<PAGE>   1
                                                                  EXECUTION COPY




                      AMENDED AND RESTATED CREDIT AGREEMENT

                          dated as of November 26, 1996

                                      among

                           THE NAVIGATORS GROUP, INC.,

                                  as Borrower,

                                       and

                         BROWN BROTHERS HARRIMAN & CO.,

                                    NBD BANK,

                   FIRST UNION NATIONAL BANK OF NORTH CAROLINA

                                   as Lenders,

                       THE FIRST NATIONAL BANK OF CHICAGO,

                                 as Issuing Bank

                                       and

                         BROWN BROTHERS HARRIMAN & CO.,

                                    as Agent




<PAGE>   2


                                TABLE OF CONTENTS

                                                                            Page

ARTICLE I.  DEFINITIONS, ACCOUNTING TERMS...................................  1
         Section 1.01.  Definitions.........................................  1
         Section 1.02.  Accounting Terms.................................... 22
         Section 1.03.  Computation of Time Periods......................... 22
         Section 1.04.  Rules of Construction............................... 22

ARTICLE II.  REVOLVING CREDIT LOANS......................................... 23
         Section 2.01.  Revolving Credit.................................... 23
         Section 2.02.  Notice and Manner of Borrowing...................... 23
         Section 2.03.  Non-Receipt of Funds by the Agent................... 24
         Section 2.04.  Interest............................................ 25
         Section 2.05.  Interest Periods; Conversions; Renewals............. 25
         Section 2.06.  Fees   ............................................. 26
         Section 2.07.  Revolving Credit Notes.............................. 27
         Section 2.08.  Prepayments......................................... 27
         Section 2.09.  Method of Payment................................... 27
         Section 2.10.  Use of Proceeds..................................... 28
         Section 2.11.  Minimum Amounts..................................... 28
         Section 2.12.  Additional Costs.................................... 29
         Section 2.13.  Limitation on Types of Loans........................ 30
         Section 2.14.  Illegality.......................................... 31
         Section 2.15.  Treatment of Affected Loans......................... 31
         Section 2.16.  Risk-Based Capital.................................. 31
         Section 2.17.  Certain Compensation................................ 32
         Section 2.18.  Capital Adequacy.................................... 32
         Section 2.19.  Taxes  ............................................. 33

ARTICLE III.  LETTERS OF CREDIT............................................. 34
         Section 3.01.  Letters of Credit................................... 34
         Section 3.02.  Reimbursement Obligation............................ 35
         Section 3.03.  Payment of Commissions, Expenses and
                               Interest..................................... 36
         Section 3.04.  Proper Drawing; the Issuing Bank's
                               Honoring..................................... 37
         Section 3.05.  Amendment, Change, Modification; No
                               Waiver....................................... 38
         Section 3.06.  U.C.P.; Agreements and Acknowledgements;
                               Indemnifications............................. 38
         Section 3.07.  Continuing Rights and Obligations................... 40
         Section 3.08.  Instructions; No Liability.......................... 40
         Section 3.09.  Amended Agreement................................... 41
                               ............................................. 41
         Section 3.10.  Letter of Credit Overdrafts......................... 41
         Section 3.11.  Obligation Absolute.  .............................. 41
         Section 3.12.  Change in Law....................................... 42
         Section 3.13.  Liability of the Issuing Bank....................... 43
         Section 3.14.  Termination of Obligations.......................... 43
         Section 3.15.  Notice of Request for Extension..................... 44

ARTICLE IV.  PARTICIPATIONS................................................. 44


                                       i

<PAGE>   3

         Section 4.01.  Participating Lenders' Pro Rata Shares.............. 44
         Section 4.02.  Sale and Purchase of Participations................. 44
         Section 4.03.  Participation in Fees and Collateral;
                               Relationship................................. 44
         Section 4.04.  Procedures.......................................... 45
         Section 4.05.  Collections and Remittances......................... 46
         Section 4.06.  Sharing of Setoffs and Collections.................. 47
         Section 4.07.  Indemnification; Costs and Expenses................. 47
         Section 4.08.  Administration; Standard of Care.................... 48
         Section 4.09.  Independent Investigation by the
                               Participating Lenders........................ 49
         Section 4.10.  Participating Lenders' Ownership of
                               Interests in the Participations.  ........... 50

ARTICLE V.  CONDITIONS PRECEDENT............................................ 50
         Section 5.01.  Conditions Precedent to the Effectiveness
                               of this Agreement and Initial Use of a
                               Credit Facility on and after the Second
                               Closing Date................................. 50
         Section 5.02.  Conditions Precedent to Each Use of a
                               Credit Facility after the Second Closing
                               Date......................................... 52
         Section 5.03.  Deemed Representation............................... 52

ARTICLE VI.  REPRESENTATIONS AND WARRANTIES................................. 53
         Section 6.01.  Incorporation, Good Standing and Due
                               Qualification................................ 53
         Section 6.02.  Corporate Power and Authority; No
                               Conflicts.................................... 53
         Section 6.03.  Legally Enforceable Agreements...................... 53
         Section 6.04.  Litigation.......................................... 53
         Section 6.05.  Financial Statements................................ 54
         Section 6.06.  Statutory Financial Statements...................... 55
         Section 6.07.  Ownership and Liens................................. 56
         Section 6.08.  Taxes  ............................................. 56
         Section 6.09.  ERISA  ............................................. 57
         Section 6.10.  Operation of Business............................... 57
         Section 6.11.  Insurance Licenses.................................. 57
         Section 6.12.  No Default on Outstanding Judgments or
                               Orders....................................... 58
         Section 6.13.  No Defaults on Other Agreements..................... 58
         Section 6.14   Subsidiaries and Ownership of Stock................. 58
         Section 6.15.  Governmental Regulation............................. 59
         Section 6.16.  Partnerships........................................ 59
         Section 6.17.  Environmental Protection............................ 59
         Section 6.18.  Solvency............................................ 60
         Section 6.19.  Governmental Approvals.............................. 60
         Section 6.20.  Lines of Business................................... 60
         Section 6.21.  Reinsurance Practices............................... 60

ARTICLE VII.  AFFIRMATIVE COVENANTS......................................... 60
         Section 7.01.  Maintenance of Existence............................ 60

                                       ii

<PAGE>   4


         Section 7.02.  Conduct of Business................................. 60
         Section 7.03.  Maintenance of Properties........................... 61
         Section 7.04.  Maintenance of Records.............................. 61
         Section 7.05.  Maintenance of Insurance............................ 61
         Section 7.06.  Compliance with Laws................................ 61
         Section 7.07.  Right of Inspection................................. 61
         Section 7.08.  Reporting Requirements.............................. 61
         Section 7.09.  Compliance With Environmental Laws.................. 68
         Section 7.10.  Borrower's Accounts................................. 69

ARTICLE VIII.  NEGATIVE COVENANTS........................................... 70
         Section 8.01.  Debt   ............................................. 70
         Section 8.02.  Guaranties.......................................... 70
         Section 8.03.  Liens  ............................................. 71
         Section 8.04.  Sale of Assets...................................... 72
         Section 8.05.  Transactions with Affiliates........................ 72
         Section 8.06.  Mergers............................................. 73
         Section 8.07.  Leases ............................................. 73
         Section 8.08.  Investments......................................... 73
         Section 8.09.  Fiscal Year......................................... 74
         Section 8.10.  Changes, Amendments or Modifications................ 74
         Section 8.11.  Changes in Business................................. 74
         Section 8.12.  Capital Expenditures................................ 74

ARTICLE IX.  FINANCIAL COVENANTS............................................ 75
         Section 9.01.  Minimum Consolidated Tangible Net Worth............. 75
         Section 9.02.  Navigators' and NIC's Statutory Surplus............. 75
         Section 9.03.  Fixed Charge Coverage Ratio......................... 75
         Section 9.04.  Minimum Liquidity of Borrower....................... 76
         Section 9.05.  Loss Reserves....................................... 76
         Section 9.06.  Minimum Consolidated Net Income..................... 76
         Section 9.07.  Risk Based Capital Ratio............................ 76

ARTICLE X.  EVENTS OF DEFAULT............................................... 77
         Section 10.01.  Events of Default.................................. 77
         Section 10.02.  Remedies........................................... 81

ARTICLE XI.  THE AGENT...................................................... 81
         Section 11.01.  Appointment, Powers and Immunities of the
                               Agent........................................ 81
         Section 11.02.  Reliance by the Agent.............................. 82
         Section 11.03.  Defaults........................................... 82
         Section 11.04.  Rights of the Agent as a Lender.................... 82
         Section 11.05.  Indemnification of the Agent....................... 83
         Section 11.06.  Non-Reliance on the Agent and the other
                               Lenders...................................... 83
         Section 11.07.  Failure of the Agent to Act........................ 84
         Section 11.08.  Resignation or Removal of the Agent................ 84
         Section 11.09.  Amendments Concerning Agency Function.............. 84
         Section 11.10.  Liability of the Agent............................. 85
         Section 11.11.  Transfer of Agency Function........................ 85


                                      iii

<PAGE>   5

ARTICLE XII.  MISCELLANEOUS................................................. 85
         Section 12.01.  Amendments and Waivers............................. 85
         Section 12.02.  Usury ............................................. 85
         Section 12.03.  Expenses; Indemnification.......................... 85
         Section 12.04.  Assignment; Participation.......................... 86
         Section 12.05.  Notices............................................ 86
         Section 12.06.  Setoff............................................. 87
         Section 12.07.  Jurisdiction; Immunities........................... 87
         Section 12.08.  Governing Law...................................... 88
         Section 12.09.  Counterparts....................................... 88
         Section 12.10.  Exhibits and Schedules............................. 88
         Section 12.11.  Table of Contents; Headings........................ 88
         Section 12.12.  Severability....................................... 88
         Section 12.13.  Integration........................................ 89


                                       iv


<PAGE>   6


EXHIBITS

Exhibit 1.01A                  Counter Indemnity Agreement
Exhibit 1.01B                  Form of Request for Letter of Credit
Exhibit 2.07                   Form of Revolving Credit Note


SCHEDULES

Schedule 1.01A                 Investment Guidelines
Schedule 1.01B                 Navigators' Accepted Credit List
Schedule 1.01C                 Tier-1 Reinsurer
Schedule 1.01D                 Tier-2 Reinsurer
Schedule 6.11                  Insurance Licenses
Schedule 6.14                  Subsidiaries and Ownership of Stock
Schedule 6.16                  Partnerships
Schedule 6.20                  Lines of Business



                                        v


<PAGE>   7


                  AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 26,
1996 among THE NAVIGATORS GROUP, INC. (the "Borrower"), BROWN BROTHERS HARRIMAN
& CO., ("BBH&Co."), NBD BANK ("NBD"), FIRST UNION NATIONAL BANK OF NORTH
CAROLINA ("First Union"), (each of BBH&Co., NBD and First Union a "Lender" and,
collectively, the "Lenders"), THE FIRST NATIONAL BANK OF CHICAGO, as issuer of
Letters of Credit (as defined below) ("Issuing Bank"), and BROWN BROTHERS
HARRIMAN & CO., as agent for the Lenders and the Issuing Bank (in such capacity,
together with its successors in such capacity, the "Agent"), amending and
restating the Credit Agreement dated as of August 5, 1994 among the Borrower,
the Lenders, and the Agent, as amended by a letter dated September 23, 1994, as
further amended by an Amendment to Credit Agreement and Pledge Agreement dated
as of January 1, 1995, and as further amended by a Third Amendment and Waiver to
Credit Agreement dated as of September 30, 1995, as further amended by a letter
dated June 24, 1996, and as further amended by a Fourth Amendment and Waiver
dated as of September 30, 1996.

                             PRELIMINARY STATEMENTS

                  1. References. Reference is made to the Credit Agreement dated
as of August 5, 1994 among the Borrower, the Lenders, and the Agent, as amended
by a letter dated September 23, 1994, as further amended by an Amendment to
Credit Agreement and Pledge Agreement dated as of January 1, 1995, as further
amended by a Third Amendment and Waiver to Credit Agreement dated as of
September 30, 1995, as further amended by a letter dated June 24, 1996, and as
further amended by a Fourth Amendment and Waiver to Credit Agreement dated as of
September 30, 1996 (as amended, the "1994 Credit Agreement").

                  2. Amendment and Restatement. To the extent this Amended and
Restated Credit Agreement amends the 1994 Credit Agreement, the 1994 Credit
Agreement is amended, and to the extent this Amended and Restated Credit
Agreement restates the 1994 Credit Agreement, the 1994 Credit Agreement is
restated.

                  The parties hereto agree as follows:


              ARTICLE I. DEFINITIONS, ACCOUNTING TERMS AND RULES OF
                                  CONSTRUCTION

                  Section 1.01. Definitions. As used in this Agreement the
following terms have the following meanings (terms defined in the singular to
have a correlative meaning when used in the plural and vice versa):

                  "Additional Costs" has the meaning specified in
Section 2.12.


<PAGE>   8


                  "Affected Loans" has the meaning specified in Section
2.15.

                  "Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is controlled by, or is under common control
with such Person; provided, that, for the avoidance of doubt, as to the Borrower
the term "Affiliate" shall specifically include Somerset Bermuda Ltd., a Bermuda
corporation. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.

                  "Agent" means BBH&Co., when acting in its capacity as the
agent under any of the Loan Documents, and any successor thereto.

                  "Agency Fee" has the meaning specified in Section
2.06.

                  "Agent's Office" means the Agent's address as set forth on the
signature page of this Agreement, or such other address as the Agent may
designate by written notice to the Borrower, the Lenders and the Issuing Bank.

                  "Agreement" means this Amended and Restated Credit
Agreement.

                  "A.M. Best" means A.M. Best Company, Inc.

                  "Amendment Fee" has the meaning specified in Section
2.06.

                  "Annual Statement" means the annual financial statement of an
Insurance Subsidiary as required to be filed with the insurance commissioner (or
similar authority) in such Insurance Subsidiary's state of domicile, together
with all exhibits or schedules filed therewith, prepared in conformity with SAP.

                  "Applicable Insurance Regulatory Authority" means, when used
with respect to any Regulated Company, the insurance department or similar
administrative authority or agency located in (1) each state in which such
Regulated Company is domiciled and (2) to the extent asserting regulatory
jurisdiction over such Regulated Company, the insurance department, authority or
agency in each state in which such Regulated Company is licensed, eligible as an
excess or surplus line insurer or accredited as a reinsurer and shall include
any Federal insurance regulatory department, authority or agency that may be
created and that asserts regulatory jurisdiction over such Regulated Company.


                                       2
<PAGE>   9


                  "Applicable Lending Office" means, for each Lender and for
each type of Loan, the lending office of such Lender (or of an affiliate of such
Lender) designated as such for such type of Loan on its signature page hereof,
or such other office of such Lender (or of an affiliate of such Lender) as such
Lender may from time to time specify to the Agent and the Borrower as the office
by which its Loan of such type are to be made and maintained.

                  "Applicable Margin" means: with respect to a LIBOR Loan, (1)
from the First Closing Date to and including May 31, 1996, two percent (2.00%),
and (2) from June 1, 1996 to and including the Revolving Credit Termination
Date, one percent (1.00%).

                  "Approved Reinsurer" means a Tier-1 Reinsurer, a
Tier-2 Reinsurer or a Tier-3 Reinsurer.

                  "Authorized Person" means any officer or employee, or
combination thereof of the Borrower as authorized pursuant to the terms and
conditions of the corporate certificate provided to the Issuing Bank by the
Borrower for such purpose from time to time.

                  "Base Rate" means that rate of interest from time to
time announced by BBH&Co. at its Head Office as its base
commercial lending rate.

                  "Base Rate Loan" means all or any portion of a Loan when and
to the extent the interest rate therefor is determined by reference to the Base
Rate.

                  "BBH&Co." means Brown Brothers Harriman & Co., New
York.

                  "BBH&Co. Letter of Credit" has the meaning specified
in Section 3.01.

                  "Benchmark Statement" means, as of any date, with respect to
any Insurance Subsidiary, an annual financial statement of such Insurance
Subsidiary as would be prepared as of such date utilizing the identical format
utilized by such Insurance Subsidiary in preparing its 1995 Annual Statement
filed with the insurance commissioner (or similar authority) in such Insurance
Subsidiary's state of domicile (or, if such Insurance Subsidiary did not prepare
an Annual Statement in 1995, that format utilized by Navigators in preparing
Navigators' 1995 Annual Statement), with each page, line item and column of a
Benchmark Statement to contain the same type of information, computed in the
same manner, as contained in the identically numbered page, line item and column
of such 1995 Annual Statement, provided, however, if the format is changed
for the Annual Statement filed with the insurance commission


                                       3
<PAGE>   10


(or similar authority) and such change results in a change to the page, line
item or column from that used in the 1995 Annual Statement then changes in page,
line item or column, as the case may be, will be made in this Agreement to
ensure that the same substantive items continue to be measured under this
Agreement.

                  "Board of Governors" means the Board of Governors of
the Federal Reserve System.

                  "Borrower Depreciation" means, for any period,
depreciation and amortization of Borrower alone, all as
determined in accordance with GAAP.

                  "Borrower Earnings Before Depreciation" means, for
any period, Borrower Net Income plus Borrower Depreciation.

                  "Borrower Expense" means, for any period, total operating
expenses of Borrower alone, all as determined in accordance with GAAP.

                  "Borrower Liquid Assets" means, as of any date, the sum of (1)
each of the following owned by the Borrower free and clear of any Lien: (a)
cash, whether on hand or on deposit in a bank listed in the most recent
Navigator's Accepted Credit List, plus (b) the Fair Market Value of all open
market commercial paper of any corporation incorporated under the laws of the
United States of America or any state thereof and not an Affiliate of the
Borrower, which commercial paper is rated "P-1" or better by Moody's and "A-1"
or better by S&P plus (c) the Fair Market Value of all negotiable certificates
of deposit issued by any financial institution (or any Subsidiary thereof)
listed in the most recent Navigators' Accepted Credit List and maturing within
180 days from the date of acquisition thereof, (d) the Fair Market Value of all
bankers' acceptances created by any financial institution (or any Subsidiary
thereof) listed in the most recent Navigators' Accepted Credit List, plus (2)
the amount of Navigators' Allowable Dividends as of such date.

                  "Borrower Net Income" means, for any period, net income of the
Borrower alone, all as determined in accordance with GAAP.

                  "Borrower Pledge Agreement" means the Pledge Agreement dated
as of August 5, 1994, delivered by the Borrower on the First Closing Date, as
amended by the Amendment to Credit Agreement and Pledge Agreement dated as of
January 1, 1995.

                  "Borrower Pledge Agreement (Navigators)" means the
Pledge Agreement (Navigators) dated as of August 5, 1994.


                                       4
<PAGE>   11


                  "Borrowing Notice" means a notice given pursuant to, and in
accordance with, Section 2.02.

                  "Broken Funding Fee" means, with respect to a LIBOR Loan
either not borrowed or prepaid in whole or in part, an amount equal to the
present value (as of the date of such failure to borrow or prepayment and based
upon an interest rate equal to the rate under item (2) of this definition) of
the difference (which may not be a negative number) between (1) the amount of
interest which otherwise would have accrued on the principal amount of the LIBOR
Loan not borrowed or so prepaid over the period equal to the remaining portion
of the applicable Interest Period and (2) the amount of interest that the Lender
would earn if such principal amount were reinvested for all of or such remaining
portion, as the case may be, of the applicable Interest Period in Dollar
deposits in the London interbank market in an amount equal to the unborrowed or
the prepaid, as the case may be, principal amount and with a maturity
approximately equal to all or such remaining portion, as the case may be, of the
applicable Interest Period.

                  "Business Day" means: (1) any day other than a Saturday,
Sunday, or other day on which commercial banks in New York City are authorized
or required to close under the laws of the State of New York; and (2) if the
applicable day relates to a LIBOR Loan, an Interest Period with respect to a
LIBOR Loan, or notice with respect to any LIBOR Loan, a day on which dealings in
Dollar deposits are also carried on in the London interbank market and banks are
open for business in London.

                  "Capital Expenditures" means the Dollar amount of gross
expenditures (including the principal portion of payments under Capital Leases)
made for real property, fixed assets, property, plant and equipment, and all
renewals, improvements and replacements thereto (including, but not limited to,
maintenance and repairs thereof which should be capitalized in accordance with
GAAP) incurred or paid by the Borrower or any of its Subsidiaries.

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

                  "Cash Collateral" means (1) a deposit by the Borrower, made in
immediately available funds, to a savings, checking or time deposit account at
Agent or (2) the purchase by the Borrower of a certificate of deposit issued by
Agent and the execution of all documents and the taking of all steps required to
give Agent a perfected security interest in such deposit or certificate of
deposit or (3) the purchase by the Borrower of open market commercial paper of
any corporation incorporated under the laws of the United States of America or
any state thereof and not an Affiliate of the Borrower, which


                                       5
<PAGE>   12


commercial paper is rated "P-1" or better by Moody's and "A-1" or better by S&P,
or (4) the purchase by the Borrower of direct obligations of the United States
of America or any agency thereof backed by the full faith and credit of the
United States government with maturities of one (1) year or less from the date
of acquisition, and, in each case, the execution of all documents and the taking
of all steps required to give Agent a perfected security interest in such
commercial paper or such direct obligations, as the case may be.

                  "Code" means the Internal Revenue Code of 1986, including any
rules and regulations promulgated thereunder.

                  "Collateral" means any and all of the securities pledged
pursuant to the Borrower Pledge Agreement and the Borrower Pledge Agreement
(Navigators).

                  "Commitment" means, collectively, the Revolving Credit
Commitment and the Letter of Credit Commitment.

                  "Commitment Fee" has the meaning specified in Section 2.06.

                  "Consolidated Current Portion of Long Term Debt" means, as of
any date, the sum of (1) the portion of Consolidated Long Term Debt required to
be paid within one (1) year of such date, plus (2) the aggregate principal
amount of all Revolving Credit Loans that will be required to be prepaid within
one (1) year of such date so that the aggregate principal amount of all
outstanding Revolving Credit Loans does not exceed the then effective Revolving
Credit Commitment.

                  "Consolidated Long Term Debt" means, as of any date, the long
term debt of the Borrower and its Consolidated Subsidiaries, on a consolidated
basis, all as determined in accordance with GAAP plus (without duplication) the
aggregate unpaid principal amount of all Revolving Credit Loans.

                  "Consolidated Net Income" means, for any period, the net
income of the Borrower and its Consolidated Subsidiaries, on a consolidated
basis, all as determined in accordance with GAAP.

                  "Consolidated Net Investment Income" means, for any period,
net investment income of the Borrower and its Consolidated Subsidiaries, on a
consolidated basis, all as determined in accordance with GAAP.

                  "Consolidated Subsidiaries" means all Subsidiaries of the
Borrower that should be included in the Borrower's consolidated financial
statements, all as determined in accordance with GAAP.

                                       6
<PAGE>   13

                  "Consolidated Tangible Net Worth" means the excess of (1)
Consolidated Total Tangible Assets, over (2) Consolidated Total Liabilities.

                  "Consolidated Total Assets" means the total assets of Borrower
and its Consolidated Subsidiaries, on a consolidated basis, all as determined in
accordance with GAAP.

                  "Consolidated Total Intangible Assets" means, at any time, all
intangible assets of the Borrower and its Consolidated Subsidiaries, on a
consolidated basis, including, but not limited to, goodwill, patents,
trademarks, tradenames, copyrights and franchises, all as determined in
accordance with GAAP.

                  "Consolidated Total Liabilities" means total liabilities of
Borrower and its Consolidated Subsidiaries, on a consolidated basis, all as
determined in accordance with GAAP.

                  "Consolidated Total Operating Expenses" means, for any period,
total operating expenses of the Borrower and its Consolidated Subsidiaries, on a
consolidated basis, all as determined in accordance with GAAP.

                  "Consolidated Total Revenues" means, for any period, the total
revenues of the Borrower and its Consolidated Subsidiaries, on a consolidated
basis, all as determined in accordance with GAAP.

                  "Consolidated Total Tangible Assets" means, at any time,
Consolidated Total Assets minus Consolidated Total Intangible Assets.

                  "Consolidated Underwriting Losses" means, for any period, the
total of each of the following for such period (1) Consolidated Total Revenues,
minus (2) Consolidated Net Investment Income, minus (3) Consolidated Total
Operating Expenses, provided, however, in no event will such total exceed
zero Dollars ($0).

                  "Counter Indemnity Agreement" means a Counter Indemnity
Agreement substantially in the form of Exhibit 1.01A, to be delivered by the
Borrower under the terms of this Agreement.

                  "Credit Facilities" means the Revolving Credit Loans and the
Letters of Credit, or both, all as the context may require.

