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                                                                      Exhibit 4d

                                                                             (1)


                           COMMERCIAL CREDIT AGREEMENT


      THIS IS A COMMERCIAL CREDIT AGREEMENT made this 1st day of September, 1999
by and among

      WEBSTER BANK
      ------------
      a federally chartered savings bank
      with a place of business at
      150 Main Street
      Bristol, Connecticut 06010                            ("Lender")


      and


      ACMAT CORPORATION
      -----------------
      a Connecticut corporation
      with a place of business at
      233 Main Street
      New Britain, CT 06050                                  ("Borrower")


      and


      ACSTAR HOLDINGS, INC.
      ---------------------
      a Delaware corporation
      with a place of business at
      233 Main Street
      New Britain, CT 06050                                 ("Guarantor")

      The liability of the Borrower and of the Guarantor hereunder shall be
joint and several.

      THE PARTIES AGREE AS FOLLOWS (reference being hereby made to Appendix I
appended hereto for the definition of certain capitalized terms used herein):

      SECTION 1.  LOANS; INTEREST; GUARANTY.

            1.1 The Loans. Subject to all of the terms and conditions of this
Agreement:

                  (A) Revolving Credit.

                        (i) Lender shall from time to time, until the
Termination Date, at the request of Borrower, and provided that all of the
Conditions Precedent have been met by Borrower at the time of such request, make
advances (each an "Advance" and collectively "Advances") to Borrower as a
Revolving Credit (the "Revolving Credit"), which Advances may be repaid and
readvanced from time to time, and which


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shall bear interest at the rate set forth in Section 1.5 provided that the
aggregate amount of all outstanding Advances shall not (except in the sole and
absolute discretion of Lender) at any time exceed the amount of $10,000,000.00.
The Revolving Credit shall be evidenced by the Revolving Credit Note delivered
to Lender in form and substance set forth as Exhibit A attached (together with
any note which from time to time extends, amends, supplements, modifies, renews
or substitutes such note, the "Revolving Note").

                        (ii) On and before the Termination Date, Lender shall
determine in its sole and absolute discretion whether it is willing to extend
the Termination Date. On and after the Termination Date, as extended, if at all,
any obligation of Lender to make Advances shall automatically terminate and all
Advances, together with accrued and unpaid interest thereon and expenses related
thereto, shall become immediately due and payable in full.

                  (B) Term Loan. Lender is lending to Borrower and Borrower is
borrowing from Lender the sum of $4,500,000.00 as a Term Loan (the "Term Loan"),
which Term Loan is payable in quarterly payments of principal, each in the
amount of $250,000.00 payable on the first day of each December, March, June and
September after the date hereof, each to be accompanied by a payment of interest
at the rate set forth in Section 1.5 hereof until the Maturity Date, when the
entire unpaid balance of the Term Loan, together with all accrued and unpaid
interest, shall be due and payable, all as more particularly set forth in the
Term Loan Note delivered to Lender in form and substance as set forth in Exhibit
B attached hereto, (together with any note which from time to time extends,
amends, supplements, modifies, renews or substitutes for such note, the "Term
Note"); and

                  1.2 Conditions Precedent to Advances. Lender's obligation to
make any Advance shall be subject to the conditions precedent ("Conditions
Precedent") that on the date on which Lender makes the Advance:

                  (A) Borrower must have received and provided to Lender such
approvals, opinions, consents or documents evidencing compliance with this
Agreement as Lender may reasonably request; and

                  (B) Borrower must have submitted all financial statements
required hereunder to Lender showing an availability for Advances under the
Revolving Credit, and such Advance when added to all outstanding Advances must
be within such availability; and

                  (C) The following statements must be true, and each request
for an Advance shall be deemed to be a representation and warranty by Borrower
to the effect that, at and as of the date of such request:

                        (i) the representations and warranties contained in
Section 2 are true and correct on and as of the date of such request as though
made on and as of such date; and

                        (ii) no Default nor Event of Default has occurred and/or
is continuing or would result from the Advance.

                  1.3 Procedures for Requesting Advances. Provided that all
Conditions Precedent have been satisfied, Borrower may from time to time request
Advances by a telephone call from such person as


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Borrower may hereafter designate in writing, each of which request must be for
an amount in excess of $100,000.00. Any request for an Advance made prior to
12:00 noon on a Business Day shall result in the Advance being made on such
Business Day as to Prime Rate Advances and on the second (2nd) London Business
Day following such request as to LIBOR Advances. Any request made after 12:00
noon shall result in such Advance being made on the next Business Day as to
Prime Rate Advances and on the third (3rd) London Business Day following such
request as to LIBOR Advances. Any and all Advances to be made by Lender under
this Agreement shall be deposited in Account #100009023109 maintained by
Borrower with Lender. Borrower specifically agrees that Lender shall not be
required to but shall be entitled to rely on such telephone instructions and
that Borrower shall be bound thereby. Borrower shall provide to Lender such
documentation respecting each request for Advance, including, without
limitation, the form of Request for Advance attached hereto as Exhibit C, as
Lender shall require.

                  1.4 Loans. It is specifically contemplated by the parties to
this Agreement that the banking relationship evidenced hereby may, in Lender's
discretion, involve financial accommodations of various types to Borrower,
including, but not limited to, letters of credit, term loans, coverage of
overdrafts, time loans, demand loans, over loans under the Revolving Credit, and
the like, in addition to any and all loans and/or Advances previously made by
Lender to Borrower and in addition to the Revolving Note and the Term Note.
Consequently, the parties intend that this Agreement shall govern any and all
financial accommodations now or hereafter extended by Lender to Borrower and all
other liabilities of the Borrower to the Lender of any kind or nature including,
without limitation, fees, charges, indemnities and penalties. In extension of
the foregoing, all loans and advances now or hereafter made by Lender to or on
behalf of Borrower pursuant to this Agreement and/or any of the documents
executed in connection herewith, or otherwise, whether or not evidenced by
notes, and all liabilities of the Borrower to the Lender (primary, secondary,
direct, indirect, absolute, contingent, sole, joint or several, whether similar
or dissimilar or related or unrelated) whether previously incurred, now existing
or hereafter arising, including, without limitation under guarantees or other
form of surety now or hereafter provided by Borrower in favor of Lender, whether
pursuant to this Agreement or any of the Documents or otherwise, any renewals or
extensions thereof, to the extent the same are outstanding from time to time,
are herein collectively called the "Loans".

                  1.5 Interest.

                  (A) Revolving Credit.

                        (i) All amounts outstanding from time to time under the
Revolving Credit shall bear interest at a per annum variable rate which at all
times is equal to the Prime Rate, said rate to change when and as said Prime
Rate changes; provided however, that

                        (ii) At the election of Borrower made pursuant to a
Notice of Interest Rate Election (in form and substance as set forth in Exhibit
D, attached hereto), outstanding amounts under the Revolving Credit shall bear
interest at the LIBOR Rate plus one and sixtenths (1.6) percentage points. Such
amounts must be in increments of $50,000.00 and remain outstanding for the
Interest Period selected by Borrower at the time such election is made, which
period of time shall be in increments of one month but not to exceed three
months; and


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                        (iii) Notwithstanding the foregoing, not more than four
(4) separate interest rate tranches shall be outstanding at any time under the
Revolving Credit at any time.

                  (B) Term Loan.

                        (i) All amounts outstanding from time to time under the
Term Loan shall bear interest at a fixed rate equal to seven and one quarter
(7 1/4%) percent per annum.

                  1.6 Payment. Except as otherwise provided in any note now or
hereafter executed which evidences any Loan, interest on all Loans shall be
payable by Borrower monthly on the first (1st) day of each calendar month for
interest accrued during the preceding month on the Loans at the rate or rates of
interest applicable during said preceding month. With respect to the Term Loan,
interest payments shall accompany payments of principal. Interest on all Loans
shall be computed using a per diem rate which shall be a fraction, the numerator
of which shall be the rate of interest calculated in accordance with Section
1.5(A) or (B) above and the denominator of which shall be three hundred sixty
(360), multiplied by the actual number of days elapsed. For the purposes of
computing interest earned on the Loans, including without limitation interest
payments which are paid by an Advance (in which case such advance shall
constitute a Loan) or interest payments which are withdrawn directly from
Borrowers' accounts maintained with Lender or are made by other current funds
(AND EACH BORROWER HEREBY CONSENTS TO ANY AND ALL SUCH ADVANCES AND/OR
WITHDRAWALS, AND/OR PAYMENTS BY ANY OTHER MEANS AVAILED OF BY LENDER, AND
FURTHER CONSENTS TO PAYMENTS OF PRINCIPAL AND/OR INTEREST ON ANY OF THE LOANS
AND/OR OTHER SUM OWING TO LENDER BY SUCH ADVANCES AND/OR WITHDRAWALS), credit
for checks deposited, wire transfers received or payment by any other means
shall be given on the third (3rd) business day following the receipt of such
check, wire transfer or other form of payment. In the event any payment of
principal and/or interest shall be returned unpaid for any reason, any credit
given on account of such payment shall be deleted, interest shall accrue
retroactively to the date such credit was given and such payment shall be deemed
for all purposes under this Agreement, never to have been made. Any interest not
paid as aforesaid may, in Lender's sole discretion, accrue and be added to the
principal and continue to bear interest at the rate being borne by such
principal.

                  1.7 Prepayment. Any amounts outstanding bearing interest in
relation to the LIBOR Rate or bearing a fixed rate of interest may only be
prepaid if any such prepayment is accompanied by the Prepayment Premium.
Notwithstanding the foregoing, Borrower may prepay amount outstanding bearing
interest at a fixed rate without penalty or premium in the event Webster Bank
has merged with or been acquired by another lending institution such that the
surviving entity is not Webster Bank.

                  1.8 Guaranty. Guarantor is simultaneously herewith executing
and delivering to Lender its Guaranty Agreement (the "Guaranty") unconditionally
guaranteeing to Lender the payment of all Indebtedness and obligations now or
hereafter owing by Borrower to Lender, including, without limitation, the Loans.

      SECTION 2.  REPRESENTATIONS, WARRANTIES AND COVENANTS.

      Borrower and Guarantor each jointly and severally represent and warrant to
Lender as of the date hereof, and as of the date of each Advance that:


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            2.1 Borrower Incorporation and Qualification. Borrower is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Connecticut, has the corporate power to own its properties
and conduct its business, as presently conducted, and is duly qualified to do
business in each jurisdiction, wherein the nature of the business conducted by
it or the property owned or held under lease by it makes such qualification
necessary in order to avoid any limitation, penalty, forfeiture or restriction
under the laws of such jurisdiction.

            2.2 Guarantor Incorporation and Qualification. Guarantor is a
corporation duly organized and validly existing and in good standing under the
laws of Delaware, has the corporate power to own its properties and conduct its
business, as presently conducted, and is duly qualified to do business in each
jurisdiction, wherein the nature of the business conducted by it or the property
owned or held under lease by it makes such qualification necessary in order to
avoid any limitation, penalty, forfeiture or restriction under the laws of such
jurisdiction.

            2.3 Borrower Capitalization, Business and Subsidiaries. Borrower
does not own stock or other ownership interest of any other business entity,
active or inactive except as set forth on Schedule to 2.3. The information set
forth on Schedule to 2.3 attached with respect to the Borrower's authorized,
issued and outstanding capital stock, all of which stock has been duly
authorized and validly issued and is fully paid and non-assessable, the holders
of such stock, its principal and other places of business, the place where its
inventories, equipment and records of its accounts receivable are kept, and its
present business activities and status, is complete and accurate. It has no
place of business and does not maintain or store any of its assets at any
location, including without limitation Inventory at a vender or subcontractor,
other than those set forth in Schedule to 2.3 attached.

