Exhibit 10.1





Exhibit 10.1




EXCHANGE AGREEMENT 




Among 




ASCENT ASSURANCE, INC., 




CREDIT SUISSE FIRST
BOSTON MANAGEMENT LLC, 




and 




SPECIAL SITUATIONS
HOLDINGS, INC. — WESTBRIDGE 








Dated as of December
31, 2003 

















TABLE OF CONTENTS 

Page 




			
	ARTICLE I	 	DEFINITIONS	 	2	 
	ARTICLE II	 	THE TRANSACTIONS	 	3	 
	     2.1	 	The Exchange	 	3	 
	     2.2	 	CSFB Loan Documents Amendment.	 	3	 
	     2.3	 	The Closing	 	3	 
	     2.4	 	The Charter Amendment	 	4	 
	     2.5	 	Certain Effects of the Transactions on Capitalization	 	5	 
	     2.6	 	Dissenters Rights	 	5	 
	ARTICLE III	 	CORPORATE GOVERNANCE FOLLOWING THE EXCHANGE	 	5	 
	     3.1	 	New Board	 	5	 
	     3.2	 	Independent Directors; Related Party Transactions	 	6	 
	ARTICLE IV	 	REPRESENTATIONS AND WARRANTIES	 	7	 
	     4.1	 	Representations and Warranties of the Company	 	7	 
	     4.2	 	Representations and Warranties of the CSFB Entities	 	11	 
	ARTICLE V	 	ADDITIONAL AGREEMENTS AND COVENANTS	 	12	 
	     5.1	 	Taxation	 	12	 
	     5.2	 	Publicity	 	12	 
	     5.3	 	Expenses	 	12	 
	     5.4	 	Indemnification	 	12	 
	     5.5	 	Rule 144	 	13	 
	     5.6	 	New Frost Facility	 	13	 
	     5.7	 	Restriction on Business Combinations	 	13	 
	     5.8	 	Registration Rights Agreement	 	14	 
	     5.9	 	Regulatory Approvals	 	14	 
	ARTICLE VI	 	MISCELLANEOUS AND GENERAL	 	14	 
	     6.1	 	Survival	 	14
	     6.2	 	Entire Agreement; No Other Representations	 	14	 
	     6.3	 	Modification or Amendment	 	15	 
	     6.4	 	Waiver of Conditions	 	15	 
	     6.5	 	Counterparts	 	15	 
	     6.6	 	Governing Law and Venue; Waiver of Jury Trial	 	15	 
	     6.7	 	Notices and Waivers	 	15	 
	     6.8	 	No Third Party Beneficiaries	 	16	 
	     6.9	 	Further Assurances	 	16	 
	     6.10	 	Transfer Taxes	 	16	 
	     6.11	 	Severability	 	16	 
	     6.12	 	Interpretation	 	17	 
	     6.13	 	Assignment; CSFB Transferees	 	17	 
	     6.14	 	Specific Performance	 	17	 
	     6.15	 	Knowledge	 	17	 
	 
	 
	EXHIBITS	 
	 
	EXHIBIT A 	Certificate of Designation of Series B Preferred Stock	 
	EXHIBIT B 	Amendment to CSFB Credit Agreement	 
	EXHIBIT C 	 Security Agreement Amendment	 
	EXHIBIT D 	Intercreditor and Subordination Agreement	 









EXCHANGE AGREEMENT 



        EXCHANGE
AGREEMENT (hereinafter called this “Agreement”), dated as of December 31,
2003, among ASCENT ASSURANCE, INC., a Delaware corporation (the
“Company”), CREDIT SUISSE FIRST BOSTON MANAGEMENT LLC (formerly known as
Credit Suisse First Boston Management Corporation, “Management LLC”), and
SPECIAL SITUATIONS HOLDINGS, INC. – WESTBRIDGE (“SPV”, and together
with Management LLC, “CSFB Entities”). 




RECITALS 



        WHEREAS,
the Company and the CSFB Entities have been in ongoing discussions regarding: (i) the
mandatory redemption of the shares of the Company’s Series A Convertible Preferred
Stock (the “Series A Preferred”) on March 24, 2004, all of which are
owned by SPV, and (ii) the maturity of the loans made under the Credit Agreement, dated as
of April 17, 2001, as amended, between the Company, as borrower, and Management LLC, as
administrative agent, arranger and lender (the “CSFB Credit Agreement”); 



        WHEREAS,
the members of the Board of Directors of the Company (the “Board”)
unaffiliated with the CSFB Entities, after considering alternative financing sources, have
determined that in light of prevailing circumstances and recent events and negotiations,
it was in the best interests of the stockholders of the Company unaffiliated with the CSFB
Entities to attempt to negotiate terms for the extension of the respective maturity dates
for the Series A Preferred and the loans made under the CSFB Credit Agreement, while
continuing efforts to renew or replace its agent debit balance financing facility with
LaSalle Bank, NA (the “La Salle Facility”); 



        WHEREAS,
the Board has established a special committee of its independent members (the
“Special Committee”) and hired independent legal and financial advisors
to assist it to (i) evaluate and negotiate the terms of a transaction and this Agreement
with the CSFB Entities, (ii) determine whether the issuance of new securities in exchange
for redemption of the Series A Preferred and the amendment to the CSFB Credit Agreement in
accordance with the terms of this Agreement is fair to the stockholders of the Company
that are unaffiliated with the CSFB Entities (the “Public Holders”) and
(iii) determine whether or not the Company shall otherwise consummate the Exchange (as
hereinafter defined); and 



        WHEREAS,
the Special Committee (i) has determined that it is fair to and in the best interest of
the Public Holders to consummate the Transactions (as hereinafter defined) upon the terms
and subject to the conditions of this Agreement and in accordance with the General
Corporation Law of the State of Delaware (the “DGCL”) and (ii) has
approved the Transactions and this Agreement. 



        NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the CSFB Entities and the
Company hereby agree as follows: 




ARTICLE I




DEFINITIONS 



        “Affiliate”
or “affiliate” shall mean with respect to a specified person, a person
that directly or indirectly through one or more intermediaries, controls or is controlled
by, or is under common control with, the person specified; provided that the Company and
its Subsidiaries shall not, and the executive officers or directors or officers of the
Company or any of its Subsidiaries shall not, solely as a result of holding such office,
be deemed an “Affiliate” of any of the CSFB Entities; and provided,
further, that for purposes of this definition, the term “control”
(including the terms “controlling,” “controlled by” and “under
common control with”) shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person through the
ownership of more than fifty percent (50%) of the voting securities of such person or the
ability to otherwise designate a majority of the board of directors or managers of such
person. 



        “DGCL”
has the meaning set forth in the fourth Whereas clause. 



        “Exchange
Act” means the Securities Exchange Act of 1934, as amended. 



        “Houlihan”
means Houlihan Lokey Howard & Zukin, in its capacity as financial advisor to the
Special Committee. 



        “Material
Adverse Effect” means a material adverse effect on the financial condition,
properties, business or results of operations of the Company and its Subsidiaries taken as
a whole; provided, however, that any such effect resulting from any change
(i) in law, rule, or regulation or generally accepted accounting principles
(“GAAP”) or interpretations thereof that applies to the Company and
similar entities on substantially the same basis or (ii) in the health insurance sector
specifically, or economic or business conditions generally, shall not be considered when
determining if a Material Adverse Effect has occurred. 



        “Related
Party” shall mean SPV, Management LLC and any of their respective Affiliates. 



        “SEC”
means the Securities and Exchange Commission. 



        “Securities
Act” means the Securities Act of 1933, as amended. 



        “Subsidiary”
means, with respect to any party, any entity, whether incorporated or unincorporated, of
which at least a majority of the securities or ownership interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or other persons
performing similar functions is directly or indirectly owned or controlled by such party
or by one or more of its respective Subsidiaries or by such party and any one or more of
its respective Subsidiaries. 




ARTICLE II




THE TRANSACTIONS 



               	2.1. 	  	
                    The Exchange. On the terms and subject to the conditions set forth
                    herein, including in accordance and subject to Section 2.5(a) below, at the
                    Closing: 



                    



               	(a) 	  	
                    SPV agrees that it shall contribute, convey, transfer, assign and deliver, or
                    cause to be contributed, conveyed, transferred, assigned and delivered, to the
                    Company all of the shares of Series A Preferred held by SPV free and clear of
                    any Liens, and the Company agrees that it shall accept and receive all of such
                    shares of Series A Preferred, which shares upon receipt by the Company shall no
                    longer be deemed outstanding. 



