Exhibit 10.40

 

 

CREDIT AGREEMENT

 

BETWEEN

 

GAINSCO, INC.,
AS BORROWER,

 

AND

 

THE FROST NATIONAL BANK,
AS LENDER

 

SEPTEMBER 30, 2005

 

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

Section

 

 

 

 

 

 

 

 

ARTICLE I

 

DEFINITIONS

 

1.1

 

Definitions

 

1.2

 

Additional Definitions

 

1.3

 

Construction

 

 

 

 

 

ARTICLE II

 

ADVANCE LOANS

 

2.1

 

Advance Loans

 

2.2

 

Advance Borrowings

 

2.3

 

Repayment

 

2.4

 

Mandatory Prepayments

 

2.5

 

Voluntary Prepayments

 

2.6

 

Termination and Reduction of Advance Commitment

 

2.7

 

Interest on Advance Loans Generally

 

2.8

 

Computations

 

2.9

 

Interest After an Event of Default

 

2.10

 

Late Charge

 

2.11

 

Payments Generally

 

2.12

 

Booking the Advance Loans

 

2.13

 

Collateral

 

 

 

 

 

ARTICLE III

 

TAXES, YIELD PROTECTION AND ILLEGALITY

 

3.1

 

Taxes

 

3.2 [a05-17257_1ex10d40.htm#a3_2_122153]

 

Illegality [a05-17257_1ex10d40.htm#a3_2_122153]

 

3.3 [a05-17257_1ex10d40.htm#a3_3_122157]

 

Inability to Determine Rates [a05-17257_1ex10d40.htm#a3_3_122157]

 

3.4 [a05-17257_1ex10d40.htm#a3_4_122203]

 

Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Rate
Loans [a05-17257_1ex10d40.htm#a3_4_122203]

 

3.5 [a05-17257_1ex10d40.htm#a3_5_122209]

 

Matters Applicable to all Requests for Compensation
[a05-17257_1ex10d40.htm#a3_5_122209]

 

3.6 [a05-17257_1ex10d40.htm#a3_6_122212]

 

Survival [a05-17257_1ex10d40.htm#a3_6_122212]

 

 

 

 

 

ARTICLE IV [a05-17257_1ex10d40.htm#ArticleIvConditionsPrecedent_122217]

 

CONDITIONS PRECEDENT
[a05-17257_1ex10d40.htm#ArticleIvConditionsPrecedent_122217]

 

4.1 [a05-17257_1ex10d40.htm#a4_1_122221]

 

Conditions Precedent to Initial Advance Loan
[a05-17257_1ex10d40.htm#a4_1_122221]

 

4.2 [a05-17257_1ex10d40.htm#a4_2_122235]

 

Conditions Precedent to all Advance Loans [a05-17257_1ex10d40.htm#a4_2_122235]

 

 

 

 

 

ARTICLE V [a05-17257_1ex10d40.htm#ArticleVAffirmativeCovenants_122243]

 

AFFIRMATIVE COVENANTS
[a05-17257_1ex10d40.htm#ArticleVAffirmativeCovenants_122243]

 

5.1 [a05-17257_1ex10d40.htm#a5_1_122248]

 

General Covenants [a05-17257_1ex10d40.htm#a5_1_122248]

 

5.2 [a05-17257_1ex10d40.htm#a5_2_122255]

 

Accounts, Reports and Other Information [a05-17257_1ex10d40.htm#a5_2_122255]

 

5.3 [a05-17257_1ex10d40.htm#a5_3_122314]

 

Inspection [a05-17257_1ex10d40.htm#a5_3_122314]

 

5.4 [a05-17257_1ex10d40.htm#a5_4_122317]

 

Compliance with ERISA [a05-17257_1ex10d40.htm#a5_4_122317]

 

5.5 [a05-17257_1ex10d40.htm#a5_5_122318]

 

Performance of Obligations [a05-17257_1ex10d40.htm#a5_5_122318]

 

5.6 [a05-17257_1ex10d40.htm#a5_6_122320]

 

Maintenance of Priority of Bank Liens [a05-17257_1ex10d40.htm#a5_6_122320]

 

5.7 [a05-17257_1ex10d40.htm#a5_7_122322]

 

Indemnity [a05-17257_1ex10d40.htm#a5_7_122322]

 

 

 

 

 

ARTICLE VI [a05-17257_1ex10d40.htm#ArticleViNegativeCovenants_122329]

 

NEGATIVE COVENANTS [a05-17257_1ex10d40.htm#ArticleViNegativeCovenants_122329]

 

6.1 [a05-17257_1ex10d40.htm#a6_1_122333]

 

Total Adjusted Capital [a05-17257_1ex10d40.htm#a6_1_122333]

 

6.2 [a05-17257_1ex10d40.htm#a6_2_122337]

 

Combined Ratio [a05-17257_1ex10d40.htm#a6_2_122337]

 

 

--------------------------------------------------------------------------------

 

6.3 [a05-17257_1ex10d40.htm#a6_3_122339]

 

Fixed Charges Coverage Ratio [a05-17257_1ex10d40.htm#a6_3_122339]

 

6.4 [a05-17257_1ex10d40.htm#a6_4_122342]

 

Consolidated Net Worth [a05-17257_1ex10d40.htm#a6_4_122342]

 

6.5 [a05-17257_1ex10d40.htm#a6_5_122344]

 

Dividends [a05-17257_1ex10d40.htm#a6_5_122344]

 

6.6 [a05-17257_1ex10d40.htm#a6_6_122349]

 

Limitation on Debt [a05-17257_1ex10d40.htm#a6_6_122349]

 

6.7 [a05-17257_1ex10d40.htm#a6_7_122351]

 

Limitation on Liens [a05-17257_1ex10d40.htm#a6_7_122351]

 

6.8 [a05-17257_1ex10d40.htm#a6_8_122353]

 

Burdensome Agreements [a05-17257_1ex10d40.htm#a6_8_122353]

 

6.9 [a05-17257_1ex10d40.htm#a6_9_122355]

 

Disposition of Assets [a05-17257_1ex10d40.htm#a6_9_122355]

 

6.10 [a05-17257_1ex10d40.htm#a6_10_122356]

 

Acquisition of Assets [a05-17257_1ex10d40.htm#a6_10_122356]

 

6.11 [a05-17257_1ex10d40.htm#a6_11_122400]

 

Merger and Consolidation [a05-17257_1ex10d40.htm#a6_11_122400]

 

6.12 [a05-17257_1ex10d40.htm#a6_12_122403]

 

Loans and Investments [a05-17257_1ex10d40.htm#a6_12_122403]

 

6.13 [a05-17257_1ex10d40.htm#a6_13_122412]

 

ERISA [a05-17257_1ex10d40.htm#a6_13_122412]

 

6.14 [a05-17257_1ex10d40.htm#a6_14_122414]

 

Assignment [a05-17257_1ex10d40.htm#a6_14_122414]

 

6.15 [a05-17257_1ex10d40.htm#a6_15_122420]

 

Transactions with Affiliates [a05-17257_1ex10d40.htm#a6_15_122420]

 

6.16 [a05-17257_1ex10d40.htm#a6_16_122423]

 

Business [a05-17257_1ex10d40.htm#a6_16_122423]

 

6.17 [a05-17257_1ex10d40.htm#a6_17_122425]

 

Preferred Stock [a05-17257_1ex10d40.htm#a6_17_122425]

 

6.18 [a05-17257_1ex10d40.htm#a6_18_122428]

 

Use of Proceeds [a05-17257_1ex10d40.htm#a6_18_122428]

 

 

 

 

 

ARTICLE VII [a05-17257_1ex10d40.htm#ArticleViiRepresentationsAndWarra_122431]

 

REPRESENTATIONS AND WARRANTIES
[a05-17257_1ex10d40.htm#ArticleViiRepresentationsAndWarra_122431]

 

7.1 [a05-17257_1ex10d40.htm#a7_1_122436]

 

Organization and Qualification [a05-17257_1ex10d40.htm#a7_1_122436]

 

7.2 [a05-17257_1ex10d40.htm#a7_2_122439]

 

Authorization; Validity [a05-17257_1ex10d40.htm#a7_2_122439]

 

7.3 [a05-17257_1ex10d40.htm#a7_3_122444]

 

Financial Statements [a05-17257_1ex10d40.htm#a7_3_122444]

 

7.4 [a05-17257_1ex10d40.htm#a7_4_122447]

 

Compliance With Laws and Other Matters [a05-17257_1ex10d40.htm#a7_4_122447]

 

7.5 [a05-17257_1ex10d40.htm#a7_5_122449]

 

Litigation [a05-17257_1ex10d40.htm#a7_5_122449]

 

7.6 [a05-17257_1ex10d40.htm#a7_6_122451]

 

Debt [a05-17257_1ex10d40.htm#a7_6_122451]

 

7.7 [a05-17257_1ex10d40.htm#a7_7_122453]

 

Title to Properties [a05-17257_1ex10d40.htm#a7_7_122453]

 

7.8 [a05-17257_1ex10d40.htm#a7_8_122459]

 

Taxes [a05-17257_1ex10d40.htm#a7_8_122459]

 

7.9 [a05-17257_1ex10d40.htm#a7_9_122501]

 

Use of Proceeds [a05-17257_1ex10d40.htm#a7_9_122501]

 

7.10 [a05-17257_1ex10d40.htm#a7_10_122503]

 

Possession of Franchises, Licenses, Etc. [a05-17257_1ex10d40.htm#a7_10_122503]

 

7.11 [a05-17257_1ex10d40.htm#a7_11_122505]

 

Leases [a05-17257_1ex10d40.htm#a7_11_122505]

 

7.12 [a05-17257_1ex10d40.htm#a7_12_122510]

 

Disclosure [a05-17257_1ex10d40.htm#a7_12_122510]

 

7.13 [a05-17257_1ex10d40.htm#a7_13_122513]

 

ERISA [a05-17257_1ex10d40.htm#a7_13_122513]

 

7.14 [a05-17257_1ex10d40.htm#a7_14_122516]

 

Regulatory Acts [a05-17257_1ex10d40.htm#a7_14_122516]

 

7.15 [a05-17257_1ex10d40.htm#a7_15_122518]

 

Solvency [a05-17257_1ex10d40.htm#a7_15_122518]

 

7.16 [a05-17257_1ex10d40.htm#a7_16_122520]

 

Environmental Matters [a05-17257_1ex10d40.htm#a7_16_122520]

 

7.17 [a05-17257_1ex10d40.htm#a7_17_122527]

 

Investments [a05-17257_1ex10d40.htm#a7_17_122527]

 

7.18 [a05-17257_1ex10d40.htm#a7_18_122529]

 

Intellectual Property, Etc. [a05-17257_1ex10d40.htm#a7_18_122529]

 

7.19 [a05-17257_1ex10d40.htm#a7_19_122530]

 

Reinsurance Agreements [a05-17257_1ex10d40.htm#a7_19_122530]

 

7.20 [a05-17257_1ex10d40.htm#a7_20_122532]

 

Retrocession Agreements [a05-17257_1ex10d40.htm#a7_20_122532]

 

7.21 [a05-17257_1ex10d40.htm#a7_21_122535]

 

Subsidiaries [a05-17257_1ex10d40.htm#a7_21_122535]

 

7.22 [a05-17257_1ex10d40.htm#a7_22_122540]

 

Labor Relations, Collective Bargaining Agreements
[a05-17257_1ex10d40.htm#a7_22_122540]

 

7.23 [a05-17257_1ex10d40.htm#a7_23_122546]

 

Preferred Stock Documents [a05-17257_1ex10d40.htm#a7_23_122546]

 

7.24 [a05-17257_1ex10d40.htm#a7_24_122549]

 

Survival of Representations and Warranties, Etc.
[a05-17257_1ex10d40.htm#a7_24_122549]

 

 

 

 

 

ARTICLE VIII [a05-17257_1ex10d40.htm#ArticleViiiEventsOfDefault_122553]

 

EVENTS OF DEFAULT [a05-17257_1ex10d40.htm#ArticleViiiEventsOfDefault_122553]

 

8.1 [a05-17257_1ex10d40.htm#a8_1_122556]

 

Default [a05-17257_1ex10d40.htm#a8_1_122556]

 

8.2 [a05-17257_1ex10d40.htm#a8_2_122602]

 

Remedies [a05-17257_1ex10d40.htm#a8_2_122602]

 

8.3 [a05-17257_1ex10d40.htm#a8_3_122607]

 

Application of Funds [a05-17257_1ex10d40.htm#a8_3_122607]

 

 

ii

--------------------------------------------------------------------------------

 

ARTICLE IX [a05-17257_1ex10d40.htm#ArticleIxMiscellaneous_122613]

 

MISCELLANEOUS [a05-17257_1ex10d40.htm#ArticleIxMiscellaneous_122613]

 

9.1 [a05-17257_1ex10d40.htm#a9_1_122616]

 

Notices [a05-17257_1ex10d40.htm#a9_1_122616]

 

9.2 [a05-17257_1ex10d40.htm#a9_2_122620]

 

Expenses [a05-17257_1ex10d40.htm#a9_2_122620]

 

9.3 [a05-17257_1ex10d40.htm#a9_3_122623]

 

Waivers [a05-17257_1ex10d40.htm#a9_3_122623]

 

9.4 [a05-17257_1ex10d40.htm#a9_4_122626]

 

Determinations by Lender [a05-17257_1ex10d40.htm#a9_4_122626]

 

9.5 [a05-17257_1ex10d40.htm#a9_5_122628]

 

Set-Off [a05-17257_1ex10d40.htm#a9_5_122628]

 

9.6 [a05-17257_1ex10d40.htm#a9_6_122635]

 

Assignment [a05-17257_1ex10d40.htm#a9_6_122635]

 

9.7 [a05-17257_1ex10d40.htm#a9_7_122642]

 

Amendment and Waiver [a05-17257_1ex10d40.htm#a9_7_122642]

 

9.8 [a05-17257_1ex10d40.htm#a9_8_122644]

 

Confidentiality [a05-17257_1ex10d40.htm#a9_8_122644]

 

9.9 [a05-17257_1ex10d40.htm#a9_9_122652]

 

Counterparts [a05-17257_1ex10d40.htm#a9_9_122652]

 

9.10 [a05-17257_1ex10d40.htm#a9_10_122654]

 

Severability [a05-17257_1ex10d40.htm#a9_10_122654]

 

9.11 [a05-17257_1ex10d40.htm#a9_11_122659]

 

Interest and Charges [a05-17257_1ex10d40.htm#a9_11_122659]

 

9.12 [a05-17257_1ex10d40.htm#a9_12_122702]

 

Exception to Covenants [a05-17257_1ex10d40.htm#a9_12_122702]

 

9.13 [a05-17257_1ex10d40.htm#a9_13_122704]

 

USA Patriot Act Notice [a05-17257_1ex10d40.htm#a9_13_122704]

 

9.14 [a05-17257_1ex10d40.htm#a9_14_122749]

 

GOVERNING LAW [a05-17257_1ex10d40.htm#a9_14_122749]

 

9.15 [a05-17257_1ex10d40.htm#a9_15_122754]

 

WAIVER OF JURY TRIAL [a05-17257_1ex10d40.htm#a9_15_122754]

 

9.16 [a05-17257_1ex10d40.htm#a9_16_122756]

 

ENTIRE AGREEMENT [a05-17257_1ex10d40.htm#a9_16_122756]

 

 

 

 

 

SIGNATURES

 

 

 

 

iii

--------------------------------------------------------------------------------

 

Exhibits and Schedules

 

Exhibit A

Advance Note

Exhibit B

Pledge Agreement

Exhibit C

Guaranty Agreement

Exhibit D

Advance Loan Notice

Exhibit E

Compliance Certificate

Exhibit F

Applicable Rate Certificate

Exhibit G

Notice of Final Agreement

Exhibit H

Preferred Stock Documents

 

 

Schedule 1.1

Existing Deposit Accounts

Schedule 6.7

Permitted Liens

Schedule 6.15

Affiliates Transaction

Schedule 7.1

Subsidiaries

Schedule 7.3

Off-Balance Sheet Liability

Schedule 7.5

Existing Litigation

Schedule 7.6

Existing Debt

Schedule 7.10

Licensed Jurisdictions

Schedule 7.13

Plans

Schedule 7.16

Environmental Matters

Schedule 7.17

Existing Investments

Schedule 7.19

Reinsurance Agreements

Schedule 7.20

Retrocession Agreements

Schedule 7.22

Labor Agreements

Schedule 9.1

Notice Addresses

 

iv

--------------------------------------------------------------------------------

 

Credit Agreement

 

THIS CREDIT AGREEMENT is dated as of September 30, 2005 (this agreement,
together with all amendments and restatements, this “Agreement”), between
GAINSCO, INC. a Texas corporation (“Borrower”), and THE FROST NATIONAL BANK, a
national banking association (“Lender”).

BACKGROUND

 

Borrower has requested that Lender make an advance credit facility available to
Borrower.  Lender has agreed to do so, subject to the terms and conditions of
this Agreement.

AGREEMENT

 

In consideration of the mutual covenants and agreements contained herein, and
other good and valuable consideration, receipt of which is acknowledged by the
parties hereto, the parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.1                                 Definitions.  For purposes of this
Agreement:

 

“Actuary” means either (a) the Tillinghast division of Towers Perrin, or
(b) another independent actuary acceptable to Lender in its discretion.

 

“Advance Availability” means an amount equal to 250% of EBITDA for the
twelve-month period ended on the date of determination, determined as at the
last day of the most recent fiscal quarter end of Borrower.

 

“Advance Availability Termination Date” means September 30 2007.

 

“Advance Borrowing” means a borrowing by Borrower of Advance Loans made by
Lender pursuant to Section 2.1.

 

“Advance Commitment” means Lender’s obligation to make Advance Loans to Borrower
pursuant to Section 2.1, in the aggregate principal amount not to exceed
$10,000,000 as to all Advance Loans made by Lender.

 

“Advance Loan Maturity Date” means the first to occur of (a) September 30, 2010,
(b) the date the Advance Commitment is terminated pursuant to 8.2, and (c) the
date the Obligations are accelerated.

 

“Advance Loan Notice” means a notice of an Advance Borrowing request pursuant to
Section 2.2(a), substantially in the form of Exhibit D.

 

--------------------------------------------------------------------------------

 

“Advance Note” means the promissory note made by Borrower in favor of Lender
evidencing the Advance Loans, substantially in the form of Exhibit A.

 

“Affiliate” means any Person that directly, or indirectly, through one or more
intermediaries, Controls or is Controlled By or is Under Common Control with any
other Person; provided, however, that Crescent Real Estate Equities Company,
Crescent Real Estate Limited Partnership, and their subsidiaries and affiliates,
shall not be considered Affiliates for the purposes of this Agreement.

 

“Agreement Date” means the date of this Agreement.

 

“Applicable Law” means (a) in respect of any Person, all provisions of Laws and
orders of Governmental Authorities applicable to such Person and its properties,
including, without limiting the foregoing, all orders and decrees of all
Governmental Authorities and arbitrators in proceedings or actions to which the
Person in question is a party, and (b) in respect of contracts relating to
interest or finance charges that are made or performed in the State of Texas,
“Applicable Law” means the Laws of the United States of America, including
without limitation 12 U.S.C. §§85 and 86,  and any other statute of the United
States of America now or at any time hereafter prescribing the maximum rates of
interest on loans and extensions of credit, and the Laws of the State of Texas,
and any other Laws of the State of Texas now or at any time hereafter
prescribing maximum rates of interest on loans and extensions of credit.

 

“Applicable Rate” means, initially, a per annum percentage equal 2.50%; provided
that, after receipt by Lender of the initial Applicable Rate Certificate
delivered by Borrower pursuant to Section 5.2(d) and thereafter, such percentage
shall be adjusted as follows:  effective on the third Business Day after receipt
by Lender of such Applicable Rate Certificate demonstrating a change in either
Consolidated Net Worth or EBITDA so that another Applicable Rate should be
applied pursuant to the table below, the Applicable Rate shall be (a) the
percentage set forth in Column 1 if both Consolidated Net Worth and EBITDA are
the amounts stated in Column 1, (b) the percentage set forth in Column 2 if
(i) both Consolidated Net Worth and EBITDA are the amounts stated in Column 2 or
(ii) either Consolidated Net Worth or EBITDA are the amounts stated in Column 1
and Column 2, or (c) the percentage set forth in Column 3 if either Consolidated
Net Worth or EBITDA are the amounts stated in Column 3.  If an Applicable Rate
Certificate is not received by Lender by the date required pursuant to
Section 5.2(d), the Applicable Rate shall be the percentage stated in Column 3
until the third Business Day after receipt by Lender of an Applicable Rate
Certificate demonstrating a change in either Consolidated Net Worth or EBITDA so
that another Applicable Rate should be applied pursuant to the table below.  For
purposes of determining Applicable Rate, (a) Consolidated Net Worth shall be
calculated as at the last day of each fiscal quarter of Borrower and (b) EBITDA
shall be calculated as at the last day of each fiscal quarter of Borrower for
the preceding four fiscal quarters.

 

 

 

Column 1

 

Column 2

 

Column 3

 

Consolidated Net Worth

 

³ $60,000,000

 

³ $50,000,000 and
< $60,000,000

 

< $50,000,000

 

 

 

 

 

 

 

 

 

EBITDA

 

³ $6,500,000

 

³ $5,500,000 and < $6,500,000

 

< $5,500,000

 

 

 

 

 

 

 

 

 

Applicable Rate

 

2.00%

 

2.25%

 

2.50%

 

 

2

--------------------------------------------------------------------------------

 

“Applicable Rate Certificate” means a certificate substantially in the form of
Exhibit F.

 

“Attorney Costs” means and includes all fees, expenses and disbursements of any
law firm or other external counsel and, without duplication, the allocated cost
of internal legal services and all expenses and disbursements of internal
counsel.

 

“Auditors” means KPMG LLP or other independent certified public accountants
selected by Borrower and reasonably acceptable to Lender and that are a
Registered Public Accounting Firm.

 

“Authorized Control Level” means “Authorized Control Level” as defined by NAIC
from time to time and as applied in the context of the Risk-Based Capital
Guidelines promulgated by NAIC (or any term substituted therefor by NAIC).

 

“Authorized Signatory” means such senior personnel of Borrower, any Subsidiary
of Borrower or an Obligor as may be duly authorized and designated in writing by
Borrower, such Subsidiary or such Obligor to execute documents, agreements and
instruments on behalf of Borrower, such Subsidiary or such Obligor.

 

“Bank Liens” means Liens in favor of or for the benefit of Lender securing all
or any of the Obligations, including, but not limited to, rights in any
Collateral created in favor of Lender, whether by mortgage, pledge,
hypothecation, assignment, transfer, or other granting or creation of Liens.

 

“Business Day” means any day other than a Saturday, Sunday, or other day on
which commercial banks are authorized to close under the Laws of, or are in fact
closed in, the state where Lender’s office is located and, if such day relates
to any Eurodollar Rate Loan, means any such day on which dealings in Dollar
deposits are conducted by and between banks in the applicable offshore Dollar
interbank market.

 

“Capital Leases” means capital leases and subleases, as defined in the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 13,
dated November 1976, as amended.

 

“Cash Capex” means any capital expenditure (determined in accordance with GAAP)
the source of funds for which was not or is not proceeds of any Debt (whether or
not subordinate to any other obligation of any Person) or any equity issuance.

 

“Cash Equivalents” means (a) Dollar denominated deposits, certificates of
deposit (including eurodollar certificates of deposit) and bankers acceptances
of (i) any FDIC insured bank, in amounts up to the FDIC insured limit, (ii) any
bank having capital and surplus in excess

 

3

--------------------------------------------------------------------------------

 

of $500,000,000 or the Dollar equivalent thereof or (iii) any bank whose short
term commercial paper is an Investment Grade Security, (b) securities with a
maturity or redemption period of six months or less, issued by a Person whose
short term debt obligations are rated Class 1 or 2 by NAIC, (c) agreements to
sell and repurchase direct obligations of, or obligations that are fully
guaranteed as to principal and interest by, the U.S. Treasury, such agreements
to be with primary treasury dealers, to be evidenced by standard industry forms
and to have maturities of not more than six months from the date of commencement
of the repurchase transaction, (d) shares in money market funds rated “Am” or
higher by S&P and (e) demand deposit accounts described in Schedule 1.1.

 

“Code” means the Uniform Commercial Code as in effect in Texas.

 

“Collateral” means any assets of any Person in which at any time Lender shall be
granted a Bank Lien to secure the Obligations.

 

“Combined Ratio” means the ratio (expressed as a percentage rounded to two
decimal places) determined as to the personal automobile insurance lines of
Borrower and all Subsidiaries of (a) the sum of losses incurred, plus loss
expenses incurred, plus other underwriting expenses incurred, minus revenues of
NSLI and MGA Agency, Inc., all for the four fiscal quarter period ended on the
date of determination, to (b) the sum of premiums and policy fees earned, all
for the four fiscal quarter period ended on the date of determination, all as
calculated in accordance with GAAP.

 

“Compliance Certificate” means a compliance certificate, substantially in the
form of Exhibit E.

 

“Consolidated Interest Expenses” means, for any period, for Borrower and its
Subsidiaries on a consolidated basis, the sum of (a) all interest, premium
payments, debt discount, fees, charges and related expenses of Borrower and its
Subsidiaries in connection with borrowed money (including that attributable to
Capital Leases) or in connection with the deferred purchase price of assets, in
each case to the extent treated as interest in accordance with GAAP, and (b) the
portion of rent expense of Borrower and its Subsidiaries with respect to such
period under Capital Leases that is treated as interest in accordance with GAAP.

 

“Consolidated Net Income” means, with respect to Borrower and its Subsidiaries
for any period, the net income (or loss) of Borrower and its Subsidiaries for
such period (excluding any extraordinary gains and any gains from discontinued
operations but including extraordinary losses for such period), all determined
in accordance with GAAP.

 

“Consolidated Net Worth” means, as of any date of determination, for Borrower
and its Subsidiaries on a consolidated basis, shareholders’ equity of Borrower
and its Subsidiaries on that date determined in accordance in with GAAP.

 

“Contingent Debt” means, for any Person:

 

(a)                                  guarantees, endorsements (other than
endorsements of negotiable instruments for collection in the ordinary course of
business) and other contingent liabilities (whether direct or indirect) in
connection with the obligations of any other Person;

 

4

--------------------------------------------------------------------------------

 

(b)                                 obligations under any contract providing for
the making of loans, advances or capital contributions to any other Person, or
for the purchase of any property from any other Person, in each case in order to
enable such other Person primarily to maintain working capital, net worth or any
other balance sheet condition or to pay Debts, Dividends or expenses;

 

(c)                                  obligations under any contract to rent or
lease (as lessee) any real or personal property (other than operating leases) if
such contract (or any related document) provides that the obligation to make
payments thereunder is absolute and unconditional under conditions not
customarily found in commercial leases then in general use or requires that the
lessee purchase or otherwise acquire securities or obligations of the lessor;

 

(d)                                 obligations in respect of letters of credit;
and

 

(e)                                  obligations under any other contract which,
in economic effect, is substantially equivalent to a guaranty, including but not
limited to “keep well” or “capital maintenance” agreements.

 

“Control” or “Controlled By” or “Under Common Control” means possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided that, in any event any Person which beneficially owns,
directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation or
managers of a limited liability company or other governance board of an entity
shall be conclusively presumed to control such corporation or limited liability
company.

 

“Current Financials” means the most recent annual Financial Statements of
Borrower or any of its Subsidiaries.

 

“Debt” means, at any time, for any Person, (a) Capital Leases, (b) Contingent
Debt, (c) debt created, issued, incurred or assumed for money borrowed or for
the deferred purchase price of property purchased, (d) all debt, obligations and
liabilities secured by any Lien upon any property owned by such Person, even
though it has not assumed or become liable for the payment of same, and
(e) liabilities in respect of unfunded vested benefits under any Plans;
provided, however, “Debt” shall not include reverse repurchase agreements
entered into by Borrower or a Subsidiary relating to cash management and
liquidity management activities, subject to Applicable Laws in the case of RICs.

 

“Debtor Relief Laws” means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, fraudulent conveyance,
reorganization or similar debtor relief Laws affecting the rights of creditors
generally from time to time in effect.

 

“Default” means any of the events specified in Section 8.1 that would, with the
giving of notice or the passage of time, become an Event of Default.

 

“Default Rate” means for any date a simple per annum interest rate equal to the
lesser of (a) the Eurodollar Rate in effect from time to time, plus 2%, and
(b) the Highest Lawful Rate.

 

5

--------------------------------------------------------------------------------

 

“Discontinued Lines” means property and casualty insurance (other than personal
automobile insurance) written through or by any Subsidiary prior to the
Agreement Date.

 

“Disposition” and “Dispose” mean any sale, lease, abandonment, transfer,
disposal, exchange or other transfer of any ownership or leasehold interest in
or control of any asset.

