Document:

THIS 10% SECURED CONVERTIBLE NOTE, AND THE SECURITIES INTO WHICH IT IS
CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAS NOT BEEN REGISTERED
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES COMMISSION OF
ANY STATE UNDER APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE
BEEN ACQUIRED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES ARE "RESTRICTED"
AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED
UNDER THE ACT, OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE ISSUER WILL BE PROVIDED
WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.

                  HAWAIIAN NATURAL WATER COMPANY, INC.

                     10% Secured Convertible Note

                        Due September 30, 2001

$500,000.00                                              June 21, 2001

     FOR VALUE RECEIVED, Hawaiian Natural Water Company, Inc., a
Hawaiian corporation (the "Corporation"), promises to pay to the order
of AMCON Distributing Company, a Delaware corporation (the "Holder"),
the principal sum of Five Hundred Thousand and NO/100 Dollars
($500,000.00), on September 30, 2001 (the "Maturity Date"), together
with interest in the amount and manner hereafter provided.

     IT IS FURTHER AGREED THAT:

     1.   Interest.  The Corporation promises to pay interest on the
principal amount of this 10% Secured Convertible Note (the "Note") at
the rate per annum of ten percent (10%), compounded quarterly.
Interest will be computed on the basis of a three hundred sixty (360)
day year of twelve (12), thirty (30) day months.  Interest will be
paid quarterly on January 1, April 1, July 1, and October 1 of each
year and at maturity, with the first such interest payment to be made
on July 1, 2001.

     2.   Method of Payment.  Except with respect to the rights of
conversion provided herein, and subject to Section 3 hereof, the
Corporation will pay principal and interest by wire transfer of
immediately-available money of the United States, or other form of
payment of immediately available money of the United States as the
Holder may direct the Corporation, that at the time of payment is
legal tender for payment of public and private debts.  Information for
making the wire transfers will be provided in writing by the Holder to
the Corporation.  If any payment hereunder becomes due and payable on
a day other than a business day, the due date thereof shall be
extended to the next business day and, with respect to payments of
principal, interest thereon shall be payable at the applicable rate
during such extension.

     3.   Right to Prepay.  The Corporation shall have the right to
prepay all or any part of the Note; provided, however, that (i) the
Corporation must give written notice to the Holder of its intention to
make any such prepayment not less than five (5) and not more than ten
(10) business days in advance of such prepayment, which notice must
include a representation that the funds to effect the prepayment are
legally available for that purpose and that representation must be
supported by evidence reasonably satisfactory to the Holder that such
funds will be provided to the Corporation at the time specified in the
notice for prepayment, and (ii) during the period following that
notice and prior to the actual prepayment, the Holder shall be
entitled to exercise the conversion privilege set forth in Section
4(a) hereof, if the right to convert specified therein is available by
its terms, or Section 4(b) hereof.

     4.   Right to Convert.

          (a)  At any time before the close of business on the
     Maturity Date but after the earlier of (A) termination of the
     Fourth Amended and Restated Agreement and Plan of Merger (the
     "Merger Agreement"), dated as of June 21, 2001, among the
     Corporation, the Holder and AMCON Merger Sub, Inc. ("Merger Sub")
     or (B) the occurrence of an Event of Default, the Holder may
     convert the outstanding principal balance and unpaid accrued
     interest of this Note into fully paid and non-assessable shares
     of Series C Convertible Preferred Stock, par value $1.00 per
     share, of the Corporation (the "Preferred Stock").  The price at
     which shares of Preferred Stock shall be delivered upon
     conversion (herein called the "Preferred Conversion Price") shall
     be $1.00 per share of Preferred Stock.

          (b)  At any time before the close of business on the
     Maturity Date, the Holder may convert the outstanding principal
     balance and unpaid accrued interest of this Note into fully paid
     and non-assessable shares of common stock of the Corporation (the
     "Common Stock").  The price at which shares of Common Stock shall
     be delivered upon conversion shall be $0.40 per share; provided,
     however, that if the Corporation shall at any time increase or
     decrease the number of its outstanding shares of Common Stock or
     change in any way the rights and privileges of such shares by
     means of the payment of a stock dividend or any other
     distribution upon such shares payable in Common Stock, or through
     a stock split, subdivision, consolidation, combination,
     reclassification or recapitalization involving the Common Stock,
     then the price at which shares shall be delivered upon conversion
     shall be proportionately increased or decreased, as the case may
     be, to avoid dilution of the number and kind of shares to which
     the Noteholder is fairly entitled upon conversion of the Note.

          (c)   This Note may be converted in whole, but not in part,
     into Preferred Stock or Common Stock or a combination thereof
     (referred to collectively as the "Conversion Shares") based on
     the terms set forth in subsections (a) and (b) of this Section 4,
     as the case may be.
     5.   Mechanics of Conversion. If the Holder desires to exercise
such right of conversion, such Holder shall give written notice to the
Corporation in the form attached to this Note as Exhibit A (the
"Conversion Notice") of that Holder's election to convert a stated
whole dollar amount of outstanding principal balance and unpaid
accrued interest of the Note into shares of Preferred Stock, and/or
Common Stock, as the case may be, and surrender to the Corporation, at
its principal office or at such other office or agency maintained by
the Corporation for such purpose, this Note.  The Conversion Notice
shall also contain a statement of the name or names (with addresses)
in which the certificate or certificates for Preferred Stock and/or
Common Stock, as the case may be, shall be issued.  Notwithstanding
the foregoing, the Corporation shall not be required to issue any
certificates to any person other than the Holder thereof unless the
Corporation has obtained reasonable assurance that such transaction is
exempt from the registration requirements of, or is covered by an
effective registration statement under, the Securities Act of 1933, as
amended (the "Act"), and all applicable state securities laws,
including, if necessary in the reasonable judgment of the Corporation
or its legal counsel, receipt of an opinion to such effect from
counsel reasonably satisfactory to the Corporation.  In no event would
such opinion be required if the shares of Preferred Stock and/or
Common Stock, as the case may be, could, upon conversion, be resold
pursuant to Rule 144 or Rule 144A under the Act.  As promptly as
practicable, and in any event within two business days, after the
receipt of the Conversion Notice (the "Date of Conversion") and the
surrender of the certificate or certificates representing the
Conversion Shares, the Corporation shall issue and deliver, or cause
to be delivered, to the Holder or his nominee or nominees, a
certificate or certificates for the number of shares of Preferred
Stock and/or Common Stock, as the case may be, issuable upon the
conversion of this Note.  Such conversion shall be deemed to have been
effected as of the close of business on the Date of Conversion and the
replacement Note, and the person or persons entitled to receive the
shares of Preferred Stock and/or Common Stock, as the case may be,
issuable upon conversion shall be treated for all purposes as the
holder or holders of record of such shares of Preferred Stock and/or
Common Stock, as the case may be, as of the close of business on such
date.

     6.   Fractions of Share.  The Corporation shall not be required
to issue fractions of a share or scrip representing fractional shares
of Preferred Stock and/or Common Stock, as the case may be, upon the
exercise of any conversion right hereunder.  If any fraction of a
share of Preferred Stock and/or Common Stock, as the case may be,
would, except for the provisions of this Section 6, be issuable upon
any conversion exercise, the Corporation shall pay a cash adjustment
in respect of such fraction, equal to the value of such fraction based
on the Conversion Price per share of Preferred Stock.

     7.   Security.  The obligations herein are secured by the
security interest granted pursuant to that certain Second Amended and
Restated 10% Convertible Note in the principal sum of $350,000.00
payable by the Corporation to Holder due on September 30, 2001 (and as
such note may be further amended and/or restated).

     8.   Corporation Covenants.  The Corporation represents,
warrants, covenants and agrees that:

          (a)  Any shares of Preferred Stock and/or Common Stock, as
     the case may be, delivered upon conversion of this Note shall, at
     the time of delivery of the certificates for such shares of
     Preferred Stock or Common Stock, be validly issued and
     outstanding and fully-paid and non-assessable shares of Preferred
     Stock or Common Stock free from taxes, liens and charges with
     respect to their purchase.  Without limiting the generality of
     the foregoing, the Corporation covenants and agrees to take any
     necessary actions to assure that the par value per share of the
     Preferred Stock is at all times equal to or less than the then
     current Conversion Price per share for the Preferred Stock
     issuable pursuant to this Note.  The Corporation further
     covenants and agrees that it will pay when due and payable any
     and all federal and state original issue stock taxes, if any,
     which may be payable in respect of the issue of the shares of
     Preferred Stock or Common Stock upon the conversion of this Note
     or a part hereof.  Except for an amendment required pursuant to
     the foregoing sentence, the Certificate of Designation,
     Preferences and Rights of the Preferred Stock shall not be
     amended without the prior written consent of the Holder.

