Document:

EXHIBIT 10.48

 

SECOND AMENDMENT TO
CREDIT AGREEMENT

 

THIS SECOND
AMENDMENT TO CREDIT AGREEMENT (the “Amendment”) is made and dated as of the
31st day of December, 2001 by and between PAULA FINANCIAL, a Delaware
corporation (the “Borrower”), and UNITED CALIFORNIA BANK, formerly known as
Sanwa Bank California, a California banking corporation (“the Lender”).

 

RECITALS

 

A.            Pursuant to that
certain Credit Agreement dated as of March 31, 1997 by and between the Borrower
and the Lender (as amended, extended and replaced from time to time, the
“Credit Agreement,” and with capitalized terms used herein and not otherwise
defined used with the meanings given such terms in the Credit Agreement), the
Lender agreed to extend credit to the Borrower on the terms and subject to the
conditions set forth therein.

 

B.            Pursuant to that
certain First Amendment to Credit Agreement and Waiver dated as of January 30,
2001 (the “First Amendment”) the Borrower and the Lender agreed to amend the
Credit Agreement in certain respects, including, without limitation, to modify
the amortization schedule for the Term Loan and to make the Term Loan Payable
in full on December 31, 2001.  In
addition, the Lender agreed to waive, on a one time basis, certain Events of
Default existing thereunder.

 

C.            The Borrower has
requested the Lender to extend the final maturity date for the Term Loan and
the Lender has agreed to do so on the terms and subject to the conditions set
forth herein.

 

NOW,
THEREFORE, in consideration of the above Recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 

AGREEMENT

 

1.             Modification of
Amortization Schedule.  The Lender
and the Borrower hereby agree that notwithstanding anything contained in
Paragraph 1(b) of the Credit Agreement, as amended by the First Amendment, the
outstanding principal balance of the Term Loan as of December 31, 2001, which
is $4,375,500.00, shall be payable in consecutive quarterly installments as
follows:

 

	
  Payment Date

  	
   

  	
  Required
  Principal Payment

  	
   

  
	
  December 31, 2001

  	
   

  	
  $

  	
   325,000.00

  	
   

  
	
  March 31, 2002

  	
   

  	
  $

  	
   325,000.00

  	
   

  
	
  June 30, 2002

  	
   

  	
  $

  	
   325,000.00

  	
   

  
	
  September 30, 2002

  	
   

  	
  $

  	
   325,000.00

  	
   

  
	
  December 31, 2002

  	
   

  	
  $

  	
   325,000.00

  	
   

  
	
  January 1, 2003

  	
   

  	
  Remaining Principal Balance

  	
   

  

 

2.             Reporting
Requirements.  To reflect the
agreement of the Borrower to provide certain additional information to the
Lender from time to time:

 

(a)           Subparagraph (5) of
Paragraph 5(a) of the Credit Agreement is hereby amended to delete the
parenthetical immediately preceding the semi-colon at the end of said
subparagraph which was added pursuant to the First Amendment and to replace the
same with the 

 

 

following
proviso, “:provided, however that the annual budgets and projections provided
for fiscal year 2002 shall be delivered by January 31, 2002 and shall be broken
down by fiscal quarter”.

 

(b)           Subparagraphs (10)
and (11) of Paragraph 5(a) of the Credit Agreement are hereby amended to read
in their entirely as follows:

 

“(10)       Within
sixty (60) days after the last day of each of the calendar months ending
December 31, 2001, January 31, 2002 and February 28, 2002, and thirty (30) days
after the last day of each subsequent calendar month, consolidated statements
of income and changes in financial position for such calendar month and balance
sheets as of the end of each such calendar month for the Borrower and its
consolidated Subsidiaries, accompanied in each case by a certificate of the
chief financial officer of the Borrower stating that such financial statements
are presented fairly in accordance with GAAP;

 

(11)         Concurrently
with the delivery of the quarterly financial statements pursuant to subparagraph
(a)(2) above, a certificate of the chief financial officer of the Borrower,
in form and detail reasonably satisfactory to the Lender, setting forth
calculations certified to be true, complete and correct comparing losses and
loss expenses incurred and net income of the Borrower and its consolidated
Subsidiaries for such fiscal quarter and for the fiscal year to date, against
such items as set forth in the budget for such fiscal year delivered pursuant
to subparagraph (a)(5) above (as such budget shall be permitted to be
adjusted by the Company following the end of each fiscal quarter to reflect
actual performance of the Borrower and its consolidated Subsidiaries during
such fiscal quarter and other anticipated changes in such budget, such revised
budgets, accompanied by backup information supporting the bases for the
adjustments reflected therein, to be delivered no later than forty five (45)
days following the end of each fiscal quarter);”