 

“Dividends” means, with respect to any Person, any dividend on any class of its
capital stock or other equity interest now or hereafter outstanding, any
distribution of cash or property to or for the benefit of owners of any shares
of such stock or other equity interest, any retirement, redemption, purchase or
other acquisition, directly or indirectly, of any shares of any class of its
capital stock or other equity interest now or hereafter outstanding, or the
establishment of a sinking fund or similar arrangement with respect to such
capital stock or other equity interest.

 

“Dollars” and the sign “$” mean lawful money of the United States of America.

 

“EBITDA” means, for any period, for Borrower and its Subsidiaries on a
consolidated basis, an amount equal to Consolidated Net Income for such period
plus (a) the following to the extent deducted in calculating such Consolidated
Net Income: (i) Consolidated Interest Expenses for such period, (ii) the
provision for federal, state, local and foreign income Taxes payable by Borrower
and its Subsidiaries for such period, (iii) the amount of depreciation and
amortization expense and (iv) other expenses of Borrower and its Subsidiaries
reducing such Consolidated Net Income which do not represent a cash item in such
period or any future period, and minus (b) all non-cash items increasing
Consolidated Net Income for such period.

 

“Environment” means ambient air, surface water and groundwater (including
potable water, navigable water and wetlands), the land surface or subsurface
strata, real property improvements or as otherwise defined in any Environmental
Law.

 

“Environmental Claim” means any written accusation, allegation, notice of
violation, claim, demand, order, directive, consent decree, cost recovery action
or other cause of action by, or on behalf of, any Governmental Authority or any
Person for damages, injunctive or equitable relief, personal injury (including
sickness, disease or death), Remedial Action costs, property damage, natural
resource damages, nuisance, pollution, any adverse effect on the Environment
caused by any Hazardous Material, or for fines, penalties or restrictions,
resulting from or based upon: (a) the existence, or the continuation of the
existence, of a Release; (b) exposure to any Hazardous Material; (c) the
presence, use, handling, transportation, storage, treatment or disposal of any
Hazardous Material; or (d) the violation or alleged violation of any
Environmental Law or Environmental Permit.

 

“Environmental Law” means any and all applicable domestic Laws, judgments,
injunctions, notices or binding agreements issued, promulgated or entered into
by any Governmental Authority, relating in any way to the Environment,
preservation or reclamation of natural resources, the management, Release or
threatened Release of any Hazardous Material or to health and safety matters,
including the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. §§ 9601 et seq. (collectively “CERCLA”), the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976
and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq., the
Federal Water

 

6

--------------------------------------------------------------------------------

 

Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C.
§§ 1251 et seq., the Clean Air Act of 1970, 42 U.S.C. §§ 7401 et seq., as
amended, the Toxic Substances Control Act of 1976, 15 U.S.C. §§ 2601 et seq.,
the Occupational Safety and Health Act of 1970, as amended by 29 U.S.C. §§ 651
et seq., the Emergency Planning and Community Right-to-Know Act of 1986,
42 U.S.C. §§ 11001 et seq., the Safe Drinking Water Act of 1974, as amended by
42 U.S.C. §§ 300(f) et seq., the Hazardous Materials Transportation Act,
49 U.S.C. §§ 5101 et seq., and any similar or implementing Law.

 

“Environmental Permit” means any permit, approval, authorization, certificate,
license, variance, filing or permission required by or from any Governmental
Authority pursuant to any Environmental Law.

 

“ERISA” means the Employee Retirement Income Security Act of 1974.

 

“Eurodollar Basis” means for any day a rate per annum equal to the “London
Interbank Offered Rate” for a three-month term, as published in the “Money
Rates” column of The Wall Street Journal, Central Edition, from time to time, or
if any reason such rate is no longer available:

 

(a)                                  for any day the rate per annum (rounded
upward to the nearest 1/100 of 1%) equal to the rate determined by Lender to be
the offered rate that appears on the page of the Telerate screen (or any
successor thereto) that displays an average British Bankers Association Interest
Settlement Rate for deposits in Dollars (for delivery on the date of
determination) with a three-month term, determined as of approximately
11:00 a.m. (London time) on the date of determination, or

 

(b)                                 if the rate referenced in clause (a) does
not appear on such page or service or such page or service shall not be
available, for any day the rate per annum (rounded upward to the nearest 1/100
of 1%) equal to the rate determined by Lender to be the offered rate on such
other page or other service that displays an average British Bankers Association
Interest Settlement Rate for deposits in Dollars (for delivery on date of
determination) with a three-month term, determined as of approximately
11:00 a.m. (London time).

 

The Eurodollar Basis shall change effective as of the date of any change as
published in The Wall Street Journal, Central Edition, or as determined by
Lender, as appropriate.  The Eurodollar Basis is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer
of Lender.

 

“Eurodollar Rate” means the sum of the Eurodollar Basis plus the Applicable
Rate.

 

“Eurodollar Rate Loan” means the Advance Loan when it bears interest at a rate
based on the Eurodollar Rate.

 

“Event of Default” means any of the events specified in Section 8.1, provided
there has been satisfied any requirement in connection with such event for the
giving of notice, or the lapse of time, or the happening of any further
specified condition, event or act.

 

7

--------------------------------------------------------------------------------

 

“Existing Debt” means the Debt of Borrower and its Subsidiaries existing on the
Agreement Date, which is described on Schedule 7.6, including renewals (but not
increases) thereof.

 

“Existing Investments” means the Investments of Borrower and its Subsidiaries
existing on the Agreement Date, which are described on Schedule 7.17.

 

“Existing Litigation” means the Litigation involving or otherwise affecting
Borrower and its Subsidiaries existing on the Agreement Date (a) where the
amount of the related case reserve is equal to or greater than $250,000 (if such
Litigation relates to the Insurance Business of Borrower and its Subsidiaries),
or (b) which could reasonably be expected to result in a Material Adverse
Change.

 

“Federal Funds Rate” means, for any day, the rate per annum 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 on the Business Day next
succeeding such day; provided that (a) if such day 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 no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate (rounded upward,
if necessary, to a whole multiple of 1/100 of 1%) charged to Frost on such day
on such transactions as determined by Lender.

 

“Financial Statements” includes, but is not limited to, balance sheets, profit
and loss statements, reconciliations of capital and surplus and/or partnership
capital accounts, as appropriate, and statements of changes in financial
position or cash flow, prepared in comparative form with respect to the
corresponding period of the preceding fiscal year and prepared in accordance
with SAP or GAAP, as appropriate.

 

“Fixed Charges” means the sum of (a) Consolidated Interest Expenses for the four
fiscal quarter period ended on the date of determination, plus (b) scheduled
principal payments of Debt which would be classified as a current liability on a
consolidated balance sheet of Borrower and its consolidated Subsidiaries payable
during the four fiscal quarter period beginning on the day following the date of
determination, plus (c) Cash Capex actually paid by Borrower during the four
fiscal quarter period ended on the date of determination, plus (d) the aggregate
amount of Taxes actually paid by Borrower and its consolidated Subsidiaries
during the four fiscal quarter period ended on the date of determination, plus
(e) cash Dividends actually paid by Borrower during the four fiscal quarter
period ended on the date of determination.

 

“Fixed Charges Coverage Ratio” means the ratio (rounded to two decimal places)
determined as at the last day of the most recent fiscal quarter of Borrower of
(a) EBITDA for the four fiscal quarter period ended on the last day of such
fiscal quarter, to (b) Fixed Charges determined as at the last day of such
fiscal quarter.

 

“GAAP” means U.S. generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board, which are applicable in the
circumstances as of the date in question, and the requisite that such

 

8

--------------------------------------------------------------------------------

 

principles be applied on a consistent basis shall mean that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period.

 

“GAICA” means General Agents Insurance Company of America, Inc., an Oklahoma
insurance corporation.

 

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

 

“Guarantor” means each material Subsidiary (whether now or hereafter existing)
of Borrower (other than a RIC).

 

“Guaranty” means a Guaranty Agreement, substantially in the form of Exhibit C,
duly executed by each Guarantor.

 

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

 

“Highest Lawful Rate” means at the particular time in question the maximum rate
of interest which, under Applicable Law, Lender is then permitted to charge on
the Obligations.  If the maximum rate of interest which, under Applicable Law,
Lender is permitted to charge on the Obligations shall change after the date
hereof, the Highest Lawful Rate shall be automatically increased or decreased,
as the case may be, from time to time as of the effective time of each change in
the Highest Lawful Rate without notice to Borrower.  For purposes of determining
the Highest Lawful Rate under Applicable Law, the indicated rate ceiling shall
be the lesser of (a)(i) the “weekly ceiling”, as that expression is defined in
Section 303.003 of the Texas Finance Code, as amended, or (ii) if available in
accordance with the terms thereof and at Lender’s option after notice to
Borrower and otherwise in accordance with the terms of Section 303.103 of the
Texas Finance Code, as amended, the “annualized ceiling” and (b)(i) if the
amount outstanding under this Agreement is less than $250,000, 24% per annum, or
(ii) if the amount under this Agreement is equal to or greater than $250,000,
28% per annum.

 

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

 

“Insurance Regulator” means, when used with respect to any RIC, the Governmental
Authority, insurance department or similar administrative authority or agency
located in (a) each state in which such RIC is domiciled or (b) to the extent
asserting regulatory jurisdiction over such RIC, the Governmental Authority,
insurance department, authority or agency in each state in which such RIC is
licensed, and shall include any Federal insurance regulatory department,
authority or agency that may be created and that asserts regulatory jurisdiction
over such RIC.

 

9

--------------------------------------------------------------------------------

 

“Interest Payment Date” means each Payment Date and the Advance Loan Maturity
Date.

 

“Internal Control Event” means a material weakness in, or fraud that involves
management or other employees who have a significant role in, Borrower’s
“disclosure controls and procedures” or “internal controls over financial
reporting”, in each case as described in Rule 13A-15 or Rule 15d-15 promulgated
under the Securities Act of 1934.

 

“Investment” means, as to any Person, any direct or indirect acquisition or
investment by such Person, whether by means of (a) the purchase or acquisition
of all or substantially all of the assets of any Person, (b) any direct or
indirect purchase or other acquisition of, or a beneficial interest in, any
equity interest or other securities of any other Person, or (c) any direct or
indirect loan, advance, or capital contribution to or investment in any other
Person, including without limitation the incurrence or sufferance of Debt or
accounts receivable of any other Person that are not current assets or do not
arise from Dispositions to that other Person in the ordinary course of business.

 

“Investment Grade Securities” means and includes (a) securities that are direct
obligations of the United States of America, the payment of which is backed by
the full faith and credit of the United States of America, (b) debt securities
or debt instruments with a rating of Class (1), (2) or higher by NAIC, or if
NAIC shall not then exist, the equivalent of such rating by any other nationally
recognized securities rating agency, but excluding any debt securities or
instruments constituting loans or advances among Borrower and Subsidiaries, and
(c) any fund investing exclusively in investments of the type described in
clauses (a) and (b), which funds may also hold immaterial amounts of cash
pending investment and/or distribution.

 

“Investment Policy” means the written policies and procedures which govern the
acquisition and maintenance of Investments and the cash management procedures of
each Borrower and each of its Subsidiaries, as such written policies and
procedures exist on the Agreement Date.

 

“Laws” means, collectively, all international, foreign, Federal, state and local
constitutions, statutes, treaties, rules, guidelines, regulations, ordinances,
codes and administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case whether or not having the force of law.

 

“Lender’s Office” means Lender’s address and, as appropriate, account as set
forth on Schedule 9.1, or such other address or account as Lender may from time
to time notify Borrower.

 

“Lien” means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any agreement to give or not to give any of the
foregoing), any conditional sale or other title retention agreement, any
financing or other lease in the nature thereof, and the filing of or agreement
to give any financing statement or other similar form of public notice under the
Laws of any jurisdiction.

 

10

--------------------------------------------------------------------------------

 

“Litigation” means any proceeding, claim, lawsuit and/or investigation conducted
or threatened by or before any Governmental Authority, including, but not
limited to, proceedings, claims, lawsuits, and/or investigations under or
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement or other instrument.

 

“Litigation Report” means a report, certified to be true, correct and complete
by an Authorized Officer of Borrower and each of its Subsidiaries which is a
party to any Litigation, describing all Litigation (a) relating to Insurance
Business of Borrower and each of its Subsidiaries, where the amount of the
related case reserve is equal to or greater than $250,000,  or (b) which could
reasonably be expected to result in a Material Adverse Change, in format
acceptable to Lender.

 

“Loan Documents” means this Agreement, the Advance Note, the Security Documents,
the Guaranties and all other documents and instruments executed and delivered to
Lender by any Obligor or any other Person in connection with this Agreement.

 

“Loss Report” means a quarterly summarization of losses, allocated loss
adjustment expenses and related reserves in format acceptable to Lender.

 

“Material Adverse Change or Effect” means (a)  a material adverse change in, or
a material adverse effect upon, the operations, business, properties,
liabilities (actual or contingent) or financial condition of Borrower or
Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the
ability of any Obligor to perform its obligations under any Loan Document to
which it is a party; or (c)  a material adverse effect upon the legality,
validity, binding effect or enforceability against any Obligor of any Loan
Document to which it is a party or its property is subject.

 

“Maximum Amount” means the maximum amount of interest which, under Applicable
Law, Lender is permitted to charge on the Obligations.

 

“Moody’s” means Moody’s Investors Service, Inc.

 

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

 

“NAIC Tests” means the ratios and other financial measurements developed by NAIC
under its Insurance Regulatory Information System, as in effect from time to
time.

 

“Notice of Final Agreement” means the Arbitration and Notice of Final Agreement,
substantially in the form of Exhibit G.

 

“NSLI” means National Specialty Lines, Inc., a Florida corporation.

 

“Obligations” means all obligations, indebtedness and liabilities under the Loan
Documents now or hereafter owing by Borrower or any other Person to or for the
benefit of Lender, whether joint or several, fixed or contingent, including
principal, interest, expenses of collection and foreclosure and attorneys’ fees
that Borrower is responsible for pursuant to Section 9.2.  Without limiting the
generality of the foregoing, “Obligations” includes interest,

 

11

--------------------------------------------------------------------------------

 

fees and other amounts that would accrue after the commencement by or against
Borrower, any Affiliate thereof or any other Person (other than Lender, any
Assignee or any Participant) of any proceeding under any Debtor Relief Laws
naming such Person as the debtor in such proceeding, regardless of whether such
interest, fees and other amounts are allowed claims in such proceeding.

 

“Obligor” means Borrower and each other Person liable for performance of any of
the Obligations or the property of which secures the performance of any of the
Obligations.

 

“Off-Balance Sheet Liabilities” means, with respect to any Person as of any date
of determination thereof, without duplication and to the extent not included as
a liability on the consolidated balance sheet of such Person and its
Subsidiaries in accordance with GAAP: (a) with respect to any asset
securitization transaction (including any accounts receivable purchase facility)
(i) the unrecovered investment of purchasers or transferees of assets so
transferred and (ii) any other payment, recourse, repurchase, hold harmless,
indemnity or similar obligation of such Person or any of its Subsidiaries in
respect of assets transferred or payments made in respect thereof, other than
limited recourse provisions that are customary for transactions of such type and
that neither (x) have the effect of limiting the loss or credit risk of such
purchasers or transferees with respect to payment or performance by the obligors
of the assets so transferred nor (y) impair the characterization of the
transaction as a true sale under applicable Laws (including Debtor Relief Laws);
(b) the monetary obligations under any financing lease or so-called “synthetic,”
tax retention or off-balance sheet lease transaction which, upon the application
of any Debtor Relief Law to such Person or any of its Subsidiaries, would be
characterized as indebtedness; (c) the monetary obligations under any sale and
leaseback transaction which does not create a liability on the consolidated
balance sheet of such Person and its Subsidiaries; or (d) any other monetary
obligation arising with respect to any other transaction which (i) upon the
application of any Debtor Relief Law to such Person or any of its Subsidiaries,
would be characterized as indebtedness or (ii) is the functional equivalent of
or takes the place of borrowing but which does not constitute a liability on the
consolidated balance sheet of such Person and its Subsidiaries (for purposes of
this clause (d), any transaction structured to provide tax deductibility as
interest expense of any Dividend, coupon or other periodic payment will be
deemed to be the functional equivalent of a borrowing).

 

“Outstanding Amount” means, as of any date of determination, the aggregate
outstanding principal amount of all Advance Loans, after giving effect to any
Advance Borrowing and any principal payment of Advance Loans occurring on such
date.

 

“Payment Date” means the first day of each calendar month.

 

“PBGC” means the Pension Benefit Guaranty Corporation established under ERISA.

 

“PCAOB” means the Public Company Accounting Oversight Board, or any entity
succeeding to any of its principal functions.

 

“Permitted Debt” means (a) Existing Debt, (b) the Obligations, (c) trade
accounts payable and other similar obligations incurred in the ordinary course
of business, (d) intercompany balances in the ordinary course of business among
Borrower and its Subsidiaries; provided, that all amounts owed by any Obligor to
its Subsidiaries shall be subordinated to all Obligations on

 

12

--------------------------------------------------------------------------------

 

terms acceptable to Lender, (e) Capital Leases of Borrower and each of its
Subsidiaries in an aggregate principal amount not to exceed $500,000 at any
time, and (f) other Debt of Borrower and Subsidiaries in an aggregate amount not
to exceed $500,000 at any time and that is subordinated to the Obligations on
terms acceptable to Lender in its discretion.

 

“Permitted Liens” means (a) Bank Liens, (b) pledges or deposits made to secure
payment of workmen’s compensation, or to participate in any fund in connection
with workmen’s compensation, unemployment insurance, pensions, or other social
security programs (excluding any Liens in respect of ERISA), (c) good-faith
pledges or deposits made to secure performance of bids, tenders, contracts
(other than for the repayment of borrowed money), or leases, or to secure
statutory obligations, surety or appeal bonds, or indemnity, performance, or
other similar bonds in the ordinary course of business, (d) encumbrances
consisting of zoning restrictions, easements, or other restrictions on the use
of real property, none of which impair the use of such property by any Obligor
or any of its Subsidiaries in the operation of its business in any manner which
would have a Material Adverse Effect, (e) Liens described on Schedule 6.7,
(f) reinsurance trust accounts and Liens securing performance with respect to
such reinsurance trust accounts if such Lien attaches to property in the
reinsurance trust account, only, (g) the following, if the validity or amount
thereof is being contested in good faith and by appropriate and lawful
proceedings and so long as levy and execution thereon have been stayed and
continue to be stayed: claims and Liens for Taxes due and payable; claims and
Liens upon, and defects of title to, real or personal property or other legal
process prior to adjudication of a dispute on the merits, including mechanic’s
and materialmen’s Liens; and adverse judgments on appeal, (h) set-off,
charge-back and other rights of depository and collection banks and other
financial institutions with respect to money or instruments of Borrower or its
Subsidiaries on deposit with or in possession of such institutions, (i) Liens
arising under Capital Leases permitted under this Agreement, and (j) Liens
securing reverse repurchase agreements entered into by Borrower or a Subsidiary
if (i) such reverse repurchase agreement relates to cash management and
liquidity management activities (subject to Applicable Laws in the case of RICs)
of Borrower or such Subsidiary and (ii) such Lien attaches to the security the
subject of such reverse repurchase agreement, only.

 

“Person” means and includes an individual, a partnership, a joint venture, a
limited liability company, a corporation, a trust, an unincorporated
organization, and a government or any department, Governmental Authority, agency
or political subdivision thereof.

 

“Plan” means any plan subject to Title IV of ERISA and maintained for employees
of any Obligor or any of its Subsidiaries, or of any member of a controlled
group of corporations, as the term “controlled group of corporations” is defined
in Section 1563 of the Internal Revenue Code of 1986, as amended, of which any
Obligor or any of its Subsidiaries is a part.

 

“Pledge Agreement” means the Pledge Agreement executed by Borrower,
substantially in the form of Exhibit B.

 

“Preferred Stock” means the Series A Convertible Redeemable Preferred Stock of
Borrower.

 

“Preferred Stock Documents” means the Statement of Resolution Establishing and
Designating a Series of Shares of GAINSCO, INC., Series A Convertible Preferred
Stock,

 

13

--------------------------------------------------------------------------------

 

par value $100.00 per share, filed with the Secretary of State of the State of
Texas on October 1, 1999, as amended by Articles of Amendment to the Statement
of Resolution establishing and Designating the Series A Convertible Preferred
Stock of GAINSCO, INC., filed with the Secretary of State of the State of Texas
on January 21, 2005.

 

“Prime Rate” means for any day a per annum rate of interest equal to the “prime
rate,” as published in the “Money Rates” column of The Wall Street Journal,
Central Edition, from time to time, or if for any reason such rate is no longer
available, the rate established by Lender as its prime rate.  The Prime Rate
shall change effective as of the date of any change as published in The Wall
Street Journal, Central Edition, or as established by Lender, as appropriate. 
The Prime Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer of Lender.

 

“Prime Rate Loan” means the Advance Loan when it bears interest at a rate based
on the Prime Rate.

 

“Principal Office” means the location of Lender’s chief executive office.

 

“Registered Public Accounting Firm” means an accounting firm that (a) has
registered with the PCAOB pursuant to the provisions of Section 102 of
Sarbanes-Oxley and whose registration has not been withdrawn, terminated,
revoked or suspended and (b) meets the “independence” requirements of
Section 10A of the Securities Exchange Act of 1934.

 

“Reinsurance Agreement” means any agreement, contract, treaty or other
arrangement whereby one or more insurers, as reinsurers, assume liabilities
under insurance policies or agreements issued by another insurance or
reinsurance company or companies.

 

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, disposing, depositing,
dispersing, emanating or migrating of any Hazardous Material in, into, onto or
through the Environment.

 

“Remedial Action” means (a) ”remedial action” as such term is defined in CERCLA,
42 U.S.C. Section 9601(24), and (b) all other actions required by any
Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in the Environment;
(ii) prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not migrate or endanger or threaten to
endanger public health, welfare or the Environment; or (iii) perform studies and
investigations in connection with, or as a precondition to, (i) or (ii) above.

 

“Reportable Event” means a reportable event as defined in Section 4043(b) of
Title IV of ERISA or PBGC regulations issued thereunder, other than a reportable
event not subject to Section 4043’s notification requirements pursuant to PGBC’s
regulations.

 

“Reset Date”  means the first Business Day after the first day on which all of
the following have occurred or exist:  (a) the aggregate amount of reserves, as
stated in the current Financial Statements of each RIC prepared in accordance
with SAP, attributable to Discontinued Lines, only, net of all excess, quota
share are loss portfolio reinsurance reserves related to such Discontinued
Lines, is less than $18,000,000, (b) the aggregate amount of reserves that an
Actuary determines to be the highest individual actuarial amount for
Discontinued Lines is equal

 

14

--------------------------------------------------------------------------------

 

to or less than the aggregate amount of reserves, as stated in the current
Financial Statements of each RIC prepared in accordance with SAP, attributable
to Discontinued Lines, (c) no Default or Event of Default exists, and
(d) Borrower has delivered to Lender a certificate, in format and with
supporting information acceptable to Lender, executed by the chief financial
officer or other Authorized Signatory of Borrower acceptable to Lender,
certifying as to the matters in clauses (a), (b) and (c).

 

“Retrocession Agreement” means any agreement, contract, treaty or other
arrangement whereby one or more insurers or reinsurers, as retrocessionaires,
assume liabilities of reinsurers under a Reinsurance Agreement or other
retrocessionaires under another retrocession agreement.

 

“RIC” means any Subsidiary, whether now owned or hereafter acquired, that is
authorized or admitted to carry on or transact Insurance Business in any
jurisdiction, is regulated by any Insurance Regulator, and is required by any
Insurance Regulator to file an annual statement in the form prescribed by NAIC
for a property and casualty insurance company.

 

“Risk-Based Capital Ratio” means for a RIC, the ratio (expressed as a
percentage), at any time, of the Total Adjusted Capital of such RIC to the
Authorized Control Level of such RIC.

 

“S&P” means Standard & Poor’s Ratings Group, a division of McGraw-Hill, Inc., a
New York corporation.

 

“SAP” means the statutory accounting and reporting practices prescribed by the
insurance Laws or Insurance Regulator (or other similar Governmental Authority)
with respect to each RIC.

 

“Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.

 

“SEC” means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.

 

“Securities Laws” means the Securities Act of 1933, the Securities Exchange Act
of 1934, Sarbanes-Oxley and the applicable accounting and auditing principles,
rules, standards and practices promulgated, approved or incorporated by the SEC
or the PCAOB.

 

“Security Documents” means, collectively, the Pledge Agreement and any and all
other documents, instruments, financing statements, public notices and the like
executed and delivered in connection with any of the Bank Liens or the
Collateral.

 

“Solvent” means, with respect to any Person, that the fair value of the assets
of such Person (both at fair valuation and at present fair saleable value) is,
on the date of determination, greater than the total amount of liabilities
(including contingent and unliquidated liabilities) of such Person as of such
date and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature and such Person does not have
unreasonably small capital with which to carry on its business.  In computing
the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability discounted to present value
at rates believed to be reasonable by such Person.

 

15

--------------------------------------------------------------------------------

 

“Special Counsel” means the law firm of Winstead Sechrest & Minick P.C., or such
other legal counsel as Lender may select.

 

“Subsidiary” of a Person means a corporation, partnership, joint venture,
limited liability company or other business entity of which a majority of the
shares of securities or other interests having ordinary voting power for the
election of directors or other governing body (other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned, or the management of which is otherwise
Controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.  Unless otherwise specified, all references to a “Subsidiary” or
to “Subsidiaries” refers to a Subsidiary or Subsidiaries of Borrower.

 

“Taxes” means all taxes, assessments, fees or other charges from time to time or
at any time imposed by any Laws or by any Governmental Authority.

 

“Total Adjusted Capital” means “Total Adjusted Capital” as defined by NAIC from
time to time and as applied in the context of the Risk-Based Capital Guidelines
promulgated by NAIC (or any term substituted therefor by NAIC).

 

1.2                                 Additional Definitions.  The following
additional terms have the meaning specified in the indicated Section or other
provision of this Agreement:

 

Term

 

Section/Provision

 

 

 

Advance Loan

 

Section 2.1

Agreement

 

Introductory Paragraph

Assignee

 

Section 9.6(c)

Borrower

 

Introductory Paragraph

Eurocurrency liabilities

 

Section 3.4(c)

Indemnified Matters

 

Section 5.7

Indemnified Taxes

 

Section 3.1(a)

Indemnitees

 

Section 5.7

Information

 

Section 9.8

Lender

 

Introductory Paragraph

Other Taxes

 

Section 3.1(b)

Participant

 

Section 9.6(b)

Participation

 

Section 9.6(b)

Properties

 

Section 7.16(a)

 

1.3                                 CONSTRUCTION.  UNLESS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT OR THE CONTEXT REQUIRES OTHERWISE, (A) THE SINGULAR
SHALL INCLUDE THE PLURAL, AND VICE VERSA, (B) WORDS OF A GENDER INCLUDE THE
OTHER GENDER, (C) ALL ACCOUNTING TERMS SHALL BE CONSTRUED IN ACCORDANCE WITH
GAAP OR SAP, AS THE CONTEXT REQUIRES, (D) ALL REFERENCES TO TIME ARE SAN ANTONIO
TIME, (E) MONETARY REFERENCES ARE TO DOLLARS, (F) ALL REFERENCES TO “ARTICLES,”
“SECTIONS,” “EXHIBITS,” AND “SCHEDULES” ARE TO THE ARTICLES, SECTIONS, EXHIBITS,
AND SCHEDULES OF AND TO THIS AGREEMENT, (G) HEADINGS USED IN THIS AGREEMENT AND
EACH OTHER LOAN DOCUMENT ARE FOR CONVENIENCE ONLY AND SHALL NOT BE USED IN
CONNECTION WITH THE INTERPRETATION OF ANY PROVISION HEREOF OR THEREOF,
(H) REFERENCES TO ANY PERSON INCLUDE THAT PERSON’S HEIRS, PERSONAL
REPRESENTATIVES, SUCCESSORS, AND PERMITTED ASSIGNS, THAT PERSON AS A DEBTOR-IN
POSSESSION, AND ANY RECEIVER, TRUSTEE, LIQUIDATOR,

 

16

--------------------------------------------------------------------------------

 

CONSERVATOR, CUSTODIAN, OR SIMILAR PARTY APPOINTED FOR SUCH PERSON OR ALL OR
SUBSTANTIALLY ALL OF ITS ASSETS, (I) REFERENCES TO ANY LAW INCLUDE EVERY
AMENDMENT OR RESTATEMENT TO IT, RULE AND REGULATION ADOPTED UNDER IT, AND
SUCCESSOR OR REPLACEMENT FOR IT, AND (J) REFERENCES TO A PARTICULAR LOAN
DOCUMENT INCLUDE EACH AMENDMENT, MODIFICATION, OR SUPPLEMENT TO OR RESTATEMENT
OF IT MADE IN ACCORDANCE WITH THIS AGREEMENT AND SUCH LOAN DOCUMENT.

