Document:

Direct General 8-K 12/07/06 Exhibit 10.2

    Exhibit
      10.2

    EIGHTH
      AMENDMENT

     

    TO

     

    SEVENTH
      AMENDED AND RESTATED SECURITY AGREEMENT

     

    THIS
      EIGHTH AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT (the
      "Amendment") made and entered into as of the 22 day of November, 2006, by and
      among DIRECT
      GENERAL FINANCIAL SERVICES, INC., a
      Tennessee corporation whose address is 1281 Murfreesboro Road, Nashville,
      Tennessee 37217 (f/k/a Direct Financial Services, Inc.) ("DGFS"), DIRECT
      GENERAL PREMIUM FINANCE COMPANY,
      a
      Tennessee corporation whose address is 1281 Murfreesboro Road, Nashville,
      Tennessee 37217 ("DGPFC"; and collectively with DGFS, the "Grantor"), and
FIRST TENNESSEE
      BANK NATIONAL ASSOCIATION,
      whose
      address is 165 Madison Avenue, Memphis, Tennessee 38103, Attention:
      Metropolitan Division (in its agency capacity being herein referred to as
      "Agent," and in its individual capacity as "FTBNA"), as agent for itself, and
      for CAPITAL
      ONE, N.A.
      (successor by merger to Hibernia National Bank), Baton Rouge, Louisiana
      ("Capital One"), and for U.S. BANK
      NATIONAL ASSOCIATION,
      St.
      Louis, Missouri ("U.S. Bank"), and for REGIONS
      BANK,
      Birmingham, Alabama ("Regions"), and for CAROLINA
      FIRST BANK,
      Greenville, South Carolina ("Carolina First"), and for JPMORGAN
      CHASE BANK, N.A.
      (successor by merger to Bank One, NA (Main Office Chicago)) ("JPMorgan"), Baton
      Rouge, Louisiana ("Bank One"), and for NATIONAL
      CITY BANK OF KENTUCKY,
      Louisville, Kentucky ("National City Bank"), and for FIFTH
      THIRD BANK, N.A. (Tennessee),
      Franklin, Tennessee ("Fifth Third"), and for MIDFIRST BANK,
      Oklahoma City, Oklahoma ("MidFirst") (FTBNA, Capital One, U.S. Bank,
      Regions, Carolina First, National City Bank, Fifth Third, JPMorgan and MidFirst
      collectively, the "Banks," and each individually, a "Bank"), pursuant to the
      Eighth Amended and Restated Loan Agreement dated as of October 31, 2002, as
      amended (the "Loan Agreement"), among Grantor, Banks and the other parties
      named
      therein.

     

    Recitals
      of Fact

     

    Pursuant
      to that certain Seventh Amended and Restated Security Agreement dated as of
      October 31, 2002, as amended by that certain First Amendment to Seventh Amended
      and Restated Security Agreement dated as of March 31, 2003, as amended by that
      certain Second Amendment to Seventh Amended and Restated Security Agreement
      dated as of May 28, 2003, as amended by that certain Third Amendment to the
      Seventh Amended and Restated Security Agreement dated as of June 30, 2003,
      as
      amended by that certain Fourth Amendment to Seventh Amended and Restated
      Security Agreement dated as of November 26, 2003, as amended by that certain
      Fifth Amendment to Seventh Amended and Restated Security Agreement dated as
      of
      June 30, 2004, as amended by that certain Sixth Amendment to Seventh Amended
      and
      Restated Security Agreement dated as of December 3, 2004, and as amended by
      that certain Seventh Amendment to Seventh Amended and Restated Security
      Agreement dated as of June 30, 2006 (as amended, the "Security Agreement"),
      between DGFS and/or DGPFC and the Banks, DGFS and DGPFC assigned and pledged
      Receivables (as defined in the Loan Agreement) and other contractual rights
      to
      the Agent for the benefit of the Banks as collateral security for all of the
      Obligations (as defined in the Security Agreement) of Grantor to the
      Banks.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Direct
      General Corporation, the parent company of the Grantor (“DGC”), anticipates
      entering into the Bear Stearns Facilities (as defined below) as borrower,
      pursuant to which Grantor will grant a second priority security interest in
      the
      Collateral (as defined below) to
      the
      lenders making such loans.

