Document:

Exhibit 10.1

 

	
  

  	
   

  	
  CLIFFORD CHANCE LLP

  

 

CONFORMED COPY

 

DATED AS OF DECEMBER 12, 2007

 

by

 

ARCH REINSURANCE LTD.

 

as Obligor

 

with

 

LLOYDS TSB BANK PLC

 

as Agent,

 

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

BARCLAYS BANK PLC

as Original Lenders

 

and

 

LLOYDS TSB BANK PLC,

as Mandated Lead Arranger

 

 

LETTER OF CREDIT

AND

REIMBURSEMENT AGREEMENT

 

 

 

CONTENTS

 

	
  Clause

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Definitions And Interpretation

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Terms Of The Letter Of Credit Facility

  	
  16

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Conditions Of Issuance Of Letters Of Credit

  	
  25

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Representations And Warranties

  	
  29

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Covenants

  	
  33

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Events Of Default And Remedies

  	
  47

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Changes To Parties

  	
  52

  
	
   

  	
   

  	
   

  
	
  8.

  	
  The Finance Parties

  	
  56

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Miscellaneous

  	
  64

  
	
   

  	
   

  	
   

  
	
  Schedule 1

  	
  LENDER COMMITMENTS

  	
  78

  
	
   

  	
   

  	
   

  
	
  Schedule 2

  	
  EXISTING ENCUMBRANCES

  	
  79

  
	
   

  	
   

  	
   

  
	
  Schedule 3

  	
  EXISTING INDEBTEDNESS

  	
  82

  
	
   

  	
   

  	
   

  
	
  Schedule 4

  	
  DISPOSITIONS

  	
  83

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form Of Letters Of Credit

  	
  1

  
	
   

  	
   

  	
   

  
	
  Part A

  	
  Form Of Letter Of Credit

  	
  2

  
	
  Part B

  	
  Form Of Lender’s Authorization Letter

  	
  6

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Arch Reinsurance Security Agreement

  	
  1

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Form Of Utilization Request

  	
  1

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Form Of Custodial Account Value Certificate

  	
  1

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
  Form Of Compliance Certificate

  	
  1

  
	
   

  	
   

  	
   

  
	
  Exhibit F

  	
  Form Of Assignment And Assumption

  	
  1

  
					

 

i

 

LETTER OF CREDIT 

AND REIMBURSEMENT AGREEMENT

 

This LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT is dated as of December 12, 2007 (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”), Lloyds TSB Bank plc as agent for
the Finance Parties (as hereinafter defined) (the “Agent” or the “Security
Agent”), Lloyds TSB Bank plc, ING Bank N.V., London Branch and
Barclays Bank PLC as Lenders (the “Original
Lenders”) and Lloyds TSB Bank plc as mandated lead arranger (the “Arranger”).

 

1.           DEFINITIONS AND INTERPRETATION

 

1.1         Definitions

 

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

 

“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 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:

 

	
  Cash, obligation or Investment

  	
   

  	
  Percentage -

  Matching Currency

  	
   

  	
  Percentage - Non-

  Matching Currency

  	
   

  
	
  U.S. Dollars, euros,
  pounds sterling or Cash Equivalents

  	
   

  	
  100

  	
  %

  	
  95

  	
  %

  
	
  Commercial Paper or
  Money Market Investments

  	
   

  	
  90

  	
  %

  	
  85

  	
  %

  
	
  Group 1 Investments
  with maturities of ten years or less from the date of determination

  	
   

  	
  90

  	
  %

  	
  85

  	
  %

  
	
  Group 1 Investments
  with maturities more than ten years from the date of determination and Group
  2 Investments

  	
   

  	
  85

  	
  %

  	
  80

  	
  %

  
	
  All other cash,
  investments, obligations or securities

  	
   

  	
  0

  	
  %

  	
  0

  	
  %

  

 

1

 

Notwithstanding the foregoing, the (A) 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, (B) if any
single corporate issuer (or any Affiliate thereof) represents more than 10% of
the aggregate value of all cash and Investments of the aggregate amount of the
Adjusted Collateral Value, the excess over 10% shall be excluded, (C) the
rating of all corporate bonds constituting Investments under Corporate Bonds
shall at all times be rated at least A- from S&P or 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 and Fitch, (D) Agency
Securities shall at no time comprise more than 30% of the aggregate value of
all cash and Investments of the aggregate amount of the Adjusted Collateral
Value, and (E) the weighted average rating of all Group 1 Investments and
Group 2 Investments shall be at all times at least AA from S&P, Moody’s or
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 from
S&P, Moody’s or Fitch. 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 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.