 

ARTICLE II

 

ADVANCE LOANS

 

2.1                                 ADVANCE LOANS.  SUBJECT TO THE TERMS AND
CONDITIONS SET FORTH HEREIN, LENDER AGREES TO MAKE A SINGLE ADVANCE OR MULTIPLE
ADVANCES, ON A NON-REVOLVING BASIS (EACH SUCH ADVANCE, AN “ADVANCE LOAN”), TO
BORROWER FROM TIME TO TIME ON ANY BUSINESS DAY DURING THE PERIOD FROM THE
AGREEMENT DATE TO THE FIRST TO OCCUR OF THE (A) ADVANCE AVAILABILITY TERMINATION
DATE, AND (B) THE ADVANCE LOAN MATURITY DATE, IN AN AGGREGATE AMOUNT NOT TO
EXCEED THE LESSER OF (Y) THE ADVANCE COMMITMENT, AND (Z) THE ADVANCE
AVAILABILITY.  ADVANCE LOANS, ONCE REPAID, MAY NOT BE REBORROWED.

 

2.2                                 ADVANCE BORROWINGS.

 

(A)                                  EACH ADVANCE BORROWING SHALL BE MADE UPON
BORROWER’S IRREVOCABLE NOTICE TO LENDER, WHICH MAY BE GIVEN BY TELEPHONE.  EACH
SUCH NOTICE MUST BE RECEIVED BY LENDER NOT LATER THAN 10:00 A.M. (I) ONE
BUSINESS DAY PRIOR TO THE REQUESTED DATE OF ANY ADVANCE BORROWING OF EURODOLLAR
RATE LOANS AND (II) ONE BUSINESS DAY PRIOR TO THE REQUESTED DATE OF ANY ADVANCE
BORROWING OF PRIME RATE LOANS.  EACH SUCH TELEPHONIC NOTICE MUST BE CONFIRMED
PROMPTLY BY DELIVERY TO LENDER OF A WRITTEN ADVANCE LOAN NOTICE APPROPRIATELY
COMPLETED AND SIGNED BY AN AUTHORIZED SIGNATORY OF BORROWER.  EACH ADVANCE LOAN
NOTICE (WHETHER TELEPHONIC OR WRITTEN) SHALL SPECIFY (I) THE REQUESTED DATE OF
THE ADVANCE BORROWING, AS THE CASE MAY BE (WHICH SHALL BE A BUSINESS DAY),
(II) THE PRINCIPAL AMOUNT OF THE ADVANCE LOAN TO BE BORROWED AND (III) WHETHER
SUCH ADVANCE BORROWING WILL BE A EURODOLLAR RATE LOAN OR A PRIME RATE LOAN.

 

(B)                                 UPON SATISFACTION OF THE APPLICABLE
CONDITIONS SET FORTH IN ARTICLE IV, NOT LATER THAN 2:00 P.M. ON THE APPLICABLE
BORROWING DATE, LENDER SHALL CREDIT THE ACCOUNT OF BORROWER ON THE BOOKS OF
LENDER IN DOLLARS CONSTITUTING IMMEDIATELY AVAILABLE FUNDS IN THE AMOUNT
SPECIFIED IN THE RELATED ADVANCE LOAN NOTICE.

 

2.3                                 REPAYMENT.

 

The principal of the Advance Loans shall be due and payable on the following
dates and in the following amounts:

 

Payment Date

 

Payment Amount

 

 

 

Each Payment Date after the Advance Availability Termination Date

 

An amount equal to 1/60th of the Outstanding Amount on the Advance Availability
Termination Date

 

 

 

Advance Loan Maturity Date

 

The remaining unpaid Outstanding Amount

 

17

--------------------------------------------------------------------------------

 

2.4                                 MANDATORY PREPAYMENTS.

 

(A)                                  ON EACH DATE THAT THE OUTSTANDING AMOUNT
EXCEEDS THE ADVANCE AVAILABILITY, BORROWER SHALL PREPAY ADVANCE LOANS IN AN
AMOUNT EQUAL TO SUCH EXCESS.

 

(B)                                 ON EACH DATE PRIOR TO THE ADVANCE
AVAILABILITY TERMINATION DATE THAT THE OUTSTANDING AMOUNT EXCEEDS THE ADVANCE
COMMITMENT, BORROWER SHALL PREPAY THE ADVANCE LOANS IN AN AMOUNT EQUAL TO SUCH
EXCESS.

 

2.5                                 VOLUNTARY PREPAYMENTS.  BORROWER MAY, UPON
NOTICE TO LENDER, AT ANY TIME OR FROM TIME TO TIME VOLUNTARILY PREPAY THE
ADVANCE LOANS IN WHOLE OR IN PART WITHOUT PREMIUM OR PENALTY; PROVIDED THAT
(A) SUCH NOTICE MUST BE RECEIVED BY LENDER NOT LATER THAN 10:00 A.M. ONE
BUSINESS DAY PRIOR TO THE DATE OF PREPAYMENT; AND (B) ANY PREPAYMENT SHALL BE IN
A PRINCIPAL AMOUNT OF $100,000 OR A WHOLE MULTIPLE OF $100,000 IN EXCESS THEREOF
(OR, IF LESS, THE OUTSTANDING AMOUNT).  EACH SUCH NOTICE SHALL SPECIFY THE DATE
AND AMOUNT OF SUCH PREPAYMENT.  IF SUCH NOTICE IS GIVEN BY BORROWER, BORROWER
SHALL MAKE SUCH PREPAYMENT AND THE PAYMENT AMOUNT SPECIFIED IN SUCH NOTICE SHALL
BE DUE AND PAYABLE ON THE DATE SPECIFIED THEREIN.  ANY VOLUNTARY PREPAYMENT
SHALL BE ACCOMPANIED BY ALL ACCRUED INTEREST THEREON, TOGETHER (IF BORROWER
SHALL HAVE RECEIVED DEMAND THEREFOR FROM LENDER IN ACCORDANCE WITH THE TERMS OF
ARTICLE III PRIOR TO SUCH PREPAYMENT, PROVIDED THE FAILURE OF LENDER TO MAKE
SUCH DEMAND BY SUCH TIME SHALL NOT LIMIT OR AFFECT THE OBLIGATION OF BORROWER TO
PAY SUCH AMOUNTS UPON DEMAND) WITH ANY ADDITIONAL AMOUNTS REQUIRED PURSUANT TO
ARTICLE III.

 

2.6                                 TERMINATION AND REDUCTION OF ADVANCE
COMMITMENT.

 

(A)                                  THE ADVANCE COMMITMENT SHALL REDUCE ON THE
DATE EACH ADVANCE LOAN IS MADE IN THE AMOUNT OF SUCH ADVANCE LOAN.

 

(B)                                 BORROWER SHALL HAVE THE RIGHT TO TERMINATE
OR REDUCE THE ADVANCE COMMITMENT AT ANY TIME.  EACH REDUCTION SHALL BE IN THE
MINIMUM AMOUNT OF $500,000 AND A WHOLE MULTIPLE OF $100,000 (IF THE REDUCTION IS
GREATER THAN $500,000), OR THE REMAINDER OF THE ADVANCE COMMITMENT IF LESS THAN
$500,000.

 

(C)                                  ON THE ADVANCE AVAILABILITY TERMINATION
DATE, THE ADVANCE COMMITMENT SHALL AUTOMATICALLY REDUCE TO ZERO AND TERMINATE.

 

(D)                                 UPON ANY TERMINATION OR REDUCTION OF THE
ADVANCE COMMITMENT PURSUANT TO THIS SECTION 2.6 PRIOR TO THE ADVANCE
AVAILABILITY TERMINATION DATE, BORROWER SHALL IMMEDIATELY MAKE A REPAYMENT OF
THE ADVANCE LOANS IF REQUIRED BY SECTION 2.4.

 

(E)                                  BORROWER SHALL NOT HAVE ANY RIGHT TO
RESCIND ANY TERMINATION OR REDUCTION.  ONCE TERMINATED OR REDUCED, THE ADVANCE
COMMITMENT MAY NOT BE REINSTATED.

 

18

--------------------------------------------------------------------------------

 

2.7                                 INTEREST ON ADVANCE LOANS GENERALLY.

 

(A)                                  SUBJECT TO THE PROVISIONS OF
SECTIONS 2.7(B) AND 2.9, EACH (I) EURODOLLAR RATE LOAN SHALL BEAR INTEREST ON
THE OUTSTANDING PRINCIPAL AMOUNT THEREOF FROM THE APPLICABLE BORROWING DATE OR
THE EFFECTIVE DATE OF THE ELECTION BY BORROWER THAT THE ADVANCE LOANS BECOME A
EURODOLLAR RATE LOAN, AS APPLICABLE, TO BUT NOT INCLUDING THE DATE ON WHICH
ANOTHER INTEREST RATE BECOMES APPLICABLE TO THE ADVANCE LOANS PURSUANT TO THE
TERMS OF THIS AGREEMENT AT A RATE PER ANNUM EQUAL TO THE LESSER OF (A) THE
HIGHEST LAWFUL RATE AND (B) THE EURODOLLAR RATE, AND (II) PRIME RATE LOAN SHALL
BEAR INTEREST ON THE OUTSTANDING PRINCIPAL AMOUNT THEREOF FROM THE DATE ON WHICH
THE ADVANCE LOANS CONVERT TO PRIME RATE LOANS PURSUANT TO SECTION 3.2 OR 3.3, TO
BUT NOT INCLUDING THE DATE ON WHICH ANOTHER INTEREST RATE BECOMES APPLICABLE TO
THE ADVANCE LOANS PURSUANT TO THE TERMS OF THIS AGREEMENT AT A RATE PER ANNUM
EQUAL TO THE LESSER OF (A) THE HIGHEST LAWFUL RATE AND (B) THE PRIME RATE. 
SUBJECT TO SECTIONS 2.7(B) AND 2.9, ALL OF THE ADVANCE LOANS SHALL BE A
EURODOLLAR RATE LOAN.  BORROWER MAY NOT ELECT THAT THE ADVANCE LOANS BE A PRIME
RATE LOAN; ALL OF THE ADVANCE LOANS SHALL BE A PRIME RATE LOAN ONLY IF THE
PROVISIONS OF SECTION 2.7(B) APPLY.

 

(B)                                 SUBJECT TO THE PROVISIONS OF SECTION 2.9, IF
AT ANY TIME LENDER HAS NOTIFIED BORROWER THAT THE PROVISIONS OF SECTIONS 3.2 OR
3.3 APPLY, ALL OF THE ADVANCE LOANS SHALL BECOME A PRIME RATE LOAN EFFECTIVE ON
THE DATE ON WHICH LENDER DETERMINES THAT THE PROVISIONS OF SECTIONS 3.2 OR 3.3
APPLY AND THE ADVANCE LOANS SHALL NOT BE A EURODOLLAR RATE LOAN UNTIL LENDER
NOTIFIES BORROWER THAT THE PROVISIONS OF SECTIONS 3.2 AND 3.3 NO LONGER APPLY.

 

(C)                                  INTEREST ON THE ADVANCE LOANS SHALL BE DUE
AND PAYABLE IN ARREARS ON EACH INTEREST PAYMENT DATE APPLICABLE THERETO AND AT
SUCH OTHER TIMES AS MAY BE SPECIFIED HEREIN.  INTEREST HEREUNDER SHALL BE DUE
AND PAYABLE IN ACCORDANCE WITH THE TERMS HEREOF BEFORE AND AFTER JUDGMENT, AND
BEFORE AND AFTER THE COMMENCEMENT OF ANY PROCEEDING UNDER ANY DEBTOR RELIEF LAW.

 

2.8                                 COMPUTATIONS.  SUBJECT TO SECTION 9.11,
INTEREST ON THE ADVANCE LOANS AND ANY OTHER AMOUNTS DUE HEREUNDER SHALL BE
CALCULATED ON THE BASIS OF ACTUAL DAYS ELAPSED OVER A YEAR OF 360 DAYS.  NOTHING
HEREIN SHALL BE DEEMED TO OBLIGATE LENDER TO OBTAIN THE FUNDS FOR ANY ADVANCE
LOAN IN ANY PARTICULAR PLACE OR MANNER OR TO CONSTITUTE A REPRESENTATION BY
LENDER THAT IT HAS OBTAINED OR WILL OBTAIN THE FUNDS FOR ANY ADVANCE LOAN IN ANY
PARTICULAR PLACE OR MANNER.

 

2.9                                 INTEREST AFTER AN EVENT OF DEFAULT.  (A) IF
AN EVENT OF DEFAULT EXISTS (OTHER THAN A DEFAULT SPECIFIED IN SECTION 8.1(E) OR
(F)), AT THE OPTION OF LENDER, AND (B) IF AN EVENT OF DEFAULT SPECIFIED IN
SECTION 8.1(E) OR (F) EXISTS, AUTOMATICALLY AND WITHOUT ANY ACTION BY LENDER,
THE OBLIGATIONS SHALL BEAR INTEREST AT A RATE PER ANNUM EQUAL TO THE LESSER OF
(I) THE DEFAULT RATE AND (II) THE HIGHEST LAWFUL RATE.  SUCH INTEREST SHALL BE
PAYABLE ON THE EARLIER OF DEMAND AND THE ADVANCE LOAN MATURITY DATE, AND SHALL
ACCRUE UNTIL THE EARLIER OF (A) WAIVER OR CURE (TO THE SATISFACTION OF LENDER)
OF THE APPLICABLE EVENT OF DEFAULT, (B) AGREEMENT BY LENDER TO RESCIND THE
CHARGING OF INTEREST AT THE DEFAULT RATE, OR (C) PAYMENT IN FULL OF THE
OBLIGATIONS.  LENDER SHALL NOT BE REQUIRED TO ACCELERATE THE MATURITY OF THE
ADVANCE LOANS, TO EXERCISE ANY OTHER RIGHTS OR REMEDIES UNDER THE LOAN
DOCUMENTS, OR TO GIVE NOTICE TO BORROWER OF THE DECISION TO CHARGE INTEREST AT
THE DEFAULT RATE.  LENDER WILL UNDERTAKE TO NOTIFY BORROWER, AFTER THE EFFECTIVE
DATE, OF

 

19

--------------------------------------------------------------------------------

 

THE DECISION TO CHARGE INTEREST AT THE DEFAULT RATE.  THE DETERMINATION OF THE
DEFAULT RATE BY LENDER SHALL BE PRIMA FACIE EVIDENCE AS TO THE DEFAULT RATE.

 

2.10                           LATE CHARGE.  IF A PAYMENT IS MADE 10 DAYS OR
MORE LATE, BORROWER WILL BE CHARGED (SUBJECT TO SECTION 9.11), IN ADDITION TO
INTEREST, A DELINQUENCY CHARGE OF (A) 5% OF THE UNPAID PORTION OF THE REGULARLY
SCHEDULED PAYMENT, OR (B) $250.00, WHICHEVER IS LESS.  ADDITIONALLY, IF THE
AMOUNT OF THE ADVANCE LOANS (PLUS ALL ACCRUED BUT UNPAID INTEREST) IS NOT PAID
IN FULL ON THE ADVANCE LOAN MATURITY DATE, BORROWER WILL BE CHARGED (SUBJECT TO
SECTION 9.11) A DELINQUENCY CHARGE OF (A) 5% OF THE SUM OF THE OUTSTANDING
PRINCIPAL BALANCE (PLUS ALL ACCRUED BUT UNPAID INTEREST), OR (B) $250.00,
WHICHEVER IS LESS.  BORROWER AGREES WITH LENDER THAT THE CHARGES SET FORTH
HEREIN ARE REASONABLE COMPENSATION TO LENDER FOR THE HANDLING OF SUCH LATE
PAYMENTS.

 

2.11                           PAYMENTS GENERALLY.

 

(A)                                  EACH PAYMENT (INCLUDING PREPAYMENTS) BY
BORROWER OF THE PRINCIPAL OF OR INTEREST ON THE ADVANCE LOANS AND ANY OTHER
AMOUNT OWED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE MADE NOT
LATER THAN 2:00 P.M. ON THE DATE SPECIFIED FOR PAYMENT UNDER THIS AGREEMENT TO
LENDER AT LENDER’S OFFICE, IN DOLLARS CONSTITUTING IMMEDIATELY AVAILABLE FUNDS. 
ALL PAYMENTS RECEIVED BY LENDER AFTER 2:00 `P.M., SHALL BE DEEMED RECEIVED ON
THE NEXT SUCCEEDING BUSINESS DAY AND ANY APPLICABLE INTEREST AND FEES SHALL
CONTINUE TO ACCRUE.

 

(B)                                 IF ANY PAYMENT UNDER THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT SHALL BE SPECIFIED TO BE MADE UPON A DAY WHICH IS NOT A
BUSINESS DAY, IT SHALL BE MADE ON THE NEXT SUCCEEDING DAY WHICH IS A BUSINESS
DAY.  ANY EXTENSION OF TIME SHALL IN SUCH CASE BE INCLUDED IN COMPUTING INTEREST
AND FEES, IF ANY, IN CONNECTION WITH SUCH PAYMENT.

 

(C)                                  BORROWER AGREES TO PAY PRINCIPAL, INTEREST,
FEES AND ALL OTHER AMOUNTS DUE UNDER THE LOAN DOCUMENTS WITHOUT DEDUCTION FOR
SET OFF OR COUNTERCLAIM OR ANY DEDUCTION WHATSOEVER.

 

(D)                                 IF SOME BUT LESS THAN ALL AMOUNTS DUE FROM
BORROWER ARE RECEIVED BY LENDER, LENDER SHALL APPLY SUCH AMOUNTS IN THE
FOLLOWING ORDER OF PRIORITY:  (I) TO THE PAYMENT OF LENDER’S EXPENSES REQUIRED
TO BE PAID BY BORROWER PURSUANT TO THE LOAN DOCUMENTS AND THEN DUE AND PAYABLE,
IF ANY; (II) TO THE PAYMENT OF ALL OTHER FEES THEN DUE AND PAYABLE; (III) TO THE
PAYMENT OF INTEREST THEN DUE AND PAYABLE ON THE ADVANCE LOANS; (IV) TO THE
PAYMENT OF ALL OTHER AMOUNTS NOT OTHERWISE REFERRED TO IN THIS
SECTION 2.11(D) THEN DUE AND PAYABLE UNDER THE LOAN DOCUMENTS; AND (V) TO THE
PAYMENT OF PRINCIPAL THEN DUE AND PAYABLE ON THE ADVANCE LOANS.

 

(E)                                  ALL PREPAYMENTS SHALL BE APPLIED (I) FIRST
TO ACCRUED INTEREST AND (II) SECOND TO OUTSTANDING PRINCIPAL IN THE INVERSE
ORDER OF MATURITY.

 

2.12                           BOOKING THE ADVANCE LOANS.  LENDER MAY MAKE,
CARRY OR TRANSFER EACH ADVANCE LOAN AT, TO OR FOR THE ACCOUNT OF ANY OF ITS
OFFICES OR THE OFFICE OF ANY AFFILIATE OF LENDER.

 

2.13                           COLLATERAL.  PAYMENT OF THE OBLIGATIONS IS
SECURED ON THE AGREEMENT DATE BY (A) A PERFECTED FIRST PRIORITY SECURITY
INTEREST IN ALL OF THE AUTHORIZED, ISSUED AND OUTSTANDING CAPITAL

 

20

--------------------------------------------------------------------------------

 

STOCK AND OTHER EQUITY INTERESTS OF EACH OF GAICA AND NSLI, AND (B) A GUARANTY
OF THE OBLIGATIONS BY NSLI.  BORROWER SHALL CAUSE EACH MATERIAL SUBSIDIARY
(OTHER THAN A RIC) OF BORROWER CREATED OR ACQUIRED AFTER THE AGREEMENT DATE AND
EACH SUBSIDIARY (OTHER THAN A RIC) THAT BECOMES A MATERIAL SUBSIDIARY AFTER THE
AGREEMENT DATE TO EXECUTE AND DELIVER TO LENDER A GUARANTY OR SUPPLEMENT TO AN
EXISTING GUARANTY.

 

ARTICLE III

 

TAXES, YIELD PROTECTION AND ILLEGALITY

 

3.1                                 TAXES.

 

(A)                                  EXCEPT AS PROVIDED IN THIS SECTION 3.1, ANY
AND ALL PAYMENTS BY BORROWER TO OR FOR THE ACCOUNT OF LENDER UNDER ANY LOAN
DOCUMENT SHALL BE MADE FREE AND CLEAR OF AND WITHOUT DEDUCTION FOR ANY AND ALL
PRESENT OR FUTURE INCOME, STAMP OR OTHER TAXES, DUTIES, LEVIES, IMPOSTS,
DEDUCTIONS, ASSESSMENTS, FEES, WITHHOLDINGS OR SIMILAR CHARGES, NOW OR HEREAFTER
IMPOSED, AND ALL LIABILITIES WITH RESPECT THERETO, EXCLUDING, IN THE CASE OF
LENDER, OR ITS PRINCIPAL OFFICE, APPLICABLE LENDING OFFICE, OR ANY BRANCH OR
AFFILIATE THEREOF, TAXES IMPOSED ON OR MEASURED BY ITS NET INCOME (INCLUDING NET
INCOME TAXES IMPOSED BY MEANS OF A BACKUP WITHHOLDING TAX) FRANCHISE TAXES,
BRANCH TAXES, TAXES ON DOING BUSINESS OR TAXES MEASURED BY OR IMPOSED UPON THE
OVERALL CAPITAL OR NET WORTH OF LENDER OR ITS PRINCIPAL OFFICE, APPLICABLE
LENDING OFFICE, ANY BRANCH OR AFFILIATE THEREOF, IN EACH CASE IMPOSED:  (I)  BY
THE JURISDICTION UNDER THE LAWS OF WHICH LENDER, ITS PRINCIPAL OFFICE,
APPLICABLE LENDING OFFICE, BRANCH OR AFFILIATE IS ORGANIZED OR IS LOCATED, OR IN
WHICH THE PRINCIPAL EXECUTIVE OFFICE OF LENDER IS LOCATED, OR ANY NATION WITHIN
WHICH SUCH JURISDICTION IS LOCATED OR ANY POLITICAL SUBDIVISION THEREOF, OR
(II)  BY REASON OF ANY PRESENT OR FORMER CONNECTION BETWEEN THE JURISDICTION
IMPOSING SUCH TAX AND LENDER OR ITS PRINCIPAL OFFICE, APPLICABLE LENDING OFFICE,
BRANCH OR AFFILIATE OTHER THAN A CONNECTION ARISING SOLELY FROM LENDER HAVING
EXECUTED, DELIVERED OR PERFORMED ITS OBLIGATION UNDER, OR RECEIVED PAYMENT UNDER
OR ENFORCED THIS AGREEMENT PURSUANT TO THE LAWS OF SUCH JURISDICTION (ALL SUCH
TAXES, DUTIES, LEVIES, IMPOSTS, DEDUCTIONS, ASSESSMENTS, FEES, WITHHOLDINGS OR
SIMILAR CHARGES, AND LIABILITIES BEING HEREINAFTER REFERRED TO AS “INDEMNIFIED
TAXES”).  IF BORROWER SHALL BE REQUIRED BY ANY LAWS TO DEDUCT ANY INDEMNIFIED
TAXES FROM OR IN RESPECT OF ANY SUM PAYABLE UNDER ANY LOAN DOCUMENT TO LENDER,
(I) THE SUM PAYABLE SHALL BE INCREASED AS NECESSARY TO YIELD TO LENDER AN AMOUNT
EQUAL TO THE SUM IT WOULD HAVE RECEIVED HAD NO SUCH DEDUCTIONS BEEN MADE,
(II) BORROWER SHALL MAKE SUCH DEDUCTIONS, (III) BORROWER SHALL PAY THE FULL
AMOUNT DEDUCTED TO THE RELEVANT TAXATION AUTHORITY OR OTHER GOVERNMENTAL
AUTHORITY IN ACCORDANCE WITH APPLICABLE LAWS, AND (IV) PROMPTLY (BUT IN NO EVENT
LATER THAN THIRTY DAYS) AFTER THE DATE OF SUCH PAYMENT, BORROWER SHALL FURNISH
TO LENDER THE ORIGINAL OR A CERTIFIED COPY OF A RECEIPT EVIDENCING PAYMENT
THEREOF.

 

(B)                                 IN ADDITION, BORROWER SHALL PAY ANY AND ALL
PRESENT OR FUTURE STAMP, COURT OR DOCUMENTARY TAXES AND ANY OTHER EXCISE OR
PROPERTY TAXES OR CHARGES OR SIMILAR LEVIES WHICH ARISE FROM ANY PAYMENT MADE
UNDER ANY LOAN DOCUMENT OR FROM THE EXECUTION, DELIVERY, PERFORMANCE,
ENFORCEMENT OR REGISTRATION OF, OR OTHERWISE WITH RESPECT TO, ANY LOAN DOCUMENT
(HEREINAFTER REFERRED TO AS “OTHER TAXES”).

 

(C)                                  IF BORROWER SHALL BE REQUIRED TO DEDUCT OR
PAY ANY INDEMNIFIED TAXES OR OTHER TAXES FROM OR IN RESPECT OF ANY SUM PAYABLE
UNDER ANY LOAN DOCUMENT TO LENDER,

 

21

--------------------------------------------------------------------------------

 

BORROWER SHALL ALSO PAY TO LENDER, AT THE TIME INTEREST ON THE OBLIGATIONS IS
PAID, SUCH ADDITIONAL AMOUNT THAT LENDER DETERMINES AS NECESSARY TO PRESERVE THE
AFTER-TAX YIELD (AFTER FACTORING IN ALL TAXES, INCLUDING TAXES IMPOSED ON OR
MEASURED BY NET INCOME) LENDER WOULD HAVE RECEIVED IF SUCH INDEMNIFIED TAXES OR
OTHER TAXES HAD NOT BEEN IMPOSED.

 

(D)                                 BORROWER SHALL INDEMNIFY LENDER FOR (I)  THE
FULL AMOUNT OF INDEMNIFIED TAXES AND OTHER TAXES (INCLUDING ANY INDEMNIFIED
TAXES OR OTHER TAXES IMPOSED OR ASSERTED BY ANY JURISDICTION ON AMOUNTS PAYABLE
UNDER THIS SECTION) PAID BY LENDER, (II)  AMOUNTS PAYABLE UNDER
SECTION 3.1(C) AND (III)  ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, IN EACH CASE WHETHER OR NOT
SUCH INDEMNIFIED TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY IMPOSED OR
ASSERTED BY THE RELEVANT GOVERNMENTAL AUTHORITY.  PAYMENT UNDER THIS
SECTION 3.1(D) SHALL BE MADE WITHIN THIRTY DAYS AFTER THE DATE LENDER MAKES A
DEMAND THEREFOR.

 

(E)                                  IF LENDER DETERMINES, IN ITS REASONABLE
DISCRETION, THAT IT HAS RECEIVED A REFUND OF ANY INDEMNIFIED TAXES OR OTHER
TAXES AS TO WHICH IT HAS BEEN INDEMNIFIED BY BORROWER OR WITH RESPECT TO WHICH
BORROWER HAS PAID ADDITIONAL AMOUNTS PURSUANT TO THIS SECTION, IT SHALL PAY TO
BORROWER AN AMOUNT EQUAL TO SUCH REFUND (BUT ONLY TO THE EXTENT OF INDEMNITY
PAYMENTS MADE, OR ADDITIONAL AMOUNTS PAID, BY BORROWER UNDER THIS SECTION WITH
RESPECT TO THE INDEMNIFIED TAXES OR OTHER TAXES GIVING RISE TO SUCH REFUND), NET
OF ALL OUT-OF-POCKET EXPENSES OF LENDER AND WITHOUT INTEREST (OTHER THAN ANY
INTEREST PAID BY THE RELEVANT GOVERNMENTAL AUTHORITY WITH RESPECT TO SUCH
REFUND), PROVIDED THAT BORROWER, UPON THE REQUEST OF LENDER, AGREES TO REPAY THE
AMOUNT PAID OVER TO BORROWER (PLUS ANY PENALTIES, INTEREST OR OTHER CHARGES
IMPOSED BY THE RELEVANT GOVERNMENTAL AUTHORITY) TO LENDER IN THE EVENT LENDER IS
REQUIRED TO REPAY SUCH REFUND TO SUCH GOVERNMENTAL AUTHORITY.  NEITHER THIS
SECTION NOR ANY OTHER LOAN DOCUMENT SHALL BE CONSTRUED TO REQUIRE LENDER TO MAKE
AVAILABLE ITS TAX RETURNS (OR ANY OTHER INFORMATION RELATING TO ITS TAXES THAT
IT DEEMS CONFIDENTIAL) TO BORROWER OR ANY OTHER PERSON.

