Document:

AMENDMENT TO CREDIT FACILITIES

       

      This Amendment to Credit Facilities (“Amendment”) is effective as of __________, 2007 (the “Amendment Effective Date”) by Patrick Industries, Inc. (“Company”) and JPMorgan Chase Bank, N.A. (“Bank”).

      RECITALS

      A.           Company and Bank are parties to a Credit Agreement, dated February 2, 1997, as previously amended (as amended, the “Credit Agreement”).

      B.           Under the Credit Agreement Bank has provided Company a revolving line of credit in the principal amount of up to $15,000,000 (the “Revolving Credit Line”) and a $15,000,000 term loan.  In addition, Bank has provided a Line of Credit to Company under which Bank has extended certain letters of credit for the account of the Company in an aggregate principal amount not to exceed $4,000,000 (the “Letter of Credit Line”).  Company and Bank have also entered into an interest rate swap (the “Rate Management Transaction”), and Bank, as Party A under that Rate Management Transaction, consents to this Amendment.

      

      	
                   
 	
                  C.
 	
                  The Company is obligated to Bank under the following reimbursement agreements:
 

      

      (i) the Reimbursement and Pledge Agreement between the Company and the Bank dated as of August 13, 1998, relating to the Five Million Dollars ($5,000,000) principal amount The Stanly County Industrial Facilities and Pollution Control Financing Authority Variable Rate Demand Economic Development Revenue Bonds (Patrick Industries, Inc. Project), Series 1998 (the “1998 Reimbursement Agreement”),

      (ii) the Reimbursement Agreement made by the Company in favor of the Bank dated as of December 1, 1994, relating to the Six Million Dollars ($6,000,000) principal amount State of Oregon Economic Development Revenue Bonds, Series CLI (Patrick Industries, Inc. Project), dated December 22, 1994 (the “1994 Reimbursement Agreement”),

      D.           The Company has requested Bank to amend the Credit Agreement to provide for a new $7,500,000 Term Loan.  Bank has agreed to amend the Credit Agreement to provide for that new Term Loan, as set forth in this Amendment, all subject to the terms and conditions of this Amendment, including the conditions precedent set forth in Section 8.

      AGREEMENT

      NOW, THEREFORE, in consideration of the Recitals and the mutual covenants and agreements herein, and for other good and valuable considerations, the receipt and sufficiency of which are acknowledged by the parties to this Amendment, it is agreed as follows:

       

      
      

      

      

      1.            Definitions.  Terms which are defined in the Credit Agreement shall have the same meanings in this Amendment as are ascribed to them in the Credit Agreement, as amended hereby, excepting only those terms which are expressly defined in this Amendment, which shall have the meanings ascribed to them in this Amendment.

      2.            Amendments to Credit Agreement.  The Credit Agreement is amended as follows as of the Amendment Effective Date:

      “Notes” means the Revolving Credit Note and the Term Note and the 2007 Term Note, and Note means either the Revolving Credit Note or the Term Note or the 2007 Term Note as the context may require.

      a.            New definitions of “2007 Term Loan,” “2007 Term Loan Applicable Margin” and “2007 Term Note” are added to Section 1 of the Credit Agreement to read as follows:

      “2007 Term Loan” shall mean the loan made pursuant to Section 2.1(c) and evidenced by the 2007 Term Note.

      “2007 Term Note” shall mean the promissory note of the Company evidencing the Term Loan, in substantially the form of Exhibit 2.1(c), as amended or modified from time to time and together with any promissory note or notes issued in exchange for that promissory note.

      “2007 Term Loan Applicable Margin” shall mean, with respect to any Prime Rate Advance or Eurodollar Advance, as the case may be, under the 2007 Term Loan, the following amounts based on the ratio of consolidated Funded Debt to consolidated EBITDA of the Company and its Subsidiaries as of the end of the most recent fiscal quarter of the Company for which financial statements of the Company have been delivered pursuant to Section 5.1(d)(ii) of the Credit Agreement:

      

      	
                  Ratio of Funded Debt

      to Consolidated EBITDA
 	
                  2007 Term Loan

      Applicable Margin
 
	
                  greater than 3.00 to 1.00

      but not greater than 3.25 to 1.00
 	
                  2.25 % per annum
 
	
                  greater than 2.50 to 1.00

      but not greater than  3.00 to 1.00
 	
                  2.00% per annum
 
	
                  greater than 2.00 to 1.00

      but not greater than 2.50 to 1.00
 	
                  1.75% per annum
 
	
                  less than or equal to 2.00 to 1.00
 	
                  1.625% per annum
 

      

       

       

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      b.            A new Subsection 2.1(c) is added to the Credit Agreement to provide in its entirety as follows:

      (c)          2007 Term Loan.  Bank has made the 2007 Term Loan to Company in the original principal amount of $7,500,000, evidenced by the 2007 Term Note, payable in sixty (60) consecutive monthly principal payments each in the amount of $62,500, plus accrued interest, at the 2007 Term Loan Applicable Margin, payable on the last day of each month commencing February 28, 2007 until December 31, 2011, with all remaining principal and accrued interest (if not sooner due and payable as provided in the Credit Agreement) due and payable on January 31, 2012.

      c.            Section 5.2(c) of the Credit Agreement is amended to provide in its entirety as follows:

      (c)          Tangible Net Worth.  Permit or suffer the consolidated Tangible Net Worth of the Company and its Subsidiaries to be less than $60,000,000 at any time.

      d.            Section 5.2(j) of the Credit Agreement is amended to provide in its entirety as follows:

      (j)           Capital Expenditures.  The Company shall not permit or suffer its Capital Expenditures during any calendar year to exceed $7,000,000 in the aggregate, without written approval of Bank.

      e.            Section 5.2(k) of the Credit Agreement is amended to provide in its entirety as follows:

      (k)          Debt Service Coverage.  The Company shall not permit or suffer its Debt Service Coverage to be less than 1.10 to 1.00 measured quarterly on a rolling four quarter basis, with the first measured date being as of March 31, 2007 for the rolling four quarter period then ended.

      f.             Section 5.2(l) of the Credit Agreement is amended to provide in its entirety as follows:

      (l)           Funded Debt to EBITDA.  The Company shall not permit or suffer the ratio of its consolidated Funded Debt to its consolidated EBITDA to be greater than the following ratios during the following periods:

       

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                  Ratio
 	
                  Period
 
	
                  3.25 to 1.0
 	
                  Effective Date through June 30, 2007
 
	
                  3.00 to 1.0
 	
                  July 1, 2007 through December 31, 2007
 
	
                  2.50 to 1.0
 	
                  From and after January 1, 2008
 

      

      For purposes of determining compliance with this covenant during 2007 only, the following amounts will be deemed added to the Company’s consolidated EBITDA as of the following fiscal quarters of 2007:

      

      	
                  Fiscal Quarter
 	
                  Amount
 
	
                  First Quarter
 	
                  $1,042,000
 
	
                  Second Quarter
 	
                  $  729,000
 
	
                  Third Quarter
 	
                  $  417,000
 
	
                  Fourth Quarter
 	
                  $  104,000
 

      

      3.            Construction.  If there is any conflict or inconsistency between the provisions of the Revolving Credit Note or the Term Note or the 2007 Term Note, on the one hand, and the Credit Agreement, on the other hand, the provisions of the Revolving Credit Note or Term Note or the 2007 Term Note, as the case may be, shall control over conflicting or inconsistent provisions of the Credit Agreement, except that any Events of Default/Acceleration identified in the Revolving Credit Note or the Term Note or the 2007 Term Note shall be in addition to any Events of Default identified in the Credit Agreement.

      

      	
                   
 	
                  4.
 	
                  Representations and Warranties.  The Company represents and warrants to Bank that:
 

      

      a.            (i) The execution, delivery and performance of this Amendment and all agreements and documents delivered pursuant hereto by the Company has been duly authorized by all necessary action (whether corporate, partnership or otherwise) and does not and will not violate any provision of any law, rule, regulation, order, judgment, injunction, or award presently in effect applying to the Company, or of the Company’s articles of incorporation, by-laws, articles of organization or operating agreement (as applicable) or result in a breach of or constitute a default under any material agreement, lease or instrument to which the Company is a party or by which the Company’s properties may be bound or affected; (ii) no authorization, consent, approval, license,
      exemption or filing of a registration with any court or governmental department, agency or instrumentality is or will be necessary to the valid execution, delivery or performance by any of them of this Amendment and all agreements and documents delivered pursuant hereto; and (iii) this Amendment and all agreements and documents delivered pursuant hereto by the Company are its legal, valid and 

       

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      binding obligations and enforceable against the Company in accordance with the terms thereof.

      b.            After giving effect to the amendments contained in this Amendment, the representations and warranties contained in Section 4 of the Credit Agreement are true and correct on and as of the Amendment Effective Date with the same force and effect as if made on and as of the Amendment Effective Date, except that the representation in Section 4.6 of the Credit Agreement shall be deemed to refer to the financial statements of Company most recently delivered to Bank prior to the Amendment Effective Date.

      c.            No Event of Default or Unmatured Event of Default has occurred and is continuing or will exist under the Credit Agreement as of the Amendment Effective Date.

      5.            GENERAL RELEASE.  THE COMPANY FOR ITSELF AND ITS LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "RELEASING PARTIES"), HEREBY RELEASES AND DISCHARGES BANK, ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS, LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS
      (COLLECTIVELY, THE "RELEASED PARTIES") FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS, DAMAGES AND CAUSES OF ACTION WHICH ANY OF THE RELEASING PARTIES HAS ASSERTED OR CLAIMED OR MIGHT NOW OR HEREAFTER ASSERT OR CLAIM AGAINST ALL OF ANY OF THE RELEASED PARTIES, WHETHER KNOWN OR UNKNOWN, ARISING
      OUT OF, RELATED TO OR IN ANY WAY CONNECTED WITH OR BASED UPON ANY PRIOR RELATED EVENT (AS SUCH TERM IS HEREINAFTER DEFINED).  THE TERM "PRIOR RELATED EVENT" SHALL MEAN ANY ACT, OMISSION, CIRCUMSTANCE, AGREEMENT, LOAN EXTENSION OF CREDIT, TRANSACTION, TRANSFER, PAYMENT, EVENT, ACTION OR OCCURRENCE
      BETWEEN OR INVOLVING THE COMPANY AND ALL OR ANY OF THE RELEASED PARTIES AND WHICH WAS MADE OR EXTENDED OR WHICH OCCURRED AT ANY TIME OR TIMES PRIOR TO THE EXECUTION OF THIS AGREEMENT, INCLUDING WITHOUT LIMITING IN ANY RESPECT THE GENERALITY OF THE FOREGOING:  (I) ANY
      ACTION TAKEN ON OR PRIOR TO THE EXECUTION OF THIS AGREEMENT TO OBTAIN PAYMENT OF ANY OBLIGATIONS OR TO OTHERWISE ENFORCE OR EXERCISE ANY RIGHT OR PURPORTED RIGHT OF BANK AS A CREDITOR; (II) ANY FAILURE OR REFUSAL TO MAKE ANY LOAN OR ADVANCE; AND (III) ANY PAYMENT OR OTHER TRANSFER MADE TO BANK BY OR FOR THE ACCOUNT OF THE COMPANY AT ANY TIME PRIOR TO THE EXECUTION OF THIS AGREEMENT.  THE COMPANY AGREES AND ACKNOWLEDGES THAT THIS SECTION IS NOT TO BE CONSTRUED AS OR DEEMED AN ACKNOWLEDGMENT OR ADMISSION ON
      THE PART OF ANY OF THE RELEASED PARTIES OF LIABILITY FOR ANY MATTER OR AS PRECEDENT UPON WHICH ANY LIABILITY MAY BE ASSERTED.

      6.            Conditions.  The obligation of Bank to execute and to perform this Amendment shall be subject to full satisfaction of the following conditions precedent:

      a.            This Amendment shall have been duly executed and delivered by the Company.

      b.            The 2007 Term Note shall have been executed and delivered by the Company to the Bank.

