior written consent of the other party hereto,
which consent shall not be unreasonably withheld.

                        (d)     Governing Law. This letter agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
applicable to agreements made and to be performed entirely within such State.

                        (e)     Counterparts. This letter agreement may be
executed in counterparts, each of which when so executed and delivered shall be
deemed to be an original, but all of which taken together shall constitute but
one and the same instrument.

                        (f)     Headings. The section headings contained in this
letter agreement are inserted for convenience of reference only and shall not
affect the meaning or interpretation of this letter agreement.

                        (g)     Severability. Any provision of this letter
agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

<PAGE>

Alleghany Underwriting Holdings Ltd
November 5, 2001
Page 5

                Please indicate your agreement with the foregoing by signing in
the space provided below.

                                                Very truly yours,

                                                Alleghany Insurance Holdings LLC

                                                By:
                                                    ----------------------------
                                                    Name:  David B. Cuming
                                                    Title: Manager

Agreed and accepted:

Alleghany Underwriting Holdings Ltd

By:
    --------------------------------------
    Name:  Michael A E Carpenter
    Title: Chief Executive

<PAGE>

                                                                       Exhibit D
                              Alleghany Corporation
                                 375 Park Avenue
                               New York, NY 10152

                                November 5, 2001

Alleghany Underwriting Holdings Ltd
Gracechurch House
55 Gracechurch Street
London  EC3V 0JP
United Kingdom

Gentlemen:

                Reference is made to that certain Purchase Agreement dated as of
October 31, 2001 (the "Agreement") by and between Alleghany Insurance Holdings
LLC ("AIHL") and Talbot Holdings Ltd. ("Talbot Holdings"), which provides for
the sale by AIHL to Talbot Holdings of all of the issued and outstanding shares
in the capital of Alleghany Underwriting Holdings Ltd ("AUHL"). Defined terms
used but not defined herein shall have the meanings ascribed thereto in the
Agreement.

                        For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Alleghany Corporation ("Alleghany")
and AUHL hereby agree that, the Option Stock Purchase Agreement dated as of June
26, 2000 between Alleghany and AUHL shall be terminated, effective as of the
Closing Date, and Alleghany hereby assumes and agrees to perform the obligations
of AUHL in respect of options granted to Todd J Hess to purchase shares of
Alleghany Common Stock ("Hess Options") and options granted, under the
Underwriters Re Group, Inc. 1998 Stock Option Plan, to Rupert Atkin to purchase
shares of Alleghany Common Stock ("Atkin Options"). Alleghany shall be entitled
to all proceeds of exercise of the Hess Options and the Atkin Options and AUHL
shall pay over to Alleghany any such proceeds recovered by it. AUHL and
Alleghany will cooperate reasonably with each other to facilitate exercise of
Hess Options and Atkin Options which occur after the Closing, including, without
limitation, any applicable tax or other withholding requirements.

                        This letter agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.

                Please indicate your agreement with the foregoing by signing in
the space provided below.

                                                Very truly yours,

                                                Alleghany Corporation

<PAGE>

Alleghany Underwriting Holdings Ltd
November 5, 2001
Page 2

                                                By:
                                                    ----------------------------
                                                    Name:  David B. Cuming
                                                    Title: Senior Vice President

Agreed and accepted:

Alleghany Underwriting Holdings Ltd

By:
    --------------------------------------
    Name:  Michael A E Carpenter
    Title: Chief Executive

<PAGE>

                                                                       Exhibit E

                         RELEASE AND COVENANT NOT TO SUE
                                       by
                        Alleghany Insurance Holdings LLC

                RELEASE AND COVENANT NOT TO SUE (this "Release"), made as of
November 5, 2001 by Alleghany Insurance Holdings LLC ("AIHL") for the benefit of
the Releasees (as defined below).

                IN CONSIDERATION of the sum of $1.00 and other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged,
effective as of the date hereof, AIHL does hereby forever, finally, fully, and
unconditionally release and discharge Alleghany Underwriting Holdings Ltd and
its subsidiaries and all of their respective past and present members, managers,
employees, officers and directors, in their individual, official and
representative capacities (collectively, the "Releasees"), from and against any
and all claims, debts, liabilities, demands, obligations, promises, agreements,
contracts, covenants, liens, losses, costs and expenses, damages, suits, actions
and causes of action whatsoever, at law or in equity, that any of them ever had,
now have, or hereafter can, shall or may have, from the beginning of the world
to the date hereof, whether known or unknown, suspected or unsuspected, matured
or unmatured, liquidated or unliquidated, jointly or severally, directly or
indirectly, accrued or unaccrued, contingent or fixed (collectively, "Claims"),
for, upon, or by reason of any matter, cause or thing whatsoever, and further
covenants not to sue upon any such Claims. Notwithstanding the foregoing, (a)
the Releasees shall not be released from any Claims in the event that any of the
Releasees commences any suit or action against AIHL or its parent Alleghany
Corporation or any of their respective past or present members, managers,
employees, officers or directors, and (b) the Releasees shall not be released
from any Claims arising out of or relating to any breach by the Releasees of
their obligations under the Purchase Agreement dated as of October 31, 2001 by
and between AIHL and Talbot Holdings Ltd. or any agreements delivered pursuant
thereto.

