Document:

Seventh
Amendment to First Restated Credit Agreement

     

    This
SEVENTH AMENDMENT TO FIRST RESTATED CREDIT AGREEMENT (this “Seventh Amendment”), dated as
of May 27, 2010, is among HALLMARK FINANCIAL SERVICES, INC., a Nevada
corporation (“Borrower”), AMERICAN HALLMARK
INSURANCE COMPANY OF TEXAS, a Texas insurance corporation (“AHIC”), HALLMARK INSURANCE
COMPANY (formerly known as Phoenix Indemnity Insurance Company), an Arizona
insurance corporation (“HIC”), each other Obligor,
and THE FROST NATIONAL BANK, a national banking association (“Lender”).

     

    RECITALS:

     

    Borrower,
AHIC, HIC, and Lender have previously entered into the First Restated Credit
Agreement dated as of January 27, 2006 (such agreement, together with all
amendments and restatements, the “Credit
Agreement”).

     

    Borrower
has requested an extension of the availability period of the credit facilities
provided for in the Credit Agreement and other amendments to the Credit
Agreement.

     

    Lender
has agreed to amend the Credit Agreement, subject to the terms of this Seventh
Amendment.

     

    AGREEMENT:

     

    NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree as follows:

     

    ARTICLE
I

     

    Definitions

     

    1.1           Definitions.  All
capitalized terms not otherwise defined herein have the same meanings as in the
Credit Agreement.

     

    ARTICLE
II

     

    Amendments to Credit
Agreement

     

    2.1           Amendments to Credit
Agreement Section 1.1.

     

    (a)           The
definition of “Commitment” is deleted in its
entirety and the following is substituted in lieu thereof:

     

    “Commitment” means the
Revolving Commitment.

     

    (b)           The
definition of “Eurodollar
Rate” is amended by deleting “1.90%” and substituting “2.50%” in lieu thereof.

     

    (c)           The
definition of “Interest
Payment Day” is amended by deleting “, the Premium Finance Loan Maturity
Date”.

    
      
         

      

      
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    (d)           The
definition of “Premium Finance
Commitment” is deleted.

     

    (e)           The
definition of “Revolving
Commitment” is amended by deleting “$25,000,000” and substituting
“$5,000,000” in lieu
thereof.

     

    (f)           
The definition of “Revolving
Facility L/C Commitment” is deleted.

     

    (g)           The
definition of “Revolving
Facility L/C Expiration Date” is amended (i) by deleting
“May 27, 2010” and substituting “May 27, 2012” in lieu thereof, and
(ii) by deleting “Revolving Facility L/C
Commitment” and substituting “Revolving Commitment” in lieu thereof.

     

    (h)           The
definition of “Revolving Loan
Maturity Date” is amended by deleting “January 27, 2013” and
substituting “April 30, 2015” in lieu thereof.

     

    (i)           
The definition of “Termination
Date” is amended by deleting “May 27, 2010” and substituting
“May 27, 2012” in
lieu thereof.

     

    (j)           
Credit Agreement Section 1.1 is
amended by adding the following in alphabetical order:

     

    “HIC” means Hallmark Insurance
Company, an Arizona insurance corporation, formerly known as Phoenix Indemnity
Insurance Company.

     

    2.2           Amendment to Credit
Agreement Section 1.2.  Credit Agreement Section 1.2 is
amended by adding the following in alphabetical order:

     

    Usage
Fee                                 Section 2.13

     

    2.3           Amendment to Credit
Agreement Section 2.1.  Credit Agreement Section 2.1 is
deleted in its entirety and the following is substituted in lieu thereof:

     

    2.1           Revolving
Loans.  Subject to the terms and conditions of this Agreement,
Lender agrees to make loans (each such loan, a “Revolving Loan”), to Borrower
from time to time on any Business Day during the period from the Agreement Date
to the Termination Date in an aggregate amount not to exceed at any time
outstanding the Revolving Commitment; provided, however, that after
giving effect to any Revolving Borrowing, the Revolving Facility Outstanding
Amount shall not exceed the Revolving Commitment.  Prior to the
Termination Date, Borrower may borrow, repay and reborrow Revolving Loans, all
in accordance with this Agreement.

     

    2.4           Amendment to Credit
Agreement Section 2.2(a).  The last two sentences of
Credit Agreement Section 2.2(a)
are deleted in their entirety and the following is substituted in lieu
thereof:

    
      
         

      

      
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    Each
Revolving Loan Notice (whether telephonic or written) shall specify (i) the
requested date of the Revolving Borrowing (which shall be a Business Day),
(ii) the principal amount of the Revolving Loan to be borrowed and
(iii) whether such Revolving Borrowing will be a Eurodollar Rate Loan or a
Prime Rate Loan.  Each Revolving Loan shall be in the principal amount
of $100,000 or any whole multiple of $25,000 in excess thereof or the unused
portion of the Revolving Commitment.