                  "Debt" means: (1) indebtedness or liability for borrowed
money, or for the deferred purchase price of property or services (including
trade obligations); (2) obligations as lessee under Capital Leases; (3) current
liabilities in respect


                                       7
<PAGE>   14


of unfunded vested benefits under any Plan; (4) obligations under or related to
letters of credit issued for the account of any Person; (5) all obligations
arising under bankers' or trade acceptance facilities of any Person; (6) all
guarantees, endorsements (other than for collection or deposit in the ordinary
course of business), and other contingent obligations to purchase any of the
items included in this definition, to provide funds for payment, to supply funds
to invest in any Person, or otherwise to assure a creditor against loss; (7) all
obligations secured by any Lien on property owned by such Person, whether or not
the obligations have been assumed; (8) all obligations under any agreement
providing for a swap, ceiling rates, ceiling and floor rates, contingent
participation or other hedging mechanisms with respect to interest payable on
any of the items described above in this definition; and (9) all forward foreign
exchange contracts.

                  "Default" means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.

                  "Default Rate" means, with respect to an amount of any Loan
not paid when due, a rate per annum equal to: (1) if such Loan is a Base Rate
Loan, a variable rate one and one-half percent (1.5%) above the rate of interest
then in effect thereon; and (2) if such Loan is a LIBOR Loan, a fixed rate one
and one-half percent (1.5%) above the rate of interest in effect thereon
(including the Applicable Margin) at the time of default until the end of the
then current Interest Period therefor and, thereafter, a variable rate one and
one-half percent (1.5%) above the rate of interest for a Base Rate Loan.

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

                  "Environmental Discharge" means any discharge or release of
any Hazardous Materials in violation of any applicable Environmental Law.

                  "Environmental Law" means any Law relating to pollution or the
environment, including Laws relating to noise or to emissions, discharges,
releases or threatened releases of Hazardous Materials into the workplace, the
community or the environment, or otherwise relating to the generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.

                  "Environmental Notice" means any complaint, order, citation,
letter, inquiry, notice or other written communica tion from any Person (1)
affecting or relating to the Borrower's compliance with any Environmental Law in
connection with any activity or operations at any time conducted by the
Borrower, (2) relating to the occurrence or presence (as


                                       8
<PAGE>   15


defined below) of or exposure to or possible or threatened or alleged occurrence
or presence (as defined below) of or exposure to Environmental Discharges or
Hazardous Materials at any of the Borrower's locations or facilities, including,
without limitation: (a) the existence of any contamination or possible or
threatened contamination at any such location or facility; and (b) remediation
of any Environmental Discharge or Hazardous Materials at any such location or
facility or any part thereof; and (3) any violation or alleged violation of any
relevant Environmental Law.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, including any rules and regulations promulgated thereunder.

                  "ERISA Affiliate" means any entity required to be aggregated
with the Borrower under Section 414(b), (c), (m), or (o) of the Code.

                  "Event of Default" has the meaning specified in Section 10.01.

                  "Existing Lines of Business" has the meaning set forth in
Section 6.20.

                  "Existing Revolving Credit Loans" means, as of the Second
Closing Date, all Revolving Credit Loans outstanding under and as defined in the
1994 Credit Agreement.

                  "Existing Term Loan" means, as of the Second Closing Date, the
Term Loan outstanding under and as defined in the 1994 Credit Agreement.

                  "Fair Market Value" means with respect to any security the
price at which such security in the same or similar amount and with the same or
similar terms is then trading in the applicable markets for such security.

                  "Federal Funds Rate" means, for any day, the rate per annum
(calculated on the basis of the actual number of days elapsed in a year of 360
days) 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, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
arithmetic average of the quotations for such day on such transactions received
by the Lenders from three (3) federal funds brokers of recognized standing
selected by the Agent.

                  "First Closing Date" means August 5, 1994.

                                       9
<PAGE>   16


                  "First Union" means First Union National Bank of North
Carolina.

                  "Fiscal Quarter" means each period from one Quarterly Date to
the next Quarterly Date.

                  "Fiscal Year" means each period from January 1 to December 31.

                  "GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 6.05.

                  "Good Faith Contest" means the contest of an item if: (1) the
item is diligently contested in good faith by approp riate proceedings timely
instituted; (2) adequate reserves are established with respect to the contested
item; (3) during the period of such contest, the enforcement of any contested
item is effectively stayed; and (4) the failure to pay or comply with the
contested item could not reasonably be expected to result in a Material Adverse
Change.

                  "Governmental Approvals" means any authorization, consent,
approval, license, permit, certification, or exemption of, registration or
filing with or report or notice to, any Governmental Authority.

                  "Governmental Authority" means any nation or govern ment, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
government.

                  "Gross Premiums Written" means, for any period, the sum of (1)
the aggregate amount of premiums written by the Insurance Subsidiaries during
such period, all as determined in accordance with GAAP plus (2) two times the
aggregate face amount (measured in Dollars) of all Letters of Credit outstanding
as of the last day of such period.

                  "Hazardous Materials" means any pollutant, effluents,
emissions, contaminants, toxic or hazardous wastes or sub stances, as any of
those terms are defined from time to time in or for the purposes of any relevant
Environmental Law, inclu ding asbestos fibers and friable asbestos,
polychlorinated biphenyls, and any petroleum or hydrocarbon-based products or
derivatives.

                  "Head Office" means the then principal office of BBH&Co.,
which is currently located at 59 Wall Street, New York, New York, 10005.


                                       10
<PAGE>   17


                  "Independent Actuary" means the independent actuarial firm
performing the actuarial review of the Annual Statement of each Insurance
Subsidiary.

                  "Instructions" means oral or written instructions or
instructions transmitted by teleprocess given on behalf of the Borrower by one
or more Authorized Persons.

                  "Instrument" means with respect to any Letter of Credit any
draft, receipt, acceptance, teletransmission, including, but not limited to,
telex or cable, or other written demand for payment under such Letter of Credit.

                  "Insurance Business" means the business of selling, issuing or
underwriting insurance or reinsurance, as an insurer, reinsurer, agent, broker,
manager or intermediary.

                  "Insurance Subsidiary" means each of Navigators, NIC and any
other Subsidiary of the Borrower which engages in, or is authorized to engage
in, the Insurance Business as an insurer or reinsurer.

                  "Interest Period" means, with respect to any LIBOR Loan, the
period commencing on the date such LIBOR Loan is made and ending, as the
Borrower may select pursuant to Section 2.05, on the numerically corresponding
day in the first, second, third or sixth calendar month thereafter; provided,
that each such Interest Period which commences on the last Business Day of a
calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last Business
Day of the appropriate calendar month.

                  "Investment Grade" means, with respect to any debt securities,
(1) a rating of Baa3 (or its equivalent) or better by Moody's, if rated by
Moody's, and (2) a rating of BBB- (or its equivalent) or better by S&P, if rated
by S&P.

                  "Investment Guidelines" means the guidelines for investments
by Insurance Subsidiaries set forth on Schedule 1.01A, as such Schedule may be
amended (in writing) with the consent of the Required Lenders.

                  "Issuing Bank" means The First National Bank of
Chicago.

                  "Law" means any federal, state or local statute, law, rule,
regulation, ordinance, order, code, or rule of common law, now or hereafter in
effect, and any judicial or administrative interpretation thereof by a
Governmental Authority or otherwise, including any judicial or administrative
order, consent decree, judgment or circular letter.


                                       11
<PAGE>   18


                  "Lender" or "Lenders" has the meaning specified in
the preamble to this Agreement.

                  "Lender Parties" means the Agent, the Issuing Bank,
and each of the Lenders.

                  "Letter of Credit" has the meaning specified in
Section 3.01.

                  "Letter of Credit Commitment" has the meaning
specified in Section 3.01.

                  "Letter of Credit Fee" has the meaning specified in
Section 3.03.

                  "Letter of Credit Obligations" means at any time an amount
equal to the sum of: (1) the aggregate unused face amount of all outstanding
Letters of Credit, plus (2) the aggregate amount of all unreimbursed obligations
on Letters of Credit, plus (3) the aggregate amount of all overdrafts created to
satisfy any of the foregoing obligations.

                  "Letter of Credit Termination Date" means January 2,
1998.

                  "LIBOR Base Rate" means, with respect to any LIBOR Loan for
any Interest Period therefor, a rate per annum equal to the London interbank
offered rate for Dollar deposits, that appears on the display designated as page
"3750" of the Telerate Service (or such other page as may replace the 3750 page
on that service or such other service or services as may be maintained by the
British Bankers' Association for the purpose of displaying London interbank
offered rates for Dollar deposits) as of 11:00 a.m. New York time on the day
that is two (2) Business Days prior to the first day of such Interest Period for
a period, and in an amount, comparable to such Interest Period.

                  "LIBOR Interest Rate" means for any LIBOR Loan, a rate per
annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined by
the Agent to be equal to the quotient of (1) the LIBOR Base Rate for such Loan
for the Interest Period therefor divided by (2) one minus the LIBOR Reserve
Requirement for such Interest Period.

                  "LIBOR Loan" means all or any portion of the Revolving Credit
Loan when and to the extent the interest rate therefor is determined by
reference to the LIBOR Interest Rate.

                  "LIBOR Reserve Requirement" means, for any LIBOR Loan, the
average maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during the Interest Period for
such Loan under


                                       12
<PAGE>   19


Regulation D by member banks of the Federal Reserve System in New York City with
deposits exceeding One Billion Dollars ($l,000,000,000) against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the effect
of the foregoing, the LIBOR Reserve Requirement shall also reflect any other
reserves required to be maintained by such member banks by reason of any
Regulatory Change against (1) any category of liabilities which includes
deposits by reference to which the LIBOR Base Rate is to be determined or (2)
any category of extensions of credit or other assets which include LIBOR Loans.

                  "Licenses" has the meaning specified in Section 6.11.

                  "Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrange ment, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrange ment, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substan tially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commer cial Code or comparable Law of any jurisdiction to evidence
any of the foregoing).

                  "Loan Document(s)" means this Agreement, the Notes, the
Letters of Credit, the Borrower Pledge Agreement, the Borrower Pledge Agreement
(Navigators), and the Counter Indemnity Agreement.

                  "Loss Reserves" means, at any date, with respect to any
Insurance Subsidiary, the sum of the following items: (1) losses, including
incurred but unreported losses (the total amount as shown on line 1, page 3,
column 1 of a Benchmark Statement for such Insurance Subsidiary) plus (ii) loss
adjustment expenses (the total amount as shown on line 2, page 3, column 1 of a
Benchmark Statement of such Insurance Subsidiary), all as determined in
accordance with SAP.

                  "Material Adverse Change" means either (1) a material adverse
change in the status of the business, assets, liabilities, results of
operations, condition (financial or otherwise), or property of any of (a) the
Borrower or (b) the Insurance Subsidiaries taken as a whole or (c) the
Subsidiaries of the Borrower (other than the Insurance Subsidiaries) taken as a
whole, or (2) any event or occurrence of whatever nature which could have a
material adverse effect on the Borrower's ability to perform its obligations
under the Loan Documents.

                  "Maximum Potential Loss" means the maximum possible reduction
of the consolidated surplus as regards policyholders of the Insurance
Subsidiaries (without regard to any


                                       13
<PAGE>   20


Reinsurance Agreement or any Retrocession Agreement under which any such
Insurance Subsidiary is a cedent) which could result from any event or
occurrence, as reasonably estimated by the management of the Borrower.

                  "Monthly Date(s)" means the first Business Day of each month
occurring on or after the First Closing Date.

                  "Moody's" means Moody's Investors Service, Inc.

                  "Multiemployer Plan" means a Plan defined as such in
Section 3(37) of ERISA.

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

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

                  "Navigators" means Navigators Insurance Company, a New York
corporation and a wholly-owned Subsidiary of the Borrower.

                  "Navigators' Accepted Credit List" means the list attached
hereto as Schedule 1.01B, as such list may be amended (in writing) from time to
time with the approval of the Required Lenders.

                  "Navigators' Allowable Dividends" means, for any period, the
maximum amount of dividends that can be paid by Navigators to its shareholder
without obtaining the approval of any Applicable Insurance Regulatory Authority.

                  "NBD" means NBD Bank.

                  "NCUL" means Navigators Corporate Underwriters Limited, and
such entity will be in the business of underwriting at Lloyd's of London as a
corporate name with limited liability.

                  "Net Tax Payments" means, for any period, the total of (1) the
aggregate amount of all funds received by the Borrower from any of its
Subsidiaries during such period where such funds are to be used by the Borrower
to pay taxes of the Borrower or any of its Subsidiaries, less (2) the aggregate
amount of all tax payments made by the Borrower to any Governmental Authority
during such period.

                  "NIC" means NIC Insurance Company, a New York corporation and
a direct wholly-owned Subsidiary of Navigators.


                                       14
<PAGE>   21


                  "Obligations" means (1) each and every obligation, covenant
and agreement of the Borrower now or hereafter existing contained in this
Agreement and any of the other Loan Documents, whether for principal,
reimbursement obligations, interest, fees, expenses, indemnities or otherwise,
and any amendments or supplements thereto, extensions or renewals thereof or
replacements therefor, including but not limited to all indebtedness,
obligations and liabilities of the Borrower to the Agent and any Lender or the
Issuing Bank now existing or hereafter incurred under or arising out of or in
connection with the Notes, the Letter of Credit, this Agreement, the other Loan
Documents, and any documents or instruments executed in connection therewith,
(2) all sums advanced in accordance with either the Borrower Pledge Agreement or
the Borrower Pledge Agreement (Navigators) by or on behalf of the Agent or any
Lender or the Issuing Bank to protect any of the Collateral purported to be
covered thereby, (3) any amounts paid by the Agent or any Lender or the Issuing
Bank as to which the Agent or such Lender or the Issuing Bank has the right to
reimbursement from the Borrower, and (4) any amounts paid by the Agent or any
Lender or the Issuing Bank in preservation of any of the Agent's or Lenders' or
Issuing Bank's rights or interest in the Collateral or Cash Collateral, together
with interest on such amounts from the date such amounts are paid until
reimbursement in full at a rate per annum equal at all times to the Default Rate
on Base Rate Loans; in each case whether direct or indirect, joint or several,
absolute or contingent, liquidated or unliquidated, now or hereafter existing,
renewed or restructured, whether or not from time to time decreased or
extinguished and later increased, created or incurred, and including all
indebtedness of the Borrower under any instrument now or hereafter evidencing or
securing any of the foregoing.

                  "Parent" means, with respect to any Lender, any
Person controlling such Lender.

                  "Participating Lenders" means each Lender.

                  "Participation" has the meaning specified in Section
4.01.

                  "PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.

                  "Permitted Investments" means (1) direct obligations of the
United States of America or any agency thereof backed by the full faith and
credit of the United States government with maturities of one (1) year or less
from the date of acquisition, (2) all open market commercial paper of any
corporation incorporated under the laws of the United States of America or any
state thereof and not an Affiliate of the


                                       15
<PAGE>   22


Borrower, which commercial paper is rated "P-1" or better by Moody's and "A-1"
or better by S&P, (3) time deposits or all negotiable certificates of deposit
issued by any financial institution (or any Subsidiary thereof) listed in the
most recent Navigators' Accepted Credit List and maturing within one hundred
eighty (180) days from the date of acquisition thereof, (4) all bankers'
acceptances created by any financial institution (or any Subsidiary thereof)
listed in the most recent Navigators' Accepted Credit List, and (5) all cash
management or other money market accounts provided by BBH&Co., First Union and
NBD.

                  "Permitted Reinsurance Percentage" means (1) with respect to a
Tier-1 Reinsurer, fifty percent (50%); (2) with respect to a Tier-2 Reinsurer,
fifteen percent (15%); and (3) with respect to a Tier-3 Reinsurer, five percent
(5%).

                  "Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.

                  "Plan" means any plan, agreement, arrangement or commitment
which is an employee benefit plan, as defined in Section 3(3) of ERISA,
maintained by the Borrower or any ERISA Affiliate or with respect to which the
Borrower or any ERISA Affiliate at any relevant time has any liability or
obligation to contribute.

                  "Pounds" and the sign "(pound)" mean lawful money of the
United Kingdom.

                  "presence", when used in connection with any Environmental
Discharge or Hazardous Materials, means and includes presence, generation,
manufacture, installation, treatment, use, storage, handling, repair,
encapsulation, disposal, transportation, spill, discharge and release.

                  "Principal Office" means the principal office of the Issuing
Bank, presently located at Suite 0236, Chicago, Illinois 60670.

                  "Projected Dividends" means as of the date of determination
four (4) times the aggregate amount of all dividends paid by the Borrower in the
most recent fiscal quarter in which dividends were paid by Borrower.

                  "Pro Rata Share" means (1) with respect to each Lender's share
of the Revolving Credit Commitment and such Lender's share of each of the
Commitment Fees and the Revolving Credit Amendment Fee, a fraction, the
numerator of which is such Lender's portion of the Revolving Credit Commitment
and the denominator of which is the Revolving Credit Commitment,

                                       16
<PAGE>   23


and (2) with respect to each payment to a Lender on the Revolving Credit Loans,
a fraction, the numerator of which is the outstanding principal amount of all
such Revolving Credit Loans owed to such Lender, and the denominator of which is
the outstanding principal amount of all such Revolving Credit Loans owed to all
Lenders.

                  The amount of each Lender's portion of the Revolving Credit
Commitment and its Pro Rata Share of the Revolving Credit Commitment as of the
Second Closing Date is as follows:


<TABLE>
<CAPTION>
               Lender                   Commitment             Pro Rata Share
----------------------------- ----------------------------  ------------------------
<S>                                     <C>                       <C>
              BBH&Co.                   $ 3,333,334.00            16.666667%
                NBD                     $10,000,000.00            50.000000%
            First Union                 $ 6,666,666.00            33.333333%
                                         -------------             ----------
          Total Revolving
         Credit Commitment              $20,000,000.00              100%
</TABLE>

                  "Prohibited Transaction" means any transaction prohibited
under Section 406 of ERISA or Section 4975 of the Code.

                  "Quarterly Date(s)" means the last Business Day of each March,
June, September and December occurring on or after the Closing Date.

                  "Quarterly Period" means the period from the day after any
Quarterly Date to the immediately following Quarterly Date.

                  "RBC Model Act" has the meaning specified in Section
9.07.

                  "Readily Marketable Securities" means any security which can
be sold without restriction or limitation in a recognized market for the sale of
such security.

                  "Regulated Company" means any Subsidiary of the Borrower,
whether now owned or hereafter acquired, that is authorized, licensed, admitted
or declared eligible to carry on or transact Insurance Business in any
jurisdiction and is regulated by the insurance department or similar regulatory
authority of such jurisdiction.

                  "Regulatory Change" means, with respect to any Lender, any
change after the First Closing Date in United States Federal law, state law or
foreign law or regulations (including, without limitation, Regulation D, G, T,
U, or X of the Board of Governors) or the adoption or making after such date of
any interpretation, directive or request applying to a class of banks including
such Lender of or under any United


                                       17
<PAGE>   24


States Federal law, state law or foreign law or regulations (whether or not
having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.

                  "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.

                  "Reinsurance Plan" means the reinsurance plan of Navigators
and NIC provided to the Lenders on or prior to the First Closing Date pursuant
to Section 5.01(g), together with all changes to such plan of which the Agent
and the Lenders receive notice pursuant to Section 7.08(16).

                  "Replacement Letter of Credit" has the meaning specified in
Section 3.01.

                  "Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA or in the regulations thereunder.

                  "Request for Letter of Credit" means a form of Request for a
Letter of Credit substantially in the form of Exhibit 1.01B, to be delivered by
the Borrower to the Issuing Bank in accordance with the terms of this Agreement.

                  "Required Lenders" means all the Lenders, except with regard
to Section 10.02 "Remedies" where it means at least two (2) Lenders.

                  "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.

                  "Revolving Credit Amendment Fee" has the meaning specified in
Section 2.06.

                  "Revolving Credit Commitment" means for each period specified
below the amount specified for such period:

<TABLE>
<CAPTION>
================================================================================
        Period                                                 Amount
--------------------------------------------------------------------------------
<S>                                                                  <C>
From the Second Closing                                              $20,000,000
Date to and including
December 31, 1996
--------------------------------------------------------------------------------
From January 1, 1997 to and                                          $19,500,000
including March 31, 1997
--------------------------------------------------------------------------------
</TABLE>


                                       18
<PAGE>   25


<TABLE>
--------------------------------------------------------------------------------
<S>                                                                  <C>
From April 1, 1997 to and                                            $19,000,000
including June 30, 1997
--------------------------------------------------------------------------------
From July 1, 1997 to and                                             $18,500,000
including September 30,
1997
--------------------------------------------------------------------------------
From October 1, 1997 to and                                          $18,000,000
including December 31, 1997
--------------------------------------------------------------------------------
From January 1, 1998 to and                                          $17,500,000
including March 31, 1998
--------------------------------------------------------------------------------
From April 1, 1998 to and                                            $17,000,000
including June 30, 1998
--------------------------------------------------------------------------------
From July 1, 1998 to and                                             $16,500,000
including September 30,
1998
--------------------------------------------------------------------------------
From October 1, 1998 to and                                          $16,000,000
including December 31, 1998
--------------------------------------------------------------------------------
From January 1, 1999 to and                                          $15,500,000
including March 31, 1999
--------------------------------------------------------------------------------
From April 1, 1999 to and                                            $15,000,000
including June 30, 1999
--------------------------------------------------------------------------------
From July 1, 1999 to and                                             $14,500,000
including September 30,
1999
--------------------------------------------------------------------------------
From October 1, 1999 to and                                          $13,000,000
including December 31, 1999
--------------------------------------------------------------------------------
From January 1, 2000 to and                                          $11,000,000
including March 31, 2000
--------------------------------------------------------------------------------
From April 1, 2000 to and                                            $ 9,000,000
including June 30, 2000
--------------------------------------------------------------------------------
From July 1, 2000 to and                                             $ 7,000,000
including September 30,
2000
--------------------------------------------------------------------------------
From October 1, 2000 to and                                          $ 5,000,000
including December 31, 2000
--------------------------------------------------------------------------------
From January 1, 2001 to and                                          $ 4,250,000
including March 31, 2001
--------------------------------------------------------------------------------
From April 1, 2001 to and                                            $ 3,500,000
including June 30, 2001
--------------------------------------------------------------------------------
From July 1, 2001 to and                                             $ 2,750,000
including September 30,
2001
--------------------------------------------------------------------------------
</TABLE>

                                       19
<PAGE>   26


<TABLE>
--------------------------------------------------------------------------------
<S>                                                                  <C>
From October 1, 2001 to and                                          $ 2,000,000
including December 31, 2002
================================================================================
</TABLE>

                  "Revolving Credit Loan(s)" has the meaning specified
in Section 2.01.

                  "Revolving Credit Note(s)" has the meaning specified
in Section 2.07.

                  "Revolving Credit Termination Date" means December
31, 2002.

                  "SAP" means with respect to any Insurance Subsidiary, the
accounting procedures and practices prescribed or permitted by the Applicable
Insurance Regulatory Authority of the state in which such Insurance Subsidiary
is domiciled.

                  "S&P" means Standard & Poor's Rating Group.

                  "Second Closing Date" means November 26, 1996.

                  "Secured Parties" means the Agent and each of the
Lenders.

                  "Semi-Annual Date" means each June 30 and
December 31.

                  "Share" has the meaning specified in Section 4.01.

                  "Solvent" means, when used with respect to any Person, that
(1) the fair value of the property of such Person, on a going concern basis, is
greater than the total amount of liabilities (including, without limitation,
contingent liabilities) of such Person, (2) the present fair saleable value of
the assets of such Person, on a going concern basis, is not less than the amount
that will be required to pay the probable liabilities of such Person on its
debts as they become absolute and matured, (3) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (4) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. Contingent liabilities
will be computed at the amount that, 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.

                                       20
<PAGE>   27

                  "Somerset Companies" means, collectively, Somerset Marine,
Inc., a New York corporation; Somerset of Georgia, Inc., a Georgia corporation;
Somerset Insurance Services of California, Inc., a California corporation;
Somerset Insurance Services of Texas, Inc., a Texas corporation; Somerset
Insurance Services of Washington, Inc., a Washington corporation; Somerset
Property, Inc., a New York corporation; Somerset Re Management, Inc., a Delaware
corporation; Navigators Management Corporation, a New York corporation; Somerset
Asia Pacific Pty. Ltd., an Australian corporation; and in the event any or all
of the foregoing corporations merge into each other in accordance with the terms
of this Agreement the surviving corporation of such merger.

                  "Somerset Depreciation" means, for any period, depreciation
and amortization of the Somerset Companies, on a combined basis, all as
determined in accordance with GAAP.

                  "Somerset Earnings Before Depreciation" means, for
any period, Somerset Net Income plus Somerset Depreciation.

                  "Somerset Net Income" means, for any period, net income of the
Somerset Companies, on a combined basis, all as determined in accordance with
GAAP.

                  "Statutory Financial Statements" has the meaning
specified in Section 6.06.

