Document:

Exhibit 10.1

 

CONFORMED COPY

EXECUTION VERSION

 

DATED AS OF NOVEMBER 18, 2010

 

by

 

ARCH REINSURANCE LTD.

as Obligor

 

with

 

ING BANK N.V., LONDON BRANCH

as Agent,

 

ING BANK N.V., LONDON BRANCH AND LLOYDS TSB BANK PLC

as Original Lenders

and

 

ING BANK N.V., LONDON BRANCH AND LLOYDS TSB BANK PLC

as Mandated Lead Arrangers

 

 

LETTER OF CREDIT

AND

REIMBURSEMENT AGREEMENT

 

 

 

CONTENTS

 

	
  Clause

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Definitions And Interpretation

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Terms Of The Letter Of Credit Facility

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Conditions Of Issuance Of Letters Of Credit

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Representations And Warranties

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Covenants

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Events Of Default And Remedies

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Changes To Parties

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  The Finance Parties

  	
   

  	
  57

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Miscellaneous

  	
   

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1

  	
  LENDER COMMITMENTS

  	
   

  	
  81

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 2

  	
  EXISTING ENCUMBRANCES

  	
   

  	
  82

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 3

  	
  EXISTING INDEBTEDNESS

  	
   

  	
  85

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 4

  	
  DISPOSITIONS

  	
   

  	
  86

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form
  Of Letters Of Credit

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Arch
  Reinsurance Security Agreement

  	
   

  	
   

  
					

 

i

 

	
  Exhibit C

  	
  Form
  Of Utilization Request

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Form
  Of Custodial Account Value Certificate

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit E

  	
  Form
  Of Compliance Certificate

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit F

  	
  Form
  Of Assignment And Assumption

  	
   

  	
   

  

 

ii

 

LETTER OF CREDIT

AND REIMBURSEMENT AGREEMENT

 

This
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
is dated as of November 18, 2010 (as may be further amended,
amended and restated, supplemented or otherwise modified from time to time,
this “Agreement”) by and among
Arch Reinsurance Ltd., a Bermuda company (the “Obligor”), ING Bank N.V., London Branch as agent for the
Finance Parties (as hereinafter defined) (the “Agent” or the “Security Agent”), ING
Bank N.V., London Branch and Lloyds TSB Bank plc as Lenders (the “Original Lenders”), and ING Bank N.V.,
London Branch and Lloyds TSB Bank plc as mandated lead arrangers (the “Arrangers”).

 

1.                                DEFINITIONS
AND INTERPRETATION

 

1.1                         Definitions

 

Unless
the context clearly otherwise requires, the following terms shall have the
following respective meanings:

 

“Acceptable OECD
countries” means any OECD country rated at least (i) AA
by S&P and (ii) Aa2 by Moody’s, provided that, if there is a split in
the ratings, the applicable rating for purposes of this definition shall be the
lower of such ratings of S&P and Moody’s.

 

“Acquired
Indebtedness” has the meaning set forth in sub-clause 5.6.3(c) of
Clause 5.6 (Negative Covenants).

 

“Adjusted
Collateral Value”  means, with
respect to the Obligor and at any date of determination, an amount equal to the
sum of each of the following categories of cash, obligations or Investments to
the extent, other than in respect of the items set forth in Category 1 below,
such cash, obligation or Investment is in the Custodial Account multiplied
in each case by the percentage set forth opposite such category of cash,
obligation or Investment and, in each case, subject to the original term to
maturity criteria set forth therein:

 

1

 

	
  Category

  	
   

  	
  Cash, obligation or Investment

  	
   

  	
  Percentage -

  Matching

  Currency

  	
   

  	
  Percentage -

  Non-

  Matching

  Currency

  	
   

  
	
  1

  	
   

  	
  U.S.
  Dollars or pounds sterling maintained in one or more accounts of the Obligor
  at a financial institution acceptable to the Security Agent or investments in
  time deposits with such acceptable financial institution, in each case, to
  the extent such cash (or the deposit account(s) in which such cash is
  held) or time deposits are pledged in favor of the Security Agent in a manner
  satisfactory to the Security Agent.

  	
   

  	
  100

  	
  %

  	
  95

  	
  %

  
	
  2

  	
   

  	
  Certificates
  of Deposit or Money Market Investments.

  	
   

  	
  98

  	
  %

  	
  93

  	
  %

  
	
  3

  	
   

  	
  Government
  Investments with maturities of less than two years from the date of
  determination.

  	
   

  	
  95

  	
  %

  	
  90

  	
  %

  
	
  4

  	
   

  	
  Government
  Investments with maturities of three to ten years from the date of
  determination.

  	
   

  	
  90

  	
  %

  	
  85

  	
  %

  
	
  5

  	
   

  	
  All
  other cash, investments, obligations or securities.

  	
   

  	
  0

  	
  %

  	
  0

  	
  %

  

 

Notwithstanding
the foregoing, the value of Investments at any time shall be determined based
on the Valuation Report by the Custodian then most recently delivered to the
Agent by the Obligor.  All Investment
Collateral must be capable of being marked to market on a daily basis.  For the avoidance of doubt, in respect of any
calculation relating to a Letter of Credit, “Matching
Currency” means cash, obligations or Investments denominated in the
same currency as the currency in which the applicable Letter of Credit is
denominated and “Non-Matching Currency”
means cash, obligations or Investments denominated in a currency other than the
currency in which the applicable Letter of Credit is denominated.

 

“Affiliate”
means, as to any Person, any other Person which directly or indirectly
controls, or is under common control with, or is controlled by, such
Person.  As used in this definition, “control”
(including, with its correlative meanings, “controlled by” and “under common
control with”) shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise), provided that,
in any event any

 

2

 

Person
which owns directly or indirectly 20% or more of the securities having ordinary
voting power for the election of directors or other governing body of a
corporation or 20% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person.

 

“A.M. Best” means A.M. Best Company, Inc.
or any successor thereto.

 

“Applicable
Commission Rate” means (a) for so long as the Financial
Strength Rating of the Obligor is B++ or better, 0.35% per annum, and (b) for
so long as the Financial Strength Rating of the Obligor is less than B++, 0.55%
per annum.

 

“Applicable
Insurance Regulatory Authority” means the insurance
department or similar administrative authority or agency that has the principal
regulatory jurisdiction over the Obligor or other Person.

 

“Arch Investments I LLC” means Arch
Investments I LLC, a Delaware limited liability company.

 

“Assignment and Assumption” means an
assignment and assumption entered into by a Lender and an Eligible Assignee,
and accepted by the Agent, in substantially the form of Exhibit F hereto.

 

“Base Currency” means pounds sterling.

 

“Beneficiary”
means (a) Lloyd’s or (b) another financial institution acceptable to
the Lenders who has issued a letter of credit in favor of Lloyd’s if such
Letter of Credit would be either a back-to-back letter of credit in favor of
such financial institution having the same amount, term and other applicable
provisions as such financial institution’s letter of credit in favor of Lloyd’s
or where such financial institution’s letter of credit in favor of Lloyd’s
includes or represents the underwriting obligations of a third party in
addition to those of the Obligor, the Letter of Credit shall be matched with
back-to-back obligations included within or incorporated into the financial
institution’s letter of credit in favor of Lloyd’s.

 

“Business Day”
means any day other than a Saturday, Sunday or any other day on which
commercial banks in London, New York, and Bermuda are authorized or required to
close.

 

“Capital Lease
Obligations” means, for any Person, all obligations of such
Person to pay rent or other amounts under a lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.  For purposes of this Agreement, the amount of
such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.

 

“Cash Equivalents” means, as to any Person,
securities issued or directly and fully guaranteed or insured by the United
States, any G7 country, or any agency or instrumentality thereof (provided that the full faith and credit of
the United States or such G7 country is pledged in support thereof) having
maturities of not more than one year from the date of acquisition by such
Person.

 

3

 

“Certificates of
Deposit” means a time deposit issued by a bank, trust company or
national banking association incorporated or doing business under the laws of
the U.S. or one of the states thereof having combined capital and surplus and
retained earnings of at least $500,000,000, and having a rating of at least (i)
AA- from S&P or (ii) Aa2 from Moody’s and maturing within two years from
the date of determination; provided that if there is a split in the ratings,
the applicable rating for purposes of this definition shall be the lower of
such ratings of S&P, and Moody’s.

 

“Change of
Control” means the Parent ceases to own, directly or indirectly,
100% of the shares of capital stock of (or other ownership or profit interests
in) the Obligor.

 

“Citibank Agreement”
means the Master Reimbursement Agreement, dated as of November 6, 2009, between
the Obligor and Citibank Europe plc.

 

“Closing” means the delivery of the executed
Fundamental Documents by the parties thereto on the Closing Date.

 

“Closing Date” means the date on which all
of the conditions set forth in Clause 3.1 (Conditions
Precedent to Effectiveness and Issuance of Initial Letters of Credit)
shall have been satisfied or waived by the Lenders.

 

“Code” means the U.S. Internal Revenue Code
of 1986, as amended from time to time, and any rule or regulation issued
thereunder.

 

“Collateral”
has the definition set forth in Clause 2.10 (Collateral Security).

 

“Collateral Account Control Agreement” means
an agreement, satisfactory to the Security Agent, by and among the Obligor, the
Security Agent and the Custodian pursuant to which the Custodian confirms and
acknowledges the Security Agent’s security interest in the Custodial Account
and undertakes such other matters as the Security Agent deems appropriate.

 

“Commitment” means:

 

(a)                                      in relation to
any Original Lender, the amount in the Base Currency set forth opposite its
name on Schedule 1 (Lender Commitments)
hereto,

 

(b)                                     in relation to
any other Lender, the amount in the Base Currency of any Commitment transferred
to it under this Agreement; and

 

to
the extent not cancelled, reduced or transferred by it under this Agreement.

 

“Compliance
Certificate” means a compliance certificate delivered to the Agent
pursuant to paragraph (h) of sub-clause 5.1.2 (Compliance
Certificate) substantially in the
form set out in Exhibit E hereto.

 

4

 

“Consolidated Net Income” means, for any
Person, for any period, net income (or loss) after income taxes of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP.

 

“Consolidated Tangible Net Worth” means, for
any Person, as of the date of any determination, Net Worth of such Person and
its Subsidiaries on such date less the amount of all intangible items included
therein, including, without limitation, goodwill, franchises, license, patents,
trademarks, trade names, copyrights, service marks, brand names and write-ups
of assets.

 

“Constituent
Documents” means, with respect to any Corporation, such
Corporation’s certificate of incorporation, memorandum of association or other
similar document concerning the formation, organization and existence of such
Corporation required under the laws of the jurisdiction of organization of such
Corporation, and such Corporation’s by-laws or other similar document required
under the laws of such jurisdiction of organization.

 

“Controlled Group” means all members of a
controlled group of corporations or other business entities and all trades or
businesses (whether or not incorporated) under common control which are treated
as a single employer under Section 414 of the Code.

 

“Corporation”
includes companies, associations, corporations, partnerships, limited
liability companies and other legal entities of all kinds.

 

“Credit Protection Arrangement” means any “over
the counter” arrangement designed to transfer credit risk from one party to
another, including credit default swaps (including, without limitation, single
name, basket and first-to-default swaps), total return swaps and credit-linked
notes.

 

“Custodial
Account” shall have the meaning set forth in the Security
Agreement executed and delivered by the Obligor.

 

“Custodian”
means The Bank of New York Mellon (successor by operation of law to Mellon Bank,
N.A.).

 

“Custodian
Agreement” means the Custody Agreement dated October 1, 2007
between the Custodian, and the Obligor.

 

“Default”
means any event or condition specified in Clause 6.1 (Events of Default Defined) which, upon the
giving of notice, the lapse of time, or the happening of any further condition,
would become an Event of Default.

 

“Disruption Event” means either or both of:

 

(a)                                      a material
disruption to those payment or communications systems or to those financial
markets which are, in each case, required to operate in order for payments to
be made in connection with the Facility (or otherwise in order for the
transactions

 

5

 

contemplated by the Fundamental Documents to be
carried out) which disruption is not caused by, and is beyond the control of,
any of the Parties; or

 

(b)                                     the occurrence
of any other event which results in a disruption (of a technical or
systems-related nature) to the treasury or payments operations of a Party
preventing that, or any other Party:

 

(i)                        from performing
its payment obligations under the Fundamental Documents; or

 

(ii)                     from communicating with
other Parties in accordance with the terms of the Fundamental Documents,

 

(and
which (in either such case)) is not caused by, and is beyond the control of,
the Party whose operations are disrupted.

 

“Eligible Assignee” means (a) a Lender, (b)
an Affiliate of a Lender and (c) any other bank or financial institution,
trust, fund or other entity which is regularly engaged in or established for
the purpose of making, purchasing or investing in loans, securities or other
financial assets approved by Lloyd’s for the purpose of providing guarantees
and issuing or confirming letters of credit comprising a member’s Funds at
Lloyd’s (as such term is defined in paragraph 4 of the Membership Bylaw (No. 17
of 1993)).

 

“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and any rule or regulation
issued thereunder.

 

“ERISA Affiliate” has the meaning set forth
in Clause 4.12 (ERISA).

 

“Event of Default”
has the meaning set forth in Clause 6.1 (Events of Default Defined).

 

“Facility”
means the Letters of Credit that the Agent has agreed to issue on
behalf of the Lenders under this Agreement in an amount (including all Letter
of Credit Obligations and Reimbursement Obligations for the Obligor) not to
exceed at the 

time
of issuance of any Letter of Credit £50,000,000 (or the foreign currency Pounds
Sterling Equivalent of U.S. Dollars) in the aggregate.

 

“Facility Availability Period” means the
Closing Date up to and including December 31, 2010.

 

“Facility Office” means the office or
offices notified by a Lender to the Agent in writing on or before the date it
becomes a Lender (or, following that date, by not less than five Business Days’
written notice) as the office or offices through which it will perform its
obligations under this Agreement.

 

“Facility
Termination Date” means December 31, 2014.

 

“Finance Party” means the Agent, the
Security Agent, the Arrangers or a Lender.

 

6

 

“Financial Strength Rating” means the rating
of financial strength and ability to meet ongoing insurance policy and contract
obligations, published by A.M. Best.

 

“Fitch” means Fitch Ratings Ltd. or any
successor to its rating business.

 

“FRBNY”
means the Federal Reserve Bank of New York, or any other governmental authority
that is a successor or supplemental lender under TALF.

 

“Fundamental
Documents” means and includes each of the following for the
time being in force:

 

(a)                                      this Agreement;

 

(b)                                     the Letters of
Credit;

 

(c)                                      the Security
Agreement;

 

(d)                                     the Custodian
Agreement;

 

(e)                                      Collateral
Account Control Agreement;

 

(f)                                        any other
Security Document;

 

(g)                                     fee letters
referred to in sub-clauses 2.8.2 and 2.8.3 hereof; and

 

(h)                                     any other
document designated as such from time to time by the Agent and Obligor.

 

“G7 Country”
means Canada, the Federal Republic of Germany, Republic of France, Republic of
Italy, United Kingdom, Austria, Spain, Belgium, Japan and the Netherlands.

 

“G7 Government
Securities” means securities issued or backed by Canada, the Federal
Republic of Germany, Republic of France, Republic of Italy, United Kingdom,
Austria, Spain, Belgium, Japan and the Netherlands; provided that the credit ratings of such securities shall be
at or above AA- by S&P or Aa3 by Moody’s; provided that if there is a split
in the ratings, the applicable rating for purposes of this definition shall be
the lower of such ratings of S&P and Moody’s.

 

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

 

“Government Investments” means (a) U.S.
Government Securities, (b) U.K. Government Securities, or (c) OECD Sovereign
Debt.

 

“Group” means the Parent and its
Subsidiaries from time to time.

 

“Guarantee” of or by any Person (the “guarantor”) means any obligation
guaranteeing or intended to guarantee any Indebtedness, leases, dividends or
other obligations (“primary obligations”)
of any other Person (the “primary obligor”)
in any manner, whether directly or indirectly, including, without limitation,
any obligation of such Person, whether or not

 

7

 

contingent, (a) to purchase
any such primary obligation or any property constituting direct or indirect
security therefor, (b) to advance or supply funds (i) for the purchase or
payment of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee shall not include (x) endorsements
of instruments for deposit or collection in the ordinary course of business or
(y) obligations of the Obligor under insurance contracts, reinsurance
agreements or retrocession agreements. 
The amount of any Guarantee shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which
such Guarantee is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.

 

“Indebtedness”
means, for any Person, without duplication, (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business; (c) indebtedness
of others secured by a Lien on the Property of such Person, whether or not the
respective indebtedness so secured has been assumed by such Person; (d) reimbursement
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such Person; (f)
Guarantees by such Person of Indebtedness of others; (g) Rate Hedging
Obligations of such Person; and (h) any other obligation for borrowed money or
other financial accommodation which in accordance with GAAP or SAP, as
applicable, would be shown as a liability on the consolidated balance sheet of
such Person.   For the avoidance of
doubt, Indebtedness shall not include (v) trade payables (including payables
under insurance contracts and reinsurance payables) and accrued expenses in
each case arising in the ordinary course of business, (w) obligations of the
Obligor with respect to Policies, (x) obligations arising under deferred
compensation plans of the Obligor and its Subsidiaries in effect on the date
hereof or which have been approved by the board of directors of the Obligor, (y)
obligations with respect to products underwritten by the Obligor in the
ordinary course of business, including insurance policies, annuities,
performance and surety bonds and any related contingent obligations and (z)
reinsurance agreements entered into by the Obligor in the ordinary course of
business. For the purposes of sub-clause 6.1.12, “Indebtedness” shall not
include any Permitted TALF Indebtedness.

 

8

 

“Insurance License” means licenses
(including, without limitation, licenses or certificates of authority from
Applicable Insurance Regulatory Authorities) permits or authorizations to
transact insurance and reinsurance business.

 

“Interest Rate”
means the rate of interest per annum equal to 3% above LIBOR from time
to time in effect, not to exceed the maximum rate of interest permitted by
applicable law.

 

“Investment”
means Certificates of Deposit, Money Market Investments, and Government
Investments.

 

“ISP” means the
International Standby Practices (ISP 1998), International Chamber of Commerce
Publication No. 590.

 

“Issue Date” means the date on which a
Letter of Credit is issued.

 

“JPMorgan Credit Agreement” means the Credit
Agreement, dated as of September 16, 2004, as amended and restated as the
Amended and Restated Credit Agreement, dated as of November 29, 2005 and as
amended and restated as the Second Amended and Restated Credit Agreement, dated
as of August 30, 2006 and as amended by the First Amendment dated as of
October 1, 2007 and the Second Amendment dated as of June 26, 2009, by and
among the Parent, Arch Capital Group (U.S.) Inc., other Subsidiaries of the
Parent, including the Obligor, the Agent, HSBC Bank USA, N.A., ING Bank N.V.,
London Branch, The Bank of New York, and Wachovia Bank, a division of Wells
Fargo Bank, N.A. (formerly Wachovia Bank, N.A.), Crédit Agricole Corporate and
Investment Bank (formerly Calyon) and Citibank, N.A., as documentation agents,
Bank of America, N.A., as syndication agent, and JPMorgan Chase Bank, N.A. as
administrative agent.

 

“Lender”
means:

 

(a)                                      each Original
Lender; and

 

(b)                                     any Eligible
Assignee which has become a Lender hereto pursuant to an Assignment and
Assumption,

 

which
in each case has not ceased to be a Party in accordance with the terms of this
Agreement.

 

“Letter(s) of Credit” means the irrevocable
standby letters of credit issued for the benefit of the Beneficiaries under
this Agreement substantially in the form set out in Exhibit A hereto or in such
other form requested by the Obligor which is approved by the Lenders (such
approval not to be unreasonably withheld) in the aggregate issued amount at any
one time, when aggregated with any other outstanding Letters of Credit under
this Agreement, not to exceed a face amount of £50,000,000 (or the foreign
currency Pounds Sterling Equivalent of U.S. Dollars).

 

“Letter of Credit Exposure” means, with
respect to any Lender, as of any date of determination (a) prior to the
termination of the Commitments, that Lender’s Commitment, 

 

9

 

and
(b) after the termination of the Commitments, the Lender’s aggregate Letter of
Credit Obligations in respect of all Letters of Credit issued by the Agent on
behalf of such Lender.

 

“Letter of Credit
Obligations” means, as at any date of determination thereof, on
an aggregate basis for all Letters of Credit issued at the request of the
Obligor, the maximum amount that could be drawn by the Beneficiaries of such
Letters of Credit (assuming, notwithstanding any provision of a Letter of
Credit to the contrary, that such Beneficiary was then entitled to draw the
full amount remaining available thereunder) but which has not been drawn as of
that date (for purposes of any Letters of Credit denominated in U.S. Dollars,
the maximum amount that could be drawn by the Beneficiaries of such Letters of
Credit shall be deemed to be the Pounds Sterling Equivalent of such amount as
of such date).

 

“LIBOR”
means,

 

(a)                                      the applicable
Screen Rate; or

 

(b)                                     (if no Screen
Rate is available for the applicable currency) the arithmetic mean of the rates
(rounded upwards to four decimal places) as supplied to the Agent at its
request quoted by the Reference Bank to leading banks in the London interbank
market;

 

as of the relevant time on the quotation date in accordance with market
practice for the offering of deposits in such currency and for the specified
period.

 

“Lien”
means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such Property.  For purposes of this Agreement, a Person
shall be deemed to own subject to a Lien any Property that it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an
operating lease) relating to such Property.

 

“Lloyd’s” means The Society and Council of
Lloyd’s or its affiliates or the managing agents of any Lloyd’s syndicate
reinsured by the Obligor.

 

“Majority Lenders” means:

 

(a)                                      if there are no
Letters of Credit then outstanding, a Lender or Lenders whose Ratable Share
aggregate more than 662/3% of the Total Commitments
(or, if the Total Commitments have been reduced to zero, aggregated more than
662/3% of the Total Commitments
immediately prior to the reduction); or

 

(b)                                     at any other
time, a Lender or Lenders whose Ratable Share in the Letters of Credit then
outstanding aggregate more than 662/3% of all the Letters of Credit then outstanding.

 

“Managed Syndicate” means Syndicate 2012 at
Lloyd’s.

 

10

 

“Managing Agent” means Arch Underwriting at
Lloyd’s Ltd., or the Person or Persons who employs the underwriting staff and
handles the day-to-day running of Syndicate 2012’s infrastructure and operations.

 

“Margin Stock” means margin stock or “margin security” within the meaning of
Regulations T, U and X.

 

“Material Adverse Effect” means an event or
circumstance which has or could reasonably be expected to have a material
adverse effect on:

 

(a)                                      the ability of
the Obligor to meet the obligations of this Agreement;

 

(b)                                     the business
assets or financial condition of the Obligor and its Subsidiaries taken as a
whole or the Parent and its Subsidiaries taken as a whole; or

 

(c)                                      the validity or
enforceability of the rights and remedies of the Lenders or the Agent under the
Fundamental Documents.

 

“Money Market Investments” means money
market deposits of any commercial bank incorporated in the United States with a
rating of at least (i) AA from S&P or (ii) Aa2 from Moody’s and maturing
within two years from the date of determination; provided that if there is a
split in the ratings, the applicable rating for purposes of this definition
shall be the lower of such ratings of S&P and Moody’s.

 

“Moody’s”
means Moody’s Investors Service, Inc. or any successor thereto.

 

“Multiemployer Plan” means a “multiemployer
plan” (as defined in Section (3)(37) of ERISA) contributed to for any employees
of any Affiliate of the Obligor.

 

“Net Worth”
means, as at any date of determination, for any Person, the sum of its
capital stock (including, without limitation, its preferred stock), capital in
excess of par or stated value of shares of its capital stock (including,
without limitation, its preferred stock), retained earnings and any other
account which, in accordance with GAAP, constitutes stockholders equity, but
excluding (a) any treasury stock and (b) the effects of Financial Accounting
Statement No. 115 which shall be determined on a consolidated basis in
accordance with GAAP after appropriate deduction for any minority interests in
Subsidiaries.

 

“Notice of Termination” means a notice of
the kind referred to in Clause 2.1.5.

 

“Obligor” means Arch Reinsurance Ltd., a
Bermuda company.

 

“OECD Country” means any country which is a member of the
Organization for Economic Cooperation and Development, or a political
subdivision thereof.

 

“OECD Sovereign Debt” means debt issued or
directly and fully guaranteed or insured by any Acceptable OECD Country
(provided that the full faith and credit of the Acceptable OECD Country is
pledged in support thereof).

 

11

 

“Original
Agreement” means the Amended and Restated Letter of Credit and
Reimbursement Agreement dated as of December 12, 2007 and as
amended by the Amendment dated as of June 26, 2009 by and among the Obligor and
Lloyds TSB Bank plc as agent and security agent, Barclays Bank plc, ING Bank
N.V., London Branch, and Lloyds TSB Bank plc as Lenders and Lloyds TSB Bank plc
as mandated lead arranger.

 

“Original Beneficiary” means any Beneficiary
as defined in the Original Agreement.

 

“Original Letters
of Credit” means the letters of credit issued under the Original
Agreement.

 

“Parent”
means Arch Capital Group Ltd., a Bermuda company.

 

“Party” means a party to this Agreement.

 

“Permitted
Indebtedness” has the meaning set forth in sub-clause 5.6.3(c) of
Clause 5.6 (Negative Covenants).

 

“Permitted TALF
Indebtedness” has the meaning provided in the definition of
Permitted Indebtedness in this Clause 1.1.

 

“Permitted TALF
Subsidiary” has the meaning provided in the definition of Permitted
Indebtedness in this Clause 1.1.

 

“Person”
means and includes an individual, a partnership, trust, estate,
corporation, company, unincorporated organization, limited liability company
and a government or any agency, instrumentality or political subdivision
thereof.

 

“Plan” means an employee pension benefit
plan which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code as to which any Credit Party or any
member of the Controlled Group may have any liability.

 

“Pounds Sterling Equivalent” means, with
respect to any monetary amount in a currency other than pounds sterling, at any
date of determination thereof, the amount of pounds sterling obtained by
converting such currency involved in such computation into pounds sterling at
the spot rate for the purchase of pounds sterling with the applicable currency
as published by Reuters (or any successor thereto) on the date of such
determination.

 

“Property”
means any right or interest in or to property of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible.

 

“Policies” means all insurance policies,
annuity contracts, guaranteed interest contracts and funding agreements
(including riders to any such policies or contracts, certificates issued with
respect to group life insurance or annuity contracts and any contracts issued
in connection with retirement plans or arrangements) and assumption
certificates issued or to be issued (or filed pending current review by
applicable governmental authorities) by the Obligor and any coinsurance
agreements entered into or to be entered into by the Obligor.

 

12

 

“Ratable Share” of any amount means, with
respect to any Lender at any time, the product of such amount times a
fraction, the numerator of which is that Lender’s Letter of Credit Exposure and
the denominator of which is the aggregate Letter of Credit Exposure of all
Lenders, as the applicable percentage may be adjusted by assignments permitted
pursuant to Clause 9.4 (Successors and
Assigns).  The initial Ratable
Share of each Lender is set forth opposite the name of that Lender set forth on
Schedule 1 (Lender Commitments)
hereto.

 

“Rate Hedging
Obligations” means, for any Person, any and all net obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (a) any agreements,
devices or arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward rates
applicable to such party’s assets, liabilities or exchange transactions,
including but not limited to, U.S. Dollar-denominated, Sterling-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, or any similar derivative
transactions, and (b) any and all cancellations, buy backs, reversals,
terminations or assignments of any of the foregoing.

 

“Realistic
Disaster Scenarios” means any report prepared in relation to the
Managed Syndicate under paragraph 35 of the Underwriting Byelaw (No. 2 of 2003)
that shows the potential impact upon that Managed Syndicate of a catastrophic
event.

 

“Reference Bank”
means the principal London office of ING Bank N.V., London Branch or such other
banks as may be appointed by the Agent.

 

“Regulations T, U and X” means,
respectively, Regulations T, U and X of the Board of Governors of the Federal
Reserve System of the United States (or any successor) as now and from time to
time hereafter in effect from the date of this Agreement.

 

“Reimbursement
Obligations” means with respect to the Obligor, all of its
obligations pursuant to Clause 2.2 (Reimbursement;
Agent’s Responsibility) to reimburse each Lender for payments made
by each Lender upon any drawings under any Letter of Credit issued at the
request of the Obligor and to pay to the Agent and Lenders all other amounts
that are payable by the Obligor to the Agent and Lenders pursuant to this
Agreement and the other Fundamental Documents. 
For purposes of drawings under any Letters of Credit denominated in U.S.
Dollars, the amount of such drawing shall be deemed to be the Pounds Sterling
Equivalent of such amount as of the date of repayment of such drawing, provided, however, that, solely for the
purpose of determining the Obligor’s compliance with the requirements of
sub-clause 5.1.4 (Maintenance of Adjusted
Collateral Value) hereof and Clause 1 of the Security Agreement
on any given date, the amount of any such unreimbursed drawing shall be deemed
to be the Pounds Sterling Equivalent of such amount as of such date.  For the avoidance of doubt, for the purpose
of determining the Obligor’s compliance with the requirements of sub-clause
5.1.4 (Maintenance of Adjusted Collateral
Value) hereof and Clause 1 of the Security Agreement on any
given date, the amount of any other amount

 

13

 

that
is payable by the Obligor in U.S. Dollars to the Agent and Lenders pursuant to
this Agreement and the other Fundamental Documents shall be deemed to be the
Pounds Sterling Equivalent of such amount as of such date.

 

“Repeating Representations” means the
representations which are set out in Clause 4.1 (Corporate Existence and Power) to Clause 4.18 (Investment Company Act) inclusive (it
being understood and agreed that the representation or warranty contained in
sub-clause 4.6.1 shall be required to be true and correct only as of the
Closing Date and any other representation or warranty that is expressly stated
to have been made as of a specific date shall be required to be true in all
material respects only as of such specific date).

 

“SAP” means the accounting
procedures and practices prescribed or permitted by the Applicable Insurance
Regulatory Authority, applied on a basis consistent with those that are to be
used in making the calculations for purposes of determining compliance with
this Agreement.

 

“SAP Financial
Statements” means the financial statements of the Obligor which
have been submitted or are required to be submitted to the Applicable Insurance
Regulatory Authority.

 

“S&P”
shall mean Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc., or any successor thereto.

 

“Screen Rate” means the British Bankers’
Association Interest Settlement Rate for the relevant currency period,
displayed on the appropriate page of the Telerate screen.  If the agreed page is replaced or service
ceases to be available, the Agent may specify another page or service
displaying the appropriate rate.

 

“SEC” means the United States Securities and
Exchange Commission or any successor thereto.

 

“Security” means a mortgage, pledge, Lien or
other security interest securing any obligation of any person or any other
agreement or arrangement having a substantially similar effect.

 

“Security
Agreement” means the Security Agreement, dated on or about the
date hereof, substantially in the form of Exhibit B hereto, between the
Security Agent and the Obligor securing the obligations of the Obligor under
this Agreement and the relevant Letters of Credit.

 

“Security
Documents” means, collectively, the Security Agreement, the
Collateral Account Control Agreement and each other instrument or agreement
that secures or guarantees the Letter of Credit Obligations and the
Reimbursement Obligations.

 

“Single Employer Plan” means a Plan
maintained by any member of the Controlled Group for employees of any member of
the Controlled Group.

 

“Subsidiary” of a Person means:

 

14

 

(a)                                      any corporation
more than 50% of the outstanding securities having ordinary voting power of
which shall at the time be owned or controlled, directly or indirectly, by such
Person or by one or more of its Subsidiaries or by such Person and one or more
of its Subsidiaries; or

 

(b)                                     any
partnership, association, joint venture, limited liability company or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled.  Unless otherwise expressly provided, all
references herein to a “Subsidiary” shall mean a Subsidiary of the Obligor.

 

“Syndicate 2012”
means the collection of underwriters at Lloyd’s that commenced
underwriting risks on April 1, 2009 and is managed by Arch Underwriting at
Lloyd’s Ltd.

 

“TALF”
means the Term-Asset Backed Securities Loan Facility, under which FRBNY will
provide funding on a non-recourse basis (other than in the case of certain
exceptions to the non-recourse provisions under TALF) to any eligible borrower
secured by eligible collateral, as announced by the Board of Governors of the
Federal Reserve System and in effect on the date hereof and as hereafter
amended or otherwise modified from time to time (including any successor or
supplemental program thereto).

 

“Tax” means any
present or future tax, rate, duty, impost, governmental charge or levy,
including, without limitation thereto, any corporation, income (other than any
taxes imposed on or measured by the gross income or profits of the Agent or any
Lender), value added, capital gains, sales, transfer, use, excise, occupation,
franchise, property, stamp or other tax or duty and any license, registration
and recording fee and all penalties, fines, interest imposed, assessed or
otherwise payable in respect of any of the foregoing and all deductions or
withholdings required to be made in respect of any of the foregoing levied,
assessed, charged or required by any government or taxing authority in any
country.

 

“Total Commitments” means the aggregate of
the Commitments being £50,000,000 (or the foreign currency Pounds Sterling
Equivalent of U.S. Dollars) at the date of this Agreement.

 

“Transfer Date” means, in relation to a
transfer, the later of:

 

(a)                                      the proposed
effective date specified in the Assignment and Assumption; and

 

(b)                                     the date on
which the Agent accepts and records the Assignment and Assumption.

 

“U.K. Government Securities” means
securities issued or directly and fully guaranteed or insured by the United
Kingdom or any agency or instrumentality thereof (provided that the full faith
and credit of the United Kingdom is pledged in support thereof), rated at least
AAA from S&P, Aaa from Moody’s or AAA from Fitch; provided that if there is
a split in the ratings, the applicable rating for purposes of this definition
shall be the lower of such ratings of S&P, Moody’s and Fitch.

 

15

 

“Unpaid Sum” means any sum due and payable
but unpaid under the Fundamental Documents.

 

“Unused Rate”
means the following percentages per annum based upon a fraction, the numerator
of which is the difference of £50,000,000 minus the total Letter of Credit Obligations from
time to time outstanding, and the denominator of which is the Total
Commitments, expressed as percentage:

 

	
  Daily Usage

  	
   

  	
  Unused Rate

  	
   

  
	
  < 50%

  	
   

  	
  0.20

  	
  %

  
	
  51% - 75%

  	
   

  	
  0.15

  	
  %

  
	
  > 75%

  	
   

  	
  0.10

  	
  %

  

 

“U.S. Government
Securities” means securities issued or directly and fully
guaranteed or insured by the United States or any agency or instrumentality
thereof (provided that the full faith and credit of the United States is
pledged in support thereof) rated at least AAA from S&P, Aaa from Moody’s
or AAA from Fitch; provided that if there is a split in the ratings, the
applicable rating for purposes of this definition shall be the lower of such
ratings of S&P, Moody’s and Fitch.

 

“Utilization Request” means a utilization
request substantially in the form set out in Exhibit C hereto.

 

“Valuation Report” means a monthly valuation
report prepared by the Custodian substantially in the form provided to the
Agent pursuant to sub-clause 3.1.16 or in such other form as may be reasonably
satisfactory to the Agent.

 

1.2                           Interpretation

 

1.2.1                            The terms “hereof,” “hereunder” and “herein”
refer to this Agreement as a whole.

 

1.2.2                            References by
number to Clauses, Schedules, and Exhibits refer to the Clauses, Schedules, and
Exhibits of this Agreement unless otherwise stated.

 

1.2.3                            The singular
form of any word also refers to the plural form of such word, and vice versa, and any word of any particular gender includes
the correlative words of the other genders.

 

1.2.4                            Any references
in this Agreement to one or more items preceded by the word “including” shall
not be deemed limited to the stated items but shall be deemed without
limitation.

 

1.2.5                            Unless
otherwise specified, all references herein to the amount of a Letter of Credit
at any time shall be deemed to mean the Pounds Sterling Equivalent of the
maximum face amount of such Letter of Credit after giving effect to all
increases

 

16

 

thereof contemplated by such
Letter of Credit or any Letter of Credit application related thereto, whether
or not such maximum face amount is in effect at such time.

 

1.2.6                            Unless
otherwise expressly provided herein, references to agreements (including the
Fundamental Documents) and other contractual instruments shall be deemed to
include all subsequent amendments, restatements, extensions, supplements and
other modifications thereto (subject to any restrictions on such amendment,
restatement, extension, supplement or other modification set forth herein or in
any other Fundamental Document).

 

1.2.7                            For purposes of
computing any amount under this Agreement (including, but not limited to,
Parent Consolidated Indebtedness, Consolidated Net Income, Consolidated
Tangible Net Worth, and Parent Consolidated Total Capital) on a consolidated
basis for any purpose under this Agreement, including, but not limited to,
sub-clause 6.1.2 and sub-clause 6.1.3, neither Arch Investments I LLC nor any
other Permitted TALF Subsidiary shall be considered a consolidated subsidiary
of the Parent.

 

1.2.8                            References to a
Byelaw shall be construed as a reference to a Byelaw made under Lloyd’s Acts
1871 to 1982 as the same may have been, or may from time to time be, amended or
replaced.

 

2.                                 TERMS
OF THE LETTER OF CREDIT FACILITY

 

2.1                           The Letters of Credit

 

2.1.1                            On the terms
and subject to the further conditions hereinafter set forth and upon
satisfaction of the conditions set forth in Clause 3 (Conditions of Issuance of Letters of Credit),
the Agent  hereby agrees to issue on behalf of
the Lenders on and after the Closing Date, one or more Letters of Credit, each
dated the date of its issuance, in an aggregate issued and outstanding face
amount at any one time not to exceed £50,000,000 (or the foreign currency
Pounds Sterling Equivalent of U.S. Dollars) so long as (after giving effect to
the issuance of the requested Letter of Credit) the Adjusted Collateral Value
is not less than the sum of all amounts then outstanding with respect to the
Letter of Credit Obligations and Reimbursement Obligations, as more
specifically set forth below in sub-clause 2.1.2.  Letters of Credit may be issued in U.S.
Dollars or pounds sterling, provided that
the Obligor is in compliance with sub-clause 5.1.4 of Clause 5.1 (Affirmative Covenants).  So long as any Letter of Credit is
outstanding and has not expired, this Agreement shall continue to be in full
force and effect with respect to such Letter of Credit, provided, however, that no Letter of Credit
shall be renewed, nor shall any Letter of Credit be issued, on or after the
last date of the Facility Availability Period.

 

2.1.2                            The Obligor
may, from time to time, request that the Agent issue on behalf of the Lenders
Letters of Credit during the period from the date hereof to but not including
the last date of the Facility Availability Period, to cover underwriting years
of

 

17

 

account 2010; provided,  however,
that (i) the aggregate amount of Letter of Credit Obligations and
Reimbursement Obligations at any time issued shall not exceed the Adjusted
Collateral Value, and (ii) the aggregate face amount of all Letters of Credit
issued under this Agreement, shall not exceed £50,000,000 (or the foreign
currency Pounds Sterling Equivalent of U.S. Dollars).  The Obligor shall make such request by
executing and delivering to the Agent, in the case of Letters of Credit to be
issued in U.S. Dollars, not more than five nor less than three Business Days,
or, in the case of Letters of Credit to be issued in pounds sterling, one
Business Day, before the proposed Issue Date a Utilization Request and related
documentation (in hardcopy and/or electronic format acceptable to the
Agent).  If there shall exist any
inconsistency between the terms of this Agreement (and the Security Documents)
and any such documentation relating to a Letter of Credit issued under this
sub-clause 2.1.2, the terms of this Agreement (and the Security Documents)
shall control.