                    



               	(b) 	  	
                    The Company agrees that immediately following receipt of the shares of Series A
                    Preferred as described in paragraph (a), it shall issue to SPV in consideration
                    thereof an aggregate of 37,504 shares of Series B Convertible Participating
                    Preferred Stock, par value $.01 per share (the “Series B
                    Preferred”) having the terms set forth in the form of Certificate of
                    Designation for the Series B Preferred set forth as Exhibit A hereto, and
                    deliver to SPV a certificate or certificates representing such shares of Series
                    B Preferred (the “Exchange”). 



                    



               	2.2. 	  	
                    CSFB Loan Documents Amendment. On the terms and subject to the conditions
                    set forth herein, at the Closing, each of Management LLC and the Company agrees
                    to enter into or cause to be entered into an amendment to the CSFB Credit
                    Agreement (the “Credit Agreement Amendment” and the CSFB Credit
                    Agreement, as amended, the “New CSFB Credit Agreement”) having
                    the terms set forth in the form of Amendment to the Credit Agreement set forth
                    as Exhibit B hereto, together with any corresponding amendments to the related
                    Guaranty and Security Agreement dated as of April 17, 2001 among Management LLC
                    and the Company’s Subsidiaries party thereto (the “Security
                    Agreement Amendment”) (all such foregoing amendments, collectively
                    referred to herein as the “CSFB Loan Documents Amendments”),
                    and to execute, file and/or deliver or cause to be executed, filed and/or
                    delivered any filings, applications or other documents required to be executed,
                    filed or delivered in connection therewith. 



                    



               	2.3. 	  	
                    The Closing. 



                    



               	(a) 	  	
                    Closing Date. The closing of the Exchange and the CSFB Loan Documents
                    Amendments (the “Closing”) shall take place at the offices of
                    Stroock & Stroock & Lavan LLP at 180 Maiden Lane, New York, New York,
                    contemporaneously with the execution of this Agreement. The date on which the
                    Closing occurs is referred to as the “Closing Date.” 



                    



               	(b) 	  	
                    Closing Deliveries. 



                    



               	 	  	(i)    
                    Company Deliveries. In connection with and at the Closing, the Company
                    shall deliver to the CSFB Entities the following items: 



                    



               	 	  	        (A)    
                    one or more certificate(s) representing 37,504 shares of Series B Preferred
                    issued in accordance with Section 2.1(b), duly executed; 



                    



               		  	        (B)    
                    a certificate of elimination in respect of the Series A Preferred, executed by a
                    duly authorized officer of the Company and duly approved by the Board, as filed
                    with the Secretary of State of the State of Delaware (the “Certificate of
                    Elimination”), and the Certificate of Designation for the Series B
                    Preferred in the form of Exhibit A attached hereto, each executed by a duly
                    authorized officer of the Company and duly approved by the Board, as filed with
                    the Secretary of State of the State of Delaware; 



                    



               		  	        (C)    
                    duly executed counterparts of the CSFB Loan Documents Amendments, including but
                    not limited to the Credit Agreement Amendment and the Security Agreement
                    Amendment as set forth in Exhibit C hereto; 



                    



               		  	        (D)    
                    the legal opinions of Milbank, Tweed, Hadley & McCloy LLP as to the Exchange
                    and the shares of Series B Preferred issued in connection therewith and the CSFB
                    Loan Documents Amendments, in each case dated as of the Closing Date, in form
                    and substance reasonably satisfactory to the CSFB Entities and duly executed; 



                    



               		  	        (E)    
                    a certificate, dated as of the Closing Date, and signed by the general counsel
                    of the Company as to the Company’s organizational documents, resolutions
                    authorizing the execution, delivery and performance of this Agreement and the
                    transactions contemplated hereby, the certificate(s) representing the shares of
                    Series B Preferred to be issued in the Exchange and attesting to the incumbency
                    of its signing officers, duly executed; 



                    



               		  	        (F)    
                    a “long form” good standing certificate for the Company, dated no more
                    than two business days prior to the Closing Date, issued by the Secretary of
                    State of the State of Delaware; and 



                    



               	 	  	        (G)    
                    such other written instruments, certificates or documents as the CSFB Entities
                    or their counsel may reasonably request. 



                    



               	  	  	(ii)    
                    CSFB Entities’ Closing Deliveries. In connection with and at the
                    Closing, the CSFB Entities shall deliver to the Company the following items: 



                    



               		  	        (A)    
                    Certificates representing (and/or duly executed affidavits of lost certificates
                    in respect of) 36,567 shares of Series A Preferred to be delivered in exchange
                    for the certificate(s) representing 37,504 shares of Series B Preferred to be
                    issued in accordance with Section 2.1(b); 



                    



               		  	        (B)    
                    duly executed counterparts of the CSFB Loan Documents Amendments, including but
                    not limited to the Credit Agreement Amendment and the Security Agreement
                    Amendment; and 



                    



               	 	  	        (C)    
                    such other written instruments, certificates or documents as the Company or its
                    counsel may reasonably request. 



                    



               	2.4. 	  	
                    The Charter Amendment. 



                    



               	(a) 	  	
                    Adoption. On the Closing Date the Board of the Company (subject to
                    obtaining the requisite approval of the Company’s stockholders) shall
                    approve and recommend, and on and after the Closing Date the Company shall take
                    all steps necessary and appropriate to effect, the convening of a meeting of
                    holders of shares of its Common Stock (as hereinafter defined) (including any
                    such meeting held pursuant to an adjournment or postponement, the
                    “Stockholders Meeting”) as promptly as practicable, but no
                    later than June 30, 2004, to consider and vote upon the approval of the
                    amendment to its certificate of incorporation to increase the number of
                    authorized shares of Common Stock to 75,000,000 (the “Charter
                    Amendment”), it being understood that the foregoing requirement to
                    convene a Stockholders Meeting may be satisfied in connection with the
                    Company’s scheduled May 2004 annual meeting of stockholders. The Company
                    agrees that the New Board (as defined below) shall not, except as otherwise
                    required in order to comply with applicable fiduciary duties, revoke such
                    recommendation and approval and shall take all lawful and reasonable action to
                    solicit such approval and the obtaining of the affirmative vote of a majority of
                    the outstanding shares of Common Stock (the “Charter Amendment
                    Vote”) in connection therewith. The Charter Amendment, the Exchange and
                    the CSFB Loan Documents Amendments are hereinafter collectively referred to as,
                    the “Transactions.” 



                    



               	(b) 	  	
                    CSFB Entities’ Vote. Each of the CSFB Entities agrees to be present
                    in person or by proxy at the Stockholders Meeting duly called by the Company to
                    obtain the Charter Amendment Vote and at any adjournment or postponement thereof
                    and to vote any and all shares of capital stock of the Company held by it and
                    any of its affiliates in support of the Charter Amendment. 



                    



               	(c) 	  	
                    Filing and Effective Time. The Company shall file the Charter Amendment
                    with the Secretary of State of the State of Delaware as promptly as practicable
                    after the Company obtains the Charter Amendment Vote. The Charter Amendment
                    shall become effective upon such filing with the Secretary of State of the State
                    of Delaware, in such form as required by, and executed in accordance with, the
                    relevant provisions of the DGCL (the “Charter Amendment Effective
                    Time”). 



                    



               	2.5. 	  	
                    Certain Effects of the Transactions on Capitalization. As a result of the
                    applicable Transaction and without any action on the part of the CSFB Entities: 



                    



               	(a) 	  	
                    The Preferred Stock Exchange. As of the Closing, the certificates
                    representing the shares of Series A Preferred subject to the Exchange will no
                    longer be outstanding and shall be retired and cancelled and immediately upon
                    receipt of such certificates representing the Series A Preferred, the Company
                    shall file the Certificate of Elimination. All 40,000 shares of Preferred Stock,
                    par value $.01 per share (the “Preferred Stock”), authorized
                    under the its certificate of incorporation (the “Charter”)
                    shall immediately thereafter upon the filing of the Certificate of Designation
                    for the Series B Preferred be redesignated and available for reissuance as
                    shares of Series B Preferred. All shares of Series B Preferred to be issued
                    pursuant to the Exchange shall be deemed issued and outstanding as of the
                    Closing Date. 



                    



               	(b) 	  	
                    The CSFB Loan Documents Amendments. At and after the Closing, the parties
                    acknowledge and agree that the New CSFB Credit Agreement and the obligations of
                    the Company thereunder shall continue to remain outstanding and in full force
                    and effect. 



                    



               	2.6. 	  	
                    Dissenters’ Rights. In accordance with Section 262 of the DGCL, no
                    appraisal rights shall be available to holders of shares of Common Stock in
                    connection with the Transactions. 



