Document:

Exhibit 10.2

Exhibit 10.2

CHANGE IN CONTROL AGREEMENT

THIS AGREEMENT, dated as of June 24, 2010, is made by and between Armstrong World Industries,
Inc., a Pennsylvania corporation (the “Company”), and Matthew Espe (the
“Executive”) and is effective as of the effective date set forth in the Executive’s
employment agreement dated as of June 24, 2010 (the “Effective Date”).

WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the
possibility of a Change in Control exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company; and

WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company’s management, including
the Executive, to their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
the Company and the Executive hereby agree as follows:

1. Defined Terms. The definitions of capitalized terms used in this Agreement are
provided in the last Section hereof.

2. Term of Agreement. This Agreement shall commence on the Effective Date and shall
continue in effect for a period of one (1) year thereafter. Commencing on the first anniversary of
the Effective Date and on each anniversary thereafter (“Anniversary Date”), this Agreement
shall automatically be renewed for one (1) additional year beyond the term otherwise established,
unless one party provides written notice to the other party, at least ninety (90) days in advance
of an Anniversary Date, of its intent not to renew this Agreement for an additional one year term.
Notwithstanding the foregoing, if a Change in Control shall have occurred after the Effective Date
and during the term of this Agreement, this Agreement shall continue in effect for a period of not
less than twenty-four (24) months beyond the month in which a Change in Control occurred.

3. Compensation Other Than Severance Payments.

3.1 Following a Change in Control and during the term of this Agreement, during any period
that the Executive fails to perform the Executive’s full-time duties with the Company as a result
of a “disability” (as defined in Treas. Reg. § 1.409A-3(i)(4)), the Company shall pay the
Executive’s current base salary to the Executive at the rate in effect at the commencement of any
such period, together with all compensation and benefits payable to the Executive under the terms
of any compensation or benefit plan, program or arrangement maintained by the Company during such
period, until the Executive’s employment is terminated by the Company.

3.2 If the Executive’s employment shall be terminated for any reason following a Change in
Control and during the term of this Agreement, the Company shall pay the Executive’s current base
salary through the Date of Termination, together with all compensation and benefits to which the
Executive is entitled in respect of all periods preceding the Date of
Termination under the terms of the Company’s compensation and benefit plans, programs or
arrangements.

 

 

 

4. Severance Payments.

4.1 If a Qualifying Termination shall occur, in addition to any payments and benefits to which
the Executive is entitled under Section 3 hereof, the Company shall pay the Executive the payments
described in this Section 4.1 (the “Severance Payments”); provided, however, that, in the
case of clauses (A), (B), (C), (D) and (F) below, the Executive shall have executed and not revoked
a release of claims in the form set forth in Exhibit A hereto. The Executive shall also be entitled
to the Severance Payments (and any payments and benefits under Section 3) if the Executive’s
employment is terminated by the Company other than (x) for Cause or (y) by reason of death or
Disability within the six (6) month period immediately preceding a Change in Control and the
Executive reasonably demonstrates that such termination is otherwise in connection with or in
anticipation of a Change in Control that actually occurs during the term of the Agreement (a
“Pre-Change in Control Termination”) ; provided, however, that, in the case of clauses (A),
(B), (C), (D) and (F) below, Executive shall have executed and not revoked a release of claims in
the form set forth in Exhibit A hereto; and provided further, however, that any such payments shall
be offset by the amount of severance previously paid to the Executive under the Employment
Agreement between the Executive and the Company dated as of the date first written above and, to
the extent permitted by Section 409A of the Code, any other severance policy, plan or program of
the Company.

(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date
of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company
shall pay to the Executive a lump sum severance payment, in cash, equal to two hundred and fifty
percent (250%) of the sum of (i) the Executive’s annual base salary then in effect (or immediately
prior to any reduction resulting in a termination for Good Reason, if applicable) (the “Change
in Control Salary”), plus (ii) the Executive’s target annual bonus for the year of termination, or if no target has been set as of the Date of Termination, the target bonus for the year
immediately prior to the year in which the Date of Termination occurs (the “Change in Control
Bonus”).

(B) Provided that the Company actually achieves the criteria requisite to make payments in
respect of awards for the plan year during which the Executive’s employment terminates under the
Management Achievement Plan (the “MAP”) or any other incentive compensation plan adopted by
the Company in which the Executive participates, the Executive shall be eligible to receive an
award for such plan year, which shall be prorated based on the Date of Termination. Under the MAP,
the Executive shall receive an amount equal to the product of the Executive’s eligible base salary
earnings for the time worked from the start of the performance period to the Date of Termination
multiplied by the target bonus award percentage and the Executive’s applicable business unit
achievement factor. Such amount shall be paid in the calendar year following the plan year to
which the payment relates, as soon as practicable following the certification of such plan year’s
performance by the Management Development and Compensation Committee, at the same time as payments
are made to other MAP participants.

 

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(C) For the thirty month period immediately following the Date of Termination, the Company
shall arrange to provide the Executive (which includes the Executive’s eligible dependents for
purposes of this subsection (C)) with life, disability, accident and health insurance benefits
substantially similar to those which the Executive was receiving immediately prior to the Date of
Termination (or immediately prior to any reduction resulting in a termination for Good Reason, if
applicable); provided, however, that (i) the Executive’s and his qualified dependents’ COBRA
eligibility period shall include the period during which the Company is providing benefits under
this subsection (C); (ii) unless the Executive consents to a different method (or elects COBRA
coverage at applicable COBRA rates), such health insurance benefits shall be provided through a
third-party insurer; and (iii) the Executive shall be responsible for the payment of premiums for
such benefits in the same amount as active employees of the Company. Benefits otherwise receivable
by the Executive pursuant to this subsection (C) shall be reduced to the extent comparable benefits
(including continued coverage for any preexisting medical condition of any person covered by the
benefits provided to the Executive and his eligible dependents immediately prior to the Date of
Termination) are actually received by or made available to the Executive by a subsequent employer
during the twenty-four month period following the Executive’s Date of Termination (and any such
benefits actually received by or made available to the Executive shall be reported to the Company
by the Executive). Notwithstanding the foregoing, in the event of a Pre-Change in Control
Termination, on the sixtieth (60th) day following the Change in Control the Company shall pay or
reimburse the Executive for any amounts or benefits it would have been responsible to pay or
provide to the Executive under this Section 4.1(C) during the period prior to the Change in
Control, had the Change in Control occurred on the Date of Termination.

(D) If the Executive would have become entitled to benefits under the Company’s
post-retirement health care or life insurance plans (as in effect immediately prior to the Date of
Termination (or immediately prior to any reduction resulting in a termination for Good Reason, if
applicable)) had the Executive’s employment terminated at any time during the period of thirty
months after the Date of Termination, the Company shall provide such post-retirement health care or
life insurance benefits to the Executive (subject to any employee contributions required under the
terms of such plans in the same amounts as active employees of the Company) commencing on the later
of (i) the date that such coverage would have first become available or (ii) the date that benefits
described in subsection (C) of this Section 4.1 terminate.

(E) The Company shall pay the Executive, at a daily salary rate calculated from the
Executive’s annual base salary in effect immediately prior to the Date of Termination (or
immediately prior to any reduction resulting in a termination for Good Reason, if applicable), a
lump sum amount equal to all earned but unused vacation days through the Date of Termination.

(F) The Company shall pay, no later than the last day of the calendar year in which they are
incurred, the reasonable fees and expenses of a full service nationally recognized executive
outplacement firm until the earlier of the date the Executive secures new employment or the date
which is twenty-four months following the Executive’s Date of Termination; provided that in no
event shall the aggregate amount of such payments exceed $30,000.

 

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4.2 Benefit Limitation.

(A) Anything in this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment (including any acceleration of vesting of stock based benefits) or
distribution by the Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise) (a
“Payment”) would be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), the amounts and benefits payable under this Agreement shall be reduced by an
amount that would result in no Excise Tax being imposed; provided that the amounts and benefits
payable under this Agreement shall not be reduced unless the amounts and benefits the Executive
would receive after such reduction would be greater than the amounts and benefits the Executive
would receive if there were no reduction and the Excise Tax were paid by the Executive (such
reduction, the “Cut Back”). For purposes of determining whether any Payments should be
subject to the Cut-Back, (i) Executive shall be deemed to pay federal income tax at the highest
marginal rate of federal income taxation in the calendar year in which the Date of Termination
occurs and state and local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and local taxes, (ii) no
portion of the Payments the receipt or enjoyment of which the Executive shall have waived at such
time and in such manner as not to constitute a “payment” within the meaning of section 280G(b) of
the Code shall be taken into account, (iii) no portion of the Payments shall be taken into account
which, in the opinion of the Accounting Firm, does not constitute a “parachute payment” within the
meaning of section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of the
Code, (iv) the Severance Payments shall be reduced only to the extent necessary so that the
Payments in their entirety constitute reasonable compensation for services actually rendered within
the meaning of section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance as
deductions by reason of section 280G of the Code, in the opinion of the Accounting Firm, and (v)
the value of any noncash benefit or any deferred payment or benefit included in the Payments shall
be determined by the Accounting Firm in accordance with the principles of sections 280G(d)(3) and
(4) of the Code. Unless the Executive shall have given prior written notice to the Company
specifying a different order of payments and benefits to be reduced to achieve the Cut-Back, any
payments and benefits to be reduced hereunder shall be determined in a manner that has the least
economic cost to the Executive, on an after-tax basis, and to the extent the economic cost is
equivalent, such payments and benefits shall be reduced in the inverse order of when the payments
and benefits would have been made or provided to the Executive until the reduction specified herein
is achieved. The Executive may specify the order of reduction of the payments and benefits only to
the extent that doing so does not directly or indirectly alter the time or method of payment of any
amount that is deferred compensation subject to (and not exempt from) Section 409A of the Code.

(B) All determinations required to be made under this Section 4.2 shall be made by a
nationally recognized accounting firm designated by the Company (the “Accounting Firm”)
which shall provide detailed supporting calculations both to the Company and the Executive within
fifteen (15) business days after there has been a Cut-Back, or such earlier time as requested by
the Company. In the event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the Company shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm instead shall be the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive.

 

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4.3 Payment of Severance Payments.

(A) Each payment provided for in Section 4.1 hereof is intended to constitute a separate
payment within the meaning of Section 409A of the Code. The payments provided for in subsections
(A) and (E) of Section 4.1 hereof shall be made on the sixtieth (60th) day following the Date of
Termination subject to Section 4.3(B) below; and in the event the Executive becomes entitled to
Severance Payments pursuant to the second sentence of Section 4.1, the payments provided for in
subsections (A) and (E) of Section 4.1 hereof shall be made on the sixtieth (60th) day following
the actual Change in Control that triggered the Severance Payments.

(B) If any payment, compensation or other benefit provided to the Executive in connection with
his employment termination is determined, in whole or in part, to constitute “nonqualified deferred
compensation” within the meaning of Section 409A of the Code and the Executive is a “specified
employee,” as such term is defined under Section 409A(a)(2)(B)(i) of the Code, all such payments
shall be suspended during the six-month period following the Executive’s “separation from service”
within the meaning of Treas. Reg. § 1.409A-1(h) or any successor thereto. The Company is entitled
to determine whether any amounts under this Agreement are to be suspended, and the Company shall
have no liability to the Executive for any such determination or any errors made by the Company in
identifying the Executive as a specified employee. If any amounts are suspended pursuant to the
foregoing, such amounts shall be paid on the earlier of (i) the first business day following the
expiration of the six-month period referred to in the first sentence of this subsection or (ii) the
date of the Executive’s death. Any amounts so suspended shall earn interest thereon, if applicable,
calculated based upon the then prevailing monthly short-term applicable federal rate.
Notwithstanding the foregoing, to the extent that the foregoing applies to the provision of any
ongoing welfare benefits to the Executive that would not be required to be delayed if the premiums
therefor were paid by the Executive, the Executive shall pay the full cost of premiums for such
welfare benefits during the six-month period and the Company shall pay the Executive an amount
equal to the amount of such premiums paid by the Executive during such six-month period on the
first business day of the month following the expiration of the six-month period referred to above.

(C) A termination of employment shall not be deemed to have occurred for purposes of any
provision of this Agreement providing for the payment of any amounts or benefits subject to Section
409A of the Code upon or following a termination of employment unless such termination is also a
“separation from service” as defined in Treas. Reg. § 1.409A-1(h) or any successor thereto,
including the default presumptions thereunder, and for purposes of any such provision of this
Agreement, references to a “resignation,” “termination,” “terminate,” “termination of employment”
or like terms shall mean separation from service.

 

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(D) The parties hereto acknowledge and agree that the interpretation of Section 409A of the
Code and its application to the terms of this Agreement is uncertain and may be subject to change
as additional guidance and interpretations become available. Anything to
the contrary herein notwithstanding, all benefits or payments provided by the Company to the
Executive that would be deemed to constitute “nonqualified deferred compensation” within the
meaning of Section 409A of the Code are intended to comply with Section 409A of the Code. If,
however, any such benefit or payment is deemed not to comply with Section 409A of the Code, the
Company and the Executive agree to renegotiate in good faith any such benefit or payment
(including, without limitation, as to the timing of any severance payments payable hereunder) so
that either (i) Section 409A of the Code will not apply or (ii) compliance with Section 409A of the
Code will be achieved.

(E) Notwithstanding anything to the contrary contained in this Agreement, any reimbursement
for a cost or expense under this Agreement shall be paid in no event later than the end of the
taxable year following the taxable year in which the Executive incurs such cost or expense. With
regard to any provision herein that provides for reimbursement of costs and expenses or in-kind
benefits, except as permitted by Section 409A of the Code, (i) the right to reimbursement or
in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (ii) the
amount of expenses eligible for reimbursements or in-kind benefits provided during any taxable year
shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any
other taxable year; provided, however, that the foregoing clause (ii) shall not be violated with
regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely
because such expenses are subject to a limit related to the period the arrangement is in effect.

4.4 The Company shall reimburse the Executive for all reasonable legal fees and expenses
incurred by the Executive in attempting to obtain or enforce rights or benefits provided by this
Agreement, if, with respect to any such right or benefit, the Executive is successful in obtaining
or enforcing such right or benefit (including by negotiated settlement).

5. Restrictive Covenants.

5.1 During the Executive’s employment with the Company and for a period of twelve (12) months
thereafter:

(A) the Executive shall not, directly for the Executive or any third party, become engaged in
any business or activity which is directly in competition with any services or products sold by, or
any business or activity engaged in by, the Company or any of its affiliates; provided, however,
that this provision shall not restrict the Executive from owning or investing in publicly traded
securities, so long as the Executive’s aggregate holdings in any company do not exceed 2% of the
outstanding equity of such company and such investment is passive;

(B) the Executive shall not solicit any person who was a customer of the Company or any of its
affiliates during the period of the Executive’s employment hereunder, or solicit potential
customers who are or were identified through leads developed during the course of employment with
the Company, or otherwise divert or attempt to divert any existing business of the Company or any
of its affiliates; and

 

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(C) the Executive shall not, directly for the Executive or any third party, solicit, induce,
recruit or cause another person in the employment of the Company or any of its
affiliates to terminate such employee’s employment for the purposes of joining, associating,
or becoming employed with any business or activity which is in competition with any services or
products sold, or any business or activity engaged in, by the Company or any of its affiliates.

5.2 The Executive agrees that he will not, while employed with the Company or at any time
thereafter for any reason, in any fashion, form or manner, either directly or indirectly, divulge,
disclose or communicate to any person, firm, corporation or other business entity, in any manner
whatsoever, any confidential information or trade secrets concerning the business of the Company,
including, without limiting the generality of the foregoing, any customer lists or other customer
identifying information, the techniques, methods or systems of the Company’s operation or
management, any information regarding its financial matters, or any other material information
concerning the business of the Company, its manner of operation, its plans or other material data.
The provisions of this Section 5.2 shall not apply to (i) information that is public knowledge
other than as a result of disclosure by the Executive in breach of this Section 5.2; (ii)
information disseminated by the Company to third parties in the ordinary course of business; (iii)
information lawfully received by the Executive from a third party who, based upon inquiry by the
Executive, is not bound by a confidential relationship to the Company, or (iv) information
disclosed under a requirement of law or as directed by applicable legal authority having
jurisdiction over the Executive.

5.3 The Executive agrees that he will not, while employed with the Company or at any time
thereafter for any reason, in any fashion, form or manner, either directly or indirectly, disparage
or criticize the Company, or otherwise speak of the Company, in any negative or unflattering way to
anyone with regard to any matters relating to the Executive’s employment by the Company or the
business or employment practices of the Company. The Company agrees that it will not, in any
fashion, form or manner, either directly or indirectly, disparage or criticize the Executive or
otherwise speak of the Executive in any negative or unflattering way to anyone with regard to any
matters relating to the Executive’s employment with the Company. This Section shall not operate as
a bar to (i) statements reasonably necessary to be made in any judicial, administrative or arbitral
proceeding, or (ii) internal communications between and among the employees of the Company with a
job-related need to know about this Agreement or matters related to the administration of this
Agreement.

5.4 The Executive understands that in the event of a violation of any provision of Section 5,
the Company shall have the right to (i) seek injunctive relief, in addition to any other existing
rights provided in this Agreement or by operation of law, without the requirement of posting bond
and (ii) stop making any future payments or providing benefits under this Agreement. The remedies
provided in this Section 5.4 shall be in addition to any legal or equitable remedies existing at
law or provided for in any other agreement between the Executive and the Company or any of its
affiliates, and shall not be construed as a limitation upon, or as an alternative or in lieu of,
any such remedies. If any provisions of Section 5 shall be determined by a court of competent
jurisdiction to be unenforceable in part by reason of it being too great a period of time or
covering too great a geographical area, it shall be in full force and effect as to that period of
time or geographical area determined to be reasonable by the court.

 

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5.5 The Executive acknowledges that the provisions of Section 5 shall extend to any business
that becomes an affiliate of or successor to the Company or any of its affiliates on account of
such Change in Control.

6. Requirement of Release. Notwithstanding anything in this Agreement to the contrary,
the release of claims referenced in Section 4.1 above shall completely release the Company, its
parent and affiliates and their respective officers, directors and employees (collectively the
“Released Parties” and individually a “Released Party”) and which shall forever
waive all claims of any nature that the Executive may have against any Released Party, including
without limitation all claims arising out of Executive’s employment within the Company or the
termination of that employment. If the Executive does not execute an effective release, such
release does not become irrevocable or such release is revoked, in each case, prior to the time of
payment prescribed in Section 4.1 above, the Company’s obligations to provide the benefits
described in Section 4.1(C) hereof shall cease immediately.

7. Termination Procedures.

7.1 Notice of Termination. After a Change in Control and during the term of this
Agreement, any purported termination of the Executive’s employment (other than by reason of death)
shall be communicated by written Notice of Termination from one party hereto to the other party
hereto in accordance with Section 11 hereof. For purposes of this Agreement, a “Notice of
Termination” shall mean a notice which shall indicate whether the termination is for Cause,
without Cause, by reason of Disability, for Good Reason or otherwise and shall set forth in
reasonable detail the facts and circumstances claimed to provide the basis for termination of the
Executive’s employment; provided, that the failure of the Executive or the Company to set forth in
the Notice of Termination any particular facts or circumstances shall not waive any right of such
party or preclude such party from asserting such facts or circumstances in enforcing his or its
rights hereunder.

7.2 Date of Termination. “Date of Termination,” with respect to any purported
termination of the Executive’s employment after a Change in Control and during the term of this
Agreement, shall mean (i) if the Executive’s employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the Executive shall not have returned to
the full-time performance of the Executive’s duties during such thirty (30) day period), and (ii)
if the Executive’s employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination by the Company, shall not be less than thirty
(30) days (except in the case of a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given). “Date of Termination,” with respect to
any Pre-Change in Control Termination shall mean the date of such termination as reasonably
determined by the Company.

 

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8. Acceleration of Certain Stock-Based Benefits.

