Document:

Exhibit 10.1

 

	
  

  	
  LIMITED LIABILITY PARTNERSHIP

  

 

DATED AS OF DECEMBER 31, 2005

 

 

ARCH REINSURANCE LTD. 

AS OBLIGOR

 

WITH

 

BARCLAYS BANK PLC

AS AGENT

 

 

 

AMENDMENT AGREEMENT

RELATING TO A

LETTER OF CREDIT AND REIMBURSEMENT

AGREEMENT

DATED AS OF 25 NOVEMBER 2003

 

 

 

THIS AGREEMENT is dated as of December 31, 2005 and is made effective as of
the Effective Date (as defined below) between:

 

(1)                            ARCH REINSURANCE LTD., a corporation organized and existing under the laws of Bermuda
(the “Obligor”); and

 

(2)                            BARCLAYS BANK PLC (the “Agent”).

 

IT IS AGREED as follows:

 

1.                                 DEFINITIONS AND
INTERPRETATION

 

1.1                           Definitions

 

In this Agreement:

 

“Effective Date”
means the date on which the Agent confirms to the Obligor that it has received
each of the documents listed in Schedule 1 (Conditions Precedent) in a form and substance satisfactory
to the Agent. 

 

“Original Facility
Agreement” means the Letter of Credit and Reimbursement Agreement
dated as of November 25, 2003 (as amended and restated on August 19,
2004, on November 24, 2004 and on December 6, 2004 and as amended on July 21,
2005).

 

“Restated Agreement”
means the Original Facility Agreement, as amended by this Agreement, the terms
of which are set out in Schedule 2 (Restated Agreement).

 

1.2                           Incorporation
of Defined Terms

 

(a)                                      Unless a contrary indication appears, a term used in any other
Fundamental Document or in any notice given under or in connection with any
Fundamental Document has the same meaning in that Fundamental Document or
notice as in this Agreement.

 

(b)                                     The principles of construction set out in the Original Facility
Agreement shall have effect as if set out in this Agreement.

 

1.3                           Clauses

 

(a)                                      In this Agreement any reference to a “Clause” or “Schedule” is,
unless the context otherwise requires, a reference to a Clause or Schedule of
this Agreement.  

 

(b)                                     Clause and Schedule headings are for ease of reference only.

 

2.                                 AMENDMENT 

 

With effect from the Effective Date, the Original
Facility Agreement shall be amended and restated so that it shall be read and
construed for all purposes as set out in Schedule 2 (Restated Agreement).

 

 

3.                                 REPRESENTATIONS

 

The Obligor makes the representations specified in
clause 4 of the Original Facility Agreement as if each reference in those
representations to “this Agreement” or “the Fundamental Documents” includes a
reference to (a) this Agreement and (b) the Restated Agreement.

 

4.                                 CONTINUITY AND
FURTHER ASSURANCE

 

4.1                           Continuing
obligations

 

The provisions of the Fundamental Documents shall,
save as amended in this Agreement, continue in full
force and effect.

 

4.2                           Further
assurance

 

The Obligor shall, at the request of the Agent and at
its own expense, do all such acts and things necessary or desirable to give
effect to the amendments effected or to be effected pursuant to this Agreement.

 

5.                                 FEES, COSTS AND
EXPENSES

 

5.1                           Transaction
expenses

 

The Obligor shall promptly on demand pay the Agent the
amount of all costs and expenses (including legal fees) reasonably incurred by
the Agent in connection with the negotiation, preparation, printing and
execution of this Agreement and any other documents referred to in this
Agreement.

 

5.2                           Enforcement
costs

 

The Obligor shall, within three Business Days of
demand, pay to the Agent the amount of all costs and expenses (including legal
fees) incurred by the Agent in connection with the enforcement of, or the
preservation of any rights under this Agreement.

 

5.3                           Stamp
taxes

 

The Obligor shall pay and, within three Business Days
of demand, indemnify the Agent against any cost, loss or liability the Agent
incurs in relation to all stamp duty, registration and other similar Taxes
payable in respect of this Agreement.

 

6.                                 MISCELLANEOUS

 

6.1                           Incorporation
of terms

 

The provisions of clause 9.2 (Amendments and Waivers),
clause 9.7 (Governing Law), clause 9.8 (Consent to Jurisdiction) and clause 9.9 (Waiver of Jury Trial) of the Restated
Agreement shall be incorporated into this Agreement as if set out in full in
this Agreement and as if references in those clauses to “this Agreement” are references
to this Agreement.  

 

6.2                           Designation
as Fundamental Document

 

The Obligor and the Agent designate this Agreement as
a Fundamental Document by execution of this Agreement for the purposes of the
definition of Fundamental Document in the Original Facility Agreement.

 

 

6.3                           Counterparts

 

This Agreement may be executed in any number of
counterparts, and this has the same effect as if the signatures on the
counterparts were on a single copy of this Agreement.

 

THIS AGREEMENT has been entered into on the date stated at the beginning of this
Agreement.

 

 

SCHEDULE 1

CONDITIONS PRECEDENT

 

1.                                 Obligor

 

1.1                           A secretary’s certificate certifying that the Certificate of
Incorporation, Amended Memorandum of Association and Bye-laws of the Obligor
attached to such certificate are true and correct as
of the date of such certificate.

 

1.2                           A copy of the resolutions of the board of directors:

 

1.2.1                            approving the terms
of, and the transactions contemplated by, this Agreement and resolving that it
execute this Agreement;

 

1.2.2                            authorizing a
specified person or persons to execute this Agreement on its behalf; and

 

1.2.3                            authorizing a
specified person or persons, on its behalf, to sign and/or despatch all
documents and notices to be signed and/or despatched by it under or in
connection with this Agreement.

 

1.3                           A specimen of the signature of each person authorized by the
resolution referred to in paragraph (b) above.

 

1.4                           A certificate of the Corporate Secretary, or the equivalent thereof,
certifying that each copy document relating to it specified in this Schedule 1
is correct, complete and in full force and effect as at a date no earlier than
the date of this Agreement.

 

2.                                 Legal Opinions

 

2.1                           A legal opinion of Clifford Chance LLP, as special New York counsel
to the Agent.

 

2.2                           A legal opinion of the Bermudan legal adviser to the Obligor in form
and substance satisfactory to the Agent.

 

3.                                 Other documents and evidence                                 

 

A copy of any
other authorisation or other document, opinion or assurance which the Agent
considers to be necessary or desirable (if it has notified the Obligor
accordingly) in connection with the entry into and performance of the
transaction contemplated by this Agreement or for the validity and
enforceability of this Agreement.

 

 

SCHEDULE 2

RESTATED AGREEMENT

 

 

SIGNATURES

 

The Obligor

 

ARCH REINSURANCE LTD.

 

	
  By:

  	
  /s/ Nicolas Papadopoulo

  	
   

  
	
  Name:  Nicolas
  Papadopoulo

  
	
  Title: 
  President & Chief Executive Officer

  

 

 

The Agent

 

BARCLAYS BANK PLC

 

 

	
  By:

  	
  /s/ Richard Askey

  	
   

  
	
  Name:  Richard
  Askey

  
	
  Title:  Relationship
  Director

  

 

 

SIGNATURES

 

The Obligor

 

ARCH REINSURANCE LTD.

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  

 

 

The Agent

 

BARCLAYS BANK PLC

 

 

	
  By:

  	
  /s/ Allen Appen

  	
   

  
	
  Name:  Allen
  Appen

  
	
  Title: 
  Managing Director

  

 

 

 

	
  

  	
  LIMITED LIABILITY PARTNERSHIP

  

 

 

DATED AS OF NOVEMBER 25, 2003

 

(AS AMENDED AND RESTATED ON AUGUST 19, 2004, ON NOVEMBER 24,
2004 AND ON DECEMBER 6, 2004, AS AMENDED ON JULY 21,2005 AND AS
AMENDED AND RESTATED AS OF DECEMBER 31, 2005)

 

BY

 

ARCH REINSURANCE LTD.

as Obligor

 

and

 

BARCLAYS BANK PLC

as Agent and

 

Issuer

 

 

 

AMENDED AND RESTATED LETTER OF CREDIT

AND

REIMBURSEMENT AGREEMENT

 

 

 

CONTENTS

 

	
  Clause

  	
   

  	
  Page

  
	
   

  	
   

  
	
  1.

  	
  Definitions And Interpretation

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Terms Of The Letter Of Credit
  Facility

  	
  13

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Conditions Of Issuance Of Letters
  Of Credit

  	
  21

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Representations And Warranties

  	
  24

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Covenants

  	
  28

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Events Of Default And Remedies

  	
  38

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Changes To Parties

  	
  42

  
	
   

  	
   

  	
   

  
	
  8.

  	
  The Finance Parties

  	
  46

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Miscellaneous

  	
  54

  
	
   

  	
   

  
	
  Schedule 1

  	
  EXISTING ENCUMBRANCES

  	
  65

  
	
   

  	
   

  	
   

  
	
  Schedule 2

  	
  EXISTING INDEBTEDNESS

  	
  67

  
	
   

  	
   

  	
   

  
	
  Schedule 3

  	
  DISPOSITIONS

  	
  68

  
	
   

  	
   

  	
   

  
	
  Exhibit A-1

  	
  Form Of
  Tranche A Letters Of Credit

  	
  69

  
	
   

  	
   

  	
   

  
	
  Exhibit A-2

  	
  Form Of
  Tranche B Letters Of Credit

  	
  74

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Arch
  Reinsurance Security Agreement

  	
  76

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Form Of
  Standby Letter Of Credit Application

  	
  97

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Form Of
  Custodial Account Value Certificate

  	
  98

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
  Form Of
  Compliance Certificate

  	
  101

  
	
   

  	
   

  	
   

  
	
  Exhibit F

  	
  Form Of
  Assignment And Acceptance

  	
  102

  
				

 

 

LETTER OF CREDIT 

AND REIMBURSEMENT AGREEMENT

 

LETTER
OF CREDIT AND REIMBURSEMENT AGREEMENT dated as of November 25,
2003 (as amended and restated on August 19, 2004, on November 24,
2004 and on December 6, 2004, as amended on July 21, 2005 and as
amended and restated as of December 31, 2005 and otherwise amended and
supplemented from time to time, this “Agreement”)
by and among Arch Reinsurance Ltd., a Bermuda company (the “Obligor”), and Barclays Bank PLC (as agent
for the Lenders (as hereinafter defined), the “Agent”, the “Security Agent”
and the “Issuer”).

 

1.                                 DEFINITIONS AND INTERPRETATION

 

1.1                           Definitions

 

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

 

“Acquired
Indebtedness” has the meaning set forth in Clause 5.3.4.

 

“Adjusted Collateral Value” means, with respect to the Obligor
and at any date of determination, an amount equal to the sum of (A) (i) to
the extent that such Investments are comprised of Barclays Global Investors
Funds, 100% of the market value (as determined on a daily basis) of the
aggregate of such type of Investments in the Custodial Account, (ii) to
the extent that such Investments are comprised of JPMorgan Funds, 95% of the
market value (as determined on a daily basis) of the aggregate of such type of
Investments in the Custodial Account, (iii) to the extent that such
Investments are comprised of Government Securities with less than two years to
maturity, 95% of the market value of the aggregate of such type of Investments
in the Custodial Account, (iv) to the extent that such Investments are
comprised of Government Securities with between two and ten years to maturity,
90% of the market value of the aggregate of such type of Investments in the
Custodial Account, or (v) to the extent that such Investments are debt
securities of corporate issuers which (x) are denominated in U.S. Dollars,
pounds sterling or euros, (y) in the aggregate have an average weighted minimum
rating of not less than AA- by S&P (or Moody’s or Fitch equivalent) and (z)
individually have a minimum rating of not less than BBB by S&P (or Moody’s
or Fitch equivalent), provided, however, that, for the purposes of
paragraph (v), no more than 10% of the aggregate Investments maintained in the
Custodial Account established in the name of the Obligor may consist of debt
securities of corporate issuers with a rating of A or lower by S&P and A2
by Moody’s, 86.96% of the market value of the aggregate Investments in the
Custodial Account, and (B) 100% of the amount of the aggregate cash
deposits in the Custodial Account.    

 

“Affiliate” means,
as to any Person, any other Person which directly or indirectly controls, or is
under common control with, or is controlled by, such Person.  As used in this definition, “control” (including,
with its correlative meanings, “controlled by” and “under common control with”)
shall mean possession, directly or indirectly, of power to direct or cause the

 

1

 

direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any event: (i) any
Person which owns directly or indirectly 20% or more of the securities having
ordinary voting power for the election of directors or other governing body of
a corporation or 20% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person.

 

“Applicable Insurance Regulatory
Authority” means the insurance department or similar
administrative authority or agency that has the principal regulatory
jurisdiction over the Obligor or other Person.

 

“Assignment and Acceptance” means an assignment
and acceptance entered into by a Lender and an Eligible Assignee, and accepted
by the Agent, in substantially the form of Exhibit F hereto.

 

“Barclays Global Investors Fund” means cash
funds offered by Barclays Global Investors Limited rated at least AAA by
S&P (or Moody’s or Fitch equivalent), which are available in U.S. Dollars,
pounds sterling or euro and which trade and can be monitored daily.

 

“Base Currency” means U.S. Dollars.

 

“Beneficiary” means a
Tranche A Beneficiary or a Tranche B Beneficiary.

 

“Business Day” means
any day other than a Saturday, Sunday or any other day on which commercial
banks in London and Bermuda are authorized or required to close.

 

“Capital Lease” means
any lease which has been or should be capitalized on the books of the lessee in
accordance with GAAP.

 

“Capital Lease Obligations”
means, for any Person, all obligations of such Person to pay rent or
other amounts under a Capital Lease.  For
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.

 

“Cash Equivalents” means liquidity money
market funds from either JP Morgan or Barclays Global Investors or such other
financial institution approved by the Agent.

 

“Closing” means the
delivery of the executed Fundamental Documents by the parties thereto on the
Closing Date.

 

“Closing Date” means
the date on which all of the conditions set forth in Clause 3.1 (Conditions Precedent to Closing and Issuance of
Initial Letters of Credit) shall have been satisfied or waived by
the Agent.

 

“Code” means the U.S. Internal Revenue Code
of 1986, as amended from time to time, and any rule or regulation issued
thereunder.

 

2

 

“Collateral” has
the definition set forth in Clause 2.10 (Collateral
Security). 

 

“Commitment” means:

 

(a)                                      in
relation to the Issuer, the obligation to issue Letters of Credit for the
account of the Obligor in the amount in the Base Currency equal to
$200,000,000; and 

 

(b)                                     in
relation to any other Lender, the amount in the Base Currency of any
participation in Letters of Credit to it under this Agreement, 

 

to the extent not
cancelled, reduced or transferred by it under this Agreement.

 

“Compliance Certificate”
means a compliance certificate delivered to the Agent pursuant to paragraph (i) of
sub-clause 5.1.2 (Compliance Certificate) substantially in the form set out in Exhibit E
hereto.

 

“Constituent Documents” means,
with respect to any Corporation, such Corporation’s certificate of
incorporation, memorandum of association or other similar document concerning
the formation, organization and existence of such Corporation required under
the laws of the jurisdiction of organization of such Corporation, and such
Corporation’s by-laws or other similar document required under the laws of such
jurisdiction of organization.

 

“Controlled Group” means all members of a
controlled group of corporations or other business entities and all trades or
businesses (whether or not incorporated) under common control which are treated
as a single employer under Section 414 of the Code.

 

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

 

“Corporation” includes
companies, associations, corporations, partnerships, limited liability
companies and other legal entities of all kinds.

 

“Credit Protection Agreement” means any “over
the counter” arrangement designed to transfer credit risk from one party to
another, including credit default swaps (including, without limitation, single
name, basket and first-to-default swaps), total return swaps and credit-linked
notes.

 

“Custodial Account” shall
have the meaning set forth in the Security Agreement executed and delivered by
the Obligor.

 

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

 

“Custodian Agreement” means
the Custody Agreement dated July 21, 2005 between the Bank of New York, as
Custodian, and the Obligor, as the same may be amended, supplemented, restated
or otherwise modified from time to time. 

 

3

 

“Default” means any
event or condition specified in Clause 6.1 (Events
of Default Defined) which, upon the giving of notice, the lapse of
time, or the happening of any further condition, would become an Event of
Default.

 

“Disruption Event” means either or both of:

 

(a)                                      a
material disruption to those payment or communications systems or to those
financial markets which are, in each case, required to operate in order for
payments to be made in connection with the Facility (or otherwise in order for
the transactions contemplated by the Fundamental Documents to be carried out)
which disruption is not caused by, and is beyond the control of, any of the
Parties; or

 

(b)                                     the
occurrence of any other event which results in a disruption (of a technical or
systems-related nature) to the treasury or payments operations of a Party
preventing that, or any other Party:

 

(i)                        from
performing its payment obligations under the Fundamental Documents; or

 

(ii)                     from
communicating with other Parties in accordance with the terms of the
Fundamental Documents,

 

(and which (in
either such case)) is not caused by, and is beyond the control of, the Party
whose operations are disrupted.

 

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

 

“Eligible Assignee” means (i) a Lender,
(ii) an Affiliate of a Lender and (iii) any other Person approved by
the Agent and acceptable to the Obligor on the terms set forth in sub-clause 7.1.2
of Clause 7.1 (Changes to the Lenders).

 

“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and any rule or
regulation issued thereunder.

 

“ERISA Affiliate” has the meaning set forth
in Clause 4.12 (ERISA)

 

“Event of Default” has
the meaning set forth in Clause 6.1 (Events
of Default Defined)

 

“Facility” means
the Letters of Credit that the Issuer is willing to issue under this Agreement
as determined in its sole and absolute discretion in
an amount (including all Letter of Credit Obligations and Reimbursement
Obligations for the Obligor) not to exceed at the time of issuance of any
Letter of Credit $200,000,000 U.S. Dollars (or the foreign currency Dollar
Equivalent of pounds sterling or euro) in the aggregate.

 

4

 

“Facility A Availability Period” means December 31,
2005 up to and including December 31, 2006.

 

“Facility Availability Date” means December 31,
2005.

 

“Facility B Availability Period” means December 31,
2005 up to and including December 31, 2009.

 

“Facility Office” means the office or offices
notified by a Lender to the Agent in writing on or before the date it becomes a
Lender (or, following that date, by not less than five Business Days’ written
notice) as the office or offices through which it will perform its obligations
under this Agreement.

 

“Facility Termination Date”
means December 31, 2010.

 

“Federal Funds Rate” means,
for any period, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers on such day, as published by the Federal Reserve Bank
of New York on the Business Day next succeeding such day, provided that (a) if the day for which
such rate is to be determined is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding Business
Day as so published on the next succeeding Business Day, and (b) if such
rate is not so published for any Business Day, the Federal Funds Rate for such
Business Day shall be the average rate charged to the Agent on such Business
Day on such transactions as determined by the Agent.

 

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

 

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

 

“Fundamental Documents” means
and includes each of the following for the time being in force:

 

(a)                                      this
Agreement;

 

(b)                                     the
Letters of Credit;

 

(c)                                      the
Security Agreement;

 

(d)                                     the
Custodian Agreement; and

 

(e)                                      any
other Security Document.

 

“GAAP” shall mean
United States generally accepted accounting principles in effect from time to
time.

 

“Government Securities” means both U.S.
Government Securities and OECD Government Bonds.

 

5

 

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

 

“Guarantee” of or by any
Person (the “guarantor”) means any obligation guaranteeing or intended to
guarantee any Indebtedness, leases, dividends or other obligations (“primary
obligations”) of any other Person (the “primary obligor”) in any manner,
whether directly or indirectly, including, without limitation, any obligation
of such Person, whether or not contingent, (a) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or
payment of any such primary obligation or (ii) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net worth
or solvency of the primary obligor, (c) to purchase property, securities
or services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (d) otherwise to assure or hold harmless the owner
of such primary obligation against loss in respect thereof; provided, however,
that the term Guarantee shall not include (x) endorsements of instruments for
deposit or collection in the ordinary course of business or (y) obligations of
the Obligor under insurance contracts, reinsurance agreements or retrocession
agreements.  The amount of any Guarantee
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Guarantee is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by such Person in good faith.

 

“Indebtedness” means,
for any Person: (a) obligations created, issued or incurred by such Person
for borrowed money (whether by loan, the issuance and sale of debt securities
or the sale of Property to another Person subject to an understanding or agreement,
contingent or otherwise, to repurchase such Property from such Person); (b) obligations
of such Person to pay the deferred purchase or acquisition price of Property or
services, other than trade accounts payable (other than for borrowed money) arising,
and accrued expenses incurred, in the ordinary course of business; (c) indebtedness
of others secured by a Lien on the Property of such Person, whether or not the
respective indebtedness so secured has been assumed by such Person; (d) reimbursement
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such Person; (f) Guarantees
by such Person of Indebtedness of others; (g) Rate Hedging Obligations of
such Person; and (h) any other obligation for borrowed money or other
financial accommodation which in accordance with GAAP or SAP, as applicable,
would be shown as a liability on the consolidated balance sheet of such
Person.   For the avoidance of doubt,
Indebtedness shall not include (v) trade payables (including payables
under insurance contracts and reinsurance payables) and accrued expenses in
each case arising in the ordinary course of business, (w) obligations of the
Obligor with respect to Policies, (x) obligations arising under deferred
compensation plans of the Obligor and its Subsidiaries in effect on the date
hereof or which have been approved by the board of directors of the Obligor,
(y) obligations with respect to products underwritten by the Obligor in the
ordinary course of business, including insurance policies,

 

6

 

annuities,
performance and surety bonds and any related contingent obligations and (z)
reinsurance agreements entered into by the Obligor in the ordinary course of
business.