 

2.1.3                            The Agent is
hereby authorized by each Lender to issue any Letter of Credit pursuant to
sub-clause 2.1.1 by:

 

(a)                     completing the issue date
and the proposed expiry date of such Letter of Credit;

 

(b)                    completing the schedule to
such Letter of Credit with the percentage participation of each Lender as
allocated pursuant to the terms hereof; and

 

(c)                     executing such Letter of
Credit on behalf of each Lender and following such execution delivering such
Letter of Credit, together with, if requested by the Beneficiary, a copy of
each Lender’s Authorization Letter, to the Beneficiary on the Issue Date.

 

2.1.4                            Upon the
termination of the Commitments, if no Letters of Credit are outstanding or such
Letters of Credit are either (a) collateralized in a manner satisfactory to the
Lenders by cash equal to not less than 100% of the amounts outstanding or
available for drawing in a manner satisfactory to the Lenders or (b) supported
by back-to-back letters of credit the terms, conditions and issuer of which are
satisfactory to the Lenders, and if the principal of and interest on each
drawing remaining unpaid pursuant to the terms of reimbursement set forth in
sub-clause 2.2.1 (Reimbursement; Agent’s
Responsibility) and all fees payable hereunder shall have been paid
in full, the Lenders agree to review the suspension of certain covenants and
events of default while cash deposits in the Custodian Account exceed the face
amount of outstanding Letters of Credit or such Letters of Credit are supported
by back-to-back letters of credit from banking institutions acceptable to the
Lenders on terms and conditions of which are acceptable to the Lenders.

 

2.1.5                            The Agent shall

 

18

 

(a)                     no earlier than December 1,
2010 and no later than December 30, 2010 give a Notice of Termination to the
Beneficiary of each outstanding Letter of Credit (and the Lenders hereby authorize
the Agent to serve such notice) so that such Letter of Credit expires no later
than the Facility Termination Date; and

 

(b)                    for any Letter of Credit
issued on December 31, 2010, give a Notice of Termination to the Beneficiary of
such Letter of Credit (and the Lenders hereby authorize the Agent to serve such
notice) so that such Letter of Credit expires on the fourth anniversary date of
the Commencement Date (as defined in such Letter of Credit) or on any date
subsequent thereto as specified in such Notice of Termination;

 

in each case, upon the
expiry of a Letter of Credit in accordance with the applicable Notice of
Termination, the maximum actual and contingent liability of each Lender under
such Letter of Credit shall be reduced to zero.

 

2.1.6                            The Obligor may
request a Letter of Credit be amended, renewed or extended by delivering a
Utilization Request to the Agent.  The
issue of any amended, renewed or extended Letter of Credit shall be subject to
the same conditions as a new Utilization Request.  If the conditions for the issuance thereof
have been met, the Agent shall issue such amended, renewed or extended Letter
of Credit in accordance with the provisions of this Agreement as if it were a
Letter of Credit and each Lender’s participation therein shall be determined
accordingly.

 

2.2                           Reimbursement; Agent’s Responsibility

 

2.2.1                            The Agent shall
promptly notify each Lender and the Obligor of a demand for drawing under any
Letter of Credit issued at the request of the Obligor on or prior to the date of
payment of such drawing by contacting such Person telephonically, promptly
followed by written notice. 
Reimbursement by the Obligor of the amount of each such drawing is due
and payable in full in the currency in which such drawing is to be made (a) on
the same day that each such Lender honors such drawing, if the foregoing notice
is received before 1:00 p.m. (London time) on the date of such drawing or (b)
on the Business Day immediately following the date of such drawing, if the
foregoing notice is received after 1:00 p.m. (London time) on the date of such
drawing, and the Obligor absolutely and unconditionally agrees to pay or cause
to be paid to the Agent for the account each Lender, on such date, without
demand, the amount of any drawing under a Letter of Credit issued at the
request of the Obligor.

 

2.2.2                            The Obligor
absolutely and unconditionally agrees to pay, or cause to be paid, to the Agent
for the account of each Lender, on demand, interest at the Interest Rate on any
amount (including on overdue interest to the extent permitted by law) due by
the Obligor hereunder that is not paid when due, for each day such amount is
unpaid.

 

19

 

2.3                           Obligations of Lenders

 

Whenever
a Lender receives a demand for payment under a Letter of Credit, it will
promptly examine the demand to determine whether or not it is in conformity
with such Letter of Credit under which it is presented.  Each Lender shall be entitled to make any
payment in accordance with the terms of the relevant Letter of Credit without
reference to or further authority from the Obligor or any other investigation
or enquiry if the demand for payment appears on its face to be in accordance
with the terms and conditions of such Letter of Credit.  The Obligor irrevocably authorizes each
Lender to comply with any demand under a Letter of Credit which appears on its
face to be in order.

 

2.4                           Participations

 

Each
Lender shall participate in each Letter of Credit (or an amendment to a Letter
of Credit increasing or decreasing the amount thereof) issued pursuant to this
Clause 2 in an amount equal to its Ratable Share of the face amount of such
Letter of Credit. The Obligor hereby agrees to each such participation. Each
Lender acknowledges and agrees that its obligation to acquire participations
pursuant to this paragraph in respect of Letters of Credit is absolute and
unconditional and, so long as each Letter of Credit is issued, amended, renewed
or extended in accordance with this Agreement, shall not be affected by any
circumstance whatsoever, including any such amendment, renewal or extension of
any Letter of Credit or the occurrence and continuance of a Default, and that
each such payment shall be made without any offset, abatement, withholding or
reduction whatsoever. The obligations of each Lender are several and the
failure by a Lender to perform its obligations hereunder shall not affect the
obligations of the Obligor towards any other party hereto nor shall any other
party be liable for the failure by such Lender to perform its obligations
hereunder.

 

2.5                           Unconditional Obligations of the Obligor

 

2.5.1                            The Obligor
agrees with the Agent and each Lender that the following provisions shall apply
with respect to each Letter of Credit issued at the request of the Obligor:

 

(a)                     Except as otherwise
expressly stated in any Letter of Credit, but without limiting any provision of
this Agreement or any Letter of Credit, there may be accepted or honored as
complying with such Letter of Credit any documents of any character that comply
with the provisions and interpretations contained in the ISP.

 

(b)                    The Agent, the Security
Agent, any Lender or any of their respective correspondents or agents shall not
be responsible for: (i) the truth or accuracy of any statement contained in any
document received under the Letters of Credit; (ii) the validity, sufficiency
or genuineness of any such document believed by the Agent or a Lender in good
faith and in the exercise of ordinary care to be valid, even if wholly
fraudulent or forged; (iii) any breach of contract between the Obligor or any
other Person and the Beneficiary of any Letter of Credit; (iv) interruptions or
delays in the transmission or

 

20

 

delivery of messages, by mail,
courier service or electronic means, whether in cipher or not; (v) any errors
or omissions in the translation of any document; (vi) failure or delay in
giving any notice or in complying with any other formality; (vii) delay in
arrival or failure to arrive of any property or required instrument or
document; (viii) failure of any document to bear adequate reference to a Letter
of Credit, or failure of any Person to note the amount of any payment on the
reverse side of a Letter of Credit or to surrender or to take up a Letter of
Credit or to send forward documents as required by the terms of a Letter of
Credit, each of which provisions, if contained in a Letter of Credit itself, it
is agreed may be waived by the Agent or a Lender; (ix) the fact that any instructions,
oral or written, given to the Agent or a Lender purporting to have been given
by or on behalf of the Obligor and believed by the Agent or such Lender in good
faith and in the exercise of ordinary care to be valid which pertain to the
issuance of any Letter of Credit, any extension, increase or other modification
of any Letter of Credit or other action to be taken or omitted with reference
thereto, were wholly or partly insufficient, erroneous, unauthorized or
fraudulent; or (x) any other act or omission as to which banks are relieved
from responsibility under the terms of the ISP, provided that none of the contingencies referred to in
subparagraphs (i) through (x) of this sub-clause (b) is attributable to the
gross negligence or willful misconduct of the Agent, the Security Agent, any
Lender or any of their respective correspondents or agents.

 

(c)                     The Obligor will, without
expense to the Agent or the Lenders, procure or cause to be procured promptly
all necessary licenses which are required with respect to the transaction(s)
which is/are the subject of any Letter of Credit issued for the Obligor or to
which any such Letter of Credit relates, will comply with or cause to be
complied with all applicable governmental regulations in regard thereto, and will
furnish or cause to be furnished to the Agent such documents and certificates
in respect thereof as the Agent may require.

 

(d)                    The Obligor hereby agrees to
indemnify and hold harmless the Agent, the Security Agent and the Lenders from
and against all liability, loss or expense (including reasonable legal fees,
court costs and other expenses which the Agent, the Security Agent, the Agent
and the Lenders may incur in enforcing their respective rights hereunder)
incurred as a consequence of (i) any failure on the part of the Obligor duly to
perform its agreements contained in this Clause 2.5, (ii) any action taken or
omitted by the Agent, the Security Agent, any Lender or any of their respective
correspondents in relation to any Letter of Credit issued at the request of or
on behalf of the Obligor, or (iii) any claims asserted by any party to any
transaction in connection with which such Letters of Credit are issued, except
such liability, loss or expense, if any, as is incurred as a result of the
gross negligence or willful misconduct on the part

 

21

 

of the Agent, the Security
Agent, any Lender or of any of their respective correspondents.

 

2.6                           Voluntary Cancellation

 

During
the Facility Availability Period, the Obligor shall have the right at any time
and from time to time to cancel the undrawn portion of the Facility in whole or
in part (if in part, in minimum amounts of not less than £5,000,000 (or the
foreign currency Pounds Sterling Equivalent of U.S. Dollars)) without penalty
upon ten Business Days’ prior written notice to the Agent.  Amounts so cancelled may not be
reinstated.  Upon the last day of the
Facility Availability Period, the undrawn portion of the Facility shall
automatically be cancelled.  Notwithstanding
the foregoing, no such cancellation shall reduce the Facility below an
aggregate amount equal to the Letter of Credit Obligations and the
Reimbursement Obligations.

 

2.7                           Regulatory Requirements; Additional Costs

 

The
Obligor shall pay to the Agent from time to time upon demand such amounts as
the Agent or a Lender determines in its sole discretion is necessary to
compensate the Agent or such Lender for any costs attributable to the Agent’s
issuing on behalf of the Lenders or having outstanding, or any Lender’s
participation in, or a Lender’s making payment under, any Letter of Credit
issued at the request of the Obligor resulting from the application of any
domestic or foreign law or regulation or the interpretation or administration
thereof applicable to the Agent or any Lender regarding any reserve,
assessment, capitalization (including the cost of maintaining capital
sufficient to permit issuance of the Letters of Credit, provided the cost
attributed to the Letters of Credit is determined in good faith by any
reasonable method) or similar requirement whether existing at the time of
issuance of any such Letter of Credit or adopted thereafter, including, without
limitation, any reduction in amounts receivable hereunder as a result of any
change in applicable law, treaty, regulation, policy or directive, or the
imposition of any Tax or increase in any existing Tax, applicable to the
transactions contemplated hereunder or the commitments of the Lenders
hereunder.

 

2.8                           Fees

 

2.8.1                            The Obligor
agrees to pay to the Agent for the account of the Agent and each Lender the
following fees in connection with this Agreement:

 

(a)                     a Letter of Credit
commission fee payable quarterly in arrears (and calculated based upon a
360-day year and actual days elapsed for Letters of Credit denominated in U.S.
Dollars and a 365-day year and actual days elapsed for Letters of Credit
denominated in pounds sterling) on the last Business Day of each March, June,
September and December, commencing on December 31, 2010 in an amount equal to
the product of the Applicable Commission Rate times
the amount of the total Letter of Credit Obligations from time to time
outstanding; provided that for purposes of this clause (a) only, the Letter of
Credit Obligations relating to each Letter of Credit denominated in U.S.

 

22

 

Dollars shall not be deemed
to be the Pounds Sterling Equivalent of such amount and the portion of such fee
relating to such Letter of Credit Obligations shall be calculated and payable
with respect to such Letter of Credit Obligations in the currency in which the
applicable Letter of Credit is denominated;

 

(b)                    a Letter of
Credit unused fee payable quarterly in arrears (and calculated based upon a
365-day year and actual days elapsed) on the last Business Day of each March,
June, September and December, commencing on December 31, 2010 in an amount
equal to the product of the Unused Rate times
the actual daily amount by which the Total Commitments exceeds the total Letter
of Credit Obligations outstanding during such quarter; provided that for
purposes of this clause (b) only, the Letter of Credit Obligations shall be
calculated by reference to the Pounds Sterling Equivalent of the face amount of
all Letters of Credit issued and outstanding, calculated at the time of
issuance of each such Letter of Credit;

 

(c)                     The fees required under
paragraphs 2.8.1(a) and 2.8.1(b) above shall be paid to the Agent and the
Original Lenders from the date hereof, and to the Lenders from the effective
date specified in the Assignment and Assumption pursuant to which it became a
Lender, until the Facility Termination Date. The amount paid to each Lender
will be its Ratable Share of the fees paid.

 

2.8.2                            The Obligor
agrees to pay to the Agent separately, and for its own account all charges,
costs and fees in the amounts and at the times separately agreed upon between
the Obligor and the Agent from time to time in connection with this Agreement.

 

2.8.3                            The Obligor
agrees to pay to each Arranger all charges, costs and fees in the amounts and
at the times separately agreed upon between the Obligor and such Arranger from
time to time in connection with this Agreement.

 

2.8.4                            The Obligor
agrees to pay to each Lender all charges, costs and fees in the amounts and at
the times separately agreed upon between the Obligor and each Lender from time
to time in connection with this Agreement.

 

2.9                           Payments and Computations

 

2.9.1                            Except as
specifically set forth in this Agreement, all payments to be made by or on
behalf of the Obligor under this Agreement shall be made, not later than 4:00
p.m. London time, on the date when due, in immediately available funds by
federal funds wire to the Agent in the applicable currency at:

 

if
U.S. Dollars:

 

JPMorgan
Chase Bank, N.A.

 

23

 

	
  New York

  	
   

  
	
  SWIFT Address:

  	
  CHASUS33
  / ABA 021 000 021

  
	
  Account No.:

  	
  001-1-938123

  
	
  Account Name:

  	
  ING
  Bank N.V., London Branch

  
	
  Reference:

  	
  Arch
  Reinsurance Ltd.

  
	
   

  	
   

  
	
  if pounds sterling:

  	
   

  
	
   

  	
   

  
	
  HSBC Bank plc

  	
   

  
	
  London

  	
   

  
	
  Sort Code:

  	
  70
  13 46

  
	
  SWIFT Address:

  	
  MIDLGB22

  
	
  Account No.:

  	
  00498543

  
	
  Account Name:

  	
  ING
  Bank N.V., London Branch

  
	
  Reference:

  	
  Arch
  Reinsurance Ltd.

  

 

or
to such other address or account, or to the attention of such other Person as
the Agent shall notify the Obligor.

 

2.9.2         All payments made by or on behalf
of the Obligor under this Agreement shall be made without setoff or
counterclaim and free and clear of, and without deduction for, any Taxes (other
than any taxes imposed on or measured by the gross income or profits of the
Agent or any Lender), levies, imposts, duties, charges, fees, deductions,
withholdings, compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any country or any political subdivision thereof
or taxing or other authority therein unless the Obligor is compelled by law to
make such deduction or withholding.  If
any such obligation is imposed upon the Obligor with respect to any amount
payable by it hereunder, it will pay to the Agent, on the date on which such
amount becomes due and payable hereunder and in pounds sterling, such
additional amount as shall be necessary to enable the Agent or any Lender to
receive the same net amount which it would have received on such due date had
no such obligation been imposed upon the Obligor.  If, at any time, the Agent or any Lender, or
any Eligible Assignee of a Lender hereunder (an “Assignee”), is organized under the laws of any jurisdiction
other than the United States or any state or other political subdivision
thereof, the Agent or any Lender or the Assignee shall deliver to the Obligor,
through the Agent, on the date it becomes a party to this Agreement, and at
such other times as may be necessary in the determination of the Obligor in its
reasonable discretion, such certificates, documents or other evidence, properly
completed and duly executed by the Agent or any Lender or the Assignee
(including, without limitation, Internal Revenue Service Form W-8BEN
or W-8ECI, as appropriate, or any successor form prescribed by the Internal
Revenue Service) to establish that the Agent, any such Lender or the Assignee
is not subject to deduction or withholding of United States Federal Income Tax
under Section 1441 or 1442 of the Internal Revenue Code or

 

24

 

otherwise (or under any
comparable provisions of any successor statute) with respect to any payments to
the Agent, any such Lender or the Assignee of principal, interest, fees or
other amounts payable hereunder.  The
Obligor shall not be required to pay any additional amount to the Agent, any
such Lender or any Assignee under this sub-clause 2.9.2 if the Agent, any such
Lender or such Assignee shall have failed to satisfy the requirements of the
immediately preceding sentence; provided that
if the Agent, any such Lender or any Assignee shall have satisfied
such requirements on the date it became a party to this Agreement, nothing in
this sub-clause 2.9.2 shall relieve the Obligor of its obligation to pay any
additional amounts pursuant to this sub-clause 2.9.2 in the event that, as a
result of any change in applicable law, the Agent, any such Lender or such
Assignee is no longer properly entitled to deliver certificates, documents or
other evidence at a subsequent date establishing the fact that the Agent, any such
Lender or the Assignee is not subject to withholding as described in the
immediately preceding sentence.

 

2.9.3         All payments made by or on
behalf of the Obligor under this Agreement shall be applied first to the
payment of all fees, expenses and other amounts due to the Agent and the
Lenders (excluding principal and interest) by the Obligor, then to accrued
interest with respect to the Reimbursement Obligations, and the balance on
account of outstanding principal with respect to the Reimbursement Obligations;
provided, however, that upon the
occurrence and during the continuation of an Event of Default, payments will be
applied to the obligations of the Obligor to the Agent and the Lenders as the
Lenders determine in their sole discretion.

 

2.9.4         All payments which shall be
due hereunder on a day that is not a Business Day shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension.

 

2.9.5         Computations of interest
hereunder and computations of fees stated to be on an annual basis shall be
made on the basis of a year of 365 days for the actual number of days elapsed
(including the first day but excluding the last day).

 

2.10       Collateral Security

 

All
of the obligations of the Obligor to the Agent, the Security Agent or any
Lender under this Agreement and the other Fundamental Documents shall be
secured by a security interest and pledge granted by the Obligor, as security
for the Obligor’s obligations under this Agreement and the Letters of Credit
issued at the request of the Obligor, in favor of the Security Agent, for and
on behalf of the Agent and the Lenders, in the securities and other collateral
described in the Security Documents (together with all property or interests
therein and all income therefrom and proceeds thereof, collectively, the “Collateral”).

 

25

 

3.           CONDITIONS OF ISSUANCE OF LETTERS
OF CREDIT

 

3.1         Conditions Precedent to Effectiveness and Issuance of Initial Letters of
Credit

 

This
Agreement shall be effective upon, and the obligations of the Agent to issue on
behalf of the Lenders any Letter of Credit under this Agreement on or after the
Closing Date are subject to, the satisfaction of the following conditions
precedent:

 

3.1.1         Fundamental
Documents:  The Obligor
shall have executed and delivered to the Agent each  Fundamental
Document required hereunder, which shall be in full force and effect.

 

3.1.2         Proof of
Corporate Action:  The Agent
shall have received a certificate of the Obligor’s corporate  secretary or assistant secretary, or the equivalent
thereof, dated the Closing Date, setting forth resolutions of the  Board of Directors, or the equivalent thereof, of the
Obligor approving the transactions contemplated by this Agreement and the other
Fundamental Documents and authorizing the execution, delivery and performance
by the Obligor of this Agreement and the other Fundamental Documents to which
the Obligor is a party, which certificate shall state that such resolutions are
in full force and effect without amendment.

 

3.1.3         Incumbency
Certificates:  The Agent
shall have received a certificate of the Obligor’s corporate secretary or
assistant secretary, or the equivalent thereof, dated the Closing Date, setting
forth the names and containing a specimen signature of each officer and
director of the Obligor authorized to sign this Agreement and the other
Fundamental Documents to which the Obligor is a party and to give notices and
to take other action on behalf of the Obligor hereunder and in relation to the
Collateral.

 

3.1.4         Constituent
Documents:  The Agent
shall have received a certificate of the Obligor’s corporate secretary or
assistance secretary, or equivalent thereof, dated the Closing Date, certifying
that the Constituent Documents of the Obligor are true and correct as of the
Closing Date.

 

3.1.5         Bermuda
Requirements:  The Agent shall have received a certificate
of compliance issued by the Bermuda regulatory authorities (Registrar of
Companies and, if applicable, the Bermuda Monetary Authority) for each of the
Parent and the Obligor in form and substance satisfactory to the Agent.

 

3.1.6         Legal
Opinions:  The Agent
shall have received signed legal opinions of (a) counsel for the Obligor
and (b) counsel for the Agent, each in form and substance satisfactory to
the Agent, which opinions shall be addressed to and allow reliance thereon by
the Agent and the Original Lenders.

 

3.1.7         Original
Agreement:  The Agent
shall have received evidence that (a) the Obligor shall have repaid in
full all Indebtedness outstanding under the Original Agreement, (b) the
Obligor shall have terminated all commitments to issue letters of credit, lend

 

26

 

or make other extensions of
credit thereunder, (c) the Obligor has delivered all documents or
instruments necessary to release all Liens securing Indebtedness or other
obligations of the Obligor thereunder and (d) each Original Beneficiary
shall have returned cancelled all Original Letters of Credit issued to it, in
each case with effect no later than the first Issue Date.

 

3.1.8         Proceedings
and Documents:  All corporate and other proceedings and all
other matters in connection with the transactions contemplated by this
Agreement (including, without limitation, all regulatory and third party
approvals), the other Fundamental Documents and all other documents incidental
hereto and thereto, including all opinions of counsel, shall be reasonably
satisfactory in form and substance to the Lenders.

 

3.1.9         Financial
Information:  The Obligor shall have furnished all
financial data and other information requested by the Agent or the Lenders.

 

3.1.10       No
Default; Representations and Warranties:  On and as of the Closing Date, there shall
exist no Default or Event of Default and all representations and warranties
made by the Obligor in this Agreement and each of the Fundamental Documents
shall be true and complete in all material respects (it being understood and
agreed that the representation or warranty that is expressly stated to have
been made as of a specific date shall be required to be true in all material
respects only as of such specific date).

 

3.1.11       Regulations
and Policies:  There have been no material changes in
governmental regulation or policy affecting the Agent or any Lender in respect
of this Agreement or the Obligor.

 

3.1.12       Consents
and Approvals:  The Obligor and the Agent shall have obtained
all necessary consents and approvals for the transactions contemplated by this
Agreement and the other Fundamental Documents.

 

3.1.13       Lender’s
Authorization Letter:  The Agent
shall have received a signed copy of each Lender’s Authorization Letter
substantially in the form of Part B of Exhibit A hereto executed by
each Lender.

 

3.1.14       Collateral
Requirements:  The Lenders shall be satisfied with the
Custodian Agreement, the Security Agreement, the Collateral Account Control
Agreement, subordination of the Custodian’s Liens and any other relevant
documentation required in respect of the collateral requirements and the
Obligor shall have made or caused to be made all such filings and recordings in
each applicable jurisdiction reasonably requested by the Agent to be filed to
create or perfect the Liens intended to be created under the Security
Documents.

 

3.1.15       Custodial
Account: The Obligor shall have confirmed that the Adjusted Collateral Value
as of the Closing Date is not less than the sum of all amounts then

 

27

 

outstanding with respect to
Letter of Credit Obligations and Reimbursement Obligations and that each of the
Investments utilized in the preceding calculation of Adjusted Collateral Value
has been deposited into the Custodial Account.

 

3.1.16       Valuation
Report: The Obligor shall have provided to the Agent a form of valuation
report prepared by the Custodian providing the value of the Collateral in the
Custodial Account, such form to be in form and substance reasonably
satisfactory to the Agent.

 

3.1.17       Know Your
Customer:  The Agent
and each Lender shall have received all documents and evidence reasonably
requested by the Agent (for itself or on behalf of any Lender) or any Lender in
order for the Agent or such Lender to carry out and be satisfied with the
results of all necessary “know your customer” or other similar checks under all
applicable laws and regulations pursuant to the transactions contemplated in
the Fundamental Documents.

 

3.1.18       Fees:  The Agent shall have received for its own
account and for distribution (as appropriate) to each Lender the fees payable
on the Closing Date under Clause 2.8 (Fees).

 

3.2         Additional Conditions Precedent to the Issuance of Letters of Credit

 

The
obligations of the Agent to issue on behalf of the Lenders any Letter of Credit
under this Agreement on each Issue Date are subject to the further conditions
precedent that:

 

3.2.1         both immediately prior to
the issuance of such Letter of Credit and also after giving effect thereto:

 

(a)       no Default shall have
occurred and be continuing;

 

(b)       the representations and
warranties made by the Obligor in this Agreement and each of the Fundamental
Documents shall be true and complete in all material respects on and as of the
date of the issuance of such Letter of Credit with the same force and effect as
if made on and as of such date (it being understood and agreed that the
representation or warranty contained in sub-clause 4.6.1 shall be required to
be true and correct only as of the Closing Date and any other representation or
warranty that is expressly stated to have been made as of a specific date shall
be required to be true in all material respects only as of such specific date);

 

3.2.2         the Agent shall have
received a Utilization Request;  and

 

3.2.3         the Obligor shall have
confirmed (a) that the Adjusted Collateral Value as of the date of any
requested issuance of a Letter of Credit is not less than the sum of all
amounts then outstanding with respect to Letter of Credit Obligations and
Reimbursement Obligations, taking into account the amount of the requested
Letter of Credit, (b) that each of the Investments utilized in the
preceding calculation of

 

28

 

Adjusted Collateral Value
has been deposited into the Custodial Account and (c) that the aggregate
face amount of the Letters of Credit issued under this Agreement (taking into
account the requested Letter of Credit) does not exceed £50,000,000 (or the
foreign currency Pounds Sterling Equivalent of U.S. Dollars) or such lower
amount of the Facility as a result of cancellation under Clause 2.5 (Unconditional Obligations of the Obligor).

 

Each
request for a Letter of Credit hereunder shall constitute a certification by
the Obligor to the effect set forth above (both as of the date of such notice
and, unless the Obligor otherwise notifies the Agent prior to the date of such
Letter of Credit issuance, as of the date of such issuance).

 

4.           REPRESENTATIONS AND WARRANTIES

 

In
order to induce the Agent and the Lenders to enter into this Agreement and to
issue the Letters of Credit, the Obligor for itself hereby represents and
warrants that:

 

4.1         Corporate Existence and Power

 

The
Obligor (a) is a company or corporation duly organized, validly existing
without limitation of its corporate existence and in good standing under the
laws of Bermuda and (b) has adequate power and authority and legal right
to own or hold under lease the properties it purports to own or to hold under
lease and to carry on the business in which it is engaged or presently proposes
to engage.  The Obligor has adequate
power and authority to enter into this Agreement and each of the other
Fundamental Documents to which it is a party, to request Letters of Credit
hereunder, to create the Collateral for the Letter of Credit Obligations and
the Reimbursement Obligations contemplated by this Agreement and the Security
Documents and to perform its obligations under this Agreement and each of the
other Fundamental Documents to which it is or is to become a party as
contemplated by this Agreement.

 

4.2         Authority

 

The
execution and delivery by the Obligor of this Agreement and each other
Fundamental Document to which it is or is to become a party as contemplated
hereby, the obtaining of Letters of Credit hereunder, the pledging of the
Collateral for the Letter of Credit Obligations and the Reimbursement
Obligations contemplated by this Agreement and the Security Documents and the
performance by the Obligor of its obligations in respect of this Agreement and
the other Fundamental Documents in accordance with their respective terms, have
been duly authorized by all necessary corporate action on the part of the
Obligor and do not and will not (a) contravene any provision of the
Constituent Documents of the Obligor, (b) conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default under
or, except as contemplated by this Agreement, result in the creation or
imposition of any Lien pursuant to the terms of any mortgage, indenture, deed
of trust, security agreement, pledge agreement, charge or other instrument to
which the Obligor or any of its respective property is bound, (c) violate
any law, governmental rule, regulation,

 

29

 

order
or decree of any court or administrative agency or governmental officer
applicable to and binding upon the Obligor, (d) require any waiver,
consent or other action by any governmental or regulatory authority or by any
trustee or holder of any Indebtedness or obligations of the Obligor or (e) require
the approval of the shareholders of the Obligor.

 

4.3         Binding Effect of Agreement and Other Fundamental Documents

 

4.3.1         This Agreement has been, and
each other Fundamental Document will be when executed and delivered, duly
executed and delivered by the Obligor, and the agreements contained herein
constitute, and the agreements contained in each other Fundamental Document to
which the Obligor is or is to become a party will, when each such other
Fundamental Document is executed and delivered, constitute valid and legally
binding obligations for the Obligor enforceable in accordance with their
respective terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors’ rights generally, and (b) general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).

 

4.3.2         Each Security Document
executed and delivered on or after the date hereof will effectively create the
Liens purported to be created thereby and such Liens will be first-priority
Liens on the Collateral covered thereby, subject to no other Liens (except
Liens in favor of the Custodian).

 

4.4         Financial Information

 

The
Parent and the Obligor have heretofore furnished to the Agent accurate and
complete financial data and other information in all material respects based on
its operations in previous years, and said financial data furnished to the
Agent is accurate and complete and fairly presents in all material respects the
financial position and the results of operations for the period indicated
therein in all material respects.

 

4.5         Pari passu ranking

 

The
Obligor’s payment obligations under the Fundamental Documents rank at least pari passu with the claims of all its
other unsecured and unsubordinated creditors, except for obligations
mandatorily preferred by law applicable to the Obligor.

 

4.6         Material Adverse Change; No Default

 

4.6.1         Since December 31,
2009, nothing has occurred which has had, or would reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect.

 

4.6.2         No Default or Event of
Default exists with respect to the Obligor.

 

30

 

4.7         Existing Security Interest

 

No
Security exists on or over the assets of the Obligor except as permitted by
sub-clause 5.6.1 (Negative Pledge).

 

4.8         Litigation

 

There
are no legal or arbitral proceedings, or any proceedings by or before any
governmental or regulatory authority or agency, now pending or (to the knowledge
of the Obligor) threatened against the Parent or the Obligor that are
reasonably likely (either individually or in the aggregate) to have a Material
Adverse Effect.

 

4.9         Compliance with Laws and Agreements

 

The
Obligor is in compliance with laws, regulations and orders of any governmental
agency or authority applicable to it or its Properties and all indentures,
agreements and other instruments binding upon it or its Property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

 

4.10       Winding-up

 

No
meeting has been convened for the winding-up, administration, dissolution or
liquidation of the Obligor, no such step is intended by the Obligor and, so far
as it is aware, no petition, application or equivalent or analogous procedure
under the law of the jurisdiction of the Obligor’s incorporation is outstanding
for its winding-up, administration, dissolution or liquidation (save where such
petition, application or equivalent or analogous procedure is frivolous or
vexatious in nature).

 

4.11       Reorganizations

 

No
step is intended or has been taken by the Obligor for the reorganization,
reconstruction, merger, amalgamation or consolidation (or any equivalent or
analogous procedure) of the Obligor save where (i) it will survive such
procedure as a separate legal entity and such step or procedure will not have
or be likely to have a Material Adverse Effect or (ii) the Majority
Lenders have provided their prior written consent to such procedure.

 

4.12       ERISA

 

The
Obligor contributes to Single Employer Plans maintained by its ERISA Affiliate
but does not contribute to a Multiemployer Plan.  There exists no Unfunded Pension Liability
(as defined below) with respect to any Single Employer Plans, except as would
not have a Material Adverse Effect.  No
ERISA Event has occurred, is occurring, or is reasonably likely to occur with
respect to which any Obligor or ERISA Affiliate has or is reasonably likely to
incur any liability.

 

For
the purposes of this Clause 4.12, “Unfunded
Pension Liability” means the excess of an Employee Plan’s
liabilities under Section 4001(a)(16) of ERISA, over the current value of

 

31

 

that
plan’s assets, determined in accordance with the assumptions used for funding
an Employee Plan pursuant to Section 412 of the Code for the applicable
plan year; “ERISA Affiliate”
means, with respect to a company, any Person that would be deemed at any
relevant  time to be a single employer
with the company pursuant to Section 414(b), (c), (m) or (o) of
the Code or Section 4001 of ERISA; and “ERISA
Event” means a determination that any Single Employer Plan is, or is
expected to be, in “at risk” status (as defined in Section 303(i)(4) of
ERISA or Section 430(i)(4) of the Code.

 

4.13       Margin Stock

 

4.13.1       The Obligor is not engaged
nor will it engage principally, or as one of its important activities, in the
business of owning or extending credit for the purpose of “buying” or “carrying”
any Margin Stock.

 

4.13.2       None of the extensions of
credit under this Agreement will be used, directly or indirectly, for the
purpose of buying or carrying any Margin Stock, for the purpose of reducing or
retiring any Indebtedness that was originally incurred to buy or carry any
Margin Stock or for any other purpose which might cause all or extensions of
credit under this Agreement to be considered a “purpose credit” within the
meaning of Regulation U or Regulation X.

 

4.13.3       Neither the Obligor nor any
agent acting on its behalf has taken or will take any action which might cause
the Fundamental Documents to violate any regulation of the Board of Governors
of the Federal Reserve System of the United States.

 

4.14       Anti-Terrorism Laws

 

4.14.1       Neither the Obligor nor any
of its Affiliates is in violation of any laws relating to terrorism or money
laundering (“Anti-Terrorism Laws”),
including Executive Order No. 13224 on Terrorist Financing effective September 24,
2001 (the “Executive Order”) and
the Uniting and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56.

 

4.14.2       Neither the Obligor nor any
of its Affiliates is any of the following:

 

(a)       a person or entity that is
listed in the annex to, or is otherwise subject to the provisions of, the
Executive Order;

 

(b)       a person or entity owned or
controlled by, or acting for or on behalf of, any person or entity that is
listed in the annex to, or is otherwise subject to the provisions of, the
Executive Order;

 

(c)       a person or entity with
which the Agent or any Lender is prohibited from dealing or otherwise engaging
in any transaction by any Anti-Terrorism law;

 

32

 

(d)       a person or entity that commits,
threatens or conspires to commit or supports “terrorism” as defined in the
Executive Order; or

 

(e)       a person or entity that is
named as a “specially designated national and blocked person” on the most
current list published by the U.S. Treasury Department Office of Foreign Asset
Control at its official website or any replacement website or other replacement
official publication of such list.

 

4.14.3       The Obligor does not (a) to
the best of its knowledge, conduct any business or engage in making or receiving
any contribution of funds, goods or services to or for the benefit of any
person described in paragraph 4.14.2(b) above, (b) to the best of its
knowledge, deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to the Executive Order or (c) engage
in or conspire to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempt to violate, any of the prohibitions
set forth in any Anti-Terrorism Law.

 

4.15       Custodian

 

The
Custodian has not resigned as Custodian without a successor Custodian
satisfactory to the Agent being appointed.

 

4.16       Insurance
Licenses

 

There
is (a) no Insurance License of the Obligor or any of its Subsidiaries that
is the subject of a proceeding for suspension, revocation or limitation or any
similar proceedings, (b) no sustainable basis for such a suspension,
revocation or limitation, and (c) no such suspension, revocation or
limitation threatened by any Applicable Insurance Regulatory Authority, that,
in each instance under (a), (b) and (c) above has had, or would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.  Neither the
Obligor nor any of its Subsidiaries transacts any insurance business, directly
or indirectly, in any jurisdiction where such business requires any Insurance
License other than in those jurisdictions in which the Obligor or such
Subsidiary has obtained such Insurance License.

 

4.17       No Section 32 Direction

 

The
Obligor has not received any direction or other notification from the Bermuda
Monetary Authority pursuant to Section 32 of the Insurance Act, 1978 of
Bermuda.

 

4.18       Investment Company Act

 

Neither
the Parent nor the Obligor is an “investment company” or a company “controlled”
by an “investment company,” within the meaning of the Investment Company Act of
1940, as amended.

 

33

 

4.19       Repeating Representations

 

Each
of the Repeating Representations will be correct and complied with in all
material respects on each Issue Date and each date that a Letter of Credit is
renewed, reissued and extended as if repeated then by reference to the then
existing circumstances.

 

5.           COVENANTS

 

5.1         Affirmative Covenants

 

The
Obligor for itself covenants and agrees that so long as any Letter of Credit is
outstanding:

 

5.1.1         Maintenance
of Corporate Existence:  The Obligor shall maintain its corporate
existence.

 

5.1.2         Reporting
Requirements:  The Obligor shall furnish to the Agent (with
sufficient copies for each Lender):

 

(a)       Annual
GAAP Financial Statements:  Within 90 days following the end of the
Parent’s fiscal year (or, if a registered company, such earlier date as the
Parent’s Form 10-K is filed with the SEC) copies of:

 

(i)        the consolidated and
consolidating balance sheet of the Parent and its Subsidiaries as at the close
of such fiscal year, and

 

(ii)       the consolidated and
consolidating statements of income, changes in shareholders’ equity and cash
flows of the Parent and its Subsidiaries for such fiscal year,

 

in
each case setting forth in comparative form the consolidated figures for the
preceding fiscal year and prepared in accordance with GAAP, all in reasonable
detail and accompanied by an opinion thereon of PricewaterhouseCoopers LLP or
other firm of independent public accountants of recognized national standing
selected by the Parent and reasonably acceptable to the Agent, to the effect that
the financial statements have been prepared in accordance with GAAP (except for
changes in application in which such accountants concur) and present fairly in
all material respects in accordance with GAAP the financial condition of the
Parent and its Subsidiaries as of the end of such fiscal year and the
consolidated results of operations and cash flows of the Parent and its
Subsidiaries for the fiscal year then ended and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards applied on a basis
consistent with other prior years (except as otherwise specified in such
report; provided that any
exceptions or qualifications thereto must be acceptable to the Majority
Lenders) and, accordingly, included such tests of the accounting records and

 

34

 

such
other auditing procedures as were considered necessary under the circumstances.

 

(b)       Quarterly
GAAP Financial Statements:  As soon as available, and in any event within
60 days after the end of each quarterly fiscal period of the Parent (other than
the fourth fiscal quarter of any fiscal year), copies of:

 

(i)        the consolidated balance
sheet of the Parent and its Subsidiaries as at the end of such fiscal quarter,
and

 

(ii)       the related consolidated
statements of income, changes in shareholders’ equity and cash flows of the
Parent and its Subsidiaries for such fiscal quarter and the portion of such
fiscal year ended with such fiscal quarter,

 

in
each case setting forth in comparative form the figures for the preceding
fiscal year and prepared in accordance with GAAP, all in reasonable detail and
certified as presenting fairly in accordance with GAAP applied on a basis
consistent with other prior years (except as otherwise specified in such
report; provided that any
exceptions or qualifications thereto must be acceptable to the Majority
Lenders) the financial condition of the Parent as of the end of such period and
the results of operations for such period by a senior officer of the Parent,
subject only to normal year-end accruals and audit adjustments and the absence
of footnotes.

 

(c)       Annual/Quarterly
Reports:  Concurrently with the delivery of the
financial statements required pursuant to paragraphs (a), (b), (e) and (f) of
this Clause, copies of all reports (excluding those portions of the reports
which are not permitted to be provided by the Obligor to third parties pursuant
to a confidentiality agreement) required to be filed with any Applicable
Insurance Regulatory Authority in connection with the filing of such financial
statements.

 

(d)       Additional
Information:  Such additional information as the Agent may
reasonably request concerning the Parent or the Obligor and for that purpose
all pertinent books and other documents relating to its business, affairs and
Properties, including Investments as shall from time to time be designated by
the Agent.