 

3.2                                 ILLEGALITY.  IF LENDER DETERMINES THAT ANY
CHANGE IN LAW ON OR AFTER THE AGREEMENT DATE HAS MADE IT UNLAWFUL, OR THAT ANY
GOVERNMENTAL AUTHORITY ON OR AFTER THE AGREEMENT DATE HAS ASSERTED THAT IT IS
UNLAWFUL, FOR LENDER OR ITS APPLICABLE LENDING OFFICE TO MAKE, MAINTAIN OR FUND
EURODOLLAR RATE LOANS, OR MATERIALLY RESTRICTS THE AUTHORITY OF LENDER TO
PURCHASE OR SELL, OR TO TAKE DEPOSITS OF, DOLLARS IN THE APPLICABLE OFFSHORE
DOLLAR MARKET, OR TO DETERMINE OR CHARGE INTEREST RATES BASED UPON THE
EURODOLLAR BASIS, THEN, ON NOTICE THEREOF BY LENDER TO BORROWER, ANY OBLIGATION
OF LENDER TO MAKE OR MAINTAIN EURODOLLAR RATE LOANS SHALL BE SUSPENDED UNTIL
LENDER NOTIFIES BORROWER THAT THE CIRCUMSTANCES GIVING RISE TO SUCH
DETERMINATION NO LONGER EXIST.  UPON THE DATE OF SUCH NOTICE, ALL EURODOLLAR
RATE LOANS SHALL CONVERT TO PRIME RATE LOANS.  LENDER AGREES TO DESIGNATE A
DIFFERENT LENDING OFFICE IF SUCH DESIGNATION WILL AVOID THE NEED FOR SUCH NOTICE
AND WILL NOT, IN THE GOOD FAITH JUDGMENT OF LENDER, OTHERWISE BE MATERIALLY
DISADVANTAGEOUS TO LENDER.

 

3.3                                 INABILITY TO DETERMINE RATES.  IF (A) LENDER
REASONABLY DETERMINES IN CONNECTION WITH ANY REQUEST FOR OR MAINTENANCE OF A
EURODOLLAR RATE LOAN OR ANY DETERMINATION OF THE EURODOLLAR BASIS THAT
(I) DOLLAR DEPOSITS ARE NOT BEING OFFERED TO BANKS IN THE APPLICABLE OFFSHORE

 

22

--------------------------------------------------------------------------------

 

DOLLAR MARKET FOR THE APPLICABLE AMOUNT AND APPLICABLE TERM, OR (II) ADEQUATE
AND REASONABLE MEANS DO NOT EXIST FOR DETERMINING THE EURODOLLAR BASIS, OR (B) 
LENDER NOTIFIES BORROWER THAT THE EURODOLLAR BASIS FOR SUCH EURODOLLAR RATE LOAN
DOES NOT ADEQUATELY AND FAIRLY REFLECT THE COST TO LENDER OF FUNDING OR
MAINTAINING SUCH EURODOLLAR RATE LOAN, LENDER WILL PROMPTLY NOTIFY BORROWER. 
THEREAFTER, THE OBLIGATION OF LENDER TO MAKE OR MAINTAIN EURODOLLAR RATE LOANS
SHALL BE SUSPENDED UNTIL LENDER NOTIFIES BORROWER THAT LENDER REVOKES SUCH
NOTICE.  UPON THE DATE OF SUCH NOTICE, ALL EURODOLLAR RATE LOANS SHALL CONVERT
TO PRIME RATE LOANS.

 

3.4                                 INCREASED COST AND REDUCED RETURN; CAPITAL
ADEQUACY; RESERVES ON EURODOLLAR RATE LOANS.

 

(A)                                  IF LENDER IN GOOD FAITH DETERMINES THAT AS
A RESULT OF THE INTRODUCTION OF OR ANY CHANGE IN OR IN THE INTERPRETATION OF ANY
LAW ON OR AFTER THE AGREEMENT DATE, OR LENDER’S COMPLIANCE THEREWITH, THERE
SHALL BE ANY INCREASE IN THE COST TO LENDER OF AGREEING TO MAKE OR MAKING,
FUNDING OR MAINTAINING EURODOLLAR RATE LOANS, OR A REDUCTION IN THE AMOUNT
RECEIVED OR RECEIVABLE BY LENDER IN CONNECTION WITH ANY OF THE FOREGOING
(EXCLUDING FOR PURPOSES OF THIS SECTION 3.4(A) ANY SUCH INCREASED COSTS OR
REDUCTION IN AMOUNT RESULTING FROM (I)  INDEMNIFIED TAXES OR OTHER TAXES (AS TO
WHICH SECTION 3.1 SHALL GOVERN), (II)  CHANGES IN THE BASIS OF TAXATION OF
OVERALL NET INCOME OR OVERALL GROSS INCOME BY THE UNITED STATES OR ANY POLITICAL
SUBDIVISION OF EITHER THEREOF UNDER THE LAWS OF WHICH LENDER IS ORGANIZED OR HAS
ITS PRINCIPAL OFFICE OR APPLICABLE LENDING OFFICE, AND (III)  RESERVE
REQUIREMENTS CONTEMPLATED BY SECTION 3.4(C)), THEN FROM TIME TO TIME WITHIN FIVE
BUSINESS DAYS AFTER DEMAND OF LENDER, BORROWER SHALL PAY TO LENDER SUCH
ADDITIONAL AMOUNTS AS WILL COMPENSATE LENDER FOR INCREASED COST OR REDUCTION.

 

(B)                                 IF LENDER IN GOOD FAITH DETERMINES THAT THE
INTRODUCTION OF ANY LAW REGARDING CAPITAL ADEQUACY OR ANY CHANGE THEREIN OR IN
THE INTERPRETATION THEREOF ON OR AFTER THE AGREEMENT DATE, OR COMPLIANCE BY
LENDER (OR ITS LENDING OFFICE) THEREWITH, HAS THE EFFECT OF REDUCING THE RATE OF
RETURN ON THE CAPITAL OF LENDER OR ANY CORPORATION CONTROLLING LENDER WITH
RESPECT TO THIS AGREEMENT AS A CONSEQUENCE OF LENDER’S OBLIGATIONS HEREUNDER
(TAKING INTO CONSIDERATION ITS POLICIES WITH RESPECT TO CAPITAL ADEQUACY), THEN
FROM TIME TO TIME WITHIN FIVE BUSINESS DAYS AFTER DEMAND OF LENDER AND WRITTEN
EXPLANATION OF ITS DETERMINATION IN REASONABLE DETAIL, BORROWER SHALL PAY TO
LENDER SUCH ADDITIONAL AMOUNTS AS WILL COMPENSATE LENDER FOR SUCH REDUCTION.

 

(C)                                  BORROWER SHALL PAY TO LENDER, AS LONG AS
LENDER SHALL BE REQUIRED UNDER REGULATIONS OF THE FEDERAL RESERVE BOARD TO
MAINTAIN RESERVES WITH RESPECT TO LIABILITIES OR ASSETS CONSISTING OF OR
INCLUDING EUROCURRENCY FUNDS OR DEPOSITS (CURRENTLY KNOWN AS “EUROCURRENCY
LIABILITIES”), ADDITIONAL COSTS ON THE UNPAID PRINCIPAL AMOUNT OF EACH
EURODOLLAR RATE LOAN EQUAL TO THE ACTUAL COSTS OF SUCH RESERVES ALLOCATED TO
SUCH EURODOLLAR RATE LOAN BY LENDER (AS DETERMINED BY LENDER IN GOOD FAITH,
WHICH DETERMINATION SHALL CONSTITUTE PRIMA FACIE EVIDENCE AS TO THE FACTS
THEREOF), WHICH SHALL BE DUE AND PAYABLE ON EACH DATE ON WHICH INTEREST IS
PAYABLE ON SUCH EURODOLLAR RATE LOAN, PROVIDED BORROWER SHALL HAVE RECEIVED AT
LEAST FIFTEEN DAYS’ PRIOR NOTICE OF SUCH ADDITIONAL INTEREST FROM LENDER.  IF
LENDER FAILS TO GIVE NOTICE FIFTEEN DAYS PRIOR TO THE RELEVANT PAYMENT DATE,
SUCH ADDITIONAL INTEREST SHALL BE DUE AND PAYABLE FIFTEEN DAYS FROM RECEIPT OF
SUCH NOTICE.

 

(D)                                 IF LENDER CLAIMS ANY ADDITIONAL AMOUNTS
PAYABLE PURSUANT TO THIS SECTION 3.4, IT SHALL USE ITS REASONABLE BEST EFFORTS
(CONSISTENT WITH ITS INTERNAL POLICY AND LEGAL

 

23

--------------------------------------------------------------------------------

 

AND REGULATORY RESTRICTIONS) TO CHANGE THE JURISDICTION OF ITS APPLICABLE
LENDING OFFICE, IF THE MAKING OF SUCH A CHANGE WOULD AVOID THE NEED FOR, OR
REDUCE THE AMOUNT OF, ANY SUCH ADDITIONAL AMOUNTS WHICH MAY THEREAFTER ACCRUE
AND WOULD NOT, IN THE REASONABLE JUDGMENT OF LENDER, BE DISADVANTAGEOUS TO
LENDER.

 

3.5                                 MATTERS APPLICABLE TO ALL REQUESTS FOR
COMPENSATION.  ANY DEMAND OR NOTICE DELIVERED BY LENDER TO BORROWER CLAIMING
COMPENSATION UNDER THIS ARTICLE III SHALL BE IN WRITING AND SHALL CERTIFY
(A) THAT ONE OF THE EVENTS DESCRIBED IN THIS ARTICLE III HAS OCCURRED,
DESCRIBING IN REASONABLE DETAIL THE NATURE OF SUCH EVENT AND (B) AS TO THE
AMOUNT OR AMOUNTS FOR WHICH LENDER SEEKS COMPENSATION HEREUNDER, SETTING FORTH
IN REASONABLE DETAIL THE BASIS FOR AND CALCULATIONS OF SUCH COMPENSATION.  IN
DETERMINING SUCH AMOUNT, LENDER MAY USE ANY REASONABLE AVERAGING AND ATTRIBUTION
METHODS.

 

3.6                                 SURVIVAL.  ALL OF BORROWER’S OBLIGATIONS
UNDER THIS ARTICLE III SHALL SURVIVE TERMINATION OF THE ADVANCE COMMITMENT AND
PAYMENT IN FULL OF ALL OBLIGATIONS.

 

ARTICLE IV

 

CONDITIONS PRECEDENT

 

4.1                                 CONDITIONS PRECEDENT TO INITIAL ADVANCE
LOAN.  THE OBLIGATION OF LENDER TO MAKE THE INITIAL ADVANCE LOAN IS SUBJECT TO
(I) RECEIPT BY LENDER OF THE FOLLOWING ITEMS WHICH ARE TO BE DELIVERED, IN FORM
AND SUBSTANCE REASONABLY SATISFACTORY TO LENDER AND (II) SATISFACTION OF THE
FOLLOWING CONDITIONS, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO LENDER:

 

(A)                                  BORROWER CERTIFICATE.  A CERTIFICATE OF
OFFICERS ACCEPTABLE TO LENDER OF BORROWER CERTIFYING AS TO (I)  THE INCUMBENCY
OF THE OFFICERS SIGNING SUCH CERTIFICATE AND THE LOAN DOCUMENTS TO WHICH IT IS A
PARTY, (II)  AN ORIGINAL CERTIFIED COPY OF ITS ARTICLES OF INCORPORATION,
CERTIFIED AS TRUE, COMPLETE AND CORRECT AS OF A DATE ACCEPTABLE TO LENDER BY THE
APPROPRIATE AUTHORITY OF THE STATE OF TEXAS, (III)  A COPY OF ITS BYLAWS, AS IN
EFFECT ON THE AGREEMENT DATE, (IV)  A COPY OF THE RESOLUTIONS OF ITS BOARD OF
DIRECTORS AUTHORIZING IT TO EXECUTE, DELIVER AND PERFORM THE LOAN DOCUMENTS TO
WHICH IT IS A PARTY, (V)  AN ORIGINAL CERTIFICATE OR CERTIFICATES OF GOOD
STANDING, EXISTENCE AND QUALIFICATION ISSUED BY THE APPROPRIATE AUTHORITY OR
AUTHORITIES OF THE STATE OF TEXAS (CERTIFIED AS OF A DATE ACCEPTABLE TO LENDER),
(VI)  THE ACCURACY OF THE REPRESENTATIONS AND WARRANTIES IN THE LOAN DOCUMENTS,
(VII)  NO DEFAULT OR EVENT OF DEFAULT EXISTS, AND (VIII)  NO MATERIAL ADVERSE
CHANGE HAVING OCCURRED.

 

(B)                                 OBLIGOR CERTIFICATE.  A CERTIFICATE OF
OFFICERS ACCEPTABLE TO LENDER OF EACH OBLIGOR (OTHER THAN BORROWER) CERTIFYING
AS TO (I)  THE INCUMBENCY OF THE OFFICERS SIGNING SUCH CERTIFICATE AND THE LOAN
DOCUMENTS TO WHICH IT IS A PARTY, (II)  IF A CORPORATION, AN ORIGINAL CERTIFIED
COPY OF ITS ARTICLES OF INCORPORATION OR CERTIFICATE OF INCORPORATION, AS
APPLICABLE, CERTIFIED AS TRUE, COMPLETE AND CORRECT AS OF A DATE ACCEPTABLE TO
LENDER BY THE APPROPRIATE AUTHORITY OF ITS STATE OF INCORPORATION, (III)  IF A
LIMITED LIABILITY COMPANY, AN ORIGINAL CERTIFIED COPY OF ITS ARTICLES OF
ORGANIZATION (OR SIMILAR ORGANIZATION AND GOVERNANCE DOCUMENT), CERTIFIED AS
TRUE, COMPLETE AND CORRECT AS OF A DATE ACCEPTABLE TO LENDER BY THE APPROPRIATE
AUTHORITY OF ITS STATE OF ORGANIZATION, (IV)  IF A LIMITED PARTNERSHIP, AN
ORIGINAL CERTIFIED COPY OF ITS CERTIFICATE OF LIMITED PARTNERSHIP (OR SIMILAR
ORGANIZATION OR GOVERNANCE DOCUMENT), CERTIFIED AS TRUE, COMPLETE AND CORRECT AS
OF A DATE ACCEPTABLE TO LENDER BY THE APPROPRIATE AUTHORITY OF ITS

 

24

--------------------------------------------------------------------------------

 

JURISDICTION OF ORGANIZATION, (V)  IF A CORPORATION, A COPY OF ITS BYLAWS, AS IN
EFFECT ON THE AGREEMENT DATE, (VI)  IF A LIMITED LIABILITY COMPANY, A COPY OF
ITS OPERATING AGREEMENT (OR SIMILAR ORGANIZATION AND GOVERNANCE DOCUMENT), AS IN
EFFECT ON THE AGREEMENT DATE, (VII)  IF A LIMITED PARTNERSHIP, A COPY OF ITS
PARTNERSHIP AGREEMENT (OR SIMILAR ORGANIZATION OR GOVERNANCE DOCUMENT), AS IN
EFFECT ON THE AGREEMENT DATE, (VIII)  A COPY OF THE RESOLUTIONS OF THE
APPROPRIATE GOVERNANCE BOARD AUTHORIZING IT TO EXECUTE, DELIVER AND PERFORM THE
LOAN DOCUMENTS TO WHICH IT IS A PARTY, AND (IX)  AN ORIGINAL CERTIFICATE OR
CERTIFICATES OF GOOD STANDING, EXISTENCE AND QUALIFICATION ISSUED BY THE
APPROPRIATE AUTHORITY OR AUTHORITIES OF ITS STATE OF ORGANIZATION AND THE STATE
IN WHICH ITS CHIEF EXECUTIVE OFFICE IS LOCATED (CERTIFIED AS OF A DATE
ACCEPTABLE TO LENDER).

 

(C)                                  GAICA CERTIFICATE.  A CERTIFICATE OF
OFFICERS ACCEPTABLE TO LENDER OF GAICA CERTIFYING AS TO (I)  AN ORIGINAL
CERTIFIED COPY OF ITS ARTICLES OF INCORPORATION, CERTIFIED AS TRUE, COMPLETE AND
CORRECT AS OF A DATE ACCEPTABLE TO LENDER BY THE OKLAHOMA SECRETARY OF STATE,
AND (II)  A COPY OF ITS BYLAWS, AS IN EFFECT ON THE AGREEMENT DATE.

 

(D)                                 ADVANCE NOTE.  THE DULY EXECUTED ADVANCE
NOTE, PAYABLE TO THE ORDER OF LENDER AND IN AN AMOUNT EQUAL TO THE ADVANCE
COMMITMENT.

 

(E)                                  APPLICABLE RATE CERTIFICATE.  AN
APPROPRIATELY COMPLETED APPLICABLE RATE CERTIFICATE SIGNED BY AN AUTHORIZED
SIGNATORY OF BORROWER.

 

(F)                                    SECURITY DOCUMENTS.  THE DULY EXECUTED
AND COMPLETED (I)  PLEDGE AGREEMENT EXECUTED BY BORROWER, DATED AS OF THE
AGREEMENT DATE, GRANTING TO LENDER, A FIRST PRIORITY LIEN IN THE COLLATERAL SET
FORTH THEREIN, TOGETHER WITH STOCK CERTIFICATES EVIDENCING ALL OF THE EQUITY
INTEREST OF EACH OF GAICA AND NSLI (WHICH CERTIFICATES SHALL NOT CONTAIN ANY
RESTRICTION ON TRANSFER NOT ACCEPTABLE TO LENDER), (II)  UNDATED, BLANK STOCK
POWERS EXECUTED BY BORROWER OF THE STOCK OR OTHER EQUITY INTEREST EVIDENCED BY
SUCH CERTIFICATES (WITH SIGNATURES GUARANTEED AS REQUIRED BY LENDER); AND
(III)  CONFIRMATIONS OF ALL LIENS ON ALL EQUITY INTERESTS OF EACH OF GAICA AND
NSLI.

 

(G)                                 GUARANTY.  THE DULY EXECUTED GUARANTY (IN
THE FORM OF EXHIBIT C) OF NSLI.

 

(H)                                 EXPENSES.  REIMBURSEMENT FOR ATTORNEY COSTS
INCURRED THROUGH THE DATE HEREOF.

 

(I)                                     UCC AND LIEN SEARCHES.  SEARCHES OF THE
UNIFORM COMMERCIAL CODE, TAX LIEN AND OTHER RECORDS AS LENDER MAY REQUIRE.

 

(J)                                     OPINIONS OF BORROWER’S AND EACH OTHER
OBLIGORS’ COUNSEL.  OPINIONS OF COUNSEL TO BORROWER AND EACH OTHER OBLIGOR
ADDRESSED TO LENDER, DATED THE AGREEMENT DATE AND COVERING SUCH MATTERS INCIDENT
TO THE TRANSACTIONS CONTEMPLATED HEREBY AS LENDER OR SPECIAL COUNSEL MAY
REASONABLY REQUEST.

 

(K)                                  OBLIGOR PROCEEDINGS.  EVIDENCE THAT ALL
CORPORATE, LIMITED LIABILITY COMPANY AND PARTNERSHIP PROCEEDINGS OF EACH OBLIGOR
AND EACH OTHER PERSON (OTHER THAN LENDER) TAKEN IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO LENDER AND SPECIAL

 

25

--------------------------------------------------------------------------------

 

COUNSEL; AND LENDER SHALL HAVE RECEIVED COPIES OF ALL DOCUMENTS OR OTHER
EVIDENCE WHICH LENDER OR SPECIAL COUNSEL MAY REASONABLY REQUEST IN CONNECTION
WITH SUCH TRANSACTIONS.

 

(L)                                     TRANSFER RESTRICTIONS.  EVIDENCE THAT
ALL RESTRICTIONS ON TRANSFER OF ANY INTEREST IN ANY EQUITY OF GAICA AND NSLI
CONTAINED IN ANY ORGANIZATION, GOVERNANCE, VOTING RIGHTS, WARRANT, OPTION OR
SIMILAR AGREEMENT RELATED TO GAICA AND NSLI ARE WAIVED OR MODIFIED IN FORM AND
SUBSTANCE SATISFACTORY TO LENDER.

 

(M)                               CURRENT FINANCIAL STATEMENTS.  A COPY OF THE
CURRENT FINANCIALS, INCLUDING (I)  THE AUDITED ANNUAL CONSOLIDATED FINANCIAL
STATEMENTS, SHOWING THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
BORROWER AND ITS CONSOLIDATION SUBSIDIARIES AS OF, AND FOR THE YEAR ENDED ON,
DECEMBER 31, 2004, TOGETHER WITH THE OPINION OF AUDITORS CONTAINING ONLY
QUALIFICATIONS AND EMPHASIS ACCEPTABLE TO LENDER, (II)  THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS, SHOWING THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF BORROWER AND ITS CONSOLIDATED SUBSIDIARIES AS OF, AND FOR THE
FISCAL QUARTER ENDED ON, JUNE 30, 2005, (III)  THE ANNUAL FINANCIAL STATEMENTS
OF EACH RIC PREPARED IN THE FORM OF CONVENTION BLANKS PRESCRIBED BY NAIC, AS
FILED WITH THE INSURANCE REGULATOR OF SUCH RIC’S JURISDICTION OF ORGANIZATION,
FOR THE YEAR ENDED ON DECEMBER 31, 2004, AND (IV)  THE QUARTERLY FINANCIAL
STATEMENTS OF EACH RIC PREPARED IN THE FORM OF CONVENTION BLANKS PRESCRIBED BY
NAIC, AS FILED WITH THE INSURANCE REGULATOR OF SUCH RIC’S JURISDICTION OF
ORGANIZATION, FOR THE QUARTER ENDED ON JUNE 30, 2005.

 

(N)                                 COMPLIANCE CERTIFICATE.  A COMPLIANCE
CERTIFICATE, DATED THE AGREEMENT DATE AND SIGNED BY AN AUTHORIZED SIGNATORY OF
BORROWER, CONFIRMING COMPLIANCE WITH THE FINANCIAL COVENANTS SET FORTH THEREIN
AS OF THE MOST RECENT DETERMINATION DATE.

 

(O)                                 INSURANCE EVIDENCE THAT INSURANCE REQUIRED
BY THE LOAN DOCUMENTS IS IN EFFECT.

 

(P)                                 INVESTMENT PORTFOLIO AND POLICY.  A
SCHEDULE OF ALL EXISTING INVESTMENTS AND A COPY OF THE COMPLETE CURRENTLY
EFFECTIVE INVESTMENT POLICY OF EACH RIC, AND LENDER SHALL BE SATISFIED WITH THE
INVESTMENT PORTFOLIO OF EACH RIC AND THE INVESTMENT POLICY OF EACH RIC.

 

(Q)                                 NOTICE OF FINAL AGREEMENT.  THE NOTICE OF
FINAL AGREEMENT EXECUTED BY ALL PARTIES THERETO.

 

(R)                                    EXISTING DEBT.  A SCHEDULE OF ALL
EXISTING DEBT, IN DETAIL SATISFACTORY TO LENDER.

 

(S)                                  EXISTING LITIGATION.  A SCHEDULE OF ALL
EXISTING LITIGATION, IN DETAIL SATISFACTORY TO LENDER.

 

(T)                                    PREFERRED STOCK DOCUMENTS.  A COPY OF ALL
PREFERRED STOCK DOCUMENTS, TOGETHER WITH ALL AMENDMENTS THERETO.

 

(U)                                 OTHER DOCUMENTS.  IN FORM AND SUBSTANCE
SATISFACTORY TO LENDER AND SPECIAL COUNSEL, SUCH OTHER DOCUMENTS, INSTRUMENTS
AND CERTIFICATES AS LENDER MAY REASONABLY REQUIRE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

26

--------------------------------------------------------------------------------

 

4.2                                 CONDITIONS PRECEDENT TO ALL ADVANCE LOANS. 
THE OBLIGATION OF LENDER TO MAKE EACH ADVANCE LOAN (INCLUDING THE INITIAL
ADVANCE LOAN) IS SUBJECT TO FULFILLMENT OF THE FOLLOWING CONDITIONS IMMEDIATELY
PRIOR TO OR CONTEMPORANEOUSLY WITH EACH SUCH ADVANCE LOAN:

 

(A)                                  REPRESENTATIONS AND WARRANTIES.  ALL OF THE
REPRESENTATIONS AND WARRANTIES OF BORROWER, EACH OF ITS SUBSIDIARIES AND EACH
OTHER OBLIGOR UNDER THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT, WHICH, PURSUANT
TO SECTION 7.24, ARE MADE AT AND AS OF THE TIME OF EACH ADVANCE LOAN, SHALL BE
TRUE AND CORRECT WHEN MADE, EXCEPT TO THE EXTENT APPLICABLE TO A SPECIFIC DATE,
BOTH BEFORE AND AFTER GIVING EFFECT TO THE APPLICATION OF THE PROCEEDS OF SUCH
ADVANCE LOAN.

 

(B)                                 NO DEFAULT OR EVENT OF DEFAULT.  THERE SHALL
NOT EXIST A DEFAULT OR EVENT OF DEFAULT.

 

(C)                                  NOTICES; DOCUMENTS.  LENDER SHALL HAVE
RECEIVED ALL NOTICES AND DOCUMENTS REQUIRED BY ARTICLE II AS A CONDITION TO THE
RELATED ADVANCE LOAN.

 

(D)                                 LITIGATION.  EXCEPT AS DESCRIBED IN
SCHEDULE 7.5, THERE SHALL BE NO LITIGATION PENDING AGAINST, OR, TO BORROWER’S OR
ANY OBLIGOR’S KNOWLEDGE, THREATENED AGAINST BORROWER, ANY OTHER OBLIGOR, OR ANY
SUBSIDIARY, OR IN ANY OTHER MANNER RELATING DIRECTLY AND ADVERSELY TO BORROWER,
ANY OTHER OBLIGOR, OR ANY SUBSIDIARY, OR ANY OF THEIR RESPECTIVE PROPERTIES, IN
ANY COURT OR BEFORE ANY ARBITRATOR OF ANY KIND OR BEFORE OR BY ANY GOVERNMENTAL
AUTHORITY WHICH COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.

 

(E)                                  MATERIAL ADVERSE CHANGE.  THERE SHALL HAVE
OCCURRED NO CHANGE IN THE BUSINESS, ASSETS, OPERATIONS OR FINANCIAL CONDITION OF
BORROWER, ANY OTHER OBLIGOR, OR ANY SUBSIDIARY SINCE DECEMBER 31, 2004, WHICH
CAUSED OR COULD REASONABLY BE EXPECTED TO CAUSE A MATERIAL ADVERSE EFFECT.

 

ARTICLE V

 

AFFIRMATIVE COVENANTS

 

From the date hereof and so long as this Agreement is in effect and until
payment in full of the Obligations, the termination of the Advance Commitment,
and the performance of all other obligations of each Obligor under this
Agreement and each other Loan Document, Borrower will, and will cause each
Subsidiary to:

 

5.1                                 GENERAL COVENANTS.

 

(A)                                  PAYMENT OF TAXES AND CLAIMS.  PAY AND
DISCHARGE ALL LAWFUL TAXES IMPOSED UPON ITS INCOME OR PROFITS OR UPON ANY OF ITS
PROPERTY BEFORE THE SAME SHALL BE IN DEFAULT, AND ALL LAWFUL CLAIMS FOR LABOR,
RENTALS, MATERIALS AND SUPPLIES WHICH, IF UNPAID, MIGHT BECOME A LIEN UPON ITS
PROPERTY OR ANY PART THEREOF; PROVIDED, HOWEVER, THAT SUCH PERSON SHALL NOT BE
REQUIRED TO CAUSE TO BE PAID OR DISCHARGED ANY SUCH TAX, ASSESSMENT OR CLAIM SO
LONG AS THE VALIDITY THEREOF SHALL BE CONTESTED IN GOOD FAITH BY APPROPRIATE
PROCEEDINGS, AND ADEQUATE BOOK RESERVES SHALL BE ESTABLISHED WITH RESPECT
THERETO, AND; PROVIDED, FURTHER, SUCH PERSON SHALL PAY SUCH TAX, CHARGE OR CLAIM
(I) BEFORE ANY PROPERTY SUBJECT THERETO SHALL BE SOLD TO SATISFY A LIEN (IF THE
PROPERTY SUBJECT TO SUCH LIEN IS NOT SUBJECT TO A BANK LIEN), AND (II) BEFORE
ANY

 

27

--------------------------------------------------------------------------------

 

PROPERTY SUBJECT THERETO SHALL BE SUBJECT TO A LIEN TO SECURE SUCH TAX,
ASSESSMENT OR CLAIM (IF THE PROPERTY WHICH MAY BE SUBJECT TO SUCH LIEN IS
SUBJECT TO A BANK LIEN).

 

(B)                                 MAINTENANCE OF EXISTENCE.  DO ALL THINGS
NECESSARY TO PRESERVE AND KEEP IN FULL FORCE AND EFFECT ITS EXISTENCE AS A
CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP, AS APPROPRIATE (EXCEPT,
AS TO SUBSIDIARIES, AS PERMITTED BY SECTION 6.11).

