Document:

Exhibit 10.1

 

 

CREDIT AGREEMENT

 

dated as of

 

September 16, 2004

 

among

 

ARCH CAPITAL GROUP LTD.,

 

ARCH CAPITAL GROUP (U.S.) INC.,

 

Various Designated Subsidiary Borrowers,

 

The Lenders Party Hereto,

 

BARCLAYS BANK PLC,

HSBC BANK USA, NATIONAL ASSOCIATION,

ING BANK N.V., LONDON BRANCH,

THE BANK OF NEW YORK,

and

WACHOVIA BANK, NATIONAL ASSOCIATION

as Documentation Agents,

 

BANK OF AMERICA, N.A.,

as Syndication Agent

 

and

 

JPMORGAN CHASE BANK,

as Administrative Agent

 

 

J.P. MORGAN SECURITIES INC.,

and

BANC OF AMERICA SECURITIES LLC,

as Joint Bookrunners and Joint Lead Arrangers

 

 

 

$700,000,000

 

 

Table of Contents

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE
  I Definitions

  	
  1

  
	
   

  	
   

  
	
  Section
  1.01. Defined Terms

  	
  1

  
	
  Section
  1.02. Classification of Loans and Borrowings

  	
  28

  
	
  Section
  1.03. Terms Generally

  	
  29

  
	
  Section
  1.04. Accounting Terms; GAAP

  	
  29

  
	
   

  	
   

  
	
  ARTICLE
  II The Credits

  	
  29

  
	
   

  	
   

  
	
  Section
  2.01. Tranche 2 and Tranche 3 Commitments

  	
  29

  
	
  Section
  2.02. Loans and Borrowings

  	
  30

  
	
  Section
  2.03. Requests for Borrowings

  	
  31

  
	
  Section
  2.04. Funding of Borrowings

  	
  32

  
	
  Section
  2.05. Interest Elections

  	
  32

  
	
  Section
  2.06. Termination and Reduction of Tranche 1 Commitments

  	
  34

  
	
  Section
  2.07. Termination and Reduction of Tranche 2 Commitments

  	
  34

  
	
  Section
  2.08. Termination and Reduction of Tranche 3 Commitments

  	
  35

  
	
  Section
  2.09. Repayment of Loans; Evidence of Debt

  	
  36

  
	
  Section
  2.10. Prepayments; Additional Collateral

  	
  37

  
	
  Section
  2.11. Fees

  	
  40

  
	
  Section
  2.12. Interest

  	
  42

  
	
  Section
  2.13. Alternate Rate of Interest

  	
  43

  
	
  Section 2.14. Increased Costs

  	
  43

  
	
  Section
  2.15. Break Funding Payments

  	
  44

  
	
  Section
  2.16. Taxes

  	
  45

  
	
  Section
  2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs

  	
  46

  
	
  Section
  2.18. Mitigation Obligations; Replacement of Lenders

  	
  47

  
	
  Section
  2.19. Additional Tranche 1 Commitments

  	
  48

  
	
  Section
  2.20. Additional Tranche 2 Commitments.

  	
  50

  
	
  Section
  2.21. Additional Tranche 3 Commitments

  	
  52

  
	
  Section
  2.22. Additional Designated Subsidiary Borrowers

  	
  54

  
	
  Section
  2.23. Removal of Designated Subsidiary Borrowers

  	
  54

  
	
   

  	
   

  
	
  ARTICLE IIIA
  Tranche 1 Letters of Credit

  	
  55

  
	
   

  	
   

  
	
  Section
  3A.01. Tranche 1 Letters of Credit

  	
  55

  
	
  Section
  3A.02. Tranche 1 Letter of Credit Requests

  	
  57

  
	
  Section
  3A.03. Agreement to Repay Tranche 1 Letter of Credit Drawings

  	
  58

  
	
  Section
  3A.04. Increased Costs

  	
  58

  
	
  Section
  3A.05. Tranche 1 Letter of Credit Expiration Extensions

  	
  59

  
	
  Section
  3A.06. Changes to Stated Amount

  	
  59

  
	
  Section
  3A.07. Representations and Warranties of Tranche 1 Lenders

  	
  59

  
	
   

  	
   

  
	
  ARTICLE IIIB
  Tranche 2 Letters of Credit

  	
  60

  
	
   

  	
   

  
	
  Section
  3B.01. Tranche 2 Letters of Credit

  	
  60

  
	
  Section
  3B.02. Tranche 2 Letter of Credit Requests

  	
  62

  
	
  Section
  3B.03. Agreement to Repay Tranche 2 Letter of Credit Drawings

  	
  63

  
	
  Section
  3B.04. Increased Costs

  	
  63

  
	
  Section
  3B.05. Tranche 2 Letter of Credit Expiration Extensions

  	
  64

  

 

i

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  Section
  3B.06. Changes to Stated Amount

  	
  64

  
	
  Section
  3B.07. Representations and Warranties of Tranche 2 Lenders

  	
  64

  
	
   

  	
   

  
	
  ARTICLE IV
  Representations and Warranties

  	
  65

  
	
   

  	
   

  
	
  Section
  4.01. Corporate Status

  	
  65

  
	
  Section
  4.02. Corporate Power and Authority

  	
  65

  
	
  Section
  4.03. No Contravention of Laws, Agreements or Organizational Documents

  	
  65

  
	
  Section
  4.04. Litigation and Contingent Liabilities

  	
  65

  
	
  Section
  4.05. Use of Proceeds; Margin Regulations

  	
  66

  
	
  Section
  4.06. Approvals

  	
  66

  
	
  Section 4.07.
  Investment Company Act

  	
  66

  
	
  Section
  4.08. Public Utility Holding Company Act

  	
  66

  
	
  Section
  4.09. True and Complete Disclosure; Projections and Assumptions

  	
  66

  
	
  Section
  4.10. Financial Condition; Financial Statements

  	
  67

  
	
  Section
  4.11. Tax Returns and Payments

  	
  68

  
	
  Section
  4.12. Compliance with ERISA

  	
  68

  
	
  Section
  4.13. Subsidiaries

  	
  69

  
	
  Section
  4.14. Capitalization

  	
  69

  
	
  Section
  4.15. Indebtedness

  	
  69

  
	
  Section
  4.16. Compliance with Statutes, etc.

  	
  69

  
	
  Section
  4.17. Insurance Licenses

  	
  70

  
	
  Section
  4.18. Insurance Business

  	
  70

  
	
  Section 4.19.
  Security Documents

  	
  70

  
	
  Section
  4.20. No Section 32 Direction

  	
  70

  
	
   

  	
   

  
	
  ARTICLE
  V Conditions

  	
  70

  
	
   

  	
   

  
	
  Section
  5.01. Effective Date

  	
  70

  
	
  Section 5.02.
  Each Credit Event

  	
  73

  
	
   

  	
   

  
	
  ARTICLE VI
  Affirmative Covenants

  	
  74

  
	
   

  	
   

  
	
  Section
  6.01. Information Covenants

  	
  74

  
	
  Section
  6.02. Books, Records and Inspections

  	
  78

  
	
  Section
  6.03. Insurance

  	
  78

  
	
  Section
  6.04. Payment of Taxes

  	
  78

  
	
  Section
  6.05. Maintenance of Existence

  	
  78

  
	
  Section
  6.06. Compliance with Statutes, etc.

  	
  79

  
	
  Section
  6.07. ERISA

  	
  79

  
	
  Section
  6.08. Maintenance of Property

  	
  80

  
	
  Section
  6.09. Maintenance of Licenses and Permits

  	
  80

  
	
  Section
  6.10. Financial Strength Ratings

  	
  80

  
	
  Section
  6.11. End of Fiscal Years; Fiscal Quarters

  	
  80

  
	
  Section
  6.12. Borrowing Base Requirement

  	
  80

  
	
  Section
  6.13. Further Assurances

  	
  80

  

 

ii

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE VII Negative
  Covenants

  	
  81

  
	
   

  	
   

  
	
  Section
  7.01. Changes in Business and Investments

  	
  81

  
	
  Section
  7.02. Consolidations, Mergers, Sales of Assets and Acquisitions

  	
  81

  
	
  Section
  7.03. Liens

  	
  82

  
	
  Section 7.04.
  Indebtedness

  	
  85

  
	
  Section
  7.05. Issuance of Stock

  	
  85

  
	
  Section
  7.06. Dissolution

  	
  85

  
	
  Section
  7.07. Restricted Payments

  	
  85

  
	
  Section
  7.08. Transactions with Affiliates

  	
  86

  
	
  Section
  7.09. Maximum Parent Borrower Leverage Ratio

  	
  86

  
	
  Section
  7.10. Minimum Consolidated Tangible Net Worth

  	
  86

  
	
  Section 7.11. Unencumbered Liquid
  Assets

  	
  87

  
	
  Section
  7.12. Limitation on Certain Restrictions on Subsidiaries

  	
  87

  
	
  Section
  7.13. Private Act

  	
  88

  
	
   

  	
   

  
	
  ARTICLE VIII Events of
  Default

  	
  88

  
	
   

  	
   

  
	
  Section
  8.01. Payments

  	
  88

  
	
  Section
  8.02. Representations, etc.

  	
  88

  
	
  Section
  8.03. Covenants

  	
  88

  
	
  Section
  8.04. Default under other Agreements

  	
  88

  
	
  Section
  8.05. Bankruptcy, etc.

  	
  89

  
	
  Section
  8.06. ERISA

  	
  90

  
	
  Section
  8.07. Judgments

  	
  90

  
	
  Section
  8.08. Insurance Licenses

  	
  90

  
	
  Section
  8.09. Intermediate Holdings Guaranty

  	
  90

  
	
  Section
  8.10. Security Documents

  	
  90

  
	
  Section
  8.11. Change of Control

  	
  90

  
	
  Section
  8.12. Section 32 Direction

  	
  91

  
	
   

  	
   

  
	
  ARTICLE IX The
  Administrative Agent

  	
  91

  
	
   

  	
   

  
	
  Section
  9.01. Appointment

  	
  91

  
	
  Section
  9.02. Administrative Agent in its Individual Capacity

  	
  91

  
	
  Section
  9.03. Exculpatory Provisions

  	
  92

  
	
  Section
  9.04. Reliance

  	
  92

  
	
  Section
  9.05. Delegation of Duties

  	
  92

  
	
  Section 9.06.
  Resignation

  	
  93

  
	
  Section
  9.07. Non-Reliance

  	
  93

  
	
  Section
  9.08. Documentation Agents

  	
  93

  
	
   

  	
   

  
	
  ARTICLE
  X Miscellaneous

  	
  94

  
	
   

  	
   

  
	
  Section
  10.01. Notices

  	
  94

  
	
  Section
  10.02. Waivers; Amendments

  	
  95

  
	
  Section
  10.03. Expenses; Indemnity; Damage Waiver

  	
  96

  

 

iii

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  Section
  10.04. Successors and Assigns

  	
  97

  
	
  Section
  10.05. Survival

  	
  101

  
	
  Section
  10.06. Counterparts; Integration; Effectiveness

  	
  101

  
	
  Section
  10.07. Severability

  	
  101

  
	
  Section
  10.08. Right of Setoff

  	
  101

  
	
  Section
  10.09. Governing Law; Jurisdiction; Consent to Service of Process

  	
  102

  
	
  Section
  10.10. WAIVER OF JURY TRIAL

  	
  102

  
	
  Section
  10.11. Headings

  	
  102

  
	
  Section
  10.12. Confidentiality

  	
  103

  
	
  Section
  10.13. Interest Rate Limitation

  	
  103

  
	
  Section
  10.14. Judgment Currency

  	
  104

  
	
  Section
  10.15. USA Patriot Act

  	
  104

  
	
   

  	
   

  
	
  ARTICLE XI
  Intermediate Holdings Guaranty

  	
  105

  
	
   

  	
   

  
	
  Section
  11.01. The Guaranty

  	
  105

  
	
  Section
  11.02. Bankruptcy

  	
  105

  
	
  Section
  11.03. Nature of Liability

  	
  105

  
	
  Section
  11.04. Independent Obligation

  	
  106

  
	
  Section
  11.05. Authorization

  	
  106

  
	
  Section
  11.06. Reliance

  	
  107

  
	
  Section
  11.07. Subordination

  	
  107

  
	
  Section
  11.08. Waiver

  	
  107

  

 

	
  SCHEDULES:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule
  1.01

  	
  —

  	
  Liability
  Percentages

  	
   

  
	
  Schedule 2.01

  	
  —

  	
  Commitments

  	
   

  
	
  Schedule
  4.10(c)

  	
  —

  	
  Material
  Liabilities

  	
   

  
	
  Schedule
  4.13

  	
  —

  	
  Subsidiaries

  	
   

  
	
  Schedule
  4.14

  	
  —

  	
  Capitalization

  	
   

  
	
  Schedule
  4.15

  	
  —

  	
  Existing
  Indebteness

  	
   

  
	
  Schedule
  4.17

  	
  —

  	
  Insurance
  Licenses

  	
   

  
	
  Schedule
  7.02

  	
  —

  	
  Assets
  to be Sold

  	
   

  
	
  Schedule
  7.03

  	
  —

  	
  Liens

  	
   

  
	
  Schedule
  7.04(c)

  	
  —

  	
  Existing
  Intermediate Holdings Indebtedness

  	
   

  
	
  Schedule
  7.05

  	
  —

  	
  Preferred
  Stock

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBITS:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit
  A

  	
  —

  	
  Form
  of Borrowing Request

  	
   

  
	
  Exhibit
  B-1

  	
  —

  	
  Form
  of Tranche 2 Note

  	
   

  
	
  Exhibit
  B-2

  	
  —

  	
  Form
  of Tranche 3 Note

  	
   

  
	
  Exhibit
  C-1

  	
  —

  	
  Form
  of Tranche 1 Letter of Credit Request

  	
   

  

 

iv

 

	
  Exhibit
  C-2

  	
  —

  	
  Form
  of Tranche 2 Letter of Credit Request

  	
   

  
	
  Exhibit
  D

  	
  —

  	
  Form
  of Officers’ Certificate

  	
   

  
	
  Exhibit
  E

  	
  —

  	
  Form
  of Account Control Agreement

  	
   

  
	
  Exhibit
  F

  	
  —

  	
  Form
  of Security Agreement

  	
   

  
	
  Exhibit
  G-1

  	
  —

  	
  Form
  of Opinion of Borrower’s Special U.S.Counsel

  	
   

  
	
  Exhibit
  G-2

  	
  —

  	
  Form
  of Opinion of Borrower’s Special Bermuda Counsel

  	
   

  
	
  Exhibit
  G-3

  	
  —

  	
  Form
  of Opinion of Missouri Counsel

  	
   

  
	
  Exhibit
  G-4

  	
  —

  	
  Form
  of Opinion of Nebraska Counsel

  	
   

  
	
  Exhibit
  G-5

  	
  —

  	
  Form
  of Opinion of Wisconsin Counsel

  	
   

  
	
  Exhibit
  H

  	
  —

  	
  Form
  of Assignment and Assumption

  	
   

  
	
  Exhibit
  I-1

  	
  —

  	
  Form
  of Additional Tranche 1 Commitment Agreement

  	
   

  
	
  Exhibit
  I-2

  	
  —

  	
  Form
  of Additional Tranche 2 Commitment Agreement

  	
   

  
	
  Exhibit
  I-3

  	
  —

  	
  Form
  of Additional Tranche 3 Commitment Agreement

  	
   

  
	
  Exhibit
  J

  	
  —

  	
  Form
  of Borrowing Base Certificate

  	
   

  
	
  Exhibit
  K

  	
  —

  	
  Form
  of DSB Assumption Agreement

  	
   

  

 

v

 

CREDIT
AGREEMENT dated as of September 16, 2004, among ARCH CAPITAL GROUP LTD., ARCH
CAPITAL GROUP (U.S.) INC., various DESIGNATED SUBSIDIARY BORROWERS party
hereto, the LENDERS party hereto, JPMORGAN CHASE BANK, as Administrative Agent,
BANK OF AMERICA, N.A., as Syndication Agent and BARCLAYS BANK PLC, HSBC BANK USA,
NATIONAL ASSOCIATION, ING BANK N.V., LONDON BRANCH, THE BANK OF NEW YORK and
WACHOVIA BANK, NATIONAL ASSOCIATION, as Documentation Agents.

 

The
parties hereto agree as follows:

 

ARTICLE I

Definitions

 

Section 1.01.  Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:

 

“ABR”,
when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.

 

“Account
Control Agreement” means the Account Control Agreement, substantially in
the form of Exhibit E hereto, dated as of the date of this Agreement, among
JPMorgan Chase Bank, as Custodian, the Grantors (as defined in the Security
Agreement) from time to time party thereto and the Collateral Agent, as
amended, modified and supplemented and as in effect from time to time.

 

“Acquired
Indebtedness” means Indebtedness of the Parent Borrower or a Subsidiary of
the Parent Borrower 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.

 

“Additional
Tranche 1 Commitment” means, for each Additional Tranche 1 Lender, any
commitment provided by such Additional Tranche 1 Lender pursuant to Section
2.19, in such amount as agreed to by such Additional Tranche 1 Lender in the
respective Additional Tranche 1 Commitment Agreement; provided that on
the Additional Tranche 1 Commitment Date upon which an Additional Tranche 1
Commitment of any Additional Tranche 1 Lender becomes effective, such
Additional Tranche 1 Commitment of such Additional Tranche 1 Lender shall (x)
in the case of an existing Tranche 1 Lender be added to (and thereafter become
a part of) the existing Tranche 1 Commitment of such existing Tranche 1 Lender
for all purposes of this Agreement as contemplated by Section 2.19 and (y) in
the case of a new Tranche 1 Lender, be converted to a Tranche 1 Commitment and
become a Tranche 1 Commitment for all purposes of this Agreement as
contemplated by Section 2.19.

 

 

“Additional
Tranche 1 Commitment Agreement” means an Additional Tranche 1 Commitment
Agreement substantially in the form of Exhibit I-1 (appropriately completed).

 

“Additional
Tranche 1 Commitment Date” means each date upon which an Additional Tranche
1 Commitment under an Additional Tranche 1 Commitment Agreement becomes
effective as provided in Section 2.19.

 

“Additional
Tranche 1 Lender” has the meaning provided in Section 2.19.

 

“Additional
Tranche 2 Commitment” means, for each Additional Tranche 2 Lender, any
commitment provided by such Additional Tranche 2 Lender pursuant to Section
2.20, in such amount as agreed to by such Additional Tranche 2 Lender in the
respective Additional Tranche 2 Commitment Agreement; provided that on
the Additional Tranche 2 Commitment Date upon which an Additional Tranche 2
Commitment of any Additional Tranche 2 Lender becomes effective, such
Additional Tranche 2 Commitment of such Additional Tranche 2 Lender shall (x)
in the case of an existing Tranche 2 Lender be added to (and thereafter become
a part of) the existing Tranche 2 Commitment of such existing Tranche 2 Lender
for all purposes of this Agreement as contemplated by Section 2.20 and (y) in
the case of a new Tranche 2 Lender, be converted to a Tranche 2 Commitment and
become a Tranche 2 Commitment for all purposes of this Agreement as
contemplated by Section 2.20.

 

“Additional
Tranche 2 Commitment Agreement” means an Additional Tranche 2 Commitment
Agreement substantially in the form of Exhibit I-2 (appropriately completed).

 

“Additional
Tranche 2 Commitment Date” means each date upon which an Additional Tranche
2 Commitment under an Additional Tranche 2 Commitment Agreement becomes
effective as provided in Section 2.20.

 

“Additional
Tranche 2 Lender” has the meaning provided in Section 2.20.

 

“Additional
Tranche 3 Commitment” means, for each Additional Tranche 3 Lender, any
commitment provided by such Additional Tranche 3 Lender pursuant to Section
2.21, in such amount as agreed to by such Additional Tranche 3 Lender in the
respective Additional Tranche 3 Commitment Agreement; provided that on
the Additional Tranche 3 Commitment Date upon which an Additional Tranche 3
Commitment of any Additional Tranche 3 Lender becomes effective, such
Additional Tranche 3 Commitment of such Additional Tranche 3 Lender shall (x)
in the case of an existing Tranche 3 Lender be added to (and thereafter become
a part of) the existing Tranche 3 Commitment of such existing Tranche 3 Lender
for all purposes of this Agreement as contemplated by Section 2.21 and (y) in
the case of a new Tranche 3 Lender, be converted to a Tranche 3 Commitment and
become a Tranche 3 Commitment for all purposes of this Agreement as
contemplated by Section 2.21.

 

“Additional
Tranche 3 Commitment Agreement” means an Additional Tranche 3 Commitment
Agreement substantially in the form of Exhibit I-3 (appropriately completed).

 

“Additional
Tranche 3 Commitment Date” means each date upon which an Additional Tranche
3 Commitment under an Additional Tranche 3 Commitment Agreement becomes
effective as provided in Section 2.21.

 

2

 

“Additional
Tranche 3 Lender” has the meaning provided in Section 2.21.

 

“Adjusted
LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, an interest rate per annum (rounded upwards, if necessary, to the next
1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by
(b) the Statutory Reserve Rate.

 

“Administrative
Agent” means JPMorgan Chase Bank, in its capacity as administrative agent
for the Lenders hereunder.  

 

“Administrative
Questionnaire” means an Administrative Questionnaire in a form supplied by
the Administrative Agent.

 

“Advance
Rate” means, for any category of Cash or obligation or investment specified
below in the column entitled “Cash and Eligible Securities” (other than Cash,
the “Eligible Securities”), the percentage set forth opposite such
category of Cash or Eligible Securities below in the column entitled “Advance
Rate” and, in each case, subject to the original term to maturity criteria set
forth therein:

 

	
  Cash and Eligible Securities:

  	
   

  	
  Advance
  Rate:

  
	
   

  	
   

  	
   

  
	
  Cash:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  U.S. Dollars.

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  
	
  Time Deposits, CDs and
  Money Market Deposits:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Time deposits,
  certificates of deposit and money market deposits of any commercial bank
  incorporated in the United States with a rating of at least (i) AA- from
  Standard & Poor’s Ratings Services (“S&P”) and (ii) Aa3 from Moody’s
  Investors Service, Inc. (“Moody’s”) and maturing within two years from the
  date of determination.

  	
   

  	
  90%

  
	
   

  	
   

  	
   

  
	
  U.S. Government Securities:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  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).

  	
   

  	
  With maturities of (x) two
  years or less from the date of determination, 95%, (y) more than two years to
  ten years from the date of determination, 90% and (z) more than ten years
  from the date of determination, 85%.

  
	
   

  	
   

  	
   

  
	
  Investment Grade Municipal
  Bonds Level I:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Municipal bonds rated at
  least (i) AAA from S&P and (ii) Aaa from Moody’s and maturing within five
  years from the date of determination.

  	
   

  	
  90%

  
	
   

  	
   

  	
   

  
	
  Investment Grade Municipal
  Bonds Level II:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Municipal bonds rated at
  least (i) BBB+ from S&P and (ii) Baa1 from Moody’s and maturing within
  five years from the date of determination, but no higher than (x) AA+ from
  S&P and (y) Aa1 from Moody’s.

  	
   

  	
  85%

  

 

3

 

	
  Cash and Eligible Securities:

  	
   

  	
  Advance
  Rate:

  
	
   

  	
   

  	
   

  
	
  Investment Grade
  Nonconvertible Corporate Bonds Level I:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Nonconvertible corporate
  bonds that are publicly traded on a nationally recognized exchange and rated
  at least (i) AA- from S&P and (ii) Aa3 from Moody’s.

  	
   

  	
  With maturities of (x) two
  years or less from the date of determination, 90% and (y) more than two years
  to ten years from the date of determination, 85%.

  
	
   

  	
   

  	
   

  
	
  Investment Grade
  Nonconvertible Corporate Bonds Level II:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Nonconvertible corporate
  bonds that are publicly traded on a nationally recognized exchange and rated
  at least (i) BBB+ from S&P and (ii) Baa1 from Moody’s, but no higher than
  (x) A+ from S&P and (y) A1 from Moody’s.

  	
   

  	
  80%

  
	
   

  	
   

  	
   

  
	
  Commercial Paper:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Commercial paper issued by
  any entity organized in the United States rated at least (i) A-1 or the
  equivalent thereof by S&P and (ii) P-1 or the equivalent thereof by
  Moody’s and maturing not more than one year after the date of determination.

  	
   

  	
  90%

  
	
   

  	
   

  	
   

  
	
  Agency Securities:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (i) 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);
  (ii) single-class mortgage pass-through 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 (iii) 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).

  	
   

  	
  With maturities from the
  date of determination of (x) two years or less from the date of
  determination, 95%, (y) more than two years and less than ten years from the
  date of determination, 90% and (z) more than ten years from the date of
  determination, 85%.

  
	
   

  	
   

  	
   

  
	
  Other Securities:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  All other cash,
  investments, obligations or securities

  	
   

  	
  0%

  

 

Notwithstanding
the foregoing, (A) the value of Eligible Securities at any time shall be
determined based on the Borrowing Base Report (as defined in the Security
Agreement) then most recently delivered by the Custodian to the Collateral
Agent, (B) if any single corporate issuer (or any Affiliate thereof) represents
more than 10% of the aggregate value of all Cash and

 

4

 

Eligible
Securities of the aggregate amount of all Borrowing Bases, the excess over 10%
shall be excluded (with such exclusion being allocated in equal parts to each
Borrowing Base at such time), (C) no more than 10% of all corporate bonds
constituting Eligible Securities under Investment Grade Nonconvertible
Corporate Bonds Level II shall at any time be rated lower than A from S&P
or lower than A2 from Moody’s and (D) the weighted average rating of all corporate
bonds constituting Eligible Securities under both Investment Grade
Nonconvertible Corporate Bonds Level I and Investment Grade Nonconvertible
Corporate Bonds Level II shall at all times be rated at least (x) AA from
S&P and (y) Aa2 from Moody’s.

 

“AESIC”
means Arch Excess & Surplus Insurance Company, a corporation organized
under the laws of Nebraska.

 

“Affected
Loans” has the meaning provided in Section 2.10(l).

 

“Affiliate”
means, with respect to a specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified.

 

“Agents”
means the Administrative Agent and the Syndication Agent.

 

“Agreement”
means this Credit Agreement, as modified, supplemented, amended, restated
(including any amendment and restatement hereof), extended or renewed from time
to time.

 

“AIC”
means Arch Insurance Company, a corporation organized under the laws of
Missouri.

 

“AIIC”
means American Independent Insurance Company, a corporation organized under the
laws of Pennsylvania.

 

“Alternate
Base Rate” means, for any day, a rate per annum equal to the greater of (a)
the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate
in effect on such day plus 1⁄2 of 1%.  Any
change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective from and including the
effective date of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.  

 

“Alternative
Re Holdings” means Alternative Re Holdings Limited, a company organized
under the laws of Bermuda.

 

“Applicable
Grace Period” means two Business Days.

 

“Applicable
Insurance Regulatory Authority” means, when used with respect to any
Regulated Insurance Company, (x) the insurance department or similar
administrative authority or agency located in each state or jurisdiction
(foreign or domestic) in which such Regulated Insurance Company is domiciled or
(y) to the extent asserting regulatory jurisdiction over such Regulated
Insurance Company, the insurance department, authority or agency in each state
or jurisdiction (foreign or domestic) in which such Regulated Insurance Company
is licensed, and shall include any Federal or national insurance regulatory
department, authority or

 

5

 

agency that may be created and that asserts
regulatory jurisdiction over such Regulated Insurance Company.

 

“Applicable
Percentage” means, with respect to any Lender, the percentage of the total
Commitments represented by the sum of such Lender’s Commitments.  If the Commitments have terminated or
expired, the Applicable Percentages shall be determined based upon the
Commitments most recently in effect, giving effect to any assignments.

 

“Applicable
Rate” means, for any day:

 

(a)           with respect to any Tranche 1 Letter of Credit Fee and any Tranche 1
Facility Fee, for any Margin Adjustment Period, from and after any Start Date
to and including the corresponding End Date, the respective percentage per
annum set forth below opposite the respective Level (i.e., Level 1,
Level 2 or Level 3, as the case may be) indicated to have been achieved on the
applicable Test Date for such Start Date (as shown in the respective officer’s
certificate delivered pursuant to Section 6.01(c)):

 

	
   

  	
   

  	
  Level 1:

  	
   

  	
  Level 2:

  	
   

  	
  Level 3:

  	
   

  
	
  Parent Borrower

  Leverage

  Ratio

  	
   

  	
  less than
  or

  equal to

  0.20:1.00

  	
   

  	
  greater
  than

  0.20:1.00 and less

  than or equal to

  0.25:1.00

  	
   

  	
  greater
  than

  0.25:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Letter of Credit Fee

  	
   

  	
  0.25

  	
  %

  	
  0.30

  	
  %

  	
  0.35

  	
  %

  
	
  Facility Fee

  	
   

  	
  0.10

  	
  %

  	
  0.10

  	
  %

  	
  0.10

  	
  %

  

 

(b)           with respect to any Tranche 2 Letter of Credit Fee, interest on any
Tranche 2 Loan or Tranche 3 Loan, any Tranche 2 Facility Fee or Tranche 3
Facility Fee, or any Tranche 2 Utilization Fee or Tranche 3 Utilization Fee,
for any Margin Adjustment Period, from and after any Start Date to and
including the corresponding End Date, the respective percentage per annum set
forth below opposite the respective Level (i.e., Level 1, Level 2 or Level 3, as
the case may be) indicated to have been achieved on the applicable Test Date
for such Start Date (as shown in the respective officer’s certificate delivered
pursuant to Section 6.01(c)):

 

	
   

  	
   

  	
  Level 1:

  	
   

  	
  Level 2:

  	
   

  	
  Level 3:

  	
   

  
	
  Parent Borrower

  Leverage

  Ratio

  	
   

  	
  less than
  or

  equal to

  0.20:1.00

  	
   

  	
  greater
  than

  0.20:1.00 and less

  than or equal to

  0.25:1.00

  	
   

  	
  greater
  than

  0.25:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Letter of Credit Fee and Applicable Rate
  for Eurodollar Loans

  	
   

  	
  0.40

  	
  %

  	
  0.50

  	
  %

  	
  0.70

  	
  %

  

 

6

 

	
   

  	
   

  	
  Level 1:

  	
   

  	
  Level 2:

  	
   

  	
  Level 3:

  	
   

  
	
  Parent Borrower

  Leverage

  Ratio

  	
   

  	
  less than
  or

  equal to

  0.20:1.00

  	
   

  	
  greater
  than

  0.20:1.00 and less

  than or equal to

  0.25:1.00

  	
   

  	
  greater
  than

  0.25:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Applicable Rate for ABR Loans

  	
   

  	
  0.00

  	
  %

  	
  0.00

  	
  %

  	
  0.00

  	
  %

  
	
  Facility Fee

  	
   

  	
  0.10

  	
  %

  	
  0.125

  	
  %

  	
  0.175

  	
  %

  
	
  Utilization Fee

  	
   

  	
  0.125

  	
  %

  	
  0.125

  	
  %

  	
  0.25

  	
  %

  

 

Notwithstanding
the foregoing, (i) if the Parent Borrower fails to deliver the financial
statements required to be delivered pursuant to Section 6.01(a) or (b)
(accompanied by the officer’s certificate required to be delivered pursuant to
Section 6.01(c) showing the applicable Parent Borrower Leverage Ratio on the
relevant Test Date) on or prior to the respective date required by such
Sections, then Level 3 pricing shall apply until such time, if any, as the
financial statements required as set forth above and the accompanying officer’s
certificate have been delivered showing the pricing for the respective Margin
Adjustment Period is at a level below Level 3 (it being understood that, in the
case of any late delivery of the financial statements and officer’s certificate
as so required, any reduction in the Applicable Rate shall apply only from and
after the date of the delivery of the complying financial statements and
officer’s certificate); (ii) except when clause (iii) below is applicable Level
1 pricing shall apply for the period from the Effective Date to the date of the
delivery of the Parent Borrower’s consolidated financial statements (and
related officer’s certificate) in respect of its fiscal quarter ending
September 30, 2004; and (iii) Level 3 pricing shall apply at all times when any
Event of Default is in existence.

 

“Approved
Fund” has the meaning assigned to such term in Section 10.04(b).

 

“ARC”
means Arch Reinsurance Company, a corporation organized under the laws of
Nebraska.

 

“Arch
Shareholder Group” means Warburg Pincus (Bermuda) Private Equity VIII,
L.P., Warburg Pincus (Bermuda) International Partners, L.P., Warburg Pincus
Netherlands International Partners I, C.V., Warburg Pincus Netherlands
International Partners II, C.V., HFCP IV (Bermuda), L.P., H&F International
Partners IV-A (Bermuda), L.P., H&F International Partners IV-B (Bermuda),
L.P. and H&F Executive Fund IV (Bermuda), L.P.

 

“ARL”
means Arch Reinsurance Ltd., a corporation organized under the laws of Bermuda.

 

“ASIC”
means Arch Specialty Insurance Company, a corporation organized under the laws
of Wisconsin.

 

“Assignment
and Assumption” means an assignment and assumption entered into by a Lender
and an assignee (with the consent of any party whose consent is required by
Section 10.04), and accepted by the Administrative Agent, in the form of
Exhibit H or any other form approved by the Administrative Agent.

 

7

 

“Authorized
Officer” means, as to any Person, the chief executive officer, the chief
financial officer, the controller, the president, any vice president, the
secretary or any other officer of such Person duly authorized by such Person to
act on behalf of such Person hereunder and under the other Credit Documents.

 

“Bankruptcy
Code” has the meaning provided in Section 8.05.

 

“Bermuda
Companies Law” means the Companies Act 1981 of Bermuda and other relevant
Bermuda law.

 

“Board”
means the Board of Governors of the Federal Reserve System of the United States
of America.

 

“Borrower”
means each of the Parent Borrower and each Designated Subsidiary Borrower.

 

“Borrowing”
means Loans of the same Tranche and Type, made, converted or continued on the
same date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect.

 

“Borrowing
Base” means, at any time, and in respect of each Designated Subsidiary
Borrower, the aggregate amount of Cash and Eligible Securities held in the
Collateral Accounts applicable to such Designated Subsidiary Borrower under the
Security Agreement at such time multiplied in each case by the respective
Advance Rates for Cash and such Eligible Securities; provided that all
Cash and Eligible Securities in respect of any Borrowing Base shall only be
included in such Borrowing Base to the extent same are subject to a first
priority perfected security interest in favor of the Collateral Agent pursuant
to the Security Documents.

 

“Borrowing
Base Certificate” means a Borrowing Base Certificate substantially in the
form of Exhibit J hereto.

 

“Borrowing
Request” means a request by any Tranche 2/3 Borrower for a Borrowing in
accordance with Section 2.03.

 

“Business
Day” means (i) for all purposes other than as covered by clauses (ii) and
(iii)  below, any day excluding
Saturday, Sunday and any day which shall be in the City of New York a legal
holiday or a day on which banking institutions are authorized by law or other
governmental actions to close and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day which is a Business Day described in clause (i) and
which is also a day for trading by and between banks in the London interbank
market.

 

“Capital
Lease Obligations” of any Person means the obligations of such Person to
pay rent or other amounts under any lease of (or other arrangement conveying
the right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases
on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.

 

8

 

“Cash
Equivalents” means, as to any Person, (i) 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) having maturities of not more than
one year from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank having, or which is the principal banking
subsidiary of a bank holding company organized under the laws of the United
States, any State thereof, the District of Columbia or any foreign jurisdiction
having, capital, surplus and undivided profits aggregating in excess of
$200,000,000, with maturities of not more than one year from the date of acquisition
by such Person, (iii) repurchase obligations with a term of not more than 90
days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (ii)
above, (iv) commercial paper rated at least A-1 or the equivalent thereof by
S&P or at least P-1 or the equivalent thereof by Moody’s and in each case
maturing not more than one year after the date of acquisition by such Person,
(v) investments in money market funds substantially all of whose assets are
comprised of securities of the types described in clauses (i) through (iv)
above.

 

“Change
in Control” means (a) any Person or group of Persons (as used in Sections
13 and 14 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder), other than one or more Permitted Holders, shall have become the
beneficial owner (as defined in rules promulgated by the SEC) of more than 35%
of the voting securities of the Parent Borrower, (b) occupation of a majority
of the seats (other than vacant seats) of the board of directors of the Parent
Borrower by Persons who are neither (i) nominated by the board of directors of
the Parent Borrower nor (ii) appointed by directors so nominated or (c) the
Parent Borrower shall cease to own, directly or indirectly, 100% of the Equity
Interests of any Designated Subsidiary Borrower or Intermediate Holdings.

 

“Change
in Law” means (a) the adoption of any law, rule or regulation after the
date of this Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement or (c) compliance by any Lender (or, for purposes of
Section 2.14(b), by any lending office of such Lender or by such Lender’s
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.

 

“Charges”
has the meaning provided in Section 10.13.

 

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

 

“Collateral
Account” has the meaning provided in the Security Agreement.

 

“Collateral
Agent” has the meaning provided in the Security Agreement.

 

“Commitment”
means each Tranche 1 Commitment, each Tranche 2 Commitment and each Tranche 3
Commitment.

 

“Commitment
Expiration Date” means September 16, 2007.

 

9

 

“Consolidated
Indebtedness” means, as of any date of determination, (i) all Indebtedness
of the Parent Borrower and its Subsidiaries 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 the Parent Borrower or any
of its Subsidiaries) as to which the Parent Borrower and/or any of its
Subsidiaries has created a Guarantee (but only to the extent of such
Guarantee).  For the avoidance of doubt,
“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.

 

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

 

“Consolidated
Net Worth” means, for any Person, as of any date of determination, the Net
Worth of such Person and its Subsidiaries determined on a consolidated basis in
accordance with GAAP after appropriate deduction for any minority interests in
Subsidiaries.

 

“Consolidated
Tangible Net Worth” means, for any Person, as of the date of any determination,
Consolidated 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, licenses, patents, trademarks, trade names,
copyrights, service marks, brand names and write-ups of assets.