 

3.             Modification of
Financial Covenants.  To reflect the
agreement of the Lender and the Borrower to modify certain of the financial
covenants set forth in the Credit Agreement, Paragraph 6(o) of the Credit
Agreement is hereby amended as follows:

 

(a)           Subparagraph (1) of
Paragraph 6(o) is hereby amended to read in its entirety as follows:

 

“(1)         PICO’s
ratio, determined in accordance with SAP, of net premiums written during the
most recent ending four fiscal quarters to surplus plus excess statutory
reserves as of the last day of the most recent ending fiscal quarter, to exceed
7.00:1.00; or”

 

(b)           Subparagraph (2) of
Paragraph 6(o) is hereby amended to read in its entirety as follows:

 

“(2)         At
and as of the end of any fiscal quarter, PICO’s surplus at such date plus
excess statutory reserves, to be less than one hundred fifty percent (150%) of
the outstanding principal balance of the Term Loan at such date; or”

 

2

 

4.             Reaffirmation of
Loan Documents.  The Borrower hereby
affirms and agrees that (a) the execution and delivery by the Borrower of and
the performance of its obligations under this Amendment shall not in any manner
or to any extent amend, impair, invalidate or otherwise affect any of the
obligations of the Borrower or the rights of the Lender under the Credit
Agreement or any other Loan Document, including, without limitation, the Stock
Pledge Agreement, except as expressly set forth herein, (b) the term
“Obligations” as used in the Loan Documents includes, without limitation, the
Obligations of the Borrower under the Credit Agreement as amended hereby,
including, without limitation, under the Stock Pledge Agreement, and (c) the
Credit Agreement as amended hereby and the other Loan Documents remain in full
force and effect.

 

5.             Release.  The Borrower, on behalf of itself and each
of its successors and assigns, agrees as follows:

 

(a)           The Borrower hereby
forever releases, discharges and acquits the Lender and its parent, subsidiary
and affiliate corporations, and their officers, directors, shareholders,
agents, representatives and employees, and their successors, heirs, and
assigns, and each of them (collectively and severally, the “Releasees”), of and
from any and all of the following (collectively and severally, “Claims”): All
claims, demands, obligations, liabilities, indebtedness, breaches of contract,
breaches of duty or any relationship, acts, omissions, misfeasance,
malfeasance, cause or causes of actions, debts, sums of money, accounts,
compensations, contracts, controversies, promises, damages, costs, losses and
expenses, of every type, kind, nature, description or character, and irrespective
of how, why, or by reason of what facts, whether heretofore, now existing or
hereafter arising, or which could, might, or may be claimed to exist, or
whatever kind or name, whether known or unknown, suspected or unsuspected,
liquidated or unliquidated, each as though fully set forth herein at length,
which in any way arise out of, are connected with or relate to the Credit
Agreement and the other Loan Documents and the transactions contemplated
thereby, including, without limitation, any action or inaction of any of the
Releasees.

 

(b)           The Borrower hereby
agrees, represents and warrants that the matters released herein are not
limited to matters which are known or disclosed, and the Borrower hereby waives
any and all rights and benefits which it now has, or in the future may have,
conferred upon it by virtue of the provisions of Section 1542 of the Civil Code
of the State of California which provides as follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.

 

In this connection, the
Borrower hereby agrees, represents, and warrants that it realizes and
acknowledges that factual matters now unknown to it may have given or may
hereafter give rise to causes of action, claims, demands, debts, controversies,
damages, costs, losses and expenses which are presently unknown, unanticipated
and unsuspected, and it further agrees, represents and warrants that this
release has been negotiated and agreed upon in light of that realization and
that it nevertheless hereby intends to release, discharge and acquit the
Releasees from any such unknown claims which would be Claims if known on the date
hereof.

 

(c)           The Borrower hereby
acknowledges and agrees that the acceptance of delivery of this Amendment,
including, without limitation, the release set forth in this Paragraph 5, shall
not be deemed or construed as an admission of liability by any Releasee, and
each

 

3

 

Releasee shall
be automatically be deemed to have expressly denied liability of any nature
whatsoever arising from or related to the subject of this release.