            2.4 Guarantor Capitalization, Business and Subsidiaries. Guarantor
does not own stock or other ownership interest of any other business entity,
active or inactive except as set forth on Schedule to 2.4. The information set
forth on Schedule to 2.4 attached with respect to the Guarantor's authorized,
issued and outstanding capital stock, all of which stock has been duly
authorized and validly issued and is fully paid and non-assessable, the holders
of such stock, its principal and other places of business, the place where its
inventories, equipment and records of its accounts receivable are kept, and its
present business activities and status, is complete and accurate. It has no
place of business and does not maintain or store any of its assets at any
location, including without limitation Inventory at a vender or subcontractor,
other than those set forth in Schedule to 2.4 attached.

            2.5 Authority. Each of Borrower and Guarantor has the corporate
power to execute, deliver and carry out the terms and provisions of this
Agreement and the other Documents to which it is a party and has taken all
necessary corporate and legal action with respect thereto (including, without
limitation, obtaining any consent of stockholders required by the law of any
applicable jurisdiction or its Certificate of Incorporation or By-Laws and this
Agreement and such other Documents to which it is a party have been duly
authorized, executed and delivered by it and constitute its valid, legal and
binding agreement and obligation enforceable in accordance with the terms
thereof) and Lender is entitled to the benefits thereof in accordance with such
terms.


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                  2.6 Compliance with Instruments, Charter and Law. Each of
Borrower and Guarantor and each of their Subsidiaries is in full compliance with
and is not in violation or default of any term or provision of (1) its
Certificate of Incorporation or by-laws, (2) any loan agreement, debt
instrument, mortgage or indenture, (C) any other material contract, agreement or
instrument, (3) any judgment, decree or order or statute, rule or regulation,
law, or ordinance, including without limitation ERISA, OSHA, all state and
federal environmental laws and those of the Internal Revenue Service. (4) any
licensing or governmental requirement, or (5) any state or federal environmental
act. The execution and delivery and performance and compliance with this
Agreement or any of the other Documents will not result in any such violation or
default by Borrower or Guarantor, or be in conflict with any such term or
provision or result in the creation of any mortgage, lien, encumbrance or charge
upon any of its properties or assets and there is no such term or provision
which materially adversely affects or in the future may (so far as it can now
foresee) materially adversely affect its business, prospects, profits,
properties, liabilities, operations or condition (financial or otherwise) or its
ability to perform this Agreement or any of the other Documents executed by it.

                  2.7   Financial Statements.

                  (A) The consolidated balance sheet of the Borrower and its
consolidated subsidiaries as of December 31, 1998 and the related consolidated
statements of operations, cash flows and stockholders' equity for the Fiscal
Year then ended, reported on by KPMG Peat Marwick and set forth in the
Borrower's 1998 Form 10-K, fairly present, in conformity with GAAP, the
consolidated financial position of the Borrower and its consolidated
subsidiaries as of such date and their consolidated results of operations and
cash flows for such Fiscal Year.

                  (B) The unaudited consolidated balance sheet of the Borrower
and its consolidated subsidiaries as of June 30, 1999 and the related unaudited
consolidated statements of operations, cash flows and stockholders' equity for
the nine months then ended, set forth in the Borrower's latest Form 10-Q, fairly
present, on a basis consistent with the financial statements referred to in
subsection (A), the consolidated financial position of the Borrower and its
consolidated subsidiaries as of such date and their consolidated results of
operations and cash flows for such three month period (subject to normal
year-end adjustments).

                  2.8 Indebtedness. Borrower has no outstanding Indebtedness,
except for liabilities to trade creditors incurred in the ordinary course of
business and/or except as described or set forth in the financial statements
referred to in Section 2.7 hereof, and has performed and complied with all of
the terms of such Indebtedness and all instruments and agreements relating
thereto and no default exists as of the date hereof or would after notice or
lapse of time, or both, exist with respect to any such Indebtedness, instruments
or agreements.

                  2.9 Title to Properties and Assets; Liens, Etc. Borrower has
good and marketable title to its properties and assets free and clear of any
mortgage, pledge, lien, lease, encumbrance or charge, other than those set forth
on Schedule to 2.9 attached and other than those permitted under Section 4.2 .
No financing statement under the Uniform Commercial Code which names Borrower as
a debtor has been filed in any state or other jurisdiction which has not been
terminated and it has not signed any such financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement, other than as set forth on Schedule to 2.9 attached


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            2.10 Patents, Trademarks, Etc. Borrower, Guarantor and each of its
Subsidiaries owns or holds licenses for the use of or has the right to use all
patents, trademarks, service marks, trade names, copyrights and other
intellectual property rights necessary for the conduct of its business as now
conducted and as contemplated, including those identified in Schedule to 2.10
attached.

            2.11 Litigation, Etc. Except as set forth in Schedule to 2.11
attached and in the ordinary course of business of the Insurance Subsidiaries
respecting claims which in the aggregate do not materially adversely affect
their business, there are no equitable, legal, arbitration or administrative
proceedings, suits, actions or investigations pending against Borrower or
Guarantor or any Subsidiary thereof or in any other way relating to the
Borrower's or Guarantor's or any such Subsidiary's business, assets or other
properties or to its knowledge threatened (or any basis therefor known to it)
which, either in any case or in the aggregate, might result in any material
adverse change in its business, prospects, profits, properties, liabilities,
operations or conditions (financial or otherwise), or which might materially
adversely affect its ability to perform this Agreement or any other Documents
executed by it.

            2.12 Changes in Condition. Since the date of the financial
statements referred to in Section 2.7, there has been no material adverse
change, by reason of any matter or cause whatsoever, in Borrower's, Guarantor's
or any of their Subsidiaries, business, prospects, profits, properties,
liabilities, operations or condition (financial or otherwise).

            2.13 Tax Returns and Payments. All tax returns and reports required
by law to be filed by Borrower, Guarantor and each of their Subsidiaries have
been duly filed and all taxes, assessments, fees and other governmental charges
(U.S., foreign, state or local or other) upon it or upon any of its properties,
assets, income or franchises, which are due and payable, have been paid. The
reserves on the Borrower's, Guarantor's or any of their Subsidiaries books, in
respect of taxes, reserves, risk based capital and the like for all fiscal
periods to date, are adequate. Its Federal and State income and payroll tax
returns have been examined and reported on by the taxing authorities or closed
by applicable statutes and satisfied for all fiscal years prior to and including
the fiscal years set forth in Schedule to 2.13 attached.

            2.14 Governmental Consents, Etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority, federal, foreign or other, is required in connection with the
execution and delivery of this Agreement or the Documents or the consummation of
any transaction contemplated hereby or thereby.

            2.15 Solvency. Borrower, after giving effect to the transactions
described herein, is solvent, having assets of a value which exceeds the amount
of its liabilities, and is able to and anticipates that it will be able to meet
its debts as they mature and has adequate capital to conduct the business in
which it is engaged and is about to engage.

            2.16 Names. Borrower currently conducts all business only under its
legal name as set forth above. During the preceding five years Borrower has not
(i) been known as or used any other corporate, fictitious or trade name, (ii)
been the surviving entity of a merger or consolidation or (iii) acquired all or
substantially all of the assets from any Person.


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            2.17  No Default nor Event of Default.  No Default nor Event of
Default has occurred or exists.

            2.18 Shareholder Agreements. Borrower is not a party to any written
executive employment, management or shareholder agreement, except as described
in Schedule to 2.18 attached.

            2.19 Place of Business; Records. Borrower's chief place of business
is the address shown above and Borrower shall give Lender at least sixty (60)
days prior written notice of any change.

            2.20 Year 2000 Compliance. Borrower, Guarantor and each of their
Subsidiaries has taken all necessary action to assess, evaluate and correct all
hardware, software, embedded microchips and other processing capabilities it
uses, directly or indirectly, to ensure that it will be able to function
accurately and without interruption or ambiguity using date information, before,
during and after January 1, 2000.

            2.21 Judgments. Neither Borrower nor Guarantor nor any of their
Subsidiaries, nor any of the assets of any such party is subject to any unpaid
judgment (whether or not stayed) or any judgment lien in any jurisdiction.

            2.22 No Regulatory Restrictions on Borrowing. Neither Borrower nor
Guarantor nor any of their Subsidiaries is (i) an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding
company" or a "subsidiary company" of a holding company within the meaning of
the Public Utility Holding Company Act of 1935, as amended, or (iii) otherwise
subject to any regulatory scheme which restricts its ability to incur or
guarantee debt.

            2.23 Insider. Borrower is not, and no Person having "control" (as
defined in 12 U.S.C. 375(b)(5) or in regulations promulgated thereto) of
Borrower is an "executive officer", "director" or "principal shareholder" (as
those terms are defined in 12 U.S.C. 375(b)(5) or in regulations promulgated
thereto) of Lender, of a bank holding company (or Subsidiary thereof) of which
Lender is a Subsidiary.

            2.24 Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan, or made any amendment
to any Plan, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under ERISA or the Internal Revenue Code
or (iii) incurred any liability under Title IV of ERISA other than a liability
to the PBGC for premiums under Section 4007 of ERISA.

            2.25 Environmental Matters. (A) Except as set forth in Schedule to
2.25 and to the extent that the liabilities of the Borrower and its
Subsidiaries, taken as a whole (and after considering any applicable third party
indemnification which has been provided and remains in full force and effect
and/or to the extent a solvent insurer has agreed in writing to provide
coverage), relating to or resulting from the matters referred to in clauses (i)
through (vi) below, inclusive, would not reasonably be expected to exceed
$250,000.00 for any one occurrence or $500,000.00 in the aggregate.


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                        (i) no notice, notification, demand, request for
information, citation, summons, complaint or order has been received, no penalty
has been assessed and no investigation or review is pending, or to the
Borrower's knowledge, threatened by any governmental or other entity relating to
the Borrower or any Subsidiary and relating to or arising out of any applicable
Environmental Law;

                        (ii) there are no liabilities of the Borrower or any
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, arising under or relating to any
Environmental Law;

                        (iii) no polychlorinated biphenyls, radioactive
material, lead, lead paint, asbestos-containing material, incinerator, sump,
surface impoundment, lagoon, landfill, septic, wastewater treatment or other
disposal system or underground storage tank (active or inactive) that requires
remediation, or could reasonably be expected to lead to liability under,
applicable Environmental Laws is or has been present at any property now or
previously owned, operated or leased by the Borrower or any Subsidiary;

                        (iv) no Hazardous Substance has been discharged,
disposed of, dumped, injected, pumped, deposited, spilled, leaked, emitted or
released at, on or under any property now or previously owned, operated or
leased by the Borrower or any Subsidiary other than in compliance in all
material respects with, and in a manner that could not reasonably be expected to
lead to liability under, applicable Environmental Laws;

                        (v) no property now or previously owned, leased or
operated by the Borrower or any Subsidiary nor any property to which the
Borrower or any Subsidiary has, directly or indirectly, transported or arranged
for the transportation of any Hazardous Substances, is listed or, to the
Borrower's knowledge, proposed for listing, on the National Priorities List
promulgated pursuant to CERCLA, or CERCLIS (as defined in CERECLA) or on any
similar federal, state or foreign list of sites requiring investigation or
clean-up; and

                        (vi) the Borrower and its Subsidiaries are in compliance
with all Environmental Laws and have obtained and are in compliance with all
permits, licenses, authorizations, certificates and approvals of governmental
authorities relating to or required by applicable Environmental Laws and
necessary or property for the business of the Borrower or any Subsidiary as
currently conducted.

