Document:

exv10w1w11

 

EXHIBIT 10.1.11

EMPLOYMENT AGREEMENT

     This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made
as of this 9th day of August 2004, by and between Gary J. Ferguson (the
“Executive”) and Specialty Underwriters’ Alliance, Inc. (“Holding Co.”).

W I T N E S S E T H:

     WHEREAS, Holding Co. desires to continue the employment of the Executive
and the Executive desires to continue his employment, under the terms and
conditions of this Agreement.

     WHEREAS, Holding Co. and the Executive (collectively, the “Parties”)
entered into the Employment Agreement dated as of November 20, 2003, as amended
by the First Amendment dated April 2nd, 2004 and the Second Amendment dated May
26, 2004 (the “Employment Agreement”).

     NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Parties hereby agree to amend and restate the Employment Agreement as
follows:

     28. Employment. Holding Co. hereby employs the Executive, and the
Executive hereby accepts employment, as the Chief Claims Officer under the
terms and conditions set forth herein. During the Term (as defined herein),
the Executive agrees to serve, without additional compensation, in one or more
executive positions and/or as a member of the board of directors of Holding Co.
or any affiliate of Holding Co.

     29. Term. Subject to paragraph 6, the term of this Agreement shall
commence on the date of the Holding Co.’s Qualified Equity Offering (as defined
below) and shall continue until the third anniversary thereof (the “Initial
Term”). Upon the expiration of the Initial Term, this Agreement shall
automatically extend for three successive one-year periods, unless terminated
by either party by written notice to that effect not less than three months
prior to the expiration of the Initial Term. The Initial Term and any
extension periods are referred to herein collectively as the “Term”.

     30. Duties. During the Term, the Executive shall report to the
Board of Directors and shall initially perform such duties and responsibilities
as Holding Co.’s Board of Directors may determine. The Executive and Holding
Co. shall create a job description which outlines the duties and
responsibilities that the Executive shall perform. Such job description shall
be mutually created within one year of the Executive’s employment. The
Executive shall comply fully with all applicable laws, rules and regulations as
well as with Holding Co.’s policies, compliance manuals and procedures. The
Executive shall devote his entire working time to the business of Holding Co.
and shall use his best efforts, skills and abilities in his diligent and
faithful performance of his duties and responsibilities hereunder. During the
Term, the Executive shall not engage in any other business activities or hold
any office or positions regardless of whether any such activity, office or position is pursued for
profit or other pecuniary

 

advantage, without the prior consent of Holding Co.;
provided, however, the Executive may own, solely as an investment, 1.0% or less
of the securities of any publicly traded corporation.

     31. Compensation and Related Matters. As full compensation for the
Executive’s performance of his duties and responsibilities hereunder during the
Term, Holding Co. shall pay the Executive the compensation and provide the
benefits set forth below:

          a. Base Salary. Holding Co. shall pay the Executive an annual
salary (the “Base Salary”) of $250,000, less applicable withholding and other
deductions, payable in accordance with Holding Co.’s then current payroll
practices. The Base Salary will be reviewed annually by Holding Co.’s Board of
Directors or, if a compensation committee of the Board of Directors is
appointed, then by such Compensation Committee (the “Compensation Committee”),
and may be increased, but not decreased, in the sole discretion of the Board of
Directors or Compensation Committee; provided, however, that for each of the
second and third years of the Term, the Base Salary shall be increased by 5%
thereof.

          b. Bonuses. The Executive shall be eligible to receive bonuses
(“Bonuses”) of not more than 100% of Base Salary for any year during the Term,
as hereinafter provided. For each of the first three fiscal years of Holding
Co. during the Term, the Executive shall receive a Bonus equal to 25% of the
Executive’s Base Salary for such year, payable in a cash lump sum payment as
soon as practicable following the end of the respective fiscal year. In
addition, for each fiscal year of Holding Co. during the Term, the Executive
shall be eligible to receive a performance-based Bonus, of up to 75% of Base
Salary (or up to 100% of Base Salary for any fiscal year following the first
three fiscal years during the Term), if Holding Co. achieves such performance
goals as are determined by the Board of Directors or the Compensation Committee
(if one has been appointed) for the respective fiscal year. The payment of any
performance- based Bonus shall be deferred until the last day of the Term, and
shall be forfeited by the Executive if the Executive’s employment terminates
hereunder before the end of the Term by: (i) Holding Co. due to cause pursuant
to paragraph 6.c., or (ii) the Executive other than for good reason pursuant to
paragraph 6.d.

          c. Stock Options. In the event of a private equity offering of the
capital stock of Holding Co. or an initial public offering of shares of Holding
Co. pursuant to an effective registration statement under the Securities Act of
1933, as amended, other than pursuant to a registration statement on Form S-4
or Form S-8 or any successor or similar form, in each case in which the
proceeds to Holding Co. are not less than $200,000,000.00, before deduction of
underwriting commissions, placement agent fees or similar charges, and other
offering expenses (a “Qualified Equity Offering”), the Executive shall be
granted a stock option to purchase 90,000 shares of Holding Co.’s common stock
for an exercise price per share equal to the per share offering price of the
Qualified Equity Offering. Such option shall be granted as of the effective
date of the Qualified Equity Offering and shall vest and become exercisable
cumulatively at a rate of 33.33% on each of the first three anniversaries of
the date of grant, provided that the Executive is still employed by Holding Co.
on the applicable vesting date. Such option, to the extent vested, shall be
exercisable until the earliest of (i) the tenth anniversary of the date of
grant, (ii) six months following the Executive’s termination of employment due
to death or disability pursuant to paragraph 6.a. or 6.b. (in which case the
option shall be fully vested and exercisable), or (iii) if the Executive’s employment is
terminated by Holding Co.

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other than due to the Executive’s death, disability
pursuant to paragraph 6.a., or 6 b, or by Executive other than for “good
reason” as defined below, prior to the expiration of the Initial Term, then the
later of three months following such termination of employment or the date on
which the Term would have otherwise ended. Such option shall be treated as an
“incentive stock option” as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the “Code”), to the maximum extent permissible without any
change in the vesting provided for herein. Following the Qualified Equity
Offering, the Executive shall be eligible to receive such additional stock
options as may be determined by the Board of Directors or the Compensation
Committee (if one has been appointed) in its sole discretion and upon such
terms and conditions as are determined by the Board of Directors or the
Compensation Committee in its sole discretion.

          d. Benefits. The Executive shall be eligible to receive the
benefits that Holding Co. generally makes available to its senior officers (as
may be revised from time-to-time), including health, life and long-term
disability insurance benefits, 401(k) plan benefits and non-qualified
supplemental savings plan benefits which are designed to offset the Code
limitations applicable under the 401(k) plan. In addition, the Executive shall
receive annual reimbursement of up to $10,000 for aggregate expenses incurred
for financial planning, including the preparation of income tax returns, upon
presentation of appropriate receipts for such expenses.

          e. Vacation. The Executive shall receive four weeks’ paid vacation
for each year during the Term. The Executive may schedule the vacation as he
elects, subject to Holding Co.’s business needs. Any unused vacation days in
any one year may not be carried over to subsequent years; provided, however,
that not more than ten unused vacation days in any one year may be carried over
to the next succeeding year.

     32. Expenses. The Executive shall be reimbursed for documented
reasonable and necessary out-of-pocket expenses incurred on Holding Co.’s
behalf in accordance with the policies established by Holding Co., as they may
exist from time to time.

     33. Termination. This Agreement and the Executive’s employment
hereunder shall terminate immediately upon the earlier to occur of any of the
following:

          a. By Holding Co. immediately upon the Executive’s death.

          b. By Holding Co. immediately upon the Executive being unable to perform
his duties and responsibilities hereunder due to his “disability” (as defined
below). For purposes of this Agreement, the term “disability” shall mean that
the Executive has been unable to perform the duties and responsibilities
required of him hereunder due to a physical and/or mental disability for a
period of 180 days, whether or not consecutive, during any 12-month period.
During such period of disability, the Executive shall continue to receive the
Base Salary (less any Holding Co.-paid benefits that he receives, such as short
term disability or workers compensation, during such period).

          c. By Holding Co. immediately upon the existence of “cause” (as defined
below). For purposes of this Agreement, “cause” shall mean that the Executive:
(i) has

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committed an act constituting a misdemeanor involving moral turpitude
or a felony under the laws of the United States or any state or political
subdivision thereof; (ii) has committed an act constituting a breach of
fiduciary duty, gross negligence or willful misconduct; (iii) has engaged in
conduct that violated Holding Co.’s then existing material internal policies or
procedures and which is detrimental to the business, reputation, character or
standing of Holding Co. or any of its affiliates; (iv) has committed an act of
fraud, self dealing, conflict of interest, dishonesty or misrepresentation; or
(v) after written notice by Holding Co. and a reasonable opportunity to cure,
has materially breached his obligations as set forth in this Agreement.

          d. By the Executive immediately upon the existence of “good reason” (as
defined below). For purposes of this Agreement, the following shall constitute
“good reason”: After written notice setting forth the alleged good reason by
the Executive to Holding Co., and the expiration of a 60-day cure period, there
continues to be: (i) a material adverse change in the Executive’s title,
position or responsibilities; and/or (ii) a material breach by Holding Co. of
any material provision of this Agreement.

          e. Compensation Upon Death, Disability, Cause and Termination Without
Good Reason. If the Executive’s employment is terminated by: (i) Holding
Co. due to the Executive’s death or disability or cause pursuant to paragraph
6.a., b. or c., or (ii) the Executive other than for good reason pursuant to
paragraph 6.d., then, unless the parties otherwise mutually agree, in full
satisfaction of Holding Co.’s obligations under this Agreement, the Executive,
his beneficiaries or estate, as appropriate, shall be entitled to receive: (1)
the Base Salary provided for herein up to and including the effective date of
termination, prorated on a daily basis; (2) payment for any accrued, unused
vacation as of the effective date of termination; (3) in the event of
termination due to the Executive’s death or disability as provided in paragraph
6.a. or 6.b., respectively, any performance-based Bonus previously earned but
not paid, which shall become fully vested and shall be paid as soon as
practicable following such termination; (4) a pro rated amount of any
guaranteed bonus, as provided for in paragraph 4b, if termination occurs during
the first three fiscal years during the Term, which shall be paid as soon as
practicable following such termination; and (5) any other benefits (if any)
payable upon the Executive’s death or disability, respectively.

          f. Severance Upon Certain Events of Termination. If the
Executive’s employment is terminated by: (i) Holding Co. other than due to the
Executive’s death or disability or cause pursuant to paragraph 6.a., b. or c.,
or (ii) the Executive for good reason pursuant to paragraph 6.d., then, unless
the parties otherwise mutually agree, in full satisfaction of Holding Co.’s
obligations under this Agreement, the Executive shall be entitled to receive:
(1) a lump sum payment of an amount equal to the amount of the Executive’s Base
Salary which would have been paid to the Executive through the date on which
the Term would have otherwise ended (or through the date on which the Initial
Term would have otherwise ended), provided, however, that if such termination
occurs within 18 months before the date on which the Term would have otherwise
ended, or as a result of Holding Co.’s failure to extend the Initial Term, to
the full extent of the three one-year extension periods contemplated by this
Agreement, or during any extension period, then the Executive shall instead
receive a lump sum payment of an amount equal to 150% of the annual amount of
the Executive’s Base Salary calculated at the rate in effect at the date of such termination; (2) a
lump sum payment of an amount equal to 50% of the amount of the Executive’s
Base Salary paid pursuant to clause (1) of this paragraph 6.f.;

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(3) any
performance-based Bonus previously earned but not paid, which shall become
fully vested and shall be paid as soon as practicable following such
termination; and (4) payment for any accrued, unused vacation as of the date of
termination.

          g. Effect of Change in Control Termination. Notwithstanding any
other provision of this Agreement to the contrary, if the Executive’s
employment is terminated by: (i) Holding Co. other than due to the Executive’s
death or disability or cause pursuant to paragraph 6.a., b. or c., or (ii) the
Executive for good reason pursuant to paragraph 6.d., in either case upon or
within six months following a “change in control” (as defined below), then,
unless the parties otherwise mutually agree, in full satisfaction of Holding
Co.’s obligations under this Agreement and in lieu of the provisions of
paragraph 6.f., the following shall apply: (1) all stock options then held by
the Executive which were not previously exercised shall become fully vested and
exercisable; (2) any performance-based Bonus previously earned but unpaid shall
become fully vested and shall be paid as soon as practicable following such
termination; and (3) the Executive shall be entitled to receive a lump sum
payment of an amount equal to three times the annual amount of the Executive’s
Base Salary calculated at the rate in effect at the date of such termination.
Notwithstanding the preceding, if the benefits and payments provided under this
paragraph 6.f., either alone or together with other benefits and payments which
the Executive has the right to receive either directly or indirectly from
Holding Co. or any of its affiliates, would constitute an excess parachute
payment (the “Excess Payment”) under Section 280G of the Code, the Executive
hereby agrees that the benefits and payments provided under this paragraph 6.f.
shall be reduced (but not below zero) by the amount necessary to prevent any
such benefits and payments to the Executive from constituting an Excess
Payment, as determined by Holding Co.’s independent auditor. For purposes of
this Agreement, the following shall constitute a “change in control”:

               (A) any person or group of persons acting in concert (other than any
person who, prior to the Qualified Equity Offering, is a holder of voting
securities of Holding Co.) is or becomes entitled to more than 50% of the
combined voting power of Holding Co.’s outstanding voting securities; or

               (B) following a Qualified Equity Offering, the Board of Directors of
Holding Co. approves a merger or consolidation of Holding Co. with any other
corporation, other than a merger or consolidation which would result in all or
substantially all of the holders of Holding Co.’s voting securities immediately
prior thereto continuing to hold at least 50% of the combined voting power of
the outstanding voting securities of Holding Co. or of the surviving entity
immediately after such merger or consolidation; or

               (C) following a Qualified Equity Offering, the Board of Directors of
Holding Co. approves a plan of complete liquidation of Holding Co. or an
agreement for the sale or disposition by Holding Co. of all or substantially
all of Holding Co.’s assets, other than any such sale or disposition where all
or substantially all of the holders of Holding Co.’s voting securities
immediately prior thereto continue to hold at least 50% of the combined voting
power of the outstanding voting securities of the acquiror or transferee entity
immediately after such sale or disposition.

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     34. Confidential and Proprietary Information; Work Product;
Warranty; Non-Competition; Non-Solicitation.

          a. Confidentiality. The Executive acknowledges and agrees that
there are certain trade secrets and confidential and proprietary information
(collectively, “Confidential Information”) which have been developed by Holding
Co. and which are used by Holding Co. in its business. Confidential
Information shall include, without limitation: (i) customer lists and supplier
lists; (ii) the details of Holding Co.’s relationships with its customers,
including the financial relationship with a customer, knowledge of the internal
“politics"/workings of a customer organization, a customer’s technical needs
and job specifications, knowledge of a customer’s strategic plans and the
identities of contact persons within a customer’s organization; (iii) Holding
Co.’s marketing and development plans, business plans; and (iv) other
information proprietary to Holding Co.’s business. The Executive shall not, at
any time during or after his employment hereunder, use or disclose such
Confidential Information, except to authorized representatives of Holding Co.
or the customer or as required in the performance of his duties and
responsibilities hereunder. The Executive shall return all customer and/or
Holding Co. property, such as computers, software and cell phones, and
documents (and any copies including in machine or human-readable form), to
Holding Co. when his employment terminates. The Executive shall not be
required to keep confidential any information, which is or becomes publicly
available or is already in his possession (unless obtained from Holding Co. or
one of its customers). Further, the Executive shall be free to use and employ
his general skills, know-how and expertise, and to use, disclose and employ any
generalized ideas, concepts, know-how, methods, techniques or skills, including
those gained or learned during the course of the performance of any services
hereunder, so long as he applies such information without disclosure or use of
any Confidential Information.

          b. Work Product. The Executive agrees that all copyrights,
patents, trade secrets or other intellectual property rights associated with
any ideas, concepts, techniques, inventions, processes, or works of authorship
developed or created by him during his employment by Holding Co. and for a
period of six months thereafter, that (i) relate, whether directly or
indirectly, to Holding Co.’s actual or anticipated business, research or
development or (ii) are suggested by or as a result of any work performed by
the Executive on Holding Co.’s behalf, shall, to the extent possible, be
considered works made for hire within the meaning of the Copyright Act (17
U.S.C. § 101 et. seq.) (the “Work Product”). All Work Product shall be and
remain the property of Holding Co. To the extent that any such Work Product
may not, under applicable law, be considered works made for hire, the Executive
hereby grants, transfers, assigns, conveys and relinquishes, and agrees to
grant, transfer, assign, convey and relinquish from time to time, on an
exclusive basis, all of his right, title and interest in and to the Work
Product to the Holding Co. in perpetuity or for the longest period otherwise
permitted by law. Consistent with his recognition of Holding Co.’s absolute
ownership of all Work Product, the Executive agrees that he shall (i) not use
any Work Product for the benefit of any party other than Holding Co. and (ii)
perform such acts and execute such documents and instruments as Holding Co. may
now or hereafter deem reasonably necessary or desirable to evidence the
transfer of absolute ownership of all Work Product to Holding Co.; provided,
however, if following ten days’ written notice from Holding Co., the Executive
refuses, or is unable, due to disability, incapacity, or death, to execute such
documents relating to the Work Product, he hereby appoints any of Holding Co.’s
officers as his attorney-in-fact to execute such documents

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on his behalf. This agency is coupled with an interest and is irrevocable
without Holding Co.’s prior written consent.

          c. Warranty. The Executive represents and warrants to Holding Co.
that (i) there are no claims that would adversely affect his ability to assign
all right, title and interest in and to the Work Product to Holding Co.; (ii)
the Work Product does not violate any patent, copyright or other proprietary
right of any third party; (iii) the Executive has the legal right to grant
Holding Co. the assignment of his interest in the Work Product as set forth in
this Agreement; and (iv) he has not brought and will not bring to his
employment hereunder, or use in connection with such employment, any trade
secret, confidential or proprietary information, or computer software, except
for software that he has a right to use for the purpose for which it shall be
used, in his employment hereunder.

          d. Non-Competition; Non Solicitation. The Executive agrees that
during his employment by Holding Co. (and for any period thereafter as provided
below), he shall not within the United States (i) engage, directly or
indirectly, whether as an employee, officer, director, consultant or otherwise,
in any activity that competes with Holding Co. or any of its affiliates in the
business of insurance; (ii) solicit, directly, or indirectly, whether as an
employee, officer, director, consultant or otherwise, any person or entity
which is then a customer or party to any insurance-related contract with,
Holding Co. and/or its affiliates or has been a customer or supplier or such a
party or solicited by Holding Co. and/or its affiliates in the preceding
two-year period, to divert their business to any entity other than Holding Co.
and/or its affiliates; (iii) solicit for employment, engage and/or hire,
whether directly or indirectly, any person who is then employed by Holding Co.
and/or its affiliates or engaged by Holding Co. and/or its affiliates as an
independent contractor or consultant; and/or (iv) encourage or induce, whether
directly or indirectly, any person who is then employed by Holding Co. and/or
its affiliates or engaged by Holding Co. and/or its affiliates as an
independent contractor or consultant to end his/her business relationship with
Holding Co. and/or its affiliates. If the Executive’s employment with Holding
Co. is terminated by the Executive other than for good reason pursuant to
paragraph 6.d, before the date on which the Term would have otherwise ended,
then the Executive shall continue to be subject to the restrictions contained
in this paragraph 7.d. through the date on which the Term would have otherwise
ended. If the Executive’s employment with Holding Co. is terminated for cause
pursuant to paragraph 6.c., then the Executive shall continue to be subject to
the restrictions contained in this paragraph 7.d through the longer of (A) one
year following such termination of employment, or (B) the period during which
the Term would have otherwise continued in effect. However, during such
period, the Executive will continue to be paid by the Holding Co. the
Executive’s Base salary, and any guaranteed bonus, if applicable, as provided
for in paragraph 4.b. The Holding Co., at its sole option, may choose to
terminate said payments at any time during the restricted period, at which time
the Executive shall no longer be subject to the restrictions contained in this
paragraph 7.d. If the Executive’s employment with Holding Co. is terminated
under any circumstances which result in any payments provided pursuant to
paragraph 6.f or 6.g., then the Executive shall continue to be subject to the
restrictions contained in this paragraph 7.d. through the longer of (A) one
year following such termination of employment, or (B) the period during which
Base Salary continues to be paid to the Executive pursuant to paragraph 6.f.,
if applicable, or (C) two years following a termination of employment under
circumstances resulting in payments provided pursuant to paragraph 6.g., if
applicable. However, the Executive, at his sole option,
may at any time during such period advise Holding

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Co. that Executive will
forfeit receipt of any further payments provided pursuant to paragraph 6.f. or
6.g., at which time the Executive will no longer be subject to the restrictions
contained in this paragraph 7.d.

          e. Injunctive Relief. The Executive acknowledges that a breach or
threatened breach of any of the terms set forth in this paragraph 7 shall
result in an irreparable and continuing harm to Holding Co. for which there
shall be no adequate remedy at law. Holding Co. shall, without posting a bond,
be entitled to obtain injunctive and other equitable relief, in addition to any
other remedies available to Holding Co.

          f. Essential and Independent Agreements. It is understood by the
parties hereto that the Executive’s obligations and the restrictions and
remedies set forth in this paragraph 7 are essential elements of this Agreement
and that but for his agreement to comply with and/or agree to such obligations,
restrictions and remedies, Holding Co. would not have entered into this
Agreement or employed (or continued to employ) him. The Executive’s
obligations and the restrictions and remedies set forth in this paragraph 7 are
independent agreements and the existence of any claim or claims by him against
Holding Co. under this Agreement or otherwise will not excuse his breach of any
of his obligations or affect the restrictions and remedies set forth under this
paragraph 7.

          g. Survival of Terms; Representations. The Executive’s obligations
under this paragraph 7 hereof shall remain in full force and effect
notwithstanding the termination of his employment. He acknowledges that he is
sophisticated in business, and that the restrictions and remedies set forth in
this paragraph 7 do not create an undue hardship on him and will not prevent
him from earning a livelihood. He further acknowledges that he has had a
sufficient period of time within which to review this Agreement, including this
paragraph 7, with an attorney of his choice and he has done so to the extent he
desired. The Executive and Holding Co. agree that the restrictions and
remedies contained in this paragraph 7 are reasonable and necessary to protect
Holding Co.’s legitimate business interests regardless of the reason for or
circumstances giving rise to such termination and that he and Holding Co.
intend that such restrictions and remedies shall be enforceable to the fullest
extent permissible by law. The Executive agrees that given the scope of
Holding Co.’s business and the sophistication of the information highway, any
further geographic limitation on such remedies and restrictions would deny
Holding Co. the protection to which it is entitled hereunder. If it shall be
found by a court of competent jurisdiction that any such restriction or remedy
is unenforceable but would be enforceable if some part thereof were deleted or
modified, then such restriction or remedy shall apply with such modification as
shall be necessary to make it enforceable to the fullest extent permissible
under law. 