8.1 If a Qualifying Termination shall occur, in addition to any payments and benefits to which
the Executive is entitled under Section 3 or any other section hereof, the Company shall accelerate
certain stock-based benefits described in this Section 8 (the
“Acceleration”). The Executive will also receive the Acceleration of these stock-based
benefits in the event a Change in Control occurs, and the acquiring entity does not assume,
convert, exchange or continue such stock-based awards or benefits. The Executive shall also be
entitled to the Acceleration (and any payments and benefits under this Section 8) if the Executive
incurs a Pre-Change in Control Termination.

(A) To the extent the Board has the discretion to do so under the applicable option agreement
or plan pursuant to which such option was granted, if (i) a Qualifying Termination occurs or (ii) a
Change in Control occurs and the acquiring entity does not assume, convert, exchange or continue
such stock-based awards or benefits or (iii) a Pre-Change in Control Termination shall occur, then
all unvested options with respect to the Company’s stock held by the Executive on the Date of
Termination (in the case of clause (i)) or the date of the Change in Control (in the case of
clauses (ii) and (iii)), shall vest and become immediately exercisable and shall remain exercisable
for a period ending on the later of (x) the fifth anniversary of the Date of Termination (in the
case of clause (i)), or the fifth anniversary of the Change in Control (in the case of clauses (ii)
and (iii)) or (y) the last date that such option otherwise would be exercisable under the terms of
the option agreement or the plan pursuant to which such option was granted; provided, that in no
event shall any option be exercisable after the expiration of the original term of such option. If
the Company fails to accelerate the vesting of such stock options, as aforesaid, the Company shall,
within thirty (30) days following the Executive’s Date of Termination, or in the event of a
Pre-Change in Control Termination or if the acquiring entity does not assume, convert, exchange or
continue such stock-based awards or benefits , the date of the Change in Control, make a lump sum
cash payment to the Executive equal to the aggregate positive option “spread” determined as of the
Date of Termination, or in the event of a Pre-Change in Control Termination, determined as of the
date of the Change in Control, and the Executive’s options shall be cancelled upon such cash
payment.

(B) To the extent the Board has the discretion to do so under the applicable award agreement
or plan pursuant to which such award was granted, if (i) a Qualifying Termination shall occur or
(ii) a Change in Control occurs and the acquiring entity does not assume, convert, exchange or
continue such stock-based awards or benefits or (iii) a Pre-Change in Control Termination shall
occur, then (x) all unearned performance restricted shares held by the Executive under such
agreement or plan on the Date of Termination (in the case of clause (i)) or the date of the Change
in Control (in the case of clauses (ii) and (iii)) shall be deemed to have been earned at the
target level set forth in such agreement or plan for any performance period not then completed and
all earned but unvested performance restricted shares, including those deemed to be earned pursuant
to this sentence, shall immediately vest and (y) all unvested restricted stock awards shall
immediately vest and, in each case, the restrictions on all such shares shall lapse. If the Company
fails to deem the Executive’s unearned performance restricted shares earned, or accelerate the
vesting of the Executive’s performance restricted shares or shares of restricted stock, as
aforesaid, the Company shall, within thirty (30) days following the Date of Termination, or on the
event of a Pre-Change in Control Termination or if the acquiring entity does not assume, convert,
exchange or continue such stock-based awards or benefits, upon the date of the Change in Control,
make a lump sum cash payment to the Executive in respect of such Executive’s performance restricted
shares or shares of restricted stock that have not previously been earned and/or fully vested in an
amount equal to the aggregate fair market value of such shares determined as of the date of the
Date of Termination without taking into account

 

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any restrictions thereon, or in the event of a Pre-Change in Control Termination or if the
acquiring entity does not assume, convert, exchange or continue such stock-based awards or
benefits, determined as of the date of the Change in Control without taking into account any
restrictions thereon, and such performance restricted shares or shares of restricted stock shall be
cancelled upon such cash payment.

(C) To the extent the Board has the discretion to do so under the applicable restricted stock
unit agreement or plan pursuant to which such restricted stock units were granted, if (i) a
Qualifying Termination shall occur or (ii) a Change in Control occurs and the acquiring entity does
not assume, convert, exchange or continue such stock-based awards or benefits or (iii) a Pre-Change
in Control Termination shall occur, then (x) all unearned performance restricted stock units held
by the Executive under such agreement or plan on the Date of Termination (in the case of clause
(i)) or the date of the Change in Control (in the case of clauses (ii) and (iii)) shall be deemed
to have been earned at the target level set forth in such agreement or plan for any performance
period not then completed and all earned but unvested performance restricted stock units, including
those deemed to be earned pursuant to this sentence, shall immediately vest, and (y) all unvested
restricted stock units held by the Executive under such agreement or plan at such time shall
immediately vest. If the Company fails to accelerate the vesting of such restricted stock units,
as aforesaid, the Company shall, within thirty (30) days following the Executive’s Date of
Termination, or in the event of a Pre-Change in Control Termination or if the acquiring entity does
not assume, convert, exchange or continue such stock-based awards or benefits, the date of the
Change in Control, make a lump sum cash payment to the Executive in respect of such Executive’s
restricted stock units that have not previously vested in an amount equal to the aggregate fair
market value of the shares underlying the restricted stock units determined as of the date of the
Executive’s Date of Termination without taking into account any restrictions thereon, or in the
event of a Pre-Change in Control Termination or if the acquiring entity does not assume, convert,
exchange or continue such stock-based awards or benefits, determined as of the date of the Change
in Control without taking into account any restrictions thereon, and such restricted stock units
shall be cancelled upon such cash payment. Notwithstanding the foregoing, to the extent such
restricted stock units constitute “non-qualified deferred compensation” within the meaning of
Section 409A of the Code, such restricted stock units shall be settled on the earliest date that
would be permitted under Section 409A of the Code without incurring penalty or accelerated taxes
thereunder.

9. No Mitigation. The Company agrees that, if the Executive’s employment with the
Company terminates during the term of this Agreement, the Executive shall not be required to seek
other employment or to attempt in any way to reduce any amounts payable to the Executive by the
Company pursuant to Section 4 hereof. Further, the amount of any payment or benefit provided for in
this Agreement (other than Section 4.1 (C) hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or otherwise.

 

10

 

10. Successors; Binding Agreement.

10.1 In addition to any obligations imposed by law upon any successor to the Company, the
Company shall require (i) any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business or assets of
the Company (on a consolidated basis) and (ii) in the case of a disposition of all or substantially
all of the business or assets of the Company (on a consolidated basis) to more than one entity in a
single transaction or series of related transactions, the entity that will employ the Executive
immediately after such disposition (such successor or other entity in clause (i) or (ii), a
“Successor”) to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such succession or
disposition had taken place prior to the effectiveness of any such succession or disposition. If
such assumption and agreement is obtained prior to the effectiveness of any such succession or
disposition and the Executive accepts employment with the Successor, the Executive’s employment
shall not be treated as a termination of the Executive’s employment with the Company (unless
otherwise required in order to comply with the definition of “separation from service” as set forth
in Treas. Reg. § 1.409A-1(h) or any successor regulation thereto).

10.2 This Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive’s estate.

11. Notices. For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested, postage prepaid,
addressed, if to the Executive, to the address shown for the Executive in the personnel records of
the Company and, if to the Company, to the address set forth below, or to such other address as
either party may have furnished to the other in writing in accordance herewith, except that notice
of change of address shall be effective only upon actual receipt:

To the Company:

Armstrong World Industries, Inc.

P.O. Box 3001

Lancaster, Pennsylvania 17604

Attention: General Counsel

12. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and signed by the
Executive and such officer as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or of any lack of compliance
with, any condition or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. This Agreement supersedes any other agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof which have been made by
either party; provided, however, that this Agreement shall supersede any agreement
setting forth the terms and conditions of the Executive’s termination of employment with the
Company only in the event that the Executive’s employment with the Company is

 

11

 

terminated on or following a Change in Control, by the Company without Cause or by the
Executive for Good Reason, as defined herein, or the Executive incurs a Pre-Change in Control
Termination, as defined herein. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. All references to
sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions
to such sections. Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under Sections 4 and 5
hereof shall survive the expiration of the term of this Agreement. This Agreement is not intended
by the parties hereto to constitute an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended.

13. Validity. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this Agreement, which
shall remain in full force and effect.

14. Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
instrument.

15. Settlement of Disputes; Arbitration. All claims by the Executive for benefits
under this Agreement shall be directed in writing to and determined by the Committee, which shall
give full consideration to the evidentiary standards set forth in this Agreement. Any denial by the
Committee of a claim for benefits under this Agreement shall be delivered to the Executive in
writing and shall set forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Committee shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim and shall further allow the Executive to appeal to the
Committee a decision of the Committee within sixty (60) days after notification by the Committee
that the Executive’s claim has been denied. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in Lancaster County,
Pennsylvania in accordance with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

16. Definitions. For purposes of this Agreement, the following terms shall have the
meanings indicated below:

(A) “Accounting Firm” shall have the meaning stated in Section 4.2(B) hereof.

(B) “Anniversary Date” shall have the meaning stated in Section 2 hereof.

(C) “Board” shall mean the Board of Directors of the Company.

(D) “Cause” for termination by the Company of the Executive’s employment shall mean
(i) the deliberate and continued failure by the Executive to devote substantially all the
Executive’s business time and best efforts to the performance of the Executive’s duties after a
demand for substantial performance is delivered to the Executive by the Board which

 

12

 

specifically identifies the manner in which the Executive has not substantially performed such
duties; (ii) the deliberate engaging by the Executive in gross misconduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise; or (iii) the Executive’s conviction
of, or plea of guilty or nolo contendere to, a felony or any criminal charge involving moral
turpitude. For the purposes of this Agreement, no act, or failure to act, on the part of the
Executive shall be considered “deliberate” unless done, or omitted to be done, by the Executive not
in good faith and without reasonable belief that such action or omission was in the best interests
of the Company.

(E) A “Change in Control” shall be deemed to have occurred if any of the following
shall have occurred after the Effective Date:

(i) at any time (x) any Person (other than a Person that is, at such time, a Permitted Holder)
is or becomes the Beneficial Owner of 30% or more of the Voting Power of the Company and (y) no
Person that is, at such time, a Permitted Holder Beneficially Owns as of such time, without giving
effect to the existence of any group other than a group that is itself a Permitted Holder, a
greater percentage of the Voting Power of the Company than the percentage of the Voting Power of
the Company Beneficially Owned by the Person referred to under clause (x) at such time;

(ii) during any period of 12 consecutive months, the following individuals cease for any
reason (other than the occurrence of an emergency or other condition or event described in Section
1509(a) of the Pennsylvania Business Corporation Law) to constitute at least a majority of the
Board: (A) individuals who at the beginning of such period were members of the Board and (B) any
new director whose appointment or election by the Board or nomination for election by the Company’s
shareholders was (x) approved by a vote of at least a majority of those directors then in office
who were directors at the beginning of such 12-month period or whose election or nomination for
election was previously approved in accordance with this clause (B), or (y) approved in writing by
TPG, the Trust or TPG and the Trust, provided that, at the time of such approval, such approving
party or parties Beneficially Owns, without giving effect to the existence of any group, 30% or
more of the Voting Power of the Company, but excluding for purposes of both clause (x) and (y) any
such new director who is initially proposed for office in an actual or threatened election contest
or other actual or threatened solicitation of proxies or consents by or on behalf of any Person
other than the Board, TPG or the Trust;

(iii) the consummation of (A) a merger or consolidation involving the Company, (B) a sale or
other disposition of all or substantially all of the assets of the Company (on a consolidated
basis), including a sale or disposition of all or substantially all of the assets of the Company
(on a consolidated basis) pursuant to a spin-off or split-up, or (C) any other substantially
similar transaction or series of related transactions involving the Company (each of the
transactions in clauses (A), (B) and (C), a “Corporate Transaction”), but excluding a
Non-Control Acquisition or a Spin-Off; or

(iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of
the Company.

 

13

 

Notwithstanding anything to the contrary in the foregoing, for purposes of clause (i) of
the definition of Change in Control, the following transactions shall not constitute a Change in
Control:

	 	(x)	 	any Person becomes the Beneficial Owner of 30% or more of the
Voting Power of the Company as a result of a reduction in the number of shares
of Common Stock pursuant to a transaction or series of transactions that is
approved by a majority of the Board, unless such Person thereafter becomes the
Beneficial Owner of additional shares of Common Stock representing 1% or more
of the Voting Power of the Company;
	 
	 	(y)	 	if a majority of the Board determines in good faith that a
Person has acquired Beneficial Ownership of 30% or more of the Voting Power of
the Company inadvertently and, no later than the date set by the Board such
Person divests a sufficient number of shares so that, after such divestiture,
such Person no longer Beneficially Owns 30% or more of the Voting Power of the
Company; or
	 
	 	(z)	 	any Person becomes the Beneficial Owner of 30% or more of the
Voting Power of the Company as a result of an issuance or sale of securities by
the Company or any of its Subsidiaries.

Notwithstanding anything to the contrary herein, solely for the purpose of determining the timing
of payment or timing of distribution of any compensation or benefit that constitutes “non-qualified
deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986, as
amended, a Change in Control shall not be deemed to occur under this Agreement unless the events
that have occurred would also constitute a “Change in the Ownership or Effective Control of a
Corporation or in the Ownership of a Substantial Portion of the Assets of a Corporation” under
Treasury Department Final Regulation 1.409A-3(i)(5), or any successor provision.

Other definitions used in the Change in Control definition

(E1) “Affiliate” shall mean with respect to any person or entity, any other
person or entity that, at any time that a determination is made hereunder, directly or
indirectly, controls, is controlled by, or is under common control with such first person or
entity. For the purpose of this definition, “control” shall mean, as to any person or
entity, the possession, directly or indirectly, of the power to elect or appoint a majority
of directors (or other persons acting in similar capacities) of such person or entity or
otherwise to direct or cause the direction of the management and policies of such person or
entity, whether through the ownership of voting securities, by contract or otherwise.

(E2) “Beneficial Owner”, “Beneficially Own” and “Beneficial
Ownership” shall have the meaning as set forth in Rules 13d-3 and 13d-5 promulgated
under the Exchange Act or any successor provision.

(E3) “Common Stock” shall mean the common stock of the Company.

(E4) “Group” or “group” shall have the meaning ascribed thereto in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision.

 

14

 

(E5) “Non-Control Acquisition” shall mean a Corporate Transaction that is a
merger or consolidation involving the Company (or any other substantially similar
transaction or series of related transactions involving the Company) where:

(1) Persons who are the Beneficial Owners of the Voting Power of the Company
immediately prior to such Corporate Transaction will Beneficially Own, by reason of such
immediately prior Beneficial Ownership, immediately after such Corporate Transaction an
aggregate of more than 45% of the Voting Power of the surviving, resulting or acquiring
entity in such Corporate Transaction; and

(2) such Corporate Transaction shall not result in a Change in Control with respect to
the surviving, resulting or acquiring entity under clause (i) of the definition of “Change
in Control” (as if such definition and the definition of “Permitted Holder” referred to such
surviving, resulting or acquiring entity and taking into account the paragraph beginning
“Notwithstanding” immediately following clause (iv) of such definition); and

(3) individuals who were members of the Board immediately prior to such Corporate
Transaction constitute at least a majority of the members of the board of directors (or
similar governing body) of the Company or other surviving, resulting or acquiring entity in
such Corporate Transaction immediately after such Corporate Transaction.

(E6) “Permitted Holder” shall mean any of (a) the Trust, (b) TPG, (c) the
Company or any entity controlled by the Company, (d) any employee benefit plan (or related
trust) sponsored or maintained by the Company or by any entity controlled by the Company,
(e) any group of which any of the foregoing are members; provided, that, without giving
effect to the existence of such group or any other group, or giving effect to any agreements
between the Trust and/or TPG, on the one hand, and any other Person, on the other hand, the
Trust and TPG collectively Beneficially Own, a greater percentage of the Voting Power of the
Company than the percentage of such Voting Power collectively Beneficially Owned by all
other members of such group (together with their Affiliates), or (f) any member of any group
that is a Permitted Holder pursuant to clause (e) of this definition at the time of the
determination of whether such member is a Permitted Holder, and any of such member’s
Affiliates.

(E7) “Person” shall mean any individual, entity or group, including any
“person” or “group” within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act, or any successor provision.

(E8) “Shareholders’ Agreement” shall mean the Shareholders’ Agreement by and
between TPG and the Trust dated as of August 28, 2009, as it may be amended from time to
time.

 

15

 

(E9) “Spin-Off” shall mean a disposition of what the Board determines in good
faith, after consultation with its outside counsel, to be all or substantially all of the
assets of the Company (on a consolidated basis) pursuant to a spin-off, split-up or similar
transaction where Persons who are the Beneficial Owners of the Voting Power of the Company
immediately prior to such transaction will Beneficially Own, by reason of such immediately
prior Beneficial Ownership, an aggregate of more than 80% of the Voting Power of each of the
entities resulting from such transaction (including Armstrong World Industries, Inc.)
immediately after such transaction; provided, that, if another Corporate Transaction
involving any entity resulting from such transaction (including Armstrong World Industries,
Inc.) occurs in connection with a Spin-Off, such Corporate Transaction shall be analyzed
separately for purposes of determining whether a Change in Control has occurred with respect
to the entity resulting from such Spin-Off that employs the Executive immediately after such
Spin-Off (which may be Armstrong World Industries, Inc.).

(E10) “TPG” shall mean Armor TPG Holdings LLC and its Affiliates as of the time
of the relevant determination hereunder.

(E11) “Trust” shall mean the Armstrong World Industries, Inc. Asbestos Personal
Injury Settlement Trust and its Affiliates as of the time of the relevant determination
hereunder.

(E12) “Voting Power” shall mean, calculated at a particular point in time, the
aggregate votes represented by all the then outstanding securities of an entity then
entitled to vote generally in the election of directors of such entity (as applicable) but
excluding any votes which a Person shall have upon and by reason of the non-payment of
dividends on preferred shares in accordance with the terms of such preferred shares.

(F) “Change in Control Bonus” shall have the meaning stated in Section 4.1(A)(ii)
hereof.

(G) “Change in Control Salary” shall have the meaning stated in Section 4.1(A)(i)
hereof.

(H) “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended from time to time.

(I) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(J) “Committee” shall mean (i) the individuals (not fewer than three in number) who,
on the date six (6) months before a Change in Control, constitute the Management Development and
Compensation Committee of the Board (or its successor), plus (ii) in the event that fewer than
three individuals are available from the group specified in clause (i) above for any reason, such
individuals otherwise constituting members of the Board as may be appointed by the individual or
individuals so available (including for this purpose any individual or individuals previously so
appointed under this clause (ii)); provided, that, if after such

 

16

 

appointments fewer than three individuals constitute the Committee, then the Board shall
appoint additional members of the Committee so that the Committee shall have no fewer than three
members, a majority of which additional appointees, if available, shall be “independent directors”
(as determined by the rules or regulations of the principal stock exchange or market on which the
Company’s common stock is traded or, if the Company’s common stock is not listed or traded on such
exchange, as defined under the rules of the Nasdaq Stock Market).

(K) “Company” shall mean Armstrong World Industries, Inc., as hereinbefore defined, or
any Successor that has assumed this Agreement pursuant to Section 10.1 hereof.

(L) “Cut Back” shall have the meaning stated in Section 4.2(A) hereof.

(M) “Date of Termination” shall have the meaning stated in Section 7.2 hereof.

(N) “Disability” shall be deemed the reason for the termination by the Company of the
Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time performance of the Executive’s
duties with the Company for a period of six (6) consecutive months, the Company shall have given
the Executive a Notice of Termination for Disability, and, within thirty (30) days after such
Notice of Termination is given, the Executive shall not have returned to the full-time performance
of the Executive’s duties.

(O) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from
time to time.

(P) “Excise Tax” shall have the meaning stated in Section 4.2(A) hereof.

