##### 



Exhibit 10.1 CREDIT AGREEMENT AMONG AFFIRMATIVE INSURANCE HOLDINGS, INC., THE FROST NATIONAL BANK,
As Administrative Agent and L/C Issuer, AND THE OTHER LENDERS PARTY HERETO July 30, 2004




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TABLE OF CONTENTS Section
    
    
    
    PageARTICLE I
    
    DEFINITIONS
    
    
    11.1
    
    Definitions
    
    
    11.2
    
    Additional Definitions
    
    
    181.3
    
    Construction
    
    
    19ARTICLE II
    
    LOANS
    
    
    192.1
    
    Loans
    
    
    192.2
    
    Borrowings
    
    
    202.3
    
    Repayment
    
    
    212.4
    
    Voluntary Prepayments
    
    
    212.5
    
    Mandatory Prepayments
    
    
    212.6
    
    Termination and Reduction of Commitments
    
    
    212.7
    
    Interest on Loans Generally
    
    
    222.8
    
    Computations
    
    
    222.9
    
    Interest After an Event of Default
    
    
    222.10
    
    Payments Generally
    
    
    232.11
    
    Sharing of Payments
    
    
    242.12
    
    Booking the Loans
    
    
    242.13
    
    Collateral
    
    
    24ARTICLE III
    
    LETTER OF CREDIT FACILITY
    
    
    253.1
    
    The L/C Commitment
    
    
    253.2
    
    Procedures for Issuance and
Amendment of Letters of Credit; Auto-Renewal Letters of Credit
    
    
    263.3
    
    Drawings and Reimbursements; Funding of Participations
    
    
    283.4
    
    Repayment of Participations
    
    
    293.5
    
    Obligations Absolute
    
    
    293.6
    
    Role of L/C Issuer
    
    
    303.7
    
    Cash Collateral
    
    
    313.8
    
    Letter of Credit Fees
    
    
    313.9
    
    Fronting Fee and Documentary and
Processing Charges Payable to L/C Issuer
    
    
    313.10
    
    Conflict with L/C Agreements
    
    
    313.11
    
    Letters of Credit Issued for RIC
    
    
    31ARTICLE IV
    
    TAXES, YIELD PROTECTION AND ILLEGALITY
    
    
    324.1
    
    Taxes
    
    
    324.2
    
    Illegality
    
    
    344.3
    
    Inability to Determine Rates
    
    
    344.4
    
    Increased Cost and Reduced Return;
Capital Adequacy; Reserves on Eurodollar Rate Loans
    
    
    354.5
    
    Matters Applicable to all Requests for Compensation
    
    
    364.6
    
    Replacement of Lenders
    
    
    364.7
    
    Survival
    
    
    36




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Section
    
    
    
    PageARTICLE V
    
    CONDITIONS PRECEDENT
    
    
    365.1
    
    Conditions Precedent to Initial Loan and Letter of Credit
    
    
    365.2
    
    Conditions Precedent to all Loans and L/C Credit Extensions
    
    
    395.3
    
    Conditions Precedent to all Term Loans
    
    
    40ARTICLE VI
    
    AFFIRMATIVE COVENANTS
    
    
    406.1
    
    General Covenants
    
    
    406.2
    
    Accounts, Reports and Other Information
    
    
    416.3
    
    Inspection
    
    
    456.4
    
    Compliance with ERISA
    
    
    456.5
    
    Performance of Obligations
    
    
    456.6
    
    Maintenance of Priority of Bank Liens
    
    
    456.7
    
    Indemnity
    
    
    456.8
    
    Use of Proceeds
    
    
    47ARTICLE VII
    
    NEGATIVE COVENANTS
    
    
    477.1
    
    Combined Ratio
    
    
    477.2
    
    Risk-Based Capital
    
    
    477.3
    
    Fixed Charges Coverage Ratio
    
    
    477.4
    
    Consolidated Net Worth
    
    
    477.5
    
    Consolidated Net Income
    
    
    477.6
    
    Limitation on Debt
    
    
    477.7
    
    Limitation on Liens
    
    
    477.8
    
    Burdensome Agreements
    
    
    477.9
    
    Disposition of Assets
    
    
    477.10
    
    Acquisition of Assets
    
    
    487.11
    
    Merger and Consolidation
    
    
    497.12
    
    Loans and Investments
    
    
    497.13
    
    ERISA
    
    
    497.14
    
    Assignment
    
    
    497.15
    
    Transactions with Affiliates
    
    
    507.16
    
    Business
    
    
    50ARTICLE VIII
    
    REPRESENTATIONS AND WARRANTIES
    
    
    508.1
    
    Organization and Qualification
    
    
    508.2
    
    Financial Statements
    
    
    508.3
    
    Compliance With Laws and Other Matters
    
    
    518.4
    
    Litigation
    
    
    518.5
    
    Debt
    
    
    518.6
    
    Vesta Obligations
    
    
    518.7
    
    Title to Properties
    
    
    518.8
    
    Authorization; Validity
    
    
    518.9
    
    Taxes
    
    
    528.10
    
    Use of Proceeds
    
    
    528.11
    
    Possession of Franchises, Licenses, Etc
    
    
    528.12
    
    Leases
    
    
    528.13
    
    Disclosure
    
    
    528.14
    
    ERISA
    
    
    53
 ii




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Section
    
    
    
    Page8.15
    
    Regulatory Acts
    
    
    538.16
    
    Solvency
    
    
    538.17
    
    Environmental Matters
    
    
    538.18
    
    Investments
    
    
    548.19
    
    Reinsurance Agreements
    
    
    548.20
    
    Separation Agreements
    
    
    548.21
    
    Key Personnel
    
    
    548.22
    
    Survival of Representations and Warranties, Etc
    
    
    54ARTICLE IX
    
    EVENTS OF DEFAULT
    
    
    559.1
    
    Default
    
    
    559.2
    
    Remedies
    
    
    579.3
    
    Application of Funds
    
    
    57ARTICLE X
    
    ADMINISTRATIVE AGENT
    
    
    5810.1
    
    Appointment and Authorization of Administrative Agent
    
    
    5810.2
    
    Delegation of Duties
    
    
    5810.3
    
    Liability of Administrative Agent
    
    
    5810.4
    
    Reliance by Administrative Agent
    
    
    5910.5
    
    Notice of Default
    
    
    5910.6
    
    Credit Decision; Disclosure of Information by Administrative Agent
    
    
    6010.7
    
    Indemnification of Administrative Agent
    
    
    6010.8
    
    Administrative Agent in its Individual Capacity
    
    
    6110.9
    
    Successor Administrative Agent
    
    
    6110.10
    
    Administrative Agent May File Proofs of Claim
    
    
    6110.11
    
    Collateral Matters
    
    
    62ARTICLE XI
    
    MISCELLANEOUS
    
    
    6211.1
    
    Notices
    
    
    6211.2
    
    Expenses
    
    
    6311.3
    
    Waivers
    
    
    6311.4
    
    Determinations by Administrative Agent, Lenders and L/C Issuer
    
    
    6411.5
    
    Set-Off
    
    
    6411.6
    
    Assignment
    
    
    6411.7
    
    Amendment and Waiver
    
    
    6611.8
    
    Confidentiality
    
    
    6611.9
    
    Counterparts
    
    
    6711.10
    
    Severability
    
    
    6711.11
    
    Interest and Charges
    
    
    6711.12
    
    Replacement of Lenders
    
    
    6711.13
    
    Exception to Covenants
    
    
    6811.14
    
    USA Patriot Act Notice
    
    
    6811.15
    
    GOVERNING LAW
    
    
    6811.16
    
    WAIVER OF JURY TRIAL
    
    
    6911.17
    
    ENTIRE AGREEMENT
    
    
    69SIGNATURES
    
    
    
    
    S-1
 iii




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EXHIBITS Exhibit A
    
    Revolving NoteExhibit B
    
    Term Loan NoteExhibit C
    
    Pledge Agreement - AAIGExhibit D
    
    Revolving Loan NoticeExhibit E
    
    Term Loan NoticeExhibit F
    
    Security Agreement  BorrowerExhibit G
    
    Security Agreement - SubsidiaryExhibit H
    
    Compliance CertificateExhibit I
    
    Notice of Final AgreementExhibit J
    
    Assignment AgreementExhibit K
    
    Guaranty AgreementExhibit L
    
    Vesta Separation AgreementsExhibit M
    
    Applicable Rate CertificateExhibit N
    
    Pledge Agreement - BorrowerSchedule 2.1
    
    Commitments; Pro Rata SharesSchedule 8.1
    
    SubsidiariesSchedule 8.4
    
    Existing LitigationSchedule 8.5
    
    Existing DebtSchedule 8.6
    
    Vesta ObligationsSchedule 8.11
    
    Licensed JurisdictionsSchedule 8.16
    
    Solvency ExceptionsSchedule 8.17
    
    Environmental MattersSchedule 8.18
    
    Existing InvestmentsSchedule 8.19
    
    Reinsurance AgreementsSchedule 8.21
    
    Key PersonnelSchedule 11.1
    
    Notice Addresses
 iv




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CREDIT AGREEMENT THIS CREDIT AGREEMENT is dated as of July 30, 2004 (this agreement,
together with all amendments and restatements, this Agreement), among
AFFIRMATIVE INSURANCE HOLDINGS, INC., a Delaware corporation (Borrower), THE
FROST NATIONAL BANK, as Administrative Agent and L/C Issuer, and each lender
from time to time party hereto (singly, a Lender and collectively, the
Lenders). Each RIC (as defined herein) is a party to this Agreement to
acknowledge and agree to its obligations pursuant to Article III. BACKGROUND Borrower has requested that Lenders make a revolving credit and a term
credit facility available to Borrower and that L/C Issuer issue Letters of
Credit for the account of Borrower and each RIC. Lenders and L/C Issuer have
agreed to do so, subject to the terms and conditions of this Agreement. AGREEMENT In consideration of the mutual covenants and agreements contained herein,
and other good and valuable consideration, receipt of which is acknowledged by
the parties hereto, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. For purposes of this Agreement: AAIG means American Agencies Insurance Group, Inc., a Texas corporation. Administrative Agent means Frost in its capacity as administrative agent
under any of the Loan Documents, or any successor administrative agent. Administrative Agents Office means Administrative Agents address and,
as appropriate, account as set forth on Schedule 11.1, or such other address or
account as Administrative Agent may from time to time notify Borrower, Lenders
and L/C Issuer. Affiliate means any Person that directly, or indirectly, through one or
more intermediaries, Controls or is Controlled By or is Under Common Control
with any other Person. Aggregate Commitments means the sum of all Commitments of all Lenders. Aggregate Term Commitments means the sum of all Term Commitments of all
Lenders. Agreement Date means the date of this Agreement.




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Applicable Law means (a) in respect of any Person, all provisions of
Laws and orders of Governmental Authorities applicable to such Person and its
properties, including, without limiting the foregoing, all orders and decrees
of all Governmental Authorities and arbitrators in proceedings or actions to
which the Person in question is a party, and (b) in respect of contracts
relating to interest or finance charges that are made or performed in the State
of Texas, Applicable Law means the Laws of the United States of America,
including without limitation 12 U.S.C. §§85 and 86, and any other statute of
the United States of America now or at any time hereafter prescribing the
maximum rates of interest on loans and extensions of credit, and the Laws of
the State of Texas, and any other Laws of the State of Texas now or at any time
hereafter prescribing maximum rates of interest on loans and extensions of
credit. Applicable Rate means a per annum percentage equal to (a) with respect
to Loans, 1.50%, and (b) with respect to L/C Fees, 0.75%; provided that, after
receipt by Administrative Agent of the initial Compliance Certificate delivered
by Borrower pursuant to Section 6.2(b)(v) and thereafter, such percentages
shall be adjusted as follows: effective on the third Business Day after
receipt by Administrative Agent of such Compliance Certificate demonstrating a
change in either Consolidated Net Worth or EBITDA so that another Applicable
Rate should be applied pursuant to the table below, the Applicable Rate shall
be (i) the percentage set forth in Column 1 if both Consolidated Net Worth and
EBITDA are the amounts stated in Column 1, (ii) the percentage set forth in
Column 2 if both Consolidated Net Worth and EBITDA are the amounts stated in
Column 2, or (iii) the percentage set forth in Column 3 if either Consolidated
Net Worth or EBITDA are the amount stated in Column 3. If a Compliance
Certificate is not received by Administrative Agent by the date required
pursuant to Section 6.2(b)(v), the Applicable Rate shall be the percentage
stated in Column 3 until the third Business Day after receipt by Administrative
Agent of a Compliance Certificate demonstrating a change in either Consolidated
Net Worth or EBITDA so that another Applicable Rate should be applied pursuant
to the table below. For purposes of determining Applicable Rate, Consolidated
Net Worth shall be calculated as at the last day of each fiscal quarter of
Borrower and EBITDA shall be calculated as at the last day of each fiscal
quarter of Borrower for the preceding four fiscal quarters. Column 1
    
    Column 2
    
    Column 3Consolidated
    
    
    
    
    
    3 $
    140,000 andNet Worth
    
    3 $
    175,000,000
    
    
    < $
    175,000,000
    
    
    < $
    140,000,000EBITDA
    
    3 $
    15,000,000
    
    
    3 $
    15,000,000
    
    
    < $
    15,000,000Loans
    
    
    1.50
    %
    
    
    1.75
    %
    
    
    2.00
    %L/C Fee
    
    
    0.75
    %
    
    
    1.00
    %
    
    
    1.25
    %
 Applicable Rate Certificate means a certificate substantially in the
form of Exhibit M. Assignment Agreement means an Assignment Agreement substantially in the
form of Exhibit J 2




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Attorney Costs means and includes all fees, expenses and disbursements
of any law firm or other external counsel and, without duplication, the
allocated cost of internal legal services and all expenses and disbursements of
internal counsel. Auditors means PricewaterhouseCoopers LLP, or other independent
certified public accountants selected by Borrower and reasonably acceptable to
Administrative Agent and Required Lenders. Authorized Control Level means Authorized Control Level as defined by
NAIC from time to time and as applied in the context of the Risk-Based Capital
Guidelines promulgated by NAIC (or any term substituted therefor by NAIC). Authorized Signatory means such senior personnel of Borrower, any
Subsidiary of Borrower or an Obligor as may be duly authorized and designated
in writing by Borrower, such Subsidiary or such Obligor to execute documents,
agreements and instruments on behalf of Borrower, such Subsidiary or such
Obligor. Bank Liens means Liens in favor of Administrative Agent, L/C Issuer or
any Lender securing all or any of the Obligations, including, but not limited
to, rights in any Collateral created in favor of Administrative Agent, L/C
Issuer or any Lender, whether by mortgage, pledge, hypothecation, assignment,
transfer, or other granting or creation of Liens. Business Day means any day other than a Saturday, Sunday, or other day
on which commercial banks are authorized to close under the Laws of, or are in
fact closed in, the state where Administrative Agents office is located and,
if such day relates to any Eurodollar Rate Loan, means any such day on which
dealings in Dollar deposits are conducted by and between banks in the
applicable offshore Dollar interbank market. Capital Leases means capital leases and subleases, as defined in the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 13, dated November 1976, as amended. Cash Capex means any capital expenditure (determined in accordance with
GAAP) the source of funds for which was not or is not proceeds of any Debt
(whether or not subordinate to any other obligation of any Person), any
operating lease or any equity issuance. Change of Control means (a) any of the individuals described on Schedule
8.21 either does not (i) hold the position with Borrower or the specified
Subsidiary described on Schedule 8.21 after the Agreement Date and a
replacement reasonably satisfactory to Required Lenders has not assumed such
office or title within 180 days after the occurrence of such event, or (ii)
possess or exercise the same or greater management authority of Borrower or
such specified Subsidiary as such individual possessed on the Agreement Date
and a replacement reasonably satisfactory to Required Lenders has not assumed
such management authority within 180 days after the occurrence of such event,
or (b) any individual not described on Schedule 8.21 occupies the executive
office of Borrower or any of its Subsidiaries or possesses or exercises any
management authority of any individual described on Schedule 8.21, or (c) an
event or series of events by which during any period of 12 consecutive months,
a majority of the members of the board of directors or other equivalent
governing body of Borrower cease to be composed of 3




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individuals (i) who were
members of that board or equivalent governing body on the first day of
such period, (ii) whose election or nomination to that board or equivalent
governing body was approved by individuals referred to in clause (i)
constituting at the time of such election or nomination at least a majority of
that board or equivalent governing body or (iii) whose election or nomination
to that board or other equivalent governing body was approved by individuals
referred to in clauses (i) and (ii) constituting at the time of such election
or nomination at least a majority of that board or equivalent governing body
(excluding, in the case of both clause (ii) and clause (iii), any individual
whose initial nomination for, or assumption of office as, a member of that
board or equivalent governing body occurs as a result of an actual or
threatened solicitation of proxies or consents for the election or removal of
one or more directors by any person or group other than a solicitation for the
election of one or more directors by or on behalf of the boards of directors). Code means the Uniform Commercial Code as in effect in Texas. Collateral means any assets of any Person in which at any time
Administrative Agent shall be granted a Bank Lien to secure the Obligations. Combined Ratio means the ratio (expressed as a percentage rounded to two
decimal places) of (a) the sum of losses incurred, plus loss expenses incurred,
plus other underwriting expenses incurred, all for the four fiscal quarter
period ended on the date of determination, to (b) the sum of premiums and
policy fees earned, all for the four fiscal quarter period ended on the date of
determination, all as calculated in accordance with the format of the statutory
financial statements for a property and casualty insurance company prescribed
by NAIC. Commitment means each Lenders obligation to make Revolving Loans and
Term Loans to Borrower pursuant to Section 2.1 and to participate in L/C
Obligations pursuant to Section 3.3, in the aggregate principal amount not to
exceed the amount set forth on Schedule 2.1 or in the most recent Assignment
Agreement to which such Lender is a party. Compliance Certificate means a compliance certificate, substantially in
the form of Exhibit H. Consolidated Interest Expenses means, for any period, for Borrower and
its Subsidiaries on a consolidated basis, the sum of (a) all interest, premium
payments, debt discount, fees, charges and related expenses of Borrower and its
Subsidiaries in connection with borrowed money (including that attributable to
Capital Leases) or in connection with the deferred purchase price of assets, in
each case to the extent treated as interest in accordance with GAAP, and (b)
the portion of rent expense of Borrower and its Subsidiaries with respect to
such period under Capital Leases that is treated as interest in accordance with
GAAP. Consolidated Net Income means, with respect to Borrower and its
Subsidiaries for any period, the net income (or loss) of Borrower and its
Subsidiaries for such period (excluding any extraordinary gains and any gains
from discontinued operations but including extraordinary losses for such
period), all determined in accordance with GAAP. 4




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Consolidated Net Worth means the net worth of Borrower and its
Subsidiaries determined on a consolidated basis in accordance with GAAP after
appropriate deduction for any minority interests in Subsidiaries. Contingent Debt means, for any Person: (a) guarantees, endorsements (other than endorsements of negotiable
instruments for collection in the ordinary course of business) and other
contingent liabilities (whether direct or indirect) in connection with
the obligations of any other Person; (b) obligations under any contract providing for the making of
loans, advances or capital contributions to any other Person, or for the
purchase of any property from any other Person, in each case in order to
enable such other Person primarily to maintain working capital, net worth
or any other balance sheet condition or to pay Debts, Dividends or
expenses; (c) obligations under any contract to rent or lease (as lessee) any
real or personal property (other than operating leases) if such contract
(or any related document) provides that the obligation to make payments
thereunder is absolute and unconditional under conditions not customarily
found in commercial leases then in general use or requires that the
lessee purchase or otherwise acquire securities or obligations of the
lessor; (d) obligations in respect of letters of credit; and (e) obligations under any other contract which, in economic effect,
is substantially equivalent to a guaranty, including but not limited to
keep well or capital maintenance agreements. Control or Controlled By or Under Common Control means possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided that, in any event any Person which beneficially owns,
directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation or
managers of a limited liability company or other governance board of an entity
shall be conclusively presumed to control such corporation or limited liability
company. Current Financials means the most recent annual Financial Statements of
Borrower or any of its Subsidiaries. Debt means, at any time, for any Person, (a) Capital Leases, (b)
Contingent Debt, (c) debt created, issued, incurred or assumed for money
borrowed or for the deferred purchase price of property purchased, (d) all
debt, obligations and liabilities secured by any Lien upon any property owned
by such Person, even though it has not assumed or become liable for the payment
of same, and (e) liabilities in respect of unfunded vested benefits under any
Plans. 5




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Debtor Relief Laws means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, fraudulent conveyance,
reorganization or similar debtor relief Laws affecting the rights of creditors
generally from time to time in effect. Default means any of the events specified in Section 9.1 that would,
with the giving of notice or the passage of time, become an Event of Default. Default Rate means a simple per annum interest rate equal to the lesser
of (a) the Eurodollar Rate in effect at such time, plus 2%, and (b) the Highest
Lawful Rate. Defaulting Lender means any Lender that (a) has failed to fund any
portion of a Loan required to be funded by it hereunder within one Business Day
of the date required to be funded by it hereunder, (b) has otherwise failed to
pay over to Administrative Agent or any other Lender any other amount required
to be paid by it hereunder within one Business Day of the date when due, unless
the subject of a good faith dispute, or (c) has been deemed insolvent or become
the subject of a proceeding under Debtor Relief Law. Disposition and Dispose mean any sale, lease, abandonment, transfer,
disposal, exchange or other transfer of any ownership or leasehold interest in
or control of any asset. Dividends means, with respect to any Person, any dividend on any class
of its capital stock or other equity interest now or hereafter outstanding, any
distribution of cash or property to owners of any shares of such stock or other
equity interest, any retirement, redemption, purchase or other acquisition,
directly or indirectly, of any shares of any class of its capital stock or
other equity interest now or hereafter outstanding. Dollars and the sign $ mean lawful money of the United States of
America. EBITDA means, for any period, for Borrower and its Subsidiaries on a
consolidated basis, an amount equal to Consolidated Net Income for such period
plus (a) the following to the extent deducted in calculating such Consolidated
Net Income: (i) Consolidated Interest Expenses for such period, (ii) the
provision for federal, state, local and foreign income Taxes payable by
Borrower and its Subsidiaries for such period, (iii) the amount of depreciation
and amortization expense and (iv) other expenses of Borrower and its
Subsidiaries reducing such Consolidated Net Income which do not represent a
cash item in such period or any future period, and minus (b) all non-cash items
increasing Consolidated Net Income for such period. Environment means ambient air, surface water and groundwater (including
potable water, navigable water and wetlands), the land surface or subsurface
strata, real property improvements or as otherwise defined in any Environmental
Law. Environmental Claim means any written accusation, allegation, notice of
violation, claim, demand, order, directive, consent decree, cost recovery
action or other cause of action by, or on behalf of, any Governmental Authority
or any Person for damages, injunctive or equitable relief, personal injury
(including sickness, disease or death), Remedial Action costs, property damage,
natural resource damages, nuisance, pollution, any adverse effect on the
Environment caused by any Hazardous Material, or for fines, penalties or
restrictions, resulting from or based upon: (a) the existence, or the
continuation of the existence, of a Release; (b) exposure to any Hazardous
Material; (c) the presence, use, handling, transportation, storage, treatment
or disposal 6