     

    Grantor
      has asked the Banks to enter into a further amendment of the Loan Agreement
      of
      even date herewith (the “Ninth Amendment”) in order to permit the Bear Stearns
      Facilities and to effect certain other amendments. In
      connection therewith, the Grantor has requested, and the Banks have agreed,
      to
      modify certain terms of the Security Agreement as hereinafter set forth,
provided
      that this Amendment shall only become effective on the Effective Date (as
      defined below). The Grantor and the Banks now desire to modify certain terms
      of
      the Security Agreement as hereinafter set forth.

     

    NOW,
      THEREFORE, in consideration of the premises as set forth in the Recitals of
      Fact, the mutual covenants and agreements hereinafter set out, and other good
      and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, it is agreed by the parties as follows:

     

    Agreements

     

    1.  All
      capitalized terms used and not defined herein shall have the meaning ascribed
      to
      them in the Loan
      Agreement.

     

    2.  To
      induce
      the Banks to enter into this Amendment, the Grantor does hereby absolutely
      and
      unconditionally, certify, represent and warrant to the Banks, and covenants
      and
      agrees with the Banks, the following:

     

    (a)  It
      is the
      intention of DGFS and DGPFC to, and DGFS and DGPFC do hereby, pledge and assign
      a continuing security interest in the Collateral described in the Security
      Agreement to Agent as agent for itself and the Banks. References to "Grantor"
      in
      the Security Agreement shall be deemed to refer collectively to DGFS and
      DGPFC.

     

    (b)  All
      representations and warranties made by the Grantor in the Loan Agreement, as
      amended, in the Security Agreement, as amended, and in all other loan documents
      (all of which are herein sometimes called the "Loan Documents"), are true,
      correct and complete in all material respects as of the date of this
      Amendment.

     

    (c)  As
      of the
      date hereof and with the execution of this Amendment, there are no existing
      events, circumstances or conditions which constitute, or would, with the giving
      of notice, lapse of time, or both, constitute Events of Default.

     

    (d)  There
      are
      no existing offsets, defenses or counterclaims to the obligations of the
      Grantor, as set forth in the Notes, the Security Agreement, the Loan Agreement,
      as amended, or in any other Loan Document executed by the Grantor, in connection
      with the Loan.

     

    (e)  The
      Grantor does not have any existing claim for damages against the Banks arising
      out of or related to the Loan; and, if and to the extent (if any) that the
      Grantor has or may have any such existing claim (whether known or unknown),
      the
      Grantor does hereby forever release and discharge, in all respects, the Banks
      with respect to such claim.

     

     

    
      
        2

      

      
        
        

        
          

        

      

      
        
        

      

    

    (f)  The
      Loan
      Documents, as amended by this Amendment, are valid, genuine, enforceable in
      accordance with their respective terms, and in full force and
      effect.

     

    3.  As
      used
      herein, the following terms shall have the following meanings:

     

    (a)
      “Bear
      Stearns Facilities” means, collectively, (i) the term loan facility in an
      aggregate original principal amount equal to $75,000,000, (ii) the revolving
      credit facility in an amount of $20,000,000, and (iii) any additional
“incremental facility” borrowings up to $20,000,000, which facilities, in the
      case of clauses (i) and (ii) above, contemplated to be entered into
      substantially simultaneously with the Merger Transaction, among DGC and a group
      of lenders led by Bear Stearns Corporate Lending Inc. as Agent, in each case
      as
      amended, restated or otherwise modified or refinanced from time to time (such
      amendment, restatement, mofidication or refinancing to be made in compliance
      with the terms of the Intercreditor Agreement as hereinafter defined).

     

    (b)  “Merger
      Transaction” means the merger of Elara Merger Corporation, a wholly owned
      subsidiary of Elara Holdings, Inc., into Direct General Corporation, which
      is
      expected to occur substantially simultaneously with the closing of the Bear
      Stearns Facilities.

