LOAN AGREEMENT

                                 by and between

                                 KAYE GROUP INC.

                                       and

                                   SUMMIT BANK





                                  June 24, 1998






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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----


I. DEFINITIONS...............................................................  1
           1.1 Defined Terms.................................................  1


II.  LOANS ..................................................................  8
           2.1 Advances......................................................  8
           2.2 Procedure for Advances........................................  8
           2.3 Revolving Credit Note.........................................  8
           2.4 Interest Rate Under Revolving Credit Note.....................  8
           2.5 Payments Under Revolving Credit Note..........................  9
           2.6 Use of Proceeds of Advances...................................  9
           2.7 Optional Prepayments of Revolving Credit Note.................  9
           2.8 Mandatory Prepayment of Revolving Credit Note.................  9
           2.9 Acquisition Advances..........................................  9
           2.10 Procedure for Acquisition Advances...........................  9
           2.11 Acquisition Notes............................................ 10
           2.12 Interest Rate Under Acquisition Notes........................ 10
           2.13 Principal and Interest Payments Under Acquisition Notes...... 11
           2.14 Optional Prepayments of Acquisition Notes.................... 11
           2.15 Use of Proceeds of Acquisition Advances...................... 11
           2.16 Term Loan and Term Note...................................... 11
           2.17 Interest Rate Under Term Note................................ 11
           2.18 Principal and Interest Payments Under Term Note.............. 11
           2.19 Use of Proceeds of Term Loan................................. 12
           2.20 Optional Prepayments of Term Note............................ 12
           2.21 LIBOR Based Rate Loan Limitations............................ 12
           2.22 Interest Periods............................................. 12
           2.23 Conversion................................................... 12
           2.24 Alternate Interest Rate...................................... 13
           2.25 Indemnification For LIBOR Based Rate Loans................... 13
           2.26 Changes in Circumstances..................................... 13
           2.27 Additional Costs and Expenses................................ 14
           2.28 Method of Payment............................................ 15
           2.29 Business Day................................................. 15
           2.30 Charge....................................................... 16
           2.31 Bank Fees.................................................... 16
           2.32 Bank's Counsel Fees.......................................... 16


III. COLLATERAL SECURITY..................................................... 16
           3.1 Collateral Security........................................... 16


                                      -i-
<PAGE>

IV. REPRESENTATIONS AND WARRANTIES........................................... 17
           4.1 Controlling Shareholders; Subsidiaries........................ 17
           4.2 Organization; Power; Qualification............................ 17
           4.3 Authorization of Agreement.................................... 17
           4.4 No Legal Bar.................................................. 17
           4.5 Consent....................................................... 17
           4.6 Compliance With Law........................................... 18
           4.7 Title to Properties and Assets; Liens......................... 18
           4.8 No Default.................................................... 18
           4.9 No Litigation................................................. 18
           4.10 No Burdensome Restrictions................................... 18
           4.11 Tax Returns and Payments..................................... 19
           4.12 Financial Statements......................................... 19
           4.13 No Adverse Changes........................................... 19
           4.14 ERISA ....................................................... 19
           4.15 Federal Reserve Regulations.................................. 20
           4.16 Solvency..................................................... 20
           4.17 Accuracy and Completeness of Information..................... 20
           4.18 Permits...................................................... 21
           4.19 Year 2000 Compliance......................................... 21


V. COVENANTS................................................................. 21
           5.1 Preservation of Existence..................................... 21
           5.2 Nature of Business............................................ 21
           5.3 Compliance with Laws.......................................... 22
           5.4 Maintenance of Properties..................................... 22
           5.5 Accounting Methods............................................ 22
           5.6 Payment of Taxes and Claims................................... 22
           5.7 Visits and Inspections; Field Examinations.................... 22
           5.8 Information Covenants......................................... 23
                      (i) Annual Financial Statements........................ 23
                      (ii) Annual SAP Financial Statements................... 23
                      (iii) Quarterly SAP Statements......................... 24
                      (iv) SEC Filings....................................... 24
                      (v) Adequacy of Reserves............................... 24
                      (vi) Certificate....................................... 24
                      (vii) Copies of Other Reports.......................... 24
                      (viii) Notice of Litigation and Other Matters.......... 25
                      (ix) ERISA ............................................ 25
           5.9 Accuracy and Completeness of Information...................... 25
           5.10 Insurance.................................................... 26
           5.11 Indebtedness................................................. 26
           5.12 Liens ....................................................... 26
           5.13 Sale of Assets; Merger; Acquisitions......................... 26
           5.14 Guarantees................................................... 26


                                      -ii-
<PAGE>

           5.15 Issuance of Stock............................................ 26
           5.16 [Intentionally Omitted]...................................... 27
           5.17 Financial Covenants.......................................... 27
           5.18 OLRI Rating.................................................. 27
           5.19 New Subsidiaries............................................. 27
           5.20 Out-of-Debt Period........................................... 28
           5.21 Further Documentation........................................ 28
           5.22 Bank's Appointment as Attorney-in-Fact....................... 28
           5.23 Performance by Bank of Borrower's Obligations................ 29
           5.24 Year 2000 Compliance......................................... 29


VI. CONDITIONS PRECEDENT..................................................... 29
           6.1 Initial Conditions Precedent.................................. 29
           6.2 Conditions Precedent to Additional
               Advances and Acquisition Advances............................. 30


VII. EVENTS OF DEFAULT....................................................... 31


VIII. REMEDIES............................................................... 33


IX. INDEMNIFICATION.......................................................... 34
           9.1 Indemnification............................................... 34


X. MISCELLANEOUS............................................................. 35
           10.1 Notice....................................................... 35
           10.2 No Waiver; Cumulative Remedies............................... 36
           10.3 Survival of Agreements....................................... 36
           10.4 Amendment.................................................... 36
           10.5 Successors and Assigns....................................... 36
           10.6 Severability................................................. 36
           10.7 Counterparts................................................. 36
           10.8 Governing Law; No Third Party Rights......................... 36
           10.9 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION................ 37






                                     -iii-
<PAGE>


     THIS LOAN AGREEMENT is dated June 24, 1998 and is by and between KAYE GROUP
INC., a Delaware  corporation having its principal  executive offices located at
122 East 42nd Street, New York, New York 10168 (the "Borrower") and SUMMIT BANK,
a banking institution of the State of New Jersey having an office located at 250
Moore Street, Hackensack, New Jersey 07601 (the "Bank").

                                    RECITALS

     A. The Borrower has  requested  that the Bank make certain loans and extend
certain credit to the Borrower.

     B. The Bank has agreed to make such loans and extend  such  credit,  all on
the terms and conditions hereinafter set forth.

     NOW,  THEREFORE,  in  consideration  of the premises and mutual  agreements
herein  contained,  and other good and valuable  consideration,  the receipt and
sufficiency  of which are  hereby  acknowledged,  the  parties  hereto  agree as
follows:

     I. DEFINITIONS

     1.1 Defined Terms. As used in this Agreement, the following words and terms
shall have the following meanings:

     "Acquisition"  shall  mean  the  purchase  by  the  Borrower  or one of its
Subsidiaries of (i) all or substantially  all of the capital stock,  partnership
interests  or  other   beneficial   ownership   interests  of  any  corporation,
partnership,   limited  liability  company  or  other  entity  or  (ii)  all  or
substantially  all of the assets of any such corporation,  partnership,  limited
liability company or other entity.

     "Acquisition  Advance Request" shall have the meaning ascribed to such term
in Section 2.10 hereof.

     "Acquisition Advances" shall mean advances by the Bank to the Borrower, all
of the proceeds of which are used to finance one or more Acquisitions.

     "Acquisition Notes" shall have the meaning ascribed to such term in Section
2.11 hereof.

     "Advance  Request" shall have the meaning  ascribed to such term in Section
2.2 hereof.

     "Advances"  shall have the  meaning  ascribed  to such term in Section  2.1
hereof.

     "Affiliate" shall mean as to any specified Person:

     (a)  any  Person  that   directly  or   indirectly   through  one  or  more
intermediaries  controls or is controlled by or is under common control with the
specified Person;


<PAGE>


     (b) any Person that is an officer of,  partner in, or trustee of, or serves
in a similar capacity with respect to, the specified  Person,  or of or in which
the specified Person is an officer, partner or trustee, or with respect to which
the specified Person serves in a similar capacity;

     (c) any Person that, directly or indirectly, is the beneficial owner of 20%
or more of any  class of equity  securities  of the  specified  Person or is the
beneficial  owner of an  interest  of 20% or more in the  capital  profit of the
specified Person;

     (d) any Person of which the specified  Person is directly or indirectly the
beneficial  owner of any amount of any class of equity  securities or any Person
of which the  specified  Person is the  beneficial  owner of any interest in the
capital and profits; or

     (e) any member of the immediate family of the specified Person.

     "Agreement"  shall  mean this  Loan  Agreement,  together  with any and all
exhibits, schedules, amendments or supplements hereto.

     "Applicable  Amortization  Period" shall have the meaning  ascribed to such
term in Section 2.10 hereof.

     "Applicable  Interest  Rate"  shall mean either the LIBOR Based Rate or the
Base Rate.

     "Bank" shall mean Summit Bank,  a banking  institution  of the State of New
Jersey, and its successors and assigns.

     "Bank Costs" shall mean all taxes and insurance  premiums of every kind and
nature of the Borrower paid by the Bank; all filing, recording, publication, and
search fees incurred in connection with and relating to the Borrower paid by the
Bank; all  out-of-pocket  costs incurred and sums expended by the Bank,  with or
without suit, to correct any default, to make advances of principal and interest
or  payments  to prior  secured  parties,  to enforce any right or remedy of the
Bank, or in connection with any other provision of any Loan Document,  including
without limitation, any out-of-pocket costs incurred by the Bank with respect to
any other lender in  connection  with the Loan  Documents  and the  transactions
contemplated  thereby;  all  out-of-pocket  costs  incurred and sums expended in
gaining possession of, inspection of, maintaining,  handling, selling, preparing
for sale,  and  advertising  to sell the  Collateral,  whether  or not a sale is
consummated;  out-of-pocket  costs of suit  incurred by the Bank in enforcing or
defending this Agreement or any other Loan Document or any portion thereof;  all
out-of-pocket  costs  and  expenses  including  reasonable  attorneys'  fees and
expenses  incurred by the Bank in  preparing,  reviewing,  enforcing,  amending,
modifying,  extending  administering,  defending  or otherwise  concerning  this
Agreement  or any other Loan  Document  or any portion  hereof or  thereof;  and
whether or not suit is  brought,  all  out-of-pocket  costs of  arbitration  and
insolvency proceedings.

     "Base Rate" shall mean the rate of interest  announced from time to time by
the Bank as its "base  rate" or "base  lending  rate".  This rate of interest is
determined from time to time by the Bank


                                      -2-
<PAGE>

as a means of pricing  some loans to its  customers  and is neither  tied to any
external  rate of interest or index nor does it  necessarily  reflect the lowest
rate of  interest  actually  charged  by the  Bank to any  particular  class  or
category of customers of the Bank.

     "Base  Rate  Loans"  shall  collectively  mean that  portion  of the Credit
Facility bearing interest at the Base Rate.

     "Borrower"  shall mean Kaye Group  Inc.,  a Delaware  corporation,  and its
successors and assigns.

     "Business  Day" shall mean any day other than a  Saturday,  Sunday or other
day on which state or federally  chartered  banks in the State of New Jersey are
authorized to close.

     "Collateral"  shall have the  meaning  ascribed to such term in Section 3.1
hereof.

     "Consolidated  GAAP Net Worth"  means the sum of (a) the capital  stock and
additional   paid-in  capital  of  the  Borrower  and  its   Subsidiaries  on  a
consolidated  basis,  plus  (without  duplication)  (b) the  amount of  retained
earnings (or, in the case of a deficit,  minus the deficit),  minus (c) treasury
stock,  plus or  minus  (d) any  other  account  which is  customarily  added or
deducted in determining  stockholders'  equity, all of which shall be determined
on a consolidated basis in accordance with GAAP,  provided that unrealized gains
or losses in respect of publicly traded debt and equity securities (as otherwise
required by the  Statement of Financial  Accounting  Standards No. 115) shall be
excluded in determining Consolidated GAAP Net Worth.

     "Consolidated Net Income" shall mean, for any period,  the consolidated net
income of the Borrower and its Subsidiaries determined in accordance with GAAP.

     "Credit  Facility"  shall  mean,  collectively,  the  Revolving  Loan,  the
Acquisition Advances and the Term Loan.

     "Debt Service Coverage Ratio" shall mean, for any period,  the ratio of (i)
Consolidated Net Income,  plus  depreciation and  amortization,  plus historical
interest expense,  minus dividends and distributions,  to the current portion of
the Borrower's  Indebtedness  (but excluding the outstanding  Advances under the
Revolving Loan) plus the Borrower's interest expense.

     "Default"  shall mean any of the  events  specified  in Article  VII hereof
which, with the passage of time or giving of notice or both, would constitute an
Event of Default.

     "Event of Default"  shall mean any of the events  specified  in Article VII
hereof,  provided that any  requirement for notice or lapse of time or any other
condition has been satisfied.

     "Existing  Guarantors" shall  collectively mean Kaye Insurance  Associates,
Inc., Kaye Corporation of Connecticut,  Kaye Administrators Corp., Kaye Services
Corp.,  Kaye-Western  Insurance & Risk  Services,  Inc.  and  Program  Brokerage
Corporation, each of which is a wholly owned subsidiary of the Borrower.



                                      -3-
<PAGE>

     "GAAP" shall mean generally  accepted  accounting  principles in the United
States of America as in effect from time to time.

     "Guarantors" shall  collectively mean (i) the Existing  Guarantors and (ii)
any other Affiliate or Subsidiary of the Borrower which executes and delivers to
the Bank a guaranty  agreement in form and substance  satisfactory  to the Bank,
pursuant to which such Affiliate or Subsidiary unconditionally guarantees all of
the Borrower's obligations hereunder.

     "Guaranty  Agreement"  shall  mean  the  guaranty  agreement  of even  date
herewith  executed and delivered by each of the Existing  Guarantors in favor of
the Bank,  together  with all  modifications  thereto,  extensions  thereof  and
substitutions therefor.

     "Indebtedness"  shall mean (i) all items (other than capital stock, capital
surplus and retained  earnings)  which in accordance with GAAP would be included
in  determining  total  liabilities  as shown on the liability side of a balance
sheet as at the date on which  Indebtedness is to be determined and (ii) whether
or not so  reflected,  all  indebtedness,  contingent  or otherwise  and whether
unsecured or secured by any Lien, and all capitalized lease obligations.

     "Insurance  Subsidiary" shall mean OLRI, Old Lyme Insurance Company,  Ltd.,
and any other insurance company Subsidiary  hereafter acquired or created by the
Borrower.

     "Interest  Payment Date" shall mean (i) with respect to any Base Rate Loan,
the fifth day of each calendar  month,  and (ii) with respect to any LIBOR Based
Rate Loan, the last day of the Interest Period applicable thereto.

     "Interest  Period" shall have the meaning  ascribed to such term in Section
2.22 hereof.

     "LIBOR Based Rate" shall mean the LIBOR Rate plus 175 basis points.

     "LIBOR Based Rate Loans" shall collectively mean that portion of the Credit
Facility bearing interest at the LIBOR Based Rate.

     "LIBOR Rate" shall mean the rate of interest  for deposits in U.S.  Dollars
for a maturity equal to the Interest  Period  therefor which appears on Telerate
Page 3750 as of 11:00 a.m.,  London time,  on the date that is two Business Days
prior to the commencement of such Interest Period.  If such rate does not appear
on Telerate Page 3750, the rate utilized shall be the rate which appears,  or if
two or more such rates appear, the average (rounded upward, if necessary, to the
next 1/16 of 1%) of the rates which appear,  on the Reuters  Screen LIBO Page as
of 11:00 a.m.,  London time,  on the date that is two Business Days prior to the
commencement of such Interest Period.

     "Lien" shall mean any lien  (statutory or  otherwise),  security  interest,
mortgage,  deed of trust,  priority,  pledge,  charge,  conditional  sale, title
retention  agreement,  financing lease or other  encumbrance or similar right of
others, or any agreement to give any of the foregoing.



                                      -4-
<PAGE>

     "Loan Documents"  shall  collectively  mean this Agreement,  the Notes, the
Guaranty Agreement,  the Pledge and Security Agreement and all other agreements,
documents,  financing  statements,  instruments  and  certificates  executed and
delivered to the Bank in  connection  herewith or  therewith,  together with all
modifications to, extensions of and substitutions for the foregoing.

     "Maximum Amount" shall mean $4,500,000.

     "Net  Premiums  Written" for any period means the net premiums that appear,
or should appear, on the SAP Financial Statements of an Insurance Subsidiary.

     "Notes" shall  collectively  mean the Revolving Note, the Term Note and the
Acquisition Notes, together with all modifications  thereto,  extensions thereof
and substitutions therefor.

     "Notice of Conversion/Continuation" shall have the meaning ascribed to such
term in Section 2.23 hereof.

     "Obligations" shall mean all loans, advances,  extensions of credit, letter
of credit fees, debts, liabilities, obligations, payments, guarantees, covenants
and  duties  owing by the  Borrower  to the Bank,  of any kind and  description,
direct or indirect  (including any  participation or interest of the Bank in any
obligation  of the  Borrower to any other  Person),  voluntary  or  involuntary,
absolute or contingent, due or to become due, now existing or hereafter incurred
or  created,  whether  or not  related  to or of the  same  class  as the  loans
described  herein,  and  further  including  all  Bank  Costs,  audit  fees  and
commitment fees.

     "OLRI"  shall mean Old Lyme  Insurance  Company of Rhode  Island,  Inc.,  a
wholly owned Subsidiary of the Borrower, and its successors and assigns.

     "Permits"  shall have the  meaning  ascribed  to such term in Section  4.19
hereof.

     "Permitted Acquisition" shall mean an Acquisition of an insurance brokerage
firm  in  which  the  total  consideration  being  paid by the  Borrower  or its
Subsidiary   (including  without  limitation  purchase  price,   non-competition
payments and the amount of debt assumed)  does not exceed 15% of the  Borrower's
Consolidated  GAAP Net Worth as  reflected  on the most recent  fiscal  year-end
financial statement or Form 10-Q report delivered by the Borrower to the Bank.

     "Permitted Indebtedness" shall mean:

     (i) Indebtedness owing to the Bank;

     (ii) Indebtedness  incurred in favor of trade creditors and in the ordinary
course of business and not more than 90 days overdue  (unless a longer period is
consistent with accepted trade practice,  provided that such longer period shall
not exceed 120 days or unless being  contested in good faith and by  appropriate
proceedings  promptly  initiated and diligently  conducted,  but only as long as
foreclosure,  distraint,  sale or other similar  proceedings shall not have been
commenced


                                      -5-
<PAGE>

and such reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been provided therefor);

     (iii) Indebtedness in respect of taxes, assessments,  governmental charges,
worker's  compensation,  levies and claims for labor,  materials,  supplies  and
rentals to the extent otherwise  permitted under this Agreement to remain unpaid
and undischarged; and

     (iv)  Indebtedness  existing  on the date  hereof  and fully  described  on
Schedule I attached hereto.

     "Permitted Liens" shall mean:

     (i) any Lien in favor of the Bank;

     (ii) Liens that exist on the date  hereof and are set forth on  Schedule II
attached hereto;

     (iii) Liens for taxes,  assessments or  governmental  charges or levies not
yet due or which are delinquent and which are being  contested in good faith and
by appropriate proceedings promptly initiated and diligently conducted for which
reserves have been  established in accordance with GAAP with respect thereto and
as to which foreclosure,  distraint, sale or other similar proceedings shall not
have been commenced;

     (iv) carriers', warehousemen's,  mechanics', materialmen's,  repairmen's or
other  like Liens  arising  in the  ordinary  course of  business  which are not
overdue  or  which  are  being  contested  in  good  faith  and  by  appropriate
proceedings  promptly initiated and diligently conducted for which reserves have
been  established in accordance  with GAAP with respect  thereto and as to which
foreclosure,  distraint,  sale or other similar  proceedings shall not have been
commenced;

     (v) pledges or deposits in connection with workers' compensation,  workers'
compensation  insurance,   unemployment  insurance  and  other  social  security
legislation;

     (vi) deposits to secure the  performance of bids,  trade  contracts  (other
than for  borrowed  money),  statutory  obligations,  surety and  appeal  bonds,
performance  bonds  and  other  obligations  of a like  nature  incurred  in the
ordinary course of business; and

     (vii) Liens created by or existing from any litigation or legal proceeding;
provided that the execution or other  enforcement  of such Liens is  effectively
stayed, the claims secured thereby are being actively contested in good faith by
appropriate  proceedings,  adequate  book  reserves  have  been  established  in
accordance  with GAAP with  respect  thereto  and no Default or Event of Default
arises or is created as a result thereof.