     

    2.5           Amendment to Credit
Agreement Section 2.3.  Credit Agreement Section 2.3 is
deleted in its entirety and the following is substituted in lieu thereof:

     

    2.3           Repayment.  The
principal of all Revolving Loans shall be due and payable on the following dates
and in the following amounts:

     

    
      
        
          	
                  Payment Date

                	 
      	
                  Payment Amount

                
	
                  Each
      Payment  Date after the Termination Date

                	 
      	
                  An
      amount equal to 1/20th of the aggregate principal amount of all Revolving
      Loans outstanding on the Termination Date

                
	 
      	 
      	 
      
	
                  The
      Revolving Loan Maturity Date

                	
                    

                	
                  The
      remaining unpaid principal of all Revolving
  Loans

                

        

      

    

     

    2.6           Amendment to Credit
Agreement Section 2.4.  Credit Agreement Section 2.4 is
deleted in its entirety and the following is substituted in lieu thereof:

     

    2.4           Voluntary
Prepayments.  Borrower may at any time or from time to time
voluntarily prepay the Revolving Loans in whole or in part without premium or
penalty.  Each voluntary prepayment shall be accompanied by all
accrued and unpaid interest thereon.  Any voluntary prepayment of the
Revolving Loans made after the Termination Date shall be applied to the unpaid
scheduled installment payments of the Revolving Loans in the inverse order of
maturity.

     

    2.7           Amendment to Credit
Agreement Section 2.5.  Credit Agreement Section 2.5 is
deleted in its entirety and the following is substituted in lieu thereof:

     

    2.5           Mandatory
Payments.  On each date that the Revolving Facility Outstanding
Amount exceeds the Revolving Commitment, Borrower shall prepay the Revolving
Loans in an amount equal to such excess (each such prepayment made after the
Termination Date shall be applied to the unpaid scheduled installment payments
of the Revolving Loans in the inverse order of maturity) or, if no Revolving
Loans are outstanding, Cash Collateralize the Revolving Facility L/C Obligations
in an amount equal to such excess.

     

    2.8           Amendment to Credit
Agreement Section 2.6.  Credit Agreement Section 2.6 is
deleted in its entirety and the following is substituted in lieu
thereof:

    
      
         

      

      
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    2.6           Termination and Reduction of
Commitments.

     

    (a)           Borrower
shall have the right to terminate or reduce the Revolving Commitment at any
time.  Each reduction shall be in the minimum amount of $500,000 and a
whole multiple of $100,000 in excess thereof.

     

    (b)           On
the Termination Date, the Revolving Commitment shall automatically reduce to
zero and terminate.

     

    (c)           Borrower
shall not have any right to rescind any termination or
reduction.  Once terminated or reduced, the Revolving Commitment may
not be reinstated.

     

    2.9           Amendment to Credit
Agreement Section 2.7(a).  Credit Agreement Section 2.7(a)
is deleted in its entirety and the following is substituted in lieu thereof:

     

    (a)           Subject
to the provisions of Sections 2.7(b)
and 2.9,
(i) each Eurodollar Rate Loan shall bear interest on the outstanding
principal amount thereof from the borrowing date, the effective date of the
election by Borrower that the Revolving Loan becomes a Eurodollar Rate Loan or
such other date on which the Revolving Loan becomes a Eurodollar Rate Loan (as
applicable) to but not including the date on which another interest rate becomes
applicable to the Revolving Loan pursuant to the terms of this Agreement at a
rate per annum equal to the lesser of (A) the Highest Lawful Rate and (B) the
Eurodollar Rate, and (ii) each Prime Rate Loan shall bear interest on the
outstanding principal amount thereof from the borrowing date, the effective date
of the election by Borrower that the Revolving Loan becomes a Prime Rate Loan or
such other date on which the Revolving Loan becomes a Prime Rate Loan (as
applicable) to but not including the date on which another interest rate becomes
applicable to the Revolving Loan pursuant to the terms of this Agreement at a
rate per annum equal to the lesser of (A) the Highest Lawful Rate and
(B) the Prime Rate.  Subject to Sections 2.7(b)
and 2.9, all of
the Revolving Loan shall be a Eurodollar Rate Loan or a Prime Rate Loan, and not
more than once in each calendar month Borrower may elect whether all of the
Revolving Loan shall be a Eurodollar Rate Loan or a Prime Rate
Loan.  Each such election (a) shall be made upon Borrower’s
irrevocable notice to Lender (which may be given by telephone) and (b) must
be received by Lender not later than 10:00 a.m. one Business Day prior to
the Business Day on which the new interest rate is to apply.  Each
Interest Rate Notice (whether telephonic or written) shall specify the requested
date of the conversion of the applicable interest rate (which shall be a
Business Day).