 

“Interest Rate” means
the rate of interest per annum equal to two percentage points (2%) above the
LIBOR from time to time in effect, not to exceed the maximum rate of interest
permitted by applicable law.

 

“Investment” means (i) Government
Securities, (ii) Cash Equivalents and (iii) debt securities of
corporate issuers. 

 

“ISP” means the
International Standby Practices (ISP 1998), International Chamber of Commerce
Publication No. 590.

 

“Issue Date” means the date on which a
Letter of Credit is issued.

 

“JPMorgan Fund” means (i) JPMorgan
Fleming Liquidity Funds rated at least AAA by S&P (or Moody’s or Fitch
equivalent), which are available in U.S. Dollars, pounds sterling or euro and
which trade and can be monitored daily and (ii) such other funds as maybe
approved in advance by the Agent rated at least AAA by S&P (or Moody’s or
Fitch equivalent), which are available in U.S. Dollars, pounds sterling or euro
and which trade and can be monitored daily.

 

“Lender” means:

 

(a)                                      the
Issuer; and 

 

(b)                                     any
Eligible Assignee which has become a Lender hereto pursuant to an Assignment
and Acceptance,

 

which in each case
has not ceased to be a Party in accordance with the terms of this Agreement.

 

“Letter(s) of Credit” means
either a Tranche A Letter of Credit and/or a Tranche B Letter of Credit.

 

“Letter of Credit Obligations”
means, as at any date of determination thereof, on an aggregate basis
for all Letters of Credit issued at the request of the Obligor, the maximum
amount that could be drawn by the Beneficiaries of such Letters of Credit
(assuming, notwithstanding any provision of a Letter of Credit to the contrary,
that such Beneficiary was then entitled to draw the full amount remaining
available thereunder) but which has not been drawn as of that date (for
purposes of any Letters of Credit denominated in pounds sterling or euro, the
maximum amount that could be drawn by the Beneficiaries of such Letters of
Credit shall be deemed to be the Dollar Equivalent of such amount as of such
date). 

 

“LIBOR” means, 

 

(a)                                      the
applicable Screen Rate; or 

 

7

 

(b)                                     (if
no Screen Rate is available for the applicable currency) the arithmetic mean of
the rates (rounded upwards to four decimal places) as supplied to the Agent at
its request quoted by the Reference Banks to leading Banks in the London
interbank market,

 

as of the relevant time on the quotation date in
accordance with market practice for the offering of deposits in such currency
and for the specified period.

 

“Lien” means, with
respect to any Property, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such Property.  For purposes of this Agreement, a Person
shall be deemed to own subject to a Lien any Property that it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an operating
lease) relating to such Property.

 

“Lloyd’s” means The Society and Council of
Lloyd’s or its affiliates or the managing agents of any Lloyd’s syndicate
reinsured by the Obligor.

 

“Majority Lenders” means:

 

(a)                                       if
there are no Letters of Credit then outstanding, a Lender or Lenders whose
Ratable Share aggregate more than 662/3% of the total Commitments (or, if the total Commitments
have been reduced to zero, aggregated more than 662/3% of the total Commitments immediately prior to the
reduction); or 

 

(b)                                     at
any other time, a Lender or Lenders whose Ratable Share in the Letters of
Credit then outstanding aggregate more than 662/3% of all the Letters of Credit then outstanding.

 

“Margin Stock” means margin stock or “margin security” within the meaning of Regulations
T, U and X.

 

“Material Adverse Effect” means an event or
circumstance which has or could reasonably be expected to have a material
adverse effect on:

 

(a)                                      the
ability of the Obligor to meet the obligations of this Agreement;

 

(b)                                     the
business assets or financial condition of the Obligor or the Parent; or

 

(c)                                      the
validity or enforceability of the rights and remedies of the Lenders, the Agent
or the Issuer under the Fundamental Documents.

 

“Moody’s” means
Moody’s Investors Service, Inc. or any successor thereto.

 

“Multiemployer Plan” means a “multiemployer
plan” (as defined in Section (3)(37) of ERISA) contributed to for any
employees of any Affiliate of the Obligor.

 

“NAIC” means the National Association of
Insurance Commissioners

 

8

 

“Net Worth” means
the excess of total assets over total liabilities of the Group which shall be
determined on a consolidated basis in accordance with GAAP.  

 

“Obligor” means Arch Reinsurance Ltd., a
Bermuda company.

 

“OECD Country” means a
country that (a) either (i) is a full member of the Organization for
Economic Cooperation and Development or (ii) has concluded special lending
arrangements with the International Monetary Fund’s General Arrangements to
Borrow and (b) has not rescheduled its external sovereign debt within the
previous five years.

 

“OECD Government Bonds”
means bonds issued by any OECD Country in U.S. Dollars, pounds sterling or euro
and which are rated at least AAA by S&P (or Moody’s or Fitch equivalent).

 

“Parent” means Arch
Capital Group Ltd., a Bermuda company.

 

“Party” means a party to this Agreement.

 

“Permitted Indebtedness”
has the meaning set forth in sub-clause 5.3.4 of Clause 5.2 (Negative Covenants).

 

“Person” means and
includes an individual, a partnership, trust, estate, corporation, company,
unincorporated organization, limited liability company and a government or any
agency, instrumentality or political subdivision thereof.

 

“Plan” means an employee pension benefit
plan which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code as to which any Credit Party or
any member of the Controlled Group may have any liability.

 

“Property” means
any right or interest in or to property of any kind whatsoever, whether real,
personal or mixed and whether tangible or intangible.

 

“Policies” means all insurance policies,
annuity contracts, guaranteed interest contracts and funding agreements
(including riders to any such policies or contracts, certificates issued with
respect to group life insurance or annuity contracts and any contracts issued
in connection with retirement plans or arrangements) and assumption
certificates issued or to be issued (or filed pending current review by
applicable governmental authorities) by the Obligor and any coinsurance
agreements entered into or to be entered into by the Obligor.

 

“Ratable Share” of any amount means, with
respect to any Lender at any time, the product of such amount times a
fraction, the numerator of which is the amount of such Lender’s participation
in all Letters of Credit outstanding from time to time and the denominator of
which is the aggregate amount of all Letters of Credit outstanding from time to
time.

 

“Rate Hedging Obligations”
means, for any Person, any and all net obligations of such Person,
whether absolute or contingent and howsoever and whensoever created, arising,
evidenced or acquired (including all renewals, extensions and modifications
thereof and

 

9

 

substitutions
therefor), under (a) any agreements, devices or arrangements designed to
protect at least one of the parties thereto from the fluctuations of interest
rates, exchange rates or forward rates applicable to such party’s assets,
liabilities or exchange transactions, including but not limited to, U.S. Dollar-denominated
or cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, or any similar derivative
transactions, and (b) any and all cancellations, buy backs, reversals,
terminations or assignments of any of the foregoing.

 

“Reference Bank” means the
principal London office of Barclays Bank PLC or such other banks as may be
appointed by the Issuer.

 

“Regulations T, U and X” means,
respectively, Regulations T, U and X of the Board of Governors of the Federal
Reserve System of the United States (or any successor) as now and from time to
time hereafter in effect from the date of this Agreement.

 

“Reimbursement Obligations”
means with respect to the Obligor, all of its obligations pursuant to
Clause 2.2 (Reimbursement; Issuer’s
Responsibility) to reimburse the Issuer for payments made by the Issuer
upon any drawings under any Tranche A Letter of Credit or any Tranche B
Letter of Credit issued at the request of the Obligor and to pay to the Issuer
and Lenders all other amounts that are payable by the Obligor to the Issuer and
Lenders pursuant to this Agreement and the other Fundamental Documents.  For purposes of drawings under any Letters of
Credit denominated in pounds sterling or euro, the amount of such drawing shall
be deemed to be the Dollar Equivalent of such amount as of the date of repayment
of such drawing, provided, however, that, solely for the purpose of
determining the Obligor’s compliance with the requirements of sub-clause 5.1.4
(Maintenance of Adjusted Collateral Value)
hereof and Clause 1 of the Security Agreement on any given date, the
amount of any such unreimbursed drawing shall be deemed to be the Dollar
Equivalent of such amount as of such date.

 

“Repeating Representations” means the
representations which are set out in Clause 4.1 (Corporate Existence and Power) to Clause 4.16 (Events Since December 31, 2004)
inclusive.

 

“SAP” means the
accounting procedures and practices prescribed or permitted by the Applicable
Insurance Regulatory Authority, applied on a basis consistent with those that
are to be used in making the calculations for purposes of determining
compliance with this Agreement.

 

“SAP Financial Statements”
means the financial statements of the Obligor which have been submitted
or are required to be submitted to the Applicable Insurance Regulatory
Authority.

 

“S&P” shall
mean Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc., or any successor thereto.

 

10

 

“Screen Rate” means the British Bankers’
Association Interest Settlement Rate for the relevant currency period,
displayed on the appropriate page of the Telerate screen.   If the agreed page is replaced or
service ceases to be available, the Agent may specify another page or
service displaying the appropriate rate.

 

“Security” means a mortgage, pledge, Lien or
other security interest securing any obligation of any person or any other
agreement or arrangement having a substantially similar effect.

 

“Security Agreement” means
the Security Agreement, dated November 25, 2003, as amended and restated,
in the form of Exhibit B hereto, between the Agent and the Obligor, as the
same may be further amended, supplemented, restated or otherwise modified from
time to time, securing the obligations of the Obligor under this Agreement and
the relevant Letters of Credit.  

 

“Security Documents” means,
collectively, the Security Agreement and each other instrument or agreement
that secures or guarantees the Reimbursement Obligations.

 

“Single Employer Plan” means a Plan
maintained by any member of the Controlled Group for employees of any member of
the Controlled Group.

 

“Subsidiary” of a Person means:

 

(a)                                      any
corporation more than 50% of the outstanding securities having ordinary voting
power of which shall at the time be owned or controlled, directly or indirectly,
by such Person or by one or more of its Subsidiaries or by such Person and one
or more of its Subsidiaries; or

 

(b)                                     any
partnership, association, joint venture, limited liability company or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled.  Unless otherwise expressly provided, all
references herein to a “Subsidiary” shall mean a Subsidiary of the Obligor.

 

“Tax” means any
present or future tax, rate, duty, impost, governmental charge or levy,
including, without limitation thereto, any corporation, income (other than any
taxes imposed on or measured by the gross income or profits of the Agent, the
Issuer or any Lender), value added, capital gains, sales, transfer, use,
excise, occupation, franchise, property, stamp or other tax or duty and any
license, registration and recording fee and all penalties, fines, interest
imposed, assessed or otherwise payable in respect of any of the foregoing and
all deductions or withholdings required to be made in respect of any of the
foregoing levied, assessed, charged or required by any government or taxing
authority in any country.

 

“Total Commitments” means the aggregate of
the Commitments being USD$200,000,000 at the date of this Agreement.

 

11

 

“Tranche A Beneficiary” means in relation to
Tranche A Letters of Credit, (a) Lloyd’s or (b) another financial
institution acceptable to the Issuer who has issued a letter of credit in favor
of Lloyd’s if such Tranche A Letter of Credit would be either a back-to-back
letter of credit in favor of such financial institution having the same amount,
term and other applicable provisions as such financial institution’s letter of
credit in favor of Lloyd’s or, where such financial institution’s letter of
credit in favor of Lloyd’s includes or represents the underwriting obligations
of a third party in addition to those of the Obligor, the Tranche A Letter of
Credit shall be matched with back-to-back obligations included within or
incorporated into the financial institution’s letter of credit in favor of
Lloyd’s.

 

“Tranche A Letter(s) of Credit” means the
irrevocable standby letters of credit issued for the benefit of the Tranche A
Beneficiaries under this Agreement having an expiry date up to four (4) years
from the date of issue in the aggregate issued amount at any one time, when
aggregated with any other outstanding Letters of Credit under this Agreement,
not to exceed a face amount of USD$200,000,000.00.

 

“Tranche B Beneficiary” means in relation to
Tranche B Letters of Credit, any Person rated by the NAIC, with respect to
Persons domiciled in the United States, or any Persons domiciled in countries
other than the United States rated by any applicable insurance regulatory
authority, in each case if such Person is designated as a beneficiary of a
Tranche B Letter of Credit.

 

“Tranche B Letter(s) of Credit” means the
irrevocable standby letters of credit issued to a Beneficiary under this
Agreement having an expiry date 364 days from the date of issue in the
aggregate issued amount at any one time when aggregated with any other
outstanding Tranche B Letters of Credit under this Agreement not to exceed a
face amount of USD$25,000,000.00.

 

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

 

“U.S. Government Securities”
means securities (treasury bills, notes and bonds) that are direct
obligations of, and obligations the timely payment of principal and interest on
which is fully guaranteed by, the U.S. Government and which are rated at least
AAA by S&P and Aaa by Moody’s (provided that if the relevant security has a
split rating, the lower of the two ratings shall apply).

 

1.2                           Interpretation

 

1.2.1                            The
terms “hereof,” “hereunder” and “herein” refer to this Agreement as a
whole.

 

1.2.2                            References
by number to Clauses, Schedules and Exhibits refer to the Clauses, Schedules
and Exhibits of this Agreement unless otherwise stated.

 

12

 

1.2.3                            The
singular form of any word also refers to the plural form of such word, and vice versa, and any word of any particular gender includes
the correlative words of the other genders.

 

1.2.4                            Any
references in this Agreement to one or more items preceded by the word “including”
shall not be deemed limited to the stated items but shall be deemed without
limitation.

 

2.                                 TERMS OF THE LETTER OF CREDIT
FACILITY

 

2.1                           The Letters of Credit

 

2.1.1                            On
the terms and subject to the further conditions hereinafter set forth and upon
satisfaction of the conditions set forth in Clause 3 (Conditions of Issuance of Letters of Credit),
the Issuer hereby agrees to issue on and after
the Closing Date Tranche A Letters of Credit and Tranche B Letters of
Credit, each dated the date of its issuance, substantially in the form of Exhibit A-1
and Exhibit A-2 respectively hereto and in the aggregate issued and
outstanding at any one time in a face amount not to exceed USD$200,000,000.00
and so long as (after giving effect to the issuance of the requested Letter of
Credit) the Adjusted Collateral Value is not less than the sum of all amounts
then outstanding with respect to the Letter of Credit Obligations and
Reimbursement Obligations, as more specifically set forth below in sub-clause 2.1.2.  Letters of Credit may be issued in U.S.
Dollars, pounds sterling or euro, provided that the Obligor is in compliance
with Clause 5.1.4 of Clause 5.1 (Affirmative
Covenants).  So long as any
Letter of Credit is outstanding and has not expired, this Agreement shall
continue to be in full force and effect with respect to such Letter of Credit, provided, however, that no Tranche A Letter
of Credit shall be renewed, nor shall any Tranche A Letter of Credit be issued,
on or after the Facility A Availability Period and no Tranche B Letter of
Credit shall be issued on or after the Facility B Availability Period.  

 

2.1.2                             The
Obligor may, from time to time, request that the Issuer issue Tranche A
Letters of Credit during the period from the date hereof to but not including
the Facility Availability Date, to cover underwriting years of account 2006 and
2007. The Obligor may also, from time to time, request that the Issuer issue
Tranche B Letters of Credit, during the period from the date hereof ending 364
days prior to the Facility Termination Date, in an aggregate face amount
(together with the Letter of Credit Obligations and Reimbursement Obligations
for the Obligor) at any time issued up to but not exceeding, in the case of
Tranche B Letters of Credit, a face amount of USD$25,000,000 and, in the case
of Tranche A Letters of Credit, when aggregated with all outstanding Tranche B
Letters of Credit, the amount of the Facility; provided  however,
(i) the aggregate amount of Letter of Credit Obligations and Reimbursement
Obligations at any time issued shall not exceed the Adjusted Collateral Value
and (ii) the aggregate face amount of all Tranche A and Tranche B Letters
of Credit issued under this Agreement, shall not exceed

 

13

 

USD$200,000,000.  The Obligor
shall make such request by executing and delivering to the Issuer the Issuer’s
then standard form standby letter of credit application and related
documentation (in hardcopy and/or electronic format acceptable to the
Issuer).  The current standard form
standby letter of credit application is attached as Exhibit C hereto.  If there shall exist any inconsistency
between the terms of this Agreement (and the Security Documents) and any such
documentation relating to a Letter of Credit issued under this sub-clause 2.1.2,
the terms of this Agreement (and the Security Documents) shall control.  

 

2.1.3                            The
Agent and the Issuer will review this Agreement on an annual basis beginning September 2006
to determine whether they wish to extend the Facilities for the period of one
additional year and will notify the Obligor no later than September 30 of
each year of their decision as to whether or not to:

 

(a)                     extend
the Facility A Availability Period by one year so that the Facility A Letters
of Credit will be available during the subsequent Lloyd’s underwriting year; 

 

(b)                    extend
the Facility B Availability Period by one year; and

 

(c)                     extend
the Facility Termination Date by one year.

 

Notification of any decision to extend the Facilities in accordance
with the terms above shall be deemed an automatic extension of such Facilities
under the terms and conditions set forth herein without further amendment to
this Agreement.  Any decision regarding the
annual extension of the Facilities is in the sole and absolute discretion of
the Agent and the Issuer acting jointly and they are under no obligation to
provide such extension to the Obligor.  

 

2.1.4                            Upon
the termination of the Commitments, if no Letters of Credit are outstanding or
such Letters of Credit are either (i) collateralized in a manner
satisfactory to the Agent by cash and/or Cash Equivalents equal to not less
than 100% or 110%, as applicable, of the amounts outstanding or available for
drawing in a manner satisfactory to the Agent or (ii) supported by
back-to-back letters of credit the terms, conditions and issuer of which are
satisfactory to the Agent, and if the principal of and interest on each drawing
remaining unpaid pursuant to the terms of reimbursement set forth in sub-clause
2.2.1 (Reimbursement; Issuer’s
Responsibility) and all fees payable hereunder shall have been paid
in full, the Agent agrees to use its best endeavors to review the suspension of
certain covenants and events of default while cash deposits and/or Cash
Equivalents in the Custodian Account exceed the face amount of outstanding
Letters of Credit or such Letters of Credit are supported by back-to-back
letters of credit from banking institutions acceptable to the Agent on terms
and conditions of which are acceptable to the Agent.  

 

14

 

2.2                           Reimbursement; Issuer’s
Responsibility

 

2.2.1                            The
Issuer shall notify the Obligor of a drawing under any Letter of Credit issued
at the request of the Obligor on or prior to the date of payment of such
drawing by contacting the Obligor telephonically.  Reimbursement by the Obligor of the amount of
each such drawing is due and payable in full (i) on the same day that the
Issuer honors such drawing, if the foregoing notice is received before 1:00 p.m.
(London time) on or before the date of such drawing or (ii) on the
Business Day immediately following the date of such drawing, if the foregoing
notice is received after 1:00 p.m. (London time) on the date of such
drawing, and the Obligor absolutely and unconditionally agrees to pay or cause
to be paid to the Issuer, on such date, without demand, the amount of any
drawing under a Letter of Credit issued at the request of the Obligor.

 

2.2.2                            The
Obligor absolutely and unconditionally agrees to pay, or cause to be paid, to
the Agent, on demand, interest at the Interest Rate on any amount (including on
overdue interest to the extent permitted by law) due by the Obligor hereunder
that is not paid when due, for each day such amount is unpaid.

 

2.2.3                            The
payment by the Issuer of a draft drawn under any Letter of Credit which is not
reimbursed by the Obligor when due shall constitute for all purposes of this
Agreement a demand upon the Lenders for prompt payment of their participation
in such Letter of Credit. The Issuer shall give prompt notice of each drawing
under any Letter of Credit to the Agent and to the Lenders. Upon written demand
by the Issuer, each Lender shall pay to the Issuer such Lender’s Ratable Share
of such Letter of Credit payment. If and to the extent any Lender shall not
have so made the amount of such participation available to the Issuer, such
Lender agrees to pay to the Issuer forthwith on demand such amount together
with interest thereon, for each day from the date of demand by the Issuer until
the date such amount is paid to the Issuer at the Interest Rate.

 

2.3                           Obligations of Issuer

 

Whenever the
Issuer receives a demand for payment under a Letter of Credit, it will promptly
examine the demand to determine whether or not it is in conformity with such
Letter of Credit under which it is presented. 

 

The Agent shall
furnish to the Lenders on the first Business Day of each month a written report
summarizing each Letter of Credit issuance and expiration date issued during
the preceding month.

 

2.4                           Participations

 

By the issuance of
a Letter of Credit (or an amendment to a Letter of Credit increasing or
decreasing the amount thereof) and without any further action on the part of
the Issuer or the Lenders, the Issuer hereby grants to each Lender, and each
Lender hereby acquires from the

 

15

 

Issuer, a
participation in such Letter of Credit equal to such Lender’s Ratable Share of
the face amount of the Letter of Credit. The Obligor hereby agrees to such
participation. Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default and that each
such payment shall be made without any offset, abatement, withholding or reduction
whatsoever.