     "Person" shall mean any individual, corporation,  partnership, association,
limited  liability   company,   joint  stock  company,   trust,   unincorporated
organization,  joint  venture,  court or government or political  subdivision or
agency thereof.



                                      -6-
<PAGE>

     "Plans"  shall have the meaning  ascribed  to such term in Section  4.14(b)
hereof.

     "Pledge  and  Security  Agreement"  shall  mean  the  pledge  and  security
agreement of even date herewith from the Borrower in favor of the Bank, together
with all modifications thereto,  extensions thereof and substitutions  therefor,
pursuant to which the Borrower has pledged, assigned and transferred to the Bank
all of the Borrower's  right,  title and interest in and to the capital stock of
OLRI, Old Lyme Insurance Company,  Ltd. and Claims  Administration  Corporation,
all on the terms and conditions set forth therein.

     "Revolving  Loan" shall have the  meaning  ascribed to such term in Section
2.3 hereof.

     "Revolving  Note" shall have the  meaning  ascribed to such term in Section
2.3 hereof.

     "Revolving Loan Termination Date" shall mean July 31, 1999.

     "SAP" means the statutory  accounting  practices permitted or prescribed by
the  insurance   regulatory  authority  having  authority  over  each  Insurance
Subsidiary.

     "SAP Financial Statements" means the financial statements of each Insurance
Subsidiary,  which have been  submitted  or are  required to be submitted to the
insurance regulatory authority having authority over each Insurance Subsidiary.

     "Statutory Net Income" for any period means the net income that appears, or
should appear, on the SAP Financial Statements of an Insurance Subsidiary.

     "Statutory  Surplus"  for any period  means the surplus  that  appears,  or
should appear, on the SAP Financial Statements of an Insurance Subsidiary.

     "Subsidiary" with respect to any Person means any corporation,  partnership
or joint venture whether now existing or hereafter organized or acquired: (i) in
the case of a corporation, of which a majority of the securities having ordinary
voting power for the election of directors  (other than  securities  having such
power only by reason of the happening of a contingency) are at the time owned by
such Person and/or one or more  Subsidiaries  of such Person or (ii) in the case
of a partnership or joint venture,  in which such Person is a general partner or
joint  venturer or of which a majority  of the  partnership  or other  ownership
interests  are at the  time  owned  by  such  Person  and/or  one or more of its
Subsidiaries.   Unless  the  context  otherwise  requires,  references  in  this
Agreement to "Subsidiary" or "Subsidiaries"  shall be deemed to be references to
a Subsidiary  or  Subsidiaries  of the (i) Borrower or (ii) a Subsidiary  of the
Borrower.

     "Term Loan" shall have the  meaning  ascribed to such term in Section  2.16
hereof.

     "Term Loan Maturity Date" shall mean June 24, 2002.

     "Term Note" shall have the  meaning  ascribed to such term in Section  2.16
hereof.



                                      -7-
<PAGE>

     1.2 The words  "hereof",  "herein",  and  "hereunder"  and words of similar
import when used in this Agreement  shall refer to this Agreement as a whole and
not to any  particular  provision of this  Agreement,  and section,  subsection,
schedule  and  exhibit   references  are  to  this  Agreement  unless  otherwise
specified.

     1.3 As  used in this  Agreement  or in any  certificate,  report  or  other
document made or delivered  pursuant to this Agreement,  accounting  terms which
are not otherwise defined shall have the meanings given to them under GAAP.

     II. LOANS

     A. Revolving Loan.

     2.1  Advances.  From time to time,  during the period  from the date hereof
until the Revolving Loan Termination Date, in the manner  hereinafter set forth,
the Borrower may borrow from the Bank and, upon request of the Borrower and upon
the terms and conditions contained herein, the Bank shall lend to the Borrower a
sum or sums (the "Advances") which, when added to the aggregate principal amount
of all other  Advances and  Acquisition  Advances  then  outstanding,  shall not
exceed in the aggregate at any time the Maximum  Amount.  It is  understood  and
agreed that the term  "Advances"  shall not be deemed to include any Acquisition
Advances made hereunder.

     2.2 Procedure for Advances.  Subject to the terms and  conditions set forth
herein,  the Borrower may borrow, pay or prepay and reborrow from the Bank under
this Revolving Loan. Each Advance shall be made upon prior written or telephonic
(followed  by  written)  notice  from the  Borrower  to the  Bank  (an  "Advance
Request") specifying (i) the proposed date of such borrowing, (ii) the principal
amount thereof,  (iii) the Applicable Interest Rate and (iv) if the Advance will
be a LIBOR Based Rate Loan, the applicable Interest Period. Each Advance Request
shall be  received  by the Bank not later  than 12:00  p.m.  (A) at least  three
Business Days prior to the requested  date of the Advance in the case of a LIBOR
Based Rate Loan or (B) on the same  Business  Day of the  requested  date of the
Advance in the case of a Base Rate Loan. On the date of each such Advance,  upon
fulfillment  of the conditions  precedent set forth herein,  the Bank shall make
available to the Borrower the amount of such Advance by transferring  such funds
to the account  maintained at the Bank's principal office located at the address
set forth on the first page of this  Agreement  or in  accordance  with  written
instructions provided by the Borrower and reasonably acceptable to the Bank.

     2.3  Revolving  Note.  The  indebtedness  of the  Borrower to the Bank with
respect to the Advances made from time to time hereunder (the "Revolving  Loan")
shall be  evidenced  by a revolving  note made payable to the order of the Bank,
dated the date hereof,  signed by the  Borrower and  delivered to the Bank (such
revolving  credit note,  together  with all  modifications  thereto,  extensions
thereof and  substitutions  therefor,  is herein  referred to as the  "Revolving
Note").

     2.4 Interest Rate Under Revolving Note. Except as provided in Sections 2.24
and 2.26 hereof,  (a) the outstanding  daily principal  balance of the Revolving
Note  representing  LIBOR Based Rate Loans shall bear  interest for the Interest
Periods  applicable  thereto at a rate per annum


                                      -8-
<PAGE>

equal to the LIBOR Based Rate, and (b) the outstanding  daily principal  balance
of the  Revolving  Note  representing  Base Rate Loans shall bear  interest at a
fluctuating  rate  per  annum  equal  to  the  Base  Rate.  Notwithstanding  the
foregoing,  upon the  occurrence  of an Event of Default,  the entire  principal
amount  outstanding  under the  Revolving  Note shall bear such  higher  rate as
provided in the Revolving  Note.  Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. The rate of interest on that
portion of the outstanding  principal amount of the Revolving Note  representing
Base Rate Loans shall be adjusted automatically as of the opening of business on
each day on which any  change in the Base Rate is  announced  by the Bank at its
principal office.

     2.5 Payments Under Revolving Note.

     (a) Interest  under the  Revolving  Note shall be payable on each  Interest
Payment  Date  applicable  to the Base Rate  Loans and LIBOR  Based  Rate  Loans
outstanding thereunder.

     (b) Subject to the Bank's right of  acceleration  upon the occurrence of an
Event of Default,  all principal,  interest and other amounts  outstanding under
the Revolving  Note shall be  immediately  due and payable on the Revolving Loan
Termination Date, without any requirement of notice or otherwise.

     2.6 Use of Proceeds of  Advances.  Proceeds  of the  Advances  have been or
shall be utilized by the Borrower for general corporate purposes.

     2.7 Optional Prepayments of Revolving Note. Subject to Section 2.25 hereof,
the  Borrower  shall have the right to prepay,  in whole or in part and  without
premium or penalty, the Revolving Note at any time and from time to time.

     2.8 Mandatory Prepayment of Revolving Note. If at any time and for whatever
reason the aggregate  outstanding  principal amount of Advances hereunder,  when
added to the aggregate  original  principal  amount of all Acquisition  Advances
made hereunder,  exceeds the Maximum Amount, such excess,  together with accrued
interest  thereon,  shall be due and payable by the  Borrower  immediately  upon
demand by the Bank.

     B. Acquisition Advances.

     2.9  Acquisition  Advances.  From time to time,  during the period from the
date hereof until the Revolving Loan Termination Date, in the manner hereinafter
set forth,  the  Borrower  may  borrow  from the Bank and,  upon  request of the
Borrower and upon the terms and conditions contained herein, the Bank shall lend
a sum or sums (the  "Acquisition  Advances")  which, when added to the aggregate
principal  amount of all Advances then  outstanding  and the aggregate  original
principal  amount of all other  Acquisition  Advances made hereunder,  shall not
exceed in the aggregate at any time the Maximum Amount.

     2.10  Procedure  for  Acquisition  Advances.   Subject  to  the  terms  and
conditions set forth herein, the Borrower may borrow from, and pay or prepay to,
the Bank  Acquisition  Advances.  The Borrower  shall give the Bank at least ten
Business  Days' prior written  notice of any requested


                                      -9-
<PAGE>

Acquisition Advance (an "Acquisition Advance Request"). Each Acquisition Advance
Request shall specify (a) the proposed date of such borrowing, (b) the principal
amount thereof, (c) the Applicable Interest Rate, (d) if the Acquisition Advance
will be a LIBOR Based Rate Loan, the applicable Interest Period, (e) the period,
which shall not be more than five years,  over which the Acquisition  Note shall
be repaid (the  "Applicable  Amortization  Period") and (f) the salient terms of
the Acquisition,  including without limitation a description of the Acquisition,
the purchase price and all other  consideration being paid to or received by the
seller(s),  the  identity  of the  seller(s)  and the nature of the  transaction
(i.e., a stock purchase or an asset purchase).  Concurrently  with providing the
Acquisition Advance Request (or as soon thereafter as the Acquisition  agreement
has been  executed and  delivered),  the Borrower  shall provide the Bank with a
copy of the fully executed Acquisition agreement certified by the Borrower to be
true and accurate.  Notwithstanding  anything to the contrary  contained herein,
however,  the Bank shall have no obligation  to fund any  requested  Acquisition
Advance  with  respect  to any  Acquisition  unless  (i) such  Acquisition  is a
Permitted Acquisition or (ii) the Bank has granted its prior written approval of
such Acquisition  pursuant to Section 5.13 hereof.  Upon the satisfaction of the
conditions  precedent  set forth  herein,  the Bank shall make  available to the
Borrower the amount of each  Acquisition  Advance by transferring  such funds to
the account maintained at the Bank's principal office located at the address set
forth  on the  first  page of  this  Agreement  or in  accordance  with  written
instructions provided by the Borrower and reasonably acceptable to the Bank.

     2.11  Acquisition  Notes. The indebtedness of the Borrower to the Bank with
respect to each  Acquisition  Advance made from time to time hereunder  shall be
evidenced by an  acquisition  note made  payable to the Bank,  dated the date of
such  Acquisition  Advance,  signed by the  Borrower  and  delivered to the Bank
substantially in the form of Exhibit A hereto (such acquisition notes,  together
with all modifications thereto,  extensions thereof and substitutions  therefor,
are collectively  referred to as the "Acquisition  Notes"). Upon receipt of each
Acquisition Advance Request,  and based upon the information  contained therein,
the Bank or its counsel shall prepare, and forward to the Borrower for execution
and delivery on or before the date of the  Acquisition  Advance,  an Acquisition
Note.

     2.12 Interest Rate Under Acquisition Notes.

     (a)  Except  as  provided  in  Sections  2.24  and  2.26  hereof,  (i)  the
outstanding daily principal  balance of any Acquisition Note representing  LIBOR
Based Rate Loans shall bear interest for the Interest Periods applicable thereto
at a rate per annum  equal to the LIBOR  Based  Rate,  and (ii) the  outstanding
daily principal  balance of any Acquisition  Note  representing  Base Rate Loans
shall bear  interest  at a  fluctuating  rate per annum  equal to the Base Rate.
Notwithstanding the foregoing,  upon the occurrence of an Event of Default,  all
principal amounts outstanding under each Acquisition Note shall bear such higher
rate as provided in such Acquisition  Note.  Interest shall be calculated on the
basis of a  360-day  year for the  actual  number of days  elapsed.  The rate of
interest on that portion of the outstanding  principal amount of any Acquisition
Note  representing  Base Rate Loans  shall be adjusted  automatically  as of the
opening  of  business  on each  day on which  any  change  in the  Base  Rate is
announced by the Bank at its principal office.



                                      -10-
<PAGE>

     2.13 Principal and Interest Payments Under Acquisition Notes.

     (a) Each  Acquisition  Note shall be payable in  consecutive  equal monthly
installments  of principal on the fifth day of each  calendar  month,  each such
installment in the amount required to amortize such  Acquisition Note fully over
the Applicable  Amortization  Period. In addition,  all accrued interest on such
Acquisition Note shall be paid on each Interest Payment Date applicable thereto.

     (b) The principal  amortization of each  Acquisition Note shall commence no
later  than 90 days  after  the date of the  making of the  Acquisition  Advance
evidenced by such  Acquisition  Note. If not sooner paid,  the entire  principal
balance of each Acquisition  Note,  together with all accrued interest and other
amounts  owing  thereunder,  shall be due and payable on the  expiration  of the
Applicable Amortization Period applicable to such Acquisition Note.

     2.14 Optional  Prepayments  of Acquisition  Notes.  Subject to Section 2.25
hereof,  the  Borrower  shall have the right to prepay,  in whole or in part and
without premium or penalty,  any Acquisition  Notes at any time and from time to
time.  Each  prepayment of principal  shall be accompanied by payment of accrued
interest on the amount being prepaid  through the date of  prepayment,  and each
partial  prepayment  of an  Acquisition  Note  shall be  applied  by the Bank to
payments due under each Acquisition Note in their inverse order of maturity.

     2.15 Use of Proceeds of Acquisition  Advances.  Proceeds of the Acquisition
Advances shall be used by the Borrower to finance one or more Acquisitions.

     C. Term Loan.

     2.16 Term Loan and Term Note.  The Borrower  hereby  borrows from the Bank,
and the Bank hereby loans to the Borrower,  the principal sum of $5,000,000 (the
"Term  Loan").  The Term Loan shall be  evidenced by a term note made payable to
the  order of the Bank,  dated  the date  hereof,  signed  by the  Borrower  and
delivered to the Bank (such term note, together with all modifications  thereto,
extension thereof and substitutions therefor, is herein referred to as the "Term
Note").

     2.17 Interest Rate Under Term Note.  The Term Note shall bear interest from
the date thereof on the outstanding  daily  principal  amount thereof at a fixed
rate per annum  equal to 7.8% or,  upon the  occurrence  of an Event of Default,
such higher rate as provided in the Term Note.  Interest  shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.

     2.18 Principal and Interest Payments Under Term Note. Subject to the Bank's
right  of  acceleration  upon  the  occurrence  of  an  Event  of  Default,  the
outstanding  principal  balance  of the  Term  Note  shall be  payable  in equal
consecutive quarterly installments of principal and interest, each in the amount
of  $366,793.68  commencing on September 24, 1998 and continuing on the 24th day
of each and every December,  March,  June and September  thereafter  through and
including  June 24, 2002.  In any event,  if not sooner paid,  the entire unpaid
principal balance of, together with all accrued


                                      -11-
<PAGE>

interest and other amounts  owing under,  the Term Note shall be due and payable
on the Term Loan Maturity Date.

     2.19 Use of Proceeds of Term Loan.  The  proceeds of the Term Loan shall be
used by the Borrower to repay the Borrower's existing debt with Fleet Bank.

     2.20 Optional Prepayments of Term Note. Subject to Section 2.25 hereof, the
Borrower shall have the right to prepay, in whole or in part and without premium
or penalty,  the Term Note at any time and from time to time. Each prepayment of
principal  shall be  accompanied  by payment of accrued  interest  on the amount
being prepaid through the date of prepayment,  and each partial prepayment shall
be  applied  by the Bank to  payments  due under the Term Note in their  inverse
order of maturity.

     D. General Provisions.

     2.21 LIBOR Based Rate Loan Limitations.  Notwithstanding anything contained
herein to the  contrary,  (a) each LIBOR Based Rate Loan shall be in the minimum
amount of $100,000 or integral multiples of $10,000 in excess thereof and (b) at
no time  shall  there  be  more  than  ten  different  LIBOR  Based  Rate  Loans
outstanding under the Credit Facility.

     2.22 Interest Periods. As used herein,  "Interest Period" shall mean either
30,  60 or 90 days,  as  designated  by the  Borrower  in the  Advance  Request,
Acquisition Advance Request or Notice of  Conversion/Continuation,  with respect
to each LIBOR Based Rate Loan; provided, however, that (i) if an Interest Period
would  otherwise end on a day which is not a Business Day, such Interest  Period
shall be extended to the next succeeding  Business Day, unless such Business Day
falls in another calendar month, in which case such Interest Period shall end on
the next  preceding  Business Day subject to clause (iii) below;  (ii)  interest
shall accrue from and including  the first day of each  Interest  Period to, but
excluding,  the day on which any Interest Period expires;  (iii) with respect to
any Interest  Period which begins on the last  Business Day of a calendar  month
(or on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period),  the Interest Period shall end on the
last Business Day of a calendar  month and (iv) no Interest  Period shall extend
beyond (A) in the case of Advances,  the Revolving Loan Termination Date, (B) in
the case of  Acquisition  Advances,  the maturity date of the  Acquisition  Note
under  which  such LIBOR  Based Rate is payable  and (C) in the case of the Term
Loan, the Term Loan Maturity Date.

     2.23 Conversion.  Subject to the provisions of Sections 2.21, 2.24 and 2.26
hereof,  the Borrower  shall have the option (a) to convert at any time, so long
as no Event of Default  exists,  all or any part of its Base Rate Loans to LIBOR
Based Rate Loans or (b) upon the expiration of any Interest Period applicable to
a LIBOR Based Rate Loan, to continue all or any portion thereof as a LIBOR Based
Rate Loan or to convert all or any portion thereof to a Base Rate Loan. In order
to  effect  any of the  foregoing,  the  Borrower  shall  deliver  a  notice  of
conversion/continuation  (the "Notice of  Conversion/Continuation")  to the Bank
not later than 12:00 p.m.  New York City time (i) at least three  Business  Days
prior  to  the  requested  conversion/continuation  date  with  respect  to  the
conversion  to or  continuation  of a LIBOR  Based Rate Loan or (ii) on the same
Business Day of the proposed  conversion  in the case of a conversion of a LIBOR
Based Rate Loan to a Base Rate Loan. A Notice


                                      -12-
<PAGE>

of  Conversion/Continuation  shall be  irrevocable  and  shall  specify  (i) the
proposed  conversion/continuation  date, which shall be a Business Day, (ii) the
amount of the Advance, Acquisition Advance or Term Loan which is to be converted
or continued,  (iii) the nature of the proposed  conversion or continuation  and
(iv) in the case of a conversion  to, or a  continuation  of, a LIBOR Based Rate
Loan, the requested  Interest  Period.  In the event the Bank does not receive a
Notice of  Conversion/Continuation in accordance with the provisions hereof with
respect to a LIBOR Based Rate Loan,  upon the expiration of the Interest  Period
applicable  thereto,  the same shall  automatically  be converted to a Base Rate
Loan.

     2.24  Alternate  Interest Rate. If within one Business Day of any date that
the Borrower  requests a LIBOR Based Rate Loan, the Bank shall  determine in its
sole discretion,  reasonably exercised, that it is unable to quote the requested
LIBOR  Based  Rate,  or that  the  Bank  is  unable,  or  that  it is  otherwise
impossible,  to fund the requested LIBOR Based Rate Loan for the Interest Period
requested, the Bank shall promptly notify the Borrower of such determination and
no LIBOR Based Rate Loan shall be made by the Bank on the borrowing  date and/or
no Base Rate Loan shall be converted to a LIBOR Based Rate Loan, as  applicable.
Upon receipt of such  notification,  the  Borrower may withdraw any  outstanding
request for a LIBOR Based Rate Loan by giving  written  notice of  withdrawal to
the Bank prior to such borrowing date.  Unless withdrawn in accordance with this
Section 2.24,  any  outstanding  request for such LIBOR Based Rate Loan shall be
deemed to be a request for a Base Rate Loan in equal principal amount,  and such
Base Rate Loan shall be made on such borrowing date.