                  "Statutory Surplus" means, at any date, with respect to any
Insurance Subsidiary, the surplus as regards policyholders of such Insurance
Subsidiary (the total amount as would be shown on line 25, page 3, column 1 of a
Benchmark Statement for such Insurance Subsidiary prepared as of such date), all
as determined in accordance with SAP.

                  "Subsidiary" means, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such power
only by reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation are at the time owned,
or the management of which is otherwise controlled, directly, or indirectly
through one or more intermediaries, or both, by such Person.

                  "Surplus Relief Reinsurance Transaction" shall mean any
"financing-type" Retrocession Agreement or Reinsurance Agreement in which an
Insurance Subsidiary cedes business, which Retrocession Agreement or Reinsurance
Agreement does not involve significant transfer of risk, and is deemed not to
qualify as reinsurance, under GAAP at the time such Agreement is entered into.

                                       21
<PAGE>   28

                  "Tier-1 Reinsurer" means each Person listed on Schedule 1.01C
and having the word "YES" set forth opposite its name in the "Approved" column
of such Schedule, as such Schedule may be amended (in writing) from time to time
with the consent of the Required Lenders.

                  "Tier-2 Reinsurer" means each Person (1) listed on Schedule
1.01D and having the word "YES" set forth opposite its name in the "Approved"
column of such Schedule, as such Schedule may be amended (in writing) from time
to time with the consent of the Required Lenders, and (2) rated "A-" or higher
by A.M. Best, if rated by A.M. Best or, if not rated by A.M. Best, which passes
a minimum of five (5) of the Insurance Services Institute tests.

                  "Tier-3 Reinsurer" means each Person rated "A-" or higher by
A.M. Best, if rated by A.M. Best or, if not rated by A.M. Best, which passes a
minimum of five (5) of the Insurance Services Institute tests.

                  "Uniform Customs and Practices" means, with regard to the
Letter of Credit, the Uniform Customs and Practices for Documentary Letters or
Credit (1993 Revisions), International Chamber of Commerce Publication No. 500,
and any subsequent revision thereof adhered to by the Issuing Bank.

                  Section 1.02. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP, and all
financial data required to be delivered hereunder shall be prepared in
accordance with GAAP, except as otherwise specifically provided herein.

                  References in the Annual Statements to amounts on particular
exhibits, schedules, lines, pages and columns of the Annual Statement are based
on the format promulgated by the NAIC for 1995 Annual Statements. If such format
is changed in future years so that different information is contained in such
items or they no longer exist, it is understood that the reference is to
information consistent with that reported in the referenced item in the 1995
Annual Statement of Navigators.

                  Section 1.03. Computation of Time Periods. Except as otherwise
provided herein, in this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".

                  Section 1.04. Rules of Construction. When used in this
Agreement: (1) "or" is not exclusive; (2) a reference to a Law includes any
amendment or modification to such Law; (3) a reference to a Person includes its
permitted successors and permitted assigns; and (4) a reference to an agreement,
instrument or document shall include such agreement, instrument or document as
the same may be amended, modified or


                                       22
<PAGE>   29


supplemented from time to time in accordance with its terms and as permitted by
the Loan Documents.


                       ARTICLE II. REVOLVING CREDIT LOANS

                  Section 2.01. Revolving Credit. The Borrower and each Lender
acknowledge that as of the opening of business on the Second Closing Date there
are outstanding Existing Revolving Credit Loans in the amount of Two Million
Dollars ($2,000,000) and Existing Term Loans in the amount of Fifteen Million
Dollars ($15,000,000). The Borrower and the Lenders agree that on the Second
Closing Date the Existing Revolving Credit Loan will continue as Revolving
Credit Loans under this Agreement and the Existing Term Loans will be converted
into Revolving Credit Loans under this Agreement.

                  Subject to the terms and conditions of this Agreement, each of
the Lenders severally agrees to make loans (the "Revolving Credit Loans") pro
rata according to each such Lender's Pro Rata Share of the Revolving Credit
Commitment, to the Borrower from time to time during the period from the Second
Closing Date up to but not including the Revolving Credit Termination Date,
provided that the aggregate principal amount of all Revolving Credit Loans
outstanding at any time does not exceed the then effective Revolving Credit
Commitment. Each Revolving Credit Loan which shall not utilize the Revolving
Credit Commitment in full shall be in the minimum amount set forth in Section
2.11. Within the limits of the Revolving Credit Commitment, the Borrower may
borrow, make an optional prepayment pursuant to Section 2.08, and reborrow under
this Section 2.01.

                  The failure of any Lender to make any requested Revolving
Credit Loan to be made by it on the date specified for such Revolving Credit
Loan shall not relieve any other Lender of its obligation (if any) to make its
Pro Rata Share of such Revolving Credit Loan on such date, but no Lender shall
be responsible for the failure of any other Lender to make such Revolving Credit
Loans to be made by such other Lender.

                  Section 2.02. Notice and Manner of Borrowing. The Borrower
shall give the Agent at least three (3) Business Days' written or telegraphic or
facsimile notice (effective upon receipt) of any Revolving Credit Loan to which
the LIBOR Interest Rate applies. The Borrower shall give the Agent written or
telegraphic or facsimile notice (effective upon receipt) of any Revolving Credit
Loan to which the Base Rate applies by not later than 10:00 A.M. (New York time)
one (1) Business Day before the date of such Loan. Each of the foregoing notices
(a "Borrowing Notice") must specify: (1) the date and the amount of such
Revolving Credit Loan; (2) either that the Revolving Credit Loan will bear
interest at (a) the


                                       23
<PAGE>   30


Base Rate or (b) the LIBOR Interest Rate plus the Applicable Margin; and (3) in
the case of a LIBOR Loan, the initial Interest Period applicable thereto. The
Agent will promptly notify each Lender of receipt by the Agent of a Borrowing
Notice and of the contents thereof. Not later than 10:00 A.M. (New York time) on
the date of a LIBOR Loan and 2:00 P.M. (New York time) on the date of a Base
Rate Loan, each Lender will make available to the Agent at the Head Office in
immediately available funds such Lender's Pro Rata Share of such Loan. After the
Agent's receipt of such funds, not later than noon (New York time) on the date
of a LIBOR Loan and 3:00 P.M. (New York time) on the date of a Base Rate Loan,
and upon fulfillment of the applicable conditions set forth in Article V the
Agent will make such Revolving Credit Loan available to Borrower in immediately
available funds by crediting the amount thereof to Borrower's account with the
Agent.

                  Section 2.03. Non-Receipt of Funds by the Agent. Unless the
Agent shall have received notice from a Lender prior to the date on which such
Lender is to provide funds to the Agent for a Revolving Credit Loan to be made
by such Lender that such Lender will not make available to the Agent such funds,
the Agent may assume that such Lender has made such funds available to the Agent
on the date of such Revolving Credit Loan and the Agent, in its sole discretion,
may, but shall not be obligated to, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent such Lender shall not have made such funds available to the Agent, such
Lender agrees to repay the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the Agent, at
the Federal Funds Rate. If such Lender shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Lender's
Revolving Credit Loan for purposes of this Agreement. If such Lender does not
pay such corresponding amount forthwith upon the Agent's demand therefor, the
Agent shall promptly notify the Borrower, and the Borrower shall immediately pay
such corresponding amount to the Agent with the interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at the rate of interest applicable at the time to
such proposed Revolving Credit Loan.

                  Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to any Lender hereunder that the
Borrower will not make any payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent,
in its sole discretion, may, but shall not be obligated to, in reliance upon
such assumption, cause to be distributed to each Lender on such due date an
amount equal to the amount then due


                                       24
<PAGE>   31


such Lender. If and to the extent the Borrower shall not have so made such
payment in full to the Agent, each Lender shall repay to the Agent forthwith on
demand such amount distributed to such Lender together with interest thereon,
for each day from the date such amounts are distributed to such Lender until the
date such Lender repays such amount to the Agent, at the Federal Funds Rate.

                  Section 2.04. Interest. The Borrower shall pay interest to the
Agent for the account of the Lenders on the outstanding and unpaid principal
amount of the Revolving Credit Loan at a rate per annum as follows: (1) for a
Base Rate Loan at a rate equal to the Base Rate; and (2) for a LIBOR Loan at a
rate equal to the LIBOR Interest Rate plus the Applicable Margin. Any principal
amount and any interest not paid when due (at maturity, by acceleration or
otherwise) shall bear interest thereafter, payable on demand, at the Default
Rate.

                  The interest rate on each Base Rate Loan shall change when the
Base Rate changes. Interest on each Revolving Credit Loan shall not exceed the
maximum amount permitted under applicable Law and shall be calculated on the
basis of a year of three hundred sixty (360) days for the actual number of days
elapsed.

                  Accrued interest on each Base Rate Loan shall be due and
payable on each Monthly Date in arrears. Accrued interest on each LIBOR Loan
shall be due and payable on the last day of the Interest Period for such Loan,
and, in the case of an Interest Period greater than three (3) months, at three
(3) month intervals after the first day of such Interest Period. Interest
accruing at the Default Rate shall be due and payable on demand.

                  LIBOR Loans shall be in minimum amounts of One Million Dollars
($1,000,000) and incremental multiples of Two Hundred Fifty Thousand Dollars
($250,000).

                  Section 2.05. Interest Periods; Conversions; Renewals. In the
case of each LIBOR Loan, the Borrower shall select an Interest Period of any
duration which is in accordance with the definition of "Interest Period" in
Section 1.01, subject to the following limitations; (1) no Interest Period may
extend beyond the Revolving Credit Termination Date; (2) no Interest Period
shall have a duration of less than one month, and if any such proposed Interest
Period would otherwise be for a shorter period, such Interest Period shall not
be available; and (3) if an Interest Period would end on a day which is not a
Business Day, such Interest Period shall be extended to the next Business Day.

                  The Borrower may elect from time to time to convert all or a
part of one type of Revolving Credit Loan into another



                                       25
<PAGE>   32


type of Revolving Credit Loan or to renew all or part of a Revolving Credit Loan
by giving the Agent notice at least one (1) Business Day before conversion into
a Base Rate Loan, and at least three (3) Business Days before the conversion
into or renewal of a LIBOR Loan, specifying (1) the renewal or conversion date;
(2) the amount of the Revolving Credit Loan to be converted or renewed; and (3)
in the case of renewals of or a conversion into LIBOR Loans, the duration of the
Interest Period applicable thereto; provided, that LIBOR Loans can be converted
only on the last day of the Interest Period for such Loan. All notices given
under this Section 2.05 shall be irrevocable and shall be given not later than
11:00 a.m., New York time, on the day which is not less than the number of
Business Days specified above for such notice. If the Borrower shall fail to
give the Agent the notice as specified above for the renewal of a LIBOR Loan
prior to the end of the Interest Period with respect thereto, such LIBOR Loan
shall automatically be converted into a Base Rate Loan on the last day of the
Interest Period for such Loan. The Borrower agrees that no more than five (5)
Interest Periods can be in effect at any one time.

                  Section 2.06. Fees. The Borrower agrees to pay to the Agent
for the account of the Lenders on the Second Closing Date all Commitment Fees
(as defined in the 1994 Credit Agreement) accrued and unpaid as of the Second
Closing Date. Upon receipt of such Commitment Fees the Agent will promptly
thereafter cause to be distributed to the Lenders their respective Pro Rata
Share of such Commitment Fees.

                  The Borrower agrees to pay to the Agent for the account of the
Lenders a commitment fee on the average daily difference between (1) the sum of
(a) the Revolving Credit Commitment plus (b) the Letter of Credit Commitment and
(2) the sum of (a) the aggregate outstanding principal amount of all Revolving
Credit Loans plus (b) the aggregate undrawn face amount of all Letters of
Credit, at the rate of fifteen hundredths of one percent (0.15%) per annum,
based on a year of three hundred sixty (360) days, payable in arrears on each
Quarterly Date during the period from the Second Closing Date to the Revolving
Credit Termination Date, commencing September 30, 1996, and ending on the
Revolving Credit Termination Date (the "Commitment Fee"). Upon receipt of any
such Commitment Fee the Agent will promptly thereafter cause to be distributed
to the Lenders their respective Pro Rata Share of such Commitment Fee.

                  The Borrower agrees to pay to the Agent on the Second Closing
Date for the account of the Lenders an amendment fee of One Hundred Twenty-Five
Thousand Dollars ($125,000) (the "Revolving Credit Amendment Fee"). Upon receipt
of such Amendment Fee the Agent will promptly thereafter cause to be


                                       26
<PAGE>   33


distributed to the Lenders their respective Pro Rata Share of such Amendment
Fee.

                  The Borrower agrees to pay to the Agent on or before the
Second Closing Date and on each anniversary of the Second Closing Date until the
payment in full of all Loans and the termination of all Commitments for the
account of the Agent a non-refundable agency fee of Forty Thousand Dollars
($40,000) (the "Agency Fee").

                  Section 2.07. Revolving Credit Notes. All Revolving Credit
Loans made by each Lender under this Agreement shall be evidenced by, and repaid
with interest in accordance with, a single amended and restated promissory note
of the Borrower for each Lender, each in substantially the form of Exhibit 2.07,
duly completed, in the principal amount equal to such Lender's Pro Rata Share of
the Revolving Credit Commitment, dated the Second Closing Date, payable to such
Lender and maturing as to principal on the Revolving Credit Termination Date
(the "Revolving Credit Notes"). Each Lender is hereby authorized by the Borrower
to endorse on the schedule attached to the Revolving Credit Note held by it the
amount of each Revolving Credit Loan, and each payment of principal amount
received by such Lender on account of the Revolving Credit Loans, which
endorsement shall, in the absence of manifest error, be conclusive as to the
outstanding balance of the Revolving Credit Loans made by such Lender; provided,
however, that the failure to make such notation with respect to any Revolving
Credit Loan or payment shall not limit or otherwise affect the obligations of
the Borrower under this Agreement or the Revolving Credit Note held by such
Lender. Each Lender agrees that, prior to any assignment of the Revolving Credit
Note held by it, it will properly and completely endorse the schedule attached
to such Revolving Credit Note.

                  Section 2.08. Prepayments. The Borrower may, upon at least one
(1) Business Day's notice to the Lenders in the case of Base Rate Loans, and at
least three (3) Business Days' notice to each Lender in the case of LIBOR Loans,
prepay the Revolving Credit Notes, in whole or in part with accrued interest to
the date of such prepayment on the amount prepaid; provided, that: (1) each
partial prepayment shall be in a principal amount of not less than Five Hundred
Thousand Dollars ($500,000); and (2) LIBOR Loans may be prepaid only on the last
day of the Interest Period for such Loan, unless the Borrower pays the Lenders
the Broken Funding Fee for such prepayment.

                  If at any time the aggregate principal amount of all
outstanding Revolving Credit Loans exceeds the then effective Revolving Credit
Commitment, then the Borrower shall immediately prepay the Revolving Credit
Loans in the amount of such excess.


                                       27
<PAGE>   34


                  Section 2.09. Method of Payment. The Borrower shall make each
payment under this Agreement and under the Revolving Credit Notes not later than
11:00 A.M. (New York time) on the date when due in Dollars to the Agent at the
Agent's Office in immediately available funds. The Agent will promptly
thereafter cause to be distributed to each Lender, to the extent of such payment
received from the Borrower, (1) such Lender's Pro Rata Share of the payments of
principal and interest in like funds, and (2) fees payable to such Lender in
accordance with the terms of this Agreement.

                  The Borrower hereby authorizes the Agent, if and to the extent
payment of the Revolving Credit Loans or interest thereon, or the Commitment Fee
or any other amount due by the Borrower to the Agent or any Lender under this
Agreement or under the Revolving Credit Notes or any other Loan Document, is not
made when due under this Agreement or under the Revolving Credit Notes or any
other Loan Document, to charge from time to time against any account it
maintains with the Agent or any Lender any such amount so due to the Agent
and/or the Lenders. The Agent will promptly thereafter cause to be distributed
to each Lender, to the extent of such payment (1) such Lender's Pro Rata Share
of the payments of principal and interest, and (2) fees payable to such Lender
in accordance with the terms of this Agreement.

                  Except to the extent provided in this Agreement, whenever any
payment to be made under this Agreement or under the Revolving Credit Notes
shall be stated to be due on any day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of the payment of interest and
the Commitment Fee, and other fees, as the case may be.

                  Section 2.10. Use of Proceeds. The proceeds of the Revolving
Credit Loan shall be used by the Borrower for general corporate purposes. The
Borrower will not, directly or indirectly, use any part of such proceeds for the
purpose of purchasing or carrying any margin stock within the meaning of
Regulation G, T, U or X of the Board of Governors or to extend credit to any
Person for the purpose of purchasing or carrying any such margin stock.

                  Section 2.11. Minimum Amounts. The Revolving Credit Loans and
each conversion shall, in the case of Base Rate Loans, be in an amount at least
equal to One Hundred Thousand Dollars ($100,000) and in integral multiples of
One Hundred Thousand Dollars ($100,000) and in the case of LIBOR Loans, be in an
amount at least equal to One Million Dollars ($1,000,000) and in integral
multiples of Two Hundred Fifty Thousand Dollars ($250,000) (LIBOR Loans having
different Interest Periods at the same time hereunder to be deemed separate
Loans and


                                       28
<PAGE>   35


Conversions for purposes of the foregoing, one for each Interest Period).
Anything in this Agreement to the contrary notwithstanding, the aggregate
principal amount of LIBOR Loans having the same Interest Period shall be at
least equal to One Million Dollars ($1,000,000) and integral multiples thereof
of Two Hundred Fifty Thousand Dollars ($250,000) and, if any LIBOR Loan would
otherwise be in a lesser principal amount for any period, such LIBOR Loan shall
be a Base Rate Loan during such period.

                  Section 2.12. Additional Costs. The Borrower shall pay
directly to each Lender from time to time on demand such amounts as such Lender
may determine to be necessary to compensate it for any increased costs which
such Lender determines are attributable to its making or maintaining any LIBOR
Loan, or its obligation to convert any Base Rate Loan to a LIBOR Loan hereunder,
or any reduction in any amount receivable by such Lender hereunder in respect of
any of such LIBOR Loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
resulting, in each case, from any Regulatory Change which:

                  (i) subjects such Lender to any tax of any kind whatsoever
         with respect to, or changes the basis of taxation of any amounts
         payable to such Lender under this Agreement or the Revolving Credit
         Note in respect of any of such LIBOR Loans (other than changes in the
         rate of taxes imposed on or measured by the overall net income of such
         Lender or of its Applicable Lending Office for any of such LIBOR Loans
         by the jurisdiction in which such Lender has its principal office or
         such Applicable Lending Office); or

                  (ii) (other than to the extent of the LIBOR Reserve
         Requirement, taken into account in determining the LIBOR Interest Rate
         at the commencement of the applicable Interest Period) imposes or
         modifies any reserve, special deposit, deposit insurance or assessment,
         minimum capital, capital ratio or similar requirements relating to any
         extensions of credit or other assets of, or any deposits with or other
         liabilities of, such Lender (including any LIBOR Loans, or any deposits
         referred to in the definition of "LIBOR Interest Rate" in Section
         1.01), or any commitment of the Lender; or

                  (a) imposes any other condition affecting this Agreement or
         the Revolving Credit Note (or any of such extensions of credit or
         liabilities).

                  Without limiting the effect of the provisions of the first
paragraph of this Section 2.12, in the event that, by reason of any Regulatory
Change, any Lender either (1) incurs


                                       29
<PAGE>   36


Additional Costs based on or measured by the excess above a specified level of
the amount of a category of deposits of other liabilities of such Lender which
includes deposits by reference to which the LIBOR Interest Rate is determined as
provided in this Agreement or a category of extensions of credit or other assets
of such Lender which includes loans based on the LIBOR Interest Rate or (2)
becomes subject to restrictions on the amount of such a category of liabilities
or assets which it may hold, then, if such Lender so elects by notice to the
Borrower, the obligation of such Lender to make or continue, or to convert Base
Rate Loans into LIBOR Loans shall be suspended until such Regulatory Change
ceases to be in effect (in which case the provisions of Section 2.15 shall be
applicable).

                  Without limiting the effect of the foregoing provisions of
this Section 2.12 (but without duplication), the Borrower shall pay directly to
each Lender from time to time on request such amounts as such Lender may
determine to be necessary to compensate such Lender for any costs which it
determines are attributable to the maintenance by such Lender (or any Applicable
Lending Office), pursuant to any law or regulation or any interpretation,
directive or request (whether or not having the force of law and whether in
effect on the date of this Agreement or thereafter) of any court or governmental
or monetary authority of capital in respect of the Revolving Credit Loan (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Lender (or any Applicable Lending
Office) to a level below that which such Lender (or any Applicable Lending
Office) could have achieved but for such law, regulation, interpretation,
directive or request).

                  Determinations and allocations by such Lender for purposes of
this Section 2.12 of the effect of any Regulatory Change pursuant to the first
or second paragraph of this Section 2.12 or of the effect of capital maintained
pursuant to the third paragraph of this Section 2.12, on its costs or rate of
return of maintaining the Revolving Credit Loan or on amounts receivable by it
in respect of the Revolving Credit Loan, and the amounts required to compensate
such Lender under this Section 2.12, shall be conclusive absent manifest error.

                  Section 2.13. Limitation on Types of Loans. Anything herein to
the contrary notwithstanding, if, on or prior to the determination of the LIBOR
Interest Rate for any Interest Period the Required Lenders determine (which
determination shall be conclusive) that (1) the relevant rates of interest
referred to in the definition of "LIBOR Interest Rate" in Section 1.01 upon the
basis of which the rate of interest for LIBOR Loans for such Interest Period is
to be determined do not adequately cover the cost to the Lenders of making or
maintaining such LIBOR Loans for such Interest


                                       30
<PAGE>   37


Period; or (2) quotations of interest rates for the relevant deposits referred
to in the definition of LIBOR Interest Rate are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining the
rate of interest on a LIBOR Loan as provided in this Agreement; then the Agent
shall give the Borrower prompt notice thereof, and so long as such condition
remains in effect, the Lenders shall be under no obligation to make LIBOR Loans,
convert Loans into LIBOR Loans, or continue LIBOR Loans, and the Borrower shall,
on the last day(s) of the then current Interest Period(s) for the outstanding
LIBOR Loans, either prepay such LIBOR Loans or convert such LIBOR Loans into
Base Rate Loans.

                  Section 2.14. Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain LIBOR
Loans hereunder or convert Base Rate Loans into LIBOR Loans, then such Lender
shall promptly notify the Borrower thereof and such Lender's obligation to make
or continue LIBOR Loans shall be suspended until such time as such Lender may
again make and maintain LIBOR Loans (in which case the provisions of Section
2.15 shall be applicable); provided, however, that each Lender agrees to change
its Applicable Lending Office if the illegality referred to in this Section 2.14
can be cured by such a change without disadvantage or detriment to such Lender
(as determined in such Lender's sole discretion).

                  Section 2.15. Treatment of Affected Loans. If the obligations
of any Lender to make or continue LIBOR Loans, or to convert Base Rate Loans
into LIBOR Loans are suspended pursuant to Section 2.12, 2.13 or 2.14 (LIBOR
Loans so affected being herein called "Affected Loans") such Lender's Affected
Loans shall be automatically converted into Base Rate Loans on the last day(s)
of the then current Interest Period(s) for the Affected Loans (or, in the case
of a conversion required by Section 2.12, 2.13 or 2.14, on such earlier date as
such Lender may specify to the Borrower).

                  To the extent that such Lender's Affected Loans have been so
converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Affected Loans shall be applied instead to its Base
Rate Loans. All Loans which would otherwise be made or continued by such Lender
as LIBOR Loans shall be made or continued instead as Base Rate Loans and all
Base Rate Loans of such Lender which would otherwise be converted into LIBOR
Loans, shall remain as Base Rate Loans.

                  Section 2.16. Risk-Based Capital. With respect to LIBOR Loans,
in addition to the rights granted under any other provision of this Agreement,
in the event that any Lender determines that (1) compliance with any judicial,


                                       31
<PAGE>   38


administrative, or other governmental interpretation of any law or regulation or
(2) compliance by such Lender or any corporation controlling such Lender with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law) has the effect of requiring an increase
in the amount of capital required or expected to be maintained by such Lender or
any corporation controlling such Lender, and such Lender determines that such
increase is based upon its obligations hereunder, and other similar obligations,
the Borrower shall pay to such Lender such additional amount as shall be
certified by such Lender to be the amount allocable to such Lender's obligations
to the Borrower hereunder. Each Lender will notify the Borrower of any event
occurring after the date of this Agreement that will entitle such Lender to
compensation pursuant to this Section 2.16 as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation.

                  Determinations by each Lender for purposes of this Section
2.16 of the effect of any increase in the amount of capital required to be
maintained by such Lender and of the amount allocable to such Lender's
obligations to the Borrower hereunder shall be conclusive, absent manifest
error.

