Document:

exv10w17

 

Exhibit 10.17

LOAN AGREEMENT

This Agreement dated as of May 30, 2007, is between Bank of America, N.A. (the “Bank”) and
California Water Service Company (the “Borrower”).

	1.	 	FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
	 
	1.1	 	Line of Credit Amount.
	 
	(a)	 	During the availability period described below, the Bank will provide a line of credit to the
Borrower. The amount of the line of credit (the “Facility No. 1 Commitment”) is Fifty-Five
Million and 00/100 Dollars ($55,000,000.00).
	 
	(b)	 	This is a revolving line of credit. During the availability period, the Borrower may repay
principal amounts and reborrow them.
	 
	(c)	 	The Borrower agrees not to permit the principal balance outstanding to exceed the Facility
No. 1 Commitment. If the Borrower exceeds this limit, the Borrower will immediately pay the
excess to the Bank upon the Bank’s demand.

1.2 Availability Period. The line of credit is available between the date of this
Agreement and April 30, 2012, or such earlier date as the availability may terminate as provided in
this Agreement (the “Facility No. 1 Expiration Date”).

	1.3	 	Repayment Terms.
	 
	(a)	 	The Borrower will pay interest on May 31, 2007, and then on the last day of each month
thereafter until payment in full of any principal outstanding under this facility.
	 
	(b)	 	The Borrower will repay in full any principal, interest or other charges outstanding under
this facility no later than the Facility No. 1 Expiration Date. Any interest period for an
optional interest rate (as described below) shall expire no later than the Facility No. 1
Expiration Date.
	 
	1.4	 	Interest Rate.
	 
	(a)	 	The interest rate is a rate per year equal to the Bank’s Prime minus 1.5 percentage points.
	 
	(b)	 	The Prime Rate is the rate of interest publicly announced from time to time by the Bank as
its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the
Bank’s costs and desired return, general economic conditions and other factors, and is used as
a reference point for pricing some loans. The Bank may

 

 

	 	 	price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening
of business on the day specified in the public announcement of a change in the Bank’s Prime
Rate.

1.5 Optional Interest Rates. Instead of the interest rate based on the rate stated in the
paragraph entitled “Interest Rate” above, the Borrower may elect the optional interest rates listed
below for this Facility No. 1 during interest periods agreed to by the Bank and the Borrower. The
optional interest rates shall be subject to the terms and conditions described later in this
Agreement. Any principal amount bearing interest at an optional rate under this Agreement is
referred to as a “Portion.” The following optional interest rates are available:

	(a)	 	The LIBOR Rate plus 0.25 percentage point.
	 
	1.6	 	Letters of Credit.
	 
	(a)	 	During the availability period, at the request of the Borrower, the Bank will issue: standby letters of credit with a
maximum maturity of three hundred sixty-five (365) days but not to extend more than three hundred
sixty-five (365) days beyond the Facility No. 1 Expiration Date. The standby letters of credit may
include a provision providing that the maturity date will be automatically extended each year
for an additional year unless the Bank gives written notice to the contrary.
	 
	(b)	 	The amount of the letters of credit outstanding at any one time (including the drawn and
unreimbursed amounts of the letters of credit) may not exceed Ten Million and 00/100 Dollars
($10,000,000.00).
	 
	(c)	 	In calculating the principal amount outstanding under the Facility No. 1 Commitment, the
calculation shall include the amount of any letters of credit outstanding, including amounts
drawn on any letters of credit and not yet reimbursed.
	 
	(d)	 	The following letter of credit is outstanding from the Bank for the account of the Borrower:

	 	 	 	 	 	 	 	 	 
	 	 	Letter of Credit Number	 	Amount	 	 	 	 
	 
	 	3060134	 	$500,000.00	 	 	 	 

As of the date of this Agreement, this letter of credit shall be deemed to be outstanding
under this Agreement, and shall be subject to all the terms and conditions stated in this
Agreement.

	(e)	 	The Borrower agrees:

	 	(i)	 	Any sum drawn under a letter of credit may, at the option of the Bank, be added
to the principal amount outstanding under this Agreement. The amount will bear interest
and be due as described elsewhere in this Agreement.
	 
	 	(ii)	 	If there is a default under this Agreement, to immediately deposit cash
collateral with the Bank as required under Section B.2 (Deposit Events.) of each Bank
form Application and Agreement for Standby Letter of Credit signed by the Borrower.
	 
	 	(iii)	 	The issuance of any letter of credit and any amendment to a letter of credit is
subject to the Bank’s written approval and must be in form and content satisfactory to
the Bank and in favor of a beneficiary acceptable to the Bank.
	 
	 	(iv)	 	To sign the Bank’s form Application and Agreement for Commercial Letter of Credit
or Application and Agreement for Standby Letter of Credit, as applicable.
	 
	 	(v)	 	To pay any issuance and/or other fees that the Bank notifies the Borrower will be
charged for issuing and processing letters of credit for the Borrower.
	 
	 	(vi)	 	To allow the Bank to automatically charge its checking account for applicable
fees, discounts, and other charges.

 

 

	2.	 	OPTIONAL INTEREST RATES

2.1 Optional Rates. Each optional interest rate is a rate per year. Interest will be paid
on May 31, 2007, and then on the last day of each month thereafter until payment in full of any
principal outstanding under this Agreement. No Portion will be converted to a different interest
rate during the applicable interest period. Upon the occurrence of an event of default under this
Agreement, the Bank may terminate the availability of optional interest rates for interest periods
commencing after the default occurs. At the end of each interest period, the interest rate will
revert to the rate stated in the paragraph(s) entitled “Interest Rate” above, unless the Borrower
has designated another optional interest rate for the Portion.

	2.2	 	LIBOR Rate. The election of LIBOR Rates shall be subject to the following terms and
requirements:
	 
	(a)	 	The interest period during which the LIBOR Rate will be in effect will be one or two weeks,
one month, two months, three months, four months, five months, six months, seven months, eight
months, nine months, ten months, eleven months or twelve months. The first day of the
interest period must be a day other than a Saturday or a Sunday on which banks are open for
business in New York and London and dealing in offshore dollars (a “LIBOR Banking Day”). The
last day of the interest period and the actual number of days during the interest period will
be determined by the Bank using the practices of the London inter-bank market.
	 
	(b)	 	Each LIBOR Rate Portion will be for an amount not less than One Hundred Thousand and 00/100
Dollars ($100,000.00).
	 
	(c)	 	The “LIBOR Rate” means the interest rate determined by the following formula. (All amounts
in the calculation will be determined by the Bank as of the first day of the interest period.)

	 	Where,
	 
	 	(i)	 	“London Inter-Bank Offered Rate” means for any applicable interest period, the
rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as
published by Reuters (or other commercially available source providing quotations of BBA
LIBOR as selected by the Bank from time to time) at approximately 11:00 a.m. London time
two (2) London Banking Days before the commencement of the interest period for U.S.
Dollar deposits (for delivery on the first day of such interest period) with a term
equivalent to such interest period. If such rate is not available at such time for any
reason then the rate for that interest period will be determined by such alternate
method as reasonably selected by the Bank. A “London Banking Day” is a day on which
banks in London are open for business and dealing in offshore dollars.
	 
	 	(ii)	 	“Reserve Percentage” means the total of the maximum reserve percentages for
determining the reserves to be maintained by member banks of the Federal Reserve System
for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded
upward to the nearest 1/100 of one percent. The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.

	(d)	 	The Borrower shall irrevocably request a LIBOR Rate Portion no later than 12:00 noon Pacific
time on the LIBOR Banking Day preceding the day on which the London Inter-Bank Offered Rate
will be set, as specified above. For example, if there are no intervening holidays or weekend
days in any of the relevant locations, the request must be made at least three days before the
LIBOR Rate takes effect.
	 
	(e)	 	The Bank will have no obligation to accept an election for a LIBOR Rate Portion if any of the
following described events has occurred and is continuing:

	 	(i)	 	Dollar deposits in the principal amount, and for periods equal to the interest
period, of a LIBOR Rate Portion are not available in the London inter-bank market; or
	 
	 	(ii)	 	The LIBOR Rate does not accurately reflect the cost of a LIBOR Rate Portion.

	(f)	 	Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of acceleration or
otherwise, will be accompanied by the amount of accrued interest on the amount prepaid and a
prepayment fee as described

 

 

	 	below. A “prepayment” is a payment of an amount on a date earlier
than the scheduled payment date for such amount as required by this Agreement.

	(g)	 	The prepayment fee shall be equal to the amount (if any) by which

	 	(iii)	 	the additional interest which would have been payable on the amount prepaid had it
not been paid until the last day of the interest period, using the Initial Money Market
Funds Rate, exceeds
	 
	 	(iv)	 	the interest rate which would have been recoverable by the Bank by reinvesting
the amount prepaid for the period starting on the date on which it was prepaid and
ending on the last day of the interest period, using the Subsequent Money Market Funds
Rate.
	 
	 	The following definitions will apply to the calculation of the prepayment fee:
	 
	 	“Money Market” means one or more wholesale rate markets available to the Bank, including the
LIBOR, Eurodollar, and SWAP rate markets as applicable and available, or such other
appropriate Money Market as determined by the Bank in its sole discretion.
	 
	 	“Initial Money Market Funds Rate” means the fixed interest rate per annum, determined solely
by the Bank on the date that the Borrower requests the LIBOR Rate Portion, as the rate at
which the Bank would be able to borrow funds in the Money Market in the amount of the LIBOR
Rate Portion and with an interest period equal to the interest period of the LIBOR Rate
Portion.
	 
	 	“Subsequent Money Market Funds Rate” means the fixed interest rate per annum, determined
solely by the Bank on the date of the prepayment, as the rate at which the Bank would be able
to reinvest funds in the Money Market in the prepaid amount of the LIBOR Rate Portion for a
period of time approximating the period starting on the date of the prepayment and ending on
the last day of the original interest period of the LIBOR Rate Portion.
	 
	 	The Bank may adjust the Initial Money Market Funds Rate and the Subsequent Money Market Funds
Rate to reflect the compounding, accrual basis, or other costs of the LIBOR Rate Portion.
The rates shall include adjustments for reserve requirements, federal deposit insurance, and
any other similar adjustment which the Bank deems appropriate. Each of the rates is the
Bank’s estimate only, and the Bank is under no obligation to actually purchase or match funds
for any transaction or reinvest any prepayment. The rates are not fixed by or related in any
way to any rate the Bank quotes or pays for deposits accepted through its branch system. The
rates will be based on information from either the Telerate or Reuters information services,
The Wall Street Journal, or other information sources the Bank deems appropriate.

	3.	 	FEES AND EXPENSES
	 
	3.1	 	Fees.
	 
	(a)	 	Periodic Commitment Fee. The Borrower agrees to pay a periodic commitment fee in
the amount of Twelve Thousand Dollars ($12,000).
	 
	 	 	This fee is due on the date of the Agreement, and on May 31st of 2008 and May
31st of each year thereafter until the expiration of the availability period.
	 
	(b)	 	Late Fee. To the extent permitted by law, the Borrower agrees to pay a late fee in
an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days
late. The imposition and payment of a late fee shall not constitute a waiver of the Bank’s
rights with respect to the default.

3.2 Expenses. The Borrower agrees to immediately repay the Bank for expenses that include,
but are not limited to, reasonable filing, recording and search fees, appraisal fees, title report
fees, and documentation fees, in each case promptly following the presentation of an invoice for
the expenses.

3.3 Reimbursement Costs. The Borrower agrees to reimburse the Bank for all reasonable
expenses it incurs in the preparation of this Agreement and any agreement or instrument required by
this Agreement. Expenses include, but are not limited to, reasonable attorneys’ fees, including
any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law.

 

 

	4.	 	DISBURSEMENTS, PAYMENTS AND COSTS
	 
	4.1	 	Disbursements and Payments.
	 
	(a)	 	Each payment by the Borrower will be made in U.S. Dollars and immediately available funds by
direct debit to a deposit account as specified below or, for payments not required to be made
by direct debit, by mail to the address shown on the Borrower’s statement or at one of the
Bank’s banking centers in the United States.
	 
	(b)	 	Each disbursement by the Bank and each payment by the Borrower will be evidenced by records
kept by the Bank. In addition, the Bank may, at its discretion, require the Borrower to sign
one or more promissory notes.
	 
	4.2	 	Telephone and Telefax Authorization.
	 
	(a)	 	The Bank may honor telephone or telefax instructions for advances or repayments or for the
designation of optional interest rates and telefax requests for the issuance of letters of
credit given, or purported to be given, by any one of the individuals authorized to sign loan
agreements on behalf of the Borrower, or any other individual designated by any one of such
authorized signers.
	 
	(b)	 	Advances will be deposited in and repayments will be withdrawn from account number
14872-00230 owned by the Borrower or such other of the Borrower’s accounts with the Bank as
designated in writing by the Borrower.
	 
	(c)	 	The Borrower will indemnify and hold the Bank harmless from all liability, loss, and costs in
connection with any act resulting from telephone or telefax instructions the Bank reasonably
believes are made by any individual authorized by the Borrower to give such instructions.
This paragraph will survive this Agreement’s termination, and will benefit the Bank and its
officers, employees, and agents.
	 
	4.3	 	Direct Debit (Pre-Billing).
	 
	(a)	 	The Borrower agrees that the Bank will debit deposit account number 14872-00230 owned by the
Borrower or such other of the Borrower’s accounts with the Bank as designated in writing by
the Borrower (the “Designated Account”) on the date each payment of principal and interest and
any fees from the Borrower becomes due (the “Due Date”).
	 
	(b)	 	Prior to each Due Date, the Bank will mail to the Borrower a statement of the amounts that
will be due on that Due Date (the “Billed Amount”). The bill will be mailed a specified
number of calendar days prior to the Due Date, which number of days will be mutually agreed
from time to time by the Bank and the Borrower. The calculations in the bill will be made on
the assumption that no new extensions of credit or payments will be made between the date of
the billing statement and the Due Date, and that there will be no changes in the applicable
interest rate.
	 
	(c)	 	The Bank will debit the Designated Account for the Billed Amount, regardless of the actual
amount due on that date (the “Accrued Amount”). If the Billed Amount debited to the
Designated Account differs from the Accrued Amount, the discrepancy will be treated as
follows:

	 	(i)	 	If the Billed Amount is less than the Accrued Amount, the Billed Amount for the
following Due Date will be increased by the amount of the discrepancy. The Borrower
will not be in default by reason of any such discrepancy.
	 
	 	(ii)	 	If the Billed Amount is more than the Accrued Amount, the Billed Amount for the
following Due Date will be decreased by the amount of the discrepancy.

	 	 	Regardless of any such discrepancy, interest will continue to accrue based on the actual
amount of principal outstanding without compounding. The Bank will not pay the Borrower
interest on any overpayment.
	 