 

(d)           The Borrower hereby
represents and warrants that it has had advice of counsel of its own choosing
in negotiations for and the preparation of this Amendment, that, in particular,
it has read this Paragraph 5, that it has had this release fully explained by
such counsel and that it is fully aware of its contents and legal effect.

 

6.             Amendment
Effective Date.  This Amendment
shall be effective as of the day and year first above written on the date (the
“Amendment Effective Date”) that there has been delivered to Lender each of the
following:

 

(a)           A copy of this
Amendment, duly executed by each of the Lender and the Borrower;

 

(b)           A copy of a
Reaffirmation of Guaranties and Guarantor Subordination Agreements in the form
of that attached hereto as Amendment Exhibit A, duly executed by each of
the Guarantors;

 

(c)           A non-refundable
amendment fee in the amount of $44,000.00;

 

(d)           The fees and
expenses of Morrison & Foerster LLP incurred by the Lender and payable by
the Borrower pursuant to Paragraph 5(f) of the Credit Agreement; and

 

(e)           Such corporate resolutions,
incumbency certificates and other authorizing documentation for the Borrower
and the Guarantors as the Lender may request.

 

7.             Representations
and Warranties.  The Borrower hereby
represents and warrants to the Lender that at the date hereof and at and as of
the Amendment Effective Date:

 

(a)           The Borrower has the
corporate power and authority and the legal right to execute, deliver and
perform this Amendment and other documents, instruments and agreements required
to be delivered by it hereunder (the “Amendment Documents”) and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Amendment Documents.  The
Amendment Documents have been duly executed and delivered on behalf of the
Borrower and constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms.

 

(b)           The representations
and warranties of the Borrower contained in the Loan Documents are accurate and
complete in all respects, and there has not occurred an Event of Default or
Potential Default which has not been waived pursuant to the First Amendment.

 

(c)           The Guarantors
executing the Reaffirmation of Guaranties and Guarantor Subordination
Agreements are all of the Subsidiaries of the Borrower existing at the date
hereof.

 

8.             No Other
Amendment.  Except as expressly
amended hereby, the Loan Documents shall remain in full force and effect as
written and amended to date.

 

9.             Counterparts.  This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.

 

4

 

IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be executed as of the
day and year first above written.

 

	
   

  	
  PAULA
  FINANCIAL, a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  
	
   

  	
  UNITED
  CALIFORNIA BANK, formerly known as Sanwa Bank California

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Jerry
  McDermott

  	
   

  
	
   

  	
  Name

  	
  Jerry
  McDermott

  	
   

  
	
   

  	
  Title

  	
  V.P.

  	
   

  

 

5

 

SCHEDULE OF EXHIBITS

 

	
  EXHIBIT

  	
  DOCUMENT

  
	
   

  
	
    A

  	
  Form of
  Reaffirmation of Guaranties and

  Guarantor Subordination Agreements

  

 

 

AMENDMENT EXHIBIT A

 

FORM OF:

 

REAFFIRMATION OF

GUARANTIES AND GUARANTOR SUBORDINATION AGREEMENT

 

THIS
REAFFIRMATION OF GUARANTIES AND GUARANTOR SUBORDINATION AGREEMENTS (the “Reaffirmation”)
is made and dated as of the 31st day of December, 2001, by the
undersigned (the “Guarantors”) in favor of UNITED CALIFORNIA BANK, formerly
known as Sanwa Bank California (the “Lender”).

 

RECITALS

 

A.            Pursuant to that
certain Credit Agreement dated as of March 31, 1997 by and between PAULA
FINANCIAL, a Delaware corporation (the “Borrower”), and the Lender (as amended,
extended and replaced from time to time, the “Credit Agreement,” and with
capitalized terms not otherwise defined herein used with the meanings given
such terms in the Credit Agreement), the Lender agreed to extend credit to the
Borrower on the terms and subject to the conditions set forth therein,
including, without limitation, the condition that each of the undersigned
execute and deliver to the Lender a Guaranty and a Guarantor Subordination
Agreement.

