Document:

July 31, 2000

VIA FACSIMILE & FEDERAL EXPRESS

PERSONAL & CONFIDENTIAL

Mr. James T. O'Brien
11801 Pawnee Lane
Leawood, KS  66211

         Re:      Resignation as a Director/Extension of Options

Dear Jim:

     In connection with the above referenced matter each of James T. O'Brien
("you" and "your") and Palatin Technologies, Inc. (Palatin Technologies, Inc.
together with its subsidiaries and affiliates, the "Company", "we" or "our")
agree as follows:

     1. You hereby voluntarily resign, as of the date hereof, your position as
director of the Company.

     2. As of the date hereof, the Company is not aware of any claims or
liabilities now existing arising out of your services as a director to the
Company. The Company will maintain not less than its current directors and
officers insurance coverage.

     3. In consideration for your services rendered to the Company and your
agreement herein, all options (currently in the aggregate amount of 129,634)
previously granted to you will vest and will be exercisable for three (3) years
from the date hereof. You hereby agree not to offer, sell or otherwise dispose
of any shares of Common Stock of the Company or securities exercisable for or
convertible into shares of Common Stock of the Company for a period of ninety
(90) days from the date hereof, without our prior written consent.

     4. You shall keep the terms of this letter agreement ("Agreement")
confidential. You will not disparage, denigrate or defame the Company or any of
its business, products or services. The Company will not disparage, denigrate or
defame you.

<PAGE>

     5. You acknowledge that in deciding to sign this Agreement you have not
relied on any promises or commitments, whether spoken or in writing, made to you
by any Company representative, except for what is expressly stated in this
Agreement. This Agreement constitutes the entire understanding and agreement
between you and the Company, and replaces and cancels all previous agreements
and commitments, whether spoken or written, in connection with the matters
described, other than the option agreements which terms shall be deemed to be
modified by Paragraph 3 of this Agreement.

     6. This Agreement shall be construed, governed by and enforced in
accordance with the laws of the State of New Jersey. Any action arising out of
or relating to this Agreement may, at the election of the Company, be brought
and prosecuted in that State, and in the event of such election, you consent to
the jurisdiction venue of any courts of or in such jurisdiction and waive trial
by jury.

     7. This Agreement cannot be modified except by written agreement signed by
both you and an authorized Company representative.

     8. You agree to execute and deliver any further instruments or documents
which the Company may reasonably request in order to effectuate the terms and
purpose of this Agreement.

     If you are in agreement with the foregoing, kindly execute this Agreement
in the space provided below and return the same to the undersigned by facsimile
(609-520-0621) and Federal Express.

                                           Sincerely,

                                           Palatin Technologies, Inc.

                                           By:________________________________
                                                    Carl Spana, Ph.D
                                                    Chief Executive Officer
                                                    and President

AGREED AND ACCEPTED
AS OF THIS 31st DAY OF JULY 2000:

--------------------------------
James T. O'BrienExhibit 10.1

                                 Execution Copy

                        QUOTA SHARE REINSURANCE AGREEMENT

                  (hereinafter referred to as the "Agreement")

                                     between

               GIBRALTAR CASUALTY COMPANY, a Delaware Corporation

                   (hereinafter referred to as the "Company")

                                       and

   PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY, an Indiana Corporation
                  (hereinafter referred to as the "Reinsurer")

       (Both the Company and the Reinsurer collectively are referred to as
                   the "Parties" and individually as "Party")

WHEREAS, The  Prudential  Insurance Company of  America  ("Prudential")  is  the
ultimate parent of the Reinsurer;

WHEREAS  Prudential  and  Everest   Reinsurance   Holdings,   Inc.,  a  Delaware
corporation  ("Holdings"),  have executed a Stock Purchase Agreement dated as of
February  24,  2000 ("Sale  Agreement")  wherein  Holdings  will  purchase  from
Prudential  all issued and  outstanding  shares of the  Company,  a wholly owned
subsidiary of  Prudential,  effective as of the "Closing  Date" set forth in the
Sale Agreement.