	(d)	 	The Borrower will maintain sufficient funds in the Designated Account to cover each debit.
If there are insufficient funds in the Designated Account on the date the Bank enters any
debit authorized by this Agreement, the Bank may reverse the debit.
	 
	(e)	 	The Borrower may terminate this direct debit arrangement at any time by sending written
notice to the Bank at the address specified at the end of this Agreement. If the Borrower
terminates this arrangement, then the principal amount outstanding under this Agreement will
at the option of the Bank bear interest at a rate per annum which is 0.5 percentage point
higher than the rate of interest otherwise provided under this Agreement.

 

 

4.4 Banking Days. Unless otherwise provided in this Agreement, a banking day is a day
other than a Saturday, Sunday or other day on which commercial banks are authorized to close, or
are in fact closed, in the state where the Bank’s lending office is located, and, if such day
relates to amounts bearing interest at an offshore rate (if any), means any such day on which
dealings in dollar deposits are conducted among banks in the offshore dollar interbank market. All
payments and disbursements which would be due on a day which is not a banking day will be due on
the next banking day. All payments received on a day which is not a banking day will be applied to
the credit on the next banking day.

4.5 Interest Calculation. Except as otherwise stated in this Agreement, all interest and
fees, if any, will be computed on the basis of a 360-day year and the actual number of days
elapsed. This results in more interest or a higher fee than if a 365-day year is used. Installments of principal which are not paid when due under this Agreement
shall continue to bear interest until paid.

4.6 Default Rate. Upon the occurrence of any default or after maturity or after judgement
has been rendered on any obligation under this Agreement, all amounts outstanding under this
Agreement, including any interest, fees, or costs which are not paid when due, will at the option
of the Bank bear interest at a rate which is 2.0 percentage points higher than the rate of interest
otherwise provided under this Agreement. This may result in compounding of interest. This will
not constitute a waiver of any default. The Bank will notify the Borrower of its decision to
exercise its option to impose the default rate, and the Bank’s notice will set forth the date on
which the default rate became or will become effective.

	5.	 	CONDITIONS

Before the Bank is required to extend any credit to the Borrower under this Agreement, it must
receive any documents and other items it may reasonably require, in form and content acceptable to
the Bank, including any items specifically listed below.

5.1 Authorizations. If the Borrower or any guarantor is anything other than a natural
person, evidence that the execution, delivery and performance by the Borrower and/or such guarantor
of this Agreement and any instrument or agreement required under this Agreement have been duly
authorized.

	5.2	 	Governing Documents. If required by the Bank, a copy of the Borrower’s organizational
documents.
	 
	5.3	 	Guaranties. Guaranty signed by California Water Service Group (“CWSG”).

5.4 Payment of Fees. Payment of all fees and other amounts due and owing to the Bank,
including without limitation payment of all accrued and unpaid expenses incurred by the Bank as
required by the paragraph entitled “Reimbursement Costs.”

5.5 Good Standing. Certificates of good standing for the Borrower from its state of
formation and from any other state in which the Borrower is required to qualify to conduct its
business.

	5.6	 	Insurance. Evidence of insurance coverage, as required in the “Covenants” section of
this Agreement.
	 
	6.	 	REPRESENTATIONS AND WARRANTIES

When the Borrower signs this Agreement, and until the Bank is repaid in full, the Borrower makes
the following representations and warranties. Each request for an extension of credit constitutes
a renewal of these representations and warranties as of the date of the request:

6.1 Formation. If the Borrower is anything other than a natural person, it is duly formed
and existing under the laws of the state or other jurisdiction where organized.

6.2 Authorization. This Agreement, and any instrument or agreement required hereunder, are
within the Borrower’s powers, have been duly authorized, and do not conflict with any of its
organizational papers.

6.3 Enforceable Agreement. This Agreement is a legal, valid and binding agreement of the
Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or
agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding
and enforceable.

6.4 Good Standing. In each state in which the Borrower does business, it is properly
licensed, in good standing, and, where required, in compliance with fictitious name statutes except
where (other than in respect of its jurisdiction of

 

 

organization) its failure to be so could not reasonably be expected to have a material adverse effect on its business condition (financial or
otherwise) or ability to repay this credit.

6.5 No Conflicts. This Agreement does not conflict with any law, material agreement, or
material obligation by which the Borrower is bound.

6.6 Financial Information. All financial and other information that has been or will be
supplied to the Bank is sufficiently complete to give the Bank accurate knowledge of CWSG’s (and
any guarantor’s) financial condition, including all material contingent liabilities. Since the
date of the most recent financial statement provided to the Bank, there has
been no material adverse change in the business condition (financial or otherwise), operations,
properties or prospects of CWSG.

6.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or threatened
against the Borrower which, if lost, would impair the Borrower’s financial condition or ability to
repay the loan, except as have been disclosed in writing to the Bank.

6.8 Permits, Franchises. The Borrower possesses all permits, memberships, franchises,
contracts and licenses required and all trademark rights, trade name rights, patent rights,
copyrights and fictitious name rights necessary to enable it to conduct the business in which it is
now engaged.

6.9 Other Obligations. The Borrower is not in default on any obligation for borrowed
money, any purchase money obligation or any other material lease, commitment, contract, instrument
or obligation, except as have been disclosed in writing to the Bank.

6.10 Tax Matters. The Borrower has no knowledge of any pending assessments or adjustments
of its income tax for any year and all material taxes due have been paid, except as have been
disclosed in writing to the Bank or as are being contested in good faith and by appropriate
proceedings diligently conducted and as to which adequate reserves are being maintained on the
books of the Borrower in accordance with GAAP.

6.11 No Event of Default. There is no event which is, or with notice or lapse of time or
both would be, a default under this Agreement.

6.12 Insurance. The Borrower has obtained, and maintained in effect, the insurance
coverage required in the “Covenants” section of this Agreement.

	6.13	 	ERISA Plans.
	 
	(a)	 	Each Plan (other than a multiemployer plan) is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law except where
failure to be in compliance could not reasonably be expected to have a material adverse effect
on the Borrower’s business condition (financial or otherwise) or ability to repay this credit.
Each Plan has received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of such
qualification. The Borrower has fulfilled its obligations, if any, under the minimum funding
standards of ERISA and the Code with respect to each Plan, and has not incurred any liability
with respect to any Plan under Title IV of ERISA where such liability could reasonably be
expect to have a material adverse effect on the Borrower’s business condition (financial or
otherwise) or ability to repay this credit.
	 
	(b)	 	There are no claims, lawsuits or actions (including by any governmental authority), and there
has been no prohibited transaction or violation of the fiduciary responsibility rules, with
respect to any Plan which has resulted or could reasonably be expected to result in a material
adverse effect.
	 
	(c)	 	With respect to any Plan subject to Title IV of ERISA:

	 	(i)	 	No reportable event has occurred under Section 4043(c) of ERISA for which the
PBGC requires 30-day notice.
	 
	 	(ii)	 	No action by the Borrower or any ERISA Affiliate to terminate or withdraw from
any Plan has been taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.

 

 

	 	(iii)	 	No termination proceeding has been commenced with respect to a Plan under
Section 4042 of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.

	(d)	 	The following terms have the meanings indicated for purposes of this Agreement:

	 	(i)	 	“Code” means the Internal Revenue Code of 1986, as amended from time to time.
	 
	 	(ii)	 	“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
	 
	 	(iii)	 	“ERISA Affiliate” means any trade or business (whether or not incorporated)
under common control with the Borrower within the meaning of Section 414(b) or (c) of
the Code.
	 
	 	(iv)	 	“PBGC” means the Pension Benefit Guaranty Corporation.
	 
	 	(v)	 	“Plan” means a pension, profit-sharing, or stock bonus plan intended to qualify
under Section 401(a) of the Code, maintained or contributed to by the Borrower or any
ERISA Affiliate, including any multiemployer plan within the meaning of Section
4001(a)(3) of ERISA.

	7.	 	COVENANTS

The Borrower agrees, so long as credit is available under this Agreement and until the Bank is
repaid in full:

7.1 Use of Proceeds. To use the proceeds of Facility No. 1 only for working capital,
permitted acquisitions, general corporate purposes and to bridge capital expenditures.

7.2 Financial Information. To provide the following financial information and statements
in form and content acceptable to the Bank, and such additional information as requested by the
Bank from time to time. The Bank reserves the right, upon written notice to the Borrower, to
require the Borrower to deliver financial information and statements to the Bank more frequently
than otherwise provided below, and to use such additional information and statements to measure any
applicable financial covenants in this Agreement.

	(a)	 	Within ten (10) days after the date of filing with the Securities and Exchange
Commission (“SEC”), the annual financial statements of CWSG, certified and dated by an
authorized financial officer. These financial statements must be audited (with an opinion
satisfactory to the Bank) by a Certified Public Accountant acceptable to the Bank. The
statements shall be prepared on a consolidated, consolidating, and unconsolidated basis.
	 
	(b)	 	Within ten (10) days after the date of filing with the SEC, quarterly financial statements of
CWSG (other than the last fiscal quarter of any fiscal year), certified and dated by an
authorized financial officer. These financial statements may be company-prepared. the
statements shall be prepared on a consolidated, condolidating, and unconsolidated basis.
	 
	(c)	 	Within the same time periods that the annual and quarterly financial statements are required
under subparagraphs (a) and (b) immediately above, a compliance certificate of CWSG signed by
an authorized financial officer, and setting forth (i) the information and computations (on a
consolidated basis and in sufficient detail) of the Debt to Capitalization Ratio (as defined
in Paragraph 8.15 below) and the Interest Coverage Ratio (as defined in Paragraph 8.16 below)
to establish compliance with those financial covenants at the end of the period covered by the
financial statements then being furnished and (ii) whether there existed as of the date of
such financial statements and whether there exists as of the date of the certificate, any
default under this Agreement and, if any such default exists, specifying the nature thereof
and the action CWSG is taking and proposes to take with respect thereto.
	 
	(d)	 	Copies of the Form 10-K Annual Report and Form 10-Q Quarterly Report for CWSG within ten (10)
days after the date of filing with the SEC, provided that all such reports shall be deemed
delivered when delivered to the SEC and posted to EDGAR.
	 
	(e)	 	The annual financial projections of CWSG covering the forthcoming fiscal year and specifying
the assumptions used in creating the projections. The projections shall be provided to the
Bank by April 30th of each year.

7.3 Other Debts. Not to have outstanding or incur any direct or contingent liabilities or
lease obligations (other than those to the Bank), or become liable for the liabilities of others, without the Bank’s
written consent. This does not prohibit:

 

 

	(a)	 	Acquiring goods, supplies, or merchandise on normal trade credit.
	 
	(b)	 	Endorsing negotiable instruments received in the usual course of business.
	 
	(c)	 	Obtaining surety bonds in the usual course of business.
	 
	(d)	 	Liabilities, lines of credit and leases in existence on the date of this Agreement
disclosed in writing to the Bank.
	 
	(e)	 	Additional debts and lease obligations for the acquisition of fixed assets, to the
extent permitted under Paragraph 7.4(d) of this Agreement.
	 
	(f)	 	Additional debts assumed in connection with acquisitions permitted under Paragraph 7.7(b) of
this Agreement.
	 
	(g)	 	Additional obligations of the Borrower consisting of first mortgage bonds or unsecured
senior notes substantially similar in amount and structure to those certain first mortgage bonds and unsecured senior
notes that are outstanding as of the date of this Agreement.
	 
	(h)	 	Operating leases entered into the ordinary course of business.
	 
	(i)	 	Contingent obligations in respect of customary indemnification and purchase price adjustment
obligations incurred in connection with asset sales permitted by this Agreement.
	 
	(j)	 	Contingent liabilities granted in favor of title insurers in the ordinary course of business.

7.4 Other Liens. Not to create, assume, or allow any security interest or lien (including
judicial liens) on property the Borrower now or later owns, except:

	(a)	 	Liens and security interests in favor of the Bank.
	 
	(b)	 	Liens for taxes not yet delinquent.
	 
	(c)	 	Liens outstanding on the date of this Agreement disclosed in writing to the Bank.
	 
	(d)	 	Additional purchase money security interests in assets acquired after the date of this
Agreement, if the total principal amount of debts secured by such liens does not exceed Five Million Dollars
($5,000,000) at any one time.
	 
	(e)	 	Liens securing first mortgage bonds permitted under the preceding paragraph.
	 
	(f)	 	Landlord’s, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like
liens arising in the ordinary course of business which are not overdue for a period of more
than thirty (30) days or which are being contested in good faith and by appropriate proceedings diligently
conducted, if adequate reserves with respect thereto are maintained on the books of the
Borrower.
	 
	(g)	 	Pledges or deposits in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other social security legislation, other than any
lien imposed by ERISA.
	 
	(h)	 	Deposits to secure the performance of bids, trade contracts and leases, statutory
obligations, surety bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business.
	 
	(i)	 	Easements, rights-of-way, restrictions and other similar encumbrances affecting real property
which, in the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or materially interfere with
the ordinary conduct of the business of the Borrower.
	 
	(j)	 	Liens securing judgments for the payment of money not constituting an event of default
hereunder or securing appeal or other surety bonds related to such judgments.
	 
	(k)	 	Liens arising solely by virtue of any statutory or common law provisions relating to banker’s
liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution.

 

 

	7.5	 	Maintenance of Assets.
	 
	(a)	 	Not to sell, assign, lease, transfer or otherwise dispose of any part of the Borrower’s
business or the Borrower’s assets except in the ordinary course of the Borrower’s business and except for such
dispositions as may be necessary in connection with remedial actions taken by the Borrower to
remedy certain Plans, as disclosed to the Bank prior to the date of this Agreement.
	 
	(b)	 	Not to sell, assign, lease, transfer or otherwise dispose of any assets for less than fair
market value, or enter into any agreement to do so.
	 
	(c)	 	Not to enter into any sale and leaseback agreement covering any of its fixed assets.
	 
	(d)	 	To maintain and preserve all rights, privileges, and franchises the Borrower now has,
except to the extent the failure to do so could not be reasonably expected to have a material adverse effect on the
Borrower’s business condition (financial or otherwise) or ability to repay this credit.
	 
	(e)	 	To make any repairs, renewals, or replacements to keep the Borrower’s properties in good
working condition (ordinary wear and tear excluded).
	 
	(f)	 	Additional debts assumed in connection with acquisitions permitted under Paragraph 7.7(b) of
this Agreement.

	7.6	 	Loans. Not to make any loans, advances or other extensions of credit to any individual
or entity, except for:
	 
	(a)	 	Existing extensions of credit disclosed to the Bank in writing.
	 
	(b)	 	Extensions of credit to the Borrower’s current subsidiaries.
	 
	(c)	 	Extensions of credit in the nature of accounts receivable or notes receivable arising from
the sale or lease of goods or services in the ordinary course of business to non-affiliated
entities.
	 
	7.7	 	Additional Negative Covenants. Not to, without the Bank’s written consent:
	 
	(a)	 	Enter into any consolidation, merger, or other combination, or become a partner in a
partnership, a member of a joint venture, or a member of a limited liability company.
	 
