Document:

Exhibit 10.7.2

 

 

 

TRUST AGREEMENT

 

 

Dated as of November    , 2006

 

 

between

 

 

FUND AMERICAN ENTERPRISES HOLDINGS, INC.

 

 

and

 

 

WHITE MOUNTAINS CAPITAL, INC., as Trustee

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  
	
   

  	
   

  	
   

  
	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
  Definitions

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  
	
   

  	
   

  	
   

  
	
  TRUST

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01.

  	
  Establishment

  	
  5

  
	
  SECTION 2.02.

  	
  Revocation

  	
  5

  
	
  SECTION 2.03.

  	
  Grantor
  Trust

  	
  5

  
	
  SECTION 2.04.

  	
  Trust Assets

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  
	
   

  	
   

  	
   

  
	
  DISBURSEMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
  Disbursements
  to Zenith

  	
  6

  
	
  SECTION 3.02.

  	
  Limitations

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  
	
   

  	
   

  	
   

  
	
  INSOLVENCY OF THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
  Insolvency

  	
  6

  
	
  SECTION 4.02.

  	
  Procedures

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  
	
   

  	
   

  	
   

  
	
  PAYMENTS TO THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01.

  	
  Payments to
  the Company

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  
	
   

  	
   

  	
   

  
	
  INVESTMENT OF TRUST

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
  Limitations
  on Rights of Zenith

  	
  7

  
	
  SECTION 6.02.

  	
  Contributed
  Assets

  	
  7

  

 

i

 

	
  ARTICLE VII

  	
   

  
	
   

  	
   

  	
   

  
	
  RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 7.01.

  	
  General

  	
  8

  
	
  SECTION 7.02.

  	
  Accounts

  	
  8

  
	
  SECTION 7.03.

  	
  Inspection
  and Audit

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  	
   

  
	
  TRUSTEE POWERS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01.

  	
  Trustee
  Powers

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  
	
   

  	
   

  	
   

  
	
  COMPENSATION AND EXPENSES OF THE TRUSTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01.

  	
  Compensation
  and Expenses of the Trustee

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
   

  
	
   

  	
   

  	
   

  
	
  RESIGNATION OR REMOVAL OF THE TRUSTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  10.01.

  	
  Resignation

  	
  10

  
	
  SECTION
  10.02.

  	
  Removal

  	
  10

  
	
  SECTION
  10.03.

  	
  Successor

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
   

  
	
   

  	
   

  	
   

  
	
  SUCCESSOR TRUSTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  11.01.

  	
  Appointment

  	
  10

  
	
  SECTION
  11.02.

  	
  Acceptance

  	
  10

  
	
  SECTION
  11.03.

  	
  Corporate
  Action

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
   

  
	
   

  	
   

  	
   

  
	
  CONFIDENTIALITY

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  12.01.

  	
  Confidentiality

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  	
   

  
	
   

  	
   

  	
   

  
	
  AMENDMENT, REVOCATION OR TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  13.01.

  	
  Amendment

  	
  11

  
	
  SECTION
  13.02.

  	
  Revocation
  or Termination

  	
  11

  

 

ii

 

	
  ARTICLE XIV

  	
   

  
	
   

  	
   

  	
   

  
	
  LIMITATION OF LIABILITY; INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  14.01.

  	
  Limitation
  of Liability

  	
  12

  
	
  SECTION
  14.02.

  	
  Indemnification

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE XV

  	
   

  
	
   

  	
   

  	
   

  
	
  RESIGNATION, REMOVAL AND TERMINATION NOTICES

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  15.01.

  	
  Resignation,
  Removal and Termination Notices

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVI

  	
   

  
	
   

  	
   

  	
   

  
	
  DURATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  16.01.

  	
  Duration

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVII

  	
   

  
	
   

  	
   

  	
   

  
	
  GENERAL

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  17.01.

  	
  Performance
  by the Trustee, its Agents or Affiliates

  	
  13

  
	
  SECTION
  17.02.