     

    2.10         Amendment to Credit
Agreement Section 2.7(b).  The last sentence of Section 2.7(b)
is deleted.

    
      
         

      

      
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    2.11         Amendment to Credit
Agreement Section 2.9.  The second sentence of Credit
Agreement Section 2.9 is
amended by deleting “or the Premium Finance Loan Maturity Date”.

     

    2.12         Amendment to Credit
Agreement Section 2.10(d).  Credit Agreement Section 2.10(d)
is deleted in its entirety and the following is substituted in lieu thereof:

     

    (d)           If
some but less than all amounts due from Borrower are received by Lender, Lender
shall apply such amounts in the following order of priority:  (i) to
the payment of Lender’s expenses incurred under the Loan Documents then due and
payable, if any; (ii) to the payment of all other fees under the Loan Documents
then due and payable; (iii) to the payment of interest then due and payable on
the Revolving Loans; (iv) to the payment of all other amounts not otherwise
referred to in this Section 2.10(d)
then due and payable under the Loan Documents; and (v) to the payment of
principal then due and payable on the Revolving Loans (each payment made after
the Termination Date shall be applied to the unpaid scheduled installment
payments of the Revolving Loans in the inverse order of maturity).

     

    2.13         Amendment to Credit
Agreement Section 3.1(a)(i).  Credit Agreement Section 3.1(a)(i) is
amended (a) by deleting “(1) the Revolving Facility L/C Obligations would exceed
the Revolving Facility L/C Commitment, or (2)” and (b) by deleting the last
sentence thereof.

     

    2.14         Amendment to Credit
Agreement Section 3.1(b)(ii).  Credit Agreement Section 3.1(b)(ii)
is amended by deleting “January 27, 2011” and substituting “May 27, 2012”
in lieu
thereof.

     

    2.15         Amendment to Credit
Agreement Section 6.9.  Credit Agreement Section 6.9 is
deleted in its entirety and the following is substituted in lieu thereof:

     

    6.9           Use of
Proceeds.  Borrower shall use (a) the proceeds of the
Revolving Loans to (i) provide working capital to Borrower and Guarantors,
(ii) to acquire capital stock of or make capital contributions to a Person
that is either a Subsidiary on the Agreement Date or became a Subsidiary after
the Agreement Date as permitted by and in compliance with this Agreement, which
capital contribution will result in an increase of paid-in surplus of such
Subsidiary in an amount equal to such capital contribution, (iii) to
acquire surplus debentures issued by a RIC that is a Domestic Subsidiary of
Borrower on the Agreement Date, (iv) to make loans to Domestic
Subsidiaries, (v) subject to Section 5.3, to make Permitted
Acquisitions, and (vi) to make advances to PAAC pursuant to the PAAC Note,
and (b) the Revolving Facility L/Cs and proceeds of the Revolving Facility
L/Cs to secure the performance of Borrower and/or an L/C RIC pursuant to
Reinsurance Agreements to which it is or they are a party or such other purpose
as Lender may permit in its discretion.

    
      
         

      

      
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    2.16         Amendment to Credit
Agreement Article II.  Credit Agreement Article II is
amended by the addition of the following Section 2.13.

     

    2.13           Usage Fee.  During
the period commencing on May 27, 2010, and ending on the Termination Date,
Borrower shall pay to Lender a fee (the “Usage Fee”) on May 27,
2011 and on the Termination Date.  The Usage Fee is equal to a per
annum rate of 0.25% multiplied by the actual daily amount by which the Revolving
Commitment (as it exists on the determination date) exceeds the Revolving
Facility Outstanding Amount (as it exists on the determination
date).  The Usage Fee shall accrue regardless of whether any condition
in Article V has
been satisfied.  Subject to Section 10.11,
the Usage Fee shall be fully earned when paid and is not
refundable.

     

    2.17         Amendment to Credit
Agreement Section 7.1.  Credit Agreement Section 7.1 is
amended by deleting “$73,000,000” and substituting “$90,000,000” in lieu thereof.

     

    2.18         Amendment to Credit
Agreement Section 7.2.  Credit Agreement Section 7.2 is
amended by deleting “$38,000,000” and substituting “$50,000,000” in lieu thereof.

     

    2.19           Amendment to Credit
Agreement Section 9.2(a) and (b).  Credit Agreement Sections 9.2(a) and
(b) are deleted
in their entirety and the following is substituted in lieu thereof:

     

    (a)  With
the exception of an Event of Default specified in Section 9.1(e)
or (f), Lender
may terminate the Revolving Commitment and/or declare the principal of and
interest on the Revolving Loans and Obligations and other amounts owed under the
Loan Documents to be forthwith due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything in the Loan Documents to the contrary notwithstanding.