                    




ARTICLE III 




CORPORATE GOVERNANCE
FOLLOWING THE EXCHANGE 



     	3.1.	  	
                    New Board. The Company shall take any and all actions necessary on its
          part (including obtaining the resignation of directors) to cause the directors
          comprising the full Board, subject to the completion of the Exchange and with
          effect as of January 1, 2004, to consist of those members in the table set forth
          below (the “New Board”), in each case such appointments to be
          in accordance with the Charter and to remain effective through and from January
          1, 2004 in accordance with the Charter, the Company’s by-laws (the
          “By-Laws”) and applicable law. The directors comprising the New
          Board shall, from and after January 1, 2004, be the directors of the Company
          until their successors have been duly elected or appointed and qualified or
          until their earlier death, resignation, removal or replacement in accordance
          with the Charter, the Bylaws and applicable law. Thereafter, except as set forth
          in Section 3.2, all nominations and elections shall be governed in accordance
          with the Charter, the By-Laws, each as amended from time to time, and applicable
          law.  



                    


	 	

	 	Director Name	Class	 
	 	George Hornig	Re-Election in 2006	 
	 	Alan Freudenstein	Re-Election in 2006	 
	 	Mike Kramer	Re-Election in 2005	 
	 	Paul Suckow 	Re-Election in 2005	 
	 	Patrick Mitchell	Re-Election in 2004	 
	 	Greg Grimaldi	Re-Election in 2004	 
	 	* 	Re-Election in 2004	 
	 	

	 	      * To be appointed as designee by CSFB Entities after Closing Date.	 





               	3.2. 	  	
                    Independent Directors; Related Party Transactions. 



                    



               	(a) 	  	
                    The Company agrees that, following the Closing until the earlier of such date as
                    of which there cease to be any Public Holders or the date of consummation of a
                    Sale Transaction (as defined below), (i) the Company shall at all times maintain
                    Messrs. Kramer and Suckow and/or each or both of their respective successors in
                    accordance with paragraph (b) below (the “Independent
                    Directors”) on the New Board (each of whom to be qualified shall not be
                    officers of the Company or any of its Subsidiaries, shall not otherwise be
                    affiliates of any of the CSFB Entities and shall qualify as
                    “independent” under the rules or listing standards of any securities
                    exchange or market on which any of the Company’s securities are listed or
                    approved for trading or, if not so listed or approved, under the rules or
                    listing standards of the Nasdaq Stock Market in effect from time to time) and
                    (ii) the Company shall not, and shall not permit any of its Subsidiaries to,
                    consummate a Related Party Transaction (as defined below) that has not been
                    approved by the Independent Directors; provided, however, that in
                    no event shall the foregoing approval of the Independent Directors be required,
                    if (x) the Related Party Transaction is a Business Combination Transaction (as
                    hereinafter defined) consummated in accordance with Section 5.7 or (y) the
                    Related Party Transaction is a short-form merger consummated pursuant to Section
                    253 of the DGCL that has an effective date on or after January 1, 2005 and that
                    provides for merger consideration to the Public Holders (1) which consideration
                    is all cash and (2) which consideration has been reasonably determined by the
                    relevant parent stockholder to constitute fair value (after subtracting debt and
                    other liabilities of the Company and its Subsidiaries) within the meaning of
                    Section 262 of the DGCL. 



                    



               	(b) 	  	
                    For as long as the requirement to have Independent Directors serving on the New
                    Board is in effect in accordance with this Section 3.2, the Independent
                    Directors shall have the right to designate nominees for election to at least
                    two seats (including the right to fill any vacancy in any other Independent
                    Director seat occurring between regular elections), such that immediately
                    following such election at least two of the Independent Directors serving on the
                    Board will be either Messrs. Kramer and Suckow or designees of such persons who
                    shall also otherwise qualify as Independent Directors hereunder. Each
                    Independent Director shall undertake to resign from the Board promptly following
                    such time as the requirement to have Independent Directors serving on the New
                    Board ceases to be in effect in accordance with this Section 3.2. 



                    



               	(c) 	  	
                    For purposes of this Section 3.2, the following defined terms shall have the
                    following meanings: 



                    



               	 	  	(i)    
                    A “Sale Transaction” shall mean the voluntary sale, conveyance,
                    exchange or transfer (for cash, shares of stock, securities or other
                    consideration) of all or substantially all the property or assets of the Company
                    to, or the consolidation or merger of the Company with, one or more other
                    corporations or other entities, where the stockholders of the Company
                    immediately prior to such transaction receive the same proportionate
                    consideration for their shares and thereafter do not beneficially own,
                    collectively, shares of capital stock representing at least a majority of the
                    voting power of all outstanding securities entitled to vote generally in
                    election of directors or persons performing a similar function of the surviving
                    or successor corporation or other entity. The good faith determination of a
                    majority of the New Board (or persons performing a similar function of a
                    successor entity), together with the consent of the Independent Directors (which
                    consent shall not be unreasonably withheld or delayed), that a Sale Transaction
                    has occurred shall conclusively establish the occurrence of such event. 



                    



               	 	  	(ii)    
                    A “Related Party Transaction” shall mean, directly or
                    indirectly and in any transactions or series of related transactions: 



                    



               		  	        (A)    
                    Any amendment or modification of, or waiver of any right of the Company under,
                    this Agreement, the Series B Preferred, the Registration Rights Agreement (as
                    hereinafter defined), as amended in accordance with Section 5.8 hereof, or the
                    CSFB Credit Agreement and all related documents and agreements; or 



                    



               	 	  	        (B)    
                    Any sale of the assets or issuance of shares of capital stock of the Company or
                    any Subsidiary (including a Business Combination Transaction) to (or any
                    acquisition of assets from or share subscription in) a Related Party, other than
                    a subscription for shares of the Company by any Related Party pursuant to a
                    rights offering made available to all holders of Common Stock on a pro rata
                    basis and for the same amount and form of consideration and otherwise on
                    substantially the same terms and conditions; or 



                    



               		  	        (C)    
                    Any merger or consolidation between or among the Company or any Subsidiary
                    (including a Business Combination Transaction) and any Related Party; or 



                    



               	 	  	        (D)    
                    Any merger, statutory share exchange or consolidation involving the Company or
                    any Subsidiary (including a Business Combination Transaction) pursuant to which
                    any Related Party is entitled to receive consideration in respect of its
                    securities in the Company that is different in form or amount from that offered
                    all holders of the same class of such securities, other than ancillary
                    arrangements or rights entailing no monetary payments and other than reasonable
                    third-party legal fees, out-of-pocket expense reimbursement and indemnification
                    for the benefit of a Related Party for liabilities in respect of which other
                    holders of the same class have no liability; or 



                    



               		  	        (E)    
                    Any other transaction or series of related transactions (including a Business
                    Combination Transaction) between or among the Company and/or any Subsidiary on
                    the one hand and any Related Parties on the other hand, other than payments in
                    respect of customary director fees in accordance with past practice or other
                    ordinary course transactions the value of any of which does not exceed $100,000. 



                    



               	(d) 	  	
                    Each of the CSFB Entities hereby acknowledge and consent to the provisions of
                    this Section 3.2 and agrees to vote any shares of Common Stock held by it in
                    favor of the Independent Directors nominated in accordance with this Section 3.2
                    so as to give effect to such provisions. 



                    



               	(e) 	  	
                    The Public Holders may rely on the provisions of this Section 3.2, which
                    provisions are intended to be for the benefit of the Public Holders and shall be
                    enforceable by each of the Public Holders or by the Independent Directors on
                    behalf of the Public Holders. The Company hereby agrees that it will pay for
                    reasonable fees and expenses of one firm of counsel engaged to represent the
                    Independent Directors in connection with any actions to enforce the provisions
                    hereof on behalf of the Public Holders that is brought and pursued with the good
                    faith approval of each Independent Director. 



                    




ARTICLE IV 




REPRESENTATIONS AND
WARRANTIES 



     	4.1. 	  	
                    Representations and Warranties of the Company. Except as set forth in the
          corresponding sections or subsections of the disclosure letter delivered to the
          CSFB Entities by the Company on or prior to entering into this Agreement (the
          “Disclosure Letter”), the Company hereby represents and
          warrants to the CSFB Entities that:  



                    



     	(a) 	  	
          Organization, Good Standing and Qualifications. Each of the Company and
          each Subsidiary is duly organized, validly existing and in good standing under
          the laws of its respective jurisdiction of organization and has all requisite
          corporate or similar power and authority to own and operate its properties and
          assets and to carry on its business as presently conducted and is qualified to
          do business and is in good standing as a foreign corporation in each
          jurisdiction where the ownership or operation of its properties or conduct of
          its business requires such qualification, except where the failure to be so
          qualified or in such good standing, when taken together with all other such
          failures, is not reasonably likely to prevent, materially delay or materially
          impair the ability of it to consummate the Transactions. 