                  (B) There has been no material environmental investigation,
study, audit, test, review or other analysis conducted of which the Borrower or
any Subsidiary has control or possession in relation to the current or prior
business of the Borrower or any Subsidiary or any property or facility now or
previously owned, leased or operated by the Borrower or any Subsidiary, which
has not been delivered to the Lenders at least five days prior to the date
hereof.

                  (C) For purposes of this Section, the terms "Borrower" and
"Subsidiary" shall include any business or business entity (including a
corporation) which is, in whole or in part, a predecessor of the Borrower or any
Subsidiary.


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            2.26 Subsidiaries. Each of the Borrower's Subsidiaries is duly
organized, validly existing and, where applicable, in good standing under the
laws of its jurisdiction of organization, and has all powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. The Borrower has no Subsidiaries other than
those listed on Schedule to 2.26.

            2.27 Full Disclosure. All information (excluding projections)
heretofore furnished by the Borrower to Lender for purposes of or in connection
with the Loan Documents or any transaction contemplated thereby is, and all such
information hereafter furnished by the Borrower to Lender will be, true and
accurate in all material respects on the date as of which such information is
stated or certified. The Borrower and Guarantor have disclosed to Lender any and
all facts (other than general economic or political conditions) which materially
and adversely affect, or may affect (to the extent the Borrower and Guarantor
can now reasonably foresee), the business, operations or financial condition of
the Borrower and its Subsidiaries, taken as a whole, or the ability of any
Borrower of Guarantor to perform its obligations under the Loan Documents. All
projections heretofore furnished by the Borrower to Lender for purposes of or in
connection with the Loan Documents or any transaction contemplated thereby were,
and all projections hereafter furnished by the Borrower to Lender will be, based
on reasonable assumptions and as of their date represented the Borrower's best
estimate of future performance of the Borrower and its Subsidiaries.

            2.28  Special Representations and Warranties re Insurance
Subsidiaries.

                  (A) United Coastal Insurance Company ("Coastal") is and will
continue to be duly licensed in the State of Arizona and is qualified to do
business in all states other than Maine, New Hampshire, Vermont and Tennessee .
Coastal was last audited by the Department of Insurance of the State of Arizona
on December 31, 1997. Coastal has not currently applied for permission to grant
any extraordinary dividends and no such application has ever been denied.

                  (B) ACSTAR INSURANCE COMPANY ("ACSTAR") is and will continue
to be duly licensed in the State of Illinois and is qualified to do business in
all states. ACSTAR was last audited by the Department of Insurance of the State
of Illinois on December 31, 1995. ACSTAR has not currently applied for
permission to grant any extraordinary dividends and no such application has ever
been denied.

                  (C) Each Insurance Subsidiary is and will continue to be in
compliance with the laws and regulations of each state in which it is approved
to sell insurance, specifically including, without limitation, the State of New
York.

                  (D) Each Insurance Subsidiary maintains and will continue to
maintain adequate reserves as determined by its outside auditors and is at or
above state regulatory requirements and those determined by NAIC.

                  (E) Each Insurance Subsidiary has and will at all times
maintain risk based capital ratio which complies with the guidelines of NAIC and
complies with all applicable state regulatory guidelines including, without
limitation, the State of New York. Each Insurance Subsidiary has and will
continue to have actual capital equal to or in excess of its required risk based
capital.


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<PAGE>   11
                  (F) Coastal has not incurred losses in excess of 15% of its
statutory surplus in any year.

                  (G) ACSTAR has not incurred losses in excess of 15% of its
statutory surplus in any year.

                  (H) None of Coastal's reinsurance recoverables are more than
90 days past due.

                  (I) None of ACSTAR's reinsurance recoverables are more than 90
days past due.

                  (J) No Insurance Subsidiary has entered into transactions with
Affiliates during the last three years except as disclosed on Schedule to 2.28
attached hereto.

                  (K) On and as of the date hereof the rating of Coastal by A.M.
Best is A-. Borrower knows of no basis for any reduction of such rating nor any
action to evidence such rating.

                  (L) On and as of the date hereof the rating of ACSTAR by A.M.
Best is A-. Borrower knows of no basis for any reduction of such rating nor any
action to evidence such rating.

      SECTION 3.  AFFIRMATIVE COVENANTS.

      Borrower covenants and agrees that so long as there is outstanding any
portion of the Loans, Borrower will comply or cause compliance with the
following:

            3.1 Punctual Payment. Borrower shall duly and punctually pay all
principal, interest and charges which are owing by it in accordance with the
provisions of the Revolving Note and the Term Note and also in accordance with
the provisions hereof and of the other Documents. If any Loan is not evidenced
by a writing specifying a due date, Borrower shall pay the same ON DEMAND. All
Loans shall be paid in U.S. Dollars at the address of Lender shown above.
Borrower shall pay on demand all charges customarily levied by lender in making
loans of the type herein or incurred by Lender in connection with the Loans.

            3.2 Prompt Payment of Taxes, Mortgages, Leases and Indebtedness.
Borrower shall promptly pay and discharge, or cause to be paid and discharged,
prior to the date when due (unless contested in good faith and reserves against
the payment of which, satisfactory to Lender, are deposited with Lender), all
lawful taxes, assessments and governmental charges or levies imposed upon assets
owned by it or in which it has an interest or upon the Borrower's Business
premises or upon the income, profits, property or business of itself or
Guarantor or any of its or their Subsidiaries, or upon any of its or their other
assets. Borrower shall promptly pay or cause to be paid when due (or in
conformity with customary trade terms) all other Indebtedness of itself incident
to its operations and will promptly pay and perform all obligations under leases
of real and personal property and under material contracts and shall notify
Lender promptly of any default or notice of alleged default received with
respect to any such Indebtedness, lease or contract.

            3.3 Conduct of Business. Borrower shall do all things necessary to
preserve, renew and keep in full force and effect in good standing the
Borrower's, Guarantor's and each of its or their Subsidiaries' corporate
existence, qualification and any franchises, licenses, patents, trademarks and
items necessary to


                                       11
<PAGE>   12
continue its business. Borrower shall maintain its properties and assets and
those of the Guarantor and those of Borrower's and/or Guarantor's Subsidiaries
in good order and repair, all in compliance with applicable federal, state, and
local judgments, decrees, orders, statutes, rules and regulations, including,
but not limited to, state and federal environmental regulations and those of the
Occupational Safety and Health Administration.

            3.4 Insurance.

                  (A) Borrower, Guarantor, and each of its or their Subsidiaries
shall maintain, with insurers satisfactory to Lender, insurance with respect to
the assets owned by it or in which it has an interest and its other properties
and business against loss or damage to the extent that is currently in force.
Such insurance shall include:

                        (i) public and product liability insurance in such
amounts and covering such risks, as Lender may reasonably require,

                        (ii) all worker's compensation and other employees'
liability insurance as may be required by law,

                        (iii) insurance with respect to its assets constituting
tangible personal property and fixtures, and with respect to its other
properties both real and personal, including, without limitation, the Borrower's
business premises, to the full extent of the insurable value thereof, and
including All Risk coverage (so-called) covering such other risks, as Lender may
require, and

                        (iv) business interruption insurance in amounts
sufficient to cover the reasonable needs of the Borrower's business during
periods of partial or complete interruption of the Borrower's business.

                  (B) Borrower shall furnish evidence satisfactory to Lender
confirming to Lender the insurance at the time in force pursuant to this Section
specifying the amount and character of coverage, identifying the insurers and
certifying as to no default in the payment of current premiums thereon and will
furnish Lender with original or duplicate original copies of all policies.

            3.5 Accounting; Financial Statements and Other Information. Borrower
shall maintain a system of accounts established and administered in accordance
with GAAP and practices consistently applied. Borrower shall deliver or cause to
be delivered to Lender:

                  (A) Financial Reports.

                        (i) As soon as available and in any event within
forty-five (45) days after the end of each Fiscal Quarter after the date hereof,
a balance sheet of the Borrower, in consolidating and consolidated form, as of
the end of such period, and a statement of income and retained earnings of the
Borrower, in consolidated form, for the period commencing at the end of the
previous Fiscal Year and ending with the end of such quarter, all in reasonable
detail, and duly certified by the chief financial officer of the Borrower as
having been prepared in accordance with GAAP and fairly presenting the financial
position and


                                       12
<PAGE>   13
results of operations of the Borrower for such period, together with a statement
of such individual preparing such statements to the effect that in the course of
the preparation of such statements said individual has gained no knowledge that
a Default or Event of Default has occurred and is continuing or, if, in the
opinion of said individual, a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which the
Borrower proposes to take with respect thereto (the provision for such a
statement herein shall in no way be construed as a consent to the existence of
such an Event nor the granting of time to cure). In addition, said preparer
shall complete and forward to Lender together with such financial statements the
completed Covenant Compliance Certificate in the form attached hereto as Exhibit
E.

                        (ii) As soon as available and in any event within ninety
(90) days after the end of each Fiscal Year of the Borrower, a copy of the
annual audited report for such year for the Borrower, including therein, a
balance sheet of the Borrower as of the end of such Fiscal Year and a statement
of income, retained earnings and statement of changes in financial position of
the Borrower for such Fiscal Year, in each case on a consolidated basis, and in
each case "Certified" by a firm of independent certified public accountants
selected by the Borrower but acceptable to Lender, together with the unqualified
opinion of such accounting firm to Lender stating that the financial statements
audited by such firm present fairly, in all material respects, the financial
position of Borrower as of the date of such financial statements and the results
of its operations and its cash flow for the Fiscal Year then ended, all in
conformity with GAAP, together with the certificate of such accounting firm
that, in the course of its audit of Borrower, it has obtained no knowledge that
a Default or Event of Default has occurred and is continuing or if, in the
opinion of such accounting firm, a Default or Event of Default has occurred and
is continuing, a statement as to the nature thereof (the provision for such a
statement herein shall in no way be construed as a consent to the existence of
such an Event nor the granting of time to cure) and together with the Management
Letter (so called) of such firm and Borrower's written response thereto
detailing actions to be taken relating to matters discussed in said Management
Letter, and together with a completed Covenant Compliance Certificate. In
addition, Borrower shall provide all financial statements for the Insurance
Subsidiaries required by the laws of any jurisdiction in which the Insurance
Subsidiary conducted business.

                        (iii) Such other data and information (financial and
otherwise) bearing upon or related to the Borrower's or the Guarantor's
financial condition, results of operations or assets, as Lender from time to
time may reasonably request.

                  (B) Projections/Budgets. As soon as available and in any event
within thirty (30) days prior to the end of each Fiscal Year of Borrower,
financial projections prepared by Borrower on a consolidated and consolidating
basis for the next Fiscal Year of Borrower, profit and loss statements projected
for each Fiscal Quarter and for the end of the next Fiscal Year, including
without limitation a projection of all drawings under, paydowns of and
anticipated quarterly availability under, the Revolving Credit and a capital
expenditure budget for the next Fiscal Year.