  	
  Entire
  Agreement

  	
  13

  
	
  SECTION
  17.03.

  	
  Waiver

  	
  13

  
	
  SECTION
  17.04.

  	
  Non-Assignment

  	
  13

  
	
  SECTION
  17.05.

  	
  Successors
  and Assigns

  	
  13

  
	
  SECTION
  17.06.

  	
  Partial
  Invalidity

  	
  13

  
	
  SECTION
  17.07.

  	
  Section
  Headings

  	
  13

  
	
  SECTION
  17.08.

  	
   Counterparts

  	
  14

  
	
  SECTION
  17.09.

  	
  Facsimile
  and Electronic Communications Permitted

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVIII

  	
   

  
	
   

  	
   

  	
   

  
	
  GOVERNING LAW

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  18.01.

  	
  Delaware Law
  Controls

  	
  14

  
	
  SECTION
  18.02.

  	
  Trust
  Agreement Controls

  	
  14

  

 

iii

 

TRUST AGREEMENT dated as of November [•], 2006, between FUND
AMERICAN ENTERPRISES HOLDINGS, INC., a Delaware corporation (the “Company”) and
WHITE MOUNTAINS CAPITAL, INC., a Delaware corporation (the “Trustee”).

 

W I T N E S S
E T H:

 

WHEREAS Zenith Insurance Company (“Zenith”) owns $20 million
liquidation preference of preferred stock of the Company (“the Zenith Preferred
Stock”);

 

WHEREAS the Company wishes to establish a trust and to contribute to
the trust assets (the “Contributed Assets”) that shall be held therein, subject
to the claims of the Company’s creditors in the event of the Company’s
Insolvency (as herein defined), until paid to Zenith in such manner and at such
times as specified under the terms of the Zenith Preferred Stock;

 

WHEREAS it is the intention of the parties that the Contributed Assets
be sufficient to pay when due all amounts required under the terms of the
Zenith Preferred Stock; and

 

WHEREAS the Trustee is willing to hold the aforesaid Contributed Assets
in trust.

 

NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be composed, held and disposed of as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.01.      Definitions. The following terms as
used in this Agreement have the meaning indicated unless the context clearly
requires otherwise:

 

 “Agreement” shall mean this
Trust Agreement, as the same may be amended and in effect from time to time.

 

“Code” shall mean the Internal Revenue Code of 1986, as it has been or
may be amended from time to time.

 

“Company” shall mean Fund American Enterprises Holdings, Inc., a
Delaware corporation, or any successor to all or substantially all its
businesses that, by agreement, operation of law or otherwise, assumes the
responsibility of the Company under this Agreement.

 

4

 

“Contributed Assets” shall mean the cash contributed to the Trust by
the Company, which cash will be used to acquire a portfolio of fixed maturity
securities issued by the U.S. government or government-sponsored enterprises,
the scheduled interest and principal payments of which are intended to be
sufficient to pay when due all amounts required under the terms of the Zenith
Preferred Stock.

 

“Reporting Date” shall mean the last day of each calendar quarter and
the date as of which the Trustee resigns or is removed pursuant to this
Agreement.

 

“Trust” shall mean this Fund American Enterprises Holdings, Inc. Trust
established by the Company and the Trustee pursuant to the provisions of this
Agreement.

 

“Trustee” shall mean White Mountains Capital, Inc., a Delaware
corporation, or any successor trustee appointed pursuant to Article XI to
the extent such successor agrees to serve as Trustee under this Agreement.

 

“Zenith” shall mean Zenith Insurance Company, a California Corporation.

 

“Zenith Preferred Stock” shall mean the $20 million liquidation
preference of preferred stock of the Company owned by Zenith.

 

ARTICLE II

TRUST

 

SECTION 2.01.      Establishment. The Company hereby
deposits with the Trustee in trust the Contributed Assets, which shall become
the principal of the Trust to be held, administered and disposed of by the
Trustee as provided in this Agreement. The Company may from time to time
deposit additional assets with the Trustee in trust that shall thereupon be added
to the principal of the Trust.