(Q) “Good Reason” for termination by the Executive of the Executive’s employment shall
mean the occurrence (without the Executive’s express written consent), during the term of this
Agreement, of any one of the following acts by the Company, or failures by the Company to act:

(i) a material diminution in the Executive’s authority, duties, or responsibilities or the
assignment to Executive of duties or responsibilities that are materially inconsistent from those
in effect immediately prior to the Change in Control;

(ii) a reduction of ten percent (10%) or more by the Company in the Executive’s annual base
salary as in effect on the date hereof or as the same may be increased from time to time except for
across-the-board salary reductions similarly affecting all senior executive officers of the
Company;

(iii) the failure by the Company to continue in effect any compensation plan in which the
Executive participates immediately prior to the Change in Control which is material to the
Executive’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or the failure by the Company to
continue the Executive’s participation therein (or in such substitute or

 

17

 

alternative plan) on a basis not materially less favorable in terms of compensation
opportunity (“materially less favorable” shall be a reduction of ten percent (10%) or more in the
compensation opportunity), as existed immediately prior to the Change in Control except for
across-the-board compensation plan reductions similarly affecting all senior executive officers of
the Company;

(iv) the failure by the Company to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive under any of the Company’s retirement, life
insurance, medical, health and accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control, the taking of any action by the Company
which would directly or indirectly materially reduce any of such benefits (a “material reduction”
shall be a reduction of ten percent (10%) or more in the value of the aggregate benefits), or
deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the
Change in Control except for (i) across-the-board benefit reductions similarly affecting all senior
executive officers of the Company or (ii) reduction or elimination of Executive’s annual
comprehensive “executive” physical examinations, financial planning or other perquisites;

(v) a material breach by the Company of its obligations under this Agreement; or

(vi) the failure of the Company to obtain the assumption and agreement to perform this
Agreement by a Successor as provided in Section 10.1 hereof prior to the effectiveness of the
succession or disposition referred to in Section 10.1(i) or Section 10.1(ii), as applicable.

The Executive’s continued employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good Reason hereunder.

The Executive’s right to terminate employment for Good Reason shall be subject to the
following conditions: (i) any amounts payable upon a Good Reason termination shall be paid only if
the Executive actually terminates employment within one hundred and eighty (180) days following the
initial existence of the Good Reason condition and (ii) the amount, time and form of payment upon a
termination of employment for Good Reason shall be the same as the amount, time and form of payment
payable upon an involuntary termination without Cause. The Executive must also provide notice to
the Company of the Good Reason condition within ninety (90) days of the initial existence of such
condition and the Company must be given at least thirty (30) days to remedy such situation.

(R) “MAP” shall have the meaning stated in Section 4.1(B) hereof.

(S) “Notice of Termination” shall have the meaning stated in Section 7.1 hereof.

(T) “Payment” shall have the meaning stated in Section 4.2(A) hereof.

(U) “Person” shall have the meaning set forth in Section 16(E)(7).

 

18

 

(V) “Pre-Change in Control Termination” shall have the meaning stated in Section 4.1
hereof.

(W) “Qualifying Termination” shall mean a termination of the Executive’s employment,
concurrent with, or during the twenty-four month period following, a Change in Control, unless such
termination is (i) by the Company for Cause, (ii) by reason of death or Disability, or (iii) by the
Executive without Good Reason.

(X) “Released Parties” or “Released Party” shall have the meaning stated in
Section 6 hereof.

(Y) “Severance Payments” shall mean those payments described in Section 4.1 hereof.

(Z) “Successor” shall have the meaning stated in Section 10.1 hereof.

	 	 	 	 	 
	 	ARMSTRONG WORLD INDUSTRIES, INC.

 	 
	 	By:  	/s/ Jeffrey D. Nickel 	 
	 	 	Name:  	Jeffrey D. Nickel 	 
	 	 	Title:  	Senior VP, Secretary & General Counsel 	 
	 
	 	MATTHEW ESPE

 	 
	 	/s/ Matthew Espe 	 
	 	 	 
	 	 	 

 

19

 

	 	 	 	 	 

EXHIBIT A

FORM OF RELEASE AGREEMENT

THIS RELEASE AGREEMENT (the “Release”) is made as of this            day of                     ,           , by and
between Matthew Espe (“Executive”) and Armstrong World Industries, Inc. (the “Company”).

	1.	 	FOR AND IN CONSIDERATION of the payments and benefits provided in the Change in Control
Agreement between Executive and the Company dated as of                      , 2010, (the “Change in
Control Agreement”), Executive, for himself or herself, his or her successors and assigns,
executors and administrators, now and forever hereby releases and discharges the Company,
together with all of its past and present parents, subsidiaries, and affiliates, together with
each of their officers, directors, stockholders, partners, employees, agents, representatives
and attorneys, and each of their subsidiaries, affiliates, estates, predecessors, successors,
and assigns (hereinafter collectively referred to as the “Releasees”) from any and all
rights, claims, charges, actions, causes of action, complaints, sums of money, suits, debts,
covenants, contracts, agreements, promises, obligations, damages, demands or liabilities of
every kind whatsoever, in law or in equity, whether known or unknown, suspected or
unsuspected, which Executive or Executive’s executors, administrators, successors or assigns
ever had, now has or may hereafter claim to have by reason of any matter, cause or thing
whatsoever; arising from the beginning of time up to the date of the Release: (i) relating in
any way to Executive’s employment relationship with the Company or any of the Releasees, or
the termination of Executive’s employment relationship with the Company or any of the
Releasees; (ii) arising under or relating to the Change in Control Agreement; (iii) arising
under any federal, local or state statute or regulation, including, without limitation, the
Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit
Protection Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act
of 1990, the Employee Retirement Income Security Act of 1974, and/or the applicable state law
against discrimination, each as amended; (iv) relating to wrongful employment termination or
breach of contract; or (v) arising under or relating to any policy, agreement, understanding
or promise, written or oral, formal or informal, between the Company and any of the Releasees
and Executive; provided, however, that notwithstanding the foregoing, nothing
contained in the Release shall in any way diminish or impair: (i) the Executive’s ability to
enforce the provisions of Sections 4.1(C) and (D) of the Change in Control Agreement, (ii) any
direct or indirect holdings of equity in Armstrong World Industries, Inc. or any vested awards
(or awards which may vest) which Executive has under any equity, equity-based, stock option or
similar plan, agreement or program, which equity and awards shall be subject to all the terms
and conditions of such documents; (iii) any claims for accrued and vested benefits under any
of the Company’s employee retirement and welfare benefit plans; and (iv) any rights or claims
Executive may have that cannot be waived under applicable law; (collectively, the
“Excluded Claims”). Executive further acknowledges and agrees that, except with
respect to Excluded Claims, the Company and the Releasees have fully satisfied any and all
obligations whatsoever owed to Executive arising out of Executive’s employment
with the Company or any of the Releasees, and that no further payments or benefits are owed
to Executive by the Company or any of the Releasees.

 

1

 

	2.	 	Executive understands and agrees that, except for the Excluded Claims, Executive has
knowingly relinquished, waived and forever released any and all rights to any personal
recovery in any action or proceeding that may be commenced on Executive’s behalf arising out
of the aforesaid employment relationship or the termination thereof, including, without
limitation, claims for back pay, front pay, liquidated damages, compensatory damages, general
damages, special damages, punitive damages, exemplary damages, costs, expenses and attorneys’
fees.
	 
	3.	 	Executive acknowledges and agrees that Executive has been advised to consult with an attorney of
Executive’s choosing prior to signing the Release. Executive understands and agrees that Executive
has the right and has been given the opportunity to review the Release with an attorney of
Executive’s choice should Executive so desire. Executive also agrees that Executive has entered
into the Release freely and voluntarily. Executive further acknowledges and agrees that Executive
has had at least forty-five (45) calendar days to consider the Release, although Executive may sign
it sooner if Executive wishes. In addition, once Executive has signed the Release, Executive shall
have seven (7) additional days from the date of execution to revoke Executive’s consent and may do
so by writing to: Armstrong World Industries, Inc., P.O. Box 3001, Lancaster, Pennsylvania 17604,
Attention: General Counsel. The Release shall not be effective, and no payments shall be due under
Section 4 of the Change in Control Agreement, until the eighth (8th) day after Executive shall have
executed the Release and returned it to the Company, assuming that Executive had not revoked
Executive’s consent to the Release prior to such date.
	 
	4.	 	It is understood and agreed by Executive that the payment made to Executive is not to be
construed as an admission of any liability whatsoever on the part of the Company or any of the
other Releasees, by whom liability is expressly denied.
	 
	5.	 	The Release is executed by Executive voluntarily and is not based upon any representations or
statements of any kind made by the Company or any of the other Releasees as to the merits,
legal liabilities or value of Executive’s claims. Executive further acknowledges that
Executive has had a full and reasonable opportunity to consider the Release and that Executive
has not been pressured or in any way coerced into executing the Release.
	 
	6.	 	The exclusive venue for any disputes arising hereunder shall be the state or federal courts
located in the Commonwealth of Pennsylvania, and each of the parties hereto 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 proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in an inconvenient forum.
Each of the parties hereto also agrees that any final and unappealable judgment against a
party hereto in connection with any action, suit or other proceeding may be enforced in any
court of competent jurisdiction, either within or outside of the United States. A certified
or exemplified copy of such award or judgment
shall be conclusive evidence of the fact and amount of such award or judgment.

 

2

 

	7.	 	The Release and the rights and obligations of the parties hereto shall be governed and
construed in accordance with the laws of the Commonwealth of Pennsylvania. If any provision
hereof is unenforceable or is held to be unenforceable, such provision shall be fully
severable, and this document and its terms shall be construed and enforced as if such
unenforceable provision had never comprised a part hereof, the remaining provisions hereof
shall remain in full force and effect, and the court construing the provisions shall add as a
part hereof a provision as similar in terms and effect to such unenforceable provision as may
be enforceable, in lieu of the unenforceable provision.
	 
	8.	 	The Release shall inure to the benefit of and be binding upon the Company and its successors
and assigns.

IN WITNESS WHEREOF, Executive and the Company have executed the Release as of the date and year
first written above.

	 	 	 	 	 
	 	ARMSTRONG WORLD INDUSTRIES, INC.

 	 
	 	By:  	
 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 
	 	MATTHEW ESPE

 	 
	 	 	 
	 	 	 
	 	 	 
	 

 

3exv10w14

Confidential materials omitted and filed

separately with the Securities and Exchange

Commission. Asterisks denote omissions.

Exhibit 10.14

WORKERS’ COMPENSATION CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

No. 2009300

EFFECTIVE JANUARY 1, 2009

between

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

and

The reinsurers subscribing to the respective

Interests and Liabilities Agreements attached to

and forming part of this Contract

			
	 	 	 
	Effective: January 1, 2009
	 	2009 Agency Markets Workers’
	 
	 	Compensation Catastrophe
	 
	 	Reinsurance Contract

 

 

WORKERS’ COMPENSATION CATASTROHE EXCESS OF LOSS REINSURANCE CONTRACT

	 	 	 	 	 	 	 	 	 
	Clause	 	Article No.	 	Page
	ACCESS TO RECORDS (LM-00100-2008.08.25-A) (AM)
	 	 	16	 	 	 	11	 
	ARBITRATION (LM-00200-2008.06.27-A)
	 	 	19	 	 	 	14	 
	ASSIGNMENT, NOVATION or TRANSFER (LM-00300-2008.05.13-A)
	 	 	4	 	 	 	2	 
	BUSINESS COVERED
	 	 	1	 	 	 	1	 
	COMMENCEMENT AND EXPIRATION
	 	 	2	 	 	 	2	 
	COMMUTATION (LM-02601-2007.10.29-W)
	 	 	13	 	 	 	9	 
	CONFIDENTIALITY (LM-00400-2008.08.15-A)
	 	 	26	 	 	 	22	 
	CURRENCY (LM-00500-2005.08.09)
	 	 	15	 	 	 	11	 
	DEFINITIONS
	 	 	5	 	 	 	2	 
	DEFINITION OF LOSS OCCURRENCE
	 	 	11	 	 	 	6	 
	DIVIDENDS AND TAXES (LM-00600-2008.10.10-A)
	 	 	21	 	 	 	19	 
	ENTIRE AGREEMENT (LM-00701-2008.08.15-A)
	 	 	29	 	 	 	24	 
	ERRORS OR OMISSIONS (LM-00800-2005.06.02-A)
	 	 	17	 	 	 	13	 
	EXCLUSIONS
	 	 	6	 	 	 	3	 
	EXTRA CONTRACTUAL OBLIGATIONS (LM-00900-2007.03.28-A) (AM)
	 	 	10	 	 	 	7	 
	FEDERAL EXCISE TAX (LM-01000-2008.08.15-A)
	 	 	22	 	 	 	19	 
	FEDERAL TERRORISM EXCESS RECOVERY (LM-01100-2008.08.06-A)
	 	 	30	 	 	 	25	 
	GOVERNING LAW (LM-01200-2008.09.18-A)
	 	 	27	 	 	 	24	 
	INSOLVENCY (LM-01300-2008.07.25-A)
	 	 	18	 	 	 	13	 
	INTEREST PENALTY (LM-01400-2005.08.24-A) (AM)
	 	 	20	 	 	 	17	 
	LOSS ADJUSTMENT AND SETTLEMENT (LM-01500-2006.09.07-A) (AM)
	 	 	9	 	 	 	6	 
	LOSS IN EXCESS OF POLICY LIMITS (LM-01600-2005.08.24-A) (AM)
	 	 	12	 	 	 	8	 
	OFFSET (LM-01701-2005.06.02-A)
	 	 	23	 	 	 	19	 
	REINSURER CLAIMS OBLIGATIONS (LM-03100-2008.07.21-A) (AM)
	 	 	32	 	 	 	30	 
	SALVAGE AND SUBROGATION (LM-01800-2008.08.15-A) (AM)
	 	 	14	 	 	 	10	 
	SELF INSURED OBLIGATIONS
	 	 	7	 	 	 	5	 
	SERVICE OF SUIT (LM-01900-2008.07.17-A)
	 	 	24	 	 	 	20	 
	SEVERABILITY (LM-02000-2005.06.02-A)
	 	 	28	 	 	 	24	 
	SPECIAL CONDITIONS (LM-02100-2008.11.18-A) (AM)
	 	 	31	 	 	 	25	 
	TERRITORY (LM-02201-2005.06.02-A)
	 	 	3	 	 	 	2	 
	ULTIMATE NET LOSS (LM-02400-2008.05.13-A) (AM)
	 	 	8	 	 	 	5	 
	UNAUTHORIZED REINSURANCE (LM-02500-2008.09.24-A) (AM)
	 	 	25	 	 	 	20	 
	 
	ATTACHMENTS:
	 	 	 	 	 	 	 	 
	 
	EXHIBIT A — FIRST EXCESS OF LOSS — $75,000,000 x $25,000,000
	 	 	 	 	 	 	 	 
	 
	EXHIBIT B — SECOND EXCESS OF LOSS — $100,000,000 x $100,000,000
	 	 	 	 	 	 	 	 
	 
	EXHIBIT C — THIRD EXCESS OF LOSS — $300,000,000 X $200,000,000
	 	 	 	 	 	 	 	 
	 
	EXHIBIT D — FOURTH EXCESS OF LOSS — $200,000,000 X $500,000,000
	 	 	 	 	 	 	 	 
	 
	EXHIBIT E — FIFTH EXCESS OF LOSS — $300,000,000 X $700,000,000
	 	 	 	 	 	 	 	 
	 
	EXHIBIT F — SIXTH EXCESS OF LOSS — $200,000,000 X $1,000,000,000
	 	 	 	 	 	 	 	 
	 
	WAR AND TERRORISM EXCLUSION ENDORSEMENT (NBCR) (LM-03200-2008.08.06-W)
	 	 	 	 	 	 	 	 

			
	 	 	 
	Effective: January 1, 2009
	 	2009 Agency Markets Workers’
	 
	 	Compensation Catastrophe
	 
	 	Reinsurance Contract

 

 

WORKERS’ COMPENSATION CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT No. 2009300

(hereinafter referred to as the “Contract”)

The reinsurers subscribing to the respective

Interests and Liabilities Agreements attached to

and forming part of this Contract

(hereinafter referred to as the “Subscribing Reinsurer”)

does hereby indemnify, as herein provided and specified, the

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

(hereinafter referred to as the “Company”).

ARTICLE 1 — BUSINESS COVERED

The Subscribing Reinsurer hereby agrees to indemnify the Company for all sums paid or payable for
losses occurring during the term of this Contract under in force, new and renewed Workers’
Compensation Policies, as defined herein, to the extent and on the terms and conditions and subject
to the exceptions, exclusions and limitations hereinafter set forth and as provided in Exhibits A,
B, C, D, E and F, which are attached hereto and made part of this Contract. For purposes of
identification, Exhibits A, B, C, D, E and F are entitled as follows:

	 	 	 	 	 

	 

	 	EXHIBIT “A” —
	 	FIRST WORKERS’ COMPENSATION CATASTROPHE
EXCESS OF LOSS REINSURANCE — ALL PERILS
($75,000,000 excess $25,000,000)
	 
	 	 	 	 
	 

	 	EXHIBIT “B” —
	 	SECOND WORKERS’ COMPENSATION CATASTROPHE
EXCESS OF LOSS REINSURANCE — ALL PERILS
($100,000,000 excess $100,000,000)
	 
	 	 	 	 
	 

	 	EXHIBIT “C” —
	 	THIRD WORKERS’ COMPENSATION CATASTROPHE
EXCESS OF LOSS REINSURANCE — ALL PERILS
($300,000,000 excess $200,000,000)
	 
	 	 	 	 
	 

	 	EXHIBIT “D” —
	 	FOURTH WORKERS’ COMPENSATION CATASTROPHE
EXCESS OF LOSS REINSURANCE — ALL PERILS
($200,000,000 excess $500,000,000)
	 
	 	 	 	 
	 

	 	EXHIBIT “E” —
	 	FIFTH WORKERS’ COMPENSATION CATASTROPHE
EXCESS OF LOSS REINSURANCE — ALL PERILS
($300,000,000 excess $700,000,000)
	 
	 	 	 	 
	 

	 	EXHIBIT “F” —
	 	SIXTH WORKERS’ COMPENSATION CATASTROPHE
EXCESS OF LOSS REINSURANCE— ALL PERILS
($200,000,000 excess $1,000,000,000)

					
	 	 	 	 	 
	Effective: January 1, 2009
	 	Page 1 of 44
	 	2009 Agency Markets Workers’
	 
	 	 	 	Compensation Catastrophe
	 
	 	 	 	Reinsurance Contract

 

 

ARTICLE 2 — COMMENCEMENT AND EXPIRATION

	A.	 	This Contract shall be effective 12:01 a.m., Local Standard Time, January 1, 2009 and shall
remain in full force and effect until 12:01 a.m., Local Standard Time, January 1, 2010, in
respect of Loss Occurrences taking place during said period, unless terminated earlier as
provided herein. Local Standard Time refers to the location of the risk.
	 
	B.	 	The Subscribing Reinsurer shall have no liability for losses arising out of occurrences
commencing after the effective time and date of expiration.
	 
	C.	 	If this Contract expires while a Loss Occurrence covered hereunder is in progress, the
Subscribing Reinsurer shall indemnify the Company as if the entire Loss Occurrence had
occurred during the term of this Contract.

ARTICLE 3 — TERRITORY (LM-02201-2005.06.02-A)

This Contract is worldwide in scope and shall cover risks wherever located.

ARTICLE 4 — ASSIGNMENT, NOVATION, OR TRANSFER (LM-00300-2008.05.13-A)

This Contract shall be binding upon and inure to the benefit of the Company and the
Subscribing Reinsurer and their respective successors and assigns provided, however, that this
Contract may not be assigned, novated or transferred, including any attempted transfer of rights
and/or obligations under any U.S. or foreign statute, legislation or jurisprudence, by either the
Company or the Subscribing Reinsurer , or as the result of the action(s) of a parent company or an
affiliated entity of either, without the prior written consent of the other. In the event of any
assignment, novation or transfer, the assignor, novator or transferor shall remain liable under
this Contract, and further guarantees the performance of all obligations of any assignee, novatee
or transferee under this Contract. Notwithstanding the foregoing, the Company may assign this
Contract to an insurance entity controlling, controlled by or under common control with the
Company, without the Subscribing Reinsurer’s written consent.