 

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

 

“Control”
means the possession, directly or indirectly, of the power (i) to vote 10% or
more of the securities having ordinary voting power for the election of
directors of such corporation or (ii) to direct or cause the direction of the
management or policies of a Person, whether through the ability to exercise
voting power, by contract or otherwise. 
“Controlling” and “Controlled” have meanings correlative
thereto.

 

“Credit
Documents” means this Agreement, each Note, each Assignment and Assumption,
each Security Document and all other documents, instruments and agreements
entered into in connection herewith or therewith.

 

“Credit
Event” means the making of any Loan or the issuance of any Letter of Credit
(or any increase of the Stated Amount thereof).

 

“Credit
Party” means each Borrower and Intermediate Holdings.

 

“Custodian”
has the meaning provided in the Security Agreement and in the Account Control
Agreement.

 

10

 

“Default”
means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an
Event of Default.

 

“Designated
Subsidiary Borrower” means each of ARC, ARL, AIC, WDCIC, ASIC, AESIC and
each Person which is designated as an additional Designated Subsidiary Borrower
after the Effective Date in accordance with Section 2.22 (in each case, unless
otherwise removed as such in accordance with Section 2.23).

 

“Dispositions”
has the meaning provided in Section 7.02(b).

 

“Dividends”
has the meaning provided in Section 7.07.

 

“Documentation
Agents” means each of Barclays Bank plc, HSBC Bank USA, National
Association, ING Bank N.V., London Branch, The Bank of New York and Wachovia
Bank, National Association, each in its capacity as a documentation agent under
this Agreement.

 

“Dollars”
or “$” refers to lawful money of the United States of America.

 

“DSB
Assumption Agreement” means an assumption agreement in the form of Exhibit
K.

 

“Effective
Date” means the date on which the conditions specified in Section 5.01 are
satisfied (or waived in accordance with Section 10.02).

 

“Eligible
Securities” has the meaning provided in the definition of “Advance Rates.”

 

“End
Date” means, with respect to any Margin Adjustment Period, the last day of
such Margin Adjustment Period.

 

“Environmental
Law” means all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to
health and safety matters.

 

“Environmental
Liability” means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or
indemnities), of the Parent Borrower or any Subsidiary directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of
any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the
release or threatened release of any Hazardous Materials into the environment
or (e) any contract, agreement or other consensual arrangement pursuant to
which liability is assumed or imposed with respect to any of the foregoing.

 

“Equity
Interests” means, with respect to any Person, shares of capital stock of
(or other ownership or profit interests in) such Person, warrants, options or
other rights for the

 

11

 

purchase or other acquisition from such
Person of shares of capital stock of (or other ownership or profit interests
in) such Person, securities convertible into or exchangeable for shares of capital
stock of (or other ownership or profit interests in) such Person or warrants,
rights or options for the purchase or other acquisition from such Person of
such shares (or such other interests), and other ownership or profit interests
in such Person (including, without limitation, partnership, member or trust
interests therein), whether voting or nonvoting, and whether or not such
shares, warrants, options, rights or other interests are authorized or
otherwise existing on any date of determination.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time and the regulations promulgated and rulings issued thereunder.  Section references to ERISA are to ERISA, as
in effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.

 

“ERISA
Affiliate” means any corporation or trade or business which is a member of
the same controlled group of corporations (within the meaning of Section 414(b)
of the Code) as the Parent Borrower or any of its Subsidiaries or is under
common control (within the meaning of Section 414(c) of the Code) with the
Parent Borrower or any of its Subsidiaries.

 

“Eurodollar”,
when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Adjusted LIBO Rate.

 

“Event
of Default” has the meaning assigned to such term in Article VIII.

 

“Excluded
Subsidiaries” means AIIC, PSIC and WDCIC.

 

“Excluded
Taxes” means, with respect to the Administrative Agent, any Lender, or any
other recipient of any payment to be made by or on account of any obligation of
any Borrower hereunder, (a) income or franchise taxes imposed on (or measured
by) its net income or net profits by any jurisdiction under the laws of which
such recipient is organized or in which its principal office is located or, in
the case of any Lender, in which its applicable lending office is located, (b)
any branch profits taxes imposed by the United States of America or any similar
tax imposed by any other jurisdiction in which the recipient is located and (c)
in the case of a Foreign Lender (other than an assignee pursuant to a request
by a Borrower under Section 2.18(b)), any withholding tax that is imposed on
amounts payable to such Foreign Lender at the time such Foreign Lender becomes
a party to this Agreement (or designates a new lending office) or is
attributable to such Foreign Lender’s failure to comply with Section 2.16(e),
except to the extent that such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment),
to receive additional amounts from the Borrower with respect to such withholding
tax pursuant to Section 2.16(a).

 

“Existing
Credit Agreement” means the Credit Agreement, dated as of September 12,
2003, among the Parent Borrower, various lending institutions and JPMorgan
Chase Bank, as administrative agent (as amended, restated, modified and/or
supplemented from time to time through, but not including, the Effective Date).

 

12

 

“Existing
LC Facility” means the Amended and Restated Letter of Credit and
Reimbursement Agreement, dated as of August 12, 2003, by and among ARL, ARC and
AIC, the lenders from time to time party thereto and Fleet National Bank, as
agent and issuing lender, as amended by Amendment No.1, dated as of August 20,
2003, as amended by Amendment No. 2, dated as of August 10, 2004, and as
further amended by Amendment No. 3, dated as of September 9, 2004.

 

“Existing
Senior Notes” means the Parent Borrower’s 7.35% senior notes due 2034,
issued pursuant to that certain Indenture, dated as of May 4, 2004, among the
Parent Borrower, as issuer, and JP Morgan Chase Bank, as trustee, as in effect
on the Effective Date and as the same may be amended, restated, modified and/or
supplemented from time to time in accordance with the terms hereof and thereof.

 

“Facility
Fees” means, collectively, the Tranche 1 Facility Fee, the Tranche 2
Facility Fee and the Tranche 3 Facility Fee.

 

“Facility-wide
Liability Percentage” means the percentages set forth on Part III of
Schedule 1.01.

 

“Federal
Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average (rounded upwards, if necessary, to the
next 1/100 of 1%) of the quotations for such day for such transactions received
by the Administrative Agent from three Federal funds brokers of recognized
standing selected by it. 

 

“Final
Maturity Date” means the date when the Commitment Expiration Date has
occurred, all Letters of Credit have expired or terminated and all amounts
owing hereunder have been paid in full.

 

“Financial
Officer” means the chief financial officer, principal accounting officer,
treasurer or controller of any Borrower.

 

“Foreign
Lender” means, as to any Borrower, any Lender that is organized under the
laws of a jurisdiction other than that in which such Borrower is located.  For purposes of this definition, the United
States of America, each State thereof and the District of Columbia shall be
deemed to constitute a single jurisdiction.

 

“Foreign
Pension Plan” means any plan, fund (including, without limitation, any
superannuation fund) or other similar program established or maintained outside
the United States of America by the Parent Borrower or any one or more of its
Subsidiaries primarily for the benefit of employees of the Parent Borrower or
such Subsidiaries residing outside the United States of America, which plan,
fund or other similar program provides, or results in, retirement income, a
deferral of income in contemplation of retirement or payments to be made upon
termination of employment, and which plan is not subject to ERISA or the Code.

 

13

 

“GAAP”
means generally accepted accounting principles in the United States of America.

 

“Governmental
Authority” means the government of the United States of America, any other
nation or any political subdivision thereof, whether state or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.

 

“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
any Regulated Insurance Company 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.

 

“Guaranteed
Creditors” means and includes each of the Administrative Agent, the
Collateral Agent, the Custodian, the Lenders and the Issuing Agent.

 

“Guaranteed
Obligations” means all reimbursement obligations and Unpaid Drawings with
respect to Letters of Credit issued for the account of any Designated
Subsidiary Borrower other than ARL (collectively, the “Guaranteed Parties” and
each, a “Guaranteed Party”), together with all interest on such reimbursement
obligations and Unpaid Drawings accruing before and after the filing of any
insolvency proceeding and all the other obligations (including obligations
which, but for the automatic stay under Section 362(a) of the Bankruptcy Code,
would become due) and liabilities (including, without limitation, indemnities,
fees and interest thereon) of any Guaranteed Party to any Lender, the
Administrative Agent and the Issuing Agent now existing or hereafter incurred
under, arising out of or in connection with, this Agreement and each other
Credit Document pursuant to which any Guaranteed Party is a party and the due
performance and compliance by any such Guaranteed Party with all the terms,
conditions and agreements contained in this Agreement and each such other
Credit Document.

 

“Guaranteed
Party” has the meaning provided in the definition of “Guaranteed
Obligations.”

 

14

 

“Guarantor”
means Intermediate Holdings.

 

“Hazardous
Materials” means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum
or petroleum distillates, asbestos or asbestos containing materials,
polychlorinated biphenyls, radon gas, infectious or medical wastes and all
other substances or wastes of any nature regulated pursuant to any
Environmental Law.

 

“Hedging
Agreements” means any foreign exchange contracts, currency swap agreements,
commodity price hedging arrangements or other similar arrangements, or
arrangements designed to protect against fluctuations in the currency values.

 

“Indebtedness”
of any Person means, without duplication, (a) all obligations of such Person
for borrowed money or with respect to deposits or advances of any kind, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person under conditional sale or other
title retention agreements relating to property acquired by such Person, (d)
all obligations of such Person in respect of the deferred purchase price of
property or services, (e) all Indebtedness of others secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on property owned or acquired by such Person,
whether or not the Indebtedness secured thereby has been assumed, provided
that the amount of Indebtedness of such Person shall be the lesser of (A) the
fair market value of such property at such date of determination (determined in
good faith by the Parent Borrower) and (B) the amount of such Indebtedness of
such other Person, (f) all Guarantees by such Person of Indebtedness of others,
(g) all Capital Lease Obligations of such Person, (h) all obligations of such
Person under Interest Rate Protection Agreements and Hedging Agreements, and
(i) all reimbursement obligations of such Person in respect of letters of
credit, letters of guaranty, bankers’ acceptances and similar credit
transactions.  The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any partnership
in which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person’s ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.  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 Regulated Insurance
Companies with respect to Policies, (x) obligations arising under deferred
compensation plans of the Parent Borrower and its Subsidiaries in effect on the
date hereof or which have been approved by the board of directors of the Parent
Borrower, (y) obligations with respect to products underwritten by Regulated
Insurance Companies 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 any Regulated
Insurance Company in the ordinary course of business.  

 

“Indemnified
Taxes” means Taxes other than Excluded Taxes.

 

“Indemnitee”
has the meaning provided in Section 10.03(b).

 

“Information”
has the meaning provided in Section 10.12.

 

15

 

“Insignificant
Subsidiary” means any Subsidiary, other than any Designated Subsidiary
Borrower, Intermediate Holdings, AIIC or PSIC, which has assets, earnings or
revenues which, if aggregated with the assets, earnings or revenues, as the
case may be, of all other Subsidiaries of the Parent Borrower with respect to
which an event described under Section 8.05 has occurred and is continuing,
would have assets, earnings or revenues, as the case may be, in an amount less
than 10% of the consolidated assets, earnings or revenues, as the case may be,
of the Parent Borrower and its Subsidiaries as of the end of the most recent
fiscal quarter of year of the Parent Borrower for which financial statements
are available.

 

“Insurance
Business” means one or more aspects of the business of selling, issuing or
underwriting insurance or reinsurance.

 

“Insurance
Contract” means any insurance contract or policy issued by a Regulated
Insurance Company but shall not include any Reinsurance Agreement or
Retrocession Agreement.

 

“Insurance
Licenses” has the meaning provided in Section 4.17.

 

“Interest
Election Request” means a request by a Tranche 2/3 Borrower to convert or
continue a Borrowing in accordance with Section 2.05.

 

“Interest
Payment Date” means (a) with respect to any ABR Loan, the last day of each
March, June, September and December and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months’ duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months duration
been applicable to such Borrowing.

 

“Interest
Period” means, with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
(or, with the consent of each Lender with a Commitment in the respective
Tranche, nine or twelve months) thereafter, as the respective Tranche 2/3
Borrower may elect; provided, that (i) if any Interest Period would end
on a day other than a Business Day, such Interest Period shall be extended to
the next succeeding Business Day unless, in the case of a Eurodollar Borrowing
only, such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day
and (ii) any Interest Period pertaining to a Eurodollar Borrowing that
commences on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the last calendar month of such
Interest Period) shall end on the last Business Day of the last calendar month
of such Interest Period.  For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and, in the case of a Eurodollar Borrowing, thereafter shall
be the effective date of the most recent conversion or continuation of such
Borrowing. 

 

“Interest
Rate Protection Agreement” means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement, interest rate hedging
agreement, interest rate floor agreement or other similar agreement or
arrangement.

 

16

 

“Intermediate
Holdings” means Arch Capital Group (U.S.) Inc., a corporation organized
under the laws of Delaware.

 

“Intermediate
Holdings Guaranty” means the guaranty of Intermediate Holdings provided in
Article XI.

 

“Investment
Grade Securities” means (i) U.S. Government Obligations (other than Cash
Equivalents), (ii) debt securities or debt instruments with a rating of BBB- or
higher by S&P, Baa3 or higher by Moody’s, Class (2) or higher by NAIC or
the equivalent of such rating by S&P, Moody’s or NAIC, or if none of
S&P, Moody’s and NAIC shall then exist, the equivalent of such rating by
any other nationally recognized securities rating agency, but excluding any
debt securities or instruments constituting loans or advances among the Parent
Borrower and its Wholly-Owned Subsidiaries, and (iii) any fund investing
exclusively in investments of the type described in clauses (i) and (ii) which
funds may also hold immaterial amounts of cash pending investment and/or
distribution.

 

“Issuing
Agent” means JPMorgan Chase Bank. 

 

“Judgment
Currency” has the meaning provided in Section 10.14(a).

 

“Judgment
Currency Conversion Date” has the meaning provided in Section 10.14(a).

 

“Legal
Requirements” means all applicable laws, rules and regulations made by any
governmental body or regulatory authority (including, without limitation, any
Applicable Insurance Regulatory Authority) having jurisdiction over the Parent
Borrower or a Subsidiary of the Parent Borrower.

 

“Lenders”
means each Tranche 1 Lender, each Tranche 2 Lender and each Tranche 3 Lender.

 

“Letter
of Credit Outstandings” means, collectively, the Tranche 1 Letter of Credit
Outstandings and the Tranche 2 Letter of Credit Outstandings.

 

“Letter
of Credit Supportable Obligations” means obligations of the Parent Borrower
or any of its Subsidiaries to any other Person which are permitted to exist
pursuant to the terms of this Agreement.

 

“Letters
of Credit” means, collectively, the Tranche 1 Letters of Credit and the
Tranche 2 Letters of Credit.

 

“LIBO
Rate” means with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Page 3750 (or other appropriate page if the
relevant currency does not appear on such page) of the Dow Jones Market Service
(or on any successor or substitute page or pages of such Service, or any
successor to or substitute for such Service, providing rate quotations comparable
to those currently provided on such page or pages of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to deposits in Dollars in the
London interbank market) at

 

17

 

approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the rate
for deposits in Dollars with a maturity comparable to such Interest Period.  In the event that such rate is not available
at such time for any reason, then the “LIBO Rate” with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which
deposits in Dollars of $5,000,000 and for a maturity comparable to such
Interest Period are offered by the Administrative Agent.  

 

“Lien”
means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of
such asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.

 

“Loan
Sublimit” means, at any time, an amount equal to the sum of the Total
Tranche 2 Commitment and Total Tranche 3 Commitment at such time, minus the sum
of all reductions therefore effected pursuant to 2.10(j).

 

“Loans”
means each Tranche 2 Loan and each Tranche 3 Loan.

 

“Long-Term
LC Facility” means (i) the Amended Letter of Credit Reimbursement
Agreement, dated as of August 19, 2004, by and among ARL, AIC and Barclays
Bank, which provides for the issuance of letters of credit in an aggregate
amount of up to $50,000,000 and (ii) the proposed credit facility, by and among
ARL, AIC and Barclays Bank, which will provide for the issuance of letters of
credit in an aggregate amount of up to $200,000,000.

 

“Majority
Tranche 1 Lenders” means, at any time, Tranche 1 Lenders whose Tranche 1
Commitments (or, after the Tranche 1 Commitments have terminated, the sum of
such Tranche 1 Lenders’ Tranche 1 Percentages of the Tranche 1 Letter of Credit
Outstandings at such time) represent an amount greater than 50% of the Total
Tranche 1 Commitment (or after termination thereof, the Tranche 1 Letter of
Credit Outstandings at such time).

 

“Margin
Adjustment Period” means each period which shall commence on the date upon
which the respective officer’s certificate is delivered pursuant to Section
6.01(c) (together with the related financial statements pursuant to Section
6.01(a) or (b), as the case may be) and which shall end on the date of actual
delivery of the next officer’s certificate pursuant to Section 6.01(c) (and
related financial statements) or the latest date on which such next officer’s
certificate (and related financial statements) is required to be so delivered;
it being understood that the first Margin Adjustment Period shall commence with
the delivery of the Parent Borrower’s financial statements (and related
officer’s certificate) in respect of its fiscal quarter ending September 30,
2004.

 

“Margin
Stock” has the meaning provided in Regulation U.

 

“Material
Adverse Effect” means, (i) a material adverse effect on the business,
operations, property or financial condition of the Parent Borrower and its
Subsidiaries taken as a whole, (ii) a material adverse effect on the business,
operations, property or financial condition of Intermediate Holdings and its
Subsidiaries taken as a whole or (iii) a material adverse effect

 

18

 

on (x) the rights and remedies of the
Administrative Agent or the Lenders under the Credit Documents, (y) the ability
of either the Parent Borrower and its Subsidiaries taken as a whole, or
Intermediate Holdings and its Subsidiaries taken as a whole, to perform their
respective obligations under the Credit Documents to which such entities are a
party or (z) the legality, validity or enforceability of any Credit Document.

 

“Maximum
Rate” has the meaning provided in Section 10.13.

 

“Multiemployer
Plan” means any multiemployer plan as defined in Section 4001(a)(3) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Parent Borrower, any of its Subsidiaries or
any of its ERISA Affiliates, and each such plan for the five year period
immediately following the latest date on which the Parent Borrower, such
Subsidiary or such ERISA Affiliate contributed to or had an obligation to
contribute to such plan.

 

“NAIC”
means the National Association of Insurance Commissioners and any successor
thereto.

 

“Net
Cash Proceeds” means, for any issuance of debt or 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).

 

“Net
Worth” means, as to 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 (i) any treasury
stock and (ii) the effects of Financial Accounting Statement No. 115. 

 

“Note”
means each Tranche 2 Note and each Tranche 3 Note.

 

“Notice
of Non-Extension” has the meaning provided in Section 3A.05.

 

“Obligation
Currency” has the meaning provided in Section 10.14(a).

 

“Obligations”
means all amounts, direct or indirect, contingent or absolute, of every type or
description, and at any time existing, owing to the Administrative Agent, the
Collateral Agent, the Custodian, the Issuing Agent or any Lender pursuant to
the terms of this Agreement or any other Credit Document.

 

“Other
Taxes” means, any and all present or future stamp or documentary taxes or
any other similar excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or performance under, this Agreement.

 

19

 

“Parent
Borrower” means Arch Capital Group Ltd., a company organized under the laws
of Bermuda.

 

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

 

“Participant”
has the meaning set forth in Section 10.04(c)

 

“Patriot
Act” has the meaning set forth in Section 10.15.

 

“PBGC”
means the Pension Benefit Guaranty Corporation referred to and defined in ERISA
and any successor entity performing similar functions.

 

“Permitted
Holders” means, (i) the Arch Shareholder Group and their respective
Subsidiaries and any other Person of which any member of the Arch Shareholder
Group is a direct or indirect Subsidiary, (ii) any investment fund or vehicle
managed by, or the general partner of, any of the Persons described in
preceding clause (i), (iii) each of the directors and executive officers of the
Parent Borrower or any of its Subsidiaries on the Effective Date and (iv) with
respect to any of the foregoing who is an individual, any family member of such
Person, any trust or partnership for the benefit, or any corporation that is a
Subsidiary, of such Person or such Person’s family members and any of such
individuals’, heirs, executors, successors and legal representatives.

 

“Permitted
Subsidiary Indebtedness” means:

 

(a) 
Indebtedness of any Subsidiary of the Parent Borrower incurred pursuant
to this Agreement or any other Credit Document;

 

(b) 
Indebtedness of any Subsidiary of the Parent Borrower existing on the
date hereof and listed on Schedule 4.15 and refinancings by such Subsidiary
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 thereon and fees and expenses associated therewith;

 

(c) 
Indebtedness of any Subsidiary of the Parent Borrower under any Interest
Rate Protection Agreement or Hedging Agreement, in each case entered into to
protect any such Subsidiary against fluctuations in interest rates, currency
exchange rates or other rate fluctuations and not entered into for speculative
purposes;

 

(d)  any
Indebtedness owed by Subsidiaries of the Parent Borrower to the Parent Borrower
or any of its Subsidiaries;

 

(e) 
Indebtedness in respect of purchase money obligations and Capital Lease
Obligations of any Subsidiary of the Parent Borrower, and refinancings thereof;
provided that the aggregate principal amount of all such Capital Lease
Obligations does not exceed at any time outstanding $25,000,000 at the time of
incurrence of any new Indebtedness under this clause (e);

 

20

 

(f) 
Indebtedness of any Subsidiary of the Parent Borrower 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 any Subsidiary of the
Parent Borrower, in each case in the ordinary course of business;

 

(g) 
Indebtedness of any Subsidiary of the Parent Borrower 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;

 

(h)  Acquired
Indebtedness of Subsidiaries of the Parent Borrower;

 

(i) 
additional Indebtedness of Subsidiaries of the Parent Borrower not
otherwise permitted under clauses (a) through (h) of this definition which,
when added to the aggregate amount of all outstanding obligations secured by
liens incurred by the Parent Borrower pursuant to Section 7.03(s), shall not
exceed at any time outstanding 5% of the Parent Borrower’s Consolidated Net
Worth at the time of incurrence of any new Indebtedness under this clause (i);
and

 

(j) 
Indebtedness arising from Guarantees made by any Subsidiary of the
Parent Borrower of Indebtedness of the type described in clauses (a) through
(i) of this definition.

 

“Person”
means any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental Authority or other
entity.

 

“Plan”
means any pension plan as defined in Section 3(2) of ERISA and subject to Title
IV of ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Parent Borrower or any of its Subsidiaries or
any of its ERISA Affiliates, and each such plan for the five year period
immediately following the latest date on which the Parent Borrower, any of its
Subsidiaries or any of its ERISA Affiliates maintained, contributed to or had
an obligation to contribute to such plan.

 

“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 any Regulated Insurance
Company and any coinsurance agreements entered into or to be entered into by
any Regulated Insurance Company.

 

“Prime
Rate” means the rate of interest per annum publicly announced from time to
time by JPMorgan Chase Bank as its prime rate in effect at its principal office
in New York City; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective.  

 

21

 

“Private
Act” means separate legislation enacted in Bermuda with the intention that
such legislation apply specifically to any Borrower incorporated in Bermuda, in
whole or in part.

 

“PSIC”
means The Personal Service Insurance Co., a corporation organized under the
laws of Ohio.

 

“Register”
has the meaning set forth in Section 10.04(b).

 

“Regulated
Insurance Company” means any Subsidiary of the Parent Borrower, whether now
owned or hereafter acquired, that is authorized or admitted to carry on or
transact Insurance Business in any jurisdiction (foreign or domestic) and is
regulated by any Applicable Insurance Regulatory Authority.

 

“Regulation
D” means Regulation D of the Board as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.

 

“Regulation
T” means Regulation T of the Board as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.

 

“Regulation
U” means Regulation U of the Board as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.

 

“Regulation
X” means Regulation X of the Board as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.

 

“Reinsurance
Agreement” means any agreement, contract, treaty, certificate or other
arrangement whereby any Regulated Insurance Company agrees to transfer, cede or
retrocede to another insurer or reinsurer all or part of the liability assumed
or assets held by such Regulated Insurance Company under a policy or policies
of insurance issued by such Regulated Insurance Company or under a reinsurance
agreement assumed by such Regulated Insurance Company.

 

“Related
Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors of such Person and such Person’s Affiliates.

 

“Required
Lenders” means, at any time, Lenders whose Commitments (or, after the
Commitments have terminated, the sum of such Lenders’ (x) then outstanding
Loans plus (y) Tranche 1 Percentages of the Tranche 1 Letter of Credit
Outstandings at such time plus (z) Tranche 2 Percentages of the Tranche
2 Letter of Credit Outstandings at such time) represent an amount greater than
50% of the Total Commitment (or after the termination thereof, the sum of (x)
the then total outstanding Loans plus (y) the Tranche 1 Letter of Credit
Outstandings at such time plus (z) the Tranche 2 Letter of Credit
Outstandings at such time).

 

“Retrocession
Agreement” means any agreement, contract, treaty or other arrangement
whereby one or more insurers or reinsurers, as retrocessionaires, assume liabilities

 

22

 

of reinsurers under a Reinsurance Agreement
or other retrocessionaires under another Retrocession Agreement.

 

“SAP”
means, with respect to any Regulated Insurance Company, the accounting procedures
and practices prescribed or permitted by the Applicable Insurance Regulatory
Authority of the state in which such Regulated Insurance Company is domiciled;
it being understood and agreed that determinations in accordance with SAP for
purposes of Article VIII, including defined terms as used therein, are subject
(to the extent provided therein) to Section 1.04. 

 

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

 

“Security
Agreement” means the Security Agreement, substantially in the form of
Exhibit F hereto, dated as of the date of this Agreement, among JPMorgan Chase
Bank, as Collateral Agent, the Grantors (as defined therein) from time to time
party thereto and the Custodian, as amended, restated, modified or supplemented
and as in effect from time to time.

 

“Security
Documents” means (i) the Security Agreement, (ii) the Account Control
Agreement, (iii) each other security agreement executed and delivered pursuant
to Section 6.13 and (iv) each other document, agreement, certificate and/or
financing statement executed, delivered, made or filed pursuant to the terms of
the documents specified in foregoing clauses (i), (ii) and (iii).

 

“Shareholders
Agreement” means the Shareholders Agreement, dated as of November 20, 2001,
by and among the Parent Borrower, each member of the Arch Shareholder Group and
each other party thereto, as amended through the Effective Date.

 

“Solvent”
means, with respect to any Person on a particular date, that on such date
(a)  the amount of the “present fair
saleable value” of each of the business and assets of such Person will, as of
such date, exceed the amount of all “liabilities of such Person, contingent or
otherwise”, as of such date, as such quoted terms are determined in accordance
with applicable federal and state laws governing determinations of the
insolvency of debtors, (b) the present fair saleable value of each of the
business and assets of such Person is greater than the amount that will be
required to be paid on or in respect of the probable “liability” on the
existing debts and other “liabilities contingent or otherwise” of such Person,
(c) the assets of such Person do not constitute unreasonably small capital for
such Person to carry out its business as now conducted and as proposed to be
conducted including the capital needs of such Person, taking into account the
particular capital requirements of the business conducted by such Person and
projected capital requirements and capital availability thereof, (d) such
Person does not intend to incur debts beyond their ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be received
by such Person, and of amounts to be payable on or in respect of debt of such
Person) and (e) such Person does not believe that final judgments against such
Person in actions for money damages presently pending will be rendered at a
time when, or in an amount such that, they will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account the
maximum reasonable amount of such judgments in any such actions and the
earliest reasonable time at which such judgments might be rendered) and such
Person believes that its cash flow, after taking into account all other
anticipated uses of the cash

 

23

 

of such Person (including, without
limitation, the payments on or in respect of debt referred to in paragraph (d)
of this definition), will at all times be sufficient to pay all such judgments
promptly in accordance with their terms. 
For purposes of this definition, (i) “debt” means liability on a
“claim”, and (ii) “claim” means any (A) right to payment, whether or not such a
right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (B)
right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.

 

“Start
Date” means, with respect to any Margin Adjustment Period, the first day of
such Margin Adjustment Period.

 

“Statutory
Reserve Rate” means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus
the aggregate of the maximum reserve percentages (including any marginal,
special, emergency or supplemental reserves) expressed as a decimal established
by the Board to which the Administrative Agent is subject for Eurocurrency
funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of
the Board).  Such reserve percentages
shall include those imposed pursuant to such Regulation D.  Eurodollar Loans shall be deemed to
constitute Eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation.  The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.

 

“Statutory
Statements” means, with respect to any Regulated Insurance Company for any
fiscal year or fiscal quarter, the annual or quarterly financial statements of
such Regulated Insurance Company as required to be filed with the Insurance
Regulatory Authority of its jurisdiction of domicile and in accordance with the
laws of such jurisdiction, together with all exhibits, schedules, certificates
and actuarial opinions required to be filed or delivered therewith.

 

“Sublimit”
means, at any time, an amount equal to (x) in the case of each Designated
Subsidiary Borrower other than ARC, 75% of such Designated Subsidiary
Borrower’s capital plus surplus (each determined in accordance with SAP)
as of the last day of the then most recent quarter for which financial
statements have been provided pursuant to Section 6.01 and (y) in the case of
ARC, 75% of ARC’s Consolidated Net Worth as of the last day of the then most
recent quarter for which financial statements have been provided pursuant to
Section 6.01.

 

“Subscription
Agreement” means the Subscription Agreement, dated as of October 24, 2001, as
amended as of November 20, 2001, by and among the Parent Borrower and the
Purchasers party thereto.

 

“Subsidiary”
means, with respect to any Person (the “parent”) at any date, any
corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent’s consolidated financial statements if such financial statements
were prepared in accordance with GAAP as of such date, as

 

24

 

well as any other corporation, limited
liability company, partnership, association or other entity of which securities
or other ownership interests representing more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general
partnership interests are, as of such date, owned, controlled or held by the
parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.

 

“Syndication
Agent” means Bank of America, N.A. in its capacity as syndication agent
under this Agreement.

 

“Taxes”
means any and all present or future taxes, levies, imposts, duties, deductions,
charges or withholdings imposed by any Governmental Authority.

 

“Test
Date” means, with respect to any Start Date, the last day of the most
recent fiscal quarter of each Borrower ended immediately prior to such Start
Date.

 

“Test
Period” means (x) at all times after the delivery of financial statements
pursuant to Section 6.01(a) in respect of the fiscal year ending closest to
December 31, 2004 and prior to the delivery of financial statements pursuant to
Section 6.01(a) in respect of the fiscal year ending closest to December 31,
2005, the period from July 1, 2004 through December 31, 2004, and (y) at all times
after the delivery of financial statements pursuant to Section 6.01(a) in
respect of the fiscal year ending closest to December 31, 2005, the most
recently ended fiscal year for which financial statements have been delivered
pursuant to Section 6.01(a).

 

“Total
Commitment” means the sum of (i) the Total Tranche 1 Commitment plus
(ii) the Total Tranche 2 Commitment plus (iii) the Total Tranche 3
Commitment.

 

“Total
Tranche 1 Commitment” means the sum of the Tranche 1 Commitments of each
Tranche 1 Lender.

 

“Total
Tranche 2 Commitment” means the sum of the Tranche 2 Commitments of each
Tranche 2 Lender.

 

“Total
Tranche 3 Commitment” means the sum of the Tranche 3 Commitments of each
Tranche 3 Lender.

 

“Tranche”
means, at any time, the respective facility and commitments utilized in making
Loans and/or issuing Letters of Credit hereunder, with there being three
separate Tranches hereunder, designated as Tranche 1, Tranche 2 and Tranche 3.

 

“Tranche
1 Commitment” means, with respect to each Lender, the amount set forth
opposite such Lender’s name on Schedule 2.01 under the heading “Tranche 1
Commitment”, as the same may be (x) reduced or terminated pursuant to Section
2.06 and/or Article VIII, (y) increased from time to time pursuant to Section
2.19 or (z) adjusted from time to time as a result of assignment to or from
such Lender pursuant to Section 10.04(b).

 

“Tranche
1 Facility Fee” has the meaning provided in Section 2.11(a).

 

25

 

“Tranche
1 Lenders” means each lender and each Additional Tranche 1 Lender with a
Tranche 1 Commitment and/or Tranche 1 Letter of Credit Outstandings.

 

“Tranche
1 Letter of Credit” has the meaning provided in Section 3A.01(a).

 

“Tranche
1 Letter of Credit Fee” has the meaning provided in Section 2.11(f).

 

“Tranche
1 Letter of Credit Outstandings” means, at any time, the sum of, without
duplication (i) the aggregate Stated Amount of all Tranche 1 Letters of Credit plus
(ii) the aggregate amount of all Tranche 1 Unpaid Drawings in respect of all
Tranche 1 Letters of Credit.

 

“Tranche
1 Letter of Credit Request” has the meaning provided in Section 3A.02(a).

 

“Tranche
1 Liability Percentage” means the percentages set forth on Part I of
Schedule 1.01.

 

“Tranche
1 Percentage” means, at any time for each Tranche 1 Lender, the percentage
obtained by dividing such Tranche 1 Lender’s Tranche 1 Commitment at such time
by the Total Tranche 1 Commitment then in effect, provided that, if the
Total Tranche 1 Commitment has been terminated, the Tranche 1 Percentage of
each Tranche 1 Lender shall be determined by dividing such Tranche 1 Lender’s
Tranche 1 Commitment as in effect immediately prior to such termination by the
Total Tranche 1 Commitment as in effect immediately prior to such termination
(but also giving effect to any assignments made in accordance with Section
10.04(b) after the date on which the Total Tranche 1 Commitment has
terminated).

 

“Tranche
1 Unpaid Drawings” has the meaning provided in Section 3A.03(a).

 

“Tranche
2/3 Borrower” means each of the Parent Borrower and ARC.

 

“Tranche
2/3 Liability Percentage” means the percentages set forth in Part II of
Schedule 1.01.

 

“Tranche
2 Commitment” means, with respect to each Lender, the amount set forth
opposite such Lender’s name on Schedule 2.01 under the heading “Tranche 2
Commitment”, as the same may be (x) reduced or terminated pursuant to Section
2.07 and/or Article VIII, (y) increased from time to time pursuant to Section
2.20 or (z) adjusted from time to time as a result of assignment to or from
such Lender pursuant to Section 10.04(b).

 

“Tranche
2 Credit Exposure” means, with respect to any Tranche 2 Lender at any time,
the sum of the outstanding principal amount of such Tranche 2 Lender’s Tranche
2 Loans at such time plus such Tranche 2 Lender’s Tranche 2 Percentage
of all Tranche 2 Letter of Credit Outstandings at such time.

 

“Tranche
2 Facility Fee” has the meaning provided in Section 2.11(b).

 

26

 

“Tranche
2 Lenders” means each lender and each Additional Tranche 2 Lender with a
Tranche 2 Commitment or with outstanding Tranche 2 Loans and/or Tranche 2
Letter of Credit Outstandings.

 

“Tranche
2 Letter of Credit” has the meaning provided in Section 3B.01(a).

 

“Tranche
2 Letter of Credit Fee” has the meaning provided in Section 2.11(g).

 

“Tranche
2 Letter of Credit Outstandings” means, at any time, the sum of, without
duplication, (i) the aggregate Stated Amount of all Tranche 2 Letters of Credit
plus (ii) the aggregate amount of all Tranche 2 Unpaid Drawings in
respect of all Tranche 2 Letters of Credit.

 

“Tranche
2 Letter of Credit Request” has the meaning provided in Section 3B.02(a).

 

“Tranche
2 Loans” has the meaning provided in Section 2.01(a).

 

“Tranche
2 Note” has the meaning provided in Section 2.09(e).

 

“Tranche
2 Percentage” means, at any time for each Tranche 2 Lender, the percentage
obtained by dividing such Tranche 2 Lender’s Tranche 2 Commitment at such time
by the Total Tranche 2 Commitment then in effect, provided that, if the
Total Tranche 2 Commitment has been terminated, the Tranche 2 Percentage of
each Tranche 2 Lender shall be determined by dividing such Tranche 2 Lender’s
Tranche 2 Commitment as in effect immediately prior to such termination by the
Total Tranche 2 Commitment as in effect immediately prior to such termination
(but also giving effect to any assignments made in accordance with Section
10.04(b) after the date on which the Total Tranche 2 Commitment has
terminated).

 

“Tranche
2 Revolving Percentage” means, at any time, a percentage the numerator of
which is the Total Tranche 2 Commitment and the denominator of which is the sum
of the Total Tranche 2 Commitment and the Total Tranche 3 Commitment.

 

“Tranche
2 Unpaid Drawings” has the meaning provided in Section 3B.03(a).  

 

“Tranche
2 Utilization Fee” has the meaning provided in Section 2.11(d).

 

“Tranche
3 Commitment” means, with respect to each Tranche 3 Lender, the amount set
forth opposite such Tranche 3 Lender’s name on Schedule 2.01 hereto under the
heading “Tranche 3 Commitment”, as the same may be (x) reduced or terminated
pursuant to Sections 2.08 and or Article VIII, (y) increased from time to time
pursuant to Section 2.21 or (z) adjusted from time to time as a result of assignment
to or from such Tranche 3 Lender pursuant to Section 10.04(b).

 

“Tranche
3 Credit Exposure” means, with respect to any Tranche 3 Lender at any time,
the sum of the outstanding principal amount of such Tranche 3 Lender’s Tranche
3 Loans at such time.

 

“Tranche
3 Facility Fee” has the meaning provided in Section 2.11(c).

 

27

 

“Tranche
3 Lenders” means each lender and each Additional Tranche 3 Lender with a
Tranche 3 Commitment and/or outstanding Tranche 3 Loans.

 

“Tranche
3 Loans” has the meaning provided in Section 2.01(b).

 

“Tranche
3 Note” has the meaning provided in Section 2.09(f).