 

B.            In connection with
the execution and delivery of that certain Second Amendment and Waiver to the
Credit Agreement dated concurrently herewith (the “Second Amendment”) and as a
condition to the effectiveness of such Second Amendment, the undersigned are
required to reaffirm the continuing effectiveness of the Guaranties and
Guarantor Subordination Agreements executed by them.

 

NOW,
THEREFORE, in consideration of the above Recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the undersigned hereby agrees as follows:

 

AGREEMENT

 

1.             Approval of
Second Amendment.  Each of the
Guarantors hereby confirms that it has reviewed and approved the Second
Amendment.

 

2.             Reaffirmation of
Guaranties and Guarantor Subordination Agreements.  Each of the Guarantors hereby affirms and
agrees that:

 

(a)           The execution and
delivery by the Borrower of the Second Amendment and the performance by the
Borrower of its obligations under the Credit Agreement as amended to thereby,
shall not in any way amend, impair, invalidate or otherwise affect any of the
obligations of the Guarantors under its respective Guaranty and Guarantor
Subordination Agreement or any other document or instrument made or given by it
in connection therewith;

 

(b)           The term
“Obligations” as used in each Guaranty and Guarantor Subordination Agreement
include, without limitation, the “Obligations” of the Borrower under 

 

 

the Credit
Agreement as amended to date, including, without limitation, pursuant to the
Second Amendment;

 

(c)           Each Guaranty and
each Guarantor Subordination Agreement remains in full force and effect; and

 

(d)           Each Guaranty
continues to constitute an absolute and unconditional guaranty of the
Obligations of the Borrower as set forth more particularly therein.

 

3.             Release.  Each of the Guarantors, on behalf of itself
and each of its successors and assigns, agrees as follows:

 

(a)           Each
of the Guarantors hereby forever releases, discharges and acquits the Lender
and its parent, subsidiary and affiliate corporations, and their officers,
directors, shareholders, agents, representatives and employees, and their
successors, heirs, and assigns, and each of them (collectively and severally,
the “Releasees”), of and from any and all of the following (collectively and
severally, “Claims”):  All claims,
demands, obligations, liabilities, indebtedness, breaches of contract, breaches
of duty or any relationship, acts, omissions, misfeasance, malfeasance, cause
or causes of actions, debts, sums of money, accounts, compensations, contracts,
controversies, promises, damages, costs, losses and expenses, of every type,
kind, nature, description or character, and irrespective of how, why, or by
reason of what facts, whether heretofore, now existing or hereafter arising, or
which could, might, or may be claimed to exist, or whatever kind or name,
whether known or unknown, suspected or unsuspected, liquidated or unliquidated,
each as though fully set forth herein at length, which in any way arise out of,
are connected with or relate to the Credit Agreement and the other Loan
Documents and the transactions contemplated thereby, including, without
limitation, any action or inaction of any of the Releasees.

 

(b)           Each of the
Guarantors hereby agrees, represents and warrants that the matters released
herein are not limited to matters which are known or disclosed, and each of the
Guarantors hereby waives any and all rights and benefits which it now has, or
in the future may have, conferred upon it by virtue of the provisions of
Section 1542 of the Civil Code of the State of California which provides as
follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.

 

In this connection, each of the
Guarantors hereby agrees, represents, and warrants that it realizes and acknowledges
that factual matters now unknown to it may have given or may hereafter give
rise to Claims which are presently unknown, unanticipated and unsuspected, and
it further agrees, represents and warrants that this release has been
negotiated and agreed upon in light of that realization and that it
nevertheless hereby intends to release, discharge and acquit the Releasees from
any such unknown claims which would be Claims if known on the date hereof.

 

(c)           Each of the
Guarantors hereby acknowledges and agrees that the acceptance of delivery of
this Amendment, including, without limitation, the release set forth in this
Paragraph 3, shall not be deemed or construed as an admission of liability by
any Releasee, and each Releasee shall be automatically be deemed to have
expressly denied liability of any nature whatsoever arising from or related to
the subject of this release.

 

2

 

(d)           Each of the
Guarantors hereby represents and warrants that it has had advice of counsel of
its own choosing in negotiations for and the preparation of this Amendment,
that, in particular, it has read this Paragraph 3, that it has had this release
fully explained by such counsel and that it is fully aware of its contents and
legal effect.