     2.25  Indemnification  For LIBOR  Based Rate  Loans.  Except as provided in
Section  2.24  hereof,  each  request  for a LIBOR  Based  Rate  Loan  shall  be
irrevocable  and  binding  upon the  Borrower.  The  Borrower  hereby  agrees to
indemnify  the Bank,  upon  demand by the Bank at any time,  against any and all
actual losses (including any actual loss of profit), costs or expenses which the
Bank may at any time or from time to time sustain or incur as a consequence  of:
(a) any breach by the Borrower of its obligation to borrow on the borrowing date
specified  in any request  for a LIBOR  Based Rate Loan,  (b) any failure by the
Borrower to pay  punctually on the due date thereof,  any amount  payable by the
Borrower to the Bank on LIBOR Based Rate Loans, (c) the acceleration of the time
of payment of any of the  Borrower's  obligations in respect of LIBOR Based Rate
Loans in accordance with Article VIII hereof, (d) the repayment or prepayment of
the  principal of any of the LIBOR Based Rate Loans on a date other than the end
of the  applicable  Interest  Period or (e) the conversion of a LIBOR Based Rate
Loan to a Base Rate Loan on a date other than the end of the applicable Interest
Period. Such losses,  costs or expenses shall include,  without limitation,  (i)
any  costs  incurred  by the Bank in  carrying  funds  which  were to have  been
borrowed by the  Borrower or in carrying  funds to cover any overdue  principal,
overdue  interest or any other  overdue sums payable by the Borrower to the Bank
in respect of LIBOR Based Rate Loans,  (ii) any interest  payable by the Bank to
the lenders of the funds referred to in the  immediately  preceding  clause (i),
and (iii) any actual losses  (including  any actual loss of profit)  incurred or
sustained by the Bank in liquidating or  re-employing  funds acquired from third
parties to make any of the LIBOR Based Rate Loans or to fund or maintain  all or
any part of the principal of any of the LIBOR Based Rate Loans.

     2.26  Changes in  Circumstances.  If at any time the Bank shall  reasonably
determine that:



                                      -13-
<PAGE>

     (a) the Bank is unable to obtain funds in the principal amount specified in
any  request  for a LIBOR  Based Rate Loan for  periods  equal to the  specified
Interest Period;

     (b) the LIBOR Based Rate does not or will not  accurately  reflect the cost
to the Bank of  obtaining  or  maintaining  any LIBOR Based Rate Loan during any
Interest Period despite the Borrower's  compliance  with its  obligations  under
Section 2.27 hereof; or

     (c) any change in applicable  law or regulation  (or in the  interpretation
thereof  by any  governmental  authority  charged  with  the  administration  or
interpretation  thereof)  has made or will make it unlawful for the Bank to make
or  maintain  any LIBOR  Based  Rate Loan or to  comply  with any of the  Bank's
obligations in respect of any LIBOR Based Rate Loan;

then, in each case, the Bank may promptly give notice of such  determination and
the  reasons  therefor  to the  Borrower.  Upon such  notification,  the  Bank's
obligations  to make LIBOR  Based Rate Loans shall be  suspended  until the Bank
determines that the circumstances described in subparagraphs (a), (b) and (c) of
this  Section  2.26 have  ceased to exist.  Following  the Bank's  notice  under
subparagraphs  (b) or (c) of this Section 2.26, all outstanding LIBOR Based Rate
Loans  shall  be  converted  to Base  Rate  Loans  at the end of the  applicable
Interest  Period;  provided,  however,  that if it  shall  be  unlawful  for the
conversion  of such LIBOR Based Rate Loans to Base Rate Loans to be effective as
of the end of the applicable Interest Period, such conversion shall be deemed to
occur as of the date of such notice by the Bank.

     2.27 Additional Costs and Expenses.  The Borrower  recognizes that the cost
to the Bank of making or  maintaining  LIBOR  Based  Rate  Loans or any  portion
thereof may fluctuate,  and the Borrower  agrees to pay to the Bank,  within ten
Business Days after written demand,  an additional amount or amounts as the Bank
shall  reasonably  determine  will  compensate  the  Bank for  additional  costs
incurred  by the Bank in  maintaining  LIBOR  Based  Rate  Loans or any  portion
thereof as a result of:

     (a) the  imposition  after  the date of any  LIBOR  Based  Rate Loan of, or
changes after the date of any LIBOR Based Rate Loan in, the reserve requirements
promulgated  by the Board of  Governors  of the  Federal  Reserve  System of the
United  States,  including,  but not  limited  to, any  reserve on  Eurocurrency
Liabilities (as defined in Regulation D of the Board of Governors of the Federal
Reserve System of the United States) at the ratios  provided in such  Regulation
from time to time,  it being  agreed  that the portion or portions of the Credit
Facility  bearing  interest at LIBOR  Based Rates shall be deemed to  constitute
Eurocurrency  Liabilities,  as defined by such Regulation,  and it being further
agreed that such Eurocurrency  Liabilities shall be deemed to be subject to such
reserve requirements  without benefit of, or credit for, prorations,  exceptions
or  offsets  that may be  available  to the Bank or from time to time under such
regulations and  irrespective of whether the Bank actually  maintains all or any
portion of the reserve;

     (b) any  change,  after  the date of any  LIBOR  Based  Rate  Loan,  in any
applicable laws, rules or regulations or in the interpretation or administration
thereof by any  domestic  or foreign  governmental  authority  charged  with the
interpretation  or  administration  thereof  (whether or not


                                      -14-
<PAGE>

having the force of law) or by any domestic or foreign court  changing the basis
of taxation of payments to the Bank of the principal of or interest on any LIBOR
Based Rate Loan or any other payments made  hereunder  (other than taxes imposed
on all or any  portion of the  overall  net income of the  Bank),  or  imposing,
modifying  or  applying  any  reserve,  special  deposit or similar  requirement
against assets of,  deposits with or for the account of, credit  extended by, or
any other acquisition of funds for loans by the Bank, or imposing on the Bank or
on the London Interbank  market any other condition  affecting this Agreement or
the portion or portions of the Credit Facility  bearing  interest at LIBOR Based
Rates so as to  increase  the cost to the Bank of  making or  maintaining  LIBOR
Based Rate Loans or to reduce the amount of any sum  received or  receivable  by
the  Bank  under  the  Credit  Facility  (whether  of  principal,   interest  or
otherwise); or

     (c) if after the date of any LIBOR  Based  Rate  Loan,  the Bank shall have
determined  that the  applicability  of any law,  rule,  regulation or guideline
adopted or arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory  Practices  entitled  "International  Convergence of
Capital  Measurement  and Capital  Standards",  or the  adoption  after the date
hereof of any  other  law,  rule,  regulation  or  guideline  regarding  capital
adequacy, or any change therein, or any change in any of the foregoing or in the
interpretation  or  administration  of any of the  foregoing  by any domestic or
foreign governmental  authority,  central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by the Bank with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority,  central bank or comparable  agency, has or would
have the  effect  of  reducing  the rate of return on the  Bank's  capital  as a
consequence  of  the  Bank's  obligations  with  respect  to the  Advances,  the
Acquisition Advances or the Term Loan, or under the Notes or this Agreement,  to
a level  below that which the Bank could have  achieved  but for such  adoption,
change or compliance (taking into consideration the Bank's policies with respect
to capital adequacy).

     Any amount or amounts  payable by the  Borrower  to the Bank in  accordance
with the  provisions of this Section shall be paid within ten (10) Business Days
of receipt by the Borrower from the Bank of a statement setting forth the amount
or  amounts  due and the basis for the  determination  from time to time of such
amount or amounts,  which  statement  shall be  conclusive  and binding upon the
Borrower  absent  manifest  error.  Failure  on the part of the  Bank to  demand
compensation for any increased costs in any Interest Period shall not constitute
a waiver of the Bank's  right to demand  compensation  for any  increased  costs
incurred  during any such Interest Period or in any other or subsequent or prior
Interest Period.

     2.28 Method of Payment.  The Borrower shall make each payment to be made by
it hereunder and under the Notes (including,  without limitation, all principal,
interest  and  optional  and   mandatory   prepayments),   without   set-off  or
counterclaim,  not later than 2:00 p.m. (New York City time) on the day when due
in lawful  money of the United  States of America and in  immediately  available
funds to the Bank at its  principal  office  set forth on the first page of this
Agreement.

     2.29 Business Day.  Whenever any payment hereunder or under the Notes shall
be stated as due on any day other  than a Business  Day,  the  maturity  of such
payment shall (except as otherwise  provided in Section 2.22 hereof) be extended
to the next succeeding Business Day and interest and all other fees shall accrue
during such extension.



                                      -15-
<PAGE>

     2.30 Charge. Without in any way limiting any right of offset,  counterclaim
or banker's lien which the Bank may otherwise  have at law, the Borrower  hereby
irrevocably  authorizes  and directs the Bank to charge  against the  Borrower's
account or  accounts  at the Bank an amount or amounts as are due and payable to
the Bank hereunder or under the Notes from time to time.

     2.31 Bank Fees.

     (a) The Borrower shall pay to the Bank quarterly,  within five (5) Business
Days  after  the  Bank  has  rendered  an  invoice,  and on the  Revolving  Loan
Termination  Date, a revolving loan fee equal to (i) 0.05% multiplied by (ii) an
amount equal to (A) the Maximum  Amount,  minus (B) the average daily  principal
amount of all Advances and Acquisition  Advances outstanding during the previous
calendar  quarter,  or, in the case of the fee  payable  on the  Revolving  Loan
Termination Date, during such shorter period.

     (b)  Concurrently  herewith,  the Borrower has paid to the Bank a Term Loan
fee equal to $5,000.

     2.32  Bank's  Counsel  Fees.   Concurrently   herewith,   the  Borrower  is
reimbursing  the Bank for all legal fees and  expenses  incurred  by the Bank in
connection with the negotiation and preparation of the Loan Documents, review of
pre-closing  documents and  materials  required by the Bank and  performance  of
customary closing and post-closing tasks, which in no event shall exceed $10,000
plus disbursements of the Bank's counsel.

     III. COLLATERAL SECURITY

     3.1 Collateral Security.

     (a) As  collateral  security  for  the  prompt  and  complete  payment  and
performance  when due  (whether  at the  stated  maturity,  by  acceleration  or
otherwise) of all Obligations and in order to induce the Bank to enter into this
Agreement  and,  among other things,  make the  Advances,  the Term Loan and the
Acquisition  Advances to the  Borrower as provided  herein,  the  Borrower  has,
simultaneously  herewith,  executed  and  delivered  to the Bank the  Pledge and
Security Agreement.

     (b) All collateral heretofore,  herein or hereafter given or granted to the
Bank  by  the  Borrower  (collectively,  the  "Collateral"),  including  without
limitation  the  collateral  pledged  to the Bank  pursuant  to the  Pledge  and
Security  Agreement,  shall secure payment of all of the  Obligations.  The Bank
shall be under no  obligation to proceed  against any or all of such  collateral
before proceeding directly against the Borrower or the Guarantors.

     (c) In addition to the foregoing,  all of the Obligations  shall be secured
by the Guaranty Agreement, in accordance with the terms and provisions set forth
therein.



                                      -16-
<PAGE>

     IV. REPRESENTATIONS AND WARRANTIES

     4. In order to induce  the Bank to enter  into this  Agreement  and,  among
other things, make the Advances,  the Term Loan and the Acquisition  Advances as
provided  herein,  the Borrower,  for itself and on behalf of its  Subsidiaries,
hereby represents, warrants and agrees that:

     4.1  Controlling  Shareholders;  Subsidiaries.  Schedule IV attached hereto
sets forth a list of all of the  Subsidiaries of the Borrower and the percentage
of each class of stock of each such Subsidiary owned by the Borrower and by each
other  shareholder of such  Subsidiary.  Other than as set forth on Schedule IV,
the Borrower has no  Subsidiaries.  Except as set forth on Schedule IV,  neither
the Borrower nor any of its  Subsidiaries  conducts  business,  or has conducted
business within the five years prior to the date hereof, under any trade name or
alternate or fictitious name.

     4.2 Organization;  Power; Qualification. The Borrower is a corporation duly
organized,  validly existing and in good standing under the laws of the State of
Delaware.  Each  Subsidiary  of the Borrower is a  corporation  duly  organized,
validly  existing  and in good  standing  under  the  laws of the  state  of its
incorporation.  Each of the  Borrower and each of its  Subsidiaries  (i) has the
full power and  authority  to own and operate its  properties  and assets and to
carry on the business now conducted by it and (ii) is qualified or authorized to
do business and in good standing in all  jurisdictions  wherein the character of
the  property  owned or the nature of the  business  conducted  by it makes such
qualification or authorization necessary, except such jurisdictions in which the
lack of qualification or authorization does not materially  adversely affect the
business,  results of operations or financial  condition of the Borrower and its
Subsidiaries.

     4.3  Authorization of Agreement.  The Borrower has full power and authority
to execute,  deliver and perform any action  which may be necessary or advisable
to carry out the terms of the Loan  Documents  to which it is a party;  and each
Loan  Document  to which the  Borrower  is a party has been  duly  executed  and
delivered by the Borrower and is the legal,  valid and binding obligation of the
Borrower enforceable in accordance with its terms.

     4.4 No Legal Bar.  The  execution,  delivery  and  performance  of the Loan
Documents will not (i) violate any provision of any existing law, statute, rule,
regulation or ordinance, (ii) conflict with, result in a breach of or constitute
a default under (a) the certificate of  incorporation or by-laws of the Borrower
or any of its  Subsidiaries,  (b) any  order,  judgment,  award or decree of any
court,  governmental  authority,  bureau or agency, or (c) any mortgage,  lease,
material  contract  or other  material  agreement  or  undertaking  to which the
Borrower or any of its  Subsidiaries  is a party or by which the Borrower or any
of its  Subsidiaries,  or any of their respective  properties or assets,  may be
bound,  or (iii) result in the creation or  imposition  of any Lien upon or with
respect to any  property or asset now or  hereafter  acquired by the Borrower or
any of its Subsidiaries other than the Liens created by the Loan Documents.

     4.5 Consent.  No consent,  license,  permit,  approval or authorization of,
exemption by, notice to, report to, or registration,  filing or declaration with
any Person is required in connection with the execution,  delivery,  performance
or validity of the Loan  Documents by the Borrower and its


                                      -17-
<PAGE>

Subsidiaries  or the  transactions  contemplated  thereby,  other than filing of
financing  statements  and like  documents  in  connection  with the Liens being
granted in favor of the Bank.

     4.6 Compliance With Law.  Neither the Borrower nor any of its  Subsidiaries
is in violation of any applicable law, rule, regulation,  statute, ordinance, or
any  order,  judgment,  award or decree of any  court,  governmental  authority,
bureau or agency,  the violation of which might have a materially adverse effect
on the business, assets, liabilities,  financial condition, results of operation
or business prospects of the Borrower and its Subsidiaries.

     4.7 Title to Properties and Assets;  Liens. Except for Permitted Liens, the
Borrower and its  Subsidiaries  have good,  marketable  and legal title to, or a
valid  leasehold  interest  in, the  properties  and assets as  reflected on the
audited  consolidated  and  consolidating  balance sheet of the Borrower and its
Subsidiaries as at December 31, 1997, a copy of which was delivered to the Bank,
except such properties or assets as have been disposed of by the Borrower or its
Subsidiaries  subsequent to the date thereof in the ordinary course of business.
All of said properties and assets are in good working order. Except as set forth
on Schedule V attached hereto,  neither the Borrower nor any of its Subsidiaries
owns, or has any interest in, any real property. Except for financing statements
naming the Bank as secured party,  and except as otherwise set forth on Schedule
II  attached  hereto,  no  financing  statement  under the Code which  names the
Borrower  or  any  of  its   Subsidiaries  as  debtor  has  been  filed  in  any
jurisdiction,  and neither the Borrower nor any of its  Subsidiaries  has signed
any such financing  statement or any security agreement  authorizing any secured
party thereunder to file any such financing statement in any such jurisdiction.

     4.8 No Default.  Neither the  Borrower  nor any of its  Subsidiaries  is in
default in any  material  respect in the  payment or  performance  of any of its
obligations or in the performance of any mortgage, indenture, lease, contract or
other  agreement or  undertaking to which it is a party or by which it or any of
its  properties  or assets may be bound,  and no Default or Event of Default has
occurred and is continuing.  Neither the Borrower nor any of its Subsidiaries is
in default under any material order,  award or decree of any court,  arbitrator,
or  governmental  authority  binding upon or affecting it or by which any of its
properties  or assets  may be bound or  affected,  and no such  order,  award or
decree, if any, materially  adversely affects the ability of the Borrower or its
Subsidiaries to carry on their  businesses as presently  conducted or to perform
their respective obligations under the Loan Documents.

     4.9 No Litigation.  Except as set forth on Schedule III attached hereto, no
litigation,  investigation  or proceeding of or before any court,  arbitrator or
governmental  authority is currently pending, nor, to the knowledge of Borrower,
threatened,  against the  Borrower or any of its  Subsidiaries,  or any of their
respective  properties  and  revenues,  which,  if adversely  determined,  would
materially  adversely affect the business,  operations,  financial  condition or
results of operations of the Borrower and its Subsidiaries.

     4.10  No  Burdensome  Restrictions.  Neither  the  Borrower  nor any of its
Subsidiaries  is a party to or bound by any contract or agreement or  instrument
or subject to any restriction  materially and adversely  affecting the business,
operations,  properties or financial or other  condition of the Borrower and its
Subsidiaries.



                                      -18-
<PAGE>

     4.11 Tax Returns and Payments.  All federal, state and other tax returns of
the  Borrower  and its  Subsidiaries  required by law to be filed have been duly
filed  or  extensions  obtained,   and  all  federal,  state  and  other  taxes,
assessments and  governmental  charges or levies upon the Borrower or any of its
Subsidiaries,  or any of their respective properties,  income, profits or assets
which are due and  payable  have  been paid or  provided  for,  except  such tax
returns the non-filing of which,  and such taxes the nonpayment of which,  would
not have a material  adverse  effect  upon the  business,  assets,  liabilities,
financial condition,  results of operation or business prospects of the Borrower
and its  Subsidiaries  and  except  for such  taxes  and  assessments  which the
Borrower or any of its Subsidiaries is disputing in good faith and for which the
Borrower or such Subsidiary has established  adequate  reserves on its books for
the payment of such disputed taxes or assessments in accordance with GAAP.

     4.12 Financial Statements. The Borrower has furnished to the Bank a copy of
its  consolidating  and consolidated  balance sheet as at December 31, 1997, and
the  related  consolidating  and  consolidated  statements  of income,  retained
earnings and cash flows for the 12 months then ended,  as certified by certified
public accountants.  Such financial  statements fairly present the consolidating
and consolidated  financial position and results of operations and cash flows of
the Borrower and the Borrower's Subsidiaries on the date and for the period then
ended,  in accordance  with GAAP,  consistently  applied  throughout the periods
involved and show all direct liabilities and all known contingent liabilities of
a material nature of the Borrower and the Borrower's  Subsidiaries in accordance
with GAAP.

     4.13 No Adverse  Changes.  Since  December  31, 1997,  no material  adverse
change has occurred in the business, assets,  liabilities,  financial condition,
results of  operations  or  business  prospects  of the  Borrower  or any of its
Subsidiaries,  and no event has  occurred or failed to occur which has had or is
likely to have a material adverse effect on the business,  assets,  liabilities,
financial condition, results of operations or business prospects of the Borrower
or any of its Subsidiaries.

     4.14 ERISA.

     (a) The Borrower and its  Subsidiaries  are in  compliance  in all material
respects  with the  applicable  provisions  of the  Employee  Retirement  Income
Security  Act  of  1974,  as  amended  ("ERISA")  and  all  regulations   issued
thereunder; and

     (b)  No  "employee  benefit  plan",  as  defined  in  Section  3 of  ERISA,
maintained  and  administered  by the Borrower or any of its  Subsidiaries  (but
excluding  any  multi-employer  plan  in  which  any  Borrower  or  any  of  its
Subsidiaries  participates  but does not  administer),  as from  time to time in
effect (the  "Plans"),  nor any trusts  created  thereunder,  nor any trustee or
administrator thereof, has engaged in a "prohibited  transaction," as defined in
Section  4975 of the  Internal  Revenue  Code of 1986,  which could  subject the
Borrower or any of its Subsidiaries,  any Plan or any such trust, or any trustee
or administrator  thereof,  or any party dealing with any Plan or any such trust
to the tax or penalty on prohibited  transactions  imposed by said Section 4975.
Neither any of the Plans nor any such trusts have been terminated, nor has there
been  any  "reportable   event,"  as  defined  in  Section  4043


                                      -19-
<PAGE>

of ERISA, or "accumulated  funding  deficiency." Neither the Borrower nor any of
its  Subsidiaries  has incurred any  liability to the Pension  Benefit  Guaranty
Corporation.