 

SECTION 2.02.      Revocation. The Trust hereby
established shall not be revocable by the Company.

 

SECTION 2.03.      Grantor Trust. The Trust is
intended to be a grantor trust, of which the Company is the grantor, within the
meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code,
and shall be construed accordingly.

 

SECTION 2.04.      Trust Assets. The principal of the
Trust and any earnings thereon shall be held separate and apart from funds of
the Company and shall be used exclusively for the uses and purposes described
herein and for the general creditors of the Company as herein set forth. Zenith
shall have no preferred claim on, or any beneficial ownership interest in, any
assets of the Trust. Any assets held by the Trust will be subject to the claims
of the Company’s general creditors under Federal and state law in the event of
Insolvency.

 

5

 

ARTICLE III

DISBURSEMENTS

 

SECTION 3.01.      Disbursements to Zenith. The
Company shall deliver to the Trustee a schedule (the “Payment Schedule”) that
indicates the amounts payable by the Company in respect of the Zenith Preferred
Stock and the dates for payments of such amounts. The Trustee shall, on behalf
of the Company, disburse moneys from the Trust to Zenith in accordance with the
Payment Schedule. The Trustee shall have no responsibility to ascertain whether
the Payment Schedule complies with the terms of the Zenith Preferred Stock or
of any applicable law. The Company shall be responsible for any Federal or
state income tax reporting or withholding arising out of any transactions
relating to the Trust.

 

If the principal of the Trust, and any earnings thereon, are not
sufficient to make payments to Zenith in accordance with the Payment Schedule,
the Trustee shall notify the Company.

 

SECTION 3.02.      Limitations. The Trustee shall not
be required to make any disbursement in excess of the net realizable value of
the assets of the Trust at the time of the disbursement.

 

ARTICLE IV

INSOLVENCY OF THE COMPANY

 

SECTION 4.01.      Insolvency. The Trustee shall cease
disbursement of funds to Zenith if the Trustee has become aware of the
Company’s Insolvency in accordance with the procedures described in Section
4.02. The Company shall be considered “Insolvent” for purposes of this
Agreement if (a) the Company is unable to pay its debts as they become due or
(b) the Company is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.

 

SECTION 4.02.      Procedures. At all times during the
continuance of the Trust, the principal and income of the Trust shall be
subject to claims of general creditors of the Company under Federal and state
law as set forth below.

 

(a)           The Board of Directors and the
President of the Company shall have the duty to inform the Trustee in writing
of the Company’s Insolvency. If a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent and,
pending such determination, the Trustee shall discontinue disbursements of
funds to Zenith.

 

(b)           Unless the Trustee has actual
knowledge of the Company’s Insolvency, or has received notice from the Company
or a person claiming to be a creditor alleging that the Company is Insolvent,
the Trustee shall have no duty to inquire 

 

6

 

whether the Company is Insolvent. The Trustee
may in all events rely on such evidence concerning the Company’s solvency as
may be furnished to the Trustee and that provides the Trustee with a reasonable
basis for making a determination concerning the Company’s solvency; provided,
however, that the Trustee may in all events rely conclusively on the assertion
of the Company as to whether it is or is not Insolvent.

 

(c)           If at any time the Trustee has
determined that the Company is Insolvent, the Trustee shall discontinue
disbursements of funds to Zenith and shall hold the assets of the Trust for the
benefit of the Company’s general creditors.

 

(d)           The Trustee shall resume disbursement
of funds to Zenith in accordance with Article III only after the Trustee
has determined that the Company is not Insolvent (or is no longer Insolvent).

 

ARTICLE V

PAYMENTS TO THE COMPANY

 

SECTION 5.01.      Payments to the Company. Except as
provided under Articles III and IV and Section 13.02(b) the Company shall have
no right to retain or divert to others any of the Trust assets.