 

4.             Representations
and Warranties.  Each of the
Guarantors hereby represents and warrants to the Lender that:

 

(a)           Such Person has the
corporate power and authority and the legal right to execute, deliver and
perform this Reaffirmation and has taken all necessary corporate action to
authorize the execution, delivery and performance of it;

 

(b)           This Reaffirmation
has been duly executed and delivered on behalf of such Person and constitutes a
legal, valid and binding obligation of such Person, enforceable against such
Person in accordance with its terms subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and the effect of equitable
principles whether applied in an action at law or a suit in equity; and

 

(c)           Such Person has no
claim, by way of direct claim, counterclaim, offset or otherwise, against the
Lender or any of its directors, officers, affiliates or representatives,
arising out of or relating to the Credit Agreement or the transactions
contemplated thereby, including without limitation, under such Person’s
Guaranty or Guarantor Subordination Agreement.

 

5.             Counterparts.  This Reaffirmation may be executed in
counterparts, all of which taken together shall constitute one and the same
agreement.

 

IN WITNESS
WHEREOF, each of the Guarantors have caused this Reaffirmation to be executed
as of the day and year first above written. 

 

[Signature Pages Following]

 

3

 

	
   

  	
  PAN AMERICAN
  UNDERWRITERS, INC.,

  
	
   

  	
  a Nevada
  Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  
	
   

  	
  PAN AMERICAN
  UNDERWRITERS INSURANCE

  
	
   

  	
  AGENTS &
  BROKERS, INC., an Arizona corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  
	
   

  	
  AGRI-COMP
  INSURANCE AGENCY, INC.,

  
	
   

  	
  an Oregon
  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PAN PACIFIC
  BENEFIT ADMINISTRATORS,

  
	
   

  	
  INC., a
  California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PAULA
  TRADING COMPANY INSURANCE

  
	
   

  	
  AGENTS &
  BROKERS, INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
								

 

 

REAFFIRMATION OF

GUARANTIES AND GUARANTOR SUBORDINATION AGREEMENTS

 

THIS
REAFFIRMATION OF GUARANTIES AND GUARANTOR SUBORDINATION AGREEMENTS (the
“Reaffirmation”) is made and dated as of the 31st day of December, 2001, by the
undersigned (the “Guarantors”) in favor of UNITED CALIFORNIA BANK, formerly
known as Sanwa Bank California (the “Lender”).

 

RECITALS

 

A.            Pursuant to that
certain Credit Agreement dated as of March 31, 1997 by and between PAULA
FINANCIAL, a Delaware corporation (the “Borrower”), and the Lender (as amended,
extended and replaced from time to time, the “Credit Agreement,” and with
capitalized terms not otherwise defined herein used with the meanings given
such terms in the Credit Agreement), the Lender agreed to extend credit to the
Borrower on the terms and subject to the conditions set forth therein, including,
without limitation, the condition that each of the undersigned execute and
deliver to the Lender a Guaranty and a Guarantor Subordination Agreement.

 

B.            In connection with
the execution and delivery of that certain Second Amendment and Waiver to the
Credit Agreement dated concurrently herewith (the “Second Amendment”) and as a
condition to the effectiveness of such Second Amendment, the undersigned are
required to reaffirm the continuing effectiveness of the Guaranties and
Guarantor Subordination Agreements executed by them.

 

NOW,
THEREFORE, in consideration of the above Recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the undersigned hereby agrees as follows:

 

AGREEMENT

 

1.             Approval of
Second Amendment.  Each of the
Guarantors hereby confirms that it has reviewed and approved the Second
Amendment.

 

2.             Reaffirmation of
Guaranties and Guarantor Subordination Agreements.  Each of the Guarantors hereby affirms and
agrees that:

 

(a)           The execution and
delivery by the Borrower of the Second Amendment and the performance by the
Borrower of its obligations under the Credit Agreement as amended to thereby,
shall not in any way amend, impair, invalidate or otherwise affect any of the
obligations of the Guarantors under its respective Guaranty and Guarantor
Subordination Agreement or any other document or instrument made or given by it
in connection therewith;

 

(b)           The term
“Obligations” as used in each Guaranty and Guarantor Subordination Agreement
include, without limitation, the “Obligations” of the Borrower under 

 

 

the Credit
Agreement as amended to date, including, without limitation, pursuant to the
Second Amendment;

 

(c)           Each Guaranty and
each Guarantor Subordination Agreement remains in full force and effect; and

 

(d)           Each Guaranty
continues to constitute an absolute and unconditional guaranty of the
Obligations of the Borrower as set forth more particularly therein.