                  Section 2.17. Certain Compensation. The Borrower shall pay to
the Agent for the account of the applicable Lender, upon the request of such
Lender through the Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense which such Lender determines is attributable to:

                  (1) any payment, prepayment, conversion or continuation of a
         LIBOR Loan made by such Lender on a date other than the last day of an
         Interest Period for such Loan whether by reason of acceleration or
         otherwise; or

                  (2) any failure by the Borrower for any reason to borrow,
         convert or continue a LIBOR Loan to be borrowed, converted or continued
         by such Lender on the date specified therefor in the relevant notice
         issued by the Borrower.

                  Without limiting the foregoing, such compensation shall
include an amount equal to the Broken Funding Fee. A determination of any Lender
as to the amounts payable pursuant to this Section 2.17 shall be conclusive
absent manifest error.

                  Section 2.18. Capital Adequacy. Without duplication of the
requirements of Section 2.12, if any Lender shall have determined that, after
the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority, central


                                       32
<PAGE>   39


bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such Governmental Authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Lender (or its Parent) as a consequence of such Lender's
obligations hereunder to a level below that which such Lender (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, within fifteen
(15) days after demand by such Lender (with a copy to the Agent), the Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender (or its Parent) for such reduction. A certificate of any Lender
claiming compensation under this Section 2.18, setting forth in reasonable
detail the basis therefor, shall be conclusive in the absence of manifest error.
The Borrower is only required to make payments under this Section 2.18 to the
Lender that requires the payment of such additional amount or amounts.

                  Section 2.19. Taxes. (a) All payments made by the Borrower
under this Agreement and the other Loan Documents shall be made free and clear
of, and without deduction or withholding for or on account of, any present or
future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, excluding, in the case of
the Agent and each Lender, any net income taxes and franchise taxes (imposed in
lieu of net income taxes) imposed on the Agent or such Lender, as the case may
be, by the United States or any state, local or foreign taxing authority (all
such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"). If any Taxes are required to be
withheld from any amounts payable to the Agent or any Lender hereunder or under
the other Loan Documents, the amounts so payable to the Agent or such Lender
shall be increased to the extent necessary to yield to the Agent or such Lender
(after payment of Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement and the other Loan
Documents. Whenever any Taxes are payable by the Borrower, as promptly as
possible thereafter the Borrower shall send to the Agent or such Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Taxes when
due to the appropriate taxing authority or fails to remit to the Agent or such
Lender, as the case may be, the required receipts or other required documentary
evidence, the Borrower shall indemnify the Agent and such Lender for any
incremental taxes, interest or


                                       33
<PAGE>   40


penalties that may become payable by the Agent or such Lender as a result of any
such failure.

                  (b) Each Lender represents to the Borrower and the Agent that
it is entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will furnish to the Agent such forms, certifications,
statements and other documents as the Agent may reasonably request from time to
time to evidence such Lender's exemption from the withholding of any tax imposed
by any jurisdiction or to enable the Agent to comply with any applicable laws or
regulations relating thereto. Without limiting the effect of the foregoing, if
any Lender is not created or organized under the laws of the United States or
any state thereof, such Lender will furnish to the Agent Form 4224 or Form 1001
of the Internal Revenue Service, or such other forms, certifications, statements
or documents, duly executed and completed by such Lender as evidence of such
Lender's exemption from the withholding of U.S. tax with respect thereto. The
Agent shall not be obligated to make any payments hereunder to such Lender in
respect of any Loan or such Lender's Revolving Credit Commitment until such
Lender shall have furnished to the Agent the requested form, certification,
statement or document.


                         ARTICLE III. LETTERS OF CREDIT

                  Section 3.01. Letters of Credit. BBH&Co. has issued an
irrevocable standby letter of credit dated December 14, 1993 for the benefit of
Society of Lloyd's in the amount of Two Million Five Hundred Eighty-Five
Thousand Pounds ((pound)2,585,000) (as amended, the "BBH&Co. Letter of Credit")
for the account of the Borrower. Within sixty (60) days from the Second Closing
Date, the Issuing Bank shall issue for the benefit of the Society of Lloyd's a
replacement letter of credit for the BBH&Co. Letter of Credit (the "Replacement
Letter of Credit").

                  In addition to the Replacement Letter of Credit, subject to
the approval of all the Lenders as set forth below, the Issuing Bank agrees, on
the terms and conditions hereinafter set forth, to issue standby letters of
credit for the account of the Borrower to support NCUL's obligations with
respect to specific syndicates at the Society of Lloyd's (all such letters of
credit together with the Replacement Letter of Credit, the "Letters of Credit"),
from time to time during the period from the Second Closing Date to the Letter
of Credit Termination Date, provided that at the time of the issuance of such
Letter of Credit the aggregate face amount of all outstanding Letter of Credit
Obligations does not exceed at any time Thirty Million Dollars ($30,000,000)
(the "Letter of Credit Commitment"). The Issuing Bank will not be required to
issue a Letter of Credit with a maturity date more than five (5) years from the
date of issuance of such Standby Letter of


                                       34
<PAGE>   41


Credit. In addition, the Issuing Bank will not issue a Letter of Credit unless
all Lenders in their sole discretion approve the issuance of the proposed Letter
of Credit to support such obligation to such syndicate. The Borrower agrees that
after a Letter of Credit is issued to support an obligation to a specific
syndicate the Borrower will not change the syndicate receiving the benefit of
such Letter of Credit without the consent of all the Lenders.

                  Notwithstanding the foregoing, with the consent of all the
Lenders the Letter of Credit Termination Date can be extended beyond January 2,
1998 and the maturity date of any Letter of Credit can be extended beyond
December 31, 2002.

                  In addition to the requirements noted above, the Issuing Bank
will not be required to issue a Letter of Credit unless the Borrower submits to
the Issuing Bank a Request for Letter of Credit at least two (2) Business Days
before the requested date to issue such Letter of Credit. Each Letter of Credit
will be subject to the terms and provisions of this Agreement, including but not
limited to those set forth in this Article III.

                  For purposes of determining usage and availability under this
Section 3.01 when a Letter of Credit is issued in Pounds, such Pounds will be
converted to Dollars upon issuance, and at the end of each calendar quarter, and
at any time thereafter as requested by the Agent or any Lender or the Issuing
Bank and such determination shall be made by the Agent in its sole determination
based upon the spot exchange rate between Dollars and Pounds as quoted by the
Agent's foreign exchange desk as of such date of determination. Notwithstanding
any other provisions of this Agreement, if at any time, after giving effect to
the conversion of pounds into Dollars as set forth above, the aggregate face
amount of all outstanding Letters of Credit is greater than Thirty Million
Dollars ($30,000,000) ("Conversion Differential") then Borrower must prepay the
Revolving Credit Loans to the extent required so that the difference between the
then effective Revolving Credit Commitment and the aggregate principal amount of
all outstanding Revolving Credit Loans is equal to or greater than the
Conversion Differential and, in the event the Conversion Differential exceeds
the then effective Revolving Credit Commitment, then the Borrower will provide
Cash Collateral in the amount of such difference.

                  On December 31, 2001 the Borrower agrees to provide Cash
Collateral to the Agent for the benefit of the Issuing Bank and the Lenders in
an amount equal to Fifteen Million Dollars ($15,000,000).

                  Section 3.02. Reimbursement Obligation. The Borrower will pay
the Issuing Bank, on demand at the Issuing


                                       35
<PAGE>   42

Bank's Principal Office, in immediately available funds, the amount required to
reimburse the Issuing Bank in respect of the Issuing Bank's payment of each
Instrument. Such reimbursement shall be made with interest from the date of the
Issuing Bank's payment of such Instrument to the date which is two (2) Business
Days after the date of such demand at the Base Rate, and thereafter at the
Default Rate until the date of reimbursement. Such reimbursement shall be in
Dollars at the Issuing Bank's selling rate for cable transfers to the place of
payment of the Instrument current on the date of payment or of the Issuing
Bank's settlement of its obligation, as the Issuing Bank may require or, at the
Issuing Bank's election, in the currency in which the Issuing Bank was required
to pay such Instrument. If, for any cause, on the date of payment or settlement,
as the case may be, there is no selling rate or other rate of exchange generally
current in New York for effecting such transfers, the Borrower will pay the
Issuing Bank on demand an amount in Dollars equivalent to the Issuing Bank's
actual cost of settlement of its obligation however or whenever the Issuing Bank
shall make such settlement, with interest at the Base Rate for Base Rate Loans
from the date of settlement to the date of payment. The Borrower will comply
with all governmental exchange regulations now or hereafter applicable to each
Letter of Credit or Instrument or payments related thereto and will pay the
Issuing Bank, on demand, in Dollars, such amount as the Issuing Bank may be or
may have been required to expend on account of such regulations. The Issuing
Bank may debit or direct any other Lender to debit any account or accounts
maintained by the Borrower with any office of the Issuing Bank or any other
Lender or any of their respective Subsidiaries or Affiliates (now or in the
future) and apply the proceeds to the payment of any and all amounts owed by the
Borrower to the Issuing Bank hereunder, and such Lender, Subsidiary or Affiliate
shall be authorized to act in accordance herewith and shall treat this
authorization as irrevocable. If the due date for reimbursement by the Borrower
pursuant to this Section 3.02 shall be extended by operation of Law or
otherwise, interest shall continue to accrue and be payable at the applicable
rate set forth in this Section 3.02.

                  Section 3.03. Payment of Commissions, Expenses and Interest.
The Borrower will pay the Issuing Bank, on demand, the Issuing Bank's commission
and all charges, costs, and expenses paid or incurred by the Issuing Bank in
connection with any Letter of Credit, and interest where chargeable, including
fees and charges of counsel and costs allocated by the Issuing Bank's internal
legal department in connection with the preparation, performance, or enforcement
of this Agreement or any Letter of Credit. Unless otherwise agreed:

                  (a)  administrative fees payable hereunder shall be
at the rate customarily charged by the Issuing Bank at the time
in like circumstances;


                                       36
<PAGE>   43


                  (b) interest payable under this Article III on amounts not
paid when due shall be at the lesser of (A) the maximum rate permissible under
applicable law or (B) the Base Rate; and

                  (c) in addition to commissions, fees and amounts otherwise
payable with respect to the issuance of a Letter of Credit, the Borrower shall
pay to the Issuing Bank on demand such amounts as the Issuing Bank in its sole
discretion determines are necessary to compensate it for any cost attributable
to its issuing or having outstanding such Letter of Credit resulting from the
application of any Law or regulation applicable to the Issuing Bank regarding
any reserve, assessment, capital adequacy or similar requirements relating to
letters of credit or the reimbursement agreements with respect thereto or to
similar liabilities or assets of the Issuing Bank whether existing at the time
of issuance of the Letter of Credit or adopted thereafter; including, without
limitation, to those related to or as a result of the sale of a Participation
under Section 4.02 hereof. The Borrower acknowledges that there may be various
methods of allocating costs to the Letter of Credit and agrees that the Issuing
Bank's allocation for purposes of determining the costs referred to above shall
be conclusive and binding upon the Borrower.

                  The Borrower shall pay to the Agent for the account of the
Issuing Bank on each Semi-Annual Date a fee in the amount of one-half of one
percent (1/2%) of the aggregate undrawn face amount of all Letters of Credit as
of such Semi-Annual Date, provided, however, upon the occurrence and during the
continuance of a Default or Event of Default the fee specified in this sentence
will be increased to an annual fee of two and one-half percent (2.5%) (the
"Letter of Credit Fee"). The Agent will remit their respective portions of such
Letter of Credit Fee to the Issuing Bank and each of the Lenders in accordance
with the provisions of Section 4.03 "Participation in Fees and Collateral;
Relationship".

                  Section 3.04. Proper Drawing; the Issuing Bank's Honoring. The
Issuing Bank may accept or pay any Instrument presented to it on or before the
expiration date set forth in a Letter of Credit. In addition:

                  (a) the Issuing Bank may honor the related Instrument(s) in an
amount or amounts not exceeding the amount of such Letter of Credit, and

                  (b) the Issuing Bank may honor, as complying with the terms of
such Letter of Credit, any Instrument or other document otherwise in order,
signed or issued by a person purporting to be an administrator, executor,
trustee in bankruptcy, debtor in possession, assignee for the benefit of


                                       37
<PAGE>   44


creditors, liquidator, receiver or other legal representative of the party
authorized under such Letter of Credit to draw or issue such Instruments or
other documents, regardless of any notice or information to the contrary.

                  Section 3.05. Amendment, Change, Modification; No Waiver. In
the event of any amendment, change or modification relating to a Letter of
Credit or any Instruments or documents called for thereunder, including waiver
of noncompliance of any such Instruments or documents with such terms of the
Letter of Credit, this Agreement shall be binding upon the Borrower with regard
to such Letter of Credit as so amended, changed, or modified, and to any action
taken by the Issuing Bank or any of its correspondents reacting thereto. No
amendment, change, waiver or modification to which the Issuing Bank has
consented shall be deemed to mean that the Issuing Bank will consent or has
consented to any other or subsequent request to amend, change, modify or waive a
term of such Letter of Credit. The Issuing Bank shall not be deemed to have
waived any of its rights hereunder, unless the Issuing Bank or its authorized
agent shall have signed such waiver in writing. No such waiver, unless expressly
stated therein, shall be effective as to any transaction which occurs subsequent
to the date of such waiver, nor as to any continuance of a breach after such
waiver.

                  Section 3.06. U.C.P.; Agreements and Acknowledgements;
Indemnifications. The Uniform Customs and Practices shall be binding on the
Borrower and the Issuing Bank, except to the extent it is otherwise expressly
agreed. The Borrower and the Issuing Bank also agree that:

                  (a) user(s) of a Letter of Credit shall not be deemed agents
of the Issuing Bank;

                  (b) none of the Issuing Bank, its Affiliates, Subsidiaries, or
its correspondents shall be responsible for:

                    (i) failure of any Instrument to bear any reference to the
         related Letter of Credit or inadequate reference in any Instrument to
         such Letter of Credit, or failure of any document (other than documents
         expressly required to be presented under such Letter of Credit) to
         accompany any Instrument at negotiation, or failure of any person to
         note the amount of any Instrument on the reverse of the Letter of
         Credit, or to surrender or take up the Letter of Credit or to forward
         documents apart from Instruments as required by the terms of such
         Letter of Credit, each of which provisions, if contained in a Letter of
         Credit itself, it is agreed may be waived by the Issuing Bank;


                                       38
<PAGE>   45


                   (ii) the validity, sufficiency or genuineness of any
         Instrument, even if such instrument shall in fact prove to be invalid,
         insufficient, fraudulent or forged;

                  (iii) errors, omissions, interruptions or delays in
         transmission, or delivery of any message, by mail, telex, cable,
         telegraph, wireless or other teletransmission or by oral instructions,
         whether or not they may be in cipher; or

                   (iv) any failure or inability of the Issuing Bank or anyone
         else to perform in accordance with the terms of the Letter of Credit by
         reason of any control or restriction rightfully or wrongfully exercised
         by any de facto or de jure Governmental Authority, or for any
         consequences arising from causes beyond the control of the Issuing Bank
         or its correspondents;

                  (c) the Issuing Bank shall not be responsible for any act,
error, neglect or default, omission, insolvency or failure in business of any of
its correspondents;

                  (d) the occurrence of any one or more of the contingencies or
events referred to in the Uniform Customs and Practices or in the preceding
subsections (b) and (c) shall not affect, impair, or prevent the vesting of any
of the Issuing Bank's rights or powers hereunder or the Borrower's obligation to
make payment;

                  (e)  the Borrower will promptly examine:

                    (i) any copy of a Letter of Credit (and of any amendments
          thereof) sent to it by the Issuing Bank; and

                    (ii) all Instruments and documents delivered to it from time
          to time, and, in the event of any claim of noncompliance with the
          Borrower's Instructions or other irregularity, the Borrower will
          immediately notify the Issuing Bank thereof in writing, the Borrower
          being conclusively deemed to have waived any such claim against the
          Issuing Bank and its correspondents unless such notice is given as
          aforesaid;

                  (f) any action, inaction or omission on the part of the
Issuing Bank or any of its correspondents, under or in connection with the
Letter of Credit or the related Instruments, documents or property, if in good
faith, shall be binding upon the Borrower and shall not place the Issuing Bank
or any of its correspondents under any liability to the Borrower.

                  The Borrower agrees to hold the Issuing Bank, each Affiliate
and Subsidiary of the Issuing Bank, its


                                       39
<PAGE>   46


correspondents and each Participating Lender indemnified and harmless against
any and all claims, loss, liability or damage, including reasonable counsel
fees, howsoever arising from or in connection with any Letter of Credit,
including, without limitation, any such claim, loss, liability or damage arising
out of any transfer, sale, delivery, surrender or endorsement of any document at
any time(s) held by the Issuing Bank, any of its Affiliates or Subsidiaries or
any Participating Lender, or held for the account of any one of them by any
correspondent of any of them, or arising out of any action for injunctive or
other judicial or administrative relief arising out of or in connection with any
Letter of Credit and affecting, directly or indirectly, the Issuing Bank, such
Affiliate or Subsidiary or any Participating Lender, or arising out of any bond
or undertaking into which the Issuing Bank or its correspondents may be required
to enter; provided, that the Borrower shall not be required to indemnify any
such party to the extent that the Borrower proves that such claims, loss,
liability or damage of such party was caused by such party's willful misconduct
or gross negligence.

                  Section 3.07. Continuing Rights and Obligations. The Issuing
Bank's rights hereunder shall continue unimpaired, and the Borrower shall be and
remain obligated in accordance with the terms and provisions hereof,
notwithstanding the release and/or substitution of any property which may be
held as Collateral at any time(s), or of any rights or interest therein. No
delay, extension of time, renewal, compromise or other indulgence which may
occur or be granted by the Issuing Bank shall impair the Issuing Bank's rights
or powers hereunder.

                  Section 3.08. Instructions; No Liability. Instructions may be
honored by the Issuing Bank when received from anyone purporting to be an
Authorized Person. The Borrower may furnish the Issuing Bank with written
confirmation of any such Instruction, but the Issuing Bank's responsibility with
respect to any Instruction shall not be affected by its failure to receive or
the content of such confirmation. The Issuing Bank shall have no responsibility
to notify the Borrower of any discrepancies between the Borrower's Instructions
and its written confirmation, and in the event of any such discrepancy, the
original Instruction shall govern. The Issuing Bank shall be fully protected in,
and shall incur no liability to the Borrower for, acting upon any Instructions
or any oral, written, telephone, teleprocess, electronic, or other amendments
thereto which the Issuing Bank in good faith believes to have been given by any
Authorized Person, and in no event shall the Issuing Bank be liable for special,
consequential, or punitive damages. The Issuing Bank may, at its option, use any
means of verifying any Instruction received by it. The Issuing Bank also may, at
its option, refuse to act upon any Instruction or other communication or any
part


                                       40
<PAGE>   47


thereof, without incurring any responsibility for any loss, liability or expense
arising out of such refusal. All such authorizations and Instructions shall
continue in full force and effect unless the Issuing Bank may elect to act upon
additional Instructions delivered to it by the Borrower prior to the issuance of
a Letter of Credit in reliance upon the original Instructions.

                  Section 3.09. Amended Agreement. In the event that the Issuing
Bank shall revise its standard reimbursement agreement executed by each
applicant for a letter of credit, the Borrower shall execute and deliver to the
Issuing Bank an amendment to this Agreement incorporating such changes, promptly
upon request therefor from the Issuing Bank.

                  Section 3.10. Letter of Credit Overdrafts. To the extent that
the Issuing Bank creates an overdraft in any account of the Borrower to satisfy
the Borrower's reimbursement obligation or any other obligation on or related to
any Letter of Credit, such overdraft will, from the Business Day immediately
following the creation of such overdraft, accrue interest at the Default Rate
and both such overdraft and the interest thereon are immediately due and
payable.

                  Section 3.11. Obligation Absolute. The obligations of the
Borrower under this Agreement with regard to each Letter of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letter of Credit, under all
circumstances whatsoever, including, without limitation, the following
circumstances:

                  (a) any lack of validity or enforceability of any of the Loan
Documents or any other agreement or instrument relating thereto;

                  (b) any amendment or waiver of or any consent to departure
from all or any of the Loan Documents or any other agreement or instrument
relating thereto (except to the extent, and only to the extent, expressly agreed
to by the Issuing Bank in such amendment or waiver);

                  (c) the existence of any claim, setoff, defense or other
rights which the Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any
beneficiary or any such transferee may be acting), the Issuing Bank (other than
the defense of full and timely payment to the Issuing Bank in accordance with
the terms of this Agreement) or any other Person, whether in connection with the
Loan Documents or any other agreement or instrument related thereto or any
related or unrelated transaction;


                                       41
<PAGE>   48


                  (d) any statement or other document or demand presented under
any Letter of Credit (or any endorsement thereon) proving to be forged,
fraudulent, invalid, unenforceable or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;

                  (e) payment by the Issuing Bank under any Letter of Credit
against presentation of a sight draft, certificate or demand by the beneficiary
which does not comply with the terms of such Letter of Credit, including,
without limitation, the circumstances referred to in clause (d) above, or the
failure of any document to bear reference or to bear adequate reference to such
Letter of Credit, except in the case of the Issuing Bank's gross negligence or
willful misconduct in determining whether the documents presented under such
Letter of Credit comply with the terms of such Letter of Credit;

                  (f) any act or omission of the beneficiary in connection with
the use of any Letter of Credit;

                  (g) any failure to preserve or protect any Collateral, any
failure to perfect or preserve the perfection of any Lien thereon, or the
release of any of the Collateral securing the performance or observance of the
terms of the Loan Documents or any other agreement related thereto;

                  (h) any other circumstances or happening whatsoever, whether
or not similar to any of the foregoing.

                  Section 3.12. Change in Law. In addition to the provisions
under Section 3.03(c), if any change in any Law after the Second Closing Date
shall impose, modify or deem applicable any reserve, special deposit, capital
maintenance, deposit insurance premium or assessment, or similar requirement
against letters of credit issued by or assets held by, or sales of
participations in letters of credit or deposits with or for the account of the
Issuing Bank, or impose on the Issuing Bank any other condition regarding this
Agreement or any Letter of Credit or the Participations, or subject the Issuing
Bank to any tax, charge, fee, deduction or withholding of any kind whatsoever
not imposed as of the Second Closing Date (other than taxes imposed on the
overall net income of the Issuing Bank), and the result of any such event shall
be to increase the cost to the Issuing Bank of the issuance or maintenance of
any Letter of Credit or the reimbursement obligations of the Borrower under this
Agreement, or the Participations or reduce the amount of principal, interest, or
any fee or compensation receivable by the Issuing Bank in respect of any Letter
of Credit or this Agreement, or the Participations then, upon demand of the
Issuing Bank, the Borrower shall immediately pay to the Issuing Bank, from time
to time as specified by the Issuing Bank, all additional amounts which are
necessary to compensate the Issuing Bank for such increased cost or


                                       42
<PAGE>   49


reduction incurred by the Issuing Bank. All payments of compensation for such
increased cost or reduction shall be accompanied by interest thereon from the
date of notice of such change until payment in full thereof at the Base Rate.
the Issuing Bank hereby agrees that it will promptly notify the Borrower in
writing of any such increased cost or reduction incurred by the Issuing Bank A
certificate as to such increased cost incurred by the Issuing Bank showing the
manner of calculation thereof shall be submitted by the Issuing Bank to the
Borrower and shall be conclusive (absent manifest error) as to the amount
thereof.

                  Section 3.13. Liability of the Issuing Bank The Borrower
assumes all risks of the acts or omissions of the beneficiary and transferee of
each Letter of Credit with respect to its use of such Letter of Credit. As
between the Borrower and the Issuing Bank, neither the Issuing Bank nor any of
its officers or directors shall be liable or responsible for: (a) the use which
may be made of any Letter of Credit or for any acts or omissions of the
beneficiary and any transferee in connection therewith; (b) the validity,
sufficiency or genuineness of documents, or of any indorsement(s) thereon, even
if such documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (c) payment by the Issuing Bank against
presentation of documents which do not comply with the terms of a Letter of
Credit; or (d) any other circumstance whatsoever in making or failing to make
payment under any Letter of Credit, except only that the Borrower shall have a
claim against the Issuing Bank, and the Issuing Bank shall be liable to the
Borrower, to the extent, but only to the extent, of any direct, as opposed to
consequential, damages suffered by the Borrower which the Borrower proves were
caused by the Issuing Bank's willful misconduct or gross negligence in
determining whether documents presented under a Letter of Credit comply with the
terms of such Letter of Credit. In furtherance and not in limitation of the
foregoing, the Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.

                  Section 3.14. Termination of Obligations. Upon both (1) the
payment in full of all Revolving Credit Loans and the termination of the
Revolving Credit Commitment and (2) December 31, 2002 to the extent any Letters
of Credit are outstanding as of such date, the Borrower shall provide Cash
Collateral for its obligations pursuant to this Article III in an amount
acceptable to the Issuing Bank and at least equal to the undrawn face amount of
all outstanding Letters of Credit, and shall execute all documents and take all
steps required to give the Issuing Bank a perfected first priority security
interest in such collateral (in each case to the reasonable satisfaction of the
Issuing Bank). Upon compliance with the

                                       43
<PAGE>   50

terms of the preceding sentence, the Borrower shall be released from its
obligations pursuant to these Articles VI, VII, VIII and IX. At such time, the
Issuing Bank shall have the right to adjust the rates of interest to be charged
with respect to reimbursements pursuant to Section 3.02 and the commissions and
fees charged pursuant to Section 3.03.