	(b)	 	Acquire or purchase a business or its assets for a consideration, including assumption of
direct or contingent debt, in excess of Ten Million Dollars ($10,000,000) in the aggregate in
each fiscal year. Before making any such acquisition, the Borrower must obtain the prior,
effective written consent or approval of the board of directors or equivalent governing body
of the business being acquired.
	 
	(c)	 	Engage in any business activities substantially different from the Borrower’s present
business.
	 
	(d)	 	Liquidate or dissolve the Borrower’s business.
	 
	(e)	 	Voluntarily suspend the Borrower’s business for more than seven (7) days in any thirty
(365) day period.
	 
	7.8	 	Notices to Bank. To promptly notify the Bank in writing of:
	 
	(a)	 	Any lawsuit over Five Million and 00/100 Dollars ($5,000,000.00) against the Borrower (or any
guarantor).
	 
	(b)	 	Any substantial dispute between any governmental authority and the Borrower (or any
guarantor).
	 
	(c)	 	Any event of default under this Agreement, or any event which, with notice or lapse of time
or both, would constitute an event of default.
	 
	(d)	 	Any material adverse change in the Borrower’s (or any guarantor’s) business condition
(financial or otherwise), operations, properties or prospects, or ability to repay the credit.
	 
	(e)	 	Any change in the Borrower’s name, legal structure, place of business, or chief executive
office if the Borrower has more

 

 

	 	 	than one place of business.
	 
	(f)	 	Any actual contingent liabilities of the Borrower (or any guarantor), and any such contingent
liabilities which are reasonably foreseeable, where such liabilities are in excess of Five
Million and 00/100 Dollars ($5,000,000.00) in the aggregate.
	 
	7.9	 	General Business Insurance. To maintain insurance as is usual for the business it is
in.

7.10 Compliance with Laws. To comply with the laws (including any fictitious or trade name
statute), regulations, and orders of any government body with authority over the Borrower’s
business, except to the extent that the failure to do so could not reasonably be expected to have a
material adverse effect on the Borrower’s business condition (financial or otherwise) or ability to
repay this credit. The Bank shall have no obligation to make any advance to the Borrower except in
compliance with all applicable laws and regulations and the Borrower shall fully cooperate with the
Bank in complying with all such applicable laws and regulations.

7.11 ERISA Plans. Promptly during each year, to pay and cause any subsidiaries to pay
contributions adequate to meet at least the minimum funding standards under ERISA with respect to
each and every Plan; file each annual report required to be filed pursuant to ERISA in connection
with each Plan for each year; and notify the Bank within ten (10) days of the occurrence of any
Reportable Event that might constitute grounds for termination of any capital Plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court
of a trustee to administer any Plan. “ERISA” means the Employee Retirement Income Security Act of
1974, as amended from time to time. Capitalized terms in this paragraph shall have the meanings
defined within ERISA.

	7.12	 	ERISA Plans-Notices. With respect to a Plan subject to Title IV of ERISA, to give
prompt written notice to the Bank of:
	 
	(a)	 	The occurrence of any reportable event under Section 4043(c) of ERISA for which the PBGC
requires 30-day notice.
	 
	(b)	 	Any action by the Borrower or any ERISA Affiliate to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
	 
	(c)	 	The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA.
	 
	7.13	 	Books and Records. To maintain adequate books and records.

7.14 Audits. To allow the Bank and its agents to inspect the Borrower’s properties and
examine, audit, and make copies of books and records at any reasonable time. If any of the
Borrower’s properties, books or records are in the possession of a third party, the Borrower
authorizes that third party to permit the Bank or its agents to have access to perform inspections
or audits and to respond to the Bank’s requests for information concerning such properties, books
and records.

	7.15	 	Cooperation. To take any action reasonably requested by the Bank to carry out the
intent of this Agreement.
	 
	8.	 	DEFAULT AND REMEDIES

If any of the following events of default occurs, the Bank may do one or more of the following:
declare the Borrower in default, stop making any additional credit available to the Borrower, and
require the Borrower to repay its entire debt immediately and without prior notice. If an event
which, with notice or the passage of time, will constitute an event of default has occurred and is
continuing, the Bank has no obligation to make advances or extend additional credit under this
Agreement. In addition, if any event of default occurs, the Bank shall have all rights, powers and
remedies available under any instruments and agreements required by or executed in connection with
this Agreement, as well as all rights and remedies available at law or in equity. If an event of
default occurs under the paragraph entitled “Bankruptcy,” below, with respect to the Borrower,
then the entire debt outstanding under this Agreement will automatically be due immediately.

8.1 Failure to Pay. The Borrower fails to make a payment of principal under this Agreement
when due, or fails to make a payment of interest, any fee or other sum under this Agreement within
five (5) days after the date when due.

8.2 Other Bank Agreements. Any default occurs under any other agreement the Borrower (or
any Obligor) or any of the Borrower’s related entities or affiliates has with the Bank or any
affiliate of the Bank. For purposes of this Agreement, “Obligor” shall mean any guarantor or any
party pledging collateral to the Bank.

8.3 Cross-default. Any default occurs under any agreement in connection with any credit
the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has obtained
from anyone else or which the Borrower (or any

 

 

Obligor) or any of the Borrower’s related entities or affiliates has guaranteed in the amount of Five Million Dollars ($5,000,000) or more in the
aggregate.

8.4 False Information. The Borrower or any Obligor has given the Bank false or misleading
information or representations.

8.5 Bankruptcy. The Borrower, any Obligor, or any general partner of the Borrower or of
any Obligor files a bankruptcy petition, a bankruptcy petition is filed against any of the
foregoing parties, or the Borrower, any Obligor, or any general partner of the Borrower or of any
Obligor makes a general assignment for the benefit of creditors.

8.6 Receivers. A receiver or similar official is appointed for a substantial portion of
the Borrower’s or any Obligor’s business, or the business is terminated, or, if any Obligor is
anything other than a natural person, such Obligor is liquidated or dissolved.

8.7 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more trade creditors
against the Borrower or any Obligor in an aggregate amount of Five Million and 00/100 Dollars
($5,000,000.00) or more in excess of any insurance coverage.

8.8 Judgments. Any final judgments or arbitration awards are entered against the Borrower
or any Obligor, or the Borrower or any Obligor enters into any settlement agreements with respect
to any litigation or arbitration, in an aggregate amount of Ten Million and 00/100 Dollars
($10,000,000.00) or more in excess of any insurance coverage.

8.9 Material Adverse Change. A material adverse change occurs, or is reasonably likely to
occur, in the Borrower’s (or any Obligor’s) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit.

8.10 Government Action. Any government authority takes action that the Bank believes
materially adversely affects the Borrower’s or any Obligor’s financial condition or ability to
repay.

8.11 Default under Related Documents. Any default occurs under any guaranty, subordination
agreement, security agreement, deed of trust, mortgage, or other document required by or delivered
in connection with this Agreement or any such document is no longer in effect, or any guarantor
purports to revoke or disavow the guaranty.

8.12 ERISA Plans. Any one or more of the following events occurs with respect to a Plan of
the Borrower subject to Title IV of ERISA, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or
any combination of the foregoing) which, in the aggregate, could have a material adverse effect on
the financial condition of the Borrower:

	(a)	 	A reportable event shall occur under Section 4043(c) of ERISA with respect to a Plan.
	 
	(b)	 	Any Plan termination (or commencement of proceedings to terminate a Plan) or the full or
partial withdrawal from a Plan by the Borrower or any ERISA Affiliate.

8.13 Other Breach Under Agreement. A default occurs under any other term or condition of
this Agreement not specifically referred to in this Article. This includes any failure or
anticipated failure by the Borrower (or any other party named in the Covenants section) to comply
with the financial covenants set forth in this Agreement, whether such failure is evidenced by
financial statements delivered to the Bank or is otherwise known to the Borrower or the Bank. If
the breach is capable of being remedied, the breach will not be considered an event of default
under this Agreement for a period of thirty (30) days after the date on which the Bank gives
written notice of the breach to the Borrower.

8.14 Restrictive Covenant. CWSG directly or indirectly agrees to any arrangement
whereby the ability of any of its subsidiaries to pay dividends to CWSG is restricted.

8.15 Debt to Capitalization Ratio. CWSG fails to maintain on a consolidated basis a
Debt to Capitalization Ratio not exceeding 0.667:1.0.

	 	 	“Debt to Capitalization Ratio” means the ratio of Funded Debt to the sum of Net Worth plus
Funded Debt.
	 
	 	 	“Funded Debt” of any person shall mean (i) all Indebtedness of such person for borrowed money
or which have been incurred in connection with the acquisition of assets in each case having
a final maturity of one or more than one year from the date of origin thereof (or which is
renewable or extendible at the option of the obligor for a

 

 

	 	 	period or periods more than one year from the date of origin), including all payments in respect thereof that are required to
be made within one year from the date of any determination of Funded Debt, whether or not the
obligation to make such payments shall constitute a current liability of the obligor under
GAAP, (ii) all Capitalized Rentals of such person, and (iii) all guaranties by such person of
Funded Debt of others.
	 
	 	 	“Indebtedness” of a person means all obligations of such person which in accordance with GAAP
shall be classified upon a balance sheet of such person as liabilities of such person, and in
any event shall include all (i) obligations of such person for borrowed money or which has
been incurred in connection with the acquisition of property or assets, (ii) obligations
secured by any lien upon property or assets owned by such person, even though such person has
not assumed or become liable for the payment of such obligations, (iii) obligations created
or arising under any conditional sale or other title retention agreement with respect to
property acquired by such person, notwithstanding the fact that the rights and remedies of
the seller, lender or lessor under such agreement in the event of default are limited to
repossession or sale of property, (iv) Capitalized Rentals and (v) guaranties of obligations
of others of the character referred to in this definition. Notwithstanding the foregoing,
the term ‘Indebtedness’ as it relates to CWSG shall not include obligations of CWSG with
respect to advances for construction from third parties.
	 
	 	 	“Capitalized Rentals” of any person shall mean as of the date of any determination thereof
the amount at which the aggregate Rentals due and to become due under all capitalized leases
under which such person is a lessee would be reflected as a liability on a consolidated
balance sheet of such person.
	 
	 	 	“Rentals” shall mean and include as of the date of any determination thereof all fixed
payments (including as such all payments which the lessee is obligated to make to the lessor
on termination of the lease or surrender of the property) payable by a person, as lessee or
sublessee under a lease of real or personal property, but shall be exclusive of any amounts
required to be paid by such person (whether or not designated as rents or additional rents)
on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under
any so-called “percentage leases” shall be computed solely on the basis of the minimum rents,
if any, required to be paid by the lessee regardless of sales volume or gross revenues.
	 
	 	 	“Net Worth” means the value of consolidated total assets (including leaseholds and
leasehold improvements and reserves against assets) less total liabilities, including but not
limited to accrued and deferred income taxes.

8.16 Interest Coverage Ratio. CWSG fails to maintain on a consolidated basis an
Interest Coverage Ratio of at least 2.5:1.0.

	 	 	“Interest Coverage Ratio” means, as of any date of determination, the ratio of (a) EBITDA for
the period of the four prior fiscal quarters ending on such date to (b) Interest Charges for
such period.
	 
	 	 	“EBITDA” means, for any period, for CWSG on a consolidated basis, an amount equal to net
income for such period plus (a) the following to the extent deducted in calculating
such net income: (i) Interest Charges for such period, (ii) the provision for Federal, state,
local and foreign income taxes payable by CWSG for such period, (iii) depreciation and
amortization expense for such period, (iv) other extraordinary losses of CWSG reducing such
net income which do not represent a cash item in such period or any future period and
minus (b) the following to the extent included in calculating such net income: (i)
Federal, state, local and foreign income tax credits of CWSG for such period and (ii) all
extraordinary non-cash gains and non-cash items increasing net income for such period.

 

 

	 	 	“Interest Charges” means, for any period, for CWSG on a consolidated basis, the sum of (a)
all interest, premium payments, debt discount, fees, charges and related expenses of CWSG in
connection with borrowed money to the extent treated as interest in accordance with GAAP, and (b) the portion of rent expense of CWSG with respect to
such period under capital leases that is treated as interest in accordance with GAAP.
	 
	 	 	This ratio will be calculated at the end of each reporting period for which the Bank requires
financial statements using the results of the twelve-month period ending with that reporting
period.
	 
	9.	 	ENFORCING THIS AGREEMENT; MISCELLANEOUS

9.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided
to the Bank and all financial covenants will be made under generally accepted accounting
principles, consistently applied.

	9.2	 	California Law. This Agreement is governed by California law.

9.3 Successors and Assigns. This Agreement is binding on the Borrower’s and the Bank’s
successors and assignees. The Borrower agrees that it may not assign this Agreement without the
Bank’s prior consent. The Bank may sell participations in or assign this loan, and may exchange
information about the Borrower (including, without limitation, any information regarding any
hazardous substances) with actual or potential participants or assignees. If a participation is
sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower.

9.4 Dispute Resolution Provision. This paragraph, including the subparagraphs below,
is referred to as the “Dispute Resolution Provision.” This Dispute Resolution Provision is a
material inducement for the parties entering into this agreement.

	(a)	 	This Dispute Resolution Provision concerns the resolution of any controversies or claims
between the parties, whether arising in contract, tort or by statute, including but not
limited to controversies or claims that arise out of or relate to: (i) this agreement
(including any renewals, extensions or modifications); or (ii) any document related to this
agreement (collectively a “Claim”). For the purposes of this Dispute Resolution Provision
only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the
Bank involved in the servicing, management or administration of any obligation described or
evidenced by this agreement.
	 
	(b)	 	At the request of any party to this agreement, any Claim shall be resolved by binding
arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”).
The Act will apply even though this agreement provides that it is governed by the law of a
specified state.
	 
	(c)	 	Arbitration proceedings will be determined in accordance with the Act, the then-current rules
and procedures for the arbitration of financial services disputes of the American Arbitration
Association or any successor thereof (“AAA”), and the terms of this Dispute Resolution
Provision. In the event of any inconsistency, the terms of this Dispute Resolution Provision
shall control. If AAA is unwilling or unable to (i) serve as the provider of arbitration or
(ii) enforce any provision of this arbitration clause, the Bank may designate another
arbitration organization with similar procedures to serve as the provider of arbitration.
	 
	(d)	 	The arbitration shall be administered by AAA and conducted, unless otherwise required by law,
in any U.S. state where real or tangible personal property collateral for this credit is
located or if there is no such collateral, in the state specified in the governing law section
of this agreement. All Claims shall be determined by one arbitrator; however, if Claims
exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be
decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days
of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of
the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may
extend the commencement of the hearing for up to an additional sixty (60) days. The
arbitrator(s) shall provide a concise written statement of reasons for the award. The
arbitration award may be submitted to any court having jurisdiction to be confirmed and have
judgment entered and enforced.
	 