 

3.             Release.  Each of the Guarantors, on behalf of itself
and each of its successors and assigns, agrees as follows:

 

(a)           Each
of the Guarantors hereby forever releases, discharges and acquits the Lender
and its parent, subsidiary and affiliate corporations, and their officers,
directors, shareholders, agents, representatives and employees, and their
successors, heirs, and assigns, and each of them (collectively and severally,
the “Releasees”), of and from any and all of the following (collectively and
severally, “Claims”);  All claims, demands,
obligations, liabilities, indebtedness, breaches of contract, breaches of duty
or any relationship, acts, omissions, misfeasance, malfeasance, cause or causes
of actions, debts, sums of money, accounts, compensations, contracts,
controversies, promises, damages, costs, losses and expenses, of every type,
kind, nature, description or character, and irrespective of how, why, or by
reason of what facts, whether heretofore, now existing or hereafter arising, or
which could, might, or may be claimed to exist, or whatever kind or name,
whether known or unknown, suspected or unsuspected, liquidated or unliquidated,
each as though fully set forth herein at length, which in any way arise out of,
are connected with or relate to the Credit Agreement and the other Loan
Documents and the transactions contemplated thereby, including, without
limitation, any action or inaction of any of the Releasees.

 

(b)           Each of the
Guarantors hereby agrees, represents and warrants that the matters released
herein are not limited to matters which are known or disclosed, and each of the
Guarantors hereby waives any and all rights and benefits which it now has, or
in the future may have, conferred upon it by virtue of the provisions of
Section 1542 of the Civil Code of the State of California which provides as
follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.

 

In this connection, each of the
Guarantors hereby agrees, represents, and warrants that it realizes and
acknowledges that factual matters now unknown to it may have given or may
hereafter give rise to Claims which are presently unknown, unanticipated and
unsuspected, and it further agrees, represents and warrants that this release
has been negotiated and agreed upon in light of that realization and that it
nevertheless hereby intends to release, discharge and acquit the Releasees from
any such unknown claims which would be Claims if known on the date hereof.

 

(c)           Each of the
Guarantors hereby acknowledges and agrees that the acceptance of delivery of
this Amendment, including, without limitation, the release set forth in this
Paragraph 3, shall not be deemed or construed as an admission of liability by
any Releasee, and each Releasee shall be automatically be deemed to have
expressly denied liability of any nature whatsoever arising from or related to
the subject of this release.

 

 

(d)           Each of the
Guarantors hereby represents and warrants that it has had advice of counsel of
its own choosing in negotiations for and the preparation of this Amendment,
that, in particular, it has read this Paragraph 3, that it has had this release
fully explained by such counsel and that it is fully aware of its contents and
legal effect.

 

4.             Representations
and Warranties.  Each of the
Guarantors hereby represents and warrants to the Lender that:

 

(a)           Such Person has the
corporate power and authority and the legal right to execute, deliver and
perform this Reaffirmation and has taken all necessary corporate action to
authorize the execution, delivery and performance of it;

 

(b)           This Reaffirmation
has been duly executed and delivered on behalf of such Person and constitutes a
legal, valid and binding obligation of such Person, enforceable against such
Person in accordance with its terms subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and the effect of equitable
principles whether applied in an action at law or a suit in equity; and

 

(c)           Such Person has no
claim, by way of direct claim, counterclaim, offset or otherwise, against the
Lender or any of its directors, officers, affiliates or representatives,
arising out of or relating to the Credit Agreement or the transactions
contemplated thereby, including without limitation, under such Person’s
Guaranty or Guarantor Subordination Agreement.

 

5.             Counterparts.  This Reaffirmation may be executed in counterparts,
all of which taken together shall constitute one and the same agreement.

 

IN WITNESS
WHEREOF, each of the Guarantors have caused this Reaffirmation to be executed
as of the day and year first above written. 

