Document:

Exhibit
10.28

 

AMENDMENT
III

 

TO THE REINSURANCE
AGREEMENT

 

BETWEEN

 

AMERICAN
EQUITY INVESTMENT LIFE INSURANCE COMPANY

(Referred to in
this Amendment as the Company)

 

AND

 

HANNOVER
LIFE REASSURANCE COMPANY OF AMERICA

(Referred to in
this Amendment as the Reinsurer)

 

This Amendment III is to
be attached to and made a part of the Automatic YRT Reinsurance Agreement which
became effective October 1, 2005. 
All provisions of the Reinsurance Agreement not in conflict with the
provisions of this Amendment III shall remain unchanged.

 

As of the effective date of this
Amendment III, the following shall replace Exhibit B-1 — Plans Covered in
its entirety.

 

EXHIBIT B-1

 

PLANS COVERED

 

This
Agreement provides for reinsurance of the Company’s Single Premium Deferred Annuities
(SPDAs) and Flexible Premium Deferred Annuities (FPDAs), with the plan codes
listed below.

 

All
such plans issued and in-force as of the Effective Date of the Agreement and
all such plans issued on or after the Effective Date are reinsured under the
Agreement.

 

With
respect to plans reinsured with EquiTrust Life Insurance Company as of the
Effective Date of this Agreement, the Agreement provides reinsurance on the
portion of such plans not reinsured with EquiTrust Life Insurance Company.

 

Plan
Codes

 

	
  ACCUMULATOR

  	
   

  	
  FPDA-3 7.3

  	
   

  	
  I-2001TX

  	
   

  	
  INDEX-26

  	
   

  	
  SNF ACC55

  
	
  BN PROCEED

  	
   

  	
  FPDA-3 REV

  	
   

  	
  I-2001TX-5

  	
   

  	
  INDEX-27

  	
   

  	
  SNF ACCUM

  
	
  BRAVO

  	
   

  	
  FPDA-3FL

  	
   

  	
  I-2002

  	
   

  	
  INDEX-27IN

  	
   

  	
  SPDA-1

  
	
  BRAVO 2003

  	
   

  	
  FPDA-3IN

  	
   

  	
  I-2002 REV

  	
   

  	
  INDEX-28

  	
   

  	
  SPDA-1(3%)

  
	
  CUMULATOR

  	
   

  	
  FPDA-3TX

  	
   

  	
  I-25 (REV)

  	
   

  	
  INDEX-28IN

  	
   

  	
  SPDA-1PA

  
	
  F-3FLREV

  	
   

  	
  FPDA-4

  	
   

  	
  I-27 (REV)

  	
   

  	
  INDEX-28KY

  	
   

  	
  SPDA-1PLUS

  
	
  F-3INREV

  	
   

  	
  FPDA-4PA

  	
   

  	
  I-27REV IN

  	
   

  	
  INDEX-29

  	
   

  	
  SPDA-1SNF

  
	
  F-3REVTX

  	
   

  	
  FPDA-4SNF

  	
   

  	
  I-27REV KY

  	
   

  	
  INDEX-30

  	
   

  	
  SPDA-1UT

  
	
  FPD22.25IN

  	
   

  	
  FPDA-5

  	
   

  	
  I-29 (REV)

  	
   

  	
  INDEX-3-05

  	
   

  	
  SPDA-2

  
	
  FPD32.25IN

  	
   

  	
  FPDA5 2.25

  	
   

  	
  IDX-1-05IN

  	
   

  	
  INDEX-30IN

  	
   

  	
  SPDA-2(3%)

  

 

	
   

  	
   

  	
  AUTOMATIC
  YRT

  
	
   

  	
   

  	
  HA-AEIL-05

  
	
  June 29, 2009

  	
   

  	
  AMENDMENT
  III

  

 

 

	
  FPD72.25IN

  	
   

  	
  FPDA5225IN

  	
   

  	
  IDX-1-05KY

  	
   

  	
  INDEX-30KY

  	
   

  	
  SPDA-2PA

  
	
  FPD82.25IN

  	
   

  	
  FPDA-5FL

  	
   

  	
  IDX-26 7.5

  	
   

  	
  INDEX-4

  	
   

  	
  SPDA-2SNF

  
	
  FPDA-1

  	
   

  	
  FPDA-5PLUS

  	
   

  	
  IDX-4-05TX

  	
   

  	
  INDEX-4-05

  	
   

  	
  SPDA-5

  
	
  FPDA-1(3%)

  	
   

  	
  FPDA-6

  	
   

  	
  INDEX

  	
   

  	
  INDEX-5

  	
   

  	
  STRETCH

  
	
  FPDA-10

  	
   

  	
  FPDA-6FL

  	
   

  	
  INDEX-1

  	
   

  	
  INDEX-5-05

  	
   

  	
  SUPER-7

  
	
  FPDA-10SNF

  	
   

  	
  FPDA-6TX

  	
   

  	
  INDEX-2

  	
   

  	
  INDEX-6

  	
   

  	
  SUPER-7REV

  
	
  FPDA-10TX

  	
   

  	
  FPDA-7

  	
   

  	
  INDEX-10

  	
   

  	
  INDEX-6SNF

  	
   

  	
  SUPER-7TX

  
	
  FPDA-10VA

  	
   

  	
  FPDA7 2.25

  	
   

  	
  INDEX-1-05

  	
   

  	
  INDEX-6TX

  	
   

  	
  SUPR7 2.25

  
	
  FPDA-11

  	
   

  	
  FPDA-8

  	
   

  	
  INDEX-12

  	
   

  	
  INDEX-8

  	
   

  	
  SUPR7225IN

  
	
  FPDA-11SNF

  	
   

  	
  FPDA8 2.25

  	
   

  	
  INDEX-13

  	
   

  	
  INDEX-T03

  	
   

  	
  FPD11NOMVA

  
	
  FPDA-11TX

  	
   

  	
  FPDA-PD2

  	
   

  	
  INDEX-15

  	
   

  	
  INDEXP3

  	
   

  	
  FPDA-10PA

  
	
  FPDA-1PA

  	
   

  	
  GFIR

  	
   

  	
  INDEX-16

  	
   

  	
  INDEXP3FL

  	
   

  	
  FPDA-10WA

  
	
  FPDA-1SNF

  	
   

  	
  GFIR2-3

  	
   

  	
  INDEX-17

  	
   

  	
  INDEXP3-PA

  	
   

  	
  INDEX-6-05

  
	
  FPDA-2

  	
   

  	
  GFIR-5

  	
   

  	
  INDEX-18

  	
   

  	
  INDEXP3TX

  	
   

  	
  IDX-6-05-1

  
	
  FPDA2 2.25

  	
   

  	
  I-19 (REV)

  	
   

  	
  INDEX-19

  	
   

  	
  INDX-2

  	
   

  	
  INDEX-2-06

  
	
  FPDA2-2001

  	
   

  	
  I-19 REV7

  	
   

  	
  INDEX-22

  	
   

  	
  INDX-I

  	
   

  	
  FPDA-10IN

  
	
  FPDA-2PLUS

  	
   

  	
  I-2000

  	
   

  	
  INDEX-23

  	
   

  	
  INDX-IIN

  	
   

  	
  FPDA-12

  
	
  FPDA-2TX

  	
   

  	
  I-2000TX

  	
   

  	
  INDEX-24

  	
   

  	
  INDX-IPA

  	
   

  	
  IDX1-07FL

  
	
  FPDA-3

  	
   

  	
  I-2000TX-5

  	
   

  	
  INDEX-25

  	
   

  	
  INDX-ITX

  	
   

  	
  IX107ELFL

  
	
  FPDA3 2.25

  	
   

  	
  I-2001

  	
   

  	
  INDEX-25WA

  	
   

  	
  S-7TXREV

  	
   

  	
   

  
	
  IDX-1-07ELB

  	
   

  	
  IDX-1-07LB

  	
   

  	
  INDEX 1-07

  	
   

  	
  IX107LBFL

  	
   

  	
   

  

 

EXHIBIT E

 

EXPERIENCE
REFUND CALCULATION

 

The
method of calculation of the Experience Refund Amount is described below.

 

Define
the following terms in respect of each Reinsured Policy:

 

RP is the
Reinsurance Premium for the quarter, calculated in accordance with Exhibit D;

FV is the fund
value of the policy at the beginning of the quarter;

RS is the
Reinsurer’s Share, as specified in Exhibit A;

SC is the
surrender charge applicable to the policy at the beginning of the quarter (or
policy date if later);

CA is the Claim
Amount on the policy in the quarter, where the Claim Amount is as defined in Exhibit B-2;

CR is the Claim
Reimbursement on the policy in the quarter, where the Claim Reimbursement is as
defined in Exhibit B-2;

 

Calculate
the Reinsurance Gain (RG) on the
policy as:

 

RG = RP
- (CA - CR)

 

Calculate
the Reinsurance Risk Charge (RRC) for the
policy as:

 

 

RRC =
FV × RS × SC × (0.1 + 0.02) × 0.0125

 

Calculate
the Total Reinsurance Gain (TRG) and Total
Reinsurance Risk Charge (TRRC) as the
sum of the values of RG and RRC, calculated as described above, for all the Reinsured
Policies.

 

The
Experience Account Balance at the end of the quarter (EABt) is defined as:

 

EABt = min[0,
(EABt-1 × 1.03) +
TRG - TRRC]

 

where
EABt-1 is the Experience Account Balance at the end
of the previous quarter (or zero if the Experience Refund Calculation is being
done for the first time).

 

For quarters
ending December 31, 2012 and prior, the
Experience Refund Amount (ERA) for the quarter is given by:

 

ERA = max [0, (EABt-1 x 1.03) + TRG – TRRC]

 

For quarters
ending after December 31, 2012, the Experience Refund Amount (ERA) is zero.

 

EXECUTION

 

In
witness of the above, this Amendment III is signed in duplicate at the dates
and places indicated with an effective date of April 1,
2009.