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##### 



of any Hazardous Material; or (d) the violation or alleged
violation of any Environmental Law or Environmental Permit. Environmental Law means any and all applicable domestic Laws, judgments,
injunctions, notices or binding agreements issued, promulgated or entered into
by any Governmental Authority, relating in any way to the Environment,
preservation or reclamation of natural resources, the management, Release or
threatened Release of any Hazardous Material or
to health and safety matters, including the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.
(collectively CERCLA), the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. §§ 6901 et seq., the Federal Water Pollution
Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et
seq., the Clean Air Act of 1970, 42 U.S.C. §§ 7401 et seq., as amended, the
Toxic Substances Control Act of 1976, 15 U.S.C. §§ 2601 et seq., the
Occupational Safety and Health Act of 1970, as amended by 29 U.S.C. §§ 651 et
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
§§ 11001 et seq., the Safe Drinking Water Act of 1974, as amended by 42 U.S.C.
§§ 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §§
5101 et seq., and any similar or implementing Law. Environmental Permit means any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law. ERISA means the Employee Retirement Income Security Act of 1974. Eurodollar Basis means for any day a rate per annum equal to the London
Interbank Offered Rate for a three-month term, as published in the Money
Rates column of The Wall Street Journal, Central Edition, from time to time,
or if any reason such rate is no longer available: (a) for any day the rate per annum (rounded upward to the nearest
1/100 of 1%) equal to the rate determined by Administrative Agent to be
the offered rate that appears on the page of the Telerate screen (or any
successor thereto) that displays an average British Bankers Association
Interest Settlement Rate for deposits in Dollars (for delivery on the
date of determination) with a three-month term, determined as of
approximately 11:00 a.m. (London time) on the date of determination, or (b) if the rate referenced in clause (a) does not appear on such
page or service or such page or service shall not be available, for any
day the rate per annum (rounded upward to the nearest 1/100 of 1%) equal
to the rate determined by Administrative Agent to be the offered rate on
such other page or other service that displays an average British Bankers
Association Interest Settlement Rate for deposits in Dollars (for
delivery on date of determination) with a three-month term, determined as
of approximately 11:00 a.m. (London time). The Eurodollar Basis shall change effective as of the date of any change
as published in The Wall Street Journal, Central Edition, or as determined by
Administrative Agent, as 7




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appropriate. The Eurodollar Basis is a reference rate
and does not necessarily represent the lowest or best rate actually charged to
any customer of any Lender. Eurodollar Rate means the sum of the Eurodollar Basis plus the
Applicable Rate. Eurodollar Rate Loan means a Loan when it bears interest at a rate based
on the Eurodollar Rate. Event of Default means any of the events specified in Section 9.1,
provided there has been satisfied any requirement in connection with such event
for the giving of notice, or the lapse of time, or the happening of any further
specified condition, event or act. Existing Debt means the Debt of Borrower and its Subsidiaries existing
on the Agreement Date, which is described on Schedule 8.5, including renewals
(but not increases) thereof. Existing Investments means the Investments of Borrower and its
Subsidiaries existing on the Agreement Date, which are described on Schedule
8.18. Existing Litigation means the Litigation involving or otherwise
affecting Borrower and its Subsidiaries existing on the Agreement Date. Federal Funds Rate means, for any day, the rate per annum equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank on the Business Day next
succeeding such day; provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate (rounded
upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Frost on
such day on such transactions as determined by Administrative Agent. Financial Statements includes, but is not limited to, balance sheets,
profit and loss statements, reconciliations of capital and surplus and/or
partnership capital accounts, as appropriate, and statements of changes in
financial position or cash flow, prepared in comparative form with respect to
the corresponding period of the preceding fiscal year and prepared in
accordance with SAP or GAAP, as appropriate. Fixed Charges means the sum of (a) Consolidated Interest Expenses for
the four fiscal quarter period ended on the date of determination, plus (b)
scheduled principal payments of Debt which would be classified as a current
liability on a consolidated balance sheet of Borrower and its consolidated
Subsidiaries payable during the four fiscal quarter period beginning on the day
following the date of determination, plus (c) Cash Capex actually paid by
Borrower and its consolidated Subsidiaries during the four fiscal quarter
period ended on the date of determination, plus (d) the aggregate amount of
Taxes actually paid by Borrower and its consolidated Subsidiaries during the
four fiscal quarter period ended on the date of determination, plus (e) cash
Dividends actually paid by Borrower during the four fiscal quarter period ended
on the date of determination. 8




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Fixed Charges Coverage Ratio means the ratio (rounded to two decimal
places) determined as at the last day of the most recent fiscal quarter of
Borrower of (a) EBITDA for the four fiscal quarter period ended on the last day
of such fiscal quarter, to (b) Fixed Charges determined as at the last day of
such fiscal quarter. Foreign Lender means any Lender that is organized under the Laws of a
jurisdiction other than that in which Borrower is resident for tax purposes.
For purposes of this definition,
the United States, each State thereof and the District of Columbia shall
be deemed to constitute a single jurisdiction. Frost means The Frost National Bank and its successors. GAAP means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board, which are applicable in the
circumstances as of the date in question, and the requisite that such
principles be applied on a consistent basis shall mean that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period. Governmental Authority means any nation or government, any state or
other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, administrative Governmental Authority, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government. Guarantor means each Subsidiary (whether now or hereafter existing) of
Borrower (other than a SCHI Entity, so long as SCHI is not a wholly-owned
Subsidiary of Borrower, or a RIC). Guaranty means a Guaranty Agreement, substantially in the form of either
Exhibit K, duly executed by each Guarantor. Hazardous Materials means all explosive or radioactive substances or
wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or
gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos-containing materials, polychlorinated biphenyls (PCBs) or
PCB-containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law. Highest Lawful Rate means at the particular time in question the maximum
rate of interest which, under Applicable Law, any Lender is then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, any Lender is permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to
Borrower. For purposes of determining the Highest Lawful Rate under Applicable
Law, the indicated rate ceiling shall be the lesser of (a)(i) the weekly
ceiling, as that expression is defined in Section 303.003 of the Texas Finance
Code, as amended, or (ii) if available in accordance with the terms thereof and
at 9




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Administrative Agents option after notice to Borrower and otherwise in
accordance with the terms of Section 303.103 of the Texas Finance Code, as
amended, the annualized ceiling and (b)(i) if the amount outstanding under
this Agreement is less than $250,000, 24% per annum, or (ii) if the amount
under this Agreement is equal to or greater than $250,000, 28% per annum. Insurance Business means one or more aspects of the business of selling,
issuing or underwriting insurance or reinsurance. Insurance Contract means any insurance contract or policy issued by a
RIC, but shall not include any Reinsurance Agreement or Retrocession Agreement. Insurance Regulator means, when used with respect to any RIC, the
Governmental Authority, insurance department or similar administrative
authority or agency located in (a) each state in which such RIC is domiciled or
(b) to the extent asserting regulatory jurisdiction over such RIC, the
Governmental Authority, insurance department, authority or agency in each state
in which such RIC is licensed, and shall include any Federal insurance
regulatory department, authority or agency that may be created and that asserts
regulatory jurisdiction over such RIC. Interest Payment Date means each Payment Date, the Revolving Loan
Maturity Date (with respect to Revolving Loans) and each Term Loan Maturity
Date (with respect to the respective Term Loan). Investment means, as to any Person, any direct or indirect acquisition
or investment by such Person, whether by means of (a) the purchase or
acquisition of all or substantially all of the assets of any Person, (b) any
direct or indirect purchase or other acquisition of, or a beneficial interest
in, any equity interest or other securities of any other Person, or (c) any
direct or indirect loan, advance, or capital contribution to or investment in
any other Person, including without limitation the incurrence or sufferance of
Debt or accounts receivable of any other Person that are not current assets or
do not arise from Dispositions to that other Person in the ordinary course of
business. Investment Grade Securities means and includes (a) securities that are
direct obligations of the United States of America, the payment of which is
backed by the full faith and credit of the United States of America, (b) debt
securities or debt instruments with a rating of A or higher by S&P, A2 or
higher by Moodys, Class (1) or higher by NAIC or the equivalent of such rating
by S&P, Moodys or NAIC, or if none of S&P, Moodys and NAIC shall then exist,
the equivalent of such rating by any other nationally recognized securities
rating agency, but excluding any debt securities or instruments constituting
loans or advances among Borrower and its wholly-owned Subsidiaries, and (c) any
fund investing exclusively in investments of the type described in clauses (a)
and (b), which funds may also hold immaterial amounts of cash pending
investment and/or distribution. Investment Policy means the written policies and procedures which govern
the acquisition and maintenance of Investments and the cash management
procedures of each Borrower and each of its Subsidiaries, as such written
policies and procedures exist on the Agreement Date. 10




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L/C Agreements means all agreements related to any letter of credit
issued by L/C Issuer or any Affiliate of L/C Issuer for the account of
Borrower, any RIC or any other Obligor, including but not limited to, any
application or agreement for issuance of a letter of credit, any reimbursement
agreement, and any amendment or restatement thereof. L/C Commitment means $10,000,000. L/C Credit Extension means, with respect to any Letter of Credit, the
issuance thereof, the extension of the expiry date thereof (including with
respect to any Auto-Renewal Letter of Credit) or the increase of the amount
thereof. L/C Due Date means the earliest date specified in each respective Letter
of Credit Application on which payment is due and payable to L/C Issuer with
respect to any draft honored by L/C Issuer for the related Letter of Credit. L/C Facility means facility for the issuance of Letters of Credit
provided for in Article III. L/C Facility Expiration Date means the first to occur of (a) July 30,
2006, (b) the date the L/C Facility is terminated pursuant to either Section
2.6 or 9.2, and (c) the date the Obligations are accelerated. L/C Issuer means Frost. L/C Obligations means, as at any date of determination, the aggregate
undrawn amount of all outstanding Letters of Credit plus the aggregate of all
Unreimbursed Amounts. Laws means, collectively, all international, foreign, Federal, state and
local constitutions, statutes, treaties, rules, guidelines, regulations,
ordinances, codes and administrative or judicial precedents or authorities,
including the interpretation or administration thereof by any Governmental
Authority charged with the enforcement, interpretation or administration
thereof, and all applicable administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any Governmental
Authority, in each case whether or not having the force of law. Letter of Credit means any letter of credit issued hereunder. Each
Letter of Credit shall be a standby letter of credit. Letter of Credit Application means an application and agreement for the
issuance or amendment of a Letter of Credit in the form from time to time in
use by L/C Issuer. Lien means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any agreement to give or not to give any of the
foregoing), any conditional sale or other title retention agreement, any
financing or other lease in the nature thereof, and the filing of or agreement
to give any financing statement or other similar form of public notice under
the Laws of any jurisdiction. Litigation means any proceeding, claim, lawsuit and/or investigation
conducted or threatened by or before any Governmental Authority, including, but
not limited to, proceedings, 11




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claims, lawsuits, and/or investigations under or
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement or other instrument. Litigation Report means a report, certified to be true, correct and
complete by an Authorized Officer of Borrower and each of its Subsidiaries
which is a party to any Litigation, describing all Litigation relating to
Insurance Business of Borrower and each of its Subsidiaries, in format
acceptable to Administrative Agent. Loan means a Revolving Loan or a Term Loan. Loan Documents means this Agreement, the Notes, the Security Documents,
the Guaranties, the L/C Agreements and all other documents and instruments
executed and delivered to Administrative Agent, L/C Issuer and any Lender by
any Obligor or any other Person in connection with this Agreement. Loss Report means a monthly summarization of losses, loss adjustment
expenses and related reserves in format acceptable to Administrative Agent. Material Adverse Change or Effect means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
liabilities (actual or contingent), condition (financial or otherwise) or
prospects of Borrower or Borrower and its Subsidiaries taken as a whole; (b) a
material impairment of the ability of any Obligor to perform its obligations
under any Loan Document to which it is a party; or (c) an adverse effect on any
Lien granted pursuant to a Security Agreement in any Collateral having a value
of $500,000 or greater (as to any single asset included in such Collateral) or
$1,000,000 or greater (as to all such Collateral), and such effect is not cured
to the satisfaction of Administrative Agent within five Business Days of the
first to occur of receipt by the appropriate Obligor of notice from
Administrative Agent and the first date on which the appropriate Obligor was
aware of the existence of such effect. Maximum Amount means the maximum amount of interest which, under
Applicable Law, any Lender is permitted to charge on the Obligations. Moodys means Moodys Investors Service, Inc. NAIC means the National Association of Insurance Commissioners or any
successor organization thereto. NAIC Tests means the ratios and other financial measurements developed
by NAIC under its Insurance Regulatory Information System, as in effect from
time to time. Notes means the Revolving Notes and the Term Loan Notes. Notice of Final Agreement means the Notice of Final Agreement and Waiver
of Jury Trial, substantially in the form of Exhibit I. Obligations means all obligations, indebtedness and liabilities under
the Loan Documents now or hereafter owing by Borrower or any other Person to or
for the benefit of 12




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Administrative Agent and Lenders, whether joint or several,
fixed or contingent, including principal, interest, expenses of collection and
foreclosure and attorneys fees that Borrower is responsible for pursuant to
Section 11.2. Without limiting the generality of the foregoing, Obligations
includes interest, fees and other amounts that would accrue after the
commencement by or against Borrower, any Affiliate thereof or any other Person
(other than Administrative Agent, any Lender or any Participant) of any
proceeding under any Debtor Relief Laws naming such Person as the debtor in
such proceeding, regardless of whether such interest, fees and other amounts
are allowed claims in such proceeding. Obligor means Borrower and each other Person liable for performance of
any of the Obligations or the property of which secures the performance of any
of the Obligations. Off-Balance Sheet Liabilities means, with respect to any Person as of
any date of determination thereof, without duplication and to the extent not
included as a liability on the consolidated balance sheet of such Person and
its Subsidiaries in accordance with GAAP: (a) with respect to any asset
securitization transaction (including any accounts receivable purchase
facility) (i) the unrecovered investment of purchasers or transferees of assets
so transferred and (ii) any other payment, recourse, repurchase, hold harmless,
indemnity or similar obligation of such Person or any of its Subsidiaries in
respect of assets transferred or payments made in respect thereof, other than
limited recourse provisions that are customary for transactions of such type
and that neither (x) have the effect of limiting the loss or credit risk of
such purchasers or transferees with respect to payment or performance by the
obligors of the assets so transferred nor (y) impair the characterization of
the transaction as a true sale under applicable Laws (including Debtor Relief
Laws); (b) the monetary obligations under any financing lease or so-called
synthetic, tax retention or off-balance sheet lease transaction which, upon
the application of any Debtor Relief Law to such Person or any of its
Subsidiaries, would be characterized as indebtedness; (c) the monetary
obligations under any sale and leaseback transaction which does not create a
liability on the consolidated balance sheet of such Person and its
Subsidiaries; or (d) any other monetary obligation arising with respect to any
other transaction which (i) upon the application of any Debtor Relief Law to
such Person or any of its Subsidiaries, would be characterized as indebtedness
or (ii) is the functional equivalent of or takes the place of borrowing but
which does not constitute a liability on the consolidated balance sheet of such
Person and its Subsidiaries (for purposes of this clause (d), any transaction
structured to provide tax deductibility as interest expense of any Dividend,
coupon or other periodic payment will be deemed to be the functional equivalent
of a borrowing). Outstanding Amount means, as of any date of determining, the sum of (a)
the aggregate outstanding principal amount of all Revolving Loans, after giving
effect to any Revolving Borrowing and any principal payment of Revolving Loans
occurring on such date, (b) the aggregate outstanding principal amount of all
Term Loans, after giving effect to any Term Borrowing and any principal payment
of Term Loans occurring on such date, and (c) the L/C Obligations on such date,
after giving effect to any L/C Credit Extension and any other changes in the
aggregate amount of the L/C Obligations on such date, including as a result of
payment of any Unreimbursed Amount. Payment Date means the first Business Day of each calendar quarter
during the term of this Agreement. 13




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PBGC means the Pension Benefit Guaranty Corporation established under
ERISA. Permitted Acquisition means the acquisition of all or substantially all
of the assets or any of the equity of a property and casualty insurance company
that is not, as of the acquisition effective date, issuing insurance policies
other than automobile insurance policies or liable with respect to any
insurance policy in force on such acquisition effective date other than
automobile insurance policies, insurance agency or managing general agency, so
long as in each case (a) there exists no Default or Event of Default both
before and after giving effect to any such acquisition, (b) if such acquired
entity is a property and casualty insurance company, the majority of the
authorized, issued and outstanding equity of such acquired entity and the
majority of each class of equity of such acquired entity that has voting rights
(including voting rights arising upon the occurrence of a contingency) will be
owned by either a Subsidiary of Borrower
or a RIC, (c) if such acquired entity is an insurance agency or managing
general agency, the majority of the authorized, issued and outstanding equity
of such acquired entity and the majority of each class of equity of such
acquired entity that has voting rights (including voting rights arising upon
the occurrence of a contingency) will be owned by Borrower, (d) such acquired
assets are acquired by either Borrower or a wholly-owned Subsidiary of Borrower
that is a Guarantor, (e) Borrower provides Administrative Agent with
information and a Compliance Certificate demonstrating pro formacompliance
with the terms of this Agreement through the last to occur of the Termination
Date and the last Term Loan Maturity Date, after giving effect to such
acquisition, including, without limitation, each provision of Sections 7.1
through 7.5, (f) the aggregate cash portion of the consideration for all such
acquisitions does not exceed $5,000,000 during any fiscal year of Borrower or
$10,000,000 over the term of this Agreement, and (g) each acquisition is
consummated pursuant to a negotiated acquisition agreement on a non-hostile
basis pursuant to an acquisition agreement approved by the board of directors
or other applicable governing body of the entity to be acquired prior to the
commencement thereof, and (h) each acquired entity executes and delivers, or
causes to be executed and delivered, each of the documents described in
Sections 7.10(a)  (i). Permitted Debt means (a) Existing Debt, (b) the Obligations, (c) trade
accounts payable and other similar obligations incurred in the ordinary course
of business, (d) intercompany balances in the ordinary course of business among
Borrower and its Subsidiaries; provided, that all amounts owed by any Obligor
to its Subsidiaries shall be subordinated to all Obligations on terms
acceptable to Required Lenders, and, provided further, the aggregate amount of
all Debt payable by SCHI Entities to Borrower and its Subsidiaries shall not
exceed $1,000,000 at any time, (e) Capital Leases of Borrower and each of its
Subsidiaries in an aggregate principal amount not to exceed $500,000 at any
time, and (f) other Debt of Borrower subordinated to the Obligations on terms
acceptable to Required Lenders in their discretion. Permitted Investments means (a) Investment Grade Securities, (b)
Existing Investments, (c) travel advances to employees in the ordinary course
of business, (d) equity contributions made by Borrower or Subsidiaries of
Borrower in existing Subsidiaries of Borrower that are either Guarantors or
RICs, if such equity contribution results in an increase in shareholders or
members equity of such Subsidiary receiving such equity contribution, and (e)
other Investments of Borrower and its Subsidiaries that do not, as at any date
of determination, exceed in the aggregate $500,000 (the value of each such
Investment to be the greater of (1) the then current market value of such
Investment, and (2) the purchase price of such Investment). 14




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Permitted Liens means (a) Bank Liens, (b) pledges or deposits made to
secure payment of workmens compensation, or to participate in any fund in
connection with workmens compensation, unemployment insurance, pensions, or
other social security programs (excluding any Liens in respect of ERISA), (c)
good-faith pledges or deposits made to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money), or leases, or to
secure statutory obligations, surety or appeal bonds, or indemnity,
performance, or other similar bonds in the ordinary course of business, (d)
encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, none of which impair the use of such
property by any Obligor or any of its Subsidiaries in the operation of its
business in any manner which would have a Material Adverse Effect, (e) the
following, if the validity or amount thereof is being contested in good faith
and by appropriate and lawful proceedings and so long as levy
and execution thereon have been stayed and continue to be stayed: claims
and Liens for Taxes due and payable; claims and Liens upon, and defects of
title to, real or personal property or other legal process prior to
adjudication of a dispute on the merits, including mechanics and materialmens
Liens; and adverse judgments on appeal, (f) set-off, charge-back and other
rights of depository and collection banks and other financial institutions with
respect to money or instruments of Borrower or its Subsidiaries on depository
with or in possession of such institutions, and (g) Liens arising under Capital
Leases permitted under this Agreement. Person means and includes an individual, a partnership, a joint venture,
a limited liability company, a corporation, a trust, an unincorporated
organization, and a government or any department, Governmental Authority,
agency or political subdivision thereof. Plan means any plan subject to Title IV of ERISA and maintained for
employees of any Obligor or any of its Subsidiaries, or of any member of a
controlled group of corporations, as the term controlled group of
corporations is defined in Section 1563 of the Internal Revenue Code of 1986,
as amended, of which any Obligor or any of its Subsidiaries is a part. Pledge Agreements means the Pledge Agreement executed by AAIG,
substantially in the form of Exhibit C, and the Pledge Agreement executed by
Borrower, substantially in the form of Exhibit N. Prime Rate means for any day a per annum rate of interest equal to the
prime rate, as published in the Money Rates column of The Wall Street
Journal, Central Edition, from time to time, or if for any reason such rate is
no longer available, the rate established by Frost as its prime rate. The
Prime Rate shall change effective as of the date of any change as published in
The Wall Street Journal, Central Edition, or as established by Frost, as
appropriate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer of any
Lender. Prime Rate Loan means a Loan when it bears interest at a rate based on
the Prime Rate. Principal Office means the principal office of a Lender or L/C Issuer
specified on Schedule 11.1. Pro Rata Share means, with respect to each Lender at any time, a
fraction (expressed as a percentage, carried out to the ninth decimal place),
the numerator of which is the amount of the Commitment of such Lender at such
time and the denominator of which is the amount of the 15




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Aggregate Commitments at
such time; provided that if the Commitment of each Lender has been terminated
pursuant to either Section 2.6 or 9.2, then the Pro Rata Share of each Lender
shall be determined based on the Pro Rata Share of such Lender immediately
prior to such termination and after giving effect to any subsequent assignments
made pursuant to the terms hereof. The initial Pro Rata Share of each Lender
is set forth opposite the name of such Lender on Schedule 2.1 or in the most
recent Assignment Agreement to which such Lender is a party. Reinsurance Agreement means any agreement, contract, treaty or other
arrangement whereby one or more insurers, as reinsurers, assume liabilities
under insurance policies or agreements issued by another insurance or
reinsurance company or companies. Release means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the Environment. Remedial Action means (a) remedial action as such term is defined in
CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any
Governmental Authority or voluntarily undertaken to: (i) cleanup, remove,
treat, abate or in any other way address any Hazardous Material in the
Environment; (ii) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not migrate or endanger or
threaten to endanger public health, welfare or the Environment; or (iii)
perform studies and investigations in connection with, or as a precondition to,
(i) or (ii) above. Reportable Event means a reportable event as defined in Section 4043(b)
of Title IV of ERISA or PBGC regulations issued thereunder, other than a
reportable event not subject to Section 4043s notification requirements
pursuant to PGBCs regulations. Required Lenders means, as of any date of determination, at least two
Lenders having more than 50% of the Aggregate Commitments or, if the commitment
of each Lender to make its Pro Rata Share of Loans has been terminated pursuant
to Sections 2.6 or 9.2, at least two Lenders holding in the aggregate more than
50% of the Total Outstandings; provided that the Commitment of, and the portion
of the Total Outstandings held or deemed held by, any Defaulting Lender shall
be excluded for purposes of making a determination of Required Lenders. Retrocession Agreement means any agreement, contract, treaty or other
arrangement whereby one or more insurers or reinsurers, as retrocessionaires,
assume liabilities of reinsurers under a Reinsurance Agreement or other
retrocessionaires under another retrocession agreement. Revolving Borrowing means a borrowing by Borrower of Revolving Loans
made by a Lender pursuant to Section 2.1. Revolving Loan Maturity Date means the first to occur of (a) the
Termination Date, (b) the date the Aggregate Commitments are terminated
pursuant to either Section 2.6 or 9.2, or (c) the date the Obligations are
accelerated. Revolving Loan Notice means a notice of a Revolving Borrowing request
pursuant to Section 2.2(a), substantially in the form of Exhibit D. 16