 

2.5                           Unconditional Obligations of the
Obligor

 

2.5.1                            The
Obligor agrees with the Lender that the following provisions shall apply with
respect to each Letter of Credit issued to the Obligor:

 

(a)                     Except
as otherwise expressly stated in any Letter of Credit, but without limiting any
provision of this Agreement or any Letter of Credit, there may be accepted or
honored as complying with such Letter of Credit any documents of any character
that comply with the provisions and interpretations contained in the ISP.

 

(b)                   The
Agent, the Issuer, the Security Agent, any Lender or any of their respective
correspondents or agents shall not be responsible for: (i) the truth or
accuracy of any statement contained in any document received under the Letters
of Credit; (ii) the validity, sufficiency or genuineness of any such
document believed by the Issuer in good faith and in the exercise of ordinary
care to be valid, even if wholly fraudulent or forged; (iii) any breach of
contract between the Obligor or any other Person and the Beneficiary of any
Letter of Credit; (iv) interruptions or delays in the transmission or
delivery of messages, by mail, courier service or electronic means, whether in
cipher or not; (v) any errors or omissions in the translation of any
document; (vi) failure or delay in giving any notice or in complying with
any other formality; (vii) delay in arrival or failure to arrive of any
property or required instrument or document; (viii) failure of any
document to bear adequate reference to a Letter of Credit, or failure of any
Person to note the amount of any payment on the reverse side of a Letter of
Credit or to surrender or to take up a Letter of Credit or to send forward
documents as required by the terms of a Letter of Credit, each of which
provisions, if contained in a Letter of Credit itself, it is agreed may be
waived by the Issuer; (ix) the fact that any instructions, oral or
written, given to the Issuer purporting to have been given by or on behalf of
the Obligor and believed by the Issuer in good faith and in the exercise of
ordinary care to be valid which pertain to the issuance of any Letter of
Credit, any extension, increase or other modification of any Letter of Credit
or other action to be taken or omitted with reference thereto, were wholly or
partly insufficient, erroneous, unauthorized or fraudulent; or (x) any other
act or omission as to which banks are relieved from responsibility under the
terms of the ISP, provided that
none of the contingencies referred to in subparagraphs

 

16

 

(i) through (x) of sub-clause (b) is attributable to the
gross negligence or willful misconduct of the Agent, the Issuer, the Security
Agent, any Lender or any of their respective correspondents or agents.

 

(c)                     The
Obligor will, without expense to the Lender, procure or cause to be procured
promptly all necessary licenses which are required with respect to the
transaction(s) which is/are the subject of any Letter of Credit issued for the
Obligor or to which any such Letter of Credit relates, will comply with or
cause to be complied with all applicable governmental regulations in regard
thereto, and will furnish or cause to be furnished to the Agent such documents
and certificates in respect thereof as the Agent may reasonably require.

 

(d)                    The
Obligor hereby agrees to indemnify and hold harmless the Agent, the Security
Agent, the Issuer and the Lenders from and against all liability, loss or
expense (including reasonable legal fees, court costs and other expenses which
the Agent, the Security Agent, the Issuer and the Lenders may incur in
enforcing their respective rights hereunder) incurred as a consequence of (i) any
failure on the part of the Obligor duly to perform its agreements contained in
this Clause 2.5, (ii) any action taken or omitted by the Agent, the
Security Agent, the Issuer, any Lender or any of their respective
correspondents in relation to any Letter of Credit issued at the request of or
on behalf of the Obligor, or (iii) any claims asserted by any party to any
transaction in connection with which such Letters of Credit are issued, except
such liability, loss or expense, if any, as is incurred as a result of the
gross negligence or willful misconduct on the part of the Agent, the Security
Agent, the Issuer, any Lender or of any of their respective correspondents.

 

2.6                           Voluntary Cancellation

 

The Obligor shall
have the right at any time and from time to time to cancel the undrawn portion
of the Facility in whole or in part (if in part, in minimum amounts of not less
than USD$5,000,000 or euro or pound sterling equivalent) without penalty upon
ten Business Days’ prior written notice to the Agent.  Amounts so cancelled may not be
reinstated.  Notwithstanding the
foregoing, no such cancellation shall reduce the Facility below an aggregate
amount equal to the Letter of Credit Obligations and the Reimbursement
Obligations.

 

2.7                           Regulatory Requirements;
Additional Costs

 

The Obligor shall
pay to the Agent from time to time upon demand such amounts as the Issuer
determines in its sole discretion is necessary to compensate the Issuer for any
costs attributable to the Issuer’s issuing or having outstanding, or any Lender’s
participation in, or the Issuer’s making payment under, any Letter of Credit issued
at the request of the Obligor resulting from the application of any domestic or
foreign law or regulation or the interpretation or administration thereof
applicable to the Issuer or any Lender regarding any

 

17

 

reserve,
assessment, capitalization (including the cost of maintaining capital
sufficient to permit issuance of the Letters of Credit, provided the cost
attributed to the Letters of Credit is determined in good faith by any
reasonable method) or similar requirement whether existing at the time of
issuance of any such Letter of Credit or adopted thereafter, including, without
limitation, any reduction in amounts receivable hereunder as a result of any
change in applicable law, treaty, regulation, policy or directive, or the
imposition of any Tax or increase in any existing Tax, applicable to the
transactions contemplated hereunder or the commitments of the Issuer and
Lenders hereunder.

 

2.8                           Fees

 

2.8.1                            The
Obligor agrees to pay to the Agent for the account of the Issuer and each
Lender the following fees in connection with this Agreement:

 

(a)                     a
Letter of Credit renewal fee payable annually in arrears (and calculated based
upon a 360-day year and actual days elapsed) on the annual anniversary of the Closing
Date in an amount equal to .05% per annum of the amount of the Facility;

 

(b)                    a Letter of
Credit unused fee payable quarterly in arrears (and calculated based upon a
360-day year and actual days elapsed) on the last Business Day of each March,
June, September and December, commencing on March 31, 2006 equal to
0.075% per annum of an amount equal to USD$200,000,000 minus the total Letter
of Credit Obligations from time to time outstanding; and

 

(c)                     a
Letter of Credit upfront fee to be paid to the Agent, prior to or on the
Closing Date equal to USD$100,000.

 

(d)                    Such
fees shall be paid to the Issuer from the date hereof, and to the Lenders from
the effective date specified in the Assignment and Acceptance pursuant to which
it became a Lender, until the Facility Termination Date. The amount paid to
each Lender will be its Ratable Share of the fees paid.

 

2.8.2                            The
Obligor agrees to pay to the Issuer separately, and for its own account, the
following fees with respect to Letters of Credit issued at the request of the
Obligor:

 

(a)                     a
Letter of Credit issuance fee payable quarterly in arrears (and calculated
based upon a 360-day and actual days elapsed) on the last Business Day of each
March, June, September and December with respect to each Letter of
Credit issued at the request of the Obligor (i) if the Collateral includes
solely a first ranking security interest in cash deposits, Cash Equivalents and
Government Securities rated AAA by S&P (or Moody’s or Fitch equivalent),
the issuance fee shall be 0.30% per annum of the maximum face amount of such
Letter of Credit outstanding during such quarter or (ii) if the Collateral
includes a first ranking security interest in debt securities of corporate
issuers

 

18

 

which are (a) denominated in U.S. Dollars, (b) in the
aggregate have an average weighted minimum rating of not less than AA- by
S&P (or Moody’s or Fitch equivalent) and (c) individually have a
minimum rating of not less than BBB by S&P (or Moody’s or Fitch equivalent),
the issuance fee shall be 0.375% per annum of the maximum face amount of such
Letter of Credit outstanding during such quarter;

 

(b)                    all
other charges, costs and fees customarily imposed by the Issuer in connection
with the issuance of such letters of credit.

 

2.9                           Payments and Computations

 

2.9.1                            Except
as specifically set forth in this Agreement, all payments to be made by or on
behalf of the Obligor under this Agreement shall be made, not later than 4:00 p.m.
London time, on the date when due, in immediately available funds by federal
funds wire to the Agent or the Issuer, as applicable, in the applicable
currency at:

 

if U.S. Dollars:

 

Correspondent
Bank: Barclays Bank PLC, New York

ABA No.: 026 002
574

SWIFT Code: BARC
US33

For Beneficiary
Bank: Barclays Bank PLC, 1 Churchill Place

Sort Code:
20-00-00

SWIFT Code: BARC
GB22

Beneficiary:
Arch Reinsurance Ltd.

Account Number:
84560255

 

if pounds
sterling:

 

Beneficiary
Bank: Barclays Bank PLC, 1 Churchill Place

Sort
Code 20-00-00

SWIFT
Code: BARC GB22

Beneficiary:
Arch Reinsurance Ltd. 

Account Number:
20710113

 

If euros:

 

Beneficiary
Bank: Barclays Bank PLC, 1 Churchill Place

Sort
Code 20-00-00

SWIFT
Code: BARC GB22

Beneficiary:
Arch Reinsurance Ltd. 

Account Number:
72225322

 

or to such other
address or account, or to the attention of such other Person as the Agent or
the Issuer, as applicable shall notify
the Obligor.

 

19

 

2.9.2                            All
payments made by or on behalf of the Obligor under this Agreement shall be made
without setoff or counterclaim and free and clear of, and without deduction
for, any Taxes (other than any taxes imposed on or measured by the gross income
or profits of the Agent, the Issuer or any Lender), levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any country or
any political subdivision thereof or taxing or other authority therein unless
the Obligor is compelled by law to make such deduction or withholding.  If any such obligation is imposed upon the
Obligor with respect to any amount payable by it hereunder, it will pay to the
Agent, on the date on which such amount becomes due and payable hereunder and
in U.S. Dollars, such additional amount as shall be necessary to enable the
Agent, the Issuer or any Lender to receive the same net amount which it would
have received on such due date had no such obligation been imposed upon the
Obligor.  If, at any time, the Agent, the
Issuer or any Lender, or any Eligible Assignee of a Lender hereunder (an “Assignee”), is organized under the laws of
any jurisdiction other than the United States or any state or other political
subdivision thereof, the Agent, the Issuer or any Lender or the Assignee shall
deliver to the Obligor, through the Agent, on the date it becomes a party to
this Agreement, and at such other times as may be necessary in the
determination of the Obligor in its reasonable discretion, such certificates,
documents or other evidence, properly completed and duly executed by the Agent,
the Issuer or any Lender or the Assignee (including, without limitation,
Internal Revenue Service Form W-8BEN or W-8ECI, as appropriate, or any
successor form prescribed by the Internal Revenue Service) to establish that
the Agent, the Issuer, any such Lender or the Assignee is not subject to
deduction or withholding of United States Federal Income Tax under Section 1441
or 1442 of the Internal Revenue Code or otherwise (or under any comparable provisions
of any successor statute) with respect to any payments to the Agent, the
Issuer, any such Lender or the Assignee of principal, interest, fees or other
amounts payable hereunder.  The Obligor
shall not be required to pay any additional amount to the Agent, the Issuer,
any such Lender or any Assignee under this sub-clause 2.9.2 if the Agent, the
Issuer, any such Lender or such Assignee shall have failed to satisfy the
requirements of the immediately preceding sentence; provided that if the Agent, the Issuer, any such Lender or any
Assignee shall have satisfied such requirements on the date it became a party
to this Agreement, nothing in this sub-clause 2.9.2 shall relieve the Obligor
of its obligation to pay any additional amounts pursuant to this sub-clause 2.9.2
in the event that, as a result of any change in applicable law, the Agent, the
Issuer, any such Lender or such Assignee is no longer properly entitled to
deliver certificates, documents or other evidence at a subsequent date
establishing the fact that the Agent, the Issuer, any such Lender or the
Assignee is not subject to withholding as described in the immediately
preceding sentence.

 

2.9.3                             All
payments made by or on behalf of the Obligor under this Agreement shall be
applied first to the payment of all fees, expenses and other amounts due to the

 

20

 

Issuer and the Lenders (excluding principal and interest) by the
Obligor, then to accrued interest with respect to the Reimbursement
Obligations, and the balance on account of outstanding principal with respect
to the Reimbursement Obligations; provided,
however, that upon the occurrence
and during the continuation of an Event of Default, payments will be applied to
the obligations of the Obligor to the Issuer and the Lenders as the Agent
determines in its sole discretion. 

 

2.9.4                            All
payments which shall be due hereunder on a day that is not a Business Day shall
be extended to the next succeeding Business Day, and interest shall accrue
during such extension.

 

2.9.5                            Computations
of interest hereunder and computations of fees stated to be on an annual basis
shall be made on the basis of a year of 360 days for the actual number of days
elapsed (including the first day but excluding the last day).

 

2.10                     Collateral Security

 

All of the
obligations of the Obligor to the Agent, the Security Agent, the Issuer or any
Lender under this Agreement and the other Fundamental Documents shall be
secured by a security interest and pledge granted by the Obligor, as security
for the Obligor’s obligations under this Agreement and the Letters of Credit
issued at the request of the Obligor, in favor of the Security Agent, for and
on behalf of the Issuer and the Lenders, in the securities and other collateral
described in each Security Agreement (together with all property or interests
therein and all income therefrom and proceeds thereof, collectively, the “Collateral”).

 

3.                                 CONDITIONS OF ISSUANCE OF
LETTERS OF CREDIT

 

3.1                           Conditions Precedent to Closing and Issuance of
Initial Letters of Credit

 

3.1.1                            The
obligations of the Issuer (in its sole and absolute discretion) to issue any
Letter of Credit under this Agreement on or after the Closing Date are subject
to the satisfaction, prior to or concurrently with the issuance of any such
Letter of Credit, of the following conditions precedent:

 

(a)                     Fundamental Documents:  The Obligor shall have executed and delivered
to the Agent each Fundamental Document required
hereunder, which shall be in full force and effect.

 

(b)                   Proof of Corporate Action:  The Agent shall have received a certificate
of the Secretary or an Assistant Secretary,
or the equivalent thereof, from the Obligor, dated the date hereof, setting
forth resolutions of the Board of
Directors, or the equivalent thereof, of the Obligor approving the transactions
contemplated by this Agreement and the other Fundamental Documents and
authorizing the execution, delivery and performance by such Person of this
Agreement and the other Fundamental Documents to which such Person is a

 

21

 

party, which certificates shall state that such resolutions are in full
force and effect without amendment.

 

(c)                     Incumbency Certificates: The Agent shall
have received a certificate of the Secretary or Assistant Secretary, or the
equivalent thereof, from the Obligor, dated the date hereof, setting forth the
names and containing a specimen signature of each officer and director of the
Obligor authorized to sign this Agreement and the other Fundamental Documents
to which the Obligor is a party and to give notices and to take other action on
behalf of the Obligor hereunder and in relation to the Collateral.

 

(d)                    Bermuda Requirements:  The Lender shall have received a certificate
of compliance issued by the Bermuda Regulatory Authority (Registrar of
Companies and the Bermuda Monetary Authority) for each of the Parent and the
Obligor in form and substance satisfactory to the Agent.

 

(e)                     Legal Opinions: The Agent shall have
received signed legal opinions of counsel for the Obligor in form and substance
satisfactory to the Agent, which opinions shall be addressed to and allow
reliance thereon by the Agent, the Issuer and the Lenders and their respective
successors and permitted assigns.  

 

(f)                       Proceedings and Documents:  All corporate and other proceedings and all
other matters in connection with the transactions contemplated by this
Agreement (including, without limitation, all regulatory and third party
approvals), the other Fundamental Documents and all other documents incidental
hereto and thereto, including all opinions of counsel, shall be reasonably
satisfactory in form and substance to the Agent.

 

(g)                    Financial Information:  The Agent is satisfied that the financial
data and other information furnished to the Agent by the Obligor is accurate
and complete in all material respects and fairly presents in all material
respects the financial position and the results of operations for the period
indicated therein.

 

(h)                    Litigation:  The Agent is satisfied that there are no
legal or arbitral proceedings, or any proceedings by or before any governmental
or regulatory authority or agency, now pending or threatened against the Parent
or the Obligor, that are reasonably likely (either individually or in the
aggregate) to have a Material Adverse Effect.

 

(i)                        Regulations and Policies:  There have been no material changes in
governmental regulation or policy affecting the Issuer, the Agent or any Lender
in respect of this Agreement or the Obligor.

 

(j)                        Consents and Approvals:  The Obligor and the Agent, the Issuer and
each Lender have obtained all necessary consents and approvals.

 

22

 

(k)                     Collateral Requirements:  The Agent and Security Agent, shall be
satisfied with the Custodian Agreement, the Security Agreement, subordination
of custodian Liens and any other relevant documentation required in respect of
collateral requirements.

 

3.2                           Additional Conditions Precedent
to the Issuance of Letters of Credit 

 

3.2.1                            The
obligations of the Issuer to issue any Letter of Credit under this Agreement on
or after the Closing Date (including pursuant to sub-clause 2.1.1) are subject
to the further conditions precedent that, both immediately prior to the
issuance of such Letter of Credit and also after giving effect thereto:

 

(a)                     no
Default shall have occurred and be continuing; 

 

(b)                    the
representations and warranties made by the Obligor in this Agreement and each
of the Fundamental Documents shall be true and complete in all material
respects on and as of the date of the issuance of such Letter of Credit with
the same force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date);

 

3.2.2                            there
has been no material adverse change in the financial condition, operations,
properties, business or prospects of the Parent (taken as a whole) or the
Obligor (taken as a whole) since December 31, 2004;

 

3.2.3                            the
Issuer shall have received a request for a Letter of Credit as provided in
sub-clause 2.1.2;  and

 

3.2.4                            the
Agent shall have received evidence satisfactory to it (i) that the
Adjusted Collateral Value (including, but not limited to, daily values of Cash
Equivalents) as of the date of any requested issuance of a Letter of Credit is
not less than the sum of all amounts then outstanding with respect to Letter of
Credit Obligations and Reimbursement Obligations, taking into account the
amount of the requested Letter of Credit, (ii) that each of the
Investments utilized in the calculation of Adjusted Collateral Value has been
deposited into the Custodial Account and (iii) that the aggregate face
amount of Tranche A and Tranche B Letters of Credit issued under this Agreement
(taking into account the requested Letter of Credit) does not exceed
USD$200,000,000 or such lower amount of the Facility as a result of
cancellation under Clause 2.5 (Unconditional
Obligations of the Obligor). 
Further, the Investments on deposit in the Custodial Account must have
an Adjusted Collateral Value as the Letters of Credit being requested.

 

3.2.5                            Each
request for a Letter of Credit hereunder shall constitute a certification by
the Obligor to the effect set forth in the preceding sentence (both as of the
date of such notice and, unless the Obligor otherwise notifies the Agent prior
to the date of such Letter of Credit issuance, as of the date of such
issuance).

 

23

 

4.                                 REPRESENTATIONS AND WARRANTIES

 

In order to induce the Agent, the Issuer and the Lenders to enter into
this Agreement and to issue the Letters of Credit, the Obligor for itself
hereby represents and warrants that:

 

4.1                           Corporate Existence and Power

 

The Obligor (a) is a company or corporation duly organized,
validly existing without limitation of its corporate existence and in good
standing under the laws of Bermuda and (b) has adequate power and
authority and legal right to own or hold under lease the properties it purports
to own or to hold under lease and to carry on the business in which it is
engaged or presently proposes to engage. 
The Obligor has adequate power and authority to enter into this
Agreement and each of the other Fundamental Documents to which it is a party,
to request Letters of Credit hereunder, to create the Collateral for the
Reimbursement Obligations contemplated by this Agreement and the Security
Documents and to perform its obligations under this Agreement and each of the
other Fundamental Documents to which it is or is to become a party as
contemplated by this Agreement.

 

4.2                           Authority

 

The execution and delivery by the Obligor of this Agreement and each
other Fundamental Document to which it is or is to become a party as contemplated
hereby, the obtaining of Letters of Credit hereunder, the pledging of the
Collateral for the Reimbursement Obligations contemplated by this Agreement and
the Security Documents and the performance by the Obligor of its obligations in
respect of this Agreement and the other Fundamental Documents in accordance
with their respective terms, have been duly authorized by all necessary
corporate action on the part of the Obligor and do not and will not (a) contravene
any provision of the Constituent Documents of the Obligor, (b) conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under or, except as contemplated by this Agreement, result
in the creation or imposition of any Lien pursuant to the terms of any
mortgage, indenture, deed of trust, security agreement, pledge agreement,
charge or other instrument to which the Obligor or any of its respective
property is bound, (c) violate any law, governmental rule, regulation,
order or decree of any court or administrative agency or governmental officer
applicable to and binding upon the Obligor, (d) require any waiver,
consent or other action by any governmental or regulatory authority or by any
trustee or holder of any Indebtedness or obligations of the Obligor or (e) require
the approval of the shareholders of the Obligor.

 

4.3                           Binding Effect of Agreement and
Other Fundamental Documents

 

4.3.1                            This
Agreement has been duly executed and delivered by the Obligor and the
agreements contained herein constitute, and the agreements contained in each
other Fundamental Document to which the Obligor is or is to become a party
will, when each such other Fundamental Document is executed and delivered,
constitute valid and legally binding obligations for the Obligor enforceable in
accordance with their respective terms, except as such enforceability may be
limited by (i) applicable

 

24

 

bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting the enforcement of creditors’ rights generally,
and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).

 

4.3.2                            Each
Security Document executed and delivered on or after the date hereof will
effectively create the Liens purported to be created thereby and such Liens
will be first-priority Liens on the Collateral covered thereby, subject to no
other Liens (except Liens in favor of the Custodian). 