 

	
  HANNOVER
  LIFE REASSURANCE COMPANY OF

  	
   

  	
  AMERICAN
  EQUITY INVESTMENT LIFE

  
	
  AMERICA

  	
   

  	
  INSURANCE
  COMPANY

  
	
  ORLANDO,
  FLORIDA

  	
   

  	
  WEST
  DES MOINES, IOWA

  
	
   

  	
   

  	
   

  
	
  DATE:

  	
  JUNE
  29, 2009

  	
   

  	
  DATE:

  	
  JUNE
  29, 2009

  
	
   

  	
   

  	
   

  	
   

  
	
  BY:

  	
  /S/ GARY L. GRAY

  	
   

  	
  BY:

  	
  /S/ JOHN M. MATOVINA

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TITLE:

  	
  VICE PRESIDENT

  	
   

  	
  TITLE:

  	
  EVP  & CFO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BY:

  	
  /S/ JEFFREY R. BURT

  	
   

  	
  WITNESS:

  	
  /S/ JUDITH A. NAANEP

  
	
   

  	
   

  	
   

  	
   

  
	
  TITLE:

  	
  EVPExhibit
10.1

 

FIRST AMENDED AND RESTATED
SENIOR SECURED CREDIT AGREEMENT

 

Dated as of August  7, 2009

 

between

 

HILAND HOLDINGS GP, LP

 

as Borrower

 

and

 

THE SECURITY NATIONAL BANK OF
ENID

 

as Lender

 

 

FIRST
AMENDED AND RESTATED SENIOR SECURED

CREDIT AGREEMENT

 

This
First Amended and Restated Senior Secured Credit Agreement is made, executed
and delivered effective as of August 7, 2009 (this “Agreement”), by
and between HILAND HOLDINGS GP, LP, a Delaware limited partnership (the “Borrower”),
and THE SECURITY NATIONAL BANK OF ENID, a national bank association (“SNB”).

 

W I T N E S S:

 

WHEREAS,
SNB, concurrently with the execution of this Agreement, has acquired from
MidFirst Bank (and its assignees) (i) that certain promissory note (or
notes) of Borrower payable to MidFirst Bank (the “Note” or “Notes”), such Note
or Notes having been issued by Borrower pursuant to that certain Senior Secured
Credit Agreement dated as of September 26, 2006 and entered into by
Borrower and MidFirst Bank (the “Existing Credit Agreement”), (ii) the
Existing Credit Agreement, and (iii) all Loan Document (as defined in the
Existing Credit Agrrement), including the Note or Notes, pertaining to the
credit facility provided for in the Existing Credit Agreement; and

 

WHEREAS,
the Existing Credit Agreement provided for an original credit facility to
Borrower in the original amount of $25,000,000, and the Borrower, subsequent to
the date of the Existing Credit Agreement, voluntarily reduced the credit
facility to $10,000,000 as evidenced by Borrower’s letter to MidFirst Bank
dated May 12, 2009, and further voluntarily reduced the credit facility
from $10,000,000 to $3,000,000 as evidenced by Borrower’s letter to MidFirst
Bank dated August 4, 2009; and

 

WHEREAS,
the Borrower has requested SNB amend, renew and restate the existing (which has
a current outstanding principal balance of $1,204,616.71) so as to provide for
a maximum term credit facility of $3,000,000, and SNB is willing to do so upon
the terms and subject to the conditions set forth in this Agreement;

 

WHEREAS,
this Agreement amends, restates and renews the original Credit Agreement
between Borrower and MidFirst Bank dated as of September 25, 2006, as
amended;

 

NOW,
THEREFORE, in consideration of the foregoing premises, the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party hereto agrees as
follows:

 

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

 

SECTION 1.01.  Certain Defined Terms.  As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):

 

“Advance” means an advance of funds by SNB to the Borrower
pursuant to the Term Loan.

 

 

“Affiliate” of any Person means any other Person which, directly
or indirectly, controls or is controlled by or is under common control with
such Person (excluding any trustee under, or any committee with responsibility
for administering, any Plan).  A Person
shall be deemed to be:

 

(a)           “controlled
by” any other Person if such other Person possesses, directly or indirectly,
power: (i) to vote 10% or more of the securities having at the time of any
determination hereunder voting power for the election of directors of such
Person; or (ii) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise; or

 

(b)           “controlled
by” or “under common control with” such other Person if such other Person is
the executor, administrator, or other personal representative of such Person.

 

Without limitation, each unit holder holding 10% or more of the
securities of the Borrower and each Subsidiary of the Borrower and each
subsidiary of any subsidiary of the Borrower shall be considered an Affiliate
of the Borrower.

 

“Applicable Rate” means the rate of interest
charged on the Loan, which is National Prime Rate plus one percent (1%), but in
no event less than five percent (5%), to be adjusted as changes occur in the
National Prime Rate.

 

“Borrowing” means a borrowing of an Advance made by SNB pursuant
to Section 2.01.

 

“Business Day” means a day of the year on which banks are not
required or authorized by law to close.

 

“Capital Expenditures” means material payments for assets that
will benefit more than one accounting period, as determined in accordance with
GAAP.

 

“Capitalized Lease” means any lease of real or personal property
to the Borrower or any Subsidiary that is or should be capitalized on the
balance sheet of such Person in accordance with GAAP, together with any other
lease to such Person which is in substance a financing lease, including,
without limitation, any lease under which (a) such Person has or will have
an option to purchase the property subject thereto at a nominal amount or an
amount less than a reasonable estimate of the fair market value of such
property as of the date the lease is entered into or (b) the term of the
lease approximates or exceeds the expected useful life of the property leased thereunder.

 

“Cash Equivalents” means obligations issued by the United States
government or any agency thereof, and negotiable bank certificates of deposit
and bankers’ acceptances issued and payable in the United States; in any case
maturing not later than one year after issuance.

 

“Cash Interest Expense” means for any Person for any period,
total cash interest expense (including without limitation that attributable to
Capitalized Lease obligations) of such Person for such period with respect to
all outstanding Debt of such Person (including, without limitation, 

 

3

 

all commissions, discounts and other fees and charges
owed by such Person with respect to letters of credit and bankers’ acceptance
financing.

 

“Change in Control” shall be deemed to have occurred if (a) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Borrower occurs; (b) any “person” as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or two or more persons acting in concert, (i) is or becomes,
directly or indirectly, the “beneficial owner,” as defined in Rule 13d-3
under the Exchange Act, of securities of the Borrower that represent 33% or
more of the combined voting power of the Borrower’s then outstanding
securities, or (ii) acquires the power (whether or not exercised) to elect
a majority of the members of the Borrower’s Board of Directors.

 

“Consolidated” refers to the consolidation of
accounts (including without limitation those of the Borrower and its
Subsidiaries) in accordance with GAAP.

 

“Consolidated Cash Flow” means the cash flow available to the
Borrower including, without limitation, management fees paid to the Borrower,
dividends paid to the Borrower and amounts available from Subsidiaries to be
paid as dividends to Borrower under surplus debentures or under sale/leaseback
transactions during such period all determined in each case without
duplication, and all determined in accordance with GAAP.

 

“Consolidated Net Worth” means the sum of the shareholders’
equity of the Borrower and its Consolidated Subsidiaries (excluding unrealized
portfolio gains and losses), calculated in accordance with GAAP, but any
capital units that are redeemable shall not be counted toward unitholders’
equity.

 

“Consolidated Total Debt” means at any date, the aggregate
principal amount of all Debt of the Borrower and its Subsidiaries at such date,
determined in accordance with GAAP.

 

“Contingent Liability” means any agreement, undertaking or
arrangement by which any Person (outside the ordinary course of business)
guarantees, endorses, acts as surety for or otherwise becomes or is contingently
liable for (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment by, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the Debt, obligation or
other liability of any other Person (other than by endorsements of instruments
in the course of collection), or for the payment of dividends or other
distributions upon the shares of any other Person or undertakes or agrees
(contingently or otherwise) to purchase, repurchase, or otherwise acquire or
become responsible for any Debt, obligation or liability or any security
therefor, or to provide funds for the payment or discharge thereof (whether in
the form of loans, advances, unit purchases, capital contributions or otherwise),
or to maintain solvency, assets, level of income, or other financial condition
of any other Person, or to make payment or transfer property to any other
Person other than for fair value received. 
The amount of any Person’s obligation under any Contingent Liability
shall (subject to any limitation set forth therein) be deemed to be the lesser
of (i) the outstanding principal amount (or maximum permitted principal
amount, if larger) of the Debt, 

 

4

 

obligation or other liability guaranteed or supported
thereby or (ii) the maximum stated amount so guaranteed or supported.

 

“Contractual Obligation” means, relative to any Person, any
obligation, commitment or undertaking under any agreement or other instrument to
which such Person is a party or by which it or any of its property is bound or
subject.

 

“Controlled Group” means the Borrower and any corporation, trade
or business that is, along with the Borrower, a member of a controlled group of
corporations or a controlled group of trades or businesses as described in
sections 414(b) and 414(c), respectively, of the Code or in section 4001
of ERISA.

 

“Debt” means, with respect to any Person, at any date, without
duplication, (a) all obligations of such Person for borrowed money or in
respect of loans or advances; (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments; (c) all
obligations in respect of letters of credit which have been drawn but not
reimbursed by the Person for whose account such letter of credit was issued,
and bankers’ acceptances issued for the account of such Person; (d) all
obligations in respect of Capitalized Leases of such Person; (e) whether
or not so included as liabilities in accordance with GAAP, all obligations of
such Person to pay the deferred purchase price of property or services; (f) Debt
of such Person secured by a Lien on property owned or being purchased by such
Person (including Debt arising under conditional sales or other title retention
agreements) whether or not such Debt is limited in recourse (it being
understood, however, that if recourse is limited to such property, the amount
of such Debt shall be limited to the lesser of the face amount of such Debt and
the fair market value of all property of such Person securing such Debt); (g) any
Debt of another Person secured by a Lien on any assets of such first Person,
whether or not such Debt is assumed by such first Person (it being understood
that if such Person has not assumed or otherwise become personally liable for
any such Debt, the amount of the Debt of such person in connection therewith
shall be limited to the lesser of the face amount of such Debt and the fair
market value of all property of such Person securing such Debt); (h) any
Debt of a partnership in which such Person is a general partner unless such
Debt is nonrecourse to such Person; and (i) all Contingent Liabilities of
such Person; except that Debt shall not include (x) unsecured current
liabilities incurred in the ordinary course of business and paid within 90 days
after the due date (unless contested diligently in good faith by appropriate
proceedings and, if requested by the Lender, reserved against in conformity
with GAAP) other than liabilities that are for money borrowed or are evidenced
by bonds, debentures, notes or other similar instruments or (y) any
obligations of such Person under any Primary Policy.

 

“Default” means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.

 

“Effective Date” has the meaning specified in Section 3.01.

 

“ERISA” means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with the
regulations promulgated thereunder 

 

5

 

and under the Internal Revenue Code, in each case as
in effect from time to time.  References
to sections of ERISA also refer to successor sections.