WHEREAS,  Holdings is the parent of Everest Reinsurance Company,  formerly known
as Prudential Reinsurance Company ("Everest Re").

WHEREAS, the Company has, and in the future may have, Uncollectible  Reinsurance
Recoverables, as defined herein, with regard to business reinsured by or through
the Management Underwriting Facility ("MUF"), as defined in the Sale Agreement.

WHEREAS,   the  Company  desires  to  procure   reinsurance   coverage  for  its
Uncollectible Reinsurance Recoverables.

NOW,   THEREFORE,   in  consideration  of  mutual  covenants,   representations,
warranties,  and  agreements  contained  herein and in the Sale  Agreement,  the
Parties agree as follows:

<PAGE>
ARTICLE I - CLASSES OF BUSINESS COVERED

A.       By this  Agreement  and subject to the terms and  conditions  set forth
         below,  the Reinsurer agrees to indemnify the Company for the Company's
         Uncollectible Reinsurance Recoverables,  as defined herein, with regard
         to  business  reinsured  by or through  MUF  respecting  Direct  Excess
         Business and Gibraltar-Sourced Business, as defined herein.

B.       "Uncollectible  Reinsurance  Recoverables", with respect to Reinsurance
         Coverage, is defined as including (i) Uncollected Reinsurance  and (ii)
         Settlement Concessions.

C.       "Reinsurance  Coverage"  is  defined  as any  amount of paid and unpaid
         losses  and  loss  adjustment  expenses  ceded  by  Everest  Re to  MUF
         reinsurers with respect to Direct Excess Business or  Gibraltar-Sourced
         Business,  whether  such amounts were ceded prior to or during the term
         of this Agreement.

D.       "Uncollected  Reinsurance" is defined as Reinsurance  Coverage for paid
         loss and loss adjustment  cessions  relating to Direct Excess Business,
         with  respect to each  company on Schedule A hereto,  that is unpaid by
         the  reinsurer  after  one-hundred-and-eighty  (180) days from the date
         that such paid loss and loss adjustment cessions were due to be paid by
         the reinsurer.

E.       "Settlement Concessions" is defined as the difference,  with respect to
         each company on Schedule A hereto, between the Reinsurance Coverage for
         Direct Excess Business or  Gibraltar-Sourced  Business reinsured by MUF
         and ceded to such company and the amount received from such company.

F.       "Direct Excess Business" is defined as policies, contracts, and binders
         of insurance or reinsurance  ("Policies")  that were  issued by Everest
         Re prior to January 1, 1986.

G.       "Gibraltar-Sourced Business" is defined as Policies that were issued by
         the Company prior to January 1, 1986.

H.       Although  Everest Re rather  than the  Company  has the  direct  ceding
         relationship  with MUF,  solely for purposes of this Agreement and only
         up to the amounts  scheduled in Schedule A hereto,  the Parties  hereby
         deem  any  Uncollectible  Reinsurance  Recoverables  to  belong  to the
         Company and not to Everest Re.

ARTICLE II - COMMENCEMENT AND TERMINATION

A.       This  Agreement  shall  become  effective  on the  Closing  Date.  This
         Agreement will terminate,  with respect to the Reinsurer's  Per-Company
         Sub-Limit of Liability under Article V, on the earlier of (i) two years
         following  the  Reinsurer's  payment of the sub-limit or (ii) the tenth
         anniversary  of Closing Date.  This  Agreement  shall  terminate,  with
         respect to the  Reinsurer's  Aggregate Limit of Liability under Article
         V, on the earlier of (i) two years following the Reinsurer's payment of
         the limit or (ii) the tenth anniversary of the Closing Date.

<PAGE>
B.       Neither Party may terminate this Agreement.

ARTICLE III - TERRITORY

The  territorial  scope  of this  Agreement  shall be  identical  to that of the
Policies.