     

    (c)  "Effective
      Date" means the Effective Date of that certain Ninth Amendment to Eighth Amended
      and Restated Loan Agreement dated as of November 22, 2006.

     

    (d)  “Intercreditor
      Agreement” means the Intercreditor Agreement, dated as of the Effective Date,
      between the Agent and the collateral agent in respect of the Bear Stearns
      Facilities, as amended, restated, supplemented or otherwise modified from time
      to time.

     

    4.  Section
      3
      of the Security Agreement is amended by deleting subsection (b) in its entirety
      and substituting in lieu thereof the following:

     

    “(b) (i)
      The
      Grantor owns the Collateral free and clear of any lien, security interest or
      other charge or encumbrance except for the security interest created by this
      Agreement and the junior lien pledged to the collateral agent for the Bear
      Stearns Facilities (the “Bear Stearns Agent”), in connection with loans to
      Direct General Corporation.

     

    (ii)
      Except
      for the financing statements filed in favor of Agent relating to this Agreement
      and those filed in connection with the Bear Stearns Facilities, no other
      financing statement or other instrument similar in effect covering all or any
      part of the Collateral is on file in any recording office.”

     

    5.  Section
      3
      of the Security Agreement is further amended by deleting the next to last
      sentence of subsection (e) and inserting in lieu thereof the
      following:

     

    
      
        3

      

      
        
        

        
          

        

      

      
        
        

      

    

    “The
      filing of financing statements with the Tennessee Secretary of State and, with
      regard to unearned premiums on cancelled or terminated policies of insurance,
      the giving of notice to the insurer (and related state guaranty fund, a list
      of
      which is attached as Exhibit "A"
      hereto,
      which Grantor warrants is a complete list of such funds to its best knowledge)
      of assignment of such premiums, will perfect and establish the priority of
      the
      security interest of the Agent hereunder in the Collateral for the benefit
      of
      the Banks, subject to no other liens and encumbrances other than the junior
      lien
      in such collateral granted for the benefit of the Bear Stearns Agent.”

     

    6.  Section
      3
      of othe Security Agreement is further amended by deleting subsection (f) and
      inserting in lieu thereof the following:

     

    “(f) No
      financing statement or other instrument similar in effect, other than such
      as
      may be for the benefit of the Agent and the Bear Stearns Agent, is on file
      in
      any recording office in any state in connection with any Premium Finance
      Agreement.”

     

    7.  Section
      4
      of the Security Agreement is amended by deleting subsection (d) and inserting
      in
      lieu thereof the following:

     

    “(d) Transfers
      and Other Liens.
      Without
      the prior consent of Agent, the Grantor will not (i) sell, assign (by
      operation of law or otherwise), exchange, or otherwise dispose of any of the
      Collateral (other than the conversion of Accounts Receivable to cash in the
      ordinary course of Grantor's business); or (ii) create or suffer to exist
      any lien, security interest or other charge or encumbrance upon or with respect
      to any of the Collateral except for the security interest created by this
      Agreement and the second priority security interest given for the benefit of
      the
      Bear Stearns Agent.

     

    8. There
      shall be added to the Security Agreement the following new Section
      12:

     

    “12. Intercreditor
      Agreement. Notwithstanding
      anything herein to the contrary, the liens and security interest granted to
      the
      Agent pursuant to this Agreement, and the exercise of any right or remedy by
      the
      Agent hereunder, are subject in all respects to the provisions of the
      Intercreditor Agreement.”

     

    9.  All
      terms
      and provisions of the Security Agreement, as heretofore amended, which are
      inconsistent with the provisions of this Amendment are hereby modified and
      amended to conform hereto; and, as so modified and amended, the Security
      Agreement is hereby ratified, approved and confirmed. Except as otherwise may
      be
      expressly provided herein, this Amendment shall become effective as of the
      date
      set forth in the initial paragraph hereof.