 

(e)       Annual
Obligor Financial Statements:  As soon as available, and in any event within
90 days after the close of each fiscal year of the Obligor, the summary
consolidated balance sheet of the Obligor and its Subsidiaries as at the end of
such fiscal year and the related summary consolidated statement of income of
the Obligor and its Subsidiaries for such fiscal year, setting forth in
comparative form the consolidated figures for the fiscal year, all in form and
scope consistent in all material respects with the financial statements of the

 

35

 

Obligor previously delivered
and certified by the chief financial officer or controller of the Obligor,
which certificate shall state that such consolidated financial statements
present fairly in all material respects the consolidated financial position of
the Obligor and its Subsidiaries as at the dates indicated (subject to normal
year-end audit adjustments and the absence of full footnote disclosure).  As soon as available and in any event within
90 days after the close of each fiscal year or such later date as may be
required by the Bermuda law, the SAP Financial Statements (excluding those
portions of the SAP Financial Statements which are not permitted to be provided
by the Obligor to third parties pursuant to a confidentiality agreement) for
the Obligor for such fiscal year.

 

(f)        Quarterly
Obligor Statements:  As soon as available, and in any event within
60 days after the close of each of the first three quarterly accounting periods
in each fiscal year of the Obligor, a summary consolidated balance sheet of the
Obligor and its Subsidiaries as at the end of such period and the related
summary consolidated statement of income of the Obligor and its Subsidiaries
for such period and (in the case of the second and third quarterly periods) for
the period from the beginning of the current fiscal year to the end of such
quarterly period, setting forth in each case in comparative form the
consolidated figures for the corresponding periods of the previous fiscal year,
all in form and scope consistent in all material respects with the financial
statements of the Obligor previously provided and certified by the chief
financial officer or controller of the Obligor, as presenting fairly in all
material respects, on a basis consistent with such prior fiscal periods, the
information contained therein, subject to changes resulting from normal
year-end audit adjustments and the absence of full footnote disclosure.

 

(g)       Custodial
Account Certificate and Valuation Report:
 The Obligor shall furnish to the
Agent (i) a Custodial Account Certificate substantially in the form of Exhibit D
hereto or in such other form as may be reasonably satisfactory to Agent and (ii) a
Valuation Report from the Custodian, in each case (A) no later than the
tenth Business Day of each month, (B) upon the occurrence of a Default or
an Event of Default, and (C) at any time and from time to time upon the
request of the Agent.

 

(h)       Compliance
Certificate:
The Obligor shall supply to the Agent, with each set of financial
statements delivered pursuant to paragraphs (e) and (f) of this
clause, a Compliance Certificate setting out (in reasonable detail)
computations as to compliance with sub-clauses 6.1.2 and 6.1.3 of Clause 6 (Events of Default Defined) as at the date
as at which those financial statements were drawn up.  Each Compliance Certificate shall be signed
by the chief financial officer or controller of the Obligor.

 

36

 

(i)        Notification
of Default:  The Obligor
shall notify the Agent of the occurrence of any Default (and of any action
taken or proposed to be taken to remedy it) or Event of Default promptly after
becoming aware of it.

 

(j)        Material
Litigation:  The Obligor
shall notify the Agent of any litigation proceedings current, or to its
knowledge pending or threatened, in writing which are likely to have a Material
Adverse Effect.

 

(k)       Insurance
Reports and Filings:

 

(i)        Promptly following the
delivery or receipt, as the case may be, by the Obligor, copies of (a) each
material registration, filing or submission made by or on behalf of the Obligor
with any Applicable Insurance Regulatory Authority, except for policy form or
rate filings, (b) each material examination and/or audit report submitted
to the Obligor by any Applicable Insurance Regulatory Authority, (c) all
material information which the Lenders may from time to time request with
respect to the nature or status of any material deficiencies or violations
reflected in any examination report or other similar report, and (d) each
material report, order, direction, instruction, approval, authorization,
license or other notice which the Obligor may at any time receive from any
Applicable Insurance Regulatory Authority. 
For the purpose of this clause (i) only, determinations of “material”
shall be made by the Obligor in good faith.

 

(ii)       As soon as available and in
any event within 120 days after the end of each fiscal year of the Parent, a
report by an independent actuarial consulting firm of recognized national
standing reviewing the adequacy of loss and loss adjustment expense reserves as
at the end of the last fiscal year of the Parent and its Subsidiaries on a
consolidated basis, determined in accordance with SAP and stating that the
Parent has maintained adequate reserves, it being agreed that in each case such
independent firm will be provided access to or copies of all relevant
valuations relating to the insurance business of the Parent in the possession
of or available to the Parent and that the furnishing by the Obligor of such
report shall be subject to the consent of such independent firm.

 

(iii)      Promptly following
notification thereof from a governmental authority, notification of the
suspension, limitation, termination or non-renewal of, or the taking of any
other material adverse action in respect of, any Insurance License.

 

(l)        Section 32
Direction:  Promptly
following receipt thereof by the Obligor, notice of any direction or other
notification by the Obligor from the Bermuda

 

37

 

Monetary Authority pursuant
to Section 32 of the Insurance Act, 1978 of Bermuda.

 

(m)      Know Your
Customer:  Promptly
upon the reasonable request of the Agent (for itself or on behalf of any
Lender), supply, or procure the supply of, such documentation and other
evidence as is reasonably requested by the Agent in order for the Agent or a
Lender to carry out and be satisfied with the results of all necessary “know
your customer” or other similar checks under all applicable laws and
regulations pursuant to the transactions contemplated in the Fundamental
Documents.

 

(n)       Business
Plan and Realistic Disaster Scenarios:  The Obligor shall, as soon as it becomes
available but in any event within 30 days of the date prescribed by Lloyd’s
regarding the preparation and delivery thereof, deliver to the Agent the final
business plan prepared in relation to the Managed Syndicate and (if separate)
the Realistic Disaster Scenarios relating thereto.  The Obligor shall also provide the Agent, no
later than 30 days after receipt by the Obligor of notification from Lloyd’s, a
summary of any material change in the specifications or reporting requirements
with respect to the Realistic Disaster Scenarios, as well as a summary of the
impact that such changes may have on the estimates of net losses in the
Realistic Disaster Scenarios.

 

(o)       Quarterly
Monitoring Reports:  The Obligor
shall as soon as the same become available but in any event within 5 Business
Days of their delivery to Lloyd’s, deliver to the Agent in sufficient copies
for the Lenders, the Quarterly Monitoring Return for the Managed Syndicate in
respect each fiscal quarter of the Managed Syndicate.

 

(p)       Annual
Solvency Statements:  The Obligor
shall as soon as the same become available but in any event within 5 Business
Days of their delivery to Lloyd’s, deliver to the Agent in sufficient copies
for the Lenders, the annual report delivered to the Beneficiary demonstrating
compliance with the member’s capital resources requirement calculated by Lloyd’s
for Corporate Members (as defined paragraph 1 of the Definitions Byelaw (No. 7
of 2005)) in accordance with the General Prudential Sourcebook and the Insurers
Prudential Sourcebook and notified to the Obligor by Lloyd’s from time to time.

 

(q)       Other
Financial Information:  The
Obligor shall from time to time on the request of the Agent, provide the Agent
with such information as the Lenders may reasonably require, including any ad
hoc or exceptional financial reports that the Managed Syndicate may be required
to provide to Lloyd’s or to any regulator or government authority.

 

38

 

(r)        Delivery
of Information:  The Obligor
and each Lender hereby acknowledges and agrees that the Agent and/or the
Obligor may make available to the Lenders material and/or information provided
by or on behalf of the Obligor under this Agreement or any other Fundamental
Document by posting such materials and/or information on IntraLinks or another
similar electronic system reasonably acceptable to the Agent and the Obligor
(it being understood and agreed that the posting of such materials and/or
information on IntraLinks or another similar electronic system shall not be
deemed a violation of Clause 9.11 (Confidentiality)
of this Agreement).

 

5.1.3         Minimum
Rating:  The Obligor shall at all
times maintains a minimum AM Best Financial Strength Rating of B++.

 

5.1.4         Maintenance
of Adjusted Collateral Value:  The Obligor shall at all times maintain
Collateral in the Custodial Account maintained in its name in an amount such
that the Adjusted Collateral Value (determined on a daily basis) is not less
than the sum of all amounts then outstanding with respect to the sum of the
Letter of Credit Obligations and Reimbursement Obligations.  The Obligor agrees that if the required
Adjusted Collateral Value of the Collateral in the Custodial Account is less
than the sum of the Letter of Credit Obligations and the Reimbursement
Obligations, the Obligor shall immediately, and in no event no later than 5:00 p.m.
(New York time) on the Business Day immediately following the date of notice by
any Finance Party, pay to the Custodian the amount of any such deficiency,
which payment shall be deposited by the Custodian into the applicable Custodial
Account in the form of cash or Investments. 
At any time, other than after the occurrence and during the continuation
of a Default or an Event of Default, the Obligor may substitute Collateral to
the extent such substitution arises from normal trade activities within the
Custodial Account in accordance with the provisions of Clause 1 of the
Security Agreement between the Obligor and the Security Agent.

 

5.1.5         ERISA:  The Obligor shall not:

 

(a)       allow, or permit any of its
ERISA Affiliates that are Subsidiaries of the Obligor to allow (i) any
Single Employer Plan with respect to which the Obligor or its ERISA Affiliates
that are Subsidiaries of the Obligor may have any liability to terminate, (ii) the
Obligor or any of its ERISA Affiliates that are Subsidiaries of the Obligor to
withdraw from any Single Employer Plan and, if applicable, a Multiemployer
Plan, or (iii) any failure by any Single Employer Plan to satisfy the
minimum funding standard (within the meaning of Section 302 of ERISA and Section 412
of the Code), whether or not waived, to exist involving any of its Single
Employer Plans, to the extent that any of the events described in (i), (ii) or
(iii), singly or in the aggregate, could have a Material Adverse Effect; or

 

39

 

(b)       fail, or permit any of its
ERISA Affiliates that are Subsidiaries of the Obligor to fail, to comply with
ERISA or other related provisions of the Code, if any such non-compliance,
singly or in the aggregate, would be reasonably likely to have a Material
Adverse Effect.

 

5.1.6         Financial
Testing:  The financial
covenants set out in sub-clauses 5.6.1(b)(xx), 5.6.3(c)(ii)(11), 6.1.2 and
6.1.3 below shall be tested by reference to each of the financial statements
and/or each Compliance Certificate delivered pursuant to sub-clause 5.1.2(h) (Compliance Certificate).

 

5.2         Books,
Records and Inspections

 

The
Obligor shall (a) keep, and will cause each of its Subsidiaries to keep,
proper books of record and account in which full, true and correct entries in
conformity with GAAP or SAP, as applicable, shall be made of all dealings and
transactions in relation to its business and activities; and (b) subject
to binding contractual confidentiality obligations of the Obligor and its
Subsidiaries to third parties and to Clause 9.11 (Confidentiality), permit, and will cause each of its
Subsidiaries to permit, representatives of any Lender (at such Lender’s expense
prior to the occurrence of an Event of Default and at the Obligor’s expense
after an Event of Default has occurred and is continuing) to visit and inspect
any of their respective properties, to examine their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, in
each case at such reasonable times and as often as may be reasonably
desired.  The Obligor agrees to cooperate
and assist in such visits and inspections.

 

5.3         Payment of Taxes

 

The
Obligor will pay and discharge, and will cause each of its Subsidiaries to pay
and discharge, all income taxes and all other material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits,
or upon any properties belonging to it, in each case, on a timely basis to the
date on which penalties attach thereto, and all lawful claims which, if unpaid,
might become a Lien or charge upon any properties of the Obligor or any of its
Subsidiaries; provided that
neither the Obligor nor any Subsidiary of the Obligor shall be required to pay
any such tax, assessment, charge, levy or claim which is being contested in
good faith and by proper proceedings if it has maintained adequate reserves
with respect thereto in accordance with GAAP.

 

5.4         Compliance with Statutes, etc.

 

The
Obligor will, and will cause each Subsidiary to, comply with all applicable
statues, regulations and orders of, and all applicable restrictions imposed by,
all governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls) other than those the non-compliance with which would not reasonably
be expected to have, either individually or in the aggregate, a Material
Adverse Effect.

 

40

 

5.5         Maintenance of Licenses and Permits

 

The
Obligor will, and will cause each of its Subsidiaries, to maintain all permits,
licenses and consents as may be required for the conduct of its business by any
state, federal or local government agency or instrumentality, except where
failure to maintain the same would not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

 

5.6         Negative Covenants

 

5.6.1         Negative
Pledge:

 

(a)       Neither the Obligor nor any
of its Subsidiaries will permit, create, assume, incur or suffer to exist any
Lien on any asset tangible or intangible now owned or hereafter acquired by it,
except as set out in paragraph (b) below.

 

(b)       Paragraph (a) above
does not apply to:

 

(i)        Liens created pursuant to
the Security Documents;

 

(ii)       Liens existing on the date
hereof and listed on Schedule 2 (Existing
Encumbrances) hereto;

 

(iii)      Liens securing repurchase
agreements constituting a borrowing of funds by the Obligor or any of its
Subsidiaries in the ordinary course of business for liquidity purposes and in
no event for a period exceeding 90 days in each case;

 

(iv)     Liens arising pursuant to
purchase money mortgages, capital leases or security interests securing
Indebtedness representing the purchase price (or financing of the purchase
price within 90 days after the respective purchase) of assets acquired after
the Closing Date;

 

(v)      Liens (x) on any asset
of any Person existing at the time such Person is merged or consolidated with
or into the Obligor or any of its Subsidiaries and not created in contemplation
of such event or (y) securing Acquired Indebtedness so long as such Lien
existed prior to the contemplated acquisition, was not created in contemplation
of such acquisition and only relates to assets of the Person so acquired;

 

(vi)     Liens securing obligations
owed by the Obligor or any of its Subsidiaries to the Parent or any other
Subsidiary of the Parent, in each case solely to the extent that such Liens are
required by an Applicable Insurance Regulatory Authority for such Person to
maintain such obligations;

 

41

 

(vii)    Liens securing insurance
obligations of the Obligor or any of its Subsidiaries owed to the Parent or any
other Subsidiary of the Parent, in each case solely to the extent that such
Liens are required or requested by ratings agencies, clients or brokers for
such Person to maintain such insurance obligations;

 

(viii)   Liens on investments and
cash balances of the Obligor or any of its Subsidiaries securing obligations of
the Obligor or such Subsidiary in respect of trust or similar arrangements
formed, letters of credit issued or funds withheld balances established, in
each case, in the ordinary course of business for the benefit of cedents to
secure reinsurance recoverables owed to them by the Obligor or such Subsidiary;

 

(ix)      inchoate Liens for taxes,
assessments or governmental charges or levies not yet due or Liens for taxes,
assessments or governmental charges or levies being contested in good faith and
by appropriate proceedings for which adequate reserves have been established in
accordance with GAAP;

 

(x)       Liens in respect of property
or assets of the Obligor or any of its Subsidiaries imposed by law, which were
incurred in the ordinary course of business and do not secure Indebtedness for
borrowed money, such as carriers’, warehousemen’s, materialmen’s and mechanics’
Liens and other similar Liens arising in the ordinary course of business, and (x) which
do not in the aggregate materially detract from the value of the Obligor’s or
any such Subsidiary’s property or assets or materially impair the use thereof
in the operation of the business of the Obligor or any Subsidiary of the
Obligor or (y) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture or
sale of the property or assets subject to any such Lien;

 

(xi)      licenses, sublicenses,
leases, or subleases granted to other Persons not materially interfering with
the conduct of the business of the Obligor or any of its Subsidiaries;

 

(xii)     easements,
rights-of-way, restrictions, encroachments and other similar charges or
encumbrances, and minor title deficiencies, in each case not securing
Indebtedness and not materially interfering with the conduct of the business of
the Obligor or any of its Subsidiaries;

 

(xiii)    Liens arising
out of the existence of judgments or awards not constituting an Event of
Default under Clause 6.1 (Events of Default
Defined);

 

42

 

(xiv)    Liens (other than Liens
imposed under ERISA) incurred in the ordinary course of business in connection
with workers compensation claims, unemployment insurance and social security
benefits and Liens securing the performance of bids, tenders, leases and
contracts in the ordinary course of business, statutory obligations, surety
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business and consistent with past practice (exclusive of
obligations in respect of the payment for borrowed money);

 

(xv)     bankers’ Liens, rights of
setoff and other similar Liens existing solely with respect to cash and Cash
Equivalents on deposit in one or more accounts maintained by the Obligor or any
of its Subsidiaries, in each case granted in the ordinary course of business in
favor of the bank or banks with which such accounts are maintained;

 

(xvi)    Liens arising out of the
refinancing, extension, renewal or refunding of any Indebtedness secured by any
Lien permitted by any of the sub-paragraphs of this sub-clause 5.6.1, provided that such Indebtedness is not
increased and is not secured by any additional assets;

 

(xvii)   Liens in respect of property
or assets of the Obligor or any of its Subsidiaries securing Indebtedness of the
type described in sub-paragraphs (6) or (10) of the definition of “Permitted
Indebtedness” (as hereinafter set forth);

 

(xviii)
Liens in respect of property or assets of any Subsidiary of the Obligor
securing Indebtedness of the type described in paragraph (9) of the
definition of “Permitted Indebtedness”; provided
that the aggregate amount of the Indebtedness secured by such Liens
shall not, when added to the aggregate amount of all outstanding obligations of
the Parent secured by Liens incurred pursuant to paragraph (b)(xx) of
sub-clause 5.6.1 exceed at any time 10% of Net Worth of the Parent at the time
of incurrence of any new Liens under this paragraph (xviii);

 

(xix)    Liens arising in connection
with securities lending arrangements entered into by the Obligor or any of its
Subsidiaries with financial institutions in the ordinary course of business so
long as any securities subject to any such securities lending arrangements do
not constitute collateral under any security document; and

 

(xx)     in addition to the Liens
described in sub-paragraphs (i) through (xix) above, Liens securing
obligations of the Parent; provided that the
aggregate amount of the obligations secured by such Liens shall not, when added
to the aggregate amount of outstanding Indebtedness of the Obligor and its
Subsidiaries pursuant to paragraph (11) of the definition

 

43

 

of “Permitted Indebtedness”,
exceed at any time 10% of Net Worth of the Parent at the time of incurrence of
any Liens under this sub-clause 5.6.1.

 

5.6.2         Disposals:

 

(a)       The Obligor shall not nor
will it permit any of its Subsidiaries to sell, convey, assign, lease, abandon
or otherwise transfer or dispose of, voluntarily or involuntarily (any of the
foregoing being referred to in this paragraph (a) as a “Disposition” and any series of related
Dispositions constituting but a single Disposition), any of its properties or
assets, tangible or intangible (including but not limited to sale, assignment,
discount or other disposition of accounts, contract rights, chattel paper or
general intangibles with or without recourse), except as set forth in paragraph
(b) below.

 

(b)       Paragraph (a) above
does not apply to:

 

(i)        any Disposition of used,
worn out, obsolete or surplus property of the Obligor or any of its
Subsidiaries in the ordinary course of business;

 

(ii)       license (as licensor) of
intellectual property so long as such license does not materially interfere
with the business of the Obligor or any of its Subsidiaries;

 

(iii)      the Disposition of cash,
Cash Equivalents, and investment securities;

 

(iv)     the release, surrender or
waiver of contract, tort or other claims of any kind as a result of the
settlement of any litigation or threatened litigation;

 

(v)      the granting or existence of
Liens (and foreclosure thereon) not prohibited by this Agreement;

 

(vi)     the lease or sublease of
real property so long as such lease or sublease does not materially interfere
with the business of the Obligor or any of its Subsidiaries;

 

(vii)    dividends;

 

(viii)   any ceding of insurance or
reinsurance in the ordinary course of business;

 

(ix)      any Disposition by the
Obligor or any of its Subsidiaries of any non-core asset or as set forth in
Schedule 4 (Dispositions);

 

(x)       Dispositions by the Obligor
or any of its Subsidiaries of properties or assets having an aggregate fair
value (as determined in good faith by the

 

44

 

board of directors of the
Obligor) of less than USD$1,000,000 (or its equivalent in another currency);

 

(xi)      Dispositions by the Obligor
or any of its Subsidiaries of any of its respective properties or assets to the
Parent, to any wholly-owned Subsidiary of the Parent or (except as to property
or assets consisting of the capital stock of Subsidiaries) to Alternative Re
Holdings Limited; and

 

(xii)     other Dispositions to the
extent that the fair market value of the assets the subject thereof (as
determined in good faith by the board of directors or senior management of the
Obligor), when added to the fair market value of the assets the subject of any
such other Disposition or Dispositions under this paragraph (xii) previously
consummated during the same fiscal year of the Obligor (as determined in good
faith by the board of directors or senior management of the Obligor), does not
constitute more than 20% of the consolidated assets of the Group as of the last
day of the most recently ended fiscal year of the Group.

 

5.6.3         Financial
Indebtedness:

 

(a)       The Obligor shall not incur
or permit to subsist, and shall not permit any of its Subsidiaries to incur or
subsist, any Indebtedness except Permitted Indebtedness (as hereinafter
defined).

 

(b)       The Obligor shall not, nor
will it permit any of its Subsidiaries to, create, incur, assume or permit to
exist any Indebtedness, or agree, become or remain liable (contingent or
otherwise) to do any of the foregoing, except for (i) Indebtedness
incurred by the Obligor or any of its Subsidiaries hereunder and other
Indebtedness which is either pari passu
with, or subordinated in right of payment to, the Indebtedness incurred by the
Obligor hereunder and the other obligations owing hereunder and under the
Fundamental Documents and (ii) in the case of any Subsidiary, Indebtedness
that is permitted under sub-clause 5.6.3(a).

 

(c)       Definitions:  In this Clause 5.6 the following terms have
the following meanings.

 

(i)        “Acquired Indebtedness” means Indebtedness of the Obligor or
any of its Subsidiaries acquired pursuant to an acquisition not prohibited
under this Agreement (or Indebtedness assumed at the time of such acquisition
of an asset securing such Indebtedness), provided
that such Indebtedness was not incurred in connection with, or in
anticipation or contemplation of, such acquisition.

 

(ii)       “Permitted Indebtedness” means:

 

45

 

(1)       Indebtedness of the Obligor
or any of its Subsidiaries incurred pursuant to this Agreement, the Citibank
Agreement or the JPMorgan Credit Agreement (as defined in item 2 of Schedule 2
(Existing Encumbrances));

 

(2)       Indebtedness of the Obligor
or any of its Subsidiaries existing on the date hereof and listed on Schedule 3
(Existing Indebtedness) and
refinancings by the Obligor or any of its Subsidiaries thereof; provided that the aggregate principal
amount of any such refinancing Indebtedness is not greater than the aggregate
principal amount of the Indebtedness being refinanced plus the amount of any
premiums required to be paid thereof and fees and expenses associated
therewith;

 

(3)       Indebtedness of the Obligor
or any of its Subsidiaries under any Rate Hedging Obligations, in each case
entered into to protect the Obligor or such Subsidiary against fluctuations in
interest rates, currency exchange rates or other rate fluctuations and not
entered into for speculative purposes;

 

(4)       any Indebtedness owed by the
Obligor or any of its Subsidiaries to the Parent or any of its Subsidiaries;

 

(5)       Indebtedness in respect of
purchase money obligations and Capital Lease Obligations of the Obligor or any
of its Subsidiaries, and refinancings thereof; provided that the aggregate principal amount of all such
Capital Lease Obligations does not exceed at any time outstanding
USD$25,000,000 at the time of incurrence of any new Indebtedness under this
sub-paragraph (5);

 

(6)       Indebtedness of the Obligor
or any of its Subsidiaries in respect of letters of credit issued to
reinsurance cedents, or to lessors of real property in lieu of security
deposits in connection with leases of the Obligor or such Subsidiary, in each
case in the ordinary course of business;

 

(7)       Indebtedness of the Obligor
or any of its Subsidiaries incurred in the ordinary course of business in
connection with workers’ compensation claims, self-insurance obligations,
unemployment insurance or other forms of governmental insurance or benefits and
pursuant to letters of credit or other security arrangements entered into in
connection with such insurance or benefit;

 

(8)       Acquired Indebtedness of the
Obligor or any of its Subsidiaries;

 

46

 

(9)       Indebtedness incurred under
securities lending arrangements entered into in the ordinary course of
business;

 

(10)     Indebtedness incurred under
Credit Protection Arrangements entered into in the ordinary course of business;

 

(11)     additional Indebtedness of
the Obligor or any of its Subsidiaries not otherwise permitted under
sub-paragraph (1) through (10) of this definition which, when added
to the aggregate amount of all outstanding Indebtedness obligations secured by Liens
incurred by the Obligor or any of its Subsidiaries pursuant to sub-clause
5.6.1(b)(xx), shall not exceed at any time outstanding 5% of the Net Worth of
the Parent at the time of incurrence of any new Indebtedness under this
paragraph (11);

 

(12)     Indebtedness arising from
Guarantees made by the Obligor or any of its Subsidiaries of Indebtedness of
the type described in sub-paragraphs (1) through (12) of this definition;
and

 

(13)     Indebtedness incurred by
Arch Investments I LLC or any other Subsidiary directly or indirectly formed by
the Parent solely for the purpose of participating in TALF (any such entity, a “Permitted TALF Subsidiary”), provided that the Agent consents to the
designation of such other Subsidiary as a Permitted TALF Subsidiary, which consent
shall not be unreasonably delayed or withheld, arising out of funding extended
through TALF and any guarantee of any obligations relating thereto by an
affiliate of the Permitted TALF Subsidiary (any such Indebtedness or guarantee,
“Permitted TALF Indebtedness”); provided, that if TALF is amended or
modified following the date hereof, such that a Permitted TALF Subsidiary
incurring Indebtedness under TALF as so amended or modified would (i) be
materially adverse to the interests of the Lenders, (ii) change any of the
limitations or requirements set forth in this sub-clause (13), or (iii) change
in any material respect the exceptions to the non-recourse provisions, then
from the date of such amendment or modification, as applicable, no Permitted
TALF Subsidiary shall incur any additional Indebtedness under TALF under this
sub-clause (13), unless such Indebtedness is consented to by the Agent.  For avoidance of doubt, the parties hereto
acknowledge and agree that (x) amendments or modifications to TALF relating
to eligibility requirements for borrowers or collateral, collateral haircuts,
tenor and interest rates applicable to loans extended thereunder,
administrative fees, program size, termination date or allocation procedures
shall not be materially adverse to the interests of the

 

47

 

Lenders for purposes of this
sub-clause (13), and (y) any Indebtedness incurred under this sub-clause
(13) by a Permitted TALF Subsidiary prior to the date of the applicable
amendment or modification discussed in the proviso above shall continue to
constitute Permitted Indebtedness under this sub-clause (13) regardless of any
amendment or modification that may occur following the date such Indebtedness
is incurred.

 

5.6.4         Consolidations,
Mergers, Sales of Assets and Acquisitions.

 

(a)       The Obligor shall not, and
shall not permit any of its Subsidiaries to, consolidated or merge with or into
any other Person; provided that (i) the
Obligor may merge with another Person if (A) the Obligor is the
corporation surviving such merger and (B) immediately after giving effect
to such merger, no Default or Event of Default shall have occurred and be
continuing, and (ii) Subsidiaries of the Obligor may merge with one
another.

 

(b)       The Obligor shall not, and
shall not permit any of its Subsidiaries to, acquire all or substantially all
of the capital stock or assets of another Person unless at such time and
immediately after giving effect thereto no Default or Event of Default exists
or would result therefrom.

 

5.6.5         Transactions
with Affiliates:  The Obligor
shall not, and shall not permit any of its Subsidiaries to, enter into or be a
party to a transaction with any Affiliate of the Obligor or any of its
Subsidiaries (which Affiliate is not the Parent) except:

 

(a)       transactions with Affiliates
on terms no less favorable to the Obligor or such Subsidiary than those that
could have been obtained in a comparable transaction on an arm’s length basis
from an unrelated Person;

 

(b)       transactions and payments
pursuant to agreements and arrangements disclosed in, or listed as an exhibit
to, the Parent’s annual report on Form 10-K filed with the SEC on February 26,
2010 or any subsequent other filing with the SEC through the Closing Date or
any such agreement or arrangement as thereafter amended, extended or replaced
on terms that are, in the aggregate, no less favorable to the Obligor and its
Subsidiaries than the terms of such agreement on the Closing Date, as the case
may be;

 

(c)       dividends; and

 

(d)       fees and compensation paid
to and indemnities provided on behalf of officers and directors of the Obligor
or any of its Subsidiaries as reasonably determined in good faith by the board
of directors or senior management of the Obligor.

 

48

 

5.6.6         Amendments:  The Obligor shall not amend or otherwise
change the terms of the Custodian Agreement other than in favor of the Obligor
and not adverse to the Lenders.

 

5.6.7         Conduct of
Business:  The Obligor
shall not, and shall not permit any of its Subsidiaries to, engage in any
business other than the businesses engaged in by the Obligor and its
Subsidiaries on the Closing Date and similar or related businesses.

 

6.           EVENTS OF DEFAULT AND REMEDIES

 

6.1         Events of Default Defined

 

Each
of the following is an “Event of Default”:

 

6.1.1         with respect to the Obligor:

 

(a)       failure by the Obligor to
pay any amount payable by it hereunder on the date due;

 

(b)       if any representation or
warranty made by or on behalf of the Obligor in this Agreement, in any other
Fundamental Document or in any certificate, report or financial or other
statement furnished to the Agent at any time under or in connection with this
Agreement, any other Fundamental Document or any other such document or agreement
shall have been untrue in any material respect when made or deemed to have been
made;

 

(c)       default by the Obligor in
the observance or performance of its covenants set forth in (i) Clause 5 (Covenants); or (ii) default by the
Obligor in the observance or performance of its obligation to maintain the
value of the Custodial Account maintained in its name in accordance with
sub-clause 5.1.4 (Maintenance of Adjusted
Collateral Value) hereof and Clause 1 of the Security Agreement
between it and the Security Agent;

 

6.1.2         failure by the Parent to
maintain a minimum Consolidated Tangible Net Worth that is at any time less
than the sum of: (a) USD$1,950,000,000; (b) 25%
of the aggregate Net Cash Proceeds received from any issuance of common or
preferred equity interests of the Parent consummated on or after August 30,
2010; and (c) 25% of its Consolidated Net Income (if positive) for each
fiscal quarter ended after June 30, 2010. 
For purposes of this sub-clause 6.1.2, “Net Cash Proceeds” means for any issuance of equity, the gross
cash proceeds (including any cash received by way of deferred payment pursuant
to a promissory note, receivable or otherwise, but only as and when received)
received from such issuance, net of reasonable transaction costs (including, as
applicable, any underwriting, brokerage or other customary commissions and
reasonable legal, advisory and other fees and expenses associated therewith);

 

49

 

6.1.3         the Parent Leverage Ratio on
the last day of any fiscal quarter or fiscal year of the Parent is greater than
0.35:1.00. 
For purposes of this sub-clause 6.1.3:

 

(a)       “Parent Leverage Ratio” means, at any time, the ratio of (i) Parent
Consolidated Indebtedness at such time to (ii) Parent Consolidated Total
Capital at such time;

 

(b)       “Parent Consolidated Indebtedness” means, as of any date of
determination, (i) all Indebtedness of the Group which at such time would
appear on the liability side of a balance sheet of such Persons prepared on a
consolidated basis in accordance with GAAP plus (ii) any Indebtedness for
borrowed money of any other Person (other than any member of the Group) as to
which any member of the Group has created a Guarantee (but only to the extent
of such Guarantee).  For the avoidance of
doubt, “Parent Consolidated Indebtedness”
shall not include any Guarantees of any Person under or in connection with
letters of credit or similar facilities so long as no unreimbursed drawings or
payments have been made in respect thereof; and

 

(c)       “Parent Consolidated Total Capital” means, as of any date of
determination, the sum of (i) Parent Consolidated Indebtedness and (ii) Net
Worth of the Parent at such time;

 

6.1.4         the Parent permits, creates,
assumes, incurs or suffers to exist any Lien on any asset, tangible or
intangible, now owned or hereafter acquired, other than in the same manner, and
subject to the same limitations, as otherwise permitted under paragraph (b) of
sub-clause 5.6.1 (Negative Pledge)
and except as set out on Schedule 2 (Existing
Encumbrances); for the avoidance of doubt for this purpose,
reference to “Subsidiaries” (including in the definition of “Permitted Indebtedness”) shall include
Subsidiaries of the Parent;

 

6.1.5         the Parent making a
Disposition (as defined in paragraph (a) of sub-clause 5.6.2 (Disposals)) of any of its properties or
assets, tangible or intangible, other than in the same manner, and subject to
the same limitations, as otherwise permitted under paragraph (b) of
sub-clause 5.6.2 (Disposals) and
except as set out in Schedule 4 (Dispositions);
for the avoidance of doubt for this purpose, references to “Subsidiaries”
includes Subsidiaries of the Parent;

 

6.1.6         non-compliance by the Parent
or its ERISA Affiliates of the covenant set forth in sub-clause 5.1.5 (ERISA);

 

6.1.7         default by the Obligor in
the observance or performance of any covenant or agreement contained in this
Agreement or any other Fundamental Document (other than those referred to in
Clause 6.1.1) and the continuance thereof unremedied for 28 days after the
earlier of (a) an officer of the Obligor or the Parent becoming aware of
such default or (b) receipt by the Obligor of written notice of the
default from the Agent;

 

50

 

6.1.8         an order shall be made by a
competent court or a resolution shall be passed for the winding up or
dissolution or rehabilitation of the Parent or the Obligor save for the
purposes of amalgamation, merger, consolidation, reorganization or other
similar arrangement on terms approved by the Majority Lenders (not involving
the insolvency of the Parent or the Obligor) and save that if any such order or
resolution is sought in an involuntary proceeding against any the Person, such
Person shall have 30 days from the commencement of such proceeding to obtain an
order staying, vacating or dismissing such proceedings, or a petition shall be
presented to, or an order shall be made by a competent court for the
appointment of, an administrator of the Parent or the Obligor and such petition
or order shall not have been stayed, vacated or dismissed within 30 days after
the presentation of such petition or the making of such order;

 

6.1.9         the Parent or the Obligor
shall cease to carry on the whole or substantially the whole of its business, save
for the purposes of amalgamation, merger, consolidation, reorganization or
other similar arrangement (not involving or arising out of the insolvency of
the Parent or the Obligor) which is permitted hereunder, or the Parent or the
Obligor shall suspend payment of its debts generally or shall be unable to, or
shall admit inability to, pay its debts as they fall due, or shall be
adjudicated or found bankrupt or insolvent by any competent court in a
voluntary or involuntary bankruptcy or insolvency proceeding and, in the case
of an involuntary proceeding, such adjudication or finding is not stayed,
vacated or dismissed for 30 days, or shall enter into any composition or other
similar arrangement with its creditors generally;

 

6.1.10       a receiver, administrator,
liquidator or other similar official shall be appointed in relation to the
Parent or the Obligor or in relation to the whole or a substantial part of its
assets or to the Collateral or a distress, execution or other process shall be
levied or enforced upon or out against, or any encumbrance shall take
possession of, the whole or a substantial part of its assets or the Collateral
and in any of the foregoing cases, such action or person shall not be
discharged, dismissed, vacated, stayed or bonded within 30 days;

 

6.1.11       any seizure, vesting or
intervention by or under authority of a government occurs, by which the Parent’s
or the Obligor’s management is displaced or its authority in the conduct of its
business is curtailed;

 

6.1.12       default by the Parent or the
Obligor in (a) any payment of principal of or interest of any Indebtedness
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created; or (b) default in the
observance or performance of any other agreement or condition relating to any
such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause, or
to permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to

 

51

 

cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated
maturity, provided  that the aggregate principal amount of all
Indebtedness under paragraphs (a) and (b) of this sub-clause 6.1.12
which would then become due and payable would equal or exceed, in the case of
the Parent or the Obligor, USD$50,000,000 (or its equivalent in another
currency);

 

6.1.13       one or more judgments or
decrees shall be entered against the Parent or the Obligor involving in the
aggregate a liability (to the extent not paid or covered by insurance) of, in
the case of the Parent or the Obligor, USD$50,000,000 (or its equivalent in
another currency) or more, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60 days after
the entry thereof;

 

6.1.14       if the validity or
enforceability of any Security Document to which the Obligor is a party shall
be contested by any Person or the security interest created in favor of the
Security Agent pursuant to any Security Document shall cease to be valid and
binding or to constitute a fully perfected security interest in the collateral
described in such security document, superior in right to any other lien;

 

6.1.15       it is or becomes unlawful
for the Obligor to perform any of its obligations under this Agreement or any
other Fundamental Document;

 

6.1.16       the Obligor (or any other
relevant party) rescinds or purports to rescind or repudiates or purports to
repudiate this Agreement, any other Fundamental Document or any Lien created
pursuant to the Security Documents or evidences an intention to rescind or
repudiate this Agreement, any other Fundamental Document or any Lien created
pursuant to the Security Documents;

 

6.1.17       receipt by the Obligor of
any direction or other notification from the Bermuda Monetary Authority pursuant
to Section 32 of the Insurance Act, 1978 of Bermuda; or

 

6.1.18       a Change of Control shall
occur.

 

6.2         Remedies

 

6.2.1         Without limiting any other
rights or remedies of the Agent or any Lender provided for elsewhere in this
Agreement or any other Fundamental Document, or by applicable law, or in
equity, or otherwise, (a) if any Event of Default shall occur and be
continuing with respect to the Obligor, the Agent may (and shall if so
instructed by the Majority Lenders), by notice to the Obligor, declare all
amounts owing under this Agreement and any Letters of Credit (whether or not
such Letter of Credit Obligations be contingent or unmatured) issued at the
request of the Obligor to be forthwith due and payable, whereupon all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Obligor, and (b)

 

52

 

if any Event of Default
shall occur and be continuing with respect to the Parent, the Agent may (and
shall if so instructed by the Majority Lenders), by notice to the Obligor,
declare all amounts owing under this Agreement and any Letters of Credit
(whether or not such Letter of Credit Obligations be contingent or unmatured)
issued at the request of the Obligor to be forthwith due and payable, whereupon
all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Obligor. 
The Agent may immediately take any and all remedies with respect to the
Collateral permitted by the Security Documents.

 

6.2.2         Upon declaration as provided
for above, the Obligor shall, as specified in written notice by the Agent,
either (a) immediately deliver to the Agent, any amounts required to be
paid in accordance with sub-clause 6.2.1 hereof (the “Letter of Credit Amount”), or (b) with
the consent of the Beneficiary or Beneficiaries thereof, cause any Letters of
Credit to be cancelled forthwith in a manner satisfactory to the Agent.  In addition to providing the Letter of Credit
Amount, the Obligor shall provide the Agent with any documentation as the Agent
may from time to time request to perfect its rights in the Letter of Credit
Amount, including, without limitation, pledge agreements and financing
statements in form and substance satisfactory to the Agent.  The Agent shall hold the Letter of Credit
Amount in its own name, for the exclusive purpose of applying such Letter of
Credit Amount toward the immediate payment of amounts which are thereafter
drawn under any Letter of Credit, and, to the extent of such payment, the
Reimbursement Obligations shall be deemed to be satisfied.  Upon the expiry date of all Letters of
Credit, any Letter of Credit Amount remaining after satisfaction of all
Reimbursement Obligations shall be remitted to the order of the Obligor.  The Obligor shall remain liable for the
relevant amount of any deficiency in respect of its Letter of Credit
Obligations and Reimbursement Obligations.

 

6.2.3         Upon the occurrence and
during the continuation of any Default or Event of Default under this
Agreement, no Letter of Credit shall be issued, renewed or extended under this
Agreement without the consent of each Lender.