 

[Signature Pages Following]

 

 

	
   

  	
  PAN AMERICAN
  UNDERWRITERS, INC.,

  
	
   

  	
  a Nevada
  Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  
	
   

  	
  PAN AMERICAN
  UNDERWRITERS INSURANCE

  
	
   

  	
  AGENTS &
  BROKERS, INC., an Arizona corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  
	
   

  	
  AGRI-COMP
  INSURANCE AGENCY, INC.,

  
	
   

  	
  an Oregon
  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PAN PACIFIC
  BENEFIT ADMINISTRATORS,

  
	
   

  	
  INC., a
  California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PAULA
  TRADING COMPANY INSURANCE

  
	
   

  	
  AGENTS &
  BROKERS, INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A.
  Nicholson

  	
   

  
	
   

  	
  Name:

  	
  James A.
  Nicholson

  	
   

  
	
   

  	
  Title:

  	
  Sr. Vice
  President/CFO/Treasurer/SecretaryEXHIBIT 10.49

 

[LOGO]

 

HARRY W. LOW

INSURANCE COMMISSIONER

 

March 12, 2002

 

	
  Mr. Jeffrey
  A. Snider, Chairman

  	
   

  	
   

  
	
  PAULA
  Insurance Company

  	
  Agreed

  	
   

  
	
  300 North
  Lake Avenue, Suite 300

  	
   

  	
   

  
	
  Pasadena,
  California 91101

  	
   

  	
   

  

 

Re:          Letter Agreement of Regulatory
Oversight of PAULA Insurance Company

 

Dear Mr. Snider:

 

The Annual Statement filed March 1, 2002 with
the California Department of Insurance (“Department”) has confirmed unfavorable
operating trends and significant deterioration in the statutory surplus of
PAULA Insurance Company (“PAULA”), and shows PAULA to be insolvent as of
December 31, 2001.  However, the
Department has also found that PAULA has significant invested assets, including
over $89 million of investments in statutory workers’ compensation deposits, and
the current capability to pay both claims and operating expenses as those
obligations come due.  In addition, the
Company has voluntarily terminated all writing of new or renewal premiums.  In light of those positive factors and
PAULA’s desire to cooperate with the Department in voluntary runoff of its
existing losses, the Department and PAULA have agreed to the following:

 

1.                                       The Department will appoint a Special Deputy Examiner to provide
supervision and regulatory oversight on behalf of the Commissioner to
PAULA.  The Special Deputy Examiner, in
consultation with the Commissioner and his staff, may retain other staff as
provided by Insurance Code Section 733(g) to assist in that supervision and
oversight.  Costs for the retention of
the Special Deputy Examiner and any other staff shall be borne by PAULA.

 

2.                                       PAULA shall not make any payment to, or engage in any transaction or
enter into any agreement directly or indirectly with its parent company or any
affiliated company, without the prior approval of the Department.  The Department is aware of the existing
agreements between PAULA and its affiliates. 
No further payments shall be made under these agreements until the
Department has again reviewed the agreements and specifically approved
them.  Any subsequent amendment or
modification of any agreement shall be subject to prior Departmental approval
if the effect of such modification or amendment would be to materially change
the obligations or rights of PAULA or to increase payments from PAULA to PAULA’s
parent company or affiliated companies under the agreement.

 

300 CAPITOL
MALL, SUITE 1700

SACRAMENTO, CALIFORNIA 95814

(916) 492-3500

 

 

3.                                       PAULA shall not make any dividend payment or other distribution to
its parent company without the prior approval of the Department.

 

4.                                       PAULA shall not make any withdrawal of monies from its bank
accounts, disbursement or payment outside the ordinary course of business
without prior approval by the Department.

 

5.                                       PAULA shall not incur any debt, obligation or liability for borrowed
money not related directly to the ordinary course of business without prior
approval by the Department.

 

6.                                       PAULA shall not write any new or renewal business of any type
without the prior approval of the Department.

 

7.                                       PAULA shall file statutory financial statements (balance sheet and
income statement) on a monthly basis (except for quarter ending periods of
March, June, and September for which PAULA shall continue to file regular
quarterly statements) no later than 45 days following the month being reported
upon.

 

8.                                       PAULA shall file by April 1, 2002, a detailed business plan which
sets forth forecasted premiums earned, losses and expenses, for year 2002.  The budget forecast shall be in sufficient
detail to allow for monitoring of actual versus planned expenditures.  No later than 45 days following the month
being reported upon, PAULA shall file actual results (in a format approved by
the Department) with a comparison to the budgeted amounts and relevant
explanations for material variances.