 

“Tranche
3 Percentage” means, at any time for each Tranche 3 Lender, the percentage
obtained by dividing such Tranche 3 Lender’s Tranche 3 Commitment at such time
by the Total Tranche 3 Commitment then in effect, provided that, if the
Total Tranche 3 Commitment has been terminated, the Tranche 3 Percentage of
each Tranche 3 Lender shall be determined by dividing such Tranche 3 Lender’s
Tranche 3 Commitment as in effect immediately prior to such termination by the
Total Tranche 3 Commitment as in effect immediately prior to such termination
(but also giving effect to any assignments made in accordance with Section
10.04(b) after the date on which the Total Tranche 3 Commitment has
terminated).

 

“Tranche
3 Revolving Percentage” means, at any time, a percentage the numerator of
which is the Total Tranche 3 Commitment and the denominator of which is the sum
of the Total Tranche 2 Commitment and the Total Tranche 3 Commitment.

 

“Tranche
3 Utilization Fee” has the meaning provided in Section 2.11(e).

 

“Transactions”
means the execution, delivery and performance by each Borrower of this
Agreement, the borrowing of Loans, the issuing of Letters of Credit and the use
of the proceeds thereof.

 

“Type”,
when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined
by reference to the Adjusted LIBO Rate or the Alternate Base Rate.

 

“Unpaid
Drawings” means, collectively, the Tranche 1 Unpaid Drawings and Tranche 2
Unpaid Drawings.

 

“Utilization
Fees” means, collectively, the Tranche 2 Utilization Fee and Tranche 3
Utilization Fee.

 

“WDCIC”
means Western Diversified Casualty Insurance Company, a corporation organized
under the laws of Wisconsin.

 

“Wholly-Owned
Subsidiary” of any Person means any Subsidiary of such Person to the extent
all of the capital stock or other ownership interests in such Subsidiary, other
than directors’ or nominees’ qualifying shares, is owned directly or indirectly
by such Person.

 

Section 1.02.  Classification of Loans and Borrowings.  For purposes of this Agreement, Loans may be
classified and referred to by Type (e.g., a “Eurodollar Loan”).  In addition, Borrowings and Letters of
Credit also may be classified and referred to by Tranche (e.g., a
“Tranche 2 Borrowing”).

 

28

 

Section 1.03.  Terms Generally.  The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.  Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and
“including” shall be deemed to be followed by the phrase “without
limitation”.  The word “will” shall be
construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a)
any definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person’s successors and assigns, (c) the words “herein”, “hereof”
and “hereunder”, and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words “asset” and “property” shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.  

 

Section 1.04.  Accounting Terms; GAAP.  Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; provided that, if
the Parent Borrower (on behalf of the Borrowers) notifies the Administrative
Agent that the Borrowers request an amendment to any provision hereof to
eliminate the effect of any change occurring after the date hereof in GAAP or
in the application thereof on the operation of such provision (or if the
Administrative Agent notifies the Parent Borrower (on behalf of the Borrowers)
that the Required Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

 

ARTICLE II

The Credits

 

Section 2.01.  Tranche 2 and Tranche 3 Commitments.  (a) 
Subject to and upon the terms and conditions set forth herein, each
Tranche 2 Lender severally agrees, at any time and from time to time on and
after the Effective Date and prior to the Commitment Expiration Date, to make a
revolving loan or loans (each, a “Tranche 2 Loan” and, collectively, the
“Tranche 2 Loans”) to one or more of the Tranche 2/3 Borrowers (on a several
basis), which Tranche 2 Loans (i) shall be denominated in Dollars; (ii) may be
repaid and reborrowed in accordance with the provisions hereof; (iii) except as
hereinafter provided, may, at the option of the respective Tranche 2/3
Borrower, be incurred and maintained as, and/or converted into, ABR Loans or
Eurodollar Loans, provided that all Tranche 2 Loans made as part of the
same Borrowing shall, unless otherwise specified herein, consist of Tranche 2
Loans of the same Type; (iv) shall not exceed for any Tranche 2 Lender at any
time outstanding that aggregate principal

 

29

 

amount which, when added to such Tranche 2
Lender’s Tranche 2 Percentage of all Tranche 2 Letter of Credit Outstandings
(if any) (exclusive of Tranche 2 Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Tranche 2 Loans) at such time, equals the Tranche 2 Commitment of
such Tranche 2 Lender at such time; (v) may not be incurred by any Tranche 2/3
Borrower if such Tranche 2 Loans, when added to (x) all Tranche 2 Letter of
Credit Outstandings and (y) the aggregate principal amount of all Tranche 2
Loans then outstanding, exceeds the Total Tranche 2 Commitment at such time;
(vi) may not be incurred by any Tranche 2/3 Borrower if such Tranche 2 Loans,
when added to the aggregate principal amount of all Tranche 2 Loans and Tranche
3 Loans then outstanding, exceeds the Loan Sublimit at such time; (vii) may not
be incurred by ARC if such Tranche 2 Loans, when added to (x) the Tranche 2
Letter of Credit Outstandings in respect of Tranche 2 Letters of Credit issued
for the account of ARC at such time and (y) the aggregate principal amount of
all Tranche 2 Loans incurred by ARC and then outstanding, exceeds an amount
equal to $100,000,000 at such time; and (viii) may not be incurred by ARC if
such Tranche 2 Loans, when added to (x) the Tranche 1 Letter of Credit
Outstandings in respect of Tranche 1 Letters of Credit issued for the account
of ARC at such time, (y) the Tranche 2 Letter of Credit Outstandings in respect
of Tranche 2 Letters of Credit issued for the account of ARC at such time and
(z) the aggregate principal amount of all Tranche 2 Loans incurred by ARC and
then outstanding, exceeds ARC’s Sublimit at such time.  

 

(b)           Subject to and upon the terms and conditions set forth herein, each
Tranche 3 Lender severally agrees, at any time and from time to time on and
after the Effective Date and prior to the Commitment Expiration Date, to make a
revolving loan or loans (each, a “Tranche 3 Loan” and, collectively, the
“Tranche 3 Loans”) to the Parent Borrower, which Tranche 3 Loans (i) shall be
denominated in Dollars; (ii) shall, at the option of the Parent Borrower, be
incurred and maintained as and/or converted into ABR Loans or Eurodollar Loans,
provided that all Tranche 3 Loans comprising the same Borrowing shall at
all times be of the same Type; (iii) may be repaid and reborrowed at any time
in accordance with the provisions hereof; (iv) shall not exceed for any Tranche
3 Lender at any time outstanding that aggregate principal amount which equals
the Tranche 3 Commitment of such Tranche 3 Lender at such time; (v) may not be
incurred by the Parent Borrower if such Tranche 3 Loan, when added to the
aggregate principal amount of all Tranche 3 Loans then outstanding, exceeds the
Total Tranche 3 Commitment at such time; and (vi) may not be incurred by the
Parent Borrower if such Tranche 3 Loans, when added to the aggregate principal
amount of all Tranche 2 Loans and Tranche 3 Loans then outstanding, exceeds the
Loan Sublimit at such time. 

 

(c)           Notwithstanding anything to the contrary contained in this Section 2.01
or elsewhere in this Agreement, each incurrence of Tranche 2 Loans or Tranche 3
Loans shall, in each case, consist of a Borrowing of Tranche 2 Loans and a
Borrowing of Tranche 3 Loans, with such Borrowings to be made pro  rata
on the basis of the Tranche 2 Revolving Percentage and the Tranche 3 Revolving
Percentage, in each case as in effect at the time of such Borrowings.

 

Section 2.02.  Loans and Borrowings.  (a) 
All Borrowings of Loans under this Agreement shall be incurred by the
respective Tranche 2/3 Borrower from the Lenders pro  rata on the
basis of their respective Tranche 2 Commitments or Tranche 3 Commitments, as
the case may be.  The failure of any
Lender to make any Loans required to be made by it shall not relieve any other
Lender of its obligations hereunder.  

 

30

 

(b)           Subject to Section 2.13, each Borrowing shall be comprised entirely of
ABR Loans or Eurodollar Loans as the respective Tranche 2/3 Borrower may
request in accordance herewith.  Each
Lender at its option may make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided
that any exercise of such option shall not affect the obligation of the
respective Tranche 2/3 Borrower to repay such Loan in accordance with the terms
of this Agreement.  

 

(c)           At the commencement of each Interest Period for any Eurodollar Borrowing,
such Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $5,000,000. 
At the time that each ABR Borrowing is made, such Borrowing shall be in
an aggregate amount that is an integral multiple of $1,000,000 and not less
than $5,000,000.  Borrowings of more
than one Type may be outstanding at the same time under each respective
Tranche; provided that there shall not at any time be more than a total
of ten Eurodollar Borrowings outstanding in the aggregate for all
Tranches.  

 

(d)           Notwithstanding any other provision of this Agreement, no Tranche 2/3
Borrower shall be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Commitment Expiration Date.

 

Section 2.03.  Requests for Borrowings.  To request a Borrowing, a Tranche 2/3
Borrower shall notify the Administrative Agent of such request by telephone (a)
in the case of a Eurodollar Borrowing, not later than 10:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing or (b) in
the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on
the date of the proposed Borrowing. 
Each such telephonic Borrowing Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of
a written Borrowing Request in the form of Exhibit A appropriately completed
and signed by such Tranche 2/3 Borrower. 
Each such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.02:  

 

(i)            the aggregate principal amount of the
requested Borrowing;

 

(ii)           the date of such Borrowing, which shall be a Business Day;

 

(iii)          whether such Borrowing shall consist of Tranche 2 Loans or Tranche 3
Loans;

 

(iv)          whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;

 

(v)           in the case of a Eurodollar Borrowing, the initial Interest Period to
be applicable thereto, which shall be a period contemplated by the definition
of the term “Interest Period”; and

 

(vi)          the location and number of such Tranche 2/3 Borrower’s account to which
funds are to be disbursed.

 

31

 

If
no election as to the Type of Borrowing is specified, then such Borrowing shall
be an ABR Borrowing.  If no Interest
Period is specified with respect to any requested Eurodollar Borrowing, then
such Tranche 2/3 Borrower shall be deemed to have selected an Interest Period
of one month’s duration.  Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender which is required to make Loans
under the respective Tranche specified in the respective Borrowing Request of
the details thereof and of the amount of such Lender’s Loan to be made as part
of the requested Borrowing.

 

Section 2.04.  Funding of Borrowings.  (a) 
Each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds by 12:00
noon, New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders.  All such amounts shall be made available to
the Administrative Agent in Dollars. 
The Administrative Agent will make such Loans available to the
respective Tranche 2/3 Borrower by wire transfer of immediately available funds
not later than 2:00 p.m. New York City time to the account of such Tranche 2/3
Borrower designated by such Tranche 2/3 Borrower in the applicable Borrowing
Request. 

 

(b)           Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent its respective share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to each Tranche 2/3
Borrower a corresponding amount.  In
such event, if a Lender has not in fact made its share of the applicable
Borrowing available to the Administrative Agent, then the applicable Lender and
the respective Tranche 2/3 Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to such Tranche 2/3 Borrower to but excluding the date of payment to
the Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in
the case of such Tranche 2/3 Borrower, the interest rate applicable to ABR
Loans.  If such Lender pays such amount
to the Administrative Agent, then such amount shall constitute such Lender’s
Loan included in such Borrowing.

 

Section 2.05.  Interest Elections.  (a) 
Each Borrowing initially shall be of the Type and Tranche specified in
the applicable Borrowing Request and, in the case of a Eurodollar Borrowing,
shall have an initial Interest Period as specified in such Borrowing
Request.  Thereafter, the respective
Tranche 2/3 Borrower may elect to convert such Borrowing of the same Tranche to
a different Type of such Tranche or to continue such Borrowing and, in the case
of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided
in this Section.  Subject to the other
provisions of this Section 2.05, the respective Tranche 2/3 Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the respective
Lenders holding the Loans comprising such Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing.  

 

32

 

(b)           To make an election pursuant to this Section 2.05, a Tranche 2/3
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if such
Tranche 2/3 Borrower were requesting a Borrowing of the Type and Tranche
resulting from such election to be made on the effective date of such
election.  Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by such
Tranche 2/3 Borrower.

 

(c)           Each telephonic and written Interest Election Request shall specify the
following information in compliance with Section 2.02:

 

(i)            the Borrowing to which such Interest Election
Request applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to each
resulting Borrowing (in which case the information to be specified pursuant to
clauses (iv) and (v) below shall be specified for each resulting Borrowing);

 

(ii)           the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;

 

(iii)          whether such Borrowing consists of Tranche 2 Loans or Tranche 3 Loans;

 

(iv)          whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and

 

(v)           if the resulting Borrowing is a Eurodollar Borrowing, the Interest
Period to be applicable thereto after giving effect to such election, which
shall be a period contemplated by the definition of the term “Interest Period”.

 

If
any such Interest Election Request requests a Eurodollar Borrowing but does not
specify an Interest Period, then such Tranche 2/3 Borrower shall be deemed to
have selected an Interest Period of one month’s duration.

 

(d)           Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each relevant Lender of the details thereof
and of such Lender’s portion of each resulting Borrowing.

 

(e)           If any Tranche 2/3 Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing.  Notwithstanding any
contrary provision hereof, if an Event of Default has occurred and is
continuing and the Administrative Agent, at the request of the Required
Lenders, so notifies such Tranche 2/3 Borrower, then, so long as an Event of
Default is continuing (i) no outstanding Borrowing may be converted to or
continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period
applicable thereto.

 

33

 

Section 2.06.  Termination and Reduction of Tranche 1
Commitments.  (a)  Unless previously terminated, the Tranche 1
Commitments shall terminate on the Commitment Expiration Date.  

 

(b)           In addition to any other Tranche 1 Commitment reductions hereunder, the
Tranche 1 Commitments shall be reduced on the dates and in the amounts
specified in Section 2.10.

 

(c)           The Designated Subsidiary Borrowers may at any time terminate, or from
time to time reduce, the Tranche 1 Commitments; provided that (i) each
reduction of the Tranche 1 Commitments shall be in an amount that is an
integral multiple of $5,000,000 and not less than $5,000,000 and (ii) the
Designated Subsidiary Borrowers shall not terminate or reduce the Tranche 1
Commitments if, as a result thereof, the aggregate amount of all Tranche 1
Letter of Credit Outstandings would exceed the Total Tranche 1
Commitments.  Each such reduction shall
be applied to the Tranche 1 Commitments of the Tranche 1 Lenders on a pro
rata basis based on the amount of such Tranche 1 Lenders’ respective
Tranche 1 Commitments.

 

(d)           The Designated Subsidiary Borrowers shall notify the Administrative
Agent of any election to terminate or reduce the Tranche 1 Commitments under
paragraph (c) of this Section at least three Business Days prior to the
effective date of such termination or reduction, specifying such election and
the effective date thereof.  Promptly
following receipt of any notice, the Administrative Agent shall advise the
Tranche 1 Lenders of the contents thereof. 
Each notice delivered by the Designated Subsidiary Borrowers pursuant to
this Section 2.06 shall be irrevocable; provided that a notice of
termination of Tranche 1 Commitments delivered by the Designated Subsidiary
Borrowers may state that such notice is conditioned upon the effectiveness of
other credit facilities, in which case such notice may be revoked by the
Designated Subsidiary Borrowers (by notice to the Administrative Agent on or prior
to the specified effective date) if such condition is not satisfied.  Any termination or reduction of any Tranche
1 Commitments shall be permanent.  

 

Section 2.07.  Termination and Reduction of Tranche 2
Commitments.  (a)  Unless previously terminated, the Tranche 2
Commitments shall terminate on the Commitment Expiration Date.  

 

(b)           In addition to any other Tranche 2 Commitment reductions hereunder, the
Tranche 2 Commitments shall be reduced on the dates and in the amounts
specified in Section 2.10.

 

(c)           The Tranche 2/3 Borrowers may at any time terminate, or from time to
time reduce, Tranche 2 Commitments; provided that (i) each reduction of
the Tranche 2 Commitments shall be in an amount that is an integral multiple of
$5,000,000 and not less than $5,000,000 and (ii) the Tranche 2/3 Borrowers
shall not terminate or reduce the Tranche 2 Commitments if, after giving effect
to any concurrent prepayment of the Tranche 2 Loans in accordance with Section
2.10, (x) any Tranche 2 Lender’s Tranche 2 Credit Exposure would exceed such
Tranche 2 Lender’s Tranche 2 Commitment or (y) the sum of the aggregate
principal amount of all Tranche 2 Loans outstanding plus the aggregate
amount of all Tranche 2 Letter of Credit Outstandings would exceed the Total
Tranche 2 Commitment.  Notwithstanding

 

34

 

anything to the contrary contained in this Section
or elsewhere in this Agreement, any reduction to the Tranche 2 Commitment shall
be applied pro  rata to the Total Tranche 2 Commitment and Total
Tranche 3 Commitment based on the Tranche 2 Revolving Percentage and the
Tranche 3 Revolving Percentage, in each case as in effect at the time of any
such reduction.  Each reduction to the
Total Tranche 2 Commitment shall be applied to the Tranche 2 Commitments of
each Tranche 2 Lender on a pro  rata basis based on the amount of
such Tranche 2 Lenders’ respective Tranche 2 Commitments.

 

(d)           The Tranche 2/3 Borrowers shall notify the Administrative Agent of any
election to terminate or reduce the Tranche 2 Commitments under paragraph (c)
of this Section at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof.  Promptly following receipt of
any notice, the Administrative Agent shall advise the Tranche 2 Lenders of the
contents thereof.  Each notice delivered
by the Tranche 2/3 Borrowers pursuant to this Section 2.07 shall be
irrevocable; provided that a notice of termination of Tranche 2
Commitments delivered by the Tranche 2/3 Borrowers may state that such notice
is conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Tranche 2/3 Borrowers (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied.  Any
termination or reduction of any Tranche 2 Commitments shall be permanent.  

 

Section 2.08.  Termination and Reduction of Tranche 3
Commitments.  (a)  Unless previously terminated, the Tranche 3
Commitments shall terminate on the Commitment Expiration Date.  

 

(b)           In addition to any other Tranche 3 Commitment reductions hereunder, the
Tranche 3 Commitments shall be reduced on the dates and in the amounts
specified in Section 2.10.

 

(c)           The Parent Borrower may at any time terminate, or from time to time
reduce, the Tranche 3 Commitments; provided that (i) each reduction of
the Tranche 3 Commitments shall be in an amount that is an integral multiple of
$5,000,000 and not less than $5,000,000 and (ii) the Parent Borrower shall not
terminate or reduce the Tranche 3 Commitments if, after giving effect to any
concurrent prepayment of the Tranche 3 Loans in accordance with Section 2.10,
(x) any Tranche 3 Lender’s Tranche 3 Credit Exposure would exceed such Tranche
3 Lender’s Tranche 3 Commitment or (y) the sum of the aggregate principal
amount of all Tranche 3 Loans outstanding would exceed the Total Tranche 3
Commitment.  Notwithstanding anything to
the contrary contained in this Section or elsewhere in this Agreement, any
reduction to the Tranche 3 Commitment shall be applied pro  rata
to the Total Tranche 2 Commitment and Total Tranche 3 Commitment based on the
Tranche 2 Revolving Percentage and the Tranche 3 Revolving Percentage, in each
case as in effect at the time of any such reduction.  Each reduction to the Total Tranche 3 Commitment shall be applied
to the Tranche 3 Commitments of each Tranche 3 Lender on a pro  rata
basis based on the respective amount of such Tranche 3 Lender’s Tranche 3 Commitments.

 

(d)           The Parent Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Tranche 3 Commitments under paragraph (c)
of this Section at least three Business Days prior to the effective date of
such termination or reduction, specifying such

 

35

 

election and the effective date thereof.  Promptly following receipt of any notice,
the Administrative Agent shall advise the Lenders of the contents thereof.  Each notice delivered by the Parent Borrower
pursuant to this Section 2.08 shall be irrevocable; provided that a
notice of termination of Tranche 3 Commitments delivered by the Parent Borrower
may state that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Parent Borrower (by
notice to the Administrative Agent on or prior to the specified effective date)
if such condition is not satisfied.  Any
termination or reduction of any Tranche 3 Commitments shall be permanent.

 

Section 2.09.  Repayment of Loans; Evidence of Debt.  (a) 
Each Tranche 2/3 Borrower hereby severally and unconditionally promises
to pay to the Administrative Agent for the account of each Lender with any
Loans outstanding to such Tranche 2/3 Borrower the then unpaid principal amount
of all such Loans on the Commitment Expiration Date.

 

(b)           Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of each Tranche 2/3 Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.

 

(c)           The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Tranche and Type thereof
and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from each Tranche 2/3
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each such
Lender’s share thereof.

 

(d)           The entries made in the accounts maintained pursuant to paragraph (b)
or (c) of this Section shall be prima  facie evidence of the
existence and amounts of the obligations recorded therein; provided that
the failure of any Lender or the Administrative Agent to maintain such accounts
or any error therein shall not in any manner affect the obligation of any Tranche
2/3 Borrower to repay the Loans in accordance with the terms of this Agreement.

 

(e)           Any Tranche 2 Lender may request that Tranche 2 Loans made by it be
evidenced by a promissory note.  In such
event, the relevant Tranche 2/3 Borrower shall prepare, execute and deliver to
such Tranche 2 Lender a promissory note payable to the order of such Tranche 2
Lender (or, if requested by such Tranche 2 Lender, to such Tranche 2 Lender and
its registered assigns) substantially in the form of Exhibit B-1 with blanks
appropriately completed in conformity herewith (each, a “Tranche 2 Note” and
collectively, the “Tranche 2 Notes”). 
Thereafter, the Tranche 2 Loans evidenced by such Tranche 2 Note and
interest thereon shall at all times (including after assignment pursuant to
Section 10.04) be represented by one or more Tranche 2 Notes payable to the
order of the payee named therein (or, if such promissory note is a registered
note, to such payee and its registered assigns).

 

(f)            Any Tranche 3 Lender may request that Tranche
3 Loans made by it be evidenced by a promissory note.  In such event, the Parent Borrower shall prepare, execute and
deliver to such Tranche 3 Lender a promissory note payable to the order of such
Tranche 3 Lender (or, if requested by such Tranche 3 Lender, to such Tranche 3
Lender and its registered

 

36

 

assigns) substantially in the form of Exhibit B-2
with blanks appropriately completed in conformity herewith (each, a “Tranche 3
Note” and collectively, the “Tranche 3 Notes”).  Thereafter, the Tranche 3 Loans evidenced by such Tranche 3 Note
and interest thereon shall at all times (including after assignment pursuant to
Section 10.04) be represented by one or more Tranche 3 Notes payable to the
order of the payee named therein (or, if such promissory note is a registered
note, to such payee and its registered assigns).

 

Section 2.10.  Prepayments; Additional Collateral.  (a) 
Each Tranche 2/3 Borrower shall have the right at any time and from time
to time to prepay any of its Borrowings in whole or in part, without premium or
penalty, except as provided in Section 2.15, subject to the terms and
conditions set forth in paragraph (b) of this Section.

 

(b)           Such Tranche 2/3 Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment of Loans hereunder (i) in
the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m.,
New York City time, three Business Days before the date of prepayment, or (ii)
in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New
York City time, one Business Day before the date of prepayment.  Each such notice shall be irrevocable and
shall specify (i) whether the prepayment is in respect to Tranche 2 Loans or Tranche
3 Loans, (ii) the prepayment date, (iii) in the case of Eurodollar Loans, the
specific Borrowing or Borrowings which are to be prepaid and (iv) the principal
amount of each such Borrowing or portion thereof to be prepaid; provided
that, if a notice of prepayment is given in connection with a conditional
notice of termination of the Commitments as contemplated by Section 2.07 or
2.08, as the case may be, then such notice of prepayment may be revoked if such
notice of termination is revoked in accordance with such Section 2.07 or
2.08.  Promptly following receipt of any
such notice relating to a Borrowing, the Administrative Agent shall advise the
Lenders of the contents thereof.  Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02.  Each prepayment of a
Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing of the respective Tranche. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.12.  Each prepayment of a Loan pursuant to this
Section shall consist of a pro  rata prepayment of Tranche 2 Loans
and Tranche 3 Loans on the basis of the Tranche 2 Revolving Percentage and Tranche
3 Revolving Percentage, in each case as in effect at the time of any such
prepayment.

 

(c)           If on any date prior to the Commitment Expiration Date, the Tranche 1
Letter of Credit Outstandings exceed the Total Tranche 1 Commitment, each
Designated Subsidiary Borrower for whose account Tranche 1 Letters of Credit
were issued shall pay to the Administrative Agent at the Payment Office on such
date an amount of cash and/or Cash Equivalents equal to the amount of such
excess, such cash and/or Cash Equivalents to be held as security for all
obligations of the respective Designated Subsidiary Borrower to the Tranche 1
Lenders hereunder in the Collateral Account applicable to such Designated
Subsidiary Borrower.

 

(d)           If on any date the Tranche 1 Letter of Credit Outstandings applicable
to a Designated Subsidiary Borrower (other than ARC) exceed the lesser of (i)
such Designated Subsidiary Borrower’s Borrowing Base and (ii) such Designated
Subsidiary Borrower’s Sublimit, such Designated Subsidiary Borrower shall pay
or deliver to the Collateral Agent within the Applicable Grace Period an amount
of Cash and/or Eligible Securities (valued for this

 

37

 

purpose based on the respective Advance Rate
applicable thereto) in an aggregate amount equal to the amount of such excess,
with any such Cash or Eligible Securities to be held as additional security for
all obligations of the respective Designated Subsidiary Borrower hereunder in
the Collateral Account applicable to such Designated Subsidiary Borrower.

 

(e)           If on any date the Tranche 1 Letter of Credit Outstandings applicable
to ARC exceed ARC’s Borrowing Base, ARC shall pay or deliver to the Collateral
Agent within the Applicable Grace Period an amount of Cash and/or Eligible
Securities (valued for this purpose based on the respective Advance Rate
applicable thereto) in an aggregate amount equal to the amount of such excess,
with any such Cash or Eligible Securities to be held as additional security for
all obligations of ARC hereunder in the Collateral Account applicable to ARC.

 

(f)            If on any date the sum of (i) the Tranche 1
Letter of Credit Outstandings applicable to ARC, (ii) the Tranche 2 Letter of
Credit Outstandings applicable to ARC and (iii) the aggregate principal amount
of all Tranche 2 Loans incurred by ARC shall exceed ARC’s Sublimit, ARC shall
pay or deliver to the Collateral Agent on such date an amount of Cash and/or
Cash Equivalents equal to the amount of such excess, such Cash and/or Cash
Equivalents to be held as security for all obligations of ARC to the respective
Lenders hereunder in a cash collateral account to be established by the
Administrative Agent on terms reasonably satisfactory to the Administrative
Agent.

 

(g)           If on any date prior to the Commitment Expiration Date, the sum of the
aggregate outstanding principal amount of Tranche 2 Loans plus the
Tranche 2 Letter of Credit Outstandings exceeds the Total Tranche 2 Commitment
as then in effect, each Tranche 2/3 Borrower to whom Tranche 2 Loans were made
and/or for whose account Tranche 2 Letters of Credit were issued shall on such
date repay the outstanding Tranche 2 Loans in an aggregate principal amount
equal to the amount by which the aggregate outstanding principal amount of
Tranche 2 Loans plus the Tranche 2 Letter of Credit Outstandings exceeds
the Total Tranche 2 Commitment as then in effect.  If, after giving effect to the prepayment of all outstanding
Tranche 2 Loans, as set forth above, the Tranche 2 Letter of Credit
Outstandings exceed the Total Tranche 2 Commitment, each Tranche 2/3 Borrower
for whose account Tranche 2 Letters of Credit were issued shall on such date
pay to the Administrative Agent at the Payment Office an amount of Cash and/or
Cash Equivalents equal to the amount of such excess, such Cash and/or Cash
Equivalents to be held as security for all obligations of the respective
Tranche 2/3 Borrower to the Tranche 2 Lenders hereunder in a cash collateral
account to be established by the Administrative Agent on terms reasonably
satisfactory to the Administrative Agent.

 

(h)           If on any date the aggregate outstanding principal amount of Tranche 3
Loans exceeds the Total Tranche 3 Commitment as then in effect, the Parent
Borrower shall on such date repay the outstanding Tranche 3 Loans in an
aggregate principal amount equal to the amount by which the aggregate
outstanding principal amount of Tranche 3 Loans exceeds the Total Tranche 3
Commitment as then in effect.

 

(i)            If on any date, after giving effect to any
other prepayment of outstanding Loans on such date, the sum of the aggregate
outstanding principal amount of all Tranche 2 Loans incurred by ARC plus
the Tranche 2 Letter of Credit Outstandings attributable to ARC exceeds
$100,000,000, ARC shall on such date repay the outstanding Loans incurred by it
in an

 

38

 

aggregate principal amount equal to such
excess.  If, after giving effect to the
prepayment of all outstanding Loans incurred by ARC, as set forth above, the
Tranche 2 Letter of Credit Outstandings applicable to ARC exceed $100,000,000,
ARC shall pay or deliver to the Collateral Agent on such date an amount of Cash
and/or Cash Equivalents in an aggregate amount equal to the amount of such
excess, with any such Cash or Cash Equivalents to be held as additional
security for all obligations of ARC hereunder in a cash collateral account to
be established by the Administrative Agent on terms reasonably satisfactory to
the Administrative Agent.

 

(j)            In addition to any other mandatory repayments
or commitment reductions provided herein, on each date on or after the
Effective Date on which the Parent Borrower or any of its Subsidiaries receives
any cash proceeds from any issuance of public debt by the Parent Borrower or
any of its Subsidiaries in a capital markets transaction, an amount equal to
50% of the Net Cash Proceeds of the respective issuance of public debt shall be
applied to reduce the Loan Sublimit.  If
on any date the aggregate outstanding principal amount of all Tranche 2 Loans
and Tranche 3 Loans exceeds the Loan Sublimit, each Tranche 2/3 Borrower to
whom Tranche 2 Loans and Tranche 3 Loans were made shall on such date repay the
outstanding Tranche 2 Loans and Tranche 3 Loans in an aggregate principal
amount equal to the amount by which the aggregate outstanding principal amount
of Tranche 2 Loans and Tranche 3 Loans exceeds the Loan Sublimit as then in
effect (with such repayment to be applied pro  rata to the
outstanding Tranche 2 Loans and Tranche 3 Loans).

 

(k)           With respect to each prepayment of Loans required by Sections 2.10(g),
(h), (i) or (j), (x) the respective Tranche 2/3 Borrower may designate the Type
(and, in the case of prepayments required by Section 2.10(i), the Tranche) of
Loans to be prepaid and the specific Borrowing or Borrowings pursuant to which
such Loans were made, provided that (i) if any prepayment of Eurodollar
Loans made pursuant to a single Borrowing shall reduce the outstanding
Eurodollar Loans made pursuant to such Borrowing to an amount less than
$5,000,000 for such Borrowing, then all Eurodollar Loans outstanding pursuant
to such Borrowing shall be immediately converted into a Borrowing of ABR Loans,
(ii) each prepayment of Loans made pursuant to the same Borrowing shall be
applied pro  rata among the Loans comprising such Borrowing and
(iii) each such prepayment of Loans shall consist of a pro  rata
prepayment of Tranche 2 Loans and Tranche 3 Loans on the basis of the Tranche 2
Revolving Percentage and the Tranche 3 Revolving Percentage, in each case as in
effect at the time of any such prepayment. 
In the absence of a designation by the respective Tranche 2/3 Borrower
as described in the preceding sentence, the Administrative Agent shall, subject
to the above, make such designation in its sole discretion.

 

(l)            Notwithstanding the foregoing provisions of
this Section 2.10, if at any time the mandatory repayment of Loans pursuant to
Section 2.10(g), (h), (i) or (j) would result in any Tranche 2/3 Borrower
incurring breakage costs under Section 2.15 as a result of Eurodollar Loans
being repaid other than on the last day of an Interest Period applicable hereto
(any such Eurodollar Loans, “Affected Loans”), such Tranche 2/3 Borrower may
elect, by written notice to the Administrative Agent, to have the provisions of
the following sentence be applicable so long as no Default or Event of Default
then exists.  At the time any Affected
Loans are otherwise required to be prepaid, such Tranche 2/3 Borrower may elect
to deposit 100% (or such lesser percentage elected by such Tranche 2/3 Borrower
as not being repaid) of the principal amounts that otherwise would have been
paid in respect of the Affected Loans with the Administrative

 

39

 

Agent to be held as security for the obligations of
such Tranche 2/3 Borrower hereunder pursuant to a cash collateral agreement to
be entered into in form and substance satisfactory to the Administrative Agent
and shall provide for investments of such deposits as directed by such Tranche
2/3 Borrower and satisfactory to the Administrative Agent, with such cash
collateral to be released from such cash collateral account (and applied to
repay the principal amount of such Eurodollar Loans) upon each occurrence
thereafter of the last day of an Interest Period applicable to such Eurodollar
Loans (or such earlier date or dates as shall be requested by such Tranche 2/3
Borrower, with the amount to be so released and applied on the last day of each
Interest Period to be the amount of such Eurodollar Loans to which such
Interest Period applies (or, if less, the amount remaining in such cash
collateral account); provided that (i) interest in respect of such
Affected Loans shall continue to accrue thereon at the rate provided hereunder
until such Affected Loans have been repaid in full and (ii) at any time while
an Event of Default has occurred and is continuing or upon written notice from
the Required Lenders, the Required Lenders may direct the Administrative Agent
(in which case the Administrative Agent shall, and is hereby authorized by such
Tranche 2/3 Borrower to, follow said directions) to apply any or all proceeds
then on deposit in such collateral account to the payment of such Affected
Loans.  The Tranche 2/3 Borrower agrees
to pay the balance of any Affected Loan if the amount on deposit is not
sufficient.  All risk of loss in respect
of investments made as contemplated in this Section 2.10(l) shall be on such
Tranche 2/3 Borrower.  Under no
circumstances shall the Administrative Agent be liable or accountable to such
Tranche 2/3 Borrower or any other Person for any decrease in the value of the
cash collateral account or for any loss resulting from the sale of any
investment so made.

 

Section 2.11.  Fees.  (a)  ARL, ARC and AIC each
agrees to pay, severally in accordance with its respective Tranche 1 Liability
Percentage and not jointly, the Administrative Agent a facility fee (the
“Tranche 1 Facility Fee”) for the account of the Tranche 1 Lenders pro  rata
on the basis of (i) prior to the earlier of the date the Total Tranche 1
Commitment terminates and the Commitment Expiration Date, their respective
Tranche 1 Commitments and (ii) on or after the earlier of the date the Total
Tranche 1 Commitment terminates and the Commitment Expiration Date, their
respective Tranche 1 Percentages of Tranche 1 Letter of Credit Outstandings at
such time, in each case for the period from and including the Effective Date to
but not including the Final Maturity Date, computed at a per annum rate
equal to the Applicable Rate for Tranche 1 Facility Fees of (x) in the case of
clause (i) of this Section 2.11(a), the Total Tranche 1 Commitment (as in
effect from time to time) (regardless of utilization) and (y) in the case of
clause (ii) of this Section 2.11(a), the Tranche 1 Letter of Credit
Outstandings at such time.  Accrued
Tranche 1 Facility Fees shall be due and payable quarterly in arrears on the
last Business Day of each calendar quarter and on the Final Maturity Date and,
with respect to any Tranche 1 Facility Fee owing to any Tranche 1 Lender which
is replaced pursuant to Section 2.18, on the date on which such Tranche 1
Lender is replaced.

 

(b)           The Parent Borrower and ARC each agrees to pay, severally in accordance
with its respective Tranche 2/3 Liability Percentage and not jointly, the
Administrative Agent a facility fee (the “Tranche 2 Facility Fee”) for the
account of the Tranche 2 Lenders pro  rata on the basis of (i)
prior to the earlier of the date the Total Tranche 2 Commitment terminates and
the Commitment Expiration Date, their respective Tranche 2 Commitments and (ii)
on or after the earlier of the date the Total Tranche 2 Commitment terminates
and the Commitment Expiration Date, their respective Tranche 2 Percentage of
Tranche 2 Letter of Credit Outstandings at such

 

40

 

time, in each case for the period from and including
the Effective Date to but not including the Final Maturity Date, computed at a per
annum rate equal to the Applicable Rate for Tranche 2 Facility Fees of (x)
in the case of clause (i) of this Section 2.11(b), the Total Tranche 2
Commitment (as in effect from time to time) (regardless of utilization) and (y)
in the case of clause (ii) of this Section 2.11(b), the Tranche 2 Letter of Credit
Outstandings at such time.  Accrued
Tranche 2 Facility Fees shall be due and payable quarterly in arrears on the
last Business Day of each calendar quarter and on the Final Maturity Date and,
with respect to any Tranche 2 Facility Fee owing to any Tranche 2 Lender which
is replaced pursuant to Section 2.18, on the date on which such Tranche 2
Lender is replaced.

 

(c)           The Parent Borrower agrees to pay the Administrative Agent a facility
fee (the “Tranche 3 Facility Fee”) for the account of the Tranche 3 Lenders pro
rata on the basis of their respective Tranche 3 Commitments for the
period from and including the Effective Date to but not including the earlier
of the date the Total Tranche 3 Commitment terminates and the Commitment
Expiration Date, computed at a per annum rate equal to the Applicable
Rate for Tranche 3 Facility Fees of the Total Tranche 3 Commitment (as in
effect from time to time) (regardless of utilization).  Accrued Tranche 3 Facility Fees shall be due
and payable quarterly in arrears on the last Business Day of each calendar
quarter and on the earlier of the date the Total Tranche 3 Commitment
terminates and the Commitment Expiration Date and, with respect to any Tranche
3 Facility Fee owing to any Tranche 3 Lender which is replaced pursuant to
Section 2.18, on the date on which such Tranche 3 Lender is replaced.