 

(C)                                  PRESERVATION OF PROPERTY.  KEEP ITS
PROPERTIES WHICH ARE NECESSARY TO CONTINUE BUSINESS, WHETHER OWNED IN FEE OR
OTHERWISE, OR LEASED, IN GOOD OPERATING CONDITION, ORDINARY WEAR AND TEAR
EXCEPTED, AND COMPLY WITH ALL MATERIAL LEASES TO WHICH IT IS A PARTY OR UNDER
WHICH IT OCCUPIES OR USES PROPERTY SO AS TO PREVENT ANY MATERIAL LOSS OR
FORFEITURE THEREUNDER.

 

(D)                                 INSURANCE.  MAINTAIN IN FORCE WITH
FINANCIALLY SOUND AND REPUTABLE INSURERS, POLICIES WITH RESPECT TO ITS PROPERTY
AND BUSINESS AGAINST SUCH CASUALTIES AND CONTINGENCIES (INCLUDING PUBLIC
LIABILITY, LARCENY, EMBEZZLEMENT OR OTHER CRIMINAL MISAPPROPRIATION INSURANCE)
AND IN SUCH AMOUNTS AS IS CUSTOMARY IN THE CASE OF ENTITIES ENGAGED IN THE SAME
OR SIMILAR LINES OF BUSINESS OF COMPARABLE SIZE AND FINANCIAL STRENGTH.

 

(E)                                  COMPLIANCE WITH APPLICABLE LAWS.  COMPLY IN
ALL MATERIAL RESPECTS WITH THE REQUIREMENTS OF ALL APPLICABLE LAWS AND ORDERS OF
ANY GOVERNMENTAL AUTHORITY, EXCEPT WHERE CONTESTED IN GOOD FAITH AND BY PROPER
PROCEEDINGS OR WHERE THE FAILURE TO SO COMPLY COULD NOT REASONABLY BE EXPECTED
TO HAVE A MATERIAL ADVERSE EFFECT.

 

(F)                                    LICENSES.  OBTAIN AND MAINTAIN ALL
MATERIAL LICENSES, PERMITS, FRANCHISES OR OTHER GOVERNMENTAL AUTHORIZATIONS
NECESSARY TO THE OWNERSHIP OF ITS PROPERTIES OR TO THE CONDUCT OF ITS BUSINESS.

 

5.2                                 ACCOUNTS, REPORTS AND OTHER INFORMATION. 
MAINTAIN A SYSTEM OF ACCOUNTING IN ACCORDANCE WITH GAAP OR SAP, AS APPROPRIATE,
CONSISTENTLY APPLIED, AND FURNISH, OR CAUSE TO BE FURNISHED, TO LENDER THE
FOLLOWING:

 

(A)                                  ANNUAL FINANCIAL STATEMENTS.

 

(I)            AS SOON AS AVAILABLE, BUT IN ANY EVENT WITHIN 105 DAYS AFTER THE
LAST DAY OF EACH FISCAL YEAR OF BORROWER, ANNUAL CONSOLIDATED AND CONSOLIDATING
FINANCIAL STATEMENTS (SUCH CONSOLIDATED FINANCIAL STATEMENTS TO BE AUDITED),
SHOWING THE CONSOLIDATED AND CONSOLIDATING FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BORROWER AND ITS CONSOLIDATED SUBSIDIARIES AS OF, AND FOR THE YEAR
ENDED ON, SUCH LAST DAY, ACCOMPANIED BY (A) AN OPINION OF AUDITORS CONTAINING
ONLY QUALIFICATIONS (INCLUDING QUALIFICATIONS AS TO THE SCOPE OF THE
EXAMINATION) ACCEPTABLE TO LENDER, WHICH OPINION SHALL STATE THAT SAID
CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH GAAP
CONSISTENTLY APPLIED, AND THAT THE EXAMINATION OF AUDITORS IN CONNECTION WITH
SUCH CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN MADE IN ACCORDANCE WITH
GENERALLY ACCEPTED AUDITING STANDARDS AND, IF AT SUCH TIME AUDITORS ARE REQUIRED
BY SARBANES-OXLEY TO DELIVER AN ATTESTATION REPORT AS TO BORROWER, APPLICABLE
SECURITIES LAW, AND THAT SAID CONSOLIDATED FINANCIAL STATEMENTS PRESENT FAIRLY
THE CONSOLIDATED FINANCIAL CONDITION OF BORROWER AND ITS CONSOLIDATED
SUBSIDIARIES AND THEIR RESULTS OF OPERATIONS; (B) IF AT SUCH TIME AUDITORS ARE
REQUIRED BY SARBANES-OXLEY TO DELIVER AN ATTESTATION REPORT AS TO

 

28

--------------------------------------------------------------------------------

 

BORROWER, AN ATTESTATION REPORT OF AUDITORS AS TO BORROWER’S INTERNAL CONTROLS
PURSUANT TO SECTION 404 OF SARBANES-OXLEY EXPRESSING A CONCLUSION TO WHICH
LENDER DOES NOT OBJECT; (C) A CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF
BORROWER, WHICH CERTIFICATE SHALL STATE THAT SAID FINANCIAL STATEMENTS PRESENT
FAIRLY THE FINANCIAL CONDITION OF BORROWER AND ITS CONSOLIDATED SUBSIDIARIES AND
THEIR RESULTS OF OPERATIONS; AND (D) A DESCRIPTION OF ALL CONTINGENT DEBT AND
OFF-BALANCE SHEET LIABILITIES OF BORROWER AND ITS SUBSIDIARIES.

 

(II)           WITH RESPECT TO EACH RIC, WITHIN 15 DAYS AFTER THE FIRST TO OCCUR
OF (A) THE REQUIRED FILING DATE (AS ESTABLISHED BY LAW OR THE APPLICABLE
INSURANCE REGULATOR), AND (B) THE DATE ON WHICH ACTUALLY FILED, AUDITED ANNUAL
FINANCIAL STATEMENTS, PREPARED BY AUDITORS IN ACCORDANCE WITH SAP, SHOWING THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SUCH RIC, AS OF, AND FOR THE
YEAR ENDED ON, SUCH LAST DAY, ACCOMPANIED BY (1) AN OPINION OF AUDITORS
CONTAINING ONLY QUALIFICATIONS (INCLUDING QUALIFICATIONS AS TO THE SCOPE OF THE
EXAMINATION) ACCEPTABLE TO LENDER, WHICH OPINION SHALL STATE THAT SAID FINANCIAL
STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH SAP CONSISTENTLY APPLIED, AND
THAT THE EXAMINATION OF THE AUDITORS IN CONNECTION WITH SUCH FINANCIAL
STATEMENTS HAS BEEN MADE IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS AND THAT SAID FINANCIAL STATEMENTS PRESENT FAIRLY THE FINANCIAL
CONDITION OF SUCH RIC, AND ITS RESULTS OF OPERATIONS; AND (2) A DESCRIPTION OF
ALL CONTINGENT DEBT AND OFF-BALANCE SHEET LIABILITIES OF SUCH RIC.

 

(III)          WITH RESPECT TO EACH RIC, WITHIN 15 DAYS AFTER THE FIRST TO OCCUR
OF (A) THE REQUIRED FILING DATE (AS ESTABLISHED BY LAW OR THE APPLICABLE
INSURANCE REGULATOR), AND (B) THE DATE ON WHICH ACTUALLY FILED, (1) ANNUAL
FINANCIAL STATEMENTS PREPARED IN THE FORM OF CONVENTION BLANKS PRESCRIBED BY
NAIC, AS FILED WITH EACH INSURANCE REGULATOR, AND (2) AN ANALYSIS PREPARED BY
ACTUARY OF THE LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES OF RICS ON A COMBINED
BASIS, IN FORMAT AND WITH SUPPORT INFORMATION ACCEPTABLE TO LENDER.

 

(IV)          WITH RESPECT TO EACH RIC, AS SOON AS AVAILABLE AND IN ANY EVENT
WITHIN 15 DAYS AFTER THE REQUIRED FILING DATE (AS ESTABLISHED BY LAW OR THE
APPLICABLE INSURANCE REGULATOR), A COPY OF THE “STATEMENT OF ACTUARIAL OPINION”
AND “MANAGEMENT DISCUSSION AND ANALYSIS” FOR SUCH RIC (PREPARED IN ACCORDANCE
WITH SAP) FOR EACH FISCAL YEAR OF SUCH RIC AND AS FILED WITH THE APPLICABLE
INSURANCE REGULATOR IN COMPLIANCE WITH THE REQUIREMENTS THEREOF (OR A REPORT
CONTAINING EQUIVALENT INFORMATION FOR SUCH RIC, IF SUCH RIC IS NOT SO REQUIRED
TO FILE THE FOREGOING WITH THE APPLICABLE INSURANCE REGULATOR).

 

(V)           WITHIN 60 DAYS AFTER THE END OF EACH FISCAL YEAR OF BORROWER, A
LITIGATION REPORT FOR SUCH FISCAL YEAR.

 

(VI)          WITHIN 75 DAYS AFTER THE END OF EACH FISCAL YEAR OF BORROWER, A
LOSS REPORT AS AT THE LAST DAY OF SUCH YEAR.

 

(VII)         WITHIN 105 DAYS AFTER THE END OF EACH FISCAL YEAR OF BORROWER,
UNAUDITED ANNUAL FINANCIAL STATEMENTS, IN FORMAT AND WITH SUPPORT INFORMATION
ACCEPTABLE TO LENDER, SHOWING THE RESULTS OF EACH OF THE PERSONAL AUTOMOBILE
INSURANCE AND DISCONTINUED LINES OPERATIONS OF BORROWER FOR THE FISCAL YEAR
ENDED ON SUCH DAY.

 

29

--------------------------------------------------------------------------------

 

(VIII)        AS SOON AS AVAILABLE, BUT IN ANY EVENT AT THE SAME TIME AS THE
FINANCIAL STATEMENTS REQUIRED BY SECTION 5.2(A)(I) ARE DELIVERED TO LENDER, A
COMPLIANCE CERTIFICATE EXECUTED BY AN AUTHORIZED SIGNATORY WHO IS A SENIOR
FINANCIAL OFFICER OF BORROWER.

 

(B)                                 QUARTERLY FINANCIAL STATEMENTS.

 

(I)            WITHIN 60 DAYS AFTER THE LAST DAY OF EACH FISCAL QUARTER
(EXCLUDING THE LAST FISCAL QUARTER OF EACH FISCAL YEAR) OF BORROWER,
(A) UNAUDITED CONSOLIDATED AND CONSOLIDATING FINANCIAL STATEMENTS (WHICH
CONSOLIDATED AND CONSOLIDATING FINANCIAL STATEMENTS SHALL BE IN FORMAT, PREPARED
IN A MANNER AND BASED ON SUCH ASSUMPTIONS AND PROCEDURES AS ARE ACCEPTABLE TO
LENDER), SHOWING THE CONSOLIDATED AND CONSOLIDATING FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF BORROWER AND ITS CONSOLIDATED SUBSIDIARIES AS OF, AND
FOR THE QUARTER ENDED ON, SUCH LAST DAY (SUBJECT TO YEAR-END ADJUSTMENT), AND
WHICH SHALL INCLUDE AN INCOME STATEMENT FOR THE FISCAL YEAR THROUGH SUCH LAST
DAY, PREPARED IN ACCORDANCE WITH GAAP; (B) A CERTIFICATE OF THE CHIEF FINANCIAL
OFFICER OF BORROWER, WHICH CERTIFICATE SHALL STATE THAT SAID FINANCIAL
STATEMENTS PRESENT FAIRLY THE FINANCIAL CONDITION OF BORROWER AND ITS
CONSOLIDATED SUBSIDIARIES AND THEIR RESULTS OF OPERATIONS; AND (C) A DESCRIPTION
OF ALL CONTINGENT DEBT AND OFF-BALANCE SHEET LIABILITIES OF BORROWER AND ITS
SUBSIDIARIES.

 

(II)           WITH RESPECT TO EACH RIC, WITHIN 60 DAYS AFTER THE LAST DAY OF
EACH FISCAL QUARTER (EXCLUDING THE LAST FISCAL QUARTER OF EACH FISCAL YEAR) OF
SUCH RIC, UNAUDITED QUARTERLY FINANCIAL STATEMENTS, PREPARED IN ACCORDANCE WITH
SAP, SHOWING THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SUCH RIC AS
OF, AND FOR THE QUARTER ENDED ON, SUCH LAST DAY (SUBJECT TO YEAR-END
ADJUSTMENT), AND WHICH SHALL INCLUDE AN INCOME STATEMENT FOR THE FISCAL YEAR
THROUGH SUCH LAST DAY, AND IN THE FORM OF QUARTERLY FINANCIAL STATEMENTS
PRESCRIBED BY NAIC, AND INCLUDING A REPORT WITH RESPECT TO “INVESTED ASSETS” AS
SET FORTH ON SCHEDULE D ON SUCH FINANCIAL STATEMENTS, TOGETHER WITH A
DESCRIPTION OF ALL CONTINGENT DEBT AND OFF-BALANCE SHEET LIABILITIES OF SUCH
RIC.

 

(III)          WITHIN 60 DAYS AFTER THE END OF EACH OF THE FIRST THREE FISCAL
QUARTERS OF BORROWER, A LOSS REPORT AS AT THE LAST DAY OF SUCH QUARTER.

 

(IV)          WITHIN 60 DAYS AFTER THE END OF EACH OF THE FIRST THREE FISCAL
QUARTERS OF BORROWER, A COMPLIANCE CERTIFICATE EXECUTED BY AN AUTHORIZED
SIGNATORY WHO IS A SENIOR FINANCIAL OFFICER OF BORROWER.

 

(V)           WITHIN 60 DAYS AFTER THE END OF EACH OF THE FIRST THREE FISCAL
QUARTERS OF BORROWER, UNAUDITED QUARTERLY FINANCIAL STATEMENTS, IN FORMAT AND
WITH SUPPORT INFORMATION ACCEPTABLE TO LENDER, SHOWING THE RESULTS OF EACH OF
THE PERSONAL AUTOMOBILE INSURANCE AND DISCONTINUED LINES OPERATIONS OF BORROWER
FOR THE FISCAL QUARTER ENDED ON SUCH DAY.

 

(VI)          WITHIN 60 DAYS AFTER THE END OF EACH OF THE FIRST THREE FISCAL
QUARTERS OF EACH RIC, AN ANALYSIS PREPARED BY ACTUARY OF THE LOSS AND LOSS
ADJUSTMENT EXPENSE RESERVES OF RICS ON A COMBINED BASIS, IN FORMAT AND WITH
SUPPORT INFORMATION ACCEPTABLE TO LENDER.

 

30

--------------------------------------------------------------------------------

 

(C)                                  ANNUAL BUDGET.  AS SOON AS AVAILABLE, BUT
IN ANY EVENT WITHIN 60 DAYS AFTER THE FIRST DAY OF EACH FISCAL YEAR OF BORROWER,
A COPY OF THE ANNUAL CONSOLIDATED OPERATING BUDGET OF BORROWER AND SUBSIDIARIES
FOR SUCH FISCAL YEAR IN FORM AND SUBSTANCE SATISFACTORY TO LENDER.

 

(D)                                 APPLICABLE RATE CERTIFICATE.  WITHIN 60 DAYS
AFTER THE END OF EACH FISCAL QUARTER OF BORROWER COMMENCING WITH THE QUARTER
ENDING ON SEPTEMBER 30, 2005, AN APPLICABLE RATE CERTIFICATE AS AT THE LAST DAY
OF SUCH FISCAL QUARTER.

 

(E)                                  OTHER REPORTS.  PROMPTLY UPON REQUEST BY
LENDER, A COPY OF (I)  SUCH FINANCIAL STATEMENTS, REPORTS, NOTICES OR PROXY
STATEMENTS SENT BY IT TO STOCKHOLDERS, (II)  SUCH REGULAR OR PERIODIC REPORTS
AND ANY REGISTRATION STATEMENTS, PROSPECTUSES AND WRITTEN COMMUNICATIONS IN
RESPECT THEREOF FILED BY IT WITH ANY STATE INSURANCE DEPARTMENT, ANY SECURITIES
EXCHANGE, OR WITH THE SEC OR ANY SUCCESSOR AGENCY, AND (III)  ALL PRESS RELEASES
CONCERNING IT.

 

(F)                                    NOTICE OF DEFAULT.  PROMPTLY UPON THE
HAPPENING OF ANY CONDITION OR EVENT WHICH CONSTITUTES AN EVENT OF DEFAULT OR
DEFAULT, A WRITTEN NOTICE SPECIFYING THE NATURE AND PERIOD OF EXISTENCE THEREOF
AND WHAT ACTION IT IS TAKING AND PROPOSE TO TAKE WITH RESPECT THERETO.

 

(G)                                 NOTICE OF LITIGATION.  PROMPTLY UPON
BECOMING AWARE OF THE EXISTENCE OF ANY LITIGATION BEFORE ANY GOVERNMENTAL
AUTHORITY, ARBITRATOR OR MEDIATOR (BUT NO LATER THAN 10 DAYS AFTER THE FILING
THEREOF) INVOLVING IT, WHICH (I) IF RELATED TO THE INSURANCE BUSINESS OF
BORROWER AND ITS SUBSIDIARIES, UNDER NORMAL OPERATING STANDARDS WOULD RESULT IN
A CASE RESERVE BEING ESTABLISHED IN AN AMOUNT EQUAL TO OR GREATER THAN $250,000,
OR (II) COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE CHANGE, A
WRITTEN NOTICE SPECIFYING THE NATURE THEREOF AND WHETHER IT WILL CONTEST SUCH
PROCEEDING.

 

(H)                                 NOTICE OF CLAIMED DEFAULT.  PROMPTLY UPON
BECOMING AWARE THAT THE HOLDER OF ANY NOTE OR ANY EVIDENCE OF INDEBTEDNESS OR
OTHER SECURITY OR PAYEE OF ANY OBLIGATION IN AN AMOUNT OF $100,000 OR MORE HAS
GIVEN NOTICE OR TAKEN ANY ACTION WITH RESPECT TO A CLAIMED DEFAULT OR EVENT OF
DEFAULT THEREUNDER, A WRITTEN NOTICE SPECIFYING THE NOTICE GIVEN OR ACTION TAKEN
BY SUCH HOLDER AND THE NATURE OF THE CLAIMED DEFAULT OR EVENT OF DEFAULT
THEREUNDER AND WHAT ACTION IT IS TAKING OR PROPOSES TO TAKE WITH RESPECT
THERETO.

 

(I)                                     NOTICE FROM GOVERNMENTAL AUTHORITY. 
PROMPTLY UPON RECEIPT THEREOF, INFORMATION WITH RESPECT TO AND COPIES OF ANY
NOTICES RECEIVED FROM ANY GOVERNMENTAL AUTHORITY RELATING TO AN ORDER, RULING,
STATUTE OR OTHER LAW OR INFORMATION WHICH COULD REASONABLY BE EXPECTED TO HAVE A
MATERIAL ADVERSE EFFECT.

 

(J)                                     INVESTMENT POLICY.  WITHIN (I)  90 DAYS
AFTER THE LAST DAY OF EACH FISCAL YEAR OF EACH RIC, A COPY OF THE INVESTMENT
POLICY OF SUCH RIC APPLICABLE TO THE CURRENT FISCAL YEAR OF SUCH RIC, AS
APPROVED BY THE BOARD OF DIRECTORS OR OTHER APPROPRIATE GOVERNANCE BODY OF SUCH
RIC, AND (II)  WITHIN 5 DAYS AFTER ANY AMENDMENT TO OR RESTATEMENT OF ANY
INVESTMENT POLICY OF ANY RIC, A COPY OF SUCH AMENDMENT OR RESTATEMENT AS
APPROVED BY THE BOARD OF DIRECTORS OR OTHER APPROPRIATE GOVERNANCE BODY OF SUCH
RIC.

 

(K)                                  REINSURANCE AGREEMENTS AND RETROCESSION
AGREEMENTS.  NOT LATER THAN (I)  10 DAYS PRIOR TO THE TERMINATION OF EACH
REINSURANCE AGREEMENT AND RETROCESSION AGREEMENT, A COPY OF THE SLIP OR OTHER
DOCUMENT, AGREEMENT OR CORRESPONDENCE WITH EACH

 

31

--------------------------------------------------------------------------------

 

REINSURER, RETROCESSIONAIRE, REINSURANCE BROKER OR AGENT WHICH WILL AMEND,
RESTATE OR SUPERSEDE SUCH TERMINATING REINSURANCE AGREEMENT OR RETROCESSION
AGREEMENT, AND (II)  30 DAYS AFTER THE FIRST TO OCCUR OF (A) EXECUTION, AND
(B) THE EFFECTIVE DATE OF EACH REINSURANCE AGREEMENT AND RETROCESSION AGREEMENT,
A COPY OF EACH SUCH REINSURANCE AGREEMENT AND RETROCESSION AGREEMENT, CERTIFIED
TO BE COMPLETE AND CORRECT BY AN AUTHORIZED SIGNATORY OF THE RIC A PARTY TO SUCH
AGREEMENT ACCEPTABLE TO LENDER.

 

(L)                                     AUDITORS’ REPORTS.  PROMPTLY UPON
RECEIPT THEREOF, A COPY OF (I)  EACH OTHER REPORT OR “MANAGEMENT LETTER”
SUBMITTED TO BORROWER OR ANY OF ITS SUBSIDIARIES BY AUDITORS IN CONNECTION WITH
ANY ANNUAL, INTERIM OR SPECIAL AUDIT MADE BY THEM OF THE BOOKS OF BORROWER OR
SUCH SUBSIDIARY AND (II)  EACH REPORT SUBMITTED TO BORROWER OR ANY OF ITS
SUBSIDIARIES BY ANY AUDITORS TO THE EXTENT THAT SUCH REPORT, IN THE GOOD FAITH
OPINION OF BORROWER OR SUCH SUBSIDIARY, IDENTIFIES A CONDITION, SITUATION OR
EVENT THAT HAS OR IS REASONABLY LIKELY TO HAVE A MATERIAL ADVERSE EFFECT.

 

(M)                               INTERNAL CONTROL EVENT.  PROMPTLY UPON THE
OCCURRENCE OF AN INTERNAL CONTROL EVENT, A WRITTEN NOTICE SPECIFYING THE NATURE
AND PERIOD OF EXISTENCE THEREOF AND WHAT ACTION IT IS TAKING AND PROPOSES TO
TAKE WITH RESPECT THERETO.

 

(N)                                 OTHER REGULATORY STATEMENTS AND REPORTS. 
PROMPTLY (I)  AFTER RECEIPT THEREOF, COPIES OF ALL TRIENNIAL EXAMINATIONS AND
RISK BASED CAPITAL REPORTS OF ANY RIC, DELIVERED TO SUCH PERSON BY ANY INSURANCE
REGULATOR, INSURANCE COMMISSION OR SIMILAR GOVERNMENTAL AUTHORITY, (II)  AFTER
RECEIPT THEREOF, A COPY OF THE FINAL REPORT TO EACH RIC FROM THE NAIC FOR EACH
FISCAL YEAR, AS TO SUCH RIC’S COMPLIANCE OR NONCOMPLIANCE WITH EACH OF THE NAIC
TESTS, (III)  AFTER RECEIPT THEREOF, A COPY OF ANY NOTICE OF TERMINATION,
CANCELLATION OR RECAPTURE OF ANY REINSURANCE AGREEMENT OR RETROCESSION AGREEMENT
TO WHICH A RIC IS A PARTY TO THE EXTENT SUCH TERMINATION, CANCELLATION OR
RECAPTURE IS LIKELY TO HAVE A MATERIAL ADVERSE EFFECT, (IV)  AND IN ANY EVENT
WITHIN TEN BUSINESS DAYS AFTER RECEIPT THEREOF, COPIES OF ANY NOTICE OF ACTUAL
SUSPENSION, TERMINATION OR REVOCATION OF ANY LICENSE OF ANY RIC BY ANY INSURANCE
REGULATOR, INCLUDING ANY REQUEST BY AN INSURANCE REGULATOR WHICH COMMITS A RIC
TO TAKE OR REFRAIN FROM TAKING ANY ACTION AND WHICH, IF SUCH RIC FAILS TO COMPLY
WITH SUCH REQUEST, WOULD AFFECT THE AUTHORITY OF SUCH RIC TO CONDUCT ITS
BUSINESS, AND (V)  AND IN ANY EVENT WITHIN THIRTY BUSINESS DAYS AFTER BORROWER
OR ANY OF ITS SUBSIDIARIES OBTAINS KNOWLEDGE THEREOF, NOTICE OF ANY ACTUAL
CHANGE IN THE INSURANCE LAWS ENACTED IN ANY STATE IN WHICH ANY RIC IS DOMICILED
WHICH COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.

 

(O)                                 A.M. BEST.  NOT LATER THAN 15 DAYS AFTER
RECEIPT BY BORROWER, A COPY OF (I) EACH A.M. BEST REPORT, IF ANY, WITH RESPECT
TO BORROWER OR ANY OF ITS SUBSIDIARIES, AND (II) ALL CORRESPONDENCE FROM A.M.
BEST TO BORROWER OR ANY OF ITS SUBSIDIARIES THE CONTENTS OF WHICH (A) RELATE TO
A PROBABLE DOWNGRADE OF THE A.M. BEST RATING OF ANY RIC OR (B) DESCRIBE OR
RELATE TO A CIRCUMSTANCE THAT COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL
ADVERSE EFFECT.

 

(P)                                 MATERIAL ADVERSE EFFECT.  PROMPTLY UPON THE
OCCURRENCE OR KNOWLEDGE OF THE EXISTENCE THEREOF, WRITTEN NOTICE DESCRIBING A
CONDITION, SITUATION OR EVENT THAT HAS OR IS REASONABLY LIKELY TO HAVE A
MATERIAL ADVERSE EFFECT.

 

32

--------------------------------------------------------------------------------

 

(Q)                                 REQUESTED INFORMATION.  WITH REASONABLE
PROMPTNESS, SUCH OTHER DATA, INCLUDING ANY MANAGEMENT REPORTS TO THE BOARD OF
DIRECTORS OF BORROWER OR ANY OF ITS SUBSIDIARIES, AND INFORMATION AS FROM TIME
TO TIME MAY BE REASONABLY REQUESTED BY LENDER.

 

5.3                                 INSPECTION.  (A) IF NO EVENT OF DEFAULT
EXISTS, UPON REASONABLE PRIOR NOTICE, AND (B) IF AN EVENT OF DEFAULT EXISTS,
UPON REQUEST BY LENDER, PERMIT LENDER OR ANY REPRESENTATIVES OF LENDER TO VISIT
AND INSPECT ANY OF ITS PROPERTIES, TO EXAMINE ALL BOOKS OF ACCOUNT, RECORDS,
REPORTS AND OTHER PAPERS, TO MAKE COPIES AND EXTRACTS THEREFROM, AND TO DISCUSS
THE AFFAIRS, FINANCES AND ACCOUNTS WITH ITS OFFICERS, EMPLOYEES, ACTUARIES AND
AUDITORS (AND BY THIS PROVISION BORROWER AUTHORIZES ACTUARIES AND AUDITORS TO
DISCUSS WITH LENDER AND ITS REPRESENTATIVES THE FINANCES AND AFFAIRS OF BORROWER
AND ITS SUBSIDIARIES).  ALL REASONABLE COSTS AND EXPENSES OF LENDER RELATED TO
THE FIRST SUCH INSPECTION DURING EACH FISCAL YEAR CONDUCTED WHEN NO EVENT OF
DEFAULT EXISTS SHALL BE A PART OF THE OBLIGATIONS AND PAID BY BORROWER TO LENDER
WITHIN TEN DAYS AFTER DEMAND BY LENDER.  ALL COSTS AND EXPENSES OF LENDER
RELATED TO EACH SUCH INSPECTION CONDUCTED WHEN AN EVENT OF DEFAULT EXISTS SHALL
BE A PART OF THE OBLIGATIONS AND PAID BY BORROWER TO LENDER WITHIN TEN DAYS
AFTER DEMAND BY LENDER.

 

5.4                                 COMPLIANCE WITH ERISA.  COMPLY WITH ERISA IN
ALL MATERIAL RESPECTS, AND (A) AT ALL TIMES MAKE CONTRIBUTIONS WITHIN THE TIME
LIMITS IMPOSED BY LAW TO MEET THE MINIMUM FUNDING STANDARDS SET FORTH IN ERISA
WITH RESPECT TO ANY PLAN; (B) NOTIFY LENDER AS SOON AS REASONABLY PRACTICABLE OF
ANY FACT WHICH IT KNOWS OR SHOULD KNOW, INCLUDING BUT NOT LIMITED TO ANY
REPORTABLE EVENT, ARISING IN CONNECTION WITH ANY PLAN WHICH COULD REASONABLY BE
EXPECTED TO RESULT IN TERMINATION THEREOF BY THE PBGC OR FOR THE APPOINTMENT BY
A GOVERNMENTAL AUTHORITY OF A TRUSTEE TO ADMINISTER THE PLAN; AND (C) FURNISH TO
LENDER UPON SUCH REQUEST SUCH ADDITIONAL INFORMATION CONCERNING ANY PLAN AS
LENDER MAY REASONABLY REQUEST.