 

7.           CHANGES TO PARTIES

 

7.1         Changes to the Lenders

 

7.1.1         Assignments
and Transfers by the Lenders

 

Subject
to this Clause 7.1, a Lender (the “Existing
Lender”) may:

 

(a)       assign any of its rights; or

 

(b)       transfer any of its rights and
obligations,

 

to
an Eligible Assignee (the “New Lender”).

 

53

 

7.1.2                         Conditions
of Assignment or Transfer

 

(a)                    So long as no Event of
Default has occurred and is continuing, the consent of the Obligor is required
for an assignment or transfer by an Existing Lender, unless the assignment or
transfer is to another Lender or an Affiliate of a Lender.

 

(b)                    The consent of the Obligor
to an assignment or transfer must not be unreasonably withheld or delayed.  The Obligor will be deemed to have given its
consent seven Business Days after the Existing Lender has requested it in
writing unless consent is expressly refused by the Obligor within that time.

 

(c)                     An assignment will only be
effective on:

 

(i)                       receipt by the
Agent of an Assignment and Assumption from the New Lender (in form and
substance satisfactory to the Agent) stating that the New Lender will assume
the same obligations to the other Finance Parties as it would have been under
if it was an Original Lender;

 

(ii)                    receipt by the Agent of a
signed copy from the New Lender of the New Lender’s Authorization Letter substantially
in the form of Part B of Exhibit A hereto executed by the New Lender;

 

(iii)                 issuance by the Agent of an
amendment to each outstanding Letter of Credit replacing the Existing Lender
with the New Lender and acceptance thereof by each Beneficiary; and

 

(iv)                performance by the Agent of
all necessary “know your customer” or other similar checks under all applicable
laws and regulations in relation to such assignment to a New Lender, the
completion of which the Agent shall promptly notify to the Existing Lender and
the New Lender.

 

(d)                    If:

 

(i)                       a Lender
assigns or transfers any of its rights or obligations under the Fundamental
Documents or changes its Facility Office; and

 

(ii)                    as a result of circumstances
existing at the date the assignment, transfer or change occurs, an Obligor
would be obliged to make a payment to the New Lender or Lender acting through
its new Facility Office under sub-clause 2.9.2 or Clause 2.6 (Regulatory Requirements; Additional Costs),

 

then
the New Lender or Lender acting through its new Facility Office is only
entitled to receive payment under those Clauses to the same extent as the
Existing Lender or Lender acting through its previous Facility Office would
have been if the assignment, transfer or change had not occurred.

 

54

 

7.1.3                         Assignment
or Transfer Fee

 

The
New Lender shall, on the date upon which an assignment or transfer takes
effect, pay to the Agent (for its own account) a fee of £2,000.

 

7.1.4                         Limitation
of Responsibility of Existing Lenders

 

(a)                    Unless expressly agreed to
the contrary, an Existing Lender makes no representation or warranty and
assumes no responsibility to a New Lender for:

 

(i)                       the legality,
validity, effectiveness, adequacy or enforceability of the Fundamental
Documents or any other documents;

 

(ii)                    the financial condition of
any Obligor;

 

(iii)                 the performance and
observance by any Obligor of its obligations under the Fundamental Documents or
any other documents; or

 

(iv)                the accuracy of any statements
(whether written or oral) made in or in connection with any Fundamental
Document or any other document,

 

and
any representations or warranties implied by law are excluded.

 

(b)                    Each New Lender confirms to
the Existing Lender and the other Finance Parties that it:

 

(i)                       has made (and
shall continue to make) its own independent investigation and assessment of the
financial condition and affairs of each Obligor and its related entities in
connection with its participation in this Agreement and has not relied
exclusively on any information provided to it by the Existing Lender in
connection with any Fundamental Document; and

 

(ii)                    will continue to make its
own independent appraisal of the creditworthiness of each Obligor and its
related entities whilst any amount is or may be outstanding under the
Fundamental Documents or any Commitment is in force.

 

(c)                     Nothing in any Fundamental
Document obliges an Existing Lender to:

 

(i)                       accept a
re-transfer from a New Lender of any of the rights and obligations assigned or
transferred under this Clause 7.1; or

 

(ii)                    support any losses directly
or indirectly incurred by the New Lender by reason of the non-performance by
any Obligor of its obligations under the Fundamental Documents or otherwise.

 

55

 

7.1.5                         Procedure
for Transfer

 

(a)                    Subject to the conditions
set out in sub-clause 7.1.2 (Conditions of
Assignment or Transfer) a transfer is effected in accordance with
paragraph (c) below when the Agent executes an otherwise duly completed
Assignment and Assumption delivered to it by the Existing Lender and the New
Lender.  The Agent shall, subject to
paragraph (b) below, as soon as reasonably practicable after receipt by it
of a duly completed Assignment and Assumption appearing on its face to comply
with the terms of this Agreement and delivered in accordance with the terms of
this Agreement, execute such Assignment and Assumption.

 

(b)                    The Agent shall only be
obliged to execute an Assignment and Assumption delivered to it by the Existing
Lender and the New Lender once it is satisfied it has complied with all
necessary “know your customer” or other similar checks under all applicable
laws and regulations in relation to the transfer to such New Lender.

 

(c)                     On the Transfer Date:

 

(i)                       to the extent
that in the Assignment and Assumption the Existing Lender seeks to transfer its
rights and obligations under the Fundamental Documents, the Obligor and the
Existing Lender shall be released from further obligations towards one another
under the Fundamental Documents and their respective rights against one another
under the Fundamental Documents shall be cancelled (being the “Discharged Rights and Obligations”);

 

(ii)                    the Obligor and the New
Lender shall assume obligations towards one another and/or acquire rights
against one another which differ from the Discharged Rights and Obligations
only insofar as the Obligor and the New Lender have assumed and/or acquired the
same in place of that Obligor and the Existing Lender;

 

(iii)                 the Agent, the New Lender
and other Lenders shall acquire the same rights and assume the same obligations
between themselves as they would have acquired and assumed had the New Lender
been an original Lender with the rights and/or obligations acquired or assumed
by it as a result of the transfer and to that extent the Agent and the Existing
Lender shall each be released from further obligations to each other under the
Fundamental Documents; and

 

(iv)                the New Lender shall become
a Party as a “Lender”.

 

56

 

7.1.6                         Copy
of Assignment and Assumption to Obligor

 

The
Agent shall, as soon as reasonably practicable after it has executed an
Assignment and Assumption, send to the Obligor a copy of such Assignment and
Assumption.

 

7.1.7                         Disclosure
of information

 

Any
Lender may disclose to any of its Affiliates and the directors, officers,
employees, agents, including accounts, legal counsel and other advisors of the
Lender and its Affiliates (subject to Clause 9.11 (Confidentiality) hereof) and any other person:

 

(a)                    to (or through) whom that
Lender assigns or transfers (or may potentially assign or transfer) all or any
of its rights and obligations under this Agreement;

 

(b)                    with (or through) whom that
Lender enters into (or may potentially enter into) any sub-participation in
relation to, or any other transaction under which payments are to be made by
reference to, this Agreement or the Obligor; or

 

(c)                     to whom, and to the extent
that, information is required to be disclosed by any applicable law or
regulation,

 

any
information about the Obligor, the Group and the Fundamental Documents as that
Lender shall consider appropriate.

 

7.2                         Changes to the Obligors

 

The
Obligor may not assign any of its rights or transfer any of its rights or obligations
under the Fundamental Documents.

 

8.                                THE
FINANCE PARTIES

 

8.1                         Role of the Agent and Security Agent

 

8.1.1                         Appointment
of the Agent and Security Agent

 

(a)                    Each other Finance Party
appoints the Agent and Security Agent to act as its agent under and in
connection with the Fundamental Documents.

 

(b)                    Each other Finance Party
authorizes the Agent and Security Agent to exercise the rights, powers,
authorities and discretions specifically given to the Agent under or in
connection with the Fundamental Documents together with any other incidental
rights, powers, authorities and discretions.

 

8.1.2                         Duties
of the Agent

 

57

 

(a)                    The Agent shall promptly
forward to a Party the original or a copy of any document which is delivered to
the Agent for that Party by any other Party.

 

(b)                    Except where a Fundamental
Document specifically provides otherwise, the Agent is not obliged to review or
check the adequacy, accuracy or completeness of any document it forwards to
another Party.

 

(c)                     If the Agent receives notice
from a Party referring to this Agreement, describing a Default and stating that
the circumstance described is a Default, it shall promptly notify the other
Finance Parties.

 

(d)                    If the Agent is aware of the
non-payment of any principal, interest, commitment fee or other fee payable to
a Finance Party (other than the Agent) under this Agreement it shall promptly
notify the other Finance Parties.

 

(e)                     The Agent’s duties under the
Fundamental Documents are solely mechanical and administrative in nature.

 

8.1.3                         Role
of the Arrangers

 

Except
as specifically provided in the Fundamental Documents, the Arrangers have no
obligations of any kind to any other party under or in connection with any
Fundamental Document.

 

8.1.4                         No
Fiduciary Duties

 

(a)                    Nothing in this Agreement
constitutes the Agent or any Arranger as a trustee or fiduciary of any other
person.

 

(b)                    Neither the Agent nor any
Arranger shall be bound to account to any Lender for any sum or the profit
element of any sum received by it for its own account.

 

8.1.5                         Business
with the Group

 

The
Agent and the Arrangers may accept deposits from, lend money to and generally
engage in any kind of banking or other business with any member of the Group.

 

8.1.6                         Rights
and Discretions of the Agent

 

(a)                    The Agent may rely on:

 

(i)                       any
representation, notice or document believed by it to be genuine, correct and
appropriately authorized; and

 

58

 

(ii)                    any statement made by a
director, authorized signatory or employee of any person regarding any matters
which may reasonably be assumed to be within his knowledge or within his power
to verify.

 

(b)                    The Agent may assume (unless
it has received notice to the contrary in its capacity as agent for the
Lenders) that:

 

(i)                       no Default has
occurred (unless it has actual knowledge of a Default arising under sub-clause
(a));

 

(ii)                    any right, power, authority
or discretion vested in any Party or the Majority Lenders has not been
exercised; and

 

(iii)                 any notice or request made
by the Obligor is made on behalf of and with the consent and knowledge of the
Parent.

 

(c)                     The Agent may engage, pay
for and rely on the advice or services of any lawyers, accountants, surveyors
or other experts.

 

(d)                    The Agent may act in
relation to the Fundamental Documents through its personnel and agents.

 

(e)                     The Agent may disclose to
any other Party any information it reasonably believes it has received as agent
under this Agreement.

 

(f)                      Notwithstanding
any other provision of any Fundamental Document to the contrary, the Agent is
not obliged to do or omit to do anything if it would or might in its reasonable
opinion constitute a breach of any law or regulation or a breach of a fiduciary
duty or duty of confidentiality.

 

8.1.7                         Majority
Lenders’ Instructions

 

(a)                    Unless a contrary indication
appears in a Fundamental Document, the Agent shall (i) exercise any right,
power, authority or discretion vested in it as Agent in accordance with any
instructions given to it by the Majority Lenders (or, if so instructed by the
Majority Lenders, refrain from exercising any right, power, authority or
discretion vested in it as Agent) and (ii) not be liable for any act (or
omission) if it acts (or refrains from taking any action) in accordance with an
instruction of the Majority Lenders.

 

(b)                    Unless a contrary indication
appears in a Fundamental Document, any instructions given by the Majority
Lenders will be binding on all the Finance Parties.

 

(c)                     The Agent may refrain from
acting in accordance with the instructions of the Majority Lenders (or, if
appropriate, the Lenders) until it has received such 

 

59

 

security as it may require
for any cost, loss or liability which it may incur in complying with the
instructions.

 

(d)                    In the absence of
instructions from the Majority Lenders, (or, if appropriate, the Lenders) the
Agent may act (or refrain from taking action) as it considers to be in the best
interest of the Lenders.

 

(e)                     The Agent is not authorized
to act on behalf of a Lender (without first obtaining that Lender’s consent) in
any legal or arbitration proceedings relating to any Fundamental Document.

 

8.1.8                         Responsibility
for Documentation

 

Neither
the Agent nor any Arranger is:

 

(a)                    responsible for the
adequacy, accuracy and/or completeness of any information (whether oral or
written) supplied by the Agent, any Arranger, the Obligor or any other person
given in or in connection with any Fundamental Document; or

 

(b)                    responsible for the legality,
validity, effectiveness, adequacy or enforceability of any Fundamental Document
or any other agreement, arrangement or document entered into, made or executed
in anticipation of or in connection with any Fundamental Document.

 

8.1.9                         Exclusion
of Liability

 

(a)                    Without limiting paragraph (b) below,
the Agent will not be liable (including, without limitation, for negligence or
any other category of liability whatsoever) for any action taken by it under or
in connection with any Fundamental Document, unless directly caused by its
gross negligence or willful misconduct.

 

(b)                    No Party (other than the
Agent) may take any proceedings against any officer, employee or agent of the
Agent in respect of any claim it might have against the Agent or in respect of
any act or omission of any kind by that officer, employee or agent in relation
to any Fundamental Document and any officer, employee or agent of the Agent may
rely on this Clause.

 

(c)                     The Agent will not be liable
for any delay (or any related consequences) in crediting an account with an
amount required under the Fundamental Documents to be paid by the Agent if the
Agent has taken all necessary steps as soon as reasonably practicable to comply
with the regulations or operating procedures of any recognized clearing or
settlement system used by the Agent for that purpose.

 

60

 

(d)                    Nothing in this Agreement
shall oblige the Agent to carry out any “know your customer” or other checks in
relation to any person on behalf of any Lender and each Lender confirms to the
Agent that it is solely responsible for any such checks it is required to carry
out and that it may not rely on any statement in relation to such checks made
by the Agent.

 

8.1.10                  Lenders’
Indemnity to the Agent

 

Each
Lender shall (in proportion to its Ratable Share) indemnify the Agent, within
ten Business Days of demand, against any cost, loss or liability (including,
without limitation, for negligence or any other category of liability
whatsoever) incurred by the Agent (otherwise than by reason of the Agent’s
gross negligence or willful misconduct) in acting as Agent under the
Fundamental Documents (unless the Agent has been reimbursed by the Obligor
pursuant to a Fundamental Document).

 

8.1.11                  Resignation
of the Agent

 

(a)                    The Agent may resign and
appoint one of its Affiliates as a successor by giving notice to the other
Finance Parties and the Obligor.

 

(b)                    Alternatively the Agent may
resign by giving notice to the other Finance Parties and the Obligor, in which
case the Majority Lenders (after consultation with the Obligor) may appoint a
successor Agent with the consent of the Obligor (such consent not to be
unreasonably withheld or delayed).

 

(c)                     If the Majority Lenders have
not appointed a successor Agent in accordance with paragraph (b) above
within 30 days after notice of resignation was given, the Agent may appoint a
successor Agent with the consent of the Obligor (such consent not to be
unreasonably withheld or delayed).

 

(d)                    The retiring Agent shall, at
its own cost, make available to the successor Agent such documents and records
and provide such assistance as the successor Agent may reasonably request for
the purposes of performing its functions as Agent under the Fundamental
Documents.

 

(e)                     The Agent’s resignation
notice shall only take effect upon the appointment of a successor and the
acceptance by such successor to assume all responsibilities of the Agent
hereunder.

 

(f)                      Upon the
appointment of a successor, the retiring Agent shall be discharged from any
further obligation in respect of the Fundamental Documents but shall remain
entitled to the benefit of this Clause 8.1. 
Its successor and each of the other Parties shall have the same rights
and obligations amongst themselves as they would have had if such successor had
been an original Party.

 

61

 

(g)                     After consultation with the
Obligor, the Majority Lenders may, by notice to the Agent, require it to resign
in accordance with paragraph (b) above. 
In this event, the Agent shall resign in accordance with paragraph (b) above.

 

8.1.12                  Confidentiality

 

(a)                    In acting as agent for the
Finance Parties, the Agent shall be regarded as acting through its agency
division which shall be treated as a separate entity from any other of its
divisions or departments.

 

(b)                    If information is received
by another division or department of the Agent, it may be treated as
confidential to that division or department and the Agent shall not be deemed
to have notice of it.

 

8.1.13                  Relationship
with the Lenders

 

The
Agent may treat each Lender as a Lender, entitled to payments under this
Agreement and acting through its Facility Office unless it has received not
less than five Business Days’ prior notice from that Lender to the contrary in
accordance with the terms of this Agreement.

 

8.1.14                  Credit
Appraisal by the Lenders

 

(a)                    Without affecting the
responsibility of the Obligor for information supplied by it or on its behalf
in connection with any Fundamental Document, each Lender confirms to the Agent
and the Arrangers that it has been, and will continue to be, solely responsible
for making its own independent appraisal and investigation of all risks arising
under or in connection with any Fundamental Document including but not limited
to:

 

(i)                       the financial
condition, status and nature of each member of the Group;

 

(ii)                    the legality, validity,
effectiveness, adequacy or enforceability of any Fundamental Document and any
other agreement, arrangement or document entered into, made or executed in
anticipation of, under or in connection with any Fundamental Document;

 

(iii)                 whether that Lender has
recourse, and the nature and extent of that recourse, against any Party or any
of its respective assets under or in connection with any Fundamental Document,
the transactions contemplated by the Fundamental Documents or any other
agreement, arrangement or document entered into, made or executed in
anticipation of, under or in connection with any Fundamental Document; and

 

(iv)                the adequacy, accuracy
and/or completeness of any information provided by the Agent, any Arranger, any
Party or by any other person under or in connection with any Fundamental
Document, the 

 

62

 

transactions contemplated by
the Fundamental Documents or any other agreement, arrangement or document
entered into, made or executed in anticipation of, under or in connection with
any Fundamental Document.

 

8.1.15                  Reference
Bank

 

If
the Reference Bank ceases to be the Agent or a Lender, the Agent shall (in
consultation with the Obligor) appoint another Lender or an Affiliate of a
Lender to replace that Reference Bank.

 

8.1.16                  Deduction
from Amounts Payable by the Agent

 

If
any Party owes an amount to the Agent under the Fundamental Documents the Agent
may, after giving notice to that Party, deduct an amount not exceeding that
amount from any payment to that Party that the Agent would otherwise be obliged
to make under the Fundamental Documents and apply the amount deducted in or towards
satisfaction of the amount owed.  For the
purposes of the Fundamental Documents that Party shall be regarded as having
received any amount so deducted.

 

8.2                         Conduct of Business by the Finance Parties

 

8.2.1                         No provision of
this Agreement will:

 

(a)                    interfere with the right of
any Finance Party to arrange its affairs (tax or otherwise) in whatever manner
it thinks fit;

 

(b)                    oblige any Finance Party to
investigate or claim any credit, relief, remission or repayment available to it
or the extent, order and manner of any claim; or

 

(c)                     oblige any Finance Party to
disclose any information relating to its affairs (tax or otherwise) or any
computations in respect of Tax.

 

8.3                         Sharing Among the Finance Parties

 

8.3.1                         Payments
to Finance Parties

 

If
a Finance Party (a “Recovering Finance Party”)
receives or recovers any amount from the Obligor other than in accordance with
Clause 9.1 (Payment Mechanics)
and applies that amount to a payment due under the Fundamental Documents then:

 

(a)                    the Recovering Finance Party
shall, within three Business Days, notify details of the receipt or recovery,
to the Agent;

 

(b)                    the Agent shall determine
whether the receipt or recovery is in excess of the amount the Recovering
Finance Party would have been paid had the receipt or recovery been received or
made by the Agent and distributed in accordance 

 

63

 

with Clause 9.1 (Payment Mechanics), without taking account
of any tax which would be imposed on the Agent in relation to the receipt,
recovery or distribution; and

 

(c)                     the Recovering Finance Party
shall, within three Business Days of demand by the Agent, pay to the Agent an
amount (the “Sharing Payment”)
equal to such receipt or recovery less any amount which the Agent determines
may be retained by the Recovering Finance Party as its share of any payment to
be made, in accordance with sub-clause 9.1.5 (Partial
Payments).

 

8.3.2                         Redistribution
of Payments

 

The
Agent shall treat the Sharing Payment as if it had been paid by the Obligor and
distribute it between the Finance Parties (other than the Recovering Finance
Party) in accordance with sub-clause 9.1.5 (Partial
payments).

 

8.3.3                         Recovering
Finance Party’s Rights

 

(a)                    On a distribution by the
Agent under sub-clause 8.3.2 (Redistribution
of Payments), the Recovering Finance Party will be subrogated to the
rights of the Finance Parties which have shared in the redistribution.

 

(b)                    If and to the extent that
the Recovering Finance Party is not able to rely on its rights under paragraph (a) above,
the Obligor shall be liable to the Recovering Finance Party for a debt equal to
the Sharing Payment which is immediately due and payable.

 

8.3.4                         Reversal
of Redistribution

 

If
any part of the Sharing Payment received or recovered by a Recovering Finance
Party becomes repayable and is repaid by that Recovering Finance Party, then:

 

(a)                    each Finance Party which has
received a share of the relevant Sharing Payment pursuant to sub-clause 8.3.2 (Redistribution of Payments) shall, upon
request of the Agent, pay to the Agent for account of that Recovering Finance
Party an amount equal to the appropriate part of its share of the  Sharing Payment (together with an amount as
is necessary to reimburse that Recovering Finance Party for its proportion of
any interest on the Sharing Payment which that Recovering Finance Party is
required to pay); and

 

(b)                    that Recovering Finance
Party’s rights of subrogation in respect of any reimbursement shall be
cancelled and the Obligor will be liable to the reimbursing Finance Party for
the amount so reimbursed.

 

64

 

8.3.5                         Exceptions

 

(a)                   This Clause 8.3 shall not
apply to the extent that the Recovering Finance Party would not, after making
any payment pursuant to this Clause, have a valid and enforceable claim against
the Obligor.

 

(b)                   A Recovering Finance Party
is not obliged to share with any other Finance Party any amount which the
Recovering Finance Party has received or recovered as a result of taking legal
or arbitration proceedings, if:

 

(i)                      it notified
that other Finance Party of the legal or arbitration proceedings; and

 

(ii)                   that other Finance Party had
an opportunity to participate in those legal or arbitration proceedings but did
not do so as soon as reasonably practicable having received notice and did not
take separate legal or arbitration proceedings.

 

9.                               MISCELLANEOUS

 

9.1                       Payment Mechanics

 

9.1.1                         Payments
to the Agent

 

(a)                   On each date on which the
Obligor or a Lender is required to make a payment under a Fundamental Document,
the Obligor or Lender shall make the same available to the Agent (unless a contrary
indication appears in a Fundamental Document) for value on the due date at the
time and in such funds specified by the Agent as being customary at the time
for settlement of transactions in the relevant currency in the place of
payment.

 

(b)                   Payment shall be made to
such account in the principal financial center of the country of that currency
with such bank as the Agent specifies.

 

9.1.2                         Distributions
by the Agent

 

Each
payment received by the Agent under the Fundamental Documents for another Party
shall, subject to sub-clause 9.1.3 (Distributions
to the Obligor), sub-clause 9.1.4 (Clawback)
and sub-clause 8.1.16 (Deduction from
Amounts Payable by the Agent), be made available by the Agent as
soon as practicable after receipt to the Party entitled to receive payment in
accordance with this Agreement (in the case of a Lender, for the account of its
Facility Office), to such account as that Party may notify to the Agent by not
less than five Business Days’ notice with a bank in the principal financial center
of the country of that currency.

 

65

 

9.1.3                         Distributions
to the Obligor

 

The
Agent may (with the consent of the Obligor or in accordance with Clause 9.6 (Right of Set-off)) apply any amount
received by it for the Obligor in or towards payment (on the date and in the
currency and funds of receipt) of any amount due from the Obligor under the
Fundamental Documents or in or towards purchase of any amount of any currency
to be so applied.

 

9.1.4                         Clawback

 

(a)                   Where a sum is to be paid to
the Agent under the Fundamental Documents for another Party, the Agent is not
obliged to pay that sum to that other Party (or to enter into or perform any
related exchange contract) until it has been able to establish to its
satisfaction that it has actually received that sum.

 

(b)                   If the Agent pays an amount
to another Party and it proves to be the case that the Agent had not actually
received that amount, then the Party to whom that amount (or the proceeds of
any related exchange contract) was paid by the Agent shall on demand refund the
same to the Agent together with interest on that amount from the date of
payment to the date of receipt by the Agent, calculated by the Agent to reflect
its cost of funds.

 

9.1.5                         Partial
Payments

 

(a)                   If the Agent receives a
payment that is insufficient to discharge all the amounts then due and payable
by the Obligor under the Fundamental Documents, the Agent shall apply that
payment towards the obligations of the Obligor under the Fundamental Documents
in the following order:

 

(i)                      first, in or
towards payment pro rata of any unpaid fees, costs and expenses of the Agent
and the Security Agent under the Fundamental Documents;

 

(ii)                   secondly, in or towards
payment pro rata of any accrued interest, fee or commission due but unpaid
under this Agreement;

 

(iii)                thirdly, in or towards
payment pro rata of any principal due but unpaid under this Agreement; and

 

(iv)               fourthly, in or towards
payment pro rata of any other sum due but unpaid under the Fundamental
Documents.

 

(b)                   The Agent shall, if so
directed by the Majority Lenders, vary the order set out in paragraphs (a)(ii)
to (iv) above.

 

(c)                    Paragraphs (a) and (b) above
will override any appropriation made by the Obligor.

 

66

 

9.1.6                         No
set-off by Obligors

 

All
payments to be made by the Obligor under the Fundamental Documents shall be
calculated and be made without (and free and clear of any deduction for)
set-off or counterclaim.

 

9.1.7                         Business
Days

 

(a)                   Any payment which is due to
be made on a day that is not a Business Day shall be made on the next Business
Day in the same calendar month (if there is one) or the preceding Business Day
(if there is not).

 

(b)                   During any extension of the
due date for payment of any principal or Unpaid Sum under this Agreement
interest is payable on the principal or Unpaid Sum at the rate payable on the
original due date.

 

9.1.8                         Currency
of Account

 

(a)                   Subject to paragraphs (b) to
(e) below, the Base Currency is the currency of account and payment for any sum
due from the Obligor under any Fundamental Document.

 

(b)                   A repayment of an Unpaid Sum
shall be made in the currency in which that Unpaid Sum is denominated on its
due date.

 

(c)                    Each payment of interest
shall be made in the currency in which the sum in respect of which the interest
is payable was denominated when that interest accrued.

 

(d)                   Each payment in respect of
costs, expenses or taxes shall be made in the currency in which the costs,
expenses or taxes are incurred.

 

(e)                    Any amount expressed to be
payable in a currency other than the Base Currency shall be paid in that other
currency.

 

9.1.9                         Change
of Currency

 

(a)                   Unless otherwise prohibited
by law, if more than one currency or currency unit are at the same time
recognized by the central bank of any country as the lawful currency of that
country, then:

 

(i)                      any reference
in the Fundamental Documents to, and any obligations arising under the
Fundamental Documents in, the currency of that country shall be translated
into, or paid in, the currency or currency unit of that country designated by
the Agent (after consultation with the Obligor); and

 

67

 

(ii)                   any translation from one
currency or currency unit to another shall be at the official rate of exchange
recognized by the central bank for the conversion of that currency or currency
unit into the other, rounded up or down by the Agent (acting reasonably).

 

(b)                   If a change in any currency
of a country occurs, this Agreement will, to the extent the Agent (acting
reasonably and after consultation with the Obligor) specifies to be necessary,
be amended to comply with any generally accepted conventions and market
practice in the relevant interbank market and otherwise to reflect the change
in currency.

 

9.1.10                  Disruption
to Payment Systems etc.

 

If
either the Agent determines (in its reasonable discretion) that a Disruption
Event has occurred or the Agent is notified by the Obligor (in its reasonable
discretion) that a Disruption Event has occurred:

 

(a)                   the Agent may, and shall if
requested to do so by the Obligor, consult with the Obligor with a view to
agreeing with the Obligor such changes to the operation or administration of
the Facility as the Agent may deem necessary in the circumstances;

 

(b)                   the Agent shall not be
obliged to consult with the Obligor in relation to any changes mentioned in
paragraph (a) if, in its opinion, it is not practicable to do so in the
circumstances and, in any event, shall have no obligation to agree to such
changes;

 

(c)                    the Agent may consult with
the Finance Parties in relation to any changes mentioned in paragraph (a) but
shall not be obliged to do so if, in its opinion, it is not practicable to do
so in the circumstances;

 

(d)                   any such changes agreed upon
by the Agent and the Obligor shall (whether or not it is finally determined
that a Disruption Event has occurred) be binding upon the Parties as an
amendment to (or, as the case may be, waiver of) the terms of the Fundamental
Documents notwithstanding the provisions of Clause 9.2 (Amendments and Waivers);

 

(e)                    the Agent shall not be
liable for any damages, costs or losses whatsoever  (including, without limitation for
negligence, gross negligence or any other category of liability whatsoever but
not including any claim based on the fraud of the Agent) arising as a result of
its taking, or failing to take, any actions pursuant to or in connection with
this Clause 9.1; and

 

(f)                     the Agent shall notify the
Finance Parties of all changes agreed pursuant to paragraph (d) above.

 

68

 

9.2                        Amendments and Waivers

 

9.2.1                         No amendment or
waiver of any provision of this Agreement or any other Fundamental Document,
nor consent to any departure by the Obligor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent, the
Majority Lenders and the Obligor and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided that no such
amendment, waiver or consent shall:

 

(a)                   increase the maximum
aggregate amount of the Letters of Credit without the written consent each
Lender;

 

(b)                   increase the Commitment of
any Lender without the written consent of such Lender;

 

(c)                    reduce the amount, waive,
excuse or postpone the due date of any amount payable in respect of any Letter
of Credit or reduce the rate of interest thereon, or reduce any fees payable
hereunder, without the written consent of each Lender affected thereby;

 

(d)                   postpone the scheduled date
of expiration of any Commitment, without the written consent of each Lender
affected thereby;

 

(e)                    extend the expiration date
of any Letter of Credit beyond the Facility Termination Date without the
written consent of each Lender affected thereby;

 

(f)                     change in any manner the
obligations of the Lenders relating to the purchase of participations in
Letters of Credit without the written consent of each Lender;

 

(g)                    change any provision of this
Clause 9.2.1 or the definition of “Majority Lenders” or any other provision
hereof specifying the number or percentage of Lenders required to waive, amend
or modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender;

 

(h)                   release any Lien granted in
favor of the Security Agent with respect to all or substantially all of the
Collateral without the written consent of each Lender; or

 

(i)                       amend, modify
or otherwise affect the rights or duties of the Agent  or the Arrangers hereunder without the prior
written consent of the Agent or each Arranger, as the case may be.

 

9.2.2                         In the event
that the Obligor wishes to deposit an Investment in the Custodial Account that
is rated by a nationally or internationally-recognized ratings agency 

 

69

 

other than S&P, Moody’s
or Fitch, the Agent agrees to reasonably consider on a timely basis whether the
rating of such Investment may be considered the equivalent of a rating provided
by S&P, Moody’s or Fitch for purposes of the relevant provisions of this
Agreement and, if instructed to do so by the Lenders, to execute any amendment,
waiver or other writing relating thereto on a timely basis.

 

9.3                        Addresses for Notices

 

All
notices and other communications provided for hereunder shall be in writing
unless otherwise stated herein and shall be delivered by e-mail, fax, hand
delivery, or recognized courier service that provides delivery within two (2)
Business Days:

 

	
  if to Arch Reinsurance Ltd., at:

  
	
   

  
	
  Wessex House, 3rd Floor

  
	
  45 Reid Street

  
	
  Hamilton HM 12

  
	
  Bermuda

  
	
  Attn:

  	
  Controller

  
	
  Telephone:

  	
  +1
  (441) 278-9200

  
	
  Facsimile:

  	
  +1
  (441) 278-9230

  
	
  E-mail:

  	
  michelle.seymour@archreinsurance.bm

  
	
   

  	
   

  
	
  if to the Agent, at:

  
	
   

  
	
  ING Bank N.V., London Branch

  
	
  60 London Wall

  
	
  London EC2M 5TQ

  
	
  United Kingdom

  
	
  Attn:

  	
  Craig
  Baker, Agency Department

  
	
  Telephone:

  	
  +44
  20 7767 5617

  
	
  Facsimile:

  	
  +44 20 7767 7324

  
	
  E-mail:

  	
  craig.baker@uk.ing.com

  
	
   

  
	
  with a copy to:

  

 

70

 

	
  Paul Meade

  
	
  Telephone: +44 20 7767 5901

  
	
  Facsimile:

  	
  +44
  20 7767 7507

  
	
  E-mail:

  	
  paul.meade@uk.ing.com

  
	
   

  	
   

  
	
  and

  	
   

  
	
   

  	
   

  
	
  Lois Dewhurst

  
	
  E-mail:

  	
  lois.dewhurst@uk.ing.com

  

 

if
to an Original Lender, at the address set forth under such Original Lender’s
name on its signature page hereto

 

and
shall be effective when delivered at the address specified in or pursuant to
this Clause 9.3, or such other address notified to the other party in writing.

 

9.4                        Successors and Assigns

 

This
Agreement is a continuing obligation of the Obligor and shall, until the date
on which all amounts due and owing hereunder are paid in full (a) be binding
upon the Obligor, its successors and assigns and (b) inure to the benefit of
and be enforceable by the Agent and the Lenders and its successors and assigns,
provided  that any
assignment of this Agreement or any part hereof by the Obligor shall be void.

 

9.5                        Payment of Expenses and Taxes; Indemnities

 

9.5.1                         The Obligor
hereby agrees to (a) pay or reimburse the Agent and each Lender for all their
respective out-of-pocket costs and expenses incurred in connection with the
development, preparation and attention to the execution of the Fundamental
Documents, and of documents embodying or relating to amendments, waivers or
consents with respect to any of the foregoing, including the reasonable fees
and out-of-pocket costs and expenses of counsel to the Agent and each Lender,
(b) pay and save the Agent and each Lender from all registration, recording and
filing fees and all liabilities with respect to, or resulting from, any delay
by the Obligor in paying stamp and other Taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, any
of the Fundamental Documents or any amendment, waiver or consent with respect
thereto or the consummation of any of the transactions contemplated thereby,
(c) pay or reimburse the Agent and each Lender for all its out-of-pocket costs
and expenses incurred in connection with the preparation and attention to the
execution and issuance of Letters of Credit issued at the request of the
Obligor and (d) pay or reimburse the Agent and each Lender for all
out-of-pocket costs and expenses incurred by it in connection with the
enforcement or preservation of any rights against the Obligor under or in
respect of this Agreement and the other Fundamental Documents (including the
fees and expenses of lawyers retained by 

 

71

 

the Agent and each Lender,
including the allocated costs of internal counsel, and remuneration paid to
agents and experts not in the full-time employ of the Agent and each Lender for
services rendered on behalf of the Agent and each Lender) on a full indemnity
basis.  All such amounts will be paid by
the Obligor on demand.

 

9.5.2                         The Obligor
agrees to indemnify the Agent and any Lender, and their respective directors,
officers, employees, agents and Affiliates from, and hold each of them harmless
against, any and all claims, damages, losses, liabilities, costs and expenses
(including without limitation, reasonable fees and disbursements of counsel)
arising as a consequence of (a) any failure by the Obligor to pay the Agent or
any Lender, as required under this Agreement, punctually on the due date
thereof, any amount payable by the Obligor to the Agent or any Lender or (b)
the acceleration, in accordance with the terms of this Agreement, of the time
of payment of any of the Reimbursement Obligations, except to the extent caused
by the Agent’s or such Lender’s negligence or willful misconduct or breach of
this Agreement.  Such losses, costs or
expenses may include, without limitation, (i) any costs incurred by the Agent
or any Lender in carrying funds to cover any overdue principal, overdue
interest, or any other overdue sums payable by the Obligor to the Agent or any
Lender or (ii) any losses incurred or sustained by the Agent or any Lender in
liquidating or reemploying funds acquired by the Lender from third parties.

 

9.5.3                         The Obligor
agrees to indemnify the Agent, each Arranger, and any Lender, and their
respective directors, officers, employees, agents and Affiliates from, and hold
each of them harmless against, any and all claims, damages, liabilities,
losses, costs and expenses (including without limitation, reasonable fees and
disbursements of counsel) arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) with respect to the Obligor relating to any
transaction contemplated by this Agreement or any other Fundamental Document,
any actions or omissions of the Obligor or any of the Obligor’s directors,
officers, employees or agents in connection with this Agreement or any other
Fundamental Document, including without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation or
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).

 

9.6                        Right of Set-Off

 

The
Obligor agrees that, in addition to (and without limitation of) any right of
setoff, banker’s Lien or counterclaim a Finance Party may otherwise have, such
Finance Party shall be entitled, at its option, to offset balances (general or
special, time or demand, provisional or final, and regardless of whether such
balances are then due to the Obligor) held by it for the account of the Obligor
at any of such Finance Party’s offices, in U.S. Dollars or in any other
currency, against any amount payable by the Obligor under this Agreement or any

 

72

 

Letter
of Credit that is not paid when due, taking into account any applicable grace
period, in which case it shall promptly notify the Obligor thereof, provided  that such Finance Party’s failure to give
such notice shall not affect the validity thereof.  In furtherance thereof, the Obligor hereby
grants to such Finance Party, a continuing Lien, security interest and right of
setoff as security for all liabilities and obligations to such Finance Party,
whether now existing or hereafter arising, upon and against all deposits,
credits, collateral and property of the Obligor, now or hereafter in the
possession, custody, safekeeping or control of such Finance Party or any entity
under the control of the Custodian and its successors and assigns or in transit
to any of them.  At any time after the
occurrence of an Event of Default, without demand or notice (any such notice
being expressly waived by the Obligor), each Finance Party may setoff the same
or any part thereof and apply the same to any liability or obligation of the
Obligor even though unmatured and regardless of the adequacy of any other
collateral securing the Obligor’s obligations hereunder.  ANY AND ALL RIGHTS TO REQUIRE A FINANCE PARTY
TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE OBLIGOR’S OBLIGATIONS HEREUNDER, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE OBLIGOR,
ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

9.7                        Governing Law

 

This
Agreement, and the rights and obligations of the parties hereunder, shall be
governed by and construed in accordance with the laws of the State of New York
without giving effect to the choice of law or conflicts of law principles
thereof other than Section 5-1401 of the General Obligations Law of the State
of New York.

 

9.8                        Consent to Jurisdiction

 

The
Obligor irrevocably and unconditionally submits, for itself and its property,
to the jurisdiction of the courts of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or any other Fundamental Document
or for recognition or enforcement of any judgment, and each of the parties
hereto irrevocably and unconditionally agrees, to the fullest extent permitted
by applicable law, that all claims in respect of any such action or proceeding
may be heard and determined in such New York state court or in such federal
court.  Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.  The Obligor
irrevocably designates and appoints CT Corporation, located at 111 Eighth
Avenue, New York, New York 10011, U.S.A. (the “Process Agent”) as its authorized agent upon which process may
be served in any action, suit or proceeding arising out of or relating to this
Agreement that may be instituted in any court referred to in this Clause.  The Obligor hereby agrees that service of any
process, summons, notice or document by U.S. registered mail addressed to the
Process Agent, with written notice of said

 

73

 

service
to the Obligor at the address provided for the Obligor in Clause 9.3 (Addresses for Notices) shall be effective
service of process for any action, suit or proceeding brought in any such
court.  The Obligor further agrees to
take any and all action, including execution and filing of any and all action,
including execution and filing of any and all such documents and instruments,
as may be necessary to continue the designation and appointment of the Process
Agent so long as this Agreement is in effect. 
The Obligor hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue to any suit, action or proceeding arising
out or relating to this Agreement brought in any federal or state courts
sitting in the State of New York and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. 
Notwithstanding the foregoing, the Agent and the Lenders may sue the
Obligor in any jurisdiction where the Obligor or any of its assets may be found
and may serve legal process upon the Obligor in any other manner permitted by
law.