                This Release shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to agreements made and to be
performed entirely within such State.

                IN WITNESS WHEREOF, AIHL has caused this Release to be duly
executed as of the date first above written.

Attest:                                         ALLEGHANY INSURANCE HOLDINGS LLC

By:                                             By:
    --------------------------                      ----------------------------
    Name:  Robert M. Hart                           Name:  David B. Cuming
    Title: Manager                                  Title: Manager

<PAGE>

                         RELEASE AND COVENANT NOT TO SUE
                                       by

        Alleghany Underwriting Holdings Ltd, Alleghany Underwriting Ltd,
       Alleghany Underwriting Capital Ltd, Alleghany Underwriting Capital
      (Bermuda) Ltd., Talbot Underwriting Ltd, Alleghany Underwriting Risk
        Services Ltd, Alleghany Underwriting Services Ltd, Yachtsure Ltd,
             Underwriting Risk Services Ltd, Marinasure Ltd, Venton
              Underwriting Agencies Ltd and Venton Insurance & Risk
                            Management Services Ltd.

                RELEASE AND COVENANT NOT TO SUE (this "Release"), made as of
November 5, 2001 by Alleghany Underwriting Holdings Ltd, Alleghany Underwriting
Ltd, Alleghany Underwriting Capital Ltd, Alleghany Underwriting Capital
(Bermuda) Ltd., Talbot Underwriting Ltd, Alleghany Underwriting Risk Services
Ltd, Alleghany Underwriting Services Ltd, Yachtsure Ltd, Underwriting Risk
Services Ltd, Marinasure Ltd, Venton Underwriting Agencies Ltd and Venton
Insurance & Risk Management Services Ltd (collectively, the "Releasors"), for
the benefit of the Releasees (as defined below).

                IN CONSIDERATION of the sum of $1.00 and other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged,
effective as of the date hereof, the Releasors do hereby forever, finally,
fully, and unconditionally release and discharge Alleghany Insurance Holdings
LLC and its parent Alleghany Corporation and all of their respective past and
present members, managers, employees, officers and directors, in their
individual, official and representative capacities (collectively, the
"Releasees"), from and against any and all claims, debts, liabilities, demands,
obligations, promises, agreements, contracts, covenants, liens, losses, costs
and expenses, damages, suits, actions and causes of action whatsoever, at law or
in equity, that any of them ever had, now have, or hereafter can, shall or may
have, from the beginning of the world to the date hereof, whether known or
unknown, suspected or unsuspected, matured or unmatured, liquidated or
unliquidated, jointly or severally, directly or indirectly, accrued or
unaccrued, contingent or fixed (collectively, "Claims"), for, upon, or by reason
of any matter, cause or thing whatsoever, and further covenants not to sue upon
any such Claims. Notwithstanding the foregoing, (a) the Releasees shall not be
released from any Claims in the event that any of the Releasees commences any
suit or action against any of the Releasors, and (b) the Releasees shall not be
released from any Claims arising out of or relating to any breach by the
Releasees of their obligations under the Purchase Agreement dated as of October
31, 2001 by and between AIHL and Talbot Holdings Ltd. or any agreements
delivered pursuant thereto.

                This Release shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to agreements made and to be
performed entirely within such State.

                                      -2-
<PAGE>

                IN WITNESS WHEREOF, the Releasors have caused this Release to be
duly executed as of the date first above written.

Attest:                                         ALLEGHANY UNDERWRITING HOLDINGS
                                                  LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Secretary                                Title: Chief Executive

Attest:                                              ALLEGHANY UNDERWRITING LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Secretary                                Title: Chief Executive

Attest:                                         ALLEGHANY UNDERWRITING CAPITAL
                                                  LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Secretary                                Title: Director

Attest:                                         ALLEGHANY UNDERWRITING CAPITAL
                                                  (BERMUDA) LTD.