                  Section 3.15. Notice of Request for Extension. During the
period from October 1, 1998 to October 31, 1998, the Borrower will deliver to
the Agent, the Lenders and the Issuing Bank written notice of whether or not it
will request (1) extension of the Letter of Credit Termination Date beyond
January 2, 1998, or (2) the extension of the expiration date of any outstanding
Letter of Credit beyond December 31, 2002.

                           ARTICLE IV. PARTICIPATIONS

                  Section 4.01. Participating Lenders' Pro Rata Shares. Subject
to the terms and conditions hereinafter set forth in this Article IV, the
Issuing Bank hereby agrees to sell and each Participating Lender hereby agrees
to purchase a participation ("Participation") from the Issuing Bank in each
Letter of Credit (and all overdrafts created in connection with any of the
foregoing) to the extent of the percentage (the "Share") set forth below
opposite such Lender's name:

<TABLE>
<CAPTION>
                  Bank                                                 Share
                  ----                                                 -----
<S>                                                              <C>
                  BBH&Co.                                        16.666667%
                  First Union                                    33.333333%
                  NBD                                            50.000000%
</TABLE>

                  Notwithstanding the foregoing, prior to the issuance of the
Replacement Letter of Credit, BBH&Co. hereby agrees to sell and each of First
Union and NBD agree to purchase a participation from BBH&Co. in the BBH&Co.
Letter of Credit to the extent set forth above opposite First Union's and NBD's
name so that if there is a draw under the BBH&Co. Letter of Credit and the
Borrower fails to reimburse BBH&Co. in the amount of such draw, NBD and First
Union agree to transmit to BBH&Co. their respective Share of such draw or
payment in accordance with the instructions set forth in Section 6.04 of the
1994 Credit Agreement. In addition, prior to the issuance of the Replacement
Letter of Credit and with respect to the BBH&Co. Letter of Credit, the rights
and obligations set forth in this Article IV applicable to a Participating
Lender shall apply to NBC and First Union as participating lenders in the
BBH&Co. Letter of Credit and the rights and obligations set forth in this
Article IV applicable to the Issuing Bank shall apply to BBH&Co. as the issuing
bank of the BBH&Co. Letter of Credit.


                                       44
<PAGE>   51


                  Section 4.02. Sale and Purchase of Participations. Subject to
Section 4.01, each Participating Lender hereby irrevocably and unconditionally
agrees to purchase and the Issuing Bank hereby agrees to sell and transfer to
each Participating Lender, an undivided fractional interest equal to such
Participating Lender's Share in each Letter of Credit and each draw thereunder
upon such drawing and the obligations of the Borrower in respect of each such
Letter of Credit under this Agreement (including all related payments and
recoveries to which such Participating Lender is entitled pursuant to Section
4.05 hereof).

                  Section 4.03. Participation in Fees and Collateral;
Relationship. Each Participating Lender will be entitled to receive a share of
the Letter of Credit Fee, at the time each payment of the Letter of Credit Fee
is paid by the Borrower pursuant to Section 3.03, equal to the total of (1) such
Letter of Credit Fee multiplied by seven eighths of one percent (.875%)
multiplied by (2) its Share (determined at the time such Fee is payable to the
Issuing Bank pursuant to Section 3.03). Agent shall pay the Issuing Bank and
each Participating Lender the portion of the Letter of Credit Fee to which it is
entitled within three (3) Business Days of receipt by Agent of such Fee.

                  In addition to the foregoing, each Participating Lender hereby
purchases, and the Issuing Bank hereby sells to each Participating Lender, an
undivided fractional participation interest equal to such Participating Lender's
Share in the Collateral and any Cash Collateral and all the other Loan
Documents, as well as all additional security specifically assigned to the
Issuing Bank to secure the Letters of Credit.

                  The relationship between the Issuing Bank (in its capacity as
seller of Participations pursuant to this Article IV) and each Participating
Lender (in its capacity as purchaser of Participations pursuant to this Article
IV) is and shall be that of a purchaser and seller of a property interest and
not a creditor-debtor relationship or joint venture. The Issuing Bank (in its
capacity as seller of Participations pursuant to this Article IV) shall owe each
Participating Lender (in its capacity as purchaser of Participations pursuant to
this Article IV) no duty except as specifically set forth in this Article IV.

                  Section 4.04. Procedures. Whenever a draw shall be made under
a Letter of Credit and the Borrower shall fail to reimburse the Issuing Bank
therefor in accordance with this Agreement, the Issuing Bank will promptly
notify each Participating Lender regarding such draw as follows: (1) the date of
such draw, and (2) the amount of such draw. Although the Issuing Bank shall be
responsible for paying each such draw



                                       45
<PAGE>   52

on a Letter of Credit, each Participating Lender shall bear its Share of the
credit risk associated with each such draw. Accordingly, in the event that the
amount of any such draw is not paid in full by or on behalf of the Borrower when
required in accordance with the terms of this Agreement, for any reason, the
Issuing Bank shall give prompt notice by telephone (promptly confirmed in
writing) or telex to each Participating Lender of such event. Upon receipt of
such telephone or telex notice, each Participating Lender shall cause to be
transmitted to the Issuing Bank, via CHIPS or, if transmission via CHIPS is not
possible, via federal funds transfer, in accordance with the instructions set
forth below an amount in immediately available funds equivalent to its Share of
such draw or payment in such manner to ensure that such funds are received by
the Issuing Bank, and available to the Issuing Bank by 3:00 p.m., New York City
time, on the date demand therefor was made by the Issuing Bank (if demand was
made by 12:00 noon, New York City time) or by 10:00 a.m., New York City time, on
the Business Day following the date demand therefor was made (if demand was made
after 12:00 noon, New York City time).

         If via federal funds transfer:

                  Wire to:  Issuing Bank
                  ABA No.   071000013
                  For the account of:  The First National
                                       Bank of Chicago
                                       Account No. 7521 7657
                                       Attn: LC Department

                  Section 4.05. Collections and Remittances. Whenever the
Issuing Bank receives any payment, interest, reimbursement, collection, or
recovery on account of a Letter of Credit whether from the Borrower, the
Collateral, the Cash Collateral, or otherwise, it shall allocate such receipts
as follows:

                           (a) To the payment of taxes, assessments, insurance
                  premiums, or for similar purposes as required by the
                  applicable Letter of Credit or any other Loan Document, and,
                  if previously paid by the Issuing Bank, such sums shall be
                  retained by the Issuing Bank; and

                           (b) In the event the Borrower fails to reimburse the
                  Issuing Bank for any draw under a Letter of Credit when due
                  and the Issuing Bank receives a payment of or on account of
                  such defaulted amount as to which a Participating Lender has
                  paid the Issuing Bank the amount of its Share pursuant to
                  Section 4.04, that portion of the amount received shall be
                  allocated between each such Participating Lender and the
                  Issuing Bank pro rata, with each such

                                       46
<PAGE>   53


                  Participating Lender's percentage of the principal amount
                  based on its Share.

                  After the Issuing Bank receives a payment on account of a
Letter of Credit and makes the allocations required by the preceding paragraph,
it shall give notice to each Participating Lender not later than 11:30 a.m. New
York City time, by telephone and promptly remit to each Participating Lender (or
credit to the Participating Lender's account with the Issuing Bank, if any), the
amount to which each such Participating Lender is entitled; provided, however,
that the Issuing Bank may retain and deduct from such payment to any such
Participating Lender any amounts owed the Issuing Bank by such Participating
Lender pursuant to this Article IV.

                  If any payment received by the Issuing Bank and distributed or
credited to a Participating Lender is later rescinded or is otherwise returned
by the Issuing Bank for whatever reason (including, without limitation,
settlement of an alleged claim), each such Participating Lender, upon demand by
the Issuing Bank, shall immediately pay to the Issuing Bank such Participating
Lender's Share of the principal amount so returned plus interest and/or
commission on such amount at the rate specified above in Section 3.03. The
covenants contained in this paragraph shall survive the termination of this
Agreement.

                  Section 4.06. Sharing of Setoffs and Collections. Each
Participating Lender agrees that to the extent any payment is received by it on
any of the Borrower's obligations under a Letter of Credit, whether by
counterclaim, setoff, banker's lien, by realizing on collateral or otherwise and
such payment results in such Participating Lender receiving a greater payment
than it would have been entitled to under Section 4.05 had the total amount of
such payment been paid directly to the Issuing Bank for disbursement according
to that Section, then such Participating Lender shall immediately purchase for
cash from the Issuing Bank an additional Participation and a participation from
the other Participating Lenders in such Letter of Credit (subject to the same
terms and conditions provided for herein), sufficient in amount so that such
payment shall effectively be shared pro rata with the Issuing Bank and the other
Participating Lenders in accordance with the amount, and to the extent, of their
respective interests in the Letter of Credit; provided, however, that if all or
any portion of such payment is thereafter recovered from such Participating
Lender at any time, the purchase shall be rescinded and the purchase price
returned to the extent of such recovery, but without interest or other return
thereon.

                  Section 4.07. Indemnification; Costs and Expenses. To the
extent not reimbursed by the Borrower, and without limiting the obligation of
the Borrower to do so, each


                                       47
<PAGE>   54


Participating Lender agrees to reimburse the Issuing Bank for, indemnify the
Issuing Bank against, and hold the Issuing Bank harmless from, on demand (and
the Issuing Bank is authorized to debit each such Participating Lender's
account, if any, with the Issuing Bank for the same), to the extent of each such
Participating Lender's Share of any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind whatsoever (including, without limitation, disbursements necessary,
in the judgment of the Issuing Bank, to preserve or protect the Collateral or
Cash Collateral), that may at any time be imposed on, incurred by, or asserted
against the Issuing Bank in any way relating to this Agreement, a Letter of
Credit, the Collateral, the Cash Collateral or any other Loan Document or other
instrument relating to any of the foregoing, or the transactions contemplated
thereby and hereby, or any action taken or omitted by the Issuing Bank under or
in connection with any of the foregoing; provided, however, that no
Participating Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements resulting from the Issuing Bank's gross
negligence or willful misconduct. The covenants contained in this Section 4.07
shall survive the termination of this Agreement.

                  Section 4.08. Administration; Standard of Care. The Issuing
Bank will administer the Letter of Credit in the ordinary course of business and
in accordance with its usual practices, modified from time to time as it deems
appropriate under the circumstances. Except as expressly set forth in the third
paragraph of this Section 4.08, the Issuing Bank shall be entitled to use its
discretion in taking or refraining from taking any actions in connection with
any of the foregoing as if it were the sole party involved in any of the
foregoing and no Participations existed.

                  Each Participating Lender acknowledges that its Participations
hereunder are without recourse to the Issuing Bank and that each such
Participating Lender expressly assumes all risk of loss in connection with its
Participation in the Letters of Credit as if such Participating Lender had
directly provided such Letters of Credit. The Issuing Bank shall have no
liability, express or implied, for any action taken or omitted to be taken by
the Issuing Bank or for any failure or delay in exercising any right or power
possessed by the Issuing Bank under any of the Loan Documents except for actual
losses, if any, suffered by any Participating Lender that are proximately caused
either by the Issuing Bank's gross negligence or by the Issuing Bank's willful
misconduct. Without limiting the foregoing, the Issuing Bank (1) may consult
with legal counsel, independent public accountants, appraisers, and other
experts, selected by the Issuing Bank,


                                       48
<PAGE>   55


and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such persons, (2) shall be entitled
to rely on, and shall incur no liability by acting upon, any conversation,
notice, consent, certificate, statement, order, or any document or other writing
(including, without limitation, telegraph, telex, telecopy, TWX, or other
telecommunication device) believed by the Issuing Bank to be genuine and correct
and to have been signed, sent, or made by the proper person, (3) makes no
warranty or representation of any kind of character relating to the Borrower,
the Collateral or the Cash Collateral, and shall not be responsible for any
warranty or representation made in or in connection with any of the Loan
Documents, (4) makes no warranty or representation as to, and shall not be
responsible for the correctness as to form, the due execution, legality,
validity, enforceability, genuineness, sufficiency, or collectability of any of
the Loan Documents, for any failure by the Borrower or any Person to perform its
obligations thereunder, for the Borrower's use of the proceeds therefrom, or for
the preservation of the Collateral, the Cash Collateral, or the loss,
depreciation, or release thereof, (5) makes no warranty or representation as to,
and assumes no responsibility for, the authenticity, validity, accuracy, or
completeness of any notice, financial statement, or other document or
information received by the Issuing Bank or any Participating Lender in
connection with, or otherwise referred to in, any of the Loan Documents, and (6)
shall not be required to make any inquiry concerning the observance or
performance of any agreement contained in, or conditions of, any of the Loan
Documents, or to inspect the property, books, or records of the Borrower or any
Person.

                  Notwithstanding the provisions of the first paragraph of this
Section 4.08, the Issuing Bank agrees that it will not knowingly take any of the
following actions without the written consent of each Participating Lender: (1)
waive any default by the Borrower involving the payment of money to the Issuing
Bank pursuant to any of the Loan Documents; (2) extend the time of payment of
interest on the Borrower's obligations to the Issuing Bank with respect to any
Letter of Credit; (3) extend the maturity date of a Letter of Credit beyond
December 31, 2002 without the consent of all the Participating Lenders; (4)
increase the amount of any Letter of Credit; (5) reduce the Letter of Credit
Fee; or (6) release any Collateral, except as otherwise contemplated in any Loan
Documents. the Issuing Bank shall be fully justified in failing or refusing to
take any action under any of the Loan Documents unless it shall first receive
such advice or concurrence of the Participating Lenders as the Issuing Bank
shall deem appropriate.

                  the Issuing Bank may lend money to, accept deposits from, and
generally engage in any kind of business with the

                                       49
<PAGE>   56

Borrower as freely as though no Participations had been granted to a
Participating Lender.

                  Section 4.09. Independent Investigation by the Participating
Lenders. Each Participating Lender acknowledges (1) that the Issuing Bank has
provided such Participating Lender with copies of all of the Loan Documents and
the Borrower has provided or granted such Participating Lender access to certain
financial data and other information pertaining to the Borrower that such
Participating Lender has requested in order to enable it to make an independent,
informed judgment with respect to the desirability of purchasing Participations
in the Letters of Credit, (2) that the Issuing Bank has not made any
representations or warranties to such Participating Lender and that no prior or
future act by the Issuing Bank, including, without limitation, any review of the
affairs of the Borrower, shall be deemed to constitute a representation or
warranty of the Issuing Bank, and (3) that such Participating Lender has
independently, without reliance upon the Issuing Bank, and based on such
information as such Participating Lender has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial condition, and general creditworthiness of the Borrower, made its own
analysis of the value and Lien status of any Collateral or Cash Collateral, and
made its own decision to execute this Agreement and thereby purchase
Participations in accordance with this Article IV in the Letters of Credit. Each
Participating Lender agrees that, independently and without reliance upon the
Issuing Bank or any representations or statements of the Issuing Bank, and based
on such information as such Participating Lender deems appropriate at the time,
it will continue to make and rely upon its own credit analysis and decisions in
taking or not taking any action under this Article IV or any of the Loan
Documents.

                  Section 4.10. Participating Lenders' Ownership of Interests in
the Participations. Each Participating Lender hereby represents and warrants to
the Issuing Bank that the purchase of its Participation in the Letters of Credit
(1) is a legal investment pursuant to the laws under which such Participating
Lender is organized and operates, (2) has been duly authorized and approved by
all necessary action of the management of such Participating Lender, and (3) is
made for such Participating Lender's own account for the purpose of investment
only and with no present intention of disposing of the same.

                         ARTICLE V. CONDITIONS PRECEDENT

                  Section 5.01. Conditions Precedent to the Effectiveness of
this Agreement and Initial Use of a Credit Facility on and after the Second
Closing Date. The effectiveness of this Agreement and obligations of the Lenders



                                       50
<PAGE>   57


on and after the Second Closing Date to make a Revolving Credit Loan or for the
Issuing Bank to issue a Letter of Credit is subject to the condition precedent
that the Lenders shall have received on or before the Second Closing Date each
of the following documents, in form and substance satisfactory to the Lenders
and their counsel, and each of the following requirements shall have been
fulfilled:

                  (a) Evidence of Due Organization and all Corporate Actions by
         the Borrower. A certificate of the Secretary or Assistant Secretary of
         the Borrower, dated the Second Closing Date, attesting to the
         certificate of incorporation and by-laws of the Borrower and all
         amendments thereto and to all corporate actions taken by the Borrower,
         including resolutions of its board of directors, authorizing the
         execution, delivery and performance of the Loan Documents, and each
         other document to be delivered pursuant to the Loan Documents;

                  (b) Incumbency and Signature Certificates of the Borrower. A
         certificate of the Secretary or Assistant Secretary of the Borrower,
         dated the Second Closing Date, certifying the names and true signatures
         of the officers of the Borrower authorized to sign the Loan Documents
         to which it is a party, and the other documents to be delivered
         pursuant to the Loan Documents;

                  (c) Evidence of Good Standing with Insurance Departments. A
         certificate, dated reasonably near the Second Closing Date, from the
         insurance department or similar authority of the state of domicile of
         each Insurance Subsidiary certifying as to the good standing of each
         Insurance Subsidiary and as to the status of all licenses of each such
         Insurance Subsidiary;

                  (d) Revolving Credit Notes. The Revolving Credit Notes duly
         executed and delivered by the Borrower;

                  (e) Counter Indemnity Agreement. The Counter Indemnity
         Agreement duly executed and delivered by the parties thereto;

                  (f) Opinions of Counsel for the Borrower. A favorable opinion
         of LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel for the Borrower
         dated the Second Closing Date;

                  (g) Reinsurance Plan. The reinsurance plan of Navigators and
         NIC as in effect on the Second Closing Date;

                  (h) Payment of Fees. Payment in full of all fees required to
         be paid in accordance with the Loan Documents;



                                       51
<PAGE>   58


                  (i) Best Rating. Navigators and NIC continue to be rated "A"
         by A.M. Best and such rating is not currently under review by A.M.
         Best;

                  (j) Officer's Certificate. The following statements shall be
         true and the Agent shall have received a certificate signed by a duly
         authorized officer of the Borrower dated the date hereof stating that:

                            (i) The representations and warranties contained in
                  this Agreement and in each of the other Loan Documents are
                  correct on and as of the Second Closing Date as though made on
                  and as of such date; and

                           (ii) No Default or Event of Default has occurred and
                  is continuing;

                  (k) Lien Searches. The results of lien searches against the
         Borrower in the State of New York with respect to filings regarding
         security interests and tax liens shall have been received by the
         Lenders, and such results shall be satisfactory to the Lenders; and

                  (l) Additional Documentation. Such other approvals, opinions
         or documents as the Agent or any Lender may reasonably request.

                  Section 5.02. Conditions Precedent to Each Use of a Credit
Facility after the Second Closing Date. The obligations of the Lenders to
provide each Revolving Credit Loan or of the Issuing Bank to issue a Letter of
Credit shall be subject to the further conditions precedent that on the date of
providing such Credit Facility:

                  (1)  The following statements shall be true:

                           (a)      all the representations and warranties
                                    contained in this Agreement and in each of
                                    the other Loan Documents are correct on and
                                    as of the date of providing such Credit
                                    Facility as though made on and as of such
                                    date; and

                           (b)      no Default or Event of Default has occurred
                                    and is continuing, or could result from
                                    providing such Credit Facility;

                  (2)      In the case of a Revolving Credit Loan, the
                           Agent shall have timely received a Borrowing
                           Notice;

                                       52
<PAGE>   59

                  (3)      In the case of a Letter of Credit, the Issuing
                           Bank shall have timely received a Request for
                           Letter of Credit; and

                  (4)      The Agent shall have received such other approvals,
                           opinions or documents as the Agent or any Lender may
                           reasonably request.

                  Section 5.03. Deemed Representation. Each request for a Credit
Facility and acceptance by the Borrower of the proceeds of the applicable
Revolving Credit Loan or the issuance of the requested Letter of Credit, as the
case may be, shall constitute a representation and warranty that the statements
contained in Section 5.02(1) are true and correct both on the date of such
notice or request, as the case may be, and as of the date of the providing of
such Revolving Credit Loan or issuance of such Letter of Credit, as the case may
be.

                   ARTICLE VI. REPRESENTATIONS AND WARRANTIES

                  The Borrower hereby represents and warrants that:

                  Section 6.01. Incorporation, Good Standing and Due
Qualification. The Borrower and each of its Subsidiaries are duly incorporated,
validly existing and in good standing under the laws of the respective
jurisdictions of their incorporation, have the corporate power and authority to
own their assets and to transact the business in which they are now engaged or
proposed to be engaged, and are duly qualified as foreign corporations and in
good standing under the laws of each other jurisdiction in which such
qualification is required, except to the extent that its failure to be so
qualified could not reasonably be expected to result in a Material Adverse
Change.

                  Section 6.02. Corporate Power and Authority; No Conflicts.
The execution, delivery and performance by the Borrower of the Loan Documents
have been duly authorized by all necessary corporate action and do not and will
not: (1) require any consent or approval of its stockholders; (2) contravene its
certificate of incorporation or by-laws; (3) violate any provision of, or
require any filing, registration, consent or approval under, any Law (including,
without limitation, Regulations G, T, U and X of the Board of Governors), order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to the Borrower or any of its Subsidiaries; (4) result in a
breach of or constitute a default under or require any consent under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Borrower or any of its Subsidiaries is a party or by
which it or its properties may be bound or affected; (5) result in, or require,
the creation or imposition


                                       53
<PAGE>   60


of any Lien (other than as created under the Borrower Pledge Agreement or the
Borrower Pledge Agreement (Navigators)), upon or with respect to any material
properties now owned or hereafter acquired by the Borrower or any of its
Subsidiaries; or (6) cause the Borrower or any of its Subsidiaries to be in
default under any such Law, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.

                  Section 6.03. Legally Enforceable Agreements. Each Loan
Document to which the Borrower is a party is a legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms.

                  Section 6.04. Litigation. There are no actions, suits or
proceedings (private or governmental) pending or, to the knowledge of the
Borrower, threatened, against or affecting the Borrower or any of its
Subsidiaries before any Governmental Authority or arbitrator, which could, in
any one case or in the aggregate, reasonably be expected to result in a Material
Adverse Change.

                  Section 6.05. Financial Statements. The consolidated balance
sheets of the Borrower and the Consolidated Subsidiaries as of December 31,
1995, the related consolidated statements of income, consolidated statements of
stockholders' equity, and consolidated statements of cash flows of the Borrower
and such Consolidated Subsidiaries for the Fiscal Year then ended, and the
accompanying footnotes, together, with the opinion thereon, dated March 12, 1996
(except for Note 16 which is as of March 19, 1996) of KPMG Peat Marwick,
independent certified public accountants, copies of which have been furnished to
the Lenders, fairly present the financial condition of the Borrower and the
Consolidated Subsidiaries as at such dates and the results of the operations of
the Borrower and Consolidated Subsidiaries for the periods covered by such
statements, all in accordance with GAAP consistently applied, and since December
31, 1995 there has been no Material Adverse Change.

                  The combined balance sheets of the Somerset Companies as of
December 31, 1995 and the related combined statements of income, copies of which
have been furnished to the Lenders, fairly present the financial condition of
the Somerset Companies as of such dates and the results of the operations of the
Somerset Companies for the periods covered by such statements, all in accordance
with GAAP consistently applied.

                  The consolidated balance sheets of the Borrower and the
Consolidated Subsidiaries as of September 30, 1996 and the related consolidated
statements of income, consolidated statements of stockholders' equity, and
consolidated statements of cash flows of the Borrower and such Consolidated


                                       54
<PAGE>   61


Subsidiaries for the Fiscal Quarter then ended, copies of which have been
furnished to the Lenders, fairly present the financial condition of the Borrower
and the Consolidated Subsidiaries as at such dates and the results of the
operations of the Borrower and Consolidated Subsidiaries for the periods covered
by such statements, all in accordance with GAAP consistently applied (subject to
changes resulting from normal year-end audit adjustments) and since September
30, 1996 there has been no Material Adverse Change.

                  The combined balance sheets of the Somerset Companies as of
September 30, 1996 and the related combined statements of income, copies of
which have been furnished to the Lenders, fairly present the financial condition
of the Somerset Companies as of such dates and the results of the operations of
the Somerset Companies for the periods covered by such statements, all in
accordance with GAAP consistently applied (subject to changes resulting from
normal year-end audit adjustments).