 

9.9        Waiver of Jury Trial

 

EACH
PARTY HERETO MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENTS
CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT,
COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS OR ACTIONS OF THE AGENT RELATING TO THE ADMINISTRATION OF
THIS AGREEMENT OR ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NO
PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. 
EXCEPT AS PROHIBITED BY LAW, THE OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.  THE OBLIGOR CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER.  THIS
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE AGENT TO ENTER INTO THIS
AGREEMENT AND THE OTHER FUNDAMENTAL DOCUMENTS.

 

9.10      Interest

 

All
agreements between the Agent, the Lenders and the Obligor are hereby expressly
limited so that in no contingency or event whatsoever shall the amount paid or
agreed to be paid to the Agent or the Lenders for the use or the forbearance of
the indebtedness evidenced hereby exceed the maximum permissible under
applicable law.  As used herein, the term
“applicable 

 

74

 

law”
shall mean the law in effect as of the date hereof; provided, however, that in the event there is a change in the
law which results in a higher permissible rate of interest, then this Agreement
shall be governed by such new law as of its effective date.  In this regard, it is expressly agreed that
it is the intent of the Agent, the Lenders and the Obligor in the execution,
delivery and acceptance of this Agreement to contract in strict compliance with
the laws of the State of New York from time to time in effect.  If, under or from any circumstances
whatsoever, fulfillment of any provision hereof or of any of the agreements
executed herewith at the time of performance of such provision shall be due,
shall involve transcending the limit of such validity prescribed by applicable
law, then the obligation to be fulfilled shall automatically be reduced to the
limits of such validity, and if under or from circumstances whatsoever the
Agent or a Lender should ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance evidenced hereby and not to
the payment of interest.  This provision
shall control every other provision of all agreements between the Obligor and
the Agent and the Lenders.

 

9.11      Confidentiality

 

The
Agent and the Lenders agree to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to their
respective (and their respective Affiliates’) directors, officers, employees
and agents, including accountants, legal counsel and other advisors (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential in accordance with the terms of this Agreement, (b) to
the extent requested by any regulatory authority or self-regulatory body, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or the enforcement of rights hereunder, (f) with
the consent of the Obligor or (g) to the extent such Information becomes
publicly available other than as a result of a breach of this Clause 9.11.  For the purposes of this Clause 9.11, “Information” means all information received
by the Agent and the Lenders relating to the Parent or Obligor or any
Subsidiary of the Parent or Obligor or their respective businesses, other than
any such information that is available to the Agent and the Lenders on a
non-confidential basis prior to disclosure by the Parent or Obligor.  Any Person required to maintain the
confidentiality of Information as provided in this Clause 9.11 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information or
the Agent and the Lenders have treated such Information in a manner consistent
with banking industry standards for the treatment of confidential
information.  Notwithstanding anything
herein to the contrary, each party to this Agreement (and any employee,
representative or other agent of each such party) may disclose to any and all
Persons, without limitation of any kind, the U.S. federal income tax treatment
and the U.S. federal income tax structure of the transactions contemplated
hereby and all materials of any kind (including opinions or other tax analyses)
that are 

 

75

 

provided
to it relating to such tax treatment and tax structure.  However, no disclosure of any information
relating to such tax treatment or tax structure may be made to the extent
nondisclosure is reasonably necessary in order to comply with applicable
securities laws.  The provisions of this
Clause 9.11 shall survive the Facility Termination Date and the Letter of
Credit Obligations hereunder.

 

9.12      Table of
Contents and Captions

 

The
Table of Contents hereof and captions herein are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.

 

9.13      Integration

 

This
Agreement is intended by the parties as the final, complete and exclusive
statement of the transactions evidenced by this Letter of Credit and
Reimbursement Agreement.  All prior or
contemporaneous promises, agreements and understandings, whether oral or
written, are deemed to be superseded by this Agreement, and no party is relying
on any promise, agreement or understanding not set forth in this Agreement.

 

9.14      Counterparts

 

This
Agreement may be executed in multiple counterparts each of which shall be an
original and all of which when taken together shall constitute but one and the
same Agreement.

 

76

 

IN WITNESS WHEREOF, the parties have caused
this Agreement to be duly executed and delivered by their respective officers,
as an instrument under seal, as of the date first above written.

 

	
  ARCH REINSURANCE LTD.,

  	
   

  
	
  as Obligor

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Nicolas Papadopoulo

  	
   

  
	
   

  	
   

  
	
  Name: Nicolas Papadopoulo

  	
   

  
	
   

  	
   

  
	
  Title:
  President & CEO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ING BANK N.V., LONDON BRANCH,

  	
   

  
	
  as
  Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  NJ Marchant

  	
   

  
	
   

  	
   

  
	
  Name:
  NJ Marchant

  	
   

  
	
   

  	
   

  
	
  Title:
  Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  M.E.R. Sharman

  	
   

  
	
   

  	
   

  
	
  Name:
  M.E.R. Sharman

  	
   

  
	
   

  	
   

  
	
  Title:
  Managing Director

  	
   

  

 

Signature Page to

Letter of Credit and Reimbursement Agreement

 

 

	
  ING BANK N.V., LONDON BRANCH,

  	
   

  
	
  as
  an Original Lender

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
  /s/
  NJ Marchant

  	
   

  
	
   

  	
   

  
	
  Name:
  NJ Marchant

  	
   

  
	
   

  	
   

  
	
  Title:
  Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
  /s/
  M.E.R. Sharman

  	
   

  
	
   

  	
   

  
	
  Name:
  M.E.R. Sharman

  	
   

  
	
   

  	
   

  
	
  Title:
  Managing Director

  	
   

  

 

 

	
  Address:

  	
  ING
  Bank N.V., London Branch

  
	
   

  	
  60
  London Wall

  
	
   

  	
  London
  EC2M 5TQ

  
	
   

  	
  United
  Kingdom

  
	
   

  	
   

  
	
   

  	
  Attention:
  Paul Meade

  
	
   

  	
  Tel:
  +44 (0) 20 7767 5901

  
	
   

  	
  Fax:
  +44 (0) 20 7767 7507

  
	
   

  	
  Email:
  paul.meade@uk.ing.com

  
	
   

  	
   

  
	
   

  	
  With
  a copy to:

  
	
   

  	
   

  
	
   

  	
  Lois
  Dewhurst

  
	
   

  	
  Email:
  lois.dewhurst@uk.ing.com

  

 

Signature Page to

Letter of Credit and Reimbursement Agreement

 

 

	
  LLOYDS TSB BANK PLC,

  	
   

  
	
  as
  an Original Lender

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Mark Jackson

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  Mark
  Jackson

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Manager,
  Relationship Support

  	
   

  
	
   

  	
   

  
	
  Address:

  	
  Lloyds
  TSB Corporate Markets

  
	
   

  	
  1st
  Floor, 25 Gresham Street

  
	
   

  	
  London
  EC2V 7HN

  
	
   

  	
  United
  Kingdom

  
	
   

  	
   

  
	
   

  	
  Attention:
  Mark Jackson

  
	
   

  	
  Telephone
  +44 20 7661 4758

  
	
   

  	
  Fax
  +44 20 7661 4790

  
	
   

  	
  Email:
  mark.jackson2@lloydstsb.co.uk

  
				

 

Signature Page to

Letter of Credit and Reimbursement Agreement

 

 

	
  ING BANK N.V., LONDON BRANCH,

  	
   

  
	
  as
  an Arranger

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  NJ Marchant

  	
   

  
	
   

  	
   

  
	
  Name:
  NJ Marchant

  	
   

  
	
   

  	
   

  
	
  Title:
  Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
  /s/
  M.E.R. Sharman

  	
   

  
	
   

  	
   

  
	
  Name:
  M.E.R. Sharman

  	
   

  
	
   

  	
   

  
	
  Title:
  Managing Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LLOYDS TSB BANK PLC,

  	
   

  
	
  as
  an Arranger

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  

 

Signature Page to

Letter of Credit and Reimbursement Agreement

 

 

SCHEDULE 1

LENDER COMMITMENTS

 

	
  Name of Original Lender

  	
   

  	
  Commitment

  (in pounds sterling)

  	
   

  	
  Ratable Share

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ING Bank N.V., London Branch

  	
   

  	
  £

  	
  25,000,000

  	
   

  	
  50.00000000

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Lloyds TSB Bank plc

  	
   

  	
  £

  	
  25,000,000

  	
   

  	
  50.00000000

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  £

  	
  50,000,000

  	
   

  	
  100.00000000

  	
  %

  

 

81

 

SCHEDULE 2(1)

EXISTING ENCUMBRANCES

 

1.           Under the Agreement, the
Obligor pledged certain cash and securities held by the Obligor to secure its
own obligations for the letters of credit issued at the Obligor’s request
thereunder

 

2.           Under the JPMorgan Credit
Agreement, the Obligor, the Obligor and other Subsidiaries of the Parent
pledged certain cash and securities held by such Persons to secure their
obligations for letters of credit issued at such Persons’ requests thereunder.

 

3.           Under the Citibank Agreement,
the Obligor pledged certain cash and cash securities to secure its obligations
for letters of credit issued at Obligor’s request.

 

4.           From time to time and in the
ordinary course of business, Alternative Re Limited (“Alt Re Ltd”) issues letters of credit from
certain U.S. banks to certain Subsidiaries of the Parent and other insurance
company cedants.  Alt Re Ltd has also
established approved reinsurance trusts for the credit of certain Subsidiaries
of the Parent. In the event of a default, or failure to pay losses or other
amounts by such Subsidiaries under insurance policies written by those
Subsidiaries, there may be reimbursement obligations.

 

5.           The trust and other custody
agreements listed below exist to secure reinsurance recoverables owed to certain
Subsidiaries of the Parent by certain reinsurers (which may include
Subsidiaries of the Parent) under reinsurance agreements.  Pursuant to such trust agreements, the
reinsurers have granted such Subsidiaries a security interest in the investment
securities (consisting of, at any given time, cash, investment securities and
obligations and other government securities and obligations) placed in such
trust or other custody accounts:

 

5.1           Custody Agreement made as of
September 20, 2001 between Obligor and PNC Bank (for the benefit of
American Independent Insurance Company, a former subsidiary of the Parent which
was sold to a third party in 2004);

 

5.2           Trust Agreement, dated as of
June 2, 2004 (as amended and assigned from The Bank of New York (“BNY”), as trustee, to The Bank of New York
Mellon (successor by law to Mellon Bank, N.A.) (“BNY Mellon”), as trustee, on October 1, 2007), by and
among Arch Reinsurance Company (“ARC”),
as beneficiary, Obligor, as grantor, and BNY Mellon, as trustee;

 

(1)  Capitalized
terms used and not otherwise defined in this Schedule 2 shall have the meanings
set forth in the Letter of Credit and Reimbursement Agreement (and related
Schedules) dated as of November 18, 2010 (“Agreement”) by and among Arch
Reinsurance Ltd., ING Bank N.V., London Branch as agent for the Finance
Parties, ING Bank N.V., London Branch and Lloyds TSB Bank plc as Lenders,
and ING Bank N.V., London Branch and Lloyds TSB Bank plc as mandated lead
arrangers.

 

82

 

5.3           Trust Agreement, dated as of
May 1, 2004 (as amended and assigned from BNY, as trustee, to Mellon, as
trustee, on October 1, 2007), by and among Arch Insurance Company (“AIC”), as beneficiary, Obligor, as grantor,
and BNY Mellon, as trustee;

 

5.4           Reinsurance Trust Agreement,
dated as of October 1, 2007 (as amended by the First Amendment as of December 2,
2009), by and among Arch Insurance Company (Europe) Limited (“Arch Europe”), as beneficiary, Obligor, as
grantor, and BNY Mellon, as trustee;

 

5.5           Trust Agreement effective January 1,
2004 (as amended and assigned from BNY, as trustee, to Mellon, as trustee, on October 1,
2007) by and among ARC, as grantor, Odyssey Re and affiliated insurers, as
beneficiaries, and BNY Mellon, as trustee;

 

5.6           Trust Agreement, dated as of
June 21, 2004, by and among Obligor, as grantor, Lombard General Insurance
Company of Canada, as beneficiary, and the Royal Trust Corporation of Canada,
as trustee, and the Superintendent of Financial Institutions of Canada;

 

5.7           Reinsurance Custody
Agreement, dated as of October 27, 2003, by and among Obligor, the
Canadian Lawyers Insurance Association and The Royal Trust Company;

 

5.8           Trust Agreement effective August 7,
2004 (as amended and assigned from BNY, as trustee, to Mellon, as trustee, on October 1,
2007), by and among Obligor, as grantor, Odyssey Re and affiliated insurers, as
beneficiaries, and BNY, as trustee;

 

5.9           Trust Agreement, dated as of
February 22, 2007, by and among ARC, as grantor, ACE American Insurance
Company and the other insurance companies listed therein, as beneficiaries, and
BNY Mellon, as trustee;

 

5.10         Trust Agreement, dated as of
March 2007, by and among Obligor, as grantor, ACE American Insurance
Company and other insurance companies listed therein as beneficiaries, and BNY
Mellon, as trustee;

 

5.11         ARC may enter into a trust
agreement pursuant to the Master Reinsurance Security Agreement, dated as of April 8,
2004, between ARC, to be the grantor, and American International Group, Inc.,
to be the beneficiary;

 

5.12         Trust Agreement dated as of October 25,
2004 by and among AIC, as grantor, the Royal Trust Corporation of Canada, as
trustee, and the Superintendent of Financial Institutions of Canada;

 

5.13         Trust Agreement dated as of February 22,
2006 and effective as of March 14, 2006 (as amended and assigned from BNY,
as trustee, to Mellon, as trustee, on October 1, 2007), between Arch
Europe, as grantor, and BNY Mellon, as trustee;

 

83

 

5.14         Trust Agreement dated as of December 1,
2005 by and among Obligor, as grantor, American Re-Insurance Company, as
beneficiary, and the Royal Trust Corporation of Canada, as trustee, and the
Superintendent of Financial Institutions of Canada; and

 

5.15         Pledge and Security dated as
of June 27, 2006 (as amended with reference to the assignment by BNY
Mellon, as securities intermediary under a related account control agreement,
to Mellon, as securities intermediary, on October 1, 2007), between
Obligor, as pledgor, and the Royal Bank of Canada, as pledgee.

 

6.           For avoidance of doubt, in
addition to being permissible under sub-paragraph (b)(ii) of sub-clause
5.6.1 of the Agreement, the items set forth in this Schedule 2 include Liens
permitted under sub-clause 5.6.1 of the Agreement.

 

84

 

SCHEDULE 3(2)

EXISTING INDEBTEDNESS

 

1.           From time to time and in the
ordinary course of business, Alt Re Ltd issues letters of credit from certain
U.S. banks to certain Subsidiaries of the Parent and other insurance company
cedants.  Alt Re Ltd has also established
approved reinsurance trusts for the credit of certain Subsidiaries of the
Parent. In the event of a default, or failure to pay losses or other amounts by
such Subsidiaries under insurance policies written by those Subsidiaries, there
may be reimbursement obligations.

 

2.           Under (i) certain
investment management agreements (and subject to the guidelines thereto)
between the Parent and certain Subsidiaries of the Parent and third party investment
advisers and Arch Investment Management Ltd., a subsidiary of Parent and (ii) other
arrangements or agreements which the Parent and its Subsidiaries may enter into
from time to time in the ordinary course of business, those entities may enter
into Interest Rate Hedging Obligations and Credit Protection Arrangements to
manage and protect against interest rate risk, currency risk and credit risk.

 

3.           Loan from ARC to Capital
Protection Insurance Services, LLC, one of its investees, originally issued in April 2010
in the principal amount of up to $3,000.

 

4.           As part of its ordinary
course U.S. surety operations, AIC and ARC may be called on to indemnify one or
more third party insurance companies in connection with surety bonds issued at
the request of AIC.  The aggregate amount
of such indemnification would not exceed $10 million in any calendar year.  Such indemnification obligation would arise
in a case where AIC has written performance and/or payment bonds as surety for
a general contractor (“Principal”),
but is unable because of the requirements of the beneficiary or payee of the
bond (“Obligee”) to issue a further bond (“Release of Stop Notice bond”) in favor of the Obligee where
there is a dispute between the Principal and a claimant.  In the event of such dispute, the claimant
may request that the Obligee suspend payments to the Principal and issuance of
a Release of Stop Notice bond permits payment to continue to the
Principal.  In such event AIC will
request a third party insurer to issue a Release of Stop Notice bond and AIC
and ARC will indemnify such insurer in connection therewith.

 

5.           Please also refer to Items
2, 3 and 4 of Schedule 2 (Existing
Encumbrances).

 

(2)  Capitalized
terms used and not otherwise defined in this Schedule 3 shall have the meanings
set forth in the Letter of Credit and Reimbursement Agreement (and related
Schedules) dated as of November 18, 2010 (“Agreement”) by and among Arch
Reinsurance Ltd., ING Bank N.V., London Branch as agent for the Finance
Parties, ING Bank N.V., London Branch and Lloyds TSB Bank plc as Lenders,
and ING Bank N.V., London Branch and Lloyds TSB Bank plc as mandated lead
arrangers.

 

85

 

SCHEDULE 4

DISPOSITIONS

 

None.

 

86

 

Exhibit A

 

Form of Letters of Credit

 

A-1

 

Part A

Form of Letter of Credit

 

To:          [·]

 

	
   

  	
  Dated

  	
   

  	
  (1)

  

 

Dear
Sirs:

 

Irrevocable
Standby Letter of Credit No. [                                     ]

 

Re:  Arch Reinsurance Ltd. (the “Applicant”)

 

This
Irrevocable Standby Letter of Credit (the “Credit”)
is issued by the banks whose names are set out in Schedule 1 hereto (the “Issuing Banks”, and each an “Issuing Bank”) in favor of [·] (the “Beneficiary”)
on the following terms:

 

1.           Subject to the terms hereof,
the Issuing Banks shall make payments within two business days of demand on ING
Bank N.V., London Branch (the “Agent”)
in accordance with paragraph 4 below.

 

2.           Upon a demand being made by
the Beneficiary pursuant to paragraph 4 below each Issuing Bank shall pay that
proportion of the amount demanded which is equal to the proportion which its
Commitment set out in Schedule 1 hereto bears to the aggregate Commitments of
all the Issuing Banks set out on Schedule 1 hereto provided that the obligations of the Issuing Banks under this
Letter of Credit shall be several and no Issuing Bank shall be required to pay
an amount exceeding its Commitment set out in Schedule 1 hereto and the Issuing
Banks shall not be obliged to make payments hereunder in aggregate exceeding a
maximum amount of [$/£ [·]]. Any payment
by an Issuing Bank hereunder shall be made in [U.S. dollars/sterling] to the
Beneficiary’s account specified in the demand made by the Beneficiary pursuant
to paragraph 4 below.

 

3.           This Letter of Credit is
effective from
[                                ]
(the “Commencement Date”) and will
expire on the Final Expiration Date. 
This Letter of Credit shall remain in force until we give you not less
than four years notice in writing terminating the same on the fourth
anniversary of the Commencement Date or on any date subsequent thereto as
specified in such notice (the “Final
Expiration Date”), our notice to be sent by registered mail or
equivalent delivery service for the attention of the [·], at the above address.

 

4.           Subject to paragraph 3
above, each Issuing Bank shall pay to the Beneficiary under this Letter of
Credit upon presentation of a demand by the Beneficiary on the Agent, ING
Bank N.V., London Branch at [·],
marked for the attention of [·] substantially
in the form set out in Schedule 2 hereto the amount specified therein (which
amount shall not, when 

 

(1)  Date of Letter of Credit.

 

A-2

 

aggregated with all other
amounts paid by such Issuing Banks to the Beneficiary under this Letter of
Credit, exceed the maximum amount referred to in paragraph 2 above).

 

5.           The Agent has signed this
Letter of Credit as agent for disclosed principals and accordingly shall be
under no obligation to the Beneficiary hereunder other than in its capacity as
an Agent.

 

6.           All charges are for the
Applicant’s account.

 

7.           Subject to any contrary
indication herein, this Letter of Credit is subject to the International
Standby Practices — ISP98 (1998 publication — International Chamber of Commerce
Publication No. 590).

 

8.           This Letter of Credit shall
be governed by and interpreted in accordance with English law and the Issuing
Banks hereby irrevocably submit to the jurisdiction of the High Court of
Justice in England.

 

9.           Each of the Issuing Banks
engages with the Beneficiary that demands made under and in compliance with the
terms of this Letter of Credit will be duly honored on presentation.

 

	
   

  	
  Yours
  faithfully,

  
	
   

  	
   

  
	
   

  	
  ING
  BANK N.V., LONDON BRANCH

  
	
   

  	
  as
  agent

  
	
   

  	
   

  
	
   

  	
  for
  and on behalf of

  
	
   

  	
  [Names
  of all Issuing Banks]

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
   

  
	
   

  	
  Title:

  

 

A-3

 

Schedule 1

Issuing Banks’ Commitments

 

	
  Name and Address of Issuing Bank

  	
   

  	
  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total
  Value

  	
   

  	
   

  	
   

  

 

A-4

 

Schedule 2

Form of Demand

 

[on Beneficiary letterhead]

 

[Issuing
Bank Address]

 

Dear
Sir/Madam

 

LETTER
OF CREDIT NO.

 

We
refer to the Letter of Credit above.  We
hereby demand payment in accordance with the terms of the Letter of Credit to
our order the amount of [$/£]                        .   The account details are as follows:

 

	
  [Name
  of bank and address]

  	
  Sort
  Code [·]

  
	
  [·]

  	
   

  	
  Account
  [·]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Yours
  faithfully,

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  

 

A-5

 

Part B

Form of Lender’s Authorization Letter

 

[LETTER HEAD OF LENDER(S) AUTHORIZING ING BANK N.V., LONDON BRANCH
TO ISSUE LETTERS OF CREDIT]

 

To:          Each Beneficiary of Letters of Credit (as defined
below)

 

We,
                                                                             
(the “Lender”), hereby confirm the following:

 

1.           We have authorized ING Bank
N.V., London Branch to issue from time to time letters of credit, including
amendments to letters of credit, (the “Letters
of Credit”) as our agent pursuant to the Letter of Credit and
Reimbursement Agreement dated as of November 18, 2010 (as may be amended,
amended and restated, supplemented or otherwise modified from time to time).

 

2.           The execution and delivery
by ING Bank N.V., London Branch on behalf of the Lender of each Letter of
Credit has been duly authorized by all necessary action on the part of the
Lender.

 

3.           The obligations of the
Lender under any Letters of Credit issued by ING Bank N.V., London Branch as
our agent constitute the Lender’s legal, valid and binding obligations.

 

	
   

  	
   

  
	
   

  	
   

  
	
  Signature
  of [Company Secretary]

  	
   

  
	
  or
  other authorised signatory for and behalf of

  	
   

  
	
  [Lender]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date

  	
   

  

 

A-6

 

Exhibit B

 

Arch Reinsurance Security Agreement

 

 

	
  

  	
  CLIFFORD CHANCE LLP

  

 

 

DATED AS OF NOVEMBER 18, 2010

 

ARCH REINSURANCE LTD.

AS DEBTOR

 

and

 

ING BANK N.V., LONDON BRANCH

AS SECURITY AGENT

 

 

SECURITY AGREEMENT

 

 

 

CONTENTS

 

	
  Clause

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Grant Of Security

  	
   

  	
  B-1

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Security For Obligations

  	
   

  	
  B-3

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Delivery Of Collateral

  	
   

  	
  B-3

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Debtor Remains Liable

  	
   

  	
  B-3

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Representations And Warranties

  	
   

  	
  B-4

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Further Assurances: Supplements

  	
   

  	
  B-5

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Additional Covenants

  	
   

  	
  B-6

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Security Agent Appointed Attorney-In-Fact

  	
   

  	
  B-7

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Security Agent May Perform

  	
   

  	
  B-8

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  The Security Agent

  	
   

  	
  B-8

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Remedies Upon Default; Application Of Collateral

  	
   

  	
  B-8

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  Amendments, Etc.

  	
   

  	
  B-9

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Indemnity And Expenses

  	
   

  	
  B-9

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  Addresses For Notices

  	
   

  	
  B-10

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  No Waiver; Cumulative Remedies

  	
   

  	
  B-10

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  Continuing Security Interest

  	
   

  	
  B-11

  
	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  Further Indemnification

  	
   

  	
  B-11

  
	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  Governing Law; Terms

  	
   

  	
  B-11

  
	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  No Petition In Bankruptcy

  	
   

  	
  B-11

  
	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
  Waiver Of Jury Trial

  	
   

  	
  B-11

  
	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
  Jurisdiction; Consent To Service Of Process

  	
   

  	
  B-12

  
	
   

  	
   

  	
   

  	
   

  
	
  22.

  	
  Headings

  	
   

  	
  B-13

  
	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
  Severability

  	
   

  	
  B-13

  
	
   

  	
   

  	
   

  	
   

  
	
  24.

  	
  Counterparts

  	
   

  	
  B-13

  

 

i

 

SECURITY AGREEMENT dated as of November 18,
2010 (as may be amended, amended and restated, supplemented or otherwise
modified from time to time, this “Agreement”)

 

BETWEEN:

 

(1)         ARCH
REINSURANCE LTD., a corporation organized and existing under the
laws of Bermuda, (the “Debtor”);
and

 

(2)         ING BANK
N.V., LONDON BRANCH, (the “Security
Agent” for and on behalf of the Finance Parties, as defined in the
Letter of Credit Agreement).

 

WHEREAS:

 

(A)        The Security Agent and
certain lenders (the “Lenders”)
and the Debtor, have entered into a Letter of Credit and Reimbursement Agreement
dated as of November 18, 2010 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the “Letter of Credit Agreement”).

 

(B)         It is a condition precedent
to the Letter of Credit Agreement and to the issuance of Letters of Credit
under the Letter of Credit Agreement that the Debtor execute and deliver to the
Security Agent, for the benefit of the Finance Parties (collectively the “Secured Parties”), this Agreement and
pledge and grant to the Security Agent for the benefit of the Secured Parties a
first priority security interest in the Collateral, as such term is defined
below, held by or on behalf of the Debtor from time to time and other rights
and interests contemplated by this Agreement.

 

(C)         Pursuant to the terms of a Custody
Agreement (the “Custodian Agreement”)
dated as of October 1, 2007, the Custodian has established a Custodial
Account (the “Custodial Account”),
in the name of the Debtor and the Debtor hereby grants to the Security Agent
for the benefit of the Secured Parties, a first priority security interest in
the Collateral, including the Custodial Account.

 

NOW, THEREFORE, in consideration of the
premises and in order to induce the Agent to issue on behalf of the Lenders
Letters of Credit for the account of the Debtor under the Letter of Credit
Agreement and in order to induce the Lenders to participate in each such Letter
of Credit, the Debtor hereby agrees with the Security Agent, as follows (all
capitalized terms used herein shall have the meanings set forth in Schedule 1 (Definitions) or, if not defined therein,
in the Letter of Credit Agreement):

 

1.           GRANT OF SECURITY

 

1.1         The Debtor hereby pledges to
the Security Agent for the benefit of the Secured Parties and grants to the
Security Agent, for the benefit of the Secured Parties, a first priority
security interest in and lien upon, all of the Debtor’s right, title and
interest in and to the following, in each case whether now or hereafter
existing or in which the Debtor now has or hereafter acquires an interest and
wherever the same may be located (collectively, the “Collateral”):

 

1.1.1         the Custodial Account,
including all cash held therein or credited thereto from time to time, and all
securities, instruments and investments, including

 

B-1

Investments,
and other “investment property” and “financial assets,” as each such term is
defined in the UCC, of any kind held therein or credited thereto from time to
time (the “Pledged Investments”);
and

 

1.1.2         all proceeds of, accessions
to, substitutions for, and earnings on, any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of the types
described in sub-clause 1.1.1) and, to the extent not otherwise included, all
payments under insurance (whether or not the Security Agent is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral.  For purposes hereof, the term “proceeds” includes whatever is receivable
or received when Collateral or proceeds are sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary,
and includes, without limitation, all rights to payment, including returned
premiums, with respect to any insurance relating thereto.

 

1.2         Notwithstanding the
foregoing, at any time, other than after the occurrence and during the
continuation of a Default or an Event of Default, the Debtor may request that
the Security Agent release its Lien on so much of the Collateral as equals the
excess, if any, of the Adjusted Collateral Value of the Collateral over the sum
of all amounts then outstanding with respect to (x) Letter of Credit
Obligations of the Debtor and (y) Reimbursement Obligations of the Debtor;
provided that such excess shall be
released from the Custodial Account only with the consent of the Security
Agent, which consent may be given or withheld by the Security Agent in its sole
discretion.  Should the Adjusted
Collateral Value of the Collateral (determined on a daily basis) be less than
the sum of all amounts then outstanding with respect to (x) Letter of
Credit Obligations of the Debtor and (y) Reimbursement Obligations of the
Debtor, the Security Agent may require the Debtor to pay to the Custodian by no
later than 5:00 p.m. (New York time) on
the Business Day immediately following notice by the Security Agent, the
difference between the then-current Adjusted Collateral Value of the Collateral
and the sum of all amounts then outstanding with respect to (x) Letter of
Credit Obligations of the Debtor and (y) Reimbursement Obligations of the
Debtor, which payment shall be deposited by the Custodian into the Custodial
Account in the form of cash or Investments. 
Any failure by the Debtor to make such payment shall constitute an Event
of Default hereunder and under the Fundamental Documents.

 

1.3         In addition, the Debtor
shall have the right, other than after the occurrence and during the
continuation of a Default or an Event of Default, to substitute Collateral to
the extent such substitution arises from normal trade activities within the
Custodial Account hereunder so long as (a) the Debtor maintains the value
of the Custodial Account in accordance with this Clause 1, (b) such
substituted Collateral shall be in the form of Investments or cash, and (c) if
requested by the Security Agent, the Debtor shall deliver to the Security Agent
a Supplement to Security Agreement in a form satisfactory to the Security Agent.
The Collateral which is removed from the Custodial Account in full compliance
with this paragraph shall no longer be subject to the Lien hereof without any
further action on the part of the Debtor or the Security Agent; the Collateral
which is added to the Custodial Account pursuant to such Supplement to Security
Agreement shall immediately be subject to the Lien hereof without any further
action on the part of 

 

B-2

 

the Debtor or the Security
Agent.  The Debtor agrees to pay any
costs and expenses of the Security Agent (and its counsel) in connection with
any substitution of Collateral.

 

2.           SECURITY FOR OBLIGATIONS

 

The
grant in Clause 1 (Grant of Security)
secures and the Collateral is collateral security for the prompt payment or
performance in full when due, whether at stated maturity, by acceleration or
otherwise of all obligations of every nature now or hereafter existing of the
Debtor under the Letter of Credit Agreement and any Letter of Credit application
and reimbursement agreement or other document or instrument delivered pursuant
thereto, and all amendments, extensions or renewals thereof or hereof, whether
for principal, interest, fees, expenses or otherwise, whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly owed with
others, direct or indirect, absolute or contingent, liquidated or unliquidated,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred and all or any portion of such obligations that
are paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly as a preference, fraudulent transfer or otherwise, and
all obligations of every nature of the Debtor now or hereafter existing under
this Agreement (all such obligations being the “Secured Obligations”).

 

3.           DELIVERY OF COLLATERAL

 

All
certificates or instruments, if any, representing or evidencing the Collateral
shall be delivered to and held by the Custodian for the benefit of the Security
Agent and the Secured Parties.  All
uncertificated securities credited to the Custodial Account shall be registered
in the name of the Custodian, as custodian for the Security Agent and the Secured
Parties, or, to the extent such securities are held by the Depository Trust
Corporation or any other clearing corporation, shall be transferred by the
Depository Trust Corporation or other clearing corporation (as the case may be)
to a pledgee account maintained by the Custodian with such clearing
corporation.  At any time at which an
Event of Default has occurred and is continuing under the Letter of Credit
Agreement, the Security Agent shall have the right, subject at all times to
Clause 11 (Remedies upon Default;
Application of Collateral), in its discretion and without notice to
the Debtor, to transfer to or to register in the name of any of its nominees
any or all of the Collateral, and may receive the income and any distributions
thereon and hold the same as Collateral for the Secured Obligations, or apply
the same to any of the Secured Obligations.

 

4.           DEBTOR REMAINS LIABLE

 

Anything
herein to the contrary notwithstanding, (a) the Debtor shall remain liable
under the contracts and agreements included or relating to the Collateral to the
extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b) the
exercise by the Security Agent of any of the rights hereunder shall not release
the Debtor from any of its duties or obligations under the contracts and
agreements included in or relating to the Collateral, and (c) the Security
Agent and the Secured Parties shall not have any obligation or liability under
the contracts and agreements included in or relating to the Collateral by
reason of this Agreement, nor shall the Security Agent or the Secured Parties
be obligated to perform 

 

B-3

 

any
of the obligations or duties of the Debtor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.

 

5.           REPRESENTATIONS AND WARRANTIES

 

5.1         The Debtor hereby represents
and warrants to the Security Agent as follows:

 

5.1.1         The Debtor is duly organized
and validly exists under the laws of Bermuda. 
The Debtor’s exact legal name is that indicated on the signature page hereof,
and the Debtor’s principal place of business and chief executive office is
located, and except as indicated on Schedule 2 (Prior Addresses), during the past five years has been
located, at the address specified for the Debtor in Section 8.3 of the
Letter of Credit Agreement.

 

5.1.2         The Debtor is the legal and
beneficial owner of the Collateral free and clear of any lien, security
interest, option or other charge or encumbrance (except liens in favor of the
Custodian).  No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except such as may have been
filed in favor of the Security Agent relating to this Agreement.  Except as set forth on Schedule 3 (Trade Names), the Debtor has no trade
names and does not do business under any fictitious business name.

 

5.1.3         The pledge and the grant of
the security interest in the Collateral pursuant to this Agreement creates a
valid and perfected first priority security interest in the Collateral, and all
filings and other actions necessary (including, without limitation, any
financing statements and amendments thereto filed in the District of Columbia,
any actions necessary to obtain control of Collateral as provided in Section 9-104
or Section 9-106 of the UCC and any registering of the security interest
in the Collateral in the Bermuda register of charges maintained by the
Registrar of Companies) to perfect and protect such security interest have been
duly taken.

 

5.1.4         No authorization, consent,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body (other than authorizations, consents, approvals
already obtained, actions already taken, notices already provided and filings
already made) is required (a) for the grant by the Debtor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by the Debtor, (b) for the perfection of or the exercise by the
Security Agent of its rights and remedies provided for in this Agreement or (c) to
ensure the legality, validity, enforceability or admissibility in evidence of
this Agreement in any jurisdiction in which any of the Collateral is located.

 

5.1.5         Each of this Agreement and
the other Fundamental Documents to which the Debtor is a party constitutes the
legal, valid and binding obligation of the Debtor, enforceable against the
Debtor in accordance with its terms, except as such enforceability may be
limited by (a) applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the enforcement of 

 

B-4

 

creditors’ rights generally,
and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).  To the knowledge of the Debtor, each Pledged
Investment constitutes the legally valid and binding obligation of the party
obligated to pay the same.

 

5.1.6         The Debtor is deriving
substantial direct and indirect benefits from the issuance of the Letters of
Credit for its account under the Letter of Credit Agreement and has received
good and adequate consideration for the pledge of the Collateral effected under
this Agreement.

 

6.           FURTHER ASSURANCES: SUPPLEMENTS

 

6.1         The Debtor agrees that at
any time and from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action that
may be reasonably necessary or desirable, or that the Security Agent may
request, to perfect and protect the pledges and security interests granted or
purported to be granted hereby or to enable the Security Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.  Without limiting the generality of the
foregoing, the Debtor will (a) if any Collateral shall be evidenced by a
promissory note or other instrument, or if any of the Collateral shall constitute
chattel paper, deliver to the Security Agent (or to the Custodian to hold on
behalf of the Security Agent for the benefit of the Security Agent and the
Secured Parties) such note, instrument and all original counterparts of chattel
paper duly endorsed and accompanied by duly executed instruments of transfer,
all in form satisfactory to the Security Agent and (b) execute and file
such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or that the
Security Agent may reasonably request, to protect and preserve the pledges and
security interests granted or purported to be granted hereby.

 

6.2         The Debtor hereby authorizes
the Security Agent to register this Agreement or the security interest granted
hereunder with any governmental authority or regulatory body and to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral.  A
carbon, photographic or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
registration or financing statement where permitted by law.  The Security Agent will promptly send the
Debtor any registrations or financing or continuation statements thereto which
it files without the signature of the Debtor and, except in the case of filings
of copies of this Agreement as financing statements, the Security Agent will
promptly send the Debtor the filing or recordation information with respect
thereto.

 

6.3         The Debtor will furnish to
the Security Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Security Agent may reasonably request, all in
reasonable detail.

 

6.4         The Debtor agrees that it
will not create or permit to exist any lien, security interest or other charge
or encumbrance upon or with respect to any of the Collateral except in favor of
the Security Agent (for the benefit of the Secured Parties) hereunder or the
Custodian.

 

B-5

 

7.           ADDITIONAL COVENANTS

 

7.1         The Debtor’s organization
and existence in the jurisdiction shall not be changed from those specified in
sub-clause 5.1.1 of Clause 5 (Representations
and Warranties) and the Debtor shall not be reincorporated or
otherwise reorganized in any other jurisdiction without the prior written
consent of the Security Agent.  The
Debtor shall, from the date on which each Pledged Investment was purchased,
maintain (a) complete records of each Pledged Investment, including
records of all payments received, interest or fees accruing or credits granted
and (b) all documentation relating thereto.  In connection therewith, the Security Agent
may (subject to the confidentiality restrictions contained in any agreement)
institute procedures to permit it to confirm the balances owing in respect of
any Pledged Investment.  The Debtor
agrees to render to the Security Agent such clerical and other assistance as
may be reasonably requested with regard to the foregoing.  If an Event of Default under the Letter of
Credit Agreement shall have occurred and be continuing, promptly upon request
therefor, the Debtor shall (subject to the confidentiality restrictions
contained in any agreement) deliver to the Security Agent complete and correct
copies of all documentation relating to the Pledged Investments.

 

7.2         The Debtor shall duly
fulfill in all material respects all obligations on its part to be fulfilled
under or in connection with the Pledged Investments and shall do nothing to
impair in any material respect the rights of the Security Agent or the Secured
Parties therein.

 

7.3         Following an Event of
Default under the Letter of Credit Agreement (subject to Clause 11 (Remedies upon Default; Application of Collateral)),
any proceeds of Collateral when first received by or on behalf of the Debtor
shall be deposited by or on behalf of the Debtor in the form so received in the
Custodial Account, and until so deposited shall be held in trust for and as the
Security Agent’s and Secured Parties’ property and shall not be commingled with
the Debtor’s or any other Person’s other funds or properties.

 

7.4         The Debtor, at its own cost
and expense, will, and will cause the Custodian to, maintain satisfactory and
complete records of the Collateral, including, without limitation, a record of
all payments received with respect to the Collateral and all other dealings
with the Collateral.  Upon the occurrence
and during the continuation of an Event of Default under the Letter of Credit
Agreement, the Debtor will (subject to the confidentiality restrictions
contained in any agreement and any applicable law) deliver and turn over to the
Security Agent or to its representatives, or at the option of the Security
Agent shall (subject to the confidentiality restrictions contained in any
agreement) provide the Security Agent or its representatives with access to, at
any time on demand of the Security Agent, copies of all the Debtor’s books and
records pertaining to the Collateral including, without limitation, all credit
files and computer software, programs, tapes or disks relating to Pledged
Investments or otherwise necessary to the collection thereof.