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Assistant Secretary                      Title: Director

                                      -3-
<PAGE>

Attest:                                         TALBOT UNDERWRITING LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Secretary                                Title: Director

Attest:                                         ALLEGHANY UNDERWRITING RISK
                                                  SERVICES LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Secretary                                Title: Chief Executive

Attest:                                         ALLEGHANY UNDERWRITING SERVICES
                                                  LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Secretary                                Title: Chief Executive

Attest:                                         YACHTSURE LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Secretary                                Title: Director

Attest:                                         UNDERWRITING RISK SERVICES LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  Michael A E Carpenter
    Title: Secretary                                Title: Director

                                      -4-
<PAGE>

Attest:                                              MARINASURE LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  D Martin Slade
    Title: Secretary                                Title: Sole Director

Attest:                                         VENTON UNDERWRITING AGENCIES LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  D Martin Slade
    Title: Secretary                                Title: Director

Attest:                                         VENTON INSURANCE & RISK
                                                MANAGEMENT SERVICES LTD

By:                                             By:
    ------------------------                        ----------------------------
    Name:  Jane S Clouting                          Name:  D Martin Slade
    Title: Secretary                                Title: Sole Director

                                      -5-<PAGE>

                                                                    Exhibit 10.2
                      FOURTH AMENDMENT TO CREDIT AGREEMENT
                           DATED AS OF AUGUST 14, 2001
           (AS AMENDED FROM TIME TO TIME, THE "AGREEMENT"), AND WAIVER
                BY AND BETWEEN HEADS & THREADS INTERNATIONAL LLC,
             A DELAWARE LIMITED LIABILITY COMPANY (THE "BORROWER"),
              AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO,
                        LASALLE BANK NATIONAL ASSOCIATION
                            AND FLEET NATIONAL BANK,
              SUCCESSOR TO SUMMIT BANK, AS LENDERS (THE "LENDERS"),
                  AND AMERICAN NATIONAL BANK AND TRUST COMPANY
                       OF CHICAGO, AS AGENT (THE "AGENT")

        This Fourth Amendment to the Agreement ("Amendment" or "Fourth
Amendment") is entered into as of August 14, 2001 by and among the Borrower, the
Lenders and the Agent.

        All capitalized terms stated in this Amendment and not defined herein
shall have the same meaning as set forth in the Agreement.

        WHEREAS, the Lenders have made Loans to the Borrower pursuant to the
Agreement; and

        WHEREAS, Alleghany has agreed to make a $10,300,000 capital contribution
to the Borrower (the "Capital Contribution"), $6,000,000 of which shall be
contributed as cash equity and $4,300,000 of which shall be contributed as
payment of an income tax receivable due from Alleghany; and

        WHEREAS, the Borrower and the Lenders have agreed to amend certain terms
of the Agreement and waive past noncompliance with certain financial covenants
as stated herein. Now, therefore, in consideration of the fulfillment of each of
the terms and conditions set forth herein, the parties hereto agree as follows:

        Section 1.      Amendments to Agreement.

        a.      Upon execution of this Amendment, the Capital Contribution shall
be immediately paid by the Borrower to the Agent and applied as follows:
$3,666,666.67 to retire the Term Loan, and $6,633,333.33 to reduce the balance
outstanding upon the Revolving Loan.

<PAGE>

        b.      Section 1.1 of the Agreement is amended as follows:

                (i)     The definition of Borrowing Base is amended in its
        entirety to state the following:

                "Borrowing Base" means an amount equal to the lesser of (1)
        $42,000,000 or (2) an amount, adjusted as described below, equal to (a)
        85% of the face amount (less maximum discounts, credits and allowances
        which may be taken by or granted to the Account Debtor thereof in
        connection therewith) of all existing Eligible Accounts that are set
        forth in the Schedule of Accounts then most recently delivered by the
        Borrower to the Agent and all existing Eligible Accounts that are set
        forth in any Schedule of Accounts delivered by the Borrower to the Agent
        since the date of such Schedule of Accounts, which amount shall be
        reduced by 100% of the face amount of all payments which the Borrower
        has received on or in connection with its Eligible Accounts since the
        date of such Schedule of Accounts, plus (b) the lesser of (i)
        $32,000,000 prior to August 31, 2001, $31,000,000 from August 31, 2001
        to September 29, 2001, $29,000,000 from September 30, 2001 through
        October 30, 2001, $28,000,000 from October 31, 2001 through November 29,
        2001 and $27,500,000 thereafter, or (ii) 55% of Eligible Inventory,
        through September 14, 2001 and 50% of Eligible Inventory thereafter, all
        as set forth in the Schedule of Inventory then most recently delivered
        by the Borrower to the Agent and all existing Eligible Inventory set
        forth in any Schedule of Inventory delivered by the Borrower to the
        Agent since the date of such Schedule of Inventory; provided, however,
        that, notwithstanding any contrary provision contained herein, the Agent
        shall deduct inventory reserves in an amount not less than $6,817,000
        and may elect at any time, if in its reasonable discretion, it is
        materially insecure, to change the foregoing method of calculating the
        Borrowing Base by reducing advances against Eligible Accounts and
        Eligible Inventory, or to deduct additional reserves from the Borrowing
        Base. For purposes hereof, unless otherwise notified by the Borrower,
        the Agent will assume that all monies collected in the Lock Box (as
        defined in the Security Agreement) are payments of Eligible Accounts.