       

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      c.            National City Bank shall participate in 50% of the 2007 Term Loan pursuant to an amendment to the Loan Participation Agreement between Bank and National City Bank in form and substance satisfactory to Bank.

      d.            Bank shall have received such additional agreements, documents and certifications, fully executed by the Company as may be reasonably requested by Bank, or its counsel.

      7.            Binding on Successors and Assigns.  All of the terms and provisions of this Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, assigns and legal representatives.

      8.            Governing Law/Entire Agreement/Survival.  This Amendment is a contract made under, and shall be governed by and construed in accordance with, the laws of the State of Indiana applicable to contracts made and to be performed entirely with such state and without giving effect to the choice of law principles of such state.  This Amendment constitutes and expresses the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, commitments, inducements or conditions, whether express or implied, oral or written.  All covenants, agreements, undertakings, representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment.

       

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      IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the Amendment Effective Date.

      JPMORGAN CHASE BANK, N.A.

       

      

      	
                   
 	
                  By:
 

      

       

      

      	
                   
 	
                  (Printed Name and Title)
 

      

       

       

      PATRICK INDUSTRIES, INC.

       

      

      	
                   
 	
                  By:
 

      

       

      

      	
                   
 	
                  (Printed Name and Title)
 

      

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

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      Consented to by:

      NATIONAL CITY BANK, as Participant under a certain Loan Participation Agreement, as amended, relating to the Credit Agreement

       

      

      	
                   
 	
                  By:
 

      

       

      

      	
                   
 	
                  (Printed Name and Title)
 

      

       

      ELDS01 JST 201716v3

       

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      AMENDMENT TO LOAN PARTICIPATION AGREEMENT

       

      This Amendment to Loan Participation Agreement (“Amendment”) is entered into on January __, 2007, between JPMorgan Chase Bank, N.A., with principal offices at 121 West Franklin Street, Elkhart, Indiana 46516 (“Lead Bank”) and National City Bank, with offices at 101 North Main Street, Elkhart, Indiana 46516 (“Participant”).

      RECITALS

      Lead Bank and Participant are parties to a Loan Participation Agreement dated April 11, 2003 (the “Agreement”) regarding credit extended by Lead Bank to Patrick Industries, Inc., an Indiana corporation (“Borrower”), whose address is 107 W. Franklin Street, Elkhart, Indiana 46515, in accordance with the commercial loan agreement and industrial revenue bond letter of credit reimbursement agreements described in Section 1(c) of the Agreement.  Borrower has requested a new $7,500,000 term loan (the “2007 Term Loan”).  Participant desires to obtain a participation interest in the $7,500,000 2007 Term Loan made or to be made by Lead Bank to Borrower, and Lead Bank is willing to sell Participant a participation interest in the $7,500,000 2007 Term Loan to Borrower on the terms and conditions contained in the Agreement.

      Lead Bank and Participant agree as follows:

      AGREEMENT

      1.            Lead Bank agrees to sell and Participant agrees to purchase a participation of fifty percent (50%) of the $7,500,000 2007 Term Loan on the same terms and conditions as for the other Loans defined in the Agreement, and Lead Bank and Participant agree that the $7,500,000 2007 Term Loan shall be deemed included in the definition of “Loan” or “Loans” for all purposes of the Agreement.

      2.            Except as specifically amended by this Amendment all other provisions of the Agreement remain in full force and effect.

      “LEAD BANK”

      JPMorgan Chase Bank, N.A. (formerly Bank One, NA)

       

      

      	
                   
 	
                  By:
 

      

       

      

      	
                   
 	
                  (Printed Name and Title)
 

      

       

       

       

      
      

      

      

      “PARTICIPANT”

      National City Bank 

       

      

      	
                   
 	
                  By:
 

      

       

      

      	
                   
 	
                  (Printed Name and Title)
 

      

       

       

      ELDS01 JST 201722v1

       

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                  CHASE [logo]

       
 	
                  Term Note
 
	
                   
 	
                  $7,500,000.00
 
	
                  Due:  January 31, 2012
 	
                  Date:  January __, 2007
 
			

                  

       

      Promise to Pay. On or before January 31, 2012, on the payment dates specified below, for value received, Patrick Industries, Inc. (the "Borrower") promises to pay to JPMorgan Chase Bank, N.A., whose address is 121 W. Franklin St., Elkhart, IN 46516 (the "Bank") or order, in lawful money of the United States of America, the sum of Seven Million Five Hundred Thousand and 00/100 Dollars ($7,500,000.00) plus interest as provided below.

       

      Definitions. As used in this Note, the following terms have the following respective meanings:

       

      "Collateral" means all real or personal property described in all security agreements, pledge agreements, mortgages, deeds of trust, assignments, or other instruments now or hereafter executed in connection with this Note or in connection with any of the Liabilities. If applicable, the Collateral secures the payment of this Note and the Liabilities.

       

      "Credit Agreement" means a certain Credit Agreement, dated February 2, 1997, between the Borrower and the Bank, as amended.

       

      "Liabilities" means all obligations, indebtedness and liabilities of the Borrower to any one or more of the Bank, JPMorgan Chase & Co., and any of their subsidiaries, affiliates or successors, now existing or later arising, including, without limitation, all loans, advances, interest, costs, overdraft indebtedness, credit card indebtedness, lease obligations, or obligations relating to any Rate Management Transaction, all monetary obligations incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceedings, regardless of whether allowed or allowable in such proceeding, and all renewals, extensions, modifications, consolidations or substitutions of any of the foregoing, whether the Borrower may be liable jointly with others or individually liable as a debtor, maker, co-maker, drawer, endorser, guarantor, surety or otherwise, and
      whether voluntarily or involuntarily incurred, due or not due, absolute or contingent, direct or indirect, liquidated or unliquidated.

       

      "Principal Payment Date" is defined in the paragraph entitled "Principal Payments" below.

       

      "Rate Management Transaction" means any transaction (including an agreement with respect thereto) now existing or hereafter entered into among the Borrower, the Bank or JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their successors, which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.

       

      “Related Documents” means all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with this Note or in connection with any of the Liabilities.

       

      "Term Loan Applicable Margin" means with respect to any Prime Rate Advance or Eurodollar Advance, as the case may be, the rate per annum set forth below opposite the applicable Funded Debt to EBITDA Ratio. Funded Debt to EBITDA Ratio is defined in the Credit Agreement.

       

      

      	
                  Funded Debt to EBITDA Ratio
 	
                  Term Loan Applicable Margin
 
	
                   
 	
                  Prime Rate Advance
 	
                  Eurodollar Advance
 
	
                  Greater than 3.00 to 1.00 but not greater than 3.25 to 1.00
 	
                  0%
 	
                  2.25%
 
	
                  Greater than 2.50 to 1.00 but not greater than 3.00 to 1.00
 	
                  0%
 	
                  2.00%
 
	
                  Greater than 2.00 to 1.00 but not greater than 2.50 to 1.00
 	
                  0%
 	
                  1.75%
 
	
                  Less than or equal to 2.00 to 1.00
 	
                  0%
 	
                  1.625%
 

      

       

       

      
      

       

      The Term Loan Applicable Margin shall, in each case, be determined and adjusted quarterly on the first day of the month after the date of delivery of the quarterly and annual financial statements required by the Credit Agreement, provided, however, that if such financial statements are not delivered within two Business Days after the required date (each, an "Interest Determination Date"), the Term Loan Applicable Margin shall increase to the maximum percentage amount set forth in the table above from the date such financial statements were required to be delivered to the Bank until received by the Bank. The Term Loan Applicable Margin shall be effective from an Interest Determination Date until the next Interest Determination Date. Such determinations by the Bank shall be 

       

      
      

      

      

      conclusive absent manifest error. The initial Term Loan Applicable Margin for Prime Rate Advances is 0% and for Eurodollar Advances is 2.00%.

       

      Capitalized terms used but not defined in this Note have the meanings ascribed to them in the Credit Agreement.

       

      Interest Rates. The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of each Prime Rate Advance at the Prime Rate plus the Applicable Margin and each Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the basis of the actual number of days elapsed in a year of 360 days. In no event shall the interest rate applicable to any Advance exceed the maximum rate allowed by law. Any interest payment which would for any reason be deemed unlawful under applicable law shall be applied to principal.

       

      Bank Records. The Bank shall, in the ordinary course of business, make notations in its records of the date, amount, interest rate and Interest Period of each Advance hereunder, the amount of each payment on the Advances, and other information. Such records shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of and interest rate or rates applicable to this Note.

       

      Notice and Manner of Electing Interest Rates on Advances. The Borrower shall give the Bank written notice (effective upon receipt) of the Borrower's intent to draw down an Advance under this Note no later than 11:00 a.m. Eastern time, one (1) Business Day before disbursement, if the full amount of the drawn Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days before disbursement, if any part of such Advance is to be disbursed as a Eurodollar Advance. The Borrower's notice must specify: (a) the disbursement date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the duration of the applicable Interest Period; provided, however, that the Borrower may not elect an Interest
      Period ending after the maturity date of this Note. Each Eurodollar Advance shall be in a minimum amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00). All notices under this paragraph are irrevocable. By the Bank's close of business on the disbursement date and upon fulfillment of the conditions set forth herein and in any other of the Related Documents, the Bank shall disburse the requested Advances in immediately available funds by crediting the amount of such Advances to the Borrower's account with the Bank.

       

      Conversion and Renewals. The Borrower may elect from time to time to convert one type of Advance into another or to renew any Advance by giving the Bank written notice no later than 11:00 a.m. Eastern time, one (1) Business Day before conversion into a Prime Rate Advance and three (3) Business Days before conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal or conversion date, (b) the amount of the Advance to be converted or renewed, (c) in the case of conversion, the type of Advance to be converted into (Prime Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or conversion into a Eurodollar Advance, the applicable Interest Period, provided that (i) the minimum principal amount of each Eurodollar Advance outstanding after a renewal or conversion shall be Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00); (ii) a Eurodollar
      Advance can only be converted on the last day of the Interest Period for the Advance; and (iii) the Borrower may not elect an Interest Period ending after the maturity date of this Note. All notices given under this paragraph are irrevocable. If the Borrower fails to give the Bank the notice specified above for the renewal or conversion of a Eurodollar Advance by 11:00 a.m. Eastern time three (3) Business Days before the end of the Interest Period for that Advance, the Advance shall automatically be converted to a Prime Rate Advance on the last day of the Interest Period for the Advance.

       

      Interest Payments. Interest on the Advances shall be paid as follows:

       

      A.     For each Prime Rate Advance, on the last day of each month beginning with the first month following disbursement of the Advance or following conversion of an Advance into a Prime Rate Advance, and at the maturity or conversion of the Advance into a Eurodollar Advance;

       

      B.            For each Eurodollar Advance, on the last day of the Interest Period for the Advance and, if the Interest Period is longer than three months, at three-month intervals beginning with the day three months from the date the Advance is disbursed.

       

      Principal Payments.  Commencing February 28, 2007, and continuing on the last day of each calendar month thereafter until December 31, 2011 (each, a "Principal Payment Date"), the Borrower shall pay the Bank Sixty-Two Thousand Five Hundred Dollars ($62,500); and

       

      On January 31, 2012, the Borrower shall pay the Bank the entire remaining outstanding principal balance of this Note, plus all accrued but unpaid interest, and any other unpaid amounts due under this Note.

       

      The Borrower shall select interest rates and Interest Periods such that on each Principal Payment Date the sum of the principal amount of the Prime Rate Advance outstanding on that date plus the aggregate principal amount of the Eurodollar Advances with Interest Periods ending on that date is greater than or equal to the principal payment due on that date. Any election that does not comply with this requirement will be invalid unless the Bank elects, in its sole discretion, to honor such election. Although the Bank may choose to 

       

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      honor any such election, the Borrower shall continue to be subject to the terms of the paragraph of this Note captioned "Funding Loss Indemnification" in regard to payment of a Eurodollar Advance on a date other than the last day of the Interest Period for the Advance.