 

“Agency Securities” means (a) single-class mortgage
participation certificates in book-entry form backed by single-family
residential mortgage loans, the full and timely payment of interest at the
applicable certificate rate and the ultimate collection of principal of which
are guaranteed by the Federal Home Loan Mortgage Corporation (excluding REMIC
or other multi-class pass-through certificates, collateralized mortgage
obligations, pass-through certificates backed by adjustable rate mortgages,
securities paying interest or principal only and similar derivative securities);
(b) single-class mortgage pass-through 

 

2

 

certificates in book-entry form backed by single-family
residential mortgage loans, the full and timely payment of interest at the
applicable certificate rate and ultimate collection of principal of which are
guaranteed by the Federal National Mortgage Association (excluding REMIC or
other multi-class pass-through certificates, pass-through certificates
backed by adjustable rate mortgages, collateralized mortgage obligations,
securities paying interest or principal only and similar derivative
securi­ties); and (c) single-class fully modified pass-through
certificates in book-entry form backed by single-family residential
mortgage loans, the full and timely payment of principal and interest of which
is guaranteed by the Government National Mortgage Association (excluding REMIC
or other multi-class pass-through certificates, collateralized mortgage
obligations, pass-through certificates backed by adjustable rate mortgages,
securities paying interest or principal only and similar derivatives
securities).

 

“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.

 

“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 U.S.
Dollars.

 

“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 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 

 

3

 

G7 Country is pledged in support thereof) having maturities of not more
than one year from the date of acquisition by such Person.

 

“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.

 

“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.

 

“Commercial Paper” means
commercial paper issued by any entity organized in the United States or any G7
Country rated at least (a) A-1 or the equivalent thereof by S&P and (b) P-1
or the equivalent thereof by Moody’s and maturing not more than one year after
the date of determination.

 

“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.

 

“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.

 

4

 

“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.

 

“Corporate Bonds” means
nonconvertible corporate bonds rated at least A- from S&P, A3 from Moody’s
or A- from Fitch and maturing within ten 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,
Moody’s and Fitch.

 

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

 

“Custodian
Agreement” means the Custody Agreement dated October 1,
2007 between Mellon Bank, N.A., as 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 

 

5

 

payments to be made in
connection with the Facility (or otherwise in order for the transactions
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.

 

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

 

“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 USD$150,000,000 (or the foreign
currency Dollar Equivalent of pounds sterling or euro) in the aggregate.

 

“Facility Availability Period”
means the Closing Date up to and including December 31, 2009.

 

6

 

“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, 2013.

 

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

 

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

 

“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.

 

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

 

“Group 1 Investments”
means (a) U.S. Government Securities, (b) Agency Securities, (c) Supranational
Securities and (d) G7 Government Securities.

 

7

 

“Group 2 Investments”
means (a) Municipal Bonds and (b) Corporate Bonds.

 

“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 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 

 

8

 

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.

 

“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 2% above
LIBOR from time to time in effect, not to exceed the maximum rate of interest
permitted by applicable law.

 

“Investment”
means Commercial Paper, Money Market Investments, Group 1 Investments
and Group 2 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, 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, N.A., 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 USD$150,000,000.

 

9

 

“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, 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 pounds sterling
or euro, the maximum amount that could be drawn by the Beneficiaries of such
Letters of Credit shall be deemed to be the Dollar 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

 

10

 

(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.

 

“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 (a) money market deposits of any commercial bank incorporated in the
United States or a G7 Country with a rating of at least (i) AA- from
S&P or (ii) Aa3 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 and (b) money market mutual funds with
institutions not affiliated with the Lenders with same-day liquidity and with a
rating of (i) AAA from S&P or (ii) Aaa from Moody’s or (iii) “1”
by the National Association of Insurance Commissioners Securities Valuation
Office (or any successor thereto); 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 National Association of Insurance
Commissioners Securities Valuation Office.

 

“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.

 

“Municipal Bonds” means
municipal bonds rated at least A- from S&P, A3 from Moody’s or A- from
Fitch and maturing within ten 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, Moody’s and
Fitch.

 

“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 

 

11

 

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.

 

“Original
Agreement” means the Amended and Restated Letter of Credit and
Reimbursement Agreement dated as of December 21, 2006 by and among
the Obligor and Barclays Bank PLC as agent and security agent, Barclays Bank
PLC, ING Bank N.V., London Branch and Lloyds TSB Bank plc as Lenders and
Barclays Capital 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).

 

“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.

 

“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.

 

“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 

 

12

 

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 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.

 

“Reference
Bank” means the principal London office of Lloyds TSB Bank plc 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 pounds sterling or euro, the amount of such drawing shall
be deemed to be the Dollar 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 Dollar 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 that is payable by the Obligor in pounds sterling or
euro to the Agent and Lenders pursuant to this Agreement and the other
Fundamental Documents shall be deemed to be the Dollar 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 

 

13

 

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:

 

(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 

 

14

 

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.

 

“Supranational Securities”
means securities issued or backed by the International Bank for Reconstruction &
Development, European Bank for Reconstruction & Development, Inter
American Development Bank, International Monetary Fund, European Investment
Bank, Asian Development Bank, African Development Bank and Nordic Development
Bank rated at least AAA from S&P, Aaa from Moody’s or AAA from Fitch.

 

“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 USD$150,000,000 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.

 

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

 

“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.

 

15

 

“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 Dollar Equivalent of the maximum face
amount of such Letter of Credit after giving effect to all increases 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).