 

“ERISA Event” means, with respect to the Borrower or any
Subsidiary, (a) a Reportable Event (other than a Reportable Event not
subject to the provision for 30-day notice to the PBGC under regulations issued
under section 4043 of ERISA), (b) the withdrawal of the Borrower or any
Affiliate from a Plan during a plan year in which it was a “substantial
employer” as defined in section 4001(a)(2) of ERISA if such withdrawal
would have a Material Adverse Effect on the Borrower, or on the Borrower and
its Subsidiaries taken as a whole, (c) the filing of a notice of intent to
terminate a Plan under a distress termination or the treatment of a Plan
amendment as a distress termination under section 4041(c) of ERISA, (d) the
institution of proceedings to terminate a Plan by the PBGC under section 4042
of ERISA, (e) the failure to make required contributions which would
result in the imposition of a Lien under section 412 of the Code or section 302
of ERISA, or (f) any other event or condition which might reasonably be
expected to constitute grounds under section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan.

 

“Events of Default” has the meaning specified in Section 6.01.

 

“Executive Officer” means, as to any Person, the president, the
chief financial officer, the chief executive officer, the general counsel, the
treasurer or the secretary.

 

“Existing Indebtedness” means the Debt of the Borrower or any
Subsidiary reflected on Schedule 1.1 attached hereto.

 

“Financial Statements” means the financial statements referred
to in Section 5.01(a).

 

“Fiscal Year” means any period of twelve
consecutive calendar months ending on the last day of December.

 

“Fiscal Quarter” means any quarter of a Fiscal Year.

 

“FRB” means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its principal
functions.

 

“GAAP” means generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of
the date of determination.

 

“Governmental Authority” means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

 

6

 

“Internal Revenue Code” means the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.

 

“Late Charge” has the meaning specified in Section 2.04.

 

“Law” means all ordinances, statutes, rule, regulations, orders,
injunctions, policies, writs or decrees of any Governmental Authority or
political subdivision or agency thereof or any court or similar entity or
tribunal established by any thereof.

 

“Lenders” means SNB and each Person that executes and delivers
to SNB a participation agreement acceptable to SNB and becomes a party to this
Agreement, as contemplated by the terms of Section 7.07(a).  SNB and each such other Person shall be
considered Lenders only so long as they retain interests herein.

 

“Lien” means, when used with respect to any Person, any interest
in any real or personal property, asset or other right held, owned or being
purchased or acquired by such Person for its own use, consumption or enjoyment
which secures payment or performance of any obligation and shall include any
mortgage, lien, pledge, encumbrance, charge, retained title of a conditional
vendor or lessor, or other security agreement, mortgage, deed of trust, chattel
mortgage, assignment, pledge, retention of title, financing or similar
statement or notice, or other encumbrance arising as a matter of law, judicial
process or otherwise.

 

“Loan Documents” means
this Agreement, the Note, each Notice of Borrowing, each Guaranty, the
Assignment Agreement, the Pledge Agreement, each Security Agreement, and all
other agreements, instruments, certificates, financing statements, documents,
schedules or other written indicia delivered by the Borrower or any of its
Subsidiaries or any other Person in connection with any of the foregoing.

 

“Loan” means the Term Loan.

 

“Material Adverse Effect” means, the occurrence
of an event (including any adverse determination in any litigation, arbitration,
or governmental investigation or proceeding), which has or could reasonably be
expected to have a materially adverse effect on (a) the assets, business,
financial condition or operations of the Borrower and its Subsidiaries taken as
a whole; or (b) the ability of the Borrower to perform any of its payment
or other material obligations under any of the Loan Documents; or (c) the
legality, validity, binding effect or enforceability against the Borrower or
any Subsidiary of any Loan Document that by its terms purports to bind the
Borrower or any Subsidiary.

 

“Material Subsidiary” means (a) each other Subsidiary of
the Borrower and Subsidiary of Subsidiaries of the Borrower that either (i) as
of the end of the most recently completed Fiscal Year of the Borrower for which
audited financial statements are available, has assets that exceed 10% of the
total Consolidated assets of the Borrower and all its Subsidiaries as of the
last day of such period or (ii) for the most recently completed Fiscal
Year of the Borrower for which audited 

 

7

 

financial statements are available, has revenues that
exceed 10% of the Consolidated revenue of the Borrower and all of its
Subsidiaries for such period.

 

“Multiemployer Plan” means a “multiemployer plan” as defined in
section 4001(a)(3) of ERISA, and to which the Borrower or any of the
Subsidiaries is making, or is obligated to make, contributions, or has made, or
has been obligated to make, contributions.

 

“National Prime Rate” shall mean the annual rate of
interest, from day to day, as published in the Wall Street Journal, Eastern
Edition, Money Rates section (or, if no longer available or published, a
similar publication) and designated as the Prime Rate, which is the base rate
on corporate loans at large U.S. money center commercial banks, or if two (2) such
rates are published, the higher of the two (2) rates.

 

“Net Income” means
fiscal year-to-date after-tax net income from continuing operations as
determined in accordance with GAAP.

 

“Net Worth” means the sum of the shareholders’ equity of the
Borrower and its Consolidated Subsidiaries, calculated in accordance with GAAP,
but any capital units that are redeemable shall not be counted toward
shareholders’ equity.

 

“Note” means the Term Loan Note.

 

“Notice of Borrowing” has the meaning specified in Section 2.01(c).

 

“Obligations”
means shall mean the obligations of the Borrower:

 

(a)           to
pay the principal, interest, commitment fees and any other liabilities of the
Borrower to SNB under this Agreement and the other Loan Documents in accordance
with the terms thereof;

 

(b)           to
reimburse SNB, on demand, for all of SNB’s expenses and costs, including,
without limitation, the reasonable fees and expenses of its counsel, in
connection with the negotiation, preparation, administration, amendment,
modification, or enforcement of this Agreement and the documents required
hereunder.

 

“Operating Lease” means any lease of real or personal property
to the Borrower or any Subsidiary that is not a Capitalized Lease.

 

“Organization Documents” means, for any corporation or
cooperative, the certificate or articles of incorporation, the bylaws, any
certificate of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement, and all
applicable resolutions of the board of directors (or any committee thereof) of
such corporation.

 

“PBGC” means the Pension Benefit Guaranty Corporation (or any
successor).

 

8

 

“Permitted Investment” means, at any time:

 

(a)           any
evidence of Debt issued or guaranteed by the United States Government;

 

(b)           commercial paper, maturing
not more than one year from the date of issue, which is issued by (i) a
corporation (except an Affiliate of the Borrower) rated at least A-2 by
S&P, P-2 by Moody’s or D-2 by Duff & Phelps Credit Rating Company,
or (ii) any Lender (or its holding company);

 

(c)           any certificate of deposit
or bankers’ acceptance or eurodollar time deposit, maturing not more than three
years after the date of issue, which is issued by either (i) a financial
institution which is rated at least BBB+ by S&P or Duff & Phelps
Credit Rating Company or Baa1 by Moody’s or 3 or above by the National
Association of Insurance Commissioners, or (ii) any Lender;

 

(d)           any repurchase agreement
with a term of one year or less which (i) is entered into with (A) any
Lender, or (B) any other commercial banking institution of the stature
referred to in clause (c)(i), and (ii) is secured by a fully
perfected Lien in any obligation of the type described in any of clauses (a) through
(c) that has a market value at the time such repurchase agreement
is entered into of not less than 100% of the repurchase obligation of such
Lender (or other commercial banking institution) thereunder;

 

(e)           investments in money market
funds that invest solely in Permitted Investments described in clauses (a) through
(d);

 

(f)            investments in short-term
asset management accounts offered by any Lender for the purpose of investing in
loans to any corporation (other than an Affiliate of the Borrower) organized
under the laws of any state of the United States or of the District of Columbia
and rated at least A-1 by S&P or P-1 by Moody’s;

 

(g)           investments in non-equity
securities which are rated at least BBB by S&P or Duff & Phelps
Credit Rating Company or Baa3 by Moody’s or 2 or above by the National
Association of Insurance Commissioners, provided that the value of such
investments held by the Borrower or by any Subsidiary that have any of the
lowest of such ratings does not exceed ten percent (10%) of the value of all
Permitted Investments held by such Person, determined in accordance with GAAP,
as applicable;

 

(h)           investment in equity
securities, including common and subordinated units, limited to 10% of the
consolidated assets;

 

(i)            investments in non-equity
securities which are not rated but are determined by the Borrower’s investment
managers to be of comparable quality to investments permitted under clause
(g); provided, however, that as promptly as practicable upon
receipt of a written notice from SNB stating that an investment is not
permitted under this clause (i), the Borrower shall sell such
investment; and

 

9

 

(j)            investments in the capital
units or preferred equity interests issued by a Material Subsidiary, provided
that all assets thereof are invested solely in Permitted Investments described
in clauses (a) through (i).

 

“Person” means an individual, partnership, corporation
(including a business trust), joint stock company, trust, unincorporated
association, joint venture, limited liability company or other entity, or a
government or any political subdivision or agency thereof.

 

“Plan” means any “employee pension benefit plan,” as such term
is defined in ERISA, which is subject to Title IV of ERISA (other than a
Multiemployer Plan), and as to which any entity in the Controlled Group has or
may have any liability, including any liability by reason of having been a
substantial employer within the meaning of section 4063 of ERISA for any time
within the preceding five years or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.

 

“Pledge Agreement” has the meaning specified in Section 3.01(g).

 

“Pledged Collateral
Market Value” means the cumulative value of the following in each case
owned by the Borrower and its Subsidiaries: (a) the Hiland Common Units (as
defined in Section 3.01 (g)(i) below), (b) the Hiland Subordinated Units (as
defined in Section 3.01 (g)(i) below) and (c) any assets acquired after the
Closing Date in which a security interest has been granted to Lender and
perfected, in each case, pursuant to the terms hereof. For purposes of this
definition, the value of (i) the Hiland Common Units on any date shall be the
closing price for such Hiland Common Units as reflected on the NASDAQ
securities exchange on such date, (ii) the Hiland Subordinated Units on any
date shall be deemed to equal 85% of the value of the Hiland Common Units on
such date and (iii) the assets referred to in clause (c) above shall be the
fair market value of such assets as reasonably valued by Lender and subject to
third-party verification as deemed necessary by the Administrative Agent.

 

“Quarterly Statement” means a quarterly financial statement that
otherwise meets the requirements set forth in the definition of “Annual
Statement.”

 

“Requirement of Law” for any Person means the Organization
Documents of such Person, and any law, treaty, rule, ordinance or regulation or
determination of an arbitrator or a court or other governmental authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.