            3.6   Financial Covenants.  Borrower shall maintain the following,
calculated in accordance with GAAP, as shown on the financial statements
required to be provided pursuant to Section 3.5;

                  (A) a ratio of Borrower's consolidated total Indebtedness to
Borrower's (i) cash on hand and cash equivalents on hand plus (ii) marketable
securities (including amounts owing to Borrower in


                                       13
<PAGE>   14
connection therewith but not yet paid) plus (iii) accrued interest receivable of
not more than 1.05 to 1.0 measured at the end of each Fiscal Quarter; and

                  (B) on September 30, 1999 an Adjusted Interest Coverage Ratio
(being the ratio of Adjusted Cash Flow taking into account only 75% of the
allowable dividend permitted to be paid to Borrower by its Subsidiaries to
consolidated Interest Expense) of not less than 2.25 to 1.0 and thereafter an
Interest Coverage Ratio (being the ratio of Adjusted Cash Flow to consolidated
Interest Expense) of at least 2.25 to 1.0 measured: (i) on a calendar year basis
at the end of the Fiscal Quarter ending September 30, 1999, and (ii) at the end
of each Fiscal Quarter over the immediate preceding four (4) Fiscal Quarters
commencing with the Fiscal Quarter ending December 31, 1999 and for each Fiscal
Quarter thereafter.

                  (C) On September 30, 1999 an Adjusted Debt Service Coverage
Ratio (being the ratio of Adjusted Cash Flow taking into account only 75% of the
allowable dividend permitted to be paid to Borrower by its Subsidiaries to Debt
Service) of not less than 1.25 to 1.0 and thereafter a Debt Service Coverage
Ratio (being the ratio of Adjusted Cash Flow to Debt Service) of not less than
1.25 to 1.0 measured: (i)on a calendar year basis at the end of the Fiscal
Quarter ending September 30, 1999, and (ii) at the end of each Fiscal Quarter
over the immediate preceding four (4) Fiscal Quarters commencing with the Fiscal
Quarter ending December 31, 1999 and for each Fiscal Quarter thereafter.

                  (D) A ratio of Borrower's total Funded Debt to Statutory
Operating Earnings of not more than 5.0 to 1.0 measured: (i) on a calendar year
basis at the end of the Fiscal Quarter ending September 30, 1999, and (ii) at
the end of each Fiscal Quarter over the immediate preceding four (4) Fiscal
Quarters commencing with the Fiscal Quarter ending December 31, 1999 and for
each Fiscal Quarter thereafter.

                  (E) A ratio of Borrower's total Funded Debt to Statutory
Capital of not more than 0.70 to 1.0 measured at the end of each Fiscal Quarter.

      Borrower acknowledges that it has assisted Lender in the formation of each
of the foregoing financial performance criteria and fully understands each of
said criteria.

            3.7 Notice of Certain Events and Changes; Governmental Notices.

                  (A) Promptly after becoming aware of any condition, event or
state of facts which constitutes a Default or Event of Default, Borrower shall
give written notice to Lender specifying the nature and period of existence
thereof. Borrower shall give Lender prompt written notice of any condition,
event or state of facts which causes or may cause material loss or depreciation
in the value of the assets or Borrower's business premises and of the
commencement or threat of any action, proceeding or investigation or the
occurrence or existence of any other event, matter or cause whatsoever, which,
either in any case or in the aggregate results or might result in any material
adverse change in its business, prospects, profits, properties, operations or
condition (financial or otherwise). Borrower shall give Lender at least sixty
(60) days' prior written notice of any proposed change in its place or places of
business, any proposed change of location of any of the assets and any proposed
changes in its name.

                  (B) As soon as reasonably practicable, after the issuance
thereof, Borrower shall send to Lender a copy of all notices of investigation,
claims of violation or possible violation and/or orders


                                       14
<PAGE>   15
issued by any federal, state or municipal regulatory authority under any laws or
regulations adopted thereby which are directed to and received by Borrower.
Further, as soon as reasonably practicable, Borrower shall send to Lender copies
of all reports or other materials filed by it with or issued or sent to it by
the Securities and Exchange Commission and all reports, notices or statements
sent by it to its stockholders.

            3.8 Unused Fee. Borrower shall pay Lender, in current funds,
quarterly in arrears, a fee equal to 3/8 per cent per annum (but calculated
based on the actual number of days elapsed) of the average daily unused amount
of the Revolving Credit. Notwithstanding the foregoing, Borrower shall not be
required to make any unused fee payments until the aggregate amount to be paid
exceeds $103,000.00 and then Borrower shall make payments only in excess of such
$103,000.00.

            3.9 Environmental Compliance.

                  (A) Borrower shall comply with all applicable Environmental
Laws, regulations, rules, standards, orders and agreements. Whenever, pursuant
to any such legal requirement, Borrower is obligated to report to any party the
existence of a Spill (as such term is defined in Section 1 of Public Act
85-443), "Release" (as defined in 42 U.S. Code 9601 et seq.), "Hazardous Waste"
(as defined in Section 22a-115 of Connecticut General Statutes), "Hazardous
Substance" (as defined in 42 U.S. Code 9601 et seq.) or other environmental
contamination on or emanating from Borrower's business premises, Borrower shall,
simultaneously and in writing, report the existence of such conditions to Lender
at the address set forth in Section 13 hereof.

                  (B) In addition to any and all other liability of Borrower to
Lender hereunder, Borrower shall indemnify the Lender against any loss or damage
that shall occur to Lender as a result of the application of the Super Lien Act
(Section 22a-452a of the Connecticut General Statutes) or any other federal,
state, local or quasi-governmental law, rule, regulation, ordinance or the like.

                  (C) The Lender and/or its authorized representatives has the
right, at reasonable times and upon reasonable notice to Borrower, to enter upon
Borrower's business premises for the purpose of conducting inspections and/or
audits of Borrower's environmental compliance and/or of Borrower's methods
and/or procedures for disposal of waste products used in the course of
Borrower's business. Borrower shall correct any discrepancies found during such
inspections or audits promptly.

                  (D) In the event that any lien is filed against any of
Borrower's properties or any claim is made against Borrower by any governmental
entity in connection with the discharge of hazardous substances or wastes then
Borrower shall either (i) pay the claim and remove any lien from the applicable
property or (ii) furnish to such governmental entity that imposed the lien a
bond, cash deposit or other security reasonably satisfactory to such
governmental entity in an amount sufficient to discharge the lien.

            3.10 Intentionally left blank.

            3.11 Use of Proceeds. Borrower shall use the proceeds of the Loans
to repay indebtedness owing by Borrower to BankBoston, N.A. and for general
working capital purposes. Borrower shall not, directly or indirectly, apply any
part of any proceeds or advance from any loan to the purchasing or carrying of
any "margin stock" within the meaning of Regulation U or Regulation G of the
Board of Governors of the


                                       15
<PAGE>   16
Federal Reserve System, or for any use which will cause a violation of any other
regulation of the Board of Governors of the Federal Reserve System or of any
regulations, interpretations or rulings thereunder, including without limitation
Regulations G, U, T and X.

            3.12  Deposit Accounts. Borrower shall maintain its primary
disbursement account with Lender.

            3.13 Pension Plans.

                  (A) As soon as reasonably practicable, upon the filing,
issuance or receipt thereof, Borrower will send to Lender copies of (i) all
annual reports filed by it or on its behalf with respect to all pension or other
employee benefit plans, subject to ERISA, (hereinafter collectively referred to
as the "Plans" and individually as the "Plan"), with the Secretary of Labor, the
Internal Revenue Service, or the Pension Benefit Guaranty Corporation ("PBGC"),
(ii) all notices, reports, determinations or statements to or from the PBGC with
respect to the occurrence of a reportable event, as defined in Subsections (1),
(2), (3), (4), (5), (6), (7), (8) or (9) of Section 4043(b) of ERISA and
regulations issued thereunder, (iii) all reports submitted to it and/or the
Internal Revenue Service by any actuary with respect to any of the Plans, (iv)
all notices of Plan termination or requests for determination letters in
connection therewith filed by Borrower, any Plan Administrator (as such term is
defined in ERISA,) or trustee or custodian of any accounts of any Plan with the
PBGC and/or Internal Revenue Service, and (v) all requests to waive the minimum
funding standard or extension of amortization periods submitted to the Secretary
of the Treasury.

                  (B) Borrower (to the extent applicable to it) shall be and
remain in compliance with the provisions of ERISA or the applicable provisions
of the Internal Revenue Code of 1986, as amended, (hereinafter referred to as
the "Revenue Code"), including, without limitation, (i) the payment of all
premiums to the PBGC when and as the same shall be due and payable, pursuant to
Section 4007 of ERISA, and (ii) the taking of such action as may be necessary
from time to time to meet all minimum funding standards for each of the Plans
under Section 412 of the Revenue Code. In furtherance of the foregoing, it
shall, on or before the date in each year required by ERISA and/or the Revenue
Code for any Plan, (hereinafter referred to as "Plan Year"), cause the actuary
for such Plan to deliver to Lender a true and correct copy of its report to the
Internal Revenue Service relating to (a) the actuary's methods and assumptions
for determining all costs, accrued liabilities, past service liabilities and
experience gains and losses, and (b) the amount to be contributed by it to the
funding standard account on account of such Plan for such Plan Year.

            3.14 Special Covenants re Insurance Subsidiaries. The Borrower
shall:

                  (A) Notify the Lender annually of the allowable dividend which
may be paid by each Insurance Subsidiary to the Borrower.

                  (B) Notify the Lender promptly if any Insurance Subsidiary has
applied for permission to grant any special dividends.

                  (C) Notify the Lender of any allegation of non-compliance by
any Insurance Subsidiary with the laws and regulations of each state in which it
is approved to sell insurance, specifically including, without limitation, the
State of New York, except this notification does not apply to any non-


                                       16
<PAGE>   17
compliance matter if such non-compliance matter does not have a material effect.

                  (D) Furnish to the Lender annually all reports issued by its
outside auditors which analyze the adequacy of the level of each Insurance
Subsidiary's reserves.

                  (E) Notify the Lender of any material change in any Insurance
Subsidiary's risk based capital ratio.

                  (F) Maintain in each Insurance Subsidiary actual capital equal
to or in excess of its required risk based capital.

                  (G) Notify the Lender, promptly upon becoming aware, of the
following: (i) any material increase in the levels of primary liability of each
Insurance Subsidiary which is ceded to reinsurers, (ii) the occurrence of any
default in any such contract of reinsurance and (iii) the occurrence of any
insolvency of any reinsurer or any non-compliance by any reinsurer with the NAIC
risk based capital guidelines.

                  (H) Notify the Lender, promptly upon becoming aware, of the
following: (i) any material increase in the levels of primary liability of each
Insurance Subsidiary which is co-insured with others, (ii) the occurrence of any
default in any such contract of co-insurance and (iii) the occurrence of any
insolvency of any co-insurer or any non-compliance by any co-insurer with the
NAIC risk based capital guidelines.

                  (I) Notify the Lender within 90 days of the fiscal year end
each Insurance Subsidiary's (i) net investment income for the year then ended,
(ii) the statutory surplus for the year then ended, (iii) the "Combined Ratio"
for each such Insurance Subsidiary for the year then ended, (iv) the loss, if
any, of any Insurance Subsidiary in excess of 15% of its statutory surplus for
the year then ended, (v) a listing of each Insurance Subsidiary's reinsurance
recoverables which are more than 90 days past due as at the end of any year and
(vi) a listing of all transactions with Affiliates entered into by any Insurance
Subsidiary during the year then ended.

                  (J) Notify the Lender of any reduction in the rating by A.M.
Best and Company of any Insurance Subsidiary.

            3.15 Upstream Dividends. Borrower shall, among other things, cause
its Subsidiaries to pay to Borrower such profits, excess capital and other sums
as may be necessary to comply with the financial covenants set forth in Section
3.6. In extension of the foregoing, Borrower shall diligently apply for and
pursue any approvals from any state or regulatory authority having jurisdiction
over each such Subsidiary if such approvals are necessary to comply with the
financial covenants set forth in Section 3.6.