       

      Default Rate of Interest. After a default has occurred under this Note, whether or not the Bank elects to accelerate the maturity of this Note because of such default, all Advances outstanding under this Note, including all Eurodollar Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus the Applicable Margin for a Prime Rate Advance, plus three percent (3.00%) from the date the Bank elects to impose such rate. Imposition of this rate shall not affect any limitations contained in this Note on the Borrower's right to repay principal on any Eurodollar Advance before the expiration of the Interest Period for that Advance.

       

      Prepayment. The Borrower may prepay all or any part of any Prime Rate Advance at any time without premium or penalty. The Borrower may prepay any Eurodollar Advance only at the end of an Interest Period.

       

      Funding Loss Indemnification. Upon the Bank's request, the Borrower shall pay the Bank amounts sufficient (in the Bank's reasonable opinion) to compensate it for any loss, cost, or expense incurred as a result of:

       

      A.            Any payment of a Eurodollar Advance on a date other than the last day of the Interest Period for the Advance, including, without limitation, acceleration of the Advances by the Bank pursuant to this Note or the Related Documents; or

       

      B.            Any failure by the Borrower to borrow or renew a Eurodollar Advance on the date specified in the relevant notice from the Borrower to the Bank.

       

      Additional Costs. If any applicable domestic or foreign law, treaty, government rule or regulation now or later in effect (whether or not it now applies to the Bank) or the interpretation or administration thereof by a governmental authority charged with such interpretation or administration, or compliance by the Bank with any guideline, request or directive of such an authority (whether or not having the force of law), shall (a) affect the basis of taxation of payments to the Bank of any amounts payable by the Borrower under this Note or the Related Documents (other than taxes imposed on the overall net income of the Bank by the jurisdiction or by any political subdivision or taxing authority of the jurisdiction in which the Bank has its principal office), or (b) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with
      or for the account of, or credit extended by the Bank, or (c) impose any other condition with respect to this Note or the Related Documents and the result of any of the foregoing is to increase the cost to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any sum receivable by the Bank on such an Advance, or (d) affect the amount of capital required or expected to be maintained by the Bank (or any corporation controlling the Bank) and the Bank determines that the amount of such capital is increased by or based upon the existence of the Bank's obligations under this Note or the Related Documents and the increase has the effect of reducing the rate of return on the Bank's (or its controlling corporation's) capital as a consequence of the obligations under this Note or the Related Documents to a level below that which the Bank (or its controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to
      capital adequacy) by an amount deemed by the Bank to be material, then the Borrower shall pay to the Bank, from time to time, upon request by the Bank, additional amounts sufficient to compensate the Bank for the increased cost or reduced sum receivable. Whenever the Bank shall learn of circumstances described in this section which are likely to result in additional costs to the Borrower, the Bank shall give prompt written notice to the Borrower of the basis for and the estimated amount of any such anticipated additional costs. A statement as to the amount of the increased cost or reduced sum receivable, prepared in good faith and in reasonable detail by the Bank and submitted by the Bank to the Borrower, shall be conclusive and binding for all purposes absent manifest error in computation.

       

      Illegality. If any applicable domestic or foreign law, treaty, rule or regulation now or later in effect (whether or not it now applies to the Bank) or the interpretation or administration thereof by a governmental authority charged with such interpretation or administration, or compliance by the Bank with any guideline, request or directive of such an authority (whether or not having the force of law), shall make it unlawful or impossible for the Bank to maintain or fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the outstanding principal amount of the Eurodollar Advances, together with accrued interest and any other amounts payable to the Bank under this Note or the Related Documents on account of the Eurodollar Advances shall be repaid (a) immediately upon the Bank's demand if such change or compliance with such requests, in the Bank's judgment,
      requires immediate repayment, or (b) at the expiration of the last Interest Period to expire before the effective date of any such change or request provided, however, that subject to the terms and conditions of this Note and the Related Documents the Borrower shall be entitled to simultaneously replace the entire outstanding balance of any Eurodollar Advance repaid in accordance with this section with a Prime Rate Advance in the same amount.

       

      Inability to Determine Interest Rate. If the Bank determines that (a) quotations of interest rates for the relevant deposits referred to in the definition of Eurodollar Rate are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the interest rate on a Eurodollar Advance as provided in this Note, or (b) the relevant interest rates referred to in the definition of Eurodollar Rate do not accurately cover the cost to the Bank of making or maintaining Eurodollar Advances, then the Bank shall forthwith give notice of such circumstances to the Borrower, whereupon (i) the obligation of the Bank to make Eurodollar Advances shall be suspended until the Bank notifies the Borrower that the circumstances giving rise to the suspension no longer exists, and (ii) the Borrower shall repay in full the then outstanding principal amount of each
      Eurodollar Advance, together with 

       

      3

       

      
      

      

      

      accrued interest, on the last day of the then current Interest Period applicable to the Advance, provided, however, that, subject to the terms and conditions of this Note and the Related Documents, the Borrower shall be entitled to simultaneously replace the entire outstanding balance of any Eurodollar Advance repaid in accordance with this section with a Prime Rate Advance in the same amount.

       

      Obligations Due on Non-Business Day. Whenever any payment under this Note becomes due and payable on a day that is not a Business Day, if no default then exists under this Note, the maturity of the payment shall be extended to the next succeeding Business Day, except, in the case of a Eurodollar Advance, if the result of the extension would be to extend the payment into another calendar month, the payment must be made on the immediately preceding Business Day.

       

      Matters Regarding Payment. The Borrower will pay the Bank at the Bank's address shown above or at such other place as the Bank may designate. Payments shall be allocated among principal, interest and fees at the discretion of the Bank unless otherwise agreed or required by applicable law. Acceptance by the Bank of any payment which is less than the payment due at the time shall not constitute a waiver of the Bank's right to receive payment in full at that time or any other time.

       

      Authorization for Direct Payments (ACH Debits). To effectuate any payment due under this Note, the Borrower hereby authorizes the Bank to initiate debit entries to Account Number 300000105104 at the Bank and to debit the same to such account. This authorization to initiate debit entries shall remain in full force and effect until the Bank has received written notification of its termination in such time and in such manner as to afford the Bank a reasonable opportunity to act on it. The Borrower represents that the Borrower is and will be the owner of all funds in such account. The Borrower acknowledges (1) that such debit entries may cause an overdraft of such account which may result in the Bank’s refusal to honor items drawn on such account until adequate deposits are made to such account; (2) that the Bank is under no duty or obligation to initiate any debit entry for any
      purpose; and (3) that if a debit is not made because the above-referenced account does not have a sufficient available balance, or otherwise, the payment may be late or past due.

       

      Late Fee. If any payment is not received by the Bank within ten (10) days after its due date, the Bank may assess and the Borrower agrees to pay a late fee equal to the greater of: (a) five percent (5.00%) of the past due amount or (b) Twenty Five and 00/100 Dollars ($25.00), up to the maximum amount of One Thousand Five Hundred and 00/100 Dollars ($1,500.00) per late charge.

       

      Business Loan. The Borrower acknowledges and agrees that this Note evidences a loan for a business, commercial, agricultural or similar commercial enterprise purpose, and that all advances made under this Note shall not be used for any personal, family or household purpose.

       

      Bank's Right of Setoff.  In addition to the Collateral, if any, the Borrower grants to the Bank a security interest in, and the Bank is authorized to setoff and apply, all Accounts, Securities and Other Property, and Bank Debt against any and all Liabilities of the Borrower. This right of setoff may be exercised at any time and from time to time, and without prior notice to the Borrower. This security interest and right of setoff may be enforced or exercised by the Bank regardless of whether or not the Bank has made any demand under this paragraph or whether the Liabilities are contingent, matured, or unmatured. Any delay, neglect or conduct by the Bank in exercising its rights under this paragraph will not be a waiver of the right to exercise this right of setoff or enforce this security interest. The rights of the Bank under this paragraph are in addition to other rights the
      Bank may have in the Related Documents or by law. In this paragraph: (a) the term "Accounts" means any and all accounts and deposits of the Borrower (whether general, special, time, demand, provisional or final) at any time held by the Bank (including all Accounts held jointly with another, but excluding any IRA or Keogh Account, or any trust Account in which a security interest would be prohibited by law); (b) the term "Securities and Other Property" means any and all securities and other property of the Borrower in the custody, possession or control of the Bank (other than property held by the Bank in a fiduciary capacity); and (c) the term "Bank Debt" means all indebtedness at any time owing by the Bank, to or for the credit or account of the Borrower. 

       

      Representations by Borrower. Each Borrower represents that: (a) the execution and delivery of this Note and the performance of the obligations it imposes do not violate any law, conflict with any agreement by which it is bound, or require the consent or approval of any governmental authority or other third party; (b) this Note is a valid and binding agreement, enforceable according to its terms; and (c) all balance sheets, profit and loss statements, and other financial statements furnished to the Bank in connection with the Liabilities are accurate and fairly reflect the financial condition of the organizations and persons to which they apply on their effective dates, including contingent liabilities of every type, which financial condition has not changed materially and adversely since those dates. Each Borrower, other than a natural person, further represents that: (a) it is
      duly organized, existing and in good standing pursuant to the laws under which it is organized; and (b) the execution and delivery of this Note and the performance of the obligations it imposes (i) are within its powers and have been duly authorized by all necessary action of its governing body, and (ii) do not contravene the terms of its articles of incorporation or organization, its by-laws, or any partnership, operating or other agreement governing its affairs.

       

      Events of Default/Acceleration. If any of the following events occurs this Note shall become due immediately, without notice, at the Bank's option:

       

      

      	
                  1.
 	
                  The Borrower, or any guarantor of this Note (the "Guarantor"), fails to pay when due any amount payable under this Note, under any of the Liabilities, or under any agreement or instrument evidencing debt to any creditor.
 

      

       

      4

       

      
      

      

      

      

      	
                  2.
 	
                  The Borrower or any Guarantor (a) fails to observe or perform any other term of this Note; (b) makes any materially incorrect or misleading representation, warranty, or certificate to the Bank; (c) makes any materially incorrect or misleading representation in any financial statement or other information delivered to the Bank; or (d) defaults under the terms of any agreement or instrument relating to any debt for borrowed money (other than the debt evidenced by this Note) and the effect of such default will allow the creditor to declare the debt due before its maturity.
 

      

      

      	
                  3.
 	
                  In the event (a) there is a default under the terms of the Credit Agreement or any other Related Document, (b) any guaranty of the loan evidenced by this Note is terminated or becomes unenforceable in whole or in part, (c) any Guarantor fails to promptly perform under its guaranty, or (d) the Borrower fails to comply with, or pay, or perform under any agreement, now or hereafter in effect, between the Borrower and JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their successors.
 

      

      

      	
                  4.
 	
                  There is any loss, theft, damage, or destruction of any Collateral not covered by insurance in excess of $1,000,000.00.
 

      

      

      	
                  5.
 	
                  A "reportable event" (as defined in the Employee Retirement Income Security Act of 1974 as amended) occurs that would permit the Pension Benefit Guaranty Corporation to terminate any employee benefit plan of the Borrower or any affiliate of the Borrower.
 

      

      

      	
                  6.
 	
                  The Borrower or any Guarantor becomes insolvent or unable to pay its debts as they become due.
 

      

      

      	
                  7.
 	
                  The Borrower or any Guarantor (a) makes an assignment for the benefit of creditors; (b) consents to the appointment of a custodian, receiver, or trustee for itself or for a substantial part of its assets; or (c) commences any proceeding under any bankruptcy, reorganization, liquidation, insolvency or similar laws of any jurisdiction.
 

      

      

      	
                  8.
 	
                  A custodian, receiver, or trustee is appointed for the Borrower or any Guarantor or for a substantial part of its assets without its consent.
 