     35. Successors. This Agreement and the Executive’s performance
hereunder are personal to the Executive and shall not be assignable by the
Executive. Holding Co. may assign this Agreement to any affiliate or to any
successor to all or substantially all of the business and/or assets of Holding
Co., whether directly or indirectly, by purchase, merger, consolidation,
acquisition of stock, or otherwise. This Agreement shall inure to the benefit
of and be binding upon Holding Co. and its successors and assigns. However,
any such assignment by Holding Co. shall still be subject to the Executive’s
rights under paragraph 6.g.

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     36. Miscellaneous.

          a. Waiver; Amendment. The failure of a party to enforce any term,
provision, or condition of this Agreement at any time or times shall not be
deemed a waiver of that term, provision, or condition for the future, nor shall
any specific waiver of a term, provision, or condition at one time be deemed a
waiver of such term, provision, or condition for any future time or times.
This Agreement may be amended or modified only by a writing signed by both
parties hereto.

          b. Governing Law; Jurisdiction; No Jury Trial. This Agreement shall
be governed and construed in accordance with the laws of the State of Illinois
without giving effect to principles of conflicts of law. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the State of Illinois, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

          c. Tax Withholding. The payments and benefits under this Agreement
may be compensation and as such may be included in either the Executive’s W-2
earnings statements or 1099 statements. Holding Co. may withhold from any
amounts payable under this Agreement such federal, state or local taxes as
shall be required to be withheld pursuant to any applicable law or regulation.

          d. Paragraph Captions. Paragraph and other captions contained in
this Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.

          e. Severability. Each provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of this Agreement.

          f. Integrated Agreement. This Agreement constitutes the entire
under-standing and agreement between the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements, understandings,
memoranda, term sheets, conversations and negotiations.

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          g. Interpretation; Counterparts. No provision of this Agreement is
to be interpreted for or against any party because that party drafted such
provision. For purposes of this Agreement: “herein, “hereby,” “hereinafter,”
“herewith,” “hereafter” and “hereinafter” refer to this Agreement in its
entirety, and not to any particular subsection or paragraph. This Agreement
may be executed in any number of counterparts, each of which shall be deemed an
original, and all of which shall constitute one and the same instrument.

          h. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by hand
delivery, or by facsimile (with confirmation of transmission), or by overnight
courier, or by registered or certified mail, return receipt requested, postage
prepaid, in each case addressed as follows:

	 	 	 
	 

	 	If to the Executive:
	 
	 	 
	

	 	Gary J. Ferguson
	

	 	P.O. Box 374
	

	 	Cave Creek, AZ 85327
	

	 	Facsimile: (480) 488-7105 (call first)
	 
	 	 
	

	 	If to Holding Co.:
	 
	 	 
	

	 	Specialty Underwriters’ Alliance, Inc.
	

	 	8585 Stemmons Freeway
	

	 	Suite 200, South Freeway
	

	 	Dallas, TX 75247
	

	 	Facsimile: (214) 689-1877
	 
	 	 
	

	 	with copies to:
	 
	 	 
	

	 	Stroock & Stroock & Lavan LLP
	

	 	180 Maiden Lane
	

	 	New York, New York 10038-4982
	

	 	Attention: William W. Rosenblatt
	

	 	Facsimile: 212-806-6006

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by addressee.

          i. No Limitations. The Executive represents that his employment by
Holding Co. hereunder does not conflict with, or breach any confidentiality,
non-competition or other agreement to which he is a party or to which he may be
subject.

-10-

 

     IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first above written.

	 	 	 	 	 
	 	SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

 	 
	 	By:  	/s/ Courtney C. Smith
 	 
	 	 	Name:  	Courtney C. Smith 	 
	 	 	Title:  	Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	 	 
	 	                  /s/ Gary J. Ferguson
 	 
	 	Gary J. Ferguson 	 
	 	 	 
	 

-11-exv10w1w12

 

Exhibit 10.1.12

AMENDED AND RESTATED

SENIOR LOAN AND SECURITY AGREEMENT

among

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

and

STANDARD AMERICAN INSURANCE LIMITED,

as Senior Lenders,

and

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.,

as the Borrower

Amended and Restated as of

July 23, 2004

Originally dated December 12, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE I DEFINITIONS
	 	 	1	 
	Section 1.01. Definitions 
	 	 	1	 
	ARTICLE II THE LOAN
	 	 	9	 
	Section 2.01. The Commitment; General Advance Requirements 
	 	 	9	 
	Section 2.02. Procedures for Obtaining Advances; Use of Proceeds 
	 	 	9	 
	Section 2.03. Advance Conditions Precedent 
	 	 	10	 
	Section 2.04. Interest Payments 
	 	 	12	 
	Section 2.05. Principal Payments 
	 	 	13	 
	Section 2.06. Application of Payments 
	 	 	13	 
	Section 2.07. Senior Secured Note 
	 	 	13	 
	Section 2.08. Transfer of Debt 
	 	 	14	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES
	 	 	14	 
	Section 3.01. Representations and Warranties of the Borrower 
	 	 	14	 
	ARTICLE IV COVENANTS OF THE BORROWER
	 	 	17	 
	Section 4.01. Affirmative Covenants 
	 	 	17	 
	Section 4.02. Negative Covenants of the Borrower 
	 	 	20	 
	Section 4.03. Special Covenant of Subordinated Lenders 
	 	 	22	 
	ARTICLE V SECURITY AGREEMENT
	 	 	23	 
	Section 5.01. Grant of Security Interest 
	 	 	23	 
	Section 5.02. Security for the Debt 
	 	 	24	 
	Section 5.03. Intention of Parties 
	 	 	24	 
	ARTICLE VI INDEMNIFICATION
	 	 	25	 
	Section 6.01. Indemnification by the Borrower 
	 	 	25	 
	ARTICLE VII EVENTS OF DEFAULT
	 	 	26	 
	Section 7.01. Occurrence of an Event of Default 
	 	 	26	 
	Section 7.02. Effect of an Event of Default 
	 	 	27	 
	ARTICLE VIII GENERAL PROVISIONS
	 	 	30	 
	Section 8.01. Cooperation, Confidentiality, Etc 
	 	 	30	 
	Section 8.02. Waiver of Trial by Jury 
	 	 	30	 
	Section 8.03. Amendment; Waivers 
	 	 	30	 
	Section 8.04. Limited Liability 
	 	 	30	 
	Section 8.05. Other Transactions 
	 	 	31	 
	Section 8.06. Costs and Expenses 
	 	 	31	 
	ARTICLE IX CONSTRUCTION
	 	 	31	 
	Section 9.01. Entire Agreement 
	 	 	31	 
	Section 9.02. Severability Clause 
	 	 	31	 
	Section 9.03. Counterparts 
	 	 	32	 

i

 

	 	 	 	 	 
	Section 9.04. Governing Law; Agreement Constitutes Security Agreement;
Consent to Forum; Immunities 
	 	 	32	 
	Section 9.05. No Agency; No Partnership; No Joint Venture 
	 	 	33	 
	Section 9.06. Judicial Interpretation 
	 	 	33	 
	Section 9.07. Recitals 
	 	 	33	 
	Section 9.08. Rules of Interpretation 
	 	 	33	 
	Section 9.09. Good Faith 
	 	 	34	 
	ARTICLE X MISCELLANEOUS
	 	 	34	 
	Section 10.01. Notices 
	 	 	34	 
	Section 10.02. Further Agreements 
	 	 	36	 
	Section 10.03. Third-Party Rights 
	 	 	36	 
	Section 10.04. Advice from Independent Counsel 
	 	 	36	 
	Section 10.05. Reproduction of Documents 
	 	 	36	 

ii

 

EXHIBITS AND SCHEDULES

	 	 	 
	Exhibit A

	 	Senior Secured Note
	 
	Exhibit B

	 	Form of Warrant
	 
	Exhibit C

	 	Form of Intercreditor Agreement
	 
	Schedule 3.01A

	 	Borrower’s Organizational Documents
	 
	Schedule 3.01B

	 	Borrower’s Capital Stock

iii

 

SENIOR LOAN AND SECURITY AGREEMENT

     This AMENDED AND RESTATED SENIOR LOAN AND SECURITY AGREEMENT (the
“Agreement”) is dated as of July 23, 2004, among (1) (a) Friedman, Billings,
Ramsey Group, Inc., a Virginia corporation, as a senior lender (“FBR”) and (b)
Standard American Insurance Limited, a Bermuda company, as a senior lender
(“SAIL,” and, together with FBR, the “Senior Lenders”); and (2) Specialty
Underwriters’ Alliance, Inc., a Delaware corporation, as the borrower (the
“Borrower”); and (3) acknowledged and agreed to by each of Courtney Smith,
Peter Jokiel, William Loder and Gary Ferguson, each an individual, as the
subordinated lenders (each, a “Subordinated Lender);

     WHEREAS, the Borrower entered into a Senior Loan and Security Agreement
(the “Original Agreement”), dated December 12, 2003, between FBR, as sole
senior lender, and the Borrower, and acknowledged and agreed to by each
Subordinated Lender, as amended, in order to secure a short-term stage-funded,
non-revolving line of credit with a maximum borrowing limit of $1,500,000,
subject to limited exceptions for draws in respect of interest accrued prior to
the Maturity Date, as described herein, from FBR to enable the Borrower to fund
its working capital needs from time to time, pending a public offering of
equity of the Borrower;

     WHEREAS, the Borrower wishes to amend and restate the Original Agreement
to extend the Maturity Date to October 31, 2004, increase the maximum borrowing
limit to $3,450,000, and to add SAIL as an additional senior lender, and each
Senior Lender wishes to amend the Original Agreement and make the line of
credit available subject to the terms and conditions set forth herein; and

     WHEREAS, the Borrower intends to grant a first-priority security interest
to the Senior Lenders in all of its assets to secure the credit facility
described herein.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises made herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
intending to be legally bound, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.01. Definitions.

     Unless otherwise specified, the following terms shall have the meanings
assigned to them in this Section 1.01 when used in this Agreement.

     “Accounts” means all of the Borrower’s now owned or hereafter acquired
right, title and interest with respect to “accounts” (as that term is defined
in the Virginia UCC).

     “Accrual Period” means, (a) with respect to the initial Accrual Period for
any Advance, the period commencing on the Funding Date for such Advance, and
ending on

 

 

the earlier of (i) the close of business on the last calendar day before
the first Payment Date and (ii) the Maturity Date, and (b) with respect to any
subsequent Accrual Period for such Advance, the period commencing on the
Payment Date occurring the day after the conclusion of the preceding Accrual
Period, and ending on the earlier of (i) the close of business on the last
calendar day before the next upcoming Payment Date or (ii) the Maturity Date.

     “Advance” means an amount of funds borrowed by the Borrower from a Senior
Lender pursuant to the provisions of Article II of this Agreement.

     “Advance Balance” means, with respect to any Advance and any date of
determination, the outstanding principal balance of such Advance, determined as
the difference between (i) the sum of all amounts of principal lent by the
related Senior Lender to the Borrower with respect to such Advance through the
close of the date of determination and (ii) the sum of all amounts of principal
repaid by the Borrower with respect to such Advance through the close of the
date prior to the date of determination, if any.

     “Affiliate” means any Person: (a) which directly or indirectly controls,
or is controlled by, or is under common control with, such Person; (b) which
directly or indirectly beneficially owns or holds five percent (5%) or more of
the voting securities of such Person; or (c) five percent (5%) or more of the
voting stock of which is directly or indirectly beneficially owned or held by
such Person. The term “control” means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.

     “Aggregate Advance Balance” means, with respect to any date of
determination, the aggregate amount of the outstanding Advance Balances of all
Advances at such date.

     “Aggregate FBR Advance Balance” means, on any date of determination, the
aggregate amount of the outstanding Advance Balances of all FBR Advances at
such date.

     “Aggregate SAIL Advance Balance” means, on any date of determination, the
aggregate amount of the outstanding Advance Balances of all SAIL Advances at
such date.

     “Books” means all of the Borrower’s now owned or hereafter acquired books
and records (including all of its records indicating, summarizing or evidencing
its assets or liabilities, all of its records relating to its business
operations or financial condition, and all of its Goods or General Intangibles
related to such information).

     “Borrower” means Specialty Underwriters’ Alliance, Inc., a Delaware
corporation.

2

 

     “Business Day” means any day, other than a Saturday or Sunday, that is
neither a legal holiday, nor a day on which banking institutions are authorized
or required by Law or regulation to close, in the Commonwealth of Virginia or
the State of Texas.

     “Change of Control” means (a) any sale of equity interests in the Borrower
by any Subordinated Lender or (b) any event as a result of which (i) the
Subordinated Lenders fail to own at least 51% of all equity and voting
securities of the Borrower, (ii) Courtney Smith is no longer Chief Executive
Officer of the Borrower, (iii) Peter Jokiel is no longer Chief Financial
Officer of the Borrower, (iv) William Loder is no longer Chief Underwriting
Officer of the Borrower, or (v) Gary Ferguson is no longer Chief Claims Officer
of the Borrower.

     “Chattel Paper” means all of the Borrower’s now owned or hereafter
acquired right, title and interest with respect to any “chattel paper” (as that
term is defined in the Virginia UCC).

     “Closing Date” means December 12, 2003 (or July 23, 2004, in the case of
the amendment and restatement hereby).

     “Collateral” shall have the meaning assigned to such term in Section 5.01
hereof.

     “Commercial Tort Claim” means all of the Borrower’s now owned or hereafter
acquired right, title and interest with respect to any “commercial tort claim”
(as that term is defined in the Virginia UCC).

     “Commitment Amount” means, with respect to FBR, the FBR Commitment Amount,
and with respect to SAIL, the SAIL Commitment Amount; provided, that amounts
added to the Aggregate Advance Balance in respect of interest accrued on the
either Secured Note prior to the Maturity Date, pursuant to Section 2.04
hereof, shall not count as amounts drawn under the Commitment Amount.

     “Commitment Percentage” means, for a Senior Lender, the percentage
obtained by dividing (a) the difference between such Senior Lender’s Commitment
Amount and the principal balance of such Senior Lender’s Senior Secured Note by
(b) the difference between the aggregate Commitment Amount for all Senior
Lenders and the aggregate principal balance of all Senior Secured Notes.

     “Common Stock” means the common stock of the Borrower, which is issued in
a single class of common stock.

     “Default” means a Monetary Default, a Non-Monetary Default, or any of the
other events described in Section 7.01 hereof, which may become an Event of
Default in accordance with Section 7.01.

     “Default Rate” means the Interest Rate plus 6.00% per annum.

3

 

     “Deposit Account” means all of the Borrower’s now owned or hereafter
acquired right, title and interest with respect to any “deposit account” (as
that term is defined in the Virginia UCC).

     “Documents” means all of the Borrower’s now owned or hereafter acquired
right, title and interest with respect to any “document” (as that term is
defined in the Virginia UCC).

     “Equipment” means all of the Borrower’s now owned or hereafter acquired
right, title and interest with respect to any “equipment” (as that term is
defined in the Virginia UCC), wherever located, including all attachments,
accessories, accessions, replacements, substitutions, additions and
improvements thereto.

     “Equity Offering” means (i) any initial public offering of equity
securities by the Borrower pursuant to an effective registration statement
under the Securities Act or (ii) any other sale, public or private, of equity
or debt securities, by the Borrower, in either case, in which gross proceeds
exceed $10,000,000.

     “Event of Default” has the meaning set forth in Article VII hereof.

     “FBR” means Friedman, Billings, Ramsey Group, Inc., a Virginia
corporation, its successors in interest and its permitted assigns.

     “FBR Advance” means an Advance made by FBR.

     “FBR Commitment Amount” means $2,000,000.

     “FBR Note” means the amended and restated promissory note, substantially
in the form of Exhibit A hereto, executed by the Borrower in favor of FBR.

     “FBR Percentage” means, as of any date, the percentage obtained by
dividing the Aggregate FBR Advance Balance by the Aggregate Advance Balance.

     “Fixture” means all of the Borrower’s now owned or hereafter acquired
right, title and interest with respect to any “fixture” (as that term is
defined in the Virginia UCC).

     “Funding Date” means, with respect to any Advance, the date on which the
related Senior Lender disburses the Advance to the Borrower, which shall be the
date requested by the Borrower pursuant to Section 2.02 if all conditions
precedent have been met.

     “Funding Package” has the meaning assigned to such term in Section 2.02
hereof.

     “GAAP” means generally accepted accounting principles in the United
States, consistently applied.

     “General Intangibles” means of the Borrower’s now owned or hereafter
acquired right, title, and interest with respect to “general intangibles” (as
such term is defined in

4

 

the Virginia UCC), including payment intangibles (including, without
limitation, all Supporting Obligations in respect thereof), contract rights
(including, without limitation, all rights under any contracts with Managing
General Agents), rights to payment, rights arising under common law, statutes,
or regulations, choses or things in action, goodwill, patents, trade names,
trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on computer disks
or tapes, software, literature, reports, catalogs, money, insurance premium
rebates, tax refunds, and tax refund claims, and any and all supporting
obligations in respect thereof, and any other personal property.

     “Goods” means all of the Borrower’s now owned or hereafter acquired right,
title and interest with respect to any “goods” (as that term is defined in the
Virginia UCC).

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

     “Indemnified Party” has the meaning ascribed thereto in Article VI of this
Agreement.

     “Instruments” means all of the Borrower’s now owned or hereafter acquired
right, title and interest with respect to any “instruments” (as that term is
defined in the Virginia UCC).