     4.15  Federal  Reserve  Regulations.  Neither the  Borrower  nor any of its
Subsidiaries is engaged principally,  or as one of its important activities,  in
the business of extending  credit for the purpose of  purchasing or carrying any
margin  stock  (within  the  meaning  of  Regulations  U and X of the  Board  of
Governors  of the Federal  Reserve  System).  No part of any of the  Advances or
Acquisition  Advances  hereunder  or  proceeds of the Term Loan shall be used to
purchase  or carry any such margin  stock or to extend  credit to others for the
purpose of purchasing or carrying any such margin stock.

     4.16 Solvency.

     (a) The present fair saleable  value of the assets of the Borrower and each
of its  Subsidiaries,  after giving effect to all the transactions  contemplated
herein,  exceeds the amount that will be required to be paid on or in respect of
the existing debts and other liabilities  (including contingent  liabilities) of
the Borrower or such Subsidiary as they mature.

     (b) The property of the Borrower and each  Subsidiary  does not  constitute
unreasonably  small capital for the Borrower or such Subsidiary to carry out its
business as now conducted and as proposed to be conducted, including the capital
needs of the Borrower or such Subsidiary.

     (c) Neither the Borrower nor any of its  Subsidiaries  intends to, nor does
the Borrower or any of its Subsidiaries believe that it will, incur debts beyond
its ability to pay such debts as they mature (taking into account the timing and
amounts  of cash to be  received  by the  Borrower  or such  Subsidiary,  and of
amounts to be payable on or in respect of  Indebtedness  of the Borrower and its
Subsidiaries, including the Obligations). The cash available to the Borrower and
each of its Subsidiaries after taking into account all other anticipated uses of
the cash of the Borrower and its  Subsidiaries,  is anticipated to be sufficient
to pay all  such  amounts  on or in  respect  of debt of such  Borrower  and its
Subsidiaries when such amounts are required to be paid.

     (d) Neither the Borrower nor any of its  Subsidiaries  believes  that final
judgments  against it in actions  for money  damages  will be rendered at a time
when, or in an amount such that, the Borrower or such  Subsidiary will be unable
to satisfy any such  judgments  promptly in accordance  with their terms (taking
into account the maximum reasonable amount of such judgments in any such actions
and the earliest reasonable time at which such judgments might be rendered). The
cash  available to the Borrower and its  Subsidiaries  after taking into account
all other  anticipated  uses of the cash of the  Borrower  and its  Subsidiaries
(including  the  payments  on or in respect of the  Indebtedness  referred to in
subsection  (c) of this Section 4.16) is anticipated to be sufficient to pay all
such judgments promptly in accordance with their terms.

     4.17 Accuracy and Completeness of Information. All information, reports and
other papers and data  furnished to the Bank were,  at the time the same were so
furnished,  complete and correct in all material respects. No document furnished
or statement made to the Bank in connection with the negotiation, preparation or
execution of the Loan Documents contains or will contain any


                                      -20-
<PAGE>

untrue  statement  of fact or  omits  or will  omit  to  state a  material  fact
necessary in order to make the statements  contained therein not misleading.  No
fact is known to the Borrower which has had or may in the future have (so far as
the  Borrower  can  reasonably  foresee) a  materially  adverse  effect upon the
Borrower's or any of its Subsidiaries' business, assets, liabilities, condition,
financial or otherwise,  or results of operations that has not been set forth in
the financial  statements furnished to the Bank or other reports or other papers
or data otherwise disclosed in writing to the Bank.

     4.18 Permits. The Borrower and each of its Subsidiaries have obtained,  and
taken all necessary  steps to preserve,  the  franchises,  licenses,  approvals,
certificates of occupancy, permits and other authorizations  (collectively,  the
"Permits")  required to conduct its business in accordance  with all  applicable
laws and with all material  agreements to which it is subject and has not failed
to  adhere to the  requirements  thereof  in any  material  respect.  All of the
Permits are valid, in good standing and in full force and effect.

     4.19 Year 2000 Compliance.  The Borrower and each of its Subsidiaries  have
taken all  reasonable  steps to assure that all  computer  software and hardware
used by the Borrower or any of its Subsidiaries in the operation of its business
are designed to be used prior to, during, and after the calendar year A.D. 2000,
and such  software and  hardware is intended to operate  during each time period
without error relating to date data,  including without  limitation dates on and
after January 1, 2000.

     V. COVENANTS

     5. The Borrower  covenants and agrees that until all the  Obligations  have
been  satisfied  and paid in full,  the Borrower  will comply with the following
covenants:

     5.1 Preservation of Existence. The Borrower will do or cause to be done all
things  necessary to preserve and maintain in full force and effect its and each
of its Subsidiaries'  corporate existence and all contracts,  rights,  licenses,
permits,  franchises  and trade names which in its  judgment  are  necessary  or
useful to the proper  conduct of their  respective  businesses and shall qualify
and remain  qualified as a foreign  corporation and authorized to do business in
each  jurisdiction in which the character of their respective  properties or the
nature  of  their   respective   businesses   requires  such   qualification  or
authorization,  except such  jurisdictions in which the lack of qualification or
authorization  does not  materially  adversely  affect the business,  results of
operations  or  financial   condition  of  the  Borrower  or  its  Subsidiaries.
Notwithstanding  the  foregoing,  nothing herein shall be deemed or construed to
prohibit the Borrower from causing one or more of its Subsidiaries  (whether now
owned or hereafter  acquired) to merge with or into, or to be consolidated with,
one or more of its other Subsidiaries (whether now owned or hereafter acquired);
provided that the business  operations of the Borrower and its Subsidiaries,  as
the same were conducted  immediately prior to such merger or consolidation,  are
maintained substantially undisturbed following such merger or consolidation.

     5.2 Nature of  Business.  The  Borrower  will not,  directly or through its
Subsidiaries,  engage in any business, other than the ownership of (a) the stock
of  the  Borrower's  Subsidiaries  and  (b)  insurance  brokerage,  underwriting
businesses and related businesses.



                                      -21-
<PAGE>

     5.3 Compliance  with Laws. The Borrower will comply,  and cause each of its
Subsidiaries  to  comply,  with all  laws,  ordinances,  governmental  rules and
regulations  to which it or its  properties  or  assets  are,  or might  become,
subject  (unless  the  same  shall  be  contested  by the  Borrower  or any such
Subsidiary in good faith and by appropriate  proceedings  and such contest shall
operate to stay any such  non-compliance),  the  noncompliance  with which might
materially  interfere  with the  performance of its  obligations  under the Loan
Documents to which it is a party or with the proper conduct of its business.

     5.4  Maintenance of  Properties.  The Borrower will maintain or cause to be
maintained in working order and condition,  ordinary wear and tear excepted, all
of its assets and  properties,  and all of the assets and  properties of each of
its  Subsidiaries,  which are material to the conduct of its business,  and from
time to time,  make or cause to be made  all  necessary  repairs,  replacements,
additions, betterments and improvements thereto, so that the business carried on
in  connection  therewith  may be properly and  advantageously  conducted at all
times.

     5.5  Accounting  Methods.  The  Borrower  will,  and will cause each of its
Subsidiaries to, maintain a system of accounting established and administered in
accordance  with  GAAP,  keep  adequate  records  and books of  account in which
complete  entries will be made in accordance  with GAAP,  make  provision in its
accounts in accordance with GAAP for reserves for depreciation, obsolescence and
amortization and all other proper reserves and accruals which in accordance with
GAAP should be  established.  The Borrower will also cause each of its Insurance
Subsidiaries to maintain a system of accounting  established and administered in
accordance  with  SAP,  keep  adequate  records  and books of  account  in which
complete  entries will be made in  accordance  with SAP,  make  provision in its
accounts in accordance with SAP for reserves for depreciation,  obsolescence and
amortization and all other proper reserves and accruals which in accordance with
SAP should be established.

     5.6 Payment of Taxes and Claims.  The Borrower will, and will cause each of
its Subsidiaries to, pay and discharge  promptly (i) all taxes,  assessments and
governmental  charges or levies imposed upon it or upon its income or profits or
upon any of its  properties or assets  before the same shall become  delinquent,
(ii) all  lawful  claims  of  materialmen,  mechanics,  carriers,  warehousemen,
landlords, and other similar persons for labor, materials,  supplies and rentals
which,  if unpaid,  might by law become a Lien or charge upon its  property  and
(iii) all of its Indebtedness and other  obligations of whatever nature when due
(subject,  where applicable,  to grace periods, normal credit terms and to other
forbearance in the ordinary course of business); provided, however, that none of
the  foregoing  need  be  paid  while  being  contested  in  good  faith  and by
appropriate proceedings, so long as adequate book reserves have been established
in  accordance  with  GAAP  with  respect  thereto  and the  Borrower's  or such
Subsidiary's  title to, and its right to use, its  properties are not materially
adversely affected thereby.

     5.7 Visits and Inspections;  Field  Examinations.  The Borrower will permit
the Bank and its agents and representatives,  at any time during normal business
hours,  to (i) visit and inspect the premises and the properties of the Borrower
and each of its Subsidiaries,  (ii) inspect and make extracts from the books and
records of the Borrower and each of its  Subsidiaries and (iii) discuss with the
Borrower's or each Subsidiary's  principal  officers,  employees and independent
public


                                      -22-
<PAGE>

accountants  any  and  all  matters  with  respect  to  the  business,   assets,
liabilities,  financial condition,  results of operations and business prospects
of the  Borrower or such  Subsidiary.  Without  limiting the  generality  of the
foregoing, the Bank shall be permitted to conduct periodic field examinations of
the Borrower and its Subsidiaries  and their respective  business and operations
in accordance  with the Bank's normal and  customary  practices.  So long as any
Obligations are outstanding, the Borrower shall pay the Bank a field examination
fee in the amount of $600 per person per day,  together  with the  out-of-pocket
expenses  incurred by the Bank or its  representatives  in performing such field
examinations. Notwithstanding the foregoing, however, the Bank shall not conduct
more than two (2) such field  examinations  in any calendar year unless,  in the
judgment of the Bank,  there  exists at any time a  reasonable  basis to conduct
same more frequently.

     5.8  Information  Covenants.   The  Borrower  will  furnish  the  following
information to the Bank for itself and on behalf of its Subsidiaries:

     (i) Annual Financial Statements. As soon as practicable,  and, in any case,
within  120 days  after  the end of each  fiscal  year of the  Borrower  and its
Subsidiaries, a consolidated and consolidating balance sheet of the Borrower and
its Subsidiaries as at the end of such fiscal year and the related  consolidated
and consolidating  statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for such fiscal year, setting forth in comparative
form the figures as at the end of and for the previous  fiscal year,  audited by
independent  certified  public  accountants  satisfactory  to  the  Bank,  whose
certificate  shall not  contain  any  qualification  and shall  state  that such
financial  statements  have been prepared in accordance  with GAAP  consistently
applied and that the  examination of such  accountants  in connection  with such
financial  statements  has  been  made in  accordance  with  generally  accepted
auditing  standards  and,  accordingly,  included  such tests of the  accounting
records and such other auditing  procedures as were considered  necessary in the
circumstances  and who shall  have  authorized  the  Borrower  to  deliver  such
financial  statements  and  certifications  thereof to the Bank pursuant to this
Agreement.  Together with such financial statements,  the Borrower shall deliver
(A) a certificate of such accountants (1) stating that in making the examination
necessary for the certification of such financial  statements they have obtained
no knowledge of any Default or Event of Default,  or if they shall have obtained
knowledge of any such Default or Event of Default,  disclosing each such Default
and  Event of  Default  and its  nature,  when it  occurred  and  whether  it is
continuing  and (2) which shall have  attached the  calculations  made which are
required to establish whether or not the Borrower and its Subsidiaries  were, as
of the date of such  statements,  in  compliance  with the  financial  covenants
contained in this Agreement and (B) copies of all "management letters" issued to
the Borrower or its Subsidiaries by its accountants.

     (ii) Annual SAP  Financial  Statements.  As soon as  available,  and in any
event within 60 days (with respect to unaudited SAP  Financial  Statements)  and
150 days (with respect to audited SAP Financial Statements) following the end of
each Insurance  Subsidiary's fiscal year (or such earlier date as such are filed
with the applicable insurance regulatory authority), copies of the unaudited (if
required to be filed with a  regulatory  authority)  and  audited SAP  Financial
Statements  for  such  Insurance  Subsidiary,  in each  case  setting  forth  in
comparative  form the figures  for the  preceding  fiscal  year and  prepared in
accordance  with SAP, all in  reasonable  detail and  accompanied  by an opinion
thereon of a firm of  independent  public  accountants  of  recognized  national
standing selected by the Borrower and reasonably  acceptable to the Bank, to the
effect that the financial  statements  have


                                      -23-
<PAGE>

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

     (iii)  Quarterly SAP  Statements.  As soon as  available,  and in any event
within the time period required by the applicable regulatory  authority,  copies
of the unaudited SAP Financial  Statements for each  quarterly  fiscal period of
each Insurance  Subsidiary,  in each case setting forth in comparative  form the
figures for the preceding  fiscal year and prepared in accordance  with SAP, all
in  reasonable  detail and  certified  by the chief  executive  officer or chief
financial  officer  of  such  Insurance   Subsidiary  as  presenting  fairly  in
accordance with SAP the financial  condition of such Insurance  Subsidiary as of
the end of such period and results of  operations  for such  period,  subject to
normal year-end accruals and audit adjustments.

     (iv) SEC Filings.  Promptly  after the same are  available,  copies of each
annual  report,  proxy or financial  statement or other report or  communication
sent to the  stockholders  of the  Borrower  and copies of all annual,  regular,
periodic and special reports and registration  statements which the Borrower may
file or be required to file with the  Securities and Exchange  Commission  under
Sections 13 and 15(d) of the  Securities  and  Exchange  Act of 1934,  including
without limitation Forms 10-Q and 10-K filed by the Borrower.

     (v) Adequacy of Reserves. As soon as practicable,  and, in any case, within
60 days after the end of each fiscal year of OLRI,  written  confirmation of the
adequacy  of the  reserves  of  OLRI  from  an  independent  actuarial  firm  of
recognized  standing  selected by the Borrower and reasonably  acceptable to the
Bank.

     (vi)  Certificate.  At the  time the  financial  statements  are  furnished
pursuant to  subsections  (i),  (ii) and (iii) above,  the  Borrower  shall also
furnish a certificate of the chief executive  officer or chief financial officer
of the Borrower  stating that no event has occurred which  constitutes a Default
or an Event of Default  under any of the Loan  Documents or if such an event has
occurred,  disclosing  each  such  event  or  failure  and its  nature,  when it
occurred,  whether it is continuing and the steps being taken by the Borrower or
the Guarantors with respect to such event or failure.

     (vii) Copies of Other Reports.

     (1) From time to time and promptly upon each request, such existing reports
and other information  regarding the business,  assets,  liabilities,  financial
condition,  results of operations or business  prospects of the Borrower and its
Subsidiaries as the Bank may reasonably request; and

     (2) Within 15 days after the Borrower and its Subsidiaries have filed their
federal tax returns each year, a copy of such tax returns.



                                      -24-
<PAGE>

     (viii) Notice of Litigation and Other Matters. Prompt notice of:

     (1) the  commencement of any proceeding or  investigation  by or before any
governmental  body and any  action or  proceeding  in any  court or  before  any
arbitrator against or in any other way relating adversely to the Borrower or any
of its Subsidiaries or any of their respective  properties,  assets or business,
which, in the reasonable  judgment of the senior management of the Borrower,  if
adversely   determined,   would  singly  or  when   aggregated  with  all  other
proceedings,  investigations  or actions,  materially  and adversely  affect the
business,  results of operations  or financial  condition of the Borrower or its
Subsidiaries;

     (2) any notice received from any administrative official or agency relating
to any order, ruling, statute or other law or information which would materially
and adversely affect the operations of the Borrower or its Subsidiaries;

     (3) any amendment of the  certificate  of  incorporation  or by-laws of any
Borrower or its Subsidiaries;

     (4) any  material  adverse  change with  respect to the  business,  assets,
liabilities, financial condition or results of operations of the Borrower or its
Subsidiaries;

     (5) any  Default  or Event of  Default  by the  Borrower  hereunder  or any
default under any other  material  agreement to which the Borrower or any of its
Subsidiaries  is a party or by which any of their  respective  properties may be
bound; and

     (6) any event which  would  result in a  representation  or warranty of the
Borrower  contained  herein being false or incorrect in any material  respect if
made on and as of the date of occurrence of such event.

     (ix) ERISA

     (a) As soon  as  possible,  and in any  event  within  30  days  after  any
executive officer of the Borrower or any of its Subsidiaries knows or has reason
to know that any  reportable  event (as  defined in Section  4043 of ERISA) with
respect to any Plan has  occurred,  a statement of the chief  executive  officer
setting  forth  details  as to such  reportable  event and the  action  that the
Borrower or any such Subsidiary proposes to take with respect thereto,  together
with a copy of the notice of such reportable  event given to the Pension Benefit
Guaranty Corporation.

     (b) Promptly  after receipt  thereof,  a copy of any notice the Borrower or
any  of  its   Subsidiaries  may  receive  from  the  Pension  Benefit  Guaranty
Corporation  relating to the intention of said Corporation to terminate any Plan
or to appoint a trustee to administer any Plan.

     5.9 Accuracy and Completeness of Information.  The Borrower  covenants that
all information, reports, statements, and other papers and data furnished to the
Bank pursuant to any


                                      -25-
<PAGE>

provision or term of any of the Loan Documents shall be, at the time the same is
so furnished, complete and correct in all material respects.

     5.10 Insurance.  The Borrower will, and will cause each of its Subsidiaries
to, maintain with financially sound and reputable  insurance companies insurance
in such types and amounts as is customarily  maintained for companies in similar
industries and reasonably acceptable to the Bank.

     5.11  Indebtedness.  The  Borrower  will not, and will not allow any of its
Subsidiaries  to,  create,  assume,  incur,  guarantee  or in any manner  become
liable,  contingently or otherwise,  in respect of any  Indebtedness  except for
Permitted  Indebtedness;  provided,  however, that the foregoing provision shall
not  apply  if,  concurrently  with the  incurrence  of such  Indebtedness,  the
proceeds thereof are applied to the complete satisfaction and payment in full of
all Obligations.

     5.12  Liens.  The  Borrower  will  not,  and  will  not  allow  any  of its
Subsidiaries  to,  create,  assume or incur or cause to be  created,  assumed or
incurred,  or permit to exist,  any Liens on its properties or assets except for
Permitted Liens.

     5.13 Sale of Assets; Merger; Acquisitions.

     (a) The  Borrower  will  not,  and  will  not  allow  or  cause  any of its
Subsidiaries  to (i) sell,  transfer,  assign,  lease or  otherwise  dispose  of
(whether in one transaction or a series of  transactions)  all or  substantially
all of its assets  (whether now owned or hereafter  acquired) or (ii) subject to
the provisions of Section 5.1 hereof,  consolidate  with or merge into any other
corporation or permit any corporation to merge into it.

     (b) Except for Permitted Acquisitions,  the Borrower will not, and will not
allow  or  cause  any  of its  Subsidiaries  to,  undertake  or  consummate  any
Acquisition  without the prior written  approval of the Bank, which approval may
be granted or withheld in the Bank's sole discretion.

     5.14 Guarantees.  The Borrower will not, and will not allow or cause any of
its Subsidiaries to, guarantee,  endorse, become surety for, or otherwise in any
way become or be responsible for, the obligations of any other Person whether by
agreement to purchase the indebtedness of any other Person, or agreement for the
furnishing  of funds,  directly  or  indirectly,  for the  purpose of payment of
indebtedness  of any other  Person,  other  than in  connection  with  Permitted
Indebtedness  and   endorsements  of  negotiable   instruments  for  deposit  or
collection in the ordinary course of its business.

     5.15 Issuance of Stock.  Except (a) pursuant to and in accordance  with the
employee  stock  option plan of the Borrower in effect as of the date hereof and
more fully  described  on  Schedule  VI  attached  hereto,  and (b) for  issuing
securities  in an amount  which does not  exceed  fifteen  percent  (15%) of the
shareholders  equity of the issuer, the Borrower will not, and will not allow or
cause any of its  Subsidiaries to, issue to any Person any shares of its capital
stock (whether  common or preferred) nor any options,  subscriptions,  warrants,
rights,  contracts,  commitments,  understandings  or  agreements to purchase or
otherwise  acquire  any such  shares  (including  any  rights of  conversion  or
exchange) without the prior written consent of the Bank.