      

      

      	
                  9.
 	
                  Proceedings are commenced against the Borrower or any Guarantor under any bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction, and they remain undismissed for thirty (30) days after commencement; or the Borrower or the Guarantor consents to the commencement of those proceedings.
 

      

      

      	
                  10.
 	
                  Any judgment is entered against the Borrower or any Guarantor, or any attachment, levy, or garnishment is issued against any property of the Borrower or any Guarantor in excess of $1,000,000.00 and not covered by insurance.
 

      

      

      	
                  11.
 	
                  The Borrower or any Guarantor dies, or a guardian or conservator is appointed for the Borrower or any Guarantor or all or any portion of the Borrower's assets, any Guarantor's assets, or the Collateral.
 

      

      

      	
                  12.
 	
                  The Borrower or any Guarantor, without the Bank's written consent (a) is dissolved, (b) merges or consolidates with any third party, (c) leases, sells or otherwise conveys a material part of its assets or business outside the ordinary course of its business, (d) leases, purchases, or otherwise acquires a material part of the assets of any other business entity, except in the ordinary course of its business, or (e) agrees to do any of the foregoing (notwithstanding the foregoing, any subsidiary may merge or consolidate with any other subsidiary, or with the Borrower, so long as the Borrower is the survivor).
 

      

      

      	
                  13.
 	
                  There is a substantial change in the existing or prospective financial condition of the Borrower or any Guarantor that the Bank in good faith determines to be materially adverse. 
 

      

       

      Remedies. If this Note is not paid at maturity, whether by acceleration or otherwise, the Bank shall have all of the rights and remedies provided by any law or agreement. The Bank is authorized to cause all or any part of the Collateral to be transferred to or registered in its name or in the name of any other person or business entity, with or without designating the capacity of that nominee. Without limiting any other available remedy, the Borrower is liable for any deficiency remaining after disposition of any Collateral. The Borrower is liable to the Bank for all reasonable costs and expenses of every kind incurred in the making or collection of this Note, including without limitation reasonable attorneys' fees and court costs. These costs and expenses include without limitation any costs or expenses incurred by the Bank in any bankruptcy, reorganization, insolvency or other
      similar proceeding. All amounts payable under the terms of this Note shall be paid without relief from valuation and appraisement laws. 

       

      Waivers. Any party liable on this Note waives (a) to the extent permitted by law, all rights and benefits under any laws or statutes regarding sureties, as may be amended; (b) any right to receive notice of the following matters before the Bank enforces any of its rights: (i) the Bank's acceptance of this Note, (ii) any credit that the Bank extends to the Borrower, (iii) the Borrower's default, (iv) any demand, diligence, presentment, dishonor and protest, or (v) any action that the Bank takes regarding the Borrower, anyone else, any Collateral, or any of the Liabilities, that it might be entitled to by law or under any other agreement; (c) any right to require the Bank to proceed against the Borrower, any other obligor or guarantor of the Liabilities, or any Collateral, or pursue any remedy in the Bank's power to pursue; (d) any defense based on any claim that any endorser or
      other parties' obligations exceed or are more burdensome than those of the Borrower; (e) the benefit of any statute of limitations affecting liability of any endorser or other party liable hereunder or the enforcement hereof; (f) any defense arising by reason of any disability or other defense of the Borrower or by reason of the cessation from any cause whatsoever (other than payment in full) of the obligation of the Borrower for the Liabilities; and (g) any defense based on or arising out of any defense that the Borrower may have to the payment or performance of the Liabilities or any portion thereof. Any party liable on this Note consents to any extension or postponement of time of its payment without limit as to the number or period, to any substitution, exchange or release of all or any part of the Collateral, to the addition of any other party, and to the release or discharge of, or suspension of any rights and remedies against, any person who may be liable for the payment of
      this Note. The Bank may waive or delay enforcing any of its rights without losing them. Any waiver affects only the specific terms and time period stated in the waiver. No modification or waiver of any provision of this Note is effective unless it is in writing and signed by the party against whom it is being enforced.

       

      5

       

      
      

      

      

      Subordination. Any rights of any party liable on this Note, whether now existing or hereafter arising, to receive payment on account of any indebtedness (including interest) owed to any party liable on this Note by the Borrower, or to withdraw capital invested by it in the Borrower, or to receive distributions from the Borrower, shall at all times be subordinate to the full and prior repayment to the Bank of the Liabilities. No party liable on this Note shall be entitled to enforce or receive payment of any sums hereby subordinated until the Liabilities have been paid in full and any such sums received in violation of this paragraph shall be received by such party in trust for the Bank. Any party liable on this Note agrees to stand still with regard to the Bank's enforcement of its rights, including taking no action to delay, impede or otherwise interfere with the Bank's rights to
      realize on the Collateral. The foregoing notwithstanding, until the occurrence of any default, any party liable on this Note is not prohibited from receiving distributions from the Borrower in an amount equal to any income tax liability imposed on such party liable on this Note attributable to an ownership interest in the Borrower, if any. 

       

      Rights of Subrogation. Any party liable on this Note waives and agrees not to enforce any rights of subrogation, contribution or indemnification that it may have against the Borrower, any person liable on the Liabilities, or the Collateral, until the Borrower and such party liable on this Note have fully performed all their obligations to the Bank, even if those obligations are not covered by this Note.

       

      Reinstatement. All parties liable on this Note agree that to the extent any payment is received by the Bank in connection with the Liabilities, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by the Bank or paid over to a trustee, receiver or any other entity, whether under any bankruptcy act or otherwise (any such payment is hereinafter referred to as a "Preferential Payment"), then this Note shall continue to be effective or shall be reinstated, as the case may be, and whether or not the Bank is in possession of this Note, and, to the extent of such payment or repayment by the Bank, the Liabilities or part thereof intended to be satisfied by such Preferential Payment shall be revived and continued in full force and effect as if said Preferential Payment had not been made.

       

      Governing Law and Venue. This Note is delivered in the State of Indiana and governed by Indiana law (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under this Note may be brought by the Bank in any state or federal court located in the State of Indiana, as the Bank in its sole discretion may elect. By the execution and delivery of this Note, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Indiana is not a convenient forum or the proper venue for any such suit, action or proceeding.

       

      Miscellaneous. The Borrower, if more than one, is jointly and severally liable for the obligations represented by this Note, the term "Borrower" means any one or more of them, and the receipt of value by any one of them constitutes the receipt of value by the others. This Note binds the Borrower and its successors, and benefits the Bank, its successors and assigns. Any reference to the Bank includes any holder of this Note. Section headings are for convenience of reference only and do not affect the interpretation of this Note. Any notices and demands under or related to this document shall be in writing and delivered to the intended party at its address stated herein, and if to the Bank, at its main office if no other address of the Bank is specified herein, by one of the following means: (a) by hand, (b) by a nationally recognized overnight courier service, or (c) by certified
      mail, postage prepaid, with return receipt requested. Notice shall be deemed given: (a) upon receipt if delivered by hand, (b) on the Delivery Day after the day of deposit with a nationally recognized courier service, or (c) on the third Delivery Day after the notice is deposited in the mail. "Delivery Day" means a day other than a Saturday, a Sunday, or any other day on which national banking associations are authorized to be closed. Any party may change its address for purposes of the receipt of notices and demands by giving notice of such change in the manner provided in this provision. This Note and any Related Documents embody the entire agreement between the Borrower and the Bank regarding the terms of the loan evidenced by this Note and supersede all oral statements and prior writings relating to that loan. If there is any conflict or inconsistency between the provisions of this Note and the Credit Agreement, the provisions of this Note shall control over conflicting or
      inconsistent provisions of the Credit Agreement, except that Events of Default/Acceleration identified in this Note shall be in addition to any Events of Default identified in the Credit Agreement. If any provision of this Note cannot be enforced, the remaining portions of this Note shall continue in effect. The Borrower agrees that the Bank may provide any information or knowledge the Bank may have about the Borrower or about any matter relating to this Note or the Related Documents to JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their successors, or to any one or more purchasers or potential purchasers of this Note or the Related Documents. The Borrower agrees that the Bank may at any time sell, assign or transfer one or more interests or participations in all or any part of its rights and obligations in this Note to one or more purchasers whether or not related to the Bank.

       

      Government Regulation. Borrower shall not (a) be or become subject at any time to any law, regulation, or list of any government agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Bank from making any advance or extension of credit to Borrower or from otherwise conducting business with Borrower, or (b) fail to provide documentary and other evidence of Borrower's identity as may be requested by Bank at any time to enable Bank to verify Borrower's identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.

       

      USA PATRIOT ACT NOTIFICATION. The following notification is provided to Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318:

       

      6

       

      
      

      

      

       

      IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. What this means for Borrower: When Borrower opens an account, if Borrower is an individual Bank will ask for Borrower's name, taxpayer identification number, residential address, date of birth, and other information that will allow Bank to identify Borrower, and if Borrower is not an individual Bank will ask for Borrower's name, taxpayer identification number, business address, and other information that will allow Bank to identify Borrower. Bank may also ask, if Borrower is an
      individual to see Borrower's driver’s license or other identifying documents, and if Borrower is not an individual to see Borrower's legal organizational documents or other identifying documents.

       

      WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. 

       

      JURY WAIVER. THE BORROWER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE. 

       

      This Note is the “2007 Term Note” defined in the Credit Agreement.

       

      

      	
                   
 	
                   
 	
                   
 	
                  Borrower:
 
	
                  Address:
 	
                  107 W. Franklin Street

      Elkhart, IN 46515
 	
                   
 	
                  Patrick Industries, Inc.
 
	
                   
 	
                   
 	
                   
 	
                  By:
 	
                   
 
	
                   
 	
                   
 	
                   
 	
                   
 	
                  
      

 
	
                   
 	
                   
 	
                   
 	
                   
 	
                   
 	
                   
 
	
                   
 	
                   
 	
                   
 	
                   
 	
                  
      

 	
                  
      

 
	
                   
 	
                   
 	
                   
 	
                   
 	
                  Printed Name
 	
                  Title
 
	
                   
 	
                  Date Signed:
 	
                   
 
	
                   
 	
                   
 	
                  
      

 
							

                  

       

       

      ELDS01 JST 201724v3

       

      7sec document

                                                                   Exhibit 10.51

                          EXCESS WORKERS' COMPENSATION
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                                    issued to

                       AmCOMP Preferred Insurance Company
                            North Palm Beach, Florida
                          AmCOMP Assurance Corporation
                            North Palm Beach, Florida
                                       and
                any and all insurance companies which are now or
          hereafter come under the same ownership or management as the
                                  AmCOMP Group
                            North Palm Beach, Florida

                                TABLE OF CONTENTS

  ARTICLE                                                                 PAGE

     I      Classes of Business Reinsured                                   1
    II      Commencement and Termination                                    1
   III      Special Termination                                             2
    IV      Territory (BRMA 51A)                                            3
     V      Exclusions                                                      3
    VI      Retention and Limit                                             7
   VII      Reinstatement                                                   8
  VIII      Definitions                                                     9
    IX      Other Reinsurance                                              12
     X      Federal Terrorism Recovery                                     12
    XI      Annuities at Company's Option                                  12
   XII      Claims                                                         13
  XIII      Special Commutation                                            13
   XIV      Salvage and Subrogation                                        15
    XV      Premium                                                        15
   XVI      Late Payments                                                  16
  XVII      Offset and Security                                            17
 XVIII      Access to Records (BRMA 1D)                                    18
   XIX      Liability of the Reinsurer                                     18
    XX      Net Retained Lines (BRMA 32E)                                  19
   XXI      Errors and Omissions (BRMA 14F)                                19
  XXII      Currency (BRMA 12A)                                            19
 XXIII      Taxes (BRMA 50B)                                               19
  XXIV      Federal Excise Tax                                             19
   XXV      Reserves                                                       20
  XXVI      Insolvency                                                     21
 XXVII      Arbitration                                                    22
XXVIII      Service of Suit (BRMA 49C)                                     23
  XXIX      Agency Agreement                                               23
   XXX      Governing Law (BRMA 71B)                                       24
  XXXI      Intermediary (BRMA 23A)                                        24
            Schedule A

                          EXCESS WORKERS' COMPENSATION
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                                    issued to

                       AmCOMP Preferred Insurance Company
                            North Palm Beach, Florida
                          AmCOMP Assurance Corporation
                            North Palm Beach, Florida
                                       and
                any and all insurance companies which are now or
          hereafter come under the same ownership or management as the
                                  AmCOMP Group
                            North Palm Beach, Florida
             (HEREINAFTER REFERRED TO COLLECTIVELY AS THE "Company")

                                       by

                   The Subscribing Reinsurer(s) Executing the
                     Interests and Liabilities Agreement(s)
                                 Attached Hereto
                  (HEREINAFTER REFERRED TO AS THE "Reinsurer")

ARTICLE I - CLASSES OF BUSINESS REINSURED

By this Contract the Reinsurer agrees to reinsure the excess liability which may
accrue to the Company under its policies, contracts and binders of insurance or
reinsurance (hereinafter called "policies") in force at the effective date
hereof or issued or renewed on or after that date, and classified by the Company
as Workers' Compensation and Employers Liability business, subject to the terms,
conditions and limitations set forth herein and in Schedule A attached to and
forming part of this Contract.