 

ARTICLE VI

INVESTMENT OF TRUST

 

SECTION 6.01.      Limitations on Rights of Zenith. As
provided in Section 2.04, Zenith will not have any preferential claim to or
beneficial ownership interest in any asset or investment of the Trust, and the
rights of Zenith under the Trust are solely those rights afforded to Zenith
with respect to the assets of the Company as the holder of the Zenith Preferred
Stock. Subject to the other provisions of this Article VI, all rights
associated with assets of the Trust shall be exercised by the Trustee or the
person designated by the Trustee, and shall in no event be exercisable by or
rest with any person, including Zenith and the Company.

 

SECTION 6.02.      Contributed Assets.

 

(a)           Investments. The Trustee shall
not invest the principal and income of the Trust and shall hold the Contributed
Assets and the scheduled interest and principal payments thereon solely for the
purpose of making disbursements to Zenith in accordance with the terms of the
Zenith Preferred Stock; provided, that, the Trustee shall use the
Contributed Assets to acquire fixed maturity securities issued by the U.S.
government or government-sponsored enterprises as the Trustee is instructed in
writing by the Company from time to time.

 

7

 

ARTICLE VII

RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED

 

SECTION 7.01.      General. The Trustee shall perform
such recordkeeping and administrative functions as are agreed to in writing
between the Company and the Trustee.

 

SECTION 7.02.      Accounts. The Trustee shall keep
accurate accounts of all investments, receipts, disbursements and other
transactions hereunder, and shall report the value of the assets held in the
Trust as of the last day of each fiscal quarter of the Company and, if not on
the last day of a fiscal quarter or the date on which the Trustee resigns or is
removed as provided in Article X or this Agreement is terminated as
provided in Article XIII. Within 30 days following each Reporting Date or
within 60 days in the case of a Reporting Date caused by the resignation or
removal of the Trustee or the termination of this Agreement, the Trustee shall
provide to the Company a written account setting forth all investments,
receipts, disbursements and other transactions effected by the Trustee between
the Reporting Date and the prior Reporting Date, and setting forth the value of
the Trust as of the Reporting Date.

 

SECTION 7.03.      Inspection and Audit. All records
generated by the Trustee in accordance with Sections 7.01 and 7.02 shall
be open to inspection and audit, during the Trustee’s regular business hours
prior to the termination of this Agreement, by the Company or any person
designated by the Company.

 

ARTICLE VIII

TRUSTEE POWERS

 

SECTION 8.01.      Trustee Powers. The Trustee shall
have the following powers and authority:

 

(a)           to sell, exchange,
convey, transfer or otherwise dispose of any property held in the Trust, by
private contract or at public auction; no person dealing with the Trustee shall
be bound to see to the application of the purchase money or other property
delivered to the Trustee or to inquire into the validity, expediency or
propriety of any such sale or other disposition;

 

(b)           to cause any
securities or other property held as part of the Trust to be registered in the
Trustee’s own name, in the name of one or more of its nominees and to hold any
investments in bearer form, but the books and records of the Trustee shall at
all times show that all such investments are part of the Trust;

 

(c)           to keep that portion
of the Trust in cash or cash balances as the Trustee may, from time to time,
deem to be in the best interest of the Trust;

 

8

 

(d)           to make, execute,
acknowledge and deliver any and all documents of transfer or conveyance and to
carry out the powers herein granted;

 

(e)           to borrow funds from
a bank not affiliated with the Trustee in order to provide sufficient liquidity
to make disbursements to Zenith in accordance with the Zenith Preferred Stock
in a timely fashion;

 

(f)            to settle,
compromise or submit to arbitration any claims (other than claims of creditors
of the Company in the event of the Company’s Insolvency), debts or damages due
to or arising from the Trust; to commence or defend suits or legal or
administrative proceedings; to represent the Trust in all suits and legal and
administrative hearings; and to pay all reasonable expenses arising from any
such action from the Trust if not paid by the Company;

 

(g)           to employ legal,
accounting, clerical and other assistance as may be required in carrying out
the provisions of this Agreement and to pay their reasonable expenses and
compensation from the Trust if not paid by the Company; and

 

(h)           to do all other
acts, although not specifically mentioned herein, as the Trustee may deem
necessary to carry out any of the foregoing powers and the purposes of the
Trust.