     

    10.  All
      references in all Loan Documents (including, but not limited to, the Notes,
      the
      Security Agreement, and the Loan Agreement) to the “Security Agreement” shall,
      except as the context may otherwise require, be deemed to constitute references
      to the Security Agreement as amended hereby.

     

    [SEPARATE
      SIGNATURE PAGES FOLLOW]

     

    
      
        4

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    SIGNATURE
      PAGE

    TO

    EIGHTH
      AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

     

      
        

      

    

    

     

    IN
      WITNESS WHEREOF, the Grantor, the Banks and the Agent have caused this Amendment
      to be executed by their duly authorized officers, all as of the day and year
      first above written.

     

    GRANTOR:

     

    DIRECT
      GENERAL FINANCIAL SERVICES, 

    INC.,
      a
      Tennessee corporation

     

    By: 
      /s/ Brain G. Moore            

    Brian
      G.
      Moore, President

     

    DIRECT
      GENERAL PREMIUM FINANCE 

    COMPANY,
      a
      Tennessee corporation

     

    By: 
      /s/ Brain G. Moore            

    Brian
      G.
      Moore, President

    

    BANKS:

     

    FIRST
      TENNESSEE BANK NATIONAL 

    ASSOCIATION

     

    By: 
      /s/ Sam Jenkins                       

     

    Title: 
      Senior Vice President

     

    CAPITAL
      ONE, N.A.

     

    By: 
      /s/ Janet Rack                       
      

     

    Title:
      Senior Vice President

     

    U.S. BANK
      NATIONAL ASSOCIATION

     

    By:  /s/
      Derek Roudebush                   

     

    Title:
      Vice President

     

    CAROLINA
      FIRST BANK

     

    By: 
      /s/ Charles Chamberlain                  

     

    Title:
      Executive Vice President

     

    [SIGNATURE
      PAGE CONTINUED]

     

    
      
        S-1

      

      
        
        

        
          

        

      

      
        
        

      

    

    BANKS
      (continued):

     

    JPMORGAN
      CHASE BANK, N.A. 

     

    By: 
      /s/ Robert Bond                   

     

    Title:
      Senior Vice President

     

    REGIONS
      BANK

     

    By: 
      /s/ Nathan Raines                  

     

    Title:
      Senior Vice President

     

    NATIONAL
      CITY BANK OF KENTUCKY

    

    By: 
      /s/ Kevin Anderson                   

     

    Title:
      Senior Vice President

     

    FIFTH
      THIRD BANK, N.A. (Tennessee)

    

    By: 
      /s/ Justin Fontenont                 

     

    Title:
      Officer

     

    MIDFIRST
      BANK

     

    By: 
      /s/ Shawn Brewer                   

     

    Title:
      Vice President

    

     

    AGENT:

     

    FIRST
      TENNESSEE BANK NATIONAL 

    ASSOCIATION

     

    By: 
      /s/ Sam Jenkins                       

     

    Title:
      Executive Vice President

     

    S-2Direct General 8-K 12/07/06 Exhibit 10.3

     

    Exhibit
      10.3

     

    EIGHTH
      AMENDMENT

    TO

    SEVENTH
      AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT

     

     