                (ii)    The definition of "Aggregate Revolving Commitment" is
amended in its entirety to state the following: "Aggregate Revolving Commitment"
means $42,000,000.

                (iii)   The definition of "Term Commitment" is deleted from the
Agreement and there shall cease to be a Term Commitment.

                (iv)    "Free Cash Flow" is defined in Section 6.10.5 of the
Agreement.

                (v)     The new definition of "Pricing Schedule" is amended in
its entirety to state the following:

                                      -2-
<PAGE>

                "Pricing Schedule" means the Schedule attached to the Fourth
Amendment identified as such.

        c.      Sections 2.1.2 and 2.4.10 of the Agreement are deleted and all
references in the Agreement to the "Term Loan" are deleted.

        d.      Schedule 1 to the Agreement is amended in its entirety and
replaced by the Schedule 1 attached to this Amendment and incorporated herein.

        e.      Section 6.10.3 of the Agreement is amended in its entirety to
state the following:

                6.10.3  Debt Service Coverage Ratio. The Borrower will maintain
        a Debt Service Coverage Ratio, at all times of not less than (i) 1.00 to
        1.00 on and before December 31, 2001 and (ii) 1.20:1.00 thereafter for
        each trailing twelve month period preceding the testing date, provided
        that the first test of such ratio shall be on June 30, 2001 at which
        time such ratio will be tested only for the Borrower's second fiscal
        quarter of 2001. The Debt Service Coverage Ratio will not be tested for
        the Borrower's fiscal quarters ending September 30, 2001 and December
        31, 2001. Thereafter, the Debt Service Coverage Ratio will resume to be
        tested (i) on a calendar year to date basis at the end of the Borrower's
        fiscal quarters ending March 31, 2002, June 30, 2002, September 30, 2002
        and December 31, 2002 and (ii) on a trailing rolling four quarter basis
        for each of the Borrower's fiscal quarters ending after December 31,
        2002.

        f.      A new Section 6.10.5 is added to the Agreement stating the
following:

                6.10.5  Free Cash Flow. The Borrower will maintain Free Cash
        Flow for each of its fiscal quarters of Borrower's Fiscal Year measured
        at the end of each quarter ending September 30, 2001 and December 31,
        2001 of not less than the following:

<TABLE>
<CAPTION>
                                                Minimum Free Cash Flow
                                                ----------------------
<S>                                                  <C>
                           9/30/01                   $ 223,000
                           12/31/01                  $ 334,800
</TABLE>

                "Free Cash Flow" is EBITDA minus gross Capital Expenditures.
        Only for Borrower's fiscal quarter ending September 30, 2001, to the
        extent that Free Cash Flow is less than $223,000 as of September 30,
        2001, Alleghany may contribute equity in addition to the Capital
        Contribution on or before October 15, 2001 in an amount sufficient that
        when added to the Free Cash Flow as of September 30, 2001 will make the
        Free Cash Flow as of that date equal to or exceed $223,000.
        Notwithstanding the foregoing, the amount of equity contributed by
        Alleghany which will be counted by the Lenders toward compliance with
        the Free Cash Flow covenant as of September 30, 2001 shall not exceed
        $750,000.

        g.      A new Section 6.25 is added to the Agreement stating the
following:

                                      -3-
<PAGE>

                6.25    Management Consultant. Borrower shall within twenty-one
        days following the date of this Amendment at Borrower's expense engage
        the services of a management consultant acceptable to the Required
        Lenders whose work shall be limited to performance for Borrower of
        thirteen week cash flow projections and monthly balance sheet and income
        statements projections for the next twelve months after the date of this
        Amendment. Borrower shall cooperate with such management consultant and
        shall permit to the Lenders full access at all times to the consultant
        and the consultant's work product.

        h.      Fleet National Bank substituted for Summit Bank as a Lender.
Fleet National Bank acquired Summit Bank and Fleet National Bank is hereby
substituted for Summit Bank as a Lender. Fleet National Bank agrees to be bound
by the terms of the Credit Agreement as fully and to the same extent as Summit
Bank. All references in the Credit Agreement to Summit Bank shall hereinafter
mean Fleet National Bank.