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Revolving Note means the promissory note made by Borrower in favor of a
Lender evidencing the Revolving Loans made by such Lender, substantially in the
form of Exhibit A. RIC means any Subsidiary of Borrower, whether now owned or hereafter
acquired, that is authorized or admitted to carry on or transact Insurance
Business in any jurisdiction, is regulated by any Insurance Regulator, and is
required by any Insurance Regulator to file an annual statement in the form
prescribed by NAIC for a property and casualty insurance company. Risk-Based Capital means for a RIC, the ratio (expressed as a
percentage), at any time, of the Total Adjusted Capital of such RIC to the
Authorized Control Level of such RIC. S&P means Standard & Poors Ratings Group, a division of McGraw-Hill,
Inc., a New York corporation. SAP means the statutory accounting and reporting practices prescribed by
the insurance Laws or Insurance Regulator (or other similar Governmental
Authority) with respect to each RIC. SCHI means Space Coast Holdings, Inc., as Delaware corporation. SCHI Entities means SCHI, Space Coast Underwriters Insurance Agency,
Inc., a Florida corporation, Harbor Insurance Managers of Pennsylvania, Inc., a
Pennsylvania corporation, and Harbor Insurance Managers of Virginia, Inc., a
Virginia corporation. Security Agreements means the Security Agreement executed by Borrower,
substantially in the form of Exhibit F, and each Security Agreement executed by
a Subsidiary of Borrower, substantially in the form of Exhibit G. Security Documents means, collectively, the Pledge Agreements, the
Security Agreements and any and all other documents, instruments, financing
statements, public notices and the like executed and delivered in connection
with any of the Bank Liens or the Collateral. Solvent means, with respect to any Person, that the fair value of the
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time,
such liabilities will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability discounted to
present value at rates believed to be reasonable by such Person. Special Counsel means the law firm of Winstead Sechrest & Minick P.C.,
or such other legal counsel as Administrative Agent may select. Subsidiary of a Person means a corporation, partnership, joint venture,
limited liability company or other business entity of which a majority of the
shares of securities or other interests 17




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having ordinary voting power for the
election of directors or other governing body (other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned, or the management of which is otherwise
Controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. Taxes means all taxes, assessments, fees or other charges from time to
time or at any time imposed by any Laws or by any Governmental Authority. Term Borrowing means a borrowing by Borrower of Term Loans made by a
Lender pursuant to Section 2.1. Term Commitment means as to each Lender, its obligation to make its Pro
Rata Share of a Term Loan to Borrower pursuant to Section 2.1, in the aggregate
principal amount not to exceed the amount set forth opposite such Lenders name
on Schedule 2.1. Term Facility Date means the first to occur of (a) the Termination Date,
(b) the date the Aggregate Commitments are terminated pursuant to either
Section 2.6 or 9.2, (c) the date the Aggregate Term Commitments are terminated
pursuant to either Section 2.6 or 9.2, or (d) the date the Obligations are
accelerated. Term Loan Maturity Date means, with respect to each Term Loan, the first
to occur of (a) the fifth anniversary date of the making of such Term Loan, and
(b) the date the Obligations are accelerated. Term Loan Note means a promissory note made by Borrower in favor of a
Lender evidencing such Lenders Pro Rata Share of a Term Loan, substantially in
the form of Exhibit B. Term Loan Notice means a notice of a Term Borrowing request pursuant to
Section 2.2(b), substantially in the form of Exhibit E. Termination Date means July 30, 2006. Total Adjusted Capital means Total Adjusted Capital as defined by NAIC
from time to time and as applied in the context of the Risk-Based Capital
Guidelines promulgated by NAIC (or any term substituted therefor by NAIC). 1.2 Additional Definitions. The following additional terms have the
meaning specified in the indicated Section or other provision of this
Agreement: Term
    
    Section/ProvisionAgent-Related Person
    
    Section 10.3Agreement
    
    Introductory ParagraphAssignee
    
    Section 11.6(c)Auto-Renewal Letter of Credit
    
    Section 3.2(c)Borrower
    
    Introductory ParagraphCash Collateralize
    
    Section 3.7Compensation Period
    
    Section 2.10(e)Eurocurrency liabilities
    
    Section 4.4(c)
 18




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Term
    
    Section/ProvisionHonor Date
    
    Section 3.3(a)Indemnified Matters
    
    Section 6.7Indemnified Taxes
    
    Section 4.1(a)Indemnitees
    
    Section 6.7L/C Fee
    
    Section 3.8Lender
    
    Introductory ParagraphNonrenewal Notice Date
    
    Section 3.2(c)Participant
    
    Section 11.6(b)Participation
    
    Section 11.6(b)Properties
    
    Section 8.17(a)Revolving Loans
    
    Section 2.1(a)Term Loans
    
    Section 2.1(b)Unreimbursed Amount
    
    Section 3.3(a)
 1.3 Construction. Unless otherwise expressly provided in this Agreement
or the context requires otherwise, (a) the singular shall include the plural,
and vice versa, (b) words of a gender include the other gender, (c) all
accounting terms shall be construed in accordance with GAAP or SAP, as the
context requires, (d) all references to time are San Antonio time, (e) monetary
references are to Dollars, (f) all references to Articles, Sections,
Exhibits, and Schedules are to the Articles, Sections, Exhibits, and
Schedules of and to this Agreement, (g) headings used in this Agreement and
each other Loan Document are for convenience only and shall not be used in
connection with the interpretation of any provision hereof or thereof, (h)
references to any Person include that Persons heirs, personal representatives,
successors, and permitted assigns, that Person as a debtor-in possession, and
any receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for such Person or all or substantially all of its assets, (i)
references to any Law include every amendment or restatement to it, rule and
regulation adopted under it, and successor or replacement for it, and (j)
references to a particular Loan Document include each amendment, modification,
or supplement to or restatement of it made in accordance with this Agreement
and such Loan Document. ARTICLE II LOANS 2.1 Loans. (a) Revolving Loans. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make loans (each such loan, a
Revolving Loan), to Borrower from time to time on any Business Day during the
period from the Agreement Date to the Revolving Loan Maturity Date, in an
aggregate amount not to exceed at any time outstanding such Lenders
Commitment; provided, however, that after giving effect to any Revolving
Borrowing, (i) such Lenders Pro Rata Share of the Outstanding Amount shall not
exceed such Lenders Commitment, and 19




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(ii) the Outstanding Amount shall not exceed the Aggregate
Commitments. Prior to the Revolving Loan Maturity Date, Borrower may borrow, repay and
reborrow Revolving Loans, all in accordance with this Agreement. (b) Term Loans. Subject to the terms and conditions of this Agreement,
each Lender severally agrees to make loans (each such loan, a Term Loan) to
Borrower from time to time on any Business Day during the period from the
Agreement Date to the Term Facility Date, in an aggregate amount not to exceed
such Lenders Term Commitment; provided, however, that after giving effect to
any Term Borrowing, (i) such Lenders Pro Rata Share of such Term Borrowing shall not
exceed such Lenders Term Commitment, (ii) such Lenders Pro Rata Share of the Outstanding Amount shall
not exceed such Lenders Commitment, and (iii) the Outstanding Amount shall not exceed the Aggregate
Commitments. Term Loans may not be repaid and then reborrowed. The Aggregate Term
Commitments is a subfacility of the Aggregate Commitments and not in addition
to the Aggregate Commitments. 2.2 Borrowings. (a) Revolving Borrowings. Each Revolving Borrowing shall be made upon
Borrowers irrevocable notice to Administrative Agent, which may be given by
telephone. Each such notice must be received by Administrative Agent not later
than 2:00 p.m. (i) one Business Day prior to the requested date of any
Revolving Borrowing of Eurodollar Rate Loans and (ii) one Business Day prior
to the requested date of any Revolving Borrowing of Prime Rate Loans. Each
such telephonic notice must be confirmed promptly by delivery to Administrative
Agent of a written Revolving Loan Notice appropriately completed and signed by
an Authorized Signatory of Borrower. Each Revolving Loan Notice (whether
telephonic or written) shall specify (i) the requested date of the Revolving
Borrowing, as the case may be (which shall be a Business Day), (ii) the
principal amount of the Revolving Loan to be borrowed and (iii) whether such
Revolving Borrowing will be a Eurodollar Rate Loan or a Prime Rate Loan. (b) Term Borrowings. Each Term Borrowing shall be made upon Borrowers
irrevocable notice to Administrative Agent, which may be given by telephone.
Each such notice must be received by Administrative Agent not later than 2:00
p.m. (i) two Business Day prior to the requested date of any Term Borrowing of
Eurodollar Rate Loans and (ii) two Business Day prior to the requested date of
any Term Borrowing of Prime Rate Loans. Each such telephonic notice must be
confirmed promptly by delivery to Administrative Agent of a written Term Loan
Notice appropriately completed and signed by an Authorized Signatory of
Borrower. Each Term Loan Notice (whether telephonic or written) shall specify
(i) the requested date of the Term Borrowing, as the case may be (which shall
be a Business Day), (ii) the principal amount of the Term Loan to be borrowed
and (iii) whether such Term Borrowing will be a Eurodollar Rate Loan or a Prime
Rate Loan. Each Term Loan shall be in the principal amount of $500,000 or 20




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any whole multiple of $500,000 in excess thereof or the unused portion of
the Aggregate Term Commitments. (c) Funding. Upon satisfaction of the applicable conditions set forth in
Article V, Administrative Agent shall make the proceeds of each Revolving
Borrowing and Term Borrowing available to Borrower by crediting the account of
Borrower on the books of Administrative Agent with the amount of such funds. 2.3 Repayment. (a) Revolving Loans. The principal amount of all Revolving Loans shall be
due and payable in full on the Revolving Loan Maturity Date. (b) Term Loans. The principal of each Term Loan shall be due and payable
on the following dates and in the following amounts: Payment Date
    
    Payment AmountEach Payment Date after the date such
    
    An amount equal to 1/20th of the originalTerm Loan was made
    
    principal amount of such Term LoanThe applicable Term Loan Maturity Date
    
    The remaining unpaid principalof such Term Loan
    
    of such Term Loan
 2.4 Voluntary Prepayments. Borrower may at any time or from time to time
voluntarily prepay the Loans in whole or in part without premium or penalty.
Each voluntary prepayment shall be accompanied by all accrued and unpaid
interest thereon. Any voluntary prepayment of the Term Loans shall be applied
to the unpaid scheduled installment payments of the Term Loans in the inverse
order of maturity. 2.5 Mandatory Prepayments. On each date that the Outstanding Amount
exceeds the Aggregate Commitments, Borrower shall prepay the Revolving Loans in
an amount equal to such excess or, if no Revolving Loans are outstanding,
prepay the Term Loans (to be applied to unpaid scheduled installment payments
of the Term Loans in the inverse order of maturity) in an amount equal to such
excess, or if no Term Loans are outstanding, Cash Collateralize the L/C
Obligations in an amount equal to such excess. On each date that the
outstanding principal amount of all Term Loans exceeds the Aggregate Term
Commitments, Borrower shall prepay the Term Loans (to be applied to the unpaid
scheduled installment payments of the Term Loans in the inverse order of
maturity) in an amount equal to such excess. Each mandatory prepayment shall
be accompanied by all accrued interest thereon. 2.6 Termination and Reduction of Commitments. (a) Borrower shall have the right to terminate or reduce the Aggregate
Commitments, Aggregate Term Commitments and L/C Commitment at any time. Each
reduction shall be in the minimum amount of $500,000 and a whole multiple of
$100,000 in excess thereof. 21




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(b) On the Termination Date, the Aggregate Commitments shall automatically
reduce to zero and terminate. (c) Borrower shall not have any right to rescind any termination or
reduction. Once terminated or reduced, the Aggregate Commitments, Aggregate
Term Commitments and L/C Commitment, respectively, may not be reinstated. 2.7 Interest on Loans Generally. (a) Subject to the provisions of Section 2.7(b) and Section 2.9, each Loan
shall bear interest on the outstanding principal amount thereof from the
applicable borrowing date or such other date on which it becomes a Eurodollar
Rate Loan (as applicable) to but not including the date on which another
interest rate becomes applicable to it pursuant to the terms of this Agreement
at a rate per annum equal to the lesser of (i) the Highest Lawful Rate and
(ii) the Eurodollar Rate. (b) Subject to the provisions of Section 2.9, if at any time
Administrative Agent has notified Borrower that the provisions of Sections 4.2
or 4.3 apply, each Loan shall bear interest on the outstanding principal amount
thereof from the date on which Administrative Agent determines or is notified
that the provisions of Sections 4.2 or 4.3 apply to and including the date on
which Administrative Agent notifies Borrower that the provisions of Sections
4.2 and 4.3 no longer apply at a rate per annum equal to the lesser of (i) the
Highest Lawful Rate and (ii) the Prime Rate. Borrower may not elect that any
Loan be a Prime Rate Loan unless Administrative Agent has notified Borrower
that the provisions of Sections 4.2 or 4.3 apply. (c) Interest on the Loans shall be due and payable in arrears on each
Interest Payment Date and at such other times as may be specified herein.
Interest hereunder shall be due and payable in accordance with the terms hereof
before and after judgment, and before and after the commencement of any
proceeding under any Debtor Relief Law. 2.8 Computations. Subject to Section 11.11, interest on the Loans, fees
and any other amounts due hereunder shall be calculated on the basis of actual
days elapsed over a year of 360 days. Nothing herein shall be deemed to
obligate any Lender to obtain the funds for its portion of any Loan in any
particular place or manner or to constitute a representation by any Lender that
it has obtained or will obtain the funds for its portion of any Loan in any
particular place or manner. 2.9 Interest After an Event of Default. (a) If an Event of Default exists
(other than an Event of Default specified in Section 9.1(e) or (f)), at the
option of Required Lenders, and (b) after an Event of Default specified in
Section 9.1(e) or (f) and during any continuance thereof, automatically and
without any action by any Lender or Administrative Agent, the Obligations shall
bear interest at a rate per annum equal to the lesser (i) the Default Rate and
(ii) the Highest Lawful Rate. Such interest shall be payable on the earlier of
demand, the Termination Date or the applicable Term Loan Maturity Date and
shall accrue until the earlier of (a) waiver or cure (to the satisfaction of
Required Lenders) of the applicable Event of Default, (b) agreement by Required
Lenders to rescind the charging of interest at the Default Rate, or (c) payment
in full of the Obligations. Neither Lenders nor Administrative Agent shall be
required to accelerate the maturity of any Loan, to exercise any other rights
or remedies under the Loan Documents, or to 22




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give notice to Borrower of the decision to charge interest at the Default
Rate. Administrative Agent will undertake to notify Borrower, after the
effective date, of the decision to charge interest at the Default Rate. 2.10 Payments Generally. (a) Each payment (including prepayments) by
Borrower of the principal of or interest on the Loans and any other amount owed
under this Agreement or any other Loan Document shall be made not later than
2:00 p.m. on the date specified for payment under this Agreement to
Administrative Agent at Administrative Agents Office, in Dollars constituting
immediately available funds. Administrative Agent will promptly distribute to
each Lender its Pro Rata Share (or other applicable share as provided herein)
of such payment in like funds as received by wire transfer to such Lenders
Principal Office. All payments received by Administrative Agent after 2:00
p.m. shall be deemed received on the next succeeding Business Day and any
applicable interest or fee shall continue to accrue. (b) If any payment under this Agreement or any other Loan Document shall
be specified to be made upon a day which is not a Business Day, it shall be
made on the next succeeding day which is a Business Day. Any extension of time
shall in such case be included in computing interest and fees, if any, in
connection with such payment. (c) Borrower agrees to pay principal, interest, fees and all other amounts
due under the Loan Documents without deduction for set-off or counterclaim or
any deduction whatsoever. (d) If some but less than all amounts due from Borrower are received by
Administrative Agent, Administrative Agent shall apply such amounts in the
following order of priority: (i) to the payment of Administrative Agents
expenses incurred on behalf of Lenders or L/C Issuer under the Loan Documents
then due and payable, if any; (ii) to the payment of all other fees under the
Loan Documents then due and payable; (iii) to the payment of interest then due
and payable on the Loans (applied as provided in Section 9.3); (iv) to the
payment of all other amounts not otherwise referred to in this Section 2.10(d)
then due and payable under the Loan Documents; and (v) to the payment of
principal then due and payable on the Loan (applied as provided in Section
9.3). (e) Unless Borrower or any Lender has notified Administrative Agent, prior
to the date any payment is required to be made by it to Administrative Agent
hereunder, that Borrower or such Lender, as the case may be, will not make such
payment, Administrative Agent may assume that Borrower or such Lender, as the
case may be, has timely made such payment and may (but shall not be so required
to), in reliance thereon, make available a corresponding amount to the Person
entitled thereto. If and to the extent that such payment was not in fact made
to Administrative Agent in immediately available funds, then: (i) if Borrower failed to make such payment, each Lender shall
forthwith on demand repay to Administrative Agent the portion of such
assumed payment that was made available to such Lender in immediately
available funds, together with interest thereon in respect of each day
from and including the date such amount was made available by
Administrative Agent to such Lender to the date such amount is repaid to
Administrative Agent in immediately available funds at the Federal Funds
Rate from time to time in effect; and 23




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(ii) if any Lender failed to make such payment, such Lender shall
forthwith on demand pay to Administrative Agent the amount thereof in
immediately available funds, together with interest thereon for the
period from the date such amount was made available by Administrative
Agent to Borrower to the date such amount is recovered by Administrative
Agent (the Compensation Period) at a rate per annum equal to the
Federal Funds Rate from time to time in effect. If such Lender does not
pay such amount forthwith upon Administrative Agents demand therefor,
Administrative Agent may make a demand therefor upon Borrower, and
Borrower shall pay such amount to Administrative Agent, together with
interest thereon for the Compensation Period at a rate per annum equal to
the interest rate then applicable to Loans as provided in Section 2.7 or
2.9 Nothing herein shall be deemed to relieve any Lender from its
obligation to fulfill its Commitment or to prejudice any rights which
Administrative Agent, L/C Issuer Borrower may have against any Lender as
a result of any default by such Lender hereunder. A notice of Administrative Agent to any Lender or Borrower with respect to
any amount owing under this Section 2.10(e) shall be conclusive, absent
manifest error. (f) If any Lender makes available to Administrative Agent funds for its
Pro Rata Share of a Revolving Loan or a Term Loan and such funds are not made
available to Borrower by Administrative Agent because the conditions set forth
in Article V are not satisfied or waived in accordance with the terms hereof,
Administrative Agent shall return such funds (in like funds as received from
such Lender) to such Lender, without interest. (g) The obligation of a Lender hereunder to make its Pro Rata Share of
each Revolving Loan and Term Loan are several and not joint. The failure of
any Lender to fund its Pro Rata Share of any Revolving Loan or Term Loan shall
not relieve any other Lender of its corresponding obligation to do so on such
date, and no Lender shall be responsible for the failure of any other Lender to
fund its Pro Rata Share of any Revolving Loan or Term Loan . 2.11 Sharing of Payments. Any Lender obtaining a payment (whether
voluntary or involuntary, due to the exercise of any right of set-off, or
otherwise) on account of any in excess of its Pro Rata Share, as applicable, of
all payments made by Borrower with respect to such Loan shall purchase from
each other Lender such participation in such Loan as shall be necessary to
cause such purchasing Lender to share the excess payment pro rata according to
the respective Pro Rata Shares, with each other Lender; provided, however, that
if all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. Borrower agrees
that any Lender so purchasing a participation from another Lender pursuant to
this Section 2.11, to the fullest extent permitted by Law, may exercise all of
its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of Borrower
in the amount of such participation. 2.12 Booking the Loans. Any Lender may make, carry or transfer its Pro
Rata Share of each Loan at, to or for the account of any of its branch offices
or the office of any Affiliate. 2.13 Collateral.Payment of the Obligations is secured on the Agreement
Date by (a) a perfected first priority security interest in all of the
authorized, issued and outstanding capital 24




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stock and other equity interests of each RIC (other than the equity of a
RIC owned by another RIC), (b) a perfected first priority security interest in
all of the authorized, issued and outstanding capital stock and other equity
interests of SCHI owned by Borrower, (c) a perfected first priority security
interest (subject only to Permitted Liens) in current and future assets and
properties of Borrower and all of its Subsidiaries (other than a RIC, except as
provided in Section 3.7, and a SCHI Entity), and (d) Guaranties of the
Obligations by each Subsidiary (other than a RIC and a SCHI Entity). Borrower
shall cause each Subsidiary (other than a SCHI Entity, so long as SCHI is not a
wholly-owned Subsidiary of Borrower, or a RIC) of Borrower created or acquired
after the Agreement Date to execute and deliver to Administrative Agent a
Guaranty, Security Agreement and such other documents as are required to grant
to and perfect the Lien granted pursuant to such Security Agreement. ARTICLE III LETTER OF CREDIT FACILITY 3.1 The L/C Commitment. (a) Subject to the terms and conditions of this Agreement, (i) L/C Issuer
agrees, in reliance on the agreements of the other Lenders set forth in this
Article III, (A) on any Business Day during the period from the Agreement Date
until the L/C Facility Expiration Date, to issue Letters of Credit for the
account of Borrower and each RIC, and to amend or renew Letters of Credit
previously issued by it, in accordance with Section 3.1(b), and (B) to honor
drafts under the Letters of Credit, and (ii) Lenders severally agree to
participate in Letters of Credit issued for the account of Borrower or any RIC;
provided that L/C Issuer shall not be obligated to make any L/C Credit
Extension with respect to any Letter of Credit, if as of the date of and before
or after giving effect to such L/C Credit Extension, (1) the L/C Obligations
would exceed the L/C Commitment, or (2) the Outstanding Amount would exceed the
Aggregate Commitments. Within the foregoing limits, and subject to the terms
and conditions hereof, Borrowers ability to obtain Letters of Credit shall be
fully revolving, and accordingly Borrower may, during the foregoing period,
obtain Letters of Credit to replace Letters of Credit that have expired or that
have been drawn upon and reimbursed. The L/C Commitment is a subfacility of
the Aggregate Commitments and not in addition to the Aggregate Commitments. (b) L/C Issurer shall be under no obligation to make any L/C Credit
Extension if: (i) any order, judgment or decree of any Governmental Authority or
arbitrator shall by its terms purport to enjoin or restrain L/C Issuer
from issuing, amending or renewing such Letter of Credit, or any Law
applicable to L/C Issuer or any request or directive (whether or not
having the force of law) from any Governmental Authority with
jurisdiction over L/C Issuer shall prohibit, or request that L/C Issuer
refrain from, the issuance, amendment or renewal of letters of credit
generally or such Letter of Credit in particular or shall impose upon L/C
Issuer with respect to such Letter of Credit any restriction, reserve or
capital requirement (for which L/C Issuer is not otherwise compensated
hereunder) not in effect on the Agreement Date, or shall impose upon L/C
Issuer any unreimbursed loss, cost or expense which was not applicable on
the Agreement Date and which L/C Issuer in good faith deems material to
it; 25