ARTICLE 5 — DEFINITIONS

	A.	 	The term “Policy” or “Policies,” as used in this Contract, means any written or oral binder,
policy, cover note, or contract of insurance or reinsurance and/or any endorsement to any of
the foregoing, issued, accepted, or held covered provisionally or otherwise, by or on behalf
of the Company or a Legal Entity (hereinafter each referred to as a “Legal Entity” and,
collectively, the “Legal Entities”), and reinsured, directly or indirectly, by the Company and
identified as belonging to the Agency Markets strategic business unit of the Liberty Mutual
Group.

					
	 	 	 	 	 
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	 	Page 2 of 44
	 	2009 Agency Markets Workers’
	 
	 	 	 	Compensation Catastrophe
	 
	 	 	 	Reinsurance Contract

 

 

	B.	 	The term “Workers’ Compensation Policies,” as used in this Contract, means Workers’
Compensation Policies, including all Policies providing coverage for benefits or other amounts
payable under any workers compensation law or any similar law; Employer’s Liability coverage
under any Policy; Foreign Voluntary Workers’ Compensation coverage under any Policy, Foreign
Workers’ Compensation coverage under any Policy; and Excess Workers’ Compensation and
Employer’s Liability coverage under any Policy.

ARTICLE 6 — EXCLUSIONS

	A.	 	This Contract does not apply to and specifically excludes the following:
	 
	 	 	Section 1

	 	a.	 	Occupational Disease unless arising from a sudden and accidental event of not more than
forty-eight (48) hours in duration.
	 
	 	b.	 	Cumulative Trauma.
	 
	 	c.	 	Nuclear Accident.
	 
	 	d.	 	All liability of the Company or a Legal Entity arising by contract, operation of law,
or otherwise, from its participation or membership, whether voluntary or involuntary, in
any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan,
pool, association, fund or other arrangement, however denominated, established or governed,
which provides for any assessment of or payment or assumption by the Company or a Legal
Entity of part or all of any claim, debt, charge, fee or other obligation of any insurer,
or its successors or assigns, which has been declared by any competent authority to be
insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
	 
	 	e.	 	Reinsurance Assumed except for any Workers’ Compensation business assumed by the
Company or a Legal Entity through inter-company reinsurance agreements between the members
of the Agency Markets strategic business unit, reinsurance assumed by Liberty National
Market-Global Business Unit, business classified as reinsurance written by the Company or a
Legal Entity for and on behalf of a direct insured, business assumed from OneBeacon
Insurance Group and USAIG business written on behalf of the Company.
	 
	 	f.	 	War and Terrorism as per the attached War and Terrorism Exclusions Endorsement (NBCR).

	 	 	Section 2

	 	a.	 	Offshore Oil Rigs.
	 
	 	b.	 	Jones Act.
	 
	 	c.	 	Professional Sports Teams.
	 
	 	d.	 	Airline Crews, except USAIG business written on behalf of the Company.

					
	 	 	 	 	 
	Effective: January 1, 2009
	 	Page 3 of 44
	 	2009 Agency Markets Workers’
	 
	 	 	 	Compensation Catastrophe
	 
	 	 	 	Reinsurance Contract

 

 

	 	e.	 	Any of the following occupations, employments or risks (except when not disclosed to
the Company or a Legal Entity, when incidental to a non-excluded risk (the Company to be
the sole judge of what is incidental) or when insured through voluntary or statutory pools
or assigned risk plans):

	 	1)	 	The navigation and operation of vessels on the high seas in foreign commerce;
	 
	 	2)	 	Underground coal mining;
	 
	 	3)	 	Fireworks manufacturing;
	 
	 	4)	 	Manufacturing of fuses used with explosive risks and fireworks;
	 
	 	5)	 	Explosive risks, as per the following:

	 	(i)	 	Manufacture of any explosive substance intended for use as an
explosive;
	 
	 	(ii)	 	Manufacture of any product, other than Fireworks and Fuses, in which
any such explosive substance is an ingredient;
	 
	 	(iii)	 	The loading of any such explosive substance into containers for use as
explosive objects, propellant charges or detonating devices, and the incidental
storage thereof;
	 
	 	(iv)	 	Handling, transportation or storage of any such explosive substance
intended solely for war purposes.

	B.	 	If any risks reinsured hereunder, but falling within the scope of the exclusions in Section 2
are assigned to the Company or a Legal Entity under any assigned risk plan, the coverage
afforded by this Contract shall apply to such risks, but only for the Policy limits prescribed
by said plan, and subject to the limits of this Contract.
	 
	C.	 	The above exclusions within Section 2 shall not apply when they are merely incidental to the
main operations of the insured, provided such main operations are covered by the Company or a
Legal Entity and are not themselves excluded from the scope of this Contract. The Company
shall be the sole judge of what is “incidental”.
	 
	D.	 	Should the Company or a Legal Entity, by reason of an inadvertent act, error, or omission, be
bound to afford coverage excluded hereunder within Section 2 the Subscribing Reinsurer shall
waive the exclusion(s). The duration of said waiver shall not extend beyond the time that
notice of such coverage has been received by the responsible underwriting authority of the
Company or a Legal Entity plus the minimum time period required thereafter for the Company or
a Legal Entity, as applicable, to terminate such coverage.
	 
	E.	 	The Company may submit to the Subscribing Reinsurer for special acceptance hereunder,
business not covered by this Contract. If said business is accepted by the Subscribing
Reinsurer, it shall be subject to the terms of this Contract, except as such terms are
modified by such acceptance. Any special acceptance business covered under the reinsurance
agreement being replaced by this Contract shall be automatically covered hereunder. Further,
should the Subscribing Reinsurer become a party to this Contract subsequent to the acceptance
of any business not normally covered hereunder, they shall automatically accept same as being a part of this Contract.

					
	 	 	 	 	 
	Effective: January 1, 2009
	 	Page 4 of 44
	 	2009 Agency Markets Workers’
	 
	 	 	 	Compensation Catastrophe
	 
	 	 	 	Reinsurance Contract

 

 

ARTICLE 7 — SELF-INSURED OBLIGATIONS

	A.	 	A Policy issued by the Company or a Legal Entity wherein the Company or a Legal Entity, as
applicable, is named as the insured either alone or jointly with another party shall, subject
to the other terms and conditions of this Contract, be deemed to be a Policy coming within the
scope of this Contract, notwithstanding that no legal liability may arise in respect thereof
by reason of the fact that the Company or a Legal Entity is the insured or one of the
insureds.
	 
	B.	 	Any such Policy shall have been issued prior to loss on the same form and at the same premium
as if the insured and the Company or a Legal Entity were dealing at arm’s length and claims,
if any, under such Policy shall be settled strictly in accordance with the Policy conditions.

ARTICLE 8 — ULTIMATE NET LOSS (LM-02400-2008.05.13-A) (AM)

	A.	 	“Ultimate Net Loss” as used in this Contract shall mean: (1) all amounts paid or due and
payable by the Company or a Legal Entity in the investigation, appraisal, adjustment,
settlement, litigation, defense or appeal, or payment of claims or judgments arising from each
and every loss, and/or Loss Occurrence for which the Company or a Legal Entity is or may be
found liable under the Policies, less salvages and subrogation recoveries and amounts
recovered or recoverable under pooling agreements or other reinsurances, whether collectible,
or not. “Ultimate Net Loss” includes, but is not limited to, the following paid or due and
payable amounts: loss adjustment expenses, defense costs, court costs, supersedeas and appeal
bond costs, Post or Prejudgment Interest or Delayed Damages, Attorneys Fees and Expenses,
Claim-Specific Declaratory Judgment Expenses, a pro rata share of salaries and expenses of the
Company’s or its affiliates’ field employees according to the time occupied in adjusting,
defending, and settling such loss, and expenses of all of the Company’s or its affiliates’
officers and employees incurred in connection with the loss; (except that salaries of officers
and employees engaged in general management of the Company or its affiliates’ and any office
expense of the Company or its affiliates’ shall not be included), and all other costs of
investigation or litigation (2) Extra Contractual Obligations (as defined in the Extra
Contractual Obligations Article), and (3) Loss in Excess of Original Policy Limits (as
described in the Loss in Excess of Original Policy Limits Article).
	 
	B.	 	Nothing herein shall be construed to mean that losses under this Contract are not
recoverable until the Company’s or a Legal Entity’s Ultimate Net Loss has been
ascertained.
	 
	C.	 	“Claim-Specific Declaratory Judgment Expenses” shall mean the fees and expenses incurred in
actions brought to determine whether the Company or a Legal Entity has a defense and/or
indemnification obligation for individual claims presented against Policies covered under this
Contract. Any Claim-Specific Declaratory Judgment Expense shall be deemed to have been fully
incurred on

					
	 	 	 	 	 
	Effective: January 1, 2009
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	 	2009 Agency Markets Workers’
	 
	 	 	 	Compensation Catastrophe
	 
	 	 	 	Reinsurance Contract

 

 

	 	 	the same date as the insured’s original loss or Loss Occurrence (if any) giving
rise to the action, unless otherwise provided for within this Contract.

	D.	 	“Attorneys’ Fees and Expenses” as used above, shall mean all fees and expenses of attorneys,
including but not limited to the fees and expenses of the Company’s or its affiliates’
in-house attorneys providing legal advice on coverage questions and/or defending the Company
or a Legal Entity in coverage litigation, and fees and expenses of staff counsel in the
defense of policyholder claims. Such Attorneys’ Fees and Expenses for in-house attorneys and
staff counsel shall be calculated at the rate for such attorneys plus the expenses incurred by
such attorneys, but excluding office expenses of the Company and its affiliates and salaries
and expenses of their other employees.
	 
	E.	 	“Post or Prejudgment Interest or Delayed Damages” shall mean interest or damages added to a
settlement, verdict, award, or judgment based on the period of time prior to or after the
settlement, verdict, award, or judgment whether or not expressly identified as such.

ARTICLE 9 — LOSS ADJUSTMENT AND SETTLEMENT (LM-01500-2006.09.07-A) (AM)

	A.	 	The Company shall give notice, as soon as practicable, to the Subscribing Reinsurer of any
claim that it has reason to believe could involve this Contract. The Company shall keep the
Subscribing Reinsurer informed of significant developments likely to affect the cost of any
claim or claims hereunder.
	 
	B.	 	The Company or a Legal Entity may commence, continue, defend, settle, or withdraw from
actions, suits, or prosecutions and, generally, do all such things relating to any claim or
loss in which the Subscribing Reinsurer is interested as, in the Company’s or a Legal Entity’s
judgment, may be beneficial or expedient to the Company and the Subscribing Reinsurer. The
Company and the Legal Entities shall be the sole judges as to what claims are covered under
the Policies. All of the Ultimate Net Loss, as well as all loss settlements made and
judgments paid by the Company or a Legal Entity, provided they are within the terms of this
Contract either under the strict conditions of the Policies or by way of compromise, shall be
unconditionally binding upon the Subscribing Reinsurer, who agrees to pay all amounts for
which they are liable immediately upon reasonable evidence of the amount due being furnished
to the Subscribing Reinsurer by the Company. The true intent of this Contract is that the
Subscribing Reinsurer shall, in every case to which this Contract applies, follow the
settlements of the Company and the Legal Entities.

ARTICLE 10 — DEFINITION OF LOSS OCCURRENCE

	A.	 	The term “Loss Occurrence”, as used in this Contract, shall mean any one accident or
occurrence or series of accidents or occurrences arising out of one event. All losses that
are attributable directly or indirectly to one cause or one series of similar causes shall be
deemed to constitute one event.

					
	 	 	 	 	 
	Effective: January 1, 2009
	 	Page 6 of 44
	 	2009 Agency Markets Workers’
	 
	 	 	 	Compensation Catastrophe
	 
	 	 	 	Reinsurance Contract

 

 

	B.	 	As regards an act of Terrorism, multiple incidents which occur within one hundred sixty-eight
(168) hour period and appear to be carried out in concert or to have a related purpose or
common leadership shall be considered one “Loss Occurrence”.
	 
	C.	 	An act of terrorism means any activity that (1) involves a violent act or the unlawful use of
force or an unlawful act dangerous to human life, tangible or intangible property or
infrastructure, or threat thereof; and (2) appears to be intended to (i) intimidate or coerce
a civilian population, or any segment thereof, or (ii) disrupt any segment of the economy of a
government de jure or de facto, state, or country; or (iii) overthrow, influence, or affect
the conduct or policy of any government de jure or de facto by intimidation or coercion; or
(iv) affect the conduct of a government de jure or de facto by mass destruction,
assassination, kidnapping or hostage-taking.
	 
	D.	 	However, with respect to Natural Disasters the term “Loss Occurrence” shall mean any one or
more occurrences, disasters or casualties arising out of or caused by the perils described
below (a natural Act of God) during any continuous period of one hundred sixty-eight (168)
hours.

	 	1.	 	As regards the perils of tornado, cyclone, windstorm, hurricane and/or hail,
including ensuing storm surge or collapse, “Loss Occurrence” shall mean all losses
occasioned by tornadoes, cyclones, windstorm, hurricanes or hailstorms, including
ensuing storm surge or collapse, occurring during any continuous period of one hundred
sixty-eight (168) hours, and arising from the same atmospheric disturbance;
	 
	 	2.	 	As regards the peril of earthquake, “Loss Occurrence” shall mean all losses
occasioned by earthquakes, including ensuing fire, flood or tidal wave occurring during
any continuous period of one hundred sixty-eight (168) hours;
	 
	 	3.	 	As regards the following perils, “Loss Occurrence” shall mean all losses
occasioned by the following perils during any continuous period of one hundred
sixty-eight (168) hours:

	 	a)	 	Volcanic eruption;
	 
	 	b)	 	Flood, tides, tidal waves;
	 
	 	c)	 	Landslide/mudslide;
	 
	 	d)	 	Meteors.

ARTICLE 11 — EXTRA CONTRACTUAL OBLIGATIONS (LM-00900-2007.03.28-A) (AM)

	A.	 	This Contract shall protect the Company within the limits hereof for one hundred percent
(100%) of Extra Contractual Obligations. “Extra Contractual Obligations” are defined as any
actual or potential liabilities not covered under any other provision of this Contract,
arising from or relating to any alleged or actual act, error or omission, whether intentional
or otherwise, or from any alleged or actual negligence, tortious conduct, reckless conduct,
violations of statutes or regulations

					
	 	 	 	 	 
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	 	2009 Agency Markets Workers’
	 
	 	 	 	Compensation Catastrophe
	 
	 	 	 	Reinsurance Contract

 

 

	 	 	governing the conduct of insurance companies and/or
claims adjusters, or bad faith in connection with: (i) the handling of any claim under the
Policies covered by this Contract, such liabilities arising because of, but not limited to,
the following: failure by the Company, a Legal Entity or by a third party claims
administrator to settle within the Policy limit, or by reason of alleged or actual negligence,
fraud or bad faith of the Company, a Legal Entity or by a third party claims administrator in
rejecting an offer of settlement, or in defending or prosecuting litigation, including
appeals, arbitration, or any alternative dispute resolution or settlement discussions
involving any claim; or (ii) the providing of or failure to provide any loss control or loss
prevention services in connection with any Policy hereunder.

	B.	 	The date on which any Extra Contractual Obligation is incurred by the Company or a Legal
Entity shall be deemed, in all circumstances, to be the date of the original Occurrence, loss
occurrence, accident, casualty, disaster, or loss, as selected by the Company.
	 
	C.	 	However, this Article shall not apply where the loss has been incurred due to the fraud of a
member of the Board of Directors or a corporate officer of the Company or a Legal Entity
acting individually or collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or settlement of any claim
covered hereunder.

ARTICLE 12 — LOSS IN EXCESS OF ORIGINAL POLICY LIMITS (LM-01600-2005.08.24-A) (AM)

	A.	 	This Contract shall protect the Company within the limits hereof, for one hundred percent
(100%) of any Loss in excess of the Company’s or Legal Entity’s original Policy limit where
Loss in excess of the limit has been incurred because of a failure by the Company, or a Legal
Entity or by a third-party claims administrator to settle within the Policy limit or by reason
of alleged or actual negligence, fraud, or bad faith in rejecting an offer of settlement or in
defending or prosecuting litigation, including appeals, arbitration, or any alternative
dispute resolution or settlement discussions involving any claim.
	 
	B.	 	However, the above paragraph shall not apply where the Loss has been incurred due to the
fraud of a member of the Board of Directors or a Corporate Officer of the Company or a Legal
Entity acting individually or collectively or in collusion with any individual or corporation
or any other organization or party involved in the presentation, defense or settlement of any
claim covered hereunder.
	 
	C.	 	With regard to excess of Policy limits, the word “Loss” shall mean any amounts for which the
Company or a Legal Entity would have been contractually liable to pay had it not been for the
limit of the original Policy. The date on which any Loss in excess of the Company’s original
Policy limit is incurred by the Company or a Legal Entity shall be deemed, in all
circumstances, to be the date of the original Occurrence, accident, casualty, disaster, loss
occurrence or loss, as selected by the Company.

					
	 	 	 	 	 
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	 	2009 Agency Markets Workers’
	 
	 	 	 	Compensation Catastrophe
	 
	 	 	 	Reinsurance Contract

 

 

ARTICLE 13 — COMMUTATION (LM-02601-2007.10.29-W)

	A.	 	Eighty-four (84) months after the expiry of this Contract, the Company shall advise the
Subscribing Reinsurer of any Loss Occurrence which may not have been finally settled and which
may cause a claim under this Contract. Upon review, if either the Company or any Subscribing
Reinsurer requests commutation, such commutation shall proceed for all Subscribing Reinsurers,
as follows:

	 	1.	 	The Company shall prepare a final claim against the Subscribing Reinsurer in
respect of such Loss Occurrence.
	 
	 	2.	 	The Company and the Subscribing Reinsurer shall review the final claim and
shall attempt to reach settlement by mutual agreement.
	 
	 	3.	 	The final claim shall be calculated in accordance with the following criteria:

	 	a.	 	Mortality assumptions shall be calculated from the latest
available United States Census Table as follows:

	 	•	 	Survivor Benefits — Total Female or Male, whichever applies
	 
	 	•	 	Disability Benefits — Total Population

	 	 	 	The mortality assumptions should reflect: (a) the mortality improvement since
the publication of the most recent U.S. Census Table, and (b) the life
impairment of the injured worker.
	 
	 	b.	 	Remarriage expectations shall be in accordance with the
assumptions used by the National Council on Compensation Insurance in its
statistical tables, adjusted for the gender of the survivor.
	 
	 	c.	 	For all future medical costs, projected cash payments shall be
based upon projected long-term medical care and rehabilitation requirements,
using the average annual Medical Consumer Price Index (CPI) escalation rate of
the past twenty (20) years using the most recent published tables, going back
twenty (20) years.
	 
	 	d.	 	For all future indemnity costs, projected cash payments shall
be calculated based upon the average historical actual Cost-Of-Living
Adjustment (COLA) over however many years of information are available, but no more than twenty (20) years; up through the most recent
published data that is available from the State or Federal governing body
over Workers Compensation, whichever may apply.
	 
	 	e.	 	The annual interest discount percentage shall be calculated as
the average yield to maturity of all United States Treasury Bonds maturing
during the calendar quarter that is fifteen (15) years after the calendar
quarter in which the commutation date falls.

					
	 	 	 	 	 
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	 	f.	 	The final claim shall be the amount of cash payments made, plus
the discounted present value of the future payments as determined by the above
calculations. The final claim with respect to each injured worker or fatality
shall then be capped at $10,000,000 ($5,000,000 as respects the coverage
provided in Exhibit A). The resulting individual values shall then be summed
together. The Company’s retention shall then be subtracted from this amount
and the Subscribing Reinsurer shall pay up to the per occurrence limit afforded
under this Contract.