    THIS
      EIGHTH AMENDMENT TO SEVENTH AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
      (the "Amendment") made and entered into as of the 22 day of November, 2006,
      but
      with an Effective Date as defined hereinafter, by and among DIRECT
      GENERAL CORPORATION,
      a
      Tennessee corporation (the "Pledgor"), and FIRST TENNESSEE
      BANK NATIONAL ASSOCIATION,
      whose
      address is 165 Madison Avenue, Memphis, Tennessee 38103, Attention:
      Metropolitan Division (in its agency capacity being herein referred to as
      "Agent," and in its individual capacity as "FTBNA"), as agent for itself, and
      for CAPITAL
      ONE, N.A.
      (successor by merger to Hibernia National Bank), Baton Rouge, Louisiana
      ("Capital One"), and for U.
      S. BANK NATIONAL ASSOCIATION,
      St.
      Louis, Missouri ("U. S. Bank"), and for REGIONS
      BANK,
      Birmingham, Alabama ("Regions"), and for CAROLINA
      FIRST BANK,
      Greenville, South Carolina ("Carolina First"), and for JPMORGAN
      CHASE BANK, N.A.,
      successor by merger to Bank One, N.A. (main office - Chicago, Illinois), Baton
      Rouge, Louisiana ("JPMorgan"), and for NATIONAL
      CITY BANK OF KENTUCKY,
      Louisville, Kentucky ("National City Bank"), and for FIFTH
      THIRD BANK, N.A. (Tennessee),
      Franklin, Tennessee ("Fifth Third"), and for MIDFIRST
      BANK,
      Oklahoma City, Oklahoma ("MidFirst") (FTBNA, Capital One, U. S. Bank,
      Regions, Carolina First and JPMorgan collectively, the "Original Banks") (the
      Original Banks, Fifth Third, National City Bank, and MidFirst collectively,
      the
      "Banks" and individually, a "Bank").

     

    Recitals
      of Fact

     

    Pursuant
      to that certain Seventh Amended and Restated Pledge and Security Agreement
      dated
      as of October 31, 2002 (the "Original Pledge Agreement"), Pledgor pledged a
      second lien security interest in all of the stock in the Agency Subsidiaries
      and
      Affiliated Insurers (as those terms are defined in the Eighth Amended and
      Restated Loan Agreement dated as of October 31, 2002, as amended, referred
      to
      hereafter as the "Loan Agreement") to the Agent for the benefit of the Original
      Banks as security for all of Pledgor's obligations under the Eighth Amended
      and
      Restated Guaranty Agreement dated October 31, 2002 (the "Eighth Guaranty").
      

     

    Pursuant
      to that certain First Amendment to Seventh Amended and Restated Pledge and
      Security Agreement dated as of March 31, 2003 (the "First Amendment"), Pledgor
      pledged a second lien security interest in all of the stock in the Agency
      Subsidiaries and Affiliated Insurers (as those terms are defined in the Loan
      Agreement) to the Agent for the benefit of the Original Banks as security for
      all of Pledgor's obligations under the Ninth Amended and Restated Guaranty
      Agreement dated March 31, 2003 (the "Ninth Guaranty").

     

    Pursuant
      to that certain Second Amendment to Seventh Amended and Restated Pledge and
      Security Agreement dated as of May 28, 2003 (the "Second Amendment"), Pledgor
      pledged a second lien security interest in all of the stock in the Agency
      Subsidiaries and Affiliated Insurers (as those terms are defined in the Loan
      Agreement) to the Agent for the benefit of the Original Banks and National
      City
      Bank as security for all of Pledgor's obligations under the Tenth Amended and
      Restated Guaranty Agreement dated May
      28,
      2003 (the "Tenth Guaranty").

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Pursuant
      to that certain Third Amendment to Seventh Amended and Restated Pledge and
      Security Agreement dated as of June 30, 2003 (the "Third Amendment"), Pledgor
      pledged a second lien security interest in all of the stock in the Agency
      Subsidiaries and Affiliated Insurers (as those terms are defined in the Loan
      Agreement) to the Agent for the benefit of the Banks as security for all of
      Pledgor's obligations under the Eleventh Amended
      and Restated Guaranty Agreement dated June
      30,
      2003 (the "Eleventh Guaranty").

     

    Pursuant
      to that certain Fourth Amendment to Seventh Amended and Restated Pledge and
      Security Agreement dated as of November 26, 2003 (the "Fourth Amendment"),
      Pledgor pledged a second lien security interest in all of the stock of the
      Agency Subsidiaries and Affiliated Insurers (as those terms are defined in
      the
      Loan Agreement) to the Agent for the benefit of the Banks as security for all
      of
      Pledgor's obligations under the Twelfth Amended and Restated Guaranty Agreement
      dated November 26, 2003 (the "Twelfth Guaranty").