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(ii) the expiry date of such requested Letter of Credit would occur
(A) after the first to occur of (1) one year after the date of issuance
and (2) July 30, 2011, or (B) in the case of an Auto-Renewal Letter of
Credit, more than five years after the initial issuance date of such
Auto-Renewal Letter of Credit; (iii) the L/C Credit Extension would violate one or more policies of
L/C Issuer; (iv) such Letter of Credit is to be used for a purpose other than to
assure the performance of Borrower or a RIC pursuant to a Reinsurance
Agreement to which such Borrower and/or such RIC is a party; (v) such Letter of Credit is to be denominated in a currency other
than Dollars; (vi) the face amount of such Letter of Credit (including the face
amount of any Auto-Renewal Letter of Credit) is less than $100,000; (vii) L/C Issuer has not received the L/C Fee with respect to such
L/C Credit Extension; or (viii) such Letter of Credit contains any provisions for automatic
reinstatement of the stated amount after a drawing thereunder. (c) L/C Issuer shall be under no obligation to amend or renew any Letter
of Credit if (i) L/C Issuer would have no obligation at such time to issue such
Letter of Credit in its amended or renewed form under the terms hereof, or (ii)
the beneficiary of such Letter of Credit does not accept the proposed amendment
or renewal to such Letter of Credit. (d) L/C Issuer shall act on behalf of Lenders with respect to any Letters
of Credit issued by it and the documents associated therewith, and L/C Issuer
shall have all of the benefits and immunities (A) provided to Administrative
Agent in Article X with respect to any acts taken or omissions suffered by L/C
Issuer in connection with Letters of Credit issued by it or proposed to be
issued by it and L/C Agreements pertaining to such Letters of Credit as fully
as if the term Administrative Agent as used in Article X included L/C Issuer
with respect to such acts or omissions, and (B) as additionally provided herein
with respect to L/C Issuer. 3.2 Procedures for Issuance and Amendment of Letters of Credit;
Auto-Renewal Letters of Credit. (a) Each Letter of Credit shall be issued or amended, as the case may be,
upon the request of Borrower and the applicable RIC delivered to L/C Issuer
(with a copy to Administrative Agent) in the form of a Letter of Credit
Application, appropriately completed and signed by an Authorized Signatory of
Borrower and such RIC, together with a copy of the Reinsurance Agreement to
which the requested Letter of Credit relates. Such Letter of Credit
Application must be received by L/C Issuer (with a copy to Administrative
Agent) not later than 2:00 p.m. at least three Business Days (or such other
date and time as L/C Issuer may agree in a particular instance in its sole
discretion) prior to the proposed issuance date or date of amendment, as the
case may be. In the case of a request for an initial issuance of a Letter of 26




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Credit, such Letter of Credit Application shall specify in form and detail
reasonably satisfactory to L/C Issuer: (i) the proposed issuance date of the
requested Letter of Credit (which shall be a Business Day); (ii) the amount
thereof; (iii) the expiry date thereof; (iv) the name and address of the
beneficiary thereof; (v) the documents to be presented by such beneficiary in
case of any drawing thereunder (if any); (vi) the full text of any certificate
to be presented by such beneficiary in case of any drawing thereunder (if any);
and (vii) such other matters as L/C Issuer may reasonably require. In the case
of a request for an amendment of any outstanding Letter of Credit, such Letter
of Credit Application shall specify in form and detail reasonably satisfactory
to L/C Issuer: (i) the Letter of Credit to be amended; (ii) the proposed date
of amendment thereof (which shall be a Business Day); (iii) the nature of the
proposed amendment; and (iv) such other matters as L/C Issuer may reasonably
require. (b) Promptly after receipt of any Letter of Credit Application, L/C Issuer
will confirm with Administrative Agent (by telephone or in writing) that
Administrative Agent has received a copy of such Letter of Credit Application
from Borrower and, if not, L/C Issuer will provide Administrative Agent with a
copy thereof. Unless L/C Issuer has received written notice from any Lender,
Administrative Agent or Borrower or the appropriate RIC, at least one Business
Day prior to the requested date of issuance or amendment of the applicable
Letter of Credit, that one or more applicable conditions contained in this
Article III shall not then be satisfied, then, subject to the terms and
conditions hereof, L/C Issuer shall, on the requested date, issue a Letter of
Credit for the account of Borrower and the applicable RIC or enter into the
applicable amendment, as the case may be, in each case in accordance with L/C
Issuers usual and customary business practices. Immediately upon the issuance
of each Letter of Credit, each Lender shall be deemed to, and hereby
irrevocably and unconditionally agrees to, purchase from L/C Issuer a risk
participation in such Letter of Credit in an amount equal to the product of
such Lenders Pro Rata Share times the amount of such Letter of Credit. (c) If Borrower and the applicable RIC so request in any applicable Letter
of Credit Application, L/C Issuer may, in its sole and absolute discretion,
agree to issue a Letter of Credit that has automatic renewal provisions (each,
an Auto-Renewal Letter of Credit); provided that any such Auto-Renewal Letter
of Credit must permit L/C Issuer to prevent any such renewal at least once in
each twelve-month period (commencing with the date of issuance of such Letter
of Credit and in no event later than seven Business Days prior to the expiry
date of such Letter of Credit) by giving prior notice to the beneficiary
thereof not later than a day (the Nonrenewal Notice Date) in each such
twelve-month period to be agreed upon at the time such Letter of Credit is
issued (or if no date is agreed to at issuance, the day seven Business Days
prior to the expiry date of such Letter of Credit). Unless otherwise directed
by L/C Issuer, Borrower shall not be required to make a specific request to L/C
Issuer for any such renewal. Once an Auto-Renewal Letter of Credit has been
issued, Lenders shall be deemed to have authorized (but may not require) L/C
Issuer to permit the renewal of such Letter of Credit at any time to an expiry
date not later than the date specified in Section 3.1(b)(ii); provided,
however, that L/C Issuer shall not permit any such renewal if (A) L/C Issuer
has determined that it would have no obligation at such time to issue such
Letter of Credit in its renewed form under the terms hereof, or (B) it has
received notice (which may be by telephone or in writing) on or before the day
that is two Business Days before the Nonrenewal Notice Date (1) from
Administrative Agent that Required Lenders have elected not to permit such
renewal or (2) from Administrative Agent, any Lender, Borrower or the
applicable RIC that one or more of the applicable conditions specified in
Section 5.2 is not then satisfied. 27




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(d) Promptly after its delivery of any Letter of Credit or any amendment
to a Letter of Credit to an advising bank with respect thereto or to the
beneficiary thereof, L/C Issuer will also deliver to Borrower and
Administrative Agent a true and complete copy of such Letter of Credit or
amendment. 3.3 Drawings and Reimbursements; Funding of Participations. (a) Upon receipt from the beneficiary of any Letter of Credit of any
notice of a drawing under such Letter of Credit, L/C Issuer shall notify
Borrower, the applicable RIC and Administrative Agent thereof. Not later than
11:00 a.m. on the date of any payment by L/C Issuer under a Letter of Credit
(each such date, an Honor Date), Borrower and the applicable RIC, jointly and
severally, shall reimburse L/C Issuer through Administrative Agent in an amount
equal to the amount of such drawing (which, if no Default or Event of Default
exists before and after giving effect thereto and subject to the other
conditions of this Agreement, can be made with the proceeds of a Revolving
Loan). If Borrower or the applicable RIC fails to so reimburse L/C Issuer by
such time, Administrative Agent shall promptly notify each Lender of the Honor
Date, the amount of the unreimbursed drawing (the Unreimbursed Amount), and
the amount of such Lenders Pro Rata Share thereof. The Unreimbursed Amount
shall be due and payable on demand (together with interest) and shall bear
interest at the Default Rate. (b) Each Lender shall upon any notice pursuant to Section 3.3(a) make
funds available to Administrative Agent for the account of L/C Issuer at
Administrative Agents Office in an amount equal to its Pro Rata Share of the
Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in
such notice by Administrative Agent. In such event, each Lenders payment to
Administrative Agent for the account of L/C Issuer pursuant to this Section
3.3(b) shall be deemed payment (to the extent of such payment) in respect of
its participation in such Letter of Credit. Administrative Agent shall remit
the funds so received to L/C Issuer. (c) Until each Lender funds its Pro Rata Share of its participation
pursuant to this Section 3.3 to reimburse L/C Issuer for any amount drawn under
any Letter of Credit, interest in respect of such Lenders Pro Rata Share of
such amount shall be solely for the account of L/C Issuer. (d) Each Lenders obligation to fund its Pro Rata Share of its
participation to reimburse L/C Issuer for amounts drawn under Letters of Credit
pursuant to this Section 3.3 shall be absolute and unconditional and shall not
be affected by any circumstance, including (i) any setoff, counterclaim,
recoupment, defense or other right which such Lender may have against L/C
Issuer, Borrower or any other Person for any reason whatsoever, (ii) the
occurrence or continuance of a Default, or (iii) any other occurrence, event
or condition, whether or not similar to any of the foregoing. (e) If any Lender fails to make available to Administrative Agent for the
account of L/C Issuer any amount required to be paid by such Lender pursuant to
this Section 3.3 by the time specified in this Section 3.3, L/C Issuer shall be
entitled to recover from such Lender (acting through Administrative Agent), on
demand, such amount with interest thereon for the period from the date such
payment is required to the date on which such payment is immediately available
to L/C Issuer at a rate per annum equal to the greater of the Federal Funds
Rate and a 28




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rate determined by L/C Issuer in accordance with banking industry
rules on interbank
compensation. A certificate of L/C Issuer submitted to any Lender
(through Administrative Agent) with respect to any amounts owing under this
clause (e) shall be conclusive absent manifest error. 3.4 Repayment of Participations. (a) At any time after L/C Issuer has made a payment under any Letter of
Credit and has received from any Lender such Lenders payment in accordance
with Section 3.3, if Administrative Agent receives for the account of L/C
Issuer any payment in respect of the related Unreimbursed Amount or interest
thereon (whether directly from Borrower, the applicable RIC or otherwise,
including proceeds of Cash Collateral applied thereto by Administrative Agent),
Administrative Agent will distribute to such Lender its Pro Rata Share thereof
(appropriately adjusted, in the case of interest payments, to reflect the
period of time during which such Lenders participation was outstanding) in the
same funds as those received by Administrative Agent. (b) If any payment received by Administrative Agent for the account of L/C
Issuer pursuant to Section 3.3 is required to be returned (including pursuant
to any settlement entered into by L/C Issuer in its discretion), each Lender
shall pay to Administrative Agent for the account of L/C Issuer its Pro Rata
Share thereof on demand of Administrative Agent, plus interest thereon from the
date of such demand to the date such amount is returned by such Lender, at a
rate per annum equal to the Federal Funds Rate from time to time in effect.
The obligations of Lenders under this clause shall survive the payment in full
of the Obligations and the termination of this Agreement. 3.5 Obligations Absolute. The obligation of Borrower and the applicable
RIC to reimburse L/C Issuer for each drawing under each Letter of Credit shall
be absolute, unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement and the applicable L/C Agreements
under all circumstances, including the following: (a) any lack of validity or enforceability of such Letter of Credit, this
Agreement, or any other Loan Document; (b) the existence of any claim, counterclaim, setoff, defense or other
right that Borrower or the applicable RIC may have at any time against any
beneficiary or any transferee of such Letter of Credit (or any Person for whom
any such beneficiary or any such transferee may be acting), L/C Issuer or any
other Person, whether in connection with this Agreement, the transactions
contemplated hereby or by such Letter of Credit or any agreement or instrument
relating thereto, or any unrelated transaction; (c) any draft, demand, certificate or other document presented under such
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
(other than any material insufficiency) in any respect or any statement therein
being untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under such Letter of Credit; 29




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(d) any payment by L/C Issuer under such Letter of Credit against
presentation of a draft or certificate that does not strictly comply with the
terms of such Letter of
Credit; or any payment made by L/C Issuer under such Letter of Credit to
any Person purporting to be a trustee in bankruptcy, debtor-in-possession,
assignee for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of such
Letter of Credit, including any arising in connection with any proceeding under
any Debtor Relief Law; or (e) any other circumstance or happening whatsoever, whether or not similar
to any of the foregoing, including any other circumstance that might otherwise
constitute a defense available to, or a discharge of, Borrower or the
applicable RIC (other than a circumstance or happening caused by the gross
negligence or intentional misconduct of L/C Issuer). Borrower and the applicable RIC shall promptly examine a copy of each
Letter of Credit and each amendment thereto that is delivered to it and, in the
event of any claim of noncompliance with Borrowers instructions or other
irregularity, Borrower will immediately notify L/C Issuer. Borrower and the
applicable RIC shall be conclusively deemed to have waived any such claim
against L/C Issuer and its correspondents unless such notice is given as
aforesaid. 3.6 Role of L/C Issuer. Each Lender, Borrower and each RIC agree that, in
paying any drawing under a Letter of Credit, L/C Issuer shall not have any
responsibility to obtain any document (other than any sight draft, certificates
and documents expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document. None of L/C Issuer,
Administrative Agent, any of their respective Affiliates nor any correspondent,
participant or assignee of L/C Issuer shall be liable to any Lender for (i) any
action taken or omitted in connection herewith at the request or with the
approval of Lenders or Required Lenders, as applicable; (ii) any action taken
or omitted in the absence of gross negligence or willful misconduct; or (iii)
the due execution, effectiveness, validity or enforceability of any document or
instrument related to any Letter of Credit or L/C Agreements. Borrower and the
applicable RIC hereby assume all risks of the acts or omissions of any
beneficiary or transferee with respect to its use of any Letter of Credit;
provided, however, that this assumption is not intended to, and shall not,
preclude Borrowers or the applicable RICs pursuing such rights and remedies
as it may have against the beneficiary or transferee at law or under any other
agreement. None of L/C Issuer, Administrative Agent, any Lender, any of their
respective Affiliates nor any correspondent, participant or assignee of L/C
Issuer, shall be liable or responsible for any of the matters described in
Section 3.5; provided, however, that anything in such clauses to the contrary
notwithstanding, Borrower and the applicable RIC may have a claim against L/C
Issuer, and L/C Issuer may be liable to Borrower and the applicable RIC, to the
extent, but only to the extent, of any direct, as opposed to consequential or
exemplary, damages suffered by Borrower and the applicable RIC which Borrower
and the applicable RIC prove were caused by L/C Issuers willful misconduct or
gross negligence or L/C Issuers willful failure to pay under any Letter of
Credit after the presentation to it by the beneficiary of a sight draft and
certificate(s) strictly complying with the terms and conditions of a Letter of
Credit. In furtherance and not in limitation of the foregoing, L/C Issuer may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary, and L/C Issuer shall not be responsible for the
validity or sufficiency of any 30




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instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason. 3.7 Cash Collateral. Upon the request of Administrative Agent, if an
Event of Default exists, Borrower and the applicable RIC, jointly and
severally, shall immediately Cash Collateralize the then outstanding amount of
all L/C Obligations. Section 2.5 sets forth certain additional requirements to
deliver Cash Collateral hereunder. For purposes of this Section 3.7 and
Section 2.5, Cash Collateralize means to pledge and deposit with or deliver
to Administrative Agent, for the benefit of L/C Issuer and Lenders, as
collateral for L/C Obligations, cash or deposit account balances (in an amount
not less than the L/C Obligations) pursuant to documentation in form and
substance satisfactory to Administrative Agent and L/C Issuer (which documents
are hereby consented to by Lenders). Derivatives of such term have
corresponding meanings. Borrower and each RIC hereby grant to Administrative
Agent, for the benefit of L/C Issuer and Lenders, a security interest in all
such cash, deposit accounts and all balances therein and all proceeds of the
foregoing. Cash collateral shall be maintained in blocked, non-interest
bearing deposit accounts at Frost under the control of Administrative Agent.
The obligations imposed on a RIC pursuant to this Section 3.7 shall be limited
to the extent necessary in order for the RIC to comply with all relevant
insurance Laws and may be subject to regulatory approval. 3.8 Letter of Credit Fees. Borrower and the applicable RIC, jointly and
severally, shall pay to Administrative Agent for the account of each Lender in
accordance with its Pro Rata Share a Letter of Credit fee (the L/C Fee) for
each Letter of Credit equal to the Applicable Rate times the face amount of
such Letter of Credit. The L/C Fee is due and payable on the date of issuance,
the date of renewal (including the date of renewal of each Auto-Renewal Letter
of Credit), the date of extension of the expiry date and the date of any
amendment to a Letter of Credit if the effect of such amendment is to renew
such Letter of Credit, extend the expiry date or increase the maximum amount
available to be drawn under such Letter of Credit. 3.9 Fronting Fee and Documentary and Processing Charges Payable to L/C
Issuer. Borrower and the applicable RIC, jointly and severally, shall pay
directly to L/C Issuer for its own account the customary issuance,
presentation, amendment and other processing fees, and other standard costs and
charges, of L/C Issuer relating to L/C Credit Extensions as from time to time
in effect. Such customary fees and standard costs and charges are due and
payable on demand and are nonrefundable. 3.10 Conflict with L/C Agreements. In the event of any conflict between
the terms hereof and the terms of any L/C Agreements, the terms hereof shall
control. 3.11 Letters of Credit Issued for RIC. Notwithstanding that a Letter of
Credit issued or outstanding hereunder is in support of any obligations of, or
is for the account of, a RIC, Borrower shall be obligated to reimburse L/C
Issuer hereunder for any and all drawings under such Letter of Credit.
Borrower hereby acknowledges that the issuance of Letters of Credit for the
account of a RIC inures to the benefit of Borrower, and that Borrowers
business derives substantial benefits from the businesses of each RIC. 31




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ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY 4.1 Taxes. (a) Except as provided in this Section 4.1, any and all payments by
Borrower to or for the account of Administrative Agent, any Lender or L/C
Issuer under any Loan Document shall be made free and clear of and without
deduction for any and all present or future income, stamp or other Taxes,
duties, levies, imposts, deductions, assessments, fees, withholdings or similar
charges, now or hereafter imposed, and all liabilities with respect thereto,
excluding, in the case of Administrative Agent, any Lender, L/C Issuer, or its
Principal Office, applicable lending office, or any branch or Affiliate
thereof, Taxes imposed on or measured by its net income (including net income
Taxes imposed by means of a backup withholding tax) franchise Taxes, branch
Taxes, Taxes on doing business or Taxes measured by or imposed upon the overall
capital or net worth of Administrative Agent, such Lender, or L/C Issuer or its
Principal Office, applicable lending office, or any branch or Affiliate
thereof, in each case imposed: (i) by the jurisdiction under the Laws of
which Administrative Agent, such Lender, or L/C Issuer or its Principal Office,
applicable lending office, branch or Affiliate is organized or is located, or
in which the principal executive office of Administrative Agent, such Lender,
or L/C Issuer is located, or any nation within which such jurisdiction is
located or any political subdivision thereof, or (ii) by reason of any present
or former connection between the jurisdiction imposing such Tax and
Administrative Agent, such Lender, or L/C Issuer or its applicable lending
office, branch or Affiliate other than a connection arising solely from
Administrative Agent, such Lender, or L/C Issuer having executed, delivered or
performed its obligation under, or received payment under or enforced this
Agreement the Laws of such jurisdiction (all such Taxes, duties, levies,
imposts, deductions, assessments, fees, withholdings or similar charges, and
liabilities being hereinafter referred to as Indemnified Taxes). If Borrower
shall be required by any Laws to deduct any Indemnified Taxes from or in
respect of any sum payable under any Loan Document to Administrative Agent, any
Lender, or L/C Issuer, (i) the sum payable shall be increased as necessary to
yield to Administrative Agent, such Lender, or L/C Issuer an amount equal to
the sum it would have received had no such deductions been made, (ii) Borrower
shall make such deductions, (iii) Borrower shall pay the full amount deducted
to the relevant taxation authority or other Governmental Authority in
accordance with Applicable Laws, and (iv) promptly (but in no event later than
thirty days) after the date of such payment, Borrower shall furnish to
Administrative Agent (which shall forward the same to such Lender or L/C
Issuer) the original or a certified copy of a receipt evidencing payment
thereof. (b) In addition, Borrower shall pay any and all present or future stamp,
court or documentary taxes and any other excise or property taxes or charges or
similar levies which arise from any payment made under any Loan Document or
from the execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, any Loan Document (hereinafter referred to as Other
Taxes). (c) If Borrower shall be required to deduct or pay any Indemnified Taxes
or Other Taxes from or in respect of any sum payable under any Loan Document to
Administrative Agent, any Lender or L/C Issuer, Borrower shall also pay to
Administrative Agent (its account and for the account of such Lender or L/C
Issuer, as applicable), at the time interest on the 32




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Obligations is paid, such additional amount that Administrative Agent,
such Lender, or L/C Issuer specifies as necessary to preserve the after-tax
yield (after factoring in all Taxes, including Taxes imposed on or measured by
net income) Administrative Agent, such Lender, or L/C Issuer would have
received if such Indemnified Taxes or Other Taxes had not been imposed. (d) BORROWER SHALL INDEMNIFY ADMINISTRATIVE AGENT, EACH LENDER AND L/C
ISSUER FOR (i) THE FULL AMOUNT OF INDEMNIFIED TAXES AND OTHER TAXES (INCLUDING
ANY INDEMNIFIED TAXES OR OTHER TAXES IMPOSED OR ASSERTED BY ANY JURISDICTION ON
AMOUNTS PAYABLE UNDER THIS SECTION) PAID BY ADMINISTRATIVE AGENT, SUCH LENDER,
AND L/C ISSUER, (ii) AMOUNTS PAYABLE UNDER SECTION 4.1(c) AND (iii) ANY
LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR
WITH RESPECT THERETO, IN EACH CASE WHETHER OR NOT SUCH INDEMNIFIED TAXES OR
OTHER TAXES WERE CORRECTLY OR LEGALLY IMPOSED OR ASSERTED BY THE RELEVANT
GOVERNMENTAL AUTHORITY. PAYMENT UNDER THIS SECTION 4.1(d)SHALL BE MADE WITHIN
THIRTY DAYS AFTER THE DATE ADMINISTRATIVE AGENT, ANY LENDER, OR L/C ISSUER
MAKES A DEMAND THEREFOR. (e) Any Foreign Lender that is entitled to an exemption from or reduction
of withholding tax under the Law of the jurisdiction in which Borrower is
resident for tax purposes, or any treaty to which such jurisdiction is a party,
with respect to payments hereunder or under any other Loan Document shall
deliver to Borrower (with a copy to Administrative Agent), at the time or times
prescribed by Applicable Law or reasonably requested by Borrower or
Administrative Agent, such properly completed and executed documentation
prescribed by Applicable Law as will permit such payments to be made without
withholding or at a reduced rate of withholding. In addition, any Lender, if
requested by Borrower or Administrative Agent, shall deliver such other
documentation prescribed by Applicable Law or reasonably requested by Borrower
or Administrative Agent as will enable Borrower or Administrative Agent to
determine whether or not such Lender is subject to backup withholding or
information reporting requirements. Without limiting the generality of the foregoing, if Borrower is resident
for tax purposes in the United States, any Foreign Lender shall deliver to
Borrower and Administrative Agent (in such number of copies as shall be
requested by the recipient) on or prior to the date on which such Foreign
Lender becomes a Lender under this Agreement (and from time to time thereafter
upon the request of Borrower or Administrative Agent, but only if such Foreign
Lender is legally entitled to do so), whichever of the following is applicable: (i) duly completed copies of Internal Revenue Service Form W-8BEN
claiming eligibility for benefits of an income tax treaty to which the
United States is a party, (ii) duly completed copies of Internal Revenue Service Form W-8ECI, (iii) in the case of a Foreign Lender claiming the benefits of the
exemption for portfolio interest under section 881(c) of the Code, (x) a
certificate to the effect that such Foreign Lender is not (A) a bank
within the meaning of section 33




