Ninth
Amendment

to

First Restated Credit Agreement


 


This NINTH AMENDMENT
TO FIRST RESTATED CREDIT AGREEMENT (this “Ninth Amendment”), dated as of July 10, 2012, is among HALLMARK
FINANCIAL SERVICES, INC., a Nevada corporation (“Borrower”), American
Hallmark Insurance Company of Texas, a Texas insurance corporation (“AHIC”), HALLMARK INSURANCE COMPANY
(formerly known as Phoenix Indemnity Insurance Company), an Arizona insurance corporation (“HIC”), each other
Obligor, and FROST BANK (formerly known as The Frost National Bank), a Texas state bank (“Lender”).


 


RECITALS:


 


Borrower, AHIC, HIC,
and Lender have previously entered into the First Restated Credit Agreement dated as of January 27, 2006 (such agreement,
together with all amendments and restatements, the “Credit Agreement”).


 


Borrower has requested
an extension of the Termination Date and other amendments to the Credit Agreement.


 


Lender has agreed to
amend the Credit Agreement, subject to the terms of this Ninth Amendment.


 


AGREEMENT:


 


NOW, THEREFORE, in
consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:


 


ARTICLE I



Definitions


 


1.1           Definitions.
All capitalized terms not otherwise defined herein have the same meanings as in the Credit Agreement.


 


ARTICLE II



Amendments to Credit Agreement


 


2.1           Amendments
to Credit Agreement Section 1.1.


 


(a)          The
definition of “Revolving Facility L/C Expiration Date” is amended by deleting “May 27, 2012”
and substituting “September 30, 2012” in lieu thereof.


 


(b)          The
definition of “Termination Date” is deleted in its entirety and the following is substituted in lieu
thereof:


 


“Termination
Date” means September 30, 2012.


 



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ARTICLE III



Waiver


 


3.1           TGA
Security Agreement. TGA executed the Security Agreement dated January 30, 2006 (“TGA Security Agreement”),
in favor of Lender. TGA changed its name to TGA Insurance Managers, Inc. on November 12, 2007.


 


3.2           TGA
Security Agreement Section 5(f). TGA Security Agreement Section 5(f) provides that TGA will not change its
name unless TGA delivers to Lender written notice of such change at least thirty days prior to the effective date of such change.
TGA Insurance Managers, Inc. changed its name to Hallmark Specialty Underwriters, Inc. on March 12, 2012, and TGA did not
deliver notice of such change to Lender at least thirty days prior to the date of such change.


 


3.3           Credit
Agreement Section 9.1(d). Credit Agreement Section 9.1(d) provides that an Event of Default shall exist if
TGA shall fail to comply with any covenant of any Loan Document and such failure shall not be remedied within ten days. TGA’s
failure to comply with TGA Security Agreement Section 5(f) is an Event of Default.


 


3.4           Existing
Event of Default. The Event of Default described in Section 3.3 is the “Existing Default.”


 


3.5           Waiver.
Subject to satisfaction of the conditions precedent to effectiveness of this Ninth Amendment, Lender waives the Existing Default.


 


3.6           Limited
Waiver. The waiver provided in Section 3.5 does not constitute a waiver of any requirement of any Loan Document,
except as specifically waived hereby, or of any Default or Event of Default, now or hereafter existing, except the Existing Default.


 


ARTICLE IV



Conditions Precedent


 


4.1           Conditions.
The effectiveness of this Ninth Amendment is subject to the satisfaction of the following conditions precedent:


 


(a)          Documents.
Lender shall have received the following in number of counterparts and copies as Lender may request:


 


(i)          Ninth
Amendment. This Ninth Amendment executed by Borrower, each other Obligor and Lender.


 


(ii)         Seventh
Restated Revolving Note. The duly executed Seventh Restated Revolving Note, in the form of attached Exhibit A,
payable to the order of Lender and in an amount equal to the Revolving Commitment.


 


(iii)        Obligor
Proceedings. Evidence that all corporate, limited liability company and partnership proceedings of each Obligor and each other
Person (other than Lender) taken in connection with the transactions contemplated by this Ninth Amendment and the other Loan Documents
shall be reasonably satisfactory in form and substance to Lender; and Lender shall have received copies of all documents or other
evidence which Lender may reasonably request in connection with such transactions.


 



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(iv)        Expenses.
Reimbursement for reasonable Attorney Costs incurred through the date hereof.


 


(v)         Other
Documents. In form and substance satisfactory to Lender, such other documents, instruments and certificates as Lender may reasonably
require in connection with the transactions contemplated hereby.


 


(b)          No
Default. No Default or Event of Default shall exist after giving effect to this Ninth Amendment.


 


(c)          Representations
and Warranties.


 


(i)          All
of the representations and warranties contained in Article VIII of the Credit Agreement, as amended hereby, and in
the other Loan Documents shall be true and correct on and as of the date of this Ninth Amendment with the same force and effect
as if such representations and warranties had been made on and as of such date, except to the extent such representations and warranties
speak to a specific date.


 


(ii)         All
of the representations and warranties contained in Article VI shall be true and correct on and as of the date hereof
and subject to any waiver previously delivered by Lender to Borrower.