     

    Pursuant
      to that certain Fifth Amendment to Seventh Amended and Restated Pledge and
      Security Agreement dated as of June 30, 2004 (the "Fifth Amendment"), Pledgor
      pledged a second lien security interest in all of the stock in the Agency
      Subsidiaries and Affiliated Insurers (as those terms are defined in the Loan
      Agreement) to the Agent for the benefit of the Banks as security for all of
      Pledgor's obligations under the Thirteenth Amended
      and Restated Guaranty Agreement dated June
      30,
      2004 (the "Thirteenth Guaranty").

     

    Pursuant
      to that certain Sixth Amendment to Seventh Amended and Restated Pledge and
      Security Agreement dated as of December 3, 2004 (the "Sixth Amendment"; the
      Original Pledge Agreement, as amended, the First Amendment, the Second
      Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment,
      and
      the Sixth Amendment being collectively referred to hereinafter as the "Pledge
      Agreement"), Pledgor pledged a second lien security interest in all of the
      stock
      of the Agency Subsidiaries and Affiliated Insurers (as those terms are defined
      in the Loan Agreement) to the Agent for the benefit of the Banks as security
      for
      all of Pledgor's obligations under the Fourteenth Amended and Restated Guaranty
      Agreement dated December 3, 2004 (the "Fourteenth Guaranty").

     

    Pledgor
      has most recently entered into a Fifteenth Amended and Restated Guaranty
      Agreement dated as of June 30, 2006 (the "Fifteenth Guaranty"). The obligations
      guarantied by Pledgor and the other Guarantors in the Fifteenth Guaranty are
      described therein and include the obligations of Direct General Financial
      Services, Inc., a Tennessee corporation and Direct General Premium Finance
      Company, a Tennessee corporation (collectively, the “Borrowers”) pursuant to
      that certain Eighth Amended and Restated Loan Agreement dated as of October
      31,
      2002, as amended (the “Loan Agreement”).

     

    The
      Pledgor anticipates entering into the Bear Stearns Facilities (as defined below)
      as borrower, pursuant to which Pledgor will grant a first priority security
      interest in all
      of
      the stock of the Agency Subsidiaries and Affiliated Insurers (as those terms
      are
      defined in the Loan Agreement) to the lenders making such loans.

     

    
      
        2

      

      
        
        

        
          

        

      

      
        
        

      

    

    Pledgor
      has asked the Banks to enter into a further amendment of the Loan Agreement
      of
      even date herewith (the “Ninth Amendment”) in order to permit the Bear Stearns
      Facilities and to effect certain other amendments. In
      connection therewith, the Pledgor has requested, and the Banks have agreed,
      to
      modify certain terms of the Pledge Agreement as hereinafter set forth,
provided
      that this Amendment shall only become effective on the Effective Date (as
      defined in Section 3 below).

     

    NOW,
      THEREFORE, in consideration of the premises as set forth in the Recitals of
      Fact, the mutual covenants and agreements hereinafter set out, and other good
      and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, it is agreed by the parties as follows:

     

    Agreements

     

    1.  All
      capitalized terms used and not defined herein shall have the meaning ascribed
      to
      them in the Loan Agreement.

     

    2.  To
      induce
      the Banks to enter into this Amendment, the Pledgor does hereby absolutely
      and
      unconditionally, certify, represent and warrant to the Banks, and covenants
      and
      agrees with the Banks, that:

     

    (a)  All
      representations and warranties made by the Pledgor in the Loan Agreement, as
      amended, in the Pledge Agreement, as amended, in the Security Agreement, as
      amended, and in all other loan documents (all of which are herein sometimes
      called the "Loan Documents"), are true, correct and complete in all material
      respects as of the date of this Amendment.

     

    (b)  As
      of the
      date hereof and with the execution of this Amendment, there are no existing
      events, circumstances or conditions which constitute, or would, with the giving
      of notice, lapse of time, or both, constitute Events of Default.

     

    (c)  There
      are
      no existing offsets, defenses or counterclaims to the obligations of the
      Pledgor, as set forth in the Pledge Agreement, as amended, the Security
      Agreement, as amended, the Loan Agreement, as amended, or in any other Loan
      Document executed by the Borrower, in connection with the Loan.