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881(c)(3)(A) of the Code, (B) a 10 percent shareholder of Borrower
within the meaning of section 881(c)(3)(B) of the Code, or (C) a
controlled foreign corporation described in section 881(c)(3)(C) of the
Code and (y) duly completed copies of Internal Revenue Service Form
W-8BEN, or (iv) any other form prescribed by Applicable Law as a basis for
claiming exemption from or a reduction in United States Federal
withholding tax duly completed together with such supplementary
documentation as may be prescribed by Applicable Law to permit Borrower
to determine the withholding or deduction required to be made. (f) If Administrative Agent, any Lender or L/C Issuer determines, in its
reasonable discretion, that it has received a refund of any Indemnified Taxes
or Other Taxes as to which it has been indemnified by Borrower or with respect
to which Borrower has paid additional amounts pursuant to this Section, it
shall pay to Borrower an amount equal to such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by Borrower under this
Section with respect to the Indemnified Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of Administrative Agent, such
Lender or L/C Issuer, as the case may be, and without interest (other than any
interest paid by the relevant Governmental Authority with respect to such
refund), provided that Borrower, upon the request of Administrative Agent, such
Lender or L/C Issuer, agrees to repay the amount paid over to Borrower (plus
any penalties, interest or other charges imposed by the relevant Governmental
Authority) to Administrative Agent, such Lender or L/C Issuer in the event
Administrative Agent, such Lender or L/C Issuer is required to repay such
refund to such Governmental Authority. This Section shall not be construed to
require Administrative Agent, any Lender or L/C Issuer to make available its
tax returns (or any other information relating to its taxes that it deems
confidential) to Borrower or any other Person. 4.2 Illegality. If any Lender determines that any change in Law on or
after the Agreement Date has made it unlawful, or that any Governmental
Authority on or after the Agreement Date has asserted that it is unlawful, for
any Lender or its applicable lending office to make, maintain or fund
Eurodollar Rate Loans, or materially restricts the authority of such Lender to
purchase or sell, or to take deposits of, Dollars in the applicable offshore
Dollar market, or to determine or charge interest rates based upon the
Eurodollar Basis, then, on notice thereof by such Lender to Administrative
Agent (who shall notify Borrower thereof), any obligation of such Lender to
make or maintain Eurodollar Rate Loans shall be suspended until each Lender
notifies Administrative Agent (who shall notify Borrower thereof) that the
circumstances giving rise to such determination no longer exist. Upon the date
of such notice, all Eurodollar Rate Loans of all Lenders shall convert to Prime
Rate Loans. Each Lender agrees to designate a different lending office if such
designation will avoid the need for such notice and will not, in the good faith
judgment of such Lender, otherwise be materially disadvantageous to such
Lender. 4.3 Inability to Determine Rates. If (a) Administrative Agent reasonably
determines in connection with any request for or maintenance of a Eurodollar
Basis Loan or any determination of the Eurodollar Basis that (i) Dollar
deposits are not being offered to banks in the applicable offshore Dollar
market for the applicable amount and applicable term, or (ii) adequate and
reasonable means do not exist for determining the Eurodollar Basis, or (b) any 34




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Lender notifies Administrative Agent that the Eurodollar Basis for such
Eurodollar Rate Loan does not adequately and fairly reflect the cost to such
Lender of funding or maintaining such Eurodollar Rate Loan, Administrative
Agent will promptly notify Borrower and all Lenders. Thereafter, the
obligation of all Lenders to make or maintain Eurodollar Rate Loans shall be
suspended until each Lender notifies Administrative Agent that such Lender
revokes such notice. Upon the date of such notice, all Eurodollar Rate Loans
of all Lenders shall convert to Prime Rate Loans. 4.4 Increased Cost and Reduced Return; Capital Adequacy; Reserves on
Eurodollar Rate Loans. (a) If any Lender in good faith determines that as a result of the
introduction of or any change in or in the interpretation of any Law on or
after the Agreement Date, or such Lenders compliance therewith, there shall be
any increase in the cost to such Lender of agreeing to make or making, funding
or maintaining Eurodollar Rate Loans, or a reduction in the amount received or
receivable by such Lender in connection with any of the foregoing (excluding
for purposes of this Section 4.4(a) any such increased costs or reduction in
amount resulting from (i) Indemnified Taxes or Other Taxes (as to which
Section 4.1 shall govern), (ii) changes in the basis of taxation of overall
net income or overall gross income by the United States or any foreign
jurisdiction or any political subdivision of either thereof under the Laws of
which such Lender is organized or has its Principal Office or applicable
lending office, and (iii) reserve requirements contemplated by Section
4.4(c)), then from time to time within five Business Days after demand of such
Lender (with a copy of such document to Administrative Agent), Borrower shall
pay to such Lender such additional amounts as will compensate such Lender for
such increased cost or reduction. (b) If any Lender in good faith determines that the introduction of any
Law regarding capital adequacy or any change therein or in the interpretation
thereof on or after the Agreement Date, or compliance by such Lender (or its
lending office) therewith, has the effect of reducing the rate of return on the
capital of such Lender or any corporation controlling such Lender with respect
to this Agreement as a consequence of such Lenders obligations hereunder
(taking into consideration its policies with respect to capital adequacy and
such Lenders desired return on capital), then from time to time within five
Business Days after demand of such Lender (with a copy of such demand to
Administrative Agent), Borrower shall pay to such Lender such additional
amounts as will compensate such Lender for such reduction. (c) Borrower shall pay to each Lender, as long as such Lender shall be
required under regulations of the Federal Reserve Board to maintain reserves
with respect to liabilities or assets consisting of or including Eurocurrency
funds or deposits (currently known as Eurocurrency liabilities), additional
costs on the unpaid principal amount of each Eurodollar Rate Loan equal to the
actual costs of such reserves allocated to such Loan by such Lender (as
determined by such Lender in good faith, which determination shall constitute
prima facieevidence as to the facts thereof), which shall be due and payable
on each date on which interest is payable on such Loan, provided Borrower shall
have received at least fifteen days prior notice (with a copy of such notice
to Administrative Agent) of such additional interest from such Lender. If such
Lender fails to give notice fifteen days prior to the relevant Payment Date,
such additional interest shall be due and payable fifteen days from receipt of
such notice. 35




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(d) If any Lender claims any additional amounts payable pursuant to this
Section 4.4, it shall use its reasonable best efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its applicable lending office, if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
which may thereafter accrue and would not, in the reasonable judgment of such
Lender, be disadvantageous to such Lender. 4.5 Matters Applicable to all Requests for Compensation. Any demand or
notice delivered by Administrative Agent, any Lender or L/C Issuer to Borrower
claiming compensation under this Article IV shall be in writing and shall
certify (a) that one of the events described in this Article IV has occurred,
describing in reasonable detail the nature of such event and (b) as to the
amount or amounts for which Administrative Agent, such Lender or L/C Issuer
seeks compensation hereunder, setting forth in reasonable detail the basis for
and calculations of such compensation. Such certification shall be conclusive
in the absence of manifest error. In determining such amount, Administrative
Agent, such Lender or L/C Issuer may use any reasonable averaging and
attribution methods. 4.6 Replacement of Lenders. If any Lender requests compensation under
Section 4.4, or if Borrower is required to pay any additional amount to any
Lender or any Governmental Authority for the account of any Lender pursuant to
Section 4.1, Borrower may replace such Lender in accordance with Section 11.12. 4.7 Survival. All of Borrowers obligations under this Article IV shall
survive termination of the Aggregate Commitments and payment in full of all
Obligations. ARTICLE V CONDITIONS PRECEDENT 5.1 Conditions Precedent to Initial Loan and Letter of Credit. The
obligation of each Lender to make its Pro Rata Share of the initial Loan and
L/C Issuer to issue the initial Letter of Credit is subject to (i) receipt by
Administrative Agent of the following items which are to be delivered, in form
and substance reasonably satisfactory to Administrative Agent, each Lender and
L/C Issuer and (ii) satisfaction of the following conditions, in form and
substance reasonably satisfactory to Administrative Agent, each Lender and L/C
Issuer: (a) Borrower Certificate. A certificate of officers acceptable to
Administrative Agent of Borrower certifying as to (i) the incumbency of the
officers signing such certificate and the Loan Documents to which it is a
party, (ii) an original certified copy of its Certificate of Incorporation,
certified as true, complete and correct as of a date not more than ten days
prior to the Agreement Date by the appropriate authority of the State of
Delaware, (iii) a copy of its By-Laws, as in effect on the Agreement Date,
(iv) a copy of the resolutions of its Board of Directors authorizing it to
execute, deliver and perform the Loan Documents to which it is a party, (v) an
original certificate of good standing and existence issued by the appropriate
authority of the State of Delaware (certified as of a date not more than ten
days prior to the Agreement Date), (vi) the accuracy of the representations
and warranties in the Loan Documents, (vii) no Default or Event of Default
exists, and (viii) no Material Adverse Change having occurred. 36




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(b) Obligor and RIC Certificate. A certificate of officers acceptable to
Administrative Agent of each Obligor (other than Borrower) and each RIC
certifying as to (i) the incumbency of the officers signing such certificate
and the Loan Documents to which it is a party, (ii) if a corporation, an
original certified copy of its Articles of Incorporation or Certificate of
Incorporation, as applicable, certified as true, complete and correct as of a
date not more than ten days prior to the Agreement Date by the appropriate
authority of its state of incorporation, (iii) if a limited liability company,
an original certified copy of its Articles of Organizations (or similar
organization and governance document), certified as true, complete and correct
as of a date not more than ten days prior to the Agreement Date by the
appropriate authority of its state of organization, (iv) if a limited
partnership, an original certified copy of its Certificate of Limited
Partnership (or similar organization or governance document), certified as
true, complete and correct as of a date not more than ten days prior to the
Agreement Date by the appropriate authority of its jurisdiction of
organization, (v) if a corporation, a copy of its By-Laws, as in effect on the
Agreement Date, (vi) if a limited liability company, a copy of its operating
agreement (or similar organization and governance document), as in effect on
the Agreement Date, (vii) if a limited partnership, a copy of its partnership
agreement (or similar organization or governance document), as in effect on the
Agreement Date, (viii) a copy of the resolutions of the appropriate governance
board authorizing it to execute, deliver and perform the Loan Documents to
which it is a party, and (ix) an original certificate of good standing and
existence issued by the appropriate authority of its state of organization
(certified as of a date not more than ten days prior to the Agreement Date). (c) Subsidiary Certificate. A certificate of officers acceptable to
Administrative Agent of each Subsidiary (other than an Obligor or a RIC) of
each Obligor certifying as to (i) if a corporation, an original certified copy
of its Articles of Incorporation, certified as true, complete and correct as of
a date not more than ten days prior to the Agreement Date by the appropriate
authority of its state of incorporation, (ii) if a limited liability company,
an original certified copy of its Articles of Organizations (or similar
organization and governance document), certified as true, complete and correct
as of a date not more than ten days prior to the Agreement Date by the
appropriate authority of its state of organization, (iii) if a corporation, a
copy of its By-Laws, as in effect on the Agreement Date, (iv) if a limited
liability company, a copy of its operating agreement (or similar organization
and governance document), as in effect on the Agreement Date, and (v) if a
limited partnership, a copy of its partnership agreement (or similar
organization or governance document), as in effect on the Agreement Date. (d) Notes. Duly executed Revolving Notes, payable to the order of each
Lender and in an amount equal to the appropriate Commitment. (e) Security Documents. The duly executed and completed (i) Pledge
Agreement executed by AAIG, dated as of the Agreement Date, granting to
Administrative Agent, for the benefit of Lenders and L/C Issuer, a first
priority Lien in the Collateral set forth therein, together with stock
certificates evidencing all of the equity interest of each RIC (other than
equity of a RIC owned by another RIC), (ii) Pledge Agreement executed by
Borrower, dated as of the Agreement Date, granting to Administrative Agent, for
the benefit of Lenders and L/C Issuer, a first priority Lien in the Collateral
set forth therein, together with stock certificates evidencing all of the
equity interest of SCHI owned by Borrower, (iii) undated, blank stock powers
executed by the appropriate owner of the stock or other equity interest
evidenced by such certificates; (iv) confirmations of all Liens in all equity
interest of each RIC (other than equity of 37




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a RIC owned by another RIC); (v) confirmations of all Liens in all equity
interest of SCHI owned by Borrower; and (vi) Security Agreements, executed by
Borrower and each Subsidiary (other than a RIC and SCHI Entity), dated as of
the Agreement Date, granting to Administrative Agent, for the benefit of
Lenders and L/C Issuer, a first priority Lien in the Collateral set forth
therein. (f) Guaranties. A duly executed Guaranty (in the form of Exhibit K) for
each Subsidiary of Borrower (other than a RIC and SCHI Entity). (g) Expenses. Reimbursement for Special Counsels reasonable fees and
expenses rendered through the date hereof. (h) UCC and Lien Searches. Searches of the Uniform Commercial Code, Tax
lien and other records as Administrative Agent may require. (i) Opinions of Borrowers, each RICs and Obligors Counsel. Opinions of
counsel to Borrower, each RIC and each other Obligor addressed to
Administrative Agent, Lenders and L/C Issuer dated the Agreement Date and
covering such matters incident to the transactions contemplated hereby as
Administrative Agent or Special Counsel may reasonably request. (j) Obligor Proceedings. Evidence that all partnership, corporate and
limited liability company proceedings of each Obligor, each RIC and each other
Person (other than Administrative Agent, Lenders and L/C Issuer) taken in
connection with the transactions contemplated by this Agreement and the other
Loan Documents shall be reasonably satisfactory in form and substance to
Administrative Agent, each Lender, L/C Issuer and Special Counsel; and
Administrative Agent, each Lender and L/C Issuer shall have received copies of
all documents or other evidence which Administrative Agent, each Lender, L/C
Issuer or Special Counsel may reasonably request in connection with such
transactions. (k) Current Financial Statements. A copy of the Current Financials,
including (i) the audited annual consolidated Financial Statements, showing
the financial condition and results of operations of Borrower and its
consolidation Subsidiaries (other than each RIC) as of, and for the year ended
on, December 31, 2003, together with the opinion of Auditors containing only
qualifications and emphasis acceptable to Administrative Agent, L/C Issuer and
Lenders, (ii) the unaudited consolidated Financial Statements, showing the
financial condition and results of operations of Borrower and its consolidated
Subsidiaries as of, and for the fiscal quarter indeed on, March 31, 2004, (iii)
the audited annual Financial Statements, showing the financial condition and
results of operations of each RIC as of, and for the year ended on, December
31, 2003, together with the opinion of Auditors containing only qualifications
and emphasis acceptable to Administrative Agent, L/C Issuer and Lenders, and
(iv) the unaudited quarterly Financial Statements, showing the financial
condition and results of operations of each RIC as of, and for the fiscal
quarter ended on, March 31, 2004. (l) Compliance Certificate. A Compliance Certificate, dated the Agreement
Date and signed by an Authorized Signatory of Borrower, confirming compliance
with the financial covenants set forth therein as of the most recent
determination date. 38




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(m) Reinsurance Agreements and Retrocession Agreements. A copy of each
Reinsurance Agreement and Retrocession Agreement to which Borrower or any of
its Subsidiaries is a party or it or its property is subject. (n) Separation Agreements. A copy of each agreement between Borrower and
any of its Subsidiaries and Vesta Insurance Group, Inc. and any of its
Subsidiaries related to the separation of Borrower and its Subsidiaries from
Vesta Insurance Group, Inc. (o) Investment Portfolio and Policy. A schedule of all Existing
Investments and a copy of the complete currently effective Investment Policy of
RIC and Administrative Agent, each Lender and L/C Issuer shall be satisfied
with the investment portfolio of each RIC and the Investment Policy of each
RIC. (p) Final Agreement Notice. The Final Agreement Notice executed by all
parties thereto. (q) Applicable Rate Certificate. The Applicable Rate Certificate, dated
the Agreement Date, duly completed and signed by the chief financial officer of
Borrower. (r) Other Documents. In form and substance satisfactory to Administrative
Agent and Special Counsel, such other documents, instruments and certificates
as Administrative Agent, any Lender and L/C Issuer may reasonably require in
connection with the transactions contemplated hereby. 5.2 Conditions Precedent to all Loans and L/C Credit Extensions. The
obligation of each Lender to make its Pro Rata Share of each Loan (including
the initial Loan) and L/C Issuer to make any L/C Credit Extension (including
the issuance of the initial Letter of Credit) is subject to fulfillment of the
following conditions immediately prior to or contemporaneously with each such
Loan or L/C Credit Extension: (a) Representations and Warranties. All of the representations and
warranties of Borrower, each of its Subsidiaries and each other Obligor under
this Agreement and each other Loan Document, which, pursuant to Section 8.22,
are made at and as of the time of each Loan and each L/C Credit Extension,
shall be true and correct when made, except to the extent applicable to a
specific date, both before and after giving effect to the application of the
proceeds of such Loan and L/C Credit Extension. (b) No Default or Event of Default. There shall not exist a Default or
Event of Default. (c) Litigation. There shall be no Litigation pending against, or, to
Borrowers or any Obligors knowledge, threatened against Borrower, any other
Obligor, or any Subsidiary of Borrower, or in any other manner relating
directly and adversely to Borrower, any other Obligor, or any Subsidiary of
Borrower, or any of their respective properties, in any court or before any
arbitrator of any kind or before or by any Governmental Authority which could
reasonably be expected to have a Material Adverse Effect. (d) Material Adverse Change. There shall have occurred no change in the
business, assets, operations, prospects or conditions (financial or otherwise)
of Borrower, any 39




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other Obligor, or any Subsidiary of Borrower since December 31, 2003,
which caused or could reasonably be expected to cause a Material Adverse
Effect. 5.3 Conditions Precedent to all Term Loans. The obligation of each Lender
to make its Pro Rata Share of each Term Loan (including the initial Term Loan)
is subject to delivery by Borrower of duly executed Term Loan Notes, each dated
the date such Term Loan is made, payable to the order of each Lender and in
amount equal to such Lenders Pro Rata Share of such Term Loan. ARTICLE VI AFFIRMATIVE COVENANTS From the date hereof and so long as this Agreement is in effect and until
payment in full of the Obligations, the termination of the Aggregate
Commitments, and the performance of all other obligations of each Obligor under
this Agreement and each other Loan Document, Borrower will, and will cause each
of its Subsidiaries to: 6.1 General Covenants. (a) Payment of Taxes and Claims. Pay and discharge all lawful Taxes
imposed upon its income or profits or upon any of its property before the same
shall be in default, and all lawful claims for labor, rentals, materials and
supplies which, if unpaid, might become a Lien upon its property or any part
thereof; provided, however, that it shall not be required to pay or discharge
any such Tax, assessment or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings, and adequate book reserves
shall be established with respect thereto, and it shall pay such Tax, charge or
claim before any property subject thereto shall be sold to satisfy a Lien. (b) Maintenance of Existence. Do all things necessary to preserve and
keep in full force and effect it as a corporation, limited liability company or
partnership, as appropriate (except, as to Subsidiaries of Borrower, as
permitted by Section 7.11). (c) Preservation of Property. Keep its properties which are necessary to
continue business, whether owned in fee or otherwise, or leased, in good
operating condition, ordinary wear and tear excepted, and comply with all
material leases to which it is a party or under which it occupies or uses
property so as to prevent any material loss or forfeiture thereunder. (d) Insurance. Maintain in force with financially sound and reputable
insurers, policies with respect to its property and business against such
casualties and contingencies (including public liability, larceny, embezzlement
or other criminal misappropriation insurance) and in such amounts as is
customary in the case of entities engaged in the same or similar lines of
business of comparable size and financial strength. (e) Compliance with Applicable Laws. Comply in all material respects with
the requirements of all applicable Laws and orders of any Governmental
Authority, except where contested in good faith and by proper proceedings or
where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect, and obtain and maintain all material 40




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licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its properties or to the conduct of its business. 6.2 Accounts, Reports and Other Information. Maintain a system of
accounting in accordance with GAAP or SAP, as appropriate, consistently
applied, and furnish, or cause to be furnished, to Administrative Agent, each
Lender and L/C Issuer the following: (a) Annual Financial Statements. (i) As soon as available, but in any event within 160 days after the
last day of each fiscal year of Borrower, annual consolidated and
consolidating Financial Statements (such consolidated Financial
Statements to be audited), showing the consolidated and consolidating
financial condition and results of operations of Borrower and its
consolidated Subsidiaries as of, and for the year ended on, such last
day, accompanied by (A) an opinion of Auditors containing only
qualifications and emphasis acceptable to Administrative Agent and
Required Lenders, which opinion shall state that said consolidated
Financial Statements have been prepared in accordance with GAAP
consistently applied, and that the examination of Auditors in connection
with such consolidated Financial Statements has been made in accordance
with generally accepted auditing standards and that said consolidated
Financial Statements present fairly the consolidated financial condition
of Borrower and its consolidated Subsidiaries and their results of
operations; (B) a certificate of the chief financial officer of Borrower,
which certificate shall state that said Financial Statements present
fairly the financial condition of Borrower and its consolidated
Subsidiaries and their results of operations; and (C) a description of
all Contingent Debt and Off-Balance Sheet Liabilities of Borrower and its
Subsidiaries. (ii) As soon as available, but in any event within 60 days after the
last day of each fiscal year of Borrower, unaudited annual consolidated
and consolidating Financial Statements (such consolidated and
consolidating Financial Statements shall be in a format, prepared in a
manner and based on assumptions and procedures as are reasonably
acceptable to Administrative Agent and Required Lenders), showing the
consolidated and consolidating financial condition and results of
operations of Borrower and its consolidated Subsidiaries as of, and for
the year ended on, such last day, accompanied by (A) a certificate of the
chief financial officer of Borrower, which certificate shall state that
said Financial Statements present fairly the financial condition of
Borrower and its consolidated Subsidiaries and their results of
operations; and (B) a description of all Contingent Debt and Off-Balance
Sheet Liabilities of Borrower and its Subsidiaries. (iii) With respect to each RIC , within 15 days after the first to
occur of (A) the required filing date (as established by Law or the
applicable Insurance Regulator), and (B) the date on which actually
filed, audited annual Financial Statements, prepared by Auditors in
accordance with SAP, showing the financial condition and results of
operations of such RIC, as of, and for the year ended on, such last day,
accompanied by (1) an opinion of Auditors containing only qualifications
and emphasis acceptable to Administrative Agent and Required Lenders,
which opinion shall state that said Financial Statements have been
prepared in accordance with SAP consistently applied, and that the 41