        Section 2.      Waiver.

        a.      The Borrower has requested that the Agent and the Lenders waive
the Default under the Agreement which has occurred and is continuing on account
of Borrower's failure to comply with the financial covenants stated in Sections
6.10.2 and 6.10.3 of the Agreement as of June 30, 2001.

        b.      In response to such request, the Agent, on behalf of the
Lenders, hereby waives the Borrower's violation of Sections 6.10.2 and 6.10.3 of
the Agreement as of June 30, 2001.

        c.      The waiver set forth herein is effective solely for the purpose
set forth herein and shall be limited precisely as written and shall not be
deemed to be a consent to any amendment, waiver, modification of, or
noncompliance with, any other term or condition of the Agreement, or otherwise
prejudice any right or remedy which the Agent and the Lenders may now have or
may have in the future in connection with the Agreement.

        Section 3.      Representations and Warranties. The Borrower represents
and warrants that:

        a.      The representations and warranties contained in the Agreement
are true and correct in all material respects on and as of the date hereof as if
such representations and warranties had been made on and as of the date hereof
(except to the extent any such

                                      -4-
<PAGE>

representation or warranty is stated to relate solely to an earlier date, in
which case such representation or warranty is true and correct in all material
respects on and as of such earlier date); and

        b.      The Borrower is in compliance with all the terms and provisions
set forth in the Agreement and no Default or Unmatured Default has occurred and
is continuing.

        Section 4.      Conditions to Effectiveness. This Amendment is subject
to the satisfaction in full of the following conditions precedent:

        a.      The Agent shall have received executed originals of this
Amendment;

        b.      The Agent and each respective Lender shall have received an
executed original of the Second Amended and Restated Promissory Note
substantially in the form of Exhibit 1 attached hereto and incorporated herein.

        c.      The Agent shall have received payment of the fees provided in
Section 7 of this Amendment;

        d.      The Agent shall have received payment of a $63,000 fee to be
distributed to the Lenders in accordance with their Pro Rata Shares which fee
Borrower agrees is nonrefundable and shall have been fully earned by each Lender
on the date this Amendment is executed.

        e.      The full Capital Contribution shall have been made by Alleghany
and distributed as stated in Section 1a of this Amendment.

        f.      The Agent shall have received board resolutions from the
Borrower authorizing the execution of this Amendment; and

        g.      All legal matters incident to this Amendment shall be reasonably
satisfactory to Neal, Gerber & Eisenberg, counsel for the Agent.

        Section 5.      Full Force and Effect. Except as expressly amended and
waived herein, the Agreement and the Loan Documents are hereby ratified and
confirmed, and shall continue in

                                      -5-
<PAGE>

full force and effect in accordance with the provisions thereof on the date
hereof. As used in the Agreement and the Loan Documents, the terms "Agreement",
"this Agreement", "herein", "hereafter", "hereto", "hereof", and words of
similar import, shall, unless the context otherwise requires, mean the Agreement
as amended prior to the date hereof and as amended by this Amendment, all
references to "Lenders", "Commitment" and "Pro Rata Percentage" shall mean such
terms as stated on Schedule 1 attached hereto, and all references to the "Note"
or "Notes" shall mean the Second Amended and Restated Promissory Notes in the
form attached hereto as Exhibit 1.

        Section 6.      APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

        Section 7.      Expenses. The Borrower agrees to pay all out-of-pocket
expenses incurred by Agent in connection with the preparation, execution and
delivery of this Amendment and the other documents incident hereto, including,
but not limited to, the reasonable fees and disbursements of Neal, Gerber &
Eisenberg, counsel for the Agent.

        Section 8.      Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute one instrument.

        Section 9.      Headings. The headings of this Amendment are for the
purposes of reference only and shall not affect the construction of this
Amendment.

                                      -6-
<PAGE>

        IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers, all as of the date and year
first above written.