     

    (d)  The
      Pledgor does not have any existing claim for damages against the Banks arising
      out of or related to the Loan; and, if and to the extent (if any) that the
      Borrower has or may have any such existing claim (whether known or unknown),
      the
      Borrower does hereby forever release and discharge, in all respects, the Banks
      with respect to such claim.

     

    (e)  The
      Loan
      Documents, as amended by this Amendment, are valid, genuine, enforceable in
      accordance with their respective terms, and in full force and
      effect.

     

    3.  As
      used
      herein, the following terms shall have the following meanings:

     

    
      
        3

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a)
      “Bear
      Stearns Facilities” means, collectively, (i) the term loan facility in an
      aggregate original principal amount equal to $75,000,000, (ii) the revolving
      credit facility in an amount of $20,000,000, and (iii) any additional
“incremental facility” borrowings up to $20,000,000, which facilities, in the
      case of clauses (i) and (ii) above, contemplated to be entered into
      substantially simultaneously with the Merger Transaction, among DGC and a group
      of lenders led by Bear Stearns Corporate Lending Inc. as Agent, in each case
      as
      amended, restated or otherwise modified or refinanced from time to time (such
      amendment, restatement, modification or refinancing to be made in compliance
      with the terms of the Intercreditor Agreement as hereinafter defined).

     

    (b) “Merger
      Transaction” means the merger of Elara Merger Corporation, a wholly owned
      subsidiary of Elara Holdings, Inc., into Direct General Corporation, which
      is
      expected to occur substantially simultaneously with the closing of the Bear
      Stearns Facilities.

     

    (c) “Effective
      Date" means the Effective Date of that certain Ninth Amendment to Eighth Amended
      and Restated Loan Agreement dated as of November 22, 2006.

     

    (d) “Intercreditor
      Agreement” means the Intercreditor Agreement, dated as of the Effective Date,
      between the Agent and the collateral agent in respect of the Bear Stearns
      Facilities, as amended, restated, supplemented or otherwise modified from time
      to time.

     

    Section
      3
      of the Pledge Agreement, is hereby amended by adding thereto the following
      new
      subsection (c):

     

    “(c) For
      so
      long as the Intercreditor Agreement shall be in effect, to the extent the
      Pledgor is required hereunder to deliver Pledged Collateral to the Agent for
      purposes of possession and control, and is unable to do so as a result of having
      previously delivered such Pledged Collateral to the collateral agent for the
      Bear Stearns Facilities (the “Bear Stearns Agent”) in accordance with the terms
      of the loan documents governing the Bear Stearns Facilities, the Pledgor’s
      obligations hereunder with respect to such delivery shall be deemed satisfied
      by
      the delivery to the Bear Stearns Agent, acting as a bailee of the Agent pursuant
      to the terms of the Intercreditor Agreement.”

     

    4.  Section
      4(a) and (d) of the Pledge Agreement shall be deleted and the following inserted
      in lieu thereof:

     

    “(a) The
      Pledgor is the legal and beneficial owner of the Pledged Collateral free and
      clear of any lien, security interest or other charge or encumbrance except
      for
      (a) the prior, first priority lien granted to the collateral agent for the
      Bear
      Stearns Facilities, and (b) the security interest created by this
      Agreement.”

     

    “(d) This
      Agreement creates a valid security interest in favor of the Agent, for the
      benefit of the Banks, in the Pledged Collateral. The taking possession by the
      Agent of the certificates representing the Pledged Shares and all other
      certificates, instruments and cash constituting Pledged Collateral from time
      to
      time will perfect the Agent's security interest hereunder in the Pledged
      Collateral securing the Obligations. Except as set forth in this
      Section 4(d) and Section 3(c) of this Agreement, no action is necessary or
      desirable to perfect or otherwise protect such security interest.” 