 

(d)           The Parent Borrower and ARC each agrees to pay, severally in accordance
with its respective Tranche 2/3 Liability Percentage and not jointly, to the
Administrative Agent a utilization fee (the “Tranche 2 Utilization Fee”) for
the account of the Tranche 2 Lenders pro  rata on the basis of
their respective Tranche 2 Loans then outstanding for the period from and
including the Effective Date to but not including the earlier of the date the
Total Tranche 2 Commitment terminates and the Commitment Expiration Date,
computed at a rate per annum equal to the Applicable Rate for Tranche 2
Utilization Fees of the aggregate outstanding amount of Tranche 2 Loans at any
time when the aggregate outstanding amount of Tranche 2 Loans and Tranche 3
Loans incurred by all Tranche 2/3 Borrowers is greater than 50% of the sum of
the Total Tranche 2 Commitment and the Total Tranche 3 Commitment (each as in
effect from time to time).  Accrued
Tranche 2 Utilization Fees shall be due and payable quarterly in arrears on the
last Business Day of each calendar quarter and, with respect to any Tranche 2
Utilization Fee owing to any Tranche 2 Lender which is replaced pursuant to
Section 2.18, on the date on which such Tranche 2 Lender is replaced.

 

(e)           The Parent Borrower agrees to pay to the Administrative Agent a
utilization fee (the “Tranche 3 Utilization Fee”) for the account of the
Tranche 3 Lenders pro  rata on the basis of their respective
Tranche 3 Loans then outstanding for the period from and including the
Effective Date to but not including the earlier of the date the Total Tranche 3
Commitment terminates and the Commitment Expiration Date, computed at a rate
per annum equal to the Applicable Rate for Tranche 3 Utilization Fees of the
aggregate outstanding amount of Tranche 3 Loans at any time when the aggregate
outstanding amount of Tranche 2 Loans and Tranche 3 Loans incurred by all
Tranche 2/3 Borrowers is greater than 50% of the sum of the Total Tranche 2
Commitment and the Total Tranche 3 Commitment (each as in effect from time to
time).  Accrued Tranche 3 Utilization
Fees shall be due and payable quarterly in arrears on the

 

41

 

last Business Day of each calendar quarter and, with
respect to any Tranche 3 Utilization Fee owing to any Tranche 3 Lender which is
replaced pursuant to Section 2.18, on the date on which such Tranche 3 Lender
is replaced.

 

(f)            Each Borrower agrees to pay to the
Administrative Agent for pro  rata distribution to each Tranche 1
Lender (based on their respective Tranche 1 Percentages), a fee in respect of
each Tranche 1 Letter of Credit (the “Tranche 1 Letter of Credit Fee”) issued
for the account of such Borrower computed at a rate per  annum
equal to the Applicable Rate for Tranche 1 Letter of Credit Fees, on the daily
Stated Amount of such Tranche 1 Letter of Credit.  Accrued Tranche 1 Letter of Credit Fees shall be due and payable
quarterly in arrears on the last Business Day of each calendar quarter and upon
the first day on or after the termination of the Total Tranche 1 Commitment
upon which no Tranche 1 Letters of Credit remain outstanding.

 

(g)           Each Borrower agrees to pay to the Administrative Agent for pro  rata
distribution to each Tranche 2 Lender (based on their respective Tranche 2
Percentages), a fee in respect of each Tranche 2 Letter of Credit (the “Tranche
2 Letter of Credit Fee”) issued for the account of such Borrower computed at a
rate per  annum equal to the Applicable Rate for Tranche 2 Letter
of Credit Fees, on the daily Stated Amount of such Tranche 2 Letter of Credit.
Accrued Tranche 2 Letter of Credit Fees shall be due and payable quarterly in
arrears on the last Business Day of each calendar quarter and upon the first
day on or after the termination of the Total Tranche 2 Commitment upon which no
Tranche 2 Letters of Credit remain outstanding.

 

Section 2.12.  Interest.  (a)  The Loans comprising
each ABR Borrowing shall bear interest at the Alternate Base Rate plus the
Applicable Rate.

 

(b)           The Loans comprising each Eurodollar Borrowing shall bear interest at
the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Rate.

 

(c)           Notwithstanding the foregoing, if any principal of or interest on any
Loan or any fee or other amount payable by any Borrower hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus
the rate otherwise applicable to such Loan as provided in the preceding
paragraphs of this Section 2.12 or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section 2.12.

 

(d)           Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and on the Commitment Expiration Date; provided
that (i) interest accrued pursuant to paragraph (c) of this Section 2.12 shall
be payable on demand, (ii) in the event of any repayment or prepayment of any
Loan (other than a prepayment of an ABR Loan prior to the Commitment Expiration
Date), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.

 

42

 

(e)           All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and in each
case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). 
The applicable Alternate Base Rate or Adjusted LIBO Rate shall be
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error.

 

Section 2.13.  Alternate Rate of Interest.  If prior to the commencement of any Interest
Period for a Eurodollar Borrowing:

 

(a)           the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or

 

(b)           the Administrative Agent is advised by the Required Lenders that the
Adjusted LIBO Rate for such Interest Period will not adequately and fairly
reflect the cost to such Lenders of making or maintaining their Loans included
in such Borrowing for such Interest Period;

 

then
the Administrative Agent shall give notice thereof to the respective Tranche
2/3 Borrower and the relevant Lenders by telephone or telecopy as promptly as
practicable thereafter and, until the Administrative Agent notifies such
Tranche 2/3 Borrower and the relevant Lenders that the circumstances giving
rise to such notice no longer exist, (i) in the case of clauses (a) and (b)
above, any Interest Election Request that requests the conversion of any
Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall
be ineffective and (ii) if any Borrowing Request requests a Eurodollar
Borrowing, such Borrowing shall be made as an ABR Borrowing.

 

Section 2.14.  Increased Costs.  (a) 
If any Change in Law shall:

 

(i)            impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate);  or

 

(ii)           impose on any Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender;

 

and
the result of any of the foregoing shall be to increase the cost to such Lender
of making or maintaining any Eurodollar Loan (or of maintaining its obligation
to make any such Loan) or to increase the cost to such Lender or to reduce the
amount of any sum received or receivable by such Lender hereunder (whether of
principal, interest or otherwise), then the Parent Borrower, ARL, ARC and AIC
each will pay, severally in accordance with its respective Facility-wide
Liability Percentage and not jointly, to such Lender, as the case may be, such
additional amount or amounts as will compensate such Lender, as the case may
be, for such additional costs incurred or reduction suffered.

 

43

 

(b)           If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on
such Lender’s capital or on the capital of such Lender’s holding company, if
any, as a consequence of this Agreement or the Loans made by such Lender, to a
level below that which such Lender or such Lender’s holding company could have
achieved but for such Change in Law (taking into consideration such Lender’s
policies and the policies of such Lender’s holding company with respect to
capital adequacy), then from time to time the Parent Borrower ARL, ARC and AIC
each will pay, severally in accordance with its respective Facility-wide
Liability Percentage and not jointly, to such Lender such additional amount or
amounts as will compensate such Lender or such Lender’s holding company for any
such reduction suffered.

 

(c)           A certificate of a Lender setting forth the amount or amounts necessary
to compensate such Lender or its holding company, as the case may be, as
specified in paragraph (a) or (b) of this Section shall be delivered to the
respective Tranche 2/3 Borrower and shall be conclusive absent manifest error.  Such Tranche 2/3 Borrower shall pay such
Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.  

 

(d)           Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender’s right
to demand such compensation; provided that no Tranche 2/3 Borrower shall
be required to compensate a Lender pursuant to this Section for any increased
costs or reductions incurred more than 90 days prior to the date that such Lender
notifies such Tranche 2/3 Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender’s intention to claim
compensation therefor; provided, further, that, if the Change in
Law giving rise to such increased costs or reductions is retroactive, then the
90-day period referred to above shall be extended to include the period of
retroactive effect thereof.

 

Section 2.15.  Break Funding Payments.  In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of a mandatory prepayment
under Section 2.10 or an Event of Default), (b) the conversion of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar
Loan on the date specified in any notice delivered pursuant hereto (regardless
of whether such notice may be revoked under Section 2.10(b) and is revoked in
accordance therewith), or (d) the assignment of any Eurodollar Loan other than
on the last day of the Interest Period applicable thereto as a result of a
request by a Borrower pursuant to Section 2.18, then, in any such event, such
Tranche 2/3 Borrower shall compensate each Lender for the loss, cost and
expense attributable to such event.  In
the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall
be deemed to include an amount determined by such Lender to be the excess, if
any, of (i) the amount of interest which would have accrued on the principal
amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that
would have been applicable to such Loan, for the period from the date of such
event to the last day of the then current Interest Period therefor (or, in the
case of a failure to borrow, convert or continue, for the period that would
have been the Interest Period for such Loan), over (ii) the amount of interest
which would accrue on such principal amount for such period at the interest
rate which such Lender would bid were it to bid, at the commencement of such
period, for dollar deposits of a comparable amount and period from other banks
in the Eurodollar market.  A certificate
of any Lender setting forth any amount

 

44

 

or amounts that such Lender is entitled to
receive pursuant to this Section shall be delivered to the respective Tranche
2/3 Borrower and shall be conclusive absent manifest error.  Such Tranche 2/3 Borrower shall pay such
Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

 

Section 2.16.  Taxes.  (a)  Any and all payments
by or on account of any obligation of any Borrower hereunder shall be made free
and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided
that if any Borrower shall be required to deduct any Indemnified Taxes or Other
Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) the Administrative
Agent or Lender (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) such Borrower shall
make such deductions and (iii) such Borrower shall pay the full amount deducted
to the relevant Governmental Authority in accordance with applicable law.  

 

(b)           In addition, each Borrower shall pay, severally and not jointly, any
Other Taxes to the relevant Governmental Authority in accordance with
applicable law.

 

(c)           Each Borrower shall indemnify, severally and not jointly, the
Administrative Agent and each Lender within 10 days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes that such
Borrower failed to deduct or withhold and that were paid by the Administrative
Agent or such Lender on or with respect to any payment by or on account of any
obligation of such Borrower hereunder (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority.  A certificate as to the
amount of such payment or liability delivered to such Borrower by a Lender or
by the Administrative Agent on its own behalf or on behalf of a Lender, shall
be conclusive absent manifest error.  

 

(d)           As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by any Borrower to a Governmental Authority, such Borrower shall deliver
to the Administrative Agent the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of the
return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.

 

(e)           Each Foreign Lender shall deliver to each Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law, such
properly completed and executed documentation prescribed by applicable law or
reasonably requested by such Borrower (if any), or will comply with such other
requirements, if any, as is currently applicable, as will permit payments under
this Agreement to be made without withholding or at a reduced rate; provided,
however, that such Borrower shall have furnished to each such Lender in
a reasonably timely manner copies of such documentation and notice of such
requirements together with applicable instructions; provided, further,
that no such Lender shall have any obligation to provide such documentation or
comply with such requirements if it would result in a material economic, legal
or regulatory disadvantage to any such Lender.

 

45

 

(f)            If the Administrative Agent or a Lender
determines, in its sole discretion, that it has received a refund of any Taxes
or Other Taxes as to which it has been indemnified by a Borrower or with
respect to which a Borrower has paid additional amounts pursuant to this
Section 2.16, it shall pay over such refund to such Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by such Borrower
under this Section 2.16 with respect to the Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of the Administrative Agent or
such Lender and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund); provided, that such
Borrower, upon the request of the Administrative Agent or such Lender, agrees
to repay the amount paid over to such Borrower (plus any penalties, interest or
other charges imposed by the relevant Governmental Authority) to the
Administrative Agent or such Lender in the event the Administrative Agent or
such Lender is required to repay such refund to such Governmental Authority.  This Section shall not be construed to
require the Administrative Agent or any Lender to make available its tax
returns (or any other information relating to its taxes which it deems
confidential) to such Borrower or any other Person. 

 

(g)           Any Lender that is not a Lender as of the Effective Date shall not be
entitled to any greater payment under this Section 2.16 than such Lender’s
assignor could have been entitled to absent such assignment except to the
extent that the entitlement to a greater payment resulted from a Change in Law.

 

Section 2.17.  Payments Generally; Pro Rata Treatment;
Sharing of Set-offs.  (a)  Each Borrower shall make each payment
required to be made by it hereunder (whether of principal, interest, fees or of
amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 12:00
noon, New York City time, on the date when due, in immediately available funds,
without set-off or counterclaim in Dollars. 
Any amounts received after such time on any date may, in the discretion
of the Administrative Agent, be deemed to have been received on the next
succeeding Business Day for purposes of calculating interest thereon.  All such payments shall be made to the
Administrative Agent at its offices at 270 Park Avenue, New York, New York,
except that payments pursuant to Sections 2.14, 2.15, 2.16 and 10.03 shall be
made directly to the Persons entitled thereto. 
The Administrative Agent shall distribute any such payments received by
it for the account of any other Person to the appropriate recipient promptly
following receipt thereof.  If any
payment hereunder shall be due on a day that is not a Business Day, the date
for payment shall be extended to the next succeeding Business Day, and, in the
case of any payment accruing interest, interest thereon shall be payable for the
period of such extension.  

 

(b)           If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, interest and fees
then due hereunder, such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, towards payment of principal then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal then due to such parties.

 

(c)           If
any Lender shall, by exercising any right of set-off or counterclaim or
otherwise, obtain payment in respect of any particular Obligation resulting in
such Lender receiving payment of a greater proportion of such Obligation than the proportion of such

 

46

 

Obligation received by any other Lender, then the
Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the related Obligations of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate of such Obligations; provided
that (i) if any such participations are purchased and all or any portion of the
payment giving rise thereto is recovered, such participations shall be
rescinded and the purchase price restored to the extent of such recovery,
without interest, (ii) the provisions of this paragraph shall not be construed
to apply to any payment made by a Borrower pursuant to and in accordance with
the express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans to any assignee or participant, other than to any Borrower or any
Subsidiary or Affiliate thereof (as to which the provisions of this paragraph
shall apply) and (iii) the provisions of this paragraph shall not be construed
to apply to any payment received by any Tranche 1 Lender pursuant to the terms
of the Security Documents.  Each
Borrower consents to the foregoing and agrees, to the extent it may effectively
do so under applicable law, that any Lender acquiring a participation pursuant
to the foregoing arrangements may exercise against such Borrower rights of
set-off and counterclaim with respect to such participation as fully as if such
Lender were a direct creditor of such Borrower in the amount of such
participation.

 

(d)           Unless the Administrative Agent shall have received notice from a
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that such Borrower will not make
such payment, the Administrative Agent may assume that such Borrower has made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due.  In such event, if such Borrower has not in fact made such
payment, then each of the Lenders severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation.

 

(e)           If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.04(b) or 2.17(d), then the Administrative Agent may, in
its discretion (notwithstanding any contrary provision hereof), apply any
amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such Lender’s obligations under such Sections until all such
unsatisfied obligations are fully paid.

 

Section 2.18.  Mitigation Obligations; Replacement of
Lenders.  (a)  If any Lender requests compensation under
Section 2.14, 3A.04 or 3B.04, or if a Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account
of any Lender pursuant to Section 2.16, then such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its
Loans or Letters of Credit hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
judgment of such Lender, such designation or assignment (i) would eliminate or
reduce amounts payable pursuant to Section 2.14, 2.16, 3A.04 or 3B.04, as the
case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender.  The Parent Borrower, ARL, ARC and
AIC each agrees to pay, severally in accordance with its respective
Facility-wide Liability Percentage and

 

47

 

not jointly, all reasonable costs and
expenses incurred by any Lender in connection with any such designation or
assignment.

 

(b)           If any Lender requests compensation under Section 2.14, 3A.04 or 3B.04,
or if a Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
respective Borrower may, at its sole expense and effort, upon notice to such
Lender and the Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in Section 10.04), all its interests, rights and obligations under
this Agreement to an assignee that shall assume such obligations (which
assignee may be another Lender, if such Lender accepts such assignment); provided
that (i) such Borrower shall have received the prior written consent of the
Administrative Agent, which consent shall not unreasonably be withheld, (ii)
such Lender shall have received payment of an amount equal to the outstanding
principal of its Loans, accrued interest thereon, accrued fees and all other
amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or the respective Borrower
(in the case of all other amounts), (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.14, 3A.04 or 3B.04 or
payments required to be made pursuant to Section 2.16, such assignment will
result in a reduction in such compensation or payments and (iv) no assignments
pursuant to this Section 2.18 shall be effective until all then outstanding
Letters of Credit are returned by each respective beneficiary to the Issuing
Agent for cancellation or exchange for new or amended Letters of Credit which
give effect to such assignment (it being understood that to the extent the
respective beneficiaries do not consent to such assignment, such assignment
cannot occur).  A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling
such Borrower to require such assignment and delegation cease to apply. 

 

Section 2.19.  Additional Tranche 1 Commitments.  (a) 
The Designated Subsidiary Borrowers shall have the right at any time and
from time to time after the Effective Date and prior to the Commitment
Expiration Date to request (so long as no Default of Event or Default is then
in existence or would result therefrom) on one or more occasions that one or
more Tranche 1 Lenders (and/or one or more other Persons which will become
Tranche 1 Lenders as provided pursuant to clause (vi) below) provide Additional
Tranche 1 Commitments and, subject to the applicable terms and conditions
contained in this Agreement and the relevant Additional Tranche 1 Commitment
Agreement, issue Tranche 1 Letters of Credit; it being understood and agreed,
however, that (i) no Tranche 1 Lender shall be obligated to provide an
Additional Tranche 1 Commitment as a result of any request by the Designated
Subsidiary Borrowers, (ii) until such time, if any, as (x) such Tranche 1
Lender has agreed in its sole discretion to provide an Additional Tranche 1
Commitment and executed and delivered to the Administrative Agent an Additional
Tranche 1 Commitment Agreement in respect thereof as provided in Section
2.19(b) and (y) such other conditions set forth in Section 2.19(b) shall have
been satisfied, such Tranche 1 Lender shall not be obligated to issue any
Tranche 1 Letters of Credit, in excess of the amounts provided for in Section
3A.01, as the case may be, before giving effect to such Additional Tranche 1
Commitments provided pursuant to this Section 2.19, (iii) any Tranche 1 Lender
(and/or one or more other Persons which will become Tranche 1 Lenders as
provided pursuant to clause (vi) below) may so provide an Additional Tranche 1
Commitment

 

48

 

without the consent of any other Tranche 1
Lender (it being understood and agreed that the consent of the Administrative
Agent and the Issuing Agent (such consent (in either case) not to be
unreasonably withheld or delayed) shall be required if any such Additional
Tranche 1 Commitments are to be provided by a Person which is not already a
Tranche 1 Lender), (iv) (x) each provision of Additional Tranche 1 Commitments
on a given date pursuant to this Section 2.19 shall be in a minimum aggregate
amount (for all Tranche 1 Lenders (including, in the circumstances contemplated
by clause (vi) below, banks or other financial institutions who will become
Tranche 1 Lenders)) of at least $1,000,000 and (y) the aggregate amount of
Additional Tranche 1 Commitments provided pursuant to this Section 2.19 shall
not exceed $50,000,000, (v) the up-front fees payable to any Person providing
an Additional Tranche 1 Commitment in accordance with this Section 2.19 shall
be as set forth in the relevant Additional Tranche 1 Commitment Agreement, (vi)
if, on or after the tenth Business Day following the request by the Designated
Subsidiary Borrowers of the then existing Tranche 1 Lenders (other than
Defaulting Lenders) to provide Additional Tranche 1 Commitments pursuant to
this Section 2.19 on the terms to be applicable thereto, the Designated
Subsidiary Borrowers have not received Additional Tranche 1 Commitments in an
aggregate amount equal to that amount of the Additional Tranche 1 Commitments
which the Designated Subsidiary Borrowers desire to obtain pursuant to such
request (as set forth in the notice provided by the Designated Subsidiary
Borrowers to the Administrative Agent as provided above), then the Designated
Subsidiary Borrowers may request Additional Tranche 1 Commitments from other
Lenders and/or other NAIC approved banks or financial institutions (unless
otherwise agreed by the Designated Subsidiary Borrowers and the Administrative
Agent) in an aggregate amount equal to such deficiency on terms which are no
more favorable to such other bank or financial institution in any respect than
the terms offered to the existing Tranche 1 Lenders, and (vii) all actions
taken by the Designated Subsidiary Borrowers pursuant to this Section 2.19
shall be done in coordination with the Administrative Agent.

 

(b)           At the time of any provision of Additional Tranche 1 Commitments
pursuant to this Section 2.19, (i) each Designated Subsidiary Borrower, the
Administrative Agent, the Guarantor and each such Tranche 1 Lender or other
bank or financial institution which agrees to provide an Additional Tranche 1
Commitment (each, an “Additional Tranche 1 Lender”) shall execute and deliver
to the Administrative Agent an Additional Tranche 1 Commitment Agreement
substantially in the form of Exhibit I-1, subject to such modifications in form
and substance reasonably satisfactory to the Administrative Agent as may be
necessary or appropriate (with the effectiveness of such Additional Tranche 1
Lender’s Additional Tranche 1 Commitment to occur upon delivery of such
Additional Tranche 1 Commitment Agreement to the Administrative Agent, the
payment of any fees required in connection therewith and the satisfaction of
the other conditions in this Section 2.19 to the reasonable satisfaction of the
Administrative Agent), (ii) all of the outstanding Tranche 1 Letters of Credit
shall have been returned by each respective beneficiary to the Issuing Agent
and shall either have been cancelled and/or exchanged for new or amended
Tranche 1 Letters of Credit which give effect to such Additional Tranche 1
Commitment, (iii) if such Additional Tranche 1 Lender is not a United States
person (as such term is defined in Section 7701(a)(3) of the Code) for U.S.
Federal income tax purposes and such Additional Tranche 1 Lender is issuing
Letters of Credit for the account of a U.S. Borrower or U.S. Borrowers, such
Additional Tranche 1 Lender shall provide to such U.S. Borrower or U.S.
Borrowers the appropriate Internal Revenue Service documentation described in
Section 2.16, (iv) each Designated Subsidiary Borrower shall deliver to the
Administrative

 

49

 

Agent resolutions authorizing the incurrence of the
Obligations to be incurred pursuant to each Additional Tranche 1 Commitment,
together with evidence of good standing of such Designated Subsidiary Borrower
(if requested) and (v) each Designated Subsidiary Borrower shall deliver to the
Administrative Agent an opinion, in form and substance reasonably satisfactory
to the Administrative Agent, from counsel to such Designated Subsidiary
Borrowers reasonably satisfactory to the Administrative Agent and dated such
date, covering such matters similar to those set forth in the opinions of
counsel delivered to the Lenders on the Effective Date pursuant to Section
5.01(b) and such other matters as the Administrative Agent may reasonably
request.  The Administrative Agent shall
promptly notify each Tranche 1 Lender as to the occurrence of each Additional
Tranche 1 Commitment Date, and (x) on each such date, the Total Tranche 1
Commitment under, and for all purposes of, this Agreement shall be increased by
the aggregate amount of such Additional Tranche 1 Commitments and (y) on each
such date, Schedule 2.01 shall be deemed modified to reflect the revised
Tranche 1 Commitments of the affected Tranche 1 Lenders.

 

Section 2.20.  Additional Tranche 2 Commitments.  (a) 
The Tranche 2/3 Borrowers shall have the right at any time and from time
to time after the Effective Date and prior to the Commitment Expiration Date to
request (so long as no Default of Event or Default is then in existence or
would result therefrom) on one or more occasions that one or more Tranche 2
Lenders (and/or one or more other Persons which will become Tranche 2 Lenders
as provided pursuant to clause (vi) below) provide Additional Tranche 2
Commitments and, subject to the applicable terms and conditions contained in
this Agreement and the relevant Additional Tranche 2 Commitment Agreement, make
Tranche 2 Loans and issue Tranche 2 Letters of Credit; it being understood and
agreed, however, that (i) no Tranche 2 Lender shall be obligated to provide an
Additional Tranche 2 Commitment as a result of any request by the Tranche 2/3
Borrowers, (ii) until such time, if any, as (x) such Tranche 2 Lender has
agreed in its sole discretion to provide an Additional Tranche 2 Commitment and
executed and delivered to the Administrative Agent an Additional Tranche 2
Commitment Agreement in respect thereof as provided in Section 2.20(b) and (y)
such other conditions set forth in Section 2.20(b) shall have been satisfied,
such Tranche 2 Lender shall not be obligated to fund any Tranche 2 Loans, or
issue any Tranche 2 Letters of Credit, in excess of the amounts provided for in
Section 2.01(a) or 3B.01, as the case may be, before giving effect to such
Additional Tranche 2 Commitments provided pursuant to this Section 2.20, (iii)
any Tranche 2 Lender (and/or one or more other Persons which will become
Tranche 2 Lenders as provided pursuant to clause (vi) below) may so provide an
Additional Tranche 2 Commitment without the consent of any other Tranche 2
Lender (it being understood and agreed that the consent of the Administrative
Agent and the Issuing Agent (such consent (in either case) not to be
unreasonably withheld or delayed) shall be required if any such Additional
Tranche 2 Commitments are to be provided by a Person which is not already a
Tranche 2 Lender), (iv) (x) each provision of Additional Tranche 2 Commitments
on a given date pursuant to this Section 2.20 shall be in a minimum aggregate
amount (for all Tranche 2 Lenders (including, in the circumstances contemplated
by clause (vi) below, banks or other financial institutions who will become
Tranche 2 Lenders)) of at least $1,000,000 and (y) the aggregate amount of
Additional Tranche 2 Commitments provided pursuant to this Section 2.20, when
added to the Additional Tranche 3 Commitments provided pursuant to Section
2.21, shall not exceed $50,000,000, (v) the up-front fees payable to any Person
providing an Additional Tranche 2 Commitment in accordance with this Section
2.20 shall be as set forth in the relevant Additional Tranche 2 Commitment
Agreement, (vi) if, on or after the tenth Business Day

 

50

 

following the request by the Tranche 2/3
Borrowers of the then existing Tranche 2 Lenders (other than Defaulting
Lenders) to provide Additional Tranche 2 Commitments pursuant to this Section
2.20 on the terms to be applicable thereto, the Tranche 2/3 Borrowers have not
received Additional Tranche 2 Commitments in an aggregate amount equal to that
amount of the Additional Tranche 2 Commitments which the Tranche 2/3 Borrowers
desire to obtain pursuant to such request (as set forth in the notice provided
by the Tranche 2/3 Borrowers to the Administrative Agent as provided above),
then the Tranche 2/3 Borrowers may request Additional Tranche 2 Commitments
from other Lenders and/or other NAIC approved banks or financial institutions
(unless otherwise agreed by the Tranche 2/3 Borrowers and the Administrative
Agent) in an aggregate amount equal to such deficiency on terms which are no
more favorable to such other bank or financial institution in any respect than
the terms offered to the existing Tranche 2 Lenders, and (vii) all actions
taken by the Tranche 2/3 Borrowers pursuant to this Section 2.20 shall be done
in coordination with the Administrative Agent.

 

(b)           At the time of any provision of Additional Tranche 2 Commitments
pursuant to this Section 2.20, (i) each Tranche 2/3 Borrower, the
Administrative Agent, the Guarantor and each such Tranche 2 Lender or other
bank or financial institution which agrees to provide an Additional Tranche 2
Commitment (each, an “Additional Tranche 2 Lender”) shall execute and deliver
to the Administrative Agent an Additional Tranche 2 Commitment Agreement substantially
in the form of Exhibit I-2, subject to such modifications in form and substance
reasonably satisfactory to the Administrative Agent as may be necessary or
appropriate (with the effectiveness of such Additional Tranche 2 Lender’s
Additional Tranche 2 Commitment to occur upon delivery of such Additional
Tranche 2 Commitment Agreement to the Administrative Agent, the payment of any
fees required in connection therewith and the satisfaction of the other
conditions in this Section 2.20 to the reasonable satisfaction of the
Administrative Agent), (ii) the Tranche 2/3 Borrowers shall, in coordination
with the Administrative Agent, repay all outstanding Loans of the Lenders, and
incur new Loans from the Lenders so that each of the Tranche 2 Lenders
participate in each Borrowing pro  rata on the basis of their
respective Tranche 2 Commitments (after giving effect to any increase in the
Total Tranche 2 Commitment pursuant to this Section 2.20) and with the Tranche
2/3 Borrowers being obligated to pay the respective Tranche 2 Lenders the costs
of the type referred to in Section 2.15 in connection with any such repayment
and/or Borrowing, (iii) all of the outstanding Tranche 2 Letters of Credit
shall have been returned by each respective beneficiary to the Issuing Agent
and shall either have been cancelled and/or exchanged for new or amended
Tranche 2 Letters of Credit which give effect to such Additional Tranche 2
Commitment, (iv) if such Additional Tranche 2 Lender is not a United States
person (as such term is defined in Section 7701(a)(3) of the Code) for U.S.
Federal income tax purposes and such Additional Tranche 2 Lender is issuing
Letters of Credit for the account of a U.S. Borrower or U.S. Borrowers, such
Additional Tranche 2 Lender shall provide to such U.S. Borrower or U.S.
Borrowers the appropriate Internal Revenue Service documentation described in
Section 2.16, (v) the Tranche 2/3 Borrowers shall deliver to the Administrative
Agent resolutions authorizing the incurrence of the Obligations to be incurred pursuant
to each Additional Tranche 2 Commitment, together with evidence of good
standing of the Tranche 2/3 Borrowers (if requested) in the case of Tranche 2/3
Borrowers organized under the laws of the United States or any State thereof,
or any other jurisdiction where the concept of “good standing” is applicable,
and (vi) the Tranche 2/3 Borrowers shall deliver to the Administrative Agent an
opinion, in form and substance reasonably satisfactory to the Administrative
Agent, from counsel to the Tranche 2/3 Borrowers reasonably satisfactory to

 

51

 

the Administrative Agent and dated such date,
covering such matters similar to those set forth in the opinions of counsel
delivered to the Lenders on the Effective Date pursuant to Section 5.01(b) and
such other matters as the Administrative Agent may reasonably request.  The Administrative Agent shall promptly
notify each Tranche 2 Lender and Tranche 3 Lender as to the occurrence of each
Additional Tranche 2 Commitment Date, and (w) on each such date, the Total
Tranche 2 Commitment under, and for all purposes of, this Agreement shall be
increased by the aggregate amount of such Additional Tranche 2 Commitments, (x)
on each such date Schedule 2.01 shall be deemed modified to reflect the revised
Tranche 2 Commitments of the affected Tranche 2 Lenders and (y) upon surrender
of any old Tranche 2 Notes by the respective Additional Tranche 2 Lender (or,
if lost, a standard lost note indemnity in form and substance reasonably satisfactory
to the respective Tranche 2/3 Borrower), to the extent requested by any
Additional Tranche 2 Lender, a new Tranche 2 Note will be issued, at the
respective Tranche 2/3 Borrower’s expense, to such Additional Tranche 2 Lender,
to be in conformity with the requirements of Section 2.09(e) (with appropriate
modifications) to the extent needed to reflect the revised Tranche 2 Commitment
of such Tranche 2 Lender.

 

Section 2.21.  Additional Tranche 3 Commitments.  (a) 
The Parent Borrower shall have the right at any time and from time to
time after the Effective Date and prior to the Commitment Expiration Date to
request (so long as no Default or Event of Default is then in existence or
would result therefrom) on one or more occasions that one or more Tranche 3
Lenders (and/or one or more other Persons which will become Tranche 3 Lenders
as provided pursuant to clause (vi) below) provide Additional Tranche 3
Commitments and, subject to the applicable terms and conditions contained in
this Agreement and the relevant Additional Tranche 3 Commitment Agreement, make
Tranche 3 Loans; it being understood and agreed, however, that (i) no Tranche 3
Lender shall be obligated to provide an Additional Tranche 3 Commitment as a
result of any request by the Parent Borrower, (ii) until such time, if any, as
(x) such Tranche 3 Lender has agreed in its sole discretion to provide an
Additional Tranche 3 Commitment and executed and delivered to the
Administrative Agent an Additional Tranche 3 Commitment Agreement in respect
thereof as provided in Section 2.21(b) and (y) such other conditions set forth
in Section 2.21(b) shall have been satisfied, such Tranche 3 Lender shall not
be obligated to fund any Tranche 3 Loans, in excess of the amounts provided for
in Section 2.01(b), before giving effect to such Additional Tranche 3
Commitments provided pursuant to this Section 2.21, (iii) any Tranche 3 Lender
(and/or one or more other Persons which will become Tranche 3 Lenders as
provided pursuant to clause (vi) below) may so provide an Additional Tranche 3
Commitment without the consent of any other Tranche 3 Lender (it being
understood and agreed that the consent of the Administrative Agent (such
consent not to be unreasonably withheld or delayed) shall be required if any
such Additional Tranche 3 Commitments are to be provided by a Person which is
not already a Tranche 3 Lender), (iv) (x) each provision of Additional Tranche
3 Commitments on a given date pursuant to this Section 2.21 shall be in a
minimum aggregate amount (for all Tranche 3 Lenders (including, in the
circumstances contemplated by clause (vi) below, banks or other financial
institutions who will become Tranche 3 Lenders)) of at least $1,000,000 and (y)
the aggregate amount of Additional Tranche 3 Commitments provided pursuant to
this Section 2.21, when added to the Additional Tranche 2 Commitments provided
pursuant to Section 2.20, shall not exceed $50,000,000, (v) the up-front fees
payable to any Person providing an Additional Tranche 3 Commitment in
accordance with this Section 2.21 shall be as set forth in the relevant
Additional Tranche 3 Commitment Agreement, (vi) if, on or after the tenth
Business Day following the request by the Parent Borrower of the then existing

 

52

 

Tranche 3 Lenders (other than Defaulting
Lenders) to provide Additional Tranche 3 Commitments pursuant to this Section
2.21 on the terms to be applicable thereto, the Parent Borrower has not
received Additional Tranche 3 Commitments in an aggregate amount equal to that
amount of the Additional Tranche 3 Commitments which the Parent Borrower
desires to obtain pursuant to such request (as set forth in the notice provided
by the Parent Borrower to the Administrative Agent as provided above), then the
Parent Borrower may request Additional Tranche 3 Commitments from other Lenders
and/or other NAIC approved banks or financial institutions (unless otherwise
agreed by the Parent Borrower and the Administrative Agent) in an aggregate
amount equal to such deficiency on terms which are no more favorable to such
other bank or financial institution in any respect than the terms offered to
the existing Tranche 3 Lenders, and (vii) all actions taken by the Parent
Borrower pursuant to this Section 2.21 shall be done in coordination with the
Administrative Agent.

 

(b)           At the time of any provision of Additional Tranche 3 Commitments
pursuant to this Section 2.21, (i) the Parent Borrower, the Administrative
Agent, the Guarantor and each such Tranche 3 Lender or other bank or financial
institution which agrees to provide an Additional Tranche 3 Commitment (each,
an “Additional Tranche 3 Lender”) shall execute and deliver to the
Administrative Agent an Additional Tranche 3 Commitment Agreement substantially
in the form of Exhibit I-3, subject to such modifications in form and substance
reasonably satisfactory to the Administrative Agent as may be necessary or
appropriate (with the effectiveness of such Additional Tranche 3 Lender’s
Additional Tranche 3 Commitment to occur upon delivery of such Additional
Tranche 3 Commitment Agreement to the Administrative Agent, the payment of any
fees required in connection therewith and the satisfaction of the other
conditions in this Section 2.21 to the reasonable satisfaction of the Administrative
Agent), (ii) the Parent Borrower shall, in coordination with the Administrative
Agent, repay all outstanding Loans of the Lenders, and incur new Loans from the
Lenders so that the Tranche 3 Lenders participate in each Borrowing pro  rata
on the basis of their respective Tranche 3 Commitments (after giving effect to
any increase in the Total Tranche 3 Commitment pursuant to this Section 2.21)
and with the Parent Borrower being obligated to pay the respective Tranche 3
Lenders the costs of the type referred to in Section 2.16 in connection with
any such repayment and/or Borrowing, (iii) the Parent Borrower shall deliver to
the Administrative Agent resolutions authorizing the incurrence of the
Obligations to be incurred pursuant to each Additional Tranche 3 Commitment,
together with evidence of good standing of the Parent Borrower (if requested)
in the case of Parent Borrower organized under the laws of the United States or
any State thereof, or any other jurisdiction where the concept of “good standing”
is applicable, and (iv) the Parent Borrower shall deliver to the Administrative
Agent an opinion, in form and substance reasonably satisfactory to the
Administrative Agent, from counsel to the Parent Borrower reasonably
satisfactory to the Administrative Agent and dated such date, covering such
matters similar to those set forth in the opinions of counsel delivered to the
Lenders on the Effective Date pursuant to Section 5.01(b) and such other
matters as the Administrative Agent may reasonably request.  The Administrative Agent shall promptly
notify each Tranche 3 Lender as to the occurrence of each Additional Tranche 3
Commitment Date, and (w) on each such date, the Total Tranche 3 Commitment
under, and for all purposes of, this Agreement shall be increased by the
aggregate amount of such Additional Tranche 3 Commitments, (x) on each such
date Schedule 2.01 shall be deemed modified to reflect the revised Tranche 3
Commitments of the affected Tranche 3 Lenders and (y) upon surrender of any old
Tranche 3 Notes by the respective Additional Tranche 3 Lender (or, if lost, a
standard lost note indemnity in form and substance reasonably satisfactory

 

53

 

to the Parent Borrower), to the extent
requested by any Additional Tranche 3 Lender, a new Tranche 3 Note will be
issued, at the Parent Borrower’s expense, to such Additional Tranche 3 Lender,
to be in conformity with the requirements of Section 2.09(f) (with appropriate
modifications) to the extent needed to reflect the revised Tranche 3 Commitment
of such Tranche 3 Lender.