          (b)  The Corporation shall at all times reserve and keep
     available a number of its authorized but unissued shares of
     Preferred Stock and Common Stock which will be sufficient to
     permit the full exercise of this Note.  If at any time the number
     of authorized but unissued shares of Preferred Stock or Common
     Stock is not sufficient for this purpose, the Corporation shall
     take such corporate actions as may be necessary to increase its
     authorized but unissued shares of Preferred Stock and/or Common
     Stock, as the case may be, to a number of shares sufficient for
     such purpose.

          (c)  (i)The Corporation is duly organized as a corporation
     under the laws of the State of Hawaii, it is authorized to
     transact business in all jurisdictions where the conduct of its
     business requires it to be qualified, and it is duly authorized
     to execute, deliver and perform under this Note without the
     necessity of obtaining any consents or approvals of, or the
     taking of any other action with respect to, any governmental
     agency or third party; and

               (ii)The financial statements submitted to Holder fairly
     present the financial condition of the Corporation as of the date
     of this Note knowing that Holder has relied thereon in granting
     the Loan, there have been no material adverse changes in the
     financial condition of the Corporation since the date of said
     financial statements, the Corporation has no material
     obligations, financial or otherwise, not disclosed to Holder, and
     at the present time there are no material, unrealized or
    anticipated losses from any present commitment of the Corporation.

          (d)  The Corporation shall give written notice to the Holder
    at least 10 days prior to establishing a record date to determine
    the stockholders of record entitled to vote on the merger
    contemplated by the Merger Agreement in order to permit the Holder
    to exercise the right to convert this Note and vote upon such
    merger and to receive merger consideration pursuant to such
    merger.

     9.   Rights of Holder.  The Holder of this Note shall not be
entitled to vote or receive dividends or be deemed the Holder of
Preferred Stock or Common Stock of the Corporation for any purpose,
nor shall anything contained in this Note be construed to confer upon
the Holder, as such, any of the rights of a stockholder of the
Corporation or any right to vote for the election of directors or upon
any matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action (whether upon a
merger, conveyance or otherwise) or to receive notice of meetings, or
to receive dividends or subscription rights or otherwise until the
right to convert this Note shall have been exercised and the Preferred
Stock or Common Stock purchasable upon the exercise hereof shall have
become deliverable.

     10.  Rights Upon Exercise.  Irrespective of the date Preferred
Stock or Common Stock is issued and of delivery of certificates for
any shares issuable upon the exercise of the conversion privilege
under this Note, each person in whose name any such certificate is
issued shall for all purposes be deemed to have become the holder of
record of the shares represented thereby on the Date of Conversion.

     11.  Investment Representation; Transfer.  The Holder hereby
represents and warrants to the Corporation that it has purchased this
Note and will purchase shares of the Preferred Stock and/or Common
Stock, as the case may be, of the Corporation issuable upon conversion
hereof for investment purposes only and not with a view to the
distribution thereof.  The Holder acknowledges that it has been
advised by the Corporation that neither this Note nor the Conversion
Shares has been registered under the Securities Act of 1933 or any
state securities law for the reason that no distribution or public
offering of this Note or the Conversion Shares is to be effected.

     12.  Dissolution.  In case any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation shall at any
time be proposed, the Corporation shall give at least sixty-two (62)
days' prior written notice thereof to the Holder stating the date on
which such event is to take place and the date (which shall be at
least sixty-two (62) days after the giving of such notice) as of which
the holders of Preferred Stock or Common Stock of record shall be
entitled to exchange their Preferred Stock or Common Stock for
securities or other property deliverable upon such dissolution,
liquidation or winding up.

     13.  Default.  Any one or more of the following shall be events
of default under this Note ("Events of Default"):

          (a)  Default shall be made:  (i) in the payment of the
     principal or interest under this Note when due; or (ii) in due
     observance or performance of any other agreement contained in
     this Note, which is not remedied within fifteen (15) days after
     notice to the Corporation;

          (b)  Any warranty, representation or agreement made or
     furnished to the Holder by or on behalf of the Corporation in the
     Merger Agreement proves to have been false in any material
     respect when made or furnished; or

          (c)  The insolvency of the Corporation, the making of a
     general assignment for the  benefit of creditors, or the filing
     of any voluntary or involuntary petition or commencement of any
     proceeding by or against the Corporation under any bankruptcy or
     insolvency laws.

Upon the occurrence of one or more Events of Default and at any time
thereafter, the Holder may, by notice in writing to the Corporation,
declare the entire outstanding principal amount of the Note to be, and
such entire principal amount of the Note shall thereupon become
forthwith, due and payable in full together with interest accrued
thereon, anything in this Note to the contrary notwithstanding.  Upon
the occurrence of one or more Events of Default, the Corporation
agrees to pay out-of-pocket expenses, including reasonable attorneys'
fees and legal expenses, whether or not suit is commenced, incurred by
the Holder.  If an Event of Default shall have occurred and has not
been cured by the Corporation within 90 days after the occurrence
thereof, then thereafter this Note shall accrue interest at the rate
per annum of eighteen percent (18%), compounded quarterly and computed
in accordance with Section 1 of this Note.

     14.   Notice.  All notices and other communications from the
Corporation to the Holder shall be mailed by first class registered
mail, postage prepaid, to the principal business address of the Holder
or other address furnished to the Corporation in writing by the
Holder.  All notices and other communications from the Holder to the
Corporation shall be mailed by first class registered mail, postage
prepaid, to the principal business address of the Corporation or other
address furnished to the Holder in writing by the Corporation.  All
notices and other communications delivered in the manner set forth
above shall be deemed delivered two (2) days after the date mailed.

     15.   Governing Law; Certain Waivers.  This Note, without regard
to the place of execution, delivery or payment, shall be construed and
enforced according to and governed by the laws of the State of
Delaware.  The Corporation waives presentment and demand for payment,
notice of dishonor, protest and notice of protest.

     16.   Severability.  Whenever possible, each provision of this
Note shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Note shall be
prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining
provisions of this Note.

                            HAWAIIAN NATURAL WATER COMPANY, INC.

                            By: /s/ Marcus Bender
                               --------------------------------
                               Name:    Marcus Bender
                               Title:   President

                              EXHIBIT A
                             -----------

                          CONVERSION NOTICE
                         -------------------

      (To be executed by the Holder in order to Convert the Note)

TO:  HAWAIIAN NATURAL WATER COMPANY, INC.

     The undersigned hereby irrevocably elects to convert
$-------------- of the principal amount of, and $------------ of any
accrued but unpaid interest on, the above Second Amended and Restated
10% Secured Convertible Note into (i)----------------shares of Series
C Preferred Stock, par value $1.00 per share, of Hawaiian Natural
Water Company, Inc. (the "Company"), and (ii)-------------- shares of
Common Stock of the Company, in each case according to the conditions
stated in such Note, as of the Conversion Date written below.

          Conversion Date:
                          ------------------------------------
          Applicable Conversion Price:
                                      ------------------------

          Signature:
                    ------------------------------------------
          Name:
               -----------------------------------------------
          Address:
                  --------------------------------------------

                  --------------------------------------------EMPLOYMENT AGREEMENT
                           (dated as of March 1, 2001)

                AGREEMENT, made and entered into as of the date first above
written, by and between, XL Capital Ltd, a Cayman Islands corporation (the
"Company"), and Jerry de St. Paer (the "Executive").

                WHEREAS, the Company desires to secure the services of the
Executive and to enter into an agreement embodying the terms of his employment;
and

                WHEREAS, the Executive desires to accept such employment and
enter into such agreement;

                NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Company, the Guarantors (as hereinafter defined) and the Executive (the
"Parties") agree as follows:

                1. EMPLOYMENT.

                Subject to Section 3(d) below, the Company hereby employs the
Executive, and the Executive hereby accepts employment with the Company, for the
term of this Agreement as set forth in Section 2, below, in the position and
with duties and responsibilities set forth in Section 3, below, and upon such
other terms and conditions as are hereinafter stated.