                                            BORROWER:

                                            HEADS & THREADS INTERNATIONAL LLC,
                                            A DELAWARE LIMITED LIABILITY COMPANY

                                            BY: /S/MICHAEL T. WRENN
                                               ---------------------------------
                                               ITS: EXECUTIVE VICE PRESIDENT
                                                    ----------------------------

                                            LENDERS:

                                            AMERICAN NATIONAL BANK AND TRUST
                                            COMPANY OF CHICAGO

                                            BY: /S/ TERENCE LYNCH
                                               ---------------------------------
                                                ITS: FIRST VICE PRESIDENT
                                                     ---------------------------

                                            LASALLE BANK NATIONAL ASSOCIATION

                                            BY: /S/ HENRY J. MUNEZ
                                                --------------------------------
                                                ITS: VICE PRESIDENT
                                                     ---------------------------

                                            FLEET NATIONAL BANK

                                            BY: /S/ RICHARD R. POWELL
                                                --------------------------------
                                                ITS: AVP
                                                     ---------------------------

                                      -7-
<PAGE>

                                            AGENT:

                                            AMERICAN NATIONAL BANK AND TRUST
                                            COMPANY OF CHICAGO

                                            BY: /S/ TERENCE LYNCH
                                               ---------------------------------
                                                ITS: FIRST VICE PRESIDENT
                                                     ---------------------------

                                      -8-
<PAGE>

                                   SCHEDULE 1

<TABLE>
<CAPTION>
                                                                       Pro Rata
Lenders                             Commitment                         Percentage
-------                             ----------                         ----------
<S>                                 <C>                                <C>
American National Bank and          $14,000,000.00                     33.33333333%
Trust Company of Chicago

LaSalle Bank National               $14,000,000.00                     33.33333333%
Association

Fleet National Bank                 $14,000,000.00                     33.33333333%
</TABLE>

<PAGE>

                                PRICING SCHEDULE

<TABLE>
<CAPTION>
                                                     APPLICABLE MARGIN FOR REVOLVING LOANS
                                                     -------------------------------------
<S>                                                           <C>
                  Eurodollar Rate                             3.50%

                  Floating Rate                               1.00%
</TABLE>

<TABLE>
<CAPTION>
                                                     APPLICABLE FEE MARGIN
                                                     ---------------------
<S>                                                           <C>
                  Commitment Fee                              .50 bp
                  Bankers  Acceptances                        2.00%

                  Letters of Credit                           1.00%
</TABLE>

------------------------------------

        "bp" means basis points.

<PAGE>

                                    EXHIBIT 1

                   SECOND AMENDED AND RESTATED PROMISSORY NOTE

$14,000,000                                                      AUGUST 14, 2001

        FOR VALUE RECEIVED, the undersigned, HEADS & THREADS INTERNATIONAL LLC,
a Delaware limited liability company (the "Company"), hereby promises to pay to
the order of LASALLE BANK NATIONAL ASSOCIATION (the "Lender"), the principal sum
of Fourteen Million and 00/100 Dollars ($14,000,000) or, if less, the aggregate
unpaid principal amount of all sums advanced by the Lender to the Company
pursuant to the Credit Agreement, dated as of April 3, 2000 and amended by First
Amendment dated April 3, 2000, a Second Amendment dated November 27, 2000, a
Third Amendment dated March 19, 2001 and a Fourth Amendment dated August 14,
2001 (such Credit Agreement, as it may be further amended, restated,
supplemented or otherwise modified from time to time, being hereinafter called
the "Credit Agreement"), among the Company, the Lender, the other banks parties
thereto, and AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as agent for
the Lenders, on the dates and in the amounts provided in the Credit Agreement
(except to the extent sums advanced with respect to Facility Letters of Credit
are reimbursed to the Lender by any other Lender (as defined in the Credit
Agreement) pursuant to the Credit Agreement). The Company further promises to
pay interest on the unpaid principal amount of the Loans (except for the undrawn
portions of any Facility Letters of Credit), evidenced hereby from time to time
at the rates, on the dates, and otherwise as provided in the Credit Agreement.

        The Lender is authorized to endorse the amount and the date on which
each Loan is made, the maturity date therefor and each payment of principal with
respect thereto on the schedules annexed hereto and made a part hereof, or on
continuations thereof which shall be attached hereto and made a part hereof;
provided, that any failure to endorse such information on such schedule or
continuation thereof shall not in any manner affect any obligation of the
Company under the Credit Agreement and this Promissory Note (the "Note").

        This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Credit Agreement, which Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.

        The portion of the principal amount of this Note evidencing outstanding
Facility Letters of Credit is the Lender's Pro Rata Share of such amount, as set
forth in Schedule 1 of the Credit Agreement, and shall be extinguished by either
termination of such Facility Letters of Credit, reimbursement of all amounts
paid by the Lender upon such Facility Letters of Credit or payment to the Lender
of an amount equal to the amount of all outstanding Facility Letters of Credit
pursuant to Section 2.3.9 of the Credit Agreement.