            3.16 Rating. The Insurance Subsidiaries shall at all times maintain
a rating by A.M. Best and Company of at least B+.

      SECTION 4.  NEGATIVE COVENANTS.


                                       17
<PAGE>   18
      Borrower covenants and agrees that, so long as there is outstanding any
portion of the Loans, or so long as this Agreement has not been mutually
terminated after all amounts owing under the Loans have been paid, Borrower
shall not, and Guarantor shall not, to the extent set forth in each of the
following Sections:

            4.1 Restrictions on Liens. Directly or indirectly, create, incur,
assume or permit to exist any mortgage, lien, charge or encumbrance on or pledge
or deposit of or conditional sale, lease or other title retention agreement with
respect to any property or asset, whether now owned or hereafter acquired, or be
bound by or subject to any agreement or option to do so, provided that the
foregoing restrictions do not apply to:

                  (A) liens for taxes, assessments or governmental charges or
levies the payment of which is not at the time required by Section 3.2;

                  (B) liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation or unemployment insurance or
to secure the performance of tenders, statutory obligations, surety and appeal
bonds, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);

                  (C) zoning restrictions, easements, rights-of-way,
restrictions and/or minor irregularities in title and other liens, charges and
encumbrances incidental to the conduct of its business or the ownership of its
properties or assets which are not incurred in connection with the borrowing of
money and which in the aggregate are not material;

                  (D) statutory or common law possessory liens for charges
incurred in the ordinary course of business the payment of which is not yet due;

                  (E) the mortgages, liens and encumbrances referred to or
described in Schedules to 4.1 attached and/or the replacement thereof;

                  (F) liens in favor of Lender.

            4.2 Restrictions on Indebtedness. Directly or indirectly, create,
incur, assume, guarantee, agree to purchase or repurchase, pay or provide funds
in respect of, or otherwise become or be or remain liable, contingently,
directly or indirectly, with respect to, any Indebtedness other than:

                  (A) Indebtedness to Lender;

                  (B) current liabilities for trade and other obligations
incurred in the ordinary course of its business not yet past due and not as a
result of borrowing;

                  (C) Indebtedness arising under leases permitted hereby;

                  (D) Indebtedness in respect of endorsements made in connection
with the deposit of items for credit or collection in the normal and ordinary
course of business; and


                                       18
<PAGE>   19
                  (E) Indebtedness described in the financial statements
described in Section 2.8 or refinancing of such Indebtedness in amounts not to
exceed such refinanced Indebtedness.

                  (F) Indebtedness otherwise in conformity with all of the other
terms hereof incurred in order to fund the loan, advance or capital contribution
described in Section 4.3 (F) below.

         Borrower shall not guarantee or otherwise assure any obligation of any
other party including, without limitation, that of any Guarantor.

            4.3 Restrictions on Investments, Loans, Etc. Make or permit to be
outstanding any loan or advance or capital contribution to any other Person,
other than:

                  (A) presently outstanding loans, advances and investments
incurred in the ordinary course of Borrower's business;

                  (B) Indebtedness of customers for merchandise sold or services
rendered in the ordinary course of business; and

                  (C) investments in bills or bonds issued or guaranteed by the
government of the United States of America and/or Certificates of Deposit issued
by Lender or any other bank having a net worth of at least $50,000,000.00; and

                  (D) loans to employees of Borrower for travel and
entertainment advances not to exceed $250,000.00 in the aggregate outstanding at
any one time.

                  (E) the portfolios of the Insurance Subsidiaries maintained
pursuant to Borrower's guidelines attached hereto as Schedule to 4.3.

                  (F) any other loan, advance or capital contribution to any
other business entity not set forth herein for Borrower's or the Insurance
Subsidiaries' legitimate business purposes in an amount not to exceed
$10,000,000 outstanding in the aggregate provided that (i) no proceeds of any
Loan shall be used for such purpose and (ii) no Default or Event of Default
shall exist or be created thereby.

            4.4 Dividends, Distributions and Redemptions. Directly or
indirectly, declare, order, pay, make or set apart any sum or property for the
redemption, retirement, purchase or other acquisition, direct or indirect, of
any shares of its stock of any class now or hereafter outstanding in an amount
exceeding (i) $3,000,000 in any Fiscal Year in the aggregate (including the
Fiscal Year ending December 31, 1999) and/or (ii) exceeding the aggregate amount
for the purchase of shares in the Borrower held by Henry Nozko, Sr. in excess of
the proceeds of insurance policies held by Borrower on the life of such person.

            4.5 Sale of Assets, Consolidation, Merger, Acquisition of Assets.
Directly or indirectly, sell, abandon or otherwise dispose of any material asset
or any part thereof (except for the sale of Inventory in the ordinary course of
Borrower's business) or of all or any portion of its properties or assets, or
consolidate with or merge into any other corporation, or permit any other
corporation to consolidate with or merge into


                                       19
<PAGE>   20
it, or acquire all or a substantial portion of the assets of another
Person, or form any Subsidiary, or, directly or indirectly, suffer any change in
ownership.

            4.6 Management Agreements. Enter into any executive employment,
management or consulting agreement or renew, extend or amend any presently
existing executive employment, management or consulting agreement, except
agreements with Henry Nozko, Sr. and Henry Nozko, Jr.

            4.7 Expenditures for Capital Assets. Make any expenditure for
capital assets (other than for routine repairs and maintenance which are not
required to be capitalized, as hereinafter set forth) unless, immediately after
giving effect thereto, the aggregate amount expended or to be expended on
account of all such expenditures by Borrower in any Fiscal Year would not exceed
$1,500,000.00 on a non-cumulative basis. The following are deemed to be
expenditures for capital assets and subject to the limitations of this section:

                  (A) Expenditures for major repairs and maintenance which, in
accordance with GAAP, are or should be capitalized; and

                  (B) All lease rentals and other amounts payable under leases
entered into after the date hereof, whether "true" leases or finance leases
(other than renewals and extensions of leases existing on the date hereof), and
all amounts payable under contracts or arrangements for the purchase of property
wherein payment of the purchase price for such property is deferred in whole or
in part.

            4.8   Management.  Suffer any material change in executive
management, including without limitation the day to day involvement of Henry
Nozko, Sr. and Henry Nozko, Jr. nor suffer a change in day to day management;

            4.9 Ownership. Suffer a change in ownership of Borrower's capital
stock except for trades in the ordinary course, of Borrower's stock on
nationally recognized markets, nor issue additional shares thereof except for
stock options or equity financing provided that in any case Henry Nozko, Sr. And
Henry Nozko, Jr. shall always own or control at least 51% of the combined voting
power of all issued and outstanding shares of all classes of stock.

            4.10 E.R.I.S.A. Engage in any "Prohibited Transaction", so-called,
incur any so-called "Accumulated Funding Deficiency", or create or terminate any
pension or profit sharing plan or suffer the existence of any Reportable Event
or the appointment by any United States District Court of a trustee to
administer any Plan or if the PBGC shall institute proceedings to terminate any
plan or to administer any Plan, or otherwise not be in full compliance.

            4.11 Judgments. Suffer any final judgment (exclusive of judgments
insured against by adequate liability insurance policies) against it which is
not discharged or execution thereof stayed pending appeal, within ninety (90)
days after the entry of such judgment , or if, within ninety (90) days after the
expiration of any such stay, such judgment shall not have been discharged.

            4.12 Uninsured Losses, Etc. Suffer, during any consecutive twelve
(12) month period, one or more material uninsured losses, thefts, damage or
destruction of any material portion of its assets (other than bad debts incurred
in the ordinary course of business).


                                       20
<PAGE>   21
            4.13  Fiscal Year. Change the fiscal year of Borrower.

            4.14  No Sale, Leaseback.  Enter into any sale-and-leaseback or
similar transaction.

            4.15 Negative/Negative Pledges. Agree with any party other than
Lender that it will not pledge and/or grant a lien or security interest in any
of its assets.

      SECTION 5.  EVENTS OF DEFAULT.

      If any of the following events (each an "Event of Default") occurs:

            5.1 If Borrower defaults in the payment of any part of the Loans,
including, without limitation, payments due under the Revolving Credit or the
Term Loan, owing by it when the same becomes due and payable, whether at any
stated maturity, or by declaration, acceleration or otherwise;

            5.2 If the Guarantor or any Subsidiary of the Borrower or Guarantor
defaults in the payment of any Indebtedness owing by it when the same becomes
due and payable, at any stated maturity, by declaration, acceleration or
otherwise;

            5.3 If Borrower fails to perform or comply with any term or covenant
applicable to it contained in this Agreement, or contained in any other
Documents;

            5.4 If any representation or warranty made by or on behalf of
Borrower, in this Agreement or in the Schedules hereto, or in any of the other
Documents, or in connection with the transactions contemplated hereby and
thereby proves to be false or incorrect in any material respect;

            5.5 If a draw is made under any payment or performance bond issued
for the account of Borrower;

            5.6 If Borrower, Guarantor or any of their Subsidiaries defaults in
the payment of any Indebtedness for borrowed money or defaults with respect to
any of the terms of any evidence of such Indebtedness or of any indenture or
other agreement relating thereto, or if Borrower commits any breach or defaults
under any material contract to which it is or becomes a party or by which it is
or becomes bound;

            5.7 If Borrower, Guarantor or any of their Subsidiaries makes an
assignment for the benefit of creditors, or admits in writing an inability to
pay debts as they become due, or files a voluntary petition in bankruptcy, or is
adjudicated a bankruptcy or insolvent, or files any petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future statute,
law or regulation, or files any answer admitting or fails to deny the material
allegations of a petition filed against it for any such relief, or seeks or
consents to or acquiesces in the appointment of any trustee, receiver or
liquidator of itself or of all or any substantial part of its properties, or its
directors or majority stockholders takes any action looking to its dissolution
or liquidation, or it ceases doing business as a going concern;


                                       21
<PAGE>   22
            5.8 If, within thirty (30) days after the commencement of any
proceeding against Borrower, Guarantor or any of their Subsidiaries seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, such
proceeding has not been dismissed, or if, within thirty (30) days after the
appointment, without Borrower's, Guarantor's or such Subsidiary's consent or the
acquiescence of any trustee, receiver or liquidator of itself or of all or any
substantial part of its properties, such appointment has not been vacated; then,
and in any such event, in addition to its rights and remedies under this
Agreement, or the other Documents and any other instruments, but after ten (10)
days prior written notice and opportunity to cure, unless Lender believes such
prior notice and opportunity to cure will have a material adverse effect on its
rights and remedies, Lender may, at its option, declare all Term Loans and/or
the Loans or any portion thereof to be immediately due and payable, whereupon
the same shall forthwith mature and become due and payable, together with
interest accrued thereon and together with any and all costs of collection,
including, but not limited to, reasonable attorneys fees, and without
presentment, demand or protest, all of which are hereby waived.

      SECTION 6.  SET-OFF RIGHTS.