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examination of the Auditors in connection with such Financial
Statements has been made in accordance with generally accepted auditing
standards and that said Financial Statements present fairly the financial
condition of such RIC, and its results of operations; and (2) a
description of all Contingent Debt and Off-Balance Sheet Liabilities of
such RIC. (iv) With respect to each RIC, within 15 days after the first to
occur of (A) the required filing date (as established by Law or the
applicable Insurance Regulator), and (B) the date on which actually
filed, annual Financial Statements prepared in the form of convention
blanks prescribed by NAIC, as filed with each Insurance Regulator. (v) As soon as available, but in any event within 90 days following
the end of each fiscal year, a copy of the annual consolidated operating
budget of Borrower and its Subsidiaries for the succeeding fiscal year,
in a form acceptable to Administrative Agent and Required Lenders. (vi) With respect to each RIC, as soon as available and in any event
within 15 days after the applicable filing date (as required by
Applicable Laws), a copy of the Statement of Actuarial Opinion and
Management Discussion and Analysis for such RIC (prepared in accordance
with SAP) for each fiscal year of such RIC and as filed with the
applicable Insurance Regulator in compliance with the requirements
thereof (or a report containing equivalent information for such RIC, if
such RIC is not so required to file the foregoing with the applicable
Insurance Regulator). (b) Quarterly Financial Statements. (i) Within 60 days after the last day of each fiscal quarter
(including the last fiscal quarter of each fiscal year) of Borrower, (A)
unaudited consolidated and consolidating Financial Statements (which
consolidated and consolidating Financial Statements shall be in format,
prepared in a manner and based on such assumptions and procedures as are
acceptable to Administrative Agent and Required Lenders), showing the
consolidated and consolidating financial condition and results of
operations of Borrower and its consolidated Subsidiaries as of, and for
the quarter ended on, such last day (subject to year-end adjustment), and
which shall include an income statement for the fiscal year through such
last day, prepared in accordance with GAAP; (B) a certificate of the
chief financial officer of Borrower, which certificate shall state that
said Financial Statements present fairly the financial condition of
Borrower and its consolidated Subsidiaries and their results of
operations; and (C) a description of all Contingent Debt and Off-Balance
Sheet Liabilities of Borrower and its Subsidiaries. (ii) With respect to each RIC, within 60 days after the last day of
each fiscal quarter of such RIC, unaudited quarterly Financial
Statements, prepared in accordance with SAP, showing the financial
condition and results of operations of such RIC as of, and for the
quarter ended on, such last day (subject to year-end adjustment), and
which shall include an income statement for the fiscal year through such
last day, and in the form of quarterly financial statements prescribed by
NAIC, and including a report with respect to Invested Assets as set forth
on Schedule D on such financial statements, 42




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together with a description of all Contingent Debt and Off-Balance
Sheet Liabilities of such RIC. (iii) Within 45 days after the end of each fiscal quarter of
Borrower, a Loss Report as at the last day of such quarter. (iv) Within 60 days after the end of each fiscal quarter of
Borrower, a Litigation Report for such fiscal quarter. (v) Together with the Financial Statements delivered pursuant to
Section 6.2(b)(i), a Compliance Certificate executed by an Authorized
Signatory who is a senior financial officer of Borrower. (c) Other Reports. Promptly upon request by Administrative Agent, a copy
of (i) such financial statements, reports, notices or proxy statements sent by
it to stockholders requested by Administrative Agent, (ii) such regular or
periodic reports and any registration statements, prospectuses and written
communications in respect thereof filed by it with any state insurance
department, any securities exchange, or with the Securities Exchange Commission
or any successor agency requested by Administrative Agent, and (iii) all press
releases concerning it. (d) Notice of Default. Promptly upon the happening of any condition or
event which constitutes an Event of Default or Default, a written notice
specifying the nature and period of existence thereof and what action it is
taking and propose to take with respect thereto. (e) Notice of Litigation. Promptly upon becoming aware of the existence
of any Litigation before any Governmental Authority, arbitrator or mediator
(but no later than 10 days after the filing thereof) involving it, (i) which
could reasonably be expected to involve its payment of $1,000,000 or more, or
(ii) which, under normal operating standards, could result in a reserve being
established in excess of $1,000,000, a written notice specifying the nature
thereof and whether it will contest such proceeding. (f) Notice of Claimed Default. Promptly upon becoming aware that the
holder of any note or any evidence of indebtedness or other security or payee
of any obligation in an amount of $250,000 or more has given notice or taken
any action with respect to a claimed default or event of default thereunder, a
written notice specifying the notice given or action taken by such holder and
the nature of the claimed default or event of default thereunder and what
action it is taking or proposes to take with respect thereto. (g) Notice from Governmental Authority. Promptly upon receipt thereof,
information with respect to and copies of any notices received from any
Governmental Authority relating to an order, ruling, statute or other Law or
information which could reasonably be expected to have a Material Adverse
Effect. (h) Investment Policy. Within (i) 90 days after the last day of each
fiscal year of each RIC, a copy of the Investment Policy of such RIC applicable
to the current fiscal year of such RIC, as approved by the board of directors
or other appropriate governance body of such RIC, and (ii) within 5 days after
any amendment to or restatement of any Investment Policy of 43




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any RIC, a copy of such amendment or restatement as approved by the board
of directors or other appropriate governance body of such RIC. (i) Reinsurance Agreements and Retrocession Agreements. Not later than
(i) 10 days prior to the termination of each Reinsurance Agreement and
Retrocession Agreement, a copy of the slip or other document, agreement or
correspondence with each reinsurer, retrocessionaire, reinsurance broker or
agent which will amend, restate or supersede such terminating Reinsurance
Agreement or Retrocession Agreement, and (ii) 30 days after the first to occur
of (A) execution, and (B) the effective date of each Reinsurance Agreement and
Retrocession Agreement, a copy of each such Reinsurance Agreement and
Retrocession Agreement, certified to be complete and correct by an Authorized
Signatory of the RIC a party to such agreement acceptable to Administrative
Agent. (j) Auditors Reports. Promptly upon receipt thereof, a copy of (i) each
other report or management letter submitted to Borrower or any of its
Subsidiaries by Auditors in connection with any annual, interim or special
audit made by them of the books of Borrower or such Subsidiary and (ii) each
report submitted to Borrower or any of its Subsidiaries by any Auditors to the
extent that such report, in the good faith opinion of Borrower or such
Subsidiary, identifies a condition, situation or event that has or is
reasonably likely to have a Material Adverse Effect. (k) Reserve Adequacy Report. Promptly following a request from
Administrative Agent if a Default exists, a report prepared (at the expense of
Borrower) by an independent actuarial consulting firm of recognized
professional standing reasonably satisfactory to Administrative Agent reviewing
the adequacy of reserves and surplus of each RIC determined in accordance with
SAP, which firm shall be provided access to or copies of all reserve and
surplus analyses and valuations relating to the Insurance Business of each RIC
in the possession of or available to Borrower or any of its Subsidiaries. (l) Other Regulatory Statements and Reports. Promptly (i) after receipt
thereof, copies of all triennial examinations and risk adjusted capital reports
of any RIC, delivered to such Person by any Insurance Regulator, insurance
commission or similar Governmental Authority, (ii) after receipt thereof, a
copy of the final report to each RIC from the NAIC for each fiscal year, as to
such RICs compliance or noncompliance with each of the NAIC Tests, (iii)
after receipt thereof, a copy of any notice of termination, cancellation or
recapture of any Reinsurance Agreement or Retrocession Agreement to which a RIC
is a party to the extent such termination, cancellation or recapture is likely
to have a Material Adverse Effect, (iv) and in any event within ten Business
Days after receipt thereof, copies of any notice of actual suspension,
termination or revocation of any license of any RIC by any Insurance Regulator,
including any request by an Insurance Regulator which commits a RIC to take or
refrain from taking any action or which otherwise affects the authority of such
RIC to conduct its business, and (v) and in any event within thirty Business
Days after Borrower or any of its Subsidiaries obtains knowledge thereof,
notice of any actual changes in the insurance Laws enacted in any state in
which any RIC is domiciled which would reasonably be expected to have a
Material Adverse Effect. (m) A.M. Best. Not later than 15 days after receipt by Borrower, a copy
of (i) each A.M. Best report, if any, with respect to Borrower or any of its
Subsidiaries, and (ii) all 44




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correspondence from A.M. Best to Borrower or any of its Subsidiaries the
contents of which (A) relate to a probable downgrade of the Best rating of any
RIC or (B) describe or relate to a circumstance that would reasonably be
expected to have a Material Adverse Effect. (n) Requested Information. With reasonable promptness, such other data,
including any management reports to the Board of Directors of Borrower or any
of its Subsidiaries, and information as from time to time may be reasonably
requested by Administrative Agent. 6.3 Inspection. (a) If no Event of Default exists, upon three business
Days prior notice, and as often as may be reasonably requested, and (b) if an
Event of Default exists, upon request by Administrative Agent, permit
Administrative Agent or any representatives of Administrative Agent to visit
and inspect any of its properties, to examine all books of account, records,
reports and other papers, to make copies and extracts therefrom, and to discuss
the affairs, finances and accounts with its officers, employees and Auditors
(and by this provision Borrower authorizes Auditors to discuss with
Administrative Agent and its representatives the finances and affairs of
Borrower and its Subsidiaries). All costs and expenses of Administrative Agent
related to (a) the first such inspection during each fiscal year conducted when
no Event of Default exists, and (b) each such inspection conducted when an
Event of Default exists, shall be a part of the Obligations and paid by
Borrower to Administrative Agent within ten days after demand by Administrative
Agent. 6.4 Compliance with ERISA. Comply with ERISA in all material respects,
and (a) at all times make contributions within the time limits imposed by Law
to meet the minimum funding standards set forth in ERISA with respect to any
Plan; (b) notify Administrative Agent as soon as reasonably practicable of any
fact which it knows or should know, including but not limited to any Reportable
Event, arising in connection with any Plan which could reasonably be expected
to result in termination thereof by the PBGC or for the appointment by a
Governmental Authority of a trustee to administer the Plan; and (c) furnish to
Administrative Agent upon such request such additional information concerning
any Plan as Administrative Agent may reasonably request. 6.5 Performance of Obligations. Perform all of its obligations under the
Loan Documents. 6.6 Maintenance of Priority of Bank Liens. Upon the request of
Administrative Agent from time to time, it shall perform such acts and duly
authorize, execute, acknowledge, deliver, file, and record such additional
assignments, pledge agreements, security agreements and other agreements,
documents, instruments, and certificates as Administrative Agent may deem
necessary or appropriate in order to perfect and maintain the Bank Liens in
favor of Administrative Agent and preserve and protect the rights of
Administrative Agent and Lenders in respect of the Collateral. 6.7 Indemnity. BORROWER SHALL DEFEND, PROTECT, INDEMNIFY AND HOLD
HARMLESS ADMINISTRATIVE AGENT, L/C ISSUER AND EACH LENDER, THEIR RESPECTIVE
AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES) OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS
(INCLUDING, 45




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WITHOUT LIMITATION, THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR
ATTEMPTED SATISFACTION OF ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF
THE FOREGOING (COLLECTIVELY, INDEMNITEES) FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, CLAIMS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE ATTORNEY COSTS OF COUNSEL FOR
SUCH INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR
JUDICIAL PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A
PARTY THERETO), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNITEES
(WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL,
STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE,
OR ON CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE PAST,
PRESENT OR FUTURE OPERATIONS OF BORROWER OR ANY OF ITS SUBSIDIARIES OR THEIR
RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE
ENVIRONMENTAL CONDITION OF PROPERTY OF BORROWER OR ANY OF ITS SUBSIDIARIES), IN
ANY MANNER RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR
TRANSACTION RELATING OR ATTENDANT THERETO, THE MAKING OR ANY PARTICIPATION IN
LOANS AND L/C CREDIT EXTENSIONS, INCLUDING IN CONNECTION WITH, OR AS A RESULT,
IN WHOLE OR IN PART, OF ANY NEGLIGENCE OF ADMINISTRATIVE AGENT, L/C ISSUER OR
ANY LENDER (OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT
AGAINST A LENDER AND NOT BORROWER), OR THE USE OR INTENDED USE OF THE PROCEEDS
OF ANY LOAN OR LETTER OF CREDIT HEREUNDER, OR IN CONNECTION WITH ANY
INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING ANY CLAIM
OR LIABILITY THAT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF
COMPETENT JURISDICTION (COLLECTIVELY, INDEMNIFIED MATTERS). IN ADDITION,
BORROWER SHALL PERIODICALLY, UPON REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS
REASONABLE LEGAL AND OTHER ACTUAL EXPENSES (INCLUDING THE COST OF ANY
INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED
MATTER. THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS
SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH BORROWER MAY OTHERWISE
HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS,
HEIRS AND PERSONAL REPRESENTATIVES OF BORROWER, ADMINISTRATIVE AGENT, L/C
ISSUER EACH LENDER, AND ALL OTHER INDEMNITEES. THIS SECTION SHALL SURVIVE ANY
TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS. 46




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6.8 Use of Proceeds. Borrower shall use the proceeds of the Loans and
Letters of Credit (a) to provide working capital to Borrower and Guarantors,
(b) to acquire capital stock of or make capital contributions to a RIC which is
a Subsidiary of Borrower on the Agreement Date, which capital contribution will
result in an increase of paid-in surplus of such RIC in an amount equal to such
capital contribution, (c) to make Permitted Acquisitions, and (d) to secure the
performance of Borrower and/or a RIC pursuant to Reinsurance Agreements to
which it is or they are a party, and for no other purpose. ARTICLE VII NEGATIVE COVENANTS From the date hereof and so long as this Agreement is in effect and until
payment in full of the Obligations, the termination of the Aggregate
Commitments, and the performance of all other obligations of each Obligor under
this Agreement and each other Loan Document: 7.1 Combined Ratio. Borrower shall not permit the Combined Ratio of any
RIC to be greater than 100% at any time. 7.2 Risk-Based Capital. Borrower shall not permit Risk-Based Capital of
any RIC to be less than 250% at any time. 7.3 Fixed Charges Coverage Ratio. Borrower shall not permit the Fixed
Charges Coverage Ratio to be less than 1.50 to 1.00 as at the last day of any
fiscal quarter of Borrower. 7.4 Consolidated Net Worth. Borrower shall not permit Consolidated Net
Worth to be less than $110,000,000 at any time. 7.5 Consolidated Net Income. Borrower shall not permit Consolidated Net
Income to be less than $10,000,000, determined as at the last day of any fiscal
quarter of Borrower for the four fiscal quarters ended on such date. 7.6 Limitation on Debt. Borrower shall not, and shall not permit any of
its Subsidiaries to, create, incur, assume, become or be liable in any manner
in respect of, or suffer to exist, any Debt except Permitted Debt. 7.7 Limitation on Liens. Borrower shall not, and shall not permit any of
its Subsidiaries to, create or suffer to be created or to exist any Lien upon
any of its properties or assets except Permitted Liens. 7.8 Burdensome Agreements. Borrower shall not, and shall not permit any
of its Subsidiaries to, enter into any agreement (other than this Agreement or
any other Loan Document) that limits the ability (a) of any Subsidiary to pay
Dividends to Borrower or to otherwise transfer property to Borrower, (b) of any
Subsidiary to guarantee the Obligations or (c) of Borrower or any Subsidiary to
create, incur, assume or suffer to exist Liens on property of such Person. 7.9 Disposition of Assets. Borrower shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, Dispose of all or any portion
of any of its properties 47




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(including any capital stock of any Subsidiary and equity interests
constituting Collateral) and assets except (a) Dispositions pursuant to its
Investment Policy in the ordinary course of business for full and fair
consideration, (b) other Dispositions in the ordinary course of business for
full and fair consideration, (c) mergers of Subsidiaries of Borrower described
in the proviso to Section 7.11, and (d) Dispositions not in the ordinary course
of business if (i) no single asset Disposed of or single transaction including
a Disposition has a value (valued at the greater of market or book (determined
in accordance with GAAP) value) less than $250,000, and (ii) the aggregate
value (valued at the greater of market or book (determined in accordance with
GAAP) value) of all such Dispositions by Borrower and its Subsidiaries during
any fiscal year of Borrower is less than $500,000. 7.10 Acquisition of Assets. Borrower shall not, and shall not permit any
of its Subsidiaries to, acquire any assets, property or business of any Person,
or participate in any joint venture, or create or acquire any Subsidiary,
except (a) Permitted Acquisitions, and (b) Borrower may form new direct or
indirect wholly-owned Subsidiaries which are corporations or limited liability
companies which will engage in the insurance agency or managing general agency
business if prior to each such new Subsidiary conducting any activities other
than (i) filing its organizational documents with the appropriate authority of
one of the United States, (ii) adopting its bylaws, operating agreement or
other governance document and (iii) obtaining consideration for the issuance of
its equity in an aggregate amount equal to the lesser of (A) the minimum
initial capital required by Law and (B) $5,000, such new Subsidiary delivers to
Administrative Agent (in such number of counterparts as Administrative Agent
may reasonably require): (a) A certificate of officers acceptable to Administrative Agent of such
Subsidiary certifying as to (i) the incumbency of the officers signing such
certificate and the Loan Documents to which it is a party, (ii) if a
corporation, an original certified copy of its Articles of Incorporation or
Certificate of Incorporation, as applicable, certified as true, complete and
correct by the appropriate authority of its state of incorporation as of a date
not more than ten days prior to the date such certificate is delivered to
Administrative Agent, (iii) if a limited liability company, an original
certified copy of its Articles of Organizations (or similar organization and
governance document), certified as true, complete and correct by the
appropriate authority of its state of organization as of a date not more than
ten days prior to the date such certificate is delivered to Administrative
Agent, (iv) if a corporation, a copy of its By-Laws, as in effect on the date
such certificate is delivered to Administrative Agent, (v) if a limited
liability company, a copy of its operating agreement (or similar organization
and governance document), as in effect on the date such certificate is
delivered to Administrative Agent, (vi) a copy of the resolutions of the
appropriate governance board authorizing it to execute, deliver and perform the
Loan Documents to which it is a party, and (vii) an original certificate of
good standing and existence issued by the appropriate authority of its state of
organization (certified as of a date not more than ten days prior to the date
such certificate is delivered to Administrative Agent). (b) The duly executed and completed Security Agreement of such Subsidiary
(if such Subsidiary is not a RIC), granting to Administrative Agent, for the
benefit of Lenders and L/C Issuer, a first priority Lien in the Collateral set
forth therein. (c) The duly executed Guaranty of such Subsidiary (if such Subsidiary is
not a RIC). 48




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(d) If such Subsidiary is a RIC all the equity of which is owned by
Borrower or a Subsidiary (other than a RIC), the duly executed and completed
(i) pledge agreement, granting to Administrative Agent, for the benefit of
Lenders and L/C Issuer, a first priority Lien in all equity of such RIC,
together with stock certificates evidencing all of the equity interest of such
RIC, (ii) undated, blank stock powers and (iii) confirmations of all Liens in
all equity interest of such RIC. (e) Reimbursement of Administrative Agents reasonable expenses related to
the formation of such new Subsidiary, including Special Counsels reasonable
fees and expenses. (f) Searches of the Uniform Commercial Code, Tax lien and other records as
Administrative Agent may require. (g) If, with respect to any Permitted Acquisition, the aggregate
consideration payable by Borrower and/or any Subsidiary of Borrower equals or
exceeds $2,000,000, and with respect to any formation of a new direct or
indirect wholly-owned Subsidiary of Borrower, the aggregate value of property
reasonably projected to be contributed to such entity by Borrower and/or any
Subsidiary of Borrower equals or exceeds $2,000,000 during the first year of
existence of such entity, opinions of counsel to Borrower and such Subsidiary
addressed to Administrative Agent, L/C Issuer and Lenders and covering such
matters incident to such new Subsidiary and the Loan Documents as
Administrative Agent or Special Counsel may reasonably request. (h) A Notice of Final Agreement executed by such Subsidiary. (i) In form and substance satisfactory to Administrative Agent and Special
Counsel, such other documents, instruments and certificates as Administrative
Agent, L/C Issuer and any Lender may reasonably require in connection with the
formation of such new Subsidiary. 7.11 Merger and Consolidation. Borrower shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly consolidate with or merge
into any other Person, permit any other Person to consolidate with or merge
into it, or acquire any Person; provided, so long as no Default or Event of
Default exists at the time of or immediately after giving effect thereto,
Subsidiaries of Borrower, may merge with and into Borrower or any other
wholly-owned Subsidiary of Borrower so long as Borrower or such other
wholly-owned Subsidiary of Borrower is the survivor and the surviving
Subsidiary is a Guarantor. 7.12 Loans and Investments. Borrower shall not, and shall not permit any
of its Subsidiaries to, make any Investment except (a) Permitted Investments,
and (b) acquisitions permitted by Section 7.10. 7.13 ERISA. Borrower shall not, and shall not permit any of its
Subsidiaries to, make funding contributions with respect to any Plan that are
less than the minimum required by ERISA or the regulations thereunder, or
permit any Plan ever to be subject to involuntary termination proceeding by the
PBGC pursuant to ERISA § 4042(a). 7.14 Assignment. Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, assign or transfer, or attempt to do
so, any rights, duties or obligations 49




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under the Loan Documents, except in connection with a merger of a
Subsidiary described in the provision to Section 7.11. 7.15 Transactions with Affiliates. Borrower shall not, and shall not
permit any of its Subsidiaries to, carry on any transaction with any of their
respective Affiliates except at arms length and in the ordinary course of
business. 7.16 Business. Borrower shall not, and will not permit any of its
Subsidiaries to, engage in any material line or lines of business activity or
any businesses not engaged in on the Agreement Date. ARTICLE VIII REPRESENTATIONS AND WARRANTIES Borrower represents, warrants, and covenants, to Administrative Agent,
each Lender and L/C Issuer, as follows: 8.1 Organization and Qualification. Borrower and each of its Subsidiaries
(a) is a corporation, limited liability company or limited partnership duly
organized, validly existing, and in good standing under the Laws of its
jurisdiction of organization; (b) is duly licensed and in good standing as a
foreign corporation, limited liability company or limited partnership in each
jurisdiction in which the nature of the business transacted or the property
owned is such as to require licensing as such; and (c) possesses all requisite
corporate, limited liability company or limited partnership, respectively,
power, authority and legal right, to execute, deliver and comply with the terms
of the Loan Documents to be executed by it, all of which have been duly
authorized and approved by all necessary corporate, limited liability company
or limited partnership action and for which no approval or consent of any
Governmental Authority which has not been obtained is required. No proceeding
is pending for the forfeiture of any Borrowers or any such Subsidiarys
organization documents or its dissolution. The issued and outstanding capital
stock, limited liability company interest and partnership interest of Borrower
and each of its Subsidiaries is duly authorized validly issued, fully paid and
nonassessable, and free of the preemptive rights of shareholders. Schedule 8.1
sets forth the respective jurisdiction of organization and percentage ownership
as of the Agreement Date of each of Borrowers direct and indirect
Subsidiaries. Borrower has no direct or indirect Subsidiary other than those
set forth on Schedule 8.1. 8.2 Financial Statements. The financial statements described in Section
5.1(k) heretofore furnished to Administrative Agent, L/C Issuer and Lenders are
complete and correct in all material respects and prepared in accordance with
GAAP or SAP, as appropriate, and fairly present the financial condition of the
Persons described therein as of the dates indicated and for the periods
involved. There are no Contingent Debts, liabilities for Taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, any of which are material in amount in relation to the
financial condition of Borrower or any of its Subsidiaries, except for Existing
Debt. The description of all Off-Balance Sheet Liabilities of Borrower and its
Subsidiaries heretofore furnished to Administrative Agent, Lenders and L/C
Issuer is complete and correct in all material respects. Since the date of the
financial statements 50