 

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 Letters
of Credit, each dated the date of its issuance, in the aggregate issued and
outstanding at any one time in a face amount not to exceed USD$150,000,000 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 

 

16

 

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, pounds sterling or euro, 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
account 2008, 2009 and 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 USD$150,000,000. 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 or euro, 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 

 

17

 

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

 

(a)       no earlier than December 1,
2009 and no later than December 30, 2009 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, 2009, 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 

 

18

 

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.

 

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.

 

19

 

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 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.

 

20

 

(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 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 USD$5,000,000) 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, 

 

21

 

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) on the last
Business Day of each March, June, September and December, commencing on December 31,
2007 in an amount equal to 0.25% per annum of 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 pounds sterling or euro shall not be deemed to
be the Dollar 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 360-day year and actual days elapsed) on the last
Business Day of each March, June, September and December, commencing on December 31,
2007 in an amount equal to 0.075% per annum of an amount equal to
USD$150,000,000 minus the total Letter of Credit Obligations from time to time
outstanding; and

 

(c)      Such fees 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, the following fees in connection with this Agreement:

 

(a)      after twenty Letters of Credit have been issued hereunder in any
twelve-month period, a Letter of Credit issuance fee of USD$250 to be paid
prior 

 

22

 

to or on each Issue Date for
each additional Letter of Credit issued at the request of the Obligor; and

 

(b)      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 the Arranger all charges, costs and fees
in the amounts and at the times separately agreed upon between the Obligor and
the Arranger 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:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Bank of New York

  	
   

  	
   

  
	
  New York

  	
   

  	
   

  
	
  SWIFT Address:

  	
   

  	
  IRVT US 3N 89

  
	
  Account No.:

  	
   

  	
  890-0047-003

  
	
  Account:

  	
   

  	
  Lloyds TSB Bank Plc, Loans
  Administration

  
	
  Reference:

  	
   

  	
  Loans Admin re Arch
  Reinsurance

  
	
   

  	
   

  	
   

  
	
  if pounds sterling:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Lloyds TSB Bank plc

  	
   

  	
   

  
	
  25 Monument Street

  	
   

  	
   

  
	
  London EC3R 8BQ

  	
   

  	
   

  
	
  Sort Code:

  	
   

  	
  30-15-57

  
	
  Account:

  	
   

  	
  Loans Admin

  
	
  Account No:

  	
   

  	
  00002727

  
	
  Reference:

  	
   

  	
  Loans Admin re Arch
  Reinsurance

  
	
   

  	
   

  	
   

  
	
  if euros:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Lloyds TSB Bank plc

  	
   

  	
   

  
	
  25 Monument Street

  	
   

  	
   

  
	
  London EC3R 8BQ

  	
   

  	
   

  
	
  SWIFT Address:

  	
   

  	
  LOYDGB22TSY

  
	
  Account No:

  	
   

  	
  59011079

  
	
  Account:

  	
   

  	
  Lloyds TSB Bank plc,
  Treasury Division

  
	
  Reference:

  	
   

  	
  Loans Admin re Arch
  Reinsurance

  

 

23

 

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
U.S. Dollars, 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 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 

 

24

 

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 360 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”).

 

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

 

25

 

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
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.

 

26

 

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 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 

 

27

 

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 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 USD$150,000,000 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).

 

28

 

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 on the Closing
Date 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, 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 duly executed and delivered by the Obligor and
the agreements contained herein constitute, and the agreements contained in
each 

 

29

 

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, 2006, 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.

 

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 

 

30

 

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 with
respect to any Single Employer Plans, except as would not have a Material
Adverse Effect.

 

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 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 and “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.

 

31

 

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;

 

(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.

 

32

 

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.

 

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

 

33

 

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 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:

 

34

 

(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 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 

 

35

 

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.

 

(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.

 

36

 

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

 

37

 

(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)      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 which are Subsidiaries of
the Obligor to allow (i) any Single Employer Plan with respect to which
the 

 

38

 

Obligor or its ERISA
Affiliates which are Subsidiaries of the Obligor may have any liability to
terminate, (ii) the Obligor or any of its ERISA Affiliates which are
Subsidiaries of the Obligor to withdraw from any Single Employer Plan and, if
applicable, a Multiemployer Plan, or (iii) any Accumulated Funding
Deficiency (as defined in 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

 

(b)      fail, or permit any of its ERISA Affiliates which 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 

 

39

 

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.

 

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;

 

40

 

(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;

 

(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;

 

41

 

(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);

 

(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-

 

42

 

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 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;

 

43

 

(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 board of directors of
the Obligor) of less than USD$1,000,000;

 

(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 Indebtedness
incurred by the Obligor or any of its Subsidiaries 

 

44

 

hereunder and other Indebtedness which is either pari passu with, or subordinated in right
of payments to, the Indebtedness incurred by the Obligor hereunder and the
other obligations owing hereunder and under the Fundamental Documents.

 

(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:

 

(1)                  Indebtedness of
the Obligor or any of its Subsidiaries incurred pursuant to this 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 

 

45

 

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;

 

(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); and

 

(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.

 

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 

 

46

 

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 March 1,
2007 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.