                  There are no liabilities of the Borrower or any of the
Consolidated Subsidiaries, fixed or contingent, which are material but are not
reflected in the most recent financial statements referred to above or in the
notes thereto, other than liabilities arising in the ordinary course of business
since September 30, 1996. No information, exhibit, or report furnished by the
Borrower or any Consolidated Subsidiaries to the Agent or any Lender in
connection with the negotiation of this Agreement and the other Loan Documents
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein, in light of the
circumstances under which they were made, and at the time they were made, not
materially misleading.

                  Section 6.06. Statutory Financial Statements. The Annual
Statement of each of the Insurance Subsidiaries (including, without limitation,
the provisions made therein for investments and the valuation thereof, reserves,
policy and contract claims and Statutory Liabilities) as filed with the
appropriate Governmental Authority of its state of domicile (the "Department")
and delivered to each Lender prior to the execution and delivery of this
Agreement, as of and for the 1993, 1994 and 1995 Fiscal Years, and as of and for
the Fiscal Quarter ended September 30, 1996 (collectively, the "Statutory
Financial Statements"), have been prepared in accordance with SAP applied on a
consistent basis (except as noted therein). Each such Statutory Financial
Statement was in compliance with applicable Law when filed. The Statutory
Financial Statements fairly present the financial position, the results of
operations, changes in equity and changes in financial position of each such
Insurance Subsidiary as of and for the respective dates and period indicated
therein in accordance with SAP


                                       55
<PAGE>   62


applied on a consistent basis, except as set forth in the notes thereto. Except
for liabilities and obligations, including, without limitation, reserves, policy
and contract claims and Statutory Liabilities (all of which have been computed
in accordance with SAP), disclosed or provided for in the Statutory Financial
Statements, the Insurance Subsidiaries did not have, as of the respective dates
of each of such financial statements, any liabilities or obligations (whether
absolute or contingent and whether due or to become due) which, in conformity
with SAP, applied on a consistent basis, would have been required to be or
should be disclosed or provided for in such financial statements. All books of
account of each of the Insurance Subsidiaries fully and fairly disclose all of
the material transactions, properties, assets, investments, liabilities and
obligations of such Insurance Subsidiary and all of such books of account are in
the possession of each such Insurance Subsidiary and are true, correct and
complete in all material respects.

                  The investments of Insurance Subsidiaries reflected in the
Annual Statements filed with the respective Departments with respect to the 1995
Fiscal Year (the "1995 Annual Statement") and the September 30, 1996 Quarterly
Statement (the "1996 Quarterly Statement") complied in all material respects, as
of the dates of such statements, with all applicable requirements of the
Department with respect to each such Insurance Subsidiary as well as those of
any other applicable jurisdiction relating to investments in respect of which it
may invest its funds.

                  The provisions made by each Insurance Subsidiary in its 1995
Annual Statement and in its 1996 Quarterly Statement for reserves, policy and
contract claims and Statutory Liabilities were in compliance in all material
respects, as of the dates of such statements, with the requirements of the
applicable Department as well as those of any other applicable jurisdiction, and
have been computed in accordance with SAP.

                  Marketable securities and short term investments reflected in
the 1995 Annual Statement and in the 1996 Quarterly Statement of each Insurance
Subsidiary are valued at cost, amortized cost or market value, as required by
applicable law as of the date of such statements.

                  Since December 31, 1995, there has been no adverse change in
the business, assets, operations or financial condition of the Borrower or any
Subsidiary which has or could reasonably be expected to result in a Material
Adverse Change. No dividends or other distributions have been declared, paid or
made upon any shares of capital stock of the Borrower, nor have any shares of
capital stock of the Borrower been redeemed, retired, purchased or otherwise
acquired by the Borrower since


                                       56
<PAGE>   63


December 31, 1995, except to the extent permitted under the terms of this
Agreement.

                  Section 6.07. Ownership and Liens. The Borrower and each of
its Subsidiaries has title to, or valid leasehold interests in, all of their
properties and assets, real and personal, including the properties and assets,
and leasehold interests reflected in the financial statements referred to in
Section 6.05 (other than any properties or assets disposed of in the ordinary
course of business), and none of the properties and assets owned by the Borrower
and none of its leasehold interests are subject to any Lien, except as may be
permitted under this Agreement.

                  Section 6.08. Taxes. The Borrower and each of its
Subsidiaries has filed all tax returns and reports (federal, state, local and
foreign) required to be filed and have paid all taxes, assessments and
governmental charges and levies reported thereon to be due, including interest
and penalties, except to the extent they are the subject of a Good Faith
Contest.

                  Section 6.09. ERISA. Each Plan is administered in compliance
in all material respects with its terms and all applicable provisions of ERISA
and the Code. No Plan is subject to Title IV of ERISA; neither the Borrower nor
any other Person, including any fiduciary, has engaged in any Prohibited
Transaction which could reasonably be expected to subject the Borrower or any of
its Subsidiaries, or any entity which they have an obligation to indemnify, to
any material tax or penalty imposed under Section 4975 of the Code or Section
502(i) of ERISA; no Plan has been terminated and, to the best knowledge of the
Borrower, no notice of intent to terminate a Plan has been filed which, as a
result thereof could reasonably be expected to result in liability to the
Borrower or any of its Subsidiaries; no Plan is a Multiemployer Plan and neither
the Borrower nor any ERISA Affiliate has completely or partially withdrawn under
Section 4201 or 4204 of ERISA from a Multiemployer Plan which, as a result
thereof could reasonably be expected to result in liability to the Borrower or
any of its Subsidiaries, or incurred liability with respect to Section 515 of
ERISA; the Borrower has met the applicable minimum funding requirements under
ERISA with respect to all of its Plans and there has been no material failure on
the part of the Borrower's ERISA Affiliates to meet such requirements; a
favorable determination letter from the IRS has been received with respect to
each Plan intended to be qualified under Section 401(a) or 401(k) of the Code
and nothing has occurred which could reasonably be expected to adversely affect
such determination; there is no lien outstanding or security interest given in
connection with a Plan; and neither the Borrower nor any ERISA Affiliate has
liability for retiree medical, life insurance or other death benefits
(contingent or


                                       57
<PAGE>   64

otherwise) other than as a result of a continuation of medical coverage required
under Section 4980B of the Code.

                  Section 6.10. Operation of Business. The Borrower and each of
its Subsidiaries possesses all licenses, permits, franchises, and trade names,
or rights thereto, to conduct its business substantially as now conducted and as
presently proposed to be conducted, and neither the Borrower nor any of its
Subsidiaries is in violation of any valid rights of others with respect to any
of the foregoing, except to the extent such failure or violation could not
reasonably be expected to result in a Material Adverse Change.

                  Section 6.11. Insurance Licenses. Schedule 6.11 lists all of
the jurisdictions in which any of the Regulated Companies hold valid and
effective licenses (including, without limitation, licenses or certificates of
authority from Applicable Insurance Regulatory Authorities), permits or
authorizations to transact insurance and reinsurance business (as an insurer,
reinsurer, agent, broker, manager or intermediary) including eligibility to act
as an excess or surplus line insurer or an accredited reinsurer (collectively,
the "Licenses"). Except as set forth on Schedule 6.11, to the best of the
Borrower's knowledge, no such License is the subject of a proceeding for
suspension, revocation or limitation or any similar proceedings, there is no
sustainable basis for such a suspension, revocation or limitation, and no such
suspension, revocation or limitation is threatened by any Applicable Insurance
Regulatory Authority. Schedule 6.11 indicates the line or lines of insurance
which each such Regulated Company is permitted to be engaged in with respect to
each License therein listed. The Regulated Companies do not transact any
Insurance Business, directly or indirectly, requiring any license, permit,
governmental approval, consent or other authorization other than those listed on
Schedule 6.11.

                  Section 6.12. No Default on Outstanding Judgments or Orders.
The Borrower and each of its Subsidiaries has satisfied all judgments and the
Borrower is not in default with respect to any judgment, writ, injunction,
decree, rule or regulation of any court, arbitrator or federal, state, municipal
or other Governmental Authority, commission, board, bureau, agency or
instrumentality, domestic or foreign.

                  Section 6.13. No Defaults on Other Agreements. Neither the
Borrower nor any of its Subsidiaries is a party to any indenture, loan or credit
agreement or any lease or other agreement, including, without limitation, any
undertaking with any state insurance department or other Governmental Authority,
or instrument or subject to any certificate of incorporation or corporate
restriction which could reasonably be expected to result in a Material Adverse
Change. Neither the Borrower nor


                                       58
<PAGE>   65

any of its Subsidiaries is in default in any respect in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument where such failure to perform, observe
or fulfill could reasonably be expected to result in a Material Adverse Change.

                  Section 6.14 Subsidiaries and Ownership of Stock. Set forth in
Schedule 6.14 is a complete and accurate list of the Subsidiaries of the
Borrower, showing the jurisdiction of incorporation of each and showing the
percentage of the Borrower's ownership of the outstanding stock of each
Subsidiary. All of the outstanding capital stock of each such Subsidiary has
been validly issued, is fully paid and nonassessable, and is owned by the
Borrower free and clear of Liens, except for Liens permitted under the terms of
this Agreement.

                  There are no restrictions on the Borrower or any of its
Subsidiaries which prohibit or otherwise restrict the transfer of cash or other
assets owned by any Subsidiary of the Borrower to the Borrower, other than
prohibitions or restrictions existing under or by reason of (i) this Agreement
or the other Loan Documents, (ii) the Law, (iii) customary nonassignment
provisions in contracts entered into in the ordinary course of business and
consistent with past practices, (iv) purchase money obligations for property
acquired in the ordinary course of business, so long as such obligations are
permitted under this Agreement, and (v) any documents or instruments governing
the terms of any Indebtedness or other obligations secured by Liens permitted by
Section 8.03; provided, that such prohibitions or restrictions apply only to the
assets subject to such Liens.

                  Section 6.15. Governmental Regulation. Neither the Borrower
nor any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Investment Company Act of 1940, the Interstate
Commerce Act, the Federal Power Act or any statute or regulation limiting its
ability to incur indebtedness for money borrowed as contemplated hereby.

                  Section 6.16. Partnerships. Except as disclosed in Schedule
6.16, neither the Borrower nor any of its Subsidiaries is a partner of any
partnership.

                  Section 6.17. Environmental Protection. The Borrower and all
of its Subsidiaries have all permits, licenses and other authorizations which
are required under all Environmental Laws, except to the extent failure to have
any such permit, license or authorization could not reasonably be expected to
result in a Material Adverse Change. As of the date hereof, neither the Borrower
nor any of its Subsidiaries


                                       59
<PAGE>   66

is required to obtain any permits, licenses, or other authorizations under any
Environmental Law. The Borrower and all of its Subsidiaries are in compliance
with all Environmental Laws and the terms and conditions of the required
permits, licenses and authorizations, and is also in compliance with all other
limitations, restrictions, obligations, schedules and timetables contained in
those Laws or contained in any plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder, except to
the extent failure to comply could not reasonably be expected to result in a
Material Adverse Change.

                  Section 6.18. Solvency. The Borrower and each of its
Subsidiaries is Solvent.

                  Section 6.19. Governmental Approvals. No Governmental Approval
is required to authorize or is required in connection with (i) the execution,
delivery and performance of this Agreement or any other Loan Document, or any of
the transactions contemplated hereby or thereby, or (ii) the legality, validity,
binding effect or enforceability of this Agreement or any other Loan Document,
except that approval of the New York Insurance Department, the California
Insurance Department and/or one or more other state insurance departments, would
be required in order for the Lenders to acquire control of Navigators and NIC;
and provided, that the authorization of the California Insurance Department was
required in connection with the execution, delivery and performance of the
Borrower Pledge Agreement (Navigators).

                  Section 6.20. Lines of Business. Schedule 6.20 sets forth a
complete statement of each line of business conducted as of the date hereof by
the Borrower and each of its Subsidiaries (the "Existing Lines of Business").

                  Section 6.21. Reinsurance Practices. The business of each
Insurance Subsidiary is being conducted in all material respects in accordance
with the Reinsurance Plan.

                       ARTICLE VII. AFFIRMATIVE COVENANTS

                  So long as any of the Revolving Credit Notes shall remain
unpaid or any Lender shall have a Commitment hereunder or any Letter of Credit
remains outstanding, or any other amount is owing by the Borrower to any Lender
Party hereunder or under any other Loan Document, the Borrower shall:

                  Section 7.01. Maintenance of Existence. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its corporate
existence and good standing in the jurisdiction of its incorporation, qualify
and remain qualified as a foreign corporation in each jurisdiction in which such


                                       60
<PAGE>   67


qualification is required, maintain its Licenses in its jurisdiction of
incorporation and in each other jurisdiction where any such License is required
for the conduct of its business, except to the extent that its failure to so
qualify or maintain such Licenses could not reasonably be expected to result in
a Material Adverse Change.

                  Section 7.02. Conduct of Business. Continue, and cause each of
its Subsidiaries to continue, to engage in an efficient and economical manner in
the Existing Lines of Business.

                  Section 7.03. Maintenance of Properties. Maintain, keep and
preserve, and cause each of its Subsidiaries to maintain, keep and preserve, all
of its properties, (tangible and intangible) necessary or used in the proper
conduct of its business in good working order and condition, ordinary wear and
tear excepted.

                  Section 7.04. Maintenance of Records. Keep, and cause each of
its Subsidiaries to keep, adequate records and books of account, in which
complete entries will be made in accordance with GAAP and, as applicable, SAP,
reflecting all of its and their respective financial transactions.

                  Section 7.05. Maintenance of Insurance. Maintain, and cause
each of its Subsidiaries to maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in the same or a similar
business and similarly situated and such other insurance as is reasonably
required by the Lenders.

                  Section 7.06. Compliance with Laws. Comply, and cause each of
its Subsidiaries to comply, in all respects with all applicable Laws, such
compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property, except (1) in the case of the failure to pay taxes, such
taxes which are the subject of a Good Faith Contest, and (2) to the extent that
its failure to so comply could not reasonably be expected to result in a
Material Adverse Change.

                  Section 7.07. Right of Inspection. During normal business
hours and upon reasonable notice, permit the Agent or any Lender or any agent or
reasonable representative thereof, to examine or make copies and abstracts from
the records and books of account of, and visit the properties of, the Borrower
or any Subsidiary of the Borrower, and to discuss the affairs, finances and
accounts of the Borrower or any of its Subsidiaries with any of their respective
officers and directors and independent accountants.


                                       61
<PAGE>   68


                  Section 7.08. Reporting Requirements. Furnish directly to each
of the Lenders:

                  (1) Annual Financial Statements. (a) As soon as available and
         in any event within ninety-five (95) days after the end of each Fiscal
         Year of the Borrower, (x) the consolidated balance sheet of the
         Borrower and its Consolidated Subsidiaries as at the end of such Fiscal
         Year and the related consolidated statements of income, of
         stockholders' equity and of cash flows for such Fiscal Year, (y) the
         balance sheet of the Borrower (on a stand alone basis) as at the end of
         such Fiscal Year and the related statements of income and of
         stockholder's equity for such Fiscal Year, and (z) the consolidating
         balance sheet of the Borrower and each of its Consolidated Subsidiaries
         as at the end of such Fiscal Year and the related consolidating
         statements of income and of stockholders' equity for such Fiscal Year;
         in each case prepared in accordance with GAAP consistently applied and
         setting forth comparative figures for the preceding Fiscal Year, and,
         in the case of such consolidated financial statements, examined by a
         firm of independent certified public accountants reasonably
         satisfactory to the Lenders whose opinion shall not be qualified as to
         the scope of audit or as to the status of the Borrower or of any of its
         Consolidated Subsidiaries as a going concern, together with a
         certificate of such accounting firm stating that in the course of its
         regular audit of business of the Borrower and its Subsidiaries, which
         audit was conducted in accordance with generally accepted auditing
         standards, such accounting firm has obtained no knowledge of any
         Default or Event of Default which has occurred and is continuing or, if
         in the opinion of such accounting firm such a Default or Event of
         Default has occurred and is continuing, a statement as to the nature
         thereof.

                  (b) As soon as available and in any event (w) within sixty
         (60) days after the close of each Fiscal Year of each Insurance
         Subsidiary, the Annual Statement of such Insurance Subsidiary for such
         Fiscal Year as filed with the insurance commissioner (or similar
         authority) in such Insurance Subsidiary's state of domicile, together
         with (x) within sixty (60) days after the close of each Fiscal Year of
         each Insurance Subsidiary, the opinion thereof of the Chief Financial
         Officer of the Borrower stating that such Annual Statement presents the
         financial condition and results of operations of such Insurance
         Subsidiary in accordance with SAP, (y) on or prior to each June 1 after
         the close of each Fiscal Year of each Insurance Subsidiary, the opinion
         of a firm of certified public accountants reasonably satisfactory to
         the Lenders, who shall have examined such Annual Statement and whose
         opinion shall not be qualified as to the scope of audit or


                                       62
<PAGE>   69


         as to the status of such Insurance Subsidiary as a going concern, and
         (z) within one hundred twenty (120) days after the close of each
         Fiscal Year of each Insurance Subsidiary, a written review of and
         favorable opinion on the methodology and assumptions used to calculate
         such Loss Reserves of such Insurance Subsidiary at the end of such
         Fiscal Year (as shown on the Annual Statement of such Insurance
         Subsidiary prepared in accordance with SAP) and, based on the
         application of the methodology and assumptions to the information
         provided to such firm, the conclusions contained therein, in form and
         substance satisfactory to the Agent and the Required Lenders, by
         either the firm of independent certified public accountants providing
         the opinion referred to in clause (1)(a) above in respect of such
         Fiscal Year or an independent actuarial consulting firm reasonably
         satisfactory to the Agent, which firm shall be provided access to or
         copies of all reserve analyses and valuations relating to the
         insurance business of each Insurance Subsidiary in the possession of
         or available to the Borrower or its Subsidiaries.

                  (c) As soon as available and in any event on or prior to each
         May 1 after the close of each Fiscal Year of the Insurance
         Subsidiaries, the Consolidated Annual Statement of the Insurance
         Subsidiaries for such Fiscal Year, prepared in accordance with SAP and
         filed with the New York Insurance Department.

                  (2) Quarterly Financial Statements. (i) As soon as available
         and in any event within fifty (50) days after the close of each of the
         first three Fiscal Quarters in each Fiscal Year of the Borrower, (y)
         the consolidated balance sheet of the Borrower and its Consolidated
         Subsidiaries as at the end of such Fiscal Quarter and the related
         consolidated statements of income, of stockholder's equity and of cash
         flows for such Fiscal Quarter and for the elapsed portion of the Fiscal
         Year ended with the last day of such Fiscal Quarter, and (z) the
         consolidating balance sheet of the Borrower and each of its
         Consolidated Subsidiaries as at the end of such Fiscal Quarter and the
         related consolidating statements of income and of stockholder's equity
         for such Fiscal Quarter and for the elapsed portion of the Fiscal Year
         ended with the last day of the Fiscal Quarter; in each case prepared in
         accordance with GAAP consistently applied and setting forth comparative
         figures for the related periods in the prior Fiscal Year, and all of
         which shall be certified by the Chief Financial Officer of the
         Borrower, subject to changes resulting from normal year-end audit
         adjustments.

                  (ii) As soon as available and in any event within fifty (50)
         days after the close of each of the first three


                                       63
<PAGE>   70


         Fiscal Quarters in each Fiscal Year of each Insurance Subsidiary, (y)
         quarterly financial statements of such Insurance Subsidiary (prepared
         in accordance with SAP) for such Fiscal Quarter and as filed with the
         insurance commissioner (or similar authority) in such Insurance
         Subsidiary's state of domicile, together with the opinion thereon of
         the Chief Financial Officer of the Borrower stating that such financial
         statements present the financial condition and results of operations of
         such Insurance Subsidiary in accordance with SAP, and (z) a certificate
         of the Chief Financial Officer of such Insurance Subsidiary affirming
         that (A) to the best of his knowledge, the Loss Reserves do not
         understate the liabilities of such Insurance Subsidiary as at the end
         of such Fiscal Quarter, and (B) the Loss Reserves for such Fiscal
         Quarter are calculated using the same methodology as for the prior
         Fiscal Quarter and the prior Fiscal Year end (as shown on its financial
         statements prepared in accordance with SAP).

                  (iii) As soon as available and in any event within fifty (50)
         days after the close of each Fiscal Quarter of each Insurance
         Subsidiary, a report certified by the Chief Financial Officer of the
         Borrower setting forth, in a format satisfactory to the Agent, the
         statutory carrying value (determined in accordance with SAP) and the
         fair market value of the investment portfolio of such Insurance
         Subsidiary as of the last day of such Fiscal Quarter.

                  (3) Management Letters. Promptly upon receipt thereof, copies
         of any reports submitted to the Borrower by independent certified
         public accountants in connection with the examination of the financial
         statements of the Borrower and its Consolidated Subsidiaries made by
         such accountants.

                  (4) Certificate of No Default. Within fifty (50) days after
         the end of each Fiscal Quarter of the Borrower, a certificate of the
         Chief Financial Officer of the Borrower (a) certifying that no Default
         or Event of Default has occurred and is continuing or, if a Default or
         Event of Default has occurred and is continuing, a statement as to the
         nature thereof and the action which is proposed to be taken with
         respect thereto, and (b) with computations demonstrating compliance
         with the covenants contained in Article IX.

                  (5) SEC and Other Reports. Promptly upon their becoming
         publicly available, a copy of each report (including Forms 8-K, 10-K
         and 10-Q), proxy statement and registration statement or prospectus
         relating to securities of the Borrower filed with or delivered to any


                                       64
<PAGE>   71

         securities exchange, the Securities and Exchange Commission or any
         successor agency.

                  (6) Notice of Litigation. Promptly after the commencement
         thereof, notice of all actions, suits, and proceedings before any
         Governmental Authority, affecting the Borrower or any of its
         Consolidated Subsidiaries which, if determined adversely to the
         Borrower or any of its Consolidated Subsidiaries, could reasonably be
         expected to result in a Material Adverse Change.

                  (7) Notices of Defaults and Events of Default. As soon as
         possible and in any event within five (5) Business Days after the
         occurrence of each Default or Event of Default a written notice setting
         forth the details of such Default or Event of Default and the action
         which is proposed to be taken by the Borrower with respect thereto.

                  (8) ERISA Reports. As soon as possible and in any event within
         ten (10) days after the Borrower knows or has reason to know that any
         Reportable Event has occurred with respect to any Plan or that a
         Prohibited Transaction has occurred resulting in material liability to
         the Borrower or any of its Subsidiaries or to any entity which they
         have an obligation to indemnify or that the PBGC or the Borrower or any
         of its Subsidiaries has instituted or will institute proceedings under
         Title IV of ERISA to terminate any Plan or to appoint a trustee to
         administer any Plan or that the Borrower or any of its Subsidiaries or
         any ERISA Affiliate has completely or partially withdrawn from a
         Multiemployer Plan or that a Plan which is a Multiemployer Plan is in
         reorganization (within the meaning of Section 4241 of ERISA), is
         insolvent (within the meaning of Section 4245 of ERISA) or is
         terminating, or that a plan intended to qualify under Section 401(a) or
         401(k) of the Code fails to so qualify or that the waiver of the
         minimum funding standard under Section 412 of the Code has been applied
         for with respect to a Plan or that there has been a material failure to
         make a required payment or contribution to any Plan or that a Plan has
         been amended which has resulted or would result in the imposition of a
         lien or requires the granting of a security interest, the Borrower will
         deliver to each of the Lenders a certificate of the Chief Financial
         Officer of the Borrower setting forth details as to such Reportable
         Event or Prohibited Transaction or Plan termination or appointment or
         withdrawal or reorganization or insolvency or qualification failure or
         waiver or payment or contribution failure or amendment and the action
         the Borrower proposes to take with respect thereto.

                  (9)      Reports to Other Creditors.  Promptly after the
         furnishing thereof, copies of any statement or report



                                       65
<PAGE>   72

         furnished by the Borrower or any of its Subsidiaries to any other
         party pursuant to the terms of any indenture, loan, or credit or
         similar agreement and not otherwise required to be furnished to the
         Lenders under this Agreement.

                  (10) Insurance. Upon the occurrence of any casualty, damage or
         loss, suffered by the Borrower or any of its Subsidiaries, whether or
         not giving rise to a claim under any insurance policy insuring the
         Borrower or any Subsidiary of the Borrower (other than an insurance
         policy issued by an Insurance Subsidiary to Persons other than the
         Borrower or any of its Subsidiaries in the ordinary course of such
         Insurance Subsidiary's business), in an amount greater than Two Hundred
         Fifty Thousand Dollars ($250,000), notice thereof, together with copies
         of any document relating thereto (including copies of any such claim)
         in possession or control of the Borrower or any agent of the Borrower;
         and immediately after the occurrence thereof, written notice of any
         cancellation of any insurance policy required to be maintained by the
         Borrower pursuant to Section 7.05.