ARTICLE IV - CONSIDERATION

The consideration for this reinsurance coverage is deemed paid as of the Closing
Date and, with respect to the Reinsurer,  includes,  among other things, certain
operational  and other  assistance (i)  previously  provided to the Reinsurer by
Prudential, which is deemed paid as of the Closing Date, and (ii) to be provided
to the  Reinsurer in connection  with this  Agreement by  Prudential,  including
pursuant to the Keepwell  Agreement between Prudential and the Reinsurer of even
date herewith. No further consideration shall be due to the Reinsurer.

ARTICLE V - SCHEDULE OF UNCOLLECTIBLE REINSURANCE  RECOVERABLES  AND REINSURER'S
LIMIT OF LIABILITY

Pursuant to the Sale  Agreement,  on or before the first  Business Day following
the date on which all of the  conditions  set forth in Articles IX, X, and XI of
the Sale Agreement have been satisfied or waived, Holdings will cause Everest Re
to provide to the Reinsurer a schedule setting forth all expected  Uncollectible
Reinsurance  Recoverables  ("Schedule A"), which shall be incorporated herein by
reference.  Schedule A shall  identify,  by  reinsurer  name,  (1) the  expected
amounts of Uncollected  Reinsurance  attributable to each reinsurer with respect
to Direct Excess Business and (2) the expected amounts of Settlement Concessions
with respect to Direct Excess Business and  Gibraltar-Sourced  Business.  If the
Company  identifies  a  given  reinsurer  on  Schedule  A with  respect  to both
Uncollected  Reinsurance  and  for  Settlement  Concessions,   then  the  amount
scheduled for  Uncollected  Reinsurance  shall represent only paid loss and loss
adjustment  expense amounts and the amount scheduled for Settlement  Concessions
shall include only unpaid loss and loss adjustment expense amounts.

The Reinsurer shall pay to the Company one hundred percent (100.0%) of up to the
scheduled amount of the Company's  Uncollectible  Reinsurance  Recoverables with
respect  to each  company  listed  on  Schedule  A ("Per  Company  Sub-Limit  of
Liability"),  provided that the Reinsurer's total liability under this Agreement
shall in no event be greater than $8,500,000 ("Aggregate Limit of Liability").

<PAGE>
ARTICLE VI - PAYMENT OF ADVANCES BY REINSURER AND REFUNDS BY COMPANY

Subject  to the  limits  set forth in  Article  V,  pursuant  to  Article IX the
Reinsurer  shall make payments  ("Advances") to the Company in the amount of the
Uncollected  Reinsurance  and  Settlement  Concessions  shown  on the  Company's
statements.

If after  receiving an Advance from the Reinsurer with respect to an Uncollected
Reinsurance amount, the Company actually collects all or a portion of the amount
due from the  reinsurer  identified on Schedule A, then the Company shall pay to
the  Reinsurer  a sum equal to the  amount so  collected  ("Refund"),  up to the
amount of the  corresponding  Advance paid by the  Reinsurer.  Refunds shall not
bear  interest  except as set forth in Article IX (G), and in no event shall the
Reinsurer be entitled to a Refund in an amount  greater  than the  corresponding
Advance.  In the event that a Refund is made to the  Reinsurer,  the Per Company
Sub-Limit  of  Liability  and the  Aggregate  Limit of  Liability  shall each be
replenished  by the amount of such Refund.  No Refunds shall be due for Advances
paid by the Reinsurer with respect to Settlement Concessions.

ARTICLE VII - OTHER REINSURANCE

On or after the Closing  Date,  the Company  shall be  permitted to obtain other
reinsurance,  recoveries  under which  shall inure  solely to the benefit of the
Company,  and all  recoveries  under such other  reinsurance  shall be  entirely
disregarded in applying all of the provisions of this Agreement.

ARTICLE VIII - ORIGINAL CONDITIONS

A.       The  Reinsurer  shall  follow the fortunes of the Company with  respect
         to  settlements  of  any  Reinsurance  Coverage  and  with  respect  to
         Uncollectible Reinsurance Recoverables.