     

    (b)  Upon
the occurrence of an Event of Default specified in Section 9.1(e) or
(f), the
principal of and interest on the Revolving Loans and Obligations and other
amounts and under the Loan Documents shall thereupon and concurrently therewith
become due and payable and the Revolving Commitment shall forthwith terminate,
all without any action by Lender or any holder of the Revolving Note and without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived, anything in the Loan Documents to the contrary
notwithstanding.

     

    2.20         Amendment to Credit
Agreement Section 9.3.  Credit Agreement Section 9.3 is
deleted in its entirety and the following is substituted in lieu thereof:

     

    9.3  Application of
Funds.  After the exercise of remedies provided for in Section 9.2 (or after
any of the Revolving Loans and other Obligations have automatically become
immediately due and payable), any amounts received on account of the Obligations
shall be applied by Lender in the following order:

    
      
         

      

      
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    (a)           First, to payment of
that portion of the Obligations constituting fees, indemnities, expenses and
other amounts (including Attorney Costs payable under Section 10.2 and
amounts payable under Article IV) payable
under the Loan Documents to Lender;

     

    (b)           Second, to payment of
that portion of the Obligations constituting accrued and unpaid interest on the
Revolving Loans;

     

    (c)           Third, to payment of
that portion of the Obligations constituting unpaid principal of the Revolving
Loans in such order as Lender elects in its discretion;

     

    (d)           Fourth, to Cash
Collateralize the Revolving Facility L/C Obligations;

     

    (e)           Fifth, to all other
Obligations; and

     

    (f)           
Last, to the
balance, if any, after all of the Obligations have been indefeasibly paid in
full, to Borrower or as otherwise required by Law;

     

    Subject
to Article III,
amounts used to Cash Collateralize the Revolving Facility L/C Obligations
pursuant to clause Fourth above shall be
applied to satisfy drawings under such Revolving Facility L/Cs as they
occur.  If any amount remains on deposit as Cash Collateral after all
Revolving Facility L/Cs have either been fully drawn or expired, such remaining
amount (to the extent such amount was paid by Borrower) shall be applied to the
other Obligations, if any, in the order set forth above.

     

    2.21         Amendment to Credit
Agreement Exhibit G (Revolving Loan Notice).  Credit
Agreement Exhibit G
(Revolving Loan Notice) is deleted in its entirety and a new Exhibit G, in
the form of Exhibit G to
this Seventh Amendment, is substituted in lieu thereof.

     

    2.22         Amendment to Credit
Agreement Exhibit J (Compliance Certificate).  Credit
Agreement Exhibit J
(Compliance Certificate) is deleted in its entirety and a new Exhibit J, in
the form of Exhibit J to
this Seventh Amendment, is substituted in lieu thereof.

     

    2.23         Amendment to Credit
Agreement Schedules 8.1, 8.4, 8.5, 8.10, 8.17, 8.19, 8.20 and
10.1.  Credit Agreement Schedules 8.1
(Subsidiary Information), 8.4 (Existing
Litigation), 8.5 (Existing Debt),
8.10 (Licensed
Jurisdictions), 8.17 (Existing
Investments), 8.19 (Reinsurance
Agreements), 8.20 (Retrocession
Agreements) and 10.1 (Notice
Addresses) are deleted in their entirety and new Schedules 8.1,
8.4, 8.5, 8.10, 8.17, 8.19, 8.20 and 10.1, in the form of
Schedules 8.1,
8.4, 8.5, 8.10, 8.17, 8.19, 8.20 and 10.1 to this Seventh
Amendment, are substituted in
lieu thereof, respectively.

    
      
         

      

      
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    ARTICLE
III

     

    Amendment to Loan
Documents

     

    3.1           Amendment to Loan
Documents.  Each reference in each Loan Document to “PIIC”
(except the definition of “PIIC” in the Credit Agreement) is amended to be
“HIC”.

     

    ARTICLE
IV

     

    Waiver

     

    4.1           Credit Agreement
Section 2.12(a).  Credit Agreement Section 2.12(a)
provides that Borrower (a) shall cause each Domestic Subsidiary (other than
a RIC) created or acquired after the Agreement Date to execute and deliver a
Guaranty, a Security Agreement and a Pledge Agreement (if applicable), and
(b) shall, and shall cause each Domestic Subsidiary, to execute and deliver
a Pledge Agreement or an amendment to an existing Pledge Agreement as are
required to grant a security interest in all of the equity interest of such new
Domestic Subsidiary.  Borrower or a Subsidiary have created or
acquired the Domestic Subsidiaries described on Schedule 1 (the
“New
Subsidiaries”).  New Subsidiaries have not executed and
delivered a Guaranty, Security Agreement or Pledge Agreement and neither
Borrower nor any Subsidiary has executed or delivered a Pledge Agreement or an
amendment to an existing Pledge Agreement granting a security interest in the
equity interest of New Subsidiaries.