 

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:

 

47

 

(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, 2006;
and (c) 25% of its Consolidated Net Income (if positive) for each fiscal
quarter ended after June 30, 2006. 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);

 

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

 

48

 

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;

 

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 

 

49

 

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 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;

 

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
more, 

 

50

 

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 in
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) 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 

 

51

 

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 by
novation any of its rights and obligations,

 

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

 

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.

 

52

 

(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.

 

53

 

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 USD$3,000.

 

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.

 

54

 

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 by
novation 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”.

 

55

 

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

 

56

 

(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 Arranger

 

Except as specifically provided in the Fundamental Documents, the
Arranger has 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 the Arranger as a trustee or fiduciary of
any other person.

 

(b)                  Neither the
Agent nor the Arranger shall not 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 Arranger 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

 

57

 

(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.

 

58

 

(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 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 the Arranger is:

 

(a)                   responsible for
the adequacy, accuracy and/or completeness of any information (whether oral or
written) supplied by the Agent, the 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 

 

59

 

operating procedures of any recognized clearing or
settlement system used by the Agent for that purpose.

 

(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 

 

60

 

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.

 

(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 Arranger 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 

 

61

 

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, the
Arranger, any Party or by any other person 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.

 

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 which 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.

 

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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 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.

 

63

 

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.

 

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 

 

64

 

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.

 

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:

 

65

 

(i)                     first, in or
towards payment pro rata of any unpaid fees, costs and expenses of the 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.

 

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.

 

66

 

(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

 

(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;

 

67

 

(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.

 

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;

 

68

 

(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 Arranger
hereunder without the prior written consent of the Agent or the Arranger, as
the case may be.

 

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

 

69

 

Bank House

Wine Street

Bristol BS1 2AN

England

Attn: Loans Administration

Telephone:  +44 (0)20 7801 3048

Facsimile:  +44 (0)117 923 3367

E-mail: LoansAdmin_A-D@lloydstsb.co.uk

 

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 

 

70

 

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, the 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, 

 

71

 

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 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.

 

9.8                         Consent to Jurisdiction

 

The Obligor hereby expressly submits to the non-exclusive jurisdiction
of all federal and state courts sitting in the State of New York, and agrees
that any process or notice of motion or other application to any of said courts
or a judge thereof may be served upon the Obligor within or without such
court’s jurisdiction by registered or certified mail, return receipt requested,
or by personal service, at the Obligor’s address (or at such other address as
the Obligor shall specify by a prior notice in writing to the Agent), provided
reasonable time for appearance is allowed. 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 

 

72

 

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 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 

 

73

 

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 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.

 

74

 

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.

 

75

 

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:  NICOLAS PAPDOPOULO

 

Name:  Nicolas Papdopoulo

 

Title:  President & CEO

 

 

LLOYDS TSB BANK PLC,

as Agent

 

By:  JOHN GAGE

 

Name:  John Gage

 

Title:  Director, Products &
Markets Legal

 

 

LLOYDS TSB BANK PLC,

as an Original Lender

 

By:  SEB KAFETZ

 

Name:  Seb Kafetz

 

Title:   Relationship Manager

 

Address:                                 25
Gresham Street

                        
London EC2V 7HN

 

76

 

	
  ING BANK N.V., LONDON BRANCH,

  	
   

  	
   

  
	
  as an Original Lender

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:    N J MARCHANT

  	
  By:   M E R SHARMAN

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:    N J Marchant

  	
  Name:  M E R Sharman

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:   Director

  	
  Title:   Managing Director

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  60 London Wall, London

  	
   

  
	
   

  	
  EC2m 5TQ

  	
   

  
				

 

 

BARCLAYS BANK PLC, 

as an Original Lender

 

By:  ROGER COSBY

 

Name:  Roger Cosby

 

Title:  Associate Director

 

Address:  5 The North Colonnade,
London E14 4BB

 

 

LLOYDS TSB BANK PLC,

as Arranger

 

By:  W. S. THOMAS

 

Name:  W. S. Thomas

 

Title:  Director, Loan
Syndications

 

	
  Address:

  	
  2nd Floor, 10 Gresham Street

  	
   

  
	
   

  	
  London EC2V 7AE

  	
   

  

 

77

 

SCHEDULE 1

LENDER COMMITMENTS

 

	
  Name of Original Lender

  	
   

  	
  Commitment

  (in U.S. Dollars)

  	
   

  	
  Ratable Share

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Lloyds TSB Bank plc

  	
   

  	
  $

  	
  54,000,000

  	
   

  	
  36.00000000

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ING Bank N.V., London
  Branch

  	
   

  	
  $

  	
  48,000,000

  	
   

  	
  32.00000000

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Barclays Bank PLC

  	
   

  	
  $

  	
  48,000,000

  	
   

  	
  32.00000000

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  150,000,000

  	
   

  	
  100.00000000

  	
  %

  

 

78

 

SCHEDULE 2

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 Second Amended and Restated Credit Agreement, dated as of August 30,
2006 (the “JPMorgan Credit Agreement”),
as amended by the First Amendment to the JPMorgan Credit Agreement dated as of October 1,
2007, by and among the Parent, Arch Capital Group (U.S.) Inc., other
Subsidiaries of the Parent, including the Obligor, JP Morgan Chase Bank, N.A., as administrative agent, and the other
lenders party thereto, 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.                               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 and Alternative
Insurance Company Limited have 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.