                    



     	(b) 	  	
          Corporate Authority; Binding and Enforceable. The Company has all
          requisite power and authority and has taken all action necessary under the DGCL
          and under its governing documents in order to execute, deliver and perform its
          obligations under this Agreement and to consummate the Transactions, subject to
          the Charter Amendment Vote. This Agreement is a valid and binding agreement of
          the Company, enforceable against it in accordance with its terms, subject to
          bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
          similar laws of general applicability relating to or affecting creditors’
          rights and general equity principles. 



                    



     	(c) 	  	
          No Organic or Legal Violations. The execution, delivery and performance
          of this Agreement by the Company do not, and the consummation by the Company of
          any applicable Transactions will not, constitute or result in (i) a breach or
          violation of, or a default under, its Charter or its By-Laws, or (ii) a breach
          or violation of, or a default under, or the acceleration of any obligations, or
          the creation of a Lien (as defined below) on its assets (with or without notice,
          lapse of time or both) pursuant to any federal, state, local or foreign law,
          statute, ordinance, rule, regulation, judgment, order, injunction, decree,
          arbitration award, agency requirement or similar restriction (collectively,
          “Laws”) of any court or any foreign or domestic governmental,
          regulatory or self-regulatory authority, agency, commission, body or other
          entity (each, a “Governmental Entity”) to which it is subject. 



                    



     	(d) 	  	
          Capital Structure. The authorized capital stock of the Company consists
          of 30,000,000 shares of Common Stock, par value $.01 per share (“Common
          Stock”) and 40,000 shares of Preferred Stock, all of which until the
          Closing Date were designated as the Series A Preferred (the Preferred Stock,
          together with the Common Stock, the “Capital Stock”). As of the
          close of business on December 31, 2003 there were outstanding 6,532,100 shares
          of Common Stock and 36,567 shares of Series A Preferred. All of the outstanding
          shares of Common Stock and the Series A Preferred have been duly authorized and
          are validly issued, fully paid and nonassessable. In addition, as of the close
          of business on December 31, 2003, the Company has outstanding 971,266 warrants
          to purchase 971,266 shares of Common Stock at an exercise price of $9.04 per
          share (the “Warrants”). The Company has no shares of Capital
          Stock reserved for issuance, except that, as of the close of business on
          December 31, 2003, there were 1,606,704 shares of Common Stock reserved for
          issuance pursuant to the Company’s Stock Plans, and 971,266 shares of
          Common Stock reserved for issuance upon the exercise of the Warrants. Each of
          the outstanding shares of capital stock or other securities of each of the
          Company’s Subsidiaries is duly authorized, validly issued, fully paid and
          nonassessable and owned by the Company or by a direct or indirect wholly owned
          Subsidiary of the Company, free and clear of Liens. Except as set forth above,
          there are no preemptive or other outstanding rights, options, warrants,
          conversion rights, stock appreciation rights, redemption rights, repurchase
          rights, agreements, arrangements or commitments to issue or sell any shares of
          capital stock or other securities of the Company or any of its Subsidiaries or
          any securities or obligations convertible or exchangeable into or exercisable
          for, or giving any Person a right to subscribe for or acquire, any securities of
          the Company or any of its Subsidiaries, and no securities or obligations
          evidencing such rights are authorized, issued or outstanding. The Company does
          not have outstanding any bonds, debentures, notes or other obligations the
          holders of which have the right to vote (or, convertible into or exercisable for
          securities having the right to vote) with the stockholders of the Company on any
          matter (“Voting Debt”). 



                    


		  	Section
4.1(d) of the Disclosure Letter contains a correct and complete list of each outstanding
Warrant and of each option or similar right (including any stock appreciation rights) to
purchase or acquire any shares of Common Stock under the Stock Plan (each such option or
similar right, an “Option”) including the holder, the date of grant,
exercise price and number of shares subject thereto. 



                    

	(e) 	  	
          Required Stockholder Votes; Issuance of Capital Stock; Board Approval. 



                    



     	 	  	(i)    
          The only approval of stockholders of the Company required for the Company to
          execute, deliver and perform its obligations under this Agreement and to
          consummate the Transactions is the Charter Amendment Vote to effect the Charter
          Amendment. 



                    



     	 	  	(ii)    
          Prior to the Closing, the Company will have taken all action necessary to permit
          it to issue the shares of Series B Preferred required to be issued in the
          Exchange. The shares of Series B Preferred, when issued in the Exchange, will be
          validly issued, fully paid and nonassessable, and no stockholder of the Company
          will have any preemptive right of subscription or purchase in respect thereof. 



                    



     	 	  	(iii)    
          Each of the Board and the Special Committee of the Company has unanimously
          approved this Agreement and each of the Transactions and the other transactions
          contemplated hereby. 



                    



     	(f) 	  	
          Opinion of Financial Advisor. The Special Committee has received the
          written opinion of Houlihan dated the date of this Agreement to the effect that,
          as of the date of this Agreement, the Transactions are fair to the Company and
          to the Public Holders from a financial point of view and such opinion has not been withdrawn. A copy of such opinion has been delivered to the CSFB Entities.



                    



     	(g) 	  	
          Governmental Filings; No Registration. Other than the filings and notices
          (i) pursuant to or required in connection with Section 2.4 (The Charter
          Amendment) or (ii) to comply with state securities or “blue-sky” laws
          or (iii) made pursuant to a Current Report on Form 8-K to announce the
          consummation of the Transactions, no notices, reports or other filings are
          required to be made by the Company with, nor are any consents, registrations,
          approvals, permits or authorizations required to be obtained by it from, any
          court or Governmental Entity in connection with the execution and delivery of
          this Agreement and the consummation of the Transactions by the Company, except
          those that the failure to make or obtain are not, individually or in the
          aggregate, reasonably likely to prevent, materially delay or materially impair
          the ability of it to consummate the Transactions. 



                    



     	(h) 	  	
          Securities Act Exemption. The Company acknowledges and agrees that the
          shares of Series B Preferred to be issued in the Exchange are being issued in a
          transaction intended to be exempt from registration under Section 3(a)(9) of the
          Securities Act and accordingly it is not be necessary to register under the
          Securities Act the offer and sale of the shares of Series B Preferred to be
          issued by the Company in the Exchange. Assuming the accuracy of the CSFB
          Entities representations in Section 4.2(d) to the extent applicable, the
          issuance of shares of Series B Preferred in the Exchange also qualifies for the
          exemption from registration provided by Section 4(2) of the Securities Act and
          Regulation D thereunder. 



                    



     	(i) 	  	
          No Contract Violations. The execution, delivery and performance of this
          Agreement by the Company do not, and the consummation by the Company of the
          Transactions will not, constitute or result in a breach or violation of, or a
          default under, the acceleration of any obligations of, or the creation of any
          Lien on the assets of, the Company or any of its Subsidiaries (with or without
          notice, lapse of time or both) pursuant to, any agreement, lease, contract,
          note, mortgage, indenture, arrangement or other obligation not otherwise
          terminable by either party thereto on 30 days’ or less notice
          (“Contracts”), and binding upon the Company or any of its
          Subsidiaries or any change in the rights or obligations of any party under any
          of the Contracts, except for “change in control” or similar provisions
          disclosed in Section 4.1(l) of the Disclosure Letter and except for any breach,
          violation, default, acceleration, creation or change that, individually or in
          the aggregate, is not reasonably likely to have a Material Adverse Effect or to
          prevent, materially delay or materially impair the ability of the Company to
          consummate the Transactions. 



                    



     	(j) 	  	
          Company Reports; Financial Statements. The Company has delivered to the
          CSFB Entities, each registration statement, report, proxy statement or
          information statement prepared by it since December 31, 2002 (the “Audit
          Date”), including (i) the Company’s Annual Report on Form 10-K for
          the year ended December 31, 2002, and (ii) the Company’s Quarterly Reports
          on Form 10-Q for the periods ended March 31, 2003, June 30, 2003 and September
          30, 2003, each in the form (including exhibits, annexes and any amendments
          thereto) filed with the SEC (collectively, the “Company
          Reports”). As of their respective dates, the Company Reports did not
          contain any untrue statement of a material fact or omit to state a material fact
          required to be stated therein or necessary to make the statements made therein,
          in light of the circumstances in which they were made, not misleading. Each of
          the consolidated balance sheets included in or incorporated by reference into
          the Company Reports (including the related notes and schedules) fairly presents
          the consolidated financial position of the Company and its Subsidiaries as of
          its date and each of the consolidated statements of income and of changes in
          financial position included in or incorporated by reference into the Company
          Reports (including any related notes and schedules) fairly presents the results
          of operations, retained earnings and changes in financial position, as the case
          may be, of the Company and its Subsidiaries for the periods set forth therein
          (subject, in the case of unaudited statements, to notes and normal year-end
          audit adjustments that will not be material in amount or effect), in each case
          in accordance with GAAP consistently applied during the periods involved, except
          as may be noted therein. 