ARTICLE II - COMMENCEMENT AND TERMINATION

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

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

C.  Unless the Company elects that the Reinsurer have no liability for losses
    arising out of occurrences commencing at or after the effective time and
    date of termination, and so notifies the Reinsurer prior to or as promptly
    as possible after the effective date of termination, reinsurance hereunder

Page 1

    on business in force at the effective time and date of termination shall
    remain in full force and effect until expiration, cancellation or next
    premium anniversary of such business, whichever first occurs, but in no
    event beyond 12 months, plus odd time (not to exceed 18 months in all),
    following the effective time and date of termination.

D.  Notwithstanding the provisions above, in the event that any policy subject
    to this Contract is required by statute, regulation or by order of an
    insurance department to be continued in force, the Reinsurer agrees to
    extend reinsurance coverage hereunder following the termination of this
    Contract with respect to such policy until the first date that the Company
    may lawfully non-renew, cancel or terminate such policy, whether or not the
    Company actually does non-renew, cancel or terminate such policy. However,
    under no circumstances shall runoff coverage under this paragraph exceed 23
    months.

E.  "Contract year" as used herein shall mean the period from 12:01 a.m., Local
    Standard Time, January 1, 2007, to 12:01 a.m., Local Standard Time January
    1, 2008, and each subsequent 12-month period (or portion thereof) thereafter
    that this Contract continues in force shall be a separate contract year. If
    this Contract is terminated on a "runoff" basis, the period from the
    effective date of termination through the end of the "runoff" period shall
    be a separate contract year and referred to as the "runoff contract year."

ARTICLE III - SPECIAL TERMINATION

A.  Notwithstanding the provisions of paragraph B of the Commencement and
    Termination Article, either party may terminate this Contract at any time by
    giving the other party not less than 30 days prior written notice in the
    event any of the following circumstances occur (if terminated by either
    party, said termination shall be on a "runoff" basis unless the Company
    elects to have such termination on a "cutoff" basis):

     1. The other party's policyholders' surplus at the beginning of any
        contract year has been reduced by more than 30.0% of the amount of
        surplus 12 months prior to that date; or

     2. The other party's policyholders' surplus at any time during any contract
        year has been reduced by more than 30.0% of the amount of surplus at the
        date of the other party's most recent financial statement filed with
        regulatory authorities and available to the public as of the beginning
        of the contract year; or

     3. The other party has become merged with, acquired by or controlled by any
        other company, corporation or individual(s) not controlling the other
        party's operations previously; however, this subparagraph shall not
        apply to the sale of stock to a non-acquiring entity or where the
        acquiring company, corporation or individual(s) has an A.M. Best's
        rating higher than the rating held by the other party at the beginning
        of the contract year; or

     4. The State Insurance Department or other legal authority in the other
        party's state of domicile has ordered the other party to cease writing
        business; or

     5. The other party has become insolvent or has been placed into liquidation
        or receivership (whether voluntary or involuntary) or proceedings have
        been instituted against the other party for the appointment of a
        receiver, liquidator, rehabilitator, conservator or trustee in

Page 2

        bankruptcy, or other agent known by whatever name, to take possession of
        its assets or control of its operations; or

     6. The other party has ceased writing new or renewal property and casualty
        business.

B.  Notwithstanding the provisions of paragraph B of the Commencement and
    Termination Article, the Company may terminate a Subscribing Reinsurer's
    percentage share in this Contract by giving not less than 30 days prior
    written notice to the Subscribing Reinsurer in the event the Subscribing
    Reinsurer's A.M. Best's rating has been assigned or downgraded below A-
    (includes any "Not Rated" rating) and/or Standard & Poor's rating has been
    assigned or downgraded below BBB+.

C.  Notwithstanding the provisions of paragraph B of the Commencement and
    Termination Article, a Subscribing Reinsurer may terminate its percentage
    share in this Contract by giving the Company not less than 30 days prior
    written notice in the event any of the following circumstances occur (said
    termination shall be on a "runoff" basis unless the Company elects to have
    such termination on a "cutoff" basis; however, termination shall be on a
    "cutoff" basis if the Subscribing Reinsurer terminates because the Company
    has failed to pay premium):

     1. 51.0% or more of the Company or its portfolio is purchased or sold; or

     2. The Company has failed to pay reinsurance premiums in accordance with
        this Contract; or

     3. A material change has occurred in any two of the Company's three senior
        officers (i.e., the Chief Executive Officer, the President, or the Chief
        Financial Officer).

ARTICLE IV - TERRITORY (BRMA 51A)

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

ARTICLE V - EXCLUSIONS

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

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

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

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

     2. Ex-gratia payments.

Page 3

     3. Risks subject to a deductible in excess of $25,000, or a self-insured
        retention excess of $25,000, unless such deductible or self-insured
        retention is otherwise mandated by statute or regulatory authority.

     4. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
        Liability - Reinsurance (U.S.A.)" and loss or liability defined in the
        "Nuclear Incident Exclusion Clause - Reinsurance - No. 4" attached to
        and forming part of this Contract.

     5. Pollution liability coverages excluded under the provisions of the
        "Pollution Exclusion Clause - General Liability - Reinsurance (BRMA
        39C)" attached to and forming part of this Contract.

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

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

     8. Loss or liability as excluded in the "War Risk Exclusion Clause
        (Reinsurance)" attached to and forming part of this Contract. However,
        this exclusion shall not apply to an act of terrorism that is certified
        by the Secretary of Treasury, in concurrence with the Secretary of State
        and the Attorney General of the United States.

     9. Operation under the jurisdiction of the United States Longshore and
        Harbor Workers' Compensation Act or the Jones Act, except for incidental
        exposures (i.e., 10.0% or less of the insured's estimated payroll when
        the account is quoted).

    10. Operations employing the process of nuclear fission or fusion or
        handling of radioactive material, which operations include but are not
        limited to:

        a.  The use of nuclear reactors such as atomic piles, particle
            accelerators or generators; or

        b.  The use, handling or transportation of radioactive materials, or the
            use, handling or transportation of any weapon of war or explosive
            device employing nuclear fission or fusion.

        However, subparagraphs a and b above shall not apply to:

            i.  The exclusive use of particle accelerators incidental to
                ordinary industrial or education research pursuits, or

Page 4

           ii.  The exclusive use, handling or transportation of radioisotopes
                for medical or industrial use, or to radium or radium compounds.

    11. Operation of docks or wharves as related to port authorities.

    12. The manufacturing, mining, refining, processing, distribution,
        installation, removal or encapsulment of asbestos.

    13. Risks involving known exposure to the following substances:

        a. Dioxin;

        b. Polychlorinated biphenols;

        c. Asbestos.

    14. All railway operations except sidetrack agreements.

    15. Amusement parks, carnivals or circuses. This exclusion shall not apply
        to miniature golf courses or driving range operations.

    16. Subaquaeous operations.

    17. Underground mining; however, this exclusion shall not be construed to
        apply to open-pit quarrying or "surface mining" operations.

    18. Blasting operations, except for incidental exposures (i.e., 10.0% or
        less of the insured's estimated payroll when the account is quoted).

    19. Demolition of buildings or structures in excess of five stories.

    20. Shoring and moving of buildings or structures, or underpinning that
        involves pier and beam construction, commercial buildings with more than
        three stories or hillside building reinforcements. However, this
        exclusion shall not apply to foundation repair risks for which neither
        the insured nor its employees are in tunnels or are otherwise working
        under buildings.

    21. Erection or repair of scaffolds if 10.0% or more of the insured's annual
        remuneration is attributed to NCCI Class Code 9529.

    22. Construction of tunnels or dams.

    23. Fireworks, fuses, or any explosive substance (as defined below) as
        follows:

        a. Manufacturers or importers of such items;

        b.  Loading of such items into containers for use as explosive objects,
            propellant charges or detonation devices and the storage thereof
            (except as previously provided for, on an incidental basis, in
            exclusion 18);

        c.  Manufacturers or importers of any product in which such items are an
            ingredient;

Page 5

        d.  Handling, storage, transportation or use of such items (except as
            previously provided for, on an incidental basis, in exclusion 18).

        "Explosive substance" is defined as any substance manufactured for the
        express purpose of exploding as differentiated from commodities used
        industrially and which are only incidentally explosive.

    24. Onshore and offshore gas and oil drilling operations.

    25. Operations where principal business includes the use of any owned or
        unowned aircraft, or any device or machine intended for and/or aiding in
        the achievement of atmospheric flight, projection or orbit, and/or the
        ownership or operation of any airport. This exclusion shall not apply
        where exposure is incidental (i.e., constitutes 10.0% or less of the
        insured's payroll) to the principal business operations and the aircraft
        contains eight seats or fewer.

    26. Municipal law enforcement organizations and municipal fire fighting
        organizations, whether professional or voluntary. This exclusion shall
        not apply to off-duty law enforcement officers when employed by an
        entity other than a municipality for duties performed within the scope
        of the job for which they were hired.

    27. Logging or forestry operations.

    28. Professional employment organizations (PEOs).

    29. Professional sports teams.

    30. Operations where the principal business of the risk is manufacturing,
        production, distribution, refining or storage of natural or artificial
        fuel, gas, butane, propane, liquefied petroleum gases or gasoline. This
        exclusion shall not apply to any risk whose principal business
        operations are any of the following:

        a.  Retail gasoline service station, either full or self service, or
            retail gasoline marina;

        b.  Convenience store with gasoline sales with its petroleum gas and/or
            storage tanks located below ground.

    31. Acts of terrorism, as defined in paragraph G of the Definitions Article,
        that:

        a.  Involve the use, release or escape of nuclear materials; or

        b.  Directly or indirectly result in nuclear reaction or radiation or
            radioactive contamination; or

        c.  Are carried out by means of the dispersal or application of
            pathogenic or poisonous biological or chemical materials where it
            appears that one purpose of the act of terrorism was to release such
            materials.

    32. Business reinsured by the Minnesota Workers' Compensation Reinsurance
        Association, whether contractually assumed or imposed by law, including,

Page 6

        but not limited to, direct or indirect loss, damage, liability, cost or
        expense. However, this exclusion shall not apply to:

        a.  Losses paid within the Company's net retention; or

        b.  Losses paid in excess of the benefits allowed under Minnesota
            Workers' Compensation law.