 

5.5                                 PERFORMANCE OF OBLIGATIONS.  PERFORM ALL OF
ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS.

 

5.6                                 MAINTENANCE OF PRIORITY OF BANK LIENS.  UPON
THE REASONABLE REQUEST OF LENDER FROM TIME TO TIME, IT SHALL PERFORM SUCH ACTS
AND DULY AUTHORIZE, EXECUTE, ACKNOWLEDGE, DELIVER, FILE, AND RECORD SUCH
ADDITIONAL ASSIGNMENTS, PLEDGE AGREEMENTS, SECURITY AGREEMENTS AND OTHER
AGREEMENTS, DOCUMENTS, INSTRUMENTS, AND CERTIFICATES AS LENDER MAY DEEM
NECESSARY OR APPROPRIATE IN ORDER TO PERFECT AND MAINTAIN THE BANK LIENS
(INCLUDING THE PRIORITY OF SUCH LIENS) IN FAVOR OF LENDER AND PRESERVE AND
PROTECT THE RIGHTS OF LENDER IN RESPECT OF THE COLLATERAL.

 

5.7                                 INDEMNITY.  BORROWER SHALL DEFEND, PROTECT,
INDEMNIFY AND HOLD HARMLESS LENDER AND ITS AFFILIATES, AND EACH OF THEIR
RESPECTIVE (INCLUDING SUCH AFFILIATES’) OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS, SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION, THOSE
RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF
THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY,
“INDEMNITEES”) FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS, EXPENSES AND
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
THE REASONABLE ATTORNEY COSTS FOR SUCH INDEMNITEES IN CONNECTION

 

33

--------------------------------------------------------------------------------

 

WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT
SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY,
OR ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL
AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER
COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING
FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE OPERATIONS OF BORROWER OR ANY
OF ITS SUBSIDIARIES OR THEIR RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST,
PRESENT OR FUTURE ENVIRONMENTAL CONDITION OF PROPERTY OF BORROWER OR ANY OF ITS
SUBSIDIARIES), IN ANY MANNER RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR
TRANSACTION RELATING OR ATTENDANT THERETO, THE MAKING OF ANY ADVANCE LOAN,
INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF ANY
NEGLIGENCE OF LENDER (OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY BY A
PARTICIPANT AGAINST LENDER AND NOT BORROWER), OR THE USE OR INTENDED USE OF THE
PROCEEDS OF ANY ADVANCE LOAN HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION
OF ANY POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING ANY CLAIM OR LIABILITY
THAT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY
INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION (COLLECTIVELY, “INDEMNIFIED MATTERS”).  IN ADDITION, BORROWER SHALL
PERIODICALLY, UPON REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL
AND OTHER ACTUAL EXPENSES (INCLUDING THE REASONABLE COST OF ANY INVESTIGATION
AND PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER.  THE
REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS SECTION SHALL
BE IN ADDITION TO ANY LIABILITY WHICH BORROWER MAY OTHERWISE HAVE, SHALL EXTEND
UPON THE SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL BE BINDING UPON
AND INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL
REPRESENTATIVES OF BORROWER, LENDER AND ALL OTHER INDEMNITEES.  THIS
SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE
OBLIGATIONS.

 

ARTICLE VI

 

NEGATIVE COVENANTS

 

From the date hereof and so long as this Agreement is in effect and until
payment in full of the Obligations, the termination of the Advance Commitment,
and the performance of all other obligations of each Obligor under this
Agreement and each other Loan Document:

 

6.1                                 TOTAL ADJUSTED CAPITAL.  BORROWER SHALL NOT
PERMIT TOTAL ADJUSTED CAPITAL OF GAICA TO BE LESS THAN THE GREATER OF
(A) $40,000,000 AND (B) THE AMOUNT REQUIRED FOR RISK-BASED

 

34

--------------------------------------------------------------------------------

 

CAPITAL RATIO OF GAICA TO EQUAL (I) PRIOR TO THE RESET DATE, 275%, OR (II) FROM
AND AFTER THE RESET DATE, 250%, AS AT THE LAST DAY OF ANY FISCAL QUARTER OF
GAICA.

 

6.2                                 COMBINED RATIO.  BORROWER SHALL NOT PERMIT
THE COMBINED RATIO TO BE GREATER THAN 100% AS AT THE LAST DAY OF ANY FISCAL
QUARTER OF BORROWER.

 

6.3                                 FIXED CHARGES COVERAGE RATIO.  BORROWER
SHALL NOT PERMIT THE FIXED CHARGES COVERAGE RATIO TO BE LESS THAN 1.25 TO 1.00
AT ANY TIME.

 

6.4                                 CONSOLIDATED NET WORTH.  BORROWER SHALL NOT
PERMIT CONSOLIDATED NET WORTH TO BE LESS THAN $30,000,000 AT ANY TIME.

 

6.5                                 DIVIDENDS.  BORROWER SHALL NOT DECLARE, PAY
OR OTHERWISE BE LIABLE FOR THE PAYMENT OF ANY DIVIDEND, OTHER THAN ACCRUED
DIVIDENDS DESCRIBED IN SECTION 3 OF THE PREFERRED STOCK DOCUMENTS (AS SUCH
DOCUMENTS EXIST ON THE AGREEMENT DATE); PROVIDED, (A) SUCH DIVIDENDS ARE
DECLARED AND PAID IN ACCORDANCE WITH THE PREFERRED STOCK DOCUMENTS (AS SUCH
DOCUMENTS EXIST ON THE AGREEMENT DATE), AND (B) BOTH PRIOR TO AND AFTER GIVING
EFFECT THERETO, NO DEFAULT OR EVENT OF DEFAULT SHALL EXIST.

 

6.6                                 LIMITATION ON DEBT.  BORROWER SHALL NOT, AND
SHALL NOT PERMIT ANY SUBSIDIARY TO, CREATE, INCUR, ASSUME, BECOME OR BE LIABLE
IN ANY MANNER IN RESPECT OF, OR SUFFER TO EXIST, ANY DEBT EXCEPT PERMITTED DEBT.

 

6.7                                 LIMITATION ON LIENS.  BORROWER SHALL NOT,
AND SHALL NOT PERMIT ANY SUBSIDIARY TO, CREATE OR SUFFER TO BE CREATED OR TO
EXIST ANY LIEN UPON ANY OF ITS PROPERTIES OR ASSETS EXCEPT PERMITTED LIENS.

 

6.8                                 BURDENSOME AGREEMENTS.  BORROWER SHALL NOT,
AND SHALL NOT PERMIT ANY SUBSIDIARY TO, ENTER INTO ANY AGREEMENT (OTHER THAN
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT) THAT LIMITS THE ABILITY (A) OF ANY
SUBSIDIARY TO PAY DIVIDENDS TO BORROWER OR TO OTHERWISE TRANSFER PROPERTY TO
BORROWER, (B) OF ANY SUBSIDIARY TO GUARANTEE THE OBLIGATIONS OR (C) OF BORROWER
OR ANY SUBSIDIARY TO CREATE, INCUR, ASSUME OR SUFFER TO EXIST LIENS ON PROPERTY
OF SUCH PERSON.

 

6.9                                 DISPOSITION OF ASSETS.  BORROWER SHALL NOT,
AND SHALL NOT PERMIT ANY SUBSIDIARY TO, DIRECTLY OR INDIRECTLY, DISPOSE OF ALL
OR ANY PORTION OF ANY OF ITS PROPERTIES (INCLUDING ANY CAPITAL STOCK OF ANY
SUBSIDIARY AND EQUITY INTERESTS CONSTITUTING COLLATERAL) AND ASSETS EXCEPT
(A) DISPOSITIONS PURSUANT TO ITS INVESTMENT POLICY IN THE ORDINARY COURSE OF
BUSINESS FOR FULL AND FAIR CONSIDERATION, (B) OTHER DISPOSITIONS IN THE ORDINARY
COURSE OF BUSINESS FOR FULL AND FAIR CONSIDERATION, (C) MERGERS OF SUBSIDIARIES
OF BORROWER DESCRIBED IN THE PROVISO TO SECTION 6.11, AND (D) DISPOSITIONS NOT
IN THE ORDINARY COURSE OF BUSINESS IF (I) NO SINGLE ASSET DISPOSED OF OR SINGLE
TRANSACTION INCLUDING A DISPOSITION HAS A VALUE (VALUED AT THE GREATER OF MARKET
OR BOOK (DETERMINED IN ACCORDANCE WITH GAAP) VALUE) LESS THAN $200,000 AND
(II) THE AGGREGATE VALUE (VALUED AT THE GREATER OF MARKET OR BOOK (DETERMINED IN
ACCORDANCE WITH GAAP) VALUE) OF ALL SUCH DISPOSITIONS BY BORROWER AND ITS
SUBSIDIARIES DURING ANY FISCAL YEAR OF BORROWER IS LESS THAN $500,000.

 

6.10                           ACQUISITION OF ASSETS.  BORROWER SHALL NOT, AND
SHALL NOT PERMIT ANY SUBSIDIARY TO, ACQUIRE ANY ASSETS, PROPERTY OR BUSINESS OF
ANY PERSON, OR PARTICIPATE IN ANY JOINT VENTURE, OR

 

35

--------------------------------------------------------------------------------

 

CREATE OR ACQUIRE ANY SUBSIDIARY, EXCEPT (A) ASSETS ACQUIRED IN THE ORDINARY
COURSE OF BUSINESS, AND (B) ACQUISITIONS PERMITTED SECTION 6.12.

 

6.11                           MERGER AND CONSOLIDATION.  BORROWER SHALL NOT,
AND SHALL NOT PERMIT ANY SUBSIDIARY TO, DIRECTLY OR INDIRECTLY CONSOLIDATE WITH
OR MERGE INTO ANY OTHER PERSON, PERMIT ANY OTHER PERSON TO CONSOLIDATE WITH OR
MERGE INTO IT, OR ACQUIRE ANY PERSON (OTHER THAN ACQUISITIONS PERMITTED BY
SECTION 6.10); PROVIDED, SO LONG AS NO DEFAULT OR EVENT OF DEFAULT EXISTS AT THE
TIME OF OR IMMEDIATELY AFTER GIVING EFFECT THERETO, (A) SUBSIDIARIES (OTHER THAN
A RIC) MAY MERGE WITH AND INTO BORROWER OR ANY OTHER DIRECT WHOLLY-OWNED
SUBSIDIARY OF BORROWER SO LONG AS BORROWER OR SUCH OTHER DIRECT WHOLLY-OWNED
SUBSIDIARY OF BORROWER IS THE SURVIVOR AND THE SURVIVING SUBSIDIARY IS A
GUARANTOR; AND (B) A RIC MAY MERGE WITH AND INTO ANOTHER RIC SO LONG AS GAICA IS
THE SURVIVOR.

 

6.12                           LOANS AND INVESTMENTS.  BORROWER WILL NOT, AND
WILL NOT PERMIT ANY SUBSIDIARY TO, MAKE OR MAINTAIN ANY INVESTMENT, EXCEPT:

 

(A)                                  BORROWER AND SUBSIDIARIES (OTHER THAN A
RIC) MAY, SUBJECT TO AND IN ACCORDANCE WITH APPLICABLE LAW, INVEST IN (I) CASH,
(II) CASH EQUIVALENTS, AND (III) INVESTMENT GRADE SECURITIES.

 

(B)                                 EACH RIC MAY, SUBJECT TO AND IN ACCORDANCE
WITH APPLICABLE LAW, INVEST IN (I) CASH, (II) CASH EQUIVALENTS, (III) INVESTMENT
GRADE SECURITIES, AND (IV) OTHER INVESTMENTS (VALUED AT THE GREATER OF MARKET OR
PURCHASE PRICE) WITH AN AGGREGATE VALUE NOT GREATER THAN 10% OF SUCH RIC’S TOTAL
ADMITTED ASSETS.

 

(C)                                  BORROWER AND SUBSIDIARIES MAY ACQUIRE AND
HOLD RECEIVABLES OWING TO THEM IN THE ORDINARY COURSE OF BUSINESS AND PAYABLE OR
DISCHARGEABLE IN ACCORDANCE WITH CUSTOMARY TRADE TERMS.

 

(D)                                 LOANS AND ADVANCES TO EMPLOYEES FOR BUSINESS
RELATED TRAVEL EXPENSES, MOVING EXPENSES AND OTHER SIMILAR EXPENSES, IN EACH
CASE INCURRED IN THE ORDINARY COURSE OF BUSINESS AND LOANS AND ADVANCES TO
RELATED PARTIES NOT EXCEEDING $500,000 IN THE AGGREGATE FOR BORROWER AND
SUBSIDIARIES AT ANY ONE TIME OUTSTANDING.

 

(E)                                  INVESTMENTS ACQUIRED BY BORROWER OR ANY
SUBSIDIARY (I) IN EXCHANGE FOR ANY OTHER INVESTMENT HELD BY BORROWER OR SUCH
SUBSIDIARY IN CONNECTION WITH OR AS A RESULT OF A BANKRUPTCY, WORKOUT,
REORGANIZATION OR RECAPITALIZATION OF THE ISSUER OF SUCH OTHER INVESTMENT OR
(II) AS A RESULT OF A FORECLOSURE BY BORROWER OR ANY SUBSIDIARY WITH RESPECT TO
ANY SECURED INVESTMENT OR OTHER TRANSFER OF TITLE WITH RESPECT TO ANY SECURED
INVESTMENT IN DEFAULT.

 

(F)                                    INVESTMENTS IN SUBSIDIARIES IN EXISTENCE
ON THE AGREEMENT DATE.

 

6.13                           ERISA.  BORROWER SHALL NOT, AND SHALL NOT PERMIT
ANY SUBSIDIARY TO, MAKE FUNDING CONTRIBUTIONS WITH RESPECT TO ANY PLAN THAT ARE
LESS THAN THE MINIMUM REQUIRED BY ERISA OR THE REGULATIONS THEREUNDER, OR PERMIT
ANY PLAN EVER TO BE SUBJECT TO INVOLUNTARY TERMINATION PROCEEDING BY THE PBGC
PURSUANT TO ERISA § 4042(A).

 

6.14                           ASSIGNMENT.  BORROWER SHALL NOT, AND SHALL NOT
PERMIT ANY SUBSIDIARY TO, DIRECTLY OR INDIRECTLY, ASSIGN OR TRANSFER, OR ATTEMPT
TO DO SO, ANY RIGHTS, DUTIES OR OBLIGATIONS UNDER THE

 

36

--------------------------------------------------------------------------------

 

LOAN DOCUMENTS, EXCEPT IN CONNECTION WITH A MERGER OF A SUBSIDIARY DESCRIBED IN
THE PROVISO TO SECTION 6.11.

 

6.15                           TRANSACTIONS WITH AFFILIATES.  BORROWER SHALL
NOT, AND SHALL NOT PERMIT ANY SUBSIDIARY TO, CARRY ON ANY TRANSACTION WITH ANY
OF THEIR RESPECTIVE AFFILIATES EXCEPT AT ARM’S LENGTH AND IN THE ORDINARY COURSE
OF BUSINESS, EXCEPT AS SET FORTH ON SCHEDULE 6.15.

 

6.16                           BUSINESS.  BORROWER SHALL NOT, AND WILL NOT
PERMIT ANY SUBSIDIARY TO, ENGAGE IN ANY MATERIAL LINE OR LINES OF BUSINESS
ACTIVITY OR ANY BUSINESSES OTHER THAN LINES OF BUSINESS ACTIVITY AND BUSINESSES
ENGAGED IN ON THE AGREEMENT DATE (OTHER THAN DISCONTINUED LINES).

 

6.17                           PREFERRED STOCK.  BORROWER SHALL NOT, AND SHALL
NOT PERMIT, ANY AMENDMENT TO OR RESTATEMENT OF ANY PREFERRED STOCK DOCUMENT.

 

6.18                           USE OF PROCEEDS.  BORROWER SHALL NOT USE THE
PROCEEDS OF ANY ADVANCE LOAN FOR ANY PURPOSE OTHER THAN TO (A) PROVIDE WORKING
CAPITAL TO BORROWER, AND (B) PAY CASH DIVIDENDS WITH RESPECT TO PREFERRED STOCK
AS PERMITTED BY SECTION 6.5.

 

ARTICLE VII

 

REPRESENTATIONS AND WARRANTIES

 

Borrower represents, warrants, and covenants to Lender as follows:

 

7.1                                 ORGANIZATION AND QUALIFICATION.  BORROWER
AND EACH OF ITS SUBSIDIARIES (A) IS A CORPORATION, LIMITED LIABILITY COMPANY OR
LIMITED PARTNERSHIP DULY ORGANIZED, VALIDLY EXISTING, AND IN GOOD STANDING UNDER
THE LAWS OF ITS JURISDICTION OF ORGANIZATION; (B) IS DULY LICENSED AND IN GOOD
STANDING AS A FOREIGN CORPORATION, LIMITED LIABILITY COMPANY OR LIMITED
PARTNERSHIP IN EACH JURISDICTION IN WHICH THE NATURE OF THE BUSINESS TRANSACTED
OR THE PROPERTY OWNED IS SUCH AS TO REQUIRE LICENSING AS SUCH; AND (C) POSSESSES
ALL REQUISITE CORPORATE, LIMITED LIABILITY COMPANY OR LIMITED PARTNERSHIP
(RESPECTIVELY) POWER, AUTHORITY AND LEGAL RIGHT, TO EXECUTE, DELIVER AND COMPLY
WITH THE TERMS OF THE LOAN DOCUMENTS TO BE EXECUTED BY IT, ALL OF WHICH HAVE
BEEN DULY AUTHORIZED AND APPROVED BY ALL NECESSARY CORPORATE, LIMITED LIABILITY
COMPANY OR LIMITED PARTNERSHIP ACTION (RESPECTIVELY) AND FOR WHICH NO APPROVAL
OR CONSENT OF ANY GOVERNMENTAL AUTHORITY WHICH HAS NOT BEEN OBTAINED IS
REQUIRED.  NO PROCEEDING IS PENDING FOR THE FORFEITURE OF ANY BORROWER’S OR ANY
SUCH SUBSIDIARY’S ORGANIZATION DOCUMENTS OR ITS DISSOLUTION.  THE ISSUED AND
OUTSTANDING CAPITAL STOCK, LIMITED LIABILITY COMPANY INTEREST AND PARTNERSHIP
INTEREST OF BORROWER AND EACH SUBSIDIARY IS DULY AUTHORIZED VALIDLY ISSUED,
FULLY PAID AND NONASSESSABLE, AND FREE OF THE PREEMPTIVE RIGHTS OF SHAREHOLDERS
AND OTHER EQUITY HOLDERS.  SCHEDULE 7.1 SETS FORTH THE RESPECTIVE JURISDICTION
OF ORGANIZATION AND PERCENTAGE OWNERSHIP AS OF THE AGREEMENT DATE OF EACH
SUBSIDIARY.  BORROWER HAS NO DIRECT OR INDIRECT SUBSIDIARY OTHER THAN THOSE SET
FORTH ON SCHEDULE 7.1.

 

7.2                                 AUTHORIZATION; VALIDITY.  THE BOARD OF
DIRECTORS, MANAGERS, PARTNERS OR OTHER APPROPRIATE GOVERNANCE BOARD OF EACH
OBLIGOR HAS DULY AUTHORIZED THE EXECUTION AND DELIVERY OF THE LOAN DOCUMENTS TO
WHICH SUCH OBLIGOR IS A PARTY AND THE PERFORMANCE OF THEIR RESPECTIVE TERMS.  NO
CONSENT OF THE STOCKHOLDERS, MEMBERS, PARTNERS OR OTHER EQUITY HOLDERS OF ANY
OBLIGOR IS REQUIRED AS A PREREQUISITE TO THE VALIDITY AND ENFORCEABILITY OF ANY
LOAN DOCUMENT.  EACH OBLIGOR HAS FULL CORPORATE, LIMITED LIABILITY OR
PARTNERSHIP (RESPECTIVELY) POWER, AUTHORITY AND

 

37

--------------------------------------------------------------------------------

 

LEGAL RIGHT TO EXECUTE AND DELIVER AND TO PERFORM AND OBSERVE THE PROVISIONS OF
ALL LOAN DOCUMENTS TO WHICH SUCH OBLIGOR IS A PARTY.  EACH OF THE LOAN DOCUMENTS
IS THE LEGAL, VALID AND BINDING OBLIGATION OF EACH OBLIGOR WHICH IS A PARTY
THERETO, ENFORCEABLE IN ACCORDANCE WITH ITS RESPECTIVE TERMS, SUBJECT AS TO
ENFORCEMENT OF REMEDIES TO ANY DEBTOR RELIEF LAWS.

 

7.3                                 FINANCIAL STATEMENTS.  THE FINANCIAL
STATEMENTS DESCRIBED IN SECTION 4.1(M) HERETOFORE FURNISHED TO LENDER ARE
COMPLETE AND CORRECT IN ALL MATERIAL RESPECTS AND PREPARED IN ACCORDANCE WITH
GAAP OR SAP, AS APPROPRIATE, AND FAIRLY PRESENT THE FINANCIAL CONDITION OF THE
PERSONS DESCRIBED THEREIN AS OF THE DATES INDICATED AND FOR THE PERIODS
INVOLVED.  THERE ARE NO CONTINGENT DEBTS, LIABILITIES FOR TAXES, UNUSUAL FORWARD
OR LONG-TERM COMMITMENTS OR UNREALIZED OR ANTICIPATED LOSSES FROM ANY
UNFAVORABLE COMMITMENTS, ANY OF WHICH ARE MATERIAL IN AMOUNT IN RELATION TO THE
FINANCIAL CONDITION OF BORROWER AND ITS SUBSIDIARIES, TAKEN AS A WHOLE, EXCEPT
AS REFLECTED IN SUCH FINANCIAL STATEMENTS.  THE DESCRIPTION OF ALL OFF-BALANCE
SHEET LIABILITIES OF BORROWER AND SUBSIDIARIES HERETOFORE FURNISHED TO LENDER IS
COMPLETE AND CORRECT IN ALL MATERIAL RESPECTS.  SINCE THE DATE OF THE FINANCIAL
STATEMENTS DESCRIBED IN SECTION 4.1(M) OR THE CURRENT FINANCIALS, THERE HAS BEEN
NO MATERIAL ADVERSE CHANGE OR, AT SUCH TIMES AS AUDITORS ARE REQUIRED BY
SARBANES-OXLEY TO DELIVER AN ATTESTATION REPORT AS TO BORROWER OR SENIOR
OFFICERS OF BORROWER ARE REQUIRED TO CERTIFY, IN CONNECTION WITH THE FILING WITH
THE SECURITIES AND EXCHANGE COMMISSION OF THE FORM 10Q AND FORM 10K OF BORROWER,
AS TO THE INTERNAL CONTROLS OF BORROWER, INTERNAL CONTROL EVENT.  NEITHER
BORROWER NOR ANY SUBSIDIARY HAS ANY OBLIGATION WITH RESPECT TO ANY MATERIAL
OFF-BALANCE SHEET LIABILITY EXCEPT AS DESCRIBED IN SCHEDULE 7.3.

 

7.4                                 COMPLIANCE WITH LAWS AND OTHER MATTERS.  THE
EXECUTION, DELIVERY AND PERFORMANCE AND COMPLIANCE WITH THE TERMS OF THE LOAN
DOCUMENTS WILL NOT CAUSE BORROWER OR ANY SUBSIDIARY TO BE, (A) IN VIOLATION OF
ITS CORPORATE CHARTER OR BYLAWS, CERTIFICATE OF ORGANIZATION, OPERATING
AGREEMENT, CERTIFICATE OF LIMITED PARTNERSHIP, PARTNERSHIP AGREEMENT OR OTHER
ORGANIZATION AND GOVERNANCE DOCUMENT, (B) IN VIOLATION OF ANY LAW IN ANY RESPECT
WHICH COULD HAVE ANY MATERIAL ADVERSE EFFECT, OR (C) IN DEFAULT (NOR HAS ANY
EVENT OCCURRED WHICH, WITH NOTICE OR LAPSE OF TIME OR BOTH, COULD CONSTITUTE A
DEFAULT) UNDER ANY MATERIAL AGREEMENT (INCLUDING ANY AGREEMENT RELATED TO ANY
DEBT OR SUCH PERSON).

 

7.5                                 LITIGATION.  THERE IS NO LITIGATION PENDING
AGAINST OR, TO THE KNOWLEDGE OF BORROWER, THREATENED AGAINST OR AFFECTING ANY
BORROWER OR ANY SUBSIDIARY OR THEIR RESPECTIVE ASSETS OR PROPERTIES WHICH
INVOLVES THE PROBABILITY OF ANY FINAL JUDGMENT OR LIABILITY WHICH MAY RESULT IN
A MATERIAL ADVERSE CHANGE.  SCHEDULE 7.5 IS A COMPLETE AND CORRECT DESCRIPTION
OF ALL EXISTING LITIGATION.  THERE ARE NO OUTSTANDING OR UNPAID FINAL JUDGMENTS
AGAINST BORROWER OR ANY SUBSIDIARY.

 

7.6                                 DEBT.  SINCE THE DATE OF THE LATEST OF THE
CURRENT FINANCIALS, NEITHER BORROWER NOR ANY OF ITS SUBSIDIARIES HAS INCURRED
ANY DEBT EXCEPT PERMITTED DEBT.  SCHEDULE 7.6 IS A COMPLETE AND CORRECT
DESCRIPTION OF ALL EXISTING DEBT.

 

7.7                                 TITLE TO PROPERTIES.  BORROWER AND EACH
SUBSIDIARY HAVE (A) FULL CORPORATE, LIMITED LIABILITY OR PARTNERSHIP
(RESPECTIVELY) POWER, AUTHORITY AND LEGAL RIGHT TO OWN AND OPERATE THE
PROPERTIES WHICH IT NOW OWNS OR LEASES, AND TO CARRY ON THE LINES OF BUSINESS IN
WHICH IT IS NOW ENGAGED, AND (B) GOOD AND MARKETABLE TITLE TO ITS OWNED
PROPERTIES, SUBJECT TO NO LIEN OF ANY KIND, EXCEPT PERMITTED LIENS.

 

38

--------------------------------------------------------------------------------

 

7.8                                 TAXES.  BORROWER AND EACH SUBSIDIARY HAVE
FILED ALL FEDERAL AND STATE AND ALL OTHER MATERIAL INCOME TAX RETURNS WHICH ARE
REQUIRED TO BE FILED BY SUCH PERSON AND HAVE PAID ALL TAXES AS SHOWN ON SAID
RETURNS, AND ALL TAXES DUE AND PAYABLE WITHOUT RETURNS AND ALL ASSESSMENTS
RECEIVED TO THE EXTENT THAT SUCH TAXES OR ASSESSMENTS HAVE BECOME DUE AND
PAYABLE.  ALL TAX LIABILITIES OF BORROWER AND EACH SUBSIDIARY ARE ADEQUATELY
PROVIDED FOR ON THE BOOKS OF SUCH PERSON, INCLUDING INTEREST AND PENALTIES.  NO
INCOME TAX LIABILITY OF A MATERIAL NATURE HAS BEEN ASSERTED BY TAXING
AUTHORITIES FOR TAXES IN EXCESS OF THOSE ALREADY PAID, EXCEPT SUCH TAXES BEING
CONTESTED IN GOOD FAITH BY APPROPRIATE PROCEEDINGS.  THERE IS NO MATERIAL
ACTION, SUIT, PROCEEDING, INVESTIGATION, AUDIT, OR CLAIM NOW PENDING OR, TO THE
KNOWLEDGE OF BORROWER OR ANY SUBSIDIARY, THREATENED BY ANY GOVERNMENTAL
AUTHORITY REGARDING ANY TAXES RELATING TO BORROWER OR SUCH SUBSIDIARY.  NEITHER
BORROWER NOR ANY SUBSIDIARY HAS ENTERED INTO AN AGREEMENT OR WAIVER OR BEEN
REQUESTED TO ENTER INTO AN AGREEMENT OR WAIVER EXTENDING ANY STATUTE OF
LIMITATIONS RELATING TO THE PAYMENT OR COLLECTION OF TAXES OF BORROWER OR SUCH
SUBSIDIARY, OR IS AWARE OF ANY CIRCUMSTANCES THAT WOULD CAUSE THE TAXABLE YEARS
OR OTHER TAXABLE PERIODS OF BORROWER OR SUCH SUBSIDIARY NOT TO BE SUBJECT TO THE
NORMALLY APPLICABLE STATUTE OF LIMITATIONS.