                                      -26-
<PAGE>

     5.16 [Intentionally Omitted].

     5.17 Financial Covenants.

     (a) Minimum  Consolidated GAAP Net Worth. The Borrower shall not permit, as
of the end of any fiscal  quarter,  Consolidated  GAAP Net Worth of the Borrower
and  its  Subsidiaries  to be  less  than  an  amount  equal  to the  sum of (a)
$30,000,000,  plus (b) 50% of the  Consolidated  Net Income for the fiscal  year
ending December 31, 1997, plus (c) 50% of any cumulative positive net income (as
determined in accordance with GAAP) for each fiscal quarter following the fiscal
quarter ending December 31, 1997.

     (b) Minimum Statutory Surplus. The Borrower shall not permit, as of the end
of any fiscal quarter, Statutory Surplus of OLRI to be less than an amount equal
to the sum of (a) $23,000,000,  plus (b) 50% of the Statutory Net Income of OLRI
for the fiscal year ending  December 31, 1997,  after dividends to the Borrower,
plus (c) 50% of any  cumulative  positive  Statutory  Net Income of OLRI,  after
dividends to the Borrower,  for each fiscal quarter following the fiscal quarter
ending December 31, 1997.

     (c) Maximum Premiums to Surplus.  The Borrower shall not permit,  as of the
end of any fiscal  quarter,  the ratio of Net  Premiums  Written by OLRI for the
immediately  preceding  four  fiscal  quarters  (ending  on such date) to OLRI's
Statutory Surplus at the end of such fiscal quarter to be greater than 2.5 to 1.

     (d) Debt Service Coverage Ratio. The Borrower and its Subsidiaries shall at
all times maintain a Debt Service Coverage Ratio of not less than 1.25 to 1.

     5.18 OLRI Rating.  The Borrower shall at all times cause OLRI to maintain a
minimum  rating  of  "A-"  as  assigned  in  A.M.   Best's   Insurance   Reports
Property/Casualty Edition.

     5.19 New Subsidiaries.  Simultaneously  with the creation or Acquisition of
each new  Subsidiary  by the Borrower or one of its  Subsidiaries,  the Borrower
shall, or shall cause the acquiring Subsidiary to, either:

     (a) If permitted by applicable  law,  cause such new  Subsidiary to execute
and deliver to the Bank a joinder of guaranty in form and substance satisfactory
to the Bank,  pursuant  to which such new  Subsidiary  joins in,  and  becomes a
Guarantor  under,  the  Guaranty  Agreement  with the same effect as if such new
Subsidiary had executed and delivered the Guaranty Agreement on the date hereof;
or

     (b) If such new  Subsidiary is not  permitted by applicable  law to join in
the Guaranty Agreement and such new Subsidiary is an Insurance  Subsidiary,  (i)
execute  and  deliver  to the  Bank an  amendment  to the  Pledge  and  Security
Agreement, in form and substance satisfactory to the Bank, pursuant to which the
Borrower  shall  pledge  to the  Bank  all of the  capital  stock  of  such  new



                                      -27-
<PAGE>

Subsidiary, and (ii) deliver to the Bank an opinion of local counsel to such new
Subsidiary,  covering  such matters and otherwise in form and substance as shall
be reasonably acceptable to the Bank.

     5.20 Out-of Debt Period.  For a period of 30 consecutive days commencing no
later  than the date which is 30 days prior to the  Revolving  Loan  Termination
Date,  the Borrower  shall reduce its  outstanding  Advances under the Revolving
Loan to, and shall maintain the outstanding balance under the Revolving Loan at,
$0.

     5.21  Further  Documentation.  At any time and from  time to time  upon the
Bank's  written  request and at the Borrower's  sole expense,  the Borrower will
promptly and duly execute and deliver such further documents and instruments and
do such further acts and things as the Bank may  reasonably  request in order to
obtain the full benefits of this Agreement and the Loan Documents and the rights
and powers herein and therein granted,  including the filing of any financing or
continuation  statements and amendments  thereto under the Code in effect in any
jurisdiction and any and all other recording documents with respect to the Liens
and security  interests granted to the Bank pursuant to the Loan Documents.  The
Borrower  also  hereby  authorizes  the  Bank  to file  any  such  financing  or
continuation  statement  without  the  signature  of the  Borrower to the extent
permitted by applicable  law. If any amount payable under or in connection  with
any of the Collateral  shall be or become  evidenced by any  promissory  note or
other  instrument  or chattel  paper,  such note or other  instrument or chattel
paper shall be  immediately  pledged to the Bank  hereunder,  duly endorsed in a
manner satisfactory to the Bank and delivered to the Bank.

     5.22 Bank's Appointment as  Attorney-in-Fact.  To the extent not prohibited
by applicable law or by any applicable  rule or regulation of the Securities and
Exchange  Commission or any insurance  regulatory  authority having jurisdiction
over the Borrower:

     (a) The Borrower hereby irrevocably  constitutes and appoints the Bank, and
any officer or agent thereof,  with full power of substitution,  as its true and
lawful  attorney-in-fact  with full irrevocable power and authority in the place
and stead of the  Borrower  and in the name of the  Borrower or in its own name,
from  time  to  time in the  Bank's  discretion  following  the  occurrence  and
continuance of an Event of Default, for the purpose of carrying out the terms of
this Agreement,  to take any and all  appropriate  action and to execute any and
all documents and instruments  which may be necessary or desirable to accomplish
the purposes of this Agreement.

     (b) The Borrower  hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof.  This power of attorney is a power coupled
with an interest and shall be irrevocable.

     (c) The powers  conferred on the Bank  hereunder  are solely to protect the
interests of the Bank and shall not impose any duty upon it to exercise any such
powers. The Bank shall be accountable only for amounts that it actually receives
as a result  of the  exercise  of such  powers,  and  neither  it nor any of its
directors,  officers,  employees or agents shall be  responsible to the Borrower
for any act or  failure  to act,  except  for its gross  negligence  or  willful
misconduct.



                                      -28-
<PAGE>

     5.23 Performance by Bank of Borrower's  Obligations.  If the Borrower fails
to perform or comply with any of its agreements  contained herein, and the Bank,
as provided  for by the terms of this  Agreement,  shall  perform or comply,  or
otherwise cause performance or compliance,  with such agreement, the expenses of
the Bank incurred in connection  with such  performance or compliance  (together
with  interest  thereon at the rate of 5% in excess of the Base  Rate)  shall be
payable by the Borrower to the Bank on demand and shall  constitute  Obligations
secured hereby.

     5.24 Year 2000 Compliance.  The Borrower and each of its Subsidiaries shall
take all action  reasonably  necessary to assure that all computer  software and
hardware used by the Borrower or any of its Subsidiaries in the operation of its
business are designed to be used prior to,  during,  and after the calendar year
A.D.  2000,  and such  software and hardware is intended to operate  during each
time period without error relating to date data,  including  without  limitation
dates on and after  January 1, 2000.  At the request of the Bank,  the  Borrower
shall provide the Bank with assurance  reasonably  acceptable to the Bank of the
compliance by the Borrower and each of its  Subsidiaries  with the provisions of
this Section.

     VI. CONDITIONS PRECEDENT

     6.1 Initial  Conditions  Precedent.  The obligation of the Bank to make the
Term  Loan and to make an  Advance  under  the  Revolving  Note,  as of the date
hereof, is subject to the condition  precedent that the Bank shall have received
each and every one of the  following  on or before  the date  hereof in form and
substance satisfactory to the Bank:

     (a) An  originally  executed  copy of this  Agreement and each of the other
Loan  Documents  which  are  dated the date  hereof,  and all  other  documents,
instruments and certificates required hereunder and thereunder;

     (b) A copy of the certificate of  incorporation  and bylaws of the Borrower
and  each  of the  Borrower's  Subsidiaries,  certified  as a true  copy  by the
Secretary or an Assistant  Secretary  of the Borrower or such  Subsidiaries,  as
applicable;

     (c) A good standing  certificate issued as of a recent date with respect to
the Borrower and each of the Borrower's  Subsidiaries  by the secretary of state
of the state of each such  entity's  incorporation  and each  state  where  such
entity is qualified to do business;

     (d) A  certificate  of  the  Secretary  or an  Assistant  Secretary  of the
Borrower and each Existing Guarantor certifying the names and true signatures of
the officers of the Borrower and each Existing Guarantor authorized to sign each
of the Loan  Documents  to which the  Borrower or each  Existing  Guarantor is a
party;

     (e) A copy of the  resolutions  approved by the Board of  Directors  of the
Borrower and each Existing  Guarantor  authorizing  the execution,  delivery and
performance  by the  Borrower  and each  Existing  Guarantor of each of the Loan
Documents to which it is a party,  certified as a true copy by the  Secretary or
an Assistant Secretary of the Borrower or each Existing Guarantor;



                                      -29-
<PAGE>

     (f)  Written   opinions  of  counsel  to  the  Borrower  and  the  Existing
Guarantors;

     (g)  Written   opinions  of  local   counsel  to  each  of  the   Insurance
Subsidiaries;

     (h)  Evidence  reasonably  satisfactory  to  the  Bank  that  all  filings,
recordings  and  other  actions  that are  necessary  or  desirable  in order to
establish and perfect the Bank's security  interest in the collateral  described
in the  Pledge and  Security  Agreement,  as a valid  perfected  first  priority
security interest shall have been or shall be duly effected,  including, without
limitation, the filing of financing statements, and the filing or recordation of
such other documents as the Bank shall deem necessary or desirable,  all in form
and substance  satisfactory  to the Bank, and all fees,  taxes and other charges
relating to such filings and recordings shall have been paid by the Borrower;

     (i) A letter  from the  Borrower's  actuary,  plan  administrator  or other
qualified  representative  stating  that  all of  the  Borrower's  Plans  are in
compliance with ERISA;

     (j) Certified true copies of the financial statements of Old Lyme Insurance
Company,  Ltd., as filed with the Bermuda Monetary  Authority,  for fiscal years
1994, 1995 and 1996.

     (k) Such other  documents  and  information  as the Bank  shall  reasonably
request,  in form and substance  satisfactory to the Bank, and all legal matters
and documents with respect to the  transactions  contemplated  by this Agreement
shall be satisfactory to counsel for the Bank.

     6.2 Conditions  Precedent to Additional Advances and Acquisition  Advances.
The Bank shall have no obligation to make any additional  Advance or Acquisition
Advance  subsequent to the date hereof  unless each of the following  conditions
precedent has been either satisfied or waived prior to or concurrently  with the
making of such Advance or Acquisition Advance.

     (a) Each of the conditions of Section 6.1 has been satisfied or waived;

     (b) Each of the Loan Documents shall be in full force and effect;

     (c) The  representations  and  warranties  of the Borrower set forth herein
shall be true and correct as of the date of each Advance or Acquisition  Advance
as if made on and as of such date;

     (d) In the case of an  Acquisition  Advance,  the Borrower has executed and
delivered  to the  Bank  an  Acquisition  Note  and,  in  the  case  of a  stock
Acquisition,  the Borrower or the new  Subsidiary,  as applicable,  has complied
with the provisions of Section 5.19 hereof;

     (e) No Default or Event of Default has occurred and is continuing as of the
date of each Advance or Acquisition Advance;

     (f) There is and has been no material  adverse  change in the Borrower's or
any of the Borrower's  Subsidiaries' financial condition,  results of operations
or otherwise  which would,  in the judgment of the Bank,  impair the  Borrower's
ability to repay all or any portion of the Notes; and



                                      -30-
<PAGE>

     (g) No further action,  including any filing or recording of any agreement,
document or  instrument,  is necessary to establish  and perfect the Bank's Lien
and priority in the Collateral.

     Each request for an Advance or Acquisition Advance by the Borrower shall be
deemed a representation and warranty by the Borrower that each of the conditions
precedent  set forth in Sections  6.2(a),  (b), (c), (e), (f) and (g) hereof has
been satisfied, unless the Bank has waived satisfaction of any such condition in
writing prior to or concurrently with the making of such Advances or Acquisition
Advances, in which case the representation and warranty of the Borrower will not
be deemed to extend to that particular condition.

     VII. EVENTS OF DEFAULT

     7. Each of the following shall constitute an Event of Default, whatever the
reason for such event and whether it shall be  voluntary  or  involuntary  or be
effected by  operation  of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any governmental body:

     7.1 The  Borrower  shall fail to make any payment of  principal or interest
under the Notes or hereunder on any date when due.

     7.2 If any warranty or representation  made by or on behalf of the Borrower
or any of its  Subsidiaries  contained herein or in any of the Loan Documents or
in any document furnished in compliance or connection with the Loan Documents is
false or incorrect in any material respect when made.

     7.3 The Borrower  shall  default in the  performance  or  observance of any
covenant or agreement  contained in this Agreement  (which is not the subject of
Section 7.1 or 7.2 hereof) and such default  shall  continue  unremedied  for 30
days after any officer of the Borrower shall have become aware of such default.

     7.4 If any  Event of  Default  shall  occur  under  any of the  other  Loan
Documents.

     7.5 The  Borrower  shall (i) default in any payment of the  principal of or
interest on any  Indebtedness  (other  than the  Indebtedness  evidenced  by the
Notes)  owing to the Bank,  (ii)  default in any payment of the  principal of or
interest on any Indebtedness,  which,  whether individually or together with all
such other  Indebtedness  as to which a default has occurred,  equals or exceeds
$250,000 (other than the Indebtedness evidenced by the Notes), beyond the period
of grace,  if any,  provided in the  instrument  or  agreement  under which such
Indebtedness  was created;  or (iii) default in the observance or performance of
any other agreement or condition  relating to any such Indebtedness or contained
in any instrument or agreement evidencing,  securing or relating thereto, or any
other event shall occur, the effect of which default or other event is to cause,
or to permit the holder or holders of such  Indebtedness  (or a trustee or agent
on behalf of such  holder or  holders)  to cause,  with the  giving of notice if
required,  such  Indebtedness  to become due prior to its stated maturity and as
the result of


                                      -31-
<PAGE>

such default or event such  Indebtedness has been accelerated and become due and
payable prior to its stated maturity.

     7.6 (i) The Borrower  shall  commence any case,  proceeding or other action
(A) under any existing or future law of any  jurisdiction,  domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization,  arrangement, adjustment,
winding-up, liquidation,  dissolution,  composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or  other  similar  official  for it or for all or any  substantial  part of its
assets,  or the Borrower shall make a general  assignment for the benefit of its
creditors;  or (ii) there  shall be  commenced  against the  Borrower  any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results  in the  entry of an  order  for  relief  or any  such  adjudication  or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
60 days;  or (iii)  there shall be  commenced  against  the  Borrower  any case,
proceeding  or  other  action  seeking  issuance  of a  warrant  of  attachment,
execution,  distraint or similar process against all or any substantial  part of
its assets,  which  results in the entry of an order for any such  relief  which
shall not have been  vacated,  discharged,  or stayed or bonded  pending  appeal
within 60 days from the  entry  thereof;  or (iv) the  Borrower  shall  take any
action  in  furtherance  of, or  indicating  its  consent  to,  approval  of, or
acquiescence in, any of the acts set forth in clauses (i), (ii) or (iii) above.

     7.7 A final judgment shall be entered against the Borrower by any court for
the  payment  of money  which,  together  with all other  outstanding  judgments
against the Borrower,  exceeds $250,000 in the aggregate,  which judgment is not
fully covered by  insurance,  or a warrant of attachment or execution or similar
process  shall be issued or  levied  against  property  of the  Borrower,  which
together  with other such  property  subject to other such  process,  exceeds in
value  $250,000  in the  aggregate  and,  if  within  60 days  (10  days if such
aggregate amount exceeds $400,000) after the entry, issue or levy thereof,  such
judgment,  warrant or process shall not have been  discharged or stayed  pending
appeal,  or,  if  within  60 days  (10  days if such  aggregate  amount  exceeds
$400,000)  after the  expiration  of any such stay,  such  judgment,  warrant or
process shall not have been discharged.

     7.8 (i) A  reportable  event (as defined in Section 4043 (b) of Title IV of
ERISA) shall have  occurred  with  respect to any  "employee  benefit  plan" (as
defined  in  Section  3  of  ERISA)   maintained  by  the  Borrower  or  to  any
multi-employer  plan in  which  the  Borrower  participates  (collectively,  the
"Benefit Plans") or any Benefit Plan of the Borrower shall have been voluntarily
terminated  as  provided  in  Section  4041(a)  of  ERISA  and  the  guaranteed,
nonfunded, nonforfeitable benefits (as such terms are defined in Section 4022 of
ERISA) of any such Benefit  Plan that has been  voluntarily  terminated  or with
respect to which a reportable event has occurred, when included in the financial
statements of the Borrower on a pro forma basis as a current  liability and as a
deduction from net worth, would cause the Borrower to have a negative net worth;
(ii) A  trustee  shall  be  appointed  by a  United  States  District  Court  to
administer any Benefit Plan; or (iii) the Pension Benefit  Guaranty  Corporation
shall institute proceedings to terminate any Benefit Plan.

     7.9 If the  Borrower  shall  cease to own and  control  100% of the capital
stock of each of its Subsidiaries,  or if the Borrower shall commence any action
or step with  respect  to, or shall


                                      -32-
<PAGE>

approve any plan of, any  liquidation  or  dissolution of the Borrower or any of
its Subsidiaries,  unless provision is otherwise made for the payment in full of
the Obligations.

     7.10  If  any  Guarantor  shall  terminate  or  attempt  to  terminate  its
obligations under the Guaranty Agreement.

     VIII. REMEDIES

     8.1 Upon the  occurrence  of an Event of Default set forth in Section  7.6,
the Bank shall have no  obligation  to make any further  Advance or  Acquisition
Advance,  and all amounts  outstanding  (with accrued interest  thereon) and all
other  amounts  owing  under  the  Notes  and the  other  Loan  Documents  shall
immediately  become due and  payable  without  presentment,  demand,  protest or
notice of any kind, all of which are hereby expressly waived by the Borrower.

     8.2 Upon the occurrence of any other Event of Default,  the Bank shall have
no obligation to make any further  Advance or  Acquisition  Advance and the Bank
may declare all amounts  outstanding  (with  accrued  interest  thereon) and all
other amounts owing to it under the Notes and the other Loan Documents to be due
and  payable  forthwith,  whereupon  the same shall  immediately  become due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Borrower.

     8.3 Upon the occurrence of any Event of Default:

     (i) All payments  received by the Borrower under or in connection  with any
of the Collateral  shall be held by the Borrower in trust for the Bank, shall be
segregated  from other funds of the Borrower and shall forthwith upon receipt by
the  Borrower  be turned  over to the Bank,  in the same form as received by the
Borrower (duly endorsed by the Borrower to the Bank, if required); and

     (ii) Any and all such  payments so received by the Bank  (whether  from the
Borrower or otherwise)  may, in the sole  discretion of the Bank, be held by the
Bank as collateral  security for, and/or then or at any time thereafter  applied
in whole or in part by the Bank against,  all or any part of the  Obligations in
such order as the Bank shall  determine in its sole  discretion.  Any balance of
such payments  held by the Bank and remaining  after payment in full of all such
Obligations  shall be paid over to the  Borrower  or, if the Bank has  knowledge
that  another  Person is lawfully  entitled  to receive the same,  to such other
Person.

     8.4 If any Event of Default shall occur, the Bank may exercise, in addition
to all other  rights and  remedies  granted to it in this  Agreement  and in any
other Loan Document,  all rights and remedies of a secured party under the Code.
Without  limiting the  generality of the  foregoing,  the Bank may,  without any
requirement  of notice,  setoff any and all amounts  owing by the Borrower to it
against any deposit account  maintained in the Bank by the Borrower or any other
property of the Borrower which may now or hereafter be in the Bank's  possession
or  control,  and such  right of setoff  shall be deemed to have been  exercised
immediately  upon such stated or  accelerated  maturity as aforesaid even though
such setoff is not noted on the records of the Bank until a later time.



                                      -33-
<PAGE>

     8.5 The Borrower also agrees to pay all Bank Costs incurred with respect to
the  collection  of any of the  Obligations  and the  enforcement  of any of the
Bank's rights hereunder.

     8.6 The Borrower  hereby  waives (i)  presentment,  demand,  protest or any
notice (to the extent  permitted by  applicable  law) of any kind in  connection
with this Agreement or any Collateral, except as otherwise provided herein, (ii)
all rights to seek from any court any bond or security  prior to the exercise by
the Bank of any remedy  described  herein,  (iii) the benefit of all  valuation,
appraisement  and  exemption  laws and (iv) all  rights to demand or to have any
marshaling  of assets  upon any power of sale  granted  herein  or  pursuant  to
judicial  proceedings  or  upon  any  foreclosure  or any  enforcement  of  this
Agreement.