B.  In the event the Company is inadvertently bound on any risk which is
    excluded under subparagraph 9 or subparagraphs 14 through 30 of paragraph A
    above, the reinsurance provided under this Contract shall apply on such risk
    until discovery by the Company of the existence of such risk and for 30 days
    thereafter, or for a period of time specific to the applicable state
    cancellation requirements, not to exceed 120 days. This limitation shall not
    apply as respects Arizona. Coverage shall cease after such time or at policy
    anniversary as respects Arizona policies, unless the Company has received
    from the Reinsurer written notice of its approval of such risk within 30
    days.

C.  Notwithstanding the foregoing, any reinsurance falling within the scope of
    one or more of the exclusions set forth above that is specially accepted by
    the Reinsurer from the Company shall be covered under this Contract and
    subject to all of the terms and conditions hereof, except as such terms are
    modified by the special acceptance. In the event a reinsurer becomes a party
    to this Contract subsequent to one or more special acceptances hereunder,
    the new reinsurer shall automatically accept such special acceptance(s) as
    being covered hereunder.

ARTICLE VI - RETENTION AND LIMIT

A.  As respects all losses subject hereto, except losses arising out of an
    occurrence of an act of terrorism, as respects each excess layer of
    reinsurance coverage provided by this Contract, the Company shall retain and
    be liable for the first amount of ultimate net loss (whether involving any
    one or any combination of the classes of business covered hereunder,
    regardless of the number of policies under which such loss is payable or the
    number of different interests insured), shown as "Company's Retention" for
    that excess layer in Schedule A attached hereto, arising out of each
    occurrence. The Reinsurer shall then be liable, as respects each excess
    layer, for the amount by which such ultimate net loss exceeds the Company's
    retention, but the liability of the Reinsurer shall not exceed the amount,
    shown as "Reinsurer's Per Occurrence Limit" for that excess layer in
    Schedule A attached hereto, as respects any one occurrence.

B.  As respects losses arising out of an occurrence of an act of terrorism, as
    respects each excess layer of reinsurance coverage provided hereunder, the
    Company shall retain and be liable for the first amount of ultimate net
    loss, shown as "Company's Retention" for that excess layer in Schedule A
    attached hereto, arising out of each occurrence. The Reinsurer shall then be
    liable, as respects each excess layer, for the amount by which such ultimate
    net loss exceeds the Company's retention, but the liability of the Reinsurer
    shall not exceed the amount shown as "Reinsurer's Terrorism Per Occurrence
    Limit" for that excess layer in Schedule A attached hereto as respects any
    one occurrence of an act of terrorism, nor shall it exceed the amount shown
    as "Reinsurer's Contract Year Terrorism Limit" for that excess layer in
    Schedule A attached hereto as respects loss or losses arising out of all
    occurrences of acts of terrorism during any one contract year.

                                     Page 7

C.  The Company deems that the maximum Employers Liability policy limit subject
    hereto shall not exceed $1,000,000 for policies issued in Texas and
    Illinois, or $2,000,000 for all other policies. Policy limits in excess of
    the permissible amounts may be submitted by special acceptance to the
    Reinsurer for coverage hereunder, subject to the provisions of paragraph C
    of the Exclusions Article.

ARTICLE VII - REINSTATEMENT

A.  In the event all or any portion of the reinsurance under any excess layer of
    reinsurance coverage provided by paragraph A of the Retention and Limit
    Article of this Contract is exhausted by loss, the amount so exhausted shall
    be reinstated immediately from the time the occurrence commences hereon.

    1.  As respects each amount so reinstated under the first excess layer, the
        Company shall pay no additional premium.

    2.  As respects each amount so reinstated under the second excess layer, the
        Company agrees to pay additional premium equal to the product of the
        following:

        a.  The percentage of the occurrence limit for the second excess layer
            reinstated (based on the loss paid by the Reinsurer under that
            excess layer); times

        b.  The earned reinsurance premium for the second excess layer for the
            contract year (exclusive of reinstatement premium).

B.  Whenever the Company requests payment by the Reinsurer of any loss under the
    second excess layer that triggers additional reinstatement premium to be
    paid hereunder, the Company shall submit a statement to the Reinsurer of
    reinstatement premium due the Reinsurer for that excess layer. If the earned
    reinsurance premium for the second excess layer for the contract year has
    not been finally determined as of the date of any such statement, the
    calculation of reinstatement premium due for that excess layer shall be
    based on the annual deposit premium for that excess layer and shall be
    readjusted when the earned reinsurance premium for that excess layer for the
    contract year has been finally determined. Any reinstatement premium shown
    to be due the Reinsurer for the second excess layer as reflected by any such
    statement (less prior payments, if any, for that excess layer) shall be
    payable by the Company concurrently with payment by the Reinsurer of the
    requested loss for that excess layer. Any return reinstatement premium shown
    to be due the Company shall be remitted by the Reinsurer as promptly as
    possible after receipt and verification of the Company's statement.

C.  Notwithstanding anything stated herein, the liability of the Reinsurer under
    each excess layer of reinsurance coverage provided by this Contract shall
    not exceed any of the following:

    1.  The amount, shown as "Reinsurer's Per Occurrence Limit" for that excess
        layer in Schedule A attached hereto, as respects loss or losses arising
        out of any one occurrence which is not an act of terrorism;

Page 8

    2.  The amount, shown as "Reinsurer's Terrorism Per Occurrence Limit" for
        that excess layer in Schedule A attached hereto, as respects loss or
        losses arising out of any one occurrence of an act of terrorism;

    3.  The amount, shown as "Reinsurer's Contract Year Limit" for that excess
        layer in Schedule A attached hereto as respects loss or losses arising
        out of all occurrences commencing during any one contract year; or

    4.  The amount, shown as "Reinsurer's Contract Year Terrorism Limit" for
        that excess layer in Schedule A attached hereto, as respects loss or
        losses arising out of all occurrences of acts of terrorism commencing
        during any one contract year.

ARTICLE VIII - DEFINITIONS

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

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

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

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

    Notwithstanding anything stated herein, this Contract shall not apply to any
    loss in excess of policy limits or any extra contractual obligation incurred
    by the Company as a result of any fraudulent and/or criminal act by any

Page 9

    officer or director of the Company acting individually or collectively or in
    collusion with any individual or corporation or any other organization or
    party involved in the presentation, defense or settlement of any claim
    covered hereunder.

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

C.  "Occurrence" as used herein is defined as an accident or occurrence or a
    series of accidents or occurrences arising out of or caused by one event,
    whether involving one or more of the Company's policies, except that:

    1.  As respects Workers' Compensation policies, each occupational or
        industrial disease or cumulative injury case contracted by an employee
        of an insured shall be deemed to have been caused by a separate
        occurrence commencing on:

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

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

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

    2 . Notwithstanding the provisions of subparagraph 1 above, as respects
        losses resulting from occupational or industrial disease and cumulative
        injury suffered by employees of an insured for which the employer is
        liable as a result of a sudden and accidental event not exceeding 72
        hours in duration, all such losses shall be considered one occurrence
        and may be combined with losses not classified as occupational or
        industrial disease or cumulative injury which arise out of the same
        event and the combination of such losses shall be considered as one
        occurrence within the meaning hereof.

    3 . Notwithstanding the foregoing, the following shall apply to occurrences
        involving natural disasters:

        a.  An occurrence shall be limited to damage, injury or loss arising out
            of a natural disaster during any continuous 168 hour period.

        b.  The Company may choose the date and time when such 168 hour period
            commences and if the occurrence is of greater duration than 168
            hours, the Company may divide such occurrence into two or more
            occurrences, provided no two periods overlap and provided no period
            commences earlier than the date and time of the first loss to the
            Company in such occurrence.

        c.  "Natural disaster" shall mean loss caused by the perils of tornado,
            cyclone, windstorm, hurricane and hail arising from the same
            atmospheric disturbance; earthquake, including ensuing fire,
            landslide, mudslide, flood, tidal wave; volcanic eruptions; flood;
            tides; tidal wave; landslide/mudslide; and meteors.

                                    Page 10

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

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

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

    3.  It has resulted in a disability or death.

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

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

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

    3.  It has resulted in a disability or death.

F.  "Loss adjustment expense" as used herein shall mean expenses assignable to
    the investigation, appraisal, adjustment, settlement, litigation, defense
    and/or appeal of specific claims, regardless of how such expenses are
    classified for statutory reporting purposes. Loss adjustment expense shall
    include, but not be limited to, interest on judgments, expenses of outside
    adjusters and claim-specific declaratory judgment expenses or other legal
    expenses and costs incurred in connection with coverage questions and legal
    actions connected thereto, but shall not include office expenses or salaries
    of the Company's regular employees other than medical management personnel
    whose cost the Company will bill to specific cases on a time and expense
    basis.

G.  "Act of terrorism" as used herein shall include all loss, cost or expense,
    including fire following, related directly or indirectly from either:

    1.  Any act of any person or persons either acting on behalf of or in
        connection with any organization or group with activities directed
        towards overthrowing, intimidating, coercing or influencing any
        government DE JURE or DE FACTO or its populace or its economic,
        political or social systems, by force, violence, weapons of mass
        destruction, disruption or subversion of communication and information
        system infrastructures and/or its content thereof, or sabotage, and/or
        threat therefrom; or

    2.  An act of terrorism that is certified by the Secretary of Treasury, in
        concurrence with the Secretary of State and the Attorney General of the
        United States.

    Terrorism losses also include all actual or alleged losses, liabilities,
    damages, injuries, defense costs, and costs or expenses directly or
    indirectly arising out of, contributed by, caused by, resulting from, or in
    connection with any action taken in controlling, preventing, suppressing,
    retaliating against, or responding to such acts.

Page 11

    Notwithstanding the above, in the event of an occurrence which arises out of
    an act of workplace violence and is not consistent with the provisions of
    subparagraphs 1 and 2 of this paragraph G, such loss shall be covered
    hereunder, subject to the provisions of the Exclusions Article and all other
    provisions of this Contract and shall not be considered an act of terrorism.
    Further, any occurrence which is not or cannot be determined, classified or
    certified in accordance with the provisions of subparagraphs 1 and 2 of this
    paragraph G shall be covered hereunder and not considered an act of
    terrorism.

H.  "Declaratory judgment expenses" as used herein shall mean all expenses
    incurred by the Company in connection with declaratory judgment actions
    brought to determine the Company's defense and/or indemnification
    obligations that are assignable to specific policies and claims subject to
    this Contract. Declaratory judgment expenses shall be deemed to have been
    incurred by the Company on the date of the original loss (if any) giving
    rise to the declaratory judgment action. In the event there is no loss other
    than declaratory judgment expenses with respect to any claim hereunder, such
    expenses shall be deemed loss for purposes of this Contract.

ARTICLE IX - OTHER REINSURANCE

A.  The Company shall be permitted to carry facultative reinsurance, recoveries
    under which shall inure to the benefit of this Contract.

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

ARTICLE X - FEDERAL TERRORISM RECOVERY

A.  Any loss reimbursement the Company receives from the United States
    Government under the Terrorism Risk Insurance Act of 2002, as amended by the
    Terrorism Risk Insurance Extension Act of 2005 (together the "Terrorism
    Act") as a result of occurrences commencing during each contract year shall
    inure to the benefit of this Contract in the proportion that the Company's
    insured losses (as defined in the Terrorism Act) in that occurrence under
    policies reinsured under this Contract bear to the Company's total insured
    losses in that occurrence.

B.  If a loss reimbursement received by the Company under the Terrorism Act is
    based on the Company's insured losses in more than one occurrence and the
    United States Government does not designate the amount allocable to each
    occurrence, the reimbursement shall be prorated in the proportion that the
    Company's insured losses in each occurrence bear to the Company's total
    insured losses arising out of all occurrences to which the recovery applies.

ARTICLE XI - ANNUITIES AT COMPANY'S OPTION

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

Page 12

    ultimate net loss, provided such annuity or structured settlement terms
    grant the Company full and final release as respects the indemnity portion
    of the settlement. Additionally, it is the Company's intent to place all
    annuities or structured settlements with a carrier whose A.M. Best's rating
    is "A" or better.