 

4.4                           Financial Information

 

The Parent and the Obligor have heretofore furnished to the Agent
accurate and complete financial data and other information in all material
respects based on its operations in previous years, and said financial data
furnished to the Agent is accurate and complete and fairly presents in all
material respects the financial position and the results of operations for the
period indicated therein in all material respects.

 

4.5                           Pari passu ranking

 

The Obligor’s payment obligations under the Fundamental Documents rank
at least pari passu with the
claims of all its other unsecured and unsubordinated creditors, except for
obligations mandatorily preferred by law applicable to the Obligor.  

 

4.6                           Material Adverse Change; No
Default

 

There has been no material adverse change in the condition, financial
or otherwise, of the Parent or the Obligor since the date of the most recent
financial statement and no Default or Event of Default exists with respect to
the Obligor.

 

4.7                           Existing Security Interest

 

No Security exists on or over the assets of the Obligor except as
permitted by sub-clause 5.2.1 (Negative
Pledge).

 

4.8                           Litigation 

 

There are no legal or arbitral proceedings, or any proceedings by or
before any governmental or regulatory authority or agency, now pending or (to
the knowledge of the Obligor) threatened against the Parent or the Obligor that
are reasonably likely (either individually or in the aggregate) to have a
Material Adverse Effect.

 

4.9                           Compliance with Laws and
Agreements

 

The Obligor is in compliance with laws, regulations and orders of any
governmental agency or authority applicable to it or its Properties and all
indentures, agreements and other

 

25

 

instruments binding upon it or its Property, except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.

 

4.10                     Winding-up

 

No meeting has been convened for the winding-up, administration,
dissolution or liquidation of the Obligor, no such step is intended by the
Obligor and, so far as it is aware, no petition, application or equivalent or
analogous procedure under the law of the jurisdiction of the Obligor’s
incorporation is outstanding for its winding-up, administration, dissolution or
liquidation (save where such petition, application or equivalent or analogous
procedure is frivolous or vexatious in nature).

 

4.11                     Reorganizations

 

No step is intended or has been taken by the Obligor for the
reorganization, reconstruction, merger, amalgamation or consolidation (or any
equivalent or analogous procedure) of the Obligor save where (i) it will
survive such procedure as a separate legal entity and such step or procedure
will not have or be likely to have a Material Adverse Effect or (ii) the
Majority Lenders have provided their prior written consent to such procedure.

 

4.12                     ERISA

 

The Obligor contributes to Single Employer Plans maintained by its
ERISA Affiliate but does not contribute to a Multiemployer Plan.  There exists no Unfunded Pension Liability with
respect to any Single Employer Plans, except as would not have a Material
Adverse Effect.

 

For the purposes of this Clause 4.12, “Unfunded Pension Liability” means the excess of an Employee
Plan’s liabilities under Section 4001(a)(16) of ERISA, over the current
value of that plan’s assets, determined in accordance with the assumptions used
for funding an Employee Plan pursuant to Section 412 of the Code for the
applicable plan year and “ERISA Affiliate”
means, with respect to a company, any Person that would be deemed at any
relevant time to be a single employer with the company pursuant to Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.

 

4.13                     Margin Stock

 

4.13.1                      The
Obligor is not engaged nor will it engage principally, or as one of its
important activities, in the business of owning or extending credit for the
purpose of “buying” or “carrying” any Margin Stock.

 

4.13.2                      None
of the extensions of credit under this Agreement will be used, directly or
indirectly, for the purpose of buying or carrying any Margin Stock, for the
purpose of reducing or retiring any Indebtedness that was originally incurred
to buy or carry any Margin Stock or for any other purpose which might cause all
or extensions of

 

26

 

credit under this Agreement to be considered a “purpose
credit” within the meaning of Regulation U or

Regulation X.

 

4.13.3                      Neither
the Obligor nor any agent acting on its behalf has taken or will take any
action which might cause the Fundamental Documents to violate any regulation of
the Board of Governors of the Federal Reserve System of the United States.

 

4.14                     Anti-Terrorism Laws

 

4.14.1                      Neither
the Obligor nor any of its Affiliates is in violation of any laws relating to
terrorism or money laundering (“Anti-Terrorism
Laws”), including Executive Order No. 13224 on Terrorist
Financing effective September 24, 2001 (the “Executive Order”) and the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001, Public Law 107-56.

 

4.14.2                      Neither
the Obligor nor any of its Affiliates is any of the following:

 

(a)                     a
person or entity that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order;

 

(b)                    a
person or entity owned or controlled by, or acting for or on behalf of, any
person or entity that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order;

 

(c)                     a
person or entity with which the Agent, the Issuer or any Lender is prohibited
from dealing or otherwise engaging in any transaction by any Anti-Terrorism
law;

 

(d)                    a
person or entity that commits, threatens or conspires to commit or supports “terrorism”
as defined in the Executive Order; or

 

(e)                     a
person or entity that is named as a “specially designated national and blocked
person” on the most current list published by the U.S. Treasury Department
Office of Foreign Asset Control at its official website or any replacement
website or other replacement official publication of such list.

 

4.14.3                      The
Obligor does not (i) to the best of its knowledge, conduct any business or
engage in making or receiving any contribution of funds, goods or services to
or for the benefit of any person described in paragraph (b) above, (ii) to
the best of its knowledge, deal in, or otherwise engage in any transaction
relating to, any property or interests in property blocked pursuant to the
Executive Order or (iii) engage in or conspire to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding,
or attempt to violate, any of the prohibitions set forth in any Anti-Terrorism
Law.

 

27

 

4.15                     Custodian 

 

The Custodian has not resigned as Custodian without a successor
Custodian being appointed.

 

4.16                     Events Since December 31,
2004

 

In making the representations and warranties set forth herein, the
Parent and the Obligor acknowledge that certain events that have occurred since
December 31, 2004 (including Hurricanes Katrina, Rita and Wilma) have had
an impact on the business of the Parent and its Subsidiaries as described in
the filings made by the Parent with the SEC. 
Notwithstanding the foregoing, the representations and warranties made
by the Parent and the Obligor herein (including, without limitation, in
sub-clause 3.2.2 of Clause 3.2 (Additional
Conditions Precedent to the Issuance of Letters of Credit) and Clause 4.6 (Material Adverse Change; No Default) are
not qualified by such disclosed events.

 

4.17                     Repeated Representations

 

Each of the Repeated Representations will be correct and complied with
in all material respects on the Issue Date, each date that a Letter of Credit
is renewed, reissued and extended as if repeated then by reference to the then
existing circumstances.

 

5.                                 COVENANTS

 

5.1                           Affirmative Covenants

 

The Obligor for itself covenants and agrees that so long as any Letter
of Credit is outstanding:

 

5.1.1                            Maintenance of Corporate Existence: The
Obligor shall maintain its corporate existence. 

 

5.1.2                            Reporting Requirements:  The Obligor shall furnish to the Agent:

 

(a)                     Annual GAAP Financial Statements:  Within ninety (90) days following the end of
the Parent’s fiscal year (or, if a registered company, such earlier date as the
Parent’s Form 10-K is filed with the Securities and Exchange Commission)
copies of:

 

(i)                       the
consolidated and consolidating balance sheet of the Parent as at the close of
such fiscal year, and

 

(ii)                    the
consolidated and consolidating statements of income, changes in surplus and
cash flows of the Parent for such fiscal year,

 

in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP, all in reasonable
detail and accompanied by an opinion thereon of PricewaterhouseCoopers LLP or
other firm of independent public accountants of recognized national standing

 

28

 

selected by the Parent and reasonably acceptable to the Agent, to the
effect that the financial statements have been prepared in accordance with GAAP
(except for changes in application in which such accountants concur) and
present fairly in all material respects in accordance with GAAP the financial
condition of the Parent as of the end of such fiscal year and the results of
operations of the Parent for the fiscal year then ended and that the
examination of such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and such other
auditing procedures as were considered necessary under the circumstances.

 

(b)                    Quarterly GAAP Financial Statements:  As soon as available, and in any event within
sixty (60) days after the end of each quarterly fiscal period of the Parent
(other than the fourth fiscal quarter of any fiscal year), copies of:

 

(i)                       the
balance sheet of the Parent as at the end of such fiscal quarter, and

 

(ii)                    the
statements of income, changes in surplus and cash flows of the Parent for such
fiscal quarter and the portion of such fiscal year ended with such fiscal
quarter,

 

in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP, all in reasonable
detail and certified as presenting fairly in accordance with GAAP the financial
condition of the Parent as of the end of such period and the results of
operations for such period by a senior officer of the Parent, subject only to
normal year-end accruals and audit adjustments and the absence of
footnotes.  

 

(c)                     Annual/Quarterly Reports:  Concurrently with the delivery of the
financial statements required pursuant to paragraphs (a), (b), (f) and (g) of
this Clause, copies of all reports required to be filed with any Applicable
Insurance Regulatory Authority in connection with the filing of such financial
statements.

 

(d)                    Management Letters:  Subject to the consent of the independent
certified public accountant in connection with an examination of the financial
statements of the Parent or the Obligor, promptly upon receipt thereof, copies
of any reports or management letters relating to the internal financial
controls and procedures delivered to the Parent and the Obligor by any
independent certified public accountant in connection with an examination of
the financial statements of the Parent or the Obligor, as applicable.

 

(e)                     Additional Information:  Such additional information as the Agent may
reasonably request concerning the Parent or the Obligor and for that purpose
all pertinent books and other documents relating to its business, affairs and

 

29

 

Properties, including Investments as shall from time
to time be designated by the Agent.

 

(f)                       Annual Obligor Financial Statements:  As soon as available, and in any event within
90 days after the close of each fiscal year of the Obligor, the summary
consolidated balance sheet of the Obligor and its Subsidiaries as at the end of
such fiscal year and the related summary consolidated statement of income of
the Obligor and its Subsidiaries for such fiscal year, setting forth in
comparative form the consolidated figures for the fiscal year, all in form and
scope consistent in all material respects with the financial statements of the
Obligor previously delivered and certified by the chief financial officer or
controller of the Obligor, which certificate shall state that such consolidated
financial statements present fairly in all material respects the consolidated
financial position of the Obligor and its Subsidiaries as at the dates
indicated (subject to normal year-end audit adjustments and the absence of full
footnote disclosure).  As soon as
available and in any event within 90 days after the close of each fiscal year
or such later date as may be required by the Bermuda Companies Law, the SAP
Financial Statements for the Obligor for such fiscal year.

 

(g)                    Quarterly Obligor Statements:  As soon as available, and in any event within
sixty (60) days after the close of each of the first three quarterly accounting
periods in each fiscal year of the Obligor, a summary consolidated balance
sheet of the Obligor and its Subsidiaries as at the end of such period and the
related summary consolidated statement of income of the Obligor and its Subsidiaries
for such period and (in the case of the second and third quarterly periods) for
the period from the beginning of the current fiscal year to the end of such
quarterly period, setting forth in each case in comparative form the
consolidated figures for the corresponding periods of the previous fiscal year,
all in form and scope consistent in all material respects with the financial
statements of the Obligor previously provided and certified by the chief
financial officer or controller of the Obligor, as presenting fairly in all
material respects, on a basis consistent with such prior fiscal periods, the
information contained therein, subject to changes resulting from normal
year-end audit adjustments and the absence of full footnote disclosure.

 

(h)                    Custodial Account Certificate:  The Obligor shall furnish to the Agent a
Custodial Account Certificate substantially in the form of Exhibit D
hereto (i) on a monthly basis, (ii) upon the occurrence of a Default
or an Event of Default, and (iii) at any time and from time to time upon
the request of the Agent.

 

(i)                        Compliance Certificate: The Obligor shall
supply to the Agent, with each set of financial statements delivered pursuant
to paragraphs (a), (b) (f) and (g) of this clause, a Compliance
Certificate setting out (in reasonable detail)

 

30

 

computations as to compliance with sub-clauses 6.1.1(e) and
6.1.2 of Clause 6 (Events of Default Defined)
as at the date as at which those financial statements were drawn up.  Each Compliance Certificate shall be signed
by the chief financial officer or controller of the Obligor.

 

(j)                        Notification of Default:  The Obligor shall notify the Agent
of the occurrence of any Default (and of any action taken or proposed to be
taken to remedy it) or Event of Default promptly after becoming aware of it.

 

(k)                     Material Litigation: 
The Obligor shall notify the Agent of any litigation
proceedings current, or to its knowledge pending or threatened, in writing
which are likely to have a Material Adverse Effect.

 

5.1.3                            Minimum Rating: 
The Obligor shall at all times maintains a minimum AM Best
Financial Strength Rating of B++.

 

5.1.4                            Maintenance of Adjusted Collateral Value:  The Obligor shall at all times maintain
Collateral in the Custodial Account maintained in its name in an amount such
that the Adjusted Collateral Value (determined on a daily basis) is not less
than the sum of all amounts then outstanding with respect to the sum of the
Letter of Credit Obligations and Reimbursement Obligations, taking into account
the calculations set forth in this sub-clause 5.1.4 (Maintenance of Adjusted Collateral Value) which provide for
Adjusted Collateral Value and issuance of Letter(s) of Credit in pounds
sterling, euros or U.S. Dollars as applicable. 
If the Obligor requests that the Issuer issue Letter(s) of Credit in a
currency other than U.S. Dollars, the Obligor shall deposit Collateral in the
Custodial Account the Adjusted Collateral Value of which, in the same currency
as the Letter of Credit requested, shall be the equivalent of the face amount
of the requested non-U.S. Dollar Letter(s) of Credit.  If, at any time, the Obligor requests a
Letter of Credit and deposits into the Custodial Account Investments which are
not the same currency as the requested Letter of Credit, the Obligor must
maintain an Adjusted Collateral Value of not less than 110% of the Dollar
Equivalent of the face amount of such requested Letter of Credit.  The Obligor agrees that if the required
Adjusted Collateral Value of the Collateral in the Custodial Account is less
than the sum of the Letter of Credit Obligations and the Reimbursement
Obligations, the Agent may require the Obligor to pay to the Custodian the
amount of any such deficiency, which amount shall be payable by no later than
5:00 p.m. (New York time) on the Business Day immediately following the
date of notice by the Agent and which payment shall be deposited by the
Custodian into the applicable Custodial Account in the form of cash or
Investments.  At any time, other than
after the occurrence and during the continuation of a Default or an Event of
Default, the Obligor may substitute Collateral to the extent such substitution
arises from normal trade activities within the Custodial Account in accordance
with the provisions of Clause 1 of the Security Agreement between the
Obligor and the Security Agent.

 

31

 

5.1.5                            ERISA: 
The Obligor shall not:

 

(a)                     allow,
or permit any of its ERISA Affiliates which are Subsidiaries of the Obligor to
allow (i) any Single Employer Plan with respect to which the Obligor or
its ERISA Affiliates which are Subsidiaries of the Obligor may have any
liability to terminate, (ii) the Obligor or any of its ERISA Affiliates
which are Subsidiaries of the Obligor to withdraw from any Single Employer Plan
and, if applicable, a Multiemployer Plan, or (iii) any Accumulated Funding
Deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, to exist involving any of its Single Employer
Plans, to the extent that any of the events described in (i), (ii) or
(iii), singly or in the aggregate, could have a Material Adverse Effect; or

 

(b)                    fail,
or permit any of its ERISA Affiliates which are Subsidiaries of the Obligor to
fail, to comply with ERISA or other related provisions of the Code, if any such
non-compliance, singly or in the aggregate, would be reasonably likely to have
a Material Adverse Effect.

 

5.1.6                            Financial Testing: The financial covenants
set out in sub-clauses 5.2.1(b)(xviii), 5.2.1(b)(xxi), 5.3.4(b)(ix), 6.1.1(e) and
6.1.2 below shall be tested by reference to each of the financial statements
and/or each Compliance Certificate delivered pursuant to sub-clause 5.1.2(i) (Compliance Certificate).

 

5.2                           Negative Covenants

 

5.2.1                            Negative Pledge:

 

(a)                     Neither
the Obligor nor any of its Subsidiaries will permit, create, assume, incur or
suffer to exist any Lien on any asset tangible or intangible now owned or
hereafter acquired by it, except as set out in paragraph (b) below. 

 

(b)                    Paragraph
(a) above does not apply to: 

 

(i)                       Liens
created pursuant to the Security Documents; 

 

(ii)                    Liens
existing on the date hereof and listed on Schedule 1 (Existing Encumbrances) hereto;

 

(iii)                 Liens
securing repurchase agreements constituting a borrowing of funds by the Obligor
or any of its Subsidiaries in the ordinary course of business for liquidity
purposes and in no event for a period exceeding ninety (90) days in each case; 

 

(iv)                Liens
arising pursuant to purchase money mortgages, capital leases or security
interests securing Indebtedness representing the purchase price (or financing
of the purchase price within ninety (90) days after the respective purchase) of
assets acquired after the Closing Date;

 

32

 

(v)                   Liens
(x) on any asset of any Person existing at the time such Person is merged or
consolidated with or into the Obligor or any of its Subsidiaries and not
created in contemplation of such event or (y) securing Acquired Indebtedness so
long as such Lien existed prior to the contemplated acquisition, was not
created in contemplation of such acquisition and only relates to assets of the
Person so acquired;

 

(vi)                Liens
securing obligations owed by the Obligor or any of its Subsidiaries to the
Parent or any other Subsidiary of the Parent, in each case solely to the extent
that such Liens are required by an Applicable Insurance Regulatory Authority
for such Person to maintain such obligations; 

 

(vii)             Liens
securing insurance obligations of the Obligor or any of its Subsidiaries owed
to the Parent or any other Subsidiary of the Parent, in each case solely to the
extent that such Liens are required or requested by ratings agencies, clients
or brokers for such Person to maintain such insurance obligations; 

 

(viii)          Liens
on investments and cash balances of the Obligor or any of its Subsidiaries
securing obligations of the Obligor or any of its Subsidiaries in respect of
trust or similar arrangements formed, letters of credit issued or funds
withheld balances established, in each case, in the ordinary course of business
for the benefit of cedents to secure reinsurance recoverables owed to them by
the Obligor or any of its Subsidiaries;

 

(ix)                  inchoate
Liens for taxes, assessments or governmental charges or levies not yet due or
Liens for taxes, assessments or governmental charges or levies being contested
in good faith and by appropriate proceedings for which adequate reserves have
been established in accordance with GAAP;

 

(x)                     Liens
in respect of property or assets of the Obligor or any of its Subsidiaries
imposed by law, which were incurred in the ordinary course of business and do
not secure Indebtedness for borrowed money, such as carriers’, warehousemen’s,
materialmen’s and mechanics’ Liens and other similar Liens arising in the
ordinary course of business, and (x) which do not in the aggregate materially
detract from the value of the Obligor’s or any such Subsidiary’s property or
assets or materially impair the use thereof in the operation of the business of
the Obligor or any Subsidiary of the Obligor or (y) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

 

33

 

(xi)                           licenses,
sublicenses, leases, or subleases granted to other Persons not materially
interfering with the conduct of the business of the Obligor or any of its
Subsidiaries;

 

(xii)                        easements,
rights-of-way, restrictions, encroachments and other similar charges or
encumbrances, and minor title deficiencies, in each case not securing
Indebtedness and not materially interfering with the conduct of the business of
the Obligor or any of its Subsidiaries;

 

(xiii)                     Liens
arising out of the existence of judgments or awards not constituting an Event
of Default under Clause 6.1 (Events of
Default Defined);

 

(xiv)                    Liens
(other than Liens imposed under ERISA) incurred in the ordinary course of
business in connection with workers compensation claims, unemployment insurance
and social security benefits and Liens securing the performance of bids,
tenders, leases and contracts in the ordinary course of business, statutory
obligations, surety bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business and consistent with past
practice (exclusive of obligations in respect of the payment for borrowed
money);

 

(xv)                       bankers’
Liens, rights of setoff and other similar Liens existing solely with respect to
cash and Cash Equivalents on deposit in one or more accounts maintained by the
Obligor or any of its Subsidiaries, in each case granted in the ordinary course
of business in favor of the bank or banks with which such accounts are
maintained;

 

(xvi)                    Liens
arising out of the refinancing, extension, renewal or refunding of any
Indebtedness secured by any Lien permitted by any of the sub-paragraphs of this
sub-clause 5.2.1, provided that such Indebtedness is not increased and is not
secured by any additional assets;

 

(xvii)                 Liens
in respect of property or assets of the Obligor or any of its Subsidiaries
securing Indebtedness of the type described in sub-paragraphs (vi) or (x)
of the definition of “Permitted Indebtedness” (as hereinafter set fourth); 

 

(xviii)              Liens
in respect of property or assets of any Subsidiary of the Obligor securing
Indebtedness of the type described in paragraph (ix) of the definition of “Permitted
Indebtedness”; provided that the
aggregate amount of the Indebtedness secured by such Liens shall not, when
added to the aggregate amount of all outstanding obligations of the Parent
secured by Liens incurred pursuant to paragraph (b)(xx) of sub-clause 5.2.1
exceed at any time 10% of Net Worth of the Parent at the time of incurrence of
any new Liens under this paragraph (xviii); 

 

34

 

(xix)   Liens
in respect of property or assets of the Obligor securing Indebtedness of the
Obligor in respect of letters of credit issued to reinsurance cedents, or to
lessors of real property in lieu of security deposits in connection with leases
of the Obligor, in each case in the ordinary course of business;

 

(xx)    Liens
arising in connection with securities lending arrangements entered into by the
Obligor or any of its Subsidiaries with financial institutions in the ordinary
course of business so long as any securities subject to any such securities
lending arrangements do not constitute collateral under any security document;
and

 

(xxi)   in
addition to the Liens described in sub-paragraphs (i) through (xx) above,
Liens securing obligations of the Parent; provided
that the aggregate amount of the obligations secured by such Liens
shall not, when added to the aggregate amount of outstanding Indebtedness of
the Obligor or any of its Subsidiaries pursuant to paragraph (ix) of the
definition of “Permitted Indebtedness”, exceed at any time 10% of Net Worth of
the Parent at the time of incurrence of any new Liens under this sub-clause 5.2.1.