B.       The reinsurance coverage provided under this Agreement shall be subject
         to all interpretations,  modifications, waivers, and alterations of the
         Policies and Reinsurance Coverage.

C.       Nothing herein shall in any manner create any obligations  or establish
         any rights against the Reinsurer in favor of any  third  party  or  any
         person not a Party to this Agreement.

ARTICLE IX - REPORTS AND REMITTANCES

A.       The first  statement of account shall be due to the Reinsurer  from the
         Company on the  anniversary  of the Closing Date.  The first  statement
         only  shall  include  a  charge  for  interest  on  any   Uncollectible
         Reinsurance  Recoverables  due from the  Reinsurer as of the  statement
         date.  Such  interest  charge  shall be  equal to the rate of  interest
         announced  by  Citibank,  N.A.  as its  prime  or  base  rate as of the
         statement  date,  calculated  on the basis of the actual number of days
         elapsed since the Uncollectible Reinsurance Recoverables accrued or the
         Closing      Date,      whichever      is     less,      divided     by
         three-hundred-and-sixty-five  (365) days. Such interest charge shall be
         included  in the Per  Company  Sub-Limit  of  Liability  set  forth  on
         Schedule A.

<PAGE>
B.       Thereafter,  the  Company  shall submit quarterly statements of account
         ("quarterly reports") within forty-five (45) days after the end of each
         calendar quarter.

C.       Such  quarterly  reports shall  be sent by both facsimile  transmission
         and United States Postal Service or any other delivery  service used by
         the Company.

D.       Such quarterly reports shall include information showing, as applicable
         with  respect  to  each  company  listed  on  Schedule  A,  Uncollected
         Reinsurance,  Settlement Concessions,  Advances received, Advances due,
         Refunds due, and unpaid amounts outstanding.

E.       Remittances shall be on a "Net Basis," defined as amounts owed  between
         the Parties under this Agreement.

F.       Remittances,  whether due to the Company  from the  Reinsurer or to the
         Reinsurer from the Company,  shall be due within  forty-five  (45) days
         from  the  date  of  receipt  of the  facsimile  transmission  of  each
         quarterly report.

G.       Failure by the  Reinsurer  or the Company to pay amounts  owed when due
         under this Agreement shall result in imposition of an interest  penalty
         equal to the rate of interest announced by Citibank,  N.A. as its prime
         or base rate as of the due date of any  remittance,  calculated  on the
         basis of the  actual  number of days  elapsed  past the due date of any
         remittance  divided  by  three-hundred-and-sixty-five  (365)  days  and
         payment of other losses, costs, and expenses accrued or incurred by the
         Company or Reinsurer as a result of the other Party's late payment.

ARTICLE X - OFFSET

The  Company  and the  Reinsurer  shall have the right to offset any  balance or
amounts due from one party to the other under this Agreement.

ARTICLE XI - ACCESS TO RECORDS

     A.  The  Company  shall  place  at the  disposal  of the  Reinsurer  at all
         reasonable times, and the Reinsurer will have the right to inspect, all
         books,  records,  and  papers of the  Company  in  connection  with any
         reinsurance coverage hereunder or any claims in connection herewith.

     B.  All  records  reviewed  by the  Reinsurer  are deemed  proprietary  and
         confidential property of the Company.  Further,  unless pursuant to the
         express,  written  permission of the Company,  the Reinsurer  shall not
         disclose the contents of such information to any other person, persons,
         entity,  or entities;  provided,  that the  Reinsurer may disclose such
         information  or portions  thereof in  connection  with any  arbitration
         hereunder  or any legal or  regulatory  process,  or to its  directors,
         officers and employees and the directors, officers and employees of its
         affiliates and to its agents, representatives,  attorneys, accountants,
         auditors, reinsurers (collectively, "the Reinsurer's Representatives"),