     

    4.2           Credit Agreement
Section 7.10.  Credit Agreement Section 7.10
provides that neither Borrower nor any Subsidiary will acquire any equity
interest in any Person or form any Subsidiary unless Borrower and the applicable
Subsidiary execute and deliver the documents required by Section 7.10.  Neither
Borrower nor any Subsidiary has executed or delivered any document required by
Section 7.10
with respect to any New Subsidiary.

     

    4.3           Credit Agreement
Section 8.1(c).  Credit Agreement Section 8.1(c)
provides that an Event of Default shall exist if Borrower fails to perform or
observe any covenant of Credit Agreement Article VII.  Borrower’s
failure to comply with Credit Agreement Section 7.10 is
an Event of Default.

     

    4.4           Credit Agreement
Section 8.1(d).  Credit Agreement Section 8.1(d)
provides that an Event of Default shall exist if Borrower fails to perform or
observe any covenant of any Loan Document and such failure continues for ten
days after knowledge of an Obligor of such failure.  Borrower has
known of Borrower’s failure to comply with Credit Agreement Section 2.12(a)
for longer than ten days.  Borrower’s failure to comply with Credit
Agreement Section 2.12(a)
is an Event of Default.

     

    4.5           Existing Events of
Default.  The Events of Default described in Sections 4.3 and
4.4 are the
“Existing
Defaults.”

     

    4.6           Waiver.  Subject
to satisfaction of the conditions precedent to effectiveness of this Seventh
Amendment, Lender waives the Existing Defaults.

    
      
         

      

      
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    4.7           Limited
Waiver.  The waiver provided in Section 4.6 does
not constitute a waiver of any requirement of any Loan Document, except as
specifically waived hereby, or of any Default or Event of Default, now or
hereafter existing, except the Existing Defaults.

     

    4.8           Waiver.  Notwithstanding
Credit Agreement Sections 2.12(a)
and 7.10, no
New Subsidiary shall be required to execute or deliver a Guaranty,
Security  Agreement, Pledge Agreement or any of the documents
described in Credit Agreement Sections 7.10(a)-(i)
and neither Borrower nor any Subsidiary shall be required to execute or deliver
a Pledge Agreement or an amendment to an existing Pledge Agreement to grant a
security interest in any equity interest in any New Subsidiary.

     

    ARTICLE
V

     

    Conditions
Precedent

     

    5.1           Conditions.  The
effectiveness of this Seventh Amendment is subject to the satisfaction of the
following conditions precedent:

     

    (a)           Documents.  Lender
shall have received the following in number of counterparts and copies as Lender
may request:

     

    (i)           
Seventh
Amendment.  This Seventh Amendment executed by Borrower, each
other Obligor and Lender.

     

    (ii)           Fifth Restated Revolving
Note.  The duly executed Fifth Restated Revolving Note, in the
form of attached Exhibit A,
payable to the order of Lender and in an amount equal to the Revolving
Commitment.

     

    (iii)          Obligor
Proceedings.  Evidence that all corporate, limited liability
company and partnership proceedings of each Obligor and each other Person (other
than Lender) taken in connection with the transactions contemplated by this
Seventh Amendment and the other Loan Documents shall be reasonably satisfactory
in form and substance to Lender; and Lender shall have received copies of all
documents or other evidence which Lender may reasonably request in connection
with such transactions.

     

    (iv)          Expenses.  Reimbursement
for reasonable Attorney Costs incurred through the date hereof.

     

    (v)           Other
Documents.  In form and substance satisfactory to Lender, such
other documents, instruments and certificates as Lender may reasonably require
in connection with the transactions contemplated hereby.

     

    (b)           No
Default.  No Default or Event of Default shall exist after
giving effect to this Seventh Amendment.

    
      
         

      

      
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    (c)           Representations and
Warranties.

     

    (i)           
All of the representations and warranties contained in Article VIII of
the Credit Agreement, as amended hereby, and in the other Loan Documents shall
be true and correct on and as of the date of this Seventh Amendment with the
same force and effect as if such representations and warranties had been made on
and as of such date, except to the extent such representations and warranties
speak to a specific date.

     

    (ii)           All
of the representations and warranties contained in Article VII
shall be true and correct on and as of the date hereof and subject to any waiver
previously delivered by Lender to Borrower.

     

    ARTICLE
VI

     

    Ratification

     

    6.1           Ratification.  The
terms and provisions set forth in this Seventh Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement and except as expressly modified and superseded by this Seventh
Amendment, the terms and provisions of the Credit Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect.  Each Obligor agrees that the Credit Agreement, as amended
hereby, and the other Loan Documents to which it is a party or subject shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.