 

Notwithstanding any powers granted to the Trustee pursuant to this
Agreement or to applicable law, the Trustee shall not have any power that could
give the Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code. The Company may
provide the Trustee with an opinion of counsel whether an annual fiduciary tax
return should be filed for the Trust; in the absence of such opinion, the
Trustee may consult with counsel to the extent it deems appropriate on such
issue, and any resulting counsel fees shall be charged to the Trust to the
extent not paid by the Company.

 

ARTICLE IX

COMPENSATION AND EXPENSES OF THE TRUSTEE

 

SECTION 9.01.      Compensation and Expenses of the
Trustee. The Company shall not be required to pay a fee to the Trustee in
connection with the services provided by the Trustee in accordance with this
Agreement.

 

All expenses of the Trustee relating directly to the management of the
assets of the Trust and disbursement of funds to Zenith shall be paid by the
Company.

 

9

 

The Company shall, from time to time, pay taxes of any and all kinds
whatsoever that at any time are lawfully levied or assessed upon or become
payable in respect of the assets of the Trust.

 

ARTICLE X

RESIGNATION OR REMOVAL OF THE TRUSTEE

 

SECTION 10.01.    Resignation. The Trustee may resign
at any time upon 90 days’ notice in writing to the Company, unless a shorter
period of notice is agreed upon by the Company.

 

SECTION 10.02.    Removal. The Company may not remove
the Trustee except in the event of gross negligence or willful misconduct by
the Trustee in connection with the performance of its obligations under this
Agreement and upon 90 days’ notice in writing to the Trustee, unless a shorter
period of notice is agreed upon by the Trustee.

 

SECTION 10.03.    Successor. If the Trustee resigns or
is removed, a successor shall be appointed, in accordance with Article XI, by
the effective date of resignation or removal under Section 10.01 or 10.02. If
no such appointment has been made, the Trustee may apply to a court of
competent jurisdiction for appointment of a successor or for instructions. All
expenses of the Trustee in connection with any such proceeding shall be paid by
the Company.

 

ARTICLE XI

SUCCESSOR TRUSTEE

 

SECTION 11.01.    Appointment. If the office of Trustee
becomes vacant for any reason, the Company may in writing appoint a successor
trustee under this Agreement. The successor trustee shall have all the rights,
powers, privileges, obligations, duties, liabilities and immunities granted to
the Trustee under this Agreement. The successor trustee and predecessor trustee
shall not be liable for the acts or omissions of the other with respect to the
Trust.

 

SECTION 11.02.    Acceptance. When the successor
trustee accepts its appointment under this Agreement, title to and possession
of the Trust assets shall immediately vest in the successor trustee without any
further action on the part of the predecessor trustee. The predecessor trustee
shall execute all instruments and do all acts that reasonably may be necessary
or reasonably may be requested in writing by the Company or the successor
trustee to vest title to all Trust assets in the successor trustee or to
deliver all Trust assets to the successor trustee.

 

SECTION 11.03.    Corporate Action. Any successor of
the Trustee or successor trustee, through sale or transfer of the business or trust
department of the Trustee

 

10

 

or successor trustee, or through
reorganization, consolidation or merger, or any similar transaction, shall,
upon consummation of the transaction, become the successor trustee under this
Agreement.