	(e)	 	The arbitrator(s) will give effect to statutes of limitation in determining any Claim and may
dismiss the arbitration on the basis that the Claim is barred. For purposes of the application
of any statutes of limitation, the service on AAA under

 

 

	 	 	applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration
provision or whether a Claim is arbitrable shall be determined by the arbitrator(s), except as
set forth at subparagraph (j) of this Dispute Resolution Provision. The arbitrator(s) shall
have the power to award legal fees pursuant to the terms of this agreement.
	 
	(f)	 	The procedure described above will not apply if the Claim, at the time of the proposed
submission to arbitration, arises from or relates to an obligation to the Bank secured by real
property. In this case, all of the parties to this agreement must consent to submission of
the Claim to arbitration.
	 
	(g)	 	To the extent any Claims are not arbitrated, to the extent permitted by law the Claims shall
be resolved in court by a judge without a jury, except any Claims which are brought in
California state court shall be determined by judicial reference as described below.
	 
	(h)	 	Any Claim which is not arbitrated and which is brought in California state court will be
resolved by a general reference to a referee (or a panel of referees) as provided in
California Code of Civil Procedure Section 638. The referee (or presiding referee of the
panel) shall be a retired Judge or Justice. The referee (or panel of referees) shall be
selected by mutual written agreement of the parties. If the parties do not agree, the referee
shall be selected by the Presiding Judge of the Court (or his or her representative) as
provided in California Code of Civil Procedure Section 638 and the following related sections.
The referee shall determine all issues in accordance with existing California law and the
California rules of evidence and civil procedure. The referee shall be empowered to enter
equitable as well as legal relief, provide all temporary or provisional remedies, enter
equitable orders that will be binding on the parties and rule on any motion which would be
authorized in a trial, including without limitation motions for summary judgment or summary
adjudication . The award that results from the decision of the referee(s) will be entered as a
judgment in the court that appointed the referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644(a) and 645. The parties reserve the right to
seek appellate review of any judgment or order, including but not limited to, orders
pertaining to class certification, to the same extent permitted in a court of law.
	 
	(i)	 	This Dispute Resolution Provision does not limit the right of any party to: (i) exercise
self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial
foreclosure against any real or personal property collateral; (iii) exercise any judicial or
power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but
not limited to, injunctive relief, writ of possession or appointment of a receiver, or
additional or supplementary remedies. The filing of a court action is not intended to
constitute a waiver of the right of any party, including the suing party, thereafter to
require submittal of the Claim to arbitration or judicial reference.
	 
	(j)	 	Any arbitration, judicial reference or trial by a judge of any Claim will take place on an
individual basis without resort to any form of class or representative action (the “Class
Action Waiver”). Regardless of anything else in this Dispute Resolution Provision, the
validity and effect of the Class Action Waiver may be determined only by a court or referee
and not by an arbitrator. The parties to this Agreement acknowledge that the Class Action
Waiver is material and essential to the arbitration of any disputes between the parties and is nonseverable from the agreement to arbitrate Claims. If the Class
Action Waiver is limited, voided or found unenforceable, then the parties’ agreement to
arbitrate shall be null and void with respect to such proceeding, subject to the right to
appeal the limitation or invalidation of the Class Action Waiver. The Parties acknowledge
and agree that under no circumstances will a class action be arbitrated.
	 
	(k)	 	By agreeing to binding arbitration or judicial reference, the parties irrevocably and
voluntarily waive any right they may have to a trial by jury as permitted by law in respect of
any Claim. Furthermore, without intending in any way to limit this Dispute Resolution
Provision, to the extent any Claim is not arbitrated or submitted to judicial reference, the
parties irrevocably and voluntarily waive any right they may have to a trial by jury to the
extent permitted by law in respect of such Claim. This waiver of jury trial shall remain in
effect even if the Class Action Waiver is limited, voided or found unenforceable. WHETHER THE
CLAIM IS DECIDED BY ARBITRATION, BY JUDICIAL REFERENCE, OR BY TRIAL BY A JUDGE, THE PARTIES
AGREE AND UNDERSTAND THAT THE EFFECT OF THIS AGREEMENT IS THAT THEY ARE GIVING UP THE RIGHT TO
TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW.

9.5 Severability; Waivers. If any part of this Agreement is not enforceable, the rest
of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after
default. If the Bank waives a default, it may enforce a later default. Any consent or waiver
under this Agreement must be in writing.

9.6 Attorneys’ Fees. The Borrower shall reimburse the Bank for any reasonable costs and
attorneys’ fees incurred by the Bank in connection with the enforcement or preservation of any
rights or remedies under this Agreement and any other documents executed in connection with this
Agreement, and in connection with any amendment, waiver, “workout”

 

 

or restructuring under this Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator. In the event that any case is
commenced by or against the Borrower under the Bankruptcy Code (Title 11, United States Code) or
any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’
fees incurred by the Bank related to the preservation, protection, or enforcement of any rights of
the Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the allocated costs
of the Bank’s in-house counsel.

9.7 One Agreement. This Agreement and any related security or other agreements required by
this Agreement, collectively:

	(a)	 	represent the sum of the understandings and agreements between the Bank and the Borrower
concerning this credit;
	 
	(b)	 	replace any prior oral or written agreements between the Bank and the Borrower concerning
this credit; and
	 
	(c)	 	are intended by the Bank and the Borrower as the final, complete and exclusive statement of
the terms agreed to by them.

In the event of any conflict between this Agreement and any other agreements required by this
Agreement, this Agreement will prevail. Any reference in any related document to a “promissory
note” or a “note” executed by the Borrower and dated as of the date of this Agreement shall be
deemed to refer to this Agreement, as now in effect or as hereafter amended, renewed, or restated.

9.8 Indemnification. The Borrower will indemnify and hold the Bank harmless from any loss,
liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly
out of (a) this Agreement or any document required hereunder, (b) any credit extended or committed
by the Bank to the Borrower hereunder, and (c) any litigation or proceeding related to or arising
out of this Agreement, any such document or any such credit; provided, however, that the Borrower
shall have no such obligation to indemnify or hold the Bank harmless to the extent such loss,
liability, damages, judgments or costs result from the gross negligence or willful misconduct of
the Bank, its officers, agents or employees. This indemnity includes but is not limited to
attorneys’ fees (including the allocated cost of in-house counsel). This indemnity extends to the
Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors,
attorneys, and assigns. This indemnity will survive repayment of the Borrower’s obligations to the
Bank. All sums due to the Bank hereunder shall be obligations of the Borrower, due and payable
immediately without demand.

9.9 Notices. Unless otherwise provided in this Agreement or in another agreement between
the Bank and the Borrower, all notices required under this Agreement shall be personally delivered
or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the
signature page of this Agreement, or sent by facsimile to the fax numbers listed on the signature
page, or to such other addresses as the Bank and the Borrower may specify from time to time in
writing. Notices and other communications shall be effective (i) if mailed, upon the earlier of
receipt or five (5) days after deposit in the U.S. mail, first class, postage prepaid, (ii) if
telecopied, when transmitted, or (iii) if hand-delivered, by courier or otherwise (including
telegram, lettergram or mailgram), when delivered.

9.10 Headings. Article and paragraph headings are for reference only and shall not affect
the interpretation or meaning of any provisions of this Agreement.

9.11 Counterparts. This Agreement may be executed in as many counterparts as necessary or
convenient, and by the different parties on separate counterparts each of which, when so executed,
shall be deemed an original but all such counterparts shall constitute but one and the same
agreement.

9.12 Prior Agreement Superseded. This Agreement supersedes the Loan Agreement entered into
as of November 2, 2004, between the Bank and the Borrower, and any credit outstanding thereunder
shall be deemed to be outstanding under this Agreement.

9.13 Treatment of Certain Information; Confidentiality. The Bank agrees to maintain the
confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its affiliates and
to its and its affiliates’ respective partners, directors, officers, employees, agents, advisors
and representatives (it being understood that the persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority purporting to have
jurisdiction over it (including any self-regulatory authority), (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party
hereto, (e) in connection with the exercise of any remedies under

 

 

this Agreement or any other loan document required under or executed in connection with this Agreement or any action or proceeding
relating to this Agreement or any other loan document required under or executed in connection with
this Agreement or the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Paragraph 9.13, to (i) any assignee
of or participant in, or any prospective assignee of or participant in, any of its rights or
obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors)
to any swap or derivative transaction relating the Borrower and its obligations, (g) with the
consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other
than as a result of a breach of this paragraph or (y) becomes available to the Bank or any of its
affiliates on a nonconfidential basis from a source other than the Borrower.

For purposes of this paragraph, “Information” means all information received from the Borrower or
any of the Borrower’s subsidiaries relating to the Borrower or any of the Borrower’s subsidiaries
or any of their respective businesses, other than any such information that is available to the
Bank on a nonconfidential basis prior to disclosure by the Borrower or any subsidiary of the
Borrower. Any person required to maintain the confidentiality of Information as provided in this
paragraph shall be considered to have complied with its obligation to do so if such person has
exercised the same degree of care to maintain the confidentiality of such Information as such
person would accord to its own confidential information.

The Bank acknowledges that (a) the Information may include material non-public information
concerning the Borrower or a subsidiary of the Borrower as the case may be, (b) it has developed
compliance procedures regarding the use of material non-public information and (c) it will handle
such material non-public information in accordance with applicable law, including United States
federal and state securities laws.

	 	 	 	 	 	 	 
	Borrower:	 	 	 	Bank:
	 
	 	 	 	 	 	 
	California Water Service Company	 	 	 	Bank of America, N.A.
	 
	 	 	 	 	 	 
	By:

	 	/s/
	 	By:
	 	/s/
	 

	 	 
	 	 	 	 
	 

	 	Martin Kropelnicki, Vice President, Chief
	 	 	 	John C. Plecque, Senior Vice President
	 

	 	Financial Officer and Treasurer	 	 	 	 
	 
	 	 	 	 	 	 
	Address where notices to the Borrower are to be sent:	 	 	 	Address where notices to the Bank are to be sent:
	 
	 	 	 	 	 	 
	1720 North First Street	 	 	 	Pasadena — Attn: Notice Desk
	San Jose, CA 95112	 	 	 	CA9-702-05-71
	 

	 	 	 	 	 	101 S. Marengo Avenue, 5th Floor
	 

	 	 	 	 	 	Pasadena, CA 91101-2428

Affiliate Sharing Notice. Notice to Individual Borrowers, Guarantors and Pledgors
(“Obligors”): From time to time Bank of America, N.A. (the “Bank”) may share information about the
Obligor’s experience with Bank of America Corporation (or any successor company) and its
subsidiaries and affiliated companies (the “Affiliates”). The Bank may also share with the
Affiliates credit-related information contained in any applications, from credit reports and
information it may obtain about the Obligor from outside sources. If the Obligor is an individual,
the Obligor may instruct the Bank not to share this information with the Affiliates. The Obligor
can make this election by (1) calling the Bank at 1.888.341.5000, (2) visiting the Bank online at
www.bankofamerica.com, selecting “Privacy & Security,” and then selecting “Set Your Privacy
Preferences,” or (3) contacting the Obligor’s client manager or local banking center. To help the
Bank complete the Obligor’s request, the Obligor should include the Obligor’s name, address, phone
number, account number(s) and social security number. If the Obligor makes this election, certain
products or services may not be made available to the Obligor. This request will apply to
information from applications, consumer reports and other outside sources only, and may take six to
eight weeks to be fully effective. Through the normal course of doing business, including
servicing the Obligor’s accounts and better serving the Obligor’s financial needs, the Bank will
continue to share transaction and account experience information, as well as other general
information among the Affiliates. The Bank may change this policy from time to time. Visit our
website, www.bankofamerica.com, for the latest policy.

USA Patriot Act Notice. Federal law requires all financial institutions to obtain, verify
and record information that identifies each person who opens an account or obtains a loan. The
Bank will ask for the Borrower’s legal name, address, tax ID number or social security number and
other identifying information. The Bank may also ask for additional information or documentation
or take other actions reasonably necessary to verify the identity of the Borrower, guarantors or
other related persons.<PAGE>

                                                                    EXHIBIT 10.1

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                                    issued to

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ARTICLE                                                                     PAGE
-------                                                                     ----
<S>                                                                         <C>
      I   Classes of Business Reinsured                                       1
     II   Commencement and Termination                                        1
    III   Territory (BRMA 51A)                                                3
     IV   Exclusions                                                          3
      V   Special Acceptances                                                 7
     VI   Retention and Limit                                                 7
    VII   Definitions                                                         8
   VIII   Annuities at Company's Option                                      10
     IX   Claims                                                             11
      X   Commutation                                                        11
     XI   Special Commutation                                                12
    XII   Salvage and Subrogation                                            14
   XIII   Reinsurance Premium                                                14
    XIV   Late Payments                                                      14
     XV   Offset (BRMA 36A)                                                  16
    XVI   Access to Records (BRMA 1D)                                        16
   XVII   Liability of the Reinsurer                                         16
  XVIII   Net Retained Lines (BRMA 32E)                                      16
    XIX   Errors and Omissions (BRMA 14F)                                    16
     XX   Currency (BRMA 12A)                                                17
    XXI   Taxes (BRMA 50B)                                                   17
   XXII   Federal Excise Tax                                                 17
  XXIII   Reserves and Letters of Credit                                     17
   XXIV   Insolvency                                                         19
    XXV   Arbitration (BRMA 6J)                                              20
   XXVI   Service of Suit (BRMA 49C)                                         21
  XXVII   Entire Agreement                                                   21
 XXVIII   Governing Law (BRMA 71B)                                           21
   XXIX   Agency Agreement                                                   21
    XXX   Intermediary (BRMA 23A)                                            21
</TABLE>

                                                                 (BENFIELD LOGO)
<PAGE>

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                                    issued to

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group
             (hereinafter referred to collectively as the "Company")

                                       by

                   The Subscribing Reinsurer(s) Executing the
                     Interests and Liabilities Agreement(s)
                                 Attached Hereto
                  (hereinafter referred to as the "Reinsurer")

ARTICLE I - CLASSES OF BUSINESS REINSURED

By this Contract the Reinsurer agrees to reinsure the excess liability which may
accrue to the Company under its policies, contracts and binders of insurance or
reinsurance (hereinafter called "policies") in force at the effective date
hereof or issued or renewed on or after that date, and classified by the Company
as Workers' Compensation, Employers Liability, including coverage provided under
the U.S. Longshore and Harbor Workers' Compensation Act and the Jones Act, and
General Liability business, subject to the terms, conditions and limitations
hereinafter set forth.

ARTICLE II - COMMENCEMENT AND TERMINATION

A.   This Contract shall become effective at 12:01 a.m., Local Standard Time,
     January 1, 2007, with respect to losses arising out of occurrences
     commencing at or after that time and date, and shall continue in force
     thereafter until terminated.