 

7.5         The Debtor will comply in
all material respects with all applicable statutes, rules, and regulations with
respect to the Collateral or any part thereof.

 

7.6         The Debtor will pay promptly
when due all taxes, assessments and governmental charges or levies imposed upon
the Collateral or in respect of its income or profits therefrom and 

 

B-6

 

all claims of any kind
(including, without limitation, claims for labor, materials and supplies),
except that no such amount need be paid if (a) such non-payment does not
involve any danger of the sale, forfeiture or loss of any of the Collateral or
any interest therein, (b) the charge or levy is being contested in good
faith and by proper proceedings, and (c) the obligation to pay such amount
is adequately reserved against in accordance with and to the extent required by
GAAP.

 

7.7         The Debtor will in all
material respects perform and observe all the terms and provisions of the
documentation relating to the Pledged Investments to be performed or observed
by it, maintain the documentation relating to the Pledged Investments in full
force and effect in accordance with their terms, and take all action to such
end as may be from time reasonably requested by the Security Agent.

 

7.8         The Debtor will advise the
Security Agent promptly, in reasonable detail, (a) of any lien, security
interest, encumbrance or claim made or asserted against any of the Collateral
by any Person, other than the Custodian, and (b) of the occurrence of any
event which would have a material adverse effect on the aggregate value of the
Collateral or on the pledges and security interests granted hereby.

 

7.9         The Debtor will not sell,
assign (by operation of law or otherwise), or otherwise dispose of, or grant
any option with respect to, any of the Collateral, except sales not restricted
by the terms of the Letter of Credit Agreement or this Agreement.

 

7.10       The Debtor shall at all
times retain The Bank of New York Mellon, or such other institution of similar
reputation as reasonably approved by the Security Agent, as the Custodian
pursuant to the Custodian Agreement.

 

8.           SECURITY AGENT APPOINTED
ATTORNEY-IN-FACT

 

The
Debtor appoints the Security Agent its attorney-in-fact with full authority in
the place and stead of the Debtor and in the name of the Debtor or otherwise,
from time to time in the Security Agent’s discretion, after an Event of Default
under the Letter of Credit Agreement has occurred and is continuing (but in all
instances subject to Clause 11 (Remedies
upon Default; Application of Collateral)), to take any action and to
execute any instrument that the Security Agent may deem necessary or advisable
to accomplish the purposes of this Agreement (subject to the provisions of any
applicable law), including, without limitation, to (a) ask, demand,
collect, sue for, recover, compromise, receive and give acquittances and
receipts for moneys due and to become due under or in connection with the
Collateral, (b) receive, endorse and collect all drafts or other instruments
and documents made payable to the Debtor in connection therewith or
representing any payment, dividend or other distribution in respect of the
Collateral or any part thereof and to give full discharge for the same, (c) file
any claims or take any action or institute any proceedings which the Security
Agent may deem to be necessary or desirable for the collection of any of the
Collateral, (d) enforce the rights of the Security Agent with respect to
any of the Collateral and compliance with the terms and conditions of this
Agreement, the Letter of Credit Agreement and the other Fundamental Documents, (e) pay
or discharge taxes or Liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Security Agent in its sole
discretion, and 

 

B-7

 

such
payments made by the Security Agent to become obligations of the Debtor to the
Security Agent, due and payable in accordance with the Letter of Credit
Agreement, (f) generally sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though the Security Agent were the absolute owner thereof for all purposes,
and (g) do, at the Security Agent’s option and the Debtor’s expense, at
any time, or from time to time, all acts and things that the Security Agent
deems necessary to protect, preserve or realize upon the Collateral and the
Security Agent’s security interest therein, in order to effect the intent of
this Agreement, all as fully and effectively as the Debtor might do.

 

9.           SECURITY AGENT MAY PERFORM

 

If
the Debtor fails to perform any agreement contained herein or if a Default or
an Event of Default under the Letter of Credit Agreement shall have occurred
and be continuing, the Security Agent may at any time (but in all instances
subject to Clause 11 (Remedies upon Default;
Application of Collateral)) itself perform, or cause performance of,
such agreement.

 

10.         THE SECURITY AGENT

 

10.1       Neither the Security Agent
nor any of its respective affiliates, directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or for errors in judgment, except for its
or their own gross negligence, willful misconduct or bad faith.

 

10.2       The powers conferred on the
Security Agent hereunder are solely to protect its and the Secured Parties’
interest in the Collateral and shall not impose any duty upon the Security
Agent to exercise any such powers. 
Except for the exercise of reasonable care in the custody and
preservation of any Collateral in its possession and accounting for moneys
actually received by it hereunder, the Security Agent shall have no duty as to
any Collateral or as to any rights pertaining thereto.

 

10.3       The Security Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Security Agent accords its own property.

 

11.         REMEDIES UPON DEFAULT;
APPLICATION OF COLLATERAL

 

11.1       If an Event of Default under
the Letter of Credit Agreement shall have occurred and be continuing, then any
cash held by the Security Agent and all cash proceeds received by the Security
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied to the obligations of the Debtor
to the Secured Parties as provided in the Letter of Credit Agreement.  Any surplus of such cash or cash proceeds
held by the Security Agent and remaining after the payment and satisfaction in
full of all the Secured Obligations shall be paid over to the Debtor or to
whomsoever may be lawfully be entitled thereto.

 

11.2       Any foreclosure upon, sale
of, or exercise of rights with respect to the Collateral shall be conducted in
compliance with all contractual provisions applicable to such Collateral,

 

B-8

 

including but not limited to
any provisions of any agreement pursuant to which any Investment arises that
govern the sale or assignment thereof.

 

11.3                  Any sale of the Collateral
or any part thereof shall be made in a commercially reasonable manner and in accordance
with applicable law and may be made in one or more lots at public or private
sale, for cash, on credit or for future delivery.  The Security Agent and/or any of its
affiliates may be a purchaser at any such sale. 
The Security Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. 
The Security Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.  The Debtor shall cooperate
with the Security Agent in all reasonable ways in order to assist the Security
Agent in the sale and other disposition of the Collateral.

 

12.                         AMENDMENTS, ETC.

 

No
amendment of any provision of this Agreement shall in any event be effective
unless the same shall be in writing and signed by the Debtor and the Security
Agent, no waiver of any provision of this Agreement, nor consent to any
departure by the Debtor therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Security Agent, and then such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given.  No
failure to exercise nor any delay in exercising on the part of the Security
Agent of any right, power or privilege under this Agreement, shall operate as a
waiver thereof; further, no single or partial exercise of any right, power or
privilege under this Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.

 

13.                         INDEMNITY
AND EXPENSES

 

13.1                  The Debtor agrees to
indemnify the Security Agent and each of its directors, officers, employees and
agents (each an “Indemnified Person”)
from and against any and all claims, damages, losses, liabilities and expenses
(excluding any present or future taxes, now or hereafter imposed, levied,
collected, withheld or assessed), arising out of or in connection with or
resulting from the Debtor’s performance under this Agreement (including,
without limitation, enforcement of this Agreement against the Debtor), unless
and to the extent such claim, damage, loss, liability or expense was
attributable to the gross negligence, willful misconduct or bad faith of any of
the Indemnified Persons.

 

13.2                  The Debtor agrees to pay to
the Security Agent from time to time, upon demand, the amount of any and all
costs and expenses (excluding any present or future taxes, now or hereafter
imposed, levied, collected, withheld or assessed), including the reasonable
fees and expenses of its counsel and of any experts and agents, that the
Security Agent may incur in connection with (a) the administration of this
Agreement, (b) the custody (including custody by a third-party on behalf
of the Security Agent) or preservation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Security Agent against the Debtor, (d) the
failure by the Debtor to perform or observe any of the provisions hereof or (e) any
action taken by the Security Agent pursuant to Clause 6 (Further Assurances; Supplements) or Clause
9 (Security Agent May Perform).

 

B-9

 

13.3                  The foregoing provisions of
this Clause 13 are in furtherance and not in limitation of the Debtor’s
obligations under the Letter of Credit Agreement.

 

14.                         ADDRESSES
FOR NOTICES

 

All
notices and other communications provided for hereunder shall be in writing
(including telecopier and e-mail) and, if to the Debtor, mailed, telecopied,
e-mailed, delivered by nationally recognized overnight courier or hand
delivered to it, addressed to it at the address of such party specified in the
Letter of Credit Agreement, if to the Security Agent, mailed, telecopied,
delivered by nationally recognized overnight courier or hand delivered to it at:

 

	
  ING Bank N.V., London Branch

  
	
  60 London Wall

  
	
  London EC2M 5TQ

  
	
  United Kingdom

  
	
  Attn:

  	
  Craig
  Baker, Agency Department

  
	
  Telephone:

  	
  +44
  20 7767 5617

  
	
  Facsimile:

  	
  +44 20 7767 7324

  
	
  E-mail:

  	
  craig.baker@uk.ing.com

  
	
   

  
	
  With a copy to:

  
	
  Paul Meade

  
	
  Tel: +44 (0) 20 7767 5901

  
	
  Fax: +44 (0) 20 7767 7507

  
	
  Email: paul.meade@uk.ing.com

  

 

And:

 

Lois
Dewhurst 

Email:
lois.dewhurst@uk.ing.com

 

or
as to any party, at such other address as shall be designated by such party in
a written notice to each other party complying as to delivery with the terms of
this Clause 14.  All such notices and
other communications shall be effective when mailed, telecopied (with telephone
confirmation of receipt received), e-mailed or delivered to the courier
service, addressed as aforesaid.

 

15.                         NO
WAIVER; CUMULATIVE REMEDIES

 

The
Security Agent shall not by any act, delay, omission or otherwise be deemed to
have waived any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing and signed by the Security Agent.  A waiver by the Security Agent of any right
or remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Security Agent would otherwise have on any future
occasion.

 

B-10

 

16.                         CONTINUING
SECURITY INTEREST

 

This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of the
other Secured Obligations, (b) be binding upon the Debtor and its
successors and assigns, including but not limited to any trustee or examiner
for the Debtor under the Bankruptcy Code or receiver for the assets of the
Debtor under any rehabilitation or insolvency law, and (c) inure, together
with the rights and remedies of the Security Agent hereunder, to the benefit of
the Security Agent and its successors, transferees and assigns.  Upon the payment in full of the Secured
Obligations, the Debtor shall be entitled to the return, upon its request and
at its expense, of such of the Collateral as shall not have been sold or otherwise
applied pursuant to the terms hereof, at which time the Security Agent shall,
at the expense and request of the Debtor, reassign and deliver to the Debtor,
or to such Person or Persons as may be lawfully entitled thereto, against
receipt, such of the Collateral (if any) as shall not have been sold or
otherwise applied by the Security Agent pursuant to the terms hereof, together
with appropriate instruments of reassignment and release.

 

17.                         FURTHER
INDEMNIFICATION

 

Without
limiting the obligations of the Debtor under Clause 13 (Indemnity and Expenses), the Debtor agrees
to pay, and to save the Security Agent harmless from, any and all liabilities
with respect to, or resulting from any delay in paying, any and all excise,
sales or other similar taxes which may be payable or determined to be payable
with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Agreement.

 

18.                         GOVERNING
LAW; TERMS

 

This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York, except to the extent that the validity or perfection of
the security interest hereunder, or remedies hereunder, in respect of any
particular Collateral are mandatorily governed by the law of a jurisdiction
other than the State of New York.  Unless
otherwise defined herein or in the Letter of Credit Agreement, terms used in Article 8
and/or 9 of the Uniform Commercial Code in the State of New York are used
herein as therein defined.

 

19.                         NO
PETITION IN BANKRUPTCY

 

Each
of the parties to this Agreement severally and not jointly, hereby covenants
and agrees that, prior to the date which is one year and one day after the
payment or expiration in full of all outstanding Letters of Credit, it will not
institute against, or join any other Person in instituting against, the Debtor
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding.

 

20.                         WAIVER
OF JURY TRIAL

 

THE
DEBTOR AND THE SECURITY AGENT MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
FUNDAMENTAL DOCUMENTS CONTEMPLATED TO BE EXECUTED 

 

B-11

 

IN
CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT
LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF
THE SECURITY AGENT RELATING TO THE ADMINISTRATION OF THIS AGREEMENT OR
ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL
SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED.  EXCEPT
AS PROHIBITED BY LAW, THE DEBTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.  THE DEBTOR CERTIFIES THAT NO
REPRESENTATIVE, SECURITY AGENT OR ATTORNEY OF THE SECURITY AGENT HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE SECURITY AGENT WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER.  THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT
FOR THE SECURITY AGENT TO ENTER INTO THIS AGREEMENT AND THE OTHER FUNDAMENTAL
DOCUMENTS.  THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT.

 

21.                         JURISDICTION;
CONSENT TO SERVICE OF PROCESS

 

21.1                  The Debtor hereby
irrevocably and unconditionally submits, for itself and its property, to the
non-exclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York; and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement, the Letter of Credit Agreement, the other Fundamental Documents, or
for recognition of enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State
or, to the extent permitted by law, in such Federal court.  Each of the parties hereto agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  Nothing in this
Agreement shall affect any right that the Security Agent may otherwise have to
bring any action or proceeding relating to this Agreement, the Letter of Credit
Agreement or the other Fundamental Documents against the Debtor or its
properties in the courts of any jurisdiction.

 

21.2                  The Debtor hereby
irrevocably and unconditionally waives, to the fullest extent it may legally
and effectively do so, any objection it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to this Agreement,
the Letter of Credit Agreement or the other Fundamental Documents in any New
York State or Federal court.  Each of the
parties hereto hereby irrevocably waives, to the fullest 

 

B-12

 

extent permitted by law, the
defence of an inconvenient forum to the maintenance of such action or
proceeding in any such court.

 

21.3                  Nothing in this Agreement
will affect the right of any party to this Agreement to serve process in any
other manner permitted by law.

 

22.                         HEADINGS

 

Clause
and sub-clause headings in this Agreement are included herein for convenience
of reference only and shall not constitute a part of this Agreement or be given
any substantive effect.

 

23.                         SEVERABILITY

 

In
case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.

 

24.                         COUNTERPARTS

 

This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
Agreement.

 

B-13

 

IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized, as of the date first above written.

 

	
  ARCH REINSURANCE LTD.

  	
   

  
	
  as the Debtor

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Nicolas Papadopoulo

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name: Nicolas Papadopoulo

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:
  President & CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ING BANK N.V., LONDON BRANCH

  	
   

  
	
  as the Security Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  NJ Marchant

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:  NJ Marchant

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:  Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  MER Sharman

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:  MER Sharman

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:  Managing Director

  	
   

  

 

Signature Page to

Security Agreement

 

 

SCHEDULE 1

Definitions

 

“Adjusted Collateral Value” shall have the
meaning set forth in the Letter of Credit Agreement.

 

“Affiliate” shall mean any Person that
directly or indirectly controls, or is under common control with, or is
controlled by, the Debtor.  As used in
this definition, “control” (including, with its correlative meanings, “controlled
by” and “under common control with”) shall mean possession, directly or
indirectly, of the power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any Person that owns directly or
indirectly securities having 20% or more of the voting power for the election
of directors or other governing body of a corporation or 20% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such
corporation or other Person. 
Notwithstanding the foregoing, (a) no individual shall be an
Affiliate solely by reason of being, nor considered to have the power to direct
or cause the direction of management or policies solely by reason of being or
actions taken as, a director, officer or employee of the Debtor or any of its
Subsidiaries and (b) none of the Subsidiaries of the Debtor shall be
Affiliates.

 

“Agreement” shall have the meaning set forth
in the preamble.

 

“Bankruptcy Code” shall mean Title 11 of the
United States Code, as in effect from time to time, and any successor statute.

 

“Business Day” shall mean any day other than
a Saturday, Sunday or any other day on which commercial banks in London, New
York, and Bermuda are authorized or required to close.

 

“Collateral” shall have the meaning set
forth in Clause 1 (Grant of Security).

 

“Custodial Account” shall have the meaning
set forth in paragraph (C) of the Recitals.

 

“Custodian” shall mean The Bank of New York
Mellon (successor by operation of law to Mellon Bank, N.A.), as custodian under
the Custodian Agreement.

 

“Debtor” shall have the meaning set forth in
the preamble.

 

“Event of Default” shall have the meaning
set forth in the Letter of Credit Agreement.

 

“Fundamental Documents” shall have the
meaning set forth in the Letter of Credit Agreement.

 

“GAAP” shall mean generally accepted
accounting principles in the United States from time to time.

 

“Indemnified Person” shall have the meaning
set forth in Clause 13.1 of Clause 13 (Indemnity
and Expenses).

 

“Investments” shall have the meaning set
forth in the Letter of Credit Agreement.

 

“Letter of Credit Agreement” shall have the
meaning set forth in paragraph (A) of the Recitals.

 

B-16

 

“Letter(s) of Credit” shall have the
meaning set forth in the Letter of Credit Agreement.

 

“Person” shall mean an individual,
partnership, corporation (including a business trust), joint stock company,
trust, unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.

 

“Pledged Investments” shall have the meaning
set forth in sub-clause 1.1.1 of Clause 1 (Grant
of Security).

 

“Secured Obligations” shall have the meaning
set forth in Clause 2 (Security for
Obligations).

 

“Secured Parties” shall have the meaning set
forth in Recital B hereof.

 

“Security Agent” shall have the meaning set
forth in the preamble.

 

“UCC” shall mean the Uniform Commercial Code
as in effect from time to time in the State of New York.

 

B-17

 

SCHEDULE 2

Prior Addresses

 

None

 

B-18

 

SCHEDULE 2

Trade Names

 

None

 

B-19

 

 

 

Exhibit C

 

Form of Utilization Request

 

From:

 

To:          ING Bank
N.V., London Branch

 

Dated:

 

Dear
Sirs,

 

1.                                We refer to the
Letter of Credit and Reimbursement Agreement dated as of November 18, 2010 (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the “Letter of Credit Agreement”)
made by and among Arch Reinsurance Ltd. as the Obligor, ING Bank N.V., London
Branch as Agent and as an Arranger, Lloyds TSB Bank plc as an Arranger, and the
Original Lenders named therein.  Terms
defined in the Letter of Credit Agreement shall have the same meaning in this
notice.

 

2.                                This notice is
irrevocable.

 

3.                                We hereby give
you notice that, pursuant to the Letter of Credit Agreement and upon the terms
and subject to the conditions contained therein, we wish the Agent to [issue/
amend] on behalf of the Lenders a Letter of Credit as follows:

 

	
  Applicant:

  	
  [·]

  
	
   

  	
   

  
	
  [New
  LOC Amount]:

  	
  [·]

  
	
   

  	
   

  
	
  [Existing
  Amount]:

  	
  [·]

  
	
   

  	
   

  
	
  [Movement
  Amount]:

  	
  [·]

  
	
   

  	
   

  
	
  [New
  Amount]:

  	
  [·]

  
	
   

  	
   

  
	
  Utilization
  Date:

  	
  [·]

  
	
   

  	
   

  
	
  Commencement
  Date:

  	
  [·] 2010

  
	
   

  	
   

  
	
  Expiry
  Date:

  	
  [·] 2014

  

 

4.                                We confirm
that, at the date hereof, the Repeating Representations are true in all
material respects and no Default has occurred and is continuing or will arise
as a result of this utilization.

 

5.                                We confirm, at
the date hereof, (i) that the Adjusted Collateral Value is not less than the
sum of all amounts outstanding with respect to Letter of Credit Obligations and
Reimbursement Obligations, taking into account the amount of the requested
Letter of Credit, (ii) that each of the Investments utilized in the preceding
calculation of Adjusted 

 

C-1

 

Collateral Value have been deposited into the
Custodial Account and (iii) that the aggregate face amount of the Letters of
Credit issued under the Letter of Credit Agreement (taking into account the
requested Letter of Credit) does not exceed £50,000,000 or such lower amount of
the Facility as a result of cancellation under Clause 2.5 (Unconditional Obligations of the Obligor).

 

	
  Yours
  faithfully

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Authorized
  Signatory

  	
   

  
	
  for
  and on behalf of

  	
   

  
	
  Arch Reinsurance Ltd.

  	
   

  

 

C-2

 

Exhibit D

 

Form of Custodial Account Certificate

 

	
  To:

  	
  ING
  Bank N.V., London Branch

  
	
   

  	
  60
  London Wall

  
	
   

  	
  London
  EC2M 5TQ

  
	
   

  	
  United
  Kingdom

  
	
   

  	
  Attn:

  	
  Craig
  Baker, Agency Department

  
	
   

  	
  Telephone:

  	
  +44
  20 7767 5617

  
	
   

  	
  Facsimile:

  	
  +44 20 7767 7324

  
	
   

  	
  E-mail:

  	
  craig.baker@uk.ing.com

  
	
   

  	
   

  	
   

  
	
   

  	
  With
  a copy to:

  
	
   

  	
   

  
	
   

  	
  Paul
  Meade

  
	
   

  	
  Tel:
  +44 (0) 20 7767 5901

  
	
   

  	
  Fax: +44 (0) 20 7767 7507

  
	
   

  	
  Email: paul.meade@uk.ing.com

  
	
   

  	
   

  
	
   

  	
  And:

  
	
   

  	
   

  
	
   

  	
  Lois
  Dewhurst

  
	
   

  	
  Email:
  lois.dewhurst@uk.ing.comRe: Account No.
  [·]

  

 

Dear
Sir/Madam:

 

This
Adjusted Collateral Value Certificate is provided pursuant to the Letter of
Credit and Reimbursement Agreement (as amended, amended and restated,
supplemented or otherwise modified from time to time, the “Letter of Credit Agreement”) dated as of
November 18, 2010 by and among Arch Reinsurance Ltd., ING Bank N.V., London
Branch as Agent and as an Arranger, Lloyds TSB Bank plc as an Arranger, and the
Original Lenders named therein.  Unless
otherwise defined herein, terms and expressions defined in the Letter of Credit
Agreement have the same meaning when used herein.

 

The
undersigned, hereby certifies that on                    ,
20    , [monthly] the Custodial Account contains the
following Collateral:

 

	
  Type of Collateral

  	
   

  	
  Amount 

  (GBP£)

  	
   

  	
  Permitted 

  Percentages -

   Matching 

  Currency 

  (%)

  	
   

  	
  Permitted 

  Percentages - 

  Non-

  Matching 

  Currency 

  (%)

  	
   

  	
  Adjusted 

  Collateral 

  Value 

  (GBP£)

  	
   

  	
  Currency

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Collateral

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash, obligation or Investment

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

D-1

 

	
  U.S.
  Dollars or pounds sterling maintained in one or more accounts of the Obligor
  at a financial institution acceptable to the Security Agent or investments in
  time deposits with such acceptable financial institution, in each case, to
  the extent such cash (or the deposit account(s) in which such cash is held)
  or time deposits are pledged in favor of the Security Agent in a manner
  satisfactory to the Security Agent.

  	
   

  	
   

  	
   

  	
  100

  	
  %

  	
  95

  	
  %

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Certificates
  of Deposit or Money Market Investments.

  	
   

  	
   

  	
   

  	
  98

  	
  %

  	
  93

  	
  %

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Government
  Investments with maturities of less than two years from the date of
  determination.

  	
   

  	
   

  	
   

  	
  95

  	
  %

  	
  90

  	
  %

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Government
  Investments with maturities of three to ten years from the date of
  determination.

  	
   

  	
   

  	
   

  	
  90

  	
  %

  	
  85

  	
  %

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  All
  other cash, investments, obligations or securities.

  	
   

  	
   

  	
   

  	
  0

  	
  %

  	
  0

  	
  %

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sub-total Collateral

   

  GBP £ Denominated

   

  Non — GBP £ Collateral

   

  Sub —total “A” in GBP £

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. Obligations(1):

   

  Letter of Credit Obligations

  GBP £

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(1)  List the Letter of Credit or Reimbursement
Obligation in the currency issued.

 

D-2

 

	
  Non -GBP £

  Reimbursement Obligations

  GBP £

  Non-GBP £

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sub-total “B” in GBP £ Obligations

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Collateral position net of Obligations

   

  GBP £ Denominated

   

  (Total of Sub-total A - Subtotal B)

   

  Non-GBP £ denominated (Subtotal A-1(2) minus Sub-total B-1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Currency Exchange Rates as of

 

 

	
   

  	
  Arch Reinsurance Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Its

  

 

 

(2)  In the event there is an amount under
Sub-total A-1, it must be 110% of the Sub-total B-1.

 

D-3

 

 

 

Exhibit E

 

Form of
Compliance Certificate

 

To:          ING Bank
N.V., London Branch, as Agent

 

From:     Arch Reinsurance
Ltd.

 

Dated:

 

Dear
Sirs

 

£50,000,000 Letter of Credit Facility Agreement

dated as of November 18, 2010 (as amended,
amended and restated, supplemented or 

otherwise modified from time to time, the “Agreement”)

 

1.                                We refer to the
Agreement.  This is a Compliance
Certificate.  Terms defined in the
Agreement have the same meaning when used in this Compliance Certificate unless
given a different meaning in this Compliance Certificate.

 

2.                                Based on
financial reports accompanying this Compliance Certificate, we confirm that the
minimum Consolidated Tangible Net Worth of the Parent is [·] and the Parent Leverage Ratio is [·].

 

3.                                We confirm that
no Default has occurred and is continuing.

 

 

	
  Signed:

  	
   

  	
   

  	
   

  
	
   

  	
  [Chief
  Executive Officer, Chief Financial Officer, Controller or

  
	
   

  	
  Assistant
  Controller of Arch Reinsurance Ltd.]

  

 

E-1

 

Exhibit F

 

Form of Assignment and Assumption

 

Reference
is made to the Letter of Credit and Reimbursement Agreement dated as of November 18,
2010 (as amended, amended and restated, supplemented or otherwise modified from
time to time, the “Letter of Credit Agreement”)
by and among Arch Reinsurance Ltd., a Bermuda company (the “Obligor”), ING Bank N.V., London
Branch, as Agent (the “Agent”) and
as an Arranger, Lloyds TSB Bank plc as an Arranger, and the Original Lenders
named therein. Terms defined in the Letter of Credit Agreement are used herein
with the same meaning.

 

The
“Assignor” and the “Assignee” referred to on Schedule 1 hereto agree as follows:

 

1.                                The Assignor
hereby sells and assigns to the Assignee, and the Assignee hereby purchases and
assumes from the Assignor, an interest in and to the Assignor’s rights and
obligations under the Letter of Credit Agreement as of the date hereof equal to
the percentage interest specified on Schedule 1 hereto of all outstanding
rights and obligations under the Letter of Credit Agreement together with
existing and future participations in Letters of Credit pursuant to Clause 2.4
of the Letter of Credit Agreement. After giving effect to such sale and
assignment, the Assignee’s Commitment will be as set forth on Schedule 1
hereto.

 

2.                                The Assignor (i) represents
and warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any
adverse claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Letter of Credit Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of, or
the perfection or priority of any lien or security interest created or
purported to be created under or in connection with, the Letter of Credit
Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of the Obligor or the performance or observance by the
Obligor of any of its obligations under the Letter of Credit Agreement or any
other instrument or document furnished pursuant thereto.

 

3.                                The Assignee (i) confirms
that it has received a copy of the Letter of Credit Agreement, together with
copies of the financial statements referred to in Clause 5.1.2 thereof and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Assumption; (ii) agrees
that it will, independently and without reliance upon the Agent, the Assignor
or any other Lender and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Letter of Credit Agreement; (iii) confirms
that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers and
discretion under the Letter of Credit Agreement as are delegated to the Agent
by the terms thereof, together with such powers and discretion as are
reasonably 

 

F-1

 

incidental thereto; (v) agrees that it will
perform in accordance with their terms all of the obligations that by the terms
of the Letter of Credit Agreement are required to be performed by it as a
Lender; and (vi) attaches any U.S. Internal Revenue Service forms required
under Clause 2.9.2 of the Letter of Credit Agreement.

 

4.                                Following the
execution of this Assignment and Assumption, it will be delivered to the Agent
for acceptance and recording by the Agent. The effective date for this
Assignment and Assumption (the “Effective
Date”) shall be the date of acceptance hereof by the Agent, unless
otherwise specified on Schedule 1 hereto.

 

5.                                Upon such
acceptance and recording by the Agent, as of the Effective Date, (i) the
Assignee shall be a party to the Letter of Credit Agreement and, to the extent
provided in this Assignment and Assumption, have the rights and obligations of
a Lender thereunder and (ii) the Assignor shall, to the extent provided in
this Assignment and Assumption, relinquish its rights and be released from its
obligations under the Letter of Credit Agreement.

 

6.                                Upon such
acceptance and recording by the Agent, from and after the Effective Date, the
Agent shall make all payments under the Letter of Credit Agreement in respect
of the interest assigned hereby (including, without limitation, all payments of
principal, interest and facility fees with respect thereto) to the Assignee.
The Assignor and Assignee shall make all appropriate adjustments in payments
under the Letter of Credit Agreement for periods prior to the Effective Date
directly between themselves.

 

7.                                This Assignment
and Assumption shall be governed by, and construed in accordance with, the laws
of the State of New York.

 

8.                                This Assignment
and Assumption may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same agreement. Delivery of an executed counterpart of Schedule 1
to this Assignment and Assumption by telecopier or pdf shall be effective as
delivery of a manually executed counterpart of this Assignment and Assumption.

 

IN WITNESS WHEREOF, the Assignor and the
Assignee have caused Schedule 1 to this Agreement and Acceptance to be executed
by their officers thereunto duly authorized as of the date specified thereon.

 

F-2

 

SCHEDULE 1

ASSIGNMENT AND ASSUMPTION

 

	
  Percentage
  interest assigned:

  	
   

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assignee’s
  Commitment:

  	
   

  	
  £

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Aggregate
  outstanding principal amount of Letter of Credit Obligations assigned:

  	
   

  	
  £

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Aggregate
  outstanding principal amount of Letters of Credit assigned:

  	
   

  	
  £

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Aggregate
  outstanding principal amount of Reimbursement Obligations assigned:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Effective
  Date*:                      ,
  20

  	
   

  	
   

  	
   

  	
   

  

 

 

	
   

  	
  [NAME
  OF ASSIGNOR], as Assignor

  
	
   

  	
   

  
	
   

  	
  By:  

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated:
                         ,
  20

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [NAME
  OF ASSIGNEE], as Assignee

  
	
   

  	
   

  	
   

  
	
   

  	
  By:  

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated:
                         ,
  20

  
	
   

  	
   

  	
   

  
	
   

  	
  Lending
  Office:  

  
	
   

  	
  [Address]

  

 

* This date
should be no earlier than five Business Days after the delivery of this
Assignment and Assumption to the Agent.

 

F-3

 

	
  Accepted
  [and Approved]* 

  	
   

  
	
  day of                  ,
  20 

  	
   

  
	
   

  	
   

  	
   

  
	
  ING
  BANK N.V., LONDON BRANCH as Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  By:  

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [Approved**
  this
                  day
  

  	
   

  
	
  of
                      ,
  20

  	
   

  
	
   

  	
   

  	
   

  
	
  ARCH
  REINSURANCE LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:  

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

* Required if the Assignee
is an Eligible Assignee solely by reason of clause (c) of the definition
of “Eligible Assignee”.

 

** Required if the Assignee
is not a Lender or an Affiliate of a Lender (Clause 7.1.2).

 

F-4Exhibit 4.1

 

 

TRUST
AGREEMENT

 

by and between

 

HARLEY-DAVIDSON CUSTOMER FUNDING CORP.,

as Trust Depositor,

 

and

 

WILMINGTON TRUST COMPANY,

as Owner Trustee

 

 

Dated
as of October 1, 2010

 

 

 

TABLE
OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
  ARTICLE ONE

  	
  DEFINITIONS

  	
  1

  
	
  Section 1.01.

  	
  Capitalized Terms

  	
  1

  
	
  Section 1.02.

  	
  Other Definitional Provisions

  	
  3

  
	
  Section 1.03.

  	
  Usage of Terms

  	
  3

  
	
  Section 1.04.

  	
  Section References

  	
  3

  
	
  Section 1.05.

  	
  Accounting Terms

  	
  3

  
	
  ARTICLE TWO

  	
  ORGANIZATION

  	
  4

  
	
  Section 2.01.

  	
  Name

  	
  4

  
	
  Section 2.02.

  	
  Office

  	
  4

  
	
  Section 2.03.

  	
  Purposes and Powers

  	
  4

  
	
  Section 2.04.

  	
  Appointment of Owner Trustee

  	
  5

  
	
  Section 2.05.

  	
  Initial Capital Contribution of Owner Trust Estate

  	
  5

  
	
  Section 2.06.

  	
  Declaration of Trust

  	
  5

  
	
  Section 2.07.

  	
  Liability of Trust Depositor

  	
  5

  
	
  Section 2.08.

  	
  Title to Trust Property

  	
  5

  
	
  Section 2.09.

  	
  Situs of Trust

  	
  5

  
	
  Section 2.10.

  	
  Representations and Warranties of the Trust Depositor

  	
  6

  
	
  Section 2.11.

  	
  Federal Income Tax Treatment

  	
  7

  
	
  Section 2.12.

  	
  Texas State Tax Matters

  	
  7

  
	
  ARTICLE THREE

  	
  TRUST CERTIFICATES AND TRANSFER OF
  INTERESTS

  	
  8

  
	
  Section 3.01.

  	
  Initial Ownership

  	
  8

  
	
  Section 3.02.

  	
  The Trust Certificate

  	
  8

  
	
  Section 3.03.

  	
  Authentication and Delivery of Trust Certificates

  	
  8

  
	
  Section 3.04.

  	
  Registration of Transfer and Exchange of Trust Certificates

  	
  8

  
	
  Section 3.05.

  	
  Mutilated, Destroyed, Lost or Stolen Trust Certificates

  	
  9

  
	
  Section 3.06.

  	
  Person Deemed Owner

  	
  10

  
	
  Section 3.07.

  	
  Access to List of Certificateholders’ Name and Address

  	
  10

  
	
  Section 3.08.

  	
  Maintenance of Office or Agency

  	
  10

  
	
  Section 3.09.

  	
  Trust Certificate

  	
  10

  
	
  Section 3.10.

  	
  Appointment of Paying Agent

  	
  10

  
	
  Section 3.11.

  	
  Ownership by Trust Depositor of Trust Certificate

  	
  11

  
	
  Section 3.12.

  	
  Repayment of Trust Certificates

  	
  11

  
	
  ARTICLE FOUR

  	
  ACTIONS BY OWNER TRUSTEE AND
  CERTIFICATEHOLDERS

  	
  11

  
	
  Section 4.01.

  	
  Prior Notice to Owner with Respect to Certain Matters

  	
  11

  
	
  Section 4.02.

  	
  Action by Owner with Respect to Certain Matters

  	
  12

  
	
  Section 4.03.

  	
  Action by Owners with Respect to Bankruptcy

  	
  12

  
	
  Section 4.04.

  	
  Restrictions on Owners’ Power

  	
  12

  
	
  Section 4.05.

  	
  Majority of the Trust Certificates Control

  	
  12

  
	
  ARTICLE FIVE

  	
  APPLICATION OF TRUST FUNDS; CERTAIN
  DUTIES

  	
  12

  
	
  Section 5.01.

  	
  Establishment of Trust Account; Application of Trust Funds

  	
  12

  
	
  Section 5.02.

  	
  Method of Payment

  	
  13

  
	
  Section 5.03.

  	
  Accounting and Reports to the Certificateholders, Owner, the
  Internal Revenue Service and Others

  	
  13

  
	
  Section 5.04.

  	
  Signature on Returns; Tax Matters Partner

  	
  14

  
	
  ARTICLE SIX

  	
  AUTHORITY AND DUTIES OF OWNER
  TRUSTEE

  	
  14

  
	
  Section 6.01.

  	
  General Authority

  	
  14

  
	
  Section 6.02.

  	
  General Duties

  	
  14

  
	
  Section 6.03.

  	
  Action Upon Instruction

  	
  14

  
	
  Section 6.04.

  	
  No Duties Except as Specified in this Agreement or in
  Instructions

  	
  15

  

 

 

	
  Section 6.05.

  	
  No Action Except Under Specified Documents or Instructions

  	
  16

  
	
  Section 6.06.

  	
  Restrictions

  	
  16

  
	
  Section 6.07.

  	
  Pennsylvania Motor Vehicle Sales Finance Act Licenses

  	
  16

  
	
  ARTICLE SEVEN

  	
  CONCERNING THE OWNER TRUSTEE

  	
  16

  
	
  Section 7.01.

  	
  Acceptance of Trusts and Duties

  	
  16

  
	
  Section 7.02.

  	
  Furnishing of Documents

  	
  17

  
	
  Section 7.03.

  	
  Representations and Warranties

  	
  17

  
	
  Section 7.04.

  	
  Reliance; Advice of Counsel

  	
  18

  
	
  Section 7.05.

  	
  Not Acting in Individual Capacity

  	
  18

  
	
  Section 7.06.

  	
  Owner Trustee Not Liable for Trust Certificate, Notes or
  Contracts

  	
  18

  
	
  Section 7.07.

  	
  Owner Trustee May Own Trust Certificate and Notes

  	
  19

  
	
  ARTICLE EIGHT

  	
  COMPENSATION OF OWNER TRUSTEE

  	
  19

  
	
  Section 8.01.

  	
  Owner Trustee’s Fees and Expenses

  	
  19

  
	
  Section 8.02.

  	
  Indemnification

  	
  19

  
	
  Section 8.03.

  	
  Payments to the Owner Trustee

  	
  19

  
	
  ARTICLE NINE

  	
  TERMINATION OF TRUST AGREEMENT

  	
  20

  
	
  Section 9.01.

  	
  Termination of Trust Agreement

  	
  20

  
	
  ARTICLE TEN

  	
  SUCCESSOR OWNER TRUSTEES AND
  ADDITIONAL OWNER TRUSTEES

  	
  21

  
	
  Section 10.01.

  	
  Eligibility Requirements for Owner Trustee

  	
  21

  
	
  Section 10.02.

  	
  Resignation or Removal of Owner Trustee

  	
  21

  
	
  Section 10.03.

  	
  Successor Owner Trustee

  	
  21

  
	
  Section 10.04.

  	
  Merger or Consolidation of Owner Trustee

  	
  22

  
	
  Section 10.05.

  	
  Appointment of Co-Trustee or Separate Trustee

  	
  22

  
	
  ARTICLE ELEVEN

  	
  MISCELLANEOUS

  	
  23

  
	
  Section 11.01.

  	
  Supplements and Amendments

  	
  23

  
	
  Section 11.02.

  	
  No Legal Title to Trust Estate in Owner

  	
  24

  
	
  Section 11.03.

  	
  Limitations on Rights of Others

  	
  24

  
	
  Section 11.04.

  	
  Notices

  	
  24

  
	
  Section 11.05.

  	
  Severability of Provisions

  	
  25

  
	
  Section 11.06.

  	
  Counterparts

  	
  25

  
	
  Section 11.07.

  	
  Successors and Assigns

  	
  25

  
	
  Section 11.08.

  	
  Covenants of the Trust Depositor

  	
  25

  
	
  Section 11.09.

  	
  No Petition

  	
  25

  
	
  Section 11.10.

  	
  No Recourse

  	
  26

  
	
  Section 11.11.

  	
  Headings

  	
  26

  
	
  Section 11.12.

  	
  Governing Law

  	
  26

  
	
  Section 11.13.

  	
  Trust Certificate Transfer Restrictions

  	
  26

  
	
  Section 11.14.