     “Intellectual Property” means all of the Borrower’s rights, priorities and
privileges relating to intellectual property, now existing or hereafter adopted
or acquired, including, without limitation: (i) all patents, reissues and
extensions thereof, patent applications, divisions, continuations and
continuations-in-part, paten disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) all trademarks,
service marks, trade dress, trade styles, logos, trade names, corporate names,
company names, business names, fictitious business names and other source or
business identifiers and Internet domain names and goodwill associated
therewith; (iii) all copyrightable works and mask works and all registrations,
applications and renewals for any of the foregoing; (iv) all trade secrets,
confidential information, ideas, formulae, compositions, compounds, know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, blueprints, surveys,
reports, manuals, operating standards, improvements, proposals, technical and
computer data, financial, business and marketing plans, and customer and
supplier lists and related information; (v) all other proprietary rights
(including, without limitation, all computer software, documentation, data and
databases, and all license agreements and sublicense agreements to and from
third parties relating to any of the foregoing); (vi) all copies and tangible
embodiments of the foregoing (in whatever form or medium); (vii) all damages
and payments, and the right to sue and recover, for past, present and future
infringements of the foregoing; and (viii) all royalties and income due with
respect to the foregoing.

5

 

     “Intercreditor Agreement” means that certain Amended and Restated
Intercreditor and Subordination Agreement, of even date herewith, among each
Senior Lender, each Subordinated Lender and the Borrower, in the form attached
hereto as Exhibit C

     “Interest Rate” means, with respect to any Accrual Period, 12.00% per
annum.

     “Inventory” means all of the Borrower’s now owned or hereafter acquired
right, title and interest with respect to any “inventory” (as that term is
defined in the Virginia UCC).

     “Investment Property” means all of the Borrower’s now owned or hereafter
acquired right, title and interest with respect to any “investment property”
(as that term is defined in the Virginia UCC), and any and all Supporting
Obligations in respect thereof.

     “Law” means any federal, state or local statute, law, rule, regulation,
ordinance, order, code, policy or rule of common law, now or hereafter in
effect, and in each case as amended, and any judicial or administrative
interpretation thereof by a Governmental Authority or otherwise, including any
judicial or administrative order, consent, decree or judgment.

     “Letter-of-Credit Rights” means all of the Borrower’s now existing or
hereafter acquired right, title and interest with respect to any
“letter-of-credit right” (as that term is defined in the Virginia UCC).

     “Loan” means the aggregate of the sums borrowed by the Borrower from the
Senior Lenders pursuant to all Advances which remain unpaid, together with
accrued and unpaid interest thereon.

     “Managing General Agent” means a Person who sources and binds insurance
contracts on behalf of the Borrower as insurer.

     “Material Adverse Effect” means a material adverse effect on (a) the
financial condition or business operations of the Borrower or (b) the ability
of the Borrower to perform its obligations under, or the validity or
enforceability of, any of the Significant Documents or any Senior Lender’s
rights and remedies hereunder and thereunder, or (c) the value of any item of
Collateral.

     “Maturity Date” means the earliest to occur of (i) October 31, 2004, as
the same may be extended pursuant to the terms hereof, (ii) a Change of
Control, (iii) the closing of any Equity Offering and (iv) the date of any
acceleration of the maturity of the Obligations pursuant to Section 7.02.

     “Monetary Default” means a failure by the Borrower to pay interest due on
any Payment Date or the Maturity Date or principal or other amounts due
pursuant to Section 2.05(b) or Section 4.01(l) or on the Maturity Date.

     “Negotiable Collateral” means all of the Borrower’s now owned or hereafter
acquired right, title and interest with respect to letters of credit,
Letter-of-Credit Rights,

6

 

Instruments, promissory notes, drafts, Documents and Chattel Paper
(including electronic chattel paper and tangible chattel paper) and any and all
Supporting Obligations in respect thereof.

     “Non-Monetary Default” means a breach of any of the representations,
warranties, covenants or other agreements contained herein, other than a
Monetary Default.

     “Obligations” means, in respect of any Senior Lender, any and all
indebtedness, obligations and liabilities of the Borrower to such Senior Lender
(whether now existing or hereafter arising, voluntary or involuntary,
regardless of whether jointly owed with others, direct or indirect, absolute or
contingent, liquidated or unliquidated, and regardless of whether from time to
time decreased or extinguished and later increased, created or incurred),
arising out of or related to this Agreement or such Senior Lender’s Senior
Secured Note or the indebtedness evidenced hereby or thereby.

     “Payment Date” means, with respect to any Accrual Period, the first day of
the month after the month in which such Accrual Period ends; provided that if
such day is not a Business Day, then such Payment Date shall be the Business
Day immediately following such day.

     “Payment Intangibles” means all of the Borrower’s now owned or hereafter
acquired right, title and interest with respect to any “payment intangibles”
(as that term is defined in the Virginia UCC).

     “Person” means an individual, general partnership, limited partnership,
limited liability partnership, corporation, business trust, joint stock
company, limited liability company, trust, unincorporated association, joint
venture, Governmental Authority, or other entity of whatever nature.

     “Property” of a person means any and all property, whether real, personal,
tangible, intangible or mixed, of such Person, or other assets owned, leased or
operated by such Person.

     “Qualified Equity Offering” means an Equity Offering in which the proceeds
to the Borrower are not less than $10,000,000 before deduction of underwriting
commissions, placement agent fees or similar charges, and other offering
expenses, or any series of Equity Offerings that together meet such criteria
and are approved as such by the Senior Lenders in writing.

     “Real Property Collateral” means any parcel or parcels of real property
now owned or hereafter acquired by the Borrower.

     “SAIL” means Standard American Insurance Limited, a Bermuda company, its
successors in interest and its permitted assigns.

     “SAIL Advance” means an Advance made by SAIL.

7

 

     “SAIL Commitment Amount” means $1,450,000.

     “SAIL Note” means the promissory note, substantially in the form of
Exhibit A hereto, executed by the Borrower in favor of SAIL.

     “SAIL Percentage” means, as of any date, the percentage obtained by
dividing the Aggregate SAIL Advance Balance by the Aggregate Advance Balance.

     “Securities Act” means the federal Securities Act of 1933, as amended.

     “Senior Lender” or “Lender” means each of FBR and SAIL and their
respective successors in interest and their respective permitted assigns.

     “Senior Lender Percentage” means, as of any date, the FBR Percentage for
FBR, and the SAIL Percentage for SAIL.

     “Senior Secured Note” means either the FBR Note or the SAIL Note.

     “Significant Documents” means this Agreement, the Senior Secured Notes,
the Warrants, the Intercreditor Agreement, the Subordinated Loan Agreement and
the Subordinated Notes.

     “Subordinated Lenders” means each of Courtney Smith, Peter Jokiel, William
Loder and Gary Ferguson, each of whom currently serves as part of the
Borrower’s senior management team.

     “Subordinated Loan Agreement” means that certain Amended and Restated
Subordinated Loan and Security Agreement, of even date herewith, among the
Subordinated Lenders, as lenders, and the Borrower, as borrower, and the Senior
Lenders.

     “Subordinated Notes” means the four Subordinated Secured Notes, executed
by the Borrower and naming the respective Subordinated Lenders as payees,
evidencing the Borrower’s indebtedness under the Subordinated Loan Agreement.

     “Subsidiary” means any Person in which the Borrower owns an interest.

     “Supporting Obligations” means “supporting obligations” as defined in the
Virginia UCC.

     “Virginia UCC” means the Virginia Uniform Commercial Code, as in effect
from time to time, together with any replacement or successor statutes enacted
with respect thereto.

     “Warrants” means the Warrants to be issued to the Senior Lenders,
exercisable for such number of shares of the Common Stock of the Borrower that
would be purchasable in a Qualified Equity Offering for (a) $4,000,000, in the
case of FBR, and $2,900,000 in

8

 

the case of SAIL, of the Common Stock of the Borrower and any successor to
Borrower, in the form of Exhibit B hereto.

ARTICLE II

THE LOAN

     Section 2.01. The Commitment; General Advance Requirements.

     Subject to the terms and conditions of this Agreement (including, without
limitation, approval of each Advance request by the related Senior Lender
pursuant to Section 2.02) and provided no Default or Event of Default has
occurred and is continuing uncured and unwaived, each Senior Lender agrees from
time to time during the period from the Closing Date through the Maturity Date,
to make Advances to the Borrower, provided the total amount outstanding at any
one time of all such Advances from all Senior Lenders shall not exceed the
Commitment Amount and that the total principal amount outstanding from any
Senior Lender at any time shall not exceed such Senior Lender’s Commitment
Amount. The Borrower may not reborrow any amount borrowed and repaid; the Loan
is not a revolving credit facility. All Advances made by a Senior Lender under
this Agreement shall constitute a single indebtedness.

     FBR shall surrender to the Borrower its senior secured note and warrant
issued pursuant to the Original Agreement as soon as practicable following
delivery of the FBR Note and the Warrant issued to FBR pursuant to this
Agreement. Such original note and warrant are canceled effective on the date
of this Agreement.

     Section 2.02. Procedures for Obtaining Advances; Use of Proceeds.

     When the Borrower wants to receive an Advance hereunder (other than to
cover an interest payment due pursuant to Section 2.04 hereof), the Borrower
shall submit a written request for an Advance to each Senior Lender, requesting
an Advance from such Senior Lender equal to such Senior Lender’s Commitment
Percentage of the Aggregate Advances to be requested. Each such request shall
set forth (1) a detailed statement of the proposed use of the Advance funds
(including specific listing of the operating expenses of the Borrower to be
paid with such Advance funds), (2) the amount of the Advance requested from
such Senior Lender and the amount of the Aggregate Advances then being
requested from all Senior Lenders, and (3) the requested Funding Date (a
“Funding Package”). Each Senior Lender shall evaluate whether to approve an
Advance within five Business Days after its receipt of the Funding Package and
request any other items reasonably requested by the Senior Lender, and shall
communicate such decision to the Borrower within such five Business Day period.
A Senior Lender’s decision whether to approve any Advance shall be solely
within such Senior Lender’s discretion. The Borrower may draw an Advance in
order to pay interest due pursuant to Section 2.04 hereof on any Payment Date
occurring prior to the Maturity Date by notifying the Senior Lenders of its
request to do so, in writing, at least two Business Days prior to such Payment
Date.

9

 

     Notwithstanding anything to the contrary that may be contained herein, no
Senior Lender shall be responsible or liable in any way for the failure of
another Senior Lender to make Advances.

     The Borrower shall use the proceeds of each Advance for the sole purpose
of paying its interim operating expenses, as disclosed in the related Funding
Package (or to make an interest payment in respect of a Payment Date prior to
the Maturity Date as described in Section 2.04).

     In the event that a Senior Lender does approve an Advance request, but the
Borrower discovers prior to the Funding Date that any of the information
delivered to the Senior Lenders for the related Advances has materially changed
or is untrue, inaccurate or misleading in any material respect, the Borrower
shall notify the Senior Lenders immediately, whereupon each Senior Lender may,
within two Business Days after its receipt of such notice, revoke its previous
approval of the requested Advance. Notwithstanding anything to the contrary
that may be contained herein, any obligation of a Senior Lender to fund an
approved Advance shall expire at the opening of business on the Maturity Date.

     Advances will be requested in five draws. The initial draw (the “First
Draw”) was a $475,000 FBR Advance, drawn simultaneously with a $125,000
aggregate advance under the Subordinated Loan Agreement. The second draw (the
“Second Draw”) was a $450,000 FBR Advance, drawn simultaneously with a $125,000
aggregate advance under the Subordinated Loan Agreement. The third draw (the
“Third Draw”) was a $325,000 FBR Advance. The fourth draw (the “Fourth Draw”)
was a $250,000 FBR Advance, drawn simultaneously with a $50,000 advance by
Courtney Smith under the Subordinated Loan Agreement. The fifth draw (the
“Fifth Draw”) will consist of a $500,000 FBR Advance and a $1,450,000 SAIL
Advance, drawn simultaneously with a $50,000 advance by Courtney Smith under
the Subordinated Loan Agreement.

     Section 2.03. Advance Conditions Precedent.

     Unless the following conditions precedent shall have been met as of the
Funding Date for an Advance, the related Senior Lender shall have no obligation
to disburse the Advance:

     (a) the Borrower shall have executed this Agreement, the FBR Notes, the
SAIL Note and the Warrants, and delivered the signed Agreement, the related
Senior Secured Note and the related Warrant to each Senior Lender, and FBR
shall have surrendered to the Borrower its initial Senior Secured Note and
Warrant which it received pursuant to the Original Agreement;

     (b) the Senior Lenders shall have received an opinion of counsel to the
Borrower in form and substance satisfactory to the Senior Lenders;

     (c) the Senior Lenders shall have received a UCC search of the filing
records of the Secretary of State of Texas for all UCC-1 filings and tax and
judgment liens

10

 

against the Borrower as debtor, the results of which are satisfactory to
the Senior Lenders;

     (d) the Borrower and each Subordinated Lender shall have executed and
delivered the Subordinated Loan Agreement and the Intercreditor Agreement and
the Borrower shall have satisfied all conditions precedent to the initial
advance under the Subordinated Loan Agreement;

     (e) in the case of the initial Advance hereunder the Subordinated Lenders
shall have advanced $125,000 in immediately available funds to the Borrower
pursuant to the Subordinated Loan Agreement, and evidence thereof shall have
been delivered to FBR, in form and substance satisfactory to FBR in its sole
discretion;

     (f) in the case of the Second Draw, or the first Advance made after
aggregate Advances have first equaled or exceeded $475,000, the Subordinated
Lenders shall have advanced an additional $125,000 in immediately available
funds to the Borrower pursuant to the Subordinated Loan Agreement, and evidence
thereof shall have been delivered to FBR, in form and substance satisfactory to
FBR in its sole discretion;

     (g) in the case of the first draw after July 23, 2004, Courtney Smith
shall have advanced an additional $50,000 in immediately available funds to the
Borrower pursuant to the Subordinated Loan Agreement, at which point the
Subordinated Lenders shall have advanced their full commitment amounts, and
evidence thereof shall have been delivered to the Senior Lenders, in form and
substance satisfactory to each Senior Lender in its sole discretion;

     (h) the Borrower’s bylaws shall have been amended to provide that FBR has
the exclusive right to appoint two members of the Borrower’s seven-member Board
of Directors, and to provide that FBR has the right to appoint two Persons to
have observation rights (but no vote) on the Borrower’s Board of Directors, in
form and substance satisfactory to FBR in its sole discretion, including a
provision that such bylaws provision may not be amended or overridden in any
way without the prior written consent of FBR until all Obligations hereunder
shall have been paid in full in immediately available funds, it being agreed
that this condition was satisfied prior to the First Draw;

     (i) the Borrower and Firemen’s Fund shall have executed a letter of intent
providing for the purchase of “shell” insurance companies, and a copy thereof
shall have been delivered to FBR, in form and substance satisfactory to FBR, in
its sole discretion, it being agreed that this condition was satisfied prior to
the First Draw;

     (j) the Borrower and at least six Managing General Agents shall have
executed letters of intent providing for a minimum of $240,000,000 in gross
premiums, and copies thereof shall have been delivered to FBR, in form and
substance satisfactory to FBR in its sole discretion, it being agreed that this
condition was satisfied prior to the First Draw;

11

 

     (k) the Borrower and a “Big Four” accounting firm shall have executed an
engagement letter, and a copy thereof shall have been delivered to FBR, in form
and substance satisfactory to FBR in its sole discretion, it being agreed that
this condition was satisfied prior to the First Draw;

     (l) the Borrower and each Subordinated Lender shall have entered into an
employment agreement, providing for a minimum of a three-year term of
employment, and a copy of each such employment agreement shall have been
delivered to FBR, in form and substance satisfactory to FBR in its sole
discretion, it being agreed that this condition was satisfied prior to the
First Draw;

     (m) the Borrower and Marsh & McLennan Securities Corporation shall have
executed an amended contract reflecting renegotiated terms approved by FBR, and
a copy of such amended contract shall have been delivered to FBR, in form and
substance satisfactory to FBR in its sole discretion, it being agreed that this
condition was satisfied prior to the First Draw;

     (n) all of the representations and warranties of the Borrower in this
Agreement shall be true and correct in all material respects as of the Funding
Date and the Borrower shall have complied with the provisions of Section 2.02
above with respect to the requested Advance; and

     (o) no Default or Event of Default shall have occurred and be continuing.

     Section 2.04. Interest Payments.

     (a) Interest shall accrue daily on each day during each Accrual Period on
each Advance from and including the Funding Date of such Advance at a rate
equal to the product of (i) 1/360, (ii) the Interest Rate, and (iii) the
Advance Balance for such Advance at the beginning of such day. Such accrued
interest for any Accrual Period shall be due and payable on the Payment Date
immediately following the end of such Accrual Period, and the Borrower shall
pay such interest on the later of such Payment Date or two Business Days after
receipt by the Borrower of an invoice from the related Senior Lender detailing
the amount of interest owed on such Payment Date. With the prior written
consent of the related Senior Lender, the Borrower may pay such interest in
respect of any Senior Lender’s Senior Secured Note and in respect of any
Payment Date prior to the Maturity Date by borrowing an additional Advance in
the amount of such interest payment due pursuant to Section 2.02 hereof.

     (b) If any payment of principal or interest which is due under the terms
of this Agreement is not paid when due, or if any Event of Default has occurred
hereunder, then all interest that accrues under this Agreement from and
including the day such payment was due but not made or on which such Event of
Default occurs and continuing until the day such payment is finally made or the
Event of Default is waived or all Obligations have been repaid in full, shall
be calculated at the Default Rate rather than the Interest Rate.

12

 

     (c) It is intended that the rate of interest on any Advance hereunder
shall never exceed the maximum rate, if any, which may be legally charged on
the outstanding principal balance of this Loan, and if the provisions for
interest hereunder would result in a rate higher than such maximum rate,
interest shall nevertheless be limited to such maximum rate and any amounts
which may be paid toward interest on any Senior Secured Note in excess of such
maximum rate shall be applied to the reduction of principal, or, at the option
of the related Senior Lender, returned to the Borrower.

     Section 2.05. Principal Payments.

     (a) Maturity Date. The Loan shall mature and the Aggregate Advance
Balance thereof shall be due and payable, together, without duplication, with
all interest accrued and unpaid thereon, on the Maturity Date, and the Borrower
shall pay such principal and interest on such date. In the event that the Loan
is not repaid in full on the Maturity Date, each Senior Lender may exercise all
rights and remedies available to it under applicable law, including the
applicable Uniform Commercial Code.

     (b) Prepayments. The Borrower may prepay the Loan in whole or in part
prior to the Maturity Date without penalty. The Borrower acknowledges and
agrees that it shall not prepay or otherwise pay any principal owing under the
Subordinated Loan Agreement until all Obligations under this Agreement shall
have been paid in full.

     Section 2.06. Application of Payments.

     Whenever the Borrower makes a payment under this Agreement, the Borrower
must make such payment pro rata to each Senior Lender based upon their
respective Senior Lender Percentages. Any payment made to any Senior Lender
under this Agreement shall, unless otherwise specified herein, be applied (i)
first, to pay any unpaid fees, costs, expenses or obligations (A) which arise
hereunder, (B) which are to be paid by the Borrower, and (C) which are due and
payable, (ii) second, to pay any accrued and unpaid interest on the principal
balance of the Loan pursuant to Section 2.04 which is due and payable on or
prior to the date of such payment, and (iii) finally, to reduce the outstanding
principal balance of the Loan. All such payments shall be allocated among the
Senior Lenders pro rata based upon their respective Senior Lender Percentages.
Any Senior Lender claiming for reimbursement, under clause (i) above, of costs
and expenses not previously invoiced shall provide written notice to the
Borrower and the other Senior Lender of such claim before or concurrently with
allocating any payment it has received hereunder to such reimbursement.

     Section 2.07. Senior Secured Note.

     The Borrower’s Obligations shall be evidenced by senior secured promissory
notes of the Borrower (each a “Senior Secured Note”) dated as of the date of
this Agreement and substantially in the form of Exhibit A attached hereto. The
term “Senior Secured Note” shall include all extensions, renewals and
modifications of each Senior Secured Note and all substitutions therefor. All
terms and provisions of each Senior Secured Note are expressly incorporated
into this Agreement. Each Senior Lender is

13

 

authorized to record the date and amount of each Advance and the date and
amount of each repayment of principal thereof on the schedule annexed to the
related Senior Secured Note and any such recordation shall be conclusive
evidence of the accuracy of the amounts so recorded (absent manifest error);
provided, however, that the failure of a Senior Lender to make such recordation
(or any error in such recordation) shall not affect the rights and obligations
of the Borrower hereunder or under the related Senior Secured Note.

     Section 2.08. Transfer of Debt.