     

    
      
        4

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.  Section
      5(c) and (g) shall be deleted and the following inserted in lieu
      thereof:

     

    “(c) at
      Pledgor’s expense, defend the Agent’s right, title and security interest in and
      to the Pledged Collateral against the claims of any person or entity other
      than
      the Bear Stearns Agent or Agent;”

     

    “(g) not
      make
      or consent to any amendment or other modification or waiver with respect to
      any
      Pledged Collateral or enter into any agreement or permit to exist any
      restriction with respect to any Pledged Collateral, other than those governing
      the Bear Stearns Facilities and the Loan Documents (including this
      Agreement);”

     

    6.  There
      shall be added to the Pledge Agreement the following new Section
      12:

     

    “12. Intercreditor
      Agreement. Notwithstanding
      anything herein to the contrary, the liens and security interest granted to
      the
      Agent pursuant to this Agreement, and the exercise of any right or remedy by
      the
      Agent hereunder, are subject in all respects to the provisions of the
      Intercreditor Agreement.”

     

    7.  All
      terms
      and provisions of the Pledge Agreement, as heretofore amended, which are
      inconsistent with the provisions of this Amendment are hereby modified and
      amended to conform hereto; and, as so modified and amended, the Pledge Agreement
      is hereby ratified, approved and confirmed. Except as otherwise may be expressly
      provided herein, this Amendment shall become effective as of the date set forth
      in the initial paragraph hereof.

     

    8.  All
      references in all Loan Documents (including, but not limited to, the Pledge
      Agreement, the Security Agreement, and the Loan Agreement) to the "Pledge
      Agreement" shall, except as the context may otherwise require, be deemed to
      constitute references to the Pledge Agreement as amended hereby.

     

    [SEPARATE
      SIGNATURE PAGES FOLLOW]

     

    

    
      
        
          5

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    SIGNATURE
      PAGE

    TO

    EIGHTH
      AMENDMENT TO

    SEVENTH
      AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT

     

      
        

      

    

    

     

    IN
      WITNESS WHEREOF, the Pledgor, the Banks and the Agent have caused this Amendment
      to be executed by their duly authorized officers, all as of the day and year
      first above written.

     

    PLEDGOR:

     

    

     

    DIRECT
      GENERAL CORPORATION,

    a
      Tennessee corporation

     

    By:  /s/
      William J. Harter                   

    William
      J. Harter, Senior
      Vice-President

     

    

    BANKS:

     

    
        
        FIRST TENNESSEE BANK NATIONAL 

        
        ASSOCIATION

       

        
        By:  /s/ Sam Jenkins                       

       

        
        Title:  Senior Vice President

       

        
        CAPITAL ONE, N.A.

       

        
        By:  /s/ Janet Rack                       
        

       

        
        Title: Senior Vice President

       

        
        U.S. BANK NATIONAL ASSOCIATION

       

        
        By:  /s/ Derek Roudebush                   

       

        
        Title: Vice President

       

        
        CAROLINA FIRST BANK

       

        
        By:  /s/ Charles Chamberlain                  

       

        
        Title: Executive Vice President

    

     

    
    

     

     

    
      
         

        S-1

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    [SIGNATURE
      PAGE
      CONTINUED]

    
       

      JPMORGAN
        CHASE BANK, N.A. 

       

      By: 
        /s/ Robert Bond                   

       

      Title:
        Senior Vice President

       

      REGIONS
        BANK

       

      By: 
        /s/ Nathan Raines                  

       

      Title:
        Senior Vice President

       

      NATIONAL
        CITY BANK OF KENTUCKY

       

      By: 
        /s/ Kevin Anderson                   

       

      Title:
        Senior Vice President

       

       

      FIFTH
        THIRD BANK, N.A. (Tennessee)

       

      By: 
        /s/ Justin Fontenont                 

       

      Title:
        Officer

       

      MIDFIRST
        BANK

       

      By: 
        /s/ Shawn Brewer                   

       

      Title:
        Vice President

       

      AGENT:

       

      FIRST
        TENNESSEE BANK NATIONAL 

      ASSOCIATION

       

      By: 
        /s/ Sam Jenkins                       

       

      Title:
        Executive Vice President

    

     

    
 

    S-2

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