B.   Either party may terminate this Contract at 12:01 a.m., Local Standard
     Time, on any January 1 by giving the other party not less than 90 days
     prior notice by certified or registered mail.

                                     Page 1

<PAGE>

C.   Notwithstanding the provisions of paragraph B above, the Company may
     terminate a Subscribing Reinsurer's percentage share in this Contract in
     the event any of the following circumstances occur as clarified by public
     announcement for subparagraphs 1 through 6 below and upon discovery for
     subparagraphs 7 and 8 below. The Company has 120 days from the date of
     applicable public announcement or discovery to exercise the option to
     terminate a Subscribing Reinsurer's percentage share in this Contract. The
     effective date of special termination shall not be sooner than one day
     after the Company provides the Subscribing Reinsurer notice of its election
     to specially terminate, unless mutually agreed otherwise:

     1.   The Subscribing Reinsurer's policyholders' surplus at the beginning of
          any contract year has been reduced by more than 20.0% of the amount of
          surplus 12 months prior to that date; or

     2.   The Subscribing Reinsurer's policyholders' surplus at any time during
          any contract year has been reduced by more than 20.0% of the amount of
          surplus at the date of the Subscribing Reinsurer's most recent
          financial statement filed with regulatory authorities and available to
          the public as of the beginning of the contract year; or

     3.   The Subscribing Reinsurer's A.M. Best's rating has been assigned or
          downgraded below A- (inclusive of "Not Rated" ratings) and/or Standard
          & Poor's rating has been assigned or downgraded below BBB+ (inclusive
          of "Not Rated" ratings); or

     4.   The Subscribing Reinsurer has become merged with, acquired by or
          controlled by any other company, corporation or individual(s) not
          controlling the Subscribing Reinsurer's operations previously; or

     5.   A State Insurance Department or other legal authority has ordered the
          Subscribing Reinsurer to cease writing business; or

     6.   The Subscribing Reinsurer has become insolvent or has been placed into
          liquidation or receivership (whether voluntary or involuntary) or
          proceedings have been instituted against the Subscribing Reinsurer for
          the appointment of a receiver, liquidator, rehabilitator, conservator
          or trustee in bankruptcy, or other agent known by whatever name, to
          take possession of its assets or control of its operations; or

     7.   The Subscribing Reinsurer has reinsured its entire liability under
          this Contract without the Company's prior written consent; or

     8.   The Subscribing Reinsurer has ceased assuming new and renewal treaty
          reinsurance business.

D.   Unless the Company elects that the Reinsurer have no liability for losses
     arising out of occurrences commencing after the effective date of
     termination, and so notifies the Reinsurer prior to or as promptly as
     possible after the effective date of termination, reinsurance hereunder on
     business in force on the effective date of termination shall remain in full
     force and effect until expiration, cancellation or next premium anniversary
     of such business, whichever first occurs, but in no event beyond 12 months
     plus odd time (not exceeding 18 months in all) following the effective date
     of termination.

                                      Page 2

<PAGE>

ARTICLE III - TERRITORY (BRMA 51A)

The territorial limits of this Contract shall be identical with those of the
Company's policies.

ARTICLE IV - EXCLUSIONS

A.   This Contract does not apply to and specifically excludes the following:

     1.   Lines of business not identified in the Classes of Business Reinsured
          Article.

     2.   All excess of loss reinsurance assumed by the Company.

     3.   Reinsurance assumed by the Company under obligatory reinsurance
          agreements, except:

          a.   Agency reinsurance where the policies involved are to be
               reunderwritten in accordance with the underwriting standards of
               the Company and reissued as Company policies at the next
               anniversary or expiration date; and

          b.   Intercompany reinsurance between any of the reinsured companies
               under this Contract.

     4.   Business written by the Company on a co-indemnity basis where the
          Company is not the controlling carrier.

     5.   Business written to apply in excess of a deductible of more than
          $25,000, and business issued to apply specifically in excess over
          underlying insurance. However, if the Company is required, by any
          state regulation, to provide a deductible of more than $25,000, this
          exclusion shall not apply.

     6.   Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
          Liability - Reinsurance (U.S.A.)" attached to and forming part of this
          Contract.

     7.   As regards interests which at time of loss or damage are on shore, no
          liability shall attach hereto in respect of any loss or damage which
          is occasioned by war, invasion, hostilities, acts of foreign enemies,
          civil war, rebellion, insurrection, military or usurped power, or
          martial law or confiscation by order of any government or public
          authority. This War Exclusion Clause shall not, however, apply to
          interests which at time of loss or damage are within the territorial
          limits of the United States of America (comprising the Fifty States of
          the Union, the District of Columbia, and including bridges between the
          United States of America and Mexico provided they are under United
          States ownership), Canada, St. Pierre and Miquelon, provided such
          interests are insured under policies containing a standard war or
          hostilities or warlike operations exclusion clause.

     8.   Liability as a member, subscriber or reinsurer of any Pool, Syndicate
          or Association, but this exclusion shall not apply to Assigned Risk
          Plans or similar plans.

                                     Page 3

<PAGE>

     9.   All liability of the Company arising by contract, operation of law, or
          otherwise, from its participation or membership, whether voluntary or
          involuntary, in any insolvency fund. "Insolvency fund" includes any
          guaranty fund, insolvency fund, plan, pool, association, fund or other
          arrangement, however denominated, established or governed, which
          provides for any assessment of or payment or assumption by the Company
          of part or all of any claim, debt, charge, fee or other obligation of
          an insurer, or its successors or assigns, which has been declared by
          any competent authority to be insolvent, or which is otherwise deemed
          unable to meet any claim, debt, charge, fee or other obligation in
          whole or in part.

     10.  Workers' Compensation where the principal exposures, as defined by the
          governing class code, include:

          a.   Operation of aircraft, but only if the annual estimated policy
               premium is $250,000 or more;

          b.   Railroad, subway or street railway operations;

          c.   Operation or navigation of vessels or barges;

          d.   Manufacture, production or refining of gas, natural or artificial
               fuel, or other liquefied petroleum fuel, but only if the annual
               estimated policy premium is $250,000 or more;

          e.   Manufacturing, assembly, packing or processing of fireworks,
               fuses, nitroglycerine, magnesium, pyroxylin, ammunition or
               explosives. This exclusion does not apply to the assembly,
               packing or processing of explosives when the estimated annual
               premium is under $250,000;

          f.   Wrecking or demolition of structures, but only if the annual
               estimated policy premium is $250,000 or more;

          g.   Underground mining.

     11.  As respects Workers' Compensation and Employers Liability only, unless
          otherwise excluded as set forth above, the reinsurance provided under
          this Contract shall not apply to any loss, cost or expense arising out
          of or related to, either directly or indirectly, any "terrorist
          activity," as defined herein, but this exclusion shall only apply when
          the activity includes, involves or is associated with the use of any
          biological, chemical, radioactive or nuclear agent, material, device
          or weapon, or when the predominant business of the policyholder, as
          defined by the governing class code, is:

          a.   The operation of: airports and aircraft; flight schools; bridges,
               dams, tunnels or locks; department stores; shopping malls; chain
               retail stores; casinos and casino hotels; cruise lines;
               railroads; ports/public transit authorities; security services;
               stadiums; convention/exhibition centers; or theme/amusement
               parks;

          b.   The manufacture and distribution of: automobiles; chemicals,
               petrochemicals or pharmaceuticals; utilities (electric, gas,
               water and sewer); major defense/aerospace products; or high-tech
               equipment, but only if the policyholder

                                     Page 4

<PAGE>

               employs more than 20 personnel at the location of a terrorist
               activity at the time of its occurrence;

          c.   The management or operation of the following type of structures,
               but only if greater than 25 stories in height:
               apartments/condominiums/co-ops; hotels/motels; or office
               buildings;

          d.   Businesses primarily engaged in the entertainment, media or
               transportation industry limited to the following: major media
               providers (NBC, FOX, ABC, CBS, etc.); television and motion
               picture studios; Broadway theaters; major internet companies
               (AOL, Yahoo, etc.); professional sports teams; major
               telecommunications companies (AT&T, WorldCom/MCI, etc.); national
               truck rental companies (Ryder, Penske, U-Haul, etc.); or major
               national motor freight common carriers (J.B. Hunt, Red Arrow,
               etc.);

          e.   Policyholders primarily located in, or predominantly doing
               business as: hospitals; universities; nuclear facilities;
               financial institutions; or governmental buildings and national
               landmarks.

          "Terrorist activity" shall mean any deliberate, unlawful act that:

          a.   Is declared by any authorized government official to be or to
               involve terrorism, terrorist activity or acts of terrorism; or

          b.   Includes, involves, or is associated with the use or threatened
               use of force, violence or harm against any person, tangible or
               intangible property, the environment, or any natural resources,
               where the act or threatened act is intended, in whole or in part,
               to:

               i.   Promote or further any political, ideological,
                    philosophical, racial, ethnic, social or religious cause or
                    objective of the perpetrator or any organization,
                    association or group affiliated with the perpetrator; or

               ii.  Influence, disrupt or interfere with any government related
                    operations, activities or policies; or

               iii. Intimidate, coerce or frighten the general public or any
                    segment of the general public; or

               iv.  Disrupt or interfere with a national economy or any segment
                    of a national economy; or

          c.   Includes, involves, or is associated with, in whole or in part,
               any of the following activities, or the threat thereof:

               i.   Hijacking or sabotage of any form of transportation or
                    conveyance, including but not limited to spacecraft,
                    satellite, aircraft, train, vessel or motor vehicle;

               ii.  Hostage taking or kidnapping;

               iii. The use of any bomb, incendiary device, explosive or
                    firearm;

                                     Page 5

<PAGE>

               iv.  The interference with or disruption of basic public or
                    commercial services and systems, including but not limited
                    to the following services or systems: electricity, natural
                    gas, power, postal, communications, telecommunications,
                    information, public transportation, water, fuel, sewer or
                    waste disposal;

               v.   The injuring or assassination of any elected or appointed
                    government official or any government employee;

               vi.  The seizure, blockage, interference with, disruption of, or
                    damage to any government buildings, institutions, functions,
                    events, tangible or intangible property or other assets; or

               vii. The seizure, blockage, interference with, disruption of, or
                    damage to tunnels, roads, streets, highways, or other places
                    of public transportation or conveyance.

          d.   Any of the activities listed in subparagraph c, above, shall be
               considered terrorist activity, except where the Company can
               demonstrate to the Reinsurer that the foregoing activities or
               threats thereof were motivated solely by personal objectives of
               the perpetrator that are unrelated, in whole or in part, to any
               intention to:

               i.   Promote or further any political, ideological,
                    philosophical, racial, ethnic, social or religious cause or
                    objective of the perpetrator or any organization,
                    association or group affiliated with the perpetrator;

               ii.  Influence, disrupt or interfere with any government-related
                    operations, activities or policies;

               iii. Intimidate, coerce or frighten the general public or any
                    segment of the general public; or

               iv.  Disrupt or interfere with a national economy or any segment
                    of a national economy.

     12.  As respects General Liability policies, exposures, other than those
          identified below, as included in the General Liability section of the
          Company's Commercial Lines Manual:

          a.   Class 97111 - Logging;

          b.   Class 58873 - Sawmill;

          c.   Class 59984 - Woodyard and Drivers;

          d.   Class 95410 - Grading of Land;

          e.   Class 45819 - Lumber Yard;

          f.   Class 10073 - Repair Shops and Drivers;

                                     Page 6

<PAGE>

          g.   Class 43822 - Timber Cruiser;

          h.   Class 99793 - Truckmen Not Otherwise Classified;

          i.   Class 91591 - Contractors - Subcontracted Work Other Than
               Construction;

          j.   Class 49452 - Vacant Land.

B.   Any exclusion set forth in subparagraphs 10 and/or 12 of paragraph A shall
     be waived automatically when, in the opinion of the Company, the exposure
     excluded therein is incidental to the principal exposure on the risk in
     question.

C.   If the Company is bound, without the knowledge and contrary to the
     instructions of the Company's supervisory underwriting personnel, on any
     business falling within the scope of one or more of the exclusions set
     forth in subparagraphs 10 and/or 12 of paragraph A, the exclusion shall be
     suspended with respect to such business until the Company has the first
     opportunity to cancel the policy in compliance with governmental
     requirements.

D.   If the Company is required to accept an assigned risk which conflicts with
     one or more of the exclusions set forth in subparagraph 10 of paragraph A,
     reinsurance shall apply, but only for the difference between the Company's
     retention and the minimum limit required by the applicable state statute,
     and in no event shall the Reinsurer's liability exceed the limit set forth
     in the Retention and Limit Article.

ARTICLE V - SPECIAL ACCEPTANCES

From time to time the Company may request a special acceptance of reinsurance
falling outside the scope of the provisions set forth in this Contract. If each
Subscribing Reinsurer whose share in the interests and liabilities of the
Reinsurer is 20.0% or greater agrees to a special acceptance, such special
acceptance shall be binding on all Subscribing Reinsurers with respect to their
respective shares. If such agreement is not achieved, such special acceptance
shall be made to this Contract only with respect to the interests and
liabilities of each Subscribing Reinsurer who agrees to the special acceptance.
In the event a reinsurer becomes a party to this Contract subsequent to one or
more special acceptances hereunder, the new reinsurer shall automatically accept
such special acceptance(s) as being covered hereunder.

ARTICLE VI - RETENTION AND LIMIT

A.   The Company shall retain and be liable for the first $2,000,000 of ultimate
     net loss arising out of each occurrence. The Reinsurer shall then be liable
     (subject to the provisions of paragraph B below) for the amount by which
     such ultimate net loss exceeds the Company's retention, but the liability
     of the Reinsurer shall not exceed $3,000,000 as respects any one
     occurrence, nor shall the liability of the Reinsurer exceed $51,000,000 in
     all for the contract year.

B.   Notwithstanding the provisions of paragraph A above, no claim shall be made
     under this Contract during any contract year unless and until cumulative
     subject excess losses paid from losses arising out of occurrences
     commencing during the contract year (being losses which would be
     recoverable from the Reinsurer under paragraph A above were it not for the

                                     Page 7

<PAGE>

     provisions of this paragraph) exceed an annual aggregate retention of 1.8%
     of net earned premium. The Company shall retain and be liable for such
     annual aggregate retention in addition to its initial loss retention
     stipulated in paragraph A above.

C.   As respects any loss or losses arising out of terrorist activity, the
     liability of the Reinsurer shall not exceed $3,000,000 each contract year.
     Terrorism losses that apply to the annual aggregate deductible shall not
     reduce the liability of the Reinsurer as respects the aggregate terrorism
     limit.

D.   The Company shall be permitted to carry quota share and excess reinsurance,
     recoveries under which shall inure solely to the benefit of the Company and
     be entirely disregarded in applying all of the provisions of this Contract.