 

ARTICLE XII

CONFIDENTIALITY

 

SECTION 12.01.    Confidentiality. The parties to this
Agreement recognize that, in the course of implementing and providing the
services defined herein, each party may disclose to the other confidential
information. All such confidential information and other proprietary
information disclosed by any party shall remain the sole property of the party
disclosing the same, and any receiving party shall have no interest or rights with
respect thereto if so designated by the disclosing party to the receiving party.
Each party agrees to maintain all such confidential information in trust and
confidence to the same extent that it protects its own proprietary information,
and not to disclose such confidential information to any third party without
the written consent of the party that originally disclosed such proprietary
information. Each party further agrees to take all reasonable precautions to
prevent any unauthorized disclosure of such confidential information. In
addition, each party agrees not to disclose or make public to anyone, in any
manner, the terms of this Agreement, except to its legal and accounting
advisers, or as required by law, or in connection with a potential corporate
transaction, without the prior written consent of the other parties.

 

All information received and all records prepared and maintained by the
Trustee shall be held in confidence by the Trustee, except as required by
applicable law. Except to the extent expressly authorized under this Agreement,
the Trustee shall not hold itself out as a representative or agent of the
Company.

 

ARTICLE XIII

AMENDMENT, REVOCATION OR TERMINATION

 

SECTION 13.01.    Amendment. This Agreement may not be
amended.

 

SECTION 13.02.    Revocation or Termination.

 

(a)           Except as set forth in paragraph (b)
of this Section 13.02, the Trust may not be revoked and this Agreement may not
be terminated.

 

(b)           On the date when the Zenith Preferred
Stock is redeemed in full and the Company has no further obligations with
respect to such stock, the Trust shall automatically be revoked and this
Agreement shall terminate. At such time, the Trustee shall forthwith transfer
and deliver to such individual or entity as the Company shall designate in
writing all cash and assets then constituting the Trust. If by the termination

 

11

 

date, the Company has not notified the
Trustee in writing as to whom the assets and cash are to be transferred and
delivered, the Trustee may bring an appropriate action or proceeding for leave
to deposit the assets and cash in a court of competent jurisdiction. The
Trustee shall be reimbursed by the Company for all costs and expenses of the
action or proceeding including, without limitation, reasonable attorneys’ fees
and disbursements.

 

ARTICLE XIV

LIMITATION OF LIABILITY; INDEMNIFICATION

 

SECTION 14.01.    Limitation of Liability. Trustee
shall not be liable for any claims, losses, liabilities, damages or expenses
(including attorneys’ fees and expenses) (collectively referred to herein as
“Losses”) or action taken or omitted or for any loss or injury resulting from
its actions or its performance or lack of performance of its duties hereunder
in the absence of its gross negligence or willful misconduct. In no event shall
Trustee be liable (i) for special, consequential or punitive damages, or (ii)
any Losses due to forces beyond the control of Trustee, including without
limitation strikes, work stoppages, acts of war or terrorism, insurrection,
revolution, nuclear or natural catastrophes or acts of God, and interruptions,
loss or malfunctions of utilities, communications or computer (software and
hardware) services.

 

SECTION 14.02.    Indemnification. The Company shall be
liable for, and shall indemnify Trustee and hold Trustee harmless from and
against, any and all Losses howsoever arising from or in connection with this
Agreement or the performance of Trustee’s duties hereunder, the enforcement of
this Agreement and disputes between the parties hereto, provided, however, that
nothing contained herein shall require that Trustee be indemnified for its
gross negligence or willful misconduct.

 

ARTICLE XV

RESIGNATION, REMOVAL AND TERMINATION NOTICES

 

SECTION 15.01.    Resignation, Removal and Termination
Notices. All notices of resignation, removal or termination under this
Agreement must be in writing and mailed to the party to which the notice is
being given by certified or registered mail, return receipt requested, to the
Company c/o Thomas L. Forsyth, Esq., OneBeacon Insurance Group LLC, One Beacon
Street, Boston, MA 02108, and to the Trustee c/o White Mountains Capital, Inc.,
80 South Main St., Hanover, NH 03755, or to such other addresses as the parties
have notified each other of in the foregoing manner.