                    



     	(k) 	  	
          Litigation and Liabilities. Except as disclosed in the Company Reports
          filed prior to the date hereof, there are no (i) civil, criminal or
          administrative actions, suits, claims, hearings, investigations or proceedings
          pending or, to the knowledge of the executive officers of the Company,
          threatened against the Company or any of its affiliates, or (ii) obligations or
          liabilities, whether or not accrued, contingent or otherwise and whether or not
          required to be disclosed, including those relating to tax or to environmental
          and occupational safety and health matters, or any other facts or circumstances
          of which the executive officers of the Company have knowledge that could result
          in any claims against, or obligations or liabilities of, the Company or any of
          its affiliates, except for those that are not, individually or in the aggregate,
          reasonably likely to have a Material Adverse Effect or to prevent or to
          materially impair the ability of the Company to consummate the Transactions. 



                    



     	(l) 	  	
          Employee Benefits. 



                    



     		  	(i)    
          A copy of each bonus, deferred compensation, pension, retirement,
          profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
          purchase, restricted stock, Stock Option, employment, termination, severance,
          compensation, medical, health, life, disability or other plan, agreement, policy
          or arrangement that covers employees, directors, former employees or former
          directors of the Company and its Subsidiaries (the “Compensation and
          Benefit Plans”) and any trust agreement or insurance contract forming a
          part of such Compensation and Benefit Plans has been made available to the CSFB
          Entities prior to the date hereof. 



                    



     		  	(ii)    
          The Compensation and Benefit Plans are listed in Section 4.1(l) of the
          Disclosure Letter and any “change of control” or similar provisions
          therein are specifically identified in such Section of the Disclosure Letter. 



                    



     	 	  	(iii)    
          Neither the Company nor any of its Subsidiaries has engaged in a transaction
          with respect to any Compensation and Benefit Plan that would subject the Company
          or any of its Subsidiaries to a tax or penalty imposed by either Section 4975 of
          the Code or Section 502 of the Employee Retirement Income Security Act of 1974,
          as amended (“ERISA”). 



                    



     	 	  	(iv)    
          As of the date hereof, no liability under subtitle C or D of Title IV of ERISA
          has been or is expected to be incurred by the Company or any Subsidiary with
          respect to any ongoing, frozen or terminated “single-employer plan”,
          within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
          maintained by any of them, or the single-employer plan of any entity which is
          considered one employer with the Company under Section 4001 of ERISA or Section
          414 of the Code (an “ERISA Affiliate”). The Company and its
          Subsidiaries either (a) have not incurred and do not expect to incur any
          withdrawal liability with respect to a multiemployer plan under Subtitle E to
          Title IV of ERISA or (b) have not contributed, or been obligated to contribute,
          to a multiemployer plan under Subtitle E of Title IV of ERISA at any time since
          September 26, 1980. No notice of a “reportable event”, within
          the meaning of Section 4043 of ERISA for which the 30-day reporting requirement
          has not been waived, has been required to be filed for any pension plan or by
          any ERISA Affiliate within the 12-month period ending on the date hereof or will
          be required to be filed in connection with the Transactions. 



                    



     	 	  	(v)    
          Neither any pension plan nor any single-employer plan of an ERISA Affiliate has
          an “accumulated funding deficiency” (whether or not waived) within the
          meaning of Section 412 of the Code or Section 302 of ERISA and neither the
          Company, its Subsidiaries or any ERISA Affiliate has failed to make when due all
          quarterly contributions required under Section 412 of the Code or Section 302 of
          ERISA. Neither the Company nor its Subsidiaries has provided, or is required to
          provide, security to any Compensation and Benefit Plan that is an “employee
          pension benefit plan” within the meaning of section 3(2) of ERISA (any such
          plan, a “Pension Plan”) or to any single-employer plan of an
          ERISA Affiliate pursuant to Section 401(a)(29) of the Code. 



                    



     	 	  	(vi)    
          Under each Pension Plan which is a single-employer plan, as of the last day of
          the most recent plan year ended prior to the date hereof, the actuarially
          determined present value of all “benefit liabilities”, within the
          meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
          actuarial assumptions contained in the Pension Plan’s most recent actuarial
          valuation), did not exceed the then current value of the assets of such Pension
          Plan, and there has been no material change in the financial condition of such
          Pension Plan since the last day of the most recent plan year. 



                    



     	 	  	(vii)    
          Neither the Company nor its Subsidiaries have any obligations for
          post-termination health, life or other non-pension benefits under any
          Compensation and Benefit Plan, except as set forth in Section 4.1(l) of the
          Disclosure Letter or as required pursuant to Section 4980B of the Code and
          Sections 601 through 608 of ERISA. The Company or its Subsidiaries may amend or
          terminate any such plan under the terms of such plan at any time without
          incurring any material liability thereunder with respect to events subsequent to
          such termination. 



                    



     	 	  	(viii)    
          Except as disclosed pursuant to clause (ii) above, the consummation of the
          Transactions will not (x) entitle any employees of the Company or its
          Subsidiaries to severance pay, (y) accelerate the time of payment or vesting or
          trigger any payment of compensation or benefits under, increase the amount
          payable or trigger any other obligation pursuant to, any of the Compensation and
          Benefit Plans or (z) result in any breach or violation of, or a default under,
          any of the Compensation and Benefit Plans. 



                    



     	 	  	(ix)    
          No event has occurred in connection with which the Company, any Subsidiary, any
          ERISA Affiliate or any Compensation and Benefit Plan, directly or indirectly
          could be subject to any liability (a) under any statute, regulation, or
          governmental order relating to any Compensation and Benefit Plan or and single
          employer plan of an ERISA Affiliate or (b) pursuant to any obligation of the
          Company or a Subsidiary to indemnify a person against liability incurred under
          any such statute, regulation or order as they relate to the Compensation and
          Benefit Plans. 



                    



     	(m) 	  	
          Compliance with Laws; Permits. Except as set forth in the Company Reports
          filed prior to the date hereof, the businesses of each of the Company and its
          Subsidiaries have not been, and are not being, conducted in violation of any
          Laws, except for violations or possible violations that, individually or in the
          aggregate, are not reasonably likely to have a Material Adverse Effect or to
          prevent or materially impair the ability of the Company to consummate the
          Transactions. Except as set forth in the Company Reports filed prior to the date
          hereof, no investigation or review by any Governmental Entity with respect to
          the Company or any of its Subsidiaries is pending or, to the knowledge of the
          executive officers of the Company, threatened, nor has any Governmental Entity
          indicated an intention to conduct the same, except for those the outcome of
          which are not, individually or in the aggregate, reasonably likely to have a
          Material Adverse Effect or to prevent or materially impair the ability of the
          Company to consummate the Transactions. To the knowledge of the executive
          officers of the Company, no material change is required in the Company’s or
          any of its Subsidiaries’ processes, properties or procedures in connection
          with any such Laws, and the Company has not received any notice or communication
          of any material noncompliance with any such Laws that has not been cured as of
          the date hereof. The Company and each of its Subsidiaries have all permits,
          licenses, trademarks, patents, trade names, copyrights, service marks,
          franchises, variances, exemptions, orders and other governmental authorizations,
          consents and approvals necessary to conduct its business as presently conducted
          except those the absence of which are not, individually or in the aggregate,
          reasonably likely to have a Material Adverse Effect or to prevent or materially
          impair the ability of the Company to consummate the Transactions. 



                    



     	(n) 	  	
          Takeover Statutes. The Company acknowledges and agrees that
          notwithstanding this Agreement and the consummation of the Transactions
          contemplated hereby, neither Section 203 of the DGCL nor any similar takeover
          law now or hereafter prohibit the CSFB Entities or any of their affiliates from
          entering into a “business combination” with the Company as an
          “interested stockholder” (in each case as such term is used in Section
          203 of the Delaware Law). 



                    



     	(o) 	  	
          Tax Matters. As of the date hereof, neither the Company nor any of its
          affiliates has taken or agreed to take any action, nor do the executive officers
          of the Company have any knowledge of any fact or circumstance, that would
          prevent the Exchange from qualifying as a reorganization within the meaning of
          Section 368(a)(1)(E) of the Code. 