 

4.                               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:

 

4.1                                Trust
Agreement made as of July 16, 2002 among Markel Insurance Company of
Canada, Obligor, Royal Trust Corporation of Canada, as trustee, and the
Superintendent of Financial Institutions Canada

 

4.2                                Trust
Agreement made as of October 30, 2002 among Obligor, London Guarantee
Insurance Company, Royal Trust Corporation of Canada, as trustee, and the
Superintendent of Financial Institutions Canada;

 

4.3                                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);

 

79

 

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

 

4.5                                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, as trustee;

 

4.6                                Reinsurance
Truste Agreement, dated as of October 1, 2007, by and among Arch Insurance
Company (Europe) Limited (“Arch Europe”),
as beneficiary, Obligor, as grantor, and Mellon, as trustee;

 

4.7                                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, as
trustee;

 

4.8                                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;

 

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

 

4.10                          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;

 

4.11                          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, as trustee;

 

4.12                          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, as trustee;

 

4.13                          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;

 

80

 

4.14                          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;

 

4.15                          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, as trustee;

 

4.16                          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

 

4.17                          Pledge
and Security dated as of June 27, 2006 (as amended with reference to the
assignment by BNY, 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.

 

5.                               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.

 

81

 

SCHEDULE 3

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 and Alternative Insurance Company
Limited have 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,
in originally issued in May 1999 in the principal amount of up to $5,000.

 

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.                               ARC
guaranteed payment of any claims, losses and return premiums which may be
paid under insurance policies written by ASIC from February 2002 to April 2003
for policies issued by a certain broker or any of its wholly-owned subsidiaries.
This guarantee does not apply to insurance policies written by ASIC, or any of
its affiliates, after April 2003. As of September 30, 2007, the
combined gross unearned premium and gross case loss reserves were approximately
$1.087 million.

 

6.                               Please
also refer to Items 2 and 3 of Schedule 2 (Existing Encumbrances).

 

82

 

SCHEDULE 4

 

DISPOSITIONS

 

None.

 

83

 

Exhibit A

 

Form of
Letters of Credit

 

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 Lloyds TSB Bank
plc (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/euro] 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,

 

(1) Date of Letter of
Credit.

 

2

 

Lloyds TSB Bank plc at PO Box 17328, 11-15 Monument
Street, London EC3V 9JA, marked for the attention of City Office Trade Finance
substantially in the form set out in Schedule 2 hereto the amount specified
therein (which amount shall not, when 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,

  
	
   

  	
   

  
	
   

  	
  LLOYDS TSB BANK PLC

  
	
   

  	
  as agent

  
	
   

  	
   

  
	
   

  	
  for and on behalf of

  
	
   

  	
  [Names of all Issuing Banks]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
   

  
	
   

  	
  Title:

  

 

3

 

Schedule 1

Issuing
Banks’ Commitments

 

	
  Name and Address of Issuing Bank

  	
   

  	
  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Value

  	
   

  	
   

  	
   

  

 

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:

  
					

 

5

 

Part B

 

Form of
Lender’s Authorization Letter

 

[LETTER HEAD OF LENDER(S) AUTHORIZING
LLOYDS TSB BANK PLC 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 Lloyds TSB Bank plc 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 December 12, 2007 (as may be amended, amended and restated,
supplemented or otherwise modified from time to time).

 

2.                               The execution and delivery by Lloyds TSB Bank
plc 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 Lloyds TSB Bank plc 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

  
			

 

6

 

Exhibit B

 

Arch
Reinsurance Security Agreement

 

 

	
  

  	
   

  	
   

  	
  CLIFFORD CHANCE LLP

  

 

 

DATED
AS OF DECEMBER 12, 2007

 

 

ARCH REINSURANCE LTD.

AS DEBTOR

 

and

 

LLOYDS
TSB BANK PLC

AS SECURITY AGENT

 

 

SECURITY
AGREEMENT

 

 

 

CONTENTS

 

	
  Clause

  	
   

  	
  Page

  
	
   

  
	
  1.

  	
  Grant Of Security

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Security For Obligations

  	
  3

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Delivery Of Collateral

  	
  3

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Debtor Remains Liable

  	
  4

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Representations And Warranties

  	
  4

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Further Assurances: Supplements

  	
  5

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Additional Covenants

  	
  6

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Security Agent Appointed Attorney-In-Fact

  	
  8

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Security Agent May Perform

  	
  8

  
	
   

  	
   

  	
   

  
	
  10.

  	
  The Security Agent

  	
  8

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Remedies Upon Default; Application Of Collateral

  	
  9

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Amendments, Etc.

  	
  9

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Indemnity And Expenses

  	
  10

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Addresses For Notices

  	
  10

  
	
   

  	
   

  	
   

  
	
  15.

  	
  No Waiver; Cumulative Remedies

  	
  11

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Continuing Security Interest

  	
  11

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Further Indemnification

  	
  11

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Governing Law; Terms

  	
  12

  
	
   

  	
   

  	
   

  
	
  19.