E.    The Company shall purchase or be deemed to have purchased inuring excess
      facultative reinsurance to limit its ultimate net loss under any one
      coverage, any one policy (exclusive of loss in excess of policy limits or
      extra contractual obligations) to $2,000,000 each occurrence as respects
      General Liability and Employers Liability business subject hereto.

F.    The Company shall be permitted to carry excess of loss reinsurance
      applying to Workers' Compensation risks in the State of Minnesota,
      recoveries under which shall inure to the benefit of this Contract.

      Such coverage shall be provided through the Minnesota Workers'
      Compensation Reinsurance Association. It is understood that the liability
      of the Reinsurer for Minnesota Workers' Compensation risks is not
      released.

      In the event the Company accrues liability that is not provided by any
      inuring reinsurance, for whatever reason, the Reinsurer agrees to reinsure
      such excess liability.

ARTICLE VII - DEFINITIONS

A.   "Ultimate net loss" as used herein is defined as the sum or sums (including
     loss in excess of policy limits, extra contractual obligations and any loss
     adjustment expense, as hereinafter defined) paid or payable by the Company
     in settlement of claims and in satisfaction of judgments rendered on
     account of such claims, after deduction of all salvage, all recoveries and
     all claims on inuring insurance or reinsurance, whether collectible or not.
     Nothing herein shall be construed to mean that losses under this Contract
     are not recoverable until the Company's ultimate net loss has been
     ascertained.

B.   "Loss in excess of policy limits" and "extra contractual obligations" as
     used herein shall be defined as follows:

     1.   "Loss in excess of policy limits" shall mean 90.0% of any amount paid
          or payable by the Company in excess of its policy limits, but
          otherwise within the terms of its policy, such loss in excess of the
          Company's policy limits having been incurred because of, but not
          limited to, failure by the Company to settle within the policy limits
          or by reason of the Company's alleged or actual negligence, fraud or
          bad faith in rejecting an offer of settlement or in the preparation of
          the defense or in the trial of an action against its insured or
          reinsured or in the preparation or prosecution of an appeal consequent
          upon such an action.

                                     Page 8

<PAGE>

     2.   "Extra contractual obligations" shall mean 90.0% of any punitive,
          exemplary, compensatory or consequential damages paid or payable by
          the Company, not covered by any other provision of this Contract and
          which arise from the handling of any claim on business subject to this
          Contract, such liabilities arising because of, but not limited to,
          failure by the Company to settle within the policy limits or by reason
          of the Company's alleged or actual negligence, fraud or bad faith in
          rejecting an offer of settlement or in the preparation of the defense
          or in the trial of any action against its insured or reinsured or in
          the preparation or prosecution of an appeal consequent upon such an
          action. An extra contractual obligation shall be deemed, in all
          circumstances, to have occurred on the same date as the loss covered
          or alleged to be covered under the policy.

     If any provision of this Article shall be rendered illegal or unenforceable
     by the laws, regulations or public policy of any state, such provision
     shall be considered void in such state, but this shall not affect the
     validity or enforceability of any other provision of this Contract or the
     enforceability of such provision in any other jurisdiction.

     Notwithstanding anything stated herein, this Contract shall not apply to
     any loss in excess of policy limits or any extra contractual obligation
     incurred by the Company as a result of any fraudulent and/or criminal act
     by any officer or director of the Company acting individually or
     collectively or in collusion with any individual or corporation or any
     other organization or party involved in the presentation, defense or
     settlement of any claim covered hereunder.

C.   "Occurrence" as used herein is defined as an accident or occurrence or a
     series of accidents or occurrences arising out of or caused by one event,
     except that:

     1.   As respects General Liability policies where the Company's limit of
          liability for Products and Completed Operations coverages is
          determined on the basis of the insured's aggregate losses during a
          policy period, all such losses proceeding from or traceable to the
          same causative agency shall, at the Company's option, be deemed to
          have been caused by one occurrence commencing at the beginning of the
          policy period, it being understood and agreed that each renewal or
          annual anniversary date of the policy involved shall be deemed the
          beginning of a new policy period;

     2.   Each occupational or industrial disease case or cumulative trauma case
          contracted by an employee of an insured shall be deemed to have been
          caused by a separate occurrence, commencing on:

          a.   The date of disability for which compensation is payable if the
               case is compensable under the Workers' Compensation Law;

          b.   The date disability due to the disease actually began if the case
               is not compensable under the Workers' Compensation Law;

          c.   The date of cessation of employment if claim is made after
               employment has ceased.

     3.   Notwithstanding the provisions of subparagraph 2 above, as respects
          losses resulting from occupational or industrial disease or cumulative
          trauma suffered by employees of

                                     Page 9

<PAGE>

          an insured for which the employer is liable, as a result of a sudden
          and accidental event not exceeding 72 hours in duration, all such
          losses shall be considered one occurrence and may be combined with
          losses classified as other than occupational or industrial disease or
          cumulative trauma which arise out of the same event and the
          combination of such losses shall be considered as one occurrence
          within the meaning hereof.

D.   "Occupational or industrial disease" is any abnormal condition that
     fulfills all of the following conditions:

     1.   It is not traceable to a definite compensable accident occurring
          during the employee's past or present employment.

     2.   It has been caused by exposure to a disease producing agent or agents
          present in the worker's occupational environment.

     3.   It has resulted in disability or death.

E.   "Cumulative trauma" is an injury that fulfills all of the following
     conditions:

     1.   It is not traceable to a definite compensable accident occurring
          during the employee's past or present employment.

     2.   It has occurred from and has been aggravated by a repetitive
          employment related activity.

     3.   It has resulted in disability or death.

F.   "Loss adjustment expense" as used herein shall mean expenses allocable to
     the investigation, defense and/or settlement of specific claims, including
     litigation expenses, interest on judgments, declaratory judgment expenses
     or other legal expenses and costs incurred in connection with coverage
     questions and legal actions connected thereto, and salaries and expenses of
     salaried adjusters associated with claims covered under policies of the
     Company reinsured hereunder but not including office expenses or salaries
     of the Company's regular employees.

G.   "Contract year" as used in this Contract shall mean the period from 12:01
     a.m., Local Standard Time, January 1, 2007 to 12:01 a.m., Local Standard
     Time, January 1, 2008, and each respective 12-month period thereafter that
     this Contract continues in force. However, if this Contract is terminated,
     the final contract year shall be from the beginning of the then current
     contract year through the date of termination if this Contract is
     terminated on a "cutoff" basis, or the end of the runoff period if this
     Contract is terminated on a "runoff" basis.

ARTICLE VIII - ANNUITIES AT COMPANY'S OPTION

A.   Whenever the Company is required, or elects, to purchase an annuity or to
     negotiate a structured settlement, either in satisfaction of a judgment or
     in an out-of-court settlement or otherwise, the cost of the annuity or the
     structured settlement, as the case may be, shall be deemed part of the
     Company's ultimate net loss.

                                     Page 10

<PAGE>

B.   The terms "annuity" or "structured settlement" shall be understood to mean
     any insurance policy, lump sum payment, agreement or device of whatever
     nature resulting in the payment of a lump sum by the Company in settlement
     of any or all future liabilities which may attach to it as a result of an
     occurrence.

C.   In the event the Company purchases an annuity which inures in whole or in
     part to the benefit of the Reinsurer, it is understood that the liability
     of the Reinsurer is not released thereby. In the event the Company is
     required to provide benefits not provided by the annuity for whatever
     reason, the Reinsurer shall pay its share of any loss.

ARTICLE IX - CLAIMS

A.   Whenever a claim is reserved by the Company for an amount greater than
     50.0% of its retention hereunder and/or whenever a claim appears likely to
     result in a claim under this Contract, the Company shall notify the
     Reinsurer. Further, the Company shall notify the Reinsurer whenever a claim
     involves a fatality, major limb amputation, spinal cord damage, brain
     damage, blindness or extensive burns, regardless of liability, if the
     policy limits or statutory benefits applicable to the claim are greater
     than the Company's retention hereunder. The Reinsurer shall have the right
     to participate, at its own expense, in the defense of any claim or suit or
     proceeding involving this reinsurance.

B.   All claim settlements made by the Company, provided they are within the
     terms of this Contract (including but not limited to ex-gratia payments),
     shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all
     amounts for which it may be liable upon receipt of satisfactory evidence of
     the amount paid by the Company.

ARTICLE X - COMMUTATION

A.   Upon mutual agreement, the Company may commute the contract year.

B.   Unless otherwise mutually agreed, the calculation for the commutation shall
     be calculated in accordance with the following formula:

     1.   The net reinsurance premium earned (i.e., the gross reinsurance
          premium earned less the ceding commission allowed) for the contract
          year; less

     2.   The Reinsurer's paid losses and loss adjustment expense on losses
          arising out of occurrences commencing during the contract year; less

     3.   The Reinsurer's margin at 25.0% of the net reinsurance premium earned
          (i.e., the gross reinsurance premium earned less the ceding commission
          allowed) for the contract year; equals

     4.   The commutation balance.

C.   Payment to the Company of the commutation balance will result in a full and
     final commutation of all known and unknown losses and shall constitute a
     complete and final

                                     Page 11

<PAGE>

     release of the Reinsurer and the Company in respect of any and all
     liabilities on business covered under this Contract during the contract
     year commuted.

D.   Should the calculation be zero or negative, no payment shall be made and
     the Company shall have the option to provide a full and final commutation
     of all known and unknown losses, which shall constitute a complete and
     final release of the Reinsurer and the Company with respect to any and all
     liabilities on business covered under this Contract during the contract
     year commuted.

ARTICLE XI - SPECIAL COMMUTATION

A.   In the event a Subscribing Reinsurer meets the following conditions, the
     Company may require a commutation of that portion of any excess loss
     hereunder represented by any outstanding claim or claims, including any
     related loss adjustment expense.

     1.   The Subscribing Reinsurer's A.M. Best's rating has been assigned or
          downgraded below A- (inclusive of "Not Rated" ratings) and/or Standard
          & Poor's rating has been assigned or downgraded below BBB+ (inclusive
          of "Not Rated" ratings); or

     2.   The Subscribing Reinsurer has ceased assuming new and renewal treaty
          reinsurance business.

     "Outstanding claim or claims" shall be defined as known or unknown claims,
     including any billed yet unpaid claims. However, unless otherwise mutually
     agreed, this paragraph shall not apply unless the outstanding claim or
     claims is for an amount not less than $5,000.

B.   If the Company elects to require commutation as provided in paragraph A
     above, the Company shall submit a Statement of Valuation of the outstanding
     claim or claims as of the last day of the month immediately preceding the
     month in which the Company elects to require commutation, as determined by
     the Company. Such Statement of Valuation shall include the elements
     considered reasonable to establish the excess loss and shall set forth or
     attach the information relied upon by the Company and the methodology
     employed to calculate the excess loss. The Subscribing Reinsurer shall then
     pay the amount requested within 30 calendar days of receipt of such
     Statement of Valuation, unless the Subscribing Reinsurer needs additional
     information from the Company to assess the Company's Statement of Valuation
     or contests such amount.

C.   If the Subscribing Reinsurer needs additional information from the Company
     to assess the Company's Statement of Valuation or contests the amount
     requested, the Subscribing Reinsurer shall so notify the Company within 15
     calendar days of receipt of the Company's Statement of Valuation. The
     Company shall supply any reasonably requested information to the
     Subscribing Reinsurer within 15 calendar days of receipt of the
     notification. Within 30 calendar days of the date of the notification or of
     the receipt of the information, whichever is later, the Subscribing
     Reinsurer shall provide the Company with its Statement of Valuation of the
     outstanding claim or claims as of the last day of the month immediately
     preceding the month in which the Company elects to require commutation, as
     determined by the Subscribing Reinsurer. Such Statement of Valuation shall
     include the elements considered reasonable to establish the excess loss and
     shall set forth or attach the information relied upon by the Subscribing
     Reinsurer and the methodology employed to calculate the excess loss.

                                     Page 12

<PAGE>

D.   In the event the Subscribing Reinsurer's Statement of Valuation of the
     outstanding claim or claims is viewed as unacceptable to the Company, the
     Company may either abandon the commutation effort, or may seek to settle
     any difference by using an independent actuary agreed to by the parties.

E.   If the parties cannot agree on an acceptable independent actuary within 15
     calendar days of the date of the Subscribing Reinsurer's Statement of
     Valuation, then each party shall appoint an actuary as party arbitrators
     for the limited and sole purpose of selecting an independent actuary. If
     the actuaries cannot agree on an acceptable independent actuary within 15
     calendar days of the date of the Subscribing Reinsurer's Statement of
     Valuation, the Company shall supply the Subscribing Reinsurer with a list
     of at least three proposed independent actuaries, and the Subscribing
     Reinsurer shall select the independent actuary from that list.

F.   Upon selection of the independent actuary, both parties shall present their
     respective written submissions to the independent actuary. The independent
     actuary may, at his or her discretion, request additional information. The
     independent actuary shall issue his or her decision within 45 calendar days
     after the written submissions have been filed and any additional
     information has been provided.

G.   The decision of the independent actuary shall be final and binding. The
     expense of the independent actuary shall be equally divided between the two
     parties. For the purposes of this Article, unless mutually agreed
     otherwise, an "independent actuary" shall be an actuary who satisfies each
     of the following criteria:

     1.   Is regularly engaged in the valuation of claims resulting from lines
          of business subject to this Contract; and

     2.   Is either a Fellow of the Casualty Actuarial Society or of the
          American Academy of Actuaries; and

     3.   Is disinterested and impartial regarding this commutation.

H.   Notwithstanding paragraphs A, B and C above, in the event that the
     Subscribing Reinsurer no longer meets the conditions set forth in
     subparagraph 1 or 2 in paragraph A above, this commutation may continue on
     a mutually agreed basis.

I.   Payment by the Subscribing Reinsurer of the amount requested in accordance
     with paragraph B, C or F above, shall release the Subscribing Reinsurer
     from all further liability for outstanding claim or claims, known or
     unknown, under this Contract, which shall release the Company from all
     further liability for payments of salvage or subrogation amounts, known or
     unknown, to the Subscribing Reinsurer under this Contract.

J.   In the event of any conflict between this Article and any other Article of
     this Contract, the terms of this Article shall control.

K.   This Article shall not apply to a Subscribing Reinsurer which is rated "A+"
     or better by A.M. Best at the beginning of any Contract year.

L.   This Article shall survive the termination of this Contract.

                                     Page 13

<PAGE>

ARTICLE XII - SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) or subrogation on
account of claims and settlements involving reinsurance hereunder. Salvage or
subrogation thereon shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation before being
used in any way to reimburse the Company for its primary loss. The Company
hereby agrees to enforce its rights to salvage or subrogation where it is
economically reasonable in the judgment of the Company, relating to any loss, a
part of which loss was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.

ARTICLE XIII - REINSURANCE PREMIUM

A.   As premium for the reinsurance provided hereunder during each contract
     year, the Company shall pay the Reinsurer 4.929% (3.450% net) of its net
     earned premium.