     8.7  Without  limiting  the  generality  of any of the rights and  remedies
conferred upon the Bank in this Agreement, the Bank may, after the occurrence of
an Event of Default and to the full extent permitted by applicable law: (i) take
immediate  possession  of the  Collateral,  either  personally  or by means of a
receiver  appointed  by a court of  competent  jurisdiction;  (ii) at the Bank's
option,  use,  operate,  manage and control the Collateral in any lawful manner;
(iii)  collect and  receive all rents,  income,  revenue,  earnings,  issues and
profits  therefrom;  and (iv) maintain,  repair,  renovate,  alter or remove the
Collateral as the Bank may determine in its sole discretion.

     IX. INDEMNIFICATION

     9.1 Indemnification.  The Borrower agrees to pay, reimburse,  indemnify and
hold  harmless,  the  Bank,  its  directors,  officers,  employees,  agents  and
representatives  from  and  against  any  and  all  actions,   costs,   damages,
disbursements,  expenses  (including  reasonable  attorneys'  fees),  judgments,
liabilities,  losses,  obligations,  penalties  and  suits of any kind or nature
whatsoever with respect to:

     (i) (A) subject to the  provisions  of Sections  2.31 and 2.32 hereof,  the
development, preparation and execution of any of the Loan Documents, (B) subject
to the provisions of Section 2.31 hereof,  the performance and administration of
any of the Loan Documents and (C) the  enforcement,  interpretation,  amendment,
modification, waiver or consent of any of the Loan Documents;

     (ii)  the  exercise  of any  right  or  remedy  granted  in any of the Loan
Documents, the collection or enforcement of any of the Obligations and the proof
or allowability of any claim arising under any of the Loan Documents, whether in
any bankruptcy or receivership proceeding or otherwise;

     (iii) any claim of third parties,  and the prosecution or defense  thereof,
arising out of or in any way connected with any of the Loan Documents; and

     (iv) any and all search,  recording and filing fees and taxes,  and any and
all  liabilities  with respect  thereto,  or resulting  from any delay in paying
stamp and other taxes,  if any, which may be payable or determined to be payable
in connection with the Loan Documents.



                                      -34-
<PAGE>

     Notwithstanding  the  foregoing,  the Bank  shall  not be  entitled  to any
indemnification with respect to its own gross negligence or willful misconduct.

     X. MISCELLANEOUS

     10.1 Notice. All notices and other communications given to or made upon any
party  hereto in  connection  with this  Agreement  shall,  except as  otherwise
expressly herein provided,  be in writing and hand delivered,  sent by certified
mail,  return  receipt  requested or  reputable  overnight  courier  providing a
receipt  against  delivery  or faxed (so long as,  concurrently  with  sending a
notice by fax,  a party  also  sends the  notice  by any other  means  permitted
hereunder) to the respective parties, as follows:

         Bank:             Summit Bank
                           250 Moore Street
                           2nd Floor
                           Hackensack, New Jersey  07601
                           Attention:  Ms. Lisa Cohen
                           Telecopy:  (201) 488-6185

                              - with a copy to -

                           Wolff & Samson
                           5 Becker Farm Road
                           Roseland, New Jersey 07068
                           Attention:  Laurence M. Smith, Esq.
                           Telecopy:  (973) 740-1407

         Borrower:         Kaye Group Inc.
                           122 East 42nd Street
                           New York, New York  10168
                           Attention:  Michael P. Sabanos
                           Telecopy:  (212) 867-0368

                              - with a copy to -

                           Kaye Group Inc.
                           122 East 42nd Street
                           New York, New York  10168
                           Attention:  Ivy Fischer, Esq.
                           Telecopy:  (212) 856-9458

or to such changed address as may be fixed by notice. All such notices and other
communications   shall,  except  as  otherwise  expressly  herein  provided,  be
effective  when  received by the party to whom


                                      -35-
<PAGE>

properly  addressed,  the  written  receipt  by any  employee  of any such party
constituting sufficient evidence of such receipt.

     10.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising,  on the part of the Bank, any right,  power or privilege  hereunder,
shall operate as a waiver thereof;  nor shall any single or partial  exercise of
any right,  power or privilege  hereunder preclude any other or further exercise
thereof or the exercise of any other right,  power or privilege.  The rights and
remedies  herein  provided  are  cumulative  and not  exclusive of any rights or
remedies provided by law.

     10.3 Survival of Agreements. All agreements, representations and warranties
made herein, and in any certificates  delivered  pursuant hereto,  shall survive
the  execution  and delivery of this  Agreement and the Notes and the making the
Term Loan and of any Advances and Acquisition Advances.

     10.4 Amendment.  No  modification,  amendment or waiver of any provision of
this Agreement or the Notes,  nor consent to any departure by the Borrower shall
in any event be effective  unless the same shall be in writing and signed by the
party granting such  modification,  amendment or waiver, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.

     10.5 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Borrower,  the Bank,  all future  holders of the Notes and
their respective successors and assigns, except that the Borrower may not assign
or transfer any of its rights under this Agreement,  the Notes or the other Loan
Documents without the prior written consent of the Bank, which may be granted or
withheld by the Bank in its sole and absolute  discretion.  This Agreement,  the
Notes and the other Loan  Documents may be endorsed,  assigned or transferred in
whole or in part by the Bank,  and any such holder or assignee of the same shall
succeed  to and be  possessed  of the rights and powers of the Bank under all of
the  same  to  the  extent   transferred  and  assigned.   The  Bank  may  grant
participations  in all or  any  portion  of  its  interest  in the  indebtedness
evidenced by the Notes,  and in such event the Borrower  shall  continue to make
payments  due  under  the  Notes to the Bank  and the Bank  shall  have the sole
responsibility  of allocating  and forwarding  such payments in the  appropriate
manner and amounts.

     10.6 Severability.  In case any one or more of the provisions  contained in
this Agreement or the Notes should be invalid,  illegal or  unenforceable in any
respect,  the validity,  legality and enforceability of the remaining provisions
contained  herein  and  therein  shall not in any way be  affected  or  impaired
thereby.

     10.7 Counterparts.  This Agreement may be executed by the parties hereto in
any number of separate  counterparts  and all such  counterparts  taken together
shall constitute one and the same original instrument.

     10.8 Governing Law; No Third Party Rights.  This  Agreement,  the Notes and
the other Loan Documents and the rights and obligations of the parties hereunder
and thereunder  shall be governed by and construed and interpreted in accordance
with the law of the  State of New  Jersey.


                                      -36-
<PAGE>

This  Agreement  is solely  for the  benefit  of the  parties  hereto  and their
respective  successors  and  assigns,  and no other person shall have any right,
benefit,  priority or interest  in, under or because of the  existence  of, this
Agreement.

     10.9 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. AFTER CONSULTATION WITH
COUNSEL,  THE  BORROWER AND THE BANK HEREBY WAIVE THEIR RIGHT TO A TRIAL BY JURY
IN CONNECTION  WITH ANY AND ALL LITIGATION  INVOLVING THE SUBJECT MATTER OF THIS
AGREEMENT OR ANY OF THE OTHER LOAN  DOCUMENTS.  THE BORROWER AND THE BANK HEREBY
CONSENT TO THE  NON-EXCLUSIVE  JURISDICTION OF THE NEW JERSEY SUPERIOR COURT AND
THE  UNITED  STATES  DISTRICT  COURT  FOR  THE  DISTRICT  OF NEW  JERSEY  IN ANY
LITIGATION  ARISING  HEREUNDER.  THE BORROWER  HEREBY  IRREVOCABLY  APPOINTS IVY
FISCHER,  ESQ.  (WHOSE  ADDRESS IS 30 FAIRFIELD  STREET,  MONTCLAIR,  NEW JERSEY
07042) AS ITS AGENT FOR  PURPOSES  OF  RECEIVING  SERVICE OF PROCESS IN ANY SUCH
LITIGATION  AND FURTHER AGREES THAT SERVICE OF ANY SUCH PROCESS MAY BE EFFECTED,
IN ADDITION TO ANY OTHER MEANS  PERMITTED BY THE APPLICABLE  RULES OF COURT,  BY
MAILING SUCH PROCESS  CERTIFIED MAIL,  RETURN RECEIPT  REQUESTED OR BY REPUTABLE
OVERNIGHT  COURIER  PROVIDING A RECEIPT AGAINST DELIVERY TO SUCH AGENT OR TO THE
BORROWER.

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

                                 KAYE GROUP INC.



                                 By:
                                     --------------------------------
                                     Michael P. Sabanos
                                     Senior Vice President
                                     & Chief Financial Officer


                                 SUMMIT BANK



                                 By:
                                     --------------------------------
                                     Lisa Cohen, Vice President





                                      -37-
<PAGE>




 .

                              Schedules and Exhibit

                                       to

                                 Loan Agreement

                                 by and between

                                 Kaye Group Inc.

                                       and

                                   Summit Bank

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

                                    Schedules
                                    ---------


Schedule I        -        Permitted Indebtedness

Schedule II       -        Permitted Liens

Schedule III      -        Pending or Threatened Litigation

Schedule IV       -        Subsidiaries

Schedule V        -        Real Property

Schedule VI       -        Employee Stock Option Plan





                                     Exhibit
                                     -------

Exhibit A         -        Form of Acquisition Note


<PAGE>

                                    EXHIBIT A

                            FORM OF ACQUISITION NOTE

$
 -----------------                                          --------------------
                                                                          [Date]


     FOR  VALUE  RECEIVED,   the  undersigned,   KAYE  GROUP  INC.,  a  Delaware
corporation  (the  "Borrower"),  hereby  unconditionally  promises  to pay on or
before  _______________________  (the "Maturity  Date"),  to the order of SUMMIT
BANK,  a banking  institution  of the State of New Jersey (the  "Bank"),  at the
office of the Bank located at 250 Moore Street, Hackensack, New Jersey 07601, or
at such other  location  as the Bank  shall  designate,  in lawful  money of the
United  States of America and in  immediately  available  funds,  the  principal
amount of $___________________. This Note is being executed and delivered by the
Borrower to the Bank  pursuant to Section 2.11 of that  certain  Loan  Agreement
dated June 24, 1998 between the Borrower and the Bank (the  "Agreement").  Terms
defined in the Agreement shall have the same meanings when used herein.

     The Borrower further agrees to pay interest in like money at such office on
the  unpaid  principal  amount  hereof  from time to time at a rate or rates per
annum as provided in the Agreement.

     The  principal  of and interest on this Note shall be payable at the times,
and in the manner, provided in the Agreement.

     The Borrower  shall pay to the Bank a late charge (the "Late Charge") in an
amount  equal to five  percent  (5%) of any payment  which is more than ten (10)
days in arrears  to cover the extra  expense  involved  in  handling  delinquent
payments,  but in no event  shall any Late  Charge be less than $25 or more than
$2,500. The term "payments" shall be construed to include  principal,  interest,
fees and any other  amount  due under the terms of this Note or any of the other
Loan  Documents.  Acceptance by the Bank of payment of a Late Charge shall in no
way be  construed  to be an election of remedies or waiver by the Bank of any of
its rights at law or under the terms of any of the Loan Documents.

     Subject to Section  2.25 of the  Agreement,  this Note may be  prepaid,  in
whole or in part, at one time or from time to time,  without  premium or penalty
in accordance with the provisions of the Agreement.

     This Note is secured by the  Collateral  described  in the  Agreement,  the
Pledge and Security Agreement and the other Loan Documents, and is guaranteed by
the Guarantors pursuant to the Guaranty Agreement.

     The Bank may declare this Note to be immediately  due and payable if any of
the following events shall have occurred and be continuing:



                                      A-1
<PAGE>

     (1) Failure by the  Borrower to make any payment of  principal  or interest
under this Note on any date when due; or

     (2) An Event of Default shall have  occurred  under the Agreement or any of
the other Loan Documents.

     Upon the  occurrence of any Event of Default,  the Bank may, in addition to
such other and  further  rights and  remedies as provided by law or under any of
the Loan Documents, (i) collect interest on such overdue amount from the date of
such  maturity  until paid at a rate per annum  equal to three  (3%)  percent in
excess of the Base Rate,  (ii) setoff such  amount  against any deposit  account
maintained in the Bank by the Borrower, and such right of setoff shall be deemed
to have been exercised immediately upon such stated or accelerated maturity even
though  such  setoff is not noted on the  records of the Bank until a later time
and (iii) hold as security any property  heretofore or hereafter  delivered into
the custody, control or possession of the Bank or any entity acting as agent for
the Bank by any person liable for the payment of this Note.

     This Note may not be changed  orally,  but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.

     Should  the  indebtedness  represented  by this Note or any part  hereof be
collected  at law or in equity,  or in  bankruptcy,  receivership,  or any other
court  proceeding,  or should this Note be placed in the hands of attorneys  for
collection  upon  default,  the  Borrower  agrees  to pay,  in  addition  to the
principal  and  interest  due  and  payable  hereon,  all  reasonable  costs  of
collecting or attempting to collect this Note, including  reasonable  attorneys'
fees and expenses.

     This Note  shall be and  remain  in full  force  and  effect  and in no way
impaired  until the  actual  payment  thereof  to the Bank,  its  successors  or
assigns.

     Anything  herein to the contrary  notwithstanding,  the  obligations of the
Borrower  under this Note shall be subject to the  limitation  that  payments of
interest shall not be required to the extent that receipt of any such payment by
the Bank would be contrary to provisions of law  applicable to the Bank limiting
the maximum rate of interest which may be charged or collected by the Bank.

     The Borrower and all  endorsers  and  guarantors  of this Note hereby waive
presentment, demand for payment, protest and notice of dishonor of this Note.

     This Note is binding upon the Borrower and its  successors  and assigns and
shall inure to the benefit of the Bank and its successors and assigns.



                                      A-2
<PAGE>

     This Note and the rights and  obligations  of the parties  hereto  shall be
subject to and governed by the laws of the State of New Jersey.

     IN WITNESS WHEREOF,  the undersigned has caused this Acquisition Note to be
duly executed by its authorized officers as of the day and year above written.


                                 KAYE GROUP INC.


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






















                                      A-3
<PAGE>



STATE OF                   :
                                  ss.
COUNTY OF                  :

     I CERTIFY that on _______________________,  ___________________  personally
appeared  before  me  and  that  this  person  acknowledged  under  oath,  to my
satisfaction, that:

     (a)  this person is the _______________ of KAYE GROUP INC., the corporation
          named in the attached document;

     (b)  this  person  executed  and  delivered  the  attached  document as the
          voluntary act and deed of the corporation; and

     (c)  this  person  was   authorized  by  the  board  of  directors  of  the
          corporation to execute and deliver the attached  document on behalf of
          the corporation.



                                  ------------------------------
                                  Notary Public


                                      A-4
<PAGE>


                               GUARANTY AGREEMENT


     THIS GUARANTY AGREEMENT is made June 24, 1998 by KAYE INSURANCE ASSOCIATES,
INC.,  a Delaware  corporation,  KAYE  CORPORATION  OF  CONNECTICUT,  a Delaware
corporation,  KAYE ADMINISTRATORS CORP., a Delaware  corporation,  KAYE SERVICES
CORP., a Delaware corporation,  KAYE-WESTERN INSURANCE & RISK SERVICES,  INC., a
Delaware corporation and PROGRAM BROKERAGE CORPORATION,  a Delaware corporation,
each having an address c/o Kaye Group Inc., 122 East 42nd Street,  New York, New
York 10168  (collectively,  the  "Guarantors"),  in favor of SUMMIT  BANK, a New
Jersey banking institute having an address at 250 Moore Street,  Hackensack, New
Jersey 07601 (the "Bank").

                                    RECITALS

     A. Concurrently herewith, the Bank and Kaye Group Inc. (the "Borrower") are
entering into a Loan Agreement (the "Loan Agreement") pursuant to which the Bank
is making  available  to the  Borrower,  on the terms and  conditions  contained
therein,  (i) a revolving  loan in the principal  amount of up to $4,500,000 and
(ii) a term  loan in the  principal  amount  of  $5,000,000  (collectively,  the
"Loans").

     B.  Pursuant  to the Loan  Agreement,  and to evidence  the Loans,  (i) the
Borrower  is  concurrently  herewith  executing  and  delivering  to the  Bank a
Revolving Note in the maximum principal amount of $4,500,000,  (ii) the Borrower
is concurrently herewith executing and delivering to the Bank a Term Note in the
original principal amount of $5,000,000 and (iii) the Borrower may in the future
execute  and  deliver  to the Bank  one or more  Acquisition  Notes to  evidence
Acquisition  Advances  made or to be made  under the Loan  Agreement  (the notes
referred  to in (i),  (ii) and  (iii)  above,  together  with all  modifications
thereto or substitutions  therefor, are hereinafter  collectively referred to as
the "Notes").

     C. As a condition to entering into the Loan  Agreement and making the Loans
to the  Borrower  pursuant  thereto,  the Bank  has  required  that  each of the
Guarantors  guarantee to the Bank the payment and performance of the obligations
of the Borrower  under the Loan  Agreement,  the Loans,  the Notes and the other
Loan Documents.

     D. Each Guarantor is a wholly owned subsidiary of the Borrower, which shall
loan a portion of the proceeds of the Loans to the Guarantors,  and as such each
Guarantor will derive direct and immediate benefits from the making of the Loans
by the Bank to the Borrower.

     NOW,  THEREFORE,  in  order  to  induce  the  Bank to  enter  into the Loan
Agreement  and make the  Loans as  aforesaid,  and for other  good and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Guarantors do hereby agree for the benefit of the Bank as follows:


                                    ARTICLE I

     1.1 Definitions. Terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Loan Agreement.

     1.2 Joint and  Several  Liability.  Any  agreement,  promise,  undertaking,
representation  or warranty of the  Guarantors set forth in this Guaranty and in
any document or  certification  executed  and


<PAGE>

delivered by the Guarantors in connection  with this Guaranty shall be deemed to
have been made and given  jointly and severally by each of the  Guarantors,  and
each  reference  herein to the  Guarantors  shall be deemed to be a reference to
each Guarantor  individually  and/or  collectively,  as may be necessary for the
Bank to obtain  the full  benefit  of this  Guaranty  and the  rights and powers
herein granted.

     1.3  Guaranty.   The  Guarantors  hereby  irrevocably  and  unconditionally
guarantee to the Bank the prompt and complete  payment and performance  when due
(whether  at  stated  maturity,  by  acceleration  or  otherwise)  of all of the
Obligations,  including, without limitation, all principal,  interest (including
post-petition interest in the event the Borrower files or has filed against it a
petition in  bankruptcy)  and other amounts  payable under the Loan Agreement or
the Notes.

     1.4 Guaranty Unconditional. The obligations of the Guarantors hereunder are
irrevocable,   absolute,   and   unconditional,   irrespective   of  the  value,
genuineness, validity, regularity, or enforceability of any Loan Document or any
term or provision  thereof or of any other document  relating to the Obligations
or any other circumstance which might otherwise  constitute a legal or equitable
discharge or defense of a surety or guarantor.

     1.5 Consent. The Guarantors hereby consent that any or all of the following
actions may be taken or things done without notice to the Guarantors and without
affecting the liability of the Guarantors under this Guaranty:

     (a) The time for  performance of or compliance  with any of the Obligations
may be accelerated  or extended or such  performance or compliance may be waived
by  the  Bank   (including,   without   limitation,   the  renewal,   extension,
acceleration,  or other  change  in time of  payment,  or other  terms  of,  the
Obligations such as an increase or decrease in the rate of interest thereon);

     (b) Any of the acts  referred to in the terms of the Loan  Documents may be
performed,  including without limitation,  the making of Advances or Acquisition
Advances from time to time;

     (c) The terms of any of the  Obligations  or any term or  condition  in any
Loan  Document  may be amended by the  Borrower  and the Bank for the purpose of
adding any  provisions  thereto or changing in any manner the rights of the Bank
or of the Borrower thereunder;

     (d) Any  collateral  which has been granted or may  hereafter be granted by
the Borrower to the Bank to secure all or any part of the Obligations, including
without  limitation,  the  collateral  described in the Loan Agreement or in the
Pledge  and  Security  Agreement  (the  "Bank  Collateral"),  may be  exchanged,
surrendered,  or otherwise dealt with, and the Bank's interest thereunder may be
released and may or may not be perfected, all as the Bank in its sole discretion
may determine;

     (e)  The  Bank  may  apply  any of the  aforesaid  Bank  Collateral  to the
Obligations and direct the order or manner of sale thereof,  including,  without
limitation, a nonjudicial sale, as the Bank may in its sole discretion determine
(in accordance with the terms and conditions of the relevant Loan Documents with
respect  thereto),   all  without  affecting  the  liability  of  the  Guarantor
hereunder; and

     (f) The Bank may take any action or permit or waive any action or  inaction
on the part of any party with respect to the Obligations and any Bank Collateral
or other security  granted in connection  therewith,  all without  affecting the
liability of the Guarantor hereunder.