 

12

 

ARTICLE XVI

DURATION

 

SECTION 16.01.    Duration. The Trust shall continue in
effect until the Zenith Preferred Stock is redeemed in full and the Company has
no further obligations with respect to such stock subject, however, to the
provisions of this Agreement relating to amendment or termination.

 

ARTICLE XVII

GENERAL

 

SECTION 17.01.    Performance by the Trustee, its Agents or
Affiliates. The Company acknowledges and authorizes that the services to be
provided under this Agreement shall be provided by the Trustee, its agents or
affiliates, and that certain of such services may be provided pursuant to one
or more other contractual agreements or relationships.

 

SECTION 17.02.    Entire Agreement. This Agreement
contains all the terms agreed upon between the parties with respect to the
subject matter hereof.

 

SECTION 17.03.    Waiver. No waiver by either party of
any failure or refusal to comply with an obligation hereunder shall be deemed a
waiver of any other or subsequent failure or refusal to so comply.

 

SECTION 17.04.    Non-Assignment. Payments to Zenith
under the Trust, if any, may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.

 

SECTION 17.05.    Successors and Assigns. The
stipulations in this Agreement shall inure to the benefit of, and shall bind,
the successors and assigns of the respective parties.

 

SECTION 17.06.    Partial Invalidity. If any term or
provision of this Agreement or the application thereof to any person or
circumstances shall, to any extent, be invalid or unenforceable, the remainder
of this Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.

 

SECTION 17.07.    Section Headings. The headings of the
various sections and subsections of this Agreement have been inserted only for
the purposes of convenience and are not part of this Agreement and shall not be
deemed in any manner to modify, explain, expand or restrict any of the
provisions of this Agreement.

 

13

 

SECTION 17.08.    Counterparts. This Agreement may be
executed in one or more counterparts (including via facsimile), each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument and shall become effective when one or more
counterparts have been signed by each party and delivered to the other party. The
signature of any of the parties to any counterpart or copy of this Agreement
shall be sufficient evidence of its joining in the creation of the Trust and of
its designation of the Trustee named herein.

 

SECTION 17.09.    Facsimile and Electronic Communications
Permitted. All requirements in this Agreement that notifications,
directions or other communications be in writing may be satisfied by facsimile
and/or electronic delivery to the facsimile number, e-mail or other electronic
address as shall have been provided by one party to the other in writing,
except for (a) the requirement relating to notices of resignation, removal or
termination as described in Section 15.01 and (b) the initial notice by one
party to the other of an acceptable facsimile number, e-mail or other address. Any
changes by one party to any facsimile number, e-mail or other address
previously provided to the other party pursuant to this Section 17.09 shall
also be transmitted in writing.

 

ARTICLE XVIII

GOVERNING LAW

 

SECTION 18.01.    Delaware Law Controls. This Agreement
is being made in the State of Delaware, and the Trust shall be administered as
a Delaware trust. The validity, construction, effect and administration of this
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Delaware.

 

SECTION 18.02.    Trust Agreement Controls. The Trustee
is not subject to the terms of the Zenith Preferred Stock and, in the event of
any conflict between the terms of the Zenith Preferred Stock and the provisions
of this Agreement, the provisions of this Agreement shall control.

 

14

 

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

 

	
   

  	
  FUND
  AMERICAN ENTERPRISES

  HOLDINGS, INC.,

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
					

 

 

	
   

  	
  WHITE MOUNTAINS CAPITAL, INC.

  (solely in its capacity as Trustee of the

  Trust),

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
						

 

15Exhibit
10.9

GUARANTY
SERVICES AGREEMENT

 

                This
Guaranty Services Agreement (hereinafter referred to as the “Agreement”, is
made between ONEBEACON INSURANCE COMPANY (hereinafter “OneBeacon”), a
Pennsylvania corporation with its principal place of business located at
OneBeacon Street, Boston, MA 02108, and GALILEO WEATHER RISK MANAGEMENT LTD
(hereinafter “Galileo”), a Bermuda corporation with its principal place of
business at 120 West 45th Street, 19th Floor, New York,
New York 10036.