     The Reinsurer shall allow the Company a 30.0% commission on all premiums
     ceded to the Reinsurer hereunder. The Company shall allow the Reinsurer
     return commission on return premiums at the same rate.

B.   Within 30 days after the end of each month, the Company shall report its
     net earned premium for the month. The premium due the Reinsurer, at the
     rate shown in paragraph A, shall be paid by the Company with its report. In
     the event this Contract is terminated in accordance with paragraph C of the
     Commencement and Termination Article, no payments shall be due as respects
     each Subscribing Reinsurer after the effective date of termination.

C.   Within 60 days after the end of each contract year, the Company shall
     provide a report to the Reinsurer setting forth the premium due hereunder
     for the contract year, computed in accordance with paragraph A, and any
     additional premium due the Reinsurer or return premium due the Company
     shall be remitted promptly.

D.   "Net earned premium" as used herein is defined as the Company's gross
     earned premium collected on the classes of business subject to this
     Contract, less only the earned portion of premiums, if any, ceded by the
     Company for reinsurance which inures to the benefit of this Contract and
     less dividends incurred.

ARTICLE XIV - LATE PAYMENTS

A.   The provisions of this Article shall not be implemented unless specifically
     invoked, in writing, by one of the parties to this Contract.

B.   In the event any premium, loss or other payment due either party is not
     received by the intermediary named in the Intermediary Article (BRMA 23A)
     (hereinafter referred to as the "Intermediary") by the payment due date,
     the party to whom payment is due, may, by notifying the Intermediary in
     writing, require the debtor party to pay, and the debtor party

                                     Page 14
<PAGE>

     agrees to pay, an interest penalty on the amount past due calculated for
     each such payment on the last business day of each month as follows:

     1.   The number of full days which have expired since the due date or the
          last monthly calculation, whichever the lesser; times

     2.   1/365ths of the sum of 400 basis points plus the six-month United
          States Treasury Bill rate as quoted in The Wall Street Journal on the
          first business day of the month for which the calculation is made;
          times

     3.   The amount past due, including accrued interest.

     It is agreed that interest shall accumulate until payment of the original
     amount due plus interest penalties have been received by the Intermediary.

C.   The establishment of the due date shall, for purposes of this Article, be
     determined as follows:

     1.   As respects the payment of routine deposits and premiums due the
          Reinsurer, the due date shall be as provided for in the applicable
          section of this Contract. In the event a due date is not specifically
          stated for a given payment, it shall be deemed due 30 days after the
          date of transmittal by the Intermediary of the initial billing for
          each such payment.

     2.   Any claim or loss payment due the Company hereunder shall be deemed
          due 45 days after the proof of loss or demand for payment is
          transmitted to the Reinsurer. If such loss or claim payment is not
          received within the 45 days, interest will accrue on the payment or
          amount overdue in accordance with paragraph B above, from the date the
          proof of loss or demand for payment was transmitted to the Reinsurer.

     3.   As respects any payment, adjustment or return due either party not
          otherwise provided for in subparagraphs 1 and 2 of paragraph C above,
          the due date shall be as provided for in the applicable section of
          this Contract. In the event a due date is not specifically stated for
          a given payment, it shall be deemed due 14 days following transmittal
          of written notification that the provisions of this Article have been
          invoked.

     For purposes of interest calculations only, amounts due hereunder shall be
     deemed paid upon receipt by the Intermediary.

D.   Nothing herein shall be construed as limiting or prohibiting a Subscribing
     Reinsurer from contesting the validity of any claim, or from participating
     in the defense of any claim or suit, or prohibiting either party from
     contesting the validity of any payment or from initiating any arbitration
     or other proceeding in accordance with the provisions of this Contract. If
     the debtor party prevails in an arbitration or other proceeding, then any
     interest penalties due hereunder on the amount in dispute shall be null and
     void. If the debtor party loses in such proceeding, then the interest
     penalty on the amount determined to be due hereunder shall be calculated in
     accordance with the provisions set forth above unless otherwise determined
     by such proceedings. If the debtor party advances payment of any amount it
     is contesting, and proves to be correct in its contestation, either in
     whole or in part, the other party shall reimburse the debtor party for any
     such excess payment made plus interest on the excess amount calculated in
     accordance with this Article.

                                     Page 15
<PAGE>

E.   Interest penalties arising out of the application of this Article that are
     $100 or less from any party shall be waived unless there is a pattern of
     late payments consisting of three or more items over the course of any
     12-month period.

ARTICLE XV - OFFSET (BRMA 36A)

The Company and the Reinsurer may offset any balance or amount due from one
party to the other under this Contract or any other contract heretofore or
hereafter entered into between the Company and the Reinsurer, whether acting as
assuming reinsurer or ceding company. This provision shall not be affected by
the insolvency of either party to this Contract.

ARTICLE XVI - ACCESS TO RECORDS (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.

ARTICLE XVII - LIABILITY OF THE REINSURER

A.   The liability of the Reinsurer shall follow that of the Company in every
     case and be subject in all respects to all the general and specific
     stipulations, clauses, waivers and modifications of the Company's policies
     and any endorsements thereon.

B.   Nothing herein shall in any manner create any obligations or establish any
     rights against the Reinsurer in favor of any third party or any persons not
     parties to this Contract.

ARTICLE XVIII - NET RETAINED LINES (BRMA 32E)

A.   This Contract applies only to that portion of any policy which the Company
     retains net for its own account (prior to deduction of any underlying
     reinsurance specifically permitted in this Contract), and in calculating
     the amount of any loss hereunder and also in computing the amount or
     amounts in excess of which this Contract attaches, only loss or losses in
     respect of that portion of any policy which the Company retains net for its
     own account shall be included.

B.   The amount of the Reinsurer's liability hereunder in respect of any loss or
     losses shall not be increased by reason of the inability of the Company to
     collect from any other reinsurer(s), whether specific or general, any
     amounts which may have become due from such reinsurer(s), whether such
     inability arises from the insolvency of such other reinsurer(s) or
     otherwise.

ARTICLE XIX - ERRORS AND OMISSIONS (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such

                                     Page 16

<PAGE>

delay, error or omission not occurred, provided always that such error or
omission is rectified as soon as possible after discovery.

ARTICLE XX - CURRENCY (BRMA 12A)

A.   Whenever the word "Dollars" or the "$" sign appears in this Contract, they
     shall be construed to mean United States Dollars and all transactions under
     this Contract shall be in United States Dollars.

B.   Amounts paid or received by the Company in any other currency shall be
     converted to United States Dollars at the rate of exchange at the date such
     transaction is entered on the books of the Company.

ARTICLE XXI - TAXES (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.

ARTICLE XXII - FEDERAL EXCISE TAX

A.   The Reinsurer has agreed to allow for the purpose of paying the Federal
     Excise Tax the applicable percentage of the premium payable hereon (as
     imposed under Section 4371 of the Internal Revenue Code) to the extent such
     premium is subject to the Federal Excise Tax.

B.   In the event of any return of premium becoming due hereunder the Reinsurer
     will deduct the applicable percentage from the return premium payable
     hereon and the Company or its agent should take steps to recover the tax
     from the United States Government.

ARTICLE XXIII - RESERVES AND LETTERS OF CREDIT

[Applies only to a reinsurer which does not qualify for full credit with any
insurance regulatory authority having jurisdiction over the Company's reserves,
which is or becomes rated "B++" or lower by A.M. Best (inclusive of "Not Rated"
ratings) and/or Standard & Poor's rating is or becomes "BBB+" or lower
(inclusive of "Not Rated" ratings).]

A.   As regards policies or bonds issued by the Company coming within the scope
     of this Contract, the Company agrees that when it shall file with the
     insurance regulatory authority or set up on its books reserves for losses
     covered hereunder which it shall be required by law to set up, it will
     forward to the Reinsurer a statement showing the proportion of such
     reserves which is applicable to the Reinsurer. The Reinsurer hereby agrees
     to fund such reserves in respect of known outstanding losses that have been
     reported to the Reinsurer and allocated loss adjustment expense relating
     thereto, losses and allocated loss adjustment expense paid by the Company
     but not recovered from the Reinsurer, plus reserves for losses incurred but
     not reported, as shown in the statement prepared by the

                                     Page 17

<PAGE>

     Company (hereinafter referred to as "Reinsurer's Obligations") by funds
     withheld, cash advances or a Letter of Credit. The Reinsurer shall have the
     option of determining the method of funding provided it is acceptable to
     the insurance regulatory authorities having jurisdiction over the Company's
     reserves with regards to unauthorized reinsurers; or, should the Reinsurer
     be downgraded, the method of funding shall be mutually agreed.

B.   When funding by a Letter of Credit, the Reinsurer agrees to apply for and
     secure timely delivery to the Company of a clean, irrevocable and
     unconditional Letter of Credit issued by a bank meeting the NAIC Securities
     Valuation Office credit standards for issuers of Letters of Credit and
     containing provisions acceptable to the insurance regulatory authorities
     having jurisdiction over the Company's reserves in an amount equal to the
     Reinsurer's proportion of said reserves. Such Letter of Credit shall be
     issued for a period of not less than one year, and shall contain an
     "evergreen" clause, which automatically extends the term for one year from
     its date of expiration or any future expiration date unless 30 days (60
     days where required by insurance regulatory authorities) prior to any
     expiration date the issuing bank shall notify the Company by certified or
     registered mail that the issuing bank elects not to consider the Letter of
     Credit extended for any additional period.

C.   The Reinsurer and Company agree that the Letters of Credit provided by the
     Reinsurer pursuant to the provisions of this Contract may be drawn upon at
     any time, notwithstanding any other provision of this Contract, and be
     utilized by the Company or any successor, by operation of law, of the
     Company including, without limitation, any liquidator, rehabilitator,
     receiver or conservator of the Company for the following purposes, unless
     otherwise provided for in a separate Trust Agreement:

     1.   To reimburse the Company for the Reinsurer's Obligations, the payment
          of which is due under the terms of this Contract and which has not
          been otherwise paid;

     2.   To make refund of any sum which is in excess of the actual amount
          required to pay the Reinsurer's Obligations under this Contract, if so
          requested by the Reinsurer;

     3.   To fund an account with the Company for the Reinsurer's Obligations.
          Such cash deposit shall be held in an interest bearing account
          separate from the Company's other assets, and interest thereon not in
          excess of the prime rate shall accrue to the benefit of the Reinsurer;

     4.   To pay the Reinsurer's share of any other amounts the Company claims
          are due under this Contract.

     In the event the amount drawn by the Company on any Letter of Credit is in
     excess of the actual amount required for subparagraphs 1 or 3, or in the
     case of subparagraph 4, the actual amount determined to be due, the Company
     shall promptly return to the Reinsurer the excess amount so drawn. All of
     the foregoing shall be applied without diminution because of insolvency on
     the part of the Company or the Reinsurer.

D.   The issuing bank shall have no responsibility whatsoever in connection with
     the propriety of withdrawals made by the Company or the disposition of
     funds withdrawn, except to ensure that withdrawals are made only upon the
     order of properly authorized representatives of the Company.

                                     Page 18

<PAGE>

E.   At annual intervals, or more frequently as agreed but never more frequently
     than quarterly, the Company shall prepare a specific statement of the
     Reinsurer's Obligations, for the sole purpose of amending the Letter of
     Credit, in the following manner:

     1.   If the statement shows that the Reinsurer's Obligations exceed the
          balance of credit as of the statement date, the Reinsurer shall,
          within 30 days after receipt of notice of such excess, secure delivery
          to the Company of an amendment to the Letter of Credit increasing the
          amount of credit by the amount of such difference.

     2.   If, however, the statement shows that the Reinsurer's Obligations are
          less than the balance of credit as of the statement date, the Company
          shall, within 30 days after receipt of written request from the
          Reinsurer, release such excess credit by agreeing to secure an
          amendment to the Letter of Credit reducing the amount of credit
          available by the amount of such excess credit.

F.   This Article shall not apply to a reinsurer which satisfies both of the
     following conditions:

     1.   Qualifies for full credit with any insurance regulatory authority
          having jurisdiction over the Company's reserves; and

     2.   Is rated "A+" or better by A.M. Best at the beginning of any contract
          year.

ARTICLE XXIV - INSOLVENCY

A.   In the event of the insolvency of one or more of the reinsured companies,
     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 claim. 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 a reasonable time after such claim is
     filed in the conservation or liquidation proceeding or in the receivership,
     and that during the pendency of such claim, the Reinsurer may investigate
     such claim 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.

B.   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 Contract as though such
     expense had been incurred by the company.

C.   It is further understood and agreed that, in the event of the insolvency of
     one or more of the reinsured companies, the reinsurance under this Contract
     shall be payable directly by the Reinsurer to the company or to its
     liquidator, receiver or statutory successor, except as provided by Section
     4118(a) of the New York Insurance Law or except (1) where this

                                     Page 19

<PAGE>

     Contract specifically provides another payee of such reinsurance in the
     event of the insolvency of the company or (2) 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 obligations of the
     company to such payees.

ARTICLE XXV - ARBITRATION (BRMA 6J)

A.   As a condition precedent to any right of action hereunder, in the event of
     any dispute or difference of opinion hereafter arising with respect to this
     Contract, it is hereby mutually agreed that such dispute or difference of
     opinion shall be submitted to arbitration. One Arbiter shall be chosen by
     the Company, the other by the Reinsurer, and an Umpire shall be chosen by
     the two Arbiters before they enter upon arbitration, all of whom shall be
     active or retired disinterested executive officers of insurance or
     reinsurance companies or Lloyd's London Underwriters. In the event that
     either party should fail to choose an Arbiter within 30 days following a
     written request by the other party to do so, the requesting party may
     choose two Arbiters who shall in turn choose an Umpire before entering upon
     arbitration. If the two Arbiters fail to agree upon the selection of an
     Umpire within 30 days following their appointment, each Arbiter shall
     nominate three candidates within 10 days thereafter, two of whom the other
     shall decline, and the decision shall be made by drawing lots.

B.   Each party shall present its case to the Arbiters within 30 days following
     the date of appointment of the Umpire. The Arbiters shall consider this
     Contract as an honorable engagement rather than merely as a legal
     obligation and they are relieved of all judicial formalities and may
     abstain from following the strict rules of law. The decision of the
     Arbiters shall be final and binding on both parties; but failing to agree,
     they shall call in the Umpire and the decision of the majority shall be
     final and binding upon both parties. Judgment upon the final decision of
     the Arbiters may be entered in any court of competent jurisdiction.

C.   If more than one reinsurer is involved in the same dispute, all such
     reinsurers shall constitute and act as one party for purposes of this
     Article and communications shall be made by the Company to each of the
     reinsurers constituting one party, provided, however, that nothing herein
     shall impair the rights of such reinsurers to assert several, rather than
     joint, defenses or claims, nor be construed as changing the liability of
     the reinsurers participating under the terms of this Contract from several
     to joint.