 

5.3                           Disposals:

 

5.3.1                            The
Obligor shall not nor will it permit any of its Subsidiaries to sell, convey,
assign, lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily (any of the foregoing being referred to in this paragraph (a) as
a “Disposition” and any series of
related Dispositions constituting but a single Disposition), any of its
properties or assets, tangible or intangible (including but not limited to
sale, assignment, discount or other disposition of accounts, contract rights,
chattel paper or general intangibles with or without recourse), except as set
forth in paragraph (b) below.

 

5.3.2                            Paragraph
(a) above does not apply to:

 

(a)                     any
Disposition of used, worn out, obsolete or surplus property of the Obligor or
any of its Subsidiaries in the ordinary course of business; or

 

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

 

(c)                     the
Disposition of cash, Cash Equivalents and investment securities; or

 

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

 

35

 

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

 

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

 

(g)                    dividends;
or

 

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

 

(i)                        any
Disposition by the Obligor or any of its Subsidiaries of any non-core asset or
as set forth in Schedule 3 (Dispositions);
or

 

(j)                        Dispositions
by the Obligor or any of its Subsidiaries of properties or assets having an
aggregate fair value (as determined in good faith by the board of directors of
the Obligor) of less than USD$1,000,000; or

 

(k)                     Dispositions
by the Obligor or any of its Subsidiaries of any of its respective properties
or assets to the Parent, to any wholly-owned Subsidiary of the Parent or
(except as to property or assets consisting of the capital stock of
Subsidiaries) to Alternative Re Holdings Limited; or 

 

(l)                        other
Dispositions to the extent that the fair market value of the assets the subject
thereof (as determined in good faith by the board of directors or senior
management of the Obligor), when added to the fair market value of the assets
the subject of any such other Disposition or Dispositions under this paragraph
(xii) previously consummated during the same fiscal year of the Obligor (as
determined in good faith by the board of directors or senior management of the
Obligor), does not constitute more than 20% of the consolidated assets of the
Group as of the last day of the most recently ended fiscal year of the
Group.  

 

5.3.3                            Financial Indebtedness:  The Obligor shall not incur or permit to
subsist, and shall not permit any of its Subsidiaries to incur or subsist, any
Indebtedness except Permitted Indebtedness (as hereinafter defined).

 

5.3.4                            Definitions:  In this Clause 5.2 the following terms have
the following meanings.

 

(a)                     “Acquired Indebtedness” means Indebtedness
of the Obligor or any of its Subsidiaries acquired pursuant to an acquisition
not prohibited under this Agreement (or Indebtedness assumed at the time of
such acquisition of an asset securing such Indebtedness), provided that such Indebtedness was not
incurred in connection with, or in anticipation or contemplation of, such
acquisition.

 

(b)                    “Permitted Indebtedness” means:

 

36

 

(i)        Indebtedness
of the Obligor or any of its Subsidiaries incurred pursuant to this Agreement
or the JPMorgan Credit Agreement (as defined in item 2 of Schedule 1 (Existing Encumbrances));

 

(ii)       Indebtedness
of the Obligor or any of its Subsidiaries existing on the date hereof and
listed on Schedule 2 (Existing
Indebtedness) and refinancings by the Obligor or any of its
Subsidiaries thereof; provided that
the aggregate principal amount of any such refinancing Indebtedness is not
greater than the aggregate principal amount of the Indebtedness being
refinanced plus the amount of any premiums required to be paid thereof and fees
and expenses associated therewith;

 

(iii)      Indebtedness
of the Obligor or any of its Subsidiaries under any Rate Hedging Obligations,
in each case entered into to protect the Obligor or such Subsidiary against
fluctuations in interest rates, currency exchange rates or other rate
fluctuations and not entered into for speculative purposes;

 

(iv)     Any
Indebtedness owed by the Obligor or any of its Subsidiaries to the Parent or
any of its Subsidiaries;

 

(v)      Indebtedness
in respect of purchase money obligations and Capital Lease Obligations of the
Obligor or any of its Subsidiaries, and refinancings thereof; provided that the aggregate principal
amount of all such Capital Lease Obligations does not exceed at any time
outstanding USD$25,000,000 at the time of incurrence of any new Indebtedness
under this sub-paragraph (v);

 

(vi)     Indebtedness
of the Obligor or any of its Subsidiaries in respect of letters of credit
issued to reinsurance cedents, or to lessors of real property in lieu of
security deposits in connection with leases of the Obligor or such Subsidiary,
in each case in the ordinary course of business;

 

(vii)    Indebtedness
of the Obligor or any of its Subsidiaries incurred in the ordinary course of
business in connection with workers’ compensation claims, self-insurance
obligations, unemployment insurance or other forms of governmental insurance or
benefits and pursuant to letters of credit or other security arrangements
entered into in connection with such insurance or benefit;

 

(viii)   Acquired
Indebtedness of the Obligor or any of its Subsidiaries;

 

(ix)      Indebtedness
incurred under securities lending arrangements entered into in the ordinary
course of business;

 

37

 

(x)    Indebtedness
incurred under Credit Protection Arrangements entered into in the ordinary
course of business;

 

(xi)    additional
Indebtedness of the Obligor or any of its Subsidiaries not otherwise permitted
under sub-paragraph (i) through (x) of this definition which, when added
to the aggregate amount of all outstanding Indebtedness obligations secured by
Liens incurred by the Obligor or any of its Subsidiaries pursuant to sub-clause
5.2.1(b)(xxi), shall not exceed at any time outstanding 5% of the Group’s Net
Worth at the time of incurrence of any new Indebtedness under this paragraph
(xi).

 

(xii)   Indebtedness
arising from Guarantees made by the Obligor or any of its Subsidiaries of
Indebtedness of the type described in sub-paragraphs (i) through (ix) of
this definition.

 

6.                                 EVENTS OF DEFAULT AND REMEDIES

 

6.1                           Events of Default Defined

 

6.1.1                            With
respect to the Obligor, each of the following is an “Event of Default:”

 

(a)                     failure
by the Obligor to pay any amount payable by it hereunder on the date due;

 

(b)                    if
the validity or enforceability of any Security Document to which the Obligor is
a party shall be contested by any Person;

 

(c)                     if
any representation or warranty made by or on behalf of the Obligor in this
Agreement, in any other Fundamental Document or in any certificate, report or
financial or other statement furnished to the Agent at any time under or in
connection with this Agreement, any other Fundamental Document or any other
such document or agreement shall have been untrue in any material respect when
made or deemed to have been made;

 

(d)                    default
by the Obligor in the observance or performance of its covenants set forth in (i) Clause
5 (Covenants); or (ii) default
by the Obligor in the observance or performance of its obligation to maintain
the value of the Custodial Account maintained in its name in accordance with
Clause 5.1.4 hereof and Clause 1 of the Security Agreement between it and the
Security Agent;

 

(e)                     failure
by the Parent to maintain a minimum Net Worth that is at any time less than the
sum of: (i) USD$1,500,000,000; (ii) 25% of the Net Cash Proceeds of
any common or preferred equity raised by the Parent after the date of this
Agreement; and (iii) 25% of Consolidated Net Income for each financial
year of the Parent:

 

38

 

(f)                       in
this paragraph (f) the following term has the following meaning.

 

(i)                       “Net Cash Proceeds” means for any issuance
of equity, the gross cash proceeds (including any cash received by way of
deferred payment pursuant to a promissory note, receivable or otherwise, but
only as and when received) received from such issuance, net of reasonable
transaction costs (including, as applicable, any underwriting, brokerage or
other customary commissions and reasonable legal, advisory and other fees and
expenses associated therewith).  

 

6.1.2                            the
Parent Leverage Ratio on the last day of any fiscal quarter or fiscal year of
the Parent is greater than 0.35:1.00. 
For purposes of this sub-clause 6.1.2: 

 

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

 

(b)                    “Consolidated Indebtedness” means, as of any
date of determination, (i) all Indebtedness of the Group which at such
time would appear on the liability side of a balance sheet of such Persons
prepared on a consolidated basis in accordance with GAAP plus (ii) any
Indebtedness for borrowed money of any other Person (other than any member of
the Group) as to which any member of the Group has created a Guarantee (but
only to the extent of such Guarantee). 
For the avoidance of doubt, “Consolidated Indebtedness” shall not
include any Guarantees of any Person under or in connection with letters of
credit or similar facilities so long as no unreimbursed drawings or payments
have been made in respect thereof; and

 

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

 

6.1.3                            the
Parent permits, creates, assumes, incurs or suffers to exist any Lien on any
asset, tangible or intangible, now owned or hereafter acquired, other than in
the same manner, and subject to the same limitations, as otherwise permitted
under paragraph (b) of sub-clause 5.2.1 (Negative
Pledge) and except as set out on Schedule 1 (Existing Encumbrances); for the avoidance
of doubt for this purpose, reference to “Subsidiaries” (including in the
definition of “Permitted Indebtedness”) shall include Subsidiaries of the
Parent;

 

6.1.4                            the
Parent making a Disposition (as defined in paragraph (a) of sub-clause 5.3)
of any of its properties or assets, tangible or intangible, other than in the
same manner, and subject to the same limitations, as otherwise permitted under
paragraph (b) of sub-clause 5.3 (Disposals)
and except as set out in Schedule 3 (Dispositions);
for the avoidance of doubt for this purpose, references to “Subsidiaries”
includes Subsidiaries of the Parent;

 

39

 

6.1.5         non-compliance
by the Parent or its ERISA Affiliates of the covenant set forth in sub-clause 5.1.5
(ERISA);

 

6.1.6         default
by the Obligor in the observance or performance of any other covenant or
agreement contained in this Agreement or any other Fundamental Document and the
continuance thereof unremedied for ten (10) days after receipt by the
Obligor of written notice of the default from the Agent;

 

6.1.7         an
order shall be made by a competent court or a resolution shall be passed for
the winding up or dissolution or rehabilitation of the Parent or the Obligor
save for the purposes of amalgamation, merger, consolidation, reorganization or
other similar arrangement on terms approved by the Majority Lenders (not
involving the insolvency of the Parent or the Obligor) and save that if any
such order or resolution is sought in an involuntary proceeding against any the
Person, such Person shall have thirty (30) days from the commencement of such
proceeding to obtain an order staying, vacating or dismissing such proceedings,
or a petition shall be presented to, or an order shall be made by a competent
court for the appointment of, an administrator of the Parent or the Obligor and
such petition or order shall not have been stayed, vacated or dismissed within thirty
(30) days after the presentation of such petition or the making of such order;

 

6.1.8         the
Parent or the Obligor shall cease to carry on the whole or substantially the
whole of its business, save for the purposes of amalgamation, merger,
consolidation, reorganization or other similar arrangement (not involving or
arising out of the insolvency of the Parent or the Obligor) which is permitted
hereunder, or the Parent or the Obligor shall suspend payment of its debts
generally or shall be unable to, or shall admit inability to, pay its debts as
they fall due, or shall be adjudicated or found bankrupt or insolvent by any
competent court in a voluntary or involuntary bankruptcy or insolvency
proceeding and, in the case of an involuntary proceeding, such adjudication or
finding is not stayed, vacated or dismissed for thirty (30) days, or shall
enter into any composition or other similar arrangement with its creditors
generally; 

 

6.1.9         a
receiver, administrator, liquidator or other similar official shall be appointed
in relation to the Parent or the Obligor or in relation to the whole or a
substantial part of its assets or to the Collateral or a distress, execution or
other process shall be levied or enforced upon or out against, or any
encumbrance shall take possession of, the whole or a substantial part of its
assets or the Collateral and in any of the foregoing cases, such action or
person shall not be discharged, dismissed, vacated, stayed or bonded within
thirty (30) days; 

 

6.1.10       any
seizure, vesting or intervention by or under authority of a government occurs,
by which the Parent’s or the Obligor’s management is displaced or its authority
in the conduct of its business is curtailed;

 

40

 

6.1.11       default
by the Parent or the Obligor in (i) any payment of principal of or
interest of any Indebtedness beyond the period of grace, if any, provided in
the instrument or agreement under which such Indebtedness was created; or (ii) default
in the observance or performance of any other agreement or condition relating
to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated maturity, provided  that
the aggregate principal amount of all Indebtedness under paragraphs (i) and
(ii) of this sub-clause 6.1.11 which would then become due and payable
would equal or exceed, in the case of the Parent or the Obligor,
USD$50,000,000; 

 

6.1.12       One
or more judgments or decrees shall be entered against the Parent or the Obligor
involving in the aggregate a liability (to the extent not paid or covered by
insurance) of, in the case of the Parent or the Obligor, USD$50,000,000 or
more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within sixty (60) days after the
entry thereof; or

 

6.1.13       If
the security interest created in favor of the Agent pursuant to any Security
Document shall cease to be valid and binding or to constitute a fully perfected
security interest in the collateral described in such security document,
superior in right to any other lien.

 

6.2         Remedies

 

6.2.1         Without
limiting any other rights or remedies of the Agent, the Issuer or any Lender
provided for elsewhere in this Agreement or any other Fundamental Document, or
by applicable law, or in equity, or otherwise, (i) if any Event of Default
shall occur and be continuing with respect to the Obligor, the Agent may, by
notice to the Obligor, declare all amounts owing under this Agreement and any
Letters of Credit (whether or not such Letter of Credit Obligations be
contingent or unmatured) issued at the request of the Obligor to be forthwith
due and payable, whereupon all such amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Obligor, and (ii) if
any Event of Default shall occur and be continuing with respect to the Parent,
the Agent may, by notice to the Obligor, declare all amounts owing under this
Agreement and any Letters of Credit (whether or not such Letter of Credit
Obligations be contingent or unmatured) issued at the request of the Obligor to
be forthwith due and payable, whereupon all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the
Obligor.  The Agent may immediately take
any and all remedies with respect to the Collateral permitted by the Security
Documents. 

 

41

 

6.2.2         Upon
declaration as provided for above, the Obligor shall, as specified in written
notice by the Agent, either (i) immediately deliver to the Agent, any
amounts required to be paid in accordance with sub-clause 6.2.1 hereof (the “Letter of Credit Amount”), or (ii) with
the consent of the Beneficiary or Beneficiaries thereof, cause any Letters of
Credit to be cancelled forthwith in a manner satisfactory to the Agent.  In addition to providing the Letter of Credit
Amount, the Obligor shall provide the Agent with any documentation as the Agent
may from time to time request to perfect its rights in the Letter of Credit
Amount, including, without limitation, pledge agreements and financing
statements in form and substance satisfactory to the Agent.  The Agent shall hold the Letter of Credit
Amount in its own name, for the exclusive purpose of applying such Letter of
Credit Amount toward the immediate payment of amounts which are thereafter
drawn under any Letter of Credit, and, to the extent of such payment, the
Reimbursement Obligations shall be deemed to be satisfied.  Upon the expiry date of all Letters of
Credit, any Letter of Credit Amount remaining after satisfaction of all
Reimbursement Obligations shall be remitted to the order of the relevant
Obligor.  The Obligor shall remain liable
for the relevant amount of any deficiency in respect of its Letter of Credit
Obligations and Reimbursement Obligations.

 

6.2.3         Upon
the occurrence and during the continuation of any Default or Event of Default
under this Agreement, no Letter of Credit shall be issued, renewed or extended
under this Agreement without the consent of the Agent and the Issuer.

 

7.           CHANGES TO PARTIES

 

7.1         Changes to the Lenders

 

7.1.1         Assignments and Transfers by the Lenders

 

Subject to this Clause 7.1, a Lender (the “Existing Lender”) may: 

 

(a)       assign
any of its rights; or

 

(b)       transfer
by novation any of its rights and obligations,

 

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

 

7.1.2         Conditions of Assignment or Transfer

 

(a)       The
consent of the Obligor is required for an assignment or transfer by an Existing
Lender, unless the assignment or transfer is to another Lender or an Affiliate
of a Lender.

 

(b)       The
consent of the Obligor to an assignment or transfer must not be unreasonably
withheld or delayed.  The Obligor will be
deemed to have given its consent seven (7) Business Days after the
Existing Lender has requested it in writing unless consent is expressly refused
by the Obligor within that time.

 

42

 

(c)       An
assignment will only be effective on: 

 

(i)        receipt
by the Agent of an Assignment and Assumption from the New Lender (in form and
substance satisfactory to the Agent) stating that the New Lender will assume
the same obligations to the other Finance Parties as it would have been under
if it was an Original Lender; and

 

(ii)       performance
by the Agent of all necessary “know your customer” or other similar checks
under all applicable laws and regulations in relation to such assignment to a
New Lender, the completion of which the Agent shall promptly notify to the
Existing Lender and the New Lender. 

 

(d)       If:

 

(i)        a
Lender assigns or transfers any of its rights or obligations under the
Fundamental Documents or changes its Facility Office; and

 

(ii)       as
a result of circumstances existing at the date the assignment, transfer or
change occurs, an Obligor would be obliged to make a payment to the New Lender
or Lender acting through its new Facility Office under sub-clause 2.9.2 or
Clause 2.7 (Regulatory Requirements;
Additional Costs),

 

then the New Lender or Lender acting through its new Facility Office is
only entitled to receive payment under those Clauses to the same extent as the
Existing Lender or Lender acting through its previous Facility Office would
have been if the assignment, transfer or change had not occurred. 

 

7.1.3         Assignment or Transfer Fee 

 

The New Lender shall, on the date upon which an assignment or transfer
takes effect, pay to the Agent (for its own account) a fee as determined by the
Agent from time to time. 

 

7.1.4         Limitation of Responsibility of Existing Lenders

 

(a)       Unless
expressly agreed to the contrary, an Existing Lender makes no representation or
warranty and assumes no responsibility to a New Lender for:

 

(i)        the
legality, validity, effectiveness, adequacy or enforceability of the
Fundamental Documents or any other documents;

 

(ii)       the
financial condition of any Obligor;

 

(iii)      the
performance and observance by any Obligor of its obligations under the
Fundamental Documents or any other documents; or

 

43

 

(iv)     the
accuracy of any statements (whether written or oral) made in or in connection
with any Fundamental Document or any other document,

 

and any representations or warranties implied by law are excluded.

 

(b)       Each
New Lender confirms to the Existing Lender and the other Finance Parties that
it: 

 

(i)        has
made (and shall continue to make) its own independent investigation and
assessment of the financial condition and affairs of each Obligor and its
related entities in connection with its participation in this Agreement and has
not relied exclusively on any information provided to it by the Existing Lender
in connection with any Fundamental Document; and

 

(ii)       will
continue to make its own independent appraisal of the creditworthiness of each
Obligor and its related entities whilst any amount is or may be outstanding
under the Fundamental Documents or any Commitment is in force.

 

(c)       Nothing
in any Fundamental Document obliges an Existing Lender to:

 

(i)        accept
a re-transfer from a New Lender of any of the rights and obligations assigned
or transferred under this Clause 7.1; or 

 

(ii)       support
any losses directly or indirectly incurred by the New Lender by reason of the
non-performance by any Obligor of its obligations under the Fundamental
Documents or otherwise.

 

7.1.5         Procedure for Transfer

 

(a)       Subject
to the conditions set out in sub-clause 7.1.2 (Conditions
of Assignment or Transfer) a transfer is effected in accordance with
paragraph (c) below when the Agent executes an otherwise duly completed
Assignment and Assumption delivered to it by the Existing Lender and the New
Lender.  The Agent shall, subject to
paragraph (b) below, as soon as reasonably practicable after receipt by it
of a duly completed Assignment and Assumption appearing on its face to comply
with the terms of this Agreement and delivered in accordance with the terms of
this Agreement, execute such Assignment and Assumption.

 

(b)       The
Agent shall only be obliged to execute an Assignment and Assumption delivered
to it by the Existing Lender and the New Lender once it is satisfied it has
complied with all necessary “know your customer” or other similar checks under
all applicable laws and regulations in relation to the transfer to such New
Lender. 

 

44

 

(c)       On
the Transfer Date:

 

(i)        to
the extent that in the Assignment and Assumption the Existing Lender seeks to
transfer by novation its rights and obligations under the Fundamental
Documents, the Obligor and the Existing Lender shall be released from further
obligations towards one another under the Fundamental Documents and their
respective rights against one another under the Fundamental Documents shall be
cancelled (being the “Discharged Rights and
Obligations”);

 

(ii)       the
Obligor and the New Lender shall assume obligations towards one another and/or
acquire rights against one another which differ from the Discharged Rights and
Obligations only insofar as the Obligor and the New Lender have assumed and/or
acquired the same in place of that Obligor and the Existing Lender;

 

(iii)      the
Agent, the Issuer, the New Lender and other Lenders shall acquire the same
rights and assume the same obligations between themselves as they would have
acquired and assumed had the New Lender been an original Lender with the rights
and/or obligations acquired or assumed by it as a result of the transfer and to
that extent the Agent, the Issuer and the Existing Lender shall each be
released from further obligations to each other under the Fundamental
Documents; and

 

(iv)     the
New Lender shall become a Party as a “Lender”.