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

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

ARTICLE XII - CLAIMS

A.  Whenever a claim or settlement by the Company hereunder is for an amount
    greater than $1,000,000 and/or whenever a claim appears likely to result in
    a claim under this Contract, the Company shall notify the Reinsurer.
    Further, the Company shall notify the Reinsurer whenever a claim involves a
    fatality, amputation, spinal cord damage, brain damage, blindness or
    extensive burns, regardless of liability, including all subsequent
    developments. The Reinsurer shall have the right to participate, at its own
    expense, in the defense of any claim or suit or proceeding involving this
    reinsurance. The Company shall also provide any additional information that
    from time to time may be reasonably required by the Reinsurer to ascertain
    liability under this Contract.

B.  All claim settlements made by the Company, provided such settlements are
    within the terms of this Contract, shall be binding upon the Reinsurer, and
    the Reinsurer agrees to pay all amounts for which it is liable upon receipt
    of reasonable evidence of the amount paid by the Company.

ARTICLE XIII - SPECIAL COMMUTATION

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

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

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

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

Page 13

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

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

D.  If agreement, as outlined in paragraphs A, B and C, cannot be reached,
    either party can abandon the commutation effort, or the Company and the
    Subscribing Reinsurer may seek to settle any difference by mutually
    appointing an independent actuary.

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

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

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

Page 14

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

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

    3.  Is disinterested and impartial regarding this commutation.

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

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

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

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

ARTICLE XIV - SALVAGE AND SUBROGATION

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

ARTICLE XV - PREMIUM

A.  As premium for each excess layer of reinsurance coverage provided by this
    Contract, the Company shall pay the Reinsurer the greater of the following
    for each contract year (except the runoff contract year, if any):

    1.  The amount (or pro rata portion thereof if this Contract is terminated
        prior to the end of any 12-month contract year in accordance with the
        provisions of the Special Termination Article), shown as "Annual Minimum
        Premium" for that excess layer in Schedule A attached hereto; or

    2.  The percentage, shown as "Premium Rate" for that excess layer in
        Schedule A attached hereto, of the Company's net earned premium for the
        contract year.

                                    Page 15

B.  The Company shall pay the Reinsurer an annual deposit premium for each
    excess layer of the amount, shown as "Annual Deposit Premium" for that
    excess layer in Schedule A attached hereto, in four equal installments of
    the amount, shown as "Quarterly Deposit Premium" for that excess layer in
    Schedule A attached hereto, on January 1, April 1, July 1 and October 1 of
    each contract year (except the runoff contract year, if any). However, no
    deposit premium installments shall be due after the effective date of
    termination.

C.  Within 60 days following the end of each contract year (except the runoff
    contract year, if any) and within 60 days following the 12-month period
    thereafter, the Company shall provide a report to the Reinsurer setting
    forth the premium due hereunder for each excess layer for the contract year,
    computed in accordance with paragraph A, and any additional premium due the
    Reinsurer for each such excess layer shall be remitted by the Company with
    its report. If the premium so computed for any excess layer is less than the
    previously paid, but more than the minimum premium, for that excess layer,
    the balance shall be returned by the Reinsurer to the Company within 30 days
    of the report.

D.  In the event this Contract is terminated on a "runoff" basis, the Company
    shall pay the Reinsurer premium for each excess layer for the runoff
    contract year equal to the percentage, shown as "Premium Rate" for that
    excess layer in Schedule A attached hereto, of the Company's unearned
    premium for that excess layer applicable to subject business in force on the
    effective date of termination, payable in two equal installments on the
    first day of each six-month period during the runoff contract year.

E.  "Net earned premium" as used herein is defined as the Company's gross earned
    premium for the classes of business subject to this Contract (exclusive of
    premium for business covered by the Minnesota Workers' Compensation
    Reinsurance Association), adjusted for experience modification, discounts,
    credits, surcharges, expense constants and deductible credits, plus or minus
    the Reinsurer's pro rata share of any premium arising from audit
    adjustments, minus premiums paid for facultative reinsurance which inures to
    the benefit of this Contract.

ARTICLE XVI - LATE PAYMENTS

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

B.  In the event any premium, loss or other payment due either party is not
    received by the intermediary named in the Intermediary Article (BRMA 23A)
    (hereinafter referred to as the "Intermediary") by the payment due date, the
    party to whom payment is due may, by notifying the Intermediary in writing,
    require the debtor party to pay, and the debtor party agrees to pay, an
    interest penalty on the amount past due calculated for each such payment on
    the last business day of each month as follows:

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

    2.  1/365ths of the six-month United States Treasury Bill rate as quoted in
        THE WALL STREET JOURNAL on the first business day of the month for which
        the calculation is made; times

    3.  The amount past due, including accrued interest.

Page 16

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

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

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

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

3.      As respects any payment, adjustment or return due either party not
        otherwise provided for in subparagraphs 1 and 2 above, the due date
        shall be as provided for in the applicable section of this Contract. In
        the event a due date is not specifically stated for a given payment, it
        shall be deemed due 30 days following transmittal of written
        notification that the provisions of this Article have been invoked.

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

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

E.  Interest penalties arising out of the application of this Article that are
    $50,000 or less from any party shall be waived unless there is a pattern of
    late payments consisting of three or more items over the course of any
    12-month period.

ARTICLE XVII - OFFSET AND SECURITY

A.  Each party hereto has the right, which may be exercised at any time, to
    offset any amounts, whether on account of premiums or losses or otherwise,
    due from such party to another party under this Contract or any other

Page 17

    reinsurance contract heretofore or hereafter entered into between them,
    against any amounts, whether on account of premiums or losses or otherwise
    due from the latter party to the former party. The party asserting the right
    of offset may exercise this right, whether as assuming or ceding insurer or
    in both roles in the relevant agreement or agreements.

B.  Each party hereby assigns and pledges to the other party (or to each other
    party, if more than one) all of its rights under this Contract to receive
    premium or loss payments at any time from such other party ("collateral"),
    to secure its premium or loss obligations to such other party at any time
    under this Contract and any other reinsurance agreement heretofore or
    hereafter entered into by and between them ("secured obligations"). If at
    any time a party is in default under any secured obligation or shall be
    subject to any liquidation, rehabilitation, reorganization or conservation
    proceeding, each other party shall be entitled in its discretion, to apply,
    or to withhold for the purpose of applying in due course, any collateral
    assigned and pledged to it by the former party and otherwise to realize upon
    such collateral as security for such secured obligations.

C.  The security interest described herein, and the term "collateral," shall
    apply to all payments and other proceeds in respect of the rights assigned
    and pledged. A party's security interest in collateral shall be deemed
    evidenced only by the counterpart of this Contract delivered to such party.

D.  Each right under this Article is a separate and independent right,
    exercisable, without notice or demand, alone or together with other rights,
    in the sole election of the party entitled thereto, and no waiver, delay, or
    failure to exercise, in respect of any right, shall constitute a waiver of
    any other right. The provisions of this Article shall survive any
    cancellation or other termination of this Contract.

E.  In the event of the insolvency of a party hereto, offsets shall only be
    allowed in accordance with the laws of the insolvent party's state of
    domicile.

ARTICLE XVIII - ACCESS TO RECORDS (BRMA 1D)

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

ARTICLE XIX - LIABILITY OF THE REINSURER

A.  The liability of the Reinsurer shall follow that of the Company in every
    case and be subject in all respects to all the general and specific
    stipulations, clauses, waivers and modifications of the Company's policies
    and any endorsements thereon. However, in no event shall this be construed
    in any way to provide coverage outside the terms and conditions set forth in
    this Contract.

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

                                    Page 18

ARTICLE XX - NET RETAINED LINES (BRMA 32E)

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

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

ARTICLE XXI - ERRORS AND OMISSIONS (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.

ARTICLE XXII - CURRENCY (BRMA 12A)

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

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

ARTICLE XXIII - TAXES (BRMA 50B)

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

ARTICLE XXIV - FEDERAL EXCISE TAX

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

Page 19

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

ARTICLE XXV - RESERVES

(Applies only to a reinsurer which (1) does not qualify for full credit with any
insurance regulatory authority having jurisdiction over the Company's reserves,
or (2) which is or becomes rated "B++" or lower or holds a "Not Rated" rating by
A.M. Best or is or becomes rated BBB+ or lower by Standard & Poor's, unless the
Reinsurer has an A.M. Best's rating of "A" or Standard & Poor's rating of "A"
and group policyholders' surplus equal to or above $2,000,000,000 at the
inception of this Contract)

A.  As regards policies or bonds issued by the Company coming within the scope
    of this Contract, the Company agrees that when it shall file with the
    insurance regulatory authority or set up on its books reserves for losses
    covered hereunder which it shall be required by law to set up, it will
    forward to the Reinsurer a statement showing the proportion of such reserves
    which is applicable to the Reinsurer. The Reinsurer hereby agrees to fund
    such reserves in respect of known outstanding losses that have been reported
    to the Reinsurer and allocated loss adjustment expense relating thereto,
    losses and allocated loss adjustment expense paid by the Company but not
    recovered from the Reinsurer, plus reserves for losses and allocated loss
    adjustment expense incurred but not reported, as shown in the statement
    prepared by the Company (hereinafter referred to as "Reinsurer's
    Obligations") by Regulation 114 trust accounts, funds withheld, cash
    advances or a Letter of Credit, or combination thereof. For purposes of this
    Contract, the Lloyd's United States Credit for Reinsurance Trust Fund and
    the Hannover Re U.S. Master Trust shall be considered acceptable funding
    instruments. The Reinsurer shall have the option of determining the method
    of funding provided it is acceptable to the insurance regulatory authorities
    having jurisdiction over the Company's reserves.

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

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

Page 20

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

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

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

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

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

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

E.  At quarterly intervals and on an estimated basis 45 days prior to each
    December 31, or more frequently as agreed but never more frequently than
    quarterly, the Company shall prepare a specific statement of the Reinsurer's
    Obligations, for the sole purpose of amending the Letter of Credit, in the
    following manner:

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

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

ARTICLE XXVI - INSOLVENCY

A.  In the event of the insolvency of one or more of the reinsured companies,
    this reinsurance shall be payable directly to the company or to its
    liquidator, receiver, conservator or statutory successor on the basis of the
    liability of the company without diminution because of the insolvency of the
    company or because the liquidator, receiver, conservator or statutory
    successor of the company has failed to pay all or a portion of any claim. It
    is agreed, however, that the liquidator, receiver, conservator or statutory
    successor of the company shall give written notice to the Reinsurer of the

Page 21

    pendency of a claim against the company indicating the policy or bond
    reinsured which claim would involve a possible liability on the part of the
    Reinsurer within a reasonable time after such claim is filed in the
    conservation or liquidation proceeding or in the receivership, and that
    during the pendency of such claim, the Reinsurer may investigate such claim
    and interpose, at its own expense, in the proceeding where such claim is to
    be adjudicated, any defense or defenses that it may deem available to the
    company or its liquidator, receiver, conservator or statutory successor. The
    expense thus incurred by the Reinsurer shall be chargeable, subject to the
    approval of the Court, against the company as part of the expense of
    conservation or liquidation to the extent of a pro rata share of the benefit
    which may accrue to the company solely as a result of the defense undertaken
    by the Reinsurer.

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

C.  It is further understood and agreed that, in the event of the insolvency of
    one or more of the reinsured companies, the reinsurance under this Contract
    shall be payable directly by the Reinsurer to the company or to its
    liquidator, receiver or statutory successor, except as provided by Section
    4118(a) of the New York Insurance Law or except (1) where this Contract
    specifically provides another payee of such reinsurance in the event of the
    insolvency of the company or (2) where the Reinsurer with the consent of the
    direct insured or insureds has assumed such policy obligations of the
    company as direct obligations of the Reinsurer to the payees under such
    policies and in substitution for the obligations of the company to such
    payees.