<PAGE>
         in each  case,  who have a  legitimate  need to know  such  information
         (which would include, but not be limited to the right to dispute and/or
         assess in  furtherance  of a dispute) and who are informed of and agree
         to be  bound  by the  confidentiality  terms  of  this  Agreement.  The
         Reinsurer shall indemnify and hold harmless the Company for all damages
         resulting  from any  unauthorized  disclosure  by the  Reinsurer or the
         Reinsurer's  Representatives  of  records  obtained  pursuant  to  this
         Article.  Nothing  contained  in this  Agreement  shall be construed to
         prevent the Company from applying to a court of competent  jurisdiction
         for equitable relief including injunction and specific performance as a
         remedy  if the  Reinsurer  or any  of the  Reinsurer's  Representatives
         breach or threaten  to breach any of the  provisions  of this  Article.
         Without prejudice to the rights and remedies otherwise available at law
         or equity to the Company,  it is understood and agreed that the Company
         would be  irreparably  injured by a breach of this Article,  that money
         damages  would not be a sufficient  remedy for any actual or threatened
         breach  of this  Article  by the  Reinsurer  or any of the  Reinsurer's
         Representatives  and that the Company  shall  (without  proof of actual
         damages) be entitled to equitable  relief.  In the event of  litigation
         relating  to  this  Article,  if  a  court  of  competent  jurisdiction
         determines that the Reinsurer or any of the Reinsurer's Representatives
         have breached this Article,  then the Reinsurer shall be liable and pay
         to the Company  the  reasonable  legal fees  incurred by the Company in
         connection with the subject litigation, including any appeal therefrom.

ARTICLE XII - ERRORS AND OMISSIONS

Inadvertent delays, errors or omissions in connection with this Agreement or any
transaction  hereunder  shall not relieve  either Party of any  liability  which
would have  attached had such delay,  error or omission not  occurred,  provided
always  that such error or  omission  is  rectified  as soon as  possible  after
discovery.

ARTICLE XIII - SECURITY

A.       If the  Company is or becomes  unable to take  credit in any  financial
         statement  filed  with  its  domiciliary  insurance  regulator  or with
         insurance  regulators  in New Jersey,  California or any other state in
         which it  currently  is  approved  as a surplus  lines  insurer (or any
         successors to said  regulators) for the reinsurance  coverage  provided
         hereunder,  or if Prudential's  Financial  Strength Rating published by
         A.M. Best becomes less than "A-," the  Reinsurer  agrees to fund within
         thirty (30) days from  receipt of notice from the Company  that funding
         is required its share of Uncollectible Reinsurance Recoverables (and to
         replenish such funding from time to time as necessary) by:

         1.   Clean, irrevocable and  nconditional  letters of credit issued and
              confirmed, if confirmation is required by the insurance regulatory
              authorities  involved,  by  a  qualified  United  States financial
              institution acceptable to said insurance regulatory authorities;

<PAGE>
         2.   cash; and/or

         3.   a Trust in compliance with  the  requirements of and acceptable to
              said insurance regulatory authorities.

B.       With regard to funding in whole or in part by letters of credit,  it is
         agreed  that  each  letter of  credit  will be in a form that  would be
         acceptable to the Company's domiciliary insurance regulatory authority,
         will be  issued  for a term of at least  one year and will  include  an
         "evergreen  clause," that  automatically  extends the term for at least
         one additional  year at each  expiration  date unless written notice of
         non-renewal is given to the Company not less than 30 days prior to said
         expiration date. The Company and the Reinsurer  further agree that said
         letters of credit may be drawn upon by the Company or its successors in
         interest at any time,  without  diminution because of the insolvency of
         the Company or the Reinsurer, but only for one or more of the following
         purposes:

         1.   To reimburse itself  for the  Reinsurer's share  of  Uncollectible
              Reinsurance  Recoverables,  unless  paid in cash by the Reinsurer;

         2.   To reimburse itself for the Reinsurer's share of any other amounts
              claimed to be due hereunder, unless paid in cash by the Reinsurer;

         3.   To  fund  a  cash  account in an amount  equal to the  Reinsurer's
              share of Uncollectible Reinsurance Recoverables  funded  by  means
              of a letter of credit that is under non-renewal  notice,  if  said
              letter of credit has not been renewed or replaced by the Reinsurer
              10 days prior to its expiration date;

         4.   To  refund  to  the  Reinsurer  any  sum  in excess of the  actual
              amount  required  to  fund  the Reinsurer's share of Uncollectible
              Reinsurance  Recoverables  and  other  amounts  claimed  to be due
              hereunder, if so requested by the Reinsurer.