                2. TERM OF EMPLOYMENT.

                Subject to Section 3(d) below the stated term of employment
under this Agreement shall commence on the date first above written (the "Date
of the Agreement") and shall continue through the close of business on the third
anniversary of the Date of the Agreement, subject to earlier termination as
provided in Section 8, below, and extension as provided in the next succeeding
sentence. On the third anniversary of the Date of this Agreement and upon each
anniversary thereafter, the stated term of employment shall be automatically
extended for an additional one year unless the Company gives notice in writing
to the Executive or the Executive gives notice in writing to the Company at
least three months prior to such anniversary that the term is not to be so
extended.

<PAGE>
                                     - 2 -

                3. POSITIONS, DUTIES AND RESPONSIBILITIES.

                (a) GENERAL. The Executive shall be employed as the Executive
Vice President and Chief Financial Officer of the Company. In such position, the
Executive shall have the duties, responsibilities and authority normally
associated with the office, position and titles of such an officer of an
insurance, reinsurance and financial services company whose shares are publicly
traded in the United States. In carrying out his duties and responsibilities,
the Executive shall report to the Chief Executive Officer of the Company. During
the term of this Agreement, the Executive shall devote his full business time to
the business and affairs of the Company, and shall use his best efforts, skills
and abilities to promote the Company's interests.

                (b) PERFORMANCE OF SERVICES. The Executive shall be based in the
Company's Bermuda headquarters. The Executive's services under this Agreement
shall be performed outside the United States and generally in Bermuda unless the
Executive and the Company mutually agree in writing to the performance of such
services in another location. The Executive may travel to any location in
connection with the performance of the Executive's duties hereunder provided
that such travel is in accordance with the guidelines established by the Company
from time to time.

                (c) PERMITTED ACTIVITIES. Anything herein to the contrary
notwithstanding, nothing shall preclude the Executive from (i) serving on the
boards of directors of a reasonable number of other corporations or the boards
of a reasonable number of trade associations and/or charitable organizations,
(ii) engaging in charitable activities and community affairs and (iii) managing
his personal investments and affairs; PROVIDED such activities do not materially
interfere with the proper performance of his duties and responsibilities
hereunder and are not otherwise considered to be inappropriate by the Board of
Directors of the Company (the "Company Board").

                (d) WORK PERMITS. The employment of the Executive by the Company
shall be contingent upon the issuance to the Executive of a suitable (for the
purposes of the Executive's contemplated employment by the Company) work permit
by the Bermuda government authorities and any other permits required by any
Bermuda government authority. Both the Company and the Executive shall use their
respective best efforts to obtain, maintain and renew said permit(s) so as to

<PAGE>
                                     - 3 -

allow the Executive to be employed under the terms hereof. The Company shall be
responsible for permit fees. If at any time said permit(s), having been
obtained, expire and are not renewed or cease to be valid and such renewal or
validation is necessary in order for the Executive to be employed by the Company
as contemplated by this Agreement and the non-renewal or invalidation is beyond
the control of both the Company and the Executive, employment under this
Agreement shall terminate immediately upon the expiration of said permit(s) or
upon said permit(s) ceasing to be valid unless the Executive can discharge his
duties and responsibilities effectively from another location not requiring said
permit(s) that is acceptable to the Executive and non-prejudicial to the
interests of the Company. In the event of such termination, the provisions of
Section 8(d) shall apply to such termination of the Executive's employment (or,
if within (i) the one-year period prior to the date of a Change in Control, as
hereinafter defined, provided the conditions set forth in the last paragraph of
Section 8(d)(iii) are satisfied, or (ii) the Post-Change Period, as hereinafter
defined, such termination shall be considered a termination by the employee for
"Good Reason") provided that non-renewal of said permit(s) or invalidation
thereof are not a direct result of any material action or omission of the
Executive that would reasonably cause such permit(s) not to be renewed or
validated.

                4. BASE SALARY.

                The Executive shall be paid a Base Salary by the Company equal
US$400,000, payable in accordance with the Company's regular pay practices. Such
Base Salary shall be subject to annual review in accordance with the Company's
practices for executives as in effect from time to time and may be increased at
the discretion of the Compensation Committee of the Company Board (the
"Compensation Committee").

                5. ADDITIONAL COMPENSATION.

                (a) BONUS. In addition to the Base Salary provided for in
Section 4, above, the Executive shall be eligible for an annual cash bonus under
the Company's Annual Incentive Compensation Plan as in effect from time to time.
The Executive may be awarded such annual bonuses thereunder as may be approved
by the Compensation Committee based on corporate, individual and business unit
performance measures, as appropriate, established or approved from time to time,
by the Compensation Committee. Initially, the Execu-

<PAGE>
                                     - 4 -

tive shall have an annual  target  bonus equal to 90% of Base Salary  (within a
range of 45% of Base Salary for threshold performance to 270% of Base Salary for
superior performance),  of which 70% shall be based on corporate performance and
30% based on business unit  performance.  Any annual bonus shall be paid in cash
in a lump sum promptly  following  approval  thereof or, at Executive's  option,
deferred in accordance  with any bonus  deferral  plans of the Company in effect
from time to time.  Nothing in this Section 5(a) shall confer upon the Executive
any right to a minimum annual bonus.

                (b) STOCK OPTION GRANT. Pursuant to the XL Capital Ltd 1991
Performance Incentive Program, as soon as practicable following the Date of the
Agreement XL will grant to the Executive an option (the "Option") to purchase
30,000 ordinary shares of XL at an exercise price equal to the fair market value
of such shares on the date of grant. The Option shall become exercisable in
three equal annual installments commencing on the first anniversary of the date
of grant (provided the Executive's employment continues through such dates), and
the Option shall be subject to such other terms and conditions set forth in the
form of stock option agreement utilized generally by XL for its executives.

                (c) RESTRICTED SHARE GRANT. Pursuant to XL Capital Ltd 1991
Performance Incentive Program, as soon as practicable following the Date of the
Agreement XL shall grant to the Executive 13,000 restricted ordinary shares of
XL. The restricted shares will vest in four equal annual installments,
commencing on the first anniversary of the date of grant, provided the
Executive's employment continues through such dates, and the restricted shares
shall be subject to such other terms and conditions as set forth in the form of
restricted stock agreement utilized generally by XL for its executives.

                (d) SIGNING BONUS. On the execution of this Agreement the
Executive shall be entitled to a special signing bonus in the amount of
US$400,000, which shall be paid to him as soon as practicable thereafter.

                6. EMPLOYEE BENEFIT PROGRAMS.

                During the term of the Executive's employment under this
Agreement, the Executive shall be entitled to participate in all employee
benefit programs of the Company as are in effect from time to time and in which
senior executives of the

<PAGE>
                                     - 5 -

Company are eligible to participate,  including medical, hospitalization,  life,
travel and accident insurance,  disability  protection,  retirement benefits and
stock option and other stock-based  compensation or incentive plans.  During the
term of the  Executive's  employment  hereunder,  an amount  equal to 10% of the
Executive's  Base Salary and annual bonus shall be either (i) credited  annually
to  the  Executive's   account  under  a  retirement  plan  which  is  not  U.S.
tax-qualified  (but which is intended  to result in  deferral of taxation  under
U.S.  tax  principles  until  receipt  of  benefits  by  the  Executive),   (ii)
contributed  annually  to the  Executive's  account  under a U.S.  tax-qualified
retirement plan or (iii) a combination of (i) or (ii) above at the option of the
Executive,  subject to limitations imposed by applicable law, in any case, which
amount so credited or contributed  shall be in addition to the Executive's  Base
Salary and annual bonus hereunder.

                7. BUSINESS EXPENSE REIMBURSEMENT AND FRINGE BENEFITS.

                (a) EXPENSE REIMBURSEMENT. During the term of the Executive's
employment under this Agreement, the Executive shall be entitled to receive
reimbursement by the Company for all reasonable out-of-pocket travel expenses,
entertainment expenses and other expenses incurred by him in performing his
duties under this Agreement, provided that the Executive submits reasonable
documentation with respect to such expenses. This shall include, without
limitation, reimbursements of any such costs for air fare, hotel accommodations
and meals, in each case at the same level and class as other comparable
executives.