  	
  No Petition In Bankruptcy

  	
  12

  
	
   

  	
   

  	
   

  
	
  20.

  	
  Waiver Of Jury Trial

  	
  12

  
	
   

  	
   

  	
   

  
	
  21.

  	
  Jurisdiction; Consent To Service Of Process

  	
  13

  
	
   

  	
   

  	
   

  
	
  22.

  	
  Headings

  	
  13

  
	
   

  	
   

  	
   

  
	
  23.

  	
  Severability

  	
  13

  
	
   

  	
   

  	
   

  
	
  24.

  	
  Counterparts

  	
  14

  
				

 

i

 

SECURITY AGREEMENT dated as of December 12, 2007 (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)                          LLOYDS TSB BANK PLC, a public limited company, (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 December 12,
2007 (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
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 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 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”):

 

B-7

 

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
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 3:00 p.m. (London time) (a) on the
date of such notice, if such notice is received before 12:00 p.m. (London
time) or (b) on the Business Day immediately following notice by the
Security Agent, if such notice is received after 12:00 p.m. (London time),
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

 

B-8

 

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 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.

 

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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 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 9-106 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,

 

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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
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

 

B-11

 

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.

 

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.

 

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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 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 Mellon Bank, N.A., or such other institution
of similar reputation as reasonably approved by the Security Agent, as the
Custodian pursuant to the Custodian Agreement.

 

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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 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.

 

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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 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, 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

 

B-9

 

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).

 

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:

 

Lloyds TSB Bank plc

Bank House

Wine Street

Bristol BS1 2AN

England

Attn: Loans Administration

 

B-10

 

Telephone: 
+44 (0)20 7801 3048

Facsimile: 
+44 (0)117 923 3367

E-mail: LoansAdmin_A-D@lloydstsb.co.uk

 

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.

 

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.

 

B-11

 

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
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

 

B-12

 

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 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.

 

B-13

 

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-14

 

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:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  
	
   

  
	
  LLOYDS TSB BANK PLC

  
	
  as the Security Agent

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
   

  
	
   

  	
  Title:

  

 

 

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 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 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.

 

B-16

 

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

 

“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:                       Lloyds TSB Bank plc

 

Dated:

 

Dear
Sirs,

 

1.                               We refer to the Letter of Credit and
Reimbursement Agreement dated as of December 12, 2007 (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, Lloyds TSB Bank plc as Agent and
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:

  	
   

  	
  [·] 200  

  
	
   

  	
   

  	
   

  
	
  Expiry Date:

  	
   

  	
  31 December 20    

  

 

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

 

C-1

 

Adjusted 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 USD$150,000,000 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:                       Lloyds TSB Bank plc

[·]

London  [·]

 

Re:
Account No. A30F0415332

 

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
December [·], 2007, by and among Arch Reinsurance Ltd.,
Lloyds TSB Bank plc as Agent and 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

  (US$ )

  	
   

  	
  Permitted

  Percentages

  - Matching

  Currency

  (%)

  	
   

  	
  Permitted

  Percentages

  - Non-

  Matching

  Currency

  (%)

  	
   

  	
  Adjusted

  Collateral

  Value

  (US$ )

  	
   

  	
  Currency

  	
   

  
	
  A. Collateral

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.
  Group 1 Investments with maturities of ten years or less from the date of
  determination

  	
   

  	
   

  	
   

  	
  90

  	
  %

  	
  85

  	
  %

  	
   

  	
   

  	
   

  	
   

  
	
  2.
  Group 1 Investments with maturities more than ten years from the date of
  determination and Group 2 Investments

  	
   

  	
   

  	
   

  	
  85

  	
  %

  	
  80

  	
  %

  	
   

  	
   

  	
   

  	
   

  
	
  3.
  Commercial Paper and Money Market Investments

  	
   

  	
   

  	
   

  	
  90

  	
  %

  	
  85

  	
  %

  	
   

  	
   

  	
   

  	
   

  
	
  4.
  U.S. Dollars, euros, pounds sterling and Cash Equivalents

  	
   

  	
   

  	
   

  	
  100

  	
  %

  	
  95

  	
  %

  	
   

  	
   

  	
   

  	
   

  
	
  Sub-total Collateral

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

D-1

 

	
  US $ Denominated

  Non – US $ Collateral

  Sub –total “A” in US $

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.
  Obligations(1):

  Letter of Credit Obligations

  US $Non -US $ Reimbursement Obligations

  US $Non-US $

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sub-total
  “B” in US $ Obligations

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Collateral
  position net of Obligations

  US $ Denominated

  (Total of Sub-total A - Subtotal B)

  Non-US $ denominated

  (Subtotal A-1(2) minus Sub-total B-1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Currency Exchange Rates as of

 

 

	
   

  	
  Arch Reinsurance Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Its

  

 

 

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

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

 

D-2

 

Exhibit E

 

Form of
Compliance Certificate

 

To:                       Lloyds TSB Bank plc, as Agent

 

From:           Arch Reinsurance Ltd.