  	
  Trust Depositor Payment Obligation

  	
  26

  

 

EXHIBITS

 

	
  Exhibit A - Form of Certificate of Trust

  	
  A-1

  
	
  Exhibit B - Form of Trust Certificate

  	
  B-1

  

 

ii

 

TRUST AGREEMENT dated as of October 1, 2010,
between HARLEY-DAVIDSON CUSTOMER FUNDING CORP., a Nevada corporation, as Trust
Depositor (the “Trust Depositor”), and WILMINGTON
TRUST COMPANY, a Delaware banking corporation, as owner trustee (the  “Owner Trustee”).

 

WHEREAS, in connection herewith, the Trust Depositor
is willing to assume certain obligations pursuant hereto; and

 

WHEREAS, in connection herewith, the Trust Depositor
is willing to purchase the initial Trust Certificate (as defined herein) to be
issued pursuant to this Agreement and to assume certain obligations pursuant
hereto;

 

NOW, THEREFORE, the parties hereto hereby agree as
follows:

 

ARTICLE ONE

 

DEFINITIONS

 

Section 1.01.        Capitalized Terms.  Except as otherwise provided in this
Agreement, whenever used in this Agreement the following words and phrases,
unless the context otherwise requires, shall have the following meanings:

 

“Administration  Agreement” means the
Administration Agreement, dated as of November 1, 2010, among the Trust,
the Trust Depositor, the Indenture Trustee and Harley-Davidson Credit, as
administrator.

 

“Agreement”
means this Trust Agreement, as the same may be amended and supplemented from
time to time.

 

“Benefit Plan”
means (i) an employee benefit plan (as such term is defined in Section 3(3) of
ERISA) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Code or (iii) any entity
whose underlying assets include plan assets by reason of an employee benefit
plan’s or a plan’s investment in the entity.

 

“Certificate Distribution
Account” means the account established and maintained as such
pursuant to Section 5.01.

 

“Certificate of Trust”
means the Certificate of Trust filed for the Trust pursuant to Section 3810(a) of
the Statutory Trust Statute, substantially in the form of Exhibit A
hereto.

 

“Certificate Register”
and “Certificate Registrar” mean the register
maintained and the registrar (or any successor thereto) appointed pursuant to Section 3.04.

 

“Certificateholder”
or “Holder” means with respect to a Trust
Certificate the Person in whose name a Trust Certificate is registered in the
Certificate Register.

 

1

 

“Clearing Agency”
means an organization registered as a “Clearing Agency” pursuant to Section 17A
of the Exchange Act.

 

“Code” means the
Internal Revenue Code of 1986, as amended.

 

“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended.

 

“Exchange Act”  means the Securities Exchange Act of 1934, as amended.

 

“Expenses” shall
have the meaning assigned to such term in Section 8.02.

 

“Harley-Davidson Credit”
means Harley-Davidson Credit Corp., a Nevada corporation.

 

“Indemnified Parties”
shall have the meaning assigned to such term in Section 8.02.

 

“Indenture”
means the Indenture, dated as of November 1, 2010, between the Trust and
The Bank of New York Mellon Trust Company, N.A.

 

“Owner” means
each Holder of a Trust Certificate.

 

“Owner Trustee”
means Wilmington Trust Company, a Delaware corporation, not in its individual
capacity but solely as owner trustee under this Agreement, and any successor
Owner Trustee hereunder.

 

“Owner Trustee Corporate
Trust Office” means the office of the Owner Trustee at which its
corporate trust business shall be administered, which initially shall be 1100
North Market Street, Wilmington, Delaware 19890-1605 Attn: Corporate Trust
Administration, or such other office at such other address as the Owner Trustee
may designate from time to time by notice to the Certificateholder, the
Servicer, the Indenture Trustee, the Trust Depositor and Harley-Davidson
Credit.

 

“Paying Agent”
means any paying agent or co-paying agent appointed pursuant to Section 3.10.

 

“Person” means
any individual, corporation, estate, partnership, joint venture, association,
joint stock company, trust (including any beneficiary thereof) unincorporated
organization or government or any agency or political subdivision thereof.

 

“Qualified Institutional
Buyer” means a “qualified institutional buyer” as defined in Rule 144A
under the Securities Act.

 

“Record Date”
means, with respect to any Distribution Date, the last Business Day of the
preceding calendar month.

 

“Sale and Servicing
Agreement”  means the Sale
and Servicing Agreement, dated as of November 1, 2010, among the Trust, as
Issuer, the Trust Depositor, Harley-Davidson Credit, as servicer, and The Bank
of New York Mellon Trust Company, N.A., as Indenture Trustee, as the same may
be amended or supplemented from time to time.

 

2

 

“Secretary of State”  means the Secretary of State of the State of Delaware.

 

“Statutory Trust Statute”
means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code
§ 3801 et seq., as the same may be amended from
time to time.

 

“Tax Matters Partner”
shall have the meaning provided in Section 5.04(b) hereof.

 

“Treasury Regulations”
means regulations, including proposed or temporary regulations, promulgated
under the Code.  References herein to
specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.

 

“Trust” means
the trust established by this Agreement.

 

“Trust Certificate”
means a trust certificate evidencing the beneficial equity interest of an Owner
in the Trust, substantially in the form of Exhibit B
hereto.

 

“Trust Depositor”
means Harley-Davidson Customer Funding Corp. in its capacity as Trust Depositor
hereunder, and its successors.

 

“Trust Estate”
means all right, title and interest of the Trust in and to the property and
rights assigned to the Trust pursuant to Article Two of the Sale and
Servicing Agreement, all funds on deposit from time to time in the Trust
Accounts and the Certificate Distribution Account, all other property of the
Trust from time to time, including any rights of the Owner Trustee and the
Trust pursuant to the Sale and Servicing Agreement and the Administration
Agreement.

 

Section 1.02.        Other Definitional Provisions.  Capitalized terms used that are not otherwise
defined herein shall have the meanings ascribed thereto in the Sale and
Servicing Agreement or, if not defined therein, in the Indenture.

 

Section 1.03.        Usage of Terms.  With respect to all terms in this Agreement,
the singular includes the plural and the plural the singular; words importing
any gender include the other genders; references to “writing”
include printing, typing, lithography and other means of reproducing words in a
visible form; references to agreements and other contractual instruments
include all amendments, modifications and supplements thereto or any changes
therein entered into in accordance with their respective terms and not prohibited
by this Agreement; references to Persons include their permitted successors and
assigns; and the term “including”  means  “including without limitation”.

 

Section 1.04.        Section References.  All section references, unless otherwise
indicated, shall be to Sections in this Agreement.

 

Section 1.05.        Accounting Terms.  All accounting terms used but not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles in the United States.

 

3

 

ARTICLE TWO

 

ORGANIZATION

 

Section 2.01.        Name.  The Trust created hereby shall be known as “Harley-Davidson  Motorcycle Trust
2010-1”, in which name the Owner Trustee may conduct the activities
of the Trust, make and execute contracts and other instruments on behalf of the
Trust and sue and be sued.

 

Section 2.02.        Office.  The office of the Trust shall be in care of
the Owner Trustee at the Owner Trustee Corporate Trust Office or at such other
address in Delaware as the Owner Trustee may designate by written notice to the
Owners and the Trust Depositor.

 

Section 2.03.        Purposes and Powers.

 

(a)           The sole purpose of the Trust is to manage the Trust Estate and collect
and disburse the periodic income therefrom for the use and benefit of the
Owners, and in furtherance of such purpose to engage in the following
ministerial activities:

 

(i)            to issue the Notes pursuant to the Indenture and the Trust Certificates
pursuant to this Agreement and to sell the Notes;

 

(ii)           with the proceeds of the sale of the Notes, to purchase the Contracts,
to fund the Reserve Fund and to pay the organizational, start-up and
transactional expenses of the Trust and to pay the balance to the Trust
Depositor pursuant to the Sale and Servicing Agreement;

 

(iii)          to assign, grant, transfer, pledge, mortgage and convey the Trust Estate
pursuant to the Indenture and to hold, manage and distribute to the Owners
pursuant to the Sale and Servicing Agreement any portion of the Trust Estate
released from the Lien of, and remitted to the Trust pursuant to, the
Indenture;

 

(iv)          to enter into and perform its obligations under the Transaction
Documents to which it is to be a party;

 

(v)           to enter into derivative transactions in connection with the Notes or
otherwise;

 

(vi)          to engage in those activities, including entering into agreements, that
are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith; and

 

(vii)         subject to compliance with the Transaction Documents, to engage in such
other activities as may be required in connection with conservation of the
Trust Estate and the making of distributions to the Owners and the Noteholders.

 

The Trust shall not engage in any activities other
than in connection with the foregoing. 
Nothing contained herein shall be deemed to authorize the Owner Trustee
to engage in any business operations or any activities other than those set
forth in the introductory sentence of this Section.  Specifically, the

 

4

 

Owner Trustee shall have no authority to engage in any
business operations, or acquire any assets other than those specifically
included in the Trust Estate under Section 1.01, or otherwise vary the
assets held by the Trust.  Similarly, the
Owner Trustee shall have no discretionary duties other than performing those
ministerial acts set forth above necessary to accomplish the purpose of this
Trust as set forth in the introductory sentence of this Section.  Notwithstanding Section 2.03(a)(iii) above,
the Trust shall not assign, sell or transfer the Contracts except as
contemplated or permitted by the Indenture or the Sale and Servicing Agreement,
without the prior consent of the Trust Depositor.

 

Section 2.04.        Appointment of Owner Trustee.  The Trust Depositor hereby appoints the Owner
Trustee as trustee of the Trust effective as of the date hereof, to have all
the rights, powers and duties set forth herein, and the Owner Trustee hereby
accepts such appointment.

 

Section 2.05.        Initial Capital Contribution of Owner Trust Estate.  The Trust Depositor hereby
sells, assigns, transfers, conveys and sets over to the Owner Trustee, as of
the date hereof, the sum of $1.  The
Owner Trustee hereby acknowledges receipt in trust from the Trust Depositor, as
of the date hereof, of the foregoing contribution, which shall constitute the
initial Trust Estate.  The Trust
Depositor shall pay organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by the Owner Trustee.

 

Section 2.06.        Declaration of Trust.  The Owner Trustee hereby declares that it
will hold the Trust Estate in trust upon and subject to the conditions set
forth herein for the sole purpose of conserving the Trust Estate and collecting
and disbursing the periodic income therefrom for the use and benefit of the
Owners, subject to the obligations of the Trust under the Transaction
Documents.  It is the intention of the
parties hereto that the Trust constitute a statutory trust under the Statutory
Trust Statute and that this Agreement constitute the governing instrument of
such statutory trust.  Effective as of
the date hereof, the Owner Trustee shall have all rights, powers and duties set
forth herein and in the Statutory Trust Statute for the sole purpose and to the
extent necessary to accomplish the purpose of this Trust as set forth in the
introductory sentence of Section 2.03.

 

Section 2.07.        Liability of Trust Depositor.

 

(a)           All liabilities of the Trust, to the extent not paid by a third party,
are and shall be obligations of the Trust and when due and payable shall be
satisfied out of the Trust Estate.

 

(b)           Except as provided in the Statutory Trust Statute, no Certificateholder
shall be personally liable for any liability of the Trust.

 

Section 2.08.        Title to Trust Property.  Legal title to the Trust Estate shall be
vested at all times in the Trust as a separate legal entity except where
applicable law in any jurisdiction requires title to any part of the Trust
Estate to be vested in an Owner Trustee or Owner Trustees, in which case title
shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.

 

Section 2.09.        Situs of Trust.  The Trust will be located and administered in
the State of Delaware.  All bank accounts
maintained by the Owner Trustee on behalf of the Trust shall be located in the
State of Illinois or the State of Delaware. 
The Trust shall not have any employees in any state other than Delaware; provided, however, that nothing herein shall restrict or
prohibit the Owner Trustee from

 

5

 

having employees within or
without the State of Delaware.  Payments
will be received by the Trust only in Delaware and payments will be made by the
Trust only from Delaware.  The only
office of the Trust will be at the Owner Trustee Corporate Trust Office.

 

Section 2.10.        Representations and Warranties of the Trust Depositor.

 

The Trust Depositor hereby represents and warrants to
the Owner Trustee that:

 

(i)            The Trust Depositor is duly organized and validly existing as a
corporation organized and existing and in good standing under the laws of the
State of Nevada, with power and authority to own its properties and to conduct
its business and had at all relevant times, and has, power, authority and legal
right to acquire and own the Contracts.

 

(ii)           The Trust Depositor is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of property or
the conduct of its business requires such qualifications, and where the failure
to so qualify or obtain such licenses and approvals would have a material adverse
effect on the Trust, the Contracts, the operations or business of the Servicer,
or the ability of the Trust Depositor to perform its obligations under this
Agreement.

 

(iii)          The Trust Depositor has the power and authority to execute and deliver
this Agreement and to carry out its terms; the Trust Depositor has full power
and authority to sell and assign the property to be sold and assigned to and
deposited with the Owner Trustee on behalf of the Trust as part of the Trust
Estate and has duly authorized such sale and assignment and deposit with the
Owner Trustee on behalf of the Trust by all necessary corporate action; and the
execution, delivery and performance of this Agreement have been duly authorized
by the Trust Depositor by all necessary corporate action.

 

(iv)          The consummation of the transactions contemplated by this Agreement and
the fulfillment of the terms hereof do not conflict with, result in any breach
of any of the terms and provisions of, nor constitute (with or without notice
or lapse of time) a default under, the articles of incorporation or bylaws of
the Trust Depositor, or any indenture, agreement or other instrument to which
the Trust Depositor is a party or by which it is bound; nor result in the
creation or imposition of any Lien upon any of the properties of the Trust
Depositor pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Transaction Documents); nor violate any
law or any order, rule or regulation applicable to the Trust Depositor of
any court or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Trust Depositor
or its properties; which breach, default, conflict, Lien or violation in any
case would have a material adverse effect on the Trust, the Contracts, the
operations or business of the Servicer, or the ability of the Trust Depositor
to perform its obligations under this Agreement.

 

(v)           There are no proceedings or investigations pending, or to the Trust
Depositor’s best knowledge threatened, before any court, regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Trust Depositor or its properties: (A) asserting the invalidity
of this Agreement, any of the other Transaction Documents or the Trust
Certificates, (B) seeking to prevent the issuance of the Trust
Certificates

 

6

 

or the consummation
of any of the transactions contemplated by this Agreement or any of the other
Transaction Documents, (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Trust Depositor of its
obligations under, or the validity or enforceability of, this Agreement, any of
the other Transaction Documents or the Trust Certificates or (D) involving
the Trust Depositor and which would adversely affect the federal income tax or
other federal, state or local tax attributes of the Trust Certificates.

 

Section 2.11.        Tax Treatment.

 

It is the intention of the Trust Depositor that (i) so
long as there is only one Certificateholder, the Trust be disregarded as a
separate entity pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii) as
in effect for periods after January 1, 1997 (and, in such case, Trust
items of income, gain, loss and deduction for any month as determined for
federal income tax purposes shall be allocated entirely to the Trust Depositor
(or subsequent purchaser of the sole Trust Certificate) as the sole Certificateholder)
and (ii) if there is more than one Certificateholder, the Issuer shall be
treated as a partnership for purposes of federal income, state and local income
and single business tax and any other income taxes.  The parties agree that, unless otherwise required
by appropriate tax authorities, the Trust will file or cause to be filed annual
or other necessary returns, reports and other forms consistent with the
characterization of the Trust as provided in the preceding sentence for such
tax purposes.

 

Section 2.12.        Texas State Tax Matters.

 

For purposes of Texas franchise taxes, it is the
intention of the parties that the Trust be classified (i) as a passive
entity within the meaning of Sections 171.0002 through 171.0004 of the Texas
Tax Code, and (ii) not as a “business trust” within the meaning of
Treasury Regulations Section 301.7701-4(b).  The Trust Depositor and each
Certificateholder, by acceptance of a Certificate, agree to treat the Trust
consistent with such intention, unless otherwise required by law.  Notwithstanding anything to the contrary
contained herein, nothing in this Agreement should be read to imply that the
Trust is doing business in Texas or has sufficient nexus with Texas in order
for the Texas franchise tax to apply to the Trust.

 

7

 

ARTICLE THREE

 

TRUST
CERTIFICATES AND TRANSFER OF INTERESTS

 

Section 3.01.        Initial Ownership.  Upon the formation of the Trust by the
contribution by the Trust Depositor pursuant to Section 2.05 and until the
issuance of the Trust Certificates, the Trust Depositor shall be the sole
beneficiary of the Trust.

 

Section 3.02.        The Trust Certificates.  The Trust Certificates shall be issued in
minimum denominations of $100,000 and integral multiples thereof; provided,
however, that one Trust Certificate may be issued in such denomination as
required to include any residual amount. 
The Trust Certificates shall be substantially in the form of Exhibit B hereto. 
The Trust Certificates shall be executed by the Owner Trustee on behalf
of the Trust by manual or facsimile signature of an authorized officer of the
Owner Trustee and shall be deemed to have been validly issued when so
executed.  A Trust Certificate bearing
the manual or facsimile signature of individuals who were, at the time when
such signatures were affixed, authorized to sign on behalf of the Owner Trustee
shall be a valid and binding obligation of the Trust, notwithstanding that such
individuals or any of them have ceased to be so authorized prior to the
authentication and delivery of such Trust Certificate or did not hold such
offices at the date of such Trust Certificate. 
Each Trust Certificate shall be dated the date of its authentication.

 

Section 3.03.        Authentication and Delivery of Trust Certificates.  The Owner Trustee shall cause
to be authenticated and delivered upon the order of the Trust Depositor, in
exchange for the Contracts and the other Trust Assets, simultaneously with the
sale, assignment and transfer to the Trust of the Contracts and other Trust
Assets, and the constructive delivery to the Owner Trustee of the Contract
Files and the other Trust Assets, a Trust Certificate duly authenticated by the
Owner Trustee, evidencing the entire ownership of the Trust.  No Trust Certificate shall be valid for any
purpose unless there appears on such Trust Certificate a certificate of
authentication substantially in the form set forth in the form of Trust
Certificate attached hereto as Exhibit B,
executed by the Owner Trustee or its authenticating agent, by manual signature,
and such certificate upon any Trust Certificate shall be conclusive evidence,
and the only evidence, that such Trust Certificate has been duly authenticated
and delivered hereunder.  Upon issuance,
authorization and delivery pursuant to the terms hereof, the Trust Certificates
will be entitled to the benefits of this Agreement.

 

Section 3.04.        Registration of Transfer and Exchange of Trust Certificates.

 

(a)           The Certificate Registrar shall keep or cause to be kept, a Certificate
Register, subject to such reasonable regulations as it may prescribe.  The Certificate Register shall provide for
the registration of the Trust Certificates and transfers and exchanges of the
Trust Certificates as provided herein.  The
Owner Trustee is hereby initially appointed Certificate Registrar for the purpose
of registering the Trust Certificates and transfers and exchanges of the Trust
Certificates as herein provided.  In the
event that, subsequent to the Closing Date, the Owner Trustee notifies the
Servicer that it is unable to act as Certificate Registrar, the Servicer shall
appoint another bank or trust company, having an office or agency located in
the City of Chicago, Illinois, agreeing to act in accordance with the
provisions of this Agreement applicable to it, and otherwise acceptable to the
Owner Trustee, to act as successor Certificate Registrar hereunder.

 

8

 

(b)           Upon surrender for registration of transfer of a Trust Certificate at
the Owner Trustee Corporate Trust Office, the Owner Trustee shall execute,
authenticate and deliver (or shall cause its authenticating agent to
authenticate and deliver), in the name of the designated transferee, a new
Trust Certificate having the same aggregate amount.

 

(c)           Every Trust Certificate presented or surrendered for registration of
transfer shall be accompanied by a written instrument of transfer in form
satisfactory to the Owner Trustee and the Certificate Registrar duly executed
by the Holder thereof or his attorney duly authorized in writing.

 

(d)           No transfer of a Trust Certificate shall be made unless such transfer is
made in a transaction which does not require registration or qualification
under the Securities Act of 1933 or qualification under any state securities or
“Blue Sky” laws.  Neither the Owner
Trustee nor the Certificate Registrar shall effect the registration of any
transfer of a Trust Certificate unless prior to such transfer the Owner Trustee
shall have received an Opinion of Counsel that (x) the transfer of such
Trust Certificate is being made pursuant to an effective registration under the
Securities Act of 1933 or is exempt from the registration requirements of the
Securities Act of 1933 and (y) such transfer will not cause the Trust to
be treated as an association (or a publicly traded partnership) taxable as a
corporation for federal income tax purposes. 
Any transferee of a Trust Certificate must be either an Affiliate of the
Trust Depositor or a Qualified Institutional Buyer.

 

Notwithstanding anything
else to the contrary herein, any purported transfer of a Trust Certificate or
an interest therein to or on behalf of a Benefit Plan or utilizing the assets
of a Benefit Plan shall be void and of no effect.  The Owner Trustee shall not be obligated to register
any transfer of a Trust Certificate unless each of the transferor and the
transferee have certified to the Owner Trustee that such transfer does not
violate any of the transfer restrictions stated herein.  The Owner Trustee shall not be liable to any
Person for registering any transfer based on such certifications.

 

(e)           No service charge shall be made for any registration of transfer or
exchange of a Trust Certificate, but the Owner Trustee may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer of a Trust Certificate.

 

(f)            All Trust Certificates surrendered for registration of transfer shall be
canceled and subsequently destroyed by the Owner Trustee.

 

Section 3.05.        Mutilated, Destroyed, Lost or Stolen Trust Certificates.  If (i) any mutilated Trust
Certificate is surrendered to the Certificate Registrar, or the Certificate
Registrar receives evidence to its satisfaction of the destruction, loss or
theft of any Trust Certificate, and (ii) there is delivered to the
Certificate Registrar and the Owner Trustee such security or indemnity as may
be required by them to save each of them harmless, then, in the absence of
notice that such Trust Certificate has been acquired by a bona fide purchaser,
the Owner Trustee on behalf of the Trust shall execute and the Owner Trustee or
its authenticating agent shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Trust Certificate, a new
Trust Certificate of like tenor and fractional undivided interest.  In connection with the issuance of any new
Trust Certificate under this Section, the Owner Trustee may require the payment
by the Holder of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto. 
Any duplicate Trust Certificate issued pursuant to this Section shall
constitute complete and indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Trust
Certificate shall be found at any time.

 

9

 

Section 3.06.        Person Deemed Owner.  Prior to due presentation of a Trust
Certificate for registration of transfer, the Owner Trustee, the Certificate
Registrar and any of their respective agents may treat the Person in whose name
any Trust Certificate is registered as the owner of such Trust Certificate for
the purpose of receiving distributions pursuant to Section 5.01 and for
all other purposes whatsoever, and none of the Owner Trustee, the Certificate
Registrar, any Paying Agent or any of their respective agents shall be affected
by any notice of the contrary.

 

Section 3.07.        Access to List of Certificateholders’ Name and Address.  The Owner Trustee shall furnish
or cause to be furnished to the Servicer and the Trust Depositor, within 15
days after receipt by the Certificate Registrar of a written request therefor
from the Servicer or the Trust Depositor, the name and address of the
Certificateholder as of the most recent Record Date in such form as the
Servicer or the Trust Depositor may reasonably require.  If three or more Certificateholders or one or
more Holders of Certificates evidencing, in the aggregate, not less than 25% of
the Certificate Balance apply in writing to the Owner Trustee, and such
application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under this Agreement or under
the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Owner Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders.  Each
Certificateholder, by receiving and holding a Trust Certificate, agrees with
the Servicer, the Trust Depositor and the Owner Trustee that none of the
Servicer, the Trust Depositor or the Owner Trustee shall be held accountable by
reason of the disclosure of any such information as to the name and address of
such Certificateholder hereunder, regardless of the source from which such
information was derived.

 

Section 3.08.        Maintenance of Office or Agency.  The Owner Trustee shall maintain in
Wilmington, Delaware, an office or offices or agency or agencies where the
Trust Certificates may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Owner Trustee in respect of the
Trust Certificates and this Agreement may be served.  The Owner Trustee hereby designates the Owner
Trustee Corporate Trust Office as its office for such purposes.  The Owner Trustee shall give prompt written
notice to the Trust Depositor, the Servicer and to the Certificateholder of any
change in the location of the Certificate Register or any such office or
agency.

 

Section 3.09.        Trust Certificates.  The Owner Trustee, on behalf of the Trust,
shall execute, authenticate and deliver, the initial Trust Certificate.

 

Section 3.10.        Appointment of Paying Agent.  The Paying Agent shall make distributions to
the Certificateholders from the Certificate Distribution Account pursuant to Section 5.01(a) and
shall report the amounts of such distributions to the Owner Trustee.  The Paying Agent initially shall be
Wilmington Trust Company and any co-paying agent chosen by the Paying Agent
that is acceptable to the Owner Trustee. 
Each Paying Agent shall be permitted to resign as Paying Agent upon 30
days’ written notice to the Owner Trustee. 
In the event that Wilmington Trust Company shall no longer be the Paying
Agent, the Owner Trustee shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company). 
The Owner Trustee shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Owner Trustee to execute and deliver
to the Owner Trustee an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Owner Trustee that, as Paying
Agent, such successor Paying Agent or additional Paying Agent will hold all
sums, if any, held by it for payment to the Certificateholder in trust for the
benefit of the Certificateholder entitled thereto until such sums shall be paid
to such Certificateholder.  The Paying
Agent shall return all unclaimed funds to the

 

10

 

Owner Trustee and upon
removal of a Paying Agent such Paying Agent shall also return all funds in its
possession to the Owner Trustee.  The
provisions of Sections 7.01, 7.03, 7.04 and 8.01 shall apply to the Owner
Trustee also in its role as Paying Agent, for so long as the Owner Trustee
shall act as Paying Agent and, to the extent applicable, to any other paying
agent appointed hereunder.  Any reference
in this Agreement to the Paying Agent shall include any co-paying agent unless
the context requires otherwise.

 

Section 3.11.        Ownership by Trust Depositor of Initial Trust Certificates.  The Trust Depositor shall on
the Closing Date hold the 100% of the Trust Certificates.

 

Section 3.12.        Repayment of Trust Certificates.  In the event of an optional purchase pursuant
to Section 7.10 of the Sale and Servicing Agreement, the Trust
Certificates will be prepaid in whole, but not in part, at an aggregate
prepayment price equal to the aggregate Certificate Balance of all the Trust
Certificates.

 

ARTICLE FOUR

 

ACTIONS
BY OWNER TRUSTEE AND CERTIFICATEHOLDERS

 

Section 4.01.        Prior Notice to Owners with Respect to Certain Matters.  Subject to the provisions and
limitation of Section 4.04, with respect to the following matters, the
Owner Trustee shall not take action unless at least 30 days before the taking
of such action, the Owner Trustee shall have notified the Certificateholders in
writing of the proposed action, the Indenture Trustee shall have consented to
such action in the event any Notes are outstanding and the Owners shall not
have notified the Owner Trustee in writing prior to the 30th day after such
notice is given that such Owners have withheld consent or provided alternative
direction:

 

(a)           the initiation of any claim or lawsuit by the Trust (except claims or
lawsuits brought in connection with the collection of the Contracts) and the
compromise of any action, claim or lawsuit brought by or against the Trust
(except with respect to the aforementioned claims or lawsuits for collection of
the Contracts);

 

(b)           the election by the Trust to file an amendment to the Certificate of
Trust (unless such amendment is required to be filed under the Statutory Trust
Statute);

 

(c)           the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;

 

(d)           the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially and adversely affects the interest of the Owners;

 

(e)           the amendment, change or modification of the Administration Agreement,
except to cure any ambiguity or to amend or supplement any provision in a
manner or add any provision that would not materially and adversely affect the
interests of the Owners; or

 

11

 

(f)            the appointment pursuant to the Indenture of a successor Note Registrar
or Indenture Trustee or pursuant to this Agreement of a successor Certificate
Registrar, or the consent to the assignment by the Note Registrar, Indenture
Trustee or Certificate Registrar of its obligations under the Indenture or the
Agreement, as applicable.

 

Section 4.02.        Action by Owners with Respect to Certain Matters.  Subject to the provisions and
limitations of Section 4.04, the Owner Trustee shall not have the power,
except upon the direction of the Owners, to (a) remove the Administrator
pursuant to Section 8 of the Administration Agreement, (b) appoint a
successor Administrator pursuant to Section 8 of the Administration
Agreement, (c) except as expressly provided in the Transaction Documents,
sell the Contracts or other Trust Assets after the termination of the
Indenture, (d) initiate any claim, suit or proceeding by the Trust or compromise
any claim, suit or proceeding brought by or against the Trust, (e) authorize
the merger or consolidation of the Trust with or into any other statutory trust
or entity (other than in accordance with Section 3.10 of the Indenture) or
(f) amend the Certificate of Trust. 
The Owner Trustee shall take the actions referred to in the preceding
sentence only upon written instructions assigned by the Owners.

 

Section 4.03.        Action by Owners with Respect to Bankruptcy.  The Owner Trustee shall not
have the power to commence a voluntary proceeding in a bankruptcy relating to
the Trust without the prior approval of all Owners (including the Trust
Depositor) and the delivery to the Owner Trustee by each such Owner of a
certificate certifying that such Owner reasonably believes that the Trust is
insolvent.

 

Section 4.04.        Restrictions on Owners’ Power.  The Owners shall not direct the Owner Trustee
to take or to refrain from taking any action if such action or inaction would
be contrary to any obligation of the Trust or the Owner Trustee under this
Agreement or any of the Transaction Documents or would be contrary to the
purpose of this Trust as set forth in Section 2.03, nor shall the Owner
Trustee be obligated to follow any such direction, if given.

 

Section 4.05.        Majority of the Trust Certificates Control.  Except as otherwise expressly
provided herein, any action that may be taken by the Certificateholders under
this Agreement may be taken by the Holders of the Trust Certificates evidencing
not less than a majority of the Certificate Balance.  Except as expressly provided herein, any
written notice of the Certificateholders delivered pursuant to this Agreement
shall be effective if signed by Holders of the Trust Certificates evidencing
not less than a majority of the Certificate Balance at the time of the delivery
of such notice.

 

ARTICLE FIVE

 

APPLICATION
OF TRUST FUNDS;

CERTAIN DUTIES

 

Section 5.01.        Establishment of Trust Account; Application of Trust Funds.

 

(a)           On or before the Distribution Date on which the Notes have been paid in
full, the Owner Trustee, for the benefit of the Certificateholders, shall
establish and maintain (or shall cause to be established and maintained) in the
name of the Issuer an Eligible Account (the “Certificate
Distribution Account”), bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the
Certificateholders.

 

12

 

The Issuer shall possess all
right, title and interest in funds on deposit from time to time in the
Certificate Distribution Account and in the proceeds thereof.  Except as otherwise expressly provided
herein, the Certificate Distribution Account shall be under the sole dominion
and control of the Owner Trustee for the benefit of the Certificateholders. If,
at any time, the Certificate Distribution Account ceases to be an Eligible
Account, the Owner Trustee (or the Depositor on behalf of the Owner Trustee, if
the Certificate Distribution Account is not then held by the Owner Trustee or
an Affiliate thereof) shall within ten Business Days establish a new
Certificate Distribution Account as an Eligible Account and shall transfer any
cash and/or any investments to such new Certificate Distribution Account.
Monies on deposit in the Certificate Distribution Account may be invested in
Eligible Investments upon the terms set forth in Section 5.05 of the Sale
and Servicing Agreement, as if the Certificate Distribution Account were a “Trust
Account”.

 

(b)           On each Distribution Date, the Paying Agent will distribute to the
Certificateholders from amounts on deposit in the Certificate Distribution
Account, on a pro rata basis in accordance with their Certificate Balance,
amounts received pursuant to Section 7.05 of the Sale and Servicing
Agreement with respect to such Distribution Date.

 

(c)           On each Distribution Date, the Paying Agent shall send to the
Certificateholders the statement or statements provided to the Owner Trustee by
the Servicer pursuant to Section 9.01 of the Sale and Servicing Agreement
with respect to such Distribution Date.

 

(d)           In the event that any withholding tax is imposed on the Trust’s payment
(or allocation of income) to the Certificateholders, such tax shall reduce the
amount otherwise distributable to the Certificateholders in accordance with
this Section.  The Paying Agent is hereby
authorized and directed to retain from amounts otherwise distributable to the
Owners sufficient funds for the payment of any tax that is legally owed by the
Trust (but such authorization shall not prevent the Owner Trustee from
contesting any such tax in appropriate proceedings, and withholding payment of
such tax, if permitted by law, pending the outcome of such proceedings).  The amount of any withholding tax imposed
with respect to any Certificateholder shall be treated as cash distributed to
such Certificateholder at the time it is withheld by the Trust and remitted to
the appropriate taxing authority.  If
there is a possibility that withholding tax is payable with respect to a
distribution, the Paying Agent may in its sole discretion withhold such amounts
in accordance with the paragraph (c).

 

Section 5.02.        Method of Payment.  Subject to Section 9.01(c) respecting
the final payment upon retirement of the Trust Certificates, distributions
required to be made to the Certificateholders of record on the related Record
Date shall be made by check mailed to such Certificateholders at the address of
such Holders appearing in the Certificate Register.

 

Section 5.03.        Accounting and Reports to the Certificateholders, Owners, the Internal
Revenue Service and Others.  The Administrator shall (a) maintain (or
cause to be maintained) the books of the Trust on a calendar year basis and the
accrual method of accounting, (b) deliver to the Owners, as may be required
by the Code and applicable Treasury Regulations, such information as may be
required to enable each Owner to prepare its federal and state income tax
returns, (c) file such tax returns relating to the Trust and make such
elections as from time to time may be required or appropriate under any
applicable state or federal statute or any rule or regulation thereunder
so as to maintain the federal income tax treatment for the Trust as set forth
in Section 2.11, (d) cause such tax returns to be signed in the
manner required by law and (e) collect or cause to be collected any
withholding tax as described in and in

 

13

 

accordance with Section 5.01(c) with
respect to income or distributions to Owners. 
The Owner Trustee shall elect under Section 1278 of the Code to
include in income currently any market discount that accrues with respect to
the Contracts.  If applicable, the Owner
Trustee shall not make the election provided under Section 754 or Section 761
of the Code.

 

Section 5.04.        Signature on Returns; Tax Matters Partner.

 

(a)           The Trust Depositor shall sign on behalf of the Trust the tax returns of
the Trust.

 

(b)           If subchapter K of the Code should be applicable to the Trust, the Trust
Depositor shall be designated the “tax matters partner”
of the Trust pursuant to Section 6231(a)(7)(A) of the Code and
applicable Treasury Regulations.

 

ARTICLE SIX

 

AUTHORITY
AND DUTIES OF OWNER TRUSTEE

 

Section 6.01.        General Authority.  Subject to the provisions and limitations of
Sections 2.03 and 2.06, the Owner Trustee is authorized and directed to execute
and deliver the Transaction Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Transaction Documents to which the Trust is to be a party and any amendment
or other agreement, as evidenced conclusively by the Owner Trustee’s execution
thereof.  In addition to the foregoing,
the Owner Trustee is authorized, but shall not be obligated, to take all
actions required of the Trust pursuant to the Transaction Documents.  The Owner Trustee is further authorized from
time to time to take such action as the Administrator recommends with respect
to the Transaction Documents.

 

Section 6.02.        General Duties.  Subject to the provisions and limitations of
Sections 2.03 and 2.06, it shall be the duty of the Owner Trustee to discharge
(or cause to be discharged through the Administrator) all of its
responsibilities pursuant to the terms of this Agreement and the Transaction
Documents to which the Trust is a party and to administer the Trust in the
interest of the Owner, subject to the Transaction Documents and in accordance
with the provisions of this Agreement. 
Without limiting the foregoing, the Owner Trustee shall on behalf of the
Trust file and prove any claim or claims that may exist against Harley-Davidson
Credit in connection with any claims paying procedure as part of an insolvency
or receivership proceeding involving Harley-Davidson Credit.  Notwithstanding the foregoing, the Owner
Trustee shall be deemed to have discharged its duties and responsibilities
hereunder and under the Transaction Documents to the extent the Administrator
has agreed in the Administration Agreement to perform any act or to discharge
any duty of the Owner Trustee hereunder or under any Transaction Document, and
the Owner Trustee shall not be held liable for the default or failure of the
Administrator to carry out its obligations under the Administration Agreement.

 

Section 6.03.        Action Upon Instruction.

 

(a)           Subject to Article Four, in accordance with the terms of the
Transaction Documents the Owners may by written instruction direct the Owner
Trustee in the management of the Trust.

 

14

 

(b)           The Owner Trustee shall not be required to take any action hereunder or
under any other Transaction Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely
to result in liability on the part of the Owner Trustee or is contrary to the
terms hereof or of any other Transaction Document or is otherwise contrary to
law.

 

(c)           Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or under
any other Transaction Document, the Owner Trustee shall promptly give notice
(in such form as shall be appropriate under the circumstances) to the Owners
requesting instruction as to the course of action to be adopted, and to the
extent the Owner Trustee acts in good faith in accordance with any written
instruction of the Owners received, the Owner Trustee shall not be liable on
account of such action to any Person.  If
the Owner Trustee shall not have received appropriate instruction within ten
days of such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action not
inconsistent with this Agreement and the other Transaction Documents, as it
shall deem to be in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.

 

(d)           In the event that the Owner Trustee is unsure as to the applicability of
any provision of this Agreement or any other Transaction Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this Agreement
permits any determination by the Owner Trustee or is silent or is incomplete as
to the course of action that the Owner Trustee is required to take with respect
to a particular set of facts, the Owner Trustee may give notice (in such form
as shall be appropriate under the circumstances) to the Owners requesting
instruction and, to the extent that the Owner Trustee acts or refrains from
acting in good faith in accordance with any such instruction received, the
Owner Trustee shall not be liable, on account of such action or inaction, to
any Person.  If the Owner Trustee shall
not have received appropriate instruction within ten days of such notice (or
within such shorter period of time as reasonably may be specified in such
notice or may be necessary under the circumstances) it may, but shall be under
no duty to, take or refrain from taking such action not inconsistent with this
Agreement or the other Transaction Documents, as it shall deem to be in the
best interests of the Owners, and shall have no liability to any Person for
such action or inaction.

 

Section 6.04.        No Duties Except as Specified in this Agreement or in Instructions.  The Owner Trustee shall not
have any duty or obligation to manage, make any payment with respect to,
register, record, sell, dispose of or otherwise deal with the Trust Estate, or
to otherwise take or refrain from taking any action under, or in connection
with, any document contemplated hereby to which the Owner Trustee is a party,
except as expressly provided by the terms of this Agreement or any document or
written instruction received by the Owner Trustee pursuant to Section 6.03;
and no implied duties or obligations shall be read into this Agreement or any
other Transaction Document against the Owner Trustee.  The Owner Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder or to prepare or file any
Commission filing for the Trust or to record this Agreement or any other
Transaction Document.  The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take
all action as may be necessary to discharge any liens on any part of the Trust
Estate that result from actions by, or claims against, the Owner Trustee that
are not related to the ownership or the administration of the Trust Estate.

 

15

 

Section 6.05.        No Action Except Under Specified Documents or Instructions.  The Owner Trustee shall not
manage, control, use, sell, dispose of or otherwise deal with any part of the
Trust Estate except (i) in accordance with the powers granted to and the
authority conferred upon the Owner Trustee pursuant to this Agreement, (ii) in
accordance with the other Transaction Documents and (iii) in accordance
with any document or instruction delivered to the Owner Trustee pursuant to Section 6.03.

 

Section 6.06.        Restrictions.  The Owner Trustee shall not take any action (i) that
is inconsistent with the purposes of the Trust set forth in Section 2.03
or (ii) that, to the actual knowledge of the Owner Trustee, would result
in the Trust’s becoming taxable as a corporation for federal or state income
tax purposes.  The Owners shall not
direct the Owner Trustee to take actions that would violate the provisions of
this Section.