 


ARTICLE V



Ratification


 


5.1           Ratification.
(a) The terms and provisions set forth in this Ninth Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Credit Agreement and except as expressly modified and superseded by this Ninth Amendment, the terms and provisions
of the Credit Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Each
Obligor agrees that the Credit Agreement, as amended hereby, and the other Loan Documents to which it is a party or subject shall
continue to be legal, valid, binding and enforceable in accordance with their respective terms.


 


(b)          Notwithstanding
anything herein, in the Credit Agreement or in any other Loan Document to the contrary, any principal of the Revolving Loans that
became due and payable prior to the effectiveness of this Ninth Amendment shall be deemed not due and payable, except as and until
such principal may be or become due and payable after giving effect to this Ninth Amendment.


 


ARTICLE VI



Representations and Warranties






 


6.1           Representations
and Warranties of all Obligors. Each Obligor hereby represents and warrants to Lender that (a) the execution, delivery
and performance of this Ninth Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have
been authorized by all requisite action on the part of such Obligor and will not violate any organizational document of such Obligor,
(b) the representations and warranties contained in the Credit Agreement, as amended hereby, and each other Loan Document
are true and correct on and as of the date hereof as though made on and as of the date hereof, except to the extent such representations
and warranties speak to a specific date, (c) no Default or Event of Default exists either before (other than the Existing
Default) or shall exist after giving effect to this Ninth Amendment, and (d) such Obligor is in full compliance with all covenants
and agreements contained in the Credit Agreement, as amended hereby, and the other Loan Documents to which it is a party or it
or its property is subject.


 



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ARTICLE VII



Miscellaneous


 


7.1           Reference
to Credit Agreement. Each of the Loan Documents, including the Credit Agreement and any and all other agreements, documents,
or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement
as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement shall mean a reference
to the Credit Agreement as amended hereby.


 


7.2           Severability.
The provisions of this Ninth Amendment are intended to be severable. If for any reason any provision of this Ninth Amendment shall
be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in
any other jurisdiction or the remaining provisions hereof in any jurisdiction.


 


7.3           Counterparts.
This Ninth Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Ninth Amendment by signing any such counterpart.


 


7.4           GOVERNING
LAW. THIS NINTH AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS. THE LOAN DOCUMENTS ARE PERFORMABLE IN SAN ANTONIO, BEXAR COUNTY, TEXAS, AND BORROWER, EACH L/C RIC AND LENDER WAIVE
THE RIGHT TO BE SUED ELSEWHERE. BORROWER, EACH L/C RIC AND LENDER AGREE THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN SAN
ANTONIO, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS NINTH AMENDMENT AND THE OTHER LOAN DOCUMENTS.


 


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


 


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Executed as of the
date first written above.


 


	BORROWER:	HALLMARK FINANCIAL SERVICES, INC.
	 	 	 
	 	By:	 
	 	 	Jeffrey R. Passmore
	 	 	Chief Accounting Officer
	 	 	 
	L/C RICs:	AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS
	 	 
	 	HALLMARK INSURANCE COMPANY (formerly known as Phoenix Indemnity Insurance Company)
	 	 	 
	 	By:	 
	 	 	Jeffrey R. Passmore
	 	 	Chief Financial Officer 


 


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OTHER OBLIGORS:


 


ACO HOLDINGS, INC.

ALLRISK INSURANCE AGENCY, INC.

AMERICAN HALLMARK AGENCIES, INC.

AMERICAN HALLMARK GENERAL AGENCY, INC.

EFFECTIVE CLAIMS MANAGEMENT, INC.

HALLMARK CLAIMS SERVICE, INC.

HALLMARK FINANCE CORPORATION

AMERICAN HALLMARK INSURANCE SERVICES, INC. (formerly known as Hallmark General Agency, Inc.)


	HALLMARK UNDERWRITERS, INC.
	 
	By:	 	 
	 	Jeffrey R. Passmore
	 	Chief Financial Officer and Treasurer


 


AEROSPACE CLAIMS MANAGEMENT GROUP, INC.

AEROSPACE HOLDINGS, LLC


AEROSPACE SPECIAL RISK, INC.


HALLMARK SPECIALTY UNDERWRITERS, INC. (formerly known as

TGA Insurance Managers, Inc., and as Texas General Agency, Inc.)


TGA SPECIAL RISK, INC.


 


	By:	 	 
	 	Jeffrey R. Passmore 	 
	 	Vice President 	 
	 	 	 
	AEROSPACE FLIGHT, INC.	 
	 	 	 
	By:	 	 
	 	Cecil R. Wise 	 
	 	Secretary 	 
	 	 	 
	AEROSPACE INSURANCE MANAGERS, INC.	 
	 	 	 
	By:	 	 
	 	Jeffrey R. Passmore 	 
	 	Senior Vice President	 


 


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	PAN AMERICAN ACCEPTANCE	 
	CORPORATION	 
	 	 	 
	By:	 	 
	 	Jeffrey R. Passmore 	 
	 	Chief Financial Officer	 


 


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	LENDER:	FROST BANK
	 	(formerly known as The Frost National Bank)
	 	 
	 	By:	 
	 	Print Name:	 
	 	Print Title:	 


 


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Exhibit A



Revolving Note