                (b) FRINGE BENEFITS. During the term of the Executive's
employment under this Agreement, the Executive shall be entitled to participate
in any of the Company's executive fringe benefits in accordance with the terms
and conditions of such arrangements as are in effect from time to time for the
Company's senior executives. In all events, without limiting the foregoing, the
Executive shall be entitled during the period he is employed to the following:

               (i) a housing allowance of US$12,000 per month (to be prorated
          for partial months and adjusted in accordance with the Company's
          policies) while his services are performed in Bermuda,

               (ii) use of an automobile having a purchase price not in excess
          of US$38,500, plus maintenance, licensing and

<PAGE>
                                     - 6 -

          insurance  costs,  and a new automobile shall be made available to the
          Executive after five years,

               (iii) direct payment or reimbursement of the cost (including
          initiation fees and annual dues) of membership in one club in Bermuda,

               (iv) direct payment or reimbursement by the Company for the
          reasonable cost of financial and tax planning, such payment or
          reimbursement not to exceed US$10,000 per year,

               (v) up to four round-trip non-business trips per year (flying in
          business class) by the Executive and each member of his family
          residing with him in Bermuda between Bermuda and New York, NY (the
          benefit under this Section 7(b)(v) being in addition to any
          reimbursement of air fare described in Section 7(a), above) in
          accordance with the Company's policies and procedures for home leaves
          as in effect from time to time,

               (vi) reimbursement for the reasonable travel expenses incurred by
          the Executive in attending meetings of the Board of Directors of the
          following charitable organizations: Johns Hopkins School of Advanced
          International Studies, North Central Trustee and RMD House, to the
          extent such expenses are not otherwise reimbursed, and

               (vii) such other benefits for which a Grade 11 executive shall be
          eligible from time to time.

                (c) RELOCATION EXPENSES. The Company shall pay directly or
reimburse the Executive, in either case on an after-tax basis to the Executive,
for reasonable moving expenses in relocating the Executive and his immediate
family from Bermuda to a location in the New York City metropolitan area
designated by the Executive (or the Executive's estate or other legal
representative in the event of his death) following termination of the
Executive's employment with the Company for any reason other than Cause (as
hereinafter defined).

                8. TERMINATION OF EMPLOYMENT.

                (a) TERMINATION DUE TO DEATH. In the event the Executive dies
during the term of employment hereunder, the Executive's spouse, if the spouse
survives the Executive, shall be entitled to receive the Base Salary as provided
in
<PAGE>
                                     - 7 -

Section 4, above, at the rate in effect at the time of Executive's death, to
be paid in accordance with the Company's regular payroll practices or in a lump
sum, at the Company's option, through the end of the sixth month after the month
in which the Executive dies. In the event that the Executive's spouse does not
survive him, the estate or other legal representative of the Executive shall be
entitled to receive the Base Salary as provided in Section 4, above, at the rate
in effect at the time of the Executive's death, to be paid in accordance with
the Company's regular payroll practices or in a lump sum, at the Company's
option, through the end of the sixth month after the month in which the
Executive dies. In addition to the above, the estate or other legal
representative of the Executive shall be entitled to:

               (i) any annual bonus earned in accordance with the Company's
          bonus program or awarded but not yet paid under Section 5, above,

               (ii) a pro rata bonus for the year of death in an amount
          determined by the Compensation Committee, but in no event less than a
          pro rata portion of the Executive's target bonus for the year,

               (iii) full and immediate vesting as of the date of death of all
          rights under any options to purchase equity securities of the Company
          or other rights with respect to equity securities of the Company,
          including any restricted stock or other securities, held by the
          Executive,

               (iv) full and immediate vesting under the Company's pension plans
          as of the date of death, to the extent permitted by applicable law,
          and

               (v) any other rights and benefits, if any, available under
          employee benefit programs of the Company, or their equivalent, as
          provided in Section 6, above, and under business expense reimbursement
          and fringe benefits programs as described in Section 7, above,
          determined in accordance with the applicable terms and provisions of
          such programs, PROVIDED that such rights and benefits (excluding any
          right to be considered for additional grants under the Company's stock
          option and other stock-based compensation or incentive plans), or the
          economic equivalent thereof on an after-tax basis to the Executive's
          estate or other legal representative, shall continue for at least six
          months following the end of the month in which the Executive dies.

<PAGE>
                                     - 8 -

                (b) TERMINATION DUE TO DISABILITY. In the event the Executive's
employment hereunder is terminated due to his disability, as determined under
the Company's long-term disability plan, the Executive shall be entitled to:

               (i) the Base Salary as provided in Section 4, above, through the
          end of the sixth month after the month in which the Executive's
          employment terminates due to disability,

               (ii) any annual bonus earned in accordance with the Company's
          bonus program or awarded but not yet paid under Section 5,

               (iii) a pro rata bonus for the year of disability in an amount
          determined by the Compensation Committee, but in no event less than a
          pro rata portion of the Executive's target bonus for the year,

               (iv) full and immediate vesting as of the date of disability of
          all rights under any options to purchase equity securities of the
          Company or other rights with respect to equity securities of the
          Company, including any restricted stock or other securities, held by
          the Executive,

               (v) full and immediate vesting under the Company's pension plans
          as of the date of disability, to the extent permitted by applicable
          law, and

               (vi) any other rights and benefits, if any, available under
          employee benefit programs of the Company, or their equivalent, as
          provided in Section 6, above, including, without limitation, the terms
          of any long-term disability plan, and under the business expense
          reimbursement and fringe benefits programs as described in Section 7,
          above, determined in accordance with the applicable terms and
          provisions of such programs, PROVIDED that such rights and benefits
          (excluding any rights to be considered for additional grants under the
          Company's stock option and other stock-based compensation or incentive
          plans), or the economic equivalent thereof on an after-tax basis to
          the Executive, shall continue for at least six months following the
          end of the month in which the Executive's employment is terminated due
          to disability.

<PAGE>
                                     - 9 -

                (c) TERMINATION FOR CAUSE.

               (i) The employment of the Executive under this Agreement may be
          terminated by the Company for Cause, such termination to be effective
          upon the Company giving the Executive written notice of termination in
          accordance with the provisions of this Agreement. For this purpose,
          "Cause" shall mean:

                    (A) conviction of the Executive of a felony involving moral
               turpitude, dishonesty or laws to which the Company or its
               Affiliates are subject in connection with the conduct of its or
               their business, or

                    (B) the Executive, in carrying out his duties for the
               Company under this Agreement, has been guilty of (1) willful
               misconduct or (2) substantial and continual refusal by the
               Executive to perform the duties assigned to the Executive
               pursuant to the terms hereof; PROVIDED, HOWEVER, that any act or
               failure to act by the Executive shall not constitute Cause for
               purposes of this Section 8(c)(i)(B) if such act or failure to act
               was committed, or omitted, by the Executive in good faith and in
               a manner he reasonably believed to be in the overall best
               interests of the Company, as the case may be. The determination
               of whether the Executive acted in good faith and that he
               reasonably believed his action to be in the Company's overall
               best interest, as the case may be, will be in the reasonable
               judgment of the General Counsel of the Company or, if the General
               Counsel shall have an actual or potential conflict of interest,
               the Compensation Committee.

                    (C) the Executive's continued willful refusal to obey any
               lawful policy or requirement duly adopted by the Company Board
               and the continuance of such refusal after receipt of written
               notice.

               (ii) In the event of a termination for Cause under Section
          8(c)(i), above, the Executive shall be entitled only to:

                    (A) Base Salary as provided in Section 4, above, at the rate
               in effect at the time of his termination of employment for Cause,
               through the date on which termination for Cause occurs,

<PAGE>
                                     - 10 -

                    (B) the rights under any options to purchase equity
               securities of the Company or other rights with respect to equity
               securities of the Company, including any restricted stock or
               other securities, held by the Executive, determined in accordance
               with the terms thereof, and

                    (C) any other rights and benefits, if any, available under
               employee benefit programs of the Company, or their equivalent, as
               provided in Section 6, above, and under the business expense
               reimbursement and fringe benefits programs as described in
               Section 7, above, determined in accordance with the applicable
               terms and provisions of such programs; PROVIDED that the
               Executive shall not be entitled to any such rights or benefits
               unless the terms and provisions of such programs expressly state
               that the Executive shall be entitled thereto in the event his
               employment is terminated for Cause (as defined in this Agreement
               or otherwise); PROVIDED FURTHER that any such continued coverage
               shall be offset by comparable coverage provided to the Executive
               in connection with subsequent full-time employment.

                (d) TERMINATION WITHOUT CAUSE.

               (i) Anything in this Agreement to the contrary notwithstanding,
          the Executive's employment may be terminated by the Company without
          Cause as provided in this Section 8(d). A termination due to death or
          disability, as described in Section 8(a) or (b), above, or a
          termination for Cause, as described in Section 8(c), above, shall not
          be deemed a termination without Cause under this Section 8(d).