 

Section 2.22.  Additional Designated Subsidiary
Borrowers.  The Parent Borrower may
from time to time after the Effective Date, with the prior written consent of
the Agents, designate one or more Persons as an additional Designated
Subsidiary Borrower, subject to the following terms and conditions:

 

(a)           each such Person shall be a Wholly-Owned Subsidiary of the Parent
Borrower;

 

(b)           on or prior to the date of designation, each such Person shall enter
into an appropriately completed DSB Assumption Agreement;

 

(c)           on or prior to the date of designation, the Administrative Agent shall
have received from such Person a certificate, signed by an Authorized Officer
of such Person in the form of Exhibit D with appropriate insertions or
deletions, together with (x) copies of its certificate of incorporation,
by-laws or other equivalent organizational documents and (y) resolutions
relating to the Credit Documents which shall be satisfactory to the Administrative
Agent;

 

(d)           on or prior to the date of designation, the Administrative Agent shall
have received an opinion, addressed to the Administrative Agent and each of the
Lenders and dated the date of designation, from counsel to such Person, which
opinion shall (x) in the case of an additional Designated Subsidiary Borrower
located in the United States, be substantially in the form of Exhibit G-l and
otherwise satisfactory to the Administrative Agent, (y) in the case of an
additional Designated Subsidiary Borrower located in Bermuda, be substantially
in the form of Exhibit G-2 and otherwise satisfactory to the Administrative
Agent, and (z) in the case of an additional Designated Subsidiary Borrower
located in a jurisdiction other than the United States or Bermuda, be in form
and substance satisfactory to the Administrative Agent; and

 

(e)           on or prior to the date of designation, the Administrative Agent shall
have received such other documentation and/or certificates (including, without
limitation, certificates of existence and/or good standing certificates in the
case of additional Designated Subsidiary Borrowers organized under the laws of
the United States or any State thereof, or any other jurisdiction where the
concept of “good standing” is applicable) as the Administrative Agent may
reasonably request.

 

Section 2.23.  Removal of Designated Subsidiary
Borrowers.  The Parent Borrower may
from time to time after the Effective Date, by written notice to the
Administrative Agent (which notice the Administrative Agent shall promptly
forward to each Lender), remove one or more Designated Subsidiary Borrowers,
provided that on the date of removal (i) no Letters of Credit shall be
outstanding for the account of such Designated Subsidiary Borrower; (ii) no
Loans shall be outstanding for the account of such Designated Subsidiary
Borrower; (iii)

 

54

 

all fees, interest or other amounts payable
under this Agreement or the other Credit Documents by such Designated
Subsidiary Borrower shall have been paid in full and (iv) no other Obligations
of such Designated Subsidiary Borrower shall remain outstanding.

 

ARTICLE IIIA

Tranche 1 Letters of Credit

 

Section 3A.01.  Tranche 1 Letters of Credit.  (a) 
Subject to and upon the terms and conditions set forth herein, each
Designated Subsidiary Borrower may request the Issuing Agent, at any time and
from time to time after the Effective Date and prior to the date which is 30
days prior to the Commitment Expiration Date, to issue on behalf of the Tranche
1 Lenders, for the account of such Designated Subsidiary Borrower and in
support of, on a standby basis, Letter of Credit Supportable Obligations and,
subject to and upon the terms and conditions set forth herein, the Issuing
Agent agrees to issue on behalf of the Tranche 1 Lenders at any time and from
time to time after the Effective Date and prior to the date which is 30 days
prior to the Commitment Expiration Date, one or more irrevocable standby
letters of credit in such form as may be approved by the Issuing Agent (each
such letter of credit, a “Tranche 1 Letter of Credit” and, collectively, the
“Tranche 1 Letters of Credit”). 
Notwithstanding the foregoing, the Issuing Agent shall be under no
obligation to issue any Tranche 1 Letter of Credit if at the time of such
issuance:

 

(i)            any
order, judgment or decree of any Governmental Authority or arbitrator shall
purport by its terms to enjoin or restrain the Issuing Agent from issuing such
Tranche 1 Letter of Credit or any requirement of law applicable to such Issuing
Agent or any Tranche 1 Lender or any request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction over
the Issuing Agent or any Tranche 1 Lender shall prohibit, or request that the
Issuing Agent or any Tranche 1 Lender refrain from, the issuance of letters of
credit generally or such Tranche 1 Letter of Credit in particular or shall
impose upon the Issuing Agent or any Lender with respect to such Tranche 1
Letter of Credit any restriction or reserve or capital requirement (for which
the Issuing Agent or any Tranche 1 Lender is not otherwise compensated) not in
effect on the Effective Date, or any unreimbursed loss, cost or expense which
was not applicable, in effect or known to the Issuing Agent or any Tranche 1
Lender as of the Effective Date;

 

(ii)           the
conditions precedent set forth in Section 5.02 are not satisfied at that time;
or

 

(iii)          the
Issuing Agent shall have received notice from any Borrower or the Required
Lenders prior to the issuance of such Tranche 1 Letter of Credit of the type
described in clause (vii) of Section 3A.01(b).

 

(b)           Notwithstanding anything to the contrary contained in this Section
3A.01 or elsewhere in this Agreement (i) no Tranche 1 Letter of Credit shall be
issued the Stated Amount of which, when added to the Tranche 1 Letter of Credit
Outstandings (exclusive of Tranche 1 Unpaid Drawings which are repaid on the
date of, and prior to the issuance of, the

 

55

 

respective Tranche 1 Letter of Credit) at
such time, would exceed an amount equal to the Total Tranche 1 Commitment at
such time; (ii) no Tranche 1 Letter of Credit shall be issued for the account
of any Designated Subsidiary Borrower (other than ARC) the Stated Amount of
which, when added to the Tranche 1 Letter of Credit Outstandings in respect of
outstanding Tranche 1 Letters of Credit issued for the account of such
Designated Subsidiary Borrower (exclusive of Tranche 1 Unpaid Drawings in respect
of Tranche 1 Letters of Credit issued for the account of such Designated
Subsidiary Borrower which are repaid on the date of, and prior to the issuance
of, the respective Tranche 1 Letter of Credit) at such time would exceed an
amount equal to the lesser of (x) such Designated Subsidiary Borrower’s
Borrowing Base and (y) such Designated Subsidiary Borrower’s Sublimit; (iii) no
Tranche 1 Letter of Credit shall be issued for the account of ARC the Stated
Amount of which, when added to the Tranche 1 Letter of Credit Outstandings in
respect of outstanding Tranche 1 Letters of Credit issued for the account of
ARC (exclusive of Tranche 1 Unpaid Drawings in respect of Tranche 1 Letters of
Credit issued for the account of ARC which are repaid on the date of, and prior
to the issuance of, the respective Tranche 1 Letter of Credit) at such time
would exceed an amount equal to ARC’s Borrowing Base; (iv) no Tranche 1 Letter
of Credit shall be issued for the account of ARC the Stated Amount of which,
when added to (x) the Tranche 1 Letter of Credit Outstandings applicable to ARC
(exclusive of Tranche 1 Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Tranche 1 Letter of Credit) at such
time, (y) the Tranche 2 Letter of Credit Outstandings applicable to ARC at such
time and (z) the aggregate principal amount of all Tranche 2 Loans incurred by
ARC and then outstanding, would exceed an amount equal to ARC’s Sublimit; (v)
each Tranche 1 Letter of Credit shall have an expiry date occurring not later
than one year after such Tranche 1 Letter of Credit’s date of issuance; provided
that each such Tranche 1 Letter of Credit may by its terms automatically renew
annually for one additional year unless the Issuing Agent notifies the beneficiary
thereof, in accordance with the terms of such Tranche 1 Letter of Credit, that
such Tranche 1 Letter of Credit will not be renewed; (vi) each Tranche 1 Letter
of Credit shall be denominated in Dollars; and (vii) the Issuing Agent will not
issue any Tranche 1 Letter of Credit after it has received written notice from
any Borrower or the Required Lenders stating that a Default or an Event of
Default exists until such time as the Issuing Agent shall have received a
written notice of (x) rescission of such notice from the party or parties
originally delivering the same or (y) a waiver of such Default or Event of
Default by the Required Lenders (or, to the extent provided by Section 10.02,
each of the Lenders).

 

(c)           Each Tranche 1 Letter of Credit will be issued by the Issuing Agent on
behalf of the Tranche 1 Lenders and each Tranche 1 Lender will participate in
each Tranche 1 Letter of Credit pro  rata in accordance with its
Tranche 1 Percentage.  The obligations
of each Tranche 1 Lender under and in respect of each Tranche 1 Letter of
Credit are several, and the failure by any Tranche 1 Lender to perform its
obligations hereunder or under any Tranche 1 Letter of Credit shall not affect
the obligations of the respective Designated Subsidiary Borrower toward any
other party hereto nor shall any other such party be liable for the failure by
such Tranche 1 Lender to perform its obligations hereunder or under any Tranche
1 Letter of Credit.

 

(d)           Subject to and on the terms and conditions set forth herein, the Issuing
Agent is hereby authorized by each Designated Subsidiary Borrower and the
Tranche 1 Lenders to arrange for the issuance of any Tranche 1 Letter of Credit
pursuant to Section 3A.01(a) and the amendment of any Tranche 1 Letter of
Credit pursuant to Section 2.18, Section 2.19, Section 3A.06 and/or Section
10.04(b) by:

 

56

 

(i)            completing
the commencement date and the expiry date of such Tranche 1 Letter of Credit;

 

(ii)           in
the case of an amendment increasing or reducing the amount thereof, amending
such Tranche 1 Letter of Credit in such manner as the Issuing Agent and the respective
beneficiary may agree;

 

(iii)          completing
such Tranche 1 Letter of Credit with the participation of each Tranche 1 Lender
as allocated pursuant to the terms hereof; and

 

(iv)          executing
such Tranche 1 Letter of Credit on behalf of each Tranche 1 Lender and
following such execution delivering such Tranche 1 Letter of Credit to the
beneficiary of such Tranche 1 Letter of Credit.

 

(e)           Each Tranche 1 Letter of Credit shall be executed and delivered by the
Issuing Agent in the name and on behalf of, and as attorney-in-fact for, each
Tranche 1 Lender party to such Tranche 1 Letter of Credit, and the Issuing
Agent shall act under each Tranche 1 Letter of Credit, and each Tranche 1
Letter of Credit shall expressly provide that the Issuing Agent shall act, as
the agent of each Tranche 1 Lender to (a) receive drafts, other demands for
payment and other documents presented by the beneficiary under such Tranche 1
Letter of Credit, (b) determine whether such drafts, demands and documents are
in compliance with the terms and conditions of such Tranche 1 Letter of Credit
and (c) notify such Tranche 1 Lender and such Designated Subsidiary Borrower
that a valid drawing has been made and the date that the related Tranche 1
Unpaid Drawing is to be made; provided that the Issuing Agent shall have
no obligation or liability for any Tranche 1 Unpaid Drawing under such Tranche
1 Letter of Credit, and each Tranche 1 Letter of Credit shall expressly so
provide.  Each Tranche 1 Lender hereby
irrevocably appoints and designates the Issuing Agent as its attorney-in-fact,
acting through any duly authorized officer of the Issuing Agent, solely for the
purpose of executing and delivering in the name and on behalf of such Tranche 1
Lender each Tranche 1 Letter of Credit to be issued by such Tranche 1 Lender
hereunder.  Promptly upon the request of
the Issuing Agent, each Tranche 1 Lender will furnish to the Issuing Agent such
powers of attorney or other evidence as any beneficiary of any Tranche 1 Letter
of Credit may reasonably request in order to demonstrate that the Issuing Agent
has the power to act as attorney-in-fact for such Tranche 1 Lender to execute
and deliver such Tranche 1 Letter of Credit.

 

Section 3A.02.  Tranche 1 Letter of Credit Requests.  (a) 
Whenever a Designated Subsidiary Borrower desires that a Tranche 1
Letter of Credit be issued, such Designated Subsidiary Borrower shall give the
Administrative Agent and the Issuing Agent written notice (including by way of
facsimile transmission, immediately confirmed in writing by submission of the
original of such request by mail to the Issuing Agent) thereof prior to 11:00
A.M. (New York time) at least five Business Days (or such shorter period as may
be acceptable to the Issuing Agent) prior to the proposed date of issuance (which
shall be a Business Day), which written notice shall be in the form of Exhibit
C-1 (each, a “Tranche 1 Letter of Credit Request”).  Each Tranche 1 Letter of Credit Request shall include any other
documents as the Issuing Agent customarily requires in connection therewith.

 

57

 

(b)           The making of each Tranche 1 Letter of Credit Request shall be deemed
to be a representation and warranty by the applicable Designated Subsidiary
Borrower that such Tranche 1 Letter of Credit may be issued in accordance with,
and it will not violate the requirements of, Section 3A.01(a) or (b).

 

(c)           Upon its issuance of, or amendment to, any Tranche 1 Letter of Credit,
the Issuing Agent shall promptly notify the respective Designated Subsidiary
Borrower and the Tranche 1 Lenders of such issuance or amendment, which notice
shall include a summary description of the Tranche 1 Letter of Credit actually
issued and any amendments thereto.

 

Section 3A.03.  Agreement to Repay Tranche 1 Letter of
Credit Drawings.  (a)  Each Designated Subsidiary Borrower agrees
to reimburse each Tranche 1 Lender, by making payment to the Administrative
Agent in immediately available funds at the Payment Office, for any payment or
disbursement made by such Tranche 1 Lender under any Tranche 1 Letter of Credit
which has been issued for such Designated Subsidiary Borrower’s account (each
such amount so paid or disbursed until reimbursed, a “Tranche 1 Unpaid
Drawing”) no later than one Business Day following the date of such payment or
disbursement, with interest on the amount so paid or disbursed by such Lender,
to the extent not reimbursed prior to 1:00 P.M. (New York time) on the date of
such payment or disbursement, from and including the date paid or disbursed to
but not including the date such Tranche 1 Lender is reimbursed therefor at a
rate per annum which shall be the Alternative Base Rate plus the Applicable
Rate for Loans maintained as ABR Loans as in effect from time to time (plus an
additional 2% per annum, payable on demand, if not reimbursed by the third
Business Day after the date of such payment or disbursement).

 

(b)           Each Designated Subsidiary Borrower’s obligation under this Section
3A.03 to reimburse each Tranche 1 Lender with respect to Tranche 1 Unpaid
Drawings (including, in each case, interest thereon) shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim or defense to payment which such Designated Subsidiary Borrower
may have or have had against such Tranche 1 Lender, or the Issuing Agent,
including, without limitation, any defense based upon the failure of any
drawing under a Tranche 1 Letter of Credit to conform to the terms of the
Tranche 1 Letter of Credit or any non-application or misapplication by the
beneficiary of the proceeds of such drawing; provided, however,
that no Designated Subsidiary Borrower shall be obligated to reimburse any
Tranche 1 Lender for any wrongful payment made by such Tranche 1 Lender under a
Tranche 1 Letter of Credit as a result of acts or omissions constituting
willful misconduct or gross negligence on the part of such Tranche 1 Lender (as
determined by a court of competent jurisdiction in a final and non-appealable
decision).

 

Section 3A.04.  Increased Costs.  If after the Effective Date, a Change in Law
shall either (i) impose, modify or make applicable any reserve, deposit,
capital adequacy or similar requirement against letters of credit issued by or
participated in by such Tranche 1 Lender, or (ii) impose on such Tranche 1
Lender any other conditions directly or indirectly affecting this Agreement or
any Tranche 1 Letter of Credit; and the result of any of the foregoing is to
increase the cost to such Tranche 1 Lender of issuing, maintaining or
participating in any Tranche 1 Letter of Credit, or to reduce the amount of any
sum received or receivable by such Tranche 1 Lender hereunder or reduce the
rate of return on its capital with respect to Tranche 1

 

58

 

Letters of Credit, then, upon written demand
to the respective Designated Subsidiary Borrower by such Tranche 1 Lender (with
a copy to the Administrative Agent), such Designated Subsidiary Borrower agrees
to pay to such Tranche 1 Lender such additional amount or amounts as will
compensate such Tranche 1 Lender for such increased cost or reduction.  A certificate submitted to the respective
Designated Subsidiary Borrower by such Tranche 1 Lender (with a copy to the
Administrative Agent), setting forth the basis for the determination of such
additional amount or amounts necessary to compensate such Tranche 1 Lender as
aforesaid shall be final and conclusive and binding on such Designated
Subsidiary Borrower absent manifest error, although the failure to deliver any
such certificate shall not release or diminish any Designated Subsidiary
Borrower’s obligations to pay additional amounts pursuant to this Section 3A.04
upon subsequent receipt of such certificate; provided that such
Designated Subsidiary Borrower shall not be required to compensate such Tranche
1 Lender pursuant to this Section 3A.04 for any increased costs or reductions
incurred more than 90 days prior to the date that such Tranche 1 Lender
notifies such Designated Subsidiary Borrower of the Change in Law giving rise
to such increased costs or reductions and of such Tranche 1 Lender’s intention
to claim compensation therefor; provided, further, that, if the
Change in Law giving rise to such increased costs or reductions is retroactive,
then the 90-day period referred to above shall be extended to include the
period of retroactive effect thereof.

 

Section 3A.05.  Tranche 1 Letter of Credit Expiration
Extensions.  Each Tranche 1 Lender
acknowledges that to the extent provided under the terms of any Tranche 1
Letter of Credit, the expiration date of such Tranche 1 Letter of Credit will
be automatically extended for an additional year, without written amendment,
unless at least 30 days prior to the expiration date of such Tranche 1 Letter
of Credit, notice is given by the Issuing Agent to the beneficiary of such
Tranche 1 Letter of Credit in accordance with the terms of the respective
Tranche 1 Letter of Credit (a “Notice of Non-Extension”) that the expiration
date of such Tranche 1 Letter of Credit will not be extended beyond its current
expiration date.  The Issuing Agent will
give Notices of Non-Extension as to any or all outstanding Tranche 1 Letters of
Credit if requested to do so by the Required Lenders pursuant to Article
VIII.  The Issuing Agent will give
Notices of Non-Extension as to all outstanding Tranche 1 Letters of Credit if
the Commitment Expiration Date has occurred. 
The Issuing Agent will send a copy of each Notice of Non-Extension to
the respective Designated Subsidiary Borrower concurrently with delivery
thereof to the respective beneficiary, unless prohibited by law from doing so.

 

Section 3A.06.  Changes to Stated Amount.  At any time when any Tranche 1 Letter of
Credit is outstanding, at the request of the respective Designated Subsidiary
Borrower, the Issuing Agent will enter into an amendment increasing or reducing
the Stated Amount of such Tranche 1 Letter of Credit, provided that (i)
in no event shall the Stated Amount of any Tranche 1 Letter of Credit be
increased to an amount which would exceed the applicable limitations set forth
in Section 3A.01(b), (ii) the Stated Amount of a Tranche 1 Letter of Credit may
not be increased at any time if the conditions precedent set forth in Section
5.02 are not satisfied at such time, and (iii) the Stated Amount of a Tranche 1
Letter of Credit may not be increased at any time after the date which is 30
days prior to the Commitment Expiration Date.

 

Section 3A.07.  Representations and Warranties of Tranche
1 Lenders.  Each Tranche 1 Lender
represents and warrants that each Tranche 1 Letter of Credit constitutes a

 

59

 

legal, valid and binding obligation of such
Tranche 1 Lender enforceable in accordance with its terms.

 

ARTICLE
IIIB

Tranche 2 Letters of Credit

 

Section 3B.01.  Tranche
2 Letters of Credit.  (a)  Subject to and upon the terms and conditions
set forth herein, each Tranche 2/3 Borrower may request the Issuing Agent, at
any time and from time to time after the Effective Date and prior to the date
which is 30 days prior to the Commitment Expiration Date, to issue on behalf of
the Tranche 2 Lenders, for the account of such Tranche 2/3 Borrower and in
support of, on a standby basis, Letter of Credit Supportable Obligations and, subject
to and upon the terms and conditions set forth herein, the Issuing Agent agrees
to issue on behalf of the Tranche 2 Lenders at any time and from time to time
after the Effective Date and prior to the date which is 30 days prior to the
Commitment Expiration Date, one or more irrevocable standby letters of credit
in such form as may be approved by the Issuing Agent (each such letter of
credit, a “Tranche 2 Letter of Credit” and, collectively, the “Tranche 2
Letters of Credit”).  Notwithstanding
the foregoing, the Issuing Agent shall be under no obligation to issue any
Tranche 2 Letter of Credit if at the time of such issuance:

 

(i)            any
order, judgment or decree of any Governmental Authority or arbitrator shall
purport by its terms to enjoin or restrain the Issuing Agent from issuing such
Tranche 2 Letter of Credit or any requirement of law applicable to such Issuing
Agent or any Tranche 2 Lender or any request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction over
the Issuing Agent or any Tranche 2 Lender shall prohibit, or request that the
Issuing Agent or any Tranche 2 Lender refrain from, the issuance of letters of
credit generally or such Tranche 2 Letter of Credit in particular or shall
impose upon the Issuing Agent or any Tranche 2 Lender with respect to such
Tranche 2 Letter of Credit any restriction or reserve or capital requirement
(for which the Issuing Agent or any Tranche 2 Lender is not otherwise
compensated) not in effect on the Effective Date, or any unreimbursed loss,
cost or expense which was not applicable, in effect or known to the Issuing
Agent or any Tranche 2 Lender as of the Effective Date;

 

(ii)           the
conditions precedent set forth in Section 5.02 are not satisfied at that time;
or

 

(iii)          the
Issuing Agent shall have received notice from any Borrower or the Required
Lenders prior to the issuance of such Tranche 2 Letter of Credit of the type
described in clause (vii) of Section 3B.01(b).

 

(b)           Notwithstanding anything to the contrary contained in this Section
3B.01 or elsewhere in this Agreement, (i) no Tranche 2 Letter of Credit shall
be issued the Stated Amount of which, when added to (x) the Tranche 2 Letter of
Credit Outstandings (exclusive of Tranche 2 Unpaid Drawings which are repaid on
the date of, and prior to the issuance of, the respective Tranche 2 Letter of
Credit) at such time and (y) the aggregate principal amount of all Tranche 2
Loans then outstanding, would exceed, an amount equal to the Total Tranche 2

 

60

 

Commitment at such time; (ii) no Tranche 2 Letter of
Credit shall be issued if any Tranche 2 Lender’s Tranche 2 Percentage of the
Stated Amount of such Tranche 2 Letter of Credit, when added to such Tranche 2
Lender’s Tranche 2 Credit Exposure, would exceed the Tranche 2 Commitment of
such Tranche 2 Lender at such time; (iii) no Tranche 2 Letter of Credit shall
be issued for the account of ARC the Stated Amount of which, when added to (x)
the Tranche 2 Letter of Credit Outstandings applicable to ARC (exclusive of
Tranche 2 Unpaid Drawings which are repaid on the date of, and prior to the
issuance of, the respective Tranche 2 Letter of Credit) at such time and (y)
the aggregate principal amount of all Tranche 2 Loans incurred by ARC and then
outstanding, would exceed an amount equal to $100,000,000 at such time; (iv) no
Tranche 2 Letter of Credit shall be issued for the account of ARC if the Stated
Amount thereof, when added to (x) the Tranche 1 Letter of Credit Outstandings
in respect of Tranche 1 Letters of Credit issued for the account of ARC, (y)
the Tranche 2 Letter of Credit Outstandings in respect of Tranche 2 Letters of
Credit issued for the account of ARC and (z) the aggregate principal amount of
all Tranche 2 Loans incurred by ARC and then outstanding, would exceed an
amount equal to ARC’s Sublimit at such time; (v) each Tranche 2 Letter of
Credit shall have an expiry date occurring not later than one year after such
Tranche 2 Letter of Credit’s date of issuance; provided that each such
Tranche 2 Letter of Credit may by its terms automatically renew annually for
one additional year unless the Issuing Agent notifies the beneficiary thereof,
in accordance with the terms of such Tranche 2 Letter of Credit, that such Tranche
2 Letter of Credit will not be renewed; (vi) each Tranche 2 Letter of Credit
shall be denominated in Dollars; and (vii) the Issuing Agent will not issue any
Tranche 2 Letter of Credit after it has received written notice from any
Borrower or the Required Lenders stating that a Default or an Event of Default
exists until such time as the Issuing Agent shall have received a written
notice of (x) rescission of such notice from the party or parties originally
delivering the same or (y) a waiver of such Default or Event of Default by the
Required Lenders (or, to the extent provided by Section 10.02, each of the
Lenders).

 

(c)           Each Tranche 2 Letter of Credit will be issued by the Issuing Agent on
behalf of the Tranche 2 Lenders and each Tranche 2 Lender will participate in
each Tranche 2 Letter of Credit pro  rata in accordance with its
Tranche 2 Percentage.  The obligations
of each Tranche 2 Lender under and in respect of each Tranche 2 Letter of
Credit are several, and the failure by any Tranche 2 Lender to perform its
obligations hereunder or under any Tranche 2 Letter of Credit shall not affect
the obligations of the respective Tranche 2/3 Borrower toward any other party
hereto nor shall any other such party be liable for the failure by such Tranche
2 Lender to perform its obligations hereunder or under any Tranche 2 Letter of
Credit.

 

(d)           Subject to and on the terms and conditions set forth herein, the
Issuing Agent is hereby authorized by each Tranche 2/3 Borrower and the Tranche
2 Lenders to arrange for the issuance of any Tranche 2 Letter of Credit
pursuant to Section 3B.01(a) and the amendment of any Tranche 2 Letter of
Credit pursuant to Section 2.18, Section 2.20, Section 3B.06 and/or Section
10.04(b) by:

 

(i)            completing
the commencement date and the expiry date of such Tranche 2 Letter of Credit;

 

61

 

(ii)           in
the case of an amendment increasing or reducing the amount thereof, amending
such Tranche 2 Letter of Credit in such manner as the Issuing Agent and the
respective beneficiary may agree;

 

(iii)          completing
such Tranche 2 Letter of Credit with the participation of each Tranche 2 Lender
as allocated pursuant to the terms hereof; and

 

(iv)          executing
such Tranche 2 Letter of Credit on behalf of each Tranche 2 Lender and
following such execution delivering such Tranche 2 Letter of Credit to the
beneficiary of such Tranche 2 Letter of Credit.

 

(e)           Each Tranche 2 Letter of Credit shall be executed and delivered by the
Issuing Agent in the name and on behalf of, and as attorney-in-fact for, each
Tranche 2 Lender party to such Tranche 2 Letter of Credit, and the Issuing
Agent shall act under each Tranche 2 Letter of Credit, and each Tranche 2
Letter of Credit shall expressly provide that the Issuing Agent shall act, as
the agent of each Tranche 2 Lender to (a) receive drafts, other demands for
payment and other documents presented by the beneficiary under such Tranche 2
Letter of Credit, (b) determine whether such drafts, demands and documents are
in compliance with the terms and conditions of such Tranche 2 Letter of Credit
and (c) notify such Tranche 2 Lender and such Tranche 2/3 Borrower that a valid
drawing has been made and the date that the related Tranche 2 Unpaid Drawing is
to be made; provided that the Issuing Agent shall have no obligation or
liability for any Tranche 2 Unpaid Drawing under such Tranche 2 Letter of
Credit, and each Tranche 2 Letter of Credit shall expressly so provide.  Each Tranche 2 Lender hereby irrevocably
appoints and designates the Issuing Agent as its attorney-in-fact, acting
through any duly authorized officer of the Issuing Agent, solely for the
purpose of executing and delivering in the name and on behalf of such Tranche 2
Lender each Tranche 2 Letter of Credit to be issued by such Tranche 2 Lender
hereunder.  Promptly upon the request of
the Issuing Agent, each Tranche 2 Lender will furnish to the Issuing Agent such
powers of attorney or other evidence as any beneficiary of any Tranche 2 Letter
of Credit may reasonably request in order to demonstrate that the Issuing Agent
has the power to act as attorney-in-fact for such Tranche 2 Lender to execute
and deliver such Tranche 2 Letter of Credit.

 

Section 3B.02.  Tranche
2 Letter of Credit Requests. 
(a)  Whenever a Tranche 2/3
Borrower desires that a Tranche 2 Letter of Credit be issued, such Tranche 2/3
Borrower shall give the Administrative Agent and the Issuing Agent written
notice (including by way of facsimile transmission, immediately confirmed in
writing by submission of the original of such request by mail to the Issuing
Agent) thereof prior to 11:00 A.M. (New York time) at least five Business Days
(or such shorter period as may be acceptable to the Issuing Agent) prior to the
proposed date of issuance (which shall be a Business Day), which written notice
shall be in the form of Exhibit C-2 (each, a “Tranche 2 Letter of Credit
Request”).  Each Tranche 2 Letter of
Credit Request shall include any other documents as the Issuing Agent customarily
requires in connection therewith.

 

(b)           The making of each Tranche 2 Letter of Credit Request shall be deemed
to be a representation and warranty by the applicable Tranche 2/3 Borrower that
such Tranche 2 Letter of Credit may be issued in accordance with, and it will
not violate the requirements of, Section 3B.01(a) or (b).

 

62

 

(c)           Upon its issuance of, or amendment to, any Tranche 2 Letter of Credit,
the Issuing Agent shall promptly notify the respective Tranche 2/3 Borrower and
the Tranche 2 Lenders of such issuance or amendment, which notice shall include
a summary description of the Tranche 2 Letter of Credit actually issued and any
amendments thereto.

 

Section 3B.03.  Agreement
to Repay Tranche 2 Letter of Credit Drawings.  (a)  Each Tranche 2/3
Borrower agrees to reimburse each Tranche 2 Lender, by making payment to the
Administrative Agent in immediately available funds at the Payment Office, for
any payment or disbursement made by such Tranche 2 Lender under any Tranche 2
Letter of Credit which has been issued for such Tranche 2/3 Borrower’s account
(each such amount so paid or disbursed until reimbursed, a “Tranche 2 Unpaid
Drawing”) no later than one Business Day following the date of such payment or
disbursement, with interest on the amount so paid or disbursed by such Tranche
2 Lender, to the extent not reimbursed prior to 1:00 P.M. (New York time) on
the date of such payment or disbursement, from and including the date paid or
disbursed to but not including the date such Tranche 2 Lender is reimbursed
therefor at a rate per annum which shall be the Alternative Base Rate plus the
Applicable Rate for Loans maintained as ABR Loans as in effect from time to
time (plus an additional 2% per annum, payable on demand, if not reimbursed by
the third Business Day after the date of such payment or disbursement).

 

(b)           Each Tranche 2/3 Borrower’s obligation under this Section 3B.03 to
reimburse each Tranche 2 Lender with respect to Tranche 2 Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which such Tranche 2/3 Borrower may have or have had against
such Tranche 2 Lender, or the Issuing Agent, including, without limitation, any
defense based upon the failure of any drawing under a Tranche 2 Letter of
Credit to conform to the terms of the Tranche 2 Letter of Credit or any
non-application or misapplication by the beneficiary of the proceeds of such
drawing; provided, however, that no Tranche 2/3 Borrower shall be
obligated to reimburse any Tranche 2 Lender for any wrongful payment made by
such Tranche 2 Lender under a Tranche 2 Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on the part of
such Tranche 2 Lender (as determined by a court of competent jurisdiction in a
final and non-appealable decision).

 

Section 3B.04.  Increased
Costs.  If after the Effective Date,
a Change in Law shall either (i) impose, modify or make applicable any reserve,
deposit, capital adequacy or similar requirement against letters of credit
issued by or participated in by such Tranche 2 Lender, or (ii) impose on such
Tranche 2 Lender any other conditions directly or indirectly affecting this
Agreement or any Tranche 2 Letter of Credit; and the result of any of the
foregoing is to increase the cost to such Tranche 2 Lender of issuing,
maintaining or participating in any Tranche 2 Letter of Credit, or to reduce
the amount of any sum received or receivable by such Tranche 2 Lender hereunder
or reduce the rate of return on its capital with respect to Tranche 2 Letters
of Credit, then, upon written demand to the respective Tranche 2/3 Borrower by
such Tranche 2 Lender (with a copy to the Administrative Agent), such Tranche
2/3 Borrower agrees to pay to such Tranche 2 Lender such additional amount or
amounts as will compensate such Tranche 2 Lender for such increased cost or
reduction.  A certificate submitted to
the respective Tranche 2/3 Borrower by such Tranche 2 Lender (with a copy to
the Administrative Agent), setting forth the basis for the determination of
such additional amount or amounts necessary to compensate such Tranche 2 Lender
as aforesaid shall be final and conclusive and binding on

 

63

 

such Tranche 2/3 Borrower absent manifest
error, although the failure to deliver any such certificate shall not release
or diminish any Tranche 2/3 Borrower’s obligations to pay additional amounts
pursuant to this Section 3B.04 upon subsequent receipt of such certificate; provided
that such Tranche 2/3 Borrower shall not be required to compensate such Tranche
2 Lender pursuant to this Section 3B.04 for any increased costs or reductions
incurred more than 90 days prior to the date that such Tranche 2 Lender
notifies such Tranche 2/3 Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Tranche 2 Lender’s intention to claim
compensation therefor; provided, further, that, if the Change in
Law giving rise to such increased costs or reductions is retroactive, then the
90-day period referred to above shall be extended to include the period of
retroactive effect thereof.

 

Section 3B.05.  Tranche
2 Letter of Credit Expiration Extensions. 
Each Tranche 2 Lender acknowledges that to the extent provided under the
terms of any Tranche 2 Letter of Credit, the expiration date of such Tranche 2
Letter of Credit will be automatically extended for an additional year, without
written amendment, unless at least 30 days prior to the expiration date of such
Tranche 2 Letter of Credit, a Notice of Non-Extension is given by the Issuing
Agent to the beneficiary of such Tranche 2 Letter of Credit in accordance with
the terms of the respective Tranche 2 Letter of Credit that the expiration date
of such Tranche 2 Letter of Credit will not be extended beyond its current
expiration date.  The Issuing Agent will
give Notices of Non-Extension as to any or all outstanding Tranche 2 Letters of
Credit if requested to do so by the Required Lenders pursuant to Article
VIII.  The Issuing Agent will give
Notices of Non-Extension as to all outstanding Tranche 2 Letters of Credit if
the Commitment Expiration Date has occurred. 
The Issuing Agent will send a copy of each Notice of Non-Extension to
the respective Tranche 2/3 Borrower concurrently with delivery thereof to the
respective beneficiary, unless prohibited by law from doing so.

 

Section 3B.06.  Changes
to Stated Amount.  At any time when
any Tranche 2 Letter of Credit is outstanding, at the request of the respective
Tranche 2/3 Borrower, the Issuing Agent will enter into an amendment increasing
or reducing the Stated Amount of such Tranche 2 Letter of Credit, provided
that (i) in no event shall the Stated Amount of any Tranche 2 Letter of Credit
be increased to an amount which would exceed the applicable limitations set
forth in Section 3B.01(b); (ii) the Stated Amount of a Tranche 2 Letter of
Credit may not be increased at any time if the conditions precedent set forth
in Section 5.02 are not satisfied at such time; and (iii) the Stated Amount of
a Tranche 2 Letter of Credit may not be increased at any time after the date
which is 30 days prior to the Commitment Expiration Date.

 

Section 3B.07.  Representations
and Warranties of Tranche 2 Lenders. 
Each Tranche 2 Lender represents and warrants that each Tranche 2 Letter
of Credit constitutes a legal, valid and binding obligation of such Tranche 2
Lender enforceable in accordance with its terms.

 

64

 

ARTICLE IV

Representations and Warranties

 

Each
Credit Party (solely as to itself and its Subsidiaries) represents and warrants
to the Lenders that:

 

Section 4.01.  Corporate Status.  Each of the Parent Borrower and each of its
Subsidiaries (i) is a duly organized and validly existing corporation or
business trust or other entity in good standing under the laws of the
jurisdiction of its organization and has the corporate or other organizational
power and authority to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage, and (ii) has been duly
qualified and is authorized to do business and is in good standing in all
jurisdictions where it is required to be so qualified, except, in the case of
this clause (ii), where the failure to be so qualified, authorized or in good
standing would not reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. 

 

Section 4.02.  Corporate Power and Authority.  Each Credit Party has the corporate power
and authority to execute, deliver and carry out the terms and provisions of the
Credit Documents to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance of such Credit
Documents.  Each Credit Party has duly
executed and delivered each Credit Document to which it is a party and each
such Credit Document constitutes the legal, valid and binding obligation of
such Credit Party enforceable against such Credit Party in accordance with its
terms, except to the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors’ rights generally and general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or at law.

 

Section 4.03.  No Contravention of Laws, Agreements or
Organizational Documents.  Neither
the execution, delivery and performance by any Credit Party of this Agreement
or the other Credit Documents nor compliance with the terms and provisions
thereof, nor the consummation of the transactions contemplated therein, (i)
will contravene any applicable provision of any law, statute, rule, regulation,
order, writ, injunction or decree of any court or governmental instrumentality,
(ii) will conflict or be inconsistent with or result in any breach of any of
the terms, covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of any Credit Party or
any of its Subsidiaries pursuant to the terms of, any indenture, mortgage, deed
of trust, loan agreement, credit agreement or any other material instrument to
which such Credit Party or any of its Subsidiaries is a party or by which it or
any of its property or assets are bound or to which it may be subject or (iii)
will violate any provision of the certificate of incorporation, by-laws or other
organizational documents of any Credit Party or any of its Subsidiaries.

 

Section 4.04.  Litigation and Contingent Liabilities.  There are no actions, suits or proceedings
pending or threatened in writing involving Parent Borrower or any of its Subsidiaries
(including, without limitation, with respect to this Agreement or any other
Credit

 

65

 

Document) that have had, or would reasonably
be expected to have, either individually or in the aggregate, a Material
Adverse Effect.

 

Section 4.05.  Use of Proceeds; Margin Regulations.  (a) 
All proceeds of each Credit Event shall be utilized for the general
corporate and working capital purposes of the Parent Borrower and its
Subsidiaries.  Without limiting the generality
of the foregoing, Tranche 1 Letters of Credit may be issued in support of
letters of credit outstanding under the Existing LC Facility.

 

(b)           Neither the making of any Loan hereunder, the issuance of any Letter of
Credit nor the use of the proceeds thereof, will violate or be inconsistent
with the provisions of Regulation T, U or X and no part of the proceeds of any
Credit Event will be used to purchase or carry any Margin Stock or to extend
credit for the purpose of purchasing or carrying any Margin Stock.

 

Section 4.06.  Approvals.  Any order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, any
foreign or domestic governmental or public body or authority, or any subdivision
thereof, which is required to authorize or is required in connection with (i)
the execution, delivery and performance of any Credit Document or (ii) the
legality, validity, binding effect or enforceability of any Credit Document,
has been obtained.