        This Note is a renewal and replacement of the Promissory Note in the
original principal amount of $20,000,000 made and delivered by the Company to
the Lender as of April 28, 2000, and the Amended and Restated Promissory Note in
the original principal amount of

<PAGE>

$21,666,666.67 dated November 27, 2000 made and delivered by the Company to
Lender, and nothing contained herein or in the Fourth Amendment to the Credit
Agreement dated as of November 27, 2000, shall be construed (a) to deem paid or
forgiven the unpaid principal balance of, or unpaid accrued interest on, said
Promissory Note outstanding at the time of their renewal and replacement by this
Note, or (b) to release, cancel, terminate or otherwise adversely affect all or
any part of any lien, mortgage, deed of trust, assignment, security interest or
other encumbrance heretofore granted to or for the benefit of the payee of said
Promissory Note.

        Terms defined in the Credit Agreement are used herein with their defined
meanings therein unless otherwise defined herein. This Note shall be governed
by, and construed and interpreted in accordance with, the laws of the State of
Illinois applicable to contracts made and to be performed entirely within such
State.

                                            HEADS & THREADS
                                            INTERNATIONAL LLC

                                            BY:
                                                --------------------------------
                                                ITS:
                                                     ---------------------------

<PAGE>

                                    EXHIBIT 1

                   SECOND AMENDED AND RESTATED PROMISSORY NOTE

$14,000,000                                                      AUGUST 14, 2001

        FOR VALUE RECEIVED, the undersigned, HEADS & THREADS INTERNATIONAL LLC,
a Delaware limited liability company (the "Company"), hereby promises to pay to
the order of FLEET NATIONAL BANK (the "Lender"), the principal sum of Fourteen
Million and 00/100 Dollars ($14,000,000) or, if less, the aggregate unpaid
principal amount of all sums advanced by the Lender to the Company pursuant to
the Credit Agreement, dated as of April 3, 2000, and amended by First Amendment
dated April 3, 2000, a Second Amendment dated November 27, 2000, a Third
Amendment dated March 19, 2001 and a Fourth Amendment dated August 14, 2001
(such Credit Agreement, as it may be further amended, restated, supplemented or
otherwise modified from time to time, being hereinafter called the "Credit
Agreement"), among the Company, the Lender, the other banks parties thereto, and
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as agent for the Lenders,
on the dates and in the amounts provided in the Credit Agreement (except to the
extent sums advanced with respect to Facility Letters of Credit are reimbursed
to the Lender by any other Lender (as defined in the Credit Agreement) pursuant
to the Credit Agreement). The Company further promises to pay interest on the
unpaid principal amount of the Loans (except for the undrawn portions of any
Facility Letters of Credit), evidenced hereby from time to time at the rates, on
the dates, and otherwise as provided in the Credit Agreement.

        The Lender is authorized to endorse the amount and the date on which
each Loan is made, the maturity date therefor and each payment of principal with
respect thereto on the schedules annexed hereto and made a part hereof, or on
continuations thereof which shall be attached hereto and made a part hereof;
provided, that any failure to endorse such information on such schedule or
continuation thereof shall not in any manner affect any obligation of the
Company under the Credit Agreement and this Promissory Note (the "Note").

        This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Credit Agreement, which Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.

        The portion of the principal amount of this Note evidencing outstanding
Facility Letters of Credit is the Lender's Pro Rata Share of such amount, as set
forth in Schedule 1 of the Credit Agreement, and shall be extinguished by either
termination of such Facility Letters of Credit, reimbursement of all amounts
paid by the Lender upon such Facility Letters of Credit or payment to the Lender
of an amount equal to the amount of all outstanding Facility Letters of Credit
pursuant to Section 2.3.9 of the Credit Agreement.

        This Note is a renewal and replacement of a portion of the Promissory
Note in the original principal amount of $40,000,000 made and delivered by the
Company to AMERICAN

<PAGE>

NATIONAL BANK AND TRUST COMPANY OF CHICAGO as of April 3, 2000 which portion was
assigned to Summit Bank pursuant to an Assignment and Assumption Agreement dated
as of April 28, 2000, and the Amended and Restated Promissory Note in the
original principal amount of $21,666,666.67 dated November 27, 2000 made and
delivered by the Company to Summit Bank, and nothing contained herein or in the
Fourth Amendment to the Credit Agreement dated as of August 14, 2001, shall be
construed (a) to deem paid or forgiven the unpaid principal balance of, or
unpaid accrued interest on, said Promissory Note outstanding at the time of
their renewal and replacement by this Note, or (b) to release, cancel, terminate
or otherwise adversely affect all or any part of any lien, mortgage, deed of
trust, assignment, security interest or other encumbrance heretofore granted to
or for the benefit of the payee of said Promissory Note.