      In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, each Lender and any affiliate
of Lender is hereby authorized by Borrower and the Guarantor at any time or from
time to time, without notice to Borrower or to any other Person, any such notice
being hereby expressly waived by Borrower and Guarantor to set off and to
appropriate and to apply any and all balances, deposits, credits, Collateral and
property of Borrower held at, or in transit to, any of its offices for the
account of Borrower and/or Guarantor (regardless of whether then due to Borrower
and/or Guarantor) and any other property at any time held or in transit or owing
by that Lender or that holder to or for the credit or for the account of
Borrower or Guarantor against and on account of any of the Loans which remain
unpaid. Borrower and Guarantor agree, to the fullest extent permitted by law,
that (a) Lender or any holder may exercise its right to set off with respect to
the Loans and may sell participations in such set off to other lenders and
holders and (b) any lender or holder so purchasing a participation in the Loans
made or held by other lenders or holders may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such participation
as fully as if such Lender or holder were a direct holder of Loans in the amount
of such participation and (3) the rights contained in this paragraph exist
regardless of whether the Loan to which they are applied has matured.

      SECTION 7.  REMEDIES ON DEFAULT, ETC.

            7.1 If a Default or Event of Default occurs, Lender may withhold all
subsequent Advances and, in addition, may accelerate and declare to be
immediately due and payable all Loans and may proceed to protect and enforce its
rights by suit in equity, action at law or other appropriate proceedings,
whether for the specific performance of any agreement contained herein or in any
other Document, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any right, power or remedy
granted thereby or by law, equity or otherwise.

            7.2 Upon the occurrence of a Default or Event of Default the
Borrower grants a royalty-


                                       22
<PAGE>   23
free license to the Lender for all patents, service marks, trademarks,
tradenames, copyrights, computer programs and other intellectual property rights
sufficient to permit the Lender to exercise all rights granted to the Lender
pursuant to this Agreement.

      SECTION 8.  CUMULATIVE REMEDIES; NO WAIVERS, ETC.

      No right, power or remedy granted to Lender in this Agreement or in the
other Documents is intended to be exclusive, but each shall be cumulative and in
addition to any other rights, powers or remedies referred to in this Agreement,
in the other Documents or otherwise available to Lender at law or in equity; and
the exercise or beginning of exercise by Lender of any one or more of such
rights, powers or remedies, shall not preclude the simultaneous or later
exercise by Lender of any or all of such other rights, powers or remedies. No
waiver by, nor any failure or delay on the part of Lender in any one or more
instances to insist upon strict performance or observance of one or more
covenants or conditions hereof, or of the other Documents shall in any way be,
or be construed to be, a waiver of such covenant in any other instance or to
prevent Lender's rights to later require the strict performance or observance of
such covenants or conditions, or otherwise prejudice Lender's rights, powers or
remedies.

      SECTION 9.  PARTIAL INVALIDITY; WAIVERS.

            9.1 If any term or provision of this Agreement or any of the other
Documents or the application thereof to any Person or circumstance shall, to any
extent, be invalid or unenforceable by reason of any applicable law, the
remainder of this Agreement and the other Documents, or application of such term
or provision to Persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement and the other Documents shall be valid and be
enforced to the fullest extent permitted by law. To the full extent, however,
that the provisions of any such applicable law may be waived, they are hereby
waived by Borrower to the end that this Agreement and the other Documents shall
be deemed to be valid and binding obligations enforceable in accordance with
their terms.

            9.2 To the extent permitted by applicable law, Borrower and
Guarantor hereby waives protest, prior notice of protest, or dishonor, notice of
payments and non-payments, or of any default.

            9.3 WITH RESPECT TO ANY CONTROVERSY, ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THE TRANSACTIONS DESCRIBED
HEREIN OR CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH
THE LOANS AND/OR ANY OF THE OTHER DOCUMENTS BORROWER, GUARANTOR AND LENDER EACH
VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHT TO OR CLAIM FOR A TRIAL BY JURY.

            9.4 BORROWER ACKNOWLEDGES THAT THE WITHIN AGREEMENT EVIDENCES A
COMMERCIAL TRANSACTION AND THAT IT COULD, UNDER CERTAIN CIRCUMSTANCES HAVE THE
RIGHT UNDER CHAPTER 903a, AS FROM TIME TO TIME AMENDED, OF THE CONNECTICUT
GENERAL STATUTES, SUBJECT TO CERTAIN LIMITATIONS, TO NOTICE OF AND HEARING ON
THE RIGHT OF THE LENDER TO OBTAIN A PREJUDGMENT REMEDY, SUCH AS ATTACHMENT,
GARNISHMENT AND/OR REPLEVIN, UPON COMMENCING


                                       23
<PAGE>   24
ANY LITIGATION AGAINST BORROWER. NOTWITHSTANDING, BORROWER HEREBY WAIVES ALL
RIGHTS TO NOTICE, JUDICIAL HEARING OR PRIOR COURT ORDER TO WHICH IT MIGHT
OTHERWISE HAVE THE RIGHT UNDER SAID CHAPTER 903a, AS FROM TIME TO TIME AMENDED,
OR UNDER ANY OTHER STATE OR FEDERAL STATUTE OR CONSTITUTION IN CONNECTION WITH
THE OBTAINING BY THE LENDER OF ANY PREJUDGMENT REMEDY BY REASON OF THIS
COMMERCIAL REVOLVING CREDIT AND SECURITY AGREEMENT, OR BY REASON OF BORROWER'S
OBLIGATIONS OR ANY RENEWALS OR EXTENSIONS OF THE SAME. BORROWER ALSO WAIVES ANY
AND ALL OBJECTION WHICH IT MIGHT OTHERWISE ASSERT, NOW OR IN THE FUTURE, TO THE
EXERCISE OR USE BY LENDER OF ANY RIGHT OF SETOFF, REPOSSESSION OR SELF HELP AS
MAY PRESENTLY EXIST UNDER STATUTE OR COMMON LAW.

            9.5 BORROWER SPECIFICALLY WAIVES AND RELINQUISHES ANY CLAIM TO
INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES ARISING IN ANY WAY OUT OF AN ALLEGED
BREACH HEREOF BY LENDER AND AGREES THAT DAMAGES FOR WHICH LENDER MAY BE LIABLE,
IF ANY, SHALL BE LIMITED TO THOSE DIRECT DAMAGES PROVEN TO HAVE BEEN SUFFERED BY
BORROWER ARISING DIRECTLY FROM SUCH BREACH.

      SECTION 10.  EXPENSES/INDEMNITY.

      Borrower agrees that it shall:

            10.1 pay or reimburse Lender on demand for any and all reasonable
charges, costs and taxes incurred in the preparation, documentation and
implementation of this Agreement, and all Documents, and any amendment thereto,
including, without limitation, all recording and filing fees, appraisal fees and
reasonable fees and disbursements of Lender's special counsel retained in
connection therewith, including payment upon the Closing hereof of any portion
of such charges, costs and fees for which an invoice shall be rendered;

            10.2 indemnify and save Lender harmless from, and pay or reimburse
Lender for, all charges, costs, damages, liabilities and expenses, including
reasonable attorneys' fees, if any, incurred by Lender relating to:

                  (A) the Notes or any of the other Documents;

                  (B) the exercise by the Lender of any of its rights, remedies
or powers hereunder, the Notes or any of the other Documents;

                  (C) any misrepresentation, inaccuracy, or breach of any
representation, warranty, covenant, or agreement contained or referred to herein
or any other Document, the security interests and liens granted pursuant to this
Agreement or the other Documents;

                  (D) the performance of any obligation of Borrower or Guarantor
in connection herewith;


                                       24
<PAGE>   25
                  (E) the attempted enforcement or enforcement of this Agreement
or the other Documents, or the collection or attempted collection of any of the
obligations owing under any thereof, including, without limitation, the Loans,
or the realization or attempted realization of any right or remedy;

                  (F) the prosecution or defense of any action or proceeding
concerning any matter growing out of or connected with this Agreement or the
other Documents;

                  (G) any Hazardous Substance at, on, in, under, or about all or
any portion of any property owned, occupied and/or operated by the Borrower or
any environmental condition within, on, from, related to, or attaching to any
such property;

                  (H) any Release or threatened Release of any Hazardous
Substance from any property owned, occupied or operated by the Borrower or from
the Borrower's operations or other activities, including without limitation any
Release by any prior owner, occupant or operator of any such property;

                  (I) any violation or claim of violation of any Environmental
Law by the Borrower or their operations or other activities;

                  (J) any other environmental condition or matter within, on,
from or related to or affecting any property owned, leased or operated by the
Borrowers or Borrowers' operations or other activities;

                  (K) any other operations or activities of the Borrowers or
conditions or occurrences on the Borrowers' properties (all the foregoing under
this paragraph collectively, the "Indemnified Liabilities")

            In addition, at Lender's discretion, Borrower shall defend (with
counsel satisfactory to the Lender) Lender against those Indemnified Liabilities
which the Lender shall choose Borrower to defend Lender against (provided, that,
it is understood and agreed that all reasonable costs and expenses of counsel
incurred by Lender in defending itself against any Indemnified Liability shall
be Indemnified Liabilities for which Borrower is responsible for payment under
this subparagraph). The agreements in this section shall survive any payment of
the Loans or any other amounts payable hereunder or under any other Document
and/or any termination of this Agreement or any Document. All amounts payable
under this Section shall be payable by the Borrower on demand by the Lender.

            10.3 allow Lender, in Lender's discretion, after ten (10) days prior
written notice and Borrowers failure to pay the same, to receive payment of any
of the foregoing by a charge to the Revolving Credit (which charge shall
thereupon become a Loan) or by deduction from any account maintained by Borrower
or Guarantor with Lender.


                                       25
<PAGE>   26
      SECTION 11.  SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES, ETC.

      All agreements, covenants, representations and warranties contained herein
or made in writing by or on behalf of Borrower, in connection with the
transactions contemplated hereby, shall survive the execution and delivery of
this Agreement and the related documents and, to the extent applicable, shall be
deemed to be made anew by each of them each time an Advance is made, pursuant
hereto or pursuant to the other Documents and shall continue until all Loans
have been paid in full and this Agreement has been terminated. All statements
contained in any certificate or other instrument delivered by or on behalf of
Borrower, pursuant hereto or in connection with the transactions contemplated
hereby, shall be deemed representations and warranties made hereunder.

      SECTION 12.  FAILURE TO PERFORM.

      If Borrower fails to observe or perform any of the covenants hereof,
Lender may pay amounts or incur liabilities to remedy or attempt to remedy any
such failure (including, without limitation, any sums payable under any statute
relating to the environment) and all such payments made and liabilities incurred
shall be for the account of Borrower, may be paid, at Lender's option, by the
making of additional advances, including without limitation, Revolving Credit
Advances, and, consequently, shall be included in the Loans and all such amounts
shall be repaid by Borrower on demand, together with interest thereon at the
rate of 18% per annum, or may be repaid by a withdrawal from any of Borrower's
accounts maintained with Lender. The provisions of this Section and any such
action by Lender shall not prevent any default in the observance or performance
of any covenant hereof from constituting an Event of Default hereunder.

      SECTION 13.  NOTICES, ETC.

      All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to be duly delivered if mailed, postage
prepaid, by first class registered mail, return receipt requested, or by any
nationally recognized receipted delivery or courier service:

                  (A)   if to Lender:

                        Webster Bank

                        150 Main  Street
                        Bristol, Connecticut 06010

                        Attention: Business Banking Group
                                   Peter F. Samson, Vice President

                        with a copy to:

                        Berman & Sable
                        195 Church Street


                                       26
<PAGE>   27
                        New Haven, Connecticut 06510


                        Attention: Steven A. Berman, Esq.

or at such other address as may have been furnished in writing by Lender to
Borrowers; or

                  (B)   if to Borrower or Guarantor:

                        ACMAT Corporation
                        233 Main Street
                        New Britain, CT 06050

                        Attention: Henry Nozko, Jr.

or at such other address as may have been furnished in writing by Borrower to
Lender.