                                      -2-
<PAGE>

     1.6 The Bank Collateral.  The Guarantors acknowledge that their obligations
hereunder  will not be affected by (i) the Bank's  failure to properly  create a
lien on or security interest in the Bank Collateral,  (ii) the Bank's failure to
create or maintain a priority with respect to the lien on, or security  interest
purported to be created in, the Bank  Collateral or (iii) any act or omission of
the Bank (whether  negligent or otherwise)  which  adversely  affects the Bank's
purported  security  interest  in the Bank  Collateral  or lien  thereon  or the
priority of such security interest or lien.

     1.7  Tolling of  Statute  of  Limitations.  The  Guarantors  agree that any
payment of any of the  Obligations or other acts which shall toll any statute of
limitations  applicable  to the  Obligations  shall  also  toll the  statute  of
limitations applicable to the Guarantors' liability hereunder.

     1.8 Waiver.  The Guarantors hereby expressly waive diligence,  presentment,
demand for payment, protest, the benefit of any statute of limitations affecting
the  Borrower's  liability  under any Loan Document or the  enforcement  of this
Guaranty,  the  benefit of any act or  omission  by the Bank which  directly  or
indirectly  results  in or aids  the  discharge  of the  Borrower  or any of the
Obligations by operation of law or otherwise, all notices whatsoever, including,
without limitation,  notice of acceptance of this Guaranty, the incurring of the
Obligations  or  notice  of any  Default  or Event  of  Default  under  the Loan
Documents, and any requirement that the Bank exhaust or enforce any right, power
or remedy or proceed  against the  Borrower,  the Bank  Collateral  or any other
security  for, or any other  guarantor of, or any other party liable for, any of
the Obligations. The Guarantors specifically agree that it will not be necessary
or required,  and the Guarantors shall not be entitled to require, that the Bank
file suit or proceed to assert or obtain a claim for personal  judgment  against
the  Borrower  for the  Obligations  or to make  any  effort  at  collection  or
enforcement of the Obligations from the Borrower or foreclose against or seek to
realize upon the Bank Collateral or any other security now or hereafter existing
for the Obligations or this Guaranty or file suit or proceed to obtain or assert
a claim for the  Obligations or make any effort at collection of the Obligations
from any such party or exercise or assert any other right or remedy to which the
Bank is or may be entitled in connection with the Obligations or any security or
guarantee  relating  thereto or assert or file any claims  against the assets of
the Borrower or other person  liable for the  Obligations,  or any part thereof,
before or as a condition of enforcing the liability of the Guarantors hereunder.

     1.9 Certain Rights.  The Bank may pursue its rights and remedies under this
Guaranty  and shall be entitled  to payment  hereunder  notwithstanding  (i) any
other guarantee by any other party of all or any part of the  Obligations,  (ii)
any action taken by the Bank to enforce any of its rights or remedies under such
other guarantee or any security  agreement,  mortgage or deed of trust, or (iii)
any payment  received  under such other  guarantee  or any  security  agreement,
mortgage or deed of trust.  In pursuing  its rights  under this  Guaranty or any
other Loan  Document,  the Bank need not join the Guarantors in any suit against
the  Borrower or join the Borrower or any other  guarantors  in any suit against
the Guarantor. The Guarantors waive any right to require the Bank to give notice
of terms,  time, and place of any public or private sale of any Bank  Collateral
or any other security  granted in connection  with the  Obligations or to comply
with any other provisions of Section 9-504 of the Uniform Commercial Code.

     1.10 Continuing Guaranty.  This Guaranty shall be a continuing guaranty and
any other  guarantor or guarantors of all or a portion of the Obligations may be
released without affecting the liability of the Guarantors hereunder.

     1.11  Subrogation.  Unless  and  until the  Obligations  have been paid and
performed in full, (a) no payment  hereunder by the Guarantors shall entitle the
Guarantors by  subrogation  to the rights of the


                                      -3-
<PAGE>

Bank or any  other  guarantor  of any of the  Obligations  or  otherwise  to any
payment by the Borrower or out of the Borrower's property and (b) the Guarantors
waive  any right to  enforce  any  remedy of the Bank  which the Bank now or may
hereafter have against the Borrower, any other guarantor or any other person and
waive any benefit of, or any right to participation in, any security  whatsoever
now or hereafter held by or granted to the Bank, including,  but not limited to,
any rights which the  Guarantors  may have by reason of any rights,  powers,  or
remedies of the Borrower in connection with any  anti-deficiency or similar laws
limiting or qualifying the Obligations.

     1.12  Compromise  and  Settlement.  No  compromise,   settlement,  release,
renewal, extension, indulgence, change in, waiver, or modification of any of the
Obligations or the release or discharge of the Borrower from the  performance of
any of the  Obligations  shall  release or discharge  the  Guarantors  from this
Guaranty.

     1.13  Insolvency.  The voluntary or involuntary  liquidation,  dissolution,
sale  or  other   disposition  of  all  or  substantially  all  the  assets  and
liabilities, or receivership, insolvency, bankruptcy, assignment for the benefit
of creditors,  reorganization, or other proceeding affecting the Borrower or the
disaffirmance  of any Loan Document in any such proceeding  shall not release or
discharge the Guarantors from this Guaranty.

     1.14 Further Payments. The Guarantors further agree to pay forthwith,  upon
demand, all costs and expenses (including  reasonable  attorneys' fees) incurred
or expended by the Bank in  connection  with this  Guaranty and the  enforcement
thereof.


                                   ARTICLE II

     2.1  Representations  and Warranties.  In order to induce the Bank to enter
into  the Loan  Agreement  and to make the  Loans to the  Borrower  contemplated
thereby,  each of the Guarantors  hereby  represents and warrants to the Bank as
follows:

     (a) To the extent  same relate to or concern  the  Guarantors,  each of the
representations  and  warranties  contained  in the Loan  Agreement  are  hereby
incorporated  herein  by  reference,   and  each  Guarantor  hereby  makes  such
representations  and  warranties  to and for the  benefit of the Bank as if such
representations and warranties were set forth at length herein.

     (b) Without  limiting  the  generality  of the  foregoing,  each  Guarantor
represents and warrants that (i) such Guarantor has the full power and authority
to execute,  deliver and perform any action  which may be necessary or advisable
to carry out the terms of this  Guaranty,  and (ii) this  Guaranty has been duly
executed and  delivered by such  Guarantor  and is the legal,  valid and binding
obligation of such Guarantor,  enforceable  against such Guarantor in accordance
with its terms.

     2.2  Covenants.  Each  Guarantor  covenants  and agrees  that until all the
Obligations  have been  satisfied  and paid in full and the Bank has no  further
obligation  to extend  credit to the  Borrower  under  the Loan  Agreement,  the
Guarantors will comply with the following covenants:

     (a) The  Guarantors  shall pay dividends to the Borrower and otherwise take
such  actions  within  their power to enable the  Borrower to fully  perform and
observe all of the covenants,  agreements and  obligations of the Borrower under
each of the Loan Documents to which the Borrower is a party.



                                      -4-
<PAGE>

     (b) For as long as any of the  Obligations  are  outstanding,  no Guarantor
shall transfer,  assign or otherwise dispose of any material asset other than in
a bona fide, arm's length transaction.


                                   ARTICLE III

     3. Event of Default.  The occurrence of any Event of Default under the Loan
Agreement,  the Notes or any of the other Loan  Documents  shall  constitute  an
Event of Default hereunder.


                                   ARTICLE IV

     4.  Remedies.  Upon the  occurrence  of an Event of Default or in the event
that any portion of the  Obligations  shall have been  declared  due and payable
(whether at the stated maturity, by acceleration or otherwise), the Bank may, in
addition  to all other  rights and  remedies  as may be  available  at law or in
equity or under the terms of any of the Loan  Documents  and  without  demand of
performance or other demand,  advertisement  or notice of any kind,  immediately
set off any or all of the  Obligations  against any  property of the  Guarantors
which may now or  hereafter  be in the Bank's  possession  or control,  and such
right of setoff  shall be deemed to have  been  exercised  immediately  upon the
occurrence  of such Event of Default even though such setoff is not noted on the
records  of the Bank or the Bank until a later  time.  The  Guarantors  shall be
liable for the  deficiency if the proceeds of any sale or other  disposition  of
any Bank  Collateral  are  insufficient  to pay all amounts to which the Bank is
entitled hereunder,  including the fees of any attorneys employed by the Bank to
collect such deficiency.


                                    ARTICLE V

     5.1 No Waiver;  Cumulative Remedies. No failure to exercise and no delay in
exercising,  on the part of the Bank, any right,  power or privilege  hereunder,
shall operate as a waiver thereof;  nor shall any single or partial  exercise of
any right,  power or privilege  hereunder preclude any other or further exercise
thereof or the exercise  thereof or the  exercise of any other  right,  power or
privilege.  The rights and  remedies  herein  provided  are  cumulative  and not
exclusive of any rights or remedies provided by law.

     5.2  Amendment.  No  modification,  amendment or waiver of any provision of
this Guaranty shall be effective  unless the same shall be in writing and signed
by the Bank and then any such waiver or consent  shall be effective  only in the
specific instance and for the purpose for which given.

     5.3 Successors  and Assigns.  This Guaranty shall be binding upon and inure
to the benefit of the parties hereto,  all future holders of the Obligations and
their respective successors and assigns.

     5.4  Severability.  In case any one or more of the provisions  contained in
this Guaranty should be invalid,  illegal or unenforceable  in any respect,  the
validity,  legality and  enforceability  of the remaining  provisions  contained
herein shall not in any way be affected or impaired thereby.

     5.5 Governing Law; No Third Party Rights.  This Guaranty and the rights and
obligations  of the parties  hereunder  shall be governed by and  construed  and
interpreted  in  accordance  with the  laws of the  State  of New  Jersey.  This
Guaranty is solely for the benefit of the Bank and its  successors


                                      -5-
<PAGE>

and  assigns,  and no other person  shall have any right,  benefit,  priority or
interest in, under or because of the existence of, this Guaranty.

     5.6  Counterparts.  This Guaranty may be executed by the parties  hereto in
any number of counterparts,  each of which shall be an original and all of which
shall constitute one and the same instrument.

     5.7 Subordination of Loans. Any loans now existing or hereafter made by the
Guarantors to the Borrower are hereby  subordinated  to the repayment in full of
all of the  Obligations.  The  provisions  of this Section 5.7 shall survive the
termination of this Guaranty.

     5.8 Waiver of Jury Trial; Consent to Jurisdiction.  AFTER CONSULTATION WITH
COUNSEL,  EACH  GUARANTOR,  IN CONNECTION  WITH ANY LITIGATION  RELATING TO THIS
GUARANTY  OR THE LOANS,  HEREBY  IRREVOCABLY  (i) WAIVES ITS RIGHT TO A TRIAL BY
JURY, (ii) CONSENTS TO THE  NON-EXCLUSIVE  JURISDICTION OF THE STATE AND FEDERAL
COURTS OF THE STATE OF NEW JERSEY, (iii) WAIVES ALL DEFENSES,  INCLUDING WITHOUT
LIMITATION,  FORUM NON CONVENIENS,  TO EITHER OF THE AFORESAID  COURTS ASSERTING
PERSONAL  JURISDICTION  OVER SUCH GUARANTOR AND (iv) APPOINTS IVY FISCHER,  ESQ.
(WHOSE ADDRESS IS 30 FAIRFIELD STREET, MONTCLAIR, NEW JERSEY 07042) AS ITS AGENT
FOR PURPOSES OF RECEIVING SERVICE OF PROCESS IN ANY SUCH LITIGATION. In any such
litigation, each Guarantor hereby agrees that service of process may be effected
by  mailing  such  process  to its  agent,  at such  agent's  address or to such
Guarantor  at the  address  set forth on page 1 of this  Guaranty  or such other
address as such Guarantor shall have provided the Bank in writing,  by reputable
overnight  courier  providing a receipt  against  delivery or by certified mail,
return receipt requested.

     IN WITNESS  WHEREOF,  the Guarantors  have duly executed and delivered this
Guaranty as of the day and year first above written.


                                          KAYE INSURANCE ASSOCIATES, INC.


                                          By:
                                               -------------------------------
                                               Michael P. Sabanos
                                               Senior Vice President
                                               & Chief Financial Officer











                       [Signatures continued on next page]




                                      -6-
<PAGE>



                  [Signatures continued from previous page]



                                          KAYE CORPORATION OF
                                          CONNECTICUT


                                          By:
                                               -------------------------------
                                               Michael P. Sabanos
                                               Senior Vice President
                                               & Chief Financial Officer

                                          KAYE ADMINISTRATORS CORP.


                                          By:
                                               -------------------------------
                                               Michael P. Sabanos
                                               Senior Vice President
                                               & Chief Financial Officer

                                          KAYE SERVICES CORP.


                                          By:
                                               -------------------------------
                                               Michael P. Sabanos
                                               Senior Vice President
                                               & Chief Financial Officer

                                          KAYE-WESTERN INSURANCE &
                                          RISK SERVICES, INC.


                                          By:
                                               -------------------------------
                                               Michael P. Sabanos
                                               Senior Vice President
                                               & Chief Financial Officer


                                          PROGRAM BROKERAGE
                                          CORPORATION


                                          By:
                                               -------------------------------
                                               Michael P. Sabanos
                                               Senior Vice President
                                               & Chief Financial Officer



                                      -7-
<PAGE>

                          PLEDGE AND SECURITY AGREEMENT


     THIS  PLEDGE AND  SECURITY  AGREEMENT  is dated June 24, 1998 by KAYE GROUP
INC.,  a Delaware  corporation  having an address of 122 East 42nd  Street,  New
York,  New York  10168  (the  "Borrower")  in favor of  SUMMIT  BANK,  a banking
institution  of the State of New Jersey  having an address at 250 Moore  Street,
Hackensack New Jersey 07601 (the "Bank").

                                    RECITALS

     A. The Borrower is the record and beneficial owner of (i) all of the issued
and outstanding  shares of capital stock of Old Lyme Insurance  Company of Rhode
Island,  Inc., a Rhode Island corporation  ("OLRI"),  (ii) all of the issued and
outstanding  shares of capital  stock of Old Lyme  Insurance  Company,  Ltd.,  a
Bermuda  corporation  ("OLB") and (iii) all of the issued and outstanding shares
of capital stock of Claims  Administration  Corporation,  a Delaware corporation
("CAC").

     B.  Concurrently  herewith,  the Borrower and the Bank are entering  into a
Loan  Agreement  (the  "Loan  Agreement")  pursuant  to which the Bank is making
available to the Borrower,  on the terms and conditions contained therein, (i) a
revolving loan in the principal  amount of up to $4,500,000 and (ii) a term loan
in the principal amount of $5,000,000 (collectively, the "Loans").

     C.  Pursuant  to the Loan  Agreement,  and to evidence  the Loans,  (i) the
Borrower  is  concurrently  herewith  executing  and  delivering  to the  Bank a
Revolving Note in the maximum principal amount of $4,500,000,  (ii) the Borrower
is concurrently herewith executing and delivering to the Bank a Term Note in the
original principal amount of $5,000,000 and (iii) the Borrower may in the future
execute  and  deliver  to the Bank  one or more  Acquisition  Notes to  evidence
Acquisition  Advances  made or to be made  under the Loan  Agreement  (the notes
referred  to in (i),  (ii) and  (iii)  above,  together  with all  modifications
thereto or substitutions  therefor, are hereinafter  collectively referred to as
the "Notes").

     D. As a condition to entering into the Loan  Agreement and making the Loans
to the Borrower pursuant thereto,  and in order to secure the Obligations of the
Borrower to the Bank under the Loan Agreement,  the Loans,  the Notes, the other
Loan  Documents or otherwise,  the Bank has required that the Borrower  grant to
the Bank a pledge  of and  security  interest  in all of the  Pledged  Stock (as
hereinafter defined), all on the terms and conditions set forth herein.

     NOW,  THEREFORE,  in  consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:

     1. Defined Terms.  Unless  otherwise  defined herein,  terms defined in the
Loan Agreement shall have such defined meanings when used herein.

     2. Pledge. As collateral  security for the prompt and complete payment when
due of the Obligations, together with any and all expenses which may be incurred
by the Bank in collecting any or all of the  Obligations or enforcing any of its
rights under this Agreement, the Borrower hereby pledges, assigns,  hypothecates
and  transfers  to the Bank,  and grants  the Bank a first lien on and  security
interest in, (a) the stock representing all of the issued and outstanding shares
of OLRI, together with all proceeds of the foregoing, (b) the stock representing
all of the issued and outstanding  shares of OLB,  together with all proceeds of
the foregoing and (c) the stock representing all of the issued and

                                      -1-
<PAGE>


outstanding  shares of CAC,  together with all proceeds of the foregoing (all of
the stock  described  in the  foregoing  clauses  (a),  (b) and (c) being herein
collectively  referred to as the "Pledged Stock").  Concurrently  herewith,  the
Borrower is delivering to the Bank certificates  representing all of the Pledged
Stock, together with appropriate undated stock powers duly executed in blank.

     3. Stock  Dividends,  Distributions,  etc. If,  while this  Agreement is in
effect, the Borrower shall become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification,  increase or
reduction  of  capital,  or  issued in  connection  with any  reorganization  or
formation of a new Subsidiary),  option or rights, whether as an addition to, in
substitution  of,  or in  exchange  for any  shares  of any  Pledged  Stock,  or
otherwise, the Borrower shall accept the same as the Bank's agent, hold the same
in trust on  behalf  of and for the  benefit  of the Bank and  deliver  the same
forthwith to the Bank in the exact form  received,  with the  indorsement of the
Borrower when necessary and/or appropriate undated stock powers duly executed in
blank,  to be held by the Bank,  subject  to the  terms  hereof,  as  additional
collateral security for the Obligations. Any sums paid upon or in respect of the
Pledged Stock upon the liquidation or dissolution of the issuer thereof shall be
paid  over to the  Bank to be held as  additional  collateral  security  for the
Obligations;  and in case any  distribution  of  capital  shall be made on or in
respect of the Pledged Stock or any property shall be  distributed  upon or with
respect   to  the   Pledged   Stock   pursuant   to  the   recapitalization   or
reclassification  of the  capital  of the  issuer  thereof  or  pursuant  to the
reorganization  thereof,  the property so distributed  shall be delivered to the
Bank to be held by it as additional collateral security for the Obligations. All
sums of money and  property  so paid or  distributed  in respect of the  Pledged
Stock which are received by the Borrower  shall,  until paid or delivered to the
Bank, be held by the Borrower in trust as additional collateral security for the
Obligations.

     4. Collateral. All property at any time pledged with the Bank hereunder and
all income  therefrom  (other  than the cash  dividends  permitted  pursuant  to
Section 5 below) and proceeds thereof,  including without limitation the Pledged
Stock, are herein collectively sometimes called the "Collateral".

     5. Cash Dividends;  Voting Rights.  Unless a Default or an Event of Default
under the Loan Agreement shall have occurred and be continuing and to the extent
permitted under the terms of the Loan Agreement,  the Borrower shall be entitled
to receive all cash dividends paid in respect of the Pledged Stock,  to vote the
Pledged Stock and to give consents,  waivers and ratifications in respect of the
Pledged Stock; provided,  however, that no vote shall be cast or consent, waiver
or  ratification  given or action taken which would impair the Collateral or the
value  thereof  or be  inconsistent  with  or  violate  any  provision  of  this
Agreement,  the Loan  Agreement  or any of the  other  Loan  Documents.  After a
Default or an Event of Default has occurred and is continuing, the Bank shall be
entitled to receive all cash dividends and distributions and to vote the Pledged
Stock.