     

    ARTICLE
VII

     

    Representations and
Warranties

     

    7.1           Representations and
Warranties of all Obligors.  Each Obligor hereby represents and
warrants to Lender that (a) the execution, delivery and performance of this
Seventh Amendment and any and all other Loan Documents executed and/or delivered
in connection herewith have been authorized by all requisite action on the part
of such Obligor and will not violate any organizational document of such
Obligor, (b) the representations and warranties contained in the Credit
Agreement, as amended hereby, and each other Loan Document are true and correct
on and as of the date hereof as though made on and as of the date hereof, except
to the extent such representations and warranties speak to a specific date,
(c) no Default or Event of Default (other than the Existing Defaults)
exists, and (d) such Obligor is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby, and the other
Loan Documents to which it is a party or it or its property is
subject.

     

    ARTICLE
VIII

     

    Miscellaneous

     

    8.1           Reference to Credit
Agreement.  Each of the Loan Documents, including the Credit
Agreement and any and all other agreements, documents, or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Credit Agreement as amended hereby, are hereby amended so that any
reference in such Loan Documents to the Credit Agreement shall mean a reference
to the Credit Agreement as amended hereby.

    
      
         

      

      
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    8.2           Severability.  The
provisions of this Seventh Amendment are intended to be
severable.  If  for any reason any provision of this Seventh
Amendment shall be held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability thereof in any other jurisdiction or
the remaining provisions hereof in any jurisdiction.

     

    8.3           Counterparts.  This
Seventh Amendment may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument, and any party
hereto may execute this Seventh Amendment by signing any such
counterpart.

     

    8.4           GOVERNING
LAW.  THIS
SEVENTH AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.  THE LOAN
DOCUMENTS ARE PERFORMABLE IN SAN ANTONIO, BEXAR COUNTY, TEXAS, AND BORROWER,
EACH L/C RIC AND LENDER WAIVE THE RIGHT TO BE SUED
ELSEWHERE.  BORROWER, EACH L/C RIC AND LENDER AGREE THAT THE STATE AND
FEDERAL COURTS OF TEXAS LOCATED IN SAN ANTONIO, TEXAS SHALL HAVE JURISDICTION
OVER PROCEEDINGS IN CONNECTION WITH THIS SEVENTH AMENDMENT AND THE OTHER LOAN
DOCUMENTS.

     

    8.5           ENTIRE
AGREEMENT.  THIS WRITTEN AGREEMENT,
TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     

    
      
        
          	
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  Blank.

                

        

      

    
 

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    Executed
as of the date first written above.

     

    
      
        
          
            	
                    BORROWER:

                  	
                    HALLMARK
      FINANCIAL SERVICES, INC.

                  
	 
      	 
      
	 
      	
                    By:

                  	 
      
	 
      	 
      	
                    Jeffrey
      R. Passmore

                  
	 
      	 
      	
                    Chief
      Accounting Officer

                  
	 
      	 
      	 
      
	
                    L/C
      RICs:

                  	
                    AMERICAN
      HALLMARK INSURANCE

                    COMPANY
      OF TEXAS

                  
	 
      	 
      
	 
      	
                    HALLMARK
      INSURANCE COMPANY (formerly

                    known
      as Phoenix Indemnity Insurance Company)

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	 
      
	 
      	 
      	
                    Jeffrey
      R. Passmore

                  
	 
      	 
      	
                    Chief
      Financial Officer

                  

          

        

      

    

    

    Seventh
Amendment to First Restated Credit Agreement - Signature
Page

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      OTHER
OBLIGORS:

    

     

    ACO
HOLDINGS, INC.

    ALLRISK
INSURANCE AGENCY, INC.

    AMERICAN
HALLMARK AGENCIES, INC.

    AMERICAN
HALLMARK GENERAL AGENCY, INC.

    EFFECTIVE
CLAIMS MANAGEMENT, INC.

    HALLMARK
CLAIMS SERVICE, INC.

    HALLMARK
FINANCE CORPORATION

    AMERICAN
HALLMARK INSURANCE SERVICES, INC. (formerly known as Hallmark General Agency,
Inc.)

    HALLMARK
UNDERWRITERS, INC.

    

    
      
        
          	
                  By:

                	 
      	 
      
	 
      	
                  Jeffrey
      R. Passmore

                	 
      
	 
      	
                  Chief
      Financial Officer and Treasurer

                	 
      

        

      

    

    

    AEROSPACE
CLAIMS MANAGEMENT GROUP, INC.

    AEROSPACE
HOLDINGS, LLC

    AEROSPACE
SPECIAL RISK, INC.

    TGA
INSURANCE MANAGERS, INC. (formerly known as Texas General Agency,
Inc.)

    TGA
SPECIAL RISK, INC.

    

    
      
        
          	
                  By:

                	 
      	 
      
	 
      	
                  Jeffrey
      R. Passmore

                	 
      
	 
      	
                  Vice
      President

                	 
      

        

      

    

    

    AEROSPACE
FLIGHT, INC.