      SECTION 14. AMENDMENTS AND WAIVERS. Neither this Agreement nor any other
Document nor any term hereof or thereof may be changed, waived, discharged or
terminated, except by a writing signed by all of the parties hereto.

      SECTION 15. GOVERNING LAW. This Agreement and the documents contemplated
hereby shall be construed and enforced in accordance with and governed by the
laws of the State of Connecticut. Borrower and Guarantor hereby specifically
consent(s) to the jurisdiction of the Courts of the State of Connecticut and
agree(s) to be personally bound by the decisions of the Court of the State of
Connecticut.

      SECTION 16.  SUPERCEDURE.  To the extent there is any inconsistency
between the terms of this Agreement and any other Document, this Agreement
shall control.

      SECTION 17. SUCCESSORS AND ASSIGNS. All of the terms of this Agreement and
such other documents shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not, and by any other holder or holders at the time of
any of the Loans or any part thereof.

      SECTION 18.  HEADINGS.  The headings in this Agreement are for the
purposes of reference only and shall not limit or otherwise affect any of the
terms hereof.

      SECTION 19. GENDER AND NUMBER; NO RULE OF STRICT CONSTRUCTION. Whenever
the context herein so requires, the neuter gender includes the masculine and
feminine, and the singular number includes the plural and vice-versa. Borrower
acknowledges that Borrower and Borrower's counsel have had an opportunity to
review and negotiate the terms of this agreement and the other Loan Documents
and that no rule of strict construction shall be used against the Lender with
respect to any of the Loan Documents.

      SECTION 20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and by the several
parties hereto in separate counterparts, but all of


                                       27
<PAGE>   28
which together shall constitute one and the same instrument.

      SECTION 21. THIRD PARTIES. This Agreement is between each Lender and
Borrower and Guarantor only and shall not be relied upon by any third party.
Without limiting the foregoing, Lender shall have no liability to any party
whatever (including, without limitation, Borrower or Guarantor, or anyone
conducting business with any of the foregoing) in the event Lender, for any
reason and at any time, determines not to make Advances for any reason or
otherwise exercises its rights under this Agreement and/or the other documents
contemplated hereby.

      SECTION 22. TIME OF THE ESSENCE. Time is of the essence for the
performance by the Borrower of any of Borrower's obligations set forth in this
Agreement.

      SECTION 23. NO FIDUCIARY RELATIONSHIP. Borrower acknowledges that Lender
does not have a fiduciary relationship to the Borrower and the relationship
between Lender and Borrower is solely that of creditor and debtor.

      IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
on the day first above mentioned.



                                    WEBSTER BANK

                                    By_________________________________
                                          Peter F. Samson
                                          Its Vice President

                                    ACMAT CORPORATION

                                    By__________________________________

                                          Its

                                    ACSTAR HOLDINGS, INC.

                                    By___________________________________

                                          Its


                                       28
<PAGE>   29
                              SCHEDULE OF EXHIBITS

<TABLE>
<CAPTION>
Section
Reference    Exhibit     Subject
---------    -------     -------
<S>          <C>         <C>
1.1(A)          A        Revolving Note

1.1(B)          B        Term Note

1.3             C        Request for Advance

1.5(A)          D        Notice of Interest Rate Election

3.5             E        Covenant Compliance Certificate
</TABLE>

                              SCHEDULE OF SCHEDULES

<TABLE>
<S>            <C>
2.3            Borrower Capitalization, Business and Subsidiaries

2.4            Guarantor Capitalization, Business and Subsidiaries

2.9            Title to Properties and Assets, Liens, etc.

2.10           Patents, Trademarks

2.11           Litigation

2.13           Tax Returns and Payments

2.18           Shareholder Agreements

2.25           Environmental

2.26           Subsidiaries

2.28           Special Representations and Warranties re insurance subsidiaries

2.30           Environmental

4.1            Restrictions on Liens

4.3            Restrictions on Investments, Loans, etc.
</TABLE>


                                       29
<PAGE>   30
                                   APPENDIX I

   As used herein, the following terms have the following meanings:

   ADVANCE: an advance under the Revolving Credit.

   ADJUSTED CASH FLOW: Cash Flow plus allowable dividends permitted to be paid
to Borrower by its Subsidiaries plus management and underwriting fees paid to
Borrower by its Subsidiaries plus rent paid to Borrower by its Subsidiaries plus
tax sharing payments paid to Borrower by its Subsidiaries (in all cases, not
requiring regulatory approval).

   ADJUSTED DEBT SERVICE COVERAGE RATIO: the meaning specified in Section
3.6(C).

   ADJUSTED INTEREST COVERAGE RATIO: the meaning specified in Section 3.6(B).

   AFFILIATE: with reference to any Person, any director, officer or employee of
such Person, any corporation, association, firm or other entity in which such
Person has a direct or indirect controlling interest or by which such Person is
directly or indirectly controlled or is under direct or indirect common control
with such Person.

   AGREEMENT: this Commercial Credit Agreement, as it may be amended from
time to time.

   BANKBOSTON AGREEMENTS: various documents evidencing present indebtedness of
Borrower to BankBoston, N.A., all of which shall be fully discharged with the
proceeds of the Loans.

   PRIME RATE ADVANCE: any Loan or portion thereof bearing interest at the
Prime Rate.

   BORROWER(S): the meaning specified on page one of this Agreement.

   BUSINESS DAY: any day other than a Saturday, Sunday or legal holiday on
which commercial banks are open for the normal transaction of business in the
State of Connecticut and in the State of Massachusetts.

   CASH FLOW: Borrower's unconsolidated net income for an accounting period
before provision for payment of Interest Expense and all income taxes plus
depreciation and amortization to the extent deducted from such net income during
such accounting period, all as determined by GAAP less capital expenditures less
income taxes paid in cash less dividends paid.

   CONDITIONS PRECEDENT: the meaning specified in Section 1.2.

   DEBT SERVICE: for any period, the sum of (i) Interest Expense, (ii) Principal
Amortization and (iii) scheduled payments by Borrower on its capitalized leases.

   DEFAULT: the occurrence of any event which with the giving of notice or
passage of time (other than stated grace periods), or both, might become an
Event of Default.


                                       30
<PAGE>   31
   DOCUMENTS: this Agreement, the Revolving Note, Term Note, the Guaranty,
and all other instruments heretofore, now or hereafter executed and delivered
pursuant to this Agreement or any of the aforesaid documents.

   ENVIRONMENTAL LAWS: any and all applicable foreign, Federal, state and local
statutes, laws, regulations, rules, ordinances, orders, guidances, policies or
common law (whether now existing or hereafter enacted or promulgated) pertaining
to the environment, of any and all Federal, state or local governments and
governmental and quasi-governmental agencies, bureaus, subdivisions, commissions
or departments which may now or hereafter have jurisdiction over Debtor and all
applicable judicial and administrative and regulatory decrees, judgments and
orders, including common law rulings and determinations, relating to injury to,
or the protection of, real or personal property or human health or the
environment, including, without limitation, all requirements pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
emissions, discharges, releases or threatened releases of Hazardous Substances,
chemicals substances, pollutants or contaminants whether solid liquid or gaseous
in nature, into the environmental or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of such
Hazardous Substances, chemical substances, pollutants or contaminants.

   Without limiting the generality of the foregoing, the term "Environmental
Laws" shall encompass each of the following statutes, and regulations
promulgated thereunder, and amendments and successors to such statutes and
regulations, as may be enacted and promulgated from time to time: Federal
Occupational Safety and Health Act ("OSHA"); the Clean Air Act ("CAA"); the
Toxic Substances Control Act ("TSCA"); the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"); the Clean Water Act
("CWA"); the Resource Conservation and Recovery Act, as amended by the Hazardous
and Solid Waste Amendments of 1984 ("RCRA"); the Hazardous Materials
Transportation Act; and all applicable Environmental Laws of each state and
municipality in which Debtor conducts business or locates assets and all rules
and regulations thereunder and amendments thereto and all similar state and
local laws, rules and regulations.

   ERISA: The Employee Retirement Income Security Act of 1974, as amended.

   ERISA GROUP: the Borrower, any Subsidiary and all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Borrower or any Subsidiary, are
treated as a single employer under Section 414 of the Internal Revenue Code.

   EUROCURRENCY RESERVE REQUIREMENT: for any day, as applied to any Loan bearing
interest in relation to the LIBOR Rate, the aggregate (without duplication) of
the rates (expressed as a decimal fraction) of the maximum reserve percentages
in effect on such day (including, without limitation, basic, supplemental,
marginal and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements proscribed
for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) and required to be maintained by a member bank of
such system.

   EVENT OF DEFAULT: the meaning specified in Section 5.


                                       31
<PAGE>   32
   FISCAL QUARTER:  the three (3) month periods ending each March, June,
September and December.

   FISCAL YEAR:  a twelve (12) month year ending on December 31.

   FUNDED DEBT:  aggregate consolidated Indebtedness of Borrower for
borrowed money but excluding Indebtedness owing to the Sheetmetal Workers
National Pension Fund or any refinance of the same.

   GAAP:  generally accepted accounting principals and practices consistently
applied from accounting period to accounting period.

   GOVERNMENTAL AUTHORITIES: any federal, state or local governmental authority
or any political subdivision of any of them and any court, agency, department,
commission, board, bureau or instrumentality of any of them which now or
hereafter has jurisdiction over the Borrower's business premises.

   GUARANTOR: the meaning specified on Page 1.

   GUARANTY:  the meaning specified in Section 1.8.

   HAZARDOUS SUBSTANCE: any chemical, compound, material, mixture or substance:
(i) the presence of which requires or may hereafter require notification,
investigation, monitoring or remediation under any Environmental Law; (ii) which
is or becomes defined as a "Hazardous Waste", "Hazardous Material" or "Hazardous
Substance" or "Toxic Substance" or "Pollutant" or "Contaminant" under any
present or future applicable Federal, state or local law or under the rules and
regulations adopted or promulgated pursuant thereto, including, without
limitation, the Environmental Laws; (iii) which is toxic, explosive, corrosive,
reactive, ignitable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous and is or becomes regulated by any governmental authority,
agency, department, commission, board, agency or instrumentality of any foreign
country, the United States, any state of the United States, or any political
division thereof to the extent any of the foregoing has or had jurisdiction over
Debtor; (iv) without limitation, which contains gasoline, diesel fuel or other
petroleum products, asbestos or polychlorinated biphenyls ("PBCs"); or (v) any
other chemical, material or substance, exposure to, or disposal of, which is now
or hereafter prohibited, limited or regulated by any federal, state or local
governmental body, instrumentality or agency.

   INDEBTEDNESS: as applied to a Person, (a) all items, except items of capital
stock or of surplus or of general contingency reserves or of reserves for
deferred income taxes if in compliance with Section 3.2, which in accordance
with generally accepted accounting principles and practices would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such person as at the date of which indebtedness is to be determined, (b) all
indebtedness secured by any mortgage, pledge, lease, lien or conditional sale or
other title retention agreement existing on any property or asset owned or held
by such person subject thereto, whether or not such indebtedness shall have been
assumed, and (c) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed, discounted or agreed (contingently or
otherwise) to purchase or repurchase or otherwise acquire, or in respect of
which such Person has agreed to supply or advance funds (whether by way of loan,
stock purchase, capital contribution or otherwise) or otherwise to become liable
directly or indirectly with respect thereto.

   INTEREST COVERAGE RATIO: the meaning specified in Section 3.6(B).