 

7.9                                 USE OF PROCEEDS.  NO OBLIGOR IS ENGAGED
PRINCIPALLY, OR AS ONE OF ITS IMPORTANT ACTIVITIES, IN THE BUSINESS OF EXTENDING
CREDIT FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCK (WITHIN THE
MEANING OF REGULATION U OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM)
AND NO PART OF THE PROCEEDS OF ANY ADVANCE LOAN WILL BE USED TO PURCHASE OR
CARRY ANY MARGIN STOCK OR TO EXTEND CREDIT TO OTHERS FOR THE PURPOSE OF
PURCHASING OR CARRYING ANY MARGIN STOCK.  NONE OF THE ASSETS OF ANY OBLIGOR IS
MARGIN STOCK.  NO OBLIGOR NOR ANY AGENT ACTING ON ITS BEHALF HAS TAKEN OR WILL
TAKE ANY ACTION WHICH MIGHT CAUSE THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS TO
VIOLATE ANY REGULATION OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
OR TO VIOLATE THE SECURITIES EXCHANGE ACT OF 1934, IN EACH CASE AS IN EFFECT NOW
OR AS THE SAME MAY HEREAFTER BE IN EFFECT.

 

7.10                           POSSESSION OF FRANCHISES, LICENSES, ETC. 
BORROWER AND EACH SUBSIDIARY POSSESS ALL FRANCHISES, CERTIFICATES, LICENSES,
PERMITS AND OTHER AUTHORIZATIONS FROM ALL GOVERNMENTAL AUTHORITIES, FREE FROM
BURDENSOME RESTRICTIONS, THAT (A) ARE NECESSARY FOR THE OWNERSHIP, MAINTENANCE
AND OPERATION OF ITS PROPERTIES AND ASSETS, AND (B) THE LOSS OF POSSESSION OF
WHICH COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT, AND SUCH
PERSON IS NOT IN VIOLATION OF ANY THEREOF.  SCHEDULE 7.10 LISTS WITH RESPECT TO
EACH RIC, AS OF THE AGREEMENT DATE, ALL OF THE JURISDICTIONS IN WHICH SUCH RIC
HOLDS LICENSES (INCLUDING, WITHOUT LIMITATION, LICENSES OR CERTIFICATES OF
AUTHORITY FROM RELEVANT INSURANCE REGULATORS), PERMITS OR AUTHORIZATIONS TO
TRANSACT INSURANCE BUSINESS.  TO THE KNOWLEDGE OF BORROWER, (A) NO SUCH LICENSE
IS THE SUBJECT OF A PROCEEDING FOR SUSPENSION, REVOCATION OR LIMITATION OR ANY
SIMILAR PROCEEDINGS, (B) THERE IS NO SUSTAINABLE BASIS FOR SUCH A SUSPENSION,
REVOCATION OR LIMITATION, AND (C) NO SUCH SUSPENSION, REVOCATION OR LIMITATION
IS THREATENED BY ANY RELEVANT INSURANCE REGULATOR.  AS OF THE AGREEMENT DATE, NO
RIC TRANSACTS ANY INSURANCE BUSINESS, DIRECTLY OR INDIRECTLY, IN ANY
JURISDICTION OTHER THAN THOSE LISTED ON SCHEDULE 7.10.

 

7.11                           LEASES.  BORROWER AND EACH SUBSIDIARY ENJOY
PEACEFUL AND UNDISTURBED POSSESSION OF ALL LEASES NECESSARY FOR THE OPERATION OF
ITS PROPERTIES AND ASSETS THE LOSS OF POSSESSION OF WHICH COULD REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.  ALL SUCH LEASES ARE VALID AND
SUBSISTING AND ARE IN FULL FORCE AND EFFECT.

 

39

--------------------------------------------------------------------------------

 

7.12                           DISCLOSURE.  NEITHER THIS AGREEMENT NOR ANY OTHER
DOCUMENT, CERTIFICATE OR STATEMENT FURNISHED TO LENDER BY OR ON BEHALF OF
BORROWER OR ANY SUBSIDIARY IN CONNECTION HEREWITH CONTAINS ANY UNTRUE STATEMENT
OF A MATERIAL FACT OR OMITS TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE
THE STATEMENTS CONTAINED HEREIN AND THEREIN NOT MISLEADING.  THERE IS NO FACT
KNOWN TO BORROWER OR ANY SUBSIDIARY AND NOT KNOWN TO THE PUBLIC GENERALLY WHICH
REASONABLY MAY BE EXPECTED TO MATERIALLY ADVERSELY AFFECT ITS ASSETS OR IN THE
FUTURE MAY REASONABLY BE EXPECTED (SO FAR AS BORROWER OR SUCH SUBSIDIARY CAN NOW
FORESEE) TO RESULT IN A MATERIAL ADVERSE EFFECT, WHICH HAS NOT BEEN SET FORTH IN
THIS AGREEMENT OR IN THE DOCUMENTS, CERTIFICATES AND STATEMENTS FURNISHED TO
LENDER BY OR ON BEHALF OF BORROWER OR ANY SUBSIDIARY PRIOR TO THE DATE HEREOF IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY.

 

7.13                           ERISA.  SCHEDULE 7.13 SETS FORTH EACH PLAN. 
NEITHER BORROWER NOR ANY SUBSIDIARY HAS (A) INCURRED ANY MATERIAL ACCUMULATED
FUNDING DEFICIENCY WITHIN THE MEANING OF ERISA, OR (B) INCURRED ANY MATERIAL
LIABILITY TO THE PBGC IN CONNECTION WITH ANY PLAN ESTABLISHED OR MAINTAINED BY
IT.  NO REPORTABLE EVENT HAS OCCURRED WITH RESPECT TO ANY PLAN WHICH COULD
REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE CHANGE.  NO PLAN IS IN
THE PROCESS OF TERMINATION.

 

7.14                           REGULATORY ACTS.  NONE OF BORROWER OR ANY
SUBSIDIARY IS AN “INVESTMENT COMPANY” WITHIN THE MEANING OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, OR IS SUBJECT TO REGULATION UNDER THE PUBLIC
UTILITY HOLDING ACT OF 1935, THE FEDERAL POWER ACT, THE INTERSTATE COMMERCE ACT,
OR ANY OTHER LAW (OTHER THAN REGULATION X OF THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM AND APPLICABLE INSURANCE LAWS) WHICH REGULATES THE
INCURRING BY BORROWER OR ANY SUBSIDIARY OF DEBT, INCLUDING, BUT NOT LIMITED TO,
LAWS REGULATING COMMON OR CONTRACT CARRIERS OR THE SALE OF ELECTRICITY, GAS,
STEAM, WATER, OR OTHER PUBLIC UTILITY SERVICES.

 

7.15                           SOLVENCY.  BORROWER AND EACH SUBSIDIARY IS, AND
BORROWER AND SUBSIDIARIES ON A CONSOLIDATED BASIS ARE, SOLVENT.

 

7.16                           ENVIRONMENTAL MATTERS.  EXCEPT AS SET FORTH IN
SCHEDULE 7.16 OR AS COULD NOT REASONABLY BE EXPECTED TO RESULT IN A MATERIAL
ADVERSE CHANGE OR EFFECT:

 

(A)                                  THE PROPERTIES OWNED, OPERATED OR LEASED BY
BORROWER AND EACH SUBSIDIARY (THE “PROPERTIES”) DO NOT CONTAIN ANY HAZARDOUS
MATERIALS IN AMOUNTS OR CONCENTRATIONS WHICH (I) CONSTITUTE, OR CONSTITUTED A
VIOLATION OF, OR (II) COULD REASONABLY BE EXPECTED TO GIVE RISE TO LIABILITY
UNDER, ENVIRONMENTAL LAWS, WHICH VIOLATIONS AND LIABILITIES, IN THE AGGREGATE,
COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE CHANGE;

 

(B)                                 ALL ENVIRONMENTAL PERMITS HAVE BEEN OBTAINED
AND ARE IN EFFECT WITH RESPECT TO THE PROPERTIES AND OPERATIONS OF BORROWER AND
EACH SUBSIDIARY, AND THE PROPERTIES AND ALL OPERATIONS OF BORROWER AND EACH
SUBSIDIARY ARE IN COMPLIANCE, AND HAVE BEEN IN COMPLIANCE, WITH ALL
ENVIRONMENTAL LAWS AND ALL NECESSARY ENVIRONMENTAL PERMITS, EXCEPT TO THE EXTENT
THAT SUCH NON COMPLIANCE OR FAILURE TO OBTAIN ANY NECESSARY PERMITS, IN THE
AGGREGATE, COULD NOT REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE
CHANGE;

 

(C)                                  NEITHER BORROWER NOR ANY SUBSIDIARY HAS
RECEIVED ANY NOTICE OF AN ENVIRONMENTAL CLAIM IN CONNECTION WITH THE PROPERTIES
OR THE OPERATIONS OF BORROWER OR SUCH SUBSIDIARY OR WITH REGARD TO ANY PERSON
WHOSE LIABILITIES FOR ENVIRONMENTAL MATTERS BORROWER OR

 

40

--------------------------------------------------------------------------------

 

SUCH SUBSIDIARY HAS RETAINED OR ASSUMED, IN WHOLE OR IN PART, CONTRACTUALLY,
WHICH, IN THE AGGREGATE, COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL
ADVERSE CHANGE, NOR DOES BORROWER OR ANY SUBSIDIARY HAVE KNOWLEDGE THAT ANY SUCH
NOTICE WILL BE RECEIVED OR IS BEING THREATENED; AND

 

(D)                                 HAZARDOUS MATERIALS HAVE NOT BEEN
TRANSPORTED FROM THE PROPERTIES, NOR HAVE HAZARDOUS MATERIALS BEEN GENERATED,
TREATED, STORED OR DISPOSED OF AT, ON OR UNDER ANY OF THE PROPERTIES IN A MANNER
THAT COULD REASONABLY BE EXPECTED TO GIVE RISE TO LIABILITY UNDER ANY
ENVIRONMENTAL LAW, NOR HAS BORROWER OR ANY SUBSIDIARY RETAINED OR ASSUMED ANY
LIABILITY CONTRACTUALLY, WITH RESPECT TO THE GENERATION, TREATMENT, STORAGE OR
DISPOSAL OF HAZARDOUS MATERIALS, WHICH TRANSPORTATION, GENERATION, TREATMENT,
STORAGE OR DISPOSAL, OR RETAINED OR ASSUMED LIABILITIES, IN THE AGGREGATE, COULD
REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE CHANGE.

 

7.17                           INVESTMENTS.  SCHEDULE 7.17 IS A COMPLETE AND
CORRECT DESCRIPTION OF ALL EXISTING INVESTMENTS AS OF THE AGREEMENT DATE. 
BORROWER HAS PROVIDED TO LENDER A COMPLETE COPY OF THE INVESTMENT POLICY OF EACH
RIC.

 

7.18                           INTELLECTUAL PROPERTY, ETC.  BORROWER AND EACH
SUBSIDIARY HAVE OBTAINED ALL MATERIAL PATENTS, TRADEMARKS, SERVICE MARKS, TRADE
NAMES, COPYRIGHTS, LICENSES AND OTHER RIGHTS, FREE FROM BURDENSOME RESTRICTIONS,
THAT ARE NECESSARY FOR THE OPERATION OF THEIR RESPECTIVE BUSINESSES AS PRESENTLY
CONDUCTED AND AS PROPOSED TO BE CONDUCTED.

 

7.19                           REINSURANCE AGREEMENTS.  EXCEPT AS SET FORTH ON
SCHEDULE F TO THE ANNUAL STATEMENTS FOR EACH RIC FOR ITS FISCAL YEAR ENDING
DECEMBER 31, 2004, AS MODIFIED BY SCHEDULE F TO THE QUARTERLY STATEMENTS FOR
EACH RIC FOR THE PERIOD ENDING JUNE 30, 2005, THERE ARE NO MATERIAL LIABILITIES
OUTSTANDING AS OF THE AGREEMENT DATE UNDER ANY REINSURANCE AGREEMENT.  EACH
REINSURANCE AGREEMENT IS IN FULL FORCE AND EFFECT; NO RIC OR, TO THE KNOWLEDGE
OF BORROWER, ANY OTHER PARTY THERETO, IS IN BREACH OF OR DEFAULT UNDER ANY SUCH
REINSURANCE AGREEMENT; AND BORROWER HAS NO REASON TO BELIEVE THAT THE FINANCIAL
CONDITION OF ANY OTHER PARTY TO ANY SUCH REINSURANCE AGREEMENT IS IMPAIRED SUCH
THAT A DEFAULT THEREUNDER BY SUCH PARTY COULD REASONABLY BE ANTICIPATED.  EACH
REINSURANCE AGREEMENT IS QUALIFIED UNDER ALL APPLICABLE LAWS TO RECEIVE THE
STATUTORY CREDIT ASSIGNED TO SUCH REINSURANCE AGREEMENT IN THE RELEVANT ANNUAL
STATEMENT OR QUARTERLY STATEMENT AT THE TIME PREPARED.  EXCEPT AS SET FORTH ON
SCHEDULE 7.19, EACH PERSON TO WHOM ANY RIC HAS CEDED ANY MATERIAL LIABILITY
PURSUANT TO ANY REINSURANCE AGREEMENT ON THE AGREEMENT DATE HAS A RATING OF “A-”
OR BETTER BY A.M. BEST.

 

7.20                           RETROCESSION AGREEMENTS.  SCHEDULE 7.20 IS A
COMPLETE AND CORRECT LIST OF ALL RETROCESSION AGREEMENTS TO WHICH BORROWER OR
ANY SUBSIDIARY IS A PARTY, DESCRIBING THE NAMES OF ALL PARTIES TO EACH
AGREEMENT, THE DATE OF EACH AGREEMENT AND THE TERMINATION DATE OF EACH
AGREEMENT.

 

7.21                           SUBSIDIARIES.  THERE ARE NO RESTRICTIONS ON
BORROWER OR ANY SUBSIDIARY WHICH PROHIBIT OR OTHERWISE RESTRICT THE TRANSFER OF
CASH OR OTHER ASSETS FROM ANY SUBSIDIARY TO BORROWER, OTHER THAN PROHIBITIONS OR
RESTRICTIONS EXISTING UNDER OR BY REASON OF (A) THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS, AND (B) RESTRICTIONS OF LAWS AND GOVERNMENTAL AUTHORITIES (INCLUDING
INSURANCE REGULATORS) HAVING JURISDICTION OVER BORROWER OR A SUBSIDIARY.

 

41

--------------------------------------------------------------------------------

 

7.22                           LABOR RELATIONS, COLLECTIVE BARGAINING
AGREEMENTS.  (A) SCHEDULE 7.22 IS A LIST AND DESCRIPTION (INCLUDING DATES OF
TERMINATION) OF ALL COLLECTIVE BARGAINING AGREEMENTS BETWEEN OR APPLICABLE TO
BORROWER AND EACH SUBSIDIARY AND ANY UNION, LABOR ORGANIZATION OR OTHER
BARGAINING AGENT IN RESPECT OF THE EMPLOYEES OF BORROWER AND SUCH SUBSIDIARY.

 

(B)                                 NONE OF BORROWER OR ANY SUBSIDIARY IS
ENGAGED IN ANY UNFAIR LABOR PRACTICE THAT IS REASONABLY LIKELY TO HAVE A
MATERIAL ADVERSE EFFECT.  THERE IS (I) NO SIGNIFICANT UNFAIR LABOR PRACTICE
COMPLAINT PENDING AGAINST BORROWER OR ANY SUBSIDIARY OR THREATENED IN WRITING
AGAINST ANY OF THEM, BEFORE THE NATIONAL LABOR RELATIONS BOARD, AND NO
SIGNIFICANT GRIEVANCE OR SIGNIFICANT ARBITRATION PROCEEDING ARISING OUT OF OR
UNDER ANY COLLECTIVE BARGAINING AGREEMENT IS NOW PENDING AGAINST BORROWER OR ANY
SUBSIDIARY OR THREATENED IN WRITING AGAINST ANY OF THEM, (II) NO SIGNIFICANT
STRIKE, LABOR DISPUTE, SLOWDOWN OR STOPPAGE IS PENDING AGAINST BORROWER OR ANY
SUBSIDIARY OR THREATENED IN WRITING AGAINST BORROWER OR ANY SUBSIDIARY AND
(III) TO THE BEST KNOWLEDGE OF BORROWER AND EACH SUBSIDIARY, NO UNION
REPRESENTATION QUESTION EXISTS WITH RESPECT TO THE EMPLOYEES OF BORROWER OR ANY
SUBSIDIARY, EXCEPT (WITH RESPECT TO ANY MATTER SPECIFIED IN CLAUSE (I), (II) OR
(III) ABOVE, EITHER INDIVIDUALLY OR IN THE AGGREGATE) SUCH AS IS NOT REASONABLY
LIKELY TO HAVE A MATERIAL ADVERSE EFFECT.

 

7.23                           PREFERRED STOCK DOCUMENTS.  ATTACHED AS EXHIBIT H
IS A COMPLETE AND CORRECT COPY OF ALL PREFERRED STOCK DOCUMENTS, AND ALL
AMENDMENTS AND RESTATEMENTS THERETO (OTHER THAN EACH ISSUED AND OUTSTANDING
CERTIFICATE EVIDENCING THE PREFERRED STOCK).  EXCEPT AS PROVIDED IN THE
PREFERRED STOCK DOCUMENTS, THERE ARE NO AGREEMENTS BETWEEN OR AMONG BORROWER AND
ANY HOLDER OF ANY PREFERRED STOCK REGARDING THE PREFERRED STOCK.

 

7.24                           SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. 
ALL REPRESENTATIONS AND WARRANTIES MADE UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO BE MADE AT AND AS OF THE AGREEMENT DATE AND AT AND
AS OF THE DATE OF THE MAKING OF EACH ADVANCE LOAN, AND EACH SHALL BE TRUE AND
CORRECT IN ALL MATERIAL RESPECTS WHEN MADE, EXCEPT TO THE EXTENT APPLICABLE TO A
SPECIFIC DATE.  ALL SUCH REPRESENTATIONS AND WARRANTIES SHALL SURVIVE, AND NOT
BE WAIVED BY, THE EXECUTION HEREOF BY LENDER ANY INVESTIGATION OR INQUIRY BY
LENDER OR BY THE MAKING OF ANY ADVANCE LOAN UNDER THIS AGREEMENT.

 

ARTICLE VIII

 

EVENTS OF DEFAULT

 

8.1                                 DEFAULT.  THE TERM “EVENT OF DEFAULT” AS
USED HEREIN, MEANS THE OCCURRENCE AND CONTINUANCE OF ANY ONE OR MORE OF THE
FOLLOWING EVENTS (INCLUDING THE PASSAGE OF TIME, IF ANY, SPECIFIED THEREFOR):

 

(A)                                  ADVANCE LOANS.  THE FAILURE OR REFUSAL OF
BORROWER TO PAY ANY PART OF THE PRINCIPAL OF OR INTEREST ON ANY ADVANCE LOAN ON
THE DATE SUCH PAYMENT IS DUE.

 

(B)                                 OTHER OBLIGATIONS.  THE FAILURE OR REFUSAL
OF BORROWER TO PAY ANY PART OF THE OBLIGATIONS (OTHER THAN AS REFERENCED IN
SECTION 8.1(A)) ON OR BEFORE THE DATE SUCH PAYMENT IS DUE AND SUCH FAILURE SHALL
CONTINUE FOR FIVE BUSINESS DAYS AFTER SUCH PAYMENT WAS DUE.

 

42

--------------------------------------------------------------------------------

 

(C)                                  CERTAIN COVENANTS.  THE FAILURE OR REFUSAL
OF ANY OBLIGOR PUNCTUALLY AND PROPERLY TO PERFORM, OBSERVE AND COMPLY WITH ANY
COVENANT, AGREEMENT OR CONDITION CONTAINED IN ARTICLE III, ARTICLE VI,
SECTIONS 5.2, 5.3 OR 5.6.

 

(D)                                 OTHER COVENANTS.  THE FAILURE OR REFUSAL OF
ANY OBLIGOR PUNCTUALLY AND PROPERLY TO PERFORM, OBSERVE AND COMPLY WITH ANY
COVENANT, AGREEMENT OR CONDITION CONTAINED IN ANY OF THE LOAN DOCUMENTS (OTHER
THAN COVENANTS TO PAY THE OBLIGATIONS REFERENCED IN SECTIONS 8.1(A) AND (B) AND
THOSE REFERENCED IN SECTION 8.1(C)) AND SUCH FAILURE SHALL NOT HAVE BEEN
REMEDIED WITHIN TEN BUSINESS DAYS AFTER THE EARLIER OF (I)  NOTICE THEREOF BY
LENDER (WHICH MAY BE TELEPHONIC) AND (II)  ACTUAL KNOWLEDGE THEREOF BY ANY SUCH
OBLIGOR.

 

(E)                                  VOLUNTARY DEBTOR RELIEF.  ANY OBLIGOR OR
ANY OF ITS SUBSIDIARIES SHALL (I) EXECUTE AN ASSIGNMENT FOR THE BENEFIT OF
CREDITORS, OR (II) ADMIT IN WRITING ITS INABILITY, OR BE GENERALLY UNABLE, TO
PAY ITS DEBTS GENERALLY AS THEY BECOME DUE, OR (III) VOLUNTARILY SEEK THE
BENEFIT OR BENEFITS OF ANY DEBTOR RELIEF LAW, OR (IV) VOLUNTARILY BECOME A PARTY
TO ANY PROCEEDING PROVIDED FOR BY ANY DEBTOR RELIEF LAW THAT WOULD SUSPEND OR
OTHERWISE AFFECT ANY OF THE RIGHTS OF LENDER GRANTED IN THE LOAN DOCUMENTS.

 

(F)                                    INVOLUNTARY PROCEEDINGS.  ANY OBLIGOR OR
ANY OF ITS SUBSIDIARIES SHALL INVOLUNTARILY (I)  HAVE AN ORDER, JUDGMENT OR
DECREE ENTERED AGAINST IT OR A MATERIAL PORTION OF ITS PROPERTY BY ANY
GOVERNMENTAL AUTHORITY PURSUANT TO ANY DEBTOR RELIEF LAW THAT WOULD SUSPEND OR
OTHERWISE AFFECT ANY OF THE RIGHTS GRANTED TO LENDER IN ANY OF THE LOAN
DOCUMENTS, OR (II)  HAVE A PETITION FILED AGAINST IT OR A MATERIAL PORTION OF
ITS PROPERTY SEEKING THE BENEFIT OR BENEFITS PROVIDED FOR BY ANY DEBTOR RELIEF
LAW THAT WOULD SUSPEND OR OTHERWISE AFFECT ANY OF THE RIGHTS GRANTED TO LENDER
IN ANY OF THE LOAN DOCUMENTS, AND SUCH ORDER, JUDGMENT, DECREE OR PETITION IS
NOT DISMISSED WITHIN 14 DAYS.

 

(G)                                 INSURANCE REGULATOR.  ANY INSURANCE
REGULATOR OF ANY JURISDICTION SUSPENDS OR TAKES ANY STEPS TOWARDS SUSPENDING THE
BUSINESS OR OPERATIONS OF ANY OBLIGOR OR ANY OF ITS SUBSIDIARIES AND ANY SUCH
EVENT COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE CHANGE.

 

(H)                                 INTERNAL CONTROL EVENT; SECURITIES LAWS.  AT
ANY TIME BORROWER IS REQUIRED TO COMPLY WITH SECTION 404 OF SARBANES-OXLEY, AN
INTERNAL CONTROL EVENT SHALL OCCUR OR ANY GOVERNMENTAL AUTHORITY SHALL ALLEGE A
VIOLATION OR COMMENCE ANY ACTION BASED ON AN ALLEGED VIOLATION OF ANY SECURITIES
LAWS BY BORROWER, ANY EMPLOYEE, OFFICER OR DIRECTOR OF BORROWER OR BORROWER’S
AUDITOR (WITH RESPECT TO ACTIONS OF SUCH AUDITOR IN ITS CAPACITY AS AUDITOR FOR
BORROWER) AND ANY SUCH EVENT COULD REASONABLY BE EXPECTED TO RESULT IN A
MATERIAL ADVERSE CHANGE.

 

(I)                                     JUDGMENTS.  ANY OBLIGOR OR ANY OF ITS
SUBSIDIARIES SHALL HAVE RENDERED AGAINST IT A MONEY JUDGMENT IN AN AGGREGATE
UNINSURED AMOUNT IN EXCESS OF $500,000 AND THE SAME SHALL REMAIN IN EFFECT AND
UNSTAYED FOR A PERIOD OF THIRTY CONSECUTIVE DAYS.

 

(J)                                     OTHER DEBT.  (I)  ANY OBLIGOR OR ANY OF
ITS SUBSIDIARIES SHALL DEFAULT (A) IN THE PAYMENT OF PRINCIPAL OF OR INTEREST ON
ANY DEBT IN AN AGGREGATE AMOUNT, TOGETHER WITH ALL OTHER DEBT IN WHICH A DEFAULT
EXISTS, IN EXCESS OF $500,000, OR (B) IN THE PERFORMANCE OF ANY OTHER COVENANT,
TERM OR CONDITION CONTAINED IN ANY AGREEMENT WITH RESPECT TO SUCH DEBT (IF SUCH

 

43

--------------------------------------------------------------------------------

 

DEFAULT SHALL OCCUR AND BE CONTINUING BEYOND ANY GRACE PERIOD WITH RESPECT TO
SUCH PAYMENT OR PERFORMANCE), IF THE EFFECT OF SUCH DEFAULT IS TO CAUSE OR
PERMIT THE HOLDER OR HOLDERS OF SUCH DEBT (OR ANY TRUSTEE ON THEIR BEHALF) TO
CAUSE SUCH DEBT TO BECOME DUE, PREPAID, REDEEMED OR PURCHASED PRIOR TO ITS DATE
OF MATURITY; OR (II)  ANY EVENT SHALL OCCUR WHICH EITHER CAUSES OR PERMITS THE
HOLDER OR HOLDERS OF SUCH DEBT (OR ANY TRUSTEE ON THEIR BEHALF) TO CAUSE SUCH
DEBT TO BECOME DUE, PREPAID, REDEEMED OR PURCHASED PRIOR TO ITS DATE OF
MATURITY.

 

(K)                                  MISREPRESENTATION.  ANY STATEMENT,
REPRESENTATION OR WARRANTY IN THE LOAN DOCUMENTS OR IN ANY WRITING EVER
DELIVERED TO LENDER PURSUANT TO THE LOAN DOCUMENTS PROVES TO BE INCORRECT IN ANY
MATERIAL RESPECT WHEN MADE.

 

(L)                                     STOCK.  ANY DIVIDEND (OTHER THAN AS
PERMITTED BY SECTION 6.5) SHALL BE DECLARED OR PAID WITH RESPECT TO ANY EQUITY
INTEREST TO BORROWER, ANY CAPITAL STOCK OR OTHER EQUITY INTEREST OF BORROWER
SHALL BE REDEEMED FOR ANY PROPERTY OTHER THAN COMMON STOCK OF BORROWER OR ANY
HOLDER OF ANY CAPITAL STOCK OF BORROWER SHALL TAKE ANY ACTION TO CAUSE BORROWER
TO REDEEM SUCH CAPITAL STOCK OF BORROWER FOR ANY PROPERTY OTHER THAN COMMON
STOCK OF BORROWER.

 

(M)                               ERISA.  ANY REPORTABLE EVENT UNDER ANY PLAN,
OR THE APPOINTMENT BY AN APPROPRIATE GOVERNMENTAL AUTHORITY OF A TRUSTEE TO
ADMINISTER ANY PLAN, OR THE TERMINATION OF ANY PLAN WITHIN THE MEANING OF
TITLE IV OF ERISA, OR ANY MATERIAL ACCUMULATED FUNDING DEFICIENCY WITHIN THE
MEANING OF ERISA UNDER ANY PLAN, OR THE INSTITUTION OF PROCEEDINGS BY THE PBGC
TO TERMINATE ANY PLAN OR TO APPOINT A TRUSTEE TO ADMINISTER ANY PLAN, AND ANY OF
SUCH EVENTS COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE CHANGE.

 

(N)                                 LOAN DOCUMENTS.  ANY LOAN DOCUMENT SHALL AT
ANY TIME AFTER ITS EXECUTION AND DELIVERY AND FOR ANY REASON, CEASE TO BE IN
FULL FORCE AND EFFECT IN OR BE DECLARED TO BE NULL AND VOID (OTHER THAN IN
ACCORDANCE WITH THE TERMS HEREOF OR THEREOF) OR THE VALIDITY OR ENFORCEABILITY
THEREOF BE CONTESTED BY ANY PERSON PARTY THERETO (OTHER THAN LENDER) OR ANY
PERSON (OTHER THAN LENDER) SHALL DENY IN WRITING THAT IT HAS ANY LIABILITY OR
ANY FURTHER LIABILITY OR OBLIGATIONS UNDER ANY LOAN DOCUMENT TO WHICH IT IS A
PARTY; OR ANY SECURITY DOCUMENT SHALL FOR ANY REASON (OTHER THAN PURSUANT TO THE
TERMS THEREOF) CEASE TO CREATE A VALID AND PERFECTED FIRST PRIORITY LIEN (OTHER
THAN PERMITTED LIENS) IN ANY COLLATERAL.