        Terms defined in the Credit Agreement are used herein with their defined
meanings therein unless otherwise defined herein. This Note shall be governed
by, and construed and interpreted in accordance with, the laws of the State of
Illinois applicable to contracts made and to be performed entirely within such
State.

                                            HEADS & THREADS
                                            INTERNATIONAL LLC

                                            BY:
                                                --------------------------------
                                                ITS:
                                                     ---------------------------

<PAGE>

                                    EXHIBIT 1

                   SECOND AMENDED AND RESTATED PROMISSORY NOTE

$14,000,000                                                      AUGUST 14, 2001

        FOR VALUE RECEIVED, the undersigned, HEADS & THREADS INTERNATIONAL LLC,
a Delaware limited liability company (the "Company"), hereby promises to pay to
the order of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO (the "Lender"),
the principal sum of Fourteen Million and 00/100 Dollars ($14,000,000) or, if
less, the aggregate unpaid principal amount of all sums advanced by the Lender
to the Company pursuant to the Credit Agreement, dated as of April 3, 2000 and
amended by First Amendment dated April 3, 2000, a Second Amendment dated
November 27, 2000, a Third Amendment dated March 19, 2001 and a Fourth Amendment
dated August 14, 2001 (such Credit Agreement, as it may be further amended,
restated, supplemented or otherwise modified from time to time, being
hereinafter called the "Credit Agreement"), among the Company, the Lender, the
other banks parties thereto, and AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, as agent for the Lenders, on the dates and in the amounts provided in
the Credit Agreement (except to the extent sums advanced with respect to
Facility Letters of Credit are reimbursed to the Lender by any other Lender (as
defined in the Credit Agreement) pursuant to the Credit Agreement). The Company
further promises to pay interest on the unpaid principal amount of the Loans
(except for the undrawn portions of any Facility Letters of Credit), evidenced
hereby from time to time at the rates, on the dates, and otherwise as provided
in the Credit Agreement.

        The Lender is authorized to endorse the amount and the date on which
each Loan is made, the maturity date therefor and each payment of principal with
respect thereto on the schedules annexed hereto and made a part hereof, or on
continuations thereof which shall be attached hereto and made a part hereof;
provided, that any failure to endorse such information on such schedule or
continuation thereof shall not in any manner affect any obligation of the
Company under the Credit Agreement and this Promissory Note (the "Note").

        This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Credit Agreement, which Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.

        The portion of the principal amount of this Note evidencing outstanding
Facility Letters of Credit is the Lender's Pro Rata Share of such amount, as set
forth in Schedule 1 of the Credit Agreement, and shall be extinguished by either
termination of such Facility Letters of Credit, reimbursement of all amounts
paid by the Lender upon such Facility Letters of Credit or payment to the Lender
of an amount equal to the amount of all outstanding Facility Letters of Credit
pursuant to Section 2.3.9 of the Credit Agreement.

        This Note is a renewal and replacement of a portion of the Promissory
Note in the original principal amount of $40,000,000 made and delivered by the
Company to the Lender as

<PAGE>

of April 3, 2000, a portion of which was assigned to Summit Bank pursuant to
Assignment and Assumption Agreement dated as of April 28, 2000, and the Amended
and Restated Promissory Note in the original principal amount of $21,666,666.67
dated November 27, 2000 made and delivered by the Company to Lender, and nothing
contained herein or in the Fourth Amendment to the Credit Agreement dated as of
August 14, 2001, shall be construed (a) to deem paid or forgiven the unpaid
principal balance of, or unpaid accrued interest on, said Promissory Note
outstanding at the time of their renewal and replacement by this Note, or (b) to
release, cancel, terminate or otherwise adversely affect all or any part of any
lien, mortgage, deed of trust, assignment, security interest or other
encumbrance heretofore granted to or for the benefit of the payee of said
Promissory Note.

        Terms defined in the Credit Agreement are used herein with their defined
meanings therein unless otherwise defined herein. This Note shall be governed
by, and construed and interpreted in accordance with, the laws of the State of
Illinois applicable to contracts made and to be performed entirely within such
State.

                                            HEADS & THREADS
                                            INTERNATIONAL LLC

                                            BY:
                                                --------------------------------
                                                ITS:
                                                     ---------------------------

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