C.       In the event the amount drawn by the Company on any letter of credit is
         in excess of the actual  amount  required for B (1), B (3) or B (4), or
         in the case of B (2),  the  actual  amount  determined  to be due,  the
         Company  shall  promptly  return to the  Reinsurer the excess amount so
         drawn.

D.       In the event of funding through a  Trust:

         1.   The  Reinsurer  shall  establish a Trust Account for  the  benefit
              of the Company to fund the amounts receivable under the  Agreement
              in  a  qualified United States  financial  institution  reasonably
              acceptable  to  the  Company  and  to  said  insurance  regulatory
              authorities.

<PAGE>
         2.   The  assets  deposited  into  the  Trust  Account shall  be valued
              according  to  their current  fair market value  and shall consist
              only  of  cash  (United  States  legal  tender),  certificates  of
              deposit  (issued  by  a  United  States bank and payable in United
              States  legal  tender) and  investments of  the  type permitted by
              and  acceptable  to said insurance  regulatory authorities  or any
              combination of  the  above,  provided  that  such  investments are
              issued  by  an institution that  is not the parent,  subsidiary or
              affiliate of either the Reinsurer or the Company;

         3.   The  Reinsurer,  prior  to  depositing  assets  with  the trustee,
              shall  execute  assignments,  endorsements in  blank, or  transfer
              legal title  to  the  trustee of a ll shares,  obligations  or any
              other  assets  requiring  assignments, in  order that the Company,
              or  the  trustee  upon  the  Company's  direction,   may  whenever
              necessary negotiate any such assets without consent  or  signature
              from the Reinsurer or any other entity;

         4.   All  settlements  of account between the Reinsurer and the Company
              shall be in cash or its equivalent;

         5.   The  assets  in  the  trust   account  may  be  withdrawn  by  the
              Company  at  any  time,  notwithstanding  any  other provisions in
              this  Agreement,  and  shall  be  utilized  by  the Company or any
              successor  by  operation  of  law,  including  without  limitation
              any  liquidator,  rehabilitator,  receiver or  conservator of  the
              Company,  for  the  purposes  set  forth in paragraphs  B(1) -B(4)
              above.

ARTICLE XIV - INSOLVENCY

In the  event  of  the  insolvency  of the  Company,  the  reinsurance  coverage
hereunder  shall  be  payable  directly  to the  Company  or to its  domiciliary
liquidator,  receiver,  conservator  or statutory  successor on the basis of the
amount of claim  allowed in the  insolvency  proceeding  without  diminution  by
reason of the  inability of the Company to pay all or any part of the claim.  It
is agreed,  however,  that the  liquidator,  receiver,  conservator or statutory
successor  of the Company  shall give  written  notice to the  Reinsurer  of the
pendency of a claim against the Company,  indicating  the Policy or bond covered
hereunder  which claim  would  involve a possible  liability  on the part of the
Reinsurer,   within  a  reasonable  time  after  such  claim  is  filed  in  the
conservation or liquidation  proceeding or in the receivership,  and that during
the  pendency  of such  claim,  the  Reinsurer  may  investigate  such claim and
interpose,  at its own  expense,  in the  proceeding  where  such claim is to be
adjudicated,  any defense or defenses that it may deem  available to the Company
or its liquidator,  receiver,  conservator or statutory  successor.  The expense
thus incurred by the Reinsurer  shall be chargeable,  subject to the approval of
the Court,  against  the  Company  as part of the  expense  of  conservation  or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the Reinsurer.