 

                WHEREAS:  Galileo is a
corporation engaged in the business of selling weather protection in the form
of derivative and other contracts based on adverse temperature, precipitation
and windspeed.

 

                WHEREAS: OneBeacon, an affiliate of Galileo, is a
corporation engaged in the business of property and casualty insurance.

 

                WHEREAS: Galileo, being a new operation, needs to provide
its customers with a  guaranty of
performance from an affiliate with an acceptable credit rating in order to
participate effectively in the weather protection and marketplace.  OneBeacon currently satisfies these
requirements, with counterparty credit and financial strength ratings of “A”
from Standard & Poors.

 

                NOW THEREFORE, in consideration of the mutual promises and
undertakings set forth in this Agreement, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, it is agreed by
and between the parties as follows:

 

1.                                       Services: OneBeacon has
entered and will enter into guaranties (“Guaranties”) in the form attached
hereto as Exhibit A, from time to time of certain obligations of Galileo under
various derivative agreements issued by Galileo to third parties.  The maximum amount for which OneBeacon will
be obligated under all Guaranties outstanding at any given time will not equal
or exceed the lesser of five percent (5%) of OneBeacon’s admitted assets or
twenty five (25%) per cent of surplus as regards policyholders as of December
31st of the preceding year.  The
obligation of OneBeacon to enter into Guaranties is subject to regulatory
limitations.

 

2.                                       Term
and Termination:  This Agreement is effective retroactively
on February 27, 2006, and remains in effect until the expiration dates of all
Guarantees.  OneBeacon will hereinafter only
enter into Guaranties with an expiration date prior to October 31, 2008.

 

3.                                       Fees: Galileo will
pay OneBeacon a fee which reflects twenty-five (25) basis points on the value
at risk (“VaR”) calculated at the 1 in 100 level for all 

 

Guaranties
issued after the effective date of this agreement.  The fee shall be calculated on a quarterly
basis using average actual daily VaR for the season at risk in the previous
quarter.  Payment shall be made quarterly
in arrears within 30 days of the end of the quarter.

 

4.                                       Documentation:  Galileo must submit documentation to
OneBeacon to support the dollar amount of the VaR as of the payment dates noted
above. Documentation will include identification of daily VaR used in
calculation of payments made together with listing of contracts under the OneBeacon
guaranty throughout the quarter.  On a weekly basis Galileo will also
provide OneBeacon with a copy of the weekly advice of the outstanding VaR that
it sends White Mountains Insurance Group Ltd.  OneBeacon will have the
right to audit Galileo’s VaR calculations at any time.

 

5.                                       Indemnification: Galileo will
indemnify and hold OneBeacon harmless against all liabilities, costs, expenses,
including reasonable attorney’s fees incurred by OneBeacon arising out of any payments
made under the Guaranties.

 

6.                                       Governing
Law:   This Agreement will be governed by and
construed in accordance with the laws for the State of New York, without
reference to the choice of law doctrine.

 

7.                                       Binding
Effect:  This
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.

 

8.                                       Entire
Agreement, Amendments and Waivers: This agreement contains
the entire understanding of the parties with respect to the subject matter
contained herein, superseding all prior agreements, understandings and
negotiations with respect to all matters. 
All amendments, waivers and modifications of or to any provision this
Agreement will be in writing and signed by each party to be bound thereby, and will
not otherwise be effective.

 

IN WITNESS WHEREOF, the parties
have executed this Agreement on                                .

 

 

	
  ONEBEACON INSURANCE
  COMPANY

  	
   

  	
  GALILEO WEATHER RISK

  MANGAGEMENT LTD.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  

 

	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  

 

	
  Title

  	
   

  	
   

  	
  Title:

  	
   

  

 

 

2

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