     (a) The Borrower may neither assign its rights nor delegate its obligation
under this Agreement without the prior written consent of the Senior Lenders.

     (b) Each Senior Lender may assign its rights and delegate its obligations
under this Agreement without the consent of the Borrower, but only with the
consent of the other Senior Lender.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     Section 3.01. Representations and Warranties of the Borrower.

     The Borrower hereby makes the following representations and warranties, as
of the date of this Agreement, as of each Funding Date, and continually
throughout the term of this Agreement:

     (a) Organization. The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and operate its properties
and to carry on its business as presently conducted, and to enter into this
Agreement. Attached hereto as Schedule 3.01A is a complete and correct copy of
the Certificate of Incorporation and Bylaws of the Borrower, and all amendments
thereto, substantially as such organizational documents will be in effect at
the Closing Date. The Borrower has authorized capital stock and outstanding
capital stock as set forth on Schedule 3.01B. All of the outstanding shares of
capital stock of the Borrower (as listed in Schedule 3.01B) have been duly
authorized and validly issued and are fully-paid and non-assessable. The items
on Schedule 3.01A and Schedule 3.01B may be amended after the Closing Date with
the prior written consent of the Senior Lenders, which consent shall not be
unreasonably withheld in the case of any amendment necessary to facilitate an
Equity Offering, except in the case of any amendment to the bylaws provisions
required pursuant to Section 2.03(g) hereof.

     (b) Qualification. [RESERVED]

     (c) Authority. The Borrower has the absolute and unconditional power and
authority and legal right to own and grant a lien on all of its right, title
and interest in and to the Collateral, and the Borrower has the requisite power
and authority and legal right

14

 

to execute and deliver, engage in the transactions contemplated by, and
perform and observe the terms and conditions of, the Significant Documents.

     (d) No Defaults. The Borrower is able to meet its obligations when they
become due and is not in default under any mortgage, borrowing agreement or
other instrument or agreement pertaining to indebtedness for borrowed money,
and the execution and delivery by the Borrower of, and the performance by the
Borrower under, the Significant Documents will not result in any violation of
any such mortgage, instrument or agreement to which the Borrower is a party or
by which any of its assets are bound.

     (e) Financial Statements. [RESERVED]

     (f) No Consents Necessary. No consent, approval, authorization or order
of, registration or filing with, or notice to any third party, including any
Governmental Authority or court is required under applicable Law or any
material contract to which the Borrower is a party in connection with the
execution, delivery and performance by the Borrower of the Significant
Documents.

     (g) No Litigation. There is no action, proceeding or investigation
pending or, to the best knowledge of the Borrower, threatened, against the
Borrower before any Governmental Authority, arbitrator, court, administrative
agency or other tribunal (A) asserting the invalidity of any of the Significant
Documents, (B) seeking to prevent the consummation of any of the transactions
contemplated by any of the Significant Documents, or (C) which could result in
a Material Adverse Effect.

     (h) No Material Adverse Effect. Since the date of this Agreement, no
event has occurred which has, has had or could reasonably be expected to result
in, a Material Adverse Effect.

     (i) Authorization of Signatories. The person or persons signatory to this
Agreement and any document executed pursuant to it on behalf of the Borrower
have full power and authority to bind the Borrower.

     (j) Enforceability of Significant Documents. Each of the Significant
Documents has been duly authorized and executed by the Borrower and is a legal,
valid and binding agreement and is enforceable against the Borrower in
accordance with its terms.

     (k) No Violations or Conflicts. The execution, delivery and performance
of any of the Significant Documents to which the Borrower is a party, and the
exhibits attached thereto, if any, and the other documents contemplated herein,
and the performance by each such entity of all transactions contemplated herein
and in each such Significant Document, (A) have been duly authorized by all
necessary and appropriate action on the part of the Borrower, (B) will not
violate any provision of the organizational documents of the Borrower, (C) do
not conflict with any material term or provision of any other agreement to
which the Borrower is a party, and (D) will not cause a violation of any
applicable federal, state or municipal governmental Law or regulations, or any

15

 

order, judgment, writ, award, injunction or decree of any court or
Governmental Authority which is binding upon the Borrower.

     (l) No Liens. The Borrower has not pledged any of the Collateral to any
Person other than to the Senior Lenders under this Agreement and to the
Subordinated Lenders under the Subordinated Loan Agreement.

     (m) No Bankruptcy Filing. There has been no (A) filing against the
Borrower of a petition for liquidation, reorganization, arrangement or
adjudication as a bankrupt or similar relief under the bankruptcy, insolvency
or similar laws of the United States or any state or territory thereof or of
any foreign jurisdiction as to which the Borrower fails to secure dismissal
within 60 days of such filing, or (B) commencement by the Borrower of a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by the Borrower to the entry of an
order for relief in an involuntary case under any such law or to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the Borrower or
of any substantial part of its property, or the making by the Borrower of any
general assignment for the benefit of creditors, or the failure of the Borrower
generally to pay its debts as such debts become due, or the taking of action by
the Borrower in furtherance of any of the foregoing.

     (n) No Misstatement or Omissions. All information and documents or copies
of documents furnished and to be furnished to a Senior Lender by the Borrower
pursuant to or in connection with this Agreement and any Significant Documents,
are and will be (as the case may be) true, complete and correct in all material
respects at the time furnished (or, with respect to items prepared by third
parties, as of such items’ respective dates), and all such information,
documents, copies and reports contain no, nor will they contain any, material
misstatements of fact as of the respective dates they were furnished or filed,
nor do any of such items omit nor will they omit (as the case may be) to state
any facts, the omission of which renders the statements made therein misleading
in any material respect. For purposes of this Section 3.01(n), each item of
information and each document or copy thereof furnished and to be furnished
shall be viewed in a context that includes all other items of information and
documents that have been furnished to a Senior Lender; provided, however, that
to the extent different items contradict each other, the most recently
furnished item supersedes the contradictory item. The Borrower understands
that each Senior Lender and its designees are relying and shall rely on the
true, correct and complete nature of such information in taking or refraining
from taking actions in furtherance of the transactions contemplated hereby, and
that neither Senior Lender nor either Senior Lender’s designees shall have any
obligations to verify independently any such information furnished or to be
furnished by the Borrower hereunder.

     (o) Taxes. The Borrower has filed or caused to be filed all federal,
state, material local and foreign tax returns and other reports required by Law
to have been filed by it and has paid or caused to be paid all material taxes,
assessments and governmental charges and levies due and payable by it, except
to the extent that (A) such taxes, assessments, charges and levies are being
actively contested in good faith and by

16

 

appropriate proceedings and such contest operates to suspend collection of
the contested tax, assessment, charge or levy and (B) the Borrower shall have
maintained adequate reserves therefor. No tax lien has been filed (other than
for taxes not yet due and payable) against the Borrower and no claim is being
asserted with respect to any such tax, lien or other such charge.

     (p) Ownership of Collateral. The Borrower is the sole owner of the
Collateral.

     (q) Pledge of Collateral. The Borrower has granted to the Senior Lenders
a valid and enforceable lien on and security interest in the Collateral. The
grant and assignment to the Senior Lenders of the Collateral are free and clear
of all liens and encumbrances. The Borrower has not pledged any of the
Collateral to any Person other than to the Senior Lenders, except for the
Subordinated Lenders pursuant to the Subordinated Loan Agreement.

     (r) Indebtedness. There exists no indebtedness of the Borrower other than
the indebtedness created pursuant to this Agreement and the Subordinated Loan
Agreement, except other indebtedness as shall have been specifically approved
by the Senior Lenders in writing.

     (s) No Other Employment Contracts. No Subordinated Lender has any
existing employment arrangements, agreements or contracts regarding current or
prospective future employment by any entity other than the Borrower in the
insurance industry.

     The Borrower agrees and acknowledges that each of the representations and
warranties set forth in this Article III (i) is important to the Senior Lenders
and being relied upon by the Senior Lenders, (ii) is true in all respects as of
the date of this Agreement, and (iii) shall survive the execution, termination
and expiration of this Agreement until all Obligations shall have been paid in
full.

ARTICLE IV

COVENANTS OF THE BORROWER

     Section 4.01. Affirmative Covenants.

     Until all Obligations shall have been paid in full, the Borrower covenants
and agrees with the Senior Lenders as follows:

     (a) Notification of Senior Lender. The Borrower will notify the Sender
Lenders in writing of any of the following within two Business Days after it
learns of the occurrence thereof, but in no event later than five Business Days
following the occurrence thereof, describing the same and, if applicable,
further notifying the Senior Lenders, within three Business Days after learning
of the occurrence thereof, of any remedial steps being taken with respect
thereto:

17

 

     (i) the occurrence of a Default or an Event of Default hereunder
(this notice shall be given immediately upon the occurrence of a Monetary
Default);

     (ii) the institution of any litigation, arbitration proceeding or
governmental proceeding against the Borrower which might result in a
Material Adverse Effect;

     (iii) the entry of any judgment or decree against the Borrower; or

     (iv) a default under any material agreement of the Borrower.

     (b) Bankruptcy. In the event of a filing against the Borrower of a
petition for liquidation, reorganization, arrangement or adjudication as a
bankrupt or similar relief under the bankruptcy, insolvency or similar Laws of
the United States or any state or territory thereof or of any foreign
jurisdiction or there shall be appointed a receiver, conservator, liquidator,
assignee, custodian, trustee, sequestrator or other similar official of the
Borrower or any substantial part of his or its property or the ordering of the
winding-up or liquidation of such party’s affairs, dismissal of such filing,
appointment or order shall be secured within 60 days of such filing.

     (c) Financial Statements. The Borrower shall deliver to the Senior
Lenders consolidated financial statements and reports to the Lender within 60
days after the end of each calendar quarter (beginning with the quarter ended
June 30, 2004), and within 90 days after the end of each year (beginning with
2004), in each case prepared in accordance with GAAP and including a balance
sheet and a statement of income and retained earnings and changes in financial
position, in each case as of the end of the preceding quarter or year, or for
such quarter or year, as applicable and audited, in the case of the annual
financial statements.

     The Borrower shall also deliver to the Senior Lenders, on or before the
25th day of each month, a report of the Borrower’s cash flows for the preceding
calendar month, including an itemized statement of all expenditures and debt
service and net cash flow, and any other reporting items requested by the
Senior Lenders.

     (d) Public Filings. The Borrower shall, promptly upon filing, deliver to
the Senior Lenders copies of all public filings made by the Borrower with any
Governmental Authority or quasi-governmental body.

     (e) Compliance with Laws. The Borrower shall comply with all Laws,
ordinances, governmental rules and regulations to which it is subject, and
obtain and keep in force any and all licenses, permits, franchises, or other
governmental authorizations from, give all such notices promptly to, register,
enroll or file promptly all such agreements, instruments or documents required
by applicable Laws with, and promptly take all such other legally required
action with respect to, any Governmental Authority or regulatory authority,
agency or official, as is required under any provision of any applicable Law
and that is necessary (i) for the continued operation of any of the Borrower’s
activities or business or the performance by the Borrower of any of its
agreements or obligations under any of the Significant Documents or (ii) to
ensure the

18

 

continuing legality, validity, binding effect or enforceability of any of
the Significant Documents or any of the obligations thereunder of the Borrower
necessary to the ownership of its properties or to the conduct of its
businesses.

     (f) Amendments of Organizational Documents. The Borrower shall provide
the Senior Lenders with copies of any documents effecting any amendments to the
organizational documents of the Borrower, promptly upon filing thereof with the
appropriate Governmental Authority. This provision shall not be construed to
limit the restriction on such amendments provided for by Section 4.02(b).

     (g) Good Standing Maintenance. The Borrower shall do all things necessary
to remain duly organized, validly existing and in good standing as a domestic
limited liability company in the State of Delaware and to maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted, except where the failure to maintain such authority
would not have a Material Adverse Effect on the ability of the Borrower to
conduct its business or to perform its obligations under the Significant
Documents.

     (h) Access to Records. Upon three Business Days’ prior written notice,
the Borrower shall permit, during normal business hours, any Senior Lender or
its accountants, attorneys or other agents access to all of its books and
records for inspection and copying. During the term of this Agreement, the
Borrower shall furnish the Senior Lenders such periodic, special or other
reports or information, whether or not provided for herein, as any Senior
Lender may reasonably request and as shall be necessary, reasonable and
appropriate in respect of the purposes of this Agreement.

     (i) Payment of Taxes. The Borrower shall pay and discharge promptly all
taxes, assessments and governmental charges and levies upon it, its income or
its profits, any of its properties or the Collateral as and when such taxes,
assessments and charges and levies are due and payable.

     (j) Tax Returns. The Borrower shall timely file all federal, state and
local and foreign tax returns and other reports that the Borrower is required
by Law to file, and shall maintain adequate reserves with respect thereto in
accordance with GAAP or liquid assets for the payment of all taxes,
assessments, governmental charges, and levies imposed upon it, its income, or
its profits, any of its properties or the Collateral.

     (k) Distributions from Subsidiaries. The Borrower shall notify the Senior
Lenders immediately in writing of the timing and amount of any dividend or
distribution paid by any Subsidiary, and shall be available to answer any
Senior Lender’s questions about the value of the equity on such Subsidiary
after such dividend or distribution. At any Senior Lender’s request, the
Borrower shall set up an account for the deposit of all such distributions and
shall enter into an account control agreement acceptable to the Senior Lenders
under which the Senior Lenders are granted a security interest in such account
and such security interest is perfected, and shall use its best efforts to
cause the related account bank to sign such account control agreement. The
Borrower shall cause

19

 

any Subsidiary to comply with all covenants set forth herein to the same
extent as if such Subsidiary were also a Borrower hereunder.

     (l) Perfection of Security Interests. The Borrower shall take all actions
reasonably requested by any Senior Lender, from time to time, as such Senior
Lender may request in order to perfect, maintain or release any security
interest of such Senior Lender in any Collateral and shall, from time to time,
upon the written request of any Senior Lender, promptly and duly execute and
deliver such further instruments and documents and take such further actions as
such Senior Lender may reasonably request for the purpose of obtaining or
preserving the full benefit of this Agreement and of the rights and powers
herein granted to such Senior Lender.

     (m) Incorrect Information. The Borrower shall notify the Senior Lenders
immediately upon discovery that any information with respect to the Borrower’s
business, properties and operations, that it has furnished to any Senior Lender
or any designee thereof in connection with the transaction contemplated hereby
is materially incorrect or incomplete or has changed in any material respect.

     (n) Notification of Conflicting Liens. The Borrower shall notify the
Senior Lenders promptly, in reasonable detail, (i) of any lien or security
interest (other than the security interests created hereby) on, or claim
asserted against, any of the Collateral, and (ii) of the occurrence of any
other event which could have a Material Adverse Effect on the aggregate value
of the Collateral or on the security interests created hereunder.

     (o) Insurance. The Borrower will, and will cause each of its Subsidiaries
(if any) to, maintain with financially sound and reputable insurance companies
insurance on all their Property in such amounts, with such deductibles and
covering such risks as are customarily carried by companies engaged in similar
businesses and owning similar projects in localities where the Borrower and its
Subsidiaries (if any) operate, and the Borrower will furnish to the Senior
Lenders upon reasonable request full information as to the insurance carried.

     (p) Maintenance of Assets. The Borrower will do all things necessary to
maintain, preserve, protect and keep its assets in good working order and
condition, and in any event in no worse condition than the condition it was in
on the Closing Date, ordinary wear and tear expected.

     Section 4.02. Negative Covenants of the Borrower.

     Until all Obligations shall have been paid in full, the Borrower covenants
and agrees with the Senior Lenders as follows:

     (a) No Assignment. The Borrower shall not (i) assign or attempt to assign
this Agreement or any rights hereunder, or (ii) grant or permit to exist any
security interest, lien or other encumbrance on any Collateral other than those
created hereby and by the Subordinated Loan Agreement.

20

 

     (b) Amendments to Organizational Documents. The Borrower shall not amend
its organizational documents without the prior written consent of the Senior
Lenders.

     (c) No Bankruptcy. The Borrower shall not commence a voluntary case under
any applicable bankruptcy, insolvency or other similar Law now or hereafter in
effect, or consent to the entry of an order for relief in an involuntary case
under any such Law or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Borrower, or of any substantial part of its property, and the
Borrower shall not make any general assignment for the benefit of creditors, or
fail generally to pay debts as such debts become due, and shall not take action
in furtherance of any of the foregoing.

     (d) No Material Adverse Effect. The Borrower shall not suffer, and the
Borrower shall not permit the Collateral to suffer, any Material Adverse
Effect.

     (e) Dividend Restrictions. The Borrower shall not declare or pay any
dividends or distributions to the holders of its equity interests without the
Senior Lenders’ prior written consent, unless and until all Obligations shall
have been paid in full.

     (f) No Merger. The Borrower shall not liquidate or dissolve or
amalgamate, merge or consolidate with or into any other entity.

     (g) No Equity Acquisitions. The Borrower shall not purchase, lease or
otherwise acquire all or substantially all of the assets or properties of, or
acquire any capital stock, equity interest, debt or other securities of any
other entity without the prior written consent of the Senior Lenders.

     (h) No Equity or Debt Issuances. Prior to an Equity Offering in
connection with which all Obligations are paid in full, the Borrower shall not
(i) issue any additional equity or debt securities or interest of any sort
whatsoever, (ii) dissolve or terminate its existence, (iii) enter into any
joint venture or become a partner in any partnership, (iv) create any
Subsidiary or (v) enter into any engagement letter or other agreement with any
Person regarding any sale of securities of the Borrower, in any case, without
the prior written consent of the Senior Lenders.

     (i) Limitations on Investments. The Borrower shall not make or permit to
exist investments in or loans to any other person, entity or Affiliate, except
with the prior written consent of the Senior Lenders.

     (j) No Guarantees. Except with the prior written consent of the Senior
Lenders, the Borrower shall not guarantee, endorse or otherwise in any way
become or be responsible for any obligations of any other Person, including,
without limitation, whether directly or indirectly by agreement to purchase the
indebtedness of any other person or through the purchase of goods, supplies or
services, or maintenance of working capital or other balance sheet covenants or
conditions, or by way of stock purchase, capital contribution, advance or loan
for the purposes of paying or discharging any indebtedness or obligation of
such other person or otherwise.

21

 

     (k) No Liens. The Borrower shall not pledge or assign or grant a security
interest in or a lien on or in any way convey or encumber any stock or other
equity interest in any Subsidiary, nor any other assets, including without
limitation any of the Collateral, other than to the Senior Lenders and the
Subordinated Lenders pursuant to the Significant Documents as in effect on the
date hereof, without the Senior Lenders’ prior written consent.

     (l) No Violations of Laws. The Borrower shall not commit any act in
violation of applicable Laws, or regulations promulgated pursuant thereto, that
relate to the Borrower or the Collateral or that could result in a Material
Adverse Effect.

     (m) No Additional Indebtedness. The Borrower shall not incur any
indebtedness to or enter into any financing arrangement with any entity other
than the Senior Lenders pursuant to this Agreement (except the indebtedness
evidenced by the Subordinated Loan Agreement as in effect on the date hereof)
without the prior written consent of the Senior Lenders.

     (n) Transactions with Affiliates. The Borrower shall not pay any
administrative fees or expenses to any Affiliate of the Borrower except if such
fee or expense: (1) (i) is in connection with actual services rendered, (ii) is
in an amount no less favorable to the Borrower than what the Borrower could
have obtained from an unaffiliated third party on an arm’s-length basis or is
in an amount approved by the Senior Lenders, and (iii) is paid at a time when
the Borrower is current in all payments under the Significant Documents and no
default has occurred and is continuing under any of the Significant Documents.

     (o) No Amendment of Subordinated Loan Documents. The Borrower shall not
request or allow any amendment or waiver with respect to the Subordinated Loan
Agreement or any related agreements or documents, without the prior written
consent of the Senior Lenders.

     (p) No Payment of Senior Management Compensation. The Borrower shall not
pay or allow the payment of any compensation to any Subordinated Lender or
other member of the Borrower’s senior management team, until all Obligations
have been paid in full, without the Senior Lenders’ prior written consent.

     (q) Maximum Aggregate Amount of Employees’ Compensation. The Borrower
shall not allow the maximum aggregate amount it pays for employee compensation
in any month, including the cost of benefits provided to employees, to exceed
$60,000, until all Obligations have been paid in full.

     Section 4.03. Special Covenant of Subordinated Lenders.