 

Dated:

 

Dear
Sirs

 

USD$150,000,000
Letter of Credit Facility Agreement

dated as of
December 12, 2007 (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
December 12, 2007 (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”), Lloyds
TSB Bank plc as Agent (the “Agent”)
and 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

 

F-1

 

Letter of Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably 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*:                      ,
  200

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
   

  	
  [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

  	
   

  
	
   

  	
   

  	
   

  
	
  LLOYDS TSB BANK PLC 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 10.59

 

TERMINATION AGREEMENT

 

THIS TERMINATION AGREEMENT (this “Agreement”) is dated
as of the 13th day of December, 2007 (the “Effective Date”), by
and between Mac Farms of Hawaii, LLC, a Delaware limited liability company (“Mac Farms”) and Kapua Orchard Estates, LLC,
a Delaware limited liability company (“Kapua”) (both
collectively sometimes called “Seller”), and ML Macadamia Orchards, L.P. (“MLP” or “Buyer”), a Delaware
limited partnership.

 

NOW, THEREFORE, in consideration of the
foregoing and of the representations, warranties
and mutual covenants contained herein, and for other good and valuable
consideration the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:

 

1.                Defined Terms. Capitalized
terms not otherwise defined herein shall have the meaning ascribed to them in
that certain Acquisition Agreement, dated as of May 23, 2007, as amended on July 19, 2007, and November 23,
2007, by and among Mac Farms, Kapua and Buyer (the “Acquisition Agreement”). All defined terms contained
in the Acquisition Agreement
necessary to properly understand and construe the provisions below shall
survive the termination thereof for interpretational purposes only.

 

2.                Termination. Pursuant
to Section 9.1(a) of the Acquisition Agreement, the parties hereby mutually terminate the Acquisition Agreement effective as
of the Effective Date in all respects. For the
avoidance of doubt, no provision in the Acquisition Agreement shall survive the
termination thereof, including, but not limited to, Section 9.2 thereof.
Further, the parties hereto agree that none
of them shall make any claim against the other party or assist and/or
encourage any other Person to make a claim in connection with the termination
of the Acquisition Agreement or due to the fact that the transactions
contemplated by the Acquisition Agreement were not consummated.

 

3.                Reimbursement and Delivery Covenants.

 

a.               Buyer
agrees to reimburse Seller, within ten (10) days after receipt of a reimbursement
request from Seller, accompanied by the relevant invoices of the Seller’s
Accountants, for all payments of all fees and expenses paid to the Seller’s
Accountants by Seller in connection with
their: (i) assistance in preparing the SEC Financial Statements and the audit by Buyer’s Accountants; (ii) review
of the Buyer’s Proxy Statement; and (iii) preparation of certain
financial statements, management discussion and analysis and other related financial information for the periods ended
September 30, 2006, and September 30, 2007, intended for inclusion in the Buyer’s Proxy Statement, which
amount is U.S. Dollars Fifty Three Thousand Four Hundred Ninety-Nine &
66/100ths ($53,499.66).

 

b.              In connection with the title search performed on behalf of Buyer,
Seller agrees to reimburse Buyer in the amount of Three Thousand Five Hundred
U.S. Dollars ($3,500.00) within ten (10) days after receipt of
reimbursement request from Buyer, accompanied by a copy of such title search.

 

4.                Mutual Release of Claims. Other than the obligations explicitly set forth herein, Buyer and Seller hereby release and discharge each other and the Seller’s
members, subsidiaries, affiliates, officers, directors, employees, and
agents and their respective successors and assigns (collectively, the “Seller’s
Affiliated Parties”) from any and all demands, suits, actions,
causes of action or claims of any
kind, complaints, obligations, losses, damages, or fees (including attorneys’ fees) whether at law or in equity,
direct or indirect, known or unknown (collectively,

 

 

“Claims”),
which either party ever had, now has, or may have against the
other party, the Seller’s Affiliated Parties,
individually or collectively, arising out of, relating to, or in connection
with any matter, thing or event, including, but not
limited to, the Acquisition Agreement, the transactions contemplated
thereby or the termination thereof.

 

5.                Indemnification
Against Claims by Buyer’s Securityholders. Buyer
agrees to indemnify, hold harmless, and defend Seller and each of Seller’s
Affiliated Parties, from and against any and
all Claims, which may be threatened or brought by the Buyer’s unit holders and/or other securityholders and their respective
successors and assigns arising out of, relating to, or in connection with the termination of the Acquisition Agreement,
the Acquisition Agreement or the transactions contemplated thereby.

 

6.                Indemnification Against Claims by Seller’s Members. Seller agrees to indemnify, hold harmless, and defend Buyer and each
of Buyer’s officers, directors, employees, and
agents, from and against any and all Claims, which may be threatened or brought
by Seller’s members and their successors and assigns arising out of,
relating to, or in connection with, the termination
of the Acquisition Agreement, the Acquisition Agreement, or the transactions contemplated
thereby.

 

7.                Confidentiality. Buyer
agrees that it will not, without the prior written consent of Seller, use or disclose to any Person any non-public information
relating to or concerning the Acquisition Agreement,
Seller, Seller’s Affiliates, or their respective businesses, customers, financial condition, performance or operations
obtained by Buyer arising out of, relating to, or in connection with the
Acquisition Agreement and the transactions contemplated thereby.