                  (11) Material Adverse Change. As soon as possible and in any
         event within five (5) Business Days after the occurrence of any event
         or circumstance which could reasonably be expected to result in or has
         resulted in a Material Adverse Change, written notice thereof.

                  (12) Environmental Notices. As soon as practicable and in any
         event within fifteen (15) Business Days after receipt, copies of all
         Environmental Notices received by the Borrower.

                  (13) Loss Reserve Report. (i) In addition to the requirements
         of clause (1)(b)(z) above, as promptly as reasonably practicable
         following the request of the Required Lenders, a report prepared by an
         independent actuarial consulting firm reasonably acceptable to the
         Required Lenders reviewing the adequacy of loss reserves of each
         Insurance Subsidiary, which firm shall be provided access to or copies
         of all reserve analyses and valuations relating to the insurance
         business of each Insurance Subsidiary in the possession of or available
         to the Borrower or its Subsidiaries; provided, that, in the event that
         the written review required to be provided to the Lenders in respect of
         any Fiscal Year pursuant to clause (1)(b)(z) above is provided by an
         independent actuarial consulting firm reasonably satisfactory to the
         Agent, or a written review of an independent actuarial consulting firm
         reasonably satisfactory to the Agent satisfying the requirements set
         forth in clause (1)(b)(z) is otherwise delivered to the Lenders at any
         time other than pursuant


                                       66
<PAGE>   73


         to such clause, then the Required Lenders may not request a report
         pursuant to this clause (13) until one year after the delivery date of
         such report unless, at the time of such request, an Event of Default
         is in existence.

                           (ii) Upon the occurrence thereof, a notice from the
         Chief Financial Officer of the Borrower of any event which could
         reasonably be expected to cause an increase or decrease of the
         consolidated Loss Reserves of the Insurance Subsidiaries of more than
         eight percent (8%) from the amount thereof reflected in the most recent
         annual or quarterly consolidated statutory financial statements of the
         Insurance Subsidiaries delivered pursuant to Section 7.08(1)(c) or
         7.08(2)(iii).

                  (14) Regulatory and Other Statements and Reports. Promptly (A)
         after their becoming available, copies of any statutory financial
         statements that the Borrower or any Insurance Subsidiary periodically
         files with the Applicable Insurance Regulatory Authority of the state
         in which it is domiciled or any state in which it is deemed to be
         commercially domiciled or any governmental agency or agencies
         substituted therefor (including all exhibits and schedules thereto),
         (B) after receipt thereof, copies of all regular and periodic reports
         of reviews or examinations (including, without limitation, triennial
         examinations and risk adjusted capital reports) of any Regulated
         Company, delivered to such Regulated Company in draft or final form by
         any Applicable Insurance Regulatory Authority, insurance commission or
         similar regulatory authority, (C) after receipt thereof, written notice
         of any assertion by any Applicable Insurance Regulatory Authority, or
         any governmental agency or agencies substituted therefor, as to a
         violation of any requirement of Law by any Regulated Company which
         could reasonably be expected to result in a Material Adverse Change,
         (D) after receipt thereof, a copy of the final report to each Insurance
         Subsidiary from the NAIC for each Fiscal Year, as to such Company's
         compliance or noncompliance with each of the NAIC Tests, (E) after
         receipt thereof, a copy of A.M. Best's rating analysis for each
         Insurance Subsidiary for each Fiscal Year, (F) after receipt thereof, a
         copy of any notice of termination, cancellation or recapture of any
         Reinsurance Agreement or Retrocession Agreement to which an Insurance
         Subsidiary is a party to the extent such termination or cancellation
         could reasonably be expected to result in a Material Adverse Change,
         (G) and in any event not later than seven (7) days after the making of
         any such filing, copies of all insurance holding company system act
         filings with governmental authorities by an Insurance Subsidiary,
         including, without limitation, filings which seek approval of
         governmental authorities with respect to transactions between any of
         the Regulated


                                       67
<PAGE>   74


         Companies and any of their respective Affiliates, (H) and in any event
         within five (5) Business Days after receipt thereof, copies of any
         notice of actual suspension, termination, revocation or limitation of
         any License of any Regulated Company by any Applicable Insurance
         Regulatory Authority, including any request by an Applicable Insurance
         Regulatory Authority which commits a Regulated Company to take or
         refrain from taking any action or which otherwise affects the
         authority of such Regulated Company to conduct its business (I) after
         the Borrower has reason to believe that any Insurance Subsidiary is or
         may be deemed to be "commercially domiciled" (or the substantial
         equivalent) in a state other than its state of domicile, under the
         insurance Law of such state, notice to that effect identifying the
         Insurance Subsidiary and the applicable state and (J) and in any event
         within five (5) Business Days after the Borrower or any of its
         Subsidiaries obtains knowledge thereof, notice of any actual changes
         in the insurance laws enacted in any state in which any Regulated
         Company is domiciled which could reasonably be expected to cause a
         Material Adverse Change.

                  (15) Credit Rating of Approved Reinsurers. As soon as
         possible, notify each Lender if (a) the credit rating given by A.M.
         Best to any Approved Reinsurer with a credit rating is downgraded to
         below "A-", or (b) any Reinsurer without a credit rating is given a
         credit rating by A.M. Best below "A-", or (c) any reductions in credit
         rating of an Approved Reinsurer if such rating was already rated below
         "A-", or (d) the rating given by Insurance Services Institute to any
         Approved Reinsurer which is rated by Insurance Services Institute is
         downgraded to below "A", and indicate in such notice the amount of the
         reduction to the Insurance Subsidiaries' Loss Reserves attributable to
         reinsurance ceded to such Approved Reinsurer as reflected in the most
         recent statutory financial statements of the Insurance Subsidiaries.

                  (16) Reinsurance Plan. As soon as possible, notify the Agent
         and each Lender of any material change to the Reinsurance Plan.

                  (17) Investment Guidelines. As soon as possible, notify the
         Agent and each Lender of any material investment made, or approved to
         be made, by any Insurance Subsidiary pursuant to any exception
         contained in the Investment Guidelines or pursuant to any provision of
         the Investment Guidelines authorizing any Person to make an exception
         thereto.

                  (18) General Information. Such other information respecting
         the condition or operations, financial or


                                       68
<PAGE>   75


         otherwise, of the Borrower or any of its Subsidiaries as the Agent
         or any Lender may from time to time reasonably request, including
         without limitation, additional consolidated or consolidating financial
         statements such as statements of income and cash flow statements and
         statements of stockholder's equity.

                  Section 7.09. Compliance With Environmental Laws. Comply, and
cause each of its Subsidiaries to comply, in all respects with all applicable
Environmental Laws where the failure to comply could reasonably be expected to
result in a Material Adverse Effect and immediately pay or cause to be paid, and
cause each of its Subsidiaries to immediately pay or cause to be paid, all costs
and expenses incurred in connection with such compliance.

                  Section 7.10. Borrower's Accounts. To the extent practicable,
maintain its principal securities accounts in the United States with BBH & Co.

                  Section 7.11. Reinsurance. Cause the Insurance Subsidiaries to
maintain reinsurance protection with respect to each type of business which in
the event of a Maximum Potential Loss limits the reduction in consolidated
surplus of Insurance Subsidiaries to five percent (5%) of consolidated surplus.

For purposes of this Section 7.11, the term "consolidated surplus" means the
consolidated surplus as regards policyholders of the Insurance Subsidiaries, in
each case determined in accordance with SAP and as reflected in the most recent
consolidated statutory financial statements of the Insurance Subsidiaries
delivered pursuant to Section 7.08(1)(c) or 7.08(2)(iii).

                  Section 7.12. Amendments to Borrower Pledge Agreement. On or
prior to January 31, 1997, the Borrower shall satisfy the following conditions
with regard to its pledge of the stock of each of Somerset Asia Pacific Pty.
Ltd., NCUL, and Somerset Marine (UK) Limited:

                  (1) Amendment to Borrower Pledge Agreement. The Borrower shall
                  execute and deliver an amendment to the Borrower Pledge
                  Agreement in form and substance satisfactory to the Lenders to
                  effect a pledge of the stock of each of Somerset Asia Pacific
                  Pty. Ltd., NCUL, and Somerset Marine (UK) Limited, and the
                  Borrower will deliver the certificates representing the shares
                  pledged pursuant to such amendment to Borrower Pledge
                  Agreement and undated stock powers executed in blank for each
                  such certificate and the Borrower will take any and all other
                  actions and execute any other agreements required to give the

                                       69
<PAGE>   76

                  Agent a first priority perfected security interest in such
                  stock; and

                  (2) Opinion of Counsel. The Borrower shall deliver an opinion
                  of counsel, dated the date of such pledge of stock, in a form
                  acceptable to the Lenders, covering among other items, the
                  perfection of the Agent's security interest in such stock.

                        ARTICLE VIII. NEGATIVE COVENANTS

                  So long as any of the Revolving Credit Notes shall remain
unpaid or any Lender shall have any Commitment hereunder or any Letter of Credit
remains outstanding, or any other amount is owing by the Borrower to any Lender
Party hereunder or under any other Loan Document, the Borrower shall not:

                  Section 8.01. Debt. Create, incur, assume or suffer to exist,
or permit any Subsidiary to create, incur, assume, or suffer to exist, any Debt,
except:

                  (1) Debt of the Borrower under this Agreement, the Revolving
Credit Notes, the Letters of Credit or any other Loan Document;

                  (2) Accounts payable to any Person, and not overdue by more
than forty-five (45) days, for goods and services supplied to the Borrower or
any Subsidiary by such Person in the ordinary course of business;

                  (3) Debt secured by purchase money Liens permitted by Section
8.03(8);

                  (4)  Guaranties permitted under Section 8.02; and

                  (5) Debt of the Borrower under the Note dated December 15,
1994 in the aggregate principal amount of Nine Hundred Forty Two Thousand
Thirty-Four Dollars ($942,034) owed to Terence N. Deeks.

                  Section 8.02. Guaranties. Assume, guarantee, endorse or
otherwise be or become directly or contingently responsible or liable
(including, but not limited to an agreement to purchase any obligation, stock,
assets, goods or services or to supply or advance any funds, assets, goods or
services, or an agreement to maintain or cause such Person to maintain a minimum
working capital or net worth or otherwise to assure the creditors of any Person
against loss) for the obligations of any Person, or permit any Subsidiary to do
so, except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, and
except for the obligations of the Insurance Subsidiaries under insurance
policies issued and


                                       70
<PAGE>   77

reinsurance agreements entered into in the ordinary course of business
consistent with the terms of this Agreement; provided, however, that the
Borrower may guarantee the obligations of any person that is its or its
Subsidiary's employee so long as the aggregate amount of all such obligations,
taken together with the aggregate amount of any and all loans to all such
persons permitted by the first proviso to Section 8.08, outstanding at any time
do not in the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000).

                  Section 8.03. Liens. Create, incur, assume or suffer to exist,
or permit any Subsidiary to create, assume, or suffer to exist, any Lien, upon
or with respect to any of its real or personal properties (including, without
limitation, leasehold interests, leasehold improvements and any other interest
in real property or fixtures), now owned or hereafter acquired, except:

                  (1) Liens granted to the Lender Parties under and pursuant to
the Loan Documents;

                  (2) Liens for taxes or assessments or other government charges
or levies if not yet due and payable or if due and payable if they are the
subject of a Good Faith Contest;

                  (3) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than sixty (60) days, or which are the subject of a Good Faith
Contest;

                  (4) Liens under workmen's compensation, unemployment
insurance, social security or similar legislation (other than ERISA);

                  (5) Liens, deposits or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;

                  (6) judgment and other similar Liens arising in connection
with court proceedings; provided, that the execution or other enforcement of
such Liens is effectively stayed and the claims secured thereby are the subject
of a Good Faith Contest;

                  (7) easements, rights-of-way, restrictions, zoning and other
similar encumbrances which, in the aggregate, do not materially interfere with
the occupation, use and enjoyment by

                                       71
<PAGE>   78

the Borrower of the property or assets encumbered thereby in the normal course
of its business or materially impair the value of the property subject thereto;

                  (8) purchase money Liens on any real property, fixtures or
equipment hereafter acquired or the assumption of any Lien on real property,
fixtures or equipment existing at the time of such acquisition, or a Lien
incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease; provided, that:

                  (a) any property subject to any of the foregoing is acquired
         by the Borrower in the ordinary course of its business and the Lien on
         any such property is created contemporaneously with such acquisition;

                  (b) the Debt secured by any Lien so created, assumed or
         existing shall not exceed one hundred percent (100%) of the lesser of
         cost or fair market value as of the time of acquisition of the property
         covered thereby;

                  (c) each such Lien shall attach only to the property so
         acquired and fixed improvements thereon;

                  (d) the aggregate amount of all such Debt secured by all such
         Liens at any time shall be equal to or less than Two Hundred Fifty
         Thousand Dollars ($250,000);

                  (9) deposits of cash or securities with or on behalf of state
insurance departments reflected in the Insurance Subsidiaries' Statutory
Financial Statements;

                  (10) deposits of cash or securities by the Borrower with
Lloyd's of London.

                  Section 8.04. Sale of Assets. Sell, lease, assign, transfer or
otherwise dispose of, or permit any Subsidiary to sell, lease, assign, transfer,
or otherwise dispose of, any of its now owned or hereafter acquired assets,
except for: (1) cash and investment securities disposed of for purposes of
reinvestment or to pay claims, taxes and expenses in the ordinary course of
business or, in the case of any Subsidiary, to pay a dividend; or (2) the sale
or other disposition of tangible personal property which has become economically
obsolete or which has been replaced.

                  Section 8.05. Transactions with Affiliates. Enter into any
transaction, or permit any Subsidiary to enter into any transaction, including,
without limitation, the purchase, sale or exchange of property or the rendering
of any service,


                                       72
<PAGE>   79


with any of its Affiliates or enter into any transaction, or permit any
Subsidiary to enter into any transaction, including, without limitation, the
purchase, sale or exchange of property or the rendering of any service, with any
of its Affiliates, except in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary
than it would obtain in a comparable arm's-length transaction with a Person not
an Affiliate of the Borrower or such Subsidiary, as the case may be.

                  Section 8.06. Mergers. Enter into a merger or consolidate
with, wind up, liquidate or dissolve its affairs, or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
to, any Person, or acquire (whether by purchase, lease or otherwise) all or
substantially all of the assets or the business of any Person (or enter into any
agreement to do any of the foregoing), or permit any of its Subsidiaries to do
any of the foregoing, except that any of the Somerset Companies can merge into
another Somerset Company.

                  Section 8.07. Leases. Create, incur, assume, or suffer to
exist, or permit any of its Subsidiaries to create, incur, assume, or suffer to
exist, any obligation as lessee for the rental or hire of any real or personal
property except: (1) Capital Leases permitted under Section 8.03(8), and (2) in
addition to leases permitted under exception (1), leases that do not in the
aggregate require the Borrower and its Subsidiaries to make payments (including
taxes, insurance, maintenance, and similar expenses which the Borrower is
required to pay under the terms of the lease but excluding all payments based
upon a percentage of sales or revenues) in any Fiscal Year in excess of Two
Million Dollars ($2,000,000).

                  Section 8.08. Investments. Permit any Insurance Subsidiary to
have or maintain (1) investments (other than investments in Investment Grade
securities) in capital stock and/or securities with an aggregate Fair Market
Value greater than seven and one-half percent (7 1/2%) of the Fair Market Value
of all investments owned by such Insurance Subsidiary, or (2) investments in
mortgages (for the avoidance of doubt, not to include mortgage-backed securities
which are Investment Grade) or real estate, or (3) investments which are other
than in accordance with the Investment Guidelines.

                  Make, or permit any Subsidiary to make, any loan or advance to
any Person, or purchase or otherwise acquire, or permit any Subsidiary to
purchase or otherwise acquire, any capital stock, assets, obligations, or other
securities of, make any capital contributions to, or otherwise invest in or


                                       73
<PAGE>   80

acquire any interest in any Person, except (1) in the case of the Borrower or
any Subsidiary of the Borrower other than an Insurance Subsidiary, Permitted
Investments, (2) in the case of any Insurance Subsidiary, any such transaction
which is otherwise in accordance with the Investment Guidelines, (3) the
Borrower may make loans to any person that is its or its Subsidiary's employee
so long as the aggregate amount of all such loans, taken together with the
aggregate amount of any and all obligations of all such person guaranteed by the
Borrower pursuant to the first proviso to Section 8.02 outstanding at any time
do not in the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000),
and (4) in the case of Borrower or any Subsidiary of the Borrower an aggregate
total investment for the Borrower and all of its Subsidiaries taken together of
up to Two Million Dollars ($2,000,000) in NCUL; provided, however, for purposes
of this Section 8.08, Letters of Credit issued hereunder shall not constitute an
investment in NCUL.

                  Section 8.09. Fiscal Year. Change, or permit any Subsidiary to
change, its fiscal year to a period other than its fiscal year in effect on the
date hereof.

                  Section 8.10. Changes, Amendments or Modifications. Change,
amend, modify or supplement any of the following: (1) its certificate of
incorporation; or (2) its by-laws.

                  Section 8.11. Changes in Business. Engage in any business
other than (1) the ownership of the capital stock of Navigators, Navigators
Corporate Underwriters Limited, Riverside Underwriters plc, Somerset Marine (UK)
Limited, the Somerset Companies and Somerset Marine Aviation Property Managers,
Inc., a New Jersey corporation, (2) provisions of management services to its
Subsidiaries, and (3) entering into and performing its obligations under this
Agreement and the other Loan Documents, or permit the Subsidiaries to engage in
any business other than the Existing Lines of Business.

                  Section 8.12. Capital Expenditures. The Borrower and its
Subsidiaries together will not incur Capital Expenditures in excess of One
Million Dollars ($1,000,000) in the aggregate in any Fiscal Year.

                  Section 8.13. Reinsurance. Cause or permit an Insurance
Subsidiary to (1) enter into any Surplus Relief Reinsurance Transaction; (2)
enter into or maintain, as a cedent, Reinsurance Agreements or Retrocession
Agreements with any Person other than an Approved Reinsurer; (3) enter into or
maintain, as a cedent, Reinsurance Agreements or Retrocession Agreements with
any Approved Reinsurer which by their terms would result in any such Approved
Reinsurer having exposure in a Maximum Potential Loss exceeding (in the
aggregate, with respect to such Approved Reinsurer) an amount equal to such
Reinsurer's Permitted Reinsurance Percentage of the



                                       74
<PAGE>   81


consolidated surplus as regards policyholders of the Insurance Subsidiaries,
determined in accordance with SAP and as reflected in the most recent
consolidated statutory financial statements of the Insurance Subsidiaries
delivered pursuant to Section 7.08(1)(c) or 7.08(2)(iii); or (4) assume
reinsurance which would result in the percentage of the consolidated gross
premium written of the Insurance Subsidiaries, in any Fiscal Quarter,
attributable to reinsurance assumed to exceed thirty percent (30%).

                  Section 8.14. Stock of Subsidiaries. Sell or otherwise dispose
of (including the granting of any security interest in) any shares of capital
stock of any Subsidiary other than pursuant to the Borrower Pledge Agreement or
Borrower Pledge Agreement (Navigators), or permit any Subsidiary to issue
additional shares of its capital stock, except the minimum number of directors'
qualifying shares required by Law.

                         ARTICLE IX. FINANCIAL COVENANTS

                  So long as any of the Revolving Credit Notes shall remain
unpaid or any Lender shall have any Commitment hereunder or any Letter of Credit
remains outstanding, or any other amount is owing by the Borrower to any Lender
Party hereunder or under any other Loan Document:

                  Section 9.01. Minimum Consolidated Tangible Net Worth. The
Borrower and its Consolidated Subsidiaries shall maintain at all times a
Consolidated Tangible Net Worth of not less than the greatest of (1) One Hundred
Million Dollars ($100,000,000), (2) ninety percent (90%) of the Consolidated
Tangible Net Worth as of the end of the prior Fiscal Year, or (3) the total of
(a) the Consolidated Tangible Net Worth as of the end of the prior Fiscal Year,
plus (b) the greater of (i) sixty percent (60%) of the Consolidated Net Income
for the period from the first day of such current Fiscal Year to the date of
determination, or (ii) zero Dollars ($0), less (c) any negative change on or
after the first day of such current Fiscal Year in the adjustment to equity as
required by the Financial Accounting Standards Board Rule 115.

                  Section 9.02. Navigators' and NIC's Statutory Surplus. The
Borrower will not permit during any period specified below the sum of (1) the
Statutory Surplus of Navigators (exclusive of any investment in NIC), plus (2)
the Statutory Surplus of NIC to be less than the amount specified below for such
period:

                                       75
<PAGE>   82


<TABLE>
<CAPTION>
                Period                               Minimum Amount
                ------                               --------------
<S>                                                  <C>
January 1, 1996 to December 31, 1996                 $ 84,000,000
January 1, 1997 to December 31, 1997                 $ 88,000,000
January 1, 1998 to December 31, 1998                 $ 92,000,000
January 1, 1999 to December 31, 1999                 $ 96,000,000
January 1, 2000 to December 31, 2000                 $100,000,000
January 1, 2001 to December 31, 2001                 $104,000,000
January 1, 2002 to December 31, 2002                 $108,000,000
</TABLE>

                  Section 9.03. Fixed Charge Coverage Ratio. The Borrower will
have for each period specified below a ratio of (1) the sum of (a) Navigators'
Allowable Dividends as of the end of such period, plus (b) Somerset Earnings
Before Depreciation for such period, plus (c) Borrower Earnings Before
Depreciation for such period, plus (d) Net Tax Payment for such period, to (2)
the sum of (a) Consolidated Current Portion of Long Term Debt as of the first
day of such twelve (12) month period, plus (b) Borrower Expenses for such
period, plus (c) the projected interest expense of the Borrower and all of its
Subsidiaries for the next twelve (12) months where it is assumed that all Debt
outstanding on such date will remain outstanding for such twelve (12) month
period and the interest rate on all such Debt for such twelve (12) month period
is a fixed rate equal to the LIBOR Interest Rate plus the Applicable Margin with
an Interest Period of three (3) months in effect on the day before the first day
of such twelve (12) month period, plus (d) Projected Dividends, of not less than
the ratio below for such period:

<TABLE>
<CAPTION>
         Period                                                      Ratio
         ------                                                      -----
<S>                                                                <C>
         For the four quarters (taken together as
         a whole) ending on each Quarterly Date
         during the period from and including the
         Second Closing Date to and including
         December 31, 2000                                         1.75 to 1.00

         For the eight quarters (taken together as
         a whole) ending on each Quarterly Date
         occurring on or after March 31, 2001                      1.00 to 1.00
</TABLE>

                  Section 9.04. Minimum Liquidity of Borrower. The Borrower will
have at all times Borrower Liquid Assets of not less than Two Million Dollars
($2,000,000).

                  Section 9.05. Loss Reserves. The Borrower will not permit the
ratio of (i) Loss Reserves of any Insurance Subsidiary to (ii) Statutory Surplus
of such Insurance Subsidiary as of the last day of any Fiscal Quarter to be
greater than 3.00 to 1.


                                       76
<PAGE>   83


                  Section 9.06. Minimum Consolidated Net Income. The Borrower
and its Consolidated Subsidiaries will have for each Fiscal Year a Consolidated
Net Income of not less than Eight Million Dollars ($8,000,000).

                  Section 9.07. Risk Based Capital Ratio. The Total Adjusted
Capital (as defined in the Risk-Based Capital for Insurers Model Act as adopted,
amended or modified from time to time by the NAIC (the "RBC Model Act") of each
of the Insurance Subsidiaries shall not, at any time, be less than three hundred
percent (300%) of the Authorized Control Level RBC (as defined in the RBC Model
Act).

                  Section 9.08. Ratio of Navigators' to NIC's Statutory Surplus.
The Borrower will not permit the Statutory Surplus of NIC at any time to exceed
twenty-five percent (25%) of the Statutory Surplus of Navigators.

                  Section 9.09. Consolidated Underwriting Losses to Consolidated
Tangible Net Worth. The Borrower and its Consolidated Subsidiaries will not have
during any Fiscal Year or Quarterly Period an absolute value (ie. to the extent
the number is a negative number it is treated as a positive number) of
Consolidated Underwriting Losses of greater than fifteen percent (15%) of
Consolidated Tangible Net Worth as of the start of such period.

                  Section 9.10. Gross Premiums Written to Consolidated Tangible
Net Worth. The Borrower will not have during any four quarters (taken as a
whole) Gross Premiums Written that exceed two hundred seventy-five percent
(275%) of its Consolidated Tangible Net Worth as of the last day of such period.