     Each Subordinated Lender covenants and agrees with the Borrower and the
Senior Lenders that he shall not enter into or suffer to exist any employment
arrangement, agreement or contract regarding his current or prospective future
employment by any entity other than the Borrower in the insurance industry and
that he will not take any steps to move the Borrower’s business plan away from
conducting an

22

 

Equity Offering which will result in payment of all Obligations hereunder
in full. If any Subordinated Lender shall breach this covenant before the
Subordinated Lenders shall have disbursed an aggregate amount of $350,000 to
the Borrower pursuant to Section 2.02(a) of the Subordinated Loan Agreement,
then each Subordinated Lender shall immediately deposit into the account of the
Borrower, which amount may not be subsequently withdrawn without the Senior
Lenders’ prior written consent, his “Commitment Percentage” (as defined in the
Subordinated Loan Agreement) of the difference between $350,000 and the
aggregate amount theretofore disbursed by the Subordinated Lenders to the
Borrower pursuant to Section 2.02(a) of the Subordinated Loan Agreement.

ARTICLE V

SECURITY AGREEMENT

     Section 5.01. Grant of Security Interest.

     The Borrower hereby grants a security interest to the Senior Lenders in
the following assets of the Borrower, including all right, title and interest
of the Borrower therein, whether now owned or hereafter acquired or existing
(collectively, the “Collateral”):

     (a) Accounts;

     (b) Books;

     (c) Chattel Paper (whether tangible or electronic);

     (d) Commercial Tort Claims;

     (e) Documents;

     (f) Deposit Accounts;

     (g) Equipment;

     (h) Fixtures;

     (i) General Intangibles and Payment Intangibles;

     (j) Goods;

     (k) Instruments;

     (l) Intellectual Property;

     (m) Inventory;

     (n) Investment Property

23

 

     (o) Letter-of-Credit Rights;

     (p) Negotiable Collateral;

     (q) Real Property Collateral;

     (r) all of the Borrower’s now owned or hereafter acquired right, title and
interest with respect to any Supporting Obligations relating to any of the
foregoing;

     (s) money or other assets of the Borrower that now or hereafter come into
the possession, custody, or control of a Senior Lender or a Subordinated
Lender;

     (t) all other personal property of the Borrower, wherever located and
whether now or hereafter existing, and whether now owned or hereafter acquired,
of every kind and description, whether tangible or intangible; and

     (u) proceeds, products, rents and profits, whether tangible or intangible,
of any of the foregoing, including proceeds of insurance covering any or all of
the foregoing, and any and all tangible or intangible property resulting from
the sale, exchange, collection, or other disposition of any of the foregoing,
or any portion thereof or interest therein, and the proceeds thereof.

     Section 5.02. Security for the Debt.

     (a) Pursuant to this Agreement, the Collateral secures the prompt and
complete payment when due of principal and interest on any amounts outstanding
under this Agreement and the Senior Secured Notes and all other amounts and
Obligations owing to the Senior Lenders pursuant to this Agreement and the
Senior Secured Notes.

     (b) The Borrower hereby authorizes each Senior Lender, at the Borrower’s
expense, to file such financing statement or statements relating to the
Collateral without the Borrower’s signature thereon in the name of the Senior
Lenders as such Senior Lender at its option may deem appropriate, and the
Borrower appoints each Senior Lender as its attorney-in-fact, to execute any
such financing statement or statements in the Borrower’s name and to perform
all other acts which such Senior Lender deems appropriate to perfect and
continue the security interests granted hereby and to protect, preserve and
realize upon the Collateral, including, but not limited to, the right to
endorse notes, complete blanks in documents and sign assignments on behalf of
the Borrower as such attorney-in-fact. This power of attorney is coupled with
an interest and is irrevocable without the Senior Lenders’ consent.

     (c) The Senior Lenders’ rights to the Collateral as between each other
shall be governed by the Intercreditor Agreement and the terms of this
Agreement.

     Section 5.03. Intention of Parties.

     This Agreement is intended by the parties hereto to constitute a security
agreement within the meaning of each state’s Uniform Commercial Code.

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ARTICLE VI

INDEMNIFICATION

     Section 6.01. Indemnification by the Borrower.

     (a) If, in connection with the matters that are the subject of this
Agreement, any Senior Lender, any of its Affiliates and/or their respective
directors, partners, officers, employees, agents and controlling persons (each
an “Indemnified Party”) becomes involved in any capacity in, or incurs any
cost, damage, expense or liability in connection with, any action or legal
proceeding, actual or threatened, involving claims by any third party, or to
enforce any of such Senior Lender’s rights under this Agreement or to collect
any amount under this Agreement, the Borrower shall reimburse each such
Indemnified Party immediately upon request for all reasonable expenses
(including the reasonable fees and disbursements of legal counsel, the
allocated reasonable costs of in-house counsel acting as litigators, and the
reasonable cost of investigation and preparation) in connection with or related
to such action or legal proceedings as they are incurred. Notwithstanding the
generality of the foregoing, if any action, suit or other proceeding is brought
against an Indemnified Party for which the Indemnified Party seeks
indemnification hereunder, the Indemnified Party shall promptly notify the
Borrower of the commencement thereof, whereupon the Borrower will be entitled
to participate therein, and to assume the defense thereof, with counsel
selected by the Borrower and satisfactory to such Indemnified Party (such
consent not to be unreasonably withheld); provided, however, that, if in the
Indemnified Party’s reasonable judgment the Indemnified Party has any claims or
defenses that conflict with or differ from the interests of the Borrower, the
Indemnified Party shall be entitled to select counsel of its choosing and
pursue such claims and defenses separately and all related costs, expenses and
liabilities associated with such separate claims or defenses will continue to
be covered by the Borrower’s indemnification obligation hereunder. The
Borrower shall not be entitled to settle any proceeding without the consent of
each Indemnified Party with any right to indemnification hereunder with respect
to such proceeding except upon such terms as will provide each such Indemnified
Party reasonable assurance of full indemnity hereunder.

     (b) The Borrower shall indemnify and hold each Indemnified Party harmless
against all losses, claims, damages or liabilities of any kind, joint or
several, to which such Indemnified Party may become subject in connection with,
or relating to, or arising out of, this Agreement or any Senior Secured Note,
or any transactions contemplated hereby; provided, however, that the Borrower
shall not be liable under the foregoing indemnity agreement in respect of any
loss, claim, damage or liability to the extent that a court having jurisdiction
shall have determined by a final judgment (not subject to further appeal) that
such loss, claim, damage or liability resulted primarily and directly from the
willful misconduct or gross negligence of such Indemnified Party. The Borrower
also shall reimburse each Senior Lender for all of such Senior Lender’s
reasonable costs and expenses incurred in connection with the enforcement
(including, without limitation, in connection with the negotiation of any
restructuring or “work out” of the Obligations, whether or not consummated),
amendment, or the preservation of such Senior Lender’s rights under this
Agreement and the related Senior Secured Note, including, without

25

 

limitation, the fees and disbursements of its counsel and additional due
diligence expenses incurred after the occurrence of an Event of Default or in
connection with any action, claim or proceeding described in this subsection
for which such Senior Lender is entitled to indemnification.

     (c) The agreements of the Borrower in this Article VI shall be in addition
to any liabilities that the Borrower may otherwise have and shall apply whether
or not any Senior Lender or any other Indemnified Party is a formal party to
any lawsuit, claim or other proceeding. Solely for purposes of enforcing such
agreements, the Borrower hereby consents to personal jurisdiction, service and
venue in any court in which any claim or proceeding which relates to the
services or matters that are the subject of this Agreement is brought against
any Senior Lender or other Indemnified Party.

ARTICLE VII

EVENTS OF DEFAULT

     Section 7.01. Occurrence of an Event of Default.

     An “Event of Default” shall occur:

     (a) immediately upon the occurrence of a Monetary Default; provided,
however, that if the Borrower fails to pay the interest due on any Payment Date
or fails to make a payment required under Section 2.05(b), an “Event of
Default” shall occur only if the Borrower has not paid such interest or other
payment within three Business Days following such Payment Date or the date on
which the obligation to make such payment arose;

     (b) 30 days after the occurrence of a Non-Monetary Default which is not
cured within such 30-day period; provided, however, that if it is not possible
or practicable within 30 days to cure a particular material Non-Monetary
Default, an “Event of Default” shall be deemed to have occurred immediately
upon the occurrence of such Non-Monetary Default;

     (c) immediately upon, and simultaneously with, the occurrence of an event
of default (meaning a default or breach and the passage of any grace or cure
period provided in such agreement without the default having been cured or
waived) by the Borrower under any material agreement of the Borrower;

     (d) immediately upon the Borrower’s making any payment in cash or in kind
under the Subordinated Loan Agreement in violation of the subordination
provisions contained in Section 2.09 thereof, or upon any amendment of the
Subordinated Loan Agreement or any related agreement or document, in any case
without the Senior Lender’s prior written consent or upon any Subordinated
Lender’s violation of the provisions of the Intercreditor Agreement or Section
2.09 of the Subordinated Loan Agreement;

     (e) immediately upon the assignment or attempted assignment by the
Borrower of this Agreement or any rights hereunder, without first obtaining the
specific

26

 

written consent of the Senior Lenders, or the granting by the Borrower of
any security interest, lien or encumbrance or any Collateral to any Person
other than the Senior Lenders or the Subordinated Lenders pursuant to the
Subordinated Loan Agreement;

     (f) immediately upon any Change of Control;

     (g) immediately upon the appointment of a receiver, conservator,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Borrower, or of any substantial part of its property, the
ordering of the winding-up or liquidation of its affairs, or the entry of a
decree or order for relief by a court having jurisdiction in the premises in
respect of the Borrower in any involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect which
such order remains undischarged or unstayed, as the case may be, for 45 days;

     (h) immediately upon commencement by the Borrower of a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Borrower to the entry of an order
for relief in an involuntary case under any such law or to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Borrower or of any substantial
part of the Borrower’s property, or the making by the Borrower of any general
assignment for the benefit of creditors, or the failure of the Borrower
generally to pay its debts as such debts become due, or the taking of action by
the Borrower in furtherance of any of the foregoing; or

     (i) any Significant Document shall be terminated or cease to be in full
force and effect in any material respect (other than upon the expiration
thereof in accordance with the terms thereof or termination by the Borrower in
accordance with the terms thereof), or the enforceability thereof shall be
challenged by the Borrower or any Affiliate of the Borrower.

     Section 7.02. Effect of an Event of Default.

     Upon the occurrence of an Event of Default, the following rights and
remedies are available to the Senior Lenders:

     (a) Any Senior Lender may declare the principal of its Senior Secured Note
then outstanding, together with all interest accrued thereon and any other
amounts and Obligations accruing under this Agreement to be immediately due and
payable, and all such amounts shall become immediately due and payable without
presentation, demand or further notice of any kind to the Borrower.
Notwithstanding the foregoing, the Senior Secured Notes and all Obligations
shall be automatically accelerated without the necessity of any action on the
part of any Senior Lender to declare the acceleration, immediately upon an
Event of Default as described in Section 7.01(g) or 7.01(h).

27

 

     (b) FBR, for itself and on behalf of any other Senior Lender, shall have
the right to obtain physical possession of all files of the Borrower relating
to the Collateral and all documents relating to the Collateral which are then
or may thereafter come into the possession of the Borrower or any Affiliate or
any third party acting for the Borrower, and the Senior Lenders shall be
entitled to specific performance of all agreements of the Borrower contained in
this Agreement.

     (c) The Senior Lenders shall have the right to collect and receive all
further payments made on any item included in the Collateral (provided that if
any Senior Lender collects any such payments, it shall promptly remit to each
other Senior Lender such other Senior Lender’s Senior Lender Percentage of the
amount so collected) and, if any such payments are received by the Borrower,
the Borrower shall not commingle the amounts received with other funds and
shall promptly pay them over to the Senior Lenders.

     (d) At its option, but with no obligation to do so, any Senior Lender,
with the other Senior Lender’s consent, may at any time sell, without notice or
demand of any kind, at a public or private sale and at such price or prices as
the Senior Lenders may reasonably deem satisfactory, any or all Collateral.
The proceeds of any such disposition shall be applied first to the costs and
expenses incurred by the Senior Lenders, with each other’s consent, in
connection with the Borrower’s default and then as described in Section 2.06
with respect to the proceeds from the Collateral. Any amounts remaining after
such application of sale proceeds of Collateral shall be remitted to the
Borrower.

     (e) The parties recognize that it may not be possible to purchase or sell
all of the Collateral on a particular Business Day, or in a transaction with
the same purchaser, or in the same manner because the market for such
Collateral may not be liquid. In view of the nature of the Collateral, the
parties agree that liquidation of the Collateral does not require a public
purchase or sale and that a good faith private purchase or sale shall be deemed
to be commercially reasonable. Accordingly, any Senior Lender, with the other
Senior Lender’s consent, may elect, in its sole discretion, the time and manner
of liquidating any Collateral and nothing contained herein shall (1) obligate
any Senior Lender to liquidate any Collateral on the occurrence of an Event of
Default or to liquidate all Collateral in the same manner or on the same
Business Day or (2) constitute a waiver of any right or remedy of any Senior
Lender.

     (f) Any Senior Lender, with the other Senior Lender’s consent, shall,
without regard to the adequacy of the security for the Borrower’s obligations
under this Agreement, be entitled to the appointment of a receiver by any court
having jurisdiction, without notice, to take possession of and protect,
collect, manage, liquidate, and sell the Collateral or any portion thereof, and
collect the payments due with respect to the Collateral or any portion thereof.
The Borrower shall pay all costs and expenses incurred by any Senior Lender in
connection with the appointment and activities of such receiver.

     (g) The Borrower shall be liable to each Senior Lender for (1) the amount
of all expenses, including reasonable legal or other expenses incurred by such
Senior Lender in connection with an Event of Default, and (2) actual damages,
including, without

28

 

limitation, all reasonable costs incurred in connection with hedging or
covering transactions.

     (h) The Senior Lenders shall have all the rights and remedies provided
herein, provided by applicable federal, state, foreign, and local laws
(including, without limitation, the rights and remedies of a secured party
under the Uniform Commercial Code, to the extent that the Uniform Commercial
Code is applicable, and the right to offset any mutual debt and claim), in
equity, and under any other agreement between the Senior Lenders and the
Borrower.

     (i) The Senior Lenders may exercise one or more of the remedies available
to the Senior Lenders immediately upon the occurrence of an Event of Default
and, except to the extent provided in subsection (d) of this Section, at any
time thereafter without notice to the Borrower, but with the consent of both
Senior Lenders. All rights and remedies arising under this Agreement as
amended from time to time hereunder are cumulative and not exclusive of any
other rights or remedies which the Senior Lenders may have.

     (j) In addition to its rights hereunder, any Senior Lender, with the other
Senior Lender’s consent, shall have the right to proceed against any assets of
the Borrower which may be in the possession of the Senior Lenders, its
Affiliates or its designee, including the right to liquidate such assets and to
set off the proceeds against monies owed by the Borrower to the Senior Lenders
pursuant to this Agreement. Any Senior Lender, with the other Senior Lender’s
consent, may set off cash, the proceeds of the liquidation of the Collateral,
any Collateral or its proceeds, and all other sums or obligations owed by the
Senior Lenders or their respective Affiliates to the Borrower against all of
the Borrower’s obligations to the Senior Lenders, whether under this Agreement,
or under any other agreement between the parties, or otherwise, whether or not
such obligations are then due, without prejudice to the Senior Lenders’ right
to recover any deficiency. Any cash, proceeds, or property in excess of any
amounts due, or which any Senior Lender reasonably believes may become due, to
it from the Borrower shall be returned to the Borrower after satisfaction of
all obligations of the Borrower to the Senior Lenders.

     (k) The Senior Lenders may enforce their rights and remedies hereunder
without prior judicial process or hearing, and the Borrower hereby expressly
waives any defenses the Borrower might otherwise have to require any Senior
Lender to enforce its rights by judicial process. The Borrower also waives any
defense the Borrower might otherwise have arising from the use of non-judicial
process, enforcement and sale of all or any portion of the Collateral, or from
any other election of remedies. The Borrower recognizes that non-judicial
remedies are consistent with the usages of the trade, are responsive to
commercial necessity and are the result of a bargain at arm’s length.

     (l) At the Senior Lenders’ request, the Borrower shall use its best
efforts to cause One Beacon Insurance Company to permit the Borrower to assign,
and, upon obtaining such consent (if it is obtained), the Borrower shall assign
to an entity designated by the Senior Lenders, all of the Borrower’s right,
title and interest under and

29

 

contract of the Borrower with One Beacon Insurance Company for the
purchase of a “shell” insurance company.

ARTICLE VIII

GENERAL PROVISIONS

     Section 8.01. Cooperation, Confidentiality, Etc.

     (a) Upon reasonable notice, the Borrower shall furnish, and shall use his
best efforts to cause other relevant parties to furnish, the Senior Lenders
with all information and data reasonably requested by the Senior Lenders in
connection with its activities on the Borrower’s behalf to carry out the terms
of this Agreement, and shall provide the Senior Lenders reasonable access,
during normal business hours upon prior written notice, to the Borrower’s
officers, directors, employees and professional advisers.

     (b) The Borrower recognizes and confirms that the Senior Lenders in acting
pursuant to this Agreement may use information in reports and other information
provided by others, including, without limitation, information provided by the
Borrower and that neither Senior Lender assumes responsibility for, and may
rely, without independent verification, on the accuracy and completeness of any
such reports and information. The Borrower agrees that any advice or
information rendered by any Senior Lender in connection with this Agreement is
for the confidential use of the Borrower only and, except as otherwise required
by Law, the Borrower will not, and will not permit any third party to, disclose
such advice or information to others or summarize or refer to such advice or
information or to such Senior Lender’s role hereunder without, in each case,
such Senior Lender’s prior written consent.

     Section 8.02. Waiver of Trial by Jury.

     Each party hereto waives the right to trial by jury in any action, suit,
proceeding or counterclaim of any kind arising out of or related to this
Agreement. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.

     Section 8.03. Amendment; Waivers.

     This Agreement may be amended from time to time only by written agreement
of the parties. No failure on the part of any Senior Lender to exercise, and
no delay in exercising, any right, power, or remedy under this Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right under this Agreement preclude any other or further exercise thereof or
the exercise of any other right. No term or provision of this Agreement may be
waived or modified unless such waiver or modification is in writing and signed
by the party against whom such waiver or modification is sought to be enforced.

     Section 8.04. Limited Liability.

     Except with respect to recourse to Subordinated Lenders for breach of the
Subordinated Loan Agreement, no recourse under any Significant Documents shall
be

30

 

had against, and no personal liability shall attach to, any officer,
employee, director, Affiliate or shareholder of any party hereto, as such, by
the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise in respect of any of the Significant
Documents, it being expressly agreed and understood that each Significant
Document is solely an obligation of each party hereto as corporations and
limited liability companies, and that any and all personal liability, either at
common law or in equity, or by statute or constitution, of every such officer,
employee, director, Affiliate or shareholder for breaches by any party hereto
of any obligations under any Significant Document is hereby expressly waived as
a condition of and in consideration for the execution and delivery of this
Agreement.

     Section 8.05. Other Transactions.

     The Borrower acknowledges that each Senior Lender and its Affiliates
compete, directly and indirectly in the business in which the Borrower and his
Affiliates engage and propose to engage. The Borrower acknowledges that each
Senior Lender and its Affiliates have and will in the future have business
dealings with parties other than the Borrower, which parties compete, directly
or indirectly, with the Borrower. Although each Senior Lender and its
Affiliates may, in their normal course of business, acquire information about
the securitization market, particular transactions or such other parties, no
Senior Lender shall have any obligation to disclose such information to the
Borrower. The Borrower acknowledges that each Senior Lender and its Affiliates
may engage in their businesses and otherwise compete with the Borrower without
regard to their relationship to the Borrower hereunder.

     Section 8.06. Costs and Expenses.

     The Borrower will be responsible for and bear all of the reasonable fees
and expenses incurred in connection with the preparation, negotiation,
execution, amendment, and enforcement of the Significant Documents and the
transactions contemplated thereby, including, without limitation reasonable
fees and expenses of legal counsel for each Senior Lender. Such fees and
expenses of each Senior Lender shall be reimbursed by the Borrower upon closing
of an Equity Offering.

ARTICLE IX

CONSTRUCTION

     Section 9.01. Entire Agreement.