ARTICLE XXVII - ARBITRATION

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

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

Page 22

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

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

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

ARTICLE XXVIII - SERVICE OF SUIT (BRMA 49C)

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

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

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

ARTICLE XXIX - AGENCY AGREEMENT

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

Page 23

ARTICLE XXX - GOVERNING LAW (BRMA 71B)

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

ARTICLE XXXI - INTERMEDIARY (BRMA 23A)

Benfield Inc. is hereby recognized as the Intermediary negotiating this Contract
for all business hereunder. All communications (including but not limited to
notices, statements, premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating thereto shall be
transmitted to the Company or the Reinsurer through Benfield Inc. Payments by
the Company to the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to
constitute payment to the Company only to the extent that such payments are
actually received by the Company.

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

North Palm Beach, Florida,this ______ day of _____________ in the year ________.

                    ____________________________________________________________
                    AmCOMP Preferred Insurance Company
                    AmCOMP Assurance Corporation
                    any and all insurance companies which are now or hereafter
                    come under the same ownership or management as the AmCOMP
                    Group

Page 24

                                   SCHEDULE A

                          EXCESS WORKERS' COMPENSATION
                              REINSURANCE CONTRACT
                           EFFECTIVE: JANUARY 1, 2007

                                    issued to

                       AmCOMP Preferred Insurance Company
                            North Palm Beach, Florida
                          AmCOMP Assurance Corporation
                            North Palm Beach, Florida
                                       and
                any and all insurance companies which are now or
          hereafter come under the same ownership or management as the
                                  AmCOMP Group
                            North Palm Beach, Florida

                                         FIRST                 SECOND
                                         EXCESS                EXCESS

Company's Retention                    $2,000,000            $5,000,000

Reinsurer's Per                        $3,000,000            $5,000,000
Occurrence Limit

Reinsurer's Terrorism Per              $3,000,000            $5,000,000
Occurrence Limit

Reinsurer's Contract                  $27,000,000           $10,000,000
Year Limit

Reinsurer's Contract Year              $3,000,000            $5,000,000
Terrorism Limit

Annual Minimum Premium                 $5,152,000            $1,218,800

Premium Rate                               2.325%                0.550%

Annual Deposit Premium                 $6,440,000            $1,523,500

Quarterly Deposit Premium              $1,610,000              $380,875

The figures listed above for each excess layer shall apply to each Subscribing
Reinsurer in the percentage share for that excess layer as expressed in its
Interests and Liabilities Agreement attached hereto.

Schedule A

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

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

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

    LIMITED EXCLUSION PROVISION.*

    I.  It is agreed that the policy does not apply under any liability
        coverage, to
            (INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION
            (bodily injury or property damage
        with respect to which an insured under the policy is also an insured
        under a nuclear energy liability policy issued by Nuclear Energy
        Liability Insurance Association, Mutual Atomic Energy Liability
        Underwriters or Nuclear Insurance Association of Canada, or would be an
        insured under any such policy but for its termination upon exhaustion of
        its limit of liability.
   II.  Family Automobile Policies (liability only), Special Automobile Policies
        (private passenger automobiles, liability only), Farmers Comprehensive
        Personal Liability Policies (liability only), Comprehensive Personal
        Liability Policies (liability only) or policies of a similar nature; and
        the liability portion of combination forms related to the four classes
        of policies stated above, such as the Comprehensive Dwelling Policy and
        the applicable types of Homeowners Policies.
  III.  The inception dates and thereafter of all original policies as described
        in II above, whether new, renewal or replacement, being policies which
        either
        (a) become effective on or after 1st May, 1960, or
        (b) become effective before that date and contain the Limited Exclusion
            Provision set out above;
        provided this paragraph (2) shall not be applicable to Family Automobile
        Policies, Special Automobile Policies, or policies or combination
        policies of a similar nature, issued by the Reassured on New York risks,
        until 90 days following approval of the Limited Exclusion Provision by
        the Governmental Authority having jurisdiction thereof.

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

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

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

    BROAD EXCLUSION PROVISION.*

    It is agreed that the policy does not apply:
    I.  Under any Liability Coverage to
            (INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION
            (bodily injury or property damage
       (a)  with respect to which an insured under the policy is also an insured
            under a nuclear energy liability policy issued by Nuclear Energy
            Liability Insurance Association, Mutual Atomic Energy Liability
            Underwriters or Nuclear Insurance Association of Canada, or would be
            an insured under any such policy but for its termination upon
            exhaustion of its limit of liability; or
       (b)  resulting from the hazardous properties of nuclear material and with
            respect to which (1) any person or organization is required to
            maintain financial protection pursuant to the Atomic Energy Act of
            1954, or any law amendatory thereof, or (2) the insured is, or had
            this policy not been issued would be, entitled to indemnity from the
            United States of America, or any agency thereof, under any agreement
            entered into by the United States of America, or any agency thereof,
            with any person or organization.

Page 1 of 2

   II.  Under any Medical Payments Coverage, or under any Supplementary Payments
        Provision relating to
            (IMMEDIATE MEDICAL OR SURGICAL RELIEF
            (first aid,
        to expenses incurred with respect to
            (BODILY INJURY, SICKNESS, DISEASE OR DEATH
            (bodily injury
        resulting from the hazardous properties of nuclear material and arising
        out of the operation of a nuclear facility by any person or
        organization.
  III.  Under any Liability Coverage to
            (INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION
            (bodily injury or property damage
        resulting from the hazardous properties of nuclear material, if
        (a) the nuclear material (1) is at any nuclear facility owned by, or
            operated by or on behalf of, an insured or (2) has been
            discharged or dispersed therefrom;
        (b) the nuclear material is contained in spent fuel or waste at any time
            possessed, handled, used, processed, stored, transported or disposed
            of by or on behalf of an insured; or
        (c) the
               (INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION
               (bodily injury or property damage
            arises out of the furnishing by an insured of services, materials,
            parts or equipment in connection with the planning, construction,
            maintenance, operation or use of any nuclear facility, but if such
            facility is located within the United States of America, its
            territories, or possessions or Canada, this exclusion (c) applies
            only to
               (INJURY TO OR DESTRUCTION OF PROPERTY AT SUCH NUCLEAR FACILITY
               (property damage to such nuclear facility and any property
                thereat.
   IV.  As used in this endorsement:
        "hazardous properties" include radioactive, toxic or explosive
        properties; "nuclear material" means source material, special nuclear
        material or byproduct material; "source material", "special nuclear
        material", and "byproduct material" have the meanings given them in the
        Atomic Energy Act of 1954 or in any law amendatory thereof; "spent fuel"
        means any fuel element or fuel component, solid or liquid, which has
        been used or exposed to radiation in a nuclear reactor; "waste" means
        any waste material (1) containing byproduct material and (2) resulting
        from the operation by any person or organization of any nuclear facility
        included within the definition of nuclear facility under paragraph (a)
        or (b) thereof; "nuclear facility" means
        (a) any nuclear reactor,
        (b) any equipment or device designed or used for (1) separating the
            isotopes of uranium or plutonium, (2) processing or utilizing spent
            fuel, or (3) handling processing or packaging waste,
        (c) any equipment or device used for the processing, fabricating or
            alloying of special nuclear material if at any time the total amount
            of such material in the custody of the insured at the premises where
            such equipment or device is located consists of or contains more
            than 25 grams of plutonium or uranium 233 or any combination
            thereof, or more than 250 grams of uranium 235,
        (d) any structure, basin, excavation, premises or place prepared or used
            for the storage or disposal of waste, and includes the site on which
            any of the foregoing is located, all operations conducted on such
            site and all premises used for such operations; "nuclear reactor"
            means any apparatus designed or used to sustain nuclear fission in a
            self-supporting chain reaction or to contain a critical mass of
            fissionable material;
               (WITH RESPECT TO INJURY TO OR DESTRUCTION  OF PROPERTY,  THE WORD
               "INJURY" OR "DESTRUCTION,"
               ("property    damage"   includes   all   forms   of   radioactive
               contamination of property,
               (INCLUDES ALL FORMS OF RADIOACTIVE CONTAMINATION OF PROPERTY.
    V.  The inception dates and thereafter of all original policies affording
        coverages specified in this paragraph (3), whether new, renewal or
        replacement, being policies which become effective on or after 1st May,
        1960, provided this paragraph (3) shall not be applicable to
            (i)  Garage and Automobile Policies issued by the Reassured on New
                 York risks, or
           (ii)  statutory liability insurance required under Chapter 90,
                 General Laws of Massachusetts, until 90 days following approval
                 of the Broad Exclusion Provision by the Governmental Authority
                 having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
    Clause, it is understood and agreed that paragraphs (2) and (3) above are
    not applicable to original liability policies of the Reassured in Canada and
    that with respect to such policies this Clause shall be deemed to include
    the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
    Underwriters' Association or the Independent Insurance Conference of Canada.

--------------------------------------------------------------------------------
*NOTE. THE WORDS PRINTED IN ITALICS IN THE LIMITED EXCLUSION PROVISION AND IN
       THE BROAD EXCLUSION PROVISION SHALL APPLY ONLY IN RELATION TO ORIGINAL
       LIABILITY POLICIES WHICH INCLUDE A LIMITED EXCLUSION PROVISION OR A BROAD
       EXCLUSION PROVISION CONTAINING THOSE WORDS.

Page 2 of 2

              NUCLEAR INCIDENT EXCLUSION CLAUSE REINSURANCE - NO. 4

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

(2) Without in any way restricting the operations of Nuclear Incident Exclusion
    Clause No. 1B - Liability, No. 2 - Physical Damage, No. 3 - Boiler and
    Machinery and paragraph (1) of this clause, it is understood and agreed that
    for all purposes as respects the reinsurance assumed by the Reinsurer from
    the Reassured, all original insurance policies or contracts of the Reassured
    (new, renewal and replacement) shall be deemed to include the applicable
    existing Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect at the
    time and any subsequent revisions thereto as agreed upon and approved by the
    Insurance Industry and/or a qualified Advisory or Rating Bureau.

          POLLUTION EXCLUSION CLAUSE - GENERAL LIABILITY - REINSURANCE

A.  This reinsurance excludes all loss and/or liability accruing to the
    reinsured company as a result of:

     1. bodily injury or property damage arising out of the actual, alleged or
        threatened discharge, dispersal, release or escape of pollutants:

        a.  at or from premises owned, rented or occupied by a named insured;

        b.  at or from any site or location used by or for a named insured or
            others for the handling, storage, disposal, processing or treatment
            of waste;

        c.  which are at any time transported, handled, stored, treated,
            disposed of, or processed as waste by or for a named insured or any
            person or organization for whom a named insured may be legally
            responsible; or

        d.  at or from any site or location on which a named insured or any
            contractors or subcontractors working directly or indirectly on
            behalf of a named insured are performing operations:

           (i)  if the pollutants are brought on or to the site or location in
                connection with such operations; or

          (ii)  if the operations are to test for, monitor, clean up, remove,
                contain, treat, detoxify or neutralize the pollutants;

     2. any governmental direction or request that a named insured test for,
        monitor, clean up, remove, contain, treat, detoxify or neutralize
        pollutants.

B.  Subparagraphs A(1)(a) and A(1)(d)(i) above do not apply to bodily injury or
    property damage caused by heat, smoke or fumes from a hostile fire.

C.  "Hostile fire" means a fire which becomes uncontrollable or breaks out from
    where it was intended to be.

D.  "Pollutants" means any solid, liquid, gaseous or thermal irritant or
    contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals
    and waste. Waste includes material to be recycled, reconditioned or
    reclaimed.

                     WAR RISK EXCLUSION CLAUSE (REINSURANCE)

As regards interests which at time of loss or damage are on shore, no liability
shall attach hereto in respect of any loss or damage which is occasioned by war,
invasion, hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or confiscation by order
of any government or public authority.

Nevertheless, this clause shall not be construed to apply to loss or damage
occasioned by riots, strikes, civil commotion, vandalism or malicious damage.

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