    

    
      
        
          	
                  By:

                	 
      	 
      
	 
      	
                  Cecil
      R. Wise

                	 
      
	 
      	
                  Secretary

                	 
      

        

      

    

    

    Seventh
Amendment to First Restated Credit Agreement - Signature
Page

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    AEROSPACE
INSURANCE MANAGERS, INC.

    

    
      
        	
                By:

              	
                  

              
	 
      	
                Jeffrey
      R. Passmore

              
	 
      	
                Senior
      Vice President

              

      

    

    

    PAN
AMERICAN ACCEPTANCE

    CORPORATION

    

    
      
        	
                By:

              	
                  

              
	
                Jeffrey
      R. Passmore

              
	
                Chief
      Financial Officer

              

      

    

    

    Seventh
Amendment to First Restated Credit Agreement - Signature Page

      

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    
      
        	
                LENDER:

              	
                THE
      FROST NATIONAL BANK

              
	 
      	 
      	 
      
	 
      	
                By:

              	
                  

              
	 
      	
                Print
      Name:

              	
                  

              
	 
      	
                Print
      Title:

              	
                  

              

      

    

    

    Seventh
Amendment to First Restated Credit Agreement - Signature
Page

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Exhibit
A

     

    Revolving
Note

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Exhibit
G

     

    Revolving
Loan Notice

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Exhibit
J

     

    Compliance
Certificate

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
1

     

    New
Subsidiaries

    

    
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
8.1

     

    Subsidiaries

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
8.4

     

    Existing
Litigation

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
8.5

     

    Existing
Debt

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
8.10

     

    Licensed
Jurisdictions

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
8.17

     

    Existing
Investments

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
8.19

     

    Reinsurance
Agreements

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
8.20

     

    Retrocession
Agreements

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
10.1

     

    Notice
AddressesFIRST
AMENDMENT TO LOAN DOCUMENTS

    

    This
FIRST AMENDMENT TO LOAN DOCUMENTS is made as of June 15, 2010 (“Amendment Date”)
between Health Benefits Direct Corporation, a Delaware corporation (the “Parent”), Insurance Specialist
Group Inc., a Florida corporation ("Insurance Specialist Group"),
HBDC II, Inc., a Delaware corporation ("HBDC"), HBDCII Sub., a
Delaware corporation formerly known as Insurint Corporation ("Insurint"), Platinum Partners,
LLC, a Florida limited liability company ("Platinum Partners"), InsPro
Technologies, LLC, a Delaware limited liability company ("InsPro" and collectively with
Insurance Specialist Group, HBDC, Insurint, and Platinum Partners, the "Subsidiaries" and collectively
with the Subsidiaries and the Parent, the "Makers" or the “Loan Parties”) and The
Co-Investment Fund II, L.P. or its successors and assigns (hereinafter referred
to as "Payee" or “Lender”) with respect to the
following background:

     

    BACKGROUND

     

    A.           The
Loan Parties and the Lender entered into a Loan Agreement and Secured Promissory
Note (the “Note”), which were both dated as of December 22, 2009, whereby among
other things the Lender provided the Loan Parties with a Loan in the amount of
$1,250,000 with a maturity date of December 22, 2010.  The Loan
Agreement and Note together with a Security Agreement, Intellectual Property
Security Agreement and Pledge Agreement, which were all dated as of December 22,
2009, are referred to collectively as the “Loan Documents” and individually as a
“Loan Document”.  Capitalized terms not defined herein shall have the
meanings set forth in the Loan Documents.

     

     B.           The
Loan Parties and the Lender entered into a letter agreement dated April 6, 2010
and executed by Lender on April 12, 2010 and by the Loan Parties on April 13,
2010 whereby the Lender and Loan Parties agreed to; i) increase the Loan by an
additional amount up to $1,000,000 upon the demand by the board of directors of
the Parent (the “Board”) under the same terms and conditions as in the Loan
Agreement and ii) amend the Maturity Date of the Loan from December 22, 2010 to
July 1, 2011.  The April Letter Agreement is attached as Exhibit
A.

     

    C.           The
Board agreed to increase the Loan by an additional $1,000,000 at the June 11,
2010, Board Meeting.  The minutes to the June 11, 2010 Board meeting
is attached as Exhibit B.

     

    NOW,
THEREFORE, for and in consideration of valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lender and Loan Parties, intending
to be legally bound and to bind their successors and assigns, hereby agree to
amend the Loan Documents as of the Amendment Date as follows:

     

    
      {continued
on next page}

       

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    1.           The
Loan is increased by an additional $1,000,000 (“Additional Funding”) from
$1,250,000 to $2,250,000 effective as of the Amendment Date.  The
Lender agrees to disburse the Additional Funding to the Parent within one (1)
business day after the Amendment Date.