 

Section 6.07.        Pennsylvania Motor Vehicle Sales Finance Act Licenses.  The
Owner Trustee shall use its best efforts to maintain the effectiveness of all
licenses required under the Pennsylvania Motor Vehicle Sales Finance Act in
connection with the transactions contemplated by the Transaction Documents
until the lien and security interest of the Indenture shall no longer be in
effect in accordance with its terms.

 

ARTICLE SEVEN

 

CONCERNING
THE OWNER TRUSTEE

 

Section 7.01.        Acceptance of Trusts and Duties.  The Owner Trustee accepts the trusts hereby
created and agrees to perform its duties hereunder with respect to such trusts
but only upon the terms of this Agreement. 
The Owner Trustee also agrees to disburse all moneys actually received
by it constituting part of the Trust Estate upon the terms of the Transaction
Documents and this Agreement.  The Owner
Trustee shall not be answerable or accountable hereunder or under any other
Transaction Document under any circumstances, except (i) for its own
willful misconduct or negligence or (ii) in the case of the inaccuracy of
any representation or warranty contained in Section 7.03 expressly made by
the Owner Trustee.  In particular, but
not by way of limitation (and subject to the exceptions set forth in the
preceding sentence):

 

(a)           the Owner Trustee shall not be liable for any error of judgment made by
a responsible officer of the Owner Trustee;

 

(b)           the Owner Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in accordance with the instructions of the
Administrator or any Owner;

 

(c)           no provision of this Agreement or any other Transaction Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Transaction Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured or provided to it;

 

16

 

(d)           under no circumstances shall the
Owner Trustee be liable for indebtedness evidenced by or arising under any of
the Transaction Documents, including the principal of and interest on the
Notes;

 

(e)           the Owner Trustee shall not be
responsible for or in respect of the validity or sufficiency of this Agreement
or for the due execution hereof by the Trust Depositor or for the form,
character, genuineness, sufficiency, value or validity of any of the Trust
Estate, or for or in respect of the validity or sufficiency of the Transaction
Documents, other than the certificate of authentication on the Trust
Certificates, and the Owner Trustee shall in no event assume or incur any
liability, duty, or obligation to any Noteholder or to any Owner, other than as
expressly provided for herein or expressly agreed to in the Transaction
Documents;

 

(f)            the Owner Trustee shall not be
liable for the default or misconduct of the Administrator, the Trust Depositor,
the Indenture Trustee or the Servicer under any of the Transaction Documents or
otherwise and the Owner Trustee shall have no obligation or liability to
perform the obligations of the Trust under this Agreement or the other
Transaction Documents that are required to be performed by the Administrator
under the Administration Agreement, the Indenture Trustee under the Indenture,
or the Servicer or the Trust Depositor under the Sale and Servicing Agreement;
and

 

(g)           the Owner Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by the Agreement,
or to institute, conduct or defend any litigation under this Agreement or
otherwise or in relation to this Agreement or any other Transaction Document,
at the request, order or direction of any Owner, unless such Owner has offered
to the Owner Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities that may be incurred by the Owner Trustee
therein or thereby.  The right of the
Owner Trustee to perform any discretionary act enumerated in this Agreement or
in any other Transaction Document shall not be construed as a duty, and the
Owner Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of any such act.

 

Section 7.02.        Furnishing of Documents.  The Owner Trustee shall furnish
to the Owners promptly upon receipt of a written request therefor, duplicates
or copies of all reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Owner Trustee under the
Transaction Documents.

 

Section 7.03.        Representations and Warranties.  The Owner Trustee hereby
represents and warrants to the Trust Depositor and the Owners that:

 

(a)           It is a banking corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware.  It has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement.

 

(b)           It has taken all corporate action
necessary to authorize the execution and delivery by it of this Agreement, and
this Agreement will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement on its behalf.

 

(c)           Neither the execution nor the
delivery by it of this Agreement, nor the consummation by it of the
transactions contemplated hereby nor compliance by it with any of the terms or

 

17

 

provisions hereof will
contravene any federal or Delaware law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment or
order binding on it, or constitute any default under its charter documents or
bylaws or any indenture, mortgage, contract, agreement or instrument to which
it is a party or by which any of its properties may be bound or result in the
creation or imposition of any lien, charge or encumbrance on the Trust Estate
resulting from actions by or claims against the Owner Trustee individually
which are unrelated to this Agreement or the other Transaction Documents.

 

Section 7.04.        Reliance; Advice of Counsel.

 

(a)           The Owner Trustee shall incur no
liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. 
The Owner Trustee may accept a certified copy of a resolution of the
board of directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that the
same is in full force and effect.  As to
any fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a certificate,
signed by the president or any vice president or by the treasurer or other
authorized officers of the relevant party, as to such fact or matter and such
certificate shall constitute full protection to the Owner Trustee for any
action taken or omitted to be taken by it in good faith in reliance thereon.

 

(b)           In the exercise or administration of
the trusts hereunder and in the performance of its duties and obligations under
this Agreement or the other Transaction Documents, the Owner Trustee (i) may
act directly or through its agents or attorneys pursuant to agreements entered
into by any of them, and the Owner Trustee shall not be liable for the conduct
or misconduct of such agents or attorneys as shall have been selected by the
Owner Trustee with reasonable care, and (ii) may consult with counsel,
accountants and other skilled persons to be selected with reasonable care and
employed by it.   The Owner Trustee shall
not be liable for anything done, suffered or omitted in good faith by it in
accordance with the written opinion or advice of any such counsel, accountants
or other such persons.

 

Section 7.05.        Not Acting in Individual Capacity.  Except as provided in this Article Seven,
in accepting the trusts hereby created, Wilmington Trust Company acts solely as
Owner Trustee hereunder and not in its individual capacity, and all Persons
having any claim against the Owner Trustee by reason of the transactions
contemplated by this Agreement or any other Transaction Document shall look
only to the Trust Estate for payment or satisfaction thereof.

 

Section 7.06.        Owner Trustee Not Liable for Trust
Certificate, Notes or Contracts.  The recitals contained herein and in the
Trust Certificates (other than the signature and countersignature of the Owner
Trustee and the certificate of authentication on the Trust Certificates) shall
be taken as the statements of the Trust Depositor, and the Owner Trustee
assumes no responsibility for the correctness thereof.  The Owner Trustee makes no representations as
to the validity or sufficiency of this Agreement, any other Transaction
Document or the Trust Certificates (other than the signature and
countersignature of the Owner Trustee and the certificate of authentication on
the Trust Certificates) or the Notes, or of any Contract or related
documents.  The Owner Trustee shall at no
time have any responsibility or liability for or with respect to the legality,
validity and enforceability of any Contract, or the perfection and priority of
any security interest created by any Contract in any Motorcycle or the
maintenance of any such perfection

 

18

 

and priority, or for or with
respect to the sufficiency of the Trust Estate or its ability to generate the
payments to be distributed to the Certificateholders under this Agreement or
the Noteholders under the Indenture or the Sale and Servicing Agreement,
including, without limitation, the existence, condition and ownership of any
Motorcycle; the existence and enforceability of any insurance thereon; the
existence and contents of any Contract on any computer or other record thereof;
the validity of the assignment of any Contract to the Trust or of any
intervening assignment; the completeness of any Contract; the performance or
enforcement of any Contract; the compliance by the Trust Depositor or the
Servicer with any warranty or representation made under any Transaction
Document or in any related document or the accuracy of any such warranty or
representation; or any action of the Administrator, the Indenture Trustee or
the Servicer or any subservicer taken in the name of the Owner Trustee.

 

Section 7.07.        Owner Trustee May Own Trust
Certificate and Notes.  The Owner Trustee in its individual or any
other capacity may become the owner or pledgee of a Trust Certificate or Notes
and may deal with the Trust Depositor, the Administrator, the Indenture Trustee
and the Servicer in banking transactions with the same rights as it would have
if it were not Owner Trustee.

 

ARTICLE EIGHT

 

COMPENSATION
OF OWNER TRUSTEE

 

Section 8.01.        Owner Trustee’s Fees and Expenses.  The Owner Trustee shall receive
as compensation for its services hereunder such fees as have been separately
agreed upon between the Owner Trustee and the Trust Depositor.  Additionally, the Owner Trustee shall be
entitled to be reimbursed by the Trust Depositor for its other reasonable
expenses hereunder, including the reasonable compensation, expenses and
disbursements of such agents, representatives, experts and counsel as the Owner
Trustee may employ in connection with the exercise and performance of its
rights and its duties hereunder.

 

Section 8.02.        Indemnification.  The Trust Depositor shall be
liable as primary obligor for, and shall indemnify the Owner Trustee and its
successors, assigns and servants (collectively, the  “Indemnified Parties”) from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, “Expenses”) which may at any time
be imposed on, incurred by or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
other Transaction Documents, the Trust Estate, the administration of the Trust
Estate or the action or inaction of the Owner Trustee hereunder, except only
that the Trust Depositor shall not be liable for or required to indemnify an
Indemnified Party from and against Expenses arising or resulting from any of
the matters described in the third sentence of Section 7.01.  The indemnities contained in this Section shall
survive the resignation or termination of the Owner Trustee or the termination
of this Agreement.  In the event of any
claim, action or proceeding for which indemnity will be sought pursuant to this
Section, the Owner Trustee’s choice of legal counsel shall be subject to the
approval of the Trust Depositor, which approval shall not be unreasonably withheld.

 

Section 8.03.        Payments to the Owner Trustee.  Any amounts paid to the Owner
Trustee pursuant to this Article shall be deemed not to be a part of the
Trust Estate immediately after such payment.

 

19

 

ARTICLE NINE

 

TERMINATION
OF TRUST AGREEMENT

 

Section 9.01.        Termination of Trust Agreement.

 

(a)           This Agreement (other than Article Eight)
and the Trust shall terminate and be of no further force or effect upon the
earlier of (i) the maturity or other liquidation of the last Contract and
the disposition of any amounts received upon liquidation of any property
remaining in the Trust, (ii) final distribution by the Owner Trustee of
all moneys or other property or proceeds of the Trust Estate in accordance with
the terms of the Indenture, the Sale and Servicing Agreement and Article Five
and (iii) the expiration of 21 years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late Ambassador of the United
States to the Court of St. James’s, living on the date hereof.  The bankruptcy, liquidation, dissolution,
death or incapacity of any Owner shall not (i) operate to terminate this
Agreement or the Trust, (ii) entitle such Owner’s legal representatives or
heirs to claim an accounting or to take any action or proceeding in any court
for a partition or winding up of all or any part of the Trust or Trust Estate
or (iii) otherwise affect the rights, obligations and liabilities of the
parties hereto.

 

(b)           Except as provided in Section 9.01(a),
neither the Trust Depositor nor any Holder shall be entitled to revoke or
terminate the Trust.

 

(c)           Notice of any termination of the
Trust, specifying the Distribution Date upon which the Certificateholders shall
surrender their Trust Certificates to the Paying Agent for payment of the final
distribution and cancellation, shall be given by the Owner Trustee by letter to
the Certificateholders mailed within five Business Days of receipt of notice of
such termination from the Servicer given pursuant to Section 10.01 of the
Sale and Servicing Agreement, stating (i) the Distribution Date upon or
with respect to which final payment of the Trust Certificates shall be made
upon presentation and surrender of the Trust Certificates at the office of the
Paying Agent therein designated, (ii) the amount of any such final payment
and (iii) that the Record Date otherwise applicable to such Distribution
Date is not applicable, payments being made only upon presentation and
surrender of the Trust Certificates at the office of the Paying Agent therein
specified.  The Owner Trustee shall give
such notice to the Certificate Registrar (if other than the Owner Trustee) and
the Paying Agent at the time such notice is given to the Certificateholders.  Upon presentation and surrender of a Trust
Certificate, the Paying Agent shall cause to be distributed to the
Certificateholders amounts distributable on such Distribution Date pursuant to Section 5.01.

 

(d)           Upon the winding up of the Trust and
its termination, the Owner Trustee shall cause the Certificate of Trust to be
canceled by filing a certificate of cancellation with the Secretary of State in
accordance with the provisions of Section 3810 of the Statutory Trust
Statute.

 

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ARTICLE TEN

 

SUCCESSOR
OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES

 

Section 10.01.      Eligibility Requirements for Owner Trustee.  The Owner Trustee shall at all
times be a corporation satisfying the provisions of Section 3807(a) of
the Statutory Trust  Statute; authorized
to exercise corporate trust powers; and (a) having a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authorities; and having (or having a parent that has) a rating
of at least Baa3 by Moody’s; or (b) which satisfies the Rating Agency
Condition.  If such corporation shall
publish reports of condition at least annually pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. 
In case at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Owner Trustee shall resign
immediately in the manner and with the effect specified in Section 10.02.

 

Section 10.02.      Resignation or Removal of Owner Trustee.  The Owner Trustee may at any
time resign and be discharged from the trusts hereby created by giving written
notice thereof to the Administrator. 
Upon receiving such notice of resignation, the Administrator shall
promptly appoint a successor Owner Trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the resigning Owner Trustee
and one copy to the successor Owner Trustee. 
If no successor Owner Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.

 

If at any time the Owner Trustee shall cease to be
eligible in accordance with the provisions of Section 10.01 and shall fail
to resign after written request therefor by the Administrator, or if at any
time the Owner Trustee shall be legally unable to act, or shall be adjudged
bankrupt or insolvent, or a receiver of the Owner Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Owner Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator, may remove the Owner
Trustee.  If the Administrator shall remove
the Owner Trustee under the authority of the immediately preceding sentence,
the Administrator shall promptly appoint a successor Owner Trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to
the outgoing Owner Trustee so removed and one copy to the successor Owner
Trustee, and shall pay all fees owed to the outgoing Owner Trustee.

 

Any resignation or removal of the Owner Trustee and
appointment of a successor Owner Trustee pursuant to any of the provisions of
this Section shall not become effective until acceptance of appointment by
the successor Owner Trustee pursuant  to Section 10.03
and payment of all fees and expenses owed to the outgoing Owner Trustee.  The Administrator shall provide notice of
such resignation or removal of the Owner Trustee to each Rating Agency.

 

Section 10.03.      Successor Owner Trustee.  Any successor Owner Trustee
appointed pursuant to Section 10.02 shall execute, acknowledge and deliver
to the Administrator, and to its predecessor Owner Trustee an instrument
accepting such appointment under this Agreement, and thereupon the resignation
or removal of the predecessor Owner Trustee shall become effective, and such
successor Owner Trustee,

 

21

 

without any further act,
deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor under this Agreement, with like
effect as if originally named as Owner Trustee. 
The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements
and monies held by it under this Agreement; and the Administrator and the
predecessor Owner Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly vesting
and confirming in the successor Owner Trustee all such rights, powers, duties
and obligations.

 

No successor Owner Trustee shall accept appointment as
provided in this Section unless at the time of such acceptance such
successor Owner Trustee shall be eligible pursuant to Section 10.01.

 

Upon acceptance of appointment by a successor Owner
Trustee pursuant to this Section, the Administrator shall mail notice thereof
to the Certificateholders, the Indenture Trustee, the Noteholders and each
Rating Agency.

 

Section 10.04.      Merger or Consolidation of Owner Trustee.  Any corporation into which the
Owner Trustee may be merged or converted or with which it may be consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Owner Trustee shall be a party, or any corporation succeeding to all
or substantially all of the corporate trust business of the Owner Trustee,
shall be the successor of the Owner Trustee hereunder, without the execution or
filing of any instrument or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided,
that such corporation shall be eligible pursuant to Section 10.01 and, provided, further, that the Administrator shall mail notice
of such merger or consolidation to each Rating Agency.

 

Section 10.05.      Appointment of Co-Trustee or Separate
Trustee. 
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Estate or any financed Motorcycle may at the time be located,
the Administrator and the Owner Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Administrator and Owner Trustee to act as co-trustee, jointly
with the Owner Trustee, or as separate trustee or separate trustees, of all or
any part of the Trust Estate, and to vest in such Person, in such capacity,
such title to the Trust or any part thereof and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Administrator and the Owner Trustee may consider necessary or desirable.  If the Administrator shall not have joined in
such appointment within 15 days after the receipt by it of a request so to do,
the Owner Trustee alone shall have the power to make such appointment.  No co-trustee or separate trustee under this
Agreement shall be required to meet the terms of eligibility as a successor
Owner Trustee pursuant to Section 10.01 and no notice of the appointment
of any co-trustee or separate trustee shall be required pursuant to Section 10.03.

 

Each separate trustee and co-trustee shall, to the
extent permitted by law, be appointed and act subject to the following
provisions and conditions:

 

(a)           all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not authorized
to act separately without the Owner Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular act or
acts are to be

 

22

 

performed, the Owner Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Trust Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Owner Trustee;

 

(b)           no trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this Agreement; and

 

(c)           the Administrator and the Owner Trustee acting jointly may
at any time accept the resignation of or remove any separate trustee or
co-trustee.

 

Any notice, request or other writing given to the
Owner Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them.  Every instrument appointing any separate
trustee or co-trustee shall refer to this Agreement and the conditions of this
Article.  Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with the
estates or property specified in its instrument of appointment, either jointly
with the Owner Trustee or separately, as may be provided therein, subject to
all the provisions of this Agreement, specifically including every provision of
this Agreement relating to the conduct of, affecting the liability of or
affording protection to, the Owner Trustee. 
Each such instrument shall be filed with the Owner Trustee and a copy
thereof given to the Administrator.

 

Any separate trustee or co-trustee may at any time
appoint the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name.  If any separate trustee or co-trustee shall
die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor co-trustee or separate trustee.

 

ARTICLE ELEVEN

 

MISCELLANEOUS

 

Section 11.01.      Supplements and Amendments.

 

(a)           The Agreement may be amended by the
Trust Depositor, and the Owner Trustee, without the consent of any of the
Noteholders or the Certificateholders, to cure any ambiguity, to correct or
supplement any provisions in this Agreement or to add any other provisions with
respect to matters or questions arising under this Agreement that shall not be
inconsistent with the provisions of this Agreement; provided,
however, that any such action shall not, as evidenced by an Opinion
of Counsel, adversely affect in any material respect the interests of any
Noteholder or Certificateholders.

 

(b)           This Agreement may also be amended
from time to time by the Trust Depositor, and the Owner Trustee, with the consent
of the Required Holders and the Holders of Trust Certificates evidencing not
less than a majority of the Certificate Balance, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided, however,
that no such

 

23

 

amendment shall increase or
reduce in any manner the amount of, or accelerate or delay the timing of, (i) collections
of payments on Contracts or distributions that shall be required to be made for
the benefit of the Noteholders or the Certificateholders, or (ii) eliminate
the Certificateholders’ consent or reduce the aforesaid percentage of the
Outstanding Amount of the Notes required to consent to any such amendment,
without the consent of the Holder of all outstanding Notes and Trust
Certificates affected thereby.

 

(c)           Prior to the execution of any such
amendment or consent, the Trust Depositor shall furnish written notification of
the substance of such amendment or consent, together with a copy thereof, to
the Indenture Trustee, the Administrator and each Rating Agency.

 

(d)           Promptly after the execution of any
such amendment or consent, the Owner Trustee shall furnish written notification
of the substance of such amendment or consent to each Certificateholder.  It shall not be necessary for the consent of
any Certificateholder, the Noteholders or the Indenture Trustee pursuant to this
Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof.  The manner of obtaining such
consents (and any other consents of the Certificateholders provided for in this
Agreement or in any other Transaction Document) and of evidencing the
authorization of the execution thereof by the Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.

 

(e)           Promptly after the execution of any
amendment to the Certificate of Trust, the Owner Trustee shall cause the filing
of such amendment with the Secretary of State.

 

(f)            Prior to the execution of any
amendment to this Agreement or the Certificate of Trust, the Owner Trustee shall
be entitled to receive and rely upon an Opinion of Counsel stating that the
execution of such amendment is authorized or permitted by this Agreement.  The Owner Trustee may, but shall not be
obligated to, enter into any such amendment that affects the Owner Trustee’s
own rights, duties or immunities under this Agreement or otherwise.

 

Section 11.02.      No Legal Title to Trust Estate in Owners.  No Owner shall have legal title
to any part of the Trust Estate.  The
Owners shall be entitled to receive distributions with respect to their
undivided ownership interest herein only in accordance with Articles Five and
Nine.  No transfer, by operation of law
or otherwise, of any right, title or interest of the Owners to and in their
ownership interest in the Trust Estate shall operate to terminate this
Agreement or the trusts hereunder or entitle any transferee to an accounting or
to the transfer to it of legal title to any part of the Trust Estate.

 

Section 11.03.      Limitations on Rights of Others.  Except for Section 2.07,
the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Trust Depositor, the Owners, the Administrator and, to the extent
expressly provided herein, the Indenture Trustee and the Noteholders, and
nothing in this Agreement (other than Section 2.07), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.

 

Section 11.04.      Notices.  All notices, demands, certificates, requests
and communications hereunder (“notices”) shall
be in writing and shall be effective (a) upon receipt when sent through
the U.S. mails, registered or certified mail, return receipt requested, postage
prepaid, with such receipt to be effective the date of delivery indicated on
the return receipt, or (b) one Business Day after delivery to an overnight
courier, or (c) on the date personally delivered to an Authorized Officer
of the party to which

 

24

 

sent, or (d) on the
date transmitted by legible telecopier transmission with a confirmation of
receipt, in all cases addressed to the recipient at the address for such
recipient set forth in the Sale and Servicing Agreement.

 

Each party hereto may, by notice given in accordance
herewith to each of the other parties hereto, designate any further or
different address to which subsequent notices shall be sent.

 

Section 11.05.      Severability of Provisions.  If any one or more of the
covenants, agreements, provisions, or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the Trust
Certificates or the rights of the Holder thereof.

 

Section 11.06.      Counterparts.  This Agreement may be executed
in several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.

 

Section 11.07.      Successors and Assigns.  All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, each of
the Trust Depositor, and the Owner Trustee and their respective successors and
permitted assigns and each Owner and its successors and permitted assigns, all
as herein provided.  Any request, notice,
direction, consent, waiver or other instrument or action by an Owner shall bind
the successors and assigns of such Owner.

 

Section 11.08.      Covenants of the Trust Depositor.  In the event that any
litigation with claims in excess of $1,000,000 to which the Trust Depositor is
a party which shall be reasonably likely to result in a material judgment
against the Trust Depositor that the Trust Depositor will not be able to
satisfy shall be commenced, during the period beginning immediately following
the commencement of such litigation and continuing until such litigation is
dismissed or otherwise terminated (and, if such litigation has resulted in a
final judgment against the Trust Depositor, such judgment has been satisfied),
the Trust Depositor shall not pay any dividend to the Servicer, or make any
distribution on or in respect of its capital stock to the Servicer, or repay
the principal amount of any indebtedness of the Trust Depositor held by the
Servicer, unless (i) after giving effect to such payment, distribution or
repayment, the Trust Depositor’s liquid assets shall not be less than the
amount of actual damages claimed in such litigation or (ii) the Rating
Agencies shall not downgrade the then existing rating on the Certificate with
respect to any such payment, distribution or repayment.

 

Section 11.09.      No Petition.

 

(a)           The Trust Depositor will not at any
time institute against the Trust any bankruptcy proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Trust Certificates, the Notes, this Agreement or
any of the other Transaction Documents.

 

(b)           The Owner Trustee, by entering into
this Agreement, each Certificateholder, by accepting a Trust Certificate, and
the Indenture Trustee and each Noteholder, by accepting the benefits of this
Agreement, hereby covenant and agree that they will not at any time institute
against the Trust Depositor or the Trust, or join in any institution against
the Trust Depositor, or the Trust of, any bankruptcy proceedings under any
United States federal or state bankruptcy or similar law in connection

 

25

 

with any obligations
relating to the Trust Certificates, the Notes, this Agreement or any of the
other Transaction Documents.

 

Section 11.10.      No Recourse.  Each Certificateholder by accepting a Trust
Certificate acknowledges that such Certificateholder’s Trust Certificate
represents beneficial interests in the Trust only and does not represent
interests in or obligations of the Trust Depositor, the Servicer, the Seller,
the Administrator, the Owner Trustee, the Indenture Trustee or any of the
respective Affiliates (other than the Trust) and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Trust Certificates or the other Transaction
Documents.

 

Section 11.11.      Headings.  The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

 

Section 11.12.      Governing Law.  THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.

 

Section 11.13.      Trust Certificate Transfer Restrictions.  No Trust Certificate or any
interest therein may be acquired by or for the account of, or with the assets
of, a Benefit Plan.  By accepting and
holding a Trust Certificate, the Holder thereof shall be required to have
represented and warranted that it is not a Benefit Plan and that it is not
acquiring and will not hold such Trust Certificate for the account of, or with
the assets of, a Benefit Plan.

 

Section 11.14.      Trust Depositor Payment Obligation.  The Trust Depositor shall be
responsible for payment of the Administrator’s compensation pursuant to Section 3
of the Administration Agreement and shall reimburse the Administrator for all
expenses and liabilities of the Administrator incurred thereunder.

 

[signature page follows]

 

26

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.

 

	
   

  	
  HARLEY-DAVIDSON CUSTOMER FUNDING

  
	
   

  	
  CORP., as Trust Depositor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Printed Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WILMINGTON TRUST COMPANY,

  
	
   

  	
  as Owner Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Printed Name:

  
	
   

  	
  Title:

  

 

Signature Page to Trust Agreement

 

 

EXHIBIT A

 

FORM OF CERTIFICATE OF TRUST OF

Harley-Davidson Motorcycle Trust 2010-1

 

This Certificate of Trust of Harley-Davidson
Motorcycle Trust 2010-1 (the “Trust”), dated
                              ,
2010, is being duly executed and filed by Wilmington Trust Company, a Delaware
banking corporation, as Owner Trustee, to form a statutory trust under the
Delaware Statutory Trust Act (12 Del. Code, §
3801 et seq.).

 

1.             Name.  The name of the statutory trust
formed hereby is Harley-Davidson Motorcycle Trust 2010-1.

 

2.             Delaware Trustee.  The name and business address
of the Owner Trustee of the Trust in the State of Delaware is Wilmington Trust
Company, 1100 North Market Street, Wilmington, Delaware l9890-1605.

 

IN WITNESS WHEREOF, the undersigned, being the sole
Owner Trustee of the Trust, has executed this Certificate of Trust as of the
date first above written.

 

	
   

  	
  WILMINGTON TRUST COMPANY,

  
	
   

  	
  not in its individual capacity but solely as

  
	
   

  	
  Owner Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Printed Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

 

EXHIBIT B

 

FORM OF TRUST CERTIFICATE

 

THIS TRUST CERTIFICATE REPRESENTS A BENEFICIAL
INTEREST IN THE TRUST (AS DEFINED BELOW) AND IS ENTITLED TO PAYMENTS AS
DESCRIBED IN THE SALE AND SERVICING AGREEMENT AND INDENTURE REFERRED TO HEREIN.

 

THIS TRUST CERTIFICATE DOES NOT REPRESENT AN
OBLIGATION OF OR AN INTEREST IN HARLEY-DAVIDSON CUSTOMER FUNDING CORP.,
HARLEY-DAVIDSON CREDIT CORP. OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT SET
FORTH IN THE TRUST AGREEMENT.  THIS TRUST
CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED UNLESS
THE CONDITIONS SET FORTH IN SECTIONS 3.01, 3.04 AND 11.13 OF THE TRUST
AGREEMENT HAVE BEEN COMPLIED WITH.

 

NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE
ACQUIRED OR HELD BY OR FOR THE ACCOUNT OF OR WITH THE ASSETS OF (A) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”)), THAT IS SUBJECT
TO TITLE I OF ERISA, (B) A PLAN SUBJECT TO SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED OR (C) ANY ENTITY WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF AN EMPLOYEE BENEFIT PLAN’S
OR A PLAN’S INVESTMENT IN THE ENTITY (A “BENEFIT PLAN”).

 

HARLEY-DAVIDSON MOTORCYCLE TRUST 2010-1
CERTIFICATE

 

	
  NO.

  	
   

  	
  Initial Certificate Balance
  $[                  ]

  

 

THIS CERTIFIES THAT Harley-Davidson Customer Funding
Corp. is the registered owner of  100% of
the non-assessable, fully-paid, fractional undivided beneficial interest in the
Harley-Davidson Motorcycle Trust 2010-1 (the “Trust”)
formed by Harley-Davidson Customer Funding Corp., a Nevada corporation (the  “Trust Depositor”).

 

The Trust was created pursuant to a Trust Agreement,
dated as of October 1, 2010 (as amended and supplemented from time to
time, the “Trust Agreement”), between the Trust
Depositor, and Wilmington Trust Company, as owner trustee (the “Owner Trustee”), a summary of certain of the pertinent
provisions of which is set forth below. 
To the extent not otherwise defined herein, the capitalized terms used
herein have the meanings assigned to them in (i) the Trust Agreement, (ii) the
Sale and Servicing Agreement, dated as of November 1, 2010 (the “Sale and Servicing Agreement”), among the Trust, the Trust
Depositor, Harley-Davidson Credit Corp. (“Harley-Davidson Credit”),
as Servicer (in such capacity, the “Servicer”) and
The Bank of New York Mellon Trust Company, N.A., as Indenture 

 

 

Trustee (the “Indenture Trustee”) or (iii) the
Indenture, dated as of November 1, 2010 (the “Indenture”),
between the Trust and the Indenture Trustee.

 

This Trust Certificate is a duly authorized Trust
Certificate designated as “Harley-Davidson Motorcycle
Trust 2010-1 Certificate”   (the “Trust Certificate”).  Issued under the Indenture are six classes of
notes designated as “[    ]% Motorcycle
Contract Backed Notes, Class A-1”, “[    ]% Motorcycle Contract Backed Notes, Class A-2”, “[    ]% Motorcycle
Contract Backed Notes, Class A-3”,
“[    ]% Motorcycle Contract
Backed Notes, Class A-4”, “[    ]% Motorcycle Contract Backed Notes, Class B” and “[    ]% Motorcycle Contract Backed Notes, Class C”  (collectively, the “Notes”).  This Trust Certificate is issued under and is
subject to the terms, provisions and conditions of the Trust Agreement, to
which Trust Agreement the Holder of this Trust Certificate by virtue of its
acceptance hereof assents and by which such Holder is bound.  The property of the Trust includes, among
other things, (i) all the right, title and interest of the Trust Depositor
in and to the Contracts listed on the List of Contracts delivered on the
Closing Date (including, without limitation, all security interests and all
rights to receive payments which are collected pursuant thereto after the
Cutoff Date, including any liquidation proceeds therefrom, but excluding any
rights to receive payments which were collected pursuant thereto on or prior to
the Cutoff Date), (ii) all rights of the Trust Depositor under any theft,
physical damage, credit life, disability or other individual insurance policy
(and rights under a “forced placed”
policy, if any), any debt insurance policy or any debt cancellation agreement
relating to any such Contract, an Obligor or a Motorcycle securing such
Contract, (iii) all security interests in each such Motorcycle, (iv) all
documents contained in the related Contract Files, (v) all rights (but not
the obligations) of the Trust Depositor under any related motorcycle dealer
agreements between dealers (i.e., the originators of such Contracts) and
Harley-Davidson Credit, (vi) all rights of the Trust Depositor in the
Lockbox, the Lockbox Account and related Lockbox Agreement to the extent they
relate to such Contracts, (vii) all rights (but not the obligations) of
the Trust Depositor under the Transfer and Sale Agreement, including but not
limited to the Trust Depositor’s rights under Article V thereof, (viii) the
remittances, deposits and payments made into the Trust Accounts from time to
time and amounts in the Trust Accounts from time to time (and any investments
of such amounts), (ix) all rights of the Trust Depositor to certain
rebates of premiums and other amounts relating to insurance policies, debt
cancellation agreements, extended service contracts or other repair agreements
and other items financed under such Contracts and (x) all proceeds and
products of the foregoing.

 

Under the Trust Agreement, there will be distributed
on each a Distribution Date to the person in whose name this Trust Certificate
is registered as of the last Business Day immediately preceding the calendar
month in which such Distribution Date occurs (each, a “Record Date”),
such Certificateholder’s fractional undivided beneficial interest in the amount
to be distributed to such Certificateholder on such Distribution Date.

 

The holder of this Trust Certificate acknowledges and
agrees that its rights to receive distributions in respect of this Trust
Certificate are subordinated to the rights of the Noteholders to the extent
described in the Sale and Servicing Agreement and the Indenture.

 

It is the intention of Harley-Davidson Credit, the
Servicer, the Trust Depositor, Owner Trustee, Indenture Trustee and the
Certificateholders that, in the event there is only one Certificateholder, the
Trust be disregarded as a separate entity pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii) as
in effect for periods after January 1, 1997.  The Trust Depositor and the
Certificateholders agree not to 

 

 

take any action inconsistent with such intended
federal income tax treatment.  Because
for federal income tax purposes the Trust will be disregarded as a separate
entity, Trust items of income, gain, loss and deduction for any month as
determined for federal income tax purposes shall be allocated entirely to the
Trust Depositor (or subsequent purchaser of the Trust Certificate) as the sole
Certificateholder.

 

Solely in the event the Trust Certificates are held by
more than a single Certificateholder, it is the intent of the Trust Depositor,
the Servicer and the Certificateholders that, solely for purposes of federal
income, state and local income and single business tax and any other income
taxes, the Trust will be treated as a partnership and the Certificateholders
will be treated as partners in the partnership. 
The purchaser hereof and the other Certificateholders, by acceptance of
a Trust Certificate, agree to treat, and to take no action inconsistent with
the treatment of, the Trust Certificates for such tax purposes as partnership
interests in the Issuer.

 

Each Certificateholder, by its acceptance of a Trust
Certificate or beneficial interest in a Trust Certificate, covenants and agrees
that such Certificateholder will not at any time institute against the Trust or
the Trust Depositor, or join in any institution against the Trust or the Trust
Depositor, Harley-Davidson Credit or the Servicer any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Trust Certificate, the
Notes, the Trust Agreement or any of the other Transaction Documents.

 

Distributions on this Trust Certificate will be made
as provided in the Sale and Servicing Agreement by wire transfer or check mailed
to the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Trust Certificate or the making of any
notation hereon.  Except as otherwise
provided in the Trust Agreement and notwithstanding the above, the final
distribution on this Trust Certificate will be made after due notice by the
Owner Trustee of the pendency of such distribution and only upon presentation
and surrender of this Trust Certificate at the office or agency maintained for
that purpose by the Owner Trustee in the City of Wilmington, Delaware.

 

Reference is hereby made to the further provisions of
this Trust Certificate set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set forth at this
place.

 

Unless the certificate of authentication hereon shall
have been executed by an authorized officer of the Owner Trustee, by manual
signature, this Trust Certificate shall not entitle the holder hereof to any
benefit under the Trust Agreement or any other Transaction Document or be valid
for any purpose.

 

THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

 

[REVERSE OF CERTIFICATE]

 

This Trust Certificate does not represent an
obligation of, or an interest in the Trust Depositor, Harley-Davidson Credit,
as the Seller or Servicer, the Owner Trustee, the Indenture Trustee or any of
their respective Affiliates (other than the Trust) and no recourse may be had
against such parties or their assets, except as expressly set forth or
contemplated herein or in the Trust Agreement or the other Transaction
Documents.  In addition, this Trust
Certificate is not guaranteed by any governmental agency or instrumentality and
is limited in right of payment to certain collections and recoveries with
respect to the Contracts and certain other amounts, in each case as more
specifically set forth herein and in the Sale and Servicing Agreement.  A copy of each of the Sale and Servicing
Agreement and the Trust Agreement may be examined by any Certificateholder upon
written request during normal business hours at the principal office of the
Trust Depositor and at such other places, if any, designated by the Trust
Depositor.

 

The Trust Agreement permits, with certain exceptions
therein provided, the amendment thereof and the modification of the rights and
obligations of the Trust Depositor and the rights of the Certificateholders
under the Trust Agreement at any time by the Trust Depositor and the Owner
Trustee with the consent of the Holders of Trust Certificates evidencing not
less than a majority of the Certificate Balance and the Required Holders.  Any such consent by the Holder of this Trust
Certificate shall be conclusive and binding on such Holder and on all future
Holders of this Trust Certificate and of any Trust Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent is made upon this Trust Certificate.  The Trust Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holders of any of the Trust Certificates.

 

As provided in the Trust Agreement and subject to
certain limitations therein set forth, the transfer of this Trust Certificate
is registerable in the Certificate Register upon surrender of this Trust
Certificate for registration of transfer at the offices or agencies of the
Certificate Registrar, accompanied by a written instrument of transfer in form
satisfactory to the Owner Trustee and the Certificate Registrar duly executed
by the Holder hereof or such Holder’s attorney duly authorized in writing, and
thereupon one or more new Trust Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee.  The initial
Certificate Registrar appointed under the Trust Agreement is the Owner Trustee.

 

The Owner Trustee, the Certificate Registrar and any
of their respective agents may treat the Person in whose name this Trust
Certificate is registered as the owner hereof for all purposes, and none of the
Owner Trustee, the Certificate Registrar or any such agent shall be affected by
any notice to the contrary.

 

The obligations and responsibilities created by the
Trust Agreement and the Trust created thereby shall terminate upon the payment
to the Certificateholders of all amounts required to be paid to it pursuant to
the Trust Agreement and the Sale and Servicing Agreement and the disposition of
all property held as part of the Trust Estate. 
The Servicer may at its option purchase the Trust Estate at a price
specified in the Sale and Servicing Agreement, and such purchase of the
Contracts and other property of the Trust will affect early retirement of the
Trust Certificates; however, such right of purchase is exercisable only as of 

 

 

any Distribution Date on which the Pool Balance has
declined to less than 10% of the Pool Balance on the Cutoff Date.

 

This Trust Certificate or any interest therein may not
be acquired by, or for the account of, or with the assets of, a Benefit
Plan.  The Holder hereof, by accepting a
beneficial interest in this Trust Certificate, shall be required to have
represented and warranted that it is not a Benefit Plan and is not acquiring
this Trust Certificate or an interest therein for the account of, or with the
assets of, a Benefit Plan.

 

 

IN WITNESS WHEREOF, the Owner Trustee, on behalf of
the Trust and not in its individual capacity, has caused this Trust Certificate
to be duly executed.

 

	
  Dated:

  	
   

  	
  Harley-Davidson Motorcycle Trust 2010-1

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  WILMINGTON TRUST COMPANY, not in its individual
  capacity but solely as Owner Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Authorized
  Signatory

  
					

 

OWNER
TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

This is the Trust Certificate referred to in the
within-mentioned Trust Agreement.

 

	
  WILMINGTON TRUST COMPANY,

  	
   

  
	
  not in its individual capacity but solely

  	
   

  
	
  as Owner Trustee

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  	
   

  

 

 

ASSIGNMENT

 

FOR VALUE RECEIVED the
undersigned hereby sells, assigns and transfers unto

 

PLEASE INSERT SOCIAL SECURITY OR

OTHER IDENTIFYING NUMBER OF ASSIGNEE

 

 

 

(Please print or type name and address, including
postal zip code, of assignee)

 

	
   

  
	
  the within Trust Certificate, and all rights
  thereunder, hereby irrevocably constituting and appointing

  

 

	
   

  
	
  to transfer said Trust Certificate on the books of
  the Certificate Registrar, with full power of substitution in the premises.

  

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  NOTICE: 
  Signature(s) must be guaranteed by an eligible guarantor
  institution.

  	
   

  	
  NOTICE:  The
  signature to this assignment must correspond with the name of the registered
  owner as it appears on the face of the within Trust Certificate in every
  particular, without alteration or enlargement or any change whatever.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00181-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00181-of-00352.parquet"}]]