                          ARTICLE X. EVENTS OF DEFAULT

                  Section 10.01. Events of Default. Any of the following events
shall be an "Event of Default":

                  (1) the Borrower shall: (a) fail to pay the principal of any
Note as and when due and payable; (b) fail to pay interest on any Note within
two (2) Business Days of when such interest is due and payable; (c) fail to
reimburse the Issuing Bank on the Letter of Credit or shall fail to pay the
Letter of Credit Fee within two (2) Business Days of when such reimbursement or
Fee is due and payable; or (d) fail to pay within ten (10) days after the
request for payment is made any fees or expenses required to be paid under the
terms of any of the Loan Documents;

                  (2) any representation or warranty made or deemed made by the
Borrower in this Agreement or in any other Loan Document or which is contained
in any certificate, document,


                                       77
<PAGE>   84


opinion, financial or other statement furnished at any time under or in
connection with any Loan Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made;

                  (3) the Borrower shall fail to perform or observe any other
term, covenant or agreement contained in Article VIII or Article IX or Section
7.05 or 7.08(7) on its part to be performed or observed; or the Borrower shall
fail to perform or observe any term, covenant or agreement contained in Article
VII (other than Section 7.05 or 7.08(7)) or otherwise contained in this
Agreement or any Loan Document (other than obligations specifically referred to
elsewhere in this Section 10.01) to which it is a party on its part to be
performed or observed and such failure shall remain unremedied for thirty (30)
days after the occurrence thereof;

                  (4) the Borrower or any of its Subsidiaries shall: (a) fail to
pay all or any portion of a Debt (other than (x) the payment obligations
described in (1) above, or (y) any Debt when the aggregate outstanding amount of
such Debt is Fifty Thousand Dollars ($50,000) or less, or (z) in the case where
such Debt is of the type covered by Section 8.01(2), such Debt is not more than
forty-five (45) days past due), of the Borrower or such Subsidiary when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise); or (b) fail to perform or observe any term, covenant or condition on
its part to be performed or observed under any agreement or instrument relating
to any of the Debt described in the immediately preceding clause (a), when
required to be performed or observed, if the effect of such failure to perform
or observe is to accelerate, or to permit the acceleration of, after the giving
of notice or the lapse of time, or both, of the maturity of such Debt, whether
or not such failure to perform or observe shall be waived by the holder of such
Debt; or any such Debt shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof;

                  (5) the Borrower or any of its Subsidiaries: (a) shall
generally not, or be unable to, or shall admit in writing its inability to, pay
its debts as such debts become due; or (b) shall make an assignment for the
benefit of creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(c) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, rehabilitation, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or (d)
shall have had any such petition or application filed or any such proceeding
shall have been commenced, against it, in which an adjudication or appointment
is made or order for relief is



                                       78
<PAGE>   85

entered, or which petition, application or proceeding remains undismissed or
unstayed for a period of sixty (60) days or more; or shall be the subject of any
proceeding under which its assets may be subject to seizure, forfeiture or
divestiture; or (e) by any act or omission shall indicate its consent to,
approval of or acquiescence in any such petition, application or proceeding or
order for relief or the appointment of a custodian, receiver, rehabilitator,
liquidator or trustee for all or any substantial part of its property; or (f)
shall suffer any such custodianship, receivership, rehabilitation, liquidation
or trusteeship to continue undischarged for a period of sixty (60) days or more;

                  (6) one or more judgments, decrees or orders for the payment
of money in excess of Fifty Thousand Dollars ($50,000) in the aggregate shall be
rendered against the Borrower or any of its Subsidiaries, and such judgments,
decrees or orders shall continue unsatisfied and in effect for a period of
thirty (30) days without being vacated, discharged, satisfied or stayed or
bonded pending appeal;

                  (7) any of the following events shall occur or exist with
respect to the Borrower or any of its Subsidiaries or any ERISA Affiliate: (a)
any Prohibited Transaction which could subject the Borrower or any of its
Subsidiaries, or any entity which they have an obligation to indemnify, to any
tax or penalty imposed under Section 4975 of the Code or Section 502(i) of
ERISA; (b) any Reportable Event shall occur with respect to any Plan; (c) the
filing under Section 4041 of ERISA of a notice of intent to terminate any Plan
or the termination of any Plan; (d) any event or circumstance exists which might
constitute grounds entitling the PBGC to institute proceedings under Section
4042 of ERISA for the termination of, or for the appointment of a trustee to
administer, any Plan, or the institution by the PBGC of any such proceedings;
(e) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization (within the meaning of Section 4241 of
ERISA), insolvency (within the meaning of Section 4245 of ERISA), or termination
of any Multiemployer Plan; (f) (within the meaning of Section 4241 of ERISA) an
accumulated funding deficiency (as defined in Section 302 of ERISA or section
412 of the Code) exists with respect to a Plan, whether or not waived; (g) the
imposition of liability to enforce Section 515 of ERISA; (h) the failure of a
Plan intended to qualify under Section 401(a) or 401(k) of the Code to so
qualify; or (i) a lien arises or a security interest is given in connection with
a Plan; and in each case above, such event or condition, together with all other
events or conditions, if any, could in the opinion of the Agent or any Lender
subject the Borrower or any ERISA Affiliate to any tax, penalty, or other
liability to a Plan, Multiemployer Plan, the PBGC, or otherwise (or any
combination thereof) which in


                                       79
<PAGE>   86

the aggregate exceeds or could reasonably be expected to exceed One Hundred
Thousand Dollars ($100,000);

                  (8) the Borrower Pledge Agreement or the Borrower Pledge
Agreement (Navigators), shall at any time and for any reason cease: (a) to
create a valid and perfected first priority Lien in and to the property
purported to be subject to the Borrower Pledge Agreement or the Borrower Pledge
Agreement (Navigators), as the case may be; or (b) to be in full force and
effect or shall be declared null and void, or the validity or enforceability
thereof shall be contested by the Borrower, or the Borrower shall deny it has
any further liability or obligation under the Borrower Pledge Agreement or the
Borrower Pledge Agreement (Navigators), as the case may be, or the Borrower
shall fail to perform any of its obligations under the Borrower Pledge Agreement
or the Borrower Pledge Agreement (Navigators), as the case may be; or any Lien
under the Borrower Pledge Agreement or the Borrower Pledge Agreement
(Navigators), as the case may be shall at any time and for any reason cease to
be a first priority Lien on the property subject to such Lien;

                  (9) Terence N. Deeks shall at any time cease to hold the
office of Chief Executive Officer of the Borrower or shall cease to be actively
involved in the operation of the Borrower, unless within ninety (90) days of
such event the Borrower hires or promotes a Person with the skills and abilities
to perform the functions previously performed by Terence N. Deeks, and such
Person is approved by the Required Lenders in their sole discretion;

                  (10) Terence N. Deeks shall at any time own, or exercise
voting control of, less than thirty-three and one third percent (33 1/3%) of the
issued and outstanding voting stock of the Borrower, or any other Person shall
at any time own, or exercise voting control of, thirty-three and one third
percent (33 1/3%) or more of the issued and outstanding voting stock of the
Borrower;

                  (11) if any term or provision of the Counter Indemnity
Agreement shall at any time and for any reason cease to be in full force and
effect or shall be declared null and void, or the validity or enforceability
thereof shall be contested by NCUL, or NCUL shall deny it has any further
liability or obligations under such Counter Indemnity Agreement or NCUL shall
fail to perform any of its obligations under such Counter Indemnity Agreement;

                  (12)  if at any time Navigators or NIC is not rated
"A-" or better by A.M. Best;

                  (13)  if during any four consecutive Fiscal Quarters
the portion of the Consolidated Net Income derived from either


                                       80
<PAGE>   87


(a) Navigators or (b) the Somerset Companies, Somerset Marine (UK) Limited, and
NCUL (taken as a whole) is less than twenty percent (20%) of the total sources
of such Consolidated Net Income;

                  (14) if at any time the Borrower or any of its Subsidiaries
incurs or becomes subject to action or threatened action of any Governmental
Authority, including, without limitation, a fine, penalty, cease and desist
order or revocation, suspension or limitation of a License, the effect of which
could reasonably be expected to result in a Material Adverse Change; or

                  (15)  there shall occur a Material Adverse Change.

                  Section 10.02. Remedies. If any Event of Default shall occur
and be continuing, the Agent shall, upon request of the Required Lenders, by
notice to the Borrower, (1) declare the Revolving Credit Commitment to be
terminated, whereupon the same shall forthwith terminate; (2) declare the
outstanding Notes, all interest thereon, and all other amounts payable under
this Agreement, and any other Loan Documents to be forthwith due and payable,
whereupon the Notes, all such interest, and all such amounts due under this
Agreement, and under any other Loan Document shall become and be forthwith due
and payable, without presentment, demand, protest, or further notice of any
kind, all of which are hereby expressly waived by the Borrower; (3) require the
Borrower to provide Cash Collateral in the aggregate face amount of all
outstanding Letters of Credit; (4) exercise any remedies provided in any of the
Loan Documents; and/or (5) exercise any remedies provided by Law; provided,
however, that upon the occurrence of an Event of Default referred to in Section
10.01(5), the Revolving Credit Commitment shall automatically terminate and the
outstanding Notes and any other amounts payable under this Agreement or any of
the other Loan Documents, and all interest on any of the foregoing shall be
forthwith due and payable without presentment, demand, protest or further notice
of any kind, all of which are hereby expressly waived by the Borrower.

                              ARTICLE XI. THE AGENT

                  Section 11.01. Appointment, Powers and Immunities of the
Agent. Each Lender hereby irrevocably appoints and authorizes the Agent to act
as its agent hereunder and under any other Loan Document with such powers as are
specifically delegated to the Agent by the terms of this Agreement and any other
Loan Document, together with such other powers as are reasonably incidental
thereto. The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and any other Loan Document, and shall not
by reason of this Agreement be a trustee for any Lender. The Agent shall


                                       81
<PAGE>   88

not be responsible to the Lenders for any recitals, statements, representations
or warranties made by the Borrower or any officer or official of the Borrower or
any other Person contained in this Agreement or any other Loan Document, or in
any certificate or other document or instrument referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document, or
for the value, legality, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document or any other document
or instrument referred to or provided for herein or therein, for the perfection
or priority of any Lien securing the Borrower's obligations hereunder or
thereunder or for any failure by the Borrower to perform any of its obligations
hereunder or thereunder. The Agent may employ agents and attorneys-in-fact and
shall not be responsible, except as to money or securities received by it or its
authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any
of its partners, directors, officers, employees or agents shall be liable or
responsible for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith, except
for its or their own gross negligence or willful misconduct. The Borrower shall
pay any fee agreed to by the Borrower and the Agent with respect to the Agent's
services hereunder.

                  Section 11.02. Reliance by the Agent. The Agent shall be
entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telecopy, telex, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by the Agent.
The Agent may deem and treat each Lender as the holder of the Loans made by it
for all purposes hereof. As to any matters not expressly provided for by this
Agreement or any other Loan Document, the Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Lenders, and such instructions of the
Required Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders and any other holder of all or any portion of
any Loan.

                  Section 11.03. Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default or Event of Default unless the Agent
has received notice from a Lender or the Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of Default." In the
event that the Agent receives such a notice of the occurrence of a Default or
Event of Default, the Agent shall give prompt notice thereof to the Lenders. The
Agent shall


                                       82
<PAGE>   89

(subject to Section 11.07) take such action with respect to such Default or
Event of Default which is continuing as shall be directed by the Required
Lenders; provided, that, unless and until the Agent shall have received such
directions, the Agent may take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable in
the best interest of the Lenders; provided, further, that the Agent shall not be
required to take any such action which it determines to be contrary to Law.

                  Section 11.04. Rights of the Agent as a Lender. With respect
to its Commitment and the Loans provided by it, the Agent in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the Agent, and
the term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its capacity as a Lender. The Agent and its affiliates may
(without having to account therefor to any Lender) accept deposits from, lend
money to (on a secured or unsecured basis), and generally engage in any kind of
banking, trust or other business with the Borrower and any of its Affiliates as
if it were not acting as the Agent, and the Agent may accept fees and other
consideration from the Borrower for services in connection with this Agreement
or otherwise without having to account for the same to the Lenders.

                  Section 11.05. Indemnification of the Agent. Each Lender
agrees to indemnify the Agent (to the extent not reimbursed under Section 12.03
or under the applicable provisions of any other Loan Document, but without
limiting the obligations of the Borrower under Section 12.03 or such provisions)
and its officers, directors, partners, employees and agents, for such Lender's
Pro Rata Share of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement, any
other Loan Document or any other documents contemplated by or referred to herein
or the transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses which the Borrower are obligated to pay under
Section 12.03) or under the applicable provisions of any other Loan Document or
the enforcement of any of the terms hereof or thereof or of any such other
documents or instruments; provided, that no Lender shall be liable for any of
the foregoing to the extent they arise from (1) the gross negligence or willful
misconduct of the Agent or (2) a dispute between or among the Agent and one or
more Lenders.

                  Section 11.06. Non-Reliance on the Agent and the other
Lenders. Each Lender agrees that it has, independently and without reliance on
the Agent or any other Lender, and


                                       83
<PAGE>   90


based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Borrower and the decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any other Loan Document. The
Agent shall not be required to keep itself informed as to the performance or
observance by the Borrower of this Agreement or any other Loan Document or any
other document referred to or provided for herein or therein or to inspect the
properties or books of the Borrower. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrower (or any of its Affiliates) which
may come into the possession of the Agent or any of its Affiliates. The Agent
shall not be required to file this Agreement, any other Loan Document or any
document or instrument referred to herein or therein, for record or give notice
of this Agreement, any other Loan Document or any document or instrument
referred to herein or therein, to anyone.

                  Section 11.07. Failure of the Agent to Act. Except for action
expressly required of the Agent hereunder, the Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall have received
further assurances (which may include cash collateral) of the indemnification
obligations of the Lenders under Section 11.05 in respect of any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.

                  Section 11.08. Resignation or Removal of the Agent. Subject to
the appointment and acceptance of a successor Agent as provided below, the Agent
may resign at any time by giving written notice thereof to the Lenders and the
Borrower, and the Agent may be removed at any time with or without cause by the
Required Lenders; provided, that the Borrower and the other Lenders shall be
promptly notified thereof. Upon any such resignation or removal, the Required
Lenders shall have the right to appoint a successor Agent. If no successor Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within thirty (30) days after the retiring Agent's giving of
notice of resignation or the Required Lenders' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Lenders, appoint a successor
Agent, which shall be a bank which has an office in New York, New York. The
Required Lenders or the retiring Agent, as the case may be, shall upon the
appointment of a successor Agent promptly so notify the Borrower and the other
Lenders. Upon the acceptance of any appointment as the Agent


                                       84
<PAGE>   91


hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation or removal
hereunder as the Agent, the provisions of this Article XI shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent.

                  Section 11.09. Amendments Concerning Agency Function. The
Agent shall not be bound by any waiver, amendment, supplement or modification of
this Agreement or any other Loan Document which affects its duties hereunder or
thereunder unless it shall have given its prior written consent thereto.

                  Section 11.10. Liability of the Agent. The Agent shall not
have any liabilities or responsibilities to the Borrower on account of the
failure of any Lender to perform its obligations hereunder or to any Lender on
account of the failure of the Borrower to perform its obligations hereunder or
under any other Loan Document.

                  Section 11.11. Transfer of Agency Function. Without the
consent of the Borrower or any Lender, the Agent may at any time or from time to
time transfer its functions as the Agent hereunder to any of its offices
wherever located; provided, that the Agent shall promptly notify the Borrower
and the Lenders thereof.

                           ARTICLE XII. MISCELLANEOUS

                  Section 12.01. Amendments and Waivers. No amendment or waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Required Lenders and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of the Agent or any Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof or preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by Law.

                  Section 12.02. Usury. Anything herein to the contrary
notwithstanding, the obligations of the Borrower under this Agreement and the
Notes shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
Law


                                       85
<PAGE>   92


applicable to a Lender limiting rates of interest which may be charged or
collected by such Lender.

                  Section 12.03. Expenses; Indemnification. The Borrower agrees
to reimburse the Agent, on demand for all costs, expenses, and charges
(including, without limitation, out-of-pocket costs and all reasonable fees and
charges of external legal counsel for the Agent, but not the legal fees for
internal or external legal counsel of the Lenders) incurred by the Agent, in
connection with the preparation of the Loan Documents. The Borrower agrees to
reimburse the Agent and each of the Lenders on demand for all costs, expenses,
and charges (including, without limitation, out-of-pocket costs and all
reasonable fees and charges of internal and external legal counsel for the Agent
and each Lender) incurred by the Agent or Lender in connection with the
performance, or enforcement of this Agreement, the Notes, or any other Loan
Documents. The Borrower agrees to indemnify the Agent and each Lender and their
respective directors, officers, partners, employees and agents from, and hold
each of them harmless against, any and all losses, liabilities, claims, damages
or expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to any actual or
proposed use by the Borrower of the proceeds of the Loans or to any violation or
alleged violation of any Environmental Law by the Borrower, including, without
limitation, the reasonable fees and disbursements of internal and external
counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
the Person to be indemnified). If any taxes (excluding taxes imposed upon or
measured by the net income of any Lender) shall be payable on account of the
execution or delivery of this Agreement or the creation of any of the
obligations hereunder by reason of any existing federal or state statute, the
Borrower will pay all such taxes, including any interest and penalties thereon,
and will indemnify and hold the Lenders harmless from and against liability in
connection therewith.

                  The Borrower authorizes the Agent to debit any of its accounts
maintained with the Agent, any Lender or the Issuing Bank for any fees and
expenses owing to the Agent, any Lender or the Issuing Bank under the terms and
provisions of this Agreement; provided, however, the Agent shall promptly notify
the Borrower in the case of each such debit; provided, further, the Agent's
failure to give such notice shall not affect the validity thereof.

                  The obligations of the Borrower under this Section 12.03 shall
survive the repayment of the Loans and all amounts


                                       86
<PAGE>   93

due under or in connection with any of the Loan Documents and the termination of
the Commitments.

                  Section 12.04. Assignment; Participation. This Agreement shall
be binding upon, and shall inure to the benefit of, the Borrower, the Agent, the
Lenders and their respective successors. Neither the Borrower nor the Lenders
may assign or transfer their respective rights or obligations hereunder. Except
as provided in Section 12.06, none of the Lenders may sell participations in its
rights, duties and obligations under this Agreement or any of the other Loan
Documents.

                  Section 12.05. Notices. Unless the party to be notified
otherwise notifies the other party in writing as provided in this Section 12.05,
and except as otherwise provided in this Agreement, notices shall be given to
the Agent by telephone, confirmed in writing and delivered by hand or confirmed
telecopier, and to the Lenders and to the Borrower by written notice delivered
by hand, overnight courier service or confirmed telecopier addressed to such
party at its address on the signature page of this Agreement. Notices shall be
effective upon receipt.

                  Section 12.06. Setoff. The Borrower agrees that, in addition
to (and without limitation of) any right of setoff, bankers' lien or
counterclaim a Lender may otherwise have, each Lender shall be entitled, at its
option, to offset balances (general or special, time or demand, provisional or
final) held by it for the account of the Borrower at any of such Lender's
offices, in Dollars or in any other currency, against any amount payable by the
Borrower to such Lender under this Agreement or any of such Lender's Notes, or
any other Loan Document which is not paid when due (regardless of whether such
balances are then due to the Borrower), in which case it shall promptly notify
the Borrower and the Agent thereof; provided, that such Lender's failure to give
such notice shall not affect the validity thereof. Each Lender agrees that to
the extent any such payment is received by it as the result of a set-off or
otherwise and such payment results in such Lender receiving a greater payment
than it would have been entitled to, had the total amount of such payment been
paid directly to the Agent for disbursement to the Lenders, then such Lender
shall immediately purchase for cash from the other Lenders participations in the
loans sufficient in amount so that such payment shall effectively be shared pro
rata with the other Lenders in accordance with the amount, and to the extent, of
their respective interests in all the Loans; provided, however, that, if all or
any portion of such payment is thereafter recovered from such Lender at any
time, the purchase shall be rescinded and the purchase price returned to the
extent of such recovery, but without interest or other return thereon.

                                       87
<PAGE>   94

                  Section 12.07. Jurisdiction; Immunities. The Borrower hereby
irrevocably submits to the jurisdiction of any New York State or United States
Federal court sitting in New York City over any action or proceeding arising out
of or relating to this Agreement, the Notes or any other Loan Document, and the
Borrower hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State or Federal court.
The Borrower irrevocably consents to the service of any and all process in any
such action or proceeding by the mailing of copies of such process to the
Borrower at its address specified in Section 12.05. The Borrower agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. The Borrower further waives any objection to venue in such
State and any objection to an action or proceeding in such State on the basis of
forum non convenience. The Borrower agrees that any action or proceeding brought
against the Agent or any Lender shall be brought only in New York State or
United States Federal court sitting in New York County.

                  Nothing in this Section 12.07 shall affect the right of the
Agent or any Lender to serve legal process in any other manner permitted by law
or affect the right of the Agent or any Lender to bring any action or proceeding
against the Borrower or its property in the courts of any other jurisdictions.

                  To the extent that the Borrower has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
from service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, the
Borrower hereby irrevocably waives such immunity in respect of its obligations
under this Agreement, the Notes, and any other Loan Document.

                  Section 12.08. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed entirely within such State.

                  Section 12.09. Counterparts. This agreement may be executed by
the parties hereto in separate counterparts, each of which, when so executed and
delivered, shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof, each signed by less than all, but together signed by all of
the parties hereto.

                  Section 12.10. Exhibits and Schedules. The Exhibits and
Schedules hereto are a part of this Agreement as if fully set forth herein. All
references herein to Sections,


                                       88
<PAGE>   95


subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.

                  Section 12.11. Table of Contents; Headings. The headings in
the Table of Contents and in this Agreement are for reference only, and shall
not affect the interpretation or construction of this Agreement.

                  Section 12.12. Severability. If any word, phrase, sentence,
paragraph, provision or section of this Agreement shall be held, declared,
pronounced or rendered invalid, void, unenforceable or inoperative for any
reason by any court of competent jurisdiction, governmental authority, statute
or otherwise, such holding, declaration, pronouncement or rendering shall not
adversely affect any other word, phrase, sentence, paragraph, provision or
section of this Agreement, which shall otherwise remain in full force and effect
and be enforced in accordance with its terms.

                  Section 12.13. Integration. The Loan Documents set forth the
entire agreement among the parties hereto relating to the transactions
contemplated thereby and supersede any prior oral or written statements or
agreements with respect to such transactions.

                  Section 12.14. Prior Regulatory Approvals. The parties hereto
understand and agree that neither the Agent nor the Lender may exercise control
over NIC without prior approval of the New York Insurance Department in
accordance with the New York Insurance Law.


                           [INTENTIONALLY LEFT BLANK.]



                                       89
<PAGE>   96


                  THE BORROWER WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL.

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

                                            THE NAVIGATORS GROUP, INC.,
                                              as Borrower

                                            By
                                               -------------------------------
                                                Name:
                                                Title:

                                            Address for Notices:
                                            123 William Street
                                            New York, New York 10038
                                            Attention:  Chief Financial Officer
                                            Telecopy No.: (212) 406-3042

                                            per pro BROWN BROTHERS HARRIMAN &
                                            CO., as Lender

                                            By
                                               -------------------------------
                                               Name:

                                            Applicable Lending Office for
                                            Revolving Credit Loans and Address
                                            for Notices:

                                            59 Wall Street
                                            New York, New York 10005
                                            Attention:  Commercial Credit
                                                          Department


                                            NBD BANK, as Lender



                                            By
                                               -------------------------------
                                              Name:
                                              Title:

                                [SIGNATURE PAGE]

<PAGE>   97

                                            Applicable Lending Office for
                                            Revolving Credit Loans and Address
                                            for Notices:

                                            611 Woodward Avenue
                                            Detroit, Michigan 48226
                                            Telecopy No.: (313) 225-2649

                                            THE FIRST NATIONAL BANK OF CHICAGO,
                                              as Issuing Bank


                                            By
                                               -------------------------------
                                              Name:
                                              Title:

                                            Applicable Office for Letters of
                                            Credit:

                                            The First National Bank of Chicago
                                            Suite 0236
                                            Chicago, Illinois 60670
                                            Attn: LC Department

                                            Address for Notices:

                                            c/o NBD Bank
                                            611 Woodward Avenue
                                            Detroit, Michigan 48226
                                            Telecopy No.: (313) 225-2649


                                            FIRST UNION NATIONAL BANK OF
                                            NORTH CAROLINA, as Lender

                                            By
                                               -------------------------------
                                               Name:
                                               Title:


                                            Applicable Lending Office for
                                            Revolving Credit Loans and
                                            Addresses for Notices:

                                            One First Union Center
                                            301 South College Street DC-5
                                            Charlotte, North Carolina 28288-0735
                                            Attention: Jay S. Bullock


                                       91
<PAGE>   98


                                            per pro BROWN BROTHERS HARRIMAN &
                                            CO., as Agent


                                            By
                                               -------------------------------
                                               Name:

                                            Address for Notices:

                                            59 Wall Street
                                            New York, New York 10005
                                            Attention:  Commercial Credit
                                                        Department

                                             Telecopy No.:  (212) 493-7240



                                       92