 

7.1.6         Copy of Assignment and Assumption to Obligor

 

The Agent shall, as soon as reasonably practicable after it has
executed an Assignment and Assumption, send to the Obligor a copy of such
Assignment and Assumption.  

 

7.1.7         Disclosure of information

 

Any Lender may disclose to any of its Affiliates and the directors,
officers, employees, agents, including accounts, legal counsel and other
advisors of the Lender and its Affiliates (subject to Clause 9.11 (Confidentiality) hereof) and any other
person:

 

(a)       to
(or through) whom that Lender assigns or transfers (or may potentially assign
or transfer) all or any of its rights and obligations under this Agreement;

 

(b)       with
(or through) whom that Lender enters into (or may potentially enter into) any
sub-participation in relation to, or any other transaction under which payments
are to be made by reference to, this Agreement or the Obligor; or

 

45

 

(c)       to
whom, and to the extent that, information is required to be disclosed by any
applicable law or regulation,

 

any information about the Obligor, the Group and the Fundamental
Documents as that Lender shall consider appropriate.

 

Notwithstanding any of the provisions of the Fundamental Documents, the
Obligors and the Finance Parties hereby agree that each Party and each
employee, representative or other agent of each Party may disclose to any and
all persons, without limitation of any kind, the “tax structure” and “tax
treatment” (in each case within the meaning of the U.S. Treasury Regulation Section 1.6011-4)
of the Facility and any materials of any kind (including opinions or other tax
analyses) that are provided to any of the foregoing relating to such tax
structure and tax treatment. 

 

7.2         Changes to the Obligors

 

The Obligor may not assign any of its rights or transfer any of its
rights or obligations under the Fundamental Documents.

 

8.           THE FINANCE PARTIES

 

8.1         Role of the Agent and Security
Agent

 

8.1.1         Appointment of the Agent and Security Agent

 

(a)       Each
other Finance Party appoints the Agent and Security Agent to act as its agent
under and in connection with the Fundamental Documents.

 

(b)       Each
other Finance Party authorizes the Agent and Security Agent to exercise the
rights, powers, authorities and discretions specifically given to the Agent
under or in connection with the Fundamental Documents together with any other
incidental rights, powers, authorities and discretions.

 

8.1.2         Duties of the Agent

 

(a)       The
Agent shall promptly forward to a Party the original or a copy of any document
which is delivered to the Agent for that Party by any other Party.

 

(b)       Except
where a Fundamental Document specifically provides otherwise, the Agent is not
obliged to review or check the adequacy, accuracy or completeness of any
document it forwards to another Party.

 

(c)       If
the Agent receives notice from a Party referring to this Agreement, describing
a Default and stating that the circumstance described is a Default, it shall
promptly notify the other Finance Parties.

 

46

 

(d)       If
the Agent is aware of the non-payment of any principal, interest, commitment
fee or other fee payable to a Finance Party (other than the Agent or the
Issuer) under this Agreement it shall promptly notify the other Finance
Parties.

 

(e)       The
Agent’s duties under the Fundamental Documents are solely mechanical and
administrative in nature.

 

8.1.3         No Fiduciary Duties

 

(a)       Nothing
in this Agreement constitutes the Agent as a trustee or fiduciary of any other
person.

 

(b)       The
Agent shall not be bound to account to any Lender for any sum or the profit
element of any sum received by it for its own account.

 

8.1.4         Business with the Group

 

The Agent may accept deposits from, lend money to and generally engage
in any kind of banking or other business with any member of the Group.

 

8.1.5         Rights and Discretions of the Agent

 

(a)       The
Agent may rely on:

 

(i)        any
representation, notice or document believed by it to be genuine, correct and
appropriately authorized; and

 

(ii)       any
statement made by a director, authorized signatory or employee of any person
regarding any matters which may reasonably be assumed to be within his
knowledge or within his power to verify.

 

(b)       The
Agent may assume (unless it has received notice to the contrary in its capacity
as agent for the Lenders) that:

 

(i)        no
Default has occurred (unless it has actual knowledge of a Default arising under
sub-clause (a));

 

(ii)       any
right, power, authority or discretion vested in any Party or the Majority
Lenders has not been exercised; and

 

(iii)      any
notice or request made by the Obligor is made on behalf of and with the consent
and knowledge of the Parent.

 

(c)       The
Agent may engage, pay for and rely on the advice or services of any lawyers,
accountants, surveyors or other experts.

 

(d)       The
Agent may act in relation to the Fundamental Documents through its personnel
and agents.

 

47

 

(e)       The
Agent may disclose to any other Party any information it reasonably believes it
has received as agent under this Agreement.

 

(f)        Notwithstanding
any other provision of any Fundamental Document to the contrary, the Agent is
not obliged to do or omit to do anything if it would or might in its reasonable
opinion constitute a breach of any law or regulation or a breach of a fiduciary
duty or duty of confidentiality.

 

8.1.6         Majority Lenders’ Instructions

 

(a)       Unless
a contrary indication appears in a Fundamental Document, the Agent shall (i) exercise
any right, power, authority or discretion vested in it as Agent in accordance
with any instructions given to it by the Majority Lenders (or, if so instructed
by the Majority Lenders, refrain from exercising any right, power, authority or
discretion vested in it as Agent) and (ii) not be liable for any act (or
omission) if it acts (or refrains from taking any action) in accordance with an
instruction of the Majority Lenders.

 

(b)       Unless
a contrary indication appears in a Fundamental Document, any instructions given
by the Majority Lenders will be binding on all the Finance Parties.

 

(c)       The
Agent may refrain from acting in accordance with the instructions of the
Majority Lenders (or, if appropriate, the Lenders) until it has received such
security as it may require for any cost, loss or liability which it may incur
in complying with the instructions.

 

(d)       In
the absence of instructions from the Majority Lenders, (or, if appropriate, the
Lenders) the Agent may act (or refrain from taking action) as it considers to
be in the best interest of the Lenders.

 

(e)       The
Agent is not authorized to act on behalf of a Lender (without first obtaining
that Lender’s consent) in any legal or arbitration proceedings relating to any
Fundamental Document.

 

8.1.7         Responsibility for Documentation

 

The Agent is not:

 

(a)       responsible
for the adequacy, accuracy and/or completeness of any information (whether oral
or written) supplied by the Agent, the Obligors or any other person given in or
in connection with any Fundamental Document; or

 

(b)       responsible
for the legality, validity, effectiveness, adequacy or enforceability of any
Fundamental Document or any other agreement, arrangement or

 

48

 

document entered into, made or executed in
anticipation of or in connection with any Fundamental Document.

 

8.1.8         Exclusion of Liability

 

(a)       Without
limiting paragraph (b) below, the Agent will not be liable (including,
without limitation, for negligence or any other category of liability
whatsoever) for any action taken by it under or in connection with any
Fundamental Document, unless directly caused by its gross negligence or willful
misconduct.

 

(b)       No
Party (other than the Agent) may take any proceedings against any officer,
employee or agent of the Agent in respect of any claim it might have against
the Agent or in respect of any act or omission of any kind by that officer,
employee or agent in relation to any Fundamental Document and any officer,
employee or agent of the Agent may rely on this Clause. 

 

(c)       The
Agent will not be liable for any delay (or any related consequences) in
crediting an account with an amount required under the Fundamental Documents to
be paid by the Agent if the Agent has taken all necessary steps as soon as
reasonably practicable to comply with the regulations or operating procedures
of any recognized clearing or settlement system used by the Agent for that
purpose.

 

(d)       Nothing
in this Agreement shall oblige the Agent to carry out any “know your customer”
or other checks in relation to any person on behalf of any Lender and each
Lender confirms to the Agent that it is solely responsible for any such checks
it is required to carry out and that it may not rely on any statement in
relation to such checks made by the Agent. 

 

8.1.9         Lenders’ Indemnity to the Agent

 

Each Lender shall (in proportion to its Ratable Share) indemnify the
Agent, within ten (10) Business Days of demand, against any cost, loss or
liability (including, without limitation, for negligence or any other category
of liability whatsoever) incurred by the Agent (otherwise than by reason of the
Agent’s gross negligence or willful misconduct) in acting as Agent under the
Fundamental Documents (unless the Agent has been reimbursed by the Obligor
pursuant to a Fundamental Document).

 

8.1.10       Resignation of the Agent

 

(a)       The
Agent may resign and appoint one of its Affiliates as a successor by giving
notice to the other Finance Parties and the Obligor.

 

(b)       Alternatively
the Agent may resign by giving notice to the other Finance Parties and the
Obligor, in which case the Majority Lenders (after

 

49

 

consultation with the Obligor) may appoint a successor
Agent with the consent of the Obligor (such consent not to be unreasonably
withheld or delayed).

 

(c)       If
the Majority Lenders have not appointed a successor Agent in accordance with
paragraph (b) above within thirty (30) days after notice of resignation
was given, the Agent may appoint a successor Agent with the consent of the
Obligor (such consent not to be unreasonably withheld or delayed).

 

(d)       The
retiring Agent shall, at its own cost, make available to the successor Agent
such documents and records and provide such assistance as the successor Agent
may reasonably request for the purposes of performing its functions as Agent
under the Fundamental Documents.

 

(e)       The
Agent’s resignation notice shall only take effect upon the appointment of a
successor and the acceptance by such successor to assume all responsibilities
of the Agent hereunder.

 

(f)        Upon
the appointment of a successor, the retiring Agent shall be discharged from any
further obligation in respect of the Fundamental Documents but shall remain
entitled to the benefit of this Clause 8.1. 
Its successor and each of the other Parties shall have the same rights
and obligations amongst themselves as they would have had if such successor had
been an original Party.

 

(g)       After
consultation with the Obligor, the Majority Lenders may, by notice to the
Agent, require it to resign in accordance with paragraph (b) above.  In this event, the Agent shall resign in
accordance with paragraph (b) above.

 

8.1.11       Confidentiality 

 

(a)       In
acting as agent for the Finance Parties, the Agent shall be regarded as acting
through its agency division which shall be treated as a separate entity from
any other of its divisions or departments.

 

(b)       If
information is received by another division or department of the Agent, it may
be treated as confidential to that division or department and the Agent shall
not be deemed to have notice of it.

 

8.1.12       Relationship with the Lenders

 

The Agent may treat each Lender as a Lender, entitled to payments under
this Agreement and acting through its Facility Office unless it has received
not less than five (5) Business Days’ prior notice from that Lender to the
contrary in accordance with the terms of this Agreement.

 

50

 

8.1.13       Credit Appraisal by the Lenders

 

(a)       Without
affecting the responsibility of the Obligor for information supplied by it or
on its behalf in connection with any Fundamental Document, each Lender confirms
to the Agent that it has been, and will continue to be, solely responsible for
making its own independent appraisal and investigation of all risks arising
under or in connection with any Fundamental Document including but not limited
to:

 

(i)        the
financial condition, status and nature of each member of the Group;

 

(ii)       the
legality, validity, effectiveness, adequacy or enforceability of any
Fundamental Document and any other agreement, arrangement or document entered
into, made or executed in anticipation of, under or in connection with any
Fundamental Document;

 

(iii)      whether
that Lender has recourse, and the nature and extent of that recourse, against
any Party or any of its respective assets under or in connection with any
Fundamental Document, the transactions contemplated by the Fundamental
Documents or any other agreement, arrangement or document entered into, made or
executed in anticipation of, under or in connection with any Fundamental
Document; and

 

(iv)     the
adequacy, accuracy and/or completeness of any information provided by the
Agent, any Party or by any other person under or in connection with any
Fundamental Document, the transactions contemplated by the Fundamental
Documents or any other agreement, arrangement or document entered into, made or
executed in anticipation of, under or in connection with any Fundamental
Document.

 

8.1.14       Reference Bank

 

If the Reference Bank ceases to be the Issuer or a Lender, the Agent
shall (in consultation with the Obligor) appoint another Lender or an Affiliate
of a Lender to replace that Reference Bank . 

 

8.1.15       Deduction from Amounts Payable by the Agent

 

If any Party owes an amount to the Agent under the Fundamental
Documents the Agent may, after giving notice to that Party, deduct an amount
not exceeding that amount from any payment to that Party which the Agent would
otherwise be obliged to make under the Fundamental Documents and apply the
amount deducted in or towards satisfaction of the amount owed.  For the purposes of the Fundamental Documents
that Party shall be regarded as having received any amount so deducted.

 

51

 

8.2         Conduct of Business by the
Finance Parties

 

8.2.1         No
provision of this Agreement will:

 

(a)       interfere
with the right of any Finance Party to arrange its affairs (tax or otherwise)
in whatever manner it thinks fit;

 

(b)       oblige
any Finance Party to investigate or claim any credit, relief, remission or
repayment available to it or the extent, order and manner of any claim; or

 

(c)       oblige
any Finance Party to disclose any information relating to its affairs (tax or
otherwise) or any computations in respect of Tax.

 

8.3         Sharing Among the Finance Parties

 

8.3.1         Payments to Finance Parties

 

If a Finance Party (a “Recovering
Finance Party”) receives or recovers any amount from the Obligor
other than in accordance with Clause 9.1 (Payment
Mechanics) and applies that amount to a payment due under the
Fundamental Documents then:

 

(a)       the
Recovering Finance Party shall, within three (3) Business Days, notify
details of the receipt or recovery, to the Agent;

 

(b)       the
Agent shall determine whether the receipt or recovery is in excess of the
amount the Recovering Finance Party would have been paid had the receipt or
recovery been received or made by the Agent and distributed in accordance with
Clause 9.1 (Payment Mechanics),
without taking account of any tax which would be imposed on the Agent in
relation to the receipt, recovery or distribution; and

 

(c)       the
Recovering Finance Party shall, within three (3) Business Days of demand
by the Agent, pay to the Agent an amount (the “Sharing Payment”) equal to such receipt or recovery less any
amount which the Agent determines may be retained by the Recovering Finance
Party as its share of any payment to be made, in accordance with sub-clause 9.1.5
(Partial Payments).

 

8.3.2         Redistribution of Payments

 

The Agent shall treat the Sharing Payment as if it had been paid by the
Obligor and distribute it between the Finance Parties (other than the
Recovering Finance Party) in accordance with sub-clause 9.1.5 (Partial payments).

 

52

 

8.3.3         Recovering Finance Party’s Rights

 

(a)       On
a distribution by the Agent under sub-clause 8.3.2 (Redistribution of Payments), the Recovering Finance Party
will be subrogated to the rights of the Finance Parties which have shared in
the redistribution.  

 

(b)       If
and to the extent that the Recovering Finance Party is not able to rely on its
rights under paragraph (a) above, the Obligor shall be liable to the
Recovering Finance Party for a debt equal to the Sharing Payment which is
immediately due and payable.

 

8.3.4         Reversal of Redistribution

 

If any part of the Sharing Payment received or recovered by a
Recovering Finance Party becomes repayable and is repaid by that Recovering
Finance Party, then:

 

(a)       each
Finance Party which has received a share of the relevant Sharing Payment
pursuant to sub-clause 8.3.2 (Redistribution
of Payments) shall, upon request of the Agent, pay to the Agent for
account of that Recovering Finance Party an amount equal to the appropriate
part of its share of the Sharing Payment (together with an amount as is
necessary to reimburse that Recovering Finance Party for its proportion of any
interest on the Sharing Payment which that Recovering Finance Party is required
to pay); and

 

(b)       that
Recovering Finance Party’s rights of subrogation in respect of any
reimbursement shall be cancelled and the Obligor will be liable to the
reimbursing Finance Party for the amount so reimbursed.

 

8.3.5         Exceptions

 

(a)       This
Clause 8.3 shall not apply to the extent that the Recovering Finance Party
would not, after making any payment pursuant to this Clause, have a valid and
enforceable claim against the Obligor.

 

(b)       A
Recovering Finance Party is not obliged to share with any other Finance Party
any amount which the Recovering Finance Party has received or recovered as a
result of taking legal or arbitration proceedings, if:

 

(i)        it
notified that other Finance Party of the legal or arbitration proceedings; and

 

(ii)       that
other Finance Party had an opportunity to participate in those legal or
arbitration proceedings but did not do so as soon as reasonably practicable
having received notice and did not take separate legal or arbitration
proceedings.

 

53

 

9.           MISCELLANEOUS

 

9.1         Payment Mechanics

 

9.1.1         Payments to the Agent

 

(a)       On
each date on which the Obligor or a Lender is required to make a payment under
a Fundamental Document, the Obligor or Lender shall make the same available to
the Agent (unless a contrary indication appears in a Fundamental Document) for
value on the due date at the time and in such funds specified by the Agent as
being customary at the time for settlement of transactions in the relevant
currency in the place of payment.

 

(b)       Payment
shall be made to such account in the principal financial center of the country
of that currency with such bank as the Agent specifies.

 

9.1.2         Distributions by the Agent

 

Each payment received by the Agent under the Fundamental Documents for
another Party shall, subject to sub-clause 9.1.3 (Distributions to an Obligor), sub-clause 9.1.4 (Clawback) and sub-clause 8.1.15 (Deduction from Amounts Payable by the Agent),
be made available by the Agent as soon as practicable after receipt to the
Party entitled to receive payment in accordance with this Agreement (in the
case of a Lender, for the account of its Facility Office), to such account as
that Party may notify to the Agent by not less than five (5) Business Days’
notice with a bank in the principal financial center of the country of that
currency.

 

9.1.3         Distributions to the Obligor

 

The Agent may (with the consent of the Obligor or in accordance with
Clause 9.6 (Right of Set-off))
apply any amount received by it for the Obligor in or towards payment (on the
date and in the currency and funds of receipt) of any amount due from the
Obligor under the Fundamental Documents or in or towards purchase of any amount
of any currency to be so applied.

 

9.1.4         Clawback

 

(a)       Where
a sum is to be paid to the Agent under the Fundamental Documents for another
Party, the Agent is not obliged to pay that sum to that other Party (or to enter
into or perform any related exchange contract) until it has been able to
establish to its satisfaction that it has actually received that sum.

 

(b)       If
the Agent pays an amount to another Party and it proves to be the case that the
Agent had not actually received that amount, then the Party to whom that amount
(or the proceeds of any related exchange contract) was paid by the Agent shall
on demand refund the same to the Agent together with interest on

 

54

 

that amount from the date of payment to the date of
receipt by the Agent, calculated by the Agent to reflect its cost of funds.

 

9.1.5         Partial Payments

 

(a)       If
the Agent receives a payment that is insufficient to discharge all the amounts
then due and payable by the Obligor under the Fundamental Documents, the Agent
shall apply that payment towards the obligations of the Obligor under the
Fundamental Documents in the following order:

 

(i)        first,
in or towards payment pro rata of any unpaid fees, costs and expenses of the
Agent and Issuer under the Fundamental Documents;

 

(ii)       secondly,
in or towards payment pro rata of any accrued interest, fee or commission due
but unpaid under this Agreement;

 

(iii)      thirdly,
in or towards payment pro rata of any principal due but unpaid under this
Agreement; and

 

(iv)     fourthly,
in or towards payment pro rata of any other sum due but unpaid under the
Fundamental Documents.

 

(b)       The
Agent shall, if so directed by the Majority Lenders, vary the order set out in
paragraphs (a)(ii) to (iv) above.

 

(c)       Paragraphs
(a) and (b) above will override any appropriation made by the
Obligor.

 

9.1.6         No set-off by Obligors

 

All payments to be made by the Obligor under the Fundamental Documents
shall be calculated and be made without (and free and clear of any deduction
for) set-off or counterclaim.

 

9.1.7         Business Days

 

(a)       Any
payment which is due to be made on a day that is not a Business Day shall be
made on the next Business Day in the same calendar month (if there is one) or
the preceding Business Day (if there is not).

 

(b)       During
any extension of the due date for payment of any principal or unpaid sum under
this Agreement interest is payable on the principal or unpaid sum at the rate
payable on the original due date.

 

55

 

9.1.8         Currency of Account

 

(a)       Subject
to paragraphs (b) to (e) below, the Base Currency is the currency of
account and payment for any sum due from the Obligor under any Fundamental
Document.

 

(b)       A
repayment of an unpaid sum shall be made in the currency in which that unpaid
sum is denominated on its due date.

 

(c)       Each
payment of interest shall be made in the currency in which the sum in respect
of which the interest is payable was denominated when that interest accrued.

 

(d)       Each
payment in respect of costs, expenses or taxes shall be made in the currency in
which the costs, expenses or taxes are incurred.

 

(e)       Any
amount expressed to be payable in a currency other than the Base Currency shall
be paid in that other currency.

 

9.1.9         Change of Currency

 

(a)       Unless
otherwise prohibited by law, if more than one currency or currency unit are at
the same time recognized by the central bank of any country as the lawful
currency of that country, then:

 

(i)        any
reference in the Fundamental Documents to, and any obligations arising under
the Fundamental Documents in, the currency of that country shall be translated
into, or paid in, the currency or currency unit of that country designated by
the Agent (after consultation with the Obligor); and

 

(ii)       any
translation from one currency or currency unit to another shall be at the
official rate of exchange recognized by the central bank for the conversion of
that currency or currency unit into the other, rounded up or down by the Agent
(acting reasonably).