 

Section 4.07.  Investment Company Act.  Neither the Parent Borrower nor any of its
Subsidiaries is an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
as amended.

 

Section 4.08.  Public Utility Holding Company Act.  Neither the Parent Borrower nor any of its
Subsidiaries is a “holding company,” or a “subsidiary company” of a “holding
company,” or an “affiliate” of a “holding company” or of a “subsidiary company”
of a “holding company,” within the meaning of the Public Utility Holding
Company Act of 1935, as amended.

 

Section 4.09.  True and Complete Disclosure; Projections
and Assumptions.  All factual
information (taken as a whole) heretofore or contemporaneously furnished by the
Parent Borrower or any of its Subsidiaries to the Administrative Agent or any
Lender in writing (including, without limitation, all information contained in
the Credit Documents) for purposes of or in connection with this Agreement or
any transaction contemplated herein is, and all other factual information
(taken as a whole with all other such information theretofore or
contemporaneously furnished) hereafter furnished by any such Persons in writing
to the Administrative Agent will be, true and accurate in all material respects
on the date as of which such information is dated and not incomplete by
omitting to state any material fact necessary to make such information (taken
as a whole with all other such information theretofore or contemporaneously
furnished) not misleading at such time in light of the circumstances under
which such information was provided; provided that, with respect to
projections the Credit Parties represent only that the projections contained in
such materials are based on good faith estimates and assumptions believed by
the Credit Parties to be reasonable and attainable at the time made, it being
recognized by the Lenders that such projections as to future events are not to
be viewed as facts and are subject to significant uncertainties and
contingencies many of which are beyond the

 

66

 

Credit Parties’ control and that actual
results during the period or periods covered by any such projections may differ
from the projected results.

 

Section 4.10.  Financial Condition; Financial Statements.  (a) 
(i)  The consolidated balance
sheet of the Parent Borrower and its Subsidiaries for the fiscal year ended
December 31, 2003 and the related consolidated statements of income,
shareholders’ equity and cash flows, reported on by PricewaterhouseCoopers LLP,
copies of which have been delivered to each of the Lenders, and the unaudited
consolidated balance sheet of the Parent Borrower and its Subsidiaries for its
fiscal quarter ended June 30, 2004 and the related consolidated statements of
income, shareholders’ equity and cash flows, copies of which have been
delivered to each of the Lenders, fairly present in all material respects, in
each case in conformity with GAAP, consistently applied, the consolidated
financial position of the Parent Borrower and its Subsidiaries as of such dates
and their consolidated results of operations and cash flows for such periods
stated (subject, in the case of the aforementioned quarterly financial
statement to normal year-end audit adjustments and the absence of full footnote
disclosure).

 

(ii)  The summary unaudited consolidated balance
sheet of ARL for the fiscal year ended December 31, 2003 and the related
summary unaudited consolidated statement of income, copies of which have been
delivered to each of the Lenders, and the summary unaudited consolidated
balance sheet of ARL for its fiscal quarter ended June 30, 2004 and the related
summary unaudited consolidated statement of income, copies of which have been
delivered to each of the Lenders, fairly present in all material respects, the
consolidated financial position of ARL and its Subsidiaries as of such dates
and their consolidated results of operations for such periods stated (subject
to normal year-end audit adjustments and the absence of full footnote
disclosure).

 

(iii)  The summary unaudited financial information
of Intermediate Holdings for the fiscal year ended December 31, 2003, copies of
which have been delivered to each of the Lenders, and the summary unaudited
financial information of Intermediate Holdings for its fiscal quarter ended
June 30, 2004, copies of which have been delivered to each of the Lenders,
fairly present in all material respects the consolidated financial position of
Intermediate Holdings and its Subsidiaries as of such dates (subject to normal
year-end audit adjustments and the absence of full footnote disclosure).

 

(iv)  The Statutory Statements of each Designated
Subsidiary Borrower for the fiscal year ended December 31, 2003 and for its fiscal
quarter ended June 30, 2004 (other than ARL), copies of which have been
delivered to each of the Lenders, fairly present in all material respects the
financial position of such Designated Subsidiary Borrower as of such dates and
such periods stated.

 

(b)           Since December 31, 2003, nothing has occurred which has had, or would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.

 

(c)           Except (i) for the Loans and Letters of Credit, (ii) for letters of
credit issued under the Long-Term LC Facility, (iii) for the Existing LC
Facility, (iv) for the Existing Senior Notes, (v) as set forth in the unaudited
consolidated balance sheet of the Parent Borrower

 

67

 

for its fiscal quarter ended June 30, 2004, (vi) for
liabilities set forth on Schedule 4.10(c) and (vii) for liabilities incurred by
the Parent Borrower and its Subsidiaries in the ordinary course of business, on
the Effective Date there are no material liabilities of the Parent Borrower and
its Subsidiaries.

 

(d)           On and as of the Effective Date, on a pro  forma basis
after giving effect to the Transactions, the Parent Borrower and each of its
Subsidiaries is Solvent.

 

Section 4.11.  Tax Returns and Payments.  The Parent Borrower and its Subsidiaries (i)
have timely filed or caused to be timely filed with the appropriate taxing
authority (taking into account any applicable extension within which to file)
all material income and other material tax returns (including any statements,
forms and reports), domestic and foreign, required to be filed by the Parent
Borrower and its Subsidiaries, and (ii) have timely paid or caused to have
timely paid all material taxes payable by them which have become due and
assessments which have become due, except for those contested in good faith and
adequately disclosed and for which adequate reserves have been established in
accordance with GAAP.  There is no
action, suit, proceeding, investigation, audit or claim now pending or, to the
best knowledge of the Parent Borrower and its Subsidiaries, proposed or
threatened by any authority regarding any income taxes or any other taxes
relating to the Parent Borrower or any of its Subsidiaries that would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.  Neither the
Parent Borrower nor any of its Subsidiaries has entered into an agreement or
waiver or been requested to enter into an agreement or waiver extending any
statute of limitations relating to the payment or collection of taxes of the
Parent Borrower or any of its Subsidiaries that would reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect.  No tax Liens have been filed and no claims
are pending or, to the best knowledge of the Parent Borrower or any of its
Subsidiaries, proposed or threatened with respect to any taxes, fees or other
charges for any taxable period that would reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.

 

Section 4.12.  Compliance with ERISA.  (a) 
Except as could not reasonably be expected to result, individually or in
the aggregate, in a Material Adverse Effect, the Parent Borrower and its
Subsidiaries and ERISA Affiliates (i) 
have fulfilled their respective obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
with the applicable provisions of ERISA and the Code, and (ii) have not
incurred any liability to the PBGC or any Plan or Multiemployer Plan (other
than to make contributions in the ordinary course of business).  

 

(b)           Except as could not reasonably be expected to result, individually or
in the aggregate, in a Material Adverse Effect, (i) each Foreign Pension Plan
has been maintained in compliance with its terms and with the requirements of
any and all applicable laws, statutes, rules, regulations and orders and has
been maintained, where required, in good standing with applicable regulatory
authorities, (ii) all contributions required to be made with respect to a
Foreign Pension Plan have been timely made, (iii) neither the Parent Borrower
nor any of its Subsidiaries has incurred any obligation in connection with the
termination of, or withdrawal from, any Foreign Pension Plan and (iv) the
present value of the accrued benefit liabilities (whether or not vested) under
each Foreign Pension Plan that is required to be funded,

 

68

 

determined as of the end of the Parent Borrower’s
most recently ended fiscal year on the basis of actuarial assumptions, each of
which is reasonable, did not exceed the current value of the assets of such
Foreign Pension Plan allocable to such benefit liabilities.

 

Section 4.13.  Subsidiaries.  (a) 
Set forth on Schedule 4.13 is a complete and correct list of all of the
Subsidiaries of the Parent Borrower as of the Effective Date, together with,
for each such Subsidiary, (i) the jurisdiction of organization of such
Subsidiary, (ii) each Person holding direct ownership interests in such
Subsidiary and (iii) the percentage of ownership of such Subsidiary represented
by such ownership interests.  Except as
disclosed on Schedule 4.13, each of the Parent Borrower and its Subsidiaries
owns, free and clear of Liens, and has the unencumbered right to vote, all
outstanding ownership interests in each Person shown to be held by it on
Schedule 4.13.

 

(b)           As of the Effective Date, there are no restrictions on the Parent
Borrower or any of its Subsidiaries which prohibit or otherwise restrict the
transfer of cash or other assets from any Subsidiary of the Parent Borrower to
the Parent Borrower, other than (i) prohibitions or restrictions existing under
or by reason of this Agreement or the other Credit Documents, (ii) prohibitions
or restrictions existing under or by reason of the Long-Term LC Facility, (iii)
prohibitions or restrictions existing under or by reason of the Existing Senior
Notes (iv) prohibitions or restrictions existing under or by reason of Legal
Requirements, (v) prohibitions or restrictions permissible under Section 7.03,
(vi) prohibitions or restrictions existing under or by reason of the Existing
LC Facility and (vii) other prohibitions or restrictions which, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.

 

Section 4.14.  Capitalization.  As of June 30, 2004, the authorized capital
stock of the Parent Borrower consists of (i) 200,000,000 common shares, $.01
par value per share, 33,548,012 of which shares are issued and outstanding,
and, (ii) 50,000,000 preference shares, $.01 par value per share, of which
38,364,972 are issued and outstanding Series A Convertible Preference
Shares.  As of the Effective Date, none
of the Parent Borrower’s Subsidiaries has outstanding any securities
convertible into or exchangeable for its capital stock or outstanding any
rights to subscribe for or to purchase, or any options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock
except for options, warrants and grants outstanding in the aggregate amounts
set forth on Schedule 4.14.  

 

Section 4.15.  Indebtedness.  The Parent Borrower and its Subsidiaries do
not have any Indebtedness on the Effective Date other than (i) the Obligations,
(ii) Indebtedness under the Long-Term LC Facility, (iii) Indebtedness under
Existing LC Facility, (iv) Indebtedness under the Existing Senior Notes and (v)
Indebtedness listed on Schedule 4.15.

 

Section 4.16.  Compliance with Statutes, etc.  The Parent Borrower and each of its
Subsidiaries is in compliance with all applicable statutes, regulations, rules
and orders of, and all applicable restrictions imposed by, and has filed or
otherwise provided all material reports, data, registrations, filings,
applications and other information required to be filed with or otherwise
provided to, all governmental bodies, domestic or foreign, in respect of the conduct
of its business and the ownership of its property (including compliance with
all applicable environmental laws), except where the failure to comply or file
or otherwise provide would not

 

69

 

reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.  All required regulatory approvals are in
full force and effect on the date hereof, except where the failure of such
approvals to be in full force and effect would not reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect.

 

Section 4.17.  Insurance Licenses.  Schedule 4.17 lists with respect to each
Regulated Insurance Company, as of the Effective Date, all of the jurisdictions
in which such Regulated Insurance Company holds licenses (including, without
limitation, licenses or certificates of authority from Applicable Insurance
Regulatory Authorities), permits or authorizations to transact insurance and
reinsurance business (collectively, the “Insurance Licenses”), and indicates
the type or types of insurance in which each such Regulated Insurance Company
is permitted to be engaged with respect to each Insurance License therein
listed.  There is (i) no such Insurance
License that is the subject of a proceeding for suspension, revocation or
limitation or any similar proceedings, (ii) no sustainable basis for such a
suspension, revocation or limitation, and (iii) no such suspension, revocation
or limitation threatened by any Applicable Insurance Regulatory Authority,
that, in each instance under (i), (ii) and (iii) above, has had, or would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.  No Regulated
Insurance Company transacts any insurance business, directly or indirectly, in
any jurisdiction other than those listed on Schedule 4.17, where such business
requires any Insurance License of an Applicable Insurance Regulatory Authority
or such jurisdiction.

 

Section 4.18.  Insurance Business.  All insurance policies issued by any
Regulated Insurance Company are, to the extent required under applicable law,
on forms approved by the insurance regulatory authorities of the jurisdiction
where issued or have been filed with and not objected to by such authorities
within the period provided for objection, except for those forms with respect
to which a failure to obtain such approval or make such a filing without it
being objected to, would not reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect.

 

Section 4.19.  Security Documents.  The Security Documents create, as security
for the Tranche 1 Obligations of each Designated Subsidiary Borrower, valid and
enforceable security interests in and Liens on all of the Collateral, superior
to and prior to the rights of all third persons and subject to no other
Liens.  No filings or recordings are
required in order to ensure the enforceability, perfection or priority of the
security interests created under the Security Documents, except for filings or
recordings which have been previously made.

 

Section 4.20.  No Section 32 Direction.  ARL has not received any direction or other
notification from the Bermuda Monetary Authority pursuant to Section 32 of the
Insurance Act, 1978 of Bermuda.

 

ARTICLE
V

Conditions

 

Section 5.01.  Effective
Date.  The obligations of the
Lenders to make Loans and the Issuing Agent to issue Letters of Credit
hereunder shall not become effective until the date

 

70

 

(the “Effective Date”) on which each
of the following conditions is satisfied (or waived in accordance with Section
10.02):

 

(a)           On the Effective Date, (i) each of the Credit Parties, the
Administrative Agent and each of the Lenders shall have signed a copy hereof
(whether the same or different copies) and shall have delivered the same to the
Administrative Agent in accordance with Section 10.01(a) or, in the case of the
Lenders, shall have given to the Administrative Agent telephonic (confirmed in
writing), written or facsimile transmission notice (actually received) in
accordance with Section 10.01(a) that the same has been signed and mailed to
the Administrative Agent; and (ii) there shall have been delivered to the Administrative
Agent for the account of each Lender that has requested the same pursuant to
Section 2.09(e) or (f), as the case may be, the appropriate Note or Notes,
executed by the respective Tranche 2/3 Borrower, in each case, in the amount,
maturity and as otherwise provided herein.

 

(b)           On the Effective Date, the Administrative Agent shall have received an
opinion, in form and substance reasonably satisfactory to the Administrative
Agent, addressed to the Administrative Agent and each of the Lenders and dated
the Effective Date, from (i) Cahill, Gordon & Reindel LLP, special U.S.
counsel to the Credit Parties, which opinion shall cover the matters contained
in Exhibit G-1 hereto, (ii) Conyers, Dill & Pearman, special Bermuda
counsel to the Credit Parties, which opinion shall cover the matters covered in
Exhibit G-2 hereto, (iii) Inglish and Monaco, P.C., special Missouri counsel to
AIC, which opinion shall cover the matters covered in Exhibit G-3, (iv) Lamson,
Dugan & Murray, LLP, special Nebraska counsel to ARC and AESIC, which
opinion shall cover the matters covered in Exhibit G-4 and (v) Quarles &
Brady LLP, special Wisconsin counsel to ASIC and WDCIC, which opinion shall
cover the matters covered in Exhibit G-5.

 

(c)           (i) On the Effective Date, the Administrative Agent shall have
received, from each Credit Party, a certificate, dated the Effective Date,
signed by the President, any Vice President, Chief Executive Officer,
Controller or Chief Operating Officer of such Credit Party, and attested to by
the Secretary or any Assistant Secretary of such Credit Party, in the form of
Exhibit D hereto with appropriate insertions and deletions, together with (x)
copies of its certificate of incorporation, by-laws or other organizational
documents and (y) the resolutions relating to the Credit Documents which shall
be satisfactory to the Administrative Agent.

 

(ii)           On
or prior to the Effective Date, all corporate and legal proceedings and all
instruments and agreements in connection with the transactions contemplated by
this Agreement and the other Credit Documents shall be reasonably satisfactory
in form and substance to the Administrative Agent, and the Administrative Agent
shall have received all information and copies of all certificates, documents
and papers, including certificates of existence or good standing certificates,
as applicable, and any other records of corporate proceedings and governmental
approvals, if any, which the Administrative Agent reasonably may have requested
in connection therewith, such documents and papers where appropriate to be
certified by proper corporate or governmental authorities.

 

71

 

(d)           Since December 31, 2003, nothing shall have occurred or become known to
the Administrative Agent or the Required Lenders which has had, or would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.

 

(e)           On the Effective Date, no actions, suits or proceedings by any entity
(private or governmental) shall be pending against the Parent Borrower or any
of its Subsidiaries (i) with respect to this Agreement, any other Credit
Document, the Transaction or any of the transactions contemplated hereby or
thereby or (ii) which has had, or would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

 

(f)            On the Effective Date, all governmental and
third party approvals, permits and licenses required to be obtained in
connection with the Transactions on or prior to the Effective Date shall have
been obtained and remain in full force and effect.

 

(g)           On the Effective Date, the Parent Borrower and its Subsidiaries shall
have no outstanding preferred stock or Indebtedness except (i) Obligations,
(ii) Indebtedness under the Long-Term LC Facility, (iii) Indebtedness under the
Existing LC Facility, (iv) Indebtedness under the Existing Senior Notes and (v)
preferred stock or Indebtedness set forth on Schedule 4.15.  

 

(h)           On the Effective Date, there shall exist no Default or Event of Default,
and all representations and warranties made by each Credit Party contained
herein or in any other Credit Document shall be true and correct in all
material respects (it being understood and agreed that any representation or
warranty which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such specified date).

 

(i)            On the Effective Date, each Regulated
Insurance Company (other than the Excluded Subsidiaries) shall have an A.M.
Best financial strength rating of at least “A-”.

 

(j)            On the Effective Date, the Borrowers shall
have paid the Administrative Agent and the Lenders all fees, reasonable
out-of-pocket expenses (including, without limitation, reasonable legal fees
and expenses of the Administrative Agent) and other compensation contemplated
by this Agreement and the other Credit Documents, agreed upon by such parties
to be paid on or prior to the Effective Date.

 

(k)           On or prior to the Effective Date, the Administrative Agent shall have
received counterparts of the Security Agreement executed by each Designated
Subsidiary Borrower, together with:

 

(i)            all
documents and instruments, including Uniform Commercial Code financing
statements where applicable, required by law in each applicable jurisdiction or
reasonably requested by the Administrative Agent to be filed, registered or
recorded to create or perfect the Liens intended to be created under the
Security Agreement; 

 

72

 

(ii)           results
of a recent search of the Uniform Commercial Code (or equivalent) filings made
with respect to each Designated Subsidiary Borrower in the jurisdictions
contemplated in clause (i) above (including, without limitation, Washington,
D.C., and Bermuda) and in such other jurisdictions in which Collateral is
located on the Effective Date which may be reasonably requested by the
Administrative Agent, and copies of the financing statements (or similar
documents) disclosed by such search and evidence reasonably satisfactory to the
Administrative Agent that the Liens indicated by such financing statements (or
similar documents) are permitted by the Security Agreement or have been
released; and

 

(iii)          for
each Collateral Account, an Account Control Agreement with JPMorgan Chase Bank
executed by the respective Designated Subsidiary Borrower, and each such
Account Control Agreement shall be in full force and effect;

 

and
the Security Agreement shall be in full force and effect.

 

(l)            On the Effective Date, all commitments under
the Existing Credit Agreement shall have been terminated, all loans outstanding
thereunder shall have been repaid in full, and all other amounts under the
Existing Credit Agreement (other than indemnities not then due and payable)
shall have been paid in full.

 

The
Administrative Agent shall notify the Borrowers and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the
obligations of the Lenders to make Loans and the Issuing Agent to issue Letters
of Credit on behalf of the respective Lenders hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 10.02) at or prior to 5:00 p.m., New York City time, on
September 10, 2004 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).  

 

Section 5.02.  Each Credit Event.  The obligation of each Lender to make each
Loan and the Issuing Agent to issue each Letter of Credit is subject to the
satisfaction of the following conditions:

 

(a)           The Effective Date shall have occurred.

 

(b)           (i)  There shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein or in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of the making of such Loan (it being
understood and agreed that any representation or warranty which by its terms is
made as of a specified date shall be required to be true and correct in all
material respects only as of such specified date).

 

(c)           The Administrative Agent shall have received a Borrowing Request
meeting the requirements of Section 2.03 with respect to each incurrence of
Loans.

 

73

 

(d)           The Administrative Agent shall have received a Letter of Credit Request
meeting the requirements of Section 3A.02 or 3B.02, as the case may be, with
respect to each Letter of Credit to be issued.

 

Each
incurrence of a Loan and each issuance of a Letter of Credit shall be deemed to
constitute a representation and warranty by the respective Borrower on the date
thereof as to the matters specified in paragraphs (a) and (b) of this Section
5.02.

 

ARTICLE VI

Affirmative Covenants

 

Until
the Commitments have expired or been terminated, no Notes or Letters of Credit
are outstanding (or, in the case of Letters of Credit, such Letters of Credit
are either (i) collateralized by cash and/or Cash Equivalents equal to not less
than 100% of the amounts outstanding or available for drawing in a manner
satisfactory to the Agents or (ii) supported by back-to-back letters of credit
the terms, conditions and issuer of which are satisfactory to the Agents), and
the principal of and interest on each Loan, all Tranche 1 Unpaid Drawings and
Tranche 2 Unpaid Drawings and all fees payable hereunder shall have been paid
in full, each Borrower covenants and agrees (solely as to itself and its Subsidiaries)
with the Lenders that:

 

Section 6.01.  Information Covenants.  The Parent Borrower will furnish to the
Administrative Agent (for distribution to each Lender):

 

(a)           Annual Financial Statements. 
(i)  As soon as available and in
any event within 90 days after the close of each fiscal year of the Parent
Borrower, the consolidated balance sheet of the Parent Borrower and its
Subsidiaries as at the end of such fiscal year and the related consolidated
statements of income, changes in shareholders’ equity and cash flows of the
Parent Borrower and its Subsidiaries for such fiscal year, setting forth in
comparative form the consolidated figures for the previous fiscal year, all in
reasonable detail and accompanied by a report thereon of PricewaterhouseCoopers
LLP or other independent public accountants of recognized national standing
selected by the Parent Borrower, which report shall state that such
consolidated financial statements present fairly in all material respects the
consolidated financial position of the Parent Borrower and its Subsidiaries as
at the dates indicated and their consolidated results of operations and cash
flows for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise specified in such report;
provided any exceptions or qualifications thereto must be acceptable to the
Required Lenders) and that the audit by such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards.

 

(ii)  As soon as available and in any event within
90 days after the close of each fiscal year of ARL, the summary consolidated
balance sheet of ARL and its Subsidiaries as at the end of such fiscal year and
the related summary consolidated statement of income of ARL and its
Subsidiaries for such fiscal year, setting forth in comparative form the
consolidated figures for the previous fiscal year, all in form and scope
consistent in all material respects with the financial statements of ARL
previously delivered pursuant to Section 4.10(a)(ii) and certified by the chief
financial officer or controller of ARL, which certificate shall state that such

 

74

 

consolidated financial statements present
fairly in all material respects the consolidated financial position of ARL and
its Subsidiaries as at the dates indicated (subject to normal year-end audit
adjustments and the absence of full footnote disclosure).

 

(iii)  As soon as available and in any event within
90 days after the close of each fiscal year of Intermediate Holdings, the
summary consolidated financial information of Intermediate Holdings and its
Subsidiaries as at the end of and for such fiscal year, setting forth in
comparative form the consolidated figures for the previous fiscal year, all in
form and scope consistent in all material respects with the financial
information of Intermediate Holdings previously delivered pursuant to Section
4.10(a)(iii) and certified by the chief financial officer or controller of
Intermediate Holdings, which certificate shall state that such financial
information presents fairly in all material respects the consolidated financial
position of Intermediate Holdings and its Subsidiaries as at the dates indicated
(subject to normal year-end audit adjustments and the absence of full footnote
disclosure).

 

(iv)  As soon as available and in any event within
90 days after the close of each fiscal year of each Designated Subsidiary
Borrower (or, in the case of ARL, such later date as may be required by the
Bermuda Companies Law), the Statutory Statements for each such Designated
Subsidiary Borrower for such fiscal year.

 

(b)           Quarterly Financial Statements. 
(i)  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 Parent Borrower, consolidated
balance sheets of the Parent Borrower and its Subsidiaries as at the end of
such period and the related consolidated statements of income, changes in
shareholders’ equity and cash flows of the Parent Borrower 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 reasonable detail and certified by the chief financial officer of the
Parent Borrower as presenting fairly in all material respects, in accordance
with GAAP (except as specifically set forth therein; provided any exceptions or
qualifications thereto must be acceptable to the Administrative Agent) 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.

 

(ii)  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 ARL, a summary consolidated balance sheet of ARL and its
Subsidiaries as at the end of such period and the related summary consolidated
statement of income of ARL 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 ARL
previously provided pursuant to Section 4.10(a)(ii) and certified by the chief
financial officer or controller of ARL, 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.

 

75

 

(iii)  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 Intermediate Holdings, summary consolidated financial
information of Intermediate Holdings and its Subsidiaries as at the end of 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
information of Intermediate Holdings previously provided pursuant to Section
4.10(a)(iii) and certified by the chief financial officer or controller of
Intermediate Holdings 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.

 

(iv)  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 each Designated Subsidiary Borrower (other than ARL),
the Statutory Statements for each such Designated Subsidiary Borrower for each
such period.

 

(c)           Officer’s Certificates.  At
the time of the delivery of the financial statements provided for in Sections
6.01(a) and 6.01(b), a certificate of the chief financial officer of the Parent
Borrower to the effect that no Default or Event of Default exists or, if any
Default or Event of Default does exist, specifying the nature and extent
thereof, which certificate shall set forth the calculations required to
establish whether the Parent Borrower and its Subsidiaries were in compliance
with the provisions of Sections 7.03, 7.09, 7.10 and 7.11, as at the end of
such fiscal year or quarter, as the case may be. 

 

(d)           Notice of Default or Litigation. 
(x)  Within five Business Days
after any Borrower becomes aware of the occurrence of any Default and/or any
event or condition constituting, or which would reasonably be expected to have,
a Material Adverse Effect, a certificate of a Financial Officer of such
Borrower setting forth the details thereof and the actions which such Borrower
(or the Parent Borrower or any of its Subsidiaries) is taking or proposes to
take with respect thereto and (y) promptly after any Borrower knows of the
commencement thereof, notice of any litigation, dispute or proceeding involving
a claim against any Borrower and/or any Subsidiary which claim would reasonably
be expected to have a Material Adverse Effect.

 

(e)           Other Statements and Reports. 
Promptly upon the mailing thereof to the security holders of the Parent
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed (unless same is publicly available via the SEC’s “EDGAR”
filing system).

 

(f)            SEC Filings.  Promptly upon the filing
thereof, (i) copies of all registration statements (other than the exhibits
thereto and any registration statements on Form S-8 or its equivalent) and
annual, quarterly or monthly reports which the Parent Borrower shall have filed
with the SEC or any national securities exchange (unless same is publicly
available via the SEC’s “EDGAR” filing system) or (ii) written notification of
the filing of a Form 10-Q or Form 10-K with the SEC.  

 

76

 

(g)           Insurance Reports and Filings. 
(i)  Promptly after the filing
thereof, a copy of each Statutory Statement filed by each Regulated Insurance
Company. 

 

(ii)           Promptly following the delivery or receipt, as the case may be, by any
Regulated Insurance Company or any of their respective Subsidiaries, copies of
(a) each material registration, filing or submission made by or on behalf of
any Regulated Insurance Company with any Applicable Insurance Regulatory
Authority, except for policy form or rate filings, (b) each material
examination and/or audit report submitted to any Regulated Insurance Company 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 any
Borrower or any Regulated Insurance Company may at any time receive from any
Applicable Insurance Regulatory Authority. 
For the purpose of this clause (ii) only, determinations of “material”
shall be made by the Borrowers in good faith.

 

(iii)          As soon as available and in any event within 120 days after the end of
each fiscal year of the Parent Borrower (but subject to the consent of the
actuarial consulting firm referred to below), 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 Borrower and its Subsidiaries on a consolidated basis,
determined in accordance with SAP and stating that the Regulated Insurance
Companies have 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 each such Regulated Insurance
Company in the possession of or available to the Parent Borrower or its
Subsidiaries.

 

(iv)          Promptly following notification thereof from a Governmental Authority,
notification of the suspension, limitation, termination or non-renewal of, or
the taking of any other materially adverse action in respect of, any Insurance
License.

 

(h)           Borrowing Base Certificate.  No
later than the tenth Business Day of each month, a Borrowing Base Certificate
from each Designated Subsidiary Borrower for whose account a Tranche 1 Letter
of Credit has been issued as of the last day of the immediately preceding
month, executed by an Authorized Officer of such Designated Subsidiary
Borrower.

 

(i)            Section 32 Direction. 
Promptly following receipt thereof by ARL, notice of any direction or
other notification received by ARL from the Bermuda Monetary Authority pursuant
to Section 32 of the Insurance Act, 1978 of Bermuda.

 

(j)            Other Information. 
With reasonable promptness, such other information or existing documents
(financial or otherwise) as the Administrative Agent or any Lender may
reasonably request from time to time.

 

(k)           Delivery of Information. 
Each Credit Party and each Lender hereby acknowledges and agrees that
the Administrative Agent and/or the Credit Parties may make available to the
Lenders materials and/or information provided by or on behalf of any Credit

 

77

 

Party under this Agreement or any other Credit
Document by posting such materials and/or information on IntraLinks or another
similar electronic system reasonably acceptable to the Administrative Agent and
the Credit Parties (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 Section 10.12 of this Agreement).

 

Section 6.02.  Books, Records and Inspections.  Each Borrower will (i) 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 (ii) subject to binding contractual confidentiality obligations
of such Borrower and its Subsidiaries to third parties and to Section 10.12,
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 such Borrower’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 reasonably be desired. 
Each Borrower agrees to cooperate and assist in such visits and
inspections.

 

Section 6.03.  Insurance.  Each Borrower will maintain, and will cause each of its
Subsidiaries to maintain (either in the name of such Borrower or in the
Subsidiary’s own name) with financially sound and reputable insurance
companies, insurance on all their property in at least such amounts and against
at least such risks as are usually insured against in the same general area by companies
of established repute engaged in the same or similar businesses.

 

Section 6.04.  Payment of Taxes.  Each Borrower 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 prior 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 such Borrower or any of its Subsidiaries; provided
that neither any Borrower nor any Subsidiary of any Borrower 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.

 

Section 6.05.  Maintenance of Existence.  Each Borrower shall maintain, and shall
cause each of its Subsidiaries to maintain, its existence, provided that
a Borrower shall not be required to maintain the existence of any of its
Subsidiaries (other than each Credit Party the existence of which will be
maintained at all times) if such Borrower shall determine in good faith that
the preservation thereof is no longer desirable in the conduct of the business
of such Borrower and its Subsidiaries taken as a whole.  Each Borrower will qualify and remain
qualified, and cause each of its Subsidiaries to qualify and remain qualified,
as a foreign corporation in each jurisdiction where such Borrower or such
Subsidiary, as the case may be, is required to be qualified, except in those
jurisdictions in which the failure to receive or retain such qualifications
would not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.

 

78

 

Section 6.06.  Compliance with Statutes, etc.  Each Borrower will, and will cause each
Subsidiary to, comply with all applicable statutes, 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.

 

Section 6.07.  ERISA.  Promptly after any Borrower, any of its Subsidiaries or, in the
case of clauses (i) through (v) below, any of its ERISA Affiliates knows or has
reason to know that any of the events or conditions specified below with
respect to any Plan or Multiemployer Plan or Foreign Pension Plan has occurred
or exist, a certificate of the chief financial officer of such Borrower setting
forth details respecting such event or condition and the action if any, that
such Borrower, such Subsidiary or such ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with
or given to PBGC or an applicable foreign governmental agency by such Borrower,
such Subsidiary or such ERISA Affiliate with respect to such event or condition):

 

(i)            any reportable event, as defined in
subsections (c)(1), (2), (5) and (6), and subsection (d)(2) of Section 4043 of
ERISA and the regulations issued thereunder, with respect to a Plan;

 

(ii)           the filing under Section 4041(c) of ERISA of a notice of intent to
terminate any Plan under a distress termination or the distress termination of
any Plan;

 

(iii)          the institution by PBGC of proceedings under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Plan, or
the receipt by any Borrower, any of its Subsidiaries or any of its ERISA
Affiliates of a notice from a Multiemployer Plan that such action has been
taken by PBGC with respect to such Multiemployer Plan which could reasonably be
expected to result in a liability to such Borrower or any of its Subsidiaries
in excess of $5,000,000;

 

(iv)          the receipt by any Borrower, any of its Subsidiaries or any of its
ERISA Affiliates of notice from a Multiemployer Plan that such Borrower, any of
its Subsidiaries or any of its ERISA Affiliates has incurred withdrawal
liability under Section 4201 of ERISA in excess of $5,000,000 or that such
Multiemployer Plan is in reorganization or insolvency pursuant to Section 4241
or 4245 of ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA whereby a deficiency or additional assessment is levied
or threatened to be levied in excess of $5,000,000 against such Borrower, any
of its Subsidiaries or any of its ERISA Affiliates;

 

(v)           the institution of a proceeding by a fiduciary of any Plan or
Multiemployer Plan against any Borrower, any of its Subsidiaries or any of its
ERISA Affiliates to enforce Section 515 or 4219(c)(5) of ERISA asserting
liability in excess of $5,000,000, which proceeding is not dismissed within 30
days; and

 

79

 

(vi)          that any material contribution required to be made with respect to a
Foreign Pension Plan has not been timely made, or that any Borrower or any
Subsidiary of such Borrower may incur any material liability pursuant to any
Foreign Pension Plan (other than to make contributions in the ordinary course
of business).

 

Section 6.08.  Maintenance of Property.  Each Borrower shall, and will cause each of
its Subsidiaries to, maintain all of their properties and assets in good
condition, repair and working order, ordinary wear and tear excepted, except
where failure to maintain the same would not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.

 

Section 6.09.  Maintenance of Licenses and Permits.  Each Borrower 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.

 

Section 6.10.  Financial Strength Ratings.  Each Borrower shall cause each Regulated
Insurance Company (other than the Excluded Subsidiaries) to maintain at all
times a financial strength rating of at least “B++” from A.M. Best & Co.
(or its successor); provided that any Regulated Insurance Company
acquired or created after the Effective Date shall not be required to comply
with this Section 6.10 until the date occurring 180 days after the date of such
acquisition or creation.

 

Section 6.11.  End of Fiscal Years; Fiscal Quarters.  Each Borrower will cause (i) each of its,
and each of its Subsidiaries’, fiscal years to end on December 31 of each year
and (ii) each of its, and each of its Subsidiaries’, fiscal quarters to end on
dates which are consistent with a fiscal year end as described above, provided
that the Borrowers shall not be required to comply with the foregoing with
respect to any Subsidiary of any Borrower acquired after the Effective Date
having a fiscal year ending on a date other than December 31 at the time of
such acquisition.

 

Section 6.12.  Borrowing Base Requirement.  Subject to Sections 2.10(d) and (e), each
Designated Subsidiary Borrower shall at all times cause its respective
Borrowing Base to equal or exceed the Tranche 1 Letter of Credit Outstandings
attributable to such Designated Subsidiary Borrower at such time.

 

Section 6.13. 
Further Assurances. 
Each Borrower shall promptly and duly execute and deliver to the
Administrative Agent and/or the Collateral Agent such documents and assurances
and take such further action as the Administrative Agent may from time to time
reasonably request in order to carry out more effectively the intent and
purpose of the Credit Documents and to establish, protect and perfect the
rights and remedies created or intended to be created in favor of the
Collateral Agent, the Administrative Agent or the Lenders pursuant to the
Credit Documents.

 

80

 

ARTICLE VII

Negative Covenants

 

Until
the Commitments have expired or terminated, no Notes or Letters of Credit are
outstanding (or, in the case of Letters of Credit, such Letters of Credit are
either (i) collateralized by cash and/or Cash Equivalents equal to not less
than 100% of the accounts outstanding or available for drawing in a manner
satisfactory to the Agents or (ii) supported by back-to-back letters of credit
the terms, conditions and issuer of which are satisfactory to the Agents), and
the principal of and interest on each Loan, all Tranche 1 Unpaid Drawings and
Tranche 2 Unpaid Drawings and all fees payable hereunder have been paid in
full, each Borrower covenants and agrees (solely as to itself and its
Subsidiaries) with the Lenders that:

 

Section 7.01.  Changes in Business and Investments.  No Borrower will, nor will it permit any of
its Subsidiaries to, engage (directly or indirectly) in any business other than
businesses in which they are engaged on the Effective Date and reasonable
extensions thereof and other businesses that are complementary or reasonably
related thereto. 

 

Section 7.02.  Consolidations, Mergers, Sales of Assets
and Acquisitions.  (a)  No Borrower will, nor will it permit any of
its Subsidiaries to, consolidate or merge with or into any other Person,
provided that (i) the Parent Borrower may merge with another Person if (x) the
Parent Borrower is the corporation surviving such merger and (y) immediately
after giving effect to such merger, no Default or Event of Default shall have
occurred and be continuing, (ii) Intermediate Holdings may merge with another
Person if (x) Intermediate Holdings is the corporation surviving such merger
and (y) immediately after giving effect to such merger, no Default or Event of
Default shall have occurred and be continuing, and (iii) Subsidiaries of any
Borrower (other than Intermediate Holdings) may merge with one another provided
that if any such merger involves a Designated Subsidiary Borrower, then the
corporation surviving such merger must be a Designated Subsidiary Borrower.

 

(b)        No Borrower will, 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 Section
7.02(b) 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: 

 

(i)            any Disposition of used, worn out, obsolete
or surplus property of the Parent Borrower or any Subsidiary in the ordinary
course of business;

 

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

 

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

 

81

 

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

 

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

 

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

 

(vii)         Dividends not prohibited by Section 7.07;

 

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

 

(ix)           any Disposition by the Parent Borrower or any of its Subsidiaries of
any Non-Core Asset (as defined in the Subscription Agreement) or as set forth
on Schedule 7.02;

 

(x)            Dispositions of properties or assets having
an aggregate fair value (as determined in good faith by the board of directors
of the Parent Borrower) of less than $1,000,000;

 

(xi)           Dispositions by the Parent Borrower or any of its Subsidiaries of any
of their respective properties or assets to the Parent Borrower, to any
Wholly-Owned Subsidiary of the Parent Borrower or (except as to property or
assets consisting of the capital stock of Subsidiaries) to Alternative Re
Holdings; 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 Parent Borrower), when added to the fair
market value of the assets the subject of any such other Disposition or
Dispositions under this clause (xii) previously consummated during the same
fiscal year of the Parent Borrower (as determined in good faith by the board of
directors or senior management of the Parent Borrower), does not constitute
more than 10% of the consolidated assets of the Parent Borrower and its
Subsidiaries as of the last day of the most recently ended fiscal year of the
Parent Borrower.