 

9.                                       PAULA shall not enter into any new material reinsurance agreement
nor amend in any material respect any existing material reinsurance agreement
without prior approval by the Department; provided, however, PAULA may continue
to renew existing reinsurance arrangements.

 

10.                                 PAULA shall not add any individual who is not currently a senior
executive officer of PAULA, or one of its affiliates, to the board of directors
of PAULA without first notifying the Department.  The Department reserves the right to require the resignation of
members of the board of directors and senior executive officers of the
insurance companies and shall have the right to prior review and approve any
new appointments by PAULA to such positions.

 

11.                                 PAULA shall not change the terms of any written plans for
remuneration, consulting, deferred compensation or bonus plans for directors,
officers and employees of PAULA without first obtaining the approval of the
Department.  PAULA shall also advise the
Department of any such changes made since December 31, 2002.

 

2

 

12.                                 PAULA shall not enter into any new agreement nor revise any existing
agreement for any form of current or future remuneration or other compensation,
including severance agreements (other than severance agreements documenting
terminations under existing plans, policies and agreements) for services
rendered to PAULA by employees of PAULA, without the prior approval of the
Department. PAULA shall also advise the Department of any such new agreements
entered into or revisions to existing agreements made since December 31, 2001.

 

13.                                 Other than security interests granted in connection with repurchase
agreements acquired in the ordinary course of business, PAULA shall not pledge
nor assign any of its assets to secure indebtedness for borrowed money without
prior approval by the Department.

 

14.                                 PAULA shall provide to the Department any additional reports that
the Department reasonably determines are necessary to ascertain the financial
condition of PAULA.

 

15.                                 PAULA shall not pay any fees related to the non-consummation of any
material agreement without the consent of the Department.

 

16.                                 PAULA shall obtain a resolution from the Board of Directors which
consents to the terms of this agreement, and requests Mr. Jeffrey A. Snider,
Chairman of PAULA Insurance Company, to execute the agreement on its behalf.

 

17.                                 The Department reserves the right to amend or supplement this
agreement, in good faith and at its sole discretion, as deemed necessary.

 

18.                                 The agreement shall remain in full force and effect until a) the
Department provides written notice to PAULA that it is released from the
obligations required herein or b) the agreement is superceded by a Department
Administrative Order or a Superior Court Order.

 

19.                                 If PAULA breaches this agreement in any material way, or if the
Department, in good faith, determines that the provisions of this agreement,
including any amendments or supplements, are no longer adequate to protect
policyholders from financial hazard, it is hereby agreed by PAULA and its
direct and indirect parent companies that they shall not oppose appropriate and
lawful Department Administrative Orders or Applications for Superior Court
Orders.  PAULA and its direct and indirect
parent companies hereby acknowledge that the Department has no duty to provide
prior notice of such Orders and Applications, except as provided for by law.

 

20.                                 All documents and copies thereof obtained by or disclosed to the
Department pursuant to this agreement shall be kept strictly confidential by
the Department, except that the Department may share such information and
documents with other state regulators pursuant to a confidentiality
agreement.  This provision does not
apply to documents already deemed public by law or regulation, e.g., quarterly
financial statements.

 

3

 

Any questions
related to this agreement and all filings required by this agreement should be
directed to Norris W. Clark, Deputy Commissioner, Financial Surveillance,
Department of Insurance, 300 South Spring Street, Los Angeles, CA 90013.

 

Sincerely,

 

	
  /s/ Harry W.
  Low

  	
   

  
	
  Harry W. Low

  	
   

  
	
  Insurance
  Commissioner

  	
   

  
	
   

  	
   

  
	
  Agreed as to
  all provisions:

  	
   

  
	
   

  	
   

  
	
  /s/ Jeffrey
  A. Snider

  	
   

  	
  Date:

  	
  18 March
  2002

  	
   

  
	
  Jeffrey A.
  Snider

  	
   

  
	
  Title:

  	
  Chairman

  	
   

  	
   

  
	
   

  	
   

  
	
  Agreed as to
  provision number 18:

  	
   

  
	
   

  	
   

  
	
  PAULA
  Financial Corporation

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  18 March
  2002

  	
   

  
	
  /s/ Jeffrey
  A. Snider

  	
   

  	
   

  
	
  Name:

  	
  Jeffrey A.
  Snider

  	
   

  	
   

  
	
  Title:

  	
  Chairman

  	
   

  	
   

  
								

 

4

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