     

    2.           The
Maturity Date means July 1, 2011.

     

    3.           At
any time subsequent to the Parent’s issuance of common or preferred stock for
cash consideration (“Equity Issuance”) but prior to the Maturity Date the Lender
may demand the Parent to repay to the Lender (“Demand for Conversion of the Loan
into Equity”) an amount not to exceed the Loan plus accrued Interest
(“Conversion Amount”) in the form of the Parent’s equity securities with a
conversion price and terms identical to the price and terms of the Parent’s
Equity Issuance occurring immediately after the Amendment Date.  The
Lender and Parent agree that the effective date of the issuance of the Parent’s
equity securities to the Lender and the effective date of the Lender’s
acceptance of the Conversion Amount as a Prepayment on the Note (collectively
referred to as the “Conversion Date”) shall be later of the date of the Lender’s
Demand for Conversion of the Loan into Equity or, in the case that the Parent
does not have a sufficient number of authorized shares of the Parent’s equity
securities to issue to the Lender, the date of the Parent’s shareholder approval
authorizing an increase in the number of shares of the Parent’s equity
securities sufficient for the Parent to issue equity securities to the
Lender.  The Lender agrees to waive the requirement that the
Prepayment of the Note be accompanied by a cash payment from the Loan Parties to
the Lender of Interest accrued to the Conversion Date and all costs, expenses or
charges then owed to Payee.  The Loan Parties agree to pay all
Interest accrued, which is not included in the Conversion Amount, on the
Maturity Date in accordance with section 2.1 of the Note.  If the
Parent does not have a sufficient number of authorized shares of its equity
securities to issue to the Lender on the date of the Demand for Conversion of
the Loan into Equity, the Parent and Lender agree to jointly cooperate with one
another in obtaining the necessary shareholder approval to increase the number
of authorized shares of the Parent’s equity securities.  The Parent
agrees to deliver its equity securities issued to Lender as a result of the
Lender’s Demand for Conversion of the Loan into Equity as soon as practical
after the Conversion Date.

     

    {Signature
pages follow.}

    

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

    

    WITNESS
the due execution of this First Amendment to Loan Documents as of the Amendment
Date.

     

    
      
        
          
            
              	 
      	
                      HEALTH
      BENEFITS DIRECT CORPORATION

                    
	 
      	 
      
	 
      	
                       

                    
	 
      	
                      Name:

                    	
                      Anthony
      R. Verdi

                    
	 
      	
                      Title:

                    	
                      Chief
      Financial Officer and Chief Operating Officer

                    
	 
      	 
      	 
      
	 
      	
                      HBDC
      II, INC.

                    
	 
      	 
      
	 
      	
                       

                    
	 
      	
                      Name:

                    	
                      Anthony
      R. Verdi

                    
	 
      	
                      Title:

                    	
                      President

                    
	 
      	 
      	 
      
	 
      	
                      INSPRO
      TECHNOLOGIES, LLC

                    
	 
      	 
      
	 
      	
                       

                    
	 
      	
                      Name:

                    	
                      Anthony
      R. Verdi

                    
	 
      	
                      Title:

                    	
                      Chief
      Financial
Officer

                    

            

          

        

      

    

    
       

      {Signature
page to First Amendment to Loan Documents.}

       

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    
      
        
          
            
              
                
                  
                    	 	
                            INSURANCE
      SPECIALIST GROUP INC.

                          
	 	 
	 	
                             

                          
	 	
                            Name:

                          	
                            Anthony
      R. Verdi

                          
	 	
                            Title:

                          	
                            President

                          
	 	 
      	 
      
	 	
                            HBDCII
      Sub. (formerly known as INSURINT CORPORATION)

                          
	 	 
	 	
                             

                          
	 	
                            Name:

                          	
                            Anthony
      R. Verdi

                          
	 	
                            Title:

                          	
                            President

                          
	 	 
      	 
      
	 	
                            PLATINUM
      PARTNERS, LLC

                          
	 	 
	 	
                             

                          
	 	
                            Name:

                          	
                            Anthony
      R. Verdi

                          
	 	
                            Title:

                          	
                            President

                          

                  

                

              

            

          

        

      

    

    

    {Signature page to First Amendment to Loan
Documents}

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    
      	 
      	
              THE
      CO-INVESTMENT FUND II, L.P.

            
	 
      	 
      	 
      
	 
      	
              By:

            	
              Co-Invest
      Management II, L.P.

            
	 
      	 
      	
              its
      General Partner

            
	 
      	
              By:

            	
              Co-Invest
      II Capital Partners, Inc.

            
	 
      	 
      	
              its
      General Partner

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              By:

            	
                 

            	
                  

            
	 
      	 
      	
              Name:

            
	 
      	 
      	
              Title:

            

    

    

    {Signature page to First Amendment to Loan
Documents}

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