 

“S&P” means Standard & Poor’s, a division of The
McGraw-Hill Companies, Inc.

 

“Security Agreement” has the meaning
specified in Section 3.01.

 

“Senior Debt” means the Obligations.

 

“Senior Debt Leverage Ratio” means the ratio of Senior Debt to
Consolidated Net Worth.

 

10

 

“Subsidiary” means a Person of which the indicated Person and/or
its other Subsidiaries, individually or in the aggregate, own, directly or
indirectly, such number of outstanding shares or other equity interests as have
at the time of any determination hereunder more than 50% of the ordinary voting
power; provided that, Hiland Partners, LP, a Delaware limited partnership and
its subsidiaries and Hiland Partners GP, LLC, a Delaware limited liability
company and its subsidiaries shall not be considered “Subsidiary” for the
purposes of this Agreement., “Subsidiary” means a direct or indirect Subsidiary
of the Borrower.

 

“Term Loan” means the Loan made to the Borrower by SNB pursuant
to Section 2.01.

 

“Term Loan Commitment” has the meaning specified in Section 2.01.

 

“Term Loan Note” has the meaning specified in Section 2.01.

 

“Termination Date” has the meaning specified in Section 2.01.

 

“Welfare Plan” means any “employee welfare benefit plan” as such
term is defined in ERISA, as to which the Borrower has any liability.

 

SECTION 1.02.  Computation of Periods.  In this Agreement in the computation of
periods from a specified date to a later specified date, the word “from” means “from
and including” and the words “to” and “until” each mean “to but excluding”.

 

SECTION 1.03.  Conventions.  Unless otherwise defined or the context
otherwise requires, all financial and accounting terms used herein or in any of
the Loan Documents or any certificate or other document made or delivered pursuant
hereto shall be defined in accordance with GAAP, as the context may
require.  When used in this Agreement,
the term “financial statements” shall include the notes and schedules thereto,
except that Borrower shall not be required to furnish notes and schedules with
any Quarterly Statement.  When used
herein, the terms “best knowledge of” or “to the best knowledge of” any Person
shall mean matters within the actual knowledge of such Person (or an Executive
Officer or general partner of such Person) or which should have been known by
such Person after reasonable inquiry. 
The definition of any agreement, instrument or document shall also
include any amendment or modification of or supplement to the same.  References to the Borrower or any Subsidiary
shall also include its permitted successors and assigns.

 

11

 

ARTICLE II

AMOUNTS AND TERMS OF THE LOANS

 

SECTION 2.01. The Term Loan Facility.  Upon the terms and conditions set forth
herein, SNB shall make available to the Borrower, commencing on the Effective
Date and until the Termination Date, Advances under the Term Loan in the
aggregate maximum principal amount not to exceed Three Million Dollars
($3,000,000) (the “Term Loan Commitment”); provided, however, there shall be no
re-advances of principal once the Term Loan has been fully advanced.

 

(a)           Generally.  On the Effective Date subject to the terms
and conditions set forth herein, SNB shall provide to the Borrower the Loan in
the form of one or more Advances under the Term Loan Facility which shall be
used by the Borrower as set forth herein and the initial Advance shall occur on
the Effective Date and shall be in the amount $2,500,000, including the
existing principal balance of $1,204,616.71. 
The Borrower shall not be permitted to reborrow any amount or any
portion of any amount repaid by the Borrower under this Term Loan.  The principal balance of the Loan shall bear
interest at the Applicable Rate, which is National Prime Rate plus one percent
(1%) but in no event shall the Applicable Rate be less than five percent
(5%).  The Applicable Rate shall be
adjusted on the same date of any change in the National Prime Rate.

 

(b)           Commitment. Subject to the terms and
conditions set forth herein, Lender agrees to make Advances on the Loan to the
Borrower from time to time in an aggregate principal amount that will not
result in (i) the principal balance due under the Loan exceeding fifty
percent (50%) of the Pledged Collateral Market Value.

 

(c)           Principal And Interest
Payments.  Commencing
with the first day of September, 2009, and on the first day of each month
thereafter until the Maturity Date, the Borrower shall pay all accrued interest
on the Term Loan due as of the date of payment. All principal and unpaid interest
shall become fully due and payable on December 31, 2009.

 

(d)           Default Interest.  Upon the occurrence and during the
continuance of an Event of Default, the Borrower shall pay interest, on the
unpaid principal balance under the Note at a rate equal to the National Prime
Rate plus seven percent (7%).

 

(e)           Term Note.  The obligations of the Borrower to repay the
aggregate outstanding principal under the Term Loan and to pay accrued
interest, fees and expenses thereon shall be evidenced by a promissory note, in
a principal amount equal to the Term Loan Commitment, in form and substance
satisfactory to SNB, to be executed and delivered to SNB concurrently with the
execution and delivery of this Agreement (as amended, the “Term Note”). SNB is
hereby authorized to record the date, type, and amount of each Advance, the
date and amount of each payment or prepayment of principal thereof, on the
schedule annexed to and constituting a part of the Term Note, and any such
recordation shall constitute prima facie
evidence of the accuracy of the information so recorded absent manifest error,
provided that neither the failure to record nor any error in such recordation
shall affect the Borrower’s obligations under the Term Note.

 

12

 

SECTION 2.02.  NOT USED

 

SECTION 2.03.  Prepayments.
(a) The  Borrower shall have the
right to prepay an Advance, in whole or in part, without penalty or premium, at
any time.

 

(b)           All prepayments under this Section 2.03
shall be made without set-off, deduction or counterclaim, shall include payment
of any accrued and unpaid interest and fees in respect of the Loan and (if
applicable), and applications of prepayments to principal shall first be
applied to any installment of principal then due, and then be applied to the
principal due in the reverse order of maturity, and no partial prepayment shall
relieve the Borrower of the obligation to pay each subsequent installment of
principal when due.

 

SECTION 2.04.  Late Charges.  Any payment owed by the Borrower under any
Loan Document not made by the Borrower within 10 days of the date when due
shall, at the option of SNB, bear late charges thereon calculated at a rate
equal to five percent (5%) of each deliquent payment ( “Late Charge”).

 

SECTION 2.05.  Payments and Computations. (a) The
Borrower shall make each payment hereunder, irrespective of any right of
counterclaim or set-off, not later than 1:00 P.M. (Oklahoma time) on the
day when due  to SNB.

 

(b)           Whenever any
payment due hereunder or under any other Loan Document shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fee, as the case may be; provided,
however, that such extension of time shall not be applicable for
purposes of calculating or complying with any of the covenants contained
herein.

 

(c)           All computations by SNB
shall be conclusive and binding for all purposes absent manifest error. Both
principal and interest are payable in lawful money of the United States of
America and in immediately available funds.

 

SECTION 2.06.  Taxes. (a) Any and all payments
by the Borrower under any Loan Document to or for the account of SNB shall be
made, in accordance with Section 2.05 or the applicable provisions of such
other documents, free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, taxes imposed on
SNB’s overall net income, and taxes imposed on SNB in lieu of net income taxes,
by the jurisdiction under the laws of which SNB is organized or doing business
(other than as a result of the making of the Advances) or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities in respect of payments under any Loan
Document being hereinafter referred to as “Taxes”).  If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable under any Loan Document
to SNB, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to additional
sums payable under this Section 2.06) SNB receives an amount equal to 

 

13

 

the sum it would have
received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.

 

(b)           In addition,
the Borrower shall pay any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies that arise from any
payment made under any Loan Document or from the execution, delivery or
registration of, performing under, or otherwise with respect to, this Agreement
or the Note(s) or any other documents to be delivered hereunder
(hereinafter referred to as “Other Taxes”).

 

(c)           The Borrower
shall indemnify SNB for and hold it harmless against the full amount of Taxes
or Other Taxes (including, without limitation, taxes of any kind imposed or
asserted by any jurisdiction on amounts payable under this Section 2.06)
imposed on or paid by SNB (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto.  This indemnification shall be
made within 30 days from the date SNB makes written demand therefore.

 

(d)           Within 30 days
after the date of any payment of Taxes, the Borrower shall furnish to SNB, at
its address referred to in Section 7.02, the original or a certified copy
of a receipt evidencing such payment to the extent such a receipt is issued
therefor, or other written proof of payment thereof that is reasonably
satisfactory to SNB.

 

SECTION 2.07.  Use of Proceeds.  The proceeds of the Loans shall be available
and the Borrower agrees that it shall use the Loan proceeds for general
corporate purposes consistent with this Agreement.

 

ARTICLE III

CONDITIONS TO EFFECTIVENESS AND LENDING

 

SECTION 3.01.  Conditions Precedent to Effectiveness of
this Agreement.  This Agreement shall
become effective on the date (the “Effective Date”) SNB determines the
following conditions precedent have been satisfied:

 

(a)           Since December 31, 2008
there shall have occurred no event or circumstance that individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.

 

(b)           There shall exist no action,
suit, investigation, litigation or proceeding affecting the Borrower or any of
its Subsidiaries pending or threatened in writing before any court,
governmental agency or arbitrator that (i) could be reasonably likely to
have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of any Loan Document or the consummation of the
transactions contemplated hereby.

 

(c)           All governmental and third
party consents and approvals necessary in connection with the transactions
contemplated hereby shall have been obtained (without the

 

14

 

imposition of any conditions
that are not acceptable to SNB) and shall remain in effect, and no law or
regulation shall be applicable in the reasonable judgment of SNB that
restrains, prevents or imposes materially adverse conditions upon the
transactions contemplated hereby.

 

(d)           The Borrower shall have
notified SNB in writing as to its proposed Effective Date.

 

(e)           The Borrower shall have paid
all accrued fees and expenses of SNB (including the accrued fees and expenses
of counsel to SNB).

 

(f)            On the Effective Date, the
following statements shall be true and correct in all material respects and SNB
shall have received a certificate signed by a duly authorized officer of the
Borrower, dated the Effective Date, stating that:

 

(i)            The representations and
warranties contained in each Loan Document are correct on and as of the
Effective Date (except any representation that speaks as of a specified prior
date), and

 

(ii)           No event has occurred and is
continuing that constitutes a Default or Event of Default.

 

(g)           SNB shall have received on
or before the Effective Date the following, each dated such day, in form and
substance satisfactory to SNB and in sufficient copies:

 

(i)            A pledge agreement, pledging
2,321,471 common units of Hiland Partners, LP, a Delaware limited partnership
(the ‘Hiland Common Units”) and 3,020,000 subordinated units of Hiland
Partners, LP, a Delaware limited partnership (the “Hiland Subordinated Units”),
all owned by the Borrower, in form and substance acceptable to SNB (as amended,
the “Pledge Agreement”), duly executed by the Borrower.