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described in Sections 5.1(k) or the Current Financials, there has been no
Material Adverse Change. 8.3 Compliance With Laws and Other Matters. The execution, delivery and
performance and compliance with the terms of the Loan Documents will not cause
Borrower or any of its Subsidiaries to be, (a) in violation of its corporate
charter or bylaws, certificate of organization, operating agreement,
certificate of limited partnership, partnership agreement or other organization
and governance document, (b) in violation of any Law in any respect which could
have any Material Adverse Effect, or (c) in default (nor has any event occurred
which, with notice or lapse of time or both, could constitute a default) under
any material agreement (including any agreement related to any Debt or such
Person). 8.4 Litigation. There is no Litigation pending against or, to the
knowledge of Borrower, threatened against or affecting any Borrower or any of
its Subsidiaries or their respective assets or properties which involves the
probability of any final judgment or liability which may result in a Material
Adverse Change. Schedule 8.4 is a complete and correct description of all
Existing Litigation where the amount in controversy is equal to or greater than
$250,000. Borrowers good faith estimate of the aggregate amount of all claims
against Borrower and its Subsidiaries pursuant to Existing Litigation on the
Agreement Date is approximately $373,500. There are no outstanding or unpaid
final judgments against Borrower or any of its Subsidiaries. 8.5 Debt. Since the date of the latest of the Current Financials, neither
Borrower nor any of its Subsidiaries has incurred any Debt except Permitted
Debt. Schedule 8.5 is a complete and correct description of all Existing Debt. 8.6 Vesta Obligations. Except as described on Schedule 8.6, neither
Borrower nor any Subsidiary of Borrower is liable for any obligations of Vesta
Insurance Group, Inc. or any of its Subsidiaries. 8.7 Title to Properties. Borrower and each of its Subsidiaries has (a)
full corporate, limited liability or partnership, respectively, power,
authority and legal right to own and operate the properties which it now owns,
and to carry on the lines of business in which it is now engaged, and (b) good
and marketable title to its owned properties, subject to no Lien of any kind,
except Permitted Liens. 8.8 Authorization; Validity. The Board of Directors, managers, partners
or other appropriate governance board of each Obligor has duly authorized the
execution and delivery of the Loan Documents to which such Obligor is a party
and the performance of their respective terms. No consent of the stockholders,
members, partners or other equityholders of any Obligor is required as a
prerequisite to the validity and enforceability of any Loan Document. Each
Obligor has full corporate, limited liability or partnership, respectively,
power, authority and legal right to execute and deliver and to perform and
observe the provisions of all Loan Documents to which such Obligor is a party.
Each of the Loan Documents is the legal, valid and binding obligation of each
Obligor which is a party thereto, enforceable in accordance with its respective
terms, subject as to enforcement of remedies to any Debtor Relief Laws. 51




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8.9 Taxes. Borrower and each of its Subsidiaries have filed all federal
and state and all other material income Tax returns which are required to be
filed by such Person and has paid all Taxes as shown on said returns, and all
Taxes due and payable without returns and all assessments received to the
extent that such Taxes or assessments have become due and payable. All Tax
liabilities of Borrower and each of its Subsidiaries are adequately provided
for on the books of such Person, including interest and penalties. No income
Tax liability of a material nature has been asserted by taxing authorities for
Taxes in excess of those already paid, except such Taxes being contested in
good faith by appropriate proceedings. 8.10 Use of Proceeds. No Obligor is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds
of any Loan or Letter of Credit will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock. None of the assets of any Obligor are margin stock. No
Obligor nor any agent acting on its behalf has taken or will take any action
which might cause this Agreement or any of the Loan Documents to violate any
regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities Exchange Act of 1934, in each case as in effect now or
as the same may hereafter be in effect. 8.11 Possession of Franchises, Licenses, Etc. Borrower and each of its
Subsidiaries possesses all franchises, certificates, licenses, permits and
other authorizations from all Governmental Authorities, free from burdensome
restrictions, that (a) are necessary for the ownership, maintenance and
operation of its properties and assets, and (b) the loss of possession of which
could reasonably be expected to have a Material Adverse Effect, and such Person
is not in violation of any thereof. Schedule 8.11 lists with respect to each
RIC, as of the Agreement Date, all of the jurisdictions in which such RIC holds
licenses (including, without limitation, licenses or certificates of authority
from relevant Insurance Regulators), permits or authorizations to transact
Insurance Business, and indicates the line or lines of insurance in which each
such RIC is permitted to be engaged with respect to each license therein
listed. To the knowledge of Borrower, (a) no such license is the subject of a
proceeding for suspension, revocation or limitation or any similar proceedings,
(b) there is no sustainable basis for such a suspension, revocation or
limitation, and (c) no such suspension, revocation or limitation is threatened
by any relevant Insurance Regulator. No RIC transacts as of the Agreement Date
any Insurance Business, directly or indirectly, in any jurisdiction other than
those listed on Schedule 8.11, where such business requires any license, permit
or other authorization of an Insurance Regulator of such jurisdiction. 8.12 Leases. Borrower and each of its Subsidiaries enjoys peaceful and
undisturbed possession of all leases necessary for the operation of its
properties and assets the loss of possession of which could reasonably be
expected to have a Material Adverse Effect. All such leases are valid and
subsisting and are in full force and effect. 8.13 Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to Administrative Agent, L/C Issuer or any
Lender by or on behalf of Borrower or any of its Subsidiaries in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading. There is no fact known to Borrower or any of its
Subsidiaries 52




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and not known to the public generally which reasonably may be expected to
materially adversely affect its assets or in the future may reasonably be
expected (so far as such Borrower or each of its Subsidiaries can now foresee)
to result in a Material Adverse Effect, which has not been set forth in this
Agreement or in the documents, certificates and statements furnished to
Administrative Agent, L/C Issuer or any Lender by or on behalf of Borrower or
any of its Subsidiaries prior to the date hereof in connection with the
transactions contemplated hereby. 8.14 ERISA. Neither Borrower nor any of its Subsidiaries has (a) incurred
any material accumulated funding deficiency within the meaning of ERISA, or (b)
incurred any material liability to the PBGC in connection with any Plan
established or maintained by it. No Reportable Event has occurred with respect
to any Plan which could reasonably be expected to result in a Material Adverse
Change. 8.15 Regulatory Acts. Borrower and each of its Subsidiaries is an
investment company within the meaning of the Investment Company Act of 1940,
as amended, or is subject to regulation under the Public Utility Holding Act of
1935, the Federal Power Act, the Interstate Commerce Act, or any other Law
(other than Regulation X of the Board of Governors of the Federal Reserve
System and applicable insurance Laws) which regulates the incurring by Borrower
or any of its Subsidiaries of debt, including, but not limited to, Laws
regulating common or contract carriers or the sale of electricity, gas, steam,
water, or other public utility services. 8.16 Solvency. Except as described in Schedule 8.16, Borrower and each of
its Subsidiaries is, and Borrower and its Subsidiaries on a consolidated basis
are, Solvent. 8.17 Environmental Matters. Except as set forth in Schedule 8.17 or as
could not reasonably be expected to result in a Material Adverse Change or
Effect: (a) The properties owned, operated or leased by Borrower and each of its
Subsidiaries (the Properties) do not contain any Hazardous Materials in
amounts or concentrations which (i) constitute a violation of, or (ii) could
reasonably be expected to give rise to liability under, Environmental Laws; (b) All Environmental Permits have been obtained and are in effect with
respect to the Properties and operations of Borrower and each of its
Subsidiaries, and the Properties and all operations of each Obligor are in
material compliance therewith; (c) Neither Borrower nor any of its Subsidiaries has received any written
notice of an Environmental Claim in connection with the Properties or the
operations of Borrower or any of its Subsidiaries, nor does Borrower or any of
its Subsidiaries have knowledge that any such written notice will be received
or is being threatened; (d) Neither Borrower nor any of its Subsidiaries has actual knowledge of
any liabilities related to Hazardous Materials Borrower or any of its
Subsidiaries has retained or assumed, in whole or in part, contractually; (e) To Borrowers knowledge, Hazardous Materials have not been transported
from the Properties, nor have Hazardous Materials been generated, treated,
stored or disposed of 53




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at, on or under any of the Properties in a manner that could reasonably be
expected to give rise to liability under any Environmental Law; and (f) Neither Borrower nor any of its Subsidiaries has actual knowledge that
Borrower or any of its Subsidiaries has retained or assumed any liability
contractually, with respect to the generation, treatment, storage or disposal
of Hazardous Materials. 8.18 Investments. Schedule 8.18 is a complete and correct description of
all Existing Investments as of the Agreement Date. Borrower has provided to
Administrative Agent, L/C Issuer and each Lender a complete copy of the
Investment Policy of Borrower and each RIC. 8.19 Reinsurance Agreements. (a) Except as set forth on Schedule F to the Annual Statements for each
RIC for its fiscal year ending December 31, 2003, as updated by Schedule F to
the March 31, 2004 financial statements, there are no material liabilities
outstanding as of the Agreement Date under any Reinsurance Agreement. Each
Reinsurance Agreement is in full force and effect; no RIC or, to the knowledge
of Borrower, any other party thereto, is in breach of or default under any such
Reinsurance Agreement; and Borrower has no reason to believe that the financial
condition of any other party to any such Reinsurance Agreement is impaired such
that a default thereunder by such party could reasonably be anticipated. Each
Reinsurance Agreement is qualified under all applicable Laws to receive the
statutory credit assigned to such Reinsurance Agreement in the relevant annual
statement or quarterly statement at the time prepared. Except as set forth on
Schedule 8.19, each Person to whom any RIC has ceded any material liability
pursuant to any Reinsurance Agreement on the Agreement Date has a rating of
A- or better by A.M. Best. (b) Except as set forth on Schedule 8.19, as of the Agreement Date there
are no Reinsurance Agreements between Borrower or any of its Subsidiaries and
Affiliates of Borrower. 8.20 Separation Agreements. Attached as Exhibit L are a true and correct
copy of all agreements between Borrower and any of its Subsidiaries and Vesta
Insurance Group, Inc. and any of its Subsidiaries related to the separation of
Borrower and its Subsidiaries from Vesta Insurance Group, Inc. (other than
Reinsurance Agreements and Retrocession Agreements), all exhibits and schedules
to such agreements, and all documents required to be delivered by every Person
pursuant to such agreements. There are no agreements between or among any of
the parties to such agreements and any other Person, and their respective
Affiliates, related to the subject matter of such agreements not contained in
the documents attached as Exhibit L. 8.21 Key Personnel. Attached as Schedule 8.21 is a complete and correct
list describing each person who holds the office of Chief Executive Officer,
Chief Financial Officer, President and Executive Vice President of Borrower and
President of each RIC as of the Agreement Date. 8.22 Survival of Representations and Warranties, Etc. All representations
and warranties made under this Agreement and the other Loan Documents shall be
deemed to be made at and as of the Agreement Date and at and as of the date of
the making of each Loan and each L/C Credit Extension, and each shall be true
and correct in all material respects when made, 54




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except to the extent applicable to a specific date. All such
representations and warranties shall survive, and not be waived by, the
execution hereof by Administrative Agent, L/C Issuer and Lenders, any
investigation or inquiry by Administrative Agent, L/C Issuer or any Lender, or
by the making of any Loan or L/C Credit Extension under this Agreement. ARTICLE IX EVENTS OF DEFAULT 9.1 Default. The term Event of Default as used herein, means the
occurrence and continuance of any one or more of the following events
(including the passage of time, if any, specified therefor): (a) Loans. The failure or refusal of Borrower to pay any part of the
principal of or interest on any Loan or of Borrower or the applicable RIC to
pay any part of any Unreimbursed Amounts on or before the date such payment is
due; (b) Other Obligations. The failure or refusal of Borrower to pay any part
of the Obligations or a RIC to pay any part of the L/C Obligations related to a
Letter of Credit issued for the account of such RIC (other than as referenced
in Section 9.1(a)) on or before the date such payment is due and such failure
shall continue for five days after such payment was due; (c) Certain Covenants. The failure or refusal of any Obligor punctually
and properly to perform, observe and comply with any covenant, agreement or
condition contained in Article III, Article VII (other than Sections 7.8 and
7.10), Sections 6.2 (a)  (f), (h), (k) and (n), 6.3 or 6.6; (d) Other Covenants. The failure or refusal of any Obligor punctually and
properly to perform, observe and comply with any covenant, agreement or
condition contained in any of the Loan Documents (other than covenants to pay
the Obligations referenced in Sections 9.1(a) and (b) and those referenced in
Section 9.1(c)) and such failure shall not have been remedied within ten days
after the earlier of (i) notice thereof by Administrative Agent (which may be
telephonic) and (ii) actual knowledge thereof by any such Obligor; (e) Voluntary Debtor Relief. Any Obligor or any of its Subsidiaries shall
(i) execute an assignment for the benefit of creditors, or (ii) admit in
writing its inability, or be generally unable, to pay its debts generally as
they become due, or (iii) voluntarily seek the benefit or benefits of any
Debtor Relief Law, or (iv) voluntarily become a party to any proceeding
provided for by any Debtor Relief Law that would suspend or otherwise affect
any of the rights of Administrative Agent, L/C Issuer or any Lender granted in
the Loan Documents; (f) Involuntary Proceedings. Any Obligor or any of its Subsidiaries shall
involuntarily (i) have an order, judgment or decree entered against it or a
material portion of its property by any Governmental Authority pursuant to any
Debtor Relief Law that would suspend or otherwise affect any of the rights
granted to Administrative Agent or any Lender in any of the Loan Documents, or
(ii) have a petition filed against it or a material portion of its property
seeking the benefit or benefits provided for by any Debtor Relief Law that
would suspend or 55




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otherwise affect any of the rights granted to Administrative Agent, L/C
Issuer or any Lender in any of the Loan Documents; (g) Insurance Regulation. Any Insurance Regulator of any jurisdiction
suspends or takes any steps towards suspending the business or operations of
any Obligor or any of its Subsidiaries and any such event could reasonably be
expected to result in a Material Adverse Change; (h) Judgments. Any Obligor or any of its Subsidiaries shall have rendered
against it a money judgment in an aggregate uninsured amount in excess of
$500,000 for which such Person has not set aside appropriate reserves, and the
same shall remain in effect and unstayed for a period of sixty consecutive
days; (i) Other Debt. (i) Any Obligor or any of its Subsidiaries shall default
(A) in the payment of principal of or interest on any Debt in an aggregate
amount, together with all other Debt in which a default exists, in excess of
$500,000, or (B) in the performance of any other covenant, term or condition
contained in any agreement with respect to such Debt (if such default shall
occur and be continuing beyond any grace period with respect to such payment or
performance), if the effect of such default is to cause or permit the holder or
holders of such Debt (or any trustee on their behalf) to cause such Debt to
become due, prepaid, redeemed or purchased prior to its date of maturity; or
(ii) any event shall occur which either causes or permits the holder or
holders of such Debt (or any trustee on their behalf) to cause such Debt to
become due, prepaid, redeemed or purchased prior to its date of maturity; (j) Misrepresentation. Any statement, representation or warranty in the
Loan Documents or in any writing ever delivered to Administrative Agent, L/C
Issuer or any Lender pursuant to the Loan Documents proves to be incorrect in
any material respect where made; (k) Change in Control. A Change in Control shall occur; (l) ERISA. Any Reportable Event under any Plan, or the appointment by an
appropriate Governmental Authority of a trustee to administer any Plan, or the
termination of any Plan within the meaning of Title IV of ERISA, or any
material accumulated funding deficiency within the meaning of ERISA under any
Plan, or the institution of proceedings by the PBGC to terminate any Plan or to
appoint a trustee to administer any Plan, and any of such events could
reasonably be expected to result in a Material Adverse Change; or (m) Loan Documents. Any Agreement, any Note, any Guaranty, any Letter of
Credit Application and any reimbursement agreement related thereto and any
amendment and restatement thereto, any Pledge Agreement, any Security
Agreement, any confirmation of any pledge of any equity interest in any
Subsidiary of Borrower, any document evidencing or intended to perfect any Lien
granted pursuant to any Loan Document or any other material agreement related
to this Agreement shall, at any time after its execution and delivery and for
any reason, cease to be in full force and effect in or be declared to be null
and void (other than in accordance with the terms hereof or thereof) or the
validity or enforceability thereof be contested by any Person party thereto
(other than Administrative Agent, L/C Issuer or any Lender) or any Person
(other than Administrative Agent or any Lender) shall deny in writing that it
has any liability or any further liability or obligations under any Loan
Document to which it is a party; or 56




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any Security Document shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first priority Lien (other
than Permitted Liens) in any Collateral. 9.2 Remedies. If an Event of Default exists: (a) With the exception of an Event of Default specified in Section 9.1(e)
or (f), Required Lenders may terminate each Lenders Commitment and/or declare
the principal of and interest on the Loans and Obligations and other amounts
owed under the Loan Documents to be forthwith due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived, anything in the Loan Documents to the contrary
notwithstanding. (b) Upon the occurrence of an Event of Default specified in Section 9.1(e)
or (f), the principal of and interest on the Loans and Obligations and other
amounts and under the Loan Documents shall thereupon and concurrently therewith
become due and payable and the Aggregate Commitments shall forthwith terminate,
all without any action by Administrative Agent, L/C Issuer or any Lender or any
holders of the Notes and without presentment, demand, protest or other notice
of any kind, all of which are expressly waived, anything in the Loan Documents
to the contrary notwithstanding. (c) Required Lenders may request that Administrative Agent, L/C Issuer and
Lenders exercise all of the post-default rights granted to them under the Loan
Documents or under Law. (d) L/C Issuer or Administrative Agent may require that Borrower and the
applicable RIC Cash Collateralize all L/C Obligations. (e) The rights and remedies of Administrative Agent, L/C Issuer and
Lenders hereunder shall be cumulative, and not exclusive. 9.3 Application of Funds. After the exercise of remedies provided for in
Section 9.2 (or after the Loans and other Obligations have automatically become
immediately due and payable), any amounts received on account of the
Obligations shall be applied by Administrative Agent and Lenders in the
following order: (a) First, to payment of that portion of the Obligations constituting
fees, indemnities, expenses and other amounts (including Attorney Costs payable
under Section 11.2 and amounts payable under Article IV) payable under the Loan
Documents to Administrative Agent in its capacity as such; (b) Second, to payment of that portion of the Obligations constituting
fees, indemnities and other amounts (other than principal and interest) payable
to Lenders and L/C Issuer (including Attorney Costs payable under Section 11.2
and amounts payable under Article IV), ratably among them in proportion to the
amounts described in this clause Second payable to them; (c) Third, to payment of that portion of the Obligations constituting
accrued and unpaid interest on the Loans, ratably among Lenders in proportion
to the respective amounts described in this clause Third payable to them; 57




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(d) Fourth, to payment of that portion of the Obligations constituting
unpaid principal of the Loans, ratably among Lenders in proportion to the
respective amounts described in this clause Fourth held by them; (e) Fifth, to Administrative Agent for the account of L/C Issuer, to Cash
Collateralize the L/C Obligations; (f) Sixth, to all other Obligations; and (g) Last, to the balance, if any, after all of the Obligations have been
indefeasibly paid in full, to Borrower or as otherwise required by Law; Subject to Article III, amounts used to Cash Collateralize the L/C
Obligations pursuant to clause Fifth above shall be applied to satisfy drawings
under such Letters of Credit as they occur. If any amount remains on deposit
as Cash Collateral after all Letters of Credit have either been fully drawn or
expired, such remaining amount shall be applied to the other Obligations, if
any, in the order set forth above. ARTICLE X ADMINISTRATIVE AGENT 10.1 Appointment and Authorization of Administrative Agent. Each Lender
and L/C Issuer hereby irrevocably appoints, designates and authorizes
Administrative Agent to take such action on its behalf under the provisions of
this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere herein or in any other Loan Document, Administrative Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall Administrative Agent have or be deemed to have any fiduciary
relationship with L/C Issuer any Lender or Participant, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or otherwise exist
against Administrative Agent. Without limiting the generality of the foregoing
sentence, the use of the term agent herein and in the other Loan Documents
with reference to Administrative Agent is not intended to connote any fiduciary
or other implied (or express) obligations arising under agency doctrine of any
applicable Law. Instead, such term is used merely as a matter of market
custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties. 10.2 Delegation of Duties. Administrative Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel and
other consultants or experts concerning all matters pertaining to such duties.
Administrative Agent shall not be responsible for the negligence or misconduct
of any agent or attorney-in-fact that it selects in the absence of gross
negligence or willful misconduct. 10.3 Liability of Administrative Agent. Neither Frost nor any Person
under the Control of Frost or any Person having Control of Frost nor any of
their respective equityholders, 58




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directors, officers, employees or agents (each, an Agent-Related Person)
shall (a) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or
willful misconduct in connection with its duties expressly set forth herein),
or (b) be responsible in any manner to L/C Issuer or any Lender or Participant
for any recital, statement, representation or warranty made by any Obligor or
any officer thereof, contained herein or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for
in, or received by Administrative Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of any Obligor or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to L/C Issuer or any Lender or Participant
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Obligor or any
Affiliate thereof. 10.4 Reliance by Administrative Agent. (a) Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, communication, signature, resolution,
representation, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, electronic mail message, statement or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to any Obligor), independent
accountants and other experts selected by Administrative Agent. Administrative
Agent shall be fully justified in failing or refusing to take any action under
any Loan Document unless it shall first receive such advice or concurrence of
Required Lenders as it deems appropriate and, if it so requests, it shall first
be indemnified to its satisfaction by Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of Required Lenders (or such
greater number of Lenders as may be expressly required hereby in any instance)
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all Lenders. (b) For purposes of determining compliance with the conditions specified
in Article V, each Lender and L/C Issuer that has signed this Agreement shall
be deemed to have consented to, approved or accepted or to be satisfied with,
each document or other matter required thereunder to be consented to or
approved by or acceptable or satisfactory to a Lender and L/C Issuer unless
Administrative Agent shall have received notice from such Lender or L/C Issuer
prior to the Agreement Date specifying its objection thereto. 10.5 Notice of Default. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to Administrative Agent for the account of Lenders or L/C
Issuer, unless Administrative Agent shall have received written notice from a
Lender, L/C Issuer or Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a notice of
default. Administrative Agent will 59




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notify Lenders and L/C Issuer of its receipt of any such notice.
Administrative Agent shall take such action with respect to such Default or
Event of Default as may be directed by Required Lenders in accordance with
Article IX; provided, however, that unless and until Administrative Agent has
received any such direction, Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable or in
the best interest of Lenders and L/C Issuer. 10.6 Credit Decision; Disclosure of Information by Administrative Agent.
Each Lender and L/C Issuer acknowledges that no Agent-Related Person has made
any representation or warranty to it, and that no act by Administrative Agent
hereafter taken, including any consent to and acceptance of any assignment or
review of the affairs of any Obligor or any Affiliate thereof, shall be deemed
to constitute any representation or warranty by any Agent-Related Person to any
Lender and L/C Issuer as to any matter, including whether Agent-Related Persons
have disclosed material information in their possession. Each Lender and L/C
Issuer represents to Administrative Agent that it has, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of any Obligor and its Subsidiaries, and
all applicable bank or other regulatory Laws relating to the transactions
contemplated hereby, and made its own decision to enter into this Agreement and
to extend credit to Borrower hereunder. Each Lender and L/C Issuer also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement
and the other Loan Documents, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations, property,
financial and other condition and creditworthiness of Borrower. Except for
notices, reports and other documents expressly required to be furnished to
Lenders and L/C Issuer by Administrative Agent herein, Administrative Agent
shall not have any duty or responsibility to provide any Lender or L/C Issuer
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of any
Obligor or any of its Affiliates which may come into the possession of any
Agent-Related Person. 10.7 Indemnification of Administrative Agent. Whether or not the
transactions contemplated hereby are consummated, Lenders shall indemnify upon
demand each Agent-Related Person (to the extent not reimbursed by or on behalf
of any Obligor and without limiting the obligation of any Obligor to do so),
based on their Pro Rata Share, and hold harmless each Agent-Related Person from
and against any and all Indemnified Liabilities incurred by it; provided,
however, that no Lender shall be liable for the payment to any Agent-Related
Person of any portion of such Indemnified Liabilities to the extent determined
in a final, nonappealable judgment by a court of competent jurisdiction to have
resulted from such Agent-Related Persons own gross negligence or willful
misconduct; provided, however, that no action taken in accordance with the
directions of Required Lenders shall be deemed to constitute gross negligence
or willful misconduct for purposes of this Section. Without limitation of the
foregoing, each Lender shall reimburse Administrative Agent upon demand for its
ratable share of any costs or out-of-pocket expenses (including Attorney Costs)
incurred by Administrative Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other Loan 60