	B.	 	In the event the Company and the Subscribing Reinsurer are unable to reach a settlement
following the criteria laid out in steps A.1.a-f above, then the Company and the Subscribing
Reinsurer shall, within four (4) weeks from the written request of one of the parties,
mutually appoint an independent actuarial consulting firm or, in the event that they fail to
agree on the selection of an independent actuarial consulting firm within four (4) weeks, each
party shall name three (3) independent actuarial consulting firms of which the other party
shall decline two (2), and the decision shall be made by drawing lots. The appointed
independent actuarial consulting firm shall investigate, determine, and value the Loss
Occurrence. The valuation of such Loss Occurrence shall use the assumptions and methodologies
as stated above. The independent actuarial consulting firm’s decisions to the valuation of
such final claim shall be final and binding. The commutation process described in this
Article shall not be subject to any other dispute resolution process, including but not
limited to the Arbitration Article of this Contract.
	 
	C.	 	Payment by the Subscribing Reinsurer to the Company or any other third party mutually agreed
upon by the Subscribing Reinsurer and the Company of the final claim as determined by the
procedures described above, in respect of each such Loss Occurrence shall constitute complete
release of the Subscribing Reinsurer from liability for each such Loss Occurrence.
	 
	D.	 	This Article does not preclude termination or commutation of this Contract as provided in
the Special Conditions Article.

ARTICLE 14 — SALVAGE AND SUBROGATION (LM-01800-2008.08.15-A) (AM)

	A.	 	The Subscribing Reinsurer shall be credited with its share of salvage and/or subrogation in
respect of claims and settlements under this Contract, less its share of recovery expense.
Unless the Company agrees to waive such rights in the settlement of a disputed claim, or the
Company and Subscribing Reinsurer agree to the contrary, the Company and the Legal Entities
shall enforce the right to salvage and/or subrogation and shall prosecute all claims arising
out of such right. Should the Company or the Legal Entities refuse or neglect to enforce this
right, the Subscribing Reinsurer is hereby empowered and authorized to institute appropriate
action in the name of the Company or the Legal Entities, as applicable.
	 

					
	 	 	 	 	 
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	B.	 	Amounts recovered from salvage and/or subrogation and the expense of any salvage and/or
subrogation proceedings brought by the Company or the Subscribing Reinsurer to enforce such
rights shall be apportioned between the Company and the Subscribing Reinsurer in the ratio of
their respective interests in the total salvage and/or subrogation recovery, and shall be in
addition to the limits hereon. In the event there is a failure to obtain a salvage and/or
subrogation recovery, the expense of the proceedings shall be apportioned between the Company
and the Subscribing Reinsurer in the ratio of their respective interests in the total loss.

	C.	 	All salvage and/or subrogation recoveries obtained by either party, subsequent to payments
made by the Subscribing Reinsurer under this Contract, shall be applied as if obtained prior
to said payments and all necessary adjustments shall be made between the Company and the
Subscribing Reinsurer as soon as practicable after said salvage and/or subrogation recovery is
obtained.
	 
	D.	 	The Company or a Legal Entity shall have the right, before the happening of the loss, to
waive its right of subrogation as to that loss.

ARTICLE 15 — CURRENCY (LM-00500-2005.08.09)

Whenever a reference to a monetary currency appears in this Contract, it shall be construed to
mean United States Dollars ($). All payments made by either party shall be made in United States
Dollars. All amounts paid or received by the Company in any other currency shall be converted into
United States Dollars at the rate of exchange on the date at which it is entered on the books of
the Company.

ARTICLE 16 — ACCESS TO RECORDS (LM-00100-2008.08.25-A) (AM)

	A.	 	Except as otherwise provided in this Article, the Subscribing Reinsurer, or its duly
authorized representative, may upon reasonable prior written notice to the Company, at the
Subscribing Reinsurer’s own expense, examine at the offices of the Company or its affiliates,
during normal office hours, the Company’s or the Legal Entities’ Policy, accounting,
underwriting, or claim records and files, or any such additional relevant records and files, as they exist in the Company’s or its
affiliates’ possession or reasonable control, relating to business ceded under this
Contract. The Subscribing Reinsurer’s notice shall reasonably describe the nature of the
inspection that it wishes to conduct, the persons conducting the inspection and upon notice
of available files from the Company, the files that it wishes to review. Subject to the
limitations expressed in this Article, this right of inspection shall survive termination or
expiration of this Contract and shall continue as long as either Party has any rights or
obligations under this Contract.
	 
	B.	 	The Company reserves the right to deny the Subscribing Reinsurer access to records or files
concerning any particular claim(s) if the Subscribing Reinsurer has not disputed liability for
payment of such claim(s), and payment of such claim(s) is

					
	 	 	 	 	 
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	 	 	(are) more than ninety (90) days
overdue according to the Company’s records. The Company shall, however, prior to an
arbitration demand that may be instituted by either party, continue to respond to reasonable
specific requests for information and questions raised by the Subscribing Reinsurer concerning
such claims; and nothing in this Article shall restrict the right or ability of the
Subscribing Reinsurer to seek discovery of relevant information in a proceeding pursuant to
the Arbitration Article of this Contract.

	C.	 	As a condition precedent to access to records under this Article, the Subscribing Reinsurer,
its personnel and any authorized third party representative of the Subscribing Reinsurer shall
agree to the provisions of the Confidentiality Article of this Contract.
	 
	D.	 	The Company reserves the right to withhold any documents from the Subscribing Reinsurer (1)
concerning Trade Secrets of the Company or its affiliates, (2) subject to the terms of a third
party non-disclosure agreement with the Company or its affiliates requiring third party
consent to disclosure, (3) subject to the Work Product Privilege or Attorney-Client Privilege
or (4) concerning individual private information that as a matter of law cannot be disclosed
by the Company or its affiliates (hereinafter referred to in the Contract as “Privileged
Documents”). The Company shall reasonably try to exempt the Subscribing Reinsurers from any
third party non-disclosure agreement or obtain consent from the third party to disclose to the
Subscribing Reinsurers.
	 
	E.	 	Notwithstanding the foregoing, the Company shall permit and not object to the Subscribing
Reinsurer’s access to Privileged Documents falling within (3) above, in connection with the
underlying claim reinsured hereunder following final settlement or final adjudication of the
case or cases involving such claim, with prejudice against all claimants, and all parties to
such adjudications; provided that the Company, may defer release of such Privileged Documents
if there are subrogation, contribution, or other third party actions with respect to that
claim or case, which may jeopardize the Company’s or its affiliates’ defense by release of
such Privileged Documents. In the event that the Company shall seek to defer release of such Privileged Documents or to withhold documents concerning Trade Secrets, it
will in consultation with the Subscribing Reinsurer take other steps as reasonably necessary
to provide the Subscribing Reinsurer with the information it reasonably requires to
indemnify the Company without causing a loss of such privileges or protections. The
Subscribing Reinsurer, however, shall not have access to Privileged Documents relating to
any dispute between the Company and the Subscribing Reinsurer.
	 
	F.	 	For purposes of this Article, “Trade Secrets” shall have the meaning provided in Section 1839
of the United States Economic Espionage Act of 1996. “Attorney—Client Privilege” shall mean
communications of a confidential nature between 1) the Company or its affiliates, or anyone
retained by or in the control of the Company or its affiliates, or their in-house or outside
legal counsel, or anyone in

					
	 	 	 	 	 
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	 	 	the control of such legal counsel, and 2) any in-house or outside
legal counsel which relate to legal advice being sought by the Company or its affiliates
and/or which contains legal advice being provided to the Company or its affiliates. “Work
Product Privilege” shall mean communications, written materials and tangible things prepared
by or for in-house or outside counsel, or prepared by or for the Company or its affiliates, in
anticipation of or in connection with litigation, arbitration, or other dispute resolution
proceedings.

ARTICLE 17— ERRORS AND OMISSIONS (LM-00800-2005.06.02-A)

	A.	 	Any inadvertent delay, omission, or error in complying with the terms and conditions of
this Contract shall not be held to relieve either party hereto from any liability, which would
attach to it hereunder if such delay, omission, or error had not been made, provided such
delay, omission, or error is rectified upon discovery.
	 
	B.	 	However, this Article shall not override the application of the commutation of losses as set
forth in the Commutation Article or the Special Conditions Article of this Contract.

ARTICLE 18 — INSOLVENCY (LM-01300-2008.07.25-A)

If more than one reinsured company is referenced within the definition of “Company” in the
Preamble to this Contract, this Article shall apply severally to each such company. Further, this
Article and the laws of the domiciliary state shall apply in the event of the insolvency of any
company intended to be covered hereunder. In the event of a conflict between any provision of this
Article and the laws of the domiciliary state of any company intended to be covered hereunder, that
domiciliary state’s laws shall prevail.

	A.	 	In the event of the insolvency of the Company, reinsurance under this Contract shall be
payable with reasonable provision for verification, on the basis of claims allowed against the
insolvent Company by any court of competent jurisdiction or by any liquidator, receiver, conservator, or statutory successor of the Company having
authority to allow such claims, without diminution because of such insolvency or because
such liquidator, receiver, conservator, or statutory successor has failed to pay all or a
portion of any claims. Such payments by the Subscribing Reinsurer shall be made directly to
the Company or its liquidator, receiver, conservator, or statutory successor, except to the
extent Section 4118(a) of the New York Insurance Law applies, or except (1) where the
Contract specifically provides another payee of such reinsurance in the event of the
insolvency of the Company, or (2) where the Subscribing Reinsurer with the consent of the
direct insured or insureds has assumed such Policy obligations of the Company as direct
obligations of the Subscribing Reinsurer to the payees under such Policies and in
substitution for the obligations of the Company to such payees.
	 

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

	C.	 	Where two or more Reinsurers are involved in the same claim and a majority in interest elects
to interpose defense to such claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been incurred by the insolvent Company.
	 
	D.	 	Applicable to a Subscribing Reinsurer licensed to write Workers’ Compensation business in
California.
	 
	 	 	With respect to California Workers Compensation loss(es), it is agreed that in the event of
any delinquency proceeding, receivership, or insolvency of the Company and/or the failure of
the Subscribing Reinsurer, for any reason, to make payments under this Contract, the
Insurance Commissioner of California may, upon 30-days notice, draw upon any sums from the
deposit made by the Subscribing Reinsurer in accordance with the provisions of sections
11691 — 11703 of the California Insurance Code.

ARTICLE 19 — ARBITRATION (LM-00200-2008.06.27-A)

	A.	 	Disputes to be Arbitrated. With the exception of any dispute resolution procedures
that are otherwise contained in this Contract, any and all disputes between the Company and
any Subscribing Reinsurer or Reinsurers (“Party” individually or “Parties” collectively)
arising out of, relating to, or concerning this Contract, whether sounding in contract or tort
and whether arising during or after this Contract’s formation, or after its termination,
including disputes as to whether the Contract was validly formed or is voidable, shall be
submitted to the decision of an arbitration panel (“Panel”). The Panel shall consist of an
umpire and two party-appointed arbitrators unless a Party meets the requirements of Paragraph
C of this Article and demands arbitration pursuant thereto, in which case the Panel would
consist of an umpire only.
	 
	B.	 	Procedures. Except as provided herein, any arbitration shall be based upon the
Procedures for the Resolution of U.S. Insurance and Reinsurance Disputes, Regular Panel
Version, dated April 2004 (the “Procedures”), developed by the

					
	 	 	 	 	 
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	 	 	Insurance and Reinsurance
Dispute Resolution Task Force, subject to the following
modifications:

	 	1.	 	Qualifications of the arbitrators and umpires shall be in accordance with
section 6.2 of the Procedures, except that other professionals who have worked for at
least 10 years for an insurer or reinsurer shall also be qualified to serve as an
arbitrator or umpire.
	 
	 	2.	 	The Parties hereby designate the umpire list maintained by ARIAS (U.S.) as the
list to be used in the event that section 6.7(a) of the Procedures is invoked.
	 
	 	3.	 	Unless otherwise mutually agreed, the members of the Panel shall be impartial
and disinterested. The members of the Panel may not be: (1) in the control of any
Party or its parent, affiliate, or agent, (2) a former director or officer of any Party
or its parent, affiliate, or agent, or (3) a likely witness in the arbitration. The
requirement of impartiality means that all members of the Panel shall have the same
obligation to approach the Panel’s duties and decisions with fairness and without
consideration for the fact that Panel members may have been appointed by one of the
Parties. The requirement of impartiality does not mean that any arbitrator can have no
previous knowledge of or experience with respect to issues involved in the dispute or
disputes.
	 
	 	4.	 	The first sentence of Section 10.4 of the Procedures shall be replaced by the
following sentence: “The Panel shall require that each Party submit concise written
statements of position, including summaries of the facts and evidence a Party intends
to present, discussion of the applicable law and the basis for the requested Award or
denial of relief sought.”
	 
	 	5.	 	Once the Panel has been constituted, no Party (or anyone acting for a Party)
shall have any communications concerning the arbitration or any of the issues before
the Panel with any member of the Panel that is not also disclosed to all other Parties
and all members of the Panel. Each Panel member shall have a continuing duty to
disclose promptly to all Parties and all Panel members any violation of this
prohibition and the specifics of any improper communications that occurred. This
prohibition shall remain in place until all challenges to any arbitration awards and
decisions have been either waived or finally concluded.
	 
	 	6.	 	Section 11.1 of the Procedures shall be replaced by the following provision:
“The Parties may propound discovery seeking disclosure of such information and/or
documents relevant to the dispute or necessary for the proper resolution of the
dispute.”
	 
	 	7.	 	Position statements may be amended at any reasonable time, but not later than
the close of discovery without a showing to the Panel that the

					
	 	 	 	 	 
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	 	 	 	amending Party could not
reasonably have raised the new claim or issue at an earlier time.

	 	8.	 	The Panel shall hold an evidentiary hearing, if one is necessary, within one
year of the arbitration demand, unless the Parties otherwise agree. Should a Party
seek a reasonable extension to this time frame for good cause shown, the other Party’s
agreement shall not be unreasonably withheld.
	 
	 	9.	 	To the extent permitted by the law, the Panel shall have the authority to issue
subpoenas and other orders to enforce its decisions.
	 
	 	10.	 	The Panel may award reasonable attorneys’ fees and arbitration costs to the
prevailing Party, as determined by the Panel.
	 
	 	11.	 	Section 14.3 of the Procedures shall be replaced by the following provision:
“The Panel shall make a decision and issue an award with regard to the terms expressed
in this Contract, and the custom and practice of the property and casualty insurance
and reinsurance business. The Panel shall not be obligated to follow the strict rules
of law and evidence.”

	C.	 	Alternative Streamlined Procedures. Notwithstanding the foregoing provisions of this
Article, the Alternative Streamlined Procedures set forth in section 16 of the Procedures, as
modified by sections B3, B4, and B9 through B11 of this Article, shall apply in the event
that, in a consolidated proceeding or otherwise, the Party initiating arbitration is seeking
payment of a total amount that is no greater than one million dollars ($1,000,000), or the
currency equivalent thereof. Sections 16.1, 16.2, 16.3 and the second sentence of section
16.4 of the Alternative Streamlined Procedures shall not apply. The Parties agree to comply
with section 6.7 of the Procedures to appoint a single umpire, and hereby designate the umpire list
maintained by ARIAS (U.S.) as the list to be used in section 6.7(a).
	 
	D.	 	Hearing Location. The hearing shall be held in Boston, Massachusetts, unless the
Parties mutually agree to a different location.
	 
	E.	 	Confirmation. Either Party may apply to a court of competent jurisdiction for an
order confirming any award of the Panel; a judgment of that court shall thereupon be entered
on any award. If the application for confirmation is contested and a judgment is issued
confirming the award, then the Party against whom confirmation is sought shall pay the
attorneys’ fees incurred by the Party who applied for the confirmation and all court costs of
any such proceeding.
	 
	F.	 	Equitable Relief from a Court of Law. Nothing herein shall be construed to prevent
any participating Party from applying to a court of competent jurisdiction to issue a
restraining order or other equitable relief to maintain the “status quo” of the Parties
participating in the arbitration pending the decision and award by the Panel.
	 
	G.	 	Consolidated Proceedings.

					
	 	 	 	 	 
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	 	1.	 	Same contract, single Subscribing Reinsurer. Both the Company and any single
Subscribing Reinsurer on this Contract have the right to combine any and all disputes
between them that concern this Contract (including any renewal of this Contract or any
contract for which this Contract is a renewal) into a single arbitration proceeding
before a single Panel, except that the standard for determining whether a Party may add
a new issue, claim, or dispute to an arbitration proceeding shall be the standard for
amending a Position statement, as set forth in Paragraph B7 of this Article.

	 	2.	 	Multiple contracts, single Subscribing Reinsurer.

	 	a.	 	Either the Company or any single Subscribing Reinsurer has the
right to combine any and all disputes between the Company and such single
Subscribing Reinsurer into one arbitration proceeding before a single Panel
where such disputes involve this Contract and any additional contracts between
the two Parties, except that the standard for determining whether a Party may
add a new issue, claim, or dispute to an arbitration proceeding shall be the
standard for amending a Position statement, as set forth in Paragraph B7 of
this Article.
	 
	 	b.	 	Notwithstanding the foregoing, subject in each instance to the
mutual agreement of the Parties, new issues, claims, or disputes may be added
to such existing arbitration proceeding.

	 	3.	 	Same contract, multiple Reinsurers. At the Company’s option, if more than one
Subscribing Reinsurer is involved in arbitration relating to this Contract, where
there are common questions of law or fact and a possibility of conflicting awards or
inconsistent results, all such Reinsurers shall constitute and act as one Party for purposes of this Article and
communications shall be made by the Company to each of the Reinsurers constituting
the one Party; provided, however, that the Reinsurers shall have the right to
assert several, rather than joint defenses or claims, and to be represented by
separate counsel. This provision shall not change the liability of each of the
Reinsurers under the terms of this Contract from several to joint.

	H.	 	Choice of Law. The law set forth in the Governing Law Article shall apply to this
Arbitration Article. In addition, to the extent the Panel (or the umpire in an Alternative
Streamlined Procedure) looks to applicable law, such Panel or umpire shall apply the law as
set forth in the Governing Law Article of this Contract.
	 
	I.	 	Survival of Article. This Article shall survive the termination or expiration of
this Contract.

ARTICLE 20 — INTEREST PENALTY (LM-01400-2005.08.24-A) (AM)

	A.	 	The interest amounts provided for in this Article shall apply to the Subscribing Reinsurer
or to the Company in the following circumstances:

					
	 	 	 	 	 
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	 	1.	 	If a loss payment owed by the Subscribing Reinsurer to the Company is not
received within 45 calendar days following the date of presentation
to the Subscribing
Reinsurer of information necessary to approve payment of the claim, and/or

	 	2.	 	If any premium payment owed by the Company to the Subscribing Reinsurer is not
received within 45 calendar days following the date on which payment is due, and/or
	 
	 	3.	 	If any premium adjustment, agreed by either party to the other, is not
received within 150 calendar days following the expiry or anniversary of this
Contract, and/or
	 
	 	4.	 	If any return of premiums, commissions, profit sharing, or any amounts not
provided in subparagraphs 1, 2, and 3 above, are not received in accordance with the
date specified in this Contract or if no date is specified, within 90 calendar days
following the date the debtor party received the billing.

	B.	 	Failure by the Subscribing Reinsurer or Company to comply with their respective payment
obligations within the time periods as herein provided shall, as of that date, be subject to
an interest payment computed by multiplying the amount due by a variable rate consisting of
the U.S. Prime Rate as published in the Eastern Edition of The Wall Street Journal on
the first day of the calendar month in which the amount became past due, plus 2%. The
variable rate shall be adjusted monthly thereafter to equal the U.S. Prime Rate as published in the Eastern Edition of
The Wall Street Journal on the first day of each successive month during which the
amount due remains unpaid, plus 2%. The product shall then be multiplied by 1/365 for each
day after the due date that the amount due and the interest amount remain unpaid. Any
interest that occurs pursuant to this Article shall be calculated by the party to which it
is owed.
	 
	C.	 	The validity of any claim or payment may be contested under the provisions of this Contract.
If the debtor party prevails in an arbitration or any other proceeding with respect to the
amounts in dispute, there shall be no interest penalty due. If the creditor party wholly or
partially prevails on any of the amounts in dispute, the interest penalty shall be awarded as
outlined above. Such interest penalty shall be calculated from the date the monies were due
and owing to the date of resolution of the arbitration or proceeding, and shall be payable as
of the date of resolution of the arbitration or proceeding.
	 
	D.	 	If a Subscribing Reinsurer advances the entire or partial payment of any claim it is
contesting, and wholly or partially prevails in the contest, the Company shall promptly
return the applicable amount of such payment. The arbitrator(s) hearing such dispute shall
determine if interest shall be added to the amount returned by the Company.

					
	 	 	 	 	 
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	E.	 	Any interest owing pursuant to this Article may be waived by the party to which it is owed.
Further, any interest calculated pursuant to this Article that is $100 or less shall be
waived. Any waiver of any interest pursuant to this paragraph, however, shall not affect the
waiving party’s right to claim and/or pursue interest for any other failure by the other
party to make payment when due under this Article.

ARTICLE 21 — DIVIDENDS AND TAXES (LM-00600-2008.10.10-A)

In consideration of the terms of this Contract, the Company shall not claim any deduction in
respect of any amount paid as dividends or as reinsurance premium when making tax returns, other
than income or profits tax returns to any State or to the District of Columbia.

ARTICLE 22 — FEDERAL EXCISE TAX LM-01000-2008.08.15-A)

	A.	 	This Article is applicable to any Subscribing Reinsurer who is domiciled outside of the
United States of America, except for any Subscribing Reinsurer exempt from Federal Excise Tax.
A Subscribing Reinsurer that claims exempt status from Federal Excise Tax shall provide to
the Company, upon its request, proof that the exempt status adequately satisfies the demands
of the U.S. Internal Revenue Service, Department of the Treasury, or its successor and/or
other applicable U.S. government authority.
	 
	B.	 	Each Subscribing Reinsurer shall allow the applicable percentage of the premium payable
hereon (as imposed under Section 4371 of the Internal Revenue Code) for the purpose of paying
Federal Excise Tax to the extent such premium is subject to such tax.
	 
	C.	 	In the event of any return of premium, the Subscribing Reinsurer shall deduct the aforesaid
percentage from the return premium payable hereon and the Company or its agent shall recover
such tax from the United States Government.

ARTICLE 23 — OFFSET (LM-01701-2005.06.02-A)

Each party to this Contract together with their successors or assigns shall have and may
exercise, at any time, the right to offset any balance(s) due the other (or, if more than one, any
other) under this Contract. Such offset may include balances due under this Contract regardless of
whether such balances arise from premiums, losses, or otherwise, provided however, that in the
event of insolvency of a party hereto, offsets shall only be allowed in accordance with the
provisions of the applicable law, statute, or regulation governing such offset.

					
	 	 	 	 	 
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ARTICLE
24 — SERVICE OF SUIT (LM-01900-2008.07.17-A)

(This
article applies to unauthorized reinsurers and to reinsurers who are
domiciled outside the United States of America.)

	A.	 	This Service of Suit Article will not be read to conflict with or override the obligations of
the parties to arbitrate their disputes as provided for in the Arbitration Article. This
Article is intended as an aid to compelling arbitration or enforcing such arbitration or
arbitral award, not as an alternative to the Arbitration Article for resolving disputes
arising out of this Contract.
	 
	B.	 	In the event of the failure of the Subscribing Reinsurer to pay any amount claimed to be due
hereunder, the Subscribing Reinsurer, at the request of the Company, will submit to the
jurisdiction of a Court of competent jurisdiction within the United States. Nothing in this
Article constitutes or should be understood to constitute a waiver of the Subscribing
Reinsurer’s right to commence an action in any Court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a transfer of a case
to another Court as permitted by the laws of the United States or of any state in the United
States. The Subscribing Reinsurer, once the appropriate Court is selected, whether such court
is the one originally chosen by the Company and accepted by the Subscribing Reinsurer or is
determined by removal, transfer, or otherwise, as provided for above, will comply with all
requirements necessary to give said Court jurisdiction and, in any suit instituted against any of them upon this Contract, will abide by the final decision of
such Court or of any Appellate Court in the event of an appeal.
	 
	C.	 	Service of process in such suit may be made upon Mendes & Mount, LLP, 750 Seventh Avenue, New
York, NY 10019-6829.
	 
	D.	 	The above-named are authorized and directed to accept service of process on behalf of the
Subscribing Reinsurer in any such suit. Further, pursuant to any statute of any state,
territory, or district of the United States that makes provision therefore, the Subscribing
Reinsurer hereby designates the Superintendent, Commissioner, or Director of Insurance, or
other officer specified for that purpose in the statute, or their successor(s) in office, as
their true and lawful attorney upon whom may be served any lawful process in any action, suit,
or proceedings instituted by or on behalf of the Company or any beneficiary hereunder arising
out of this Contract, and hereby designate the above-named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.

ARTICLE 25 — UNAUTHORIZED REINSURANCE (LM-02500-2008.09.24-A) (AM)

(Applies only to a Subscribing Reinsurer who at the inception of the Contract or at any time
thereafter does not qualify for full credit with any insurance regulatory authority having
jurisdiction over the Company’s reserves.)

					
	 	 	 	 	 
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	A.	 	As regards Policies issued by the Company coming within the scope of this Contract, the
Company agrees that when it shall file with the insurance regulatory authority or set up on
its books reserves for unearned premium and losses covered hereunder which it shall be
required by law to set up, it will forward to the Subscribing Reinsurer a statement showing
the proportion of such reserves which is applicable to the Subscribing Reinsurer. The
Subscribing Reinsurer hereby agrees to fund such reserves in respect of unearned premium,
known outstanding losses that have been reported to the Subscribing Reinsurer and allocated
loss adjustment expense relating thereto, losses and allocated loss adjustment expense paid by
the Company or the Legal Entities but not recovered from the Subscribing Reinsurer, plus
reserves for losses incurred but not reported as determined by the Company, as shown in the
statement prepared by the Company (hereinafter referred to as “ Subscribing Reinsurer
Obligations”) by Letters of Credit, unless the Company and the Subscribing Reinsurer otherwise
agree, and/or the method of funding is determined by applicable law, statute, or regulation.

	B.	 	When funding by Letters of Credit, the Subscribing Reinsurer agrees to apply for and secure
timely delivery to the Company of clean, irrevocable, and unconditional Letters of Credit
issued by a bank that is a qualified U.S. financial institution and containing provisions
acceptable to the insurance regulatory authorities having jurisdiction over the Company’s
reserves in an amount equal to the Subscribing Reinsurer’s proportion of said reserves. At
the Company’s request, the Subscribing Reinsurer will agree to provide separate Letters of Credit for each
Legal Entity. Such Letters of Credit shall be issued for a period of not less than one
year, and shall be automatically extended for one year from the date of expiration or any
future expiration date unless 60 days prior to any expiration date, the issuing bank shall
notify the Legal Entity by certified mail that the issuing bank elects not to consider the
Letters of Credit extended for any additional period.
	 
	C.	 	The Subscribing Reinsurer and Company agree that the Letters of Credit provided by the
Subscribing Reinsurer pursuant to the provisions of this Contract may be drawn upon at any
time, notwithstanding any other provision of this Contract, and be utilized by the Company, a
Legal Entity or any successor, by operation of law, of the Company or a Legal Entity,
including without limitation, any liquidator, rehabilitator, receiver, or conservator of the
Company, without diminution because of the insolvency of the Company, a Legal Entity or the
Subscribing Reinsurer for one or more of the following purposes:

	 	1.	 	To pay or reimburse the Company or a Legal Entity for:

	 	a.	 	The Subscribing Reinsurer’s share under this Contract
of premiums returned, but not yet recovered from the Subscribing
Reinsurer, to the owners of Policies reinsured under this Contract on
account of cancellations of such Policies; and
	 
	 	b.	 	The Subscribing Reinsurer’s share, under this
Contract, of surrenders and benefits or losses paid by the Company or a Legal
Entity, but not yet recovered from the Subscribing Reinsurer, under
the terms and provisions of the Policies reinsured under this Contract; and
	 

					
	 	 	 	 	 
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	 	c.	 	Any other amounts necessary to secure the credit or reduction
from liability for reinsurance taken by the Company or a Legal Entity.

	 	2.	 	Where the Letters of Credit will expire without renewal or be reduced or
replaced by Letters of Credit for a reduced amount and where the Subscribing
Reinsurer’s entire obligations under this Contract remain unliquidated and
undischarged 10 days prior to the termination date, to withdraw amounts equal to the
Subscribing Reinsurer’s share of the liabilities, to the extent that the
liabilities have not yet been funded by the Subscribing Reinsurer and exceed
the amount of any reduced or replacement Letters of Credit, and deposit those amounts
in a separate account in the name of the Company or a Legal Entity in a qualified U.S.
financial institution, apart from its general assets, in trust for such uses and
purposes specified in above as may remain after withdrawal and for any period after the
termination date.

	D.	 	At annual intervals, or at the Company’s option, on a quarterly basis, the Company shall
prepare a specific statement of the Subscribing Reinsurer’s Obligations, for the sole purpose of amending the Letters of Credit, in the following
manner:

	 	1.	 	If the statement shows that the Subscribing Reinsurer’s Obligations exceed the
balance of credit as of the statement date, the Subscribing Reinsurer shall, within 30
days after receipt of notice of such excess, secure delivery to the Company of an
amendment to the Letters of Credit increasing the amount of credit by the amount of
such difference.
	 
	 	2.	 	If, however, the statement shows that the Subscribing Reinsurer’s Obligations
are less than the balance of credit as of the statement date, the Company shall, within
30 days after receipt of written request from the Subscribing Reinsurer, release such
excess credit by agreeing to secure an amendment to the Letters of Credit reducing the
amount of credit available by the amount of such excess credit.

	E.	 	Any and all disputes between the Company and any Subscribing Reinsurer or Reinsurers
(“Party”, individually, or “Parties”, collectively) arising out of, relating to, or
concerning this Article shall be resolved pursuant to the ARIAS-U.S. Newer Arbitrator
Program. Unless the Parties otherwise agree, the ARIAS Newer Arbitrator Program expedited
proceeding with a single Newer Arbitrator shall be used to resolve any such disputes.

ARTICLE 26 — CONFIDENTIALITY (LM-00400-2008.08.15-A)

	A.	 	Confidential Information. The submission materials, and any Policy, financial,
underwriting, accounting, and claims information, data statements, representations, and other
materials provided by the Company or its affiliates and

					
	 	 	 	 	 
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	 	 	received by the Subscribing Reinsurer
in the course of an audit, inspection, or otherwise, represent confidential or proprietary
information (“Confidential Information”). This Confidential Information is intended for the
sole use of the Subscribing Reinsurer (and its retrocessionaires, accountants, attorneys,
auditors, actuaries or third party catastrophe modelers or others where required by law) as
may be necessary in analyzing and/or accepting a participation in and/ or executing its
responsibilities under or related to this Contract. The Subscribing Reinsurer acknowledges
and agrees that with respect to any review of Confidential Information by the Subscribing
Reinsurer, and/or discussion of Confidential Information, the Company and its affiliates do
not waive and do not intend to waive any available privilege or protection. The review of
Confidential Information by the Subscribing Reinsurer and/or discussion of Confidential
Information with the Company or its affiliates shall not destroy, waive, or otherwise impair
the proprietary and/or protected status of any Confidential Information or any information
revealed in such discussion with the personnel of the Company or its affiliates, whether
reviewed by and/or discussed with the Subscribing Reinsurer intentionally or inadvertently,
nor does the review of the Confidential Information and/or discussion of Confidential
Information with the Company or its affiliates constitute an estoppel or waiver of the
Company’s or its affiliates’ rights to assert the attorney-client or work-product privileges, or any other applicable privilege
or protection, over certain documents contained in the Company’s or its affiliates’ files
and/or certain information.

	B.	 	The Company and the Subscribing Reinsurer agree that no confidentiality obligations will
apply to Confidential Information to the extent such Confidential Information: (1) is or
becomes available to the public, other than as a result of impermissible disclosure by the
Subscribing Reinsurer, (2) was or became available lawfully to the Subscribing Reinsurer from
a source, other than the Company, its affiliates or their personnel, that is not subject to a
confidentiality obligation, (3) was developed independently by the Subscribing Reinsurer prior
to disclosure by the Company, its affiliates or their personnel, as demonstrated by the
Subscribing Reinsurer’s records, or (4) is required to be disclosed by law, regulation, court,
or regulatory agency action, subject to the Third Party Demand Paragraph of this article.
	 
	C.	 	The Subscribing Reinsurer agrees to preserve all confidentiality and privilege pertaining to
all Confidential Information provided by the Company and all knowledge and information gained
through its review of Confidential Information or discussions with the personnel of the
Company or its affiliates. The Subscribing Reinsurer further agrees not to disclose any such
Confidential Information to any other person or entity except as such disclosure may be
necessary to its retrocessionaires, accountants, attorneys, auditors, actuaries or third party
catastrophe modelers or as otherwise required by law. The Subscribing Reinsurer agrees that
no Confidential Information is to be copied and/or removed from the Company’s or its
affiliates’ premises without the express permission of the Company.

					
	 	 	 	 	 
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	D.	 	Non-Public Personally Identifiable Information. Additionally, any disclosure of
Non-Public Personally Identifiable information shall comply with all state and federal
statutes and regulations governing the disclosure of Non-Public Personally Identifiable
information. “Non-Public Personally Identifiable information” shall be defined as this term
or a similar term is defined in any applicable state, provincial, territory, or federal law.
Disclosing or using this information for any purpose not authorized by applicable law is
expressly forbidden without the prior consent of the Company.

	E.	 	Third-Party Demand. Should the Subscribing Reinsurer receive a third-party demand
pursuant to subpoena, summons, or court or governmental order, to disclose Confidential
Information (including Non-Public Personally Identifiable Information) that has been provided
by the Company or its affiliates, the Subscribing Reinsurer shall make commercially reasonable
efforts to notify the Company promptly upon receipt of the demand and prior to disclosure of
the Confidential Information and provide the Company a reasonable opportunity to object to the
disclosure. If the Company timely objects to the release of the Confidential Information, the
Subscribing Reinsurer will comply with the reasonable requests of the Company in connection with the Company’s efforts to resist
release of the Confidential Information. The Company shall bear the cost of resisting the
release of the Confidential Information.
	 
	F.	 	Survival. The parties agree that the obligations contained in this Article shall
survive the expiration or termination of this Contract.

ARTICLE 27 — GOVERNING LAW (LM-01200-2008.09.18-A)

The validity and interpretation of this Contract shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without regard to conflicts of law
principles.

ARTICLE 28 — SEVERABILITY (LM-02000-2005.06.02-A)

If any provision of this Contract shall be rendered illegal or unenforceable by the laws,
regulations, or public policy of any state, such provision shall be considered void in such state,
but this shall not affect the validity or enforceability of any other provision of this Contract or
the enforceability of such provision in any other jurisdiction.

ARTICLE 29 — ENTIRE AGREEMENT(LM-00701-2008.08.15-A)

This Contract shall constitute the entire agreement between the Company and the Subscribing
Reinsurer with respect to the subject matter of this Contract and shall supersede all prior
understandings, negotiations and discussions, whether oral or written, by or between the Company
and the Subscribing Reinsurer relating to the subject matter hereof. There are no general or
specific warranties, representations or other agreements by or among the Company and the
Subscribing Reinsurer in connection with entering into this Contract except as specifically set
forth in this Contract. Notwithstanding the foregoing, this Contract may be amended or modified
only by a writing signed by both the Company and the Subscribing Reinsurer.

					
	 	 	 	 	 
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ARTICLE 30 — FEDERAL TERRORISM EXCESS RECOVERY (LM-01100-2008.08.06-A)

	A.	 	Any loss reimbursement the Company receives from the United States Government under the
Terrorism Risk Insurance Act of 2002 as amended by the Terrorism Risk Insurance Extension Act
of 2005 and as further amended by the Terrorism Risk Insurance Program Reauthorization Act of
2007 (“TRIA”) as a result of Loss Occurrences commencing during the term of this Contract
shall apply as follows:
	 
	B.	 	Except as provided below, any loss reimbursement under TRIA shall inure solely to the benefit
of the Company and shall be entirely disregarded in applying all of the provisions of this
Contract.
	 
	C.	 	If one or more Loss Occurrences commencing during the term of this Contract result(s) in
reinsurance recoveries to the Company under this Contract and reimbursement under TRIA, and
such amounts, together with any other reinsurance recoveries to the Company for said loss
occurrence(s), exceed the total amount of “Insured Losses” to the Company, any amount in
excess thereof shall be held by the Company. The Company shall then reimburse the Subscribing
Reinsurer a portion of such excess recovery in an amount equal to the proportion that the
Subscribing Reinsurer’s payment under this Contract bears to the total treaty reinsurance
recoveries to the Company for Insured Losses for said Loss Occurrence(s). Provided, however,
that in no event shall such reimbursement exceed the amount paid by the Subscribing Reinsurer
to the Company under this Contract.
	 
	D.	 	For purposes hereof, if a loss reimbursement received by the Company under TRIA is based on
the Company’s Insured Losses in more than one Loss Occurrence and neither the Secretary of the
Treasury nor his delegatee specifies the amount of loss allocable to each respective Loss
Occurrence, the reimbursement shall be pro-rated in the proportion that the Company’s Insured
Losses in each Loss Occurrence bears to the Company’s total Insured Losses resulting from all
Loss Occurrences to which the reimbursement applies.
	 
	E.	 	For purposes of this Article, “Insured Loss (es)” shall have the same meaning as
set forth in Section 102(5) of TRIA.

ARTICLE 31 — SPECIAL CONDITIONS (LM-02100-2008.11.18-A) (AM)

	A.	 	This Article applies only in the event that:

					
	 	 	 	 	 
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	 	1.	 	A State Insurance Department or other legal authority orders the Subscribing
Reinsurer to cease writing business or has imposed upon it any other restrictions on or
conditions relating to the Subscribing Reinsurer’s license or conduct of business in
any jurisdiction; or
	 
	 	2.	 	The Subscribing Reinsurer has become insolvent or has been placed into
liquidation or receivership (whether voluntary or involuntary), or there have been
instituted against it proceedings for the appointment of a receiver, liquidator,
rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its
operations; or
	 
	 	3.	 	The Subscribing Reinsurer’s policyholders’ surplus or equity has been reduced
by 25% or more from the amount on the effective date of this Contract, or has been
reduced by 25% or more in any period of twelve (12) months or less after the effective
date of this Contract; or
	 
	 	4.	 	As respects a Subscribing Reinsurer domiciled outside the United States other
than Lloyd’s syndicate, such Subscribing Reinsurer’s Shareholder Funds, Net Worth or
Capital & Surplus has been reduced by 25% or more from the amount on the effective
date of this Contract, or has been reduced by 25% or more in any period of twelve (12)
months or less after the effective date of this Contract; or
	 
	 	5.	 	As respects a Subscribing Reinsurer who is a Lloyd’s syndicate, such
Subscribing Reinsurer’s Stamp Capacity or Funds at Lloyd’s has been reduced by 25% or
more from the amount on the effective date of this Contract or has been reduced by 25%
or more in any period of twelve (12) months or less after the effective date of this
Contract; or
	 
	 	6.	 	The Subscribing Reinsurer has entered into a definitive agreement to become
merged with, acquired, or controlled by any company, corporation, or individual(s) not
controlling the Subscribing Reinsurer’s operations at the inception of this Contract;
or
	 
	 	7.	 	The Subscribing Reinsurer’s A.M. Best’s financial strength rating has been
assigned or downgraded below A- or Standard and Poor’s financial strength rating has
been assigned or downgraded below A-; or
	 
	 	8.	 	As respects a Subscribing Reinsurer who is subject to an Authorized Control
Level Risk-Based Capital Requirement, such Subscribing Reinsurer fails to maintain its
surplus at a level of at least 200% of the Subscribing Reinsurer’s Authorized Control
Level Risk-Based Capital; or
	 
	 	9.	 	The Subscribing Reinsurer announces intentions to cease underwriting
operations; or
	 
	 	10.	 	The Subscribing Reinsurer voluntarily ceases underwriting operations; or
	 
	 	11.	 	The Subscribing Reinsurer has reinsured its entire liability under this
Contract; or
	 
	 	12.	 	The Subscribing Reinsurer, directly or through the actions of a parent company
or an affiliated entity, has or has attempted to assign, novate or transfer the
Subscribing Reinsurer’s rights and/or obligations under this Contract, including any
attempted transfer of rights and/or obligations under any U.S. or foreign statute,
legislation or jurisprudence, without the Company’s prior written consent; or

					
	 	 	 	 	 
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	 	13.	 	The Subscribing Reinsurer, directly or through the actions of a parent company
or an affiliated entity, has invoked any U.S. or foreign statute, legislation or
jurisprudence which purports to enable the Subscribing Reinsurer to require the Company
to settle its claims liabilities, including but not limited to any estimated or undetermined claims liabilities under this Contract,
on an accelerated basis. This does not include any attempt to enforce a settlement
of claims liabilities under a commutation process to which the parties have agreed.