D.   Each party shall bear the expense of its own Arbiter, and shall jointly and
     equally bear with the other the expense of the Umpire and of the
     arbitration. In the event that the two Arbiters are chosen by one party, as
     above provided, the expense of the Arbiters, the Umpire and the arbitration
     shall be equally divided between the two parties.

E.   Any arbitration proceedings shall take place at a location mutually agreed
     upon by the parties to this Contract, but notwithstanding the location of
     the arbitration, all proceedings pursuant hereto shall be governed by the
     law of the state in which the Company has its principal office.

                                     Page 20

<PAGE>

ARTICLE XXVI - SERVICE OF SUIT (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)

A.   It is agreed that in the event the Reinsurer fails to pay any amount
     claimed to be due hereunder, the Reinsurer, at the request of the Company,
     will submit to the jurisdiction of a court of competent jurisdiction within
     the United States. Nothing in this Article constitutes or should be
     understood to constitute a waiver of the Reinsurer's rights to commence an
     action in any court of competent jurisdiction in the United States, to
     remove an action to a United States District Court, or to seek a transfer
     of a case to another court as permitted by the laws of the United States or
     of any state in the United States.

B.   Further, pursuant to any statute of any state, territory or district of the
     United States which makes provision therefor, the Reinsurer hereby
     designates the party named in its Interests and Liabilities Agreement, or
     if no party is named therein, the Superintendent, Commissioner or Director
     of Insurance or other officer specified for that purpose in the statute, or
     his successor or successors in office, as its true and lawful attorney upon
     whom may be served any lawful process in any action, suit or proceeding
     instituted by or on behalf of the Company or any beneficiary hereunder
     arising out of this Contract.

ARTICLE XXVII - ENTIRE AGREEMENT

This written Contract constitutes the entire agreement between the parties
hereto with respect to the business being reinsured hereunder, and there are no
understandings between the parties hereto other than as expressed in this
Contract. Any change or modification to this Contract will be made by amendment
to this Contract and signed by the parties.

ARTICLE XXVIII - GOVERNING LAW (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of
the State of Louisiana.

ARTICLE XXIX - AGENCY AGREEMENT

If more than one reinsured company is named as a party to this Contract, the
first named company shall be deemed the agent of the other reinsured companies
for purposes of sending or receiving notices required by the terms and
conditions of this Contract, and for purposes of remitting or receiving any
monies due any party.

ARTICLE XXX - INTERMEDIARY (BRMA 23A)

Benfield Inc. is hereby recognized as the Intermediary negotiating this Contract
for all business hereunder. All communications (including but not limited to
notices, statements, premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating thereto shall be
transmitted to the Company or the Reinsurer through

                                     Page 21

<PAGE>

Benfield Inc. Payments by the Company to the Intermediary shall be deemed to
constitute payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed to constitute payment to the Company only to the
extent that such payments are actually received by the Company.

IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:

DeRidder, Louisiana, this 15th day of January in the year 2007.

                          /s/ Allan E. Farr
                          ------------------------------------------------
                          American Interstate Insurance Company
                          American Interstate Insurance Company of Texas
                          Silver Oak Casualty, Inc.

                                     Page 22

<PAGE>

      NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE (U.S.A.)
       (Approved by Lloyd's Underwriters' Fire and Non-Marine Association)

(1)  This reinsurance does not cover any loss or liability accruing to the
     Reassured as a member of, or subscriber to, any association of insurers or
     reinsurers formed for the purpose of covering nuclear energy risks or as a
     direct or indirect reinsurer of any such member, subscriber or association.

(2)  Without in any way restricting the operation of paragraph (1) of this
     Clause it is understood and agreed that for all purposes of this
     reinsurance all the original policies of the Reassured (new, renewal and
     replacement) of the classes specified in Clause II of this paragraph (2)
     from the time specified in Clause III in this paragraph (2) shall be deemed
     to include the following provision (specified as the Limited Exclusion
     Provision):

     LIMITED EXCLUSION PROVISION.*

     I.   It is agreed that the policy does not apply under any liability
          coverage, to

               (injury, sickness, disease, death or destruction

               (bodily injury or property damage

          with respect to which an insured under the policy is also an insured
          under a nuclear energy liability policy issued by Nuclear Energy
          Liability Insurance Association, Mutual Atomic Energy Liability
          Underwriters or Nuclear Insurance Association of Canada, or would be
          an insured under any such policy but for its termination upon
          exhaustion of its limit of liability.

     II.  Family Automobile Policies (liability only), Special Automobile
          Policies (private passenger automobiles, liability only), Farmers
          Comprehensive Personal Liability Policies (liability only),
          Comprehensive Personal Liability Policies (liability only) or policies
          of a similar nature; and the liability portion of combination forms
          related to the four classes of policies stated above, such as the
          Comprehensive Dwelling Policy and the applicable types of Homeowners
          Policies.

     III. The inception dates and thereafter of all original policies as
          described in II above, whether new, renewal or replacement, being
          policies which either

          (a)  become effective on or after 1st May, 1960, or

          (b)  become effective before that date and contain the Limited
               Exclusion Provision set out above;

          provided this paragraph (2) shall not be applicable to Family
          Automobile Policies, Special Automobile Policies, or policies or
          combination policies of a similar nature, issued by the Reassured on
          New York risks, until 90 days following approval of the Limited
          Exclusion Provision by the Governmental Authority having jurisdiction
          thereof.

(3)  Except for those classes of policies specified in Clause II of paragraph
     (2) and without in any way restricting the operation of paragraph (1) of
     this Clause, it is understood and agreed that for all purposes of this
     reinsurance the original liability policies of the Reassured (new, renewal
     and replacement) affording the following coverages:

          Owners, Landlords and Tenants Liability, Contractual Liability,
          Elevator Liability, Owners or Contractors (including railroad)
          Protective Liability, Manufacturers and Contractors Liability, Product
          Liability, Professional and Malpractice Liability, Storekeepers
          Liability, Garage Liability, Automobile Liability (including
          Massachusetts Motor Vehicle or Garage Liability)

     shall be deemed to include, with respect to such coverages, from the time
     specified in Clause V of this paragraph (3), the following provision
     (specified as the Broad Exclusion Provision):

     BROAD EXCLUSION PROVISION.*

     It is agreed that the policy does not apply:

     I.   Under any Liability Coverage to

               (injury, sickness, disease, death or destruction

               (bodily injury or property damage

          (a)  with respect to which an insured under the policy is also an
               insured under a nuclear energy liability policy issued by Nuclear
               Energy Liability Insurance Association, Mutual Atomic Energy
               Liability Underwriters or Nuclear Insurance Association of
               Canada, or would be an insured under any such policy but for its
               termination upon exhaustion of its limit of liability; or

          (b)  resulting from the hazardous properties of nuclear material and
               with respect to which (1) any person or organization is required
               to maintain financial protection pursuant to the Atomic Energy
               Act of 1954, or any law amendatory thereof, or (2) the insured
               is, or had this policy not been issued would be, entitled to
               indemnity from the United States of America, or any agency
               thereof, under any agreement entered into by the United States of
               America, or any agency thereof, with any person or organization.

<PAGE>

     II.  Under any Medical Payments Coverage, or under any Supplementary
          Payments Provision relating to

               (immediate medical or surgical relief

               (first aid,

          to expenses incurred with respect to

               (bodily injury, sickness, disease or death

               (bodily injury

          resulting from the hazardous properties of nuclear material and
          arising out of the operation of a nuclear facility by any person or
          organization.

     III. Under any Liability Coverage to

               (injury, sickness, disease, death or destruction

               (bodily injury or property damage

          resulting from the hazardous properties of nuclear material, if

          (a)  the nuclear material (1) is at any nuclear facility owned by, or
               operated by or on behalf of, an insured or (2) has been
               discharged or dispersed therefrom;

          (b)  the nuclear material is contained in spent fuel or waste at any
               time possessed, handled, used, processed, stored, transported or
               disposed of by or on behalf of an insured; or

          (c)  the

                    (injury, sickness, disease, death or destruction

                    (bodily injury or property damage

               arises out of the furnishing by an insured of services,
               materials, parts or equipment in connection with the planning,
               construction, maintenance, operation or use of any nuclear
               facility, but if such facility is located within the United
               States of America, its territories, or possessions or Canada,
               this exclusion (c) applies only to

                    (injury to or destruction of property at such nuclear
                    facility

                    (property damage to such nuclear facility and any property
                    thereat.

     IV.  As used in this endorsement:

          "hazardous properties" include radioactive, toxic or explosive
          properties; "nuclear material" means source material, special nuclear
          material or byproduct material; "source material", "special nuclear
          material", and "byproduct material" have the meanings given them in
          the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent
          fuel" means any fuel element or fuel component, solid or liquid, which
          has been used or exposed to radiation in a nuclear reactor; "waste"
          means any waste material (1) containing byproduct material and (2)
          resulting from the operation by any person or organization of any
          nuclear facility included within the definition of nuclear facility
          under paragraph (a) or (b) thereof; "nuclear facility" means

          (a)  any nuclear reactor,

          (b)  any equipment or device designed or used for (1) separating the
               isotopes of uranium or plutonium, (2) processing or utilizing
               spent fuel, or (3) handling processing or packaging waste,

          (c)  any equipment or device used for the processing, fabricating or
               alloying of special nuclear material if at any time the total
               amount of such material in the custody of the insured at the
               premises where such equipment or device is located consists of or
               contains more than 25 grams of plutonium or uranium 233 or any
               combination thereof, or more than 250 grams of uranium 235,

          (d)  any structure, basin, excavation, premises or place prepared or
               used for the storage or disposal of waste, and includes the site
               on which any of the foregoing is located, all operations
               conducted on such site and all premises used for such operations;
               "nuclear reactor" means any apparatus designed or used to sustain
               nuclear fission in a self-supporting chain reaction or to contain
               a critical mass of fissionable material;

                    (With respect to injury to or destruction of property, the
                    word "injury" or "destruction,"

                    ("property damage" includes all forms of radioactive
                    contamination of property,

                    (includes all forms of radioactive contamination of
                    property.

     V.   The inception dates and thereafter of all original policies affording
          coverages specified in this paragraph (3), whether new, renewal or
          replacement, being policies which become effective on or after 1st
          May, 1960, provided this paragraph (3) shall not be applicable to

               (i)  Garage and Automobile Policies issued by the Reassured on
                    New York risks, or

               (ii) statutory liability insurance required under Chapter 90,
                    General Laws of Massachusetts, until 90 days following
                    approval of the Broad Exclusion Provision by the
                    Governmental Authority having jurisdiction thereof.

(4)  Without in any way restricting the operation of paragraph (1) of this
     Clause, it is understood and agreed that paragraphs (2) and (3) above are
     not applicable to original liability policies of the Reassured in Canada
     and that with respect to such policies this Clause shall be deemed to
     include the Nuclear Energy Liability Exclusion Provisions adopted by the
     Canadian Underwriters' Association or the Independent Insurance Conference
     of Canada.

----------
*    NOTE. The words printed in italics in the Limited Exclusion Provision and
     in the Broad Exclusion Provision shall apply only in relation to original
     liability policies which include a Limited Exclusion Provision or a Broad
     Exclusion Provision containing those words.

21/9/67 N.M.A. 1590
<PAGE>

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                                    issued to

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group

<TABLE>
<CAPTION>
                  REINSURERS                    PARTICIPATIONS
                  ----------                    --------------
<S>                                             <C>
AXIS Reinsurance Company                             10.0%
Hannover Ruckversicherungs-Aktiengesellschaft        22.5
Partner Reinsurance Company of the U.S.              25.0

THROUGH BENFIELD LIMITED (PLACEMENT ONLY)
AXA RE                                               10.0

THROUGH BENFIELD LIMITED
Lloyd's Underwriters and Companies Per
   Signing Schedule(s)                               22.5
                                                    -----
TOTAL                                               100.0%
                                                    =====
</TABLE>
<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                            AXIS Reinsurance Company
                               New York, New York
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                         issued to and duly executed by

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group

The Subscribing Reinsurer hereby accepts a 10.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.

This Agreement shall become effective at 12:01 a.m., Local Standard Time,
January 1, 2007, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:

New York, New York, this 25th  day of January in the year 2007.

                         /s/ Michael Orlich
                         ------------------------------
                         AXIS Reinsurance Company

<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                                     AXA RE
                                  Paris, France
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                         issued to and duly executed by

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group

The Subscribing Reinsurer hereby accepts a 10.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.

This Agreement shall become effective at 12:01 a.m., Local Standard Time,
January 1, 2007, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:

Paris, France, this 8th day of March in the year 2007.

                    /s/ Allison Janisch
                    ---------------------------
                    AXA RE

<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                  Hannover Ruckversicherungs-Aktiengesellschaft
                                Hannover, Germany
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                         issued to and duly executed by

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group

The Subscribing Reinsurer hereby accepts a 22.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.

This Agreement shall become effective at 12:01 a.m., Local Standard Time,
January 1, 2007, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 750 Seventh Avenue, New York, New York 10019.

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:

Hannover, Germany, this 13th day of February in the year 2007.

                        /s/ Natalie Rafatdjah
                        ------------------------------------------------

                        /s/ Sandra Eberhardt
                        ------------------------------------------------
                        Hannover Ruckversicherungs-Aktiengesellschaft

<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                     Partner Reinsurance Company of the U.S.
                               New York, New York
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                         issued to and duly executed by

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group

The Subscribing Reinsurer hereby accepts a 25.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.

This Agreement shall become effective at 12:01 a.m., Local Standard Time,
January 1, 2007, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:

Greenwich, Connecticut, this 12th day of February in the year 2007.

                             /s/ Giuseppe A. Ruggieri
                             -------------------------------------------
                             Partner Reinsurance Company of the U.S.

<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                     Certain Underwriting Members of Lloyd's
                  shown in the Signing Schedule attached hereto
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                         issued to and duly executed by

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group

The Subscribing Reinsurer hereby accepts a 15.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.

This Agreement shall become effective at 12:01 a.m., Local Standard Time,
January 1, 2007, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 750 Seventh Avenue, New York, New York 10019.

Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule
attached hereto.

<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                           Certain Insurance Companies
                shown in the Signing Schedule(s) attached hereto
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                          FIRST CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                         issued to and duly executed by

                      American Interstate Insurance Company
                               DeRidder, Louisiana
                 American Interstate Insurance Company of Texas
                                  Austin, Texas
                            Silver Oak Casualty, Inc.
                               DeRidder, Louisiana
                                       and
                 any other insurance companies which are now or
          hereafter come under the ownership, control or management of
                            Amerisafe Insurance Group

The Subscribing Reinsurer hereby accepts a 17.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.

This Agreement shall become effective at 12:01 a.m., Local Standard Time,
January 1, 2007, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 750 Seventh Avenue, New York, New York 10019.

Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule(s)
attached hereto.

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