 

(ii)           If required by SNB, a
security agreement, granting SNB a first-priority security interest in the
collateral described therein, in form and substance acceptable to SNB (as
amended, the “Security Agreement”), duly executed by the Borrower.

 

(iii)          Evidence that all other
action that SNB may deem necessary or desirable in order to perfect and protect
the first priority liens and security interests created under the Security
Agreement, including, without limitation, the filing of Uniform Commercial Code
financing statements and the delivery to SNB of certificates covering the
common units and subordinated units intended to be subject to a first-priority
pledge under the terms of the Pledge Agreement together with executed stock
powers.

 

(v)           Certified copies of the
resolutions of the Board of Directors of the Borrower approving the Loan
Documents, and of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to the Loan Documents.

 

15

 

(vii)         A certificate of the Secretary
or an Assistant Secretary of the Borrower certifying the names and true
signatures of the officers of such party authorized to sign the Loan Documents
and the other documents to be delivered hereunder, together with Organization
Documents and Certificates of Good Standing.

 

(viii)        NOT USED.

 

(ix)           NOT USED.

 

(x)            A copy of the draft audited
Consolidated balance sheets of the Borrower and its Subsidiaries as of Fiscal
Year ending December 31, 2008, and the related Consolidated statements of
income and cash flows for such Fiscal Year all prepared in accordance with GAAP
(subject to normal year-end adjustments and except that footnote and schedule
disclosure may be abbreviated), accompanied by the certification of the chief
executive officer, chief financial officer or treasurer of the Borrower that to
the best knowledge and belief of the Borrower all such financial statements are
complete and correct and present fairly in accordance with GAAP (subject to
normal year-end adjustments) the Consolidated results of operations and cash
flows of the Borrower as at the end of such Fiscal Year and that the audited
version of such financial statements will not be materially different.

 

(xi)           A duly executed original of
each other Loan Document.

 

(xii)          A copy (certified by the
Borrower as true and complete) of the existing documents evidencing the
Existing Indebtedness.

 

(h)           SNB shall have received any
schedules (satisfactory to SNB) to this Agreement, in form and substance
satisfactory to SNB.

 

(i)            SNB shall have received such
other documents, or such other action shall have been taken, in connection with
the foregoing, as SNB may reasonablyrequest.

 

SECTION 3.02.  Conditions
Precedent to the Making of the Advance. 
The obligation of SNB to make the Advance on the occasion of each
Borrowing shall be subject to the conditions precedent that the Effective Date
shall have occurred and on the date of such Borrowing, the following statements
shall be true:

 

(i)            the representations and
warranties contained in each Loan Document are correct on and as of such date,
and

 

(ii)           no event has occurred and is
continuing, or would result from such Borrowing or from the application of the
proceeds therefrom, that constitutes a Default or Event of Default;

 

(b)           The Borrower shall have paid
all accrued fees and expenses of SNB (including the accrued fees and expenses
of counsel to SNB);

 

16

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

SECTION 4.01.  Representations
and Warranties of the Borrower.  The
Borrower represents and warrants as follows:

 

a)             Due Organization,
Authorization, etc.  The
Borrower and each Subsidiary (i) is a corporation, limited liability
company or partnership duly organized, validly existing and (to the extent
applicable) in good standing under the laws of its jurisdiction of formation, (ii) is
duly qualified to do business and (to the extent applicable) in good standing in
each jurisdiction where, because of the nature of its activities or properties,
such qualification is required except where the failure to qualify would not
have a Material Adverse Effect, which jurisdictions are set forth with respect
to the Borrower and each Subsidiary on Schedule 4.01(a),  (iii) has the requisite corporate power
and authority and the right to own and operate its properties, to lease the
property it operates under lease, and to conduct its business as now and
proposed to be conducted, and (iv) has obtained all material licenses,
permits, consents or approvals from or by, and has made all filings with, and
given all notices to, all Governmental Authorities having jurisdiction, to the
extent required for such ownership, operation and conduct (including, without
limitation, the consummation of the transactions contemplated by this
Agreement) as to each of the foregoing, except where the failure to do so would
not have a Material Adverse Effect.  The
execution, delivery and performance by the Borrower and its Subsidiaries of the
Loan Documents to which they are parties respectively, and the consummation of
the transactions contemplated thereby are within their respective corporate
powers and have been duly authorized by all necessary corporate action
(including, without limitation, shareholder approval, if required).  Each of the Borrower and its Subsidiaries has
received all other material consents and approvals (if any shall be required)
necessary for such execution, delivery and performance, and such execution,
delivery and performance do not and will not contravene or conflict with, or
create a Lien or right of termination or acceleration under, any Requirement of
Law or Contractual Obligation binding upon the Borrower or such Material Subsidiaries.  Each of this Agreement and each other Loan
Document is (or when executed and delivered will be) the legal, valid, and
binding obligation of such of the Borrower and its Subsidiaries as are parties
to such agreements respectively, enforceable against such parties in accordance
with such agreements’ respective term, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting creditors’ rights generally and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or
other equitable remedies; provided that the Borrower assumes for
purposes of this Section 4.01(a) that this Agreement and the other
Loan Documents have been validly executed and delivered by each of the parties
thereto other than the Borrower and its Subsidiaries.

 

(b)           Books of Account.  All books of account of the Borrower and each
Subsidiary fully and fairly disclose all of the transactions, properties,
assets, investments,

 

17

 

liabilities
and obligations of the Borrower and each such Subsidiary in all material
respects and all of such books of account are in the possession of the Borrower
and each such Subsidiary and are true, correct and complete in all material
respects.

 

(c)           Financial Statements.  (i)  With respect to any representation
and warranty which is deemed to be made after the date hereof by the Borrower,
the balance sheet and statements of operations, of shareholders’ equity and of
cash flow, which as of such date shall most recently have been furnished by or
on behalf of the Borrower to SNB for the purposes of or in connection with this
Agreement or any transaction contemplated hereby, shall have been prepared in
accordance with GAAP consistently applied (except as disclosed therein and, in
the case of interim financial statements, for the absence of footnote
disclosures), and shall present fairly the Consolidated financial condition of
the corporations covered thereby as at the dates thereof for the periods then
ended, subject, in the case of quarterly financial statements, to normal
year-end audit adjustments.  (ii) Except
as set forth on Schedule 4.01(c), there has been no change in the business,
assets, operations or financial condition of the Borrower or any Subsidiary
which has had or could reasonably be expected to have a Material Adverse Effect
from that shown on the Borrower’s audited consolidated financial statements
dated December 31, 2008, the Subsidiaries’ Annual Statements dated December 31,
2008, all of which statements have been furnished to SNB.

 

(d)           Litigation and Contingent
Liabilities.  Except as
set forth (including estimates of the dollar amounts involved) in Schedule
4.01(d), no claim, litigation (including, without limitation, derivative
actions), arbitration, governmental investigation or proceeding or inquiry is
pending or threatened against the Borrower or any of its Subsidiaries (i) which
would, if adversely determined, have a Material Adverse Effect or (ii) which
relates to any of the transactions contemplated hereby.  Other than any liability incident to such
claims, litigation or proceedings, the Borrower has no material Contingent
Liabilities not provided for or referred to in the financial statements
delivered pursuant to Section 3.01(g)(x).

 

(e)           Employee Benefit Plans.  Set forth on Schedule 4.01(e) is a list
of all welfare plans and all pension plans, within the meaning of sections 3(1) and
(2) of ERISA, respectively, which, to the knowledge of the Borrower, are
maintained with respect to employees of the Borrower or its Subsidiaries.  Also set forth in Schedule 4.01(e) is a
list of all Multiemployer Plans, all Welfare Plans and all Plans which the
Borrower has adopted or expects to adopt.

 

(f)            Investment Company Act.  Neither the Borrower nor any of its
Subsidiaries is an “investment company” or a company “controlled by an
investment company,” within the meaning of the Investment Company Act of 1940,
as amended.

 

(g)           Regulations U and X.  Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock.  None of the Borrower, any
of its Subsidiaries, any Affiliate of any of them or any Person acting on their
behalf has taken or will take action to cause the execution, delivery or
performance of this Agreement, the making or

 

18

 

existence
of the Advances or the use of proceeds of Advances to violate Regulations U or
X of the FRB.

 

(h)           Proceeds.  The proceeds of the Advances will be used as
provided in Section 2.07.  None of
such proceeds will be used in violation of applicable law, and none of such
proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any margin stock as
defined in Regulation U or X of the FRB.

 

(i)            Ownership of Properties.  On the date of any Loan or Advance, the Borrower
and its Subsidiaries will have good title to all of their respective material
properties and assets, real and personal, of any nature whatsoever and, except
as set forth on Schedule 4.01(i) and except for Liens permitted under Section 5.02(l),
all such assets are free and clear of all Liens.

 

(j)            Accuracy of Information.  All factual written information furnished
heretofore or contemporaneously herewith by or on behalf of the Borrower or any
of its Subsidiaries to SNB for purposes of or in connection with this Agreement
or any of the transactions contemplated hereby, as supplemented to the date
hereof, is and all other such factual written information hereafter furnished
by or on behalf of the Borrower or any of its Subsidiaries (including, without
limitation, information such as notice of judgments involving the officers and
directors of the Borrower and its Subsidiaries) to SNB will be true and
accurate in every material respect on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading.

 

(k)           Subsidiaries.  Schedule 4.01(k) contains a complete
list of the Borrower’s Subsidiaries indicating which Subsidiaries are Material
Subsidiaries and/or Insurance Subsidiaries. 
Except as indicated on Schedule 4.01(k), each Subsidiary is a
wholly-owned Subsidiary of the Borrower.

 

(l)            Taxes.  Each of the Borrower and each of its
Subsidiaries has filed all tax returns that are required to be filed by it, and
has paid or provided adequate reserves for the payment of all material taxes,
including, without limitation, all payroll taxes and federal and state
withholding taxes, and all assessments payable by it that have become due,
other than (a) those that are not yet delinquent or that are disclosed on
Schedule 4.01(l) and are being contested in good faith by appropriate
proceedings and with respect to which reserves have been established, except as
set forth on Schedule 4.01(l), and are being maintained, in accordance with
GAAP or (b) those which the failure to file or pay would not have a
Material Adverse Effect.  Except as set
forth in Schedule 4.01(l), there is no ongoing audit or, to the Borrower’s
knowledge, other governmental investigation of the tax liability of the
Borrower or any of its Subsidiaries and there is no unresolved claim by a
taxing authority concerning the Borrower’s or any such Subsidiary’s tax
liability, for any period for which returns have been filed or were due.  As used in this Section 4.01(l), the
term “taxes” includes all taxes of any nature whatsoever and however
denominated, including, without limitation, excise, import, governmental fees,
duties and all other charges, as well as additions to tax, penalties and
interest thereon, imposed by any government or instrumentality, whether
federal, state, local, foreign or other.