                                       32
<PAGE>   33
   INTEREST EXPENSE: for any period, all amounts accrued by Borrower, whether as
interest, late charges, service fees or other charge for money borrowed on
account of or in connection with Borrower's indebtedness for money borrowed or
with respect to which Borrower or any of their respective properties are liable
by assumption, operation of law or otherwise, including, without limitation, any
leases which are required, in accordance with generally accepted accounting
principles, to be carried as a liability on Borrower's balance sheet.

   INTEREST PERIOD: with respect to each LIBOR Advance, the period commencing on
the date of the making or continuation of, or conversion to, such LIBOR Advance
and ending one (1), two (2) or three (3) months thereafter, as Borrower may
elect in the applicable Notice of Interest Rate Election.

   provided, however, that:

         (i) any Interest Period (other than an Interest Period determined
pursuant to clause (iii) below) that would otherwise end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in the next calendar month, in which case such Interest
Period shall end on the immediately preceding Business Day;

         (ii) any Interest Period that 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) shall, subject to
clause (iii) below, end on the last Business Day of a calendar month;

         (iii) any Interest Period that would otherwise end after the
Termination Date or the Maturity Date shall end on the Termination Date or the
Maturity Date as the case may be; and

         (iv) notwithstanding clause (iii) above, no Interest Period shall have
a duration of less than one (1) month and if any Interest Period applicable to
such Loan would be for a shorter Interest Period, such Interest Period shall not
be available hereunder.

   INSURANCE SUBSIDIARY:  ACSTAR INSURANCE COMPANY and/or United Coastal
Insurance Company.

   LENDER:  the meaning specified on page one of this Agreement.

   LIBOR ADVANCES: Any Loan or part thereof bearing interest at a rate in
relation to the LIBOR.

   LIBOR RATE: the rate per annum (rounded upward, if necessary, to the nearest
1/16 of 1%), determined by Lender to be equal to the quotient of (x) the London
Interbank Offered Rate (hereinafter defined) for such LIBOR Advance for such
Interest Period, divided by (y) 1 - Eurocurrency Reserve Requirements for such
Interest Period.

         Provided, however:

         (i) If Borrower requests that all or any portion of the Loans with
respect to which a LIBOR option applies shall bear interest at the LIBOR Rate
and (a) Lender determines that, by reason of


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<PAGE>   34
circumstances affecting the interbank Eurodollar market generally, deposits in
U.S. Dollars (in the applicable amounts) are not being offered to banks in the
interbank Eurodollar market for the selected Interest Period, or (b) that the
LIBOR Rate does not accurately reflect the cost to Lender of making or
maintaining LIBOR Advances for the Interest Period or therefor, then Lender
shall forthwith give notice thereof to Borrower, whereupon, (1) the obligation
of Lender to permit the LIBOR Advances to bear interest at the LIBOR Rate shall
be suspended so long as such circumstances exist, and (2) Borrower shall convert
the interest rates on the applicable portions of the outstanding Advances to the
rate in relation to the Prime Rate set forth above for the current Interest
Period. Such suspension shall continue until Lender notifies Borrower that the
circumstances giving rise to such suspension no longer exist.

         (ii) If, after the date of this Agreement, the adoption of or any
change in rules, or change in the interpretation or administration thereof, by a
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it unlawful or
impossible for Lender to make or maintain or fund LIBOR Advances, the interest
rates on the applicable portions of the outstanding LIBOR Advances shall be
deemed to have been converted to the rate relating to the Prime Rate set forth
above, on either (a) the last day of the then current Interest Period if Lender
may lawfully continue to maintain loans at the LIBOR Interest Rate to such day,
or (b) immediately if Lender may not lawfully continue to maintain Advances at
the LIBOR Interest Rate.

         (iii) Upon notice to Borrower, the Borrower shall pay to the Lender for
the account of Lender, such amount or amounts as shall be sufficient (in the
reasonable opinion of Lender) to compensate it for any loss, cost, liability or
expense incurred as a result of (x) any repayment of a LIBOR Advance on a date
other than the last day of the Interest Period for such LIBOR Advance,
including, but not limited to that resulting from acceleration of all amounts
outstanding under any Loan following the occurrence of any Default or Event of
Default and/or (y) any failure by Borrower to borrow or convert or prepay, as
the case may be, a LIBOR Advance on the date for borrowing or conversion or
prepayment, as the case may be, which is specified in the Notice of Interest
Rate Election.

   LOANS:  the meaning specified in Section 1.4.

   LONDON BUSINESS DAY: any day other than a Saturday or Sunday on which dealing
in dollar deposits are carried on in the London interbank market and on which
banks are open for business in London and which must be a Business Day.

   LONDON INTERBANK OFFERED RATE: the arithmetic average of the rates per annum
quoted at approximately 11:00 A.M. London time by the principal branch of each
of the Reference Banks (hereinafter defined) two (2) London Business Days
(hereinafter defined) prior to the first day of such Interest Period for the
offering to leading banks in the London interbank market of dollar deposits for
a period and in an amount comparable to the Interest Period and principal amount
of the particular LIBOR Advance to which the LIBOR Rate is to apply. "Reference
Banks" means banks appearing in the display designated as page "LIBOR" on the
Reuters' Monitor Money Rates Service (or such other page as may replace the
LIBOR page on that service for the purpose of displaying London Interbank
Offered Rates of major banks); provided that if no such offered rate shall
appear on such display, "Reference Banks" shall mean one or more major banks in
the London interbank market as selected by the Lender in its sole discretion.


                                       34
<PAGE>   35
   MATURITY DATE: March 31, 2004.

   NAIC:  National Association of Insurance Commissioners.

   NOTE(S):  the Revolving Note and/or the Term Note.

   NOTICE OF INTEREST RATE ELECTION: Whenever Borrower desires to elect, change
or continue the LIBOR Interest Rate on all or a portion of any Advance(s),
Borrower shall deliver to Lender a written Notice of Interest Rate Election in
form provided by Lender and substance as that attached hereto as Exhibit D (the
"Notice of Interest Rate Election") with respect to a Loan or Advance received
no later than 11:00 A.M. at least three (3) Business Days in advance of the
proposed date of election, change or continuation, which election, change or
continuation must be confirmed by telephone. The Notice of Interest Rate
Election shall be irrevocable and shall specify: (i) the proposed date of change
or continuation (which shall be a Business Day); (ii) the amount with respect to
which such election is being made; and (iii) the Interest Periods.

   If an Advance shall be outstanding for which Borrower has not elected a LIBOR
Rate or if at the termination of any Interest Period, Borrower fails to submit a
Notice of Interest Rate Election to convert or to continue any outstanding
Advance, then such Advance, regardless of the dollar amount, shall automatically
accrue interest in relation to the Prime Rate as of the applicable date.

   LIBOR Advances may be converted into advances bearing interest relating to
the Prime Rate only on the expiration date of an Interest Period applicable
thereto. In addition, no outstanding Advances may be continued as, or converted
into LIBOR Advances and no change in Interest Rate may be exercised when any
Default or Event of Default has occurred.

   PBGC: The Pension Benefit Guaranty Corporation.

   PERSON:  a corporation, an association, a partnership, an organization, a
limited liability company, a business, an individual or a government or
political subdivision thereof or any governmental agency.

   PREPAYMENT PREMIUM: (i) on the prepayment date, the remaining payments of
principal and interest that would otherwise have become payable at the
expiration of the Interest Period (for amounts outstanding bearing interest at
LIBOR-based interest rate(s)) or the period beginning on the prepayment date and
ending on the maturity date (for amounts outstanding bearing interest at a fixed
rate) pertaining to the principal being prepaid shall be discounted to a present
value at a rate per annum equal to the "Prepayment Yield to Maturity", as
hereinafter defined, plus any costs for reserves or assessments or for
reinvesting the amount being prepaid, and if such discounted value shall exceed
the unpaid principal amount being prepaid, then the Prepayment Premium shall be
an amount equal to such excess; otherwise no Prepayment Premium shall be
payable; (ii) the "Prepayment Yield to Maturity" shall mean the yield to
maturity of the debt obligation of the United States Treasury (excluding those
commonly known as "Flower Bonds") having a term substantially equal to the term
of the relevant Interest Period (for amounts outstanding bearing interest at a
LIBOR-based rate) or the period beginning on the prepayment date and ending on
the maturity date (for amounts outstanding bearing interest at a fixed rate),
nearest in expiration of the relevant period. The maturity date and yield to
maturity of such United States Treasury obligation shall be determined by Lender
on the basis of quotations appearing in the


                                       35
<PAGE>   36
Reuter Monitor Money Rates Service or other repository service reasonably
satisfactory to Lender on the prepayment date. If there shall be more than one
such debt obligation of the United States Treasury maturing nearest in time to
the expiration of the relevant Interest Period (for amounts outstanding bearing
interest at a LIBOR-based rate) or the period beginning on the prepayment date
and ending on the maturity date (for amounts outstanding bearing interest at a
fixed rate), the Prepayment Yield to Maturity shall be the arithmetic average of
the yields to maturity of all such obligations. Said prepayment shall be
irrevocable once Borrower has notified Lender of such prepayment and Borrower
will reimburse Lender for any and all loss, cost, liability and expense incurred
by Lender in the event Borrower for any reason does not make such prepayment.

   A determination by Lender as to the amounts payable pursuant to this
Subsection shall be conclusive absent arithmetical error.

   PRIME RATE: an annual rate of interest designated from time to time by Lender
as an index for setting loan rates; it is not necessarily Lender's lowest or
most favorable rate. The Prime Rate will be based on the rate published in the
Wall Street Journal, Eastern Edition, under the heading "Money Rates" and shown
as Prime Rate. If there is more than one Prime Rate, the highest of such rates
shall be the rate applicable hereunder.

   PRINCIPAL AMORTIZATION: for any period all amounts which Borrower is required
to pay whether regularly scheduled or as a result of a default excluding
payments of principal under the Revolving Credit and whether or not actually
paid by Borrower in reduction of Borrower's Indebtedness including without
limitation payments on capitalized leases.

   RELEASE: any release, emission, disposal, leaching or migration into the
environment (including, without limitation, the abandonment or disposal of any
barrels, containers, or other closed receptacles containing any Hazardous
Substances) or into or out of any property owned, occupied or used by Debtor.

   REVENUE CODE: the meaning specified in Section 3.13(B).

   REVOLVING CREDIT:  the credit facility described in Section 1.1(A).

   REVOLVING NOTE:  the meaning specified in Section 1.1(A)

   SPILL: the meaning specified in Section 3.9(A).

   STATUTORY CAPITAL: means Statutory Capital plus Statutory Surplus of the
Insurance Subsidiaries as shown on the statutory financial statements filed with
the states of Illinois and Arizona.

   STATUTORY OPERATING EARNINGS: means the Statutory Operating Earnings of the
Insurance Subsidiaries as shown on the statutory financial statements filed with
the states of Illinois and Arizona.

   SUBSIDIARY: with reference to any Person, a corporation, or similar
association or entity not less than a majority of the outstanding shares of the
class or classes of stock, having by the terms thereof ordinary voting power to
elect a majority of the directors, managers or trustees of such corporation,
association or entity, of which are at the time owned or controlled, directly or
indirectly, by such Person or by a Subsidiary of such Person.


                                       36
<PAGE>   37
   TERM LOAN:  the meaning specified in Section 1.1(B)

   TERM NOTE:  the meaning specified in Section 1.1(B)

   TERMINATION DATE: June 30, 2001.


                                       37