     This Agreement, together with the Significant Documents, including the
Exhibits and the Schedules thereof, contains the entire agreement of the
parties with respect to the subject matters thereof, and supersedes all prior
agreements between them, whether oral or written, of any nature whatsoever with
respect to the subject matter hereof.

     Section 9.02. Severability Clause.

     Any part or provision of this Agreement that is prohibited or that is held
to be void or unenforceable shall be ineffective to the extent of such
prohibition or

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unenforceability without invalidating the remaining provisions hereof.
Any part or provision of this Agreement that is prohibited or unenforceable or
is held to be void or unenforceable in any jurisdiction shall be ineffective,
as to such jurisdiction, to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable Law, the parties hereto waive any provision of Law that
prohibits or renders void or unenforceable any provision hereof. If the
invalidity of any part or provision of this Agreement shall deprive any party
of the economic benefit intended to be conferred by this Agreement, the parties
shall negotiate, in good-faith, to develop a structure, the economic effect of
which is as close as possible to the economic effect of this Agreement, without
regard to such invalidity.

     Section 9.03. Counterparts.

     This Agreement may be executed simultaneously in any number of
counterparts. Each counterpart shall be deemed to be an original, and all such
counterparts shall constitute one and the same instrument.

     Section 9.04. Governing Law; Agreement Constitutes Security Agreement;
Consent to Forum; Immunities.

     This Agreement and each Senior Secured Note shall be governed by and
construed in accordance with the Laws of the Commonwealth of Virginia, without
giving effect to the conflict of laws rules therein, and shall constitute a
security agreement within the meaning of the Virginia UCC. The parties hereto
hereby consent and agree that the Circuit Court of Arlington County, Virginia,
or, at the Senior Lenders’ option (exercised with all Senior Lenders’ consent),
the United States District Court for the Eastern District of Virginia, shall
have exclusive jurisdiction to hear and determine any claims or disputes
between the parties hereto pertaining to this Agreement and any Senior Secured
Note or to any matter arising out of or related to this Agreement and any
Senior Secured Note. The parties hereto expressly submit and consent in
advance to such jurisdiction in any action or suit commenced in any such court,
and hereby waive any objection which it may have based upon lack of personal
jurisdiction, improper venue or forum non convenient and hereby consent to the
granting for such legal or equitable relief as is deemed appropriate by such
court. Each party hereto irrevocably consents to the service of process by
registered or certified mail, postage prepaid, to it at its address given
pursuant to Section 10.01 hereof. Nothing in this Agreement or any Senior
Secured Note shall be deemed or operate to affect the right of any Senior
Lender to serve legal process in any other manner permitted by Law, or to
preclude the enforcement by any Senior Lender of any judgment or order obtained
in such forum or the taking of any action under this Agreement or the related
Senior Secured Note to enforce same in any other appropriate forum or
jurisdiction.

     To the extent that the Borrower has or may hereafter acquire any immunity
from the jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise)

32

 

with respect to the Borrower or the Borrower’s property, the Borrower
hereby irrevocably waives such immunity in respect of its obligations under
this Agreement.

     To the extent permitted by applicable law, each party hereto irrevocably
waives all right of trial by jury in any action, proceeding or counterclaim
arising out of or in connection with this Agreement or any matter arising
hereunder. Each party hereto also waives any right such party may have to
consequential or punitive damages from any other party and hereby agrees not to
assert any claim for such damages.

     Section 9.05. No Agency; No Partnership; No Joint Venture.

     Neither any Senior Lender nor the Borrower is the agent or representative
of the other, and nothing in this Agreement shall be construed to make either
Senior Lender or the Borrower liable to any third party for services performed
by such third party or for debts or claims accruing to such third party against
either Senior Lender or the Borrower. This Agreement is intended by the
parties hereto to constitute a loan and security agreement and nothing
contained herein nor the acts of the parties hereto shall be construed to
create a partnership, agency, equity investment, profit sharing agreement,
joint venture or sale of receivables between any Senior Lender and the
Borrower. The parties agree that they will not file any federal, state or
local income tax return that is inconsistent with such intended treatment.

     Section 9.06. Judicial Interpretation.

     Should any provision of this Agreement or any of the other Significant
Documents require judicial interpretation, it is agreed that a court
interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against any Person by reason of
the rule of construction that a document is to be construed more strictly
against the Person who itself or through its agent prepared the same, it being
agreed that all the parties hereto have participated in the preparation of this
Agreement.

     Section 9.07. Recitals.

     The recitals of this Agreement are not intended to constitute substantive
provisions hereof.

     Section 9.08. Rules of Interpretation.

     Except as otherwise expressly provided in this Agreement, the following
rules shall apply hereto:

     (a) the singular includes the plural and the plural includes the singular;

     (b) “include” and “including” are not limiting;

     (c) a reference to any agreement or other contract includes permitted
supplements, amendments and other modifications;

33

 

     (d) a reference to a law (or Law) includes any amendment or modification
of such law (or Law) and the rules or regulations issued thereunder;

     (e) a reference to a Person includes its permitted successors and assigns
in the applicable capacity;

     (f) a reference in this Agreement to an Article, Section, clause, recital
or Exhibit is to the Article, Section, clause, recital or Exhibit of this
Agreement unless otherwise expressly provided;

     (g) words such as “hereunder”, “hereto”, “hereof”, and “herein” and other
words of like import shall, unless the context clearly indicates to the
contrary, refer to the whole of this Agreement and not to any particular
Article, Section or clause hereof;

     (h) any right in this Agreement may be exercised at any time and from time
to time in accordance with the terms of this Agreement;

     (i) the headings of the Articles and Sections are for convenience and
shall not affect the meaning of this Agreement; and

     (j) time is of the essence in performing all obligations.

     Section 9.09. Good Faith.

     The Borrower and the Senior Lenders shall implement the terms and
provisions of this Agreement in good faith in accordance with applicable Law.

ARTICLE X

MISCELLANEOUS

     Section 10.01. Notices.

     All demands, notices, requests for consent and other communications
hereunder shall be in writing and personally delivered, mailed by certified
mail, return receipt requested, and telecopied, and shall be deemed to have
been duly given upon receipt;

	 	 	if to the Borrower:
	 
	 	 	Specialty Underwriters’ Alliance, Inc.

8585 Stemmons Fwy.

Suite 200, South Tower

Dallas, Texas 75247

Attn: Courtney Smith, CEO

Telephone Number: (972) 401-3665

Telecopier Number: (972) 506-7774

34

 

	 	 	with a copy to:
	 
	 	 	William W. Rosenblatt, Esq.

Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, New York 10038-4982

Telephone Number: (212) 806-5940

Telecopier Number: (212) 806-6006
	 
	 	 	if to FBR:
	 
	 	 	Friedman, Billings, Ramsey Group, Inc.

Potomac Tower

1001 Nineteenth Street North, 18th Floor

Arlington, VA 22209

Attention: Ned Wheeler

Telephone Number: (703) 312-9527

Telecopier Number: (703) 312-9602
	 
	 	 	with a copy to:
	 
	 	 	Thomas Y. Hiner, Esq.

Hunton & Williams LLP

Riverfront Plaza — East Tower

951 East Byrd Street

Richmond, VA 23219

Telephone Number: (804) 788-8279

Telecopier Number: (804) 788-8218
	 
	 	 	if to SAIL (by regular mail):
	 
	 	 	Standard American Insurance Limited

P.O. Box HM2274

Hamilton HM JX Bermuda
	 
	 	 	if to SAIL (by courier):
	 
	 	 	Standard American Insurance Limited

44 Church Street

Hamilton HM 12 Bermuda

Attention: Tim Carr

Telecopier Number: 441-295-1697

35

 

	 	 	with a copy to:
	 
	 	 	Jim Zech

672 Oenoke Ridge Rd.

New Canaan, CT 06840

Telephone Number: (203) 972-3982

Telecopier Number: (203) 972-3986

or, as to any party, at such other address or telecopy number as shall be
designated by such party in a written notice to each other party.

     Section 10.02. Further Agreements.

     The Borrower and each Senior Lender each agree to execute and deliver to
the other such additional documents, instruments or agreements as may be
necessary or appropriate to effectuate the purposes of this Agreement.

     Section 10.03. Third-Party Rights.

     This Agreement is for the exclusive benefit of the parties hereto and
their respective successors and assigns and shall not be deemed to give any
legal or equitable right to any other Person.

     Section 10.04. Advice from Independent Counsel.

     The parties hereto understand that this Agreement and each of the other
Significant Documents to which either of them is a party are legally binding
agreements that may affect such party’s rights. Each party represents to the
other that it has received legal advice from counsel of its choice regarding
the meaning and legal significance of this Agreement and each of the other
Significant Documents to which it is a party and that it is satisfied with its
legal counsel and the advice received from it.

     Section 10.05. Reproduction of Documents.

     This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by any party at the closing, and (c) financial
statements, certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties agree
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.

[Signature Page Follows]

36

 

     IN WITNESS WHEREOF, each of the parties has caused its duly authorized
representative to set his hand as of the date first above written.

    	 	 	 	 	 	 	 	 	 
	FRIEDMAN, BILLINGS,	 	 	 	SPECIALTY UNDERWRITERS’
          ALLIANCE,
	RAMSEY GROUP, INC., Senior
          Lender	 	 	 	INC., Borrower
	 
	 	 	 	 	 	 	 	 
	By: 
	 	/s/ Edward M. Wheeler	 	 	 	By:	 	/s/ Courtney Smith
	 
	 	
   	 	 	 	 	 	
  
	Name:
          
	 	Edward M. Wheeler	 	 	 	Name:	 	Courtney Smith
	Title:
          
	 	Managing Director	 	 	 	Title:	 	President
	 
	 	 	 	 	 	 	 	 
	STANDARD AMERICAN INSURANCE
          LIMITED,	 	 	 	 	 	 
	Senior Lender	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	/s/ David Pickering	 	 	 	 	 	 
	 
	 	
  	 	 	 	 	 	 
	Name:
	 	David Pickering	 	 	 	 	 	 
	Title:
	 	Director	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Acknowledged and Agreed by	 	 	 	 	 	 
	Subordinated Lenders:	 	 	 	 	 	 
	/s/ Courtney Smith	 	 	 	/s/ William Loder
	
            

          

          	 	 	 	

	Courtney Smith	 	 	 	William Loder
	 /s/
            Peter Jokiel
	 	 	 	/s/ Gary Ferguson
	
	 	 	 	

	Peter Jokiel	 	 	 	Gary Ferguson

  [Signature Page to the Amended
    and Restated Senior Loan and Security Agreement]
   
 
  
 

 

EXHIBIT A

FORM OF SENIOR SECURED NOTE

			
	 	 	 
	Up to $[2,000,000][1,450,000]
	 	As of December 12, 2003
	
	 	Amended and Restated as of July 23, 2004

     FOR VALUE RECEIVED, the undersigned, SPECIALTY UNDERWRITERS’ ALLIANCE,
INC., a Delaware corporation, with a principal place of business located at
8585 Stemmons Fwy., Suite 200, South Tower, Dallas, Texas 75247 (the
“Borrower”), promises to pay to the order of
[                              ], a [                    ], whose address is
[                                        ] (the “Holder”) on or before
the Maturity Date, in lawful money of the United States of America, the
principal sums set forth on the Schedule of Advances attached hereto, which are
not to exceed at any one time [                              ]($[          ]),
plus interest at the times and in the amounts and manner as provided in the
Amended and Restated Senior Loan and Security Agreement (as it may be
supplemented and amended from time to time, the “Agreement”), amended and
restated as of July 23, 2004, among the Borrower, the Holder named above and
the other Senior Lender identified therein (together with such Holder, the
“Senior Lenders”), and acknowledged by Courtney Smith, Peter Jokiel, William
Loder and Gary Ferguson; provided, however, that the principal sum evidenced
by this Senior Secured Note may exceed the maximum principal amount specified
above to the extent of any amounts added to the principal balance of this
Senior Secured Note in respect of interest accrued on this Senior Secured Note
prior to the Maturity Date, to the extent permitted pursuant to Sections 2.02
and 2.04 of the Agreement.

     MAXIMUM RATE OF INTEREST: It is intended that the rate of interest hereon
shall never exceed the maximum rate, if any, which may be legally charged on
this Loan evidenced by this Senior Secured Note (“Maximum Rate”), and if the
provisions for interest contained in this Senior Secured Note would result in a
rate higher than the Maximum Rate, interest shall nevertheless be limited to
the Maximum Rate and any amounts which may be paid toward interest in excess of
the Maximum Rate shall be applied to the reduction of principal, or, at the
option of the holder of this Senior Secured Note (the “Holder”), returned to
the Borrower.

     DUE DATE: All indebtedness evidenced hereby not paid before the Maturity
Date shall be due and payable on the Maturity Date. Principal and interest
payments shall be due hereunder as described in the Agreement.

     PLACE OF PAYMENT: All payments hereon shall be made, and all notices to
the Holder required or authorized hereby shall be given, at the office of the
Holder at the address designated in the heading of this Senior Secured Note, or
to such other place as the Holder may from time to time direct by written
notice to the Borrower.

A-1

 

     PAYMENT AND EXPENSES OF COLLECTION: All amounts payable hereunder are
payable by wire transfer in immediately available funds to the account number
specified by the Holder, in lawful money of the United States. Payments
remitted by the Borrower via wire transfer initiated after 3:00 p.m. New York
City time shall be deemed to be received on the next business day. The
Borrower agrees to pay all costs of collection when incurred, including,
without limiting the generality of the foregoing, reasonable attorneys’ fees
through appellate proceedings and allocated cost of in-house counsel, and to
perform and comply with each of the covenants, conditions, provisions and
agreements contained in every instrument now evidencing or securing said
indebtedness. If any suit or action be instituted to enforce this Senior
Secured Note, the Borrower promises to pay, in addition to the cost and
disbursements otherwise allowed by Law, such sums as the court may adjudge
reasonable attorneys’ fees in such suit or action.

     SECURITY: This Senior Secured Note is issued pursuant to the Agreement,
and is secured by a pledge of the Collateral described therein.
Notwithstanding the pledge of the Collateral, the Borrower hereby acknowledges,
admits and agrees that the Borrower’s obligations under this Senior Secured
Note are recourse obligations of the Borrower to which the Borrower pledges his
full faith and credit.

     DEFAULTS: Upon the occurrence of an Event of Default (as defined in the
Agreement), the Holder shall have all rights and remedies set forth in the
Agreement.

     The failure to exercise any of the rights and remedies set forth in the
Agreement shall not constitute a waiver of the right to exercise the same or
any other option at any subsequent time in respect of the same event or any
other event. The acceptance by the Holder of any payment hereunder which is
less than payment in full of all amounts due and payable at the time of such
payment shall not constitute a waiver of the right to exercise any of the
foregoing rights and remedies at that time or at any subsequent time or nullify
any prior exercise of any such rights and remedies without the express consent
of the Holder, except as and to the extent otherwise provided by Law.

     WAIVERS: The Borrower waives diligence, presentment, protest and demand
and also notice of protest, demand, dishonor and nonpayment of this Senior
Secured Note, and expressly agrees that this Senior Secured Note, or any
payment hereunder, may be extended from time to time, and consent to the
acceptance of further collateral, the release of any collateral for this Senior
Secured Note, the release of any party primarily or secondarily liable hereon,
and that it will not be necessary for the Holder, in order to enforce payment
of this Senior Secured Note, first to institute or exhaust Lender’s remedies
against the Borrower or any other party liable hereon or against any collateral
for this Senior Secured Note. None of the foregoing shall affect the liability
of the Borrower and any endorsers or guarantors hereof. No extension of time
for the payment of this Senior Secured Note, or any installment hereof, made by
agreement by the Holder with any person now or hereafter liable for the payment
of this Senior Secured Note, shall affect the liability under this Senior
Secured Note of the Borrower, even if the Borrower is not a party to such
agreement; provided, however, the Holder and the Borrower, by written agreement
between them, may affect the liability of the Borrower.

A-2

 

     TERMINOLOGY: Any reference herein to the Holder shall be deemed to
include and apply to every subsequent holder of this Senior Secured Note.
Capitalized terms used but not defined herein shall have the meanings assigned
to such terms in the Agreement. Words of masculine or neuter import shall be
read as if written in the neuter or masculine or feminine when appropriate.

     AGREEMENT: Reference is made to the Agreement for provisions as to
payments, collateral and acceleration.

     THIS SENIOR SECURED NOTE IS GOVERNED BY THE PROVISIONS OF THE AGREEMENT
WHICH IS INCORPORATED HEREIN BY REFERENCE, AND IN THE EVENT ANY TERMS OF THIS
SENIOR SECURED NOTE ARE INCONSISTENT WITH THE TERMS OF THE AGREEMENT, THE TERMS
OF THE AGREEMENT SHALL GOVERN THIS SENIOR SECURED NOTE. NOTWITHSTANDING THE
FOREGOING SENTENCE, NO REFERENCE HEREIN TO THE AGREEMENT AND NO PROVISION OF
THIS SENIOR SECURED NOTE OR OF THE AGREEMENT SHALL ALTER OR IMPAIR THE
OBLIGATION OF THE BORROWER, WHICH IS ABSOLUTE AND UNCONDITIONAL, TO PAY THE
PRINCIPAL OF AND INTEREST ON THIS SENIOR SECURED NOTE AT THE RESPECTIVE TIMES
AND AT THE RATES HEREIN PRESCRIBED.

     GOVERNING LAW: This Senior Secured Note shall be governed by and
construed in accordance with the Laws of the Commonwealth of Virginia, without
giving effect to the conflict of laws rules therein. The parties hereto hereby
consent and agree that the Circuit Court of Arlington County, Virginia, or, at
the Senior Lenders’ option, the United States District Court for the Eastern
District of Virginia, shall have exclusive jurisdiction to hear and determine
any claims or disputes pertaining to this Senior Secured Note or to any matter
arising out of or related to this Senior Secured Note. The Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and hereby waives any objection which it may have
based upon lack of personal jurisdiction, improper venue or forum non
conveniens and hereby consents to the granting for such legal or equitable
relief as is deemed appropriate by such court. The Borrower irrevocably
consents to the service of process by registered or certified mail, postage
prepaid, to it at its address given above. Nothing in this Senior Secured Note
shall be deemed or operate to affect the right of the Holder to serve legal
process in any other manner permitted by Law, or to preclude the enforcement by
the Holder of any judgment or order obtained in such forum or the taking of any
action under this Senior Secured Note to enforce same in any other appropriate
forum or jurisdiction.

     To the extent that the Borrower has or may hereafter acquire any immunity
from the jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to the Borrower or the
Borrower’s property, the Borrower hereby irrevocably waives such immunity in
respect of its obligations under this Senior Secured Note.

A-3

 

     IN WITNESS WHEREOF, the Borrower has caused this Senior Secured Note to be
executed by its duly authorized officer, as of the date and year first
mentioned above.

	 	 	 	 	 
	 	 	SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	Name:	 	 
	

	 	Title:	 	 

A-4

 

Schedule of Advances

	 	 	 	 	 	 	 
	 	 	 	 	Interest
	Date
	 	Amount
	 	Rate

	

	 	$                    
	 	 	12.00	%

A-5

 

EXHIBIT B

FORM OF WARRANT

B-1

 

EXHIBIT C

FORM OF INTERCREDITOR AGREEMENT

C-1

 

SCHEDULE 3.01A

BORROWER’S ORGANIZATIONAL DOCUMENTS

Certificate of Incorporation

Bylaws

 

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

Pursuant to Sections 228 and 242 of the

Delaware General Corporation Law

          The undersigned, being the Chief Executive Officer of Specialty
Underwriters’ Alliance, Inc. (the “Corporation”), a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:

     1. The name of the Corporation is Specialty Underwriters’ Alliance, Inc.
The original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on April 3, 2003. The Certificate
of Amendment of the Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on November 10, 2003.

     2. This Amended and Restated Certificate of Incorporation was duly adopted
by written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the Delaware General Corporation
Law.

     3. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Corporation’s Certificate
of Incorporation as heretofore restated and amended.

     4. The text of the Amended and Restated Certificate of Incorporation is
hereby amended and restated in its entirety to read as follows:

     FIRST: The name of the Corporation is Specialty Underwriters’ Alliance,
Inc.

     SECOND: The Corporation’s registered office in the State of Delaware is
at 9 East Loockerman Street, Suite 1B, in the City of Dover, County of Kent.
The name of its registered agent at such address is National Registered Agents,
Inc.

     THIRD: The nature of the business of the Corporation and its purpose is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.