 

19

 

(m)          Securities Laws.  Neither the Borrower nor any Affiliate of the
Borrower, nor anyone acting on behalf of any such Person, has directly or
indirectly offered any interest in the Loans for sale to, or solicited any
offer to acquire any such interest from, or has sold any such interest to any
Person that would subject the issuance or sale of the Loans or any other
liability to registration under the Securities Act of 1933, as amended.

 

(n)           Compliance with Laws.  Neither the Borrower nor any of its
Subsidiaries, by virtue of consummating the transactions evidenced by the Loan
Documents or otherwise, is in violation of any law, ordinance, rule,
regulation, order, policy, guideline or other requirement of any Governmental
Authority, if the effect of such violation could reasonably be expected to have
a Material Adverse Effect and, to the best of the Borrower’s knowledge, no such
violation has been alleged and each of the Borrower and its Subsidiaries (i) has
filed in a timely manner all reports, documents and other materials required to
be filed by it with any Governmental Authority, and the information contained
in each of such filings is true, correct and complete in all material respects
and (ii) has retained all records and documents required to be retained by
it pursuant to any law, ordinance, rule, regulation, order, policy, guideline
or other requirement of any Governmental Authority, if the failure to so retain
such records and documents could reasonably be expected to have a Material
Adverse Effect.

 

(o)           No Defaults.  No event of default (or other event
authorizing the creditor to accelerate indebtedness) has occurred under any
credit agreement or other agreement containing an obligation for the Borrower
or any Subsidiary to make payments in excess of $150,000.

 

ARTICLE V

COVENANTS OF THE BORROWER

 

SECTION 5.01.  Affirmative
Covenants.  So long as any portion of
any Loan or Advance shall remain unpaid or SNB shall have any commitment to
make an Advance hereunder, the Borrower will and will cause each of its
Subsidiaries, as applicable, to:

 

(a)           Reports,
Certificates, Financial Ratio and Other Information.  Furnish or cause to be furnished to SNB:

 

(i)            GAAP Financial
Statements:

 

(A)          Within 45 days after the
close of each of the first three Fiscal Quarters of each Fiscal Year of the
Borrower, a copy of the unaudited Consolidated balance sheets of the Borrower
and its Subsidiaries, as of the close of such quarter and the related
Consolidated statements of income for that portion of the Fiscal Year ending as
of the close of such Fiscal Quarter, all prepared in accordance with GAAP
(subject to normal year-end

 

20

 

adjustments).  Such financial statements shall be complete
and correct in accordance with GAAP (subject to normal year end adjustments).

 

(ii)           Debt to Worth
Ratio.  As of June 30, 2009, and
until the Loan is paid in full, the Borrower shall maintain a ratio between (a) the
Borrower’s total debt and (b) the Borrower’s total net worth (as
determined by GAAP) of not greater than 1.25:1.

 

(iii)          Notice of Default, Etc.  Immediately after an Executive Officer of the
Borrower knows or has reason to know of the existence of any Default or Event
of Default, or any development or other information which would have a Material
Adverse Effect, telephonic or e-mail notice specifying the nature of such
Default or Event of Default or development or information, including the
anticipated effect thereof, which notice shall be promptly confirmed in writing
by the Borrower by certified or registered mail, recognized courier, hand
delivery or telecopier within two (2) Business Days.

 

(iv)          Notice of Litigation and
ERISA.  Promptly upon learning of the
occurrence of any of the following, written notice thereof, describing the same
and the steps being taken by the Borrower with respect thereto:  (A) the institution of, or any adverse
determination in, any litigation, arbitration proceeding or governmental
proceeding (including any Internal Revenue Service or Department of Labor
proceeding with respect to any Plan or Welfare Plan) which could, if adversely
determined, be reasonably expected to have a Material Adverse Effect and which
is not Ordinary Course Litigation, (B) an ERISA Event, and an event with
respect to any Plan which could result in the incurrence by the Borrower or any
of its Subsidiaries of any material liability (other than a liability for
contributions or premiums), fine or penalty, (C) the commencement of any
dispute which might lead to the modification, transfer, revocation, suspension
or termination of this Agreement or any Loan Document or (D) any other
event which could be reasonably expected to have a Material Adverse Effect.

 

(v)           New Subsidiaries.  Promptly upon formation or acquisition of any
Subsidiary, written notice of the name, purpose and capitalization of such
Subsidiary and whether such Subsidiary is a Material Subsidiary; and cause such
Subsidiary, to become a party to the Guaranty, pledge the shares of such
Subsidiary pursuant to the terms of the Pledge Agreement, and take such other
actions in connection therewith, as may be requested by SNB.

 

(vi)          Other Information.  From time to time such other information
concerning the Borrower or any Subsidiary as SNB may reasonably request.

 

(b)           Corporate Existence; Foreign
Qualification.  Do and
cause to be done at all times all things necessary to (i) maintain and
preserve (in the existing jurisdiction of incorporation) the corporate
existence of the Borrower and each Material Subsidiary of the Borrower, and (ii) be,
and ensure that each Material Subsidiary of the Borrower is, duly qualified to
do business and (to the extent applicable) be in good standing as a foreign
corporation in each jurisdiction where the nature of its business makes such
qualification necessary unless the failure to be so qualified would not have a
Material Adverse Effect.

 

21

 

(c)           Books, Records, Inspections
and Collateral.  (i) Maintain,
and cause each of its Subsidiaries to maintain, materially complete and
accurate books and records in accordance with GAAP and in addition, with
respect to each Subsidiary, (ii) permit, and cause each of its
Subsidiaries to permit, access at reasonable times by SNB to its books and
records, (iii) permit, and cause each of its Subsidiaries to permit, SNB
or its designated representative to inspect during normal business hours its
properties and operations, (iv) permit, and cause each of its Subsidiaries
to permit, SNB to discuss its business, operations and financial condition with
its officers and its independent accountants, and (v) maintain, and cause
each of its Subsidiaries to maintain all material books and records and all
collateral described in the Security Agreements only at the headquarters office
of the Borrower.

 

(d)           Insurance.  Maintain, and cause each of its Material
Subsidiaries to maintain, insurance policies to such extent and against such
hazards and liabilities  as are shown in
Schedule 4.01(t) as in effect on the date hereof and as otherwise may be
required by SNB or by law or as may be customarily maintained by prudent
companies similarly situated.

 

(e)           Taxes and Liabilities.  Pay, and cause each of its Subsidiaries to
pay, when due all material taxes, assessments and other material liabilities
except as contested in good faith and by appropriate proceedings with respect
to which reserves have been established, and are being maintained, in
accordance with GAAP except where failure to pay would not have a Material
Adverse Effect.

 

(f)            Employee Benefit Plans.  Maintain, and cause each of its Subsidiaries
to maintain, each Plan and Welfare Plan in compliance in all material respects
with all applicable Requirements of Law except where failure to so comply would
not have a Material Adverse Effect.

 

(g)           Compliance with Laws.  Comply, and cause each of its Subsidiaries to
comply, (i) with all federal and local laws, rules and regulations
related to its businesses, and (ii) with all Contractual Obligations
binding upon such entity, except in each case where failure to so comply would
not in the aggregate have a Material Adverse Effect.

 

(h)           Conduct of Business.  Engage, and cause each Material Subsidiary to
engage, in insurance business and related activities in all material respects
(including without limitation lines of insurance underwritten) the same as
presently engaged in.

 

SECTION 5.02.  Negative
Covenants.  So long as any Advance
shall remain unpaid or the commitment to make any Advance remains in effect,
the Borrower will and will cause each of its Subsidiaries, as applicable, to:

 

(a)           Mergers, Consolidations and
Sales.  Without SNB’s written consent,
Borrower shall not, and not permit any of its Subsidiaries to, (i) merge
or consolidate, or purchase or otherwise acquire all or substantially all of
the assets or stock of any class of, or any partnership or joint venture
interest in, any other Person (other than a newly formed Subsidiary or the
acquisition of a Subsidiary which complies with clause (B) of this Section 5.02(a) or
the

 

22

 

acquisition
of shares of a Subsidiary held by minority shareholders), or (ii) in the
case of any Subsidiary, issue capital stock to any person other than the
Borrower, or (iii) sell, transfer, pledge, convey, repurchase, retire
(except as required by applicable law) or otherwise grant an interest in any
capital stock, or (iv) sell, transfer, pledge, convey, lease or otherwise
convey an interest in all or any substantial part of its assets (including
without limitation the capital stock of Subsidiaries) other than any sale,
transfer, conveyance or lease in the ordinary course of business or any sale or
assignment of receivables; except for (A) any such merger or consolidation
of any direct wholly owned Subsidiary of the Borrower into, with or to Borrower
or any other direct wholly owned Subsidiary, (B) purchases or acquisitions
which otherwise comply with the terms hereof provided (x) no Default or
Event of Default has occurred and is continuing or would result therefrom and (y) the
purchase price for any single purchase or acquisition does not exceed 10% of
Net Worth minus all amounts which in accordance with GAAP would be
characterized as intangible assets (including goodwill) as of the date of such
purchase or acquisition (calculated on a pro forma basis giving effect to such
acquisition or purchase) and (z) the aggregate purchase price of all
purchases and acquisitions after the Effective Date does not exceed 20% of Net
Worth minus all amounts which in accordance with GAAP would be characterized as
intangible assets (including goodwill) and (C) sales of assets and capital
stock of Subsidiaries that are not Material Subsidiaries, provided that
as to (A), (B) and (C) above, no Default or Event of Default has
occurred and is continuing.

 

(b)           Regulations U and X.  Not, and not permit any of its Subsidiaries
to, hold margin stock (as such term is defined in Regulation U of the FRB)
having a value in excess of 20% of the value of the assets of the Borrower and
its Subsidiaries taken as a whole after taking into account the application of
the proceeds of the Advances.

 

(c)           Other Agreements.  Not, and not permit any of its Subsidiaries
to, enter into any agreement containing any provision which would be materially
violated or materially breached by the performance of obligations hereunder or
under any instrument or document delivered or to be delivered by it hereunder
or in connection herewith.