 

8.2                                 REMEDIES.  IF AN EVENT OF DEFAULT EXISTS:

 

(A)                                  WITH THE EXCEPTION OF AN EVENT OF DEFAULT
SPECIFIED IN SECTION 8.1(E) OR (F), LENDER MAY TERMINATE THE ADVANCE COMMITMENT
AND/OR DECLARE THE PRINCIPAL OF AND INTEREST ON THE ADVANCE LOANS AND
OBLIGATIONS AND OTHER AMOUNTS OWED UNDER THE LOAN DOCUMENTS TO BE FORTHWITH DUE
AND PAYABLE WITHOUT PRESENTMENT, DEMAND, PROTEST OR NOTICE OF ANY KIND, ALL OF
WHICH ARE HEREBY EXPRESSLY WAIVED, ANYTHING IN THE LOAN DOCUMENTS TO THE
CONTRARY NOTWITHSTANDING.

 

(B)                                 UPON THE OCCURRENCE OF AN EVENT OF DEFAULT
SPECIFIED IN SECTION 8.1(E) OR (F), THE PRINCIPAL OF AND INTEREST ON THE ADVANCE
LOANS AND OBLIGATIONS AND OTHER AMOUNTS AND UNDER THE LOAN DOCUMENTS SHALL
THEREUPON AND CONCURRENTLY THEREWITH BECOME DUE AND PAYABLE AND THE ADVANCE
COMMITMENT SHALL FORTHWITH TERMINATE, ALL WITHOUT ANY ACTION BY LENDER OR ANY
HOLDER OF THE ADVANCE NOTE AND WITHOUT PRESENTMENT, DEMAND, PROTEST OR OTHER
NOTICE OF ANY

 

44

--------------------------------------------------------------------------------

 

KIND, ALL OF WHICH ARE EXPRESSLY WAIVED, ANYTHING IN THE LOAN DOCUMENTS TO THE
CONTRARY NOTWITHSTANDING.

 

(C)                                  LENDER MAY EXERCISE ALL OF THE POST-DEFAULT
RIGHTS GRANTED TO IT UNDER THE LOAN DOCUMENTS OR UNDER LAW.

 

(D)                                 THE RIGHTS AND REMEDIES OF LENDER HEREUNDER
SHALL BE CUMULATIVE AND NOT EXCLUSIVE.

 

8.3                                 APPLICATION OF FUNDS.  AFTER THE EXERCISE OF
REMEDIES PROVIDED FOR IN SECTION 8.2 (OR AFTER THE ADVANCE LOANS AND OTHER
OBLIGATIONS HAVE AUTOMATICALLY BECOME IMMEDIATELY DUE AND PAYABLE), ANY AMOUNTS
RECEIVED ON ACCOUNT OF THE OBLIGATIONS SHALL BE APPLIED BY LENDER IN THE
FOLLOWING ORDER:

 

(A)                                  FIRST, TO PAYMENT OF THAT PORTION OF THE
OBLIGATIONS CONSTITUTING FEES, INDEMNITIES, EXPENSES AND OTHER AMOUNTS
(INCLUDING ATTORNEY COSTS PAYABLE UNDER SECTION 9.2 AND AMOUNTS PAYABLE UNDER
ARTICLE III) PAYABLE UNDER THE LOAN DOCUMENTS TO LENDER;

 

(B)                                 SECOND, TO PAYMENT OF THAT PORTION OF THE
OBLIGATIONS CONSTITUTING ACCRUED AND UNPAID INTEREST ON THE ADVANCE LOANS;

 

(C)                                  THIRD, TO PAYMENT OF THAT PORTION OF THE
OBLIGATIONS CONSTITUTING UNPAID PRINCIPAL OF THE ADVANCE LOANS IN SUCH ORDER AS
LENDER ELECTS IN ITS DISCRETION;

 

(D)                                 FOURTH, TO ALL OTHER OBLIGATIONS; AND

 

(E)                                  LAST, TO THE BALANCE, IF ANY, AFTER ALL OF
THE OBLIGATIONS HAVE BEEN INDEFEASIBLY PAID IN FULL, TO BORROWER OR AS OTHERWISE
REQUIRED BY LAW;

 

ARTICLE IX

 

MISCELLANEOUS

 

9.1                                 NOTICES.

 

(A)                                  ALL NOTICES AND OTHER COMMUNICATIONS UNDER
THIS AGREEMENT (EXCEPT IN THOSE CASES WHERE GIVING NOTICE BY TELEPHONE IS
EXPRESSLY PERMITTED) SHALL BE IN WRITING AND SHALL BE DEEMED TO HAVE BEEN GIVEN
ON THE DATE PERSONALLY DELIVERED OR SENT BY TELECOPY (ANSWERBACK RECEIVED), OR
THREE DAYS AFTER DEPOSIT IN THE MAIL, DESIGNATED AS CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, POSTAGE-PREPAID, OR ONE DAY AFTER BEING ENTRUSTED TO A
REPUTABLE COMMERCIAL OVERNIGHT DELIVERY SERVICE, ADDRESSED TO THE PARTY TO WHICH
SUCH NOTICE IS DIRECTED AT ITS ADDRESS DETERMINED AS PROVIDED IN THIS SECTION. 
ALL NOTICES AND OTHER COMMUNICATIONS UNDER THIS AGREEMENT SHALL BE GIVEN IF TO
BORROWER, AT THE ADDRESS SPECIFIED ON SCHEDULE 9.1, AND IF TO LENDER, AT THE
ADDRESS SPECIFIED ON SCHEDULE 9.1.

 

(B)                                 ANY PARTY HERETO MAY CHANGE THE ADDRESS TO
WHICH NOTICES SHALL BE DIRECTED BY GIVING TEN DAYS’ WRITTEN NOTICE OF SUCH
CHANGE TO THE OTHER PARTIES.

 

45

--------------------------------------------------------------------------------

 

9.2                                 EXPENSES.  BORROWER SHALL PROMPTLY PAY:

 

(A)                                  ALL REASONABLE OUT-OF-POCKET EXPENSES AND
REASONABLE ATTORNEY COSTS OF LENDER IN CONNECTION WITH THE PREPARATION,
NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THEREUNDER, THE MAKING OF
THE ADVANCE LOANS HEREUNDER, AND THE PREPARATION, NEGOTIATION, EXECUTION AND
DELIVERY OF ANY WAIVER, AMENDMENT OR CONSENT BY LENDER RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS; AND

 

(B)                                 ALL REASONABLE COSTS, OUT-OF-POCKET EXPENSES
AND REASONABLE ATTORNEY COSTS OF LENDER INCURRED FOR ENFORCEMENT, COLLECTION,
RESTRUCTURING, REFINANCING AND “WORK-OUT”, OR OTHERWISE INCURRED IN OBTAINING
PERFORMANCE UNDER THE LOAN DOCUMENTS, AND ALL REASONABLE COSTS AND OUT-OF-POCKET
EXPENSES OF COLLECTION IF DEFAULT IS MADE IN THE PAYMENT OF THE ADVANCE NOTE OR
OTHER OBLIGATIONS WHICH IN EACH CASE SHALL INCLUDE WITHOUT LIMITATION REASONABLE
FEES AND EXPENSES OF CONSULTANTS, COUNSEL FOR LENDER, AND ADMINISTRATIVE FEES
FOR LENDER.

 

9.3                                 WAIVERS.  THE RIGHTS AND REMEDIES OF LENDER
UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CUMULATIVE AND NOT
EXCLUSIVE OF ANY RIGHTS OR REMEDIES WHICH IT WOULD OTHERWISE HAVE.  NO FAILURE
OR DELAY BY LENDER IN EXERCISING ANY RIGHT SHALL OPERATE AS A WAIVER OF SUCH
RIGHT.  ANY WAIVER OR INDULGENCE GRANTED BY LENDER SHALL NOT CONSTITUTE A
MODIFICATION OF ANY LOAN DOCUMENT, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN
SUCH WRITTEN WAIVER OR INDULGENCE, OR CONSTITUTE A COURSE OF DEALING BY LENDER
AT VARIANCE WITH THE TERMS OF ANY LOAN DOCUMENT SUCH AS TO REQUIRE FURTHER
NOTICE BY LENDER OF LENDER’S INTENT TO REQUIRE STRICT ADHERENCE TO THE TERMS OF
SUCH LOAN DOCUMENT IN THE FUTURE.  ANY SUCH ACTIONS SHALL NOT IN ANY WAY AFFECT
THE ABILITY OF LENDER, IN ITS DISCRETION, TO EXERCISE ANY RIGHTS AVAILABLE TO IT
UNDER THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR UNDER ANY OTHER AGREEMENT,
WHETHER OR NOT LENDER IS A PARTY THERETO, RELATING TO BORROWER, ITS SUBSIDIARIES
OR OTHER OBLIGORS.

 

9.4                                 DETERMINATIONS BY LENDER.  ANY MATERIAL
DETERMINATION REQUIRED OR EXPRESSLY PERMITTED TO BE MADE BY LENDER UNDER THIS
AGREEMENT SHALL BE MADE IN ITS REASONABLE JUDGMENT AND IN GOOD FAITH, AND SHALL
WHEN MADE CONSTITUTE PRIMA FACIE EVIDENCE AS TO THE ACCURACY THEREOF.  UPON
BORROWER’S REASONABLE REQUEST, LENDER SHALL PROVIDE TO BORROWER A WRITTEN
EXPLANATION IN REASONABLE DETAIL OF THE BASIS OF LENDER’S DETERMINATION;
PROVIDED, ANY FAILURE TO DELIVER SUCH EXPLANATION SHALL NOT IMPAIR ANY RIGHT OF
LENDER.

 

9.5                                 SET-OFF.  IN ADDITION TO ANY RIGHTS NOW OR
HEREAFTER GRANTED UNDER LAW AND NOT BY WAY OF LIMITATION OF ANY SUCH RIGHTS,
DURING THE EXISTENCE OF AN EVENT OF DEFAULT, LENDER AND ANY SUBSEQUENT HOLDER OF
THE ADVANCE NOTE OR OTHER OBLIGATIONS, AND ANY ASSIGNEE OR PARTICIPANT IN THE
ADVANCE NOTE OR OTHER OBLIGATION IS HEREBY AUTHORIZED BY BORROWER AT ANY TIME OR
FROM TIME TO TIME, WITHOUT NOTICE TO BORROWER OR ANY OTHER PERSON, ANY SUCH
NOTICE BEING HEREBY EXPRESSLY WAIVED, TO SET-OFF, APPROPRIATE AND APPLY ANY
DEPOSITS (GENERAL OR SPECIAL (EXCEPT TRUST AND ESCROW ACCOUNTS), TIME OR DEMAND,
INCLUDING WITHOUT LIMITATION DEBT EVIDENCED BY CERTIFICATES OF DEPOSIT, IN EACH
CASE WHETHER MATURED OR UNMATURED) AND ANY OTHER DEBT AT ANY TIME HELD OR OWING
BY LENDER OR SUCH HOLDER, ASSIGNEE OR PARTICIPANT TO OR FOR THE CREDIT OR THE
ACCOUNT OF BORROWER, AGAINST AND ON ACCOUNT OF THE OBLIGATIONS AND OTHER
LIABILITIES OF BORROWER TO LENDER OR SUCH HOLDER, ASSIGNEE OR PARTICIPANT,
IRRESPECTIVE OF WHETHER OR NOT (A) LENDER OR SUCH HOLDER, ASSIGNEE OR
PARTICIPANT SHALL HAVE MADE ANY DEMAND HEREUNDER OR REQUIRED THAT BORROWER, OR
(B)  LENDER OR SUCH HOLDER, ASSIGNEE OR PARTICIPANT SHALL HAVE DECLARED THE
PRINCIPAL OF AND INTEREST

 

46

--------------------------------------------------------------------------------

 

ON THE ADVANCE LOANS AND OTHER AMOUNTS DUE HEREUNDER TO BE DUE AND PAYABLE AS
PERMITTED BY SECTION 8.2 AND ALTHOUGH SUCH OBLIGATIONS AND LIABILITIES, OR ANY
OF THEM, SHALL BE CONTINGENT OR UNMATURED.  ANY SUMS OBTAINED BY LENDER OR ANY
ASSIGNEE, PARTICIPANT OR SUBSEQUENT HOLDER OF THE ADVANCE NOTE OR OTHER
OBLIGATION SHALL BE SUBJECT TO PRO RATA TREATMENT OF THE OBLIGATIONS AND OTHER
LIABILITIES HEREUNDER.

 

9.6                                 ASSIGNMENT.

 

(A)                                  NEITHER BORROWER NOR ANY OTHER OBLIGOR MAY
ASSIGN OR TRANSFER ANY OF ITS RIGHTS OR OBLIGATIONS HEREUNDER OR UNDER THE OTHER
LOAN DOCUMENTS WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER.

 

(B)                                 LENDER MAY AT ANY TIME SELL PARTICIPATIONS
IN ALL OR ANY PART IN THE ADVANCE COMMITMENT AND/OR THE ADVANCE LOANS
(COLLECTIVELY, “PARTICIPATIONS”) TO ANY BANKS OR OTHER FINANCIAL INSTITUTIONS
(“PARTICIPANTS”) PROVIDED THAT SUCH PARTICIPATION SHALL NOT CONFER ON ANY PERSON
(OTHER THAN THE PARTIES HERETO) ANY RIGHT TO VOTE ON, APPROVE OR SIGN AMENDMENTS
OR WAIVERS, OR ANY OTHER INDEPENDENT BENEFIT OR ANY LEGAL OR EQUITABLE RIGHT,
REMEDY OR OTHER CLAIM UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS, OTHER
THAN THE RIGHT TO VOTE ON, APPROVE, OR SIGN AMENDMENTS OR WAIVERS OR CONSENTS
WITH RESPECT TO ITEMS THAT WOULD RESULT IN (I) (A) THE EXTENSION OF THE DATE OF
MATURITY OF THE ADVANCE LOANS, OR (B) THE EXTENSION OF THE DUE DATE FOR ANY
PAYMENT OF PRINCIPAL, INTEREST OR FEES RESPECTING THE ADVANCE LOANS, OR (C) THE
REDUCTION OF THE AMOUNT OF ANY INSTALLMENT OF PRINCIPAL OR INTEREST ON OR THE
CHANGE OR REDUCTION OF ANY MANDATORY REDUCTION REQUIRED HEREUNDER, OR (D) A
REDUCTION OF THE RATE OF INTEREST ON THE ADVANCE LOANS; OR (II)  THE RELEASE OF
SECURITY FOR THE OBLIGATIONS (EXCEPT PURSUANT TO THIS AGREEMENT). 
NOTWITHSTANDING THE FOREGOING, BORROWER AGREES THAT PARTICIPANTS SHALL BE
ENTITLED TO THE BENEFITS OF ARTICLE VIII AND SECTION 9.5 AS THOUGH THEY WERE
LENDER.  TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER LAW, BORROWER
AGREES THAT ANY PARTICIPANT MAY EXERCISE ANY AND ALL RIGHTS OF BANKER’S LIEN,
SET-OFF AND COUNTERCLAIM WITH RESPECT TO ITS PARTICIPATION AS FULLY AS IF SUCH
PARTICIPANT WERE THE HOLDER OF THE ADVANCE LOANS IN THE AMOUNT OF ITS
PARTICIPATION.

 

(C)                                  LENDER MAY ASSIGN TO ONE OR MORE FINANCIAL
INSTITUTIONS OR FUNDS ORGANIZED UNDER THE LAWS OF THE UNITED STATES, OR ANY
STATE THEREOF, OR UNDER THE LAWS OF ANY OTHER COUNTRY THAT IS A MEMBER OF THE
ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT, OR A POLITICAL
SUBDIVISION OF ANY SUCH COUNTRY, WHICH IS ENGAGED IN MAKING, PURCHASING OR
OTHERWISE INVESTING IN COMMERCIAL LOANS IN THE ORDINARY COURSE OF ITS BUSINESS
(EACH, AN “ASSIGNEE”) ALL OF ITS RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS.  FROM AND AFTER SUCH ASSIGNMENT, SUCH ASSIGNEE SHALL
SUCCEED TO ALL RIGHTS AND OBLIGATIONS OF LENDER UNDER THE LOAN DOCUMENTS.

 

(D)                                 EXCEPT AS SPECIFICALLY SET FORTH IN THIS
SECTION 9.6, NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS, EXPRESSED OR
IMPLIED, IS INTENDED TO OR SHALL CONFER ON ANY PERSON OTHER THAN THE RESPECTIVE
PARTIES HERETO AND THERETO AND THEIR SUCCESSORS AND ASSIGNEES PERMITTED
HEREUNDER AND THEREUNDER ANY BENEFIT OR ANY LEGAL OR EQUITABLE RIGHT, REMEDY OR
OTHER CLAIM UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS.

 

(E)                                  NOTWITHSTANDING ANYTHING IN THIS
SECTION 9.6 TO THE CONTRARY, NO ASSIGNEE OR PARTICIPANT SHALL BE ENTITLED TO
RECEIVE ANY GREATER PAYMENT UNDER ARTICLE III THAN LENDER

 

47

--------------------------------------------------------------------------------

 

WOULD HAVE BEEN ENTITLED TO RECEIVE WITH RESPECT TO THE INTEREST ASSIGNED OR
PARTICIPATED TO SUCH ASSIGNEE OR PARTICIPANT.

 

(F)                                    BORROWER SHALL NOT BE REQUIRED TO DELIVER
TO ANY PARTICIPANT ANY INFORMATION REQUIRED TO BE DELIVERED TO LENDER PURSUANT
TO ANY LOAN DOCUMENT.

 

9.7                                 AMENDMENT AND WAIVER.  THE PROVISIONS OF
THIS AGREEMENT MAY NOT BE AMENDED, MODIFIED OR WAIVED EXCEPT BY THE WRITTEN
AGREEMENT OF BORROWER AND LENDER.  NEITHER THIS AGREEMENT NOR ANY TERM HEREOF
MAY BE AMENDED ORALLY, NOR MAY ANY PROVISION HEREOF BE WAIVED ORALLY BUT ONLY BY
AN INSTRUMENT IN WRITING THE PARTIES REQUIRED BY THIS SECTION 9.7.

 

9.8                                 CONFIDENTIALITY.  LENDER AGREES TO MAINTAIN
THE CONFIDENTIALITY OF THE INFORMATION, EXCEPT THAT INFORMATION MAY BE DISCLOSED
(A) TO ITS AND ITS AFFILIATES’ DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS,
INCLUDING ACCOUNTANTS, LEGAL COUNSEL AND OTHER ADVISORS (IT BEING UNDERSTOOD
THAT 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), (B) TO THE EXTENT REQUESTED BY ANY GOVERNMENTAL AUTHORITY
(INCLUDING ANY SELF-REGULATORY AUTHORITY, SUCH AS THE NAIC), (C) TO THE EXTENT
REQUIRED BY LAWS OR BY ANY SUBPOENA OR SIMILAR LEGAL PROCESS, (D) IN CONNECTION
WITH THE EXERCISE OF ANY REMEDIES HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT OR
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
OR THE ENFORCEMENT OF RIGHTS HEREUNDER OR THEREUNDER, (E) SUBJECT TO AN
AGREEMENT CONTAINING PROVISIONS SUBSTANTIALLY THE SAME AS THOSE OF THIS SECTION,
TO ANY ASSIGNEE OF OR PARTICIPANT IN, OR ANY PROSPECTIVE ASSIGNEE OF OR
PARTICIPANT IN, ANY OF ITS RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT, (F) WITH
THE WRITTEN CONSENT OF BORROWER OR (G) TO THE EXTENT SUCH INFORMATION
(I) BECOMES PUBLICLY AVAILABLE OTHER THAN AS A RESULT OF A BREACH OF THIS
SECTION OR (II) BECOMES AVAILABLE TO LENDER ON A NONCONFIDENTIAL BASIS FROM A
SOURCE OTHER THAN BORROWER, ANY OF ITS SUBSIDIARIES OR ANY OTHER OBLIGOR.  FOR
PURPOSES OF THIS SECTION, “INFORMATION” MEANS ALL INFORMATION RECEIVED FROM
BORROWER, ANY OTHER OBLIGOR OR ANY SUBSIDIARY RELATING TO BORROWER, ANY OTHER
OBLIGOR OR ANY SUBSIDIARY OR ANY OF THEIR RESPECTIVE BUSINESSES, OTHER THAN ANY
SUCH INFORMATION THAT IS AVAILABLE TO LENDER ON A NONCONFIDENTIAL BASIS PRIOR TO
DISCLOSURE BY BORROWER, ANY OTHER OBLIGOR OR ANY SUBSIDIARY, PROVIDED THAT, IN
THE CASE OF INFORMATION RECEIVED FROM A BORROWER, ANY OTHER OBLIGOR OR ANY
SUBSIDIARY AFTER THE DATE HEREOF, SUCH INFORMATION IS CLEARLY IDENTIFIED AT THE
TIME OF DELIVERY AS CONFIDENTIAL.  ANY PERSON REQUIRED TO MAINTAIN THE
CONFIDENTIALITY OF INFORMATION AS PROVIDED IN THIS SECTION SHALL BE CONSIDERED
TO HAVE COMPLIED WITH ITS OBLIGATION TO DO SO IF SUCH PERSON HAS EXERCISED THE
SAME DEGREE OF CARE TO MAINTAIN THE CONFIDENTIALITY OF SUCH INFORMATION AS SUCH
PERSON WOULD ACCORD TO ITS OWN CONFIDENTIAL INFORMATION.

 

9.9                                 COUNTERPARTS.  THIS AGREEMENT MAY BE
EXECUTED IN ANY NUMBER OF COUNTERPARTS, INCLUDING VIA FACSIMILE, EACH OF WHICH
SHALL BE DEEMED TO BE AN ORIGINAL, BUT ALL SUCH SEPARATE COUNTERPARTS SHALL
TOGETHER CONSTITUTE BUT ONE AND THE SAME INSTRUMENT.

 

9.10                           SEVERABILITY.  ANY PROVISION OF THIS AGREEMENT
WHICH IS FOR ANY REASON PROHIBITED OR FOUND OR HELD INVALID OR UNENFORCEABLE BY
ANY GOVERNMENTAL AUTHORITY SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH
PROHIBITION OR INVALIDITY OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING
PROVISIONS HEREOF IN SUCH JURISDICTION OR AFFECTING THE VALIDITY OR
ENFORCEABILITY OF SUCH PROVISION IN ANY OTHER JURISDICTION.

 

48

--------------------------------------------------------------------------------

 

9.11                           INTEREST AND CHARGES.  IT IS NOT THE INTENTION OF
ANY PARTIES TO THIS AGREEMENT TO MAKE AN AGREEMENT IN VIOLATION OF THE LAWS OF
ANY APPLICABLE JURISDICTION RELATING TO USURY.  REGARDLESS OF ANY PROVISION IN
ANY LOAN DOCUMENT, LENDER SHALL NEVER BE ENTITLED TO RECEIVE, COLLECT OR APPLY,
AS INTEREST ON THE OBLIGATIONS, ANY AMOUNT IN EXCESS OF THE MAXIMUM AMOUNT.  IF
LENDER EVER RECEIVES, COLLECTS OR APPLIES, AS INTEREST, ANY SUCH EXCESS, SUCH
AMOUNT WHICH WOULD BE EXCESSIVE INTEREST SHALL BE DEEMED A PARTIAL REPAYMENT OF
PRINCIPAL BY BORROWER.  IN DETERMINING WHETHER OR NOT THE INTEREST PAID OR
PAYABLE, UNDER ANY SPECIFIC CONTINGENCY, EXCEEDS THE MAXIMUM AMOUNT, BORROWER
AND LENDER SHALL, TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW,
(A) CHARACTERIZE ANY NONPRINCIPAL PAYMENT AS AN EXPENSE, FEE OR PREMIUM RATHER
THAN AS INTEREST, (B) EXCLUDE VOLUNTARY PREPAYMENTS AND THE EFFECT THEREOF, AND
(C) AMORTIZE, PRORATE, ALLOCATE AND SPREAD IN EQUAL PARTS, THE TOTAL AMOUNT OF
INTEREST THROUGHOUT THE ENTIRE CONTEMPLATED TERM OF THE OBLIGATIONS SO THAT THE
INTEREST RATE IS UNIFORM THROUGHOUT THE ENTIRE TERM OF THE OBLIGATIONS;
PROVIDED, HOWEVER, THAT IF THE OBLIGATIONS ARE PAID AND PERFORMED IN FULL PRIOR
TO THE END OF THE FULL CONTEMPLATED TERM THEREOF, AND IF THE INTEREST RECEIVED
FOR THE ACTUAL PERIOD OF EXISTENCE THEREOF EXCEEDS THE MAXIMUM AMOUNT, LENDER
SHALL REFUND TO BORROWER OR SUCH OTHER PERSON LEGALLY ENTITLED THERETO THE
AMOUNT OF SUCH EXCESS OR CREDIT THE AMOUNT OF SUCH EXCESS AGAINST THE TOTAL
PRINCIPAL AMOUNT OF THE OBLIGATIONS OWING, AND, IN SUCH EVENT, LENDER SHALL NOT
BE SUBJECT TO ANY PENALTIES PROVIDED BY ANY LAWS FOR CONTRACTING FOR, CHARGING
OR RECEIVING INTEREST IN EXCESS OF THE MAXIMUM AMOUNT.  THIS SECTION SHALL
CONTROL EVERY OTHER PROVISION OF ALL AGREEMENTS PERTAINING TO THE TRANSACTIONS
CONTEMPLATED BY OR CONTAINED IN THE LOAN DOCUMENTS.  THE PROVISIONS OF THIS
SECTION 9.11 APPLICABLE TO LENDER ARE EQUALLY APPLICABLE TO EACH PARTICIPANT,
ASSIGNEE AND ANY SUBSEQUENT HOLDER.

 

9.12                           EXCEPTION TO COVENANTS.  NO OBLIGOR SHALL BE
DEEMED TO BE PERMITTED TO TAKE ANY ACTION OR FAIL TO TAKE ANY ACTION WHICH IS
PERMITTED AS AN EXCEPTION TO ANY OF THE COVENANTS CONTAINED HEREIN OR WHICH IS
WITHIN THE PERMISSIBLE LIMITS OF ANY OF THE COVENANTS CONTAINED HEREIN IF SUCH
ACTION OR OMISSION WOULD RESULT IN THE BREACH OF ANY OTHER COVENANT CONTAINED
HEREIN.

 

9.13                           USA PATRIOT ACT NOTICE.  LENDER HEREBY NOTIFIES
BORROWER THAT PURSUANT TO THE REQUIREMENTS OF THE USA PATRIOT ACT (TITLE III OF
PUB.L. 107-56 (SIGNED INTO LAW OCTOBER 26, 2001)) (THE “ACT”), LENDER IS
REQUIRED TO OBTAIN, VERIFY AND RECORD INFORMATION THAT IDENTIFIES BORROWER,
WHICH INFORMATION INCLUDES THE NAME AND ADDRESS OF BORROWER AND OTHER
INFORMATION THAT WILL ALLOW LENDER TO IDENTIFY BORROWER IN ACCORDANCE WITH THE
ACT.

 

9.14                           GOVERNING LAW.  THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS; PROVIDED, HOWEVER, IT IS AGREED THAT THE PROVISIONS OF
CHAPTER 346 OF THE TEXAS FINANCE CODE SHALL NOT APPLY TO THE ADVANCE LOANS, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.  THE LOAN DOCUMENTS ARE PERFORMABLE IN
SAN ANTONIO, BEXAR COUNTY, TEXAS, AND BORROWER AND LENDER WAIVE THE RIGHT TO BE
SUED ELSEWHERE.  BORROWER AND LENDER AGREE THAT THE STATE AND FEDERAL COURTS OF
TEXAS LOCATED IN SAN ANTONIO, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

49

--------------------------------------------------------------------------------

 

9.15                           WAIVER OF JURY TRIAL.  EACH OF BORROWER AND
LENDER HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREBY.  THIS PROVISION IS A MATERIAL INDUCEMENT
TO LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY ADVANCE LOANS HEREUNDER.

 

9.16                           ENTIRE AGREEMENT.  THIS WRITTEN AGREEMENT,
TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

 

The Remainder of This Page Is Intentionally Left Blank.

 

50

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, this Agreement is executed as of the date first set forth
above.

 

BORROWER:

GAINSCO, INC.

 

 

 

 

 

By:

/s/ Glenn W. Anderson

 

 

Print Name:

Glenn W. Anderson

 

Print Title:

President and Chief Executive Officer

 

--------------------------------------------------------------------------------

 

LENDER:

THE FROST NATIONAL BANK

 

 

 

 

 

By:

/s/ Stephen S. Martin

 

 

Print Name: Stephen S. Martin

 

Print Title: Vice President

 

--------------------------------------------------------------------------------