     FOURTH: The maximum number of shares that the Corporation shall be
authorized to issue and have outstanding at any one time shall be (i)
seventy-five million (75,000,000) shares of Common Stock, par value $0.01 per
share (the “Common Stock”), (ii)

 

 

two million (2,000,000) shares of Class B Common Stock, par value $0.01 per
share (the “Class B Stock”), and (iii) one million (1,000,000) shares of
Preferred Stock, par value $0.01 per share (the “Preferred Stock”).

	1.	 	Common Stock

          The holders of the Common Stock shall be entitled to one vote per share.
The holders of the Class B Stock shall not be entitled to any voting rights
except as otherwise required by law but shall otherwise have the same rights as
the holders of Common Stock, including the right to share equally in any
dividends distributed to the holders of the Common Stock and in any
distribution to the holders of the Common Stock pursuant to a dissolution.
Certain holders of the Class B Stock may have a contractual right to exchange
their shares into shares of Common Stock. The Corporation may have a
contractual right to repurchase shares of the Class B Stock from certain
holders thereof.

	2.	 	Preferred Stock

          The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Paragraph FOURTH, to
provide for the issuance of the shares of Preferred Stock in series, and to
establish from time to time the number of shares included in each such series,
but not below the number of shares then issued, and to fix the designation,
powers, preferences, and relative rights of the shares of each such series and
the qualifications, or restrictions thereof. The authority of the Board of
Directors with respect to each shall include, but not be limited to,
determination of the following:

          (a) The number of shares constituting that series and the distinctive
designation of that series;

          (b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payments of dividends on shares of that series;

          (c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;

          (d) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provisions for adjustment of
the conversion rate in such events as the Board of Directors shall determine;

          (e) Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different rates;

          (f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;

 

 

          (g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and

          (h) Any other relative rights, preferences and limitations of that series.

          FIFTH: The name and mailing address of the incorporator is as follows:

	 	 	Purvi Shah

Debevoise & Plimpton

919 Third Avenue

New York, New York 10022

          SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for the
purpose of creating, defining, limiting and regulating the powers of the
Corporation and its directors and stockholders:

          (a) The number of directors of the Corporation shall be fixed and may be
altered from time to time in the manner provided in the By-Laws, and vacancies
in the Board of Directors and newly created directorships resulting from any
increase in the authorized number of directors may be filled, and directors
maybe removed, as provided in the By-Laws.

          (b) The election of directors may be conducted in any manner approved by
the stockholders at the time when the election is held and need not be by
written ballot.

          (c) All corporate powers and authority of the Corporation (except as at
the time otherwise provided by law, by this Certificate of Incorporation or by
the By-Laws) shall be vested in and exercised by the Board of Directors.

          (d) The Board of Directors shall have the power without the assent or vote
of the stockholders to adopt, amend, alter or repeal the By-Laws of the
Corporation, except to the extent that the By-Laws or this Certificate of
Incorporation otherwise provide.

          (e) The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7)
of subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented. Neither the amendment
or repeal of this section nor the adoption of any provision of this Certificate
of Incorporation inconsistent with this section shall adversely affect any
right or protection of a director of the Corporation existing at the time of
such amendment, repeal or adoption.

          (f) The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, or by any successor thereto, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said section. The Corporation shall advance expenses to the
fullest extent permitted by said Section. Such right to indemnification and
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee or agent

 

 

and shall inure to the benefit of the heirs, executors and administrators
of such a person. The indemnification and advancement of expenses provided for
herein shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any By-Law,
agreement, vote of stockholders or disinterested directors or otherwise.

          SEVENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by the laws of the State of Delaware, and all rights
herein conferred upon stockholders or directors are granted subject to this
reservation.

     IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Courtney C. Smith, its Chief
Executive Officer, this 10th day of May, 2004.

	 	 	 	 	 
	 	 	/s/ Courtney C. Smith
	 	 	

	

	 	Name:
	 	Courtney C. Smith
	

	 	Title:
	 	Chief Executive Officer

 

 

AMENDED AND RESTATED BY-LAWS

OF

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

Dated as of September
14, 2004

 

 

Table of Contents

	 	 	 	 	 
	Section
	 	Page

	ARTICLE I
	 	 	 	 
	STOCKHOLDERS
	 	 	1	 
	Section 1.01 Annual Meetings
	 	 	1	 
	Section 1.02 Special Meetings
	 	 	1	 
	Section 1.03 Notice of Meetings; Waiver 
	 	 	1	 
	Section 1.04 Quorum
	 	 	2	 
	Section 1.05 Voting
	 	 	2	 
	Section 1.06 Voting by Ballot
	 	 	3	 
	Section 1.07 Adjournment
	 	 	3	 
	Section 1.08 Proxies
	 	 	3	 
	Section 1.09 Organization; Procedure
	 	 	3	 
	Section 1.10 Consent of Stockholders in Lieu of Meeting
	 	 	4	 
	ARTICLE II
	 	 	 	 
	BOARD OF DIRECTORS
	 	 	4	 
	Section 2.01 General Powers
	 	 	4	 
	Section 2.02 Number and Term of Office
	 	 	4	 
	Section 2.03 Election of Directors
	 	 	4	 
	Section 2.04 Annual and Regular Meetings
	 	 	5	 
	Section 2.05 Special Meetings; Notice
	 	 	5	 
	Section 2.06 Quorum; Voting
	 	 	5	 
	Section 2.07 Adjournment
	 	 	6	 
	Section 2.08 Action Without a Meeting
	 	 	6	 
	Section 2.09 Regulations; Manner of Acting
	 	 	6	 
	Section 2.10 Action by Telephonic Communications
	 	 	6	 
	Section 2.11 Resignations
	 	 	6	 
	Section 2.12 Removal of Directors
	 	 	6	 
	Section 2.13 Vacancies and Newly Created Directorships
	 	 	6	 
	Section 2.14 Compensation
	 	 	7	 
	Section 2.15 Reliance on Accounts and Reports, etc.
	 	 	7	 
	ARTICLE III
	 	 	 	 
	EXECUTIVE COMMITTEE AND OTHER COMMITTEES
	 	 	7	 
	Section 3.01 How Constituted
	 	 	7	 
	Section 3.02 Powers
	 	 	7	 
	Section 3.03 Proceedings
	 	 	8	 
	Section 3.04 Quorum and Manner of Acting
	 	 	9	 
	Section 3.05 Action by Telephonic Communications
	 	 	9	 

i

 

Table of Contents

(Continued)

	 	 	 	 	 
	Section
	 	Page

	Section 3.06 Absent or Disqualified Members
	 	 	9	 
	Section 3.07 Resignations
	 	 	9	 
	Section 3.08 Removal
	 	 	9	 
	Section 3.09 Vacancies
	 	 	9	 
	ARTICLE IV
	 	 	 	 
	OFFICERS
	 	 	9	 
	Section 4.01 Number
	 	 	9	 
	Section 4.02 Election
	 	 	10	 
	Section 4.03 Salaries
	 	 	10	 
	Section 4.04 Removal and Resignation; Vacancies
	 	 	10	 
	Section 4.05 Authority and Duties of Officers
	 	 	10	 
	Section 4.06 The President
	 	 	10	 
	Section 4.07 The Vice President
	 	 	11	 
	Section 4.08 The Secretary
	 	 	11	 
	Section 4.09 The Treasurer
	 	 	12	 
	Section 4.10 Additional Officers
	 	 	12	 
	Section 4.11 Security
	 	 	12	 
	ARTICLE V
	 	 	 	 
	CAPITAL STOCK
	 	 	13	 
	Section 5.01 Certificates of Stock, Uncertificated Shares
	 	 	13	 
	Section 5.02 Signatures; Facsimile
	 	 	13	 
	Section 5.03 Lost, Stolen or Destroyed Certificates
	 	 	13	 
	Section 5.04 Transfer of Stock
	 	 	13	 
	Section 5.05 Record Date
	 	 	14	 
	Section 5.06 Registered Stockholders
	 	 	14	 
	Section 5.07 Transfer Agent and Registrar
	 	 	15	 
	ARTICLE VI
	 	 	 	 
	INDEMNIFICATION
	 	 	15	 
	Section 6.01 Nature of Indemnity
	 	 	15	 
	Section 6.02 Successful Defense
	 	 	15	 
	Section 6.03 Determination That Indemnification Is Proper
	 	 	16	 
	Section 6.04 Advance Payment of Expenses
	 	 	16	 
	Section 6.05 Procedure for Indemnification of Directors and Officers
	 	 	16	 
	Section 6.06 Survival; Preservation of Other Rights
	 	 	17	 
	Section 6.07 Insurance
	 	 	17	 

ii

 

 

Table of Contents

(Continued)

	 	 	 	 	 
	Section
	 	Page

	Section 6.08 Severability
	 	 	17	 
	ARTICLE VII
	 	 	 	 
	OFFICES
	 	 	18	 
	Section 7.01 Registered Office
	 	 	18	 
	Section 7.02 Other Offices
	 	 	18	 
	ARTICLE VIII
	 	 	 	 
	GENERAL PROVISIONS
	 	 	18	 
	Section 8.01 Dividends
	 	 	18	 
	Section 8.02 Reserves
	 	 	18	 
	Section 8.03 Execution of Instruments
	 	 	18	 
	Section 8.04 Corporate Indebtedness
	 	 	19	 
	Section 8.05 Deposits
	 	 	19	 
	Section 8.06 Checks
	 	 	19	 
	Section 8.07 Sale Transfer, etc. of Securities
	 	 	19	 
	Section 8.08 Voting as Stockholder
	 	 	19	 
	Section 8.09 Fiscal Year
	 	 	19	 
	Section 8.10 Seal
	 	 	20	 
	Section 8.11 Books and Records; Inspection
	 	 	20	 
	ARTICLE IX
	 	 	 	 
	AMENDMENT OF BY-LAWS
	 	 	20	 
	Section 9.01 Amendment
	 	 	20	 
	ARTICLE X
	 	 	 	 
	CONSTRUCTION
	 	 	20	 
	Section 10.01 Construction
	 	 	20	 

iii

 

 

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

AMENDED AND RESTATED BY-LAWS

Dated as of December 12, 2003

ARTICLE I

STOCKHOLDERS

          Section 1.01 Annual Meetings. Subject to Section 1.10 of these By-Laws,
the annual meeting of the stockholders of the Corporation for the election of
directors and for the transaction of such other business as properly may come
before such meeting shall be held at such place, either within or without the
State of Delaware, or, within the sole discretion of the Board of Directors, by
remote electronic communication technologies, and at such date and hour, as may
be fixed from time to time by resolution of the Board of Directors and set
forth in the notice or waiver of notice of the meeting.

          Section 1.02 Special Meetings. Special meetings of the stockholders may
be called at any time by the President (or, in the event of his or her absence
or disability, by any Vice President), or by the Board of Directors. A special
meeting shall be called by the President (or, in the event of his or her
absence or disability, by any Vice President), or by the Secretary, immediately
upon receipt of a written request therefor by stockholders holding in the
aggregate not less than a majority of the outstanding shares of the Corporation
at the time entitled to vote at any meeting of the stockholders. If such
officers or the Board of Directors shall fail to call such meeting within
twenty days after receipt of such request, any stockholder executing such
request may call such meeting. Such special meetings of the stockholders shall
be held at such places, within or without the State of Delaware, or, within the
sole discretion of the Board of Directors, by remote electronic communication
technologies, as shall be specified in the respective notices or waivers of
notice thereof.

          Section 1.03 Notice of Meetings; Waiver. The Secretary or any Assistant
Secretary shall cause written notice of the place, if any, date and hour of
each meeting of the stockholders, and the means of remote communications, if
any, by which stockholders and proxy holders may be deemed to be present in
person and vote at such meeting, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If a stockholder
meeting is to be held via electronic communications and stockholders will take
action at such meeting, the notice of such meeting must: (i) specify the means
of remote communications, if any, by which stockholders and proxy holders may
be deemed to be present and vote at such meeting; and (ii) provide the
information required to access the stockholder list.

          For notice given by electronic transmission to a stockholder to be
effective, such stockholder must consent to the Corporation’s giving notice by
that particular form of electronic transmission. A stockholder may revoke
consent to receive notice by electronic transmission by

 

 

written notice to the Corporation. A stockholder’s consent to notice by
electronic transmission is automatically revoked if the Corporation is unable
to deliver two consecutive electronic transmission notices and such inability
becomes known to the Secretary, Assistant Secretary, the transfer agent or
other person responsible for giving notice.

          Notices are deemed given (i) if by mail, when deposited in the United
States mail, postage prepaid, directed to the stockholder at his or her address
as it appears on the record of stockholders of the Corporation, or, if he or
she shall have filed with the Secretary of the Corporation a written request
that notices to him or her be mailed to some other address, then directed to
him or her at such other address; (ii) if by facsimile, when faxed to a number
where the stockholder has consented to receive notice; (iii) if by electronic
mail, when mailed electronically to an electronic mail address at which the
stockholder consented to receive such notice; (iv) if by posting on an
electronic network (such as a website or chatroom) together with a separate
notice to the stockholder of such specific posting, upon the later to occur of
(A) such posting or (B) the giving of the separate notice of such posting; or
(v) if by any other form of electronic communication, when directed to the
stockholder in the manner consented to by the stockholder. Such further notice
shall be given as may be required by law.

          A written waiver of any notice of any annual or special meeting signed by
the person entitled thereto, or a waiver by electronic transmission by the
person entitled to notice, shall be deemed equivalent to notice, whether
provided before or after the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders need
be specified in a waiver of notice. The attendance of any stockholder at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the ground that the meeting is not lawfully called or convened.

          Section 1.04 Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction. of business at
such meeting.

          Section 1.05 Voting. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, every holder of record of shares entitled to vote
at a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation at the close of business on the day next preceding
the day on which notice of the meeting is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of
Incorporation or by these By-Laws, the vote of a majority of the shares
represented in person or by proxy at any meeting at which a quorum is present
shall be sufficient for the transaction of any business at such meeting.

2

 

          Section 1.06 Voting by Ballot. No vote of the stockholders need be taken
by written ballot, or by a ballot submitted by electronic transmission, unless
otherwise required by law. Any vote which need not be taken by written ballot,
or by a ballot submitted by electronic transmission, may be conducted in any
manner approved by the meeting.

          Section 1.07 Adjournment. If a quorum is not present at any meeting of
the stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, if any, date and hour thereof, and the means of remote
communications, if any, by which stockholders and proxy holders may be deemed
to be present in person and vote at such meeting, are announced at the meeting
at which the adjournment is taken, provided, however, that if the adjournment
is for more than thirty days, or if after the adjournment a new record date for
the adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a
notice of the adjourned meeting, conforming to the requirements of Section 1.03
of these By-Laws, shall be given to each stockholder of record entitled to vote
at such meeting. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting.

          Section 1.08 Proxies. Any stockholder entitled to vote at any meeting of
the stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person or persons to vote at
any such meeting and express such consent or dissent for him or her by proxy.
A stockholder may authorize a valid proxy by executing a written instrument
signed by such stockholder, or by causing his or her signature to be affixed to
such writing by any reasonable means including, but not limited to, by
facsimile signature, or by transmitting or authorizing the transmission of a
telegram, cablegram or other means of electronic transmission to the person
designated as the holder of the proxy, a proxy solicitation firm or a like
authorized agent. No such proxy shall be voted or acted upon after the
expiration of three years from the date of such proxy, unless such proxy
provides for a longer period. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases where applicable law
provides that a proxy shall be irrevocable. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or by filing another duly
executed proxy bearing a later date with the Secretary. Proxies by telegram,
cablegram, or other electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder.
Any copy, facsimile telecommunication or other reliable reproduction of a
writing or transmission created pursuant to this section may be substituted or
used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that
such copy, facsimile telecommunication or other reproduction shall be a
complete reproduction of the entire original writing or transmission.

          Section 1.09 Organization; Procedure. At every meeting of stockholders
the presiding officer shall be the President or, in the event of his or her
absence or disability, a presiding officer chosen by a majority of the
stockholders present in person or by proxy. The Secretary, or in the event of
his or her absence or disability, the Assistant Secretary, if any, or if there
be no Assistant Secretary, in the absence of the Secretary, an appointee of the
presiding

3

 

officer, shall act as Secretary of the meeting. The order of business and
all other matters of procedure at every meeting of stockholders may be
determined by such presiding officer.

          Section 1.10 Consent of Stockholders in Lieu of Meeting. To the fullest
extent permitted by law, whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken for or in connection with any corporate
action, such action may be taken without a meeting, without prior notice and
without a vote of stockholders, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted (but not less than the minimum number of votes
otherwise prescribed by law) and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation’s registered office shall be by hand or by certified or
registered mail, return receipt requested.

          Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered in the manner required by law to the Corporation,
written consents signed by a sufficient number of holders to take action are
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation’s registered
office shall be by hand or by certified or registered mail, return receipt
requested.

          
All provisions of this Section 1.10 shall terminate and no longer be effective upon the consummation
of a Qualified Public Offering.  A “Qualified Public
Offering” means an underwritten public offering
on a firm commitment basis under an effective registration statement filed under the Securities Act of
1933, as amended, covering the offer and sale of any capital stock of the Corporation in which the
aggregate net cash proceeds of the offering to the Corporation in the offering equal or
exceed $10,000,000.

ARTICLE II

BOARD OF DIRECTORS

          Section 2.01 General Powers. Except as may otherwise be provided by law,
by the Certificate of Incorporation or by these By-Laws, the property, affairs
and business of the Corporation shall be managed by or under the direction of
the Board of Directors and the Board of Directors may exercise all the powers
of the Corporation.

          Section 2.02 Number and Term of Office. The number of Directors
constituting the entire Board of Directors shall be seven, which number may be
modified from time to time by resolution of the Board of Directors, but in no
event shall the number of Directors be less than one. Each Director (whenever
elected) shall hold office until his or her successor has been duly elected and
qualified, or until his or her earlier death, resignation or removal.

          Section 2.03 Election of Directors. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders; provided, however, that Friedman, Billings,
Ramsey Group, Inc., a Virginia corporation, shall have the exclusive right to
appoint (i) two members of the Board of Directors and (ii) two persons to have
observation rights (but no vote) on the Board of Directors until all
Obligations have been paid in full. For purposes of this Section 2.03,
“Obligations” shall mean

4

 

any and all indebtedness, obligations and liabilities of the Corporation
to Friedman, Billings, Ramsey Group, Inc. (voluntary or involuntary, regardless
of whether jointly owed with others, direct or indirect, absolute or
contingent, liquidated or unliquidated, and regardless of whether from time to
time decreased or extinguished and later increased, created or incurred),
arising out of or related to the Senior Loan and Security Agreement between the
Corporation and Friedman, Billings, Ramsey Group, Inc., dated December 12, 2003
and the senior secured note evidencing such Obligations thereunder, or the
indebtedness evidenced thereby. Until all Obligations have been paid in full,
the first sentence of this Section 2.03 may not be amended or overridden in any
way without the prior written consent of Friedman, Billings, Ramsey Group, Inc.
If the annual meeting for the election of Directors is not held on the date
designated therefor, the Directors shall cause the meeting to be held as soon
thereafter as convenient. At each meeting of the stockholders for the election
of Directors, provided a quorum is present, the Directors shall be elected by a
plurality of the votes validly cast in such election.

     Section 2.04 Annual and Regular Meetings. The annual meeting of the Board
of Directors for the purpose of electing officers and for the transaction of
such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual
meeting of the Board of Directors need not be given. The Board of Directors
from time to time may by resolution provide for the holding of regular meetings
and fix the place (which may be within or without the State of Delaware) and
the date and hour of such meetings. Notice of regular meetings need not be
given, provided, however, that if the Board of Directors shall fix or change
the time or place of any regular meeting, notice of such action shall be mailed
promptly, or sent by telegram, radio or cable, to each Director who shall not
have been present at the meeting at which such action was taken, addressed to
him or her at his or her usual place of business, or shall be delivered to him
or her personally. Notice of such action need not be given to any Director who
attends the first regular meeting after such action is taken without protesting
the lack of notice to him or her, prior to or at the commencement of such
meeting, or to any Director who submits a signed waiver of notice, whether
before or after such meeting.

     Section 2.05 Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the President or, in the event of
his or her absence or disability, by any Vice President, at such place (within
or without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Special meetings of
the Board of Directors may be called on twenty-four hours’ notice, if notice is
given to each Director personally or by telephone or telegram, or on five days’
notice, if notice is mailed to each Director, addressed to him or her at his or
her usual place of business. Notice of any special meeting need not be given
to any Director who attends such meeting without protesting the lack of notice
to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting, and any business may be transacted thereat.