 

(d)           Transactions with Affiliates. Not, and not
permit any Subsidiary to, enter into, or cause, suffer or permit to exist,
directly or indirectly, any arrangement, transaction or contract with any of
its Affiliates unless such arrangement, transaction or contract is on an arm’s
length basis; provided that (i) transactions between the Borrower and any
wholly-owned Subsidiary of the Borrower, or between any wholly-owned
Subsidiaries of the Borrower, and (ii) investments described in clause (i) of
the definition of “Permitted Investments” shall be excluded from the
restrictions set forth in this Section 5.02(d).

 

(e)           Liens.  Not create or permit to exist any Lien on any
assets of the Borrower (including, without limitation, the capital stock of the
Subsidiaries) or any of the Borrower’s Subsidiaries, now or hereafter existing
or acquired, or on the capital stock of any of the Borrower’s Subsidiaries,
except the following:  (A) Liens for
current taxes not delinquent or for taxes being contested in good faith and by
appropriate proceedings and with respect to which adequate reserves have been
established, and are being maintained, in accordance with GAAP, (B) easements,
party wall agreements, rights of way, restrictions, minor defects or
irregularities in title and other similar Liens not interfering in any material
respect with the ordinary course of

 

23

 

the
business of the Borrower and its Subsidiaries taken as a whole; (C) Liens
in connection with the acquisition of fixed assets after the date hereof and
attaching only to the property being acquired, (D) Liens incurred in the
ordinary course of business in connection with workers’ compensation,
unemployment insurance or other forms of governmental insurance or benefits and
Liens pursuant to letters of credit or other security arrangements in
connection with such insurance or benefits, (E) mechanics’, workers’,
materialmen’s, landlord liens and other like Liens for amounts payable by the
Borrower or its Subsidiaries, arising in the ordinary course of business in
respect of obligations which are not delinquent or which are being contested in
good faith and by appropriate proceedings and with respect to which adequate reserves
have been established, and are being maintained, in accordance with GAAP, (F) Liens
listed on Schedule 5.02(e) in effect on the date hereof; (G) attachments,
judgments and other similar Liens for sums payable by the Borrower or its
Subsidiaries not exceeding $50,000 in the aggregate at any one time; (H) attachments,
judgments and other similar Liens for sums exceeding the $50,000 limit
described in clause (G), the execution or other enforcement of such Liens is
effectively stayed and claims secured thereby are being actively contested in
good faith and by appropriate proceedings and have been bonded off; and (I) Liens
pursuant to the Loan Documents.

 

(f)            Restrictions on Negative
Pledge Agreements.  Not, and
not permit any of its Subsidiaries to, enter into or assume any agreement,
other than any Loan Document, that places any restrictions upon the right of
the Borrower or any of its Subsidiaries to sell, pledge or otherwise dispose of
any material portion of its properties now owned or hereafter acquired.

 

(g)           No Amendment of Certain
Documents.  Not enter
into or permit any amendment, modification or waiver of or supplement to the
Organization Documents that would (i) create or amend redemption
provisions applicable to the Borrower’s capital units to provide for mandatory
redemption or redemption at the option of the holder prior to the repayment of
the Loans, or (ii) in any other manner be materially adverse to the
interests of SNB.

 

(h)           Subsidiaries.  Not permit any Subsidiaries to (i) expend
cash other than in the ordinary course of operations (including payment of
claims) and loans to the Borrower during any Fiscal Year of the Borrower in
excess of $150,000; or (ii) enter into, or cause, suffer or permit to
exist, directly or indirectly, any arrangement, transaction (other than loans
to Borrower permitted under (i)) or contract unless such arrangement,
transaction or contract (A) is on an arm’s length basis, and (B) shall
not be in connection with the making of any loans or advances or the issuance of
any guarantees to or for the benefit of any Affiliate or otherwise; provided,
however, this Section 5.02(h) shall not affect any Subsidiaries’
ability to declare and pay dividends to the Borrower.

 

24

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.01.  Events of
Default.  If any of the following
events (“Events of Default”) shall occur and be continuing:

 

(a)           Non-Payment of Principal and
Interest on Loan or Reduction in Pledged Collateral Market Value.  Default in the payment when due of any
principal of or interest on any Loan; or the principal balance due under the
Loan exceeds fifty percent (50%) of the Pledged Collateral Market Value; or

 

(b)           Non-Payment of Fees, Etc.  Default and continuation thereof for five
days in the payment when due of fees or of any other amount (except as set
forth in Section 6.01(a)) payable hereunder or under the other Loan
Documents; or

 

(c)           Non-Payment of Other Debt.  (i) Default in the payment when due and
continuance of such default after any applicable grace period (whether or not
such Debt is accelerated) of any amount payable under any Debt (other than
Advances) of, or guaranteed by, the Borrower or any of its Subsidiaries if the
aggregate amount of such other Debt of the Borrower and/or any of its
Subsidiaries which is due and payable or which is or maybe accelerated, by
reason of such default or defaults is $150,000 or more, or (ii) default in
the performance or observance of any other obligation or condition and
continuance of such default after any applicable grace period with respect to
any Debt (other than Advances) of, or guaranteed by, the Borrower and/or any of
its Subsidiaries if (in the case of clause (B)) the effect of such default
or defaults is to accelerate or permit the acceleration of the maturity of any
such Debt of $150,000 or more in the aggregate prior to its expressed maturity;
or

 

(d)           Other Material Obligations.  Except for obligations covered under other
provisions of this Article VI, default in the payment when due, or in the
performance or observance of, any material obligation of, or material condition
agreed to by, the Borrower or any of its Subsidiaries with respect to any
material purchase or lease obligation of $150,000 or more (unless the existence
of any such default is being contested by the Borrower in good faith and by
appropriate proceedings and the Borrower has established, and is maintaining,
adequate reserves therefor in accordance with GAAP) which default continues for
a period of 30 days; or

 

(e)           Bankruptcy, Insolvency, Etc.  (i) The Borrower or any Subsidiary
becomes insolvent or generally fails to pay, or admits in writing its inability
to pay, debts as they become due; (ii) there shall be commenced by or
against any such Person any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, supervision, conservatorship, liquidation,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, rehabilitation, conservation,
supervision, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, obligations or
liabilities, or (B) seeking appointment of a receiver, trustee, custodian,
rehabilitator, conservator, supervisor, liquidator or other similar official
for it or for all or any substantial part of its assets, in each case which (1) results
in the entry of an order for relief or any such adjudication or appointment or (2) if
filed against such Person, remains undismissed, undischarged or unstayed for a
period of 60 days;  (iii) there
shall

 

25

 

be
commenced against any such Person any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distrait or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof;  (iv) any of such Persons shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (ii) or (iii) above;
or (v) any Governmental Authority shall issue any order of conservation,
supervision or any other order of like effect relating to any of such Persons;
or

 

(f)            Non-compliance with
Covenants.  Failure by
the Borrower or any Subsidiary to comply with any of its covenants set forth in
Section 5.02, or any other failure of any of the requirements of Section 5.02
to be satisfied at any time; or

 

(g)           Non-compliance with Other
Provisions.  Failure by
the Borrower or any Subsidiary to comply with or to perform any provision of
this Agreement or the other Loan Documents (and not constituting an Event of
Default under any of the other provisions of this Article VI and such
failure shall continue unremedied for a period of 30 days;  or

 

(h)           Warranties and
Representations.  Any
warranty or representation made by or on behalf of the Borrower or any
Subsidiary herein or in any other Loan Document is inaccurate or incorrect or
is breached or false or misleading in any material respect as of the date such
warranty or representation is made; or any schedule, certificate, financial
statement, report, notice, or other instrument furnished by or on behalf of
Borrower or any Subsidiary to SNB is false, misleading, or incomplete in any
material respect on the date as of which the facts therein set forth are stated
or certified; or

 

(i)            Employee Benefit Plans.  A contribution failure occurs with respect to
any Plan sufficient to give rise to a Lien against the Borrower or any of its
Subsidiaries under section 302(f)(1) of ERISA (as in effect on the
Effective Date) or withdrawal by one or more companies in the Controlled Group
from one or more Multiemployer Plans to which it or they have an obligation to
contribute and the withdrawal liability (without unaccrued interest) to
Multiemployer Plans as a result of such withdrawal or withdrawals (including
any outstanding withdrawal liability that the Controlled Group has incurred on
the date of such withdrawal) is $100,000 or more, or any other event described
in Section 5.01(a)(x) has occurred and is continuing; or

 

(j)            Loan Documents.  Any action shall be taken by or on behalf of
the Borrower or any Affiliate thereof to discontinue any of the Loan Documents
or to contest the validity, binding nature or enforceability of any thereof, or
any Lien created or intended to be created by any Loan Document shall cease to
be a duly perfected first-priority Lien (other than as may be permitted by the
terms of such Loan Document), or applicable Laws shall have changed since the
Effective Date to adversely affect the rights of SNB or any other Lender under
the Loan Documents; or

 

(k)           Change in Control Or Cessation
of Pubic Trading of the Hiland Common Units. 
A Change in Control occurs or the Hiland Common Units cease to be
publicly traded; or

 

26

 

(l)            Judgments.  A final judgment or judgments that exceed an
aggregate of $250,000 at any one time shall be rendered against the Borrower or
any Subsidiary and shall not have been discharged or vacated or had execution
thereof stayed pending appeal within 60 days after entry or filing of such
judgment(s); or

 

(m)          Change in Law Affecting
Dividends.  Any change
is made in applicable Law that restricts the authority of any Subsidiary to
issue dividends which restriction is reasonably likely to have a Material
Adverse Effect on the ability of the Borrower to perform its obligations
hereunder; or

 

(o)           Cross-Default.  A default or event of default shall have
occurred and be continuing in any other agreement between the Borrower or any
Affiliate of Borrower as obligor and SNB as obligee; or then, and in any such
event, SNB (i) by notice to the Borrower, may declare the obligation to
make Advances and/or Loans to be terminated, whereupon the same shall forthwith
terminate, and (ii) by notice to the Borrower, may declare the Loans, all
interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Loans, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Borrower; provided, however, that in the
event of an actual or deemed entry of an order for relief with respect to the
Borrower under the United States Bankruptcy Code, (A) the obligation of
SNB to make Advances and/or Loans shall automatically be terminated and (B) the
Loans, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any
kind, all of which are hereby expressly waived by the Borrower.  In addition, if any Event of Default has
occurred and is continuing, SNB may exercise any of its rights provided in the
Pledge Agreement, the Guaranties, the Security Agreements, the Assignment
Agreement and each other Loan Document or available under the Uniform
Commercial Code or other applicable Laws. 
Without limitation, SNB may appoint a receiver or trustee to assume
control over all or any part of the business or assets of the Borrower or any
of its Subsidiaries (subject only to any restrictions that may be imposed by
the Authority).