               (ii) In the event the Executive's employment is terminated by the
          Company without Cause (x) prior to a Change in Control (other than as
          provided in the last paragraph of Section 8(d)(iii), in which case the
          provisions of Section 8(d)(iii) shall apply in lieu of this Section
          8(d)(ii)) or (y) following the Post-Change Period (as hereinafter
          defined), the Executive shall be entitled to:

                    (A) Base Salary as provided in Section 4, above, at the rate
               in effect at the time of his termination of employment without
               Cause, through the date on which termination without Cause
               occurs,

<PAGE>
                                     - 11 -

                    (B) (I) if the Executive's employment terminates after the
               second anniversary of the Date of the Agreement, a cash lump sum
               payment equal to (x) two times the Executive's annual Base
               Salary, at the annual rate in effect in accordance with Section
               4, above, immediately prior to such termination and (y) one times
               the higher of the targeted annual bonus for the year of such
               termination or the bonus actually awarded to the Executive by the
               Company for the year immediately preceding the year of
               termination, and

                    (II) if the Executive's employment terminates on or prior to
               the second anniversary of the Date of the Agreement, a cash lump
               sum payment equal to (x) two times the Executive's annual Base
               Salary, at the annual rate in effect in accordance with Section
               4, above, immediately prior to such termination and (y) two times
               the targeted annual bonus for the year of such termination,

                    (C) any annual bonus earned in accordance with the Company's
               bonus program or awarded but not yet paid under Section 5, above,

                    (D) if the Executive's employment terminates on or prior to
               the second anniversary of the Date of the Agreement, the rights
               under the stock options granted pursuant to Section 5(b) hereof
               and the restricted shares granted pursuant to Section 5(c) hereof
               held by the Executive shall immediately become vested and, in the
               case of the stock options, exercisable in full,

                    (E) except as otherwise set forth in Section 8(d)(ii)(D)
               above, the rights under any options to purchase equity securities
               of the Company or other rights with respect to equity securities
               of the Company, including any restricted stock or other
               securities, held by the Executive, determined in accordance with
               the terms thereof, and

                    (F) any other rights and benefits, if any, available under
               the employee benefit programs of the Company, or their
               equivalent, as provided in Section 6 above, and under the
               business expense reimbursement and fringe benefits programs as
               described in Section 7, above, determined in accordance with the
               applicable terms and provisions of such programs, for

<PAGE>
                                     - 12 -

          the remainder of the stated term of the agreement from termination or
          until the second anniversary of the date of termination, whichever is
          shorter; PROVIDED, HOWEVER, that any such continued coverage shall be
          offset by comparable coverage provided to the Executive in connection
          with subsequent full-time employment and to the extent the Company is
          unable to continue such coverage, the Company shall provide the
          Executive with economically equivalent benefits determined on an
          after-tax basis to the Executive; PROVIDED FURTHER, HOWEVER, that in
          no event shall the Executive have a right to be considered for
          additional grants under the Company's stock option and other
          stock-based compensation or incentive plans or be eligible for
          employer contributions under the Company's retirement benefit plans at
          any time in whole or in part following the Executive's termination of
          employment pursuant to this Section 8(d)(ii).

               (iii) In the event the Executive's employment is terminated by
          (x) the Company without Cause within the twenty-four month period
          following a Change in Control (as defined in Exhibit A hereto) and, if
          the Change in Control is stockholder approval of an Event (as defined
          in Exhibit A), prior to a termination of the agreement to effect the
          Event (the "Post-Change Period") or (y) the Executive terminates his
          employment for "Good Reason" (as defined in Exhibit B hereto) during
          the Post-Change Period, the Executive shall be entitled to:

                    (A) Base Salary as provided in Section 4, above, at the rate
               in effect at the time of his termination of employment, through
               the date on which termination occurs,

                    (B) a cash lump sum payment equal to two times the
               Executive's annual Base Salary, at the rate in effect in
               accordance with Section 4, above, immediately prior to such
               termination or Change of Control, whichever is greater,

                    (C) a cash lump sum payment equal to two times the largest
               annual bonus awarded to the Executive by the Company in the
               three-year period prior to the year in which the Change in
               Control occurs, provided such bonuses shall be at least equal to
               the targeted annual bonus for the year of such termination,

<PAGE>
                                     - 13 -

                    (D) an amount equal to (i) the higher of (x) the bonus
               actually awarded to the Executive by the Company for the year
               immediately preceding the year in which the Change in Control
               occurs or (y) the targeted amount of bonus that would have been
               awarded to the Executive in respect of the year in which the
               termination of employment occurs, multiplied by (ii) a fraction,
               the numerator of which is the number of months or fraction
               thereof in which the Executive was employed by the Company in the
               year of termination of employment, and the denominator of which
               is 12,

                    (E) options to purchase equity securities of the Company or
               other rights with respect to equity securities of the Company
               held by the Executive shall continue to be exercisable for three
               years from the date of termination of employment, notwithstanding
               the Executive's termination of employment, or the original full
               term of the option or other right, if shorter,

                    (F) any other rights and benefits available under the
               employee and fringe benefit programs of the Company, or their
               equivalent, as provided in Section 7, above, in which the
               Executive was participating at the time of his termination of
               employment for a two-year period from termination; PROVIDED,
               HOWEVER, that any such continued coverage shall be offset by
               comparable coverage provided to the Executive in connection with
               subsequent full-time employment and, to the extent the Company
               unable to continue such coverage, the Company shall provide the
               Executive with economically equivalent benefits determined on an
               after-tax basis to the Executive; PROVIDED FURTHER, HOWEVER, that
               in no event shall the Executive have a right to be considered for
               additional grants under the Company's stock option and other
               stock-based compensation or incentive plans at any time in whole
               or in part following the Executive's termination of employment
               pursuant to this Section 8(d)(iii),

                    (G) full and immediate vesting under the Company's pension
               plans as of the date of termination, to the extent permitted by
               applicable law, and

                    (H) continued coverage under and contributions by the
               Company to the Executive's accounts under the Company's pension
               plans for two years following the

<PAGE>
                                     - 14 -

                Executive's termination of employment, such contributions to be
                based on the Executive's compensation and the Company's
                practices as in effect at the time of such termination or
                Change in Control, whichever is greater; PROVIDED, HOWEVER, that
                if such continued coverage and contributions cannot be provided
                under the pension plans under applicable law, then economically
                equivalent benefits determined on an after-tax basis to the
                Executive shall be provided through arrangements outside the
                applicable pension plans.

                Anything in this Agreement to the contrary notwithstanding, the
Executive shall be entitled to the benefits described in (A)-(H) above, if the
Executive's employment or status as an elected officer with the Company is
terminated (other than for Cause) within one year prior to the date on which a
Change in Control occurs, and it is reasonably demonstrated that such
termination (i) was at the request of a third party who has taken steps
reasonably calculated or intended to effect a Change in Control or (ii)
otherwise arose in connection with or anticipation of a Change in Control.

               (iv) If, in situations where Section 8(d)(iii) does not apply, at
          any time during the term of the Executive's employment hereunder, the
          Executive fails to be appointed (or re-appointed, as appropriate) as
          Executive Vice President and Chief Financial Officer of the Company
          (or, if agreed in writing by the Executive, an equivalent or superior
          position), or duties are assigned to the Executive that are
          inconsistent with his position, or the Company does not cure any other
          material breach by it of any provision of this Agreement or any
          agreements entered into pursuant thereto within 30 calendar days
          following written notice of same by the Executive, the Executive shall
          have the right to terminate his employment within 30 calendar days of
          such failure to appoint or re-appoint or of such assignment or of such
          failure to cure a breach, as the case may be, and such termination
          shall be deemed a termination by the Company without Cause under
          Section 8(d)(ii), above, PROVIDED, in the case of a failure to appoint
          or re-appoint or assignment of inconsistent duties, the Executive
          shall have given the Company written notice of his decision and shall
          not, within 30 calendar days thereafter, have been reinstated to the
          relevant positions and/or had the assignment of inconsistent duties
          rescinded.

<PAGE>
                                     - 15 -

                (e) VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may
voluntarily terminate his employment prior to the expiration of the term of this
Agreement upon at least twelve months' prior written notice to the Company. Such
termination shall constitute a voluntary termination and, except as provided in
Section 8(d)(iii) or Section 8(d)(iv), above, in such event the Executive shall
be limited to the same rights and benefits as applicable to a termination by the
Company for Cause as provided in Section 8(c), above. A voluntary termination in
accordance with this Section 8(e) shall not be deemed a breach of this
Agreement. A termination of the Executive's employment due to disability or
death as described in Section 8(b) or 8(a), above, a termination by the
Executive which the Executive is entitled to treat as a termination by the
Company pursuant to Section 8(d), above, or a termination by the Executive under
Section 8(d)(iv), above, shall not be deemed a voluntary termination within the
meaning of this Section 8(e).