                    



     	(p) 	  	
          Taxes. The Company and each of its Subsidiaries (i) have prepared in good
          faith and duly and timely filed (taking into account any extension of time
          within which to file) all Tax Returns (as defined below) required to be filed by
          any of them and all such filed Tax Returns are complete and accurate in all
          material respects; (ii) have paid all Taxes (as defined below) that are shown as
          due on such filed Tax Returns or that the Company or any of its Subsidiaries are
          obligated to withhold from amounts owing to any employee, creditor or third
          party, except with respect to matters contested in good faith; and (iii) have
          not waived any statute of limitations with respect to Taxes or agreed to any
          extension of time with respect to a Tax assessment or deficiency. As of the date
          hereof, there are not pending or, to the knowledge of the executive officers of
          the Company threatened in writing, any audits, examinations, investigations or
          other proceedings in respect of Taxes or Tax matters. There are not, to the
          knowledge of the executive officers of the Company, any unresolved questions or
          claims concerning the Company’s or any of its Subsidiaries’ Tax
          liability that are reasonably likely to have a Material Adverse Effect. 



                    



	 	  	As
used in this Agreement, (i) the term “Tax” (including, with correlative
meaning, the terms “Taxes” and “Taxable”) includes all
federal, state, local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severances, stamp, payroll, sales, employment,
unemployment, disability, use, property, withholding, excise, production, value added,
occupancy and other taxes, duties or assessments of any nature whatsoever, together with
all interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions, and (ii) the term “Tax
Return” includes all returns and reports (including elections, declarations,
disclosures, schedules, estimates and information returns) required to be supplied to a
Tax authority relating to Taxes. 



                    



     	(q) 	  	
          Brokers and Finders. Neither the Company nor any of its officers,
          directors or employees has employed any broker or finder or incurred any
          liability for any brokerage fees, commissions or finders’ fees in
          connection with the Transactions except that the Company has employed Houlihan
          to render a fairness opinion in connection with the Transactions, the
          arrangements with which have been disclosed to the CSFB Entities prior to the
          date hereof. 



                    



     	4.2 	  	
          Representations and Warranties of the CSFB Entities. Each of Management
          LLC and SPV hereby represents and warrants to the Company that: 



                    



     	 (a)	  	
          Organization, Good Standing and Qualifications. Each of Management LLC
          and SPV is duly organized, validly existing and in good standing under the laws
          of the State of Delaware and has all requisite corporate or similar power and
          authority to own and operate its properties and assets and carry on its business
          as presently conducted and is qualified to do business and is in good standing
          as a foreign corporation in each jurisdiction where the ownership or operation
          of its properties or conduct of its business requires such qualification, except
          where the failure to be so qualified or in such good standing, when taken
          together with all other such failures, is not reasonably likely to prevent,
          materially delay or materially impair the ability of it to consummate the
          Transactions. 



                    



     	 (b)	  	
          Corporate Authority; Binding and Enforceable. Each of the CSFB Entities
          has all requisite power and authority and has taken all action necessary under
          the laws of the State of Delaware and under its governing documents in order to
          execute, deliver and perform its obligations under this Agreement and to
          consummate the Transactions. This Agreement is a valid and binding agreement of
          each of the CSFB Entities, enforceable against it in accordance with its terms,
          subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
          moratorium and similar laws of general applicability relating to or affecting
          creditors’ rights and general equity principles. 



                    



     	 (c)	  	
          No Violations. Subject to the receipt of regulatory approvals required to
          be obtained by the CSFB Entities in connection with the conversion of the shares
          of Series B Preferred, which approvals the CSFB Entities shall seek to obtain in
          accordance with Section 5.9 hereof, the execution, delivery and performance of
          this Agreement by the CSFB Entities do not, and the consummation by Management
          LLC and SPV of any applicable Transactions and the other transactions
          contemplated hereby will not, constitute or result in (i) a breach or violation
          of, or a default under, their governing documents or (ii) a breach or violation
          of, or a default under, or the acceleration of any obligations or the creation
          of Liens on their assets pursuant to any Laws of any Governmental Entity to
          which they are subject. 



                    



     	 (d)	  	
          Status and Investment Intent. Each of the CSFB Entities is an
          “accredited investor” as defined in Rule 501 of Regulation D
          promulgated under the Securities Act. SPV is acquiring the shares of Series B
          Preferred issuable pursuant to the Exchange for its own account and for
          investment purposes only and not with a view to, or for resale in connection
          with, any distribution thereof in violation of the Securities Act. 



                    



     	 (e)	  	
          Brokers and Finders. Neither the CSFB Entities nor any of their
          affiliates, officers, directors or employees has employed any broker or finder
          or incurred any liability for any brokerage fees, commissions or finders’
          fees in connection with the Transactions. 



                    



     	 (f)	  	
          Restricted Securities. Each of the CSFB Entities agrees that, at the time
          of issuance, the shares of Series B Preferred to be issued hereunder and the
          shares of Common Stock issuable upon conversion thereof will not be registered
          under the Securities Act or qualified under any state securities laws. Such
          securities are being issued on the basis that the Exchange and the issuance by
          the Company of such securities under this Agreement are exempt from registration
          under the Securities Act and from applicable state securities laws. The CSFB
          Entities agree that the reliance by the Company on certain of the applicable
          exemptions is predicated, in part, on the CSFB Entities’ representations
          and warranties and other agreements set forth in this Agreement. The CSFB
          Entities acknowledge and agree that each certificate representing shares of
          Series B Preferred issued in the Exchange or shares of Common Stock issuable
          upon conversion of Series B Preferred shall bear substantially the following
          legend and that each certificate for shares of Series B Preferred shall bear any
          additional restrictive legends required by the certificate of designation for
          the Series B Preferred: 



                    



	 	  	
THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS, OR (ii) IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE ISSUER, REGISTRATION UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER. 







     	 (g)	  	
          Amendment to Schedule 13D. The CSFB Entities have provided the Company
          with a true and complete copy of a draft Amendment No. 2 to Schedule 13D, which
          draft is substantially in the form in which such Amendment No. 2 to Schedule 13D
          shall be filed on behalf of the CSFB Entities with the SEC promptly following
          the execution of this Agreement. 



                    




ARTICLE V 




ADDITIONAL
AGREEMENTS AND COVENANTS 



     	 5.1	  	
          Taxation. The Company shall not take or cause to be taken any action
          after the Closing Date, that would disqualify the Exchange as a
          “reorganization” within the meaning of Section 368(a)(1)(E) of the
          Code. 



                    



     	 5.2	  	
          Publicity. The Company and the CSFB Entities shall consult with each
          other prior to issuing any press releases or otherwise making public
          announcements with respect to the Transactions contemplated hereby except as may
          be required by Law. 



                    



     	 5.3	  	
          Expenses. Except as otherwise specified in this Section 5.3 or agreed in
          writing by the parties, all costs and expenses incurred in connection with this
          Agreement and Transactions shall be paid by the party incurring such cost or
          expense; provided, that all liability for transfer taxes or other similar taxes
          and fees incurred in connection with the Transactions shall be paid by the
          Company in accordance with Section 6.10 hereof. 



                    



     	 5.4	  	
          Indemnification. 



                    



     	 (a)	  	
          From and after Closing Date, the Company agrees that it will indemnify and hold
          harmless each present and former director and officer of the Company determined
          as of Closing Date (the “Indemnified Parties”) against any
          costs or expenses (including reasonable attorneys’ fees), judgments, fines,
          losses, claims, damages or liabilities (collectively, “Costs”)
          incurred in their capacity as a director or officer in connection with any
          claim, action, suit, proceeding or investigation, whether civil, criminal,
          administrative or investigative, arising out of or pertaining to matters
          existing or occurring on or prior to the Closing Date (including this Agreement,
          the Transactions and the other transactions contemplated hereby), whether
          asserted or claimed prior to, at or after the Closing Date, to the fullest
          extent that the Company would have been permitted under the DGCL and its Charter
          and By-Laws as in effect on the date hereof to indemnify such Person (and the
          Company shall also advance expenses as incurred to the fullest extent permitted
          under applicable law, provided the Person to whom expenses are advanced
          provides an undertaking to repay such advances if it is finally judicially
          determined (and such determination is nonappealable) that such Person is not
          entitled to indemnification). 