 

(c)           No Borrower will, nor will it 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.

 

Section 7.03.  Liens.  Neither the Parent Borrower 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:

 

(a)           Liens created pursuant to the Credit Documents; 

 

82

 

(b)           Liens existing on the date hereof and listed on Schedule 7.03 hereto;

 

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

 

(d)           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 Effective Date;

 

(e)           Liens (x) on any asset of any Person existing at the time such Person
is merged or consolidated with or into the Parent Borrower 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;

 

(f)            Liens securing obligations owed by the Parent
Borrower to any of its Subsidiaries or owed by any Subsidiary of the Parent
Borrower to the Parent Borrower or any other Subsidiary of the Parent Borrower,
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; 

 

(g)           Liens securing insurance obligations of Subsidiaries of the Parent
Borrower owed by any Subsidiary of the Parent Borrower to the Parent Borrower
or any other Subsidiary of the Parent Borrower, 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; 

 

(h)           Liens on investments and cash balances of any Regulated Insurance
Company securing obligations of such Regulated Insurance Company 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
such Regulated Insurance Company;

 

(i)            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;

 

(j)            Liens in respect of property or assets of the
Parent Borrower 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 Parent
Borrower’s or such Subsidiary’s property or assets or materially impair the use
thereof in the operation of the business of the Parent Borrower or such
Subsidiary or (y)

 

83

 

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;

 

(k)           Licenses, sublicenses, leases, or subleases granted to other Persons
not materially interfering with the conduct of the business of the Parent
Borrower or any of its Subsidiaries;

 

(l)            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 Parent Borrower or any of
its Subsidiaries;

 

(m)          Liens arising out of the existence of judgments or awards not
constituting an Event of Default under Section 8.07;

 

(n)           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);

 

(o)           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 Parent Borrower 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;

 

(p)           Liens arising out of the refinancing, extension, renewal or refunding
of any Indebtedness secured by any Lien permitted by any of the clauses of this
Section 7.03, provided that such Indebtedness is not increased and is not
secured by any additional assets; 

 

(q)           Liens in respect of property or assets of any Subsidiary of the Parent
Borrower securing Indebtedness of the type described in clause (f) or (j) of
the definition of “Permitted Subsidiary Indebtedness”;

 

(r)            Liens in respect of property or assets of any
Subsidiary of the Parent Borrower securing Indebtedness of the type described
in clause (i) of the definition of “Permitted Subsidiary 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
Borrower secured by Liens incurred pursuant to Section 7.03(s), exceed at any
time 5% of Consolidated Net Worth of the Parent Borrower at the time of
incurrence of any new Liens under this clause (r); and

 

(s)           in addition to the Liens described in clauses (a) through (r) above,
Liens securing obligations of the Parent Borrower; provided that the aggregate
amount of the

 

84

 

obligations
secured by such Liens shall not, when added to the aggregate amount of
outstanding Indebtedness of Subsidiaries incurred pursuant to clause (i) of the
definition of “Permitted Subsidiary Indebtedness”, exceed at any time 5% of
Consolidated Net Worth of the Parent Borrower at the time of incurrence of any
new Liens under this clause (s).

 

Section 7.04.  Indebtedness.  (a) 
The Parent Borrower will not 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 the Loans and other Indebtedness which
is either pari passu with, or subordinated in right of payment to, the Loans.

 

(b)           The Parent Borrower will not permit any of its Subsidiaries to create,
incur, assume or permit to exist any Indebtedness, or agree, become or remain
liable (contingent or otherwise) to do any of the foregoing, except for (i) the
Obligations, (ii) Indebtedness under the Long-Term LC Facility, (iii)
Indebtedness under the Existing Senior Notes, (iv) Permitted Subsidiary
Indebtedness and (v) the Existing LC Facility.

 

(c)           Intermediate Holdings will not create, incur, assume or permit to exist
any Indebtedness, or agree, become or remain liable (contingent or otherwise)
to do any of the foregoing, except for (i) the Intermediate Holdings Guaranty,
(ii) Indebtedness owing to the Parent Borrower or any of its Subsidiaries
(including, without limitation, any such Indebtedness arising from capital
commitments requested or required by an Applicable Insurance Regulatory
Authority) in an aggregate principal amount not to exceed $50,000,000 at any
time, (iii) other Indebtedness listed on Schedule 7.04(c) and (iv) Indebtedness
of the type described in clause (g) of the definition of Permitted Subsidiary
Indebtedness.

 

Section 7.05.  Issuance of Stock.  The Parent Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly issue, sell, assign,
pledge, or otherwise encumber or dispose of any shares of its preferred or
preference equity securities or options to acquire preferred or preference
equity securities, except the issuance of preferred or preference equity
securities, so long as (i) (x) no part of such preferred or preference equity
securities is mandatorily redeemable (whether on a scheduled basis or as a
result of the occurrence of any event or circumstance) prior to the first
anniversary of the Final Maturity Date or (y) all such preferred or preference
equity securities or options therefor are issued to and held by the Parent
Borrower and its Wholly-Owned Subsidiaries and (ii) such preferred or
preference equity securities do not contain any financial performance related
covenants or incurrence covenants which restrict the operations of the issuer
thereof; provided that, the Parent Borrower and its Subsidiaries may
issue preferred stock as described on Schedule 7.05.

 

Section 7.06.  Dissolution.  No Credit Party shall suffer or permit dissolution
or liquidation either in whole or in part, except through corporate
reorganization to the extent permitted by Section 7.02.

 

Section 7.07.  Restricted Payments.  The Parent Borrower will not declare or pay
any dividends, purchase, redeem, retire, defease or otherwise acquire for value
any of its Equity Interests now or hereafter outstanding, return any capital to
its stockholders, partners or members (or the equivalent Persons thereof) as
such, make any distribution of assets, Equity Interests,

 

85

 

obligations or securities to its
stockholders, partners or members (or the equivalent Persons thereof) as such,
or permit any of its Subsidiaries to purchase, redeem, retire, defease or
otherwise acquire for value any Equity Interests in the Parent Borrower or to
sell any Equity Interests therein (each of the foregoing a “Dividend” and,
collectively, “Dividends”) unless no Default or Event of Default shall have
occurred and be continuing at the time of such Dividend or would result
therefrom.

 

Section 7.08.  Transactions with Affiliates.  Neither the Parent Borrower nor any of its
Subsidiaries shall enter into or be a party to, a transaction with any
Affiliate of the Parent Borrower or such Subsidiary (which Affiliate is not the
Parent Borrower or a Subsidiary), except (i) transactions with Affiliates on
terms (x) no less favorable to the Parent Borrower or such Subsidiary than
those that could have been obtained in a comparable transaction on an arm’s length
basis from an unrelated Person or (y) approved by a majority of the
disinterested members of the board of directors of the Parent Borrower, (ii)
transactions and payments pursuant to agreements and arrangements disclosed in,
or listed as an exhibit to, the Parent Borrower’s annual report on Form 10-K
filed with the SEC on March 9, 2004 or any subsequent other filing with the SEC
through the Effective 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 Parent Borrower and its Subsidiaries than the terms of such
agreement on the Effective Date, as the case may be, (iii) Dividends not
prohibited by Section 7.07, (iv) fees and compensation paid to and indemnities provided
on behalf of officers and directors of the Parent Borrower or any of its
Subsidiaries as reasonably determined in good faith by the board of directors
or senior management of Parent Borrower and (v) the issuance of common stock of
the Parent Borrower.

 

Section 7.09.  Maximum Parent Borrower Leverage Ratio.  The Parent Borrower will not permit the
Parent Borrower Leverage Ratio on the last day of any fiscal quarter or fiscal
year of the Parent Borrower to be greater than 0.35:1.00.

 

Section 7.10.  Minimum Consolidated Tangible Net Worth.  (a) 
The Parent Borrower will not permit its Consolidated Tangible Net Worth
at any time to be less than the sum of (i) $1,400,000,000, plus (ii) 40%
of the sum of its Consolidated Net Income for all Test Periods ending after the
Effective Date where such Consolidated Net Income for such respective Test
Period or Test Periods was a positive amount plus (iii) 40% of the
aggregate Net Cash Proceeds received from any issuance of common or preferred
equity interests of the Parent Borrower consummated after the Effective
Date.  

 

(b)           Neither ARC, ARL nor Intermediate Holdings will permit its respective
Consolidated Tangible Net Worth at any time to be less than (i) in the case of
ARC, the sum of (x) $338,000,000, plus (y) 40% of the sum of its
Consolidated Net Income for all Test Periods ending after the Effective Date
where such Consolidated Net Income for such respective Test Period or Test
Periods was a positive amount; (ii) in the case of ARL, the sum of (x)
$1,500,000,000, plus (y) 40% of the sum of its Consolidated Net Income
for all Test Periods ending after the Effective Date where such Consolidated
Net Income for such respective Test Period or Test Periods was a positive
amount; and (iii) in the case of Intermediate Holdings, the sum of (x)
$338,000,000, plus (y) 40% of its Consolidated Net Income for all Test
Periods ending after the Effective Date where such Consolidated Net Income for
such respective Test Period or Test Periods was a positive amount.

 

86

 

Section 7.11.  Unencumbered Liquid Assets.  The Parent Borrower will not at any time
permit the sum of (i) cash held by the Parent Borrower and/or any of its
Subsidiaries plus (ii) Cash Equivalents held by the Parent Borrower and/or any
of its Subsidiaries plus (iii) Investment Grade Securities held by the Parent
Borrower and/or any of its Subsidiaries which, in each case, is not subject to
any Lien to be reduced to an aggregate amount of less than $400,000,000.

 

Section 7.12.  Limitation on Certain Restrictions on
Subsidiaries.  No Borrower will, nor
will it permit any of its Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any such Subsidiary to
(a) pay dividends or make any other distributions on its capital stock or any
other interest or participation in its profits owned by such Borrower or any of
its Subsidiaries, or pay any Indebtedness owed to such Borrower or any of its Subsidiaries,
(b) make loans or advances to such Borrower or any of its Subsidiaries or (c)
transfer any of its properties or assets to such Borrower or any of its
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (i) applicable law, (ii) the Long-Term LC Facility (and any
replacements, renewals and extensions thereof and any successor facilities,
provided that the encumbrances and restrictions contained in any such
replacements, renewals or extensions or any such successor facilities are not
materially more disadvantageous to the Lenders than is customary in comparable
financings and such encumbrances and restrictions will not materially affect
any Borrower’s ability to make principal or interest payments on the Loans or
to reimburse Unpaid Drawings and do not restrict the ability to grant any Lien
contemplated or required by the Agreement), (iii) the Existing LC Facility (and
any replacements, renewals and extensions thereof and any successor facilities,
provided that the encumbrances and restrictions contained in any such
replacements, renewals or extensions or any such successor facilities shall not
be materially more disadvantageous to the Lenders than is customary in
comparable financings and such encumbrances and restrictions will not
materially affect any Borrower’s ability to make principal or interest payments
on the Loans or to reimburse Unpaid Drawings and do not restrict the ability to
grant any Lien contemplated or required by the Agreement), (iv) the Existing Senior
Notes (and any additional issuances of notes, provided that the encumbrances
and restrictions contained in any such additional notes shall not be materially
more disadvantageous to the Lenders than is customary in comparable financings
and such encumbrances and restrictions will not materially affect any
Borrower’s ability to make principal or interest payments on the Loans or to
reimburse Unpaid Drawings and do not restrict the ability to grant any Lien
contemplated or required by the Agreement), (v) the Shareholders Agreement,
(vi) this Agreement and the other Credit Documents, (vii) customary provisions
restricting subletting or assignment of any lease governing any leasehold
interest of such Borrower or any of its Subsidiaries, (viii) customary provisions
restricting assignment of any licensing agreement (in which such Borrower or
any of its Subsidiaries is the licensee) or other contract (including leases)
entered into by such Borrower or any of its Subsidiaries in the ordinary course
of business, (ix) restrictions on the transfer of any asset pending the close
of the sale of such asset, (x) restrictions on the transfer of any asset
subject to a Lien permitted by Section 7.03, (xi) agreements entered into by a
Regulated Insurance Company with an Applicable Insurance Regulatory Authority,
(xii) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of the Person so
acquired, (xiii) customary provisions in partnership agreements, limited
liability company organizational

 

87

 

governance documents, joint venture
agreements and other similar agreements entered into in the ordinary course of
business that restrict the transfer of ownership interests in such partnership,
limited liability company, joint venture or similar Person, (xiv) restrictions
on cash or other deposits or net worth imposed by customers under contracts
entered into in the ordinary course of business, (xv) pursuant to an agreement
or instrument relating to any Permitted Subsidiary Indebtedness of the type
described in clause (e), (h) or (i) of the definition thereof if such
encumbrance or restriction is not materially more disadvantageous to the
Lenders than is customary in comparable financings and such encumbrance or
restriction will not materially affect such Borrower’s ability to make
principal or interest payments on the Loans or to reimburse Unpaid Drawings,
and (xvi) any encumbrances or restrictions imposed by any amendments or
refinancings of the contracts, instruments or obligations referred to in clause
(xii) above provided that such amendments or refinancings are no more
materially restrictive with respect to such encumbrances and restrictions that
those prior to such amendment or refinancing.

 

Section 7.13.  Private Act.  No Borrower will become subject to a Private
Act.

 

ARTICLE VIII

Events of Default

 

If
any of the following events (“Events of Default”) shall occur:

 

Section 8.01.  Payments.  Any Borrower shall (a) default in the payment when due of any
principal of any Loan, any Tranche 1 Unpaid Drawing or any Tranche 2 Unpaid
Drawing, (b) default, and such default shall continue for three or more
Business Days, in the payment when due of any interest on any Loan or any fees
payable pursuant to the Credit Documents or (c) default in the prompt payment
following notice or demand in respect of any other amounts owing hereunder or
under any other Credit Document; or

 

Section 8.02.  Representations, etc. Any
representation, warranty or material statement made or deemed made pursuant to
the last sentence of Section 5.02 by any Borrower herein or in any other Credit
Document or in any certificate or material statement delivered or required to
be delivered pursuant hereto or thereto shall prove to be untrue in any
material respect on the date as of which made or deemed made; or

 

Section 8.03.  Covenants.  Any Borrower shall (a) default in the due performance or
observance by it of any term, covenant or agreement contained in Section
6.01(d), 6.02(ii), 6.05 (but only with respect to the first sentence thereof),
6.10 or Article VII, or (b) default in the due performance or observance by it
of any term, covenant or agreement (other than those referred to in Section
8.01 or clause (a) of this Section 8.03) contained in this Agreement and such
default shall continue unremedied for a period of at least 45 days after
written notice to such Borrower from the Administrative Agent or the Required
Lenders; or

 

Section 8.04.  Default under other Agreements.  (a) 
The Parent Borrower or any of its Subsidiaries shall (i) default in any
payment with respect to Indebtedness (other than the Obligations) in excess of
$25,000,000 individually or in the aggregate, for the Parent Borrower and its
Subsidiaries, beyond the period of grace, if any, provided in the instrument or
agreement

 

88

 

under which such Indebtedness was created or
(ii) default in the observance or performance of any 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 (determined without regard to
whether any notice of acceleration, or any lapse of time prior to the
effectiveness of any notice of acceleration, is required), any such
Indebtedness to become due prior to its stated maturity; or (b) Indebtedness of
the Parent Borrower or its Subsidiaries in excess of $25,000,000 shall be
declared to be due and payable other than in accordance with the terms of such
Indebtedness or required to be prepaid, other than by a regularly scheduled
required prepayment or as a mandatory prepayment (unless such required
prepayment or mandatory prepayment results from a default thereunder or an
event of the type that constitutes an Event of Default), prior to the stated
maturity thereof; or

 

Section 8.05.  Bankruptcy, etc.  The Parent Borrower or any of its
Subsidiaries (other than Insignificant Subsidiaries) shall commence a voluntary
case concerning itself under Title 11 of the United States Code entitled
“Bankruptcy,” as now or hereafter in effect, or any successor thereto (the
“Bankruptcy Code”); or an involuntary case is commenced against the Parent
Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries) and
the petition is not controverted within 10 days, or is not dismissed within 60
days, after commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of the Parent Borrower or any of its Subsidiaries (other than
Insignificant Subsidiaries); or the Parent Borrower or any of its Subsidiaries
(other than Insignificant Subsidiaries) commences (including by way of applying
for or consenting to the appointment of, or the taking of possession by, a
rehabilitator, receiver, custodian, trustee, conservator or liquidator
(collectively, a “conservator”) of itself or all or any substantial portion of
its property) any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency, liquidation,
rehabilitation, supervision, conservatorship or similar law of any jurisdiction
or the Bermuda Companies Law whether now or hereafter in effect relating to the
Parent Borrower or any of its Subsidiaries (other than Insignificant
Subsidiaries); or any such proceeding is commenced against (a) any Regulated
Insurance Company (other than any Regulated Insurance Company that is an
Insignificant Subsidiary) which is engaged in the business of underwriting
insurance and/or reinsurance in the United States, or (b) the Parent Borrower
or any of its Subsidiaries (other than Insignificant Subsidiaries or any
Regulated Insurance Company described in the immediately preceding clause (a))
to the extent such proceeding is consented to by such Person, and in the case
of either clause (a) or (b) remains undismissed for a period of 60 days; or the
Parent Borrower or any of its Subsidiaries (other than Insignificant
Subsidiaries) is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or (x) any
Regulated Insurance Company (other than any Regulated Insurance Company that is
an Insignificant Subsidiary) which is engaged in the business of underwriting
insurance and/or reinsurance in the United States suffers any appointment of
any conservator or the like for it or any substantial part of its property, or
(y) the Parent Borrower or any of its Subsidiaries (other than Insignificant
Subsidiaries or any Regulated Insurance Company described in the immediately
preceding clause (x)) consents to any appointment of any conservator or the
like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Parent Borrower or any
of its Subsidiaries (other than Insignificant Subsidiaries) makes a general

 

89

 

assignment for the benefit of creditors; or
any corporate action is taken by the Parent Borrower or any of its Subsidiaries
(other than Insignificant Subsidiaries) for the purpose of effecting any of the
foregoing; or

 

Section 8.06.  ERISA.  (i)  An event or condition
specified in Section 6.07 shall occur or exist with respect to any Plan or
Multiemployer Plan or Foreign Pension Plan, (ii) any Borrower, any of its
Subsidiaries or any of its ERISA Affiliates shall fail to pay when due any
amount which they shall have become liable to pay to the PBGC or to a Plan or a
Multiemployer Plan under Title IV of ERISA, or (iii) a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating that
any Plan must be terminated, and as a result of such event, failure or
condition, together with all such other events, failures or conditions, any
Borrower, any of its Subsidiaries or any of its ERISA Affiliates shall be
reasonably likely in the opinion of the general counsel of such Borrower to
incur a liability to a Plan, a Multiemployer Plan, a Foreign Pension Plan or
PBGC (or any combination of the foregoing) which could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or

 

Section 8.07.  Judgments.  One or more judgments or decrees shall be entered against the
Parent Borrower or any of its Subsidiaries involving a liability, net of
undisputed insurance and reinsurance, of $25,000,000 or more in the case of any
one such judgment or decree or in the aggregate for all such judgments and
decrees for the Parent Borrower and its Subsidiaries and any such judgments or
decrees shall not have been vacated, discharged, satisfied, stayed or bonded
pending appeal within 60 days from the entry thereof; or

 

Section 8.08.  Insurance Licenses.  Any one or more Insurance Licenses of the
Parent Borrower or any of its Subsidiaries shall be suspended, limited or
terminated or shall not be renewed, or any other action shall be taken by any
Governmental Authority, and such action would reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect; or

 

Section 8.09.  Intermediate Holdings Guaranty.  The Intermediate Holdings Guaranty shall
terminate or cease, in whole or part, to be a legally valid and binding
obligation of the Guarantor, if the Guarantor, or any Person acting for or on
behalf of the Guarantor, shall contest such validity or binding nature of the
Intermediate Holdings Guaranty, or any other Person shall assert any of the
foregoing; or

 

Section 8.10.  Security Documents.  Any Security Document shall cease to be in
full force and effect, or shall cease to give the Collateral Agent the Liens,
rights, powers and privileges purported to be created thereby (including,
without limitation, a first priority security interest in, and Lien on, all of
the Collateral subject thereto, in favor of the Collateral Agent, superior to
and prior to the rights of all third Persons and subject to no other Liens); or
any Designated Subsidiary Borrower party to any Security Documents or any other
pledgor thereunder shall default in any material respect in the due performance
or observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any Security Document; or 

 

Section 8.11.  Change of Control.  A Change in Control shall occur; or 

 

90

 

Section 8.12.  Section 32 Direction.  ARL shall receive any direction or other
notification from the Bermuda Monetary Authority pursuant to Section 32 of the
Insurance Act, 1978 of Bermuda;

 

then,
and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Lenders, by written notice to the Parent Borrower, take
any or all of the following actions, without prejudice to the rights of the
Administrative Agent or any Lender to enforce its claims against any Borrower,
except as otherwise specifically provided for in this Agreement (provided that
if an Event of Default specified in Section 8.05 shall occur with respect to
any Borrower, the result which would occur upon the giving of written notice by
the Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice):  (i) declare the Commitments (or the unused portion thereof)
terminated, whereupon the Commitment of each Lender (or such unused portion)
shall forthwith terminate immediately and any Facility Fees and any Utilization
Fees shall forthwith become due and payable without any other notice of any
kind, (ii) declare the principal of, and any accrued interest in respect of,
all Loans and all other Obligations owing hereunder and under the other Credit
Documents to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Borrower, (iii) terminate any Letter of Credit or
give a Notice of Non-Extension in respect thereof if permitted in accordance
with its terms, (iv) direct the applicable Borrower to pay (and the applicable
Borrower hereby agrees upon receipt of such notice, or upon the occurrence of
any Event of Default specified in Section 8.05, to pay) to the Administrative
Agent an amount of cash to be held as security for the respective Borrower’s
reimbursement obligations in respect of all Letters of Credit then outstanding
which were issued for the account of such Borrower, equal to the aggregate
Stated Amount of all such Letters of Credit at such time, and/or (v)  direct the Collateral Agent to enforce any
or all of the Liens and security interests created pursuant to the Security
Documents and/or exercise any of the rights and remedies provided therein.  Notwithstanding the foregoing, the
Administrative Agent shall have available to it all other remedies at law or
equity, and shall exercise any one or all of them at the request of the Required
Lenders.  

 

ARTICLE IX

The Administrative Agent

 

Section 9.01.  Appointment.  Each of the Lenders hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the
Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms hereof,
together with such actions and powers as are reasonably incidental
thereto.  As used in this Article IX,
the term “Administrative Agent” shall include JPMorgan Chase Bank in its
capacity as Collateral Agent under the Security Documents.

 

Section 9.02.  Administrative Agent in its Individual
Capacity.  The bank serving as the
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not the Administrative Agent, and such bank and its Affiliates may accept
deposits from, lend money to and generally

 

91

 

engage in any kind of business with any
Borrower or any Subsidiary or other Affiliate thereof as if it were not the
Administrative Agent hereunder.

 

Section 9.03.  Exculpatory Provisions.  The Administrative Agent shall not have any
duties or obligations except those expressly set forth herein.  Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary
or other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent
is required to exercise in writing as directed by the Required Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 10.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to
any Borrower or any of its Subsidiaries that is communicated to or obtained by
the bank serving as Administrative Agent or any of its Affiliates in any
capacity.  The Administrative Agent
shall not be liable for any action taken or not taken by it with the consent or
at the request of the Required Lenders (or such other number or percentage of
the Lenders as shall be necessary under the circumstances as provided in
Section 10.02) or in the absence of its own gross negligence or willful misconduct.  The Administrative Agent shall be deemed not
to have knowledge of any Default unless and until written notice thereof is
given to the Administrative Agent by the Borrowers or a Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with this Agreement, (ii) the contents of any certificate, report or
other document delivered hereunder or in connection herewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein, (iv) the validity, enforceability, effectiveness
or genuineness of this Agreement or any other agreement, instrument or
document, or (v) the satisfaction of any condition set forth in Article V or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent. 

 

Section 9.04.  Reliance.  The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person.  The Administrative Agent also may rely upon
any statement made to it orally or by telephone and believed by it to be made
by the proper Person, and shall not incur any liability for relying
thereon.  The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrowers), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.

 

Section 9.05.  Delegation of Duties.  The Administrative Agent may perform any and
all its duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent may perform any
and all its duties and exercise its rights and powers through their respective
Related Parties.  The exculpatory
provisions of the preceding paragraphs shall apply to any such sub-agent and to
the Related Parties of the Administrative Agent and any such sub-agent, and
shall

 

92

 

apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as
well as activities as Administrative Agent.

 

Section 9.06.  Resignation.  Subject to the appointment and acceptance of
a successor Administrative Agent as provided in this paragraph, the
Administrative Agent may resign at any time by notifying the Lenders and the
Borrowers.  Upon any such resignation,
the Required Lenders shall have the right to appoint a successor administrative
agent, with the consent of the Borrowers (not to be unreasonably withheld or
delayed), provided that no such consent shall be required at any time when a
Default or Event of Default exists.  If
no successor shall have been so appointed by the Required Lenders and shall
have accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Lenders, appoint a successor Administrative Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any
such bank.  Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder.  The fees payable by the Borrowers to a
successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrowers and such
successor.  After the Administrative
Agent’s resignation hereunder, the provisions of this Article and Section 10.03
shall continue in effect for the benefit of such retiring Administrative Agent,
its sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as
Administrative Agent.

 

Section 9.07.  Non-Reliance.  Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement.  Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this
Agreement, any related agreement or any document furnished hereunder or
thereunder.

 

Section 9.08.  Documentation Agents.  Notwithstanding any other provision of this
Agreement or any provision of any other Credit Document, each of the
Documentation Agents are named as such for recognition purposes only, and in
their respective capacities as such shall have no powers, duties,
responsibilities or liabilities with respect to this Agreement or the other
Credit Documents or the transactions contemplated hereby and thereby.  Without limitation of the foregoing, none of
the Documentation Agents shall, solely by reason of this Agreement or any other
Credit Documents, have any fiduciary relationship with any Lender or any other
Person.

 

93

 

ARTICLE X

Miscellaneous

 

Section 10.01.  Notices.  (a)  Except in the case of
notices and other communications expressly permitted to be given by telephone
(and subject to paragraph (b) below), all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:

 

(i)            if to the Parent Borrower, to it at Arch
Capital Group Ltd., Wessex House, 3rd Floor, 45 Reid Street, Hamilton HM 12
Bermuda, Attention of Chief Financial Officer (Telecopy No. 441-278-9255);

 

(ii)           if to ARL, to it at Arch Reinsurance Ltd., Wessex House, 45 Reid
Street, Hamilton HM 12 Bermuda, Attention of Controller (Telecopy No.
441-278-9230);

 

(iii)          if to ARC, to it at Arch Reinsurance Company, 55 Madison Avenue,
Morristown, New Jersey, 07962, Attention of Controller (Telecopy No.
973-889-6467);

 

(iv)          if to Intermediate Holdings, to it at Arch Capital Group (U.S.) Inc.,
20 Horseneck Lane, Greenwich, Connecticut, 06830, Attention of President
(Telecopy No. 203-861-7240);

 

(v)           if to AIC, ASIC, AESIC and WDCIC, to Arch Insurance Company, Arch
Specialty Insurance Company, Arch Excess & Surplus Insurance Company and
Western Diversified Casualty Insurance Company, respectively, at One Liberty
Plaza, 53rd Floor, New York, New York, 10006, Attention of Controller (Telecopy
No. 646-746-8109); 

 

(vi)          if to the Administrative Agent, to (x) JPMorgan Chase Bank, Loan and
Agency Services Group, 1111 Fanin Street, Houston, Texas 77002, Attention of
Melissa Rivas (Telecopy No. (713) 750-2223), with a copy to JPMorgan Chase
Bank, 270 Park Avenue, Fourth Floor, New York 10017, Attention of Heather
Lindstrom (Telecopy No. (212) 270-1511; and 

 

(vii)         if to any other Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.

 

(b)           Notices and other communications to the Lenders hereunder may be
delivered or furnished by electronic communications pursuant to procedures
approved by the Administrative Agent; provided that the foregoing shall not
apply to notices pursuant to (x) Article II unless otherwise agreed by the
Administrative Agent and the applicable Lender or (y) Section 6.01(d)(x).  The Administrative Agent or the Borrowers
may, in its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it;
provided that approval of such procedures may be limited to particular notices
or communications.  

 

94

 

(c)           Any party hereto may change its address or telecopy number for notices
and other communications hereunder by notice to the other parties hereto.  All notices and other communications given
to any party hereto in accordance with the provisions of this Agreement shall
be deemed to have been given on the date of receipt.

 

Section 10.02.  Waivers; Amendments.  (a) 
No failure or delay by the Administrative Agent, or any Lender in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power.  The rights and remedies
of the Administrative Agent, and the Lenders hereunder are cumulative and are
not exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement
or consent to any departure by any Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. 
Without limiting the generality of the foregoing, the making of a Loan
or issuance of a Letter of Credit shall not be construed as a waiver of any Default,
regardless of whether the Administrative Agent, the Issuing Agent or any Lender
may have had notice or knowledge of such Default at the time.

 

(b)           Neither this Agreement nor any other Credit Document nor any provision
hereof or thereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by each Borrower and the
Required Lenders or by each Borrower and the Administrative Agent with the
consent of the Required Lenders; provided that no such agreement shall
(i) increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or the amount of any
Tranche 1 Unpaid Drawing or Tranche 2 Unpaid Drawing or reduce the rate of
interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan or the amount of any Tranche 1
Unpaid Drawing or Tranche 2 Unpaid Drawing or any interest thereon, or any fees
payable hereunder, or reduce the amount of, waive or excuse any such payment,
or postpone the scheduled date of expiration of any Commitment, without the
written consent of each Lender affected thereby, (iv) change Section 2.17(b) or
(c) in a manner that would alter the pro rata sharing of payments required
thereby, without the written consent of each Lender, (v) change any of the
provisions of this Section or the definition of “Required Lenders” or “Majority
Tranche 1 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, (vi) release all or substantially all of the security
provided by the Designated Subsidiary Borrowers to secure the Tranche 1
Obligations, without the written consent of each Tranche 1 Lender, (vii) modify
the definitions in Section 1.01 of “Advance Rates,” “Borrowing Base” or
“Eligible Securities” without the consent of the Agents, the Documentation
Agents and any additional Lender required to constitute the Majority Tranche 1
Lenders, (viii) modify, change, waive, discharge or terminate any provision of
any Security Document without the consent of the Majority Tranche 1 Lenders or
(ix) release Intermediate Holdings from the Intermediate Holdings Guaranty
without the consent of all Lenders; provided, further, that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent or the Issuing Agent hereunder

 

95

 

without the prior written consent of the
Administrative Agent or the Issuing Agent, as the case may be.

 

Section 10.03.  Expenses; Indemnity; Damage Waiver.  (a) 
Each Borrower shall pay, severally in accordance with its respective
Facility-wide Liability Percentage and not jointly, (i) all reasonable
out-of-pocket expenses incurred by the Administrative Agent and its Affiliates,
including the reasonable fees, charges and disbursements of counsel for the
Administrative Agent, in connection with the syndication of the credit facility
provided for herein, the preparation, negotiation and administration of this
Agreement or any amendments, modifications or waivers of the provisions hereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), and (ii) all out-of-pocket expenses incurred by the
Administrative Agent, the Collateral Agent, the Custodian, the Issuing Agent or
any Lender, including the fees, charges and disbursements of any counsel for
the Administrative Agent, or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement, including its rights
under this Section, or in connection with the Loans and Letters of Credit made
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans. 

 

(b)           The Parent Borrower shall indemnify the Administrative Agent, the
Collateral Agent, the Custodian, the Issuing Agent and each Lender, and each
Related Party of any of the foregoing Persons (each such Person being called an
“Indemnitee”) against, and hold each Indemnitee harmless from, any and
all losses, claims, damages, liabilities and related expenses, including the
fees, charges and disbursements of any counsel for any Indemnitee, incurred by
or asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or any other transactions contemplated hereby,
(ii) any Loan, Letter of Credit or the use of the proceeds therefrom, (iii) any
actual or alleged presence or release of Hazardous Materials on or from any
property owned or operated by the Parent Borrower or any of its Subsidiaries,
or any Environmental Liability related in any way to the Parent Borrower or any
of its Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is
a party thereto; provided that such indemnity shall not, as to any
Indemnitee or any Related Party of such Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and non-appealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee or any Related Party of such Indemnitee.  Notwithstanding the foregoing, for the sake
of clarity, the parties hereto acknowledge and agree that the obligations of
the Parent Borrower under this Section 10.03(b) shall not include the payment
of principal or interest on the Loans, any Unpaid Drawing in respect of any
Letter of Credit, or any amounts payable pursuant to Section 2.11, 2.12, 2.14,
2.15, 2.16 or 10.03(a) of this Agreement.

 

(c)           To the extent that any Borrower fails to pay any amount required to be
paid by it to the Administrative Agent, under paragraph (a) or (b) of this
Section, each Lender severally agrees to pay to the Administrative Agent such
Lender’s Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided
that the unreimbursed expense or indemnified loss, claim,

 

96

 

damage, liability or related expense, as the case
may be, was incurred by or asserted against the Administrative Agent, in its
capacity as such.

 

(d)           To the extent permitted by applicable law, no Borrower shall assert,
and each Borrower hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement or any agreement or instrument contemplated
hereby, any Loan or the use of the proceeds thereof.

 

(e)           All amounts due under this Section shall be payable promptly after
written demand therefor.

 

Section 10.04.  Successors and Assigns.  (a) 
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby except that (i) no Borrower may assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
each Lender (and any attempted assignment or transfer by such Borrower without
such consent shall be null and void) and (ii) no Lender may assign or otherwise
transfer its rights or obligations hereunder except in accordance with this
Section.  Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby,
Participants (to the extent provided in paragraph (c) of this Section) and, to
the extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent, and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.

 

(b)           (i)  Subject to the conditions
set forth in paragraph (b)(ii) below, any Lender may assign to one or more
banks, investment funds or other institutions that make or hold commercial
loans in the ordinary course of their businesses (so long as such bank, fund or
institution is an NAIC approved bank or institution) all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it) with the prior written
consent (such consent not to be unreasonably withheld) of:

 

(A)  the Parent Borrower, provided
that no consent of the Parent Borrower shall be required for an assignment to a
Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default
has occurred and is continuing, any other assignee; 

 

(B)  the Administrative Agent, provided
that no consent of the Administrative Agent shall be required for an assignment
of any Commitment to an assignee that is a Lender with a Commitment immediately
prior to giving effect to such assignment; and

 

(C)  the Issuing Agent, provided
that no consent of the Issuing Agent shall be required for an assignment of any
Commitment to an assignee that is a Lender with a Commitment immediately prior
to giving effect to such assignment.

 

(ii)           Assignments shall be subject to the following additional conditions: 

 

97

 

(A)  except in the case of an
assignment to a Lender or an Affiliate of a Lender or an assignment of the
entire remaining amount of the assigning Lender’s Commitment or Loans of any
Tranche, the amount of the Commitment or Loans of the assigning Lender subject
to each such assignment (determined as of the date the Assignment and
Assumption with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000 unless each of the Parent Borrower and
the Administrative Agent otherwise consent, provided that no such
consent of the Parent Borrower shall be required if an Event of Default under
Section 8.01, 8.02 or 8.05 has occurred and is continuing;

 

(B)  each partial assignment
shall be made as an assignment of a proportionate part of all the assigning
Lender’s rights and obligations under this Agreement, provided that this
clause shall not be construed to prohibit the assignment of a proportionate
part of all the assigning Lender’s rights and obligations in respect of one
Tranche of Commitments or Loans;   

 

(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500; and

 

(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire.

 

For
the purposes of this Section 10.04(b), the term “Approved Fund” has the
following meaning:

 

“Approved Fund” means any Person (other than
a natural person) that is engaged in making, purchasing, holding or investing
in bank loans and similar extensions of credit in the ordinary course of its
business and that is administered or managed by (a) a Lender, (b) an Affiliate
of a Lender or (c) an entity or an Affiliate of an entity that administers or
manages a Lender.

 

(iii)          Subject to acceptance and recording thereof pursuant to paragraph
(b)(iv) of this Section, from and after the effective date specified in each
Assignment and Assumption the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Assumption, have
the rights and obligations of a Lender under this Agreement (provided
that any liability of any Borrower to such assignee under Section 2.14, 2.15 or
2.16 shall be limited to the amount, if any, that would have been payable
thereunder by such Borrower in the absence of such assignment, except to the
extent any such amounts are attributable to a Change in Law), and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this
Agreement (and, in the case of an Assignment and Assumption covering all of the
assigning Lender’s rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.14, 2.15, 2.16 and 10.03).  Any assignment or transfer by a Lender of rights or obligations
under this Agreement that does not comply with this Section 10.04 shall be
treated for purposes of this Agreement

 

98

 

as
a sale by such Lender of a participation in such rights and obligations in
accordance with paragraph (c) of this Section.

 

(ii)           The Administrative Agent, acting for this purpose as an agent of the
Borrowers, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitment of, and principal amount of the
Loans and other Obligations and owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, and the
Borrowers, the Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary.  The Register shall be
available for inspection by the Borrowers, and any Lender, at any reasonable
time and from time to time upon reasonable prior notice.