<PAGE>
ARTICLE XV - ARBITRATION

A.       Except  with  respect to  disputes  arising  solely out of or solely in
         connection  with Article XI above  (Access to Records),  as a condition
         precedent to any right of action hereunder, in the event of any dispute
         or  difference  of  opinion  hereafter  arising  with  respect  to this
         Agreement,  including its formation and validity, it is hereby mutually
         agreed that such dispute or difference of opinion shall be submitted to
         arbitration.

B.       Except as provided  in  subsections  A. and D. of this  Article or with
         respect to judicial proceedings instituted in aid of arbitration,  this
         Article shall constitute a waiver of the Parties' rights to commence an
         action in any court of competent  jurisdiction in the United States, to
         remove  an  action  to a United  States  District  Court,  or to seek a
         transfer of a case to another court as might  otherwise be permitted by
         the laws of the United States or of any State or other  jurisdiction in
         the United States.

C.       One Arbiter shall be chosen by the Company, the other by the Reinsurer,
         and an Umpire  shall be chosen by the two  Arbiters  before  they enter
         upon arbitration,  all of whom shall be active or retired disinterested
         executive officers of United States domiciled  insurance or reinsurance
         companies.  In the event that  either  Party  should  fail to choose an
         Arbiter within 30 days  following a written  request by the other Party
         to do so, the  requesting  Party may choose two  Arbiters  who shall in
         turn choose an Umpire  before  entering  upon  arbitration.  If the two
         Arbiters  fail to agree upon the  selection of an Umpire within 30 days
         following  their   appointment,   each  Arbiter  shall  nominate  three
         candidates  within  10 days  thereafter,  two of whom the  other  shall
         decline, and the decision shall be made by drawing lots.

D.       The Arbiters and the Umpire ("the  Arbitration  Panel") shall  consider
         this Agreement as an honorable engagement rather than merely as a legal
         obligation,  and they are relieved of all judicial  formalities and may
         abstain from  following the strict rules of law. The majority  decision
         of the  Arbitration  Panel shall be final and binding on both  Parties.
         Judgment  upon the  final  decision  of the  Arbitration  Panel  may be
         entered in any court of competent jurisdiction.

E.       Except as provided in sub-section G. of this Article,  each Party shall
         bear the expense of its own Arbiter, and shall jointly and equally bear
         with the other the expense of the Umpire and of the arbitration. In the
         event that the two Arbiters are chosen by one Party, as above provided,
         the expense of the Arbiters,  the Umpire and the  arbitration  shall be
         equally divided between the two Parties.

F.       Any  arbitration  pursuant to this  Article  shall be  conducted in New
         York,  New York  unless  otherwise  agreed  by the  parties;  provided,
         however,  that the Arbitration Panel may choose to take evidence and/or
         convene a hearing in a place other than New York for the convenience of
         the parties, the witnesses or the Arbitration Panel.

<PAGE>
G.       The Arbitration Panel shall  have the  power to  award costs, expenses,
         and interest to the prevailing Party in an arbitration.

ARTICLE XVI - SERVICE OF SUIT

A.       It is agreed that in the event of the failure of the  Reinsurer  to pay
         any amount  claimed to be due  hereunder  or to  otherwise  perform its
         obligations  hereunder,  the  Reinsurer  will,  at the  request  of the
         Company,   submit  to  the  jurisdiction  of  any  court  of  competent
         jurisdiction  within the State of New Jersey or such other jurisdiction
         within the United States as the Company can select as a forum, and will
         comply with all requirements  necessary to give such court jurisdiction
         and all matters  arising  hereunder  shall be  determined in accordance
         with the law and practice of such court.

B.       Service of process in such suit may be made on the Reinsurer by serving
         the  Commissioner  of Insurance  of the State of New Jersey,  who shall
         forward such process to the Reinsurer in accordance with Article XXI or
         at such  other  address  as the  Reinsurer  shall  advise.  In any suit
         instituted,  the  Reinsurer  will abide by the final  decision  of such
         court.