                    



    	 (b)	  	
          Any Indemnified Party wishing to claim indemnification under paragraph (a) of
          this Section 5.4, upon learning of any such claim, action, suit, proceeding or
          investigation, shall promptly notify the Company thereof, but the failure to so
          notify shall not relieve the Company of any liability it may have to such
          Indemnified Party except to the extent such failure materially prejudices the
          Company. In the event of any such claim, action, suit, proceeding or
          investigation (whether arising before or after the Closing Date), (i) the
          Company shall have the right to assume the defense thereof and shall not be
          liable to such Indemnified Parties for any legal expenses of other counsel or
          any other expenses subsequently incurred by such Indemnified Parties in
          connection with the defense thereof, except that if the Company elects not to
          assume such defense or counsel for the Indemnified Parties advises that there
          are issues which raise conflicts of interest between the Company and the
          Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
          them, and the Company shall pay all reasonable fees and expenses of such counsel
          for the Indemnified Parties promptly as statements therefor are received;
          provided, however, that the Company shall be obligated pursuant to
          this paragraph (b) to pay for only one firm of counsel for all Indemnified
          Parties in any jurisdiction unless the use of one firm of counsel would present
          such counsel with a conflict of interest, (ii) the Indemnified Parties will
          cooperate in the defense of any such matter and (iii) the Company shall not be
          liable for any settlement effected without its prior written consent; and
          provided, further, that the Company shall not have any obligation
          hereunder to any Indemnified Party to the extent a court of competent
          jurisdiction shall finally determine, and such determination shall have become
          nonappealable, that the indemnification of such Indemnified Party in the manner
          contemplated hereby is prohibited by applicable law. If any indemnity hereunder
          is for any reason found not to be available with respect to any Indemnified
          Party, then the Company and the Indemnified Party shall contribute to the amount
          payable in such proportion as is appropriate to reflect relative faults and
          benefits. Notwithstanding anything herein to the contrary, no Indemnified Party
          shall have any rights to indemnification or contribution under this Section 5.4
          with respect to Costs arising out of any claims, actions, suits or proceedings
          initiated by such Indemnified Party (other than claims to enforce rights to
          indemnification hereunder). 



                    



     	 (c)	  	
          The Company, and its successors or assigns, shall not (i) consolidate with or
          merge into any other corporation or entity and shall not be the continuing or
          surviving corporation or entity of such consolidation or merger or (ii) sell,
          lease or transfer all or substantially all of its properties and assets to any
          individual, corporation or other entity, unless and in each such case, proper
          provisions shall be made so that the successors and assigns of the Company, on
          such properties and assets, shall assume or effectively provide for all of the
          obligations set forth in this Section 5.4. 



                    



     	 5.5	  	
          Rule 144. The Company shall file any reports required to be filed by it
          under the Securities Act and the Exchange Act and the rules and regulations
          adopted by the SEC thereunder and, to the extent required to file such reports
          under the Exchange Act, will take such further action as any of the CSFB
          Entities may reasonably request to make available adequate current public
          information with respect to the Company meeting the current public information
          requirements of Rule 144(c) under the Securities Act to the extent required to
          enable such CSFB Entity to sell shares of Common Stock held by the CSFB Entities
          without registration under the Securities Act within the limitation of the
          exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
          be amended from time to time, or (ii) any similar rule or regulation hereafter
          adopted by the SEC. 



                    



     	 5.6	  	
          New Frost Facility. The Company shall use commercially reasonable efforts
          to enter into, or cause Ascent Funding, Inc. to enter into, a new replacement
          facility for the LaSalle Facility as promptly as practicable on terms reasonably
          acceptable to the CSFB Entities (it being understood that, unless otherwise
          agreed by the CSFB Entities, the maximum principal amount of borrowings
          permitted under such facility at any one time outstanding shall be $3 million)
          (the “New Senior Facility”). In connection with the Company
          entering into the New Senior Facility, Management LLC agrees that it shall
          consent to the subordination of the Company’s obligations in respect of the
          New CSFB Credit Agreement to the Company’s obligations in respect of the
          New Senior Facility, subject to the terms and conditions set forth in the form
          of Intercreditor and Subordination Agreement attached hereto as Exhibit D. 



                    



     	 5.7	  	
          Restriction on Business Combinations. 



                    



     	 (a)	  	
          Until January 1, 2005, the Company shall not effect a Business Combination
          Transaction (as defined below) to or with any Significant Holder (as defined
          below), or any Affiliate thereof, unless (in addition to any other conditions
          applicable to such Business Combination Transaction under the Charter, the
          By-Laws or other applicable law) the Business Combination Transaction results in
          cash consideration to the Public Holders that is equal to the greater of (i) the
          Floor Price (as defined below) or (ii) an aggregate cash consideration per share
          that has been reasonably determined by the relevant Significant Holder to
          constitute fair value (after subtracting debt and other liabilities of the
          Company and its Subsidiaries) within the meaning of Section 262 of the DGCL. 



                    



     	 (b)	  	
          For purposes of this Section 5.7, the following terms shall have the meanings
          set forth below: 



                    



     	 	  	(i)    
          “Significant Holder” shall mean either CSFB Entity or any
          person or group that beneficially owns more than fifty percent of the shares of
          capital stock of the Company entitled to vote generally in the election of
          directors (excluding from such beneficial ownership any shares deemed owned
          solely by virtue of entering into an agreement to acquire such shares in
          connection with a Sale Transaction). 



                    



     	 	  	(ii)    
          The “Floor Price” means an aggregate cash consideration per
          share of Common Stock equal to $0.40, subject to customary adjustments for any
          stock dividends, stock splits, recapitalizations and similar events. 



                    



    	 	  	(iii)    
          A “Business Combination Transaction” shall mean any merger,
          statutory share exchange, consolidation or recapitalization (including a reverse
          stock split) of the Company in connection with which the Common Stock
          outstanding prior to the transaction shall be changed into or exchanged for cash
          or different securities of the Company or capital stock or other securities of
          another corporation or interests in a noncorporate entity or other assets or
          property (or any combination of the foregoing), or any sale, transfer or other
          disposition of substantially all the assets of the Company. 



                    



     	 (c)	  	
          The Public Holders may rely on the provisions of this Section 5.7, which
          provisions are intended to be for the benefit of the Public Holders and shall be
          enforceable by each of the Public Holders and by the Independent Directors on
          behalf of the Public Holders. The Company hereby agrees that it will pay for
          reasonable fees and expenses of one firm of counsel engaged to represent the
          Independent Directors in connection with any actions to enforce the provisions
          hereof on behalf of the Public Holders that is brought and pursued with the good
          faith approval of each Independent Directors. 



                    



     	 5.8	  	
          Registration Rights Agreement. The Company hereby agrees to amend the
          Registration Rights Agreement, dated as of March 24, 1999, between the Company
          and SPV (the “Registration Rights Agreement”), to grant SPV
          registration rights with respect to the shares of Common Stock issuable upon
          conversion of the shares of Series B Preferred held by SPV, by providing that
          the definition of “Registrable Securities” therein shall hereafter be
          deemed to include the shares of Common Stock issuable upon conversion of the
          shares of Series B Preferred held by SPV. 



                    



     	5.9	  	
          Regulatory Approvals. As promptly as practicable following the Closing
          the CSFB Entities shall prepare and submit all regulatory filings required to be
          submitted by them, and shall use reasonable efforts to obtain all regulatory
          approvals required to be obtained by them (including by responding on a timely
          basis to any requests for additional information by the applicable Governmental
          Entity following any regulatory filing), in order to effect the conversion of
          the shares of Series B Preferred issued to SPV under this Agreement, including
          any filings with or approvals of the Commissioner of Insurance of the State of
          Texas; it being understood that any and all of the foregoing filings shall be
          submitted by a date no later than February 16, 2004. 



                    




ARTICLE VI 




MISCELLANEOUS AND
GENERAL 



     	 6.1	  	
          Survival. The representation and agreements of the parties contained in
          Sections 2.4 and 2.5(b), Article III, Sections 4.1(a)-(e), 4.1(h), 4.1(n),
          4.1(o), 4.1(q), 4.2(a)-(g), Article V and this Article VI shall survive the
          consummation of the Transactions. 



                    



     	 6.2	  	
          Entire Agreement; No Other Representations. This Agreement (including any
          Exhibits hereto), the Registration Rights Agreement, as amended in accordance
          with Section 5.8 hereof, and the CSFB Loan Documents Amendments, constitute the
          entire agreement, and supersedes all other prior agreements, understandings,
          representations and warranties both written and oral, among the parties, with
          respect to the subject matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR
          THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NO PARTY MAKES
          ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER
          REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS,
          EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH
          RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS
          CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR
          THE OTHER’S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH
          RESPECT TO ANY ONE OR MORE OF THE FOREGOING. 



                    



     	 6.3	  	
          Modification or Amendment. Subject to the provisions of the applicable
          law and Section 3.2(a), the parties hereto may modify or amend this Agreement,
          by written agreement executed and delivered by duly authorized officers of all
          of the respective parties. 



                    



     	 6.4	  	
          Waiver of Conditions. The conditions to the parties’ obligations to
          consummate the Transactions are for the sole benefit of each such party and may
          be waived by such party in whole or in part to the extent permitted by
          applicable law and subject to Section 3.2(a). 



                    



     	6.5	  	
          Counterparts. This Agreement may be executed in any number of
          counterparts, each such counterpart being deemed to be an original instrument,
          and all such counterparts shall together constitute the same agreement. 



                    



     	 6.6	  	
          Governing Law and Venue; Waiver of Jury Trial. 



                    



    	 (a)	  	
           THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
          INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
          STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF,
          EXCEPT TO THE EXTENT THAT THE DGCL IS MANDATORILY APPLICABLE TO ANY OF THE
          TRANSACTIONS CONTEMPLATED HEREBY. The parties hereby irrevocably submit to
          the jurisdiction of the courts of the State and County of New York and the
          Federal courts of the United States of America located in the Southern District
          of the State of New York solely in respect of the interpretation and enforcement
          of the provisions of this Agreement and of the documents referred to in this
          Agreement, and in respect of the transactions contemplated hereby, and hereby
          waive, and agree not to assert, as a defense in any action, suit or proceeding
          for the interpretation or enforcement hereof or of any such document, that it is
          not subject thereto or that such action, suit or proceeding may not be brought
          or is not maintainable in said courts or that the venue thereof may not be
          appropriate or that this Agreement or any such document may not be enforced in
          or by such courts, and the parties hereto irrevocably agree that all claims with
          respect to such action or proceeding shall be heard and determined in such New
          York State or Federal court. The parties hereby consent to and grant any such
          court jurisdiction over the person of such parties and over the subject matter
          of such dispute and agree that mailing of process or other papers in connection
          with any such action or proceeding in the manner provided in Section 6.7 on
          notices below or in such other manner as may be permitted by law shall be valid
          and sufficient service thereof. 



                    



    	 (b)	  	
          EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
          THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
          THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
          RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
          DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
          TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
          ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
          HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
          EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY
          UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY
          MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER
          INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
          CERTIFICATIONS IN THIS SECTION. 



                    



     	 6.7	  	
          Notices and Waivers. All notices, requests and other communications to
          any party hereunder shall be in writing (including facsimile or similar writing)
          and shall be given to such party at its address or facsimile number set forth
          below or such other address or facsimile number as such party may hereafter
          specify in accordance with this Section 6.7 for the purpose by notice to the
          party sending the communication. Each such notice, request or other
          communication shall be effective (a) if given by facsimile, when such facsimile
          is transmitted to the facsimile number specified in this Section 6.7 and receipt
          thereof is confirmed, (b) if given by mail, three (3) business days after such
          communication is deposited in the mail registered or certified, return receipt
          requested, with postage prepaid, addressed as aforesaid, (c) if given by an
          overnight delivery service, one (1) business day after such communication is
          deposited with a reputable, overnight delivery service, postage or delivery
          charges prepaid, addressed as aforesaid, or (d) if given by any other
          means, when delivered at the address as specified in this Section 6.7: 



                    



	  	(a)    If to the Company, to:






	  	Ascent Assurance, Inc.

3100 Burnett Plaza>
 801 Cherry Street, Unit 33 
Forth Worth, Texas 76102

Attention: Patrick J. Mitchell 
Facsimile: (817) 878-3672 




	  	with a copy to:





	  	Milbank, Tweed, Hadley & McCloy LLP

One Chase Manhattan Plaza 
New York, New York 10005

Attention: Robert S. Reder, Esq.
Facsimile: (212) 822-5680 




	  	(b)    If to the CSFB Entities, to:






	  	Credit Suisse First Boston

Eleven Madison Avenue
New York, New York 10010

Attention: Alan Freudenstein 
Facsimile: (212) 325-5490 
and
Attention: Ivy Dodes
Facsimile: (212) 538-3948




	  	with a copy to:





	  	Stroock & Stroock & Lavan LLP

180 Maiden Lane  
New York, New York 10038

Attention: Mark E. Palmer, Esq.
Facsimile: (212) 806-1306.
and
Attention: Patricia Perez, Esq.

 Facsimile: (212) 806-7735









	 	  	or
to such other persons or addresses as may be designated in writing by the party to receive
such notice as provided above. 







     	 6.8	  	
          No Third Party Beneficiaries. Other than Indemnified Parties under
          Section 5.4 and the rights of Public Holders to enforce Sections 3.2 and 5.7,
          this Agreement is not intended to confer upon any Person other than the parties
          hereto any rights or remedies hereunder. 







    	 6.9	  	
          Further Assurances. Each of the parties hereto covenants and agrees upon
          the request of the other and its expense, to do, execute, acknowledge and
          deliver or cause to be done, executed, acknowledged and delivered all such
          further acts, deeds, documents, assignments, transfers, conveyances, powers of
          attorney and assurances as may be reasonably necessary or desirable to give full
          effect to the Transactions. 







    	 6.10	  	
          Transfer Taxes. Any and all transfer, documentary, sales, use, stamp,
          registration and other such Taxes and fees (including penalties and interest)
          incurred in connection with the Transactions shall be paid by the Company when
          due. 







     	 6.11	  	
          Severability. The provisions of this Agreement shall be deemed severable
          and the invalidity or unenforceability of any provision shall not affect the
          validity or enforceability or the other provisions hereof. If any provision of
          this Agreement, or the application thereof to any Person or any circumstance, is
          invalid or unenforceable, (a) a suitable and equitable provision shall be
          substituted therefore in order to carry out, so far as, and (b) the remainder of
          this Agreement and the application of such provision to other Persons or
          circumstances shall not be affected by such invalidity or unenforceability, nor
          shall such invalidity or unenforceability affect the validity or enforceability
          of such provision, or the application thereof, in any other jurisdiction. 







     	 6.12	  	
          Interpretation. The table of contents and headings herein are for
          convenience of reference only, do not constitute part of this Agreement and
          shall not be deemed to limit or otherwise affect any of the provisions hereof.
          Where a reference in this Agreement is made to a Section or Exhibit, such
          reference shall be to a Section or Exhibit to this Agreement unless otherwise
          indicated. Whenever the words “include,” “includes” or
          “including” are used in this Agreement, they shall be deemed to be
          followed by the words “without limitation.” 







     	 6.13	  	
          Assignment; CSFB Transferees. This Agreement shall not be assignable by
          operation of law or otherwise, except that the CSFB Entities may assign all or
          any of their rights and obligations hereunder to any affiliate of the CSFB
          Entities, provided that no such assignment shall relieve the assigning party of
          its obligations hereunder if such assignee does not perform such obligations. 







    	 6.14	  	
          Specific Performance. The parties hereto recognize that in the event
          either party hereto should refuse to perform under or comply with the provisions
          of this Agreement, monetary damages alone will not be adequate. The parties
          hereto, and (to the limited extent permitted by this Agreement as third party
          beneficiaries of certain provisions hereof) each Indemnified Party and Public
          Holder, shall therefore be entitled, in addition to any other remedies that may
          be available, to specific performance and injunctive or other equitable relief
          as a remedy for such failure to perform or noncompliance, and each party agrees
          to waive any requirement for the securing or posting of a bond in connection
          with such remedy. 







     	 6.15	  	
          Knowledge. For purposes of this Agreement, the phrase “to the
          knowledge of the executive officers of the Company” or “to the
          knowledge of the Company” or any variation thereof shall mean the actual
          knowledge of the following officers of the Company: Patrick J. Mitchell,
          Chairman, President and Chief Executive Officer; Patrick O’Neill, Executive
          Vice President and General Counsel; Cynthia Koenig, Senior Vice President and
          Chief Financial Officer; and Konrad Kober, Senior Vice President and Chief
          Administration Officer, in each case, after reasonable inquiry by such officers
          of those members of senior management having supervisory roles with respect to
          the areas of the Company’s business and operations that are the subject of
          the representations and warranties of the Company hereunder. For purposes of
          this Agreement, the phrase “to the knowledge of the CSFB Entities” or
          any variation thereof shall mean the actual knowledge of the following officers
          of the CSFB Entities: Alan Freudenstein, Managing Director. 
















           IN
WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly
authorized officers of the parties hereto as of the date first written above. 





	 	ASCENT ASSURANCE, INC.
	 
	 
	 	By:    Patrick J. Mitchell                  
	 	          Patrick J. Mitchell

          Chief Executive Officer 






	 	CREDIT SUISSE FIRST BOSTON
MANAGEMENT LLC
	 
	 
	 	By:    Alan Freudenstein                  
	 	          Alan Freudenstein

          President 






	 	SPECIAL SITUATIONS HOLDINGS, INC. 
— WESTBRIDGE
	 
	 
	 	By:    Alan Freudenstein                  
	 	          Alan Freudenstein

          President