     6. Rights of the Bank.  The Bank shall not be liable for failure to collect
or  realize  upon  the  Obligations  or any  collateral  security  or  guarantee
therefor,  or any part thereof, or for any delay in so doing, nor shall the Bank
be under any obligation to take any action  whatsoever with regard thereto.  Any
or all shares of the Pledged Stock held by the Bank  hereunder  may, if an Event
of Default has occurred and is continuing,  without prior notice,  be registered
in the  name  of the  Bank or its  nominee,  and the  Bank  or its  nominee  may
thereafter,  without prior notice,  exercise all voting and corporate  rights at
any meeting of any corporation issuing any of the shares included in the Pledged
Stock and exercise any and all rights of conversion,  exchange,  subscription or
any other rights,  privileges or options pertaining to any shares of the Pledged
Stock as if the Bank or its nominee were the absolute owner thereof,  including,
without limitation,  the right to exchange at its discretion, any and all of the



                                      -2-
<PAGE>

Pledged Stock upon the merger, consolidation,  reorganization,  recapitalization
or other readjustment of any corporation  issuing any of such shares or upon the
exercise  by any such  issuer  or the Bank of any  right,  privilege  or  option
pertaining to any shares of the Pledged Stock, and in connection  therewith,  to
deposit  and  deliver  any and all of the  Pledged  Stock  with  any  committee,
depository, transfer agent, registrar or other designated agency upon such terms
and conditions as it may determine,  all without liability except to account for
property actually received by it. Notwithstanding the foregoing,  the Bank shall
have no duty to exercise any of the aforesaid rights,  privileges or options and
shall not be responsible for any failure to do so or delay in so doing.

     7. Remedies.  In the event that the  Obligations  shall be declared due and
payable  (whether at the stated  maturity,  by acceleration  or otherwise),  the
Bank, without demand of performance or other demand,  advertisement or notice of
any kind  (except  the  notice  specified  below of time and  place of public or
private sale) to or upon the Borrower or any other Person (all and each of which
demands,  advertisements  and/or  notices  are  hereby  expressly  waived),  may
forthwith collect, receive,  appropriate and realize upon the Collateral, or any
part  thereof,  and/or may  forthwith  sell,  assign,  give option or options to
purchase,  contract to sell or otherwise dispose of and deliver said Collateral,
or any part thereof,  in one or more parcels at public or private sale or sales,
at any  exchange,  broker's  board or at any of the Bank's  offices or elsewhere
upon such terms and conditions as it may deem advisable and at such prices as it
may deem best, for cash or on credit or for future delivery  without  assumption
of any  credit  risk,  with the  right of the Bank  upon any such sale or sales,
public or private, to purchase the whole or any part of said Collateral so sold,
free of any right or equity of redemption in the Borrower, which right or equity
is hereby expressly waived or released. After deducting all reasonable costs and
expenses of every kind incurred in  connection  with any  collection,  recovery,
receipt,  appropriation,   realization  or  sale  (collectively,  a  "Sale")  or
incidental  to  the  care,  safekeeping  or  otherwise  of  any  and  all of the
Collateral or in any way relating to the rights of the Bank hereunder, including
reasonable  attorneys' fees and expenses,  the Bank shall apply the net proceeds
of such Sale to the payment in full of the Obligations, and only after so paying
over such net  proceeds  and after the  payment by the Bank of any other  amount
required by any provision of law need the Bank account for the surplus,  if any,
to the Borrower.  The Borrower  agrees that the Bank need not give more than ten
(10) days'  notice of the time and place of any public sale or of the time after
which a private  sale or other  intended  disposition  is to take place and that
such  notice is  reasonable  notification  of such  matters.  In addition to the
rights and remedies  granted to it in this Agreement and in any other instrument
or agreement  securing,  evidencing or relating to any of the  Obligations,  the
Bank shall have all the rights and  remedies of a secured  party under the Code.
The Borrower  shall be liable for the  deficiency if the proceeds of any sale or
other  disposition of the Collateral are insufficient to pay the Obligations and
all expenses,  including,  without limitation,  attorneys' fees and costs, which
may be  incurred by the Bank in  collecting  any or all of the  Obligations  and
enforcing its rights hereunder.

     8. Representations,  Warranties and Covenants of the Borrower. The Borrower
represents  and warrants  that: (a) the Borrower owns one hundred (100%) percent
of the Pledged Stock;  (b) the Borrower is legal record and beneficial owner of,
and has good and  marketable  title to, the Pledged  Stock,  subject to no Lien,
except the Lien  created by this  Agreement;  (c) all the shares of the  Pledged
Stock have been duly and validly issued, are fully paid and non-assessable;  (d)
there  are no  outstanding  subscriptions,  options,  warrants,  rights,  calls,
contracts,  commitments,  understandings  or agreements to purchase or otherwise
acquire or relating to the issuance of any shares or other  securities  of OLRI,
OLB or CAC;  (e) the  pledge,  assignment  and  delivery  of the  Pledged  Stock
pursuant to this Agreement  creates a valid first lien on and a first  perfected
security interest in such shares of the Pledged Stock, and the proceeds thereof,
subject to no prior Lien or to any  agreement  purporting  to grant to any third
party a Lien on the property or assets of the Borrower  which would  include the
Pledged  Stock;  and (f) the  Pledged  Stock is  evidenced  by the  certificates
described  on Exhibit A, and


                                      -3-
<PAGE>

there are no other Stock  Certificates  outstanding  for any other shares of the
capital  stock of OLRI,  OLB or CAC. The Borrower  covenants and agrees that the
Borrower will defend the Bank's right, title and security interest in and to the
Pledged  Stock and the  proceeds  thereof  against the claims and demands of all
Persons  whomsoever;  and  covenants and agrees that the Borrower will have like
title to and right to pledge any other property at any time hereafter pledged to
the Bank as  Collateral  hereunder  and will  likewise  defend the Bank's  right
thereto and security interest therein.

     9. No  Disposition,  etc. The Borrower  shall not sell,  assign,  transfer,
exchange,  or  otherwise  dispose of, or grant any option  with  respect to, the
Collateral, nor will the Borrower create, incur or permit to exist any Lien with
respect to any of the  Collateral,  or any  interest  therein,  or any  proceeds
thereof, except for the Lien provided for by this Agreement.  The Borrower shall
not vote to enable any issuer to, and will not  otherwise  permit any issuer to,
issue any stock or other  securities of any nature in addition to or in exchange
or substitution for the Pledged Stock.

     10.  Registration.  (a) The Borrower recognizes that the Bank may be unable
to effect a public  sale of any or all the  Pledged  Stock by reason of  certain
prohibitions   contained  in  the  Securities  Act  of  1933,  as  amended  (the
"Securities Act"), and applicable state securities laws, but may be compelled to
resort to one or more private sales thereof to a restricted  group of purchasers
who will be obliged to agree, among other things, to acquire such securities for
their own  account for  investment  and not with a view to the  distribution  or
resale thereof. The Borrower  acknowledges and agrees that any such private sale
may result in prices and other terms less  favorable  to the seller than if such
sale were a public sale.  The Bank shall be under no  obligation to delay a sale
of any of the  Pledged  Stock for the  period of time  necessary  to permit  any
issuer of such  securities to register such securities for public sale under the
Securities Act, or under  applicable  state securities laws, even if such issuer
would agree to do so.

     (b) The  Borrower  further  agrees to do or cause to be done all such other
reasonable acts and things as may be necessary to make such sale or sales of any
portion or all of the Pledged Stock valid and binding and in compliance with any
and all applicable laws,  regulations,  order,  writs,  injunctions,  decrees or
awards of any and all courts,  arbitrators  or  governmental  instrumentalities,
domestic or foreign, having jurisdiction over any such sale or sales, all at the
Borrower's  expense,  but excluding  registration of the Pledged Stock under the
Securities  Act.  The  Borrower  further  agrees  that  a  breach  of any of the
covenants  contained  in this  Section 10 will cause  irreparable  injury to the
Bank, and the Bank has no adequate  remedy at law in respect of such breach and,
as a consequence,  agree that each and every covenant  contained in this Section
10 shall be  specifically  enforceable  against the  Borrower,  and the Borrower
hereby  waives  and  agrees  not to assert  any  defenses  against an action for
specific  performance  of such  covenants  except for a defense that no Event of
Default has occurred and is continuing under the Loan Agreement.

     11. Further Assurances.  At any time and from time to time upon the written
request of the Bank,  the  Borrower  shall  execute  and  deliver  such  further
documents and do such further acts and things as the Bank may reasonably request
in order to effect the purposes of this Agreement.

     12.  Severability.  Any provision of this Agreement  which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.



                                      -4-
<PAGE>

     13. No Waiver;  Cumulative Remedies.  The Bank shall not by any act, delay,
omission  or  otherwise  be deemed to have  waived any of its rights or remedies
hereunder,  and no  waiver  shall be valid  unless  executed  and  delivered  in
accordance with the provisions of Section 15 hereof, and then only to the extent
therein set forth. A waiver by the Bank of any right or remedy  hereunder on any
one  occasion  shall not be  construed as a bar to any right or remedy which the
Bank would otherwise have on any future occasion. No failure to exercise nor any
delay in  exercising  on the part of the Bank,  any  right,  power or  privilege
hereunder,  shall operate as a waiver  thereof;  nor shall any single or partial
exercise  of any  right,  power or  privilege  hereunder  preclude  any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and  remedies  herein  provided are  cumulative  and may be exercised
singly or concurrently, and are not exclusive of any rights or remedies provided
by law.

     14.  Notices.  All  notices,  demands,  requests  and other  communications
provided for or permitted  under this Agreement shall be in writing and shall be
delivered to the parties hereto by certified  mail,  return  receipt  requested,
overnight courier or hand delivery to the addresses set forth above and shall be
deemed effective upon receipt.

     15. Waivers, Amendments; Successors and Assigns; Governing Law. None of the
terms  or  provisions  of  this  Agreement  may be  waived,  altered,  modified,
terminated or amended  except by an instrument in writing,  duly executed by the
Bank.  This  Agreement and all  obligations of the Borrower  hereunder  shall be
binding upon the Borrower and its successors and assigns, and shall inure to the
benefit of the Bank and its  successors  and assigns.  This  Agreement  shall be
governed by, and be construed and  interpreted  in accordance  with, the laws of
the State of New Jersey.

     IN WITNESS  WHEREOF,  the  Borrower  has caused this  Agreement  to be duly
executed and delivered on the day and year first above written.


                                          KAYE GROUP INC.


                                          By:
                                               ----------------------------
                                               Michael P. Sabanos
                                               Senior Vice President
                                               & Chief Financial Officer




                                      -5-
<PAGE>



                                    EXHIBIT A

                                 PLEDGED STOCK:

                                     Type and No.               Certificate
          Company                     of Shares                     No.
          -------                     ---------                     ---

          OLRI                100,000 Shares Class A Preferred       13

          OLRI                200,000 Shares Common                  12

          OLB                 100,000 Shares Common                  69

          CAC                 100 Shares Common                       4


                                      A-1
<PAGE>


                                    TERM NOTE


$5,000,000                                                         June 24, 1998


     FOR  VALUE  RECEIVED,   the  undersigned,   KAYE  GROUP  INC.,  a  Delaware
corporation  (the  "Borrower"),  hereby  unconditionally  promises  to pay on or
before June 24,  2002 (the "Term Loan  Maturity  Date"),  to the order of SUMMIT
BANK,  a banking  institution  of the State of New Jersey (the  "Bank"),  at the
office of the Bank located at 250 Moore Street,  Hackensack,  New Jersey,  or at
such other location as the Bank shall  designate,  in lawful money of the United
States of America and in immediately  available  funds,  the principal amount of
$5,000,000.  This Note is being  executed  and  delivered by the Borrower to the
Bank  pursuant to Section  2.16 of that certain  Loan  Agreement  dated the date
hereof between the Borrower and the Bank (the "Agreement"). Terms defined in the
Agreement shall have the same meanings when used herein.

     The Borrower further agrees to pay interest in like money at such office on
the  unpaid  principal  amount  hereof  from time to time at a rate or rates per
annum as provided in the Agreement.

     The  principal  of and interest on this Note shall be payable at the times,
and in the manner, provided in the Agreement.

     The Borrower  shall pay to the Bank a late charge (the "Late Charge") in an
amount  equal to five  percent  (5%) of any payment  which is more than ten (10)
days in arrears  to cover the extra  expense  involved  in  handling  delinquent
payments,  but in no event  shall any Late  Charge be less than $25 or more than
$2,500. The term "payments" shall be construed to include  principal,  interest,
fees and any other  amount  due under the terms of this Note or any of the other
Loan  Documents.  Acceptance by the Bank of payment of a Late Charge shall in no
way be  construed  to be an election of remedies or waiver by the Bank of any of
its rights at law or under the terms of any of the Loan Documents.

     Subject to the provisions of Section 2.25 of the  Agreement,  this Note may
be  prepaid,  in  whole or in part,  at one time or from  time to time,  without
premium or penalty in accordance with the provisions of the Agreement.

     This Note is secured by the  Collateral  described  in the  Agreement,  the
Pledge and Security Agreement and the other Loan Documents, and is guaranteed by
the Guarantors pursuant to the Guaranty Agreement.

     The Bank may declare this Note to be immediately  due and payable if any of
the following events shall have occurred and be continuing:

     (1) Failure by the  Borrower to make any payment of  principal  or interest
under this Note on any date when due; or

     (2) An Event of Default shall have  occurred  under the Agreement or any of
the other Loan Documents.

     Upon the  occurrence of any Event of Default,  the Bank may, in addition to
such other and  further  rights and  remedies as provided by law or under any of
the Loan Documents, (i) collect


<PAGE>

interest on such overdue  amount from the date of such maturity  until paid at a
rate per annum  equal to three (3%)  percent  in excess of the Base  Rate,  (ii)
setoff such amount  against any deposit  account  maintained  in the Bank by the
Borrower,  and such  right of setoff  shall be  deemed  to have  been  exercised
immediately upon such stated or accelerated  maturity even though such setoff is
not  noted on the  records  of the Bank  until a later  time and  (iii)  hold as
security  any  property  heretofore  or  hereafter  delivered  into the custody,
control or  possession of the Bank or any entity acting as agent for the Bank by
any person liable for the payment of this Note.

     This Note may not be changed  orally,  but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.

     Should  the  indebtedness  represented  by this Note or any part  hereof be
collected  at law or in equity,  or in  bankruptcy,  receivership,  or any other
court  proceeding,  or should this Note be placed in the hands of attorneys  for
collection  upon  default,  the  Borrower  agrees  to pay,  in  addition  to the
principal  and  interest  due  and  payable  hereon,  all  reasonable  costs  of
collecting or attempting to collect this Note, including  reasonable  attorneys'
fees and expenses.

     This Note  shall be and  remain  in full  force  and  effect  and in no way
impaired  until the  actual  payment  thereof  to the Bank,  its  successors  or
assigns.

     Anything  herein to the contrary  notwithstanding,  the  obligations of the
Borrower  under this Note shall be subject to the  limitation  that  payments of
interest shall not be required to the extent that receipt of any such payment by
the Bank would be contrary to provisions of law  applicable to the Bank limiting
the maximum rate of interest which may be charged or collected by the Bank.

     The Borrower and all  endorsers  and  guarantors  of this Note hereby waive
presentment, demand for payment, protest and notice of dishonor of this Note.

     This Note is binding upon the Borrower and its  successors  and assigns and
shall inure to the benefit of the Bank and its successors and assigns.

     This Note and the rights and  obligations  of the parties  hereto  shall be
subject to and governed by the laws of the State of New Jersey.

     IN WITNESS  WHEREOF,  the  undersigned has caused this Term Note to be duly
executed by its authorized officers as of the day and year above written.


                                      KAYE GROUP INC.


                                      By:  /s/ Michael P. Sabanos
                                           ------------------------------
                                           Michael P. Sabanos
                                           Senior Vice President
                                           & Chief Financial Officer




                                      -2-
<PAGE>
                                 REVOLVING NOTE


$4,500,000                                                         June 24, 1998


     FOR  VALUE  RECEIVED,   the  undersigned,   KAYE  GROUP  INC.,  a  Delaware
corporation  (the  "Borrower"),  hereby  unconditionally  promises  to pay on or
before July 31, 1999 (the "Revolving Loan  Termination  Date"),  to the order of
SUMMIT BANK, a banking  institution of the State of New Jersey (the "Bank"),  at
the office of the Bank located at 250 Moore Street,  Hackensack,  New Jersey, or
at such other  location  as the Bank  shall  designate,  in lawful  money of the
United  States of America and in  immediately  available  funds,  the  principal
amount of the  lesser of (i)  $4,500,000  or (ii) so much  thereof as shall have
been  advanced  (the  "Advances")  by the Bank to the Borrower  pursuant to that
certain Loan  Agreement  dated the date hereof between the Borrower and the Bank
(the  "Agreement").  Terms defined in the Agreement shall have the same meanings
when used herein.

     The Borrower further agrees to pay interest in like money at such office on
the  unpaid  principal  amount  hereof  from time to time at a rate or rates per
annum and at such times as are provided in the Agreement.

     The Borrower  shall pay to the Bank a late charge (the "Late Charge") in an
amount  equal to five  percent  (5%) of any payment  which is more than ten (10)
days in arrears  to cover the extra  expense  involved  in  handling  delinquent
payments,  but in no event  shall any Late  Charge be less than $25 or more than
$2,500. The term "payments" shall be construed to include  principal,  interest,
fees and any other  amount  due under the terms of this Note or any of the other
Loan  Documents.  Acceptance by the Bank of payment of a Late Charge shall in no
way be  construed  to be an election of remedies or waiver by the Bank of any of
its rights at law or under the terms of any of the Loan Documents.

     Subject to the provisions of Section 2.25 of the  Agreement,  this Note may
be  prepaid,  in  whole or in part,  at one time or from  time to time,  without
premium or penalty in accordance with the provisions of the Agreement.

     All payments made hereunder  shall be applied:  first, to any fees or other
charges owing to the Bank hereunder; second, to accrued and unpaid interest; and
third,  to  the  outstanding  principal  balance  hereof.   Notwithstanding  the
foregoing,  upon  the  occurrence  of an Event of  Default,  the Bank may  apply
payments received hereunder in such manner as it shall determine in its sole and
absolute discretion.

     This Note is secured by the  Collateral  described  in the  Agreement,  the
Pledge and Security Agreement and the other Loan Documents, and is guaranteed by
the Guarantors pursuant to the Guaranty Agreement.

     The Bank may declare this Note to be immediately  due and payable if any of
the following events shall have occurred and be continuing:

     (1) Failure by the  Borrower to make any payment of  principal  or interest
under this Note on any date when due; or



<PAGE>

     (2) An Event of Default shall have  occurred  under the Agreement or any of
the other Loan Documents.

     Upon the  occurrence of any Event of Default,  the Bank may, in addition to
such other and  further  rights and  remedies  as  provided  by law or under the
Agreement  or any of the other Loan  Documents,  (i)  collect  interest  on such
overdue  amount  from the date of such  maturity  until paid at a rate per annum
equal to three (3%) percent in excess of the Base Rate,  (ii) setoff such amount
against any deposit  account  maintained in the Bank by the  Borrower,  and such
right of setoff  shall be deemed to have been  exercised  immediately  upon such
stated or  accelerated  maturity  even  though  such  setoff is not noted on the
records of the Bank until a later time and (iii) hold as security  any  property
heretofore or hereafter delivered into the custody, control or possession of the
Bank or any  entity  acting as agent for the Bank by any  person  liable for the
payment of this Note.

     This Note may not be changed  orally,  but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.

     Should  the  indebtedness  represented  by this Note or any part  hereof be
collected  at law or in equity,  or in  bankruptcy,  receivership,  or any other
court  proceeding,  or should this Note be placed in the hands of attorneys  for
collection  upon  default,  the  Borrower  agrees  to pay,  in  addition  to the
principal  and  interest  due  and  payable  hereon,  all  reasonable  costs  of
collecting or attempting to collect this Note, including  reasonable  attorneys'
fees and expenses.

     This Note  shall be and  remain  in full  force  and  effect  and in no way
impaired  until the  actual  payment  thereof to the Bank or its  successors  or
assigns.

     Anything  herein to the contrary  notwithstanding,  the  obligations of the
Borrower  under this Note shall be subject to the  limitation  that  payments of
interest shall not be required to the extent that receipt of any such payment by
the Bank would be contrary to provisions of law  applicable to the Bank limiting
the maximum rate of interest which may be charged or collected by the Bank.

     The Borrower and all  endorsers  and  guarantors  of this Note hereby waive
presentment, demand for payment, protest and notice of dishonor of this Note.

     This Note is binding upon the Borrower and its  successors  and assigns and
shall inure to the benefit of the Bank and its successors and assigns.

     This Note and the rights and  obligations  of the parties  hereto  shall be
subject to and governed by the laws of the State of New Jersey.

     IN WITNESS  WHEREOF,  the  undersigned has caused this Revolving Note to be
duly executed by its authorized officers as of the day and year above written.

                                          KAYE GROUP INC.


                                          By:  /s/ Michael P. Sabanos
                                               -----------------------------
                                               Michael P. Sabanos
                                               Senior Vice President
                                               & Chief Financial Officer



                                      -2-