     Section 2.06 Quorum; Voting. At all meetings of the Board of Directors,
the presence of a majority of the total authorized number of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the vote of a majority of the

5

 

Directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors.

          Section 2.07 Adjournment. A majority of the Directors present, whether or
not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the time and place of the adjourned meeting are not announced at the time of
adjournment, in which case notice conforming to the requirements of Section
2.05 of these By-Laws shall be given to each Director.

          Section 2.08 Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all members of the Board of Directors consent thereto in writing or
by electronic transmission, and such writing or writings or electronic
transmissions are filed with the minutes of proceedings of the Board of
Directors. Such filing shall be in paper form if the minutes are maintained in
paper form and shall be in electronic form if the minutes are maintained in
electronic form.

          Section 2.09 Regulations; Manner of Acting. To the extent consistent with
applicable law, the Certificate of Incorporation and these By-Laws, the Board
of Directors may adopt such rules and regulations for the conduct of meetings
of the Board of Directors and for the management of the property, affairs and
business of the Corporation as the Board of Directors may deem appropriate.
The Directors shall act only as a Board, and the individual Directors shall
have no power as such.

          Section 2.10 Action by Telephonic Communications. Members of the Board of
Directors may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting pursuant to this provision shall constitute presence in person at
such meeting.

          Section 2.11 Resignations. Any Director may resign at any time by
submitting an electronic transmission or by delivering a written notice of
resignation, signed by such Director, to the President or the Secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.

          Section 2.12 Removal of Directors. Any Director may be removed at any
time, either for or without cause, upon the affirmative vote of the holders of
a majority of the outstanding shares of stock of the Corporation entitled to
vote for the election of such Director. Any vacancy in the Board of Directors
caused by any such removal may be filled at such meeting by the stockholders
entitled to vote for the election of the Director so removed. If such
stockholders do not fill such vacancy at such meeting (or in the written
instrument effecting such removal, if such removal was effected by consent
without a meeting), such vacancy may be filled in the manner provided in
Section 2.13 of these By-Laws.

          Section 2.13 Vacancies and Newly Created Directorships. If any vacancies
shall occur in the Board of Directors, by reason of death, resignation, removal
or otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies and newly
created directorships may be filled by a majority of the

6

 

Directors then in office, although less than a quorum. A Director elected
to fill a vacancy or a newly created directorship shall hold office until his
or her successor has been elected and qualified or until his or her earlier
death, resignation or removal. Any such vacancy or newly created directorship
may also be filled at any time by vote of the stockholders.

          Section 2.14 Compensation. The amount, if any, which each Director shall
be entitled to receive as compensation for his or her services as such shall be
fixed from time to time by resolution of the Board of Directors.

          Section 2.15 Reliance on Accounts and Reports, etc. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation’s officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person’s professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.

ARTICLE III

EXECUTIVE COMMITTEE AND OTHER COMMITTEES

          Section 3.01 How Constituted. The Board of Directors may designate one or
more Committees, including an Executive Committee, each such Committee to
consist of such number of Directors as from time to time may be fixed by the
Board of Directors. The Board of Directors may designate one or more Directors
as alternate members of any such Committee, who may replace any absent or
disqualified member or members at any meeting of such Committee. Thereafter,
members (and alternate members, if any) of each such Committee may be
designated at the annual meeting of the Board of Directors. Any such Committee
may be abolished or re-designated from time to time by the Board of Directors.
Each member (and each alternate member) of any such Committee (whether
designated at an annual meeting of the Board of Directors or to fill a vacancy
or otherwise) shall hold office until his or her successor shall have been
designated or until he or she shall cease to be a Director, or until his or her
earlier death, resignation or removal.

          Section 3.02 Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation; provided, however, that the Executive Committee
shall not have the power and authority to declare dividends or to authorize the
issuance of stock of the Corporation. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the Executive Committee nor any such other Committee shall have the
power or authority:

          (a)
to amend the Certificate of Incorporation;

7

 

          (b) to adopt an agreement of merger or consolidation;

          (c) to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation’s property and assets;

          (d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;

          (e) to amend the By-Laws of the Corporation;

          (f) to remove any President, Vice President, Assistant Secretary or
Assistant Treasurer of the Corporation;

          (g) to authorize the borrowing of funds, other than under existing
facilities, that is material to the capital structure of the Corporation;

          (h) to authorize any new compensation or benefit program;

          (i) to appoint or discharge the Corporation’s independent public
accountants;

          (j) to authorize the annual operating plan, annual capital
expenditure plan and strategic plan; or

          (k)
to abolish or usurp the authority of the Board of Directors.

          The Executive Committee shall have, and any such other Committee may be
granted by the Board of Directors, power to authorize the seal of the
Corporation to be affixed to any or all papers which may require it.

          Section 3.03 Proceedings. Each such Committee may fix its own rules of
procedure and may meet at such place (within or without the State of Delaware),
at such time and upon such notice, if any, as it shall determine from time to
time. Each such Committee shall keep minutes of its proceedings and shall
report such proceedings to the Board of Directors at the meeting of the Board
of Directors next following any such proceedings.

8

 

          Section 3.04 Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a
majority of the total authorized membership of such Committee shall constitute
a quorum for the transaction of business. The act of the majority of the
members present at any meeting at which a quorum is present shall be the act of
such Committee. Any action required or permitted to be taken at any meeting of
any such Committee may be taken without a meeting, if all members of such
Committee shall consent to such action in writing or by electronic
transmission, and such writing or writings or electronic transmission or
transmissions are filed with the minutes of the proceedings of the Committee.
Such filing shall be in paper form if the minutes are maintained in paper form
and shall be in electronic form if the minutes are maintained in electronic
form. The members of any such Committee shall act only as a Committee, and the
individual members of such Committee shall have no power as such.

          Section 3.05 Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.

          Section 3.06 Absent or Disqualified Members. In the absence or
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.

          Section 3.07 Resignations. Any member (and any alternate member) of any
Committee may resign at any time by delivering a written notice of resignation,
signed by such member, to the Chairman or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery.

          Section 3.08 Removal. Any member (and any alternate member) of any
Committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such Committee at any time, either for or
without cause, by resolution adopted by a majority of the whole Board of
Directors.

          Section 3.09 Vacancies. If any vacancy shall occur in any Committee, by
reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.

ARTICLE IV

OFFICERS

          Section 4.01
Number. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, one or more Vice Presidents, a
Secretary and a

9

 

Treasurer. The Board of Directors also may elect one or more Assistant
Secretaries and Assistant Treasurers in such numbers as the Board of Directors
may determine. Any number of offices may be held by the same person. No
officer need be a Director of the Corporation.

     Section 4.02 Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual
meeting, officers may be elected at any regular or special meeting of the Board
of Directors. Each officer shall hold office until his or her successor has
been elected and qualified, or until his or her earlier death, resignation or
removal.

     Section 4.03 Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.

     Section 4.04 Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any
officer may resign at any time by delivering notice of resignation, either in
writing signed by such officer or by electronic transmission, to the Board of
Directors or the President. Unless otherwise specified therein, such
resignation shall take effect upon delivery. Any vacancy occurring in any
office of the Corporation by death, resignation, removal or otherwise, shall be
filled by the Board of Directors.

     Section 4.05 Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and
perform such duties as may be specified in these By-Laws, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law.

     Section 4.06 The President. The President shall preside at all meetings
of the stockholders and directors at which he or she is present, shall be the
chief executive officer and the chief operating officer of the Corporation,
shall have general control and supervision of the policies and operations of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He or she shall manage and administer the
Corporation’s business and affairs and shall also perform all duties and
exercise all powers usually pertaining to the office of a chief executive
officer and a chief operating officer of a corporation. He or she shall have
the authority to sign, in the name and on behalf of the Corporation, checks,
orders, contracts, leases, notes, drafts and other documents and instruments in
connection with the business of the Corporation, and together with the
Secretary or an Assistant Secretary, conveyances of real estate and other
documents and instruments to which the seal of the Corporation is affixed. He
or she shall have the authority to cause the employment or appointment of such
employees and agents of the Corporation as the conduct of the business of the
Corporation may require, to fix their compensation, and to remove or suspend
any employee or agent elected or appointed by the President or the Board of
Directors. The President shall perform such other duties and have such other
powers as the Board of Directors or the Chairman may from time to time
prescribe.

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          Section 4.07 The Vice President. Each Vice President shall perform such
duties and exercise such powers as may be assigned to him or her from time to
time by the President. In the absence of the President, the duties of the
President shall be performed and his or her powers may be exercised by such
Vice President as shall be designated by the President, or failing such
designation, such duties shall be performed and such powers may be exercised by
each Vice President in the order of their earliest election to that office;
subject in any case to review and superseding action by the President.

          Section 4.08 The Secretary. The Secretary shall have the following powers
and duties:

          (a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.

          (b) He or she shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.

          (c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he or she shall furnish a copy of
such resolution to the members of such Committee.

          (d) He or she shall be the custodian of the records and of the seal
of the Corporation and cause such seal (or a facsimile thereof) to be
affixed to all certificates representing shares of the Corporation prior
to the issuance thereof and to all instruments the execution of which on
behalf of the Corporation under its seal shall have been duly authorized
in accordance with these By-Laws, and when so affixed he or she may
attest the same.

          (e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Certificate of Incorporation or these By-Laws.

          (f) He or she shall have charge of the stock books and ledgers of
the Corporation and shall cause the stock and transfer books to be kept
in such manner as to show at any time the number of shares of stock of
the Corporation of each class issued and outstanding, the names
(alphabetically arranged) and the addresses of the holders of record of
such shares, the number of shares held by each holder and the date as of
which each became such holder of record.

          (g) He or she shall sign (unless the Treasurer, an Assistant
Treasurer or an Assistant Secretary shall have signed) certificates
representing shares of the Corporation the issuance of which shall have
been authorized by the Board of Directors.

          (h) He or she shall perform, in general, all duties incident to the
office of secretary and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the
Board of Directors, or the President.

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          Section 4.09 The Treasurer. The Treasurer shall be the chief financial
officer of the Corporation and shall have the following powers and duties:

          (a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of the
Corporation, and shall keep or cause to be kept full and accurate records
of all receipts of the Corporation.

          (b) He or she shall cause the moneys and other valuable effects of
the Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or
other depositaries as shall be selected in accordance with Section 8.05
of these By-Laws.

          (c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of
these By-Laws) upon the authorized depositaries of the Corporation and
cause to be taken and preserved proper vouchers for all moneys disbursed.

          (d) He or she shall render to the Board of Directors or the
President, whenever requested, a statement of the financial condition of
the Corporation and of all his or her transactions as Treasurer, and
render a full financial report at the annual meeting of the stockholders,
if called upon to do so.

          (e) He or she shall be empowered from time to time to require from
all officers or agents of the Corporation reports or statements giving
such information as he or she may desire with respect to any and all
financial transactions of the Corporation.

          (f) He or she may sign (unless an Assistant Treasurer or the
Secretary or an Assistant Secretary shall have signed) certificates
representing stock of the Corporation the issuance of which shall have
been authorized by the Board of Directors.

          (g) He or she shall perform, in general, all duties incident to the
office of treasurer and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the
Board of Directors, or the President.

          Section 4.10 Additional Officers. The Board of Directors may appoint such
other officers and agents as it may deem appropriate, and such other officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as may be determined from time to time by the
Board of Directors. The Board of Directors from time to time may delegate to
any officer or agent the power to appoint subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties.
Any such officer or agent may remove any such subordinate officer or agent
appointed by him or her, for or without cause.

          Section 4.11 Security. The Board of Directors may require any officer,
agent or employee of the Corporation to provide security for the faithful
performance of his or her duties, in such amount and of such character as may
be determined from time to time by the Board of Directors.

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ARTICLE V

CAPITAL STOCK

          Section 5.01 Certificates of Stock, Uncertificated Shares. The shares of
the Corporation shall be represented by certificates, provided that the Board
of Directors may provide by resolution or resolutions that some or all of any
or all classes or series of the stock of the Corporation shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until each certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock in the Corporation represented by certificates
and upon request every holder of uncertificated shares shall be entitled to
have a certificate signed by, or in the name of the Corporation, by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form. Such certificate shall be in such form as the
Board of Directors may determine, to the extent consistent with applicable law,
the Certificate of Incorporation and these By-Laws.

          Section 5.02 Signatures; Facsimile. All signatures on the certificate
referred to in Section 5.01 of these By-Laws may be in facsimile, engraved or
printed form, to the extent permitted by law. In case any officer, transfer
agent or registrar who has signed, or whose facsimile, engraved or printed
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.

          Section 5.03 Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of any such new certificate.

          Section 5.04 Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law
of the State of Delaware. Subject to the provisions of the Certificate of
Incorporation and these By-Laws, the Board of Directors may prescribe such
additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation.

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     Section 5.05 Record Date. In order to determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date on which the resolution fixing the
record date is adopted, by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.

     In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation’s registered office shall be by
hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.

     In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.

     Section 5.06 Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.

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          Section 5.07
Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.

ARTICLE VI

INDEMNIFICATION

          Section 6.01 Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by
reason of the fact that he or she is or was or has agreed to become an employee
or agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding had no reasonable cause to believe his or
her conduct was unlawful; except that in the case of an action or suit by or in
the right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys’ fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication o£ liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.

          The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.

          Section 6.02 Successful Defense. To the extent that a present or former
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Section 6.01 of these By-Laws or in defense of any claim, issue or matter
therein, he or she shall be indemnified against

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expenses (including attorneys’ fees) actually and reasonably incurred by
him or her in connection therewith.

          Section 6.03 Determination That Indemnification Is Proper. Any
indemnification of a present or former director or officer of the Corporation
under Section 6.01 of these By-Laws (unless ordered by a court) shall be made
by the Corporation only upon a determination that indemnification of such
person is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 6.01 of these By-Laws. Any
indemnification of a present or former employee or agent of the Corporation
under Section 6.01 of these By-Laws (unless ordered by a court) may be made by
the Corporation upon a determination that indemnification of the employee or
agent is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in Section 6.01 of these By-Laws. Any such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination (1) by a majority vote of the
Directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.

          Section 6.04 Advance Payment of Expenses. Expenses (including attorneys’
fees) incurred by a present director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses (including attorneys’ fees) incurred
by former directors and officers or other employees and agents may be so paid
upon such terms and conditions, if any, as the Corporation deems appropriate.
The Corporation, or in respect of a present director or officer the Board of
Directors, may authorize the Corporation’s counsel to represent such present or
former director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.

          Section 6.05 Procedure for Indemnification of Directors and Officers. Any
indemnification of a director, officer, employee or agent of the Corporation
under Sections 6.01 and 6.02 of these By-Laws, or advance of costs, charges and
expenses to such person under Section 6.04 of these By-Laws, shall be made
promptly, and in any event within thirty days, upon the written request of such
person. If a determination by the Corporation that such person is entitled to
indemnification pursuant to this Article is required, and the Corporation fails
to respond within sixty days to a written request for indemnity, the
Corporation shall be deemed to have approved such request. If the Corporation
denies a written request for indemnity or advancement of expenses, in whole or
in part, or if payment in full pursuant to such request is not made within
thirty days, the right to indemnification or advances as granted by this
Article shall be enforceable by such person in any court of competent
jurisdiction. Such person’s costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce
a claim for the advance of costs, charges and expenses under Section 6.04 of
these By-Laws where

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the required undertaking, if any, has been received by or tendered to the
Corporation) that the claimant has not met the standard of conduct set forth in
Section 6.01 of these By-Laws, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its
Board of Directors or any committee thereof, its independent legal counsel, and
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 6.01 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, and its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.

          Section 6.06 Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a “contract right” may not
be modified retroactively without the consent of such director, officer,
employee or agent.

          The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.

          Section 6.07 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her or on his or her behalf in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.

          Section 6.08 Severability. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.

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ARTICLE VII

OFFICES

          Section 7.01 Registered Office. The registered office of the Corporation
in the State of Delaware shall be located at 9 East Loockerman Street in the
City of Dover, County of Kent. The name of the registered agent is National
Registered Agents, Inc.

          Section 7.02 Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.

ARTICLE VIII

GENERAL PROVISIONS

          Section 8.01 Dividends. Subject to any applicable provisions of law and
the Certificate of Incorporation, dividends upon the shares of the Corporation
may be declared by the Board of Directors at any regular or special meeting of
the Board of Directors and any such dividend may be paid in cash, property, or
shares of the Corporation’s Capital Stock.

          A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors shall be fully protected in relying in
good faith upon the records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or Committees of the Board of Directors, or by any other
person as to matters the Director reasonably believes are within such other
person’s professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from
which dividends might properly be declared and paid

          Section 8.02 Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation,
and the Board of Directors may similarly modify or abolish any such reserve.

          Section 8.03 Execution of Instruments. The President, any Vice President,
the Secretary or the Treasurer may enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation. The Board
of Directors or the President may authorize any other officer or agent to enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. Any such authorization must be in writing or by
electronic transmission and may be general or limited to specific contracts or
instruments.

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          Section 8.04 Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or the President. Such
authorization may be general or confined to specific instances. Loans so
authorized may be effected at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual. All
bonds, debentures, notes and other obligations or evidences of indebtedness of
the Corporation issued for such loans shall be made, executed and delivered as
the Board of Directors or the President shall authorize. When so authorized by
the Board of Directors or the President, any part of or all the properties,
including contract rights, assets, business or good will of the Corporation,
whether then owned or thereafter acquired, may be mortgaged, pledged,
hypothecated or conveyed or assigned in trust as security for the payment of
such bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation, and of the interest thereon, by instruments
executed and delivered in the name of the Corporation.

          Section 8.05 Deposits. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors or the President, or by such officers or
agents as may be authorized by the Board of Directors or the President to make
such determination.

          Section 8.06 Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the
President from time to time may determine.

          Section 8.07 Sale Transfer, etc. of Securities. To the extent authorized
by the Board of Directors or by the President, any Vice President, the
Secretary or the Treasurer or any other officers designated by the Board of
Directors or the President may sell, transfer, endorse, and assign any shares
of stock, bonds or other securities owned by or held in the name of the
Corporation, and may make, execute and deliver in the name of the Corporation,
under its corporate seal, any instruments that may be appropriate to effect any
such sale, transfer, endorsement or assignment.

          Section 8.08 Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors, the President or any Vice President shall
have full power and authority on behalf of the Corporation to attend any
meeting of stockholders of any corporation in which the Corporation may hold
stock, and to act, vote (or execute proxies to vote) and exercise in person or
by proxy all other rights, powers and privileges incident to the ownership of
such stock. Such officers acting on behalf of the Corporation shall have full
power and authority to execute any instrument expressing consent to or dissent
from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.

          Section 8.09 Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation’s
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.

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          Section 8.10 Seal. The seal of the Corporation shall be circular in form
and shall contain the name of the Corporation, the year of its incorporation
and the words “Corporate Seal” and “Delaware”. The form of such seal shall be
subject to alteration by the Board of Directors. The seal may be used by
causing it or a facsimile thereof to be impressed, affixed or reproduced, or
may be used in any other lawful manner.

          Section 8.11 Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.

ARTICLE IX

AMENDMENT OF BY-LAWS

          Section 9.01 Amendment. Subject to the provisions of the Certificate of
incorporation, these By-Laws may be amended, altered or repealed

          (a) by resolution adopted by a majority of the Board of Directors at
any special or regular meeting of the Board if, in the case of such
special meeting only, notice of such amendment, alteration or repeal is
contained in the notice or waiver of notice of such meeting; or

          (b) at any regular or special meeting of the stockholders if, in the
case of such special meeting only, notice of such amendment, alteration
or repeal is contained in the notice or waiver of notice of such meeting.

ARTICLE X

CONSTRUCTION

          Section 10.01 Construction. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and the provisions
of the Certificate of Incorporation of the Corporation as in effect from time
to time, the provisions of such Certificate of Incorporation shall be
controlling.

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SCHEDULE 3.01B

BORROWER’S CAPITAL STOCK

Common Stock

75,000,000 Shares Authorized (Par Value $0.01 per Share)

10 Shares Issued and Outstanding (as of July 23, 2004)

Preferred Stock

1,000,000 Shares Authorized (Par Value $0.01 per Share)

No Shares Issued or Outstanding

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