                9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

                (a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that (i) any payment or distribution made,
or benefit provided (including, without limitation, the acceleration of any
payment, distribution or benefit or accelerated vesting or exercisability of any
award) by the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the United States Internal Revenue Code of 1986, as amended
(the "Code") (or any successor provision or similar excise tax), or any interest
or penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), (ii) the aggregate amount of the
Executive's Parachute Payments (as defined in Section 280G(b)(2)(A) of the Code)
is less than 3.25 times the Executive's Base Amount (as defined in Section
280G(b)(3)(A) of the Code), and (iii) no such Payment would be subject to the
Excise Tax if the payments set forth in Section 8(d)(iii)(B) and (C) hereof were
each reduced by up to 20 percent, then the payments set forth in Section
8(d)(iii)(B) and (C) will each be reduced to the smallest extent possible (and
in no event by more than 20
<PAGE>
                                     - 16 -

percent in the aggregate) such that no Payment is subject to the Excise Tax.

                (b) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that (i) the aggregate amount of the
Executive's Parachute Payments equals or exceeds 3.25 times the Executive's Base
Amount, (ii) the aggregate amount of the Executive's Parachute Payments is less
than 3.25 times the Base Amount but one or more Payments would be subject to the
Excise Tax even if the payments set forth in Section 8(d)(iii)(B) and (C) hereof
were each reduced by 20 percent, or (iii) notwithstanding a reduction in
payments pursuant to Section 9(a) above, an Excise Tax is payable by the
Executive on one or more Payments, then, in any such case, Payments shall not be
reduced and the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of all
taxes (including any income or Excise Tax) imposed upon the Gross-Up Payment and
any interest or penalties imposed with respect to such taxes, the Executive
retains from the Gross-Up Payment an amount equal to the Excise Tax imposed upon
the Payments.

                (c) Subject  to  the  provisions  of  Section 9(d),  all
determinations required to be made under this Section 9, including determination
of whether a Gross-Up Payment is required and of the amount of any such Gross-Up
Payment, shall be made by a nationally recognized public accounting firm
selected by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the date of termination of the Executive's employment, if applicable, or
such earlier time as is requested. The initial Gross-Up Payment, if any, as
determined pursuant to this Section 9(c), shall be paid to the Executive within
five business days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that he has substantial
authority not to report any Excise Tax on his Federal income tax return. Any
determination by the Accounting Firm meeting the requirements of this Section
9(c) shall be binding upon the Company and the Executive, subject only to
payments pursuant to the following sentence based on a determination that
additional Gross-Up Payments should have been made, consistent with the
calculations required to be made hereunder (the amount of such additional
payments are referred to herein as the "Gross-Up Underpayment"). In the

<PAGE>
                                     - 17 -

event that the Company exhausts its remedies pursuant to Section 9(d) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up Underpayment that has
occurred and any such Gross-Up Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. The fees and disbursements of
the Accounting Firm shall be paid by the Company.

                (d) The Executive shall notify the Company in writing of any
claim by the United States Internal Revenue Service that, if successful, would
require the payment by the Executive of any Excise Tax and, therefore, the
payment by the Company of a Gross-Up Payment. Such notification shall be given
as soon as practicable but not later than 30 business days after the Executive
receives written notice of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which he gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires, in good faith, to contest such claim
(which notice shall set forth the bases for such contest) and that it will bear
the costs and provide the indemnification as required by this sentence, the
Executive shall, in good faith:

               (i) give the Company any information reasonably requested by the
          Company relating to such claim,

               (ii) take such action in connection with contesting such claim as
          the Company shall, in good faith, reasonably request in writing from
          time to time, including, without limitation, accepting legal
          representation with respect to such claim by an attorney selected by
          the Company and reasonably acceptable to the Executive,

               (iii) cooperate with the Company in good faith in order
          effectively to contest such claim, and

               (iv) permit the Company to participate, in good faith, in any
          proceedings relating to such claim;

PROVIDED,  HOWEVER,  that the Company  shall bear and pay directly all costs and
expenses  (including  additional  interest and pen-

<PAGE>
                                     - 18 -

alties) incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis to the Executive, for any Excise
Tax or income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of all costs and
expenses.

                Without limitation on the foregoing provisions of this Section
9(d), the Company shall, exercising good faith, control all proceedings taken in
connection with such contest and, at its sole option (but in good faith), may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option (but in good faith), either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis to the Executive, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to such advance
or with respect to any imputed income with respect to such advance; AND FURTHER
PROVIDED that any extension of the statute of limitations relating to the
payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority. If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(d), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(d)) promptly pay to the Company, as
the case may be, the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(d), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to
<PAGE>
                                     - 19 -

contest such denial of refund prior to the expiration of 30 days after such
determination, then any obligation of the Executive to repay such advance shall
be forgiven and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

                Notwithstanding any provision herein to the contrary, the
Executive's failure to strictly comply with the notice provisions set forth in
this Section 9, so long as such failure does not prevent the Company from
contesting an excise tax claim, shall not adversely affect the Executive's
rights under this Section 9.

                10. NO MITIGATION; NO OFFSET.

                In the event of any termination of employment under Section 8,
above, the Executive shall be under no obligation to mitigate damages or seek
other employment, and, except as expressly set forth herein, there shall be no
offset against amounts due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain.

                11. NONCOMPETITION AND NONSOLICITATION.

                The Executive represents and warrants that, to the best of his
knowledge, he is not using the confidential or proprietary information of any
other person in violation of any agreement or rights of others known to him. The
Executive agrees that the products of the Company and its Affiliates shall
constitute the exclusive property of the Company and its Affiliates.

                For the avoidance of doubt, all trademarks, policy language or
forms, products or services (including products and services under development),
trade names, trade secrets, service marks, designs, computer programs and
software, utility models, copyrights, know-how and confidential information,
applications for registration of any of the foregoing and the right to apply for
them in any part of the world (whether any of the foregoing shall be registered
or unregistered) created or discovered or participated in by the Executive
during the course of his employment (whether or not pursuant to the terms of
this Agreement) or under the instructions of the Company or its Affiliate are
and shall be the absolute property of the Company and its Affiliates, as
appropirate. Without limiting the foregoing, the Executive hereby assigns to the
Company any and all of the Executive's right, title and interest, if any,

<PAGE>
                                     - 20 -

pertaining to the insurance and reinsurance (including, without limitation,
finite insurance and reinsurance), risk assumption, risk management, brokerage,
financial and other products or services developed or improved upon by the
Executive (including, without limitation, any related "know-how") while employed
by the Company or its Affiliates, including any patent, trademark, trade name,
copyright, ownership or other right that may pertain thereto.

                Since Executive has obtained and is likely to obtain in the
course of Executive's employment with the Company and its Affiliates knowledge
of trade names, trade secrets, know-how, products and services (including
products and services under development), techniques, methods, lists, computer
programs and software and other confidential information relating to the Company
and its Affiliates, and their employees, clients, business or business
opportunities, Executive hereby undertakes that:

               (i) Executive will not (either alone or jointly with or on behalf
          of others and whether directly or indirectly) encourage, entice,
          solicit or endeavor to encourage, entice or solicit, or hire or cause
          to be hired any officer or employee of the Company or its Affiliates
          away from employment with any such entity or to violate the terms of
          any employment agreement or arrangement between any such officer or
          employee and the Company or any of its Affiliates;

               (ii) Executive will not (either alone or jointly with or on
          behalf of others and whether directly or indirectly) interfere with or
          disrupt or seek to interfere with or disrupt (A) the relationships
          between the Company and its Affiliates, on the one hand, and any
          customer or client of the Company and its Affiliates, on the other
          hand, (including any insured or reinsured party) who during the period
          of twenty-four months immediately preceding such termination shall
          have been such a customer or client, or (B) the supply to the Company
          and its Affiliates of any services by any supplier or agent or broker
          who during the period of twenty-four months immediately preceding such
          termination shall have supplied services to any such person, nor will
          Executive interfere or seek to interfere with the terms on which such
          supply or agency or brokering services during such period as aforesaid
          have been made or provided; and

<PAGE>
                                     - 21 -

               (iii) Executive will not (either alone or jointly with or on
          behalf of others and whether directly or indirectly) whether as an
          employee, consultant, partner, principal, agent, distributor,
          representative or stockholder (except solely as a less than one
          percent stockholder of a publicly traded company), engage in any
          activities in Bermuda if such activities are competitive with the
          businesses that (i) are then being conducted by the Company or its
          Affiliates and (ii) during the period of the Executive's employment
          were either being conducted by the Company or its Affiliates or
          actively being developed by the Company or its Affiliates.