	B.	 	If one or more of the circumstances in Paragraph A (1) through (13) occur (a “Trigger
Event”), the Subscribing Reinsurer shall provide the Company with written notice within five
(5) business days from the happening of a Trigger Event. Following its receipt of notice of a
Trigger Event from the Subscribing Reinsurer, the Company may terminate this Contract, upon
thirty (30) days written notice to the Subscribing Reinsurer.
	 
	C.	 	Irrespective of the Subscribing Reinsurer’s failure to provide the Company with timely
written notice of the happening of a Trigger Event, upon occurrence of a Trigger Event, the
Company may terminate this Contract at any time, upon thirty (30) days written notice to the
Subscribing Reinsurer. No failure or delay by the Company in exercising its option under this
section will operate as a waiver thereof.
	 
	D.	 	Termination under this Article can be made after the date of expiration of this Contract.
	 
	E.	 	If this Contract is terminated under this Article, this Contract shall remain in full force
and effect as respects the Company’s and the Subscribing Reinsurer’s respective rights and
obligations, prior to the effective date and time of termination. The coverage afforded by
this Contract shall cease as of the date and time of termination and the Subscribing Reinsurer
shall return the unearned premium, if any, within fifteen (15) days of the termination date.
If coverage hereunder terminates while a claim covered by this Contract is in progress, the
Subscribing Reinsurer shall be liable, subject to all conditions hereof, for its proportion of
the entire claim, provided the event giving rise to the claim started before such termination.

	F.	1.	 	If the Company elects to terminate this Contract under this Article, the Company may also
elect to commute this Contract. Such election to commute shall be made either within the
written thirty (30) day notice to the Subscribing Reinsurer of the Company’s intention to
terminate this Contract, or by written notice thereafter. If the Company elects to commute,
the Subscribing Reinsurer has the option to provide security for its Obligations (as defined
herein), as an alternative to commutation. The

					
	 	 	 	 	 
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	 	 	 	Subscribing Reinsurer shall notify the Company
of its decision to provide security for its Obligations within fifteen (15) business days of
the receipt of written notice of the Company’s election to commute. If the Subscribing
Reinsurer elects to provide security for its Obligations under this Contract, the Company
shall provide the Subscribing Reinsurer with a written statement of the Subscribing
Reinsurer’s share of all paid recoverables, case reserves, loss adjustment expenses, incurred
but not reported losses, reserves for unearned premium, and ceding commissions due under this
Contract prior to the effective date and time of termination (collectively
“Obligations”). Within fifteen (15) days of the Subscribing Reinsurer’s receipt of
such statement, the Subscribing Reinsurer shall fund all Obligations by securing
clean, irrevocable, and unconditional Letters of Credit, payable exclusively to the
Company and issued by a bank acceptable to the Company. At the Company’s request,
the Subscribing Reinsurer shall agree to provide separate Letters of Credit for each
Legal Entity. Any Letters of Credit provided by the Subscribing Reinsurer under the
Unauthorized Reinsurance Article of this Contract also constitute funding under this
Article.
	 
	 	2.	 	Any Letters of Credit secured by the Subscribing Reinsurer shall be issued for
a period of not less than one year, and shall be automatically extended for one year
from their dates of expiration or any future expiration dates, unless sixty (60) days
prior to any expiration date the issuing bank shall notify the Company or a Legal
Entity, as applicable, by certified mail that the issuing bank elects not to extend any
Letter of Credit for any additional period.
	 
	 	3.	 	The Subscribing Reinsurer and the Company agree that the Letters of Credit
provided by the Subscribing Reinsurer, pursuant to the provisions of this Article, may
be drawn upon at any time, notwithstanding any other provision of this Contract, and be
utilized by the Company, a Legal Entity or any successor, by operation of law, of the
Company or a Legal Entity, including without limitation, any liquidator, rehabilitator,
receiver, or conservator of the Company or a Legal Entity, without diminution because
of the insolvency of the Company or a Legal Entity, or the Subscribing Reinsurer for
one or more of the following purposes:

	 	a.	 	To pay or reimburse the Company or a Legal Entity for:

	 	i.	 	The Subscribing Reinsurer’s share under this
Contract of premiums returned, but not yet recovered from the
Subscribing Reinsurer, to the owners of Policies reinsured under this
Contract due to cancellations of such Policies; and
	 
	 	ii.	 	The Subscribing Reinsurer’s share, under this
Contract, of surrenders and benefits or liabilities paid by the Company
or a Legal Entity, but not yet recovered from the Subscribing Reinsurer,
under the terms and provisions of the Policies reinsured under this
Contract; and

					
	 	 	 	 	 
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	 	iii.	 	Any other amounts necessary to secure the credit
or reduction from liability for reinsurance taken by the Company or a
Legal Entity.

	 	4.	 	Where the Letters of Credit will expire without renewal or be reduced or
replaced by Letters of Credit for a reduced amount and where the Subscribing
Reinsurer’s Obligations under this Contract remain unliquidated and undischarged ten
(10) days prior to the expiration of the Letter of Credit, to withdraw amounts equal to
the Subscribing Reinsurer’s Obligations, to the extent that the liabilities have not yet been funded by the
Subscribing Reinsurer and exceed the amount of any reduced or replacement Letters of
Credit.
	 
	 	5.	 	If the Company has concluded that the issuing bank’s financial condition is
such that the value of the security represented by the Letter of Credit may be in
jeopardy, the Company or a Legal Entity, as applicable, may withdraw amounts equal to
the Subscribing Reinsurer’s Obligations.
	 
	 	6.	 	If the Company or a Legal Entity draws on the Letter of Credit to obtain a cash
advance, under paragraphs F.4 or F.5, the Company or the Legal Entity, as applicable,
will hold the amount of the cash advance so obtained in trust in the name of the
Company in any qualified United States financial institution as defined by the
Insurance Law of the Company’s or Legal Entity’s domiciliary state, solely to secure
the Obligations and for the use and purposes enumerated above. The Company or the
Legal Entity, as applicable, will return any balance to the Subscribing Reinsurer upon
the complete and final liquidation and discharge of all of the Subscribing Reinsurer’s
Obligations to the Company under this Contract or in the event the Subscribing
Reinsurer provides alternative or replacement security consistent with the terms hereof
and acceptable to the Company.

	G.	 	If the Company elects to commute this Contract and the Subscribing Reinsurer does not fund
its Obligations under this Contract, then:

	 	1.	 	The Company shall submit a statement of valuation showing the Subscribing
Reinsurer’s liability for loss(es), whether reported or unreported, comprising the sum
total of the present value of the ceded: (a) case reserves and allocated loss
adjustment expense, (b) projected ultimate losses, (c) any unearned premium reserve,
and (d) undiscounted outstanding paid claims (hereinafter the “Commutation Losses”), on
Policies covered by this Contract as of the effective date and time of termination. If
the Subscribing Reinsurer agrees with the statement of valuation, the Subscribing
Reinsurer shall pay the amount requested within ten (10) days of receipt of the
statement of valuation.
	 
	 	2.	 	In the event the Company and the Subscribing Reinsurer cannot agree on the
statement of valuation of the Subscribing Reinsurer’s liability under such Policies,
either party may request in writing that the differences be settled by a panel of three
actuaries. Each party shall appoint an actuary to assess such liability within fifteen
(15) days after receipt of the written request for commutation. Upon such appointment,
the two actuaries shall appoint a third actuary. If the two actuaries fail to agree on
the third actuary within thirty (30) days of their appointment, each of them shall
nominate three individuals, of whom the other shall decline two, and the final decision
shall be made by drawing lots.

					
	 	 	 	 	 
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	 	3.	 	The actuaries shall then investigate and Capitalize such Commutation Loss(es)
within thirty (30) days. As used herein, “Capitalize” shall mean to determine the
present value of Commutation Losses, without regard to the Subscribing Reinsurer’s ability to pay such losses. The panel shall meet in Boston,
Massachusetts, unless the Company and Subscribing Reinsurer agree otherwise.

	 	a.	 	All actuaries shall be disinterested in the outcome of the
commutation and shall be Fellows of the Society of Actuaries/Fellows of the
Casualty Actuarial Society. Except as stated below, the expense of the
actuaries and of the commutation shall be equally divided between the parties
of the commutation.
	 
	 	b.	 	The decision in writing of the actuaries, when filed with the
parties hereto, shall be final and binding, except that if the Company does not
agree with the Capitalized value of the Commutation Loss(es), the Company shall
have no obligation to commute. In the event the Company does not agree with
the Capitalized value of the Commutation Loss(es) and does not move forward
with commutation, the Company will pay the expense of the actuaries, including
reasonable expense of the actuary appointed by the Subscribing Reinsurer.
	 
	 	c.	 	If the Contract is commuted, payment by the Subscribing
Reinsurer to the Company or any other third party mutually agreed upon by the
Subscribing Reinsurer and the Company shall constitute a complete and final
release of the Subscribing Reinsurer in respect to its liability under this
Contract.

	 	4.	 	The commutation process described in this Article shall not be subject to any
other dispute resolution process, including but not limited to the Arbitration Article
of this Contract.

ARTICLE 32 — REINSURER CLAIMS OBLIGATIONS (LM-03100-2008.07.21-A) (AM)

It is understood and agreed that the Subscribing Reinsurer will fulfill its obligations under
the Loss Adjustment and Settlement Article, until all claims have been reported and settled.
Without first obtaining the Company’s written consent, the Subscribing Reinsurer will not, either
directly or as the result of an action of a parent company or an affiliated entity, invoke any U.S.
or foreign statute, legislation, or jurisprudence that purports to enable the Subscribing Reinsurer
to require the Company or a Legal Entity to settle their claims liabilities, including but not
limited to any estimated or undetermined claims liabilities, under this Contract on an accelerated
basis. If the Subscribing Reinsurer has provided collateral relating to this Contract and the
Subscribing Reinsurer attempts to

					
	 	 	 	 	 
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require the Company or a Legal Entity to settle their claims
liabilities on an accelerated basis, the Company shall have the right to utilize or to draw upon
Letters of Credit or other collateral, under the terms of this Contract, or as otherwise agreed
between the Subscribing Reinsurer and the Company. This Article does not prevent the Company and
the Subscribing Reinsurer from settling any claims liabilities using a commutation process that is
agreeable to both parties. This Article shall in no way affect the rights and obligations of the
Company and the Subscribing Reinsurer under the Insolvency Article.

EXHIBIT A

FIRST WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

$75,000,000 excess $25,000,000 (ALL PERILS)

SECTION 1— LIMIT AND RETENTION

	A.	 	Under this Exhibit the Subscribing Reinsurer shall be liable for the Ultimate Net Loss in
excess of $25,000,000 each Loss Occurrence (regardless of the number of Policies under which
such loss is payable or the number of different interests insured) subject to a limit of
$75,000,000 each Loss Occurrence. The maximum contribution to the Ultimate Net Loss shall be
limited to a maximum per life recovery of $5,000,000 (discounted to net present value in
accordance with the provisions of Article 13 — Commutation).
	 
	B.	 	Notwithstanding the Subscribing Reinsurer’s liability on each Loss Occurrence, the
Subscribing Reinsurer’s liability shall further be limited to $150,000,000 for all such loss
occurrences recoverable during the term of this Contract.
	 
	C.	 	It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and
all of their affiliates (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any loss occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the
application of the limit and retention set forth herein. The reinsurance recovery will be
calculated assuming the LMG Companies have the same co-participation as the Company. The
recovery will then be allocated to the Company in the same ratio that the Ultimate Net Loss
bears to the total Ultimate Net Loss of the Company and the Legal Entities, on the one hand,
and the LMG Companies, on the other hand.

SECTION 2 — PREMIUM

	A.	 	The estimated premium to be paid to the Subscribing Reinsurer under this Exhibit shall be
$[***].
	 
	B.	 	The term “gross net written premium” shall mean gross written premiums less return premiums
for cancellations and reductions in rates and less premium paid for reinsurance inuring to the
Subscribing Reinsurer’s benefit, if any.
	 
	C.	 	The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $[***] in
equal quarterly installments of $[***] on January 1, April 1, July 1 and October 1, 2009.
	 
	D.	 	As soon as practicable following the termination or expiration of this Contract, the Company
shall furnish to the Subscribing Reinsurer a statement of its gross net written premium, as
defined herein, for the term of this Contract. If the actual gross net written premium of the
Company is greater than $[***] and the actual gross net written premium of the Company and the
LMG Companies combined is greater than $[***], the Company shall pay additional premium.

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
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	E.	 	The additional premium shall be calculated assuming the LMG Companies have the same
co-participation as the Company. The Total Additional Premium shall be calculated at a rate
of [***]% times the actual gross written premium of the Company and the LMG Companies combined
in excess of $[***]. The Total Additional Premium shall be allocated to the Company in the
same ratio that the Company’s actual gross net written premium exceeding $[***]bears to any
LMG Company whose actual gross written premium was more than 110% of its estimated gross
written premium.

SECTION 3 — REINSTATEMENT

	A.	 	If all or any portion of the coverage limit under this Exhibit is reduced by a Loss
Occurrence, the amount that coverage limit is reduced is automatically reinstated from the
time of the Loss Occurrence. The Company shall pay to the Subscribing Reinsurer reinstatement
premium calculated at one hundred percent (100%) of the deposit premium under this Exhibit,
multiplied by the percentage of the original $75,000,000 limits being reinstated. For
purposes of calculating reinstatement premium, the reinsurance premium is deemed to be $[***],
multiplied by the ratio that the Company’s reinsurance recovery bears to the total reinsurance
recovery of the Company and the LMG Companies. The reinstatement premium shall be calculated
assuming the LMG Companies have the same co-participation as the Company.
	 
	B.	 	Regardless of the number of reinstatements under this Exhibit, the Subscribing Reinsurer’s
liability shall not exceed $150,000,000 in the aggregate for all Loss Occurrences during the
term of this Contract.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company. In the event a reinstatement premium is paid prior to
the calculation of the annual premium in accordance with the first paragraph of SECTION 2 of
this Exhibit, the reinstatement premium shall be provisionally calculated upon the deposit
premium and adjusted subsequently when the premium adjustment is made.

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
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EXHIBIT B

SECOND WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

$100,000,000 excess $100,000,000) (ALL PERILS)

SECTION 1— LIMIT AND RETENTION

	A.	 	Under this Exhibit the Subscribing Reinsurer shall be liable for the Ultimate Net Loss in
excess of $100,000,000 each Loss Occurrence (regardless of the number of policies under which
such loss is payable or the number of different interests insured) subject to a limit of
$100,000,000 each Loss Occurrence. The maximum contribution to the Ultimate Net Loss shall be
limited to a maximum per life recovery of $10,000,000 (discounted to net present value in
accordance with the provisions of Article 13 — Commutation).
	 
	B.	 	Notwithstanding Subscribing Reinsurer’s liability on each Loss Occurrence, Subscribing
Reinsurer’s liability shall further be limited to $200,000,000 for all such loss occurrences
recoverable during the term of this Contract.
	 
	C.	 	It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and
all of their affiliates (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any loss occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the
application of the limit and retention set forth herein. The reinsurance recovery will be
calculated assuming the LMG Companies have the same co-participation as the Company. The
recovery will then be allocated to the Company in the same ratio that the Ultimate Net Loss
bears to the total Ultimate Net Loss of the Company and the Legal Entities, on the one hand,
and the LMG Companies, on the other hand.

SECTION 2 — PREMIUM

	A.	 	The estimated premium to be paid to the Subscribing Reinsurer under this Exhibit shall be
$[***].
	 
	B.	 	The term “gross net written premium” shall mean gross written premiums less return premiums
for cancellations and reductions in rates and less premium paid for reinsurance inuring to the
Subscribing Reinsurer’s benefit, if any.
	 
	C.	 	The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $[***] in
equal quarterly installments of $[***] on January 1, April 1, July 1 and October 1, 2009.
	 
	D.	 	As soon as practicable following the termination or expiration of this Contract, the Company
shall furnish to the Subscribing Reinsurer a statement of its gross net

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
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	 	2009 Agency Markets Workers’
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	 	 	written premium, as defined herein, for the term of this Contract. If the actual gross net
written premium of the Company is greater than $[***] and the actual gross net written
premium of the Company and the LMG Companies combined is greater than $[***], the Company
shall pay additional premium.
	 
	E.	 	The additional premium shall be calculated assuming the LMG Companies have the same
co-participation as the Company. The Total Additional Premium shall be calculated at a rate
of [***]% times the actual gross written premium of the Company and the LMG Companies combined
in excess of $[***]. The Total Additional Premium shall be allocated to the Company in the
same ratio that the Company’s actual gross net written premium exceeding $[***] bears to any
LMG Company whose actual gross written premium was more than 110% of its estimated gross
written premium.

SECTION 3 — REINSTATEMENT

	A.	 	If all or any portion of the coverage limit under this Exhibit is reduced by a Loss
Occurrence, the amount that coverage limit is reduced is automatically reinstated from the
time of the Loss Occurrence. The Company shall pay to the Subscribing Reinsurer reinstatement
premium calculated at one hundred percent (100%) of the deposit premium under this Exhibit,
multiplied by the percentage of the original $100,000,000 limits being reinstated. For
purposes of calculating reinstatement premium, the reinsurance premium is deemed to be $[***],
multiplied by the ratio that the Company’s reinsurance recovery bears to the total reinsurance
recovery of the Company and the LMG Companies. The reinstatement premium shall be calculated
assuming the LMG Companies have the same co-participation as the Company.
	 
	B.	 	Regardless of the number of reinstatements under this Exhibit, the Subscribing Reinsurer’s
liability shall not exceed $200,000,000 in the aggregate for all Loss Occurrences during the
term of this Contract.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company. In the event a reinstatement premium is paid prior to
the calculation of the annual premium in accordance with the first paragraph of SECTION 2 of
this Exhibit, the reinstatement premium shall be provisionally calculated upon the deposit
premium and adjusted subsequently when the premium adjustment is made.

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
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	 	2009 Agency Markets Workers’
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EXHIBIT C

THIRD WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

$300,000,000 excess $200,000,000) (ALL PERILS)

SECTION 1— LIMIT AND RETENTION

	A.	 	Under this Exhibit the Subscribing Reinsurer shall be liable for the Ultimate Net Loss in
excess of $200,000,000 each Loss Occurrence (regardless of the number of policies under which
such loss is payable or the number of different interests insured) subject to a limit of
$300,000,000 each Loss Occurrence. The maximum contribution to the Ultimate Net Loss shall be
limited to a maximum per life recovery of $10,000,000 (discounted to net present value in
accordance with the provisions of Article 10 — Commutation).
	 
	B.	 	Notwithstanding Subscribing Reinsurer’s liability on each Loss Occurrence, Subscribing
Reinsurer’s liability shall further be limited to $600,000,000 for all such loss occurrences
recoverable during the term of this Contract.
	 
	C.	 	It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and
all of their affiliates (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any loss occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the
application of the limit and retention set forth herein. The reinsurance recovery will be
calculated assuming the LMG Companies have the same co-participation as the Company. The
recovery will then be allocated to the Company in the same ratio that the Ultimate Net Loss
bears to the total Ultimate Net Loss of the Company and the Legal Entities, on the one hand,
and the LMG Companies, on the other hand.