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Document, or any document contemplated by or referred to herein, to the
extent that Administrative Agent is not reimbursed for such expenses by or on
behalf of Borrower. The undertaking in this Section shall survive termination
of the Aggregate Commitments, the payment of all other Obligations and the
resignation of Administrative Agent. 10.8 Administrative Agent in its Individual Capacity. Frost and its
Affiliates may make loans to, issue letters of credit for the account of,
accept deposits from, acquire equity interests in and generally engage in any
kind of banking, trust, financial advisory, underwriting or other business with
each Obligor and its respective Affiliates as though Frost were not
Administrative Agent and without notice to or consent of Lenders or L/C Issuer.
Lenders and L/C Issuer acknowledge that, pursuant to such activities, Frost or
its Affiliates may receive information regarding any Obligor or its Affiliates
(including information that may be subject to confidentiality obligations in
favor of such Obligor or such Affiliate) and acknowledge that Administrative
Agent shall be under no obligation to provide such information to them. With
respect to its interest in the Loans and Letters of Credit, Frost shall have
the same rights and powers under this Agreement as any other Lender and may
exercise such rights and powers as though it were not Administrative Agent, and
the terms Lender and Lenders include Frost in its individual capacity. 10.9 Successor Administrative Agent. Administrative Agent may resign as
Administrative Agent upon 30 days notice to Lenders and L/C Issuer. If
Administrative Agent resigns under this Agreement, Required Lenders shall
appoint from among Lenders a successor administrative agent for Lenders and L/C
Issuer, which successor administrative agent shall be consented to by Borrower
at all times other than during the existence of a Default (which consent of
Borrower shall not be unreasonably withheld or delayed). If no successor
administrative agent is appointed prior to the effective date of the
resignation of Administrative Agent, Administrative Agent may appoint, after
consulting with Lenders, L/C Issuer and Borrower, a successor administrative
agent from among Lenders. Upon the acceptance of its appointment as successor
administrative agent hereunder, the Person acting as such successor
administrative agent shall succeed to all the rights, powers and duties of the
retiring Administrative Agent and the term Administrative Agent shall mean
such successor administrative agent. After any retiring Administrative Agents
resignation hereunder as Administrative Agent, the provisions of this Article X
and Sections 6.7 and 11.2 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent under this
Agreement. If no successor administrative agent has accepted appointment as
Administrative Agent by the date which is 30 days following a retiring
Administrative Agents notice of resignation, the retiring Administrative
Agents resignation shall nevertheless thereupon become effective and the
Lenders shall perform all of the duties of Administrative Agent hereunder until
such time, if any, as Required Lenders appoint a successor agent as provided
for above (except that in the case of any collateral security held by
Administrative Agent on behalf of Lenders or L/C Issuer under any of the Loan
Documents, the retiring Administrative Agent shall continue to hold such
collateral security until such time as a successor Administrative Agent is
appointed). 10.10 Administrative Agent May File Proofs of Claim. In case of the
pendency of any proceeding pursuant to any Debtor Relief Law or other judicial
proceeding relative to any Obligor or entity the equity or debt of which
secures performance of the Obligations, Administrative Agent (irrespective of
whether the principal of any Loan, L/C Obligations or any other Obligation
shall then be due and payable as herein expressed or by declaration or
otherwise 61




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and irrespective of whether Administrative Agent shall have made any
demand on Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise (a) to file and prove a claim for the whole amount of the principal and
interest owing and unpaid in respect of the Loans, L/C Obligations and all
other Obligations that are owing and unpaid and to file such other documents as
may be necessary or advisable in order to have the claims of Lenders, L/C
Issuer and Administrative Agent (including any claim for the reasonable
compensation, expenses, disbursements and advances of Lenders, L/C Issuer and
Administrative Agent and their respective agents and counsel and all other
amounts due Lenders and Administrative Agent under Sections 6.7 and 11.2)
allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender and L/C Issuer to make such payments to Administrative Agent and,
in the event that Administrative Agent shall consent to the making of such
payments directly to Lenders and L/C Issuer, to pay to Administrative Agent any
amount due for the reasonable compensation, expenses, disbursements and
advances of Administrative Agent and its agents and counsel, and any other
amounts due Administrative Agent under Sections 6.7 and 11.2. Nothing contained herein shall be deemed to authorize Administrative Agent
to authorize or consent to or accept or adopt on behalf of any Lender or L/C
Issuer any plan of reorganization, arrangement, adjustment or composition
affecting the Obligations or the rights of any Lender or L/C Issuer or to
authorize Administrative Agent to vote in respect of the claim of any Lender or
L/C Issuer in any such proceeding. 10.11 Collateral Matters. Lenders and L/C Issuer irrevocably authorize
Administrative Agent, at its option and in its discretion, to release any Lien
on any property granted to or held by Administrative Agent under any Loan
Document (x) upon termination of the Aggregate Commitments and payment in full
of all Obligations (other than contingent indemnification obligations) and the
expiration and termination of all Letters of Credit, (y) that is sold or to be
sold as part of or in connection with any sale permitted hereunder or under any
other Loan Document, or (z) subject to Section 10.7, if approved, authorized or
ratified in writing by the Required Lenders. Upon request by Administrative Agent at any time, Required Lenders will
confirm in writing Administrative Agents authority to release or subordinate
its interest in particular types or items of property pursuant to this Section
10.11. ARTICLE XI MISCELLANEOUS 11.1 Notices. (a) All notices and other communications under this Agreement (except in
those cases where giving notice by telephone is expressly permitted) shall be
in writing and shall 62




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be deemed to have been given on the date personally delivered or sent by
telecopy (answerback received), or three days after deposit in the mail,
designated as certified mail, return receipt requested, postage-prepaid, or one
day after being entrusted to a reputable commercial overnight delivery service,
addressed to the party to which such notice is directed at its address
determined as provided in this Section. All notices and other communications
under this Agreement shall be given if to Borrower and each RIC, at the address
specified on Schedule 11.1, if Administrative Agent, at the address specified
on Schedule 11.1, if to any Lender, at the address specified on Schedule 11.1,
and if to L/C Issuer, at the address specified on Schedule 11.1. (b) Any party hereto may change the address to which notices shall be
directed by giving ten days written notice of such change to the other
parties. 11.2 Expenses. Borrower shall promptly pay: (a) all reasonable out-of-pocket expenses and reasonable Attorney Costs of
Administrative Agent in connection with the preparation, negotiation, execution
and delivery of this Agreement and the other Loan Documents, the transactions
contemplated hereunder and thereunder, and the making of the Loans and L/C
Credit Extensions hereunder; (b) all reasonable out-of-pocket expenses and reasonable Attorney Costs of
Administrative Agent in connection with the preparation, negotiation, execution
and delivery of any waiver, amendment or consent by Lenders, Required Lenders
or L/C Issuer, as appropriate, relating to this Agreement or the other Loan
Documents; and (c) all costs, out-of-pocket expenses and Attorney Costs of Administrative
Agent, each Lender and L/C Issuer incurred for enforcement, collection,
restructuring, refinancing and work-out, or otherwise incurred in obtaining
performance under the Loan Documents, and all costs and out-of-pocket expenses
of collection if default is made in the payment of the Notes or other
Obligations which in each case shall include without limitation fees and
expenses of consultants, counsel for Administrative Agent, and administrative
fees for Administrative Agent. 11.3 Waivers. The rights and remedies of Administrative Agent, Lenders
and L/C Issuer under this Agreement and the other Loan Documents shall be
cumulative and not exclusive of any rights or remedies which it would otherwise
have. No failure or delay by Administrative Agent, any Lender or L/C Issuer in
exercising any right shall operate as a waiver of such right. Any waiver or
indulgence granted by Administrative Agent, any Lender or L/C Issuer shall not
constitute a modification of any Loan Document, except to the extent expressly
provided in such written waiver or indulgence, or constitute a course of
dealing by Administrative Agent, any Lender or L/C Issuer at variance with the
terms of any Loan Document such as to require further notice by Administrative
Agent, any Lender or L/C Issuer of Administrative Agents, any Lenders or L/C
Issuers intent to require strict adherence to the terms of such Loan Document
in the future. Any such actions shall not in any way affect the ability of
Administrative Agent, any Lender or L/C Issuer, in its discretion, to exercise
any rights available to them under this Agreement, any other Loan Document or
under any other agreement, whether or not Administrative Agent, any Lender or
L/C Issuer is a party thereto, relating to Borrower, its Subsidiaries or other
Obligors. 63




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11.4 Determinations by Administrative Agent, Lenders and L/C Issuer. Any
material determination required or expressly permitted to be made by
Administrative Agent, any Lender or L/C Issuer under this Agreement shall be
made in its reasonable judgment and in good faith, and shall when made, absent
manifest error, constitute prima facieevidence as to the accuracy thereof. 11.5 Set-Off. In addition to any rights now or hereafter granted under
Law and not by way of limitation of any such rights, during the existence of an
Event of Default, Administrative Agent, each Lender and L/C Issuer and any
subsequent holder of any Note or other Obligations, and any assignee or
participant in any Note or other Obligation is hereby authorized by Borrower at
any time or from time to time, without notice to Borrower or any other Person,
any such notice being hereby expressly waived, to set-off, appropriate and
apply any deposits (general or special (except trust and escrow accounts), time
or demand, including without limitation Debt evidenced by certificates of
deposit, in each case whether matured or unmatured) and any other Debt at any
time held or owing by Administrative Agent, such Lender, L/C Issuer or such
holder to or for the credit or the account of Borrower, against and on account
of the Obligations and other liabilities of Borrower to Administrative Agent,
such Lender, L/C Issuer or such holder, irrespective of whether or not (a)
Administrative Agent, such Lender, L/C Issuer or such holder shall have made
any demand hereunder, or (b) Administrative Agent, such Lender, L/C Issuer or
such holder shall have declared the principal of and interest on any Loan and
other amounts due hereunder to be due and payable as permitted by Section 9.2
and although such obligations and liabilities, or any of them, shall be
contingent or unmatured. Any sums obtained by Administrative Agent, any
Lender, L/C Issuer or any assignee, participant or subsequent holder of any
Note or other Obligation shall be subject to pro rata treatment of the
Obligations and other liabilities hereunder. Notwithstanding any provision of
any Loan Document to the contrary, no Lender may set-off against funds in any
account containing only funds held in trust by Borrower for the benefit of a
third party and which account Borrower has disclosed to Administrative Agent as
being a trust account. 11.6 Assignment. (a) Neither Borrower nor any other Obligor may assign or transfer any of
its rights or obligations hereunder or under the other Loan Documents without
the prior written consent of Administrative Agent and Lenders and, with respect
to L/C Agreements, L/C Issuer. (b) With the prior written consent of Administrative Agent, a Lender may
at any time sell participations in all or any part in its Commitment and/or the
Loans (including such Lenders participation in L/C Obligations) (collectively,
Participations) to any banks or other financial institutions (Participants)
provided that such Participation shall not confer on any Person (other than the
parties hereto) any right to vote on, approve or sign amendments or waivers, or
any other independent benefit or any legal or equitable right, remedy or other
claim under this Agreement or any other Loan Documents, other than the right to
vote on, approve, or sign amendments or waivers or consents with respect to
items that would result in (i) (A) the extension of the date of maturity of, or
(B) the extension of the due date for any payment of principal, interest or
fees respecting, or (C) the reduction of the amount of any installment of
principal or interest on or the change or reduction of any mandatory reduction
required hereunder, or (D) a reduction of the rate of interest on, the Loans;
or (ii) the release of security for the Obligations (except pursuant to this
Agreement). Notwithstanding the foregoing, 64




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Borrower agrees that Participants shall be entitled to the benefits of
Article IX and Section 11.5 as though they were a Lender. To the fullest
extent it may effectively do so under Law, Borrower agrees that any Participant
may exercise any and all rights of bankers lien, set-off and counterclaim with
respect to its Participation as fully as if such Participant were the holder of
the Loans and participation in the L/C Obligations in the amount of its
Participation. (c) Each Lender may assign to one or more financial institutions or funds
organized under the Laws of the United States, or any state thereof, or under
the Laws of any other country that is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country,
which is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business (each, an Assignee) its rights
and obligations under this Agreement and the other Loan Documents; provided,
however, that (i) each such assignment (other than an assignment to a Lender)
shall be subject to the prior written consent of Administrative Agent (which
consent by Administrative Agent shall not be unreasonably withheld) and
Borrower (provided, however, no consent of Borrower shall be required if an
Event of Default under Sections 7.1, 7.2, 7.3, 7.4, 7.5, 9.1(a), (b), (e) or
(f) exists), (ii) the amount of the Commitment and the Loans being assigned
pursuant to each such assignment (determined as of the date of the assignment
with respect to such assignment) shall in no event be less than $3,000,000,
(iii) the applicable Lender, Administrative Agent and applicable Assignee
shall execute and deliver to Administrative Agent an Assignment Agreement,
together with the Notes subject to such assignment, and (iv) the Assignee or
Lender executing the Assignment Agreement as the case may be, shall deliver to
Administrative Agent a processing fee of $2,500. Upon such execution, delivery
and acceptance from and after the effective date specified in each Assignment
Agreement, which effective date shall be at least three Business Days after the
execution thereof, (A) the Assignee thereunder shall be party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment Agreement, have the rights and obligations of a
Lender hereunder and (B) the assigning Lender shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment
Agreement, relinquish such rights and be released from such obligations under
this Agreement. (d) Upon its receipt of an Assignment Agreement executed by a Lender and
an Assignee, and any Note subject to such assignment, Borrower shall, within
ten days after its receipt of such Assignment Agreement, at its own expense,
execute and deliver to Administrative Agent in exchange for the surrendered
Note a new Note payable to the order of such Assignee in an amount equal to the
portion of the Loan assigned to it pursuant to such Assignment Agreement and a
new Note to the order of the assignor in an amount equal to the portion of the
Loan retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the principal amount of such surrendered Note, shall
be dated the effective date of such Assignment Agreement and shall otherwise be
in substantially the form of Exhibit A. Administrative Agent shall retain all
restated Notes (marked Restated) until final payment in full of all
Obligations, termination of the Aggregate Commitments and termination or
expiration of all Letters of Credit. (e) Notwithstanding anything in this Section 11.6 to the contrary, each
Lender may assign and pledge all or any portion of its interest in the Loans
and its Notes to any Federal Reserve Bank as collateral security. 65




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(f) Except as specifically set forth in this Section 11.6, nothing in this
Agreement or any other Loan Documents, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents. (g) Notwithstanding anything in this Section 11.6 to the contrary, no
Assignee or Participant shall be entitled to receive any greater payment under
Article IV than the assigning or participating Lender would have been entitled
to receive with respect to the interest assigned or participated to such
Assignee or Participant. 11.7 Amendment and Waiver. The provisions of this Agreement may not be
amended, modified or waived except by the written agreement of Borrower and
Required Lenders; provided, however, that no such amendment, modification or
waiver shall be made (a)without the consent of all Lenders, if it would (i)
increase the Pro Rata Share or Commitment of any Lender, or (ii) extend the
date of maturity of, extend the due date for any payment of principal or
interest on, reduce the amount of any installment of principal or interest on,
or reduce the rate of interest on, the Loans or other amount owing under any
Loan Documents, or (iii) release any security for the Obligations (except
pursuant to this Agreement), or (iv) reduce the fees payable hereunder, or (v)
revise this Section 11.7, or (vi) waive the date for payment of any of the
Obligations, or (vii) amend the definition of Required Lenders; (b) without the
consent of Administrative Lender, if it would alter the rights, duties or
obligations of Administrative Lender; or (c) without the consent of L/C Issuer,
if it would alter the rights, duties or obligations of L/C Issuer or amend,
modify or waive any provision of any L/C Agreement. Neither this Agreement nor
any term hereof may be amended orally, nor may any provision hereof be waived
orally but only by an instrument in writing the parties required by this
Section 11.7. Notwithstanding anything to the contrary herein, no Defaulting
Lender shall have any right to approve or disapprove any amendment, waiver or
consent hereunder, except that the Commitment of such Lender may not be
increased or extended without the consent of such Lender. 11.8 Confidentiality. Administrative Agent, each Lender and L/C Issuer
agree to maintain the confidentiality of the Information, except that
Information may be disclosed (a) to its and its Affiliates directors,
officers, employees and agents, including accountants, legal counsel and other
advisors (it being understood that the Persons to whom such disclosure is made
will be informed of the confidential nature of such Information and instructed
to keep such Information confidential), (b) to the extent requested by any
Governmental Authority (including any self-regulatory authority, such as the
NAIC), (c) to the extent required by Laws or by any subpoena or similar legal
process, (d) to any other Lender or L/C Issuer, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations under this Agreement, (g) with the written
consent of Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section or (ii) becomes
available to Administrative Agent, any Lender or L/C Issuer on a
nonconfidential basis from a source other than Borrower, any of its
Subsidiaries or any other Obligor. For purposes of this Section, Information
means all 66




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information received from Borrower, any other Obligor or any Subsidiary of
Borrower relating to Borrower, any other Obligor or any Subsidiary of Borrower
or any of their respective businesses, other than any such information that is
available to Administrative Agent, any Lender or L/C Issuer on a
nonconfidential basis prior to disclosure by Borrower, any other Obligor or any
Subsidiary of Borrower, provided that, in the case of information received from
a Borrower, any other Obligor or any Subsidiary of Borrower after the date
hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information. 11.9 Counterparts. This Agreement may be executed in any number of
counterparts, including via facsimile, each of which shall be deemed to be an
original, but all such separate counterparts shall together constitute but one
and the same instrument. 11.10 Severability. Any provision of this Agreement which is for any
reason prohibited or found or held invalid or unenforceable by any Governmental
Authority shall be ineffective to the extent of such prohibition or invalidity
or unenforceability without invalidating the remaining provisions hereof in
such jurisdiction or affecting the validity or enforceability of such provision
in any other jurisdiction. 11.11 Interest and Charges. It is not the intention of any parties to
this Agreement to make an agreement in violation of the Laws of any applicable
jurisdiction relating to usury. Regardless of any provision in any Loan
Document, neither Administrative Agent nor any Lender nor L/C Issuer shall ever
be entitled to receive, collect or apply, as interest on the Obligations, any
amount in excess of the Maximum Amount. If Administrative Agent, any Lender,
L/C Issuer or any Participant ever receives, collects or applies, as interest,
any such excess, such amount which would be excessive interest shall be deemed
a partial repayment of principal by Borrower. In determining whether or not
the interest paid or payable, under any specific contingency, exceeds the
Maximum Amount, Borrower and Administrative Agent, Lenders and L/C Issuer
shall, to the maximum extent permitted under Applicable Law, (a) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations; provided,
however, that if the Obligations are paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Amount, Administrative
Agent, Lenders and L/C Issuer shall refund to Borrower the amount of such
excess or credit the amount of such excess against the total principal amount
of the Obligations owing, and, in such event, neither Administrative Agent nor
any Lender nor L/C Issuer shall be subject to any penalties provided by any
Laws for contracting for, charging or receiving interest in excess of the
Maximum Amount. This Section shall control every other provision of all
agreements pertaining to the transactions contemplated by or contained in the
Loan Documents. 11.12 Replacement of Lenders.If any Lender requests compensation under
Section 4.4, or if Borrower is required to pay any additional amount to any
Lender or any Governmental 67




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Authority for the account of any Lender pursuant to Section 4.1, then
Borrower may, at its sole expense and effort, upon notice to such Lender and
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in, and
consents required by, Section 11.6), all of its interests, rights and
obligations under this Agreement and the related Loan Documents to an assignee
that shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment), provided that: (a) The assignee Lender shall have paid to Administrative Agent the
assignment fee specified in Section 11.6(c); (b) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder and under the other Loan Documents
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or Borrower (in the case of all other amounts); (c) in the case of any such assignment resulting from a claim for
compensation under Section 4.4 or payments required to be made pursuant to
Section 4.1, such assignment will result in a reduction in such compensation or
payments thereafter; and (d) such assignment does not conflict with Applicable Laws. A Lender shall not be required to make any such assignment or delegation
if, prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling Borrower to require such assignment and delegation
cease to apply. 11.13 Exception to Covenants. No Obligor shall be deemed to be permitted
to take any action or fail to take any action which is permitted as an
exception to any of the covenants contained herein or which is within the
permissible limits of any of the covenants contained herein if such action or
omission would result in the breach of any other covenant contained herein. 11.14 USA Patriot Act Notice. Administrative Agent, each Lender and L/C
Issuer hereby notify Borrower that pursuant to the requirements of the USA
Patriot Act (Title III of Pub.L. 107-56 (signed into law October 26, 2001))
(the Act), Administrative Agent, each Lender and L/C Issuer are required to
obtain, verify and record information that identifies Borrower, which
information includes the name and address of Borrower and other information
that will allow Administrative Agent, each Lender and L/C Issuer to identify
Borrower in accordance with the Act. 11.15 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS;
PROVIDED, HOWEVER, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 346 OF THE TEXAS
FINANCE CODE SHALL NOT APPLY TO THE TERM LOAN, THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS. THE LOAN DOCUMENTS ARE PERFORMABLE IN SAN ANTONIO, BEXAR
COUNTY, TEXAS, AND BORROWER, ADMINISTRATIVE 68




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AGENT, LENDERS AND L/C ISSUER WAIVE THE RIGHT TO BE SUED ELSEWHERE.
BORROWER, ADMINISTRATIVE AGENT, LENDERS AND L/C ISSUER AGREE THAT THE STATE AND
FEDERAL COURTS OF TEXAS LOCATED IN SAN ANTONIO, TEXAS SHALL HAVE JURISDICTION
OVER PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. 11.16 WAIVER OF JURY TRIAL. EACH OF BORROWER, ADMINISTRATIVE AGENT,
LENDERS AND L/C ISSUER HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND
INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF
THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS
A MATERIAL INDUCEMENT TO LENDERS AND L/C ISSUER ENTERING INTO THIS AGREEMENT
AND MAKING ANY LOANS AND ISSUING ANY LETTERS OF CREDIT HEREUNDER. 11.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES. The Remainder of This Page Is Intentionally Left Blank. 69




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IN WITNESS WHEREOF, this Agreement is executed as of the date first set
forth above. BORROWER:
    
    AFFIRMATIVE INSURANCE HOLDINGS, INC.By:Print Name:Print Title:
 RIC:
    
    AFFIRMATIVE INSURANCE COMPANYBy:Print Name:Print Title:
 INSURA PROPERTY AND CASUALTY
INSURANCE COMPANYBy:Print Name:Print Title:




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ADMINISTRATIVE AGENT:
    
    THE FROST NATIONAL BANK,
as Administrative AgentBy:Print Name:Print Title:
 L/C ISSUER:
    
    THE FROST NATIONAL BANK,
as L/C IssuerBy:Print Name:Print Title:
 LENDERS:
    
    THE FROST NATIONAL BANKBy:Print Name:Print Title: