Document:

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Exhibit 10.29

                    EXCESS OF LIABILITY REINSURANCE AGREEMENT

                                      AMONG

                     STATE NATIONAL INSURANCE COMPANY, INC.,

                                       AND

                       TOWER INSURANCE COMPANY OF NEW YORK

                                       AND

                        TOWER RISK MANAGEMENT CORPORATION

                           EFFECTIVE: January 1, 2004

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                                Table of Contents

Article                                                                     Page

          Preamble...........................................................1

   1      Business Reinsured.................................................1

   2      Original Conditions................................................2

   3      Commencement, Termination, Terms and Conditions....................2

   4      Loss and Loss Adjustment Expense...................................3

   5      Reports and Remittances............................................4

   6      Errors and Omissions...............................................5

   7      Premium and Commission.............................................6

   8      Access to Records..................................................7

   9      Arbitration........................................................7

   10     Assessments, Assignments, Fines and Penalties......................8

   11     Premium Financing..................................................9

   12     Insolvency.........................................................9

   13     Alternate Payee...................................................10

   14     Hold Harmless Provisions..........................................10

   15     Loss in Excess of Policy Limits/ECO...............................12

   16     Regulatory Matters................................................12

   17     The General Agent.................................................13

   18     Reinsurer or General Agent Sale or Transfer.......................13

   19     Miscellaneous.....................................................14

   20     Loss and Unearned Premium Reserve Funding.........................15

   21     T.B.A. Insurance Group, Ltd. ("T.B.A.")...........................17

   22     Savings Clause....................................................17

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                    EXCESS OF LIABILITY REINSURANCE AGREEMENT

THIS EXCESS OF LIABILITY REINSURANCE AGREEMENT (this "Agreement") is made and
entered into as of January 1, 2004, by and among TOWER INSURANCE COMPANY OF NEW
YORK, an insurance company organized under the laws of New York ("Reinsurer"),
STATE NATIONAL INSURANCE COMPANY, INC., an insurance company organized under the
laws of the State of Texas ("Company"), and TOWER RISK MANAGEMENT CORPORATION, a
corporation organized under the laws of the State of New York ("General Agent");

                              W I T N E S S E T H:

THAT, in consideration of the mutual covenants hereinafter contained and upon
the terms and conditions hereinbelow set forth, the parties hereto agree as
follows:

                                    PREAMBLE

         It is understood that the Company, the Reinsurer and the General Agent
(hereinafter identified collectively as the "Parties") hereto wish to enter into
a reinsurance arrangement through which the Company is to bear no business,
credit or insurance risk whatsoever in connection with the insurance policies
issued through the General Agent (the "Subject Program"). In this regard, the
Company has reinsured the underwriting risks arising from the Subject Program
with CONVERIUM REINSURANCE (NORTH AMERICA) INC., HANNOVER REINSURANCE (IRELAND)
LIMITED and E+S REINSURANCE (IRELAND) LIMITED, and TOKIO MILLENNIUM RE LTD.
(collectively, the "2004 State National Quota Share Reinsurers") pursuant to
their respective Quota Share Reinsurance Agreements dated effective January 1,
2004, by and between the Company and 2004 State National Quota Share Reinsurers
(the "2004 Quota Share Reinsurance Agreements"), attached as Exhibit A hereto.
As a condition precedent to the Company's agreement to permit policies to be
issued in the name of the Company pursuant to the Subject Program, the Reinsurer
shall hold the Company harmless and indemnify it for these and all risks arising
from the Subject Program other than those reinsured by 2004 State National Quota
Share Reinsurers pursuant to the 2004 Quota Share Reinsurance Agreements. All
provisions of this Agreement shall be interpreted so as to be in accord with
this Preamble. The sole consideration provided by the Company, in exchange for
the fees set forth in Article VII herein, is to permit the Policies (as
hereinafter defined) which are reinsured under this Agreement and under the 2004
Quota Share Reinsurance Agreements, to be issued in the name of the Company. All
provisions of this Agreement shall be interpreted so as to be in accord with
this Preamble.

                                   ARTICLE I
                               BUSINESS REINSURED

1.01 The Reinsurer hereby reinsures any and all liability accruing to the
Company in connection with the Subject Program (other than those liabilities
reinsured with 2004 State National Quota Share Reinsurers pursuant to the 2004
Quota Share Reinsurance Agreements), including without limitation, every claim,
demand, liability, loss, damage, cost, charge, attorneys' fees, expense, suit,
order, judgment, and adjudication of whatever kind or character arising out of
or in connection with the Subject Program, the business reinsured thereunder
(including, but not limited to, credit loss, and/or run-off expense and/or all
legal fees and expenses incurred by the Company in asserting its rights under
this Agreement). The Reinsurer's obligation hereto relates to, but is not
limited to, the following: all liability for agents' balances; return premiums
and commissions; deceptive trade practice liability; premiums, policy fees or
other charges; costs, liability, damages, fees and/or expenses incurred by the
Company due to a lawsuit between the Reinsurer and the General Agent (any
dispute involving the Company and the Reinsurer is subject to arbitration); all
actions or inactions by the General Agent relating to this Agreement, any
agreement with a premium finance company or claims administrator; and/or all
fees and/or commissions owing to the General Agent under this and the
aforementioned related agreements.

                                      -1-
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1.02 Maximum policy limits for Policies are as set forth in Article 1, Section
1.01 (i) of the 2004 General Agency Agreement.

ARTICLE II
                               ORIGINAL CONDITIONS

2.01 Business ceded hereunder shall include every original policy, rewrite,
renewal or extension (whether before or after the termination of this Agreement)
required by applicable statute, or by rule or regulation of any policy of
insurance ceded hereunder by the Company to the Reinsurer.

2.02 The liability of the Reinsurer shall commence obligatorily and
simultaneously with that of the Company as soon as the Company becomes liable,
and the premium on account of such liability shall be credited to the Reinsurer
from the original date of the Company's liability.

2.03 All reinsurance for which the Reinsurer shall be liable, by virtue of this
Agreement, shall be subject, in all respects, to the same rates, terms,
conditions, interpretations, waivers, the exact proportion of premiums paid to
the Company without any deduction for brokerage, and to the same modifications,
alterations and cancellations, as the respective insurance of the Company to
which such reinsurance relates, the true intent of this Agreement being that the
Reinsurer shall, in every case to which this Agreement applies and in the
proportion specified herein, follow the fortunes of the Company.

2.04 Nothing herein shall in any manner create any obligations, establish any
rights or create any direct right of action against the Reinsurer in favor of
any third party, or other person not party to this Agreement; or create any
privity of contract between the policyholders and the Reinsurer.

                                  ARTICLE III
                 COMMENCEMENT, TERMINATION, TERMS AND CONDITIONS

3.01 This Agreement shall become effective on January 1, 2004 at 12:01 A.M.,
Eastern Standard Time as respects losses arising out of occurrences commencing
under Policies written on or after such date at the offices of the Company, and
shall remain continuously in force unless terminated as provided herein.

3.02 This Agreement shall continue from the effective date and thereafter until
termination of the 2004 Quota Share Reinsurance Agreements. The parties may not
cancel this Agreement independent of the 2004 Quota Share Reinsurance
Agreements, and this Agreement shall terminate automatically and only upon
termination of the 2004 Quota Share Reinsurance Agreements.

3.03 When this Agreement terminates for any reason, reinsurance hereunder shall
continue to apply to the business in force at the time and date of termination
until expiration or cancellation of such business. It is understood that any
Policies with effective dates prior to the termination date but issued after the
termination date are covered under this Agreement. Additionally, the reinsurance
hereunder shall continue to apply as to Policies which must be issued or
renewed, as a matter of state law or regulation or because a sub-agent has not
been timely canceled, until the expiration dates on said Policies.

                                      -2-
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3.04 Upon termination of this Agreement, the Reinsurer, General Agent and the
Company shall not be relieved of or released from any obligation created by or
under this Agreement in relation to payment, expenses, reports, accounting or
handling, which relate to outstanding insurance business under this Agreement
existing on the date of such termination. The parties hereto expressly covenant
and agree that they will cooperate with each other in the handling of all such
run-off insurance business until all policies have expired either by
cancellation or by terms of such policies and all outstanding losses and loss
adjustment expenses have been settled. While by law and regulation, the Company
recognizes its primary obligations to its policyholders, the Reinsurer
recognizes that to the extent possible there shall be no cost or involvement by
the Company in servicing this run-off. All costs and expenses associated with
handling of such run-off business following the cancellation or termination of
this Agreement shall be borne solely by the General Agent and, to the extent not
borne by the General Agent, solely by Reinsurer. If for any reason the General
Agent fails or is unable to service any such run-off business (or any business
while this Agreement is still in effect), including the payment of claims, then
consistent with this Agreement, the Reinsurer's obligation with respect to such
run-off business shall continue and the Reinsurer shall either service such
run-off business directly or appoint, at the Reinsurer's expense, a successor to
the General Agent, subject to the approval of the Company, which approval shall
not be unreasonably withheld. Such successor shall perform all of the duties and
obligations of the General Agent with respect to servicing such run-off business
including the payment of claims.

3.05 This Agreement provides for termination on a run-off basis. The relevant
provisions of this Agreement shall apply to business being run off.

3.06 Upon termination of this Agreement, the Reinsurer shall ensure the General
Agent takes those actions necessary, including, but not limited to, sending
statutorily prescribed non-renewal notices to insureds in a timely manner to
effectuate the intent that there be no renewals or new policies (but for those
required by applicable law or regulation) after the termination of this
Agreement.

                                   ARTICLE IV
                        LOSS AND LOSS ADJUSTMENT EXPENSE

4.01 All loss settlements made by the Company or the General Agent under the
terms of this Agreement, whether under strict policy conditions or by way of
compromise, shall be unconditionally binding upon the Reinsurer in proportion to
its participation, and the Reinsurer shall benefit proportionately in all
salvage and recoveries. The Reinsurer shall assume and be liable for and pay on
behalf of the Company, all losses incurred in connection with the risks covered
by this Agreement, including, but not limited to, judgments (including interest
thereon) and settlements in connection therewith. The Reinsurer shall also be
liable for and pay on behalf of the Company all costs, expenses, and fees
(including, but not limited to, attorney's fees) incurred by the Company in
connection with the investigation or settlement or contesting the validity of
claims or losses covered under this Agreement (this shall include but, of
course, is not limited to, costs, expenses and fees resulting from a declaratory
judgment or injunctive action brought by an insured or other person).

                                      -3-
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4.02 The Reinsurer's share of losses, expense and loss recovery shall be carried
into the monthly accounting for which provision is hereinafter made.

4.03 All records pertaining to claims arising under insurance policies issued on
behalf of the Company through or by the General Agent subject to this Agreement
shall be deemed to be jointly owned records of the Company and the Reinsurer,
and shall be made available to the Company or the Reinsurer or their respective
representatives or any duly appointed examiner for any state within the United
States; and these records shall be kept in the State of New York or such other
jurisdiction as may be required by applicable state law or regulation.
Notwithstanding the foregoing, the Reinsurer is authorized to maintain duplicate
working files of all such records outside the State of New York. The Company,
the Reinsurer and the General Agent each agree that it will not destroy any such
records in its possession without the prior written approval of the other
parties except that the Company shall not be required to retain files longer
than required by the guidelines set forth by any applicable state department of
insurance.

4.04 The Reinsurer shall, or shall cause the General Agent to, establish a
separate claim register or method of recording claims arising under the Policies
covered by this Agreement so that all claims may be segregated and identified
separate and apart from other records of the Reinsurer or General Agent, with
such claims register to identify each claim on an individual case basis both as
to identify the insured(s) and the claimant, the reserve for loss and adjusting
expense. Such claim register shall be kept in a manner whereby the Company can,
at any time, determine the status of any claim arising under Policies covered by
this Agreement. Such records shall reflect the amount of reserves established
for the individual claim and the date when such reserve was established, and if
closed, whether such claim was closed with or without payment, and if with
payment, the amount paid thereon.

                                   ARTICLE V
                             REPORTS AND REMITTANCES

5.01 In lieu of the Company furnishing the Reinsurer with bordereaux showing the
particulars of all reinsurances ceded hereunder, the Reinsurer shall furnish or
cause to be furnished to the Company, within forty-five (45) days after the
close of each of the respective periods indicated below (on forms agreeable to
the Parties), with monthly, quarterly and annual reports showing the following
statistical data in respect to the business reinsured hereunder:

         (a)      Monthly, with the data segregated by the respective business
                  segments.

                  (i)      Net and ceded premiums written.

                  (ii)     Net and ceded unearned premiums.

                  (iii)    Net and ceded losses paid.

                  (iv)     Net and ceded adjustment expenses paid during this
                           month.

                  (v)      Ceded adjustment expenses paid during this month.

                  (vi)     Losses outstanding. (vii) Ceding commission due the
                           Company. (viii) Commission due the General Agent.

         (b)      Annually, with the data segregated by the respective business
                  segments.

                  (i)      Annual summaries of net premiums written, net losses
                           paid, net adjusting expenses paid during the year in
                           such form so as to enable the Company to record such
                           data in its annual convention statement. Such
                           information is to be furnished not later than
                           February 15th of the following year. In force and
                           unearned premium segregated as to advance premiums,
                           premiums running twelve (12) months or less from
                           inception date of policy, and premiums running more
                           than twelve (12) months from inception date of policy
                           in such form as to enable the Company to record such
                           data in its convention annual statement.

                                      -4-
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                  (ii)     Annual summaries of net premiums written by
                           geographical location in such form as to enable the
                           Company to record such premiums in its annual report
                           to the Texas Catastrophe Property Insurance
                           Association.

         (c)      Periodic, with data segregated by the respective business
                  segments.

                           Statistical or other data as may be requested from
                           time to time by regulatory authorities.

5.02 In order to facilitate the handling of the business reinsured under this
Agreement, the Reinsurer agrees to furnish the Company with any additional
reports necessary to provide the information needed by the Company to prepare
its monthly, quarterly and annual statements to regulatory authorities.

5.03 Within 60 days after the end of each month, the General Agent shall remit
to the Reinsurer the following:

         (a)      Reinsurance Premium as collected in accordance with Section
                  7.06, less;

         (b)      ceded portion of Net Paid losses and loss adjustment expenses
                  paid, provided such losses and loss adjustment expenses have
                  not been deducted on behalf of the Company in any previous
                  monthly report.

The positive balance of (a) less (b) shall be remitted by the General Agent with
its report. Any balance shown to be due the Company shall be remitted by the
Reinsurer as promptly as possible after receipt and verification of the General
Agent's report, but no later than 60 days after the end of each month.

                                   ARTICLE VI
                              ERRORS AND OMISSIONS

6.01 The Company shall not be prejudiced in any way by any omission through
clerical error, accident or oversight to cede to the Reinsurer any reinsurance
rightly falling under the terms of this Agreement, or by erroneous cancellation,
either partial or total, or any cession, or by omission to report, or by
erroneously reporting any losses, or by any other error or omission, but any
such error or omission shall be corrected immediately upon discovery.

6.02 Should the Company suffer any loss whatsoever, the Reinsurer shall assume
loss for its own account and save and hold the Company harmless therefore.

                                      -5-
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                                  ARTICLE VII
                             PREMIUM AND COMMISSION

7.01 It is understood that the General Agent shall pay, and the Reinsurer shall
guarantee, the Company directly a fee within forty-five (45) days following the
end of each month (to the Company's designated agent, T.B.A. Insurance Group,
Ltd. ("TBA"), as a ceding fee), 7.0% (seven point zero percent) of Net Written
Premiums, and in addition guarantees the amount of assessments and state premium
taxes as provided in this Article X. (The ceding fee amount shall be computed on
a calendar year basis based on premium written in each annual period ended
December 31st.) Notwithstanding anything else contained herein to the contrary,
regardless of the amount of Net Written Premiums, the minimum ceding fee due the
Company shall be $75,000 for each six-month period, plus the aforementioned
assessments and state premium taxes. (This minimum ceding fee applicable to each
successive six-month period shall not be affected by the amounts of Net Written
Premiums written in other six-month periods and shall not be reduced by reason
of payments in excess of the minimum in other periods. The minimum ceding fee
for each period shall be paid within sixty (60) days of the end of each period.
For these purposes, a policy's entire premium shall be applied to the period in
which the policy is written.) "Net Written Premiums" shall mean the gross
premiums (including policy fees) charged on all original and renewal Policies
written on behalf of the Company, less return premiums.

7.02 The General Agent shall allow and pay within forty-five (45) days of the
end of each month to the Company an amount equal to the state premium tax on the
Net Written Premiums for the past month. Should any additional premium tax be
assessed at any time on written premium reinsured hereunder, the Reinsurer shall
pay the Company such additional premium tax within (fifteen) 15 days of being
informed by the Company of such additional premium tax. The Parties acknowledge
that at the effective date of this Agreement, the New York Department of
Insurance (or other state agency responsible for collecting premium taxes) may
require the payment of estimated premium taxes in advance on a semi-annual
basis. The Reinsurer shall, therefore, pay to the Company within five days prior
to the due date of any such estimated premium tax payment, the amount that would
be due based upon the business produced hereunder.

7.03 The Reinsurer hereby guarantees that (i) the Company will receive the
ceding fee provided hereunder irrespective of any events, losses or developments
for the term of this Agreement (Such payment is not dependent upon the
performance of the General Agent, underwriting experience, loss experience,
whether premium is collected or not, or any other event foreseen or unforeseen
by the parties at the inception of this Agreement.), and in addition (ii) those
amounts described in Section 7.05 of this Agreement and is directly responsible
for payment of the amount described in Article X. The Company shall allow return
ceding fees on return premiums at the same rates.

7.04 The General Agent shall not seek to recover from the Company, any
commissions due under the 2004 Quota Share Reinsurance Agreements and the
Reinsurer shall not seek to recover from the Company, any return commissions due
under the 2004 Quota Share Reinsurance Agreements. No funds are due the General
Agent from the Company under the 2004 Quota Share Reinsurance Agreements.

7.05 It is expressly agreed that the commission allowed the General Agent
includes provision for premium taxes and ceding fees. General Agent shall pay to
the Company all premium taxes payable for policies subject to reinsurance
hereunder. In the event that the ceding fee and premium taxes are not so paid by
the General Agent within 60 days following the end of the month, the unpaid
balance shall be paid directly to the Company by the Reinsurer

                                      -6-
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7.06 The General Agent on behalf of the Company shall pay the Reinsurer a
premium equal to 1.0% (one point zero percent) of Net Written Premium (the
"Reinsurance Premium").The Reinsurance Premium is payable by the General Agent
on behalf of the Company to the Reinsurer at the time premiums are paid under
the 2004 Quota Share Reinsurance Agreements.

                                  ARTICLE VIII
                                ACCESS TO RECORDS

         The Reinsurer or its duly appointed representatives shall have free
access at any and all reasonable times to such books and records of the Company
or General Agent, its departmental or branch offices, as shall reflect premium
and loss transactions of the Company and/or the business produced hereunder, for
the purpose of obtaining any and all information concerning this Agreement or
the subject matter thereof. Likewise, the Company or its duly appointed
representatives shall have free access at any and all reasonable times to such
books and records of the Reinsurer and/or General Agent, its departmental or
branch offices as shall reflect premium and loss transactions of the Company
and/or the business produced hereunder, for the purpose of obtaining any and all
information concerning this Agreement or the subject matter hereof.

                                   ARTICLE IX
                                   ARBITRATION

9.01 As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising between the Company and
the Reinsurer with respect to this Agreement, or with respect to these Parties'
obligations hereunder, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration.

9.02 One arbiter (an "Arbiter") shall be chosen by the Company and one Arbiter
shall be chosen by the Reinsurer and an umpire (an "Umpire") shall be chosen by
the Arbiters, all of whom shall be active or retired disinterested executive
officers of property and casualty insurance or reinsurance companies.

9.03 In the event that a party fails to choose an Arbiter within thirty (30)
days following a written request by either party to the other to name an
Arbiter, the party who has chosen its Arbiter may choose the unchosen Arbiter.
Thereafter, the Arbiters shall choose an Umpire before entering upon
arbitration. If the Arbiters fail to agree upon the selection for the Umpire
within thirty (30) days following their appointment, each Arbiter shall name
three nominees, of whom the other shall decline two, and the decision shall be
made by drawing lots.

9.04 Each party shall present its case to the Arbiters and Umpire within a
reasonable amount of time after selection of the Umpire, unless the period is
extended by the Arbiters and the Umpire in writing and/or at a hearing in
Dallas, Texas. The Arbiters and Umpire shall consider this Agreement as an
honorable engagement, as well as a legal obligation, and they are relieved of
all judicial formalities and may abstain from following the strict rules of law
regarding entering of evidence. The decision in writing by a majority of the
Arbiters and Umpire when filed with the Parties shall be final and binding on
the parties. Judgment upon the final decision of the Arbiters and Umpire may be
entered in any court of competent jurisdiction.

                                      -7-
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9.05 In the event of a dispute between the Company and the Reinsurer concerning
this Agreement and the General Agency Agreement (regardless of whether either
party has claims against the General Agent), the entire dispute between the
Company and the Reinsurer shall be subject to arbitration as provided in this
Article IX.

9.06 The costs of the arbitration, including the fees of the arbitrators and the
umpire, shall be borne equally unless the Arbiters and Umpire shall decide
otherwise.

9.07 This Agreement shall be interpreted under the laws of Texas and the
arbitration shall be governed and conducted according to the Texas General
Arbitration Act.

                                   ARTICLE X
                  ASSESSMENTS, ASSIGNMENTS, FINES AND PENALTIES

10.01 The Reinsurer hereby assumes liability for any and all assessments and
assignments imposed as a result of Policies reinsured hereunder (whether before
or after the termination of this Agreement). The Reinsurer shall immediately
reimburse the Company for any assessments made against the Company pursuant to
those laws and regulations creating obligatory funds (including, but not limited
to, insurance guaranty and insolvency funds), pools, joint underwriting
associations, FAIR plans and similar plans. Amounts owed by the Reinsurer under
this Section shall be payable directly by the Reinsurer to the Company. The
Reinsurer shall be entitled to receive from the Company on or prior to the 31st
day of March of each year thereafter (or such date on which such premium taxes
are paid) a sum equal to the premium tax credit that is allowed to the Company
with respect to such assessments. The premium tax credit allowed the Reinsurer
hereunder is to be on a pro-rata and first-in, first-out basis. The Company
shall promptly return to the Reinsurer any amount of assessment refunded to or
credited to the Company.

10.02 This Agreement shall apply to risks assigned to the Company under any
assigned risk plan if, in the reasonable judgment of the Company, such risks
were assigned to the Company because of the business written and reinsured
hereunder.

10.03 The Reinsurer shall also pay promptly and directly to the Company the
fines, penalties and/or any other charge incurred by the Company as respects the
business reinsured hereunder arising out of the actions or inactions of the
General Agent unless such fines, penalties and/or any other charge was a direct
result of any willful misconduct on the part of the Company, which has been
finally determined by a court of competent jurisdiction after the exhaustion of
all appeals.

10.04 The Reinsurer shall cause the General Agent to act on behalf of the
Company to produce, prepare, and file statistical information with the
designated statistical reporting bureau. Such costs and expenses shall be
remitted in advance by the General Agent, and the Reinsurer hereby guarantees
the timely payment of such costs and expenses, to the Company with its monthly
account, based on the Company's good faith estimation. Adjustments to the
estimation shall be made annually by the Company to reflect the actual costs
related to the business produced hereunder. The Reinsurer shall also cause the
General Agent to furnish the Company, and other parties as designated by the
Company, with monthly, quarterly and annual reports showing statistical data in
respect of the business written as required.

                                      -8-
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                                   ARTICLE XI
                                PREMIUM FINANCING

         With respect to Policies covered under the provisions of this
Agreement, if any premiums are financed, the General Agent shall receive and
accept on behalf of the Company all notices required by statute, contract or
otherwise to be given to the Company, including, without limitation, notices of
the existence of premium finance agreements or of cancellation of policies the
premiums of which are financed ("financed policies"). No producing agent or any
other agent shall be entitled to receive or accept any notice on behalf of the
Company, and the General Agent shall be responsible for and will indemnify and
hold the Company harmless from and against any and all liabilities, losses,
claims, damages and expenses incurred by reason of or arising out of any action
taken or inaction suffered as a result of receipt of any notice by any person,
firm or entity other than the General Agent or the Company. Notwithstanding any
other term or provision of this Agreement, the General Agent agrees to return
and pay over to any premium finance company (whether affiliated with the Company
or not) which has sent notice of cancellation of a financed policy to the
General Agent, on behalf of the Company, within 30 days of receipt of such
notice of cancellation, any and all unearned commissions as of the date of
cancellation, together with any and all unearned premiums due any premium
finance company. The General Agent agrees to and does hereby relinquish any and
all rights to any unearned commissions for any such financed policy as of the
date of cancellation. The obligation of the General Agent to refund unearned
commissions and unearned premiums on a canceled financed policy shall survive
the termination or cancellation of this Agreement for so long as any policy
written under the terms of this Agreement remains in force. If the General Agent
does not fulfill its obligations to refund unearned commissions and unearned
premiums as provided in this Article XI and/or to indemnify the Company as
provided in this Article XI, then the Reinsurer shall pay the amount of the
refund owed and/or shall indemnify the Company even if the premium finance
company is an affiliate of the Company.

                                  ARTICLE XII
                                   INSOLVENCY

12.01 In the event of insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claims.

12.02 It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer of
the pendency of a claim against the Company indicating the policy or bond
reinsured which claim would involve a possible liability on the part of the
Reinsurer within thirty (30) days after such claim is filed in the insolvency,
conservation or liquidated proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such claims and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the Company
or its liquidator, receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the Reinsurer.

                                      -9-
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12.03 Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the Company.

12.04 It is further understood and agreed that, in the event of the insolvency
of the Company, the reinsurance under this Agreement shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except (i) as provided by applicable law, (ii) where the Agreement
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company and (iii) where the Reinsurer with the consent of the
direct insured or insureds has assumed such policy obligations of the Company as
direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligation of the Company to such payees.

                                  ARTICLE XIII
                                 ALTERNATE PAYEE

13.01 As respects subject business assumed as reinsurance under this Agreement,
it is agreed that if the Company has a conservator, liquidator or receiver
appointed for it, or becomes the subject of any conservation, liquidation or
insolvency proceeding, and the General Agent exercises its option to require the
Company to permit all its liabilities under the Policies reinsured hereunder to
be assumed by another licensed insurer as is permitted pursuant to the General
Agency Agreement, such assuming insurer shall be substituted for the Company as
payee of any reinsurance recoverable hereunder in respect of losses under
Policies subject hereto, and the Reinsurer, shall make payment thereof directly
to the substituted insurer. In the event of assumption, the Company shall,
however, be entitled to any fronting fees and other sums owing hereunder with
respect to Policies originally issued on its behalf.

13.02 In the event that an assuming insurer is submitted for the Company under
Section 13.01, all the other provisions of this Agreement shall apply to the
substituted insurer in the same manner as if said insurer were substituted for
the Company as the reinsured party hereunder, and to the extent this Agreement
reinsures such substituted insurer, coverage hereunder shall be excluded as
respects the Company.

                                  ARTICLE XIV
                            HOLD HARMLESS PROVISIONS

14.01 Notwithstanding anything else contained herein to the contrary, as
respects all matters related to this Agreement, in addition to those specific
provisions insulating the Company from specific risks hereunder, the Reinsurer
hereby covenants and agrees to reimburse and hold the Company harmless from and
against every claim, demand, liability, loss, damage, cost, charge, attorneys'
fees, expense, suit, order, judgment and adjudication of whatever kind or
character regarding (i) this Agreement, (ii) the 2004 Quota Share Reinsurance
Agreements, and/or (ii) the business reinsured hereunder (including, but not
limited to, underwriting loss, credit loss, and/or run-off expense and/or all
legal fees and expenses incurred by the Company in asserting its rights under
this Agreement) whether or not such claim, demand, loss, damage, cost, charge,
attorneys' fees, expense, suit, order, judgment or liability is within the terms
of Policies written and reinsured hereunder. The Reinsurer's obligation hereto
relates to, but is not limited to the following: all liability for agents'
balances; return premiums and commissions; deceptive trade practice liability;
premiums, policy fees or other charges (whether collected or not); costs,
liability, damages, fees and/or expenses incurred by the Company due to a
lawsuit between the Reinsurer and the General Agent (any dispute involving the
Company and the Reinsurer is subject to arbitration); all actions or inactions
by General Agent relating to this Agreement, any agreement with a premium
finance company or claims administrator; and/or all fees and/or commissions
owing to the General Agent under this and the aforementioned related agreements.

                                      -10-
<PAGE>

14.02 The Company shall not be liable to the Reinsurer for premiums unless the
Company itself has actually received those premiums and wrongfully not remitted
them to the Reinsurer. The Reinsurer may not offset any balances on account of
losses, loss adjustment expenses or any other amounts due except as to premiums
actually received by the Company itself (as distinct from premiums not
collected, or premiums collected by the General Agent, or premium placed in the
premium trust account pursuant to the General Agency Agreement) which have
wrongfully not been transmitted to the Reinsurer.

14.03 If for any reason the General Agent fails or is unable to administer the
policies reinsured hereunder (whether the Agreement is still in effect or the
business is being run-off), (i) the Reinsurer shall appoint a party (acceptable
and approved by the Company) to administer the business and the Reinsurer shall
be responsible for the cost of said administration and (ii) the General Agent
will fully cooperate with the Company (or its designated representative) in
providing access to such of the General Agent's personnel, computer systems or
other assets or procedures as the Company may deem necessary to provide for an
orderly transition of the administration of the Policies reinsured hereunder. If
return premiums or other funds need to be returned to premium finance companies,
policyholders or sub-agents, the Reinsurer shall pay of these amounts if the
successor or administrator does not.

14.04 The Reinsurer shall not sue, or seek arbitration, against the Company for
any acts of the General Agent for any monies which the General Agent owes unless
the Company has actually received those monies and has wrongfully not remitted
them to the Reinsurer; and the Reinsurer shall indemnify the Company for any
damages, liabilities and expenses incurred by reason of the General Agent's acts
or failure to act. The Company is not responsible for any commissions or other
monies payable to the General Agent in connection with this Agreement and the
General Agent shall not sue, or seek arbitration against, the Company for any
actions by, or debts owing from, the Reinsurer. The Reinsurer shall not seek to
recover from, or offset against, the Company any sums, whether premiums or other
monies, which the General Agent was unable or unwilling to remit to the Company
or the Reinsurer.

14.05 In the event the Reinsurer, or any agent appointed pursuant to this
Agreement, binds the Company for insurance coverage on insurance risks which are
in excess of the policy limits set forth in Article I, and/or are not within the
terms of business specified in Article I, and/or are not within the territory
specified in Article I, whether intentional or not, the Reinsurer and General
Agent will do such things and take such actions as may be necessary to reduce
the Company's exposure to such risks and to hold the Company harmless against
any liability or loss which may be incurred by the Company in excess hereof. At
the Company's request, the General Agent in accordance with applicable law, and
policy terms, shall cancel or not renew any risk bound which is not in
conformance with this Agreement. Any such insurance coverage on insurance risks
bound contrary to the limitations which are in excess of the policy limits set
forth in Article I, and/or are not within the classes of business specified in
Article I, and/or are not within the territory specified in Article I, whether
intentional or not, shall be reinsured and subject to this Agreement.

14.06 In furtherance of the protections afforded to the Company under this
Agreement, the Reinsurer expressly acknowledges that certain circumstances may
come to exist with respect to the Policies reinsured hereunder that require
adjustment to the timing of Reinsurer remittances. If, in the sole discretion of
the Company, an advance payment or payments of the Reinsurer's obligations under
this Agreement is necessary to avoid irreparable harm to the Company, the
Reinsurer shall make such payment or payments promptly upon the Reinsurer's
receipt of the Company's good faith estimate or calculation of the necessity
thereof.

                                      -11-
<PAGE>

14.07 In the event any provision, term and/or condition of this Agreement (other
than the Preamble hereof) is inconsistent with the provision, terms and/or
conditions of Section 14.01 above, the provision, terms, and/or conditions of
said Section 14.01 above shall control over and supercede such inconsistent
provision, terms, and/or conditions.

                                   ARTICLE XV
                       LOSS IN EXCESS OF POLICY LIMITS/ECO

15.01 In the event the Company pays or is held liable to pay an amount of loss
in excess of its policy limit, but otherwise within the terms of its policy
(hereinafter called "loss in excess of policy limits") or any punitive,
exemplary, compensatory or consequential damages, other than loss in excess of
policy limits (hereinafter called "extra contractual obligations") because of
alleged or actual bad faith or negligence on its part in rejecting a settlement
within policy limits, or in discharging its duty to defend or prepare the
defense in the trial of an action against its policyholder, or in discharging
its duty to prepare or prosecute an appeal consequent upon such an action, or in
otherwise handling a claim under a policy subject to this Agreement, 100% (one
hundred percent) of the loss in excess of policy limits and/or 100% (one hundred
percent) of the extra contractual obligations shall be added to the Company's
loss, if any, under the Policy involved, and the sum thereof shall be reinsured
under this Agreement.

15.02 An extra contractual obligation shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under the Policy.

15.03 Notwithstanding anything stated herein, this Agreement shall not apply to
any loss incurred by the Company as a result of any fraudulent and/or criminal
act which has been finally determined by a court of competent jurisdiction,
after the exhaustion of all appeals, by any officer or director of the Company
acting individually or collectively or in collusion with any individual,
corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.

                                  ARTICLE XVI
                               REGULATORY MATTERS

16.01 It is the Parties' understanding that any premiums which are overdue from
the General Agent to the Company may be deemed non-admitted assets. In
confirmation of the liabilities assumed by the Reinsurer under this Agreement,
the Reinsurer hereby assumes all liability and responsibility for all premiums
in the course of collection.

16.02 The Reinsurer shall agree, at no cost to the Company, to take those
actions (including, but not limited to, modifications in how funds are handled
and how accounts are cleared, settled and the manner in which incurred losses
are accounted for) and agree to those arrangements necessary to ensure that the
Company suffers no adverse impact because of this reinsurance program and is in
compliance with any applicable laws of a state insurance department, insofar as
this reinsurance program is concerned.

                                      -12-
<PAGE>

                                  ARTICLE XVII
                                THE GENERAL AGENT

17.01 The Company, the Reinsurer and the General Agent have entered into a
General Agency Agreement effective January 1, 2004 (the "General Agency
Agreement"), a complete copy of which is attached hereto as Exhibit "B" and
fully incorporated herein by this reference. The Reinsurer has selected the
General Agent to administer the business reinsured hereunder. While for
regulatory purposes, the General Agent will need to be appointed as the
Company's agent, it is recognized that the General Agent is acting on behalf of
the Reinsurer. The Company is making no evaluation of the General Agent's
qualification, has no obligation to furnish reports or statistics to the
Reinsurer, or to monitor the performance of the General Agent. The Company shall
file with the State all reports requested by the State based upon information
received from the General Agent and Reinsurer.

17.02 The Company will, at the request of the General Agent and the Reinsurer,
appoint producing agents to produce business through the General Agent. The
Company, in its sole discretion, may refuse to appoint any such agent; provided,
however, that such appointment shall not be unreasonably withheld. The General
Agent will not establish any sub-general agencies or any agencies with the
authority of a general agency. The Reinsurer shall hold the Company harmless
from and indemnify it for any damage, liability, claim, expense, cost or fees
(including attorneys' fees and expenses) of whatever kind or character caused
directly or indirectly by any action of or failure to act, by any such producing
agent.

17.03 The General Agent shall be responsible for the control of the producing
agents appointed by the Company at the request of and on behalf of the
Reinsurer, including compliance with state licensing laws and the financial
condition of such agents.

17.04 The Reinsurer shall guarantee payment to the Company of any amounts due
the Company (or the Company's designated agent, TBA) from business produced by
and/or policies issued by or through the producing agents appointed by the
Company at the request of and on behalf of the General Agent and the Reinsurer.
The Reinsurer and the General Agent shall be solely responsible for notifying
such agents of this Agreement and of any termination hereof, and the Reinsurer
shall be responsible for the consequences of any failure to provide such
notification.

17.05 The General Agent shall not sue, or seek arbitration, against the Company
for any acts of the Reinsurer and shall indemnify and hold the Company harmless
from and against any damages, liabilities and expenses incurred by reason of the
Reinsurer's acts or failures to act.

17.06 The Company shall conduct or have conducted the examinations of the
General Agent as provided in Section 5.13 of the General Agency Agreement. The
examinations provided for herein shall be at no cost to the Company, and the
Reinsurer shall indemnify and hold the Company completely harmless as respects
any liability, damage, charge, cost, fine, or penalty, the Company may incur as
a result of such examinations.

                                 ARTICLE XVIII
                   REINSURER OR GENERAL AGENT SALE OR TRANSFER

         The Reinsurer or the General Agent agree to give the Company or its
designated agent, TBA, 90 days advance written notice of any sale or transfer of
such party's business, or such party's consolidation with a successor firm, in
order that the Company may, in its sole discretion:

                                      -13-
<PAGE>

         (a)      Assign this Agreement to the successor; or

         (b)      Enter into a new 2004 Quota Share Reinsurance Agreements with
                  the successor; or

         (c)      Terminate this Agreement as provided in Section 6.01 of the
                  2004 General Agency Agreement.

                                   ARTICLE XIX
                                  MISCELLANEOUS

19.01 This Agreement has been made and entered into in the State of Texas and
the Agreement shall be subject to and construed under the laws of the State of
Texas. This Agreement shall be deemed performable at the Company's
administrative office in Fort Worth, Texas, and it is agreed that the venue of
any controversy arising out of this Agreement, or any breach thereof, shall be
in Tarrant County, Texas.

19.02 All notices required to be given hereunder shall be deemed to have been
duly given by personally delivering such notice in writing or by mailing it,
Certified Mail, return receipt requested, with postage prepaid. Any Party may
change the address to which notices and other communications hereunder are to be
sent to such Party by giving the other Party written notice thereof in
accordance with this provision.

19.03 This Agreement shall be binding upon the Parties hereto, together with
their respective successors and permitted assigns. Neither the Reinsurer nor the
General Agent may assign any of its rights or obligations under this Agreement
without the prior written consent of the Company.

19.04 This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

19.05 This Agreement is the entire agreement between the parties and supersedes
any and all previous agreements, written or oral, and amendments thereto with
respect to the subject matter hereof.

19.06 This Agreement may be amended, modified or supplemented only by a written
instrument executed by all Parties hereto.

19.07 A waiver by the Company, Reinsurer or General Agent of any breach or
default by the other party under this Agreement shall not constitute a
continuing waiver or a waiver by the Company or the Reinsurer of any subsequent
act in breach or of default hereunder.

19.08 Headings used in this Agreement are for reference purposes only and shall
not be deemed a part of this Agreement.

19.09 The Parties hereto intend all provisions of this Agreement to be enforced
to the fullest extent permitted. Accordingly, should a court of competent
jurisdiction or arbitration panel determine that the scope of any provision is
too broad to be enforced as written, the Parties intend that the court or
arbitration panel should reform the provision to such narrower scope as it
determines to be enforceable under present or future law; such provision shall
be fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance.

                                      -14-
<PAGE>

19.10 This Agreement is not exclusive and the Company reserves the right to
appoint or contract with other reinsurers, agents and/or managing agents in the
territory covered by this Agreement.

19.11 The Reinsurer or General Agent shall not insert any advertisement
respecting the Company or the business to be written under this Agreement in any
publication or issue any circular or paper referring to the Company or such
business without first obtaining the written consent of the Company. The
Reinsurer and/or General Agent shall establish and maintain records of any such
advertising as required by applicable statutes and regulations.

19.12 Policy cancellations at the Company's request will be made strictly
subject to requirements imposed by the Company's underwriting rules and
practices or the Reinsurer's underwriting rules and practices, as approved by
the Company, and in compliance with applicable statutes and regulations and the
applicable provisions contained in this Agreement and the pertinent policy. Such
cancellation authority shall be exercised only for causes inherent in the
particular risk and shall not be construed as authority to make general or
indiscriminate cancellations or replacement of the Policies with those of
another Company, except upon specific written instructions from the Company.
When directed by the Company, the Reinsurer will cancel any and all Policies
produced by it for any reason the Company deems necessary.

19.13 This Agreement shall be interpreted in conformance with applicable Texas
law and regulation. If it is found or ordered by a court or regulatory body that
a term or provision of this Agreement does not conform to such law or regulation
then this Agreement shall be deemed to be amended and modified in accordance
with such law. However, where this Agreement is found not to comply with
applicable law or regulation, the Company may in its sole discretion terminate
this Agreement immediately and without prior notice.

19.14 The Company agrees that the Reinsurer shall have the right, with the
approval of the Company, to determine the rates and prepare the rate filing for
the Company to file during the term of this Agreement and during the term of the
run-off. The Reinsurer and General Agent understand and agree that no business
shall be produced, until a written approval of the applicable rate rules and
forms is received from the regulatory authority of competent jurisdiction.

                                   ARTICLE XX
                    LOSS AND UNEARNED PREMIUM RESERVE FUNDING

20.01 The Reinsurer will secure its obligations under this Agreement via a
Security Fund Agreement or letter of credit to be obtained by the Reinsurer in
favor of the Company, which letter of credit shall be in all respects acceptable
to the Company.

         (a)      At a minimum, the letter of credit must:

                  (i)      comply with the provisions of Texas Insurance Code,
                           art 5.75-1 (d)(3) and 28 Texas Administrative Code
                           7.610;and;

                                      -15-
<PAGE>

                  (ii)     be issued by a Qualified United States Financial
                           Institution (as defined by the foregoing statute and
                           regulation).

         (b)      The Company may draw the full amount of the letter of credit
                  to satisfy, in whole or in part the obligations of reinsurer
                  hereunder or, if:

                  (i)      the Reinsurer fails to comply with the provisions of
                           this Article; or

                  (ii)     the issuer of the letter of credit gives the Company
                           notice of cancellation or non-renewal under the
                           evergreen provisions of the letter of credit.

20.02 Within ten business days after the General Agent's monthly report reflects
the Loss Ratio (as hereinafter defined) is 75% (seventy five percent) or
greater, the Reinsurer shall obtain or establish a Trust Account via a Security
Fund Agreement or a letter of credit in an amount equivalent to 25% (twenty five
percent) of the earned premium balance. Subsequently, for each 25% (twenty five
percent) increase in the Loss Ratio, as reflected on the General Agent's monthly
account, the Trust Account or letter of credit shall be increased in increments
of 25% (twenty five percent) of the earned premium balance. (For example, if the
Loss Ratio is 75% (seventy five percent), the Trust Account or letter of credit
shall reflect a balance of 25% (twenty five percent) of the earned premium
balance, if the Loss Ratio is 100% (one hundred percent), the Trust Account or
letter of credit shall reflect a balance of 50% (fifty percent) of the earned
premium balance.) Conversely, for each 25% (twenty five percent) decrease in the
Loss Ratio, as reflected on the General Agent's monthly account, the Trust
Account or letter of credit shall be decreased in increments of 25% (twenty five
percent) of the earned premium balance.

20.03 If at any time, based upon the monthly reporting provided to the Company
under this Agreement, it shall be determined by the Company or the Reinsurer
that the amount of the Trust Account or letter of credit may not be equivalent
to the percentage of earned premium as required in Section 20.02, then the
Reinsurer shall immediately increase the amount of the Trust Account or letter
of credit to an amount equivalent to such amount. The Company shall, at all
times the Loss Ratio is in excess of 75% (seventy five percent), be in
possession of a Trust Account or letter of credit equivalent to the percentage
of earned premium as required in Section 20.02.

20.04 "Loss Ratio" as used herein shall mean the ratio of the Company's incurred
losses for any one agreement year to its subject net earned premium for the same
agreement year. "Subject net earned premium" as used herein shall mean the
Company's net written premium allocated to the agreement year (i.e., net of
cancellations and return amounts and net of amounts ceded by the Company for
reinsurance which inures to the benefit of this Agreement), less the unearned
portion thereof as of the effective date of calculation. "Net paid losses" as
used herein shall mean net losses and loss adjustment expenses incurred, and any
and all other costs, expenses or liabilities, including loss in excess of policy
limits and extra contractual obligations, plus any assignments and/or
assessments.

20.05 The Company shall be entitled at any time, at its expense, to engage an
independent actuary to review the Loss Ratio and corresponding letter of credit
balance. In the event of a dispute or difference of opinion between the amount
of earned premiums or Loss Ratio, as determined by the actuary engaged by
Company, and such amounts as determined by the Reinsurer or its affiliate, the
amounts determined by the actuary engaged by Company shall govern for purposes
of determining the appropriate balance of the letter of credit required under
this Agreement.

                                      -16-
<PAGE>

                                  ARTICLE XXI
                      T.B.A. INSURANCE GROUP, LTD. ("TBA")

         The Company has contracted with TBA as its designated intermediate
agent to perform certain duties on the Company's behalf and to issue certain
checks on behalf of the Company in exchange for certain fees. The Reinsurer
agrees that TBA is to bear no business, credit or insurance risk and can bear no
liability whatsoever to the Reinsurer save liability for any actual fraud or
violation of criminal law it commits, which has been finally determined by a
court of competent jurisdiction after the exhaustion of any appeals. TBA shall
receive all the protections from liability which are contained herein for the
benefit of the Company.

                                  ARTICLE XXII
                                 SAVINGS CLAUSE

22.01 If any law or regulation of any Federal, State or local government of the
United States of America, or the ruling of officials having supervision over
insurance companies, should prohibit or render illegal this Agreement, or any
portion thereof, as to risks or properties located in the jurisdiction of such
authority, either the Company or the Reinsurer may upon written notice to the
other suspend or abrogate this Agreement insofar as it relates to risks or
properties located within such jurisdiction to such extent as may be necessary
to comply with such law, regulations or ruling. Such illegality shall in no way
affect any other portion thereof; provided, however, that the Reinsurer or the
Company may terminate or suspend this Agreement insofar as it relates to the
business to which such law or regulation may apply.

22.02 This Agreement shall be interpreted in accordance with the laws of the
State of Texas. All provisions of this Agreement are intended to be enforced to
the fullest extent permitted. Accordingly, should a court of competent
jurisdiction or arbitration panel determine that the scope of any provision is
too broad to be enforced as written, the Parties intend that the court or
arbitration panel should reform the provision to such narrower scope as it
determines to be enforceable under present or future law; such provision shall
be fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance; provided, however, that where this Agreement is so found not to
comply with applicable law or regulation, the Company may in it sole discretion
terminate this Agreement immediately without prior notice.

                                      -17-
<PAGE>

IN WITNESS WHEREOF, the Parties hereto by their respective duly authorized
representatives have executed this Agreement as of the date first above
mentioned.

DATED:   3/11/04                        STATE NATIONAL INSURANCE COMPANY, INC.
       ----------------------------

                                        BY:   /s/
                                              ------------------------------

                                        ITS:  President
                                              ------------------------------

DATED:   March 4, 2004                  TOWER INSURANCE COMPANY OF NEW YORK
       ----------------------------

                                        BY:   /s/
                                              ------------------------------

                                        ITS:  Vice President
                                              ------------------------------

DATED:   March 4, 2004                  TOWER RISK MANAGEMENT CORPORATION
       ----------------------------

                                        BY:   /s/
                                              ------------------------------

                                        ITS:  Vice President
                                              ------------------------------

                                      -18-Exhibit 10.1

                              EMPLOYMENT AGREEMENT

         The Employment  Agreement (the "Agreement") is made and entered into as
of the  _20th__  day of  April,  2004 (the  "Effective  Date"),  by and  between
CYTOMEDIX,  INC., a Delaware corporation (the "Company"),  and DR. KSHITIJ MOHAN
("Executive").

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows.

                                    ARTICLE 1
                      EFFECTIVE DATE AND TERM OF EMPLOYMENT

         1.1 Term of Employment. Subject to extension in accordance with Section
1.2,  the Term,  as  defined  below,  of the  Agreement  shall  commence  on the
Effective  Date and shall  continue until the date two years hence (the "Initial
Term"), unless terminated earlier in accordance with Article 5 of the Agreement.
For  purposes  of the  Agreement,  the "Term"  shall  mean the  period  from the
Effective  Date  until the  termination  of  Executive's  employment  under this
Agreement.

         1.2  Extension  of Term.  The  Initial  Term of the  Agreement  will be
automatically  extended by one year on the first  anniversary  of the  Effective
Date and in one year increments on each subsequent  anniversary of the Effective
Date  thereafter,  unless the  Executive's  employment is terminated  under this
Agreement in accordance with Article 5.

                                    ARTICLE 2
                              DUTIES AND ACTIVITIES

         2.1  Employment.  During the Term, the Company shall employ  Executive,
and  Executive  shall accept  employment  with the  Company,  upon the terms and
subject to the conditions set forth in the Agreement.

         2.2 Position. During the Term, Executive shall serve as Chief Executive
Officer of the Company and shall hold such other  position or  positions  as the
parties  mutually  agree in  writing.  Executive  shall  report  directly to the
Chairman  of the Board of  Directors  of the  Company  (the  "Board").  As Chief
Executive  Officer,  Executive  shall  have  the  powers,  responsibilities  and
authorities  as are assigned by the Board.  Upon the  termination of Executive's
employment  hereunder in accordance with Article 5, Executive shall  immediately
resign as Chief Executive Officer and from all other positions, if any, with the
Company.

         2.3 Duties.  During the Term, Executive shall devote his business time,
attention,  and energies to the business of the Company and use his best efforts
to promote the interest of the  Company.  Executive  shall  perform such duties,
services,  and responsibilities  incident to the Executive's  positions that are
reasonably  consistent  with his position,  as the Board shall from time to time

--------------------------------------------------------------------------------
Employment Agreement                                                      Page 1
April ___, 2004

<PAGE>

delegate to him on such terms and conditions and subject to such restrictions as
the Board may reasonably from time to time impose.

         2.4 Principal  Location.  The principal  location at which  Executive's
services  are to be  performed  shall be at the  Executive's  then-current  home
address,  which is  presently 25 Beman Woods Court,  Potomac,  Maryland,  20854,
subject to reasonable travel  requirements  during the course of performing such
services.

                                    ARTICLE 3
                           SALARY, BONUS, AND BENEFITS

         3.1 Base Salary.  During the Term of this Agreement,  the Company shall
pay Executive a base salary ("Base  Salary").  Commencing on the Effective  Date
through the  one-year  anniversary  thereof,  this Base Salary shall be not less
than the annual rate of $275,000. The Executive's Base Salary shall be increased
by at least ten  percent  (10%) for the second and each  subsequent  year of the
Term.

         3.2 Inducement Award. To induce Executive's  service as Chief Executive
Officer  of the  Company  during  the Term,  upon  commencement  of  Executive's
employment,  the Company shall grant Executive the Inducement  Award as outlined
in  Appendix  1. The  Inducement  Award,  and all  necessary  documents  related
thereto,  shall be completed no later than ten (10) business days  following the
Effective Date.

         3.3 Annual Bonus.  The Executive  shall be entitled to the Annual Bonus
as outlined in Appendix 2. The  Executive's  Annual Bonus shall be driven by and
proportionate  to  reasonable  Performance  Criteria  that will be developed and
agreed upon by the Board of Directors  and the  Executive  working in good faith
and with all deliberate  speed within sixty (60) days of the commencement of the
Executive's  employment under this Agreement,  and within sixty (60) days of the
first anniversary of the Executive's employment under this Agreement. The Annual
Bonus for each year of the Term shall be paid within  thirty (30) days after the
end of such year.

         3.4  Withholding.  The  Company  shall  deduct  or  withhold  from  the
compensation  and  benefits  payable  to  Executive  hereunder  any and all sums
required for federal and state income and  employment  taxes now  applicable  or
that may be enacted and become applicable during the Term of the Agreement.

         3.5  Benefits.  Executive  shall  be  entitled  to  participate  in all
ordinary and  customary  benefit  plans  afforded to executive  employees of the
Company.  Executive's  participation  in  said  benefit  plans  shall  be at the
Company's  sole  expense  except to the  extent  employee  contributions  may be
required under the Company's  benefit plans as they may now or hereafter  exist.
Such benefits  shall  include,  at a minimum,  medical and dental  insurance for
Executive and his spouse, and may include any qualified or unqualified  pension,
profit  sharing,  and savings plans,  any death benefit and  disability  benefit
plan, life insurance  coverage,  any cafeteria plans,  and any medical,  dental,
health, vision and welfare plans or insurance coverage.

--------------------------------------------------------------------------------
Employment Agreement                                                      Page 2
April ___, 2004

<PAGE>

         3.6  Vacation and Sick Leave.  Executive  shall be entitled to four (4)
weeks of paid vacation per year during the Term.  Unused  vacation of up to four
(4) weeks may be  carried  over from year to year.  Vacations  shall be taken at
such times as are  consistent  with the needs of the Company and Executive  will
notify  in  advance  the  Chairman  of the  Board of  Executive's  plans for any
vacations longer than one week. Employee shall also be entitled to two (2) weeks
sick leave per year,  part or all of which may be covered by the Company's short
term  disability  insurance.  Unused sick leave may be carried over from year to
year,  but in no event shall  Executive  accrue more than four (4) weeks of sick
leave. Sick leave is compensable only on bona fide sickness of the Executive.

         3.7 Fringe Benefits. In addition to the other benefits detailed herein,
Executive shall be entitled to the Fringe Benefits listed on Appendix 3.

                                    ARTICLE 4
                                BUSINESS EXPENSES

         4.1 Expenses.  The Company shall pay or reimburse the Executive for all
reasonable and authorized business expenses incurred by the Executive during the
Term.

         4.2 Business Travel. The Company shall reimburse Executive for expenses
incurred for business-related  travel in accordance with existing Company travel
policies, which may change from time to time.

         4.3 Documentation.  As a condition to reimbursement  under Article 4 of
this  Agreement,  Executive  shall furnish to the Company  adequate  records and
other documentary evidence  appropriately  itemized and approved consistent with
the  Company's  policies,   which  may  change  from  time  to  time.  Executive
acknowledges and agrees that failure to furnish the required  documentation  may
result in the Company denying all or part of the expense for which reimbursement
is sought.

                                    ARTICLE 5
                            TERMINATION OF EMPLOYMENT

         5.1  Termination  of  Employment.  Notwithstanding  the  provisions  of
Article 1, either the Company or Executive may terminate Executive's  employment
hereunder during the Term, subject to the following terms and conditions.

         5.2  Termination  by the Company for Cause.  As used in the  Agreement,
"Cause" shall mean either:

                  5.2.1  Executive  commits a material and willful breach of any
         material term of this Agreement, as reasonably determined by a majority
         of the  directors of the Board,  but only if such  material and willful

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         breach remains  uncured (as  reasonably  determined by the Board) after
         thirty (30) days have elapsed following the date that the Company gives
         Executive written notice of such breach;

                  5.2.2 Executive  engages in willful conduct that is materially
         injurious  to the Company or to any  affiliate  or  successor  thereto,
         whether financial or otherwise,  as reasonably determined by a majority
         of the  directors  of the Board,  but only if  Executive  has failed to
         cease any such  conduct  within  fifteen  (15) days  after the date the
         Company gives Executive  written notice of its belief that Executive is
         engaging in such conduct;

                  5.2.3    Executive is convicted of a felony;

                  5.2.4    Executive is convicted of any crime  involving  moral
         turpitude or dishonesty;

                  5.2.5 Executive is of any felony or misdemeanor  involving the
         property  of the  Company;  is  found  guilty  by any  court  of law of
         violation  of  applicable  securities  laws;  or  is  found  guilty  of
         violation of any securities law in an administrative  proceeding before
         the  Securities  and  Exchange   Commission  or  any  state  securities
         commission.

         The Company may terminate Executive's employment hereunder for Cause by
giving Executive fifteen (15) days' written notice.  Where Executive is entitled
to a cure period, the termination date under this Section shall be the day after
the cure period expires,  if Executive fails to cure. In such event, the Company
shall  pay to  Executive  his  Base  Salary  through  the  date  of  Executive's
termination,  his accrued but unused vacation, all deferred compensation owed to
Executive under any other agreements,  and his reimbursable expenses pursuant to
Article 4 incurred prior to the effective date of such termination. In the event
of termination  under this Section 5.2, all of Executive's  stock options vested
on the date of termination  shall remain  exercisable until the original date of
expiration.

         5.3 Termination for Disability. As used in this Agreement,  Executive's
"Disability"  shall  the  Executive's  inability,  as a result  of a  mental  or
physical  disease or  condition  expected to continue  indefinitely,  to perform
materially  the  services  contemplated  in  the  Agreement.  The  existence  or
nonexistence  of a Disability  shall be determined by an  independent  physician
reasonably selected and agreed to by the Company and the Executive.

         The Company may terminate Executive's employment hereunder in the event
of Executive's  Disability by giving Executive thirty (30) days' written notice.
In such event,  the Company shall pay to Executive  his Base Salary  through the
date of  termination  (which shall be thirty (30) days after  written  notice is
given) and,  thereafter,  his Base Salary for a period of eleven (11) additional
months  after the date of  termination,  less net amounts  received  during that
period from any long-term  disability  insurance  provided  under Article 3. The
Base  Salary  shall be paid at the annual  rate of  Executive's  Base  Salary in
effect on the date of Executive's termination of employment and shall be payable
not less frequently than semi-monthly in accordance with the Company's executive
compensation practices. The Company shall also pay to Executive a prorated bonus
and incentive  compensation payment based on the then applicable bonus plan/long

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term incentive  compensation  program in an amount equal to the  bonus/incentive
payment that would otherwise be paid for the  fiscal/calendar  (depending on the
plan  or  program)  year in  which  Executive  is  terminated,  multiplied  by a
fraction,  the  numerator  of which is the  number  of days that  Executive  was
employed during that year, and the denominator of which is 365, payable no later
than  thirty  (30)  days  after  the end of the  fiscal/calendar  year in  which
Executive's  employment is  terminated.  The Company shall also pay  Executive's
accrued but unused vacation,  all deferred  compensation owed to Executive under
any other  agreements,  and his expenses  incurred prior to such  termination of
employment reimbursable under Article 4. All benefits provided under Section 3.5
shall be extended,  to the extent permitted by Company's  insurance policies and
benefit plans, for twelve (12) months after the date of Executive's termination,
except as required by law (e.g., COBRA health insurance continuation  election).
During the period  benefits  are  provided  Executive  under this  Section,  the
Executive and the Company shall  continue to share the costs of such benefits in
the same  proportions  as they had at the time of the  Executive's  termination;
provided,  however,  that  Company  shall only be  required to  contribute  such
amounts  as  were  paid  under  the  benefit  plans  in  effect  on the  date of
termination.  In the  event  of  termination  under  this  Section  5.3,  all of
Executive's  stock options  shall  continue to vest during the eleven (11) month
period  Executive  continues  to receive his Base  Salary,  and all vested stock
options shall remain exercisable until the original date of expiration.

         5.4  Termination  for Death.  Executive's  employment  hereunder  shall
terminate  upon  Executive's  death.  In such event,  the  Company  shall pay to
Executive's estate his Base Salary until the end of the month in which the death
occurred, all accrued but unused vacation pay, all deferred compensation owed to
Executive under any other  agreements,  and all unreimbursed  expenses which are
reimbursable  pursuant to Article 4 incurred prior to his death. In the event of
death,  all vested  options will continue to stay vested and  exercisable by the
Executive's estate until the original  expiration date. Within fifteen (15) days
of Executive's  death, the Company shall provide  Executive's estate with a list
of all amounts, benefits, securities or options that are due Executive hereunder
and shall provide  reasonable  assistance to Executive's estate in receiving and
or/exercising the same.

         5.5      Termination Due to Change of Control.

         5.5.1 If  Executive's  employment is terminated by the Company  without
Cause  in  connection  with or in  furtherance  or as a result  of a  Change  of
Control, or if, in connection with a Change of Control, Executive is not offered
post-closing  employment  by  the  Company  or  its   successor-in-interest   on
substantially  the same  terms as the  terms of  Executive's  employment  by the
Company  immediately  prior  to  the  Change  of  Control  (including,   without
limitation, his or her compensation and the nature and scope of his authorities,
powers, functions and duties, and any remaining term of employment), the Company
shall  pay to  Executive  severance  in an  amount  equal  to two (2)  years  of
Executive's Base Salary in effect on the date of termination,  plus Annual Bonus
and Inducement  Awards for the two years at rates  established for the two years
but not less than the rates  applicable  for the  initial  two year Term of this
Agreement  ("Severance  Payment").  The Base  Salary  portion  of the  Severance
Payment shall be payable not less  frequently  than  semi-monthly  in accordance
with the  Company's  executive  compensation  practices in effect on the date of
termination.  The Annual Bonus and  Inducement  Award  portions of the Severance
Payment  are due  within  thirty  (30) days of  termination  of the  Executive's
employment as a result of a Change of Control. The Company shall also provide to

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Executive all benefits  under Article 3 of this Agreement that were in effect as
of the date of  termination  for a period  extended  for two (2) years from such
date of  termination.  During the period  benefits are provided  Executive under
this Section, the Executive and the Company shall continue to share the costs of
such benefits in the same proportions as they had at the time of the Executive's
termination.

         5.5.2  In  the  event  of  termination  under  this  Section,   all  of
Executive's  issued and unvested  stock options shall  immediately  become fully
vested and exercisable and shall remain  exercisable  until the original date of
expiration.

         5.5.3    "Change of Control" shall mean any of the following:

                           a.   a   sale   or   other   disposition  of  all  or
         substantially all of the assets of the Company;

                           b. a merger or  consolidation in which the Company is
         not the surviving  entity and in which the  shareholders of the Company
         immediately  prior to such  consolidation or merger own less than fifty
         percent (50%) of the surviving  entity's voting power immediately after
         the transaction;

                           c. a  reverse  merger  in which  the  Company  is the
         surviving   entity  but  the  shares  of  the  Company's  common  stock
         outstanding immediately preceding the merger are converted by virtue of
         the merger into other property, whether in form of securities,  cash or
         otherwise,  and in which the  shareholders  of the Company  immediately
         prior to such merger own less than fifty percent (50%) of the Company's
         voting power immediately after the transaction;

                           d. any other  capital  reorganization  in which  more
         than fifty percent (50%) of the shares of the Company  entitled to vote
         are sold or  exchanged  (whether  in a single  or a series  of  related
         transactions); or

                           e.  during any period of two  consecutive  years (not
         including periods prior to the Effective Date),  individuals who at the
         beginning  of such period  constitute  the Board and any new  directors
         whose  election  by  the  Board  or  nomination  for  election  by  the
         stockholders  was  approved  by at least  2/3rds of the  members of the
         Board, cease for any reason to constitute a majority thereof.

         5.6      Termination Not for Cause.

         5.6.1 The Company may terminate  Executive's  employment  Not for Cause
during the Term by giving  Executive  thirty  (30)  days'  written  notice.  For
purposes of this Section,  any material reduction in the authority or changes in
the reporting  status of the Executive  shall be regarded as Termination Not for
Cause of the Executive. Any termination of Executive's employment by the Company
Not for Cause,  that  occurs in  contemplation  of a Change of Control or at the
request or insistence  of any person  (other than the Company)  relating to such

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Change of Control shall be deemed to have  occurred  after the Change of Control
for the purposes of this  Agreement.  A breach by the Company of a material term
of this  Agreement  that  remains  uncured  for a period  of  fifteen  (15) days
following  written  notice of such breach to the Company,  shall be considered a
Termination Not for Cause.

         5.6.2 Should the  Executive's  employment be terminated  Not for Cause,
the Company shall pay to Executive all Base Salary and bonuses  earned up to and
including  the date of  termination  (which  shall be the date  thirty (30) days
after the date of the written notice), all accrued and unused vacation,  and all
unreimbursed  expenses  which are  reimbursable  pursuant  to Article 4 incurred
prior to such  termination  plus, a severance  payment in an amount equal to two
(2) years of Executive's  Base Salary in effect on the date of termination.  The
severance  payment shall be payable not less  frequently  than  semi-monthly  in
accordance with the Company's executive  compensation practices in effect on the
date of  termination.  Further,  the Company  shall pay to Executive  the Annual
Bonus,  Inducement  Award (cash and options)  that would have been due Executive
during the two (2) years had the  Executive  continued his  employment  with the
Company and fully met all Performance Criteria.  Additionally, the Company shall
immediately pay to Executive all deferred  compensation  owed to Executive under
any other agreements.

         5.6.3 Should the  Executive's  employment be terminated  Not for Cause,
the Company  shall  provide to Executive  all benefits  under  Article 3 of this
Agreement  that were in effect  as of the date of  termination  from the date of
termination  until the earlier of (i) twenty four (24) months  after the date of
notice of  termination,  (ii) the date Executive  obtains new  employment  which
offers benefits comparable or superior to those provided Executive under Article
3 of this Agreement and Executive  qualifies for  participation  in such benefit
plans, or (iii) Executive otherwise obtains benefits.  comparable or superior to
those  provided  Executive  under  Article 3.  During the  period  benefits  are
provided  Executive  under this  Section,  the  Executive  and the Company shall
continue to share the costs of such benefits in the same proportions as they had
at the time of the Executive's termination.  In the event of Termination Not for
Cause,  all options  granted to the Executive  shall continue to vest during the
two years after  termination  and all vested  options  shall remain  exercisable
until the original date of expiration.

5.7      Voluntary Termination By Executive.

         5.7.1 This Agreement may be voluntarily  terminated by Executive at any
time prior to the expiration of the Term set forth in Article 1 by giving thirty
(30)  days'  prior  written  notice  of  Executive's  intent to  terminate  this
Agreement.  Executive  agrees to remain in the service of the  Company  from the
date of the notice until the date of the  termination to facilitate  transition,
unless the Company and the Executive  agree mutually that this  Agreement  shall
terminate prior to the expiration of such thirty (30) day period. This Agreement
shall only terminate upon the expiration of the transition  period following the
written notice,  and the Executive  shall be entitled to all benefits  hereunder
until the agreed upon termination date. In the event of a voluntary  termination
under this Section 5.7.1, all options granted to the Executive shall continue to
vest  during the  period  following  the  written  notice  until the date of the
termination and all vested options shall remain  exercisable  until the original
date of expiration.

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5.7.2 In the event the Executive  voluntarily  terminates this Agreement without
complying  with the  notice  provisions  of Section  5.7.1  above,  all  options
previously awarded Executive shall cease to vest as of the termination date, and
all  vested  options  shall  remain  exercisable  only for a period of three (3)
months following such termination.

5.7.3 For purposes of Section  5.7.2,  the three (3) month  exercise  period for
vested  options  shall be suspended  for any periods  during which  Executive is
prohibited from exercising such vested options due to applicable securities laws
(which, for purposes of this Agreement  includes,  without  limitation,  periods
during which exercise or sale of shares is (i) prohibited by any Insider Trading
Policies or blackout periods imposed by policies adopted by the Company, or (ii)
limited as a result of Executive's knowledge of material non-public  information
relating  to the  Company,  or limited as a result of the  requirement  to delay
timing of any  exercise or sale to avoid  application  of  "short-swing"  profit
rules (the "Suspended Period"). The Suspended Period shall be extended beyond an
aggregate of six (6) months only upon the written opinion of counsel clearly and
specifically  identifying:  (i) the  applicable  securities  law that  prohibits
Executive's  exercise of vested options;  (ii) the anticipated  period that such
prohibition;   (iii)  the  actions  necessary  or  steps  needed  so  that  such
prohibition may be lifted.

                                    ARTICLE 6
                          INSURANCE AND INDEMNIFICATION

6.1 The Company shall provide the Executive with  directors' and officers' (D&O)
liability  insurance  coverage.  The Company shall, at all times,  carry no less
that $5  million  in  such  D&O  insurance.  In the  event  that  the  Company's
directors'  and  officers'  liability  insurance  coverage  lapses,  and  if the
Executive is a party to or is threatened  to be made a party to any  threatened,
pending or completed claim,  action,  suit, or proceeding,  or appeal therefrom,
whether civil, criminal administrative,  investigative, or otherwise, because he
is or was an officer and/or director of the Company or at the express request of
the Company is or was serving for purposes  reasonably  understood  by him to be
for the Company as a director, officer, partner, employee, agent, trustee, or in
any  other  capacity  of  an  association,   corporation,   general  or  limited
partnership,  joint venture, trust, or other entity, the Company shall indemnify
the  Executive  against,  and shall pay and advance,  all  reasonable  expenses,
including  attorney's  fees and  disbursements,  and any judgments,  fines,  and
amounts  paid in  settlement  incurred  by him in  connection  with such  claim,
action, suit, proceeding,  or appeal therefrom,  to the fullest extent permitted
under  the  Company's  Certificate  of  Incorporation  ("Certificate"),   bylaws
("Bylaws") or applicable law.

6.2 The Executive's  coverage under the D&O insurance policy  referenced  above,
and the Company's obligation to indemnify the Executive as provided above and to
the extent  permitted by the  Certificate,  Bylaws,  and  applicable  law, shall
survive the expiration of this Agreement  until the expiration of any statute of
limitations applicable to a claim brought against Executive because he is or was
an officer and/or director of the Company and as necessary to adequately protect
Executive in the event of the Company's insolvency.

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                                    ARTICLE 7
                              RESTRICTIVE COVENANTS

         7.1  Confidential   Information.   In  the  course  of  his  employment
hereunder,  Executive may have access to confidential  records,  data, formulae,
customer lists, trade secrets, specifications, inventions and processes owned by
the Company.  During the Term and thereafter,  Executive shall not,  directly or
indirectly, disclose such information to any person or use any such information,
except as required in the  performance  of  Executive's  duties  hereunder.  All
records,  files, keys,  drawings,  documents,  models,  equipment,  and the like
relating to the Company's business, which Executive shall prepare, copy, or use,
or with which  Executive  comes into contact  shall be and remain the  Company's
sole  property,  shall not be removed  from the  Company's  premises,  except as
necessary for the performance of the Executive's  duties,  and shall be returned
to the Company upon the  expiration or  termination  of the Term of  Executive's
employment.

         7.2  Competing  Business.  As  used  in  the  Agreement,  a  "Competing
Business"  refers to any person or entity  engaged in (i) the use of products or
technology  similar to Autologel(TM) or the  Autologel(TM)  System involving the
use of releasates  from platelets to treat chronic  wounds or other  indications
for which the Company has obtained or would be in the process of  obtaining  any
applicable  regulatory  clearance  during the Term,  (ii) any use of products or
technology  similar to that which the Company may  develop or  otherwise  obtain
marketable  rights during the Term, or (iii) the direct  competition with either
(i) or (ii) above.

         7.3      Non-competition  Period.  The  "Non-Competition  Period" shall
be two years following the date of termination of Executive's employment

         7.4  Geographic   Restriction.   The  geographic   restriction  of  the
Executive's Convenant Not to Compete shall include the cities, counties,  states
of the United  States,  and each country  outside of the United States where the
Company does business during Executive's employment.

         7.5  Covenant Not to Compete.  Executive  shall not, at any time during
the Term and during the Non-competition  Period,  either directly or indirectly,
or solely or jointly with other persons or entities:

         7.5.1  own,  manage,  operate,  join,  control,  consult  with,  render
services for or participate in the ownership,  management,  operation or control
of, or be  connected  as an officer,  director,  employee,  partner,  principal,
agent, consultant or other representative with, or permit his name to be used in
connection with any profit or nonprofit business,  organization or entity, other
than the Company and its  affiliates,  which  operates or engages in a Competing
Business,

         7.5.2  lend any credit or money for the  purposes  of  establishing  or
operating any Competing  Business or otherwise give aid or advice to any person,
firm, association, corporation, or entity engaging in any Competing Business, or

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<PAGE>

         7.5.3 solicit,  contract,  divert,  or take away or attempt to solicit,
divert,  or take away any of the  customers,  potential  customers,  business or
patrons of the Company and its affiliates or any of their respective  successors
and assigns,  directly or  indirectly,  by or for himself or as the agent of any
other  person  or  entity  or  through  others  as an  agent or on  behalf  of a
competitor of the Company.

         The  Company and  Executive  acknowledge  and agree that the  duration,
scope,  and  geographic  area for which the  covenant  not to  compete  is to be
effective are reasonable.

         7.6 Exceptions to Covenant Not to Compete. Notwithstanding the Covenant
Not to Compete provided in Section 7.5 above:

         7.6.1 Executive shall not be restricted from accepting  employment with
a Competing Business provided that the scope of such employment,  and the duties
involved thereunder do not involve (i) the use of products or technology similar
to  Autologel(TM)  or the  Autologel(TM)  System involving the use of releasates
from  platelets  to treat  chronic  wounds  or other  indications  for which the
Company  has  obtained or would be in the process of  obtaining  any  applicable
regulatory  clearance  during the Term,  (ii) any use of products or  technology
similar to that which the  Company may develop or  otherwise  obtain  marketable
rights during the Term, or (iii) the direct  competition with either (i) or (ii)
above.

         7.6.2  Executive  may  own  publicly-traded   securities  issued  by  a
Competing Business provided that Executive shall not own more than three percent
(3%) of the value of any class of such securities outstanding at such time.

         7.6.3 Executive is free to license or economically exploit any patents,
inventions  or  ideas  regarding  products  that he has  developed  prior to his
employment  with  the  Company  or that he may  develop  in the  future  through
expenditure  of his  personal  time and  resources,  as long as any such  future
developments  shall not involve (i) the use of products or technology similar to
Autologel(TM) or the  Autologel(TM)  System involving the use of releasates from
platelets to treat chronic wounds or other indications for which the Company has
obtained  or would be in the  process of  obtaining  any  applicable  regulatory
clearance  during the Term,  (ii) any use of products or  technology  similar to
that which the Company may develop or otherwise obtain  marketable rights during
the Term, or (iii) the direct competition with either (i) or (ii) above.

         7.6.4  Notwithstanding  the  exceptions  to the Covenant Not to Compete
listed above, in no event shall the Executive  violate his duties  regarding the
solicitation  of  employees  or the  nondisclosure  of  proprietary  information
contained herein.

         7.7 Solicitation of Employees.  Executive shall not, at any time during
the Term or during the Non-competition Period, directly or indirectly, by or for
himself or as the agent of any other  person or entity or  through  others as an
agent in any way solicit or induce or attempt to solicit or induce any employee,
officer,  representative,  consultant,  or  other  agent of the  Company  or its
affiliates,  whether  such person is presently  employed  with the Company or an
affiliate or may  hereinafter be so employed,  to leave the Company's  employ or
the employ of a Company affiliate.

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<PAGE>

         7.8.   Disclosure  of  Proprietary   Information.   In  the  course  of
Executive's   employment  with  the  Company,   Executive  may  have  access  to
confidential   records,   data,   formulae,   customer  lists,   trade  secrets,
specifications,   inventions,  and  processes  owned  by  the  Company  and  its
affiliates.  During  Executive's  employment  with the Company  and  thereafter,
Executive  shall  maintain  in strict  confidence  and shall  not,  directly  or
indirectly, use, disseminate, disclose, or publish or use for his benefit or the
benefit of any person, firm,  corporation,  or other entity, any confidential or
proprietary  information  or trade secrets of or relating to the Company and its
affiliates,  or  which  the  Company  and its  affiliates  have a right  to use,
including, without limitation, information with respect to the Company's and its
affiliates'  vendors,  suppliers,   customers,  potential  customers,  marketing
methods, costs, prices, and terms of employment.  Executive shall not deliver to
any person, firm, corporation,  or other entity any document,  record, notebook,
computer  program or similar  repository  containing  any such  confidential  or
proprietary  information  or trade  secrets,  except as required in the faithful
performance of Executive's duties during employment with the Company,  provided,
however, that the foregoing restriction shall not apply to (i) disclosure or use
of Executive's  general business and technical knowledge or any such information
that became  generally  available to the public in any manner or form through no
fault of  Executive,  (ii)  disclosure or use of any such  information  with the
Company's prior written  consent,  or (iii)  disclosure of any such  information
required by a court or a governmental agency of competent  jurisdiction.  In the
event that  Executive  is so  required  or  compelled  to make such  disclosure,
Executive   shall   cooperate   with  the   Company  to  preserve  in  full  the
confidentiality of all proprietary  information whose disclosure is not required
or compelled.

                  7.8.1 All such  information and trade secrets and all records,
         files,  keys,  drawings,  documents,  models,  equipment  and the  like
         relating  to the  Company's  and its  affiliates'  business  with which
         Executive  comes into contact  shall be and remain the sole property of
         the Company and its affiliates, shall not be removed from the Company's
         or its affiliates' premises,  except as reasonably  appropriate for the
         performance of Executive's  duties or with the Company's  prior written
         consent,  and shall be returned to the Company and its affiliates  upon
         Executive's  retirement or other  termination  of  employment  with the
         Company.

                  7.8.2 The Company and  Executive  hereby  stipulate  and agree
         that as between them the foregoing matters are important, material, and
         confidential  proprietary  information and trade secrets and affect the
         successful conduct of the business of the Company, its affiliates,  and
         any  successor  or assignee of the Company and its  affiliates.  In the
         event  that  during   Executive's   employment   with  the  Company  or
         thereafter,  Executive  becomes employed by any employer other than the
         Company, Executive shall notify such employer of the terms of Article 7
         of this Agreement and all sections and subsections thereunder not later
         than  the  date on  which  Executive  commences  employment  with  such
         employer.

                  7.8.3  The   Company   and  the   Executive   agree  that  the
         restrictions related to disclosure of proprietary information shall not
         be  applicable  if the  Executive  is directed to disclose  proprietary
         information  pursuant to an order of a court or regulatory  agency with
         applicable  jurisdiction,  or if the  Executive's  failure to  disclose
         proprietary  information  would result in a violation of any applicable
         laws or  regulations.  Executive  agrees  that  upon the  receipt  of a
         subpoena  or other  legal  request  for  information  that may  include
         proprietary information, the Executive will promptly notify the Company
         of  such   subpoena  or  legal  request  and  shall  give  the  Company

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Employment Agreement                                                     Page 11
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<PAGE>

         opportunity to object to the disclosure of such proprietary information
         prior to Executive's response.

         7.9  Normal  Business  Communications.  Notwithstanding  the  foregoing
Section  7.8,   Executive   may  engage  in   discussion   and   meetings   with
representatives  of a Competing Business in the normal course of the business of
the Company during Executive's employment with the Company.

         7.10     Enforcement of Covenants Not to Compete, Solicit or Disclose.

                  7.10.1 The Company and Executive intend that the provisions of
         Article 7 of this  Agreement  shall be fully  enforceable  as set forth
         herein.  To the extent that any court of competent  jurisdiction  finds
         that any such provision is  unenforceable  by reason of its duration or
         scope,  the  Company  and  Executive  agree  that it shall be  enforced
         insofar  as it may be  enforced  within  the  limits of the law of that
         jurisdiction  but that the  Agreement  as a whole  shall be  unaffected
         elsewhere.

                  7.10.2 The Company and  Executive  recognize  and  acknowledge
         that the Company, by the Agreement,  has sought to prohibit competition
         and  disclosure  of  confidential   information  by  Executive   during
         Executive's  employment  with  the  Company  and  thereafter  and  that
         Executive's  performance  of services  or  disclosure  of  confidential
         information  in  contravention  of the Agreement or other breach of the
         provisions  of Article 7 of this  Agreement  would  consequently  cause
         immediate  and  irreparable  harm to the  business  and goodwill of the
         Company and its affiliates, the exact amount of which will be difficult
         or  impossible  to  ascertain,  and that  damages,  if any,  and  other
         remedies  at law would be  inadequate.  Accordingly,  should  Executive
         perform  or  attempt  or  threaten  to  perform  services  or  disclose
         confidential information in contravention of the Agreement or otherwise
         breach the  provisions  of  Article 7 of this  Agreement,  the  Company
         shall, in addition to any and all other remedies  available to it under
         the Agreement, have the right to seek and obtain an injunction or other
         equitable relief,  restraining and preventing Executive from performing
         such services, disclosing such information, or breaching the provisions
         of Article 7 of this Agreement.

                                    ARTICLE 8
                               GENERAL PROVISIONS

         8.1  Entire  Agreement.  The  Agreement  is  intended  to be the final,
complete,   and  conclusive  agreement  between  the  parties  relating  to  the
employment  of the  Executive by the Company  with respect to the Term,  and all
prior or contemporaneous understandings,  representations,  and statements, oral
or written, are merged herein. No modification, waiver, amendment, discharge, or
change of the Agreement  shall be valid unless the same is in writing and signed
by the party against which the enforcement thereof is or may be sought.

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Employment Agreement                                                     Page 12
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<PAGE>

         8.2 No Waiver.  No waiver by conduct or  otherwise  by any party of any
term, provision, or condition of the Agreement shall be deemed or construed as a
further or continuing waiver of any such term,  provision,  or condition or as a
waiver of a similar or dissimilar  condition or provision at the same time or at
any prior or subsequent time.

         8.3 Remedies Not Exclusive.  No remedy conferred by any of the specific
provisions  of the  Agreement is intended to be  exclusive of any other  remedy,
except as expressly  provided in the Agreement,  and each and every remedy shall
be  cumulative  and in addition to every other remedy given  hereunder or now or
hereafter  existing in law, in equity, by statute,  or otherwise.  No failure by
any party to exercise and no delay in  exercising  any rights shall be construed
or deemed to be a waiver thereof, and no single or partial exercise by any party
shall preclude any other or future exercise thereof or the exercise of any other
right.

         8.4 Notices. Except as otherwise provided in the Agreement, any notice,
approval,  consent,  waiver, or other communication  required or permitted to be
given or to be served upon any person or entity in connection with the Agreement
shall be in writing.  Such notice  shall be either  personally  served,  sent by
telegram,  tested telex, fax, cable,  prepaid  registered or certified mail with
return receipt  requested,  or by other express mail service and shall be deemed
given at the time such  notice was  actually  given if  personally  served or by
express mail  service,  or two  business  days  following  delivery by telegram,
telex,  fax, cable, or mail. Any notice given by telegram,  telex, fax, or cable
shall  be  confirmed  in  writing  by the  carrier  making  the  service  within
forty-eight hours after being sent. Such notices shall be addressed to the party
to whom such notice is to be given at the party's  address set forth below or as
such party shall otherwise direct.

         If to the Company:         Cytomedix, Inc.
                                    1523 South Bowman Road, Suite A
                                    Little Rock, Arkansas  72211

         If to Executive:           Dr. Kshitij Mohan
                                    25 Beman Woods Court
                                    Potomac, Maryland  20854

         8.5  Assignment.  This  Agreement  is intended to bind and inure to the
benefit  of and be  enforceable  by the  Executive  and the  Company,  and their
respective  successors,  heirs (in the case of  Executive)  and assigns,  except
that: (1) the Agreement and the Executive's rights and obligations hereunder may
not be assigned by the Executive,  and any purported assignment by the Executive
in violation  hereof  shall be null and void;  and (2) in the event of any sale,
transfer,  or other  disposition  of all or  substantially  all of the Company's
assets or business,  whether by merger,  consolidation or otherwise, the Company
may assign the Agreement  and its rights  hereunder,  only with the  Executive's
consent and only  provided  that such  assignment  shall not limit the Company's
liability  under the  Agreement  to the  Executive.  Notwithstanding  any of the
foregoing,  all of Executive's rights and interest hereunder shall be assignable
to Executive's legal representatives,  executors or conservators in the event of
Executive's Death or Disability.

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Employment Agreement                                                     Page 13
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<PAGE>

         8.6  Governing  Law. The  Agreement  shall be construed and enforced in
accordance with the laws of Arkansas  without giving effect to the principles of
conflict  of laws  thereof.  Venue for any  dispute  resolution  shall be in the
Commonwealth  of  Virginia or the State of  Maryland,  at the sole choice of the
Executive.

         8.7  Counterparts.  The  Agreement  may be  executed  in any  number of
counterparts,  each of which shall be deemed an original, but all of which shall
constitute one instrument.

         8.8 Severability. The provisions of the agreement are severable, and if
any provision or application thereof is held invalid or unenforceable, then such
holding shall not affect any other provision or application.

         8.9 Arbitration.  Any controversy or claim arising out of or related to
the Agreement or the breach  thereof shall be settled by binding  arbitration in
accordance   with  the  rules  then  in  effect  of  the  American   Arbitration
Association,  which arbitration shall be held in the Commonwealth of Virginia or
the State of Maryland,  at the sole choice of the  Executive.  The  arbitrator's
decision shall be binding and final, and judgment upon the award rendered may be
entered in any court having jurisdiction thereof.

         8.10 Injunctive Relief. The Executive agrees that it would be difficult
to compensate  Company fully for damages for any violation of the  provisions of
the  Agreement,  including  without  limitation  the  provisions  of  Article 7.
Accordingly,  the  Executive  specifically  agrees  that  the  Company  and  its
successors  and assigns shall be entitled to temporary and permanent  injunctive
relief to enforce the provisions of the Agreement. The provision with respect to
injunctive relief shall not, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.

                  [Remainder of Page Intentionally Left Blank]

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Employment Agreement                                                     Page 14
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<PAGE>

         IN WITNESS  WHEREOF,  the parties  execute the Agreement  effective the
date first above written.

                                      COMPANY:

                                      CYTOMEDIX, INC., a Delaware corporation

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

                                      Date:
                                             ---------------------------------

                                      EXECUTIVE:

                                      ----------------------------------------
                                               Dr. Kshitij Mohan

                                      Date:
                                             ---------------------------------

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Employment Agreement                                                     Page 15
April ___, 2004

<PAGE>

                                   APPENDIX 1
                                INDUCEMENT AWARD

         A.  Option Grant

         In  consideration of Executive's  execution of this Agreement,  Company
agrees to  immediately  grant  Executive  stock options for 1,000,000  shares of
Company's  common stock at an exercise price of $1.50 per share (the "Inducement
Award").  Options  for  500,000  shares  will be fully  vested  and  immediately
exercisable  upon  commencement of Executive's  employment.  Options for 250,000
shares shall vest and be exercisable  upon the first  anniversary of the date of
employment  provided Executive remains employed by the Company upon such date or
is  otherwise  entitled  to  immediate  or  continued  vesting  as a  result  of
termination as specified under Article 5 of this Agreement.  Options for 250,000
shares shall vest and be exercisable upon the second  anniversary of the date of
employment  provided Executive remains employed by the Company upon such date or
is  otherwise  entitled  to  immediate  or  continued  vesting  as a  result  of
termination as specified under Article 5 of this  Agreement.  All vested options
comprising the Inducement Award (and all rights with respect thereto, including,
without limitation,  the rights provided in Sections B and D of this Appendix 1)
shall  continue  to  be  exercisable  until  the  original  date  of  expiration
notwithstanding  the Company's  termination of Executive's  employment under the
Agreement.

         B.  Anti-Dilution Provisions

         The  Inducement  Award shall be subject to the following  anti-dilution
provisions:

         The Company  represents  that as if the Effective Date, the outstanding
common stock of the Company on a fully  diluted basis (which  reflects,  without
limitation,  full  exercise  of all  outstanding  but  unexercised  options  and
warrants,  full  conversion of all convertible  stock and  securities,  and full
issuance of dividends accrued and payable in stock) is 36,167,304 shares.  Thus,
the Inducement  Award provided in Section A of this Appendix 1 constitutes  2.76
percent (2.76%) (the "Target  Percentage") of the outstanding  common stock on a
fully diluted basis as of the Effective Date (not including any security  issued
to or controlled by the Executive).  Upon commencement of Executive's employment
and the award of the Inducement Grant, the Company shall prepare and the Company
and  Executive  shall  execute  mutually  a  schedule  setting  forth the Target
Percentage and the method of calculating the same.

         In the event the Company  issues  additional  shares of common stock or
other  security  convertible  into or exercisable  for common stock  (including,
without  limitation,  other  options,  warrants  or  debt  securities,  but  not
including  any  security  issued to the  Executive),  the  Company  shall  issue
Executive  additional  options to purchase  common stock at an exercise price of
$1.50 so that,  assuming the exercise of all options previously issued and to be
issued as part of the Inducement  Award,  the Executive  would be the beneficial
owner of the Target Percentage of the outstanding common stock of the Company on
a fully diluted basis (not including any  securities  owned or controlled by the
Executive).

         However,  in no event  shall this  Section B of  Appendix 1 entitle the
Executive to receive options to purchase more than 1,000,000  additional  shares

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Employment Agreement                                                     Page 16
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<PAGE>

of common  stock,  so that the total number of shares of common  stock  issuable
upon the exercise of  Inducement  Award  options  shall never  exceed  2,000,000
shares (the foregoing 1,000,000 and 2,000,000 values being subject to adjustment
for stock splits or stock  dividends  as provided in Section C of this  Appendix
1). Any additional  options issued under this Section B of Appendix 1 shall vest
as if such  options had been  issued as part of the  original  Inducement  Award
(i.e.,  one-half  of the  additional  options  will be  immediately  vested  and
exercisable,  one-quarter  shall  vest and  become  exercisable  upon the  first
anniversary of the Executive's employment provided Executive remains employed by
the Company  upon such date or is  otherwise  entitled to immediate of continued
vesting  as a result  of a  termination  as  specified  under  Article 5 of this
Agreement,  and one quarter  shall vest and become  exercisable  upon the second
anniversary of the Executive's employment provided Executive remains employed by
the Company  upon such date or is  otherwise  entitled to immediate or continued
vesting  as a  result  of a  termination  as  specified  in  Article  5 of  this
Agreement.  If, for example, the issuance of additional options pursuant to this
Section B of  Appendix 1 occurred  after the first  anniversary  of  Executive's
employment, three quarters of the additional options would be immediately vested
and  exercisable  and one quarter would vest and be exercisable  upon the second
anniversary of Executive's  employment,  assuming  Executive remains employed by
the Company  upon such date or is  otherwise  entitled to immediate or continued
vesting  as a  result  of  termination  as  specified  under  Article  5 of this
Agreement).  Any  additional  options  issued under this Section B of Appendix 1
shall also be considered a part of the Inducement Award for all other rights and
purposes under this Appendix B.

         C.  Adjustment Upon Change in Stock Split or Stock Dividend

         In the event that the Company issues any stock dividend upon its shares
of common stock or undergoes a stock split with respect to its common stock, the
Inducement  Award options shall provide for a  corresponding  and  proportionate
adjustment to the number of shares subject to the  Inducement  Award options and
to the exercise  price thereof (for example,  in the event of a 5:1 stock split,
the number of options would be increased to 5,000,000 and the exercise price per
share would be reduced to $0.30 per share).  The limitation on the number shares
of  common  stock  which  may be  subject  to  options  issued  pursuant  to the
Anti-Dilution  Provisions of Section B of this  Appendix 1 (1,000,000  shares of
common stock) shall also be similarly adjusted in such event.

         D.  Registration Rights

         In the event the Executive  exercises  any of the options  constituting
the  Inducement  Award,  the  Company  shall  use  its  best  efforts  to  issue
unrestricted common stock to the Executive upon such exercise. To the extent the
Company  issues  restricted  common stock to the Executive  upon his exercise of
options  constituting the Inducement Award, the Company shall use its reasonable
best efforts to register the Executive's  resale of such common stock as soon as
practicable, but in no event the next subsequent registration statement filed by
Company  with the SEC,  and in any  event no later  than the end of  Executive's
second year of employment.  Company shall indemnify and hold Executive  harmless
from and against all losses or expenses  arising  from such  registration  other
than  liability  arising from fraud or criminal acts of Executive.  In the event
that the Company proposes to effect a sale or offering of shares of common stock
through any  underwriter  on a firm  commitment or best efforts  basis,  Company
agrees to notify  Executive,  and if so elected  by  Executive,  to include  all

--------------------------------------------------------------------------------
Employment Agreement                                                     Page 17
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<PAGE>

shares  desired  by  Executive  within the  shares to be sold  pursuant  to such
offering.  In the event that other shareholders hold similar registration rights
and the  underwriter  is not  willing  or able to sell all such  shares  in such
offering,  then  Executive  shall have the right to  participate on a pari passu
"most favored nation" basis with all other common  shareholders  holding similar
such  registration  rights.  The option  agreement  will include a  registration
rights provision which incorporates all of the foregoing.

         Notwithstanding  the above, the Executive  understands and acknowledges
that certain  provisions of federal  and/or state  securities  law may limit his
ability to sell the common stock issued to him upon  exercise of the  Inducement
Award  options  and  Executive  agrees  to  comply  with  any  federal  or state
securities law applicable to such sale.

         E. Continuation of Rights.

         The Executive's  rights to additional  options pursuant to Section B of
this Appendix 1 (Anti-Dilution  Provisions) shall continue until the earlier of:
(i) the date upon which Executive has received the maximum possible total number
of additional options permissible under the anti-dilution  provisions of section
B of this Appendix 1 (1,000,000,  subject to adjustment  under Section C of this
Appendix B), or (ii) the date  Executive  is no longer  employed by the Company,
whether under this  Agreement or otherwise.  All other rights  contained in this
Appendix 1 and  applicable  to the  Inducement  Award or the common  stock to be
issued upon exercise of options  comprising the  Inducement  Award shall survive
the  expiration or  termination  of this  Agreement and continue with respect to
vested  Inducement Award options and Inducement Award options which may continue
to vest after  termination as a result of the specific  provisions  contained in
Article 5 of this  Agreement  through the full term of such options  (and,  with
respect to shares of common stock acquired  through exercise of Inducement Award
options  shall  continue  through  Executive's  full period of ownership of such
shares unless sooner fulfilled).

         F.  Other Provisions

         The  Company  and the  Executive  agree that this  Inducement  Award is
subject to  modification  or  amendment  by mutual  agreement of the Company and
Executive  if the  Company  and the  Executive  determine  in good faith that an
amendment or modification  would maintain the economic benefit of the Inducement
Award to the Executive,  but would mitigate any adverse economic impact upon the
Company or the Executive.  In such event, the Company and the Executive agree to
negotiate  such  amendment  or  modification  in good  faith and use their  best
efforts to amend or modify the  Inducement  Award as will  maintain the economic
benefit to  Executive  reflected in the  Inducement  Award  structure  reflected
above.  The  obligation  under  Section 3.2 of the  Agreement  to  complete  all
necessary  documents related to the Inducement Award within ten (10) days of the
Effective  Date shall be suspended  if the  Executive  and the Company  elect to
discuss or otherwise  consider an amendment or  modification  to the  Inducement
Award. Such documents shall be completed within ten (10) business days following
the mutual agreement  between the Company and the Executive as to the final form
and structure of the Inducement Award.

--------------------------------------------------------------------------------
Employment Agreement                                                     Page 18
April ___, 2004

<PAGE>

                                   APPENDIX 2

                                  ANNUAL BONUS

A.       Bonus

         Executive's  Bonus  for the first  year of the  Initial  Term  shall be
$100,000, notwithstanding the achievement of any Performance Criteria.

         If Executive meets the Performance  Criteria that have been agreed upon
by the Company and the Executive,  per Section 3.3 of this Agreement,  the bonus
for the first and second year of the Initial  Term shall be $150,000  each year.
The  Executive  may  elect to  receive  all or part of his bonus in the first or
second year of the Term in the form of stock at $1.50 per shares. In each of the
first and second years of the Term, the Executive  shall also receive options to
purchase  100,000 shares of common stock at an exercise  price of $1.50,  vested
immediately  upon grant and with a 10-year  exercise  term.  All vested  options
comprising  an Annual  Bonus award shall  continue to be  exercisable  until the
original  date  of  expiration  notwithstanding  the  Company's  termination  of
Executive's employment under the Agreement.

B.       Performance Criteria

         The Performance  Criteria for the first year will be agreed upon by the
Company and the Executive, as outlined in Section 3.3.

--------------------------------------------------------------------------------
Employment Agreement                                                     Page 19
April ___, 2004

<PAGE>

                                   APPENDIX 3

                                 FRINGE BENEFITS

         The Company and the  Executive  have agreed to a $25,000 per year "perk
package."  This amount will be paid at the beginning of each year of the Term in
cash or through a  combination  of cash and other  benefits in kind, at the sole
choice of Executive.

--------------------------------------------------------------------------------
Employment Agreement                                                     Page 20
April ___, 2004

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