SECTION 2 — PREMIUM

	A.	 	The estimated premium to be paid to the Subscribing Reinsurer under this Exhibit shall be
$[***].
	 
	B.	 	The term “gross net written premium” shall mean gross written premiums less return premiums
for cancellations and reductions in rates and less premium paid for reinsurance inuring to the
Subscribing Reinsurer’s benefit, if any.
	 
	C.	 	The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $[***] in
equal quarterly installments of $[***] on January 1, April 1, July 1 and
October 1, 2009.
	 
	D.	 	As soon as practicable following the termination or expiration of this Contract, the Company
shall furnish to the Subscribing Reinsurer a statement of its gross net written premium, as
defined herein, for the term of this Contract. If the actual

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
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	 	2009 Agency Markets Workers’
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	 	 	gross net written premium of the Company is greater than $[***] and the actual
gross net written premium of the Company and the LMG Companies combined is greater than
$[***], the Company shall pay additional premium.
	 
	 	 	The additional premium shall be calculated assuming the LMG Companies have the same
co-participation as the Company. The Total Additional Premium shall be calculated at a
rate of [***]% times the actual gross written premium of the Company and the LMG Companies
combined in excess of $[***]. The Total Additional Premium shall be allocated
to the Company in the same ratio that the Company’s actual gross net written premium
exceeding $[***] bears to any LMG Company whose actual gross written premium
was more than 110% of its estimated gross written premium.

SECTION 3 — REINSTATEMENT

	A.	 	If all or any portion of the coverage limit under this Exhibit is reduced by a Loss
Occurrence, the amount that coverage limit is reduced is automatically reinstated from the
time of the Loss Occurrence. The Company shall pay to the Subscribing Reinsurer reinstatement
premium calculated at one hundred percent (100%) of the deposit premium under this Exhibit,
multiplied by the percentage of the original $300,000,000 limits being reinstated. For
purposes of calculating reinstatement premium, the reinsurance premium is deemed to be $[***],
multiplied by the ratio that the Company’s reinsurance recovery bears to the total
reinsurance recovery of the Company and the LMG Companies. The reinstatement premium shall be
calculated assuming the LMG Companies have the same co-participation as the Company.
	 
	B.	 	Regardless of the number of reinstatements under this Exhibit, the Subscribing Reinsurer’s
liability shall not exceed $600,000,000 in the aggregate for all Loss Occurrences during the
term of this Contract.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company. In the event a reinstatement premium is paid prior to
the calculation of the annual premium in accordance with the first paragraph of SECTION 2 of
this Exhibit, the reinstatement premium shall be provisionally calculated upon the deposit
premium and adjusted subsequently when the premium adjustment is made.

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
	Effective: January 1, 2008
	 	Page 36 of 44
	 	2009 Agency Markets Workers’
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Reinsurance Contract

 

 

EXHIBIT D

FOURTH WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

$200,000,000 excess $500,000,000) (ALL PERILS)

SECTION 1— LIMIT AND RETENTION

	A.	 	Under this Exhibit the Subscribing Reinsurer shall be liable for the Ultimate Net Loss in
excess of $500,000,000 each Loss Occurrence (regardless of the number of policies under which
such loss is payable or the number of different interests insured) subject to a limit of
$200,000,000 each Loss Occurrence. The maximum contribution to the Ultimate Net Loss shall be
limited to a maximum per life recovery of $10,000,000 (discounted to net present value in
accordance with the provisions of Article 10 — Commutation).
	 
	B.	 	Notwithstanding Subscribing Reinsurer’s liability on each Loss Occurrence, Subscribing
Reinsurer’s liability shall further be limited to $400,000,000 for all such loss occurrences
recoverable during the term of this Contract.
	 
	C.	 	It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and
all of their affiliates (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any loss occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the
application of the limit and retention set forth herein. The reinsurance recovery will be
calculated assuming the LMG Companies have the same co-participation as the Company. The
recovery will then be allocated to the Company in the same ratio that the Ultimate Net Loss
bears to the total Ultimate Net Loss of the Company and the Legal Entities, on the one hand,
and the LMG Companies, on the other hand.

SECTION 2 — PREMIUM

	A.	 	The estimated premium to be paid to the Subscribing Reinsurer under this Exhibit shall be
$[***].
	 
	B.	 	The term “gross net written premium” shall mean gross written premiums less return premiums
for cancellations and reductions in rates and less premium paid for reinsurance inuring to the
Subscribing Reinsurer’s benefit, if any.
	 
	C.	 	The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $[***] in
equal quarterly installments of $[***] on January 1, April 1, July 1 and October 1, 2009.
	 
	D.	 	As soon as practicable following the termination or expiration of this Contract, the Company
shall furnish to the Subscribing Reinsurer a statement of its gross net

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
	Effective: January 1, 2008
	 	Page 37 of 44
	 	2009 Agency Markets Workers’
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Reinsurance Contract

 

 

	 	 	written premium, as
defined herein, for the term of this Contract. If the actual gross net written premium of the
Company is greater than $[***] and the actual gross net written premium of the Company
and the LMG Companies combined is greater than $[***], the Company shall pay additional premium.
	 
	E.	 	The additional premium shall be calculated assuming the LMG Companies have the same
co-participation as the Company. The Total Additional Premium shall be calculated at a rate
of [***]% times the actual gross written premium of the Company and the LMG Companies combined
in excess of $[***]. The Total Additional Premium shall be allocated to the
Company in the same ratio that the Company’s actual gross net written premium exceeding $[***]
bears to any LMG Company whose actual gross written premium was more than 110%
of its estimated gross written premium.

SECTION 3 — REINSTATEMENT

	A.	 	If all or any portion of the coverage limit under this Exhibit is reduced by a Loss
Occurrence, the amount that coverage limit is reduced is automatically reinstated from the
time of the Loss Occurrence. The Company shall pay to the Subscribing Reinsurer premium
calculated at one hundred percent (100%) of the deposit premium under this Exhibit, multiplied
by the percentage of the original $200,000,000 limits being reinstated. For purposes of
calculating reinstatement premium, the reinsurance premium is deemed to be $[***], multiplied
by the ratio that the Company’s reinsurance recovery bears to the total reinsurance
recovery of the Company and the LMG Companies. The reinstatement premium shall be calculated
assuming the LMG Companies have the same co-participation as the Company.
	 
	B.	 	Regardless of the number of reinstatements under this Exhibit, the Subscribing Reinsurer’s
liability shall not exceed $400,000,000 in the aggregate for all Loss Occurrences during the
term of this Contract.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company. In the event a reinstatement premium is paid prior to
the calculation of the annual premium in accordance with the first paragraph of SECTION 2 of
this Exhibit, the reinstatement premium shall be provisionally calculated upon the deposit
premium and adjusted subsequently when the premium adjustment is made.

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
	Effective: January 1, 2008
	 	Page 38 of 44
	 	2009 Agency Markets Workers’
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Reinsurance Contract

 

 

EXHIBIT E

FIFTH WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

$300,000,000 excess $700,000,000) (ALL PERILS)

SECTION 1— LIMIT AND RETENTION

	A.	 	Under this Exhibit the Subscribing Reinsurer shall be liable for the Ultimate Net Loss in
excess of $700,000,000 each Loss Occurrence (regardless of the number of policies under which
such loss is payable or the number of different interests insured) subject to a limit of
$300,000,000 each Loss Occurrence. The maximum contribution to the Ultimate Net Loss shall be
limited to a maximum per life recovery of $10,000,000 (discounted to net present value in
accordance with the provisions of Article 10 — Commutation).
	 
	B.	 	Notwithstanding Subscribing Reinsurer’s liability on each Loss Occurrence, Subscribing
Reinsurer’s liability shall further be limited to $600,000,000 for all such loss occurrences
recoverable during the term of this Contract.
	 
	C.	 	It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and
all of their affiliates (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any loss occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the
application of the limit and retention set forth herein. The reinsurance recovery will be
calculated assuming the LMG Companies have the same co-participation as the Company. The
recovery will then be allocated to the Company in the same ratio that the Ultimate Net Loss
bears to the total Ultimate Net Loss of the Company and the Legal Entities, on the one hand,
and the LMG Companies, on the other hand.

SECTION 2 — PREMIUM

	A.	 	The estimated premium to be paid to the Subscribing Reinsurer under this Exhibit shall be
$[***].
	 
	B.	 	The term “gross net written premium” shall mean gross written premiums less return premiums
for cancellations and reductions in rates and less premium paid for reinsurance inuring to the
Subscribing Reinsurer’s benefit, if any.
	 
	C.	 	The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $[***] in
equal quarterly installments of $[***] on January 1, April 1, July 1 and
October 1, 2009.
	 
	D.	 	As soon as practicable following the termination or expiration of this Contract, the Company
shall furnish to the Subscribing Reinsurer a statement of its gross net

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
	Effective: January 1, 2008
	 	Page 39 of 44
	 	2009 Agency Markets Workers’
Compensation Catastrophe
Reinsurance Contract

 

 

	 	 	written premium, as
defined herein, for the term of this Contract. If the actual gross net written premium of the
Company is greater than $[***] and the actual gross net written premium of the
Company and the LMG Companies combined is greater than $[***], the Company shall pay
additional premium.

	E.	 	The additional premium shall be calculated assuming the LMG Companies have the same
co-participation as the Company. The Total Additional Premium shall be calculated at a rate
of [***]% times the actual gross written premium of the Company and the LMG Companies combined
in excess of $[***]. The Total Additional Premium shall be allocated to the
Company in the same ratio that the Company’s actual gross net written premium exceeding $[***]
bears to any LMG Company whose actual gross written premium was more than 110% of its
estimated gross written premium.

SECTION 3 — REINSTATEMENT

	A.	 	If all or any portion of the coverage limit under this Exhibit is reduced by a Loss
Occurrence, the amount that coverage limit is reduced is automatically reinstated from the
time of the Loss Occurrence. The Company shall pay to the Subscribing Reinsurer reinstatement
premium calculated at one hundred percent (100%) of the deposit premium under this Exhibit,
multiplied by the percentage of the original $300,000,000 limits being reinstated. For
purposes of calculating reinstatement premium, the reinsurance premium is deemed to be
$[***], multiplied by the ratio that the Company’s reinsurance recovery bears to the total
reinsurance recovery of the Company and the LMG Companies. The reinstatement premium shall be
calculated assuming the LMG Companies have the same co-participation as the Company.
	 
	B.	 	Regardless of the number of reinstatements under this Exhibit, the Subscribing Reinsurer’s
liability shall not exceed $600,000,000 in the aggregate for all Loss Occurrences during the
term of this Contract.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company. In the event a reinstatement premium is paid prior to
the calculation of the annual premium in accordance with the first paragraph of SECTION 2 of
this Exhibit, the reinstatement premium shall be provisionally calculated upon the deposit
premium and adjusted subsequently when the premium adjustment is made.

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
	Effective: January 1, 2008
	 	Page 40 of 44
	 	2009 Agency Markets Workers’
Compensation Catastrophe
Reinsurance Contract

 

 

EXHIBIT F

SIXTH WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

$200,000,000 excess $1,000,000,000) (ALL PERILS)

SECTION 1— LIMIT AND RETENTION

	A.	 	Under this Exhibit the Subscribing Reinsurer shall be liable for the Ultimate Net Loss in
excess of $1,000,000,000 each Loss Occurrence (regardless of the number of policies under
which such loss is payable or the number of different interests insured) subject to a limit of
$200,000,000 each Loss Occurrence. The maximum contribution to the Ultimate Net Loss shall be
limited to a maximum per life recovery of $10,000,000 (discounted to net present value in
accordance with the provisions of Article 10 — Commutation).
	 
	B.	 	Notwithstanding Subscribing Reinsurer’s liability on each Loss Occurrence, Subscribing
Reinsurer’s liability shall further be limited to $400,000,000 for all such loss occurrences
recoverable during the term of this Contract.
	 
	C.	 	It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and
all of their affiliates (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any loss occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the
application of the limit and retention set forth herein. The reinsurance recovery will be
calculated assuming the LMG Companies have the same co-participation as the Company. The
recovery will then be allocated to the Company in the same ratio that the Ultimate Net Loss
bears to the total Ultimate Net Loss of the Company and the Legal Entities, on the one hand,
and the LMG Companies, on the other hand.

SECTION 2 — PREMIUM

	A.	 	The estimated premium to be paid to the Subscribing Reinsurer under this Exhibit shall be
$[***].
	 
	B.	 	The term “gross net written premium” shall mean gross written premiums less return premiums
for cancellations and reductions in rates and less premium paid for reinsurance inuring to the
Subscribing Reinsurer’s benefit, if any.
	 
	C.	 	The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $[***] in
equal quarterly installments of $[***] on January 1, April 1, July 1 and October 1, 2009.
	 
	D.	 	As soon as practicable following the termination or expiration of this Contract, the Company
shall furnish to the Subscribing Reinsurer a statement of its gross net written premium, as
defined herein, for the term of this Contract. If the actual gross net written premium of the
Company is greater than $[***] and the actual gross net written premium of the Company and the
LMG Companies combined is greater than $[***], the Company shall pay additional premium.

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
	Effective: January 1, 2008
	 	Page 41 of 44
	 	2009 Agency Markets Workers’
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	E.	 	The additional premium shall be calculated assuming the LMG Companies have the same
co-participation as the Company. The Total Additional Premium shall
be calculated at a rate of [***]% times the actual gross written premium of the Company and
the LMG Companies combined in excess of $[***]. The Total Additional Premium shall be
allocated to the Company in the same ratio that the Company’s actual gross net written
premium exceeding $[***] bears to any LMG Company whose actual gross written premium was
more than 110% of its estimated gross written premium.

SECTION 3 — REINSTATEMENT

	A.	 	If all or any portion of the coverage limit under this Exhibit is reduced by a Loss
Occurrence, the amount that coverage limit is reduced is automatically reinstated from the
time of the Loss Occurrence. The Company shall pay to the Subscribing Reinsurer reinstatement
premium calculated at one hundred percent (100%) of the deposit premium under this Exhibit,
multiplied by the percentage of the original $200,000,000 limits being reinstated. For
purposes of calculating reinstatement premium, the reinsurance premium is deemed to be
$[***], multiplied by the ratio that the Company’s reinsurance recovery bears to the total
reinsurance recovery of the Company and the LMG Companies. The reinstatement premium shall be
calculated assuming the LMG Companies have the same co-participation as the Company.
	 
	B.	 	Regardless of the number of reinstatements under this Exhibit, the Subscribing Reinsurer’s
liability shall not exceed $400,000,000 in the aggregate for all Loss Occurrences during the
term of this Contract.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company. In the event a reinstatement premium is paid prior to
the calculation of the annual premium in accordance with the first paragraph of SECTION 2 of
this Exhibit, the reinstatement premium shall be provisionally calculated upon the deposit
premium and adjusted subsequently when the premium adjustment is made.

 

*** Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

					
	 	 	 	 	 
	Effective: January 1, 2008
	 	Page 42 of 44
	 	2009 Agency Markets Workers’
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Reinsurance Contract

 

 

WAR AND TERRORISM EXCLUSION ENDORSEMENT (NBCR) (LM-03200-2008.08.06-W)

Notwithstanding any provision to the contrary within this reinsurance or any endorsement
thereto it is agreed that this reinsurance excludes all actual or alleged losses, liabilities,
damage, injuries, defense costs, costs or expense(s) directly or indirectly arising out of,
contributed by, caused by, resulting from, or in connection with any action taken in controlling,
preventing, suppressing, retaliating against, or responding to any of the following regardless of
any other cause or event contributing concurrently or in any other sequence to the loss:

	(1)	 	War, invasion, acts of foreign enemies, hostilities or warlike operations (whether war be
declared or not), civil war, mutiny, revolution, rebellion, insurrection, uprising, military
or usurped power, confiscation by order of any public authority or government de jure or de
facto, martial law; or
	 
	(2)	 	A “Certified Act of Terrorism” under the terms of the Terrorism Risk Insurance Act of 2002,
as amended by the Terrorism Risk Insurance Extension Act of 2005 and the Terrorism Risk
Insurance Program Reauthorization Act of 2007 hereafter (“TRIA”) but only if one or more of
the following are attributable to such Certified Act of Terrorism:

	 	a.	 	It involves the use, release or escape of nuclear materials, or
directly or indirectly results in nuclear reaction or radiation or radioactive
contamination; or
	 
	 	b.	 	It is carried out by means of the dispersal or application of
pathogenic or poisonous biological or chemical materials; or
	 
	 	c.	 	Pathogenic or poisonous biological or chemical materials are
released, and it appears that one purpose of the Certified Act of Terrorism was
to release such materials.

“Certified Act of Terrorism” shall have the meaning currently set forth in Section 102(1)(A) of
TRIA or as hereafter amended.

					
	 	 	 	 	 
	Effective: January 1, 2008
	 	Page 43 of 44
	 	2009 Agency Markets Workers’
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Reinsurance Contract

 

 

INTERESTS AND LIABILITIES AGREEMENT

(hereinafter referred to as the “Agreement”)

to the

WORKERS’ COMPENSATION CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

(hereinafter referred to as the “Contract”)

between

PEERLESS INSURANCE COMPANY

(hereinafter referred to as the “Company”)

and

LIBERTY MUTUAL INSURANCE COMPANY

(hereinafter referred to as the “Subscribing Reinsurer”)

It is hereby agreed by and between the Company on the one part and the Subscribing Reinsurer on the
other part that the Subscribing Reinsurer’s share in the interests and liabilities of the
reinsurers as set forth in the attached Workers’ Compensation Catastrophe Excess of Loss
Reinsurance Contract No. 2009300, effective 12:01 a.m., Local Standard Time, January 1, 2009, to
which this Agreement is attached shall be for:

	 	 	 	 	 	 	 	 	 

	Exhibit A — First Excess of Loss
	 	 	—	 	 	 	50.00	%
	 
	 	 	 	 	 	 	 	 
	Exhibit B — Second Excess of Loss
	 	 	—	 	 	 	75.00	%
	 
	 	 	 	 	 	 	 	 
	Exhibit C — Third Excess of Loss
	 	 	—	 	 	 	75.00	%
	 
	 	 	 	 	 	 	 	 
	Exhibit D — Fourth Excess of Loss
	 	 	—	 	 	 	100.00	%
	 
	 	 	 	 	 	 	 	 
	Exhibit E — Fifth Excess of Loss
	 	 	—	 	 	 	100.00	%
	 
	 	 	 	 	 	 	 	 
	Exhibit F — Sixth Excess of Loss
	 	 	—	 	 	 	100.00	%

The share of the Subscribing Reinsurer in the interests and liabilities of all reinsurers
participating in said Contract shall be separate and apart from the shares of such other reinsurers
to the said Contract. The interests and liabilities of the Subscribing Reinsurer shall not be
joint with those of the other reinsurers and in no event shall the Subscribing Reinsurer
participate in the interests and liabilities of the any other reinsurers participating in said
Contract.

					
	 	 	 	 	 
	Workers’ Compensation Catastrophe Excess Of Loss Reinsurance Contract
	Effective: 01/01/2009	 	 	 	 
	Contract No. 2009300
	 	Page 1 of 2
	 	 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement and the attached Workers’
Compensation Catastrophe Excess of Loss Reinsurance Contract to be executed in duplicate by their
respective duly authorized officers;

In Keene, New Hampshire, this 6th day of July, 2009, for and on behalf of:

	 	 	 	 	 
	PEERLESS INSURANCE COMPANY

 	 	 
	Signature  	/s/ Nancy C. Callender
 	 	 
	 	Name  	Nancy C. Callender 	 	 
	 	Title  	Agency Markets AVP, Manager — Reinsurance Management 	 	 
	 

And in Boston, Massachusetts, this 22nd day of May, 2009, for and on behalf
of:

	 	 	 	 	 
	LIBERTY MUTUAL INSURANCE COMPANY

 	 	 
	Signature  	/s/ Elaine Caprio Brady
 	 	 
	 	Name  	Elaine Caprio Brady 	 	 
	 	Title  	Vice President 	 	 
	 

					
	 	 	 	 	 
	Workers’ Compensation Catastrophe Excess Of Loss Reinsurance Contract
	Effective: 01/01/2009	 	 	 	 
	Contract No. 2009300
	 	Page 2 of 2

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