                The provisions of the immediately preceding sentence shall
continue as long as the Executive is employed by the Company or its Affiliates
and shall continue in effect after such employment is terminated for any reason
until the first anniversary of such termination, provided that if such
employment is terminated by the Company prior to the end of the stated term
other than for Cause, or is terminated by the Executive under Section 8(d)(iii)
or Section 8(d)(iv), the provisions of clauses (ii) and (iii) shall
automatically terminate upon the termination of such employment, unless the
Company elects, in writing, upon such termination to continue the provisions of
clauses (ii) and (iii) in effect through the six-month anniversary of such
termination of employment in which case the Company shall be obligated to
continue (through such six-month anniversary of termination) to pay the
Executive, in addition to any of the Executive's rights under Section 8(d)(ii),
8(d)(iii) or Section 8(d)(iv), his Base Salary and the pro rata portion of the
Executive's target annual bonus for the year of termination, and such bonus
shall be payable at the times annual bonuses for such year are payable to other
executives.

                For purposes of this Agreement, an "Affiliate" of the Company
includes any person, directly or indirectly, through one or more intermediaries,
controlling, controlled by, or under common control with the Company, and such
term shall specifically include, without limitation, the Company's
majority-owned subsidiaries.

                The limitations on the Executive set forth in this Section shall
also apply to any agent or other representative acting on behalf of Executive.

                While the restrictions aforesaid are considered by both parties
to be reasonable in all the circumstances it is recognized that restrictions of
the nature in question may fail

<PAGE>
                                     - 22 -

for reasons unforeseen and accordingly it is hereby declared and agreed that if
any of such restrictions or the geographic or other scope thereof shall be
adjudged to be void as going beyond what is reasonable in the circumstances for
the protection of the interests of the Company and its Affiliates but would be
valid if part of the wording thereof were deleted and/or the periods (if any)
thereof reduced and/or geographic or other area dealt with thereby reduced in
scope then said restrictions shall apply with such modifications as may be
necessary to make them valid and effective.

                Nothing contained in this Section 11 shall limit in any manner
any additional obligations to which Executive may be bound pursuant to any other
agreement or any applicable law, rule or regulation and Section 11 shall apply,
subject to its terms, after employment has terminated for any reason.

                12. CONFIDENTIAL INFORMATION.

                The Executive covenants that he shall not, without the prior
written consent of the Company, disclose to any person, other than an employee
of the Company or other person to whom disclosure is necessary to the
performance by the Executive of his duties in the employ of the Company, any
confidential, proprietary, secret, or privileged information about the Company
or its Affiliates or their business or operations, including, but not limited
to, information concerning trade secrets, know-how, software, data processing
systems, policy language and forms, inventions, designs, processes, formulae,
notations, improvements, financial information, business plans, prospects,
referral sources, lists of suppliers and customers, legal advice and other
information with respect to the affairs, business, clients, customers, agents or
other business relationships of the Company or its Affiliates. Executive shall
hold in a fiduciary capacity for the benefit of the Company all secret,
confidential proprietary or privileged information or data relating to the
Company or any of its Affiliates or predecessor companies, and their respective
businesses, which shall have been obtained by Executive during his employment,
unless and until such information has become known to the public generally
(other than as a result of unauthorized disclosure by the Executive) or unless
he is required to disclose such information by a court or by a governmental body
with apparent authority to require such disclosure. The foregoing covenant by
the Executive shall be without limitation as to time and geographic application
and this Section 12 shall apply in accordance with its terms after employment
has terminated for any reason. The Executive acknowledges and agrees that he
shall
<PAGE>
                                     - 23 -

have no authority to waive any attorney-client or other privilege without the
express prior written consent of the Compensation Committee as evidenced by the
signature of the Company's General Counsel.

                13. WITHHOLDING.

                Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Executive shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine should be withheld pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.

                14. GUARANTY AND AFFILIATE SERVICES.

                (a) LIABILITY. Each of XL Insurance Ltd and XL Re Ltd (together,
the "Guarantors") hereby agrees to be jointly and severally liable together with
the Company, for the performance of all obligations and duties, and the payment
of all amounts, due to the Executive under this Agreement.

                (b) RESPONSIBILITY. All of the other terms and provisions of
this Agreement relating to the Executive's employment by the Company shall
likewise apply MUTATIS MUTANDIS to the Executive's employment by any of its
Affiliates, it being understood that if the Executive's employment with the
Company is terminated, his employment with its Affiliates shall also be
terminated and the Executive shall be required to resign immediately from all
directorships and other positions held by the Executive in the Company and its
Affiliates or in any other entities in respect of which the Executive was acting
as a representative or designee of the Company or its Affiliates in connection
with his employment.

                15. ENTIRE AGREEMENT.

                This Agreement, together with the Exhibits, contains the entire
agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Company and the Executive
with respect thereto.

<PAGE>
                                     - 24 -

                16. ASSIGNABILITY; BINDING NATURE.

                This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his right to compensation and benefits hereunder,
which may be transferred by will or operation of law subject to the limitations
of this Agreement. No rights or obligations of the Company under this Agreement
may be assigned or transferred by the Company except that such rights or
obligations may be assigned or transferred pursuant to a merger or consolidation
or amalgamation or scheme of arrangement in which the Company is not the
continuing entity, or the sale or liquidation of all or substantially all of the
assets of the Company, provided that the assignee or transferee is the successor
to all or substantially all of the assets of the Company and such assignee or
transferee assumes by operation of law or in writing duly executed by the
assignee or transferee all of the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law.

                17. INDEMNIFICATION.

                The Executive shall be provided indemnification by the Company
to the maximum extent permitted by applicable law and its charter documents. In
addition, he shall be covered by a directors' and officers' liability policy
with coverage for all directors and officers of the Company in an amount equal
to at least US$75,000,000. Such directors' and officers' liability insurance
shall be maintained in effect for a period of six years following termination of
the Executive's employment for any reason other than pursuant to Section 8(c) or
Section 8(e) hereof.

                18. SETTLEMENT OF DISPUTES.

                (a) Any dispute between the Parties arising from or relating to
the terms of this Agreement or the Executive's employment with the Company or
its Affiliates shall, except as provided in Section 18(b) or Section 18(c), be
resolved by arbitration held in New York City in accordance with the rules of
the American Arbitration Association.

                (b) Executive acknowledges that the Company and its Affiliates
will suffer irreparable injury, not readily susceptible of valuation in monetary
damages, if Executive breaches his obligations under Section 11 or 12.
Accord-

<PAGE>
                                     - 25 -

ingly, Executive agrees that the Company and its Affiliates will be entitled, in
addition to any other available remedies, to obtain injunctive relief against
any breach or prospective breach by Executive of his obligations under Section
11 or 12 in any Federal or state court sitting in the City and State of New York
or court sitting in Bermuda or the United Kingdom, or, at the Company's or any
Affiliate's election, in any other jurisdiction in which Executive maintains his
residence or his principal place of business. Executive hereby submits to the
non-exclusive jurisdiction of all those courts for the purposes of any actions
or proceedings instituted by the Company or its Affiliates to obtain such
injunctive relief, and Executive agrees that process in any or all of those
actions or proceedings may be served by registered mail or delivery, addressed
to the last address of Executive known to the Company or its Affiliates, or in
any other manner authorized by law. Executive further agrees that, in addition
to any other remedies available to the Company or its Affiliates by operation of
law or otherwise, because of any breach by Executive of his obligations under
Section 11 or 12 he will forfeit any and all bonus and rights to any payments to
which he might otherwise then be entitled by virtue hereof and such payments may
be suspended so long as any good faith dispute with respect thereto is
continuing; PROVIDED, HOWEVER, that payments, benefits and other rights and
privileges of the Executive under Section 8(d)(iii) shall not be forfeited,
suspended, offset, diminished or otherwise altered in any way on account of any
breach or prospective breach of Section 11, Section 12 or any other provision of
this Agreement alleged by the Company.