 

8.                Destruction of Seller’s Materials. Buyer hereby agrees that it
will destroy and certify to Seller, that all
non-public documents, work papers, and any and all other materials (in all
cases, in paper, electronic or another format) obtained from Seller (or its
advisors, representatives, and agents) by Buyer and its advisors,
representatives and agents arising out of, relating to, or in connection with
the Acquisition Agreement and the transactions contemplated thereby have been
destroyed. Buyer hereby agrees to furnish to Seller the foregoing certification
within ten (10) days after the Effective Date of this Agreement.

 

9.                Non-Solicitation. For a
period of one (1) year following the Effective Date, Buyer agrees
that it will not, directly or indirectly, solicit, cause to be solicited or
assist others in soliciting for employment,
or offer or cause others to offer employment to, any person who is an employee
of Seller.

 

10.              Non-Disparagement. The parties agree that
neither will make any disparaging statements
or comments to any Person by any medium, whether oral or written, about the
other party, any of its affiliates or
any of its respective officers, directors, employees, shareholders, unit holders, agents, representatives or
independent contractors. Furthermore, the parties agree that neither
will communicate to any Person by any medium, whether oral or written, any information harmful or adverse to the other party,
any of its affiliates or any of its respective officers, directors, employees, shareholders, unit holders, agents,
representatives or independent contractors.

 

11.              Right of Setoff. Seller
may set off any amount to which it may be entitled under Section 3 of this Agreement against amounts otherwise payable to
Buyer in connection with this Agreement
or any other agreement between Buyer and Mac Farms. Neither the exercise of,
nor the failure to exercise, such right of setoff or
to give a notice thereof will constitute an election of remedies or
limit Seller in any manner in the enforcement of any other remedies that may be
available to it in connection with amount owed to it by Buyer.

 

 

12.              Entire
Agreement. This
Agreement constitutes the entire agreement, contract and understanding of the
parties with respect of the subject matter hereof and any and all prior
negotiations, agreements, contracts, covenants, promises, representations,
understandings or warranties, whether oral or written, express or implied, are
hereby terminated and canceled in their entirety and are of no further force or
effect.

 

13.              Captions. The captions appearing at the
commencement of the provisions of this Agreement are descriptive only and for
convenience in reference. If there is any conflict between any such caption and the provision at the head of
which it appears, then the provision, and not the caption, controls and governs
in the construction of this Agreement.

 

14.              Interpretation. Each party acknowledges that it has been
represented and advised by legal counsel in the negotiation and legal effects
of this Agreement and acknowledges that it has caused this Agreement to be
reviewed and approved by legal counsel of its own choice.

 

15.              Unknown
or Mistake in Facts. It is acknowledged and understood by the parties that the facts with
respect to this Agreement as known or given at this time may hereafter turn out
to be other than or different from such facts. The parties therefore expressly
assume the risk of the facts being different and agree that this Agreement
shall be in all respects effective and not subject to modification, termination
or rescission, notwithstanding any such difference in facts.

 

16.              Time
is of The Essence. Time is of the essence to this Agreement with respect to the
performance by each party of its duties, obligations and responsibilities under
this Agreement, and also each and every condition, covenant, provision and term
of this Agreement.

 

17.              Governing
Law. All
questions concerning the construction, validity and interpretation of this
Amendment will be governed by and construed in accordance with the Laws of the
State of Hawaii without giving effect to any choice of law or conflict of law
provision or rule that would cause the application of the Laws of any
jurisdiction other than the State of Hawaii.

 

18.              Counterparts/Facsimiles. This Agreement may be executed in
counterparts, each of which is deemed an original, and such counterparts
constitute one and the same instrument, which may be sufficiently evidenced by
a counterpart. A facsimile, telecopy, PDF, or other reproduction of this
Agreement may be executed by one or more parties, and an executed copy of this
Agreement may be delivered by one or more parties by facsimile, PDF e-mail, or
similar instantaneous electronic transmission device under which the signature of
or on behalf of such party can be seen, and such execution and delivery is to
be considered valid, binding and effective for all purposes. At the request of
any party, the parties agree to execute an original of this Agreement as well
as any facsimile, telecopy or other reproduction hereof.

 

19.              Authority. Buyer has full power and authority
(including full limited partnership power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Seller has full power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder.

 

20.              Partial
Invalidity.
If any provision of this Agreement is held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remaining provisions nevertheless
continue in full force without being impaired or invalidated in any way.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Termination Agreement to be duly
executed as of the Effective Date.

 

 

	
   

  	
  BUYER:

  
	
   

  	
   

  
	
   

  	
  ML MACADAMIA ORCHARDS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  DENNIS
  J. SIMONIS, President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
  MAC FARMS OF HAWAII, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert
  D. Sparks

  
	
   

  	
  ROBERT D. SPARKS, Chairman of the Board

  
	
   

  	
   

  
	
   

  	
  KAPUA ORCHARD ESTATES, LLC 

  
	
   

  	
  By: MFH Investors, LLC, its
  manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  JEFF
  GILBRECH, Vice-President

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