 

(b)       If
a change in any currency of a country occurs, this Agreement will, to the
extent the Agent (acting reasonably and after consultation with the Obligor)
specifies to be necessary, be amended to comply with any generally accepted conventions
and market practice in the relevant interbank market and otherwise to reflect
the change in currency.

 

9.1.10       Disruption to Payment Systems etc.

 

If either the Agent determines (in its reasonable discretion) that a
Disruption Event has occurred or the Agent is notified by the Obligor (in its
reasonable discretion) that a Disruption Event has occurred:

 

56

 

(a)       the
Agent may, and shall if requested to do so by the Obligor, consult with the
Obligor with a view to agreeing with the Obligor such changes to the operation
or administration of the Facility as the Agent may deem necessary in the
circumstances;

 

(b)       the
Agent shall not be obliged to consult with the Obligor in relation to any
changes mentioned in paragraph (a) if, in its opinion, it is not
practicable to do so in the circumstances and, in any event, shall have no
obligation to agree to such changes;

 

(c)       the
Agent may consult with the Finance Parties in relation to any changes mentioned
in paragraph (a) but shall not be obliged to do so if, in its opinion, it
is not practicable to do so in the circumstances;

 

(d)       any
such changes agreed upon by the Agent and the Obligor shall (whether or not it
is finally determined that a Disruption Event has occurred) be binding upon the
Parties as an amendment to (or, as the case may be, waiver of) the terms of the
Fundamental Documents notwithstanding the provisions of Clause 9.2 (Amendments and Waivers);

 

(e)       the
Agent shall not be liable for any damages, costs or losses whatsoever
(including, without limitation for negligence, gross negligence or any other
category of liability whatsoever but not including any claim based on the fraud
of the Agent) arising as a result of its taking, or failing to take, any actions
pursuant to or in connection with this Clause 9.1; and

 

(f)        the
Agent shall notify the Finance Parties of all changes agreed pursuant to
paragraph (d) above.

 

9.2         Amendments and Waivers

 

No amendment or waiver of any provision of this Agreement or any other
Fundamental Document nor consent to any departure by the Obligor therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Agent and the Obligor and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which
given.  In the event that the Obligor
wishes to deposit an Investment in the Custodial Account which is rated by a
nationally or internationally-recognized ratings agency other than S&P,
Moody’s or Fitch, the Agent agrees to reasonably consider on a timely basis
whether the rating of such Investment may be considered the equivalent of a
rating provided by S&P, Moody’s or Fitch for purposes of the relevant
provisions of this Agreement and to execute any amendment, waiver or other
writing relating thereto on a timely basis.

 

57

 

9.3         Addresses for Notices

 

All notices and other communications provided for hereunder shall be in
writing unless otherwise stated herein and shall be delivered by e-mail, fax,
hand delivery, or recognized courier service that provides delivery within two (2) Business
Days:

 

if to Arch Reinsurance Ltd., at:

 

Wessex House

45 Reid Street

Hamilton HM 12

Bermuda

Attn:  Controller

Telephone:  +1 (441) 278-9200

Facsimile:  +1 (441) 278-9230

E-mail: 
michelle.seymour@archreinsurance.bm

 

if to the Agent and Issuer, at

 

5 North Collonade

London E14 4BB

England

Attn:  Richard Askey/Alastair
Sinclair

Telephone:  +44 (0) 207 773
7556/7934 or switchboard +44 (0) 207 623 2323

Facsimile:  +44 (0) 207 773 7963

E-mail: Richard.Askey@barclayscapital.com

or alastair.sinclair@barclayscapital.com

 

and shall be effective when delivered at the address specified in or
pursuant to this Clause 9.3, or such other address notified to the other party
in writing.

 

9.4         Successors and Assigns

 

This Agreement is a continuing obligation of the Obligor and shall,
until the date on which all amounts due and owing hereunder are paid in full (i) be
binding upon the Obligor, its successors and assigns and (ii) inure to the
benefit of and be enforceable by the Agent, the Issuer and the Lenders and its
successors and assigns, provided that any assignment of this Agreement or
any part hereof by the Obligor shall be void.

 

9.5         Payment of Expenses and Taxes;
Indemnities

 

9.5.1         The
Obligor hereby agrees to pay or reimburse the Agent and the Issuer for all
their respective out-of-pocket costs and expenses incurred in connection with
the development, preparation and attention to the execution of the Fundamental
Documents, and of documents embodying or relating to amendments, waivers or
consents with respect to any of the foregoing, including the reasonable fees
and out-of-pocket costs and expenses of counsel to the Agent and the Issuer, (ii) the
Obligor

 

58

 

agrees to pay and to save the Agent and the Issuer
from all registration, recording and filing fees and all liabilities with
respect to, or resulting from, any delay by the Obligor in paying stamp and
other Taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of, any of the Fundamental Documents
or any amendment, waiver or consent with respect thereto or the consummation of
any of the transactions contemplated thereby, (iii) the Obligor agrees to
pay or reimburse the Agent and the Issuer for all its out-of-pocket costs and
expenses incurred in connection with the preparation and attention to the
execution and issuance of Letters of Credit issued at the request of the
Obligor and (iv) the Obligor agrees to pay or reimburse the Agent and the
Issuer for all out-of-pocket costs and expenses incurred by it in connection
with the enforcement or preservation of any rights against the Obligor under or
in respect of this Agreement and the other Fundamental Documents (including the
fees and expenses of lawyers retained by the Agent and the Issuer, including
the allocated costs of internal counsel, and remuneration paid to agents and
experts not in the full-time employ of the Agent and the Issuer for services
rendered on behalf of the Agent and the Issuer) on a full indemnity basis.  All such amounts will be paid by the Obligor
on demand.

 

9.5.2         The
Obligor agrees to indemnify the Agent and any Lender, and their respective
directors, officers, employees, agents and Affiliates from, and hold each of
them harmless against, any and all claims, damages, losses, liabilities, costs
and expenses (including without limitation, reasonable fees and disbursements
of counsel) arising as a consequence of (i) any failure by the Obligor to
pay the Agent or Issuer, as required under this Agreement, punctually on the
due date thereof, any amount payable by the Obligor to the Agent or Issuer or (ii) the
acceleration, in accordance with the terms of this Agreement, of the time of
payment of any of the Reimbursement Obligations, except to the extent caused by
the Agent’s negligence or willful misconduct or breach of this Agreement.  Such losses, costs or expenses may include,
without limitation, (i) any costs incurred by the Agent or Issuer in
carrying funds to cover any overdue principal, overdue interest, or any other
overdue sums payable by the Obligor to the Agent or Issuer or (ii) any
losses incurred or sustained by the Agent or Issuer in liquidating or
reemploying funds acquired by the Lender from third parties.

 

9.5.3         The
Obligor agrees to indemnify the Issuer, the Agent and any Lender, and their
respective directors, officers, employees, agents and Affiliates from, and hold
each of them harmless against, any and all claims, damages, liabilities,
losses, costs and expenses (including without limitation, reasonable fees and
disbursements of counsel) arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) with respect to the Obligor relating to any
transaction contemplated by this Agreement or any other Fundamental Document,
any actions or omissions of the Obligor or any of the Obligor’s directors,
officers, employees or agents in

 

59

 

connection with this Agreement or any other
Fundamental Document, including without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation or
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).

 

9.6         Right of Set-Off

 

The Obligor agrees that, in addition to (and without limitation of) any
right of setoff, banker’s Lien or counterclaim the Agent may otherwise have,
the Agent shall be entitled, at its option, to offset balances (general or
special, time or demand, provisional or final, and regardless of whether such
balances are then due to the Obligor) held by it for the account of the Obligor
at any of the Agent’s offices, in U.S. Dollars or in any other currency,
against any amount payable by the Obligor under this Agreement or any Letter of
Credit that is not paid when due, taking into account any applicable grace
period, in which case it shall promptly notify the Obligor thereof, provided  that the Agent’s failure to give such
notice shall not affect the validity thereof. 
In furtherance thereof, the Obligor hereby grants to the Agent, a
continuing Lien, security interest and right of setoff as security for all
liabilities and obligations to the Agent, whether now existing or hereafter arising,
upon and against all deposits, credits, collateral and property of the Obligor,
now or hereafter in the possession, custody, safekeeping or control of the
Agent or any entity under the control of the Custodian and its successors and
assigns or in transit to any of them.  At
any time after the occurrence of an Event of Default, without demand or notice
(any such notice being expressly waived by the Obligor), the Agent may setoff
the same or any part thereof and apply the same to any liability or obligation
of the Obligor even though unmatured and regardless of the adequacy of any
other collateral securing the Obligor’s obligations hereunder.  ANY AND ALL RIGHTS TO REQUIRE THE AGENT TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE OBLIGOR’S OBLIGATIONS HEREUNDER, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE OBLIGOR,
ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.  At the option of the Agent, if there is a
separate revolving line of credit, line of credit, or other credit facility
existing between the Agent and the Obligor, the Agent is irrevocably authorized
to satisfy the Obligor’s reimbursement obligation to the Agent, in whole or in
part, by making an advance under such facility.

 

9.7         Governing Law

 

This Agreement, and the rights and obligations of the parties
hereunder, shall be governed by and construed in accordance with the laws of
the State of New York without giving effect to the choice of law or conflicts
of law principles thereof.

 

9.8         Consent to Jurisdiction

 

 

60

 

The Obligor hereby expressly submits to the non-exclusive jurisdiction
of all federal and state courts sitting in the State of New York, and agrees
that any process or notice of motion or other application to any of said courts
or a judge thereof may be served upon the Obligor within or without such court’s
jurisdiction by registered or certified mail, return receipt requested, or by
personal service, at the Obligor’s address (or at such other address as the
Obligor shall specify by a prior notice in writing to the Agent), provided
reasonable time for appearance is allowed. 
The Obligor hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue to any suit, action or proceeding arising
out or relating to this Agreement brought in any federal or state courts
sitting in the State of New York and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. 
Notwithstanding the foregoing, the Agent may sue the Obligor in any
jurisdiction where the Obligor or any of its assets may be found and may serve
legal process upon the Obligor in any other manner permitted by law.

 

9.9         Waiver of Jury Trial

 

THE OBLIGOR, EACH LENDER AND THE AGENT MUTUALLY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENTS CONTEMPLATED TO BE EXECUTED IN
CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT
LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF
THE AGENT RELATING TO THE ADMINISTRATION OF THIS AGREEMENT OR ENFORCEMENT OF
THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NO PARTY WILL SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED.  EXCEPT AS PROHIBITED BY
LAW, THE OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.  THE OBLIGOR CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF THE AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER.  THIS WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR THE AGENT TO ENTER INTO THIS AGREEMENT AND THE OTHER
FUNDAMENTAL DOCUMENTS.

 

9.10       Interest

 

All agreements between the Agent and the Obligor are hereby expressly
limited so that in no contingency or event whatsoever shall the amount paid or
agreed to be paid to the Agent for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum

 

61

 

permissible under applicable law. 
As used herein, the term “applicable law” shall mean the law in effect
as of the date hereof; provided, however, that in the event there is a
change in the law which results in a higher permissible rate of interest, then
this Agreement shall be governed by such new law as of its effective date.  In this regard, it is expressly agreed that
it is the intent of the Agent and the Obligor in the execution, delivery and
acceptance of this Agreement to contract in strict compliance with the laws of
the State of New York from time to time in effect.  If, under or from any circumstances
whatsoever, fulfillment of any provision hereof or of any of the agreements
executed herewith at the time of performance of such provision shall be due,
shall involve transcending the limit of such validity prescribed by applicable
law, then the obligation to be fulfilled shall automatically be reduced to the
limits of such validity, and if under or from circumstances whatsoever the
Agent should ever receive as interest an amount which would exceed the highest
lawful rate, such amount which would be excessive interest shall be applied to
the reduction of the principal balance evidenced hereby and not to the payment
of interest.  This provision shall
control every other provision of all agreements between the Obligor and the
Agent.

 

9.11       Confidentiality

 

The Agent, the Issuer and the Lenders agree to maintain the
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to their respective (and their respective Affiliates’)
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential in accordance
with the terms of this Agreement, (b) to the extent requested by any
regulatory authority or self-regulatory body, (c) to the extent required
by applicable laws or regulations or by any subpoena or similar legal process, (d) to
any other party to this Agreement, (e) in connection with the exercise of
any remedies hereunder or any suit, action or proceeding relating to this
Agreement or the enforcement of rights hereunder, (f) with the consent of
the Obligor or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Clause 9.11.  For the purposes of this Clause 9.11, “information”
means all information received by the Agent, the Issuer and the Lenders
relating to the Parent or Obligor or any Subsidiary of the Parent or Obligor or
their respective businesses, other than any such information that is available
to the Agent, the Issuer and the Lenders on a non-confidential basis prior to
disclosure by the Parent or Obligor.  Any
Person required to maintain the confidentiality of Information as provided in
this Clause 9.11 shall be considered to have complied with its obligation to do
so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information or the Agent, the Issuer and the Lenders have treated
such Information in a manner consistent with banking industry standards for the
treatment of confidential information. 
Notwithstanding anything herein to the contrary, each party to this
Agreement (and any employee, representative or other agent of each such party)
may disclose to any and all Persons, without limitation of any kind, the U.S.
federal income tax treatment and the U.S. federal income tax structure of the
transactions contemplated

 

62

 

hereby and all materials of any kind (including opinions or other tax
analyses) that are provided to it relating to such tax treatment and tax
structure.  However, no disclosure of any
information relating to such tax treatment or tax structure may be made to the
extent nondisclosure is reasonably necessary in order to comply with applicable
securities laws.  The provisions of this
Clause 9.11 shall survive the Facility Termination Date and the Letter of
Credit Obligations hereunder.

 

9.12       Table of Contents and Captions

 

The Table of Contents hereof and captions herein are included for convenience
of reference only and shall not constitute a part of this Agreement for any
other purpose.

 

9.13       Integration

 

This Agreement is intended by the parties as the final, complete and
exclusive statement of the transactions evidenced by this Letter of Credit and
Reimbursement Agreement.  All prior or
contemporaneous promises, agreements and understandings, whether oral or
written, are deemed to be superseded by this Agreement, and no party is relying
on any promise, agreement or understanding not set forth in this Agreement. 

 

9.14       Counterparts

 

This Agreement may be executed in multiple counterparts each of which
shall be an original and all of which when taken together shall constitute but
one and the same Agreement.

 

63

 

IN WITNESS WHEREOF,
the parties have caused this Agreement to be duly executed and delivered by
their respective officers, as an instrument under seal, as of the date first
above written.

 

 

	
  ARCH REINSURANCE LTD.,
  as Obligor

  
	
   

  
	
  By:

  
	
   

  
	
  Name:

  
	
   

  
	
  Title:

  
	
   

  
	
   

  
	
  BARCLAYS BANK PLC,
  as Issuer and Agent

  
	
   

  
	
  By:

  
	
   

  
	
  Name:

  
	
   

  
	
  Title:

  

 

64EXHIBIT 10.1

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT is made as of the 30th
of April, 2004, by and between FIRST BANK OF HENRY COUNTY (the “Bank”) a bank
organized under the laws of the State of Georgia, and J. RANDALL DIXON, a
resident of the State of Georgia (the “Executive”).

 

RECITALS:

 

The Bank
employs the Executive as Chief Executive Officer and President of the Bank
pursuant to that certain employment agreement dated as of January 28, 2002 (the
“Employment Agreement”).

 

The parties to
the Employment Agreement desire to amend and restate the Employment Agreement
on the terms and conditions set forth herein.

 

In
consideration of the above premise and the mutual agreements hereinafter set
forth, the parties hereby agree as follows:

 

1.             Definitions.
Whenever used in this Agreement, the following terms and their variant forms
together with any amendments hereto made in the manner described in this
Agreement.

 

1.1          “Agreement” shall mean this
Agreement and any exhibits incorporated herein together with any amendments
hereto made in the manner described in this Agreement.

 

1.2          “Area” shall mean the geographic
area within the boundaries of Henry County, Georgia. It is the express intent
of the parties that the Area as defined herein is the area where the Executive
performs or performed services on behalf of the Bank under this Agreement.

 

1.3          “Bank Information” means
Confidential Information and Trade Secrets.

 

1.4          “Business of the Bank” shall mean
the business conducted by the Bank, which is the business of commercial
banking.

 

1.5          “Cause” shall mean:

 

1.5.1        With
respect to termination by the Bank:

 

(a)           A
material breach of the terms of this Agreement by the Executive, including,
without limitations, failure by the Executive to perform his duties and
responsibilities in the manner and to the extent required under this Agreement,
which remains uncured after the expiration of thirty (30) days following the
delivery of written notice of such breach to the Executive by the Bank. Such
notice shall (i) specifically identify the duties that the Board of Directors
of the Bank believes the Executive has failed to perform, (ii) state the facts
upon which 

 

1

 

the Board of Directors made such determination, and (iii) be approved by
a resolution passed by two-thirds (2/3) of the directors then in office;

 

(b)           Conduct
by the Executive that amounts to fraud, dishonesty or willful misconduct in the
performance of his duties, and responsibilities hereunder;

 

(c)           Arrest
for, charged in relation to (by criminal information, indictment or otherwise),
or conviction of the Executive during the Term of this Agreement of a crime
involving breach of trust or moral turpitude or any felony;

 

(d)           Conduct
by the Executive that amounts to gross and willful insubordination or
inattention to his duties and responsibilities hereunder; or

 

(e)           Conduct
by the Executive that results in an attempt to remove the Executive from his
position as an officer or executive of the Bank pursuant to a written order by any
regulatory agency with authority or jurisdiction over the Bank.

 

1.5.2        With
respect to termination by the Executive,

 

(a)           a
material diminution in the powers, responsibilities or duties of the Executive
hereunder;

 

(b)           a
material breach of the terms of this Agreement by the Bank, which remains
uncured after the expiration of thirty (30) days following the delivery of
written notice of such breach to the Bank by the Executive; or

 

(c)           following
a Change of Control,

 

(i)            a
material reduction in the rate of the Executive’s Base Salary in effect as of
the effective date of the Change of Control;

 

(ii)           a
change in the Executive’s principal business office location such that the
Executive is required to report regularly to a location which is located more
than thirty (30) miles from the Bank’s principal business office located in
McDonough, Georgia.

 

1.6          “Change of Control” means any one of
the following events:

 

(a)           the
acquisition by any person or persons acting in concert of the then outstanding
voting securities of the Bank, if, after the transaction, the acquiring person
(or persons) owns, controls or holds, with power to vote forty percent (40%) or
more of any class of voting securities of the Bank;

 

(b)           within
any twelve-month period (beginning on or after the Effective Date) the persons
who were directors of the Bank immediately before the beginning of such 

 

2

 

twelve-month period (the “Incumbent Directors”) shall cease to
constitute at least a majority of the Board of Directors; provided that any
director who was not a director as of the Effective Date shall be deemed to be
an Incumbent Director if that director were elected to the Board of Directors
by, or on the recommendation of or with the approval of, at least two-thirds
(2/3) of the directors who then qualify as Incumbent Directors; and provided
further that no director whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of
directors shall be deemed to be an Incumbent Director;

 

(c)           a
reorganization, merger or consolidation, with respect to which persons who were
the stockholders of the Bank immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors of the reorganized, merged or consolidated company’s then outstanding
voting securities; or

 

(d)           the
sale, transfer or assignment of all or substantially all of the assets of the
Bank to any third party.

 

1.7          “Confidential Information” means
data and information relating to the business of the Bank (which does not rise
to the status of a Trade Secret) which is or has been disclosed to the Executive
or of which the Executive became aware as a consequence of or through the
Executive’s relationship to the Bank and which has value to the Bank and is not
generally known to its competitors. Confidential Information shall not include
any data or information that has been voluntarily disclosed to the public by
the Bank (except where such public disclosure has been made by the Executive
without authorization) or that has been independently developed and disclosed
by others, or that otherwise enters the public domain through lawful means.

 

1.8          “Disability” shall mean the
inability of the Executive to perform each of his material duties under this
Agreement for the duration of the short-term disability period under the Bank’s
policy then in effect (or, if no such policy is in effect, a period of 180
consecutive days) as certified by a physician chosen by the Bank and reasonably
acceptable to the Executive.

 

1.9          “Effective Date” shall mean the date
set forth above on which the Agreement is executed.

 

1.10        “Initial Term” shall mean that
period of time commencing on the Effective Date and running until the earlier
of the close of business on the last business day immediately preceding the
fourth anniversary of the Effective Date or any earlier termination of employment
of the Executive under this Agreement as provided for in Section 3.

 

1.11        “Term” shall mean the Initial Term
and all subsequent renewal periods.

 

1.12        “Trade Secrets” means Bank
information including, but not limited to, technical or nontechnical data,
formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, product plans or lists of
actual or potential customers or suppliers which:

 

3

 

(a)           derives
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and

 

(b)           is
the subject of efforts that are reasonable under the circumstances to maintain
its secrecy.

 

2.             Duties.

 

2.1          Position.
The Executive is employed as the Chief Executive Officer and President, subject
to the direction of the Board of Directors of the Bank or its designee(s), and
shall perform and discharge well and faithfully the duties which may be
assigned to him from time to time by the Bank in connection with the conduct of
its business. The duties and responsibilities of the Executive are set forth on
Exhibit A attached hereto.