C.       Further,  pursuant to any statute of any state,  territory, or district
         of the United States of America which makes provisions  therefore,  the
         Reinsurer herein hereby designates the superintendent,  commissioner or
         director of insurance or other  officer  specified  for that purpose in
         the statute,  or his successor or successors in office, as its true and
         lawful  attorney  upon whom may be served  any  lawful  process  in any
         action, suit or proceeding instituted by or on behalf of the Company or
         any beneficiary  hereunder arising out of this Agreement of reinsurance
         and hereby designates the above-named person to whom the said office is
         authorized to mail such process or a true copy thereof.

D.       This Article is not meant to  supersede  Article XV of  this  Agreement
         or override the  obligation  of the parties to arbitrate their disputes
         in accordance with Article XV.

ARTICLE XVII - ENTIRE AGREEMENT

This  Agreement,  the Sale Agreement and the Guaranty,  and any exhibits to such
agreements,  collectively  constitute the entire  agreement  between the Parties
regarding  the subject  matter hereof and  supercede  all prior  agreements  and
understandings,  both  written and oral and do not confer any rights or remedies
to any other party or any other person.

ARTICLE XVIII - AMENDMENTS AND ALTERATIONS

This Agreement shall not be changed,  supplemented,  modified, or amended except
by an endorsement/addendum signed by the Parties and attached hereto.

<PAGE>
ARTICLE XIX - NO WAIVER

No  forbearance  to enforce any provision or right  hereunder  shall be deemed a
waiver thereof, and no waiver of any breach of any term or covenant herein shall
be construed  as a waiver of any other breach of the same,  or any other term or
covenant herein.

ARTICLE XX - CONSTRUCTION

This Agreement is the result of arms-length negotiations between the Parties and
has been  prepared  jointly by the  Parties.  In applying and  interpreting  the
provisions  of this  Agreement,  there shall be no  presumption  that either the
Company or the Reinsurer  prepared this Agreement,  or that this Agreement shall
be construed in favor of or against either the Company or the Reinsurer.

ARTICLE XXI - NOTICES

Any notice or other  communication  required or permitted  hereunder shall be in
writing  and  shall  be  delivered  personally,  telegraphed,  telexed,  sent by
facsimile  transmission,  or sent by  certified,  registered  or  express  mail,
postage prepaid, to:

         If to the Reinsurer, to:

         Richard Green,
         Vice President

         Prudential Property and Casualty Insurance Company
         23 Main St., 4th Floor

         Holmdel, NJ  07032
         Phone:  732-946-5082
         Fax:  732-946-5029

         with a copy to:

         Doreen Faga
         President, Gibraltar Operations
         The Prudential Insurance Company of America
         Eisenhower Corporate Center, Building 3
         290 West Mt. Pleasant Avenue
         Livingston, NJ  07039
         Phone: 973-548-5980
         Fax:     973-548-5950

<PAGE>
         If to the Company, to:

         Janet J. Burak

         Senior Vice President and General Counsel
         Everest Reinsurance Holdings
         477 Martinsville Road

         P.O. Box 830
         Liberty Corner, NJ  07938
         Phone: 908-604-3170
         Fax:     908-604-3450

or in each case to such  other  address as a party may  designate  for itself by
like notice to the other party.

ARTICLE XXII - GOVERNING LAW

This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.

<PAGE>
IN WITNESS  WHEREOF,  the Company,  by its duly authorized  representative,  has
executed this Agreement as of the date undermentioned at:

Livingston, New Jersey, this 19th day of September 2000.

/S/  DOREEN FAGA
     ---------------------------------
     Doreen Faga
     President, Gibraltar Casualty Co.

IN WITNESS WHEREOF, the Reinsurer,  by its duly authorized  representative,  has
executed this Agreement as of the date undermentioned at:

Holmdel, New Jersey, this 19th day of September 2000.

/S/  RICHARD M. GREEN
     ---------------------------------
     Richard M. Green

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