 

ARTICLE
VII

MISCELLANEOUS

 

SECTION 7.01. 
Amendments, Etc.  No
amendment of any provision of any Loan Document shall be effective unless the
same shall be in writing and signed by SNB and each party to such Loan
Document.  No consent to any departure by
the Borrower or any other party (other than SNB) from the requirements of any
Loan Document shall be effective unless the same shall be in writing and signed
by SNB, and then such consent shall be effective only in the specific instance
and for the specific purpose for which given.

 

SECTION 7.02. 
Notices, Etc.  Except for
Notices of Borrowing, all notices and other communications provided for
hereunder shall be in writing and sent by certified or registered mail,
recognized courier, hand delivery, or telecopier, or to the extent provided in Section 5.01(a)(v) by
e-mail; if to the Borrower, at its address at  P.O. Box 5103, Enid, Oklahoma 73702-

 

27

 

5103, Fax (580) 616-2080 Attention: Chief Financial Officer;
if to SNB, at its address at 201 West Broadway, Enid, Oklahoma 73701, to the
attention of Mr. Brad B. Blankenship, President or, as to the Borrower or
SNB, at such other address as shall be designated by such party in a written
notice to the other party.  All such
notices and communications sent as provided above shall be effective upon
dispatch, except that notices and communications to SNB pursuant to Article II, III
or VII shall not be effective until received by SNB.  Delivery by email or telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or any other Loan Document or of any Exhibit hereto to be
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.

 

SECTION 7.03. 
No Waiver; Remedies.  No
failure on the part of SNB to exercise, and no delay in exercising, any right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any such right preclude any other
or further exercise thereof or the exercise of any other right.  The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.

 

SECTION 7.04. 
Costs and Expenses. (a) Regardless of whether any Loan may
be extended, the Borrower agrees to pay from time to time on demand all
reasonable costs and expenses of SNB in connection with the preparation,
execution, delivery, administration, modification and amendment of this
Agreement, the other Loan Documents and the other documents to be delivered
thereunder, including, without limitation, (A) all due diligence,
syndication (including printing, distribution and Lender meetings)
transportation, computer, duplication, appraisal, consultant, filing, and audit
expenses and (B) the fees and expenses of counsel for SNB with respect
thereto and with respect to advising SNB as to its rights and responsibilities
under this Agreement.  The Borrower
further agrees to pay on demand all costs and expenses of SNB (including,
without limitation, counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the other Loan Documents and the other documents to be
delivered hereunder, including, without limitation, reasonable fees and
expenses of counsel for SNB in connection with the enforcement of rights under
this Section 7.04(a).

 

(b)           The Borrower agrees to indemnify and hold harmless SNB and its Affiliates
and its officers, directors, employees, agents and advisors (each, an “Indemnified
Party”), on an after-tax basis (notwithstanding anything to the contrary
herein), from and against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, reasonable fees and expenses of
counsel) incurred by or asserted or awarded against any Indemnified Party, in
each case arising out of or in connection with or by reason of (including,
without limitation, in connection with any investigation, litigation or
proceeding or preparation of a defense in connection therewith) the Note(s),
this Agreement, any other Loan Document, any of the transactions contemplated
herein or therein, the Borrower or any Subsidiary’s nonperformance or breach or
misrepresentation hereunder or thereunder, or the actual or proposed use of the
proceeds of the Loan, or the properties pledged as collateral under the Loan
Documents, except to the extent such claim, damage, loss, liability or expense
is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party’s gross negligence or
willful misconduct.  In the case of an
investigation, litigation or other proceeding to which the indemnity in this Section 7.04(b) applies,
such

 

28

 

indemnity shall be effective whether or not such
investigation, litigation or proceeding is brought by the Borrower, its
directors, equityholders or creditors or an Indemnified Party or any other
Person, whether or not any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated.  The Borrower also agrees not to assert any
claim for special, indirect, consequential or punitive damages against SNB, any
of their Affiliates, or any of their respective directors, officers, employees,
attorneys and agents, on any theory of liability, arising out of or otherwise
relating to the Note(s), this Agreement, any other Loan Document, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Loans.

 

(c)           Without prejudice to the survival of any other agreement of the Borrower
hereunder, the agreements and obligations of the Borrower contained in
Sections 2.06 and this 7.04 shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the
Note(s).

 

SECTION 7.05. 
Right of Set-off.  Upon the
occurrence and during the continuance of any Event of Default, each of SNB and
its Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by SNB or such Affiliate to or for the
credit or the account of the Borrower or any of its Affiliates against any and
all of the obligations of the Borrower or any of its Affiliates under any Loan
Document.  The rights of SNB and its
Affiliates under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that SNB and its
Affiliates may have.

 

SECTION 7.06. 
Binding Effect.  This
Agreement shall become effective when it shall have been executed by the
Borrower and SNB and upon satisfaction of the conditions precedent set forth in
Section 3.01 and thereafter shall be binding upon and inure to the benefit
of the Borrower, SNB and their respective successors and assigns, except that
the Borrower shall not (and shall not permit any Subsidiary to) assign its
rights under any Loan Document or any obligation or interest therein without
the prior written consent of SNB (which SNB may withhold in its sole
discretion).

 

SECTION 7.07. 
Assignments and Participations. 
(a) SNB or another Lender may assign to one or more Persons all or
a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of the Loans owing to it and the Note(s) held
by it).  Upon any such assignment, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it, have the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it,
relinquish its rights (other than its rights under Sections 2.06 and 7.04 to
the extent any claim thereunder relates to an event arising prior such
assignment) and be released from its obligations under this Agreement (and, in
the case of an assignment covering all or the remaining portion of an assigning
SNB’s rights and obligations under this Agreement, SNB shall cease to be a
party hereto).

 

29

 

(b)           SNB and each other Lender may sell participations to one or more banks or
other entities (other than the Borrower or any of its Affiliates) in or to all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of the Loans owing to it and any Note(s) held
by it); provided, however, that (i) such Lender’s
obligations under this Agreement shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of any such
Note for all purposes of this Agreement, (iv) the Borrower and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement and (v) no
participant under any such participation shall have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to
any departure by the Borrower therefrom, except to the extent that such
amendment, waiver or consent would reduce the principal of, or interest on, the
Note(s) or any fees or other amounts payable hereunder, in each case to
the extent subject to such participation, or postpone any date fixed for any
payment of principal of, or interest on, the Note(s) or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation.

 

(c)           Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 7.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf
of the Borrower.

 

SECTION 7.08. 
Confidentiality.  The
Borrower will, and will cause each of its Subsidiaries to, keep the existence
of the credit facility provided hereunder and the terms of the Loan Documents
confidential, except that the Borrower or any Subsidiary may disclose such
information (A) at the request or pursuant to any requirement of any Governmental
Authority to which such party is subject or in connection with an examination
of such party by any such authority; (B) pursuant to subpoena or other
court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent
reasonably required in connection with any litigation or proceeding to which
such party may be party; and (E) to such party’s independent auditors and
other professional advisors.

 

SECTION 7.09. 
Further Assurances.  The Borrower
shall (and shall cause its Subsidiaries to) at its expense execute any
amendments hereto or other documents or instruments, or take such other
actions, (i) as may be necessary to create and perfect a first priority
and exclusive security interest in any personal property acquired by the
Borrower or any of its Subsidiaries to secure the obligations of the Borrower
and the Subsidiaries under the Loan Documents, or to continue the perfection of
the Liens created by the Loan Documents, and (ii) as SNB or any other
Lender may reasonably request to protect SNB’s or any other Lender’s rights
under the Loan Documents or otherwise to effectuate the purposes thereof,
including without limitation in connection with any assignment contemplated by
the terms of Section 7.07.

 

SECTION 7.10. 
Governing Law.  This
Agreement and each other Loan Document shall be governed by, and construed in
accordance with, the internal Law of the State of Oklahoma.

 

30

 

SECTION 7.11. 
Execution in Counterparts. 
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. 
Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.

 

SECTION 7.12. 
Waiver of Jury Trial.  Both
the Borrower and SNB hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any Loan Document, the Advances or the
actions of SNB in the negotiation, administration, performance or enforcement
thereof.

 

SECTION 7.13. 
Jurisdiction, Etc. (a) Each of the parties hereto hereby
irrevocably and unconditionally submitsto the nonexclusive jurisdiction of any
Oklahoma state court or federal court of the United States of America sitting
in Oklahoma, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or any other Loan
Document, or for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in any such
Oklahoma state court or, to the extent permitted by law, in such federal court.
The Borrower hereby irrevocably consents to the service of process in any
action or proceeding in such courts by the mailing thereof by any parties
hereto by registered or certified mail, postage prepaid, to the Borrower at its
address specified pursuant to Section 7.02.  Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or the Note in the courts of
any jurisdiction.

 

(b)           Each of the parties hereto irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the Note in any Oklahoma state
or federal court.  Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.

 

IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written.

 

	
   

  	
  HILAND HOLDINGS GP, LP, a Delaware limited
  partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Hiland Partners GP Holdings, LLC, its general
  partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By :

  	
   

  

 

31

 

	
   

  	
  Name : 

  	
  Matthew S. Harrison

  
	
   

  	
  Title: 

  	
  Vice President-Finance, Chief Financial Officer
  and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  THE SECURITY NATIONAL BANK OF ENID

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By :

  	
   

  
	
   

  	
   

  	
  Brad B. Blankenship, President

  

 

32

 

Schedules

 

	
  Schedule 4.01(a)

  	
  -

  	
  Jurisdictions

  
	
   

  	
   

  	
   

  
	
  Schedule 4.01(c)

  	
  -

  	
  Adverse Changes

  
	
   

  	
   

  	
   

  
	
  Schedule 4.01(d)

  	
  -

  	
  Litigation

  
	
   

  	
   

  	
   

  
	
  Schedule 4.01(e)

  	
  -

  	
  Employee Benefit Plans

  
	
   

  	
   

  	
   

  
	
  Schedule 4.01(i)

  	
  -

  	
  Ownership of Properties

  
	
   

  	
   

  	
   

  
	
  Schedule 4.01(k)

  	
  -

  	
  Subsidiaries

  
	
   

  	
   

  	
   

  
	
  Schedule 4.01(l)

  	
  -

  	
  Taxes

  
	
   

  	
   

  	
   

  
	
  Schedule 5.02(e)

  	
  -

  	
  Liens

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