 

2.2          Full-Time
Status. In addition to the duties and responsibilities specifically
assigned to the Executive pursuant to Section 2.1 hereof, the Executive shall:

 

(a)           devote
substantially all of his time, energy and skill during regular business hours
to the performance of the duties of his employment (reasonable vacations and
reasonable absences due to illness excepted) and faithfully and industriously
perform such duties;

 

(b)           diligently
follow and implement all reasonable and lawful management policies and decisions
communicated to him by the Board of Directors of the Bank; and

 

(c)           timely
prepare and forward to the Board of Directors of the Bank all reports and
accountings as may be requested of the Executive.

 

2.3          Permitted
Activities. The Executive shall devote his entire business time,
attention and energies to the Business of the Bank and shall not during the
Term be engaged (whether or not during normal business hours) in any other
business or professional activity, whether or not such activity is pursued for
gain, profit or other pecuniary advantage; but this shall not be construed as
preventing the Executive from:

 

(a)           investing
his personal assets in businesses which (subject to clause (b) below) are not
in competition with the Business of the Bank and which will not require any
services on the part of the Executive in their operation or affairs and in
which his participation is solely that of an investor;

 

(b)           purchasing
securities in any corporation whose securities are regularly traded provided
that such purchase shall not result in him collectively owning beneficially at
any time five percent (5%) or more of the equity securities of any business in
competition with the Business of the Bank; and

 

4

 

(c)           participating
in civic and professional affairs and organizations and conferences, preparing
or publishing papers or books or teaching so long as the Board of Directors of
the Bank approves of such activities prior to the Executive’s engaging in them.

 

3.             Term
and Termination.

 

3.1          Term.
This Agreement shall remain in effect for the Initial Term. At the end of the
Initial Term and at the end of each twelve-month extension thereof, this
Agreement shall automatically be extended for a successive twelve-month period
unless either party gives written notice to the other of its or his intent not
to extend this Agreement with such written notice to be given not less than
sixty (60) days prior to the end of the Initial Term or such twelve-month
period. In the event such notice of non-extension is properly given, this
Agreement shall terminate at the end of the remaining Term then in effect.

 

3.2          Termination.
During the Term, the employment of the Executive under this Agreement may be
terminated only as follows:

 

3.2.1        By
the Bank:

 

(a)           For
Cause, upon written notice to the Executive pursuant to Section 1.5.1 hereof,
in which event the Bank shall have no further obligation to the Executive
except for the payment of any amounts due and owing under Section 4 on the effective
date of termination;

 

(b)           Without
Cause at any time, provided that the Bank shall give the Executive thirty (30)
days’ prior written notice of its intent to terminate, in which event the Bank
shall be required to continue to meet its obligations to the Executive under
Section 4.1 for thirty-six (36) months following the effective date of
termination; or

 

(c)           Upon
the Disability of the Executive at any time, provided that the Bank shall give
the Executive thirty (30) days’ prior written notice of its intent to
terminate, in which event, the Bank shall be required to continue to meet its
obligations under Section 4.1 for thirty-six (36) months following the
effective date of termination or until the Executive begins receiving payments
under the Bank’s long-term disability policy, whichever occurs first.

 

3.2.2        By
the Executive:

 

(a)           For
Cause, in which event the Bank shall be required to continue to meet its
obligations to the Executive under Section 4.1 for thirty-six (36) months
following the effective date of termination; or

 

(b)           Without
Cause or upon the Disability of the Executive, provided that the Executive
shall give the Bank sixty (60) days’ prior written notice of his 

 

5

 

intent to terminate, in which event the Bank shall have no further
obligation to the Executive except for the payment of any amounts due and owing
under Section 4 on the effective date of the termination.

 

3.2.3        At
any time upon mutual, written agreement of the parties, in which event the Bank
shall have no further obligation to the Executive except for the payment of any
amounts due and owing under Section 4 of this Agreement on the effective date
of termination unless otherwise set forth in the written agreement.

 

3.2.4        Notwithstanding
anything in this Agreement to the contrary, the Term shall end automatically
upon the Executive’s death, in which event the Bank shall have no further
obligation to the Executive except for the payment of any amounts due and owing
under Section 4 on the effective date of termination.

 

3.3          Change
of Control. If, within twelve (12) months following a Change of
Control, the Executive terminates his employment with the Bank under this
Agreement for Cause or the Bank terminates Executive’s employment without
Cause, the Executive, or in the event of his subsequent death, his designated
beneficiaries or his estate, as the case may be, shall receive, as liquidated
damages, in lieu of all other claims, a severance payment equal to three (3)
times the Executive’s then current Base Salary, to be paid in full on the last
day of the month following the date of termination. In no event shall the
payment(s) described in this Section 3.3 exceed the amount permitted by Section
280G of the Internal Revenue Code, as amended (the “Code”). Therefore, if the
aggregate present value (determined as of the date of the Change of Control in
accordance with the provisions of Section 280G of the Code) of both the
severance payment and all other payments to the Executive in the nature of
compensation which are contingent on a change in ownership or effective control
of the Bank or in the ownership of a substantial portion of the assets of the
Bank (the “Aggregate Severance”) would result in a “parachute payment,” as
defined under Section 280G of the Code, then the Aggregate Severance shall not
be greater than an amount equal to 2.99 multiplied by Executive’s “base amount”
for the “base period,” as those terms are defined under Section 280G. In the
event the Aggregate Severance is required to be reduced pursuant to this
Section 3.3, the Executive shall be entitled to determine which portion of the
Aggregate Severance is reduced so that the Aggregate Severance satisfies the
limit set forth in the preceding sentence. Notwithstanding any provision in
this Agreement, if the Executive may exercise his right to terminate employment
under this Section 3.3 or under Section 3.2.2(a), the Executive may choose
which provision shall be applicable.

 

4.             Compensation.
The Executive shall receive the following salary and benefits:

 

4.1          Base
Salary. The Executive shall be compensated at an annual base rate of
$150,000.(the “Base Salary”). The Executive’s Base Salary shall be reviewed by
the Board of Directors of the Bank at least annually, and the Executive shall
be entitled to receive annually an increase in such amount, if any, as may be
determined by the Board of Directors based on its evaluation of Executive’s
performance. Base Salary shall be payable in accordance with the Bank’s normal
payroll practices.

 

6

 

4.2          Incentive
Compensation.

 

(a)           Cumulative Profitability Bonus. At
such time as the Bank becomes cumulatively profitability for a period of three
(3) consecutive months, the Executive shall be eligible to receive a one-time
bonus equal to $15,000 (the “Cumulative Profitability Bonus”), subject to the
Board of Directors’ evaluation of the Executive’s performance.

 

(b)           Annual Profitability Bonus. Beginning
with the calendar year following the calendar year in which the Cumulative
Profitability Bonus is paid under Subsection (a), the Executive shall be
eligible to receive annual bonus compensation based upon fiscal year-end net
income of the Bank as follows:

 

	
  Bonus Levels

  	
   

  	
  Stock Options

  	
   

  	
  Fiscal Year-End

  Net Income of Bank

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10% of
  annual salary plus

  	
   

  	
  2,000

  	
   option

  	
   

  	
  At least
  $200,000 but less than $500,000

  
	
  20% of
  annual salary plus

  	
   

  	
  4,000

  	
   options

  	
   

  	
  At least
  $500,000 but less than $800,000

  
	
  30% of
  annual salary plus

  	
   

  	
  6,000

  	
   options

  	
   

  	
  At least
  $800,000 but less than $1,200,000

  
	
  40% of
  annual salary plus

  	
   

  	
  8,000

  	
   options

  	
   

  	
  At least
  $1,200,000 but less than $1,500,000

  
	
  50% of
  annual salary plus

  	
   

  	
  10,000

  	
   options

  	
   

  	
  At least
  $1,500,000 but less than $2,000,000

  
	
  60% of
  annual salary plus

  	
   

  	
  12,000

  	
   options

  	
   

  	
  At least
  $2,000,000 but less than $2,600,000

  
	
  70% of
  annual salary plus

  	
   

  	
  14,000

  	
   options

  	
   

  	
  Equal to or
  more than $2,600,000

  

 

The stock
options will be granted under the First Bank of Henry County 2000 Stock
Incentive Plan and will be subject to the terms of a separate stock option
agreement.

 

(c)           Discretionary Bonus. The Executive
shall be eligible for additional bonus payments at the discretion of the Board
of Directors of the Bank based on its evaluation of the Executive’s performance.
The factors that the Board of Directors will consider in determining the amount
of any additional bonus include, but are not limited to, the Bank’s
profitability, earnings growth and quality of assets (measured by the results
of regulatory examinations).

 

No bonuses
will be paid under this Section 4.2 if the Bank does not have a CAMELS of 1 or
2 for the period to which the bonus relates or if the Bank is subject to any
active regulatory investigation for the time period to which the bonus relates,
excluding routine regulatory exams.

 

4.3          Stock
Options. For each year during the Term, the Executive will be entitled
to receive an option to purchase 2,500 shares of the Bank’s common stock. The
options described in this Section will be granted pursuant to the First Bank of
Henry County 2000 Stock Incentive Plan as of each anniversary date of the
Effective Date. The stock options will be subject to the terms of a separate
stock option agreement.

 

4.4          Health
Insurance. The Bank shall reimburse the Executive for the cost of
premium payments paid by the Executive for the Executive’s current health and
dental insurance covering the Executive and the members of his immediate
family.

 

7

 

4.5          Automobile.
Beginning as of the Effective Date, The Bank will provide the Executive with an
automobile to be use by the Executive for Business and personal purposes. The
make and model of the automobile shall be determined by the Bank which will be
commensurate with the position. The Bank will pay expenses associated with the
operation, maintenance, repair and insurance for the automobile.

 

4.6          Business
Expenses; Memberships. The Bank specifically agrees to reimburse the
Executive for:

 

(a)           Reasonable
and necessary business (including travel) expenses incurred by the Executive in
the performance of his duties as approved by the Board of Directors of the Bank
or their designee; and

 

(b)           Reasonable
dues and business related expenditures, including initiation fees, associated
with memberships, as selected by the Executive, in a single country club and in
professional associations which are commensurate with his position;

 

provided; however, that the
Executive shall, as a condition of any reimbursement, submit verification of
the nature and amount of such expenses in accordance with reimbursement
policies from time to time adopted by the Bank and in sufficient detail to
comply with rules and regulations promulgated by the Internal Revenue Service.

 

4.7          Vacation.
On a non-cumulative basis, the Executive shall be entitled to five (5) weeks of
vacation in each successive twelve-month period during the Term, during which
his compensation shall be paid in full.

 

4.8          Life
Insurance. The Bank will provide the Executive with term life insurance
coverage providing a death benefit of not less than $200,000.00, payable to
such beneficiary or beneficiaries as the Executive may designate. If the term
life insurance cannot be obtained from the insurer with a standard or better
risk classification, the Bank shall not be obligated to provide such insurance
coverage.

 

4.9          Benefits.
In addition to the benefits specifically described in this Agreement, the
Executive shall be entitled to such benefits as may be available from time to
time to executives of the Bank similarly situated to the Executive. All such
benefits shall be awarded and administered in accordance with the Bank’s
standard policies and practices. Such benefits may include, by way of example
only, profit-sharing plans, retirement or investment funds, dental, health,
life and disability insurance benefits and such other benefits as the Bank
deems appropriate.

 

4.10        Withholding.
The Bank may deduct from each payment of compensation hereunder all amounts
required to be deducted and withheld in accordance with applicable federal and
state income, FICA and other withholding requirements.

 

8

 

5.             Bank
Information.

 

5.1          Ownership
of Bank Information. All Bank Information received or developed by the
Executive while employed by the Bank will remain the sole and exclusive
property of the Bank.

 

5.2          Obligations
of the Executive. The Executive agrees:

 

(a)           to
hold Bank Information in strictest confidence;

 

(b)           not
to use; duplicate, reproduce, distribute, disclose or otherwise disseminate
Bank Information or any physical embodiments of Bank Information; and

 

(c)           in
any event, not to take any action causing or fail to take any action necessary
in order to prevent any Bank Information from losing its character or ceasing
to qualify as Confidential Information or Trade Secrets.

 

In the event that the Executive
is required by law to disclose any Bank Information, the Executive will not
make such disclosure unless (and then only to the extent that) the Executive
has been advised by independent legal counsel that such disclosure is required
by law and then only after prior written notice is given to the Bank when the
Executive becomes aware that such disclosure has been requested and is required
by law. This Section 5 shall survive for a period of twelve (12) months
following termination of this Agreement for any reason with respect to
Confidential Information, and shall survive termination of this Agreement for
any reason for so long as is permitted by applicable law, with respect to Trade
Secrets.

 

5.3          Delivery
upon Request or Termination. Upon request by the Bank, and in any event
upon termination of his employment with the Bank, the Executive will promptly
deliver to the Bank all property belonging to the Bank, including, without
limitation, all Bank Information then in his possession or control.

 

6.             Non-Competition.
The Executive agrees that during his employment by the Bank hereunder and, in
the event of his termination:

 

•      by
the Bank for Cause pursuant to Section 3.2.1(a),

•      by
the Executive without Cause pursuant to Section 3.2.2(b), or

•      by
the Executive in connection with a Change of Control pursuant to Section 3.3,

 

for a period of six (6) months
thereafter, he will not (except on behalf of or with the prior written consent
of the Bank), within the Area, either directly or indirectly, on his own behalf
or in the service of others, as an executive employee or in any other capacity
which involves duties and responsibilities similar to those undertaken for the
Bank (including as an organizer or proposed executive officer of a new
financial institution), engage in any business which is the same as or
essentially the same as the Business of the Bank.

 

7.             Non-Solicitation
of Customers. The Executive agrees that during his employment by the
Bank hereunder and in the event of his termination:

 

9

 

•      by
the Bank for Cause pursuant to Section 3.2.1(a),

•      by
the Executive without Cause pursuant to Section 3.2.2(b), or

•      by
the Executive in connection with a Change of Control pursuant to Section 3.3;

 

for a period of six (6) months
thereafter, he will not (except on behalf of or with the prior written consent
of the Bank), within the Area, on his own behalf or in the service of or on
behalf of others, solicit, divert or appropriate or attempt to solicit, divert
or appropriate, any business from any of the Bank’s customers, including
actively sought prospective customers, with whom the Executive has or had
material contact during the last one (1) year of his employment, for purposes
of providing products or services that are competitive with those provided by
the Bank.

 

8.             Non-Solicitation
of Employees. The Executive agrees that during his employment by the
Bank hereunder and, in the event of his termination:

 

•      by
the Bank for Cause pursuant to Section 3.2.1(a),

•      by
the Executive without Cause pursuant to Section 3.2.2(b), or

•      by
the Executive in connection with a Change of Control pursuant to Section 3.3,

 

for a period of six 6), months
thereafter, he will not, within the Area, on his own behalf or in the service
or on behalf of others, solicit, recruit or hire away or attempt to solicit,
recruit or hire away, any employee of the Bank, whether or not:

 

•      such
employee is a full-time employee or a temporary employee of the Bank,

•      such
employment is pursuant to written agreement, or

•      such
employment is for a determined period or is at will.

 

9.             Remedies.
The Executive agrees that the covenants contained in Sections 5 through 8 of
this Agreement are of the essence of this Agreement; that each of the covenants
is reasonable and necessary to protect the business, interests and properties
of the Bank, and that irreparable loss and damage will be suffered by the Bank
should he breach any of the covenants. Therefore, the Executive agrees and
consents that, in addition to all the remedies provided by law or in equity,
the Bank shall be entitled to a temporary restraining order and temporary and
permanent injunctions to prevent a breach or contemplated breach of any of the
covenants. The Bank and the Executive agree that all remedies available to the
Bank or the Executive, as applicable, shall be cumulative.

 

10.          Severability.
The parties agree that each of the provisions included in this Agreement is
separate, distinct and severable from the other provisions of this Agreement
and that the invalidity or unenforceability of any Agreement provision shall
not affect the validity or enforceability of any other provision of this
Agreement. Further, if any provision of this Agreement is ruled invalid or
unenforceable by a court of competent jurisdiction because of a conflict
between the provision and any applicable law or public policy, the provision
shall be redrawn to make the provision consistent with and valid and
enforceable under the law or public policy.

 

10

 

11.          No
Set-Off by the Executive. The existence of any claim, demand, action or
cause of action by the Executive against the Bank whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Bank of any of its rights hereunder.

 

12.          Notice.
All notices and other communications required or permitted under this Agreement
shall be in writing and, if mailed by prepaid first-class mail or certified
mail, return receipt requested, shall be deemed to have been received on the
earlier of the date shown on the receipt or three (3) business days after the
postmarked date thereof. In addition, notices hereunder may be delivered by
hand or overnight courier, in which event the notice shall be deemed effective
when delivered. All notices and other communications under this Agreement shall
be given to the parties hereto at the following addresses:

 

(i)            If
to the Bank, to it at:

 

First Bank of
Henry County

120 Keys Ferry
Street

McDonough,
GA  30253

Attention:  James T. Chaffin, III

 

(ii)           If
to the Executive, to him at:

 

His current
place of residence.

 

13.          Assignment.
Neither party hereto may assign or delegate this Agreement or any of its rights
and obligations hereunder without the written consent of the other party to
this Agreement.

 

14.          Waiver.
A waiver by one party to this Agreement of any breach of this Agreement by the
other party to this Agreement shall not be effective unless in writing, and no
waiver shall operate or be construed as a waiver of the same or another breach
on a subsequent occasion.

 

15.          Arbitration.
Any controversy or claim arising out of or relating to this contract, or the
breach thereof, shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Judgment
upon the award rendered by the arbitrator may be entered only in a state court
of Henry County or the federal court for the Northern District of Georgia. The
Bank and the Executive agree to share equally the fees and expenses associated
with the arbitration proceedings.

 

16.          Attorney’s
Fees. In the event that the parties have complied with this Agreement
with respect to arbitration of disputes and litigation ensues between the
parties concerning the enforcement of an arbitration award, the party
prevailing in such litigation shall be entitled to receive from the other party
all reasonable costs and expenses, including without limitation attorneys’
fees, incurred by the prevailing party in connection with such litigation, and
the other party shall pay such costs and expenses to the prevailing party
promptly upon demand by the prevailing party.

 

11

 

17.          Applicable
Law. This Agreement shall be construed and enforced under and in
accordance with the laws of the State of Georgia.

 

18.          Interpretation.
Words importing any gender include all genders. Words importing the singular
form shall include the plural and vice versa. The terms “herein,” “hereunder,” “hereby,”
“hereto,” “hereof” and any similar terms refer to this Agreement. Any captions,
titles or headings preceding the text of any article, section or subsection
herein are solely for convenience of reference and shall not constitute part of
this Agreement or affect its meaning, construction or effect.

 

19.          Entire
Agreement. This Agreement embodies the entire and final agreement of
the parties on the subject matter stated in this Agreement. No amendment or
modification of this Agreement shall be valid or binding upon the Bank or the
Executive unless made in writing and signed by both parties. All prior
understandings and agreements relating to the subject matter of this Agreement
are hereby expressly terminated.

 

20.          Rights
of Third Parties. Nothing herein expressed is intended to or shall be
construed to confer upon or give to any person, firm or other entity, other
than the parties hereto and their permitted assigns, any rights or remedies
under or by reason of this Agreement.

 

21.          Survival.
The obligations of the Executive pursuant to Sections 5, 6, 7, 8 and 9 shall
survive the termination of the employment of the Executive hereunder for the
period designated under each of those respective Sections.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

12

 

IN WITNESS
WHEREOF, the Bank and the Executive have executed and
delivered this Agreement as of the first shown above.

 

	
   

  	
  THE BANK

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FirstBank
  of Henry County

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Print
  Name: 

  	
  Don H.
  Cagle

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
       Chairman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE
  EXECUTIVE:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  J.
  Randall Dixon

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Witness /
  Notary Public

  	
   

  	
   

  
							

 

13

 

Exhibit A

 

Initial Duties of the Executive

 

The
initial duties of the Executive shall include, in addition to any other duties
assigned the Executive by the Board of Directors of the Bank or its
designee(s), the following:

 

	
  •

  	
   

  	
  Foster a
  corporate culture that promotes ethical practices, encourages individual
  integrity, fulfills social responsibility, and is conducive to attracting,
  retaining and motivating a diverse group of top-quality employees at all
  levels.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Keep the
  Board of Directors of the Bank or its designee(s) well informed of the financial
  condition and status of the Bank,

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Support
  and manage other Senior Management members to develop an effective management
  team and to implement an active plan for its development.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Work
  with the Board of Directors to develop a long-term strategy that creates
  shareholder value.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Develop
  and recommend to the Board annual business plans and budgets that support the
  Bank’s long-term strategy.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Manage
  the day to day business affairs of the Bank appropriately.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Use best
  efforts to achieve the Bank’s financial and operating goals and objectives.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Use best
  efforts to improve the quality and value of the products and services
  provided by the Bank.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Use best
  efforts to ensure that the Bank maintains a satisfactory competitive position
  within its industry.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Develop
  an effective management team and an active plan for its development and
  succession, and make recommendations to the Board regarding hiring, firing
  and compensation.

  
	
   

  	
   

  	
   

  
	
  •

  	
   

  	
  Implement
  major corporate policies.

  

 

1

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