                (c) Notwithstanding any other provision of this Agreement, the
Executive may elect to resolve any dispute involving a breach or alleged breach
of Section 8(d)(iii) in any Federal or State court sitting in the City and State
of New York or court sitting in Bermuda or the United Kingdom. The Company and
the Guarantors hereby submit to the non-exclusive jurisdiction of all those
courts for the purposes of any actions or proceedings instituted by the
Executive to enforce Section 8(d)(iii), and the Company and the Guarantors agree
that process in any or all of such actions or proceedings may be served by
registered mail or delivery, addressed to the Company as set forth in Section
20, or in any other manner authorized by law. The Company and the Guarantors
shall pay all costs associated with any court proceeding under this Section
18(c), including all legal fees and expenses of the Executive, who shall be
reimbursed
<PAGE>
                                     - 26 -

for all such costs promptly upon written demand therefor by the Executive.

                (d) All costs associated with any proceeding under Sections
18(a) or 18(b) hereof, including all legal fees and expenses, for all Parties
shall be borne by the Company; PROVIDED, HOWEVER, that each Party shall bear its
own expenses if (i) the dispute relates to Sections 11 or 12 hereof, (ii) the
dispute results in the grant of injunctive relief against the Executive, and
(iii) the Executive's employment was terminated by the Company for Cause or by
the Executive not for Good Reason and not pursuant to Section 8(d)(iv) hereof.
The Executive shall be reimbursed by the Company for all such costs promptly
upon written demand therefor by the Executive.

                19. AMENDMENT OR WAIVER.

                No provision in this Agreement may be amended unless such
amendment is agreed to in writing, signed by the Executive and by a duly
authorized officer of the Company and the Guarantors. No waiver by any Party of
any breach by the other Party of any condition or provision of this Agreement to
be performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or a duly authorized
officer of the Company and the Guarantors, as the case may be.

                20. NOTICES.

                Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or sent by courier, or by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the Party concerned
at the address indicated below or to such changed address as such Party may
subsequently by similar process give notice of:

                If to the Company:

                       XL Capital Ltd
                       XL House
                       One Bermudiana Road
                       Hamilton HM11 Bermuda
                       Att'n: General Counsel

<PAGE>
                                     - 27 -

                If to the Executive:

                       Jerry de St. Paer
                       c/o XL Capital Ltd
                       XL House
                       One Bermudiana Road
                       Hamilton HM11 Bermuda

                21. SEVERABILITY.

                In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.

                22. SURVIVORSHIP.

                The respective rights and obligations of the Parties shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.

                23. REFERENCE.

                In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his estate or other legal
representative.

                24. GOVERNING LAW.

                This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York without
reference to the principles of conflict of laws.

                25. HEADINGS.

                The heading of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.

<PAGE>
                                     - 28 -

                26. COUNTERPARTS.

                This Agreement may be executed in one or more counterparts.

<PAGE>
                                     - 29 -

                IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first written above.

                                                 XL CAPITAL LTD

                                                 By:
                                                    ----------------------------

                                                 JERRY DE ST. PAER

                                                 By:
                                                    ----------------------------

                                                 GUARANTORS:

                                                 XL INSURANCE LTD

                                                 By:___________________________

                                                 XL RE LTD

                                                 By: __________________________

<PAGE>

                                                                       EXHIBIT A

                                CHANGE IN CONTROL

                A "Change in Control" shall be deemed to have occurred:

               (i) if any person (which, for all purposes hereof, shall include,
          without limitation, an individual, sole proprietorship, partnership,
          unincorporated association, unincorporated syndicate, unincorporated
          organization, trust, body corporate and a trustee, executor,
          administrator or other legal representative)(a "Person") or any group,
          as defined in Sections 13(d) or 14(d) of the United States Securities
          Exchange Act of 1934 (other than a group of which the Executive is a
          member or which has been organized by the Executive), becomes the
          beneficial owner, directly or indirectly, of securities of the Company
          representing, or acquires the right to control or direct, or to
          acquire through the conversion of securities or the exercise of
          warrants or other rights to acquire securities, 30% or more of either
          (I) the outstanding Ordinary Shares of the Company; (II) the
          outstanding securities of the Company having a right to vote in the
          election of directors or (III) the combined voting power of the
          outstanding securities of the Company having a right to vote in the
          election of directors; or

               (ii) if there shall be elected or appointed to the Board of
          Directors of the Company (the "Board") any director or directors whose
          appointment or election by the Board or nomination for election by the
          Company's shareholders was not approved by a vote of at least a
          majority of the directors then still in office who were either
          directors on the date of execution of this Agreement or whose election
          or appointment or nomination for election was previously so approved;
          or

               (iii) if there occurs a reorganization, scheme of arrangement,
          merger, consolidation, combination, amalgamation, corporate
          restructuring, liquidation, winding up, exchange of securities, or
          similar transaction, or stockholder approval of any of the foregoing,
          (each, an "Event"), in each case, in respect of which the beneficial
          owners of the outstanding Company Ordinary Shares immediately prior to
          such Event do not or will not, following such Event, beneficially own,
          directly or indirectly, more
<PAGE>
                                     - 2 -

          than 60% of each of the outstanding equity share capital and the
          combined voting power of the then outstanding voting securities
          entitled to vote in the election of the directors, of the Company and
          any resulting entity, in substantially the same proportions as their
          ownership, immediately prior to such Event, of the Ordinary Shares and
          voting power of the Company; or

               (iv) if there occurs an Event involving the Company as a result
          of which 25% of more of the members of the Board of the Company are
          not persons who were members of the Board immediately prior to the
          earlier of (x) the Event, (y) execution of an agreement, the
          consummation of which would result in the Event, or (z) announcement
          by the Company of an intention to effect the Event; or

               (v) the Board adopts a resolution to the effect that, for
          purposes of this Agreement, a Change in Control has occurred.

<PAGE>

                                                                       EXHIBIT B

                                   GOOD REASON

                For purposes of this Agreement, "Good Reason" shall mean any of
the following, unless done with the prior express written consent of
the Executive:

                             (i) (A)  The  assignment  to  Executive  of  duties
               inconsistent  with  Executive's   position   (including   duties,
               responsibilities,  status,  titles  or  offices  as set  forth in
               Section  3  hereof);  or  (B)  any  elimination,   diminution  or
               reduction of  Executive's  duties or  responsibilities  except in
               connection  with the  termination of  Executive's  employment for
               Cause,  disability  or as a  result  of  Executive's  death or by
               Executive  other than for Good Reason;  and for purposes for this
               clause  (i),  the  determination  of  whether  there  has  been a
               reduction  of  duties or  responsibilities  or an  assignment  of
               duties inconsistent with the Executive's position shall take into
               account the  Executive's  duties,  responsibilities  and position
               with the  ultimate  parent  of the  parent/subsidiary  group as a
               whole which includes the Company;

                    (ii) The (A) reduction in Executive's Base Salary from the
               level in effect immediately prior to the Change in Control, or
               (B) payment of an annual bonus in an amount less than the lesser
               of (x) the most recent annual bonus paid prior to the Change in
               Control or (y) the greater of (I) the most recent target bonus
               established prior to the Change in Control or (II) the annual
               average bonus paid for the preceding three complete years prior
               to the Change in Control (or such lesser number of complete years
               as the Executive shall have been employed by the Company);

                    (iii) The failure by the Company or the Guarantors to obtain
               the specific written assumption of this Agreement by any
               successor or assign of the Company or the Guarantors or any
               person acquiring substantially all of the Company's or the
               Guarantors' assets;

                    (iv) Any breach by the Company or the Guarantors of any
               provision of this Agreement or any agreements entered into
               pursuant thereto that remains uncured for 20 calendar days
               following written notice of same by the Executive;

<PAGE>
                                     - 2 -

                    (v) Requiring Executive to be based at any office or
               location other than those described in Section 3(b) hereof,
               except for travel reasonably required in the performance of the
               Executive's responsibilities;

                    (vi) During the Post Change Period, (A) the failure to
               continue in effect any compensation or incentive plan in which
               Executive participates immediately prior to the time of the
               Change in Control unless an equitable arrangement (embodied in an
               ongoing substitute or alternative plan providing Executive with
               at least the same aggregate economic opportunity on an after-tax
               basis available to the Executive immediately prior to the Change
               in Control) has been made with respect to such plan in connection
               with the Change in Control, or the failure to continue
               Executive's participation therein on substantially the same basis
               both in terms of the amount of benefits provided and the level of
               his participation relative to other participants, as existed at
               the time of the Change in Control; or (B) the failure to continue
               to provide Executive with benefits and coverage at least as
               favorable in the aggregate as those enjoyed by him under the
               Company's pension, life insurance, medical, health and accident,
               disability, deferred compensation or savings plans in which he
               was participating at the time of the Change in Control; or

                    (vii) The failure by the Company to pay within 7 calendar
               days of the due date any amounts due under any benefit or
               compensation plan, including any deferred compensation plan.

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