 

(iii)          Upon its receipt of a duly completed Assignment and Assumption executed
by an assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this Section and
any written consent to such assignment required by paragraph (b) of this
Section, the Administrative Agent shall accept such Assignment and Assumption
and record the information contained therein in the Register; provided
that no such assignment shall become effective until all then outstanding
Tranche 1 Letters of Credit and/or Tranche 2 Letters of Credit, as the case may
be, shall be returned by each respective beneficiary to the Issuing Agent
either for cancellation and/or to be exchanged for new or amended Letters of
Credit to reflect such assignment (it being understood that to the extent the
respective beneficiaries do not consent to such assignment, such assignment
cannot occur).  No assignment shall be
effective for purposes of this Agreement unless it has been recorded in the
Register as provided in this paragraph.

 

(c)           (i)  Any Lender may, without the
consent of any Borrower or the Administrative Agent, sell participations to one
or more banks or other entities (a “Participant”) in all or a portion of
such Lender’s rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it); provided that (A)
such Lender’s obligations under this Agreement shall remain unchanged, (B) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (C) the Borrowers, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender’s rights and obligations under this
Agreement.  Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such agreement or instrument may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification or
waiver described in the first proviso to Section 10.02(b) that affects such
Participant.  Subject to paragraph
(c)(ii) of this Section, the Borrower agrees that each Participant shall be
entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section.  To the
extent permitted by law, each Participant also shall be entitled to the

 

99

 

benefits of Section 10.08 as though it were a
Lender, provided such Participant agrees to be subject to Section 2.17(c) as
though it were a Lender.

 

(ii)           A Participant shall not be entitled to receive any greater payment
under Section 2.14 or 2.16 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Parent
Borrower’s prior written consent and the entitlement to greater payment results
solely from a Change in Law.  A
Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 2.16 unless the Parent Borrower is notified
of the participation sold to such Participant and such Participant agrees, for
the benefit of the Borrowers, to comply with Section 2.16(e) as though it were
a Lender.  

 

(d)           Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including without limitation any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.

 

(e)           Notwithstanding anything to the contrary contained herein, any Lender
(a “Granting Lender”) may grant to a special purpose funding vehicle (an,
“SPC”) of such Granting Lender, identified as such in writing from time to time
by the Granting Lender to the Administrative Agent and the Parent Borrower, the
option to provide to the applicable Borrower all or any part of any Loan that
such Granting Lender would otherwise be obligated to make to such Borrower
pursuant to Section 2.01, provided that (i) nothing herein shall
constitute a commitment to make any Loan by any SPC and (ii) if an SPC elects
not to exercise such option or otherwise fails to provide all or any part of
such Loan, the Granting Lender shall be obligated to make such Loan pursuant to
the terms hereof.  The making of a Loan
by an SPC hereunder shall utilize the Commitment of the Granting Lender to the
same extent, and as if, such Loan were made by the Granting Lender.  Each party hereto hereby agrees that (x) no
SPC shall be liable for any payment under this Agreement for which a Lender
would otherwise be liable and (y) the Granting Lender for any SPC shall be (and
hereby agrees that it is) liable for any payment under this Agreement for which
the SPC would be liable in the absence of preceding clause (x).  In furtherance of the foregoing, each party
hereto hereby agrees that, prior to the date that is one year and one day after
the payment in full of all outstanding senior indebtedness of any SPC, it will
not institute against, or join any other person in instituting against, such
SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or similar proceedings under the laws of the United States or any
State thereof.  In addition,
notwithstanding anything to the contrary contained in this Section 10.04 any
SPC may (i) with notice to, but without the prior written consent of, the
Parent Borrower or the Administrative Agent and without paying any processing
fee therefor, assign all or a portion of its interests in any Loans to its
Granting Lender or to any financial institutions (if consented to by the Parent
Borrower and the Administrative Agent) providing liquidity and/or credit
facilities to or for the account of such SPC to fund the Loans made by such SPC
or to support the securities (if any) issued by such SPC to fund such Loans and
(ii) disclose on a confidential basis any non-public information relating to
its Loans to any rating agency, commercial paper dealer or provider of a
surety, guarantee or credit or liquidity enhancement to such SPC. 

 

100

 

Section 10.05.  Survival.  All covenants, agreements, representations and warranties made by
each Credit Party herein and in the certificates or other instruments delivered
in connection with or pursuant to this Agreement shall be considered to have
been relied upon by the other parties hereto and shall survive the execution
and delivery of this Agreement and the making of any Loans and issuance of
Letters of Credit regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent or any Lender
may have had notice or knowledge of any Default or incorrect representation or
warranty at the time any credit is extended hereunder, and shall continue in
full force and effect as long as any Letter of Credit is outstanding, the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid and so long as the Total
Commitments have not expired or terminated. 
The provisions of Sections 2.14, 2.15, 2.16 and 10.03 and Article IX shall
survive and remain in full force and effect regardless of the consummation of
the transactions contemplated hereby, the repayment of the Loans, the
expiration or termination of the Total Commitments or the termination of this
Agreement or any provision hereof.

 

Section 10.06.  Counterparts; Integration; Effectiveness.  This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract. 
This Agreement and any separate letter agreements with respect to fees
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, oral or written, relating to the
subject matter hereof.  Except as
provided in Section 5.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative
Agent shall have received counterparts hereof which, when taken together, bear
the signatures of each of the other parties hereto, and thereafter shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. 
Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.

 

Section 10.07.  Severability.  Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.

 

Section 10.08.  Right of Setoff.  If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of any Credit
Party against any of and all the obligations of such Credit Party now or
hereafter existing under this Agreement held by such Lender, irrespective of whether
or not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured.  The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.

 

101

 

Section 10.09.  Governing Law; Jurisdiction; Consent to
Service of Process.  (a)  This Agreement shall be construed in
accordance with and governed by the law of the State of New York (without
giving regard to any conflict of laws principles thereof).

 

(b)           Each party hereto hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to
this Agreement, or for recognition or 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 Administrative
Agent, or any Lender may otherwise have to bring any action or proceeding
relating to this Agreement against any Credit Party or its properties in the
courts of any jurisdiction.

 

(c)           Each party hereto hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which 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 in any court referred to in
paragraph (b) of this Section.  Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.

 

(d)           Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 10.01.  Nothing in this Agreement will affect the right of any party to
this Agreement to serve process in any other manner permitted by law.

 

Section 10.10.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). 
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

Section 10.11.  Headings.  Article and Section headings and the Table of Contents used
herein are for convenience of reference only, are not part of this Agreement
and shall not affect the construction of, or be taken into consideration in
interpreting, this Agreement.

 

102

 

Section 10.12.  Confidentiality.  Each of the Administrative Agent and the
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that (i) 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 and (ii) that the Administrative Agent and
each Lender shall be responsible for any breach of this Section 10.12 by any of
its and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors), (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) subject to an agreement
containing provisions substantially the same as those of this Section, to (i)
any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or (ii)
any actual or prospective counterparty (or its advisors) to any swap or
derivative transaction relating to any Credit Party and its obligations, (g)
with the consent of the Parent Borrower or (h) to the extent such Information
(i) becomes publicly available other than as a result of a breach of this
Section or (ii) becomes available to the Administrative Agent, or any Lender on
a nonconfidential basis from a source other than the Credit Parties.  For the purposes of this Section, “Information”
means all information received from any Credit Party relating to the Parent
Borrower or any Subsidiary of the Parent Borrower or their respective
businesses, other than any such information that is available to the
Administrative Agent, or any Lender on a nonconfidential basis prior to
disclosure by any Credit Party.  Any
Person required to maintain the confidentiality of Information as provided in
this Section 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, in the case of any Lender, such Lender has 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 Section 10.12 shall survive the
termination of the Total Commitments and repayment of the Loans and other
Obligations hereunder.

 

Section 10.13.  Interest Rate Limitation.  Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under applicable law (collectively the “Charges”), shall exceed the
maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and,

 

103

 

to the extent lawful, the interest and
Charges that would have been payable in respect of such Loan but were not
payable as a result of the operation of this Section shall be cumulated and the
interest and Charges payable to such Lender in respect of other Loans or
periods shall be increased (but not above the Maximum Rate therefor) until such
cumulated amount, together with interest thereon at the Federal Funds Effective
Rate to the date of repayment, shall have been received by such Lender.

 

Section 10.14.  Judgment Currency.  (a) 
Each Borrower’s obligations hereunder and under the other Credit
Documents to make payments in Dollars (the “Obligation Currency”) shall not be
discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any currency other than the Obligation Currency,
except to the extent that such tender or recovery results in the effective
receipt by the Administrative Agent or the respective Lender of the full amount
of the Obligation Currency expressed to be payable to the Administrative Agent
or such Lender under this Agreement or the other Credit Documents.  If, for the purpose of obtaining or
enforcing judgment against any Borrower in any court or in any jurisdiction, it
becomes necessary to convert into or from any currency other than the
Obligation Currency (such other currency being hereinafter referred to as the
“Judgment Currency”) an amount due in the Obligation Currency, the conversion
shall be made based on the respective spot exchange rate as quoted by the
Administrative Agent as of 11:00 a.m. (London time) on the Business Day
immediately preceding the day on which the judgment is given (such Business Day
being hereinafter referred to as the “Judgment Currency Conversion Date”).

 

(b)           If there is a change in the rate of exchange prevailing between the
Judgment Currency Conversion Date and the date of actual payment of the amount
due, each Borrower covenants and agrees to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate of exchange prevailing on the Judgment Currency Conversion
Date.

 

(c)           For purposes of determining any rate of exchange for this Section, such
amounts shall include any premium and costs payable in connection with the
purchase of the Obligation Currency.

 

Section 10.15.  USA Patriot Act.  Each Lender hereby notifies each Borrower
that, pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required
to obtain, verify and record information that identifies each Borrower, which
information includes the name and address of each Borrower and other
information that will allow such Lender to identify each Borrower in accordance
with the Patriot Act.

 

104

 

ARTICLE XI

Intermediate Holdings Guaranty

 

Section 11.01.  The Guaranty.  In order to induce the Lenders to enter into
this Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Intermediate Holdings from the proceeds of the Loans
to be incurred by the Guaranteed Parties and the issuance of the Letters of
Credit for the account of the Guaranteed Parties, Intermediate Holdings hereby
agrees with the Lenders as follows: 
Intermediate Holdings hereby unconditionally and irrevocably guarantees,
as primary obligor and not merely as surety, the full and prompt payment when
due, whether upon maturity, acceleration or otherwise, of any and all of the
Guaranteed Obligations of each Guaranteed Party to the Guaranteed
Creditors.  If any or all of the
Guaranteed Obligations of any Guaranteed Party to the Guaranteed Creditors
becomes due and payable hereunder, Intermediate Holdings unconditionally
promises to pay such indebtedness to the Guaranteed Creditors, or order, on
demand, together with any and all expenses which may be incurred by the
Guaranteed Creditors in collecting any of the Guaranteed Obligations.  This Intermediate Holdings Guaranty is a
guaranty of payment and not of collection. 
If a claim is ever made upon any Guaranteed Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of the aforesaid payees repays all or part
of said amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (ii) any settlement or compromise of any such claim effected by such payee
with any such claimant, then and in such event Intermediate Holdings agrees
that any such judgment, decree, order, settlement or compromise shall be
binding upon Intermediate Holdings, notwithstanding any revocation of this
Intermediate Holdings Guaranty or any other instrument evidencing any liability
of any Guaranteed Party, and Intermediate Holdings shall be and remain liable
to the aforesaid payees hereunder for the amount so repaid or recovered to the
same extent as if such amount had never originally been received by any such
payee.

 

Section 11.02.  Bankruptcy.  Additionally, Intermediate Holdings unconditionally and
irrevocably guarantees the payment of any and all of the Guaranteed Obligations
of each Guaranteed Party hereunder to the Guaranteed Creditors whether or not
due or payable by any Guaranteed Party upon the occurrence of any of the events
specified in Section 8.05 with respect to such Guaranteed Party, and unconditionally
promises to pay such indebtedness to the Guaranteed Creditors, or order, on
demand, in lawful money of the United States.

 

Section 11.03.  Nature of Liability.  The liability of Intermediate Holdings
hereunder is exclusive and independent of any security for or other guaranty of
the Guaranteed Obligations of any Guaranteed Party whether executed by
Intermediate Holdings, any other guarantor or by any other party, and the
liability of Intermediate Holdings hereunder is not affected or impaired by (a)
any direction as to application of payment by each Guaranteed Party or by any
other party (other than a direction by the Guaranteed Creditor receiving such
payment), or (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the Guaranteed Obligations
of each Guaranteed Party, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any dissolution, termination or increase,
decrease or change in personnel by any Guaranteed Party, or (e) any payment
made

 

105

 

to the Guaranteed Creditors on the Guaranteed
Obligations which any such Guaranteed Creditor repays to any Guaranteed Party
pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and Intermediate Holdings waives
any right to the deferral or modification of its obligations hereunder by
reason of any such proceeding or (f) any action or inaction of the type
described in Section 11.05.

 

Section 11.04.  Independent Obligation.  The obligations of Intermediate Holdings
under this Article XI are independent of the obligations of any other
guarantor, any other party or any Guaranteed Party, and a separate action or
actions may be brought and prosecuted against Intermediate Holdings whether or
not action is brought against any other guarantor, any other party or any
Guaranteed Party and whether or not any other guarantor, any other party or any
Guaranteed Party be joined in any such action or actions.  Intermediate Holdings waives, to the full
extent permitted by law, the benefit of any statute of limitations affecting
its liability under this Article XI or the enforcement thereof.  Any payment by any Guaranteed Party or other
circumstance which operates to toll any statute of limitations as to any
Guaranteed Party shall operate to toll the statute of limitations as to
Intermediate Holdings.

 

Section 11.05.  Authorization.  The obligations of Intermediate Holdings
under this Article XI shall be unconditional and absolute and, without limiting
the generality of the foregoing, shall not be released, discharged or otherwise
affected by any action taken by any Guaranteed Creditor to:

 

(a)           change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of the
Guaranteed Obligations (including any increase or decrease in the rate of
interest thereon), any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the Guaranty herein made shall apply to the
Guaranteed Obligations as so changed, extended, renewed or altered;

 

(b)           take and hold security for the payment of the Guaranteed Obligations
and sell, exchange, release, impair, surrender, realize upon or otherwise deal
with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing, the Guaranteed
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset there
against;

 

(c)           exercise or refrain from exercising any rights against any Guaranteed
Party or others or otherwise act or refrain from acting;

 

(d)           release or substitute any one or more endorsers, guarantors, any
Guaranteed Party or other obligors;

 

(e)           settle or compromise any of the Guaranteed Obligations, any security
therefor or any liability (including any of those hereunder) incurred directly
or indirectly in respect thereof or hereof, and may subordinate the payment of
all or any part thereof to the payment of any liability (whether due or not) of
any Guaranteed Party to its creditors other than the Guaranteed Creditors;

 

106

 

(f)            apply any sums by whomsoever paid or
howsoever realized to any liability or liabilities of any Guaranteed Party to
the Guaranteed Creditors regardless of what liability or liabilities of any
Guaranteed Party remain unpaid;

 

(g)           consent to or waive any breach of, or any act, omission or default
under, this Agreement or any other Credit Document or any of the instruments or
agreements referred to herein or therein, or otherwise amend, modify or
supplement this Agreement, any other Credit Document or any of such other
instruments or agreements; and/or

 

(h)           take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
Intermediate Holdings from its liabilities under this Intermediate Holdings
Guaranty.

 

Section 11.06.  Reliance.  It is not necessary for the Guaranteed Creditors to inquire into
the capacity or powers of any Guaranteed Party or the officers, directors,
partners or agents acting or purporting to act on their behalf, and any
Guaranteed Obligations made or created in reliance upon the professed exercise
of such powers shall be guaranteed hereunder.

 

Section 11.07.  Subordination.  Any indebtedness of any Guaranteed Party now
or hereafter owing to Intermediate Holdings is hereby subordinated to
Guaranteed Obligations of any Guaranteed Party owing to the Guaranteed
Creditors; and if the Administrative Agent so requests at a time when an Event
of Default exists, no Guaranteed Party shall make, or be permitted to make, any
payment to Intermediate Holdings in respect of such indebtedness owed to
Intermediate Holdings, but without affecting or impairing in any manner the
liability of Intermediate Holdings under the other provisions of this
Intermediate Holdings Guaranty.  Prior
to the transfer by Intermediate Holdings of any note or negotiable instrument
evidencing any of the indebtedness of any Guaranteed Party to Intermediate
Holdings, Intermediate Holdings shall mark such note or negotiable instrument with
a legend that the same is subject to this subordination.  Without limiting the generality of the
foregoing, Intermediate Holdings hereby agrees with the Guaranteed Creditors
that it will not exercise any right of subrogation which it may at any time otherwise
have as a result of this Intermediate Holdings Guaranty (whether contractual,
under Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed
Obligations have been irrevocably paid in full in cash.

 

Section 11.08.  Waiver.  (a)  Intermediate Holdings
waives any right (except as shall be required by applicable statute and cannot
be waived) to require any Guaranteed Creditor to (i) proceed against each
Guaranteed Party, any other guarantor or any other party, (ii) proceed against
or exhaust any security held from any Guaranteed Party, any other guarantor or
any other party or (iii) pursue any other remedy in any Guaranteed Creditor’s
power whatsoever.  Intermediate Holdings
waives any defense based on or arising out of any defense of any Guaranteed
Party, any other guarantor or any other party, other than payment in full of
the Guaranteed Obligations, based on or arising out of the disability of each
Guaranteed Party, any other guarantor or any other party, or the
unenforceability of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of any Guaranteed Party
other than payment in full of the Guaranteed Obligations.  The Guaranteed Creditors may, at their
election, foreclose on any security held by the Administrative Agent or any
other Guaranteed Creditor by one or more judicial or nonjudicial sales, whether
or not every aspect of

 

107

 

any such sale is commercially reasonable (to
the extent such sale is permitted by applicable law), or exercise any other
right or remedy the Guaranteed Creditors may have against any Guaranteed Party
or any other party, or any security, without affecting or impairing in any way
the liability of the Intermediate Holdings hereunder except to the extent the
Guaranteed Obligations have been paid. 
Intermediate Holdings waives any defense arising out of any such
election by the Guaranteed Creditors, even though such election operates to
impair or extinguish any right of reimbursement or subrogation or other right
or remedy of Intermediate Holdings against any Guaranteed Party or any other
party or any security.

 

(b)           Intermediate Holdings waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this
Intermediate Holdings Guaranty, and notices of the existence, creation or
incurring of new or additional Guaranteed Obligations.  Intermediate Holdings assumes all
responsibility for being and keeping itself informed of each Guaranteed Party’s
financial condition and assets, and of all other circumstances bearing upon the
risk of nonpayment of the Guaranteed Obligations and the nature, scope and
extent of the risks which Intermediate Holdings assumes and incurs hereunder,
and agrees that the Guaranteed Creditors shall have no duty to advise the
Intermediate Holdings of information known to them regarding such circumstances
or risks.

 

(c)           Intermediate Holdings warrants and agrees that each of the waivers set
forth above in this Article XI is made with full knowledge of its significance
and consequences, and such waivers shall be effective to the maximum extent
permitted by law.

 

*          *          *

 

108

 

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

 

 

	
  Address:

  	
   

  
	
  Wessex House, 3rd
  floor

  45 Reid Street

  Hamilton, HM 12 Bermuda

  	
  ARCH CAPITAL GROUP LTD.

  
	
  Attention: John D. Vollaro

  	
  By:

  	
   /s/ John D. Vollaro

  	
   

  
	
  Telephone: (441) 278-9253

  Facsimile:  (441) 278-9255

  	
   

  	
  Title:

  	
  Executive Vice President
  &

  Chief Financial Officer

  
	
   

  	
   

  
	
  20 Horseneck Lane

  Greenwich, Connecticut 06830

  Attention: President

  	
  ARCH CAPITAL GROUP (U.S.)
  INC.

  
	
  Telephone:

  	
  By:

  	
   /s/ Ramin Taraz

  	
   

  
	
  Facsimile: (203) 861-7240

  	
   

  	
  Title: 

  	
  Vice President &
  Controller

  
	
   

  	
   

  
	
  Wessex House

  45 Reid Street

  Hamilton, HM 12 Bermuda

  	
  ARCH REINSURANCE LTD.

  
	
  Attn: Janine Trench

  	
  By:

  	
   /s/ Janine Trench

  	
   

  
	
  Telephone:

  	
   

  	
  Title: 

  	
  Controller

  
	
  Facsimile:

  	
   

  
	
  55 Madison Avenue, P.O.
  Box 1988

  Morristown, NJ  07962

  Attn: Barry Golub

  	
  ARCH REINSURANCE COMPANY

  
	
  Telephone: (973) 889-6467

  	
  By:

  	
   /s/ Barry Golub

  	
   

  
	
  Facsimile:  (973) 898-9570

  	
   

  	
  Title: 

  	
  Controller

  
	
   

  	
   

  
	
  One Liberty Plaza, 53rd
  Floor

  New York, NY  10006

  Attn: Ramin Taraz  

  	
  ARCH INSURANCE COMPANY

  
	
  Telephone: (212) 651-6502

  	
  By:

  	
   /s/ Ramin Taraz

  	
   

  
	
  Facsimile:  (646) 746-8109

  	
   

  	
  Title: 

  	
  Vice President &
  Controller

  
					

 

 

	
  One Liberty Plaza, 53rd
  Floor

  New York, NY  10006

  Attn: Ramin Taraz

  	
  WESTERN DIVERSIFIED
  CASUALTY

  INSURANCE COMPANY

  
	
  Telephone: (212) 651-6502

  	
   

  
	
  Facsimile:  (646) 746-8109

  	
  By:

  	
   /s/ Ramin Taraz

  	
   

  
	
   

  	
   

  	
  Title: Vice President
  & Controller

  
	
   

  	
   

  
	
  One Liberty Plaza, 53rd
  Floor

  New York, NY  10006

  Attn: Ramin Taraz

  	
  ARCH SPECIALTY INSURANCE
  COMPANY

  
	
  Telephone: (212) 651-6502

  	
  By:

  	
   /s/ Ramin Taraz

  	
   

  
	
  Facsimile:  (646) 746-8109

  	
   

  	
  Title: Vice President
  & Controller

  
	
   

  	
   

  
	
  One Liberty Plaza, 53rd
  Floor

  New York, NY  10006

  Attn: Ramin Taraz

  	
  ARCH EXCESS & SURPLUS
  INSURANCE

  COMPANY

  
	
  Telephone: (212) 651-6502

  	
   

  
	
  Facsimile:  (646) 746-8109

  	
  By:

  	
   /s/ Ramin Taraz

  	
   

  
	
   

  	
   

  	
  Title: Vice President
  & Controller

  
	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK,
  Individually and as

  Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Heather
  Lindstrom

  	
   

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A., Individually and as

  
	
   

  	
   

  	
  Syndication Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Debra Basler

  	
   

  
	
   

  	
   

  	
  Title: Principal

  

 

 

	
   

  	
  SIGNATURE PAGE TO THE CREDIT AMENDMENT,

  DATED AS OF SEPTEMBER 16, 2004, AMONG ARCH

  CAPITAL GROUP LTD., ARCH CAPITAL GROUP (U.S.)

  INC., THE VARIOUS DESIGNATED SUBSIDIARY

  BORROWERS, THE LENDERS FROM TIME TO TIME

  PARTY THERETO AND JPMORGAN CHASE BANK, AS

  ADMINISTRATIVE AGENT

  
	
   

  	
   

  
	
   

  	
  NAME
  OF INSTITUTION:

  
	
   

  	
   

  
	
   

  	
  BARCLAYS
  BANK PLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Richard Askey

  	
   

  
	
   

  	
   

  	
  Title:
  Director - Insurance

  
	
   

  	
   

  
	
   

  	
  THE
  BANK OF NEW YORK

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Lizanne T. Eberle

  	
   

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
  THE
  BANK OF N.T. BUTTERFIELD & SON LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Alan Day

  	
   

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
  CALYON
  NEW YORK BRANCH

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Sebastian Rocco

  	
   

  
	
   

  	
   

  	
  Title:
  Managing Director

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Peter Rasmussen

  	
   

  
	
   

  	
   

  	
  Title:
  Managing Director

  
	
   

  	
   

  
	
   

  	
  CHANG
  HWA COMMERCIAL BANK, LTD.,

  NEW YORK BRANCH

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Ming-Hsien Lin

  	
   

  
	
   

  	
   

  	
  Title:
  Senior Vice President & General Manager

  
	
   

  	
   

  
	
   

  	
  CITIZENS
  BANK

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  George Urban

  	
   

  
	
   

  	
   

  	
  Title:
  Vice President

  

 

 

	
   

  	
  DEUTSCHE
  BANK AG NEW YORK BRANCH

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Ruth Leung

  	
   

  
	
   

  	
   

  	
  Title:
  Director

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  John S. McGill

  	
   

  
	
   

  	
   

  	
  Title:
  Director

  
	
   

  	
   

  
	
   

  	
  HSBC
  BANK USA, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Kenneth J. Johnson

  	
   

  
	
   

  	
   

  	
  Title:
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
  ING
  BANK, N.V., LONDON BRANCH

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  I. M. Taylor

  	
   

  
	
   

  	
   

  	
  Title:
  Director

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  N.J. Marchant

  	
   

  
	
   

  	
   

  	
  Title:
  Director

  
	
   

  	
   

  
	
   

  	
  LLOYDS
  TSB BANK PLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Michael J. Gilligan

  	
   

  
	
   

  	
   

  	
  Title:
  Director, Financial Institutions, USA

  
	
   

  	
   

  	
  G311

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Matthew S. R. Tuck

  	
   

  
	
   

  	
   

  	
  Title:
  Vice President Financial Institutions, USA

  
	
   

  	
   

  	
  T020

  
	
   

  	
   

  
	
   

  	
  US
  BANK NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Ziad W. Amra

  	
   

  
	
   

  	
   

  	
  Title:
  Corporate Banking Officer

  
	
   

  	
   

  
	
   

  	
  WACHOVIA
  BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Debra Basler

  	
   

  
	
   

  	
   

  	
  Title:
  Principal

  

 

 

Schedule
2.01

Schedule of Commitments

 

	
  Lender Name

  	
   

  	
  Tranche 1
  Commitment

  	
   

  	
  Tranche 2

  Commitment

  	
   

  	
  Tranche 3
  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JPMorgan Chase Bank

  	
   

  	
  $

  	
  41,481,481.48

  	
   

  	
  $

  	
  28,518,518.52

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank of America, N.A.

  	
   

  	
  $

  	
  41,481,481.48

  	
   

  	
  $

  	
  28,518,518.52

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Barclays Bank PLC

  	
   

  	
  $

  	
  38,518,518.52

  	
   

  	
  $

  	
  26,481,481.48

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  HSBC Bank USA, National Association

  	
   

  	
  $

  	
  38,518,518.52

  	
   

  	
  $

  	
  26,481,481.48

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ING Bank N.V.,
  London Branch

  	
   

  	
  $

  	
  38,518,518.52

  	
   

  	
  $

  	
  26,481,481.48

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Bank of New
  York

  	
   

  	
  $

  	
  38,518,518.52

  	
   

  	
  $

  	
  26,481,481.48

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wachovia Bank,
  National Association

  	
   

  	
  $

  	
  38,518,518.52

  	
   

  	
  $

  	
  26,481,481.48

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Calyon New York
  Branch

  	
   

  	
  $

  	
  35,555,555.56

  	
   

  	
  $

  	
  24,444,444.44

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Lloyds TSB Bank
  plc

  	
   

  	
  $

  	
  29,629,629.63

  	
   

  	
  $

  	
  20,370,370.37

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deutsche Bank AG
  New York Branch

  	
   

  	
  $

  	
  26,666,666.67

  	
   

  	
  $

  	
  18,333,333.33

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Citizens Bank of
  Connecticut

  	
   

  	
  $

  	
  17,777,777.78

  	
   

  	
  $

  	
  12,222,222.22

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  US Bank National
  Association

  	
   

  	
  $

  	
  14,814,814.80

  	
   

  	
  $

  	
  10,185,185.20

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Bank of N.T.
  Butterfield & Son Limited

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  15,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chang Hwa
  Commercial Bank, Ltd., New York Branch

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  10,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total:

  	
   

  	
  $

  	
  400,000,000

  	
   

  	
  $

  	
  275,000,000

  	
   

  	
  $

  	
  25,000,000Exhibit 10.2

 

AMENDED AND RESTATED LETTER OF CREDIT AND

REIMBURSEMENT AGREEMENT AMENDMENT NO. 4

 

This AMENDED AND RESTATED LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT AMENDMENT NO. 4, dated and effective as of September
16, 2004 (this “Amendment”), is by and among Arch Reinsurance Ltd., Arch
Reinsurance Company and Arch Insurance Company (the “Obligors”) and Fleet
National Bank, as Agent and Issuing Lender (“Fleet”), and Comerica Bank
and Barclays Bank (collectively with Fleet, the “Lenders”). 

 

WHEREAS,
the Obligors and the Lenders are parties to an Amended and Restated Letter of
Credit and Reimbursement Agreement dated as of April 17, 2002 and amended and
restated as of August 12, 2003, as further amended by the Amended and Restated
Letter of Credit and Reimbursement Agreement Amendment No. 1 dated as of August
20, 2003, the Amended and Restated Letter of Credit and Reimbursement Agreement
Amendment No. 2 dated as of August 10, 2004, and the Amended and Restated
Letter of Credit and Reimbursement Agreement Amendment No. 3 dated as of
September 9, 2004 (as so amended and restated, the “Reimbursement Agreement”); 

 

WHEREAS,
contemporaneously herewith, the Obligors are entering into a Credit Agreement,
dated as of September 16, 2004 (the “JPMorgan Facility”), with Arch Capital
Group Ltd., Arch Capital Group (U.S.) Inc., various Designated Subsidiary
Borrowers party thereto, the Lenders party thereto, JPMorgan Chase Bank, as
Administrative Agent, Bank of America, N.A., as Syndication Agent and Barclays
Bank PLC, HSBC Bank USA, National Association, ING Bank N.V., London Branch,
The Bank of New York and Wachovia Bank, National Association, as Documentation
Agents; and 

 

WHEREAS,
in order to satisfy certain terms and conditions of the JPMorgan Facility, the
Reimbursement Agreement must be modified, as set forth below.  

 

NOW THEREFORE, the
parties hereto agree as follows:

 

Section 1.               Defined Terms.  Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Reimbursement
Agreement.

 

Section 2.               Amendment to the Reimbursement
Agreement.  Effective as of the
effective date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 4 hereof, the Reimbursement Agreement is hereby
amended as follows:

 

(a)         The definition of
“Facility Termination Date” set forth in Section 1.1 of the Reimbursement
Agreement is deleted in its entirety and the following is substituted in lieu
thereof: 

 

“Facility Termination Date” means September 17,
2004.

 

 

(b)         Section 5.1(c) of the
Reimbursement Agreement is deleted in its entirety and the following is
substituted in lieu thereof:

 

(c)           Maintenance
of Adjusted Collateral Value.  Such
Obligor shall at all times maintain Collateral in the Custodial Account
maintained in its name in an amount such that the Adjusted Collateral Value 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 of such
Obligor; provided that for purposes of calculating the sum of all
amounts then outstanding with respect to the sum of the Letter of Credit
Obligations and Reimbursement Obligations, such total shall not include the
amount of any outstanding Letter of Credit Obligations and Reimbursement Obligations
that are supported by one or more back-to-back letters of credit the terms,
conditions and issuer of which are satisfactory to the Issuing Lender.  Each Obligor agrees that if the Adjusted
Collateral Value of the Collateral in the applicable Custodial Account is less
than the sum of the Letter of Credit Obligations and the Reimbursement
Obligations of such Obligor as calculated above, the Agent may, and upon
instruction from the Majority Lenders shall, require such Obligor to pay to the
Custodian the amount of any such deficiency, which amount shall be payable by
no later than 3:00 p.m. (Connecticut time) (i) on the date of notice by the
Agent, if such notice is received before 12:00 p.m. (Connecticut time) or (ii)
on the Business Day immediately following the date of notice by the Agent, if
such notice is received after 12:00 p.m. (Connecticut time), and 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, an Obligor may substitute Collateral to the extent such
substitution arises from normal trade activities within the Custodial Account
in accordance with the provisions of Section 1 of the Security Agreement
between the Obligor and the Agent.

 

Section 3.               Release of Collateral.  The Lenders hereby consent, and direct the
Agent, to release on or after the effective date of this Amendment the security
interest and lien under the Security Agreement on so much of the Collateral
granted by each Obligor, in favor of the Agent for the benefit of the Agent and
the ratable benefit of the Lenders, to secure such Obligor’s obligations under
the Reimbursement Agreement and other Fundamental Documents, as equals the
excess of the Adjusted Collateral Value over the sum of all amounts then
outstanding with respect to the Letter of Credit Obligations and Reimbursement
Obligations of such Obligor as calculated pursuant to Section 5.1(c) of the Reimbursement
Agreement, as amended by this Amendment. 
The Agent and each Obligor agree to work together in good faith to
determine the exact Collateral to be released and the mechanisms for
transferring such Collateral to such Obligor or its appointed designee.

 

Section 4.               Conditions of Effectiveness.  This Amendment shall become effective when,
and only when (i) the Lenders shall have received a counterpart of this
Amendment executed by each of the parties hereto and (ii) the JPMorgan Facility
has become effective.  In addition, all
corporate and legal proceedings and all instruments and agreements in
connection with the transactions contemplated by this Amendment shall be
satisfactory in form and substance to the Lenders and the Lenders shall have
received any and all other information and documents with respect to each
Obligor which they may reasonably request.

 

2

 

Section 5.               Representations and Warranties of the
Obligors.  Each Obligor for itself
represents as follows:

 

(a)           The
execution, delivery and performance by such Obligor of this Amendment has been
duly authorized by all necessary corporate action and does not and will not (i)
require any consent or approval of such Obligor’s shareholders; (ii) violate
any provisions of the Constituent Documents of such Obligor; (iii) violate any
provision of, or require any filing, registration, consent or approval under,
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to and binding
upon such Obligor, except where such violation or failure to file would not
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) of such Obligor or the ability of such Obligor to
perform its obligations with respect to this Amendment or the Reimbursement
Agreement, as amended; or (iv) result in a breach of, cause a lien to arise
under, or constitute a default or require any consent under, any note, indenture
or loan or agreement or any other agreement of such Obligor except where such
breach, default or failure to obtain consent or approval would not reasonably
be expected to have a material adverse effect on the condition (financial or
otherwise) of such Obligor or the ability of such Obligor to perform its
obligations with respect to this Amendment or the Reimbursement Agreement, as
amended.

 

(b)           This
Amendment and the Reimbursement Agreement, as amended hereby, constitute the
legal, valid and binding obligations of such Obligor, enforceable against such
Obligor in accordance with their respective terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors’ rights generally and by general principles of
equity.

 

(c)           The
representations and warranties contained in Article IV of the Reimbursement
Agreement (as amended by this Amendment) are true, correct and complete in all
material respects on and as of the date hereof as though made on and as of such
date.

 

(d)           No
Default or Event of Default as described in Article VI of the Reimbursement
Agreement has occurred and is continuing or will result from the signing of
this Amendment or the transactions contemplated hereby.

 

(e)           There
has been no material adverse change in the condition (financial or otherwise)
of such Obligor or the ability of each Obligor to perform its obligations with
respect to the Reimbursement Agreement as amended hereby since the date of the
last financial statements furnished to the Lenders.

 

Section 6.               Reference to and Effect on the
Reimbursement Agreement.

 

(a)           Upon
the effectiveness of this Amendment, each reference in the Reimbursement
Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like
import shall mean and be a reference to the Reimbursement Agreement as amended
hereby.

 

(b)           Except
as specifically amended above, the Reimbursement Agreement shall remain in full
force and effect and is hereby ratified and confirmed.

 

3

 

(c)           Except
as expressly provided herein, the execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Lenders under the Reimbursement Agreement, nor constitute a waiver of any
provision of the Reimbursement Agreement.

 

Section 7.               Costs, Expenses and Taxes.  The Obligors agree, jointly and severally,
to pay on demand all reasonable costs and expenses of the Lenders in connection
with the preparation, execution and delivery of this Amendment and any other
instruments and documents to be delivered hereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Lenders with respect thereto and with respect to advising the Lenders as to its
rights and responsibilities hereunder and thereunder.  

 

Section 8.               Execution in Counterparts.  This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
when taken together shall constitute but one and the same instrument.

 

Section 9.               Governing Law.  This Amendment, and the rights and
obligations of the parties hereunder, shall be governed by, and construed in
accordance with the laws of the State of Connecticut without giving effect to
the choice of law or conflicts of the law principles thereof.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

4

 

IN WITNESS WHEREOF, the parties have caused this Amendment 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.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Janine Trench

  	
   

  
	
   

  	
   

  	
  Name:  Janine
  Trench

  
	
   

  	
   

  	
  Title: 
  Controller

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ARCH REINSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J.
  O’Brien, Jr.

  	
   

  
	
   

  	
   

  	
  Name: 
  Michael J. O’Brien, Jr.

  
	
   

  	
   

  	
  Title: 
  Assistant Controller

  
	
   

  	
   

  
	
   

  	
  ARCH INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Martin J.
  Nilsen

  	
   

  
	
   

  	
   

  	
  Name:  Martin
  J. Nilsen

  
	
   

  	
   

  	
  Title: 
  Senior Vice President, Secretary & General Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FLEET NATIONAL BANK, as Agent and Issuing Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Debra Basler

  	
   

  
	
   

  	
   

  	
  Name:  Debra Basler

  
	
   

  	
   

  	
  Title:  Principal

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMERICA BANK, as
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Dru Steinly

  	
   

  
	
   

  	
   

  	
  Name:  Dru Steinly

  
	
   

  	
   

  	
  Title:  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BARCLAYS BANK, as Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Askey

  	
   

  
	
   

  	
   

  	
  Name:  Richard Askey

  
	
   

  	
   

  	
  Title:  Director

  

 

5

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